UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement (as amended)
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
HEALTHAXIS INC.
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(HEALTHAXIS LOGO)
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Healthaxis Inc. (the "Company") which will be held on August 19, 2003, at 10:00
a.m., Central Daylight Time, at the offices of the Company located at 5215 N.
O'Connor Blvd., Suite 800, Irving, Texas 75039. The official Notice of Special
Meeting, together with a proxy statement and form of proxy, are enclosed. Please
give this information your careful attention.
Healthaxis invites all shareholders to attend the meeting in person. If you
cannot be present, you may vote by mailing the enclosed proxy card or by other
methods made available by your bank, broker or nominee. Voting by written proxy
will ensure your representation at the Special Meeting if you choose not to
attend in person. Please review the instructions on the proxy card or the
information forwarded by your bank, broker or nominee concerning your voting
options. The shareholders attending the Special Meeting may vote in person even
if they have returned a proxy.
Sincerely,
James W. McLane
Chairman, President and Chief Executive Officer
Irving, Texas
July __, 2003
HEALTHAXIS INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 19, 2003
TO THE SHAREHOLDERS OF HEALTHAXIS INC.:
Healthaxis Inc. will hold a Special Meeting of Shareholders at 10:00
a.m., Central Daylight Time, on August 19, 2003, at the executive offices of
Healthaxis Inc. located at 5215 N. O'Connor Blvd., Suite 800, Irving, Texas
75039, for the following purposes:
1. To consider and vote upon an amendment to our Amended and Restated
Articles of Incorporation and to permit the board, at its discretion,
at any time prior to the Company's next annual meeting to effect a
reverse stock split of our common stock at a ratio of not less than
1-for-5 and not more than 1-for-15. The board of directors will retain
discretion to elect to implement a reverse stock split in this range or
to elect not to implement a reverse stock split.
2. To act upon such other matters as may properly come before the
meeting.
The Board of Directors has fixed the close of business on July 1, 2003,
as the record date for the determination of shareholders entitled to notice of
and to vote at the Special Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO VOTE BY COMPLETING, DATING AND PROMPTLY RETURNING THE ENCLOSED PROXY CARD OR
BY OTHER MEANS MADE AVAILABLE BY YOUR BANK, BROKER OR NOMINEE. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS,
J. BRENT WEBB
SECRETARY
Irving, Texas
July __, 2003
HEALTHAXIS INC.
5215 N. O'CONNOR BLVD.
SUITE 800
IRVING, TX 75039
----------
PROXY STATEMENT
----------
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Healthaxis Inc. for use at the Special Meeting of Shareholders to
be held on August 19, 2003, at 10:00 a.m., Central Daylight Time, at the offices
of the Company located at 5215 N. O'Connor Blvd., Suite 800, Irving, TX 75039,
and at any postponement or adjournment thereof. The approximate date on which
this Proxy Statement and the accompanying form of proxy will be sent or given to
shareholders is July __, 2003. All references in this Proxy Statement to the
"Company" includes Healthaxis Inc. and its subsidiaries.
If the enclosed form of proxy is signed and returned, it will be voted
as specified in the proxy. If no vote is specified, it will be voted FOR each of
the matters described in this Proxy Statement. You may revoke your proxy at any
time before it is exercised by writing to the Company's Secretary; by timely
delivering a properly executed, later-dated proxy; or by voting by ballot at the
Special Meeting. The method by which you vote will not limit your right to vote
at the Special Meeting if you later decide to attend in person. If your shares
are held in the name of a bank, broker or nominee, you must obtain a proxy,
executed in your favor, from the bank, broker or nominee, to be able to vote at
the Special Meeting.
The expense of the proxy solicitation will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited in person or by
telephone, telegraph or facsimile by directors, officers or employees of the
Company and its subsidiaries without additional compensation. Upon request by
banks, brokers and nominees who are record holders of the Company's common
stock, par value $0.10 per share (the "common stock"), the Company is required
to pay the reasonable expenses incurred by such banks, brokers and nominees for
mailing proxy materials and annual shareholder reports to the beneficial owners
of the common stock.
OUTSTANDING STOCK AND VOTING RIGHTS
The Company had 53,570,074 shares of common stock outstanding at the
close of business on July 1, 2003 (the "Record Date"). In order for a quorum to
be present at the Special Meeting, a majority of the outstanding shares of the
Company common stock entitled to vote as of the close of business on the Record
Date must be present in person or represented by proxy at the Special Meeting.
All such shares that are present in person or represented by proxy at the
Special Meeting will be counted in determining whether a quorum is present,
including abstentions and broker non-votes.
Each share of common stock outstanding is entitled to one vote on each
matter which may be brought before the Special Meeting. Approval of the reverse
stock split and any other business matters properly brought before the Special
Meeting requires the affirmative vote of a majority of the shares cast
on the proposal. Under Pennsylvania law, an abstention, withholding of authority
to vote, or broker non-vote on any proposal will not have the same legal effect
as an "against" vote, and will not be counted in determining whether the
proposal has received the required shareholder vote. If you hold your shares in
"street name" through a broker or other nominee, your broker or nominee may not
be permitted to exercise voting discretion with respect to the matters to be
acted upon. So, if you do not give your broker or nominee specific instructions,
your shares may not be voted on those matters and will not be counted in the
voting results.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth as of the record date, July 1, 2003, the
beneficial ownership of the Company common stock: (i) by each person known by
the Company to be the beneficial owner of five percent or more of the Company's
outstanding common stock, (ii) by each director of the Company, (iii) by the
Chief Executive Officer and the five most highly compensated executive officers
whose compensation exceeded $100,000 during fiscal 2002, and (iv) by the
directors and executive officers of the Company who were in office as of the
record date, as a group. Unless otherwise specified, all persons listed below
have sole voting and investment power with respect to their shares.
<Table>
<Caption>
NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNERS(1) BENEFICIALLY OWNED(2) CLASS
- -------------------- --------------------- ----------
UICI........................................................... 27,147,575(3) 49.96%
9151 Grapevine Highway
North Richland Hills, TX 76180
Alvin H. Clemens............................................... 3,672,157(4) 6.76%
Michael Ashker................................................. 2,131,967(5) 3.83%
James W. McLane................................................ 1,296,009(6) 2.38%
Adam J. Gutstein............................................... 50,000(7) *
Kevin F. Hickey................................................ 46,975(8) *
Thomas L. Cunningham........................................... 11,250(9) *
John W. Coyle.................................................. 10,000(10) *
James J. Byrne................................................. 10,000(11) *
John M. Carradine.............................................. 183,187(12) *
Emry P. Sisson................................................. 101,007(13) *
J. Brent Webb.................................................. 77,088(14) *
John D. Smith.................................................. -- --
Vernon Sheppard................................................ 102,667 *
All directors and executive officers as a group (10 Persons)... 3,917,483(15) 6.87%
</Table>
- ----------
* Less than 1%
2
(1) The address of each director and executive officer is 5215 N. O'Connor
Blvd., Suite 800, Irving, TX 75039.
(2) Includes options exercisable within 60 days from July 1, 2003.
(3) Includes all shares of Company common stock previously held in the
Founders Plan Voting Trust, which has expired. The ownership of all
shares previously held in the Trust reverted to UICI on July 1, 2003
before the close of business. Also, includes 222,396 shares of the
Company common stock issuable upon exercise of warrants and 542,477
shares of the Company common stock issuable upon conversion of Series A
Convertible Preferred Stock. The total shares shown in the table are
based on the Company's most recent records, as supplemented by UICI.
(4) Includes 754,945 shares subject to options and warrants exercisable
within 60 days. Excludes options to purchase 917,920 shares of the
Company common stock owned by the Beaver Creek Limited Partnership in
which Mr. Clemens is a partner for which Mr. Clemens expressly
disclaims beneficial ownership. Mr. Clemens was a member of the Board
of Directors until May 15, 2003, when his term expired.
(5) Includes 1,742,191 shares subject to options and 300,000 shares of the
Company common stock subject to warrants exercisable within 60 days.
(6) Includes options to purchase 983,659 shares of the Company common stock
exercisable within 60 days.
(7) Includes options to purchase 40,000 shares of the Company common stock
exercisable within 60 days.
(8) Options to purchase 46,975 shares of the Company common stock
exercisable within 60 days.
(9) Options to purchase 11,250 shares of the Company common stock
exercisable within 60 days.
(10) Options to purchase 10,000 shares of the Company common stock
exercisable within 60 days.
(11) Options to purchase 10,000 shares of the Company common stock
exercisable within 60 days.
(12) Includes options to purchase 158,687 shares of the Company common stock
exercisable within 60 days.
(13) Options to purchase 101,007 shares of the Company common stock
exercisable within 60 days.
(14) Includes options to purchase 59,588 shares of the Company common stock
exercisable within 60 days.
(15) Includes options and warrants to purchase 3,463,357 shares of the
Company common stock exercisable within 60 days.
PROPOSAL NO. 1
BOARD DISCRETION TO EFFECT REVERSE STOCK SPLIT
OVERVIEW
You are being asked to vote upon a proposed amendment to the Company's
Amended and Restated Articles of Incorporation (the "Amendment") which will
grant to the board of directors the discretion to effect a reverse stock split
of all shares of the Company's common stock, if the board deems that it is in
the Company's and its shareholders' best interests, at a ratio of not less than
1-for-5 and not more than 1-for-15. The board will have the sole discretion to
elect, based on its determination of the best interests of the Company and its
shareholders, whether or not to effect a reverse stock split, and if so, at
which ratio within the approved range, at any time before the 2004 annual
shareholders meeting. The board of directors believes that approval of a
proposal granting this discretion to the board, rather than approval of an
immediate reverse stock split at a specified ratio, will provide the board with
maximum flexibility to react to market conditions current at the time, as well
as other then current facts and circumstances (including the matters described
below under "-- Factors Influencing Board's Discretion in Implementing Reverse
Stock Split"). The board believes that the grant to it of this discretion will
best achieve the purposes of the reverse stock split, if implemented, and to act
in the best interests of the Company and its shareholders.
To effect the reverse stock split, the board would file the Amendment
with the Pennsylvania Secretary of State. The form of Amendment to effect the
proposed reverse stock split is attached to this proxy statement as Annex A. If
the board elects to implement a reverse stock split within the range approved by
shareholders, then the number of issued and outstanding shares of the Company's
common stock will be reduced in accordance with the ratio for the selected
reverse stock split. The par value of the common stock will remain unchanged at
$0.10 per share, and the number of authorized shares of common stock will remain
unchanged. It is expected that the reverse stock split will become effective
shortly following the filing of the Amendment with the Pennsylvania Secretary of
State. The board may elect not to implement a reverse stock split at its sole
discretion, even if the proposal to grant the board the discretion to effect a
reverse stock split is approved by our shareholders.
3
The board of directors has approved the proposed grant of discretion to
effect a reverse stock split. By approving the proposal, however, the Company's
shareholders will give the board the maximum flexibility to determine the best
stock split ratio.
PURPOSES OF THE PROPOSED REVERSE STOCK SPLIT
The board of directors believes that it should maintain the right to
implement a reverse stock split for the following reasons:
o To enable the Company to use the reverse stock split
to maintain its listing on The Nasdaq SmallCap
Market; and
o To enhance the acceptability and marketability of the
common stock to the financial community and the
investing public.
Listing on The Nasdaq SmallCap Market
The board believes the reverse stock split is desirable because it will
assist Healthaxis in efforts to meet the requirements for continued listing on
The Nasdaq SmallCap Market (the "Nasdaq Market") by helping to raise the trading
price of its common stock. One of the key requirements for continued listing on
the Nasdaq Market is that the common stock must maintain a minimum bid price
equal to or greater than $1.00 per share, as required by Nasdaq Marketplace Rule
4310(c)(4). A company's failure to meet Nasdaq's minimum bid price for 30
consecutive business days normally results in delisting proceedings, unless the
company can demonstrate compliance with those requirements for ten consecutive
days during one of the grace periods that immediately follows the initial 30-day
period of non-compliance.
Healthaxis has been granted several grace periods regarding its lack of
compliance with the minimum bid price requirements. The current grace period
expired on July 7, 2003, and Healthaxis is currently ineligible for any further
grace period. On July 8, 2003, the Company received a Nasdaq Staff Determination
letter indicating that the Company had failed to comply with the minimum bid
price requirement for a minimum of 30 days. The Company has requested a hearing
before the Nasdaq Listing Qualifications Panel to review the Staff Determination
and to request continued listing. The Company is soliciting your proxy to
approve the reverse stock split so that, if necessary, it can demonstrate a
likelihood of future compliance with the minimum bid price rules.
The board believes that delisting of the common stock by Nasdaq could
adversely affect the Company's ability to attract new investors, may result in
decreased liquidity of the outstanding shares of common stock and, consequently,
could reduce the price at which such shares trade and increase the transaction
costs inherent in trading such shares with overall negative effects for
shareholders. In addition, the board believes that delisting of the common stock
could deter broker-dealers from making a market in or otherwise seeking or
generating interest in the common stock, and might deter certain institutions
and persons from investing in the Company's stock at all. There can be no
assurance, however, that (1) approval and implementation of the reverse stock
split will succeed in achieving and maintaining the closing bid price of the
common stock above $1.00 per share, (2) even if the Nasdaq Market's closing
minimum bid price maintenance standard were immediately satisfied, the Company
will be able to meet its other quantitative continued listing criteria, or (3)
the common stock will not later be delisted by the Nasdaq Market for any of a
variety of other reasons.
Even though the reverse stock split, by itself, will not impact the
Company's assets or prospects, the reverse stock split could be followed by a
decrease in the aggregate market value of the common stock. The board, however,
believes that this risk is offset by the prospect that the reverse stock split
will
4
improve the likelihood that the Company will be able to maintain its Nasdaq
listing and may, by increasing the per share price, make an investment in the
common stock more attractive to certain investors. If the Company's common stock
is delisted from the Nasdaq Market, trading of the Company's securities will
thereafter have to be conducted in the over-the-counter markets. In such event,
an investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the common stock.
In addition to the perceived benefits to investors of the continued
listing on the Nasdaq Market, the board believes that the Company's current and
prospective customers, as well as its employees, will positively perceive the
Company's continued listing on the Nasdaq Market as a reflection of the
Company's long term commitment to its business and the market value of its
common stock.
In addition to the $1.00 minimum closing bid price per share
requirement described above, the Nasdaq SmallCap Market Listing Requirements
require that a company meet other listing standards to maintain its continued
listing, including, but not limited to, stockholders' equity and market
capitalization minimums, public float and minimum market value of public float,
minimum number of round lot shareholders, and compliance with Nasdaq corporate
governance rules. The Company believes that, except for its non-compliance with
the minimum bid price rules, it is otherwise currently in compliance with the
remaining Nasdaq Market continued listing requirements.
Enhanced Marketability
The board of directors believes that the reverse stock split should
enhance the acceptability and marketability of the Company's common stock to the
financial community and the investing public and may mitigate some reluctance on
the part of brokers and investors to trade in the common stock. Many
institutional investors have policies prohibiting them from holding lower-priced
stocks in their own portfolios, which reduces the number of potential buyers of
the Company's common stock. In addition, analysts at many leading brokerage
firms are reluctant to recommend lower-priced stocks to their clients or monitor
the activity of lower-priced stocks. A variety of brokerage house policies and
practices also tend to discourage individual brokers within those firms from
dealing in lower-priced stocks. Some of those policies and practices pertain to
the payment of brokers' commissions and to time-consuming procedures that
function to make the handling of lower-priced stocks unattractive to brokers
from an economic standpoint. Additionally, because brokers' commissions on
lower-priced stocks generally represent a higher percentage of the stock price
than commissions on higher-priced stocks, the current share price of the
Company's common stock can result in an individual shareholder paying
transaction costs that represent a higher percentage of total share value than
would be the case if our share price were substantially higher. This factor may
also limit the willingness of institutions to purchase the Company's stock.
The Company's common stock has been trading below $1.00 per share for
an extended period of time. With the shares trading in such a range, small moves
in absolute terms in the price-per-share of the Company's common stock translate
into disproportionately large swings in the price on a percentage basis. We
believe these swings tend to bear little relationship to the Company's financial
condition and results of operations.
In the board's view, these factors have contributed to an unjustified,
relatively low level of interest in Healthaxis on the part of investment
analysts, brokers, investment professionals and individual investors, which
tends to depress the market for the Company's common stock. The board has thus
proposed having the discretion to effect a reverse stock split as a means of
increasing the per-share market price of Healthaxis' common stock.
5
FACTORS INFLUENCING BOARD'S DISCRETION IN IMPLEMENTING REVERSE STOCK SPLIT
The board intends to implement a reverse stock split if it believes
that this action is in the best interests of Healthaxis and its shareholders. If
the board ultimately determines to implement a reverse stock split, the board
will select a stock split ratio within the range approved by shareholders and
based upon the best interests of Healthaxis and its shareholders. These
determinations shall be based upon certain factors, including, but not limited
to: the Nasdaq Market's listing requirements, existing and expected
marketability and liquidity of the Company's common stock, prevailing market
conditions, and the likely effect on the market price of the Company's common
stock.
In addition, Healthaxis has under review several other matters that
could influence the board's determination to implement the reverse stock split
and, if so, the selection of the related ratio. Healthaxis has had limited
discussions with UICI, its largest common shareholder, with respect to the
possibility of repurchasing all or a portion of the shares of Healthaxis common
stock held by UICI. In addition, inasmuch as the repurchase of any shares of
common stock would require the prior consent of the holders of at least 60% of
the Company's Series A Convertible Preferred Stock, the Company also has had
some discussions with Brown Simpson Partners I, Ltd., its largest preferred
shareholder, with regard to the terms under which Brown Simpson would be willing
to provide such a consent. Brown Simpson has indicated that its consent would
require that the Company make one or more concessions to the holders of the
Series A Convertible Preferred Stock, including a possible reduction in the
conversion price at which shares of Series A Convertible Preferred Stock are
convertible into shares of Healthaxis common stock. As of the date of this Proxy
Statement, no agreements or understandings have been reached with either UICI or
Brown Simpson as to definitive terms, and the Company has not entered into any
letters of intent or written documents reflecting any such terms. While the
Company may continue discussions with either or both of these parties, there can
be no assurance that any agreements or understandings will be reached in this
regard. Finally, as previously disclosed, Healthaxis believes that acquisitions
of technology solutions and/or business process service companies may be an
effective means of deepening and broadening its business process outsourcing
capabilities. The Company has had discussions with a number of prospects in this
regard, but has no agreements or understandings with any such prospects. It is
possible that the terms of any such acquisitions, or the terms of any related
financings, could involve the issuance of shares of the Company's capital stock.
Healthaxis will notify its common shareholders in the event of the
occurrence of any material developments with respect to the foregoing matters
that arise prior to the Special Meeting. In the event that the Company's common
shareholders approve the reverse stock split proposal, no further action on the
part of the Company's shareholders will be required to either effect or abandon
the reverse stock split. Notwithstanding approval of the reverse stock split
proposal by the shareholders, the board may, in its sole discretion, determine
to delay the effectiveness of the reverse stock split up until the 2004 Annual
Meeting of the Company's shareholders.
POTENTIAL EFFECTS OF THE PROPOSED REVERSE STOCK SPLIT
The immediate effect of a reverse stock split will be to reduce the
number of shares of the Company's common stock and to increase the trading price
of the Company's common stock. However, Healthaxis cannot predict the
longer-term effects of any reverse stock split upon the market price of its
common stock. Healthaxis cannot assure you that the trading price of its common
stock, after the reverse stock split, will rise in proportion to the reduction
in the number of shares of the common stock outstanding. The total market
capitalization of the common stock after implementation of the proposed reverse
stock split may be less than the total market capitalization before the reverse
stock split. Also, Healthaxis cannot assure you that a reverse stock split will
lead to a sustained increase in the trading price of its common stock, that the
liquidity of the common stock will not be adversely affected by the reduced
number of shares outstanding after the reverse stock split, that the trading
price of the common stock will remain above the thresholds required by the
Nasdaq Market, or that the Company will be able to continue to meet the other
continued listing requirements of the Nasdaq Market. The trading price of the
Company's common stock may change due to a variety of other factors, including
its operating results and other factors related to its business and general
market conditions.
The following table reflects the approximate number of shares of the
Company's common stock that would be outstanding as a result of some of the
possible reverse stock split ratios based on 53,570,074 shares of the Company's
common stock outstanding as of the Record Date for the Special Meeting, without
accounting for fractional shares, which will be cancelled and paid for in cash.
The table also reflects the approximate number of shares of the Company's common
stock that would be authorized and reserved for issuance, and shares that would
be authorized but unreserved for issuance, as a result of some of the possible
reverse stock split ratios:
<Table>
Possible Reverse Shares to be Shares Authorized Shares Authorized
- ---------------- ------------ ----------------- -----------------
Stock Split Ratios Outstanding and Reserved for But Unreserved for
- ------------------ ----------- ---------------- ------------------
Issuance(1) Issuance(2)
----------- -----------
1-for-5 10,714,014 7,644,063 1,881,641,923
1-for-10 5,357,007 3,822,031 1,890,820,962
1-for-15 3,571,338 2,548,021 1,893,880,641
</Table>
(1) As of the Record Date, there are a total of 38,220,319 shares of
Company common stock reserved for issuance. This includes (a)
20,365,793 shares to cover outstanding stock options, warrants, and the
shares into which the Company's outstanding Series A Convertible
Preferred Stock may be converted; (b) 6,806,907 shares to cover options
that are reserved for possible future issuance under the Healthaxis
Inc. 2000 Stock Option Plan; and (c) 11,047,619 shares reserved for
possible future issuance to the holders of the Series A Convertible
Preferred Stock (to cover possible dividend payments or an adjustment
in the conversion price of the Series A Convertible Preferred Stock).
(2) The Company has a total of 1,900,000,000 shares of authorized common
stock. The number of shares of authorized common stock will be
unaffected by the potential reverse stock split.
6
EFFECTS ON OWNERSHIP BY INDIVIDUAL SHAREHOLDERS
If the Company implements a reverse stock split, the number of shares
of common stock held by each shareholder will be reduced to a number calculated
by multiplying the number of shares held immediately before the reverse stock
split by the ratio, and then rounding down to the nearest whole share. The
Company will pay cash to each shareholder in lieu of any fractional interest in
a share to which each shareholder will otherwise be entitled as a result of the
reverse stock split, as described in further detail below.
The reverse stock split will affect all of the Company's common
shareholders uniformly and will not affect any common shareholder's percentage
ownership interest in Healthaxis or proportionate voting power, except to the
extent that interests in fractional shares will be paid in cash.
In the event the board of directors elects to effect a 1-for-15 reverse
stock split, based on approximately 352 record holders of the Company's common
stock on July 1, 2003, the Company would have approximately 320 record holders
remaining, with approximately 32 record holders being eliminated as a result of
effecting the reverse stock split; to the extent that the board elects a lesser
reverse stock split ratio, fewer record holders will be eliminated in the
process and more record holders will remain. The Company believes that the
number of beneficial holders of its common stock, both before and after giving
effect to the reverse stock, is substantially greater than the number of its
record holders.
EFFECT ON OPTIONS, WARRANTS AND OTHER SECURITIES
If the reverse stock split is implemented, the Company will adjust all
shares of any options, warrants and other securities entitling their holders to
purchase shares of common stock as a result of the reverse stock split, as
required by the terms of these securities. In particular, the Company will
reduce the conversion ratio for each instrument, and will increase the exercise
price in accordance with the terms of each instrument based on the ratio of the
reverse stock split. Also, the Company will reduce the number of shares reserved
for issuance under its existing stock option plans proportionately based on the
ratio of the reverse stock split.
MATTERS RELATING TO THE SERIES A PREFERRED STOCK
The implementation of the reverse stock split is subject to the
affirmative vote or consent of the holders of 60% of the Company's Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). In consideration
of the Company's payment of a consent fee of 1% of the Series A Preferred
Stock's liquidation value, payable on approval of the reverse stock split by the
Company's common shareholders, the holders of the requisite percentage of Series
A Preferred Stock have agreed that they will execute a consent authorizing the
filing of the Amendment and the implementation of the reverse stock split. The
implementation of the reverse stock split relating to the Company's common stock
will not affect the authorized number of shares of the Company's preferred
stock, the par value of the Company's preferred stock or the number of issued
and outstanding shares of Series A Preferred Stock. Upon implementation of the
reverse stock split, and pursuant to the terms of the Certificate of Designation
governing the Series A Preferred Stock, the "conversion price" at which shares
of Series A Preferred Stock may be converted into shares of common stock will be
increased based on the reverse stock split ratio. This increase in the
"conversion price" will result in a proportionate decrease in the number of
shares of common stock into which the shares of Series A Preferred Stock will be
convertible.
POTENTIAL ANTI-TAKEOVER EFFECT
If the reverse stock split is implemented, the proportion of unissued
authorized shares to issued shares will increase, which under certain
circumstances could have an anti-takeover effect. For example, the Company's
management might use the additional shares to resist or frustrate a third-party
transaction that provides an above-market premium that is favored by a majority
of independent shareholders. The reverse stock split proposal is not, however,
being proposed with the intention of generating an anti-takeover measure, and is
not being proposed in response to any effort of which the Company is aware to
accumulate shares of the Company's common stock or to obtain control of the
Company. Other than the reverse stock split proposal, the Company's board of
directors has no current plans or proposals to adopt other provisions or enter
into other arrangements that may have material anti-takeover consequences.
Shareholders should be aware that in addition to the reverse stock
split, there are several currently effective arrangements that could be deemed
to have an anti-takeover effect, including the following:
o The Company's board of directors has the authority to issue
shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to, or
imposed upon, any unissued or undesignated shares of preferred
stock. Although it presently has no intention to do so, the
board of directors, without shareholder approval, can issue
preferred stock with certain terms that may have the effect of
delaying, deferring or preventing a change in control of the
company.
o The terms of the Series A Preferred Stock provide that certain
corporate actions may not be undertaken without the consent of
the holders of a specified percentage of the shares of Series A
Preferred Stock. A number of such corporate actions could be
considered attractive to a third party contemplating effecting a
change in control of the Company, so the fact that such
corporate actions would require the consent of the holders of
the Series A Preferred Stock could have the effect of making the
Company a less attractive target to such a third party.
o Subchapter F of Chapter 25 of the Pennsylvania Business
Corporation Law ("PBCL") applies to the Company, and prohibits,
subject to certain exceptions, a "business combination" with a
shareholder or group of shareholders (and certain affiliates and
associates of such shareholders) beneficially owning more than
20% of the voting power of the Company (a "interested
shareholder") during a five-year period following the date on
which the holder became an interested shareholder, unless the
interested shareholder's acquisition of 20% or more of the
common stock is approved by the Company's board of directors (or
under certain other limited circumstances). This provision may
discourage open-market purchases of our stock or a
non-negotiated tender or exchange offer for our stock and,
accordingly, may be considered disadvantageous by a third party
who would desire to participate in any such business
combination.
o Pursuant to Section 1715 of the PBCL, the Company's board of
directors is not required to regard the interests of the
shareholders as being dominant or controlling in considering the
Company's best interests. In considering the best interests of
the Company, the board of directors is permissively authorized
to consider a number of different factors. Furthermore, the
Company's Amended and Restated Articles of Incorporation
permissively authorizes the board to consider a number of
similar and other factors in determining whether to oppose a
tender offer or other offer for the Company's stock. These
provisions may discourage open-market purchases of the Company's
common stock or a non-negotiated tender or exchange offer for
the Company's common stock and, accordingly, may be considered
disadvantageous by a third party who would desire to participate
in any such transaction.
o The Company's Amended and Restated Articles of Incorporation
provide that a director may only be removed for cause and only
by the affirmative vote of shareholders entitled to cast at
least 70% of the votes entitled to be cast at an annual or
regular election. This provision has the effect of making it
more difficult than would otherwise be the case under the
provisions of the PBCL for shareholders to remove the Company's
directors.
o The Amended and Restated Articles of Incorporation and By-laws
of the Company provide that a special meeting of shareholders
may only be called by the board of directors, the chairman of
the board or the chief executive officer, thus precluding the
ability of a shareholder to call a special meeting.
o The Company's Amended and Restated Articles of Incorporation
and By-laws require that any amendments thereto not approved by
the Company's board of directors obtain the approval of at least
65% of the shareholders entitled to cast votes in connection
therewith. Furthermore, shareholders cannot propose amendments
to the Amended and Restated Articles of Incorporation. The
effect of these provisions makes it more difficult for
shareholders to effect changes to the Company's Amended and
Restated Articles of Incorporation or By-laws that were not
previously approved by the board of directors than would
otherwise be the case under the PBCL.
o The Company is a party to certain change in control employment
agreements with several members of management. These agreements
provide the covered individuals with termination benefits if
their employment is terminated by the Company "without cause" or
by the individual for "good reason," within six months prior to
a change in control or three years after a change in control.
These agreements could have the effect of increasing the costs
associated with effecting a change in control of the Company,
and could therefore have the effect of delaying or preventing
such a change in control.
OTHER EFFECTS ON SHARES OF COMMON STOCK
If the Company implements a reverse stock split, then the rights and
preferences of the common stock will remain the same after the reverse stock
split. Each share of the Company's common stock issued pursuant to the reverse
stock split will be fully paid and nonassessable.
The reverse stock split will result in some shareholders owning
"odd-lots" of less than 100 shares of the Company's common stock. Brokerage
commissions and other costs of transactions in odd-lots are generally higher
than the costs of transactions in "round-lots" of even multiples of 100 shares.
Notwithstanding the increase in the number of odd-lot holders, the Company
believes that it will still have
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a more than adequate number of round-lot holders after the reverse stock split
to comply with the Nasdaq Market requirements in that regard.
The Company's common stock is currently registered under Section 12(g)
of the Securities Exchange Act of 1934. As a result, the Company is subject to
the periodic reporting and other requirements of the Securities Exchange Act.
The proposed reverse stock split will not affect the registration of the
Company's common stock under the Securities Exchange Act.
AUTHORIZED SHARES OF COMMON STOCK
If the Company implements the reverse stock split, it will not change
the number of authorized shares of the Company's common stock as designated by
its Amended and Restated Articles of Incorporation. The board believes that the
availability of the additional shares provides the Company with the flexibility
to meet business needs as they arise, to take advantage of favorable
opportunities and to respond to a changing corporate environment.
PROCEDURE FOR EFFECTING THE PROPOSED REVERSE STOCK SPLIT AND EXCHANGE OF STOCK
CERTIFICATES
If the shareholders approve the proposed Amendment, the board may elect
whether or not to declare a reverse stock split, as well as the ratio, at any
time before the 2004 annual shareholders meeting. The reverse stock split will
be implemented by filing the Amendment with the Pennsylvania Secretary of State,
and it is expected that the reverse stock split will become effective shortly
after the filing is accepted by the Pennsylvania Secretary of State.
As of the effective date of the reverse stock split, each certificate
representing shares of Healthaxis common stock before the reverse stock split
will be deemed, for all corporate purposes, to evidence ownership of the reduced
number of shares of our common stock resulting from the reverse stock split,
except that holders of unexchanged shares will not be entitled to receive any
dividends or other distributions payable by Healthaxis after the effective date
until they surrender their old stock certificates for exchange. All shares
underlying options and warrants and other securities will also be automatically
adjusted on the effective date.
The Company's transfer agent will act as the exchange agent for
purposes of implementing the exchange of stock certificates. As soon as
practicable after the effective date, shareholders and holders of securities
convertible into Healthaxis common stock will be notified of the effectiveness
of the reverse stock split. Shareholders of record will receive a letter of
transmittal requesting them to surrender their stock certificates for stock
certificates reflecting the adjusted number of shares as a result of the reverse
stock split. Persons who hold their shares in brokerage accounts or "street
name" will not be required to take any further actions to effect the exchange of
their certificates. No new certificates will be issued to a shareholder until
the shareholder has surrendered the shareholder's outstanding certificate(s)
together with the properly completed and executed letter of transmittal to the
exchange agent. Until surrender, each certificate representing shares before the
reverse stock split will continue to be valid and will represent the adjusted
number of shares based on the ratio of the reverse stock split, rounded down to
the nearest whole share. Shareholders should not destroy any stock certificate
and should not submit any certificates until they receive a letter of
transmittal.
FRACTIONAL SHARES
The Company will not issue fractional shares in connection with the
reverse stock split. Instead, any fractional share resulting from the reverse
stock split will be rounded down to the nearest whole share. Shareholders who
otherwise will be entitled to receive fractional shares because they hold a
8
number of shares not evenly divisible by the ratio will instead receive cash
upon surrender to the exchange agent of the certificates and a properly
completed and executed letter of transmittal. These cash payments will reduce
the number of post-split shareholders to the extent there are shareholders
presently holding fewer than up to 15 shares, depending on the ratio of the
reverse stock split selected by the board. This, however, is not the purpose of
the reverse stock split. The cash amount to be paid to each shareholder will be
equal to the resulting fractional interest in one share of our common stock to
which the shareholder will otherwise be entitled, multiplied by the closing
trading price of Healthaxis common stock on the trading day immediately
preceding the effective date of the reverse stock split (after proportionately
adjusting such price to reflect the reverse stock split ratio).
NO APPRAISAL RIGHTS
No appraisal rights are available under the Pennsylvania Business
Corporation Law or under the Company's Amended and Restated Articles of
Incorporation or Bylaws to any shareholder who dissents from this proposal.
ACCOUNTING CONSEQUENCES
The par value of Healthaxis common stock will remain unchanged at $0.10
per share after the reverse stock split. Also, the Company's capital account
will remain unchanged, and the Company does not anticipate that any other
accounting consequences will arise as a result of the reverse stock split.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of some material United States federal
income tax consequences of the reverse stock split, but does not purport to be a
complete analysis of all potential tax considerations relating to the reverse
stock split. This summary is based on the provisions of the United States
federal income tax law, as of the date of this proxy statement, which is subject
to change retroactively, as well as prospectively. This summary does not discuss
all federal tax considerations, including any federal income tax consequences
that may be relevant to shareholders that may be subject to special treatment
(including, without limitation, shareholders subject to the alternative minimum
tax, banks, insurance companies, tax-exempt organizations, financial
institutions, small business investment companies, partnerships or other
pass-through entities, dealers in securities or currencies, broker-dealers,
persons who hold shares as part of a straddle, hedging, constructive sale, or
conversion transaction, regulated investment companies, personal holding
companies, foreign entities, nonresident alien individuals and broker-dealers).
Furthermore, this summary does not discuss any aspects of state, local, foreign,
or other tax consequences. This summary also assumes that shareholders hold the
shares as "capital assets" within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended. The tax treatment of a shareholder may vary
depending upon the particular facts and circumstances of the shareholder.
Other than as a result of the receipt of cash payments, if any, by a
shareholder in lieu of fractional shares as discussed below, no gain or loss
should be recognized by a shareholder as a result of the reverse stock split.
The aggregate tax basis of shares received pursuant to the reverse stock split
would be the same as the shareholder's aggregate tax basis in the shares
exchanged therefor. Shareholders who receive cash in lieu of any fractional
share interests in the shares to be received as a result of the reverse stock
split would be treated as having received the fractional share interests
pursuant to the reverse stock split and then as having exchanged the fractional
shares for cash in a redemption by the Company, and would generally recognize
gain or loss equal to the difference between the amount of cash received in lieu
of a fractional share and the adjusted tax basis allocable to the fractional
share interests redeemed. Such gain or loss would be long term capital gain or
loss if the shares exchanged by the shareholder pursuant to the reverse stock
split were held for more than one year. Any federal income tax liability
generated by the
9
receipt of cash in lieu of a fractional interest should not be material in
amount in view of the low value of the fractional interest. The shareholder's
holding period for the shares received would include the period during which the
shareholder held the shares surrendered in the reverse stock split. No gain or
loss would be recognized by the Company as a result of the reverse stock split.
THIS SUMMARY OF SOME MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND SHOULD
NOT BE CONSTRUED TO BE, LEGAL, BUSINESS OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. FURTHER, THE COMPANY'S VIEWS REGARDING THE TAX CONSEQUENCE OF THE
REVERSE STOCK SPLIT ARE NOT BINDING UPON THE INTERNAL REVENUE SERVICE OR THE
COURTS, AND THERE CAN BE NO ASSURANCE THAT THE INTERNAL REVENUE SERVICE OR THE
COURTS WILL ACCEPT THE POSITIONS EXPRESSED ABOVE. ACCORDINGLY, EACH SHAREHOLDER
IS URGED TO CONSULT HIS OR HER TAX ADVISOR REGARDING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER
TAXING JURISDICTIONS.
RECOMMENDATION OF BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
THE PROPOSED AMENDMENT AND TO GRANT THE BOARD THE DISCRETION TO EFFECT A REVERSE
STOCK SPLIT AT A RATIO BETWEEN 1-FOR-5 AND 1-FOR-15 AT ANY TIME PRIOR TO THE
2004 ANNUAL SHAREHOLDERS MEETING. YOUR RETURNED PROXY WILL BE SO VOTED UNLESS
YOU SPECIFY OTHERWISE.
ADVANCE NOTICE BYLAW PROVISION
The Company's Amended and Restated Bylaws provide that proposals by
shareholders to be considered at a special meeting of shareholders and which
have not been previously approved by the board of directors must be submitted to
the Secretary of the Company in writing, either by personal delivery,
nationally-recognized express mail or United States mail, postage prepaid, not
later than the close of business on the tenth day following the date on which
notice of such meeting is first given to shareholders.
SHAREHOLDER PROPOSALS
The Rule 14a-8 requirements applicable to inclusion of shareholder
proposals in the Company's proxy materials related to the Company's 2004 Annual
Meeting of Shareholders (the "2004 Meeting") require that a shareholder proposal
regarding the 2004 Meeting must be submitted to the Company at its office
located at 5215 N. O'Connor Blvd., Suite 800, Irving, TX 75039, by December 18,
2003, to receive consideration for inclusion in the Company's 2004 proxy
materials. Any such proposal must also comply with the proxy rules under the
Securities Exchange Act of 1934, including Rule 14a-8. As to all such matters
which the Company does not have notice on or prior to December 18, 2003,
discretionary authority shall be granted to the persons designated in the
Company's proxy related to the 2003 Meeting to vote on such proposal.
OTHER MATTERS
At the date of this proxy statement, management was not aware that any
matters not referred to in this proxy statement would be presented for action at
the meeting. If any other matters should come before the meeting, the persons
named in the accompanying form of proxy will have discretionary authority to
vote all proxies in accordance with their best judgment, unless otherwise
restricted by law.
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HOUSEHOLDING INFORMATION
Unless the Company has received contrary instructions, the Company may
send a single copy of this proxy statement and notice of special meeting to any
household at which two or more shareholders reside if the Company believes the
shareholders are members of the same family. Each shareholder in the household
will continue to receive a separate proxy card. This process, known as
"householding," reduces the volume of duplicate information received at any one
household and helps to reduce the Company's expenses. However, if shareholders
prefer to receive multiple sets of the Company's disclosure documents at the
same address this year or in future years, the shareholders should follow the
instructions described below. Similarly, if an address is shared with another
shareholder and together both of the shareholders would like to receive only a
single set of the Company's disclosure documents, the shareholders should follow
these instructions:
If the shares are registered in the name of the shareholder, the
shareholder should contact the Company at its executive offices at 5215 N.
O'Connor Blvd., Suite 800, Irving, Texas 75039, Attention: Corporate Secretary,
to inform the Company of their request. If a bank, broker or other nominee holds
the shares, the shareholder should contact the bank, broker or other nominee
directly.
BY ORDER OF THE BOARD OF DIRECTORS,
J. BRENT WEBB
SECRETARY
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ANNEX A
ARTICLE OF AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
As of the effective date of the filing of the Articles of Amendment
containing this Amendment with the Pennsylvania Secretary of State, every
[***] shares of common stock shall without further action by this Corporation
or the holder thereof be combined into and automatically become one share of
common stock. The authorized shares of common stock of the Corporation shall not
be changed. No fractional share shall be issued in connection with the foregoing
stock split; all shares of common stock so split that are held by a shareholder
will be aggregated and each fractional share resulting from such aggregation
shall be rounded down to the nearest whole share. In lieu of any interest in a
fractional share of common stock to which a shareholder would otherwise be
entitled as a result of the foregoing split, the Corporation shall pay a cash
amount to such shareholder equal to the fair value, as determined by the Board
of Directors, of such fractional share as of the effective date of the foregoing
split.
- ----------
*** The board of directors shall be granted discretion to effect the reverse
stock split at a ratio between 1-for-5 and 1-for-15.
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HEALTHAXIS INC.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS FOR A
SPECIAL MEETING OF SHAREHOLDERS ON AUGUST 19, 2003
The undersigned shareholder of HEALTHAXIS INC., a Pennsylvania
corporation (the "Company"), hereby acknowledges receipt of the official Notice
of Special Meeting of Shareholders, dated July __, 2003, and hereby appoints
James W. McLane and John M. Carradine, and each of them as proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Special Meeting of
Shareholders of the Company, to be held on Tuesday, August 19, 2003, at 10:00
a.m., Central Daylight Time, at the offices of the Company located at 5215 N.
O'Connor Blvd., Suite 800, Irving, Texas 75039, and any adjournment(s) or
postponement(s) thereof, and to vote all shares of common stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side.
1. To consider and vote upon an amendment to the Amended and Restated
Articles of Incorporation and to permit the board, at its discretion, at any
time prior to the Company's next annual meeting to effect a reverse stock split
of the Company's common stock at a ratio of not less than 1-for-5 and not more
than 1-for-15. The board of directors will retain discretion to elect to
implement a reverse stock split in this range or to elect not to implement a
reverse stock split.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To act upon such other matters as may properly come before the
meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting and at any adjournment(s)
or postponement(s) thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED (1) FOR THE APPROVAL OF THE AMENDMENT TO THE ARTICLES OF INCORPORATION
EFFECTING THE REVERSE STOCK SPLIT, AND (2) TO ACT UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
Both of such attorneys or substitutes (if both are present and acting at said
meeting or any adjournment(s) or postponement(s) thereof, or, if only one shall
be present and acting, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
Dated:
- -------------------------------
- -------------------------------
Signature
- -------------------------------
Signature
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(This proxy should be marked, dated, signed by the shareholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
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