<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
PROVIDENT CORPORATION OF PENNSYLVANIA
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
PROVIDENT AMERICAN CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 14, 1999
TO THE SHAREHOLDERS OF
PROVIDENT AMERICAN CORPORATION:
The Annual Meeting of Shareholders of Provident American Corporation
(the "Company") shall be held at 9:00 A.M., prevailing time, on Tuesday,
December 14, 1999, at the Company's Executive Offices located at 2500 DeKalb
Pike, Norristown, Pennsylvania 19401, for the following purposes
1. To elect eight (8) directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected;
2. To act upon the appointment of BDO Seidman LLP as independent public
accountants for the Company for its 1999 fiscal year.
The Board of Directors has fixed the close of business on November 1,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting.
A copy of the Company's Annual Report for its fiscal year ended
December 31, 1998 is enclosed with this Proxy Statement.
All shareholders are cordially invited to attend the meeting in person.
However, whether or not you expect to attend the Annual Meeting in person,
please fill in, sign, and return the enclosed form of proxy in the envelope
provided. The shareholders attending the meeting may vote in person even if they
have returned a proxy.
By Order of the Board of Directors,
Michael F. Beausang, Jr.,
MICHAEL F. BEAUSANG, JR.,
Secretary
Date: November 22, 1999
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN
PLEASE MAIL YOUR PROXY PROMPTLY
<PAGE>
PROVIDENT AMERICAN CORPORATION
PROXY STATEMENT
-------------------
This Proxy Statement and the form of proxy enclosed herewith, which are
first being mailed to shareholders on or about November 22, 1999, are furnished
in connection with the solicitation by the Board of Directors of Provident
American Corporation (the "Company") of proxies to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at 9:00 A.M.,
prevailing time, on December 14, 1999, and at any adjournment thereof at the
Company's Executive Offices located at 2500 DeKalb Pike, Norristown,
Pennsylvania 19401.
Shares represented by proxies in the accompanying form, if properly
signed and returned, will be voted in accordance with the specifications made
thereon by the shareholders. Any proxy not specifying to the contrary will be
voted in favor of the adoption of the proposals referred to in the Notice of
Annual Meeting and for the nominees for director listed in Item 1 thereof. A
shareholder who signs and returns a proxy in the accompanying form may revoke it
at any time before it is voted by giving written notice thereof to the Secretary
of the Company.
The cost of solicitation of proxies in the accompanying form will be
borne by the Company, including expenses in connection with preparing and
mailing this Proxy Statement. Such solicitation will be made by mail and may
also be made on behalf of the Company by the Company's regular officers and
employees in person or by telephone or telegram. The Company, upon request
therefor, will also reimburse brokers or persons holding shares in their names
or in the names of nominees for their reasonable expenses in sending proxies and
proxy materials to beneficial owners.
The enclosed proxy confers discretionary authority to vote with respect
to any and all of the following matters that may come before the meeting: (i)
matters which the Company does not know, a reasonable time before the proxy
solicitation, are to be presented at the meeting; (ii) approval of the minutes
of a prior meeting of shareholders, if such approval does not amount to
ratification of the action taken at the meeting; (iii) the election of any
person to any office for which a bona fide nominee is unable to serve or for
good cause will not serve; (iv) any proposal omitted from this Proxy Statement
and form of proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange
Act of 1934, as amended; and (v) matters incident to the conduct of the meeting.
In connection with such matters, the persons named in the enclosed form of proxy
will vote in accordance with their best judgment.
The Company is not currently aware of any matters which will be brought
before the Annual Meeting (other than procedural matters) which are not referred
to in the enclosed Notice of the Annual Meeting.
As of the close of business on November 1, 1999 (the "Record Date"),
the Company had outstanding 12,944,393 shares of Common Stock, $.10 par value
("Common Stock"). All shares of Series A Cumulative Convertible Preferred Stock,
$1.00 par value, ("Series A Preferred Stock"), which were outstanding were
previously converted to Common Stock on September 9, 1999. A majority of the
outstanding shares of Common Stock will constitute a quorum at the Annual
Meeting.
On matters involving the election of Directors, the affirmative vote of
a majority of the shares outstanding on the record date shall be the act of the
shareholders. On matters relating to the appointment of the Company's auditors,
the affirmative vote of the majority of shares present in person or represented
by proxy at the Annual Meeting and entitled to vote on the matter shall be the
act of the shareholders.
Only holders of Common Stock of record at the close of business on the
Record Date will be entitled to notice of and to vote at the Annual Meeting.
Cumulative voting rights do not exist with respect to the election of directors.
1
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Common Stock
The following table sets forth, as of October 20, 1999, the amount and
percentage of the Company's outstanding Common Stock beneficially owned by (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Company's outstanding Common Stock; (ii) each director; (iii) each
executive officer and (iv) all officers and directors of the Company as a group.
STOCK OWNERSHIP OF DIRECTORS, NOMINEES, AND OFFICERS
<TABLE>
<CAPTION>
Common Stock
----------------------------------------
No. of Shares Percent
Name of Beneficially of
Beneficial Owner Owned(1) Class(2)
- ---------------- ------------- --------
<S> <C> <C>
Alvin H. Clemens 2,499,500(3) 18.3%
907 Exeter Crest
Villanova, PA 19085
Michael Ashker 967,200(4)(5) 7.5%
c/o Provident American Corporation
2500 DeKalb Pike
Norristown, PA 19401
Harold M. Davis 165,000(6) 1.3%
c/o Realen
725 Talamore Drive
P.O. Box 2002
Arabier, PA 19692
Francis L. Gillan III 7,500 (7)
c/o Provident American Corporation
2500 DeKalb Pike
Norristown, PA 19401
Henry G. Hager 55,000(6) (7)
7 Jorrocks Lane
Malvern, PA 19355
George W. Karr, Jr. 67,000(6) (7)
Karr Barth Associates, Inc.
40 Monument Road
Bala Cynwyd, PA 19004-1797
Edward W. LeBaron, Jr. 38,571(5) (7)
Lynx Private Equity Partners, LLC
2601 Fair Oaks Boulevard, Ste 150
Sacramento, CA 95864
Douglas F. Manchester * 362,143(5) 2.8%
Manchester Resorts
One Market Place, 33rd Floor
San Diego, CA 92101
Theophile J. Mignatti, Jr. 35,000(5)(8) (7)
Mignatti Companies
2310 Terwood Drive; P.O. Box 249
Huntingdon Valley, PA 19006-0249
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
P. Glenn Moyer 46,100(6) (7)
P.O. Box 438
9 Main Street
Souderton, PA 18964
Anthony R. Verdi 89,974(9) (7)
c/o Provident American Corporation
2500 DeKalb Pike
Norristown, PA 19401
All directors and officers as a group
(16 persons for common stock) 4,341,288(10) 31.2%
</TABLE>
-----------------
* Not standing for reelection.
-----------------
(1) Information furnished by directors and officers.
(2) Calculated as a percentage of outstanding shares plus each individual's
options to purchase common shares (or all Directors and Officers as a group).
(3) Includes (i) options granted to Mr. Clemens to purchase an additional
253,376 shares of the Company's Common Stock at a price of $.91 per share
granted pursuant to the Amended and Restated Stock Option Agreement dated as of
February 27, 1989 and (ii) options to purchase 397,198 shares of Series A
Preferred Stock at an option price of $3.64 per share granted to Mr. Clemens
pursuant to a Stock Option Agreement dated April 1, 1993 ("1993 Stock Option")
which was amended effective September 9, 1999 to restrict Mr. Clemens' right to
convert any Series A Preferred Stock issued upon the exercise of the option,
solely into the Company's Common Stock, and to no other class of stock. Mr.
Clemens disclaims beneficial ownership of 616,000 shares of the Company's Common
Stock given by him to The Mark Twain Trust in 1991 and 967,040 options to
purchase additional shares of the Company's Common Stock owned by a partnership
in which Mr. Clemens is a partner.
(4) The information in regard to Mr. Ashker has been derived from filings with
the Securities and Exchange Commission as of the Record Date. Mr. Ashker is
presently serving as President, CEO and a director of the Company and
HealthAxis.com, Inc. ("HealthAxis"). Sole and shared voting power is claimed
with regard to 61,000 and 901,200 shares, respectively. Sole and shared
dispositive power is claimed with regard to 61,000 and 651,200 shares,
respectively. See also "Certain Relationships and Related Transactions" for a
description of transactions between Mr. Ashker, Lynx Capital Group, LLC and the
Company. Amendment No. 1 to Schedule 13D was filed on behalf of Mr. Ashker and
others on December 23, 1998, indicating that Mr. Ashker beneficially owned less
than ten percent (10%) of the Company's outstanding Common Stock as of such
date. The Schedule 13D is also filed on behalf of Lynx Capital Group, LLC, a
California limited liability company; Van Kasper & Company, a broker-dealer and
California corporation; Lynx Private Partners, L.P. and Lynx Tech Fund, L.P.,
both investment limited partnerships of which Lynx Capital Group, LLC, serves as
investment advisor; and Lynx Healthtech Fund, L.P., which Lynx Capital Group,
LLC, serves as investment advisor and manager. Each of the above entities also
claims beneficial ownership of various amounts of the Company's Common Stock.
(5) Includes options to purchase 5,000 shares of the Company's Common Stock.
(6) Includes options to purchase 45,000 shares of the Company's Common Stock.
(7) Less than 1%.
(8) Includes 20,000 shares in the estate of his wife.
(9) Includes an option to purchase 62,000 shares of the Company's Common Stock.
(10) Includes stock and options of all officers and directors to purchase an
aggregate of 105,774 shares and 1,736,014 shares, respectively, and options
granted to Mr. Clemens as described in note 3.
3
<PAGE>
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors by resolution has set the number of persons to
be elected to the Board of Directors at the Annual Meeting at eight, and has
designated the persons listed below to be nominees for election as Directors.
All of the nominees are currently members of the Board. The Company has no
reason to believe that any of the nominees will be disqualified or unable to
serve if elected. However, if any nominee should become unavailable for any
reason, proxies may be voted for another person nominated by the present Board
of Directors to fill the vacancy or the size of the Board may be reduced
accordingly. Directors of the Company hold office for a term of one year and
until their successors are duly elected.
The names of the nominees for directors, together with certain
information regarding them, are as follows:
<TABLE>
<CAPTION>
Served as Year Principal Occupation for Past Five
Director Term Will Years and Position(s) Held with
Name Age Since Expire The Company or Subsidiaries
---- --- --------- --------- ----------------------------------
<S> <C> <C> <C> <C>
Michael Ashker 46 1998 2000 Director; President and Chief Executive Officer of the Company
since August 1999. Chief Executive Officer, HealthAxis.com,
Inc. since 1998; Managing Director and Portfolio Manager of
Lynx Capital Group LLC and Managing Member of Lynx Venture
Partners I, LLC 1995-1998.
Alvin H. Clemens 62 1989 2000 Director; Chairman of the Board since October 1989; Chairman
of The Executive Committee since August 1999, Chief Executive
Officer of the Company and subsidiary companies -1989 - 1999
and President of the Company and PILIC 1993-1996; President of
Maine National Life Insurance Company 1989-1995.
Harold M. Davis 63 1989 2000 Director; Chairman of the Board of Realen Homes, Inc. since
1968.
Henry G. Hager 65 1996 2000 Director; Partner in the law firm of Stradley, Ronon, Stevens
and Young since 1994; President Emeritus of The Insurance
Federation of Pennsylvania since June 1999.
George W. Karr, Jr. 61 1996 2000 Director; Co-Chairman of Karr Barth Associates, Inc. since
1984.
Edward W. LeBaron, Jr. 69 1998 2000 Director; Director of Lynx Capital Group, LLC since January,
1997; Attorney and Partner, Political Law Group, Pillsbury,
Madison & Sutro 1989-1994.
Theophile J. Mignatti, Jr. 63 1998 2000 Director; Chairman Mignatti Enterprises since October 1998;
President of Mignatti Venture Associates since 1989.
P. Glenn Moyer 64 1989 2000 Director; Private Practice Attorney since 1992.
</TABLE>
During 1998, the Company's Board of Directors held eight (8) meetings.
All Directors attended at least 75% of the aggregate meetings of the Board and
the Committees on which they served.
Messrs. Michael Ashker, Alvin H. Clemens, Francis L. Gillan III and
Anthony R. Verdi are the executive officers of the Company.
4
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has standing an
Executive/Compensation/Nominating Committee, an Audit Committee and an Option
Administration Committee.
The Executive/Compensation/Nominating Committee, on which Messrs.
Clemens, Ashker, Manchester and Moyer currently serve, is appointed to act when
a meeting of the full Board of Directors is not feasible, administers the
Company's compensation matters, nominates directors and determines replacements
for directors when membership on the Board of Directors ends prior to the
expiration of a term. The Executive/Compensation/ Nominating Committee held one
meeting during 1998.
The Audit Committee is appointed to recommend the selection of the
Company's auditors, review the scope and results of audits, review the adequacy
of the Company's accounting, financial and operating system and supervise
special investigations. The Audit Committee held two meetings in 1998. The Audit
Committee is currently comprised of Messrs. Hager, Karr and Mignatti. Mr. Ashker
serves as an alternate.
The Option Administration Committee currently consists of Messrs.
Clemens, Ashker, Hager, Karr, Moyer and Verdi. Any options to be granted to
Messrs. Clemens, Ashker or Verdi are subject to the approval of only Messrs.
Hager, Karr and Moyer, who are outside directors of the Company and as such are
non employee directors. The Option Administration Committee held no meetings
during 1998. A new Option Administration Committee will be appointed at the
organizational meeting of the Directors following the Annual Meeting.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid a fee of $1,000
for attendance at each meeting of the Board of Directors of the Company, with no
fee being paid for attendance at meetings of any of the Company's subsidiaries,
and $500 for attendance at each meeting of any committee of the Board. During
1998 the Company did not grant any options to Directors.
Mr. John T. Gillin, a director through December 17, 1998, also served
as a consultant for the Company. The Company paid Mr. Gillin $143,484 in 1998
for his consulting services.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires officers, Directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish the Company with copies of all such reports.
Based solely on its review of the reports received or written
representations that no other reports were required, the Company believes that,
for the fiscal year ended December 31, 1998, all filings required pursuant to
Section 16(a) of the 1934 Act applicable to its officers, Directors and greater
than ten percent beneficial owners of the Company's Common Stock were made.
REPORT OF THE EXECUTIVE/COMPENSATION/NOMINATING COMMITTEE
The compensation of the Company's executive officers is generally
determined by the Executive/Compensation/ Nominating Committee (the "Executive
Committee") of the Board of Directors. The Executive Committee is comprised of
Messrs. Clemens, Ashker, Moyer and Manchester. The following is the report with
respect to certain compensation paid or awarded to the Company's executive
officers during 1998 and is furnished by the directors who comprise the
Executive Committee.
5
<PAGE>
General Policies
The Company's compensation programs are intended to enable the Company
to attract, motivate, reward, and retain the management talent required to
achieve aggressive corporate objectives in a highly competitive industry, and
thereby increase shareholder value. It is the Company's policy to provide
incentives to its senior management to achieve both short-term and long-term
objectives and to reward exceptional performance and contributions to the
development of the Company's business. To attain these objectives, the
development of the Company's executive compensation program includes a
competitive base salary, coupled with a cash incentive bonus which is based upon
the Company's business, primarily in the achievement of pre-determined financial
goals. In general, as an executive officer's level of management responsibility
in the Company increases, a greater portion of his or her potential total
compensation depends upon the Company's performance as measured by objective
standards over one or more years.
Relationship of Compensation to Performance
As a person's level of responsibility in the Company increases, a
greater portion of potential total compensation opportunity is shifted to
performance incentives. The total of salary and bonus is intended to provide
cash compensation, which is competitive in a mid-range when performance meets
goals.
The overall salary range structure is maintained at a mid-range
competitive level to attract and retain the highest caliber of employees.
Individual salary rates are based on the salary range for the position as well
as the length of service, quality of performance in that position, and other key
factors.
The performance-based incentive initially requires that earnings
generate sufficient funds to establish a bonus pool. Target bonus opportunities
are established for each position level. The level of each employee's bonus is
based on achievement for that year of corporate objectives, which the Company
believes correlate to shareholder value and support the strategic goals of the
Company. The compensation of the Chief Executive Officer is determined by the
Executive Committee utilizing compensation parameters of the insurance industry.
Policy with Respect to Section 162(m) of the Internal Revenue Code
Generally, Section 162(m) of the Internal Revenue Code, and the
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as the Company, for certain
compensation exceeding $1,000,000 paid to the chief executive officer and the
four other highest paid executive officers during any taxable year, excluding,
among other things, certain performance-based compensation. The Executive
Committee intends to evaluate the level of compensation and the importance to
the Company of qualifying for the performance-based exclusion with respect to
options having an exercise price of not less than the fair market value of the
Common Stock on the date of grant. The Executive Committee will also continually
evaluate to what extent Section 162(m) will apply to its other compensation
programs.
Executive Committee Interlocks and Insider Participation
Mr. Clemens, the Company's Chairman of the Board, and Mr. Ashker, the
President and Chief Executive Officer of the Copmany are both members of the
Executive/Compensation/Nominating Committee. However, neither of them votes upon
any matters relating to the compensation, fringe benefits, or with respect to
the granting of any stock options to either of them.
6
<PAGE>
Certain Relationships and Related Transactions
The Company made a loan to Alvin H. Clemens, then Chairman and Chief
Executive Officer of the Company in the original principal amount of $300,000,
collateralized by 100,000 shares of the Company's Common Stock owned by Mr.
Clemens and evidenced by a Promissory Note dated April 8, 1996, which was
repayable together with interest at the rate of 5.33% per annum on or before
April 8, 1999. The Promissory Note was amended effective April 8, 1997 to
increase the principal balance from $300,000 to $600,000, to change the interest
rate from 5.33% to 5.75%, to change the repayment terms so that the Promissory
Note shall be repayable interest only for two years, with the entire principal
balance, together with all accrued interest, due and payable on April 8, 1999,
and to increase the collateral from 100,000 shares of the Company's Common
Stock, $.10 par value, to 128,478 shares. The Promissory Note was subsequently
amended on March 24, 1999 whereby Mr. Clemens repaid $50,489 of accrued interest
and the repayment date for the principal was extended to April 8, 2000. Mr.
Clemens repaid the loan and all indebtedness to the Company on September 29,
1999.
The Company made a loan to John T. Gillin, a prior Director of the
Company in the original principal amount of $140,900, collateralized by 20,000
shares of the Company's Common Stock owned by Mr. Gillin and evidenced by a
Promissory Note dated April 2, 1996, as amended by an Amendment to Promissory
Note dated June 20, 1996, and a Second Amendment to Promissory Note dated
February 1, 1997. The Promissory Note was amended effective as of April 30, 1997
for the purpose of changing the repayment terms of the Gillin Note and to
increase the collateral to include Mr. Gillin's option to purchase 25,000 shares
of the Company's Common Stock, $.10 par value, dated July 16, 1996. Mr. Gillin
repaid the loan and all indebtedness to the Company on January 31, 1999.
The Company's Secretary and General Counsel, Michael F. Beausang, Jr.,
is a partner/shareholder in the law firm of Butera, Beausang, Cohen & Brennan
("BBC&B"). The Company paid legal fees of approximately $332,000 to BBC&B in
1998.
Michael Ashker, who has served as President and Chief Executive Officer
of the Company since August 16, 1999, is also a member of the Board of Directors
of the Company. Mr. Ashker also serves as President, Chief Executive Officer,
and Director of HealthAxis.com, Inc., one of the Company's subsidiaries. Mr.
Ashker is the managing director of Lynx Capital Group, LLC., a California
limited liability company, Lynx Capital Group, LLC serves as an investment
advisor to and manager of Lynx Tech Fund, L.P. Each of the entities described in
this paragraph also claims beneficial ownership of various amounts of the
Company's Common Stock.
Effective March 31, 1998, the Company entered into a Consulting
Agreement with Lynx Capital Group, L.L.C., a California corporation (the
"Consultant") of which Mr. Ashker is the managing director, which provides for
retention of Lynx as a consultant with respect to the development and marketing
of health insurance products over the Internet and the establishment of a web
site for the Company. The Consulting Agreement was amended effective July 1,
1998 to terminate the compensation and option provisions, to acknowledge the
completion by the Consultant of certain undertakings, and to approve the
granting of 400,000 options to purchase shares of the Company's Common Stock in
a blended option exercise of $4.5166 per share, and unless sooner exercised, to
terminate on November 13, 2001.
As of November 13, 1998, Lynx Private Equity Partners I, LLC., of which
Mr. LeBaron is the Managing Director, purchased 250,000 shares of the Company's
Common Stock. As a part of that transaction, the Company informally agreed to
nominate Messrs. Ashker and LeBaron to be elected as Directors of the Company at
all meetings of shareholders held before December 31, 1999.
InterHotel Company, Ltd., of which Douglas F. Manchester is a
principal, purchased 357,143 shares of the Company's Common Stock on November
13, 1998. As a part of that transaction the Company agreed to nominate Mr.
Manchester to be elected as a Director of the Company at the 1998 Annual Meeting
of Shareholders. Mr. Manchester is not standing for re-election.
In keeping with the Company's announced objective to eliminate all
risks and liabilities arising as a result of the ownership and operation of an
insurance company engaged in the underwriting of medical insurance policies, the
Company entered into the following agreement.
7
<PAGE>
In August, 1999 the Company entered into a definitive agreement (the
"Stock Purchase Agreement") to sell its insurance subsidiary, Provident
Indemnity Life Insurance Company ("PILIC"), to Provident's Chairman, Alvin H.
Clemens. Under the terms of the agreement, the Company will sell all of the
issued and outstanding shares of the common stock of PILIC to AHC Acquisition,
Inc. ("AHC"), a newly formed Pennsylvania business corporation, all of the stock
of which is owned by Mr. Clemens. The transaction is subject to the approval of
the boards of directors of all parties to the transaction (which has occurred),
the shareholders of the Company, the Pennsylvania Department of Insurance (which
has occurred), as well as the receipt by the Board of the Company of a fairness
opinion and financing (which has occurred). The First Amendment to Stock
Purchase Agreement was executed on October 27, 1999 and removed the requirement
for the Company's shareholders to approve the transaction.
The Board of Directors of the Company has received the opinion of
Advest, Inc., a subsidiary of The Advest Group, Inc., dated October 20, 1999
(the "Opinion"). The Opinion cites the financial terms of the transaction, as
defined in the Opinion, and notes that the PILIC shares proposed to be purchased
by AHC will continue to be subject to the Stock Pledge Agreement dated December
29, 1998 by the Company in favor of Reassurance Company of Hannover. The Opinion
further discusses the information which was reviewed in arriving at the Opinion,
which includes a number of agreements between the Company and other persons, and
various reports made by the Company on Forms 10-K and 10-Q for the calendar
years 1997, 1998 and for the period ended June 30, 1999, together with statutory
financial statements and related footnotes of PILIC for the years ended December
31, 1996, 1997, 1998, and the quarterly statement as of June 30, 1999. The
Opinion concludes that the financial terms of the transaction are fair, from a
financial point of view, to the Company and its shareholders.
The terms of the Stock Purchase Agreement require the Company to
purchase PILIC's home office building for $4.7 million and the Company to
purchase 545,916 shares of HealthAxis Stock at a purchase price equal to $4.71
per share plus interest at the rate of 8% per annum thereon from the date of
acquisition of such shares by PILIC through the date of such sale. The
difference between the $14.7 million required payment amount and the sum of
purchase price of the building and the HealthAxis Stock will be a capital
contribution from the Company to PILIC to be paid at or before closing. In
addition, the terms of the Stock Purchase Agreement require the Company to
transfer 100,000 shares of the HealthAxis Stock to AHC together with
registration rights previously granted to PILIC to AHC. The terms of the Stock
Purchase Agreement further require the Company to assume all of PILIC's
employees and related employee obligations and that PILIC shall have no
employees at closing. The Company anticipates entering into an employee leasing
arrangement with PILIC whereby PILIC will reimburse the Company for the
Company's out of pocket employee costs related to services provided on PILIC's
behalf. The Stock Purchase Agreement provides that any cost associated with the
termination of certain executives along with certain taxes incurred by PILIC
prior to the effective date in connection with any of the transactions
contemplated in the Stock Purchase Agreement shall be borne by the Company.
Pursuant to the Stock Purchase Agreement closing is to occur on or before
December 31, 1999. The Stock Purchase Agreement further requires the Company to
lease to PILIC office space, furniture and equipment for a period of up to one
year at no cost.
The Stock Purchase Agreement includes various warranties,
representations, covenants and conditions, including but not limited to certain
non-compete and non-solicitation agreements with AHC regarding the future sale
of health insurance products for a three-year period commencing on December 31,
1998 by licensed insurance agents of PILIC. Notwithstanding the foregoing,
HealthAxis, and its affiliates (as defined therein) may freely solicit the sale
of and distribute health and all other types of insurance products on behalf of
any person or entity through Internet websites, or other means of electronic
commerce, including but not limited to, sales of such products on behalf of
PILIC or AHC pursuant to the Individual Medical Products Carrier Partner
Agreement among PALHIC, and HealthAxis dated December 29, 1998 and the Carrier
Partner Agreement among PALHIC and HealthAxis dated December 14, 1998.
Upon the Company's fulfillment of its obligations to PILIC prior to the
closing, together with the completion of the closing, the Company will have no
liability with respect to the future of PILIC's insurance business, capital and
surplus, and business operations, except for the liability of the Company and
its successors under the Company Guaranty Agreement with the Reassurance Company
of Hannover ("RCH"), the Stock Pledge Agreement with RCH, the Provident American
Life and Health Insurance Company ("PALHIC") Purchase Agreement together with
the ceding commission liability recorded on the Company's books in connection
with agreements with RCH and the Company's obligation to lease to PILIC office
space, furniture and equipment.
8
<PAGE>
During the second quarter of 1999 the Company announced that it was
pursuing the sale of PILIC and attempted to negotiate a sale with a
non-affiliated third-party buyer but such efforts were unsuccessful. The Company
believes that the terms of the sale of PILIC to AHC are comparable to those
terms that would be negotiated between the Company and a non-affiliated
third-party buyer.
On November 15, 1999 the Commonwealth of Pennsylvania's Department of
Insurance (`the Department") approved the Company's sale of PILIC to AHC. The
Department's approval is contingent upon the following conditions; 1) AHC shall
provide copies of the closing documents within five business days of the
closing, 2) AHC or PILIC shall provide an accounting for reinsurance relative to
the preneed, final expense and other life insurance business of PILIC within
five days after the consummation of agreements for the reinsurance, 3) PILIC
shall settle all inter-company receivable and payable balances with the Company
within thirty days from closing. The Company anticipates that all conditions
will be satisfied and that the sale of PILIC will close as soon as practical but
no later than December 31, 1999. The Company anticipates settling all
inter-company receivable and payable balances with PILIC along with PAMCO's
payment of $14.7 million to PILIC for PAMCO's purchase of PILIC's home office
building, PAMCO's purchase of 545,915 shares of HealthAxis.com, Inc. Series A
Preferred Stock and PAMCO's capital contribution to PILIC at closing.
The Company, as of September 30, 1999, has recorded a loss of
$9,528,000 in connection with the sale of PILIC which includes a write-off of
unamortized deferred policy acquisition costs, property plant and equipment and
certain other assets in the amount of $1,128,000 together with a deferred loss
on the sale of the PILIC liability from the sale of PILIC representing the
required capital contribution and the value of the Series A Preferred Stock to
be transferred to AHC, net of liabilities already recorded.
EXECUTIVE COMPENSATION
Employment and Other Agreements
Effective February 19, 1997, the Company and Mr. Clemens entered into a
new employment agreement ("Agreement") which replaced Mr. Clemens' prior
Employment Contract dated as of January 1, 1993. Pursuant to the Agreement, Mr.
Clemens was employed as Chief Executive Officer of the Company for a five-year
term ending December 31, 2002 (the "Term"), and unless otherwise terminated, the
Term shall automatically be extended at the end of each year after December 31,
1997, in order that at all times, on each December 31st during the duration of
the Agreement, there shall be an unexpired five-year term. The employment
agreement was amended on July 28, 1999 to change Mr. Clemens' executive position
to Chairman of the Board of Directors and Chairman of the
Executive/Compensation/Nominating Committee. Mr. Clemens was paid a base salary
in 1998 of $417,453, plus an annual cost of living increase, and such additional
incentive or bonus compensation as shall be deemed appropriate from time to time
by the Board of Directors of the Company. The Agreement further provides for
group life, health, disability, major medical, and other insurance coverages for
Mr. Clemens and his family, and upon termination, provides termination benefits
which include the provision of health insurance for Mr. Clemens and his spouse
for life, a salary benefit of five times base salary in the event of Mr.
Clemens' death, disability, or termination without cause, and includes certain
restrictions on Mr. Clemens competition and disclosure of confidential
information, along with options to purchase 50,000 shares of the Company's
Common Stock granted under the Company's non-Qualified Option Plan for Directors
and the 1996 Employee Incentive Stock Option Plan. Pursuant to a legally binding
letter agreement dated September 9, 1999 between the Company and Mr. Clemens,
which will be followed-up by a definitive agreement, the Company agreed to pay
Mr. Clemens $650,000 and Mr. Clemens agreed to: (1) assign his rights to acquire
additional shares pursuant to the March 10, 1997 agreement to the Company; (2)
convert 550,000 shares of Series A Preferred Stock of the Company into the
Company's Common Stock; (3) assign his right in and to a number of options to
purchase 202,802 shares of the Company's Common and Preferred Stock to the
Company; and (4) amend the option to purchase 500,000 shares of the Company's
Preferred Stock to eliminate the right to convert such shares to any class of
securities of the Company, other than the Company's Common Stock.
9
<PAGE>
Mr. James Bowles was employed as President of the Company pursuant to
an Amended and Restated Employment Contract (the "Employee Contract") dated as
of November 7, 1996 for a term commencing as of October 1, 1996, through
December 17, 1998, which provided for a base salary of $195,000, with an annual
cost of living increase, and such additional incentive or bonus compensation and
certain insurance and other fringe benefits as shall be deemed appropriate from
time-to-time by the Executive Committee or the Board of Directors of the
Company. The Employment Contract terminated on December 17, 1998. Mr. Bowles
left the employment of the Company on December 28, 1998 as part of the
transactions with Central Reserve Life Insurance Company.
Option Modifications
In connection with stock options granted on August 16, 1996 under the
1996 Employee Stock Option Plan, the Option Administration Committee approved
and the Board of Directors, on March 13, 1998, ratified the modification of
these options by reducing the option exercise price from $10 to $5 per share,
provided the employee elected to reduce the number of options granted by 50%.
The grant of options under the Plan is intended to motivate executives and key
employees to increase stockholder value. A decline in the Company's stock price
from August of 1996, the date of the initial grant of options, to March of 1998
reduced the value of options granted to employees and consequently the
motivational value the options provided to the employees. In order to provide
incentive to employees the Board allowed the option holders, at their election,
to reduce the option exercise price by 50% and reduce the number of options
granted by 50%. Mr. Clemens and Mr. Verdi elected to reduce the price and number
of options previously granted to them. The exercise price of Mr. Clemens'
options was reduced from $11 to $6. Options continue to vest 20% a year in
accordance with the terms of the original option grant.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Length of
Per Share Per Share Original Term
Number of Market Price Exercise Price Remaining at
Options At Time Of At Time of New Exercise Date of
Name Date Repricing (1) Repricing (2) Repricing Price Repricing
------------- ------------- --------- ----- ---------
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alvin H. Clemens 3/13/98 25,000 $3.875 $11.00 $6.00 3.5 years
Chairman
- ------------------------------------------------------------------------------------------------------------------------------
Anthony R. Verdi 3/13/98 25,000 $3.875 $10.00 $5.00 3.5 years
Chief Operating
Officer
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The original option grant represented 50,000 shares of which 25,000 were
cancelled and 25,000 were repriced as a result of the employee's election
for both Mr. Clemens and Mr. Verdi.
(2) Closing price of the Company's common stock on March 13, 1998.
10
<PAGE>
The following three tables show information relating to the Chairman of
the Board, President and Chief Executive Officer and the most highly compensated
executive officers during the calendar years specified therein:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
- --------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long Term
Restricted Securities Incentive
Name and Other Annual Stock Underlying Plan All Other
Principal Salary Bonus Compensation Award(s) Options Payouts Compensation(3)
Position(1) Year ($) ($) ($) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Ashker, (7) 1998 61,226 - 80,000 - 991,000 (2) - -
CEO and President of 1997 - - - - - - -
the Company and 1996 - - - - - - -
HealthAxis
- --------------------------------------------------------------------------------------------------------------------------------
Alvin H. Clemens, 1998 413,896 - - - 309,000 (2) - 17,714
Chairman of the Board 1997 417,453 305,850 - - (8) - 18,288
1996 386,662 - - - - - 15,748
50,000 (6)
(8)
- --------------------------------------------------------------------------------------------------------------------------------
James O. Bowles(4) 1998 196,050 - 66,127 - (10,000) - 4,188
Former President 1997 195,000 - 64,945 - - - -
1996 130,000 - - - 125,000 - -
- --------------------------------------------------------------------------------------------------------------------------------
William C. Fay III 1998 121,459 174,696 - - - - 4,000
Former Sr. Vice 1997 125,625 177,386 - - 50,000 - 4,000
President 1996 111,958 173,570 - - 160,000 - 3,080
Sales
- --------------------------------------------------------------------------------------------------------------------------------
Benedict Iacovetti (5) 1998 155,749 - - - 100,000 - -
Former HealthAxis 1997 - - - - - - -
Chief Financial Officer 1996 - - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Anthony R. Verdi, 1998 151,392 - - - - - 10,144
COO 1997 151,335 - - - - - 9,295
1996 128,072 - - - 50,000 (6) - 10,406
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes Chairman of the Board, President and Chief Executive Officer and
the most highly compensated executive officers whose total annual salary
and bonus exceeded $100,000.
(2) Includes an option to purchase HealthAxis shares.
(3) Includes for 1998, 1997 and 1996, respectively, (a) Company contributions
to savings plan (Mr. Clemens $4,000, $4,000 and $3,750; Mr. Bowles $4,188;
Mr. Fay $4,000, $4,000 and 3,080; Mr. Verdi $3,317, $3,595 and $3,150), and
(b) automobile expense allowances (Mr. Clemens $11,280, $11,998 and
$11,998; and Mr. Verdi $5,700, $5,700 and $7,256).
(4) Mr. Bowles ceased being President of the Company, PILIC and PALHIC on
December 17, 1998 as a result of the transactions with Central Reserve Life
Insurance Company.
(5) Mr. Iacovetti joined the Company on December 22, 1997 as Chief Financial
Officer and Treasurer. He held this position through August 12, 1998, at
which time he became Chief Financial Officer for HealthAxis through March
19, 1999. Mr. Iacovetti left HealthAxis on April 28, 1999.
(6) A grant of options in 1996 was reduced during 1998 to reflect an election
taken to reduce 50,000 shares to 25,000 shares at a price half the
initial grant.
(7) Mr. Ashker joined HealthAxis as President and CEO on April 1, 1998 and
became President and Chief Executive Officer of the Company in August,
1999.
(8) The grants to Mr. Clemens were terminated during 1999.
11
<PAGE>
Provident American Corporation and HealthAxis.com, Inc.
Aggregate Option Exercises in 1998 and Year-End Values
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Number of Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Value Options Options at
Name On Exercise Realized At 12/31/98 12/31/98 ($)
- ----------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alvin H. Clemens
Chairman of the Board
Exercisable (1) 0 $0 35,000 $62,500
Unexercisable 15,000 $56,250
Exercisable (HealthAxis) (2) 0 $0 309,000 $811,527
Unexercisable (HealthAxis) 0 $0
- ----------------------------------------------------------------------------------------------------------------------------
Michael Ashker
CEO and President of the Company and
HealthAxis
Exercisable (HealthAxis) 0 $0 991,000 $2,602,663
Unexercisable (HealthAxis) 0 $0
- ----------------------------------------------------------------------------------------------------------------------------
James O. Bowles
Former President
Exercisable 0 $0 85,000 $56,250
Unexercisable 30,000 $0
- ----------------------------------------------------------------------------------------------------------------------------
William C. Fay III
Former Sr. Vice President, Sales
Exercisable 35,000 $231,875 71,000 $191,250
Unexercisable 104,000 $357,500
- ----------------------------------------------------------------------------------------------------------------------------
Benedict J. Iacovetti
Former HealthAxis - CFO
Exercisable 0 $0 20,000 $145,600
Unexercisable 80,000 $582,400
- ----------------------------------------------------------------------------------------------------------------------------
Anthony R. Verdi
COO
Exercisable 0 $0 47,000 $249,500
Unexercisable 25,000 $108,750
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of December 31, 1998 the above excludes non-compensatory stock options
to purchase 1,253,376 shares of common stock at $0.9091 issued to Mr.
Clemens in 1989 of which Mr. Clemens disclaims beneficial ownership of
967,040 shares owned by a partnership of which Mr. Clemens is a partner;
excludes an option to purchase 397,198 shares of Series A Cumulative
Preferred Stock at $3.64 issued on April 1, 1993 in connection with the
purchase by Mr. Clemens of other shares of Preferred Stock at such time.
(2) Mr. Clemens option to purchase HealthAxis shares has since been terminated
by mutual agreement.
12
<PAGE>
Provident American Corporation and HealthAxis.com, Inc.
Option Grants in 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
Number of % of Total At Assumed Annual Rates
Securities Options Exercise Of Stock Appreciation for
Options Granted to Price Expiration Option Term Alternative to
Name Granted Employees $/Share Date 5% 10% f & g (1)
- ---------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alvin H. Clemens 309,000 (2)(3) 15.79% $1.77 7/13/08 $151,107 $333,906 $11,124
Chairman
Michael Ashker 991,000 (3) 50.65% $1.77 7/13/08 $484,617 $1,070,877 $356,676
President and CEO of
the Company and
HealthAxis
Anthony R. Verdi (2)
COO
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the Black-Scholes option pricing model assuming: 0% dividend yield,
no adjustments for forfeitures and the following expected stock volatility,
length of time for exercise and risk free interest rate: 57.208%, five years
and 4.5%, respectively.
(2) Election was taken in 1998 by officer, open to all 1996 Employee Stock
Option Plan option recipients, to reduce previously granted shares by half
at a price half the initial grant price. The previous grant was amended to
reduce the number of options from 50,000 to 25,000 and reduce the exercise
price from $11.00 to $6.00 for Mr. Clemens and $10.00 to $5.00 for Mr.
Verdi; the vesting provisions remain unchanged. The time remaining on the
options on March 13, 1998 (the date of amendment) was approximately 8.5
years.
(3) Granted under the HealthAxis.com, Inc. 1998 Stock Plan to purchase
HealthAxis common stock, the grant to Mr. Clemens has since been terminated
by mutual agreement.
13
<PAGE>
Performance Graph
The following graph compares the yearly percentage change in cumulative
total return (change in the year-end stock price plus reinvested dividends) to
the Company's shareholders against the cumulative total return of the NASDAQ
Market Index and the Peer Group Index (Media General Financial Services, Inc.,
Industry Group 430 - Life Insurance & Group 431 - Accident/Health Insurance) for
the five years beginning January 1, 1994:
Compare 5-Year Cumulative Total Return
Among Provident American Corporation
NASDAQ Market Index and MG Group Indexes
500 |-------------------------------------------------------------------------|
| |
| |
450 |-------------------------------------------------------------------------|
| @ |
| |
400 |-------------------------------------------------------------------------|
| % |
| |
350 |-------------------------------------------------------------------------|
| |
| @ |
300 |-------------------------------------------------------------------------|
| % * |
| |
250 |-------------------------------------------------------------------------|
| @ |
| * # |
200 |-------------------------------------------------------------------------|
| # |
| % |
| * |
150 |-------------------------------------------------------------------------|
| # |
| % |
| * * |
| % # |
100 |---@%#*------------------------------------------------------------------|
| # |
| @ @ |
50 |-------------------------------------------------------------------------|
| |
| |
0 |-------------|-----------|-----------|------------|------------|---------|
1993 1994 1995 1996 1997 1998
@ Provident American Corp
# Accident/Health Insurance
% Life Insurance
* NASDAQ Market Index
Assumes $100 Invested on January 1, 1994
Assumes Dividend Reinvested
Fiscal Year Ended December 31, 1998
ITEM 2
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The following resolution concerning the appointment of independent
auditors will be offered at the meeting:
"RESOLVED, That the appointment by the Audit Committee of the
Board of Directors of the Company of BDO Seidman LLP to audit the
accounts of the Company and its subsidiaries for the fiscal year 1999 is
hereby ratified and approved."
BDO Seidman LLP has been auditing the accounts of the Company and its
subsidiaries since December 1997. In recommending the approval by the
shareholders of the appointment of that firm, the Board of Directors is acting
upon the recommendation of the Audit Committee. A representative of BDO Seidman
LLP is expected to be present at the Annual Meeting and will have the
opportunity to make a statement, if he desires to do so, and will be available
to respond to appropriate questions.
14
<PAGE>
FINANCIAL STATEMENTS
The Company has enclosed its Annual Report to Shareholders for the year
ended December 31, 1998 with this Proxy Statement. Shareholders are referred to
the report for financial and other information about the Company, but such
report is not incorporated in this Proxy Statement and is not a part of the
proxy soliciting material.
ANNUAL REPORT ON FORM 10-K
Upon the written request of any beneficial owner of the Company's
Common Stock, the Company will provide, without charge, a copy of its Annual
Report on Form 10-K (including financial statements and schedules) for the year
ended December 31, 1998. A list of exhibits to the Annual Report will also be
provided, and copies of such exhibits will be furnished upon request. Requests
should be directed to Deidre Holt, Investor Relations, Provident American
Corporation, 2500 DeKalb Pike, P. O. Box 511, Norristown, Pennsylvania
19404-0511 or by phone (610) 275-3800.
SHAREHOLDER PROPOSALS
Pursuant to recent amendments to the proxy rules under the Exchange
Act, the Company's shareholders are notified that the deadline for providing the
Company timely notice of any shareholder proposal to be submitted outside of the
Rule 14a-8 process for consideration at the Company's 2000 Annual Meeting of
Shareholders (the "1999 Meeting") will be February 15, 2000. As to all such
matters which the Company does not have notice on or prior to February 15, 2000
discretionary authority shall be granted to the persons designated in the
Company's proxy related to the 2000 Meeting to vote on such proposal. This
change in procedure does not affect the Rule 14a-8 requirements applicable to
inclusion of shareholder proposals in the Company's proxy materials related to
the 2000 Meeting. A stockholder proposal regarding the 2000 Meeting must be
submitted to the Company at its office located at 2500 DeKalb Pike, Norristown,
Pennsylvania 19401, by March 15, 2000 to receive consideration for inclusion in
the Company's 2000 proxy materials. Any such proposal must also comply with the
proxy rules under the Exchange Act, including Rule 14a-8.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting,
but if any matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with their
judgment.
By Order of the Board of Directors.
MICHAEL F. BEAUSANG, JR.
Michael F. Beausang, Jr.
Secretary
Date: November 22, 1999
