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As filed with the Securities and Exchange Commission on December 20, 2000
Registration No. 333-30256
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PREEFFECTIVE AMENDMENT NO. SIX TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------------------------
HEALTHAXIS INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 7371 23-2214195
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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HealthAxis Inc.
2500 DeKalb Pike
East Norriton, Pennsylvania 19401
610-279-2500
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
------------------------------------------
Michael Ashker
President and Chief Executive Officer
HealthAxis Inc.
2500 DeKalb Pike
East Norriton, Pennsylvania 19401
610-279-2500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------------
Copies to:
Barry H. Genkin, Esquire Richard Weiner, Esquire
Blank Rome Comisky & McCauley LLP Stradley Ronon Stevens & Young, LLP
One Logan Square 2600 One Commerce Square
Philadelphia, PA 19103 Philadelphia, PA 19103
------------------------------------------
Approximate date of commencement of proposed sale of the securities to
the public. As soon as practicable following the effectiveness of this
Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
------------------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
The information in this joint proxy statement/prospectus is not complete and may
be changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This joint proxy
statement/prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Subject to Completion, dated December 20, 2000
HAI LOGO
Merger Proposed -- Your Vote Is Very Important
The boards of directors of HealthAxis Inc., formerly Provident American
Corporation and referred to in this document as HAI, and HealthAxis.com, Inc.,
referred to in this document as HealthAxis, have agreed on a merger. In this
document, we referred to this merger as the merger or the HAI merger.
Upon completion of the merger, HealthAxis shareholders will receive
1.334 shares of HAI common stock for each share of HealthAxis common stock.
HAI shareholders will continue to own their existing shares of HAI
common stock. HAI will issue up to 39,629,133 shares of its common stock to
HealthAxis shareholders, which will represent approximately 75.2% of the
outstanding common stock of HAI after the merger. Likewise, the HAI shareholders
who held HAI common stock prior to the merger will hold approximately 24.8% of
the outstanding common stock of HAI after the merger. In addition, outstanding
HealthAxis options and warrants will convert into options or warrants to
purchase HAI common stock. For a more complete description of the merger and the
terms and conditions of the merger, see "The Merger" beginning on page 27.
HAI and HealthAxis have structured the merger so that HAI will be the
surviving publicly-traded company and HealthAxis will merge with and into
HealthAxis Acquisition Corp., a wholly-owned subsidiary of HAI.
HAI and HealthAxis cannot complete the merger unless the shareholders of
both companies approve the merger at their annual meetings. YOUR VOTE IS VERY
IMPORTANT.
Whether or not you plan to attend the annual meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy card without indicating how you want to vote, HAI
and HealthAxis will count your proxy as a vote in favor of the merger.
This joint proxy statement/prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully. In addition, you may obtain information about HAI from
documents that HAI has filed with the SEC.
/s/ Alvin H. Clemens /s/ Michael Ashker
--------------------- ---------------------
Alvin H. Clemens Michael Ashker
Chairman President and Chief
HealthAxis Inc. Executive Officer
HealthAxis.com, Inc.
For a description of the risk factors associated with HAI and the
merger and an investment in HAI, see "Risk Factors" beginning on page 14.
The HAI common stock trades on the NASDAQ National Market under the
symbol "HAXS."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
joint proxy statement/prospectus is accurate or inadequate. Any representation
to the contrary is a criminal offense.
Joint proxy statement/prospectus dated __________, 2000 and first
mailed to shareholders of HAI and HealthAxis on or about ______ __, 2000.
<PAGE>
HEALTHAXIS INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [___________], 2001
TO THE SHAREHOLDERS OF HEALTHAXIS INC.:
HealthAxis Inc., formerly Provident American Corporation and referred
to as HAI in this document, will hold its annual meeting of shareholders at 2:00
p.m., prevailing time, on [___________], 2001, at the executive offices of HAI
located at 2500 DeKalb Pike, East Norriton, Pennsylvania, 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 consider and vote on a proposal to adopt the amended and restated
agreement and plan of reorganization and the amended and restated agreement and
plan of merger, each dated as of October 26, 2000, among HAI, HealthAxis.com,
Inc., which is referred to in this document as HealthAxis, and HealthAxis
Acquisition Corp., a wholly-owned subsidiary of HAI, and to approve the merger,
the issuance of HAI shares and other transactions described in the merger
agreements;
3. To adopt and approve amendments to HAI's amended and restated
articles of incorporation, including the amendment and restatement of such
articles of incorporation as described in Item 3 of the proxy statement;
4. To adopt and approve an amendment to HAI's amended and restated
articles of incorporation as described in Item 4 of the proxy statement;
5. To approve the adoption of the 2000 Stock Option Plan;
6. To approve the appointment of BDO Seidman LLP as independent public
accountants for HAI for its 2000 fiscal year;
7. To act upon the adjournment of the annual meeting, if necessary, to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the annual meeting to approve the amended and restated
agreement and plan of reorganization and the amended and restated agreement and
plan of merger or the amendment to HAI's amended and restated articles of
incorporation; and
8. To act upon such other matters as may properly come before the
meeting.
The board of directors has fixed the close of business on [________],
2000 as the record date for the determination of shareholders entitled to notice
of and to vote at the annual meeting.
HAI has enclosed a copy of HAI's annual report for its fiscal year
ended December 31, 1999 with this joint proxy statement/prospectus.
HAI cordially invites all shareholders 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 G. HANKINSON
Secretary
East Norriton, PA
________________, 2000
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN
PLEASE MAIL YOUR PROXY PROMPTLY
<PAGE>
HEALTHAXIS.COM, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON [__________], 2001
TO THE SHAREHOLDERS OF HEALTHAXIS.COM, INC.:
HealthAxis.com, Inc., which is referred to in this document as
HealthAxis, will hold its annual meeting of shareholders at 10:00 a.m.,
prevailing time, on [________], 2001, at the executive offices of HealthAxis
located at 2500 DeKalb Pike, East Norriton, Pennsylvania, 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 consider and vote on a proposal to adopt the amended and restated
agreement and plan of reorganization and the amended and restated agreement and
plan of merger, each dated as of October 26, 2000, among HealthAxis Inc.,
referred to in this document as HAI, HealthAxis and HealthAxis Acquisition
Corp., a wholly-owned subsidiary of HAI, and to approve the merger and other
transactions described in the merger agreements;
3. To act upon the adjournment of the annual meeting, if necessary, to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the annual meeting to approve the amended and restated
agreement and plan of reorganization and the amended and restated agreement and
plan of merger; and
4. To act upon such other matters as may properly come before the
meeting.
The board of directors has fixed the close of business on [______ __],
2000 as the record date for the determination of shareholders entitled to notice
of and to vote at the annual meeting.
HealthAxis cordially invites all shareholders 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 G. HANKINSON
Secretary
East Norriton, PA
_________________, 2000
YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN
PLEASE MAIL YOUR PROXY PROMPTLY
<PAGE>
This joint proxy statement/prospectus incorporates by reference
documents containing important business and financial information about HAI that
is not included in or delivered with this joint proxy statement/prospectus. HAI
will make copies of any of these documents available without charge to any
person to whom HAI delivers this joint proxy statement/prospectus, upon written
or oral request. Direct written requests for these documents to Anthony R.
Verdi, Treasurer and Chief Financial Officer, HealthAxis Inc., 2500 DeKalb Pike,
East Norriton, Pennsylvania, 19401, and direct telephone requests to Mr. Verdi
at (610) 279-2500. In order to ensure timely delivery of the documents, please
make any request by January 19, 2001.
Table of Contents
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Page
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CHAPTER I - THE MERGER............................................................................................1
Questions and Answers About the Merger...................................................................1
Summary..................................................................................................3
The Companies...................................................................................3
Our Reasons for the Merger......................................................................3
The Meetings ...................................................................................3
Approval of The Merger..........................................................................4
Our Recommendations to Shareholders.............................................................4
The Merger......................................................................................4
Selected Consolidated Financial Information of HAI.......................................................7
Selected Consolidated Financial Information of HealthAxis................................................9
Market Price Information................................................................................11
Comparative Per Share Data (Unaudited)..................................................................13
Risk Factors............................................................................................14
Forward Looking Statements..............................................................................21
Recent Developments.....................................................................................22
The Merger..............................................................................................26
Material Terms of the Merger Documents.........................................................26
Background of the Merger.......................................................................34
Opinion of Advest Group, Inc...................................................................36
HAI's Reasons for the Merger...................................................................38
HealthAxis' Reasons for the Merger.............................................................39
Interests of HealthAxis' Management and Shareholders in the Merger.............................40
Ownership of HAI Following the Merger..........................................................41
Management of HAI Upon Consummation of the Merger..............................................42
Regulatory Matters.............................................................................42
Affiliate Letters..............................................................................42
Resale of HAI Common Stock.....................................................................43
No Dissenters' Rights for HAI Shareholders.....................................................43
Rights of Dissenting HealthAxis Shareholders...................................................43
Material Federal Income Tax Consequences.......................................................46
Accounting Treatment...........................................................................48
NASDAQ Listing.................................................................................49
Pro Forma Combined Financial Information................................................................49
Information Concerning HAI..............................................................................59
Information Concerning HealthAxis.......................................................................61
General........................................................................................61
Historical Development ........................................................................61
Health Insurance Industry......................................................................64
The HealthAxis Solution........................................................................65
The HealthAxis Strategy........................................................................65
Revenue Model..................................................................................66
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i
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Products.......................................................................................67
Workflow Applications .........................................................................67
Business Administration Applications...........................................................68
Technology Development.........................................................................71
HealthAxis Clients.............................................................................71
Sales and Marketing............................................................................72
Minority Interest in Digital Insurance, Inc. ..................................................73
Intellectual Property and Technology...........................................................73
Competition....................................................................................74
Regulation.....................................................................................74
Facilities.....................................................................................76
Employees......................................................................................77
Litigation Matters.............................................................................77
Management's Discussion and Analysis of Financial Condition and Results of Operations of HealthAxis.....78
Management of HealthAxis................................................................................85
Principal Shareholders of HealthAxis....................................................................88
Post Reorganization HAI Share Ownership of HealthAxis Principal Shareholders............................91
Comparison of Capital Stock and Shareholders' Rights....................................................94
CHAPTER II - INFORMATION ABOUT THE ANNUAL MEETINGS AND VOTING...................................................101
The HAI Annual Meeting.................................................................................101
When and Where the HAI Annual Meeting Will be Held............................................101
How to Attend and Participate in the HAI Annual Meeting.......................................101
What Will be Voted Upon.......................................................................101
Only HAI Shareholders of Record as of April 30, 2000 Are Entitled to Vote.....................102
Majority of Outstanding Shares Must be Represented For a Vote to be Taken.....................102
Vote Required.................................................................................102
Voting Your Shares............................................................................103
Changing Your Vote by Revoking Your Proxy.....................................................103
How Proxies Are Counted.......................................................................103
Cost of Solicitation..........................................................................104
The HealthAxis Annual Meeting..........................................................................104
When and Where the HealthAxis Annual Meeting Will be Held.....................................104
How to Attend and Participate in the HealthAxis Annual Meeting................................104
What Will be Voted Upon.......................................................................104
Only HealthAxis Shareholders of Record as of [________ __], 2000 Are Entitled to
Vote......................................................................................105
Majority of Outstanding Shares Must be Represented For a Vote to be Taken.....................105
Vote Required.................................................................................105
Voting Your Shares............................................................................105
Changing Your Vote by Revoking Your Proxy.....................................................106
How Proxies Are Counted.......................................................................106
Cost of Solicitation..........................................................................106
Proxy Statement Proposals.....................................................................106
CHAPTER III - OTHER HAI ANNUAL MEETING PROPOSALS................................................................108
ITEM 1 - ELECTION OF HAI DIRECTORS.....................................................................108
HAI Board of Directors........................................................................108
Executive Officers Who Are Not Also Directors.................................................111
Meetings and Committees of the Board of Directors.............................................111
Report of Audit Committee.....................................................................112
Director Compensation.........................................................................112
Report of the Executive/Compensation/Nominating Committee.....................................112
Executive Committee Interlocks and Insider Participation......................................113
Certain Relationships and Related Transaction.................................................114
Section 16(a) Beneficial Ownership Reporting Compliance ......................................118
Executive Compensation........................................................................119
Summary Compensation Table....................................................................119
Employment Agreement and Employment Arrangement ..............................................120
Option Grants in 1999.........................................................................122
Aggregate Option Exercises in 1999 and Year-End Values........................................123
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Performance Graph.............................................................................125
Stock Ownership of Directors, Nominees and Officers of HAI....................................126
ITEM 2 - HAI MERGER PROPOSAL...........................................................................131
ITEM 3 - ADOPTION AND APPROVAL OF AMENDMENTS TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION.....132
ITEM 4 - ADOPTION AND APPROVAL OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION.........135
ITEM 5 - APPROVAL OF THE 2000 STOCK OPTION PLAN........................................................136
General.......................................................................................136
Eligibility...................................................................................136
Types of Awards...............................................................................136
Administration................................................................................136
Common Stock Subject to the 2000 Stock Option Plan............................................137
Limitation on Maximum Number of Options Awarded...............................................137
Change in Control.............................................................................137
Exercise Price of Options/Payment of Exercise Price...........................................137
Special Provisions for Incentive Stock Options................................................137
Exercisability and Expiration of Options......................................................138
Expiration of the 2000 Stock Option Plan......................................................138
Adjustments...................................................................................138
Transferability of Non-Qualified Stock Options................................................138
Amendments....................................................................................139
Awards Under the 2000 Stock Option Plan.......................................................139
Federal Income Tax Consequences of the 2000 Stock Option Plan.................................139
Incentive Stock Options.......................................................................139
Non-Qualified Stock Options...................................................................140
Limitation on HAI's Deduction.................................................................141
ITEM 6 - APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS....................................................142
ITEM 7 - ADJOURNMENT...................................................................................142
CHAPTER IV - OTHER HEALTHAXIS ANNUAL MEETING PROPOSALS..........................................................143
ITEM 1 - ELECTION OF HEALTHAXIS DIRECTORS..............................................................143
Board of Directors and Committees.............................................................143
Director Compensation.........................................................................143
Employment Agreements.........................................................................144
Stock Option Plan.............................................................................144
Insurdata Incorporated's Founders' Stock Option Plan..........................................146
Executive Compensation........................................................................146
Relationship With HAI And UICI................................................................146
Certain Transactions..........................................................................154
ITEM 2 - HEALTHAXIS MERGER PROPOSAL....................................................................159
ITEM 3 - ADJOURNMENT...................................................................................160
CHAPTER V - OTHER MATTERS.......................................................................................161
Where You Can Find More Information....................................................................161
Legal Matters..........................................................................................162
Experts ...............................................................................................162
Financial Statements...................................................................................162
Annual Report on Form 10-K/A...........................................................................162
Shareholder Proposals..................................................................................163
CHAPTER VI - CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHAXIS.COM, INC. AND CONSOLIDATED FINANCIAL STATEMENTS
OF INSURDATA INCORPORATED AND SUBSIDIARIES......................................................................F-1
APPENDICES
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Appendix A Amended and Restated Agreement and Plan of Reorganization.....................................A-1
Appendix B Amended and Restated Agreement and Plan of Merger.............................................B-1
Appendix C Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law -
Dissenters' Rights............................................................................C-1
Appendix D Opinion of Advest Group, Inc..................................................................D-1
Appendix E Amended and Restated Articles of Incorporation of HealthAxis Inc..............................E-1
Appendix F 2000 Stock Option Plan........................................................................F-1
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<PAGE>
CHAPTER I - THE MERGER
Questions and Answers About the Merger
Q: What do I need to do now?
A: Just vote your shares as soon as possible, so that the proxy agents
represent your shares at your annual meeting. You may vote your shares via
the telephone, the Internet or by mailing your signed proxy card to us in
the enclosed return envelope. Refer to the instructions contained in your
proxy card for further information. Both the HAI and HealthAxis annual
meetings will take place on _______________, 2001.
Q: What if I want to change my vote?
A: There are three ways in which you may revoke your proxy and change your
vote.
o Send a written notice to the party to whom you submitted your proxy,
changing your vote.
o Complete and submit a new proxy card.
o If the shares are held in your name, attend the annual meeting and vote in
person. If you have instructed your broker to vote your shares, you must
follow directions received from your broker to change your vote.
Q: When will HAI and HealthAxis complete the merger?
A: We are working towards completing the merger as quickly as possible and
expect to complete it as promptly as practicable following the shareholder
meetings.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, we will send HealthAxis shareholders
written instructions for exchanging their stock certificates. HAI
shareholders will keep their current stock certificates.
Q: What will I receive in the merger?
A: As a result of the merger, for each share of HealthAxis common stock or
preferred stock outstanding, HAI will issue HealthAxis shareholders 1.334
shares of HAI common stock. HAI will convert HealthAxis stock options into
HAI stock options at the share exchange ratio for HealthAxis common stock
with an adjusted exercise price. HAI will convert warrants to purchase
HealthAxis stock into warrants to purchase HAI common stock at the share
exchange ratio for HealthAxis common stock with an adjusted exercise price.
Please refer to page 26 for more information regarding the treatment of
HealthAxis stock options and warrants.
Q: What will happen to fractional shares?
A: HAI will not issue any fractional shares. Instead, HAI will issue HealthAxis
shareholders common stock rounded down to the nearest whole number of shares
of HAI common stock. HAI will pay shareholders cash for fractional shares.
Q: If my broker holds my shares in street name, will my broker vote my shares
for me?
A: No. Your broker will vote your shares only if you provide instructions on
how to vote. Without instructions, your shares will not be voted on the
proposed merger. Not voting your proxy has the same effect as voting against
the merger.
Q: Do I have options to vote other than by return mail?
A: Yes. HAI shareholders may also vote via telephone of the Internet. You may
vote your shares telephonically by calling the telephone number referenced
on your proxy card or you may vote via the Internet at the address on the
World Wide Web set forth on the proxy card. Please refer to the instructions
contained on your proxy card. In order to vote via the telephone or
Internet, you will need the control number that appears on your proxy card.
HealthAxis shareholders may only vote by mailing their proxy card to
HealthAxis in the envelope provided.
Q. Who can help answer my questions?
A. If you have any questions about the merger or if you need additional copies
of this joint proxy statement/prospectus or the enclosed proxy card, you
should contact Corporate Investor Communications, Inc. at the following
address:
Corporate Investor Communications, Inc.
111 Commerce Road
Carlstadt, NJ 07072-2586
Telephone: (800) 483-6862
You may also contact Steven Kaplan, our Director of Investor Relations,
at 610-275-3800.
<PAGE>
Summary
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
merger fully, and for more complete descriptions of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" on page
163.
The Companies
HealthAxis Inc.
2500 DeKalb Pike
East Norriton, Pennsylvania 19401
(610) 279-2500
HAI's operations are principally those of its minority-owned subsidiary,
HealthAxis. HAI was formerly an insurance holding company and its insurance
operations were conducted through its wholly owned subsidiary, Provident
Indemnity Life Insurance Company, prior to the sale of this subsidiary in
November 1999. At September 30, 2000, HAI had 13,097,618 shares of its common
stock outstanding.
HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, Pennsylvania 19401
(610) 279-2500
HealthAxis is a leading provider of software and application integration
services which assist its clients in using the Internet for health insurance
distribution and administration. HealthAxis serves insurance companies that
underwrite policies, independent entities that administer claims processing and
payment, Blue Cross/Blue Shield plans, and self-insured employers. Entities that
are responsible for the processing and payment of the insurance claims are
referred to as payers in the insurance industry and in this document. HealthAxis
also provides technology to various types of health insurance plan
intermediaries, including brokers, benefits consulting firms and online human
resource and benefits providers.
HealthAxis offers a fully functional Internet platform for the distribution
of health insurance products to the individual, small group, and large group
markets, both on a direct basis and through existing intermediaries such as
agents, affinity relationships and benefits consulting firms. HealthAxis also
offers a suite of Internet based software applications and services designed to
enhance the efficiency and effectiveness of insurance plan distribution, claims
administration, benefits enrollment, benefits maintenance and conversion of
insurance claims information to electronic form. HealthAxis also provides
systems integration, technology management and data capture services to its
clients.
In January 2000, HealthAxis acquired Insurdata Incorporated, an insurance
software and services company located in Dallas, Texas. In this document, we
refer to this transaction as the Insurdata merger.
On October 13, 2000, HealthAxis sold assets related to its retail website,
including the next version of its retail website user interface to Digital
Insurance, Inc. In this document we refer to this transaction as the Digital
sale. See "Recent Developments."
Our Reasons for the Merger
o improve HealthAxis' ability to raise capital on more favorable terms in
the public equity markets;
o streamline corporate structure to eliminate dual shareholder approval
requirements;
o increase liquidity available to current HealthAxis shareholders as a
result of the NASDAQ listing and trading volume of HAI common stock; and
o eliminate investor confusion related to HAI's long history as a health
insurance underwriter.
To review the reasons for the merger in greater detail, as well as the
risks of the merger, see pages 39 and 40.
The Meetings
Only shareholders of record of HAI and HealthAxis common stock as of
[_______ __], 2000, are entitled to attend and vote at the annual meetings. Both
the HAI and HealthAxis annual meetings will take place on [_________], 2000. The
times and places of the meetings are as follows:
3
<PAGE>
For HAI shareholders: 2:00 p.m.
2500 DeKalb Pike
East Norriton, PA 19401
For HealthAxis shareholders: 10:00 a.m.
2500 DeKalb Pike
East Norriton, PA 19401
Approval of the Merger
By HAI shareholders:
The affirmative vote of 80% of the outstanding shares of HAI common stock
is required to approve the merger. The directors and executive officers of HAI
collectively hold 16.5% of the outstanding shares of HAI common stock.
By HealthAxis shareholders:
The affirmative vote of a majority of the outstanding shares of HealthAxis'
capital stock and the majority of the outstanding shares of each series of
HealthAxis preferred stock, voting separately as classes, are required to
approve the merger. The directors and executive officers of HealthAxis
collectively own 0.8% of the outstanding shares of HealthAxis capital stock,
including 0.6% of the outstanding common stock. In addition, some directors of
HealthAxis have the ability to vote an additional 19.4% of the outstanding
capital stock of HealthAxis based upon their positions as trustees of two voting
trusts.
Our Recommendations to Shareholders
To HAI shareholders:
The HAI board believes that the merger is in your best interest and
recommends that you vote FOR the proposal to approve the merger documents and
the issuance of shares of HAI common stock to HealthAxis shareholders in the
merger.
To HealthAxis shareholders:
The HealthAxis board believes that the merger is in your best interest and
recommends that you vote FOR the proposal to approve the merger documents.
The Merger
The merger documents are attached as Appendices A and B to this joint proxy
statement/prospectus. We encourage you to read the merger documents as they are
the legal documents that govern the merger.
As a result of the merger, HealthAxis will become a wholly owned subsidiary
of HAI and HealthAxis capital stock will be converted into HAI common stock as
described below.
Ownership of HAI Following the Merger
(see page 42)
The merger agreements provide for the conversion of each outstanding share
of HealthAxis common stock into 1.334 shares of HAI common stock. In this joint
proxy statement/prospectus, we refer to this ratio of shares of HealthAxis
common stock to the shares of HAI common stock into which HAI will convert each
outstanding share of HealthAxis common stock as the exchange ratio.
We anticipate that HAI will issue a total of 39,629,133 shares of HAI
common stock to HealthAxis shareholders in the merger. We also anticipate that
HAI will issue up to an additional 8,085,732 shares of HAI common stock upon the
exercise of options and warrants to purchase HealthAxis common stock to be
assumed by HAI. Based on the number of shares of HAI common stock to be issued
in the merger, excluding shares subject to stock options and warrants to be
assumed by HAI, following the merger, existing HAI shareholders will own
approximately 24.8% and former HealthAxis shareholders will own approximately
75.2% of the outstanding common stock of HAI.
4
<PAGE>
Board of Directors and Management of HAI Following the Merger
(see page 42)
The current officers of HealthAxis will become officers of HAI. In
addition, the board of directors of HealthAxis will become the board of
directors of HAI. Effective February 1, 2001, Michael Ashker will become
Chairman of HAI and HealthAxis, James McLane will become President and Chief
Executive Officer of HAI and HealthAxis and Alvin Clemens will become Chairman
of the Executive Committee of HealthAxis and HAI.
Interests of HealthAxis' Management and Shareholders in the Merger (see page 41)
In considering the boards' recommendations that you vote in favor of the
merger, you should be aware that a number of officers of HealthAxis have
interests in the merger that are different from, or in addition to, your
interest in the merger. In addition, several HealthAxis shareholders have
options, registration rights or other interests in the merger that are different
from, or in addition to, your interest in the merger.
Conditions to the Merger (see page 31)
The completion of the merger depends upon the satisfaction or waiver of a
number of conditions.
Termination of the Merger Documents (see page 33)
We can agree to terminate the merger documents without completing the
merger, and either of us can terminate the merger documents under various
circumstances, including if the merger is not completed by March 31, 2001, or if
the conditions in the merger documents are not met by March 31, 2001. In
addition, HealthAxis has the option to terminate the merger at anytime because
HAI did not meet the condition in the merger documents related to an outstanding
amount owed by HAI under a guarantee agreement by October 31, 2000. This
condition was not met until December 12, 2000. HealthAxis waived its right to
terminate the merger for this reason.
Opinion of Financial Advisor (see page 36)
In deciding to approve the merger, HAI's board considered the opinion from
its financial advisor, Advest Group, Inc., that the stock consideration to be
paid by HAI to the shareholders of HealthAxis in the merger is fair, from a
financial point of view, to HAI and HAI's shareholders. We attached this opinion
as Appendix D to this joint proxy statement/prospectus. We encourage you to read
this opinion carefully in its entirety for a description of the assumptions
made, procedures followed, matters considered and limitations on the review
undertaken. Advest Group, Inc.'s opinion is directed to the HAI board of
directors and does not constitute a recommendation to any shareholder with
respect to any matter relating to the merger.
Listing of HAI Common Stock (see page 49)
HAI will list the shares of HAI common stock issued in connection with the
merger on the NASDAQ National Market or the NASDAQ SmallCap Market, as
applicable. In connection with the merger, HAI changed its trading symbol to
"HAXS." On August 9, 2000, HAI was notified by the NASDAQ National Market that
it would be delisted on November 9, 2000 for failure to meet the minimum bid
price of $5.00 for 30 consecutive trading days. HAI has appealed its delisting
which will stay the delisting pending the appeal panel's decision.
On December 15, 2000, the closing price of HAI common stock was $2.00.
Dividends After the Merger (see page 13)
HAI does not anticipate paying cash dividends on its common stock in the
foreseeable future. In addition, the provisions of a guarantee agreement
restrict HAI from declaring and paying dividends. Dividends paid by HAI over and
above the financial assets of HAI will depend upon the ability of HealthAxis to
pay dividends to HAI. HealthAxis currently intends to retain future earnings to
finance its operations and fund the growth of its business.
Federal Income Tax Consequences (page 47)
We have structured the merger so that, as a general matter, neither you,
HAI nor HealthAxis will recognize any gain or loss for federal income tax
purposes in the merger, except for those HealthAxis shareholders who exercise
their dissenters' rights and receive cash instead of shares and except for cash
received in lieu of fractional shares. We have conditioned the merger on our
receipt of a legal opinion that this is the case.
5
<PAGE>
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisors to gain an understanding of the tax consequences of the merger to you.
Dissenters' Rights (page 43)
HAI shareholders are not entitled to dissenters' rights in connection
with the merger.
Pennsylvania business corporation law grants HealthAxis shareholders
dissenters' rights. HealthAxis shareholders have the right to dissent from the
merger and obtain payment of the fair value of their HealthAxis stock if they
follow the procedures set forth under the Pennsylvania dissenters' rights
statute. These procedures generally require that a HealthAxis shareholder who
wishes to dissent file with HealthAxis a written notice of intention to dissent
prior to the vote on the merger proposal, make no change in the beneficial
ownership of their HealthAxis shares from the date of filing until the effective
time of the merger and refrain from voting for the approval of the merger
proposal. Other requirements are set forth in the Pennsylvania dissenters'
rights statute. Shareholders will forfeit these dissenters' rights if these
requirements are not fully, precisely and timely satisfied. See "-- The Merger
-- Rights of Dissenting HealthAxis Shareholders" and a copy of the text of the
Pennsylvania dissenters' rights statute attached as Appendix C to this joint
proxy statement/prospectus.
Please note that HAI has the right to abandon the transaction if the
holders of 10% or more of HealthAxis stock exercise dissenters' rights.
Regulatory Matters (page 42)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits us from
completing the merger until after HAI and HealthAxis furnish information and
materials to the Antitrust Division of the Department of Justice and to the
Federal Trade Commission and a required waiting period expired. HAI and
HealthAxis filed the required information with the Federal Trade Commission and
the required waiting period has ended.
6
<PAGE>
Selected Consolidated Financial Information of HAI
The following selected consolidated financial information has been
derived from the consolidated financial statements of HAI and should be read in
conjunction with the Consolidated Financial Statements incorporated by reference
in this document. Information for the three years ended December 31, 1999 has
been derived from the financial statements that were audited by BDO Seidman, LLP
and information for the two years ended December 31, 1996 has been derived from
the financial statements that were audited by HAI's previous auditors. All
information has been restated to present as discontinued operations HAI's
insurance operations and HealthAxis' retail website operations. The financial
information for the nine months ended September 30, 2000 and 1999 is unaudited.
Operating results for the nine months ended September 30, 2000 and 1999 reflect
all adjustments, which, in the opinion of HAI, are necessary to present fairly
results for the interim period. Results of operations for the nine month period
ended September 30, 2000, are not necessarily indicative of the results that may
be expected for the year ended December 31, 2000. HAI's consolidated financial
information includes that of its subsidiary, HealthAxis.
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30, For the Year Ended December 31,
------------------------ ------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data: (In thousands, except share and per share data)
Revenue:............................... $ 32,754 $ -- $ -- $ -- $ -- $ -- $ --
Expenses:
Cost of revenue...................... 22,850 -- -- -- -- -- --
Operating expenses................... 13,658 296 504 277 -- -- --
Sales and marketing.................. 2,389 282 447 134 -- -- --
General and administrative........... 10,464 4,966 7,457 3,967 1,908 744 271
Amortization of Intangibles(1)....... 30,837 108 765 -- -- -- --
-------- -------- -------- - ------ -------- ------- -------
Total expenses.................. 80,198 5,652 9,173 4,378 1,908 744 271
-------- -------- -------- - ------ -------- ------- -------
Operating loss....................... (47,444) (5,652) (9,173) (4,378) (1,908) (744) (271)
Interest and other income, net....... (1,093) (589) (925) (222) 177 (13) (14)
-------- -------- -------- - ------ -------- ------- -------
(Loss) before minority interest...... (48,537) (6,241) (10,098) (4,600) (1,731) (757) (285)
Minority interest in loss of
subsidiary........................... 26,854 315 1,008 493 -- -- --
-------- -------- -------- - ------ -------- ------- -------
Loss from continuing operations........ (21,683) (5,926) (9,090) (4,107) (1,731) (757) (285)
Loss from sale of discontinued
operations........................... (2,802) -- (10,263) -- -- -- --
Income (loss) from discontinued
operations........................... (6,341) (30,540) (27,178) (8,049) (16,694) 16,877 (3,416)
-------- -------- -------- - ------ -------- ------- -------
Net income (loss).................... (30,826) (36,466) (46,531) (12,156) (18,425) 16,120 (3,701)
Dividends on preferred stock........... -- 70 70 254 148 194 334
-------- -------- -------- - ------ -------- ------- -------
Net income (loss) applicable to
common stock......................... $(30,826) $(36,536) $(46,601) $(12,410) $(18,573) $15,926 $(4,035)
======== ======== ======== ======== ======== ======= =======
Basic and diluted income (loss)
per share of common stock:
Continuing operations................ $(1.66) $(0.50) $(0.75) $(0.42) $(0.19) $(0.10) $(0.06)
Discontinued operations.............. $(0.70) $(2.54) $(3.05) $(0.78) $(1.65) $1.76 $(0.38)
--------- -------- -------- - ------ -------- ------- -------
Net income (loss).................... $(2.36) $(3.04) $(3.80) $(1.20) $(1.84) $1.66 $(0.44)
======== ======== ======== ======== ======== ======= =======
Weighted average common shares and
equivalents used in computing basic
and diluted income (loss) per share.. 13,079,000 12,021,000 12,260,000 10,331,000 10,090,000 9,610,000 9,100,000
Basic and diluted dividends per
share paid on common stock........... -- -- -- -- -- -- $0.02
</TABLE>
-----------
(1) See Note H to the September 30, 2000 HAI Consolidated Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
At September 30, At December 31,
------------------- ------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data: (In thousands, except per share data)
Total assets............................. $ 727,585 $ 125,248 $ 79,602 $ 24,568 $ 12,333 $ 8,935 $ 3,702
Loans payable............................ -- -- -- 3,865 5,077 298 830
Convertible debentures................... 26,715 24,528 25,019 -- -- -- --
Ceding commission liability.............. 6,050 5,450 5,600 5,000 -- -- --
Preferred stockholders' equity........... -- -- -- 557 580 580 1,006
Book value per common share(1)........... 16.72 (1.37) 0.97 0.43 0.34 2.13 0.26
Pro forma book value per common share(2). 16.72 (1.37) 0.97 0.46 0.37 2.07 0.33
</TABLE>
--------------
(1) Book value per common share is computed by dividing total equity
attributable to common stockholders by the number of common shares
outstanding at the end of each period.
(2) Pro forma book value per common share is computed by dividing total equity
by the number of shares outstanding at the end of each period, assuming
conversion of preferred stock into common stock on a share-for-share basis.
8
<PAGE>
Selected Consolidated Financial Information of HealthAxis
The following selected consolidated financial information for the
periods indicated are derived from the consolidated financial statements of
HealthAxis. This information should be read in conjunction with the consolidated
financial statements of HealthAxis included in Chapter VI of this joint proxy
statement/prospectus. Information for the year ended December 31, 1999 and for
the period from Inception (March 26, 1998) through December 31, 1998 has been
derived from the financial statements that were audited by BDO Seidman, LLP.
Information for years prior to 1998 is not included in the table below because
HealthAxis was organized in 1998. All information has been restated to present
as discontinued operations for HealthAxis' retail website operations. The
financial information for the nine months ended September 30, 2000 and 1999 is
unaudited. Operating results for the nine months ended September 30, 2000 and
1999 reflect all adjustments, which, in the opinion of HealthAxis, are necessary
to present fairly results for the interim period. Results of operations for the
nine month period ended September 30, 2000, are not necessarily indicative of
the results that may be expected for the year ended December 31, 2000. The
financial results of HealthAxis presented in the tables below do not include
those of HealthAxis' parent, HAI.
<TABLE>
<CAPTION>
Period from
March 26, 1998
For the (inception)
For the Nine Months Year Ended through
September 30, December 31, December 31,
----------------------------- ------------- ---------------
2000 1999 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
(In thousands, except share and per share data)
(Unaudited)
Statement of Operations Data:
Revenue:..................................................... $ 32,754 $ -- $ -- $ --
Expenses:
Cost of revenues........................................... 22,850 -- -- --
Operating and development.................................. 13,658 296 504 277
Sales and marketing........................................ 2,389 282 447 134
General and administrative................................. 6,469 2,385 3,345 2,716
Amortization of Intangibles(1)............................. 29,523 -- -- --
--------- --------- --------- --------
Total Expenses............................................. 74,889 2,963 4,296 3,127
Operating (loss)............................................. (42,135) (2,963) (4,296) (3,127)
Interest and other income, net............................... 1,375 206 442 (139)
--------- --------- --------- --------
Loss from continuing operations.............................. (40,760) (2,757) (3,854) (3,266)
Loss from sale of discontinued operations(2)................. (1,949) -- -- --
Loss from discontinued operations............................ (17,540) (16,090) (25,864) (1,524)
--------- --------- --------- --------
Net (loss)................................................... (60,249) (18,847) (29,718) (4,790)
--------- --------- --------- --------
Dividends on preferred stock................................. -- (129) (129) (106)
--------- --------- --------- --------
Net (loss) applicable to common stock........................ $ (60,249) $ (18,976) $ (29,847) $ (4,896)
========= ========= ========= ========
Basic and diluted (loss) per share of common stock:
Continuing operations...................................... $ (0.98) $ (0.17) $ (0.23) $ (0.24)
Discontinued operations.................................... $ (0.46) $ (0.98) $ (1.54) $ (0.11)
--------- --------- --------- --------
Net (loss) ................................................ $ (1.44) $ (1.15) $ (1.77) $ (0.35)
========= ========= ========= ========
Weighted average common shares and equivalents
Used in computing basic and diluted income (loss) per share.. 41,910,000 16,479,000 16,808,000 14,027,000
</TABLE>
--------------
(1) See Note G to the September 30, 2000 HealthAxis Consolidated Financial
Statements.
(2) See Note C to the September 30, 2000 HealthAxis Consolidated Financial
Statements.
9
<PAGE>
<TABLE>
<CAPTION>
At September 30, At December 31,
-------------------------- -------------------------
2000 1999 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance Sheet Data: (In thousands, except per share data)
Cash and cash equivalents............................ $ 25,167 6,891 $ 56,444 $ 1,724
Total assets......................................... 723,373 15,947 64,926 14,969
Preferred stockholders' equity....................... 17,286 17,286 17,286 5,205
Redeemable preferred stockholders' equity............ 2,804 2,804 2,804 5,205
Stockholders' equity................................. 714,100 10,261 56,688 7,752
Book value per common share(1)....................... 16.47 (0.25) 2.05 0.33
Pro forma book value per common share(2)............. 15.75 0.66 2.52 0.75
</TABLE>
-----------
(1) Book value per common share is computed by dividing total equity
attributable to common stockholders by the number of common shares
outstanding at the end of each period.
(2) Pro forma book value per common share is computed by dividing total equity
by the number of shares outstanding at the end of each period, assuming
conversion of preferred stock into common stock on a share-for-share basis.
10
<PAGE>
Market Price Information
Except during the period between June 12, 1998 and November 6, 1998,
HAI common stock has been listed on the NASDAQ National Market. During the
period between June 12, 1998 and November 6, 1998, HAI's common stock traded on
the OTC Bulletin Board as a result of its being delisted due to the delayed
filing of HAI's December 31, 1997 Annual Report on Form 10-K and its March 31,
1998 Quarterly Report on Form 10-Q. Trading on the NASDAQ National Market was
reinstated as a result of HAI's filing of its December 31, 1997 Annual Report on
Form 10-K and the timely filing of all subsequent 1998 and 1999 Quarterly Form
10-Q reports. There is no established trading market for any HealthAxis stock.
The following table sets forth, for the periods indicated, the reported
high and low sale prices of HAI common stock as reported on the NASDAQ National
Market or the OTC Bulletin Board. Neither HAI nor HealthAxis has paid any cash
dividends on its common stock.
<TABLE>
<CAPTION>
Low High
----- ------
<S> <C> <C>
Fiscal Year Ended December 31, 1998:
First Quarter................................................... $2-1/4 $6-15/16
Second Quarter.................................................. 3-5/16 6-15/16
Third Quarter................................................... 3 8-1/4
Fourth Quarter.................................................. 2-3/4 14-1/8
Fiscal Year Ended December 31, 1999:
First Quarter................................................... 6-1/4 14-3/8
Second Quarter.................................................. 11-1/2 42-1/4
Third Quarter................................................... 12-3/4 37
Fourth Quarter.................................................. 13 40
Fiscal Year Ending December 31, 2000:
First Quarter................................................... 12-9/16 37-1/8
Second Quarter.................................................. 3-1/8 13-1/4
Third Quarter................................................... 2-3/4 5-1/8
Fourth Quarter (through December 15, 2000)...................... 1-1/2 5-1/4
</TABLE>
On August 9, 2000, HAI was notified by the NASDAQ National Market that
it would be delisted on November 9, 2000 for failure to meet the minimum bid
price of $5.00 for 30 consecutive trading days. HAI has filed an appeal to its
delisting which will stay the delisting pending the appeal panel's decision. The
hearing before the NASDAQ Appeals Panel was held on December 8, 2000. To date,
no decision has been rendered by the panel. See "Chapter I -- The Merger --
NASDAQ Listing."
11
<PAGE>
The information in the table below presents the closing price per share
of HAI common stock as reported by the NASDAQ National Market on January 31,
2000 and December 13, 2000. January 31, 2000 was the last day on which trading
occurred prior to public announcement of the execution of the agreement and plan
of merger. December 13, 2000 was the last practicable trading day for which
information was available prior to the date of this joint proxy
statement/prospectus. In addition, the table shows the pro forma equivalent
price per share of HealthAxis common stock, Series A preferred stock, Series B
preferred stock, Series C preferred stock and Series D preferred stock on
December 13, 2000, calculated by multiplying the closing price per share of HAI
common stock reported by the NASDAQ National Market by the share exchange ratio
of 1.334. The pro forma equivalent price per share information provided for the
HealthAxis preferred stock reflects the amount payable to holders of HealthAxis
preferred stock after conversion of their stock into HealthAxis common stock,
including the payment of accrued dividends, assuming the merger is completed on
December 13, 2000.
<TABLE>
<CAPTION>
Pro Forma Price Equivalent of HealthAxis Stock
-----------------------------------------------
HAI HealthAxis Preferred Stock
Common Common ----------------------------------------------
Stock Stock Series A Series B Series C Series D
-------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
January 31, 2000... $25.2500 $33.6835 $33.6835 $33.6835 $33.6835 $33.6835
December 15, 2000.. $2.000 $2.668 $2.668 $2.668 $2.668 $2.668
</TABLE>
HealthAxis and HAI shareholders are urged to obtain a current market
quotation for HAI common stock. No assurance can be given as to the future
prices of, or markets for, HAI common stock.
12
<PAGE>
Comparative Per Share Data (Unaudited)
The following table presents historical and pro forma per share data
for HAI and HealthAxis. HealthAxis, the company being acquired, is the sole
consolidated subsidiary of HAI and its operations represent the only operations
of HAI; therefore, equivalent pro forma per share amounts are not meaningful to
investor and have not been presented. The following tables should be read in
conjunction with the historical consolidated financial statements of HAI, the
historical financial statements of HealthAxis and the unaudited pro forma
financial data included under the caption "Pro forma Combined Financial
Statements," all of which are included elsewhere in this joint proxy
statement/prospectus or are contained in the annual reports and other
information HAI has filed with the SEC. See "--Chapter V -- Other Matters --
Where You Can Find More Information."
<TABLE>
<CAPTION>
As, at and for
the Nine Months As, at and for
Ended the Year Ended
September 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
Book Value Per Common Share
Historical(1):
HAI......................................................... $ 16.72 $ 0.97
HealthAxis.................................................. $ 16.47 $ 2.05
Pro forma:
Pro forma per share of HAI Common Stock..................... $ 6.41 $ 0.30
Loss from Continuing Operations Per Common Share:
Basic and Diluted (Loss) per Share:
Historical:
HAI......................................................... $ (1.66) $ (0.73)
HealthAxis.................................................. $ (0.98) $ (0.23)
Pro forma:
Pro forma per share of HAI common stock..................... $ (0.70) $ (0.68)
Common stock Outstanding at End of Period:
HAI Common Stock............................................ 13,098,000 13,027,000
HealthAxis Common Stock..................................... 42,477,000 20,587,000
Pro forma HAI Common Stock(2)............................... 52,727,000 52,656,000
</TABLE>
(1) This historical book value per common share is computed by dividing total
stockholders' equity attributable to common stock holders by the number of
shares of common stock outstanding at the end of the period. The pro forma
book value per share is computed by dividing pro forma stockholders' equity
related to common stock by the number of pro forma shares of HAI common
stock at the end of the period.
(2) This represents the number of shares of common stock that would have been
outstanding if each share of HealthAxis' preferred stock was converted into
common stock on a one for one basis and if each HealthAxis shareholder,
excluding HAI, received 1.334 shares of HAI common stock as provided for in
the merger agreement.
Neither HAI nor HealthAxis paid cash dividends on its common stock
during the periods indicated in the table above. HAI paid cash dividends on the
Series A and Series B preferred stock at the rate of $0.0635353 and $0.109090,
respectively, per quarter from 1993 to June 1999. All HAI Series A and Series B
preferred stock was converted into common stock in 1999 and 1996, respectively.
HealthAxis declared dividends on the HealthAxis Series A and Series B preferred
stock at the rate of $0.025 per quarter from November 1998 to March 1999. HAI
does not anticipate paying dividends on its common stock for the forseeable
future.
13
<PAGE>
Risk Factors
You should consider carefully the risks associated with the ownership
of HAI's common stock. These risks are described in detail below. You should
consider carefully these risk factors, together with all other information in
this joint proxy statement/prospectus.
Business Related Risks
Because HealthAxis has a history of operating losses, investors could lose all
or a portion of their investment.
Although HealthAxis recently sold the assets related to its retail
website, which accounted for the majority of the operating losses, HealthAxis
has incurred significant losses since its inception and may continue to incur
losses into the future. As of September 30, 2000, HealthAxis had an accumulated
deficit of approximately $102.5 million. HealthAxis' limited operating history
makes it difficult to evaluate HealthAxis' future prospects. Furthermore, you
must consider HealthAxis' prospects in light of the risks, expenses and
difficulties frequently encountered by companies in new, unproven and rapidly
evolving markets. HealthAxis expects negative cash flow from operations to
continue through the second quarter of 2001. See "-- Management's Discussion and
Analysis of Financial Condition and Results of Operations of HealthAxis."
If the healthcare industry does not accept HealthAxis' new information
technology, or acceptance occurs at a slower pace than anticipated, HealthAxis
may never increase revenues and generate net income.
HealthAxis believes that the claims and administration segment of the
healthcare industry has historically under invested in information technology.
If the conversion from traditional paper methods to electronic information
exchange does not continue to occur or this conversion occurs at levels below
those currently anticipated by HealthAxis, HealthAxis would not sell a
sufficient amount of its products and services to increase revenues and generate
net income. In addition, even if industry participants convert to electronic
information exchange, they may not elect to use HealthAxis' applications and
services.
HealthAxis' competitors may be more successful in attracting customers which
could result in decreased sales, a loss of revenue and a decrease in the value
of HAI's common stock.
HealthAxis' major competitors include WebMD, RIMS, ChannelPoint,
Erisco, El Dorado, TXEN, a division of Nichols Research Corp., Amisys Managed
Care Systems, Inc., a division of HBOC, EBenX and Firepond. HealthAxis also
competes with the internal information resources and systems of its prospective
and existing clients. These competitors could develop or offer superior
functionality with respect to specific or overall applications. Some of
HealthAxis' current and potential competitors are larger, better capitalized and
have greater financial and operating resources than HealthAxis. These
competitors may be able to respond more quickly to changes in customer
requirements or preferences and be able to devote greater resources to the
development, promotion and sale of their products and services. See
"--Information Concerning HealthAxis -- Competition."
14
<PAGE>
Errors in the application solutions could detract from the reliability and
quality of HealthAxis' information systems which, in turn, would result in
decreased sales, a loss of revenue, and a decrease in the value of HAI's common
stock.
HealthAxis devotes substantial resources to meeting the demands of the
claims and administration segment of the healthcare industry for a high level of
reliability and quality from its information systems. Through extensive client
acceptance testing requirements, historically HealthAxis has experienced only a
limited number of significant application errors, however, application
solutions, like most software applications, depending on the complexity of the
specific application, may contain undetected errors. These errors may result in
loss of data, a reduction in the ability to process transactions, or loss of, or
delay in, market acceptance of its application solutions. HealthAxis has
attempted to limit contractually and through insurance coverage its damages
arising from negligent acts, errors, mistakes or omissions in its application
solutions or in rendering its services; however, these contractual protections
could be unenforceable or insufficient to protect HealthAxis from liability for
damages in connection with the successful assertion of one or more large
lawsuits.
If HealthAxis is unable to protect its proprietary technology, its competitors
could use its proprietary technology to complete against it and its revenues
would be reduced.
HealthAxis' success depends to a significant extent on its ability to
protect the proprietary and confidential aspects of its application solutions
and the tradenames associated with them. HealthAxis' application solutions are
not patented and existing copyright laws offer only limited practical
protection. These legal protections afforded to HealthAxis or precautions taken
by HealthAxis may be inadequate to prevent misappropriation of its technology or
the tradenames associated with them. Any infringement or misappropriation of
HealthAxis' proprietary application solutions or the related tradenames could
have the effect of allowing competitors to use its proprietary information to
compete against HealthAxis or result in costly litigation in order to protect
its rights. In addition, these limited protections do not prevent independent
third-party development of functionally equivalent or superior technologies,
products or services.
HealthAxis may be subject to trademark and service mark infringement claims,
which could result in costly litigation and additional losses or decreased
revenues.
As competing healthcare information systems increase in complexity and
overall capabilities and the functionality of these systems further overlap,
HealthAxis could be subject to claims that its technology infringes on the
proprietary rights of third parties. These claims, even if without merit, could
subject HealthAxis to costly litigation and could direct the time and attention
of its technical and management teams. Further, if a court determined that
HealthAxis infringed on the intellectual property rights of a third party,
HealthAxis could be required to:
o develop non-infringing technology or tradenames,
o obtain a license to the intellectual property,
o stop selling the applications or using names that contain
the infringing intellectual property, or
o pay substantial damages awards.
If HealthAxis cannot develop non-infringing technology or tradenames or obtain a
license on commercially reasonable terms, any of the above listed potential
court ordered requirements would adversely impact HealthAxis' operations and
revenues. Additionally, in December 1998, a third party notified Insurdata
Incorporated that it believed Insurdata Incorporated had infringed upon a common
law trademark held by such party through its use of the name "Insur-Web" because
a similar name is currently being utilized by the third party.
15
<PAGE>
If HealthAxis is unable to register the service marks "HealthAxis" and
"HealthAxis.com," HealthAxis will not be able to take advantage of the benefits
and protections provided by owning a registered service mark.
HealthAxis was notified by the U.S. Patent and Trademark Office that it
had preliminarily denied registration of the service marks "HealthAxis" and
"HealthAxis.com" on the basis of potential confusion with an allegedly similar
registered service mark. HealthAxis is attempting to overcome the U.S. Patent
and Trademark Office's preliminary denial by negotiating a consent with the
party holding the similar mark. This party has agreed to HealthAxis'
registration of these marks. Until the U.S. Patent and Trademark Office approves
this agreement, HealthAxis can not provide any assurance as to whether it will
be successful in overcoming the U.S. Patent and Trademark Office's preliminary
denial of registration. See "-- Information Concerning HealthAxis --
Intellectual Property and Technology."
HealthAxis' failure to meet performance standards described in its service
agreements could result in additional losses or decreased revenues.
Many of HealthAxis' service agreements contain performance standards.
Historically, HealthAxis has failed and it currently anticipates that it will
continue to fail to meet certain contractual performance standards related to
turnaround times, availability and quality standards, set forth in its customer
agreements. HealthAxis' failure to meet these standards could result in the
termination of these agreements as well as financial penalties from current
clients and decreased sales to potential clients. These penalties range from
less than 1% to a maximum of 3% to 6% (for data capture agreements) of the
aggregate amount payable under the agreements. If HealthAxis is unable to
maintain performance standards, HealthAxis may experience decreased sales,
decreased revenues and continued losses.
The loss of one or more of HealthAxis' large clients would result in decreased
sales and revenues.
HealthAxis expects that a small number of clients, including UICI and
its subsidiaries, which are in the aggregate, HealthAxis' largest client, will
continue to account for a substantial portion of HealthAxis' total revenues for
the foreseeable future. For the nine months ended September 30, 2000, UICI and
its subsidiaries accounted for an aggregate of approximately $20.9 million, or
64% of HealthAxis' total revenues from continuing operations. For the year ended
December 31, 1999, UICI and its subsidiaries accounted for an aggregate of
approximately $28.2 million of HealthAxis' pro forma total revenues, which
represent approximately 66% of pro forma revenue for the period. A portion of
HealthAxis' revenue from UICI in the past was for year 2000 services that have
been substantially completed. UICI experienced a net loss for the year ended
December 31, 1999. Management is unable to predict whether UICI will continue to
experience financial difficulties in the future. HealthAxis would suffer a
decrease in revenues if UICI or its subsidiaries experience financial
difficulties impacting UICI's ability to pay HealthAxis for services.
Other large clients of HealthAxis include Digital Insurance, Inc. and
CIGNA. For the nine months ended September 30, 2000, these companies in the
aggregate accounted for 7.0% of HealthAxis total revenues from continuing
operations. HealthAxis anticipates that Digital Insurance, Inc. will account for
approximately 5.0% of HealthAxis' total revenue for the year ended December 31,
2000. The loss of one or more of these significant clients, or the failure to
generate anticipated revenue from these clients, would result in decreased sales
and revenues. See "-- Information Concerning HealthAxis - HealthAxis' Clients"
and "Chapter IV - Other HealthAxis Annual Meeting Proposals - Item 1 - Election
of Directors - Relationships with HAI and UICI."
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HealthAxis' operations outside of the United States may subject it to additional
risks which could result in decreased revenues and a decrease in the value of
HAI's common stock.
HealthAxis conducts operations related to the conversion of insurance
claims information to electronic form in Jamaica through an indirect subsidiary.
The Jamaican subsidiary and HealthAxis' subsidiary in Utah provide these
services to some of HealthAxis' application solutions clients in addition to
clients that only contract for these data capture services. For the nine months
ended September 30, 2000, HealthAxis earned 7% of its total revenues from its
Jamaican operations. HealthAxis' management has limited experience in the area
of foreign operations and may be unable to predict which risks are most likely
to present problems or resolve these problems when or if they occur. There is
less government regulation in Jamaica and there may be more difficulty in
enforcing legal rights. Additionally, there is the possibility of expropriation
or confiscatory taxation, limitations on the removal of property or other
assets, political or social instability or diplomatic developments which could
affect our Jamaican operations and assets.
Currently, HealthAxis' Jamaican subsidiary is able to take advantage of
the Jamaican labor market which provides both competent and less expensive labor
and as of September 30, 2000, HealthAxis' Jamaican subsidiary had 99 employees.
If the risks or problems posed by conducting operations in Jamaica require
significant financial or managerial resources or we are forced to relocate these
operations, HealthAxis' costs to provide these services would increase and
revenues would decrease.
Internet and Insurance Related Risks
If a sufficient number of insurance payers do not accept the Internet as a
medium for health insurance sales and administration, HealthAxis may be unable
to increase revenues and decrease losses.
If insurance payers do not accept the Internet as a medium for policy
sales and claims administration, HealthAxis will not be able to increase
revenues through sales of its application solutions. The health insurance
industry's traditional paper based methods are well-established and the industry
may be resistant to change.
In order to maintain compliance with insurance regulations, HAI may need to
expend financial and managerial resources which could reduce HAI's revenues and
the value of HAI's common stock.
The insurance industry is highly regulated and the regulations that
govern HealthAxis and HealthAxis' customers are subject to change. Changes in
these regulations could require HealthAxis to expend additional financial and
managerial resources to maintain its licenses and to revise its application
solutions in order to comply with any revised or new regulations.
HealthAxis also faces regulatory risk because most of the laws and
regulations governing insurance agents contemplate or assume paper-based
transactions and do not currently address the delivery of required disclosures
or other documents through electronic communications. While the Electronic
Signatures in Global and National Commerce Act or the "E-SIGN Act" recently
became law, state and federal regulatory agencies and courts have not
interpreted this act yet. Additionally, many states and insurance regulatory
agencies have not yet enacted laws or regulations which specifically allow for
electronic signatures instead of traditional signatures. Until the insurance
laws and regulations are revised to clarify their applicability to electronic
commerce or the E-SIGN Act and state electronic signature laws are specifically
applied to insurance transactions, HealthAxis' existing and potential customers
will face uncertainty as to compliance with these laws and regulations. Until
this uncertainty is resolved, HealthAxis' Internet based application solutions
may not be widely accepted in the insurance industry. See "-- Information
Concerning HealthAxis -- Regulation."
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Investment Related Risks
Because members of management of HAI and UICI will own or control a substantial
portion of HAI's common stock upon completion of the HAI merger, other
shareholders will not have the ability to control company actions that may not
be in their best interest.
Upon completion of the HAI merger, UICI and certain members of
management will own or control approximately 50% of HAI's outstanding common
stock. Additionally, pursuant to a shareholders' agreement to be entered into
between UICI and certain members of HAI management, including Messrs. Ashker and
Clemens, UICI and members of current management will have the right to nominate
for election three directors, and mutually nominate for election three
additional directors. As a result, UICI and members of current management,
acting together, will have sufficient voting power to influence the outcome of
all corporate matters submitted to the vote of shareholders or be in a position
to refrain from taking action favored by unaffiliated shareholders. These
individuals and UICI may make decisions which are not in the best interest of
shareholders.
In addition, the concentration of ownership in UICI could have the
effect of delaying or preventing a change in control of HAI and may eliminate
the opportunity for HAI shareholders to realize a premium over the
then-prevailing market price for their shares. Sales by UICI or current members
of management of a significant number of shares of HAI following the
reorganization could have an adverse effect upon the prevailing market price of
HAI common stock. See "-- Chapter IV -- Other HealthAxis Annual Meeting
Proposals -- Item 1 -- Election of Directors -- Relationship with HAI and UICI."
Share ownership by current management and UICI may result in the inability of
public shareholdrs to replace current management.
Upon completion of the HAI merger, UICI and some members of current
management, including Messrs Ashker and Clemens, will own or control a
significant percentage of the outstanding HAI common stock. In addition, some of
the members of the board of directors, including Messrs. Ashker and Clemens, by
virtue of their positions as trustees of two voting trusts, have shared voting
power with the other trustees over 19.4% of HealthAxis' outstanding capital
stock. Acting together, UICI and these individuals will control the nominees for
election as directors as well as other matters submitted to shareholders. As a
result, public shareholders may be unable to replace current management. See "-
Chapter III - Other HAI Annual Meeting Proposals - Item 1 - Election of HAI
Directors - Certain Relationships and Related Transactions."
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Potential conflicts of interest could arise because some people will serve as
directors of both HAI and UICI.
Various conflicts of interest could arise because persons serving as
directors of both HAI and UICI may have conflicting duties to each entity. Upon
completion of the HAI merger, Gregory T. Mutz, Chief Executive Officer of UICI,
and Patrick J. McLaughlin who are directors of UICI will become directors of
HAI. The relationship of these individuals with UICI could also create, or
appear to create, potential conflicts of interest when these directors are faced
with decisions that could have different implications for UICI and for HAI.
Given the relationships of these individuals with UICI, the vote may result in a
more favorable resolution of a matter to UICI than HAI. See "--Chapter IV --
Other HAI Annual Meeting Proposals -- Item 1 -- Election of HealthAxis Directors
-- Relationship with HAI and UICI."
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Because HealthAxis' agreements with UICI have not been subject to arm's-length
negotiations, these agreements will likely be less favorable to HealthAxis than
agreements negotiated with third parties.
As a result of UICI's control of Insurdata Incorporated prior to the
Insurdata merger, none of the terms of Insurdata Incorporated's contracts with
UICI and its subsidiaries, including the outsourcing agreement entered into
between Insurdata Incorporated and UICI, were subject to arm's-length
negotiations between the parties. As a result, these agreements include terms
and conditions that may be less favorable to HealthAxis than terms contained in
agreements negotiated with third parties. For example, the outsourcing agreement
with UICI limits HealthAxis pre-tax profit margin and provides that if
HealthAxis charges an unaffiliated third party a rate that is lower than it
charges UICI and its affiliates for similar services, UICI and its affiliates
would be entitled to receive the lower rate. The outsourcing agreement
terminates after an initial term of five years. However, at UICI's option,
HealthAxis is required to negotiate, in good faith, a three year renewal term
prior to the expiration of the agreement. While HealthAxis intends to negotiate
the terms of the renewal with UICI upon expiration of the outsourcing agreement
and any new agreement thereafter, UICI, as HealthAxis' largest customer and,
upon completion of the HAI merger, the holder of a substantial amount of HAI's
common stock, will likely receive terms more favorable to UICI than terms
contained in agreements negotiated with third parties. See "Chapter IV -- Other
HAI Annual Meeting Proposals -- Item 1 -- Election of HealthAxis Directors --
Relationship with HAI and UICI."
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Forward Looking Statements
Some of the information in this joint proxy statement/prospectus may
contain "forward-looking statements." Forward-looking statements can be
identified by the use of forward-looking language such as "will likely result,"
"may," "are expected to," "is anticipated," "estimate," "projected," "intends
to" or other similar words.
These forward-looking statements regarding our business and prospects
are based upon numerous assumptions about future conditions, which may
ultimately prove to be inaccurate. Actual events and results may materially
differ from anticipated results described in those statements. These
forward-looking statements involve risks and uncertainties that are described in
detail under "Risk Factors" as well as other portions of the joint proxy
statement/prospectus.
Any one or a combination of these factors could have a material adverse
effect on our business, results of operations and financial condition. These
forward-looking statements represent our judgment as of the date of this joint
proxy statement/prospectus.
When considering these forward-looking statements, you should keep in
mind these risk factors and other cautionary statements in this joint proxy
statement/prospectus. You should not place undue reliance on any forward-looking
statement that speaks only as of the date made.
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Recent Developments
Sale of Assets to Digital Insurance, Inc.
On June 30, 2000, HealthAxis. entered into an Asset Purchase Agreement
to sell the assets related to its retail website to Digital Insurance, Inc. On
September 29, 2000, HealthAxis and Digital Insurance, Inc. entered into an
Amendment to the Asset Purchase Agreement which amended, among other things, the
payment terms in the original agreement. This transaction was completed on
October 13, 2000. In this joint proxy statement/prospectus, we refer to this
transaction as the Digital sale.
Under the terms of the Asset Purchase Agreement, as amended, HealthAxis
transferred or assigned the assets used in connection with its retail website to
Digital Insurance, Inc., including:
o The current and next generation of the retail website user
interface, the presentation layer of the website that includes
the graphical templates that create the look and feel of the
website;
o Physical assets, including: call center equipment and
software, computer hardware and software, and furniture or
equipment used to conduct HealthAxis' retail website business;
o Agreements with carrier partners, the insurance companies
whose products are sold on the website;
o Agreements with affinity partners, the retail partners with
similar target audiences as the website;
o Portal marketing agreements;
o Additional agreements, including: agreements related to the
affiliate partner program, service agreements, and
independent contractor agreements;
o Goodwill associated with the transferred assets and assigned
agreements;
o All of HealthAxis' rights under manufacturers' and vendors'
warranties relating to the transferred assets; and
o All existing in-force insurance policies.
The book value of these assets amounted to $3,877,000. In conjunction with this
sale, $5,801,000 in goodwill was also written off.
The terms of the Asset Purchase Agreement, as amended, required Digital
Insurance, Inc. to pay HealthAxis the following consideration:
o $500,000 in cash;
o a promissory note in the amount of $500,000;
o 11%, on a fully-diluted basis, of the outstanding shares of
Digital Insurance, Inc.; and
o a portion of Digital Insurance Inc.'s net commission revenues
received by Digital Insurance, Inc. through the acquired
website user interface or an affinity partner.
Under the terms of the original Asset Purchase Agreement dated June 30,
2000, Digital Insurance Inc. was to pay HealthAxis $1,000,000 in cash at
closing. The Amendment to the Asset Purchase Agreement dated September 29, 2000
changed the terms of $1,000,000 payment to $500,000 cash and a $500,000
promissory note from Digital Insurance, Inc. which is due in installments of
$250,000 on March 1, 2001 and July 1, 2001. These amended payment terms had no
impact on the amount of the loss expected from the Digital sale because the
fair value of the consideration to be received remains unchanged at $1,000,000.
Prior to this transaction neither HealthAxis nor any of its affiliates
had any business or financial relationships with Digital Insurance, Inc.
Pursuant to the terms of the promissory note, the remaining $500,000
will be paid in two installments over the next 10 months, provided that no
installment is required to be paid prior to Digital Insurance, Inc.'s final
acceptance of the new version 3.0 of the retail website user interface and
HealthAxis' completion of software and integration services provided for in the
Asset Purchase Agreement and the promissory note.
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Under the Asset Purchase Agreement, as amended, HealthAxis has the
right, subject to restrictions, to maintain its 11% ownership interest in
Digital Insurance, Inc. by purchasing additional securities in any future equity
offerings by Digital Insurance, Inc.
HealthAxis and Digital Insurance, Inc. also entered into a Software
License and Consulting Agreement that provides HealthAxis with:
o A perpetual nonexclusive license to use and sublicense,
subject to restrictions, the website user interface sold to
Digital Insurance, Inc.;
o Licensing fees over the next 30 months of $3.0 million for
software owned by HealthAxis that will be used by Digital
Insurance, Inc. in conjunction with the user interface it
purchased; and
o Service fees over the next 12 months of a minimum of $3.0
million for services relating to customizing, maintaining and
upgrading the user interface and other software.
The fair value of the shares of Digital Insurance, Inc. common stock
received by HealthAxis has been determined to be $3.2 million which is the
stated value in the Asset Purchase Agreement and is based on a prior investment
received by Digital Insurance, Inc. The value of the Digital shares did not
materially change between June 30, 2000 and October 13, 2000.
Due to the sale of assets to Digital Insurance, Inc., the retail
website operations have been accounted for as discontinued operations as of the
measurement date of June 30, 2000. Accordingly, the loss on the sale of the
retail website operations which amounted to $2.8 million and the loss from
operations amounting to $6.3 million were recorded by HAI in the financial
statements for the nine months ended September 30, 2000. The sale of assets to
Digital Insurance, Inc., has been recorded as of September 30, 2000 because the
sale was a material subsequent event that was consummated prior to the issuance
of the interim financial statements. Included in the loss on the sale is an
estimate of the expected future losses from the retail website operations during
the phase out period from July 1, 2000 to December 31, 2000. As of October 13,
2000, approximately $2.1 million of these estimated losses have been incurred.
Since completion of the Digital sale, HealthAxis is focused exclusively
on providing Internet based application solutions and services to both
healthcare payers and those entities involved in the distribution and
administration of health insurance and will no longer be an Internet based
insurance agency.
Amendment to Securities Purchase Agreement Related to the 2% Convertible
Debentures
On September 28, 2000, HAI entered into an Amendment to the Securities
Purchase Agreement dated September 14, 1999 between HAI and the holders of HAI's
$27.5 million 2% convertible debentures due September 14, 2002, which were
initially issued in a private placement to institutional investors on September
15, 1999. In accordance with the terms of the Amendment, the terms of the
debentures were amended to, among other things, extend the maturity of the
debentures to September 14, 2005, to change the conversion price to $9.00 per
share and to modify the events of default. Based upon the revised conversion
price upon the closing of this transaction, the amended debentures will be
convertible into 3,055,555 shares of HAI's common stock. The terms of the
Warrants to purchase 202,802 shares of HAI's common stock issued to the
purchasers of the debentures were also amended to reduce the exercise price to
$3.01 and to extend the exercise period of the warrants for an additional year,
or until September 13, 2005. In addition, as part of this transaction, HAI and
the holders of the debentures intend to enter into an Amended and Restated
Registration Rights Agreement.
The Amendment to the Securities Purchase Agreement provides that, among
other things, the amendments to the debentures, warrants and the registration
rights agreement will take effect on or before the fifth business day after
HAI's shareholders have approved the HAI merger. The holders of the
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debentures have agreed to conditionally waive and suspend any and all past or
current defaults or violations arising under the debenture or the registration
rights agreement, and to forbear from enforcing any and all past, current or
future defaults or violations by HAI arising under the debentures or the
registration rights agreement as well as any defaults or violations arising
under these agreements from September 28, 2000 through the closing date of the
HAI merger. The Amendment to the Securities Purchase Agreement provides that the
waiver of any and all defaults will be null and void if:
o HAI and HealthAxis fail to execute the Amended and
Restated Agreement and Plan of Reorganization by
October 2, 2000 (The Amended and Restated Agreement and Plan
of Reorganization was signed on September 29, 2000);
o a majority of HAI's shareholders do not approve the
HAI merger on or prior to March 31, 2001; or
o the HAI merger is otherwise suspended, terminated or
publicly abandoned prior to March 31, 2001.
If HAI's shareholders approve the HAI merger on or before March 31, 2001, the
holders of the debentures will not have any right to payment of any penalties or
defaults that exist under the current debentures or the registration rights
agreement. Additionally, upon consummation of the HAI merger, the amendments to
the debentures and the registration rights agreement will become effective.
These amendments do not contain the same penalty and default provisions that are
contained in the current agreements which would entitle the holders to payments
for HAI's failure to register the shares to be issued upon the conversion of the
debentures within the specified time frames. However, if the HAI merger is not
completed or is terminated on or prior to March 31, 2001, the waiver will be
null and void, the amended debenture and amended registration rights agreement
will not become effective, and the holders will be entitled to demand payment
for any and all defaults under the current debentures and the registration
rights agreement.
HAI will account for the modifications to the debentures and warrants
upon consummation of the HAI merger in the following manner. The amendment to
the terms of the warrants will result in a debt restructuring charge of
approximately $477,000. The original issuance of the warrants was accounted for
in the historical financial statements of HAI as a discount given on the
debentures. This charge represents the adjustment of the original issue discount
to the remeasured fair value of the options on the date of the amendment. The
amendment to the debentures will have no material impact on HAI's financial
statements.
HAI also agreed not to sell any shares of its capital stock or stock of
HealthAxis without the prior consent of holders of more than 50% of the
outstanding principal amount of the amended debentures, although it is permitted
to pledge up to 566,667 shares of the HealthAxis stock owned by it to secure the
repayment of loans aggregating $3,404,589 made to HAI by HealthAxis. HAI also
agreed to refile this joint proxy statement/prospectus on Form S-4 with the SEC
on or prior to October 31, 2000 and to use its commercially reasonable best
efforts to promptly respond to comments received from the SEC and, assuming this
joint proxy statement/prospectus on Form S-4 is declared effective by the SEC,
to hold a meeting of shareholders to approve the HAI merger.
HealthAxis Loan to HAI
HealthAxis and HAI entered into a loan agreement dated as of September
29, 2000 which reflects the terms and conditions of the new and existing loans
from HealthAxis to HAI of up to $3,404,589. This amount is evidenced by three
promissory notes. The first note provides HAI with a line of credit of up to
$1.1 million which HAI may use to pay expenses associated with the HAI merger,
interest on HAI's 2% convertible debentures and general operating expenses. The
second note provides HAI with up to $1.0 million to be used, in addition to
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other consideration provided by HAI, to settle any amount owed to Hannover Life
Reassurance Company of America under a guaranty agreement. Under the amended and
restated HAI merger agreements, HealthAxis may terminate the HAI merger if HAI
does not obtain an unconditional and irrevocable release under a guaranty
agreement with Hannover Life on terms otherwise acceptable to HealthAxis by
October 31, 2000. HAI was released from the guarantee effective December 12,
2000. As a result, no funds were advanced pursuant to the second note.
HealthAxis waived its right to terminate the merger for this reason. The third
promissory note relates to funds previously advanced to HAI in the amount of
$1,304,589.
All three notes become due and payable on the earlier of March 31, 2001
or the date the HAI merger is consummated. The interest on the principal under
each note will accrue at 12% per annum from the date of the note until the date
the note terminates.
HAI's obligations under the notes are secured pursuant to a stock
pledge and security agreement between HAI and HealthAxis dated as of September
29, 2000. Under the security agreement, the first note will be secured by the
number of shares of HealthAxis common stock held by HAI determined by
multiplying the amount of the loan divided by 1.3 times the average HAI trading
price (as defined in the security agreement). In addition, the Second Note will
be secured by up to 200,000 shares of HealthAxis common stock held by HAI. In
the event of default which is not cured as described in these notes, HealthAxis
has the right in addition to rights available to secured creditors under
Pennsylvania law, to have the pledged shares registered in its name. An event of
default, as defined in the notes, includes:
a. a default in the payment of principal or interest on any of
the Debentures, which default shall not have been cured
within the applicable time frames;
b. failure on the part of HAI to duly observe or perform any of
the covenants or agreements applicable to HAI contained in the
debentures, amendment to the securities purchase agreement or
the amended registration rights agreement for a period of ten
business days which is not cured within the applicable time
frames;
c. the entry of a decree or order for relief in an involuntary
case under any applicable bankruptcy, insolvency or other
similar law;
d. commencement of a voluntary case under any applicable
bankruptcy, insolvency or other similar law;
e. any representation or warranty made by HAI to HealthAxis in
connection with the HAI merger and the related agreements
which proves to have been incorrect in any material respect
when made; and
f. an event of default has occurred under the terms of HAI's 2%
convertible debentures.
In connection with the loans made to HAI by HealthAxis, HAI and some of
the holders of debentures entered into a subordination agreement which provides
HealthAxis with priority of payment over these debenture holders. These
debenture holders, which include UICI, Alvin H. Clemens, Brown Simpson Strategic
Growth Fund, Ltd., Brown Simpson Strategic Growth Fund L.P. and Brown
Simpson-ORD Investments LLC, agreed, among other things, not to accept any
payments, other than scheduled interest payments, under the debentures until the
loans made by HealthAxis to HAI are repaid in full.
On December 1, 2000, HAI entered into a Settlement and Release Agreement
with Hannover Life. Pursuant to this Settlement and Release Agreement, HAI is
released from all liability under a guaranty agreement and a related stock
pledge agreement with Hannover Life in exchange for a payment of $4.25 million.
Pursuant to its terms, Hannover Life had the right to terminate this Settlement
and Release Agreement if HAI did not sell the building in East Norriton where
its headquarters is located to its subsidiary, HealthAxis, by December 15, 2000.
On December 11, 2000, HAI completed the sale of the building to HealthAxis for
$4.25 million. HAI and Hannover Life consummated the transaction pursuant to the
Settlement and Release Agreement on December 12, 2000.
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The Merger
Material Terms of the Merger Documents
The following is a summary of the material provisions of the merger
documents, consisting of the amended and restated reorganization agreement and
the plan of merger. A copy of the amended and restated agreement and plan of
reorganization is attached as Appendix A to this joint proxy
statement/prospectus, and a copy of the amended and restated agreement and plan
of merger is attached as Appendix B to this joint proxy statement/prospectus.
These amended and restated merger documents are incorporated into this joint
proxy statement/prospectus by reference, and you are urged to read them
carefully. In this document, we refer to this transaction as the merger or the
HAI merger.
The amended and restated merger documents provide for the merger of
HealthAxis with and into a newly-formed, wholly-owned subsidiary of HAI. As a
result of the merger, HealthAxis will cease to exist, and the former
shareholders of HealthAxis will become shareholders of HAI. The HAI subsidiary
will continue as the surviving corporation of the merger and will retain all of
its separate corporate existence, with all its rights and powers unaffected by
the merger. The merger will become effective upon the filing of articles of
merger with the Pennsylvania Secretary of Commonwealth or at such later time as
may be specified in the articles of merger. The filing of the articles of merger
is anticipated to take place as soon as practicable after the adoption and
approval of the merger by the HealthAxis and HAI shareholders, if other
conditions to merger are satisfied or waived. We currently anticipate that the
merger will be completed and the merger will be effective, shortly after the
meetings of HealthAxis and HAI shareholders to approve the merger. There can be
no assurance, however, that the conditions to the merger will be satisfied by
such date, or at all, or that the merger documents will not be terminated. See
"-- Conditions to the Merger."
Merger Consideration. When the merger is completed, each outstanding
share of HealthAxis common stock and each outstanding share of HealthAxis
preferred stock then outstanding (except for any such shares held by HealthAxis
as treasury stock and any shares held by HAI or any subsidiary of HAI or
HealthAxis) will be converted into the right to receive 1.334 shares of HAI
common stock.
No Fractional Shares. HAI will not issue fractional shares of its
common stock in connection with the merger. Any holder of HealthAxis common
stock or preferred stock who would otherwise be entitled to receive a fraction
of a share of HAI common stock will be paid in cash the dollar amount (rounded
to the nearest whole cent), without interest, determined by multiplying the
fractional amount by the closing sales price of a share of HAI common stock on
the date the merger is completed.
Stock Options and Warrants. Upon completion of the merger, all rights
with respect to HealthAxis common stock under each HealthAxis option or warrant
to acquire HealthAxis common stock outstanding shall be converted into and
become rights with respect to HAI common stock. As of the record date, there
were HealthAxis options outstanding to purchase an aggregate of 4,142,885 shares
of HealthAxis common stock and warrants outstanding to purchase an aggregate of
1,125,500 shares of HealthAxis common and preferred stock. Upon completion of
the merger:
o each HealthAxis option or warrant assumed by HAI may be
exercised solely for shares of HAI common stock;
o the number of shares of HAI common stock subject to each
HealthAxis option or warrant will equal the number of shares
of HealthAxis common stock subject to the option or warrant
immediately prior to the completion of the merger multiplied
by the exchange ratio, rounded down to the nearest whole share
(with cash, less the applicable exercise price, being payable
for any fraction of a share);
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o the per share exercise price under the HealthAxis option or
warrant will be adjusted by dividing it by the exchange ratio
and rounding up to the nearest cent;
o any restriction on the exercise of any HealthAxis option or
warrant will continue in full force as will all other terms;
and
o the options and warrants will be subject to adjustment as
appropriate to reflect any stock split, stock dividend,
reverse stock split, reclassification, recapitalization or
other similar transaction.
Stock Ownership Following the Merger. Based on the number of shares of
HealthAxis common stock and preferred stock issued and outstanding as of the
record date, an aggregate of approximately 39,629,133 shares of HAI common stock
will be issued to holders of HealthAxis common stock and preferred stock. Based
on the number of shares of HAI common stock issued and outstanding as of the
record date, and after giving effect to the additional shares of HAI common
stock that are proposed to be issued in the merger, assuming no exercise of
outstanding options and warrants to purchase HAI common stock or HealthAxis
common stock, the former holders of HealthAxis capital stock would hold
approximately 75.2% of HAI's total issued and outstanding shares of capital
stock.
Conversion of Shares; Procedures for Exchange of Certificates. HAI will
designate its transfer agent, ChaseMellon Shareholder Services, Inc., to act as
the exchange agent. As soon as reasonably practicable after the completion of
the merger, the exchange agent will mail to the registered holders of HealthAxis
common stock and preferred stock:
o a letter of transmittal; and
o instructions for use of the letter of transmittal to
surrender valid common stock and preferred stock
certificates representing shares of HealthAxis common
stock in exchange for certificates representing HAI
common stock.
Upon surrender of a HealthAxis stock certificate to the exchange agent,
together with a duly executed letter of transmittal and any other documents that
may be required, the holder of the HealthAxis stock certificate will receive a
certificate representing the whole number of shares of HAI common stock that
holder has a right to receive. HAI will not issue fractional shares of its
common stock in connection with the merger. See "Merger Consideration -- No
Fractional Shares."
If any HealthAxis stock certificate has been lost, stolen or destroyed,
HAI may require the owner of the certificate to provide an appropriate affidavit
and to deliver a bond (in such sum as HAI may reasonably direct) as indemnity
against any claim that may be made against the exchange agent, HAI or HealthAxis
with respect to the missing certificate.
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HealthAxis shareholders should not send their HealthAxis stock certificates to
HAI or its transfer agent for exchange until they receive a letter of
transmittal.
Effect on Certificates. Upon completion of the merger, all shares of
HealthAxis common stock and preferred stock outstanding immediately prior to the
effective time will automatically be canceled and will no longer exist. All
holders of those certificates will no longer have any rights as shareholders of
HealthAxis except the right to receive shares of HAI common stock. In addition,
the stock transfer books of HealthAxis will be closed with respect to all shares
of HealthAxis common stock and preferred stock outstanding immediately prior to
the completion of the merger. No further transfer of any shares of HealthAxis
common stock and preferred stock will be made on the stock transfer books after
the effective time. If, after the completion of the merger, a HealthAxis stock
certificate is presented to the exchange agent or to HealthAxis or HAI, it will
be canceled and exchanged as provided above under the caption "Conversion of
Shares; Procedures for Exchange of Certificates."
Corporate Matters. Upon completion of the merger, the Articles of
Incorporation and Bylaws of the surviving corporation will be the Articles of
Incorporation and Bylaws of the HealthAxis Acquisition Corp. as in effect
immediately prior to the effective time. The name of the surviving corporation
will be changed to HealthAxis.com, Inc.
Representations and Warranties. The reorganization agreement contains
statements and promises, called representations and warranties, made by
HealthAxis and HAI. Some of HealthAxis' representations and warranties relate to
the following:
o the organization and power of HealthAxis and its subsidiaries;
o effect of the merger on articles of incorporation, bylaws and
material agreements;
o consents;
o capital stock and ownership;
o corporate records;
o financial statements and no material undisclosed liabilities;
o taxes;
o title to assets;
o real property and leaseholds;
o obligations;
o operations since June 30, 2000;
o software and other intangible assets;
o contracts;
o employee and independent contractors;
o employee benefit plans;
o labor matters;
o environmental matters;
o material suppliers;
o insurance;
o transactions with affiliates;
o questionable payments;
o legal proceedings and judgments;
o liens;
o brokers fees;
o shareholder vote required; and;
o full disclosure.
Some of HAI's and HealthAxis Acquisition Corp.'s representations and
warranties relate to the following:
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o organization, standing and power;
o capital stock and ownership;
o financial statements;
o corporate records;
o taxes;
o filings with the SEC;
o assets;
o obligations;
o operations since June 30, 2000;
o real property and leaseholds;
o software and other intangibles;
o contracts;
o employees and independent contractors;
o employee benefit plans;
o labor matters;
o environmental matters;
o related party transactions;
o questionable payments;
o investment matters;
o brokerage fees;
o insurance;
o compliance with applicable laws;
o effect of merger on articles of incorporation, bylaws and
material agreements, authority and binding nature of
agreements; and
o full disclosure.
None of the representations and warranties of HealthAxis, HAI or
HealthAxis Acquisition Corp. contained in the amended and restated
reorganization agreement, or in any certificate delivered pursuant to the
amended and restated reorganization agreement, survive the merger.
To review all of the representations and warranties contained in the
reorganization agreement you should read the amended and restated agreement and
plan of reorganization attached as Appendix A.
Covenants. The amended and restated reorganization agreement includes
several covenants and agreements of HealthAxis and HAI which govern their
actions until the merger is completed. These covenants and agreements include
the following which require that:
o HealthAxis will, and will require its subsidiaries to, conduct
its business in a diligent manner and not make any material
change in its business practices. HealthAxis will use its best
efforts to ensure that each of the HealthAxis subsidiaries
will use its best efforts to keep its business organization
intact, keep available the services of its current officers,
employees, salesmen, agents and representatives and maintain
its goodwill with all suppliers, customers, and other persons
or entities having business relationships with the
subsidiaries.
o HealthAxis will require each of its subsidiaries to maintain
their corporate existence and good standing in its
jurisdiction of incorporation and each jurisdiction where it
is currently qualified as a foreign corporation, and not amend
its articles or bylaws;
o HealthAxis will not, and will not permit its subsidiaries to,
redeem, retire or purchase, or create, sell, grant or issue
any options, warrants or other contracts or contract rights
with respect to any shares of capital stock or other
securities, or create, sell, grant or issue any stock options,
stock appreciation rights, phantom shares or other similar
rights, except as consistent with past practices;
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o HealthAxis will not and will not permit its subsidiaries to
transfer funds to HAI or any affiliate of HAI unless the
transfer is approved by the directors of HealthAxis who are
not directors of HAI and the transfer is evidenced by a note
from HAI and is secured by assets of HAI;
o Any waiver of any covenant or condition by HealthAxis under
the Agreement must be approved by the directors of HealthAxis
who are not also directors of HAI;
o Except for the conversion and/or exercise of currently
outstanding warrants, stock options or preferred stock,
HealthAxis will not, and will not permit its subsidiaries to,
sell, assign, give, pledge, grant or otherwise transfer,
dispose of or encumber shares of HealthAxis stock or any other
capital stock or other securities of HealthAxis;
o HealthAxis will not, and will not permit its subsidiaries to,
enter into any contract that commits it or any subsidiary to
take any action or omit to take any action that would be
inconsistent with any of the provisions of the merger
documents;
o HealthAxis and its subsidiaries will use their reasonable best
efforts to obtain all approvals and consents necessary to
permit the merger;
o HealthAxis will promptly advise HAI of any changes that would
have been required to be disclosed in the merger documents;
o HealthAxis will use its reasonable best efforts to consummate
the merger;
o HAI will conduct its business in the ordinary course
consistent with past practice, not make any material change in
its business practices, and use its reasonable best efforts to
preserve its business organization intact, keeping available
the services of its current officers, employees, salesmen,
agents and representatives, and maintain the goodwill of its
customers, suppliers and other persons having business
relations with HAI;
o HAI and HealthAxis Acquisition Corp. will maintain their
corporate existence and good standing in their jurisdictions
and will not amend their charters or bylaws in any manner that
would be inconsistent with its obligations under the merger
documents;
o HAI will not redeem, retire or purchase, or create, grant or
issue any options, warrants or other contracts or contract
rights with respect to any securities of HAI, or create, grant
or issue any stock options, stock appreciation rights, phantom
shares or other similar rights, except as may be consistent
with past practices;
o HAI will not sell, assign, give, pledge, grant or otherwise
transfer, dispose of or encumber any HAI securities owned or
held by HAI, except with respect to the conversion and/or
exercise of currently outstanding warrants, stock options or
preferred stock;
o HAI and HealthAxis Acquisition Corp. will use their reasonable
best efforts to obtain all consents and approvals necessary
to permit the merger;
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o HAI will timely file all reports and other filings required to
be filed by it under the Exchange Act;
o HAI and HealthAxis Acquisition Corp. will not enter into any
contract that commits them to take any action or omit to take
any action that would be inconsistent with any of the
provisions of the merger documents;
o HAI and HealthAxis Acquisition Corp. will promptly advise
HealthAxis of any fact to its knowledge that would have been
required to be disclosed under the reorganization agreement;
o HAI will not accept any funds from HealthAxis unless the
transfer of the funds has been approved by the directors of
HealthAxis who are not also directors of HAI and the transfer
is evidenced by a note and secured by assets of HAI;
o Any waiver by HAI of any covenant or condition under the
agreement must be approved by the directors of HAI who are not
also directors of HealthAxis, and
o HAI and HealthAxis Acquisition Corp. will use their reasonable
best efforts to consummate the merger.
The reorganization agreement also contains additional covenants of the
parties including covenants relating to:
o obligations with respect to the annual meetings of HAI and
HealthAxis;
o the filing of a registration statement and joint proxy
statement/prospectus with the SEC;
o the procurement of approvals required under state securities
laws;
o compliance with tax laws; and
o full disclosure.
To review all the covenants and agreements contained in the
reorganization agreement, you should read the amended and restated
reorganization agreement which is attached as Appendix A.
Conditions to the Merger. The completion of the merger depends upon the
satisfaction or waiver of conditions, including, among other things:
o receipt by HAI of a duly signed affiliate letter, from each
affiliate of HealthAxis, stating that the affiliate will not
sell, transfer or otherwise dispose of any HAI stock in
violation of the Securities Act of 1933, as amended;
o the merger and the issuance of shares of HAI common stock in
the merger must have been duly approved by the shareholders
of HealthAxis and HAI;
o the HAI shareholders must have approved the amendment to the
HAI Articles of Incorporation to increase the number of
authorized shares;
o the aggregate number of shares of HealthAxis stock owned by
shareholders of HealthAxis (if any) who have exercised (or
given notice of their intent to exercise) the rights of
dissenting shareholders under the applicable corporate law
must be less than ten percent (10%) of the total number of
outstanding shares of HealthAxis stock;
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o there must not have been any material breach of any
representation, warranty or certification made by any party to
the reorganization agreement;
o all of the terms and conditions of the reorganization
agreement must be substantially satisfied or performed;
o there may not be any legal proceeding, judgment or new law
that seeks to or does prohibit or restrain, or that seeks
damages as a result of, the completion of the merger or any
other transactions provided in the merger documents;
o there must not have been any material adverse change or
material casualty loss affecting HealthAxis, HAI or their
subsidiaries, or their respective businesses, assets or
financial condition, between the date of the reorganization
agreement and the closing date;
o the following individuals must have been elected to the board
of directors of HAI effective as of the date the merger is
effective: Dennis B. Maloney, Gregory T. Mutz and Patrick J.
McLaughlin;
o HAI, HealthAxis Acquisition Corp., UICI, Michael Ashker and
Alvin H. Clemens must have entered into a shareholders'
agreement which is described under " - Interests of HealthAxis
Management and Shareholders in the Merger;"
o the registration statement must have become effective in
accordance with the relevant provisions of the Securities Act,
and no order suspending such effectiveness must have been
issued and remain in effect;
o the shares of HAI common stock issuable in accordance with the
merger must have been approved for listing on the NASDAQ
National Market System or NASDAQ SmallCap Market, as
applicable, subject to official notice of issuance;
o the parties must have received an opinion of tax counsel
reasonably satisfactory to HAI and HealthAxis that the merger
will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code and each of HAI,
HealthAxis and HealthAxis Acquisition Corp. will be a "party
to a reorganization" within the meaning of Section 368(b) of
that code;
o the parties must have received an opinion of tax counsel to
the effect that the merger will not adversely affect the
qualification of the merger between HealthAxis and Insurdata
Incorporated which occurred on January 7, 2000, as a
"reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code; and
o the net worth of HealthAxis and its subsidiaries on a
consolidated basis as determined in accordance with GAAP, but
excluding goodwill and all other intangible assets acquired as
a result of HealthAxis' acquisition of Insurdata Incorporated
is not less than $50.0 million if closing occurs on or before
March 31, 2000, $35.0 million if closing occurs on or before
June 30, 2000 and $20.0 million if closing occurs on or before
September 30, 2000.
To review all of the conditions of the merger, you should read the
amended and restated reorganization agreement, attached as Appendix A.
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If HAI or HealthAxis determines to waive any material condition of the
merger agreements, including the tax opinion, following the receipt of
shareholders approval, HAI and HealthAxis intend to amend the registration
statement and resolicit shareholder votes.
Termination. The amended and restated reorganization agreement, may be
terminated prior to the completion of the merger, whether before or after
approval of the merger by the shareholders of HealthAxis or HAI:
o by mutual written consent of HAI and HealthAxis;
o by either HealthAxis or HAI, if the merger is not completed by
March 31, 2001 for any reason other than a breach of the
reorganization or merger agreement by the party giving notice;
o by either HealthAxis or HAI, if it becomes certain that any of
the conditions to the closing obligations of the party giving
notice cannot be satisfied on or before March 31, 2001 for a
reason other than the party's default, and the other party is
not willing to waive the satisfaction of such condition; and
o by HealthAxis on or after October 31, 2000 if HAI is not
unconditionally and irrevocably released from a guaranty to
Hannover Life Reassurance Company of America on terms
acceptable to HealthAxis. HAI was not released from this
guarantee until December 12, 2000. HealthAxis waived its right
to terminate the merger for this reason.
Expenses. HAI will pay all of the fees and expenses incurred by it and
HealthAxis Acquisition Corp., and HealthAxis will pay all of its fees and
expenses.
Waiver. No waiver with respect to the reorganization agreement will be
enforceable unless it is in writing and signed by the party against whom
enforcement is sought.
Exchange Procedures for HealthAxis Stock. HAI designated its transfer
agent, ChaseMellon Shareholder Services, Inc., as the "exchange agent" under the
merger documents. As soon as is practicable after the date the merger is
completed, HAI or the exchange agent will mail or deliver, to each HealthAxis
shareholder as of the date of completion of the merger, instructions for use in
surrendering his or her HealthAxis stock certificates to the exchange agent.
Upon the surrender of a HealthAxis stock certificate to the exchange agent in
accordance with the instructions, the exchange agent will exchange the
HealthAxis stock certificate for new certificates representing 100% of the
number of shares of HAI common stock into which the shares of HealthAxis stock
represented by the HealthAxis stock certificate have been converted in
accordance with the merger documents, which will be promptly delivered as
instructed by the holder.
If applicable, the new certificates will be accompanied by any
distributions due with respect to shares of HAI common stock that were paid to
HAI's shareholders of record as of a date between the date the merger is
completed and the date of the distribution of the certificates. Until
surrendered to the exchange agent, each outstanding HealthAxis stock certificate
will be deemed to evidence ownership of the number of shares of HAI common stock
into which the shares of HealthAxis stock have been converted in accordance with
the merger agreement.
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Background of the Merger
During 1998, the board of directors of HAI made a strategic decision to
sell its insurance underwriting business and focus its capital and managerial
resources on e-commerce sales of insurance through HealthAxis. In pursuit of
this goal, between December 1998 and November 1999, HAI sold its traditional
insurance businesses in a series of unrelated transactions, including the sale
to AHC Acquisition, Inc. of Provident Indemnity Life Insurance Company, which is
referred to as PILIC in this document. As a result of these sales, by the end of
1999, HealthAxis was HAI's only operating subsidiary. During 1999, HealthAxis
continued to focus on expanding the geographic scope and diversity of the
products offered on its website through its carrier partner agreements with
nationally recognized insurance companies, which agreements were subsequently
transferred to Digital Insurance, Inc. Throughout 1999, HealthAxis continued to
integrate new carrier partner products on its website and make additional
technological enhancements to its website.
HealthAxis determined that, despite its efforts to hire information
technology employees, it would need to outsource aspects of the carrier
integration process to Insurdata Incorporated, a subsidiary of UICI, in order to
more rapidly integrate carrier partners on its website. Insurdata Incorporated's
expertise in this area highlighted HealthAxis' need to upgrade its technical
capabilities in order to capitalize on the competitive advantage created by
rapidly integrating new carrier partners on its website. In August 1999,
HealthAxis began negotiations with Insurdata Incorporated to merge Insurdata
Incorporated into HealthAxis. HealthAxis' reasons for pursuing the merger with
Insurdata Incorporated included the following:
o Acquire technical expertise. Insurdata Incorporated had over 300
technology professionals with substantial experience in the workflows
applicable to the health insurance industry's business processes.
HealthAxis' management believed its technological leadership in the
healthcare payer segment of the insurance industry would be
invaluable to HealthAxis' growth.
o Accelerate carrier partner integration process. Management believed
Insurdata Incorporated's technological expertise and staff of
information technology professionals were critical to the
acceleration of the carrier partner integration process.
o Increased Revenues. Insurdata Incorporated's pro forma revenues
(excluding non-merging subsidiaries) were $42.9 million in 1999.
o Enhance attraction of products and services to insurance payers.
Management believed that the addition of the ability to offer an
end-to-end Internet based set of services to insurance payers was
more attractive to insurance industry participants than solely
distribution services.
o Improve ability to raise capital. Management believed that an
established revenue base, seasoned management and significantly
greater technological resources would improve HealthAxis' ability to
raise capital.
On December 6, 1999, HealthAxis, Insurdata Incorporated, HAI and UICI
entered into an agreement and plan of merger which set forth the terms and
conditions under which Insurdata Incorporated was merged with and into
HealthAxis. As part of this merger, Insurdata Incorporated became HealthAxis'
application solutions group. The companies completed the Insurdata merger on
January 7, 2000. As a condition to the merger, UICI required HealthAxis to raise
at least $55 million in additional capital in order for HealthAxis to implement
its business plan.
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Since its inception, HealthAxis has funded its operations through
capital contributions from HAI and the sale of its common and preferred stock or
debt convertible into common stock in a series of private placements. On
December 7, 1999, HealthAxis completed a $57.7 million private placement of
3,846,003 shares of its common stock at $15.00 per share to accredited
investors, including the purchase of 133,333 shares of HealthAxis common stock
by HAI. This $57.7 million private placement satisfied the condition to the
completion of the Insurdata merger. Due to the inflow of this investment capital
and the merger of HealthAxis and Insurdata Incorporated, HAI currently owns
34.7% of HealthAxis' capital stock.
After the Insurdata merger, HealthAxis determined that it would be in
its best interest and in the best interest of its shareholders to take advantage
of the experience and technical expertise it gained in the Insurdata merger, and
to focus its efforts on providing Internet-compatible software applications and
integration services to insurance underwriters and entities involved in the
digital distribution and electronic administration health insurance policies. As
a result, on June 30, 2000, HealthAxis agreed to sell the assets related to its
retail website, including the new version 3.0 of the retail website user
interface, to Digital Insurance, Inc. See "Recent Developments."
As part of HAI's change in business strategy and due to HealthAxis'
continued growth, the board of directors of each company determined that it
would be in HAI's and HealthAxis' best interest to restructure the companies.
Due to its disposition of its other operating subsidiaries, the interests of
HAI's shareholders reside in the future of HealthAxis. Additionally, as a
holding company HAI does not need the ability to access public markets for
funds.
Representatives of both companies explored the potential benefits of
the reorganization. However, the board of directors of both HealthAxis and HAI
recognized a unique opportunity for HealthAxis to acquire Insurdata
Incorporated, and on October 28, 1999, the companies announced that they would
put the reorganization plans on hold due to the contemplated transaction between
Insurdata Incorporated and HealthAxis. An agreement and plan of merger between
Insurdata Incorporated and HealthAxis was subsequently signed on December 7,
1999. On that day, HAI announced that it would resume its reorganization plans
with HealthAxis following the closing of the Insurdata merger. On January 7,
2000, Insurdata Incorporated was merged into HealthAxis and the parties began to
work on the HAI/HealthAxis reorganization.
HAI and HealthAxis initially executed and delivered the merger
agreement providing for the proposed merger on January 26, 2000. The terms of
the merger included in the initial merger agreement reflected that each share of
HealthAxis common stock would be converted into the right to receive 1.127
shares of HAI common stock. At the time of execution of the initial merger
agreement, the HealthAxis board received a written opinion dated January 26,
2000 from Warburg Dillon Read LLC to the effect that, as of that date and based
on and subject to various assumptions, matters considered and limitations
described in its opinion, the original exchange ratio of 1.127 shares provided
for in the original merger agreement was fair, from a financial point of view,
to the holders of HealthAxis common stock, other than HAI and its affiliates.
Also in connection with the initial merger agreement, the HAI board received an
opinion dated February 3, 2000 from Advest Group, Inc. to the effect that, as of
the date of the opinion and based on and subject to the matters stated in its
opinion, the original exchange ratio was fair, from a financial point of view,
to HAI and the holders of HAI common stock.
Commencing in July 2000, and in light of changed conditions in the
market for Internet related and e-commerce stocks, representatives of HAI and
HealthAxis commenced discussions concerning modifications to the terms of the
merger, leading to the execution and delivery of the amended and restated merger
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agreement. These agreements were subsequently amended and restated on September
28, 2000 and October 26, 2000. The amended and restated merger agreement
revises, among other things, the number of shares of HAI's common stock that
will be exchanged for each outstanding share of HealthAxis capital stock from
1.127 shares to 1.334 shares and also amends some of the representations and
warranties, extends the date for termination of the merger by either party to
March 31, 2001, and provides HealthAxis with the ability to terminate the merger
if HAI has not met conditions in the amended and restated merger agreements
related to outstanding amounts owed by HAI pursuant to a guarantee agreement by
October 31, 2000. In connection with the HealthAxis board's approval of the
amended and restated merger agreement, the board of directors of HealthAxis
determined not to obtain an updated opinion from Warburg Dillon Read given the
increase in the exchange ratio from 1.127 shares to 1.334 shares. An updated
opinion from Advest Group, Inc. was received by the HAI board in connection with
HAI's execution of the amended and restated merger agreements. The amended and
restated merger agreements were approved by HAI's board of directors and
HealthAxis' board of directors on September 28, 2000 and October 26, 2000.
Opinion of Advest Group, Inc.
The HAI board of directors engaged Advest Group, Inc. as its exclusive
financial advisor to review the merger and to render an opinion as to the
fairness of the stock consideration to be paid by HAI, from a financial point of
view, to HAI and the holders of HAI common stock. As described below, Advest
Group, Inc.'s opinion, dated September 26, 2000, which updated the original
opinion dated February 3, 2000, together with the related presentations to the
HAI board of directors made on January 26, 2000 and September 28, 2000, was only
one of the many factors taken into consideration by the HAI board of directors
in making its determination to approve the merger.
On September 28, 2000, Advest Group, Inc. delivered its opinion to the
board of directors to the effect that, as of September 26, 2000, and based upon
and subject to the matters stated in its written opinion, the merger was fair,
from a financial point of view, to the holders of the HAI common stock.
The full text of Advest Group, Inc.'s written opinion, dated September
26, 2000, which lists the assumptions made, matters considered and limitations
on review undertaken, is attached to this joint proxy statement/prospectus as
Appendix D. Advest Group, Inc.'s opinion is directed to the HAI board of
directors and addresses whether the stock consideration paid in the merger by
HAI is fair, from a financial point of view, to HAI and its shareholders. Advest
Group, Inc.'s opinion does not address the underlying decision of the HAI board
of directors to engage in the merger and does not constitute a recommendation to
any HAI shareholder as to how any HAI shareholder should vote or as to any other
action any HAI shareholder should take in connection with the merger. The
summary of the opinion of Advest Group, Inc. stated in this joint proxy
statement/prospectus is qualified in its entirety by reference to the full text
of the Advest Group, Inc. written opinion.
In connection with its opinion, Advest Group, Inc. reviewed:
o the consolidated unaudited financial statements of
HealthAxis and subsidiaries for the year ended December 31,
1999 and the six moths ended June 30, 2000;
o the consolidated audited financial statements of Insurdata
Incorporated and subsidiaries for the years ended December
31, 1997 and 1998 and unaudited financial statements for the
nine months ended September 30, 1998 and 1999;
o publicly available business and financial information
relating to HealthAxis and HAI that Advest Group, Inc.
deemed relevant;
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o information, including financial forecasts, relating to the
business and prospects of HealthAxis and HAI;
o the financial terms of other business combinations that
Advest Group, Inc. deemed relevant;
o the recent trading history of HAI common stock;
o various agreements, including, among others:
o the amended and restated Articles of Incorporation of
HealthAxis and HAI;
o the respective certificates of designation of each series
of the HealthAxis preferred stock;
o the amended and restated merger agreements between HAI,
HealthAxis, and HealthAxis Acquisition Corp; and
o other financial studies and analyses as Advest Group, Inc.
deemed necessary. In addition, Advest Group, Inc. held
discussions with members of HealthAxis management regarding
HealthAxis' business, financial condition and prospects.
In preparing its opinion, Advest Group, Inc. assumed and relied upon
the accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, as well as publicly
available information. Advest Group, Inc. has not assumed any responsibility for
independently verifying this information or undertaken any independent
evaluation or appraisal of any of the assets or liabilities of HealthAxis or HAI
or been furnished with any evaluation or appraisal. In addition, Advest Group,
Inc. has not assumed any obligation to conduct any physical inspection of the
properties or facilities of HAI or HealthAxis. With respect to the financial
forecast information furnished to or discussed with it by HealthAxis, Advest
Group, Inc. has assumed that the information has been reasonably prepared and
reflects the best currently available estimates and judgment of HealthAxis'
management as to the expected future financial performance of HealthAxis. Advest
Group, Inc.'s opinion expresses no view with respect to the ability of
HealthAxis to meet its projections or the assumptions on which they were based.
Further, Advest Group, Inc. has relied upon the assurances of management of
HealthAxis and HAI that they are not aware of any facts or circumstances that
would make the information materially inaccurate or misleading. Advest Group,
Inc.'s opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on and as of the date of its opinion.
In arriving at its opinion as described below, Advest Group, Inc.
ascribed a general range of values to HealthAxis, and made its determination as
to the fairness, from a financial point of view, of the merger to the holders of
HAI common stock, other than HAI, on the basis of a variety of financial and
comparative analyses, including those described below. The summary of analyses
performed by Advest Group, Inc. as stated below does not purport to be a
complete description of the analyses underlying Advest Group, Inc.'s opinion.
The presentation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
partial or summary description. No company or transactions used in the analyses
as a comparison is identical to HAI and HealthAxis or the merger, nor is an
evaluation of the results of the analyses entirely mathematical; rather, it
involves complex considerations and judgments concerning financial and operating
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characteristics and other factors that could affect the acquisition, public
trading or other values of the companies or transactions being analyzed. The
estimates contained in the analyses and the ranges of valuations resulting from
any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by the analyses. In addition, analyses relating
to the value of the business or securities do not purport to be appraisals or to
reflect the prices at which businesses, companies or securities actually may be
sold. Accordingly, the analyses and estimates are inherently subject to
substantial uncertainty. In arriving at this opinion, Advest Group, Inc. made
qualitative judgments as to the significance and relevance of each analysis and
factor considered by it. Accordingly, Advest Group, Inc. believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and factors, without considering all analyses and factors, could create
an incomplete view of the processes underlying the analyses and its opinion.
The following is a summary of the material analyses performed by Advest
Group, Inc. which were presented to the HAI board of directors at a meeting on
September 28, 2000. Advest Group, Inc. will receive a fee of $75,000 in
connection with providing this opinion. In the past, Advest Group, Inc. has
provided investment banking advice to HAI and has rendered fairness opinions
with respect to other transactions.
Advest Group, Inc. calculated the value of HealthAxis stock using two
different methodologies. First, Advest Group, Inc. determined the value of
HealthAxis stock using the market value of HAI's common stock since the
investment in HealthAxis is the only significant asset owned by HAI at this
time. Next, it calculated the value of HealthAxis stock using a group of
comparable publicly traded companies.
In order to determine the value of HealthAxis based on HAI's common
stock price, Advest Group, Inc. began with HAI's market capitalization. Next,
Advest Group, Inc. adjusted that amount by reducing it for all non-HealthAxis
assets. Finally, the adjusted amount was divided by 15.8 million shares (the
amount of shares of HealthAxis owned by HAI) in order to determine a per share
value for the HealthAxis stock. Based on the September 7, 2000 closing stock
price of $3.00 for HAI's stock, Advest Group, Inc. calculated a value of $4.18
per HealthAxis share using a range of stock prices for HAI of $2.50 to $7.00 per
share. Advest Group, Inc. calculated a range of values between approximately
$3.66 and $8.77. These computations translate into a revised range of exchange
ratios of between 1.46 and 1.25. These data do not reflect any discount for
HealthAxis stock for lack of marketability.
In order to determine the value of HealthAxis based on comparable
publicly traded companies, Advest Group, Inc. selected a group of companies in
the e-commerce health or other insurance segment. The companies selected were
WebMD, XCare.net, Inc., SciQuest.com, Inc., the Trizetto Group, Inc., E-Medsoft
and Quotesmith.com.
Using the Median Market capitalization to revenue multiple (based on
published estimates of 2000 revenues) of the selected group of companies, Advest
Group, Inc. determined a per share range of values for HealthAxis stock of $4.13
to $3.02. Based on HAI's closing stock price of $3.00 on September 7, 2000, this
translates into a range of exchange ratios between 1.38 and 1.01. These data
reflect calculations both including and not including a discount for lack of
marketability.
HAI's Reasons for the Merger
The HAI board of directors has unanimously determined that the terms of
the amended and restated merger documents and the merger are fair to, and in the
best interests of, HAI and its shareholders. In reaching its determination, the
HAI board of directors consulted with HAI's management, as well as its legal
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counsel, accountants and financial advisors and gave significant consideration
to a number of factors bearing on its decision. The following are all of the
material reasons the HAI board of directors believes the merger will be
beneficial to HAI and its shareholders:
o HealthAxis' improved ability to raise capital on more favorable terms
than in the private equity markets would mitigate future ownership
dilution for existing HAI shareholders the next time HealthAxis seeks
to raise capital;
o eliminate investor confusion stemming from HAI's long history as a
health insurance underwriter; and
o streamline corporate structure to eliminate dual shareholder
approvals in connection with annual meetings and other shareholder
actions.
In addition to the material reasons stated above, in the course of its
deliberations concerning the merger, the HAI board of directors consulted with
HAI's management, legal counsel, accountants and financial advisors and reviewed
the following material factors:
o Information concerning the business, assets, operations, management,
financial condition, operating results, competitive position and
prospects of HAI and HealthAxis;
o The liquidation value of HAI as compared to its value as the holding
company for HealthAxis;
o Potential dilution in share ownership of HAI on the part of existing
HAI shareholders;
o The expected tax and accounting treatment of the merger;
o Reports from legal counsel on specific terms of the merger documents;
and
o The fairness opinion received from Advest Group, Inc.
HealthAxis' Reasons for the Merger
The HealthAxis board of directors believes that the shareholders of
HealthAxis will benefit by becoming shareholders of the combined enterprise on
the basis stated in the merger documents, and that the proposed merger is
advisable and in the best interests of, and that the terms are fair and
equitable to, the HealthAxis shareholders.
On January 26, 2000, the HealthAxis board of directors acting by
unanimous consent approved the proposed merger and the transactions contemplated
by the proposed merger. On September 28, 2000 and October 26, 2000, the
HealthAxis Board of Directors approved the revised terms contained in the
amended and restated merger documents and reaffirmed its reasons for completing
the merger. During its deliberations with respect to the merits of the proposed
merger, the HealthAxis board of directors considered both business and financial
reasons for pursuing a combination with HAI in contrast to other potential
opportunities as an independent company or in combination with another company.
The board of directors considered the following material financial factors:
o liquid assets of the two companies;
o working capital of the two companies;
o net worth of the two companies;
o assets and liabilities of both companies;
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o operating performance of the two companies;
o prospects of the two companies as opposed to HealthAxis alone;
o access to capital markets of the two companies;
o HealthAxis' growth capital needs;
o HealthAxis' ability to raise capital as a private company; and
o HealthAxis' future financing prospects.
In unanimously approving the merger documents and the transactions
contemplated by the merger documents, the HealthAxis board of directors
considered the following material business factors:
o the amount of HAI common stock to be paid in the merger to holders of
HealthAxis capital stock represents a value which the HealthAxis
board of directors believes is fair to the HealthAxis shareholders;
o the liquidity afforded by the trading volume in HAI common stock;
o the merger will afford shareholders of HealthAxis the opportunity to
exchange their shares of HealthAxis stock for an ownership interest
in a combined enterprise which is a publicly traded company;
o the amount of HAI common stock to be paid in the merger was
determined through extensive negotiations between representatives of
HAI, on the one hand, and HealthAxis, on the other;
o HealthAxis' ability to raise capital on more favorable terms in the
public equity markets and HealthAxis' improved access to the public
capital markets;
o the possible spin-off of HealthAxis on a stand-alone basis;
o the merger will eliminate investor confusion between the Internet
based application solutions and services business of HealthAxis and
the former insurance underwriting business engaged in by HAI; and
o the opinion dated January 26, 2000 of Warburg Dillon Read to the
HealthAxis board regarding the original exchange ratio.
The foregoing discussion of the information and factors considered and
given weight by the HealthAxis board of directors in considering the proposed
merger, and the transactions contemplated by the proposed merger, is not
intended to be exhaustive. In view of the wide variety of factors considered in
connection with its evaluation of the proposed merger, the HealthAxis board of
directors did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered in making its
determination nor did it evaluate whether these factors were of equal weight. In
addition, individual members of the board of directors of HealthAxis may have
given different weight to different factors.
Interests of HealthAxis' Management and Shareholders in the Merger
In considering the recommendation of the HealthAxis board of directors
with respect to the proposed merger, HealthAxis shareholders should note that
the shareholders, officers, directors and/or affiliates of HealthAxis noted
below have interests in the merger that are different from or in addition to the
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interests of HealthAxis shareholders generally. The boards of directors of HAI
and HealthAxis were aware of these interests and took these interests into
account in approving the proposed merger and the transactions contemplated by
the merger documents.
HealthAxis Stock Ownership. HealthAxis' executive officers and
directors own 0.6% of the HealthAxis common stock and approximately 18.3% of the
HealthAxis Series A preferred stock. In addition, some of the directors of
HealthAxis also have the ability to vote 19.4% of the outstanding capital stock
of HealthAxis based on their positions as trustees of two voting trusts. See
"Chapter I - The Merger - Principal Shareholders of HealthAxis and - Recent
Developments."
Election of Directors. In the agreement and plan of reorganization, as
amended, HAI agreed to appoint Dennis B. Maloney, Gregory T. Mutz and Patrick J.
McLaughlin of HealthAxis, as directors of HAI as of the date the merger is
completed. Messrs. Mutz and McLaughlin are also directors of UICI, a shareholder
of HealthAxis. Mr. Mutz is the Chief Executive Officer of UICI. See "-
Management of HealthAxis."
HealthAxis Stock Options and Warrants. Upon consummation of the merger,
holders of HealthAxis options and warrants will be entitled to receive HAI stock
options and warrants and, upon the exercise of their HAI stock options and
warrants, a number of shares of HAI common stock determined as described under
"-- The Merger -- Material Terms of the Merger Agreement --Stock Options and
Warrants."
Shareholders' Agreement. In connection with the completion of the
merger, HAI, UICI, Michael Ashker, President and Chief Executive of HealthAxis
and HAI, Alvin Clemens, the Chairman of HealthAxis and HAI, HealthAxis
Acquisition, Inc. and HealthAxis will enter into a shareholders' agreement.
Under the terms of the shareholders' agreement, the board of directors of HAI
will consist of up to nine members. UICI and HAI may each independently nominate
three nominees to the board, and, the remaining three directors will be
nominated by mutual agreement of HAI (acting by the vote of a majority of the
members of the board that were not nominated by or agreed to by UICI) and UICI.
This provision of the shareholders' agreement will terminate with respect to
UICI when UICI owns less than 20% of the HAI common stock on a fully diluted
basis.
Subject to conditions set forth in the shareholders' agreement, the
shareholders' agreement also provides that HAI can require UICI to transfer up
to 1,414,318 shares of its HAI common stock to unaffiliated third parties.
Relationship with HAI. Michael Ashker, the President and Chief
Executive Officer of HealthAxis, is the President and Chief Executive Officer of
HAI. Alvin Clemens, the Chairman of HealthAxis is the Chairman of HAI. Both of
these individuals are also shareholders of HAI.
Ownership of HAI Following the Merger
As a result of the merger, the holders of HealthAxis common stock and
HealthAxis preferred stock, other than those who exercise their statutory
dissenters' rights, will become shareholders of HAI. Upon consummation of the
merger, each outstanding share of HealthAxis stock, except for shares owned by
HealthAxis shareholders who perfect their statutory dissenters' rights, will be
converted into the right to receive HAI common stock. HAI intends to list the
shares of HAI common stock to be issued in the merger to be listed on the NASDAQ
National Market or NASDAQ SmallCap Market, as applicable. See "-- NASDAQ
Listing."
We anticipate that HAI will issue approximately 39,629,133 shares of
HAI common stock to HealthAxis shareholders. We also anticipate that HAI will
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issue up to an additional 8,085,732 shares of HAI common stock upon the exercise
of options and warrants to purchase HealthAxis common stock to be assumed by
HAI. Based upon the number of shares of HAI common stock issued and outstanding
on the HAI record date and the number of shares of HAI common stock anticipated
to be issued in the merger, the shares of HAI common stock issued to HealthAxis
shareholders in the merger will constitute approximately 75.2% of the
outstanding common stock of HAI after the merger. As previously noted, holders
of HealthAxis options and warrants will receive options and warrants to purchase
up to an aggregate of 8,085,732 shares of HAI common stock. Assuming the
exercise of all of these HAI stock options and warrants after the merger,
HealthAxis shareholders will own approximately 70% of the fully diluted common
stock of HAI.
Management of HAI Upon Consummation of the Merger
When the merger is complete, the officers of HealthAxis will become the
officers of HAI. In addition, the board of directors of HealthAxis will become
the board of directors of HAI. Effective February 1, 2001, Michael Ashker will
become Chairman of HAI and HealthAxis, James McLane will become President and
Chief Executive Officer of HAI and HealthAxis and Alvin Clemens will become
Chairman of the Executive Committee of HealthAxis and HAI.
Regulatory Matters
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits us from
completing the merger until after HAI and HealthAxis furnish information and
materials to the Antitrust Division of the Department of Justice and to the
Federal Trade Commission and a required waiting period has ended. HAI and
HealthAxis filed the required information and the required waiting period has
ended. However, the Antitrust Division of the Department of Justice and the
Federal Trade Commission continue to have the authority to challenge the merger
on antitrust grounds before or after the merger is completed. HAI filed the
required information with the Department of Justice and the Federal Trade
Commission during February 2000 and early termination of the waiting period was
granted.
Except as described above, there are no federal or state regulatory
requirements that must be complied with in connection with the merger.
Affiliate Letters
It is a condition to the closing obligation of HAI that it receive from
each affiliate of HealthAxis an affiliate letter stating, among other things,
that the affiliate will only sell, assign, give, pledge or otherwise transfer,
dispose of or reduce their risk relating to any of their shares of capital stock
or other securities of HealthAxis or of HAI in compliance with applicable
federal and state securities laws. The affiliates letter requires that the
resale of shares of HAI common stock acquired by affiliates in the merger must
be completed in compliance with the requirements of Rule 145(d) of the SEC rules
unless these shares are registered for resale on Form S-3 or resold in reliance
upon an exemption from registration. All of the shares of HAI's post merger
outstanding stock held by these affiliates will be subject to the restrictions
described in the affiliates letter and will be legended to restrict the transfer
of such shares. Affiliates of HealthAxis include directors and executive
officers of HealthAxis and UICI, and Michael Beausang, a former director of
HealthAxis and HAI, HAI's former secretary and outside counsel. The executive
officers and directors of HealthAxis who will execute affiliate letters include:
Michael Ashker, Alvin H. Clemens, Henry G. Hager, Edward W. LeBaron, Anthony
Verdi, Patrick J. McLaughlin, Gregory T. Mutz, James W. McLane, Andrew Felder,
Dennis B. Maloney and Michael G. Hankinson. Based upon their current share
ownership in HealthAxis, the affiliates will beneficially own in the aggregate
33.4% of the outstanding HAI common stock upon completion of the HAI merger.
Following the completion of the HAI merger, the directors and officers of
HealthAxis will beneficially own in the aggregate 18,951,910 shares (including
currently exercisable options and warrants for HAI common stock and shares of
HAI common stock issuable upon conversion of debentures). Upon the completion of
the HAI merger, Mr. Beausang will beneficially own 66,500 shares of HAI common
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stock. UICI will also execute an affiliate letter regarding the outstanding
shares of HAI held by UICI and its subsidiaries and will be subject to the
restrictions imposed by this affiliate letter. Upon completion of the HAI
merger, UICI and its subsidiaries will beneficially own 24,166,427 shares of HAI
common stock (including currently exercisable warrants for HAI common stock and
shares of HAI common stock issuable upon conversion of debentures).
Resale of HAI Common Stock
The HAI common stock issued in connection with the merger will be
freely transferable, except that shares issued to any HealthAxis shareholder who
is an affiliate of HealthAxis or who becomes an affiliate of HAI are subject to
restrictions on resale, including those contained in the affiliate letters.
No Dissenters' Rights for HAI Shareholders
The holders of HAI stock are not entitled to dissenters' rights in
connection with the approval and adoption of the HAI merger proposal. In the
event that HAI is delisted from the NASDAQ National Market System, HAI
shareholders will be entitled to the same dissenters' rights applicable to
HealthAxis shareholders discussed below.
Rights of Dissenting HealthAxis Shareholders
The following discussion is not a complete statement of the law
pertaining to dissenters' rights under Pennsylvania Business Corporation Law,
referred to as the PA BCL, and is qualified in its entirety by the full text of
section 1930 and Subchapter D of Chapter 15 of the PA BCL, which is referred to
as Subchapter D. Subchapter D is reprinted in its entirety as Appendix C to this
joint proxy statement/prospectus. Any HealthAxis shareholder who desires to
exercise his or her dissenters' rights should review carefully Subchapter D and
is urged to consult a legal advisor before electing or attempting to exercise
his or her rights. All references in Subchapter D to a "shareholder" and in this
summary to a "HealthAxis shareholder" or a "holder of HealthAxis stock" are to
the record holder of shares as to which dissenters' rights are asserted.
Subject to the exceptions stated below, holders of HealthAxis stock who
comply with the applicable procedures summarized below will be entitled to
dissenters' rights under Subchapter D. Voting against, abstaining from voting or
failing to vote on approval and adoption of the proposed merger will not
constitute a demand for appraisal within the meaning of Subchapter D.
HealthAxis shareholders electing to exercise dissenters' rights under
Subchapter D must not vote for approval of the proposed merger. A vote by a
HealthAxis shareholder against approval of the proposed merger is not required
in order for HealthAxis shareholders to exercise dissenters' rights. However, if
a HealthAxis shareholder returns a signed proxy but does not specify a vote
against approval and adoption of the proposed merger or a direction to abstain,
the proxy, if not revoked, will be voted for approval of the proposed merger,
which will have the effect of waiving that HealthAxis shareholder's dissenters'
rights.
HealthAxis shareholders who follow the procedures of Subchapter D will
be entitled to receive from HealthAxis the fair value of their shares,
immediately before the effective time of the merger. Fair value takes into
account all relevant factors but excludes any appreciation or depreciation in
anticipation of the merger. HealthAxis shareholders who elect to exercise their
dissenters' rights must comply with all of the procedures to preserve those
rights.
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Shares Eligible for Dissenters' Rights.
Generally, if you chose to assert your dissenters' rights, you must
dissent as to all of the shares you own. The PA BCL distinguishes between record
holders and beneficial owners. You may assert dissenters' rights as to fewer
than all the shares registered in your name only if you are not the beneficial
owner of all shares.
Record Holder Who is Not the Beneficial Owner.
A record holder may assert dissenters' rights on behalf of the
beneficial owner. If you are a registered owner and you wish to exercise
dissenters' rights on behalf of the beneficial owner, you must disclose the name
and address of the person or persons on whose behalf you dissent. In that event,
your rights shall be determined as if the dissenting shares and the other shares
were registered in the names of different holders.
Beneficial Owner Who is Not the Record Holder.
A beneficial owner of HealthAxis common stock who is not also the
record holder, may assert dissenters' rights. If you are a beneficial owner who
is not the record holder and you wish to assert your dissenters' rights, you
must submit a written consent of the record holder to the Secretary of
HealthAxis prior to the vote, but in no event later than the HealthAxis annual
meeting. You may not dissent with respect to some but less than all shares you
own.
Notice of Intention to Dissent.
If you wish to exercise your dissenters' rights, you must follow
procedures and refrain from taking some actions. You must file a written notice
of intention to demand the fair value of your shares. You must file your notice
of intention to dissent with the Secretary of HealthAxis prior to the vote, but
in no event later than the HealthAxis annual meeting. You must not make any
change in your beneficial ownership of HealthAxis shares from the date you file
the notice until the effective time of the merger. You must refrain from voting
your shares for the adoption of the merger proposal.
Notice of Approval.
If the HealthAxis shareholders approve the merger proposal, HealthAxis
will mail a notice to all dissenters who filed a notice of intention to dissent
prior to the vote on the merger proposal and who refrained from voting for the
adoption of the merger proposal. HealthAxis expects to mail the notice of
approval promptly after the merger. The notice of approval will state where and
when a demand for payment must be sent and where the certificates for eligible
shares must be deposited in order to obtain payment. The notice of approval will
also supply a form for demanding payment which includes a request for
certification of the date on which the holder, or the person on whose behalf the
holder dissents, acquired beneficial ownership of the shares. The demand form
will be accompanied by a copy of Subchapter D.
If you assert your dissenters' rights, you must ensure that HealthAxis
receives your demand form and your certificates on or before the demand
deadline. All mailings to HealthAxis are at your risk. Accordingly, HealthAxis
recommends that your notice of intention to dissent, demand form and stock
certificates be sent by certified mail.
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If you fail to file a notice of intention to dissent, fail to complete
and return the demand form, or fail to deposit stock certificates with
HealthAxis, each within the time periods provided above, you will lose your
dissenters' rights under Subchapter D. You will retain all rights of a
shareholder, or beneficial owner, until those rights are modified by
effectuation of the merger.
Payment of Fair Value by HealthAxis.
Upon timely receipt of the completed demand form, the PA BCL requires
HealthAxis to either remit to dissenters who complied with the procedures the
amount HealthAxis estimates to be the fair value for such dissenting shares; or
give written notice that no such remittance will be made.
HealthAxis will determine whether to make such a remittance or to defer
payment for such shares until completion of the necessary appraisal proceedings.
HealthAxis may consider the number of shares, if any, with respect to which
shareholders dissented and any objections that may be raised with respect to the
standing of the dissenting shareholder.
The remittance or notice will be accompanied by: (i) the closing
balance sheet and statement of income of HealthAxis for the fiscal year ended
December 31, 1998, together with the latest available interim financial
statements; (ii) a statement of HealthAxis' estimate of the fair value of the
shares; and (iii) notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of Subchapter D.
Return of Deposited Certificates.
If HealthAxis does not remit the amount of its estimate of the fair
value of the shares, it will return any deposited certificates with a notation
that a demand for payment in accordance with Subchapter D has been made. If
shares carrying this notation are transferred after that, each new certificate
issued may bear a similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such shares will not
acquire by this transfer any rights in HealthAxis other than those which the
original dissenter had after making demand for payment of their fair value.
Dissenting Shareholders Estimate of Fair Value.
If HealthAxis gives notice of its estimate of the fair value of your
shares, without remitting this amount, or remits payment of its estimate of the
fair value of your shares and you believe that the amount remitted or stated is
less than the fair value of such shares, you may send to HealthAxis your own
estimate of the fair value of the shares. Such estimate will be deemed a demand
for payment of the amount of the deficiency. If you do not file a holder's
estimate within 30 days after the mailing by HealthAxis of its remittance or
notice, you will only be entitled to the amount stated in the notice or the
amount remitted to you by HealthAxis.
Resort to the Court of Common Pleas.
If, after the later of, 60 days after the effective time of the merger
or after the timely receipt of any holder's estimate, demands remain unpaid,
HealthAxis may file an application for relief in the Court of Common Pleas of
Montgomery County, Pennsylvania, requesting the court determine the fair value
of the shares. We cannot assure you that HealthAxis will file this application.
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In the court proceeding all dissenters, wherever residing, whose
demands have not been settled, will be made parties to any such appraisal
proceeding. The court may appoint an appraiser to receive evidence and recommend
a decision on the issue of fair value. Each dissenter made a party will be
entitled to recover an amount equal to the fair value of the dissenter's shares,
plus interest, or if HealthAxis previously remitted any amount to the dissenter,
any amount by which the fair value of the dissenter's shares is found to exceed
the amount previously remitted, plus interest.
If HealthAxis fails to file an application for relief, any dissenter
who made a demand and who has not already settled his or her claim against
HealthAxis may do so in the name of HealthAxis at any time within 30 days after
the expiration of the 60-day period after the merger or after the timely receipt
of any holder's estimate. If a dissenter does not file an application within the
30-day period, each dissenter entitled to file an application shall be paid
HealthAxis' estimate of the fair value of the shares and no more, and may bring
an action to recover any amount not previously remitted.
Costs and Expenses of Court Proceedings.
The costs and expenses of the court proceedings, including the
reasonable compensation and expenses of the appraiser appointed by the court,
will be determined by the court and assessed against HealthAxis. The court may,
however, apportion and assess any part of the costs and expenses of court
proceedings as it deems appropriate against all or some of the dissenters who
are parties and whose action in demanding supplemental payment the court finds
to be in bad faith. If HealthAxis fails to comply substantially with the
requirements of Subchapter D, the court may assess fees and expenses of counsel
and of experts for the parties as it deems appropriate against HealthAxis and in
favor of any or all dissenters. The court may assess fees and expenses of
counsel and experts against either HealthAxis or a dissenter, if the court finds
that a party acted in bad faith. If the court finds that the services of counsel
for any dissenter substantially benefited other dissenters similarly situated
and should not be assessed against HealthAxis, it may award counsel reasonable
fees to be paid out of the amounts awarded to the dissenters who benefited.
No Right to an Injunction.
Under Pennsylvania corporate law, a HealthAxis shareholder has no right
to obtain, in the absence of fraud or fundamental unfairness, an injunction
against the merger proposal, nor any right to valuation and payment of the fair
value of the holder's shares because of the merger proposal, except to the
extent provided by the dissenters' rights provisions of Subchapter D.
Pennsylvania corporate law also provides that, absent fraud or fundamental
unfairness, the rights and remedies provided by Subchapter D are exclusive.
Material Federal Income Tax Consequences
The following is a summary description of the material United States
federal income tax consequences of the merger to HealthAxis and the HealthAxis
shareholders who receive HAI common stock in the merger or perfect dissenters'
rights. This summary does not address tax considerations which may affect the
treatment of special status taxpayers such as financial institutions,
broker-dealers, life insurance companies, tax-exempt organizations, investment
companies and foreign taxpayers or of HealthAxis shareholders who do not hold
their HealthAxis stock as a capital asset at the date the merger is completed.
In addition, no information is provided in this summary with respect to the tax
consequences of the merger either under applicable foreign, state or local laws
or to persons who acquired HealthAxis common stock under employee stock options
or otherwise as compensation.
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The following discussion is based on the Internal Revenue Code of 1986,
as in effect on the date of this joint proxy statement/prospectus, without
consideration of the particular facts or circumstances of any particular holder
of HealthAxis stock. HealthAxis and HAI have not sought, and will not seek, any
rulings from the Internal Revenue Service, with respect to any of the matters
discussed in this summary. It is a condition to the closing that tax counsel to
HealthAxis render an opinion that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986.
Provided that the merger qualifies as a statutory merger under applicable state
law:
o the merger will constitute a reorganization within the meaning
of Section 368(a)(2) of the Internal Revenue Code of 1986;
o no gain or loss will be recognized by HAI upon the exchange of
HealthAxis stock solely in exchange for HAI common stock;
o no gain or loss will be recognized by HealthAxis shareholders
upon the exchange of their HealthAxis stock solely for HAI
common stock;
o the basis of HAI common stock received by HealthAxis
shareholders in the merger will be the same as the basis of
their HealthAxis stock surrendered in exchange therefor;
o for capital gains purposes, the holding period of HAI common
stock received by HealthAxis shareholders in the merger will
include the period during which the HealthAxis stock
surrendered in exchange therefor was held, provided that the
HealthAxis stock is held as a capital asset at the date the
merger is completed;
o a HealthAxis shareholder who receives cash in lieu of HAI
fractional shares will be treated as having received the
fractional shares and then as having received cash in
redemption of those fractional shares; in that event, the
holder will generally recognize gains or losses equal to the
difference between the amount of cash received and the
holder's tax basis allocable to the HAI fractional shares. The
gain or loss will be long term capital gain or loss if the
shares of HealthAxis common stock were held by the HealthAxis
shareholder for more than one year on the date of the closing
of the merger of HealthAxis into HealthAxis Acquisition Corp.
A HealthAxis shareholder who perfects dissenters' rights with respect
to his or her shares of HealthAxis stock, and who does not withdraw his or her
rights, should, in general, treat the difference between the tax basis of the
shares of HealthAxis stock held by the HealthAxis shareholder with respect to
which dissenters' rights are perfected and the amount received in payment
therefor as capital gain or loss. However, depending on the HealthAxis
shareholder's particular circumstances, this amount might be treated for federal
income tax purposes as dividend income.
Blank Rome Comisky & McCauley LLP, counsel to HealthAxis, will provide
its opinion on the federal income tax consequences of the merger.
The foregoing is a general discussion of the material federal income
tax consequences of the merger for HealthAxis and HealthAxis shareholders and is
included for general information only. The foregoing discussion does not take
into account the particular facts and circumstances of each HealthAxis
shareholder's tax status and attributes. Accordingly, each HealthAxis
shareholder should consult his or her own tax advisor regarding the specific tax
consequences of the merger, including the application and effect of federal,
state, local and other tax laws and the possible effects of changes in these tax
laws.
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Accounting Treatment
The exchange of shares in the merger between HAI and HealthAxis will be
accounted for as a purchase of a minority interest in accordance with
Interpretation No. 26 on Accounting Principles Board Opinion No. 16. As a result
of the exchange ratio that takes into account the debts of HAI assumed in the
HAI merger, HAI determined under Accounting Principles Board Opinion 16
Business Combinations to utilize the purchase method of accounting. The HAI
merger creates a single shareholder group, including former minority
shareholders, that owns the net assets of the consolidated entity. The fair
value component of the consideration serves to alter the final ownership
exchange in the merger. The fair value of HAI's stock on the measurement date of
the merger (September 29, 2000) will be used to determine the purchase price.
The following table shows the ownership of HAI common stock subsequent
to the HAI merger of:
o Each shareholder of either HealthAxis or HAI that owned 5% or
greater of either company prior to the HAI merger;
o Michael Ashker, the CEO of HAI and HealthAxis; and
o Alvin H. Clemens, the Chairman of HAI and HealthAxis.
<TABLE>
<CAPTION>
Number of Percentage
Shares Ownership
---------- ----------
<S> <C> <C>
Michael Ashker....................................... 89,776 0.2%
Taunus Corporation................................... 760,803 1.4%
Seneca Capital, LP(4)................................ 1,118,096 2.1%
Seneca Capital, Ltd.(4).............................. 1,861,170 3.5%
Alvin Clemens (1) (5)................................ 1,929,366 3.7%
Founder's Plan Voting Trust (2)...................... 3,224,645 6.1%
UICI and subsidiaries (3)(5)......................... 23,758,845 45.1%
Brown Simpson Partners I, Ltd.(6).................... 2,258,500 4.3%
Other................................................ 17,725,550 33.6%
---------- -----
Total Common Stock Outstanding....................... 52,726,751 100.0%
</TABLE>
This table is based on shares owned on November 10, 2000. This table
does not consider voting rights and does not include vested but unexercised
warrants and options.
(1) Includes shares held by AHC Acquisition, Inc. which is wholly owned by Mr.
Clemens.
(2) These shares of HealthAxis common stock are held in a voting trust and will
be issued to some of the employees of the former Insurdata Incorporated and
other UICI subsidiaries pursuant to the terms of options granted under the
Insurdata Incorporated Founders Plan.
(3) Includes 8,581,714 shares held in the UICI voting trust.
(4) Mr. Doug Hirsch, manager of these funds, has voting and dispositive power
over these shares.
(5) Excludes 197,476 shares of HAI common stock issuable upon conversion of 2%
convertible debentures and upon exercise of related warrants.
(6) Includes 1,191,300 shares of HAI common stock held by Brown Simpson
Partners I, Ltd. of which Brown Simpson Asset Management LLC is the
investment manager. Excludes 1,500,819 shares of HAI common stock issuable
upon conversion of 2% convertible debentures and upon exercise of related
warrants.
48
<PAGE>
NASDAQ Listing
HAI intends to list the shares of HAI common stock to be issued in
connection with the merger to be listed on the NASDAQ National Market or the
NASDAQ SmallCap market, as applicable.
On August 9, 2000, HAI was notified by the NASDAQ National Market that
it would be delisted on November 9, 2000 for failure to meet the minimum bid
price of $5.00 for 30 consecutive trading days. HAI has filed an appeal to its
delisting which will stay the delisting pending the appeal panel's decision. The
hearing before the NASDAQ appeals panel was held on December 8, 2000. To date,
no decision has been rendered by the Panel. After the hearing, the panel's
decision will be promptly provided to HAI and will be effective immediately
unless specified to the contrary. HAI may request review of the panel's decision
by the NASDAQ Listing and Hearing Review Counsel within 15 calendar days of the
date of the panel decision. In the event of an unfavorable decision by the
panel, HAI intends to list its securities on the NASDAQ SmallCap Market. HAI
currently meets the maintenance criteria applicable to SmallCap companies.
Upon completion of the HAI merger, HAI believes that it will meet the
criteria set forth in NASDAQ Maintenance Standard One. HAI currently meets all
of these criteria other than the requirement that it have net tangible assets of
$4.0 million. Assuming completion of the HAI merger on March 31, 2001, HAI
estimates that it would have net tangible assets of approximately $16.0 million
due to HAI's purchase of the outstanding shares of HealthAxis not already owned
by it. Should HAI fail to meet Maintenance Standard I, it would be delisted
from NASDAQ, would likely lose some of its market makers as well as its coverage
by its only analyst and coverage by new analysts would be unlikely.
Pro Forma Combined Financial Information
On December 6, 1999, HealthAxis and Insurdata Incorporated entered into
an agreement and plan of merger which set forth the terms and conditions under
which Insurdata Incorporated was merged with and into HealthAxis. In addition,
on December 6, 1999, HAI and HealthAxis announced plans to merge the two
companies.
On January 7, 2000, HealthAxis merged with Insurdata Incorporated, a
health care technology company. The transaction has been accounted for as a
purchase in which HealthAxis was determined to be the accounting acquirer. As a
result, the net assets of Insurdata Incorporated have been recorded at their
fair value with the excess of the HealthAxis' purchase price over the fair value
of the net assets acquired allocated to goodwill. The acquisition of Insurdata
Incorporated has been accounted for in the historical financial statements of
HAI as of and for the period ended September 30, 2000.
On January 26, 2000, HAI entered into an Agreement and Plan of
Reorganization and Agreement and Plan of Merger with HealthAxis. The agreements,
which are subject to shareholder approval, provide that HAI will acquire all of
the outstanding shares of HealthAxis it does not currently own by merging
HealthAxis with a wholly owned subsidiary of HAI.
On September 29, 2000, HAI and HealthAxis entered into an Amended and
Restated Agreement and Plan of Reorganization and Amended and Restated Agreement
and Plan of Merger which adjusted the exchange ratio from 1.127 to 1.334. The
new exchange ratio will result in the issuance of up to 39,629,133 shares of HAI
common stock to effect the merger. On October 26, 2000, HAI and HealthAxis
entered into a second Amended and Restated Agreement and Plan of Reorganization
but this second amendment and restatement did not change the exchange ratio. As
stated in the accounting treatment section, the HAI merger will be accounted for
as a purchase of the minority interest of HealthAxis. As a condition of the
merger, the preferred stock of HealthAxis will be converted into common stock in
accordance with the provisions of the certificates of designation of each series
of preferred stock.
49
<PAGE>
The reasons for the merger are:
o To capitalize on HAI's ability to raise capital on more
favorable terms in the public equity markets;
o To streamline corporate structure eliminating dual shareholder
approval requirements;
o To increase liquidity available to current HealthAxis
shareholders as a result of the NASDAQ listing and trading
volume of HAI common stock;
o To eliminate investor confusion related to HAI's long history
as a health insurance underwriter;
o To satisfy requirements under the UICI voting trust agreement;
and
o To eliminate NASDAQ continued listing deficiencies.
On June 30, 2000, HealthAxis and Digital Insurance, Inc. entered into
an asset purchase agreement that sets forth the terms and conditions under which
HealthAxis sold the assets related to its retail website. These assets include
intellectual property of the retail web site user interface, tangible assets,
and the existing in-force insurance business. These assets represent
substantially all of the HealthAxis business other than Insurdata. The sale of
this business has been accounted for as discontinued operations for the periods
prior to June 30, 2000.
The following unaudited pro forma consolidated balance sheet as of
September 30, 2000 gives effect to the HAI merger as if it had occurred on
September 30, 2000. The unaudited pro forma consolidated statement of operations
for the year ended December 31, 1999 gives effect to the Insurdata merger and
the HAI merger as if they occurred on January 1, 1999. The unaudited pro forma
consolidated statement of operations for the nine months ended September 30,
2000 give effect to the HAI merger as if it had occurred on January 1, 1999. The
results of the Insurdata merger have been included in the historical statement
of operations as filed for the nine months ended September 30, 2000.
The unaudited pro forma condensed consolidated financial statements are
presented for informational purposes only and do not purport to be indicative of
the financial position which would actually have existed or the results of the
operations which would actually have been obtained if the transactions had
occurred at and for the periods indicated above or which may exist or be
obtained in the future.
The unaudited pro forma consolidated financial information should be
read in conjunction with the notes hereto and the following:
o HAI's historical consolidated financial statements and notes
thereto for each of the three years in the period ended
December 31, 1999 included in HAI's Annual Report on Form
10-K/A which is incorporated by reference in this document;
o HAI's historical consolidated financial statements and notes
thereto included in HAI's quarterly report on Form 10-Q for
the nine months ended September 30, 2000 which is incorporated
by reference in this document;
o HealthAxis' historical consolidated financial statements and
notes included elsewhere herein for the year ended December
31, 1999 and the nine months ended September 30, 2000 and for
the period from Inception (March 26, 1998) through December
31, 1998; and
50
<PAGE>
o Insurdata Incorporated's historical consolidated financial
statements and notes thereto included elsewhere herein for
each of the three years in the period ended December 31, 1999.
51
<PAGE>
HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in the thousands, except share and per share data)
Nine Months Ended September 30, 2000
<TABLE>
<CAPTION>
Pro Forma
As Reported Adjustments Pro Forma
----------------- ---------------- -----------------
<S> <C> <C> <C>
Net Revenues............................ $ 32,754 $ -- $ 32,754
----------------- ----------------- -----------------
Expenses:
Cost of Revenues................... 22,850 618 (4) 23,468
Operating.......................... 13,658 227 (4) 13,885
Sales and marketing................ 2,389 13 (4) 2,402
General and administrative......... 10,464 404 (4) 10,868
Amortization of intangibles........ 30,837 (12,659) (4) 18,178
Interest expense................... 1,093 -- 1,093
----------------- ----------------- -----------------
Total expenses..................... 81,291 (11,397) 69,894
----------------- ----------------- -----------------
(Loss) from operations............. (48,537) 11,397 (37,140)
Provisions (benefit) for income
taxes............................ -- -- --
----------------- ----------------- -----------------
(Loss) before minority
interest ........................ (48,537) 11,397 (37,140)
Minority interest.................. 26,854 (26,854) --
----------------- ----------------- -----------------
Income (loss) from continuing
operations ...................... $ (21,683) $ (15,457) $ (37,140)
================= ================= =================
Basic and diluted (loss) per common share
from continuing operations........ $ (1.66) $ (0.70)
Basic and diluted weighted average
common shares outstanding.... 13,079,000 52,708,000
</TABLE>
52
<PAGE>
HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in the thousands)
As of September 30, 2000
<TABLE>
<CAPTION>
Pro Forma
As Reported Adjustments Pro Forma
----------------- ---------------- -----------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents............... $ 25,170 $ -- $ 25,170
Accounts and notes receivable........... 8,983 -- 8,983
Prepaid interactive marketing expense... 622 -- 622
Other assets............................ 147 -- 147
---------------- ---------------- ----------------
Total current assets.................... 34,922 -- 34,922
Property, equipment and software, net... 12,357 -- 12,357
Capitalized software costs.............. 4,884 6,047 (4) 10,931
Other intangibles....................... 13,979 (6,749) (4) 7,230
Goodwill, net........................... 656,602 (344,182) (4) 312,420
Investment in Digital Insurance......... 3,178 -- 3,178
Other assets............................ 1,663 -- 1,663
---------------- ---------------- ----------------
Total Assets............................ $ 727,585 $ (344,884) $ 382,701
================ ================ ================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable........................ $ 880 $ -- $ 880
Accrued commissions and expenses........ 6,166 2,125 (6) 8,291
Current maturities...................... 311 -- 311
Deferred revenues....................... 432 -- 432
---------------- ---------------- ----------------
Total current liabilities............... 7,789 2,125 9,914
Convertible debentures.................. 26,715 447 (5) 27,162
Other long-term liabilities............. 7,815 -- 7,815
---------------- ---------------- ----------------
Total liabilities....................... 42,319 2,572 44,891
Minority Interest....................... 466,318 (466,318) (4) --
Stockholders' Equity:
Preferred stock......................... -- -- --
Common stock............................ 1,310 3,963 (7) 5,273
Additional paid in capital.............. 325,816 111,863 (7) 437,679
Unearned compensation................... (6,871) 5,608 (7) (1,263)
Accumulated deficit .................... (101,307) (2,572) (7) (103,879)
---------------- ---------------- ----------------
Total Stockholders' Equity.............. 218,948 118,862 337,810
---------------- ---------------- ----------------
Total Liabilities and Stockholders'
Equity ............................... $ 727,585 $ (344,884) $ 382,701
================ ================ ================
</TABLE>
53
<PAGE>
HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in the thousands, except share and per share data)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Non Merging Insurdata
Insurdata Incorporated
Insurdata Incorporated Merger Pro Forma Pro
As Reported Incorporated Subsidiaries Adjustments Subtotal Adjustments Forma
------------------------------------------------------------------------------------------------------------------------------------
(1) (2)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Commission and fee revenue.... $ -- $46,463 $(3,566) $ -- $ 42,897 $ -- $42,897
Interest and other revenue.... 80 13 93 -- 93
------- ------- ------- ------- -------- -------- -------
Total revenue................ $ -- $46,543 $(3,553) $ $ 42,990 $ -- $42,990
------- ------- ------- ------- -------- -------- -------
Expenses:
Operating.................... 504 38,470 (3,069) 1,667(3) 37,572 1,127 (4) 38,699
Sales and marketing.......... 447 475 1,443(3) 2,365 17 (4) 2,382
General and administrative... 7,457 5,395 (77) 97(3) 12,872 538 (4) 13,410
Amortization of intangibles.. 765 39,364(3) 40,129 (16,880)(4) 23,249
Interest expense............. 925 925 -- 925
------- ------- ------- ------- -------- -------- -------
Total expenses............ $10,098 $44,340 $(3,146) $42,571 $ 93,863 $(15,198) $78,665
------- ------- ------- ------- -------- -------- -------
Income (loss) from
operations................. (10,098) 2,203 (407) (42,571) (50,873) 15,198 (35,675)
Provisions (benefit) for
income taxes: ............. 832 (119) (713) -- -- --
------- ------- ------- ------- -------- -------- -------
Income (loss) before
minority interest.......... (10,098) 1,371 (288) (41,858) (50,873) 15,198 (35,675)
Minority interest............ (1,008) (93) 93 (1,008) (1,008) --
------- ------- ------- ------- -------- -------- -------
Income (loss) from
continuing operations...... $(9,090) $ 1,278 $ (195) $(41,858) $(49,865) $ 14,190 $(35,675)
======= ======= ======= ======== ======== ======== ========
Basic and diluted (loss) per
common share from continuing $ (0.73) $ (0.69)
operations.......................
Basic and diluted weighted
average common shares
outstanding......................12,260,000 51,889,000
</TABLE>
54
<PAGE>
HEALTHAXIS INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands except per share data)
1. Historical consolidated financial statements of Insurdata Incorporated.
2. Adjustment relates to Insurdata Incorporated's sale of Insurdata Marketing
Services, LLC and Insurdata Administrators, a division of Insurdata
Incorporated at book value to UICI on October 1, 1999. The adjustment to the
1999 Statement of Operations was made to eliminate the activity of these two
entities from January 1, 1999 to September 30, 1999 that is included in the
historical consolidated financial statements of Insurdata Incorporated. The
operations listed above were retained by UICI prior to the merger of
Insurdata Incorporated and HealthAxis.
3. On December 6, 1999, HealthAxis, Insurdata Incorporated, HAI and UICI entered
into an agreement and plan of merger which set forth the terms and conditions
under which Insurdata Incorporated was merged with and into HealthAxis. On
January 7, 2000, HealthAxis completed a merger with Insurdata Incorporated in
which HealthAxis exchanged 21,807,567 shares of its common stock for 100% of
the issued and outstanding shares of Insurdata Incorporated. This merger has
been accounted for as a purchase in the historical financial statements for
the nine months ended September 30, 2000. In accordance with Accounting
Principles Board Opinion No. 16., the following was considered:
o HAI's stock as traded on the open market was being valued as an
Internet company since the insurance operations were discontinued.
o The Insurdata merger and the HAI merger were announced to the public
simultaneously which eliminated investor confusion relative to HAI's
long history as a health insurance underwriter and defined
management's intention to become a provider of software and
application integration services which utilize the Internet for
health insurance distribution and administration.
In consideration of the above, the value of HAI's stock as traded in the open
market appears to be the best indication of the fair value of the shares
exchanged in the Insurdata merger. The total purchase price will also be
adjusted for a 10% liquidity discount.
The fair value of the Insurdata assets and liabilities acquired through the
Insurdata merger were:
Cash and cash equivalents............................ $ 2,126
Accounts receivable, net............................. 5,834
Fixed assets......................................... 6,278
Developed software................................... 2,862
Unearned compensation................................ 10,691
Customer base........................................ 17,205
Goodwill............................................. 682,184
Other assets......................................... 1,768
Other liabilities.................................... (5,021)
---------
$ 723,927
=========
55
<PAGE>
Included in the Insurdata Merger Adjustments on the Pro forma Consolidated
Statement of Operations for the Year Ended December 31, 1999 is the
amortization of intangibles resulting from the above purchase price
allocation. Amortization of these intangibles on an annual basis has been
calculated as follows:
<TABLE>
<CAPTION>
Annual
Asset Life Amount Amortization
-------------------------------------------- ------------------- --------------------- -------------------
<S> <C> <C> <C>
Customer Base 48 months $ 17,205 $ 4,301
Developed Software 36 months $ 2,862 $ 954
Goodwill 240 months $682,184 $34,109
Unearned compensation 40 months $ 10,691 $ 3,207
-------
Total $42,571
=======
</TABLE>
4. On September 29, 2000 HAI and HealthAxis entered into an Amended and Restated
Agreement and Plan of Reorganization. Under the agreement, HAI will issue
approximately 39,629,000 new shares of HAI common stock in exchange for the
outstanding shares of HealthAxis not currently held by HAI. This merger will
be accounted for as a purchase of minority interest. The purchase price will
be determined as follows:
Number of HAI shares issued in HAI Merger....... 39,629,000
Fair value of HAI shares on or about
September 29, 2000............................ 2.75
Fair value of HAI shares issued................. $ 108,980
Fair value of options exchanged in merger..... 13,717
-----------
Total purchase price............................ $ 122,697
===========
<TABLE>
<CAPTION>
Minority Interest HAI interest in
in HealthAxis Net HealthAxis Net Total HealthAxis
Allocation of purchase price Assets Assets Net Assets
----------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Assets of HealthAxis at September 30, 2000 $ 466,318 $ 250,586 $ 716,904
Fair Value Adjustments:
Customer Base (4,309) (2,440) (6,749)
Developed Software 3,861 2,186 6,047
--------- --------- ---------
Net Fair Value Adjustments (448) (254) (702)
--------- --------- ---------
Fair Value of the net assets of HealthAxis at
September 30, 2000 465,870 250,332 716,202
--------- --------- ---------
Less Equity issued in connection with purchase of
minority interest
Issuance of HAI Shares (122,697) 122,697 --
Allocation to unearned compensation 1,263 (1,263) --
--------- --------- ---------
Total Equity Issued (121,434) 121,434 --
--------- --------- ---------
Adjust minority interest for fair value of assets owned
by HAI (254) 254 --
--------- --------- ---------
Fair value of HealthAxis at September 30, 2000 in
excess of equity issued in connection with merger 344,182 372,020 716,202
--------- --------- ---------
Resulting negative goodwill (344,182) -- (344,182)
--------- --------- ---------
Net Assets of HealthAxis post merger $ -- $ 372,020 $ 372,020
========= ========= =========
</TABLE>
The acquisition was at a value below the amount of minority interest recorded
on HAI's books. Thus, it resulted in a reduction of the intangible assets,
primarily goodwill on HAI's books.
The fair value of the HAI shares is based upon the quoted NASDAQ closing
price of HAI shares for a period starting two days before and ending two days
after September 29, 2000 (the date of the merger agreement and measurement
date). The fair value of options exchanged in the merger has been determined
using the Black-Scholes Option Pricing Model. The number of HAI options to be
exchanged in the merger is estimated to be 5,990,000 with an average fair
value per option of $2.29. Of these options, options to purchase 2,730,000
shares are estimated to be vested. The actual options to be exchanged are
subject to change based upon the options outstanding upon the date of merger.
<PAGE>
The allocation to unearned compensation is based upon the intrinsic value of
unvested HAI options to be issued in the exchange. Unearned compensation will
be amortized over the remaining vesting period of the options averaging 3.5
years.
Goodwill resulting from the transaction will be amortized over a period of 20
years.
The pro forma expenses related to the amortization of adjustments resulting
from the HAI merger is as follows:
56
<PAGE>
<TABLE>
<CAPTION>
Annual Nine Month
Asset Life Amount Amortization Amortization
-------------------------------- --------------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
48 months $ (6,749) $ (1,687) $ (1,265)
Customer Base
Developed Software 36 months 6,047 2,016 1,512
Goodwill 240 months (344,182) (17,209) (12,906)
Unearned compensation 40 months 5,608 1,682 1,262
-------- --------
Total $(15,198) $(11,397)
======== ========
</TABLE>
5. In September 2000, an agreement was entered into by and between HAI and the
holders of HAI's convertible debentures. The agreement contains the following
changes in terms which are contingent upon the completion of the HAI Merger:
o A change in the maturity date from September 14, 2002 to September 14,
2005.
o A change in the debenture conversion price from $20.34 to $9.00.
o A change in the exercise price of warrants originally issued in connection
with the debentures from $20.34 to $3.01.
The fair value of the repriced warrants (assuming a $3.00 HAI market share
price) amounts to $477. As of September 30, 2000, the unamortized original
issue discount amounted to $924. An adjustment amounting to $447 has been
charged to accumulated deficit and reflects the Company's cost of
renegotiating the debentures. This adjustment has not been reflected on the
Pro Forma Statements of Operations as it is not recurring in nature.
6. Effective August 15, 2000, HAI entered into a termination agreement that
settled amounts owed under an employment contract with its Chairman of the
Board of Directors. The agreement, is contingent upon completion of the HAI
merger and provides for a severance amount of up to $2,125 to be paid, in
cash or stock, over 20 quarters. The terminated employment contract was
replaced with an "at will" employment contract with no severance terms. In
September 2000, HAI also extended the exercise period of 397,198 options held
by the Chairman through July 7, 2006. These options have an exercise price of
$3.64 per share and have no intrinsic value on the date of the remeasurement.
No future compensation costs are expected to be incurred as a result of this
extension.
7. Adjustments to all of the capital accounts resulting from the acquisition of
minority interest through the HAI merger are as follows:
<TABLE>
<CAPTION>
Additional
Number of Common Paid In Unearned
Shares Stock Capital Compensation Deficit Total
--------- ------ ------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 2000........ 13,098 $1,310 $325,816 $ (6,871) $(101,307) $218,948
Severance Agreement (Note 6)......... - - - - (2,125) (2,125)
Remeasurement of warrants (Note 5)... - - - - (447) (447)
Remeasurement of unearned
compensation (Note 4).............. - - (6,871) 6,871 - -
Issuance of new HAI shares (Note 4).. 39,629 3,963 118,734 (1,263) - 121,434
------ ------ -------- ------- --------- --------
52,727 $5,273 $437,679 $(1,263) $(103,879) $337,810
====== ====== ======== ======= ========= ========
</TABLE>
57
<PAGE>
8. The following tables provide a breakdown of the pro forma HAI shares
outstanding after the HAI merger:
<TABLE>
<CAPTION>
Share Activity for HAI
--------------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding Shares Outstanding
------------------ ------------------
<S> <C> <C>
December 31, 1999......................... 13,027,000 12,260,000
HAI merger.............................. 39,629,000 39,629,000
---------- ----------
Total HAI shares outstanding after the
HAI merger.............................. 52,656,000 51,889,000
========== ==========
Antidilutive shares excluded.............. 10,810,000
==========
Share Activity for HAI
-------------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding Shares Outstanding
------------------ ------------------
13,098,000 13,079,000
September 30, 2000.......................
HAI merger.............................. 39,629,000 39,629,000
---------- ----------
Total HAI shares outstanding after the
HAI merger.............................. 52,727,000 52,708,000
========== ==========
Antidilutive shares excluded.............. 17,493,000
==========
</TABLE>
Pro forma antidilutive shares excluded from the weighted average shares
outstanding in 1999 include 9,906,000 options to purchase shares of HAI
common stock and 904,000 shares of HAI common stock issuable upon the
conversion of the 2% convertible debentures. Pro forma antidilutive shares
excluded from the weighted average shares outstanding in 2000 include
14,438,000 options to purchase shares of HAI's common stock and 3,055,000
shares of HAI's common stock issuable upon the conversion of the 2%
convertible debentures. These shares were antidilutive because losses were
reported in 1999 and 2000.
9. Neither HealthAxis nor HAI has made any changes to their accounting policies
during 1999 or 2000.
58
<PAGE>
Information Concerning HAI
HAI, a Pennsylvania corporation organized in 1982, was regulated as an
insurance holding company until the sale of its insurance company subsidiary
discussed below. Currently, HAI's only business activities are conducted through
HealthAxis.
In light of the need to devote capital and focus to HealthAxis, the
continued losses experienced in HAI's group medical insurance products and HAI's
goal to no longer be regulated as an insurance holding company, HAI entered into
various agreements to sell some of Provident Indemnity Life Insurance Company's
subsidiaries, together with its group medical and life insurance business,
during 1998 and during 1999, to sell Provident Indemnity Life Insurance Company,
referred to as PILIC in this document. Due to PILIC's long term obligations to
existing insurance policy holders and Pennsylvania and other state insurance
laws and regulations, HAI would not be able to dispose of PILIC's operations
through voluntary liquidation but could pursue a sale of PILIC.
The insurance operations of PILIC have operated at a loss for a number
of years. Despite these losses, insurance law would not permit PILIC to
liquidate or discontinue operations. Additionally, PILIC is the defendant in
excess of 40 law suits, all of which have occurred in the ordinary course of its
claims administration, but nevertheless require on-going costs of litigation.
Additionally, during 1999, HAI and PILIC received notice from some of PILIC's
reinsurers that these reinsurers disputed amounts that PILIC believed were owed
to it under some of its reinsurance contracts. These reinsurers also gave notice
that an undetermined amount of time would be required to quantify the disputed
amounts and resolve payment. As a result, HAI and PILIC were unable to predict
the amount of this risk, the timing or possibility of resolving these disputes
or whether costly litigation would be necessary to recover the disputed
reinsurance reimbursements. Following several unsuccessful attempts to sell
PILIC to unaffiliated third parties, Alvin H. Clemens, the Chairman of HAI and
HealthAxis, agreed to purchase PILIC so that HealthAxis could pursue its
e-commerce strategy.
On August 16, 1999, HAI entered into an agreement that provided for AHC
Acquisition, Inc., a company solely owned by Mr. Clemens, to acquire PILIC for
an aggregate payment by HAI of $14.7 million to PILIC. The $14.7 million payment
to PILIC corresponds to the amount of capital that was required to satisfy
PILIC's deficiency under insurance regulations and that would allow HAI to
dispose of PILIC's insurance operations and liabilities. This transaction was
completed on November 30, 1999. In accordance with the terms of the stock
purchase agreement, HAI:
59
<PAGE>
o purchased HAI's headquarters located at 2500 DeKalb Pike from PILIC for its
book value of $4.7 million;
o agreed to exercise its option to purchase 545,916 shares of HealthAxis Series
A preferred stock from PILIC for $2.8 million (HAI made the $2.8 million
payment for the shares of HealthAxis Series A preferred stock pursuant to the
option agreement between HAI and PILIC and the payment equates to a $4.71
price per share. The $4.71 price represented the price per share paid by
PILIC for these shares plus interest at the rate of 8% per annum thereon from
the date of acquisition of these shares by PILIC through November 30, 1999,
the date of exercise);
o made a $7.2 million capital contribution from HAI to PILIC in order to
eliminate a statutory deficiency, to enable PILIC to maintain adequate
capital to meet its liabilities including pay-out obligations under existing
insurance policies, and to provide PILIC with sufficient capital and surplus
so that the Insurance Department of the Commonwealth of Pennsylvania would
grant the required approval of the sale of PILIC; and
o transferred 100,000 shares of the HealthAxis Series A preferred stock and the
associated registration rights previously granted to PILIC, to AHC
Acquisition, Inc.
The terms of the sale of PILIC to AHC Acquisition, Inc. were approved
by the Insurance Department of the Commonwealth of Pennsylvania, the regulatory
agency that oversees insurance company operations in Pennsylvania. The sale of
PILIC was also approved by the disinterested members of the board of directors
of HAI with Mr. Clemens abstaining from voting on this matter.
AHC Acquisition, Inc. did not pay any cash in exchange for its
acquisition of PILIC, however, pursuant to these transactions, HAI was released
from any liability for PILIC's current liabilities to its existing insurance
policy holders nor subject to any risk associated with PILIC's disputes with
some of its reinsurers. Additionally, following the sale of PILIC, HAI is not
required to:
o recognize the operating losses of PILIC on a consolidated basis;
o make any contributions to the capital and surplus of PILIC should PILIC's
capital and surplus become impaired; and
o bear the administrative cost of the continued operation of PILIC.
All of these obligations were assumed by AHC Acquisition, Inc. when it
acquired PILIC. HAI recognized a $10.3 million loss on the sale of PILIC which
included a write-off of assets in the amount of $2.7 million together with HAI's
November 30, 1999 capital contribution to PILIC in the amount of $7.2 million
and the value of the HealthAxis Series A preferred stock transferred to AHC
Acquisition, Inc. in the amount of $0.4 million.
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Information Concerning HealthAxis
General
HealthAxis is a leading provider of software and application
integration services which assist its clients in using the Internet for health
insurance distribution and administration. HealthAxis serves entities involved
in the distribution and administration of health insurance as, which include
brokers, benefit consulting firms and online human resource and benefits
providers, as well as insurance companies that underwrite policies, independent
entities that administer claims processing and payment, Blue Cross/Blue Shield
plans, and self-insured employers. These entities which are responsible for the
processing and payment of insurance claims are referred to as payers in the
insurance industry and in this document.
HealthAxis offers a fully functional Internet platform for the
distribution of health insurance products to the individual, small group, and
large group markets, both on a direct basis and through existing intermediaries
such as agents, affinity relationships and benefits consulting firms. HealthAxis
also offers a suite of Internet based software applications and services
designed to enhance the efficiency and effectiveness of insurance plan
distribution, claims administration, benefits enrollment, benefits maintenance
and conversion of insurance claims information to electronic form. HealthAxis
also provides systems integration, technology management and data capture
services to its clients.
HealthAxis' suite of integrated proprietary software addresses the
workflow and processing inefficiencies embedded in the healthcare insurance
industry. The software enables HealthAxis' clients to reduce costs and improve
customer service through the use of online benefits enrollment and
administration services. The software increases the efficiency of a client's
operations by eliminating paper-based processes and improving the client's
ability to capture, process and share data with plan members and other industry
participants within the healthcare system.
HealthAxis' suite of software applications includes Insur-Web,
Insur-Image, Insur-Voice, Insur-Enroll, Insur-Admin and Insur-Claim, and
Insur-Retail. HealthAxis' products and services include:
o systems integration and technology management services;
o imaging and electronic data capture services, and
o web based image storage and retrieval.
HealthAxis, through the Insurdata merger, has over 20 years of
experience building software applications and developing systems for the
healthcare payer industry. HealthAxis' current client base represents
approximately 750,000 insured lives (excluding covered dependents) enrolled
under the proprietary software applications and approximately 1,000,000 claims
per month through the data capture services. HealthAxis generated approximately
$32.8 million in revenues from continuing operations for the nine months ended
September 30, 2000. Excluding the non-merging subsidiaries of Insurdata
Incorporated, HealthAxis generated approximately $38.2 million in pro forma
revenues for the year ended December 31, 1998 and approximately $42.9 million in
pro forma revenues for the year ended December 31, 1999.
Historical Development
HAI incorporated HealthAxis in March 1998 for the purpose of selling
insurance products on the Internet. The health insurance expertise supplied by
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HAI based upon its 100 years of experience as an underwriter of individual
health insurance policies was critical in the initial stages of HealthAxis'
development as an online insurance agency. HAI also provided capital resources
as well as the initial products sold on the HealthAxis website. During 1998 and
1999, HealthAxis entered into marketing agreements with several Internet portals
in order to build HealthAxis' brand awareness. During 1999, HealthAxis expanded
from 15 to 105 employees, entered into carrier partner agreements with
nationally recognized insurance companies to sell products on its website,
commenced interactive marketing of its website through agreements with Internet
portals, expanded and enhanced its website and raised capital through several
private placements of its securities. During the first quarter of 2000,
HealthAxis completed its merger with Insurdata Incorporated, expanded to 1,204
employees and entered into over 30 retailing partnerships or affinity
agreements.
In December 1998, HealthAxis initiated online insurance distribution
through America Online and the World Wide Web through the "soft launch" of one
of HAI's products in 18 states. The objective of the soft launch was to provide
a controlled environment through which HealthAxis could minimize service
problems in the delivery of insurance products. HealthAxis is currently licensed
in 50 states and the District of Columbia either directly or through its agency
employees or wholly owned subsidiaries.
During 1998, the board of directors of HAI made a strategic decision to
sell its insurance underwriting business and focus its capital and managerial
resources on e-commerce sales of insurance through HealthAxis. In pursuit of
this goal, between December 1998 and November 1999, HAI sold its traditional
insurance businesses in a series of unrelated transactions, including the sale
of PILIC to AHC Acquisition, Inc. As a result of these sales, by the end of
1999, HealthAxis was HAI's only operating subsidiary. During 1999, HealthAxis
continued to focus on expanding the geographic scope and diversity of the
products offered on its website through its carrier partner agreements with
nationally recognized insurance companies. Throughout 1999, HealthAxis continued
to integrate new carrier partner products on its website and made additional
technological enhancements to its website.
HealthAxis determined that, despite its efforts to hire information
technology employees, it would need to outsource aspects of the carrier
integration process to Insurdata Incorporated, a subsidiary of UICI, in order to
more rapidly integrate carrier partners on its website. Insurdata Incorporated's
expertise in this area highlighted HealthAxis' need to upgrade its technical
capabilities in order to capitalize on the competitive advantage created by
rapidly integrating new carrier partners on its website. In August 1999,
HealthAxis began negotiations with Insurdata Incorporated to merge Insurdata
Incorporated into HealthAxis. HealthAxis' reasons for pursuing the merger with
Insurdata Incorporated included the following:
o Acquire technical expertise. Insurdata Incorporated had over 300
technology professionals with substantial experience in the workflows
applicable to the health insurance industry's business processes;
HealthAxis' management believed its technological leadership in the
healthcare payer segment of the insurance industry would be
invaluable to HealthAxis' growth.
o Accelerate carrier partner integration process. Management believed
Insurdata Incorporated's technological expertise and staff of
information technology professionals were critical to the
acceleration of the carrier partner integration process.
o Increased revenues. Insurdata Incorporated's pro forma revenues
(excluding non-merging subsidiaries) were $42.9 million in 1999.
o Enhance attraction of products and services to insurance payers.
Management believed that the addition of the ability to offer an
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end-to-end Internet based set of services to insurance payers was
more attractive to insurance industry participants than solely
distribution services.
o Improve ability to raise capital. Management believed that an
established revenue base, seasoned management and significantly
greater technological resources would improve HealthAxis' ability to
raise capital.
On December 6, 1999, HealthAxis, Insurdata Incorporated, HAI and UICI
entered into an agreement and plan of merger which set forth the terms and
conditions under which Insurdata Incorporated was merged with and into
HealthAxis. The companies completed the Insurdata merger on January 7, 2000. As
a condition to the Insurdata merger, UICI required HealthAxis to raise at least
$55 million in additional capital in order for HealthAxis to implement its
business plan.
Since its inception, HealthAxis has funded its operations through
capital contributions from HAI and the sale of common and preferred stock or
debt convertible into common stock in a series of private placements. On
December 7, 1999, HealthAxis completed a $57.7 million private placement of
3,846,003 shares of its common stock at $15.00 per share to accredited
investors, including the purchase of 133,333 shares of HealthAxis common stock
by HAI. The private placement of at least $55.0 million was a condition to the
completion of the Insurdata merger.
As a result of the Insurdata merger and the December 7, 1999 private
placement effected as a condition to the merger, UICI became the largest
shareholder of HealthAxis, holding 43.6% of HealthAxis' capital stock, and HAI's
ownership of HealthAxis was reduced to 34.8%. In March 2000, UICI privately
placed 2.0 million shares of its HealthAxis common stock with a single
institutional investor. As a result of this sale, UICI currently owns 39.1% of
HealthAxis. See "Risk Factors - Because members of management of HAI and UICI
will own or control a substantial portion of HAI's common stock upon completion
of the HAI merger, other shareholders will not have the ability to control
company actions that may not be in their best interests."
Additionally, in connection with the Insurdata merger, UICI entered
into two voting trust agreements. These agreements grant voting power over a
portion of the HealthAxis common stock held by UICI to the trustees who are also
directors of HealthAxis and HAI. Pursuant to the terms of these voting trust
agreements, UICI's voting control is limited to 25% of HealthAxis' outstanding
equity securities. In connection with the completion of the Insurdata merger,
HAI, UICI, HealthAxis and Michael Ashker, President and Chief Executive of
HealthAxis and HAI, entered into a shareholders' agreement. Under the terms of
the shareholders' agreement, the board of directors of HAI will consist of up to
nine members. UICI and HAI may each independently nominate three nominees to the
board, and, the remaining three directors will be nominated by mutual agreement
of HAI (acting by the vote of a majority of the members of the board who were
not nominated by or agreed to by UICI) and UICI. This provision of the
shareholders' agreement will terminate with respect to UICI when UICI owns less
than 20% of the HAI common stock on a fully diluted basis. In connection with
the reorganization, this agreement will be terminated and the parties to this
agreement, as well as Alvin Clemens and HealthAxis Acquisition, Inc., will enter
into a similar agreement. See "-- The Merger -- Material Terms of the Merger
Documents."
On June 30, 2000, HealthAxis entered into an asset purchase agreement
to sell to Digital Insurance, Inc. the assets used in connection with its retail
website, including the current and next generation of the retail website user
interface. The asset purchase agreement was amended on September 25, 2000 to
read in its present form. Under the terms of the agreement, as amended, Digital
Insurance, Inc. agreed to pay HealthAxis $500,000 in cash, a promissory note for
$500,000, 11%, on a fully-diluted basis, of the outstanding shares of Digital
Insurance, Inc. and a portion of Digital Insurance, Inc.'s net commission
revenues received through the acquired website user interface or an affinity
partner. The Digital sale was completed on October 13, 2000.
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In connection with this transaction, HealthAxis and Digital Insurance,
Inc. entered into Software License and Consulting Agreement, as amended, that
provides HealthAxis with a perpetual nonexclusive license to use and sublicense,
subject to restrictions, the user interface sold to Digital Insurance, Inc.,
licensing fees of $3.0 million dollars for software owned by HealthAxis that
will be used by Digital Insurance, Inc., in conjunction with the user interface
it purchased and consulting and services fees of a minimum of $3.0 million
dollars to be earned over the next 12 months.
The Digital sale accomplished several important objectives for
HealthAxis:
o Enable HealthAxis to focus its resources on the opportunity in
Internet application software targeted to healthcare payers;
o Significantly reduce HealthAxis' operating expenses;
o Increase HealthAxis revenues as a result of the Software License and
Consulting Agreement;
o Provide HealthAxis with an equity interest in Digital Insurance, Inc.
which will enable HealthAxis to share in the potential equity
appreciation of Digital Insurance, Inc. as the online insurance
market develops.
See "Recent Developments - Sale of Assets to Digital Insurance, Inc."
Health Insurance Industry
The health insurance industry represents one of the largest segments of
the U.S. economy. In 1995, the last year for which industry figures are
available, the Health Insurance Association of America reported that total
premium revenues for commercial insurers, Blue Cross and Blue Shield plans,
self-insured plans and HMOs equaled approximately $321 billion. The Health
Insurance Association of America projected a growth rate of 5% to 7% for 1996
and 1997. These insurance payers collectively provided health insurance coverage
to over 185 million Americans in 1995. The remainder of the population was
either uninsured (roughly 44 million persons) or covered by a government program
such as Medicare or Medicaid.
Healthcare plan administration involves providers, payers, managed care
organizations, reinsurance carriers, preferred provider organizations, medical
and dental claim review staffs, employers and employees. Unlike other insurance
types, healthcare insurance administration results in extensive interaction
between the consumer and the insurance carrier due to the high number of claims
submitted. Each of these participants must be able to share, process and access
data in order to perform their respective roles in the healthcare system.
However, the fragmentation within the healthcare industry complicates this task.
It is estimated that over $250 billion each year is wasted through
redundant procedures and excessive administrative costs. As the overall
healthcare industry has increased in size and complexity, the burden of
gathering, processing and managing the approximately 4.6 billion claims
generated each year has led to significant administrative bureaucracies,
inefficiencies and, consequently, increasing costs. This burden, coupled with
the fact that the industry has historically under-invested in information
technology, has placed increasing strains on the profitability of the overall
industry as pricing pressures and other competitive factors have compressed
margins. Recent industry reports conclude that the health insurance industry is
10 to 15 years behind other transaction intensive industries, such as the
airline and banking industries, in its use of information technology. This
failure to effectively utilize currently available technology is reflected in
the higher transaction processing costs incurred within the health insurance
industry. HealthAxis believes that the estimated cost to process a healthcare
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claim can range from $8.00 to $18.50, versus less than $1.00 for a banking
transaction.
HealthAxis believes that the healthcare industry has historically
under-invested in information technology due to the limited suitability of
existing technological platforms in addressing the needs of the industry. The
high degree of interaction and the large volume of transactions among healthcare
providers, insurers and managed care companies, independent administrative
service organizations, employers and employees does not lend itself to the
traditional client-server or mainframe environments. These systems, which are
designed to operate with dedicated networks, are generally not suited for
interfacing among a number of unrelated, external users on a cost effective
basis. HealthAxis believes the Internet, which facilitates the rapid deployment
of information and provides for cost-effective access to an unlimited number of
users, represents the next phase in the evolution of healthcare information
technology. Due to the transaction-intense nature of healthcare insurance,
HealthAxis believes the online consumer will demand Internet access to
healthcare eligibility information, claims status and provider information.
The HealthAxis Solution
HealthAxis provides a comprehensive set of technology-based solutions
for the health insurance industry. The HealthAxis solution addresses the payer
community's need to achieve cost efficiencies in their operations. HealthAxis
provides fully integrated insurance distribution to entities involved in digital
distribution and administration solutions which utilize the Internet.
HealthAxis provides integrated proprietary software applications that
utilize the Internet to address the workflow and processing inefficiencies
embedded in the healthcare insurance industry. The software enables carriers,
independent entities that administer claims processing and payment and large
group employers to reduce costs and improve customer service through the use of
online benefits enrollment and administration services. These software
applications increase the efficiency of a client's operations by eliminating
paper-based processes and improve the client's ability to capture, process and
share data with plan members and other industry participants within the
healthcare system, including providers, payers, managed care organizations,
agents, reinsurance carriers, employees and employers. In addition, HealthAxis
offers these customers related systems integration, technology management and
data capture services.
The HealthAxis Strategy.
HealthAxis' strategy consists of five principal components:
o Expand sales force to capitalize on leading technology.
o Develop the insurance intermediary market as a viable sales channel.
o Leverage HealthAxis' presentation layer expertise to provide Web
information design service to both payers and intermediaries.
o Partner with leading technology companies and systems integrators to
expand HealthAxis' ability to sell to healthcare payers.
o Develop a marketing program that increases awareness of HealthAxis as
a provider of leading edge technology solutions.
Expand sales force to capitalize on leading technology. HealthAxis has
established product leadership through its software applications: Insur-Web,
Insur-Enroll and Insur-Image. HealthAxis is committed to capitalizing on its
product strength by expanding its sales force in order to increase the market
share of these products.
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Develop the insurance intermediary market as a viable sales channel.
There is an emerging class of online companies seeking to provide outsourced
health insurance and/or human resources management services to both small and
middle market companies. HealthAxis intends to leverage its expertise in plan
distribution and online member services delivery to offer these emerging
intermediaries the technology to enable their platforms. Many of these benefits
intermediaries are focused on customer acquisition as opposed to technology
development, in which case a third-party software product can provide enormous
speed-to-market advantages in a competitive marketplace.
Leverage HealthAxis' presentation layer expertise to provide Web
information design services to both payers and intermediaries. HealthAxis
developed significant expertise in the buying behavior of insurance consumers
through the operation of its consumer website. HealthAxis intends to utilize its
expertise in information design for this particular market by offering to payers
and insurance brokers web-related design services. These services can be sold
either as a package within the context of a suite of web based software or as a
stand-alone offering.
Partner with leading technology companies and systems integrators to
expand HealthAxis' ability to sell to healthcare payers. HealthAxis is currently
a certified Microsoft Solutions Provider. This relationship extends from
HealthAxis' longstanding commitment to developing its software on Microsoft's
BizTalk platform. This relationship and the certification lends credibility to
HealthAxis' position as a technology leader. In addition, HealthAxis will seek
to develop partnerships with large systems integrators to expand HealthAxis'
ability both to reach new customers and to implement its solutions.
Develop a Marketing Program That Will Increase Awareness of HealthAxis
as a Leading-edge Technology Provider. HealthAxis believes it has an opportunity
to expand the payer community's awareness of HealthAxis as a leading edge
technology company. As a result of the sale of assets related to its retail
website to Digital Insurance, Inc., HealthAxis intends to engage an
informational campaign to ensure that the target audience of payers both
recognizes the HealthAxis name and associates it with leading-edge Internet
software.
Revenue Model
HealthAxis generates transaction-based revenues through multi-year or
annually renewable contracts with its clients for its proprietary applications.
These contracts generally include an up-front payment intended to recoup
start-up costs incurred by HealthAxis in serving new clients. Typically, these
costs are associated with converting the client's existing system, training and
other costs incurred to tailor a specific solution for a client. The principal
revenue obtained from these contracts is a per-transaction fee, which varies
based upon the particular application solution. Some applications are priced on
a per-employee per-month or on a per-member (including dependents) per-month
basis while others are on a per-image and per-transaction basis. HealthAxis
charges its clients for its systems integration and technology services on a
time and materials basis. HealthAxis charges its clients for its data capture
services, where it converts the client's data from a paper based format to an
electronic format, on a per-claim basis.
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HealthAxis will also generate revenues through its relationship with
Digital Insurance, Inc. HealthAxis will receive a percentage of the net
commission revenues received by Digital Insurance, Inc. through the acquired
website user interface or an affinity partner. HealthAxis' percentage of Digital
Insurance, Inc.'s net commission revenues ranges from 10% to 20%.
Products
HealthAxis provides software products and services across both the
administration and distribution segments of the health insurance market. The
following describes the products offered by HealthAxis.
HealthAxis is a provider of proprietary applications that address the
specific workflow and processing needs of the administration segment of the
healthcare insurance industry in an efficient and cost-effective manner.
HealthAxis, through its proprietary enrollment and plan administration
applications, provides Internet enrollment and online access to claims and
eligibility data. HealthAxis' services include proprietary workflow and
Internet-enabled business applications that enhance transaction processing and
promote the flow of information among constituent users, including providers,
payers, managed care and case management organizations, reinsurance carriers,
agents, preferred provider organizations, medical and dental claim review
staffs, employers and employees. In addition, HealthAxis offers related systems
integration, technology infrastructure management and data capture services.
------------------------------------------------------------------------------
Data Capture Services
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Workflow and Business Systems Integration:
Administration Applications:
Insur-Web, Insur-Image, Custom Applications
Insur-Voice, Insur-Enroll,
Insur-Admin, Insur-Claims,
Insur-Retail
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Technology Infrastructure Management
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Proprietary Applications. HealthAxis offers the suite of proprietary
workflow and business applications described below. These products are offered
to HealthAxis' clients on a per-employee per-month basis, where the client pays
HealthAxis a monthly fee for each enrollee it administers. HealthAxis typically
enters into multi-year contracts with clients to whom it supplies these
services.
Workflow Applications
Insur-Web. Insur-Web is HealthAxis' web-enabling technology that
provides an Internet gateway to HealthAxis' other proprietary business
applications. By enabling HealthAxis' business applications to work via the
Internet, HealthAxis allows its clients to provide direct access to systems and
data within a secure environment; thereby lowering transaction costs and
shortening cycle times for their constituent users. In addition to password
protection, Insur-Web employs firewalls, logging tools, encryption technology
and virus detection software packages that are designed to prevent unauthorized
access to the extranet. Insur-Web can serve as the gateway to HealthAxis'
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proprietary applications or to the client's legacy systems. This product was
released in 1999.
Insur-Image. Insur-Image is a seamless scanning, optical character
recognition and data verification workflow system specifically engineered for
claims processing that enables payers to create a paperless environment.
HealthAxis uses Insur-Image claim forms to capture, in digital form, claims,
attachments and related correspondence. Insur-Image contains a form
identification process that automatically identifies the type of claim form and
routes it to the appropriate next step in the workflow process, thereby
eliminating the need for manual pre-sorting. The image is then processed by an
optical character recognition/intelligent character recognition engine. The
engine extracts the data from the claim image, thereby minimizing the need for
manual data entry. Insur-Image then applies a data verification technology known
as Sorted Character Image Verification, to increase data accuracy and measure
quality. Insur-Image provides long-term archival image storage. Management
believes that the speed and accuracy of its Insur-Image application gives
HealthAxis a competitive advantage in the industry. Insur-Image can be used in
conjunction with HealthAxis' Insur-Claims system, or can be integrated with an
organization's existing claims processing system. This system has been in
service for more than five years.
Insur-Voice. Insur-Voice is a scaleable, flexible, interactive voice
response system that provides employees, providers and employers 24-hour a day
access to information thereby improving service while reducing customer service
costs. Insur-Voice reduces administrative costs by automating the processing of
customer inquiries through the use of a menu-driven telephone interface. Using
Insur-Voice, HealthAxis' clients can provide a variety of services including
interactive enrollment, benefit modification, automated access to provider
directories, preferred provider organization pricing, automated eligibility
verification and claim status reporting. Insur-Voice can be integrated with
HealthAxis' other proprietary application solutions or can be integrated into
the client's existing system. This product has been in operation for more than
five years.
Business Administration Applications
Insur-Enroll. Insur-Enroll is an Internet and interactive voice
response enabled enrollment and eligibility function. Insur-Enroll provides
24-hour interactive enrollment, eligibility and life event management
capabilities. Insur-Enroll supports an unlimited number of benefit plans
including health, dental, life, vision and accident and disability, and medical
and dependent care flexible spending accounts. Using employee specific
demographic information, Insur-Enroll automatically computes coverage levels and
pre- and post-tax deductions. A least-cost routing feature allows Insur-Enroll
to forward customized forms and confirmation statements to employees
automatically through e-mail, fax or regular mail. HealthAxis believes that less
than 10% of plan enrollments are executed using the Internet and that this
number is expected to increase to over 60% within the next several years.
HealthAxis believes that the utilization of the Internet for enrollment services
presents a significant cost saving opportunity to insurers, benefit
administrators, independent entities that administer claims processing and
payment, consultants, self-administered groups and employers, and a significant
market opportunity for HealthAxis. The solution was successfully deployed in
1999.
Insur-Admin. Insur-Admin is a comprehensive benefits administration
system that features enrollment, group and individual billing and premium
collection and reconciliation for independent entities that administer claims
processing and payment, insurers, self-administered groups, health plan network
managers and healthcare purchasing cooperatives. Insur-Admin accommodates both
interactive and batch enrollment into a wide spectrum of coverages. It allows
organizations to track an infinite number of divisions, subdivisions, locations,
health classifications and work groupings. Insur-Admin interfaces with a plastic
card production system thereby reducing the time required to produce
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identification cards. A billing function included in Insur-Admin manages
individual and group billing and premium collection and reconciliation including
the ability to service multi-employer groups that have joined together to
negotiate insurance rates. Insur-Admin manages all aspects of Consolidated
Omnibus Budget Reconciliation Act, including calculating and collecting
Consolidated Omnibus Budget Reconciliation Act premiums, tracking qualifying
events and issuing rights and qualification letters and billing coupon books.
The system performs Health Insurance Portability and Accountability Act
compliance activities, including capturing prior coverage credit days and
issuing Health Insurance Portability and Accountability Act certificates upon
termination of coverage. Insur-Admin also manages medical and dependent care
flexible savings accounts. By integrating Insur-Admin with HealthAxis'
Insur-Web, Insur-Image and Insur-Voice applications, clients achieve enhanced
workflow efficiencies. Insur-Admin can be implemented in a stand-alone mode, or
can be integrated with HealthAxis' claim payment systems. This system has been
in service for more than five years.
Insur-Claims. Insur-Claims is a comprehensive claims processing system
for health, dental, vision, short-term disability, executive reimbursement and
medical and dependent care flexible spending accounts. A rules-based approach
allows Insur-Claims to be fully customized, which allows the system to handle
complex benefit structures and provider reimbursement arrangements. Insur-Claims
also includes auto adjudication and preferred provider organization repricing
functions, which further increases the efficiency of the system. Insur-Claims is
utilized by independent entities that administer claims processing and payment,
insurers and self-administered groups. Insur-Claims also facilitates utilization
management, including pre-certifications, referrals and authorizations,
re-bundling and unbundling edits, and 1099 and tax processing. Insur-Claims also
accepts electronic data interchange or "EDI" transactions. Insur-Claims can be
integrated with HealthAxis' Insur-Web and Insur-Voice applications to provide
on-demand access to benefit coverage information such as enrollment and claim
status, either through the Internet or over the telephone. This system, combined
with Insur-Voice, also enhances the ability of customer service representatives
to assist consumers by automatically routing and displaying customer-specific
data to a customer service representative upon receipt of a phone call. This
system has been in operation for more than five years.
HealthAxis retains physical and operational control of its proprietary
applications which allows HealthAxis to cost-effectively perform application
system maintenance and upgrades as all clients utilize the same version of each
application. In addition to reducing the costs associated with tracking and
distributing application versions, HealthAxis does not incur expenses associated
with supporting multiple versions of the same application. Management believes
that this approach also reduces the administrative burden on the client, thereby
increasing overall client satisfaction.
Insur-Retail. HealthAxis provides technology and related services to
assist both payers and intermediaries in selling health insurance products
online. Such technology and services can be purchased either as a suite of web
based software and services or on a stand-alone basis. The suite of services may
include connectivity technology as embodied in Insur-Enroll, Insur-Web, and
Insur-Admin and/or platform design and presentation layer assistance. HealthAxis
is also capable of providing would-be plan distribution agents with a complete
Internet based insurance distribution platform.
Systems Integration and Technology Management. Through its systems
integration and technology management services, HealthAxis provides
cost-effective design, development and implementation of technical solutions for
payers. These services can be supplied independently or as a complete package
pursuant to which HealthAxis assumes complete responsibility for the client's
information technology operation as is, and, where appropriate, converts the
client to HealthAxis' systems. These services are provided to HealthAxis'
clients on a time and materials basis. HealthAxis' systems integration services
consist of four primary offerings:
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o Information technology planning. HealthAxis' information
technology planning services match systems requirements with
the clients' long-term business needs to establish the
application, data and technology framework.
o Multi-vendor system integration. Through its multi-vendor
systems integration services, HealthAxis delivers solutions
composed of custom and packaged software, hardware and
communications technologies. This service encompasses defining
user and architecture requirements and performing systems
design, vendor management, integration testing and
implementation.
o Application software maintenance. HealthAxis offers a variety
of management functions in connection with its application
software maintenance services, including the management of the
client's application software portfolio of legacy and
newly-developed systems. HealthAxis' application management
services include consulting and implementation of application
enhancements, corrective and adaptive maintenance and
application support, including training. In situations in
which a third-party application software package is a suitable
alternative to custom development, HealthAxis undertakes a
suitability analysis, evaluates and selects an application
package, performs modifications, implements the solution and
trains users.
o Workflow automation. HealthAxis' workflow automation services
provide consulting and solution integration focused on
improving productivity by automating data capture and
shortening processing times. HealthAxis utilizes both its
proprietary workflow solutions and custom solutions within its
workflow automation services. HealthAxis also offers systems
operations for MVS mainframe processors, UNIX and NT server
environments, network management for voice, data and e-mail
systems (including on LAN environments) and comprehensive
client support through its help desk functions.
HealthAxis applies strong management practices to the systems delivery
process through its proprietary Insur-Method software development and systems
integration life cycle methodology. Insur-Method is a standardized set of
methods and techniques utilized to ensure successful delivery of projects in a
timely and cost effective manner and in accordance with client specifications.
Insur-Method encompasses all phases of project development from planning,
including business analysis and, where applicable, business process
reengineering, to development, including programming, to implementation,
including technology integration. Insur-Method also encompasses project
management through a detailed budgeting process. HealthAxis also utilizes
Insur-Method in its applications maintenance services to manage application
upgrades, track service levels and measure programmer productivity and
maintenance costs. These services are provided exclusively to the healthcare
administration industry and are generally provided in connection with one of the
proprietary applications. By focusing on healthcare administration, HealthAxis
believes it can bring greater value to clients.
Imaging and Electronic Data Capture. HealthAxis performs imaging or
data capture outsourcing services to efficiently convert paper transactions in
the form of healthcare claims into electronic transactions. As a complement to
its imaging services, HealthAxis also provides mailroom services pursuant to
which HealthAxis receives and sorts incoming healthcare claim forms prior to
imaging. Processing paper based claims is inherently inefficient and
time-consuming. Paper claim forms undergo several processes from the time they
are received and sorted in the payer's mailroom to the time the relevant data is
captured and entered into the payer's system. These cumbersome processes,
coupled with the high volume of claims processed by typical payers, results in a
significant and expensive administrative burden on payers.
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HealthAxis utilizes a combination of advanced technology and strong
management practices in favorable labor markets in the rural U.S. and Jamaica to
efficiently capture and convert large volumes of claims. The resulting data is
downloaded to the client's internal claims adjudication database or, for those
clients utilizing HealthAxis' claim processing solutions, to HealthAxis' data
center for adjudication and payment. HealthAxis offers these services to its
clients on a per claim or per image basis.
Internet Based Image Storage and Retrieval. In tandem with claims data
capture, HealthAxis provides claims image retrieval services via the Internet.
This service features multi-level search capabilities for locating claim images,
as well as the ability to dynamically assign claims to various work queues. All
claim types are supported including dental X-rays. Image retrieval can be done
from standard desktop personal computer using a web browser.
HealthAxis' imaging and electronic data capture services are provided
on a per image basis. HealthAxis provides these services pursuant to multi-year
or annually renewable contracts. Claims capture is a vital component of
efficient healthcare administration. This service complements all other products
and services. In addition, it provides a good entry point with new carrier
clients and provides cost efficiencies.
Technology Development
HealthAxis has an internal technology unit led by the Chief Technology
Officer. This unit is designed to support HealthAxis' operating units and their
clients through continuing research, development, evaluation and implementation
of new technologies. HealthAxis uses a team approach throughout the development
phase of new products and product enhancements which involves the active
participation of HealthAxis' other business units in the early stages of
development. This early involvement is essential to the development and
successful implementation of effective technology solutions.
In addition to project specific tasks, HealthAxis' technology unit
continues to enhance HealthAxis' proprietary applications and to develop and
test new solutions, including the testing and analysis of applications available
in the market. HealthAxis' advanced technology unit is involved in research and
development in six core technology areas: web services, workflow, transaction
processing, database services, indexing services and communication.
HealthAxis Clients
As of September 30, 2000, HealthAxis had a total of 34 clients, which
include insurance carriers, independent entities that administer claims
processing and payment, Blue Cross/Blue Shield organizations and
self-administered employers. Contracts with these payers are for a multi-year
(generally three year) term with annual renewals thereafter. HealthAxis also
entered into an agreement to provide backend connectivity technology and
services to Digital Insurance, Inc., an online insurance agency.
HealthAxis' business model of offering its proprietary applications on
a transaction basis, plus the difficulty of migrating to a new system, makes it
administratively and economically burdensome for such clients to switch to a
competitor. As a result of this model and a generally high level of client
satisfaction, HealthAxis has enjoyed long-term client relationships. See
"Chapter I - The Merger - Risk Factors - The loss of one or more of HealthAxis'
large clients would have a detrimental affect on HealthAxis' financial
condition."
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As a result of the parent-subsidiary relationship between the former
Insurdata Incorporated and UICI, HealthAxis has historically derived a large
percentage of its revenues from UICI and its subsidiaries. For the nine months
ended September 30, 2000, UICI and its subsidiaries accounted for approximately
64% of HealthAxis' pro forma revenues from continuing operations. For the year
ended December 31, 1999, UICI and its subsidiaries accounted for approximately
66% of HealthAxis' pro forma revenues. A portion of this revenue from UICI in
the past was for year 2000 services which have been substantially completed.
UICI and its subsidiaries are currently HealthAxis' primary client for its
system integration and technology management services. HealthAxis believes that
the percentage of its revenues attributable to UICI and its subsidiaries will
decline as HealthAxis' marketing efforts continue to expand its base of external
clients. See "Chapter IV - Other HealthAxis Annual Meeting Proposals - Item 1 -
Election of HealthAxis Directors - Certain Transactions and - Relationship with
HAI and UICI."
In addition to UICI and its subsidiaries, two clients, Continental
Casualty Company and National Capital Administrative Services, have historically
accounted for a substantial portion of HealthAxis' revenue. Continental Casualty
Company accounted for approximately 8% of HealthAxis' pro forma revenues in 1998
and less than 4.0% of pro forma revenues in 1999. National Capital
Administrative Services accounted for 11% of HealthAxis' revenues in 1998. In
1999, the National Capital Administrative Services account was de-centralized
into multiple, separately contracted smaller entities. None of those smaller
entities generated revenues which were individually significant.
Sales and Marketing
HealthAxis recently implemented a sales and marketing effort designed
to:
o Target potential clients for HealthAxis' services;
o Identify opportunities to cross-sell additional services to
HealthAxis' existing clients;
o Assist clients in growing their own businesses, creating additional
revenue for HealthAxis;
o Increase HealthAxis' visibility within the industry; and
o Target the emerging class of health insurance intermediaries with a
fully operational Internet distribution platform.
In the past, new external clients were generally added as a result of referrals
or as a result of direct contact initiated by the client due to HealthAxis'
reputation in the industry.
HealthAxis' current marketing program is designed to raise the
visibility of HealthAxis and its products and services, in order to increase
sales opportunities. In the past, new external clients were generally added as a
result of references or direct contact initiated by the client due to
HealthAxis' reputation in the industry. The current marketing program consists
of multiple channels to reach HealthAxis' target audience. HealthAxis' websites,
currently at www.insurdata.com and www.healthaxis.com allows prospective clients
access to product and service descriptions and Company news. HealthAxis issues
press releases regularly through the Internet, public wire services and selected
trade publications and pursues advertising and editorial opportunities in key
industry trade publications. HealthAxis also exhibits at industry trade shows
and conducts direct mail campaigns highlighting HealthAxis' products and
services to targeted audiences.
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Minority Interest in Digital Insurance, Inc.
HealthAxis owns a minority interest of 11% of the outstanding
securities of Digital Insurance, Inc. HealthAxis has the right, subject to
limitations, to maintain this percentage of ownership by purchasing additional
securities in future offerings by Digital Insurance, Inc., if any. See "Recent
Developments - Sale of Assets to Digital Insurance, Inc."
Digital Insurance, Inc. is an online distribution channel for
web-enabled insurance carriers. Digital Insurance, Inc. insurance distribution
and administrative functions, including enrollment, to small and medium group
employers. Digital Insurance, Inc. is headquartered in Atlanta, Georgia, with
operations in McLean, Virginia and East Norriton, Pennsylvania. In addition to
HealthAxis, its capital partners include Internet HealthCare Group and Capital Z
Partners.
Intellectual Property and Technology
Patent, Trademark and Copyright Protection. HealthAxis' ability to
compete is dependent to a significant degree upon its proprietary systems,
technology, and intellectual property. HealthAxis relies upon a combination of
trademark, copyright, confidentiality agreements and trade secret laws as well
as other measures to protect its proprietary rights. HealthAxis does not have
any patents or patent applications and currently does not plan to file any
patent applications. HealthAxis has registered the name "HealthAxis.com" with
Internic, a private corporation organized by U.S. government which administers
Internet domain names. HealthAxis has applied for registration of the service
marks "HealthAxis" and "HealthAxis.com" with the U.S. Patent and Trademark
Office. HealthAxis was notified by the U.S. Patent and Trademark Office that it
had preliminarily denied registration of the service marks "HealthAxis" and
"HealthAxis.com" on the basis of potential confusion with an allegedly similar
registered service mark. HealthAxis is attempting to overcome the U.S. Patent
and Trademark Office's preliminary denial by negotiating a consent with the
party holding the similar mark. This party has agreed to HealthAxis'
registration of these marks. Until the U.S. Patent and Trademark Office approves
this agreement, HealthAxis can not provide any assurance as to whether or not it
will be successful in overcoming the U.S. Patent and Trademark Office's
preliminary denial of registration.
HealthAxis has applied for, or registered, the following trademarks
with the U.S. Patent and Trademark Office: Insur-Web, Insur-Voice, Insur-Image,
Insur-Enroll, Insur-Admin and Insur-Claims. HealthAxis has determined not to
file applications for these marks in foreign countries at this time. HealthAxis'
sales materials, content and software are protected by copyright.
In December 1998, a third party notified Insurdata Incorporated that it
believed Insurdata Incorporated had infringed upon a common law trademark held
by such party through its use of the name "Insur-Web" because a similar name is
currently being utilized by the third party. HealthAxis does not believe that
its use of the name Insur-Web constitutes an infringement of this party's rights
and intends to defend itself against any infringement claim asserted. No
assurance can be given as to whether Insurdata Incorporated will ultimately
prevail in any action that may be brought by this party. See "Risk Factors -- If
HealthAxis is unable to protect its proprietary technology, its competitors
could use its proprietary technology to compete against it and its revenues
would be reduced."
The source code and design of HealthAxis' software will be protected by
HealthAxis through applicable trade secret law. HealthAxis also intends to use
confidentiality agreements with its employees to further protect its source
codes and software.
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Third Party Technology, Website Ownership and Maintenance. HealthAxis
relies on a variety of technology that it licenses from third parties, including
its database and Internet server software, which is used in HealthAxis' website
to perform key functions. Web design and maintenance are currently performed by
in house technicians in order to permit HealthAxis to maintain control over its
Internet platform. HealthAxis anticipates updating its website on an ongoing
basis.
Web Technologies. The technology supporting HealthAxis' Web services
are based on a distributed computing environment relying primarily on Microsoft
technology platforms. Web servers are based on Internet Information Server 4.0,
middle tier business logic is placed in Microsoft Transaction Server and
databases are based on Microsoft SQL Server 7.0 and 6.5. The current computing
platform consists of over 50 NT servers. Additional software utilized includes
workflow and print tools from JetForm.
DataCenter Core Processing Environment. HealthAxis also has
connectivity to several back end computing environments. The main data center is
located in North Richland Hills, Texas and is a 8,500 sq. foot facility with the
following processing equipment and systems:
o 16 IBM RS6000 processors running AIX (ranging up to the H70 class
computing platform)
o IBM mainframe 9672/R35 (180Mips) running OS/390
o Two terabytes of DASD (1.3 available) and two Storage Tek tape
silohs (6000 tapes each)
All NT server equipment is from Compaq and all production servers are Proliant
class servers configured with RAID (or mirroring), dual LAN connectivity, and
redundant power supplies. All networks are switched with Cisco Catalyst
multi-gigabit switching, and core routers are Cisco with Bay routers for WAN
connectivity. Internet firewall technology is based on Cisco PIX firewalls. The
facility has redundant backbone connections for the WAN and Internet. There is
UPS and diesel power backup. Off-sight disaster recovery is through Comdisco.
Competition
HealthAxis believes it is a leader in developing Internet software
applications. HealthAxis competes to sell a range of software and services to
both healthcare payers and those intermediaries responsible for distributing
product to consumers, small groups and large groups. In these markets,
HealthAxis competes with other technology providers to the health insurance
industry, the majority of which are not strictly payer-focused.
The principal competitive factors for HealthAxis are the breadth and
quality of system and product offerings, features and functionality, service and
support, processing capacity and the ability to successfully develop and deploy
product improvements. HealthAxis believes that its major competitors include
WebMD, RIMS, ChannelPoint, Erisco, El Dorado, TXEN, a division of Nichols
Research Corp., and Amisys Managed Care Systems, Inc., a division of HBOC, EBenX
and Firepond. See "--Risk Factors -- HealthAxis' competitors may be more
successful in attracting customers which could result in decreased sales, a loss
of revenue and a decrease in the value of HAI's common stock."
Regulation
Internet Related. The "Electronic Signatures in Global and National
Commerce Act or the "E-SIGN" Act recently became law. The E-SIGN Act provides
that electronic signatures and electronic records are equivalent to handwritten
signatures and paper records. Additionally, the E-SIGN Act provides that
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consumers in transactions on the Internet will have the same rights they enjoy
in traditional paper-based transactions. Moreover, existing consumer protection
laws will remain unaffected. The E-SIGN Act requires that in order for the
electronic transaction to be valid, the seller in the electronic transaction
must comply with legislative requirements, including obtaining affirmative
consent from the consumer to enter into the electronic transaction and to
receive electronic records, demonstrating that the consumer has reasonable
access to the electronic records and maintaining adequate record retention.
Additionally, the E-SIGN Act directs the Secretary of Commerce to promote the
use and acceptance of electronic signatures and records and to eliminate or
reduce the barriers to commerce for electronic transactions.
Management believes that as laws regarding electronic transactions,
like the E-SIGN Act, are adopted and electronic signatures and records become
more generally accepted, consumers will become increasingly more willing to
purchase insurance on the Internet and the consumer demand for the paperless
insurance transaction will increase. Management believes that more insurance
payers will want to take advantage of the efficiencies and savings associated
with paperless insurance policy sales and administration and will purchase
HealthAxis' products and services.
However, state and federal regulatory agencies and courts have not
interpreted the E-SIGN Act yet. Also, the E-SIGN Act provides that each state
may enact their own electronic signature laws as long as these laws do not
conflict with the E-SIGN Act. Additionally, the E-SIGN Act allows federal and
state regulatory agencies to establish performance standards for the sellers in
electronic transactions. Therefore, the application of the E-SIGN Act and any
other existing or new state electronic signature laws to HealthAxis' business is
still subject to uncertainty.
Although the federal government and some states have adopted laws
regarding electronic signatures, it is likely that new laws and regulations
applicable to the Internet will be adopted in the United States and elsewhere
covering issues such as copyrights and other intellectual property, privacy,
pricing, sales taxes and characteristics and quality of Internet services. The
adoption of restrictive laws or regulations could slow Internet growth or expose
companies engaged in business on the Internet to regulation or restrictions on
the content available on their websites. The application of existing laws and
regulations governing Internet issues such as property ownership, libel and
personal privacy is also subject to substantial uncertainty at this time. In
addition, current or new government laws and regulations, or the application of
existing laws and regulations, including laws and regulations governing issues
such as property ownership, content, taxation, defamation and personal injury,
may expose companies engaged in business on the Internet to significant
liabilities.
Insurance Related. As a result of the business activities presently
being conducted by HealthAxis, HealthAxis has organized HealthAxis.com Insurance
Services, Inc., a Pennsylvania corporation, which has also organized subsidiary
companies in four states. HealthAxis.com Insurance Services, Inc. is to become
licensed with state insurance departments to sell insurance and receive
commissions from the sale of insurance. HealthAxis.com Insurance Services, Inc.,
either directly or through its agency employees or wholly owned subsidiaries,
has filed or is in the process of filing for licenses in all 50 states and the
District of Columbia. As a licensed agency, HealthAxis.com Insurance Services,
Inc. is subject to the regulation and examination by the Insurance Departments
or commissions in the states in which HealthAxis.com Insurance Services, Inc. is
licensed. HealthAxis, either directly or through wholly-owned subsidiaries doing
business in some states, is subject to the laws and regulations of such
insurance departments where such laws and regulations are primarily intended to
benefit purchasers of insurance and generally grant supervisory agencies broad
administrative powers, including the power to restrict the carrying on of
business for failure to comply with such laws and regulations. In such event,
the possible sanctions that may be imposed include the suspension of individual
employees, limitations on engaging in business for specific periods, censures
and fines. Advertisements in connection with insurance products sold through
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HealthAxis' website are regulated by state insurance departments and
commissions. See "--Risk Factors -- In order to maintain compliance with
insurance regulations, HealthAxis may need to expend financial and managerial
resources which could reduce HealthAxis' revenues and the value of HAI's common
stock."
There have been, and currently are, a number of proposals introduced in
the United States Congress to reform the current healthcare system. There are
proposals pending in state legislatures to reform the healthcare system as well.
Many states have already enacted comprehensive healthcare reform legislation and
a number of legislative and regulatory proposals are currently being considered
at the state and federal level. Legislative proposals have included:
o requirements with respect to mandated universal health insurance
coverage;
o restrictions on preexisting condition limitations;
o community rating standards;
o guaranteed issue and renewal requirements;
o restrictions on premium increases;
o differential limitations in rates for new and renewal business or
for demographic groups; and
o underwriting practice restrictions.
These reforms generally include the formation of voluntary purchasing
alliances for small employers (typically with less than 50-100 employees). They
also require insurers to:
o accept all qualified small employer groups as a condition of
providing small group insurance;
o prohibit the imposition of preexisting condition limitations or
medical condition terminations; and
o phase out experience-rating for small employer groups.
Some jurisdictions also have enacted so-called "any willing provider"
laws which may decrease the demand for managed care plans. Healthcare industry
participants may react to these proposals and the uncertainty surrounding these
proposals by curtailing or deferring investments, including investments in
HealthAxis' applications and services. HealthAxis is unable to predict whether,
or in what form, these proposals will be enacted or the specific effects these
proposals will have on HealthAxis' business
Facilities
HealthAxis is headquartered in East Norriton, Pennsylvania. HealthAxis
owns the 47,000 square feet building located at 2500 DeKalb Pike in East
Norriton, Pennsylvania. As of September 30, 2000, HealthAxis leases office space
at the following locations:
<TABLE>
<CAPTION>
Address Square Feet
-------------------------------------------------------------------------- ---------------
<S> <C>
5215 North O'Connor Blvd, 800 Central Tower, Irving, TX 37,900
2121 Precinct Line Road, Hurst TX (1) 20,000
4001 McEwen, Dallas, TX (1) 4,000
990 West Atherton Dr, Ste. 200 Salt Lake City, UT 5,000
670 East Main St, Castledale, UT 5,450
1200 East Ephraim Canyon, Ephraim, UT 10,000
1-3 Pimento Way, Montego Freeport, Montego Bay, Jamaica 10,000
577 Howard Street, San Francisco, CA 2,100
</TABLE>
--------------------------------------------
(1) Leased from UICI or one of its subsidiaries.
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HealthAxis leases to Digital Insurance, Inc. on a monthly basis up to
10,000 square feet of the East Norriton headquarters.
Employees
As of September 30, 2000, HealthAxis had 652 employees, including 455
full-time professional employees, 150 full time data capture employees and
approximately 47 part-time data capture employees. None of HealthAxis' employees
is represented by a labor union or collective bargaining agreement. HealthAxis
considers its employee relations to be good.
HealthAxis' future success depends upon the ability of its current
executive officers to establish clear lines of responsibility and authority, to
work effectively as a team, and to gain the trust and confidence of its
employees. HealthAxis' future success also depends on its ability to identify,
attract, hire, train, retain and motivate other highly skilled technical,
managerial, marketing and consumer service personnel. Competition for
technically skilled personnel is intense, but HealthAxis will continue its
efforts to attract, integrate and retain sufficiently qualified personnel,
including software developers and other technical experts.
Litigation Matters
From time to time, HealthAxis may be involved in litigation, including
that arising in the ordinary course of its business. No litigation is pending
which, in the opinion of management, is likely to have a materially adverse
effect on HealthAxis' results of operations or financial condition.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations of HealthAxis
The following discussion is qualified in its entirety by the more
detailed information contained in the Selected Consolidated Financial
Information of HealthAxis appearing on page 9 and the Consolidated Financial
Statements and the related notes of HealthAxis included in Chapter VI of this
joint proxy statement/prospectus.
Results of Operations
Insurdata Merger. During the nine months ended September 30, 2000,
HealthAxis and Insurdata Incorporated, a subsidiary of UICI, completed a merger
of the two companies, with the combined entity retaining the HealthAxis name.
Under the terms of the transaction, Insurdata Incorporated's shareholders
received 49% of the outstanding capital stock of the newly combined company. The
transaction, which closed on January 7, 2000, was accounted for under the
purchase method of accounting in accordance with APB No. 16 and HealthAxis, by
virtue of its holding a majority of the voting interest, was determined to be
the acquirer for accounting purposes. HealthAxis anticipates that revenues and
expenses will increase as a result of the Insurdata merger. Insurdata
Incorporated revenues, excluding the non merging subsidiaries, were $42.9
million on a pro forma basis during 1999 and total operating expenses were $41.2
million on a pro forma basis during 1999. The discussion of the results of
operations for the nine months ended September 30, 2000 below includes the
results of the operations of the former Insurdata Incorporated. For a discussion
of the anticipated benefits of the Insurdata merger to HealthAxis and its
shareholders, see " - Information Concerning HealthAxis - Historical
Development."
Digital Sale. On June 30, 2000, HealthAxis entered into an agreement
with Digital Insurance, Inc. that sets forth the terms and conditions under
which HealthAxis sold certain assets related to its retail website. This
transaction was completed on October 13, 2000. See "Chapter I - The Merger -
Recent Developments - Sale of Assets to Digital Insurance, Inc."
In connection with this transaction, HealthAxis and Digital Insurance,
Inc. entered into a software licensing and consulting agreement that provides
HealthAxis with:
o A perpetual nonexclusive license to use and sublicense, subject to
restrictions, the user interface sold to Digital Insurance, Inc.;
o Licensing fees over the next 30 months of $3.0 million for software
owned by HealthAxis that will be used by Digital Insurance, Inc. in
conjunction with the user interface it purchased; and
o Service fees over the next 12 months of a minimum of $3.0 million
for services relating to customizing, maintaining and upgrading the
user interface and other software.
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Nine months ended September 30, 2000 compared to nine months ended September 30,
1999
Net loss applicable to common stock. Net loss applicable to common
stock was $60.2 million or ($1.44) per basic and diluted share for nine months
ended September 30, 2000 compared to net loss of $19.0 million or ($1.15) per
basic and diluted share for nine months ended September 30, 1999. The results
for the nine months ended September 30, 2000 include a net loss from
discontinued operations of $19.5 million as compared to $16.1 million loss from
discontinued operations for the nine months ended September 30, 1999. The
increased loss was also attributable to increased operating expenses of the
retail website prior to the completion of the Digital sale.
At September 30, 2000, HealthAxis performed an impairment evaluation of
long-lived assets and determined that none were impaired. HealthAxis currently
knows of no events that would allow for the write down of goodwill other than
the revaluation associated with the HAI merger.
Revenues. Revenue from continuing operations was $32.8 million for the
nine months ended September 30, 2000 as compared to no revenue for the nine
months ended September 30, 1999. The Digital sale resulted in all revenues from
1999 being reported as discontinued operations. All revenues for the nine months
ended September 30, 2000 were derived from the merged operations of Insurdata.
It is anticipated that revenues will increase due in part to the software and
consulting services that HealthAxis will provide to Digital Insurance, Inc,
which began in July 2000 and for the year ended December 31, 2000.
Cost of revenues. Cost of revenues of $22.8 million for the nine months
ended September 30, 2000 represented the expense of the billable hours which
generated the revenues for professional services, which include the direct costs
of employees. Included in these employee costs for nine months ended September
30, 2000 is $1.5 million in non-cash stock based compensation. HealthAxis
expects that the cost of revenues will increase in direct proportion with
revenues. There were no cost of revenues in 1999 since the merger with Insurdata
occurred on January 7, 2000.
Operating expenses. Operating expenses from continuing operations were
$13.7 million for the nine months ended September 30, 2000 as compared to $0.3
million for the nine months ended September 30, 1999. Included in these
operating expenses for nine months ended September 30, 2000 is $1.5 million in
non-cash stock based compensation. This increase was due to the operations
acquired in the Insurdata merger and operating expenses that primarily included
salaries and benefits for technical employees who provide support and
maintenance to clients.
In March 2000, the Emerging Issues Taskforce issued Abstract No. 00-2,
Accounting for Web Site Development Costs, ("EITF No. 00-2") which provides
additional authoritative guidance on how to account for costs incurred in the
planning, developing and operating of a website. Management has reviewed the
impact of EITF No. 00-2 on its current policy and has determined that there will
be no impact as a result of adopting this standard.
HealthAxis anticipates that operating and development costs will remain
constant and will be comprised of salaries and benefits for technical employees
who provide support and maintenance to clients, as well as the support of
website version 3.0 under the terms of the Digital sale agreements.
Sales and marketing expenses. Sales and marketing expenses from
continuing operations were $2.4 million for the nine months ended September 30,
2000 as compared to $0.3 million for the nine months ended September 30, 1999.
This increase was due primarily to increased personnel and additional
initiatives, including direct mail, media advertising, and trade shows, in 2000
as compared to 1999. Sales and marketing expense consisted primarily of salaries
and benefits to marketing personnel, which included 13 employees at September
30, 2000 and five employees at September 30, 1999. Included in sales and
marketing expenses for the nine months ended September 30, 2000 is $1.1 million
in non-cash stock based compensation. To support the business strategy, sales
and marketing expenses are expected to increase as the sales force is expanded.
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General and Administrative Expenses. General and administrative
expenses were $6.5 million for the nine months ended September 30, 2000 as
compared to $2.4 million for the nine months ended September 30, 1999. This
increase was due primarily to the Insurdata merger. Employee and recruiting
expenses increased from $0.9 million for the nine months ended September 30,
1999 to $4.3 million for the nine months ended September 30, 2000, while
professional fees and overhead expenses increased from $1.5 million for the nine
months ended September 30, 1999 to $2.1 million for the nine months ended
September 30, 2000. Included in these employee costs for the nine months ended
September 30, 2000 is $1.5 million in non-cash stock based compensation. The
proposed sale of assets to Digital did not materially affect general and
administrative expenses. General and administrative expenses included executive
management, accounting, legal, and human resource personnel and expenditures for
applicable overhead costs.
Amortization of Intangibles. Amortization of intangibles of $29.5
million for the nine months ended September 30, 2000 primarily consisted of the
amortization of goodwill of $25.6 million related to the Insurdata merger.
Net interest and other income, net. Net interest income was $1.4
million for the nine months ended September 30, 2000 as compared to net income
of $0.2 million for the nine months ended September 30, 1999. The increase in
income was due primarily to HealthAxis' higher cash balances throughout the
reporting period compared to the first nine months of 1999. HealthAxis invests
most of its cash in highly liquid short-term investments.
Net loss from discontinued operations. Net loss from discontinued
operations was $19.5 million, which was comprised of $2.0 million loss on the
assets sold in the Digital sale and $17.5 million loss related to discontinued
operations, for the nine months ended September 30, 2000 as compared to a $16.1
million loss in discontinued operations for the nine months ended September 30,
1999. HealthAxis' discontinued operations were conducted in connection with its
retail website. These operations are being reported as discontinued operations
for all periods presented.
Agreement and Plan of Reorganization between HAI and HealthAxis. On
January 26, 2000, HAI, HealthAxis and a wholly owned subsidiary of HAI entered
into the Agreement and Plan of Reorganization which provides for the merger of
HealthAxis with and into the subsidiary of HAI which will result in former
shareholders of HealthAxis becoming shareholders of HAI. These agreements were
amended and restated on September 28, 2000 and on October 26, 2000. The HAI
subsidiary will continue as the surviving corporation of the HAI merger, will
retain all of its separate corporate existence and will be known as
HealthAxis.com Inc. The HAI merger will be accounted for by HAI as
reorganization in accordance with generally accepted accounting principles. As a
result of the HAI merger, the preferred and common stock of HealthAxis will be
converted to 1.334 shares of HAI common stock eliminating all minority interest
in HealthAxis and the minority interest net loss of subsidiary line item on the
statement of operations. In addition, HAI will convert outstanding HealthAxis
options and warrants into options or warrants to purchase HAI common stock. HAI
anticipates that HAI will issue a total of 39,629,133 shares of HAI common stock
to HealthAxis shareholders in the HAI merger. HAI also anticipates that HAI will
issue up to approximately 7,352,032 shares of HAI common stock upon the exercise
of options and warrants to purchase HealthAxis common stock to be assumed by
HAI. There can be no assurance, however, that the conditions to the HAI merger
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will be satisfied or that the reorganization documents will not be terminated.
For a discussion of the anticipated benefits of the HAI merger to HealthAxis and
its shareholders, see "Chapter I - The Merger - The Merger - HealthAxis' Reasons
for the Merger."
Repricing of Options. On May 24, 2000, the HealthAxis Board of
Directors approved the repricing of 1,773,050 options to purchase HealthAxis
common stock, which had originally been granted at exercise prices of $12.00 and
$15.00 per share. The repricing of these options to $3.31 per share, which was
the closing market price of HAI's common stock as of the date of the repricing,
will be accounted for as variable options in accordance with Financing
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation issued in March 2000. Options in this
document are reflected at the $3.31 exercise price.
Year ended December 31, 1999 compared to year ended December 31, 1998
Net loss applicable to common stock. Net loss applicable to common
stock was $29.8 million, or ($1.77) per basic and diluted share in 1999,
compared to net loss of $4.9 million or ($0.35) per basic and diluted share in
1998. HealthAxis' 1999 results included a net loss from discontinued operations
of $25.9 million as compared to $1.5 million loss from discontinued operations
in 1998. The results of operations in 1998 reflect nine months of operations
beginning with HealthAxis' inception in March 1998, as compared to twelve months
of operations in 1999. HealthAxis experienced increased expenses, due to
increased employees during 1999 as compared to 1998.
Revenue. There were no revenues for 1999 or 1998 because all of the
operations have been discontinued.
Operating expenses. Operating expenses of $0.5 million in 1999
increased from $0.3 million in 1998 primarily due to higher employee and
recruiting expenses related to general operations.
Sales and marketing expense. Sales and marketing expense of $0.4
million in 1999 increased from $0.1 million in 1998 due primarily to employee
related expenses.
General and Administrative Expenses. General and administrative
expenses were $3.3 million for 1999 as compared to $2.7 million for 1998.
Employee and recruiting expenses increased from $0.5 million for 1998 to $1.7
million for 1999, while professional fees and overhead expenses increased from
$2.2 million for 1998 to $1.6 million for 1999. The proposed sale of assets to
Digital did not materially affect general and administrative expenses. General
and administrative expenses included executive management, accounting, legal,
and human resource personnel and expenditures for applicable overhead costs.
Interest income. Interest income of $0.5 million in 1999 relates to
interest earned on short term investments. There was $2,000 corresponding income
during 1998.
Interest expense. Interest expense of $9,000 in 1999 includes expenses
related to capital lease obligations. Interest expense decreased from $141,000
in 1998, which included interest on the convertible note paid to HealthPlan
Services.
Net loss from discontinued operations. Net loss from discontinued
operations was $25.9 million in 1999 as compared to a $1.5 million loss from
discontinued operations in 1998. HealthAxis' discontinued operations were
conducted in connection with its retail website. On June 30, 2000, HealthAxis
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entered into an agreement to sell the assets related to its retail website to
Digital Insurance, Inc. These operations are being reported as discontinued
operations for all periods presented.
Liquidity and Capital Resources
General. A major objective of HealthAxis is to maintain sufficient
liquidity to fund growth and meet all cash requirements with cash and short term
equivalents plus funds generated from operating cash flow.
The primary source of cash was debt and equity financing. The primary
uses of cash were expenses related to the retail website operations that were
discontinued as of June 30, 2000. Payments were to Internet portals under the
interactive marketing agreements, employee-related expenses, cost of revenues,
website enhancements, and marketing costs. At September 30, 2000, HealthAxis had
a cash balance of $25.2 million. At December 31, 1999, HealthAxis had a cash
balance of $56.4 million. HealthAxis expects cash flow from operations will turn
positive during the second quarter of 2001.
Nine months ended September 30, 2000 compared to the nine months ended September
30, 1999
During the nine months ended September 30, 2000, HealthAxis' liquidity
requirements were primarily met through the cash available from the December 7,
1999 equity financing. The primary uses of cash were operating costs and
payments to Lycos, Inc., Snap!, LLC, CNet Inc. and Yahoo! Inc. under the
interactive marketing agreements pursuant to which these Internet portals
advertised HealthAxis' insurance products and retail website to Internet users.
During the nine months ended September 30, 1999, HealthAxis' liquidity
requirements were primarily met through the issuance of debt and equity
securities in 1999. The primary uses of cash were operating costs and payments
made to Internet portals including, America Online Inc., under the interactive
marketing agreements.
Net cash used in operating activities of $25.0 million during the nine
months ended September 30, 2000 and $11.6 million during the nine months ended
September 30, 1999 was the result of operating losses. The increase in usage of
$13.4 million was primarily attributable to increased operating costs as offset
by increased revenue.
As a result of the Insurdata merger, HealthAxis has paid $340,000 in
out-of-pocket merger costs as of September 30, 2000 and anticipates that it will
pay only minimal additional Insurdata merger costs during the remainder of 2000.
On January 26, 2000, HAI and HealthAxis entered into an agreement and
plan of reorganization which provides for the merger of HealthAxis with a wholly
owned subsidiary of HAI. These agreements were amended and restated on September
29, 2000. HealthAxis has paid $0.3 million in out-of-pocket merger costs as of
September 30, 2000 and anticipates that it will pay approximately $0.4 million
in additional merger costs during the remainder of 2000.
On June 30, 2000, HealthAxis entered into an agreement with Digital
Insurance, Inc. that sets forth the terms and conditions under which HealthAxis
sold the assets related to its retail website. This transaction was completed on
October 13, 2000. The sale of these assets will reduce operating and marketing
expenses, which are now reflected in discontinued operations. In connection with
this sale, HealthAxis will receive $0.5 million in cash at closing, a $0.5
million note at closing, ongoing license and services fees under a technology
services contract, varying commissions on the sale of insurance policies by
Digital Insurance, Inc., and an 11% equity interest in Digital Insurance, Inc.
In addition to the increase in revenues, the sale to Digital is expected to
result in decreased cash usage related to the operating expenses and sales and
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<PAGE>
marketing expenses currently reported in the loss from discontinued operations.
General and administrative expenses are not expected to be affected by this
sale.
During 1998 and 1999, HealthAxis entered into interactive marketing
agreements with America Online Inc., Lycos Inc., CNet Inc, Snap!, LLC and Yahoo!
Inc. In connection with these interactive marketing agreements, HealthAxis has
paid $3.5 million through September 30, 2000, which completes HealthAxis'
commitment related to these agreements. During the nine months ending September
30, 1999, HealthAxis had paid $2.6 million in cash in connection with these
agreements. As a result of HealthAxis' change in marketing strategy during the
first quarter of 2000, HealthAxis did not renew any of these interactive
marketing agreements. Additionally, HealthAxis transferred any remaining rights
under these agreements to Digital Insurance, Inc. as part of the Digital sale.
HealthAxis had no future material commitments for capital expenditures
at September 30, 2000. Capital expenditures totaled approximately $3.7 million
through September 30, 2000 and $1.6 million through September 30, 1999. Capital
expenditures were primarily for equipment, software, furniture and building
improvements. At September 30, 2000 approximately $1.1 million was attributable
to the expansion of the imaging division of HealthAxis. This expansion was
complete at June 30, 2000.
Payment of dividends by HealthAxis are subject to restrictions set
forth in the Certificate of Designation related to HealthAxis Series A, B, C and
D Convertible Preferred Stock. HealthAxis does not anticipate paying cash
dividends on common stock or on any class of HealthAxis preferred stock in the
foreseeable future.
Year ended December 31, 1999 compared to Period ended December 31, 1998
During 1999, HealthAxis' liquidity requirements were primarily created
and met through the private placement of debt and equity securities. During
1999, the primary uses of cash for HealthAxis were operating costs and payments
to America Online Inc., Lycos, Inc., CNet, Inc., Snap!, LLC and Yahoo! Inc.
under the interactive marketing agreements.
Cash and cash equivalents as of December 31, 1999 amounted to $56.4
million and were attributable to the December private placement of common stock.
HealthAxis believes that the current cash and cash equivalent will be sufficient
to fund its current operations through the first quarter 2001.
Net cash used in operating activities of $14.1 million in 1999 was
primarily the result of operating losses.
During 1999, HealthAxis made the final payment of $1.5 million to
America Online Inc. under the initial term of Second Amendment to the Amended
and Restated Interactive Marketing Agreement with America Online Inc. Also
during 1999, HealthAxis paid $3.3 million in the aggregate to Lycos, Inc., CNet,
Inc., Snap!, LLC and Yahoo! Inc. which amount was included in prepaid
interactive marketing expense, as compared to 1998 when HealthAxis paid $9.3
million to America Online Inc., Lycos, Inc. and CNet, Inc. At December 31, 1999,
the terms of the remaining interactive marketing agreements provided for
HealthAxis to pay an additional $5.0 million during 2000. As a result of
HealthAxis' decision to shift its marketing strategy in 2000, these contracts
were terminated and this amount was reduced to $3.5 million.
During 1999, HealthAxis completed private offerings of approximately
$74.7 million of equity securities. The net proceeds of these offerings have
been used to and are anticipated to be used to fund amounts due under
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HealthAxis' interactive marketing agreements and for working capital and other
general purposes.
HealthAxis has no material commitments for capital expenditures at
December 31, 1999 and such expenditures totaled approximately $3.8 million in
1999 and $1.5 million in 1998. Such expenditures were primarily for equipment,
software, furniture and building improvements.
For a discussion of the capital contributions that HAI and its
subsidiary made to HealthAxis since HealthAxis' inception, see "Chapter VI --
Other HealthAxis Annual Meeting Proposals -- Item I -- Election of HealthAxis
Directors -- Relationship with HAI and UICI -- Relationship with HAI." During
1998, HAI issued warrants for the purchase of HAI common stock in exchange for
services provided to HealthAxis. In order to properly reflect the expense of the
services provided to HealthAxis, the $3.5 million book value of the warrants for
HAI common stock issued to America Online Inc., Lynx Capital LLC and HealthPlan
Services has been pushed down to the operations of HealthAxis and recorded as a
capital contribution from HAI. All of the shares issued by HealthAxis to HAI or
PILIC were included in Consolidated Statements of Stockholders' Equity Table in
total shares issued during 1998 and 1999 for cash. See footnote 13 to the
HealthAxis Financial Statements.
Impact of Inflation
Higher interest rates, which have traditionally accompanied inflation,
affect HealthAxis' short-term investment revenue.
Inflation has significantly increased the cost of health care. The
adequacy of premium rates in relation to the level of health claims is
constantly monitored and, where appropriate, premium rates on such policies,
when appropriate, are increased as policy benefits increase. Failure to make
such increases commensurate with health care cost increases may result in a loss
to HealthAxis' insurance carriers. Implementation by HealthAxis' insurance
carriers of changes in premium rates may affect HealthAxis commission revenue
and may increase HealthAxis operating expense.
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Management of HealthAxis
Executive Officers and Directors
The following table sets forth information regarding the directors and
executive officers of HealthAxis.
<TABLE>
<CAPTION>
Name Age(1) Position with HealthAxis
----------------------------------- --------- --------------------------------------------------------------
<S> <C> <C>
Michael Ashker................... 47 President, Chief Executive Officer and Director
Alvin H. Clemens................. 62 Chairman of the Board
Henry G. Hager.................. 66 Director
Patrick J. McLaughlin............ 42 Director
Edward W. LeBaron, Jr............ 70 Director
Gregory T. Mutz.................. 54 Director
James W. McLane.................. 61 Director
Dennis B. Maloney................ 54 Chief Operating Officer and Director
Anthony R. Verdi................. 51 Treasurer and Chief Financial Officer
Andrew Felder...................... 34 Executive Vice President - Strategy and Corporate Development
Richard Grehalva................. 50 Senior Vice President - Sales and Marketing
Michael G. Hankinson............. 44 Senior Vice President, General Counsel and Secretary
</TABLE>
---------------------------
(1) Age as of the record date of the annual meeting.
Michael Ashker has been President, Chief Executive Officer and a
Director of HealthAxis since March 1998. Mr. Ashker has been a Director of HAI
since December 1998 and President and Chief Executive Officer of HAI since
August 1999. Mr. Ashker was the Managing Director of Lynx Capital Group LLC, an
independent investment advisor and fund management firm, from September 1995 to
January, 2000. Prior to such time, he was a Money Manager for Kidder Peabody &
Co. from 1991 to 1995, for Bateman, Eichler, Hill and Richards from 1988 to
1991, and for Shearson/American Express from 1984 to 1988.
Alvin H. Clemens has been Chairman of the Board of HealthAxis since
March 1998. Mr. Clemens has been Chairman of the Board of HAI and subsidiary
companies since October 1989 and was Chief Executive Officer of HAI from 1989 to
1999. Mr. Clemens was also President of HAI and PILIC from 1993 to 1996. Prior
to such time he was President of Maine National Life Insurance Company from 1989
to 1995 and Owner and Chairman of the Board of Maine National Life Insurance
Company from 1985 to 1989. Mr. Clemens was President and Director of Academy
Life Insurance Company and Pension Life Insurance Company of America from 1970
to 1985. Mr. Clemens was Chairman and Chief Executive Officer of Academy
Insurance Group Inc., from 1967 to 1985.
Henry G. Hager has been a Director of HAI since 1996. Mr. Hager was a
Partner in the law firm of Stradley Ronon from 1994 through December of 1999. He
currently is Of Counsel to Stradley Ronon and was President and Chief Executive
Officer of The Insurance Federation of Pennsylvania from 1985 to 1999. Mr. Hager
also serves as a director of American Waterworks Company, a public company. Mr.
Hager joined HealthAxis' board in January 2000.
Edward W. LeBaron, Jr. has been a Director of HAI since 1998 and a
Director of Lynx Capital Group, LLC since January 1997. Prior to such time, Mr.
LeBaron was an attorney and Partner in the Political Law Group of Pillsbury,
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Madison & Sutro from 1989 to 1994. Mr. LeBaron joined HealthAxis' board in
January 2000.
Gregory T. Mutz has served as a Director and President and Chief
Executive Officer of UICI since January 1999 and has served as a director of
HealthAxis since January 2000. Mr. Mutz was a director of Insurdata Incorporated
from May 1999 to January 2000. Mr. Mutz has served as Chairman of the Board of
Amli Realty Co. since 1980, as Chairman of the Board of Trustees of Amli
Residential Properties Trust since 1994, and as Chairman of Amli Commercial
Properties Trust since 1997. Mr. Mutz has also served as Chairman of the Board
of Excell Global Services since 1997. He has been a Director of the National
Multifamily Housing Council since 1995 and a Director of Alleghany/Chicago Trust
since 1996. Mr. Mutz also served as a Director of Baldwin & Lyons from 1978
until 1997 and as a Director of Avtel Communications from 1997 until 1998.
James W. McLane has been a Director of HealthAxis since August 2000. He
also serves as a Director of Beverly Enterprises, Inc., a public company, and
UltraTouch, Inc., a venture backed company. Mr. McLane has been President and
Chief Operating Officer of NovaCare, Inc. from 1997 to 2000; Executive Vice
President of Aetna Life & Casualty and Chief Executive Officer of Aetna Health
Plans from 1991 to 1996; and Senior Vice President and Division Executive of
Citicorp's Global Insurance Division and Capital Investments Division prior to
1991. He also served during this period as Chairman of Ambac, Inc. and CapMac,
Inc.
Dennis B. Maloney became HealthAxis' Chief Operating Officer and a
director in January 2000. Prior to such time Mr. Maloney was President and Chief
Executive Officer of Insurdata Incorporated since January 1997 and was on the
Board of Directors of Insurdata Incorporated from March 1997 to January 2000.
From 1976 until October 1996, Mr. Maloney served in various capacities with SHL
Systemhouse, Inc., a technology company, most recently as President of its
outsourcing division.
Patrick J. McLaughlin has served as a director of HealthAxis since
February, 2000 and has served as a director of UICI since January 1999. Mr.
McLaughlin has also served as a director of Universal American Financial
Corporation since 1995. Mr. McLaughlin has been the Managing Director of Emerald
Capital Group, Ltd., an asset management and consulting firm specializing in the
insurance industry, since April 1993. Prior to such time, he was Executive Vice
President and Chief Investment Officer of Life Partners Group, Inc. from April
1990 to April 1993 and Managing Director of Conning & Company from August 1989
to April 1990. He served as Senior Vice President and Chief Investment Officer
of ICH Corporation from March 1987 to August 1989.
Anthony R. Verdi has been the Chief Financial Officer and Treasurer of
HealthAxis since November 1999. Mr. Verdi has been Chief Financial Officer and
Treasurer of HAI since April 2000. He also serves as Chief Operating Officer of
HAI and subsidiaries since December 1997. He served as President of PILIC from
December 1998 through October 1999 and as Treasurer and Chief Financial Officer
of HAI and subsidiaries from 1990 through 1997. Prior to 1990, he was Vice
President and Controller of Inter-County Hospitalization Plan Inc. and he served
as Assistant Controller Academy Insurance Group Inc. from 1971 through 1986.
Andrew Felder has been Executive Vice President - Strategy and
Corporate Development of HealthAxis since January 1999. He has also served as
Executive Vice President of HAI since April 1, 2000. He also served as Chief
Operating Officer of HealthAxis from March 1998 to March 1999. Prior to such
time, Mr. Felder was a self-employed management consultant, from July 1997 to
February 1998 during which time he co-founded JusticeLink, Inc., a Dallas, Texas
Internet company that provides electronic document filing services to the
justice community. He also was employed as the Vice President of Strategic
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Planning at Wells Fargo Bank, from July 1995 to February 1997 and the Manager of
Strategic Planning at Dole Food Company, from July 1992 to July 1995.
Richard Grehalva has been Senior Vice President of HealthAxis since
November 2000. Prior to joining HealthAxis Mr. Grehalva served as Senior Vice
President, Global Sales and Marketing for Satyam Computer Services Ltd from
November 1998 to November 2000. Prior to such time from February 1979 to October
1998 he served in various positions for Computer Sciences Corporation, most
recently as the Vice President and General Manager Payer Application Solutions
for the Healthcare group.
Michael G. Hankinson has been the Vice President and General Counsel of
HealthAxis since April, 1999. He became Secretary of HealthAxis in November,
1999 and Senior Vice President in September 2000. Mr. Hankinson has also served
as Vice President, General Counsel and Assistant Secretary of HAI since April 1,
2000. Prior to joining HealthAxis, Mr. Hankinson served as Senior Vice
President, Secretary and General Counsel with Gramercy Insurance Co. from
September 1992 to June 1998. Prior to such time, Mr. Hankinson was an
environmental attorney with Olin Corporation from 1991 to August 1992 and an
Instructor in Management in the College of Business Administration at Fairleigh
Dickinson University from August 1986 to August 1992.
HealthAxis' performance depends substantially on the continued services
and on the performance of our senior management and other key personnel.
HealthAxis does not have employment agreements with its key personnel and these
individuals may terminate their employment at any time.
The following management changes will take effect on February 1, 2001.
Michael Ashker will become Chairman of the Board of HealthAxis and HAI and will
resign as President and Chief Executive Officer of these entities. Alvin Clemens
will become Chairman of the Executive Committees of HealthAxis and HAI and will
resign as Chairman of the Board of these entities. James McLane will become
President and Chief Executive Officer of HealthAxis and HAI. In addition,
effective February 1, 2001, Andrew Felder will resign as Executive Vice
President - Strategy and Corporate Development of HealthAxis and HAI. See
"Chapter III - Item I Election of HAI Directors - Certain Relationships and
Related Transactions" and "- Executive Compensation - Employment Agreement and
Employment Arrangement" for information regarding compensation and severance
arrangements with these individuals.
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Principal Shareholders of HealthAxis
The following table provides information regarding the beneficial
ownership of HealthAxis' capital stock as of September 30, 2000 by:
o each person who is known by HealthAxis to own beneficially 5% or
more of any class of HealthAxis' capital stock;
o each of HealthAxis' directors;
o HealthAxis' chief executive officer and each of the other four most
highly compensated executive officers; and
o all of HealthAxis' directors and executive officers as a group.
<TABLE>
<CAPTION>
Common Series A Series B
Stock Preferred Preferred
------ --------- ---------
Number of Number of
Number of Shares Shares
Shares Percent Beneficially Percent Beneficially Percent
Beneficial Owners (1) Beneficially Owned of Class Owned of Class Owned of Class
--------------------- ------------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
UICI........................ 17,101,178(2) 40.1% -- -- -- --
4001 McEwen, Suite 200
Dallas, TX 75244
HealthAxis Inc.............. 15,355,728 36.2% 445,916(3) 81.7% -- --
2500 DeKalb Pike
East Norriton, PA 19401
UICI Voting Trust........... 6,433,069(12) 15.1% -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
Founders Plan Voting Trust.. 2,417,275(13) 5.7% -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
AHC Acquisition Inc......... -- -- 100,000(4) 18.3% -- --
2500 DeKalb Pike
East Norriton, PA
19401
America Online Inc.......... 300,000(4) (*) -- -- 625,529 100.0%
22000 AOL Way
Dulles, VA 20166
Seneca Capital, Ltd......... 1,395,180(5) 3.3% -- -- -- --
830 Third Avenue,
14th Floor
New York, NY 10022
Seneca Capital, L.P......... 838,153(5) 2.0% -- -- -- --
830 Third Avenue,
14th Floor
New York, NY 10022
Cerberus Partners, LP....... -- -- -- -- -- --
450 Park Avenue,
28th Floor
New York, NY 10022
HealthInvestors, LP......... -- -- -- -- -- --
450 Park Avenue,
28th Floor
New York, NY 10022
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series C Series D
Preferred Preferred
--------- ---------
Number of Number of
of Shares of Shares
Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class
--------------------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
UICI....................... 866,551 56.8% -- --
4001 McEwen, Suite 200
Dallas, TX 75244
HealthAxis Inc............. -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
UICI Voting Trust.......... -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
Founders Plan Voting Trust. -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
AHC Acquisition Inc........ -- -- -- --
2500 DeKalb Pike
East Norriton, PA
19401
America Online Inc......... -- -- -- --
22000 AOL Way
Dulles, VA 20166
Seneca Capital, Ltd........ -- -- -- --
830 Third Avenue,
14th Floor
New York, NY 10022
Seneca Capital, L.P........ -- -- -- --
830 Third Avenue,
14th Floor
New York, NY 10022
Cerberus Partners, LP...... 86,656(6) 5.7% -- --
450 Park Avenue,
28th Floor
New York, NY 10022
HealthInvestors, LP........ 105,000(7) 6.9% -- --
450 Park Avenue,
28th Floor
New York, NY 10022
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
Common Series A Series B
Stock Preferred Preferred
------ --------- ---------
Number of Number of
Number of Shares Shares
Shares Percent Beneficially Percent Beneficially Percent
Beneficial Owners (1) Beneficially Owned of Class Owned of Class Owned of Class
--------------------- ------------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Pequod International Ltd. .. 72,517(8) (*) -- -- -- --
450 Park Avenue,
28th Floor
New York, NY 10022
Pequod Investments, L.P. ... 72,517(8) (*) -- -- -- --
450 Park Avenue,
28th Floor
New York, NY 10022
Pequod Health LLC........... 36,851(8) (*) -- -- -- --
450 Park Avenue,
28th Floor
New York, NY 10022
Intel Corp. ................ -- -- -- -- -- --
2200 Mission College Blvd.
Santa Clara, CA 95052
Michael Ashker.............. 10,008,012(10)(12)(18) 22.9% -- -- -- --
Alvin H. Clemens............ 2,417,275(13) 5.7% 100,000(10) 18.3% -- --
Henry G. Hager.............. 2,417,275(13) 5.7% -- -- -- --
Patrick J. McLaughlin....... -- -- -- -- -- --
Edward W. LeBaron, Jr....... 8,850,344(12)(13) 20.8% -- -- -- --
Gregory T. Mutz............. -- -- -- -- -- --
James W. McLane............. 250,000(14) (*) -- -- -- --
Anthony R. Verdi............ 5,000(19)(20) (*) -- -- -- --
Dennis B. Maloney........... 7,231,069(12)(15) 17.0% -- -- -- --
Andrew Felder............... 217,712(16)(19) (*) -- -- -- --
Richard Grehalva(17)........ -- (*) -- -- -- --
Michael G. Hankinson........ 40,251(18)(19) (*) -- -- -- --
All directors and
executive officers
as a group (11 Persons)..... 11,318,975 25.6% 100,000(10) 18.3% -- --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series C Series D
Preferred Preferred
--------- ---------
Number of Number of
of Shares of Shares
Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class
--------------------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Pequod International Ltd. . 129,983 8.5% -- --
450 Park Avenue,
28th Floor
New York, NY 10022
Pequod Investments, L.P. .. 129,983 8.5% -- --
450 Park Avenue,
28th Floor
New York, NY 10022
Pequod Health LLC.......... 169,851 11.1% -- --
450 Park Avenue,
28th Floor
New York, NY 10022
Intel Corp. ............... -- -- 408,334(9) 100.0%
2200 Mission College Blvd.
Santa Clara, CA 95052
Michael Ashker............. -- -- -- --
Alvin H. Clemens........... -- -- -- --
Henry G. Hager............. -- -- -- --
Patrick J. McLaughlin...... -- -- -- --
Edward W. LeBaron, Jr...... -- -- -- --
Gregory T. Mutz............ -- -- -- --
James W. McLane............ -- -- -- --
Anthony R. Verdi........... -- -- -- --
Dennis B. Maloney.......... -- -- -- --
Andrew Felder.............. -- -- -- --
Richard Grehalva(17)....... -- -- -- --
Michael G. Hankinson....... -- -- -- --
All directors and
executive officers
as a group (11 Persons).... -- -- -- --
</TABLE>
<PAGE>
---------------------
(1) The address of each director and executive officer is that of HealthAxis.
(2) Includes a warrant granted to UICI to purchase 150,000 shares of common
stock at an exercise price of $4.40 per share and 7,500 shares of common
stock at an exercise price of $12.00 per share and reflects the issuance of
18,943,678 shares to UICI in connection with the merger of Insurdata
Incorporated with HealthAxis less the sale of 2,000,000 shares by UICI on
March 16, 2000. As of September 30, 2000, 6,433,069 shares issued to UICI
in the Insurdata merger are held in the UICI Voting Trust over which UICI
has sole dispositive power but no voting power. The shares held in this
trust are voted by a majority of the trustees of this trust, Messrs.
Ashker, LeBaron and Maloney. See "-- Certain Transactions."
(3) Represents shares of Series A preferred stock acquired from PILIC, a former
subsidiary of HAI, which are convertible into common stock on a one for one
basis (subject to adjustment). See "Chapter I - The Merger - Recent
Developments."
(4) Represents a warrant exercisable for 300,000 shares of HealthAxis common
stock or HAI common stock at an exercise price of $1.77 per share for
HealthAxis common stock and $3.38 per share of HAI common stock.
(5) Mr. Doug Hirsch, manager of these funds, has voting and dispositive power
over these shares.
(6) Mr. Stephen Feinberg, manager of this fund, has voting and dispositive
power over these shares.
(7) Mr. Cory Horowitz, manager of this fund, has voting and dispositive power
over these shares.
(8) Mr. John Gallen, manager of these funds, has voting and dispositive power
over these shares.
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<PAGE>
(9) Includes a warrant granted to purchase 75,000 shares of common stock at an
exercise price of $14.50 per share which is currently exercisable.
(10) Includes 1,157,668 shares of common stock subject to options granted to Mr.
Ashker which are currently exercisable. Of such amount, options to purchase
991,000 shares, 96,667 shares and 70,001 shares have been granted at
exercise prices of $1.77, $5.77 and $3.31 per share, respectively. Excludes
options to purchase 48,333 shares and 84,999 shares which have been granted
at an exercise prices of $5.77 and $3.31 per share, respectively, which are
not currently exercisable.
(11) Represents 100,000 shares of Series A preferred stock transferred to AHC
Acquisition, Inc. in connection with the sale of PILIC.
(12) Includes 6,433,069 shares of HealthAxis common stock which are held in the
UICI voting trust which UICI has sole dispositive power but no voting
power. The shares held in the trust are voted by a majority of the
trustees, Mr. Ashker, Mr. LeBaron and Mr. Maloney.
(13) Includes 2,417,275 shares of HealthAxis common stock which are held in a
voting trust and will be issued to some employees of the former Insurdata
Incorporated and other UICI subsidiaries pursuant to the terms of options
granted under the Insurdata Incorporated Founders Plan. Of this amount,
options for 1,268,820 shares of HealthAxis common stock are currently
exercisable by the employees to whom the options were granted. The shares
held in this trust are voted by a majority vote of the trustees of the
trust who are Messrs. Ashker, Clemens, LeBaron and Hager.
(14) Excludes options to purchase 30,000 shares of HealthAxis common stock at
$3.00 per share, which are not currently exercisable. Effective December
15, 2000, Mr. McLane was granted an option to purchase 550,000 shares of
HealthAxis common stock at an exercise price of $4.00 per share. Of this
amount, options to purchase 250,000 shares vest immediately and the
remaining 300,000 shares vest at a rate of 75,000 per year over a four year
period commencing on the first anniversary of the date of grant. Such
options have a term of 5 years and are subject to accelerated vesting in
the event of a change in control of HealthAxis as defined in the 1998 Stock
Option Plan or if Mr. McLane is not retained as Chief Executive Officer or
is asked to resign from the board, other than for cause.
(15) Includes 532,000 shares of common stock subject to options granted at an
exercise price of $1.36 per share under the Insurdata Incorporated
Founders' Plan which are held in a voting trust and are currently
exercisable and 266,000 shares of common stock owned by Mr. Maloney.
Excludes 532,000 shares of common stock subject to options granted under
the Insurdata Incorporated Founders' Plan at an exercise price of $1.36 per
share which are held in a voting trust and are not currently exercisable.
(16) Includes 217,712 shares of common stock subject to options granted to Mr.
Felder which are currently exercisable. Of such amount, options to purchase
140,625 shares, 18,752 shares, 33,334 shares and 25,001 shares have been
granted at exercise prices of $1.77, $4.00, $5.77 and $3.31, respectively.
Excludes options to purchase 9,375 shares, 6,248 shares, 16,666 shares and
24,999 shares which have been granted at exercise prices of $1.77, $4.00,
$5.77 and $3.31 per share, respectively, which are not currently
exercisable.
(17) Excludes options to purchase 200,000 shares of HealthAxis common stock,
which are currently unexercisable.
(18) Includes 40,251 shares of HealthAxis common stock subject to options
granted to Mr. Hankinson which are currently exercisable. Of such amount,
options to purchase 25,250 shares and 15,001 shares have been granted at
exercise prices of $5.77 and $3.31, respectively. Excludes options to
purchase 24,750 shares and 19,999 shares which have been granted at
exercise prices of $5.77 and $3.31, respectively, which are currently not
exercisable.
(19) On May 24, 2000, HealthAxis' board of directors approved the repricing of
1,773,368 options to purchase HealthAxis common stock, which had originally
been granted at $12.00 and $15.00 per share. The new exercise price of
these options is $3.31 per share, which was the closing market price of
HAI's common stock as of the date of the repricing. The information in this
table and these footnotes reflects the new $3.31 exercise price.
(20) Includes 5,000 shares of HealthAxis common stock subject to options granted
at an exercise price of $3.31 per share which are currently exercisable.
* Less than 1.0 percent.
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Post Reorganization HAI Share Ownership of HealthAxis Principal Shareholders
The following table provides information regarding the beneficial
ownership of HAI stock by the owners of HealthAxis' capital stock as of
September 30, 2000 as adjusted for the HAI merger using a 1.334 exchange ratio.
The following HealthAxis shareholders are included in the following table:
o each person who is known by HealthAxis to own beneficially 5% or
more of any class of HealthAxis' capital stock;
o each of HealthAxis' directors;
o HealthAxis' chief executive officer and each of the other four most
highly compensated executive officers; and
o all of HealthAxis' directors and executive officers as a group.
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Number of Shares Percent of
Beneficial Owners (1) Beneficially Owned Class
------------------------------------------------- ------------------ -----------
<S> <C> <C>
UICI............................................. 24,166,427(2)(3) 45.5%
4001 McEwen, Suite 200
Dallas, TX 75244
HealthAxis Inc................................... -- --
2500 DeKalb Pike
East Norriton, PA 19401
UICI Voting Trust................................ 8,581,714(4) 16.3%
2500 DeKalb Pike
East Norriton, PA 19401
Founders Plan Voting Trust....................... 3,224,665(5) 6.1%
2500 DeKalb Pike
East Norriton, PA 19401
AHC Acquisition Inc.............................. 133,400 (*)
2500 DeKalb Pike
East Norriton, PA 19401
America Online Inc............................... 1,534,656(6) 2.9%
22000 AOL Way
Dulles, VA 20166
Seneca Capital, Ltd.............................. 1,861,170(7) 3.5%
830 Third Avenue, 14th Floor
New York, NY 10022
Seneca Capital, LP............................... 1,118,096(7) 2.1%
830 Third Avenue, 14th Floor
New York, NY 10022
Cerberus Partners, LP............................ 115,599(8) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
HealthInvestors, LP.............................. 140,070(9) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
</TABLE>
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<TABLE>
<CAPTION>
Common Stock
-----------------------------------
Number of Shares Percent of
Beneficial Owners (1) Beneficially Owned Class
------------------------------------------------- ------------------ -----------
<S> <C> <C>
Pequod International Ltd......................... 270,135(10) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Investments, L.P.......................... 270,135(10) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Health LLC................................ 275,740(10) (*)
450 Park Avenue, 28th Floor
New York, NY 10022
Intel Corp. ..................................... 544,718(11) (*)
2200 Mission College Blvd.
Santa Clara, CA 95052
Michael Ashker................................... 13,745,464(4)(5)(12)(22) 25.2%
Alvin H. Clemens................................. 6,035,021(3)(5)(13) 11.3%
Henry G. Hager................................... 3,289,645(5)(14) 6.2%
Patrick J. McLaughlin............................ -- --
Edward W. LeBaron, Jr............................ 11,849,930(4)(5)(15) 22.5%
Gregory T. Mutz.................................. -- --
James W. McLane.................................. 333,500(16) (*)
Anthony R. Verdi................................. 114,144(17)(22) (*)
Dennis B. Maloney................................ 9,647,246(4)(18) 18.3%
Andrew Felder.................................... 320,428(19)(22) (*)
Richard Grehalva................................. --(20) (*)
Michael G. Hankinson............................. 53,695(21)(22) (*)
All directors and executive officers as a group (12
Persons)......................................... 18,551,710 33.0%
</TABLE>
---------------------
(1) The address of each director and executive officer is that of HealthAxis.
(2) Includes a warrant granted to UICI to purchase 200,100 shares of HAI common
stock at an exercise price of $3.31 per share and 10,005 shares of HAI
common stock at an exercise price of $9.00 per share and reflects
23,758,845 shares of HAI common stock owned by UICI, of which 8,581,714
shares are held in the UICI Voting Trust over which UICI has sole
dispositive power but no voting power. The shares held in this trust are
voted by a majority of the trustees of this trust, Messrs. Ashker, LeBaron
and Maloney.
(3) Includes 185,185 shares which holder would have the right to acquire upon
the conversion of the 2% convertible debentures and 12,291 shares which the
holder has the right to acquire upon exercise of related warrants.
(4) Includes 8,581,714 shares of HAI common stock which are held in the UICI
Voting Trust over which UICI has sole dispositive power but no voting
power. The shares held in the trust are voted by a majority of the
trustees, Mr. Ashker, Mr. LeBaron and Mr. Maloney.
(5) Includes 3,224,645 shares of HAI common stock which are held in a voting
trust and will be issued to some employees of the former Insurdata
Incorporated and other UICI subsidiaries pursuant to the terms of options
granted under the Insurdata Incorporated Founders Plan. Of this amount,
options for 1,428,602 of HAI common stock are currently exercisable by the
employees to whom the options were granted. The shares held in this trust
are voted by a majority vote of the trustees of the trust who are Messrs.
Ashker, Clemens, LeBaron and Hager.
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<PAGE>
(6) Includes 834,456 shares of HAI common stock, a warrant exercisable for
400,200 shares of HAI common stock at an exercise price of $1.33 per share
or 300,000 shares of HAI common stock at an exercise price of $3.38 per
share, and a warrant exercisable for 300,000 shares of HAI common stock at
an exercise price of $4.48.
(7) Mr. Doug Hirsch, manager of this fund, has voting and dispositive power
over these shares.
(8) Mr. Stephen Feinberg, manager of this fund, has voting and dispositive
power over these shares.
(9) Mr. Cory Horowitz, manager of these funds, has voting and dispositive power
over these shares.
(10) Mr. John Gallen, manager of these funds, has voting and dispositive power
over these shares.
(11) Includes 444,668 shares of HAI common stock and warrants to purchase
100,050 shares of HAI common stock at $10.87 per share that are currently
exercisable.
(12) Includes 89,776 shares of HAI common stock and 1,544,329 shares of HAI
common stock subject to options granted to Mr. Ashker which are currently
exercisable. Of such amount, options to purchase 1,321,994 shares, 128,954
shares and 93,381 shares have been granted at exercise prices of $1.33,
$4.33 and $2.48 per share, respectively. Excludes options to purchase
64,476 shares and 113,389 shares, which have been granted at an exercise
price of $4.33 and $2.48 per share, respectively, which are not currently
exercisable. Also includes 5,000 shares of HAI common stock subject to
options granted at an exercise price of $7.50 under the HAI Stock Option
Plan of Directors, which are currently exercisable and 300,000 shares of
the HAI common stock subject to warrants granted at an exercise price of
$4.516 which were assigned to Mr. Ashker from Lynx Capital Group, LLC,
which are currently exercisable. These warrants were repriced in December
2000 and now have a conversion price of $3.00 per share.
(13) Includes 1,795,966 shares of HAI common stock and 133,400 shares of HAI
common stock transferred to AHC Acquisition, Inc. in connection with the
sale of PILIC. Also includes 683,534 shares of common stock subject to
options granted to Mr. Clemens which are currently exercisable. Of such
amount, options to purchase 253,376 shares and 397,198 shares have been
granted at exercise prices of $.9091 and $3.64, respectively. Options to
purchase 32,960 shares of HAI common stock were granted at $.9091 per share
which Mr. Clemens owns directly. Mr. Clemens disclaims beneficial ownership
of 616,000 shares of HAI common stock given by him to the Mark Twin Trust
in 1991 and 967,040 options to purchase additional shares of HAI common
stock owned by a partnership in which Mr. Clemens is a partner.
(14) Includes 10,000 shares of HAI common stock and 55,000 shares of HAI common
stock subject to options granted under the HAI Stock Option Plan of
Directors, which are currently exercisable. Of such amount, options to
purchase 30,000 shares and 25,000 shares have been granted at exercise
prices of $2.875 and $8.75, respectively.
(15) Includes 38,571 shares of HAI common stock and 5,000 shares of HAI common
stock subject to options granted at an exercise price of $7.50 under the
HAI Stock Option Plan of Directors, which are currently exercisable.
(16) Excludes options to purchase 40,020 shares of HAI common stock at $2.25 per
share which are not currently exercisable. Also excludes options to
purchase 400,200 shares of HAI common stock granted subsequent to September
30, 2000 at an exercise price of $3.00 per share. Includes options to
purchase 333,500 shares of HAI common stock which are currently exercisable
at $3.00 per share.
(17) Includes 49,974 shares of HAI common stock owned by Mr. Verdi and 57,500
shares of HAI common stock subject to options under the HAI Stock Option
Plan of Directors, which are currently exercisable. Of such amount, options
to purchase 20,000 shares, 25,000 shares 12,500 shares have been granted at
exercise prices of $5.00, $6.00 and $7.50 per share, respectively. Excludes
options to purchase 5,000 shares and 12,500 shares which have been granted
at exercise prices of $5.00 and $7.50, respectively, which are not
currently exercisable. Includes 6,670 shares of HAI common stock subject to
options granted under HealthAxis 1998 Stock Option Plan which are currently
exercisable at $2.48.
<PAGE>
(18) Includes 709,688 shares of HAI common stock subject to options granted
under the Insurdata Incorporated Founders' Plan which are held in a voting
trust and are currently exercisable at $1.02 per share and 354,844 shares
of HAI common stock owned by Mr. Maloney. Includes 1,000 shares of HAI
common stock. Excludes 709,688 shares of HAI common stock subject to
options granted under the Insurdata Incorporated Founders' Plan which are
held in a voting trust and are not currently exercisable at $1.02 per
share.
(19) Includes 290,428 shares of HAI common stock subject to options granted
under the HealthAxis 1998 Stock Option Plan to Mr. Felder which are
currently exercisable. Of such amount, options to purchase 187,593 shares,
25, 015 shares, 44,468 shares and 33,351 shares have been granted at
exercise prices of $1.33, $3.00, $4.33 and $2.48, respectively. Also
includes 30,000 shares of HAI common stock subject to warrants granted at
an exercise price of $4.516 which were assigned to Mr. Felder from Lynx
Capital Group, LLC, which are currently exercisable. These warrants were
repriced in December 2000 and now have a conversion price of $3.00 per
share. Excludes options to purchase 12,507 shares, 8,334 shares, 22,233
shares and 33,349 shares which have been granted at exercise prices of
$1.33, $3.00, $4.33 and $2.48 per share, respectively, which are not
currently exercisable.
(20) Excludes options to purchase 266,800 shares of HAI common stock which are
currently unexercisable.
(21) Includes 53,695 shares of HAI common stock subject to options granted under
the HealthAxis 1998 Stock Option Plan to Mr. Hankinson which are currently
exercisable. Of such amount, options to purchase 33,684 shares and 20,011
shares have been granted at exercise prices of $4.33 and $2.48,
respectively. Excludes options to purchase 33,017 shares and 26,679 shares
which have been granted at exercise prices of $4.33 and $2.48 per share,
respectively, which are not currently exercisable.
(22) On May 24, 2000, HealthAxis' board of directors approved the repricing of
1,777,368 outstanding options to purchase HealthAxis common stock, which
had originally been granted at $12.00 and $15.00 per share. The new
exercise price of these options is $3.31 per share, which was the closing
market price of HAI's common stock as of the date of the repricing. The
information in this table and these footnotes reflect the new $3.31
exercise price. Upon consummation of the HAI merger, the exercise price,
adjusted by the 1.334 exchange ratio, will be $2.48.
* Less than 1.0 percent.
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<PAGE>
Comparison of Capital Stock and Shareholders' Rights
The rights of HAI shareholders are governed by HAI's charter, bylaws
and the Pennsylvania Business Corporation Law of 1988, referred to as the PA
BCL. The rights of HealthAxis shareholders are governed by HealthAxis' charter,
bylaws and the PA BCL. After the date the merger is completed, the rights of
HealthAxis shareholders who become HAI shareholders will be governed by HAI's
charter, bylaws and the PA BCL.
In addition to approving the merger, HAI shareholders are being asked
to adopt and approve amended and restated Articles of Incorporation for HAI in
this joint proxy statement/prospectus. For a discussion of the differences
between HAI's current Articles of Incorporation and the new Articles of
Incorporation, see "Chapter III -- Item 3 Adoption and Approval of Amended and
Restated Articles of Incorporation and -- Item 4 Adoption and Approval of
Amended and Restated Affidavit of Incorporation." The following comparison of
shareholders' rights and the capital stock assumes that the HAI shareholders
approve the new amended and restated articles of incorporation.
The following is a summary of the material differences between the
rights of HAI shareholders and the rights of HealthAxis shareholders and between
the capital stock of HAI and the capital stock of HealthAxis. This summary is
not intended to be complete and is qualified in its entirety by reference to
applicable provisions of the PA BCL, HAI's amended and restated articles of
incorporation attached to this joint proxy statement/prospectus as Appendix E,
HAI's bylaws and HealthAxis' articles of incorporation and bylaws.
Comparison of Capital Stock
Description of HAI Capital Stock. The authorized capital stock of HAI
will consist of 1,900,000,000 shares of HAI common stock $.10 par value, and
100,000,000 shares of preferred stock, $1.00 par value.
HAI Common Stock. As of September 30, 2000, there were approximately
13,097,618 shares of HAI common stock outstanding, held of record by
approximately 186 shareholders and held by approximately 5,330 beneficial
holders. HAI common stock is listed and traded on the NASDAQ National Market
under the symbol "HAXS." Holders of HAI common stock are entitled to one vote
per share on all matters to be voted upon by the shareholders. The shareholders
may not cumulate votes in connection with the election of directors. The holders
of HAI common stock are entitled to receive ratably dividends, if any, declared
from time to time by the HAI board of directors out of funds legally available
for dividends. In the event of a liquidation, dissolution or winding up of HAI,
the holders of HAI common stock are entitled to share ratably in all assets
remaining after payment of liabilities. The HAI common stock has no preemptive
or conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the HAI common stock. All outstanding
shares of HAI common stock are fully paid and non-assessable, and the shares of
HAI common stock to be outstanding upon completion of the merger will be fully
paid and non-assessable.
HAI Preferred Stock. HAI has 100,000,000 shares of HAI preferred stock
authorized and no shares are outstanding. The HAI board of directors has the
authority to issue the shares of HAI preferred stock in one or more series and
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of HAI preferred stock and to
fix the number of
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<PAGE>
shares constituting any series and the designations of such series, without any
further vote or action by the shareholders. Although it presently has no
intention to do so, the HAI board of directors, without shareholder approval,
can issue HAI preferred stock with voting and conversion rights which could
adversely affect the voting power or other rights of the holders of HAI common
stock. The issuance of HAI preferred stock may have the effect of delaying,
deferring or preventing a change in control of HAI.
HAI Transfer Agent and Registrar. The transfer agent and registrar for
the HAI common stock is ChaseMellon Shareholder Services LLP, 450 West 33rd St.,
10th Floor, New York, NY 10001 and its telephone number is (917) 320-6216.
Description of HealthAxis Capital Stock. HealthAxis is authorized by
its Articles of Incorporation, as amended, to issue 100,000,000 shares of common
stock, no par value per share and 20,000,000 shares of preferred stock, $1.00
par value per share. As of September 30, 2000, there were 42,477,449 shares of
common stock outstanding and held of record by 75 shareholders and 3,031,191
shares of preferred stock outstanding and held of record by 12 shareholders.
HealthAxis acts as its own transfer agent and registrar with respect to its
common stock.
HealthAxis Common Stock. The holders of HealthAxis common stock are
entitled to one vote per share on all matters to be voted upon the by the
shareholders. Shareholders may not cumulate votes in connection with the
election of directors. Pursuant to the preferences of the holders of preferred
stock, discussed below, the holders of common stock are entitled to receive
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of HealthAxis, whether voluntary or involuntary,
assets and funds of HealthAxis available for distribution to shareholders, and
remaining after the payment to holders of preferred stock of the amount to which
they are entitled as discussed below, will be divided ratably and paid to the
holders of common stock. Shares of HealthAxis common stock have no preemptive or
conversion rights or other subscription rights. All outstanding shares of
HealthAxis common stock are fully paid and nonassessable.
HealthAxis Preferred Stock. The preferred stock may be issued from time
to time by the board of directors as shares of one or more classes or series.
Subject to the provisions of HealthAxis' amended and restated articles of
incorporation and limitations prescribed by law, the board of directors is
expressly authorized to adopt resolutions to issue shares, to fix the number of
shares, to change the number of shares constituting any series and to provide
for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any class or series of the preferred stock, in each case
without any further action or vote by the shareholders. To the extent the
Company determines to issue a new series of preferred stock, shareholder
approval would be required from each series of outstanding preferred stock
voting as a separate class.
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage an attempt to
obtain control of HealthAxis by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of HealthAxis' management.
The issuance of additional shares of the preferred stock pursuant to the board
of directors' authority described herein may adversely affect the rights of the
holders of the common stock. For example, preferred stock issued by HealthAxis
may rank prior to the common stock as to dividend rights, liquidation preference
or both, may have full or limited voting rights and may be convertible into
shares of the common stock. Accordingly, the issuance of shares of preferred
stock may discourage bids for the common stock or may adversely affect the
market price of the common stock.
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HealthAxis has 20,000,000 shares of preferred stock authorized of which
the board of directors has designated 953,980 shares as Series A preferred
stock, 625,529 shares as Series B preferred stock, 3,420,291 shares as Series C
preferred stock and 500,000 as Series D preferred stock. At September 30, 2000
there were 545,916 shares of Series A preferred stock outstanding, 625,529
shares of Series B preferred stock outstanding, 1,526,412 shares of Series C
preferred stock outstanding and 333,334 shares of Series D preferred stock. The
HealthAxis board of directors has the authority to issue up to an additional
14,500,000 shares of HealthAxis preferred stock in one or more series and to fix
the rights, preferences, privileges and restrictions granted to or imposed upon
any unissued and undesignated shares of HealthAxis preferred stock and to fix
the number of shares constituting any series and the designations of such
series, without any further vote or action by the shareholders. Although it
presently has no intention to do so, the HealthAxis board of directors, without
shareholder approval, can issue HealthAxis preferred stock with voting and
conversion rights which could adversely affect the voting power or other rights
of the holders of HealthAxis common stock. The issuance of HealthAxis preferred
stock may have the effect of delaying, deferring or preventing a change in
control of HealthAxis.
Dividends. The holders of the preferred stock are entitled to receive
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
preferred stock, if and when declared, shall accrue from the applicable date of
declaration so that if at any time accrued dividends upon the preferred stock
have not been paid, the amount and deficiency in these dividends will be fully
paid (but without interest). A sum sufficient for the payment will have been set
apart for payment, before any dividend will be declared or paid or any other
distribution ordered or made upon shares of HealthAxis common stock and before
any sum will be set aside for or applied to the purchase or redemption of any
shares of HealthAxis common stock, other than the repurchase by HealthAxis of
shares of common stock from any employee upon termination of their employment.
Dividends, if and when declared, must first be paid to the holders of the Series
B preferred stock, then to the holders of the Series C and Series D preferred
stock and then to the holders of the Series A preferred stock. Only after
dividends have been paid to each holder of preferred stock, will HealthAxis pay
dividends to the holders of common stock.
Liquidation. In the event of any dissolution, liquidation or winding up
of the affairs of HealthAxis, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of HealthAxis, the
holders of the preferred stock will be entitled to receive, out of HealthAxis'
assets legally available for distribution to its shareholders, a preference
amount specified in the amended and restated certificate of designation for each
series of preferred stock, plus an amount equal to all dividends accrued and
unpaid on each share up to the date fixed for distribution, before any
distribution may be made to the holders of HealthAxis' common stock. The
preference amount for the Series B preferred stock will first be paid to the
holders of Series B preferred stock, then the preference amount for the Series C
and Series D preferred stock will be paid to the holders of Series C and Series
D preferred stock respectively and then the preference amount for the Series A
preferred stock will be paid to the holders of Series A preferred stock. If
after payment or provision for payment of the debts and other liabilities of
HealthAxis and the distribution to the holders of each series of preferred stock
the full amount of their preference, holders of the preferred stock will be
entitled to share on a pro rata basis the remaining HealthAxis assets available
for distribution to shareholders with holders of the common stock. The relative
value of a share of each series of preferred stock for this purpose will be
determined on an as converted basis.
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The consolidation or merger of HealthAxis with any corporation (other
than a transaction where holders of HealthAxis' voting capital stock hold a
majority of voting capital of the resulting entity), the sale of all or
substantially all of HealthAxis' assets, or the acquisition by any person or
entity of a majority of the voting capital stock of HealthAxis will be deemed a
liquidation or winding up.
Mandatory Redemption. The shares of Series A preferred stock are
redeemable by HealthAxis at any time after September 15, 1999 and HealthAxis 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
HealthAxis 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.
Optional Redemption. The 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, upon the occurrence of a trigger event (as
defined below), to cause HealthAxis 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 of $4.396279 (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 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 HealthAxis 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
HealthAxis 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
HealthAxis or a material breach by any party other than America Online Inc. or
termination of the IM Agreement with America Online Inc., (iii) the date of the
occurrence of a liquidation of HealthAxis (as defined above), (iv) March 31,
1999, if by that date, HealthAxis has not consummated an equity financing
yielding aggregate gross proceeds of not less than $3.5 million at a price per
share of at least $3.74 (a "Qualified Financing"), or (v) May 31, 1999, if by
that date, HealthAxis has not consummated an equity financing yielding aggregate
gross proceeds of not less than $7.0 million at a price per share of at least
$3.74. HealthAxis completed the required financing prior to May 31, 1999.
Redemption. The Series C and Series D preferred stock are not subject
to any mandatory redemption or optional redemption provisions.
Optional Conversion. Shares of preferred stock are convertible, at the
option of the holders, into 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 be the original
issuance price subject to adjustments from time to time in the event HealthAxis
issues any shares of common stock or securities exchangeable into shares of
common stock other than the excluded shares set forth in the Certificate of
Designation, without consideration or for consideration per share less than the
conversion
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price in effect immediately prior to the issuance or there is a stock dividend,
stock split combination, capital recapitalization (other than a change in par
value), consolidation or merger.
Mandatory Conversion. All of the outstanding shares of 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 an underwritten public
offering of the common stock of HealthAxis 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 HealthAxis of not less than $25.0 million or (ii) a qualified merger, an
upstream merger of HealthAxis with HAI or the merger of HealthAxis with a
wholly-owned subsidiary of HAI. In order to trigger this mandatory conversion,
the qualified merger must:
o result in HealthAxis being the only operating subsidiary of HAI;
o be approved, in addition to whatever vote is otherwise
required by applicable law, by a majority vote of holders of
the Series B preferred stock, Series C preferred stock and
Series D preferred stock of HealthAxis;
o require that HealthAxis receive 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,
Series C preferred stock and Series D preferred stock, which
approval shall not be unreasonably withheld, indicating that
the merger is fair to the shareholders of HealthAxis, other
than HAI and its subsidiaries, from a financial point of view;
o require that the securities to be issued to holders of the
preferred stock upon the completion of the merger shall be
registered with the SEC pursuant to the Securities Act of
1933, as amended, freely tradable and listed on a national
securities exchange or quoted on the NASDAQ National Market;
and
o require that the resulting entity has a market capitalization of
at least $200,000,000.
HealthAxis believes that the merger of HealthAxis with and into HealthAxis
Acquisition Corp. will be a qualified merger that triggers the mandatory
conversion provisions for each series of preferred stock.
Voting Rights. In addition to the voting rights afforded by applicable
law, the holders of the 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 preferred stock are entitled to the number of votes equal to the nearest
whole number of shares of common stock into which the preferred stock is
convertible. Except as set forth below, the holders of the Series A preferred
stock shall vote together with holders of the common stock and the Series B,
Series C and Series D preferred stock as one class.
The affirmative vote, in person or by proxy, of the holders of a
majority of the outstanding shares of each series of preferred stock, each
voting as a class, will be necessary for HealthAxis to:
o amend, repeal or modify any provision of, or add any provision
to, HealthAxis' 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 preferred stock;
o authorize create, designate or establish any additional shares
of any class or series of preferred stock with senior rights
and preference;
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o reclassify the shares of common stock into shares having any
series preference or priority as to dividends or assets
superior to the preferred stock; or
o or in any manner amend or modify the powers, rights,
preferences, privileges or the qualifications, limitations or
restrictions of the preferred stock.
Registration Rights. In connection with the purchase of preferred
stock, each holder of preferred stock entered into a registration rights
agreement with HealthAxis. While each of these agreements were individually
negotiated, the following sets forth a general description of the rights granted
in each agreement:
When HealthAxis proposes to register any shares of common stock from
authorized but unissued common shares or treasury shares under the Securities
Act (other than on a Form S-4 or Form S-8), HealthAxis is required to give
notice to the holders of the preferred stock and the holders of common stock
acquired upon the conversion of preferred stock of the proposed registration and
to include their shares of common stock received upon the conversion of the
preferred stock in such registration, subject to conditions including the right
of the underwriter of the offering to limit the number of shares sold by the
holders if the underwriter advised HealthAxis and the holders in writing that
the number of shares required to be included would interfere with the successful
marketing of the shares offered. Additionally, the holders of preferred stock,
may, under some circumstances, require HealthAxis to file a registration
statement under the Securities Act with respect to the common stock acquired
upon the conversion of the preferred stock.
Other. The preferred stock is not subject to any sinking fund or other
similar provisions. The holders of Series B preferred stock are entitled to
preemptive rights which are described in the Stock Purchase Agreement related to
the Series B preferred stock.
Comparison of Shareholders' Rights
Upon completion of the merger, the holders of the HealthAxis capital
stock will become holders of HAI common stock. There are material differences
between the rights and privileges of the holders of the HealthAxis capital stock
and the holders of HAI common stock.
HAI and HealthAxis are both incorporated under the laws of the
Commonwealth of Pennsylvania, and the rights of shareholders of HAI and
HealthAxis are governed by the PA BCL. However, the rights of the HAI
shareholders are governed by the amended and restated articles of incorporation
of HAI and the amended and restated bylaws of HAI and the rights of the
HealthAxis shareholders are governed by the HealthAxis amended and restated
articles of incorporation and the HealthAxis amended and restated bylaws. If the
merger is consummated, the shareholders of HealthAxis will become shareholders
of HAI. The following is a summary of the material differences between the
rights of holders of HealthAxis capital stock and the rights of holders of HAI
capital stock. These differences arise from differences between the corporate
governing instruments of HAI and HealthAxis. This summary does not purport to
identify all of the differences that may be material to HealthAxis shareholders
and is subject to the detailed provisions of the relevant laws and governing
instruments. This summary should be read in conjunction with "Comparison of
Capital Stock."
Percentage of Voting Stock; Influence Over Affairs. Upon completion of
the merger, the percentage ownership of HAI on a fully diluted basis by each
former HealthAxis shareholder will be substantially the same as the HealthAxis
shareholder's current percentage ownership of HealthAxis. Upon
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completion of the merger, the former HealthAxis shareholders will own
approximately 75.2% of HAI whereas they currently own 65.3% of HealthAxis.
Removal of Directors.
HAI. The HAI articles provide that a director may only be removed from
office for cause and by the vote of at least 65% of the votes entitled to be
cast at an annual or regular election.
HealthAxis. The HealthAxis articles provide that any director may be
removed from office with or without cause but only by the affirmative vote of
shareholders entitled to cast at least 70% of the votes entitled to be cast by
all shareholders at any annual or regular election of directors.
Call of Special Meetings of Shareholders.
HAI. HAI's bylaws provide that a special meeting of its shareholders
may be called at any time by the board, the chairman of the board or the chief
executive officer, but may not be called by the HAI shareholders.
HealthAxis. Under the PA BCL, special meetings of shareholders may be
called by the board of directors, by any officers or by any other persons as
provided in the bylaws, and, unless otherwise provided in the articles, by
shareholders entitled to cast at least 20% of the votes that all shareholders
are entitled to cast at a particular meeting. The HealthAxis bylaws provide that
the board of directors, the chairman of the board or the chief executive officer
may call a special meeting of HealthAxis' shareholders. Additionally, a special
meeting may be called upon the written request of the holders of at least 20% of
the HealthAxis shares entitled to vote at such a meeting, if made in connection
with the election of persons to serve as members of the board of directors in
accordance with the terms of the shareholders agreement between HealthAxis, HAI
and UICI. Notice of the special meeting must be delivered by HealthAxis to the
shareholders in writing.
Action of Shareholders Without a Meeting.
HAI. The HAI bylaws provide that any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting if all
shareholders entitled to vote on the matter consent to the action in writing.
HealthAxis. The HealthAxis bylaws provide for shareholder approval by
less than unanimous consent, where the action to be approved has been previously
approved by the board of directors. However, shareholders have the right to take
action by written consent in connection with (1) the removal of directors in
accordance with the HealthAxis Articles and bylaws and (2) the election of
persons to serve as members of the board of directors in accordance with the
terms of the shareholders' agreement.
Number and Classification of Directors.
HAI. The HAI bylaws provide that the board of directors will consist of
not less than three and not more than twelve directors. The PA BCL provides that
the term of office for each director is one year.
HealthAxis. The HealthAxis bylaws also provide that the board of
directors will consist of not less than three and not more than twelve
directors. The PA BCL provides that term of office for each director is one
year.
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CHAPTER II - INFORMATION ABOUT THE ANNUAL MEETINGS AND VOTING
The HAI Annual Meeting
The HAI board of directors is furnishing this joint proxy
statement/prospectus to you in connection with the solicitation of proxies from
the holders of HAI common stock relating to:
o the election of directors;
o approval of the HAI merger proposal;
o the proposals to approve the amendment and restatement of
HAI's Amended and Restated Articles of Incorporation;
o approval of the proposal to adopt the 2000 Stock Option Plan;
o approval of the adjournment proposal; and
o other matters to be voted upon at the HAI annual meeting and
at any adjournment or postponement of the HAI annual meeting.
HAI mailed this document to shareholders beginning on ________________, 2000.
You should read this document carefully before voting your shares.
When and Where the HAI Annual Meeting Will be Held
The HAI annual meeting will be held at its executive offices located at
2500 DeKalb Pike, East Norriton, Pennsylvania 19401 on _____, starting at 10:00
a.m., prevailing time.
How to Attend and Participate in the HAI Annual Meeting
Only shareholders of HAI may attend the HAI annual meeting.
HAI will establish reasonable rules and procedures for the conduct of
the HAI annual meeting to ensure that there is sufficient time to address all of
the items on the agenda, procedures for maintaining order and the safety of
those present, and limitations on the time allotted for questions or comments by
shareholders.
What Will be Voted Upon
At the HAI annual meeting, you will be asked to consider and vote upon
the following matters:
o to elect eight directors;
o to consider and vote on a proposal to adopt the amended and
restated agreement and plan of reorganization and the amended
and restated agreement and plan of merger, each dated as of
October 26, 2000 among HAI, HealthAxis and a wholly-owned
subsidiary of HAI, and to approve the merger, the issuance of
HAI shares and other transactions described in the merger
agreements;
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o to approve the amendments to HAI's amended and restated
articles of incorporation discussed in Item 3, including the
restatement of such articles of incorporation;
o to approve an amendment to HAI's amended and restated articles
of incorporation discussed in Item 4;
o to approve the adoption of the 2000 Stock Option Plan;
o to act upon the appointment of BDO Seidman LLP as independent
public accountants for HAI for its 2000 fiscal year;
o to act upon the adjournment of the annual meeting, if
necessary, to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the annual
meeting to approve the agreement and plan of reorganization
and the agreement and plan of merger; and
o to act upon such other matters as may properly come before the
annual meeting.
The board of directors of HAI does not know of any other 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.
Only HAI Shareholders of Record as of [___________], 2000 Are Entitled to Vote
HAI shareholders who hold their shares of record as of the close of
business on [________], 2000 are entitled to receive notice of and vote at the
HAI annual meeting. On [_________], 2000, there were approximately 13,097,618
shares of HAI common stock outstanding and entitled to vote at the HAI annual
meeting. A list of shareholders eligible to vote will be available at the HAI
annual meeting.
Majority of Outstanding Shares Must be Represented For a Vote to be Taken
In order to have a quorum, a majority of the shares of HAI common stock
that are outstanding and entitled to vote at the HAI annual meeting must be
present in person or by proxy. If a quorum is not present, a majority of shares
that are represented may adjourn or postpone the HAI annual meeting.
Vote Required
A nominee for director must receive a plurality of the votes cast to be
elected. The merger proposal must be approved by the affirmative vote, in person
or by proxy, of holders of at least 80% of the outstanding shares of common
stock. The proposal to adopt the amendments to the amended and restated articles
of incorporation discussed in Item 3, as well as the amendment and restatement
of such articles, must receive an affirmative vote of a majority of votes cast.
The proposal to adopt the amended and restated articles of incorporation
discussed in Item 4 must receive an affirmative vote of at least 80% of the
outstanding shares of common stock. The proposals to adopt and approve the 2000
Stock Option Plan and to adjourn the annual meeting, if necessary, to solicit
additional proxies each require the affirmative vote of the majority of the
shares of common stock present and represented by proxy at the annual meeting.
Each share of HAI common stock is entitled to one vote.
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Voting Your Shares
The HAI board of directors is soliciting your proxy to give you the
opportunity to vote at the HAI annual meeting. When you deliver a valid proxy,
the shares represented by that proxy will be voted in accordance with your
instructions. If you do not vote by proxy or attend the HAI annual meeting and
vote in person, it will have the same effect, in most cases, as voting against
the HAI merger proposal.
You may grant a proxy by signing and mailing your proxy card. To grant
your proxy by mail, please complete your proxy card, and sign, date and return
it in the enclosed envelope. To be valid, a returned proxy card must be signed
and dated. If you attend the HAI annual meeting in person, you may vote your
shares by ballot at the annual meeting.
Changing Your Vote by Revoking Your Proxy
You may revoke your proxy at any time prior to the closing of the polls
at the HAI annual meeting by delivering to the Secretary of HAI a signed notice
of revocation or a later-dated signed proxy or by attending the HAI annual
meeting and voting in person. Attendance at the HAI annual meeting will not in
itself constitute the revocation of a proxy.
How Proxies Are Counted
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the HAI board of directors. A valid proxy also gives the
individuals named as proxies authority to use their discretion when voting the
shares on any other matters that are properly presented for action at the HAI
annual meeting including:
o matters which HAI has not received notice at least 45 days
prior to [__________, 2000];
o approval of minutes of a prior meeting of shareholders, if the
approval does not constitute ratification of actions taken at
the prior meeting;
o 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;
o any proposal omitted from this joint proxy
statement/prospectus and form of proxy pursuant to Rules 14a-8
or 14a-9 under the Securities Exchange Act of 1934, as
amended; and
o matters incident to the conduct of the annual meeting.
Shares of HAI common stock which are present at the HAI annual meeting but not
voted will be counted as present for purposes of determining whether there is a
quorum, which consists of a majority of the outstanding shares of common stock
entitled to vote, but will not be counted to determine whether the HAI merger
proposal or any other proposal is approved.
The proposal to adopt the 2000 Stock Option Plan, the proposal to adopt
the amendments to the HAI amended and restated articles of incorporation
described in Item 3 and the proposal to act upon the adjournment of the annual
meeting must be approved by a majority of the votes cast. Accordingly,
abstentions will have no effect on the outcome of those proposals. However,
since directors are elected by a plurality of the votes cast, votes withheld
from nominees for director could have an effect on the
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outcome of the election. In the case of the HAI merger proposal and the proposal
to amend the amended and restated articles of incorporation described in Item 4,
which each require the approval of 80% of all outstanding shares, abstentions
will have the same effect as a vote against the merger proposal and the proposal
to amend the amended and restated articles of incorporation described in Item 4.
Cost of Solicitation
HAI will pay the cost of soliciting HAI proxies. However, HealthAxis
and HAI will share equally the cost of printing this document. HAI has retained
the services of Corporate Investor Communications, Inc. to solicit proxies in
connection with the HAI Annual Meeting for a cost of approximately $6,000 plus
out-of-pocket expenses. In addition, HAI's regular officers and employees will
solicit proxies on behalf of HAI by mail, in person or by telephone or telegram
without additional compensation. HAI, 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 HealthAxis Annual Meeting
The HealthAxis board of directors is furnishing this joint proxy
statement/prospectus to you in connection with the solicitation of proxies from
the holders of HealthAxis stock relating to the election of directors, the
HealthAxis merger proposal and other matters to be voted upon at the HealthAxis
annual meeting and at any adjournment or postponement of the meeting. This joint
proxy statement/prospectus is also a prospectus for the shares of HAI common
stock to be issued in the merger. HealthAxis mailed this joint proxy
statement/prospectus to shareholders beginning ______, 2000. You should read
this joint proxy statement/prospectus carefully before voting your shares.
When and Where the HealthAxis Annual Meeting Will be Held
The HealthAxis annual meeting will be held at its executive offices
located at 2500 DeKalb Pike, East Norriton, Pennsylvania 19401 on [___________,]
2001, starting at 10:00 a.m., prevailing time.
How to Attend and Participate in the HealthAxis Annual Meeting
Only shareholders of HealthAxis may attend the HealthAxis annual
meeting.
HealthAxis will establish reasonable rules and procedures for the
conduct of the HealthAxis annual meeting to ensure that there is sufficient time
to address all of the items on the agenda and to facilitate an orderly meeting.
These rules will be distributed at the HealthAxis annual meeting and will
include an agenda for the HealthAxis annual meeting, procedures for maintaining
order and the safety of those present, and limitations on the time allotted for
questions or comments by shareholders.
What Will be Voted Upon
At the HealthAxis annual meeting, you will be asked to consider and
vote upon the following proposals:
o to elect eight directors;
o to consider and vote on a proposal to adopt the amended and
restated agreement and plan of reorganization and the amended
and restated agreement and plan of merger, each dated as of
October 26, 2000 among HAI, HealthAxis and a wholly-owned
subsidiary of HAI, and to approve the merger, the acceptance
of HAI shares and other transactions described in the merger
agreements;
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o to act upon the adjournment of the annual meeting, if
necessary, to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the annual
meeting to approve the agreement and plan of reorganization
and the agreement and plan of merger;
o to act upon such other matters as may properly come before the
annual meeting; and
o to act upon any other matters properly coming before the
annual meeting.
The board of directors of HealthAxis does not know of any other 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.
Only HealthAxis Shareholders of Record as of [________ __], 2000 Are Entitled
to Vote
HealthAxis shareholders who hold their shares of record as of the close
of business on [______], 2000, are entitled to receive notice of and vote at the
HealthAxis annual meeting. On the record date, there were approximately
42,477,449 shares of HealthAxis common stock, 545,916 shares of Series A
preferred stock, 625,529 shares of Series B preferred stock, 1,526,412 shares of
Series C preferred stock and 333,334 shares of Series D preferred stock
outstanding and entitled to vote at the HealthAxis annual meeting.
Majority of Outstanding Shares Must be Represented For a Vote to be Taken
In order to have a quorum, a majority of the shares of HealthAxis
capital stock that are outstanding and entitled to vote at the HealthAxis annual
meeting must be represented in person or by proxy. All such shares that are
present in person or represented by proxy at the annual meeting will be counted
in determining whether a quorum is present including abstentions. If a quorum is
not present, a majority of shares that are represented may adjourn or postpone
the HealthAxis annual meeting.
Vote Required
A nominee for director must receive a plurality of the votes cast to be
elected. The HealthAxis merger proposal must be approved by the affirmative vote
of a majority of the shares of HealthAxis common and preferred stock that are
outstanding and entitled to vote at the HealthAxis annual meeting. Additionally,
the merger proposal must be approved by the affirmative vote of at least a
majority of the shares of Series A preferred stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock, each voting as a separate
class. The proposal to adjourn the annual meeting, if necessary, to solicit
additional proxies requires a majority vote of the common and preferred stock
present and represented by proxy at the annual meeting. Each share of preferred
stock and each share of common stock is entitled to one vote.
Voting Your Shares
The HealthAxis board of directors is soliciting proxies from HealthAxis
shareholders. This will give you the opportunity to vote at the HealthAxis
annual meeting. When you deliver a valid proxy, the shares represented by that
proxy will be voted in accordance with your instructions. If you do not vote by
proxy or attend the HealthAxis annual meeting and vote in person, it will have
the same effect, in most cases, as voting against the HealthAxis merger
proposal.
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You may grant a proxy by signing and mailing your proxy card.
To grant your proxy by mail, please complete your proxy card, sign,
date and return it in the enclosed envelope. To be valid, a returned proxy card
must be signed and dated.
If you attend the HealthAxis annual meeting in person, you may vote
your shares by completing a ballot at the meeting.
Changing Your Vote by Revoking Your Proxy
You may revoke your proxy at any time before the polls close at the
HealthAxis annual meeting. You may revoke your proxy by delivering notice in
writing to the Secretary of HealthAxis, granting a later-dated proxy or
appearing in person and voting at the HealthAxis annual meeting. You will not
revoke your proxy by simply attending the HealthAxis annual meeting unless you
complete a ballot.
How Proxies Are Counted
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the HealthAxis board of directors. A valid proxy also
gives the individuals named as proxies authority to vote in their discretion
when voting the shares on any other matters that are properly presented for
action at the HealthAxis annual meeting. A properly executed proxy card marked
"abstain" will not be voted. However, it may be counted to determine whether
there is a quorum present. Abstentions are not counted in determining the number
of shares voted for or against any nominee for director. However, because the
merger proposal must be approved by a majority of the shares of HealthAxis
common and preferred stock that are outstanding, voting as one class, and a
majority of each series of preferred stock outstanding, each voting as a
separate class, abstentions will have the same effect as a vote against the
merger proposal.
Cost of Solicitation
HealthAxis will pay the cost of soliciting HealthAxis proxies. However,
HealthAxis and HAI will share equally the cost of printing this joint proxy
statement/prospectus. Solicitation of proxies will be made by mail and may also
be made on behalf of HealthAxis by HealthAxis' regular officers and employees in
person or by telephone or telegram.
Proxy Statement Proposals
At the annual meeting, the HealthAxis board of directors will submit to
you its nominees for election as directors. You will also vote to approve the
merger agreement. In addition, the HealthAxis board of directors may submit
other matters to you for action at that annual meeting.
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The bylaws also provide that if you intend to nominate a candidate for
election as a director, you must deliver written notice of your intention to the
Secretary. The notice must be delivered not less than 90 days before the date of
a meeting of shareholders. The notice must contain the following information:
the name and address of and number of shares of HealthAxis stock owned by you
(and that of any other shareholders known to be supporting the nominee you have
selected) and the nominee for election as a director; the nominee's business
address and experience during the past five years and other information
concerning the nominee that would be required to be included in a proxy
statement soliciting proxies for the election of the nominee; and a description
of any arrangement or understanding between the shareholder and the nominee. In
addition, the notice must include the nominee's consent to serve as a director
of HealthAxis if elected.
HealthAxis shareholders should not send in their stock certificates
with their proxy card. Soon after HAI and HealthAxis complete the merger, you
will receive written instructions on how to exchange your HealthAxis stock
certificates for shares of the combined company.
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CHAPTER III - OTHER HAI ANNUAL MEETING PROPOSALS
ITEM 1 - ELECTION OF HAI DIRECTORS
HAI Board 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.
HAI 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 hold office for a term of one year and until their
successors are duly elected.
The names of the nominees for directors, together with information
regarding the nominees, are as follows:
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<TABLE>
<CAPTION>
Served as Principal Occupation for Past Five Years
Director Year Term and Position(s) Held with
Name Age Since Will Expire HAI or Subsidiaries
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael Ashker 47 1998 2001 President and Chief Executive Officer of
HealthAxis since 1998; President and Chief
Executive Officer of HAI since August 1999;
Managing Director and Portfolio Manager of Lynx
Capital Group LLC and Managing Member of Lynx
Venture Partners I, LLC from 1995 to 1998.
Alvin H. Clemens 62 1989 2001 Chairman of the Board of HAI and subsidiary
companies since October 1989, Chairman of
HealthAxis since 1998, Chief Executive Officer
of HAI from 1989 to 1999 and President of HAI
from 1993 to 1996; President of PILIC from
November 30, 1999 to present; President of Maine
National Life Insurance Company from 1989 to
1995; Owner and Chairman of the Board of Maine
National Life Insurance Company from 1985 to
1989; President and Director of Academy Life
Insurance Company and Pension Life Insurance
Company of America from 1970 to 1985;
Chairman/Chief Executive Officer of Academy
Insurance Group Inc. from 1967 to 1985.
Henry G. Hager 66 1996 2001 Of Counsel to the law firm of Stradley, Ronon,
Stevens and Young since January, 2000; Partner
at Stradley Ronon from 1994 through 1999;
President and Chief Executive Officer of the
Insurance Federation of Pennsylvania from 1985 to 1999;
Director of American Waterworks Company, a
publicly held company.
Edward W. LeBaron, Jr. 70 1998 2001 Director of Lynx Capital Group, LLC from
January, 1997 to January 2000; Attorney,
Political Law Group, Pillsbury, Madison & Sutro
from 1989 to 1995 and from 1996 to 1998; Chief
Executive Officer of Pacific Casino Management
from 1995 to 1996; Director of Tom Brown, Inc.,
a publicly held company.
Gregory T. Mutz 54 2000 2001 Director of HealthAxis since January 2000;
Director and President and Chief Executive
Officer of UICI since January 1999 and Director
of Insurdata Incorporated from May 1999 to
January 2000. Chairman of the Board of Amli
Realty Co. since 1980, Chairman of the Board of
Trustees of Amli Residential Properties Trust
since 1994, and Chairman of Amli Commercial
Properties Trust since 1997. Chairman of the
Board of Excell Global Services since 1997.
Director of the National Multifamily Housing
Council since 1995 and a Director of
Alleghany/Chicago Trust since 1996. Director of
Baldwin & Lyons from 1978 until 1997 and
Director of AvTel Communications from 1997 until
1998.
</TABLE>
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<TABLE>
<CAPTION>
Served as Principal Occupation for Past Five Years
Director Year Term and Position(s) Held with
Name Age Since Will Expire HAI or Subsidiaries
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James W. McLane 61 2000 2001 James W. McLane has been a Director of
HealthAxis since August 2000. He also serves as
a Director of Beverly Enterprises, Inc., a
public company, and UltraTouch, Inc., a venture
backed company. Mr. McLane has been President
and Chief Operating Officer of NovaCare, Inc.
from 1997 to 2000; Executive Vice President of
Aetna Life & Casualty and Chief Executive
Officer of Aetna Health Plans from 1991 to 1996;
and Senior Vice President and Division Executive
of Citicorp's Global Insurance Division and
Capital Investments Division prior to 1991. He
also served during this period as Chairman of
Ambac, Inc. and CapMac, Inc.
Dennis B. Maloney 54 2000 2001 Director and Chief Operating Officer of
HealthAxis since January 2000. President and
Chief Executive Officer of Insurdata
Incorporated from January 1997 to January 2000
and Director of Insurdata Incorporated from
March 1997 to January 2000. Executive Officer
of SHL Systemhouse from 1976 until October 1996.
Patrick J. McLaughlin 42 2000 2001 Director of UICI since January 1999; Director
of Universal American Financial Corporation
since 1995; Managing Director of Emerald Capital
Group, Ltd., an asset management and consulting
firm specializing in the insurance industry,
since April 1993; Executive Vice President and
Chief Investment Officer of Life Partners Group,
Inc. from April 1990 to April 1993; Managing
Director of Conning & Company, an independent
banking firm, from August 1989 to April 1990;
Senior Vice President and Chief Investment
Officer of ICH Corporation, an insurance
company, from March 1987 to August 1989.
</TABLE>
The names of current directors who are not standing for reelection,
together with information regarding the directors, are as follows:
<TABLE>
<CAPTION>
Served as Principal Occupation for Past Five Years
Director Year Term and Position(s) Held with
Name Age Since Will Expire HAI or Subsidiaries
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harold M. Davis 63 1989 2000 Chairman of the Board of Realen Homes, Inc.
since 1968.
George W. Karr, Jr. 61 1996 2000 Chief Executive Officer of Karr Barth
Associates, Inc. since 1984.
Theophile J. Mignatti, 63 1998 2000 Chairman Mignatti Enterprises since 1998;
Jr. President and CEO of Mignatti Venture Associates
since 1989; President of Historic Venture
Associates 1984-1989; President of Mignatti
Construction Company 1966-1984.
P. Glenn Moyer 64 1989 2000 Private Practice Attorney since 1992; Director,
Main National from 1985 to 1995.
</TABLE>
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Executive Officers Who Are Not Also Directors
Andrew Felder, age 34, has been Executive Vice President - Strategy and
Corporate Development of HealthAxis since January 1999. He has also served as
Executive Vice President of HAI since April 1, 2000. He also served as Chief
Operating Officer of HealthAxis from March 1998 to March 1999. Prior to such
time, Mr. Felder was a self-employed management consultant from July 1997 to
February 1998 during which time he co-founded JusticeLink, Inc., a Dallas, Texas
Internet company that provides electronic document filing services to the
justice community. He also was employed as the Vice President of Strategic
Planning at Wells Fargo Bank, from July 1995 to February 1997 and the Manager of
Strategic Planning at Dole Food Company, from July 1992 to July 1995.
Richard Grehalva, age 49, has been Senior Vice President of HealthAxis
since November 2000. Prior to joining HealthAxis Mr. Grehalva served as Senior
Vice President, Global Sales and Marketing for Satyam Computer Services Ltd from
November 1998 to November 2000. Prior to such time from February 1979 to October
1998 he served in various positions for Computer Sciences Corporation, most
recently as the Vice President and General Manager Payer Application Solutions
for the Healthcare group.
Michael G. Hankinson, age 44, has been the Vice President and General
Counsel of HealthAxis since April, 1999. He became Secretary of HealthAxis in
November, 1999 and Senior Vice President since September, 2000. Mr. Hankinson
has also served as Vice President, General Counsel and Assistant Secretary of
HAI since April 1, 2000. Prior to joining HealthAxis, Mr. Hankinson served as
Senior Vice President, Secretary and General Counsel with Gramercy Insurance Co.
from September 1992 to June 1998. Prior to such time, Mr. Hankinson was an
environmental attorney with Olin Corporation from 1991 to August 1992 and an
Instructor in Management in the College of Business Administration at Fairleigh
Dickinson University from August 1986 to August 1992.
Anthony R. Verdi, age 51, has been the Chief Financial Officer and
Treasurer of HealthAxis since November 1999. Mr. Verdi has been Chief Financial
Officer and Treasurer of HAI since April 2000. He also serves as Chief Operating
Officer of HAI and subsidiaries since December 1997. He served as President of
PILIC from December 1998 through October 1999 and as Treasurer and Chief
Financial Officer of HAI and subsidiaries from 1990 through 1997. Prior to 1990,
he was Vice President and Controller of Inter-County Hospitalization Plan Inc.
and he served as Assistant Controller Academy Insurance Group Inc. from 1971
through 1986.
Messrs. Michael Ashker, Alvin H. Clemens, Andrew Felder, Michael G.
Hankinson, Anthony R. Verdi and Richard Grehalva are also executive officers of
HealthAxis.
The following management changes will take effect on February 1, 2001.
Michael Ashker will become Chairman of the Board of HealthAxis and HAI and will
resign as President and Chief Executive Officer of these entities. Alvin Clemens
will become Chairman of the Executive Committees of HealthAxis and HAI and will
resign as Chairman of the Board of these entities. James McLane will become
President and Chief Executive Officer of HealthAxis and HAI. In addition,
effective February 1, 2001, Andrew Felder will resign as Executive Vice
President - Strategy and Corporate Development of HealthAxis and HAI. See
"Chapter III - Item I Election of HAI Directors - Certain Relationships and
Related Transactions" and "- Executive Compensation - Employment Agreement and
Employment Arrangement" for information regarding compensation and severance
arrangements with these individuals.
Meetings and Committees of the Board of Directors
During 1999, the board of directors of HAI held nine meetings. All
directors attended at least 75% of the aggregate meetings of the board and the
committees on which they served.
HAI'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 Michael
Ashker, Alvin Clemens, Harold Davis and Theophile J. Mignatti, Jr. currently
serve, is appointed to act when a meeting of the full board of directors is not
feasible, administers HAI'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 two meetings during 1999.
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The Audit Committee is appointed to recommend the selection of HAI's
auditors, review the scope and results of audits, review the adequacy of HAI's
accounting, financial and operating systems and supervise special
investigations. The Audit Committee held two meetings in 1999. In 1999, the
Audit Committee was comprised of Henry G. Hager, Harold M. Davis, and P. Glenn
Moyer.
The Option Administration Committee was established by the board of
directors on July 16, 1996 and currently consists of Alvin Clemens, Edward W.
LeBaron, Jr. and Anthony Verdi. Any options to be granted to Messrs. Ashker,
Clemens, or Verdi are subject to the approval of only Messrs. Hager, Karr and
Moyer, who are outside directors of HAI and as such are disinterested persons.
The Option Administration Committee did not meet during 1999. A new Option
Administration Committee will be appointed at the organizational meeting of the
directors following the annual meeting.
Report of Audit Committee
In 2000, the Audit Committee met with management to review and discuss
the audited financial statements. The Audit Committee also conducted discussions
with HAI's independent auditors, BDO Seidman LLP, regarding the matters required
by the Statement on Auditing Standards No. 61. As required by Independence
Standards Board Standard No. 1, "Independence Discussion with Audit Committees,"
the Audit Committee has discussed with and received the required written
disclosures and confirming letter from BDO Seidman LLP regarding its
independence and discussed with BDO Seidman LLP its independence. Based upon the
review and discussions referred to above, the Audit Committee recommended to the
Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
This Audit Committee Report shall not be deemed incorporated by
reference in any document previously or subsequently filed with the Securities
and Exchange Commission that incorporates by reference all or any portion of
this joint proxy statement/prospectus, unless the Audit Committee Report is
specifically incorporated by reference.
The Audit Committee
Henry G. Hager Harold M. Davis P. Glenn Moyer
Director Compensation
Directors who are not employees of HAI are paid a fee of $1,000 for
attendance at each meeting of the board of directors of HAI, with no fee being
paid for attendance at meetings of any of HAI's subsidiaries, and $500 for
attendance at each meeting of any committee of the board.
Report of the Executive/Compensation/Nominating Committee
The compensation of HAI's executive officers is generally determined by
the Executive/Compensation/Nominating Committee of the board of directors. This
committee is comprised of Messrs. Clemens, Ashker, Davis and Mignatti. The
following is a report with respect to the compensation paid or awarded to HAI's
executive officers during 1999 is furnished by the directors who comprise this
committee:
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General Policies. HAI's compensation programs are intended to enable
HAI 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 HAI'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 HAI's
business. To attain these objectives, the development of HAI's executive
compensation program includes a competitive base salary, coupled with a cash
incentive bonus which is based upon HAI's business, primarily in the achievement
of pre-determined financial goals. In general, as an executive officer's level
of management responsibility in HAI increases, a greater portion of his or her
potential total compensation depends upon HAI's performance as measured by
objective standards over one or more years.
Relationship of Compensation to Performance. As a person's level of
responsibility at HAI 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 HAI believes
correlate to shareholder value and support the strategic goals of HAI. 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 referred to as Section 162(m), denies a deduction to any
publicly held corporation, such as HAI, for 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, some
performance-based compensation. The Executive Committee intends to evaluate the
level of compensation and the importance to HAI 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.
The Executive/Compensation/Nomination Committee
Michael Ashker, Alvin Clemens, Harold Davis and Theophile J. Mignatti, Jr.
Executive Committee Interlocks and Insider Participation
Mr. Clemens, HAI's Chairman of the Board and Mr. Ashker, HAI's
President and Chief Executive Officer, were members of the
Executive/Compensation/Nominating Committee; however, they do not vote upon any
matters relating to their compensation, fringe benefits, or with respect to the
granting of any stock options to them.
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Certain Relationships and Related Transactions
Alvin H. Clemens, Chairman of HAI and HealthAxis, is the largest
shareholder of HAI. As of September 30, 2000, Mr. Clemens owned, either directly
or indirectly (but not including shares for which Mr. Clemens disclaims
beneficial ownership), 2,479,500 shares of HAI common stock (including the right
to acquire 683,534 shares of common stock pursuant to the exercise of stock
options), or 18.2% of HAI's common stock. In addition, in connection with the
sale of PILIC, HAI transferred 100,000 shares of HealthAxis Series A preferred
stock acquired from PILIC to AHC Acquisition, Inc., a company owned by Mr.
Clemens. Additionally, Mr. Clemens owns a 2% convertible debenture that is
convertible into 185,185 shares of HAI common stock and a related warrant to
purchase 12,291 shares of HAI common stock at $3.01 per share.
Effective February 19, 1997, HAI and Mr. Clemens entered into a new
employment agreement which replaced Mr. Clemens' prior employment contract dated
as of January 1, 1993. The employment agreement was amended on July 28, 1999 to
change Mr. Clemens' executive position from Chief Executive Officer to Chairman
of the Board of Directors. Mr. Clemens' contract entitled him to an annual cost
of living increase, and additional incentive or bonus compensation as deemed
appropriate from time to time by the board of directors of HAI. 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 restrictions on Mr. Clemens competition and disclosure of
confidential information.
Effective August 15, 2000, Mr. Clemens, HealthAxis and HAI entered into
a termination agreement of Mr. Clemens' current employment contract. Pursuant to
the terms of the termination agreement, Mr. Clemens waived his right to all
compensation and fringe benefits under his employment contract. Mr. Clemens also
agreed to a general release of any and all claims against HealthAxis and HAI and
to abide by non-competition and confidentiality provisions set forth in the
termination agreement. Under the terms of Mr. Clemens' termination agreement,
Mr. Clemens will receive $106,250 quarterly over five years for an aggregate
payment of $2,125,000, subject to limitations described below. HAI may, at its
option, make the quarterly payments due to Mr. Clemens in shares of HAI common
stock based on the average trading price of HAI common stock over a 20 day
trading period immediately before the date the payment is due, provided that,
the number of shares issued for any quarterly payment may not exceed 35,416
shares and the aggregate number of shares paid over the five year period may not
exceed 500,000 shares. Mr. Clemens may receive all or a portion of each such
quarterly payment in cash. Once Mr. Clemens has received 500,000 shares or their
cash equivalent, HAI will have no further payment obligation to him even if the
total amount received by him is less than $2,125,000. The first quarterly
payment will be payable upon the earlier of the consummation of the HAI merger,
or June 30, 2001. The termination agreement provides Mr. Clemens with piggy-back
registration rights for any shares of HAI common stock that are issued to him
pursuant to the terms of the termination agreement. The termination agreement
also provides that HealthAxis will employ Mr. Clemens as Chairman of HealthAxis.
Mr. Clemens' employment will be at will and not pursuant to the terms of any
employment contract and his compensation will consist of $100,000 per year,
benefits generally available to HealthAxis' employees and a bonus, if any, as
determined by the HealthAxis Board of Directors. Pursuant to a separate letter
agreement, HealthAxis has agreed to provide health insurance for Mr. Clemens and
his family, use of an office, automobile and secretarial support. HAI also
extended the period of exercise of Mr. Clemens' 397,198 stock options for an
additional three years through July 7, 2006. Except for the general release of
HealthAxis which is effective as of August 15, 2000, the termination agreement
becomes effective upon consummation of the HAI merger. If the HAI merger is not
consummated by June 30, 2001, all of the terms of the termination agreement,
except for the release of HealthAxis, will be void, and Mr. Clemens' amended
employment agreement would again be in effect.
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In a letter agreement dated September 29, 2000, the trustees of a trust
established by Mr. Clemens for the benefit of his spouse and children agreed
that on or before December 31, 2000, the trust would either pay HAI the cash
surrender value of two split dollar life insurance policies held by it or would
execute all necessary paperwork to allow HAI to surrender the policies and
receive the cash surrender value of the policies from the insurance companies
which issued them. The cash surrender value of these two split dollar policies
was approximately $327,000 on the date of this letter agreement with HAI. Upon
the receipt of the cash surrender value by HAI, its split dollar plan and
agreement with Mr. Clemens, his spouse and the trust, dated March 17, 1993 and
amended in April 1996, would be terminated.
Pursuant to agreements regarding Mr. Clemens' stock options effective
as of September 9, 1999 between HAI and Mr. Clemens, Mr. Clemens:
o assigned his rights to acquire up to an additional 3,300,000
shares pursuant to the March 10, 1997 agreement to HAI,
o released and assigned all of his right in and to options to
purchase 152,802 shares of HAI's preferred stock to HAI, and
o amended the options to purchase the remaining 397,198 shares
to eliminate the right to exercise all options to purchase any
HAI preferred stock and to retain only the right to receive
HAI common stock upon the exercise of the options.
Michael Ashker, a director and the President and Chief Executive
Officer of HealthAxis and HAI, beneficially owns 394,776 shares of HAI's common
stock (including options granted pursuant to HAI's stock option plans and
warrants and shares of HAI common stock, as described below). Mr. Ashker has
been granted options to purchase 991,000 shares of the HealthAxis common stock
at an exercise price of $1.77, all of which are currently exercisable. Mr.
Ashker was also awarded options to purchase 145,000 shares of HealthAxis common
stock at an exercise price of $5.77 and 55,000 shares of HealthAxis' common
stock at an exercise price of $3.31 that are exercisable over a two year period
commencing in April, 1999 and November 1999.
As of December 31, 1999, Mr. Ashker resigned as sole manager of Lynx
Capital Group, LLC which acts as an investment advisor to and general partner of
Lynx Tech Fund, LP, an investment limited partnership. At the same time, Lynx
Capital Group, LLC transferred the 400,000 currently exercisable warrants to
purchase HAI common stock granted pursuant to a consulting agreement between HAI
and Lynx Capital Group, LLC to Mr. Ashker, Deidre Holt, George Stephenson,
Andrew Felder and Kenneth Brown. Lynx Capital Group, LLC transferred warrants to
purchase 300,000 shares of HAI common stock to Mr. Ashker, warrants to purchase
25,000 shares of HAI common stock to Ms. Holt, warrants to purchase 30,000
shares of HAI common stock to Mr. Felder, warrants to purchase 15,000 shares of
HAI common stock to Mr. Stephenson and warrants to purchase 5,000 shares of HAI
common stock to Mr. Brown. Effective December 14, 2000, the conversion price of
the warrants transferred to Messrs. Ashker, Felder, Brown and Stephenson and Ms.
Holt were repriced from $4.516 per share to $3.00 per share and the expiration
date extended for a three year period following the respective expiration
dates of these warrants. Mr. Brown is currently the sole manager of Lynx Capital
Group, LLC. Mr. Brown is also a registered representative of First Security Van
Kasper, a broker-dealer and has discretion over brokerage accounts that are
invested in HAI common stock. Mr. Ashker was formerly a registered
representative of First Security Van Kasper. Edward W. LeBaron, Jr., who is
currently serving as a director of HAI and HealthAxis, also resigned as a member
of Lynx Capital Group, LLC as of December 31, 1999. In a Form 4, filed on
December 9, 1999, Mr. LeBaron reported that he beneficially owned 33,571 shares
of HAI common stock. In a Schedule 13D dated February 14, 2000, Lynx Capital
Group, LLC reported shared voting and dispositive power with Lynx Tech Fund LP
over 323,300 shares. Mr. Brown reported sole voting and dispositive power over
5,000 shares of HAI common stock and shared voting and dispositive power over
323,300 shares of HAI common stock. Additionally, First Security Van Kasper
reported shared voting and dispositive power over 175,000 shares of HAI common
stock.
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As of November 13, 1998, Lynx Private Equity Partners I, LLC purchased
250,000 shares of HAI common stock for an aggregate purchase price of $875,000.
Mr. LeBaron was the sole manager of Lynx Private Equity Partners I, LLC.
Pursuant to the limited liability company agreement of Lynx Private Equity
Partner I, LLC, Mr. Ashker had the authority to vote the shares of HAI held by
Lynx Private Equity Partners I, LLC. On November 11, 1999, Lynx Private Equity
Partners I, LLC dissolved and transferred its shares of HAI common stock to Mr.
Ashker, Mr. LeBaron and Lynx Tech Fund, LP. These shares transferred by Lynx
Private Equity Partners I, LLC are included in the beneficial ownership
discussed above.
In addition, Messrs. Ashker and Clemens, by virtue of their positions
as trustees of two voting trusts, have shared voting power with the other
trustees over 19.4% of HealthAxis' outstanding capital stock.
Michael F. Beausang, Jr., Esquire, former Director of HealthAxis and
HAI, is a partner in the law firm of Butera, Beausang, Cohen & Brennan. This law
firm performs legal services for HealthAxis and HAI and in 1999, HAI paid Butera
Beausang Cohen & Brennan $497,308.
In light of the need to devote capital and focus to HealthAxis, the
continued losses experienced in HAI's group medical insurance products and HAI's
goal to no longer be regulated as an insurance holding company, HAI entered into
various agreements to sell some of PILIC's subsidiaries, together with its group
medical and life insurance business, during 1998 and to sell PILIC during 1999.
Due to PILIC's long term obligations to existing insurance policy holders and
Pennsylvania and other state insurance laws and regulations, HAI would not be
able to dispose of PILIC's operations through voluntary liquidation but could
pursue a sale of PILIC. For additional background regarding the reasons for this
transaction see "Chapter I - The Merger -- Information Concerning HAI."
On August 16, 1999, HAI entered into an agreement which provided for
AHC Acquisition, Inc., a company solely owned by Mr. Clemens, to acquire PILIC,
HAI's insurance subsidiary, for an aggregate payment by HAI of $14.7 million to
PILIC. The $14.7 million payment to PILIC corresponds to the amount of capital
that was required to satisfy PILIC's deficiency under insurance regulations and
that would allow HAI to dispose of PILIC's insurance operations and liabilities.
This transaction was completed on November 30, 1999. In accordance with the
terms of the stock purchase agreement, HAI:
o purchased HAI's headquarters located at 2500 DeKalb Pike from
PILIC for its book value of $4.7 million;
o agreed to exercise its option to purchase 545,916 shares of
HealthAxis Series A preferred stock from PILIC for $2.8
million (HAI made the $2.8 million payment for the shares of
HealthAxis Series A preferred stock pursuant to the option
agreement between HAI and PILIC and the payment equates to a
$4.71 price per share. The $4.71 price represented the price
per share paid by PILIC for these shares plus interest at the
rate of 8% per annum thereon from the date of acquisition of
these shares by PILIC through November 30, 1999, the date of
exercise);
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o made a $7.2 million capital contribution from HAI to PILIC in
order to eliminate a statutory deficiency, to enable PILIC to
maintain adequate capital to meet its liabilities including
pay-out obligations under existing insurance policies, and to
provide PILIC with sufficient capital and surplus so that the
Insurance Department of the Commonwealth of Pennsylvania would
grant the required approval of the sale of PILIC; and
o transferred 100,000 shares of the HealthAxis Series A
preferred stock and the associated registration rights
previously granted to PILIC, to AHC Acquisition, Inc.
The terms of the sale of PILIC to AHC Acquisition, Inc. were approved
by the Insurance Department of the Commonwealth of Pennsylvania, the regulatory
agency that oversees insurance company operations in Pennsylvania. The sale of
PILIC was also approved by the disinterested members of the board of directors
of HAI with Mr. Clemens abstaining from voting on this matter.
On September 20, 2000, HAI, Mr. Clemens, UICI and Brown Simpson
Partners I Ltd. entered into a securities purchase agreement with Royal Bank of
Canada, one of the original purchasers, which provided for the purchase of $5.0
million in principal amount of the 2% convertible debenture and warrant to
purchase 36.873 shares of HAI common stock for an aggregate purchase price of
approximately $3.5 million. As a result of this purchase and the amendments to
the debentures and warrants discussed below, each of Mr. Clemens, UICI and Brown
Simpson Asset Management LLC will each hold a 2% convertible debenture, which is
convertible into 185,185 shares of HAI common stock and a warrant to purchase
12,291 shares of HAI common stock at $3.01 per share. In connection with this
transaction and in exchange for the selling debenture holder's release of HAI
for any and all defaults by HAI under the 2% convertible debenture, warrant and
related agreements, HAI issued to the selling debenture holder a warrant for
50,000 shares of HAI common stock at an exercise price of $3.01 per share.
On September 28, 2000, HAI entered into an Amendment to the Securities
Purchase Agreement dated September 14, 1999 between HAI and the holders of HAI's
$27.5 million 2% convertible debentures due September 14, 2002 including Mr.
Clemens and UICI. In accordance with the terms of the Amendment, upon
consummation of the HAI merger, the terms of the debentures will be amended to,
among other things, extend the maturity of the debentures to September 14, 2005,
to change the conversion price to $9.00 per share and to modify the events of
default. Based upon the revised conversion price upon the closing of this
transaction, the amended debentures will be convertible into 3,055,555 shares of
HAI's common stock. The terms of the warrants to purchase 202,802 shares of
HAI's common stock issued to the purchasers of the debentures were also amended
to reduce the exercise price to $3.01 and to extend the exercise period of the
warrants for an additional year, or until September 13, 2005. In addition, as
part of this transaction, HAI and the holders of the debentures intend to enter
into an Amended and Restated Registration Rights Agreement. HAI renegotiated the
terms of these agreements in order to extend the maturity dates of the
debentures and to obtain a conditional waiver which suspends any and all past or
current defaults or violations arising under the debenture or the registration
rights agreement from September 28, 2000 through the closing date of the HAI
merger, and precludes the holders from enforcing any and all past, current or
future defaults or violations by HAI arising under the original terms of the
debentures or the registration rights agreement from September 28, 2000 through
the closing date of the HAI merger. For additional information regarding this
transaction and the conditional waiver, see "Chapter I -- The Merger -- Recent
Developments."
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In 1996, HAI made a loan to Alvin H. Clemens, then Chairman and Chief
Executive Officer of HAI in the original principal amount of $300,000,
collateralized by 100,000 shares of HAI'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 with 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 HAI'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 owned to HAI in the amount of $649,055 on
September 29, 1999.
In addition to the loan to Mr. Clemens, HAI had a loan receivable from
Mr. John Gillin, a former director and shareholder of HAI, which was
collateralized by 10,000 shares and a stock option grant. Mr. Gillin's loan was
repaid in full during January 1999.
The following table details the loans to Mr. Clemens and Mr. Gillin
at December 31, 1999:
Mr. Clemens Mr. Gillin
----------- ----------
Amounts due at December 31, 1999
Loan principal $ -- $ --
Accrued interest $ -- $ --
Highest outstanding balance $681,433 $165,723
1999 Interest income $ 23,851 $ --
Interest Rate 5.75% 8.50%
For information regarding transactions with UICI, see "Chapter III -
Other HealthAxis Annual Meeting Proposals - Item 1 - Election of Directors -
Relationship with UICI" and " - Certain Transactions."
Effective February 1, 2001, Michael Ashker will become Chairman of
HealthAxis and HAI and will resign as President and Chief Executive Officer of
these entities. Pursuant to the severance agreement entered into between Mr.
Ashker and HAI and HealthAxis, Mr. Ashker will continue to be compensated at his
current annual salary of $200,000 from February 1, 2001 through March 31, 2001
at which time Mr. Ashker will transition to a role as non-executive Chairman.
Effective April 1, 2001, Mr. Ashker will receive a 12 month consulting agreement
for an aggregate payment of $180,000. In the event Mr. Ashker leaves the Board
of Directors at any time during the 12 month term of the consulting agreement,
Mr. Ashker may accelerate the consulting agreement and receive any outstanding
balance due under such agreement in a lump sum payment. In addition, under the
terms of the severance agreement, Mr. Ashker will receive medical insurance
coverage at the current contribution rate for a period of six months following
March 31, 2001. If the severance amount payable under the agreement is paid in a
lump sum, Mr. Ashker shall receive an additional payment equal to six months of
medical insurance premiums at the current contribution rate. Under the terms of
the severance agreement, Mr. Ashker will also be entitled to reimbursement of
all reasonable and necessary business expenses incurred while Chairman, the use
of company leased automobile through June 30, 2001 and the use of the company
paid apartment through March 31, 2001. Effective July 1, 2001, Mr. Ashker will
assume payments on the automobile through November 30, 2001, the lease
termination date. Mr. Ashker may retain his laptop computer, desktop printer,
and cell phone.
In addition, pursuant to the terms of the severance agreement, all stock
options previously granted to Mr. Ashker will be fully vested and the
post-termination exercise period of these options extended for a three-year
period commencing upon Mr. Ashker's termination of employment as a director,
employee or consultant of HealthAxis. HAI also agreed to register all shares
underlying the options on a registration statement on Form S-8. In addition, if
during the three year post termination exercise period, Mr. Ashker is unable to
sell the shares acquired upon the exercise of his options because the Form S-8
is not effective, Mr. Ashker will be entitled to piggyback registration rights
each time HAI files a registration statement.
<PAGE>
Effective February 1, 2001, Andrew Felder will resign as Executive Vice
President - Strategy and Corporate Development of HealthAxis and HAI. Pursuant
to the terms of the severance arrangement entered into between Mr. Felder and
HAI and HealthAxis, Mr. Felder will continue to be compensated at his current
annual salary of $140,000 through January 31, 2001. Effective February 1, 2001,
Mr. Felder shall receive a payment of $70,000, payable in equal semi-monthly
installments over a six month period or a lump sum payment of $70,000, as
determined by HealthAxis, as well as the continuation of medical insurance
benefits at the current rate for a period of six months from February 1, 2001.
Under the terms of the Severance Agreement, Mr. Felder is entitled to retain his
laptop computer, desktop printer, and cell phone, however, Mr. Felder, is
required to assume all payments for cell phone use after January 31, 2001. The
severance agreement also provides for reimbursement to Mr. Felder for all
reasonable and necessary HealthAxis business-related expenses incurred by him up
to and including January 31, 2001.
In addition, pursuant to the terms of the severance agreement, all stock
options previously granted to Mr. Felder will be fully vested and the
post-termination exercise period of these options extended for a three-year
period following February 1, 2001. HAI also agreed to register all shares
underlying the options on a registration statement on Form S-8. If during the
three year post termination exercise period, Mr. Felder is unable to sell the
shares acquired upon the exercise of his options because the Form S-8 is not
effective, Mr. Felder will be entitled to piggyback registration rights each
time HAI files a registration statement.
HAI also agreed to the repricing of warrants to purchase 375,000 shares
of HAI common stock assigned by Lynx Capital to Mr. Ashker, Mr. Felder and
others, from $4.516 to $3.00 per share, and the extension of the expiration
period on all such warrants for a three year period following their respective
expiration dates.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act ("Section 16(a)") requires HAI's
directors, executive officers, and persons who own more than 10% of a registered
class of HAI's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of HAI. Officers, directors and greater than 10% stockholders are
required by SEC regulation to furnish HAI with copies of all Section 16(a) forms
they file.
To HAI's knowledge, based solely on a review of the copies of such
reports furnished to HAI and written representations that no other reports were
required, during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
118
<PAGE>
Executive Compensation
The following table provides information relating to the chief
executive officer and the most highly compensated executive officers of HAI and
HealthAxis whose total annual salary and bonus exceeded $100,000 during fiscal
1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
------------------------------------------ ------------ ---------------
Securities
Underlying
Name and Other Annual Options All Other
Principal Salary Bonus Compensation (#HAI/ Compensation(1)
Position Year ($) ($) ($) HealthAxis) ($)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael Ashker, 1999 $120,000 $ 50,000 -- 5,000/200,000 (3) --
CEO and President of HAI 1998 $92,308 -- -- $ 80,000
and HealthAxis (2) -- 0/991,000 (4)
Alvin H. Clemens, 1999 $413,184 -- -- -- $ 17,764
Chairman of the Board of HAI 1998 $413,896 -- -- 0/309,000 (5) $ 17,714
and HealthAxis (6) 1997 $417,453 $ 305,850 -- -- $ 18,288
Andrew Felder, 1999 $120,000 -- -- 0/75,000(4) $ 10,000
Executive VP-Strategy and 1998 $ 64,615 -- -- 0/175,000(4) --
Corporate Development
of HealthAxis and HAI (7)
Francis L. Gillan III 1999 $110,000 -- -- 20,000/0 (9) $ 3,579
CFO and Treasurer of HAI (8)
Anthony R. Verdi, 1999 $150,000 -- -- $ 44,941
COO of HAI and CFO of 1998 $151,392 -- -- 25,000/5,000(11) $ 10,144
HealthAxis (10) 1997 $151,335 -- -- -- $ 9,295
</TABLE>
(1) Includes for 1999, 1998 and 1997, respectively, (a) HAI contributions to
savings plan (Mr. Clemens $4,000, $4,000 and $4,000; Mr. Gillan $3,579, Mr.
Verdi $3,461, $3,317 and $3,595), (b) HAI automobile expense allowances
(Mr. Clemens $11,280, $11,280 and $11,998; and Mr. Verdi $5,700, $5,700 and
$5,700), (c) consulting fees (Mr. Ashker $80,000, and Mr. Felder $10,000)
and (d) payout of accumulated vacation (Mr. Verdi $34,615).
(2) Mr. Ashker joined HealthAxis as President and Chief Executive Officer on
April 1, 1998 and became President and Chief Executive Officer of HAI in
August, 1999. Effective February 1, 2001, Mr. Ashker will assume the
position of Chairman of HAI and HealthAxis and James McLane will become
President and Chief Executive Officer of HAI and HealthAxis. In 1999, Mr.
Ashker was paid $120,000 as a salary by HealthAxis and other annual
compensation of $80,000 by HAI. In 1998, all of Mr. Ashker's annual
compensation was paid by HealthAxis.
(3) Includes options to purchase 200,000 shares of HealthAxis common stock and
an option to purchase 5,000 shares of the HAI.
(4) Represents options to purchase HealthAxis common stock.
(5) Mr. Clemens was granted options to purchase 309,000 shares of HealthAxis
common stock, however, these grants to Mr. Clemens were terminated
during 1999.
(6) Mr. Clemens received a salary during 1999 from HAI but did not receive a
salary from HealthAxis. Effective February 1, 2001, Mr. Clemens will become
Chairman of the Executive Committee of HAI.
(7) During 1999, Mr. Felder's salary of $120,000 was paid by HealthAxis.
In 1998, Mr. Felder also served as a consultant to HAI and was paid
$10,000. Mr. Felder became Executive Vice President of HAI on
April 1, 2000.
(8) Mr. Gillan became Chief Financial Officer and Treasurer of HAI on
January 14, 1999. Mr. Gillan resigned as Chief Financial Officer and
Treasurer of HAI as of April 1, 2000.
(9) Represents options to purchase shares of HAI common stock.
(10) Mr. Verdi joined HealthAxis as its Chief Financial Officer and Treasurer
on December 1, 1999. In 1999, Mr. Verdi received his annual salary and
other annual compensation from HAI. Mr. Verdi became Chief Financial
Officer and Treasurer of HAI as of April 1, 2000.
(11) Includes options to purchase 25,000 shares of HAI common stock and 5,000
shares of HealthAxis common stock.
119
<PAGE>
The following individuals were not included in the above chart because
they did not receive compensation in excess of $100,000 from HealthAxis or HAI
during fiscal 1999: Michael G. Hankinson joined HealthAxis as Vice President and
General Counsel in April, 1999. Mr. Hankinson became Vice President, General
Counsel and Assistant Secretary of HAI on April 1, 2000. In 1999, Mr. Hankinson
was granted options to purchase 50,000 shares of HealthAxis common stock at
$5.77 per share and 10,000 shares of HealthAxis common stock at $3.31 per share.
Dennis B. Maloney became HealthAxis' Chief Operating Officer in January, 2000.
In 1999, Mr. Maloney served as President and Chief Executive Officer of
Insurdata Incorporated and was paid $240,000 in salary and $17,048 in additional
compensation. HealthAxis expects that these individuals will be paid
compensation in excess of $100,000 during fiscal 2000. Richard Grehalva joined
HealthAxis and HAI as an Senior Vice President in November 2000. HealthAxis
expects that Mr. Grehalva will be paid compensation in excess of $100,000 during
fiscal 2001.
Employment Agreement and Employment Arrangement
Effective February 19, 1997, HAI and Mr. Clemens entered into a new
employment agreement which replaced Mr. Clemens' prior employment contract dated
as of January 1, 1993. The employment agreement was amended on July 28, 1999 to
change Mr. Clemens' executive position from Chief Executive Officer to Chairman
of the Board of Directors and to add HealthAxis as a party. The agreement
provided for an annual cost of living increase and additional incentive or bonus
compensation as deemed appropriate from time to time by the board of directors
of HAI. The agreement further provided 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 restrictions on Mr. Clemens competition and
disclosure of confidential information, along with options to purchase 50,000
shares of HAI's common stock granted under HAI's Non-Qualified Option Plan for
Directors and the 1996 Employee Incentive Stock Option Plan which were
subsequently terminated.
Effective August 15, 2000, Mr. Clemens, HealthAxis and HAI entered into
a termination agreement of Mr. Clemens' current employment contract. Pursuant to
the terms of the termination agreement, Mr. Clemens waived his right to all
compensation and fringe benefits under his employment contract. Mr. Clemens also
agreed to a general release of any and all claims against HealthAxis and HAI and
to abide by non-competition and confidentiality provisions set forth in the
termination agreement. Under the terms of Mr. Clemens' termination agreement,
Mr. Clemens will receive $106,250 quarterly over five years for an aggregate
payment of $2,125,000, subject to limitations described below. HAI may, at its
option, make the quarterly payments due to Mr. Clemens in shares of HAI common
stock based on the average trading price of HAI common stock over a 20 day
trading period immediately before the date the payment is due, provided that,
the number of shares issued for any quarterly payment may not exceed 35,416
shares and the aggregate number of shares paid over the five year period may not
exceed 500,000 shares. Mr. Clemens may receive all or a portion of each such
quarterly payment in cash. Once Mr. Clemens has received 500,000 shares or their
cash equivalent, HAI will have no further payment obligation to him even if the
total amount received by him is less than $2,125,000. The first quarterly
120
<PAGE>
payment will be payable upon the earlier of the consummation of the HAI merger,
or June 30, 2001. The termination agreement provides Mr. Clemens with piggy-back
registration rights for any shares of HAI common stock that are issued to him
pursuant to the terms of the termination agreement. The termination agreement
also provides that HealthAxis will employ Mr. Clemens as Chairman of HealthAxis.
Mr. Clemens' employment will be at will and not pursuant to the terms of any
employment contract and his compensation will consist of $100,000 per year,
benefits generally available to HealthAxis' employees and a bonus, if any, as
determined by the HealthAxis Board of Directors. Pursuant to a separate letter
agreement, HealthAxis has agreed to provide health insurance for Mr. Clemens and
his family, use of an office, automobile and secretarial support. Except for the
general release of HealthAxis which is effective as of August 15, 2000, the
termination agreement becomes effective upon consummation of the HAI merger. If
the HAI merger is not consummated by June 30, 2001, all of the terms of the
termination agreement, except for the release of HealthAxis, will be void, and
Mr. Clemens' amended employment agreement would again be in effect.
HAI also extended the period of Mr. Clemens' 397, 198 stock options for
an additional three years through July 7, 2006.
In a letter agreement dated September 29, 2000, the trustees of a trust
established by Mr. Clemens for the benefit of his spouse and children agreed
that on or before December 31, 2000, the trust would either pay HAI the cash
surrender value of two split dollar life insurance policies held by it or would
execute all necessary paperwork to allow HAI to surrender the policies and
receive the cash surrender value of the policies from the insurance companies
which issued them. The cash surrender value of these two split dollar policies
was approximately $327,000 on the date of this letter agreement with HAI. Upon
the receipt of the cash surrender value by HAI, its split dollar plan and
agreement with Mr. Clemens, his spouse and the trust, dated March 17, 1993 and
amended in April 1996, would be terminated.
Pursuant to the terms of an agreement entered by HealthAxis and James
McLane, effective February 1, 2001, James McLane will assume the positions of
President and Chief Executive Officer of HAI and HealthAxis at an annual salary
of $325,000, subject to review and adjustment annually by the boards of
directors. Mr. McLane will be an "at-will" employee and will not receive health
benefits from HealthAxis. Mr. McLane will be eligible to participate in
HealthAxis' disability and group life and 401(k) Plan and to participate in any
bonus or incentive plan adopted by HealthAxis with a bonus target equal to 50%
of annual base salary. The agreement also provides for the reimbursement of Mr.
McLane for all reasonable and necessary business and travel related expenses
incurred by Mr. McLane, and the use of an apartment in Dallas, Texas during his
service to HealthAxis. The agreement contemplates that Mr. McLane will be
compensated by HealthAxis prior to the closing of the HAI merger, at which time
HAI and HealthAxis will be jointly and severally responsible for payment of Mr.
McLane's compensation.
In addition, HealthAxis agreed to grant Mr. McLane incentive stock
options to purchase 550,000 shares of HealthAxis common stock at an exercise
price of $4.00 per share. Of this amount, options to purchase 250,000 shares are
immediately exercisable and options to purchase the remaining 300,000 shares
vest at a rate of 75,000 shares per year commencing on the first anniversary of
the grant date. These options have a term of five years. The vesting of these
options accelerates in the event of a change in control of HealthAxis, as
defined in the 1998 Stock Option Plan or if Mr. McLane is not retained as Chief
Executive Officer and is asked to resign from the board, other than for cause.
121
<PAGE>
Option Grants in 1999
The following table sets forth information regarding options granted to
the Chief Executive Officer and each of the most highly compensated executive
officers of HAI and HealthAxis whose total annual salary and bonus exceeded
$100,000 during fiscal 1999:
HealthAxis Inc. and HealthAxis.com, Inc.
Option Grants in 1999
<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
Name Granted Employees $/Share Date -------------------------
---------------------------------- ------------ ----------- --------- ----------- 5% 10%
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael Ashker 5,000 (1) 1.12% $ 7.50 3/4/09 $ 24,093 $ 60,576
President and CEO of 145,000 (2) 9.51% 5.77 4/26/09 526,165 1,333,405
HAI and HealthAxis 55,000 (2) 3.61% 12.00(3) 11/22/09 415,070 1,051,870
Alvin Clemens -- -- -- -- -- --
Chairman of HAI and
HealthAxis
Andrew Felder 50,000 (2) 3.28% 5.77 4/26/00 181,436 459,795
Executive VP-Strategy 25,000 (2) 1.64% 12.00 (3) 11/22/09 188,668 478,123
& Corporate Development
of HealthAxis and HAI
Francis L. Gillan III 20,000 (1) 4.50% 7.50 3/4/04 16,753 33,013
CFO of HAI
Anthony R. Verdi
COO of HAI and CFO of 25,000 (1) 5.62% 7.50 3/4/04 91,831 217,772
HealthAxis 5,000 (2) .33% 12.00(3) 12/1/04 37,734 95,625
</TABLE>
---------------
(1) Options granted to purchase HAI common stock.
(2) Options granted under the HealthAxis 1998 Stock Option Plan to purchase
HealthAxis common stock. Each option to purchase one share of HealthAxis
common stock will be converted into an option to purchase 1.334 shares of
HAI common stock upon completion of the HAI merger.
(3) Subsequent to year end, the board of directors of HealthAxis repriced these
options so that the current exercise price is $3.31.
The following individuals were not included in the above chart because
they did not receive compensation in excess of $100,000 from HealthAxis or HAI
during fiscal 1999: Michael G. Hankinson joined HealthAxis as Vice President and
General Counsel in April, 1999. Mr. Hankinson became Vice President, General
Counsel and Assistant Secretary of HAI on April 1, 2000. In 1999, Mr. Hankinson
was granted options to purchase 50,000 shares of HealthAxis common stock at
$5.77 per share and 10,000 shares of HealthAxis common stock at $3.31 per share.
Dennis B. Maloney became HealthAxis' Chief Operating Officer in January, 2000.
In 1999, Mr. Maloney served as President and Chief Executive Officer of
Insurdata Incorporated and was paid $240,000 in salary and $17,048 in additional
compensation. HealthAxis expects that these individuals will be paid
compensation in excess of $100,000 during fiscal 2000. Richard Grehalva joined
HealthAxis and HAI as Senior Vice President in November 2000. HealthAxis expects
that Mr. Grehalva will be paid compensation in excess of $100,000 during fiscal
2001. Effective February 1, 2001, James McLane will become President and Chief
Executive Officer of HAI and HealthAxis at an annual salary of $325,000. Mr.
McLane will also receive options to purchase 550,000 shares of HealthAxis common
stock.
122
<PAGE>
Aggregate Option Exercises in 1999 and Year-End Values
The following table sets forth information regarding option exercises
by the Chief Executive Officer and each of the most highly compensated executive
officers of HAI and HealthAxis whose total annual salary and bonus exceeded
$100,000 during fiscal 1999 as well as the year end values of shares underlying
options:
<TABLE>
<CAPTION>
Number of Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Value Options Options at
Name On Exercise Realized at 12/31/99 12/31/99 (13)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alvin H. Clemens(1)
Chairman of the Board of HAI and HealthAxis
Exercisable (HAI) - - - -
Unexercisable (HAI) - - - -
Michael Ashker
CEO and President of HAI and HealthAxis
Exercisable (HAI) - - 5,000 $115,625
Unexercisable (HAI) - - - -
Exercisable (HealthAxis) - - 1,057,668 $30,138,117 (2)
Unexercisable (HealthAxis) - - 133,332 $ 3,085,538 (3)
Andrew Felder
Executive VP-Strategy and Corporate
Development of HealthAxis and HAI
Exercisable (HealthAxis) - - 140,626 $ 3,877,963 (4)
Unexercisable (HealthAxis) - - 109,374 $ 2,824,287 (5)
Francis L. Gillan III
CFO and Treasurer of HAI
Exercisable (HAI) 17,000 $331,469 (11) 7,500 $ 183,875 (6)
Unexercisable (HAI) - - 23,000 $ 552,750 (7)
Anthony R. Verdi
COO of HAI and CFO of HealthAxis
Exercisable (HAI) 22,000 $578,906 (12) 40,000 $ 992,500 (8)
Unexercisable (HAI) 35,000 $ 841,875 (9)
Exercisable (HealthAxis) - - - -
Unexercisable (HealthAxis) - - 5,000 $ 78,125 (10)
</TABLE>
(1) As of December 31, 1999, the above table excludes non-compensatory stock
options to purchase 1,253,376 shares of common stock at $0.90 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. By letter agreement dated September 9, 1999, the option to
purchase shares of Series A cumulative preferred stock was amended to
eliminate the right to convert these options into any class of securities
of HAI other than HAI's common stock.
(2) Includes options to purchase 991,000 shares, 48,334 shares and 18,334
shares at an exercise price of $1.77, $5.77 and 12.00 per share,
respectively.
(3) Includes options to purchase 96,666 and 36,666 shares of common stock at
an exercise price of $5.77 and $12.00 per share, respectively.
(4) Includes options to purchase 103,125, 12,500, 16,667, and 8,334 shares
of common stock at an exercise price of $1.77, $4.00, $5.77, and $12.00
per share, respectively.
123
<PAGE>
(5) Includes options to purchase 46,875, 12,500, 33,333, and 16,666 shares of
common stock at an exercise price of $1.77, $4.00, $5.77, and $12.00,
respectively. Also includes options to purchase 32,960 shares of HAI
common stock at $.9091 per share which Mr. Clemens owns indirectly.
(6) Includes options to purchase 500, 3,000 and 4,000 shares of common stock
at an exercise price of $5.00, $4.438, and $7.50 per share, respectively.
(7) Includes options to purchase 1,000, 6,000 and 16,000 shares of common
stock at an exercise price of $5.00, $4.438, and $7.50 per share,
respectively.
(8) Includes options to purchase 15,000, 20,000 and 5,000 shares of common
stock at an exercise price of $5.00, $6.00 and $7.50 per share,
respectively.
(9) Includes options to purchase 15,000, 5,000 and 20,000 shares of common
stock at an exercise price of $5.00, $6.00 and $7.50 per share,
respectively.
(10) Includes options to purchase 5,000 shares of HealthAxis common stock at
$3.31 per share.
(11) Includes the exercise of options for 1,000, 6,000 and 10,000 shares of
common stock at an exercise price of $5.00, $4.4375 and $8,0625,
respectively.
(12) Includes the exercise of options for 22,000 shares of common stock at an
exercise price of $3.125 per share.
(13) Subsequent to year end, the HealthAxis board of directors approved the
repricing of 1,773,050 options to purchase HealthAxis common stock, which
had originally been granted at $12.00 and $15.00 per share. The new
exercise price of these options is $3.31 per share, which was the
closing market price of HAI's common stock as of the date of the
repricing. The information in this table and these footnotes do not
reflect the new $3.31 exercise price.
The following individuals were not included in the above chart because
they did not receive compensation in excess of $100,000 from HealthAxis or HAI
during fiscal 1999: Michael G. Hankinson joined HealthAxis as Vice President and
General Counsel in April, 1999. Mr. Hankinson became Vice President, General
Counsel and Assistant Secretary of HAI on April 1, 2000. In 1999, Mr. Hankinson
was granted options to purchase 50,000 shares of HealthAxis common stock at
$5.77 per share and 10,000 shares of HealthAxis common stock at $3.31 per share.
Dennis B. Maloney became HealthAxis' Chief Operating Officer in January, 2000.
In 1999, Mr. Maloney served as President and Chief Executive Officer of
Insurdata Incorporated and was paid $240,000 in salary and $17,048 in additional
compensation. HealthAxis expects that these individuals will be paid
compensation in excess of $100,000 during fiscal 2000. Richard Grehalva joined
HealthAxis and HAI as an Senior Vice President in November 2000. HealthAxis
expects that Mr. Grehalva will be paid compensation in excess of $100,000 during
fiscal 2001.
124
<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
HAI'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, 1995:
________________________________________________________________________________
Compare 5-Year Cumulative Total Return
Among HealthAxis Inc.
NASDAQ Market Index and MG Group Indexes
[GRAHIC OMITTED]
________________________________________________________________________________
Assumes $100 Invested on January 1, 1995
Assumes Dividend Reinvested
Fiscal Year Ended December 31, 1999
<TABLE>
<CAPTION>
Company/Index/Market 1995 1996 1997 1998 1999
-------------------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
HAI............................... $ 100.00 $ 189.84 $ 32.21 $ 135.60 $ 477.16
Life Insurance.................... 100.00 127.51 187.83 278.58 252.73
Accident/Health Insurance......... 100.00 132.71 163.02 174.43 143.73
NASDAQ Market Index............... 100.00 124.26 152.00 214.39 378.12
</TABLE>
125
<PAGE>
Stock Ownership of Directors, Nominees and Officers of HAI
The following table sets forth, as of September 30, 2000, the amount
and percentage of HAI's outstanding common stock beneficially owned by:
o each person who is known by HAI to be the beneficial owner of more
than 5% of HAI's outstanding common stock;
o each director or director nominee;
o each executive officer; and
o all officers and directors of HAI as a group.
The following tables also sets forth the number of shares beneficially
owned by those persons after the HAI merger , as if the HAI merger was completed
on September 30, 2000.
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------------------
No. of Shares
No. of Shares Beneficially Owned
Beneficially Percent of After
Name of Beneficial Owner Owned (1)(2) Class Reorganization(2) Percent of Class
----------------------------------- ------------- ---------- -------------------- ----------------
<S> <C> <C> <C> <C>
Alvin H. Clemens(3) 2,676,976(4) 18.0% 6,035,021(4)(5)(6)(7) 11.3%
18.2%
907 Exeter Crest
Villanova, PA 19085
Michael Ashker 394,776(8) 2.9% 13,745,464(6)(8)(9)(10) 25.2%
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Harold M. Davis 175,000(11) 1.3% 175,000(11) (*)
c/o Realen Properties
1000 Chesterbrook Blvd.
Suite 100
Berwyn, PA 19312
Henry G. Hager 65,000(12) (*) 3,289,645(6)(12) 6.2%
7 Jorrocks Lane
Malvern, PA 19355
Patrick J. McLaughlin -- (*) -- (*)
c/o Emerald Capital Group, Ltd.
100 Cretwind Dr.
Suite 202
Rosemont, PA 19010
George W. Karr, Jr. 77,000(13) (*) 77,000(13) (*)
Karr Barth Associates, Inc.
40 Monument Road
Bala Cynwyd, PA 19004-1797
Edward W. LeBaron, Jr. 43,571(14) (*) 11,849,930(6)(9)(14) 22.5%
Lynx Private Equity Partners, LLC
2601 Fair Oaks Boulevard, Suite 150
Sacramento, CA 95864
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------------------
No. of Shares
No. of Shares Beneficially Owned
Beneficially Percent of After
Name of Beneficial Owner Owned (1)(2) Class Reorganization(2) Percent of Class
----------------------------------- ------------- ---------- -------------------- ----------------
<S> <C> <C> <C> <C>
Dennis B. Maloney 1,000 (*) 9,647,246(9)(15) 18.3%
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Theophile J. Mignatti, Jr. 35,000(3)(16) (*) 35,000(16) (*)
Mignatti Companies
2310 Terwood Drive, P.O. Box 249
Huntingdon Valley, PA 19006
P. Glenn Moyer 51,100(17) (*) 51,100(17) (*)
P.O. Box 438
9 Main Street
Souderton, PA 18964
Greg Mutz -- (*) -- (*)
c/o UICI
4001 McEwen Drive, Suite 200
Dallas, TX 75244
James W. McLane -- -- 333,500(18) (*)
880 Lesley Road
Villanova, PA 19085
Andrew Felder 30,000(19) (*) 320,428(19)(20) (*)
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Richard Grehalva -- (*) -- (*)
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Michael G. Hankinson -- (*) 53,695(21) (*)
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Anthony R. Verdi 107,474(22) (*) 114,144(22) (*)
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Taunus Corporation 760,803(23) 5.8% 760,803(23) 1.4%
31 West 52nd Street
New York, NY 10019
Brown Simpson Partners I, Ltd. 1,317,145(24) 9.9% 3,798,019(25) 7.0%
152 West 57th Street, 40th Floor
New York, NY 10019
LBI Group 1,184,857(26) 8.3% 2,207,591(26)(27) 4.1%
c/o Lehman Brothers
3 World Financial Group
New York, NY 10285
All directors and officers as a group 3,655,897(28) 25.0% 18,551,710(28) 33.0%
(16 persons)
</TABLE>
127
<PAGE>
--------------------------------------------
(*) Less than 1%.
(1) Share information is based upon 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) Mr. Clemens' daughter is married to Mr. Mignatti's son.
(4) Includes 1,795,966 shares of HAI common stock owned by Mr. Clemens and
683,534 shares of HAI common stock subject to options granted to Mr.
Clemens, all of which are currently exercisable. Of such amount, options to
purchase 253,376 shares and 397,198 shares have been granted at exercise
prices of $0.91 and $3.64, respectively. Options to purchase 32,960 shares
of HAI common stock were granted at $.9091 per share which Mr. Clemens owns
directly. Mr. Clemens disclaims beneficial ownership of 616,000 shares of
HAI common stock given by him to the Mark Twain Trust in 1991 and 967,040
options to purchase additional shares of HAI common stock owned by a
partnership in which Mr. Clemens is a partner.
(5) Includes 133,400 shares of common stock held by AHC Acquisition, Inc. in
connection with the sale of PILIC.
(6) Includes 3,224,6456 shares of common stock which are held in a voting trust
and will be issued to some employees of the former Insurdata Incorporated
and other UICI subsidiaries pursuant to the terms of options granted under
the Insurdata Incorporated Founders Plan. The shares held in this trust are
voted by a majority vote of the trustees of the trust who are Messrs.
Ashker, Clemens, LeBaron and Hager.
(7) Includes 185,185 shares which holder would have the right to acquire upon
the conversion of the 2% convertible debentures and 12,291 shares which the
holder has the right to acquire upon exercise of related warrants.
(8) Includes 89,776 shares of common stock owned by Mr. Ashker, 5,000 shares of
common stock subject to options granted at an exercise price of $7.50 under
the HAI Stock Option Plan of Directors and 300,000 shares of common stock
subject to warrants granted at an exercise price of $4.516 which were
assigned to Mr. Ashker from Lynx Capital Group, LLC, which are currently
exercisable.
(9) Includes 8,581,714 shares of common stock which are held in the UICI voting
trust which UICI has sole dispositive power but no voting power. The shares
held in the trust are voted by a majority of the trustees, Mr. Ashker, Mr.
LeBaron and Mr. Maloney.
(10) Includes 1,544,329 shares of common stock subject to options granted which
are currently exercisable. Of such amount, options to purchase 1,321,994
shares, 128,954 shares and 93,381 shares have been granted at exercise
prices of $1.33, $4.33 and $2.48 per share, respectively. Excludes options
to purchase 64,476 shares and 113,389 shares, which have been granted at an
exercise price of $4.33 and $2.48 per share, respectively, which are not
currently exercisable.
(11) Includes 120,000 shares of common stock owned by Mr. Davis and 55,000
shares of common stock subject to options granted under the HAI Stock
Option Plan of Directors, which are currently exercisable. Of such amount,
options to purchase 30,000 shares and 25,000 shares have been granted at
exercise prices of $2.875 and $8.75, respectively.
(12) Includes 10,000 shares of common stock owned by Mr. Hager and 55,000 shares
of common stock subject to options granted under the HAI Stock Option Plan
of Directors, which are currently exercisable. Of such amount, options to
purchase 30,000 shares and 25,000 shares have been granted at exercise
prices of $2.875 and $8.75, respectively.
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(13) Includes 22,000 shares of common stock owned by Mr. Karr and 55,000 shares
of common stock subject to options granted under the HAI Stock Option Plan
of Directors, which are currently exercisable. Of such amount, options to
purchase 30,000 shares and 25,000 shares have been granted at exercise
prices of $2.875 and $8.75, respectively.
(14) Includes 38,571 shares of common stock owned by Mr. LeBaron and 5,000
shares of common stock subject to options granted at an exercise price of
$7.50 under the HAI Stock Option Plan of Directors, which are currently
exercisable at an exercise price of $7.50.
(15) Includes 354,844 shares of common stock owned by Mr. Maloney and 709,688
shares of common stock subject to options granted under the Insurdata
Incorporated Founders Plan which are held in a voting trust and are
currently exercisable at $1.02 per share. Excludes 709,688 shares of common
stock subject to options granted under the Insurdata Incorporated Founders
Plan which are held in a voting trust and are not currently exercisable at
$1.02 per share.
(16) Includes 30,000 shares of common stock owned by Mr. Mignatti and 5,000
shares of common stock subject to options granted at an exercise price of
$7.50 under the HAI Stock Option Plan of Directors, which are currently
exercisable.
(17) Includes 1,100 shares of common stock owned by Mr. Moyer and 50,000 shares
of common stock subject to options granted under the HAI Stock Option Plan
of Directors, which are currently exercisable. Of such amount, options to
purchase 25,000 shares have been granted at exercise prices of $2.875 and
25,000 shares have been granted at exercise prices of $8.75.
(18) Excludes options to purchase 40,020 shares of HAI common stock at $2.25 per
share which are not currently exercisable. Also excludes options to
purchase 400,200 shares of HAI common stock granted subsequent to
September 30, 2000 at an exercise price of $3.00 per share. Includes
options to purchase 333,500 shares of HAI common stock which are currently
exercisable at $3.00 per share.
(19) Includes 30,000 shares of common stock subject to warrants granted at an
exercise price of $4.516 which were assigned to Mr. Felder from Lynx
Capital Group, LLC.
(20) Includes 290,428 shares of HAI common stock subject to options granted to
Mr. Felder which are currently exercisable. Of such amount, options to
purchase 187,593 shares, 25,015 shares, 44,468 shares and 33,351 shares
have been granted at exercise prices of $1.33, $3.00, $4.33 and $2.48,
respectively. Excludes options to purchase 12,507 shares, 8,334 shares,
22,233 shares and 33,349 shares which have been granted at exercise prices
of $1.33, $3.00, $4.33 and $2.48 per share, respectively, which are not
currently exercisable.
(21) Includes 53,695 shares of common stock subject to options granted to Mr.
Hankinson which are currently exercisable. Of such amount, options to
purchase 33,684 shares and 20,011 shares have been granted at exercise
prices of $4.33 and $2.48, respectively. Excludes options to purchase
33,017 shares and 26,679 shares which have been granted at exercise prices
of $4.33 and $2.48 per share, respectively, which are not currently
exercisable.
(22) Includes 49,974 shares of common stock owned by Mr. Verdi and 57,500 shares
of common stock subject to options under the HAI Stock Option Plan of
Directors, which are currently exercisable. Of such amount, options to
purchase 20,000 shares, 25,000 shares and 12,500 shares have been granted
at exercise prices of $5.00, $6.00 and $7.50 per share, respectively.
Excludes options to purchase 5,000 shares and 12,500 shares which have been
granted at exercise prices of $5.00 and $7.50, respectively, which are not
currently exercisable. Includes options to purchase 6,670 shares which have
been granted at an exercise price of $2.48 per share.
(23) Information with regard to Taunus Corporation has been derived from a
Schedule 13G filed by Taunus Corporation and DB Alex. Brown LLC with the
Securities and Exchange Commission on February 14, 2000. Taunus Corp.
reported sole voting power with respect to 760,803 shares of HAI common
stock and sole dispositive power over 760,803 shares of HAI common stock.
DB Alex.Brown LLC reported sole voting and dispositive power with respect
to 678,500 shares of HAI common stock, which are included in the 760,803
shares reported by Taunus Corp.
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(24) Includes 1,230,000 shares of HAI common stock and 87,145 shares of HAI
common stock issuable upon the conversion of 2% convertible debentures and
the exercise of related warrants held by Brown Simpson Partners I, Ltd.
Brown Simpson Asset Management, LLC serves as investment manager to Brown
Simpson Partners I, Ltd. Each of Mitchell D. Kaye, James R. Simpson, Evan
M. Levine and Mathew C. Brown holds a 23.75% interest and Peter D. Greene
holds a 5% interest in Brown Simpson Asset Management, LLC.
(25) Includes 1,230,000 shares of HAI common stock held by Brown Simpson
Partners I, Ltd. and 1,067,200 shares of HAI common stock to be issued in
exchange for HealthAxis common stock in the HAI merger. Also includes
1,500,819 shares of HAI common stock issuable upon conversion of 2%
convertible debentures and exercise of related warrants held by Brown
Simpson Partners I, Ltd., Brown Simpson Partners I, Ltd. was not the
beneficial owner of all of the shares underlying such debentures and
warrants prior to the HAI merger.
(26) Includes 1,111,111 shares of HAI common stock issuable upon conversion of
2% convertible debentures and exercise of related warrants.
(27) Includes 1,022,734 shares of HAI common stock to be issued in exchange for
HealthAxis common stock in the HAI merger.
(28) Prior to completion of the reorganization, HAI's board of directors and
director nominees include Messrs. Clemens, Ashker, Davis, Hager,
McLaughlin, Karr, LeBaron, McLane, Mignatti, Moyer, Maloney and Mutz. Prior
to completion of the reorganization, HAI's executive officers include
Messrs. Ashker, Felder, Hankinson and Verdi. After completion of the
reorganization, HAI's board of directors and executive officers will
include Messrs. Clemens, Ashker, Hager, McLaughlin, LeBaron, Mutz, Maloney,
Felder, Hankinson and Verdi.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF THE
NOMINEES FOR DIRECTOR.
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ITEM 2 - HAI MERGER PROPOSAL
For summary and detailed information regarding the merger proposal, see
Chapter I - "The Merger."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 2.
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ITEM 3 - ADOPTION AND APPROVAL OF AMENDMENTS TO THE AMENDED AND
RESTATED ARTICLES OF INCORPORATION
HAI's Board of Directors has adopted amendments to the amended and
restated articles of incorporation, subject to shareholder approval at the
annual meeting. HAI's Board of Directors also proposed to amend and restate the
amended and restated articles of incorporation to include these changes. The
amendment and restatement of articles of incorporation submitted to shareholders
for their approval will:
o Increase the number of authorized shares of capital stock to
2,000,000,000;
o Increase the number of authorized shares of common stock to
1,900,000,000;
o Eliminate the Class A common stock;
o Increase the number of authorized shares of preferred stock to
100,000,000;
o Provide that special meetings of the shareholders may only be
called by the Board of Directors, the Chairman or the Chief
Executive Officer of HAI;
o Increase the shareholder vote required to remove a director
for cause and eliminate the ability of shareholders to remove
a director without cause;
o Increase the shareholder vote required to approve an amendment
to the articles of incorporation that has not been previously
approved by a majority of the board of directors to 70% of the
shareholder votes entitled to be cast at a meeting;
o Decrease the shareholder vote required to approve an amendment
to HAI's bylaws that has not previously been approved by the
Board of Directors to 65% of the shareholder votes entitled to
be cast at a meeting; and
o Provide that HAI has opted out of some of the subchapters of
the Pennsylvania Business Corporation Law.
The complete text or the amended and restated articles of incorporation
is included as Appendix E to this joint proxy statement/prospectus.
Purpose of Changes to Authorized Stock. HAI's current amended and
restated articles of incorporation provide for 90,000,000 authorized shares
including: 50,000,000 shares of common stock, 20,000,000 shares of Class A
common stock and 20,000,000 shares of preferred stock. HAI's board of directors
believes that it is in HAI's best interest to increase the number of shares of
common stock and preferred stock that it is authorized to issue in order to give
HAI a sufficient number of shares to complete the reorganization with HealthAxis
and to provide for future issuances of stock. HAI's board of directors also
believes that the availability of additional authorized shares will provide it
with the flexibility to issue securities for other proper corporate purposes
which may be identified in the future, such as to raise equity capital, to adopt
additional employee benefit plans or reserve additional shares for issuance
under the plans, to acquire other companies and to grant warrants to consultants
or other business partners. No additional action or authorization by HAI
shareholders would be necessary prior to the issuance of these additional
shares, unless required by applicable law or the rules of any stock exchange or
national securities association trading system on which HAI's common stock is
then listed or quoted. Accordingly, this solicitation may be the only
opportunity for the HAI shareholders to take action in connection with
acquisitions, benefit plans, recapitalizations or other corporate actions.
The certificate of designation for the Series A preferred stock of HAI
provided for Class A common stock. HAI's board of directors has determined to
eliminate the Class A common stock because it has no intention of issuing common
stock with different voting rights than its outstanding common stock.
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Dilutive Effect of Potential New Stock Issuances. HAI shareholders
generally do not have preemptive rights with respect to its common or preferred
stock. Should HAI's board of directors elect to issue additional shares of
common or preferred stock, existing shareholders would not have any preferential
rights to purchase these shares. Therefore, additional issuances of common or
preferred stock by HAI could have a dilutive effect on the earnings per share,
voting power and shareholdings of current shareholders.
Anti-takeover Effect of Increase in Authorized Capital Stock. The
proposed increase in the authorized number of shares of HAI common and preferred
stock could, in some situations, have an anti-takeover effect, although this is
not the intention of this proposal. The increase in the authorized shares may
have the effect of discharging unsolicited takeover attempts and may limit the
opportunity for HAI shareholders to dispose of their shares at the higher price
generally available in takeover attempts or that may be available under a merger
proposal. However, HAI's board of directors is not aware of any attempts to take
control of HAI and has not presented this proposal with the intent that it be
utilized as a type of anti-takeover device.
Purpose and Effect of Amending the Requirement for Shareholder Approval
of Amendments to the Articles of Incorporation or the Bylaws that were not
previously approved by the Board of Directors. The current HAI articles of
incorporation do not require more than a majority vote of shareholders to amend
the articles of incorporation or bylaws where the board of director's approval
has not been obtained. However, the current bylaws provide that 80% of the
shareholder vote entitled to be cast at a meeting is required to approve an
amendment to the bylaws that has not been previously approved by the board of
directors. Under the new articles of incorporation and bylaws, at least 65% of
the shareholder votes entitled to be cast at a meeting must approve amendments
to the bylaws or the articles of incorporation that have not been previously
approved by the board of directors. While the current HAI articles of
incorporation are silent regarding this matter, the PA BCL provides that 10% of
the total shareholder votes may propose an amendment to the articles of
incorporation. The effect of these provisions would make it more difficult for
shareholders to approve changes to the HAI articles of incorporation without
prior approval by the board of directors. However, it would be slightly less
difficult for shareholders to approve changes to the HAI bylaws without prior
approval of the board of directors.
Purpose and Effect of Amending the Requirement for Shareholder Removal
of Directors. The amended and restated articles of incorporation provide that a
director may only be removed for cause and only by the vote of at least 70% of
the votes entitled to be cast at an annual or regular election. While the
current HAI articles of incorporation and bylaws do not contain a provision
regarding this matter, the PA BCL provides that a director may be removed with
or without cause by a majority of the shares entitled to be cast at the
election. By increasing the shareholder vote required and providing that
directors may only be removed for cause, this provision would have the effect of
making it more difficult for shareholders to remove directors.
Purpose and Effect of Changes to the Rights of Shareholders to Call a
Special Meeting. The amended and restated articles of incorporation provide that
a special meeting may only be called by the board of directors, the Chairman and
the Chief Executive Officer. While HAI's current articles of incorporation do
not contain this provision regarding shareholder's special meetings, the PA BCL
provides that 20% of all shareholders entitled to vote may call a special
meeting. This provision in the articles of incorporation would make it more
difficult for shareholders of HAI to call a special meeting.
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Purpose and Effect of Opting Out of Subchapters of the Pennsylvania
Business Corporation Law. The articles of incorporation do not contain a
provision regarding subchapters E, F, G and H of the PA BCL. However, the new
amended and restated articles of incorporation provide that HAI has opted out of
these subchapters. Generally speaking, these subchapters have the effect of
making friendly transactions more difficult. Therefore, this provision in the
amended and restated articles of incorporation would make a friendly transaction
easier to consummate. However, HAI's board of directors is not aware of any
transaction, other than the reorganization with HealthAxis, that would alter
control of HAI and has not presented this proposal for that purpose.
Vote Required to Approve This Item 3. The proposed amendments to the
amended and restated articles of incorporation discussed in this Item 3 must be
approved by the affirmative vote of at least a majority of votes entitled to be
cast at the annual meeting. The amended and restated articles attached as
Appendix E also include an additional amendment that is discussed in Item 4. The
proposed change discussed in Item 4 must be approved by the affirmative vote of
80% of the outstanding shares of common stock entitled to be cast at the annual
meeting. If the amendments included in Item 3 are approved by the requisite vote
but Item 4 is not approved by the requisite vote, the amended and restated
articles of incorporation will only be amended and restated to include the
proposed amendments included in this Item 3.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 3.
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ITEM 4 - ADOPTION AND APPROVAL OF AN AMENDMENT TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION
HAI's Board of Directors has adopted amended and restated articles of
incorporation, subject to shareholder approval at the annual meeting. In
addition to the changes discussed in Item 3, the new amended and restated
articles of incorporation will include an amendment which would decrease the
shareholder vote required to approve a merger, consolidation, liquidation,
dissolution or sale of substantially all of HAI's assets. Under HAI's current
amended and restated articles of incorporation, these transactions must be
approved by 80% of the outstanding shares of common stock voting as a class and
80% of any outstanding shares of preferred stock voting as a separate class. If
approved by stockholders, the proposed amended and restated articles of
incorporation would remove the 80% vote requirement and as a result, the vote on
such transactions would be determined under the Pennsylvania Business
Corporation Law. The Pennsylvania Business Corporation Law provides that these
types of transactions must be approved by a majority of the votes entitled to be
cast at a meeting. If this Item 4 is approved by the requisite vote, only a
majority of the votes entitled to be cast at the annual meeting will be required
to approve these types of transactions in the future. This decrease in voting
requirement will make it easier for shareholders to approve these types of
transactions in the future.
Vote Required to Approve this Item 4. Under HAI's current amended and
restated articles of incorporation, approval of this Item 4 requires the
affirmative vote of 80% of the outstanding shares of common stock voting as a
class and 80% of the outstanding shares of preferred stock voting as a class.
Because HAI does not currently have any shares of preferred stock outstanding,
only the approval of 80% of the outstanding stock is required.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 4.
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ITEM 5 - APPROVAL OF THE 2000 STOCK OPTION PLAN
General
The HAI board of directors adopted the 2000 Stock Option Plan, subject
to approval by the shareholders. Employees, officers and directors of HAI, as
well as important consultants of HAI, are eligible to receive options under the
2000 Stock Option Plan. The purpose of the 2000 Stock Option Plan is to provide
additional incentive to these individuals by encouraging them to invest in HAI's
common stock and thereby acquire a further proprietary interest in HAI and an
increased personal interest in HAI's continued success and progress. HAI is
currently evaluating the possibility of merging HAI's existing director and
employee stock option plans into the 2000 Stock Option Plan.
HAI is seeking shareholder approval of Item 4 to satisfy a NASDAQ
National Market requirement that requires companies whose shares are reported on
the NASDAQ National Market to obtain shareholder approval when stock option
plans are established pursuant to which stock may be acquired by officers or
directors. The second reason HAI is asking shareholders to approve the adoption
of the plan is to satisfy requirements of the Internal Revenue Code which
require shareholder approval in order for options granted under the 2000 Stock
Option Plan to qualify as incentive stock options and for the 2000 Stock Option
Plan to satisfy one of the conditions of Section 162(m) of the Internal Revenue
Code applicable to performance-based compensation.
Set forth below is a summary of the provisions of the 2000 Stock Option
Plan. This summary is qualified in its entirety by the detailed provisions of
the text of the 2000 Stock Option Plan included in Appendix "G" to this joint
proxy statement/prospectus.
Eligibility
All officers and employees of HAI and of any present or future HAI
parent or subsidiary corporation are eligible to receive an option or options
under the 2000 Stock Option Plan. All directors of, and important consultants
to, HAI and of any present or future HAI parent or subsidiary corporation are
also eligible to receive an option or options under the 2000 Stock Option Plan.
Types of Awards
Options granted under the 2000 Stock Option Plan may be incentive stock
options, or non-qualified stock options. The term "option" includes both
incentive stock options and non-qualified stock options.
Administration
The 2000 Stock Option Plan shall be administered by the board of
directors of HAI, or a compensation committee appointed by HAI's board of
directors. Pursuant to the terms of the 2000 Stock Option Plan, the compensation
committee must consist of a minimum of two and a maximum of five members of the
board of directors, each of whom will be a "Non-Employee Director" within the
meaning of Rule 16b under the Securities Exchange Act of 1934, or any future
corresponding rule, except that the failure of the compensation committee for
any reason to be composed solely of Non-Employee Directors shall not prevent an
option from being considered granted under the 2000 Stock Option Plan. The term
"committee" as used in this section refers to either HAI's board of directors or
the committee. Under the 2000 Stock Option Plan, the committee has the right to
adopt such rules for the conduct of its business and the administration of the
2000 Stock Option Plan as it considers desirable. The committee has the right to
construe the 2000 Stock Option Plan and the options issued pursuant to it, to
correct defects and omissions and to reconcile inconsistencies to the extent
necessary to effectuate the purpose of the 2000 Stock Option Plan and the
options issued pursuant to it.
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Common Stock Subject to the 2000 Stock Option Plan
The aggregate number of shares which may be issued upon the exercise of
options under the 2000 Stock Option Plan is 10,000,000 shares of HAI's common
stock.
Limitation on Maximum Number of Options Awarded
The 2000 Stock Option Plan provides that the maximum number of options
which may be awarded to any single optionee under the 2000 Stock Option Plan
shall be no more than is equal to 90% of the shares reserved for issuance under
the 2000 Stock Option Plan. The purpose of this limitation is to enable awards
made pursuant to the 2000 Stock Option Plan to comply with the conditions of
Section 162(m) of the Internal Revenue Code which provide for the deductibility
of compensation paid to HAI's executive officers if it is performance based.
Change in Control
Subject to the compensation committee's changes made at the time of
grant, in the event of a "change of control" of HAI, options granted under the
2000 Stock Option Plan become exercisable for up to 100% of the total number of
shares subject to the option minus the number of shares previously purchased
upon exercise of the option and subject to any adjustments made at the
discretion of the compensation committee. The vesting date may accelerate
accordingly. A "change of control" includes any of the following events:
o The acquisition of 50% or more of either the outstanding
shares of HAI common stock or the combined voting power of the
then outstanding voting securities of HAI; or
o A sale or disposition of substantially all of the assets of
HAI; or
o Any other event deemed to constitute a "change of control" by
the compensation committee.
Exercise Price of Options/Payment of Exercise Price
The exercise price for incentive stock options issued under the 2000
Stock Option Plan shall be equal to the fair market value of HAI's common stock
on the date of grant of the option. For options other than incentive stock
options, the exercise price may be less than the fair market value on the date
of grant. The exercise price of an option may be paid in cash, the delivery of
already owned shares of common stock of HAI having a fair market value equal to
the exercise price, or a combination thereof.
Special Provisions for Incentive Stock Options
The maximum aggregate fair market value of the shares of HAI common
stock, as determined when the incentive stock option is granted, with respect to
which incentive stock options are first exercisable by an employee in any
calendar year cannot exceed $100,000. In addition, no incentive stock option may
be granted to an employee owning directly or indirectly stock possessing more
than 10% of the total combined voting power of all classes of stock of HAI,
unless the exercise price is set at not less than 110% of the fair market value
of the shares subject to such incentive stock option on the date of the grant
and such incentive stock option expires not later than five years from the date
of grant. No incentive stock option granted under the 2000 Stock Option Plan is
assignable or transferable, otherwise than by will or by the laws of descent and
distribution. Except in the event of death or disability, any incentive stock
option granted under the 2000 Stock Option Plan is exercisable only during the
lifetime of an optionee, and are exercisable only by such optionee. Awards of
non-qualified stock options are not subject to these special limitations.
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Exercisability and Expiration of Options
All options granted pursuant to the 2000 Stock Option Plan are
exercisable in accordance with a vesting schedule (if any) which is set by the
committee at the time of grant. The expiration date of an option is also
determined by the committee at the time of the grant, but in no event will an
option be exercisable after the expiration of ten years from the date of grant
of the option.
All unexercised options terminate three months following the date on
which an optionee's employment with HAI terminates, other than by reason of
disability or death. An exercisable option held by an optionee who dies or who
ceases to be employed by HAI because of disability may be exercised by the
employee or his representative within one year after the employee dies or
becomes disabled (but not later than the scheduled option termination date).
The committee may in its sole discretion, provide in an option
agreement the circumstances under which the option shall become immediately
exercisable and may accelerate the date on which all or any portion of an option
may be exercised.
Expiration of the 2000 Stock Option Plan
Unless terminated earlier by the board of directors, the 2000 Stock
Option Plan will remain in effect until all awards granted under the 2000 Stock
Option Plan have been satisfied by the issuance of shares provided that no new
awards may be granted under such 2000 Stock Option Plan more than ten years from
of the date the 2000 Stock Option Plan was adopted by HAI.
Adjustments
The 2000 Stock Option Plan provides for adjustments to the number of
shares subject to outstanding options and to the exercise price of such
outstanding options in the discretion of the committee in the event of a
declaration of a stock dividend, distribution or other offering of shares,
merger, consolidation, transfer of assets, reorganization, split up, combination
or recapitalization.
Transferability of Non-Qualified Stock Options
Except as otherwise provided by the rules and regulations of the SEC,
the 2000 Stock Option Plan provides that the committee at the time of grant of a
non-qualified stock option may provide that such stock option is transferable to
any "family member" of the optionee by gift or qualified domestic relations
order. For purposes of this section, a family member includes any child,
stepchild, grandchild, parent, step-parent, grandparent, spouse, former spouse,
sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the grantee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the grantee)
controls the management of assets, and any other entity in which these persons
or the grantee own more than 50% of the voting interests.
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Amendments
Except as required under Rule 422 of the Code or any successor or
provision, the Board of Directors may amend or supplement the 2000 Stock Option
Plan, including the form of option agreement, in any way, or suspend or
terminate such plan at any time, as determined by the Board of Directors without
the approval of shareholders; provided, however, that such action shall not
affect options granted under the 2000 Stock Option Plan prior to the actual date
on which such action occurred. If the Board of Directors voluntarily submits a
proposed amendment, supplement, suspension or termination for shareholder
approval, such submission shall not require any future amendments, supplements,
suspensions or terminations (whether or not relating to the same provision or
subject matter) to be similarly submitted for shareholder approval.
Awards Under the 2000 Stock Option Plan
No awards have been made to date under the 2000 Stock Option Plan. HAI
is evaluating whether to merge existing stock option plans into the 2000 Stock
Option Plan.
On December 15, 2000, the closing price of the HAI common stock was
$2.00 as reported in the NASDAQ National Market.
Federal Income Tax Consequences of the 2000 Stock Option Plan
The following information is not intended to be a complete discussion
of the federal income tax consequences of participation in the 2000 Stock Option
Plan. This information is qualified in its entirety by reference to the internal
revenue code, and the regulations adopted by the IRS. The provisions of the
internal revenue code described in this section include current tax law only and
do not reflect any proposals to revise current tax law.
Incentive Stock Options
Generally, under the Internal Revenue Code, an optionee will not
realize taxable income by reason of the grant or the exercise of an incentive
stock option granted pursuant to the 2000 Stock Option Plan. If an optionee
exercises an incentive stock option and does not dispose of the shares until the
later of:
o two years from the date the option was granted; and
o one year from the date of exercise, the entire gain, if any,
realized upon disposition of the shares will be taxable to the
optionee as long-term capital gain, and HAI will not be
entitled to any deduction. If an optionee disposes of the
shares within the period of two years from the date of grant
or one year from the date of exercise which is called a
disqualifying disposition, the optionee generally will realize
ordinary income in the year of disposition and HAI will
receive a corresponding deduction, in an amount equal to the
excess of (1) the lesser of (a) the amount, if any, realized
on the disposition and (b) the fair market value of the shares
on the date the option was exercised over (2) the option
price. Any additional gain realized on the disposition will be
long-term or short-term capital gain and any loss will be
long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he sells, exchanges,
makes a gift of or transfers legal title to the share (except
transfers, among others, by pledge, on death or to a spouse).
If the disposition is by sale or exchange, the optionee's tax
basis will equal the amount paid for the share plus any
ordinary income realized as a result of the disqualifying
disposition.
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The exercise of an incentive stock option may subject the optionee to
the alternative minimum tax. The amount by which the fair market value of the
shares purchased at the time of the exercise exceeds the option exercise price
is an adjustment for purposes of computing the so-called alternative minimum
tax. In the event of a disqualifying disposition of the shares in the same
taxable year as exercise of the incentive stock option, no adjustment is then
required for purposes of the alternative minimum tax, but regular income tax, as
described above, may result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of
his incentive stock option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an incentive stock option in payment of the exercise price of
another incentive stock option, is, however, a "disposition" of such stock. If
the incentive stock option holding period requirements described above have not
been satisfied with respect to such stock, such disposition will be a
disqualifying disposition that may cause the optionee to recognize ordinary
income as discussed above.
Under the Internal Revenue Code, all of the shares received by an
optionee upon exercise of an incentive stock option by surrendering shares will
be subject to the incentive stock option holding period requirements. Of those
shares, a number of shares (the "Exchange Shares") equal to the number of shares
surrendered by the optionee will have the same tax basis for capital gains
purposes (increased by any ordinary income recognized as a result of a
disqualifying disposition of the surrendered shares if they were incentive stock
option shares) and the same capital gains holding period as the shares
surrendered. For purposes of determining ordinary income upon a subsequent
disqualifying disposition of the exchange shares, the amount paid for such
shares will be deemed to be the fair market value of the shares surrendered. The
balance of the shares received by the optionee will have a tax basis (and a
deemed purchase price) of zero and a capital gains holding period beginning on
the date of exercise. The incentive stock option holding period for all shares
will be the same as if the option had been exercised for cash.
Non-Qualified Stock Options
Generally, there will be no federal income tax consequences to either
the optionee or HAI on the grant of non-qualified stock options pursuant to the
2000 Stock Option Plan. On the exercise of a non-qualified stock option, the
optionee has taxable ordinary income equal to the excess of the fair market
value of the shares acquired on the exercise date over the option price of the
shares. HAI will be entitled to a federal income tax deduction (subject to the
limitations contained in Section 162(m)) in an amount equal to such excess,
provided that HAI complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a non-qualified stock
option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Capital losses are
deductible only to the extent of capital gains for the year plus $3,000 for
individuals.
An optionee who surrenders shares in payment of the exercise price of a
non-qualified stock option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an incentive stock option and the delivery of such shares is a disqualifying
disposition. See -- "Incentive Stock Options." The optionee will recognize
ordinary income on the exercise of the non-qualified stock option as described
above. Of the shares received in such an exchange, that number of shares equal
to the number of shares surrendered have the same tax basis and capital gains
holding period as the shares surrendered. The balance of shares received will
have a tax basis equal to their fair market value on the date of exercise and
the capital gains holding period will begin on the date of exercise.
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In the event of a permitted transfer by gift of a non-qualified stock
option, the transferor will remain taxable on the ordinary income realized as
and when such non-qualified stock option is exercised by the transferee. All
other tax consequences described above will be applicable to the transferee of
the non-qualified stock option. A permitted transfer by gift of a non-qualified
stock option may result in federal gift or transfer taxes to the transferor at
such time as the option is transferred, as well as such later time or times as
the non-qualified stock option vests, if not fully vested on the date of the
initial transfer.
Limitation on HAI's Deduction
Section 162(m) of the Internal Revenue Code will generally limit to
$1,000,000 HAI's federal income tax deduction for compensation paid in any year
to its chief executive officer and its four highest paid executive officers, to
the extent that such compensation is not "performance based." Under Treasury
regulations, a stock option will, in general, qualify as "performance based"
compensation if it (i) has an exercise price of not less than the fair market
value of the underlying stock on the date of grant, (ii) is granted under a plan
that limits the number of shares for which options may be granted to an employee
during a specified period, which plan is approved by a majority of the
shareholders entitled to vote thereon, and (iii) is granted and administered by
a compensation committee consisting solely of at least two outside directors (as
defined in Section 162(m)). If a stock option to an executive referred to above
is not "performance based", the amount that would otherwise be deductible by HAI
in respect of such stock option will be disallowed to the extent that the
executive's aggregate non-performance based compensation paid in the relevant
year exceeds $1,000,000.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 5.
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ITEM 6 - APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
Based upon the recommendation of the audit committee, the HAI board of
directors has selected BDO Seidman, LLP to be HAI's independent certified public
accountants for fiscal year 2000.
A representative of BDO Seidman, LLP is expected to be present at the
annual meeting to have the opportunity to make a statement if he or she desires
to do so and to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
OF ITEM 6.
ITEM 7 - ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or to approve the adoption of either the amended and restated agreement and plan
of reorganization and the amended and restated merger agreement or the proposal
to approve an amendment to HAI's amended and restated articles of incorporation
as discussed under Item 4 at the time of the annual meeting, the proposals could
not be approved unless the annual meeting is adjourned in order to permit
further solicitation of proxies. In order to allow proxies which have been
received by HAI, at the time of the applicable meeting to be voted for the
adjournment, if necessary, HAI has submitted the question of adjournment under
such circumstances to its shareholders as a separate matter for their
consideration.
The board of directors of HAI recommends that shareholders vote their
proxies in favor of the adjournment proposal so that their proxies may be used
for such purposes in the event it becomes necessary. Properly executed proxies
will be voted in favor of the adjournment proposal unless otherwise indicated
thereon. If it is necessary to adjourn the annual meeting, no notice of the time
and place of the adjourned meeting is required to be given to shareholders other
than an announcement of such time and place at the annual meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
OF ITEM 7.
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CHAPTER IV - OTHER HEALTHAXIS ANNUAL MEETING PROPOSALS
ITEM 1 - ELECTION OF HEALTHAXIS DIRECTORS
The following table sets forth information, as of the record date,
regarding HealthAxis' board of directors. The Board has nominated the persons
named below, each of which is currently serving as a director and has indicated
his willingness to continue serving as a director. Nominees are selected
pursuant to a shareholders agreement entered into between HAI, HealthAxis
Acquisition Corp., HealthAxis, UICI, Alvin Clemens and Michael Ashker. See --
"Chapter I - The Merger - Recent Developments" for a description of the terms of
the shareholders agreement. The board knows of no reason why each nominee would
be unable to serve as a director. If the nominee should for any reason become
unable to serve, then valid proxies will be voted for the election of a
substitute nominee as the board of directors may designate or the board may
reduce the number of directors to eliminate the vacancy. Directors are elected
for a term of one year and serve until their successors are elected and qualify.
<TABLE>
<CAPTION>
Served as Year Term
Name Age(1) Director Since Will Expire Position
--------------------------------- ------ -------------- ----------- ------------------------------------------------
<S> <C> <C> <C> <C>
Michael Ashker................... 47 1998 2001 President, Chief Executive Officer and Director
Alvin H. Clemens................. 62 1998 2001 Chairman of the Board
Henry G. Hager.................. 66 2000 2001 Director
Patrick J. McLaughlin............ 42 2000 2001 Director
Edward W. LeBaron, Jr............ 70 2000 2001 Director
Gregory T. Mutz.................. 54 2000 2001 Director
James W. McLane.................. 61 2000 2001 Director
Dennis B. Maloney................ 54 2000 2001 Chief Operating Officer and Director
</TABLE>
----------
(1) Age as of record date.
See --"Chapter I - Management of HealthAxis" for a description of the
business experience of the directors of HealthAxis.
The following management changes will take effect on February 1, 2001:
Michael Ashker will become Chairman of the Board of HealthAxis and HAI and will
resign as President and Chief Executive Officer of these entities. Alvin Clemens
will become Chairman of the Executive Committees of HealthAxis and HAI and will
resign as Chairman of the Board of these entities. James McLane will become
President and Chief Executive Officer of HealthAxis and HAI. In addition,
effective February 1, 2001, Andrew Felder will resign as Executive Vice
President - Strategy and Corporate Development of HealthAxis and HAI. See
"Chapter III - Item I Election of HAI Directors - Certain Relationships and
Related Transactions" and "- Executive Compensation - Employment Agreement and
Employment Arrangement" for information regarding compensation and severance
arrangements with these individuals.
Board of Directors and Committees
The Board of Directors had not established Board Committees during
1999. During fiscal 2000, HealthAxis established an Executive, Audit,
Compensation, Nominating and Policy and Planning Committees.
The Executive Committee, consisting of Messrs. Clemens, McLane, Mutz and
McLaughlin, has the authority to act on behalf of the Board in managing the
business of HealthAxis between board meetings to the extent permitted by
Pennsylvania law.
The Policy and Planning Committee consists of Messrs. McLane, Ashker,
Maloney, McLaughlin and Mutz. This Committee met twice during fiscal 2000 to
discuss management, organization, sales, marketing, capital allocation and
personnel matters.
Director Compensation
During 1999, no fee was paid to directors for service on HealthAxis'
Board of Directors. Directors were reimbursed for travel expenses to attend
Board meetings.
In July 1998, each of the original directors of HealthAxis, Messrs.
Ashker, Clemens and Michael F. Beausang, Jr., received an option to purchase
50,000 shares of common stock which was immediately exercisable at an exercise
price of $1.77 per share. Each director's option has a term of 10 years and is
currently exercisable. Subject to this grant, Mr. Clemens returned his options
to HealthAxis and the options were cancelled.
Effective in August 2000, HealthAxis orally agreed to pay James W.
McLane a consulting fee of $12,500 per month, plus reimbursement of out of
pocket expenses. In addition, when he joined the Board of Directors in August
2000, Mr. McLane was granted options to purchase 30,000 shares of HealthAxis
common stock at $3.00 per share. See "Chapter III - Item I - Election of HAI
Directors - Executive Compensaton - Employment Agreement and Employment
Arrangement" for information regarding Mr. McLane's employment terms when he
assumes the position of President and Chief Executive Officer February 1, 2001.
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Stock Option Plan
In June 1998, HealthAxis adopted, and HAI, as the sole shareholder of
HealthAxis, approved the Stock Option Plan. The purpose of the Stock Option Plan
is to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees and
consultants of HealthAxis and its subsidiaries and to promote the success of
HealthAxis' business. The Stock Option Plan, as amended, provides for the award
of options and stock purchase rights. Awards for an aggregate of 8,600,000
shares of common stock may be granted under the Stock Option Plan.
Of the shares currently available for award, options to purchase an
aggregate of 3,782,455 shares of common stock are currently outstanding under
the Stock Option Plan. Options to purchase 991,000 shares of common stock were
granted to Mr. Ashker at an exercise price of $1.77 per share and are
immediately exercisable over a five year term. Mr. Ashker also received options
to purchase 145,000 and 155,000 shares of common stock at exercise prices of
$5.77 and $3.31 per share which vest over two-year periods and have terms of 10
years, with options for 96,667 and 70,001 shares currently exercisable,
respectively. Mr. Felder was granted options to purchase 150,000 and 25,000
shares of common stock at $1.77 and $4.00, that have terms of five years of
which 140,625 and 18,752 are exercisable, respectively. Mr. Felder also was
granted options to purchase 50,000 and 50,000 shares of common stock at $5.77
and $3.31, that have terms of ten years of which 33,334 and 25,001 are
exercisable, respectively. Mr. Hankinson was granted options to purchase 50,000
and 35,000 shares of common stock at $5.77 and $3.31, of which 25,250 and 15,001
are exercisable, respectively. Mr. Verdi was granted options to purchase 5,000
shares of common stock at $3.31 over 10 years, which are currently exercisable.
The Stock Option Plan is administered by the Board of Directors or a
committee of the Board of Directors. The Board of Directors has the power to:
o determine the fair market value of the common stock;
o select the participants in the Stock Option Plan;
o determine whether and to what extent awards will be issued;
o determine the number of shares of common stock subject to each
award;
o determine the forms of agreement to use under the Stock Option
Plan;
o determine the terms and conditions of each award;
o determine whether an option may be settled in cash instead of
common stock;
o reduce the exercise price of any option to the then current fair
market value of the common stock if the fair market value of the
common stock has declined since the date of the option grant;
o determine the terms and restrictions applicable to stock purchase
rights and restricted stock purchased by exercising such stock
purchase rights;
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o interpret the provisions of the Stock Option Plan; and
o modify grants of options or stock purchase rights to participants
who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or
customs.
All awards granted under the Stock Option Plan are exercisable in
accordance with a vesting schedule which is set at the time of the issuance of
the option and, except as indicated below, incentive stock options may not be
exercised more than ten years from the date of grant. Pursuant to the terms of
the Stock Option Plan, options granted to employees, other than directors and
officers, must vest at a rate of not less than 20% per year over a five year
period commencing on the grant date.
Options granted under the Stock Option Plan may be options intended to
qualify under Section 422 of the Internal Revenue Code, as amended, called
incentive stock options or options not intended to qualify called non-qualified
stock options. The Stock Option Plan requires the exercise price of incentive
stock options to be at least equal to the fair market value of the common stock
on the date of the grant. In the case of incentive stock options granted to a
shareholder owning, directly or indirectly, in excess of 10% of the common
stock, the incentive stock option exercise price must be at least equal to 110%
of the fair market value of the common stock on the date of grant and such
incentive stock option may not be exercised more than five years from the date
of grant. Non-qualified stock options and stock purchase rights may be offered
at an exercise price of not less than 85% of the fair market value on the date
of grant.
The Stock Option Plan provides that awards granted pursuant to such
plan shall be adjusted as a result of any increase or decrease in outstanding
common stock as a result of a stock split, dividend, combination,
recapitalization or reclassification of the common stock. Some of the options
granted pursuant to the Stock Option Plan may become immediately exercisable in
the event of a "change in control" (as defined in the Stock Option Plan) of
HealthAxis.
All unexercised incentive stock options terminate no later than three
months (or such shorter period as determined by the committee making such award;
provided such period may not be less than 30 days) following the date on which
an optionee's employment by, or relationship with, HealthAxis or any parent or
subsidiary of HealthAxis, terminates for any reason (excluding death and
disability) but not later than the expiration date whether or not such
termination is voluntary. No option granted under the Stock Option Plan is
assignable or transferable, otherwise than by will or by the laws of descent and
distribution. Except in the event of death or disability, all options granted
under the Stock Option Plan are exercisable during the lifetime of an optionee,
and are exercisable only by such optionee. Any option held by an employee who
dies or who ceases to be employed because of a total and permanent disability
(as defined in the Internal Revenue Code) must be exercised by the employee or
his representative within 12 months after the optionee dies or ceases to be an
employee due to such disability (but not later than the scheduled termination
date). If the employee ceases to be employed by HealthAxis due to a disability,
other than a total and permanent disability as defined in the Internal Revenue
Code, the options held by such individual must be exercised within six months of
the date of termination.
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Stock purchase rights may be granted either alone, in addition to, or
in tandem with other awards granted under the Stock Option Plan. Stock purchase
rights may not be granted at less than 85% of the fair market value on the date
of grant (or 100% of the fair market value per share for ten percent
shareholders). Unless otherwise determined at the time of grant under the terms
of the Stock Option Plan, the Stock Purchase Rights shall include a stock
repurchase option exercisable by HealthAxis if the employee is terminated,
voluntarily or involuntarily, following the receipt of the restricted stock.
The Board of Directors of HealthAxis may amend, alter, suspend or
discontinue the Stock Option Plan at any time, provided such action shall not
impair the rights of holders of options granted pursuant to such plan.
Shareholder approval is required for any amendment to the Stock Option Plan to
the extent required by the SEC rules or the Internal Revenue Code.
In connection with the Insurdata merger, all outstanding options issued
pursuant to the Insurdata Incorporated 1999 Stock Option Plan were converted
into options to purchase 426,930 shares of HealthAxis common stock.
On May 24, 2000, HealthAxis' board of directors approved the repricing
of 1,777,368 outstanding options to purchase HealthAxis common stock, which had
originally been granted at exercise prices of $12.00 and $15.00 per share. The
new exercise price of these options is $3.31 per share, which was the closing
market price of HAI's common stock as of the date of the repricing. The
information regarding options in this document reflects the new $3.31 exercise
price.
Insurdata Incorporated's Founders' Stock Option Plan
UICI established the Founders' Stock Option Plan pursuant to which
officers and key employees of the former Insurdata Incorporated and other UICI
subsidiaries were awarded options to acquire shares of HealthAxis common stock
held by UICI. The options granted were originally for Insurdata Incorporated
shares and have been converted. Options to purchase 3,271,135 shares of
HealthAxis common stock at an exercise price of $1.36 per share were granted
pursuant to the Founders' Stock Option Plan, of which 1,070,916 are currently
exercisable by the employees to whom the options were granted. All awards made
pursuant to the Founders' Stock Option Plan vest over a five-year period. The
shares subject to such options are held in a voting trust. See -- "Chapter I -
The Merger - Recent Developments" for additional information regarding the
voting trust. Mr. Maloney was granted options to purchase 1,330,000 shares of
HealthAxis common stock and of this amount, options to purchase 266,000 shares
have been exercised and options to purchase 532,000 shares are currently
exercisable.
Executive Compensation
For information regarding the compensation paid by HealthAxis and its
subsidiaries to the Chief Executive Officer and the four most highly compensated
executive officers whose total annual salary and bonus exceeded $100,000 during
fiscal 1999, see "Chapter III - Other HAI Annual Meeting Proposals - Item 1 -
Election of HAI Directors - Executive Compensation."
Relationship With HAI And UICI
Relationship with HAI
HAI, a Pennsylvania corporation organized in 1982, was regulated as an
insurance holding company until the sale of its insurance company subsidiary in
November 1999. Currently, HAI's only business activities are conducted through
HealthAxis.
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Capital Contributions to HealthAxis by HAI and its former subsidiary.
Since HealthAxis' inception, HAI has made the following capital contributions to
HealthAxis:
o During 1998, HAI issued the following warrants for the purchase of
shares of HAI common stock in exchange for services provided to
HealthAxis.
<TABLE>
<CAPTION>
Warrant Holder Shares Exercise Price Fair Value
-------------------- --------- -------------- ----------
<S> <C> <C> <C>
America Online Inc. 300,000 $4.480 $ 989,700
America Online Inc. 300,000 $3.380 $1,660,050
Lynx Capital LLC 400,000 $4.516 $ 663,071
HealthPlan Services 100,000 $9.000 $ 160,210
--------- ----------
Total 1,100,000 $3,473,031
</TABLE>
o During March 1998, 875,000 shares of common stock were issued to
HAI at $0.10 per share, for an investment of $87,500. During August
1998, there was a stock split, giving HAI an additional 12,250,000
shares of HealthAxis common stock.
o During September 1988, PILIC, a former wholly owned subsidiary of
HAI, purchased 545,916 shares of HealthAxis Series A preferred
stock at $4.40 per share for an investment of $2,400,000.
o During November 1998, HAI invested $3,000,000 to purchase 682,395
shares of HealthAxis common stock at $4.40 per share.
o During December 1999, HAI invested $2,000,000 to purchase 133,333
shares of HealthAxis common stock at $15.00 per share.
Sale of HealthAxis Securities held by Provident Indemnity Life
Insurance Company to HAI. On March 24, 1999, PILIC, a subsidiary of HAI, granted
HAI the option to purchase all of the 545,916 shares of HealthAxis' 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 the date of PILIC's
acquisition to the date of HAI's purchase. The option expires on December 17,
2003. HealthAxis exercised this option on November 30, 1999.
Sale of Provident Indemnity Life Insurance Company. On August 16, 1999,
HAI entered into an agreement which provided for AHC Acquisition, Inc., a
company solely owned by Alvin H. Clemens, to acquire Provident Indemnity Life
Insurance Company, referred to as PILIC in this document, for an aggregate
payment by HAI of $14.7 million to PILIC. This transaction was completed on
November 30, 1999. In accordance with the terms of the stock purchase agreement,
HAI:
o purchased HAI's headquarters located at 2500 DeKalb Pike from PILIC
for its book value of $4.7 million;
o agreed to exercise its option to purchase 545,916 shares of
HealthAxis Series A preferred stock from PILIC for $2.8 million
(HAI made the $2.8 million payment for the shares of HealthAxis
Series A preferred stock pursuant to the option agreement between
HAI and PILIC and the payment equates to a $4.71 price per share.
The $4.71 price represented the price per share paid by PILIC for
these shares plus interest at the rate of 8% per annum thereon from
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the date of acquisition of these shares by PILIC through November
30, 1999, the date of exercise);
o made a $7.2 million capital contribution from HAI to PILIC in order
to eliminate a statutory deficiency, to enable PILIC to maintain
adequate capital to meet its liabilities including pay-out
obligations under existing insurance policies, and to provide PILIC
with sufficient capital and surplus so that the Insurance
Department of the Commonwealth of Pennsylvania would grant the
required approval of the sale of PILIC; and
o transferred 100,000 shares of the HealthAxis Series A preferred
stock and the associated registration rights previously granted to
PILIC, to AHC Acquisition, Inc.
Relationship with UICI
UICI is a diversified financial services company that offers insurance
and selected financial services to niche consumer and institutional markets.
UICI issues health insurance policies covering individuals and families
to self-employed association groups and student markets. UICI also offers health
insurance products for the self-employed individuals who work for small
businesses. UICI also offers a range of health insurance products, including
catastrophic hospital and basic hospital-medical expense plans, choice-of-doctor
plans and managed care options, including a preferred provider organization plan
and other coverage modifications. UICI markets these higher deductible products
through "dedicated" agency sales forces comprised of independent contractor
agents that primarily sell UICI's products. For the student market, UICI offers
tailored insurance programs that generally provide single school year coverage
to individual students at colleges and universities.
UICI also issues life and annuity insurance products to selected niche
markets, and UICI acquires blocks of life insurance and annuity policies from
other insurers on an opportunistic basis. The life and annuity insurance
policies issued by UICI are marketed through a dedicated agency sales force.
UICI also provides underwriting, claims management and claims
administrative services to third-party insurance carriers (primarily to Aegon
USA, Inc. related to products coinsured by UICI), independent entities that
administer claims processing and payment, Blue Cross/Blue Shield organizations
and self-administered employer healthcare plans.
Through its United CreditServ, Inc. subsidiary, through January 2000,
UICI marketed credit support services to individuals with no, or troubled,
credit experience and assisted them in obtaining a nationally recognized credit
card. The credit cards were issued by United Credit National Bank, an indirect
wholly owned subsidiary of UICI. On September 29, 2000, UICI completed the sale
of substantially all of the non-cash assets associated with its United
CreditServ credit card business, including its credit card receivables
portfolios and its Sioux Falls, South Dakota servicing operations, for a cash
sales price of approximately $124.0 million. Following the sale, United Credit
National Bank held approximately $96.0 million in available cash, cash
equivalents and short term U.S. Treasury securities and had approximately $79.0
million of certificates of deposits outstanding. United credit National Bank has
initiated a program to prepay all of its outstanding certificates of deposit and
currently expects to discharge all such deposit liabilities on or before October
31, 2000. United Credit National Bank is in the process of preparing a formal
voluntary plan of liquidation to be filed with and approved by the Office of the
Comptroller of the Currency, and UICI currently anticipates that the voluntary
liquidation of United Credit National Bank, including the provision for all
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remaining liabilities and distribution to UICI of all residual cash, will be
completed on or before year-end 2000.
United Credit National Bank is currently subject to the terms of a
consent order issued by the Office of the Comptroller of the Currency. In
accordance with the terms of the consent order, United Credit National Bank has
ceased all activities with two marketing entities that solicited credit card
applications from United Credit National Bank, and United Credit National Bank
is further prohibited under the terms of the consent order from introducing new
products or services without approval by the Office of the Comptroller of the
Currency.
Educational Finance Group, Inc. (in which UICI holds a 75% interest),
markets, originates, funds and services primarily Federally guaranteed student
loans and is a leading provider of student tuition installment plans.
UICI and its subsidiaries constitute, in the aggregate, HealthAxis'
largest client. For the nine months ended September 30, 2000, UICI and its
subsidiaries accounted for an aggregate of approximately $20.9 million, or 64%
of HealthAxis' total revenues from continuing operations. For the years ended
December 31, 1997, 1998 and 1999, UICI and its subsidiaries accounted for an
aggregate of approximately $12.6 million, $24.8 million and $28.2 million,
respectively, of HealthAxis' pro forma total revenues, which represent
approximately 48%, 65% and 66%, respectively, of such revenues for such periods.
A portion of HealthAxis' revenue from UICI in the past was for year 2000
services that have been substantially completed. UICI and its subsidiaries are
expected to remain HealthAxis' largest client for the foreseeable future. To the
extent UICI or its subsidiaries experience financial difficulties impacting
UICI's ability to pay HealthAxis for services, the financial performance of
HealthAxis may be negatively impacted. HealthAxis believes that the percentage
of HealthAxis' revenues attributable to UICI and its subsidiaries will decline
as HealthAxis' marketing efforts continue to build HealthAxis' base of external
clients.
As a result of UICI's control of Insurdata Incorporated prior to the
merger, none of the terms of contracts entered into between Insurdata
Incorporated and UICI and its subsidiaries, which were assumed by HealthAxis,
resulted from arm's-length negotiations. See -- "Risk Factors -- Because
HealthAxis' agreements with UICI have not been subject to arm's-length
negotiations, these agreements will likely be less favorable to HealthAxis than
agreements negotiated with third parties."
During March 2000, UICI privately placed 2.0 million shares of
HealthAxis common stock with a private investor. To the extent UICI determines
to sell a significant amount of HAI stock in the future, the prevailing market
price of the HAI stock could be negatively impacted. Sales by UICI of HAI common
stock in the open market will be subject to the volume, manner of sale and other
requirements of Rule 144, absent registration under the Securities Act of 1933,
as amended.
In December 1999 and February 2000, UICI and some of its executive
officers, including Gregory Mutz, a director of HealthAxis, were named as
defendants in three securities class action lawsuits, which have been
consolidated into one case and are pending in the U.S. District Court for the
Northern District of Texas. These lawsuits allege, among other things, that
UICI's periodic filings with the SEC contained untrue statements of material
facts and/or failed to disclose all material facts relating to the condition of
UICI's credit card business, in violation of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder. UICI reported in its public
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filings with the SEC that it intends to vigorously contest the allegations in
these lawsuits.
Arrangements and Transactions with HAI and UICI
HealthAxis and HAI have entered into various agreements, the material
terms of which are summarized below. These agreements were developed in the
context of a parent/subsidiary relationship and therefore none of the terms of
these agreements are the result of arm's-length negotiations between independent
parties. UICI and Insurdata Incorporated have also entered into various
agreements, all of which were assumed by HealthAxis in connection with its
merger with Insurdata Incorporated. These agreements were developed in the
context of a parent/subsidiary relationship and therefore are not the result of
arm's-length negotiations between independent parties. There can be no assurance
that each of these agreements, or the transactions provided for therein, will be
effected on terms at least as favorable to HealthAxis as could have been
obtained from unaffiliated third parties. See "-- Certain Transactions."
Additional or modified arrangements and transactions may be entered
into by HealthAxis and either HAI or UICI, including its subsidiaries, after
completion of the merger. Any such future arrangements and transactions will be
determined through negotiation between HealthAxis and either HAI or UICI, and it
is possible that conflicts of interest will be involved.
The following is a summary of the current and contemplated arrangements
and transactions between HealthAxis and either HAI or UICI. The descriptions of
the proposed agreements set forth below are intended to be summaries and the
descriptions are qualified in their entirety by reference to the relevant
agreements.
AHC Acquisition, Inc. Registration Rights Agreement Related to Series A
Preferred Stock. When HealthAxis proposes to register any shares of common stock
from authorized but unissued common shares or treasury shares under the
Securities Act (other than on a Form S-4 or Form S-8), HealthAxis is required to
give notice to the holders of Series A preferred stock and the holders of common
stock acquired upon the conversion of Series A preferred stock of the proposed
registration and to include their shares of common stock received upon the
conversion of the Series A preferred stock in such registration, subject to
conditions including the right of the underwriter of the offering to limit the
number of shares sold by the holders if the underwriter advised HealthAxis and
the holders in writing that the number of shares required to be included by the
holders would interfere with the successful marketing of the shares offered.
These piggyback registration rights are subject to the priority rights granted
to HealthPlan Services, holders of the Series B preferred stock, some warrant
holders, and the holders of the Series C preferred stock and Series D preferred
stock. Subject to rights granted to HealthPlan Services, holders of the Series B
preferred stock, some warrant holders and holders of the Series C preferred
stock and Series D preferred stock, the holders of at least 60% of the then
outstanding shares of Series A preferred stock may also require HealthAxis 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 the holders desiring to participate. This demand may
not be made earlier than: (i) November 13, 2001 or (ii) six months after
HealthAxis' initial public offering. The Company is required to pay all
registration expenses 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. AHC Acquisition, Inc. is a wholly owned by Alvin H. Clemens.
Lease Agreement. HealthAxis leases its headquarters from HAI in East
Norriton, Pennsylvania at a cost of $61,500 per month. See -- "Chapter I -- the
Merger -- Information Concerning HealthAxis -- Facilities."
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Insurdata Merger. On December 6, 1999, HealthAxis, Insurdata
Incorporated, HAI and UICI entered into an agreement and plan of merger which
set forth the terms and conditions under which Insurdata Incorporated was merged
with and into HealthAxis. The companies completed the Insurdata merger on
January 7, 2000. For a discussion of the Insurdata merger and HealthAxis'
reasons for pursuing this transaction, see "Chapter I -- The Merger --
Information Concerning HealthAxis -- Historical Development."
In accordance with the terms of the Insurdata merger agreement, each
share of Insurdata Incorporated common stock outstanding immediately prior to
the effective date of the merger, except as provided in the merger agreement,
was exchanged for 1.33 shares of HealthAxis common stock. In connection with the
Insurdata merger, UICI received 18,943,678 shares of HealthAxis common stock.
The voting trust created by UICI in connection with the Insurdata merger,
described below, received 2,439,885 shares of HealthAxis common stock and other
shareholders of Insurdata Incorporated received 424,004 shares of HealthAxis
common stock. Each holder of Insurdata Incorporated common stock entitled to
receive a fraction of a share of HealthAxis common stock received cash instead
of the fraction of a share, in an amount determined by multiplying the fraction
by $15.00. Each option to purchase shares of Insurdata Incorporated common
stock, under Insurdata Incorporated's stock option plans, outstanding on the
date the merger was completed, was converted into an option to purchase the
number of shares of HealthAxis common stock determined by the formula in the
merger agreement. The exercise price was also adjusted based on the exchange
ratio. The Insurdata merger was intended to be a reorganization under Section
368(a) of the Internal Revenue Code of 1986 and was accounted for as a purchase
under generally accepted accounting principles.
The table below identifies the equity ownership by HAI, UICI, Michael
Ashker and Alvin Clemens of HealthAxis common and preferred stock before and
after the Insurdata merger. This table excludes options and warrants to purchase
HealthAxis stock.
<TABLE>
<CAPTION>
November 10, 2000 December 31, 1999
--------------------------- -------------------------
Shares Percentage Shares Percentage
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
HAI........................... 15,801,644 34.7% 15,801,644 66.9%
UICI and subsidiaries......... 17,810,229(2) 39.1% 866,551 3.7%
Alvin Clemens (1)............. 100,000 0.2% 100,000 0.4%
Michael Ashker................ - - - -
Minority Interest............. 11,796,767 26.0% 6,850,310 29.0%
Total......................... 45,508,640 100.0% 23,618,505 100.0%
</TABLE>
(1) Represents shares held by AHC Acquisition Inc. which is owned by Alvin H.
Clemens, the Chairman of HAI and HealthAxis.
(2) Excludes 2.0 million shares of HealthAxis common stock that UICI sold to a
single institutional investor.
Shareholders' Agreement. In connection with the Insurdata merger, HAI,
UICI, Michael Ashker, and HealthAxis have entered into a shareholders'
agreement. Under the terms of the shareholders' agreement, the board of
directors of HealthAxis shall consist of up to nine members. UICI and HAI may
each independently nominate three nominees to the board and, the remaining three
directors will be nominated by mutual agreement of HAI and UICI. Each party is
obligated to vote its shares in favor of the directors nominated by the other
party.
Subject to limitations contained in the shareholders' agreement, UICI
and HAI both have the right to purchase its proportionate number, or any greater
or lesser number, of any additional securities that HealthAxis may, from time to
time, propose to sell and issue. HealthAxis is required to provide UICI and HAI
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prior written notice of its intention to issue such additional securities. Upon
receipt of this notice, UICI and HAI have twenty days to agree to purchase their
proportional shares, or any greater or lesser number, for the price and upon the
terms specified in the notice. If UICI and HAI fail to exercise their purchase
rights, HealthAxis has twenty days to complete the sale of the securities at a
price not less than the price specified in the notice. This provision of the
shareholders' agreement terminates at such time as the HealthAxis common stock
is registered under the Exchange Act.
In addition to the preemptive rights set forth above, the shareholders'
agreement also provides that Michael Ashker, UICI and HAI have the right of
first refusal to purchase shares of HealthAxis should one of the other parties
to this agreement desire to transfer his or its HealthAxis securities. The party
desiring to transfer his or its securities is required to provide the other
parties, referred to as the electing parties, with written notice, at least
twenty days prior to the proposed transfer setting forth the terms of the offer
to sell the HealthAxis securities. The electing parties have ten days from the
receipt of notice to elect to purchase that number of securities determined by
the formula set forth in the agreement. If an electing party fails to exercise
its right to purchase, or exercises its right to a portion smaller than it is
entitled, the party transferring his shares has ten days to sell any remaining
securities at the price and on terms no less favorable than specified in the
offer to the electing parties.
Subject to conditions set forth in the shareholders' agreement, the
shareholders' agreement also provides that HealthAxis can cause UICI to transfer
up to 1,255,000 shares of its HealthAxis common stock to unaffiliated third
parties.
The shareholders' agreement also provides UICI with the right, in its
sole and absolute discretion, to approve:
o the calculation of the amount and amortization period of all
goodwill and other intangibles created in connection with the HAI
merger, subject to compliance with generally accepted accounting
principles; and
o provided UICI owns at least 20% of the HealthAxis common stock, the
entering into of any merger or similar agreement between HAI and
HealthAxis.
It is currently intended that this agreement will terminate in
connection with the reorganization and will be replaced by the shareholders'
agreement attached as an exhibit to the agreement and plan of reorganization.
In a separate letter to HealthAxis and HAI, dated December 6, 1999,
UICI indicated that it would vote in favor of a business combination between HAI
and HealthAxis provided the following conditions were satisfied:
o UICI has the right to assess and approve, in its reasonable
discretion, the mathematical calculation of the merger terms;
o UICI has received an opinion of counsel, or other reasonable
assurance, that the merger, viewed alone and together with the
merger of HealthAxis and Insurdata Incorporated, will be tax free
to the constituent corporations and UICI;
o UICI has the right to make any and all reasonable and appropriate
due diligence inquiries it and its counsel deem advisable with
respect to any contingent claims or residual liabilities that may
reside at HAI; and
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o In the event that UICI determines that there may be an unacceptable
level of risk associated with the claims or liabilities, UICI may
require that an appropriate reserve, escrow or similar arrangement
be made for the claims or liabilities or an appropriate indemnity
be given by a credit-worthy third party. In either event, UICI will
be willing to set an appropriate cap on the escrow or indemnity and
limit the time period during which the escrow or indemnity will be
in effect.
Voting Trusts. UICI has entered into two voting trust agreements. These
agreements grant voting power over a portion of the HealthAxis common stock held
by UICI to the trustees who are directors of HealthAxis and HAI.
The Insurdata merger agreement provided for a voting trust agreement
which required the establishment of a trust to hold the 2,439,885 shares of
HealthAxis common stock which are held of record by UICI, but as to which UICI
has granted options to purchase such shares to some of the employees of the
former Insurdata Incorporated and other UICI subsidiaries pursuant to its
Insurdata Incorporated Founders' Program. The initial trustees of this trust are
Michael Ashker, Alvin Clemens, Edward W. LeBaron, Jr. and Henry Hager who are
referred to as the trustees. All of the trustees are also directors of HAI.
Messrs. Ashker and Clemens are also directors and officers of HealthAxis. A
majority of the trustees have the power to vote the shares held by the trust in
their discretion at all meetings of shareholders or pursuant to actions by
unanimous consent. The voting trust agreement terminates upon the earlier of the
distribution of the shares subject to the agreement or July 1, 2003. Upon
termination of the voting trust, the shares remaining in the trust will be
distributed to UICI. As of September 30, 2000, the Insurdata Incorporated
Founders' Trust held 2,417,275 shares of HealthAxis common stock.
UICI, and Messrs. Ashker, LeBaron and Maloney entered into a voting
trust agreement which provided for the establishment of a trust to hold
10,103,217 shares of HealthAxis common stock held by UICI. This trust is
referred to as the UICI voting trust in this joint proxy statement/prospectus.
The initial trustees of this trust are Michael Ashker, Edward W. LeBaron, Jr.
and Dennis B. Maloney who are referred to as the trustees. All of the trustees
are also directors of HealthAxis, and Messrs. Ashker and LeBaron are directors
of HAI. Messrs. Ashker and Maloney are also officers of HealthAxis. A majority
of the trustees have the power to vote the shares held by the trust in their
discretion at all meetings of shareholders or pursuant to actions by unanimous
consent. UICI retains dispositive power and the ability to receive all dividends
on the shares held in the trust. The UICI voting trust was amended effective
July 31, 2000 to read in its present form. Pursuant to the voting trust
agreement, as amended, if one of the trustees is no longer able to serve as
trustee, the other two trustees may select by unanimous vote a new trustee from
the members of the board of directors of HAI or HealthAxis who were not
nominated by UICI. The voting trust agreement, as amended, terminates upon the
earlier of February 11, 2020; such time as UICI owns less than 25% of the
outstanding common stock of HealthAxis or HAI; upon another person acquiring 51%
or more of the outstanding shares of HealthAxis; or March 31, 2001 if the HAI
merger is not completed. As of September 30, 2000, the UICI voting trust held
6,433,069 shares of HealthAxis common stock.
UICI Outsourcing Agreement. UICI and its affiliates and HealthAxis have
entered into a technology outsourcing agreement. The terms of this agreement
were negotiated between Insurdata Incorporated and UICI prior to HealthAxis'
acquisition of Insurdata Incorporated. Pursuant to the terms of this agreement,
HealthAxis will provide UICI and its affiliates with technology support
services, system integration services, data processing services, local area
network and other telecommunications services, and other software and hardware
based services for an initial term of five years. At UICI's option, the parties
are required to negotiate, in good faith, a three year renewal term prior to the
expiration of the agreement. If they are unable to agree on renewal prices,
terms and conditions, the agreement will expire at the end of the initial term.
The agreement contains no minimum or maximum commitments on behalf of UICI and
its affiliates, and UICI and its affiliates are free to obtain the services
provided by HealthAxis from an unrelated third party during the term of the
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agreement. The agreement requires both UICI and HealthAxis to contribute
facilities and equipment. Under the terms of the agreement, UICI is also
required to contribute UICI-owned software. Third party software may also be
used to provide the services required under the agreement. The agreement
provides that Insurdata Incorporated assigns and transfers to UICI any and all
right, title and interest that Insurdata Incorporated may have, or claim to
have, to materials that were previously developed by Insurdata Incorporated for
UICI under existing agreements. All materials developed by HealthAxis during the
term of the agreement will belong to UICI. UICI may, at its option, grant a
license to these materials back to HealthAxis subject to payment of royalties
from HealthAxis to UICI. The agreement established service levels and
availability standards and imposes penalties if such standards are not met.
Under the terms of the agreement, HealthAxis may not stop providing services due
to a dispute between the parties.
Generally, the services provided under the agreement must be billed at
HealthAxis' cost plus a ten percent pre-tax profit margin. The agreement also
requires that if HealthAxis charges an unaffiliated third party a rate that is
lower than it charges UICI and its affiliates for similar services, UICI and its
affiliates would be entitled to receive the lower rate. At the expiration or
termination of the agreement, UICI has the right to hire employees of HealthAxis
or its affiliates who have spent greater than eighty percent of their time
providing services to UICI and its affiliates during the six months preceding
the expiration or termination of the agreement. In addition, at the expiration
or termination of the agreement, HealthAxis is obligated to provide up to six
months of transition assistance services. The parties also agreed to indemnify
and hold one another harmless against enumerated losses and claims.
UICI Amended and Restated Carrier Partner Agreement. On March 30, 1999,
HealthAxis entered into an amended and restated carrier partner agreement with
UICI and two of UICI's subsidiaries, MEGA Life & Health Insurance Company and
Midwest National Life Insurance Company of Tennessee. Pursuant to the UICI
carrier partner agreement, some of the insurance products and services of UICI's
insurance subsidiaries will be offered through HealthAxis' website to consumers.
This agreement was assigned to Digital Insurance, Inc. as a part of the Digital
sale. In addition, HealthAxis agreed to issue to UICI a warrant to purchase up
to 150,000 shares of HealthAxis common stock, subject to adjustment, at $4.40
per share and 7,500 shares of HealthAxis common stock, subject to adjustment, at
$12.00 per share.
Certain Transactions
For information regarding Michael Ashker and certain transactions
between HAI and Lynx Capital Group LLC, Lynx Technology Fund, LP and Lynx
Private Equity Partners LLC and the severance agreements between HAI, HealthAxis
and Messrs. Ashker and Felder, see "Chapter III - Other HAI Annual Meeting
Proposals - Item 1 - Election of HAI Directors - Certain Relationships and
Related Transactions."
For information regarding certain transactions involving Alvin H.
Clemens and AHC Acquisition Inc., see "Chapter III - Other HAI Annual Meeting
Proposals - Item 1 - Election of HAI Directors - Certain Relationships and
Related Transactions."
James W. McLane, a director of HealthAxis since July 2000, also serves
as a consultant to HealthAxis and is paid $12,500 per month. Effective February
1, 2001, Mr. McLane will become President and Chief Executive Officer of
HealthAxis and HAI pursuant to the employment arrangement described under
"- Executive Compensation - Employment Arrangement."
Michael F. Beausang, Jr., Esquire, the Secretary of HAI and a former
Director of HealthAxis and HAI is a partner in the law firm of Butera, Beausang,
Cohen & Brennan. This law firm performs legal services for HealthAxis and HAI.
HealthAxis paid Butera, Beausang, Cohen & Brennan $64,165 for legal services
during 1999.
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Agreement with America Online Inc. In 1998, HAI, HealthAxis and America
Online Inc., entered into an interactive marketing agreement pursuant to which
America Online Inc. advertised HealthAxis' products and website to its
subscribers on America Online Inc.'s online network and HealthAxis' products
were sold online through HealthAxis' website. HealthAxis paid America Online
Inc. a total of $10.0 million pursuant to this agreement which expired in 1999.
In connection with services rendered by America Online Inc. to HealthAxis
pursuant to the interactive marketing agreement, HAI issued to America Online
Inc. two warrants for 300,000 shares of HAI common stock. The first warrant for
300,000 shares of HAI stock is exercisable at $4.48 per share, and the second
warrant is exercisable for 300,000 shares of HAI common stock at $3.38 per
share. This second warrant will terminate if America Online Inc. choose to
exercise a third warrant issued by HealthAxis in connection with the interactive
marketing agreement for 300,000 shares of HealthAxis common stock for $1.77 per
share.
HealthAxis Loan to HAI. HealthAxis and HAI entered into a loan
agreement dated as of September 29, 2000 which reflects the terms and conditions
of the new and existing loans from HealthAxis to HAI of up to $3,404,589. This
amount is evidenced by three promissory notes. All three notes become due and
payable on the earlier of March 31, 2001 or the date the HAI merger is
consummated. The interest on the principal under each note will accrue at 12%
per annum from the date of the note until the date the note terminates. HAI's
obligations under the notes are secured pursuant to a stock pledge and security
agreement between HAI and HealthAxis dated as of September 29, 2000. Under the
security agreement, the first note will be secured by the number of shares of
HealthAxis common stock held by HAI determined by multiplying the amount of the
loan divided by 1.3 times the average HAI trading price (as defined in the
security agreement). In addition, the second note will be secured by up to
200,000 shares of HealthAxis common stock held by HAI. For a description of this
transaction, see "Chapter I -- The Merger -- Recent Developments."
Agreements with UICI and Subsidiaries. HealthAxis currently provides
services to a number of UICI subsidiaries and affiliates pursuant to written
agreements, including the UICI outsourcing agreement, ranging from one to five
years, with annual renewable options thereafter. These services include the
licensing of some of its proprietary work flow and business applications as well
as systems integration and technology management. For a description of the UICI
outsourcing agreement, see "--Arrangements and Transactions with HAI and UICI."
UICI and its subsidiaries and affiliates constitute, in the aggregate,
HealthAxis' largest customer. For the nine months ended September 30, 2000, UICI
and its subsidiaries and affiliates accounted for an aggregate of $20.9 million
or 64% of HealthAxis' total revenues for that period. For the years ended
December 31, 1997, 1998 and 1999, UICI and its subsidiaries and affiliates,
including the subsidiaries and affiliates discussed below, accounted for an
aggregate of $12.6 million (48%), $24.8 million (65%) and $28.2 million (66%),
respectively, of HealthAxis' pro forma total revenues for such periods. As of
September 30, 2000, HealthAxis had trade receivables from UICI and its
subsidiaries and affiliates of $2.8 million. As of December 31, 1997, 1998 and
1999, Insurdata Incorporated had trade receivables from UICI and its
subsidiaries and affiliates of $2.2 million, $2.2 million and $3.2 million,
respectively. In addition to trade receivables, Insurdata Incorporated also held
various notes receivable from UICI and its subsidiaries and affiliates,
amounting to $0.2 million and $4.5 million at December 31, 1996 and 1997,
respectively. These notes bore interest at rates ranging from 8.25% to 10.5%.
Total interest income from these notes for the years ended December 31, 1996,
1997 and 1998 was approximately $166,000, $514,000 and $125,000, respectively.
These notes were paid off in 1998.
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Commencing in 1997, UICI provides human resource administrative
services to HealthAxis, including payroll services and employee benefit
management pursuant to a one year agreement which expired on December 31, 1999
with annual renewals thereafter. Either party upon 90 days' notice may cancel
this agreement. In addition to reimbursement on a dollar-for-dollar basis for
benefit costs, UICI charges HealthAxis an administrative fee of $10 per-employee
per-pay period pursuant to a written agreement, which fee is intended to
reimburse UICI for the overhead it incurs in providing these services.
HealthAxis expects that UICI will continue to provide these employee benefit
management services until December 31, 2000. HealthAxis has also engaged other
UICI subsidiaries to provide services such as printing and newsletter
publication. It is intended that the UICI subsidiaries will continue to provide
these services for a limited period of time into the future.
HealthAxis leases two facilities from subsidiaries of UICI. HealthAxis
leases office space located in Hurst, Texas, pursuant to a written agreement
that expired on December 31, 1999 and currently continues on a month to month
basis. HealthAxis leases additional office space in Dallas, Texas, on a
month-to-month basis under a verbal agreement. For the nine months ended
September 30, 2000, HealthAxis paid an aggregate of approximately $308,000 under
these leasing arrangements. Insurdata Incorporated paid an aggregate of
approximately $112,000, $255,000 and $369,000 under these leasing arrangements
for the years ended December 31, 1997, 1998 and 1999, respectively. HealthAxis
believes that the terms of these lease arrangements are no less favorable to it
than could have been obtained in a transaction with an unaffiliated party.
HealthAxis also currently provides work flow and business applications
to UICI Administrators, Inc., an entity that provides administrative services
and is owned by UICI, pursuant to a written service license agreement. For the
nine months ended September 30, 2000, UICI Administrators accounted for an
aggregate of $3.8 million or 12% of HealthAxis' revenues from continuing
operations. For the years ended December 31, 1997 and 1998 and 1999, UICI
Administrators accounted for an aggregate of $1.6 million, $2.1 million and $3.0
million, respectively, of Insurdata Incorporated's pro forma revenues under the
agreement, which represent approximately 6%, 6% and 7%, respectively, of
Insurdata Incorporated's pro forma revenues for such periods. The amounts paid
by UICI Administrators are included in the UICI and subsidiaries numbers
included on the previous page.
During 1999, Insurdata Incorporated entered into a contract with UICI
Administrators and an unrelated third party for both programming services and
ongoing processing of medical insurance claims and Medicare claims. The contract
provides for HealthAxis to receive an approximate $1.1 million fixed fee for
programming services payable initially in cash up to $640,000 as programming
services are performed and then by a $460,000 non-interest bearing note with an
estimated value of approximately $370,000 using an estimated implied interest
rate of 8.75%. The note will be paid in equal monthly installments of $7,666
over the five-year life of the contract. The note is collateralized by the
proceeds of the cancellation provisions within the UICI Administrators' contract
with the unrelated third party. HealthAxis recorded approximately $812,000 in
programming pro forma revenues under this contract during the year ended
December 31, 1999 and $288,000 for the nine months ended September 30, 2000.
These amounts are included in the UICI Administrators numbers in the preceding
paragraph. The arrangement with UICI Administrators provided for the customary
transaction and processing fees over the term of the contract.
HealthAxis provides accounting and management services to UICI
Administrators. In exchange for these services, UICI Administrators pays
HealthAxis a fee based upon the salary, benefits and time commitment of its
employees actually performing the services. The fee is intended to reimburse
HealthAxis for the costs of providing these services and therefore such fees are
offset against the related expenses. Fees received by Insurdata Incorporated
from UICI Administrators amounted to $2,000, $134,000 and $143,000 for the years
ended December 31, 1997, 1998 and 1999, respectively. HealthAxis did not receive
any fees from UICI Administrators for the nine months ended September 30, 2000.
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In addition to the accounting services provided by Insurdata
Incorporated, its President and Chief Executive Officer, Dennis B. Maloney who
is currently the Chief Operating Officer and a director of HealthAxis, provided
management oversight of UICI Administrators. Neither Mr. Maloney nor Insurdata
Incorporated received any compensation in exchange for Mr. Maloney's services.
HealthAxis ceased providing these services following the completion of Insurdata
merger.
Winterbrook VSO provides sales and marketing services for HealthAxis'
imaging and electronic data capture services pursuant to a verbal brokerage
agreement. Winterbrook VSO is owned by Ronald L. Jensen, current Chairman of
UICI and a director of HealthAxis until February 2000. Under the agreement that
expired June 30, 1997, Winterbrook VSO received a commission computed on the
amount of recurring license fees under client contracts that Winterbrook VSO
brokered on behalf of HealthAxis. During 1996 and 1997, Insurdata Incorporated
advanced funds to Winterbrook VSO against future commissions to be earned by
Winterbrook VSO under the brokerage agreement. The advances were not made
pursuant to a written promissory note and did not bear interest. The outstanding
balance of the pro forma advances was approximately $100,000 and $90,000 as of
December 31, 1996 and 1997, respectively. Insurdata Incorporated paid
Winterbrook VSO, or offset against the outstanding balance of any advances, as
applicable, an aggregate of approximately $132,000, $191,000 and $258,000 for
the years ended December 31, 1997, 1998 and 1999, respectively. At September 30,
2000, the balance of commissions owed to Winterbrook VSO was approximately
$52,000 Mr. Jensen purchased Winterbrook VSO from UICI in July 1997.
Netlojix Communications, Inc., a telephone company in which Ronald L.
Jensen, Chairman of UICI and a former director of HealthAxis, and his five adult
children and their affiliated trusts own a controlling interest, provides
telephone services to UICI and its subsidiaries, including Insurdata
Incorporated (now HealthAxis' application solutions group) pursuant to a written
agreement. This agreement is for a 15 month term expiring November 2000 with
automatic monthly renewal provisions thereafter, subject to 30 days' notice of
non-renewal. In 1997 and 1998 and until August 1, 1999, Matrix Telecom, a
subsidiary of Netlojix Communications, Inc., provided telephone services to
Insurdata Incorporated. For the nine months ended September 30, 2000, HealthAxis
paid Netlojix Communications, Inc. $316,000. For the years ended December 31,
1997, 1998 and 1999, Insurdata Incorporated paid these entities approximately
$46,000, $132,000 and $243,000, respectively.
JetForm Corporation, a software provider of which Dennis B. Maloney was
a director, licenses some of its software products pursuant to its standard
license agreement to HealthAxis. HealthAxis uses the software to support
workflow and printing functionality provided within various client solutions.
For the nine months ended September 30, 2000, HealthAxis paid JetForm Corp.
$14,000. For the years ended December 31, 1999, 1998 and 1997, Insurdata
Incorporated paid JetForm Corp. $27,000, $52,000 and $0.
Effective October 1, 1999, Insurdata Incorporated sold its Insurdata
Administrators division, which provided benefits administration services and its
100% member interest in Insurdata Marketing Services, LLC to a subsidiary of
UICI for a sales price in cash of approximately $459,000 and $399,000,
respectively. The price approximated Insurdata Incorporated's net book value of
the Insurdata Administrators division and Insurdata Marketing Services, LLC at
the time of the sale.
The book value of the assets and liabilities of the Insurdata
Administrators division and Insurdata Marketing Services, LLC at September 30,
1999 were as follows:
Cash and current equivalents................................... $ 598,000
Other current assets........................................... 415,000
Non-current assets............................................. 960,000
Liabilities.................................................... (1,115,000)
----------
Shareholders equity and Member interest (net book value)....... $( 858,000)
==========
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On October 18, 1999, Insurdata Incorporated made loans aggregating
$631,000 to some of its executive officers, including Dennis B. Maloney, who is
HealthAxis' Chief Operating Officer. These loans were extended by Insurdata
Incorporated for the purpose of enabling such individuals to exercise options to
purchase Insurdata Incorporated common stock issued under Insurdata Incorporated
Founders' Plan. Each of the loans is due on December 31, 2002 and bears interest
at a rate of 6% per annum, with interest payable quarterly. If the employee is
terminated and there is a public market for the shares, the due date on the loan
is accelerated to 90 days from the later of termination or the establishment of
a public market. The largest outstanding balance on the loans was $631,000
during 1999. The outstanding balance on these loans was $631,000 at September
30, 2000. These loans are now held by HealthAxis and are secured by HealthAxis
common stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH NOMINEE FOR
DIRECTOR.
158
<PAGE>
ITEM 2 - HEALTHAXIS MERGER PROPOSAL
For summary and detailed information regarding the merger proposal, see
"Chapter I -- The Merger."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 2.
159
<PAGE>
ITEM 3 - ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or to approve the adoption of the amended and restated agreement and plan of
reorganization and the amended and restated merger agreement at the time of the
annual meeting, the proposal could not be approved unless the annual meeting is
adjourned in order to permit further solicitation of proxies. In order to allow
proxies which have been received by HealthAxis, at the time of the applicable
meeting to be voted for the adjournment, if necessary, HealthAxis has submitted
the question of adjournment under such circumstances to its shareholders as a
separate matter for their consideration.
The board of directors of HealthAxis recommends that shareholders vote
their proxies in favor of the adjournment proposal so that their proxies may be
used for such purpose in the event it becomes necessary. Properly executed
proxies will be voted in favor of the adjournment proposal unless otherwise
indicated thereon. If it is necessary to adjourn the annual meeting, no notice
of the time and place of the adjourned meeting is required to be given to
shareholders other than an announcement of such time and place at the annual
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 3.
160
<PAGE>
CHAPTER V - OTHER MATTERS
Where You Can Find More Information
HAI files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements
and other information HAI files with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C., 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. HAI's SEC filings are also available on the SEC's Internet site
(http://www.sec.gov).
HAI filed a registration statement on Form S-4 to register the shares
of HAI common stock to be issued in the merger under the Securities Act. This
joint proxy statement/prospectus is a part of the registration statement on Form
S-4 and constitutes a prospectus of HAI in addition to being a proxy statement
of each of HAI and HealthAxis for their annual meetings. As allowed by SEC
rules, this joint proxy statement/prospectus does not contain all the
information you can find in the registration statement on Form S-4 or the
exhibits to the registration statement on Form S-4.
The SEC also allows HAI to "incorporate by reference" the information
it files with the SEC, which means HAI can disclose information to you by
referring you to another document filed separately with the SEC. Information
incorporated by reference is deemed to be part of this joint proxy
statement/prospectus. Later information filed by HAI with the SEC updates and
supersedes this joint proxy statement/prospectus.
The following documents previously filed by HAI with the SEC under the
Exchange Act (File No. O-13591) are incorporated in this joint proxy
statement/prospectus by this reference:
<TABLE>
<CAPTION>
SEC Filings Period
--------------------------------- ------------------------------------------------------
<S> <C>
Annual Report on Form 10-K/A Year ended December 31, 1999.
Quarterly Reports on Form 10-Q/A Three months ended March 31, 2000, six months ended
June 30, 2000 and nine months ended September 30, 2000.
Current Reports on Form 8-K January 21, 2000, February 1, 2000 and April 3, 2000,
July 20, 2000, September 18, 2000, October 11, 2000,
October 27, 2000 and December 14, 2000.
Amendments to Current Reports on Form 8-K/A February 17, 2000 and April 20, 2000.
</TABLE>
All documents filed by HAI under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this joint proxy statement/prospectus
and prior to the annual meetings of HAI and HealthAxis will be deemed to be
incorporated by reference in this joint proxy statement/prospectus and to be a
part of this joint proxy statement/prospectus from the date any document is
filed.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to vote on the proposed
merger. Neither HealthAxis nor HAI has authorized anyone to provide you with
information that is different from what is contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is dated _________,
2000. You should not assume that the information contained in the joint proxy
statement/prospectus is accurate as of any date other than that date, and
neither the mailing of this joint proxy statement/prospectus nor the issuance of
HAI common stock in the merger will create any implication to the contrary.
161
<PAGE>
Legal Matters
The validity of the shares of HAI common stock offered hereby will be
passed upon for HAI by Stradley Ronon Stevens & Young, LLP.
Experts
The consolidated financial statements of HAI for each of the three
years in the period ended December 31, 1999 incorporated by reference into this
joint proxy statement/prospectus have been audited by BDO Seidman, LLP,
independent certified public accountants, to the extent and for the periods set
forth in their reports and are included in reliance upon such reports given upon
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of HealthAxis for each of the
year ended December 31, 1999 and for the period from Inception (March 26, 1998)
through December 31, 1998 included in the joint proxy/prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports and are included in reliance upon such reports given upon the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Insurdata Incorporated and
Subsidiaries at December 31, 1998 and 1999, and for each of the three years in
the period ended December 31, 1999, included in this joint proxy statement of
HAI and HealthAxis, which is referred to and made a part of this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
Financial Statements
HAI has enclosed its Annual Report to Shareholders for the year ended
December 31, 1999 with this joint proxy statement/prospectus. Shareholders are
referred to the report for financial and other information about HAI, but such
report is not incorporated in this joint proxy statement/ prospectus and is not
a part of the proxy soliciting material.
Annual Report on Form 10-K/A
Upon the written request of any beneficial owner of HAI's common stock,
HAI will provide, without charge, a copy of its Annual Report on Form 10-K/A
(including financial statements and schedules) for the year ended December 31,
1999. 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
Steve Kaplan, Investor Relations, HealthAxis Inc., 2500 DeKalb Pike, East
Norriton, Pennsylvania 19401 or by phone (610) 279-8500.
162
<PAGE>
Shareholder Proposals
Pursuant to the proxy rules under the Exchange Act, HAI's shareholders
are notified that the deadline for providing HAI timely notice of any
shareholder proposal to be submitted outside of the Rule 14a-8 process for
consideration at HAI's 2001 annual meeting of shareholders will be ____________,
2001. As to all such matters which HAI does not have notice on or prior to
______________, discretionary authority shall be granted to the persons
designated in HAI's proxy related to the 2001 meeting to vote on such proposal.
With respect to inclusion of shareholder proposals in HAI's proxy materials
related to the 2001 meeting, shareholder proposal must be submitted to HAI at
its office located at 2500 DeKalb Pike, East Norriton, Pennsylvania 19401, by
____________, 2001. Any such proposal must also comply with the proxy rules
under the Exchange Act, including Rule 14a-8.
163
<PAGE>
CHAPTER VI--CONSOLIDATED FINANCIAL STATEMENTS
OF HEALTHAXIS.COM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
HealthAxis.com, Inc and Subsidiaries
(A Development Stage Enterprise)
Consolidated Financial Statements
Pages
For the Year Ended December 31, 1999:
Report of Independent Accountants........................................ F-2
Restated Consolidated Balance Sheets..................................... F-3
Restated Consolidated Statements of Operations........................... F-5
Restated Consolidated Statements of Changes in Stockholders' Equity...... F-6
Restated Consolidated Statements of Cash Flows........................... F-7
Restated Notes to Consolidated Financial Statements...................... F-9
For the Nine Months Ended September 30, 2000:
Consolidated Balance Sheets.............................................. F-41
Consolidated Statements of Operations.................................... F-42
Consolidated Statements of Changes of Stockholders' Equity............... F-43
Consolidated Statements of Cash Flows.................................... F-44
Notes to Consolidated Financial Statements............................... F-46
Insurdata Incorporated and Subsidiaries
Consolidated Financial Statements
For the Year Ended December 31, 1999:
Report of Independent Accountants........................................ F-53
Consolidated Balance Sheets.............................................. F-54
Consolidated Statements of Operations.................................... F-55
Consolidated Statements of Changes of Stockholders' Equity............... F-56
Consolidated Statements of Cash Flows.................................... F-57
Notes to Consolidated Financial Statement................................ F-58
F-1
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
HealthAxis.com, Inc.
East Norriton, Pennsylvania
We have audited the accompanying consolidated balance sheets of HealthAxis.com,
Inc. and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1999 and for the period from March 26, 1998
(inception) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 18, on January 7, 2000, the Company acquired Insurdata,
Incorporated and has accounted for that acquisition using the purchase method
of accounting. In addition, as described in Note 19, on June 30, 2000, the
Company agreed to sell substantially all of the assets related to its retail
website and as of that date has accounted for the disposal of the retail
website as a discontinued operation. The continuing operations of
Healthaxis.com, Inc. and Subsidiaries are principally those of of Insurdata
Incorporated.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HealthAxis.com,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the year ended December 31, 1999 and for the
period from March 26, 1998 (inception) through December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ BDO Seidman LLP
--------------------------
BDO Seidman LLP
Philadelphia, Pennsylvania
March 16, 2000 except for
Notes 10, 11, 12, 13, 18 and 20 which are as of September 29, 2000
Notes 5, 7, 8 and 19 which are as of October 13, 2000
F-2
<PAGE>
HealthAxis.com, Inc.
Restated Consolidated Balance Sheets
(in thousands, except per share and share data)
December 31, 1999 1998
--------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $56,444 $1,724
Other assets 369 125
--------------------------------------------------------------------------------
Total current assets 56,813 1,849
Deferred acquisition costs 750 --
Equipment and software, net of accumulated depreciation of
$12 in 1999 and $10 in 1998 159 218
Assets held for sale 7,204 12,902
--------------------------------------------------------------------------------
Total assets $64,926 $14,969
================================================================================
See accompanying notes to consolidated financial statements
F-3
<PAGE>
HealthAxis.com, Inc.
Restated Consolidated Balance Sheets
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 5,434 $ 2,012
--------------------------------------------------------------------------------------------------------
Commitments and contingencies
Preferred stock Series A $.13 cumulative, redeemable and
convertible
Authorized 953,980 shares
Issued and outstanding 545,916 shares -- 2,470
Preferred stock Series B $.13 cumulative, redeemable and
convertible
Issued and outstanding 625,529 shares 2,804 2,735
--------------------------------------------------------------------------------------------------------
2,804 5,205
--------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock, $1 par value
Authorized 20,000,000 shares for all issues
Series A
Issued and outstanding 545,916 shares 546 --
Series C
Issued and outstanding 1,526,412 shares 1,526 --
Series D
Issued and outstanding 333,334 shares 333 --
Common stock, no par value
Authorized 100,000,000 shares
Issued and outstanding 20,587,311 shares in 1999 and
16,172,760 shares in 1998 70,506 9,060
Additional paid-in capital 18,285 3,482
Accumulated (deficit) (34,508) (4,790)
--------------------------------------------------------------------------------------------------------
Total stockholders' equity 56,688 7,752
--------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 64,926 $14,969
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HealthAxis.com, Inc.
Restated Consolidated Statements of Operations
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Period from
March 26,
1998
(inception)
Year ended through
December 31, December 31,
1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue
Interactive commission and fee revenue $ -- $ --
-----------------------------------------------------------------------------------------------------------------
Expenses
Operating 504 277
Sales and marketing 447 134
General and administrative 3,345 2,716
-----------------------------------------------------------------------------------------------------------------
Total expenses 4,296 3,127
------------------------------------------------------------------------------------------------------------------
Operating (loss) (4,296) (3,127)
Interest and other income 451 2
Interest expense (9) (141)
-----------------------------------------------------------------------------------------------------------------
Loss from continuing operations (3,854) (3,266)
Loss from discontinued operations (25,864) (1,524
-----------------------------------------------------------------------------------------------------------------
Net (loss) (29,718) (4,790
Dividends on preferred stock (129) (106)
-----------------------------------------------------------------------------------------------------------------
Net (loss) applicable to common stock $ (29,847) (4,896)
=================================================================================================================
Loss per share of common stock (basic and diluted)
Continuing operations $ (0.23) $ (0.24)
Discontinued operations (1.54) (0.11)
----------- ----------
Net loss $ (1.77) $ (0.35)
=================================================================================================================
Weighted average common shares and equivalents used
in computing loss per share
Basic and diluted 16,808,000 14,027,000
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HealthAxis.com, Inc.
Restated Consolidated Statements of Changes in Stockholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Preferred Stock Common Stock
Series A Series C Series D
Shares Amount Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 26, 1998 $ -- $ -- $ -- $ --
Stock dividend on a 14:1 basis 12,250,000
Capital contribution from parent
company 1,557,395 3,001
Stock options and warrants issued
HPS note conversion 2,365,365 6,059
Dividends on preferred stock
Net (loss)
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 16,172,760 9,060
Reclassification of preferred stock 545,916 546
Additional contribution from parent
company
Preferred shares issued, net of
issuance costs 1,526,412 1,526 333,334 333
Common shares issued, net of
issuance costs 4,362,051 61,347
Warrants issued for services
Exercise of stock options 52,500 99
Dividends on preferred stock
Net loss
--------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 199 545,916 $ 546 1,526,412 $1,526 333,334 $333 20,587,311 $70,506
================================================================================================================================
</TABLE>
[RESTUBED FOR ABOVE]
<TABLE>
<CAPTION>
Additional Accumu-
Paid-In lated
Capital (Deficit) Total
---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, March 26, 1998 $ -- $ -- $ --
Stock dividend on a 14:1 basis --
Capital contribution from parent
company 3,473 6,474
Stock options and warrants issued 115 115
HPS note conversion -- 6,059
Dividends on preferred stock (106) (106)
Net (loss) (4,790) (4,790)
---------------------------------------------------------------------------
Balance, December 31, 1998 3,482 (4,790) 7,752
Reclassification of preferred stock 1,854 -- 2,400
Additional contribution from parent
company 87 -- 87
Preferred shares issued, net of
issuance costs 10,223 -- 12,082
Common shares issued, net of
issuance costs 61,347
Warrants issued for services 2,768 -- 2,768
Exercise of stock options -- -- 99
Dividends on preferred stock (129) -- (129)
Net loss (29,718) (29,718)
---------------------------------------------------------------------------
Balance, December 31, 199 $ 18,285 $(34,508) $56,688
===========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HealthAxis.com, Inc.
Restated Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Period from
March 26,
1998
(inception)
Year ended through
December 31, December 31,
1999 1998
=================================================================================================================
<S> <C> <C>
Cash flows from operating activities
Net (loss) $(29,718) $(4,790)
Adjustments to reconcile net loss to net cash (used in)
operating activities
Issuance of common stock in lieu of interest on
HPS note -- 106
Depreciation and amortization 16,283 1,172
Noncash compensation expense 120 61
Premium on conversion of HPS convertible note -- 953
Write-off of software costs 749 --
Changes in assets and liabilities
(Increase) in assets
Prepaid interactive marketing expense (4,730) (9,300)
Other assets (244) (70)
Increase in liabilities
Accounts payable and accrued expenses 3,422 2,012
=================================================================================================================
Net cash (used in) operating activities (14,118) (9,856)
=================================================================================================================
Cash flows from investing activities
Purchases of equipment and software (3,814) (1,520)
Payment of deferred acquisition costs (750)
=================================================================================================================
Net cash (used in) investing activities (4,564) (1,520)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
HealthAxis.com, Inc.
Restated Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
Period from
March 26, 1998
(inception)
Year ended through
December 31, December 31,
1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities
Principal payments on capital lease $ (125) $ --
Net proceeds from sales of common stock 61,445 3,000
Net proceeds from sales of preferred stock 12,082 5,100
Proceeds from issuance of HPS convertible note -- 5,000
----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 73,402 3,100
----------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 54,720 1,724
Cash and cash equivalents at beginning of period 1,724 --
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $56,444 $1,724
==========================================================================================================
Noncash financing activities
Fair value of warrants issued by HAI and HealthAxis $ 278 $2,994
Issuance of warrants in connection with alliance
agreements $ 2,719 $ --
Additional contribution from parent company $ 87 $ --
Issuance of common stock on conversion of HPS note $ -- $5,000
Equipment acquired under capital leases $ 154 $ --
Dividends on preferred stock $ 129 $ 106
==========================================================================================================
Other supplemental disclosure
Interest paid $ 9 $ --
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
1. Nature of HealthAxis.com, Inc. ("HealthAxis" or "the Company") was
Operations incorporated on March 26, 1998 to sell health insurance
products online.
HealthAxis is a subsidiary of HealthAxis Inc. ("HAI")
(formerly Provident American Corporation), which as of
December 31, 1999 owned 66.9% of HealthAxis' capital
stock.
On December 7, 1999, the Company announced that
HealthAxis and Insurdata Incorporated, a subsidiary of
UICI, had signed a definitive agreement to merge the two
companies which was completed on January 7, 2000. See
Note 18 for additional information.
On January 26, 2000, HAI and HealthAxis entered into an
Agreement and Plan of Reorganization and an Agreement
and Plan of Merger pursuant to which HAI will acquire
all of the outstanding shares of HealthAxis it does not
currently own through the merger of HealthAxis with a
wholly-owned subsidiary of HAI as described in Note 18.
The merger is subject to both HAI and HealthAxis
shareholder approval and is expected to be completed
during the first quarter of 2001.
On June 30, 2000, HealthAxis entered into an agreement
to sell substantially all of the assets related to the
retail website including the next version of its website
uses interface as well as certain other assets to
Digital Insurance, Inc. ("Digital"). This transaction is
referred to as the Digital Sale. See Note 19 for
Additional information.
The continuing operations of HealthAxis are principally
those of its merged divisions related to Insurdata.
2. Restated Financial These financial statements have been restated to reflect
Statements the discontinued operations associated with the Digital
Sale (as described in Note 20).
3. Summary of Principles of Consolidation
Significant
Accounting The consolidated financial statements include the
Policies accounts of HealthAxis and all of its subsidiaries. All
significant intercompany accounts and transactions have
been eliminated. The consolidated financial activity and
amounts of HealthAxis and subsidiaries are also included
in the consolidated financial statements of HAI.
Use of Estimates
The preparation of financial statements in conformity
with Generally Accepted Accounting Principles requires
management to make estimates and assumptions that affect
the reported amounts of revenues, expenses, assets, and
liabilities and disclosure of contingencies. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid
investments with maturities of three months or less from
F-9
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
date of purchase. HealthAxis maintains its cash accounts
at one commercial bank. Cash accounts at the bank often
exceed amounts that are insured by the Federal Deposit
Insurance Corporation.
Prepaid Interactive Marketing Expense
Prepaid interactive marketing expense represents cash
and other consideration paid to Internet portals in
accordance with distribution arrangements for
exclusivity and advertising impressions. Payments
related to exclusivity and advertising are allocated
based upon the terms in the agreement. The fair value of
warrants issued are allocated to exclusivity and
advertising in direct proportion to amounts paid.
Amounts related to exclusivity are amortized on a
straight-line basis over the respective contract term.
Amounts related to advertising impressions are expensed
as impressions are delivered under the respective
agreements. If the contract is silent as to the
allocation of costs, then the amounts are amortized on a
straight line basis over the contract term. See Note 7
and Note 19 for additional information.
Prepaid Alliance Agreements
Prepaid alliance agreements represent the fair value of
warrants issued to business partners. The cost
associated with services provided in accordance with
each agreement is amortized on a straight-line basis
over the life of the agreement, or if no term exists in
the agreement, over the term of the warrants granted.
See Note 8 and Note 19 for additional information.
Equipment and Software
Equipment and software are recorded at cost.
Expenditures for improvements that increase the
estimated useful lives of the assets are capitalized.
Expenditures for repairs and maintenance are charged to
operations as incurred. Depreciation and amortization is
provided using the straight-line method over the
estimated useful lives of the assets. Upon sale or
retirement, the cost of the asset and the related
accumulated depreciation and amortization are removed
from the accounts and the resulting gain or loss, if
any, is included in operations. See Note 5 and Note 19
for additional information.
During 1998, HealthAxis adopted Statement of Position
98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Accordingly,
direct internal and external costs associated with the
development of the features, content and functionality
of www.healthaxis.com, HealthAxis' website, incurred
during the application development stage, have been
capitalized, and are amortized on a straight line basis
over the estimated useful life.
F-10
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
Computer hardware and software are depreciated over
three years and furniture is depreciated over seven
years.
The Company has evaluated all software development
projects, that were in progress as of December 31, 1999,
to determine whether it was probable that any of the
projects would be placed in service. Based on that
evaluation, the Company expects to complete and put in
service all software development projects that existed
as of that date.
Start-Up Costs
In accordance with Statement of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities",
start-up costs have been expensed as incurred.
Recognition of Revenue
The Company sells insurance policies as an agent over
the Internet and receives a monthly commission and
policy fee on each policy every month in which a policy
the Company sold is in effect with the insurance
carrier. Commissions are determined based on a
percentage of the premium received by the insurance
carrier partner as stipulated by the Company's contract
with the insurance carrier partner. Policy fees are a
flat rate received for each policy in effect in a
specific month. Commissions are received from every
insurance carrier, whereas policy fees are received from
select insurance carriers as determined by the Company's
contract with the insurance carrier partner. Due to the
Digital Sale all revenues are included as a component of
discontinued operations. See Note 19 for additional
information.
Deferred Acquisition Costs
The Company has deferred the costs associated with the
pending merger with Insurdata. These costs include
legal, accounting and investment banking services. These
costs will be included as a component of the purchase
price upon consummation of the merger.
Income Taxes
Effective April 1999, HealthAxis is no longer eligible
to participate in the consolidated federal income tax
return of HAI. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes. See Note 15 for additional information.
F-11
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
Loss Per Share of Common Stock
HealthAxis presents basic and diluted earnings per
share. Equivalents, including warrants, stock options,
and preferred stock, were anti-dilutive for all periods
presented.
Reclassifications and Restatements of Prior Year Amounts
Certain prior year amounts have been reclassified to
conform to the current year's presentation including the
restatements related to discontinued operations.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets and certain
identifiable intangibles for impairment whenever events
or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable in accordance
with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121") and on a quarterly basis. Recoverability of assets
held and used is measured by a comparison of the
carrying amount of an asset to undiscounted pre-tax
future net cash flows expected to be generated by that
asset. An impairment loss is recognized for the amount
by which the carrying amount of the assets exceeds the
fair value of the assets. To date no such impairment has
been recognized.
SFAS 121 requires that the Company group assets at the
lowest level for which there are identifiable cash flows
that are independent of cash flows of other groups of
assets. The Company will group assets at the entity
level since the goodwill resulting from acquisition of
Insurdata will be evaluated concurrently. The fair
market value of impaired assets will be determined using
discounted cash flows.
Stock Options and Warrants - Nonemployees
The Company accounts for all options and warrants
granted to nonemployees in accordance with Financial
Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123").
(See Note 9 for additional information.)
Stock Options and Warrants - Employees and Directors
The Company has elected to continue to account for
stock-based compensation for employees and directors
using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related
interpretations and to provide additional disclosures
with respect to the pro forma effects of adoption had
the Company recorded compensation expense as provided in
FAS 123. (See Note 9 for additional information)
In accordance with APB No. 25, compensation cost for
stock options is recognized in income based on the
F-12
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
excess, if any, of the quoted market price of the stock
at the grant date of the award or other measurement date
over the amount an employee must pay to acquire the
stock.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments", as amended by SFAS 137. SFAS 137 delays
the effective date of implementation of SFAS 133 by one
year. SFAS 133 established accounting and reporting
standards for derivative instruments and for hedging
activities. SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities and
measure those instruments at fair market value.
Presently, HealthAxis does not use derivative
instruments either in hedging activities or as
investments. Accordingly, HealthAxis believes that
adoption of SFAS 133 will have no impact on its
financial positions or results of operations.
In December 1999, the Securities and Exchange Commission
staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No.
101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial
statements. SAB No. 101 did not impact the Company's
revenue recognition policies.
In March 2000, the Emerging Issues Task Force ("EITF")
reached consensus position in EITF Issue No. 00-2
"Accounting for Website Development Costs". This
pronouncement provides guidance in accounting for such
costs. The Company believes that the adoption of EITF
No. 00-2 has no impact on its financial position or
results of operations.
4. Losses and The Company has incurred costs to develop and enhance
Uncertainties its technology, to create and introduce its website and
to establish marketing, insurance carrier and claims
administration relationships. As a result, the Company
has incurred significant losses and expects to continue
to incur losses through December 31, 2000. As discussed
in Notes 18 and 19, the Company has changed its focus
and sold assets related to its retail website and
concentrated its efforts in promoting the operations of
Insurdata Incorporated which was acquired in January ,
2000.
Insurdata is focused exclusively on providing Internet
connectivity technology solutions and enterprise
F-13
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
application integration services to both healthcare
payers and those entities involved in the digital
distribution of health insurance. Insurdata has an
established revenue base and services insurance
companies that underwrite policies, independent entities
that administer claims processing and payment, Blue
Cross/Blue Shield plans, and self-insured employers.
HealthAxis plans to offer a platform of web-enabled
software applications and services to insurance payers.
During 1999, HealthAxis raised approximately $76,690
through the sale of its preferred stock ($12,807) and
its common stock ($63,883). The net proceeds have been
used to fund amounts due under its distribution
agreements with the balance to be used by HealthAxis for
its working capital and other general purposes. As a
result of the fund-raising activities described above,
HealthAxis believes that it has sufficient working
capital to fund operations for the foreseeable future.
5. Equipment and Equipment and software, at cost, consisted of the
Software following:
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31,
(Years) 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements 5 $ 65 $ --
Furniture and equipment 7 47 --
Computer hardware 3 59 228
Computer software 3 -- --
Capitalized software
development costs 3 -- --
-------------------------------------------------------------------
Total 171 228
Less accumulated
depreciation and
amortization (12) (10)
-------------------------------------------------------------------
Total equipment and
software $159 $ 218
===================================================================
</TABLE>
6. Accounts Payable Accounts Payable and Accrued expenses consisted of the
and Accrued following:
Expenses
<TABLE>
<CAPTION>
December 31, 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C>
Accounts payable $1,438 $ 481
Due to affiliate -- 93
Dividends payable 129 --
Accrued financing fees 1,277 --
Accrued merger costs 460 --
Accrued payroll and benefits 177 --
Accrued professional fees 387 --
Other accrued expenses 1,345 1,093
Accrued taxes 117 10
Employee withholdings 25 3
Unearned e-commerce revenue -- 332
Deferred revenue 50 --
Capital lease 29 --
-------------------------------------------------------------------
Total accounts payable and
accrued expenses $5,434 $2,012
===================================================================
</TABLE>
F-14
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
7. Distribution In 1998, HealthAxis entered into various distribution
Agreements agreements with AOL, CNET, SNAP! And Lycos. Under these
agreements, these internet portals promoted HealthAxis'
products to the online users of their websites. The
initial terms of the agreements range from 12 to 15
months with the last agreement expiring in August 2000.
In 1999 and 1998, HealthAxis made payments and issued
warrants, valued using the Black Scholes Option Pricing
Model, aggregating $16,970 which have been charged to
prepaid interactive marketing expense. The amounts
deferred were allocated based on the terms of each
contract between exclusivity and impression advertising
costs, which totaled $3,527 and $13,443, respectively.
During 1999 and 1998, $3,242 and $11,352 and $381 and
$204 were charged to expense representing exclusivity
and impression advertising, respectively.
During 1999 and 1998, a total of 830,082,353 and
10,244,130 impressions on HealthAxis' website by
Internet subscribers were delivered as a result of the
agreements.
Each agreement provides for a renewal term ranging from
12 to 28 months for aggregate payments of $47.6 million
starting in February 2000. HealthAxis has chosen not to
exercise its option to renew its agreement with AOL for
an additional term and accordingly, will not pay a $33.5
million renewal fee. In 2000, approximately $1,160 was
paid under the initial agreements with its distribution
partners.
In 1999, HealthAxis entered into a distribution
agreement with Yahoo! that provided for a guaranteed
number of impressions. The initial term was for five
months beginning in September 1999 at a cost of $725.
In February 2000, HealthAxis renewed the contract with
Yahoo!. Total payments of $2,128 were to be paid under
the terms of the contract. In August 2000, the contract
was terminated with a total of $2,853 paid to Yahoo!
over the life of the contracts.
Upon termination of the Yahoo! contract, all
distribution agreements have either been canceled or
expired.
F-15
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
8. Prepaid Alliance During 1999, HealthAxis has negotiated
Agreements several strategic alliance agreements which
provide for the issuance of warrants to
purchase 762,500 shares of HealthAxis common
stock of which 612,500 can be exercised at
prices ranging from $4.40-$20.00. Warrants to
purchase 250,000 common shares will be valued
based upon the HAI stock prior to the
completion of each event as stipulated in the
contract.
The warrants have been valued using the Black
Scholes Option Pricing Model at $2,719 and
are being amortized on a straight-line basis
over the term of each agreement or the
expected life of the warrants if there is no
contract term. Amortization of $436 has been
charged to operations as a result of the
agreements during 1999.
Under the terms of each agreement, the
alliance partner has agreed to provide, among
other things:
|X| Insurance products to be offered on the
Company's web site;
|X| Underwriting, billing, claims processing
services;
|X| Technical support for the development of
3D imaging technology solutions;
|X| Consulting related to internet
advertising;
|X| Technical support for the design of
Internet insurance products.
The amortization related to these agreements
began in May 1999 and extends through June of
2002.
All of the rights and obligations under the
terms of these agreements will be assigned to
the acquirer of the retail insurance
operations. As a result, any warrants issued
by HealthAxis for future services will be
cancelled or will expire. See Note 19 for
additional information.
As a result of the sale of the retail
website, there will not be any future benefit
related to these agreements or continued
vesting in relation to these warrants.
Warrants which are vested may be exercised
until they expire in two to four years.
Therefore, the prepaid costs associated with
these warrants are included in Assets Held
for Sale on these restated financial
statements and the amortization is included
in the sale of discontinued operations on
June 30, 2000.
9. Stock Options Options
and Warrants
HealthAxis has a stock option plan, which
provides for the granting of options to
directors and key employees of HealthAxis and
its subsidiaries.
During 1998, HealthAxis adopted the 1998
Stock Option Plan (the "1998 Stock Option
Plan"), which provides for the award of
options and stock purchase rights
(collectively "Awards") to purchase
HealthAxis common stock. Exercise prices are
based on 90% of the per share price paid in
private placement transactions with
unaffiliated third parties for grants prior
to May 1999 and 100% of the per share price
paid in private placement transactions with
unaffiliated third parties thereafter.
F-16
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
During 1998 options to purchase 991,000,
309,000 and 50,000 shares were granted to
Michael Ashker, Chief Executive Officer,
Alvin H Clemens, Chairman of the Board, and
Michael Beausang, the Company's former
Secretary, respectively, and are immediately
exercisable at a price of $1.77 per share
having a term of 10 years. Mr. Clemens'
option to purchase HealthAxis shares has been
terminated by mutual agreement. Options to
purchase 460,000 shares of HealthAxis common
stock awarded at $1.77 per share were awarded
to officers and employees. These options have
a term of five years and vest at a rate of
25% of the initial award on the grant date,
25% of the initial award on February 1, 1999
and the balance in quarterly installments
thereafter. Options to purchase an additional
96,500 shares of common stock were granted to
officers and employees at an exercise price
of $4.00 per share. Such options have a term
of five years and vest at a rate of 25% of
the initial award on the grant date, 25% of
the initial award on November 20, 1999 and
the balance in quarterly installments
thereafter.
During 1999, HealthAxis amended the 1998
Stock Option Plan to increase the number of
shares available pursuant for issuance of
options to 8,600,000. Options granted in 1999
have a term of ten years and vest at a rate
of 20-33% of the initial award on the grant
date, with the balance vesting in quarterly
installments over 2-5 years. Of the options
granted, options to purchase 200,000, 75,000,
60,000 and 20,000 shares were granted to Mr.
Ashker, Mr. Felder, Mr. Hankinson and Ms. del
Rossi, respectively. Mr. Ashker, Mr. Felder,
Mr. Hankinson and Ms. del Rossi are executive
officers of HealthAxis.
Stock Purchase Rights ("SPRs") may be granted
either alone, in addition to, or in tandem
with other awards granted under the Stock
Option Plan. SPRs may not be granted at less
than 85% of the fair market value on the date
of grant (or 100% of the fair market per
share for ten percent shareholders) unless
otherwise determined at the time of grant.
Under the terms of the 1998 Stock Option
Plan, the SPRs shall include a stock
repurchase option exercisable by HealthAxis
if the employee is terminated, voluntarily or
involuntarily, following the receipt of the
restricted stock.
F-17
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
The following table lists changes in
outstanding stock options for the HealthAxis
plan:
<TABLE>
<CAPTION>
Weighted
Average
Weighted (Years) Weighted
Number Average Remaining Average
of Exercise Contractual Fair
Shares Price Life Value
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted during 1998 1,956,500 $ 1.88 $ 0.38
Outstanding, December 31, 1998
Exercisable 1,515,000 1.77 0.36
Exercisable 24,125 4.00 0.80
Not exercisable 345,000 1.77 0.36
Not exercisable 72,375 4.00 0.80
Total outstanding 1,956,500 1.88 0.38
1999
Granted 445,500 $ 4.00 $ 0.80
Granted 758,371 5.77 3.71
Granted 700,750 12.00 7.80
Exercised 52,500 1.88
Canceled/Expired 732,400 3.09
Outstanding, December 31, 1999
Exercisable 1,274,021 1.77 3.7 0.36
Exercisable 146,333 4.00 2.3 0.80
Exercisable 111,332 5.77 8.4 3.71
Exercisable 70,670 12.00 9.1 7.80
Not exercisable 123,854 1.77 3.7 0.36
Not exercisable 145,667 4.00 2.3 0.80
Not exercisable 597,764 5.77 8.4 3.71
Not exercisable 606,580 12.00 9.1 7.80
Total outstanding 3,076,221 5.14
</TABLE>
Prior to the announcement of the merger of
HAI and HealthAxis (the "HAI merger"), the
fair value of HealthAxis' stock was based
upon the value of its common and preferred
stock sold in various private placements of
its stock during 1999. All options and
warrants granted subsequent to the
announcement of the HAI merger will be
measured for compensation purposes using the
fair value of HAI's stock.
F-18
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
In January and February 2000, the Company
granted options to acquire approximately
1,200,000 common shares at $15.00 per share.
The fair value of HAI common stock on the
grant dates approximated $29.00 per share. As
a result, the Company will amortize, for
financial accounting purposes, compensation
costs of approximately $16,800 over the 3-4
year vesting period of the options.
The Company has adopted the disclosure-only
provisions of SFAS 123 "Accounting for Stock
Based Compensation." Accordingly, no
compensation cost has been recognized for
stock option and warrant grants to employees
and employee-directors. The Company continues
to account for stock-based compensation using
the intrinsic value method prescribed in APB
opinion No. 25, "Accounting for Stock Issued
to Employees". Compensation cost for stock
options, if any, is measured as the excess of
the fair market price of the Company's stock
at the date of grant over the amount an
employee must pay to acquire the stock.
Compensation cost for shares issued under a
performance share plan is recorded based upon
the current market value of the Company's
stock at the end of each period. Had
compensation cost for HealthAxis stock option
grants been determined based on the fair
value at the date of grants in accordance
with the provisions of SFAS No. 123,
HealthAxis would have amortized the cost over
the vesting period of the option. HealthAxis'
1999 and 1998 net loss and net loss per
common share would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss applicable to common
Shares
As reported $ (29,847) $ (4,896)
Pro forma $ (31,277) $ (5,492)
Net loss applicable to common
shares for basic and diluted
As reported $ (1.77) $ (0.35)
Pro forma $ (1.86) $ (0.39)
</TABLE>
The fair value of the options and warrants
granted during 1999 and 1998 are estimated on
the date of grant using the Black Scholes
Option Pricing Model. The major assumptions
used and the estimated fair value include no
dividends paid, an expected term of five
years, an expected stock volatility of 1%, a
risk free interest rate of 4.48%. The
weighted average fair value of options
granted in 1999 and 1998 was $.36 and $.38,
respectively.
F-19
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
Warrants
The following table presents warrants
activity for 1999 and 1998:
<TABLE>
<CAPTION>
Weighted
Average
Weighted (Years) Weighted
Number Average Remaining Average
of Exercise Contractual Fair
Shares Price Life Value
----------------------------------------------------------------------------------
<S> <C> <C>
Granted during 1998 300,000 $ 1.77
Outstanding, December 31, 1998
Exercisable 300,000 1.77
Not exercisable -- --
Total outstanding 300,000 1.77
1999
Granted 825,500 8.21
Exercised -- --
Canceled/Expired -- --
Outstanding, December 31, 1999
Exercisable 300,000 1.77 8.5 $0.56
Exercisable 150,000 4.40 3.8 0.23
Exercisable 7,500 12.00 3.8 0.08
Exercisable 63,000 5.77 3.8 0.17
Exercisable 10,000 20.00 3.9 0.05
Exercisable 50,000 15.23 2.4 0.07
Not exercisable 30,000 13.80 4.5 0.07
Not exercisable 75,000 14.50 4.2 0.07
Not exercisable 150,000 16.00 4.5 0.06
Not exercisable 40,000 20.00 3.9 0.05
Not exercisable 250,000 (1)
Total outstanding 1,125,500 $4.77
</TABLE>
(1) The price of these warrants is
determined based upon the fair market
price of the shares on the date in the
future when the options are earned,
which is based upon performance
criteria.
F-20
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
In 1998, HAI issued warrants to purchase
420,000 shares of HAI common stock of which
400,000 warrants were issued to Lynx Capital
Group, LLC ("Lynx") (see Note 17) and 20,000
warrants were issued to Robinson, Lerer and
Montgomery for services rendered or to be
rendered to HealthAxis. The fair value of the
warrants issued amounting to $757 has been
accounted for as a capital contribution from
HAI. During 1999 and 1998, $330 and $409 have
been charged to operations, as a result of
services performed under the terms of the
agreements.
Lynx (1) provided introduction and frame work
for negotiations with AOL, CNet and Lycos;
(2) negotiated and structured the HPS (Health
Plan Services, Inc.) convertible note; and
(3) engaged and directed a third party
website technology firm to build the retail
website.
The fair value of the warrants granted above
was estimated on the date of grant using the
Black Scholes Option Pricing Model. The major
assumptions used included no dividends and
expected term of 3 years, an average expected
stock volatility of 92.5%, and a risk free
interest rate of 4.48%. The weighted average
fair value of the warrants granted was $8.21.
10. Series A During 1998, HealthAxis issued a total of
Convertible 545,916 shares of HealthAxis Cumulative
Preferred Stock Convertible Series A Preferred Stock, par
value $1.00. (the "Series A Preferred Stock")
to Provident Indemnity Life Insurance Company
("PILIC"), a subsidiary of HAI which was sold
in November 1999, for a total of $2,400.
Initially, PILIC purchased 405,886 shares of
Series A Preferred Stock at $5.91 per share.
The Stock Purchase Agreement for Series A
Preferred Stock with PILIC contained a price
adjustment provision that would require
HealthAxis to issue to PILIC additional
shares of Series A Preferred Stock if
HealthAxis sold other shares of common or
preferred stock to another investor at a
lower price. As a result of the sale of
Series B Preferred Stock to AOL at $4.40 per
share, HealthAxis issued an additional
140,030 shares of Series A Preferred Stock to
PILIC so that PILIC's price per share would
also equate to $4.40 per share.
Upon issuance, holders of the Series A
Preferred Stock were entitled to cumulative
dividends at an annual rate of $0.13 per
share. The shares were mandatorily redeemable
by the Company during the redemption period
at the original issue price ($4.40 per share)
plus any amount that would yield a 10%
annualized return. As a result of an
amendment to the Series A Preferred Stock
Certificate of Designation in 1999, holders
of the Series A Preferred Stock are now
entitled to receive dividends as declared by
the Board of Directors of HealthAxis at its
discretion. Also, in 1999, all of the
mandatory redemption provisions were removed.
As a result, the Series A Preferred Stock has
been reflected as a component of
stockholders' equity in 1999.
In 1999, HAI purchased all Series A Preferred
Stock from PILIC and transferred 100,000
shares to AHC Acquisition, Inc. ("AHC"), a
newly formed Pennsylvania business
corporation, owned by Mr. Alvin H. Clemens
(HealthAxis' and HAI's chairman), for no
consideration. In conjunction with the merger
described in Note 18, all of the Series A
Preferred Stock will be converted into common
stock of HAI.
F-21
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
Shares of Series A Preferred Stock are
convertible at any time, at the option of the
holder, into HealthAxis common stock at a
price equal to the original issuance price
($4.40 per share) divided by the conversion
price which is defined as the original
issuance price adjusted for future issuances
of HealthAxis common stock as defined in the
Preferred Stock Certificate of Designation.
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 HealthAxis common stock into which
the holder's Series A Preferred Stock is
convertible. Generally, the holders of Series
A Preferred Stock shall vote together with
the holders of HealthAxis common stock as one
class.
In the event of any dissolution, liquidation
or winding up of the affairs of HealthAxis,
whether voluntary or otherwise, after payment
or provision for payment of the debts and
other liabilities of HealthAxis and all
amounts owed to the Series B, Series C and
Series D Preferred Stock or any other class
of securities of HealthAxis having a dividend
payment or other distribution preference
senior to the Series A Preferred Stock (the
"Series A Senior Stock"), the holders of
Series A Preferred Stock shall be entitled to
receive $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 fixed date for
distribution, before any distribution may be
made to the holders of HealthAxis common
stock. Each Preferred Stock Certificate of
Designation includes additional provisions
related to liquidation and the order of
payment as it relates to each series of
Preferred Stock.
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
11. Series B During 1998, HealthAxis issued 625,529 shares
Redeemable of Series B convertible preferred stock, par
Convertible value $1.00 per share (the "Series B
Preferred Stock Preferred Stock") to AOL at $4.40 per share
for an aggregate purchase price of $2,750,
less issuance costs amounting to $51, of
which a portion was used to pay amounts due
to AOL under their distribution agreement
with the Company. In conjunction with the
merger described in Note 18, all of the
Series B Preferred Stock will be converted
into common stock of HAI.
Holders of the Series B Preferred Stock are
entitled to vote on all matters as to which
holders of common stock are entitled to vote.
The holders of each share of Series B
Preferred Stock are entitled to the number of
votes equal to the nearest whole number of
shares of HealthAxis common stock into which
the holder's Series B Preferred Stock is
convertible. Generally, the holders of Series
B Preferred Stock shall vote together with
the holders of HealthAxis common stock as one
class.
F-22
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
As a result of an amendment to the Preferred
Stock Certificate of Designation in 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 at a rate as
specified by the Preferred Stock Certificate
of Designation.
In the event of any dissolution, the holders
of Series B Preferred Stock shall be entitled
to receive, out of the assets of HealthAxis
legally available for distribution to its
shareholders, the amount of $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 fixed
date for distribution, before any
distribution may be made to the holders of
HealthAxis common stock, or any series of
Series B Junior Stock, including the Series
A, Series C and Series D Preferred Stock. If,
after payment or provision for payment of the
debts and other liabilities of HealthAxis,
the remaining net assets of HealthAxis 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 HealthAxis and the full
preference amount due to the holders of any
Series of preferred stock, Series A, Series
B, Series C and Series D Preferred Stock and
the HealthAxis common stock will be entitled
to receive on a pro rata basis the remaining
assets of HealthAxis available for
distribution to its shareholders. The
relative value of a share of Series A, Series
B, Series C and Series D Preferred Stock for
this purpose shall be determined on an as
converted basis.
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 HealthAxis 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.
F-23
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
Trigger Event is any of the following:
o January 31, 2002, if by then HealthAxis
has not consummated an underwritten public
offering for its account of common stock
pursuant to a registration statement filed
under the Securities Act of 1993, as
amended, at a net offering price per share
of Common Stock that represents a
pre-offering market capitalization of no
less than $150.0 million and with
aggregate proceeds (net of underwriting
discounts and commissions) to HealthAxis
of not less than $25.0 million;
o HealthAxis' failure to renew or any
material breach by any party other than
AOL or termination of the interactive
marketing agreement;
o The date of the occurrence of a
liquidation of HealthAxis;
o March 31, 1999, if by then HealthAxis has
not consummated a Qualified Financing (a
transaction yielding aggregate gross
proceeds to HealthAxis of not less than
$7.0 million at a price per share of
common stock equal to at least $3.74);
o May 31, 1999, if by then HealthAxis has
not consummated a Second Qualified
Financing (a transaction yielding
aggregate gross proceeds to HealthAxis of
not less than $3.5 million at a price per
share of Common Stock equal to at least
$3.74).
On January 31, 2000, the initial term of
HealthAxis' interactive marketing agreement
with AOL expired and HealthAxis chose not to
renew this agreement. Accordingly, one of the
above definitions of Trigger Events has been
met and AOL has the option to require
HealthAxis to redeem its shares. Other than
the expiration of the interactive marketing
agreement, none of the Trigger Events that
could have occurred in 1999 actually
occurred. Additionally, HealthAxis does not
expect additional Trigger Events to occur.
Shares of Series B Preferred Stock are
convertible at any time, at the option of the
holder, into HealthAxis common stock at a
price equal to the original issuance price
($4.40 per share) divided by the conversion
price which is defined as the original
issuance price adjusted for future issuances
of HealthAxis common stock as defined in the
Certificate of Designation related to the
Series B Preferred Stock.
The Series B Preferred Stock is not subject
to any sinking fund or other similar
provisions. The holders of Series B Preferred
Stock are not entitled to any preemptive
rights.
F-24
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
In connection with AOL's purchase of the
Series B Preferred Stock, HealthAxis and AOL
entered into a Registration Rights Agreement
("Registration Agreement") which sets forth
the rights of AOL in connection with the
public offering of HealthAxis' 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.
Under its Registration Agreement, AOL has the
right to demand registration of its shares of
common stock or to have its shares of common
stock included in a registration statement
prepared at the request of HealthAxis or
another HealthAxis shareholder.
12. Series C On March 30, 1999, HealthAxis issued
Convertible 1,526,412 shares of HealthAxis Series C
Preferred Stock convertible preferred stock at $5.77 per
share (the "Series C Preferred Stock"), for
an aggregate purchase price of $8,807, less
issuance costs of $684 and the value of
HealthAxis warrants issued in connection with
the issuance of Series C Preferred Stock to
an investment banker for services rendered in
connection with the Series C Preferred Stock
Offering valued at $278. In conjunction with
the merger described in Note 18, all of the
Series C Preferred Stock will be converted
into common stock of HAI.
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 are entitled 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. Generally, the holders of Series
C Preferred Stock shall vote together with
the holders of HealthAxis common and
preferred stock as one class.
Holders of the Series C Preferred Stock will
be entitled to dividends, on a pari passu
basis with the holders of Series D Preferred
Stock, accruing from the date of issue, as
such dividends are declared by the Board of
Directors of HealthAxis at its discretion at
a rate as specified by the Preferred Stock
Certificate of Designation.
In the event of any distribution, liquidation
or winding up of the affairs of HealthAxis,
whether voluntary or otherwise, after payment
or provisions for payment of debts an other
liabilities of HealthAxis and payment of all
amounts owed to the holders of the Series B
Preferred Stock, the holders of the Series C
Preferred Stock shall be entitled to receive
on a pari passu basis with the holders of
Series D Preferred Stock, out of the assets
of HealthAxis 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 HealthAxis common
stock, the Series A Preferred Stock or any
Series C Junior Stock.
F-25
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
The Series C Preferred Stock is not subject
to any mandatory redemption, sinking fund or
other similar provisions.
Shares of Series C Preferred Stock are
convertible at any time, at the option of the
holder, into HealthAxis common stock at a
price equal to the original issue price
($5.77 per share) divided by the conversion
price which is defined as the original
issuance price adjusted for future issuances
of HealthAxis common stock as defined in the
Certificate of Designation related to the
Series C Preferred Stock.
13. Series D On July 12, 1999, HealthAxis issued 333,334
Convertible shares of HealthAxis Series D convertible
Preferred Stock preferred stock to Intel Corporation at $12
per share (the Series D Preferred Stock") for
an aggregate purchase price of $4,000, less
issuance costs of $40. The net proceeds of
approximately $3,960, will be used for
working capital and other general corporate
purposes, including marketing expenses, web
site enhancements, salary expenses and
advertising and promotional expenses of
HealthAxis. In conjunction with the merger
described in Note 18, all of the Series D
Preferred Stock will be converted into common
stock of HAI.
In connection with the HealthAxis Series D
offering, HealthAxis Amended and Restated
Articles of Incorporation were amended to
authorize an additional 500,000 shares of
HealthAxis Preferred Stock.
Holders of the Series D Preferred Stock are
entitled to vote on all matters as to which
holders of common stock are entitled to vote.
The holders of each share of Series D
Preferred Stock are entitled to the number of
votes equal to the nearest whole number of
shares of common stock into which the
holder's Series D Preferred Stock is
convertible. Generally, the holders of Series
D Preferred Stock shall vote together with
the holders of HealthAxis common and
preferred stock as one class.
Holders of the Series D Preferred Stock will
be entitled to dividends, on a pari passu
basis with the holders of Series C Preferred
Stock, accruing from the date of issue, if
such dividends are declared by the Board of
Directors of HealthAxis at its discretion at
a rate as specified by the Preferred Stock
Certificate of Designation.
F-26
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
In the event of any distribution, liquidation
or winding up of the affairs of HealthAxis,
whether voluntary or otherwise, after payment
or provisions for payment of the debts and
other liabilities of HealthAxis and payment
of all amounts owed to the holders of the
Series B Preferred Stock, the holders of the
Series D Preferred Stock shall be entitled to
receive, on a pari passu basis with the
holders of the Series C Preferred Stock out
of the assets of HealthAxis legally available
for distribution to its shareholders, an
amount in cash equal to $12.00 ("Series D
Offering Price") per share for each share of
Series D Preferred Stock, plus an amount
equal to all dividends accrued and unpaid, if
any, on each such share up to the date fixed
for distribution, before any distribution may
be made to the holders of HealthAxis common
stock for the Series A Preferred Stock.
The Series D Preferred Stock is not subject
to any mandatory redemption, sinking fund or
other similar provisions.
Shares of Series D Preferred Stock are
convertible at any time, at the option of the
holder, into HealthAxis common stock at a
price equal to the original issue price
($12.00 per share) divided by the conversion
price which is defined as the original
issuance price adjusted for future issuances
of HealthAxis common stock as defined in the
Certificate of Designation related to the
Series D Preferred Stock.
14. Stockholders' Amounts included in Additional Paid-In
Equity and Capital include the fair value of warrants
Dividend issued by HealthAxis or HAI for services
Restrictions rendered or to be rendered to HealthAxis.
In August 1998, the Board of Directors
declared a 14-for-1 stock dividend of
HealthAxis common stock. All share amounts
have been restated to reflect the effects of
this dividend.
During 1998, HealthAxis issued a 5.5%
convertible note to HPS for cash of $5,000
which was subsequently converted, together
with accrued interest, into 2,365,365 shares
of common stock. The note was originally
convertible into a 12.5% interest in the
Company. As a result of AOL's desire to be
the most senior security upon investment,
HealthAxis agreed to give HPS an additional
2.5% interest in the Company upon conversion
of their note to common stock. As a result,
the inducement was valued at $953 and was
charged to operations with a corresponding
credit to additional paid in capital.
<PAGE>
On May 11, 1999, HealthAxis completed a
private placement of 516,051 shares of
HealthAxis common stock to a group of
accredited investors at $12 per share for an
aggregate purchase price of $6,193, less
issuance costs of $2. The net proceeds of
$6,191, have and will be used by HealthAxis
for working capital and other general
corporate purposes, including marketing
expenses, website enhancements, salary
expenses and advertising and promotional
expenses. Investors purchasing HealthAxis
common stock were provided with registration
rights.
On December 7, 1999, HealthAxis completed a
private placement of 3,846,003 shares of
HealthAxis common stock to a group of
accredited investors and HAI at $15 per share
for an aggregate purchase price of
approximately $57,690 less issuance costs
estimated to approximate $2,533. HAI
purchased 133,333 shares in the transaction
for approximately $2,000. The net proceeds
will be used for HealthAxis' working capital
and other general corporate purposes,
including marketing expenses.
F-27
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
Dividends paid by HealthAxis to holders of
HealthAxis common stock are subject to
restrictions set for in the Certificates of
Designation related to the Series A, Series
B, Series C and Series D Convertible
Preferred Stock. HealthAxis has not nor does
it anticipate paying a cash dividend in the
foreseeable future.
15. Income Taxes Significant components of deferred taxes
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Start-up expenses $ 1,366 $ 1,707
Net operating loss carryforwards 11,006 --
Other, net (307) (33)
--------------------------------------------------------------------------------
12,065 1,674
Valuation allowance for deferred tax
Assets 12,065 1,674
--------------------------------------------------------------------------------
Net deferred tax Assets $ -- $ --
================================================================================
</TABLE>
HealthAxis has a net operating loss
carryforward ("NOL's") of approximately
$29,000, which is available to offset its
future taxable income through 2014. However,
a certain amount of the NOL's are subject to
annual limitations, thereby significantly
reducing their ultimate utilization.
Additionally, the utilization of these NOL's,
if available, to reduce future income taxes
will depend on the generation of sufficient
taxable income prior to their expiration.
HealthAxis has established a valuation
allowance for deferred tax assets reflecting
uncertainty as to whether the deferred tax
asset is realizable. The change in the
valuation allowance in 1999 amounting to
$10,391 results primarily from the increase
in net operating loss carryforwards.
16. Commitments During 1999, HealthAxis entered into capital
and lease obligation with an outside party in the
Contingencies amount of $154 on data processing and other
equipment, which are included in property and
equipment. The obligation at December 31,
1999 was $29 with $9 of interest being paid
on the lease, with payments of $29 due in
2000.
HealthAxis leases office space in San
Francisco, CA with a term ending July 31,
2002. Payments through December 31, 1999 were
$27, with payments of $55, $55 and $32 in
2000, 2001, and 2002, respectively.
During 1999, HealthAxis and HAI entered into
a settlement agreement with HPS at no cost to
resolve a number of disputes that had arisen
between HAI and HPS relative to HPS'
performance of administrative services under
the outsourcing agreement and between
HealthAxis and HPS relative to HealthAxis'
performance under the E-Commerce Agreement
and the HPS stock purchase agreement for
HealthAxis common stock.
F-28
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
The settlement agreement provided for the
following:
o HPS and HAI and its subsidiaries, including
HealthAxis, granted each other a mutual
release of all claims in connection with
each party's performance under the
agreements;
o HPS purchased the remaining outstanding
shares of one of PILIC's subsidiaries for
$1,500, which was set off against service
fees owed by HAI to HPS;
o HPS exercised a warrant granted in 1998
pursuant to the terms of the E-Commerce
Agreement for 100,000 shares of HAI's
common stock for $900, which was set off
against service fees owed by HAI to HPS;
and
o HAI agreed to pay the remaining balance of
the service fees owed by it to HPS in the
amount of $1,267 on or before June 30,
1999.
Litigation
HealthAxis is involved in disputes and
litigation in the normal course of business.
Management is of the opinion that neither the
litigation nor the claims (if any) will have
a material adverse effect on the results of
operations or financial position of
HealthAxis.
Government Legislation and Regulation
HealthAxis' business is subject to a changing
legislative and regulatory environment. Some
of the proposed changes include initiatives
to restrict insurance pricing and the
application of underwriting standards and
healthcare reform. Proposals on national
healthcare reform have been under
consideration that could significantly change
the way healthcare is financed and provided.
The effects on HealthAxis of comprehensive
healthcare reforms, if enacted, may have a
material adverse impact upon the ability of
HealthAxis to profitably engage in the sale
of accident and health insurance products.
17. Related Party Michael Ashker, the Chief Executive Officer
Transactions and President of HAI and HealthAxis also
served as the sole manager of Lynx through
December 1999. Lynx is party to a consulting
agreement with HAI whereby Lynx provided
various services to HealthAxis during 1998
approximating $23 in fees and expenses as
well as warrants to purchase 400,000 shares
of HAI common stock. These warrants were
expensed and recorded as an equity investment
by HAI as determined using the Black Scholes
option pricing model.
F-29
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
A former Director of HealthAxis and HAI, is a
partner in a law firm which provides legal
services to HealthAxis which approximated $64
and $100 for the years ended December 31,
1999 and 1998, respectively.
A technology consulting firm owned by
HealthAxis' former Chief Information Systems
Officer provided information systems
consulting services to HealthAxis
approximating $1,398 and $690 for the periods
ended December 31, 1999 and 1998,
respectively.
18. Mergers Merger of Insurdata into HealthAxis.com
On December 7, 1999, HealthAxis, and
Insurdata Incorporated, a subsidiary of UICI
announced the signing of a definitive
agreement to merge the two companies. The
combined entity will retain the
HealthAxis.com name. Under the terms of the
transaction, Insurdata's shareholders will
receive approximately 50 percent of the newly
combined company. The transaction closed on
January 7, 2000.
In accordance with the terms of the Merger
Agreement, each outstanding share of
Insurdata common stock (the "Insurdata Common
Stock"), was converted into the right to
receive 1.33 shares (the "Exchange Ratio") of
HealthAxis common stock (the "HealthAxis
Common Stock"). HealthAxis issued 21,807,567
shares of HealthAxis Common Stock to
Insurdata shareholders. UICI received
18,943,678 shares of HealthAxis Common Stock,
an additional 2,439,885 shares of HealthAxis
Common Stock which are held by the voting
trust (described herein) and other
shareholders of Insurdata received 424,004
shares of HealthAxis Common Stock. Subsequent
to such date, 10,103,217 shares of HealthAxis
Common Stock held by UICI were transferred to
a voting trust. See "Voting Trust
Agreements."
The merger of Insurdata and HealthAxis was
accounted for by HealthAxis under the
purchase method of accounting in accordance
with APB No. 16 whereas HealthAxis, by virtue
of its holding a majority of the voting
interest was determined to be the accounting
acquirer. As a result, the net assets of
Insurdata will be recorded at their fair
value with the excess of the HealthAxis
purchase price over the fair value of the net
assets acquired being goodwill is being
amortized on a straight-line basis over
twenty years.
F-30
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
The Merger Agreement provides that each
option to purchase shares of Insurdata Common
Stock under Insurdata's stock option plans
which are outstanding on the Effective Date,
whether or not exercisable, shall be
converted into and become a right to purchase
shares of HealthAxis Common Stock, generally
in accordance with the terms of the Insurdata
stock option plans and Insurdata option
agreements pursuant to which such options
were granted, except that from and after the
Effective Date, (i) the number of shares of
HealthAxis subject to each Insurdata option
shall be equal to the number of shares of
Insurdata Common Stock subject to such option
prior to the Effective Date multiplied by the
exchange ratio (with fractional shares
rounded down to the nearest share and cash
being payable for any fraction of a share)
and (ii) the exercise price per share of
HealthAxis Common Stock purchasable
thereunder shall be that specified in the
Insurdata option divided by the exchange
ratio (rounded up to the nearest one
hundredth).
On the date of merger, HealthAxis converted
options to purchase 1,834,500 shares of
Insurdata Common Stock into options to
purchase 2,439,885 shares of HealthAxis
Common Stock. The fair value of the
HealthAxis options granted to Insurdata
optionholders was determined using the Black
Scholes option pricing model and was included
in the purchase price of Insurdata.
The Merger is intended to constitute
reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended.
F-31
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
The chart below identifies the equity
ownership of HealthAxis Common and Preferred
Stock before and after the merger of
Insurdata. The chart excludes options and
warrants to purchase HealthAxis stock.
<TABLE>
<CAPTION>
March 14, 2000 December 31, 1999
----------------------------------------------------------------------------------------
Shares Percentage Shares Percentage
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HAI 15,801,644 34.8% 15,801,644 66.9%
UICI and subsidiaries 17,810,229 39.2% 866,551 3.7%
AHC acquisition 100,000 0.2% 100,000 0.4%
Other shareholders' interest 11,714,199 25.8% 6,850,310 29.0%
----------------------------------------------------------------------------------------
Total 45,426,072 100.0% 23,618,505 100.0%
========================================================================================
</TABLE>
Voting Trust Agreements
The Merger Agreement also provides for a
voting trust agreement (the "Voting Trust
Agreement") which established a trust to hold
shares of Insurdata Common Stock which are
currently held of record by UICI, but as to
which UICI has granted options to purchase
such shares to certain employees of Insurdata
pursuant to its Insurdata Founders' Program.
These shares were converted into 2,439,885
shares of HealthAxis Common Stock in the
Merger. The initial trustees of this trust
are Michael Ashker, Alvin Clemens, Edward W.
LeBaron, Jr. and Henry Hager (the
"Trustees"). All of the initial Trustees are
also directors of HAI and Messrs. Ashker and
Clemens are also directors and officers of
HealthAxis. Pursuant to the terms of the
Voting Trust Agreement, a majority of the
Trustees have the power to vote the shares
held by the trust in their discretion at all
meetings of shareholders or pursuant to
actions by unanimous consent. The Voting
Trust Agreement terminates upon the earlier
of the distribution of the shares subject to
such agreement or July 1, 2003. Upon the
termination of this Voting Trust Agreement or
upon any dissolution or total or partial
liquidation of HealthAxis, whether voluntary
or involuntary, the Trustees shall direct
that all shares remaining in the Trust and
all moneys, securities, rights or property
attributable to the shares be distributed to
UICI.
Following the completion of the Insurdata
merger, UICI, and Messrs. Ashker, LeBaron and
Maloney entered into a voting trust agreement
("the UICI Voting Trust") which provides for
the establishment of a trust to hold
10,103,217 shares of HealthAxis common stock
held by UICI. The initial trustees of the
UICI Voting Trust are Michael Ashker, Edward
F-32
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
W. LeBaron, Jr. and Dennis B. Maloney who are
referred to as the trustees. All of the
trustees are also directors of HealthAxis and
Messrs. Ashker and LeBaron are directors of
HAI. Messrs. Ashker and Maloney are also
officers of HealthAxis. A majority of the
trustees have the power to vote the shares
held by the UICI Voting Trust in their
discretion at all meetings of shareholders or
pursuant to actions by unanimous consent.
UICI retains dispositive power and the
ability to receive all dividends on the
shares held in the UICI Voting Trust.
Pursuant to the UICI Voting Trust agreement,
if one of the trustees is no longer able to
serve as trustee, the other two trustees may
select by unanimous vote a new trustee from
the members of the board of directors of HAI
or HealthAxis who are not selected by UICI.
The UICI Voting Trust agreement also provides
that if UICI decides to sell any of its
shares of HealthAxis common stock, half of
the shares sold must be shares subject to the
UICI Voting Trust. The UICI Voting Trust
agreement terminates upon the earlier of
February 11, 2020; such time as UICI owns
less than 20% of the outstanding common stock
of HealthAxis or HAI; upon another person
acquiring 51% or more of the outstanding
shares of HealthAxis; or July 31, 2000 if
transactions contemplated by the merger of
HealthAxis into HealthAxis Acquisition
Corporation are not completed.
The UICI Voting Trust agreement, dated
February 11, 2000, was amended, effective
July 31, 2000, to among other things, extend
the termination date of the trust if the
reorganization is not consummated to March
31, 2001, and revise the procedure by which a
successor trustee is elected. The amended
agreement also reduced the shares in the
trust to 6,433,069 shares.
Technology Outsourcing Agreement
In accordance with the Merger Agreement, UICI
and its affiliates and Insurdata shall enter
into a Technology Outsourcing Agreement
pursuant to which Insurdata will provide UICI
and its affiliates with technology support
services, data processing services and other
software and hardware based services.
UICI Registration Rights Agreement
HealthAxis and UICI also entered into a
registration right agreement that provides
for the registration of HealthAxis shares
received by UICI in the Merger.
F-33
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
HealthAxis Merger with HealthAxis Acquisition
Corporation
On December 7, 1999, HAI announced plans to
move forward with its original plan to merge
with its subsidiary, HealthAxis. Management
of the respective companies signed the merger
agreement on January 26, 2000. HAI's board of
directors approved the merger on January 26,
2000 and on the same date HealthAxis' board
of directors also approved the merger. On
September 28, 2000, HAI, HealthAxis and
HealthAxis Acquisition Corp., the
wholly-owned subsidiary of HAI, entered into
the Amended and Restated Agreement and Plan
of Reorganization (the "Amended and Restated
Merger Agreement") which provides for the
merger of HealthAxis with the wholly-owned
subsidiary of HAI, pursuant to which
shareholders of HealthAxis will receive
shares of HAI common stock in exchange for
their shares of HealthAxis (the
"Reorganization").
The Amended and Restated Merger Agreement,
which amends the Agreement and Plan of
Reorganization dated January 26, 2000, as
subsequently amended on March 27, 2000, among
other things, revises the number of shares of
HAI's common stock that will be exchanged for
each outstanding share of HealthAxis common
stock from 1.127 shares to 1.334 shares. The
Amended and Restated Merger Agreement also
amends certain of the representations and
warranties, extends the date for termination
of the merger by either party to March 31,
2001, and provides HealthAxis with the
ability to terminate the merger if HAI has
not met certain conditions by October 31,
2000. Under the Amended and Restated Merger
Agreement, HealthAxis may terminate the
Reorganization if HAI is not unconditionally
and irrevocably released from the guarantee
agreement with Hannover Life Reassurance
Company of America by October 31, 2000. HAI
and Hannover Life Reassurance Company of
America are in the process of negotiating a
settlement regarding the outstanding amount.
As a result of these changes, HAI intends to
file an amendment to its Registration
Statement on Form S-4 to reflect these
changes as well as respond to SEC Staff
comments.
The merger documents provide for the merger
of HealthAxis with and into a newly formed,
wholly owned subsidiary of HAI. As a result
of the merger, HealthAxis will cease to
exist, and the former shareholders of
HealthAxis will become shareholders of HAI.
The HAI subsidiary will continue as the
surviving corporation of the merger and will
retain all of its separate corporate
existence, with all its rights and powers
unaffected by the merger. The merger is
subject to both HAI and HealthAxis
shareholder approval.
HealthAxis anticipates that the merger will
constitute a tax free "reorganization" within
the meaning of the Internal Revenue Code of
1986.
F-34
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
HealthAxis anticipates that HAI will issue a
total of approximately 39,629,133 shares of
HAI common stock to HealthAxis shareholders
in the merger. It is also anticipated that
HAI will issue up to approximately 7,068,046
shares of HAI common stock upon the exercise
of options and warrants to purchase
HealthAxis common stock to be assumed by HAI.
Based on the number of shares of HAI common
stock to be issued in the merger, excluding
shares subject to stock options and warrants
to be assumed by HAI, following the merger,
existing HAI shareholders will own
approximately 25% and former HealthAxis
shareholders will own approximately 75% of
the outstanding common stock of HAI. The
merger will be accounted for by HAI as a
purchase of minority interest in which the
preferred and common stock of HealthAxis will
be converted into HAI common stock
eliminating all minority interest in
HealthAxis.
HealthAxis options and warrants outstanding
will be exchanged for options and warrants in
HAI. As a result of the merger and exchange,
a remeasurement of the HealthAxis options is
anticipated. As a result of the
remeasurement, the fair value of options
exchanged in the merger will be included as
additional consideration. The allocation to
unearned compensation for unvested options is
based upon the intrinsic value of options
exchanged. It is anticipated that unearned
compensation will be amortized over the
remaining vesting period of the options,
averaging three to five years.
Out of pocket costs which are anticipated to
include legal, accounting and investment
advisory costs will be included as additional
consideration in the purchase of minority
interest as discussed above.
F-35
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
19. Discontinued On June 30, 2000, as amended on September 29,
Operations 2000, HealthAxis entered into an Asset
Purchase Agreement to sell certain assets
used in connection with its retail website to
Digital Insurance, Inc. ("Digital"). Included
in the sale was the retail website's current
and next generation of the retail website
user interface (the presentation layer of the
website that includes the graphical templates
that create the look and feel of the
website), all existing in-force insurance
policies, certain physical assets, and
agreements, including, but not limited to
portal marketing agreements and agreements
related to the affiliate partner program. The
consideration to be received by the Company
in return for these assets consists of:
$500,000 in cash at closing, a $500,000 note
at closing, ongoing license fees, a
technology services contract, and an 11%
equity interest in Digital. Under the Asset
Purchase Agreement, either party has the
right to terminate the transaction if these
conditions and other conditions in the Asset
Purchase Agreement are not satisfied by
September 15, 2000. The transaction was
completed October 15, 2000. No assurances can
be given as to whether or not the
transactions will be completed or, if
completed, the timing thereof, the receipt of
required contractual approvals, or the
completion of the necessary conditions. In
accordance with Accounting Principle Board
Opinion No. 30, HealthAxis has accounted for
the disposal of the retail website as a
discontinued operation at June 30, 2000.
The operating results of HealthAxis'
eDistribution Group are reported as
discontinued operations as of the measurement
date of June 30, 2000 and the financial
statements are restated for all periods
presented.
In connection with this transaction,
HealthAxis and Digital entered into a
Software License and Consulting Agreement
that provides HealthAxis with: a perpetual
nonexclusive license to use and sublicense,
subject to certain restrictions, the user
interface sold to Digital Insurance;
licensing fees over the next 30 months of
$3.0 million for software owned by
HealthAxis that will be used by Digital in
conjunction with the user interface it
purchased; and service fees over the next 12
months of a minimum of $3.0 million for
services relating to customizing,
maintaining and upgrading the user interface
and other software.
F-36
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
Results of discontinued operations:
<TABLE>
<CAPTION>
From
Year ended Inception
December through
31, December
1999 31, 1998
---------- -------------
<S> <C> <C>
Interactive commission and fee revenue $ 291 $ -
Expenses:
Operating and development 5,504 535
Sales and marketing 19,652 1,161
General and administrative 1,000 (172)
---------- ---------
Total expenses 26,156 1,524
---------- ---------
Loss from discontinued operations $ (25,865) $ (1,524)
========== =========
Assets held for sale at December 31, 1999:
December December
31, 1999 31, 1998
-------- --------
Prepaid interactive marketing expense $ 1,790 $ 11,654
Prepaid alliance agreements, net of accumulated
amortization of $436 2,282 -
Property, equipment and software, less accumulated
amortization of $1,077 3,132 1,248
-------- --------
Total assets held for sale $ 7,204 $ 12,902
======== ========
</TABLE>
F-37
<PAGE>
HealthAxis.com, Inc.
Restated Notes to Consolidated Financial Statements
(dollars in thousands)
20. Subsequent Events On May 24, 2000, the board of directors of
HealthAxis repriced 1,773,050 existing
options. The options affected had original
exercise prices ranging from $12.00 to $15.00
per share. The exercise price of these
options was adjusted to $3.31 based upon the
quoted market share price of HAI's common
stock as reported on the NASDAQ National
Market on the date of the repricing.
Accordingly, HealthAxis now accounts for
these options as a variable award.
The UICI Voting Trust agreement, dated
February 11, 2000, was amended, effective
July 31, 2000, to among other things, extend
the termination date of the trust if the HAI
merger is not consummated to March 31, 2001,
and revise the procedure by which a successor
trustee is elected. The amended agreement
also reduces shares in the trust to 6,433,069
shares.
Effective August 15, 2000, Al Clemens, HAI's
and HealthAxis' Chairman, HealthAxis and HAI
entered into a termination agreement of Mr.
Clemens' current employment contract. The
agreement, among other things, releases
HealthAxis as a party to Mr. Clemens' amended
employment agreement.
On September 29, 2000, HAI, HealthAxis and
HealthAxis Acquisition Corp., the
wholly-owned subsidiary of HAI, entered into
the Amended and Restated Agreement and Plan
of Reorganization (the "Amended and Restated
Merger Agreement") which provides for the
merger of HealthAxis with the wholly-owned
subsidiary of HAI, pursuant to which
shareholders of HealthAxis will receive
shares of HAI common stock in exchange for
their shares of HealthAxis (the
"Reorganization").
The Amended and Restated Merger Agreement,
which amends the Agreement and Plan of
Reorganization dated January 26, 2000, as
subsequently amended on March 27, 2000,
among other things, revises the number of
shares of HAI's common stock that will be
exchanged for each outstanding share of
HealthAxis common stock from 1.127 shares to
1.334 shares. The Amended and Restated
Merger Agreement also amends certain of the
representations and warranties, extends the
date for termination of the merger by either
party to March 31, 2001, and provides
HealthAxis with the ability to terminate the
merger if HAI has not met certain conditions
by October 31, 2000. Under the Amended and
Restated Merger Agreement, HealthAxis may
terminate the Reorganization if HAI is not
unconditionally and irrevocably released
from the guarantee agreement with Hannover
Life Reassurance Company of America by
October 31, 2000. HAI and Hannover Life
Reassurance Company of America are in the
process of negotiating a settlement
regarding the outstanding amount.
<PAGE>
As a result of these changes, HAI intends to
file an amendment to its Registration
Statement on Form S-4 to reflect these
changes as well as respond to SEC Staff
comments.
HealthAxis and HAI entered into loan
agreements dated as of September 29, 2000,
which provides for HealthAxis to loan HAI of
up to $3,404,580. The amount is evidenced by
three promissory notes. HAI's obligations
under these notes are secured pursuant to a
stock pledge and security agreement between
HAI and HealthAxis dated as of September 29,
2000 in which a maximum of 1,000,000 shares
of HealthAxis stock owned by HAI are pledged
as collateral to the loans. The notes become
due and payable on the earlier of March 31,
2001 or the date the HAI merger is
consummated. The interest on the principal
under each note will accrue at 12% per annum
from the date of the note until the date the
note terminates.
F-38
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 25,167 $ 56,444
Accounts receivable, net of allowance for doubtful accounts of $103 8,983 -
Prepaid expenses 622 -
Other current assets 1,481 369
--------- --------
Total current assets 36,253 56,813
Property, equipment and software, less accumulated depreciation and
Amortization of $8,458 and $1,088, respectively 7,191 159
Capitalized software and contract start-up costs, less accumulated amortization of $1,437 4,884 -
Goodwill, less accumulated amortization of $25,582 656,602 -
Customer base, less accumulated amortization of $3,226 13,979 -
Deferred acquisition costs 341 750
Long-term receivables from employees 629 -
Investment in Digital Insurance 3,178 -
Assets held for sale - 7,204
Other assets 316 -
--------- --------
Total assets $ 723,373 $ 64,926
========= ========
Liabilities and Stockholders' Equity
Accounts payable $ 636 $ 1,438
Accrued liabilities 5,185 3,967
Deferred revenues 432 -
Obligations under capital lease 160 29
--------- -------
Total current liabilities 6,413 5,434
Obligations under capital lease 40 -
Other liabilities 16 -
--------- --------
Total liabilities 6,469 5,434
Commitments:
Preferred Stock Series B $.13 cumulative, redeemable
and convertible preferred: 625,529 shares issued and outstanding 2,804 2,804
Stockholders' Equity
Preferred stock, par value $1: authorized 20,000,000 shares:
Series A cumulative convertible, 545,916 shares issued and outstanding 546 546
Series C cumulative convertible, 1,526,412 shares issued and outstanding 1,526 1,526
Series D cumulative convertible, 333,334 shares issued and outstanding 333 333
Common stock, no par value: authorized 100,000,000,
42,477,450 and 20587,314 shares issued and outstanding 795,038 70,506
Additional paid-in capital 18,285 18,285
Accumulated deficit (94,757) (34,508)
Unearned compensation (6,871) -
--------- --------
Total stockholders' equity 714,100 56,688
--------- --------
Total liabilities and stockholders' equity $ 723,373 $ 64,926
========= ========
</TABLE>
See notes to consolidated financial statements.
F-39
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statement of Operations
(Dollars in thousands, except share and per share data) (Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months Ended September 30,
2000 1999 2000 1999
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue $ 11,016 $ - $ 32,754 $
-
Expenses:
Cost of revenues 7,481 - 22,850 -
Operating 3,797 192 13,658 296
Sales and marketing 773 115 2,389 282
General and administrative 1,550 873 6,469 2,385
Amortization of intangibles 9,841 - 29,523 -
----------- ----------- ----------- -----------
Total Expenses 23,442 1,180 74,889 2,963
----------- ----------- ----------- -----------
Operating Loss (12,426) (1,180) (42,135) (2,963)
Interest and other income, net 231 113 1,375 206
----------- ----------- ----------- -----------
Loss from continuing operations (12,195) (1,067) (40,760) (2,757)
Loss from discontinued operations - (7,922) (17,540) (16,090)
Loss on sale of discontinued operations - - (1,949) -
----------- ----------- ----------- -----------
Total loss from discontinued operations (12,195) (7,922) (19,489) (16,090)
----------- ----------- ----------- -----------
Net loss (12,195) (8,989) (60,249) (18,847)
----------- ----------- ----------- -----------
Dividends on preferred stock - - - (129)
----------- ----------- ----------- -----------
Net loss applicable common stockholders $ (12,195) $ (8,989) $ (60,249) $ (18,976)
=========== ============ =========== ===========
Loss per share of common stock (basic and
diluted)
Continuing operations $ (0.29) $ (0.07) $ (.98) $ (0.17)
Discontinued operations - (0.47) (0.46) (0.98)
----------- ------------ ----------- -----------
Net loss $ (0.29) $ (0.54) $ (1.44) $ (1.15)
=========== ============ =========== ===========
Weighted average common shares and equivalents
Used in computing (loss) per share
Basic and diluted 42,477,000 16,739,000 41,910,000 16,479,000
</TABLE>
See notes to consolidated financial statements.
F-40
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Preferred Stock Common Stock
Series A Series B Series D
Shares Amount Shares Amount Shares Amount Shares Amount
------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 545,916 $ 546 1,526,412 $ 1,526 333,334 $ 333 20,587,311 $ 70,506
Issuance of common stock 21,807,567 710,587
Valuation of Insurdata options
Issuance of stock options 11,901
Amortization of unearned
compensation (1,385)
Stock options exercised 82,572 183
Stock option compensation 3,246
Net loss
------- ----- --------- ------ ------- ----- ---------- ---------
BALANCE, SEPTEMBER 30, 2000 545,916 $ 546 1,526,412 $1,526 333,334 $ 333 42,477,450 $ 795,038
======= ===== ========= ====== ======= ===== ========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands) (Unaudited)
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated Unearned Unearned
Capital Deficit Compensation Total
----------- ----------- ------------ --------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 $ 18,285 $ (34,508) $ -- $ 56,688
Issuance of common stock 710,587
Valuation of Insurdata options (10,691) (10,691)
Issuance of stock options 11,901
Amortization of unearned
compensation 3,820 2,435
Stock options exercised 183
Stock option compensation. 3,246
Net loss (60,249) (60,249)
---------- ---------- --------- --------
BALANCE, JUNE 30, 2000 $ 18,285 $ (94,757) $ (6,871) $714,100
========== ========== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-41
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Cash flows from operating activities September 30, September 30,
2000 1999
------------------ -----------------
<S> <C> <C>
Net loss $ (60,249) $ (18,847)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on disposal of discontinued operations 7,750 -
Depreciation and amortization 32,327 10,059
Bad debt reserve 25 -
Stock option compensation 3,246 48
Loss on disposition of assets 514 -
Change in:
Accounts receivable (2,498) -
Prepaid expense 134 (3,620)
Other current assets 335
Other assets (57)
Accounts payable and accrued liabilities (1,761) 1,098
Accrued liabilities (4,129)
Deferred revenues 35 (266)
Other liabilities (352) (64)
--------- ---------
Net cash used in operating activities (24,680) (11,592)
Cash flows from investing activities
Cash in acquired company 2,126 -
Payment of acquisition costs (1,031) -
Investment in capitalized software and contract start-up (2,646) -
Investment in contract start-up (28) -
Issuance of notes receivable (1,380) -
Purchases of property, equipment and software (3,692) (1,604)
--------- ---------
Net cash (used in) investing activities (6,651) (1,604)
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands) (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
2000 1999
------------------ -------------
Cash flows from financing activities
<S> <C>
Payments on capital leases (129) -
Costs incurred for issuing stock (725)
Net proceeds from sales of HealthAxis common stock - 6,281
Net proceeds from the sales of HealthAxis preferred stock - 12,807
Acquisition costs (690)
Exercise of HealthAxis options 183 -
----------- --------
Net cash (used in) provided by financing activities (636) 18,363
----------- ---------
(Decrease) in cash and cash equivalents (31,277) 5,167
Cash and cash equivalents, beginning of period 56,444 1,724
----------- ---------
Cash and cash equivalents, end of period $ 25,167 $ 6,891
=========== =========
Supplemental disclosure of cash flow information:
Interest paid $ 66 $ 6
Dividends on Preferred Stock 129
Non-cash financing activities
Issuance of warrants $ - $ 914
Adjust value of common stock issuance $ - $ 87
Non-cash investing activities
In 1999, the Company received capital lease obligations in
connection with the acquisition of certain equipment $ - $ 154
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
Note A - Description of business and basis of presentation
Unaudited Financial Information
The unaudited condensed consolidated financial statements have been prepared by
HealthAxis.com, Inc. and subsidiaries (the "Company" or "HealthAxis"), pursuant
to the rules and regulations of the Securities and Exchange Commission and
reflect all adjustments which, in the opinion of the Company, are necessary to
present fairly the results for the interim periods. Certain financial
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the accompanying disclosures are adequate to make the
information presented not misleading. Results of operations for the three and
nine month periods ended September 30, 2000, are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000.
These financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's Financial Statements for
the year ended December 31, 1999 included herein.
General
HealthAxis.com, Inc. ("HealthAxis") was formed as a Pennsylvania corporation on
March 26, 1998. On January 7, 2000, HealthAxis completed a merger with Insurdata
Incorporated ("Insurdata") as described in Note B (the "Insurdata Merger"). On
June 30, 2000, HealthAxis entered into an Asset Purchase Agreement to sell
certain assets used in connection with its retail website, to Digital Insurance,
Inc. ("Digital"), (see Note C). In connection with this transaction, HealthAxis
and Digital entered into additional agreements also described in Note C.
Prior to the sale of assets to Digital, HealthAxis' eDistribution Group operated
as a retail website. As a result of the sale of assets to Digital, which was
consummated on October 13, 2000, the eDistribution Group will no longer be an
operating segment. HealthAxis' remaining operations provide web-enablement for
both healthcare payers, (including insurance companies, Blue Cross and Blue
Shield Organizations, third-party administrators and large self-funded groups),
and the intermediaries through which product is sold and serviced.
As of December 31, 1999 and September 30, 2000, HealthAxis Incorporated ("HAI")
owned 66.9% (15,801,644 shares owned out of 23,618,505 shares outstanding) and
34.7% (15,801,644 shares owned out of 45,508,640 shares outstanding),
respectively, of HealthAxis' common and preferred stock. As of September 30,
2000, HAI owned 36.2% (15,355,728 shares owned out of 42,477,449 shares
outstanding) of HealthAxis' common stock. Due to various voting trust
agreements, affiliates of HAI had, as of September 30, 2000, voting power for an
additional 19.5% of HealthAxis' common and preferred stock. As a result of HAI
and its affiliates (who are members of either or both the HAI and HealthAxis
Board of Directors) having voting power with respect to a total of 54.2% of
HealthAxis' common and preferred stock, HAI has operating control and
consolidates HealthAxis for financial reporting purposes.
On November 30, 1999, the Company sold its remaining insurance operations, which
were conducted through Provident Indemnity Life Insurance Company ("PILIC"). In
addition, on June 30, 2000,
F-44
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
HealthAxis entered into an Asset Purchase Agreement to sell certain assets to
Digital (see Note C). As a result, the financial statements have been restated
to reflect the results of operations of PILIC and the eDistribution Group as
those of discontinued business segments.
On January 26, 2000, HAI and HealthAxis entered into an Agreement and Plan of
Reorganization and Agreement and Plan of Merger pursuant to which HAI plans to
acquire all of the outstanding shares of HealthAxis it does not currently own
through the merger of HealthAxis with a wholly owned subsidiary of HAI. This
transaction is referred to as the HAI Merger. In connection with this merger, on
February 11, 2000, HAI filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission to seek shareholder approval of the HAI
Merger and register the HAI common stock to be issued to the HealthAxis
shareholders. The Form S-4 regarding this transaction is currently pending at
the Securities and Exchange Commission. On September 29, 2000, HAI and
HealthAxis entered into an Amended and Restated Agreement and Plan of
Reorganization and Amended and Restated Agreement and Plan of Merger, which was
further amended on October 26, 2000, and among other things, adjusted the merger
exchange ratio from 1.127 to 1.334. This transaction is expected to close in the
first quarter of 2001.
Note B - Merger with Insurdata Incorporated
On January 7, 2000, HealthAxis completed a merger with Insurdata, a health care
technology company and a majority owned subsidiary of UICI (the "Insurdata
Merger"). The transaction was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, Business Combinations. HealthAxis
was determined to be the accounting acquirer. As a result, the net assets of
Insurdata have been recorded at their fair value with the excess of the purchase
price over the fair value of the net assets acquired allocated to goodwill.
In connection with the Insurdata Merger, each outstanding share of Insurdata
common stock was converted into the right to receive 1.33 shares of HealthAxis
common stock. HealthAxis issued 21,807,567 shares of HealthAxis common stock to
Insurdata shareholders. In connection with the Insurdata Merger, HealthAxis also
issued 426,930 options to purchase HealthAxis common stock to existing Insurdata
optionholders. The fair value of the consideration given by HealthAxis for the
acquisition of Insurdata under the purchase method of accounting totaled
$723,927. This purchase price consideration consisted of: (1) the fair value of
the HealthAxis common shares issued to Insurdata shareholders totaling $654,799
($30.03 per share), (2) the fair value of HealthAxis options granted to
Insurdata optionholders under Insurdata stock option plans totaling $11,901
(average fair value of $27.87 per option), (3) the difference between the fair
value of shares issued in the December 7, 1999 private placement and the $15
issue price totaling $55,788, and (4) merger costs totaling $1,439. The fair
value per share of HealthAxis common stock was determined based upon the quoted
NASDAQ market price of HAI common stock on the measurement date of December 7,
1999. The value of the December 7, 1999 private placement of HealthAxis common
shares in excess of the cash received from their issuance represents additional
value tendered by HealthAxis in a transaction occurring simultaneously with the
purchase of Insurdata. The fair value of the HealthAxis options granted to
Insurdata optionholders was determined using the Black Scholes option pricing
model.
The fair value of the Insurdata assets acquired and liabilities assumed through
the Insurdata Merger were:
F-45
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
Cash and cash equivalents $ 2,126
Accounts receivable, net 5,834
Fixed assets 6,278
Developed software 2,862
Unearned compensation 10,691
Customer base 17,205
Goodwill 682,184
Other assets 1,768
Other liabilities (5,021)
-----------
$ 723,927
===========
Developed software, customer base, and goodwill are being amortized over their
estimated useful lives of 3, 4 and 20 years, respectively. The amount allocated
to unearned compensation is based upon the intrinsic value of the unvested
HealthAxis options issued to Insurdata optionholders discussed above and is
being amortized over the remaining vesting term of the options. HealthAxis has
recorded the unearned compensation as a reduction of stockholders' equity.
Unaudited pro forma financial information for the three and nine months ended
September 30, 1999, as though the Insurdata Merger had occurred on January 1,
1999, is as follows:
Three Months Nine Months
Ended Ended
------------------ ----------------
September 30, 1999
-----------------------------------
Revenues $ 11,337 $ 31,837
Net Loss $ (18,361) $ (48,246)
Net loss per common share $ (0.48) $ (1.49)
Weighted average common shares
outstanding (basic and diluted) 38,547,000 32,287,000
Note C - Discontinued Operations
On June 30, 2000, HealthAxis entered into an Asset Purchase Agreement to sell
certain assets used in connection with its retail website to Digital, which was
amended on September 29, 2000. Included in the sale was the current and next
generation of the retail website user interface (the presentation layer of the
website that includes the graphical templates that create the look and feel of
the website), all existing in-force insurance policies, certain physical assets,
and agreements, including, but not limited to portal marketing agreements and
agreements related to the affiliate partner program. This transaction closed on
October 13, 2000. The consideration received by HealthAxis in return for those
assets consisted of: $500 in cash; a $500 note; 11% of the outstanding shares of
Digital, on a fully-diluted basis, at closing; and a portion of Digital's net
commission revenues received by Digital through the acquired website user
interface or an affinity partner. In accordance with Accounting Principles Board
Opinion Number 30, HealthAxis has reported the operations of the eDistribution
group as discontinued operations as of the measurement date of June 30, 2000 and
the financial statements are restated for all the
F-46
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
periods presented. The operating results of HealthAxis' eDistribution Group are
reported as discontinued operations for all periods presented. The sale of
assets to Digital Insurance, Inc. has been recorded as of September 30, 2000
because the sale was a material subsequent event that was consummated prior to
the issuance of the interim financial statements.
In connection with the Digital Sale, HealthAxis and Digital entered into a
Software Licensing and Consulting Agreement under which HealthAxis will provide
specific services to Digital. This Agreement provides HealthAxis with: a
perpetual nonexclusive license to use and sublicense, subject to certain
restrictions, the user interface sold to Digital Insurance; licensing fees over
the next 30 months of $3.0 million for software owned by HealthAxis that will be
used by Digital in conjunction with the user interface it purchased; and
professional service fees over the next 12 months of a minimum of $3.0 million
for services relating to customizing, maintaining and upgrading the user
interface and other software.
A loss on the sale of discontinued operations in the amount of $1,949 has been
recorded as of the date of the sale agreement. Included in the loss is $2,250
representing management's estimate of the amount of expected future losses from
the retail website during the phase-out period from July 1, 2000 to December 31,
2000.
A summary of the major components of the estimated loss on the sale of the
assets to Digital on June 30, 2000 is as follows:
Value of Digital shares received $ 3,178
Cash and note received at closing 1,000
Provision for eDistribution Group's future losses (2,250)
Book value of other eDistribution Group assets (3,877)
Estimated loss on sale of discontinued operations $(1,949)
========
The fair value of the 3,178,170 shares of Digital Insurance, Inc. common stock
received by HealthAxis has been recorded at the stated value in the Asset
Purchase Agreement and based on a prior investment received by Digital.
F-47
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
Following is a summary of the results of the Company's discontinued operations
for the three months and the nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues $ 0 $ 84 $ 672 $ 125
Expenses:
Operating and development 0 2,547 5,741 4,473
Sales and marketing 0 5,441 11,496 11,707
General and administrative 0 18 19 35
Amortization of intangibles 0 0 956 0
--------- ----------- ----------- -----------
Total expenses 0 8,006 18,212 16,215
--------- ----------- ----------- -----------
Operating loss $ 0 $ (7,922) $ (17,540) $ (16,090)
========= =========== =========== ===========
</TABLE>
Note D - Revenue Recognition
The Company's revenues consist primarily of transaction fees, professional
services fees, and data capture fees.
Transaction revenues are earned on a fee-per-unit basis. Depending on the
product or service provided, the fee may be a charge per covered life or member,
per transaction processed, per document or electronic transmission, or per unit
serviced (such as per PC for LAN support). Transaction revenue is derived from
HealthAxis' workflow and business applications, data capture outsourcing
services and technology management services. Transaction revenue is recorded in
the month the services are rendered.
Professional service revenue consists of time and materials projects and fixed
price projects. Time and materials projects are billed on a fee per hour or per
day, or based upon a multiple of monthly salary, dependent upon the nature of
the project. Such revenue is recorded as the services are performed.
Professional services revenue on fixed price projects is recognized using the
percentage-of-completion method in proportion to the hours expended compared to
the total hours projected for the project. Changes in estimates of
percentage-of-completion are recognized in the period in which they are
determined. Provisions for estimated losses, if any, are made in the period in
which the loss first becomes apparent. Professional service revenue is derived
from HealthAxis' system integration, consulting and programming services, as
well as customization and implementation performed in conjunction with workflow
and business application software.
Data Capture revenues are earned on a fee per unit basis, typically per claim or
per document. These fees are recorded in the month the services are rendered.
Note E - Related Party Transactions
HealthAxis conducts a significant amount of business with a major shareholder,
UICI. HealthAxis currently provides services to a number of UICI subsidiaries
and affiliates pursuant to written agreements
F-48
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
ranging from one to five years, with annual renewable options thereafter. These
services include the use of certain of its proprietary workflow and business
applications, as well as systems integration and technology management. UICI and
its subsidiaries and affiliates constitute, in the aggregate, HealthAxis'
largest customer. For the three months and the nine months ended September 30,
2000, UICI and its subsidiaries and affiliates accounted for an aggregate of
$6,629 (60%) and $20,905 (64%), respectively, of HealthAxis' total revenues. As
of September 30, 2000, HealthAxis had trade receivables from UICI and its
subsidiaries and affiliates of $2,774 (31%).
Note F - Capitalized Software and Contract Start-up Costs
Developed Software
HealthAxis incurs development costs that relate primarily to the development of
new products and major enhancements to existing services and products.
HealthAxis expenses or capitalizes, as appropriate, these development costs in
accordance with Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. All
development costs related to software development projects incurred prior to the
time a project has reached technological feasibility are expensed. Software
development costs incurred subsequent to reaching technological feasibility are
capitalized. If the process of developing a new product or major enhancement
does not include a detailed program design, technological feasibility is
determined only after completion of a working model. HealthAxis capitalized
$2,646 in software development costs during the nine months ended September 30,
2000. All software development costs capitalized are amortized using an amount
determined as the greater of (i) the gross revenue method or (ii) the
straight-line method over the remaining economic life of the product (generally
three to five years). HealthAxis recorded amortization expense relating to
capitalized software development costs of $281 and $784 during the three months
and nine months ended September 30, 2000, respectively.
Contract Start-up Costs
HealthAxis capitalizes costs directly attributable to contract start-up
activities in accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. Costs capitalized
include direct labor and fringe benefits. Such costs are amortized over the life
of the respective contract. All other start-up costs not directly related to
contracts are expensed in accordance with SOP 98-5, Reporting on the Costs of
Start-up Activities. Contract start-up costs capitalized during the nine months
ended September 30, 2000 totaled $28. HealthAxis recorded amortization expense
relating to contract start-up costs of $65 and $239 during the three months and
the nine months ended September 30, 2000, respectively.
Note G - Amortization of Intangibles
Amortization of intangibles is comprised of the following for the three months
and the nine months ended September 30, 2000:
F-49
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
Three Months Nine Months
Ended Ended
-------------------------
September 30, 2000
-------------------------
Amortization of goodwill $ 8,527 $25,581
Amortization of customer base 1,075 3,226
Amortization of developed software 239 716
------- -------
$ 9,841 $29,523
======= =======
At September 30, 2000, the Company performed an impairment evaluation
of long-lived assets and determined that none were impaired. The Company
currently knows of no events that would allow for the write down of goodwill
other than the revaluation associated with the HAI merger.
F-50
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Dollars in Thousands
Note H - HealthAxis.com, Inc. Stock Options
During the first quarter of 2000, the board of directors of HealthAxis granted
1,178,200 options under its 1998 Stock Option Plan (the "1998 Plan"). All such
options were granted with an exercise price of $15.00 per share, which
represented the fair value of the HealthAxis common stock as determined by the
Board of Directors based upon privately negotiated equity transactions. Since
this grant price was below the public fair market value of HAI's common stock on
the dates of the grants, HealthAxis has recorded compensation expense of $2,331
for the nine months ended September 30, 2000 which is included in merger related
costs. This expense is based upon the intrinsic value method under Accounting
Principles Board opinion No. 25 Accounting for Stock Issued to Employees.
On May 24, 2000 and September 22, 2000, the board of directors of HealthAxis
granted 227,425 and 145,200 options, respectively, under the 1998 Plan. These
options were granted with exercise prices equaling the quoted market share price
of HAI on the date of grant. No stock based compensation has been recorded
related to these grants as the exercise prices of the options equaled the deemed
fair value of HealthAxis' common stock on the dates of grant.
On May 24, 2000, the board of directors of HealthAxis repriced 1,773,050
existing options. The options affected had original exercise prices ranging from
$12.00 to $15.00 per share. The exercise price of these options was adjusted to
$3.31 based upon the quoted market share price of HAI's common stock as reported
on the NASDAQ National Market on the date of the repricing. Accordingly,
HealthAxis now accounts for these options as a variable award.
Note I - Commitments and Contingencies
Effective August 15, 2000, Al Clemens, HAI's and HealthAxis's Chairman,
HealthAxis and HAI entered into a termination agreement of Mr. Clemens' current
employment contract, which, among other things, releases of HealthAxis from the
current employment contract.
F-51
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Insurdata Incorporated
We have audited the accompanying consolidated balance sheets of Insurdata
Incorporated and Subsidiaries (the Company) as of December 31, 1998 and 1999,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Insurdata
Incorporated and Subsidiaries at December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Dallas, Texas
March 28, 2000
F-52
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
(Note 1)
ASSETS
<TABLE>
<CAPTION>
December 31
1998 1999
----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,450 $ 2,126
Trade accounts receivable, net of allowance of $69 and $25,
at December 31, 1998 and 1999, respectively 2,482 2,732
Receivables from affiliates 2,242 3,201
Receivable from affiliate related to income taxes - 388
Notes receivable 308 -
Deferred income taxes 131 140
Other current assets 603 828
----------------- ----------------
Total current assets 10,216 9,415
Property and equipment, net 5,987 6,278
Capitalized software and contract start-up costs, net 2,620 3,452
Intangible assets, net 920 1,144
Long-term notes receivable 292 -
Long-term notes receivable - employees - 631
----------------- ----------------
Total assets $20,035 $ 20,920
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 235 $ 959
Accrued liabilities 3,175 2,421
Accrued liabilities payable to affiliates 476 575
Payable to affiliate related to income taxes 731 -
Deferred revenues 377 397
Obligations under capital leases 179 148
----------------- ----------------
Total current liabilities 5,173 4,500
Notes payable 36 24
Obligations under capital leases 409 152
Deferred income taxes 18 680
Phantom stock liability 687 344
Commitments
Minority interest 16 -
Stockholders' equity:
Common stock, no par value:
Authorized shares - 50,000,000 issued and outstanding
shares 16,396,667 for both 1998 and 1999 5,531 5,777
Retained earnings 8,165 9,443
----------------- ----------------
Total stockholders' equity 13,696 15,220
----------------- ----------------
Total liabilities and stockholders' equity $ 20,035 $ 20,920
================= ================
</TABLE>
See accompanying notes.
F-53
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
(Note 1)
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
--------------- -------------- ---------------
<S> <C> <C> <C>
Revenue $16,804 $19,325 $ 18,351
Revenue from affiliates 12,591 24,908 28,112
--------------- -------------- ---------------
Total revenue 29,395 44,233 46,463
Operating expenses:
Cost of revenues 21,371 33,935 37,104
Selling, general and administrative 4,526 5,534 5,759
Research and development 440 533 22
Amortization of capitalized software development
and contract start-up costs 645 834 1,344
Amortization of intangible assets and goodwill 74 88 111
Costs of preparing for public offering - 726 -
--------------- -------------- ---------------
Total operating expenses 27,056 41,650 44,340
--------------- -------------- ---------------
Operating income 2,339 2,583 2,123
Interest and other income, net 541 256 80
--------------- -------------- ---------------
Income before income taxes and minority interest 2,880 2,839 2,203
Provision for income taxes 1,195 880 832
--------------- -------------- ---------------
Income before minority interest 1,685 1,959 1,371
Minority interest in (income) loss of subsidiary 176 (34) (93)
--------------- -------------- ---------------
Net income $ 1,861 $ 1,925 $ 1,278
=============== ============== ===============
</TABLE>
See accompanying notes.
F-54
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Common Stock
----------------------
Number of Retained Deferred
Shares Amount Earnings Compensation Total
----------- ---------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 16,397 $ 8,408 $ 4,459 $ (233) $12,634
Contribution of Insurdata Administrators from UICI
(Note 1) - 273 - - 273
Contribution from UICI (Note 8) - 132 - - 132
Distributions to UICI and minority interests - (2,791) (80) - (2,871)
Amortization of deferred compensation - - - 147 147
Net income and comprehensive income - - 1,861 - 1,861
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1997 16,397 6,022 6,240 (86) 12,176
Contribution from UICI (Note 8) - 216 - - 216
Distributions to UICI (Note 1) - (707) - - (707)
Amortization of deferred compensation - - - 86 86
Net income and comprehensive income - - 1,925 - 1,925
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1998 16,397 5,531 8,165 - 13,696
Tax benefits of stock option deduction - 246 - - 246
Net income and comprehensive income - - 1,278 - 1,278
----------- ---------- ----------- ---------------- ---------
Balance at December 31, 1999 16,397 $ 5,777 $ 9,443 $ - $15,220
=========== ========== =========== ================ =========
</TABLE>
See accompanying notes.
F-55
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Net income $ 1,861 $ 1,925 $ 1,278
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense 1,193 1,959 2,644
Amortization of intangibles and goodwill 74 88 111
Amortization of capitalized software development and
contract start-up costs 645 834 1,344
Income tax benefits of stock option deduction - - 246
Minority interest (176) 34 93
Compensation from stock grants 147 86 -
Provision for doubtful accounts 155 115 26
Loss on disposal of fixed assets 89 52 35
Purchased in-process research and development - 189 -
Deferred income taxes 125 206 571
Changes in operating assets and liabilities, net of
dispositions
Trade accounts receivable (802) (273) (620)
Receivables from affiliates (3,694) (8) (959)
Other current assets (138) 146 (306)
Accounts payable and accrued liabilities 1,869 883 538
Accrued liabilities payable to affiliates and phantom
stock liability (227) (1,120) (245)
Receivable/payable from affiliate for income taxes 926 (250) (693)
Deferred revenues 132 (127) 20
Other 161 - -
-------------- ------------- -------------
Net cash provided by operating activities 2,340 4,739 4,083
Investing Activities
Capital expenditures (2,578) (3,410) (3,333)
Collection (issuance) of note receivable - (100) 146
Issuance of notes receivable to employees - - (631)
Sale of Insurdata Administrators and Insurdata Marketing
Services to affiliate, net - - 260
Software development and contract start-up costs capitalized (701) (1,513) (1,979)
Payments from (advances to) affiliates (4,371) 4,500 -
Sale of accounts receivable to affiliate 401 - -
Payment of Insurdata Imaging Services contingent purchase price - - (79)
Purchase of minority interest - (1,650) (500)
-------------- ------------- -------------
Net cash used in investing activities (7,249) (2,173) (6,116)
Financing Activities
Contribution from (distribution to) parent, net 64 (491) -
Distribution to minority interests (12) (75) (112)
Payments on capital lease obligations - (28) (168)
Payments on long-term debt - (11) (11)
Payments on long-term debt with affiliates (362) - -
-------------- ------------- -------------
Net cash used in financing activities (310) (605) (291)
-------------- ------------- -------------
</TABLE>
F-56
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents $ (5,219) $ 1,961 $ (2,324)
Cash and cash equivalents at beginning of year 7,708 2,489 4,450
------------ ----------- -----------
Cash and cash equivalents at end of year $ 2,489 $ 4,450 $ 2,126
============ =========== ===========
Supplemental Cash Flow Information
Cash paid for interest $ 263 $ 170 $ 80
============ =========== ===========
Cash paid for income taxes $ 145 $ 846 1,029
============ =========== ===========
Supplemental Schedule of Non-Cash Investing Activities
Acquisition of equipment under capital leases $ - $ 617 $ -
============ =========== ===========
</TABLE>
See accompanying notes.
F-57
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Description of Business and Basis of Presentation
General
Insurdata Incorporated (the Company) provides comprehensive technology solutions
and related outsourcing services to the claims and administration segment of the
health care industry within the United States. The Company's services include
proprietary workflow and internet-enabled business applications that address
transaction processing and the flow of information among constituent users. In
addition, the Company offers systems integration, technology management and
business process outsourcing. The Company's services enable its clients to
reduce administrative costs and improve customer service in all aspects of
health care administration, from eligibility and enrollment to claim capture,
processing, adjudication, payment and customer service. The Company's clients
include insurance carriers, third-party administrators (TPAs), Blue Cross/Blue
Shield organizations, self-administered employers and preferred provider
organizations.
The Company is a majority owned subsidiary of UICI, a diversified financial
services company. The accompanying consolidated financial statements include the
accounts of the Company and all its subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.
In September 1997, the Company acquired a 51% member interest in Insurdata
Imaging Services, LLC (IIS) (formerly Satellite Image Systems, LLC), a provider
of imaging and data capture outsourcing services, from UICI for a purchase price
of $2.8 million. Consequently, the purchase price paid to UICI in 1997 is
presented as a distribution to UICI in stockholders' equity due to the "as if
pooling of interests" accounting described below. The purchase price
approximated UICI's net book value for IIS, and was paid by the Company by
exchanging accounts and notes receivable due from UICI Administrators. UICI
acquired 51% controlling interest of IIS on August 1, 1996, for a cash
investment into IIS of $3 million. In May 1998, the Company acquired the
remaining 49% interest in IIS for $1.65 million and annual earn-out payments
through the year 2000 the majority of which were subject to a cumulative ceiling
of approximately $1 million.
Effective January 1998, the Company acquired certain assets used in providing
benefits administration services, subsequently renamed Insurdata Administrators
(IA), from a subsidiary of UICI for a purchase price of approximately $465,000.
The price approximated UICI's net book value and was paid by the Company through
a reduction in the principal amount of a note payable by UICI to the Company. As
a result of IA's acquisition by the Company during 1998 and prior common control
by UICI, the accounts of IA are presented on a combined basis with those of the
Company and its subsidiaries prior to the Company's acquisition date.
Consequently, the purchase price paid to UICI in 1998 is presented as a
distribution to UICI in stockholders' equity due to the "as if pooling of
interests" accounting described below.
F-58
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Basis of Presentation (continued)
Effective June 30, 1998, the Company acquired an 85% interest in Insurdata
Marketing Services, LLC (IMS) (formerly Self Funded Strategies, LLC), from UICI
for a cash purchase price of approximately $57,000 presented as a distribution
to UICI in stockholders' equity. The purchase price for UICI's interest in IMS
approximated UICI's net book value for its interest in this entity. UICI
acquired its 85% controlling interest in IMS on October 1, 1995. The Company
distributed earnings of Self Funded Strategies of $185,000 for the six months
ended June 30, 1998 to UICI. As a result of IMS's acquisition by the Company
during 1998 and prior common control by UICI, the accounts of IMS are presented
on a combined basis with those of the Company and its subsidiaries prior to the
Company's acquisition date.
Effective January 1, 1999, the Company exchanged 5% of its member interest in
IMS for a reduction of future contractual commissions payable by IA and IIS to
IMS. Effective September 15, 1999, the Company acquired the 20% minority
membership interest, which included the 5% exchanged earlier in the period, for
a purchase price of $500,000 cash paid at closing. The consideration paid by the
Company exceeded the book value of the interest acquired by approximately
$503,000. The excess was allocated to prepaid commissions and is being amortized
over a five-year period.
Consistent with the requirements of Emerging Issues Task Force (EITF) Issue No.
90-5, "Exchange of Ownership Interests Between Entities Under Common Control"
(EITF 90-5), and Interpretation 39 of Accounting Principles Board Opinion No. 16
(APB 16), the financial statements of IIS, IA and IMS have been combined with
the Company's financial statements on an "as if pooling of interests" basis from
the date control by UICI was established.
Therefore, the IIS, IA and IMS financial statements have been combined with the
Company's financial statements beginning August 1, 1996, January 1, 1997, and
October 1, 1995, respectively. The assets and liabilities of IIS, IA and IMS
included in the consolidated financial statements are stated at UICI's
historical carrying basis. The carrying value of the IIS, IA and IMS net assets
combined on the dates UICI established control has been reflected as a
contribution received from UICI in the Consolidated Statements of Stockholders'
Equity. Consideration paid by the Company to acquire UICI's interest in IIS, IA
and IMS has been reflected as a distribution to UICI in the Consolidated
Statements of Stockholders' Equity. The Company's assets are presented on its
historical basis and do not reflect UICI's price paid to acquire Insurdata,
which exceeded the carrying value of the Company's net assets at the dates of
acquisition of the Company's shares by UICI by approximately $21 million in the
aggregate.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less from the date of purchase to be cash
equivalents.
F-59
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are provided on the straight-line basis over the
estimated useful lives of the respective assets or the lease term, if shorter.
Amortization of assets recorded under capital leases is included in depreciation
expense.
Purchased Intangible Assets
Purchased intangible assets, which consist of developed technologies, customer
bases and goodwill, are being amortized on the straight-line basis over three to
twenty years. The carrying value of goodwill is reviewed quarterly and decreased
if facts and circumstances suggest permanent impairment. Developed technologies
and customer base intangibles are reduced to their recoverable value if the
carrying value exceeds expected undiscounted cash flows from the intangible
asset.
Financial Instruments
Financial instruments include cash and cash equivalents, accounts receivable,
accounts payable, obligations under capital leases, notes payable and the
phantom stock liability. The Company believes that the carrying amounts of these
financial instruments approximate their fair value.
Research and Development Costs
The Company incurs research and development costs that relate primarily to the
development of new products and major enhancements to existing services and
products.
Research and development costs are comprised primarily of salaries and related
benefits. The Company expenses or capitalizes, as appropriate, these research
and development costs in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. All research and development costs related to
software development projects incurred prior to the time a project has reached
technological feasibility are expensed. Software development costs incurred
subsequent to reaching technological feasibility are capitalized. If the process
of developing a new product or major enhancement does not include a detailed
program design, technological feasibility is determined only after completion of
a working model. All software development costs capitalized are amortized using
an amount determined as the greater of (i) the gross revenue method or (ii) the
straight-line method over the remaining economic life of the product (generally
five years). The Company recorded amortization relating to capitalized software
development costs of $645,000, $697,000 and $893,000 in the years ended December
31, 1997, 1998 and 1999, respectively.
F-60
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Contract Start-up Costs
The Company capitalizes costs directly attributable to contract start-up
activities in accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts. Costs capitalized
include direct labor and fringe benefits. Such costs are amortized over the life
of the respective contract. All other start-up costs not directly related to
contracts are expensed in accordance with SOP 98-5, Reporting on the Costs of
Start-up Activities. Total contract start-up costs capitalized during the years
ended December 31, 1998 and 1999 were approximately $407,000 and $664,000,
respectively. The Company recorded amortization relating to contract start-up
costs of $136,000 and $451,000 in the years ended December 31, 1998 and 1999,
respectively.
Internal-Use Software Development Costs
In March 1998, the AICPA issued Statement of Position (SOP) 98-1, Accounting for
the Costs of Computer Software Developed for or Obtained for Internal-Use. The
SOP, which has been adopted as of January 1, 1999, requires the capitalization
of certain costs in connection with developing or obtaining internal-use
software. Costs capitalized include direct labor and fringe benefits.
Amortization of capitalized software is recognized on a project-by-project
basis, using the straight-line method over periods not exceeding five years,
commencing the month after the date of the project completion. The Company did
not have internal-use software development projects in prior periods and
consequently the adoption of the SOP did not have a significant affect on the
results of operations as compared to prior periods.
Revenue Recognition
The Company's revenues consist primarily of transaction revenues and fees from
professional services.
Transaction revenues are earned on a fee-per-unit basis. Depending on the
product or service provided, the fee may be a charge per covered life or member,
per transaction processed, per document or electronic transmission, or per unit
serviced (such as per PC for LAN support). Transaction revenue is derived from
the Company's workflow and business applications, data capture outsourcing
services and technology management services. Transaction revenue is recorded in
the month the services are rendered.
F-61
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Professional services revenue consists of time and materials projects and fixed
price projects. Time and materials projects are billed on a fee per hour or per
day, or based upon a multiple of monthly salary, dependent upon the nature of
the project. Such revenue is recorded as the services are performed.
Professional services revenue on fixed price projects is recognized using the
percentage-of-completion method in proportion to the hours expended compared to
the total hours projected for the project. Changes in estimates of
percentage-of-completion are recognized in the period in which they are
determined. Provisions for estimated losses, if any, are made in the period in
which the loss first becomes apparent. Professional services revenue is derived
from the Company's system integration, consulting and programming services, as
well as customization and implementation performed in conjunction with workflow
and business application software.
Deferred Revenues
Certain contracts allow the Company to bill in advance of contract performance.
Amounts billed in advance of contract performance are deferred until such
amounts are recognized as revenue, in accordance with the Company's revenue
recognition policy.
Concentration of Credit Risk
Revenues and the resulting accounts receivable balances potentially subject the
Company to concentrations of credit risk within the claims and administrative
segment of the health care industry and significant customer relationships. For
the years ended December 31, 1997, 1998 and 1999, the Company's three largest
customers, including UICI and its subsidiaries and affiliates (see Note 4),
accounted for approximately 69%, 74% and 70%, respectively, of the Company's
total revenue. For the years ended December 31, 1997, 1998 and 1999, UICI and
its subsidiaries and affiliates accounted for approximately 43%, 56% and 60%,
respectively, of the Company's total revenue. As of December 31, 1998 and 1999,
the three largest customers accounted for 63% and 60%, respectively, of the
Company's total accounts receivable. As of December 31, 1998 and 1999, UICI and
its subsidiaries and affiliates accounted for approximately 47% and 54%,
respectively, of the Company's total accounts receivable (see Note 4).
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral; however, deposits for
future services or products are sometimes required. Credit losses have been
within management's expectations.
The Company has entered into processing agreements with its customers that have
specified performance commitments. If the Company does not achieve levels of
performance specified in its contracts the Company may be subject to reduced
revenues, penalties, and/or cash payments to its customers. The Company recorded
approximately $538,000 at December 31, 1999 related to performance commitments.
F-62
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
The Company has elected to account for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market value of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the stock. See Note
7 regarding the pro forma net income as required by the alternative fair value
accounting provided for under Financial Accounting Standards Board Statement No.
123, Accounting for Stock-Based Compensation (Statement 123).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, which
establishes guidance for the reporting and display of comprehensive income and
its components. The Company adopted this Statement as of January 1, 1998;
however, this standard does not currently impact disclosures as the Company has
no elements of other comprehensive income.
New Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 2000. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.
On December 3, 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
the provisions of which must be applied to the Company's financial statements no
later than the first quarter of 2000. While the SAB does not change existing
rules on revenue recognition, it provides additional guidance for transactions
not specifically addressed by existing rules. The Company's management believes,
based upon a review of the effects of the provisions of the SAB, that the SAB
will not have a significant effect on the Company's revenue recognition
accounting.
F-63
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. Costs of Preparing for Public Offering
During 1998 the Company began the process of preparing for an initial public
offering. Due to market conditions the Company placed the public offering of its
securities on hold in September 1998. As a result, the Company expensed $726,000
of offering-related costs in the third quarter of 1998.
4. Related Party Transactions
The Company conducts a significant amount of business with its parent, UICI. The
Company currently provides services to a number of UICI subsidiaries and
affiliates pursuant to written agreements ranging from one to three years, with
annual renewable options thereafter. These services include the use of certain
of its proprietary workflow and business applications, as well as systems
integration and technology management. UICI and its subsidiaries and affiliates
constitute, in the aggregate, the Company's largest customer. For the years
ended December 31, 1997, 1998 and 1999, UICI and its subsidiaries and
affiliates, including the subsidiaries and affiliates discussed below, accounted
for an aggregate of $12.6 million (43%), $24.9 million (56%) and $28.1 million
(60%), respectively, of the Company's total revenues for such periods. As of
December 31, 1998 and 1999, the Company had trade receivables from UICI and its
subsidiaries and affiliates of $2.2 million (47%) and $3.2 million (54%),
respectively. In addition to trade receivables, the Company also held various
notes receivable from UICI and its subsidiaries and affiliates, amounting to
$4.5 million at December 31, 1997. These notes bore interest at rates ranging
from 8.25% to 10.5%. Total interest income from these notes for the years ended
December 31, 1997 and 1998, was approximately $514,000 and $125,000,
respectively. These notes were paid off in 1998.
UICI provides human resource administrative services to the Company, including
payroll services and employee benefit management. In addition to reimbursement
on a dollar-for-dollar basis for wage and benefit costs, UICI charges the
Company an administrative fee of $10 per employee per pay period pursuant to a
written agreement, which fee is intended to reimburse UICI for the overhead it
incurs in providing these services. For the years ended December 31, 1997, 1998
and 1999, the Company paid UICI an aggregate of approximately $54,000, $73,000
and $75,000, respectively, in administrative fees under this arrangement. The
Company expects UICI to continue to provide these services for the foreseeable
future. The Company has also engaged other UICI subsidiaries to provide services
such as printing and newsletter publication. For the years ended December 31,
1998 and 1999, the Company paid these subsidiaries an aggregate of approximately
$18,000 and $20,000, respectively, for such services.
F-64
<PAGE>
4. Related Party Transactions (continued)
The Company leases two facilities from certain subsidiaries of UICI. The Company
leases office space located in Hurst, Texas. The Company leases additional
office space in Dallas, Texas, on a month-to-month basis under a verbal
agreement. The Company paid an aggregate of approximately $112,000, $255,000 and
$369,000 under these leasing arrangements for the years ended December 31, 1997,
1998 and 1999, respectively.
During 1998, the Company purchased certain furniture and equipment for $141,000
from a subsidiary of UICI for purchase prices equal to the subsidiary's net book
value for such items. Also during 1998, the Company purchased certain furniture
and equipment for $195,000 from BTSI, a UICI affiliate, for a purchase price
equal to BTSI's net book value for such items.
The Company currently provides certain workflow and business applications to
UICI Administrators, Inc. (UICI Administrators), a TPA owned by UICI, pursuant
to a written service agreement. UICI Administrators in turn operates through an
agreement with Healthcare Management Administrators, Inc. (HMA), an entity owned
by Ronald L. Jensen, a director of the Company and Chairman of UICI. The
Company's agreement with UICI Administrators is for a five-year term expiring in
December 2001, with automatic annual renewal provisions thereafter, subject to
prior notice of nonrenewal.
The Company provided accounting and management services to UICI Administrators.
In exchange for these services, UICI Administrators paid the Company a fee based
upon the salary, benefits and time commitment of the Company's employees who
actually performed the services. The fee was intended to reimburse the Company
for the costs of providing these services and therefore such fees were offset
against the related expenses. Fees received from UICI Administrators amounted to
$2,000, $134,000 and $143,000 for the years ended December 31, 1997, 1998 and
1999, respectively. In addition to the accounting services provided by the
Company, the Company's President and Chief Executive Officer provided certain
management oversight of UICI Administrators. Neither the President nor the
Company received any compensation in exchange for the President's services. The
accounting and management services ceased at December 31, 1999.
During 1999, the Company entered into a contract with UICI Administrators and an
unrelated third party for both programming services and ongoing processing of
medical insurance claims and Medicare claims. The contract provides for the
Company to receive an approximate $1.1 million fixed fee for programming
services payable initially in cash up to $640,000 as programming services are
performed and then by a $460,000 non-interest bearing note with an estimated
fair value of approximately $370,000 using an estimated implied interest rate of
8.75%. The note will be paid in equal monthly installments of $7,666 over the
five-year life of the contract. The note is collateralized by the proceeds of
the cancellation provisions within UICI Administrators' contract with the
unrelated third party. The Company recorded approximately $812,000 in
programming revenues under this contract during the year ended December 31,
1999. The Company's arrangement with UICI Administrators provides for the
Company to receive its customary transaction and processing fees over the term
of the contract.
F-65
<PAGE>
4. Related Party Transactions (continued)
HMA, an entity owned by Ronald L. Jensen, provides a significant number of
services to UICI Administrators, which is a customer of the Company. HMA was
formed by Mr. Jensen in July 1997. Along with UICI Administrators, HMA
experienced significant operating losses in 1998. The Company had advanced
approximately $1.1 million to HMA under a written promissory note dated April
30, 1998, that bore interest at prime plus 2% and was payable on demand upon 30
days prior notice. The entire balance of the note was repaid during August 1998.
Winterbrook VSO (VSO), an entity owned by Ronald L. Jensen, provides certain
sales and marketing services for the Company's imaging and electronic data
capture services pursuant to a verbal brokerage agreement that expired June 30,
1997. Under the agreement, VSO receives a commission computed on the amount of
recurring fees under client contracts that VSO brokered on behalf of the
Company. During 1997, the Company advanced funds to VSO against future
commissions to be earned by VSO under the brokerage agreement. The advances were
not made pursuant to a written promissory note and did not bear interest. The
Company paid VSO, or offset against the outstanding balance of any advances, as
applicable, fees aggregating approximately $132,000, $191,000 and $258,000 for
the years ended December 31, 1997, 1998 and 1999, respectively. At December 31,
1998 and 1999, the balance of commissions owed to VSO was approximately $42,000
and $58,000, respectively. Mr. Jensen purchased VSO from UICI in July 1997.
Netlojix Communications Inc., a telephone company in which Ronald L. Jensen,
Chairman of UICI and a former director of HealthAxis, and his five adult
children and their affiliated trusts own a controlling interest, provides
telephone services to UICI and certain subsidiaries, including Insurdata
Incorporated (now HealthAxis' applications solutions group) pursuant to a
written agreement. This agreement was for a 15 month term expiring November 2000
with automatic monthly renewal provisions thereafter, subject to 30 days' notice
of non-renewal. In 1997 and 1998 and until August 1, 1999, Matrix Telecom, a
subsidiary of Netlojix Communications, Inc., provided telephone services to
Insurdata Incorporated. For the pro forma years ended December 31, 1997, 1998
and 1999, the application solutions group paid these entities approximately
$46,000, $132,000 and $243,000, respectively.
Effective October 1, 1999, the Company sold its business in providing benefit
administration services, namely its IA division, and its 100% member interest in
IMS, to a subsidiary of UICI for a sales price in cash of approximately $459,000
and $399,000, respectively. The price approximated the Company's net book value
of IA and IMS at the time of the sale.
The book value of the assets and liabilities of the IA and IMS divisions at
September 30, 1999 were as follows:
Cash and cash equivalents $ 598,000
Other current assets 415,000
Non-current assets 960,000
Liabilities (1,115,000)
Shareholders equity and -----------
member interest (net book value) $ (858,000)
===========
F-66
<PAGE>
5. Property and Equipment
Property and equipment, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful Lives December 31
(Years) 1998 1999
---------------- ----------------- ----------------
<S> <C> <C> <C>
Computer equipment 3 - 5 $ 12,100 $ 13,538
Office furniture and equipment 5 - 7 1,748 1,842
Computer software 3 - 5 1,978 2,421
Leasehold improvements 3 - 5 1,041 1,371
Accumulated depreciation (10,880) (12,894)
----------------- ----------------
$ 5,987 $ 6,278
================= ================
</TABLE>
6. Intangible Assets
The Company's intangible assets at December 31, 1996, resulted from the
application of purchase accounting to the acquisition price paid by UICI for IIS
on August 1, 1996. The excess consideration paid by UICI over the fair value of
the net tangible assets of IIS less minority interests determined at the date of
acquisition of approximately $1.6 million was allocated initially to
identifiable intangible assets with the remainder allocated to goodwill.
On May 1, 1998, the Company purchased the remaining 49% member interest in IIS
for $1.65 million. The consideration paid by the Company exceeded the book value
of the interest acquired by approximately $453,000. The excess purchase price
over the fair value of tangible assets was allocated to intangible assets based
on appraised values including $189,000 allocated to in-process research and
development. The in-process research and development was expensed at the date of
the acquisition. In addition to the consideration described above, the purchase
of the remaining interest in IIS included annual earn-out payments through the
year 2000 the majority of which was subject to a cumulative ceiling of
approximately $1 million. On August 31, 1999, the Company exchanged a note
receivable from the former shareholders of approximately $454,000 to settle a
majority of the earn-out provision rights. The balance of the earn-out
provisions was settled by the Company for approximately $79,000 in cash during
the fourth quarter of 1999. The Company recorded the carrying value of the note
receivable and cash payments as additional purchase price on the applicable
settlement dates, which amounts are being amortized over the remaining useful
lives of the assets acquired.
F-67
<PAGE>
6. Intangible Assets (continued)
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful Lives December 31
(Years) 1998 1999
---------------- ------------ ------------
<S> <C> <C> <C>
Goodwill 20 $ 621 621
Customer base 10 377 604
Work force 5 115 223
Accumulated amortization (193) (304)
------------ ------------
$ 920 $1,144
============ ============
</TABLE>
7. Stock Option Plans
UICI sponsors the Founders Stock Option Plan (Founders Plan) pursuant to which
UICI and the Company have granted stock options to certain key employees of the
Company to purchase shares of the Company's Common Stock from UICI. Under the
Founders Plan, UICI has made available for purchase an aggregate of 2,459,500
shares of Common Stock, representing 15% of the total number of shares of Common
Stock held by UICI, at an exercise price of $1.80 per share. Options awarded
under the plan vest ratably over a five-year period and expire 90 days after the
last vesting date. The Founders Plan is administered by the Company's Board of
Directors, which has the authority to determine who will receive stock options,
the number of shares of Common Stock subject to such stock options and the
terms, conditions, restrictions and limitations relating to an award of stock
options, including the time and conditions of vesting and exercise.
On June 1, 1999, the Company's Board of Directors approved the Insurdata
Incorporated 1999 Stock Option Plan (the 1999 Plan). The 1999 Plan authorized
management of the Company to grant to employees up to 2,500,000 options to
purchase the Company's common stock. As of December 31, 1999, 321,000 options
have been granted under the 1999 Plan. The options granted became exercisable
25% on each anniversary of the date the options were awarded to the employee. No
compensation expense was recognized as all options under the 1999 Plan have been
granted with an exercise price not less than the fair value of the common stock
on the date of grant. The Company has reserved 2,500,000 shares of the Company's
common stock for issuances under the 1999 Plan.
F-68
<PAGE>
7. Stock Option Plans (continued)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Founders Plan 1999 Plan
-------------------------------- ------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1996 - $ - - $ -
Granted 2,066,000 1.80 - -
Forfeited - - - -
------------- ------------
Outstanding at December 31, 1997 2,066,000 1.80 - -
Granted 393,500 1.80 - -
Forfeited (198,000) 1.80 - -
------------- ------------
Outstanding at December 31, 1998 2,261,500 1.80 - -
Granted - - 321,000 4.32
Forfeited (108,200) 1.80 - -
Exercised (316,800) 1.80 - -
------------- ------------
Outstanding at December 31, 1999 1,836,500 1.80 321,000 4.32
============= ============
</TABLE>
<TABLE>
<CAPTION>
Founders Plan 1999 Plan
-------------------------------- ------------------------------
<S> <C> <C>
Options exercisable at December 31,
1998 443,200 -
1999 594,300 18,750
Weighted average remaining
contractual life (years) at December 31,
1998 3.65 -
1999 2.62 3.54
</TABLE>
The 1999 Plan granted 271,000 options at an exercise price of $3.00 per share
and 50,000 options with a weighted average exercise price of $11.50 per share.
The exercise price of exercisable options in the 1999 Plan is $3.00.
Under APB 25, because the exercise price of the Company's employee stock options
equals or exceeds the market value of the underlying stock on the date of grant,
no compensation expense has been recognized. The Company recorded during 1999
an increase to stockholders' equity of $70,000 related to the tax benefit
resulting from the exercise of 316,800 Founders Plan options.
F-69
<PAGE>
7. Stock Option Plans (continued)
Effective August 15, 1998, the Company's employees became participants in a UICI
stock option plan (UICI Plan) pursuant to which UICI has granted stock options
to purchase shares of UICI common stock to certain employees of the Company.
There were 418,458 options granted to Insurdata employees, of which 35,772 have
been exercised as of December 31, 1999 and related tax benefit of $176,000 was
recorded as an increase in stockholders' equity. There were 43,192 and 33,480
options forfeited during 1998 and 1999, respectively. Each option has an
exercise price of $15. Under the original terms of the grant, the options vested
20% each year beginning on August 15, 1999 and thereafter through 2001 and 40%
on August 15, 2002. Effective December 14, 1999, in connection with the signing
of a merger agreement with HealthAxis Inc., the vesting schedule was accelerated
to provide an additional 20% vesting to all participating Company employees who
were employed as of that date. Under the plan, participants are deemed to have
terminated employment at any such time that their employer becomes a less than
50% owned subsidiary of UICI. Pursuant to this provision, employees of the
Company are deemed to have been terminated from employment for plan purposes on
January 7, 2000. As such, no additional amounts of options will vest beyond 1999
and all outstanding options under the plan will expire on March 31, 2000. These
options are UICI obligations and have not been included in the Company's stock
option information on the previous page. The exercise price of these options
equals the market price of UICI common stock on the date of grant. As such, no
compensation expense has been recognized under APB 25. All option prices when
exercised are remitted to UICI.
Pro forma information regarding net income required by Statement 123 has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The weighted-average fair value per
share of options granted in the Founders Plan during 1997 and 1998 was $.41 and
$.35, respectively. The weighted-average fair value per share of options granted
in the UICI Plan during 1998 was $3.06. The weighted-average fair value per
share of options granted in the 1999 Plan during 1999 was $1.50. The fair value
of the options was estimated using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1997, 1998 and 1999, respectively:
risk-free interest rate of 6.70%, 5.71% and 5.81%; a volatility factor of 0.38,
0.38 and 0.67; no dividend yield and an expected life of four years.
F-70
<PAGE>
7. Stock Option Plans (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including, for publicly held companies, expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands):
Year ended December 31
1997 1998 1999
--------------- ----------------- ---------------
Pro forma net income $ 1,759 $ 1,587 $ 810
8. Income Taxes
Commencing with the tax year ended December 31, 1997, the Company is included in
the consolidated income tax returns of UICI.
The Company has a verbal tax sharing agreement with UICI. Under this agreement,
except as described below, the Company remits payments to UICI or receives
payments from UICI for tax expense or benefit computed as if the Company filed a
separate income tax return. Based on this agreement, taxes receivable of
$388,000 at December 31, 1999, are primarily receivable from UICI, not from the
taxing authorities. The Company's tax provision and related tax accounts have
been prepared on a separate return basis.
Certain taxable income and losses related to IMS and IIS were included in UICI's
consolidated tax return prior to the Company acquiring those entities.
Subsequent to acquisition of those entities by the Company, such entities were
subject to the Company's verbal tax sharing agreement with UICI. Consequently,
prior to acquisition of such entities settlement of the related tax expense and
benefits through the Company's tax sharing agreement did not occur. The
resulting taxes payable or receivable are reflected in stockholders' equity as a
contribution from UICI of $132,000 and $216,000 for the years ended December 31,
1997 and 1998, respectively.
IMS and IIS are limited liability corporations (LLCs) which are treated as
partnerships for federal income tax purposes. Accordingly, minority interests in
the LLCs are determined before income tax expense or benefit associated with the
income or loss of the LLC.
F-71
<PAGE>
8. Income Taxes (continued)
The components of the provision for income taxes are as follows (in thousands):
Year ended December 31
1997 1998 1999
-------------- --------------- -------------
Current:
Federal $ 916 $ 535 $ 135
State 154 139 44
-------------- --------------- -------------
Total current 1,070 674 179
Deferred:
Federal 104 172 550
State 21 34 103
-------------- --------------- -------------
Total deferred 125 206 653
-------------- --------------- -------------
Total provision for
income taxes $ 1,195 $ 880 $ 832
============== =============== =============
The effective income tax rate on income before income taxes differed from the
federal income tax statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
-------------- --------------- -------------
<S> <C> <C> <C>
Income tax provision:
Based upon the federal statutory rate $ 979 $ 965 $ 749
State income tax, net of federal benefit 115 114 104
Benefit associated with minority interest
in loss of subsidiary 73 6 (32)
Research and development credit - (124) -
Other 28 (81) 11
-------------- --------------- -------------
$1,195 $ 880 $ 832
============== =============== =============
</TABLE>
F-72
<PAGE>
8. Income Taxes (continued)
The Company's deferred tax assets and liabilities consist of the following (in
thousands):
December 31
1998 1999
------------- -------------
Deferred tax assets:
Excess of book over tax depreciation $ 57 $ 57
Basis in limited liability companies 81 -
Phantom stock compensation 392 261
Intangibles 145 150
Other - 9
------------- -------------
Total deferred tax assets 675 477
Deferred tax liabilities:
Software development and contract
start-up costs 562 1,017
------------- -------------
Total deferred tax liabilities 562 1,017
------------- -------------
Net deferred tax assets (liabilities) $ 113 $ (540)
============= =============
9. Lease Commitments
The Company leases equipment under capital leases and leases its headquarters
and certain other facilities under operating leases. Minimum noncancelable lease
payments required under operating and capital leases for the years subsequent to
December 31, 1999, are as follows (in thousands):
Operating Capital
Leases Leases
----------------- ----------------
2000 $ 1,263 $ 172
2001 1,137 158
2002 834 2
2003 575 -
----------------- ----------------
Total $ 3,809 332
=================
Less amount representing interest (32)
----------------
Present value of minimum lease payments 300
Less current portion (148)
----------------
$ 152
================
Rent expense totaled approximately $884,000, $1,367,000 and $1,824,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
F-73
<PAGE>
10. Employee Benefit Plans
The Company adopted the Insurdata Incorporated 401(k) and Profit Sharing Plan
(the Insurdata Plan) on July 1, 1988, for the benefit of employees meeting
certain age and service requirements. The Insurdata Plan provided for a Company
match of up to 25% of the employee contributions up to a maximum of 2% of
eligible employee compensation. The Plan was discontinued effective April 1,
1997. Employer matching contributions to the Insurdata Plan amounted to $3,000
for the year ended December 31, 1997.
Effective April 1, 1997, eligible employees of the Company became participants
in the UICI Employee Stock Ownership Plan (the Plan). On January 1, 1998, the
Plan was converted to the UICI Employee Stock Ownership and Savings Plan, which
is a combination ESOP/401(k) plan. Under the Plan, the Company contributed 3% of
qualified salary up front and matched 50% of employee contributions up to 6% of
eligible employee compensation. Employer contributions vest 10% and 20% per year
for the first four years and the next three years, respectively. All Company
contributions are invested in UICI common stock. Employer contributions to the
ESOP were $353,000, $600,000 and $801,000 for the years ended December 31, 1997,
1998 and 1999, respectively.
Effective January 1, 1997, the Company began participating in the UICI Special
Total Ownership Plan (the STOP Plan). Under the STOP Plan, UICI makes periodic
discretionary contributions to a trust on behalf of employees of UICI and its
subsidiaries, including the Company. The plan invests 100% of these
contributions in UICI common stock. The Company recorded compensation expense of
$126,000 and $44,000 related to the STOP Plan for the years ended December 31,
1997 and 1998, respectively.
In 1992, the Company adopted the Insurdata Incorporated Key Person Award Program
(the KPA Plan), which provided for profit sharing and phantom stock awards for
certain key employees of the Company. The Company awarded a total of 1,050,000
shares of phantom stock under the KPA Plan. Except for ongoing payments
associated with awards of phantom stock, the KPA Plan terminated on December 31,
1996.
Under the KPA Plan, shares of phantom stock could be redeemed for cash under
certain circumstances, including termination of employment, with payment
occurring in one lump sum without interest or, at the election of the Company,
in a maximum of five equal annual installments, with interest at the lower of
the prime rate or 10%. All shares of phantom stock awarded under the plan were
redeemed by the holders thereof at a market price of $1.80 per share effective
December 31, 1996. Payment of the cash value is being made by the Company in
five equal annual installments, including interest. The long-term phantom stock
liability is approximately $.7 million and $.3 million at December 31, 1998 and
1999, respectively. The current phantom stock liability is approximately $.3
million at December 31, 1999.
F-74
<PAGE>
10. Employee Benefit Plans (continued)
Upon the acquisition of IIS by UICI in August 1996, the management of IIS was
granted a 5% interest in IIS to be earned over a two-year period. The Company
has recorded the related unearned compensation as a reduction of stockholders'
equity. Compensation expense recorded for this agreement was $147,000 and
$86,000 for the years ended December 31, 1997 and 1998, respectively.
11. Year 2000 Issue (Unaudited)
Many currently installed computer systems and software products are unable to
distinguish between twentieth century dates and twenty-first century dates. If
not corrected, such computer applications could fail or create erroneous
results. The problems associated with this issue could appear in hardware,
operating systems and other software programs. The Company took steps to prevent
these issues from adversely affecting its future operating results. The
Company's management believes its proprietary software used to deliver services
to its customers is Year 2000 compliant. Costs related to addressing the Year
2000 issue has been insignificant prior to 1999 and approximately $125,000
during 1999.
12. Subsequent Events
On December 6, 1999, the Company signed a Merger Agreement with HealthAxis.com,
Inc. (HealthAxis), whereby the Company's shareholders agreed to exchange their
100% ownership of the Company for an ownership interest in the combined entity.
Closing of the transaction occurred on January 7, 2000. At closing, each issued
and outstanding share of Insurdata Common Stock was surrendered and converted
into 1.33 shares of HealthAxis Common Stock. The Insurdata Common Stock was
simultaneously cancelled and retired and HealthAxis is the surviving entity of
the merger. It is anticipated that the merger will be treated as a Tax-Free
Reorganization within the meaning of Section 368 (a) of the Internal Revenue
Service Code. HealthAxis is a Web-based retailer of health insurance products
and related consumer services.
On January 26, 2000, HealthAxis entered into a merger agreement and plan of
reorganization with HealthAxis, Inc. (HAI, formerly Provident American
Corporation). The merger is structured so that HAI will be the surviving
publicly traded company and HealthAxis will be merged with and into HealthAxis
Acquisition Corp., a wholly owned subsidiary of HAI.
F-75
<PAGE>
Appendix A
EXECUTION COPY
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
dated as of October 26, 2000
BETWEEN
HEALTHAXIS INC. (f/k/a PROVIDENT AMERICAN CORPORATION)
HEALTHAXIS.COM, INC.
AND
HEALTHAXIS ACQUISITION CORP.
================================================================================
A-1
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
Table of Contents
-----------------
PAGE
----
SECTION 1: DEFINED TERMS.....................................................6
SECTION 2: THE MERGER.......................................................10
SECTION 3: REPRESENTATIONS OF HEALTHAXIS....................................10
3.1 Organization................................................10
3.2 Effect of Agreement.........................................11
3.3 Capital Stock and Ownership.................................11
3.4 Corporate Records...........................................12
3.5 Financial Statements; No Material Undisclosed Liabilities...12
3.6 Taxes.......................................................12
3.7 Assets......................................................14
3.8 Obligations.................................................14
3.9 Operations Since June 30, 2000..............................14
3.10 Tangible Property...........................................15
3.11 Software and Other Intangibles..............................15
3.12 Contracts...................................................15
3.13 Employees and Independent Contractors.......................16
3.14 Employee Benefit Plans......................................17
3.15 Labor Matters...............................................19
3.16 Environmental Matters.......................................20
3.17 Material Suppliers..........................................20
3.18 Proceedings and Judgments...................................20
3.19 Insurance...................................................21
3.20 Questionable Payments.......................................21
3.21 Related Party Transactions..................................21
3.22 Liens.......................................................21
3.23 Vote Required...............................................21
3.24 Brokerage Fees..............................................22
3.25 Investment Company..........................................22
3.26 Full Disclosure.............................................22
3.27 Compliance with Law.........................................22
3.28 Absence of Certain Changes..................................22
SECTION 4: REPRESENTATIONS OF HAI AND NEWCO.................................22
4.1 Organization................................................22
4.2 Effect of Agreement.........................................23
4.3 Capital Stock and Ownership.................................23
4.4 Financial and Corporate Records.............................23
4.5 Financial Statements; No Material Undisclosed Liabilities...24
4.6 Taxes.......................................................24
4.7 SEC Filings.................................................25
4.8 Assets......................................................25
4.9 Obligations.................................................26
A-2
<PAGE>
4.10 Operations Since June 30, 2000..............................26
4.11 Tangible Property...........................................26
4.12 Software and Other Intangibles..............................26
4.13 Contracts...................................................27
4.14 Employees and Independent Contractors.......................27
4.15 Employee Benefit Plans......................................28
4.16 Labor Matters...............................................30
4.17 Environmental Matters.......................................31
4.18 Absence of Changes..........................................32
4.19 Authorization for HAI Common Stock..........................32
4.20 Proceedings and Judgments...................................32
4.21 Insurance...................................................32
4.22 Questionable Payments.......................................32
4.23 Related Party Transactions..................................33
4.24 Liens.......................................................33
4.25 Vote Required...............................................33
4.26 Brokerage Fees..............................................33
4.27 Full Disclosure.............................................33
4.28 Compliance with Law.........................................33
4.29 Investment Matters..........................................34
4.30 Investment Company..........................................34
4.31 Other Matters...............................................34
SECTION 5: CERTAIN OBLIGATIONS OF HEALTHAXIS PENDING CLOSING.................34
5.1 Conduct of Business.........................................34
5.2 Consents....................................................35
5.3 Advice of Changes...........................................35
5.4 Reasonable Best Efforts.....................................35
5.5 Waivers.....................................................35
SECTION 6: CERTAIN OBLIGATIONS OF HAI AND NEWCO PENDING CLOSING.............35
6.1 Conduct of Business.........................................35
6.2 Consents....................................................36
6.3 SEC Reports.................................................36
6.4 Advice of Changes...........................................36
6.5 Reasonable Best Efforts.....................................36
6.6 NASDAQ Listing..............................................37
6.7 Employee Benefits...........................................37
6.8 Waivers.....................................................37
SECTION 7: ADDITIONAL COVENANTS OF THE PARTIES...............................37
7.1 Shareholders' Meetings......................................37
7.2 Registration Statement and Proxy Statement/Prospectus.......38
7.3 Blue Sky Permits............................................39
7.4 Tax Free Reorganization.....................................39
7.5 Full Disclosure.............................................39
SECTION 8: CONDITIONS PRECEDENT TO HEALTHAXIS' CLOSING OBLIGATIONS..........39
8.1 HAI's and Newco's Representations...........................39
A-3
<PAGE>
8.2 HAI's and Newco's Performance...............................39
8.3 Absence of Proceedings......................................39
8.4 Approval of HealthAxis and HAI Shareholders.................40
8.5 Board Seats.................................................40
8.6 Adverse Changes.............................................40
8.7 Registration Statement......................................40
8.8 Listing of HAI Common Stock.................................40
8.9 Tax Opinion.................................................40
SECTION 9: CONDITIONS PRECEDENT TO HAI'S AND NEWCO'S CLOSING OBLIGATIONS....40
9.2 Approval of the HealthAxis and HAI Shareholders.............41
9.3 Dissenting and other HealthAxis Shareholders................41
9.4 HealthAxis' Representations.................................41
9.5 HealthAxis' Performance.....................................41
9.6 Absence of Proceedings......................................41
9.7 Adverse Changes.............................................41
9.8 HealthAxis Net Worth........................................41
SECTION 10: CLOSING.........................................................42
10.1 Closing.....................................................42
10.2 HealthAxis' Obligations at Closing..........................42
10.3 HAI's and Newco's Obligations at Closing....................43
SECTION 11: CERTAIN OBLIGATIONS OF HAI AND THE SURVIVING CORPORATION AFTER
CLOSING.....................................................45
11.1 Final Tax Returns...........................................45
11.2 Delivery of Certificates....................................45
SECTION 12: OTHER PROVISIONS................................................45
12.1 Survival....................................................45
12.2 Termination.................................................45
12.3 Publicity...................................................46
12.4 Fees and Expenses...........................................46
12.5 Notices.....................................................46
12.6 Interpretation of Representations...........................46
12.7 Reliance by HAI and Newco...................................46
12.8 Reliance by HealthAxis......................................46
12.9 Entire Understanding........................................47
12.10 Parties in Interest.........................................47
12.11 Waivers.....................................................47
12.12 Severability................................................47
12.13 Counterparts................................................47
12.14 Section Headings............................................47
12.15 References..................................................47
12.16 Controlling Law.............................................47
12.17 Jurisdiction and Process....................................47
12.18 No Third-Party Beneficiaries................................48
12.19 Nature of Transactions......................................48
12.20 Bankruptcy Qualification....................................48
12.21 Construction................................................48
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
PARTIES: HEALTHAXIS.COM, INC.
a Pennsylvania corporation ("HealthAxis")
2500 DeKalb Pike
East Norriton, PA 19401
HEALTHAXIS INC. (F/K/A PROVIDENT AMERICAN CORPORATION)
a Pennsylvania corporation ("HAI")
2500 DeKalb Pike
East Norriton, PA 19401
HEALTHAXIS ACQUISITION CORP.
a Pennsylvania corporation ("Newco")
2500 DeKalb Pike
East Norriton, PA 19401
DATE: As of October 26, 2000
BACKGROUND: The parties previously executed and delivered an Agreement and Plan
of Reorganization, dated January 26, 2000, and Amendment No. 1 thereto, dated
March 27, 2000 (as so amended, the "Original Agreement"), which Original
Agreement contemplated that HealthAxis be merged with and into Newco (the
"Merger") on the terms and subject to the conditions set forth therein and the
Agreement and Plan of Merger dated as of January 26, 2000 and designated as
Exhibit A thereto (the "Original Plan").
Subsequent to the execution and delivery of the Original Agreement,
Provident American Corporation changed its name to HealthAxis Inc. On September
29, 2000, the parties executed and delivered and Amended and Restated Agreement
and Plan of Reorganization ("First Amended Agreement") which amended and
restated in its entirety the Original Agreement and an Amended and Restated Plan
of Merger ("First Amended Plan") which amended and restated the Original Plan.
The parties hereto intend to amend and restate in its entirety the
terms of the First Amended Agreement and the First Amended Plan, as herein
provided (this "Agreement") and as set forth in the Amended and Restated
Agreement and Plan of Merger dated as of the date hereof and attached hereto as
Exhibit A (the "Plan"). As further provided in this Agreement and in the Plan
attached hereto, each share of common stock, no par value per share, of
HealthAxis ("HealthAxis Common Stock") and each share of Preferred Stock, par
value $1.00 per share, of HealthAxis ("HealthAxis Convertible Preferred Stock")
issued and outstanding immediately before the Effective Date (except for
Dissenting Shares, as defined in Section 14 of the Plan) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
automatically converted into the right to receive 1.334 shares (the "Exchange
Ratio") of common stock of HAI, $0.10 par value per share ("HAI Common Stock").
The parties intend that the Merger: (i) qualify as a tax -free
reorganization within the meaning of Section 368 of the Code, and (ii) be
accounted for as a purchase by HAI for financial accounting purposes.
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The Nonconflicted Directors (as defined herein) and the remainder of
the Board of Directors of HealthAxis have unanimously determined that the Merger
and the other transactions contemplated by this Agreement and the Plan
(collectively, the "Transactions") are in the best interests of HealthAxis and
its shareholders. The disinterested members of the respective Board of Directors
of HAI and Newco, a wholly owned subsidiary of HAI (consisting of those
directors of HAI and Newco who are not affiliated in any way with HealthAxis on
the date of this Agreement), and the remainder of the members of each Board of
Directors have determined that the Transactions are in the best interests of HAI
and Newco and their respective shareholders.
Concurrently with the execution of this Agreement, and as a condition
and inducement to HAI's willingness to enter into this Agreement, each affiliate
shareholder of HealthAxis identified in Schedule A is entering into an Affiliate
Letter attached hereto as Exhibit C.
Intending to be legally bound, in consideration of the foregoing and
the mutual agreements contained herein and subject to the satisfaction of the
terms and conditions set forth herein, the parties hereto agree as follows:
SECTION 1: DEFINED TERMS
Certain defined terms used in this Agreement and not specifically
defined in context are defined in this Section 1, as follows:
1.1 "Accounts Receivable" means (a) any right to payment for goods
sold, leased or licensed or for services rendered, whether or not it has been
earned by performance, whether billed or unbilled, and whether or not it is
evidenced by any Contract (as defined in Section 1.7); (b) any note receivable;
or (c) any other receivable or right to payment of any nature.
1.2 "Acquired Companies" means HealthAxis and its subsidiaries,
including but not limited to, HealthAxis.com Alabama, Inc., HealthAxis.com
Insurance Services, Inc., HealthAxis.com New Mexico, Inc., HealthAxis.com Texas,
Inc., HealthAxis.com Insurance Agency, Inc., HealthAxis Imaging Services LLC and
Satellite Image Systems (Jamaica) Ltd.
1.3 "Acquiring Companies" means, collectively, HAI and Newco and their
respective subsidiaries, other than the Acquired Companies.
1.4 "Asset" means any real, personal, mixed, tangible or intangible
property of any nature, including Cash Assets (as defined in Section 1.4),
prepayments, deposits, escrows, Accounts Receivable, Tangible Property (as
defined in Section 1.31), Real Property (as defined in Section 1.28), Software
(as defined in Section 1.30), Contract Rights (as defined in Section 1.8),
Intangibles (as defined in Section 1.17) and goodwill, and claims, causes of
action and other legal rights and remedies.
1.5 "Cash Asset" means any cash on hand, cash in bank or other
accounts, readily marketable securities, and other cash-equivalent liquid assets
of any nature.
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1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Consent" means any consent, approval, order or authorization of,
or any declaration, filing or registration with, or any application, notice or
report to, or any waiver by, or any other action (whether similar or dissimilar
to any of the foregoing) of, by or with, any Person (as defined in Section
1.25), which is necessary in order to take a specified action or actions in a
specified manner and/or to achieve a specified result.
1.8 "Contract" means any written or oral contract, agreement,
instrument, order, arrangement, commitment or understanding of any nature,
including sales orders, purchase orders, leases, subleases, data processing
agreements, maintenance agreements, license agreements, sublicense agreements,
loan agreements, promissory notes, security agreements, pledge agreements,
deeds, mortgages, guaranties, indemnities, warranties, employment agreements,
consulting agreements, sales representative agreements, joint venture
agreements, buy-sell agreements, options or warrants.
1.9 "Contract Right" means any right, power or remedy of any nature
under any Contract, including rights to receive property or services or
otherwise derive benefits from the payment, satisfaction or performance of
another party's Obligations (as defined in Section 1.23), rights to demand that
another party accept property or services or take any other actions, and rights
to pursue or exercise remedies or options.
1.10 "Disinterested HealthAxis Directors" means those members of the
Board of Directors of HealthAxis who are not members of the Board of Directors
of HAI or otherwise affiliated with HAI as of the date of this Agreement.
1.11 "Disinterested HAI Directors" means those members of the Board of
Directors of HAI who are not members of the Board of Directors of HealthAxis or
otherwise affiliated with HealthAxis as of the date of this Agreement.
1.12 "Employee Benefit Plan" means any employee benefit plan as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any other plan, program, policy or arrangement for or
regarding bonuses, commissions, incentive compensation, severance, vacation,
deferred compensation, pensions, profit sharing, retirement, payroll savings,
stock options, stock purchases, stock awards, stock ownership, phantom stock,
stock appreciation rights, medical/dental expense payment or reimbursement,
disability income or protection, sick pay, group insurance, self insurance,
death benefits, employee welfare or fringe benefits of any nature; but not
including employment Contracts with individual employees.
1.13 "Encumbrance" means any lien, security interest, pledge, right of
first refusal, mortgage, easement, covenant, restriction, reservation,
conditional sale, prior assignment, or other encumbrance, claim, burden or
charge of any nature.
1.14 "Environmental Laws" means all applicable Laws (including consent
decrees and administrative orders) relating to pollution and the protection of
the environment, including common law
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and those governing the use, generation, handling, storage, treatment and
remedial actions or cleanup of Hazardous Materials (as defined in Section 1.18),
all as amended.
1.15 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.16 "GAAP" means generally accepted accounting principles under
current United States accounting rules and regulations, consistently applied.
1.17 "HAI Common Stock" means shares of common stock, $.10 par value
per share, of HAI.
1.18 "Hazardous Materials" means any substance, material or waste which
is regulated as hazardous or toxic by any public or governmental authority in
the jurisdictions in which the Person or its subsidiaries conducts business, or
the United States, including, without limitation, any material or substance
which is defined as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste" or "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any provision of
Environmental Law and shall also include, without limitation, petroleum,
petroleum products, asbestos, polychlorinated biphenyls and radioactive
materials.
1.19 a. "HealthAxis Common Stock" means shares of common stock, no par
value per share, of HealthAxis.
b. "HealthAxis Convertible Preferred Stock" means shares of
Convertible Preferred Stock, $1.00 par value of HealthAxis; and
c. "HealthAxis Stock" means HealthAxis Common Stock and HealthAxis
Convertible Preferred Stock, collectively.
1.20 "including" means including but not limited to.
1.21 "Insurance Policy" means any public liability, product liability,
general liability, comprehensive, property damage, vehicle, life, hospital,
medical, dental, disability, worker's compensation, key man, fidelity bond,
theft, forgery, errors and omissions, directors' and officers' liability, or
other insurance policy of any nature.
1.22 "Intangible" means any name, corporate name, fictitious name,
trademark, trademark application, service mark, service mark application, trade
name, brand name, product name, slogan, trade secret, know-how, patent, patent
application, copyright, copyright application, design, logo, formula, invention,
product right, technology or other intangible asset of any nature, whether in
use, under development or design, or inactive.
1.23 "Judgment" means any order, writ, injunction, citation, award,
decree or other judgment of any nature of any foreign, federal, state or local
court, governmental body, administrative agency, regulatory authority or
arbitration tribunal.
1.24 "to the knowledge of HealthAxis" means that none of the directors
or officers of any of the Acquired Companies have any actual knowledge, after
due inquiry, that the statement made is incorrect.
1.25 "to the knowledge of HAI" means that none of the directors or
officers of any of the Acquiring Companies have any actual knowledge, after due
inquiry, that the statement made is incorrect.
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1.26 "Law" means any provision of any foreign, federal, state or local
law, statute, ordinance, charter, constitution, treaty, code, rule or regulation
(including those of self-regulatory organizations such as the NASD (as defined
in Section 1.22)).
1.27 "material adverse change" means, with respect to any Person (as
defined in Section 1.25), a material adverse change on the financial condition,
results of operations, business, assets or liabilities of such Person and its
subsidiaries, taken as a whole.
1.28 "material adverse effect" shall mean, with respect to any Person
to this Agreement, any event, change, condition, fact or effect which has or
could reasonably be expected to have a material adverse effect on (i) the
business, results of operations, or financial condition of such Person and its
subsidiaries taken as a whole or (ii) the ability of the Person to consummate
the transactions contemplated by this Agreement.
1.29 "NASD" means the National Association of Securities Dealers, Inc.
1.30 "Obligation" means any debt, liability or obligation of any
nature, whether secured, unsecured, recourse, nonrecourse, liquidated,
unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained,
known, unknown or otherwise.
1.31 "Permit" means any license, permit, approval, waiver, order,
authorization, right or privilege of any nature, granted, issued, approved or
allowed by any foreign, federal, state or local governmental body,
administrative agency or regulatory authority.
1.32 "Person" means any individual, sole proprietorship, joint venture,
partnership, corporation, limited liability company, partnership, association,
cooperative, trust, estate, governmental body, administrative agency, regulatory
authority or other entity of any nature.
1.33 "Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing or other proceeding of any
nature.
1.34 "Real Property" means any real estate, land, building,
condominium, town house, structure or other real property of any nature, all
shares of stock or other ownership interests in cooperative or condominium
associations or other forms of ownership interest through which interests in
real estate may be held, and all appurtenant and ancillary rights thereto,
including easements, covenants, water rights, sewer rights and utility rights.
1.35 "Release" means any release, spill, effluence, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration of Hazardous Material into the environment.
1.36 "Remedial Action" means all actions, including, without
limitation, those involving any capital expenditures, required by a governmental
entity or required under any Environmental Law, or voluntarily undertaken to (w)
clean up, remove, treat, or in any other way mitigate the adverse effects of any
Hazardous Materials Released in the environment; (x) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material so
it does not endanger or threaten to endanger the public
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health or welfare or the environment; (y) perform preremedial studies and
investigations or post-remedial monitoring and care pertaining or relating to a
Release or threat of Release; or (z) bring the Merger Party into compliance with
any Environmental Law.
1.37 "SEC" means the United States Securities and Exchange Commission.
1.38 "Software" means any computer program, operating system,
applications system, firmware or software of any nature, whether operational,
under development or inactive, including all object code, source code, technical
manuals, user manuals and other documentation therefor, whether in
machine-readable form, programming language or any other language or symbols,
and whether stored, encoded, recorded or written on disk, tape, film, memory
device, paper or other media of any nature.
1.39 "Tangible Property" means any furniture, fixtures, leasehold
improvements, vehicles, office equipment, computer equipment, other equipment,
machinery, tools, forms, supplies or other tangible personal property of any
nature.
1.40 "Tax" means (a) any foreign, federal, state or local income,
earnings, profits, gross receipts, franchise, capital stock, net worth, sales,
use, value added, occupancy, general property, real property, personal property,
intangible property, transfer, fuel, excise, payroll, withholding, unemployment
compensation, social security, retirement or other tax of any nature; (b) any
foreign, federal, state or local organization fee, qualification fee, annual
report fee, filing fee, occupation fee, assessment, sewer rent or other fee or
charge of any nature; or (c) any deficiency, interest or penalty imposed with
respect to any of the foregoing.
SECTION 2: THE MERGER
Subject to the terms and conditions of this Amended and Restated
Agreement and the Plan, HealthAxis shall be merged with and into Newco with
Newco being the surviving corporation (the "Surviving Corporation") in
accordance with the provisions of this Agreement and the provisions of the Plan.
The closing of the Merger and the other Transactions shall take place on the
Closing Date (as defined in Section 10.1) and shall be effective on the
Effective Date (as defined in Section 10.1).
SECTION 3: REPRESENTATIONS OF HEALTHAXIS
HealthAxis represents and warrants to HAI and Newco as of the date of
this Agreement and the Closing Date, and covenants with HAI and Newco, as set
forth below in each provision of this Section 3.
3.1 Organization. Except as set forth on Schedule 3.1, each of the
Acquired Companies is a corporation duly organized and subsisting under the Laws
of the jurisdiction of its organization. HealthAxis possesses the full corporate
power and authority to enter into and perform this Agreement. Except as set
forth on Schedule 3.1, each of the Acquired Companies possesses the full
corporate power and authority to own its Assets and to conduct its business as
and where presently conducted. Each of the Acquired Companies is duly qualified
or registered to do business in each jurisdiction where the ownership or leasing
of properties or assets by it, or the operation of its business, requires such
qualification, except where the failure to qualify or register will not have a
material adverse effect on the business, financial condition or
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results of operations of HealthAxis on a consolidated basis (a "HealthAxis
Material Adverse Effect"). Except as set forth on Schedule 3.1, HealthAxis has
no subsidiaries. Accurate and complete copies of articles or certificates of
incorporation and bylaws, (or similar organizational documents), each as amended
to date, and all Contracts relating to the acquisition of each of the Acquired
Companies (or their affiliates or predecessors) have been made available to HAI
and Newco.
3.2 Effect of Agreement. Subject to the approval by shareholders of
HealthAxis (the "HealthAxis Shareholders") of the Merger, HealthAxis'
consummation of the Transactions has been duly authorized by all necessary
corporate actions (including approval by the Disinterested HealthAxis Directors)
and does not constitute a violation of or default under its articles of
incorporation or bylaws (or similar organizational documents). For HealthAxis,
its execution, delivery and performance of this Agreement, and its consummation
of the Transactions, (a) does not constitute a default or breach (immediately or
after the giving of notice, passage of time or both) under any material Contract
to which it or any of the Acquired Companies is a party or by which it or any of
the Acquired Companies is bound, (b) does not constitute a material violation of
any Law or Judgment that is applicable to it or any of the Acquired Companies,
or to the business or Assets of any of the Acquired Companies, or to the
Transactions, (c) does not accelerate or otherwise modify any material
Obligation of any of the Acquired Companies, (d) does not result in the creation
of any material Encumbrance upon, or give to any third party any interest in,
any of the business or Assets, or any of the capital stock of or interests in,
any of the Acquired Companies, and (e) except as stated on Schedule 3.2, does
not require the Consent of any Person. This Agreement constitutes the valid and
legally binding agreement of HealthAxis enforceable against it in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
(including insurance related laws and regulations) relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application. Except for the HealthAxis
shareholder agreements with AOL dated November 13, 1998 and UICI dated January
7, 2000, the AOL Stock Purchase Agreement dated November 13, 1998 and the
Amended and Restated Carrier Partner Agreement, as amended, with UICI dated
March 30, 1999, there exists no right of first refusal or other preemptive right
with respect to any of the Acquired Companies or the stock, business or Assets
of any of the Acquired Companies.
3.3 Capital Stock and Ownership. As of the date of this Agreement, the
authorized capital stock of HealthAxis consists of: (i) 100,000,000 shares of
HealthAxis Common Stock, of which 42,477,449 shares are issued and outstanding;
(ii) 20,000,000 shares of HealthAxis Convertible Preferred Stock, par value
$1.00 per share of which 3,031,191, shares are issued and outstanding. Series of
HealthAxis Convertible Preferred Stock have been designated as follows: Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock, and Series D Convertible Preferred Stock
(collectively, the "HealthAxis Convertible Preferred Stock"). The HealthAxis
Common Stock and the HealthAxis Convertible Preferred Stock shall be referred to
collectively, as the "HealthAxis Stock". All of the issued and outstanding
shares of capital stock of each of the Acquired Companies have been duly
authorized and validly issued, and are fully paid and nonassessable, with no
liability or preemptive rights attaching to the ownership thereof. All issuances
and grants of all outstanding options, warrants and all offerings, sales and
issuances by each of the Acquired Companies of any shares of capital stock
complied in all material respects with all applicable federal and state
securities Laws, all applicable state corporation Laws and all requirements set
forth in applicable Contracts. Except as provided on Schedule 3.3, there are no
outstanding options, puts, calls, warrants, subscriptions, stock appreciation
rights, phantom stock, or other Contracts or Contract Rights
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relating to the offering, sale, issuance, redemption or disposition of any
shares of capital stock, or other securities of, any of the Acquired Companies
(the "Options"). Schedule 3.3 sets forth with respect to each of the Options the
plan pursuant to which the Option was granted, the name of the Optionee, the
number of shares of common stock subject to the Option, the exercise price, the
date on which the Option was granted, and the date on which the Option expired.
Except as set forth herein, there are no bonds, debentures, notes, or other
indebtedness of the Acquired Companies.
3.4 Corporate Records. The books and records of each of the Acquired
Companies and Insurdata Incorporated ("Insurdata Inc.") are and have been
properly prepared and maintained in form and substance adequate for preparing
audited financial statements in accordance with GAAP, and such books and records
fairly and accurately reflect in all material respects all of the Assets and
Obligations of each of the Acquired Companies (including Insurdata Inc.) and all
Contracts and other transactions to which each of the Acquired Companies
(including Insurdata Inc.) is or was a party or by which each of the Acquired
Companies (including Insurdata Inc.) or the business or Assets of each of the
Acquired Companies (including Insurdata Inc.) is or was affected. Accurate and
complete copies of the contents of the minute books and stock books of each of
the Acquired Companies (including Insurdata Inc.) have been made available to
HAI and Newco. Such minute books and stock books include (a) minutes of all
meetings of the HealthAxis Shareholders, board of directors and any committees
of the board of directors at which any material action was taken, which minutes
accurately record all material actions taken at such meetings, (b) accurate and
complete written statements of all actions taken by the HealthAxis Shareholders,
board of directors and any committees of the board of directors without a
meeting, and (c) accurate and complete records of the subscription, issuance,
transfer and cancellation of all shares of capital stock, and all other
securities since the date of incorporation or formation.
3.5 Financial Statements; No Material Undisclosed Liabilities. The
consolidated financial statements of HealthAxis for the year ended December 31,
1999 and for the six months ended June 30, 2000 have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
indicated in the notes thereto) and, except as set forth on Schedule 3.5, fairly
present, in accordance with the applicable requirements of GAAP, the
consolidated financial position of HealthAxis and its subsidiaries, as of the
dates thereof and the consolidated results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). HealthAxis has no subsidiaries that are not
consolidated for accounting purposes. Except as reflected in Schedule 3.5, since
June 30, 2000, none of the Acquired Companies has incurred any liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due (and
there is no basis for such liabilities) except: (i) liabilities arising in the
ordinary course of business consistent with past practice, which individually or
in the aggregate would not have a material adverse effect on HealthAxis; or (ii)
other liabilities which, individually or in the aggregate, together with those
liabilities referenced in subparagraph (i), would not have a material adverse
effect on HealthAxis.
3.6 Taxes. Except as set forth in Schedule 3.6:
(a) The Acquired Companies have (x) duly and timely filed (or
there have been filed on their behalf) with the appropriate taxing authorities
all Tax Returns required to be filed by them, and all such Tax Returns are true,
correct and complete in all material respects and (y) timely paid or there have
been paid on their behalf all Taxes shown to be due on such Returns.
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(b) The Acquired Companies have properly accrued on their
respective financial statements all Taxes due for which each of the respective
Acquired Companies may be liable, whether or not shown on any Tax Return as
being due (including by reason of being a member of an affiliated group or as a
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity). The Acquired Companies
have established (and until the Closing Date shall continue to establish and
maintain) on its books and records reserves that are adequate for the payment of
all Taxes not yet due and payable.
(c) The Acquired Companies have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes, including Taxes required to have been withheld in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party and sales, gross receipts and use
taxes, and has, within the time and manner prescribed by law, withheld and paid
over to the proper governmental authorities all amounts required to be withheld
and paid over under all applicable laws, or such amounts are held in separate
bank accounts for such purpose.
(d) There are no Liens for Taxes upon the assets or properties
of the Acquired Companies except for statutory liens for current Taxes not yet
due.
(e) The Acquired Companies have not requested any extension of
time nor has any such extension been requested on its behalf within which to
file any Tax Return in respect of any taxable year which has not since been
filed.
(f) Based upon HealthAxis' knowledge, no federal, state, local
or foreign audits or other administrative proceedings or court proceedings
("Audits") exist with regard to any Taxes or Tax Returns of the Acquired
Companies and there has not been received any written notice that such an Audit
is pending or threatened with respect to any Taxes due from or with respect to
the Acquired Companies or any Tax Return filed by or with respect to the
Acquired Companies. No material issues have been raised in any examination by
any taxing authority with respect to the businesses and operations or the
Acquired Companies which (i) reasonably could be expected to result in an
adjustment to the liability for Taxes for such period examined or (ii), by
application of similar principles, reasonably could be expected to result in an
adjustment to the liability for Taxes for any other period not so examined.
(g) None of the Acquired Companies is a party to any Tax
allocation or sharing agreement. None of the Acquired Companies (A) has been a
member of an affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which was UICI or HAI) or (B) has any
liability for the Taxes of any other party (other than any of the Acquired
Companies) under Treasury Regulation Section 1.1502-6 (or any provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
For purposes of this Agreement, (i) " Taxes" (including, with
correlative meaning, the term "Tax") shall mean all taxes, charges, fees,
levies, penalties or other assessments imposed by any federal, state, local or
foreign taxing authority, including, but not limited to, income, gross receipts,
excise, property, sales, transfer, franchise, payroll, withholding, social
security and other taxes, and shall include any interest,
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penalties or additions attributable thereto, and (ii) " Tax Return" shall mean
any return, report, information return or other document (including any related
or supporting information) required to be prepared with respect to Taxes.
3.7 Assets. Schedule 3.7 includes detailed lists of all Assets with a
current fair market value of not less than $100,000 of each of the Acquired
Companies which are reflected on the June 30, 2000 Balance Sheet, including (a)
Cash Assets, itemized by bank or other account, showing cost and market value if
different from cost; (b) Accounts Receivable, showing customer names, individual
invoice dates, individual invoice amounts and allowances for doubtful accounts,
or, in the case of earned but not billed receivables, customer names and
individual dates on which the receivables are billable; (c) other current
Assets, itemized by category and with appropriate explanation; (d) Tangible
Property, grouped as to type, showing cost, accumulated depreciation and net
book value; and (e) Software and Intangibles, showing cost or amount
capitalized, accumulated amortization and net book value. Each of the Acquired
Companies has good and valid title to all of its respective Assets which are
owned by it and has the right to transfer all rights, title and interest in such
Assets, free and clear of any Encumbrance, other than Encumbrances (a) for
taxes, assessments, levies, fees and other governmental and similar charges not
due and payable, mechanics' liens, or other "ordinary course" liens that do not
materially effect the value of the Assets; or (b) listed on Schedule 3.7.
3.8 Obligations. Schedule 3.8 includes detailed lists of all material
Obligations of each of the Acquired Companies which are required by GAAP to be
reflected on the June 30, 2000 Balance Sheet, itemized by balance sheet account,
and with aggregate net balances equal to the balances on the June 30, 2000
Balance Sheet, including (a) accounts payable, (b) accrued expenses and
reserves, itemized by category and with appropriate explanation, (c) deferred
revenues, itemized by customer and time periods, and (d) other current and
long-term liabilities. None of the Acquired Companies has any material
Obligations other than (i) Obligations reflected on the June 30, 2000 Balance
Sheet, (ii) Obligations set forth in Schedule 3.17, (iii) Obligations under
Contracts of the type listed or not required to be listed on Schedule 3.19,
provided that as of June 30, 2000, no such Obligation consisted of or resulted
from a default under or violation of any such Contract, (iv) Obligations
incurred since June 30, 2000, in the ordinary course, consistent with past
practices, and not in breach of any of the representations and warranties made
in Section 3.11, and (v) Obligations not required by GAAP to be reflected on the
June 30, 2000 Balance Sheet. Except as described on Schedule 3.10, none of the
Obligations of any of the Acquired Companies are guaranteed by any Person.
3.9 Operations Since June 30, 2000. Except as set forth on Schedule 3.9
or in the ordinary course of their respective businesses consistent with its
past practices, from June 30, 2000 to the date of this Agreement none of the
Acquired Companies has (i) created or assumed any Encumbrance upon any of its
business or Assets, (ii) incurred any Obligation, (iii) made any loan or advance
to any Person; (iv) assumed, guaranteed or otherwise become liable for any
Obligation of any Person; (v) committed for any capital expenditure; (vi)
purchased, leased, sold, abandoned or otherwise acquired or disposed of any
business or Assets; (vii) waived any right or canceled any debt or claim; (viii)
assumed or entered into any Contract other than this Agreement; or (ix)
increased, or authorized an increase in, the compensation or benefits paid or
provided to any of their directors, officers, employees, salesmen, agents or
representatives.
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3.10 Tangible Property. Each of the Acquired Companies has good and
valid title to all of its Tangible Property, free and clear of any Encumbrances
other than Encumbrances (a) for Taxes, assessments, levies, fees and other
governmental and similar charges not due and payable, mechanics' liens, or other
"ordinary course" liens that do not materially effect the value of the Tangible
Property; or (b) set forth in the June 30, 2000 Balance Sheet or Schedule 3.10.
3.11 Software and Other Intangibles. Except for commercially available
Software, set forth on Schedule 3.11 is an accurate and complete list and
description of all Software and material Intangibles owned, marketed, licensed,
supported, maintained, used or under development by the Acquired Companies, and,
in the case of Software, a product description, the language in which it is
written and the type of hardware platform(s) on which it runs. Except as
explained on Schedule 3.11, each of the Acquired Companies has good and valid
title to, and has the full right to use, all of the Software and Intangibles
listed on Schedule 3.11, free and clear of any Encumbrance (except for use
restrictions contained in licensed commercially available Software). Except as
set forth in Schedule 3.11, all shrinkwrap and other commercially available
Software has been properly licensed and all related fees paid. To the knowledge
of HealthAxis, all application Software utilized in its business is year 2000
compliant. To the knowledge of HealthAxis, none of the Software or Intangibles
listed on Schedule 3.11, or their respective past or current uses, including the
preparation, distribution, marketing or licensing, has violated or infringed
upon, or is violating or infringing upon, any Software, technology, patent,
copyright, trade secret or other Intangible of any Person. To the knowledge of
HealthAxis, no Person is violating or infringing upon, or has violated or
infringed upon at any time, any of the Software or Intangibles listed on
Schedule 3.11. Except as set forth on Schedule 3.11, none of the Software or
Intangibles listed on Schedule 3.11 is owned by or registered in the name of any
current or former owner, shareholder, partner, director, executive, officer,
employee, salesman, agent, customer, representative or contractor of any of the
Acquired Companies or any of the HealthAxis Shareholders nor does any such
Person have any interest therein or right thereto, including the right to
royalty payments.
3.12 Contracts. Schedule 3.12 is an accurate and complete list of all
of the following types of Contracts which involve either future Obligations of
$100,000 or more to which any of the Acquired Companies is a party or by which
any of the Acquired Companies is bound, or is otherwise material to any of the
Acquired Companies (collectively, the "Specified Contracts"), grouped into the
following categories: (a) customer, client or alliance partner Contracts; (b)
Contracts for the purchase or lease of Real Property or otherwise concerning
Real Property owned or used by any of the Acquired Companies; (c) loan
agreements, mortgages, notes, guarantees and other financing Contracts; (d)
Contracts for the purchase, lease and/or maintenance of computer equipment and
other equipment, Contracts for the purchase, license, lease and/or maintenance
of Software under which any of the Acquired Companies is the purchaser,
licensee, lessee or user, and other supplier Contracts; (e) employment,
consulting and sales representative Contracts (excluding Contracts which
constitute Employee Benefit Plans listed on Schedule 3.12, and excluding oral
Contracts with employees for "at will" employment); (f) Contracts under which
any rights in and/or ownership of any Software product, technology or other
Intangible of any of the Acquired Companies, or any prior version thereof, or
any part of the customer base, business or Assets of any of the Acquired
Companies, or any shares or other ownership interests in any of the Acquired
Companies (or any of their predecessors) was acquired; (g) Contracts pursuant to
which the Acquired Companies have agreed to indemnify or hold harmless any
Person (other than indemnifications or hold harmless covenants in the ordinary
course of business and consistent with past practice); and (h) other material
Contracts (excluding
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Contracts which constitute Insurance Policies listed on Schedule 3.16 and
excluding this Agreement and all other Contracts entered into between any of the
Acquired Companies and HAI, or among any of the Acquired Companies, HAI and
other parties in connection herewith). A description of each oral Specified
Contract is included on Schedule 3.12, and copies of each written Specified
Contract have been made available to HAI and Newco. Except as set forth on
Schedule 3.12, with respect to each of the Specified Contracts, none of the
Acquired Companies is in material default thereunder nor would be in material
default thereunder with the passage of time, the giving of notice, or both.
Except as set forth on Schedule 3.12, to the knowledge of HealthAxis, none of
the other parties to any Specified Contract is in material default thereunder or
would be in material default thereunder with the passage of time, the giving of
notice or both. Except as set forth on Schedule 3.12, none of the Acquired
Companies has given or received any notice of default or notice of termination
with respect to any Specified Contract, and to the knowledge of HealthAxis each
Specified Contract is in full force and effect in accordance with its terms.
Except as set forth on Schedule 3.12, there are no currently outstanding
proposals or offers submitted by any of the Acquired Companies to any customer,
prospect, supplier or other Person which, if accepted, would result in a legally
binding Contract of such company involving an amount or commitment exceeding
$100,000 in any single case or an aggregate amount or commitment exceeding
$500,000 in the aggregate.
3.13 Employees and Independent Contractors. Schedule 3.13 is a list of
all of the employees with annual compensation in excess of $100,000 of the
Acquired Companies and (a) their titles or responsibilities; (b) their social
security numbers; (c) their dates of hire; (d) their current salaries or wages
and all bonuses, commissions and incentives paid at any time during the past
twelve months; (e) their last compensation changes and the dates on which such
changes were made; (f) any specific bonus, commission or incentive plans or
agreements for or with them; and (g) any outstanding loans or advances made to
them. Schedule 3.13 is a list of all sales representatives and material
independent contractors engaged by the Acquired Companies and their payment
arrangements (if not set forth in a Contract listed or described on Schedule
3.12). Except as limited by any employment Contracts listed on Schedule 3.12 and
except for any limitations of general application which may be imposed under
applicable employment Laws, each of the Acquired Companies has the right to
terminate the employment of each of its employees at will and to terminate the
engagement of any of its independent contractors without payment to such
employee or independent contractor other than for services rendered through
termination and without incurring any penalty or liability other than liability
for severance pay and benefits in accordance with such company's disclosed
severance pay policy and benefits due terminated employees. Neither the
Transactions, nor the termination of the employment of any employees of any of
the Acquired Companies prior to or following the consummation of the
Transactions could result in any of the Acquired Companies making or being
required to make any "excess parachute payment" as that term is defined in
Section 280G of the Code. To the knowledge of HealthAxis, each of the Acquired
Companies is in compliance in all material respects with all Laws respecting
employment practices. None of the Acquired Companies has ever been a party to or
bound by any union, collective bargaining or similar Contract, nor is any such
Contract currently in effect or being negotiated by or on behalf of any of the
Acquired Companies. Since January 1, 1998, none of the Acquired Companies has
experienced any labor problem that was or is material to it. Except as indicated
on Schedule 3.13, since January 1, 1999, to the knowledge of HealthAxis, no
employee of any of the Acquired Companies having an annual salary of $75,000 or
more has indicated an intention to terminate or has been terminated with respect
to his or her employment with such company.
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3.14 Employee Benefit Plans.
(a) Schedule 3.14 sets forth a complete list of all (A)
"employee benefit plans" as defined in sections 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); and (B) all retirement or
deferred compensation plans, incentive compensation plans, stock plans,
unemployment compensation plans, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or any other fringe benefit
arrangements for any current or former employee, director, consultant or agent,
whether pursuant to contract, arrangement, custom or informal understanding,
which does not constitute an employee benefit plan as defined in section 3(3) of
ERISA, and (C) any employment agreement or consulting agreement, which Acquired
Companies or any trade or business, whether or not incorporated, that together
with the Acquired Companies would be deemed a "single employer" within the
meaning of Section 4001(b) of ERISA (a "HealthAxis ERISA Affiliate"), maintains,
is a party to, participates in or with respect to which has any liability or
contingent liability.
(b) With respect to each HealthAxis Employee Benefit Plan, a
complete and correct copy of each of the following documents (if applicable) has
been provided or made available to HAI: (A) the most recent plan and related
trust documents, and all amendments thereto; (B) the most recent summary plan
description, and all related summaries of material modifications thereto; (C)
the most recent Form 5500 (including schedules and attachments); (D) the most
recent IRS determination letter or request therefor; and (E) the most recent
actuarial reports (including for purposes of Financial Accounting Standards
Board report no. 87, 106 and 112), if any; and there have been no material
changes in the financial condition in the respective plans from that stated in
the annual reports and actuarial reports supplied. In the case of any HealthAxis
Employee Benefit Plan which is not in written form, HAI has been supplied with
an accurate description of such HealthAxis Employee Benefit Plan as in effect on
the date hereof.
(c) Except as set forth in Schedule 3.14, the HealthAxis
Employee Benefit Plans and their related trusts intended to qualify under
Sections 401(a) and 501(a) of the Code, respectively, have received favorable
determination letters from the Internal Revenue Service which cover all
applicable law for which the remedial amendment period (within the meaning of
Section 401(b) of the Code and applicable regulations) has expired; neither
HealthAxis nor any of its respective HealthAxis ERISA Affiliates is aware of any
event or circumstance that could reasonably be expected to result in the failure
of such HealthAxis Employee Benefit Plan or its related trust to be so
qualified; and no event has occurred which will or could give rise to
disqualification of any such plan under such sections or to a tax under section
511 of the Code.
(d) Except as set forth in Schedule 3.14, the HealthAxis
Employee Benefit Plans have been maintained and administered in all material
respects in accordance with their terms and applicable laws, and no event has
occurred which will or could cause any such HealthAxis Employee Benefit Plan to
fail to comply with such requirements, except where the failure to comply would
not have a material adverse effect on the Acquired Companies on a consolidated
basis and no notice has been issued by any governmental authority questioning or
challenging such compliance.
(e) Except as disclosed in Schedule 3.14, there are no pending
actions, claims or proceedings against or relating to any HealthAxis Employee
Benefit Plan other than routine benefit claims by persons entitled to benefits
thereunder. There are no investigations or audits of or relating to any
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HealthAxis Employee Benefit Plan. HealthAxis has no knowledge of any facts which
could form the basis of any such investigation or audit.
(f) Except as disclosed in Schedule 3.14, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (A) result in any payment becoming due to
any employee (current, former or retired) of HealthAxis, (B) increase any
benefits under any HealthAxis Employee Benefit Plan, or (C) result in the
acceleration of the time of payment of, vesting of or other rights with respect
to any such benefits.
(g) Actuarially adequate accruals for all obligations under
the HealthAxis Employee Benefit Plans are reflected in the financial statements
of HealthAxis and such obligations include a pro rata amount of the
contributions which would otherwise have been made in accordance with past
practices and applicable law for the plan years which include the Closing Date.
(h) Except as described in Schedule 3.14, there have been no
acts or omissions by HealthAxis which have given rise to or may give rise to
fines, penalties, taxes or related charges under section 502 of ERISA or
Chapters 43, 47 or 68 of the Code for which HealthAxis or any HealthAxis ERISA
Affiliate may be liable except where such fines, penalties or taxes would not
have a material adverse effect on the Acquired Companies on a consolidated
basis.
(i) Except as described in Schedule 3.14, none of the payments
payable under the HealthAxis Employee Benefit Plans as a result of the Merger
would, in the aggregate, constitute excess parachute payments (as defined in
section 280G of the Code (without regard to subsection (b)(4) thereof)).
(j) No HealthAxis Employee Benefit Plan is subject to Title IV
of ERISA.
(k) None of HealthAxis nor any HealthAxis ERISA Affiliate
contributes to, has contributed to, or has any liability or contingent liability
with respect to a multiemployer plan (as defined in section 3(37) of ERISA).
(l) There has been no act or omission that would impair the
ability of HealthAxis and the HealthAxis ERISA Affiliates (or any successor
thereto) to unilaterally amend or terminate any HealthAxis Employee Benefit
Plan.
(m) Except as described in Schedule 3.14, there are no
self-insured Employee Benefit Plans. With respect to each self-insured Employee
Benefit Plan, HealthAxis and/or its subsidiaries maintains a reserve of no less
than twenty-five percent (25%) of the aggregate claims paid with respect to the
most recently completed plan year.
(n) Except as set forth in Schedule 3.14, each HealthAxis
Employee Benefit Plan is fully funded to the extent that a benefit has accrued
thereunder or that an account balance is maintained on behalf of an Employee
notwithstanding whether, under the terms of such Plan or as permitted by
applicable law, such Plan is not required to be funded. Except as set forth in
Schedule 3.14, each HealthAxis Employee Benefit Plan is fully funded to the
extent that a benefit has accrued thereunder or that an account balance is
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maintained on behalf of an Employee notwithstanding whether, under the terms of
such Plan or as permitted by applicable law, such Plan is not required to be
funded.
3.15 Labor Matters.
(a) Except as set forth in Schedule 3.15, (A) none of the
Acquired Companies is a party to any labor or collective bargaining agreement
and no employees of the Acquired Companies are represented by any labor
organization; (B) within the preceding three years, there have been no
representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the knowledge of HealthAxis,
threatened in writing to be brought or filed with the National Labor Relations
Board or any other labor relations tribunal or authority; and (C) within the
preceding three years, to the knowledge of HealthAxis, there have been no
organizing activities involving the Acquired Companies with respect to any group
of employees of the Acquired Companies.
(b) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor disputes
pending or threatened in writing against or involving the Acquired Companies.
There are no unfair labor practice charges, grievances or complaints pending or,
to the knowledge of HealthAxis, threatened in writing by or on behalf of any
employee or group of employees of the Acquired Companies. Each of the Acquired
Companies relations with its employees are currently on a good and normal basis.
(c) Each of the Acquired Companies is in compliance with all
laws, regulations and orders relating to the employment of labor, including all
such laws, regulations and orders relating to wages, hours, Worker Adjustment
Retraining and Notification Act of 1988, as amended ("WARN Act"), collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security taxes and any similar tax, except where non-compliance would not have a
material adverse effect on the Acquired Companies taken as a whole.
(d) Except as set forth in Schedule 3.15 and except for any
limitation of general application which may be imposed under applicable
employment laws, each of the Acquired Companies has the right to terminate the
employment of each of its employees at will and to terminate the engagement of
any of its independent contractors without payment to such employee or
independent contractor other than for services rendered through termination and
without incurring any penalty or liability other than for severance pay in
accordance with any severance pay policy of any of the Acquired Companies
disclosed to HAI.
(e) Except as set forth in Schedule 3.15, since January 1,
1998, no employee of any of the Acquired Companies having an annual salary of
$100,000 or more has indicated an intention to terminate or has terminated his
or her employment with such company.
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3.16 Environmental Matters.
(a) Except as set forth in Schedule 3.16:
(i) The operations of each of the Acquired
Companies have been and, as of the Closing Date, will be, in material compliance
with all Environmental Laws, except for such noncompliance which would not
individually or in the aggregate have a Material Adverse Effect on HealthAxis;
(ii) None of the Acquired Companies is subject to
any outstanding orders from, or agreements with, any Governmental Entity or
other person respecting (x) Environmental Laws, (y) Remedial Action or (z) any
Release or threatened Release of a Hazardous Material;
(iii) None of the Acquired Companies has received
any written communication alleging, with respect to any such party, the
violation of or potential liability under any Environmental Law;
(iv) No judicial or administrative proceedings or
governmental investigations are pending or, to the knowledge of HealthAxis,
threatened against the Acquired Companies alleging the violation of or seeking
to impose liability pursuant to any Environmental Law; and
(v) No environmental approvals, clearances or
consents are required under applicable law from any governmental entity or
authority in order to consummate the transactions contemplated herein.
(b) This Section 3.16 sets forth the sole representations and
warranties of HealthAxis with respect to Environmental Laws.
3.17 Material Suppliers. Except as set forth on Schedule 3.17, since
January 1, 1999, none of the material suppliers of the Acquired Companies has
given notice or otherwise indicated to such company that it will or intends to
terminate or not renew its Contract with such company before the scheduled
expiration date or otherwise terminate its relationship with such company. To
the knowledge of HealthAxis, the relationship of each of the Acquired Companies
with such material suppliers is currently on a good and normal basis and the
Transactions will not adversely affect these relations.
3.18 Proceedings and Judgments. Except as disclosed on Schedule 3.18,
(a) no Proceeding is currently pending or, to the knowledge of HealthAxis,
threatened, nor has any Proceeding occurred at any time since January 1, 1998,
to which any of the Acquired Companies is or was a party, or by which any of the
Acquired Companies or any Assets or business of any of the Acquired Companies is
or was affected; (b) no Judgment is currently outstanding, nor has any Judgment
been outstanding at any time since January 1, 1998, against any of the Acquired
Companies, or by which any of the Acquired Companies or any Assets or business
of any of the Acquired Companies is or was affected; and (c) no material breach
of contract, breach of warranty, tort, negligence, infringement, product
liability, discrimination, wrongful discharge or other claim of any nature has
been asserted in any proceeding or, to the knowledge of HealthAxis, threatened
in writing by or against any of the Acquired Companies at any time since January
1, 1998, and, to the knowledge of HealthAxis, there is no basis for any such
claim.
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3.19 Insurance. Schedule 3.19 is an accurate and complete list of all
Insurance Policies (excluding Insurance Policies that constitute HealthAxis'
Employee Benefit Plans described on Schedule 3.14) owned or maintained by any of
the Acquired Companies and/or any of their predecessors at any time since
January 1, 1998. Except as indicated on Schedule 3.19, all such Insurance
Policies are or were on an "occurrence" rather than a "claims made" basis. None
of the Acquired Companies has received notice of cancellation with respect to
any such current Insurance Policy, and, to the knowledge of HealthAxis, there is
no basis for the insurer thereunder to terminate any such current Insurance
Policy. Accurate and complete copies of all Insurance Policies described on
Schedule 3.19 have been made available to HAI. Each such Insurance Policy is or
was in full force and effect during the period(s) of coverage indicated on
Schedule 3.19. There are no claims that are pending under any of the Insurance
Policies described in this section.
3.20 Questionable Payments. None of the Acquired Companies or, to the
knowledge of HealthAxis, any of the HealthAxis Shareholders, nor any current or
former partners, owners, HealthAxis Shareholders, members, directors,
executives, officers, representatives, agents or employees of any of the
Acquired Companies (when acting in such capacity or otherwise on behalf of any
of the Acquired Companies or any of their predecessors), (a) has used or is
using any corporate funds (i) for any illegal contributions, gifts,
entertainment or other unlawful expenses relating to political activity or, (ii)
to the knowledge of HealthAxis, in violation of customer policies and/or rules;
(b) has used or is using any corporate funds for any direct or indirect unlawful
payments to any foreign or domestic government officials or employees; (c) has
established or maintained, or is maintaining, any unlawful or unrecorded fund of
corporate monies or other properties; (d) has made at any time since January 1,
1998, any false or fictitious entries on the books and records of any of the
Acquired Companies; (e) has made any bribe, unlawful rebate, payoff, influence
payment, kickback or other unlawful payment of any nature using corporate funds
or otherwise on behalf of any of the Acquired Companies; or (f) made any
material favor or gift that is not deductible for federal income tax purposes
using corporate funds or otherwise on behalf of any of the Acquired Companies.
3.21 Related Party Transactions. To the knowledge of HealthAxis, except
as described on Schedule 3.21 and except for any Contracts listed on Schedule
3.17, there are no real estate leases, personal property leases, loans,
guarantees, Contracts, transactions, understandings or other arrangements of any
nature between or among any of the Acquired Companies and any current or former
partner, owner, shareholder, member, director, officer or controlling Person of
any of the Acquired Companies, other than UICI, HAI or its subsidiaries.
3.22 Liens. Except as set forth in Schedule 3.22, none of the Acquired
Companies has granted, created or suffered to exist with respect to any of its
assets, any mortgage, pledge, charge, or hypothecation, collateral assignment,
lien (statutory or otherwise), encumbrances or security agreement of any kind or
nature whatsoever.
3.23 Vote Required. The affirmative votes of the holders of a majority
of the outstanding shares of HealthAxis Common Stock and a majority of each
series of the HealthAxis Convertible Preferred Stock are the only votes of the
holder of any class or series of HealthAxis' capital stock necessary (under
applicable law) to approve the Merger and the Transactions.
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3.24 Brokerage Fees. Except as set forth on Schedule 3.24, no Person
acting on behalf of any of the Acquired Companies or any of the HealthAxis
Shareholders is or shall be entitled to any brokerage fee, finder's fee or
investment banking fee in connection with the Transactions.
3.25 Investment Company. HealthAxis is not currently and upon
consummation of the Merger, HealthAxis will not be an investment company within
the meaning of the Investment Company Act of 1940, as amended.
3.26 Full Disclosure. No representation or warranty made by HealthAxis
in this Agreement or pursuant hereto (a) contains any untrue statement of
material fact; or (b) omits to state any material fact that is necessary to make
the statements made, in light of the circumstances under which they are made,
not false or misleading in any respect. The copies of documents attached as
Schedules to this Agreement or otherwise delivered to HAI and Newco in
connection with the Transactions, are accurate and complete, and are not missing
any amendments, modifications, correspondence or other related papers which
would be material to HAI's or Newco's understanding thereof in any respect.
3.27 Compliance with Law. The operations of each of the Acquired
Companies, the conduct of the business of each of the Acquired Companies, as and
where such business has been or presently is conducted, and the ownership,
possession and use of the Assets of each of the Acquired Companies have complied
and currently do comply with all applicable Laws and the articles and bylaws of
each entity except where the failure to comply will not have a material adverse
effect. Except as set forth on Schedule 3.27, each of the Acquired Companies has
obtained and holds all Permits required for the lawful operation of its business
or businesses as and where such business or businesses are presently conducted.
All Permits held by the Acquired Companies are listed on Schedule 3.27, and
copies of such Permits have been made available to HAI and Newco.
3.28 Absence of Certain Changes. Except as disclosed in HAI SEC
Documents, since June 30, 2000, there has not been any material adverse change
as to HealthAxis and its subsidiaries taken as a whole.
SECTION 4: REPRESENTATIONS OF HAI AND NEWCO
HAI and Newco, jointly and severally, represent and warrant to
HealthAxis and the HealthAxis Shareholders as of the date of this Agreement, and
covenant with HealthAxis and the HealthAxis Shareholders, as follows:
4.1 Organization. HAI and Newco are each a corporation that is duly
organized and subsisting under the Laws of the Commonwealth of Pennsylvania. HAI
and Newco each possess the full corporate power and authority to own its Assets,
conduct its business as and where such business is presently conducted, and
enter into this Agreement and the Plan. Newco is a wholly owned subsidiary of
HAI. Except as set forth on Schedule 4.1 hereto, HAI has no other subsidiaries.
Each of the Acquiring Companies is duly qualified or registered to do business
in each jurisdiction where the ownership or leasing of properties or assets by
it, or the operation of its business, requires such qualification, except where
the failure to qualify or register will not have a material adverse effect on
the business, financial condition or results of operations of HAI on a
consolidated basis. Accurate and complete copies of articles or certificates of
incorporation and
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bylaws, (or similar organizational documents), each as amended to date, and all
Contracts relating to the acquisition of each of the Acquiring Companies (or
their affiliates or predecessors) have been made available to HealthAxis. Newco
has not engaged in any activities other than in connection with its organization
and this Agreement and has no liabilities.
4.2 Effect of Agreement. Each of HAI's and Newco's execution, delivery
and performance of this Agreement, and its consummation of the Transactions, (a)
subject to approval by HAI shareholders ("HAI Shareholders") of HAI's issuances
of the HAI Common Stock in the Merger as required by the NASD and an amendment
to its articles of incorporation to increase its authorized shares, have been
duly authorized by all necessary corporate actions by their respective boards of
directors, and HAI Shareholders; (b) do not constitute a violation of or default
under their respective charters or bylaws; (c) do not constitute a default or
breach (immediately or after the giving of notice, passage of time or both)
under any Contract to which HAI or Newco is a party or by which HAI or Newco is
bound; (d) do not constitute a violation of any Law or Judgment that is
applicable to it or to their respective businesses or Assets, or to the
Transactions; and (e) except as stated on Schedule 4.2, do not require the
Consent of any Person. This Agreement constitutes the valid and legally binding
agreement of each of HAI and Newco, enforceable against each of them in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws (including insurance related laws and regulation) relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application.
4.3 Capital Stock and Ownership. The authorized capital stock of HAI is
50,000,000 shares of HAI Common Stock, of which 13,097,618 shares were issued
and outstanding as of June 30, 2000, 20,000,000 shares of Class A Common Stock
par value $.10 per share, none of which are outstanding, and 20,000,000 shares
of preferred stock, $1.00 par value per share, none of which are outstanding.
All of the issued and outstanding shares of capital stock of HAI have been duly
authorized and validly issued, and are fully paid and nonassessable, with no
liability or preemptive rights attaching to the ownership thereof. All issuances
and grants of all outstanding options, warrants and all offerings, sales and
issuances by HAI of any shares of capital stock complied in all material
respects with all applicable federal and state securities Laws, all applicable
state corporation Laws and all requirements set forth in applicable Contracts.
Except as provided on Schedule 4.3, there are no outstanding options, puts,
calls, warrants, subscriptions, stock appreciation rights, phantom stock, or
other Contracts or Contract Rights relating to the offering, sale, issuance,
redemption or disposition of any shares of capital stock, or other securities of
HAI.
4.4 Financial and Corporate Records. The books and records of each of
the Acquiring Companies are and have been properly prepared and maintained in
form and substance adequate for preparing audited financial statements in
accordance with GAAP, and such books and records fairly and accurately reflect
in all material respects all of the Assets and Obligations of each of the
Acquiring Companies and all Contracts and other transactions to which each of
the Acquiring Companies is or was a party or by which each of the Acquiring
Companies or the business or Assets of each of the Acquiring Companies is or was
affected. Accurate and complete copies of the contents of the minute books and
stock books of each of the Acquiring Companies have been made available to
HealthAxis. Such minute books and stock books include (a) minutes of all
meetings of the HAI Shareholders, board of directors and any committees of the
board of directors at which any material action was taken, which minutes
accurately record all material actions taken at such meetings, (b) accurate and
complete written statements of all actions taken
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by the HAI Shareholders, board of directors and any committees of the board of
directors without a meeting, and (c) accurate and complete records of the
subscription, issuance, transfer and cancellation of all shares of capital
stock, and all other securities since the date of incorporation or formation.
4.5 Financial Statements; No Material Undisclosed Liabilities. The
consolidated financial statements of HAI for the year ended December 31, 1999
and for the six months ended June 30, 2000 have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except as
indicated in the notes thereto) and, except as set forth on Schedule 4.5, fairly
present, in accordance with the applicable requirements of GAAP, the
consolidated financial position of its subsidiaries, as of the dates thereof and
the consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statement, to normal year-end audit
adjustments). HAI has no subsidiaries which are not consolidated for accounting
purposes. Except as reflected in Schedule 4.5, since June 30, 2000, none of the
Acquiring Companies has incurred any liabilities, absolute, accrued, contingent
or otherwise, whether due or to become due (and there is no basis for such
liabilities) except: (i) liabilities arising in the ordinary course of business
consistent with past practice, which individually or in the aggregate would not
have a material adverse effect on HAI; or (ii) other liabilities which,
individually or in the aggregate, together with those liabilities referenced in
subparagraph (i), would not have a material adverse effect on HAI.
4.6 Taxes. Except as set forth in Schedule 4.6:
(a) The Acquiring Companies have (x) duly and timely filed (or
there have been filed on their behalf) with the appropriate taxing authorities
all Tax Returns required to be filed by them, and all such Tax Returns are true,
correct and complete in all material respects and (y) timely paid or there have
been paid on their behalf all Taxes shown to be due on such Returns.
(b) The Acquiring Companies have properly accrued on their
respective financial statements all Taxes due for which each of the respective
Acquiring Companies may be liable, whether or not shown on any Tax Return as
being due (including by reason of being a member of an affiliated group or as a
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity). The Acquiring
Companies have established (and until the Closing Date shall continue to
establish and maintain) on its books and records reserves that are adequate for
the payment of all Taxes not yet due and payable.
(c) The Acquiring Companies have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes, including Taxes required to have been withheld in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party and sales, gross receipts and use
taxes, and has, within the time and manner prescribed by law, withheld and paid
over to the proper governmental authorities all amounts required to be withheld
and paid over under all applicable laws, or such amounts are held in separate
bank accounts for such purpose.
(d) There are no Liens for Taxes upon the assets or properties
of the Acquiring Companies except for statutory liens for current Taxes not yet
due.
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(e) The Acquiring Companies have not requested any extension
of time nor has any such extension been requested on its behalf within which to
file any Tax Return in respect of any taxable year which has not since been
filed.
(f) Based upon HAI's knowledge, no Audits exist with regard to
any Taxes or Tax Returns of the Acquiring Companies and there has not been
received any written notice that such an Audit is pending or threatened with
respect to any Taxes due from or with respect to the Acquiring Companies or any
Tax Return filed by or with respect to the Acquiring Companies. No material
issues have been raised in any examination by any taxing authority with respect
to the businesses and operations or the Acquiring Companies which (i) reasonably
could be expected to result in an adjustment to the liability for Taxes for such
period examined or (ii), by application of similar principles, reasonably could
be expected to result in an adjustment to the liability for Taxes for any other
period not so examined.
(g) None of the Acquiring Companies is a party to any Tax
allocation or sharing agreement. None of the Acquiring Companies (A) has been a
member of an affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which was HAI) or (B) has any liability
for the Taxes of any other party (other than any of the Acquiring Companies)
under Treasury Regulation Section 1.1502-6 (or any provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.
4.7 SEC Filings. Except as stated on Schedule 4.7, HAI has timely filed
all reports, proxy statements, forms and other documents required to be filed
with the SEC since January 1, 1996 and prior to the date of this Agreement ("HAI
SEC Documents"). As of their respective dates, HAI SEC Documents complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such HAI
SEC Documents. As of their respective dates, the HAI SEC Documents (including
all exhibits and schedules thereto and documents incorporated by reference
therein) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4.8 Assets. Schedule 4.8 includes detailed lists of all Assets a
current fair market value of not less than $100,000 of each of the Acquiring
Companies which are reflected on the June 30, 2000 Balance Sheet, including (a)
Cash Assets, itemized by bank or other account, showing cost and market value if
different from cost; (b) Accounts Receivable, showing customer names, individual
invoice dates, individual invoice amounts and allowances for doubtful accounts,
or, in the case of earned but not billed receivables, customer names and
individual dates on which the receivables are billable; (c) other current
Assets, itemized by category and with appropriate explanation; (d) Tangible
Property, grouped as to type, showing cost, accumulated depreciation and net
book value; and (e) Software and Intangibles, showing cost or amount
capitalized, accumulated amortization and net book value. Each of the Acquiring
Companies has good and valid title to all of its respective Assets which are
owned by it and has the right to transfer all rights, title and interest in such
Assets, free and clear of any Encumbrance, other than Encumbrances (a) for
Taxes, assessments, levies, fees and other governmental and similar charges not
due and payable, mechanics' liens, or other "ordinary course" liens that do not
materially effect the value of the Assets; or (b) listed on Schedule 4.8.
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4.9 Obligations. Schedule 4.9 includes detailed lists of all material
Obligations of each of the Acquiring Companies which are required by GAAP to be
reflected on the June 30, 2000 Balance Sheet, itemized by balance sheet account,
and with aggregate net balances equal to the balances on the June 30, 2000
Balance Sheet, including (a) accounts payable, (b) accrued expenses and
reserves, itemized by category and with appropriate explanation, (c) deferred
revenues, itemized by customer and time periods, and (d) other current and
long-term liabilities. None of the Acquiring Companies has any material
Obligations other than (i) Obligations reflected on the June 30, 2000 Balance
Sheet, (ii) Obligations set forth in Schedule 4.11, provided that as of June 30,
2000, no such Obligation consisted of or resulted from a default under or
violation of any such Contract, (iii) Obligations incurred since June 30, 2000,
in the ordinary course, consistent with past practices, and not in breach of any
of the representations and warranties made in Section 4.12, and (iv) Obligations
not required by GAAP to be reflected on the June 30, 2000 Balance Sheet. Except
as described on Schedule 4.9, none of the Obligations of any of the Acquiring
Companies are guaranteed by any Person.
4.10 Operations Since June 30, 2000. Except as disclosed in the HAI SEC
Documents, as set forth on Schedule 4.10 or in the ordinary course of their
respective businesses consistent with its past practices, from June 30, 2000 to
the date of this Agreement none of the Acquiring Companies has (i) created or
assumed any Encumbrance upon any of its business or Assets, (ii) incurred any
Obligation, (iii) made any loan or advance to any Person; (iv) assumed,
guaranteed or otherwise become liable for any Obligation of any Person; (v)
committed for any capital expenditure; (vi) purchased, leased, sold, abandoned
or otherwise acquired or disposed of any business or Assets; (vii) waived any
right or canceled any debt or claim; (viii) assumed or entered into any Contract
other than this Agreement; or (ix) increased, or authorized an increase in, the
compensation or benefits paid or provided to any of their directors, officers,
employees, salesmen, agents or representatives.
4.11 Tangible Property. Each of the Acquiring Companies has good and
valid title to all of its Tangible Property, free and clear of any Encumbrances
other than Encumbrances (a) for taxes, assessments, levies, fees and other
governmental and similar charges not due and payable, mechanics' liens, or other
"ordinary course" liens that do not materially effect the value of the Tangible
Property; or (b) set forth in the June 30, 2000 Balance Sheet or Schedule 4.11.
4.12 Software and Other Intangibles. Except for commercially available
Software, set forth on Schedule 4.12 is an accurate and complete list and
description of all Software and material Intangibles owned, marketed, licensed,
supported, maintained, used or under development by the Acquiring Companies,
and, in the case of Software, a product description, the language in which it is
written and the type of hardware platform(s) on which it runs. Except as
explained on Schedule 4.12, each of the Acquiring Companies has good and valid
title to, and has the full right to use, all of the Software and Intangibles
listed on Schedule 4.12, free and clear of any Encumbrance (except for use
restrictions contained in licensed commercially available Software). Except as
set forth in Schedule 4.12, all shrinkwrap and other commercially available
Software has been properly licensed and all related fees paid. To the
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knowledge of HAI, all application Software utilized in its business is year 2000
compliant. To the knowledge of HAI, none of the Software or Intangibles listed
on Schedule 4.12, or their respective past or current uses, including the
preparation, distribution, marketing or licensing, has violated or infringed
upon, or is violating or infringing upon, any Software, technology, patent,
copyright, trade secret or other Intangible of any Person. To the knowledge of
HAI, no Person is violating or infringing upon, or has violated or infringed
upon at any time, any of the Software or Intangibles listed on Schedule 4.11.
Except as set forth on Schedule 4.12, none of the Software or Intangibles listed
on Schedule 4.11 is owned by or registered in the name of any current or former
owner, shareholder, partner, director, executive, officer, employee, salesman,
agent, customer, representative or contractor of any of the Acquiring Companies
or any of the HAI Shareholders nor does any such Person have any interest
therein or right thereto, including the right to royalty payments.
4.13 Contracts. Schedule 4.13 is an accurate and complete list of all
of the following types of Contracts which involve either future Obligations of
$100,000 or more to which any of the Acquiring Companies is a party or by which
any of the Acquiring Companies is bound, or is otherwise material to any of the
Acquiring Companies (collectively, the "Specified Contracts"), grouped into the
following categories: (a) customer, client or alliance partner Contracts; (b)
Contracts for the purchase or lease of Real Property or otherwise concerning
Real Property owned or used by any of the Acquiring Companies; (c) loan
agreements, mortgages, notes, guarantees and other financing Contracts; (d)
Contracts for the purchase, lease and/or maintenance of computer equipment and
other equipment, Contracts for the purchase, license, lease and/or maintenance
of Software under which any of the Acquiring Companies is the purchaser,
licensee, lessee or user, and other supplier Contracts; (e) employment,
consulting and sales representative Contracts (excluding Contracts which
constitute Employee Benefit Plans listed on Schedule 4.15, and excluding oral
Contracts with employees for "at will" employment); (f) Contracts under which
any rights in and/or ownership of any Software product, technology or other
Intangible of any of the Acquiring Companies, or any prior version thereof, or
any part of the customer base, business or Assets of any of the Acquiring
Companies, or any shares or other ownership interests in any of the Acquiring
Companies (or any of their predecessors) was Acquiring; and (g) other material
Contracts (excluding Contracts which constitute Insurance Policies listed on
Schedule 4.22 and excluding this Agreement and all other Contracts entered into
between any of the Acquiring Companies and HealthAxis, or among any of the
Acquiring Companies, HealthAxis and other parties in connection herewith). A
description of each oral Specified Contract is included on Schedule 4.13, and
copies of each written Specified Contract have been made available to
HealthAxis. Except as set forth on Schedule 4.13, with respect to each of the
Specified Contracts, none of the Acquiring Companies is in material default
thereunder nor would be in material default thereunder with the passage of time,
the giving of notice, or both. Except as set forth on Schedule 4.13, to the
knowledge of HAI, none of the other parties to any Specified Contract is in
material default thereunder or would be in material default thereunder with the
passage of time, the giving of notice or both. Except as set forth on Schedule
4.13, none of the Acquiring Companies has given or received any notice of
default or notice of termination with respect to any Specified Contract, and to
the knowledge of HAI each Specified Contract is in full force and effect in
accordance with its terms. Except as set forth on Schedule 4.13, there are no
currently outstanding proposals or offers submitted by any of the Acquiring
Companies to any customer, prospect, supplier or other Person which, if
accepted, would result in a legally binding Contract of such company involving
an amount or commitment exceeding $100,000 in any single case or an aggregate
amount or commitment exceeding $500,000 in the aggregate.
4.14 Employees and Independent Contractors. Schedule 4.14 is a list of
all of the employees with annual compensation in excess of $100,000 of the
Acquiring Companies and (a) their titles or responsibilities; (b) their social
security numbers; (c) their dates of hire; (d) their current salaries or wages
and all bonuses, commissions and incentives paid at any time during the past
twelve months; (e) their last compensation changes and the dates on which such
changes were made; (f) any specific bonus, commission
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or incentive plans or agreements for or with them; and (g) any outstanding loans
or advances made to them. Schedule 4.14 is a list of all sales representatives
and material independent contractors engaged by the Acquiring Companies and
their payment arrangements (if not set forth in a Contract listed or described
on Schedule 4.13). Except as limited by any employment Contracts listed on
Schedule 4.13 and except for any limitations of general application which may be
imposed under applicable employment Laws, each of the Acquiring Companies has
the right to terminate the employment of each of its employees at will and to
terminate the engagement of any of its independent contractors without payment
to such employee or independent contractor other than for services rendered
through termination and without incurring any penalty or liability other than
liability for severance pay and benefits in accordance with such company's
disclosed severance pay policy and benefits due terminated employees. Neither
the Transactions, nor the termination of the employment of any employees of any
of the Acquiring Companies prior to or following the consummation of the
Transactions could result in any of the Acquiring Companies making or being
required to make any "excess parachute payment" as that term is defined in
Section 280G of the Code. To the knowledge of HAI, each of the Acquiring
Companies is in compliance in all material respects with all Laws respecting
employment practices. None of the Acquiring Companies has ever been a party to
or bound by any union, collective bargaining or similar Contract, nor is any
such Contract currently in effect or being negotiated by or on behalf of any of
the Acquiring Companies. Since January 1, 1998, none of the Acquiring Companies
has experienced any labor problem that was or is material to it. Except as
indicated on Schedule 4.14, since January 1, 1999, to the knowledge of HAI, no
employee of any of the Acquiring Companies having an annual salary of $75,000 or
more has indicated an intention to terminate or has been terminated with respect
to his or her employment with such company.
4.15 Employee Benefit Plans.
(a) Schedule 4.15 sets forth a complete list of all (A)
"employee benefit plans" as defined in sections 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); and (B) all retirement or
deferred compensation plans, incentive compensation plans, stock plans,
unemployment compensation plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or any other fringe benefit
arrangements for any current or former employee, director, consultant or agent,
whether pursuant to contract, arrangement, custom or informal understanding,
which does not constitute an employee benefit plan as defined in section 3(3) of
ERISA, and (C) any employment agreement or consulting agreement, which Acquiring
Companies or any trade or business, whether or not incorporated, that together
with the Acquiring Companies would be deemed a "single employer" within the
meaning of Section 4001(b) of ERISA (an "HAI ERISA Affiliate"), maintains, is a
party to, participates in or with respect to which has any liability or
contingent liability.
(b) With respect to each HAI Employee Benefit Plan, a complete
and correct copy of each of the following documents (if applicable) has been
provided or made available to HealthAxis: (A) the most recent plan and related
trust documents, and all amendments thereto; (B) the most recent summary plan
description, and all related summaries of material modifications thereto; (C)
the most recent Form 5500 (including schedules and attachments); (D) the most
recent IRS determination letter or request therefor; and (E) the most recent
actuarial reports (including for purposes of Financial Accounting Standards
Board report no. 87, 106 and 112), if any; and there have been no material
changes in the financial condition in the respective plans from that stated in
the annual reports and actuarial reports supplied. In the case of any HAI
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Employee Benefit Plan which is not in written form, HealthAxis has been supplied
with an accurate description of such HAI Employee Benefit Plan as in effect on
the date hereof.
(c) Except as set forth in Schedule 4.15, the HAI Employee
Benefit Plans and their related trusts intended to qualify under Sections 401(a)
and 501(a) of the Code, respectively, have received favorable determination
letters from the Internal Revenue Service which cover all applicable law for
which the remedial amendment period (within the meaning of Section 401(b) of the
Code and applicable regulations) has expired; neither HAI nor any of its
respective HAI ERISA Affiliates is aware of any event or circumstance that could
reasonably be expected to result in the failure of such HAI Employee Benefit
Plan or its related trust to be so qualified; and no event has occurred which
will or could give rise to disqualification of any such plan under such sections
or to a tax under section 511 of the Code.
(d) Except as set forth in Schedule 4.15, the HAI Employee
Benefit Plans have been maintained and administered in all respects in
accordance with their terms and applicable laws, and no event has occurred which
will or could cause any such HAI Employee Benefit Plan to fail to comply with
such requirements and no notice has been issued by any governmental authority
questioning or challenging such compliance.
(e) Except as disclosed in Schedule 4.15, there are no pending
or, to the knowledge of HAI, threatened actions, claims or proceedings against
or relating to any HAI Employee Benefit Plan other than routine benefit claims
by persons entitled to benefits thereunder. There are no investigations or
audits of or relating to any HAI Employee Benefit Plan. HAI has no knowledge of
any facts which could form the basis of any such investigation or audit.
(f) Except as disclosed in Schedule 4.15, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (A) result in any payment becoming due to
any employee (current, former or retired) of HAI, (B) increase any benefits
under any HAI Employee Benefit Plan, or (C) result in the acceleration of the
time of payment of, vesting of or other rights with respect to any such
benefits.
(g) HAI has no knowledge of any oral or written statement made
by or on behalf of HAI or an HAI ERISA Affiliate regarding any HAI Employee
Benefit Plan that was not in accordance with such Employee Benefit Plan.
(h) Actuarially adequate accruals for all obligations under
the HAI Employee Benefit Plans are reflected in the financial statements of HAI
and such obligations include a pro rata amount of the contributions which would
otherwise have been made in accordance with past practices and applicable law
for the plan years which include the Closing Date.
(i) Except as described in Schedule 3.14, there have been no
acts or omissions by HAI which have given rise to or may give rise to fines,
penalties, taxes or related charges under section 502 of ERISA or Chapters 43,
47 or 68 of the Code for which HAI or any HAI ERISA Affiliate may be liable.
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(j) Except as described in Schedule 3.14, none of the payments
payable under the HAI Employee Benefit Plans as a result of the Merger would, in
the aggregate, constitute excess parachute payments (as defined in section 280G
of the Code (without regard to subsection (b)(4) thereof)).
(k) No HAI Employee Benefit Plan is subject to Title IV of
ERISA.
(l) None of HAI nor any HAI ERISA Affiliate contributes to,
has contributed to, or has any liability or contingent liability with respect to
a multiemployer plan (as defined in section 3(37) of ERISA).
(m) There has been no act or omission that would impair the
ability of HAI and the HAI ERISA Affiliates (or any successor thereto) to
unilaterally amend or terminate any HAI Employee Benefit Plan.
(n) Except as described in Schedule 4.15, there are no
self-insured Employee Benefit Plans. With respect to each self-insured Employee
Benefit Plan, HAI and/or its subsidiaries maintains a reserve of no less than
twenty-five percent (25%) of the aggregate claims paid with respect to the most
recently completed plan year.
(o) Except as set forth in Schedule 4.15, each HAI Employee
Benefit Plan is fully funded to the extent that a benefit has accrued thereunder
or that an account balance is maintained on behalf of an Employee
notwithstanding whether, under the terms of such Plan or as permitted by
applicable law, such Plan is not required to be funded. Except as set forth in
Schedule 4.15, each HAI Employee Benefit Plan is fully funded to the extent that
a benefit has accrued thereunder or that an account balance is maintained on
behalf of an Employee notwithstanding whether, under the terms of such Plan or
as permitted by applicable law, such Plan is not required to be funded.
4.16 Labor Matters.
(a) Except as set forth in Schedule 4.16, (A) none of the
Acquiring Companies is a party to any labor or collective bargaining agreement
and no employees of the Acquiring Companies are represented by any labor
organization; (B) within the preceding three years, there have been no
representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the knowledge of HAI, threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority; and (C) within the preceding three
years, to the knowledge of HAI, there have been no organizing activities
involving the Acquiring Companies with respect to any group of employees of the
Acquiring Companies.
(b) There are no strikes, work stoppages, slowdowns, lockouts,
material arbitrations or material grievances or other material labor disputes
pending or threatened in writing against or involving the Acquiring Companies.
There are no unfair labor practice charges, grievances or complaints pending or,
to the knowledge of HAI, threatened in writing by or on behalf of any employee
or group of employees of the Acquiring Companies. Each of the Acquiring
Companies relations with its employees are currently on a good and normal basis.
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(c) Each of the Acquiring Companies is in compliance with all
laws, regulations and orders relating to the employment of labor, including all
such laws, regulations and orders relating to wages, hours, Worker Adjustment
Retraining and Notification Act of 1988, as amended (" WARN Act"), collective
bargaining, discrimination, civil rights, safety and health, workers'
compensation and the collection and payment of withholding and/or social
security taxes and any similar tax, except where non compliance would not
individually or in the aggregate adversely affect the Acquiring Companies taken
as a whole in any material respect.
(d) Except as set forth in Schedule 4.16 and except for any
limitation of general application which may be imposed under applicable
employment laws, each of the Acquiring Companies has the right to terminate the
employment of each of its employees at will and to terminate the engagement of
any of its independent contractors without payment to such employee or
independent contractor other than for services rendered through termination and
without incurring any penalty or liability other than for severance pay in
accordance with any severance pay policy of any of the Acquiring Companies
disclosed to HealthAxis
(e) Except as set forth in Schedule 4.16, since January 1,
1998, no employee of any of the Acquiring Companies having an annual salary of
$100,000 or more has indicated an intention to terminate or has terminated his
or her employment with such company.
4.17 Environmental Matters.
(a) Except as set forth in Schedule 4.17:
(i) The operations of each of the Acquiring
Companies have been and, as of the Closing Date, will be, in material compliance
with all Environmental Laws, except for such noncompliance which would not
individually or in the aggregate have a material adverse effect on HAI;
(ii) None of the Acquiring Companies is subject
to any outstanding orders from, or agreements with, any Governmental Entity or
other person respecting (x) Environmental Laws, (y) Remedial Action or (z) any
Release or threatened Release of a Hazardous Material;
(iii) None of the Acquiring Companies has received
any written communication alleging, with respect to any such party, the
violation of or potential liability under any Environmental Law;
(iv) No judicial or administrative proceedings
or governmental investigations are pending or, to the knowledge of HAI,
threatened against the Acquiring Companies alleging the violation of or seeking
to impose liability pursuant to any Environmental Law; and
(v) No environmental approvals, clearances or
consents are required under applicable law from any governmental entity or
authority in order to consummate the transactions contemplated herein.
(b) This Section 4.17 sets forth the sole representations and
warranties of HAI with respect to Environmental Laws.
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4.18 Absence of Changes. Except as disclosed in HAI SEC Documents,
since June 30, 2000, there has not been a material adverse change as to HAI and
its subsidiaries taken as a whole.
4.19 Authorization for HAI Common Stock. HAI will take all necessary
action prior to the Closing Date to permit it to issue the number of shares of
HAI Common Stock required to be issued pursuant to this Agreement and the Plan,
including amending its Articles of Incorporation to increase the number of
authorized shares of common stock. All shares of HAI Common Stock issued
pursuant to this Agreement and the Plan will, when issued, be validly issued,
fully paid and nonassessable and no Person will have any preemptive right of
subscription or purchase in respect thereof. All shares of HAI Common Stock
will, when issued, be registered under the Securities Act and the Exchange Act
and registered or exempt from registration under any applicable state securities
laws and will, when issued, be listed for trading on the NASDAQ National Market
System or the NASDAQ SmallCap Market subject to official notice of issuance.
4.20 Proceedings and Judgments. Except as disclosed on Schedule 4.20,
(a) no Proceeding is currently pending or, to the knowledge of HAI, threatened,
nor has any Proceeding occurred at any time since January 1, 1998, to which any
of the Acquiring Companies is or was a party, or by which any of the Acquiring
Companies or any Assets or business of any of the Acquiring Companies is or was
affected; (b) no Judgment is currently outstanding, nor has any Judgment been
outstanding at any time since January 1, 1998, against any of the Acquiring
Companies, or by which any of the Acquiring Companies or any Assets or business
of any of the Acquiring Companies is or was affected; and (c) no material breach
of contract, breach of warranty, tort, negligence, infringement, product
liability, discrimination, wrongful discharge or other claim of any nature has
been asserted in any proceeding or, to the knowledge of HAI, threatened in
writing by or against any of the Acquiring Companies at any time since January
1, 1998, and, to the knowledge of HAI, there is no basis for any such claim.
4.21 Insurance. Schedule 4.22 is an accurate and complete list of all
Insurance Policies (excluding Insurance Policies that constitute HAI' Employee
Benefit Plans described on Schedule 4.15) owned or maintained by any of the
Acquiring Companies and/or any of their predecessors at any time since January
1, 1998. Except as indicated on Schedule 4.21, all such Insurance Policies are
or were on an "occurrence" rather than a "claims made" basis. None of the
Acquiring Companies has received notice of cancellation with respect to any such
current Insurance Policy, and, to the knowledge of HAI, there is no basis for
the insurer thereunder to terminate any such current Insurance Policy. Accurate
and complete copies of all Insurance Policies described on Schedule 4.21 have
been made available to HAI. Each such Insurance Policy is or was in full force
and effect during the period(s) of coverage indicated on Schedule 3.15. There
are no claims that are pending under any of the Insurance Policies described in
this section.
4.22 Questionable Payments. None of the Acquiring Companies or, to the
knowledge of HAI, any of the HAI Shareholders, nor any current or former
partners, owners, HAI Shareholders, members, directors, executives, officers,
representatives, agents or employees of any of the Acquiring Companies (when
acting in such capacity or otherwise on behalf of any of the Acquiring Companies
or any of their predecessors), (a) has used or is using any corporate funds (i)
for any illegal contributions, gifts, entertainment or other unlawful expenses
relating to political activity or, (ii) to the knowledge of HAI, in violation of
customer policies and/or rules; (b) has used or is using any corporate funds for
any direct or
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indirect unlawful payments to any foreign or domestic government officials or
employees; (c) has established or maintained, or is maintaining, any unlawful or
unrecorded fund of corporate monies or other properties; (d) has made at any
time since January 1, 1998, any false or fictitious entries on the books and
records of any of the Acquiring Companies; (e) has made any bribe, unlawful
rebate, payoff, influence payment, kickback or other unlawful payment of any
nature using corporate funds or otherwise on behalf of any of the Acquiring
Companies; or (f) made any material favor or gift that is not deductible for
federal income tax purposes using corporate funds or otherwise on behalf of any
of the Acquiring Companies.
4.23 Related Party Transactions. To the knowledge of HAI, except as
described on Schedule 4.23 and except for any Contracts listed on Schedule 4.13,
there are no real estate leases, personal property leases, loans, guarantees,
Contracts, transactions, understandings or other arrangements of any nature
between or among any of the Acquiring Companies and any current or former
partner, owner, shareholder, member, director, officer or controlling Person of
any of the Acquiring Companies, other than UICI or HAI or its subsidiaries.
4.24 Liens. Except as set forth in Schedule 4.24, none of the Acquiring
Companies has granted, created or suffered to exist with respect to any of its
assets, any mortgage, pledge, charge, or hypothecation, collateral assignment,
lien (statutory or otherwise), encumbrances or security agreement of any kind or
nature whatsoever.
4.25 Vote Required. The affirmative vote of the holders of 80% of the
outstanding shares of HAI Common Stock is the only vote of the holder of any
class or series of HAI's capital stock necessary (under applicable law) to
approve the Merger and the Transactions.
4.26 Brokerage Fees. Except as set forth in Schedule 4.26, no Person
acting on behalf of any of the Acquiring Companies or any of the HAI
Shareholders is or shall be entitled to any brokerage fee, finder's fee or
investment banking fee in connection with the Transactions.
4.27 Full Disclosure. No representation or warranty made by HAI in this
Agreement or pursuant hereto (a) contains any untrue statement of material fact;
or (b) omits to state any material fact that is necessary to make the statements
made, in light of the circumstances under which they are made, not false or
misleading in any respect. The copies of documents attached as Schedules to this
Agreement or otherwise delivered to HealthAxis by HAI in connection with the
Transactions, are accurate and complete, and are not missing any amendments,
modifications, correspondence or other related papers which would be pertinent
to HealthAxis' understanding thereof in any respect.
4.28 Compliance with Law. The operations of each of the Acquiring
Companies, the conduct of the business of each of the Acquiring Companies, as
and where such business has been or presently is conducted, and the ownership,
possession and use of the Assets of each of the Acquiring Companies have
complied and currently do comply with all applicable Laws and the articles and
bylaws of each entity except where the failure to comply will not have a
material adverse effect. Except as set forth on Schedule 4.28, each of the
Acquiring Companies has obtained and holds all Permits required for the lawful
operation of its business or businesses as and where such business or businesses
are presently conducted. All Permits held by the Acquiring Companies are listed
on Schedule 4.28, and copies of such Permits have been made available to HAI and
Newco.
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4.29 Investment Matters. HAI is acquiring the HealthAxis Stock for its
own account for investment purposes only and not with a view to, or for sale in
connection with, any resale or distribution thereof.
4.30 Investment Company. HAI is not currently and upon consummation of
the Merger, HAI will not be an investment company within the meaning of the
Investment Company Act of 1940, as amended.
4.31 Other Matters. Without limiting the generality of the foregoing
representations and warranties, and except as set forth in Schedule 4.31, HAI
has timely filed with the SEC as required and has delivered to HealthAxis copies
of all material agreements entered into by HAI since June 30, 2000. Agreements
disclosed in Schedule 4.31 and not filed with the SEC will be filed promptly
with the SEC. Such agreements are accurate and complete and does not contain any
untrue statement of a material fact or omits to state any material fact that is
necessary to make the statements made, in light of the circumstances under with
they were made, not false or misleading.
SECTION 5: CERTAIN OBLIGATIONS OF HEALTHAXIS PENDING CLOSING
5.1 Conduct of Business. Between the date of this Agreement and the
Closing Date or termination of the Agreement, except with the prior written
consent of HAI:
(1) Each of the Acquired Companies shall, (i) conduct their
respective businesses in the ordinary course consistent with past practice, (ii)
not make any material change in their business practices, and (iii) use their
reasonable best efforts to preserve their business organization intact, keeping
available the services of their current officers, employees, salesmen, agents
and representatives, and maintaining the goodwill of their customers, suppliers
and other Persons having business relations with the Acquired Companies.
(2) Each of the Acquired Companies shall, maintain their corporate
existence and subsistence in their respective jurisdictions of incorporation and
their good standing in each jurisdiction where they are currently qualified as a
foreign corporation. None of the Acquired Companies shall amend their articles
of incorporation or bylaws.
(3) None of the Acquired Companies shall, redeem, retire or
purchase, or create, grant or issue any options, warrants or other Contracts or
Contract Rights with respect to, any shares of HealthAxis Stock, or any other
capital stock or other securities of HealthAxis, or create, grant or issue any
stock options, stock appreciation rights, phantom shares or other similar
rights, except as may be consistent with past practices.
(4) Except with respect to the conversion and/or exercise of
currently outstanding warrants, stock options and/or Preferred Stock, HealthAxis
shall not sell, assign, give, pledge or grant or otherwise transfer, dispose of
or encumber any shares of the HealthAxis Stock (or securities convertible,
exercisable or exchangeable for capital stock of HealthAxis), or any other
capital stock or other securities of HealthAxis owned or held by it.
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(5) None of the Acquired Companies shall transfer or advance any
funds to HAI or any affiliate of HAI unless (i) such transfer or advance is
approved by the Disinterested HealthAxis Directors and (ii) such transfer or
advance is evidenced by a promissory note issued by HAI to HealthAxis secured by
assets of HAI having a value of not less than 100% of the amount of the advance.
The Disinterested HealthAxis Directors shall have the sole authority to enforce
on behalf of HealthAxis this covenant and the covenant set forth in Section
6.1(6).
The Acquired Companies shall not enter into any Contract that commits
it to take any action or omit to take any action that would be inconsistent with
any of the provisions of this Section 5.1 or any other provisions of this
Agreement or the Plan.
5.2 Consents. Between the date of this Agreement and the Closing Date,
each of the Acquired Companies shall in good faith use their reasonable best
efforts to obtain all Consents and approvals of all lenders, lessors, vendors,
customers and other Persons necessary to permit the Merger and the other
Transactions to be consummated without violating any loan agreement, lease or
other material Contract to which any of the Acquired Companies is a party or by
which any of the Acquired Companies is bound, and to give the notices and make
the filings described on Schedule 3.2.
5.3 Advice of Changes. Between the date of this Agreement and the
Closing Date, HealthAxis shall promptly advise HAI, in writing, of any fact of
which it obtains knowledge and that, if existing or known as of the date of this
Agreement, would have been required to be set forth or disclosed in or pursuant
to this Agreement (it being understood that such advice shall not be deemed to
modify the representations, warranties and covenants of HealthAxis contained in
this Agreement).
5.4 Reasonable Best Efforts. HealthAxis shall use its reasonable best
efforts to consummate the Merger and the other Transactions as of the earliest
practicable date. HealthAxis shall not take, or cause to be taken, or to the
best of its ability permit to be taken, any action that would impair the
prospect of completing the Merger and the other Transactions.
5.5 Waivers. Any waiver by HealthAxis of any covenant, condition or
termination right by HealthAxis under this Agreement shall be effective only if
approved by the Disinterested HealthAxis Directors.
SECTION 6: CERTAIN OBLIGATIONS OF HAI AND NEWCO PENDING CLOSING
6.1 Conduct of Business. Between the date of this Agreement and the
Closing Date or termination of the Agreement, except with the prior written
consent of HealthAxis:
(1) HAI shall, (i) conduct its business in the ordinary course
consistent with past practice, (ii) not make any material change in its business
practices, and (iii) use its reasonable best efforts to preserve its business
organization intact, keeping available the services of its current officers,
employees, salesmen, agents and representatives, and maintaining the goodwill of
its customers, suppliers and other Persons having business relations with HAI.
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(2) HAI and Newco shall maintain their corporate existence and
subsistence in their respective jurisdictions of incorporation and their good
standing in each jurisdiction where they are currently qualified as a foreign
corporation. Neither HAI nor Newco shall amend their articles of incorporation
or bylaws.
(3) Except in the ordinary course of its business consistent with
its past practices, HAI shall not redeem, retire or purchase, or create, grant
or issue any options, warrants or other Contracts or Contract Rights with
respect to, any shares of HAI Common Stock, or any other capital stock or other
securities of HAI, or create, grant or issue any stock options, stock
appreciation rights, phantom shares or other similar rights, except as may be
consistent with past practices.
(4) Except with respect to the conversion and/or exercise of
currently outstanding warrants, stock options and/or Preferred Stock, HAI shall
not sell, assign, give, pledge or grant or otherwise transfer, dispose of or
encumber any shares of the HAI Common Stock (or securities convertible,
exercisable or exchangeable for capital stock of HAI), or any other capital
stock or other securities of HAI owned or held by it.
(5) Neither HAI nor Newco shall enter into any Contract that
commits them to take any action or omit to take any action that would be
inconsistent with any of the provisions of this Section 6.1 of this Agreement or
the Plan.
(6) HAI shall not receive or accept any transfer or advance of
funds from HealthAxis unless (i) such transfer or advance is approved by the
Disinterested HealthAxis Directors pursuant to Section 5.1(5), and (ii) such
transfer or advance is evidenced by a promissory note issued by HAI to
HealthAxis secured by assets of HAI having a value of not less than 100% of the
amount of the advance.
6.2 Consents. Between the date of this Agreement and the Closing Date,
HAI and Newco shall in good faith use their reasonable best efforts to obtain
all Consents and approvals of all lenders, lessors, vendors, customers and other
Persons necessary to permit the Merger and the other Transactions to be
consummated without violating any loan agreement, lease or other material
Contract to which either HAI or Newco is a party or by which either HAI or Newco
is bound, and to give the notices and make the filings described on Schedule
4.2.
6.3 SEC Reports. Between the date of this Agreement and the Closing
Date, HAI shall timely file all reports and other filings required to be filed
by it under the Exchange Act.
6.4 Advice of Changes. Between the date of this Agreement and the
Closing Date, HAI shall promptly advise HealthAxis, in writing, of any fact of
which it obtains knowledge and that, if existing or known as of the date of this
Agreement, would have been required to be set forth or disclosed pursuant to a
representation or warranty in this Agreement (it being understood that such
advice shall not be deemed to modify the representations, warranties and
covenants of HAI and/or Newco contained in this Agreement).
6.5 Reasonable Best Efforts. HAI and Newco shall use their reasonable
best efforts to consummate the Merger and the other Transactions as of the
earliest practicable date, and neither HAI nor
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Newco shall take, or cause to be taken, or to the best of their ability permit
to be taken, any action that would impair the prospect of completing the Merger
and the other Transactions.
6.6 NASDAQ Listing. HAI shall use its best efforts to cause the shares
of HAI Common Stock constituting the Merger consideration to be listed on the
NASDAQ National Market System or NASDAQ SmallCap Market, as applicable, subject
to notice of official issuance thereof.
6.7 Employee Benefits. Following the Effective Date, HAI shall cause
Newco to provide benefits to such employees which are comparable to those
provided to similarly situated employees of HAI from time-to-time.
6.8 Waivers. Any waiver by HAI of any covenant, condition or
termination right by HAI under this Agreement shall be effective only if
approved by the Disinterested HAI Directors.
SECTION 7: ADDITIONAL COVENANTS OF THE PARTIES
7.1 Shareholders' Meetings. (a) HAI shall cause a meeting of its
shareholders (including any postponements or adjournments thereto) (the "HAI
Shareholders' Meeting") to be duly called and held as soon as reasonably
practicable, but in any event within 30 business days after the mailing of the
Proxy Statement/Prospectus (as hereinafter defined), for the purpose of voting
on the approval of the issuance of the shares of HAI Common Stock to be issued
in connection with the Merger; provided, however, that notwithstanding anything
to the contrary contained in this Agreement, HAI may adjourn or postpone the HAI
Shareholders' Meeting to the extent necessary to ensure that any necessary
supplement or amendment to the Proxy Statement/Prospectus is provided to HAI's
Shareholders in advance of a vote on the issuance of HAI Common Stock in the
Merger or, if as of the time for which the HAI Shareholders' Meeting is
originally scheduled (as set forth in the Proxy Statement/Prospectus) there are
insufficient shares of HAI Common Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the HAI
Shareholders' Meeting. HealthAxis shall cause a meeting of its shareholders
(including any postponements or adjournments thereto) (the "HealthAxis
Shareholders' Meeting") (the HAI Shareholders' Meeting and the HealthAxis
Shareholders' Meeting shall collectively be referred to herein as, the
"Shareholders' Meetings") to be duly called and held as soon as reasonably
practicable, but in any event within 30 business days after the mailing of the
Proxy Statement/Prospectus (as hereinafter defined), for the purpose of voting
on the approval of the Merger.
(b) As promptly as practicable following the date of this
Agreement, HAI and HealthAxis shall prepare a joint proxy statement/prospectus
with respect to the Shareholders' Meetings (which proxy statement/prospectus
will constitute the prospectus of HAI to be included in the Form S-4
Registration Statement to be filed by HAI pursuant to Section 7.2 hereof and a
proxy statement/prospectus on Schedule 14A) (such proxy statement, together with
any amendments thereof or supplements thereto, in each case in the form or forms
mailed to HAI's and HealthAxis' Shareholders, is herein called the "Proxy
Statement/Prospectus"). HAI will (i) as promptly as practicable following the
preparation of the Proxy Statement/Prospectus file the Proxy
Statement/Prospectus with the SEC, and use its reasonable best efforts to have
it cleared by the SEC and thereafter mail the Proxy Statement/Prospectus to its
shareholders; (ii) use its reasonable best efforts to obtain the necessary
approval by its shareholders of the issuance of the HAI Common Stock in the
Merger and the amendment of the Articles of Incorporation of HAI to increase the
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number of authorized shares of Common Stock and (iii) otherwise comply with all
legal requirements applicable to its respective meeting. HealthAxis will (i)
promptly after the Proxy Statement/Prospectus is cleared by the SEC mail the
Proxy Statement/Prospectus to its shareholders; (ii) use its reasonable best
efforts to obtain the necessary approvals by its shareholders of the Merger and
(iii) otherwise comply with all legal requirements applicable to its respective
meeting. HAI agrees to provide HealthAxis with all comments or correspondence
received from the SEC as to the Proxy Statement/Prospectus and HAI and
HealthAxis shall prepare responses to any such comments or correspondence as
required to have the Proxy Statement/Prospectus cleared by the SEC. The Proxy
Statement/Prospectus shall include the recommendation of the HAI Board of
Directors that their respective shareholders approve the issuance of the HAI
Common Stock in the Merger. HAI shall send a Notification of the Merger to
HealthAxis Shareholders notifying them of the Effective Date.
(c) The Boards of Directors of each of HAI and HealthAxis shall
recommend approval of the issuance of HAI Common Stock in the Merger and of the
Merger, as the case may be, by their respective shareholders and will agree to
vote the shares that they hold in favor of the Merger. HAI agrees to vote its
shares of HealthAxis common and preferred stock in favor of the Merger.
7.2 Registration Statement and Proxy Statement/Prospectus.
(a) The Form S-4 Registration Statement. The Form S-4 Registration
Statement and all amendments thereto do and will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations promulgated thereunder. Neither the Form S-4 Registration Statement,
nor any amendments thereof, will, on the date the Proxy Statement/Prospectus is
first mailed to HAI and HealthAxis Shareholders, at the time of the HAI and/or
HealthAxis Shareholders' meeting, at the Effective Date or at the time it
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that HAI makes no representation or warranty
with respect to any information furnished to it by HealthAxis or any of
HealthAxis' accountants, counsel or other authorized representatives in writing
specifically for inclusion in the Form S-4 Registration Statement. None of the
information with respect to HAI or any affiliate of HAI (other than the Acquired
Companies) that is set forth in the Proxy Statement/Prospectus will, on the date
that the Proxy Statement/Prospectus is first mailed to HAI and HealthAxis
Shareholders, at the time of the HAI and/or HealthAxis Shareholder Meeting or at
the Effective Date, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) HAI will, as promptly as practicable following the date of
this Agreement, continue the preparation and filing with the SEC of a
registration statement on Form S-4 (the "Form S-4 Registration Statement"),
containing the Proxy Statement/Prospectus, and the prospectus in connection with
the Merger and the other transactions contemplated hereby and the SEC as
promptly as practicable, HealthAxis will continue to cooperate with HAI in the
preparation and filing of the Proxy Statement/Prospectus and will provide HAI
with all financial and other data concerning HealthAxis as is necessary in order
for HAI to prepare the Proxy Statement/Prospectus.
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7.3 Blue Sky Permits. HAI shall use its reasonable efforts to obtain,
prior to the effective date of the Form S-4 Registration Statement, all
necessary state securities law or "blue sky" permits and approvals required to
ensure that the HAI Common Stock to be issued in the Merger will be registered
or qualified under such state securities Laws, and will pay all expenses
incident thereto; provided, however, that the foregoing shall not require HAI to
(i) submit generally to jurisdiction or require it to qualify to do business in
any jurisdiction where it is not presently required to submit to jurisdiction or
be qualified to do business; or (ii) file a general consent to service of
process in any jurisdiction.
7.4 Tax Free Reorganization. HealthAxis and HAI agree not to take or
cause to be taken any actions that would adversely affect the treatment of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
7.5 Full Disclosure. None of the information supplied or to be
supplied by or on behalf of the Acquired Companies for inclusion or
incorporation by reference in the Proxy Statement/Prospectus to be filed with
the SEC by HAI in connection with the HAI and/or HealthAxis Shareholders'
Meeting to be held by HAI and/or HealthAxis relating to the Merger did or will,
at the time the information was or is supplied, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were or are made, not misleading. If any such
information becomes untrue in any material respect prior to the filing of the
Proxy Statement/Prospectus, the mailing of the Proxy Statement/Prospectus to the
HAI and HealthAxis Shareholders or the time of the HAI and/or HealthAxis
Shareholders' Meeting, HealthAxis will promptly notify HAI.
SECTION 8: CONDITIONS PRECEDENT TO HEALTHAXIS' CLOSING OBLIGATIONS
Each obligation of HealthAxis to be performed on the Closing Date shall
be subject to the satisfaction of each of the conditions stated in this Section
8, except to the extent that such satisfaction is waived by HealthAxis in
writing.
8.1 HAI's and Newco's Representations. Each of the representations and
warranties of HAI and/or Newco contained in this Agreement shall be true and
correct in all material respects, in each case on and as of the Closing Date as
if such representations and warranties were made on and as of the Closing Date;
provided, however, that any representation and warranty that contains a
materiality qualification shall be true and correct in all respects.
8.2 HAI's and Newco's Performance. All of the terms and conditions of
this Agreement to be satisfied or performed by HAI and/or Newco on or before the
Closing Date (including, but not limited to, the obligations set forth in
Section 10.3) shall have been substantially satisfied or performed.
8.3 Absence of Proceedings. No Proceeding shall have been instituted,
no Judgment shall have been issued, and no new Law shall have been enacted, on
or before the Closing Date, that seeks to or does prohibit or restrain, or that
seeks material damages as a result of, the consummation of the Merger or any of
the other Transactions.
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8.4 Approval of HealthAxis and HAI Shareholders. The Merger and the
issuance of the shares of HAI Common Stock in the Merger shall have been duly
approved by the affirmative vote of the HealthAxis and HAI Shareholders, as the
case may be, in accordance with applicable Law. The HAI Shareholders shall have
approved the amendment to the Articles of Incorporation of HAI to increase the
number of authorized shares of common stock and the amendment to the Articles of
Incorporation of HAI as set forth in Exhibit D hereto.
8.5 Board Seats. The following individuals shall have been elected
to the Board of Directors of HAI effective as of the Effective Date of the
Merger: Patrick J. McLaughlin, Gregory T. Mutz and Dennis B. Maloney.
8.6 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting HAI or any of its subsidiaries. or
their respective businesses, Assets or financial condition, between the date of
this Agreement and the Closing Date, and there shall not have been any material
adverse change in the financial performance of HAI or its subsidiaries between
the date of this Agreement and the Closing Date.
8.7 Registration Statement. The Form S-4 Registration Statement shall
have become effective in accordance with the provisions of the Securities Act,
and no order suspending such effectiveness shall have been issued and remain in
effect.
8.8 Listing of HAI Common Stock. The shares of HAI Common Stock
issuable in accordance with the Merger shall have been approved for listing on
the NASDAQ National Market System or the NASDAQ SmallCap Market, as applicable,
subject to official notice of issuance.
8.9 Tax Opinion. The parties shall have received an opinion of tax
counsel, in form and substance reasonably satisfactory to HAI and HealthAxis,
dated as of the Effective Date, substantially to the effect that on the basis of
facts, representations and assumptions set forth in such opinion which are
consistent with the state of facts then existing: (i) the Merger will constitute
a "reorganization" within the meaning of Section 368(a) of the Code and each of
HAI, HealthAxis and Newco will be a "party to a reorganization" within the
meaning of Section 368(b) of the Code. In rendering such opinion, such firm may
require and rely upon representations contained in the tax representation
letters delivered to it by HAI and HealthAxis, and such other certificates from
such other Persons as such firm may reasonably require; and (ii) the
consummation of the Merger will not adversely affect the qualification of the
merger between HealthAxis and Insurdata Inc., which occurred on January 7, 2000,
as a "reorganization" within the meaning of Section 368(a) of the Code. Such an
opinion may contain such further assumptions and qualifications as are customary
in legal opinions concerning federal income taxation.
SECTION 9: CONDITIONS PRECEDENT TO HAI'S AND NEWCO'S CLOSING OBLIGATIONS
Each obligation of HAI and Newco to be performed on the Closing Date
shall be subject to the satisfaction of each of the conditions stated in this
Section 9, except to the extent that such satisfaction is waived by HAI in
writing.
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9.1 Upon consummation of the Merger, HAI, Newco, UICI, Michael Ashker
and Alvin H. Clemens shall enter into a shareholder agreement in the form
attached hereto as Exhibit B.
9.2 Approval of the HealthAxis and HAI Shareholders. The Merger and the
issuance of shares of HAI Common Stock in the Merger shall have been duly
approved by the affirmative vote of the Shareholders of HealthAxis and HAI
Shareholders, as the case may be, in accordance with applicable law, the
Articles of Incorporation and Certificates of Designation.
9.3 Dissenting and other HealthAxis Shareholders. The aggregate number
of shares of HealthAxis Stock owned by those HealthAxis Shareholders (if any)
who shall have exercised (or given notice of their intent to exercise) the
rights of dissenting shareholders under the Pennsylvania Business Corporation
Law or any other applicable corporate law shall be less than ten percent (10%)
of the total number of outstanding shares of HealthAxis Stock.
9.4 HealthAxis' Representations. Each of the representations and
warranties of HealthAxis contained in this Agreement shall be true and correct
in all material respects, in each case on and as of the Closing Date as if such
representations and warranties were made on and as of the Closing Date provided,
however, that any representation and warranty that contains a materiality
qualification shall be true and correct in all respects.
9.5 HealthAxis' Performance. All of the terms and conditions of this
Agreement to be satisfied or performed by HealthAxis on or before the Closing
Date (including the Obligations set forth in Section 10.2) shall have been
substantially satisfied or performed.
9.6 Absence of Proceedings. No Proceeding shall have been instituted,
no Judgment shall have been issued, and no new Law shall have been enacted, on
or before the Closing Date, that seeks to or does prohibit or restrain, or that
seeks damages as a result of, the consummation of the Merger or any of the other
Transactions.
9.7 Adverse Changes. There shall not have been any material adverse
change or material casualty loss affecting the Acquired Companies, or their
respective businesses, Assets or financial condition, between the date of this
Agreement and the Closing Date, and there shall not have been any material
adverse change in the financial performance of any of the Acquired Companies
between the date of this Agreement and the Closing Date; provided however that
to the extent any such material adverse change or material casualty loss is
caused, directly or indirectly, by any action or inaction of HAI, such change or
loss shall not be deemed to be a material adverse change or material casualty
loss.
9.8 HealthAxis Net Worth. Between the date of this Agreement and the
Closing Date, the net worth of the Acquired Companies on a consolidated basis as
determined in accordance with GAAP, but excluding goodwill and all other
intangible assets acquired as a result of HealthAxis' acquisition of Insurdata,
shall not be less than $20.0 million. To the extent that the Closing Date has
not occurred prior to the quarterly dates set forth below, the net worth as of
any previous quarterly date of the Acquired Companies on a consolidated basis as
determined in accordance with GAAP, but excluding goodwill and other intangible
assets acquired as a result of HealthAxis' acquisition of Insurdata, shall not
be less than: $50.0 million on March 31, 2000; $35.0 million on June 30, 2000;
and $20.0 million on September 30, 2000.
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SECTION 10: CLOSING
10.1 Closing. The closing of the Merger and the other Transactions (the
"Closing") shall take place at a mutually agreeable time and place on a date
designated by HAI (the "Closing Date"), which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Sections 8 and 9. Contemporaneously with the Closing, the parties hereto shall
cause the Plan and properly executed Articles of Merger conforming to the
requirements of the Pennsylvania Business Corporation Law (the "Articles of
Merger") to be filed with the proper officers of the Commonwealth of
Pennsylvania, and the parties shall take such further actions as may be required
by the Commonwealth of Pennsylvania, and any other applicable Law, in connection
with consummation of the Merger. The Merger shall take effect at the time such
filing is made with the Commonwealth of Pennsylvania or at such later time as
may be specified in the Articles of Merger (the "Effective Date").
10.2 HealthAxis' Obligations at Closing. At or prior to the Closing,
HAI and Newco shall have received the following:
(1) All instruments or documents necessary to change the names
of the individuals who have access to or are authorized to make withdrawals from
or dispositions of all bank accounts, other accounts, certificates of deposits,
marketable securities, other investments, safe deposit boxes, lock boxes and
safes of HealthAxis described on Schedule 3.4 and all keys and combinations to
all safe deposit boxes, lock boxes and safes of HealthAxis and other
depositories described on Schedule 3.4.
(2) A certificate, dated as of the Closing Date, in form and
substance satisfactory to HAI, signed by the President and Chief Financial
Officer of HealthAxis, certifying, that (i) each representation and warranty
made by HealthAxis in this Agreement is correct in all material respects (except
for any representation and warranty that contains a materiality qualification,
which shall be true and correct in all respects) as of the Closing Date, as if
made on and as of the Closing Date, except for changes contemplated or permitted
by this Agreement, (ii) all of the terms and conditions of this Agreement to be
satisfied or performed by HealthAxis on or before the Closing Date have been
substantially satisfied or performed, and (iii) there has not been any material
adverse change or material casualty loss affecting any of the Acquired
Companies, or their business, Assets or financial condition, between the date of
this Agreement and the Closing Date, and there has not been any material adverse
change in HealthAxis' financial performance between the date of this Agreement
and the Closing Date.
(3) Articles of Merger for the Commonwealth of Pennsylvania,
in form and substance, acceptable to the parties ("Articles of Merger"), dated
as of the Closing Date and duly executed by HealthAxis.
(4) The signed copies of all Consents listed on Schedule 3.2.
(5) All of the original minute books and stock books of the
Acquired Companies (including original stock certificates evidencing HealthAxis'
100% ownership of each of the subsidiaries) and duly executed resignations,
dated as of the Effective Date, of all directors and officers of the Acquired
Companies other than as specified by HAI.
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(6) Good standing certificates for HealthAxis, dated no
earlier than ten (10) days before the Closing Date, from the Commonwealth of
Pennsylvania and from each other jurisdiction in which it is qualified or
registered to do business as a foreign corporation and good standing certificate
or equivalent from each of the other Acquired Companies from their respective
jurisdiction of incorporation.
(7) A certificate of Secretary of HealthAxis as to the
incumbency and signatures of the officers of HealthAxis executing this
Agreement.
(8) Copies of the resolutions duly adopted by the board of
directors of HealthAxis, authorizing HealthAxis to execute, deliver and perform
this Agreement and the Plan and to consummate the Transactions, certified by an
officer of HealthAxis as in full force and effect, without modification or
rescission, on and as of the Closing Date.
(9) A duly signed letter, from each affiliate of HealthAxis,
in form, attached hereto as Exhibit C, stating that such affiliate will not
sell, assign, give, pledge (except in connection with fully recourse bank loans)
or otherwise transfer, dispose of or reduce such affiliate's risk relating to
any of such affiliate's shares of capital stock or other securities of HAI
without compliance with the applicable federal and state securities laws.
(10) The legal opinion of tax counsel described in Section 8.9.
(11) A legal opinion of Blank Rome Comisky & McCauley LLP, as
to various corporate and related matters in connection with the Transactions and
reasonably acceptable to HAI.
(12) Notice that all applicable waiting periods with respect
to the Transactions shall have expired under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and neither the Federal Trade
Commission nor the Antitrust Division of the Department of Justice shall have
(i) required any party to divest itself of any assets in order to consummate
such Transactions, or (ii) taken any actions to prohibit the consummation of
such Transactions.
(13) All other agreements, certificates, instruments,
financial statement certifications, opinions of counsel and documents reasonably
requested by HAI in order to fully consummate the Transactions and carry out the
purposes and intent of this Agreement and the Plan.
(14) Audited financial statements of each of HealthAxis and
Insurdata Inc. as of December 31, 1999.
10.3 HAI's and Newco's Obligations at Closing. At the Closing,
HealthAxis shall have received the following:
(1) The Articles of Merger duly executed by Newco.
(2) A certificate, dated as of the Closing Date, in form and
substance satisfactory to HealthAxis, signed by an officer of HAI, certifying
that (i) each representation and warranty (except for any
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representation and warranty that contains a materiality qualification, which
shall be true and correct in all respects) by HAI and/or Newco in this Agreement
is correct in all material respects as of the Closing Date, as if made on and as
of the Closing Date, except for changes contemplated or permitted by this
Agreement, (ii) all of the terms and conditions of this Agreement to be
satisfied or performed by HAI and/or Newco on or before the Closing Date have
been substantially satisfied or performed, and (iii) there has not been any
material adverse change or material casualty loss affecting HAI, or its
business, Assets or financial condition, between the date of this Agreement and
the Closing Date, and there has not been any material adverse change in HAI's
financial performance between the date of this Agreement and the Closing Date.
(3) Good standing certificates for each of HAI and Newco,
dated no earlier than ten (10) days before the Closing Date, from the
Commonwealth of Pennsylvania.
(4) Copies of the resolutions duly adopted by the board of
directors of HAI and by the board of directors and the sole shareholder of
Newco, authorizing HAI and Newco, respectively, to execute, deliver and perform
this Agreement and the Plan and to consummate the Transactions, certified by an
officer of HAI or Newco, respectively, as in full force and effect, without
modification or rescission, on and as of the Closing Date.
(5) A certificate of Secretary of each of HAI and Newco as to
the incumbency and signatures of the officers of HAI and Newco executing this
Agreement.
(6) The signed copies of all Consents listed on Schedule 4.2.
(7) The legal opinion of tax counsel described in Section 8.9.
(8) A legal opinion of Stradley Ronon Stevens & Young, LLP as
to various corporate and related matters in connection with the Transactions and
reasonably acceptable to HealthAxis.
(9) Notice that all applicable waiting periods with respect to
the Transactions shall have expired under the HSR Act, and neither the Federal
Trade Commission nor the Antitrust Division of the Department of Justice shall
have (i) required any party to divest itself of any assets in order to
consummate such Transactions, or (ii) taken any actions to prohibit the
consummation of such Transactions.
(10) All other agreements, certificates, instruments, opinions
of counsel and documents reasonably requested by HealthAxis in order to fully
consummate the Transactions and carry out the purposes and intent of this
Agreement and the Plan.
(11) Audited financial statements of HAI as of December 31,
1999.
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SECTION 11: CERTAIN OBLIGATIONS OF HAI AND THE
SURVIVING CORPORATION AFTER CLOSING
11.1 Final Tax Returns. Newco shall timely prepare and file all
federal, state and other income tax returns required to be filed by HealthAxis
or its subsidiaries for the period from January 1, 2000 through the Closing
Date, and HAI shall fully cooperate with the Newco Corporation with respect
thereto.
11.2 Delivery of Certificates. As soon as practicable, HAI shall
deliver to the HealthAxis Shareholders certificates representing the shares of
HAI Common Stock to which the HealthAxis Shareholders are entitled in accordance
with Section 2 and the Plan.
SECTION 12: OTHER PROVISIONS
12.1 Survival. The covenants, agreements, representations and
warranties of the parties hereto contained in this Agreement shall not survive
the Closing; provided that the covenants and agreements that, by their terms,
are to have effect or be performed after the Closing Date shall survive in
accordance with their terms.
12.2 Termination. At any time before the Closing, whether or not the
Merger has been approved by HealthAxis' Shareholders or HAI's Shareholders, this
Agreement may be terminated and the Merger abandoned in accordance with any of
the following methods:
(1) By the mutual written consents of HAI and HealthAxis,
authorized by the Disinterested HealthAxis Directors and the Disinterested HAI
Directors.
(2) By written notice from HAI to HealthAxis, or from
HealthAxis to HAI, if it becomes certain (for all practical purposes) that any
of the conditions to the closing obligations of the party giving such notice
cannot be satisfied on or before March 31, 2001, for a reason other than such
party's default, and such party is not willing to waive the satisfaction of such
condition.
(3) By written notice from HAI to HealthAxis, or from
HealthAxis to HAI, if the Closing does not occur on or before March 31, 2001 for
any reason other than a breach of this Agreement by the party giving such
notice.
(4) By HealthAxis on and after October 31, 2000 if HAI shall
not have then been unconditionally and irrevocably released from that certain
Guarantee, dated December 29, 1998, as amended, with Hannover Life Reassurance
Company of America (formerly Reassurance Company of Hannover) on terms otherwise
acceptable to HealthAxis.
Upon termination of the Agreement and abandonment of the Merger as
herein provided, HAI and Newco will, within not more than 45 days following such
termination, take all such steps as are appropriate and necessary to change
their respective corporate names to such names not utilizing "HealthAxis" or
derivatives thereof.
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12.3 Publicity. Without the prior written consent of HAI, HealthAxis
shall not make any public announcement regarding the Transactions, nor shall it
in any public manner disseminate any information regarding HealthAxis, HAI, the
Merger or the other Transactions. Unless required by Law or stock exchange
regulation, in the opinion of HAI's counsel, neither HAI nor Newco shall make
any public announcement regarding the Transactions without first consulting with
HealthAxis. With respect to any announcement that any of the parties is required
by Law or stock exchange regulation to issue, such party shall, to the extent
possible under the circumstances, review the necessity for the contents of the
announcement with the other party before issuing the announcement.
12.4 Fees and Expenses. HAI shall pay all of the fees and expenses
incurred by it and/or Newco and HealthAxis shall pay all of the fees and
expenses incurred by it in negotiating and preparing this Agreement and the Plan
(and all other contracts and documents executed in connection herewith or
therewith) and in consummating the Transactions.
12.5 Notices. All notices, consents or other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally or one business day
after being sent by a nationally recognized overnight delivery service, postage
or delivery charges prepaid. Notices may also be given by prepaid facsimile and
shall be effective on the date transmitted if confirmed telephonically
immediately thereafter and within 48 hours thereafter by a signed original sent
in the manner provided in the preceding sentence. Notices to HealthAxis shall be
sent to HealthAxis' address stated on page one of this Agreement to the
attention of its president. Notices to HAI and/or Newco shall be sent to HAI's
address stated on page one of this Agreement to the attention of its General
Counsel, with a copy sent simultaneously to the same address to the attention of
its Chief Financial Officer. Any party may change its address for notice and the
address to which copies must be sent by giving notice of the new addresses to
the other parties in accordance with this Section 12.5, provided that any such
change of address notice shall not be effective unless and until received.
12.6 Interpretation of Representations. Each representation and
warranty made in this Agreement or pursuant hereto is independent of all other
representations and warranties made by the same parties, whether or not covering
related or similar matters, and must be independently and separately satisfied.
Exceptions or qualifications to any such representation or warranty shall not be
construed as exceptions or qualifications to any other representation or
warranty.
12.7 Reliance by HAI and Newco. Notwithstanding the right of HAI and
Newco to investigate the businesses, Assets and financial condition of the
Acquired Companies, and notwithstanding any knowledge determined or determinable
by HAI and Newco as a result of such investigation, HAI and Newco have the
unqualified right to rely upon, and have relied upon, each of the
representations and warranties made by HealthAxis in this Agreement or pursuant
hereto.
12.8 Reliance by HealthAxis. Notwithstanding the right of HealthAxis to
investigate the businesses, Assets and financial condition of HAI and Newco, and
notwithstanding any knowledge determined or determinable by HealthAxis as a
result of such investigation, HealthAxis has the unqualified right to rely upon,
and has relied upon, each of the representations and warranties made by HAI and
Newco in this Agreement or pursuant hereto.
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12.9 Entire Understanding. This Agreement, together with the Exhibits
and Schedules hereto, and the Plan state the entire understanding among the
parties with respect to the subject matter hereof, and supersede all prior oral
and written communications and agreements, and all contemporaneous oral
communications and agreements, with respect to the subject matter hereof,
including without limitation all confidentiality letter agreements and letters
of intent previously entered into among some or all of the parties hereto. No
amendment or modification of this Agreement shall be effective unless in writing
and signed by the party against whom enforcement is sought.
12.10 Parties in Interest. This Agreement shall bind, benefit, and be
enforceable by and against HealthAxis, HAI and Newco and their respective
successors and assigns. No party shall in any manner assign any of its rights or
obligations under this Agreement without the express prior written consent of
the other parties.
12.11 Waivers. Except as otherwise expressly provided herein, no waiver
with respect to this Agreement shall be enforceable unless in writing and signed
by the party against whom enforcement is sought. Except as otherwise expressly
provided herein, no failure to exercise, delay in exercising, or single or
partial exercise of any right, power or remedy by any party, and no course of
dealing between or among any of the parties, shall constitute a waiver of, or
shall preclude any other or further exercise of, any right, power or remedy.
12.12 Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
12.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one counterpart hereof.
12.14 Section Headings. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
12.15 References. All words used in this Agreement shall be construed
to be of such number and gender as the context requires or permits.
12.16 Controlling Law. THIS AGREEMENT IS MADE UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
12.17 Jurisdiction and Process. In any action between or among any of
the parties, whether arising out of this Agreement or otherwise, (a) each of the
parties irrevocably consents to the exclusive jurisdiction and venue of the
federal and state courts located in the Commonwealth of Pennsylvania, (b) if any
such action is commenced in a state court, then, subject to applicable law, no
party shall object to the removal of such action to any federal court located in
the Commonwealth of Pennsylvania, (c) each of the
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parties irrevocably waives the right to trial by jury, and (d) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid, to the address at which such
party is to receive notice in accordance with Section 12.5, and the prevailing
parties shall be entitled to recover their reasonable attorneys' fees and court
costs from the other parties.
12.18 No Third-Party Beneficiaries. No provision of this Agreement or
the Plan is intended to or shall be construed to grant or confer any right to
enforce this Agreement or the Plan, or any remedy for breach of this Agreement
or the Plan, to or upon any Person other than the parties hereto, including, but
not limited to, any customer, prospect, supplier, employee, contractor,
salesman, agent or representative of any of the Acquired Companies.
12.19 Nature of Transactions. The parties intend that the Merger shall
constitute a purchase under GAAP and a tax-free reorganization under the
Internal Revenue Code of 1986, as amended.
12.20 Bankruptcy Qualification. Each representation or warranty made in
or pursuant to this Agreement regarding the enforceability of any contract shall
be qualified to the extent that such enforceability may be effected by
bankruptcy, insolvency and other similar laws or equitable principles (but not
those concerning fraudulent conveyance) generally affecting creditors' rights
and remedies.
12.21 Construction. The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement or any agreements delivered in connection with the Transactions.
[Signatures Appear on Next Page]
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Witness the due execution and delivery hereof as of the date first
stated above.
HEALTHAXIS.COM, INC. HEALTHAXIS INC.
By: /s/ Michael Ashker By: /s/ Michael Ashker
-------------------------------------- -----------------------
Name: Michael Ashker Name: Michael Ashker
-------------------------------------- -----------------------
Title: President and CEO Title: President and CEO
-------------------------------------- -----------------------
HEALTHAXIS ACQUISITION CORP.
By: /s/ Michael Ashker
-----------------------
Name: Michael Ashker
-----------------------
Title: President and CEO
-----------------------
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HealthAxis Affiliates
Schedule A
MICHAEL ASHKER
ALVIN H. CLEMENS
HENRY G. HAGER
EDWARD W. LeBARON, JR.
ANTHONY R. VERDI
PATRICK J. MCLAUGHLIN
GREGORY T. MUTZ
ANDREW FELDER
DENNIS B. MALONEY
MICHAEL BEAUSANG
MICHAEL G. HANKINSON
JAMES W. McLANE
UICI
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Exhibit A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
Provided as Appendix B to the Joint Proxy Statement Prospectus
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Exhibit B
Shareholders' Agreement
THIS SHAREHOLDERS' AGREEMENT (this "Agreement"), dated as of ________, 2000, is
by and among HealthAxis Inc., a Pennsylvania corporation (the "Company"), and
the Persons (as defined herein) set forth on the signature pages hereto.
RECITALS
WHEREAS, the Company, HealthAxis Acquisition Corp., a Pennsylvania
corporation ("Newco"), HealthAxis.com, Inc., a Pennsylvania corporation
("HealthAxis"), and UICI, a Delaware corporation ("UICI"), have entered into an
Amended and Restated Agreement and Plan of Merger, dated as of September __,
2000 (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement, it is contemplated that
certain of the Holders (as hereinafter defined) will acquire shares of the
Company's common stock, no par value (the "Common Stock");
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Merger Agreement that the parties hereto enter into this
Agreement;
WHEREAS, in consideration of the execution and delivery of this
Agreement by the Company, UICI is agreeing to terminate that certain
Shareholders' Agreement dated as of January 7, 2000 by and among HealthAxis, the
Company, UICI and the other parties thereto; and
WHEREAS, the Holders and the Company wish to record their understanding
regarding certain matters relating to the management of the Company and certain
other matters.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
SECTION 1. Definitions. In addition to the capitalized terms defined
elsewhere in this Agreement, the following capitalized terms shall have the
following meanings when used in this Agreement:
"Beneficial Owner" means any Person deemed to be a "beneficial
owner" of a security as defined in Rule 13d-3 under the Exchange Act. The terms
"Beneficially Own" and "Beneficial Ownership" have correlative meanings.
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"Board" means the Board of Directors of the Company.
"Commission" means the Securities and Exchange Commission (or
any other governmental body succeeding to the functions of the Securities and
Exchange Commission).
"Common Stock" has the meaning ascribed to such term in the
Recitals.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fully Diluted Basis" with respect to any security, means all
of the issued shares of such security and includes, without limitation, (i) all
of the outstanding shares of such security (except shares then held by or for
the account of the issuer or its wholly owned subsidiaries), (ii) any and all
shares of such security issuable upon conversion of securities convertible into
such security, whether or not convertible at such time, and (iii) any and all
shares of such security issuable upon exercise of other exercisable rights to
acquire such security, including options, warrants and participation rights,
whether or not exercisable at such time.
"Holder" means any holder of Securities who is a party to this
Agreement or who is a successor or assign or subsequent holder as contemplated
by Section 13.
"Nominee" has the meaning ascribed to such term in Section
2(a).
"Person" means any individual, corporation, proprietorship,
firm, partnership, limited partnership, limited liability company, trust,
association or other entity.
"Securities" means Common Stock or shares of capital stock or
other securities, directly or indirectly, exercisable for or convertible into
Common Stock; provided, however, that Securities shall not include any
securities which have been sold (i) pursuant to a registration statement
declared effective by the Commission or (ii) pursuant to Rule 144 promulgated by
the Commission under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
SECTION 2. Board of Directors; Management of the Company.
(a) The Holders and the Company agree that the Board shall consist of
up to nine (9) members, and the parties hereto shall have the right to nominate
a number of persons (each such person, a "Nominee") to serve as directors on the
Board as follows: (i) UICI shall be entitled to nominate three (3) Nominees
(Patrick McLaughlin, Gregory T. Mutz and Dennis B. Maloney being the initial
UICI Nominees); (ii) the Company (acting by the vote of a majority of the
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members of the Board that are not nominated by UICI pursuant to clause (i) or
agreed to by UICI pursuant to clause (iii)) shall be entitled to nominate three
(3) Nominees (Michael Ashker, Alvin H. Clemens and Edward W. LeBaron, Jr. being
the initial Provident Nominees); and (iii) UICI and the Company (acting by the
vote of a majority of the members of the Board that are not nominated by UICI
pursuant to clause (i) or agreed to by UICI pursuant to clause (iii)) shall
together agree mutually to nominate three (3) Nominees (with Henry Hager being
the initial Nominee agreed to by UICI and the Company). The Company and each
Holder agrees to take all actions necessary so as to cause the Nominees to be
elected to the Board including, without limitation, the voting of its shares of
stock of the Company and causing the vote of all shares of stock of the Company
Beneficially Owned by such Holder, the execution of written consents, the
calling of special meetings, the removal of directors, the filling of vacancies
on the Board, and the waiving of notice and the attending of meetings; provided,
however, that UICI shall have no obligation to vote or cause the vote of any
shares of stock of the Company Beneficially Owned by it which shares are subject
to the terms of that certain Voting Trust Agreement, dated as of February 11,
2000 among UICI and Michael Ashker, Edward W. LeBaron, Jr. and Dennis B.
Maloney, as trustees thereunder.
(b) No party shall nominate any person to the Board if: (i) such
individual is employed by, or has investment interests, directly or indirectly,
in, any material competitor of the Company (unless such investment constitutes
less than two percent (2%) of the equity ownership in a public company and at
the time of purchase has a fair market value of less than $50,000); (ii) such
individual is not reasonably experienced in business, financial, insurance or
e-commerce industry matters; (iii) such individual has been convicted of, or has
pled nolo contendere to, a felony; (iv) the election of such individual would
violate any law; or (v) any event required to be disclosed pursuant to Item
401(f) of Regulation S-K of the Exchange Act has occurred with respect to such
individual.
(c) A director elected pursuant to this Section 2 shall serve until (i)
his or her term expires as provided in the Company's articles of incorporation
and bylaws, (ii) he or she is removed pursuant to Section (2)(d) or (iii) the
party who nominated such director no longer has the right to nominate a
director, in which case the party so elected shall immediately resign and the
size of the Board shall be decreased accordingly.
(d) In the event of the death, disability, removal or resignation of
any director designated pursuant to this Section 2, the party that designated
such director shall notify the Company and the other parties hereto, within 30
days after such death, disability, removal or resignation, of a successor
director who shall either (i) be appointed by the remaining directors then in
office to serve the unexpired term of such director or (ii) be elected by the
shareholders pursuant to the Company's bylaws. Each of the Company and UICI
agrees to take all actions necessary to elect any such successor Nominee in the
same manner as discussed in Section 2(a).
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(e) The Board may create committees to assist in governing the Company,
however, no executive committee may be formed without the consent of all of the
members of the Board that are Nominees of either UICI or of the Company.
(f) So long as this Section 2 remains in effect, the Board nomination
rights of UICI hereunder shall supersede any rights UICI may have to nominate
Board members under any other agreement. After such time as UICI is no longer
entitled under this Section 2 to nominate persons to serve on the Board, the
rights of UICI under any such agreement to nominate Board members shall be
reinstated.
(g) The rights of UICI under this Section 2 shall continue in effect
unless and until UICI Beneficially Owns less than 20% of the Common Stock of the
Company on a Fully Diluted Basis.
SECTION 3. Legend. The Company shall stamp or imprint each certificate
or other instrument representing Securities held by a Holder bound by any terms
of this Agreement, throughout the term of this Agreement, with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
PROVISIONS, INCLUDING, AMONG OTHERS, RESTRICTIONS ON VOTING AND
TRANSFER, SET FORTH IN A SHAREHOLDERS' AGREEMENT DATED AS OF
_______________ 2000, AS IT MAY BE AMENDED, MODIFIED, SUPPLEMENTED OR
RESTATED FROM TIME TO TIME, A COPY OF WHICH IS AVAILABLE AT THE
PRINCIPAL OFFICE OF THE COMPANY."
SECTION 4. Approval Rights. In addition to all other rights set forth
in this Agreement, UICI shall, in its sole and absolute discretion, have the
right to approve, alter or prevent the calculation of the amount and the
amortization period of all goodwill and other intangibles recorded by the
Company in connection with the merger of Insurdata Incorporated, a Delaware
corporation, with and into HealthAxis, provided such calculation shall be
consistent with generally accepted accounting principles and approved by the
Company's independent auditors.
SECTION 5. Transfer Option.
---------------
(a) Transfer Option. Subject to the terms and conditions in this
Section 5, the Company (acting by the vote of a majority of the members of the
Board that are not nominated by UICI pursuant to clause (i) of Section 2(a) or
agreed to by UICI pursuant to clause (iii) of Section 2(a)) shall have the right
(the "Transfer Option") to cause UICI to transfer to one or more third parties
unaffiliated with UICI, up to 1,414,385 shares of Common Stock owned by UICI at
a per share price equal to the greater of (i) $18.63 and (ii) the Closing Price
(as hereinafter
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defined). The Transfer Option shall be exercisable one time only with respect to
all such shares of Common Stock and may be exercised at any time following the
date hereof and ending on the first to occur of the following events: (i) on
January 7, 2003; (ii) the ninetieth (90th) day following the date on which the
Closing Price (as hereinafter defined) of shares of Common Stock shall have been
at least $23.96 per share for a period of sixty (60) consecutive trading days;
and (iii) the ninetieth (90th) day following the first date on which UICI
Beneficially Owns less than 40% of the shares of Common Stock on a Fully Diluted
Basis. For purposes hereof, "Closing Price" shall mean the reported last sale
price of a share of Common Stock, on a given day, regular way, or, in case no
such sale takes place on such day, the average of the reported closing bid and
asked prices regular way, in each case on the New York Stock Exchange Composite
Tape, or, if the security is not listed or admitted to trading on such exchange,
on the American Stock Exchange Composite Tape, or, if the security is not listed
or admitted to trading on such exchange, the principal national securities
exchange on which the security is listed or admitted to trading, or, if the
security is not listed or admitted to trading on any national securities
exchange, the closing sales price, or, if there is no closing sales price, the
average of the closing bid and asked prices, in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System, or, if not so reported, as reported by the National Quotation Bureau,
Incorporated, or any successor thereof, or, if not so reported, the average of
the closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose or, if no such prices are furnished, the fair market
value of the Common Stock as determined in good faith by the board of directors
of the Company, which determination shall be based upon recent issuances or
current offerings pursuant to bona fide private offerings of the same class of
security by the Company; provided, however, that any determination of the
"Closing Price" of any security hereunder shall be based on the assumption that
such security is freely transferable without registration under the Securities
Act.
(b) Exercise of Transfer Option. The Company may exercise its rights
under Section 5(a) by giving UICI written notice of its exercise of the Transfer
Option prior to the expiration of the Transfer Option. Such notice shall state
that the Company intends to cause UICI to transfer such shares to one or more
third parties unaffiliated with UICI. Upon the closing of the transactions
contemplated by an exercise of the Transfer Option, UICI shall surrender its
shares of Common Stock, duly endorsed for transfer, to the Company or the
Persons purchasing such securities, in exchange for the net proceeds from such
transfer. The closing of the transactions upon the exercise of the Transfer
Option shall occur within ninety (90) days of the exercise thereof by the
Company.
(c) Transfer to Third Parties. Any exercise by the Company of its
Transfer Option in which the Company elects to cause UICI to transfer shares of
Common Stock to one or more Persons unaffiliated with UICI shall be governed by
the following terms. The Company may elect to cause the transfer of shares
pursuant to this Section 5(c) in a private placement, in which
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case the provisions of Section 5(c)(i) shall apply, or may elect to cause the
shares to be sold in a public offering, in which case the provisions of Section
5(c)(ii) shall apply.
(i) Private Placement. Upon any exercise of the Transfer
Option in accordance with this Section 8(c) as to which the Company has
elected to cause a transfer of shares in a private placement, the
Company shall, as expeditiously as possible:
(A) prepare a private placement memorandum, together
with such amendments and supplements thereto as may be
necessary to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all shares of
Common Stock covered by such private placement memorandum;
(B) use its reasonable efforts to perfect exemptions
for the shares of Common Stock covered by such private
placement memorandum under all applicable rules and
regulations of the Commission and such other securities or
blue sky laws of such jurisdictions as UICI shall request, and
do any and all other acts and things reasonably requested by
UICI to permit UICI to consummate the sale or other
disposition in such jurisdictions of such shares, except that
the Company shall not for any such purpose be required to
qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein
any general consent to service of process;
(C) enter into and perform its obligations under a
private placement agency agreement, in usual and customary
form, with a placement agent acceptable to UICI, including,
without limitation, to obtain an opinion of counsel to the
Company in the usual and customary form for such private
placement; and
(D) notify UICI, at any time when a private placement
memorandum is required to be delivered under the applicable
law, of the happening of any event of which it has knowledge
as a result of which the private placement memorandum, as then
in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
(ii) Public Offering. Upon the exercise of the Transfer Option
in accordance with this Section 5(c) as to which the Company has
elected to cause the shares to be sold in a public offering, the
Company shall, as expeditiously as possible:
(A) prepare and file with the Commission a
registration statement with respect to such shares of Common
Stock and use its reasonable efforts to cause such
registration statement to become effective and remain
effective for as long as
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shall be necessary to complete the distribution of the shares
of Common Stock so registered;
(B) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities covered by
such registration statement;
(C) furnish to UICI and any underwriters such numbers
of copies of a summary prospectus or other prospectus,
including a preliminary prospectus or any amendment or
supplement to any prospectus, in conformity with the
requirements of the Securities Act, and such other documents,
as UICI or the underwriters may reasonably request in order to
facilitate the public sale or other disposition of the
securities covered by such registration statement;
(D) use its reasonable efforts to register and
qualify the Common Stock covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions as UICI or the underwriters shall request, and
do any and all other acts and things reasonably requested by
UICI or the underwriters to assist them to consummate the
public sale or other disposition in such jurisdictions of the
Common Stock covered by the registration statement, except
that the Company shall not for any such purpose be required to
qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein
any general consent to service of process;
(E) otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the Commission,
and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the
period of at least twelve months, beginning with the first
fiscal quarter beginning after the effective date of the
registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act;
(F) use its reasonable efforts to list such Common
Stock on any securities exchange or interdealer quotation
system on which any shares of the Company are then listed, if
the listing or quotation of such securities is then permitted
under the rules of such exchange or interdealer quotation
system;
(G) enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter or underwriters selected by UICI of such
underwritten offering, including, without
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limitation, to obtain an opinion of counsel to the Company and
a "comfort letter" from the independent public accountants to
the Company in the usual and customary form for such
underwritten offering;
(H) notify UICI, at any time when a prospectus
relating thereto covered by such registration statement is
required to be delivered under the Securities Act, of the
happening of any event of which it has knowledge as a result
of which the prospectus included in such registration
statement, as then in effect, contains an untrue statement of
a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then
existing;
(I) make the Company's executive officers available
to participate in "road show" presentations for such periods
and in such places as the underwriters may reasonably request
and make the Company's executive officers available at the
Company's principal executive offices to discuss the affairs
of the Company at times that may be mutually and reasonably
agreed upon; and
(J) upon the request of UICI, take any and all other
actions which may be reasonably necessary to complete the
registration and thereafter to complete the distribution of
the Common Stock so registered.
(iii) Expenses. All expenses of any offering pursuant to a
Transfer Option under this Section 5 shall be borne by the Company,
except that UICI shall bear the cost of a reasonable customary
underwriting commission or discount, brokerage commission or placement
fee in the event of a successful offering.
SECTION 6. Termination. If any Holder shall be in default of its
obligations hereunder and any such default shall continue for a period of 30
days after any other Holder or the Company has given written notice thereof to
such defaulting Holder, then the rights (but not the obligations) under this
Agreement of such defaulting party shall terminate. This Agreement shall
terminate upon the written agreement of each of the parties hereto.
SECTION 7. Beneficial Ownership. Each of the Holders Beneficially Own
that number of shares of Common Stock on a Fully Diluted Basis set forth
opposite their respective names on Exhibit A hereto. Each Holder shall promptly
hereafter notify the Company of any changes to its respective Beneficial
Ownership of Common Stock. The Company shall be entitled to rely upon the
amounts set forth in Exhibit A or such notices without incurring any liability
to any other party hereunder. Each Holder shall respond promptly to any request
made by the Company to provide or confirm such Holder's Beneficial Ownership of
Common Stock.
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SECTION 8. Acknowledgments. Each of the parties hereto acknowledges
that the restrictions, prohibitions and other provisions hereof are reasonable,
fair and equitable in scope, terms and duration, are necessary to protect the
legitimate business interests of each of the other parties hereto, and are a
material inducement to such party to enter into the transactions contemplated by
this Agreement.
SECTION 9. Expenses. Except as otherwise specifically provided in this
Agreement, each party hereto shall bear its own costs and expenses with respect
to the transactions contemplated hereby.
SECTION 10. Remedies. Each of the parties to this Agreement shall be
entitled to enforce its rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of competent jurisdiction for specific performance or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. The remedies provided in this Agreement shall be
cumulative and shall not preclude the assertion or exercise of any other rights
or remedies available by law, in equity or otherwise.
SECTION 11. Notices. Any notice, request, instruction or other document
to be given hereunder shall be in writing and shall be deemed to have been given
(a) when received if given in person or by courier or a courier service, (b) on
the date of transmission if sent by facsimile or other wire transmission or (c)
three business days after being deposited in the U.S. mail, certified or
registered mail, postage prepaid, addressed as specified with respect to such
Holder in Exhibit A or to such other individual or address as a party hereto may
designate for itself by notice given as herein provided.
SECTION 12. Amendments and Waivers. The provisions of this Agreement
may be amended or waived only upon the written agreement of each of the parties
hereto; provided, however, that amendments to Sections 2 and 5 may be made upon
the written agreement of both UICI and the Company and no other party. Any
waiver, permit, consent or approval of any kind or character of any provision or
condition of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in writing. Any amendment or waiver
effected in accordance with this Section 12 shall be binding upon the Company
and each Holder of Securities. Any determination by the Company pursuant to this
Section 12 shall be made by the Company acting by the vote of a majority of the
members of the Board that are not nominated by UICI pursuant to clause (i) of
Section 2(a) or agreed to by UICI pursuant to clause (iii) of Section 2(a).
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SECTION 13. Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto,
and each transferee of all or any portion of the Securities held by the parties
hereto, whether so expressed or not. Each Permitted Transferee of all or any
portion of the Securities held by any of the parties hereto shall execute and
deliver a written assumption agreement to the Company agreeing to be bound by
the provisions of this Agreement, in form and substance reasonably acceptable to
the Company. Notwithstanding the foregoing, except as specifically provided in
this Agreement, no assignment of any rights or obligations under this Agreement
may be made by any party.
SECTION 14. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, and the remainder of this
Agreement shall remain operative and in full force and effect. The parties shall
negotiate in good faith a replacement clause or provision as consistent with the
ineffective clause or provision as is practicable under law.
SECTION 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 16. Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
set forth herein and supersedes any and all prior agreements, arrangements and
understandings among the parties.
SECTION 17. Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts together shall constitute one
instrument. Transmission by facsimile of an executed counterpart of this
Agreement shall constitute due and sufficient delivery of this Agreement.
SECTION 18. Interpretation. The headings preceding the Sections
included in this Agreement and the headings to Exhibits and Schedules attached
to this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement. The use of the
masculine, feminine or neuter gender herein shall not limit any provision of
this Agreement. The use of the terms "including" or "include" shall in all cases
herein mean "including, without limitation" or "include, without limitation",
respectively. Underscored references to Sections or Schedules shall refer to
those portions of this Agreement.
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SECTION 19. No Third Party Beneficiaries. This Agreement is solely for
the benefit of the parties hereto and no provision of this Agreement shall be
deemed to confer upon other third parties any remedy, claim, liability,
reimbursement, cause of action or other right.
SECTION 20. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 21. No Presumption Against Drafter. Each of the parties hereto
has jointly participated in the negotiation and drafting of this Agreement. In
the event of any ambiguity or a question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by each of the parties
hereto and no presumptions or burdens of proof shall arise favoring any party by
virtue of the authorship of any of the provisions of this Agreement.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
UICI
By: ___________________________________
Name:__________________________________
Title:_________________________________
HEALTHAXIS INC.
By: ___________________________________
Name:__________________________________
Title:_________________________________
_______________________________________
Michael Ashker
_______________________________________
Alvin H. Clemens
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EXHIBIT A
Common Stock on a Fully Diluted Basis
Number of Shares Percentage of Shares
of Common Stock of Common Stock
Beneficially Owned Outstanding
Name and on a Fully on a Fully
Notice Address Diluted Basis Diluted Basis
---------------------------------- -------------------- --------------------
HealthAxis Inc.
2500 DeKalb Pike
East Norriton, Pennsylvania 19401
Attn: Alvin H. Clemens
Telephone: (610) 279-2500
Facsimile: (610) 279-0414
With a copy to:
Michael G. Hankinson
c/o HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
UICI
4001 McEwen Boulevard
Suite 200
Dallas, Texas 75244
Attn: Gregory T. Mutz
Telephone: (972) 392-6700
Facsimile: (972) 392-6717
With a copy to:
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, Illinois 60603
Attn: Edward J. Schneidman
Telephone: (312) 701-7348
Facsimile: (312) 701-7711
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<PAGE>
Michael Ashker
c/o HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
With a copy to:
Michael G. Hankinson
c/o HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
Alvin H. Clemens
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
With a copy to:
Stradely Ronon Stevens & Young
2600 One Commerce Square
Phialdelphia, PA 19103
Attn: Ricahard Weiner
Telephone: (215) 564-8004
Facsimile: (215) 564-8120
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Exhibit C
_________________, 2000
HealthAxis, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Gentlemen:
This letter is being furnished in accordance with Section 9.1 of the
Amended and Restated Agreement and Plan of Reorganization dated October 26, 2000
("Reorganization Agreement") by and among HealthAxis.com, Inc., a Pennsylvania
corporation ("HealthAxis"), HealthAxis Inc., a Pennsylvania corporation ("HAI")
and HealthAxis Acquisition Corp., a Pennsylvania corporation ("Newco"), and
related Amended and Restated Agreement and Plan of Merger dated October 26, 2000
("Merger Agreement") by and among HealthAxis, HAI and Newco, pursuant to which
(i) HealthAxis will be merged with and into Newco with Newco surviving the
merger as a wholly-owned subsidiary of HAI (the "Merger"), and (ii) the
shareholders of HealthAxis will receive for each share of common stock, no par
value per share, of HealthAxis ("HealthAxis Common Stock") issued and
outstanding immediately before the Effective Date shares of common stock of HAI,
$0.10 par value per share ("HAI Stock"), in accordance with the Merger
Agreement. Any shares of HAI Stock that I receive, directly or indirectly,
pursuant to the Merger are referred to herein as the "New Shares". Capitalized
terms used in this letter have the meaning ascribed to them in the
Reorganization Agreement and the Merger Agreement unless otherwise stated
herein.
In connection therewith, and intending to be legally bound, I hereby
represent, warrant, covenant and agree as follows:
1. I own beneficially or of record, in the capacities indicated, the
number of shares of HealthAxis Stock set forth on Appendix A attached hereto
(the "Existing Shares"). Any shares of HealthAxis Stock that I acquire, directly
or indirectly, after the date hereof shall be deemed Existing Shares for the
purposes of this Agreement.
2. I have been advised that I may be deemed to be an "affiliate" of
HealthAxis, as that term is defined for purposes of Rule 145 of the Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act").
3. I shall not make any sale, transfer or other disposition of the HAI
Stock in violation of the Act or the Rules and Regulations.
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4. I have read carefully this letter and discussed applicable
limitations upon my ability to sell, transfer or otherwise dispose of the New
Shares to the extent I believed necessary with my counsel or counsel for
HealthAxis.
5. I have been advised that the issuance of the New Shares to me
pursuant to the Merger will be registered with the Commission under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger will be submitted for a vote of the stockholders of
HealthAxis and HAI, I may be deemed to have been an affiliate of HealthAxis and
that any subsequent distribution by me of the New Shares has not been registered
under the Act, I may not sell, transfer or otherwise dispose of the New Shares
issued to me in the Merger unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other disposition
is made in conformity with the volume and other limitations of Rule 145
promulgated by the Commission under the Act or (iii) in the opinion of counsel
reasonably acceptable to HAI, such sale, transfer or other disposition is
otherwise exempt from registration under the Act.
6. I understand that HAI may give stop transfer instructions to its
transfer agent with respect to the New Shares and that HAI reserves the right to
place on the certificates for the New Shares issued to me, or any substitutions
therefor, a legend stating in substance:
"The securities represented by this certificate have been
issued in a transaction to which Rule 145 promulgated under
the Securities Act of 1933 applies and may only be sold or
otherwise transferred in compliance with the requirements of
Rule 145 or pursuant to a registration statement under said
Act or an exemption from such registration."
7. Execution of this letter should not be considered an admission that
I am an affiliate of HealthAxis as described in paragraph 2 of this letter, nor
as a waiver of any rights I may have to object to any claim that I am such an
affiliate on or after the date of this letter.
8. This Agreement shall be binding on me, my heirs and my personal
representatives and shall be enforceable by HAI and its respective successors
and assigns. This Agreement may not be amended, supplemented, or waived or
terminated except by a written instrument executed by me and HAI. THIS AGREEMENT
IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW.
9. I hereby irrevocably consent to the exclusive jurisdiction and venue
of the federal and state courts in Philadelphia, Pennsylvania and irrevocably
consent to service of process by first class mail, return receipt requested,
postage pre-paid, to my address set forth below. The prevailing party in any
action shall be entitled to recover reasonable legal fees and costs from the
other party.
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10. If any provision of this Agreement is construed to be invalid,
illegal or unenforceable as to any party or generally, then that provision shall
be enforceable by the other parties and the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
11. I have carefully read this letter, the Reorganization Agreement,
and the Merger Agreement, and, to the extent I felt necessary, discussed with my
counsel or counsel for HAI the requirements of this letter and its impact upon
my ability to acquire or dispose of, as the case may be, the New Shares or
shares of HAI Stock or HealthAxis Stock or securities convertible into such
shares.
Very truly yours,
_________________________________
(Signature)
_________________________________
Print Name
_________________________________
Street Address
_________________________________
City, State and Zip Code
A-68
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APPENDIX A
Number and Type of HealthAxis Stock Name or Capacity in which Owned
Owned Beneficially or of Record Beneficially or of Record
----------------------------------------- -------------------------------
A-69
<PAGE>
Exhibit D
Amended and Restated Articles of Incorporation of HAI
Provided as Appendix E to the Joint Proxy Statement /Prospectus
A-70
<PAGE>
Appendix B
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
PARTIES: HEALTHAXIS.COM, INC.
a Pennsylvania corporation ("HealthAxis")
2500 DeKalb Pike
East Norriton, PA 19401
HEALTHAXIS INC.
a Pennsylvania corporation ("HAI")
2500 DeKalb Pike
East Norriton, PA 19401
HEALTHAXIS ACQUISITION CORP.
a Pennsylvania corporation ("Newco")
2500 DeKalb Pike
East Norriton, PA 19401
DATE: As of October 26, 2000
BACKGROUND: Newco is a wholly owned subsidiary of HAI. HealthAxis, HAI and Newco
have entered into an Amended and Restated Agreement and Plan of Reorganization,
dated as of this date (the "Reorganization Agreement"), that contemplates the
consolidation and merger of HealthAxis with and into Newco (the "Merger") in
accordance with the provisions of the Reorganization Agreement and the
provisions of this Amended and Restated Agreement and Plan of Merger (this
"Plan").
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and subject to the satisfaction of the terms and conditions set forth
herein and in the Reorganization Agreement, the parties hereto, intending to be
legally bound, agree to amend and restate the Agreement and Plan of
Reorganization to read as follows:
1. Merger. On the Effective Date (as defined below), HealthAxis shall be
merged with and into Newco in accordance with the provisions of this Plan and in
compliance with the Pennsylvania Business Corporation Law ("BCL" or the
"Corporation Laws"), and the Merger shall have the effect provided for in the
Corporation Laws. Newco (sometimes referred to as the "Surviving Corporation")
shall be the surviving corporation of the Merger and shall continue to exist and
to be governed by the laws of the Commonwealth of Pennsylvania. The corporate
existence and identity of Newco, with its purposes and powers, shall continue
unaffected and unimpaired by the Merger, and Newco shall remain a wholly owned
subsidiary of HAI after the Effective Date. On the Effective Date, Newco shall
succeed to and be fully vested with the corporate existence and identity of
HealthAxis, and the separate corporate existence and identity of HealthAxis
shall cease.
2. Name. The name of the Surviving Corporation shall be HealthAxis.com,
Inc.
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<PAGE>
3. Charter. Immediately after the Merger, the Articles of Incorporation
of the Surviving Corporation shall be that of Newco immediately before the
Merger.
4. Bylaws. Immediately after the Merger, the Bylaws of the Surviving
Corporation shall be those of Newco immediately before the Merger.
5. Directors. Immediately after the Merger, the directors of the
Surviving Corporation shall be the following persons, who shall serve in
accordance with the Bylaws of the Surviving Corporation:
Michael Ashker
Alvin H. Clemens
Henry G. Hagar
Patrick J. McLaughlin
Edward W. LeBaron, Jr.
Gregory T. Mutz
Dennis B. Maloney
James W. McLane
6. Officers. Immediately after the Merger, the officers of the Surviving
Corporation shall be the following persons, who shall serve in accordance with
the Bylaws of the Surviving Corporation:
Michael Ashker President and Chief Executive Officer
Alvin H. Clemens Chairman
Anthony R. Verdi Treasurer and Chief Financial Officer
Andrew Felder Executive Vice President - Corporate
Development
Dennis B. Maloney Chief Operating Officer
Michael G. Hankinson Secretary
7. Conversion into HAI Stock. Subject to the possible adjustment
described in Section 9 of this Plan, on the Effective Date, each share of common
stock, no par value per share, of HealthAxis ("HealthAxis Common Stock") issued
and outstanding immediately before the Effective Date (except for Dissenting
Shares, as defined in Section 14 of this Plan) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be automatically
converted into the right to receive 1.334 shares (the "Exchange Ratio") of
common stock of HAI, $0.10 par value per share ("HAI Stock").
Subject to the possible adjustment described in Section 9 of this Plan,
on the Effective Date, each share of convertible preferred stock $1.00 par value
share of HealthAxis ("HealthAxis Convertible Preferred Stock") issued and
outstanding immediately before the Effective Date (except for Dissenting Shares
as defined in Section 14 of this Plan) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be automatically converted
into the right to receive 1.334 shares of HAI Stock.
The outstanding shares of Newco shall not be affected by the Merger.
8. Cancellation. On the Effective Date, all outstanding shares of
HealthAxis Common Stock and HealthAxis Convertible Preferred Stock owned by HAI
or Newco or any subsidiary thereof shall, by virtue of the Merger and without
any action on the part of the holders thereof, no longer be outstanding and
shall be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of HealthAxis Common Stock and
HealthAxis Convertible Preferred Stock shall thereafter cease to have any rights
with respect to such shares of HealthAxis Common Stock and HealthAxis
Convertible Preferred Stock and no consideration shall be delivered in exchange
therefor.
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<PAGE>
9. Possible Adjustment due to Recapitalization. Subject to the
conditions in the Agreement and Plan of Reorganization if, between the date of
the Reorganization Agreement and the Effective Date, there is a change in the
number of issued and outstanding shares of HAI Stock resulting from (i) a stock
split, reverse stock split, stock dividend, reclassification, exchange of shares
or similar recapitalization, or (ii) purchases or awards of stock, or similar
transactions under HAI's stock option, purchase and award plans, then the number
of shares of HAI Stock into which the respective shares of HealthAxis Common
Stock and HealthAxis Convertible Preferred Stock are converted, and any other
applicable amounts set forth in this Plan, shall be appropriately adjusted.
Subject to the conditions in the Agreement and Plan of Reorganization, the
Exchange Ratio set forth in Section 7 and such other amounts shall not be
adjusted as a result of any other changes in the number of issued and
outstanding shares of HAI Stock, such as changes resulting from acquisitions or
offerings or changes resulting from exercises of employee stock options under
HAI's stock option, purchase and award plans.
10. No Fractional Shares. No fractional shares of HAI Stock shall be
issued as a result of the Merger. In lieu of the issuance of fractional shares,
the number of shares of HAI Stock to be issued to each shareholder of HealthAxis
in accordance with this Plan shall be rounded down to the nearest whole number
of shares of HAI Stock and any such shareholder who would otherwise be entitled
to receive a fraction of a share of HAI Stock (after aggregating all fractional
shares of HAI Stock issuable to such shareholder) shall, in lieu of such
fraction of a share and, upon surrender of such shareholder's certificate(s)
representing shares of HealthAxis Common Stock and HealthAxis Convertible
Preferred Stock, be paid in cash the dollar amount (rounded to the nearest whole
cent), without interest, determined by multiplying such fraction by the closing
sale price of a share of HAI Stock as quoted on the Nasdaq National Market or
the NASDAQ SmallCap Market, as applicable on the Effective Date.
11. Stock Options, Warrants and Other Rights. HealthAxis' 1998 Stock
Option Plan (the "Stock Plan") and all options to acquire shares of HealthAxis
Common Stock that are issued and outstanding under the Stock Plan immediately
before the Effective Date of which options to purchase 3,024,971 are outstanding
on the date hereof, 300,000 shares of Common Stock issuable upon the exercise of
warrants granted to America Online, Inc., 63,000 shares of Common Stock issuable
upon the exercise of the warrants granted to ING Baring Furman Selz LLC; up to
150,000 shares of Common Stock issuable upon the exercise of warrants granted to
Aetna/US HealthCare; 157,500 shares of Common Stock issuable upon the exercise
of warrants granted to UICI; up to 50,000 shares of Common Stock issuable upon
the exercise of the warrant granted to First Health Group Corp.; 75,000 shares
of Series D Preferred Stock which is subject to a proposed amendment to convert
the Series D Preferred Stock to Common Stock issuable upon the exercise of
warrants granted to Intel Corp.; up to 330,000 shares of Common Stock issuable
upon the exercise of warrants granted to Blue Cross/Blue Shield; and 426,930
shares of Common Stock subject to options to be issued as a result of the
conversion of options granted pursuant to the Insurdata 1999 Stock Option Plan
immediately before the Effective Date (collectively, the "Options"), shall
continue in effect, as an option plan of HAI or as options, warrants or rights
issued by HAI, as the case may be, in accordance with the terms and conditions
by which they are governed immediately before the Effective Date, subject to the
adjustments set forth in the next sentence. On the Effective Date, each Option
or Warrant shall, by virtue of the Merger and without any action on the part of
the holder thereof, be automatically adjusted to provide that (a) the number and
type of shares issuable upon exercise of such Option or Warrant shall be that
number of shares of HAI Stock (rounded down to the nearest whole number of
shares) equal to the number of shares of HealthAxis Common Stock issuable upon
exercise of such Option or Warrant immediately before the Effective Date,
multiplied by the Exchange Ratio, and (b) the exercise price per share of HAI
Stock under such Option or Warrant shall be that amount (rounded up to the
nearest whole cent) equal to the exercise price per share of HealthAxis Common
Stock under such Option immediately before the Effective Date, divided by the
Exchange Ratio.
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12. HealthAxis Stock held by HealthAxis. On the Effective Date, any
shares of HealthAxis Common Stock and HealthAxis Convertible Preferred Stock
(collectively, "HealthAxis Stock") that are held by HealthAxis (as treasury
shares) immediately before the Effective Date shall, by virtue of the Merger and
without any action on the part of the holder thereof, be automatically canceled
and return to the status of authorized and unissued common stock.
13. Exchange Procedures for HealthAxis Stock. HAI shall designate its
transfer agent to act as the "Exchange Agent" under this Plan. As soon as is
practicable after the Effective Date, HAI or the Exchange Agent shall mail or
deliver, to each record holder of an outstanding certificate that immediately
before the Effective Date represented shares of HealthAxis Stock, instructions
for use in effecting the surrender of such certificate to the Exchange Agent.
Upon the surrender of such certificate to the Exchange Agent in accordance with
such instructions, the Exchange Agent shall exchange such certificate for a new
certificate representing such number of shares of HAI Stock into which the
shares of HealthAxis Stock represented by such certificate have been converted
in accordance with this Plan (and cash in lieu of any fractional share of
HealthAxis Stock), which shall be promptly delivered to the holder thereof (or
in accordance with instructions provided by the holder thereof). If applicable,
such certificates shall be accompanied by any distributions due with respect to
shares of HAI Stock that were paid to HAI's shareholders of record as of a date
between the Effective Date and the date of distribution of such certificates.
Until surrendered in accordance with the foregoing, each outstanding certificate
that immediately before the Effective Date represented shares of HealthAxis
Common Stock shall be deemed to evidence ownership of the number of shares of
HAI Stock into which the shares of HealthAxis Stock represented by such
certificate have been converted in accordance with this Plan.
14. Dissenting Shares.
(a) Notwithstanding any other provisions of this Plan to the
contrary, shares of HealthAxis Stock which are outstanding immediately prior to
the Effective Date and which are held by shareholders of HealthAxis who shall
have not voted in favor of the Merger or consented thereto in writing and who
shall have demanded properly in writing appraisal for such shares (collectively,
the "Dissenting Shares") in accordance with Section 1571, et seq., of the BCL
(each a "Dissenting Shareholder" and collectively, the "Dissenting
Shareholders") shall not be converted into or represent the right to receive any
HAI Stock, such shareholders being entitled to receive payment of the appraised
value of such shares of HAI Stock held by them in accordance with the provisions
of such Section 1571, et seq., of the BCL, except that all Dissenting Shares
held by shareholders who shall have failed to perfect or shall have effectively
withdrawn or lost their rights to appraisal of such shares of HealthAxis Stock
in accordance with the provisions of Section 1571, et seq., of the BCL shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Date, for the right to receive HAI Stock in accordance with
Section 7 hereof, without interest thereon.
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(b) HealthAxis shall give HAI (i) prompt notice of any written
demands for payment or appraisal of any Dissenting Shares pursuant to Section
1571, et seq., of the BCL, attempted withdrawals of such demands, and any other
instruments served pursuant to the BCL and received by HealthAxis relating to
shareholders' rights to dissent and (ii) the opportunity to participate, at its
expense, in all negotiations and proceedings with respect to demands for payment
or appraisal under Section 1571, et seq., of the BCL. HealthAxis shall not,
without the prior written consent of HAI, voluntarily make any payment with
respect to any demands for payment or appraisals of the capital stock of
HealthAxis, offer to settle or settle any demands.
15. Effective Date. As used in this Plan, the "Effective Date" shall
mean the date upon which this Plan and a proper Articles of Merger for the
Merger have been duly signed and filed with the proper officials of the
Commonwealth of Pennsylvania.
16. Entire Understanding. This Plan, together with the Reorganization
Agreement (and the Exhibits and Schedules thereto) by and between HAI, Newco and
HealthAxis, states the entire understanding among the parties hereto with
respect to the subject matter hereof and supersedes all prior oral and written
communications and agreements, and all contemporaneous oral communications and
agreements, with respect to the subject matter hereof. No amendment or
modification of this Plan, and no waiver of any provision of this Plan, shall be
effective unless in writing and signed by the party against whom enforcement is
sought. HealthAxis may agree to any amendment or supplement to this Plan, or a
waiver of any provision of this Plan, either before or after the approval of
HealthAxis' shareholders is obtained (as contemplated by the Reorganization
Agreement) and without seeking further shareholder approval, so long as such
amendment, supplement or waiver does not result in a decrease in the Exchange
Ratio set forth in Section 7 of this Plan, or have a material adverse effect on
HealthAxis' shareholders. The obligations of the parties under this Plan shall
be subject to all of the terms and conditions of the Reorganization Agreement.
If the Reorganization Agreement is terminated in accordance with its terms, then
this Plan shall simultaneously terminate, and the Merger shall be abandoned
without further action by the parties hereto.
17. Parties in Interest. This Plan shall bind, benefit and be
enforceable by and against the parties hereto and their respective successors
and assigns. No party hereto shall in any manner assign any of its rights or
obligations under this Plan without the express prior written consent of the
other parties. Nothing in this Plan or the Reorganization Agreement is intended
to confer, or shall be deemed to confer, any rights or remedies upon any persons
other than the parties hereto and their respective shareholders and directors.
18. Severability. If any provision of this Plan is construed to be
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
19. Counterparts. This Plan may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original
hereof, and it shall not be necessary in making proof of this Plan to produce or
account for more than one counterpart hereof.
20. Section Headings. Section and subsection headings in this Plan are
for convenience of reference only, do not constitute a part of this Plan, and
shall not affect its interpretation.
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21. References. All words used in this Plan shall be construed to be of
such number and gender as the context requires or permits.
[Signatures Appear on Next Page]
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<PAGE>
IN TESTIMONY WHEREOF, each undersigned corporation has caused this
Agreement and Plan of Merger to be signed by a duly authorized officer as of the
date first stated above.
HEALTHAXIS.COM, INC.
By: /s/ Michael Ashker
---------------------------------------------------
Name: Michael Ashker
Title: President and CEO
HEALTHAXIS INC.
By: /s/ Michael Ashker
---------------------------------------------------
Name: Michael Ashker
Title: President and CEO
HEALTHAXIS ACQUISITION CORP.
By: /s/ Michael Ashker
---------------------------------------------------
Name: Michael Ashker
Title: President and CEO
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Appendix C
DISSENTERS RIGHTS
[Pa.C.S.]ss.1571. Application and effect of subchapter
(A) GENERAL RULE.-- Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent
from, and to obtain payment of the fair value of his shares in the
event of, any corporate action, or to otherwise obtain fair value for
his shares, where this part expressly provides that a shareholder shall
have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(B) EXCEPTIONS.--
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of
shares that, at the record date fixed to determine
the shareholders entitled to notice of and to vote at
the meeting at which a plan specified in any of
section 1930, 1931(d), 1932(c) or 1952(d) is to be
voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
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shall not have the right to obtain payment of the fair value of any
such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters
rights shall be available without regard to the
exception provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are
not converted solely into shares of the
acquiring, surviving, new or other
corporation or solely into such shares and
money in lieu of fractional shares.
(ii) Shares of any preferred or special class
unless the articles, the plan or the terms
of the transaction entitle all shareholders
of the class to vote thereon and require for
the adoption of the plan or the effectuation
of the transaction the affirmative vote of a
majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters
rights upon special treatment).
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or
substantially all of the shares, property or assets
of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming
the liabilities of the other corporation and with or
without the intervention of another corporation or
other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this
subchapter regardless of the fact, if it be the case,
that the acquisition was accomplished by the issuance
of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect
a majority or more of the directors of the
corporation.
(C) GRANT OF OPTIONAL DISSENTERS RIGHTS.-- The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholders to dissenters
rights.
(D) NOTICE OF DISSENTERS RIGHTS.-- Unless otherwise provided by
statute, if a proposed corporate action that would give rise
to dissenters rights under this subpart is submitted to a vote
at a meeting of shareholders, there shall be included in or
enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement
that the shareholders have a right to dissent and
obtain payment of the fair value of their shares by
complying with the terms of this subchapter;
and
(2) a copy of this subchapter.
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(E) OTHER STATUTES.-- The procedures of this subchapter shall also
be applicable to any transaction described in any statute
other than this part that makes reference to this subchapter
for the purpose of granting dissenters rights.
(F) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.-- This subchapter
may not be relaxed by any provision of the articles.
(G) CROSS REFERENCES.-- See sections 1105 (relating to restriction
on equitable relief), 1904 (relating to de facto transaction
doctrine abolished) and 2512 (relating to dissenters rights
procedure).
[Pa.C.S.]ss.1572. Definitions
The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"DISSENTER." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking into
account all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"INTEREST." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
[Pa.C.S.]ss.1573. Record and beneficial holders and owners
(A) RECORD HOLDERS OF SHARES.-- A record holder of shares of a
business corporation may assert dissenters rights as to fewer
than all of the shares registered in his name only if he
dissents with respect to all the shares of the same class or
series beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he
dissents. In that event, his rights shall be determined as if
the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(B) BENEFICIAL OWNERS OF SHARES.-- A beneficial owner of shares of
a business corporation who is not the record holder may assert
dissenters rights with respect to shares held on his behalf
and shall be treated as a dissenting shareholder under the
terms of this subchapter if he submits to the corporation not
later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may
not dissent with respect to some but less than all shares of
the same class or series owned by the owner, whether or not
the shares so owned by him are registered in his name.
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[Pa.C.S.]ss.1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
[Pa.C.S.]ss.1575. Notice to demand payment
(A) GENERAL RULE.-- If the proposed corporate action is approved
by the required vote at a meeting of shareholders of a
business corporation, the corporation shall mail a further
notice to all dissenters who gave due notice of intention to
demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the
proposed corporate action is to be taken without a vote of
shareholders, the corporation shall send to all shareholders
who are entitled to dissent and demand payment of the fair
value of their shares a notice of the adoption of the plan or
other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be
sent and certificates for certificated shares must be
deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what
extent transfer of shares will be restricted from the
time that demand for payment is received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the
shareholder, or the person on whose behalf the
shareholder dissents, acquired beneficial ownership
of the shares.
(4) Be accompanied by a copy of this subchapter.
(B) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.-- The time set for
receipt of the demand and deposit of certificated shares shall
be not less than 30 days from the mailing of the notice.
[Pa.C.S.]ss.1576. Failure to comply with notice to demand payment, etc.
(A) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.-- A shareholder who
fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as
required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
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(B) RESTRICTION ON UNCERTIFICATED SHARES.-- If the shares are not
represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(C) RIGHTS RETAINED BY SHAREHOLDER.-- The dissenter shall retain
all other rights of a shareholder until those rights are
modified by effectuation of the proposed corporate action.
[Pa.C.S.]ss.1577. Release of restrictions or payment for shares
(A) FAILURE TO EFFECTUATE CORPORATE ACTION.-- Within 60 days after
the date set for demanding payment and depositing
certificates, if the business corporation has not effectuated
the proposed corporate action, it shall return any
certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed
by reason of the demand for payment.
(B) RENEWAL OF NOTICE TO DEMAND PAYMENT.-- When uncertificated
shares have been released from transfer restrictions and
deposited certificates have been returned, the corporation may
at any later time send a new notice conforming to the
requirements of section 1575 (relating to notice to demand
payment), with like effect.
(C) PAYMENT OF FAIR VALUE OF SHARES.-- Promptly after effectuation
of the proposed corporate action, or upon timely receipt of
demand for payment if the corporate action has already been
effectuated, the corporation shall either remit to dissenters
who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will
be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of
the issuer of the shares held or owned by the
dissenter for a fiscal year ending not more than 16
months before the date of remittance or notice
together with the latest available interim financial
statements.
(2) A statement of the corporation's estimate of the fair
value of the shares.
(3) A notice of the right of the dissenter to demand
payment or supplemental payment, as the case may be,
accompanied by a copy of this subchapter.
(D) FAILURE TO MAKE PAYMENT.-- If the corporation does not remit
the amount of its estimate of the fair value of the shares as
provided by subsection (c), it shall return any certificates
that have been deposited and release uncertificated shares
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<PAGE>
from any transfer restrictions imposed by reason of the demand
for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to
any such uncertificated shares that such demand has been made.
If shares with respect to which notation has been so made
shall be transferred, each new certificate issued therefor or
the records relating to any transferred uncertificated shares
shall bear a similar notation, together with the name of the
original dissenting holder or owner of such shares. A
transferee of such shares shall not acquire by such transfer
any rights in the corporation other than those that the
original dissenter had after making demand for payment of
their fair value.
[Pa.C.S.]ss.1578. Estimate by dissenter of fair value of shares
(A) GENERAL RULE.-- If the business corporation gives notice of
its estimate of the fair value of the shares, without
remitting such amount, or remits payment of its estimate of
the fair value of a dissenter's shares as permitted by section
1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less
than the fair value of his shares, he may send to the
corporation his own estimate of the fair value of the shares,
which shall be deemed a demand for payment of the amount or
the deficiency.
(B) EFFECT OF FAILURE TO FILE ESTIMATE.-- Where the dissenter does
not file his own estimate under subsection (a) within 30 days
after the mailing by the corporation of its remittance or
notice, the dissenter shall be entitled to no more than the
amount stated in the notice or remitted to him by the
corporation.
[Pa.C.S.]ss.1579. Valuation proceedings generally
(A) GENERAL RULE.-- Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under
section 1575 (relating to notice to demand
payment); or
(3) timely receipt of any estimates pursuant to section
1578 (relating to estimate by dissenter of fair value
of shares); if any demands for payment remain
unsettled, the business corporation may file in court
an application for relief requesting that the fair
value of the shares be determined by the court.
(B) MANDATORY JOINDER OF DISSENTERS.-- All dissenters, wherever
residing, whose demands have not been settled shall be made
parties to the proceeding as in an action against their
shares. A copy of the application shall be served on each such
dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or
pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of
jurisdiction and interstate and international procedure).
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(C) JURISDICTION OF THE COURT.-- The jurisdiction of the court
shall be plenary and exclusive. The court may appoint an
appraiser to receive evidence and recommend a decision on the
issue of fair value. The appraiser shall have such power and
authority as may be specified in the order of appointment or
in any amendment thereof.
(D) MEASURE OF RECOVERY.-- Each dissenter who is made a party
shall be entitled to recover the amount by which the fair
value of his shares is found to exceed the amount, if any,
previously remitted, plus interest.
(E) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.-- If the
corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has
not already settled his claim against the corporation may do
so in the name of the corporation at any time within 30 days
after the expiration of the 60-day period. If a dissenter does
not file an application within the 30-day period, each
dissenter entitled to file an application shall be paid the
corporation's estimate of the fair value of the shares and no
more, and may bring an action to recover any amount not
previously remitted.
[Pa.C.S.]ss.1580. Costs and expenses of valuation proceedings
(A) GENERAL RULE.-- The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally),
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate
by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(B) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD
FAITH APPEARS.-- Fees and expenses of counsel and of experts
for the respective parties may be assessed as the court deems
appropriate against the corporation and in favor of any or all
dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom
the fees and expenses are assessed acted in bad faith or in a
dilatory, obdurate, arbitrary or vexatious manner in respect
to the rights provided by this subchapter.
(C) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.-- If the court
finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award
to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
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APPENDIX D
[Advest Letterhead]
September 26, 2000
Board of Directors
HealthAxis Inc.
2500 Dekalb Pike
East Norriton, Pennsylvania 19401
Attention: Alvin H. Clemens, Chairman
Michael Ashker, President and Chief Executive
Members of the Board:
The boards of HealthAxis Inc. ("HAI" or the "Company") and
HealthAxis.com have agreed on a merger (the "Merger"). Prior to February 1, 2000
HealthAxis Inc. was named Provident American Corporation. The merger is
structured so that HealthAxis will be merged with and into HealthAxis
Acquisition Corp., a wholly owned subsidiary of HAI. We anticipate that the
Company will issue approximately 39.63 million shares of HAI common stock to
HealthAxis shareholders in the Merger. We also anticipate that HAI will issue up
to an additional 5.67 million shares of HAI common stock upon the exercise of
options and warrants to purchase HealthAxis common stock. Hereafter, the
issuance of the common stock to the HealthAxis shareholders, warrant holders,
and option holders in the Merger will be referred to as "Stock Consideration".
Following the Merger, based on the number of shares of HAI common stock to be
issued in the Merger, excluding shares subject to stock options and warrants to
be assumed by the company, the existing shareholders of HAI will own
approximately 24.8% and the former HealthAxis shareholders will own
approximately 75.2% of the outstanding common stock of HAI.
You have asked us to render an opinion on the fairness of the Stock
consideration paid in the Merger by HAI in the Transaction, from a financial
point of view, to the Company and its shareholders (the "Opinion").
In arriving at our Opinion set forth below, we have, among other
things, reviewed: the Agreement and Plan of Reorganization (including Exhibits A
and B), dated January 26, 2000, between HAI, HealthAxis.com, Inc. and HealthAxis
Acquisition Corp.; the HealthAxis Form S-4 filled with the Securities & Exchange
Commission on February 11,2000 and subsequent letter of comment and responses
thereto (April 20, 2000). The consolidated financial statements of
HealthAxis.com, Inc. and subsidiaries for the calendar year 1999, and the period
of January 1, 2000 through June 30, 1999; a draft of the consolidated financial
statements of Insurdata Incorporated and subsidiaries for the years ended
December 31, 1997 and 1998 and the nine months ended
D-1
<PAGE>
Board of Directors
HealthAxis Inc.
Page 2
September 30, 1998 and 1999; Provident American Corporation's Forms 10Q for the
periods ending March 31, 1999, June 30, 1999 and September 30, 1999; Provident
American Corporation's Forms 10-K and Annual Reports for the years ended
December 31, 1997 and 1998; projected financial statements of HAI and HealthAxis
for the years ended December 31, 2000, 2001 and 2002; and other documents,
statistics, and analyses, which we believe were necessary to render our Opinion.
In addition, we conducted such other studies, analyses and calculations that we
deemed appropriate.
In preparing this Opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and HealthAxis, and we have not independently verified such
information nor have we undertaken an independent appraisal of the assets and
liabilities of HAI or HealthAxis. This Opinion is necessarily based upon
circumstances and conditions as they exist and can be evaluated as of the date
of this letter. We have assumed for purposes of this Opinion that there has not
been any material change in the financial condition of the Company, from that
existing on June 30, 2000. Our Opinion is directed to the Board of Directors of
HAI and does not constitute a recommendation of any kind to any shareholder of
HAI or of HealthAxis regarding how such shareholder should vote at a
shareholders' meeting should one to be held in connection with the Transaction.
In reliance upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the consideration paid by HAI in the Transaction, is
fair, from a financial point of view, to the Company and its shareholders.
Very truly yours,
ADVEST, INC.
/s/ Alexander M. Clark
--------------------------
By: Alexander M. Clark
Managing Director
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APPENDIX E
HEALTHAXIS INC.
Amended and Restated Articles of Incorporation
Article 1. Name. The name of the corporation is HealthAxis Inc.
(the "Corporation").
Article 2. Registered Office. The location and address of the
registered office of the Corporation in this Commonwealth is:
2500 DeKalb Pike
East Norriton, PA 19401
Article 3. Purpose. The Corporation is incorporated under the
Pennsylvania Business Corporation Law of 1988, as it may be amended from time to
time, for the following purposes:
To have unlimited power to engage in or do any lawful act
concerning any or all lawful businesses for which corporations
may be incorporated under the Pennsylvania Business
Corporation Law of 1988, as amended from time to time.
Article 4. Term. The term for which the Corporation is to exist
is perpetual.
Article 5. Authorized Capital Stock. The Corporation shall have the
authority to issue an aggregate of 2,000,000,000 shares of capital stock which
shall be divided into 1,900,000,000 shares of Common Stock, par value $0.10 per
share ("Common Stock"), as more fully described in Section 5(a) below; and
100,000,000 shares of Preferred Stock, par value $1.00 per share ("Preferred
Stock"), as more fully described in Section 5(b) below.
(a) Common Stock. Each holder of record of Common Stock shall
have the right to one vote for each share of Common Stock registered in their
name on the books of the Corporation except as the right to exercise such vote
may be limited by the provisions of these Amended and Restated Articles of
Incorporation or any class or series of Preferred Stock established hereunder.
The holders of Common Stock shall be entitled to such dividends as may be
declared by the Board of Directors from time to time, provided that required
dividends, if any, on the Preferred Stock have been paid or provided for. In the
event of the liquidation, dissolution, or winding up, whether voluntary or
involuntary of the Corporation, the assets and funds of the Corporation
available for distribution to shareholders, and remaining after the payment to
holders of Preferred Stock of the amounts (if any) to which they are entitled,
shall be divided and paid to the holders of the Common Stock according to their
respective shares.
(b) Preferred Stock. The shares of Preferred Stock may be
divided and issued from time to time in one or more series as may be determined
by the Board of Directors of the Corporation, each such series to be distinctly
designated and to consist of the number of shares determined by the Board of
Directors. The Board of Directors of the Corporation is hereby expressly vested
with authority to adopt resolutions to issue the shares, to fix the number of
shares, to change the number of shares constituting any class or series, and to
provide for or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, if any, of Preferred Stock, and each class or series thereof, in
each case without approval of the shareholders. The authority of the Board of
Directors with respect to each class or series of Preferred Stock shall include,
without limiting the generality of the foregoing, the determination of the
following:
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(1) The number of shares constituting that class or
series and the distinctive designation of that class or series;
(2) The dividend rate on the shares of that class or
series, whether dividends shall be cumulative, and, if so, from which
date or dates;
(3) Whether that class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights;
(4) Whether that class or series shall have
conversion privileges (including rights to convert such class or series
into the capital stock of the Corporation or any other entity) and, if
so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(5) Whether or not shares of that class or series
shall be redeemable and whether or not the Corporation or the holder
(or both) may exercise the redemption right, including the terms of
redemption (including any sinking fund provisions), the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions;
(6) The rights of the shares of that class or series
in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; and
(7) Any other relative rights, preferences and
limitations of that class or series as may be permitted or required by
law.
The number of shares, voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, if any, of any class or series of Preferred Stock which may be
designated by the Board of Directors may differ from those of any and all other
class or series at any time outstanding.
(c) Increase in Authorized Preferred Stock. Except as
otherwise provided by law or in a resolution or resolutions establishing any
particular series of Preferred Stock, the aggregate number of authorized shares
of Preferred Stock may be increased by an amendment to these Amended and
Restated Articles of Incorporation approved solely by the holders of Common
Stock and of any series of Preferred Stock which is entitled pursuant to its
voting rights designated by the Board of Directors to vote thereon, if at all,
voting together as a class.
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(d) Authorization of Board to Set Terms in Respect of
Corporation's Securities. To the fullest extent permitted by applicable law, the
Board of Directors may set forth in any security, contract, warrant or other
instrument evidencing any shares, option or warrant rights, or securities having
conversion or option or warrant rights, such terms as it deems appropriate
including, without limiting the generality of such authority, conditions that
preclude or limit any Person (as defined in Article 17) or any transferee(s)
(either direct or remote) of such Person from (i) owning or offering to acquire
a specified number or percentage of the outstanding common shares, other shares,
option or warrant rights, securities having conversion or option or warrant
rights, or obligations of the Corporation or (ii) from exercising, converting,
transferring or receiving the shares, option or warrant rights, securities
having conversion or option or warrant rights, or obligations, and which
invalidate any rights or options or warrants beneficially owned by such Person
or any transferee(s) (either direct or remote) of such Person. This subsection
(d) of Article 5 is intended to validate, to the extent permitted by applicable
law, the adoption by the Board of Directors of shareholder rights plans or
so-called "poison pills," including both call and put "poison pills." Nothing
contained herein shall be deemed to limit or restrict the powers of the Board of
Directors as provided in the Pennsylvania Business Corporation Law of 1988, as
amended, or otherwise in Pennsylvania law.
Article 6. Cumulative Voting. The shareholders of the Corporation shall
not be entitled to cumulate their votes in the election of directors.
Article 7. Number of Directors. The Board of Directors shall consist of
not less than three (3) nor more than twelve (12) directors. The number of
directors to be elected, subject to the foregoing limits, shall be determined
from time to time by the Board of Directors.
Article 8. Special Meetings of Shareholders. The shareholders of the
Corporation shall not be entitled to call a special meeting of the shareholders
of the Corporation.
Article 9. Actions By Consent of Shareholders. The provisions of
Section 1766(b) of the Pennsylvania Business Corporation Law of 1988, as
amended, shall be applicable to any action by the shareholders which has been
previously approved by the Board of Directors, but shall not otherwise be
applicable to the Corporation.
Article 10. Non-Applicability of Certain Provisions of the Pennsylvania
Business Corporation Law. The provisions contained in Subchapters E (Control
Transactions), G (Control- Share Acquisitions), H (Disgorgement by Certain
Controlling Shareholders Following Attempts to Acquire Control), I (Severance
Compensation for Employees Terminated Following Certain Control- Share
Acquisitions) and J (Business Combination Transactions - Labor Contracts) of
Chapter 25 of the Pennsylvania Business Corporation Law, as it may be amended,
shall not be applicable to the Corporation. The provisions of Section 2538 of
the Pennsylvania Business Corporation Law, as it may be amended, shall not be
applicable to the Corporation, unless at least a majority of the incumbent
directors (as defined herein) on the Board of Directors shall determine that
Section 2538, subject to such exceptions, limitations and modifications as such
incumbent directors may provide, shall be applicable. The term "incumbent
director", as used herein, shall mean any director of the Corporation on the
date hereof and any other director whose election or appointment by the Board of
Directors of the Corporation, or whose nomination for election by the
shareholders of the Corporation, was approved by a vote of at least a majority
of the directors then in office who either were directors on the date hereof or
whose election or appointment or nomination for election was previously so
approved.
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Article 11. Power of Board to Oppose Certain Transactions.
(a) The Board of Directors, if it deems it advisable, may
oppose a tender offer or other offer for the Corporation's securities, whether
the offer is in cash or in securities of a corporation or otherwise. In
considering whether to oppose an offer, the Board of Directors may, but it is
not legally obligated to, consider any pertinent issues. By way of illustration,
but not of limitation, the Board of Directors may, but shall not be legally
obligated to, consider any and all of the following:
(1) Whether the offer price is acceptable based on the
historical and present operating results or financial conditions of the
Corporation;
(2) Whether a more favorable price could be obtained for the
Corporation's securities in the future;
(3) The effects of any proposed transaction upon any or all
groups affected by such action, including among others, shareholders,
employees, suppliers, customers and creditors of the Corporation and
its subsidiaries and on the communities served by the Corporation and
its subsidiaries;
(4) The reputation and business practices of the offeror and
its management and affiliates as they would affect the employees,
suppliers and customers of the Corporation and its subsidiaries and the
future value of the Corporation's stock;
(5) The value of the securities, if any, which the offeror is
offering in exchange for the Corporation's securities, based on an
analysis of the worth of the Corporation as compared to the corporation
or other entity whose securities are being offered; and
(6) Any antitrust or other legal and regulatory issues that
are raised by the offer.
If the Board of Directors determines that an offer should be rejected, it may
take any lawful action to accomplish its purpose including, but not limited to,
any and all of the following: advising shareholders not to accept the offer;
commencing litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the Corporation's securities
and/or the offeror's securities; selling or acquiring any assets; selling or
otherwise issuing authorized but unissued securities or treasury stock or
granting options with respect thereto; selling or otherwise issuing any debt
securities (including debt securities convertible into equity securities) or
options therefor; acquiring a company to create an antitrust or other regulatory
problem for the offeror; and obtaining a more favorable offer from another
individual or entity.
(b) If the Board of Directors determines to sell the
Corporation or any subsidiary to a third party, or to merge or consolidate the
Corporation or any subsidiary with a third party, the Board of Directors shall
not be legally obligated to create an auction and may negotiate with only one
acquirer.
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Article 12. Removal of Directors. The entire Board of Directors, or a
class of the Board, or any individual director may be removed from office only
for cause (as defined herein) and only by the affirmative vote of shareholders
entitled to cast at least seventy percent (70%) of the votes entitled to be cast
by all shareholders at any annual or regular election of directors or of such
class of directors. The foregoing shall not be deemed to limit the right of the
Board of Directors, without shareholder approval, to declare vacant the office
of any director for any proper cause. The term "cause," as used herein, shall
refer only to one of the following events: (1) conviction of the director of a
felony; (2) declaration by order of court that the director is of unsound mind;
or (3) gross abuse of trust which is proved by clear and convincing evidence to
have been committed in bad faith.
Article 13. Personal Liability of Directors. A director of this
Corporation shall not be personally liable for monetary damages as such for any
action taken, or any failure to take any action, unless:
(a) The director has breached or failed to perform the duties
of his office under Section 1713 of the Pennsylvania Business Corporation Law of
1988, as amended; and
(b) The breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
This Article 13 shall not apply to a director's liability for monetary
damages to the extent prohibited by Section 1713(b) of the Pennsylvania Business
Corporation Law of 1988, as amended.
Article 14. Amendments to Articles of Incorporation. The shareholders
of the Corporation shall not be entitled to propose an amendment to the Articles
of Incorporation of the Corporation. Any amendment to, or repeal of, any
provision of the Articles of Incorporation of the Corporation which has not
previously received the approval of at least a majority of the incumbent
directors (as defined in Article 10) on the Board of Directors shall require for
adoption the affirmative vote of the shareholders entitled to cast at least
sixty-five percent (65%) of the votes entitled to be cast by all shareholders at
any duly convened annual or special meeting of the shareholders, in addition to
any other approval which is required by law, the Articles of Incorporation of
the Corporation, the Bylaws of the Corporation, or otherwise.
Article 15. Amendments to Bylaws. The Bylaws of the Corporation may be
amended or repealed without shareholder approval by a majority of the incumbent
directors (as defined in Article 10), subject to any other approval which is
required by law, the Articles of Incorporation, the Bylaws of the Corporation,
or otherwise. Any amendment to, or repeal of, any provision of the Bylaws of the
Corporation which has not previously received the approval of at least a
majority of the incumbent directors (as defined in Article 10) on the Board of
Directors shall require for adoption the affirmative vote of the shareholders
entitled to cast at least sixty-five percent (65%) of the votes entitled to be
cast by all shareholders at any duly convened annual or special meeting of the
shareholders, in addition to any other approval which is required by law, the
Articles of Incorporation of the Corporation, the Bylaws of the Corporation, or
otherwise.
Article 16. Severability. In the event that all, some or any part of
any provision contained in these Amended and Restated Articles of Incorporation
shall be found by any court of competent jurisdiction to be illegal, invalid or
unenforceable (as against public policy or otherwise), such provision shall be
enforced to the fullest extent permitted by law and shall be construed as if it
had been narrowed only to the extent necessary so as not to be invalid, illegal
or unenforceable; the validity, legality and enforceability of the remaining
provisions of these Amended and Restated Articles of Incorporation shall
continue in full force and effect and shall not be affected or impaired by such
illegality, invalidity or unenforceability of any other provision (or any part
or parts thereof) of the Amended and Restated Articles of Incorporation.
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Article 17. Definitions. As used herein, the term "Person" shall mean
any individual, partnership, corporation, group or other entity (other than the
Corporation or any Subsidiary, as defined below, for itself or as a fiduciary
for customers, or a trustee holding Voting Securities for the benefit of the
employees of the Corporation or its Subsidiaries or any one of them, pursuant to
one or more employee benefit plans or arrangements sponsored by the Corporation
or any Subsidiary).
As used herein, the term "Subsidiary" shall mean any corporation of
which the Corporation owns fifty percent (50%) or more of any class of
securities entitled to vote in the election of directors, either directly or
indirectly, through one or more other corporations.
Article 18. Headings. Article headings and the ordering of paragraphs
area for convenience of reference only and shall not be construed to alter,
amend or otherwise affect the meaning, intent or effect of the provisions of
these Amended and Restated Articles of Incorporation.
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Appendix F
HEALTHAXIS INC.
2000 STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 2000 Stock Option Plan (the "Plan") is to provide
additional incentive to officers, other employees, and directors of, and
important consultants to, HealthAxis Inc., a Pennsylvania corporation (the
"Company"), and each present or future parent or subsidiary corporation of the
Company, by encouraging them to invest in shares of the Company's common stock,
$0.10 par value per share ("Common Stock"), and thereby acquire a proprietary
interest in the Company and an increased personal interest in the Company's
continued success and progress.
2. Aggregate Number of Shares
10,000,000 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee (defined in Section 4(a)),
deems in its sole discretion to be similar circumstances, the aggregate number
and kind of shares which may be issued under this Plan shall be appropriately
adjusted in a manner determined in the sole discretion of the Committee.
Reacquired shares of the Company's Common Stock, as well as unissued shares, may
be used for the purpose of this Plan. Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All officers and employees of the Company and of any present or future
Company parent or subsidiary corporation are eligible to receive an option or
options under this Plan. All directors of, and important consultants to, the
Company and of any present or future Company parent or subsidiary corporation
are also eligible to receive an option or options under this Plan. The
individuals who shall, in fact, receive an option or options shall be selected
by the Committee, in its sole discretion, except as otherwise specified in
Section 4 hereof. No individual may receive options under this Plan for more
than 90% of the total number of shares of the Company's Common Stock authorized
for issuance under this Plan.
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4. Administration of Plan
a. This Plan shall be administered either by the Company's Board of
Directors or the Compensation Committee appointed by the Company's Board of
Directors. The Compensation Committee shall consist of a minimum of two and a
maximum of five members of the Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the Compensation Committee for any reason to be
composed solely of Non-Employee Directors shall not prevent an option from being
considered granted under this Plan. The term "Committee," as used herein, shall
refer to either the Company's Board of Directors or such Compensation Committee,
depending upon who is administering the Plan. The Committee shall, in addition
to its other authority and subject to the provisions of this Plan, determine
which individuals shall in fact be granted an option or options, whether the
option shall be an Incentive Stock Option or a Non-Qualified Stock Option (as
such terms are defined in Section 5(a)), the number of shares to be subject to
each of the options, the time or times at which the options shall be granted,
the rate of option exercisability, and, subject to Section 5 hereof, the price
at which each of the options is exercisable and the duration of the option.
b. The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors, if it so desires.
5. Incentive Stock Options and Non-Qualified Stock Options
a. Options issued pursuant to this Plan may be either Incentive
Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock
Options granted pursuant to Section 5(c) hereof, as determined by the Committee.
An "Incentive Stock Option" is an option which satisfies all of the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person. The option price for Incentive Stock Options issued under this Plan
shall be equal at least to the fair market value (as defined below) of the
Company's Common Stock on the date of the grant of the option. The fair market
value of the Company's Common Stock on any particular date shall mean the last
reported sale price of a share of the Company's Common Stock on any stock
exchange on which such stock is then listed or admitted to trading, or on the
NASDAQ National Market, on such date, or if no sale took place on such day, the
last such date on which a sale took place, or if the Common Stock is not then
quoted on the NASDAQ Stock Market, or listed or admitted to trading on any stock
exchange, the average of the bid and asked prices in the over-the-counter market
on such date, or if none of the foregoing, a price determined in good faith by
the Committee to equal the fair market value per share of the Common Stock.
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b. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Incentive Stock Options issued pursuant to this Plan shall
be issued substantially in the form set forth in Exhibit I hereof, which form is
hereby incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Incentive Stock
Options shall not be exercisable after the expiration of ten years from the date
such options are granted, unless terminated earlier under the terms of the
option, except that options granted to individuals described in Section
422(b)(6) of the Code shall conform to the provisions of Section 422(c)(5) of
the Code. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Exhibit I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422 of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422 of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment. If such
conformity may not be achieved by amendment, such option shall be deemed to be a
Non-Qualified Stock Option.
c. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to officers and other
employees pursuant to this Plan shall be issued substantially in the form set
forth in Exhibit II hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Subject to the authority of the Committee set forth in Section
4(a) hereof, Non-Qualified Stock Options issued to directors and important
consultants pursuant to this Plan shall be issued substantially in the form set
forth in Exhibit III hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Non-Qualified Stock Options shall expire ten years after the date
they are granted, unless terminated earlier under the option terms. At the time
of granting a Non-Qualified Stock Option hereunder, the Committee may, in its
discretion, amend or supplement any of the option terms contained in Exhibit II
or Exhibit III for any particular optionee.
d. Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option granted pursuant to Section 5(b) hereof does
not qualify as an "Incentive Stock Option" as that term is used in Section 422
of the Code and the regulations thereunder; (ii) any optionee does not obtain
the tax treatment pertaining to an Incentive Stock Option; or (iii) any option
granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
e. Except as otherwise provided in Section 422 of the Code and
regulations thereunder or any successor provision, no Incentive Stock Option
granted pursuant to this Plan shall be transferable other than by will or the
laws of descent and distribution. Except as otherwise provided by the Rules and
Regulations of the Securities and Exchange Commission, the Committee at the time
of grant of a Non-Qualified Stock Option may provide that such stock option is
transferrable to any "family member" of the optionee by gift or qualified
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domestic relations order. For purposes of this section, a family member includes
any child, stepchild, grandchild, parent, step-parent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the grantee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the grantee)
controls the management of assets, and any other entity in which these persons
or the grantee own more than 50% of the voting interests.
f. To exercise the option, the optionee must provide written
notice to the secretary of the Company on forms supplied by the Company at its
then principal executive office, accompanied by payment of the option price for
the total number of shares the optionee wishes to purchase. The payment may be
in any of the following forms: (a) cash, which may be evidenced by a check and
includes cash received from a stock brokerage firm in a so-called "cashless
exercise"; (b) (unless prohibited by the Committee) certificates representing
shares of Common Stock of the Company, which will be valued by the Secretary of
the Company at the fair market value per share of the Company's Common Stock (as
described in Section 5) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee in the agreement evidencing the grant. Any assignment of stock shall
be in a form and substance satisfactory to the Secretary of the Company,
including guarantees of signature(s) and payment of all transfer taxes if the
Secretary deems such guarantees necessary or desirable.
6. The Committee may provide in the agreement evidencing the grant that
in the event of a "Change of Control" (as defined below) of the Company, options
granted under this Plan may, from and after the date of the Change of Control,
be exercised for up to 100% of the total number of shares then subject to the
option minus the number of shares previously purchased upon exercise of the
option (as adjusted for stock dividends, stock splits, combinations of shares
and what the Committee deems in its sole discretion) and the vesting date of the
option may be accelerated accordingly by the Committee. A "Change of Control"
shall be deemed to have occurred upon the happening of any of the following
events:
a. The acquisition by any individual, entity or group (within
the meaning of the Securities and Exchange Act of 1934, as amended), of
beneficial ownership of 50% or more of either the then outstanding shares of the
Company's common stock, or combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of the
directors;
b. A sale or disposition of substantially all of the assets of
the Company; or
c. Any other event deemed to constitute a "Change of Control"
by the Committee.
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7. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of ten years from the date the Plan is adopted by the Board of
Directors of the Company. The Board of Directors reserves the right at any time,
and from time to time, to amend or supplement this Plan, including the forms of
option agreement attached hereto, in any way, or to suspend or terminate it,
effective as of such date, which date may be either before or after the taking
of such action, as may be specified by the Board of Directors; provided,
however, that such action shall not affect options granted under the Plan prior
to the actual date on which such action occurred. If an amendment or supplement
of this Plan is required by the Code or the regulations thereunder to be
approved by the shareholders of the Company in order to permit the granting of
"Incentive Stock Options" (as that term is defined in Section 422 of the Code
and regulations thereunder) pursuant to the amended or supplemented Plan, such
amendment or supplement shall also be approved by the shareholders of the
Company in such manner as is prescribed by the Code and the regulations
thereunder. If the Board of Directors voluntarily submits a proposed amendment,
supplement, suspension or termination for shareholder approval, such submission
shall not require any future amendments, supplements, suspensions or
terminations (whether or not relating to the same provision or subject matter)
to be similarly submitted for shareholder approval.
8. Effectiveness of Plan
This Plan shall become effective on the date of its adoption
by the Company's Board of Directors, subject however to approval by the holders
of the Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
9. General Conditions
a. Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any employee the right to continue in
the employ of the Company or any affiliated or subsidiary corporation or
interfere in any way with the rights of the Company or any affiliated or
subsidiary corporation to terminate his employment in any way.
b. Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director or consultant the right to
continue as a director of, or consultant to, the Company or any affiliated or
subsidiary corporation or interfere in any way with the rights of the Company or
any affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
c. Corporate action constituting an offer of stock for sale to
any person under the terms of the options to be granted hereunder shall be
deemed complete as of the date when the Committee authorizes the grant of the
option to the such person, regardless of when the option is actually delivered
to such person or acknowledged or agreed to by him.
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d. The terms "parent corporation" and "subsidiary corporation"
as used throughout this Plan, and the options granted pursuant to this Plan,
shall (except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
e. References in this Plan to the Code shall be deemed to also
refer to the corresponding provisions of any future United States revenue law.
f. The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
F-6
<PAGE>
Exhibit I
INCENTIVE STOCK OPTION
To:
-----------------------------------------------------------------------
Name
-----------------------------------------------------------------------
Address
Date of Grant:
----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.10 par value per share ("Common
Stock"), of HealthAxis Inc., a Pennsylvania corporation (the "Company"), at a
price of $____________ per share pursuant to the Company's 2000 Stock Option
Plan (the "Plan").
Your option may first be exercised on and after _______from the date of
grant, but not before that time. On and after _________ and prior to __________
from the date of grant, your option may be exercised for up to _____% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted as the Committee in
its sole discretion determines for any change in the outstanding shares of the
Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional _____% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after _____ after the date of grant, except if terminated earlier as
provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
F-7
<PAGE>
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, you may exercise this option only for the number of shares which you
had a right to purchase and did not purchase on the date your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is approved
by the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
F-8
<PAGE>
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which may
include payment through the surrender of Common Stock, unless prohibited by the
Committee) (i) all federal, state and local income tax withholding required to
be withheld by the Company in connection with the option exercise, and (ii) your
portion of other federal, state and local payroll and other taxes due in
connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
F-9
<PAGE>
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment. If such
conformity may not be achieved by amendment, such option shall be deemed to be a
Non-Qualified Stock Option.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, if any, the reasons for the decision and award, if any, and
shall be binding and conclusive on you and the Company. Further, neither you nor
the Company shall appeal any such award, if any. Judgment of a court of
competent jurisdiction may be entered upon the award and may be enforced as such
in accordance with the provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
Commonwealth of Pennsylvania.
F-10
<PAGE>
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
HEALTHAXIS INC.
By:
--------------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 2000 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previous
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
-----------].
--------------------------------
(Date) (Signature)
F-11
<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
F-12
<PAGE>
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
F-13
<PAGE>
EXHIBIT II
NON-QUALIFIED STOCK OPTION FOR OFFICERS
AND OTHER EMPLOYEES
To:
-----------------------------------------------------------------------
Name
-----------------------------------------------------------------------
Address
Date of Grant:
----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.10 par value per share ("Common
Stock"), of HealthAxis Inc., a Pennsylvania corporation (the "Company"), at a
price of $_______ per share pursuant to the Company's 2000 Stock Option Plan
(the "Plan").
Your option may first be exercised on and after ________from the date
of grant, but not before that time. On and after _______and prior to _____ from
the date of grant, your option may be exercised for up to _______ of the total
number of shares subject to the option minus the number of shares previously
purchased by exercise of the option (as adjusted as the Committee in its sole
discretion determines for any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances). Each succeeding year thereafter, your option may be
exercised for up to an additional ____% of the total number of shares subject to
the option minus the number of shares previously purchased by exercise of the
option (as adjusted for any change in the outstanding shares of the Common Stock
of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances). Thus, this option is fully exercisable on and
after_____ after the date of grant, except if terminated earlier as provided
herein. This option shall terminate and is not exercisable after ten years from
the date of its grant (the "Scheduled Termination Date"), except if terminated
earlier as hereafter provided.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
F-14
<PAGE>
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, you may exercise this option only for the number of shares which you
had a right to purchase and did not purchase on the date your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Except for transfers to ___________ under the terms set forth in the
Plan, this option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
F-15
<PAGE>
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your portion of other federal, state and local payroll and
other taxes due in connection with the option exercise.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
F-16
<PAGE>
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, if any, the reasons for the decision and award, if any, and
shall be binding and conclusive on you and the Company. Further, neither you nor
the Company shall appeal any such award, if any. Judgment of a court of
competent jurisdiction may be entered upon the award and may be enforced as such
in accordance with the provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
Commonwealth of Pennsylvania.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
HEALTHAXIS INC.
By:
----------------------------------
F-17
<PAGE>
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 2000 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previously
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
---------------].
----------------------------------
(Date) (Signature)
F-18
<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
F-19
<PAGE>
10.1 (f) For purposes of this Attachment A, the term "the Company"
shall include the Company, any successor to the Company and all present and
future direct and indirect subsidiaries and affiliates of the Company.
F-20
<PAGE>
EXHIBIT III
NON-QUALIFIED STOCK OPTION FOR DIRECTORS
AND IMPORTANT CONSULTANTS
To:
-------------------------------------------------------------------------
Name
-------------------------------------------------------------------------
Address
Date of Grant:
----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.10 par value per share ("Common
Stock"), of HealthAxis Inc., a Pennsylvania corporation (the "Company"), at a
price of $_______ per share pursuant to the Company's 2000 Stock Option Plan
(the "Plan").
Your option may first be exercised on and after ______from the date of
grant, but not before that time. On and after ______and prior to __________
from the date of grant, your option may be exercised for up to ______% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted as the Committee in
its sole discretion determines for any change in the outstanding shares of the
Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional ______% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after _____ after the date of grant, except if terminated earlier as
provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
F-21
<PAGE>
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease for any reason to be a
director of, or consultant to, the Company or a subsidiary corporation (whether
by death, disability, resignation, removal, failure to be reappointed, reelected
or otherwise, or the expiration of any consulting arrangement, and regardless of
whether the failure to continue as a director or consultant was for cause or
without cause or otherwise), but in no event later than ten years from the date
this option is granted. After the date you cease to be a director or consultant,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date you ceased to be a director or
consultant. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship or consultancy shall not be
deemed to have terminated if you cease being a director of, or consultant to,
the Company or a subsidiary corporation but are or concurrently therewith become
(a) a director of, or consultant to, the Company or another subsidiary
corporation or (b) an employee of the Company or a subsidiary corporation.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Except for transfers to __________ under the terms set forth in the
Plan, this option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
F-22
<PAGE>
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) your portion of other federal, state and local payroll and
other taxes due in connection with the option exercise.
10.2 The following two paragraphs shall be applicable if, on the date
of exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to
the optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
F-23
<PAGE>
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, if any, the reasons for the decision and award, if any, and
shall be binding and conclusive on you and the Company. Further, neither you nor
the Company shall appeal any such award, if any. Judgment of a court of
competent jurisdiction may be entered upon the award and may be enforced as such
in accordance with the provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
Commonwealth of Pennsylvania.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
HEALTHAXIS INC.
By:
---------------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 2000 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions, including
Attachment A hereto. I accept this option in full satisfaction of any previous
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
--------].
---------------------------------
(Date) (Signature)
F-24
<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company or at any time thereafter, except with the express
prior written consent of the Company or pursuant to the lawful order of any
judicial or administrative agency of government, directly or indirectly,
disclose, communicate or divulge to any individual or entity, or use for the
benefit of any individual or entity, any knowledge or information with respect
to the conduct or details of the Company's business which you, acting
reasonably, believe or should believe to be of a confidential nature and the
disclosure of which not to be in the Company's interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company and for a period of two years thereafter, except with
the express prior written consent of the Company, directly or indirectly,
whether as employee, owner, partner, consultant, agent, director, officer,
shareholder or in any other capacity, engage in or assist any individual or
entity to engage in any act or action which you, acting reasonably, believe or
should believe would be harmful or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your term as
a director of, or a consultant to, the Company ceases for any reason whatsoever
(whether voluntary or not), except with the express prior written consent of the
Company, directly or indirectly, whether as employee, owner, partner,
consultant, agent, director, officer, shareholder or in any other capacity, for
your own account or for the benefit of any individual or entity, (i) solicit any
customer of the Company for business which would result in such customer
terminating their relationship with the Company; or (ii) solicit or induce any
individual or entity which is an employee of the Company to leave the Company or
to otherwise terminate their relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
F-25
<PAGE>
(f) For purposes of this Attachment A, the term "the Company" shall include the
Company, any successor to the Company and all present and future direct and
indirect subsidiaries and affiliates of the Company.
F-26
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Pennsylvania Business Corporation Law provides, in substance, that
Pennsylvania corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by third parties and in
connection with actions or suits by or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees and
agents, against expenses (including attorney's fees) and, in the case of
actions, suits or proceedings brought by third parties, against judgments, fines
and amounts paid in settlement actually and reasonably incurred in any such
action, suit or proceeding.
The Registrant's Bylaws provide for indemnification to the fullest
extent permitted by the Pennsylvania Business Corporation Law. Pursuant to the
Registrant's bylaws, directors, officers, employees or agents will be
indemnified in connection with actions, suits and proceedings brought against
them, including an action by or in the right of the corporation by reason of the
fact that they were or are directors, officers, employees or agents of the
corporation.
The Registrant has obtained directors' and officers' liability
insurance that covers certain liabilities, including liabilities to the
Registrant and its stockholders, in the amount of $10,000,000.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Exhibits
------ --------
2.1 Amended and Restated Agreement and Plan of Reorganization dated
September 29, 2000 among HAI, HealthAxis and HealthAxis Acquisition
Corp., (included in the Joint Proxy Statement/Prospectus as Appendix
A).
2.2 Amended and Restated Agreement and Plan of Merger dated September 29,
2000 among HAI, HealthAxis and HealthAxis Acquisition Corp. (included
in the Joint Proxy Statement/Prospectus as Appendix B).
3.1 Form of Proposed Amended and Restated Articles of Incorporation
(included in the Joint Proxy Statement/Prospectus as Appendix C).
3.2 Amended and Restated Bylaws.*
5.1 Opinion of Stradley Ronon Stevens & Young, LLP.*
8.1 Tax Opinion of Blank Rome Comisky & McCauley LLP.*
10.1 Voting Trust Agreement between HAI, HealthAxis, UICI, Michael Ashker,
Dennis Maloney and Edward LeBaron, Jr., dated February 11, 2000.*
10.2 2000 Stock Option Plan (included in the Joint Proxy Statement
/Prospectus as Appendix F).
23.1 Consent of BDO Seidman, LLP.*
23.2 Consent of BDO Seidman, LLP.*
23.3 Consent of Ernst and Young LLP.*
23.4 Consent of Blank Rome Comisky & McCauley LLP (included in Exhibit
8.1).*
23.5 Consent of Stradley Ronan Stevens & Young, LLP (included in Exhibit
5.1).*
24.1 Power of Attorney.*
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.)
99.1 Form of HAI Proxy.*
II-1
<PAGE>
99.2 Form of HealthAxis Proxy.*
99.3 Question and Answer Brochure.*
-----------------------------
* Previously filed.
(b) Financial Statement Schedules
None.
(c) Item 4(b) Reports
Not Applicable.
Item 22. Undertakings.
(1) The Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(2) The Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(3) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended (the "Act") may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
Articles of Incorporation (the "Articles of Incorporation") and the Bylaws (the
"Bylaws") of the Registrant and the Pennsylvania Business Corporation Law, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) (A) The undersigned Registrant hereby undertakes as
follows: that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
II-2
<PAGE>
(B) The Registrant undertakes that every prospectus: (i)
that is filed pursuant to paragraph (A) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in East Norriton,
Pennsylvania, on the date indicated.
HEALTHAXIS INC.
Date: December 20, 2000 By: /s/ Michael Ashker
----------------------------
Michael Ashker
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C>
/s/ Michael Ashker Chief Executive Officer and President December 20, 2000
------------------------------------- (principal executive officer)
Michael Ashker
/s/ Anthony R. Verdi Chief Operating Officer, Chief December 20, 2000
------------------------------------- Financial Officer and Treasurer
Anthony R. Verdi (principal financial and accounting
officer)
* Chairman of the Board of Directors
-------------------------------------
Alvin H. Clemens
* Director
-------------------------------------
Harold M. Davis
* Director
-------------------------------------
Henry G. Hager
* Director
-------------------------------------
George W. Karr, Jr.
* Director
-------------------------------------
Edward W. LeBaron, Jr.
* Director
-------------------------------------
Theophile J. Mignatti
* Director
-------------------------------------
P. Glenn Moyer
By: /s/ Michael Ashker December 20, 2000
-------------------------------
Michael Ashker, Attorney-In-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibits
2.1 Amended and Restated Agreement and Plan of Reorganization dated
September 29, 2000 among HAI, HealthAxis and HealthAxis Acquisition
Corp. (included in the Joint Proxy Statement/Prospectus as Appendix A).
2.2 Amended and Restated Agreement and Plan of Merger dated September 29,
2000 among HAI, HealthAxis and HealthAxis Acquisition Corp. (included
in the Joint Proxy Statement/Prospectus as Appendix B).
3.1 Form of Proposed Amended and Restated Articles of Incorporation
(included in the Joint Proxy Statement/Prospectus as Appendix C).
3.2 Amended and Restated Bylaws.*
5.1 Opinion of Stradley Ronon Stevens & Young, LLP.*
8.1 Tax Opinion of Blank Rome Comisky & McCauley LLP.*
10.1 Voting Trust Agreement between HAI, HealthAxis, UICI, Michael Ashker,
Dennis Maloney and Edward LeBaron, Jr., dated February 11, 2000.*
10.2 2000 Stock Option Plan (included in the Joint Proxy
Statement/Prospectus as Appendix F).
23.1 Consent of BDO Seidman, LLP.*
23.2 Consent of BDO Seidman, LLP.*
23.3 Consent of Ernst and Young LLP.*
23.4 Consent of Blank Rome Comisky & McCauley LLP (included in Exhibit
8.1).*
23.5 Consent of Stradley Ronan Stevens & Young, LLP (included in Exhibit
5.1).*
24.1 Power of Attorney.*
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
99.1 Form of HAI Proxy.*
99.2 Form of HealthAxis Proxy.*
99.3 Question and Answer Brochure.*
------------------
* Previously filed.
II-5
