SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 26, 2001
HealthAxis Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 0-13591 23-2214195
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2500 DeKalb Pike, East Norriton, Pennsylvania 19401
----------------------------------------------------
(Address of principal executive offices/Zip Code)
Former name, former address, and former fiscal year, if changed since last
report: N/A
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Item 1. Changes in Control of Registrant
Item 2. Acquisition or Disposition of Assets
The following information is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and financial data,
including the Consolidated Financial Statements of HealthAxis Inc. ("HAI") and
its subsidiaries, and the notes thereto, appearing in HAI's reports filed with
the Securities and Exchange Commission ("SEC"). Except for the historical
information contained herein, this Current Report on Form 8-K, contains certain
forward-looking statements regarding HAI's business and prospects that are based
upon numerous assumptions about future conditions which may ultimately prove to
be inaccurate and actual events and results may materially differ from
anticipated results described in such statements. Such forward-looking
statements involve risks and uncertainties, such as historical and anticipated
losses; uncertainty of future results, new business challenges, competition,
customer concentration, protection of proprietary technology, trademark
infringement, uncertain acceptance of the Internet as a medium for health
insurance sales, foreign operations, changes in insurance industry regulations,
regulation of the Internet and legal uncertainties, potential conflicts of
interest, and control by large shareholders, officers or directors. Any one or a
combination of these factors could have a material adverse effect on HAI's
business, financial condition and results of operations. These forward-looking
statements represent HAI's judgment as of the date of this report. HAI
disclaims, however, any intent or obligation to update these forward-looking
statements.
BUSINESS COMBINATION WITH HEALTHAXIS.COM, INC.
General
On October 26, 2000, HealthAxis.com, Inc. ("HealthAxis"), HealthAxis
Acquisition Corp. ("Newco") and HealthAxis Inc. ("HAI") entered into an Amended
and Restated Agreement and Plan of Reorganization and an Amended and Restated
Agreement and Plan of Merger (the "Merger Agreements") which set forth the terms
and conditions under which HealthAxis will be merged with and into Newco (the
"HAI Merger" or the "Merger"). The Merger was consummated and effective on
January 26, 2001.
Reorganization Agreement and Merger Agreement
In accordance with the terms of the Merger Agreements, each outstanding
share of HealthAxis common stock, no par value per share, and each outstanding
share of HealthAxis preferred stock, $1.00 par value per share, (the "HealthAxis
Stock"), outstanding immediately prior to the effective date of the Merger (the
"Effective Date"), other than as otherwise provided in the Merger Agreements,
was converted into the right to receive 1.334 shares (the "Exchange Ratio") of
HAI common stock, $0.10 par value per share (the "HAI Common Stock"). HAI issued
39,629,133 shares of HAI Common Stock to HealthAxis shareholders
Each holder of HealthAxis Stock who would otherwise have been entitled
to receive a fraction of a share of HAI Common Stock (after taking into account
all of the shareholders' certificates) received cash, in lieu thereof, equal to
an amount determined by multiplying such fraction by the price of a share of HAI
Common Stock as quoted on the NASDAQ National Market on the Effective Date.
Excluding shares subject to stock options and warrants assumed
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by HAI, the HAI shareholders existing prior to the Merger now own approximately
24.8% of the outstanding HAI Common Stock and the former HealthAxis shareholders
own approximately 75.2% of the outstanding HAI Common Stock, including UICI
which will beneficially own approximately 45.5% of the outstanding HAI Common
Stock.
The Merger Agreements provide that each option and warrant to acquire
shares of HealthAxis Stock that was issued and outstanding on the Effective Date
was converted into options or warrants to acquire shares of HAI Common Stock.
HAI anticipates that it will issue up to an additional 8,085,732 shares of HAI
Common Stock upon the exercise of the options and warrants to purchase
HealthAxis Stock to be assumed by HAI. On the Effective Date, each of the
options and warrants to purchase HealthAxis Stock were, by virtue of the Merger
and without any action on the part of the holder, automatically adjusted to
provide that (a) the number and type of shares issuable upon exercise of the
option or warrant will be that number of shares of HAI Common Stock (rounded
down to the nearest whole number of shares) equal to the number of shares of
HealthAxis Stock issuable upon exercise of the option or warrant on the
Effective Date, multiplied by the Exchange Ratio, and (b) the exercise price per
share of HAI Common Stock under the option or warrant will be the amount
(rounded up to the nearest whole cent) equal to the exercise price per share of
HealthAxis Stock under the option or warrant on the Effective Date, divided by
the Exchange Ratio.
The Merger is intended to constitute a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended, and is being accounted
for as a purchase under generally accepted accounting principles.
Shareholders' Agreement
In connection with the consummation of the Merger Agreements, HAI,
UICI, a Delaware corporation, Michael Ashker and Alvin H. Clemens entered into a
shareholders' agreement (the "Shareholders' Agreement"). Under the terms of the
Shareholders' Agreement, the Board of Directors of HAI shall consist of up to
nine members. UICI and HAI each independently nominated three nominees to the
board and, the remaining 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. The obligations with regard to director nominees
terminate upon UICI's beneficial ownership of less than 20% of the HAI Common
Stock on a fully diluted basis.
The HAI Board shall initially consist of eight members. Gregory T.
Mutz, President and CEO of UICI, Patrick McLaughlin, a director of UICI, and
Dennis B. Maloney, Chief Operating Officer of HealthAxis, are the initial UICI
nominees. Michael Ashker, President and CEO of HAI, Alvin H. Clemens, Chairman
of HAI and HealthAxis and Edward W. LeBaron, Jr., a director of HAI and
HealthAxis are the initial HAI nominees. Henry Hager, a director of HAI and
HealthAxis, and Jaime McLane, a director of HealthAxis, are the initial nominees
agreed to by UICI and HAI.
Subject to certain conditions set forth in the Shareholders' Agreement,
the Shareholders' Agreement also provides that HAI can cause UICI to transfer up
to 1,414,385 shares of its HAI Common Stock to unaffiliated third parties.
3
The Shareholders' Agreement also provides UICI with the right, in its
sole and absolute discretion, to approve the calculation of the amount and
amortization period of all goodwill and other intangibles created in connection
with the merger of Insurdata Incorporated, a Texas corporation, with and into
HealthAxis, subject to compliance with generally accepted accounting principles.
Item 5. Other Events
Amendments to HAI's Amended and Restated Articles of Incorporation and Bylaws
On January 26, 2001, shareholders of HAI approved the following
amendments to the Amended and Restated Articles of Incorporation of HAI:
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;
o Decrease the shareholder vote required to approve a merger,
consolidation, liquidation, dissolution or sale of substantially all
of HAI's assets; and
o Provide that HAI has opted out of some of the subchapters of the
Pennsylvania Business Corporation Law.
Additionally, the Board of Directors of HAI previously adopted Amended
and Restated Bylaws.
4
Description of HAI Capital Stock
As a result of these changes, the description of HAI's common stock is
as follows:
The authorized capital stock of HAI consists 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, 2001, there were approximately
52,726,751 shares of HAI common stock outstanding. HAI common stock is listed
and traded on the NASDAQ National Market under the symbol "HAXS." Holders of HAI
common stock are entitled to one vote per share on all matters to be voted upon
by the shareholders. The shareholders may not cumulate votes in connection with
the election of directors. The holders of HAI common stock are entitled to
receive ratably dividends, if any, declared from time to time by the HAI board
of directors out of funds legally available for dividends. In the event of a
liquidation, dissolution or winding up of HAI, the holders of HAI common stock
are entitled to share ratably in all assets remaining after payment of
liabilities. The HAI common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the HAI common stock. All outstanding shares of HAI common stock
are fully paid and non-assessable, and the shares of HAI common stock to be
outstanding upon completion of the Merger will be fully paid and non-assessable.
HAI Preferred Stock. HAI has 100,000,000 shares of HAI preferred stock
authorized, and no shares 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 (917) 320-6216.
Amendment to Securities Purchase Agreement Related to the 2% Convertible
Debentures
Pursuant to the September 28, 2000 Amendment ("the Amendment") to the
Securities Purchase Agreement dated September 14, 1999 between the Company and
the holders of the Company's $27.5 million 2% Convertible Debentures due
September 14, 2002 (the "Debentures"), on January 29, 2001, the Company and the
debenture holders consummated the transactions contemplated by the Amendment to
the Securities Purchase Agreement. In accordance with the terms of the Amendment
to the Securities Purchase Agreement, the terms of the Debentures were amended
to, among other things, extend the maturity of the Debentures to September 14,
2005, change the conversion price to $9.00 per share and modify the events of
default (the "Amended Debentures"). Based upon the revised conversion price, the
Amended
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Debentures are convertible into 3,055,555 shares of HAI's common stock (the
"Common Stock"). The Warrants to purchase 202,802 shares of the Company's Common
Stock issued to the purchasers of the Debentures were also amended to reduce the
exercise price to $3.01 and to extend the exercise period of the warrants for an
additional year, or until September 13, 2005 (the "Amended Warrants"). In
addition, as part of this transaction, the Company and the holders of the
Debentures entered into an Amended and Restated Registration Rights Agreement.
The Amendment to the Securities Purchase Agreement provided that, among
other things, the amendments to the Debentures, Warrants and the Registration
Rights Agreement shall take effect on or before the fifth business day after the
Company's shareholders approved the previously described Reorganization between
the Company and HealthAxis. The Reorganization was approved by the requisite
vote of shareholders of the Company on January 26, 2001. The holders of the
Debentures agreed to conditionally waive and suspend any and all past or current
defaults or violations arising under the Debentures or the Registration Rights
Agreement as well as any prospective defaults or violations arising under these
agreements from September 28, 2000 through the closing date, and upon the
closing of the transactions contemplated by the Amendment to the Securities
Purchase Agreement to forbear and waive any and all past or current defaults or
violations by the Company arising under the Debenture or the Registration Rights
Agreement. See the Company's Current Report on Form 8-K filed with the SEC on
October 11, 2000 for additional information regarding the conditions applicable
to this waiver and forbearance.
Amended 2% Convertible Debentures. Under the terms of the Amended
Debentures, effective January 29, 2001, interest will commence accruing daily
from July 1, 2000 at the rate of 2% per annum, payable in cash or equivalent
value of the Company's common stock, semi-annually on January 1 and July 1 (the
"Interest Payment Date") of each year, beginning on January 1, 2001. Accrued,
unpaid and past due amounts bear interest at the rate of 15% per annum (the
"Default Rate").
Interest due on the principal (but not interest overdue for more than
five days), may be paid in cash or in shares of the Company's common stock
calculated based upon the average price as of the applicable record date. Except
with respect to overdue interest, it is assumed that the Company will make all
payments of interest in common stock, unless the Company notifies the holder in
writing otherwise.
The Company may not issue shares of common stock in payment of interest
if, among other things: (i) there is an insufficient number of shares of common
stock to pay the interest or there is an insufficient number of shares for issue
for full conversion of all of the Debentures issued pursuant to the Securities
Purchase Agreement; (ii) the shares are not registered for resale or freely
transferable; (iii) the shares are neither listed nor quoted on the NASDAQ or a
subsequent market; (iv) the issuance of the shares would result in the
recipient's beneficially owning more than 9.99% of the issued and outstanding
shares of common stock; and (v) an Event of Default (as defined below) has
occurred and is continuing.
Pursuant to the terms of the Amended Debentures, an Event of Default is
defined as one or more of the following events: (a) a default in payment of
interest or principal on the Debentures; (b) a failure of the Company to observe
or perform any of the covenants or
6
agreements in the Amended Debentures, the Securities Purchase Agreement, the
Amendment to the Securities Purchase Agreement or the Amended and Restated
Registration Rights Agreement; (c) the entry of a decree or order for relief in
an involuntary case under any applicable bankruptcy, insolvency or similar law;
(d) the commencement of a voluntary case under any applicable bankruptcy,
insolvency or other similar law; (e) any representation or warranty made by the
Company in the original Securities Purchase Agreement or the amendment thereto
proves to have been incorrect in any material respect when made; (f) the
registration statement on Form S-3 for the shares of common stock issuable upon
conversion of the Debentures shall not have been amended and filed with the SEC
on or prior to the earlier of twenty business days following the date a majority
of shareholders approve the Reorganization or April 27, 2001 or the Company
fails to respond as promptly as practicable, but in no event later than ten
business days, to any comments received from the SEC, or after the initial
effectiveness, such registration statement lapses in effect or sales cannot be
made, subject to certain exceptions; (g) a change of control occurs and the
obligations of the Company under the Debentures are neither fully assumed by the
controlling entity nor fully discharged or accounted for; (h) the Company fails
to use reasonable best efforts to cause its transfer agent to deliver shares of
common stock promptly after the holder delivers a notice of conversion. Upon
occurrence of an Event of Default other than an Event of Default listed in
Sections (c) and (d) listed above, the holder of the Amended Debentures may
declare the entire principal amount of the Debentures and any interest accrued
thereon due and payable immediately.
The conversion price is subject to adjustment from time to time. The
events giving rise to an adjustment include but are not limited to the
following: (a) if the Company pays a stock dividend, combines its common stock,
or issues by reclassification of shares of common stock any capital stock; (b)
if the Company issues rights, options, warrants or other securities to all of
the holders of common stock which allows them to acquire shares of common stock
for no consideration or at a price per share less than the conversion price; (c)
if the Company distributes to all of the holders of common stock evidence of the
Company's indebtedness or assets or rights, options, warrants or other
securities entitling them to subscribe for, purchase, convert to, exchange for
or to otherwise acquire any security; (d) if any event occurs that is not
expressly provided for by the above mentioned provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features). Upon the occurrence of any such event, the
Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Debentures.
Certain events are excluded from these adjustments.
In addition, subject to certain exceptions detailed in the Amended
Debentures, if the Company takes certain actions while the Amended Debentures
are outstanding, the holder has the right to amend the issuance terms in the
Amended Debentures. These actions include the Company's issuing or selling any
shares of common stock or security convertible into common stock for a price per
share less than the conversion price, except as specifically excluded in the
Amended Debentures.
In the event of a default, the Company will be required to pay a sum
comprised of the Mandatory Prepayment Amount (as defined), and the holder's
reasonable costs of collection. The Mandatory Prepayment Amount is equal to (i)
the sum of 100% of the principal amount of the Debenture to be prepaid plus
costs, interest, expenses and liquidated damages; or (ii) in the
7
event of certain defaults, the sum of (i) the principal amount of the Debenture
to be prepaid, plus all accrued and unpaid interest thereon, divided by either
the lesser of the conversion price or the Average Price on the Trading Date
immediately prior to the date the Mandatory Prepayment Amount is paid in full,
multiplied by the Per Share Market Value on the Trading Date immediately prior
to the date the Mandatory Prepayment is paid in full and (ii) all other amounts,
costs, interest, expenses and liquidated damages due in respect to the principal
amount.
Amended Warrants. The terms of the Warrants to purchase 202,802 shares
of Common Stock, were amended, effective January 29, 2001, to change the
exercise price to $3.01 per share and to extend the term of the Warrants until
September 13, 2005.
Amended and Restated Registration Rights Agreement. Under the terms of
the Amended and Restated Registration Right Agreements effective January 29,
2001, the Company will be required to file an amendment to the Form S-3
Registration Statement to cover not less than 110% of the Registrable Securities
(as defined therein) to be made on a continuous basis pursuant to a "Shelf"
registration statement under Rule 415 of the Securities Act. Subject to certain
limitations, the Registration Statement should remain effective until four years
from the date the Registration Statement is declared effective by the Securities
and Exchange Commission. There is also a one time underwritten registration
obligation applicable on or after September 1, 2001.
If at any time the Registrable Securities are not covered by an
effective registration statement, and the Company files a registration statement
relating to an offering of its equity securities, the Company is required to
notify the holders of Registrable Securities of the filing and will use
reasonable efforts to effect piggy-back registration of the Registrable
Securities requested to be registered by the holders, subject to certain
existing piggy-back rights.
In the event the Company does not fulfill obligations under this
amended and restated agreement, it is subject to certain financial penalties.
The Company is responsible for all fees and expenses related to the
Shelf registration statement, except for the holders' legal fees (other than
fees for Blue Sky qualification). The holders of the Amended Debentures and
Warrants are responsible for all fees and expenses relating to an Underwritten
Offering.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of business acquired.
(i) HealthAxis.com, Inc. and Subsidiaries Consolidated
Financial Statements for the year ended December 31,
1999 and for the period from Inception (March 26,
1998) to December 31, 1998 with Report of Independent
Auditors and for the nine months ended September 30,
2000 are included in Exhibit 99.3.
(ii) Insurdata Incorporated and Subsidiaries Consolidated
Financial Statements for the years ended December 31,
1998 and 1999 with Report of Independent Auditors are
included in Exhibit 99.4.
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(b) Pro-forma Financial Information.
(i) Unaudited proforma condensed consolidated balance
sheet at September 30, 2000;
(ii) Unaudited proforma condensed consolidated statement
of operations for the nine months ended September 30,
2000;
(iii) Unaudited proforma condensed consolidated balance
sheet at December 31,1999; and
(iv) Unaudited proforma condensed consolidated statement
of operations for the year ended December 31, 1999.
The following unaudited pro forma consolidated balance sheet as of
September 30, 2000 gives effect to the HAI Merger as if it had occurred on
September 30, 2000. The unaudited pro forma consolidated statement of operations
for the year ended December 31, 1999 gives effect to the Insurdata merger and
the HAI Merger as if they occurred on January 1, 1999. The unaudited pro forma
consolidated statement of operations for the nine months ended September 30,
2000 give effect to the HAI Merger as if it had occurred on January 1, 1999. The
results of the Insurdata merger have been included in the historical statement
of operations as filed for the nine months ended September 30, 2000.
The unaudited pro forma condensed consolidated financial statements are
presented for informational purposes only and do not purport to be indicative of
the financial position which would actually have existed or the results of the
operations which would actually have been obtained if the transactions had
occurred at and for the periods indicated above or which may exist or be
obtained in the future.
The unaudited pro forma consolidated financial information should be
read in conjunction with the notes hereto and the following:
o HAI's historical consolidated financial statements and notes thereto
for each of the three years in the period ended December 31, 1999
included in HAI's Annual Report on Form 10-K/A;
o HAI's historical consolidated financial statements and notes thereto
included in HAI's quarterly report on Form 10-Q for the nine months
ended September 30, 2000;
o HealthAxis' historical consolidated financial statements and notes
included elsewhere herein for the year ended December 31, 1999 and
the nine months ended September 30, 2000 and for the period from
Inception (March 26, 1998) through December 31, 1998; and
o Insurdata Incorporated's historical consolidated financial statements
and notes thereto included elsewhere herein for each of the three
years in the period ended December 31, 1999.
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HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in the thousands, except share and per share data)
Nine Months Ended September 30, 2000
Pro Forma
As Reported Adjustments Pro Forma
----------------- ---------------- -----------------
Net Revenues............................ $ 32,754 $ -- $ 32,754
----------------- ----------------- -----------------
Expenses:
Cost of Revenues................... 22,850 618 23,468
Operating.......................... 13,658 227 13,885
Sales and marketing................ 2,389 13 2,402
General and administrative......... 10,464 404 10,068
Amortization of intangibles........ 30,837 (12,659) (4) 18,178
Interest expense................... 1,093 -- 1,093
----------------- ----------------- -----------------
Total expenses..................... 81,291 (11,397) 69,894
----------------- ----------------- -----------------
(Loss) from operations............. (48,537) 11,397 (37,140)
Provisions (benefit) for income
taxes ........................... -- -- --
----------------- ----------------- -----------------
(Loss) before minority interest.... (48,537) 11,397 (37,140)
Minority interest................. 26,854 (26,854) --
----------------- ----------------- -----------------
(Loss) from continuing operations.. $ (21,683) $ (15,457) $ (37,140)
================= =============== =================
Basic and diluted (loss) per common
share from continuing operations...... $ (1.66) $ (0.70)
Basic and diluted weighted average
common shares outstanding............. 13,079,000 52,708,000
10
HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in the thousands)
As of September 30, 2000
Pro Forma
As Reported Adjustments Pro Forma
---------------- ---------------- ----------------
Assets
Cash and cash equivalents............... $ 25,170 $ -- $ 25,170
Accounts and notes receivable........... 8,983 -- 8,983
Prepaid interactive marketing expense... 622 -- 622
Other assets............................ 147 -- 147
---------------- ---------------- ----------------
Total current assets.................... 34,922 -- 34,922
Property, equipment and software, net... 12,357 -- 12,357
Capitalized software costs.............. 4,884 6,047 (4) 10,931
Other intangibles....................... 13,979 (6,749) (4) 7,230
Goodwill, net........................... 656,602 (344,182) (4) 312,420
Investment in Digital Insurance......... 3,178 -- 3,178
Other assets............................ 1,663 -- 1,663
---------------- ---------------- ----------------
Total Assets............................ $ 727,585 $ (344,884) $ 382,701
================ ================ ================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable........................ $ 880 $ -- $ 880
Accrued commissions and expenses........ 6,166 2,125 (6) 8,291
Current maturities...................... 311 -- 311
Deferred revenues....................... 432 -- 432
---------------- ---------------- ----------------
Total current liabilities............... 7,789 2,125 9,914
Convertible debentures.................. 26,715 447 (5) 27,162
Other long-term liabilities............. 7,815 -- 7,815
---------------- ---------------- ----------------
Total liabilities....................... 42,319 2,572 44,891
Minority Interest....................... 466,318 (466,318) (4) --
Stockholders' Equity:
Preferred stock......................... -- -- --
Common stock............................ 1,310 3,963 (7) 5,273
Additional paid in capital.............. 325,816 111,863 (7) 437,679
Unearned compensation................... (6,871) 5,608 (7) (1,263)
Accumulated deficit .................... (101,307) (2,572) (7) (103,879)
---------------- ---------------- ----------------
Total Stockholders' Equity.............. 218,948 118,862 337,810
---------------- ---------------- ----------------
Total Liabilities and Stockholders' Equity $ 727,585 $ (344,884) $ 382,701
================ ================ ================
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HEALTHAXIS INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in the thousands, except share and per share data)
Year Ended December 31, 1999
Non Merging Insurdata
Insurdata Incorporated
As Insurdata Incorporated Merger Pro Forma Pro
Reported Incorporated Subsidiaries Adjustments Subtotal Adjustments Forma
-------- ------------ ------------ ------------ -------- ----------- -------
(1) (2)
Revenue:
Commission and fee revenue..... $ -- $46,463 $(3,566) $ -- $ 42,897 $ -- $ 42,897
Interest and other revenue..... 80 13 93 -- 93
------- ------- ------- -------- -------- -------- --------
Total revenue.................. $ -- $46,543 $(3,553) $ -- $ 42,990 $ -- $ 42,990
------- ------- ------- -------- -------- -------- --------
Expenses:
Operating.................... 504 38,470 (3,069) 35,905 1,127 37,032
Sales and marketing.......... 447 475 922 17 939
General and administrative... 7,457 5,395 (77) 12,775 538 13,313
Amortization of intangibles.. 765 42,571 (3) 43,336 (16,880) (4) 26,456
Interest expense............. 925 925 -- 925
------- ------- ------- -------- -------- -------- --------
Total expenses............... $10,098 $44,340 $(3,146) $ 42,571 $ 93,863 $(15,198) $ 79,665
------- ------- ------- -------- -------- -------- --------
Income (loss) from operations (10,098) 2,203 (407) (42,571) (50,873) 15,095 (35,676)
Provisions (benefit) for
income taxes:.............. 832 (119) (713) -- -- --
------- ------- ------- -------- -------- -------- --------
Income (loss) before minority
interest................... (10,098) 1,371 (288) (41,858) (50,873) 15,095 (35,676)
Minority interest............ 1,008 (93) 93 1,008 (1,008) --
------- ------- ------- -------- -------- -------- --------
Income (loss) from continuing
operations................ $(9,090) $ 1,278 $ (195) $(41,858) $(49,865) $ 14,190 $(35,676)
======= ======= ======= ======== ======== ======== ========
Basic and diluted (loss) per
common share from continuing
operations...................... $ (0.73) $ (0.69)
Basic and diluted weighted
average common shares
outstanding..................... 12,260,000 51,889,000
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HEALTHAXIS INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands except per share data)
1. Historical consolidated financial statements of Insurdata Incorporated.
2. Adjustment relates to Insurdata Incorporated's sale of Insurdata Marketing
Services, LLC and Insurdata Administrators, a division of Insurdata
Incorporated, at book value to UICI on October 1, 1999. The adjustment to
the 1999 Statement of Operations was made to eliminate the activity of these
two entities from January 1, 1999 to September 30, 1999 that is included in
the historical consolidated financial statements of Insurdata Incorporated.
The operations listed above were retained by UICI prior to the merger of
Insurdata Incorporated and HealthAxis.
3. On December 6, 1999, HealthAxis, Insurdata Incorporated, HAI and UICI
entered into an agreement and plan of merger which set forth the terms and
conditions under which Insurdata Incorporated was merged with and into
HealthAxis. On January 7, 2000, HealthAxis completed a merger with Insurdata
Incorporated in which HealthAxis exchanged 21,807,567 shares of its common
stock for 100% of the issued and outstanding shares of Insurdata
Incorporated. This merger has been accounted for as a purchase in the
historical financial statements for the nine months ended September 30,
2000. In accordance with Accounting Principles Board Opinion No. 16., the
following was considered:
o HAI's stock as traded on the open market was being valued as an
Internet company since the insurance operations were discontinued.
o The Insurdata merger and the HAI Merger were announced to the public
simultaneously which eliminated investor confusion relative to HAI's
long history as a health insurance underwriter and defined
management's intention to become a provider of software and
application integration services which utilize the Internet for
health insurance distribution and administration.
In consideration of the above, the value of HAI's stock as traded in
the open market appears to be the best indication of the fair value of the
shares exchanged in the Insurdata merger. The total purchase price will also be
adjusted for a 10% liquidity discount.
The fair value of the Insurdata assets and liabilities acquired through
the Insurdata merger were:
Cash and cash equivalents............................ $ 2,126
Accounts receivable, net............................. 5,834
Fixed assets......................................... 6,278
Developed software................................... 2,862
Unearned compensation................................ 10,691
Customer base........................................ 17,205
Goodwill............................................. 682,184
Other assets......................................... 1,768
Other liabilities.................................... (5,021)
---------
$ 723,927
13
Included in the Insurdata Merger Adjustments on the Pro forma Condensed
Consolidated Statement of Operations for the Year Ended December 31, 1999 is the
amortization of intangibles resulting from the above purchase price allocation.
Amortization of these intangibles on an annual basis has been calculated as
follows:
Annual
Asset Life Amount Amortization
- -------------------------------------------- ----------- ------------------- -----------------
Customer Base 48 months $ 17,205 $ 4,301
Developed Software 36 months $ 2,862 $ 954
Goodwill 240 months $ 682,184 $ 34,109
Unearned compensation 40 months $ 10,691 $ 3,207
-----------------
Total $ 42,571
=================
4. On September 29, 2000 HAI and HealthAxis entered into an Amended and
Restated Agreement and Plan of Reorganization. Under the agreement, HAI will
issue approximately 39,629,000 new shares of HAI common stock in exchange
for the outstanding shares of HealthAxis not currently held by HAI. This
Merger will be accounted for as a purchase of minority interest. The
purchase price will be determined as follows:
Number of HAI shares issued in HAI Merger................... 39,629,000
Fair value of HAI shares on or about
September 29, 2000....................................... 2.75
Fair value of HAI shares issued............................. $ 108,980
Fair value of options exchanged in merger................... 13,717
-------------
Total purchase price........................................ $ 122,697
=============
Minority Interest HAI Interest in
in HealthAxis Net HealthAxis Net Total HealthAxis
Allocation of purchase price Assets Assets Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Net Assets of HealthAxis at September 30, 2000 $466,318 $250,586 $716,904
Fair Value Adjustments:
Customer Base (4,309) (2,440) (6,749)
Developed Software 3,861 2,186 6,047
---------------------------------------------------------
Net Fair Value Adjustments (448) (254) (702)
---------------------------------------------------------
Fair Value of the net assets of HealthAxis at
September 30, 2000 465,870 250,332 716,202
---------------------------------------------------------
Less Equity issued in connection with purchase of
minority interest
Issuance of HAI Shares (122,697) 122,697 -
Allocation to unearned compensation 1,263 (1,263) -
---------------------------------------------------------
Total Equity Issued (121,434) 121,434 -
---------------------------------------------------------
Adjust minority interest for fair value of assets owned
by HAI (254) 254 -
---------------------------------------------------------
Fair value of HealthAxis at September 30, 2000 in excess
of equity issued in connection with merger 344,182 372,020 716,202
---------------------------------------------------------
Resulting negative goodwill (344,182) - (344,182)
---------------------------------------------------------
Net Assets of HealthAxis post merger $ - $372,020 $372,020
=========================================================
14
The acquisition was at a value below the amount of minority interest
recorded on HAI's books. Thus, it resulted in a reduction of the intangible
assets, primarily goodwill on HAI's books.
The fair value of the HAI shares is based upon the quoted NASDAQ
closing price of HAI shares for a period starting two days before and ending two
days after September 29, 2000 (the date of the merger agreement and measurement
date). The fair value of options exchanged in the merger has been determined
using the Black-Scholes Option Pricing Model. The number of HAI options to be
exchanged in the Merger is estimated to be 5,990,000 with an average fair value
per option of $2.29. Of these options, options to purchase 2,730,000 shares are
estimated to be vested. The actual number of options to be exchanged is subject
to change based upon the options outstanding on the date of Merger.
The allocation to unearned compensation is based upon the intrinsic
value of unvested HAI options to be issued in the exchange. Unearned
compensation will be amortized over the remaining vesting period of the options,
averaging 3.5 years.
The pro forma expenses related to the amortization of adjustments
resulting from the HAI merger is as follows:
Annual Nine Month
Asset Life Amount Amortization Amortization
- ---------------------------------- --------- ------------ ----------- -------------
Customer Base 48 months $ (6,749) $ (1,687) $ (1,265)
Developed Software 36 months 6,047 2,016 1,512
Goodwill 240 months (344,182) (17,209) (12,906)
Unearned compensation 40 months 5,608 1,682 1,262
----------- -------------
Total $ (15,198) $ (11,397)
=========== =============
5. In September 2000, an agreement was entered into by and between HAI and the
holders of HAI's convertible debentures. The agreement contains the
following changes in terms which are contingent upon the completion of the
HAI Merger:
o A change in the maturity date from September 14, 2002 to September 14,
2005.
o A change in the debenture conversion price from $20.34 to $9.00.
o A change in the exercise price of warrants originally issued in
connection with the debentures from $20.34 to $3.01.
15
The fair value of the repriced warrants (assuming a $3.00 HAI market
share price) amounts to $477. As of September 30, 2000, the unamortized original
issue discount amounted to $924. An adjustment amounting to $447 has been
charged to accumulated deficit and reflects the Company's cost of renegotiating
the debentures. This adjustment has not been reflected on the Pro Forma
Condensed Consolidated Statement of Operations as it is not recurring in nature.
6. Effective August 15, 2000, HAI entered into a termination agreement that
settled amounts owed under an employment contract with its Chairman of the
Board of Directors. The agreement is contingent upon completion of the HAI
Merger and provides for a severance amount of up to $2,125 to be paid, in
cash or stock, over 20 quarters. The terminated employment contract was
replaced with an "at will" employment contract with no severance terms. In
September 2000, HAI also extended the exercise period of 397,198 options
held by the Chairman through July 7, 2006. These options have an exercise
price of $3.64 per share and had no intrinsic value on the date of the
remeasurement. No future compensation costs are expected to be incurred as a
result of this extension.
7. Adjustments to all of the capital accounts resulting from the acquisition of
minority interest through the HAI Merger are as follows:
Additional
Number of Common Paid In Unearned
Shares Stock Capital Compensation Deficit Total
--------- -------- ---------- ------------ --------- -------
Balance at September 30, 2000.. 13,098 $ 1,310 $ 325,816 $ (6,871) $ (101,307) $ 218,948
Severance Agreement (Note 6)... - - - - (2,125) (2,125)
Remeasurement of warrants
(Note 5) .................... - - - - (447) (447)
Remeasurement of unearned
compensation (Note 4)........ - - (6,871) 6,871 - -
Issuance of new HAI shares
(Note 4) .................... 39,629 3,963 118,734 (1,263) - 121,434
--------- ---------- ---------- --------- ----------- ---------
52,727 $ 5,273 $ 437,679 $ (1,263) $ (103,879) $ 337,810
========= ========== ========== ========= =========== =========
8. The following tables provide a breakdown of the pro forma HAI shares
outstanding after the HAI Merger:
Share Activity for HAI
- -----------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding Shares Outstanding
------------------ ------------------
December 31, 1999......................... 13,027,000 12,260,000
HAI Merger................................ 39,629,000 39,629,000
---------- ----------
Total HAI shares outstanding after the
HAI Merger........................... 52,656,000 51,889,000
---------- ----------
Antidilutive shares excluded.............. 10,810,000
==========
16
Share Activity for HAI
- -----------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding Shares Outstanding
------------------ ------------------
13,098,000 13,079,000
September 30, 2000........................
HAI Merger................................ 39,629,000 39,629,000
---------- ----------
Total HAI shares outstanding after the
HAI Merger........................... 52,727,000 52,708,000
---------- ----------
Antidilutive shares excluded.............. 17,493,000
==========
Pro forma antidilutive shares excluded from the weighted average shares
outstanding in 1999 include 9,906,000 options to purchase shares of HAI common
stock and 904,000 shares of HAI common stock issuable upon the conversion of the
2% convertible debentures. Pro forma antidilutive shares excluded from the
weighted average shares outstanding in 2000 include 14,438,000 options to
purchase shares of HAI's common stock and 3,055,000 shares of HAI's common stock
issuable upon the conversion of the 2% convertible debentures. These shares were
antidilutive because losses were reported in 1999 and 2000.
9. Neither HealthAxis nor HAI has made any changes to their accounting policies
during 1999 or 2000.
17
(c) Exhibits.
The following exhibits are filed herewith:
S-K Item
Number Description
- -------- -----------
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Ernst & Young, LLP
99.1 Press Release dated January 29, 2001
99.2 Amended and Restated Agreement and Plan of Reorganization between
HealthAxis Inc., HealthAxis.com, Inc. and HealthAxis Acquisition
Corp. dated as of October 26, 2000.
99.3 HealthAxis.com, Inc. and Subsidiaries Consolidated Financial
Statements for the year ended December 31, 1999 and for the
period from Inception (March 26, 1998) to December 31, 1998 and
for the nine months ended September 30, 1999 and 2000.
99.4 Insurdata Incorporated and Subsidiaries Consolidated
Financial Statements for the years ended December 31, 1998
and 1999. (Incorporated by reference to the Form 8-K filed
with the Securities and Exchange Commission on April 20,
2000.)
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEALTHAXIS INC.
Date: January 29, 2001 By: /s/ Michael Ashker
-----------------------
Michael Ashker
Chief Executive Officer
19
EXHIBIT INDEX
S-K Item
Number Description
- -------- -----------
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Ernst & Young, LLP
99.1 Press Release dated January 29, 2001
99.2 Amended and Restated Agreement and Plan of Reorganization between
HealthAxis Inc., HealthAxis.com, Inc. and HealthAxis Acquisition
Corp. dated as of October 26, 2000.
99.3 HealthAxis.com, Inc. and Subsidiaries Consolidated Financial
Statements for the year ended December 31, 1999 and for the
period from Inception (March 26, 1998) to December 31, 1998 and
for the nine months ended September 30, 1999 and 2000.
99.4 Insurdata Incorporated and Subsidiaries Consolidated
Financial Statements for the years ended December 31, 1998
and 1999. (Incorporated by reference to the Form 8-K filed
with the Securities and Exchange Commission on April 20,
2000.)
20