SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
Avesis Incorporated
-----------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1. Title of each class of securities to which transaction applies:
_______________________
2. Aggregate number of securities to which transaction applies:
_______________________
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
_______________________
4. Proposed maximum aggregate value of transaction: ____________________
5. Total fee paid: _______________________
Fee paid previously with preliminary materials
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, of the Form or Schedule and the date of its filing.
1. Amount Previously Paid: ____________________________
2. Form, Schedule or Registration Statement No.: ___________________
3. Filing Party: ____________________________
4. Date Filed: ____________________________
<PAGE>
AVESIS INCORPORATED
100 West Clarendon Avenue, Suite 2300
Phoenix, Arizona 85013
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 18, 1996
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TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Avesis Incorporated, a Delaware
corporation (the "Company"), will be held on Wednesday, December 18, 1996 at
11:00 a.m. local time, at 17133 Erica Rose Court, Boca Raton, Florida 33496, for
the following purposes:
1. To elect directors for the ensuing year and until their successors
are elected and qualified; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. A copy of the Company's Annual Report on
Form 10-KSB for the year ended May 31, 1996, which includes financial
statements, also accompanies this Notice.
Only stockholders of record at the close of business on November 19,
1996 are entitled to receive notice of and to vote at the Annual Meeting or any
adjournment thereof. A list of stockholders entitled to vote at the meeting will
be open for inspection at the Company's corporate headquarters for any purpose
germane to the meeting during ordinary business hours for ten days prior to the
meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person.
Sincerely,
Kenneth L. Blum, Sr.
Acting President and Chief Executive Officer
Phoenix, Arizona
November 19, 1996
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Please complete, date and sign the enclosed proxy and mail it promptly in the
enclosed envelope to assure representation of your shares, whether or not you
expect to attend the Annual Meeting. If you attend the Annual Meeting, you may
revoke the proxy and vote your shares in person.
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<PAGE>
AVESIS INCORPORATED
100 West Clarendon Avenue, Suite 2300
Phoenix, Arizona 85013
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 18, 1996
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SOLICITATION, EXECUTION AND REVOCATION OF PROXIES
Proxies in the accompanying form are solicited on behalf, and at the
direction, of the Board of Directors of Avesis Incorporated (the "Company"). All
shares represented by properly executed proxies, unless such proxies have
previously been revoked, will be voted in accordance with the direction on the
proxies. If no direction is indicated, the shares will be voted for the
Company's nominees for election as directors at the Annual Meeting, The Board of
Directors is not aware of any other matter which may come before the meeting. If
any other matters are properly presented at the meeting for action, including a
question of adjourning the meeting from time to time, the persons named in the
proxies and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment.
When stock is in the name of more than one person, the proxy is valid
if signed by any of such persons unless the Company receives written notice to
the contrary. If the stockholder is a corporation, the proxy should be signed in
the name of such corporation by an executive or other authorized officer. If
signed as attorney, executor, administrator, trustee, guardian or in any other
representative capacity, the signer's full title should be given and, if not
previously furnished, a certificate or other evidence of appointment should be
furnished.
This Proxy Statement and the form of proxy which is enclosed are being
mailed to the Company's stockholders commencing on or about November 20, 1996.
A stockholder executing and returning a proxy has the power to revoke
it at any time before it is voted. A stockholder who wishes to revoke a proxy
can do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of the Company prior to the vote at the Annual
Meeting, by written notice of revocation received by the Secretary prior to the
vote at the Annual Meeting or by appearing in person at the Annual Meeting,
filing a written notice or revocation and voting in person the shares to which
the proxy relates.
In addition to the use of the mails, proxies may be solicited by
personal interview, telephone and telegram by the directors, officers and
regular employees of the Company. Such persons will receive no additional
compensation for such services. Arrangements will also be
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<PAGE>
made with certain brokerage firms and certain other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of Common Stock held of record by such persons, and such brokers,
custodians, nominees and fiduciaries will be reimbursed for their reasonable
out-of-pocket expenses incurred in connection therewith. All expenses incurred
in connection with this solicitation will be borne by the Company.
The mailing address of the principal corporate office of the Company is
100 West Clarendon Avenue, Suite 2300, Phoenix, Arizona 85013.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on November 19,
1996 (the "Record Date"), will be entitled to vote at the meeting. On the Record
Date, there were issued and outstanding 4,100,420 shares of Common Stock and
388,180 shares of $10 Class A Nonvoting Cumulative Convertible Preferred Stock,
Series 2 ("Series 2 Preferred"). Each holder of Common Stock is entitled to one
vote, exercisable in person or by proxy, for each share of the Company's Common
Stock held of record on the Record Date. Shares of the Series 2 Preferred do not
have voting rights with respect to the matters included on the Annual Meeting
agenda. The presence of a majority of the Common Stock, in person or by proxy,
is required to constitute a quorum for the conduct of business at the Annual
Meeting. The Inspector of Election appointed by the Board of Directors shall
determine the shares represented at the meeting and the validity of proxies and
ballots, and shall count all votes and ballots. The affirmative vote of a
majority of such quorum is required with respect to the approval of the proposal
set forth herein. Abstentions and broker non-votes are each included in the
determination of the number of shares present for quorum purposes. Because
abstentions represent shares entitled to vote, the effect of an abstention will
be the same as a vote cast against a proposal. A broker non-vote, on the other
hand, will not be regarded as representing a share entitled to vote on the
proposal and, accordingly, will have no effect on the voting for such proposal.
Security Ownership of Certain Beneficial Owners and Management
As of October 19, 1996 there were 4,100,420 shares of Common Stock
outstanding. The table below sets forth as of October 19, 1996, certain
information regarding the shares of Common Stock beneficially owned by each
director of the Company and each named executive officer in the Summary
Compensation Table, by all of the Company's executive officers and directors as
a group, and by those persons known by the Company to have owned beneficially 5%
or more of the outstanding shares of Common Stock, which information as to
beneficial ownership is based upon statements furnished to the Company by such
persons.
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<PAGE>
<TABLE>
<CAPTION>
Common issuable
upon conversion
or exercise of: (1)
-------------------
Total Common
Common Series 2 Options Beneficially Percent of
Name and Address Stock Preferred Stock Or Warrants Owned (1) Common (2)
- ---------------- ----- --------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Gerald L. Cohen* 153,359 55,685 100,000 309,044 7.3
William R. Cohen* 48,521(5) 17,630 100,000 166,151 4.0
William L. Richter 417,120 114,282(3) 521,000(3) 1,052,402(3) 22.8
c/o Richter & Co., Inc.
950 Third Avenue
New York, NY 10022
Sam Oolie* 220,021(7) 60,058 100,000 380,079 8.9
Frank Cappadora* --- --- 485,500 485,500 10.6
Kenneth L. Blum, Sr. 140,000(8) 5,000 --- 145,000 3.5
17133 Ericarose Street
W. Boca Raton, FL 33496
Kenneth L. Blum, Jr. (4) 50,000 --- 1,839,750 1,889,750 31.8
11460 Cronridge Drive
Suite 120
Owings Mills, MD 21117
Alan S. Cohn(4) 50,000 --- 1,829,750 1,879,750 31.7
11460 Cronridge Drive
Suite 120
Owings Mills, MD 21117
Benjamin D. Ward., Sr. 931,888 --- --- 931,888 22.7
4712 North 41st Place
Phoenix, Arizona 85018
All directors and 979,021 252,656 876,000 2,107,677 51.4
executive officers as
a group (6 persons)(4) (3)(5)(6)(7)
</TABLE>
* Address: 100 West Clarendon, Suite 2300, Phoenix, Arizona 85013.
(1) Includes shares of Common Stock with respect to which the identified
person had the right to acquire beneficial ownership on or within 60
days of the date of the above table pursuant to the Series 2 Preferred,
options or warrants, as indicated.
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<PAGE>
(2) The percentages shown include Common Stock actually owned as of the
date of the above table and Common Stock of which the person had the
right to acquire beneficial ownership within 60 days of such date
pursuant to the Series 2 Preferred, options or warrants, as indicated.
In calculating the percentage of ownership, all shares of Common Stock
which the identified person had the right to acquire within 60 days of
the date of the above table are deemed to be outstanding when computing
the percentage of Common Stock owned by such person but are not deemed
to be outstanding when computing the percentage of Common Stock owned
by any other person.
(3) Includes common shares issuable upon conversion or exercise of 22,300
shares of Series 2 Preferred, 240,000 warrants and 71,000 options
indirectly owned via a corporation, Richter & Co., Inc. ("RCI"), which
thereby beneficially owns in its own name 8.3% of the Company's Common
Stock. Also includes common shares issuable upon conversion of 3,883
and 4,530 shares of Series 2 Preferred held via two other corporations.
Also includes common shares issuable upon conversion of 2,500 shares of
Series 2 Preferred and 10,169 shares of Common Stock held by family
members, as to which Mr. Richter disclaims beneficial ownership.
(4) Mr. Blum, Jr. and Mr. Cohn perform substantial services for the Company
pursuant to the Management Agreement but are not necessarily deemed
executive officers of the Company.
(5) Includes 6.67% of the 6,337 shares of common stock and 19,412 shares of
preferred stock held by CFC Associates, with respect to which William
R. Cohen owns 6.67% of the outstanding stock.
(6) William R. Cohen and Sam Oolie own 6.67% and 20% of the outstanding
stock of CFC Associates, respectively.
(7) Includes 20% of the 6,337 shares of common stock and 19,412 shares of
preferred stock held by CFC Associates, with respect to which Mr. Oolie
owns 20% of the outstanding stock. Also includes 30,000 and 8,679
shares, owned by Mr. Oolie's daughters and wife respectively, as to
which Mr. Oolie disclaims beneficial ownership.
(8) The indicated shares are held by Mr. Blum's spouse.
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<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Vote Required; Nominees
Five persons have been nominated by the Company for election at the
1996 Annual Meeting as directors for terms expiring at the 1997 Annual Meeting
and until their successors have been duly elected and qualified. Each of the
nominees currently is a director of the Company.
Shares represented by the enclosed proxy will be voted FOR the
Company's nominees, unless otherwise specified on the proxy. If any of the
nominees shall be unable or unwilling to serve as a director, it is intended
that the proxy will be voted for the election of such other person or persons as
the Company's management may recommend in the place of such nominee. The
management has no reason to believe that any of the nominees will not be
candidates or will be unable to serve.
All directors will hold office until the next Annual Meeting of
Stockholders and the election and qualification of their successors. Officers
are elected annually and serve at the pleasure of the Board of Directors.
Set forth below is certain biographical information relating to the
nominees.
William R. Cohen, 65, Co-Chairman of the Board, has served as a
Director of the Company since April 1986. Mr. Cohen is the President of Star
Uniform Rental Company and Go Lightly Candy Company. Mr. Cohen has served as
Chairman of American Mobile Communications, a cellular communications company
and has also held various positions with CFC Associates, a venture capital
partnership, and its predecessor organizations. Mr. Cohen serves as a lifetime
trustee of the Hospital Center, Orange, New Jersey. Mr. Cohen is not related to
Gerald L. Cohen.
William L. Richter, 53, Co-Chairman of the Board, has been a director
of the Company since August 1993 and has previously served as an advisor to the
Company's Board of Directors. Mr. Richter has been President of Richter
Investment Corp. and its wholly-owned subsidiary, Richter & Co., Inc., a
registered broker-dealer firm (or its predecessor organization) for the past
five years. Mr. Richter was Co-Chairman of Rent-A-Wreck of America, Inc., an
automobile rental franchise operation, from November 1989 to June 1993 and has
been Vice Chairman of that Company since June 1993.
Kenneth L. Blum, Sr., 70, has served as a Director of the Company since
August 1993. Mr. Blum has been Chairman of the Board and Chief Executive Officer
of Rent-A-Wreck of America, Inc. an automobile rental franchise operation, since
June 1993 and served as its President from January 1994 to October 1994. Mr.
Blum co-founded United HealthCare, Inc., a Baltimore, Maryland-based healthcare
company, in 1974 and served as its President and Chief
6
<PAGE>
Executive Officer until 1990. Since 1990, Mr. Blum has been a management
consultant to a variety of companies, including National Computer Services,
Inc., a computer service bureau; American Business Information Systems, Inc., a
high-volume laser printing company; and Mail-Rx, a mail-order prescription drug
company. Mr. Blum is the father of Kenneth L. Blum, Jr. and the father-in-law of
Alan S. Cohn. Mr. Blum has been acting President and Chief Executive Officer of
the Company since September 1996. See "Executive Officers; NHE."
Gerald L. Cohen, 52, has served as a Director of the Company since
March 1985. Mr. Cohen is a managing director of Greenley Capital Company, a
limited partnership which is a New York-based investment banking firm. Mr. Cohen
is the sole shareholder of its general partner (Greenley Corp.). From August
1982 through April 1989, Mr. Cohen was a managing director of Richter, Cohen &
Co., a New York-based investment banking firm (a predecessor of Richter & Co.,
Inc.) Mr. Cohen also serves as a Director of Marketing Systems of America. Mr.
Cohen is not related to William R. Cohen.
Sam Oolie, 60, has served as a Director of the Company since March
1985. Mr. Oolie has been Chairman and Chief Executive Officer of No-Fire
Technologies, Inc., a manufacturer of fire retardant coatings and textiles,
since August 1995 and has been Chairman of Oolie Enterprises, an investment
company, since July 1985. Mr. Oolie has held various positions with CFC
Associates, a venture capital partnership, and its predecessor companies since
January 1984. He was Vice Chairman of American Mobile Communications, Inc. a
cellular telephone company, from February 1987 until July 1989 and Chairman of
the Nostalgia Network, a 24-hour cable television program service, from April
1987 until January 1990. Mr. Oolie also serves as a Director of Noise
Cancellation Technologies, Inc., Comverse Technology, Inc. and NoFire
Technology, Inc.
Executive Officers; NHE
Kenneth L. Blum, Sr., 70, has been acting President and Chief Executive
Officer of the Company since September 1996. See "Vote Required; Nominees."
Neal Kempler, 28, has been the Corporate Secretary of the Company since
June 1996. Mr. Kempler has been the Vice President of Operations of the Company
since August 1996 and was the Assistant to the President/Director of Marketing
from January 1993 until August 1996. Mr. Kempler served as Account Executive of
National Health Enterprises, Inc., a management company, from June 1990 until
1993.
Effective March 18, 1993, the Company entered into a Management
Agreement (the "Management Agreement") with National Health Enterprises, Inc., a
Maryland corporation ("NHE") pursuant to which NHE agreed to manage
substantially all aspects of the Company's business, subject to certain
limitations and the direction of the Company's Board of Directors. See "Certain
Transactions."
7
<PAGE>
The following individuals, though not necessarily deemed executive
officers of the Company, are providing significant services to the Company
pursuant to the Management Services Agreement:
Kenneth L. Blum, Jr., 32, is President and Chief Executive Officer and
the sole stockholder of NHE. Mr. Blum is also President of Rent-A-Wreck of
America, Inc., an automobile rental franchise operation, President of National
Computer Services, Inc., a computer service bureau, and President of American
Business Information Systems, Inc., a high-volume laser printing company. Alan
S. Cohn, 41, is providing sales and marketing services on behalf of the Company
through an arrangement with NHE. Kenneth L. Blum, Sr., a member of the Company's
Board of Directors, is the father of Kenneth L. Blum, Jr. and the father-in-law
of Alan S. Cohn.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's
directors, its executive officers, and any persons holding more than ten percent
of the Company's Common Stock are required to report their initial ownership of
the Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. Specific due dates for these reports have
been established and the Company is required to disclose any failure to file by
these dates. All of these filing requirements were satisfied, except (i) Sam
Oolie reported on a Form 4 dated June 12, 1996 the sale of securities on May 7,
1996 and reported on a subsequent amendment to that Form 4 the sale of
securities by his spouse on May 1, 1996, and (ii) the Company did not receive a
copy of any report from Benjamin D. Ward regarding a sale of securities on
August 21, 1995. In making these disclosures, the Company has relied solely on
representations obtained from certain of its former and current directors,
executive officers and ten percent holders and/or copies of the reports that
they have filed with the Commission.
Meetings and Committees
The Audit Committee of the Board of Directors consists of Gerald Cohen
and Sam Oolie. This committee recommends engagement of the Company's independent
public accountants and is primarily responsible for approving the services
performed by the Company's independent public accountants and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls. The Audit Committee met one time during the fiscal year
ended May 31, 1996.
Currently, there is no nominating or compensation committee or other
committee performing similar functions.
The Board of Directors of the Company held a total of four meetings
(including telephonic meetings) during the fiscal year ended May 31, 1996.
During the fiscal year ended May 31, 1996, no director attended fewer than 75%
of the aggregate of all meetings of the Board of Directors and the committees,
if any, upon which such director served.
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table and related notes set forth information regarding the
compensation awarded to, earned by or paid to the Company's former Chief
Executive Officer for services rendered to the Company during the years ended
May 31, 1996, 1995 and 1994. No other executive officer who was serving as an
executive officer at the end of fiscal 1996 received salary and bonus which
aggregated at least $100,000 for services rendered to the Company during the
year ended May 31, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation/Awards
- --------------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Salary ($) Options/SARs (#)
- --------------------------- ---- ---------- ----------------
<S> <C> <C> <C>
Frank Cappadora, CEO 1996 $24,000 (1) (2)
1995 $14,000 (1) (2)
1994 (1) (2)
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</TABLE>
(1) Mr. Cappadora was President and Chief Executive Officer of the Company from
September 1992 until September 1996 and was designated to such position by
the Board of Directors in connection with the Management Agreement between
the Company and NHE. NHE received cash compensation of $220,000 under the
Management Agreement for the year ended March 18, 1994 and $200,000 per year
thereafter plus expense reimbursements and is entitled to receive
commissions pursuant to a Marketing Agreement. Mr. Cappadora is not a
stockholder of NHE, and his compensation from NHE and its affiliated
entities is not tied directly to the services performed by Mr. Cappadora on
behalf of the Company. During 1995 and 1996 Mr. Cappadora received a portion
of his compensation directly from the Company, while the remaining portion
was paid to him by NHE.
(2) NHE received options for the purchase of 4,400,000 shares of the Company's
Common Stock in March 1993 in connection with the Management Agreement. As
of October 19, 1996, Mr. Cappadora holds options for 485,500 shares of the
Company's Common Stock, which options were transferred to Mr. Cappadora by
NHE in March 1993. The options are exercisable at $.48 per share through
March 18, 2003.
See also -- "Certain Transactions -- Stock Option Grant."
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<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE TABLE (1)
The following table sets forth information with respect to the
executive officer named in the Summary Compensation Table concerning the number
and value of options outstanding at the end of the last fiscal year. The
executive officer named in the Summary Compensation Table did not receive or
exercise any options during the last fiscal year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs In-the-Money Options/SARs
at FY-End (#) at FY-End ($) (2)
- --------------------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Frank Cappadora 485,500 ----- $100,984 -----
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists entirely of stock options.
(2) Based on the difference between the average of the closing bid and asked
prices on May 31, 1996, of $0.688 as reported by the National Quotation
Bureau, Inc. and an exercise price of $.48 per share. See Note 2 to the
Summary Compensation Table and "Certain Transactions -- Stock Option Grant."
Employment Contracts, Termination of Employment, and Change-in-Control
Arrangements
In the event of termination of the Management Agreement with NHE
without cause, all options granted to NHE in connection with the Management
Agreement remain outstanding for the balance of their 10-year term. See "Certain
Transactions -- Stock Option Grant."
Director Compensation
Directors are reimbursed for out-of-pocket expenses incurred in
connection with each Board of Directors or committee meeting attended. Directors
who also are employees of the Company are eligible to participate in the
Company's Incentive Stock Option Plan and the Company's 401(k) Plan, and all
directors are eligible to participate in the Company's 1993 Stock Option Plan
(the "1993 Plan"). Pursuant to the 1993 Plan, options for 100,000 shares of the
Company's Common Stock were granted on April 8, 1993 to each of directors
William R. Cohen, Gerald L. Cohen, and Sam Oolie. The exercise price of such
options is $.40 per share, which was at least the fair market value of the
Company's Common Stock on the date of grant. Options for 25,000 shares of Common
Stock were exercisable by each of the optionees as of the date of grant, with
the balance vesting in equal parts at the end of each of the 10 three-month
periods following the date of grant. At May 31, 1996 options for 100,000 shares
of Common Stock were exercisable by each of the optionees.
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<PAGE>
Certain Transactions
Management Agreement. Effective March 18, 1993, the Company entered
into a Management Agreement (the "Management Agreement") with NHE pursuant to
which NHE agreed to manage substantially all aspects of the Company's business,
subject to certain limitations and the direction of the Company's Board of
Directors. The Management Agreement provided cash compensation of $220,000 in
the first year and $200,000 per year thereafter, as well as options for the
purchase of up to 4,400,000 shares of the Company's Common Stock, as described
below. The Management Agreement has an initial term of five years, and the
Company has the right to extend it for up to two additional two-year periods.
The Management Agreement is terminable by the Company for cause, as defined.
Pursuant to the Management Agreement, the Company has agreed that it will not,
without NHE's consent, issue (i) securities for consideration less than the fair
market value thereof; (ii) shares of Common Stock to any director, officer,
employee, or affiliate for less than $.40 per share; or (iii) securities to any
director, officer, employee, or affiliate except to the extent of 300,000 shares
of Common Stock plus options previously issued to such persons.
The Management Agreement includes certain representations and
warranties and limitations on solicitation by NHE of customers and employees of
the Company during the term of the Management Agreement and for two years
thereafter. The Management Agreement also requires that NHE hold in confidence
the Company's confidential information, provides that confidential information
developed by NHE shall belong to NHE, and further provides that the Company
shall have a nonexclusive, royalty-free, perpetual license to confidential
information developed by NHE.
Stock Option Grant. Effective March 18, 1993, the Company issued
10-year options (the "Options") to NHE for the purchase of up to 4,400,000
shares of the Company's Common Stock, of which Options for the purchase of
1,400,000 shares were exercisable as of the date of grant at an exercise price
of $.40 per share. The remaining Options (an aggregate of 3,000,000 Options)
could become exercisable under their original terms at prices ranging from $.40
to $.80 contingent upon achievement of profitability targets. Pursuant to such
provisions, Options for the purchase of 500,000 shares became exercisable at
$.432 based upon the Company's results for the quarter ended May 31, 1994.
Effective December 5, 1994, the Board of Directors approved the vesting of the
remaining 2,500,000 of these Options at an exercise price of $.48 per share, and
NHE and the Company agreed that the exercise price of the 500,000 Options which
had vested at $.432 per share would be increased to $.48 per share. The actions
of the Board of Directors were predicated upon the Board's view of the Company's
performance relative to the original vesting criteria and other relevant
considerations. Options remain exercisable throughout the 10-year term of the
Options, except that Options terminate 120 days after termination of the
Management Agreement by the Company for cause.
The Options are transferable only to employees or affiliates of NHE
performing substantial services for or on behalf of the Company or to employees
of the Company, subject to compliance with applicable law. NHE transferred all
of the Options in March 1993, principally to Kenneth L. Blum, Jr., Alan S. Cohn
and Frank Cappadora. Effective December 5, 1994,
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<PAGE>
Messrs. Blum, Jr., Cohn and Cappadora transferred an aggregate of 125,000 of the
Options exercisable at $.48 per share to Richter & Co., Inc. ("RCI") in
consideration of services performed and to be performed by RCI on behalf of NHE
in connection with NHE's provision of management services to the Company. RCI in
turn transferred 50,000 of such Options to William L. Richter effective December
5, 1994. Transferred Options may revert to NHE if a transferee ceases performing
substantial services for or on behalf of the Company.
Stock Purchase. Kenneth L. Blum, Jr. and Alan S. Cohn each acquired
50,000 shares (the "Shares") of the Company's Common Stock on March 18, 1993 for
consideration of $.40 per share.
Subordinated Promissory Notes. On March 18, 1993, the Company obtained
loans in the amount of $80,000 from each of Mr. Blum and Mr. Cohn. The notes are
due March 18, 1998 and bear interest at the rate of 6% per annum, provided that
the notes may be accelerated by the holders thereof if the Company terminates
the Management Agreement without cause. Interest is payable semiannually in
arrears, commencing September 18, 1993. The notes are unsecured and subordinated
to the Company's outstanding 9 1/2% Debentures and future indebtedness of the
Company for borrowed money.
Registration Rights Agreement. The Company entered into a Registration
Rights Agreement (the "Registration Rights Agreement") effective March 18, 1993
with NHE, Mr. Blum, and Mr. Cohn. The Registration Rights Agreement provides two
demand registrations with respect to the Shares and the shares issuable pursuant
to the Options ("Registrable Securities"). The first demand registration is
exercisable at the request of holders of at least 900,000 Registrable Securities
after the exercise by NHE and/or its transferees of at least 900,000 Options.
The second demand registration is exercisable at the request of holders of at
least 1,000,000 Options after completion of a fiscal year in which the Company
has Profits of at least $1,000,000. The Registration Rights Agreement also
provides piggyback registration rights with respect to registrations in which
other selling stockholders are participating. The Company is obligated to pay
the offering expenses of each such registration, except for the selling
stockholders' pro rata portion of underwriting discounts and commissions. No
precise prediction can be made of the effect, if any, that the availability of
shares pursuant to registrations under the Registration Rights Agreement will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock pursuant to such registrations could
adversely affect prevailing market prices.
Marketing Agreement. Effective March 18, 1993, the Company and NHE
entered into a Marketing Representation Agreement (the "Marketing Agreement")
pursuant to which NHE is entitled to receive a commission equal to 7 1/2% of the
enrollment fees (as defined) from Sponsor contracts generated by NHE. The
Company also agreed to pay NHE commissions equal to 2 1/2% of the enrollment
fees from Sponsor contracts with respect to which NHE provides marketing
assistance in procuring the contract, but does not itself generate the initial
Sponsor contact. The term of the Marketing Agreement is coextensive with that of
the Management Agreement. In fiscal 1996 and 1995, the Company paid
approximately $200,000 and $66,000, respectively, to NHE under the Marketing
Agreement.
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Software Development Services. During fiscal 1995, the Company
contracted with National Computer Services, Inc. ("NCS") to develop software
related to the Company's vision, dental and hearing programs. The Company paid
approximately $324,000 and $162,000 to NCS for such services during fiscal 1996
and 1995, respectively. Additionally, the Company has contracted with NCS to
lease its computer system. Once the software development is completed and the
system is converted, the Company will pay NCS a monthly lease fee of $2,500.
Kenneth L. Blum, Jr., a principal of NHE, is President and a stockholder of NCS
and the son of Kenneth L. Blum, Sr., a director of the Company.
Litigation Agreement. The Company entered into an agreement with
Kenneth L. Blum, Sr., a director of the Company; Kenneth L. Blum, Jr., a
principal of NHE; and Alan S. Cohn, who provides marketing services for the
Company through an arrangement with NHE, with respect to potential liabilities
and expenses in connection with a suit initiated by United HealthCare, Inc.
("United") against the Company and these individuals in June 1994 and a
countersuit filed against United in December 1994 by these individuals. The
agreement provided that the Company would indemnify the individuals in an amount
based upon the gross profit earned on the contract which was the subject of the
action brought by United and overall Company pretax profitability and gave the
Company an interest in any net proceeds received in connection with the
countersuit. All litigation between the parties was dismissed with prejudice in
May 1995, pursuant to a settlement. The Company paid approximately $140,000 in
legal fees during fiscal 1995 pursuant to the agreement, which did not exceed
the gross profit earned on the contract in question.
Investment Banking Services. The Management Agreement and related
transactions with NHE and certain other substantial transactions were structured
and negotiated for the Company by Richter & Co., Inc., a New York investment
banking firm ("RCI"), which received cash consideration of $50,000 and 10-year
warrants (the "Warrants") to acquire 400,000 shares of the Company's Common
Stock, of which 127,273 were exercisable upon grant at $.40 per share. Under the
original terms of the Warrants, the balance of the Warrants became exercisable
contingent upon achieving profitability targets in the same manner originally
applicable to the Options, as described above. The shares of Common Stock
issuable pursuant to the Warrants are entitled to piggyback registration rights
with respect to any registration in which the shares of Common Stock sold to Mr.
Blum, Jr. and Mr. Cohn or the Common Stock issuable pursuant to the Options are
included. A principal of RCI, William L. Richter, is a member of the Company's
Board of Directors. RCI has assigned Warrants for the purchase of 160,000 shares
of the Company's Common Stock to Mr. Richter. Mr. Richter and his firm have
provided and expect to continue to provide substantial investment services for
Messrs. Blum, Sr. and Jr., Mr. Cohn and various of their affiliated entities. To
that extent, RCI may be deemed to have had a conflict of interest with respect
to its efforts on behalf of the Company in effecting the Management Agreement
and related agreements with NHE. The Company's Board of Directors took into
account the potential conflict of interest issues referred to above in
structuring and entering into the investment banking agreement with RCI and
believes that the agreement was desirable and in the best interests of the
Company notwithstanding such possibility.
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As a result of actions taken by the Board of Directors on December 5,
1994 in connection with the Options, the 400,000 Warrants referred to in the
preceding paragraph have the following terms: 50,909 Warrants held by Mr.
Richter and 76,364 Warrants held by RCI are exercisable at $.40 per share; and
109,091 Warrants held by Mr. Richter and 163,636 Warrants held by RCI are
exercisable at $.48 per share.
Effective December 5, 1994, Messrs. Blum, Jr., Cohn and Cappadora
transferred an aggregate of 125,000 options exercisable at $.48 per share to RCI
(of which 50,000 were transferred in turn by RCI to Mr. Richter), in
consideration of services rendered and to be rendered by RCI on behalf of NHE in
connection with NHE's provision of management services to the Company.
Financial Advisor Agreement. Effective January 18, 1995, the Company
retained RCI as exclusive financial advisor and placement agent. RCI's fees
under this arrangement are payable only upon completion of defined transactions
and, in such event, are calculated upon the basis of a percentage of the
transaction value. The agreement is terminable by the Company upon 90 days
notice, provided that RCI is entitled to receive certain fees for two years
following termination in the event a transaction is concluded with an entity
introduced to the Company by RCI.
RCI provides substantial ongoing financial management and other
services to the Company at no charge. In the opinion of management, the terms of
the Company's arrangements with RCI, NHE and NCS taken as a whole are at least
as favorable to the Company as could be obtained from third parties.
OTHER MATTERS
The Company is unaware of any other matters that are to be
presented for action at the meeting. Should any other matter come before the
meeting, however, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect to such matter in
accordance with their judgment.
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INDEPENDENT PUBLIC ACCOUNTANTS
The Company has selected KPMG Peat Marwick LLP to audit the
consolidated financial statements of the Company for the fiscal year ending May
31, 1996. KPMG Peat Marwick LLP's representatives are not expected to be present
at the Annual Meeting.
REPORT ON FORM 10-KSB
A copy of the Company's Form 10-KSB for the year ended May 31, 1996 has
been enclosed with this Proxy Statement.
STOCKHOLDER PROPOSALS
Proposals intended to be presented at the 1997 Annual Meeting of
Stockholders must be received by the Company by July 23, 1997 to be considered
for inclusion in the Company's proxy materials relating to that meeting.
AVESIS INCORPORATED
KENNETH L. BLUM, SR.
Acting President and Chief Executive Officer
November 19, 1996
<PAGE>
<TABLE>
<CAPTION>
AVESIS INCORPORATED
100 West Clarendon, Suite 2300, Phoenix, Arizona 85013
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kenneth L. Blum, Sr. and Neal A. Kempler, as Proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as designated below, all the shares of Common Stock of
Avesis Incorporated, a Delaware corporation (the "Company") held of record by the undersigned on November 19, 1996, at the
Annual Meeting of Stockholders to be held on December 18, 1996, and at any adjournment thereof.
<S> <C>
1. ELECTION OF DIRECTORS
William R. Cohen, Kenneth L. Blum, Sr., Gerald L. Cohen, Sam Oolie, William L. Richter.
[ ] VOTE FOR all nominees listed, except as indicated [ ] WITHHOLD AUTHORITY to vote for all nominees.
to the contrary below (if any). (Instructions: To withhold
your vote for any individual nominee, write the nominee's
name in the space below.)
__________________________________________________________________________________________________________________________
2. In their discretion, to vote upon such other business as may properly come before the Annual Meeting or any adjournment.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE ABOVE NOMINEES.
Please sign exactly as name appears on your stock
certificates. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please give full corporate name and
indicate that execution is by president or other
authorized officer. If a partnership, please sign
in partnership name by authorized person.
Stockholder Name(s): (Print)
Dated:________________________________________,1996
__________________________________________________
__________________________________________________
__________________________________________________
Signature
__________________________________________________
Signature if held jointly
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