SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [X] Definitive Proxy Statement
[ ] Confidential, for Use of the [ ] Definitive Additional Materials
Commission Only (as permitted [ ] Soliciting Material Pursuant to
by Rule 14a-6(e)(2)) Rule 14a-11(c) or Rule 14a-12
AVESIS INCORPORATED
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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,
or the form or schedule and the date of its filing.
1) Amount previously paid:
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4) Date filed:
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<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 14, 1998
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TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Avesis Incorporated, a Delaware
corporation (the "Company"), will be held on Monday, December 14, 1998 at 11:00
a.m. local time, at 11460 Cronridge Drive, Suite 120, Owings Mills, MD 21117,
for the following purposes:
1. To elect seven 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, 1998, which includes audited financial
statements, also accompanies this Notice.
Only stockholders of record at the close of business on October 22,
1998 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,
Alan S. Cohn
President and Chief Executive Officer
Phoenix, Arizona
November 2, 1998
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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 14, 1998
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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 that 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, an executive or other
authorized officer should sign the proxy in the name of such corporation. 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 that is enclosed are being
mailed to the Company's stockholders commencing on or about November 4, 1998.
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.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Only stockholders of record at the close of business on October 22,
1998 (the "Record Date"), will be entitled to vote at the meeting. On the Record
Date, there were issued and outstanding 7,394,297 shares of Common Stock, 6,000
shares of $10 Class A Nonvoting Cumulative Convertible Preferred Stock, Series 2
("Series 2 Preferred") and 306,460 shares of $3.75 Class A Senior Nonvoting
Cumulative Convertible Preferred Stock, Series A ("Series A 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 and Series A 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 22, 1998 there were 7,394,297 shares of Common Stock,
6,000 shares of Series 2 Preferred and 306,460 shares of Series A Preferred
outstanding. The table below sets forth as of October 22, 1998, 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
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<TABLE>
<CAPTION>
Common Issuable Upon Conversion or
Exercise Of: (1)
----------------------------------
Total Common
Common % of Series A % of Options Beneficially Percent of
Name and Address Stock Common Preferred Stock Pref. or Warrants Owned (1) Common (2)
- ---------------- ----- ------ --------------- ----- ----------- --------- ----------
(actual shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Gerald L. Cohen* 253,359 3.4 22,274(7) 7.3 -- 476,099 6.3
William R. Cohen* 161,117(4) 2.2 10,552 3.4 -- 266,637 3.6
William L. Richter 1,194,620(3) 16.2 50,099 16.3 -- 1,695,610(3) 21.5
c/o Richter & Co., Inc.
450 Park Ave., 28th Floor
New York, NY 10022
Sam Oolie* 220,021(5) 3.0 24,023 7.8 100,000 560,251 7.2
Kenneth L. Blum, Sr 140,000(6) 1.9 2,000 0.7 -- 160,000 2.2
17133 Ericarose Street
W. Boca Raton, FL
33496
Kenneth L. Blum, Jr. 1,814,750 24.5 -- -- -- 1,814,750 24.5
11460 Cronridge Drive
Suite 120
Owings Mills, MD 21117
Alan S. Cohn 1,804,750 24.4 -- -- -- 1,804,750 24.4
11460 Cronridge Drive
Suite 120
Owings Mills, MD 21117
Neal A. Kempler* -- -- -- -- 255,000 255,000 3.3
Joel H. Alperstein* -- -- -- -- 150,000 150,000 2.0
All directors and 5,588,617 75.6 108,948 35.6 505,000 7,183,097 79.9
Executive officers as (4)(5)
a group (9 persons)
</TABLE>
* Address: 3724 North Third Street, Suite 300, Phoenix, Arizona 85012.
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(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 A Preferred or options or
warrants, as indicated. Each share of Series A Preferred Stock indicated in
the table is convertible into 10 shares of Common Stock and such shares of
Common Stock are included in the total Common beneficially owned.
(2) The percentages shown include Common Stock actually owned as of the date of
the above table and Common Stock as to which the person had the right to
acquire beneficial ownership within 60 days of such date pursuant to the
Series A 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 462,500 shares of Common Stock and shares of Common Stock issuable
upon conversion of 22,300 shares of Series A indirectly owned via an
affiliated corporation, Richter & Co., Inc. ("RCI"), which thereby
beneficially owns in its own name 685,500 shares or 9.0% of the Company's
Common Stock. Also includes shares of Common Stock issuable upon conversion
of 3,883 and 4,530 shares of Series A Preferred held via two other
corporations. Also includes shares of Common Stock issuable upon conversion
of 2,500 shares of Series A Preferred and 15,169 shares of Common Stock
held by family members, as to which Mr. Richter disclaims beneficial
ownership.
(4) Includes 6.67% of the 6,337 shares of common stock and 19,412 shares of
Series A Preferred stock held by an affiliated corporation, with respect to
which William R. Cohen owns 6.67% of the outstanding stock.
(5) Includes 20% of the 6,337 shares of common stock and 19,412 shares of
Series A Preferred stock held by an affiliated corporation, 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.
(6) Mr. Blum's spouse holds the indicated shares.
(7) Includes 43.75% of the 4,530 shares of Series A Preferred held by an
affiliated corporation.
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<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
VOTE REQUIRED; NOMINEES
The Company has nominated seven persons for election at the 1998 Annual
Meeting as directors for terms expiring at the 1999 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 (including
principal occupations) relating to the nominees.
William R. Cohen, 67, Co-Chairman of the Board, has served as a
Director of the Company since April 1986. Mr. Cohen is the Chairman of 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, 55, 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 and investment banking firm (or its predecessor
organization) for the past nine years and has been a Senior Managing Director of
Cerberus Capital Management, L.P. (or its predecessor organizations) since their
founding in late 1992. Mr. Richter was Co-Chairman of Rent-A-Wreck of America,
Inc., a franchiser 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., 72, has served as a Director of the Company since
August 1993. Mr. Blum was acting President and Chief Executive Officer of the
Company from September 1996 to May 1998. Mr. Blum has been Chairman of the Board
of Rent-A-Wreck of America, Inc., an automobile rental franchiser, since June
1993, 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.
6
<PAGE>
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. See "Management Agreement."
Gerald L. Cohen, 54, 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, 62, 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.
Alan S. Cohn, 43, became the President and CEO of the Company as of
June 1998 and a Director of the Company as of August 1998. Mr. Cohn is providing
management services on behalf of the Company through an arrangement with NHE.
Mr. Cohn has been a management consultant for NHE and KAB, Inc. since 1993 and
1990, respectively. Since 1990, Mr. Cohn has been a principal or 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; Rent-A-Wreck of America, Inc., an automobile
franchiser; Allscripts, Inc., formerly Physician Dispensing Systems, Inc., a
pharmaceutical dispensing company, Lawphone, Inc., a prepaid legal fee company;
Medi-mail, Inc., a mail service pharmacy; and Mail-Rx, a mail-order prescription
drug company. Mr. Cohn is the son-in-law of Kenneth L. Blum, Sr., the Company's
former acting President and CEO, and a member of the Board of Directors. See -
"Management Agreement."
Kenneth L. Blum, Jr., 34, became a Director of the Company as of August
1998. Mr. Blum is the President, 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 franchiser, President of National Computer
Services, Inc., a computer service bureau, and President of American Business
Information Systems, Inc., a high-volume laser printing company. Kenneth L.
Blum, Sr., the Company's former acting President and CEO, and a member of the
Board of Directors, is the father of Kenneth L. Blum, Jr. See - "Management
Agreement."
7
<PAGE>
EXECUTIVE OFFICERS; NHE
Alan S. Cohn, 43, has been President and Chief Executive Officer of the
Company since June 1998. See "Vote Required; Nominees."
Neal Kempler, 30, 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, 30, 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, 30, has been the Treasurer of the Company since
December 1997 and the 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.
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. On December
12, 1997 the Company's Board of Directors extended the term of the Company's
Management Agreement with NHE to March 18, 2003. See "Certain Transactions."
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 and Preferred Stock are required to report their initial
ownership of the Company's Common and Preferred 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, 1998, except
that Messrs. Blum, Sr., W. Cohen, G. Cohen, Oolie and Richter each reported
transactions from May 1998 on Forms 4 dated June 22, 1998, and that Mr. William
Cohen reported a transaction from December 1997 on a Form 4 dated March 4, 1998.
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.
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<PAGE>
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. While no meeting of the Audit Committee was held during
fiscal 1998, an Audit Committee meeting was held subsequent to year-end to
discuss the May 31, 1998 financial statements.
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 six meetings
(including telephonic meetings) during the fiscal year ended May 31, 1998.
During the fiscal year ended May 31, 1998, all directors attended at least 75%
of the aggregate of all meetings of the Board of Directors and the committees,
if any, upon which such director served, except for Sam Oolie who attended four
of the six meetings of the Board of Directors.
On July 30, 1998, the Company's Board of Directors approved a
modification providing all outstanding stock option and warrant holders the
opportunity to exercise any or all of their vested options and warrants at a
discounted exercise price from their original grant, during the period from
August 1, 1998 to August 31, 1998. The modification was deemed necessary to
provide incentive for the exercise of outstanding stock options and warrants,
thereby raising capital to repurchase the outstanding common stock held by the
founder of the Company and removing a significant amount of the Company's stock
option and warrant overhang. The discounted price was calculated by discounting
the stated exercise price of each stock option or warrant by 10% per annum from
the expiration date back to August 1998, and rounding the calculated price to
the nearest whole cent. The discounted price was not less than the prevailing
market price of the Company's common stock at the time of exercise of the
options, defined as the high bid price, and rounded to the nearest whole cent.
After August 31, 1998, the modification expired and all terms of the unexercised
stock options or warrants returned to the original exercise terms.
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<PAGE>
Pursuant to the revised terms, the following individuals exercised
their stock options or warrants, in the following amounts at the following
exercise prices per option or warrant:
Number of Number of Modified Exercise
Option/Warrant Holder Options Warrants Price
- --------------------- ------- -------- -----------------
Alan S. Cohn 1,054,750 $0.31
Alan S. Cohn 700,000 $0.26
Kenneth L. Blum, Jr. 1,064,750 $0.31
Kenneth L. Blum, Jr. 700,000 $0.26
William L. Richter 50,000 $0.31
William L. Richter 109,091 $0.31
William L. Richter 50,909 $0.26
Richter & Co., Inc. 72,500 $0.31
Richter & Co., Inc. 163,636 $0.31
Richter & Co., Inc. 76,364 $0.26
William R. Cohen 100,000 $0.26
Gerald L. Cohen 100,000 $0.26
The total cash received by the Company from the exercise of the above
stock options and warrants was $1,228,656. Of the preceding amount,
approximately $400,000 was used to repurchase all 931,888 shares of the
Company's common stock held by the founder of the Company, at a price of $0.43
per share. The excess funds received from these transactions will be used as
working capital.
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 Chief Executive
Officer during the year ended May 31, 1998. No executive officer who was
serving as an executive officer during fiscal 1998 received salary and
bonus which aggregated at least $100,000 for services rendered to the
Company during the year ended May 31, 1998.
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Name and Securities Underlying
Principal Position Year Salary ($) Options/SARS (#)
- ------------------ ---- ---------- ----------------
Kenneth L. Blum, Sr., 1998 $0 --
Acting CEO (1) 1997 $0 --
1996 $0 --
(1) Mr. Blum became CEO of the Company during September 1996.
See also Item 12 -- "Certain Relationships and Related Transactions -
Agreements with National Health Enterprises, Inc. -- Stock Option Grant."
10
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth information with respect to the one
executive officer named in the Summary Compensation Table concerning the number
and value of options outstanding at the end of the last fiscal year. The
executive officer named in the Summary Compensation Table did not exercise any
options during the last fiscal year.
Value of Unexercised
Number of Unexercised in-the-Money Options
Options at FY-End (#) at FY-End ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Kenneth L. Blum, Sr. -- -- -- --
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, 1998 options for 100,000
shares of Common Stock were exercisable by each of the optionees.
During August 1998, William R. Cohen and Gerald L. Cohen each exercised
their 100,000 stock options pursuant to the reduced pricing as approved by the
Board of Directors.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT. On December 12, 1997 the Company's Board of
Directors agreed to extend the term of the Company's Management Agreement with
NHE to March 18, 2003. Also, effective March 18, 1998, the Company's Board of
Directors agreed to increase the cash compensation paid to NHE under the
Management Agreement by $50,000 per year to $250,000 per year.
STOCK OPTION GRANT. Pursuant to the Management Agreement, on March 18,
1993, the Company issued options (the "Options") to NHE for the purchase of up
to 4,400,000 shares of the Company's Common Stock. Also pursuant to the
Management Agreement, the Company entered into a Registration Rights Agreement
effective March 18, 1993 with NHE, Mr. Blum, Jr. and Mr. Cohn.
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. These options have
previously been transferred to, among others, Messrs. Blum, Jr., Cohn and
Richter. Effective January 27, 1997, NHE transferred 200,000 options, which had
automatically reverted to NHE from a former officer, to Neal A. Kempler.
Effective April 6, 1998, NHE transferred 100,000 options to Joel H. Alperstein.
During August 1998, Messrs. Blum, Jr., Cohn and Richter exercised all
of their outstanding options from the March 18, 1993 Stock Option Grant.
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 were due March 18, 1998 and accrued interest at the rate of 6% per annum,
provided that the holders could accelerate the notes if the Company terminated
the Management Agreement without cause. Interest was payable semiannually in
arrears, commencing September 18, 1993. The notes were unsecured and
subordinated to the Company's outstanding 9 1/2% Debentures and future
indebtedness of the Company for borrowed money. The Company paid $8,416 and
$10,442 in interest under the terms of these notes in fiscal 1998 and 1997,
respectively. On March 18, 1998 the Company paid Mr. Blum, Jr. and Mr. Cohn the
outstanding principal and accrued interest amounts on the subordinated
promissory notes.
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 1998 and 1997, the Company paid
approximately $211,000 and $65,000, respectively, to NHE under the Marketing
Agreement. In fiscal 1998 and 1997, the Company paid approximately $8,000 and
$14,000, respectively, in reimbursable marketing expenses to NHE under the
Marketing Agreement.
INVESTMENT BANKING SERVICES. On April 23, 1998, the Company entered
into a Supplemental Agreement with Richter & Co., Inc. ("RCI") for Investment
Banking services related to the Exchange
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Offer for the Company's Series 2 Preferred shares. RCI received cash
consideration of $50,000 and 250,000 shares of the Company's Common Stock. RCI
assigned 100,000 shares of the Company's Common Stock received under this
agreement to William L. Richter.
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 $0 and $76,000 to NCS for such services during fiscal 1998 and
1997, respectively. Additionally, the Company has contracted with NCS to lease
its computer system for approximately $1,000 per month. The Company paid $12,000
and $15,502 of computer lease charges in fiscal 1998 and 1997, respectively.
Kenneth L. Blum, Jr., a Director, is President and a stockholder of NCS and the
son of Kenneth L. Blum, Sr., the former Acting President and 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 has continued to use
the completed modules developed by NCS while the new system is under
development. The capitalized costs related to modules not yet placed in service,
$286,069, were expensed in fiscal 1997.
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OTHER MATTERS
At the date of this Proxy Statement, 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, 1998. 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, 1998 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
Any stockholder proposal intended for inclusion in the proxy material
for the 1999 Annual Meeting of Stockholders must be received in writing by the
Company, at the address set forth on the first page of the Proxy Statement, on
or before July 7, 1999. Any such proposal will be subject to Rule 14a-8
promulgated under the Securities Exchange Act of 1934.
Notice of Stockholder proposals for presentation at the 1999 Annual
Meeting, but which are not going to be presented to the Company for inclusion in
the proxy materials, will be considered untimely after September 20, 1999.
AVESIS INCORPORATED
Alan S. Cohn
President and Chief Executive Officer
November 2, 1998
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AVESIS INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS - DECEMBER 14, 1998
P R O X Y
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
WILLIAM L. RICHTER AND ALAN S. COHN, and each of them, are hereby authorized as
Proxies, with full power of substitution, to represent and vote the Common Stock
of the undersigned at the Annual Meeting of Shareholders of Avesis Incorporated,
a Delaware corporation, to be held on Monday, December 14, 1998, or any
adjournment thereof, with like effect as if the undersigned were personally
present and voting, upon the following matters:
1. Election of Directors [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for all
to the contrary below) nominees listed below
KENNETH L. BLUM, JR., KENNETH L. BLUM, SR., GERALD L. COHEN, WILLIAM R. COHEN,
ALAN S. COHN, SAM OOLIE, WILLIAM L. RICHTER
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.)
2. In their discretion, upon such other business as may properly come before
the Meeting or any adjournment thereof;
all as set out in the Notice and Proxy Statement relating to the Meeting,
receipt of which is hereby acknowledged.
(Continued on reverse side)
- --------------------------------------------------------------------------------
(Continued from reverse side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER SPECIFIED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ABOVE NOMINEES.
Dated: , 1998
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---------------------------------
Check appropriate box ---------------------------------
Indicate changes below: Signature(s) of Shareholder(s)
Address Change? [ ] Name Change [ ] PLEASE SIGN PERSONALLY AS NAME APPEARS
AT LEFT. When signing as attorney,
executor, administrator, personal
representative, trustee or guardian,
give full title as such. If signer is a
corporation, sign full corporate name by
duly authorized officer. If stock is
held in the name of two or more persons,
all should sign.
PLEASE SIGN AND DATE THIS PROXY AND RETURN IN ENCLOSED PREPAID ENVELOPE - PLEASE
DO NOT FOLD
