<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
HEALTHAXIS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
PENNSYLVANIA 6411 23-2214195
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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 Michael F. Beausang, Jr., Esquire
Blank Rome Comisky & McCauley LLP Butera, Beausang, Cohen & Brennan
One Logan Square 630 Freedom Business Center, Suite 212
Philadelphia, PA 19103 King of Prussia, PA 19406
--------------------------
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. [ ]
<PAGE>
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. [ ]
<TABLE>
<CAPTION>
================================================================================================================
CALCULATION OF REGISTRATION FEE
================================================================================================================
Amount Proposed maximum Proposed maximum Amount of
Title of each class of to be Offering price aggregate offering Registration
Securities to be registered registered (1) per share (2) price (2) fee
<S> <C> <C> <C> <C>
Common Stock, par value $.10 per share 39,459,458 $29.125 $1,149,256,700 $303,404
=================================================================================================================
</TABLE>
(1) The amount of common stock of the Registrant to be registered has been
determined based upon the maximum number of shares which are issuable in
the merger described herein to shareholders of HealthAxis.com, Inc.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended, and
on the average of the high and low sale prices per share of the
Registrant's common stock as reported on NASDAQ National Market System.
--------------------------
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 February 11, 2000
HAI LOGO HEALTHAXIS 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. 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. Upon completion of the merger, HealthAxis
shareholders will receive 1.127 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 33,386,730 shares of its common stock to
HealthAxis shareholders, which will represent approximately 72% of the
outstanding common stock of HAI after the merger. Likewise, the shares of HAI
common stock held by HAI shareholders prior to the merger will represent
approximately 28% of the outstanding common stock of HAI after the merger. In
addition, outstanding HealthAxis options and warrants will be converted into
options or warrants to purchase HAI common stock.
The merger cannot be completed 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,
your proxy will be counted as a vote in favor of the merger.
<PAGE>
Only shareholders of record of HAI and HealthAxis common stock as of
______________, 2000, are entitled to attend and vote at the meetings. Both the
HAI and HealthAxis annual meetings will take place on ______________, 2000. The
times and places of the meetings are as follows:
For HAI shareholders: _____ a.m.
2500 DeKalb Pike
East Norriton, PA 19401
For HealthAxis shareholders: ___ a.m.
2500 DeKalb Pike
East Norriton, PA 19401
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 more complete description of the merger, the terms and conditions
of the merger and risk factors associated with the merger, see "The Merger"
beginning on page 39 and "Risk Factors" beginning on page 15.
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 ______________, 2000
TO THE SHAREHOLDERS OF HEALTHAXIS INC.:
The annual meeting of shareholders of HealthAxis Inc., formerly
Provident American Corporation and referred to as HAI in this document, shall be
held at ______ a.m., prevailing time, on ________________, ____, 2000, at the
executive offices of HAI located at 2500 DeKalb Pike, East Norriton,
Pennsylvania, for the following purposes:
1. To elect seven (7) 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 agreement and plan
of reorganization and the agreement and plan of merger, each dated as of January
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 HAI's amended and restated articles of
incorporation;
4. To approve the adoption of the 2000 Stock Option Plan;
5. To approve the appointment of BDO Seidman LLP as independent public
accountants for HAI for its 2000 fiscal year;
6. 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
7. 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.
A copy of HAI's annual report for its fiscal year ended December 31,
1999 is enclosed with this joint proxy statement/prospectus.
All shareholders are cordially invited to attend the meeting in person.
However, whether or not you expect to attend the annual meeting in person,
please fill in, sign and return the enclosed form of proxy in the envelope
provided. The shareholders attending the meeting may vote in person even if they
have returned a proxy.
By Order of the Board of Directors,
MICHAEL F. BEAUSANG, JR.,
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 _______________, 2000
TO THE SHAREHOLDERS OF HEALTHAXIS.COM, INC.:
The annual meeting of shareholders of HealthAxis.com, Inc., which is
referred to in this document as HealthAxis, shall be held at ___________ a.m.,
prevailing time, on _____________, _________________, 2000, at the executive
offices of HealthAxis located at 2500 DeKalb Pike, East Norriton, Pennsylvania,
for the following purposes:
1. To elect seven (7) 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 agreement and plan
of reorganization and the agreement and plan of merger, each dated as of
_____________, 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 agreement and plan of
reorganization and the 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.
All shareholders are cordially invited to attend the meeting in person.
However, whether or not you expect to attend the annual meeting in person,
please fill in, sign and return the enclosed form of proxy in the envelope
provided. The shareholders attending the meeting may vote in person even if they
have returned a proxy.
By Order of the Board of Directors,
MICHAEL 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.
Copies of any of these documents are available without charge to any person to
whom this joint proxy statement/prospectus is delivered, upon written or oral
request. Written requests for these documents should be directed to Francis L.
Gillan III, Treasurer and Chief Financial Officer, HealthAxis Inc., 2500 DeKalb
Pike, East Norriton, Pennsylvania, 19401, and telephone requests may be directed
to Mr. Gillan at (610) 279-2500. In order to ensure timely delivery of the
documents, any request should be made by _________, 2000.
Table of Contents
Page
----
INTRODUCTION...................................................................1
CHAPTER I - THE MERGER.........................................................2
Questions and Answers About the Merger.....................................2
Summary....................................................................4
The Companies.........................................................4
Our Reasons for the Merger............................................4
Approval of The Merger................................................4
Our Recommendations to Shareholders...................................5
The Merger............................................................5
Selected Consolidated Financial Information of HAI.........................8
Selected Consolidated Financial Information of HealthAxis.................10
Market Price Information..................................................11
Comparative Per Share Data (Unaudited)....................................13
Risk Factors..............................................................14
Forward Looking Statements................................................33
Recent Developments.......................................................35
The Merger................................................................39
Material Terms of the Merger Documents...............................39
Background of the Merger.............................................46
Opinion of Advest Group, Inc.........................................47
HAI's Reasons for the Merger.........................................50
Opinion of Warburg Dillon Read LLC...................................50
HealthAxis' Reasons for the Merger...................................53
Interests of HealthAxis' Management and Shareholders in the Merger...54
Ownership of HAI Following the Merger................................55
Management of HAI Upon Consummation of the Merger....................55
Regulatory Matters...................................................55
Affiliate Letters....................................................56
Resale of HAI Common Stock...........................................56
No Dissenters' Rights for HAI Shareholders...........................56
Rights of Dissenting HealthAxis Shareholders.........................56
Material Federal Income Tax Consequences.............................60
<PAGE>
Accounting Treatment.................................................62
NASDAQ Listing.......................................................62
Pro Forma Combined Financial Information..................................64
Information Concerning HealthAxis.........................................73
General..............................................................73
Health Insurance Industry............................................75
The HealthAxis Solution..............................................77
The HealthAxis Strategy..............................................79
Revenue Model........................................................80
Products.............................................................81
Consumer Services Group..............................................81
Application Solutions Group..........................................84
Business Administration Applications.................................85
Technology Development...............................................89
Carrier Partners.....................................................89
Application Solutions Group Clients..................................92
Strategic Alliances..................................................92
Sales and Marketing..................................................93
Marketing Agreements.................................................95
Intellectual Property and Technology.................................96
Competition..........................................................98
Privacy Policy.......................................................99
Regulation...........................................................99
Facilities..........................................................100
Employees...........................................................100
Litigation Matters..................................................100
Management's Discussion and Analysis of Financial Condition and
Results of Operations of HealthAxis.................................101
Management of HealthAxis.................................................105
Principal Shareholders of HealthAxis.....................................108
Comparison of Capital Stock and Shareholders' Rights.....................110
CHAPTER II - INFORMATION ABOUT THE ANNUAL MEETINGS AND VOTING................118
The HAI Annual Meeting...................................................118
When and Where the HAI Annual Meeting Will be Held..................118
How to Attend and Participate in the HAI Annual Meeting.............118
What Will be Voted Upon.............................................118
Only HAI Shareholders of Record as of ___________, 2000
Are Entitled to Vote...........................................119
Majority of Outstanding Shares Must be Represented
For a Vote to be Taken.........................................119
Vote Required.......................................................119
Voting Your Shares..................................................120
Changing Your Vote by Revoking Your Proxy...........................120
How Proxies Are Counted.............................................120
Cost of Solicitation................................................121
The HealthAxis Annual Meeting............................................121
When and Where the HealthAxis Annual Meeting Will be Held...........121
How to Attend and Participate in the HealthAxis Annual Meeting......121
ii
<PAGE>
What Will be Voted Upon.............................................121
Only HealthAxis Shareholders of Record as of ____________, 2000
Are Entitled to Vote...........................................122
Majority of Outstanding Shares Must be Represented
For a Vote to be Taken.........................................122
Vote Required.......................................................122
Voting Your Shares..................................................122
Changing Your Vote by Revoking Your Proxy...........................123
How Proxies Are Counted.............................................123
Cost of Solicitation................................................123
Proxy Statement Proposals...........................................123
CHAPTER III - OTHER HAI ANNUAL MEETING PROPOSALS.............................125
ITEM 1 - ELECTION OF HAI DIRECTORS.......................................125
HAI Board of Directors..............................................125
Meetings and Committees of the Board of Directors...................127
Director Compensation...............................................128
Compliance with Section 16(a) of the Exchange Act...................128
Report of the Executive/Compensation/Nominating Committee...........128
Executive Compensation..............................................132
Summary Compensation Table..........................................132
Option Grants in 1999...............................................134
Aggregate Option Exercises in 1999 and Year-End Values..............136
Performance Graph...................................................138
Stock Ownership of Directors, Nominees and Officers of HAI..........139
ITEM 2 - HAI MERGER PROPOSAL.............................................142
ITEM 3 - ADOPTION AND APPROVAL OF AMENDED AND RESTATED ARTICLES OF
INCORPORATION...................................................143
ITEM 4 - APPROVAL OF THE 2000 STOCK OPTION PLAN..........................146
General.............................................................146
Eligibility.........................................................146
Types of Awards.....................................................146
Administration......................................................146
Common Stock Subject to the 2000 Stock Option Plan..................147
Limitation on Maximum Number of Options Awarded.....................147
Change in Control...................................................147
Exercise Price of Options/Payment of Exercise Price.................147
Special Provisions for Incentive Stock Options......................148
Exercisability and Expiration of Options............................148
Expiration of the 2000 Stock Option Plan............................148
Adjustments.........................................................148
Transferability of Non-Qualified Stock Options......................149
Amendments..........................................................149
Awards Under the 2000 Stock Option Plan.............................149
Federal Income Tax Consequences of the 2000 Stock Option Plan.......149
ITEM 5 - APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS......................152
ITEM 6 - ADJOURNMENT.....................................................152
CHAPTER IV - OTHER HEALTHAXIS ANNUAL MEETING PROPOSALS.......................153
iii
<PAGE>
ITEM 1 - ELECTION OF HEALTHAXIS DIRECTORS................................153
Board of Directors and Committees...................................153
Director Compensation...............................................153
Employment Agreements...............................................154
Stock Option Plan...................................................154
Insurdata Incorporated's Founders' Stock Option Plan................156
Executive Compensation..............................................156
Relationship With HAI And UICI......................................156
Certain Transactions................................................161
ITEM 2 - HEALTHAXIS MERGER PROPOSAL......................................163
ITEM 3 - ADJOURNMENT.....................................................164
CHAPTER V - OTHER MATTERS....................................................164
Where You Can Find More Information.................................164
Legal Matters.......................................................165
Experts.............................................................165
Financial Statements................................................166
Annual Report On Form 10-K..........................................166
Shareholder Proposals...............................................166
CHAPTER VI - CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHAXIS.COM, INC.
AND INSURDATA INCORPORATED......................................F-1
APPENDICES
Appendix A Agreement and Plan of Reorganization
Appendix B Agreement and Plan of Merger
Appendix C Subchapter D of Chapter 15 of the Pennsylvania Business
Corporation Law - Dissenters' Rights
Appendix D Opinion of Advest Group, Inc.
Appendix E Opinion of Warburg Dillon Read LLC
Appendix F Amended and Restated Articles of Incorporation of HealthAxis Inc.
Appendix G 2000 Stock Option Plan
iv
<PAGE>
INTRODUCTION
This joint proxy statement/prospectus is being mailed to shareholders of
HealthAxis Inc. (formerly Provident American Corporation) and HealthAxis.com,
Inc., referred to in this document as HealthAxis, in connection with each
company's annual meeting of shareholders. The document is organized into six
chapters.
Chapter I - "The Merger" provides summary and detailed information about
HAI's and HealthAxis' proposed merger on which the shareholders of each company
will vote at their annual meetings.
Chapter II - "Information About the Annual Meetings and Voting" provides
information about HAI's and HealthAxis' annual meetings, how shareholders may
vote or grant a proxy and the vote required to adopt each proposal.
Chapter III - "Other HAI Annual Meeting Proposals" provides information
about the other matters that HAI shareholders will vote on at the HAI annual
meeting, including election of directors, approval and adoption of Amended and
Restated Articles of Incorporation and approval and adoption of the 2000 Stock
Option Plan. HealthAxis shareholders will not vote on these matters.
Chapter IV - "Other HealthAxis Annual Meeting Proposals" provides
information about the other matters that HealthAxis' shareholders will vote on
at the HealthAxis annual meeting, including election of directors. HAI
shareholders will not vote on these matters.
Chapter V - "Other Matters" includes "Where You Can Find More
Information" which explains where shareholders of HAI and HealthAxis can find
more information about each of the companies; "Financial Statements" which
provides information on the financial statements included in this document; and
"Annual Report on Form 10-K" and "Shareholder Proposals" which explain how you
can obtain a HAI Form 10-K and how to submit a shareholder proposal.
Chapter VI - "Consolidated Financial Statements of HealthAxis.com, Inc.
and Insurdata Incorporated" provides historical financial information for both
companies.
You should read this joint proxy statement/prospectus carefully before
you vote your shares.
<PAGE>
CHAPTER I - THE MERGER
Questions and Answers About the Merger
Q: What do I need to do now?
A: Just sign your proxy card and mail it to us in the enclosed return
envelope as soon as possible, so that your shares may be represented at
your annual meeting. Both the HAI and HealthAxis annual meetings will
take place on ____________, 2000.
Q: What if I want to change my vote?
A. Just send in a later-dated, signed proxy card before your annual meeting
or attend your annual meeting in person and vote.
Q. Will I have dissenters' rights?
A. HAI shareholders will not be entitled to dissenters' rights in connection
with the merger.
HealthAxis shareholders who do not wish to accept the HAI common stock to
be issued in the merger have dissenters' rights, including the right to
have the "fair value" of their shares determined by the Pennsylvania
Court of Common Pleas. These dissenters' rights are subject to a number
of restrictions and technical requirements. Generally, in order to
exercise dissenters' rights:
o HealthAxis shareholders must not vote in favor of the merger; and
o HealthAxis shareholders must make a written demand for appraisal
before the vote on the merger.
Merely voting against the merger will not protect HealthAxis
shareholders' right of appraisal. Appendix C contains the text of the
Pennsylvania dissenters' rights statute.
Please note that HAI has the right to abandon the transaction if the
holders of 10% or more of HealthAxis stock exercise their dissenters'
rights.
Q: When do you expect the merger to be completed?
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: In connection with the merger, each share of HealthAxis preferred stock
will automatically convert into one share of HealthAxis common stock.
Additionally, as a result of the merger, for each share of HealthAxis
common stock, HealthAxis shareholders will receive 1.127 shares of HAI
common stock.
No fractional shares of HAI common stock will be issued. Instead,
HealthAxis shareholders will receive shares of HAI common stock rounded
down to the nearest whole number of shares of HAI common stock and cash
will be paid for fractional shares. HealthAxis stock options will be
converted into HAI stock options at the share exchange ratio for
HealthAxis common stock with an adjusted exercise price. Please refer to
page 39 for more information regarding the treatment of HealthAxis stock
options. Warrants to purchase HealthAxis stock will be converted into
warrants to purchase that number of shares of HAI common stock which the
holders of the warrants would have received if the warrants had been
exercised immediately prior to the merger.
2
<PAGE>
Q: What are the tax consequences of the merger to me?
A: 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 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.
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 for a full understanding of the tax consequences of the
merger to you.
3
<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
164.
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 January 31, 2000, HAI had 13,029,786 shares of its common
stock outstanding.
HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, Pennsylvania 19401
(610) 279-2500
HealthAxis is a leading web-based insurance retailer providing fully
integrated, end-to-end, web-enabled solutions for health insurance distribution
and administration. HealthAxis serves both consumers and insurance payors, which
include commercial carriers, third-party administrators, Blue Cross/Blue Shield
plans, and self-insured employers. These entities are referred to as payors in
this document. HealthAxis' consumer services group is a web-based retailer of
health insurance products and related consumer services. HealthAxis' application
solutions group offers a platform of web-enabled software applications and
services to payors designed to enhance the efficiency and effectiveness of the
claims administration, benefits enrollment, benefits maintenance and data
capture activities involved in the administration of health insurance.
In January 2000, HealthAxis acquired Insurdata Incorporated, an insurance
software and services company located in Dallas, Texas. The operations of
Insurdata Incorporated are referred to as the application solutions group.
Our Reasons for the Merger
o HealthAxis' improved ability to raise capital on more favorable terms in
the public equity markets;
o streamlined corporate structure eliminates dual shareholder approval
requirements;
o increased 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 49 to 50 and 52 to 53.
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 7.4% of the outstanding shares of HAI common stock.
4
<PAGE>
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, certain directors
of HealthAxis have the ability to vote an additional 27.6% of the outstanding
capital stock of HealthAxis based upon their positions as trustees of certain
voting trusts.
Our Recommendations to Shareholders
To HAI shareholders:
The HAI board believes that the merger is in your best interest and
unanimously 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
unanimously 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 55)
The merger provides for the conversion of each outstanding share of
HealthAxis common stock into 1.127 shares of HAI common stock. This ratio of
shares of HAI common stock into which each outstanding share of HealthAxis
common stock will be converted is referred to in this joint proxy
statement/prospectus as the exchange ratio.
We anticipate that HAI will issue a total of 33,386,730 shares of HAI
common stock to HealthAxis shareholders in the merger. We also anticipate that
HAI will issue up to an additional 6,072,728 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 to be assumed by HAI,
following the merger, existing HAI shareholders will own approximately 28% and
former HealthAxis shareholders will own approximately 72% of the outstanding
common stock of HAI.
Board of Directors and Management of HAI Following the Merger (see page 55)
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.
Interests of HealthAxis' Management and Shareholders in the Merger (see page 54)
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.
5
<PAGE>
Conditions to the Merger (see page 44)
The completion of the merger depends upon the satisfaction or waiver of a
number of conditions.
Termination of the Merger Documents (see page 45)
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 July 31, 2000, or if
the conditions are not met by July 31, 2000.
Opinions of Financial Advisors (see page 47 and 50)
In deciding to approve the merger, HAI's board considered the opinion from
its financial advisor, Advest Group, Inc., that the stock consideration paid to
HAI shareholders is fair, from a financial point of view, to HAI and its
shareholders. This opinion is attached as Appendix D to this joint proxy
statement/prospectus. We encourage you to read this opinion.
In connection with the merger, the HealthAxis board of directors
received a written opinion from Warburg Dillon Read LLC as to the fairness, from
a financial point of view, of the exchange ratio provided for in the merger to
the holders of HealthAxis common stock, other than HAI and its affiliates. The
full text of Warburg Dillon Read's written opinion dated January 26, 2000 is
attached to this joint proxy statement/prospectus as Appendix E. 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. Warburg Dillon Read's opinion is directed to the HealthAxis
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 62)
The shares of HAI common stock issued in connection with the merger will be
listed on the NASDAQ National Market. In connection with the merger, HAI changed
its trading symbol to "HAXS."
Dividends After the Merger (see page 32)
Historically, neither HAI nor HealthAxis has paid dividends. HAI does not
anticipate paying cash dividends on its common stock in the foreseeable future.
In addition, HAI is restricted from declaring and paying dividends by the
provisions of a guarantee agreement. HAI currently intends to retain future
earnings to finance its operations and fund the growth of its business. Any
payment of future dividends will be at the discretion of the HAI board and will
depend upon, among other things, HAI's earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions with respect to
the payment of dividends and other factors that the HAI board deems relevant.
Federal Income Tax Consequences (page 60)
HAI received an opinion from its outside counsel that the merger will
constitute a "reorganization" within the meaning of the Internal Revenue Code of
1986. This means that, as a general matter, HealthAxis shareholders will not be
subject to tax as a result of the exchange of HealthAxis shares solely for HAI
common stock in the merger. HealthAxis shareholders also will not be able to
take into account any losses on their HealthAxis shares.
Dissenters' Rights (page 56)
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
6
<PAGE>
statute, a copy of which is attached as Appendix C. 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, a copy of which is attached as
Appendix C. Dissenters' rights will be forfeited 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 Subchapter D
attached as Appendix C to this joint proxy statement/prospectus.
Regulatory Matters (page 55)
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.
7
<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 two years ended December 31, 1998 have
been audited by BDO Seidman, LLP and information for the three years ended
December 31, 1996 by HAI's previous auditors. All information has been restated
to present as discontinued operations HAI's insurance operations which consisted
primarily of Provident Indemnity Life Insurance Company and its subsidiaries
which were sold on November 30, 1999. The financial information for the nine
months ended September 30, 1998 and 1999 is unaudited. Operating results for the
nine months ended September 30, 1998 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,
1999, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999.
<TABLE>
<CAPTION>
For the Nine Months
For the Year Ended December 31, Ended September 30,
------------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- ------- --------- --------- -------- --------
(Dollars in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interactive commission and fee
income ....................................... $ -- $ -- $ -- $ -- $ -- $ -- $ 125
Other revenue.................................. 65 87 41 1,162 92 66 240
-------- -------- ------- --------- --------- -------- ---------
Total revenue................................ 65 87 41 1,162 92 66 365
-------- -------- ------- --------- --------- -------- ---------
Expenses:
Operating and development.................... -- -- -- -- 812 273 4,580
Sales and marketing.......................... -- -- -- -- 1,295 1,425 12,100
General and administrative................... 372 271 744 1,908 4,730 2,402 3,762
Amortization of goodwill..................... -- -- -- -- -- -- 108
Interest expense............................. 69 101 54 35 314 470 565
-------- -------- ------- --------- --------- -------- ---------
Total expenses............................... 441 372 798 1,943 7,151 4,570 21,115
Loss before minority interest.................. (376) (285) (757) (781) (7,059) (4,504) (20,750)
Minority interest in loss of
subsidiary.................................... -- -- -- -- (716) -- (2,188)
Loss from continuing operations................ (376) (285) (757) (781) (6,343) (4,504) (18,562)
Income (loss) from discontinued operations .... (621) (3,416) 16,877 (17,644) (5,919) 1,503 (17,904)
-------- -------- ------- --------- --------- -------- ---------
Income (loss).................................. (997) (3,701) 16,120 (18,425) (12,262) (3,001) (36,466)
-------- -------- ------- --------- --------- -------- ---------
Dividends on preferred stock.................. 334 334 194 148 148 111 70
-------- -------- ------- --------- --------- -------- ---------
Net income (loss) applicable to
common stock................................. $(1,331) $(4,035) $15,926 $(18,573) $(12,410) $(3,112) $(36,536)
======== ======== ======= ========= ========= ======== =========
Income (loss) per share of common
stock (basic):
Continuing operations....................... $ (0.08) $ (0.07) $(0.10) $ (0.09) $ (0.63) $ (0.46) $ (1.55)
Discontinued operations..................... $ (0.08) $ (0.37) $1.76 $ (1.75) $ (0.57) $0.15 $ (1.49)
-------- -------- ------- --------- --------- -------- ---------
Continuing and discontinued
operations................................. $ (0.16) $ (0.44) $1.66 $ (1.84) $ (1.20) $ (0.31) $ (3.04)
======== ======== ======= ========= ========= ======== =========
Income (loss) per share of common
stock (diluted):
Continuing operations....................... $ (0.08) $ (0.07) $(0.08) $ (0.09) $ (0.63) $ (0.46) $ (1.55)
Discontinued operations..................... $ (0.08) $ (0.37) $ 1.44 $ (1.75) $ (0.57) $0.15 $ (1.49)
-------- -------- ------- --------- --------- -------- ---------
Continuing and discontinued
operations................................. $ (0.16) $ (0.44) $ 1.36 $ (1.84) $ (1.20) $ (0.31) $ (3.04)
======== ======== ======= ========= ========= ======== =========
Weighted average common shares and
equivalents used in computing
income (loss) per share:
Basic ..................................... 8,421,000 9,100,000 9,610,000 10,090,000 10,331,000 10,131,000 12,021,000
Diluted..................................... 8,421,000 9,100,000 11,674,000 10,090,000 10,331,000 10,131,000 12,021,000
Per share dividends paid on common
stock
Basic....................................... -- $0.02 -- -- -- -- --
Diluted ................................... -- $0.02 -- -- -- -- --
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
At December 31, At September 30,
--------------------------------------------------- --------------------
Balance Sheet Data: 1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments............................ 39,467 46,890 61,942 47,101 32,969 44,477 --
Total Assets........................... 60,586 67,151 93,054 98,365 116.689 100,735 125,248
Loans and debentures payable........... 1,166 830 298 5,077 3,865 3,630 24,528
Stockholders' equity (deficiency)...... 4,530 3,424 22,053 4,009 5,495 7,673 (17,690)
Stockholders' equity (deficiency) per
common share(1) ...................... 0.48 0.34 2.08 0.38 0.48 0.71 (1.37)
</TABLE>
- ----------------------------------------
(1) Assumes conversion of Series A and Series B preferred stock into common
stock of HAI on a share-for-share basis in years 1994 and 1995 and
conversion of Series A preferred stock in 1996, 1997 and 1998 on a
share-for-share basis.
9
<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, 1998 has been
audited by BDO Seidman, LLP. Information for years prior to 1998 is not included
in the table below because HealthAxis was organized in 1998. The financial
information for the nine months ended September 30, 1998 and 1999 is unaudited.
Operating results for the nine months ended September 30, 1998 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, 1999, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999.
<TABLE>
<CAPTION>
For the Year Ended For the Nine Months
December 31, Ended September 30,
------------------- -------------------------
1998 1998 1999
------------------- ----------- ---------
(Dollars in thousands, except share and per share data)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues:
Commissions.................................................. $ -- $ -- $ 125
Interest and other revenue................................... 2 -- 212
----------- ----------- -----------
Total revenues............................................. 2 -- 337
Expenses:
Operating and development.................................. 812 273 3,922
Selling and marketing...................................... 1,295 1,425 12,100
General and administrative................................. 2,544 1,355 2,542
Amortization of goodwill................................... -- -- 108
Interest expense........................................... 141 122 6
----------- ----------- -----------
Total operating expenses................................... 4,792 3,175 (18,678)
----------- ----------- -----------
Loss......................................................... (4,790) (3,175) (18,341)
Dividends on preferred stock................................. 106 -- 129
----------- ----------- -----------
Net loss applicable to common stock.......................... $ (4,896) $ (3,175) $ (18,470)
=========== =========== ===========
Loss per share of common stock:
Basic and diluted.......................................... $ (0.35) $ (0.24) $ (1.12)
Weighted average common shares and equivalents used in
computing loss per share:
Basic and diluted.......................................... 14,027,000 13,125,000 16,479,000
Balance Sheet Data:
Cash and cash equivalents.................................... $ 1,724 $ -- $ 6,891
Total assets................................................. 14,969 7,958 24,234
Stockholders' equity......................................... 7,752 5,554 18,548
Stockholders' equity per common share........................ 0.55 0.42 1.13
</TABLE>
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 (through January 31, 2000)......................... 23-7/8 36-1/2
</TABLE>
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 February 7, 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. February 7, 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
February 7, 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 1.127. 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
February 7, 2000.
<TABLE>
<CAPTION>
Pro Forma Price Equivalent of HealthAxis Stock
---------------------------------------------------------
Preferred Stock
HAI ----------------------------------------------
Common Common
Stock Stock Series A Series B Series C Series D
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
January 31, 2000................. $25.2500 $28.4568 $28.4568 $28.4568 $28.4568 $28.4568
February 7, 2000................. $27.0625 $30.5000 $30.5000 $30.5000 $30.5000 $30.5000
</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 historical and equivalent pro forma per share data for HealthAxis.
Equivalent pro forma per share amounts for HealthAxis were calculated by
multiplying the relevant HAI pro forma amount by 1.127, the share exchange ratio
for HealthAxis common stock. 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 "Selected Unaudited 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>
For the Year Ended For the Nine Months
December 31, Ended September 30,
-------------------------------------------------
1998 1999
-------------------------------------------------
<S> <C> <C>
Book Value Per Common Share
Historical(1):
HAI.......................................... N/A $ (1.37)
HealthAxis................................... N/A $ 0.62
Pro forma:
Pro forma per share of HAI Common Stock(2)... N/A $ 15.14
Equivalent pro forma per share of HealthAxis
Common Stock............................... N/A $ 17.06
Loss from Continuing Operations Per Common Share:
Basic and Diluted Earnings per Share:
Historical:
HAI.......................................... $ (0.63) $ (1.55)
HealthAxis................................... $ (0.35) $ (1.12)
Pro forma:
Pro forma per share of HAI common stock...... $ (5.13) $ (4.40)
Equivalent pro forma per share of
HealthAxis Common Stock.................... $ (5.78) $ (4.96)
</TABLE>
- ----------------------
(1) This historical book value per common share is computed by dividing total
stockholders' equity by the number of shares of common stock outstanding at
the end of the period, except that the historical book value per common
share with respect to HealthAxis is computed by dividing total
stockholders' equity by 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. The pro forma book
value per share is computed by dividing pro forma stockholders' equity by
the pro forma number of shares of common stock as of each of the periods
presented.
(2) The HealthAxis per share equivalents are calculated by multiplying the pro
forma combined per share amounts of HAI by 1.127, the share exchange ratio
for HealthAxis common stock.
Neither HAI nor HealthAxis paid any cash dividends during the periods
indicated in the table above.
13
<PAGE>
Risk Factors
Business Related Risks
HealthAxis' consumer services group has not had any profits in the past and may
not be profitable in the future.
Since its inception, HealthAxis' consumer services group has incurred
costs:
o to develop and enhance its technology;
o to create, introduce and enhance its website; and
o to establish marketing, insurance carrier and claims administration
relationships.
As a result of these expenditures, HealthAxis' consumer services group
has incurred significant losses and expects to continue to incur losses on a
quarterly and annual basis for the foreseeable future. As of September 30, 1999,
the consumer services group had an accumulated deficit of approximately $23.1
million. The consumer services group currently intends:
o to increase substantially its operating expenses;
o to fund increased sales efforts and marketing;
o to enhance its website; and
o to fund increased salaries and other operating costs.
To the extent that these expenses precede or are not subsequently
followed by increased revenues, HealthAxis' business, results of operations and
financial condition will be materially adversely affected. There can be no
assurance that HealthAxis will be able to generate sufficient revenues from the
consumer services and its application solutions group to achieve or maintain
profitability on a quarterly or annual basis in the future. HealthAxis expects
negative cash flow from operations to continue for the foreseeable future. See
"-- Management's Discussion and Analysis of Financial Condition and Results of
Operations of HealthAxis."
HealthAxis' consumer services group has a limited operating history so it is
difficult to predict its future performance.
HealthAxis was incorporated in March 1998 and began selling a limited
line of health insurance products over the Internet in December 1998. The
limited operating history of the HealthAxis consumer services group makes it
difficult to evaluate HealthAxis' future prospects. Furthermore, HealthAxis'
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in new, unproven and rapidly evolving
markets. To address these risks, HealthAxis must, among other things:
o develop and expand its consumer and business-to-business bases,
o respond to competitive developments,
o continue to attract, retain and motivate qualified employees,
o maintain its current relationships with Internet service providers,
carrier partners and payors; and
o continue to upgrade its technologies.
14
<PAGE>
There can be no assurance that HealthAxis will be successful in addressing these
risks. If HealthAxis is not successful in developing and expanding both the
consumer services and application solutions group, HealthAxis' ability to make a
profit will be adversely affected. See "-- Management's Discussion and Analysis
of Financial Condition and Results of Operations of HealthAxis."
The development of the HealthAxis brand is critical to its financial success.
HealthAxis believes its ability to create and continue to strengthen
its brand identity is critical to achieving widespread acceptance, particularly
in light of the competitive nature of HealthAxis' business. Promoting and
positioning its brand identity will depend largely on the success of HealthAxis'
marketing efforts and the ability of HealthAxis to provide high quality
insurance products and services. In order to promote its brand identity,
HealthAxis will need to increase its marketing efforts and its financial
commitment to create and maintain brand awareness and loyalty among Internet
users. There can be no assurance that these brand promotion activities will
yield increased revenues or that these revenues would offset the expenses we
incur in building HealthAxis' brand identity. If HealthAxis fails to promote and
maintain its brand identity despite expenses incurred in pursuit of this goal or
if HealthAxis' existing or future strategic relationships fail to promote
HealthAxis' brand identity and increase brand awareness, HealthAxis would be
materially adversely affected. See "-- Information Concerning HealthAxis -- The
HealthAxis Strategy."
If the healthcare industry does not accept HealthAxis' new information
technology, or acceptance occurs at a slower pace than anticipated by
HealthAxis, HealthAxis' profits may be negatively impacted.
HealthAxis believes that the claims and administration segment of the
healthcare industry has historically under-invested in information technology
and existing technological platforms have failed to address the unique needs of
the healthcare industry. There can be no assurance that conversion from
traditional paper methods to electronic information exchange will continue to
occur or that the conversion will occur at levels currently anticipated by
HealthAxis. In fact, electronic information exchange and transaction processing
by the industry is still developing. Further, there can be no assurance that
industry participants who convert to electronic information exchange will use
HealthAxis' applications and services.
Competition from other insurance providers with longer operating histories and
greater financial resources than HealthAxis may have a material adverse effect
on its business.
Although HealthAxis believes it is the first transaction-enabled,
Internet-based direct distributor of health insurance, other competitors have
established similar websites. Certain of these competitors have greater
financial and marketing resources than HealthAxis. In addition, in the area of
health insurance sales, HealthAxis will compete with large insurance and
financial service companies with established insurance agent networks as well as
with independent insurance agents and brokers. Substantially all of HealthAxis'
potential competitors have longer operating histories, significantly greater
financial, marketing and other resources, greater name recognition and
significantly larger existing customer bases than HealthAxis. These competitors
may be able to respond more quickly to changes in consumer preferences and to
devote greater resources to the development, promotion and sale of their
products or to claims processing services than HealthAxis.
15
<PAGE>
The application solutions group's potential competitors in the
healthcare technology area include specialty healthcare information technology
companies, software vendors and large data processing and information companies.
The application solutions group also competes with the internal information
resources and systems of certain of its prospective and existing clients. There
can be no assurance that competitors will not develop or offer superior
functionality with respect to specific or overall applications. We also cannot
assure you that potential and current clients will not prefer other features of
competitive products or that pricing will not erode as competition becomes more
intense. Some of the application solutions group's current and potential
competitors are larger, better capitalized and have greater financial and
operating resources than HealthAxis. In addition, current and potential
competitors, including providers of information technology to other segments of
the healthcare industry, may establish joint marketing arrangements or other
relationships and new competitors may emerge.
HealthAxis' failure to compete successfully in the health insurance
industry, either in the online marketing of insurance products or the sale of
healthcare technology, would have a material adverse effect on HealthAxis'
business, results of operations and financial condition. See "-- Information
Concerning HealthAxis -- Competition."
If HealthAxis is unable to continue to secure the additional financing it needs
to sustain and expand its business, its business will not succeed.
HealthAxis expects that it will be required to raise additional funds
over the long-term to sustain and expand its sales, marketing and development
activities. HealthAxis will have to do this in light of the emergence of several
well-financed competitors and the ongoing technological enhancements which are
necessary in order for HealthAxis to remain competitive.
HealthAxis' current funding commitments for the initial terms of
agreements with America Online Inc., Lycos, Inc., CNet Inc., Snap!, LLC and
Yahoo! Inc. will be approximately $1.3 million in 2000. (Renewal terms are
available under the America Online Inc., CNet Inc. and Snap!, LLC agreements and
may be renewed at the option of HealthAxis. The Lycos, Inc. renewal term is
based upon policies sold.) Although HealthAxis believes that the funds
previously raised during fiscal 1999 will be sufficient to fund HealthAxis'
operations through fiscal 2000, HealthAxis cannot assure you that the funding
will be sufficient. As a result of these funding needs, HealthAxis may need to
seek external debt and/or equity financing. Adequate funds on terms acceptable
to HealthAxis, whether through additional equity financing, debt financing or
other sources, may not be available when needed or may result in significant
dilution to existing shareholders. The inability to obtain sufficient funds from
operations and external sources would have a material adverse effect on
HealthAxis' business, results of operations and financial condition.
HealthAxis may be unable to manage future growth.
HealthAxis may experience a period of significant expansion in its
customer base and market opportunities. If this growth occurs, HealthAxis
anticipates that future infrastructure expansion will be required to address
this potential growth. A period of rapid and significant growth may place
significant demands on HealthAxis' management, operations, systems and financial
resources. To the extent that HealthAxis grows rapidly, it will encounter risks,
including risks associated with the assimilation of new personnel and products.
HealthAxis may also face risks associated with increasing the capacity of its
16
<PAGE>
website. HealthAxis' new employees include a number of key managerial,
marketing, planning, technical and operations personnel. To manage the expected
growth of HealthAxis' operations and personnel, it will need to update its
transactions processing, operational and financial systems, procedures and
controls. HealthAxis will also have to expand, train and manage its growing
employee base. HealthAxis may also be required to expand its finance,
administrative and operations staff. In addition, HealthAxis may be required to
enter into relationships with various additional strategic partners, websites
and other online service providers and other third parties necessary to support
its business.
HealthAxis cannot assure you that:
o current and planned personnel, systems, procedures and controls will
be adequate to support HealthAxis' future operations,
o management will be able to hire, train, retain, motivate and manage
required personnel; or
o management will be able to identify, manage and exploit existing and
potential strategic relationships and market opportunities.
HealthAxis' ability to compete effectively will depend, in part, upon its
ability to overcome these growth related risks and to revise, improve and
effectively use its operational, management, marketing and technical systems.
There can be no assurance that HealthAxis will be able to effectively manage the
growth. HealthAxis' failure to effectively manage its growth and to respond to
changes in its business would have a material adverse effect on its business,
results of operations and financial condition. See "-- Management of
HealthAxis."
HealthAxis depends upon a number of key personnel, and a loss of any of those
individuals could disrupt operations.
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 loss of the services
of any of HealthAxis' executive officers or other key employees could seriously
impair its ability to operate which would have a material adverse effect on
HealthAxis' business.
In order to achieve its business objectives, HealthAxis must hire
additional personnel to fill certain key managerial positions. HealthAxis'
future success will depend 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 must
also identify, attract, train, motivate and retain other highly skilled,
technical, managerial, accounting and other personnel. HealthAxis competes
intensely for these personnel and may be unable to achieve these personnel
goals. HealthAxis' failure to achieve any of these goals could seriously limit
our ability to improve our operations and financial results. See "-- Management
of HealthAxis."
17
<PAGE>
HealthAxis may not be able to attract or retain highly skilled technical and
managerial personnel, which could slow its growth.
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, and there is no certainty that we will
be able to successfully attract, integrate or retain sufficiently qualified
personnel, including software developers and other technical experts. The
failure to attract and retain the necessary personnel could have a material
adverse effect on our business. See "-- Management of HealthAxis."
The application solutions group may not have sufficient resources to generate
and sustain its growth.
HealthAxis' application solutions group's growth strategy depends on
its ability to successfully market and expand the application solutions group's
services. The marketing of the application solutions group's services and
refining and expanding the services it offers requires a significant investment
of capital and a significant amount of management resources.
If the HealthAxis application solutions group experiences a period of
substantial expansion in the outsourcing business, it may be required to make
substantial investments in capital assets and personnel. There can be no
assurances that the application solutions group will be able to assess
accurately the investment required and negotiate and perform in a profitable
manner any of the contracts it may be awarded. The application solutions group's
failure to estimate accurately the resources and related expenses required for a
project or its failure to complete its contractual obligations in a manner
consistent with the project plan upon which a contract was based could have a
material adverse effect on its business, results of operations and financial
condition.
There can be no assurances that the application solutions group will be
successful in marketing its services or increasing the number of client
relationships. In addition, the application solutions group's failure to meet a
client's expectations in the performance of its services could damage its
reputation and adversely affect HealthAxis' ability to attract new business.
There can be no assurance that HealthAxis will have sufficient financial,
managerial or other resources to generate or sustain the growth and
profitability of the application solutions group or to expand its other services
in response to client needs. Any failure by HealthAxis to successfully implement
its growth strategy, including the expansion or development of its technology
based services, could have a material adverse effect on HealthAxis' business,
results of operations and financial condition. See" - Information Concerning
HealthAxis - Application Solutions Group."
If the application solutions group is unable to respond quickly to technological
developments and new products developed by competitors, HealthAxis' ability to
attract and maintain customers will suffer.
The market for healthcare information technology is characterized by
rapid technological developments, frequent new product introduction and evolving
industry standards. HealthAxis' future success will depend in part upon its
ability:
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o to enhance its current applications,
o to respond effectively to technological changes,
o to successfully sell additional services to HealthAxis' existing
client base; and
o to introduce new solutions that address the increasingly
sophisticated needs of HealthAxis' clients.
There can be no assurance that HealthAxis' application solutions group
will successfully develop new applications or enhancements to its existing
applications. In addition, there can be no assurance that the application
solutions group's current or future applications will satisfy the needs of the
industry. Products or technologies developed by competitors may adversely affect
HealthAxis' competitive position or render its technologies noncompetitive or
obsolete. If HealthAxis is unable to develop and introduce new applications and
enhancements successfully and on a timely basis, and to achieve market
acceptance for those applications and enhancements, HealthAxis' business,
results of operations and financial condition may be materially adversely
affected. See "-- Information Concerning HealthAxis -- Intellectual Property and
Technology."
Errors in the applications solutions could detract from the reliability and
quality of the application solutions group's information systems, which in turn,
would have an adverse effect on HealthAxis' business.
The claims and administration segment of the healthcare industry
demands a high level of reliability and quality from its information systems.
Although the application solutions group devotes substantial resources to
meeting these demands, its application solutions may, from time to time, 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. Many of the application solutions group's service
agreements contain performance standards, and the application solutions group's
inability to meet these standards could result in the early termination of these
agreements as well as financial penalties. Because of the importance of the
application solutions group's application solutions, errors or delays may result
in a material adverse effect on HealthAxis' business, results of operations and
financial condition.
HealthAxis has attempted to limit contractually and through insurance
coverage its damages arising from negligent acts, errors, mistakes or omissions
in rendering its services; however, there can be no assurance that these
contractual protections would be enforceable or would otherwise protect
HealthAxis from liability for damages. The successful assertion of one or more
large lawsuits against HealthAxis, together with the failure of any contractual
limitations to protect HealthAxis, could have a material adverse effect on
HealthAxis' business, results of operations and financial condition.
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HealthAxis may be unable to protect its proprietary technology.
HealthAxis' success depends to a significant extent on its ability to
protect the proprietary and confidential aspects of its software applications
and the tradenames associated with them. HealthAxis relies upon a combination of
trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions and various security measures to protect these
proprietary rights. HealthAxis' software applications are not patented and
existing copyright laws offer only limited practical protection. There can be no
assurance that any legal protections afforded to HealthAxis or precautions we
take will be adequate to prevent misappropriation of our technology or the
tradenames associated with them. Any infringement or misappropriation of
HealthAxis' proprietary software applications or the related tradenames could
have the effect of allowing competitors to use its proprietary information to
compete against HealthAxis. In addition, these limited protections do not
prevent independent third-party development of functionally equivalent or
superior technologies, products or services.
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. Policing the unauthorized use of HealthAxis' software and
other proprietary materials is difficult. HealthAxis believes that the
unregulated open access provided to third parties via the Internet creates a
substantial risk that HealthAxis' technology may be duplicated.
As competing healthcare information systems increase in complexity and
overall capabilities and the functionality of these systems further overlap,
providers of these systems may become increasingly subject to infringement
claims. As a result, 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.
There can be no assurance that HealthAxis would be able to develop
non-infringing technology or tradenames or that it could obtain a license on
commercially reasonable terms. Any of the above listed potential court-ordered
requirements could have a material adverse effect on HealthAxis' business,
results of operations and financial condition.
In December 1998, a third party notified Insurdata that it believed
Insurdata 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. In addition, HealthAxis was notified by the US
Patent and Trademark Office that it had preliminarily denied registration of the
trademark "HealthAxis.com" because it was confusingly similar to another
trademark currently in existence. See "-- Information Concerning HealthAxis --
Intellectual Property and Technology."
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A catastrophic loss at HealthAxis' data center could cause significant
interruptions.
The application solutions group's success depends on its ability:
o to store, retrieve, process and manage significant databases, and
o to periodically expand and upgrade its transaction processing
capabilities.
The application solutions group's principal computer equipment and
application systems are maintained in North Richland Hills, Texas. Although
HealthAxis' application solutions group maintains back-up systems in order to
continue operations, interruption or loss of HealthAxis' transaction processing
capabilities could have a material adverse effect on HealthAxis' business,
results of operations and financial conditions. The consumer services group
maintains critical computer operations at a single facility. In the event of a
catastrophic loss at this facility, resulting in destruction of HealthAxis'
computer operations, HealthAxis would experience a significant interruption of
its business until an alternative site is established. Further, there can be no
assurance that any contractual limitations relating to those losses or available
insurance will be sufficient to compensate HealthAxis for losses due to
HealthAxis' inability to provide services to its clients. See "-- Information
Concerning HealthAxis -- Intellectual Property and Technology."
HealthAxis' failure to meet certain performance standards described in its
service agreements could have a material adverse effect on its business.
As HealthAxis expands its client base and increases the volume of
transactions processed, it must continue to expand, adapt and maintain its
network infrastructure, which will require substantial financial, operational
and management resources. Many of HealthAxis' service agreements contain
performance standards and the failure by HealthAxis to meet these standards
could result in the termination of these agreements as well as financial
penalties, which could have a material adverse effect on HealthAxis' business,
results of operations and financial condition. If HealthAxis' network
infrastructure is unable to support the variety and number of transactions and
users anticipated, or if HealthAxis is unable to maintain performance standards,
HealthAxis' business, results of operations and financial condition may be
materially adversely affected.
Any failure of HealthAxis' Internet service providers or web browsers to provide
the necessary transmissions could result in interruptions of its service.
HealthAxis' ability to process transactions also depends on the
efficient operation of Internet connections from clients and customers to its
systems. These connections, in turn, are dependent upon the efficient operation
of web browsers and Internet service providers, all of which have experienced
periodic operational problems or service interruptions. Any problems or service
interruptions could adversely affect client satisfaction with HealthAxis'
applications and services, which could have a material adverse effect on
HealthAxis' business, results of operations and financial condition.
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<PAGE>
The loss of one or more of the application solutions group's large clients would
have a detrimental affect on HealthAxis' financial condition.
UICI, a major shareholder of HealthAxis, and its subsidiaries
constitute, in the aggregate, the application solutions group's largest client.
UICI and its subsidiaries accounted for approximately 65% of the application
solutions group's pro forma revenues in 1998. A portion of the application
solutions group's revenue from UICI in the past was for Year 2000 services which
were completed during 1999. However, UICI and its subsidiaries are expected to
remain HealthAxis' largest client for the foreseeable future. See "--
Information Concerning HealthAxis -- Application Solutions Group's Clients" and
"Chapter IV -- Other HealthAxis Annual Meeting Proposals -- Item 1 -- Election
of Directors -- Relationships with HAI and UICI."
In addition to UICI and its subsidiaries, two clients have historically
accounted for a substantial portion of the application solutions group's
revenue. One client is Continental Casualty Company and the other client is
National Capital Administrative Services. Continental Casualty Company accounted
for approximately 8% of the application solutions group's pro forma revenues in
1998 and 4.7% of pro forma revenue for the nine months ended September 30, 1999.
National Capital Administrative Services accounted for 11% of the application
solutions group's 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 are individually significant.
HealthAxis expects that a small number of clients, including UICI and
its subsidiaries, will continue to account for a substantial portion of the
application solutions group's total revenues for the foreseeable future. The
loss of one or more of these significant clients, or the failure of the
application solutions group to generate anticipated revenue from these clients,
could have a material adverse effect on HealthAxis' business, results of
operations and financial condition.
HealthAxis' operations outside of the United States may subject it to additional
risks.
HealthAxis conducts certain data capture operations in Jamaica through
Satellite Image Systems (Jamaica) Limited, a Jamaican subsidiary of HealthAxis
Imaging Services, LLC. Foreign operations generally involve greater risks than
do operations based solely in the United States. Foreign economies differ
favorably or unfavorably from the United States' economy in such respects as the
level of inflation and debt, which may result in fluctuations in the value of
the country's currency and real property. In addition, there may be less
government regulation in various countries, and difficulty in enforcing legal
rights outside the United States. Additionally, in some foreign countries, 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 the operations and assets of U.S.
companies doing business in that country. Many of these risks are more
pronounced for activities in developing countries, such as Jamaica. HealthAxis'
management has limited experience in the area of foreign operations. The
occurrence of any of these events could have a material adverse effect on
HealthAxis' business, results of operations and financial condition.
Internet Related Risks
If HealthAxis is unable to safeguard the security and privacy of consumers'
confidential data, consumers may not use its services and its business could be
harmed.
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A significant barrier to the popularity or acceptance of online
insurance sales and communications is the secure transmission of confidential
information over public networks. The application solutions group also retains
confidential client and patient claim information at its data center. Computer
viruses, break-ins or other security breaches could lead to misappropriation of
personal or proprietary information. These security breaches can also cause
interruptions, delays or cessation in service to HealthAxis' customers.
HealthAxis relies on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary to effect
secure transmission of confidential information, such as names, addresses,
social security numbers, consumer credit card numbers and claims information.
Advances in computer capabilities, new discoveries in the field of cryptography,
or other events or developments could result in a compromise or breach of the
algorithms HealthAxis uses to protect confidential application information and
policyholder claims data. Any compromise of HealthAxis' security could have a
material adverse effect on its reliability and reputation. Someone who is able
to circumvent HealthAxis' security measures could misappropriate proprietary or
personal information. This could also cause interruptions in HealthAxis'
operations or cessation of service to HealthAxis' policyholders and applicants.
In addition, someone could also cause HealthAxis to download viruses or other
objectionable materials, which could corrupt files containing third parties'
medical information. HealthAxis may be required to expend significant capital
and other resources to protect against these security breaches or to alleviate
problems caused by these breaches or viruses. There can be no assurance that
HealthAxis will be successful in maintaining the security of its operations or
the data stored in its data center.
There can be no assurance that HealthAxis' security measures will
prevent security breaches or that failure to prevent these security breaches
will not have a material adverse effect on HealthAxis. Although HealthAxis
carries general liability insurance (including errors and omissions coverage),
HealthAxis' insurance may not cover potential claims of this type or may not be
adequate to cover all costs incurred in defense of potential claims or to
indemnify HealthAxis for all liability that may be imposed. Any costs or
imposition of liability that is not covered by insurance or in excess of
insurance coverage could have a material adverse effect on HealthAxis' business,
results of operations and financial condition.
Consumer concerns over the security of transactions conducted on the
Internet and other online services and the privacy of users may also inhibit the
growth of the Internet and of online services. This could directly affect
HealthAxis' business which uses the Internet as a means of conducting commercial
transactions such as health insurance sales and claims processing, and where
consumers are required to send credit card and highly personal health
information over the Internet. See "-- Information Concerning HealthAxis --
Intellectual Property and Technology and -- Privacy Policy."
HealthAxis' future revenues depend upon whether consumers will accept the
Internet as a medium for health insurance sales.
HealthAxis has limited experience in the online insurance sales
business. Online purchases of health insurance products is a relatively new
development, and it is unclear whether the market will accept the Internet as a
medium for insurance sales.
HealthAxis' future success will depend in part on its ability to
significantly increase revenues, which will require the development and
widespread acceptance of the Internet as a medium for insurance sales. There can
be no assurance that consumers who are willing to purchase relatively simple,
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low cost and low risk items such as compact discs, flowers, books and groceries
over the Internet will be willing to purchase complicated and higher cost items
such as health and related insurance policies in the same manner. Further,
consumers who buy other items on the Internet may prefer to discuss insurance
decisions with an insurance agent in person instead of buying insurance through
the Internet. Finally, consumers may be unwilling to divulge highly personal
medical information through the Internet. See "-- Information Concerning
HealthAxis -- Privacy Policy."
HealthAxis cannot assure you that its products will be attractive to enough
customers so as to generate significant revenues.
HealthAxis cannot assure you that its products, application process,
pricing and Internet-based claims processing will be attractive to a sufficient
number of users to generate significant revenues to sustain profitable
operations. In addition, there can be no assurance that HealthAxis will be able
to anticipate, monitor and successfully respond to rapidly changing technology
and consumer preferences so as to continually attract and retain a sufficient
number of customers. If HealthAxis is unable to develop and implement
competitively priced products that allow it to attract, retain and expand its
customer base, its business, results of operations and financial condition could
be materially adversely affected. See "-- Information Concerning HealthAxis --
Health Insurance Industry."
If the Internet does not continue to develop and reliably support the demands
placed upon it by electronic commerce, HealthAxis' business will suffer.
The Internet, in general, as well as online services could lose their
viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet or other online
service activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the Internet
or other online services also could result in slower response times and
discourage usage of the Internet and other online services generally and
HealthAxis' services in particular. Accordingly, any adverse change or a failure
in the character of the Internet will have a corresponding adverse effect on
HealthAxis' business, results of operations and financial condition.
HealthAxis' success in attracting and retaining customers depends upon its
ability to keep system interruptions to a minimum.
A key element of HealthAxis' strategy is to generate a high volume of
traffic on, and use of, its website to generate insurance sales. Accordingly,
the satisfactory performance, reliability and availability of HealthAxis'
website, transaction processing systems and network infrastructure is critical
to HealthAxis' reputation and its ability to attract and retain customers and
maintain adequate policyholder service levels. HealthAxis' revenues depend in
part upon the number of consumers who purchase insurance products from its
website and the volume of renewals received. In addition, from time to time,
HealthAxis and its key suppliers may experience capacity constraints and
failures of their information systems, which could result in decreased levels of
service delivery or interruptions in service. While HealthAxis will continually
review and seek to upgrade its technical infrastructure and provide for certain
system redundancies and backup power to limit the likelihood of systems overload
or failure, any damage, failure or delay that causes interruptions in
HealthAxis' operations could have a material adverse effect on HealthAxis. Any
system interruptions that result in the unavailability of HealthAxis' website,
reduced applications processing or the unavailability of claims information
would reduce the volume of policies sold or claims processed and the
attractiveness of HealthAxis' insurance products.
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<PAGE>
HealthAxis believes that as part of doing business on the Internet, it
will, from time to time, experience periodic system interruptions. Any
unexpectedly high volume of traffic on HealthAxis' website or in the number of
applications placed by consumers may require HealthAxis to expand and upgrade
further its technology, transaction processing systems and network
infrastructure to accommodate that substantial increase in volume. HealthAxis
may be unsuccessful in its efforts to expand and upgrade HealthAxis' system. In
addition, HealthAxis may be unable to accurately project the rate or timing of
increases in the use of the HealthAxis website. Further, there can be no
assurance that HealthAxis will be able to expand and upgrade its systems and
infrastructure to accommodate those increases in a timely manner.
HealthAxis depends upon technology licensed from third parties for the success
of its operations.
HealthAxis relies upon 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, and the application
solutions group's mainframe servers. There can be no assurance that these
third-party technology licenses will continue to be available to HealthAxis on
commercially reasonable terms. The loss of or inability of HealthAxis to
maintain or obtain upgrades to any of these technology licenses could result in
delays in completing its proprietary software enhancements and new development
until equivalent technology could be identified, licensed or developed, and
integrated. Any of these delays would materially affect HealthAxis' business,
results of operations and financial condition. See "-- Information Concerning
HealthAxis -- Intellectual Property and Technology."
If HealthAxis is unable to keep up with the rapid technological changes on the
Internet, its website, technology and systems could become obsolete.
The Internet is characterized by:
o rapid technological change,
o changes in user and consumer requirements and preferences,
o frequent new product and service introductions embodying new
technologies; and
o emergence of new industry standards and practices.
Any of these changes could render HealthAxis' existing website, technology and
systems obsolete. To remain competitive as other providers enter the Internet
insurance market, HealthAxis must continue to enhance and improve the
responsiveness, functionality and features of HealthAxis' website. HealthAxis'
success will depend, in part, on its ability to:
o add and delete additional carrier partners or products on a timely
basis,
o enhance its existing services,
o develop new services and technology that address the increasingly
sophisticated and varied needs of its prospective consumers; and
o respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
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<PAGE>
There can be no assurance that HealthAxis will successfully use new technologies
effectively or adapt its website, technology and systems to consumer
requirements or emerging industry standards. If HealthAxis is unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or consumer requirements, its business,
results of operations and financial condition could be materially adversely
affected.
If HealthAxis' key business partners are unable to protect their systems from
damage and interruptions, HealthAxis' business will suffer.
In addition, HealthAxis' operations are dependent on its ability, and
the ability of its key business partners, to maintain their computer and
telecommunications equipment in effective working order and to protect their
systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. In addition, the growth of
HealthAxis' customer base may strain or exceed the capacity of its key business
partners' computer and telecommunications systems and lead to degradations in
performance or systems failure. In addition, critical elements of the computer
and telecommunications operations of HealthAxis' key business partners including
their processing operations, may be located at single site facilities. In the
event of a catastrophic loss at any of the single site facilities of its key
business partners' sites, resulting in the destruction of key business partners'
computer and telecommunications operations, HealthAxis would experience a
significant interruption of its business until a second site backup is
established. Although HealthAxis maintains insurance, the insurance may not be
adequate to compensate HealthAxis for all property damage and business
interruption losses that may occur.
Increased government regulation of the Internet may impede the growth of
HealthAxis' services.
Laws and regulations which apply to communications and commerce over
the Internet are becoming more prevalent. These laws may cover issues such as
privacy, pricing, content, copyrights, distribution and characteristics and
quality of products and services. The adoption of any additional laws or
regulations may impede the growth of the Internet or other online services,
which could, in turn, decrease the demand for HealthAxis' products and services
and increase HealthAxis' cost of doing business, or otherwise have an adverse
effect on HealthAxis' business, results of operations and financial condition.
The applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any new legislation
or regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to HealthAxis' business, or the application of
existing laws and regulations to the Internet and other online services could
have a material adverse effect on HealthAxis' business, results of operations
and financial condition. See "-- Information Concerning HealthAxis --
Regulation."
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HealthAxis faces regulatory risk because current insurance industry regulations
are not based on the delivery of insurance documents or disclosures by way of
the Internet which makes HealthAxis' compliance with those regulations less
certain.
HealthAxis 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. Until these laws and
regulations are revised to clarify their applicability to electronic commerce,
any company offering insurance products and services through the Internet or
other means of electronic commerce will face uncertainty as to compliance with
these laws and regulations. HealthAxis' policies and procedures may not be
deemed acceptable by any regulatory body examining its activities in light of
these potentially different laws and regulations. Any adverse actions could
seriously harm HealthAxis' business, results of operations and financial
condition. See "-- Information Concerning HealthAxis -- Regulation."
Insurance Industry Related Risks
HealthAxis' success depends in part on its ability to develop new products which
respond to changes in the insurance industry.
HealthAxis' success will depend in part upon its ability to develop and
provide new products that meet consumers' changing health insurance needs and
changes in government requirements. During recent years, the health insurance
industry has experienced substantial changes, primarily caused by healthcare
legislation, originally at the state level, and more recently at the federal
level. The introduction of managed care organizations has also affected the
health insurance industry. Additionally, over the past several years the rapid
growth of health maintenance organizations and preferred provider organizations
and the organization of healthcare providers in new ways such as physician
hospital organizations, has dramatically changed health insurance sales.
HealthAxis' future success will depend, in part, on its ability to effectively
enhance its current products and claims processing capabilities and to develop
new products in the changing healthcare environment on a timely and
cost-effective basis.
There are many insurance industry factors that may affect HealthAxis' success
but which are beyond its control.
Many factors influence the financial results of the health insurance
industry. Several of these factors, which are beyond the control of HealthAxis,
include changes in:
o the severity and frequency of insurance claims;
o the applicable law and regulatory reform;
o judicial attitudes toward liability claims;
o inflation;
o interest rates; and
o general economic conditions.
The availability of healthcare insurance, or the industry's underwriting
capacity, is determined principally by the industry's level of capitalization,
historical underwriting results, returns on investment and perceived premium
rate adequacy. Historically, the financial performance of the healthcare
industry has tended to fluctuate in cyclical patterns. These patterns are
characterized by periods of greater competition in pricing and underwriting
27
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terms and conditions known as a "soft insurance market" followed by periods of
capital shortage and lesser competition known as a "hard insurance market". In a
soft insurance market, competitive conditions could result in premium rates and
underwriting terms and conditions which may be below profitable levels. These
industry related conditions could adversely affect HealthAxis' business, results
of operations and financial condition. See "-- Information Concerning HealthAxis
- -- Health Insurance Industry."
Federal and state healthcare reform legislation may decrease the attractiveness
of investments in insurance related companies.
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; and
o restrictions on premium increases.
Several states have passed, and many other states are considering,
legislation that includes:
o voluntary healthcare purchasing alliances;
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.
Certain 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 the application solutions group's applications and services.
HealthAxis cannot predict:
o whether any of the proposals currently being considered will be
enacted;
o whether any new federal or state proposals will be considered; and
o what specific effects healthcare reform may have on HealthAxis'
business, results of operations and financial condition.
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It is unclear whether future regulations may have an adverse effect on
HealthAxis' performance by increasing costs to maintain compliance.
The insurance industry is one of the most highly regulated fields. As a
result, HealthAxis is subject, both directly and indirectly, to various laws and
governmental regulations relating to its business. State laws also regulate
product marketing and advertising on the Internet. There can be no assurance
that compliance with future rules and regulations will not have a materially
adverse effect on HealthAxis. The insurance products offered by HealthAxis must
be approved by HealthAxis' carrier partners in the various states in which those
products are offered. The carrier partners are also subject to extensive
supervision and regulation at the state level. HealthAxis could be adversely
affected if its carrier partners are unable to obtain approval for the products
which HealthAxis plans to offer on its website or are otherwise adversely
affected by actions taken by state regulatory authorities against any carrier
partner.
Under the Health Insurance Portability and Accountability Act of 1996,
the Secretary of Health and Human Services is required to adopt national
standards for health information transactions and the data elements used in
those transactions. In addition, the Secretary is required to adopt safeguards
to ensure the integrity and confidentiality of health information. Violation of
the standards is punishable by fines and, in the case of wrongful disclosure of
individually identifiable health information, imprisonment. HealthAxis'
proprietary applications are designed to enable compliance with current
insurance regulations; however, these regulations could change or new
regulations could be adopted, which could require HealthAxis to expend
additional financial and managerial resources in order to comply with any
revised or new regulations. There can be no assurance that any standards adopted
by federal or state governments would not have an adverse affect on the means by
which HealthAxis processes transactions or the availability to and use of claims
data by HealthAxis in providing its services. See "-- Information Concerning
HealthAxis -- Regulation."
Investment Related Risks
UICI may make decisions which some shareholders do not consider to be in their
best interest.
Upon completion of the merger, UICI will own 48.1% of HAI's outstanding
common stock and will have the ability to vote 23.6% of HAI's outstanding common
stock. As a result, UICI will have sufficient voting power to influence the
outcome of all corporate matters submitted to the vote of shareholders,
including:
o the election of directors;
o changes in the size and composition of the Board of Directors;
o mergers;
o tender offers; and
o open-market purchase programs.
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The open-market purchase programs could give shareholders of HealthAxis the
opportunity to realize a premium over the then-prevailing market price for their
shares. In addition, the concentration of ownership in UICI could have the
effect of delaying or preventing a change in control of HAI and may affect the
market price of the common stock. See "Chapter IV -- Other HealthAxis Annual
Meeting Proposals -- Item 1 -- Election of Directors -- Relationship with HAI
and UICI."
In connection with the merger, it is intended that UICI, HealthAxis,
HealthAxis Acquisition Corp, HAI and Messrs. Ashker and Clemens will enter into
a shareholders' agreement which will provide that HAI and UICI will each select
three nominees for election as directors and will mutually select three
additional nominees. All parties to the agreement will agree to vote all HAI
shares owned by them in favor of these nominees. See" -- The Merger -- Interests
of HealthAxis' Management and Shareholders in the Merger."
Two of HAI's officers and directors are also large shareholders and may
influence the outcome of matters requiring shareholder approval.
Alvin H. Clemens, the Chairman of HAI and HealthAxis is also HAI's
largest shareholder. As of December 31, 1999, Mr. Clemens owned, either directly
or indirectly, 2,499,500 shares (including options) or 18.2% of HAI common
stock. These share ownership numbers exclude shares for which Mr. Clemens
disclaims beneficial ownership and includes 683,534 shares that Mr. Clemens has
the right to acquire pursuant to exercisable options. In addition, in connection
with the sale of a HAI subsidiary, HAI transferred 100,000 shares of Series A
preferred stock of HealthAxis acquired from a HAI subsidiary to AHC Acquisition,
Inc., a company owned by Mr. Clemens. Accordingly, Mr. Clemens through his
ownership interest in HAI and in AHC Acquisition, Inc. could influence the
outcome of any matter requiring shareholder approval of HealthAxis, if these
matters were deemed by the shareholders of HAI to be in their best interests.
See "Chapter III -- Other HAI Annual Meeting Proposals -- Item 1 -- Election of
HAI Directors -- Certain Relationships and Related Transactions."
In addition, Michael Ashker, a director and the President and Chief
Executive Officer of HealthAxis and HAI, beneficially owns 718,076 shares of
HAI's common stock, including options. In an amended Schedule 13D, dated
November 15, 1999, filed by Mr. Ashker, Lynx Capital Group, LLC, Van Kasper &
Company, Lynx Tech Fund, L.P., Lynx Healthtech Fund, LLC, Kenneth Brown, Deidre
Holt and Edward W. LeBaron, Jr., Mr. Ashker reported sole voting and dispositive
power with respect to 394,776 shares of HAI common stock and shared voting and
dispositive power with respect to 323,300 shares. Mr. Ashker was the sole
manager of Lynx Capital Group, LLC, which acts as an investment advisor to and
general partner of Lynx Tech Fund, L.P., which is an investment limited
partnership. Mr. LeBaron is currently serving on the Board of Directors of HAI
and HealthAxis. Mr. LeBaron reported sole voting and dispositive power with
respect to 38,571 shares of HAI common stock. Pursuant to a consulting agreement
between HAI and Lynx Capital Group, LLC, Lynx Capital Group, LLC was granted
currently exercisable warrants to purchase 400,000 shares of HAI's common stock.
Of this amount, Lynx Capital Group, LLC transferred warrants to purchase 300,000
shares of HAI common stock to Mr. Ashker. Mr. Ashker has also been granted
options to purchase 991,000 shares of HealthAxis common stock, all of which are
currently exercisable. Mr. Ashker was also awarded options to purchase 145,000
shares of HealthAxis common stock which are exercisable over a two year period
commencing in April, 1999 and options to purchase 55,000 shares of HealthAxis
common stock which are exercisable over a two year period commencing in November
1999. See "Chapter III -- Other HAI Annual Meeting Proposals -- Item 1 --
Election of HAI Directors -- Certain Relationships and Related Transactions."
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In addition, Messrs. Ashker and Clemens, by virtue of their positions
as trustees of certain voting trusts, have shared voting power with the other
trustees over 28.4% of HealthAxis' outstanding capital stock.
Accordingly, through their share ownership and positions on the board
of directors of HAI, Messrs. Ashker and Clemens could influence the outcome of
matters requiring HealthAxis or HAI shareholder approval.
Potential conflicts of interest could arise because some people serve as
directors, officers or employees of either HAI or UICI and HealthAxis.
Various conflicts of interest between HealthAxis and HAI could arise
because persons serving as directors, officers and employees of both HealthAxis
and HAI may have conflicting duties to each. Alvin H. Clemens, the Chairman of
HealthAxis, also serves as HAI's Chairman. Michael Ashker, the President, Chief
Executive Officer and director of HealthAxis, is President and Chief Executive
Officer and a director of HAI. An affiliate of Mr. Ashker is serving on HAI's
board of directors and on HealthAxis' board. Ownership interests of HealthAxis'
directors and officers in HAI common stock could also create, or appear to
create, potential conflicts of interest when these directors and officers are
faced with decisions that could have different implications for HealthAxis and
for HAI. This is also true with respect to individuals such as Gregory T. Mutz,
Chief Executive Officer of UICI, and Patrick J. McLaughlin, who are directors of
HealthAxis and its largest shareholder, UICI. These individuals will become
directors of HAI in connection with the merger. Mr. Mutz is also the Chief
Executive Officer of UICI. See "Chapter IV -- Other HAI Annual Meeting Proposals
- -- Item 1 -- Election of HealthAxis Directors -- Relationship with HAI and
UICI."
Potential conflicts of interest may arise between HealthAxis and UICI regarding
the products and services provided by HealthAxis.
Conflicts of interest may arise between HealthAxis and UICI in a number
of areas relating to their past and ongoing relationships, including the nature,
quality and pricing of services rendered by HealthAxis to UICI and its
subsidiaries or by UICI and its subsidiaries to HealthAxis, sales or
distributions by UICI of all or any portion of its ownership interest in
HealthAxis, or UICI's ability to effect the management and affairs of
HealthAxis. There can be no assurance that UICI and HealthAxis will be able to
resolve any potential conflict or that, if resolved, HealthAxis would not
receive more favorable resolution if it were dealing with an unaffiliated party.
See "Chapter IV -- Other HAI Annual Meeting Proposals -- Item 1 -- Election of
HealthAxis Directors -- Relationship with HAI and UICI."
None of the HealthAxis intercompany agreements are subject to arm's-length
negotiations.
Because HealthAxis was a majority-owned subsidiary of HAI, none of the
intercompany agreements, including the registration rights agreement transferred
to AHC Acquisition Corp., resulted from arm's-length negotiations. These
agreements may include terms and conditions that may be more or less favorable
to HealthAxis than terms contained in similar 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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As a result of UICI's control of Insurdata prior to the merger of
Insurdata and HealthAxis, none of the terms of Insurdata's contracts with UICI
and its subsidiaries, including the outsourcing agreement entered into between
Insurdata 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. See "Chapter IV -- Other HAI Annual Meeting Proposals -- Item 1
- -- Election of HealthAxis Directors -- Relationship with HAI and UICI."
HAI does not pay cash dividends and does not intend to pay cash dividends in the
future.
HAI has not paid a cash dividend on its common stock since its
inception in 1982 and is restricted from declaring and paying dividends by the
provisions of a guarantee agreement entered into in connection with a
reinsurance agreement between Reassurance Company of Hanover and HAI's former
wholly-owned subsidiary, Provident Indemnity Life Insurance Company. HAI
currently intends to retain all earnings to finance the expansion of its
business and does not anticipate paying cash dividends in the foreseeable
future. In the future, HAI's ability to pay dividends will be dependent upon the
ability of its subsidiary, HealthAxis, to pay dividends to HAI. HealthAxis
currently intends to retain future earnings, if any, to fund the development and
growth of its business. Any future determination to pay cash dividends on its
common stock or preferred stock will be at the discretion of the board of
directors and will be dependent upon HealthAxis' financial condition, operating
results, capital requirements and other such factors as the board of directors
deems relevant. In the past, HAI paid cash dividends on its Series A preferred
stock at the rate of $0.0636363 per share, per quarter from 1993 to June 30,
1999.
Certain provisions of Pennsylvania law and provisions of HAI's amended and
restated articles of incorporation could have an anti-takeover effect and limit
the possibility of HAI shareholders disposing of their shares at a premium
price.
In this joint proxy statement/prospectus, HAI has asked its
shareholders to approve new amended and restated articles of incorporation that
increase the number of authorized shares of common stock and preferred stock.
See "Chapter III - Other HAI Annual Meeting Proposals - Item 3 - Adoption and
Approval of Amended and Restated Articles of Incorporation." HAI's board of
directors is not aware of any attempts to take control of HAI and has not
presented the proposed amended and restated articles of incorporation with the
intent that the increase in authorized shares be used as an anti-takeover
device. However, the increase in the authorized capital stock of HAI may prevent
or discourage a third party from acquiring control of HAI. These take-over
attempts or merger proposals often include an offer to acquire shares of the
target company at a higher price than generally available. HAI's board of
directors may issue these additional shares of common stock or preferred stock
without any additional shareholder approval. If the increase in the authorized
shares or the issuance of the authorized shares discourages take-over attempts,
shareholders may not have the opportunity to take advantage of these premium
prices.
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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" and include:
o historical and anticipated losses;
o uncertainty of future results;
o new business challenges;
o risks associated with brand development;
o competition;
o funding;
o need for additional capital;
o management of potential growth;
o dependence on key personnel;
o dependence on the Internet;
o ability to grow and expand services;
o technological change and new application development;
o quality assurance;
o risk of product-related claims;
o limited proprietary rights;
o reliance on information processing systems;
o customer concentration;
o operations outside the United States;
o liability for information transmitted through the Internet;
o uncertain acceptance of the Internet as a medium for health
insurance sales;
o risk capacity constraints;
o system development and other risks;
o dependence on third-party technology;
o rapid technological change;
o risk of system failure;
o changes in the insurance industry;
o insurance industry factors;
o healthcare reform legislation, government regulation and legal
uncertainties;
o control by UICI;
o potential conflicts of interest;
o intercompany agreements not subject to arm's-length
negotiations;
o absence of dividends; and
o anti-takeover measures.
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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 which speaks only as of the date made.
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Recent Developments
On December 6, 1999, HealthAxis completed a $57.7 million private
placement transaction 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
common stock of HealthAxis by HAI.
On December 6, 1999, HealthAxis, Insurdata Incorporated and their
parent corporations, HAI and UICI respectively, entered into an agreement and
plan of merger which sets forth the terms and conditions under which Insurdata
was merged with and into HealthAxis. The merger was completed on January 7,
2000. The operations of Insurdata are referred to in this document as the
application solutions group. See "Chapter IV - Other HealthAxis Annual Meeting
Proposals - Item 1 - Election of HealthAxis Directors - Relationship with HAI
and UICI."
In accordance with the terms of the merger agreement, each share of
Insurdata 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 merger, UICI received
18,943,678 shares of HealthAxis common stock, the voting trust created by UICI
in connection with the Insurdata merger, and described below, received 2,439,885
shares of HealthAxis common stock and other shareholders of Insurdata received
424,004 shares of HealthAxis common stock.
Each holder of Insurdata 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 common stock, under
Insurdata'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 merger is intended to be a reorganization under Section 368(a) of
the Internal Revenue Code of 1986 and is being accounted for as a purchase under
generally accepted accounting principles.
In connection with the completion of the Insurdata merger, HAI, UICI,
Michael Ashker, President and Chief Executive of HealthAxis and HAI, Alvin H.
Clemens, Chairman of HAI and HealthAxis, and HealthAxis entered into a
shareholders' agreement. Under the terms of the shareholders' agreement, the
board of directors of HealthAxis will consist of up to nine members. UICI and
HAI may each independently nominate three nominees to the board of directors,
and the remaining three directors will be nominated by mutual agreement of HAI
and UICI. See "-- Management of HealthAxis" for information regarding officers
and the initial board of HealthAxis. This provision of the shareholders'
agreement related to the nomination of directors will terminate with respect to
each party to this agreement when the party owns less than 20.0% of the
HealthAxis common stock. 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. See "-- The Merger -- Material Terms of the Merger Documents."
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Subject to the limitations described in the shareholders' agreement,
the agreement also provides that each of UICI and HAI both have the right to
purchase its proportionate number of any additional securities that HealthAxis
may propose to sell and issue. HealthAxis is required to provide UICI and HAI
with prior written notice of its intention to issue any additional securities.
Upon receipt of this notice, UICI and HAI have twenty days to agree to purchase
the additional shares 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.
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 certain conditions set forth in the shareholders' agreement,
the agreement provides that HealthAxis can require UICI to transfer up to
1,255,000 shares of its HealthAxis common stock (6% of UICI's share ownership)
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
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.
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, 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.
The 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 certain employees of Insurdata Incorporated
and certain other UICI subsidiaries pursuant to its Insurdata 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.
Following the completion of the Insurdata merger, UICI, and Messrs.
Ashker, LeBaron and Maloney entered into a voting trust agreement which provides
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. Pursuant to
the 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 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 voting trust. The 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 documents are not completed.
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On August 16, 1999, HAI entered into a definitive agreement with AHC
Acquisition, Inc., a company owned by Alvin H. Clemens, the Chairman of
HealthAxis and HAI, which provided for the sale of Provident Indemnity Life
Insurance Company, HAI's insurance subsidiary, to AHC Acquisition, Inc. for an
aggregate purchase price of $14.7 million. In accordance with the terms of the
stock purchase agreement, HAI purchased Provident Indemnity Life Insurance
Company's home office building for $4.7 million and 545,916 shares of HealthAxis
Series A preferred stock, originally purchased by Provident Indemnity Life
Insurance Company, for $2.8 million which equates to a $4.71 price per share
plus interest at the rate of 8% per annum thereon from the date of acquisition
of such shares by Provident Indemnity Life Insurance Company through November
30, 1999. The $7.2 million difference between the $14.7 million required payment
amount and the sum of the purchase price of the building and the Series A
preferred stock was made in the form of a capital contribution from HAI to
Provident Indemnity Life Insurance Company. These transactions occurred on
November 30, 1999. Also, in accordance with the terms of the stock purchase
agreement, HAI transferred 100,000 shares of the HealthAxis Series A preferred
stock, and the associated registration rights previously granted to Provident
Indemnity Life Insurance Company, to AHC Acquisition, Inc.
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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 reorganization agreement and the merger agreement.
A copy of the agreement and plan of reorganization is attached as Appendix A to
this joint proxy statement/prospectus, and a copy of the merger agreement is
attached as Appendix B to this joint proxy statement/prospectus. The merger
documents are incorporated into this joint proxy statement/prospectus by
reference, and you are urged to read them carefully.
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
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. In connection with the merger, the HealthAxis
Amended and Restated Articles of Incorporation require that each share of
HealthAxis preferred stock will convert into one share of common stock. When the
merger is completed, each outstanding share of HealthAxis common 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 1.127 shares of HAI common stock.
No Fractional Shares. No fractional shares of HAI common stock will be
issued in connection with the merger. Any holder of HealthAxis common 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 4,251,901 shares
of HealthAxis common stock and warrants outstanding to purchase an aggregate of
1,136,500 shares of HealthAxis common 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;
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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);
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 issued and outstanding as of the record date, an
aggregate of approximately 33,386,730 shares of HAI common stock will be issued
to holders of HealthAxis common 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 72% 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:
o a letter of transmittal; and
o instructions for use of the letter of transmittal to
surrender valid common 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. No fractional shares of HAI common stock will be
issued 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 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 outstanding immediately prior to the completion of the merger. No
further transfer of any shares of HealthAxis common 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 financial statements and corporate records;
o operations since September 30, 1999;
o title to assets;
o real property and leaseholds;
o software and other intangible assets;
o contracts;
o liabilities;
o employee and labor matters and benefit plans;
o insurance;
o transactions with affiliates;
o legal proceedings and judgments;
o fairness opinion;
o brokers, finders, investment bankers or other fees or
commissions; and
o full disclosure.
Some of HAI's and HealthAxis Acquisition Corp.'s representations and
warranties relate to the following:
o organization, standing and power;
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o capital stock and ownership;
o validity of issued stock and options;
o filings with the SEC and financial statements;
o compliance of the registration statement as to form with the
applicable securities laws;
o absence of certain changes;
o authorization, registration and listing of HAI common stock;
o investment matters;
o brokerage fees;
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 reorganization agreement, or in
any certificate delivered pursuant to the reorganization agreement, survive the
merger.
To review all of the representations and warranties contained in the
reorganization agreement you should read the agreement and plan of
reorganization attached as Appendix A.
Covenants. The 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;
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;
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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;
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;
and
o HAI and HealthAxis Acquisition Corp. will use their reasonable
best efforts to consummate the merger.
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The reorganization agreement also contains certain additional covenants
of the parties including covenants relating to:
o the preparation and filing of the joint proxy
statement/prospectus;
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 reorganization agreement which is
attached as Appendix A.
Conditions to the Merger. The completion of the merger depends upon the
satisfaction or waiver of certain conditions, including, among other things:
o receipt by HAI of a duly signed affiliate letter, from each
affiliate of HealthAxis, stating that it has not sold any
shares of capital stock or other securities of HealthAxis or
of HAI at any time during the 30-day period ending on the
closing date. The letter must also state that the affiliate
will not transfer, dispose of or reduce its risk relating to
any shares of capital stock or other securities of HealthAxis
or of HAI until HAI publishes financial results covering at
least 30 days of post-merger combined operations of HAI and
HealthAxis;
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;
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;
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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 Ronald L.
Jensen;
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, 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
reorganization agreement attached as Appendix A.
Termination. The 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;
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o by either HealthAxis or HAI, if the merger is not completed by
July 31, 2000 for any reason other than a breach of the
reorganization or merger agreement by the party giving notice;
and
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 July 31, 2000 for a
reason other than the party's default, and the other party is
not willing to waive the satisfaction of such condition.
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 will designate its
transfer agent, ChaseMellon Shareholder Services, Inc., to act 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.
Background of the Merger
In 1998, HAI's board of directors made the decision to sell all of its
underwriting assets and to transform itself into an e-commerce company,
represented by its subsidiary, HealthAxis. Accordingly, between December 1998
and November 1999, HAI sold all of its traditional insurance businesses in a
series of unrelated transactions. HealthAxis is currently HAI's only operating
subsidiary. At the same time, HealthAxis raised capital to fund its growth
through a series of sales of its capital stock to third party investors. Due to
the inflow of this investment capital and the merger of HealthAxis and Insurdata
Incorporated, HAI currently owns 34.8% of HealthAxis.
As part of HAI's transformation into an e-commerce company 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 with little capital needs of its own, HAI
does not need the ability to access public markets for funds.
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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 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 work continued on the HAI/HealthAxis
reorganization.
Management of the respective companies signed the merger agreement on
January 26, 2000. The merger was approved by HAI's board of directors on January
26, 2000 and by HealthAxis' board of directors on January 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, from a financial point of view, of the merger to the holders of HAI
common stock. As described below, Advest Group, Inc.'s opinion, dated February
3, 2000, together with the related oral presentation to the HAI board of
directors made on January 26, 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 January 26, 2000, Advest Group, Inc. delivered its oral opinion to
the board of directors to the effect that, as of January 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 February
3, 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 the fairness of the stock consideration paid in the
merger to HAI and the holders of HAI common stock from a financial point of
view. 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 period January 1,
1999 through September 30, 1999;
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o the consolidated financial statements of Insurdata
Incorporated and subsidiaries for the years ended
December 31, 1997 and 1998 and 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;
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 agreement and plan of reorganization
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.
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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
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 orally to the HAI board of directors at a
meeting on January 26, 2000. Advest Group, Inc. received a fee of $150,000 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 the 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 January 19, 2000 closing stock
price of $28.25 for HAI's stock, Advest Group, Inc. calculated a range of values
between a range of approximately $25.00 and $32.00. This translates into a range
of exchange ratios between 0.90 and 1.13.
In order to determine the value of HealthAxis based on comparable
publicly traded companies, Advest Group, Inc. selected a group of companies in
the health or other insurance e-commerce segment. The companies selected were
Healtheon Corp. Com, CareInsite, Inc., SciQuest.com, Inc., the Trizetto Group,
Inc., Insweb Corp., and Quotesmith.com.
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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
$23.75 to $36.81. Based on HAI's closing stock price of $28.25 on January 19,
2000, this translates into a range of exchange ratios between 0.84 and 1.30.
HAI's Reasons for the Merger
The HAI board of directors has unanimously determined that the terms of
the 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 counsel,
accountants and financial advisors and gave significant consideration to a
number of factors bearing on its decision. The following are the 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 streamlined corporate structure eliminates dual shareholder
approvals in connection with annual meetings and other
shareholder actions.
In addition to the 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
a number of other factors relevant to the merger, including:
o Information concerning the business, assets, operations,
management, financial condition, operating results,
competitive position and prospects of HAI and HealthAxis;
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.
Opinion of Warburg Dillon Read LLC
The HealthAxis board of directors engaged Warburg Dillon Read LLC as
its exclusive financial advisor to review the exchange ratio provided for in the
merger agreement which represents 1.127 shares of HAI common stock for each
outstanding share of HealthAxis common stock and to render an opinion as to the
fairness, from a financial point of view, of the exchange ratio to the holders
of HealthAxis common stock, other than HAI and its affiliates.
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On January 26, 2000, the date on which the HealthAxis board, acting by
unanimous consent, approved the proposed merger, Warburg Dillon Read delivered
to the HealthAxis board a written opinion dated January 26, 2000, 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 exchange ratio provided
for in the merger was fair, from a financial point of view, to the holders of
HealthAxis common stock, other than HAI and its affiliates.
The full text of Warburg Dillon Read's opinion describes, among other
things, the assumptions made, procedures followed, matters considered and
limitations on the review undertaken by Warburg Dillon Read. This opinion is
attached as Appendix E and is incorporated into this joint proxy
statement/prospectus by reference. Warburg Dillon Read's opinion is directed to
the HealthAxis board of directors and relates only to the fairness, from a
financial point of view, of the exchange ratio in the merger. Warburg Dillon
Read's opinion does not address HealthAxis' underlying business decision to
effect the merger or constitute a recommendation to any holder of HealthAxis'
common stock as to how to vote with respect to any matter relating to the
proposed merger. Holders of HealthAxis common stock are encouraged to read this
opinion carefully in its entirety. The summary of Warburg Dillon Read's opinion
described below is qualified in its entirety by reference to the full text of
its opinion.
In arriving at its opinion, Warburg Dillon Read, among other things:
o reviewed publicly available business and historical financial
information relating to HealthAxis and HAI;
o reviewed internal financial information and other data
relating to the business and financial prospects of
HealthAxis, including estimates and financial forecasts
prepared by the management of HealthAxis, that were provided
to Warburg Dillon Read by HealthAxis and were not publicly
available;
o conducted discussions with members of the senior management of
HealthAxis and HAI with respect to the operations, financial
condition, history and prospects of HealthAxis and HAI;
o reviewed publicly available financial and stock market data
with respect to other companies in lines of business that
Warburg Dillon Read believed to be generally comparable to
those of HealthAxis and HAI;
o reviewed the agreement and plan of reorganization and the
agreement and plan of merger; and
o conducted other financial studies, analyses and
investigations, and considered other information, as Warburg
Dillon Read deemed necessary or appropriate.
In connection with its review, with HealthAxis' consent, Warburg Dillon
Read did not assume any responsibility for independent verification of any of
the information that Warburg Dillon Read was provided or reviewed for the
purpose of its opinion and, with HealthAxis' consent, Warburg Dillon Read relied
on that information being complete and accurate in all material respects.
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Warburg Dillon Read relied, without independent verification and with
HealthAxis' consent, on the views of HAI's management as to HAI's outstanding
liabilities and other obligations, including HAI management's assessments that
HAI has no material liabilities, contingent or otherwise, other than those
reflected on HAI's balance sheet dated December 31, 1999 provided to Warburg
Dillon Read by the management of HAI. At HealthAxis' direction, Warburg Dillon
Read did not make an independent evaluation or appraisal of any of the assets or
liabilities, contingent or otherwise, of HealthAxis or HAI, and was not
furnished with any such evaluation or appraisal.
With respect to the financial forecasts and estimates that it reviewed,
Warburg Dillon Read assumed, at HealthAxis' direction, that they were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of HealthAxis as to the future financial performance
of HealthAxis and will be realized in the amounts and at the times contemplated.
Warburg Dillon Read also assumed, with HealthAxis' consent, that the merger will
qualify as a tax-free reorganization and that the merger will be accounted for
as a purchase for financial accounting purposes. Warburg Dillon Read's opinion
is necessarily based on economic, monetary, market and other conditions
existing, and information available to Warburg Dillon Read, on the date of its
opinion.
Warburg Dillon Read, at HealthAxis' direction, was not asked to, and
did not offer any opinion as to the material terms of, or the obligations under,
the merger agreement, or the form of the merger. Warburg Dillon Read expressed
no opinion as to what the value of the HAI common stock will be when issued in
the merger or the price at which the HAI common stock will trade or otherwise be
transferable after the merger. In rendering this opinion, Warburg Dillon Read
assumed, with HealthAxis' consent, that HealthAxis, HAI and HealthAxis
Acquisition Corp. will comply with all material terms of the merger agreement,
and that the merger will be validly consummated in accordance with its terms. In
connection with its engagement, Warburg Dillon Read was not requested to, and
did not participate in the negotiation or structuring of the merger and was not
requested to, and did not, solicit third party indications of interest with
respect to the acquisition of all or a part of HealthAxis. No other instructions
or limitations were imposed by HealthAxis' board of directors upon Warburg
Dillon Read with respect to the investigations made or the procedures followed
by Warburg Dillon Read in rendering its opinion.
Warburg Dillon Read's opinion and financial analyses were only one of
many factors considered by HealthAxis' board of directors in its evaluation of
the merger and should not be viewed as determinative of the views of HeathAxis'
board of directors or management with respect to the merger or the exchange
ratio provided for in the merger.
HealthAxis has agreed to pay Warburg Dillon Read for its services with
respect to its opinion an opinion fee of $500,000. In addition, HealthAxis has
agreed to reimburse Warburg Dillon Read for its reasonable expenses, including
reasonable fees and disbursements of its counsel, and to indemnify Warburg
Dillon Read and related parties against liabilities, including liabilities under
federal securities laws, relating to, or arising out of, its engagement.
HealthAxis' board of directors elected Warburg Dillon Read to render an
opinion in connection with the merger, because Warburg Dillon Read is an
internationally recognized investment banking firm with substantial experience
in similar transactions. Warburg Dillon Read is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, competitive bids,
secondary distributions of listed and unlisted securities and private
placements.
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In the ordinary course of business, Warburg Dillon Read, its successors
and affiliates may actively trade the securities of HAI for their own accounts
and the accounts of their customers and, accordingly, may at any time hold a
long or short position in these securities.
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. 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. Among the financial factors considered were the following:
o liquid assets of the two companies;
o working capital of the two companies;
o net worth of the two companies;
o operating performance of the two companies;
o prospects of the two companies;
o HealthAxis' growth capital needs; 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 a number of factors, including:
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;
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o the merger will eliminate investor confusion between the
internet insurance business of HealthAxis and the former
insurance underwriting business engaged in by HAI; and
o the opinion of Warburg Dillon Read.
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
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 0.8% of the HealthAxis common stock and approximately 18.3% of the
HealthAxis Series A preferred stock. In addition, certain directors of
HealthAxis also have the ability to vote 28.4% of the outstanding capital stock
of HealthAxis based on their positions as trustees of certain voting trusts. See
"Chapter I - The Merger - Principal Shareholders of HealthAxis and - Recent
Developments."
Election of Directors. In the agreement and plan of reorganization, HAI
agreed to appoint Dennis B. Maloney, Gregory T. Mutz and Ronald L. Jensen of
HealthAxis, as directors of HAI as of the date the merger is completed. Messrs.
Mutz and Jensen are also directors of UICI, a shareholder of HealthAxis. Mr.
Mutz is the Chief Executive Officer of UICI and Mr. Jensen is the chairman of
UICI. It is intended that Mr. Jensen will be replaced by Mr. McLaughlin. See "-
Management of HealthAxis."
HealthAxis Stock Options. Upon consummation of the merger, holders of
HealthAxis options will be entitled to receive HAI stock options and, upon the
exercise of their HAI stock options, 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.
54
<PAGE>
Subject to certain conditions set forth in the shareholders' agreement,
the shareholders' agreement also provides that HAI can require UICI to transfer
up to 1,414,315 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 will cause the shares
of HAI common stock to be issued in the merger to be listed on the NASDAQ
National Market. See "-- NASDAQ Listing."
We anticipate that HAI will issue approximately 33,386,730 shares of
HAI common stock to HealthAxis shareholders. We also anticipate that HAI will
issue up to an additional 6,072,728 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 72% 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 6,072,728 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 68% 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.
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 intends to
file the required information with the Department of Justice and the Federal
Trade Commission during February 2000.
55
<PAGE>
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 purpose of the affiliate letters is to
comply with the requirements of federal securities laws.
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.
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.
56
<PAGE>
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.
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 certain 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.
57
<PAGE>
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.
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.
58
<PAGE>
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.
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.
59
<PAGE>
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.
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.
60
<PAGE>
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.
61
<PAGE>
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.
Accounting Treatment
The merger will be accounted for by HAI as a recapitalization in
accordance with generally accepted accounting principles. As a recapitalization,
HAI capital stock issued to HealthAxis stockholders will be accounted for at the
historical cost and the net assets of HAI will be recorded at historical cost.
Costs incurred as a result of the merger will be expensed upon the Merger's
completion.
NASDAQ Listing
HAI will cause the shares of HAI common stock to be issued in
connection with the merger to be listed on the NASDAQ National Market.
62
<PAGE>
[THIS PAGE IS INTENTIONALLY OMITTED]
63
<PAGE>
Pro Forma Combined Financial Information
The following unaudited pro-forma condensed consolidated financial information
is based on the historical financial statements of the HealthAxis, Insurdata and
HAI (formerly Provident American Corporation). The unaudited pro-forma condensed
consolidated balance sheet at September 30, 1999 and the unaudited pro-forma
condensed consolidated statements of operations for the nine months ended
September 30, 1999 and for the year ended December 31, 1998 give effect to the
following transactions for the statements of operations as if they occurred on
January 1, 1998 and for the balance sheet as if they occurred on September 30,
1999.
The pro-forma adjustments are as follows:
o Private placement of approximately 3,846,000 shares of common stock of
HealthAxis on December 7, 1999 with proceeds of approximately $55,700,000
net if issuance costs of $2,160,000.
o The merger of Insurdata and HealthAxis which has been accounted for under
the purchase method 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 have been
recorded at their fair value.
o The merger of HAI, a corporate shell holding company and HealthAxis will be
accounted for as a recapitalization of HealthAxis. Upon the merger, the net
assets of HAI will be recorded at historical cost.
o As a result of the recapitalization, the preferred stock of HealthAxis will
be converted to common stock.
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 in the periods indicated above or which may exist or be obtained in the
future.
The unaudited pro-forma condensed consolidated financial information should be
read in conjunction the notes hereto and the following:
o HAIs historical consolidated financial statements and notes thereto
included in HAI's annual report on Form 10-K/A for the year ended December
31, 1998 and quarterly report on Form 10-Q/A for the nine months ended
September 30, 1999 which are incorporated by reference in this document.
o Insurdata's historical consolidated financial statements and notes thereto
included elsewhere for the three years in the period ended December 31, 1998
and the unaudited consolidated financial statements for the nine months
ended September 30, 1999.
o HealthAxis' historical consolidated financial statements and notes included
elsewhere for the period from Inception (March 26, 1998) through December
31, 1998 and the unaudited consolidated financial statements for the nine
months ended September 30, 1999.
64
<PAGE>
HealthAxis Inc. and Subsidiaries
Pro-forma Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except share and per share data)
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Non Merging Insurdata
Insurdata Insurdata Merger
HealthAxis Incorporated Subsidiaries Adjustments Subtotal
---------- ------------ ------------ ----------- --------
(2) (3)
<S> <C> <C> <C> <C> <C>
Revenue:
Commission and fee revenue $ 125 $ 34,945 $ (3,566) $ - $ 31,504
Interest and other revenue -
-------------------------------------------------------------------------
Total revenue 125 34,945 (3,566) - $ 31,504
Expenses:
Operating and development 3,922 29,322 (3,069) (1,143) (4) 29,032
Sales and marketing 12,100 370 (0) - 12,470
General and administrative 2,542 3,456 (77) 2,448 (5) 8,369
Amortization of value of customers - - - 3,871 (4) 3,871
Amortization of developed software - - - 837 (4) 837
Amortization of goodwill 108 - 155,863 (4) 155,971
Interest expense (206) 9 (13) - (210)
-------------------------------------------------------------------------
Total expenses 18,466 33,157 (3,159) 161,876 210,340
-------------------------------------------------------------------------
Income (loss) from operations (18,341) 1,788 (407) (161,876) (178,836)
Provision (benefit) for income taxes: - 648 (119) -
-------------------------------------------------------------------------
Income (loss) from continuing operations $ (18,341) $ 1,140 $ (288) $ (161,876) $(178,836)
=========================================================================
Basic and diluted (loss) per common share from
Continuing operations $ (1.53)
Basic and diluted weighted average common
Shares outstanding 12,021,000 21,807,567
<CAPTION>
HAI
Recapitalization Merger
Adjustments Adjustments Pro Forma
----------------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Commission and fee revenue $ - $ 31,504
Interest and other revenue 240 (6) 240
--------------------------------------------------------
Total revenue 240 31,744
Expenses:
Operating and development 658 (6) 29,690
Sales and marketing - 12,470
General and administrative 15,573 (7) 3,668 (5)(6) 27,610
Amortization of value of customers - 3,871
Amortization of developed software - 837
Amortization of goodwill - 155,971
Interest expense 771 (6) 561
--------------------------------------------------------
Total expenses 15,573 5,097 231,010
--------------------------------------------------------
Income (loss) from operations (15,573) (4,857) (199,266)
Provision (benefit) for income taxes: - 529
--------------------------------------------------------
Income (loss) from continuing operations $ (15,573) $ (4,857) $ (199,795)
========================================================
Basic and diluted (loss) per common share from
Continuing operations $ (4.40)
Basic and diluted weighted average common
Shares outstanding 11,579,163 45,407,730
</TABLE>
See notes to pro-forma condensed consolidated financial statements.
65
<PAGE>
HealthAxis Inc. and Subsidiaries
Pro-forma Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except share and per share data)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Non Merging Insurdata
Insurdata Insurdata Merger
HealthAxis Incorporated Subsidiaries Adjustments
---------- ------------ ------------ -----------
(2) (3)
<S> <C> <C> <C> <C>
Revenue:
Commission and fee revenue - 44,233 (6,042) -
Interest and other revenue - 256 41 -
------------------------------------------------------------------------------
Total revenue - 44,489 (6,001) -
------------------------------------------------------------------------------
Expenses:
Operating and development 812 35,112 (3,326) -
Sales and marketing 1,295 391 - -
General and administrative 2,544 6,147 (1,143) 3,084 (5)
Amortization of value of customers - - - 4,129 (4)
Amortization of developed software - - - 29 (4)
Amortization of goodwill - - - 207,817 (4)
Interest expense 139 - - -
Merger costs
------------------------------------------------------------------------------
Total expenses 4,790 41,650 (4,469) 215,059
------------------------------------------------------------------------------
Income (loss) from operations (4,790) 2,839 (1,532) (215,059)
Provision (benefit) for income taxes: - 880 (511) -
------------------------------------------------------------------------------
Income (loss) from continuing operations (4,790) 1,959 (1,021) (215,059)
==============================================================================
Basic and diluted (loss) per common share from
Continuing operations (0.46)
Basic and diluted weighted average common
Shares outstanding 10,331,000 21,807,567
<CAPTION>
HAI
Recapitalization Merger
Subtotal Adjustments Adjustments Pro Forma
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Commission and fee revenue 38,191 - 76,382
Interest and other revenue 297 - 92 (6) 389
--------------------------------------------------------------------------------
Total revenue 38,488 92 38,580
--------------------------------------------------------------------------------
Expenses:
Operating and development 32,598 32,598
Sales and marketing 1,686 1,686
General and administrative 10,632 48,098 (7) 29,684 (5)(6) 88,414
Amortization of value of customers 4,129 4,129
Amortization of developed software 29 29
Amortization of goodwill 207,817 207,817
Interest expense 139 175 (6) 314
Merger costs - 3,325 (8) 3,325
--------------------------------------------------------------------------------
Total expenses 257,030 48,098 33,184 338,312
--------------------------------------------------------------------------------
Income (loss) from operations (218,542) (48,098) (33,092) (299,732)
Provision (benefit) for income taxes: 369 (249) 488
--------------------------------------------------------------------------------
Income (loss) from continuing operations (218,911) (47,849) (33,092) (300,220)
================================================================================
Basic and diluted (loss) per common share from
Continuing operations (6.87)
Basic and diluted weighted average common
Shares outstanding 11,579,163 43,717,730
</TABLE>
See notes to pro-forma condensed consolidated financial statements.
66
HealthAxis Inc. and Subsidiaries
Pro-forma Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
As of September 30, 1999
<TABLE>
<CAPTION>
Private Non Merging Insurdata
Placement Insurdata Insurdata Merger
HealthAxis Adjustment Incorporated Subsidiaries Adjustments
---------- ---------- ------------ ------------ -----------
(2) (3)
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 6,891 $ 53,540 (1) $ 2,919 $ 259 $ -
Accounts and notes receivable - 5,357 121 -
Prepaid interactive marketing expense 5,657 - -
Prepaid compensation expense - - - 11,741 (5)
Deferred income tax asset - 638 (81) (557) (4)
Other assets 835 4,060 (505) -
Total current assets 13,383 53,540 - 12,974 (206) 11,184 -
Property and equipment, less accumulated depreciation 3,178 5,962 (363) (2,709) (4)
Value of customers - - - 17,205 (4)
Developed software - - - 2,862 (4)
Goodwill, less accumulated amortization 7,673 1,129 - 623,452 (4)(5)
--------------------------------------------------------------------------
Total Assets $ 24,234 $ 53,540 $ 20,065 $ (569) $ 651,994
==========================================================================
Liabilities and Stockholders Equity
Liabilities:
Accounts payable $ 2,882 $ 864 $ (114) $ -
Accrued commissions and expenses 3,287 (274) 600 (4)
Convertible debenture - - -
Federal income taxes 402 81 342 (4)
Ceding commission liability - - -
Other liabilities 769 (262) -
--------------------------------------------------------------------------
Total current liabilities 2,882 5,322 (569) 942
- - -
Series B Preferred Stock 2,804 - - -
Stockholders Equity:
Preferred stock 2,405 - - -
Common stock 15,426 53,540 (1) 5,531 - 647,729 (4)
Additional paid-in capital 23,848 - 12,535 (5)
Retained earnings (deficit) (23,131) 9,212 - (9,212) (4)
--------------------------------------------------------------------------
Total Stockholders Equity 18,548 53,540 14,743 - 651,052
Total Liabilities and Stockholders Equity $ 24,234 $ 53,540 $ 20,065 $ (569) $ 651,994
==========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HAI
Recapitalization Merger
Subtotal Adjustments Adjustments Pro Forma
-------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 63,609 $ 3,208 (6) $ 66,817
Accounts and notes receivable 5,478 - 5,478
Prepaid interactive marketing expense 5,657 5,657
Prepaid compensation expense 11,741 61,073 (7) 72,814
Deferred income tax asset - - -
Other assets 4,390 469 (6) (215) (8) 4,644
Total current assets 90,875 3,677 - 60,858 155,410
Property and equipment, less accumulated depreciation 6,068 4,542 (6) 10,610
Value of customers 17,205 - 17,205
Developed software 2,862 - 2,862
Goodwill, less accumulated amortization 632,254 - 632,254
-----------------------------------------------------------------------
Total Assets $ 749,264 $ 8,219 $ 60,858 $ 818,341
=======================================================================
Liabilities and Stockholders Equity
Liabilities:
Accounts payable 3,632 $ (1,711) (6) $ 1,921
Accrued commissions and expenses 3,613 2,393 (6) 1,850 (8) 7,856
Convertible debenture - 24,528 (6) 24,528
Federal income taxes 825 585 (6) 1,410
Ceding commission liability - 5,450 (6) 5,450
Other liabilities 507 1,406 1,913
-----------------------------------------------------------------------
Total current liabilities 8,577 32,651 1,850 43,078
Series B Preferred Stock 2,804 (2,804) (6) -
-
Stockholders Equity: -
Preferred stock 2,405 (2,405) (6) -
Common stock 722,226 (717,593) (6) 4,633
Additional paid-in capital 36,383 735,454 (6) 110,431 (7)(8) 882,268
Retained earnings (deficit) (23,131) (37,084) (6) (51,423) (7)(8) (111,638)
-----------------------------------------------------------------------
Total Stockholders Equity 737,883 (21,628) 59,008 775,263
Total Liabilities and Stockholders Equity $ 749,264 $ 8,219 $ 60,858 $ 818,341
=======================================================================
</TABLE>
See notes to pro-forma condensed financial statements.
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68
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HealthAxis Inc. and Subsidiaries
Notes to Pro forma Condensed Consolidated Financial Statements
(Dollars in thousands except per share data)
1. Adjustment relates to the December 6, 1999 private placement of
approximately $55,700 in common stock of HealthAxis. The adjustment to cash
is net of approximately $2,160 of issuance costs.
2. Historical financial statements of Insurdata.
3. Adjustment relates to Insurdata's sale of Insurdata Marketing Services, LLC
and Insurdata Administrators, a division of Insurdata at book value to UICI
for cash prior to Insurdata's merger into HealthAxis.
4. Adjustment relates to the purchase of Insurdata and the allocation of the
purchase price to the assets of Insurdata. The amounts are calculated as
follows:
Number of shares issued to UICI 24,577,128
Fair value of shares issued $26.58
----------
Fair value of shares issued by HAI $653,260
Value of vested options 794
Merger costs 600
----------
654,654
Allocation of Purchase Price:
Insurdata net assets at historical cost 14,743
Less: Goodwill 1,129
Less: Book value of Insurdata capitalized software 2,709
Less: Net deferred taxes 899
----------
Fair value of Insurdata net assets 10,006
Future value of Insurdata customers 17,205
Future value of Insurdata developed software 2,862
----------
Purchase price allocated to specific assets 30,073
----------
Excess of cost over fair value of net assets acquired $624,581
==========
The fair value HealthAxis shares issued is based on HAI's market value per
share on the date of the merger with Insurdata, adjusted for the 1.127
exchange ratio of HealthAxis common stock into HAI common stock and a 10%
liquidity discount for unregistered shares.
The purchase price was allocated to intangible assets acquired as a result
of the Insurdata merger which includes the estimated future value of
Insurdata's customers and developed software which are amortized in
proportion to the estimated future discounted profits over a 4 year life for
customers and a 3 year life for developed software. The excess of cost over
the fair value of assets acquired or Goodwill is amortized on a straight
line basis over a three-year period.
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HealthAxis Inc. and Subsidiaries
Notes to Pro-forma Condensed Consolidated Financial Statements (continued)
(Dollars in thousands, except per share data)
5. Adjustment relates to the exchange of Insurdata options for options in
HealthAxis as of the date of the merger as described in Note 4. The amounts
are calculated as follows:
Insurdata options converted to HAI options 426,930
Fair value of HAI options $29.36
-------
Total fair value of options of HAI $12,535
=======
Non vested options presented as prepaid compensation
costs $11,741
Vested options presented as additional purchase price 794
-------
$12,535
=======
The fair value of the options is based on the Black Scholes Option Pricing
Model, HAI's closing share price on the date of the merger with Insurdata
adjusted for the 1.127 exchange ratio of HealthAxis common stock into HAI
common stock, the exercise price and assumed holding period of the options
and a 10% liquidity discount for unregistered shares. Prepaid compensation
will be expensed over the vesting period of the options.
6. Adjustments to all of the capital accounts for the transactions are as
follows:
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1999 as reported $5,209 $15,426 $23,848 $(23,131) $21,352
Private placement of HealthAxis common stock 53,540 - 53,540
Shares issued to acquire Insurdata 653,260 - 653,260
Exchange of Insurdata stock options 12,535 12,535
Conversion of Preferred stock (5,209) 5,209 --
Recapitalization of HAI (722,802) 735,454 (37,084) (24,232)
Exchange of Options of HealthAxis for HAI 109,171 (48,098) 61,073
Merger costs charged to operations 1,260 (3,325) (2,065)
--------------------------------------------------------------------
$ -- $4,633 $882,268 $(111,638) $775,263
====================================================================
</TABLE>
* Amount includes $2,804 of Series A, which is presented as mezzanine capital.
As a result of the merger, these shares will be converted to common stock.
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HealthAxis Inc. and Subsidiaries
Notes to Pro-forma Condensed Consolidated Financial Statements (continued)
(Dollars in thousands, except share and per share data)
The merger of HAI resulted in the adjustment for the net liabilities of HAI,
which amounted to $24,232 at September 30, 1999.
7. Adjustment relates to the exchange of HealthAxis options for HAI options.
The amounts are calculated as follows:
HealthAxis options converted to HAI options 4,359,328
Intrinsic value of HAI options $25.04
---------
Total intrinsic value of options of HAI $109,171
=========
Non vested options presented as prepaid compensation
costs $61,073
Vested options presented as merger costs 48,098
---------
$109,171
=========
Prepaid compensation will be expensed over the vesting period of the
options. The value of the vested options will be charged to operations in
each period presented.
8. Merger costs include legal, accounting and investment advisory costs
incurred as a result of the merger of HealthAxis into HAI as well as
severance costs for employees whose positions will be eliminated as a result
of the mergers. Accordingly, the amount charged to operations was $3,325.
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Information Concerning HealthAxis
General
HealthAxis is a leading web-based insurance retailer providing fully
integrated, end-to-end, web-enabled solutions for health insurance distribution
and administration. HealthAxis serves both consumers and insurance payors, which
include commercial carriers, third-party administrators, Blue Cross/Blue Shield
plans, and self-insured employers. These entities are referred to as payors in
this document. HealthAxis' consumer services group is a web-based retailer of
health insurance products and related consumer services. HealthAxis' application
solutions group offers a platform of web-enabled software applications and
services to payors designed to enhance the efficiency and effectiveness of the
claims administration, benefits enrollment, benefits maintenance and data
capture activities involved in the administration of health insurance. The
application solutions group also provides the administrative backbone for the
consumer services group thereby creating a full service, Internet-based
insurance agency.
Through its consumer-oriented website, www.healthaxis.com, HealthAxis
offers consumers access to educational materials, personal profiling tools,
instant quotes, and the ability to purchase health insurance entirely within the
online environment. The HealthAxis website guides a consumer through every step
in the health insurance purchase process, from education and price quotation
through enrollment and post sale service. HealthAxis believes that no other
insurance website currently matches HealthAxis' ability to cover all pre- and
post-sale activities completely online. HealthAxis believes that its
consumer-focused online distribution service enhances both the decision-making
and purchasing experience, by giving prospective customers relevant,
personalized and real-time information along with the convenience of shopping
online 24 hours a day, seven days a week. HealthAxis believes its website
provides a superior decision-making and purchasing experience to those currently
available through either the traditional distribution system or online
competitors.
HealthAxis does not underwrite insurance, but functions strictly as an
Internet-based insurance agency. By selling directly to consumers via the
Internet, HealthAxis can significantly reduce the cost of product distribution
as compared to the traditional agent-based distribution system. HealthAxis
targets the individual and small group health insurance markets through its
website, www.healthaxis.com. (References in this document to consumers or
customers refer to individuals as well as small groups served by the website.)
HealthAxis' website is accessible directly, or through one of HealthAxis' portal
marketing partners, which include America Online Inc., Lycos, Inc., Snap!, LLC,
and CNet Inc. HealthAxis will target the large group market with ancillary
insurance products by cross-selling into the application solutions group's
client base of large group employers.
HealthAxis' consumer services group has entered into carrier partner
agreements with 12 insurance companies, including Aetna US HealthCare, Aegon,
UICI, US Life, WellPoint Health Network Inc. and Fortis Health. HealthAxis has
also entered into a national marketing alliance with the National Blue Cross and
Blue Shield Association. These insurance companies which have entered into
agreements with HealthAxis are referred to as carrier partners. These carrier
partners have agreed to distribute health insurance products online through the
HealthAxis website. Once integrated into HealthAxis' web platform, HealthAxis'
network of carrier partners will provide products that are available in all 50
states and the District of Columbia, including individual and small group
medical, dental, vision, life, prescription drug and disability insurance.
Individual medical from WellPoint and Ceres Group, short term medical and
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student medical plans from Fortis, and a prescription drug benefit card plan
offered by Aegon, are currently available for purchase on the HealthAxis
website. HealthAxis intends to regularly add new plans and new carriers to its
website. HealthAxis' objective is to offer its customers a choice of carriers in
each market.
HealthAxis' application solutions group provides web-enabled,
integrated proprietary software applications that address the workflow and
processing inefficiencies embedded in the healthcare insurance industry. The
software enables carriers, third party administrators 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
improving the client's ability to capture, process and share data with plan
members and other industry participants within the healthcare system. These
products, in conjunction with the HealthAxis' online distribution capabilities,
create an internet based insurance agency which provides all the services of a
traditional insurance agency without assuming any underwriting risk.
The application solutions group offers the suite of proprietary
integrated workflow and business software applications described below.
Insur-Web is HealthAxis' web-enabling technology that provides an
Internet gateway to the application solutions group's other proprietary business
applications. Insur-Web allows clients to provide direct access to their systems
and data within a secure environment thereby lowering transaction costs and
shortening cycle times for their constituent users. This application can also be
used to web-enable a payor's own legacy system.
Insur-Image is a seamless scanning optical character recognition and
data verification workflow system specifically engineered for claims processing
that enables payors to create a paperless environment.
Insur-Voice is a scaleable, flexible, interactive voice response system
that provides employees, providers and employers 24-hour access to information
thereby improving service while reducing customer service costs.
Insur-Enroll is an Internet- and interactive voice response enabled
enrollment and eligibility function which provides 24-hour interactive
enrollment, eligibility and life event management and supports an unlimited
number of benefit plans including, health, dental, life, vision, accident and
disability, and medical and dependent care flexible spending accounts.
Insur-Admin is a comprehensive benefits administration system that
features enrollment, group and individual billing and premium collection and
reconciliation for third-party administrators, insurers, self-administered
groups, health plan network managers and healthcare purchasing cooperatives.
Insur-Claim is a comprehensive claims processing system for health,
dental, vision, short-term disability, executive reimbursement and medical and
dependent care flexible spending accounts and includes auto adjudication and
preferred provider organization repricing functions. A rules-based approach
allows Insur-Claim to be fully customized, which allows the system to handle
complex benefit structures and provider reimbursement arrangements.
In addition, the application solutions group offers the following
products and services:
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Systems Integration and Technology Management Services which provide
clients with cost-effective design, development and implementation of technical
solutions for healthcare organizations and consist of four primary offerings:
information technology planning, multi-vendor system integration, application
software maintenance and workflow automation.
Imaging and Electronic Data Capture Services which provide outsourcing
services to efficiently convert paper healthcare claims into electronic
transactions. Additionally, HealthAxis provides mailroom services to sort
incoming healthcare claim forms prior to imaging.
Web-based Image Storage and Retrieval which provides claims image
retrieval services via the Internet from a standard desktop personal computer
using a web browser.
The application solutions group's clients include large insurance
carriers, Blue Cross and Blue Shield organizations, third-party administrators,
self-funded employers, and other industry participants. The application
solutions group also offers systems integration, technology management and data
capture services to these same customer client groups.
The application solutions group has over 20 years of experience
building software applications and developing systems for the healthcare payor
industry. The application solutions group's current client base represents
approximately 900,000 insured lives (excluding covered dependents) enrolled
under the proprietary software applications and approximately 2,000,000 claims
per month through the data capture services. The application solutions group
generated approximately $38.2 million in pro forma revenues for the year ended
December 31, 1998 and approximately 31.4 million in pro forma revenues for the
nine months ending September 30, 1999.
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 payors 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.
The method of distributing health insurance varies by market segment.
HealthAxis plans to employ a captive sales force to market its products to large
and mid-sized employer groups by targeting the company human resource
departments of these entities. The human resources staff is then responsible for
enrolling the group members in the appropriate plans. Small group (generally 100
lives and fewer) and individual plans are sold primarily through independent
agents directly to the consumer/small group decision maker. The traditional
system serving individuals and small groups consists of a hierarchy of master
general agents, general agents and agents, each of whom creates incremental cost
as product flows downstream from the underwriter to the consumer. Agents
represent the principal point of interaction with the consumer and are
responsible for closing sales. Agents solicit prospects at the local level and
help consumers select a policy. This highly labor-intensive system of
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<PAGE>
distribution has existed since the emergence of insurance as a mass market
product. HealthAxis believes that the expenses associated with this distribution
system represents approximately 20% of the total cost of an individual health
insurance product, creating a disintermediation opportunity.
HealthAxis believes that agents, in addition to generating significant
selling costs for insurers, often create a shopping experience that is less than
ideal for the buyer. Based upon its research, HealthAxis believes prospective
consumers view meetings with agents as inconvenient and dislike sales pressure
that is perceived to accompany these meetings. Agents represent the "sellers"
(i.e. insurance carriers) and not the "purchaser" of the insurance product.
HealthAxis' goal is to position itself as the customer's "trusted advisor."
HealthAxis believes the Internet can be a significant force in
transforming the distribution and marketing of health insurance by reducing
distribution costs and improving the shopping experience. The type of labor
intensive, high-cost distribution system that is currently utilized in the
health insurance industry is highly vulnerable to the disintermediation of
agents from the sales process. HealthAxis also believes that insurance, as an
information-based product, is better suited to Internet distribution than
physical products such as books and furniture, items for which the "packing and
shipping" components can entirely offset the efficiency of the web-based sale.
The Internet offers consumers the ability to "shop" for insurance in an
environment that offers 24 hours a day/seven days a week availability,
information access, and the ability to control the pace of the buying process,
without agent pressure.
HealthAxis believes that the rapid growth of the Internet has helped to
accelerate the development of the market opportunity in Internet insurance
distribution. Rapid increases in the number of websites, number of web users,
access to the web, and dollar amounts of transactions conducted via the web
illustrate the significance of the web as both a center of commerce as well as a
mass medium. According to the Emarketer, an Internet market research firm, the
number of U.S. online users was approximately 58 million in 1999 and is
estimated to increase to approximately 88 million in 2002. The increase in web
users is attributable to a number of factors, including the decreasing cost and
wider availability of both personal computers and online access as well as an
increase in the types of goods, services and content available through the
Internet. Emarketer estimates the total value of goods and services purchased
over the Internet will grow from $38.9 billion in 1998 to $654.4 billion in
2003.
Plan Administration. Healthcare plan administration involves providers,
payors, 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
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<PAGE>
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
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, third-party 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 both the
consumer's needs for a more cost-efficient and information-rich purchase
experience and the payor community's need to achieve cost efficiencies in their
operations. HealthAxis provides web-enabled, fully integrated insurance
distribution and administration solutions, serving both consumers and insurance
payors. HealthAxis is composed of the consumer services group and the
application solutions group.
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<PAGE>
The End-to-End Solutions Provider
PAYORS CUSTOMERS
Insurance carriers Large Groups
TPAs
Blue Cross/
Blue Shield Individuals
HealthAxis.com
Self Funded Employers Small Groups
Health Insurance
Retail and
Administrative
Work Flow Support Web Site
Applications
The consumer services group is a web-based retailer of health insurance
products and related consumer services. The consumer services group targets both
the individual and small group insurance markets through its website,
www.healthaxis.com. The HealthAxis website provides a fully integrated
transaction platform for the sale of health insurance over the Internet.
HealthAxis believes its website provides a superior decision-making and
purchasing experience to those currently available through either the
traditional agent-based distribution system or online competitors. The
HealthAxis website guides a consumer through every step in the health insurance
purchase process from education and price quotation through enrollment and post
sale service. HealthAxis believes that no other insurance website currently
matches HealthAxis' ability to cover all pre-and post-sale activities.
HealthAxis' application solutions group provides web-enabled,
integrated proprietary software applications that address the workflow and
processing inefficiencies embedded in the healthcare insurance industry. The
software enables carriers, third-party administrators 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
improving the client's ability to capture, process and share data with plan
members and other industry participants within the healthcare system, including
providers, payors, managed care organizations, agents, reinsurance carriers,
employees and employers. In addition, the application solutions group offers
these customers related systems integration, technology management and data
capture services to these same customer groups.
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The HealthAxis Strategy
HealthAxis' strategy consists of six principal components:
o Build HealthAxis Brand Awareness.
o Expand Sales Force to Capitalize on Leading Technology.
o Provide High Levels of Value and Service to Consumers.
o Accelerate Carrier Partner Integration by Utilizing Technical
Expertise of the Application Solutions Group's Staff.
o Cross-Sell Payor Services to Carrier Partners and Consumer
Services to Existing Application Solutions Group Client Base.
o Develop Multiple Distribution Channels.
Build HealthAxis Brand Awareness. HealthAxis intends to expend
resources to build a recognizable, national brand. To date, HealthAxis' consumer
services group has established portal relationships with America Online Inc.,
Lycos, Inc., Snap!, LLC, and CNet Inc. HealthAxis intends to diversify its
marketing approach to include TV, radio, print, direct mail, and the use of
public relations to develop brand awareness.
Expand Sales Force to Capitalize on Leading Technology. The application
solutions group 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.
Provide High Levels of Value and Service to Consumers. A key element of
HealthAxis' strategy is to offer a customer-focused environment on its website
that provides the consumer with access to relevant, timely product information
and an array of interactive profiling tools to provide a customized,
user-friendly purchasing experience.
Accelerate Carrier Partner Integration by Utilizing Technical Expertise
of the Application Solutions Group's Staff. A key synergy between the consumer
services group and the application solutions group is the applicability of the
application solutions group's technical expertise to the carrier partner
integration process. The application solutions group's technical staff, with
over 300 professionals and over 20 years of experience working with health
insurance payors, is expected to support and expedite the carrier partner
integration process.
Cross-Sell Payor Services to Carrier Partners and Consumer Services to
Existing Application Solutions Group Client Base. HealthAxis intends to
cross-sell its distribution services to the application solutions group's
existing client base of large employer groups to provide these clients'
employees with access to ancillary health insurance products not offered by the
employer including vision care, disability coverage and long term care insurance
with integrated, web-enabled product distribution. Concurrently, the application
solutions group intends to cross-sell its proprietary software services to the
consumer services group's existing carrier partners. Certain of the carrier
partners are among the largest payors in the United States and represent a
potential source of revenues for the application solutions group's
administration services.
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Develop Multiple Distribution Channels. HealthAxis will have the
ability to sell to a variety of health insurance consumers, including
individuals, small groups, and large groups. Individual and small groups
comprise the principal target market of the consumer services group's website.
The consumer services group can utilize the application solutions group's client
relationships to sell ancillary insurance products, including disability plans,
life insurance, critical care coverage and vision care to large group employers.
Revenue Model
HealthAxis derives a variety of recurring revenue streams from its
various business activities. Both the consumer services group and application
solutions group feature a transaction-driven revenue model.
Consumer Services Group Revenues. The consumer services group generates
revenues from both commissions from the sale of insurance policies and
volume-based marketing assessments. HealthAxis charges its carrier partners a
commission, which is levied as a percentage of the dollar amount of premiums
sold through HealthAxis for each carrier partner's products. Due to the
efficiency of the online channel, HealthAxis believes it can charge a commission
that is lower than that assessed by traditional agents, resulting in cost
savings to both the insurer and the consumer. The commission fee is the
principal source of revenue for the consumer services group. In addition,
carrier partners are charged a carrier marketing assessment fee based upon
actual premium revenue of the particular product line. The concept behind the
carrier marketing assessment fee is to charge the carrier partner an amount
similar to what it would allocate to advertising/marketing the same product
through traditional agent distribution channels. Carrier marketing assessment
revenues vary among the portfolio of carrier partners based upon a variety of
factors. While this amount varies by carriers, HealthAxis believes that the
industry average is between 2-4% of premiums.
HealthAxis executes the complete sale of insurance policies rather than
generating referrals or leads to insurance agents. Instead of collecting a
one-time referral fee, the consumer services group earns monthly revenues for
the duration of each policy that is sold through HealthAxis. Further, by
remaining the main point of contact for the consumers, HealthAxis will benefit
as policies are renewed.
Application Solutions Group Revenues. The application solutions group
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 certain start-up costs
incurred by the application solutions group in serving new clients. Typically,
these costs are associated with data conversion, 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, the unit of measure
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. The
application solutions group charges its clients for its systems integration and
technology services on a time and materials basis and for its data capture
services on a per-claim basis.
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Products
HealthAxis provides a comprehensive product set with solutions for both
consumers and payors. HealthAxis is capable of providing software services
across both the administration and distribution segments of the health insurance
market. The following describes the products offered by both HealthAxis'
consumer services group and application solutions group.
Consumer Services Group
HealthAxis' website is located at www.healthaxis.com. HealthAxis
believes its website provides a superior retail experience when compared to
those currently available either through the traditional distribution system or
online competitors. The website can be accessed directly or through one of
HealthAxis' portal marketing partners.
www.healthaxis.com presents a consumer with the following:
------------------
o Access to insurance information and personal profiling tools;
o Opportunity to buy online from among a choice of products from
leading health insurance providers;
o Affordable products priced to reflect the efficiencies of
web-based distribution;
o Informed assistance from licensed professionals through chat,
phone or e-mail; and
o Ongoing customer service through plan and policy information
maintained in the customer's personal space.
HealthAxis launched its service in December 1998 through America Online
Inc. This launch involved a single carrier with product distribution in 18
states. The soft launch phase was designed to aid HealthAxis in understanding
both the marketplace and the capabilities of its platform. In August 1999,
HealthAxis officially launched its website with the addition of its second
carrier partner, which expanded HealthAxis' geographic scope to include 38
states and the District of Columbia. By the end of February 2000, HealthAxis
anticipates offering individual medical, short-term medical, student medical,
dental, vision, and prescription plans, with at least one product being offered
in each of the 50 states and the District of Columbia. Products of additional
carrier partners are anticipated to be added during 2000. HealthAxis is
currently licensed in 49 states either directly or through its agency employees
or wholly-owned subsidiaries and has applied for a license in the remaining
state which it anticipates receiving prior to the end of the second quarter of
2000. See "-- Regulation."
Product Set. HealthAxis intends to offer a full range of health and
related insurance products. HealthAxis' objective is to provide "one stop
shopping" for health insurance products. HealthAxis' goal is to offer consumers
and small businesses a choice of products from among a selection of quality
insurance providers. HealthAxis' insurance product portfolio will include the
following:
o Individual Medical o Critical Care o College Student Medical
o Small Group Medical o Long-Term Disability o Senior Medical
o Prescription o Long-Term Care o Senior Life
o Vision o Term Life o Other health related products
o Dental o Short-Term Medical
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As of January 31, 2000, HealthAxis had entered into agreements with 12
carrier partners plus a national marketing agreement with the Blue Cross and
Blue Shield Association. In addition to its current carrier partner
relationships, HealthAxis continues to work towards implementing additional
relationships to enhance the depth and breadth of the product portfolio.
Relevant Information and Customized Advice. HealthAxis believes
consumer education is an important component of establishing a relationship with
the prospective customer. Consumers can use www.healthaxis.com to gather
information about insurance products, the application and underwriting process,
and which products are relevant to his or her needs and budget. Resources are
available both online and via the customer care center, which can be reached by
telephone, live "chat", or e-mail. HealthAxis is building an extensive
personalization capability that will enable users to self-profile their health
insurance needs. Such online profiling tools will provide an important level of
customization to the buyer's shopping experience.
Quotes. HealthAxis provides instant quotes on available plans. Plan
quotes are returned in seconds. The consumer can proceed either directly from
his or her quote to an application to purchase the desired policy or to other
areas of the website to gather more plan information.
Application Process. HealthAxis allows a customer to apply for policies
online, without traditional paper applications. For each of the products
HealthAxis sells, it creates, in conjunction with its carrier partners, an
online version of the product's application form. HealthAxis believes the online
form provides both a convenience to its consumers and a cost savings to its
carrier partners. All of HealthAxis' online applications can be saved so that
the consumer may store partially completed forms in a password-protected area
for subsequent use. HealthAxis includes in its online forms an array of
context-sensitive information to help guide the consumer through the application
process. This context-based help is complemented by the availability of licensed
insurance professionals via live "chat", e-mail, and a toll free telephone
number. Upon completion of an application form, a consumer simply clicks the
"send" button to submit the application to HealthAxis, which automatically
forwards it to the appropriate carrier partner. A consumer then receives an
instant message that confirms receipt of the application.
Customer Care Center. HealthAxis operates a customer care center in its
East Norriton headquarters in order to provide consumers a variety of customer
support options, including online "live chat" and telephone assistance. The
customer care center staff is composed predominantly of fully licensed insurance
professionals. HealthAxis believes these professionals play an important role in
ensuring both customer satisfaction and sales conversion.
As fully licensed insurance professionals, the customer care center
staff can assist applicants through the entire purchase process, including:
o evaluating the customer's insurance needs;
o evaluating insurance plans; and
o completing and submitting an application.
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The customer care center staff is trained in both insurance and technology to
assist customers with product issues, processing questions and technical matters
including web browser difficulties. HealthAxis' customer service representatives
are available seven days a week.
Underwriting. HealthAxis does not engage in insurance underwriting.
HealthAxis' role is to provide an online platform that connects the applicants
and the insurance underwriters. HealthAxis believes its primary function once an
application has been submitted is to serve as the conduit for communications
between the applicant and the carrier partner. In most cases, applications
submitted by customers are electronically transmitted to the appropriate carrier
partner or to the carrier partner through its designated third-party
administrator.
Insurance products vary in the extent of review required for each
applicant. For example, products like dental insurance, vision care, and
short-term medical coverage are typically issued without underwriting.
Non-underwritten products lend themselves to rapid online fulfillment, given the
lack of review required to issue the policy. Other products, like medical
insurance, long-term care, or life insurance require underwriting. In such
instances, the underwriting process itself is substantially similar to the
traditional system. Carrier partner representatives receive the application
electronically from HealthAxis' web servers. Upon receipt, the underwriters
review the application and contact the applicant, if necessary, to conduct
further inquiry. Each carrier partner adheres to its own underwriting standards
with respect to the issuance and rating of policies. HealthAxis attempts to
select carrier partners for which efficient product fulfillment is a high
priority.
Policy Issuance Process. Once a policy is underwritten, the new
HealthAxis policyholder is mailed a plastic identification card with an
accompanying welcome letter. The letter directs the policyholder to his or her
HealthAxis personal space, a fully secure, online, password protected
environment, where HealthAxis has deposited an electronic copy of the policy
certificate. The carrier partner is not required to mail physical materials to
the applicant beyond any plastic I.D. card that may be attached to the product.
All materials formerly delivered in paper form are now delivered electronically
to the applicant through the personal space. The electronic materials include
plan information, the doctor/hospital network directory, and other materials.
HealthAxis' ability to transform the costly paper flow historically associated
with the policy issuance to an efficient electronic document flow represents a
cost savings for the carrier partner.
Post-sale Customer Care. HealthAxis provides each customer with online
access to his or her policy information, billing data, claims history and claims
status reports. These records are viewable on www.healthaxis.com via the
customer's personal space, within which a customer can not only view
information, but also maintain and update his or her personal data.
HealthAxis believes that delivering post-sale services in an online
format provides both a convenience to customers and a cost savings to insurers.
Under the traditional agent-based system, the customer would be required to call
either the agent who sold the product or the underwriter's customer service
center. In contrast, a HealthAxis customer can conveniently access his or her
plan information 24 hours a day/seven days a week without initiating a
conversation with a sales agent. Concurrently, the carrier partners benefit from
reduced customer service expenses, because policyholder records can be
automatically updated without manual intervention by the carrier partner's
staff. HealthAxis believes that its ability to deliver post-sale service to its
customers is unique within the online insurance space.
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Billing Process. A consumer can select from payment methods, including
credit card or an automatic debit from a bank account. The website is fully
enabled to process both credit card and monthly bank account debit transactions.
Application Solutions Group
HealthAxis' application solutions group 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. The application solutions group, through its proprietary
web-enabled enrollment and plan administration applications, provides Internet
enrollment and online access to claims and eligibility data. The application
solutions group's services include proprietary workflow and Internet-enabled
business applications that enhance transaction processing and promote the flow
of information among constituent users, including providers, payors, managed
care and case management organizations, reinsurance carriers, agents, preferred
provider organizations, medical and dental claim review staffs, employers and
employees. In addition, the application solutions group offers related systems
integration, technology infrastructure management and data capture services.
- ------------------------------------------------------------------------------
Data Capture Services
- ------------------------------------------------------------------------------
- -------------------------------------------- ---------------------------------
Workflow and Business
Administration Applications Systems Integration
Insur-Web, Insur-Image, Insur-Voice, Custom Applications
Insur-Enroll, Insur-Admin, Insur-Claims
- -------------------------------------------- ---------------------------------
- ------------------------------------------------------------------------------
Technology Infrastructure Management
- ------------------------------------------------------------------------------
Proprietary Applications. The application solutions group 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 the application solutions group a monthly fee for each
enrollee it administers. HealthAxis typically enters into multi-year contracts
with clients to whom it supplies these services.
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Workflow Applications
Insur-Web. Insur-Web is the application solutions group's web-enabling
technology that provides an Internet gateway to the application solutions
group's other proprietary business applications. By Internet-enabling the
application solutions group's business applications, the application solutions
group 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 the application solutions
group's 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 payors 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, the application solutions group's 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 the application solutions group's 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
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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, third-party administrators, consultants, self-administered
groups and employers, and a significant market opportunity for the application
solutions group. The solution was successfully deployed in 1999 with groups
ranging in size from 1,500 to 40,000 employees.
Insur-Admin. Insur-Admin is a comprehensive benefits administration
system that features enrollment, group and individual billing and premium
collection and reconciliation for third-party administrators, 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 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 the application solutions group's 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
the application solutions group's 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 third-party administrators, 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 the
application solutions group's 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 the application solutions group 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
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with tracking and distributing application versions, the application solutions
group 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.
Systems Integration and Technology Management. Through its systems
integration and technology management services, the application solutions group
provides cost-effective design, development and implementation of technical
solutions for payors. These services can be supplied independently or as a
complete package pursuant to which the application solutions group assumes
complete responsibility for the client's information technology operation as is,
and, where appropriate, converts the client to the application solutions group's
systems. These services are provided to HealthAxis' clients on a time and
materials basis. The application solutions group's systems integration services
consist of four primary offerings:
o Information technology planning. The application solutions
group's 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, the application solutions group
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. The application solutions
group 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. The application
solutions group's 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, the application solutions group undertakes
a suitability analysis, evaluates and selects an application
package, performs modifications, implements the solution and
trains users.
o Workflow Automation. The application solutions group's
workflow automation services provide consulting and solution
integration focused on improving productivity by automating
data capture and shortening processing times. The application
solutions group utilizes both its proprietary workflow
solutions and custom solutions within its workflow automation
services. The application solutions group 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.
The application solutions group 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
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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. The application
solutions group 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. The application solutions group
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, the application solutions
group also provides mailroom services pursuant to which the application
solutions group 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 payor's mailroom to the time the relevant data is
captured and entered into the payor's system. These cumbersome processes,
coupled with the high volume of claims processed by typical payors, results in a
significant and expensive administrative burden on payors.
The application solutions group 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 the application solutions
group's claim processing solutions, to the application solutions group's data
center for adjudication and payment. HealthAxis offers these services to its
clients on a per claim or per image basis.
Web-based Image Storage and Retrieval. In tandem with claims data
capture, the application solutions group 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.
The application solutions group's imaging and electronic data capture
services are provided on a per image basis. The application solutions group
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.
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Technology Development
The application solutions group has an internal technology unit led by
the Chief Technology Officer. This unit is designed to support the application
solutions group's operating units and their clients through continuing research,
development, evaluation and implementation of new technologies. The application
solutions group uses a team approach throughout the development phase of new
products and product enhancements which involves the active participation of the
application solutions group's 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, the application solutions
group's technology unit continues to enhance the application solutions group's
proprietary applications and to develop and test new solutions, including the
testing and analysis of applications available in the market. The application
solutions group's 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.
Carrier Partners
HealthAxis seeks to form alliances with nationally recognized insurance
carriers committed to developing the lower cost electronic channel as an
important means of distributing healthcare insurance products. Because
HealthAxis does not engage in underwriting, HealthAxis relies exclusively on its
carrier partners, the insurance providers from which HealthAxis sources its
products, in order to be able to offer products to individual and small group
consumers. All insurance plans sold on www.healthaxis.com are underwritten by
HealthAxis' carrier partners, and not by HealthAxis.
As of December 31, 1999, HealthAxis had signed agreements with 12
carrier partners. The carrier partner portfolio covers important medical
insurance categories, including individual medical, small group medical, dental,
vision, disability, term life, prescription drug, and more. HealthAxis has
signed most of its carrier partners to exclusive agreements. Under the carrier
partner agreements, HealthAxis becomes the sole online distribution intermediary
able to build electronic linkages into the carrier partner's systems. These
exclusivity provisions generally apply for one to two years from the launch of
the product(s) on the website. HealthAxis continues to market new insurance
carriers to increase the product selection available on its website.
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HealthAxis' current portfolio of carrier partners appears in the table
below:
HealthAxis Carrier Partners
(as of December 31, 1999)
<TABLE>
<CAPTION>
Carrier Partner AM Best Rating(1) State Availability Products/Services
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Aegon NR-5(2) 49 states Discount PCS*
Accidental Death &
Dismemberment
Medicare Supplemental
2. Aetna/US HealthCare A- 50 states (small group) Small Group Medical
3 states (individual) Individual Medical
3. Ameritas A+ 49 states 10 year and 20 year Term Life
Group Dental
4. Blue Cross of A 7 states Individual Medical*
CA/Wellpoint Small Group Medical
5. Celtic Life Insurance Co. A- 35 states Individual Medical
6. Ceres Group B 20 states Individual Medical*
Small Group Medical
7. Fortis Health A+ 44 states Short-term Medical*
Student Medical*
Long-term Care
8. HPA/Allianz A++ 35 states Flexible Term Medical
9. Life Insurance Company A 50 states Accidental Death and
of North America (a Dismemberment
CIGNA Company) First Diagnosis Cancer
10. Security Life B+ 41 states Individual Dental/Vision
Group Dental/Vision
Fully insured PCS
11. UICI Midwest Life A 38 states Individual Medical
12. US Life/American A+ 50 states Group Dental/Vision
General Short-term Disability
Long-term Disability
Group Term Life
</TABLE>
- ------------------------------
(1) AM Best Company Inc. is an independent third-party that rates insurance
companies.
(2) AM Best "NR-5" rating can be assigned to a company for which AM Best
prepares standard financial reports, but are not to be formally evaluated
for the purpose of assigning rating opinions at HealthAxis' request.
* Indicates products currently available on the HealthAxis website, however,
these products may not be available in all the carrier partners' available
states.
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Currently, HealthAxis offers products of the Ceres Group, WellPoint,
Fortis Health and Aegon through its website. The products offered include
individual medical insurance, short-term medical insurance a student medical
insurance product and a prescription plan. These products allow HealthAxis to
sell at least one product in each of 49 states. HealthAxis intends to expand its
products to all 50 states during the second quarter of 2000.
The two principal steps in establishing a carrier partner relationship
are carrier partner development and carrier partner integration. Carrier partner
development is the sales process involved in identifying potential carrier
partners and entering into a carrier partner agreement. Carrier partner
integration is the process by which a newly signed carrier partner links its
legacy systems to HealthAxis' web servers for the purpose of distributing
products through HealthAxis' website.
Carrier Partner Development. HealthAxis employs stringent value
criteria in selecting new Carrier Partners. HealthAxis looks for the following
characteristics:
o Do consumers need the product?
o Does the carrier partner's products fill a gap in HealthAxis'
present product portfolio, either in terms of product type or
geography?
o Does the product represent a potentially significant revenue source?
o Is the product competitive in its features and price?
o Is the carrier partner committed to e-commerce?
o Is the carrier partner willing to provide product priced for the
lower cost of the Internet channel?
o Is the carrier partner capable of working with HealthAxis to create
the electronic connection between HealthAxis' servers and the carrier
partner's systems?
Carrier Partner Integration. The carrier partner integration process is
the key to building a robust product portfolio. A product cannot be sold on
HealthAxis' website until the integration team has embedded the carrier's plan
including the plan description, rating engines, provider network information and
application forms, into the website. The complexity of health insurance
underwriting workflows requires a carrier integration staff that has expertise
in both technology and insurance in order to be able to efficiently execute
their tasks. The consumer services group anticipates that it will be able to
leverage the application solutions group's workflow application experience to
expedite the carrier partner Integration process.
Carrier partner integration is a multi-step process that takes two to
six months to complete. The HealthAxis integration team generates both
functional and technical specification documents. Once the requirements are
understood, the HealthAxis team begins the programming activities that will
execute the newly designed, electronic workflows. Because each carrier utilizes
different workflows and means of handling data, HealthAxis believes the
application solutions group's substantial experience in the healthcare industry
can be invaluable in resolving complex programming problems.
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Application Solutions Group Clients
HealthAxis' application solutions group currently has a total of 37
clients, which include insurance carriers, third-party administrators, Blue
Cross/Blue Shield organizations and self-administered employers. Contracts with
these payors are for a multi-year (generally three year) term with annual
renewals thereafter.
The application solutions group's 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' application solutions
group has enjoyed long-term client relationships. See "Chapter I - The Merger -
Risk Factors - The loss of one or more of the application solutions group's
large clients would have a detrimental affect on HealthAxis' financial
condition."
As a result of the parent-subsidiary relationship between the
application solutions group (formerly, Insurdata Incorporated) and UICI, the
applications solutions group has historically derived a large percentage of its
revenues from UICI and its subsidiaries. For the year ended December 31, 1998,
UICI and its subsidiaries accounted for approximately 56% of the application
services group's total revenues and 65% of its pro forma revenue. For the nine
months ended September 30, 1999, UICI and its subsidiaries accounted for
approximately 59% of its total revenue and 65% of its pro forma revenue. A
portion of the application solutions group's revenue from UICI in the past was
for Year 2000 services which have been substantially completed. UICI and its
subsidiaries are currently the application solutions group's primary client for
its system integration and technology management services. HealthAxis believes
that the percentage of the application solutions group's revenues attributable
to UICI and its subsidiaries will decline as HealthAxis' marketing efforts
continue to expand HealthAxis' 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."
Strategic Alliances
HealthAxis has exclusive distribution agreements with its portal
marketing partners. These agreements place limits on the ability of HealthAxis'
portal marketing partners from engaging in similar relationships with other
health insurance companies and from accepting advertising or promotional banners
with respect to certain products. HealthAxis believes these relationships have
provided a significant distribution advantage. Collectively, these agreements
will provide HealthAxis with over 2.6 billion impressions over the initial and
renewal terms of the agreements.
The following table highlights certain terms of the agreements with
HealthAxis' portal marketing partners.
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<TABLE>
<CAPTION>
Portal Partner Highlights Term
- -------------------------------- --------------------------------------- ------------------------------------
<S> <C> <C>
America Online Inc. o Exclusive Initial through May 31, 2000
o Own health portion of America Renewal through May 31, 2002
Online Inc.'s "Insurance Center"
o Right to target America Online Inc.
mailing list
Strategic Placements across various
channels
Lycos, Inc. o Exclusive Initial through April 30, 2000
Includes Tripod and Geocities Renewal through April 30, 2001
o Frequent home page placement
o Strategic Placements across various
channels
Snap!, LLC o Participate in Snap!, LLC's Initial through August 31, 2000
"Insurance Center" Renewal through August 31, 2001
o Strategic Placements across various
channels
CNet, Inc. o Exclusive Initial through August 31, 2000
Renewal through August 31, 2001
o Strategic Placements across various
channels
</TABLE>
See "-- Marketing Agreements" for a description of these agreements.
HealthAxis attempts to optimize the value of its marketing
relationships through frequent interaction with its portal marketing partners.
The Consumer Service Group's marketing staff are assigned to manage each
relationship and develop promotional programs for each Portal Marketing Partner
which may include sweepstakes programs, targeted email initiatives, and revised
placements within a given portal's domain. HealthAxis believes that aggressive
management of the portal relationships is the key to maximizing the returns from
these marketing agreements.
Sales and Marketing
Consumer Services Group
The primary target markets are the small group and the individual
market. Within the individual market, the targeted consumers are individuals who
are not covered by a corporate sponsored health plan. Potential individual
consumers include people who are self-employed individuals, part-time employees,
full-time independent contractors or other individuals who rely upon
self-provided health insurance coverage. Within the small group market,
HealthAxis intends to focus its marketing efforts on groups of 25 or less,
including small office and home office-based individuals. The average size of a
group sale should increase over time. The cost-savings resulting from buying
direct can be substantial when experienced by multiple employees even for very
small groups.
The consumer services group intends to utilize the application
solutions group's large employer relationships to market ancillary health
insurance products such as vision care and disability plans to members of large
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groups. HealthAxis believes this type of worksite marketing program represents
an economical means of acquiring new consumers. The application solutions
group's presence in worksites gives the consumer services group a unique
marketing advantage relative to stand-alone health insurance retailers lacking
this ready access to the large group workplace.
Strategic Alliances. HealthAxis' portal marketing partners were the
focus of HealthAxis' marketing efforts in 1999. HealthAxis' marketing effort in
2000 will feature a more diversified marketing approach and will include radio,
print, TV, outdoor, and direct mail. In addition, HealthAxis has initiated a
significant business development effort designed to build retailing partnerships
with a multitude of online and offline companies that share the consumer
services group's target audiences. In addition, HealthAxis has also entered into
a targeted marketing agreement with Yahoo! Inc. See "-- Marketing Agreements"
for a description of this agreement.
Life Event Marketing. HealthAxis' market research indicates that the
purchase of health insurance is generally associated with a variety of
identifiable life events. These events represent situations in which a potential
consumer may recognize a heightened need for insurance and include, among other
things, change in job, graduation from college, marriage, birth of a child,
divorce, relocation, starting a new business and discontinuing operations of an
existing business. These life events generally require the establishment of new
financial and healthcare relationships. Identifying these events and targeting
individuals experiencing such events are important elements of HealthAxis'
marketing strategy.
Direct Marketing. HealthAxis plans to use direct marketing techniques
to target new and existing customers with promotions. HealthAxis plans to e-mail
to potential customers highlighting HealthAxis products and the advantages of
Internet based insurance product purchases. HealthAxis' agreement with America
Online Inc. gives HealthAxis the right to send mailings to America Online Inc.'s
customer base. The Internet allows rapid and effective experimentation and
analysis, instant user feedback and efficient personalization of insurance
products for each customer, all of which HealthAxis seeks to incorporate in its
marketing activities. Direct e-mail to HealthAxis consumers also will be an
important driver of HealthAxis' cross-selling efforts. HealthAxis' customer
relationship will allow HealthAxis to target existing customers with offers for
related, ancillary healthcare insurance products. For example, following the
customer's initial purchase of an individual health insurance policy, HealthAxis
might send that person an e-mail introducing a long-term disability product.
Application Solutions Group
The application solutions group recently implemented a coordinated
sales and marketing effort. The goals for this sales and marketing effort are
to:
o Target potential clients for the application solutions group's
services;
o Identify opportunities to cross-sell additional services to
application solutions group's existing clients;
o Cross-sell to carrier partners the services of the application
solutions group;
o Assist clients in growing their own businesses, creating additional
revenue for the application solutions group; and
o Increase the application solutions group's visibility within the
industry.
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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 the application
solutions group's reputation in the industry.
The application solutions group's current marketing program is designed
to raise the visibility of the application solutions group 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 the application solutions group's reputation in
the industry. The application solutions group now utilizes the services of an
outside advertising firm specializing in the technology sector. The current
marketing program consists of multiple channels to reach the application
solutions group's target audience. The application solutions group's website,
currently at www.insurdata.com, allows prospective clients access to product and
service descriptions and Company news. The application solutions group 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. Both the application solutions group and the
consumer services group also exhibit at industry trade shows and conduct direct
mail campaigns highlighting HealthAxis' products and services to targeted
audiences.
Marketing Agreements
Agreement with America Online, Inc. HealthAxis' interactive marketing
agreement with America Online, Inc. provides that HealthAxis will be the
exclusive third-party direct marketer of managed-care and indemnity health
insurance policies, dental insurance, vision insurance, prescription coverage,
critical care insurance and long-term care insurance coverage and, subject to
certain restrictions, the non-exclusive third-party marketer of life and
long-term disability for individuals and groups of less than 50 individuals in
the United States via America Online, Inc.'s online service. Under the
interactive marketing agreement, America Online, Inc. will advertise the
products to its subscribers on America Online, Inc.'s online network and the
products will be sold online through HealthAxis' website.
On March 29, 1999, HealthAxis and America Online, Inc. entered into the
second amendment to the interactive marketing agreement, which provides
HealthAxis with access to CompuServe and Netscape Netcenter, which HealthAxis
believes will expand its marketing scope and also provides for a four month
"wind down" period in the event HealthAxis elects not to exercise its option to
renew its agreement with America Online, Inc. for an additional term. The
initial term expired on January 31, 2000. HealthAxis is currently negotiating
renewal terms with America Online, Inc. HealthAxis has paid America Online, Inc.
a total of $10.0 million pursuant to this agreement. In the event of
non-renewal, America Online, Inc. has agreed to continue to market and support
HealthAxis on a non-exclusive basis until May 31, 2000. In the event HealthAxis
elects to renew its agreement with America Online, Inc. for a second term, the
second amendment extends the renewal term from 24 to 28 months beginning on
February 1, 2000 and ending on May 31, 2002, at a cost of $33.5 million. In the
event HealthAxis fails to make any payments to America Online, Inc. when due,
the remaining payments become due and payable.
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Agreement with Lycos, Inc. HealthAxis' amended agreement with Lycos,
Inc. provides that Lycos, Inc. will make HealthAxis the exclusive provider of
medical, HMO, PPO, indemnity, vision, prescription, long-term care, and
long-term disability insurance, for a total of approximately $9.1 million, which
has been paid, during the term of the agreement which shall extend for
twenty-four months from the launch of the co-branded version of HealthAxis' site
if certain sales goals are met. In addition, HealthAxis will pay Lycos, Inc.
certain fees based upon the success of sales from the co-branded website.
Agreement with CNet, Inc. and Snap!, LLC. HealthAxis' amended agreement
with CNet Inc. and Snap!, LLC provides that CNet Inc. and Snap!, LLC will
promote HealthAxis as its provider through the Internet and television of
medical and PPO, dental, vision, prescription, long-term care, and long-term
disability insurance, for a total of approximately $2.4 million during the
initial term of the agreement which shall extend until August 31, 2000. The
amended agreement provides that HealthAxis will be CNet Inc.'s exclusive
provider with respect to those products. HealthAxis may, at its option, extend
the agreement during a renewal term until August 31, 2001 by paying CNet Inc.
and Snap!, LLC an additional $7.5 million. In addition, HealthAxis will pay to
CNet Inc. and Snap!, LLC certain fees based upon the success of sales from the
co-branded website.
Yahoo! Marketing Agreement. On August 12, 1999, HealthAxis entered into
a targeted marketing agreement with Yahoo!, which provides HealthAxis with
impressions in selected areas. The agreement terminated on January 31, 2000. A
new agreement providing impressions from February 2000 through December 31, 2000
was executed on February 7, 2000.
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 trademark
"HealthAxis.com" with the United States Patent and Trademark Office. The United
States Patent and Trademark Office has preliminarily refused registration to
HealthAxis based upon the existence of a prior registration for a mark which the
United States Patent and Trademark Office has deemed confusingly similar.
HealthAxis has responded to the United States Patent and Trademark Office in
order to attempt to overcome the preliminary refusal. HealthAxis has applied for
or registered the following trademarks with the United States 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 that it believed
Insurdata 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 will ultimately prevail in any action that may be
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brought by this party. See "--Risk Factors -- HealthAxis may be unable to
protect is proprietary technology."
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. See "--Risk Factors -- HealthAxis depends upon technology licensed from
third parties for the success of its operations."
Website Technology. The technology supporting the website itself
consists of a scalable client/server architecture in a fully load balanced
environment using redundant Sun Enterprise servers. HealthAxis' applications are
specifically designed for the website and are written in the programming
language Java under a Sun implementation of the Unix operating system.
HealthAxis has used RAID technology to provide a greater degree of reliability
for data contained in its Oracle 8 based database. The host for the website is
Best Internet Communications, Inc., located in San Francisco, California. The
infrastructure, web applications software and the web servers are owned by
HealthAxis. HealthAxis continually monitors website statistics, network
performance and service levels.
Back End Processing Technology. HealthAxis has created an executive
information system operating in an Oracle 8 environment on a Sun computer
running Unix. HealthAxis' systems have back up and recovery programs in place.
HealthAxis uses multiple web servers within a single site but plans to
distribute its servers to multiple sites for greater redundancy.
Communications. All of the above installations are interconnected using
high-speed private telecommunications links. All transmissions between the
consumer, website, and carrier partners or third-party administrators will be
secured using "Secured Socket Layer" (SSL version 3). Domestic encryption is
used where applicable (i.e., 128 bit) including all server to server
communications. A minimum export encryption is also used (i.e., 40 bit).
Application Solutions Group Web Technologies. The technology supporting
the application solutions group's 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 2.0, 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. PDF technology has been licensed from Active4 Technologies.
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DataCenter Core Processing Environment. The application solutions group
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 terrabytes 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 provides a unique combination of Internet-based
consumer services and business to business software applications. HealthAxis
also believes that its ability to offer both payors and consumers an electronic
platform gives HealthAxis a unique competitive advantage among its peers.
HealthAxis competes with other insurance online providers and traditional,
agent-based insurance distribution system participants.
Online Insurance Competition. HealthAxis' principal online competitors
are Intuit's InsureMarket (www.insuremarket.com), Quotesmith
(www.quotesmith.com), Insweb (www.insweb.com) and ehealthinsurance.com
(www.ehealthinsurance.com). Insweb and Insuremarket are both built around an
agent-referral business model pursuant to which prospective applicants are given
a price quote, but must utilize a referral to a traditional agent in order to
apply for and buy a policy. In addition, neither company is focused on the
health insurance market as is HealthAxis. Quotesmith is an agency that uses its
website to initiate a sales process that ultimately resembles the traditional,
paper-heavy process, not an e-commerce model. Ehealthinsurance.com's business
model more closely resembles HealthAxis' transaction-oriented focus. However,
HealthAxis believes it currently has more carrier partners and broader
distribution than does ehealthinsurance.com. In addition, ehealthinsurance.com
does not offer the transaction processing on its website and requires actual
signatures.
HealthAxis believes that the principal competitive factors in the
online insurance distribution market will be price and convenience, as well as,
name recognition and reputation, product selection, Internet access to claims
information, ease of use, site content, quality of claims processing services
and technical experience. Relative to both traditional agents and agent-referral
online services, HealthAxis believes that its online transaction-based business
model affords it a competitive advantage in the low cost delivery of health
insurance plans to consumers and small groups.
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The principal competitive factors for the application solutions group
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
application solutions group's major competitors include Healtheon/WebMD, RIMS,
Erisco, El Dorado, TXEN, a division of Nichols Research Corp., and Amisys
Managed Care Systems, Inc., a division of HBOC. See "--Risk Factors --
Competition from other insurance providers with longer operating histories and
greater financial resources than HealthAxis may have a material adverse effect
on its business."
Privacy Policy
HealthAxis believes that the privacy of personal information on the
Internet is of growing concern to users of the electronic commerce sites.
HealthAxis has adopted a privacy policy for information of users of its website.
HealthAxis does not disclose any personally identifiable information of a
consumer to HealthAxis' carrier partners until the consumer submits an
application. HealthAxis does not sell or otherwise make available to any other
party any personally identifiable information of the consumers. Personally
identifiable non-medical information may be used internally in order to
continuously improve the content of the website and the consumer's shopping
experience. Aggregated statistical information, without individual
identification, is analyzed by HealthAxis in order to improve the overall
product offering and may be shared with HealthAxis' carrier partners for that
purpose. HealthAxis is a licensee of the TRUSTe Privacy Program and adheres to
their standards regarding the protection of personally identifiable information
of Internet users.
Regulation
Internet Related. Although there are currently few laws and regulations
directly applicable to the Internet, it is likely that new laws and regulations
will be adopted in the United States and elsewhere covering issues such as
copyrights, 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.
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 certain 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
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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
HealthAxis' website are regulated by state insurance departments and
commissions. See "--Risk Factors -- HealthAxis faces regulatory risk because
current insurance industry regulations are not based on the delivery of
insurance documents or disclosures by way of the Internet which makes
HealthAxis' compliance with those regulations less certain," and "--Risk Factors
- -- It is unclear whether future regulations may have an adverse effect on
HealthAxis' performance by increasing costs to maintain compliance."
Facilities
HealthAxis is headquartered in East Norriton, Pennsylvania. HealthAxis
leases office space at the following locations:
<TABLE>
<CAPTION>
Address Square Feet
----------------------------------------------------------------- ---------------
<S> <C>
2500 DeKalb Pike, East Norriton, PA 41,000
5215 North O'Connor Blvd, 800 Central Tower, Irving, TX 31,325
2121 Precinct Line Road, Hurst TX 20,000
4001 McEwen, Dallas, TX 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
Montego Bay Free Zone, Bldg No. 2, Montego Bay, Jamaica 5,000
1-3 Pimento Way, Montego Freeport, Montego Bay, Jamaica 10,000
577 Howard Street, San Francisco, CA 2,100
</TABLE>
Employees
As of January 7, 2000, HealthAxis had 1,055 employees, including 435
full-time professional employees, 477 full time data capture employees and
approximately 143 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. Competition for
qualified technical personnel is intense, particularly among software
development and other technical staff. HealthAxis believes that its future
success will depend in part on its combined ability to attract, hire and retain
qualified personnel. See "-- Risk Factors -- HealthAxis depends upon a number of
key personnel and a loss of any of those individuals could disrupt operations"
and "-- Risk Factors -- HealthAxis may not be able to attract or retain highly
skilled technical and managerial personnel, which could slow its growth."
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 10 and the Consolidated Financial
Statements and the related notes of HealthAxis included in Chapter VI of this
joint proxy statement/prospectus.
Results of Operations
Nine Months Ended September 30, 1999 compared to Nine Months
Ended September 30, 1998
Net Loss. For the nine months ended September 30, 1999, the net (loss)
applicable to common stock was ($18.5) million, or ($1.12) per diluted share,
compared to the net (loss) of ($3.2) million, or ($0.24) per diluted share for
nine months ended September 30, 1998. HealthAxis' net loss was the result of
developing the HealthAxis website, with the largest expense related to securing
impressions on the website.
Revenues. Revenues of $337,000 for the nine months ended September 30,
1999 were primarily attributable to interest income received on short-term
investments on the private placement proceeds and commissions and administrative
fees on individual health insurance policies sold on HealthAxis' website. During
the nine months ended September 30, 1998, no revenues were derived from the
website, which was launched on December 3,1998
Operating and Development Expenses. Operating and development expenses
increased to $3.9 million for the nine months ended September 30, 1999 from $0.3
million for the nine months ended September 30, 1998. This increase was
primarily due to HealthAxis' increase in employee and recruiting expenses
related to software engineering, carrier integration, website enhancements, and
general operations. To support HealthAxis' business strategy, it is anticipated
that operating and development expenses will increase as more carriers and
products are integrated and website enhancements are made.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$12.1 million for the nine months ended September 30, 1999 from $1.4 million in
the nine months ended September 30, 1998 primarily due to the amortization of
interactive marketing agreements based on the number of impressions received by
the HealthAxis website. Interactive marketing amortization was $9.4 million for
the nine months ended September 30, 1999 and $0.8 million for the nine months
ended September 30, 1998. In addition, employee recruiting and on-line and print
advertising increased as HealthAxis implemented its marketing strategy.
HealthAxis expects the impression amortization to increase as additional
carriers and products are introduced to the website.
General and Administrative Expenses. General and administrative
expenses include executive management, accounting, legal, and human resource
personnel and expenditures for applicable overhead costs. General and
administrative expenses increased $2.5 million for the nine months ended
September 30, 1999 from $1.4 million for the nine months ended September 30,
1998. HealthAxis experienced an increase in expense due primarily to employee
and recruiting expenses relating to the increase in personnel to build its
administrative and executive staffs.
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Year Ended December 31, 1998
Net Loss. For the year ended December 31, 1998, the net (loss)
applicable to common stock was ($4.9) million or ($0.35) per diluted share.
HealthAxis' net loss was the result of beginning operations on March 26, 1998,
with the largest expenses related to recruiting and interactive marketing
agreements.
Revenues. Revenues for the year ended December 31, 1998 related
primarily to interest income. No commissions were received as the official
launch of the HealthAxis website occurred on December 3, 1998.
Operating and Development Expenses. Operating and development expenses
of $0.8 million for the year ended December 31, 1998 were the result of the cost
of services provided as well as increased consulting fees relating to carrier
partner integration planning and website design.
Sales and Marketing Expenses. Sales and marketing expenses of $1.3
million for the year ended December 31, 1998 were primarily due to the
amortization of expenses related to HealthAxis' interactive marketing agreements
based on the number of impressions received by the HealthAxis website.
Interactive marketing amortization for the year ended December 31, 1998 was $0.6
million.
General and Administrative Expenses. General and administrative
expenses of $2.5 million for the year ended December 31, 1998 were primarily due
to consulting, employee and recruiting expenses.
Liquidity and Capital Resources
General. A major objective of HealthAxis is to raise sufficient capital
to fund growth, fulfill HealthAxis' business strategy and meet all cash
requirements with cash and short term equivalents.
The primary source of cash was HealthAxis' debt and equity financings.
The primary uses of cash were payments to Internet services, employee-related
expenses, website enhancements, and marketing costs. At September 30, 1999,
HealthAxis had a cash balance of $6.9 million. At December 31, 1998, HealthAxis
had a historical cash balance of $1.7 million. HealthAxis expects negative cash
flows from operations to continue for the foreseeable future, as it continues to
develop and market its products.
Nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998. During the nine months ended September 30, 1999, HealthAxis'
liquidity requirements were primarily met through the issuance of debt and
equity securities. The primary uses of cash were operating costs and payments to
America Online Inc., Lycos, Inc., Snap!, LLC, CNet Inc. and Yahoo!. During the
nine months ended September 30, 1998, HealthAxis' liquidity requirements were
primarily met by cash advances from its parent company, HAI, which were
subsequently repaid, and the issuance of a convertible note to HealthPlan
Services, Inc. The primary uses of cash were operating costs and payments made
to Internet service providers.
Net cash used in operating activities of $10.9 million during the nine
months ended September 30, 1999 reflects negative cash flow from HealthAxis'
operations and $3.6 million of payments pursuant to agreements with America
Online Inc., Lycos, Inc., CNet Inc., Snap!, LLC and Yahoo! which are reflected
in the increase in prepaid interactive marketing expense. HealthAxis financed
these activities through the issuance of equity securities, which, during the
nine months ended September 30, 1999 and the nine months ended September 30,
1998, yielded net proceeds of $18.4 million and $7.5 million, respectively.
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HealthAxis does not anticipate paying cash dividends in the foreseeable
future.
During the year ended December 31, 1998, HealthAxis' historical
liquidity requirements were primarily met by its parent company, HAI, which were
subsequently repaid, and the issuance of a convertible note to HealthPlan
Services, Inc. The primary uses of cash were operating costs and payments made
to Internet services.
HealthAxis' net cash used in operating activities of $9.9 million in
1998 reflects negative cash flow from operating expenses and $9.3 million of
payments to America Online Inc., Lycos, Inc. and CNet Inc. under the respective
contracts which were reflected in the increase in Prepaid Interactive Expense.
HealthAxis financed these activities through the issuance of equity securities,
which, during the year ended December 31, 1998, yielded net proceeds of $13.1
million as more fully described in HealthAxis' Consolidated Financials
Statements for the period ended December 31, 1998.
Impact of Inflation
Higher interest rates, which have traditionally accompanied inflation,
affect HealthAxis' combined historical 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 monitored
by insurance carriers and, where appropriate, premium rates on such policies are
generally increased as policy benefits increase. Failure to make such increases
commensurate with health care cost increases may result in losses to HealthAxis'
insurance carriers. Implementation by the HealthAxis' insurance carriers of
changes in premium rates may adversely affect HealthAxis' commission revenue and
may increase the HealthAxis' operating and development expense.
Expenditures and Commitments
At September 30, 1999, HealthAxis has no material commitments for
capital expenditures. HealthAxis purchased $2.2 million of property and
equipment during the nine months ending September 30, 1999 and during the same
period in 1998, HealthAxis purchased $1.1 million of property and equipment.
HealthAxis has purchased $1.5 million of property and equipment during the year
ended December 31, 1998.
During the nine months ended September 30, 1999, HealthAxis completed
three private placements of its securities, which provided approximately $18.4
million of cash. On December 7, 1999, HealthAxis completed a private placement,
which provided approximately $55 million of cash. The net proceeds have been
used to fund amounts due under HealthAxis' distribution agreements with America
Online Inc., Lycos, Inc., CNet Inc., Snap!, LLC and Yahoo! through the end of
fiscal 1999, and the balance is intended to be used by HealthAxis for its
working capital and other general purposes. HealthAxis believes that the above
net proceeds together with its current cash and cash equivalents will be
sufficient to fund current operations through 2000. However, subsequent equity
or debt financing will be necessary to enable HealthAxis to fund amounts due to
America Online Inc. in the event that HealthAxis elects to exercise its option
to renew its agreement with America Online Inc., payments to Lycos, Inc., CNet
Inc. and Snap! LLC, future operations and continue to implement its current
business strategies.
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HealthAxis has entered into an Interactive Marketing Agreement with
America Online Inc. and promotional agreements with CNet Inc., SNAP!, LLC and
Lycos, Inc. In connection with these agreements HealthAxis has paid $15.5
million in cash and warrants as of September 30, 1999 and is required to pay
additional amounts as described in Notes F, G, H and AA to HealthAxis'
Consolidated Financial Statements for the period ending December 31, 1998.
In August 1999, HealthAxis entered into an Advertising Agreement with
Yahoo!. In connection with this agreement, HealthAxis has paid $150,000 as of
September 30, 1999 and is required to pay an additional $575,000 as described in
Note E to HealthAxis' Consolidated Financial Statements for the period ending
September 30, 1999.
HealthAxis has entered into an Interactive Marketing Agreement with
America Online Inc. and promotional agreements with CNet Inc., SNAP!, LLC and
Lycos, Inc.. In connection with these agreements HealthAxis is required to
accrue expense amounts as described in Notes F, G, H and AA to HealthAxis'
Consolidated Financial Statements for the period ending December 31, 1998.
Year 2000 Compliance
Year 2000 issues are the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could have resulted in system failures or
miscalculations causing disruptions in operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
HealthAxis established a task force to assess its systems to determine
whether they correctly define the Year 2000 and to determine the extent to which
the systems of its suppliers, Internet partners, carrier partners and other
business partners (insofar as they are material to HealthAxis' business) were
subject to the Year 2000 issue. HealthAxis completed this assessment in November
1999 and has performed remedial procedures.
To date, HealthAxis has experienced very few Year 2000 problems, with
those problems centering on data received from the customer's Internet provider.
The cost of programming changes as of September 30, 1999 was negligible.
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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................... 46 President, Chief Executive Officer and Director
Alvin H. Clemens................. 62 Chairman of the Board
Henry G. Hager.................. 65 Director
Patrick J. McLaughlin............ 41 Director
Edward W. LeBaron, Jr............ 68 Director
Gregory T. Mutz.................. 53 Director
Dennis B. Maloney................ 53 Chief Operating Officer and Director
Anthony R. Verdi................. 51 Treasurer and Chief Financial Officer
Elaine del Rossi................. 56 Senior Vice President - Sales and Marketing
Andrew Felder.................... 33 Executive Vice President - Strategy and Corporate Development
Michael G. Hankinson............. 43 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 Provident Indemnity Life
Insurance Company Life Insurance Company 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/Chief Executive Officer of Academy Insurance Group Inc.,
from 1967 to 1985.
Henry G. Hager has been a Director of HAI since 1996, a Partner in the
law firm of Stradley Ronon from 1994 through December of 1999. He currently is
Of Counsel at Stradley Ronon and has been President and Chief Executive Officer
of The Insurance Federation of Pennsylvania since 1985. Mr. Hager also serves as
a director of American Waterworks Company, a public company. Mr. Hager joined
HealthAxis' board in January 2000.
105
<PAGE>
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,
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.
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. Mr. Maloney is a director of JetForm Corporation, a
public company.
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. He also serves as Chief Operating Officer of HAI
and subsidiaries since December 1997. He served as President of Provident
Indemnity Life Insurance Company from December 1998 through October 1999 and as
Treasurer and Chief Financial Officer of the 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.
Elaine del Rossi has been Senior Vice President - Sales and Marketing
of HealthAxis since November 15, 1999. Prior to such time, she served as
President of Health Options 2000 Consulting, a sales, marketing and business
consultant to major healthcare companies from March 1997 to November 1999. From
September 1994 to March 1997, she served as Senior Vice President of
Sales/Marketing for AmeriChoice Medicaid HMO.
Andrew Felder has been Executive Vice President - Strategy and
Corporate Development of HealthAxis since January 1999. 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 to Lynx Capital Group
LLC, 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.
106
<PAGE>
Michael G. Hankinson has been the Vice President and General Counsel of
HealthAxis since April, 1999. He became Secretary of HealthAxis in November,
1999. 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.
107
<PAGE>
Principal Shareholders of HealthAxis
The following table provides information regarding the beneficial
ownership of HealthAxis' capital stock as of _____________, 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 Stock Series A Preferred Series B Preferred
------------------------ ----------------------- ----------------------
Number of Number of Number of
Shares Shares Shares
Beneficially Percent Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class Owned of Class
- ------------------------ ---------------- -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
UICI..................... 19,101,178(2)(3) 44.9% -- -- -- --
4001 McEwen, Suite 200
Dallas, TX 75244
HealthAxis Inc........... 15,355,728 36.2% 445,916(4) 81.7% -- --
2500 DeKalb Pike
East Norriton, Pa 19401
UICI Voting Trust........ 10,103,217(8) 23.8% -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
Founders Plan Voting
Trust................... 2,439,885(9) 5.8% -- -- -- --
2500 DeKalb Pike
East Norriton, PA 19401
AHC Acquisition Inc...... -- -- 100,000 18.3% -- --
2500 DeKalb Pike
East Norriton, PA 19401
America Online Inc....... 300,000(5) -- -- -- 625,529 100.0%
2200 AOL Way
Dulles, VA 20166
Cerberus Partners, LP.... -- -- -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
HealthInvestors, LP...... -- -- -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod International 72,517 (*) -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Investments, L.P.. 72,517 (*) -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod Health LLC........ 36,851 (*) -- -- -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Intel Corp. ............. -- -- -- -- -- --
2200 Mission College Blvd.
Santa Clara, CA 95052
</TABLE>
<PAGE>
[RESTUB]
<TABLE>
<CAPTION>
Series C Preferred Series D Preferred
------------------------ -----------------------
Number of Number of
Shares 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....... -- -- -- --
2200 AOL Way
Dulles, VA 20166
Cerberus Partners, LP.... 86,656 5.7% -- --
450 Park Avenue, 28th Floor
New York, NY 10022
HealthInvestors, LP...... 105,000 6.9% -- --
450 Park Avenue, 28th Floor
New York, NY 10022
Pequod International 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. ............. -- -- 333,334 100.0%
2200 Mission College Blvd.
Santa Clara, CA 95052
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
Common Stock Series A Preferred Series B Preferred
--------------------------- ----------------------- ----------------------
Number of Number of Number of
Shares Shares Shares
Beneficially Percent Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class Owned of Class
- ------------------------ ---------------- -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Michael Ashker........... 13,649,103(6)(8)(9) 31.4% -- -- -- --
Alvin H. Clemens......... 2,439,885(9) 5.8% 100,000(7) 18.3% -- --
Henry G. Hager........... 2,439,885(9) 5.8% -- -- -- --
Patrick J. McLaughlin.... -- -- -- --
Edward W. LeBaron, Jr.... 12,543,102(8)(9) 29.6% -- -- -- --
Gregory T. Mutz.......... -- -- -- -- -- --
Anthony R. Verdi......... -- -- -- -- -- --
Dennis B. Maloney........ 10,635,217(8)(10) 24.9% -- -- -- --
Andrew Felder............ 168,231(11)(12) (*) -- -- -- --
Elaine del Rossi......... -- -- -- -- -- --
Michael G. Hankinson..... 20,334(13) (*) -- -- -- --
All directors and executive
officers as a group
(11 Persons) ............ 14,369,668 32.7% 100,000(7) 18.3% -- --
</TABLE>
{RESTUB]
<TABLE>
<CAPTION>
Series C Preferred Series D Preferred
------------------------ -----------------------
Number of Number of
Shares Shares
Beneficially Percent Beneficially Percent
Beneficial Owners (1) Owned of Class Owned of Class
- ------------------------ ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Michael Ashker........... -- -- -- --
Alvin H. Clemens......... -- -- -- --
Henry G. Hager........... -- -- -- --
Patrick J. McLaughlin.... -- -- -- --
Edward W. LeBaron, Jr.... -- -- -- --
Gregory T. Mutz.......... -- -- -- --
Anthony R. Verdi......... -- -- -- --
Dennis B. Maloney........ -- -- -- --
Andrew Felder............ -- -- -- --
Elaine del Rossi......... -- -- -- --
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 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 of which 10,103,217 shares 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) Does not include 950,365 shares of common stock owned by HealthPlan
Services, Inc. On October 5, 1999, UICI and HealthPlan Services entered
into a definitive agreement that provides for the purchase of HealthPlan
Services by UICI in a stock-for-stock merger transaction subject to certain
conditions. No assurances can be given that this transaction will be
completed. See "-- Certain Transactions."
(4) Represents shares of Series A preferred stock acquired from Provident
Indemnity Life Insurance Company, a former subsidiary of HAI, which are
convertible to common stock on a one for one basis (subject to adjustment).
See "Chapter IV - Other HealthAxis Annual Meeting Proposals - Item 1 -
Election of Directors - Relationship with HAI and UICI."
(5) 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.
(6) Includes 1,106,001 shares of common stock subject to options granted to Mr.
Ashker which are currently exercisable. Of such amount, options to purchase
991,000 shares, 145,000 shares and 55,000 shares have been granted at
exercise prices of $1.77, $5.77 and $12.00 per share, respectively.
Excludes 48,333 shares of common stock subject to options granted at an
exercise price of $5.77 and 36,666 shares of common stock subject to
options granted to an exercise price of $12.00 per share which are not
currently exercisable.
(7) Represents 100,000 shares of Series A preferred stock transferred to AHC
Acquisition, Inc. in connection with the sale of Provident Indemnity Life
Insurance Company.
(8) Includes 10,103,217 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.
(9) Includes 2,439,885 shares of HealthAxis common stock which are held in a
voting trust and will be issued to certain employees of Insurdata
Incorporated and other UICI subsidiaries pursuant to the terms of options
granted under the Insurdata Founders Plan. The shares held in this trust
are voted by a majority vote of the trustees of the trust who are Messers
Ashker, Clemens, LeBaron and Hager.
109
<PAGE>
(10) Includes 266,000 shares of common stock subject to options granted under
the Insurdata Founders' Plan which are held in a voting trust and are
currently exercisable. Excludes 798,000 shares of common stock subject to
options granted under the Insurdata Founders' Plan which are held in a
voting trust and are not currently exercisable.
(11) Includes 168,231 shares of common stock subject to options granted to Mr.
Felder which are currently exercisable. Of such amount, options to purchase
112,500 shares, 14,063 shares, 33,334 shares and 8,334 shares have been
granted at exercise prices of $1.77, $4.00 and $5.77 and $12.00,
respectively. Does not include 48,437 shares subject to options which are
exercisable in quarterly installments with the next installment earned on
April 1, 2000 and 33,332 shares subject to options which are not currently
exercisable.
(12) Excludes 20,000 shares of common stock subject to options granted at an
exercise price of $12.00 which are not currently exercisable. These options
begin to vest on November 22, 2000.
(13) Includes 20,334 shares of HealthAxis common stock subject to options
granted to Mr. Hankinson which are currently exercisable. Of such amount,
options to purchase 17,000 shares and 3,334 shares have been granted at
exercise prices of $5.77 and $12.00, respectively. Excludes 33,000 shares
subject to options, which are exercisable in quarterly installments with
the next installment earned on July 26, 2000, and 6,666 shares subject to
options which are not currently exercisable
* Less than 1.0 percent.
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." 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 articles of incorporation and 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 January 26, 2000, there were approximately
13,027,668 shares of HAI common stock outstanding, held of record by
approximately 3,200 shareholders. 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.
110
<PAGE>
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 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 (212) 273-8016.
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 January 1, 2000, there were 42,392,881 shares of
common stock outstanding and held of record by 66 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.
111
<PAGE>
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.
HealthAxis has 20,000,000 shares of preferred stock authorized of which
the board of directors has designated 953,980 shares of Series A preferred
stock, 625,529 shares of Series B preferred stock, 3,420,291 shares as Series C
preferred stock and 500,000 as Series D preferred stock. At January 1, 2000
there were 545,916 shares of Series A preferred stock are 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.
112
<PAGE>
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, 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 (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.
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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 certain excluded shares, without consideration or for
consideration per share less than the conversion 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 a 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 tradeable 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.
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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;
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 certain 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 certain 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
certain 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 certain material
differences between the rights and privileges of the holders of the HealthAxis
capital stock and the holders of HAI common stock.
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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 completion of the
merger, the former HealthAxis shareholders will own approximately 72% of HAI
whereas they currently own 65% 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 shareholder.
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.
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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
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
This document is being furnished in connection with the solicitation of
proxies from the holders of HAI common stock by the HAI board of directors
relating to:
o the election of directors;
o approval of the HAI merger proposal;
o the proposal 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 the executive offices of
HealthAxis Inc. located at 2500 DeKalb Pike, East Norriton, Pennsylvania 19401
on _____________, 2000, starting at _____ 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
these 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 seven directors;
o to consider and vote on a proposal to adopt the agreement and
plan of reorganization and the agreement and plan of merger,
each dated as of January 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 amendment and restatement of HAI's amended and
restated articles of incorporation;
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 the record date, there were approximately ___________
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 proposals to adopt the Amended and Restated Articles of Incorporation
must receive an affirmative vote of a majority of votes cast. 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 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 HAI 2000 Stock Option Plan, the proposal to
adopt the HAI amended and restated articles of incorporation and the proposal to
act upon the adjournment of the annual meeting must be approved by 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 outcome of the election. In the case of the HAI merger proposal, which
requires the approval of 80% of all outstanding shares, abstentions will have
the same effect as a vote against the merger proposal.
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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. Solicitation of
proxies will be made by mail and may also be made on behalf of HAI by HAI's
regular officers and employees in person or by telephone or telegram. 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
This joint proxy statement/prospectus is being furnished in connection
with the solicitation of proxies from the holders of HealthAxis stock by the
HealthAxis board of directors 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 ____________. 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 the executive offices of
HealthAxis located at 2500 DeKalb Pike, East Norriton, Pennsylvania 19401 on
_____________, 2000, starting at ______ 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 seven directors;
o to consider and vote on a proposal to adopt the agreement and
plan of reorganization and the agreement and plan of merger,
each dated as of January 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 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 names 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
42,394,881 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.
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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.
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 the merger is completed, 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 seven, 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 certain
information regarding the nominees, 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> <C>
Michael Ashker 46 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 Provident
Indemnity Life Insurance Company 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 65 1996 2001 Of Counsel in 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 since 1985;
Director of American Waterworks Company, a
publicly held company.
Edward W. LeBaron, Jr. 68 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.
</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>
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.
Dennis B. Maloney 53 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,
Director of JetForm Corporation, a publicly
held company.
Patrick J. McLaughlin 41 -- 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 from August 1989
to April 1990; Senior Vice President and Chief
Investment Officer of ICH Corporation from March
1987 to August 1989.
</TABLE>
The names of current directors who are not standing for reelection,
together with certain 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> <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.
</TABLE>
126
<PAGE>
<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>
Theophile J. Mignatti, Jr. 63 1998 2000 Chairman Mignatti Enterprises since 1998;
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>
Executive Officers Who Are Not Also Directors
Francis L. Gillan III, age 45, is the Chief Financial Officer and
Treasurer of HAI since January 1999. He also served as Treasurer of Provident
Indemnity Life Insurance Company from 1998 to 1999. He was Controller of
Provident Indemnity Life Insurance Company and Provident American Life and
Health Insurance Company from 1996 to 1998, Director of P&C Planning and Expense
Analysis, Providian Direct Insurance from 1994 to 1996 and Assistant Controller
of Providian Direct Insurance 1986 to 1994. From 1981 to 1986, Mr. Gillan was
Assistant Director of Financial Planning and Analysis of Providian Direct
Insurance.
Anthony R. Verdi, age 51, has been the Chief Financial Officer and
Treasurer of HealthAxis since November 1999. He also serves as Chief Operating
Officer of HAI and subsidiaries since December 1997. He served as President of
Provident Indemnity Life Insurance Company from December 1998 through October
1999 and as Treasurer and Chief Financial Officer of the 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, Francis L. Gillan, III and
Anthony R. Verdi are the executive officers of HAI.
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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<PAGE>
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.
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.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires officers, directors, and persons who own more than ten
percent of a registered class of a company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish the company with copies of all such reports.
Based solely on its review of the reports received or written
representations that no other reports were required, HAI believes that, for the
fiscal year ended December 31, 1999, all filings required pursuant to Section
16(a) of the 1934 Act applicable to its officers, directors and greater than ten
percent beneficial owners of HAI's common stock were made.
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 certain compensation paid or awarded to
HAI's executive officers during 1999 is furnished by the directors who comprise
this committee:
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.
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<PAGE>
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 certain compensation exceeding
$1,000,000 paid to the chief executive officer and the four other highest paid
executive officers during any taxable year, excluding, among other things,
certain performance-based compensation. The Executive Committee intends to
evaluate the level of compensation and the importance to 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, are 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.
Certain Relationships and Related Transactions.
Alvin H. Clemens, Chairman of HAI and HealthAxis, is the largest
shareholder of HAI. As of December 31, 1999, Mr. Clemens owned, either directly
or indirectly (but not including shares for which Mr. Clemens disclaims
beneficial ownership), 2,499,500 shares of HAI common stock (including the right
to acquire 650,574 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 Provident Indemnity Life Insurance Company, HAI transferred 100,000
shares of HealthAxis Series A preferred stock acquired from Provident Indemnity
Life Insurance Company to AHC Acquisition, Inc., a company owned by Mr. Clemens.
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<PAGE>
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.
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. Pursuant to the agreement, Mr. Clemens was employed as
Chief Executive Officer of HAI for a five-year term ending December 31, 2002,
and unless otherwise terminated, the term shall automatically be extended at the
end of each year after December 31, 1997, in order that at all times, on each
December 31st during the duration of the agreement, there will be an unexpired
five-year term. The employment agreement was amended on July 28, 1999 to change
Mr. Clemens' executive position to Chairman of the Board of Directors and
Chairman of the Executive/Compensation/Nominating Committee. Mr. Clemens was
paid a base salary in 1998 of $417,453, plus an annual cost of living increase,
and additional incentive or bonus compensation as will be 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 certain 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.
Pursuant to agreements effective as of September 9, 1999 between HAI
and Mr. Clemens, HAI agreed to pay Mr. Clemens $650,000 and Mr. Clemens:
o assigned his rights to acquire additional shares pursuant to the
March 10, 1997 agreement to HAI,
o converted 550,000 shares of Series A preferred stock of HAI into HAI
common stock,
o released and assigned all of his right in and to options to purchase
202,802 shares of HAI's common and preferred stock to HAI, and
o amended the option to purchase 550,000 shares of HAI preferred stock
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 718,076 shares of HAI's common
stock (including options). In an amended Schedule 13D, dated November 15, 1999,
130
<PAGE>
filed by Mr. Ashker, Lynx Capital Group, Van Kasper & Company, Lynx Technology
Fund, L.P., Lynx Healthtech Fund, LLC, Kenneth Brown, Deidre Holt and Edward W.
LeBaron, Jr., Mr. Ashker reported sole voting and dispositive power with respect
to 394,776 shares of HAI common stock and shared voting and dispositive power
with respect to 323,300 shares. Mr. Ashker was the sole manager of Lynx Capital
Group, which acts as an investment advisor to and general partner of Lynx
Technology Fund, an investment limited partnership. Mr. LeBaron was a member of
and Ms. Holt was a consultant to Lynx Capital Group. Lynx Capital Group, which
acts as the general partner for Lynx Technology Fund is currently managed solely
by Mr. Brown. Van Kasper is a broker-dealer and has discretion over brokerage
accounts that are invested in HAI common stock. Mr. Ashker was formerly a
registered representative of Van Kasper. Mr. LeBaron is currently serving on the
Board of Directors of HAI and on the Board of Directors of HealthAxis. Mr.
LeBaron reported sole voting and dispositive power with respect to the 38,571
shares of HAI common stock. Pursuant to a consulting agreement between HAI and
Lynx Capital Group, Lynx Capital Group was granted currently exercisable
warrants to purchase 400,000 shares of HAI's common stock which are included in
the amounts beneficially owned. Of this amount, Lynx Capital Group 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 George Stephenson and warrants to purchase 5,000
shares of HAI common stock to Kenneth Brown. Additionally, Mr. Ashker has been
granted an option to purchase 991,000 shares of the HealthAxis common stock, all
of which are currently exercisable. Mr. Ashker was also awarded options to
purchase 145,000 shares of HealthAxis common stock that are exercisable over a
two year period commencing in April, 1999 and options to purchase 55,000 shares
of HealthAxis common stock over a 10 year period commencing in November 1999.
In addition, Messrs. Ashker and Clemens, by virtue of their positions
as trustees of certain voting trusts, have shared voting power with the other
trustees over 28.4% of HealthAxis' outstanding capital stock.
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.
Edward W. LeBaron was the sole manager of Lynx Private Equity Partners and is a
member of the Board of Directors of HAI and the Board of Directors of
HealthAxis. Pursuant to the limited liability agreement of Lynx Private Equity
Partners, Michael Ashker had the authority to vote the shares of HAI held by
Lynx Private Equity Partners. On November 11, 1999, Lynx Private Equity Partners
dissolved and transferred its shares of HAI stock to Michael Ashker, Edward
LeBaron and Lynx Technology Fund, LP. See "--Stock Ownership of Directors,
Nominees and Officers."
Michael F. Beausang, Jr., Esquire, HAI's Secretary and a former
Director of HealthAxis and HAI, is a partner in the law firm of Butera,
Beausang, Cohen & Brennan. Such law firm performs legal services for HealthAxis
and HAI and in 1999, HAI paid Butera Beausang Cohen & Brennan $497,308.
On August 16, 1999, HAI entered into a definitive agreement with AHC
Acquisition, Inc., a company owned by Alvin H. Clemens, the Chairman of
HealthAxis and HAI, which provides for the sale of Provident Indemnity Life
Insurance Company, HAI's insurance subsidiary, to AHC Acquisition, Inc. for an
aggregate purchase price of $14.7 million. In accordance with the terms of the
stock purchase agreement, HAI purchased Provident Indemnity Life Insurance
Company's home office building for $4.7 million and 545,916 shares of HealthAxis
Series A preferred stock, originally purchased by Provident Indemnity Life
Insurance Company, for $2.8 million which equates to a $4.71 price per share
plus interest at the rate of 8% per year from the date of acquisition of such
shares by Provident Indemnity Life Insurance Company through November 30, 1999.
The $7.2 million difference between the $14.7 million aggregate purchase price
131
<PAGE>
and the sum of the purchase price of the building and the Series A preferred
stock was made in the form of a capital contribution from HAI to Provident
Indemnity Life Insurance Company. These transactions were completed on November
30, 1999. Also, in accordance with the terms of the stock purchase agreement,
HAI transferred 100,000 shares of the HealthAxis Series A preferred stock and
the associated registration rights previously granted to Provident Indemnity
Life Insurance Company to AHC Acquisition, Inc.
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 $100,000 during fiscal
1999:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------- ---------------
Annual Compensation Awards
----------------------------------------------------- -------------- ---------------
Securities
Name and Other Annual Underlying All Other
Principal Salary Bonus Compensation Options Compensation(2)
Position(1) Year ($) ($) ($) (#) ($)
- --------------------------- ------- -------- ------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael Ashker, 1999 $120,000 $50,000 -- 0/205,000(4) --
CEO and President of HAI 1998 $92,308 -- -- 0/991,000(5) $80,000
And HealthAxis (3) --
Alvin H. Clemens, 1999 $413,184 -- -- -- $17,764
Chairman of the Board of HAI 1998 $413,896 -- -- 0/309,000(6) $17,714
and HealthAxis(7) 1997 $417,453 $305,850 -- -- $18,288
Andrew Felder, 1999 $120,000 -- -- 0/175,000(5) $10,000
Executive VP-Stategy and 1998 $ 64,615 -- -- 0/ 75,000(5) --
Corporate Development
Of HealthAxis(8)
Francis L. Gillan III 1999 $110,000 -- -- 20,000/0(10) $ 3,579
CFO and Treasurer of HAI(9)
Anthony R. Verdi, 1999 $150,000 -- -- 25,000/5,000(12) $44,941
COO of HAI and CFO of 1998 $151,392 -- -- -- $10,144
HealthAxis(11) 1997 $151,335 -- -- -- $ 9,295
</TABLE>
(1) Includes Chairman of the Board, President and Chief Executive Officer of
HAI and HealthAxis and the most highly compensated executive officers of
HAI and HealthAxis whose total annual salary and bonus exceeded $100,000 in
fiscal 1999.
(2) 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).
(3) Mr. Ashker joined HealthAxis as President and CEO on April 1, 1998 and
became President and Chief Executive Officer of HAI in August, 1999. In
1999, Mr. Ashker was paid $120,000 as a salary by HealthAxis and $61,226 as
salary by HAI and other annual compensation of $80,000 by HAI. In 1998, all
of Mr. Ashker's annual compensation was paid by HealthAxis.
(4) Includes options to purchase 200,000 shares of HealthAxis common stock and
an option to purchase 5,000 shares of the HAI.
132
<PAGE>
(5) Represents options to purchase HealthAxis common stock.
(6) Mr. Clemens was granted options to purchase 309,000 shares of HealthAxis
common stock, however, these grants to Mr. Clemens were terminated during
1999.
(7) Mr. Clemens received a salary during 1999 from HAI but did not receive a
salary from HealthAxis.
(8) 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.
(9) Mr. Gillan became Chief Financial Officer and Treasurer of HAI on January
14, 1999.
(10) Represents options to purchase shares of HAI common stock.
(11) 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.
(12) Includes options to purchase 25,000 shares of HAI common stock and 5,000
shares of HealthAxis common stock.
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: Elaine del Rossi joined HealthAxis as Senior Vice President
- - Sales and Marketing on November 15, 1999. In 1999, Ms. del Rossi was granted
options to purchase 20,000 shares of HealthAxis common stock at $12.00 per share
of which none have vested. Michael G. Hankinson joined HealthAxis as Vice
President and General Counsel in April, 1999. 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, of which 3,334 have vested, at
$12.00 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 $72,048 in
bonus. HealthAxis expects that all three individuals will be paid compensation
in excess of $100,000 during fiscal 2000.
Employment Agreement
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. Pursuant to the agreement, Mr. Clemens was employed as
Chief Executive Officer of HAI for a five-year term ending December 31, 2002 and
unless otherwise terminated, the term shall automatically be extended at the end
of each year after December 31, 1997, in order that at all times, on each
December 31st during the duration of the agreement, there will be an unexpired
five-year term. The employment agreement was amended on July 28, 1999 to change
Mr. Clemens' executive position to Chairman of the Board of Directors and
Chairman of the Executive/Compensation/Nominating Committee. Mr. Clemens was
paid a base salary in 1999 of $413,184, plus an annual cost of living increase,
and additional incentive or bonus compensation as will be 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 certain 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 October 1, 1999, the agreement was amended to reduce his salary to
$200,000 through September 30, 2000, at which time his salary shall revert back
to that which would have otherwise been payable [final or still being
negotiated?].
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<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:
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<PAGE>
HealthAxis Inc. and HealthAxis.com, Inc.
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual Rates
Number of % of Total Of Stock Appreciation for
Securities Options Exercise Option Term
Options Granted to Price Expiration --------------------------
Name Granted Employees $/Share Date 5% 10%
---- ----------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Ashker 5,000(1) .87% $7.50 3/4/09 $24,093 $60,576
President and CEO of 200,000(2) 9.36% $7.48(2) 11/22/09 $563,514 $1,496,650
HAI and HealthAxis
Alvin Clemens __ __ __ __ __ __
Chairman of HAI and
HealthAxis
Andrew Felder 75,000(2) 5.41 7.85 11/22/09 184,061 585,758
Executive VP-Stategy &
Corporate Development
of HealthAxis
Francis L. Gillan III 20,000(1) 3.49% $7.50 3/4/07 $61,065 $142,308
CFO of HAI
Anthony R. Verdi
COO of HAI and CFO of 25,000(1) 4.36% $7.50 3/4/07 $76,331 $177,885
HealthAxis 5,000(2) .36%
</TABLE>
- -----------------------------------
(1) Options granted to purchase HAI common stock.
(2) Options granted under the HealthAxis 1998 Stock Plan to purchase HealthAxis
common stock which are convertible into 1.127 shares of HAI common stock.
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: Elaine del Rossi joined HealthAxis as Senior Vice President
- - Sales and Marketing on November 15, 1999. In 1999, Ms. del Rossi was granted
options to purchase 20,000 shares of HealthAxis common stock at $12.00 per
share. Of these options, none have vested. Michael G. Hankinson joined
HealthAxis as Vice President and General Counsel in April, 1999. 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, of which
3,334 have vested, at $12.00 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 $12,048 in bonus. HealthAxis expects that all three
individuals will be paid compensation in excess of $100,000 during fiscal 2000.
135
<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
$100,000 during fiscal 1999 as well as the year end values of shares underlying
options:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Number of Value of
Underlying Unexercised
Shares Unexercised In-the-Money
Acquired Value Options Options at
Name On Exercise Realized at 12/31/99 12/31/99 ($)
- ----------------------------------------------------------------------------------------------------------------------------
<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
Unexercisable (HealthAxis) - - 133,332 $3,085,538
- ----------------------------------------------------------------------------------------------------------------------------
Andrew Felder
Executive VP-Strategy and Corporate
Development of HealthAxis
Exercisable (HealthAxis) - - 140,626 3,877,963
Unexercisable (HealthAxis) - - 109,374 2,824,287
- ----------------------------------------------------------------------------------------------------------------------------
Francis L. Gillan III
CFO and Treasurer of HAI
Exercisable (HAI) 17,000 $331,469 7,500 $183,875
Unexercisable (HAI) - - 23,000 $552,750
- ----------------------------------------------------------------------------------------------------------------------------
Anthony R. Verdi
COO of HAI and HealthAxis
Exercisable (HAI) 22,000 $578,906 40,000 $992,500
Unexercisable (HAI) 35,000 $841,875
Exercisable (HealthAxis) - - - -
Unexercisable (HealthAxis) - - 5,000 $78,125
- ----------------------------------------------------------------------------------------------------------------------------
</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.
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: Elaine del Rossi joined HealthAxis as Senior Vice President
- - Sales and Marketing on November 15, 1999. In 1999, Ms. del Rossi was granted
options to purchase 20,000 shares of HealthAxis common stock at $12.00 per
share. Of these options, none have vested. Michael G. Hankinson joined
HealthAxis as Vice President and General Counsel in April, 1999. 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, of which
3,334 have vested, at $12.00 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
$247,200 in salary and $12,048 in bonus. HealthAxis expects that all three
individuals will be paid compensation in excess of $100,000 during fiscal 2000.
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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 HAI
Nasdaq Market Index and MG Group Indexes
[GRAPHIC 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 $ 135.6 $ 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............... 100.00 124.26 152 214.39 378.12
</TABLE>
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Stock Ownership of Directors, Nominees and Officers of HAI
The following table sets forth, as of January 26, 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, director nominee or former director;
o each executive officer; and
o all officers and directors of HAI as a group.
The following tables does not include shares of HealthAxis held by the
individuals which upon completion of the merger will be converted into 1.127
shares of HAI. For information regarding shares which individuals hold in
HealthAxis, see "Chapter I -- The Merger -- Principal Shares of HealthAxis."
STOCK OWNERSHIP OF DIRECTORS, NOMINEES AND OFFICERS OF HAI
Common Stock
-------------------------------------
No. of Shares Percent
Name of Beneficially of
Beneficial Owner Owned(1) Class(2)
- ---------------- -------------- ------------
Alvin H. Clemens(3) 2,499,500(4) 18.2%
907 Exeter Crest
Villanova, PA 19085
Michael Ashker 718,076(5)(6) 5.5%
c/o HealthAxis, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Harold M. Davis 175,000(7) 1.3%
c/o Realen Properties
1000 Chesterbrook Blvd.
Suite 100
Berwyn, PA 19312
Francis L. Gillan III 7,500 (8)
c/o HealthAxis, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Henry G. Hager 65,000(7) (8)
7 Jorrocks Lane
Malvern, PA 19355
Patrick J. McLaughlin -- (8)
c/o Emerald Capital Group, Ltd.
100 Cretwind Dr.
Suite 202
Rosemont, PA 19010
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Common Stock
----------------------------------
No. of Shares Percent
Name of Beneficially of
Beneficial Owner Owned(1) Class(2)
- ---------------- -------------- ------------
George W. Karr, Jr. 77,000(7) (8)
Karr Barth Associates, Inc.
40 Monument Road
Bala Cynwyd, PA 19004-1797
Edward W. LeBaron, Jr. 43,571(6) (8)
Lynx Private Equity Partners, LLC
2601 Fair Oaks Boulevard, Suite 150
Sacramento, CA 95864
Dennis B. Maloney 1,000 (8)
c/o HealthAxis
2500 DeKalb Pike
East Norriton, PA 19401
Theophile J. Mignatti, Jr.(3) 35,000(6)(9) (8)
Mignatti Companies
2310 Terwood Drive; P.O. Box 249
Huntingdon Valley, PA 19006
P. Glenn Moyer 51,100(7) (8)
P.O. Box 438
9 Main Street
Souderton, PA 18964
Greg Mutz --
c/o UICI
4001 McEwen Drive, Suite 200
Dallas, TX 75244
Anthony R. Verdi 89,974(10) (8)
c/o HealthAxis, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
All directors and officers as a group 3,770,021(11) 27.0%
(18 persons; common stock)
- --------------------------------------------
(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's daughter is married to Mr. Mignatti's son.
(4) Includes options granted to Mr. Clemens to purchase an additional 253,376
shares of HAI's common stock at a price of $.91 per share granted pursuant
to the Amended and Restated Stock Option Agreement dated as of February 27,
1989 and options to purchase 397,198 shares of common stock at an option
price of $3.64 per share granted to Mr. Clemens pursuant to a Stock Option
Agreement dated April 1, 1993 which was amended effective September 9,
1999. Mr. Clemens disclaims beneficial ownership of 616,000 shares of HAI's
common stock given by him to The Mark Twain Trust in 1991 and 967,040
options to purchase additional shares of HAI's common stock owned by a
partnership in which Mr. Clemens is a partner.
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(5) The information in regard to Mr. Ashker has been derived from an amendment
to a Schedule 13D filed by Mr. Ashker and others with the Securities and
Exchange Commission on November 3, 1999. Mr. Ashker is presently serving as
President, CEO and a director of HAI and HealthAxis. Sole and shared voting
power is claimed with regard to 394,776 and 323,300 shares, respectively.
See also "Certain Relationships and Related Transactions" for a description
of transactions between Mr. Ashker, Lynx Capital Group, LLC and HAI.
Schedule 13D/A was filed on behalf of Mr. Ashker and others on November 3,
1999, indicating that Mr. Ashker beneficially owned less than ten percent
(10%) of HAI's outstanding common stock as of that date. The Schedule 13D/A
was also filed on behalf of Lynx Capital Group, LLC, a California limited
liability company; Van Kasper & Company, a broker-dealer and California
corporation; and Lynx Tech Fund, L.P., an investment limited partnership of
which Lynx Capital Group, LLC, serves as investment advisor; Edward W.
LeBaron, Jr., Kenneth Brown and Deidre Holt. Each of the above entities
also claims beneficial ownership of various amounts of HAI's common stock.
(6) Includes options to purchase 5,000 shares of HAI's common stock.
(7) Includes options to purchase 55,000 shares of HAI's common stock.
(8) Less than 1%.
(9) Includes 20,000 shares in the estate of his wife.
(10) Includes an option to purchase 40,000 shares of HAI's common stock.
(11) Includes stock and options of all officers and directors to purchase an
aggregate of 105,774 shares and 939,747 shares, respectively, and stock and
options granted to Mr. Clemens as described in note 3.
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 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. 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 certain subchapters of the
Pennsylvania Business Corporation Law.
The complete text or the amended and restated articles of incorporation
is included as Appendix F to this joint proxy statement/prospectus.
Purpose of Changes to Authorized Stock. HAI's current amended and
restated articles of incorporation provide for 5,000,000 authorized shares
including: 3,000,000 shares of common stock and 1,000,000 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 certain 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, under certain circumstances, 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 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 Certain 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF
ITEM 3.
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ITEM 4 - 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. Key employees, officers and directors of HAI,
as well as certain 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 Stock
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 key 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
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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.
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 certain of 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 A change within a twelve-month period in the holders of more than 50%
of the outstanding voting stock 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 option price for 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. 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.
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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.
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 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.
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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 transferrable
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.
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 February 1, 2000, the last sale price of the HAI common stock was
$27.0 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:
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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.
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.
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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.
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 4.
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ITEM 5 - 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 5.
ITEM 6 - ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or approve the adoption of the merger agreements 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 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 6.
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CHAPTER IV - OTHER HEALTHAXIS ANNUAL MEETING PROPOSALS
ITEM 1 - ELECTION OF HEALTHAXIS DIRECTORS
The following table sets forth certain 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 such
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>
Michael Ashker................... 46 1998 2001 President, Chief Executive Officer and Director
Alvin H. Clemens................. 62 1998 2001 Chairman of the Board
Henry G. Hager.................. 64 2000 2001 Director
Patrick J. McLaughlin............ 41 2000 2001 Director
Edward W. LeBaron, Jr............ 68 2000 2001 Director
Gregory T. Mutz.................. 53 2000 2001 Director
Dennis B. Maloney................ 53 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.
Board of Directors and Committees
The Board of Directors, to date, has established no Board Committees.
HealthAxis contemplates that an Executive, Audit, and Compensation Committee
will be established in the future.
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 they were cancelled and regranted to other officers.
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Employment Agreements
HealthAxis has not entered into employment agreements with any
executive officer and all such officers are employed on an "at-will" basis.
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 3,819,971 shares of common stock have been granted under the Stock
Option Plan. An option to purchase 991,000 shares of common stock was granted to
Mr. Ashker. The option granted to Mr. Ashker is immediately exercisable at a
price of $1.77 per share and has a term of 5 years. Mr. Ashker also received an
option to purchase 145,000 shares of common stock at an exercise price of $5.77
per share which vests over a two-year period and has a term of 10 years, with
48,332 currently exercisable. Mr. Ashker also received an option to purchase
55,000 shares of HealthAxis common stock at an exercise price of $12.00 per
share which vests over a two-year period and has a term of 10 years, with 18,334
shares currently exercisable. Mr. Felder was granted options to purchase 150,000
shares of common stock at $1.77 (of which 103,125 have vested), 25,000 shares of
common stock at $4.00 (of which 12,500 have vested), 50,000 shares of common
stock at $5.77 (of which 16,666 have vested) and 25,000 shares of common stock
at $12.00 per share (of which 8,344 have vested).
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;
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o determine the terms and restrictions applicable to stock purchase
rights and restricted stock purchased by exercising such stock
purchase rights;
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. Certain 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.
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% the fair market value on the date of
grant (or 100% of the fair market per share for ten percent shareholders)
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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 HealthAxis merger with Insurdata Incorporated,
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.
Insurdata Incorporated's Founders' Stock Option Plan
UICI established the Founders' Stock Option Plan pursuant to which
officers and key employees of Insurdata Incorporated and certain 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 2,863,889 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 782,439 are currently
exercisable. 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 266,000
shares are currently exercisable.
Executive Compensation
For information regarding the compensation paid by HealthAxis and its
subsidiaries to the Chief Executive Officer and the 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."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH
NOMINEE FOR DIRECTOR.
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.
Sale of HealthAxis Securities held by Provident Indemnity Life
Insurance Company to HAI. On March 24, 1999, Provident Indemnity Life Insurance
Company, 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
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purchase price of $4.71 per share plus 8% interest calculated quarterly and
compounded annually from the date of Provident Indemnity Life Insurance
Company'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 a definitive agreement with AHC Acquisition, Inc., a company
owned by Alvin H. Clemens, the Chairman of HealthAxis and HAI, which provides
for the sale of Provident Indemnity Life Insurance Company, HAI's insurance
subsidiary, to AHC Acquisition, Inc. for an aggregate purchase price of $14.7
million. In accordance with the terms of the stock purchase agreement, HAI
purchased Provident Indemnity Life Insurance Company's home office building for
$4.7 million and 545,916 shares of HealthAxis Series A preferred stock,
originally purchased by Provident Indemnity Life Insurance Company, for $2.8
million which equates to a $4.71 price per share plus interest at the rate of 8%
per year from the date of acquisition of such shares by Provident Indemnity Life
Insurance Company through November 30, 1999. The $7.2 million difference between
the $14.7 million aggregate purchase price and the sum of the purchase price of
the building and the Series A preferred stock was made in the form of a capital
contribution from HAI to Provident Indemnity Life Insurance Company. These
transactions were completed on November 30, 1999. Also, in accordance with the
terms of the stock purchase agreement, HAI transferred 100,000 shares of the
HealthAxis Series A preferred stock and the associated registration rights
previously granted to Provident Indemnity Life Insurance Company to AHC
Acquisition, Inc.
Relationship with UICI
UICI is a diversified financial services company that offers insurance
and financial services to niche consumer and institutional markets. UICI also
provides technology and outsourcing solutions to the insurance and health
services communities.
UICI issues health insurance policies to the self-employed and student
markets. UICI also issues health insurance policies for the self-employed
market, which includes self-employed individuals who work for small businesses
with five or fewer employees. UICI 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. For the student market, UICI
offers tailored insurance programs that generally provide single school year
coverage to individual students, primarily at universities, but also at public
and private schools for students in kindergarten through grade 12. 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.
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), third-party administrators,
Blue Cross/Blue Shield organizations and self-administered employer healthcare
plans.
UICI assists individuals with no, or troubled, credit in obtaining a
nationally recognized credit card. Through its Educational Finance Group, Inc.
subsidiary, UICI markets, originates, funds and services primarily
Federally-guaranteed student loans. Through its National Motor Club unit, UICI
also markets and provides over 450,000 members with benefits such as road and
towing assistance, trip routing, emergency travel assistance and accident
related indemnity benefits.
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UICI and its subsidiaries constitute, in the aggregate, the application
solutions group's largest client. For the years ended December 31, 1996, 1997
and 1998, and for the nine months ended September 30, 1999, UICI and its
subsidiaries accounted for an aggregate of approximately $1.8 million, $12.6
million, $24.8 million and $20.7 million, respectively, of the application
solutions group's pro forma total revenues, which represent approximately 16%,
48%, 65% and 65%, respectively, of such revenues for such periods. A portion of
the application solutions group's revenue from UICI in the past was for Year
2000 services which have been substantially completed. UICI and its subsidiaries
are expected to remain the application solutions group's largest client for the
foreseeable future. HealthAxis believes that the percentage of the application
solutions group's 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 and UICI
and its subsidiaries, which were assumed by HealthAxis, resulted from
arm's-length negotiations. See "Risk Factors -- Potential conflicts of interest
could arise because some people serve as directors, officers or employees of HAI
or UICI," " -- Potential conflicts of interest may arise between HealthAxis and
UICI regarding the products and services provided by HealthAxis," and " -- None
of the HealthAxis intercompany agreements are subject to arm's-length
negotiations."
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. HealthAxis and UICI have entered into a carrier partner agreement and
plan to enter into agreements for the purpose of defining their ongoing
relationships, the material terms of which are summarized below. 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
such 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, while
the proposed material terms of the agreements being negotiated are set forth
herein, the provisions are subject to change and the descriptions are qualified
in their entirety by reference to the relevant agreements at such time as they
are reduced to writing.
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
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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
certain 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,
certain 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, certain 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, subject to certain conditions. 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 monthly cost of $61,500 per month. See "Chapter I --
the Merger -- Information Concerning HealthAxis -- Facilities."
UICI Outsourcing Agreement. UICI and its affiliates and HealthAxis have
entered into a technology outsourcing agreement. Pursuant to this agreement,
HealthAxis provides UICI and its affiliates with technology support services,
system integration services, data processing services, local area network and
other software and hardware based services. 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
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 certain 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 certain 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
certain royalties from HealthAxis to UICI. The agreement established certain
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
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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 certain 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 certain
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, certain insurance products and services of UICI's
insurance subsidiaries will be offered through HealthAxis' website to consumers.
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.
Shareholders' Agreement. HAI, UICI, Michael Ashker, and HealthAxis
intend to enter 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 certain limitations, the shareholders' agreement also
provides that 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 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 certain 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.
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The shareholders' agreement also provides UICI with the right, in its
sole and absolute discretion, to approve among other things, our merger or
similar agreement between HAI and HealthAxis as well as the calculation and
amount of goodwill and other intangibles. See "Chapter I - The Merger - Recent
Developments" for additional information on the conditions under which UICI
agreed to approve the merger.
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.
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. For a description of
the terms of these trusts, see "Chapter I -- The Merger -- Recent Developments."
Licensing Systems Integration and Technology Management Agreements. The
applications solutions group provides software applications, systems integration
and technology management services to UICI and its subsidiaries. In addition,
UICI provides human resource services to the application solutions group. All of
these transactions and the related agreements are described under "Certain
Transactions."
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, see "Chapter III - Other HAI Annual Meeting
Proposals - Item 1 - Election of HAI Directors - Certain Relationships and
Related Transactions."
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.
For information regarding certain transactions involving Alvin H.
Clemens and AHC Acquisition Corp., see "Chapter III - Other HAI Annual Meeting
Proposals - Item 1 - Election of HAI Directors - Certain Relationships and
Related Transactions."
HealthAxis' applications solutions group 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 licensing of certain of its proprietary work flow 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 years ended December 31, 1996, 1997 and
1998 and the nine months ended September 30, 1999, UICI and its subsidiaries and
affiliates, including the subsidiaries and affiliates discussed below, accounted
for an aggregate of $1.8 million (16%), $12.6 million (48%), $24.8 million (65%)
and $20.7 million (65%), respectively, of HealthAxis' pro forma total revenues
for such periods. As of December 31, 1996, 1997 and 1998, Insurdata Incorporated
had trade receivables from UICI and its subsidiaries and affiliates of $1.7
million, $2.2 million and $2.2 million, respectively. In addition to trade
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receivables, Insurdata Incorporated also held various notes receivable from UICI
and its subsidiaries and affiliates, amounting to $.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.
Commencing in 1996, UICI provides human resource administrative
services to the applications solutions group, including payroll services and
employee benefit management pursuant to a one year agreement which expires 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 wage and benefit costs, UICI charges the
applications solutions group 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 services for a limited period of time.
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 in the future.
HealthAxis leases two facilities from certain 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. Insurdata Incorporated paid an
aggregate of approximately $112,000, $255,000 and $263,000 under these leasing
arrangements for the years ended December 31, 1997 and 1998 and the nine months
ended September 30, 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' application solutions group also currently provides certain
work flow and business applications to UICI Administrators, Inc., a third-party
administrator owned by UICI, pursuant to a written service license agreement.
UICI Administrators in turn operates through an agreement with Healthcare
Management Administrators, Inc., an entity owned by Ronald L. Jensen, the
Chairman of UICI and a director of HealthAxis. HealthAxis' agreement with UICI
Administrators is for a three-year term expiring in December 2001, with
automatic annual renewal provisions thereafter, subject to prior notice of
non-renewal. For the years ended December 31, 1996, 1997 and 1998 and the nine
months ended September 30, 1999, UICI Administrators accounted for an aggregate
of $1.8 million, $1.6 million, $2.1 million and $2.0 million, respectively, of
Insurdata Incorporated's pro forma revenues under the agreement, which represent
approximately 16%, 6%, 6% and 6%, respectively, of Insurdata Incorporated's
revenues for such periods. The amounts paid by UICI Administrators are included
in the UICI and subsidiaries numbers included on the previous page.
Insurdata Incorporated provided 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
Insurdata Incorporated's 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 $44,000, $2,000,
$134,000 and $142,000 for the years ended December 31, 1996, 1997 and 1998 and
the nine months ended September 30, 1999, respectively. In addition to the
accounting services provided by Insurdata Incorporated, it's President and Chief
Executive Officer, provides certain management oversight of UICI Administrators.
Neither the President nor Insurdata Incorporated receives any compensation in
exchange for the President's services. HealthAxis ceased providing these
services following the completion of the HealthAxis merger with Insurdata
Incorporated.
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Winterbrook VSO provides certain 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 receives 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 $34,000, $132,000 and
$191,000 for the years ended December 31, 1996, 1997 and 1998, respectively. At
September 30, 1999, the pro forma balance of commissions owed to Winterbrook VSO
was approximately $218,000. Mr. Jensen purchased Winterbrook VSO from UICI in
July 1997.
Matrix Telecom, a telephone company in which Ronald L. Jensen, Chairman
of UICI and a former director of HealthAxis, and his five adult children own a
controlling interest, provides telephone services to the applications solutions
group pursuant to a written agreement. This agreement was for a one year term
expiring June 13, 1998 with automatic monthly renewal provisions thereafter,
subject to 30 days' notice of non-renewal. For the pro forma years ended
December 31, 1997 and 1998, and the pro forma nine months ended September 30,
1999, the application solutions group paid Matrix approximately $46,000,
$132,000 and $163,000, respectively, under the agreement.
On October 5, 1999, UICI and HealthPlan Services entered into a
definitive agreement that provides for the purchase of HealthPlan Services by
UICI in a stock-for-stock merger transaction. No assurance can be given that
this transaction will be completed.
On October 18, 1999, Insurdata Incorporated made loans aggregating
$631,345 to certain 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's 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 $631,342 during 1999. The outstanding balance on these loans was $631,342 at
December 31, 1999. These loans are now held by HealthAxis and are secured by the
HealthAxis common stock.
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.
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ITEM 3 - ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or approve the adoption of the merger agreements 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 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 3.
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.
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The following documents previously filed by HAI with the SEC under the
Exchange Act are incorporated in this joint proxy statement/prospectus by this
reference:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SEC Filings Period
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Aamendment to Annual Report on Form 10-K/A Year ended December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Quartely Reports on Form 10-Q and all amendments thereto Quarters ended March 31, 1999, June 30,
1999 and September 30, 1999
- --------------------------------------------------------------------------------------------------------------------
Current Reports on Form 8-K Filed on January 15, 1999, April 30, 1999,
May 14, 1999, June 22, 1999, July 26, 1999,
August 27, 1999, September 22, 1999,
November 15, 1999, December 8, 1999,
December 9, 1999, January 21, 2000 and
February 1, 2000.
- --------------------------------------------------------------------------------------------------------------------
Amendments to Current Reports on Form 8-K/A Filed on January 19, 1999, May 14, 1999 and
June 29, 1999
- --------------------------------------------------------------------------------------------------------------------
</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.
Legal Matters
The validity of the shares of HAI common stock offered hereby will be
passed upon for HAI by Butera, Beausang, Cohen and Brennan, Professional
Corporation.
Experts
The consolidated financial statements of HealthAxis Inc., ("HAI")
formerly Provident American Corporation, as of December 31, 1998 and 1997 and
for each of the two years ended incorporated by reference in this Registration
Statement have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
incorporated herein by reference, and are incorporated herein in reliance upon
such report given upon the authority of said firm as experts in auditing and
accounting.
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The financial statements of HAI for the year ended December 31, 1996
incorporated in this joint proxy statement/prospectus by reference to the Annual
Report on Form 10-K/A for the year ended December 31, 1998, have been so
incorporated in reliance on the report for the year ended December 31, 1996 of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of HealthAxis.com, Inc. as of and for the
period ended December 31, 1998 included in this Registration Statement on Form
S-4 have been audited by BDO Seidman LLP, independent certified public
accountants, to the extent and for the periods set forth in the respective
reports of such firms contained herein and in the Registration Statement. All
such financial statements and schedules have been included in reliance upon such
reports given upon the authority of such firms as experts in auditing and
accounting.
The consolidated financial statements of Insurdata Incorporated at
December 31, 1997 and 1998, and for each of the three years in the period ended
December 31, 1998 included in this proxy statement of HAI, 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
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
(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
Deidre Holt, Investor Relations, HealthAxis Inc., 2500 DeKalb Pike, East
Norriton, Pennsylvania 19401 or by phone (610) 275-3800.
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.
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Appendix A
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
dated as of January 26, 2000
BETWEEN
PROVIDENT AMERICAN CORPORATION
HEALTHAXIS.COM, INC.
AND
HEALTHAXIS ACQUISITION CORP.
================================================================================
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
Table of Contents
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PAGE
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<S> <C> <C>
SECTION 1: DEFINED TERMS........................................................................................2
SECTION 2: THE MERGER...........................................................................................5
SECTION 3: REPRESENTATIONS OF HEALTHAXIS........................................................................5
3.1 Organization....................................................................................5
3.2 Effect of Agreement.............................................................................5
3.3 Capital Stock and Ownership.....................................................................6
3.4 Financial and Corporate Records.................................................................6
3.5 Assets..........................................................................................7
3.6 Obligations.....................................................................................7
3.7 Operations Since September 30, 1999.............................................................8
3.8 Tangible Property...............................................................................8
3.9 Software and Other Intangibles..................................................................8
3.10 Contracts.......................................................................................8
3.11 Employees and Independent Contractors...........................................................9
3.12 Employee Benefit Plans.........................................................................10
3.13 Carrier Partners and Internet Partners.........................................................11
3.14 Proceedings and Judgments......................................................................11
3.15 Insurance......................................................................................11
3.16 Questionable Payments..........................................................................12
3.17 Related Party Transactions.....................................................................12
3.18 Brokerage Fees.................................................................................12
3.19 Investment Company.............................................................................12
3.20 Full Disclosure................................................................................12
3.21 Compliance with Law............................................................................12
SECTION 4: REPRESENTATIONS OF PROVIDENT AND NEWCO..............................................................13
4.1 Organization...................................................................................13
4.2 Agreement......................................................................................13
4.3 Provident's Stock..............................................................................13
4.4 SEC Filings....................................................................................13
4.5 Form S-4 Registration Statement................................................................14
4.6 Absence of Changes.............................................................................14
4.7 Authorization for Provident Common Stock.......................................................14
4.8 Investment Matters.............................................................................15
4.9 Brokerage Fees.................................................................................15
4.10 Compliance with Law............................................................................15
4.11 Full Disclosure................................................................................15
4.12 Investment Company.............................................................................15
SECTION 5: CERTAIN OBLIGATIONS OF HEALTHAXIS PENDING CLOSING....................................................15
5.1 Conduct of Business............................................................................15
5.2 Consents.......................................................................................16
5.3 Advice of Changes..............................................................................16
5.4 Reasonable Best Efforts........................................................................16
</TABLE>
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<TABLE>
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SECTION 6: CERTAIN OBLIGATIONS OF PROVIDENT AND NEWCO PENDING CLOSING..........................................16
6.1 Conduct of Business............................................................................16
6.2 Consents.......................................................................................17
6.3 SEC Reports....................................................................................17
6.4 Advice of Changes..............................................................................17
6.5 Reasonable Best Efforts........................................................................17
6.6 NASDAQ Listing.................................................................................17
6.7 Employee Benefits..............................................................................18
6.8 Name and Symbol Change.........................................................................18
SECTION 7: ADDITIONAL COVENANTS OF THE PARTIES..................................................................18
7.1 Shareholders' Meetings.........................................................................18
7.2 Registration Statement and Proxy Statement/Prospectus..........................................19
7.3 Blue Sky Permits...............................................................................19
7.4 Tax Free Reorganization........................................................................19
7.5 Full Disclosure................................................................................19
SECTION 8: CONDITIONS PRECEDENT TO HEALTHAXIS' CLOSING OBLIGATIONS.............................................20
8.1 Provident's and Newco's Representations........................................................20
8.2 Provident's and Newco's Performance............................................................20
8.3 Absence of Proceedings.........................................................................20
8.4 Approval of HealthAxis and Provident Shareholders..............................................20
8.5 Board Seats....................................................................................20
8.6 Adverse Changes................................................................................20
8.7 Registration Statement.........................................................................20
8.8 Listing of Provident Common Stock..............................................................20
8.9 Tax Opinion....................................................................................20
SECTION 9: CONDITIONS PRECEDENT TO PROVIDENT'S AND NEWCO'S CLOSING OBLIGATIONS.................................21
9.2 Approval of the HealthAxis and Provident Shareholders..........................................21
9.3 Dissenting and other HealthAxis Shareholders...................................................21
9.4 HealthAxis' Representations....................................................................21
9.5 HealthAxis' Performance........................................................................21
9.6 Absence of Proceedings.........................................................................21
9.7 Adverse Changes................................................................................21
SECTION 10: CLOSING............................................................................................22
10.1 Closing........................................................................................22
10.2 HealthAxis' Obligations at Closing.............................................................22
10.3 Provident's and Newco's Obligations at Closing.................................................24
SECTION 11: CERTAIN OBLIGATIONS OF PROVIDENT AND THE SURVIVING CORPORATION AFTER
CLOSING............................................................................................25
11.1 Final Tax Returns..............................................................................25
11.2 Delivery of Certificates.......................................................................25
SECTION 12: OTHER PROVISIONS...................................................................................25
12.1 Survival.......................................................................................25
12.2 Termination....................................................................................25
12.3 Publicity......................................................................................25
12.4 Fees and Expenses..............................................................................26
12.5 Notices........................................................................................26
12.6 Interpretation of Representations..............................................................26
</TABLE>
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12.7 Reliance by Provident and Newco................................................................26
12.8 Reliance by HealthAxis.........................................................................26
12.9 Entire Understanding...........................................................................26
12.10 Parties in Interest............................................................................27
12.11 Waivers........................................................................................27
12.12 Severability...................................................................................27
12.13 Counterparts...................................................................................27
12.14 Section Headings...............................................................................27
12.15 References.....................................................................................27
12.16 Controlling Law................................................................................27
12.17 Jurisdiction and Process.......................................................................27
12.18 No Third-Party Beneficiaries...................................................................27
12.19 Nature of Transactions.........................................................................28
12.20 Bankruptcy Qualification.......................................................................28
12.21 Construction...................................................................................28
</TABLE>
A-iii
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AGREEMENT AND PLAN OF REORGANIZATION
PARTIES: HEALTHAXIS.COM, INC.
a Pennsylvania corporation ("HealthAxis")
2500 DeKalb Pike
East Norriton, PA 19401
PROVIDENT AMERICAN CORPORATION
a Pennsylvania corporation ("Provident")
2500 DeKalb Pike
Norristown, PA 19404
HEALTHAXIS ACQUISITION CORP.
a Pennsylvania corporation ("Newco")
2500 DeKalb Pike
East Norriton, PA 19401
DATE: As of January 26, 2000
BACKGROUND: HealthAxis, formerly known as Insurion, Inc., is a leading web-based
insurance retailer providing fully integrated, end-to-end, web-enabled solutions
for health insurance distribution and administration and a minority owned
subsidiary of Provident. The parties desire that HealthAxis be merged with and
into Newco (the "Merger") on the terms and subject to the conditions set forth
in this Agreement and Plan of Reorganization (the "Agreement") and the Agreement
and Plan of Merger dated as of this date and designated as Exhibit A hereto (the
"Plan"). 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 for financial accounting purposes. It is intended
that as part of or prior to the Merger, Provident will change its name to
HealthAxis Inc. and its NASDAQ symbol to "HAXS".
The Board of Directors of HealthAxis has 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 (as defined in Section 3.2 hereof). The respective Board of
Directors of Provident and Newco, a wholly owned subsidiary of Provident, have
determined that the Transactions are in the best interests of Provident and
Newco and their respective shareholders.
Concurrently with the execution of this Agreement, and as a condition
and inducement to Provident'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 B.
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:
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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., Insurdata Imaging Services LLC and
Satellite Image Systems (Jamaica) Ltd.
1.3 "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.
1.4 "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.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "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.
1.7 "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.
1.8 "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.
1.9 "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.
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1.10 "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.
1.11 "Environmental Laws" means all applicable Laws (including consent
decrees and administrative orders) relating to pollution and the protection of
the environment, including those governing the use, generation, handling,
storage and disposal or cleanup of Hazardous Substances (as defined in Section
1.14), all as amended.
1.12 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.13 "GAAP" means generally accepted accounting principles under current
United States accounting rules and regulations, consistently applied.
1.14 "Hazardous Substances" means any substance, waste, contaminant,
pollutant or material that has been determined by Law or any United States
federal government authority, or any state or local government authority having
jurisdiction over any Real Property owned, leased or used by the Acquired
Companies, to be capable of posing a risk of injury or damage to health, safety,
property or the environment, including (a) all substances, wastes, contaminants,
pollutants and materials defined, designated or regulated as hazardous,
dangerous or toxic pursuant to any Law of any state in which any Real Property
owned, leased or used by the Acquired Companies, is located or any United States
Law, and (b) asbestos, polychlorinated biphenyls ("PCB's"), petroleum, petroleum
products and urea formaldehyde.
1.15 "including" means including but not limited to.
1.16 "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.
1.17 "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.
1.18 "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.
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1.19 "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.
1.20 "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)).
1.21 "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.
1.22 "NASD" means the National Association of Securities Dealers, Inc.
1.23 "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.
1.24 "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.
1.25 "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.
1.26 "Proceeding" means any demand, claim, suit, action, litigation,
investigation, arbitration, administrative hearing or other proceeding of any
nature.
1.27 "Provident Common Stock" means shares of common stock, $.10 par value
per share, of Provident.
1.28 "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.
1.29 "SEC" means the United States Securities and Exchange Commission.
1.30 "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.
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1.31 "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.
1.32 "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 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 Provident and Newco as of the date of
this Agreement and the Closing Date, and covenants with Provident 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 results of
operations of HealthAxis on a consolidated basis ("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 Provident 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 its board of 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 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.
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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
Common Stock, no par value per share ("HealthAxis Common Stock"), of which
42,394,881 shares are issued and outstanding; (ii) 20,000,000 shares of
Preferred Stock, par value $1.00 per share (the "HealthAxis Preferred Stock") of
which 3,031,191, shares are issued and outstanding. Series of 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
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 Financial and 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 Provident 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. Schedule 3.4
includes accurate and complete copies of unaudited pro-forma selected
consolidated financial information of each of HealthAxis and Insurdata (which
merged with and into HealthAxis on January 7, 2000) as of and for the nine
months ended September 30, 1999. These financial statements were prepared in
accordance with GAAP except as described on Schedule 3.4, and all adjustments
that are necessary for a fair presentation thereof (consisting only of normal
recurring adjustments) have been made. Except as set forth on Schedule 3.4, the
financial statements fairly present, in accordance with the applicable
requirements of GAAP, the consolidated financial position of HealthAxis and
Insurdata Inc. as of September 30, 1999.
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3.5 Assets. Schedule 3.5 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 September 30, 1999 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. 5.
3.6 Obligations. Schedule 3.6 includes detailed lists of all material
Obligations of each of the Acquired Companies which are required by GAAP to be
reflected on the September 30, 1999 Balance Sheet, itemized by balance sheet
account, and with aggregate net balances equal to the balances on the September
30,1999 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 September 30, 1999
Balance Sheet, (ii) Obligations set forth in Schedule 3.8, (iii) Obligations
under Contracts of the type listed or not required to be listed on Schedule
3.13, provided that as of September 30, 1999, no such Obligation consisted of or
resulted from a default under or violation of any such Contract, (iv)
Obligations incurred since September 30, 1999, in the ordinary course,
consistent with past practices, and not in breach of any of the representations
and warranties made in Section 3.9, and (v) Obligations not required by GAAP to
be reflected on the September 30, 1999 Balance Sheet. Except as described on
Schedule 3.8, none of the Obligations of any of the Acquired Companies are
guaranteed by any Person.
3.7 Operations Since September 30, 1999. Except as disclosed in the
Provident SEC Documents (as defined in Section 4.4), as set forth on Schedule
3.7 or in the ordinary course of their respective businesses consistent with its
past practices, from September 30, 1999 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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3.8 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 September 30, 1999 Balance Sheet or Schedule
3.8.
3.9 Software and Other Intangibles. Except for commercially available
Software, set forth on Schedule 3.9 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 3.9, 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 3.9, free and clear of any Encumbrance (except for use
restrictions contained in licensed commercially available Software). Except as
set forth in Schedule 3.9, 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 3.9, 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 3.9. Except as set forth on Schedule 3.9, none of the Software or
Intangibles listed on Schedule 3.9 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.
3.10 Contracts. Schedule 3.10 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; and (g) other material
Contracts (excluding 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 Provident, or among any of the
Acquired Companies, Provident and other parties in connection herewith). A
description of each oral Specified Contract is included on Schedule 3.10, and
copies of each written Specified Contract have been made available to Provident
and Newco. Except as set forth on Schedule 3.10, 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 3.10, 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 3.13, 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 3.13, 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.
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3.11 Employees and Independent Contractors. Schedule 3.11 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 3.11 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
3.10). Except as limited by any employment Contracts listed on Schedule 3.10 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 3.11, 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.
3.12 Employee Benefit Plans. Schedule 3.12 sets forth an accurate and
complete list of all of HealthAxis' Employee Benefit Plans to which any Acquired
Company is bound (collectively referred to as "HealthAxis' Employee Benefit
Plans"). Except as set forth on Schedule 3.12, none of the Acquired Companies
has (a) established, maintained or contributed to (or has been obligated to
contribute to) any Employee Benefit Plans, (b) proposed any Employee Benefit
Plans which it plans to establish or maintain or to which it plans to
contribute, or (c) proposed any changes to any Employee Benefit Plans now in
effect. Accurate and complete copies of all of HealthAxis' Employee Benefit
Plans, a list of all employees affected or covered by HealthAxis' Employee
Benefit Plans, and all Obligations thereunder have been made available to
Provident. If permitted and/or required by applicable Law, the Acquired
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Companies have properly submitted all of HealthAxis' Employee Benefit Plans in
good faith to meet the applicable requirements of ERISA and/or the Code to the
Internal Revenue Service (the "IRS") for its approval within the time prescribed
therefor under applicable federal regulations. Favorable letters of
determination of such tax-qualified status from the IRS are attached to Schedule
3.12. With respect to HealthAxis' Employee Benefit Plans, the Acquired Companies
will have made, on or before the Closing Date, all payments required to be made
by them on or before the Closing Date and will have accrued (in accordance with
GAAP) as of the Closing Date all payments due but not yet payable as of the
Closing Date, so there will not have been, nor will there be, any Accumulated
Funding Deficiencies (as defined in ERISA or the Code) or waivers of such
deficiencies. HealthAxis has made available to Provident an accurate and
complete copy of the most current Form 5500 and any other form or filing
required to be submitted to any governmental agency with regard to any of
HealthAxis' Employee Benefit Plans and the most current actuarial report, if
any, with regard to any of HealthAxis' Employee Benefit Plans. All of
HealthAxis' Employee Benefit Plans are, and have been, operated in full
compliance in all material respects with their provisions and with all
applicable Laws including ERISA and the Code and the regulations and rulings
thereunder. The Acquired Companies and all fiduciaries of HealthAxis' Employee
Benefit Plans have complied in all material respects with the provisions of
HealthAxis' Employee Benefit Plans and with all applicable Laws including ERISA
and the Code and the regulations and rulings thereunder. There have been no
Reportable Events (as defined in ERISA), no events described in Sections 4062,
4063 or 4064 of ERISA, and no termination or partial termination (including any
termination or partial termination attributable to the Transactions contemplated
by this Agreement) of any of HealthAxis' Employee Benefit Plans. There would be
no Obligation of any of the Acquired Companies under Title IV of ERISA if any of
HealthAxis' Employee Benefit Plans were terminated as of the Closing Date. As a
result of any action or inaction prior to Closing by any of the Acquired
Companies, none of the Acquired Companies has incurred, nor will incur, any
withdrawal liability, nor do any of the Acquired Companies have any contingent
withdrawal liability, under ERISA to any Multiemployer Plan (as defined in ERISA
or the Code). None of the Acquired Companies has incurred, or will incur, any
Obligation to the Pension Benefit Guaranty Corporation (or any successor
thereto). Neither the execution and delivery of this Agreement nor the
consummation of the Transactions will (x) result in any payment (including any
severance, unemployment compensation or golden parachute payment) becoming due
from any of the Acquired Companies under any of HealthAxis' Employee Benefit
Plans, (y) increase any benefits otherwise payable under any of HealthAxis'
Employee Benefit Plans, or (z) result in the acceleration of the time of payment
or vesting of any such benefits to any extent. There are no pending Proceedings
that have been asserted or instituted against any of HealthAxis' Employee
Benefit Plans, the Assets of any of the trusts under such plans, the plan
sponsor, the plan administrator or any fiduciary of any such plan (other than
routine benefit claims), and, to the knowledge of HealthAxis, there are no facts
which could form the basis for any such Proceeding. There are no investigations
or audits of any of HealthAxis' Employee Benefit Plans, any trusts under such
plans, the plan sponsor, the plan administrator or any fiduciary of any such
plan that have been instituted or, to the knowledge of HealthAxis, threatened,
and, to the knowledge of HealthAxis, there are no facts which could form the
basis for any such investigation or audit. Except as disclosed in Schedule 3.12,
no event has occurred nor will occur which will result in any of the Acquired
Companies having an Obligation in connection with any Employee Benefit Plan
established, maintained, contributed to or to which there has been as obligation
to contribute (currently or previously) by it or by any other entity which,
together with any of the Acquired Companies, constitute elements of either (i) a
controlled group of corporations (within the meaning of Section 414(b) of the
Code), (ii) a group of trades or businesses under common control (within the
meaning of Sections 414(c) of the Code or 4001 of ERISA), (iii) an affiliated
service group (within the meaning of Section 414(m) of the Code), or (iv)
another arrangement covered by Section 414(o) of the Code.
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3.13 Carrier Partners and Internet Partners. Except as set forth on
Schedule 3.13, since January 1, 1999, none of the carrier partners, internet
partners or 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 carrier
partners, internet partners or material suppliers is currently on a good and
normal basis and the Transactions will not adversely affect these relations.
3.14 Proceedings and Judgments. Except as disclosed on Schedule 3.14,
(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.
3.15 Insurance. Schedule 3.15 is an accurate and complete list of all
Insurance Policies (excluding Insurance Policies that constitute HealthAxis'
Employee Benefit Plans described on Schedule 3.12) 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 3.15, 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 3.15 have been made available to Provident. 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.
3.16 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.
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3.17 Related Party Transactions. To the knowledge of HealthAxis, except
as described on Schedule 3.17 and except for any Contracts listed on Schedule
3.13, 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 Acquired Companies and any current or former
partner, owner, shareholder, member, director, officer or controlling Person of
any of the Acquired Companies, other than Provident or its subsidiaries.
3.18 Brokerage Fees. Except as set forth on Schedule 3.18, 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.
3.19 Investment Company. HealthAxis is not an investment company within
the meaning of Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.20 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 Provident 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 Provident's or Newco's understanding thereof in any
respect.
3.21 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 3.21, 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 3.21, and
copies of such Permits have been made available to Provident and Newco.
SECTION 4: REPRESENTATIONS OF PROVIDENT AND NEWCO
Provident 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. Provident and Newco are each a corporation that is
duly organized and subsisting under the Laws of the Commonwealth of
Pennsylvania. Provident 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 Provident. Newco has not engaged in any activities
other than in connection with its organization and this Agreement and has no
liabilities.
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4.2 Agreement. Each of Provident's and Newco's execution, delivery and
performance of this Agreement, and its consummation of the Transactions, (a)
subject to approval by Provident shareholders ("Provident Shareholders') of
Provident's issuances of the Provident 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 Provident 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 Provident or Newco
is a party or by which Provident 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 Provident and
Newco, enforceable against each of them in accordance with its terms.
4.3 Provident's Stock. The authorized capital stock of Provident is
50,000,000 shares of Provident Common Stock, of which 12,944,393 shares were
issued and outstanding as of September 30, 1999, 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
Provident 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 Provident 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 Provident.
4.4 SEC Filings. (a) Except as stated on Schedule 4.4, Provident 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 ("Provident SEC Documents"). As of their respective dates, Provident
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 Provident SEC Documents. As of their respective
dates, the Provident 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.
(b) The consolidated financial statements of Provident
included in the Provident SEC Documents (i) have been prepared in conformity
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the related notes and schedules thereto) and (ii) fairly
present in all material respects the consolidated financial position of
Provident and its consolidated subsidiaries as of the dates thereof, and the
results of its operations and its cash flows for the periods then ended
(subject, in the case of the unaudited statements, to normal year-end audit
adjustments, none of which was material and that, in the case of financial
statements included therein which reflect an acquisition accounted for as a
purchase, the financial statements for the period succeeding the acquisition are
presented on a different basis of accounting than the period prior to the
acquisition and are not directly comparable).
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4.5 Form S-4 Registration Statement. The Form S-4 Registration
Statement and all amendments thereto 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 Provident and HealthAxis Shareholders, at the time of the Provident
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 Provident 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 Provident or any affiliate of Provident (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
Provident and HealthAxis Shareholders, at the time of the Provident 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.
4.6 Absence of Changes. Except as disclosed in the Provident SEC
Documents, since September 30, 1999, there has not been a material adverse
change as to Provident and its subsidiaries.
4.7 Authorization for Provident Common Stock. Provident will take all
necessary action prior to the Closing Date to permit it to issue the number of
shares of Provident 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
Provident 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 Provident 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, subject to official notice of issuance.
4.8 Investment Matters. Provident 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.
4.9 Brokerage Fees. Except as set forth in Schedule 4.9, no Person
acting on behalf of Provident is or shall be entitled to any brokerage fee,
finder's fee or investment banking fee in connection with the Transactions.
4.10 Compliance with Law. The operations of Provident, the conduct of
the businesses of Provident, as and where such businesses have been or presently
are conducted, and the ownership, possession and use of the assets of Provident
have complied and currently do comply in all material respects with all
applicable Laws. Provident is not subject to any consent decree of any Person.
4.11 Full Disclosure. No representation or warranty made by Provident
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 Provident 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.
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4.12 Investment Company. Provident is not currently and upon
consummation of the Merger, Provident will not be an investment company within
the meaning of the Investment Company Act of 1940, as amended.
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 Provident:
(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.
(5) 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.
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5.3 Advice of Changes. Between the date of this Agreement and the
Closing Date, HealthAxis shall promptly advise Provident, 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.
SECTION 6: CERTAIN OBLIGATIONS OF PROVIDENT 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) Provident 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 Provident.
(2) Provident 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 Provident nor Newco shall amend their articles of
incorporation or bylaws.
(3) Except in the ordinary course of its business consistent
with its past practices, Provident 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 Provident Common Stock, or any other
capital stock or other securities of Provident, 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, Provident
shall not sell, assign, give, pledge or grant or otherwise transfer, dispose of
or encumber any shares of the Provident Common Stock (or securities convertible,
exercisable or exchangeable for capital stock of Provident), or any other
capital stock or other securities of Provident owned or held by it.
(5) Neither Provident 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.
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6.2 Consents. Between the date of this Agreement and the Closing Date,
Provident 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 Provident or Newco is a party or by which either
Provident 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, Provident 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, Provident 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 Provident and/or Newco contained in this Agreement).
6.5 Reasonable Best Efforts. Provident and Newco shall use their
reasonable best efforts to consummate the Merger and the other Transactions as
of the earliest practicable date, and neither Provident nor 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. Provident shall use its best efforts to cause the
shares of Provident Common Stock constituting the Merger consideration to be
listed on the NASDAQ National Market System subject to notice of official
issuance thereof.
6.7 Employee Benefits. Following the Effective Date, Provident shall
cause Newco to provide benefits to such employees which are comparable to those
provided to similarly situated employees of Provident from time-to-time.
6.8 Name and Symbol Change. Subject to receipt of the necessary
consents, Provident shall use reasonable efforts to change its name to
HealthAxis Inc. and its symbol to "HAXS".
SECTION 7: ADDITIONAL COVENANTS OF THE PARTIES
7.1 Shareholders' Meetings. (a) Provident shall cause a meeting of its
shareholders (including any postponements or adjournments thereto) (the
"Provident 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 Provident
Common Stock to be issued in connection with the Merger; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, Provident
may adjourn or postpone the Provident Shareholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Proxy
Statement/Prospectus is provided to Provident's Shareholders in advance of a
vote on the issuance of Provident Common Stock in the Merger or, if as of the
time for which the Provident Shareholders' Meeting is originally scheduled (as
set forth in the Proxy Statement/Prospectus) there are insufficient shares of
Provident Common Stock represented (either in person or by proxy) to constitute
a quorum necessary to conduct the business of the Provident Shareholders'
Meeting. HealthAxis shall cause a meeting of its shareholders (including any
postponements or adjournments thereto) (the "HealthAxis Shareholders' Meeting")
(the Provident 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.
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(b) As promptly as practicable following the date of this
Agreement, Provident and HealthAxis shall prepare a joint proxy
statement/prospectus with respect to the Shareholders' Meetings (which proxy
statement/prospectus will constitute the prospectus of Provident to be included
in the Form S-4 Registration Statement to be filed by Provident 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 Provident's and HealthAxis' Shareholders, is
herein called the "Proxy Statement/Prospectus"). Provident 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 Provident Common
Stock in the Merger and the amendment of the Articles of Incorporation of
Provident to increase the 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. Provident agrees to provide
HealthAxis with all comments or correspondence received from the SEC as to the
Proxy Statement/Prospectus and Provident 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 Provident Board of Directors that their
respective shareholders approve the issuance of the Provident Common Stock in
the Merger. Provident shall send a Notification of the Merger to HealthAxis
Shareholders notifying them of the Effective Date.
(c) The Boards of Directors of each of Provident and HealthAxis
shall recommend approval of the issuance of Provident 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. Provident agrees
to vote its shares of HealthAxis common and preferred stock in favor of the
Merger.
7.2 Registration Statement and Proxy Statement/Prospectus. Provident
will, as promptly as practicable following the date of this Agreement, prepare
and, following receipt of notification from the SEC that it has no further
comments on the Proxy Statement/Prospectus assuming Provident initially files a
proxy statement/prospectus on Schedule 14A, file with the SEC 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 cooperate with Provident in the preparation and
filing of the Proxy Statement/Prospectus and will provide Provident with all
financial and other data concerning HealthAxis as is necessary in order for
Provident to prepare the Proxy Statement/Prospectus.
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7.3 Blue Sky Permits. Provident 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 Provident 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 Provident 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 Provident 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
Provident in connection with the Provident and/or HealthAxis Shareholders'
Meeting to be held by Provident 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 Provident and HealthAxis Shareholders or the time of the Provident and/or
HealthAxis Shareholders' Meeting, HealthAxis will promptly notify Provident.
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 Provident's and Newco's Representations. There shall not have been
any material breach of any representation, warranty or certification made by
Provident and/or Newco in this Agreement or pursuant hereto.
8.2 Provident's and Newco's Performance. All of the terms and
conditions of this Agreement to be satisfied or performed by Provident 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.
8.4 Approval of HealthAxis and Provident Shareholders. The Merger and
the issuance of the shares of Provident Common Stock in the Merger shall have
been duly approved by the affirmative vote of the HealthAxis and Provident
Shareholders, as the case may be, in accordance with applicable Law. The
Provident Shareholders shall have approved the amendment to the Articles of
Incorporation of Provident to increase the number of authorized shares of common
stock.
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8.5 Board Seats. The following individuals shall have been elected to
the Board of Directors of Provident effective as of the Effective Date of the
Merger: Ronald L Jensen, 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 Provident 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 Provident 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 Provident Common Stock. The shares of Provident Common
Stock issuable in accordance with the Merger shall have been approved for
listing on the NASDAQ National Market System, 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 Provident 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 Provident, 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 Provident 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 PROVIDENT'S AND NEWCO'S CLOSING OBLIGATIONS
Each obligation of Provident 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
Provident in writing.
9.1 Upon consummation of the Merger, Provident, 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 Provident Shareholders. The Merger
and the issuance of shares of Provident Common Stock in the Merger shall have
been duly approved by the affirmative vote of the Shareholders of HealthAxis and
Provident Shareholders, as the case may be, in accordance with applicable Law,
the Articles of Incorporation and Certificates of Designation.
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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. There shall not have been any material
breach of any representation, warranty or certification made by HealthAxis in
this Agreement or pursuant hereto, except where such material breach is a direct
result of the actions of Provident.
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 Provident, such
change or loss shall not be deemed to be a material adverse change or material
casualty loss.
9.8 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 Provident (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,
Provident 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 Provident, signed by the President and Chief Financial
Officer of HealthAxis, certifying, that (i) all representations and warranties
made by HealthAxis in this Agreement are 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 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 Provident.
(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.
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(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 Provident
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 Provident.
(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 Provident 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 Provident'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 Provident,
certifying that (i) all representations and warranties made by Provident and/or
Newco in this Agreement are 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 Provident 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
Provident, 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 Provident's financial performance between the date of this Agreement
and the Closing Date.
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(3) Good standing certificates for each of Provident 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 Provident and by the board of directors and the sole shareholder of
Newco, authorizing Provident and Newco, respectively, to execute, deliver and
perform this Agreement and the Plan and to consummate the Transactions,
certified by an officer of Provident 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 Provident and Newco
as to the incumbency and signatures of the officers of Provident 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 Butera, Beausang, Cohen and Brennan,
Professional Corporation, 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 Provident as of December
31, 1999.
SECTION 11: CERTAIN OBLIGATIONS OF PROVIDENT 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 Provident shall fully cooperate with the Newco Corporation with
respect thereto.
11.2 Delivery of Certificates. As soon as practicable, Provident shall
deliver to the HealthAxis Shareholders certificates representing the shares of
Provident 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 Provident's
Shareholders, this Agreement may be terminated and the Merger abandoned in
accordance with any of the following methods:
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(1) By the mutual written consents of Provident and
HealthAxis, authorized by their respective boards of directors.
(2) By written notice from Provident to HealthAxis, or from
HealthAxis to Provident, 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 July 31, 2000, 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 Provident to HealthAxis, or from
HealthAxis to Provident, if the Closing does not occur on or before July 31,
2000 for any reason other than a breach of this Agreement by the party giving
such notice.
12.3 Publicity. Without the prior written consent of Provident,
HealthAxis shall not make any public announcement regarding the Transactions,
nor shall it in any public manner disseminate any information regarding
HealthAxis, Provident, the Merger or the other Transactions. Unless required by
Law or stock exchange regulation, in the opinion of Provident's counsel, neither
Provident 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. Provident 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 Provident and/or Newco shall be sent to
Provident'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.
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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 Provident and Newco. Notwithstanding the right of
Provident and Newco to investigate the businesses, Assets and financial
condition of the Acquired Companies, and notwithstanding any knowledge
determined or determinable by Provident and Newco as a result of such
investigation, Provident 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 Provident 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 Provident and Newco in this Agreement or pursuant hereto.
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, Provident 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.
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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 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. PROVIDENT AMERICAN CORPORATION
By: /s/ Michael Asker By: /s/ Alvin H. Clemens
--------------------------------------- ---------------------
Name: Michael Ashker Name: Alvin H. Clemens
-------------------------------------- ---------------------
Title: Chief Executive Officer Title: Chairman
-------------------------------------- ---------------------
HEALTHAXIS ACQUISITION CORP.
By: /s/ Alvin H. Clemens
---------------------
Name: Alvin H. Clemens
---------------------
Title: Chairman
---------------------
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HealthAxis Affiliates
Schedule A
MICHAEL ASHKER
ALVIN H. CLEMENS
HENRY G. HAGER
EDWARD W. LeBARON, JR.
ANTHONY R. VERDI
RONALD L. JENSEN
GREGORY T. MUTZ
ANDREW FELDER
DENNIS B. MALONEY
ELAINE DEL ROSSI
MICHAEL BEAUSANG
MICHAEL G. HANKINSON
UICI
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Exhibit A
Agreement and Plan of Merger
Provided as Appendix B to the Joint Proxy Statement/Prospectus
<PAGE>
Exhibit B
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (this "Agreement"), dated as of ________,
2000, is by and among Provident American Corporation, 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
Agreement and Plan of Merger, dated as of January 26, 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.
"Board" means the Board of Directors of the Company.
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"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
(Ronald L. Jensen, Gregory T. Mutz and Dennis B. Maloney being the initial UICI
Nominees); (ii) 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 be entitled to nominate three (3) Nominees
(Michael Ashker, Alvin H. Clemens and Edward W. LaBaron, 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.
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(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).
(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.
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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 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
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<PAGE>
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 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;
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<PAGE>
(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 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;
(C) 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;
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<PAGE>
(D) 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;
(E) 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;
(F) 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 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;
(G) 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;
(H) 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
A-37
<PAGE>
(I) 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.
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.
A-38
<PAGE>
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).
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.
A-39
<PAGE>
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.
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]
A-40
<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:______________________________
PROVIDENT AMERICAN CORPORATION
By: _________________________________
Name:________________________________
Title:_______________________________
_____________________________________
Michael Ashker
_____________________________________
Alvin H. Clemens
A-41
<PAGE>
EXHIBIT A
Common Stock on a Fully Diluted Basis
<TABLE>
<CAPTION>
____________________________________________________________________________________________________________________
Number of Shares
of Common Stock Percentage of Shares of
Name and Beneficially Owned Common Stock Outstanding
Notice Address on a Fully Diluted Basis on a Fully Diluted Basis
-------------- ------------------------ ------------------------
- ------------------------------------------ ---------------------------------- --------------------------------------
<S> <C>
Provident American Corporation
2500 DeKalb Pike
Norristown, Pennsylvania 19404
Attn: Alvin H. Clemens
Telephone: (610) 279-2500
Facsimile: (610) 279-0414
With a copy to:
Butera Beausang Cohen & Brennan
630 Freedom Business Center
King of Prussia, Pennsylvania 19406
Attn: Michael F. Beausang
Telephone: (610) 265-0800
Facsimile: (610) 265-7205
- ------------------------------------------
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
- ------------------------------------------
Michael Ashker
c/o HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19404
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 19404
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
</TABLE>
A-42
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------
<S> <C>
Alvin H. Clemens
c/o HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19404
Telephone: (610) 279-3561
Facsimile: (610) 279-4498
With a copy to:
Butera Beausang Cohen & Brennan
630 Freedom Business Center
King of Prussia, PA 19406
Attn: Michael F. Beausang
Telephone: (610) 265-0800
Facsimile: (610) 265-7205
____________________________________________________________________________________________________________________
</TABLE>
A-43
<PAGE>
Exhibit C
January 26, 2000
Provident American Corporation
2500 DeKalb Pike
Norristown, PA 19404
Gentlemen:
This letter is being furnished in accordance with Section 9.1 of the
Agreement and Plan of Reorganization dated January 26, 2000 ("Reorganization
Agreement") by and among HealthAxis.com, Inc., a Pennsylvania corporation
("HealthAxis"), Provident American Corporation, a Pennsylvania corporation
("Provident") and HealthAxis Acquisition Corp., a Pennsylvania corporation
("Newco"), and related Agreement and Plan of Merger dated January 26, 2000
("Merger Agreement") by and among HealthAxis, Provident 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 Provident (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
Provident, $0.10 par value per share ("Provident Stock"), in accordance with the
Merger Agreement. Any shares of Provident 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
Provident Stock in violation of the Act or the Rules and Regulations.
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.
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<PAGE>
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 Provident, 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 Provident, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
6. I understand that Provident may give stop transfer instructions to
its transfer agent with respect to the New Shares and that Provident 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 Provident 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
Provident. 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.
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.
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<PAGE>
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 Provident 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 Provident Stock or HealthAxis Stock or securities convertible into
such shares.
Very truly yours,
___________________________________________
(Signature)
___________________________________________
Print Name
___________________________________________
Street Address
___________________________________________
City, State and Zip Code
A-46
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
Number and Type of HealthAxis Stock Owned Name or Capacity in which Owned Beneficially or of
Beneficially or of Record Record
_______________________________________________ ____________________________________________________
<S> <C> <C>
</TABLE>
A-47
<PAGE>
Appendix B
AGREEMENT AND PLAN OF MERGER
PARTIES: HEALTHAXIS.COM, INC.
a Pennsylvania corporation ("HealthAxis")
2500 DeKalb Pike
East Norriton, PA 19401
Provident American Corporation
a Pennsylvania corporation ("Provident")
2500 DeKalb Pike
Norristown, PA 19404
HEALTHAXIS ACQUISITION CORP.
a Pennsylvania corporation ("Newco")
2500 DeKalb Pike
East Norriton, PA 19401
DATE: As of January 26, 1999
BACKGROUND: Newco is a wholly owned subsidiary of Provident. HealthAxis,
Provident and Newco have entered into an 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 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 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 Provident 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.
B-1
<PAGE>
2. Name. The name of the Surviving Corporation shall be HealthAxis.com,
Inc.
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
Ronald L. Jensen
Edward W. LeBaron, Jr.
Gregory T. Mutz
Dennis B. Maloney
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
Elaine del Rossi Senior Vice President - Consumer Group
Michael G. Hankinson Secretary
7. Conversion into Provident 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 1.127 shares (the "Exchange Ratio") of
common stock of Provident, $0.10 par value per share ("Provident Stock").
Prior to the Effective Date, all outstanding shares of HealthAxis Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock and
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Series D Preferred Stock (collectively, "HealthAxis Convertible Preferred
Stock") shall have been converted into HealthAxis Common Stock in accordance
with their terms.
8. Cancellation. On the Effective Date, all outstanding shares of
HealthAxis Common Stock owned by Provident 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 shall thereafter cease to have any rights with respect
to such shares of HealthAxis Common Stock and no consideration shall be
delivered in exchange therefor.
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 Provident 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 Provident's stock option, purchase and award plans, then the
number of shares of Provident Stock into which the respective shares of
HealthAxis Common 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 Provident Stock, such
as changes resulting from acquisitions or offerings or changes resulting from
exercises of employee stock options under Provident's stock option, purchase and
award plans.
10. No Fractional Shares. No fractional shares of Provident Stock shall be
issued as a result of the Merger. In lieu of the issuance of fractional shares,
the number of shares of Provident 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 Provident Stock and any such shareholder who would
otherwise be entitled to receive a fraction of a share of Provident Stock (after
aggregating all fractional shares of Provident 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, 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 Provident Stock as quoted on the Nasdaq National Market 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 AOL; 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
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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; 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
Provident or as options, warrants or rights issued by Provident, 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 Provident 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 Provident 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.
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.
13. Exchange Procedures for HealthAxis Stock. Provident shall designate its
transfer agent to act as the "Exchange Agent" under this Plan. As soon as is
practicable after the Effective Date, Provident 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 Provident 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 Provident Stock that were paid to Provident'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 Stock shall be deemed to
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evidence ownership of the number of shares of Provident 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
Provident Stock, such shareholders being entitled to receive payment of the
appraised value of such shares of Provident 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 Provident Stock
in accordance with Section 7 hereof, without interest thereon.
(b) HealthAxis shall give Provident (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 Provident,
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 Provident,
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
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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.
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: Chief Executive Officer
PROVIDENT AMERICAN CORPORATION
By: /s/ Alvin H. Clemens
--------------------
Name: Alvin H. Clemens
Title: Chairman
HEALTHAXIS ACQUISITION CORP.
By: /s/ Alvin H. Clemens
--------------------
Name: Alvin H. Clemens
Title: Chairman
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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
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Appendix C
(ii) held of record by more than 2,000
shareholders;
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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Appendix C
(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
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Appendix C
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.
[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.
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Appendix C
(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.
(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.
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Appendix C
(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
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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Appendix C
(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
February 3, 2000
Board of Directors
HealthAxis.Com, 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 directors of Provident American Corporation (HealthAxis
Inc. as of February 1, 2000) ("Provident" or the "Company") and HealthAxis.com,
Inc. ("HealthAxis") have agreed on a merger (the "Merger"). The merger is
structured so that HealthAxis will be merged with and into HealthAxis
Acquisition Corp., a wholly owned subsidiary of Provident. We anticipate that
the Company will issue approximately 33.4 million shares of Provident common
stock to HealthAxis shareholders in the Merger. We also anticipate that
Provident will issue up to an additional 5.2 million shares of Provident 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 Provident common stock to be issued in the Merger, excluding shares subject
to stock options and warrants to be assumed by Provident, the existing
shareholders of Provident will own approximately 28% and the former HealthAxis
shareholders will own approximately 72% of the outstanding common stock of
Provident.
You have asked us to render an opinion on the fairness of the Stock
Consideration paid in the Merger by Provident, 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 Provident American Corporation,
HealthAxis.com, Inc. and HealthAxis Acquisition Corp.; the consolidated
financial statements of HealthAxis.com, Inc. and subsidiaries for the period
January 1, 1999 through September 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 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 Provident and HealthAxis for
the years ended December 31, 1999, 2000, 2001, and 2002; and other documents,
statistics, and analyses, which we believe were necessary to render our Opinion.
In addition, we conducted discussions with members of Provident and HealthAxis
management concerning various aspects of each company's operations, financial
prospects and other matters of significance.
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<PAGE>
Appendix D
As part of this engagement, Provident has agreed to pay Advest a fee
for delivery of this opinion letter. Advest has provided certain investment
banking services to Provident in the past, including advising it regarding this
Merger, and has received fees for rendering these services. Advest has also
provided certain investment banking services to HealthAxis in the past.
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 Provident 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 December 31, 1999. Our Opinion is directed to the Board of Directors
of Provident and does not constitute a recommendation of any kind to any
shareholder of Provident or HealthAxis regarding how such shareholder should
vote at a shareholders' meeting should one to be held in connection with the
Merger.
In reliance upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Stock Consideration paid by Provident in the Merger
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
[LETTERHEAD OF WARBURG DILLON READ LLC]
January 26, 2000
The Board of Directors
HealthAxis.com, Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Members of the Board:
We understand that HealthAxis.com, Inc. ("HealthAxis") is
considering a transaction whereby HealthAxis will be merged with and into
HealthAxis Acquisition Corp. ("Newco"), a wholly owned subsidiary of Provident
American Corporation ("Provident"), with Newco being the surviving corporation
(the "Merger") pursuant to which each outstanding share of the common stock, no
par value per share, of HealthAxis ("HealthAxis Common Stock") will be converted
into the right to receive 1.127 shares (the "Exchange Ratio") of the common
stock, par value $0.10 per share, of Provident ("Provident Common Stock"). The
terms and conditions of the Merger are more fully set forth in the Agreement and
Plan of Reorganization, dated as of January 26, 2000, among HealthAxis,
Provident and Newco and the Agreement and Plan of Merger, dated as of January
26, 2000, among HealthAxis, Provident and Newco attached as an exhibit thereto
(collectively, the "Merger Agreement").
You have requested our opinion as to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of HealthAxis
Common Stock (other than Provident and its affiliates).
Warburg Dillon Read LLC ("WDR") has acted as financial advisor
to the Board of Directors of HealthAxis with respect to this opinion and will
receive a fee for its services upon the delivery of this opinion. In the
ordinary course of business, WDR, its successors and affiliates may trade the
securities of Provident for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Our opinion does not address HealthAxis's underlying business
decision to effect the Merger or constitute a recommendation to any stockholder
as to how such stockholder should vote with respect to any matter relating to
the Merger. At your direction, we have not been asked to, nor do we, offer any
opinion as to the material terms of the Merger Agreement and the obligations
thereunder, or the form of the Merger. We express no opinion as to what the
value of the Provident Common Stock will be when issued pursuant to the Merger
or the price at which the Provident Common Stock will trade or otherwise be
transferable subsequent to the Merger. In rendering this opinion, we have
assumed, with your consent, that each of HealthAxis, Provident and Newco will
comply with all material terms of the Merger Agreement, as applicable, and that
the Merger will be validly consummated in accordance with its terms. In
connection with our engagement, we were not requested to, and we did not,
participate in the negotiation or structuring of the Merger, nor were we
requested to, and we did not, solicit third party indications of interest with
respect to the acquisition of all or a part of HealthAxis.
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Appendix E
In arriving at our opinion, we have, among other things: (i)
reviewed certain publicly available business and historical financial
information relating to HealthAxis and Provident; (ii) reviewed certain internal
financial information and other data relating to the business and financial
prospects of HealthAxis, including estimates and financial forecasts prepared by
the management of HealthAxis, that were provided to us by HealthAxis and are not
publicly available; (iii) conducted discussions with members of the senior
management of HealthAxis and Provident with respect to the operations, financial
condition, history and prospects of HealthAxis and Provident; (iv) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
HealthAxis and Provident; (v) reviewed the Merger Agreement; and (vi) conducted
such other financial studies, analyses, and investigations, and considered such
other information as we deemed necessary or appropriate.
In connection with our review, with your consent, we have not
assumed any responsibility for independent verification of any of the
information provided to or reviewed by us for the purpose of this opinion and
have, with your consent, relied on its being complete and accurate in all
material respects. We have relied, without independent verification and with
your consent, on the views of the management of Provident as to Provident's
outstanding liabilities and other obligations, including Provident management's
assessments that Provident has no material liabilities, contingent or otherwise,
other than those reflected on Provident's balance sheet dated December 31, 1999
provided to us by the management of Provident. At your direction, we have not
made any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of HealthAxis or Provident, nor have we been furnished
with any such evaluation or appraisal. With respect to the financial forecasts
and estimates referred to above, we have assumed, at your direction, that they
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of HealthAxis as to the future
performance of HealthAxis and will be realized in the amounts and at the times
contemplated thereby. We also have assumed, with your consent, that the Merger
will qualify as a tax-free reorganization and that the Merger will be accounted
for as a purchase for financial accounting purposes. Our opinion is necessarily
based on economic, monetary, market and other conditions as in effect on, and
the information made available to us as of, the date of this letter.
Based upon and subject to the foregoing, it is our opinion
that, as the date hereof, the Exchange Ratio is fair, from a financial point of
view, to the holders of HealthAxis Common Stock (other than Provident and its
affiliates).
Very truly yours,
WARBURG DILLON READ LLC
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APPENDIX F
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.
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<PAGE>
APPENDIX F
(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:
(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.
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<PAGE>
APPENDIX F
(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.
(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.
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<PAGE>
APPENDIX F
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.
Article 11. Shareholder Vote Required to Approve Certain Transactions.
No merger, consolidation, liquidation or dissolution of the Corporation nor any
action that would result in the sale or other disposition of all or
substantially all of the assets of the Corporation shall be valid unless first
approved by the affirmative vote of the holders of (a) at least eighty percent
(80%) of the outstanding shares of Common Stock voting as a separate class and
(b) at least eighty percent (80%) of the outstanding shares of Preferred Stock
voting as a separate class. This Article 11 may not be amended unless first
approved by the affirmative vote of the holders of (a) at least eighty percent
(80%) of the outstanding shares of Common Stock voting as a separate class and
(b) at least eighty percent (80%) of the outstanding shares of Preferred Stock
voting as a separate class.
Article 12. 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;
F-4
<PAGE>
APPENDIX F
(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.
Article 13. 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 14. 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
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<PAGE>
APPENDIX F
(b) The breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
This Article 14 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 15. 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 16. 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 17. 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.
Article 18. 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).
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<PAGE>
APPENDIX F
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 19. 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.
F-7
<PAGE>
APPENDIX G
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 key 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 key 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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<PAGE>
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
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Option to the same person, or more than one of each type of option to the same
person. The option price for 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.
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 Appendix 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 key
employees pursuant to this Plan shall be issued substantially in the form set
forth in Appendix 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 Appendix 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.
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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
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.
6. 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.
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7. 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.
8. 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.
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.
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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 one year from the date
of grant, but not before that time. On and after one year and prior to
__________ years 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 _____ years 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.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, 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 your vesting date may accelerate accordingly. A "Change
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of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
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.
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
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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.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
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.
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(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.
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
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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, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. 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
State of Delaware.
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.
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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)
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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
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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) 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.
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EXHIBIT II
NON-QUALIFIED STOCK OPTION FOR OFFICERS
AND OTHER KEY 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 one year from the date
of grant, but not before that time. On and after one year and prior to _____
years 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_____ years 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.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, 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 your vesting date may accelerate accordingly. A "Change
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of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
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.
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
G-15
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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.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
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.
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<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.
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.
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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, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. 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
State of Delaware.
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.
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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 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)
G-19
<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
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<PAGE>
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) 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.
G-21
<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 one year from the date
of grant, but not before that time. On and after one year and prior to
______years 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 _____ years 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.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, 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 your vesting date may accelerate accordingly. A "Change
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of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
2. Any other event deemed to constitute a "Change of Control" by the
Committee.
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.
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
G-23
<PAGE>
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
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.
(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,
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<PAGE>
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.
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
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<PAGE>
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, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. 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
State of Delaware.
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)
G-26
<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
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<PAGE>
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) 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.
G-28
<PAGE>
CHAPTER VI -- CONSOLIDATED FINANCIAL STATEMENTS
OF HEALTHAXIS.COM, INC. AND INSURDATA INCORPORATED
TABLE OF CONTENTS
-----------------
HealthAxis.com, Inc and Subsidiaries
(A Development Stage Enterprise)
Consolidated Financial Statements
Pages
-----
For the Period from Inception (March 2, 1998) through December 31, 1998:
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Interim for the Period September 30, 1999:
Consolidated Balance Sheets................................................ F-25
Consolidated Statements of Operations...................................... F-26
Consolidated Statements of Changes in Stockholders' Equity................. F-27
Consolidated Statements of Cash Flows...................................... F-28
Notes to Consolidated Financial Statements................................. F-29
Insurdata Incorporated and Subsidiaries
Consolidated Financial Statements
Report of Independent Auditors............................................. F-40
Consolidated Balance Sheets................................................ F-41
Consolidated Statements of Income.......................................... F-42
Consolidated Statements of Stockholder's Equity............................ F-43
Consolidated Statements of Cash Flows...................................... F-44
Notes to Consolidated Financial Statements................................. F-46
--------------------------------------------
The Insurdata Incorporated financial statements included in this document
include two subsidiaries which were not transferred to HealthAxis in connection
with the Insurdata merger. The effect of these non-merging subsidiaries on the
December 31, 1998 and September 30, 1999 financial results can be found in the
proforma financial statements of this joint proxy statement/prospectus on page
64.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
HealthAxis.com, Inc.
Norristown, Pennsylvania
We have audited the accompanying consolidated balance sheet of HealthAxis.com,
Inc. (A Development Stage Enterprise) as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from inception (March 26, 1998) 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthAxis.com, Inc.
at December 31, 1998, and the results of its operations and its cash flows for
the period from inception (March 26, 1998) through December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
March 30, 1999
Philadelphia, Pennsylvania
F-2
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Consolidated Balance Sheet
As of December 31, 1998
(Dollars in thousands except per share data)
Assets
Current assets
Cash and cash equivalents $ 1,724
--------
Total current assets 1,724
Equipment and software at cost, net 1,466
Prepaid interactive marketing expense, net 11,654
Other assets 125
--------
Total assets $ 14,969
========
Liabilities and Stockholders' Equity
Current liabilities
Amounts due to affiliates $ 93
Accounts payable and accrued expenses 1,919
--------
Total current liabilities 2,012
--------
Commitments and Contingencies
Preferred Stock Series A $.13 cumulative, redeemable
& convertible preferred: 953,980 authorized, 545,916
issued and outstanding 2,470
Preferred Stock Series B $.13 cumulative, redeemable
& convertible preferred: 625,529 authorized,
issued and outstanding 2,735
Stockholders' Equity
Common stock,
No par value: authorized 40,000,000,
16,172,760 shares issued & outstanding 9,060
Preferred stock, $1 par value: 5,000,000 shares authorized
for all issues including Series A, B and C
Additional paid-in capital 3,482
Deficit accumulated during development stage (4,790)
--------
Total stockholders' equity 7,752
--------
Total liabilities and stockholders' equity $ 14,969
========
See notes to consolidated financial statements.
F-3
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statement of Operations
For the period from Inception (March 26, 1998) through December 31, 1998
(Dollars in thousands except per share data)
Expenses:
Salary and employee benefits $ 539
Legal services 424
Technology services 405
Advertising and promotional 1,017
Other general and administrative 1,292
Premium on conversion of HPS convertible note 953
Interest 106
Depreciation 54
-----------
Total expenses 4,790
-----------
Net loss (4,790)
Dividends on preferred stock (106)
-----------
Net loss applicable to common shareholders $ (4,896)
===========
Loss per share of common stock
Basic and Diluted $ (0.35)
Weighted average common shares and equivalents used
in computing loss per share
Basic and Diluted 14,027,000
See notes to consolidated financial statements.
F-4
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity
For the period from Inception (March 26, 1998) through December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Month/Year Shares Amount Capital Deficit Total
- ---------- ---------- --------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
3/98 Stock issuance to parent company 875,000 $ 1 $ 1
3/98 Capital contribution from parent company 1,310 1,310
5/98 Capital contribution from parent company 160 160
7/98 Stock options and warrants to non-employees 115 115
8/98 Capital contribution from parent company 130 130
8/98 Stock dividend on a 14:1basis 12,250,000 0 0
9/98 HPS note conversion,icluding interest and premium 2,365,365 6,059 6,059
11/98 Stock issuance to parent company 682,395 3,000 3,000
11/98 Capital contribution from parent company 1,873 1,873
Dividends on preferred stock (106) (106)
Net loss (4,790) (4,790)
---------- ------- ------- -------- -------
BALANCE, DECEMBER 31, 1998 16,172,760 $ 9,060 $ 3,482 $(4,790) $ 7,752
========== ======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
For the period from Inception (March 26, 1998) through December 31, 1998
(Dollars in thousands)
Cash flows from operating activities
Net loss $ (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 54
Amortization of prepaid interactive marketing expense 585
Warrants of Provident and HealthAxis other G & A expense 533
Stock options expense 61
Premium on conversion of HPS convertible note 953
Decrease (increase) in
Prepaid interactive marketing expense (9,300)
Other assets (70)
Amounts due to affiliates 93
Accounts payable and accrued expenses 1,919
--------
Net cash (used in) operating activities (9,856)
--------
Cash flows from investing activities
Purchases of property and equipment (1,520)
--------
Net cash used in investing activities (1,520)
--------
Cash flows from financing activities
Issuance of Series A and B preferred stock 5,100
Issuance of HPS convertible note 5,000
Issuance of common stock 3,000
--------
Net cash from financing activities 13,100
--------
Increase in cash and cash equivalents 1,724
Cash and cash equivalents, beginning of period -
--------
Cash and cash equivalents, end of period $ 1,724
========
Non-cash financing activities:
Issuance of Provident and HealthAxis warrants $ 2,994
========
Issuance of common stock on conversion of HPS note $ 5,000
========
Dividends on preferred stock $ 106
========
See notes to consolidated financial statements.
F-6
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
December 31, 1998
(Dollars in thousands, except per share amounts)
Note A - Nature of Operations
HealthAxis.com Inc. ("HealthAxis" or "the Company") was incorporated on
March 26, 1998 to sell health insurance products online. HealthAxis seeks to
utilize its exclusive distribution agreements with America Online, Inc. ("AOL"),
Lycos, Inc. ("Lycos") and CNet, Inc., including Snap.com, ("Cnet")
("Distribution Partners"), to create a distinct branded identity for its online
health insurance "store." HealthAxis provides convenient, around-the-clock,
online access to health insurance products.
The Company, formerly known as Insurion, Inc., is presently a
majority-owned subsidiary of Provident American Corporation ("Provident" or
"PAMCO"), a Pennsylvania corporation. Health Plan Services, Inc. ("HPS"),
through the exercise of the $5,000 convertible note (the "Convertible Note")
issued by HealthAxis, owns approximately 15% of the Company's Common Stock. (See
Note K)
Note B - Operating Losses and Management Plans
Since its inception, the Company has incurred costs to develop and
enhance its technology, to create, introduce and enhance its web site, and to
establish marketing, insurance carrier and claims administration relationships.
As a result, the Company has incurred significant losses in 1998. The Company
currently intends to substantially increase its operating expenses as a result
of the Company's strategic alliances, to fund increased sales and marketing, to
enhance its existing web site and to fund increased salaries and other costs.
Consequently, the Company expects operating losses to continue for the
foreseeable future as it continues to develop and market its Internet-based
health insurance business.
To fund operating cash flow needs, the Company is currently offering
approximately $15,000 of Series C Preferred Stock (of which $8,800 was raised in
March, 1999) solely to "accredited investors" (as defined in Rule 501 of
Regulation D under the Securities Act). An outline of the proposed terms
describing the Series C Preferred Stock is included in Note K. The net proceeds
from the sale of the Series C Preferred Stock are anticipated to be $14,000 and
$4,400 will be used to fund amounts due under the Company's strategic alliance
agreements with AOL, Lycos and CNet through the end of fiscal 1999, and the
balance will be used for working capital and other general corporate purposes.
The Company believes that the $14,000 net proceeds together with its current
cash and cash equivalents will be sufficient to fund current operations and
amounts due to AOL, Cnet and Lycos through 1999. In the event that less than the
maximum amount of the offering is raised, the Company will scale back operations
to conduct business for the rest of the year in order to enable it to continue
to implement its business strategy; however, this may have an adverse impact on
revenues as currently projected.
F-7
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Note C - Significant Accounting Policies
Principles of consolidation: The consolidated financial statements
include the accounts of HealthAxis.com Inc. and all of its wholly-owned
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
Provident.
Use of estimates: The preparation of financial statements in conformity
with GAAP 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 consist of highly liquid investments with
maturities of three months or less from date of purchase. The Company utilizes
one banking institution. The Company had bank deposits which exceeded federally
insured limits by approximately $1,624 at December 31, 1998.
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 is provided using the straight-line method over the
estimated useful lives of the assets. Computer hardware and software including
the www.healthaxis.com web site are depreciated over 3 years and furniture is
depreciated over 7 years. Upon sale or retirement, the cost of the asset and the
related accumulated depreciation are removed from the accounts and the resulting
gain or loss, if any, is included in operations.
Prepaid interactive marketing expense represents cash and other
consideration paid to AOL, Cnet and Lycos for exclusivity and advertising
impressions related to services to be provided to the Company under the terms of
the respective marketing agreements. Prepayments related to exclusivity are
amortized on a straight-line basis over the respective contract term.
Prepayments related to advertising impressions are expensed as impressions are
delivered under the respective agreements.
Start-up costs: In accordance with AICPA Statement of Position No.
98-5, "Reporting on the Costs of Start-Up Activities", start-up costs have been
expensed as incurred.
Income taxes: The Company is party to a tax sharing agreement and is
included in the consolidated federal income tax return of Provident, which
allocates income taxes based upon the taxable income of the companies included
in the return. The Company has a net operating loss carryforward ("NOL")
approximating $3,800 which is available to offset future taxable income through
2012. The Company has established a 100% valuation allowance for the deferred
tax asset related to the NOL because the Company is still in the development
stage, and it does not appear likely that the NOL will be realized in the near
future.
F-8
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Impairment of long-lived assets: Long-lived assets, such as fixed
assets and prepaid interactive marketing expenses, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. At December 31,1998, no assets were deemed to
have been impaired.
Earnings (loss) per share of common stock: The Company adopted SFAS No.
128 "Earnings Per Share" resulting in the presentation of basic and diluted
earnings per share. Because the Company reported an operating loss in 1998,
common stock equivalents were anti-dilutive and, therefore, were not included in
the calculation.
Recent accounting standards: In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments" ("SFAS 133"), which establishes
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, the Company does not use derivative instruments either in hedging
activities or as investments. Accordingly, the Company believes that adoption of
SFAS 133 will have no impact on its financial position or results of operations.
Note D - AOL Interactive Marketing Agreement
The Company's Amended and Restated Interactive Marketing Agreement ("IM
Agreement") with AOL, dated November 13, 1998, and subsequently amended March
29,1999 provides that the Company will be the exclusive third-party direct
marketer of managed-care and indemnity health insurance policies, dental
insurance, vision insurance, prescription coverage, critical care insurance and
long-term care insurance coverage and, subject to certain restrictions, the
non-exclusive third party marketer of life and long-term disability
(collectively, the "Products") for individuals and groups of less than fifty
individuals in the United States via AOL's online network. Under the IM
Agreement, AOL will advertise the Products to its subscribers on AOL's online
network and the Products will be sold online through the Company's web site. The
amount of promotions that AOL will provide the Company is contingent upon the
Company's ability to offer policies in all of the fifty states, the quality of
the policies offered, the adherence of the Company to AOL's standards and other
similar factors. The IM Agreement's initial term ends January 31, 2000, and can
be extended for a renewal term of two years and four months as amended March
29,1999 (see note O) at the Company's election. Upon expiration of both the
initial and the renewal terms, AOL may renew the IM Agreement for additional
one-year terms.
F-9
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Under the terms of the IM Agreement, the Company shall make payments to
AOL of $10,000 for the initial term (of which $8,500 has been paid and is
accounted for as prepaid interactive marketing expense and the remaining $1,500
is due during 1999) and $33,500 due in 2000 and 2001 as amended March 29,1999
(see note O) for the renewal term. The Company also has agreed to pay
administrative fees to AOL if approved applications exceed certain thresholds.
Under the original IM Agreement, Provident issued to AOL warrants to
purchase 300,000 shares of Provident's common stock at an exercise price of
$4.48 per share for a period of seven years. In addition, warrant agreements
executed in connection with the November 13, 1998 amendment of the IM Agreement
provide that AOL shall receive immediately exercisable warrants to purchase
300,000 shares of the Company's or Provident's common stock, or any combination
thereof, for an aggregate of 300,000 shares. The exercise price of the warrant
to purchase shares of Provident's common stock is $3.38 per share and is
exercisable for a period of nine years commencing November 13, 1998. The
warrants to purchase shares of the Company's common stock have an exercise price
of $1.77 per share and are exercisable for a period of nine years commencing
November 13, 1998. The fair value of these warrants (approximately $2,651) was
accounted for as a capital contribution from Provident and a prepaid interactive
marketing expense. If The Company renews the IM Agreement, then Provident will
issue warrants to AOL for the purchase of up to 300,000 additional shares of
Provident's common stock at an exercise price of $5.15. These warrants shall be
exercisable for a period of seven years commencing April 1, 2000, vesting
quarterly. The Company and Provident also granted AOL (including any transferee
or successor thereof) certain registration rights with respect to shares of the
Company' and Provident's common stock acquired upon the exercise of the warrants
granted to AOL.
Note E - CNet Promotional Agreement:
The Company's amended agreement with CNet provides that CNet will
promote the Company as its exclusive provider of medical and PPO, dental,
vision, prescription, long term care, and long term disability insurance through
the Internet and television, for a total approximating $2,400 (of which $500 has
been accounted for as advertising and promotional expense). The balance of
$1,900 will be paid in two increments of $1,008 (in 1999) and $882 (in 2000) and
accounted for as prepaid interactive marketing expense and amortized over the
initial term of the agreement. The Company may, at its option, extend the
agreement during a renewal term until March 31, 2001 by paying CNet an
additional $7,500 of which $1,875 and $5,625 would be due in 2000 and 2001,
respectively. In addition, the Company shall pay to CNet certain fees based upon
the success of sales from the co-branded web site.
F-10
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Since signing the original agreement, CNet and Snap.Com have become
separate entities. Consequently, CNet and Snap.Com have extended an offer
whereby they are requesting HealthAxis to separate the CNet agreement into two
agreements with CNet and Snap.Com on the basis that the aggregate economics of
the combined deals would be substantially similar to the existing CNet
arrangement. In furtherance of the request, the Company has met with CNet and
Snap.Com, and they are preparing an offer that will detail the new terms. In
light of the foregoing, the parties have verbally agreed to suspend the current
payments due March 31, 1999 and April 1, 1999, in the aggregate amount of
$925,000 until such time as the new arrangement can be mutually agreed upon.
Note F - Lycos Promotional Agreement
The Company's amended agreement with Lycos provides that Lycos will
make the Company the exclusive provider of medical, HMO, PPO, indemnity, dental,
vision, prescription, long term care, and long term disability insurance through
the Internet, for total payments approximating $9,060 (of which $800 has been
paid and accounted for as prepaid interactive marketing expense) during the term
of the agreement, which shall extend for twenty-four months from the launch of
the co-branded version of the Company's site, expected to be on or about May 31,
1999. Of the remaining $8,260 payments to Lycos, $1,275, $5,345 and $1,640 are
due in 1999, 2000 and 2001, respectively. In addition, the Company shall pay to
Lycos certain fees based upon the success of sales from the co-branded web site.
Note G - E-Commerce Agreement with HPS
On May 29, 1998, HealthAxis, Provident, and Provident Health Services,
Inc. ("PHS"), a wholly-owned subsidiary of Provident, entered into an Internet
claims administration agreement with HPS (the "E-Commerce Agreement") which
provides HPS with the right to be the exclusive administrator of all insurance
business sold over HealthAxis' web site and any other form of electronic
commerce ("e-commerce") used by HealthAxis to sell insurance which is
underwritten by Provident American Life and Health Insurance Company ("PALHIC")
during the term of the E-Commerce Agreement. HealthAxis also agreed to use its
best efforts to provide HPS with the right of first refusal to provide claims
administration services for insurance business sold by HealthAxis but not
underwritten by Provident Indeminty Life Insurance Company ("PILIC") and PALHIC
that may require the services of a third party administrator.
Under the terms of the E-Commerce Agreement, HealthAxis is required to
pay HPS 4% of the transaction fee revenue (the "License Fees") generated from
insurance companies whose products are available for sale through HealthAxis
("Carrier Partners") for various services to be provided, including but not
limited to, a transaction fee on each item of e-commerce transacted through the
HealthAxis web site, excluding docking, advertising, front holding fees and
other fees for the right to participate in the sale of insurance products over
the HealthAxis web site or any other form of e-commerce, during the term of the
E-Commerce Agreement.
F-11
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
In the event of a change in control or an initial public offering by
HealthAxis, the Company will have the right to terminate HPS' right to License
Fees by paying HPS the lower of: (i) eight times the HPS License Fees earned by
HPS in the two quarters prior to the change in control as defined in the
E-Commerce Agreement or initial public offering, or (ii) the projected License
Fees based on the pro forma projections used for purposes of a HealthAxis public
offering or spin-off from Provident.
Under the E-Commerce Agreement, the Company received from HPS $750 as
an off-set against the fees paid to AOL as provided in the IM Agreement which
was accounted for as a deferred credit and amortized as a reduction to
advertising and promotional expense over the term of the E-Commerce Agreement.
In addition, Provident issued to HPS warrants to purchase 100,000 shares of
Provident's common stock at an exercise price of $9.00 per share, for a period
of two years. In the event that Provident issues any warrants after the
effective date of the E-Commerce Agreement and before six months following the
effective date of the E-Commerce Agreement (excluding warrants or options issued
to employees, consultants, or other interactive marketing partners), having an
exercise price lower than $9.00 per share, Provident agrees that the exercise
price per share shall be reduced to such lower exercise price. The E-Commerce
agreement shall further provide that Provident shall have the right, upon 30
days notice, to cancel any unexercised warrants in the event that the average
weekly last-sale price for shares of Provident common stock over any consecutive
eight week period exceeds $12.825. The fair value of the warrants (approximately
$160) was accounted for as a capital contribution from Provident and a reduction
of the deferred credit.
HPS has advised HealthAxis and Provident that certain actions taken by
HealthAxis are, in its opinion, inconsistent with HealthAxis' obligations under
agreements between the parties. HealthAxis and Provident disagree with the
position taken by HPS.
Note H - Prepaid Interactive Marketing Expense
As described in Notes D, E, F and L, the Company has made payments and
issued warrants aggregating $12,240 which have been charged to prepaid
interactive marketing expense. These payments and warrants issued under the
terms of the respective agreements with AOL, Cnet and Lycos represent
exclusivity and impression advertising costs of $3,527 and $8,713, respectively.
Included in advertising and promotional expense is amortization of prepaid
interactive marketing expense of $585 consisting of exclusivity and impression
advertising of $381 and $204, respectively.
Note I - Series A Cumulative Convertible Preferred Stock
During 1998, the Company authorized 953,980 shares and issued 405,886
shares of Series A Cumulative Convertible Preferred Stock, par value $1.00 per
share (the "Series A Preferred Stock") to PILIC, a subsidiary of Provident, for
aggregate consideration of $2,400, or $5.91 per share. Additionally, the Company
issued 140,030 shares of its Series A Preferred Stock to PILIC pursuant to the
price adjustment provisions of a Stock Purchase Agreement between the Company
and PILIC.
F-12
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Holders of the Series A Preferred Stock are entitled to vote on all
matters as to which holders of Common Stock are entitled to vote. The holders of
each share of Series A Preferred Stock are entitled to the number of votes equal
to the nearest whole number of shares of Common Stock into which the Series A
Preferred Stock is convertible. Generally, the holders of Series A Preferred
Stock shall vote together with the holders of Common Stock and the Series B
Preferred Stock as one class.
Holders of the Series A Preferred Stock are entitled to cumulative
dividends accruing from the date of issuance, as and if declared by the Board of
Directors, at the annual rate of $0.13 per share (subject to equitable
adjustment to reflect stock splits, stock dividends, stock contributions,
recapitalization and similar occurrences). If all accrued dividends on the
Series A Preferred Stock have not been paid or set apart for payment: (i) no
dividends or other distributions may be declared and paid or set apart for
payment on the Common Stock, and (ii) the Company shall not repurchase, redeem
or otherwise acquire any shares of its Common Stock, other than the repurchase
by the Company of Common Stock from any Company employee upon the cessation of
such employee's employment with the Company.
In the event of any dissolution, liquidation or winding up of the
affairs of the Company, after payment or provision for payment of the debts and
other liabilities of the Company and payment of all amounts owed to the Series B
Preferred Stock (See Note J), the Series A Preferred shareholders shall be
entitled to receive a liquidation preference equal to the initial investment and
all dividends accrued and unpaid.
Upon redemption of all of the Series B Preferred Stock, the shares of
Series A Preferred Stock are redeemable by the Company at any time after
September 15, 1999. During the Mandatory Redemption Period, the Company may
redeem any or all of the outstanding Series A Preferred Stock at a redemption
price equal to the original issuance price ($4.40 per share) plus an amount that
would yield a total annualized return of 10%. As of December 31, 1998, the
Company has recorded $70 as an accretion to the stated value of the Series A
Preferred Stock with a corresponding charge to additional paid in capital
representing a dividend. During the Mandatory Redemption Period, holders of the
Series A Preferred Stock have the right at any time to convert all or a part of
their shares of Series A Preferred Stock into shares of Common Stock.
On February 1, 2002 and on the first day of each calendar quarter
thereafter after all of the Series B Preferred has been redeemed, the holder of
the Series A Preferred Stock will have the option to redeem up to 100,000 shares
at a redemption price equal to the original issuance price ($4.40) plus an
amount that would yield a total annualized return of 10%. During the optional
redemption period, holders of the Series A Preferred Stock have the right at any
time to convert all or a part of their shares of Series A Preferred Stock into
shares of Common Stock.
F-13
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
At any time prior to redemption, shares of Series A Preferred Stock are
convertible into 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 common stock as defined
in the preferred stock agreement. All of the outstanding shares of Series A
Preferred Stock will be converted into a number of shares of Common stock at the
Conversion Price upon the consummation of a underwritten public offering of the
Common Stock of the Company at a net offering price per share that represents a
pre-offering market capitalization of not less than $150,000 and aggregate
proceeds (net of underwriting commissions and discounts) to the Company of not
less than $25,000.
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.
The Company is required to notify the Series A Preferred shareholders
upon the registration of Common Stock under the Securities Act of 1933 and
subject to certain limitations include their shares of common stock upon
conversion in such registration.
In conjunction with the issuance authorization and issuance of Series C
Preferred Stock, the Company amended certain terms and provisions of the Series
A Preferred Stock (See Note P).
Note J - Series B Cumulative Convertible Preferred Stock
During 1998, the Company issued 625,529 shares of Series B Cumulative
Convertible Preferred Stock, par value $1.00 per share (the "Series B 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 the IM Agreement.
Holders of the Series B Preferred Stock will be entitled to cumulative
dividends accruing from the date of issuance, as and if declared by the Board of
Directors at the annual rate of $.13 per share. If all accrued dividends on the
Series B Preferred Stock have not been paid or set apart for payment, no
dividends or other distributions may be declared and paid or set apart for
payment upon the Common Stock, Series A Preferred Stock or any other class of
securities of the Company having a dividend or distribution preference junior to
the Series B Preferred Stock (the "Junior Stock"); and the Company shall not
repurchase, redeem or otherwise acquire any shares of its Common Stock, Series A
Preferred Stock or any series of Junior Stock, other than the repurchase by the
Company of Common Stock from any Company employee upon the cessation of the
employee's employment with the Company. Holders of Series B Preferred Stock are
not entitled to participate in any other dividends or other distributions (cash,
stock or otherwise) declared or paid on or with respect to the Common Stock or
any other class of stock of the Company.
F-14
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Holders of the Series B Preferred Stock are entitled to vote on all
matters as to which holders of Common Stock are entitled to vote. The holders of
each share of Series B Preferred Stock are entitled to the number of votes equal
to the nearest whole number of shares of Common Stock into which the holder's
Series B Preferred Stock is convertible. Generally, the holders of Series B
Preferred Stock shall vote together with the holders of Common Stock and the
Series A Preferred Stock as one class.
In the event of any dissolution, liquidation or winding up of the
affairs of the Company, after payment or provision for payment of the debts and
other liabilities of the Company, the holders of the Series B Preferred Stock
shall be entitled to receive, out of the assets of the Company legally available
for distribution to its shareholders, the amount of approximately $4.40 in cash
for each share of Series B Preferred Stock, plus an amount equal to all
dividends accrued and unpaid on each such share up to the date fixed for
distribution, before any distribution may be made to the holders of the
Company's Common Stock, Series A Preferred Stock or any series of Junior Stock.
Holders of the Series B Preferred Stock have the option within six
months after the later of the occurrence of a Trigger Event (as defined in the
AOL Agreement) to redeem any or all of the shares of Series B Preferred Stock at
a redemption price per share equal to the original issuance price plus an amount
that would yield a total annualized return of 10%. As of December 31, 1998, the
Company has recorded $36 as an accretion to the stated value of the Series B
Preferred Stock with a corresponding dividend charge to additional paid-in
capital.
Shares of Series B Preferred Stock are convertible at any time, at the
option of the holder, into 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 common
stock as defined in the preferred stock agreement.
All of the outstanding shares of Series B Preferred Stock shall be
converted into a number of shares of Common Stock at the Conversion Price (as
defined above) upon the consummation of an underwritten public offering of the
Common Stock of the Company at a net offering price per share that represents a
pre-offering market capitalization of not less than $200,000 and aggregate
proceeds (net of underwriting commissions and discounts) to the Company of not
less than $25,000.
In connection with AOL's purchase of the Series B Preferred Stock, the
Company and AOL entered into a Registration Rights Agreement ("Registration
Agreement") which sets forth the rights of AOL in connection with the public
offering of a 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.
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-15
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
In conjunction with the issuance authorization and issuance of Series
C Preferred Stock, the Company amended certain terms and provisions of the
Series B Preferred Stock (See Note P).
The Stock Purchase Agreement, dated November 13, 1998, related to AOL's
purchase of the Series B Preferred Stock (the "Stock Purchase Agreement")
provides that the Company with certain exceptions as outlined in the agreement
may not issue, sell, exchange or reserve or set aside for issuance any Common
Stock, any other equity security of the Company, or any convertible debt
security or debt security with equity features or any option, warrant or right
to subscribe for, or purchase any equity or debt security of the Company unless
the Company offers to sell AOL its proportionate interest (as defined in the
Stock Purchase Agreement) of such securities at a price and terms specified by
the Company, which offer is required to remain open for 30 days. The first right
of purchase provided to AOL does not apply to the issuance of the 2.9 million
shares of Common Stock reserved for issuance under the Company's Stock Option
Plan, Common Stock issued upon the conversion of the Series A Preferred Stock;
Common Stock issued pursuant to a stock dividend or stock split, combination or
subdivision; securities issued in an acquisition of another corporation by
merger or purchase of substantially all of the assets of such corporation
whereby the Company owns not less that 51% of the voting power of such other
corporation. These above-described rights granted to AOL do not apply to and
terminate upon an underwritten public offering with a pre-offering market
capitalization of $150,000 which results in aggregate net cash proceeds of not
less than $25,000.
The Company and Provident also agreed that, provided AOL owned or
possessed the right to acquire at least 1% of the Company's outstanding Common
Stock, the Company would be precluded from certain transactions without the
prior consent of AOL.
In addition, the Stock Purchase Agreement provides that provided AOL
owns or has the right to acquire more than 1% of the outstanding Common Stock of
the Company, neither the Company or Provident, nor shall Provident permit the
Company or any of its other subsidiaries, without the prior written consent of
AOL, to take any action or enter into any transaction which under the
circumstances under which it was entered into, could reasonably be foreseen to
prejudice the interest of the Company in favor of Provident or any Provident
subsidiary. Notwithstanding the foregoing, the prior consent of AOL shall not be
required to engage in an equity offering generating proceeds of at least $10,500
at a price per share of at least $3.74 (as adjusted for stock splits, dividends
recapitalizations and like occurrences) as described in the Certificate of
Designation related to the Series B Preferred Stock.
The Stock Purchase Agreement also provides that AOL may assign its
rights under such agreement to: (i) any partner or affiliate of AOL, or (ii) any
person or entity acquiring at least 50,000 shares of the Series B Preferred
Stock, the Common Stock underlying the Series B Preferred Stock or a combination
thereof. As a condition to the transfer of rights granted pursuant to the Stock
Purchase Agreement, subsequent transferees of AOL may not assign their rights
under the Stock Purchase Agreement and each transferee must provide notice of
the transfer to the Company and agree to be bound by the Stockholders' Agreement
F-16
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
dated, November 13, 1998, (the "Stockholders' Agreement") entered into between
the Company and the named stockholders.
The Stockholders' Agreement between the Company, AOL, HPS, Provident,
PILIC and Messrs. Ashker and Clemens provides that in the event a Selling Group
Stockholder, as defined in the Stockholders' Agreement, intends to sell or
transfer any shares of capital stock of the Company, such Selling Group
Stockholder shall give notice to AOL of the name and terms offered by the
proposed purchaser and provide AOL with the right to purchase such shares at the
same price offered by the proposed purchaser for a period of 30 days. If AOL
does not elect to purchase such shares within 30 days, the Selling Group
Stockholder may sell such shares to the proposed purchaser within 90 days on the
same terms, including price, contained in the notice to AOL. If the sale is not
effective within 90 days, additional notice to AOL is required. A purchaser of
the shares held by any Selling Group Stockholder must agree to be bound by the
terms of the Stockholders' Agreement as a condition to the transfer. If any
Selling Group Stockholder receives any bona fide offer from a third party to
purchase any shares of stock covered by the Stockholders' Agreement, such
stockholder shall provide notice of such offer to AOL and shall not sell any
stock of the Company unless the terms of the offer are extended to AOL. See
Note P.
If Provident or any affiliate of Provident that holds shares of the
Company ("Provident Group Holder") intends to engage in a "Change of Control
Transaction," as defined in the Stockholders' Agreement, such entity must
provide AOL with 30 days prior written notice of such transaction and may not
consummate such transaction unless the acquiror agrees to acquire all of the
stock owned by AOL under the terms and procedures set forth in the Stockholders'
Agreement.
The Stockholders' Agreement terminates upon: (i) an underwritten public
offering by the Company which generates net cash proceeds of $25,000 and has a
pre-offering market capitalization of not less than $150,000; or (ii) with
respect to a particular party to such agreement, upon the transfer of all of the
stock owned by such stockholder.
Note K - Stockholders' Equity and Dividend Restrictions
During 1998, the Company 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. As a result of AOL's desire to be the most senior security upon
investment, see Note I, the Company agreed to give HPS an additional 2.5%
interest upon conversion of their note to common stock. As a result, the
inducement was valued at $953,000 and was charged to operations with a
corresponding credit to additional paid in capital.
The Company granted HPS certain demand and piggyback registration
rights with respect to the Common Stock issued to HPS. Under the terms of such
agreement, when the Company proposes to register any shares of Common Stock
F-17
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
under the Securities Act, other than in connection with an initial public
offering or a registration statement on Form S-4, Form S-8 or other form not
permitting the registration by selling shareholders, the Company is required to
give notice to HPS or its assignee or transferee of the proposed registration
and the right to include their shares of Common Stock ("HPS Common Shares") in
such registration (a "piggyback registration"), subject to certain conditions,
including the right of the underwriter of such offering to limit the number of
HPS Common Shares sold by the holders if the underwriter advised the Company and
such holders that the number of HPS Common Shares required to be included by
such holders would interfere with the successful marketing of the shares
offered. The holders of the HPS Common Shares may also require the Company to
file up to two registration statements ("demand registrations") under the
Securities Act with respect to the HPS Common Shares, subject to certain
conditions including the requirement that the Company qualifies to use Form S-3.
The Company shall not be required to register any HPS Common Shares if such
shares are eligible for sale pursuant to Rule 144, without regard to volume
limitations.
During 1998, the Board of Directors declared a 14-for-1 stock dividend
of the Company's common stock.
The Company has entered into the Registration Rights Agreement with
Provident pursuant to which Provident can require the Company to register up to
50% of the Common Stock held by Provident in connection with the Company's
public offering and the balance of such shares one year thereafter. The
registration rights granted in the Provident Rights Agreement are subject to the
priority registration rights granted to HPS and the holders of the Series A and
B Preferred Stock and to be granted to the holders of the Series C Preferred
Stock.
Dividend restrictions: Dividends paid by the Company to holders of the
Company's Common Stock are subject to restrictions set for in the Certificate of
Designation related to the Series A and Series B Convertible Preferred Stock and
subject to restrictions set for in the Certificate of Designation related to the
Series C Convertible Preferred Stock once issued. The Company has not nor does
it anticipate paying a cash dividend in the foreseeable future.
Series C Preferred Convertible Stock: The Company has authorized the
issuance of up to 3,420,491 shares of Series C Preferred Stock which were
offered pursuant to a private placement offering. On March 30, 1999, 1,526,412
of these authorized shares were issued at $5.77 per share, for an aggregate
purchase price of $8.8 million
See Note P - Subsequent Events for additional information.
F-18
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Note L - Stock Options and Warrants
Options: During 1998, the Company adopted, and Provident, as the sole
shareholder of the Company approved, the 1998 Stock Option Plan (the "Stock
Option Plan") which provides for the award of options and stock purchase rights
(collectively "Awards") up to an aggregate of 2,900,000 shares, of which
1,956,500 shares have been granted as of December 31, 1998. Of the options
granted, options to purchase 991,000, 309,000, 50,000 and 50,000 shares were
granted to Mr. Ashker, Mr. Clemens, Mr. Beausang and Mr. Gillin, respectively,
and are immediately exercisable at a price of $1.77 per share having a term of
10 years. 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.
Options granted under the Stock Option Plan may be options intended to
qualify under Section 422 of the Code, as amended, ("Incentive Stock Options")
or options not intended to qualify ("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.
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, the Company or any parent or
subsidiary of the Company, terminates for any reason (excluding death and
disability) but not later than the expiration date whether or not such
termination is voluntary. The options granted under the stock option plan vest
either immediately or over a two or three year period. 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.
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
F-19
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
(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 Stock Option
Plan, the SPRs shall include a stock repurchase option exercisable by the
Company if the employee is terminated, voluntarily or involuntarily, following
the receipt of the restricted stock.
The Board of Directors of the Company 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 Code.
The following table lists stock options granted and outstanding for all
plans:
<TABLE>
<CAPTION>
Weighted Average
Number Exercise Weighted Average
of Shares Price Fair 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
</TABLE>
The remaining contractual life for all options granted and outstanding
is approximately 9.5 years.
F-20
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
The Company has elected to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees". Compensation cost for stock
options, if any, is measured as the excess of the fair value 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 performance share plans is
recorded based upon the current market value of the Company's stock at the end
of each period. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation" for employees and employee-directors as defined in
SFAS No. 123. Accordingly, no compensation cost has been recognized for stock
option and warrant grants that occurred in 1998. Had compensation cost for the
Company's stock option grants to employees and employee-directors been
determined based on the fair value at the date of grants in accordance with the
provisions of SFAS No. 123, the Company would have amortized the cost over the
vesting period of the option. The Company's 1998 net loss and net loss per
common share would have been reduced to the following pro forma amounts:
As Reported Pro Forma
----------- ---------
Net loss applicable to common shareholders ($4,896) ($5,492)
Net loss per share applicable to common shares
Basic and Diluted ($0.35) ($0.39)
The fair value of the options and warrants granted during 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 5 years, an expected stock volatility of 1%, a risk free
interest rate of 4.48% and a weighted average fair value of $0.38.
Warrants: The Company issued warrants to AOL as described in Note D.
In accordance with the terms of a consulting agreement with Lynx
Capital Group, LLC ("Lynx") which provides for the payment of monthly fees,
travel expenses, Provident issued warrants to purchase 400,000 shares of
Provident's common stock with an estimated value of $663 which has been
accounted for as a capital contribution from Provident. Of this amount, $290 has
been recognized as prepaid interactive marketing expense and $373 as other
general and administrative expense.
The Company has agreed to grant warrants to purchase 50,000 shares of
Common Stock at approximately $3.30 to Robinson, Lerer and Montgomery ("RLM"), a
public relations firm engaged by the Company, as part compensation for services
to be rendered to the Company in the future. The warrants were valued at $94,
and have been accounted for as other prepaid assets of which $40 was charged to
other general and administrative expense during 1998.
F-21
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Additionally, the Company has agreed to grant to ING Barring Furman
Seltz LLC warrants to acquire up to 5% of the total number of shares issued in
an investor financing, as defined in the investment banking services agreement.
Note M - Commitments and Contingencies
Commitments: The Company has various agreements with AOL, CNet and
Lycos with future commitments described in notes D, E and F.
The Company leases office space, data processing and other equipment
from PILIC through March 31, 1999 at which time the lease will need to be
renegotiated. Lease payments to PILIC approximated $64 in 1998.
Litigation: The Company may be 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 the Company.
Government Legislation and Regulation: The Company's 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 reform health care. Proposals on
national health care reform have been under consideration that could
significantly change the way healthcare is financed and provided. The effects on
the Company of comprehensive healthcare reforms, which, if enacted, may have a
material adverse impact upon the ability of the Company to profitably engage in
the sale of accident and health insurance products.
Note N - Related Party Transactions
Lynx Capital Group, LLC ("LCG") beneficially owns 5.7% (including
options) of the outstanding shares of Provident. The Manager of LCG is also
serving as the Chief Executive Officer and President of the Company and is also
a Director of Provident. LCG is party to a consulting agreement with Provident
whereby LCG provided various services to the Company and paid $23 in fees and
expenses and issued options to purchase 400,000 shares of Provident common
stock.
A Director of the Company and a former Director of Provident, is a
partner in a law firm which provides legal services to the Company which
approximated $82 in 1998.
A technology consulting firm owned by the Company's former Chief
Information Systems Officer provided information systems consulting services to
the Company approximating $690 in 1998.
F-22
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Note O - Changes in Web Alliance
On March 29, 1999, the Company and AOL entered into the Second
Amendment (the "Second Amendment") to the Amended and Restated Interactive
Marketing Agreement with AOL, dated as of February 1, 1998, which provides that
the Company will be the exclusive third-party direct marketer of managed-care
and indemnity health insurance policies, dental insurance, vision insurance,
prescription coverage, critical care insurance and long-term care insurance
coverage and, subject to certain restrictions, the non-exclusive third party
marketer of life and long-term disability (collectively, the "Products") for
individuals and groups of less than fifty individuals in the United States via
AOL's online service. The Second Amendment provides HealthAxis with access to
CompuServe and Netscape Netcenter, which the Company believes will expand its
marketing scope. The Second Amendment also provides for a four month "wind down"
period in the event the Company elects not to exercise its option to renew its
agreement with AOL for an additional term. In the event of nonrenewal, AOL has
agreed to continue to market and support HealthAxis on a non-exclusive basis
until May 31, 2000. In the event the Company elects to renew its agreement with
AOL for a second term, the Second Amendment extends the renewal term from 24 to
28 months beginning on February 1, 2000 and ending on May 31, 2002. The Second
Amendment also modifies the payment schedule due to AOL for the renewal term
from a single payment of $33.5 million on February 1, 2000 to a payment schedule
of:
$5.0 million due on February 1, 2000;
$5.9 million due on May 1, 2000;
$5.9 million due on August 1, 2000;
$8.4 million due on January 1, 2001; and
$8.3 million due on April 1, 2001.
In the event HealthAxis fails to make any of the above payments, when due
pursuant to the above schedule, the remaining payments shall become due and
payable. Finally, the Second Amendment provides for certain modifications and
enhancements with regard to the placement of the Company's impressions on AOL.
AOL agreed to amend the terms of the Series B Preferred Stock in
connection with the private placement offering. Additionally, AOL verbally
acknowledged that HealthAxis has met all of the requirements regarding the
"official launch" as of March 29, 1999.
F-23
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements - (Continued)
Note P - Subsequent Events
On March 24, 1999, PILIC, a subsidiary of Provident and holder of all
of the Series A Preferred Stock of the Company, granted Provident the option to
purchase all of the Company's Series A Preferred Stock owned by it at a purchase
price of $4.71 per share plus 8% interest calculated quarterly and compounded
annually from March 24, 1999 to the date of purchase. The option expires on
December 17, 2003.
On March 30, 1999, the Company issued 1,526,412 shares of Series C
Preferred Stock at $5.77 per share, for an aggregate purchase price of $8.8
million. In connection with the issuance of Series C Preferred Stock (see Note
B, J and K), HealthAxis amended the terms of the Series A and Series B Preferred
Stock to, among other things, provide for the preference of Series C Preferred
Stock over the Series A Preferred Stock, to clarify the priorities of the Series
A, B and C Preferred Stock in the event of a liquidation, to delete the dividend
currently payable on the Series A and B Preferred Stock, to delete the optional
redemption provision related to the Series A Preferred Stock, to revise the
optional and mandatory conversion provisions applicable to the Series A and B
Preferred Stock and to revise the definition of excluded Shares applicable to
the Series A Preferred Stock. As a result of the elimination of the optional
redemption provision of the Series A Preferred Stock, the reported amount of
such preferred will be classified as a component of stockholders' equity
effective March 30, 1999. Additionally, AOL has amended the definition of a
Trigger Event, so that HealthAxis must raise an aggregate of $10.5 million by
May 31, 1999.
F-24
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
September 30
1999
------------
(In thousands, except share and per share amounts)
Assets
Cash and cash equivalents $ 6,891
Prepaid interactive marketing expense 5,657
Other assets 365
--------
Total current assets 12,913
--------
Equipment and software, net 3,178
Goodwill, net 7,673
Alliance agreements, net 470
--------
Total assets $ 24,234
========
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 2,882
--------
Total Current Liabilities 2,882
--------
Commitments
Preferred Stock Series B $.13 cumulative, redeemable
And convertible : 625,529 issued and outstanding 2,804
Stockholders' Equity
Preferred Stock, $1 par value: 5,500,000 shares authorized
for all issues including series A, B, C and D
Series A Preferred, 545,916 issued and outstanding 546
Series C Preferred, 1,526,412 issued and outstanding 1,526
Series D Preferred, 333,334 issued and outstanding 333
Common Stock,
No par value: authorized 40,000,000,
16,172,760 and 16,738,811 shares issued and outstanding 15,426
Additional Paid-in-capital 23,848
Deficit (23,131)
--------
Total Stockholders' equity 18,548
--------
Total Liabilities and Stockholders' Equity $ 24,234
========
See notes to consolidated financial statements.
F-25
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1998 1999
---- ----
(Dollars in thousands, except share and per share data)
Revenue $ -- $ 125
----------- -----------
<S> <C> <C>
Expenses:
Operating and development 273 3,922
Sales and marketing 1,425 12,100
General and administrative 1,355 2,542
Amortization of Goodwill 0 108
----------- -----------
Total Expenses 3,053 18,672
----------- -----------
Operating (Loss) (3,053) (18,547)
----------- -----------
Interest and Other Income -- 212
Interest Expense (122) (6)
----------- -----------
Net (Loss) (3,175) (18,341)
Dividends on preferred stock -- (129)
----------- -----------
Net (Loss) applicable to common stock $ (3,175) $ (18,470)
=========== ===========
(Loss) per share of common stock
Basic and diluted $ (0.24) $ (1.12)
Weighted average common shares and equivalents
used in computing (loss) per share
Basic and diluted 13,125,000 16,478,839
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
(Dollars 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, January 1, 1999 - $ - - $ - - $ - 16,172,760 $9,060
Additional contribution from
Parent company 87
Shares issued, net of issuance costs 1,526,412 1,526 333,334 333 516,051 6,190
Warrants issued for services
Options exercised 50,000 89
Accretion of Preferred stock
Push down of goodwill from
Parent company
Reclassification of Preferred stock 545,916 546
Net loss
------- ---- --------- ------- ------- ----- ---------- --------
545,916 $546 1,526,412 $ 1,526 333,334 $ 333 16,738,811 $ 15,426
======= ==== ========= ======= ======= ===== ========== ========
</TABLE>
See notes to consolidated financial statements.
[RESTUBED TABLE FOR ABOVE]
<TABLE>
<CAPTION>
Additional Retained
Paid-In Earnings
Capital (Deficit) Total
---------- ---------- -----
<S> <C> <C> <C>
Balance, January 1, 1999 $ 3,482 $(4,790) $ 7,752
Additional contribution from
Parent company 87
Shares issued, net of issuance costs 10,224 18,273
Warrants issued for services 637 637
Options exercised 89
Accretion of Preferred stock (129) (129)
Push down of goodwill from
Parent company 7,781 7,781
Reclassification of Preferred stock 1,853 2,399
Net loss (18,341) (18,341)
------- --------- --------
$23,848 $ (23,131) $ 18,548
======= ========== ========
</TABLE>
F-27
<PAGE>
HealthAxis.com, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1998 1999
---------- --------
<S> <C> <C>
Cash flows from operating activities
Net (loss) $ (3,175) $(18,341)
Adjustments to reconcile net (loss)
to net cash provided by (used in) operating activities
Depreciation 0 617
Amortization of Prepaid Interactive Marketing 844 9,367
Amortization of Prepaid Alliance Agreements 0 119
Amortization of Goodwill 0 108
Non-Employee Stock Options 0 48
Decrease (increase) in
Prepaid Interactive Agreements (6,450) (3,620)
Amounts Due to affiliates 447 (64)
Unearned E-Commerce Revenue and Other Assets 0 (266)
Accounts Payable and Accrued Expenses 1,917 1,098
-------- --------
Net cash provided by (used in) operating activities (6,417) (10,934)
-------- --------
Cash flows from investing activities
Purchases of equipment and software (1,090) (2,262)
-------- --------
Cash flows from financing activities
Issuance of common stock 5,107 6,281
Issuance of preferred stock 2,400 12,807
Costs incurred for issuing stock 0 (725)
-------- --------
Net cash from financing activities 7,507 18,363
-------- --------
Increase (decrease) in cash and cash equivalents -- 5,167
Cash and cash equivalents, beginning of period -- 1,724
-------- --------
Cash and cash equivalents, end of period $ -- $ 6,891
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 106 $ 6
Dividends on Preferred Stock $ 129
Non-cash financing activities:
Issuance of warrants in connection with issuance of preferred stock $ 1,135 $ 278
Issuance of warrants in connection with alliance agreements $ 589
</TABLE>
See notes to the consolidated financial statements
F-28
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
Unaudited Financial Information
The financial statements with respect to the nine months ended September 30,
1998 and 1999 are unaudited; pursuant to the rules and 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 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 nine month period ended September
30, 1999, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto contained elsewhere herein for the period
from inception (March 26, 1998) through December 31, 1998
Note A - General
HealthAxis.com Inc. ("HealthAxis") was incorporated on March 26, 1998 to sell
health insurance products online. HealthAxis seeks to utilize its exclusive
distribution agreements with America Online, Inc. ("AOL"), Lycos, Inc. ("Lycos")
and CNet, Inc., including Snap.com, ("CNet") ("Distribution Partners"), to
create a distinct branded identity for its online health insurance "store."
HealthAxis provides convenient, around-the-clock, online access to health
insurance products.
HealthAxis is a subsidiary of HealthAxis, Inc. ("HAI") (formerly Provident
American Corporation), which as of September 30, 1999 owned 79.8% of HealthAxis'
capital stock. HAI and HealthAxis were in the process of negotiating the terms
of a merger whereby HealthAxis would be merged with and into HealthAxis
Acquisition Corp., a wholly-owned subsidiary of HAI, and HAI would be the
surviving publicly-traded company, with HealthAxis being a wholly owned
subsidiary.
On October 28, 1999, HealthAxis announced that discussions relating to the
merger with its parent had been put on hold pending the outcome of discussions
with an undisclosed third party regarding a potential business combination. On
December 7, 1999 HealthAxis announced that it and Insurdata Incorporated
("Insurdata"), a subsidiary of UICI, Inc. had signed a definitive agreement to
merge. In a separate announcement HAI announced plans to move forward with its
original plan to merge with HealthAxis. The merger of HealthAxis and Insurdata
was consummated on January 7, 2000 and will be accounted for under the purchase
method in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations".
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 will merge
with HealthAxis. Upon consummation of the reorganization transactions,
HealthAxis shareholders, exclusive of HAI, will receive 1.127 shares of HAI's
common stock for each share of HealthAxis common stock outstanding. The merger
will be accounted for as a recapitalization of HealthAxis in which the shares
issued will be recorded at the historical cost basis of each shareholder.
See Note P- Subsequent Events for more information that relates to the mergers
discussed above.
The financial statements have been restated to reflect any adjustments as a
result of the application of "push-down" accounting in order to conform with
Securities and Exchange Commission rules and regulations.
F-29
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
Note B - Losses and Uncertainties
HealthAxis has incurred costs to develop and enhance its technology, to create
and introduce its website and to establish marketing, insurance carrier and
claims administration relationships. As a result, HealthAxis has incurred
significant losses and expects to continue to incur losses on a quarterly and
annual basis at least through 2000. HealthAxis currently intends to
substantially increase its operating expenses as a result of its strategic
alliances, to fund increased interactive sales and marketing, to enhance its
existing web site and to fund increased salaries and other costs. Consequently,
HealthAxis expects negative cash flow from operations to continue for the
foreseeable future as it continues to develop and market its Internet-based
health and life insurance business.
During 1999, HealthAxis completed a private offering of approximately $8,800 of
HealthAxis Series C Preferred Stock on March 30, 1999 (described in Note H),
approximately $6,200 of HealthAxis Common Stock (described in Note J) on May 13,
1999, and approximately $4,000 of HealthAxis Series D Preferred Stock (described
in Note I) on July 12, 1999. The net proceeds have been used to and are
anticipated to be used to fund amounts due to its Distribution Partners and an
Advertising Agreement with Yahoo! through the end of fiscal 1999 with the
balance intended to be used by HealthAxis for its working capital and other
general purposes. HealthAxis believes that the above net proceeds together with
its current cash and cash equivalents and the private placement described in
Note P will be sufficient to fund HealthAxis' current operations through the end
of the year 2000. However, subsequent equity or debt financings will be
necessary to enable HealthAxis to fund amounts due to AOL in the event that
HealthAxis elects to exercise its option to renew its agreement with AOL,
payments to Lycos, CNet and Snap, future operations and continue to implement
its current business strategies.
Note C - Changes in Web Alliances
On March 29, 1999, HealthAxis and AOL entered into the Second Amendment (the
"Second Amendment") to the Amended and Restated Interactive Marketing Agreement
with AOL, dated as of February 1, 1998, which provides that HealthAxis will be
the exclusive third-party direct marketer of managed-care and indemnity health
insurance policies, dental insurance, vision insurance, prescription coverage,
critical care insurance and long-term care insurance coverage and, subject to
certain restrictions, the non-exclusive third party marketer of life and
long-term disability (collectively, the "Products") for individuals and groups
of less than fifty individuals in the United States via AOL's online service.
The Second Amendment provides HealthAxis with access to CompuServe and Netscape
Netcenter, which HealthAxis believes will expand its marketing scope. The Second
Amendment also provides for a four month "wind down" period in the event
HealthAxis elects not to exercise its option to renew its agreement with AOL for
an additional term. In the event of nonrenewal, AOL has agreed to continue to
market and support HealthAxis on a non-exclusive basis until May 31, 2000. In
the event HealthAxis elects to renew its agreement with AOL for a second term,
the Second Amendment extends the renewal term from 24 to 28 months beginning on
February 1, 2000 and ending on May 31, 2002. The Second Amendment also modifies
the payment schedule due to AOL for the renewal term from a single payment of
$33.5 million on February 1, 2000 to a payment schedule of:
$5.0 million due on February 1, 2000;
$5.9 million due on May 1, 2000;
$5.9 million due on August 1, 2000;
$8.4 million due on January 1, 2001; and
$8.3 million due on April 1, 2001.
In the event HealthAxis fails to make any of the above payments, when due
pursuant to the above schedule, the remaining payments shall become due and
payable. Finally, the Second Amendment provides for certain modifications and
enhancements with regard to the placement of HealthAxis' impressions on AOL.
On April 14, 1999, HealthAxis and CNet amended the Promotion Agreement dated
June 14, 1998, as amended on November 13, 1998 (the "Amended Agreement") to,
among other things, revise the current payment schedule, to remove Snap as a
F-30
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
party to the agreement and enter into a separate agreement with Snap, as CNet
and Snap are now separate entities. The Amended Agreement and the Snap Agreement
extends the termination date of the initial term of the agreement to August 31,
2000; allocates the total number of monthly impressions between Snap and CNet;
provides CNet and Snap with the ability to immediately terminate the Amended
Agreement and Snap Agreement for nonpayment of fees due or to charge interest on
all unpaid amounts at a rate of 1-1/2% per month; revises the exclusivity
provisions of the Snap Agreement; and revises the payment schedule applicable to
the optional term.
Note D - HealthAxis Warrants Issued and Commitments in Connection with Alliance
Agreements
During 1999, in connection with its amended Carrier Partner Agreement with UICI,
HealthAxis agreed to issue UICI a warrant to purchase 150,000 shares of
HealthAxis Common Stock at an exercise price of $4.40 per share with a five-year
term. This warrant has been valued at $505, recorded as prepaid alliance
agreement expense included and will be amortized over the life of the agreement
beginning July 1, 1999. In the event AOL exercises its redemption rights set
forth in the Certificate of Designation related to the Series B Preferred Stock,
UICI shall receive a warrant to purchase an additional 200,000 shares of
HealthAxis' Common Stock at an exercise price of $3.00 per share.
In May 1999, HealthAxis entered into a Strategic Alliance Agreement with First
Health Group Corporation ("First Health"). In conjunction with this agreement,
HealthAxis issued a warrant to First Health for 50,000 shares of HealthAxis
Common Stock at $20.00 per share with a three-year term. Of that amount,
warrants to purchase 10,000 shares are immediately exercisable, have been valued
at $84 and recorded as prepaid alliance agreement expense and included in other
assets. The remaining warrants become exercisable at the rate of 10,000 warrants
upon the signing of each sub-client agreement with each carrier, until the
fourth carrier is signed. In addition, if the average daily closing price of
HealthAxis' Common Stock is $50.00 per share for a period of 60 consecutive
calendar days and if no sub-client agreement has been executed, 10,000 shares
subject to this warrant which are not exercisable shall become exercisable in
full.
In July 1999, HealthAxis issued a warrant for 75,000 shares of HealthAxis Series
D Preferred Stock at $14.50 per share with a five-year term in conjunction the
sale of the Series D Preferred Stock to Intel Corporation. Half of these
warrants become exercisable in January 2000, with the remaining warrants
becoming exercisable in July 2000.
Note E - Prepaid Interactive Marketing Expense
During 1999, HealthAxis made payments aggregating $3,620 to AOL, Lycos, CNet,
Snap and Yahoo!, which has been recorded as prepaid interactive marketing
expense. For the nine months ended September 30, 1999, included in sales and
marketing expense is amortization of prepaid interactive marketing expense of
$9,367 consisting of exclusivity expense and impression advertising of $2,390
and $6,977, respectively.
Note F - Series A Cumulative Convertible Preferred Stock
During 1998, HealthAxis authorized 953,980 shares and issued 405,886 shares of
Series A Cumulative Convertible Preferred Stock, par value $1.00 per share (the
"Series A Preferred Stock") to Provident Indemnity Life Insurance Company
("PILIC"), a former subsidiary of HAI, for aggregate consideration of $2,400, or
$5.91 per share. Additionally, HealthAxis issued 140,030 shares of its Series A
Preferred Stock to PILIC pursuant to the price adjustment provisions of a Stock
Purchase Agreement between HealthAxis and PILIC.
As a result of an amendment to the Series A preferred stock agreement in 1999,
holders of the Series A Preferred Stock are entitled to receive such dividends
as declared by the Board of Directors of HealthAxis in its discretion. Dividends
on each share of Series A Preferred Stock, if and when declared, shall accrue
from the applicable date of declaration without interest and shall be paid prior
to any dividends, distributions or redemptions to the holders of Common Stock or
any Series A Junior Stock other than repurchase by HealthAxis of share of Common
Stock from any employee thereof upon cessation of their employment, which shall
under all circumstances be permitted.
F-31
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
In the event of any dissolution, liquidation or winding up of the affairs of
HealthAxis, whether voluntary or other wise, after payment or provision for
payment of the debts and other liabilities of HealthAxis and all amounts owed to
the Series B and Series C 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 agreement includes additional provisions related to liquidation
and the order of payment as it relates to each series of Preferred Stock.
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, 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
of HealthAxis.
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.
HealthAxis is required to notify the Series A Preferred shareholders upon the
registration of Common Stock under the Securities Act of 1933 and subject to
certain limitations include their shares of common stock upon conversion in such
registration.
In conjunction with the issuance authorization and issuance of Series C
Preferred Stock, HealthAxis amended certain terms and provisions of the Series A
Preferred Stock (See Note H). The Preferred Stock agreement has been amended in
1999 to eliminate the mandatory redemption provisions as a result the Series A
Preferred Stock has been reclassified to the Stockholders' equity section at
September 30, 1999.
On November 30, 1999, in conjunction with the sale of PILIC to AHC Acquisition
Corporation ("AHC"), the Series A Preferred Stock was sold to HAI. AHC is owned
by Alvin Clemens who is Chairman of HealthAxis, HAI, AHC Acquisition Corporation
and PILIC. Also on November 30, 1999, HAI transferred at book value, 100,000
shares of Series A Preferred Stock to AHC Acquisition Corporation in connection
with the sale of PILIC.
In conjunction with the merger, all of series A, B, C and D Preferred Stock will
be converted into Common Stock of HAI. See Note P for additional information
Note G - Series B Cumulative Convertible Preferred Stock
During 1998, HealthAxis issued 625,529 shares of Series B Cumulative Convertible
Preferred Stock, par value $1.00 per share (the "Series B 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 the IM Agreement.
Holders of the Series B Preferred Stock are entitled to vote on all matters as
to which holders of Common Stock are entitled to vote. The holders of each share
of Series B Preferred Stock are entitled to the number of votes equal to the
nearest whole number of shares of Common Stock into which the holder's Series B
Preferred Stock is convertible. Generally, the holders of Series B Preferred
Stock shall vote together with the holders of Common Stock and the Series A
Preferred Stock as one class.
As a result of an amendment to the Preferred Stock agreement 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, out of funds legally
available for that purpose, provided that, such dividend if payable in cash
shall be at least equal to $0.13 per share unless dividends per share in excess
F-32
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
of $0.13 per share are paid to any other holder of capital stock of HealthAxis
in which event the dividend payable to each holder of the Series B Preferred
Stock shall equal $0.13 per share plus an amount equal to such holder's pro rata
portion of any dividend declared by the Board of Directors of HealthAxis and
payable to all other holders of capital stock in excess of $0.13 per share.
Dividends on each share of Series B Preferred Stock, if and when declared, shall
accrue from the applicable date of declaration so that if at any time accrued
dividends upon the Series B Preferred Stock shall not have been paid, the amount
and deficiency in such dividends shall be fully paid (but without interest) with
respect to dividends which have been declared on the shares of the Series B
Preferred Stock or the Series B Junior Stock and a sum sufficient for the
payment thereof shall have been set apart for such payment, before any other
distribution ordered or made shares of Common Stock or any Series B Junior
Stock, and before sum or sums shall be set aside for or applied to the purchase
or redemption of any shares of Common Stock or the Series B Junior Stock, other
than the repurchase by HealthAxis of shares of Common Stock from any employee
thereof upon cessation of their employment, which shall under all circumstances
be permitted notwithstanding the foregoing.
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 and Series C 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, Series B and Series C Preferred Stock, the Series A
Preferred Stock and the Common Stock will be entitled to receive on a pro rata
basis the remaining assets of HealthAxis available for distribution to its
shareholders. The relative value of a share of Series A, Series B and Series C
Preferred Stock for this purpose shall be determined on an as converted basis.
The consolidation or merger of 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, 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
of HealthAxis.
Holders of the Series B Preferred Stock have the option, exercisable upon
request of the holders of 51% of the outstanding share of Series B Preferred
Stock within six months after the later of the occurrence of a Trigger Event as
defined in the agreement 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 tot he Company
pursuant to the notice of optional redemption provision contained in the
Certificate of Designation related tot he Series B Preferred Stock.
Shares of Series B Preferred Stock are convertible at any time, at the option of
the holder, into 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 common stock as defined
in the preferred stock agreement.
All of the outstanding shares of Series B Preferred Stock shall be converted
into a number of shares of Common Stock at the Conversion Price (as defined
above) upon the consummation of an underwritten public offering of the Common
Stock of HealthAxis at a net offering price per share that represents a
F-33
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
pre-offering market capitalization of not less than $200,000 and aggregate
proceeds (net of underwriting commissions and discounts) to HealthAxis of not
less than $25,000.
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 a
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.
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.
In conjunction with the issuance authorization and issuance of Series C
Preferred Stock, HealthAxis amended certain terms and provisions of the Series B
Preferred Stock (See Note H).
In conjunction with the merger, all of series A, B, C and D Preferred Stock will
be converted into Common Stock of HAI. See Note P for additional information
Note H - Series C Convertible Preferred Stock
On March 30, 1999, HealthAxis issued 1,526,412 shares of Series C Preferred
Stock at $5.77 per share, for an aggregate purchase price of $8.8 million, less
issuance costs of $684 and the value of HealthAxis warrants issued in connection
with the issuance of HealthAxis Series C Preferred Stock to certain professional
services firms valued at $278.
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 B
Preferred Stock is convertible. Generally, the holders of Series C Preferred
Stock shall vote together with the holders of Common Stock, the Series A
Preferred Stock and the Series B Preferred stock as one class.
Holders of the Series C Preferred Stock will be entitled to dividends accruing
from the date of issue, is such dividends are declared by the Board of Directors
out of funds legally available therefor. If any accrued dividends on the Series
C Preferred Stock have not been paid or set apart for payment, no dividends or
other distributions may be declared and paid or set apart for payment upon any
common stock, no par value per share of HealthAxis (the "Common Stock"), or any
series of preferred stock of HealthAxis ("the Preferred Stock") with a dividend
preference junior to the Series C Preferred Stock ("the Series C Junior Stock").
In the event HealthAxis proposes to pay any dividend upon the shares of Common
Stock or any class of Series C Junior Stock, dividends shall have been declared
on the share of Series C Preferred Stock and a sum paid to the holders thereof
or a sum sufficient for the payment thereof shall have been set apart for such
payment, which sum equals a dividend per share of Series C Preferred Stock which
is not less than the proposed dividend per share to be paid on the Common Stock
or such other Series C Junior Stock, as the case may be (determined, in the case
of the Series C Preferred Stock, on an as converted basis). HealthAxis does not
anticipate paying any dividends on its Series C Preferred Stock in the
foreseeable future.
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, 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 Sock, 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 Series C Junior Stock.
If after payment or provision for payment of the debts and other liabilities of
HealthAxis, the full amount due to holders of the Series B Preferred Stock and
distribution to the holders of Series C and the Series A Preferred Stock the
full amount of their preference, holders of the series C Preferred Stock shall
F-34
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
be entitled to share on a pro rata basis the remaining assets of HealthAxis
available for distribution to shareholders with holders of the Common Stock and
the Series A and Series B Preferred Stock. The relative value of a share of
Series A, Series B and Series C Preferred Stock for this purpose shall be
determined on an as converted basis.
The consolidation or merger of 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, 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
of HealthAxis.
The Series C Preferred Stock is not subject to any mandatory redemption, sinking
fund or other similar provisions.
Each share of Series C Preferred Stock is convertible at any time at the option
of the holder into a number of shares of fully-paid and non-assessable share of
Common Stock equal to the Series C Offering Price per share by the Series C
Conversion Price (as defined below). Each share of Series C Preferred Stock
shall be converted immediately upon the consummation of an underwritten initial
public offering of Common Stock at a net offering price per share that
represents a pre-offering market capitalization of not less than $200.0 million
and aggregate proceeds (net of underwriting commissions and discounts) to
HealthAxis of not less than $25.0 million ("a Series C Qualified Financing").
The Series C Conversion Price on the Series C Preferred Stock shall be $5.77 per
share subject to adjustment from time to time in the event of: (i) the issuance
of Common Stock as a dividend or distribution on the Common Stock; (ii) the
combination, subdivision or reclassification of the Common Stock; (iii) the
distribution to all holders of Common Stock of the evidences of HealthAxis'
indebtedness or assets; or (iv) the sale of Common Stock at a price per share,
or the issuance of options, warrants or convertible securities with an exercise
or conversion price per share, less than Series C Conversion Price. No
fractional share will be issued upon conversion, but any fractions will be
adjusted in cash on the basis of the then current market price of the Common
Stock. Payment of accumulated and unpaid dividends will be made upon conversion
to the extent of legally available funds as prescribed by statute.
All of the outstanding shares of Series C 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 $200.0 million and aggregate proceeds to
HealthAxis of not less than $25.0 million or (ii) a Qualified Merger.
In conjunction with the merger, all of series A, B, C and D Preferred Stock will
be converted into Common Stock of HAI. See Note P for additional information
Note I - Series D Cumulative Convertible Preferred Stock
On July 12, 1999, HealthAxis issued 333,334 shares of HealthAxis Series D
Preferred Stock to Intel Corp at $12 per share 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 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 B
Preferred Stock is convertible. Generally, the holders of Series D Preferred
Stock shall vote together with the holders of Common Stock, the Series A
Preferred Stock, the Series B Preferred and the Series C Preferred stock as one
class.
F-35
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
Holders of the Series D Preferred Stock will be entitled to dividends accruing
from the date of issue, if such dividends are declared by the Board of Directors
out of funds legally available therefor. If any accrued dividends on the Series
D Preferred Stock have not been paid or set apart for payment, no dividends or
other distributions may be declared and paid or set apart for payment upon any
common stock, no par value per share of HealthAxis (the "Common Stock") or any
series of preferred stock of HealthAxis (the "Preferred Stock") with a dividend
preference junior to the Series D Preferred Stock (the "Series D Junior Stock").
In the event HealthAxis proposes to pay any dividend upon the shares of Common
Stock or any class of Series D Junior Stock, dividends shall have been declared
on the shares of Series D Preferred Stock and a sum paid to the holders thereof
or a sum sufficient for the payment thereof shall have been set apart for such
payment, which sum equals a dividend per share of Series D Preferred Stock which
is not less than the proposed dividend per share to be paid on the Common Stock
or such other Series D Junior Stock, as the case may be (determined, in the case
of the Series D Preferred Stock, on an as converted basis). HealthAxis does not
anticipate paying any dividends on its Series D Preferred Stock in the
foreseeable future.
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 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 ("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, the Series A Preferred Stock or
Series D Junior Stock.
If after payment or provision for payment of the debts and other liabilities of
HealthAxis, the full amount due to holders of the Series B, Series C and Series
D Preferred Stock and the distribution to the holders of the Series A Preferred
Stock the full amount of their preference, holders of the Series D Preferred
Stock shall be entitled to share on a pro rata basis the remaining assets of
HealthAxis available for distribution to shareholders with holders of the Common
Stock and the Series A, Series B and Series C Preferred Stock. The relative
value of a share of Series A, Series B, Series C and Series D Preferred Stock
for this purpose shall be determined on an as converted basis.
The consolidation or merger of 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, 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
of HealthAxis.
The Series D Preferred Stock is not subject to any mandatory redemption, sinking
fund or other similar provisions.
Each share of Series D Preferred Stock is convertible at any time at the option
of the holder into a number of shares of fully-paid and non-assessable shares of
Common Stock equal to the quotient obtained by dividing: (i) the Offering Price
per share by; (ii) the Series D Conversion Price (as defined below).
The Series D Conversion Price on the Series D Preferred Stock shall be the
Offering Price of $12.00 per share subject to adjustment from time to time in
the event of: (i) the issuance of Common Stock as a dividend or distribution on
the Common Stock; (ii) the combination, subdivision or reclassification of the
Common Stock; (iii) the distribution to all holders of Common Stock of evidences
of HealthAxis' indebtedness or assets (including securities, but excluding cash
dividends or distributions paid out of earned surplus); or (iv) the sale of
Common Stock at a price per share, or the issuance of options, warrants or
convertible securities with an exercise or conversion price per share, less than
the then Series D Conversion Price, except for Excluded Shares. No adjustment in
the Conversion Price will be required until cumulative adjustments require an
adjustment of at least 1-1/2% in the Conversion Price. No fractional shares will
be issued upon conversion, but any fractions will be adjusted in cash on the
basis of the then current market price of the Common Stock. Payment of
accumulated and unpaid dividends will be made upon conversion to the extent of
legally available funds as prescribed by statute.
F-36
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
All of the outstanding shares of Series D Preferred Stock will be converted into
a number of shares of Common stock at the Conversion Price upon the earlier of:
(i) the consummation of a underwritten public offering of the Common Stock of
HealthAxis at a net offering price per share that represents a pre-offering
market capitalization of not less than $200.0 million and aggregate proceeds
(net of underwriting commissions and discounts) to HealthAxis of not less than
$25.0 million or (ii) a Qualified Merger.
In conjunction with the merger, all of series A, B, C and D Preferred Stock will
be converted into Common Stock of HAI. See Note P for additional information
Note J - Issuance of Common Stock
On May 13, 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 $6,192, less issuance costs of $2.
Note K - Stockholders' Equity and Dividend Restrictions
Dividend restrictions: Dividends paid by HealthAxis to holders of HealthAxis'
Common Stock are subject to restrictions set for in the Certificate 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.
Note L - Commitments and Contingencies
Commitments: HealthAxis leases office space, data processing and other equipment
from HAI through November 30, 1999, at which time the lease is on a month to
month basis and is currently being renegotiated. Lease payments to HAI
approximating $0 and $105 were made for the period ended September 30, 1998 and
for the 9 months ended September 30, 1999, respectively. No lease payments were
charged to operations for the period ended September 30, 1998 and were not
deemed to have a material impact on operations.
HealthAxis leases office space in San Francisco, CA whose term ends July 31,
2002. Payments through September 30, 1999 are $9, with payments of $55, $55 and
$32 in 2000, 2001, and 2002, respectively.
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 reform health care. Proposals on national health care
reform have been under consideration that could significantly change the way
healthcare is financed and provided. The effects on HealthAxis of comprehensive
healthcare reforms, which, 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.
Note M - Related Party Transactions
A Director of HealthAxis and a former Director of HAI, is a partner in a law
firm which provides legal services to HealthAxis which approximated $58 and $64
for the nine month periods ended September 30, 1998 and 1999, respectively.
A technology consulting firm owned by HealthAxis' former Chief Information
Systems Officer provided information systems consulting services to HealthAxis
approximating $0 and $794 for the nine month periods ended September 30 1998 and
1999, respectively.
F-37
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
Note N - Yahoo! Promotional Agreement
HealthAxis' agreement with Yahoo provides that Yahoo will deliver 91,000,000
impressions to direct consumers to HealthAxis' website beginning September 1,
1999 and continuing until January 31, 2000. Under this agreement, a total of
$725 will be paid for the impressions and will be amortized as actual
impressions are utilized.
Note O - Goodwill
On May 13, 1999, HAI entered into a Stock Purchase Agreement for the purchase of
1,415,000 shares of HealthAxis Common Stock from Health Plan Services, Inc.
("HPS") and completed the purchase in November 1999 for $8,203. HAI accounted
for the purchase of the minority interest in accordance with Accounting
Principles Board Opinion 16 ("APB"), "Business Combinations" and subsequently
recorded the excess of the purchase price over the original cost which amounted
to $7,781 as a capital contribution to HealthAxis. In accordance with push-down
accounting, HealthAxis has accounted for the capital contribution as goodwill to
be amortized over 3 years.
Note P - Subsequent Events
Issuance of Common Stock - 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 $2,483. HAI
purchased 133,333 shares in the transaction. The net proceeds will be used for
HealthAxis' working capital and other general corporate purposes, including
marketing.
Merger of Insurdata into HealthAxis.com - On December 7, 1999, HealthAxis and
Insurdata Incorporated, a subsidiary of UICI (NYSE: UCI) 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 48 percent of the newly combined
company. The transaction was consummated on January 7, 2000.
In accordance with the terms of the merger agreement, each outstanding share of
Insurdata 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 merger, UICI received
18,943,678 shares of HealthAxis common stock, the voting trust created by UICI
in connection with the Insurdata merger and described below received 2,439,885
shares of HealthAxis common stock and other shareholders of Insurdata received
424,004 shares of HealthAxis common stock.
Each holder of Insurdata common stock who would be entitled to receive a
fraction of a share of HealthAxis common stock received cash instead of the
fraction of share in an amount determined by multiplying the fraction by $15.00.
Each option to purchase Insurdata common stock under Insurdata's stock option
plans which was outstanding on the date of 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 agreement. The exercise price was also
adjusted based on the exchange ratio.
The merger is intended to be a reorganization under Section 368(a) of the
Internal Revenue Code of 1986 and is being accounted for as a purchase under
generally accepted accounting principles.
Michael Asker, chief executive officer of HealthAxis will remain CEO of the
combined entity. Dennis Maloney, chief executive officer of Insurdata, will
become chief operating officer of the new HealthAxis.com. The Board of Directors
will consist of seven members, three from UICI and four from HAI. The new
company's headquarters will remain in the Philadelphia area with significant
operations in Dallas as well as eight other locations throughout the United
States and abroad. The combined company will employ over 350 IT professionals
with substantial health plan sales and administration experience. Although the
consumer and business-to-business services will be marketed separately, all
F-38
<PAGE>
HealthAxis.com, Inc. and subsidiaries
Notes to financial statements
(Dollars in thousands)
(Unaudited)
other corporate functions will be consolidated, including technology,
finance/accounting/ human resources, legal and sales.
HealthAxis will continue to market its online insurance retail marketplace to
individuals and small businesses through www.healthaxis.com. Insurdata's
proprietary solutions group, to be renamed HealthAxis Application Solutions
Group will provide proprietary Web-enable enrollment, administration and claims
processing applications to healthcare payers, including insurance companies,
third-party administrators and large self-funded groups. These solutions enable
clients to both reduce plan administration costs and improve service to plan
members. All of Insurdata's workflow and business software applications are
built around an Application Service Provider (ASP) model.
The combined company will serve both consumers and payers with integrated
Web-based platform. HealthAxis will offer carriers a comprehensive suite of
Web-enabled software solutions for marketing, sales and plan administration. For
consumers and small businesses, HealthAxis will offer an enhanced set of
products and services based on its ability to seamlessly connect carriers and
purchasers through its proprietary Web platform.
HAI Merger with HealthAxis - On December 7, 1999, HAI announced plans to move
forward with its original plan to merge with its subsidiary, HealthAxis. On
January 26, 2000, HAI and HealthAxis entered into an Agreement and Plan of
Reorganization and Agreement and Plan of Merger pursuant to which HealthAxis
will acquire all of the outstanding shares of HealthAxis it does not currently
own through merger of HealthAxis with a wholly-owned subsidiary of HealthAxis.
Upon consummation of the reorganization transactions, HealthAxis shareholders
will receive 1.127 shares of HealthAxis' common stock for each share of
HealthAxis common stock outstanding.
In conjunction with the merger, all of the Preferred Stock will be converted
into Common Stock of HAI and be reflected as a component of Stockholders'
Equity.
F-39
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholder
Insurdata Incorporated
We have audited the accompanying consolidated balance sheets of Insurdata
Incorporated and subsidiaries (the Company) as of December 31, 1997 and 1998,
and the related consolidated statements of income, stockholder's equity and cash
flows for each of the three years in the period ended 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 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, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Dallas, Texas
June 24, 1999
F-40
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
(Note 1)
ASSETS
<TABLE>
<CAPTION>
December 31 September 30
1997 1998 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 2,489 $ 4,450 $ 2,918
Trade accounts receivable, net of allowance of $164,
$69 and $31, in 1997, 1998 and September 30, 1999
(unaudited), respectively 2,324 2,482 2,957
Receivables from affiliates 2,234 2,242 2,301
Notes receivable 42 308 100
Note receivable from affiliates 4,500 - -
Deferred income taxes - 131 178
Other current assets 995 849 1,608
-------- -------- --------
Total current assets 12,584 10,462 10,062
Property and equipment, net 3,972 5,987 5,962
Capitalized software and contract start-up costs, net 1,597 2,374 2,912
Goodwill and intangibles, net 842 920 1,129
Long-term notes receivable 458 292 -
Deferred income taxes 319 - -
-------- -------- --------
Total assets $19,772 $20,035 $20,065
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 347 $ 235 $ 864
Accrued liabilities 2,180 3,175 2,101
Accrued liabilities payable to affiliates 1,199 476 462
Income taxes payable 981 731 187
Deferred revenues 504 377 480
Obligations under capital leases - 179 193
-------- -------- --------
Total current liabilities 5,211 5,173 4,287
Notes payable 46 36 27
Obligations under capital leases - 409 262
Deferred income taxes - 18 402
Phantom stock liability 1,085 687 344
Commitments
Minority interest 1,254 16 -
Stockholder's equity:
Common stock, no par value:
Authorized shares - 50,000,000 issued and
outstanding shares - 16,396,667 6,022 5,531 5,531
Retained earnings 6,240 8,165 9,212
Deferred compensation (86) - -
-------- -------- --------
Total stockholder's equity 12,176 13,696 14,743
-------- -------- --------
Total liabilities and stockholder's equity $ 19,772 $ 20,035 $ 20,065
======== ======== ========
</TABLE>
See accompanying notes.
F-41
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
(Note 1)
<TABLE>
<CAPTION>
Nine Months Ended
Year ended December 31 September 30
1996 1997 1998 1998 1999
--------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 10,556 $16,804 $19,325 $14,064 $14,361
Revenue from affiliates 1,843 12,591 24,908 19,008 20,584
--------- ------- ------- ------- -------
Total revenue 12,399 29,395 44,233 33,072 34,945
Operating expenses:
Cost of revenues 7,523 22,016 34,769 25,823 29,023
Selling, general and administrative 3,329 4,526 5,534 3,909 4,030
Amortization of intangible assets and goodwill 31 74 88 64 77
Research and development 513 440 533 417 18
Phantom stock compensation 360 - - - -
Costs of preparing for public offering - - 726 726 -
--------- ------- ------- ------- -------
Total operating expense 11,756 27,056 41,650 30,939 33,148
--------- ------- ------- ------- -------
Operating income 643 2,339 2,583 2,133 1,797
Interest and other income, net 457 541 256 288 (9)
--------- ------- ------- ------- -------
Income before income taxes and minority interest 1,100 2,880 2,839 2,421 1,788
Provision for income taxes 470 1,195 880 733 648
--------- ------- ------- ------- -------
Income before minority interest 630 1,685 1,959 1,688 1,140
Minority interest in (income) loss of subsidiary 126 176 (34) (4) (93)
--------- ------- ------- ------- -------
Net income $ 756 $ 1,861 $ 1,925 $ 1,684 $ 1,047
========= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-42
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Stockholder's 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, 1995 16,397 $ 5,371 $3,703 $ - $ 9,074
Contribution of Satellite Imaging
Systems LLC from UICI (Note 1) - 3,000 - - 3,000
Distribution to UICI (Note 8) - (257) - - (257)
Deferred compensation from Satellite
Imaging Systems LLC stock grant - 294 - (294) -
Amortization of deferred compensation - - - 61 61
Net income and comprehensive income - - 756 - 756
------ ------- ------ ------- -------
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
Distribution to UICI (Note 1) - (465) - - (465)
Distributions to UICI (Note 1) - (242) - - (242)
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
Net income and comprehensive income
(unaudited) - - 1,047 - 1,047
------ ------- ------ ------- -------
Balance at September 30, 1999 (unaudited) 16,397 $ 5,531 $9,212 - $14,743
====== ======= ====== ======= =======
</TABLE>
See accompanying notes.
F-43
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Nine Months Ended
Year ended December 31, September 30,
1996 1997 1998 1998 1999
----------- ------------ ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income $ 756 $ 1,861 $ 1,925 $ 1,684 $ 1,047
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 954 1,193 1,959 1,340 1,516
Amortization of intangibles and goodwill 31 74 88 64 77
Amortization of capitalized software
development and contract start-up costs 427 645 834 620 1,006
Phantom stock compensation 360 - - - -
Minority interest (126) (176) 34 4 93
Compensation from stock grants 61 147 86 86 -
Provision for doubtful accounts 9 155 115 93 16
Loss on disposal of fixed assets 116 89 52 52 -
Purchased in-process research and development - - 189 189 -
Deferred income taxes (134) 125 206 326 337
Changes in operating assets and liabilities:
Trade accounts receivable (654) (802) (273) (215) (491)
Receivables from affiliates (576) (3,694) (8) (787) (59)
Other current assets 153 (138) 146 (107) (256)
Accounts payable and accrued liabilities 63 1,869 883 1,506 (446)
Accrued liabilities payable to affiliates and
phantom stock liability 702 (227) (1,120) (1,193) (357)
Income taxes (104) 926 (250) (632) (544)
Deferred revenues 134 132 (127) (131) 103
Other 20 161 - - -
-------- ------- -------- -------- --------
Net cash provided by operating activities 2,192 2,340 4,739 2,899 2,042
Investing Activities
Capital expenditures (1,221) (2,578) (3,410) (3,023) (1,491)
Collection (issuance) of note receivable - - (100) - 46
Software development and contract start-up costs
capitalized (546) (701) (1,513) (1,137) (1,376)
Payments from (advances to) affiliates 3,984 (4,371) 4,500 4,500 -
Sale of accounts receivable to affiliate - 401 - - -
Purchase of minority interest - - (1,650) (1,650) (500)
-------- ------- -------- -------- --------
Net cash provided by (used in) investing activities 2,217 (7,249) (2,173) (1,310) (3,321)
Financing Activities
Contribution from (distribution to) parent, net 2,743 64 (491) (491) -
Distribution to minority interests - (12) (75) (44) (112)
Payments on capital lease obligations - - (28) (7) (133)
Payments on long-term debt (693) - (11) (8) (8)
Payments on long-term debt with affiliates - (362) - - -
-------- ------- -------- -------- --------
Net cash provided by (used in) financing activities 2,050 (310) (605) (550) (253)
-------- ------- -------- -------- --------
</TABLE>
F-44
<PAGE>
Insurdata Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(In thousands)
(Note 1)
<TABLE>
<CAPTION>
Nine Months Ended
Year ended December 31 September 30,
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents 6,459 (5,219) 1,961 1,039 (1,532)
Cash and cash equivalents at beginning of period 1,249 7,708 2,489 2,489 4,450
------- ------- ------- ------ ------
Cash and cash equivalents at end of period $ 7,708 $ 2,489 $ 4,450 $3,528 $2,918
======= ======= ======= ====== ======
Supplemental Cash Flow Information
Cash paid for interest $ 56 $ 263 $ 170 $ 159 $ 122
======= ======= ======= ====== ======
Cash paid for income taxes $ 894 $ 145 $ 846 $ 846 $1,029
======= ======= ======= ====== ======
Supplemental Schedule Of Non-Cash Investing
Activities
Acquisition of equipment under capital leases $ - $ - $ 617 $ 181 $ -
======= ======= ======= ====== ======
</TABLE>
See accompanying notes.
F-45
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of Business and Basis of Presentation
Unaudited Financial Information
The financial statements as of September 30, 1998 and 1999 and for the nine
month periods then ended are unaudited; however, in the opinion of management
such financial statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position and results of operations for such periods. The accompanying interim
unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. Operating results for the nine months
ended September 30, 1999, are not necessarily indicative of the results that may
be expected for the entire year or for any future period.
General
Insurdata Incorporated (the Company) provides comprehensive technology solutions
and related outsourcing services to the claims and administration segment of the
health care industry. 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 wholly 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. 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. No earnout payments have been
earned through December 31, 1998.
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.
F-46
<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 stockholder's 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-interest" 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 Stockholder's
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 Stockholder's 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-47
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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.
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 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 $427,000, $645,000 and $697,000 in the years ending
December 31, 1996, 1997 and 1998, respectively.
F-48
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
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.
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.
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 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.
F-49
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
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, 1996, 1997 and 1998, the Company's three largest
customers, including UICI and its subsidiaries and affiliates (see Note 4),
accounted for approximately 76%, 69% and 74%, respectively, of the Company's
total revenue. For the years ended December 31, 1996, 1997 and 1998, UICI and
its subsidiaries and affiliates accounted for approximately 15%, 42% and 56%,
respectively, of the Company's total revenue. As of December 31, 1997 and 1998,
the three largest customers accounted for 59% and 63%, respectively, of the
Company's total accounts receivable. For the years ended December 31, 1997 and
1998, UICI and its subsidiaries and affiliates accounted for approximately 43%
and 47%, respectively, of the Company's total accounts receivable (see Note 4).
For the year ended December 31, 1997, two unrelated customers accounted for
approximately 9% and 7%, respectively, of the Company's total accounts
receivable. For the year ended December 31, 1998, the same two unrelated
customers accounted for approximately 11% and 5%, respectively, of the Company's
total accounts receivable. 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 frequently 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 $250,000 at September 30,1999 related to performance commitments.
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.
F-50
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
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 nine
months ended September 30, 1999 was approximately $566,000.
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 has not completed its
review of the effects of the provisions of the SAB.
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.
F-51
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 licensing 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, 1996, 1997 and 1998, UICI and its subsidiaries and
affiliates, including the subsidiaries and affiliates discussed below, accounted
for an aggregate of $1.8 million (15%), $12.6 million (42%) and $24.9 million
(56%), respectively, of the Company's total revenues for such periods. As of
December 31, 1996, 1997 and 1998, the Company had trade receivables from UICI
and its subsidiaries and affiliates of $1.7 million, $2.2 million and $2.2
million, respectively. In addition to trade receivables, the Company also held
various notes receivable from UICI and its subsidiaries and affiliates,
amounting to $.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.
Commencing in 1996, 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,
1996, 1997 and 1998, the Company paid UICI an aggregate of approximately $2,000,
$54,000 and $73,000, 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, 1997 and 1998, the Company paid these subsidiaries an
aggregate of approximately $23,000 and $18,000, respectively, for such services.
The Company leases two facilities from certain subsidiaries of UICI. The Company
leases office space located in Hurst, Texas, pursuant to a written agreement
that expires on December 31, 1999. 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 and $255,000 under these leasing
arrangements for the years ended December 31, 1997 and 1998, respectively.
During 1997 and 1998, the Company purchased certain furniture and equipment for
$170,000 and $141,000, respectively, 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.
F-52
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Related Party Transactions (continued)
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 license 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 the President,
Chief Executive Officer 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. For
the years ended December 31, 1996, 1997 and 1998, UICI Administrators accounted
for an aggregate of $1.8 million, $2.2 million and $3.0 million, respectively,
of the Company's total revenues under the agreement, which represent
approximately 15%, 8% and 7%, respectively, of the Company's total revenues for
such periods.
The Company provides accounting and management services to UICI Administrators.
In exchange for these services, UICI Administrators pays the Company a fee based
upon the salary, benefits and time commitment of the Company's employees
actually performing the services. The fee is intended to reimburse the Company
for the costs of providing these services and therefore such fees are offset
against the related expenses. Fees received from UICI Administrators amounted to
$44,000, $2,000 and $134,000 for the years ended December 31, 1996, 1997 and
1998, respectively. In addition to the accounting services provided by the
Company, the Company's President and Chief Executive Officer, provides certain
management oversight of UICI Administrators. Neither the President nor the
Company receives any compensation in exchange for the President's services.
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 5
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 $324,000 in programming revenues
under this contract during the nine months ended September 30, 1999. The
Company's arrangement with UICI Adminsitrators provides for the Company to
receive its customary software licensing and processing fee over the term of the
contract.
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.
F-53
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Related Party Transactions (continued)
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 license fees under client contracts that VSO brokered on behalf of the
Company. During 1996 and 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
outstanding balance of the advances was approximately $100,000 and $90,000 as of
December 31, 1996 and 1997, respectively. The Company paid VSO, or offset
against the outstanding balance of any advances, as applicable, fees aggregating
approximately $34,000, $132,000 and $191,000 for the years ended December 31,
1996, 1997 and 1998, respectively. At December 31, 1998, the balance of
commissions owed to VSO was approximately $42,000. Mr. Jensen purchased VSO from
UICI in July 1997.
Matrix Telecom, Inc. (Matrix) (formerly known as Avtel Communications, Inc.), a
telephone company in which Ronald L. Jensen and his five adult children own a
controlling interest, provides telephone services to the Company pursuant to a
written agreement. This agreement was for a one-year term expiring June 13, 1998
with automatic monthly renewal provisions thereafter, subject to 30 days' notice
of non-renewal. Management intends to allow this agreement to renew
automatically for the foreseeable future. For the years ended December 31, 1997
and 1998, the Company paid Matrix approximately $46,000 and $132,000
respectively under the agreement.
National Capital Administrative Services, Inc. (NCAS), a customer of the
Company, was a shareholder of the Company until December 1996. The Company has a
written, annually renewable contract with NCAS pursuant to which NCAS licenses
certain of the Company's workflow and business applications. For the year ended
December 31, 1996, NCAS accounted for approximately $3.0 million of the
Company's total revenues, which represent approximately 24% of the Company's
total revenue for that period.
5. Property and Equipment
Property and equipment, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful Lives December 31,
(Years) 1997 1998
------------ ------- ---------
<S> <C> <C> <C> <C>
Computer equipment 3 - 5 $ 8,927 $ 12,100
Office furniture and equipment 5 - 7 1,505 1,748
Computer software 3 - 5 1,739 1,978
Leasehold improvements 3 - 5 816 1,041
Less accumulated depreciation (9,015) (10,880)
------- ---------
$ 3,972 $ 5,987
======= =========
</TABLE>
Accumulated depreciation at September 30, 1999 amount to $12.4 million
(unaudited).
F-54
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 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 Company
recorded the carrying value of the note receivable as additional purchase price
on the settlement date, which amount is being amortized over the remaining
useful life of the assets acquired.
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful Lives December 31,
(Years) 1997 1998
------------ ----- -----
<S> <C> <C> <C>
Goodwill 20 $ 621 $ 621
Customer base 10 265 377
Work force 5 61 115
Less accumulated amortization (105) (193)
----- -----
$ 842 $ 920
===== =====
</TABLE>
Accumulated amoritization at September 30, 1999 amount to $270,000 (unaudited).
7. Stock Option Plans
UICI sponsors the Founders' Stock Option 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'
Stock Option 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' Stock Option 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.
F-55
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Stock Option Plans (continued)
A summary of the Company's stock option activity is as follows:
Number
of Shares
----------
Outstanding at December 31, 1996 -
Granted 2,066,000
Forfeited -
-----------
Outstanding at December 31, 1997 2,066,000
Granted 393,500
Forfeited (198,000)
-----------
Outstanding at December 31, 1998 2,261,500
===========
Options exercisable at December 31,
1997 -
1998 443,200
No options were exercised during 1997 or 1998. Options outstanding at December
31, 1998 have a weighted-average remaining contractual life of 3.65 years. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market value of the underlying stock on the date of grant, no
compensation expense has been recognized.
Effective August 15, 1998, the Company's employees became participants in a UICI
stock option 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 44,456 have been
forfeited as of December 31, 1998. Each option has an exercise price of $15; the
options vest 20% each year beginning on August 15, 1999 and thereafter through
year 2001 and 40% on August 15, 2002. These options are UICI obligations and
have not been included in the Company's stock option information above. The
exercise price of these options equaled the market price of UICI common stock on
the date of grant. As such, no compensation expense has been recognized under
APB 25.
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 September 30, 1999, 271,000 options
have been granted under the 1999 Plan. 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.
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 by the Company in the Founders Stock Option Plan during
1997 and 1998 was $.41 and $.35, respectively. The weighted-average fair value
per share of options in the UICI Stock Option Plan during 1998 was $3.06. The
fair value of these options was estimated using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1997 and 1998:
risk-free interest rate of 6.7% in 1997 and 5.71% in 1998, a volatility factor
of 0.38, no dividend yield and an expected life of four years.
F-56
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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):
December 31 December 31
1997 1998
----------- -----------
Pro forma net income $ 1,759 $ 1,587
8. Income Taxes
The Company uses the liability method of accounting for income taxes as required
by Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Prior to December 31, 1997, the Company filed separate income tax returns.
Commencing with the tax year ending 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 payable at December
31, 1998, are primarily payable to UICI, not to the taxing authorities. As the
parent of the Company and combined entities, UICI is responsible for making all
federal income tax payments for the combined group. 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 stockholder's equity as a
distribution to UICI of $257,000, a contribution from UICI of $132,000 and a
contribution from UICI of $216,000, for the years ending December 31, 1996, 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-57
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The components of the provision for income taxes are as follows (in thousands):
December 31
1996 1997 1998
------- ------- ----
Current:
Federal $ 524 $ 916 $535
State 80 154 139
------- ------- ----
Total current 604 1,070 674
Deferred:
Federal (120) 104 172
State (14) 21 34
------- ------- ----
Total deferred (134) 125 206
------- ------- ----
Total provision for income taxes $ 470 $ 1,195 $880
======= ======= ====
The effective income tax rate on income before income taxes differed from the
federal income tax statutory rate for the following reasons (in thousands):
Year ended December 31
1996 1997 1998
------- ------- ------
Income tax provision:
Based upon the federal statutory rate $374 $ 979 $ 965
State income tax, net of federal benefit 44 115 114
Benefit associated with minority interest
in loss of subsidiary 54 73 6
Research and development credit - - (124)
Other (2) 28 (81)
----- ------- ------
$470 $ 1,195 $ 880
===== ====== =======
F-58
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The Company's deferred tax assets and liabilities consist of the following (in
thousands):
December 31
1997 1998
------ -----
Deferred tax assets:
Excess of book over tax depreciation $ 57 $ 57
Basis in limited liability companies 222 81
Phantom stock compensation 549 392
Intangibles - 145
Other 5 -
------ -----
Total deferred tax assets 833 675
Deferred tax liabilities:
Software development costs capitalized 514 562
------ -----
Total deferred tax liabilities 514 562
------ -----
Net deferred tax assets $ 319 $ 113
====== =====
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, 1998, are as follows (in thousands):
Operating Capital
Leases Leases
---------- ---------
1999 $1,463 $230
2000 788 230
2001 166 206
2002 66 17
---------- ---------
Total $2,483 683
Less amount representing interest (95)
---------
Present value of minimum lease payments 588
Less current portion (179)
---------
$409
=========
Rent expense totaled approximately $525,000, $884,000 and $1,367,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
F-59
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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. Employee and employer contributions to the Plan
were discontinued effective April 1, 1997, when the Company switched to a plan
offered by its parent company, UICI. Employer matching contributions to the
Insurdata Plan amounted to $11,000 and $3,000 for the years ended December 31,
1996 and 1997, respectively.
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. All Company contributions are invested in UICI
common stock. Employer contributions to the ESOP were $353,000 and $600,000 for
the years ended December 31, 1997 and 1998, 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 Company
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. Except for ongoing payments associated
with awards of phantom stock, the KPA Plan terminated on December 31, 1996.
Under the 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 $1.4 million, $1.1 million and $.7 million at December 31,
1996, 1997 and 1998, respectively. The current phantom stock liability is
approximately $.4 million at December 31, 1996, 1997 and 1998.
The Company awarded a total of 1,050,000 shares of phantom stock under the KPA
Plan. The Company recognized compensation expense for profit sharing of
approximately $172,000 during the year ended December 31, 1996, under the KPA
Plan. The Company recognized compensation expense for phantom stock awards of
approximately $360,000 during the year ended December 31, 1996, under the KPA
Plan.
F-60
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 stockholder's
equity. Compensation expense recorded for this agreement was $61,000, $147,000
and $86,000 for the years ended December 31, 1996, 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 is continuing its assessment of Year 2000 issues and taking steps to
prevent these issues from adversely affecting its future operating results. This
readiness process included the formation of a task force to determine which
functionality may be affected, performing remediation as necessary, developing
test procedures and recording results.
In addition to evaluating its own systems for Year 2000 compliance, the Company
is also communicating with its significant suppliers and customers to determine
the extent to which interfaces with such entities are vulnerable to Year 2000
issues and the extent to which any products or services purchased by or from, or
internal systems of, such entities are vulnerable to Year 2000 issues.
The Company's proprietary software used to deliver services to its customers is
designed to be Year 2000 compliant, and management believes them to be so,
without material deviation. The task force is performing ongoing inquiries with
respect to the Year 2000 readiness of its material third-party vendors. While
the task force's current assessment does not suggest it, due to uncertainties
associated with third-party vendors being Year 2000 compliant, the Company is
unable to predict whether a material adverse effect on business, results of
operations or financial condition may result.
With the installation of a Year 2000 system upgrade completed prior to September
30, 1999, the Company believes that all internal financial systems are Year 2000
compliant. The task force completed development of a formal Contingency Plan to
include facilities, additional support requirements and data retrieval prior to
December 31, 1999.
The readiness effort by the task force has been conducted in the ordinary course
of business and has been funded out of operations. The impact on 1998 is
insignificant and the impact on 1999 is expected to be less than $125,000.
F-61
<PAGE>
Insurdata Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Subsequent Events (Unaudited)
Effective October 1, 1999, the Company sold certain assets used in providing
benefits administration services, namely its IA division, to a subsidiary of
UICI for a sales price of approximately $459,000 in cash. The price approximated
the Company's net book value at the time of the sale.
Effective October 1, 1999, the company sold its 100% member interest in IMS to a
subsidiary of UICI for a sales price of $171,337 in cash. The price approximated
the Company's net book value at the time of the sale.
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.
HealthAxis will be the surviving entity of the merger. HealthAxis is a web-based
retailer of health insurance products and related consumer services. 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. Closing of
the transaction occurred on January 7, 2000.
F-62
<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 Agreement and Plan of Reorganization dated January 26, 2000 among
HAI, HealthAxis and HealthAxis Acquisition Corp. (included in the
Joint Proxy Statement/Prospectus as Appendix A).
2.2 Agreement and Plan of Merger dated January 26, 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 Butera Beausang Cohen & Brennan LP.
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 G).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of BDO Seidman LLP.
23.3 Consent of BDO Seidman LLP.
23.4 Consent of Ernst and Young LLP.
23.5 Consent of Blank Rome Comisky & McCauley LLP (included in Exhibit
8.1).
23.6 Consent of Butera Beausang Cohen & Brennan P.C. (included in Exhibit
5.1).
24.1 Power of Attorney (included on signature page).
II-1
<PAGE>
99.1 Form of HAI Proxy.
99.2 Form of HealthAxis Proxy.
- -----------
*To be filed as an amendment.
(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 AND POWER OF ATTORNEY
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: February 11, 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. Each person whose signature appears below
hereby authorizes Alvin H. Clemens and Michael Ashker and each of them, as
Attorney-in-Fact, to sign on his behalf individually and in each capacity stated
below, and to file, any amendments, including post-effective amendments, to this
registration statement.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael Ashker Chief Executive Officer and President February 11, 2000
- ------------------------------------ (principal executive officer)
Michael Ashker
/s/ Francis L. Gillan III Chief Financial Officer and Treasurer February 11, 2000
- ------------------------------------ (principal financial and accounting
Francis L. Gillan III officer)
/s/ Alvin H. Clemens Chairman of the Board of Directors February 11, 2000
- ------------------------------------
Alvin H. Clemens
/s/ Harold M. Davis Director February 11, 2000
- ------------------------------------
Harold M. Davis
/s/ Henry G. Hager Director February 11, 2000
- ------------------------------------
Henry G. Hager
/s/ George W. Karr, Jr. Director February 11, 2000
- ------------------------------------
George W. Karr, Jr.
/s/ Edward W. LeBaron, Jr. Director February 11, 2000
- ------------------------------------
Edward W. LeBaron, Jr.
/s/ Theophile J. Mignatti Director February 11, 2000
- ------------------------------------
Theophile J. Mignatti
/s/ P. Glenn Moyer Director February 11, 2000
- ------------------------------------
P. Glenn Moyer
/s/ Anthony R. Verdi Chief Operating Officer February 11, 2000
- ------------------------------------
Anthony R. Verdi
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibits
- ------ --------
2.1 Agreement and Plan of Reorganization dated January 26, 2000 among HAI,
HealthAxis and HealthAxis Acquisition Corp. (included in the Joint
Proxy Statement/Prospectus as Appendix A).
2.2 Agreement and Plan of Merger dated January 26, 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 Butera Beausang Cohen & Brennan LP.
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 G).
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of BDO Seidman LLP.
23.3 Consent of BDO Seidman LLP.
23.4 Consent of Ernst and Young LLP.
23.5 Consent of Blank Rome Comisky & McCauley LLP (included in Exhibit 8.1).
23.6 Consent of Butera Beausang Cohen & Brennan P.C. (included in Exhibit
5.1).
24.1 Power of Attorney (included on signature page).
99.1 Form of HAI Proxy.
99.2 Form of HealthAxis Proxy.
- ------------------
*To be filed as an amendment.
II-5
<PAGE>
February 11, 2000
HealthAxis Inc.
2500 DeKalb Pike
East Norriton, PA 19401
Re: HealthAxis Inc.
Registration Statement on Form S-4
Gentlemen:
We have acted as counsel to HealthAxis Inc. (the "Company") in
connection with the Registration Statement on Form S-4 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, related to the issuance of up to
39,459,458 shares (the "Shares") of common stock, par value $0.10 per share of
the Company in connection with the proposed merger (the "Merger") of HealthAxis
Acquisition Corp, a Pennsylvania corporation, with and into HealthAxis.com,
Inc., a Pennsylvania corporation ("HealthAxis"). This opinion is being furnished
pursuant to the requirements of Item 601(b)(5) of Regulation S-K.
In rendering this opinion, we have examined only the documents listed
on Exhibit "A" attached hereto. We have not performed any independent
investigation other than the document examination described. Our opinion is
therefore qualified in all respects by the scope of that document examination.
We have assumed and relied, as to questions of fact and mixed questions of law
and fact, on the truth, completeness, authenticity and due authorization of all
certificates, documents and records examined and the genuineness of all
signatures.
This opinion is limited to the laws of the Commonwealth of Pennsylvania
and no opinion is expressed as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that the
Shares that are being issued by the Company pursuant to the Registration
Statement, when issued by the Company as contemplated by the Registration
Statement and in accordance with the Agreement and Plan of Reorganization and
the Agreement and Plan of Merger will be legally issued, fully paid and
non-assessable.
The opinions expressed herein are qualified in all respects by the
following: (a) no opinion is rendered as to the availability of equitable
remedies including, but not limited to, specific performance and injunctive
relief; (b) the effect of bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium and other similar laws or equitable principles affecting
creditors' rights or remedies; and (c) the effect of applicable law and court
decisions which may now or hereafter limit or render unenforceable certain
rights and remedies.
This opinion is given as of the date hereof. We assume no obligation to
update or supplement this opinion to reflect any facts or circumstances that may
hereafter come to our attention or any changes in laws that may hereafter occur.
This opinion is strictly limited to the matters stated herein and no
other or more extensive opinion is intended, implied or to be inferred beyond
the matters expressly stated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Joint Proxy Statement / Prospectus, which is part of the
Registration Statement.
Sincerely,
/s/ Butera Beausang Cohen & Brennan P.C.
----------------------------------------
BUTERA BEAUSANG COHEN & BRENNAN P.C.
<PAGE>
EXHIBIT "A"
1. The Company's Amended and Restated Articles of Incorporation.
2. The Company's Amended and Restated Bylaws.
3. Resolutions of the Board of Directors dated January 26, 2000.
4. Agreement and Plan of Reorganization filed as an exhibit to the
Registration Statement.
5. Agreement and Plan of Merger filed as an exhibit to the
Registration Statement.
6. The Registration Statement.
7. Good Standing Certificate issued by the Secretary of the
Commonwealth of Pennsylvania.
<PAGE>
HEALTHAXIS INCORPORATED
Amended and Restated Bylaws
These Bylaws are supplemental to the Pennsylvania Business
Corporation Law as the same shall from time to time be in
effect.
ARTICLE I. SHAREHOLDERS.
Section 101. Place of Shareholders' Meetings. All meetings of the
shareholders shall be held at such place or places, inside or outside the
Commonwealth of Pennsylvania, as determined by the Board of Directors from time
to time.
Section 102. Annual Shareholders' Meeting. The annual meeting of the
shareholders for the election of directors and the transaction of such other
business as may properly come before such meeting shall be held on the last
Wednesday in April at 10:00 o'clock A.M., or at such time and place as
determined by the Board of Directors. Any business which is a proper subject for
shareholder action may be transacted at the annual meeting, irrespective of
whether the notice of said meeting contains any reference thereto, except as
otherwise provided by applicable law.
Section 103. Special Meetings of Shareholders. Special meetings of the
shareholders may be called at any time by the Board of Directors or the Chairman
of the Board or the Chief Executive Officer.
Section 104. Conduct of Shareholders' Meetings. The Chairman of the
Board shall preside at all shareholders' meetings. In the absence of the
Chairman of the Board, the Chief Executive Officer shall preside or, in his or
her absence, any officer designated by the Board of Directors shall preside. The
officer presiding over the shareholders' meeting may establish such rules and
regulations for the conduct of the meeting as he or she may deem to be
reasonably necessary or desirable for the orderly and expeditious conduct of the
meeting. Unless the officer presiding over the shareholders' meeting otherwise
requires, shareholders need not vote by ballot on any questions.
Section 105. Consent of Shareholders in Lieu of Meeting. Any action
required or permitted to be taken at a meeting of the shareholders or of a class
of shareholders may be taken without a meeting if, prior or subsequent to the
action, a consent or consents thereto by all of the shareholders or all members
of the class of shareholders who would be entitled to vote at a meeting for such
purposes shall be filed with the Secretary of the Corporation.
ARTICLE II. DIRECTORS.
Section 201. Management by Board of Directors. The business and affairs
of the Corporation shall be managed by its Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute, regulation, the Amended and Restated
Articles of Incorporation or these Amended and Restated Bylaws directed or
required to be exercised or done by the shareholders.
Section 202. Nomination for Directors and Submission of Proposals.
(a) Nominations for directors to be elected may be made at a
meeting of shareholders only by (i) the Board of Directors (or any committee
thereof), or (ii) a shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the procedure set forth
in Section 202(b) of these Bylaws. Business may be conducted at a meeting of the
shareholders of the Corporation only if such business (i) was specified in the
notice of meeting (or any supplement thereto) given by the Board of Directors,
(ii) is otherwise properly brought before the meeting by the Board of Directors,
or (iii) is otherwise properly brought before the meeting by a shareholder of
the Corporation in accordance with the procedure set forth in Section 202(b) of
these
<PAGE>
Bylaws. Notwithstanding the foregoing, at any time prior to the election of
directors at a meeting of shareholders, the Board of Directors may designate a
substitute nominee to replace any bona fide nominee who was nominated as set
forth above and who, for any reason, becomes unavailable for election as a
director.
(b) Beginning with the annual meeting of the shareholders to
be held in 2000, nominations by shareholders for directors to be elected, or
proposals by shareholders to be considered, at a meeting of shareholders and
which have not been previously approved by the Board of Directors must be
submitted to the Secretary of the Corporation in writing, either by personal
delivery, nationally-recognized express mail or United States mail, postage
prepaid, not later than (i) with respect to an election to be held, or a
proposal to be considered, at an annual meeting of shareholders, the latest date
upon which shareholder proposals must be submitted to the Corporation for
inclusion in the Corporation's proxy statement relating to such meeting pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or other
applicable rules or regulations under the federal securities laws or, if no such
rules apply, at least ninety (90) days prior to the date one year from the date
of the immediately preceding annual meeting of shareholders, and (ii) with
respect to an election to be held, or a proposal to be considered, at a special
meeting of shareholders, the close of business on the tenth day following the
date on which notice of such meeting is first given to shareholders. Each such
nomination or proposal shall set forth: (i) the name and address of the
shareholder making the nomination or proposal and the person or persons
nominated, or the subject matter of the proposal submitted; (ii) a
representation that the shareholder is a holder of record of capital stock of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to vote for the person or persons nominated, or the
proposal submitted; (iii) a description of all arrangements and understandings
between the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination was made, or the
proposal was submitted, by the shareholder; (iv) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated by the Board
of Directors; and (v) the consent of each nominee to serve as a director of the
Corporation if so elected. All late nominations and proposals shall be rejected.
Section 203. Number of Directors. The Board of Directors shall consist
of not less than three (3) and not more than twelve (12) directors. The exact
number of board members shall be set by resolution of the Board of Directors.
Each director shall serve until his or her successor shall have been elected and
shall qualify, even though his or her term of office as herein provided has
otherwise expired, except in the event of his or her earlier resignation,
removal or disqualification.
Section 204. Vacancies in the Board of Directors. Subject to the rights
of the holders of any series of the Corporation's Preferred Stock then
outstanding, vacancies in the Board of Directors, including vacancies resulting
from an increase in the number of directors, shall be filled by the affirmative
vote of at least a majority of the remaining members of the Board, even though
less than a quorum, and each person so elected shall be a director until his
successor shall have been duly elected and qualified, except in the event of his
or her earlier resignation, removal or disqualification.
Section 205. Resignations of Directors. Any director may resign at any
time. Such resignation shall be in writing, but the acceptance thereof shall not
be necessary to make it effective.
Section 206. Compensation of Directors. No director shall be entitled
to any salary as such, but the Board of Directors may fix, from time to time, a
reasonable annual fee for acting as a director and a reasonable fee to be paid
each director for his or her services in attending meetings of the Board or
committees thereof.
Section 207. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such day, at such hour, and at such place, consistent
with applicable law, as the Board shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting. The Board of
Directors shall meet for reorganization at the first regular meeting following
the annual meeting of shareholders at which the directors are elected. Notice
need not be given of regular meetings of the Board of Directors which are held
at the time and place designated by the Board of Directors. If a regular meeting
is not to be held at the time and place designated by the Board of Directors,
notice of such meeting, which need not specify the business to be transacted
thereat and which may be either oral or written, shall be given by the Secretary
to each member of the Board at least twenty-four hours before the time of the
meeting.
<PAGE>
Section 208. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the Chief Executive
Officer and shall be called whenever a majority of the members of the Board so
request in writing. A special meeting of the Board of Directors shall be deemed
to be any meeting other than the regular meeting of the Board of Directors.
Notice of the time and place of every special meeting, which need not specify
the business to be transacted thereat and which may be either oral or written,
shall be given by the Secretary to each member of the Board at least twenty-four
hours before the time of such meeting.
Section 209. Reports and Records. The reports of officers and
committees and the records of the proceedings of all committees shall be filed
with the Secretary of the Corporation and presented to the Board of Directors,
if practicable, at its next regular meeting. The Board of Directors shall keep
complete records of its proceedings in a minute book kept for that purpose. When
a director shall request it, the vote of each director upon a particular
question shall be recorded in the minutes.
Section 210. Committees. The following committees of the Board of
Directors may be established by the Board of Directors in addition to any other
committee the Board of Directors may in its discretion establish: (a) Executive
Committee; (b) Audit Committee; and (c) Compensation Committee.
Section 211. Executive Committee. The Executive Committee shall consist
of at least two (2) directors. Meetings of the Committee may be called at any
time by the Chairman of the Executive Committee and shall be called whenever two
or more members of the Committee so request in writing. The Executive Committee
shall have and exercise the authority of the Board of Directors in the
management of the business of the Corporation between the dates of regular
meetings of the Board.
Section 212. Audit Committee. The Audit Committee shall consist of at
least two (2) directors, a majority of which shall be independent. Meetings of
the Audit Committee may be called at any time by the Chairman of the Audit
Committee and shall be called whenever two or more members of the Committee so
request in writing. The Audit Committee shall have the following authority,
powers and responsibilities:
(a) To recommend each year to the Board the independent
accountants to audit the annual financial statements of the Corporation and its
consolidated subsidiaries and to review the fees charged for such audits or for
special engagements given to such accountants;
(b) To meet with the independent accountants, Chief Executive
Officer, Chief Financial Officer and any other Corporation executives as the
Audit Committee deems appropriate at such times as the Audit Committee shall
determine to review: (i) the scope of the audit plan; (ii) the Corporation's
financial statements; (iii) the results of external and internal audits; (iv)
the effectiveness of the Corporation's system of internal controls; (v) any
limitations imposed by Corporation personnel on the independent public
accountants; and (vi) such other matters as the Audit Committee shall deem
appropriate;
(c) To report to the entire Board at such time as the Audit
Committee shall determine; and
(d) To take such other action as the Audit Committee shall
deem necessary or appropriate to assure that the interests of the Company are
adequately protected.
Section 213. Compensation Committee. The Compensation Committee shall
consist of at least two (2) directors. Meetings of the Committee may be called
at any time by the Chairman of the Committee and shall be called whenever two or
more members of the Committee so request in writing. The Committee shall review
compensation of executive officers and make recommendations to the Board of
Directors regarding executive compensation and shall have such other duties as
the Board of Directors prescribes.
Section 214. Appointment of Committee Members. The Board of Directors
shall appoint or shall establish a method of appointing the members of the
Executive, Audit and Compensation Committees and of any other committee
established by the Board of Directors, and the Chairman of each such committee,
to serve until the next annual meeting of shareholders.
<PAGE>
Section 215. Organization and Proceedings. Each committee of the Board
of Directors shall effect its own organization by the appointment of a Secretary
and such other officers, except the Chairman, as it may deem necessary. The
Secretary of the Executive Committee shall be the Secretary of the Corporation,
but the Secretary of the Audit and Compensation Committees and of any other
committee need not be the Secretary of the Corporation. A record of the
proceedings of all committees shall be kept by the Secretary of such committee
and filed and presented as provided in Section 209 of these Bylaws.
Section 216. Committees. In the absence or disqualification of any
member of any committee established by the Board of Directors, the members
thereof who are present at any meeting of such committee and are not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another director to act at such meeting in the place of such
absent or disqualified member.
Section 217. Absentee Participation in Meetings. A director may
participate in a meeting of the Board of Directors or a meeting of a committee
established by the Board of Directors by use of a conference telephone or
similar communications equipment, by means of which all persons participating in
the meeting can hear each other.
ARTICLE III. OFFICERS.
Section 301. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers and assistant
officers as the Board of Directors may from time to time deem advisable. Except
for the Chairman of the Board, Chief Executive Officer, President, Secretary and
Treasurer, the Board may refrain from filling any of the said offices at any
time and from time to time. The same individual may hold any two or more
offices. The following officers shall be elected by the Board of Directors at
the time, in the manner and for such terms as the Board of Directors from time
to time shall determine: Chairman of the Board, Chief Executive Officer,
President, Secretary, and Treasurer. The Chairman of the Board may appoint such
other officers and assistant officers as he may deem advisable provided such
officers or assistant officers have a title no higher than Vice President, who
shall hold office for such periods as the Chairman of the Board shall determine.
Any officer may be removed at any time, with or without cause, and regardless of
the term for which such officer was elected.
Section 302. Chairman of the Board. The Chairman of the Board shall be
a member of the Board of Directors and shall preside at the meetings of the
Board and perform such other duties as may be prescribed by the Board of
Directors.
Section 303. Chief Executive Officer. The Chief Executive Officer shall
have general supervision of all of the departments and business of the
Corporation; he or she shall prescribe the duties of the other officers and
employees and see to the proper performance thereof. The Chief Executive Officer
shall be responsible for having all orders and resolutions of the Board of
Directors carried into effect. The Chief Executive Officer shall execute on
behalf of the Corporation and may affix or cause to be affixed a seal to all
authorized documents and instruments requiring such execution, except to the
extent that signing and execution thereof shall have been delegated to some
other officer or agent of the Corporation by the Board of Directors or by the
Chief Executive Officer. The Chief Executive Officer shall be a member of the
Board of Directors. In the absence or disability of the Chairman of the Board or
his or her refusal to act, the Chief Executive Officer shall preside at meetings
of the Board. In general, the Chief Executive Officer shall perform all the
duties and exercise all the powers and authorities incident to his or her office
or as prescribed by the Board of Directors.
Section 304. President. The President shall perform such duties as are
incident to his or her office or prescribed by the Board of Directors or the
Chief Executive Officer. In the event of the absence or disability of the Chief
Executive Officer or his or her refusal to act, the President shall perform the
duties and have the powers and authorities of the Chief Executive Officer. The
President shall execute on behalf of the Corporation and may affix or cause to
be affixed a seal to all authorized documents and instruments requiring such
execution, except to the extent that signing and execution thereof shall have
been delegated to some other officer or agent of the Corporation by the Board of
Directors or the President.
Section 305. Vice Presidents. The Vice Presidents shall perform such
duties, do such acts and be subject to such supervision as may be prescribed by
the Board of Directors, the Chief Executive Officer or the President. In
<PAGE>
the event of the absence or disability of the Chief Executive Officer and the
President or their refusal to act, the Vice Presidents, in the order of their
rank, and within the same rank in the order of their seniority, shall perform
the duties and have the powers and authorities of the Chief Executive Officer
and President, except to the extent inconsistent with applicable law.
Section 306. Secretary. The Secretary shall act under the supervision
of the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. Unless a designation to the
contrary is made at a meeting, the Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all of the
proceedings of such meetings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required by these Bylaws or
otherwise. The Secretary shall keep a seal of the Corporation, and, when
authorized by the Board of Directors, Chief Executive Officer or the President,
cause the seal to be affixed to any documents and instruments requiring it. The
Secretary shall perform such other duties as may be prescribed by the Board of
Directors, Chief Executive Officer, President or such other supervising officer
as the Chief Executive Officer or President may designate.
Section 307. Treasurer. The Treasurer shall act under the supervision
of the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. The Treasurer shall have custody
of the Corporation's funds and such other duties as may be prescribed by the
Board of Directors, Chief Executive Officer, President or such other supervising
officer as the Chief Executive Officer or President may designate.
Section 308. Assistant Officers. Unless otherwise provided by the Board
of Directors, each assistant officer shall perform such duties as shall be
prescribed by the Board of Directors, Chief Executive Officer, President or the
officer to whom he or she is an assistant. In the event of the absence or
disability of an officer or his or her refusal to act, his or her assistant
officers shall, in the order of their rank, and within the same rank in the
order of their seniority, have the powers and authorities of such officer.
Section 309. Compensation. Unless otherwise provided by the Board of
Directors or the Compensation Committee, the salaries and compensation of all
officers and assistant officers, except the Chairman of the Board, Chief
Executive Officer and President, shall be fixed by or in the manner designated
by the Chief Executive Officer.
Section 310. General Powers. The officers are authorized to do and
perform such corporate acts as are necessary in the carrying on of the business
of the Corporation, subject always to the directions of the Board of Directors.
ARTICLE IV. PERSONAL LIABILITY AND INDEMNIFICATION.
Section 401. Personal Liability of Directors.
(a) A director of this Corporation shall not be personally
liable, as such, for monetary damages for any action taken, or any failure to
take any action, unless:
(i) the director has breached or failed to perform
the duties of his office under Chapter 17, Subchapter B of the Pennsylvania
Business Corporation Law of 1988 (which, as amended from time to time, is
hereafter called the Business Corporation Law); and
(ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
(b) This Section 401 shall not apply to a director's liability
for monetary damages to the extent prohibited by Section 1713(b) of the Business
Corporation Law.
Section 402. Mandatory Indemnification. The Corporation shall, to the
fullest extent permitted by applicable law, indemnify its directors and officers
who were or are a party or are threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or
<PAGE>
investigative (whether or not such action, suit or proceeding arises or arose by
or in the right of the Corporation or other entity) by reason of the fact that
such director or officer is or was a director or officer of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee, general partner, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans), against expenses (including, but not limited
to, reasonable attorneys' and investigation fees and costs), judgments, fines
(including excise taxes assessed on a person with respect to any employee
benefit plan) and amounts paid in settlement actually and reasonably incurred by
such director or officer in connection with such action, suit or proceeding,
except as otherwise provided in Section 404 hereof. Persons who were directors
or officers of the Corporation prior to the date this Section is approved by
members of the Corporation, but who do not hold such office on or after such
date, shall not be covered by this Section 402. A director or officer of the
Corporation entitled to indemnification under this Section 402 is hereafter
called a "person covered by Section 402 hereof."
Section 403. Expenses. Expenses incurred by a person covered by Section
402 hereof in defending a threatened, pending or completed civil or criminal
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation, except as otherwise provided in Section 404.
Section 404. Exceptions. No indemnification under Section 402 or
advancement or reimbursement of expenses under Section 403 shall be provided to
a person covered by Section 402 hereof: (a) with respect to expenses or the
payment of profits arising from the purchase or sale of securities of the
Corporation in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended; (b) if a final unappealable judgment or award establishes that
such director or officer engaged in intentional misconduct or a transaction from
which the director or officer derived an improper personal benefit; (c) for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, and amounts paid in settlement) which have been paid directly
to, or for the benefit of, such person by an insurance carrier under a policy of
officers' and directors' liability insurance whose premiums are paid for by the
Corporation or by an individual or entity other than such director or officer;
and (d) for amounts paid in settlement of any threatened, pending or completed
action, suit or proceeding without the written consent of the Corporation, which
written consent shall not be unreasonably withheld. The Board of Directors of
the Corporation is hereby authorized, at any time by resolution, to add to the
above list of exceptions from the right of indemnification under Section 402 or
advancement or reimbursement of expenses under Section 403, but any such
additional exception shall not apply with respect to any event, act or omission
which occurred prior to the date that the Board of Directors in fact adopts such
resolution. Any such additional exception may, at any time after its adoption,
be amended, supplemented, waived or terminated by further resolution of the
Board of Directors of the Corporation.
Section 405. Continuation of Rights. The indemnification and
advancement or reimbursement of expenses provided by, or granted pursuant to,
this Article IV shall continue as to a person who has ceased to be a member,
director or officer of the Corporation, and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 406. General Provisions.
(a) The term "to the fullest extent permitted by applicable
law", as used in this Article IV shall mean the maximum extent permitted by
public policy, common law or statute. Any person covered by Section 402 hereof
may, to the fullest extent permitted by applicable law, elect to have the right
to indemnification or to advancement or reimbursement of expenses, interpreted,
at such person's option; (i) on the basis of the applicable law on the date this
Section was approved by the shareholders; or (ii) on the basis of the applicable
law in effect at the time of the occurrence of the event, act or omission giving
rise to the action, suit or proceeding, or (iii) on the basis of the applicable
law in effect at the time indemnification is sought.
<PAGE>
(b) The right of a person covered by Section 402 hereof to be
indemnified or to receive an advancement or reimbursement of expenses pursuant
to Section 403 (i) may be enforced as a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Corporation and such person;
(ii) to the fullest extent permitted by applicable law, is intended to be
retroactive and shall be available with respect to events, acts or omissions
occurring prior to the adoption hereof; and (iii) shall continue to exist after
the rescission or restrictive modification (as determined by such person) of any
provision of this Article IV with respect to events, acts and omissions
occurring before such rescission or restrictive modification is adopted.
(c) If a request for indemnification or for the advancement or
reimbursement of expenses pursuant hereto is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation together with all supporting information reasonably requested by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim (plus interest at the
prime rate announced from time to time by the Corporation's primary lending
bank) and, if successful in whole or in part, the claimant shall be entitled
also to be paid the expenses (including, but not limited to, attorneys' and
investigation fees and costs) of prosecuting such claim. Neither the failure of
the Corporation (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action that
indemnification of or the advancement or reimbursement of expenses to the
claimant is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors or independent legal counsel) that
the claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
(d) The indemnification and advancement or reimbursement of
expenses provided by, or granted pursuant to, this Article IV shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement or reimbursement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
(e) Nothing contained in this Article IV shall be construed to
limit the rights and powers the Corporation possesses under Chapter 17,
Subchapter D of the Business Corporation Law, or otherwise, including, but not
limited to, the powers to purchase and maintain insurance, create funds to
secure or insure its indemnification obligations, and any other rights or powers
the Corporation may otherwise have under applicable law.
(f) The provisions of this Article IV may, at any time (and
whether before or after there is any basis for a claim for indemnification or
for the advancement or reimbursement of expenses pursuant hereto), be amended,
supplemented, waived, or terminated, in whole or in part, with respect to any
person covered by Section 402 hereof by a written agreement signed by the
Corporation and such person.
(g) The Corporation shall have the right to appoint the
attorney for a person covered by Section 402 hereof, provided such appointment
is not unreasonable under the circumstances.
Section 407. Optional Indemnification. The Corporation may, to the
fullest extent permitted by applicable law, indemnify, and advance or reimburse
expenses for, persons in all situations other than that covered by Section 402.
ARTICLE V. SHARES OF CAPITAL STOCK.
Section 501. Authority to Sign Share Certificate. Every share
certificate of the Corporation shall be signed by the Chairman, Chief Executive
Officer or the President and by the Secretary or one of the Assistant
Secretaries. If the certificate is signed by a transfer agent or registrar, the
signature of any officer of the Corporation on the certificate may be facsimile,
engraved or printed.
<PAGE>
Section 502. Lost or Destroyed Certificates. Any person claiming a
share certificate to be lost, destroyed or wrongfully taken shall receive a
replacement certificate if such shareholder: (a) requests such replacement
certificate before the Corporation has notice that the shares have been acquired
by a bona fide purchaser; (b) files with the Corporation an indemnity bond
deemed sufficient by the Board of Directors; and (c) satisfies any other
reasonable requirements fixed by the Board of Directors.
ARTICLE VI. GENERAL.
Section 601. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 602. Record Date. The Board of Directors may fix any time prior
to the date of any meeting of shareholders as a record date for the
determination of shareholders entitled to notice of, or to vote at, the meeting,
which time, except in the case of an adjourned meeting, shall be not more than
ninety (90) days prior to the date of the meeting of shareholders. The Board of
Directors may fix any time whatsoever (whether or not the same is more than
ninety (90) days) prior to the date for the payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or will go into effect,
as a record date for the determination of the shareholders entitled to receive
payment of any such dividend or distribution, or to receive any such allotment
of rights, or to exercise the rights in respect to any such change, conversion
or exchange of shares.
Section 603. Emergency Bylaws. In the event of any emergency resulting
from an attack on the United States, a nuclear disaster or another catastrophe
as a result of which a quorum cannot be readily assembled and during the
continuance of such emergency, the following Bylaw provisions shall be in
effect, notwithstanding any other provisions of these Bylaws.
(a) A meeting of the Board of Directors or of any committee
thereof may be called by any officer or director upon one hour's notice to all
persons entitled to notice whom, in the sole judgment of the notifier, it is
feasible to notify;
(b) The director or directors in attendance at the meeting of
the Board of Directors or of any committee thereof shall constitute a quorum;
and
(c) These Bylaws may be amended or repealed, in whole or in
part, by a majority vote of the directors attending any meeting of the Board of
Directors, provided such amendment or repeal shall only be effective for the
duration of such emergency.
Section 604. Severability. If any provision of these Bylaws is illegal
or unenforceable as such, such illegality or unenforceability shall not affect
any other provision of these Bylaws and such other provisions shall continue in
full force and effect.
ARTICLE VII. AMENDMENTS.
Section 701. Amendment or Repeal by the Board of Directors. Except as
provided by applicable law, these Bylaws may be amended or repealed, in whole or
in part, by a majority vote of the incumbent directors (as defined herein) on
the Board of Directors. 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.
Section 702. Amendment or Repeal by Shareholders. In the case of a
proposed amendment to or repeal of the Bylaws which has not previously received
the approval of at least a majority of the incumbent directors of the Board of
Directors, such amendment to or repeal of the Bylaws shall require 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
<PAGE>
any duly convened annual or special meeting of the shareholders. This Section
702 may be amended or repealed, in whole or in part, only by 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. 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.
Section 703. Recording Amendments. The text of all amendments to these
Bylaws shall be attached hereto, and a notation of the date of its adoption and
a notation of whether it was adopted by the directors or the shareholders shall
be made in Section 802 hereof.
ARTICLE VIII. ADOPTION OF BYLAWS AND RECORD OF AMENDMENTS THERETO.
Section 801. Adoption and Effective Date. These Bylaws have been
adopted and approved by the Board of Directors of the Corporation on
_____________. These Bylaws shall be effective as of ________________.
Section 802. Amendments to Bylaws.
Section Amended Date Amended Adopted By
<PAGE>
VOTING TRUST AGREEMENT
VOTING TRUST AGREEMENT, dated as of February 11, 2000 (this
"Agreement"), among UICI, a Delaware corporation (the "UICI"), which is
concurrently herewith depositing shares of common stock, no par value (the
"Common Stock"), of HealthAxis.com, Inc., a Pennsylvania corporation
("HealthAxis"), in the Voting Trust created hereunder, and Michael Ashker,
Edward W. LeBaron, Jr. and Dennis B. Maloney as Trustees (the "Trustees").
WHEREAS, UICI has entered into that certain Agreement and Plan of
Merger, dated as of January 26, 2000 (the "Merger Agreement"), by and among
HealthAxis, Inc. (f/k/a Provident American Corporation), a Pennsylvania
corporation (the "Company"), HealthAxis, and HealthAxis Acquisition Corp., a
Pennsylvania corporation ("Newco"), pursuant to which HealthAxis will be merged
with and into Newco (the "Merger") and each share of Common Stock will be
exchanged for 1.127 shares of common stock, $0.10 par value per share, of the
Company (the "Shares"); and
WHEREAS, the Trustees have consented to act as trustees under and in
accordance with the Voting Trust created hereunder.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Delivery of Stock to Trustees.
(a) Concurrently with the execution of this Agreement, UICI is
depositing with the Trustees a certificate or certificates representing
10,103,207 shares of Common Stock either endorsed to the Trustees or accompanied
by appropriate stock transfer powers duly executed in blank for the transfer
thereof to the Trustees. The Trustees shall cause the Common Stock represented
by such certificate to be registered in the names of the Trustees on the books
of HealthAxis and shall cause such Common Stock to be exchanged for the Shares
and registered in the names of the Trustees on the books of the Company.
(b) All certificates representing the Shares or the Common
Stock subject to this Agreement (the "Trust Securities") shall be registered in
the name of the Trustees and shall bear the following legend:
"This certificate has been issued pursuant to, and the shares of Common
Stock represented hereby are subject to, the terms of that certain
Voting Trust Agreement, dated February 11, 2000, among UICI, a Delaware
corporation, and Michael Ashker, Edward W. LeBaron, Jr. and Dennis B.
Maloney as Trustees."
A similar legend shall be placed in the stock ledger of HealthAxis or
the Company, as the case may be, with respect to each certificate representing
the Trust Securities subject to this Agreement.
(c) Upon any transfer of Trust Securities in accordance with
this Agreement, the Common Stock or Shares, as the case may be, will be released
from this Voting Trust and no longer constitute Trust Securities. The Trustees
will remove the legend set forth in Section 1(b) from the stock ledger of
HealthAxis or the Company, as the case may be, and will issue a new certificate
representing the Common Stock or Shares, as the case may be, to the transferee
of the Common Stock or Shares, as the case may be.
2. Creation of Voting Trust.
(a) There is hereby created a voting trust (the "Voting
Trust") in respect of all of the Trust Securities. Upon receipt of the
certificate or certificates representing the Trust Securities deposited with the
Trustees hereunder, the Trustees shall deliver to UICI a Voting Trust
Certificate in the form attached hereto as Exhibit A, evidencing such Trust
Securities registered in UICI's name.
(b) The Voting Trust shall be known as the "UICI Voting
Trust."
<PAGE>
3. Voting and Other Rights.
(a) The Trustees shall have the full and unqualified right and
power in their discretion, until the Trust Securities are no longer subject to
the provisions of this Agreement, (i) to vote the Trust Securities either in
person or by proxy for every purpose for which the Trust Securities may be voted
according to HealthAxis' or the Company's, as the case may be, Certificate of
Incorporation and the Pennsylvania Business Corporation Law of 1988, as amended,
and/or to give written consent in lieu of voting thereon to any corporate act of
HealthAxis or the Company, as the case may be, including, without limitation,
the election of directors by the holders of Common Stock or Shares, as the case
may be, any amendments of HealthAxis' or the Company's, as the case may be,
Certificate of Incorporation, the merger or consolidation of HealthAxis or the
Company, as the case may be, into or with any other corporation or corporations,
a share exchange of the Common Stock or Shares, as the case may be, the sale of
all or substantially all of the assets of HealthAxis or the Company, as the case
may be, and the liquidation or dissolution of HealthAxis or the Company, as the
case may be, (ii) to waive, with respect to the Trust Securities, notice of any
regular or special meeting of stockholders of HealthAxis or the Company, as the
case may be, (iii) to call meetings of stockholders, and (iv) to exercise all
UICI's rights and powers in respect to the Trust Securities.
(b) The Trustees shall not take any action under this
Agreement unless the action to be taken has been concurred in by a majority of
the Trustees. When there are less than three Trustees, concurrence of all the
Trustees shall be required for any action by them. The Trustees may act at a
meeting (which may be by telephone or similar means of communication), or in
writing approved by at least the minimum number of Trustees that would be
necessary to authorize or take such action.
(c) The Trustees in their discretion may appoint an agent or
agents to hold the certificates representing the Trust Securities, to act as
transfer agent with respect to the certificates, to keep suitable transfer and
other records and otherwise to act as agent, subject to the direction of the
Trustees.
4. Dividends, Etc. All dividends on and distributions in respect of any
of the Trust Securities (including dividends, distributions or other payments
made in shares of voting stock or other securities of HealthAxis or the Company,
as the case may be) shall, upon receipt by the Trustees, be promptly paid over
to UICI (less any income or other taxes which may be required by law to be
deducted); provided, that the Trustees may direct HealthAxis or the Company, as
the case may be, to make payment of dividends and distributions directly to
UICI.
5. Transfers.
(a) Subject to Sections 5(b), 5(c) and 5(d) of this Agreement,
UICI shall not have any right to, and the Trustees shall not, sell, pledge or
otherwise dispose of the Trust Securities, or any beneficial interest in any of
the Trust Securities, so long as the Voting Trust is in existence in accordance
with the terms of Section 6 of this Agreement.
(b) UICI may cause the Trustees to sell Trust Securities so
long as, giving effect to such sale, UICI will not beneficially own a number of
Common Stock or Shares, as the case may be, which are not deposited with the
Trustees hereunder, in excess of the number of Trust Securities held by the
Trustees after such sale.
(c) Upon the sale of any of the Common Stock or Shares, as the
case may be, beneficially owned by UICI which are not deposited with the
Trustees hereunder, UICI shall have the right, but not the obligation, to
require the Trustees to sell an equal number of Trust Securities. The proceeds
from the sale of such Trust Securities shall be distributed to UICI by the
Trustees.
(d) In connection with any tender offer for the Trust
Securities, UICI shall have the right to require the Trustees to tender all of
the Trust Securities held by the Voting Trust so long as UICI, concurrently with
such tender, tenders all of the Common Stock or Shares, as the case may be,
beneficially owned by UICI which are not deposited with the Trustees hereunder.
The proceeds from the tender of such Trust Securities shall be distributed to
UICI by the Trustees.
The term "beneficially owned" shall have the meaning ascribed
thereto in Rule 13d-3 under the Securities Exchange Act of 1934. For the
avoidance of doubt, UICI shall be deemed to beneficially own the Trust
Securities.
<PAGE>
6. Termination.
(a) This Agreement shall terminate and be of no further force
and effect upon the earliest to occur of (i) February 11, 2020, (ii) such time
as UICI beneficially owns less than 20% of the issued and outstanding Common
Stock or Shares, as the case may, be on a fully diluted basis, (iii) such time
as any person or persons acting as a group (within the meaning of Rule 13d-5)
owns 51% or more of the issued and outstanding Common Stock or Shares, as the
case may, on a fully diluted basis and (iv) July 31, 2000, if the transactions
contemplated by the Merger Agreement have not been consummated or earlier if the
Merger Agreement is otherwise terminated.
(b) Upon any filing of bankruptcy, dissolution or total or
partial liquidation of HealthAxis or the Company, as the case may be, whether
voluntary or involuntary, the Trustees shall direct that all moneys, securities,
rights or property attributable to the Trust Securities be delivered to UICI.
7. No Compensation. The Trustees shall not be entitled to any
compensation for services rendered as trustees in connection with their duties
under this Agreement.
8. Successor Trustee.
(a) The number of Trustees of the Voting Trust shall be three
or such lesser number as determined by the Trustees; provided, however, that the
number of Trustees of the Voting Trust shall not be less than two.
(b) Each of the members of the Board of Directors (the "Board
of Directors") of HealthAxis or the Company, as the case may be, who are not
affiliated with UICI, shall be eligible to serve as a Trustee (an "Eligible
Person"). The term "affiliated" shall have the meaning ascribed thereto in Rule
405 under the Securities Act of 1933.
(c) Any Trustee may resign at any time, for any reason, by
mailing to HealthAxis or the Company, as the case may be, the other Trustees and
UICI a written resignation to take effect 20 days thereafter or upon the prior
acceptance thereof. If any Trustee ceases to be an Eligible Person for any
reason, such event shall be deemed to be a resignation of such Trustee hereunder
effective immediately upon such event.
(d) Upon the resignation, death or permanent disability of a
Trustee, the continuing Trustees may unanimously select any Eligible Person to
serve as a Trustee.
9. Procedures to Follow on Mergers, Consolidation, Shares, etc. The
Trustees' right to vote (or consent thereto in lieu of voting) any of the Trust
Securities on any merger, consolidation, share exchange or sale of all or
substantially all of the assets of HealthAxis or the Company, as the case may,
or to sell the Trust Securities is subject to satisfaction of the following
conditions:
(a) The Trustees must give UICI notice, specifying full
details of the proposed transaction, including the identity of the other parties
thereto and the consideration to be received thereon, of such proposed vote,
consent or proposed sale at least 20 days before taking action thereon.
(b) The Trustees shall not, except with the consent of UICI,
directly or indirectly, have any interest as the purchaser of the Trust
Securities or in any other party (other than HealthAxis or the Company, as the
case may) to a transaction to which this Section 9 is subject or receive any
benefit from such transaction that is not available to all stockholders pro
rata. As used in this Section 9(b), "interest" means any direct or indirect
interest, whether as owner, shareholder, partner, employee, officer, director or
consultant.
(c) The Trustees shall not vote on (or consent to) any
transaction nor shall the Trustees sell the Trust Securities, unless HealthAxis
or the Company, as the case may be, has received the opinion of a nationally
recognized investment banking firm that the terms of the transaction or sale are
fair to the shareholders of HealthAxis or the Company, as the case may be.
<PAGE>
(d) Unless consented to by UICI, the consideration to be
received by UICI on account of its Common Stock or Shares, as the case may, in
any merger, consolidation, share exchange, sale of assets or sale of Trust
Securities subject to this Agreement shall consist entirely of either or both
(x) cash, or (y) securities of a corporation which are either listed on a
national securities exchange or actively traded in an over-the-counter market
and, for which UICI shall have the agreement of the issuing corporation to
register (at such corporation's expense (except for expenses normally assumed by
the holder of registration rights, such as attorneys' fees) and within a
reasonable time) such securities under the Securities Exchange Act of 1933
and/or applicable state securities laws, which allows UICI to sell such
securities. Any such cash or securities received by the Trustees shall promptly
be distributed to UICI.
10. Amendments. This Agreement may be amended from time to time by a
written instrument executed by UICI and a majority of the Trustees.
11. Exculpation and Indemnification. The Trustees hereby accept the
trust created hereby, but assume no responsibility for the management of
HealthAxis or the Company, as the case may be, or for any action taken by any of
them, by any person they have elected as a director of Newco, HealthAxis or the
Company, as the case may be, or UICI or by HealthAxis or the Company, as the
case may be, pursuant to any vote cast or consent given by the Trustees. The
Trustees, whether or not acting upon the advice of counsel, shall incur no
liability because of any error of law or fact, mistake of judgment or any matter
or thing done or omitted under this Agreement, except for their own individual
malfeasance. The Trustees may in their discretion consult with counsel, who may
be counsel for HealthAxis or the Company, as the case may be, and anything done
or suffered in good faith by the Trustees in accordance with the opinion of
counsel shall be conclusive in favor of the Trustees against HealthAxis or the
Company, as the case may be, UICI and any other interested party. The Trustees
shall be indemnified by HealthAxis or the Company, as the case may be, against
any liability or expense, including legal expense, incurred them in carrying out
their duties; except that they shall not be indemnified for their own individual
malfeasance, where such malfeasance is the result of gross negligence or bad
faith, as defined by a non-appealable order of a court of competent
jurisdiction.
12. Conflicts of Interest. Any Trustee may be a creditor or shareholder
of HealthAxis or the Company, as the case may be, and may act as an officer or
employee of HealthAxis or the Company, as the case may be, and receive
compensation therefor. In addition, any Trustee and any firm of which he may be
a member or equity owner may contract with HealthAxis or the Company, as the
case may be, or buy or become pecuniarily interested in any matter or
transaction to which the corporation may be a party or in which it may be in any
way concerned, as fully as if he were not the Trustee.
13. Successors. This Agreement shall inure to the benefit of and be
binding upon the Trustees and UICI and its legal representatives, successors and
assigns.
14. Construction. The Trustees are authorized and empowered to construe
this Agreement, and their construction of the same in good faith shall be final,
conclusive and binding upon them, UICI and any other interested party.
15. Governing Law. This Agreement shall be construed in accordance with
the internal law (and not the law of conflicts) of the Commonwealth of
Pennsylvania.
16. Severability. In case any one or more of (a) the provisions
contained in this Voting Trust Agreement or (b) the deposits of the Trust
Securities by UICI with the Trustees of the Voting Trust, should be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions and deposits shall not in any way be
affected or impaired thereby.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
* * * * * * *
<PAGE>
IN WITNESS WHEREOF, the undersigned Shareholder and the Trustees have
executed this Voting Trust Agreement as of the date first above written.
TRUSTEES
/s/ Michael Ashker
----------------------------
Michael Ashker
/s/ Edward W. LeBaron, Jr.
----------------------------
Edward W. LeBaron, Jr.
/s/ Dennis B. Maloney
----------------------------
Dennis B. Maloney
UICI
By: /s/ Glenn W. Reed
------------------------
Name: Glen W. Reed
Title: Executive Vice President
and General Counsel
Acknowledged and accepted:
HEALTHAXIS, INC.
By: /s/ Francis L. Gillan III
---------------------------
Name: Francis L. Gillan III
Title: Chief Financial Officer
HEALTHAXIS.COM, INC.
By: /s/ Anthony R. Verdi
---------------------------
Name: Anthony R. Verdi
Title: Chief Financial Officer
<PAGE>
EXHIBIT A
VOTING TRUST CERTIFICATE
No._______________ ________ Shares
This certifies that UICI, a Delaware corporation ("UICI"), has
deposited or caused to be deposited _____ shares of the Common Stock of
[HealthAxis.com, Inc./HealthAxis, Inc.], a Pennsylvania corporation
("Corporation"), with the Trustees under a Voting Trust Agreement, dated as of
February 11, 2000 (the "Agreement"), among UICI and the Trustees. In accordance
with the Agreement, the Trustees shall possess and be entitled to exercise the
rights and powers of ownership pertaining to such shares, including the right to
vote and to sell the same as stated in the Agreement.
This certificate shall be transferable only on the books and records of
the Trust on surrender hereof by UICI in person or by attorney duly authorized
and, until so transferred, the Trustees may treat UICI as the owner of this
certificate for all purposes whatsoever.
This certificate is issued pursuant to, and the rights of UICI are
subject to, and limited by the terms and conditions of, the Agreement. UICI, by
the acceptance hereof, assents to and agrees to be bound by, all the terms and
provisions of the Agreement. Copies of the Agreement are on file at the
registered office of the Corporation and at the offices of the Trustees.
IN WITNESS WHEREOF, this certificate has been duly executed on behalf
of the Trustees this ___ day of __________, 2000.
------------------------------------
_____________________, Trustee
ASSIGNMENT
FOR VALUE RECEIVED, ____________________________ hereby assigns the
within certificate, and all rights and interests represented thereby, to
_____________________ and appoints ________________________ attorney to transfer
this certificate on the books of the Trustees mentioned therein, with full power
of substitution.
Dated:
-----------------------------------
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of HealthAxis, Inc. (formerly known as Provident American
Corporation) of our report dated March 11, 1997 relating to the year ended
December 31, 1996 financial statements, which appears in HealthAxis, Inc.'s 1998
Annual Report on Form 10-K/A for the year ended December 31, 1998. We also
consent to the references to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Philadelphia, PA
February 11, 2000
<PAGE>
BDO Seidman, LLP 1700 Market Street
Accountants and Consultants Philadelphia, Pennsylvania 19103
Telephone: (215) 241-1500
Fax: (215) 636-5501
CONSENT OF INDEPENDENT ACCOUNTANTS
HealthAxis Inc.
East Norriton, PA
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-4 of our report
dated March 30, 1999, relating to the consolidated financial statements and
schedules of HealthAxis Inc. (f/k/a Provident American Corporation) appearing in
the Company's Annual Report on Form 10-K/A for the two years in the period ended
December 31, 1998.
/s/ BDO Seidman, LLP
- --------------------------
BDO SEIDMAN, LLP
Philadelphia, PA
February 11, 2000
<PAGE>
BDO Seidman, LLP 1700 Market Street
Accountants and Consultants Philadelphia, Pennsylvania 19103
Telephone: (215) 241-1500
Fax: (215) 636-5501
CONSENT OF INDEPENDENT ACCOUNTANTS
HealthAxis.com, Inc.
East Norriton, PA
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-4 of our report
dated March 30, 1999, relating to the consolidated financial statements and
schedules of HealthAxis.com, Inc. for the period from Inception (March 26, 1998)
through December 31, 1998, which is contained in the Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
- --------------------------
BDO SEIDMAN, LLP
Philadelphia, PA
February 11, 2000
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 24, 1999, with respect to the financial statements
of Insurdata Incorporated included in the Proxy Statement/ Prospectus of
HealthAxis Inc. that is made a part of the Registration Statement (Form S-4 No.
33-00000) and Prospectus of HealthAxis Inc. for the registration of 39,459,458
shares of its common stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Tx
February 9, 2000
<PAGE>
REVOCABLE PROXY
HEALTHAXIS INC.
Annual Meeting of Stockholders - _________, 2000
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF HEALTHAXIS INC.
The undersigned hereby constitutes and appoints Michael Ashker and
Alvin Clemens and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution for and in the name, place and
stead of the undersigned to appear at the annual meeting of stockholders of
HealthAxis Inc., to be held on ___________, 2000, and at any postponement or
adjournment thereof, and to vote all of the shares of capital stock of Provident
which the undersigned is entitled to vote, with all the powers and authority the
undersigned would possess if personally present. The undersigned directs this
proxy to vote as indicated on the reverse side of this proxy card:
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS TO THE CONTRARY ARE INDICATED, THE PERSONS NAMED HEREIN INTEND TO
VOTE FOR THE ELECTION OF THE NOMINEES, ITEM 2, ITEM 3, ITEM 4, ITEM 5 AND ITEM
6. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED
BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THE PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
(Continued and to be signed on reverse side)
<PAGE>
Please mark your votes as in this example. _X_
The Board of Directors recommends a VOTE "FOR" the election of the nominees
listed below and for Item 2, Item 3, Item 4, Item 5 and Item 6.
I. The election as directors of all of the following nominees for the term of
one year:
MICHAEL ASHKER
ALVIN H. CLEMENS
HENRY G. HAGER
PATRICK J. McLAUGHLIN
EDWARD W. LeBARON, JR.
GREGORY T. MUTZ
DENNIS B. MALONEY
[ ] FOR [ ] VOTE WITHHELD
To withhold authority to vote for an individual nominee, write that
nominee's name on the space provided below:
-----------------------------------------------
II. To adopt the agreement and plan of reorganization and the agreement and
plan of merger, each dated as of January 26, 2000, among HealthAxis Inc.,
HeathAxis.com, Inc. and HealthAxis Acquisition Corp., a wholly-owned
subsidiary of HealthAxis Inc., and to approve the merger, the issuance of
HealthAxis Inc. shares and other transactions described in the merger
agreements ("Item 2");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
III. To adopt and approve HealthAxis Inc.'s amended and restated articles of
incorporation ("Item 3");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IV. To approve the adoption of the 2000 Stock Option Plan ("Item 4");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
V. To approve the appointment of BDO Seidman LLP as independent public
accountants for HealthAxis Inc. for its 2000 fiscal year ("Item 5");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
VI. 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 ("Item 6");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
VII. In their discretion, the proxies are authorized to vote on any other
business as may properly come before the annual meeting or any adjournment
or postponement thereof.
Should the undersigned be present and choose to vote at the annual meeting
or at any adjournments or postponements thereof, and after notification to the
Secretary of HealthAxis Inc. at the annual meeting of the stockholder's decision
to terminate this proxy, then the power of such attorneys or proxies shall be
terminated and shall have no force and effect. This proxy may also be revoked by
filing a written notice of revocation with the Secretary or by duly executing a
proxy bearing a later date.
The undersigned hereby acknowledges receipt of HealthAxis Inc.'s 2000
Annual Report to Shareholders, Notice of HealthAxis Inc.'s annual meeting and
the joint proxy statement/prospectus relating thereto.
<PAGE>
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
<TABLE>
<CAPTION>
<S> <C> <C>
_________________________________ _________________________________ DATE:__________________________, 2000
Signature(s) (Please date this proxy)
</TABLE>
NOTE: It would be helpful if you signed your name exactly as it appears on your
stock certificate(s), indicating any official position or representative
capacity. If shares are registered in more than one name, all owners
should sign.
Please date, sign and mail your
proxy card back as soon as possible.
<PAGE>
REVOCABLE PROXY
HEALTHAXIS.COM, INC.
Annual Meeting of Stockholders - _________, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HEALTHAXIS
The undersigned hereby constitutes and appoints Michael Ashker and
Anthony Verdi and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution for and in the name, place and
stead of the undersigned to appear at the annual meeting of stockholders of
HealthAxis.com, Inc. ("HealthAxis"), to be held on ___________, 2000, and at any
postponement or adjournment thereof, and to vote all of the shares of common or
preferred stock of HealthAxis which the undersigned is entitled to vote, with
all the powers and authority the undersigned would possess if personally
present. The undersigned directs this proxy to vote as indicated on the reverse
side of this proxy card:
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS TO THE CONTRARY ARE INDICATED, THE PERSONS NAMED HEREIN INTEND TO
VOTE FOR THE ELECTION OF THE NOMINEES, ITEM 2 AND ITEM 3. IF ANY OTHER BUSINESS
IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THE PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
(Continued and to be signed on reverse side)
<PAGE>
Please mark your votes as in this example.
The Board of Directors recommends a VOTE "FOR" the election of the nominees
listed below, Item 2 and Item 3.
I. The election as directors of the following nominees for the term of one
year:
MICHAEL ASHKER
ALVIN H. CLEMENS
HENRY G. HAGER
PATRICK J. McLAUGHLIN
EDWARD W. LEBARON, JR.
GREGORY T. MUTZ
DENNIS B. MALONEY
[ ] FOR [ ] VOTE WITHHELD
To withhold authority to vote for an individual nominee, write that
nominee's name on the space provided below.
---------------------------------------------------
II. To adopt the agreement and plan of reorganization and the agreement and
plan of merger, each dated as of January 26, 2000 among HealthAxis Inc.
(formerly Provident American Corporation) HealthAxis and HealthAxis
Acquisition Corp., a wholly owned subsidiary of HealthAxis Inc., and to
approve the merger and other transactions described in the merger
agreements ("Item 2");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. 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 ("Item 3");
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
IV. In their discretion, the proxies are authorized to vote on any other
business as may properly come before the annual meeting or any adjournment
or postponement thereof.
Should the undersigned be present and choose to vote at the annual meeting
or at any adjournments or postponements thereof, and after notification to the
Secretary of HealthAxis at the annual meeting of the stockholder's decision to
terminate this proxy, then the power of such attorneys or proxies shall be
terminated and shall have no force and effect. This proxy may also be revoked by
filing a written notice of revocation with the Secretary or by duly executing a
proxy bearing a later date.
The undersigned hereby acknowledges receipt of Notice of HealthAxis' Annual
Meeting and the joint proxy statement /prospectus.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
<TABLE>
<CAPTION>
<S> <C>
_________________________________ _________________________________ DATE:__________________________, 2000
Signature(s) (Please date this proxy.)
</TABLE>
NOTE: It would be helpful if you signed your name exactly as it appears on your
stock certificate(s), indicating any official position or representative
capacity. If shares are registered in more than one name, all owners
should sign.
Please date, sign and mail your
proxy card back as soon as possible.
