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-11(c) or ss.240.14a-12
Avesis Incorporated
- --------------------------------------------------------------------------------
(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
[ ] 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
3724 North Third Street, Suite 300
Phoenix, Arizona 85012
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held December 17, 1997
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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 17, 1997 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, 1997, which includes financial
statements, also accompanies this Notice.
Only stockholders of record at the close of business on October 27,
1997 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 4, 1997
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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
3724 North Third Street, Suite 300
Phoenix, Arizona 85012
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be Held December 17, 1997
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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 7, 1997.
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 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
3724 North Third Street, Suite 300, Phoenix, Arizona 85012.
2
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on October 27,
1997 (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 September 30, 1997 there were 4,100,420 shares of Common
Stock and 388,180 shares of Series 2 Preferred outstanding. The table below sets
forth as of September 30, 1997, certain information regarding the shares of
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.
3
<PAGE>
<TABLE>
<CAPTION>
Common issuable upon
conversion or exercise of:
(1)
Total Common
Common % of Series 2 % of Options Beneficially Percent of
------ ---- -------- ---- ------- ------------ ----------
Name and Address Stock Common Preferred Stock Pref. or Warrants Owned Common (2)
- ---------------- ----- ------ ---------------- ----- ----------- ----- ----------
(actual shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald L. Cohen* 153,359 3.7 22,274 5.7 100,000 309,044 7.3
William R. Cohen* 51,117(5) 1.2 10,552 2.7 100,000 177,497 4.2
William L. Richter 422,120 10.3 50,099 (3) 12.9 521,000(3) 1,068,368(3) 22.5
c/o Richter & Co., Inc.
450 Park Ave., 28th
Floor
New York, NY 10022
Sam Oolie* 220,021(7) 5.4 24,023 6.2 100,000 380,079 8.9
Kenneth L. Blum, Sr. 140,000(8) 3.4 5,000 1.3 --- 152,500 3.7
17133 Ericarose Street
W. Boca Raton, FL
33496
Kenneth L. Blum, 50,000 1.2 --- --- 1,839,750 1,889,750 31.8
Jr.(4) 11460
Cronridge Drive
Suite 120
Owings Mills, MD 21117
Alan S. Cohn(4) 50,000 1.2 --- --- 1,829,750 1,879,750 31.7
11460 Cronridge Drive
Suite 120
Owings Mills, MD 21117
Neal A. Kempler* --- --- --- --- 255,000 255,000 5.9
Frank C. Cappadora --- --- --- --- 85,500 85,500 2.0
3100 Warehime Road
Manchester, MD 21102
Benjamin D. Ward., 931,888 22.7 --- --- --- 931,888 22.7
Sr. 4712 North 41st
Place
Phoenix, Arizona 85018
All directors and 986,617 24.1 111,948 28.8 1,109,334 2,375,821 43.3
executive officers as (5)(6)(7)
a group (8
persons)(4)
</TABLE>
* Address: 3724 N. Third Street, Third Floor, Phoenix, Arizona 85012.
4
<PAGE>
(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 or options or warrants, as indicated. Each share
of Series 2 Preferred indicated in the table is convertible into 2
1/2 shares of Common Stock.
(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 8.2% 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
15,169 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 and are
excluded from the executive officer group data.
(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 8,679
shares owned by Mr. Oolie's wife, as to which Mr. Oolie disclaims
beneficial ownership.
(8) The indicated shares are held by Mr. Blum's spouse.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Vote Required; Nominees
Five persons have been nominated by the Company for election at the
1997 Annual Meeting as directors for terms expiring at the 1998 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, 66, 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, 54, Co-Chairman of the Board, has been a
director of the Company since August 1993. Mr. Richter has been President of
Richter Investment Corp. and its wholly owned subsidiary, Richter & Co., Inc.,
a registered broker-dealer, asset management and investment banking firm (or
its predecessor organization) for the past eight years. Mr. Richter was
Co-Chairman of Rent-A-Wreck of America, Inc., a franchisor of automobile rental
agencies, from November 1989 to June 1993 and has been Vice Chairman of that
Company since June 1993.
Kenneth L. Blum, Sr., 71, has served as a Director of the
Company since August 1993. Mr. Blum has been acting President and Chief
Executive Officer of the Company since September 1996. Mr. Blum has been
Chairman of the Board of Rent-A-Wreck of America, Inc., an automobile rental
franchisor, since June 1993 and President from June 1993 to October 1994, and
Chief Executive Officer since January 1994. Mr. Blum has been the President of
KAB, Inc., a management company, since 1990. Mr. Blum co-founded United
HealthCare, Inc., a Baltimore, Maryland-based healthcare company, in 1974 and
served as its President and Chief 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
6
<PAGE>
the father of Kenneth L. Blum, Jr. and the father-in-law of Alan S. Cohn. See
"Executive Officers; NHE."
Gerald L. Cohen, 53, 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 the general partner (Greenley Corp.) of
Greenley Capital Company. From August 1982 through April 1989, Mr. Cohen was a
managing director of Richter, Cohen & Co., a New York-based investment banking
firm. Mr. Cohen also serves as a Director of Marketing Systems of America. Mr.
Cohen is not related to William R. Cohen.
Sam Oolie, 61, has served as a Director of the Company since
March 1985. Mr. Oolie has been Chairman of NoFire 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 1986 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. and
Comverse Technology, Inc.
Executive Officers; NHE
Kenneth L. Blum, Sr., 71, has been acting President and Chief Executive
Officer of the Company since September 1996. See "Vote Required; Nominees."
Neal Kempler, 29, 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.
Shannon R. Barnett, 29, has been Controller of the Company (Principal
Accounting Officer) since August 1996 and was Senior Accountant of the Company
from November 1995 until August 1996. Ms. Barnett was Assistant Controller of
Quality Hotel and Marlyn Nutraceuticals, a vitamin manufacturer, from September
1994 until November 1995 and Staff Accountant of General Atlantic Resources,
Inc. an oil and gas company, from November 1992 until June 1994.
Joel H. Alperstein, 29, has been Director of Finance of the Company
(Principal Financial Officer) since January 1997. Mr. Alperstein was a
self-employed financial consultant from September 1996 until December 1996. Mr.
Alperstein was a Manager at Stout, Causey & Horning, P.A., a full service public
accounting firm, from September 1992 until August 1996, and a Senior Accountant
at Arthur Andersen, LLP, from July 1990 until September 1992. Mr. Alperstein has
a Masters of Business Administration from Loyola College of Maryland and is a
Certified Public Accountant.
7
<PAGE>
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."
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., 33, is President and Chief Executive Officer and
the sole stockholder of NHE. Mr. Blum is also President and Secretary of
Rent-A-Wreck of America, Inc., an automobile rental franchisor, 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, 42, is providing sales and marketing services on behalf
of the Company through an arrangement with NHE for sales and marketing services.
Kenneth L. Blum, Sr., the Company's acting President, CEO and member of the
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. The Company believes that all of these filing requirements were
satisfied during the year ended May 31, 1997, except (i) Kenneth L. Blum, Jr.
reported four January 1997 transactions on a Form 4 dated August 8, 1997; (ii)
William R. Cohen reported on a Form 4 dated February 18, 1997 the purchase of
securities on January 29, 1997; (iii) William L. Richter reported on a Form 4
dated February 12, 1997 the purchase of securities on January 29, 1997; (iv) Sam
Oolie reported on an amended Form 4 dated November 18, 1996 the sale of
securities on May 1, 1996; (v) Benjamin D. Ward, Sr. reported on a Form 4 dated
December 6, 1996 the sale of securities October 4, 1996; (vi) Benjamin D. Ward,
Sr. reported on a Form 4 dated December 6, 1996 the sale of securities August
21, 1995; (vii) Joel H. Alperstein reported on a Form 3 dated January 27, 1997
holdings upon becoming the principal financial officer on January 13, 1997;
(viii) Shannon R. Barnett reported on a Form 3 dated January 27, 1997 holdings
upon becoming the principal accounting officer on August 19, 1996; and (ix) Neal
A. Kempler reported on a Form 3 dated November 5, 1996 holdings upon becoming an
officer on June 20, 1996. 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
8
<PAGE>
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, 1997.
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 two meetings
(including telephonic meetings) during the fiscal year ended May 31, 1997.
During the fiscal year ended May 31, 1997, 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.
SUMMARY COMPENSATION TABLE
The following table and related notes set forth information regarding
the compensation awarded to, earned by or paid to both individuals who served as
the Company's Chief Executive Officer during the year ended May 31, 1997. No
executive officer who was serving as an executive officer during fiscal 1997
received salary and bonus which aggregated at least $100,000 for services
rendered to the Company during the year ended May 31, 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------------- ------------------------------------------
Awards
- ---------------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Salary ($) Securities Underlying Options/SARs (#)
- --------------------------- ---- ---------- --------------------------------------
<S> <C> <C> <C>
Kenneth L. Blum, Sr., Acting CEO (3) 1997 $0 -
1996 $0 -
1995 $0 -
Frank Cappadora, Former CEO 1997 $6,000 (1) (2)
1996 $24,000 (1) (2)
1995 $14,000 (1) (2)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Cappadora was the 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. Mr. Cappadora's 1995, 1996 and 1997 compensation from
the Company is shown in the table.
(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 August 19, 1997, Mr. Cappadora holds options for 85,500 shares of the
Company's Common Stock, which options were transferred to Mr. Cappadora by
NHE in March 1993.
The options are exercisable at $.48 per share through March 18, 2003.
(3) Mr. Blum replaced Mr. Cappadora as CEO of the Company during September 1996.
See also -- "Certain Relationships and Related Transactions -- Stock Option
Grant."
9
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE TABLE (1)
The following table sets forth information with respect to the
executive officers named in the Summary Compensation Table concerning the number
and value of options outstanding at the end of the last fiscal year. The
executive officers named in the Summary Compensation Table were not granted and
did not exercise any options during the last fiscal year.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Options/SARs at FY-End (#) in-the-Money Options/SARs
at FY-End ($)
- ---------------------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Kenneth L. Blum, Sr. --- --- --- ---
Frank Cappadora 85,500 --- $0 (2) ---
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists entirely of stock options.
(2) No value is reported because the average of the closing bid and asked prices
on May 31, 1997 as reported by the National Quotation Bureau, Inc. ($0.25)
is less than the exercise price of $.48 per share. See Note 2 to the Summary
Compensation Table and "Certain Relationships and Related 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
Relationships and Related 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. As of May 31, 1997 options for 100,000
shares of Common Stock were exercisable by each of the optionees.
10
<PAGE>
Certain Relationships and Related 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. NHE is owned by Kenneth L. Blum, Jr., the son of
the Company's President and CEO. 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, an employee of NHE, and Frank Cappadora, the Company's
President at that time. Effective December 5, 1994, Messrs. Blum, Jr., Cohn and
Cappadora transferred an aggregate of 125,000 of the Options exercisable at $.48
per share to a company controlled by William L. Richter, the Company's
Co-Chairman, Richter & Co., Inc. ("RCI"), in
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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. Effective January 27,
1997, NHE transferred 200,000 options, which automatically reverted to NHE from
Mr. Cappadora, to Neal A. Kempler.
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, Jr. 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. The Company paid $10,442 and
$9,600 in interest under the terms of these notes in fiscal 1997 and 1996,
respectively.
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 1997 and 1996, the Company paid
approximately $65,000 and $85,000, respectively, to NHE under the Marketing
Agreement.
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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, 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.
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.
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 $76,000 and $326,000 to NCS for such services during fiscal 1997
and 1996, respectively. Additionally, the Company has contracted with NCS to
lease its computer system for approximately $2,500 per month. The Company paid
$15,502 and $33,012 of computer lease charges in fiscal 1997 and 1996,
respectively. Kenneth L. Blum, Jr., a
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principal of NHE, is President and a stockholder of NCS and the son of Kenneth
L. Blum, Sr., the Acting President, CEO and a director of the Company.
During fiscal 1997, the Company decided to discontinue the
programming services being performed related to portions of the computer system
not yet placed in service. It was further determined that all of the Company's
current systems, which to date have been running on three separate platforms,
should be integrated through the use of the PC platform. The Company will
continue to use the completed modules developed by NCS until the new system is
complete. The capitalized costs related to modules not yet placed in service,
$286,069, have been expensed in fiscal 1997. See Item 6 -- "Management's
Discussion and Analysis or Plan of Operation Liquidity and Capital Resources."
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. No fees were paid by the Company to RCI during
fiscal 1997 and 1996.
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.
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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.
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, 1997. 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 without exhibits for the year
ended May 31, 1997 has been enclosed with this Proxy Statement. Stockholders may
request a copy of the exhibits to the Form 10-KSB, free of charge, by writing
to: Joel H. Alperstein, Investor Relations, Avesis Incorporated, 3724 North
Third Street, Suite 300, Phoenix, Arizona 85012.
STOCKHOLDER PROPOSALS
Proposals intended to be presented at the 1998 Annual Meeting of
Stockholders must be received by the Company by July 10, 1998 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 4, 1997
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AVESIS INCORPORATED
3724 North Third Street, Suite 300, Phoenix, Arizona 85012
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Kenneth L. Blum, Sr. and Neal 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
on record by the undersigned on October 27, 1997, at the Annual Meeting of
Stockholders to be held on December 17, 1997 and at any adjournment thereof,
hereby revoking any proxy previously given:
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTORS
Nominees: William R. Cohen, Kenneth L. Blum, Sr., Gerald L. Cohen, Sam Oolie, William L. Richter.
<S> <C> <C>
[ ] 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 on the following line.)
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</TABLE>
2. In their discretion, to vote upon such other business as may properly come
before the Annual Meeting or any adjournments thereof; all as set out in the
Notice and Proxy Statement relating to the Annual Meeting, receipt of which is
hereby acknowledged.
(Continued and to be signed and dated on reverse side)
<PAGE>
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.
Dated: _____________________, 1997.
Stockholder Name(s): (Print)
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Signature
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Signature if held jointly
