Old article on the net before the last E-Trade update.
Some insight on PAMC's chairman.
amcity.com
April 26, 1999
E-com hopes high at Provident American
Peg Brickley Staff Writer
Provident American Corp. is about a month away from spelling out its plans for its electronic-commerce insurance marketing subsidiary, HealthAxis. com.
A spinoff could be in the works, or a split, or a merger. But somehow, some way, according to officials of the ailing insurance company, Provident American will spew forth a red-hot internet venture, HealthAxis.com.
"By May 14 or 15 we will let Wall Street know," said Craig Gitlitz, marketing manager of the Norristown-based Internet company.
Provident American's current investors are also anxious to hear when and how their stakes in Provident American will be transformed into a pure play e-commerce holding.
Shares trade publicly in Provident American, and in mid-April, when the e-commerce rocket blasted off, that trading was hot and heavy.
But there has been hot and heavy private trading in the shares of HealthAxis.com, too, which has already altered the stakes for Provident American investors.
Lucky to climb out of single-digits earlier in the year, Provident American shares changed hands by the millions in mid-April, and sold as high as $38 per share. The price has since settled back under $30 per share, still more than double than where it was at the start of April.
Exactly what Provident American investors own has become a moving target, too.
In the course of wheeling and dealing its way into existence, from 24 percent to 30 percent of HealthAxis.com is gone already.
The most recent deal, an $8.8 million private sale of HealthAxis.com shares, went to a group led by insurer UICI, one of the companies signed up to sell product through HealthAxis.com's Web site.
That deal alone took Provident American's share of HealthAxis.com from 85 percent to 76 percent or less.
Another partner, HealthPlan Services Corp., a Florida managed care giant that took over much of Provident American's insurance business, picked up more that 15% of HealthAxis.com, converting debt to equity at a stepped-up pace and rate last fall..
At the same time, Provident American's former insurance operation has been whittled down to a scrap which is set to be shut down or sold off, like the rest was.
What it owns of HealthAxis.com will, before long, be all that Provident American owns.
HealthAxis.com has yet to announce its board, and its shares have yet to get into public circulation. But the Internet equity anxiously awaited by the market has been parceled out privately to certain investors, to Internet allies like American Online Inc. and, of course, to executives.
The deals do not seem unusual, at least for Internet ventures. But they are the sort that make some institutional investors back off.
Company spokesman Craig Gitlitz said HealthAxis.com needed to hand out equity to line up business partners like American Online, and to enlist top talent for the venture.
Should HealthAxis.com's Internet insurance sales site take off as its backers hope, directors and officers will pocket roughly 8 percent to 10 percent of the company's stock in the form of options.
Michael Ashker, CEO of HealthAxis.com, is one of Provident American's biggest individual owners. He is in the insurance company at close to 16 percent, according to the most recent tally filed with the Securities and Exchange Commission.
But the biggest single stakeholder is Alvin H. Clemens, chairman and CEO of Provident American, and owner of more than 30 percent of the stock.
Clemens also has a super-options package that could run his ownership share over 50 percent, giving him the power to veto any action involving HealthAxis.com.
Ashker and two colleagues have taken board seats vacated by Clemens' wife and his closest associates, but, according to Gitlitz, all of that is part of a peaceable handing over of the reins.
"Al is tired. He's had enough. When we need him for high level introductions, he's great. And he was great to get us into the insurance industry," the marketing executive said.
"But he's basically told Mr. Ashker that 'the company is yours.'"
Besides, terms of the most recent private placement of HealthAxis.com stock will keep Clemens from deciding the fate of the Internet venture, he added.
"He has to give up any of that super-option," Gitlitz said. "At the end of the day, he will have such a small stake, he will have no control."
At 30 percent or more of 70 percent or less of HealthAxis.com, Clemens still stands to make out if the Web site does what e-commerce advocates say it can -- sell and service policies at low cost.
Clemens bought into Provident American in 1989, four years after resigning from a Valley Forge insurance company amid a Securities and Exchange Commission crackdown.
Although he did not return calls for comment, Clemens has always denied that his departure from Academy Insurance Company had anything to do with its SEC troubles, which led to a consent decree in 1986.
The securities problems stemmed from allegations that Academy fudged the numbers when it reported the costs of cleaning up after a marketing effort that went seriously wrong.
Academy consistently denied responsibility for the alleged fraudulent sales, which it blamed on a Texas firm. Victims were elderly farmers who, in the early 1980s, bought what they were told were "estate conservation" plans to protect their farms from taxes.
What they had were ordinary insurance policies, and partial ones at that.
"I can't speak to Al's history there, but he is in no way involved in the day-to-day management" of HealthAxis.com, Gitliz said.
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