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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): May 13, 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 of (Commission File Number) (I.R.S. Employer
incorporation) Identification No.)
2500 DeKalb Pike, Norristown, Pennsylvania 19404
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(Address of principal executive offices/Zip Code)
Registrant's telephone number, including area code: (610) 279-2500
Former name, former address, and former fiscal year, if changed since
last report: N/A
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Item 5. Other Matters.
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On May 13, 1999 the Company entered into several transactions set forth
below which resolved certain disputes which existed between the Company, its
subsidiary, HealthAxis.com, Inc. ("HealthAxis") and HealthPlan Services, Inc.
and HealthPlan Services Corporation ("HPS").
Sale of Montgomery Management: Effective March 31, 1999 the Company
sold its remaining 20% of Montgomery Management Corporation ("MMC") common stock
to HPS for a purchase price of $1.5 million, payment of which was made by a set
off of a like amount against future service fees otherwise due by the Company to
HPS.
Under the terms of a previous agreement, in February 1998, the Company
sold to HPS for $4 million, 49% of MMC common stock along with a warrant to
purchase an additional 31% of MMC's common stock for one dollar. Immediately
prior to the sale MMC declared a dividend payable to Provident Indemnity Life
Insurance Company, a subsidiary of the Company, equal to MMC's total equity.
During the fourth quarter of 1998 HPS exercised the warrant to purchase the
additional 31% of MMC's common stock for $8,000.
Commitment to pay outstanding HPS service fees to HPS: In conjunction
with the sale of MMC described above, the Company entered into a settlement
agreement to resolve a number of disputes which had arisen between the Company
and HPS relative to HPS' performance of administrative services under an HPS
outsourcing agreement of the now ceded block of the Company's health business.
The companies agreed to settle all differences and claims related to the HPS
outsourcing agreement and certain actions taken by HealthAxis regarding
HealthAxis' obligations under agreements between the parties. Also, in
accordance with the terms of the settlement agreement, HPS exercised a warrant
granted in 1998 in connection with the HPS e-commerce Agreement dated May 29,
1998, and purchased 100,000 shares of Company common stock for a purchase price
of $900,000. The purchase price was paid by a setoff of a like amount against
the service fees owed by the Company to HPS. The remaining balance of the
services fees owed to the Company by HPS, in the amount of $1,267,000, is
required to be paid by the Company to HPS on or before June 30, 1999, whereupon
the Company's obligation to pay service fees shall be terminated.
Stock Purchase Agreement to buy-back HealthAxis common stock from HPS: On
May 13, 1999 the Company entered into a Stock Purchase Agreement for the
purchase of 1,415,000 shares of HealthAxis common stock from HPS for $7,040,000
to close on or before June 30, 1999. If the Company does not close on or before
June 30, 1999 the Company will pay HPS a late fee of $100,000 to extend closing
until July 30, 1999. If a closing does not occur by July 30, 1999, the purchase
price per share shall increase by 8 1/2% per month until closing, which is
required to occur on or before November 1, 1999.
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Item 7. Financial Statements and Exhibits.
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(a) Financial Statements of business acquired.
Not applicable.
(b) Proforma Financial Information.
Not applicable.
(c) Exhibits.
Settlement Agreement among Provident American Corporation, Provident
Indemnity Life Insurance Company, individually and as Assignee of
Provident American Life & Health Insurance Company, HealthAxis.com,
Inc., HealthPlan Services, Inc., HealthPlan Services Corporation and
Montgomery Management Corporation, effective as of March 31, 1999.
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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: June 22, 1999 By: /s/ Alvin H. Clemens
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Alvin H. Clemens
Chairman of the Board and
Chief Executive Officer
Date: June 15, 1999 By: /s/ Francis L. Gillan III
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Francis L. Gillan III
Chief Financial Officer and Treasurer
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SETTLEMENT AGREEMENT
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This SETTLEMENT AGREEMENT ("Agreement") made effective this 31st day of
March, 1999 (the "Effective Date"), by and between PROVIDENT AMERICAN
CORPORATION ("PAMCO"), a Pennsylvania corporation, PROVIDENT INDEMNITY LIFE
INSURANCE COMPANY ("PILIC"), Individually and as Assignee of Provident American
Life & Health Insurance Company ("PALHIC"), HEALTHAXIS.COM, INC. ("HealthAxis"),
HEALTHPLAN SERVICES, INC. ("HPS"), a Florida corporation, HEALTHPLAN SERVICES
CORPORATION ("HPC") and MONTGOMERY MANAGEMENT CORPORATION ("Montgomery").
BACKGROUND
Effective as of July 19, 1996, PILlC entered into a Services Agreement
with HPS (the "First Agreement"). Effective as of February 1, 1998, PILIC and
PALHIC entered into a Services Agreement with HPS end HPC which was executed on
October 5, 1997 and related to the administration of certain other business not
covered by the First Agreement (the "Service Agreement"). At the same time the
Service Agreement was executed, PAMCO and HPS entered into an Agreement pursuant
to which PAMCO guaranteed certain PILIC and PALHIC obligations and agreed to
assist in transitioning certain business under the Service Agreement (the "PAMCO
Agreement"). Collectively, the foregoing agreements are sometimes herein
referred to as the "Agreements" and PAMCO, PILIC, PALHIC and HealthAxis are
sometimes referred to as the "Provident Parties," HPC, Montgomery and HPS are
sometimes referred to as the "HPS Parties" and the Provident Parties and the HPS
Parties are sometimes referred to as the "Parties."
Effective September 30, 1998, HPC purchased 2,365,365 shares of
HealthAxis (the "HealthAxis Shares"), a company organized by PAMCO, and on
February 27, 1998 and October 28, 1998, HPS purchased 12,740 and 8,605 shares,
respectively, of Montgomery Management, Inc. from PILIC (the "Montgomery
Shares").
The Parties have alleged both verbally and in writing various breaches
related to the other's performance or nonperformance under the Agreements [and
with respect to the sale of the HealthAxis Shares and the Montgomery Shares]
which include, but are not limited to, alleged breaches set forth in
correspondence between the Parties during 1998 and 1999 to date (the "Claims").
In an assignment agreement dated December 29, 1998 (a copy of which is
attached hereto as Exhibit A) (the "PALHIC Assignment") PALHIC assigned to PILIC
all of PALHIC's right, title and interest in and to any claims, indemnification,
or other rights and benefits PALHIC then had or may in the future have against
HPS and HPC arising under the Service Agreement for events occurring prior to
December 31, 1998.
The Provident Parties now desire to settle and release any and all
claims which they may have against the HPS Parties relating to the performance
or nonperformance of the HPS Parties under the Agreements up until the Effective
Date of this Settlement Agreement, and the HPS Parties now desire to settle and
release any and all claims which they may have against the Provident parties
regarding the transitioning of the business covered by the Agreements or the
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performance or nonperformance of their obligations to the HPS Parties under the
Agreements up until the Effective Date of this Agreement, subject in each case
to certain exceptions provided below.
Upon execution of this Settlement Agreement, the Parties will continue
to operate under the Agreements subject to certain amendments contained herein.
NOW, THEREFORE, in consideration of the recitals set forth above and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereto agree as follows:
1. RELEASES.
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(A) The Provident Parties, their subsidiaries,
affiliates, successors and assigns hereby release, acquit, and forever discharge
the HPS Parties and their former and present agents, directors, officers,
stockholders, employees, servants, affiliates, owners, subsidiaries, divisions,
successors, predecessors and assigns (all such entities and individuals
hereinafter collectively referred to as the ("RELEASED PARTIES"), of and from
any and all claims, actions, causes of action, demands, rights, damages, debts,
compensation, costs, or other expenses, including without limitation attorneys'
fees, of any nature whatsoever, whether known or unknown, which the Provident
Parties ever had, now have, or which they or any of their subsidiaries,
affiliates, successors and assigns hereafter can. shall or may have against the
RELEASED PARTIES arising out of any matter, cause, acts, conduct, claims or
events, from the beginning of the world to the Effective Date hereof which arise
out of or relate to the Claims, or the performance or nonperformance or other
actions of the HPS Parties under the Agreements to and including the Effective
Date, including but not limited to over billing or under billing of premiums,
the over payment or under payment of claims or other payments due to or from the
Released Parties under this Agreement. The foregoing release does not include
and shall not release the Released Parties from:
(1) The obligations of the Released Parties to
perform services for the Provident Parties under the Agreements after the
Effective Date;
(ii) The obligations of the Released Parties to
the Provident Parties to cooperate with them in connection with any third party
claims relating to services performed prior to the Effective Date; or,
(iii) The obligations of the Released Parties
under this Agreement, under the HealthAxis Stock Purchase Agreement referenced
in Section 5 hereof, the PAMCO Warrant or the Registration Rights Agreement
referenced in Section 6 hereof;
(B) The HPS Parties, their subsidiaries, affiliates,
successors and assigns hereby release, acquit, and forever discharge the
Provident Corporations and their former and present agents, directors, officers,
stockholders, employees, servants, affiliates, owners, subsidiaries, divisions,
successors, predecessors and assigns (all such entities and individuals
hereinafter collectively referred to as the ("RELEASED PARTIES"), of and from
any and all claims, actions, causes of action, demands, rights, damages, debts,
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compensation, costs, or other expenses, including without limitation attorneys'
fees, of any nature whatsoever, whether known or unknown, which the HPS Parties
ever had, now have, or which their subsidiaries, affiliates, successors and
assigns hereafter can, shall or may have against the RELEASED PARTIES arising
out of any matter, cause, acts, conduct, claims or events, from the beginning of
the world to the Effective Date hereof which relate to the Claims, or the
Released Parties performance or nonperformance or other actions under the
Agreements or arise from the sale of stock in Montgomery Management Corporation
or HealthAxis, Inc. to the HPC Companies. This release does not release the
Provident Parties from
(i) The obligations of the Provident Parties
under the Agreements as amended herein from and after the Effective Date, the
obligations of PAMCO, PILIC, PALHIC and HealthAxis under those certain letter
agreements dated December 14, 1998 addressed to Anthony Verde and signed by
Steve Hulslander and April 29, 1999 addressed to Michael Ashker and signed by
Steve Hulslander, and the obligations of PAMCO under the Warrant referenced in
paragraph 6 hereof;
(ii) Any indemnity obligation of the Provident
Parties to the HPS Parties under the Agreements for third party claims relating
to actions which occurred prior to the Effective Date;
(iii) Any liability of the Provident Parties to
any insured for claims payable
under any insurance policy;
(iv) In the event that the Final Closing
hereunder and under the HealthAxis Stock Purchase Agreement does not occur on or
before November 1, 1999, any liability of the Provident Parties to the HPS
Parties arising out of or in connection with the HPS investment in or
acquisition of HealthAxis Shares; or
(v) The obligations of the Provident Parties
under this Agreement, under the HealthAxis Stock Purchase Agreement referenced
in paragraph 5 hereof, the PAMCO Warrant or the Registration Rights Agreement
referenced in Section 6 hereof,
2. PURCHASE AND SALE OF SHARES OF MONTGOMERY MANAGEMENT
CORPORATION. HPS is presently the owner of 20,800 shares of the common stock,
$.10 par value (the "Montgomery Shares") of Montgomery Management Corporation,
which, together with the 5,200 shares (the "Montgomery PAMCO Shares") owned by
PILIC, constitutes all of the issued and outstanding shares of the Montgomery
Management Corporation. At the Closing on the Closing Date and subject to the
performance by the Provident Parties of all of their obligations to be performed
at and as of such Closing, HPS will purchase the Montgomery PAMCO Shares owned
by PILIC and PILIC will sell such share for a purchase price of One Million Five
Hundred Thousand ($1,500,000) Dollars, (the "Montgomery Shares Purchase Price")
payable by an offset against the Balance of the Service Fee as set forth in
Paragraph 3 below. HPS is familiar with the business and financial affairs of
Montgomery Management Corporation and understands that the Stock purchased by
HPS from PILIC will not have been registered pursuant to the Securities Act of
1933, as amended, or any other securities laws. At the Closing on the Closing
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Date, PILIC shall deliver to HPS the stock certificates representing such shares
which shall be duly endorsed in blank or have a duly executed stock power
attached thereto.
3. PAYMENT OF BASE SERVICE FEES. PILIC is obligated to pay HPS
a Base Service Fee of Eighty Five Thousand ($85,000) Dollars per month and
another service fee of Ten Thousand ($10,000) Dollars per month pursuant to the
provisions of Exhibit B (i) and (ii) of the Service Agreement, the remaining
balance of which as of March 31, 1999 is Three Million Six Hundred Sixty Seven
Thousand Seven Hundred Forty Two ($3,667,742) Dollars (the "Balance of the
Service Fee"). At the Effective Date, 1) the Montgomery Shares Purchase Price
and the exercise price of the PAMCO Warrant exercised in accordance with Section
6 shall be offset against the Balance of the Service Fee due HPS by PILIC. The
remaining Balance of the Service Fee of One Million Two Hundred Sixty Seven
Thousand Seven Hundred Forty Two ($1,267,742) Dollars, shall be payable by PAMCO
to HPS at the Closing on the Closing Date. From and after the payment of such
funds to HPS at Closing on the Closing Date, no further payments will be due to
the HPS Parties under the provisions of Exhibit B (i) and (ii) of the Service
Agreement.
4. CLAIMS RECOVERY. HPS agrees to use its reasonable
commercial efforts to assist the Provident Parties and an independent Recovery
Agency to be selected at The Provident Parties' sole discretion, to recover any
amounts which the Provident Parties and the Recovery Agency deem to have been
overpaid or double paid, and represent in their opinion recoverable amounts. HPS
agrees to use reasonable commercial efforts to provide the Provident Parties and
the Recovery Agency all necessary customary reports, HPS shall cooperate fully
with Recovery Agency and allow Inspection and audit of all necessary records
with reasonable notice. All amounts actually recovered will be the sole property
of the Provident Parties. All costs and fees of the Recovery Agency shall be
paid by PAMCO.
5. FURTHER.AGREEMENTS. In contemplation of the Closing and in
partial consideration of the execution of this Settlement Agreement, HPS agrees
to vote its HealthAxis shares in favor of the adoption of Amendment No. 3 to the
HealthAxis 1988 Stock Plan, by executing the Action by Written Consent attached
hereto as Exhibit B, and shall also execute and deliver upon execution of this
Agreement the Action by Unanimous Written Consent of the Shareholders of
HealthAxis attached hereto as Exhibit C.
6. PAMCO WARRANT. Upon execution of this Agreement, HPS and
PAMCO will execute that certain Warrant for the purchase of 100,000 PAMCO Shares
in the form of Exhibit D attached (the "PAMCO Warrant"). The PAMCO Warrant shall
be deemed exercised as of the Effective Date of this Agreement, the Shares
issuable upon exercise shall immediately be issued to HPS and dated as of the
Effective Date, and the exercise price ($900,000) shall offset as of the
Effective Date the amount of the Base Service Fees otherwise payable by PILIC as
noted in Section 3 hereof. The PAMCO Shares purchased as a result of such
exercise shall be afforded Registration Rights as set forth in the Registration
Rights Agreement attached hereto as Exhibit E, which shall be executed by HPS
and PAMCO simultaneously with the execution of this Settlement Agreement.
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7. REPRESENTATIONS AND WARRANTIES OF THE PROVIDENT PARTIES.
The Provident Parties represent and warrant to the HPS Parties as follows:
(A) The Provident Parties are duly and validly
organized corporations in good standing under the respective states of their
incorporation with full legal and corporate power to enter into this agreement
and carry out their obligations hereunder. All necessary corporate action,
authorizing the execution and performance of this agreement has been duly and
validly taken and no consent, notification, application, approval or other
action by the Provident Parties or any other person or governmental authority is
necessary for the execution and performance in full of this Agreement by the
Provident Parties or the enforcement thereof against them.
(B) This Agreement is enforceable in accordance with
its terms.
(C) PILIC is the beneficial and record owner of the
Montgomery Shares and owns such shares free and clear of any lien charge or
encumbrance. The Montgomery Shares are not subject to any restriction on
transfer and PILIC has the right to transfer them to HPS in accordance with the
terms of this Agreement. Such shares are duly and validly issued, fully paid and
non assessable and were not issued in violation of nor are they subject to any
pre-emptive right.
(D) The PALHIC Assignment was duly and validly executed
and is in full force and effect. PILIC has full power and authority to act as
PALHIC's attorney in fact to bind PALHIC with respect to the terms and
conditions of this Agreement and when this Agreement is executed by PILIC,
PALHIC will have no right to make any claim against the HPS Parties for any
matter covered by or intended to be covered by the release set forth in Section
1 (A) hereof. PAMCO hereby indemnifies and holds the HPS Parties harmless from
any and all claims made by PALHIC, Central Reserve Life Insurance Company, CERES
Group, Inc. or any persons holding an assignment of rights related thereto which
relate to any action of the HPS Parties under the Agreements and which occurred
prior to the Effective Date.
8. REPRESENTATIONS AND WARANTIES OF THE HPS PARTIES. The HPS
Parties represent and warrant to the Provident Parties as follows:
(A) The HPS Parties are duly and validly organized
corporations in good standing under the respective states of their incorporation
with full legal and corporate power to enter into this agreement and carry out
their obligations hereunder. All necessary corporate action authorizing the
execution and performance of this agreement has been duly and validly taken and
no consent, notification, application, approval or other action by the HPS
Parties or any other person or governmental authority is necessary for the
execution and performance in full of this Agreement by the HPS Parties or the
enforcement thereof against them.
(B) This Agreement is enforceable in accordance with
its terms.
9. ENTIRE AGREEMENT; GOVERNING LAW; CONSENT. TO JURISDICTION.
This Agreement, the HealthAxis Stock Purchase Agreement, the Warrant, the
Registration Rights Agreement and the Agreements referenced herein constitute
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the entire understanding and agreement among and between the parties hereto
relative to the subject matter hereof. Any amendments to the Agreement must be
in writing, signed by each party hereto. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania. The
parties hereto agree to consent to the jurisdiction and venue of the courts of
the Commonwealth of Pennsylvania located in Montgomery County, Pennsylvania, and
of the United States District Court for the Eastern District of Pennsylvania,
and agree that all disputes between the parties shall be litigated only therein.
10. PARTIAL INVALIDITY. In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provisions hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained herein unless the deletion of the provision
or provisions would result in such a material change as to cause completion of
the transactions contemplated herein to be unreasonable.
11. EXECUTION IN COUNTERPARTS. This Agreement may be executed
by the parties hereto signing the same instrument, or by each party hereto
signing a separate counterpart, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument. The
parties agree that documents executed by facsimile shall be acceptable in this
transaction, and the signatures shall have the same force and effect as original
signatures.
12. EFFECTIVE DATE AND CL.OSING DATE. The Effective Date of
this Agreement shall be March 31, 1999. The Closing of the transactions which
are to occur by or on the Closing Date as contemplated herein shall occur on or
before June 30, 1999 or such earlier date as PAMCO and HPS may agree upon (the
"Closing Date").
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IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed on its behalf, effective with the day and year first
above written.
PROVIDENT AMERICAN CORPORATION
By:
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Name:
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Title:
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PROVIDENT INDEMNITY LIFE INSURANCE
COMPANY, Individually and as Assignee
of Provident American Life & Health
Insurance Company
By:
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Name:
---------------------------------
Title:
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HEALTHAXIS.COM, INC.
By:
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Name:
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Title:
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HEALTHPLAN SERVICES CORPORATION
By:
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Name:
---------------------------------
Title:
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HEALTHPLAN SERVICES, INC
By:
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Name:
---------------------------------
Title:
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MONTGOMERY MANAGEMENT CORPORATION
By:
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Name:
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Title:
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