UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)
HEARx, Ltd.
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(Name of Issuer)
Common Stock
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(Title Class of Securities)
4223601
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(CUSIP Number)
Gregg M. Larson,
Assistant General Counsel
Minnesota Mining and Manufacturing Company
3M Center
Minneapolis, MN 55144
(612) 733-2204
- ----------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
March 15, 1996
- ----------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement
[ ]. (A fee is not required only if the reporting person: (1)
has a previous statement on file reporting beneficial ownership
of more than five percent of the class of securities described in
Item 1; and (2) has filed no amendment subsequent thereto
reporting beneficial ownership of five percent or less of such
class.) (See Rule 13d-7.)
* The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter disclosures provided in
a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
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SEC 1746 (12-91)
SCHEDULE 13D
CUSIP No. 4223601 Page 2 of 8 Pages
---------- --- ---
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
MINNESOTA MINING AND MANUFACTURING COMPANY 41-0417775
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE IF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
NUMBER 7 SOLE VOTING POWER
OF
SHARES 10,782,400
BENEFI 8 SHARED VOTING POWER
CIALLY
OWNED 0
BY EACH 9 SOLE DISPOSITIVE POWER
REPORT-
ING 10,782,400
PERSON 10 SHARED DISPOSITIVE POWER
WITH
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
10,782,400
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.9%
14 TYPE OF REPORTING PERSON*
CO
2 of 8
SEC 1746 (12-91)
This Amendment No. 3 amends and supplements the Schedule 13D
("Schedule 13D") and Amendment Nos. 1 and 2, relating to the
common stock, par value $0.10 per share (the "Common Stock"), of
HEARx Ltd., a Delaware Corporation (the "Company"), previously
filed by Minnesota Mining and Manufacturing Company, a Delaware
corporation ("3M").
* * *
Item 1 is hereby amended as follows:
ITEM 1. SECURITY AND ISSUER
This statement relates to the Common Stock of HEARx, Ltd.,
with principal executive offices located at 471 Spencer Drive,
West Palm Beach, FL 33409.
On March 15, 1996, the Company listed its stock on the
American Stock Exchange. As a result of the listing, the
preferred stock of the Company, and the warrants and options to
purchase preferred stock of the Company, then held by 3M,
automatically converted to Common Stock (or options or warrants
to acquire Common Stock).
Item 2 is hereby amended to add the following information:
ITEM 2. IDENTITY AND BACKGROUND
RESPONSES TO QUESTIONS (A), (B) AND (C) ARE AS FOLLOWS:
MINNESOTA MINING AND MANUFACTURING COMPANY ("3M") is a
Delaware corporation, with its principal business located at
3M Center, St. Paul, MN 55144. 3M is an integrated
enterprise characterized by substantial interdivision and
intersector cooperation in research, manufacturing and
marketing of products incorporating similar component
materials manufactured at common internal sources.
The EXECUTIVE OFFICERS OF 3M, each located at 3M's principal
business address, 3M Center, St. Paul, MN 55144, are as
follows:
Livio D. DeSimone (also a Director of 3M), Chairman of
the Board and Chief Executive Officer of 3M
Ronald A. Mitsch (also a Director of 3M), Vice Chairman
of the Board and Executive Vice President, Industrial
and Consumer Sector and Corporate Services
3 of 8
J. Marc Adam, Vice President, Marketing
Giulio Agostini, Senior Vice President, Finance and
Office Administration
Ronald O. Baukol (also a Director of 3M), Executive
Vice President, International Operations
William E. Coyne, Senior Vice President, Research and
Development
Lawrence E. Eaton, Executive Vice President
Charles E. Kiester, Senior Vice President, Engineering,
Quality and Manufacturing Services
Richard A. Lidstad, Vice President, Human Resources
W. George Meredith (also a Director of 3M), Executive
Vice President, Life Sciences Sector and Corporate
Services
John J. Ursu, Vice President, Legal Affairs and General
Counsel
The DIRECTORS OF 3M (in addition to those listed above) are
listed below, with their present principal occupations and
addresses:
Edward A. Brennan
Retired Chairman of the Board, President and CEO,
Sears, Roebuck and Co.
400 North Michigan Avenue, Suite 400
Chicago, Illinois 60611
Allen F. Jacobson
Director of various companies
3050 Minnesota World Trade Center
30 East 7th Street
St. Paul, Minnesota 55101
Allen E. Murray
Retired Chairman of the Board and Chief Executive Officer,
Mobil Corporation
P.O. Box 2072
New York, New York 10163
4 of 8
Aulana L. Peters
Partner in the law firm
Gibson, Dunn & Crutcher, LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Rozanne L. Ridgway
Co-Chair, The Atlantic Council of the United States
10th Floor
910 17th Street
Washington, D.C. 20006
Frank Shrontz
Chairman of the Board, The Boeing Company
P.O. Box 3707
MS 10-21
Seattle, Washington 98124-2207
F. Alan Smith
Retired Executive Vice President and Director,
General Motors Corporation
674 Franklyn Avenue
Indialantic, Florida 32903
Louis W. Sullivan, M.D.
President, Morehouse School of Medicine
720 Westview Drive, S.W.
Atlanta, Georgia 30310-1495
ITEMS (D), (E) AND (F) APPLY TO ALL PERSONS LISTED IN ITEM 2 ABOVE.
(d) Neither 3M nor any of the persons named above have,
during the last five years, been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors).
(e) Neither 3M nor any of the persons named above have been
a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a
result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect
to such laws.
(f) All of the natural persons named above are citizens of
the U.S.
5 of 8
Item 3 is hereby amended to add the following information:
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
During November - December 1993 and January 1994, 3M loaned
$400,000 to the Company, the conversion of which formed the
consideration for the issuance of Senior Preferred Stock, Series
E, par value $1.00 per share ("Series E Stock"), pursuant to an
Option to Purchase dated May 15, 1992. On May 1, 1995, the
Company agreed to the issuance of shares of Series E Stock in
consideration for such $400,000, with the actual number of shares
to be determined pursuant to a formula. By Letter Agreement
dated December 21, 1995, the Company agreed to the issuance of
shares at an issue price of $61.80 per share of Series E Stock
($.618 per share of Common Stock). On January 26, 1996, 6,472
shares of Series E Stock were issued to 3M, and are reported
herein on this Amendment No. 3. The shares of Series E Stock
were convertible into shares of Common Stock at a ratio of 1:100,
and converted into 647,200 shares of Common Stock, upon the
listing of the Company's Common Stock on the American Stock
Exchange on March 15, 1996.
Item 4 is hereby amended to add the following information:
ITEM 4. PURPOSE OF TRANSACTION
As stated in the Schedule 13D filed on January 2, 1992, 3M
initially invested in the stock of the Company in order to
promote 3M's interest in having the Company market and distribute
3M's hearing aid products in the United States. 3M is now in the
process of divesting itself of its Hearing Health business, which
produces hearing aid devices. 3M intends to evaluate the
possibility of selling all or, from time to time, portions of the
Common Stock held by it. In determining whether to sell its
shares of Common Stock, 3M may consider various factors,
including the status of 3M's divestiture of its Hearing Health
business, the Company's financial condition, other developments
concerning the Company, the market for the shares, including the
demand for the purchase of shares at particular price levels, and
general economic, financial market and industry conditions. Any
and all sales might be made in market transactions, privately
negotiated sales or in registered public offerings.
Item 5 is hereby amended to add the following information:
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) 3M beneficially owns 10,782,400 shares of Common Stock
of the Company as of the date of this Amendment No. 3,
representing an aggregate of approximately 15.9% of the
outstanding shares of the Company (based upon 65,909,183 shares
of the Company's Common Stock outstanding as of March 29, 1996,
as disclosed in the
6 of 8
Company's Form 10-Q for the quarterly period ended March 29,
1996.)
(b) 3M possesses the sole power to vote or dispose of the
securities described above.
(c) No transactions in the Common Stock were effected
during the past sixty days by the persons named in paragraph (a)
above.
(d) No other person is known to have the right to receive
or the power to direct the receipt of dividends from, or the
proceeds from the sale of such securities other than 3M.
(e) N/A.
Item 6 is hereby amended to add the following information:
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO SECURITIES OF THE ISSUER.
Pursuant to a Letter Agreement dated November 19, 1993,
an Agreement dated May 1, 1995, Stock Purchase Agreement
dated July 24, 1995, Letter Agreement dated December 21,
1995, and letter from HEARx, Ltd. to 3M, dated January 26,
1996, 3M acquired 6,472 shares of Series E Stock, $1 par
value of the Company upon the conversion of a $400,000 loan
previously made by 3M to the Company from 3M's working
capital. The Company provided demand and incidental
registration rights in connection with such securities, the
terms of which are specified in the Stock Purchase Agreement
dated July 24, 1995, a copy of which is filed as an exhibit
hereto and is hereby incorporated by reference herein.
Item 7 is hereby amended to provide the following information:
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
The copies of the five (5) documents referenced in Item 6
above are attached hereto as Exhibits:
1. Letter Agreement, dated November 19, 1993
2. 3M - HEARx Agreement, dated May 1, 1995
3. Stock Purchase Agreement, dated as of July 24,
1995
4. Letter Agreement, dated December 21, 1995
5. Letter from HEARx Ltd. to 3M, dated January 26,
1996, conveying stock certificate for 6,472 shares
of Senior Preferred Stock, Series E
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
MINNESOTA MINING AND
MANUFACTURING COMPANY
June , 1996 ------------------------------
Signature
/s/ Roger P. Smith
------------------------------
Roger P. Smith,
Corporate Secretary
November 19, 1993
3M LOGO
Dr. Paul A. Brown
Chairman and CEO
HEARx, Ltd.
2000 Palm Beach Lakes Boulevard Suite 100
West Palm Beach, Florida 33409
Subject: Letter Agreement between 3M and HEARx
--------------------------------------
Dear Dr. Brown:
This letter agreement dated November 19, 1993 will set forth and
confirm the understanding that we have with you relative to our
exercise of the options for the Senior Preferred Stock Series E
for One Million Dollars ($1,000,000), exercisable on or before
December 31, 1994. To the extent that any of the terms and
conditions contained herein covers the same subject matter as
contained in any of the series of other agreements executed
between the parties, including but not limited to the option to
Purchase Agreement, the Exhibits and Amendments related thereto
(collectively referred to as the "Agreement"), the later
agreement in time shall take precedence over the former. In
consideration of 3M's exercise of its option for the Stock Series
E, 3M and HEARx hereby agree to the following terms and
conditions set forth herein:
1. As consideration for its purchase of the Series E HEARx
stock, 3M agrees to provide the following monies to HEARx:
(a) One Hundred Fifty Thousand Dollars ($150,000) in cash
payable on November 19, 1993. Following the initiation
of the implementation of a cost reduction plan noted in
2(c), 3M shall make available up to an additional Two
Hundred Fifty Thousand Dollars ($250,000.00) on HEARx
request.
(b) The balance shall be payable in cash and/or a fifty
percent (50%) reduction in the amounts of future
payables owed to 3M. The amounts in this subparagraph
(b) are payable at 3M's sole discretion and are subject
to 3M's continued satisfaction of cost reduction
implementation and ongoing operating results.
2. The obligation of 3M to purchase the Stock Series E is
subject to the following conditions:
(a) HEARx shall have completed its additional financing of
not less than Five Million Dollars ($5,000,000).
(b) The Stock Series E shall have no less favorable price,
rights and preferences than any financing transaction
between HEARx and an investor contemplated in the
current round of financing. For references purposes
only, HEARx has provided 3M with the attached Exhibit A
as an example of terms presently under consideration
for extension to a prospective investor.
(c) HEARx shall immediately implement cost reduction
programs in the amount of approximately Four Hundred
Eighty Thousand Dollars ($480,000) on an annualized
basis, which will include the ____________ .Equipment
Business (SID). HEARx shall provide to 3M an operational
plan of this strategy and action would need to occur
prior to release of funds subsequent to the initial One
Hundred Fifty Thousand Dollars ($150,000). This plan
for aggressive implementation of - more than One
Million Dollars ($1,000,000.00) in annualized cost
reduction is consistent with the agreements between
HEARx and Alpine Partners.
(d) HEARx shall hire an experienced, retail person
(previously identified) to be given-the responsibility
and authority to implement the cost reduction programs
and strengthen the operational linkage to 3M.
(e) HEARx shall not be delinquent on 3M's accounts.
(f) 3M shall continue to maintain its right of first
refusal on making additional investments at the same
price and rights as the most favorable financing in
this round so as not to dilute 3M's existing equity
position.
3. In the event HEARx fails to adhere to the terms and
conditions set forth herein, HEARx agrees to execute a
Promissory Note on behalf of 3M for any amounts rendered
pursuant to this Letter Agreement.
4. HEARx, at the request of 3M, agrees to do, make, execute,
acknowledge and deliver all such other and further acts and
instruments of conveyance, assignment, and transfer as 3M
may require for the more effective conveyance and transfer
of the Stock Series E and or any promissory notes due
hereunder.
5. 3M reserves the right to hold a seat on HEARx Board of
Directors; said right shall be exercised at 3M's sole
discretion.
6. All other terms, conditions, rights and preferences as set
forth in the Agreement shall continue except as provided
herein.
If the foregoing meets with the approval of HEARx, kindly so
indicate by signing and returning the enclosed duplicate copy of
this letter, whereupon this letter shall constitute a binding
Letter Agreement between the parties in accordance with the terms
and provisions set forth-above. This letter may be executed in
counterparts which together will constitute one document.
We look forward to receiving your response today.
MINNESOTA MINING AND
MANUFACTURING COMPANY
By: /s/ Paul D. Rosso
--------------------
Its: Business Manager
--------------------
Acknowledged this 19th day of
November, 1993.
HEARx, LTD.
By: /s/ Paul A. Brown
--------------------
Its: Chairman
--------------------
<TABLE>
EARDEL.XLS
<CAPTION>
DEAL STRUCTURE PROPOSAL I PROJECT EARS
- ---------------------------------------------------------------------------------------------------------------------------------
PORTION AMOUNT DRAWDOWN EXPECTED TERMS OWNERS WARRANTS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A $US 2.0mlo. at closing Conv. Pref. Shares under Rule 144 2,000,000 warrants
- ---------------------------------------------------------------------------------------------------------------------------------
agreem. to OTC listed at $US 0.60 p.Sh.=Net95 $US 1.6 mlo. 7.69% 10 years
- ---------------------------------------------------------------------------------------------------------------------------------
as soon as elegible at $US 0.30 p.Sh.=Net95 $US 0.0 mlo. 14.29%
- ---------------------------------------------------------------------------------------------------------------------------------
B $US 2.0mlo. first quarter Cash Flow III. Quart.94 discount 30% to market 4.86% 666,666 warrants at $0.
- ---------------------------------------------------------------------------------------------------------------------------------
positive If drawdown target mo
- ---------------------------------------------------------------------------------------------------------------------------------
co. takes other cap. so
- ---------------------------------------------------------------------------------------------------------------------------------
C $US 2.0mlo. first quarter EBIT IV. Quart.94 discount 20% to market 4.04% 666,666 warrants at $1
- ---------------------------------------------------------------------------------------------------------------------------------
break down If drawdown target me
- ---------------------------------------------------------------------------------------------------------------------------------
co. takes other cap. so
- ---------------------------------------------------------------------------------------------------------------------------------
D $US 2.0mlo. first quarter NET I. Quart.95 discount 10% to market 3.46% 666,666 warrants at $1.
- ---------------------------------------------------------------------------------------------------------------------------------
break down If drawdown target me
- ---------------------------------------------------------------------------------------------------------------------------------
co. takes other cap. so
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3M - HEARx
Agreement
May 1, 1995
HEARx, Ltd. admits that it currently owes to 3M $808,000 for
product 3M delivered to HEARx prior to this agreement, but which
HEARx did not pay for, and that amount is currently due and
payable, and not subject to any set-off or counterclaim.
In addition, 3M loaned to HEARx $400,000 with the understanding
that HEARx would find another investor to purchase its common
stock. HEARx then was to convert the $400,000 debt to equity.
Unfortunately, HEARx has not been able to find such an investor.
This agreement provides the terms and conditions by which 3M will
agree not to demand immediate payment of the $808,000 HEARx owes
3M and by which the $400,000 loan will be converted to equity.
1. HEARx will convert the $400,000 loan to HEARx preferred
stock convertible into common stock at $0.85 per share,
pursuant to a separate stock purchase agreement. HEARx
will deliver the stock certificates to 3M within 30
days after this agreement is signed.
Failure to deliver the certificates or to other breach
of stock purchase agreement are material breaches of
this agreement, and all obligations ($808,000 plus
$400,000) will be immediately due and payable, in
addition to the remedies described in paragraph 4.E.
2. Nonexclusive distributor.
HEARx will no longer be the exclusive dispenser of 3M
products in its territory. 3M may sell to any customer
or dispenser in the territory. This modifies the
Second Amended Distribution and Supply Agreement, dated
June 28, 1993, between HEARx and 3M.
3. HEARx will pay to 3M $208,000 by December 12, 1995.
HEARx may make partial payments prior to that date. 3M
will set-off credits to HEARx against the $208,000
debt.
HEARx will pay interest on the balance existing on the
first day of each month at the rate of 1% per month.
The interest will accrue each month and will be due and
payable on December 12, 1995. HEARx may prepay any
interest that has accrued.
The $208,000 will be applied against the $808,000 which
is currently due. The interest will not be applied
against that amount.
Failure to make these payments is a material breach of
this agreement, and all obligations will be immediately
due and payable, in addition to the remedies described
in paragraph 4.E.
4. After making the payment described paragraph 3, HEARx
will owe 3M $600,000, without any right to set-off or
counterclaim. This amount is immediately due and
payable, but 3M will not demand payment until January
31, 1999, provided that complies with the following
terms and conditions:
A. Minimum total purchases.
HEARx will purchase an additional 26,000 hearing
aid units (net of returns) from 3M by December 31,
1998.
B. Minimum annual purchases.
HEARx will purchase a minimum of 3,200 units (net
of returns) in 1995, and 4,800 units (net of
returns) in each additional calendar year. (Note:
to reach 26,000 units, HEARx would have to
purchase 6,500 units per year.)
1. If HEARx fails to purchase 3,200 units in
1995 or 4,800 units (net of returns) in a
subsequent year, it may avoid breaching this
condition by paying to 3M a lump sum equal to
the difference between 3,200 in 1995 or 4,800
in subsequent years and the net number of
units it purchased during the calendar year
multiplied by the charge described in 4.B.2.
2. The charge will increase each year. The year
below is the year in which HEARx fails to
purchase its minimum:
1995: $23/unit
1996: 26/unit
1997: 29/unit
1999: 33/unit
3. HEARx must make the lump sum payment by
January 31 of the following year. The lump
sum payment will be in addition to HEARx's
obligation; it will not reduce the
obligation.
C. Conversion of debt to equity.
For every 5,200 units HEARx purchases from 3M (net
of returns), $120,000 of the HEARx's debt will be
converted to HEARx preferred stock convertible
into common stock at $0.85 per share pursuant to a
separate stock purchase agreement reducing HEARx's
obligation by $120,000. 3M will notify that it
purchased 5,200 units.
HEARx stock certificates will be delivered to 3M
within 30 days after 3M gives notice.
Failure to deliver the certificates or other
breach of stock purchase agreement are breaches of
this agreement, and all obligations will be
immediately due and payable, in addition to the
remedies described in paragraph 4.E and 4.F.
HEARx must purchase 26,000 units by December 31,
1998, to convert all of the debt to equity.
D. Purchases.
1. Prices.
A. Conventional units
HEARx will purchase conventional units
at the prices and terms and conditions
stated in Exhibit A. 3M may increase
prices once per year, by no more than
the increase of the producer's price
index for Surgical, Medical & Dental
Instruments for the previous year of 5%,
whichever is less.
B. Other units (e.g., programmable)
HEARx will purchase other units at the
prices and terms and conditions stated
in 3M's price pages current at the time
of HEARx's order.
2. Payment is due net 30 days from the end of
the month in which the aid was shipped from
3M.
3. 'Net purchases' are HEARx's purchases of 3M
hearing aid units less its returns during
each year of this agreement.
E. Breach of 4.B.
If HEARx fails to purchase 3,200 units during 1995
or 4,800 units in 1996 or 1997 and fails to pay
the lump sum described in 4.B by January 31 of the
next year, the amount remaining of its obligation
plus the difference between 26,000 units and the
total net purchases made by HEARx multiplied by
the charge stated in 4.B.2 will be immediately due
and payable.
F. Payment of the obligation at the end of this
agreement.
If HEARx fails to purchase 26,000 units by
December 31, 1998, the amount remaining of its
obligation plus the difference between 26,000
units and the total net purchases made by HEARx
multiplied by $33 will be immediately due and
payable.
G. Timely payment of current accounts.
HEARx will pay all current accounts within 30 days
after the date of the invoice. (See paragraph
4.D). If HEARx fails to make any payment on time,
it will be in breach of this agreement, and all
obligations will be immediately due and payable,
including the applicable lump sum described in 4.E
and 4.F.
3M will give seven days notice to make payment the
first time HEARx fails to make its payment on
time. 3M will not give notice on subsequent
failures.
6. Taxes.
HEARx is responsible for paying all taxes applicable to
this agreement, for example, the Florida documentary
stamp tax, if applicable.
7. Dispute Resolution.
This agreement is made in Minnesota, and Minnesota law
will apply. All litigation relating to this agreement
will be commenced in Minnesota. HEARx agrees to the
jurisdiction of Minnesota courts. HEARx and 3M waive
their right to a jury trial.
8. Complete Agreement.
This is the complete agreement regarding these issues.
It supersedes all previous agreements. It may be
modified only by written agreement.
MINNESOTA MINING AND HEARx Ltd.
MANUFACTURING COMPANY
By: /s/ G.J. Sabongi By: /s/ Paul Brown
G. J. Sabongi, Ph.D. Paul Brown, M.D.
Business Manager Chairman
STOCK PURCHASE AGREEMENT
by and between
MINNESOTA MINING AND MANUFACTURING COMPANY
and
HEARx LTD.
Dated as of July 24, 1995
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of July
__, 1995, by and between MINNESOTA MINING AND MANUFACTURING
COMPANY ("Purchaser"), a Delaware corporation having its
principal office at 3M Center, St. Paul, Minnesota 55144, and
HEARx LTD., a Delaware corporation ("Company"), having its
principal office at 471 Spencer Drive, West Palm Beach, Florida
33409.
RECITALS
--------
The Company and Purchaser agreed, pursuant to their
Agreement dated May 1, 1995, to apply $400,000.00 of debt which
Company owes to Purchaser to the purchase of Senior Preferred
Stock, Series E, of the Company, at $85.00 per share, for a total
of 4,706 shares.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and ties contained herein, the
Company and Purchaser agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF STOCK
--------------------------
1.1 PURCHASE AND SALE OF STOCK. Subject to the terms and
conditions of this Agreement, Purchaser hereby purchases 4,706
shares of Senior Preferred Stock, Series E of the Company, par
value $1.00 per share ("Senior E Preferred") for a total purchase
price of $400,000.00. The Senior E Preferred shall have the voting
powers, preferences, rights, limitations and restrictions
contained in the Certificate of Designations, Preferences and
Rights, a copy of which is attached hereto as Exhibit "A," and
whose terms and conditions shall be at least as favorable as
those offered to other holders of preferred shares
1.2 PURCHASE PRICE. The Company hereby acknowledges
receipt of such $400,000.00.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
2.1 ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware.
2.2 AUTHORIZATION. The Company has full power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby. Except as provided in Article
V hereof, the Company has taken all action required by law, its
Certificate of Incorporation and Bylaws, or otherwise, to
authorize the execution and delivery of this Agreement and the
transactions contemplated hereby, and this Agreement is a valid
and binding obligation of the Company enforceable in accordance
with its terms, except as such enforcement may be limited under
principles of equity or the availability of equitable remedies,
such as specific performance, injunctive relief or waiver.
2.3 CONSENTS AND APPROVALS. Except as provided in Article
V hereof no consent, approval or authorization of, or
declaration, filing or registration with, any governmental or
regulatory authority, is required in connection with the
examinations delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated
hereby.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and to the Company as follows:
3.1 INVESTMENT REPRESENTATION. Purchaser is requiring the
Senior E Preferred solely for its own account and not with a view
to the distribution thereof except in conformity with the
Securities Act of 1933, as amended ("Act"). Purchaser
understands that the shares of Senior E Preferred and shares of
Common Stock, par value $.01 per share ("Common Stock") of the
Company which may be issuable upon conversion of the shares of
Senior E Preferred have not been registered under the Act or any
applicable state securities laws and may not be sold or
transferred except in compliance with such laws and the
certificates evidencing the shares of Senior E Preferred will
bear an appropriate legend to that effect.
3.2 DISCLOSURE. Purchaser has had access to all
information regarding the Company necessary to allow Purchaser to
make a fully informed decision to purchase the Senior E
Preferred.
ARTICLE IV
----------
REGISTRATION RIGHTS
-------------------
4.1 DEMAND REGISTRATION RIGHTS. At any time after the end
of the Company's fiscal year, Purchaser may request, in writing,
that the Company effect the registration on Form S-1 or Form S-2
(or any successor form) of the Senior E Preferred. If Purchaser
intends to distribute the Senior E Preferred by means of an
underwriting, Purchaser shall so advise the Company at its
request. In the event such registration is underwritten, the
right of other stockholders to participate shall be conditioned
on such stockholders' participation in such underwriting. Upon
receipt of any such request, the Company shall promptly give
written notice of such proposed stock registration to all
stockholders. Such stockholder shall have the right, by giving
written notice to the Company within thirty (30) days after the
Company provides its notice, to elect to have included in such
registration such of their registrable stock as such stockholders
may request in such notice of election, subject to the approval
of the underwriter managing the offering. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to
effect the registration, on Form S-1 or Form S-2 (or any such
form), of all stock which the Company has been requested to so
register. Purchaser shall bear its proportionate share of the
expenses of such registration; provided, however, that expenses
borne by Purchaser shall not include the cost of any financial
statements prepared in the normal course of the Company's
business or charges made for the services of any officers or
employees of the Company in connection with such registration.
4.2 INCIDENTAL REGISTRATION RIGHTS. If, under state laws,
under the Securities Act of 1933, as amended or any other similar
Federal Statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time
(hereinafter "the Act"), the Company proposes to register any of
its securities under the Act for the account of a security holder
or security holders exercising demand registration rights
(except, with respect to Registration Statements filed on Form S-
8 or Form S-4 or such other similar form then in effect under the
Act), it will each such time give written notice to Purchaser of
its intention so to do and, upon the written request of Purchaser
given within 20 days after the Company's giving of such notice
(which request shall state the intended method of disposition by
Purchaser of stock), the Company's use its best efforts to cause
the Stock, as to which registration shall have been so requested,
to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all
to the extent requisite to permit the sale or other disposition
of Purchaser's Stock so registered in accordance with the written
request of Purchaser. Notwithstanding any other provision of
this Paragraph 4.2, if the underwriter determines that the
marketing factors require a limitation of the number of shares to
be underwritten, the underwriter may exclude some or all of the
Stock of the type Purchaser requested be registered from such
registration and underwriting. In such event, the amount of such
Stock to be included in the registration shall be apportioned pro
rata among the holders of such Stock requesting registration,
according to the total amount of such Stock requested to be
registered by such requesters, or in such other proportion as
shall mutually be agreed to by such requesters. In the event
that any registration pursuant to this Paragraph 4.2 shall be, in
whole or in part, a firm commitment underwritten offering of
securities of the Company, any request by Purchaser pursuant to
this Paragraph 4.2 to register Stock must specify that such
shares are to be included in the underwriting (i) on the same
terms and conditions as the shares of the Stock, if any,
otherwise being sold through underwriters under such registration
or (ii) on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar
circumstances in the event that no shares of the Stock are being
sold through underwriters under such registration. Purchaser
shall bear its proportionate share of the expenses of such
registration; provided, however, that expenses borne by Purchaser
shall not include the cost of any financial statements prepared
in the normal course of the Company's business or charges made
for the services of such officers or employees of the Company in
connection with such registration.
4.3 PRIOR REGISTRATION RIGHTS. The Company acknowledges
that these are same rights conferred on the previously issued
Series A, B, C, D and G Senior Preferred Stock issued to
Purchaser.
ARTICLE V
---------
COVENANTS
---------
5.1 INCREASE IN AUTHORIZED COMMON STOCK. Purchaser
acknowledges that it is aware that in order for the shares of
Senior E Preferred to be convertible into shares of Common Stock,
the authorized number of shares of Common Stock which the Company
may issue must be increased. The Company agrees to use its best
efforts to cause its shareholders to approve at the next annual
meeting of shareholders an amendment to the Company's Certificate
of Incorporation increasing the authorized Common Stock of the
Company in an amount sufficient to allow for the issuance of the
shares of Common Stock in which the Senior E Preferred (and all
other shares of Senior Preferred Stock which Purchaser has the
right to acquire pursuant to the documents referred to in Section
5.6 hereof) are convertible.
5.2 FAILURE TO AUTHORIZE INCREASED COMMON STOCK SHARES. In
the event the Company is Unsuccessful in causing its shareholders
to approve the increase in the authorized common shares, then the
Company will pay to 3M Four Hundred Thousand Dollars
($400,000.00) within seven (7) days of the shareholders meeting.
Upon receipt of payment of $400,000.00, 3M will return the Stock
Certificate for the issued shares to the Company.
ARTICLE VI
----------
MISCELLANEOUS PROVISIONS
------------------------
6.1 AMENDMENTS AND MODIFICATION. This Agreement may be
amended or supplemented only by written agreement of the parties.
6.2 WAIVER OF COMPLIANCE. Any failure of the Company or of
Purchaser to comply with any obligation agreement or condition
herein may be waived in writing, however, failure to insist upon
strict compliance with any such obligation, covenant or condition
shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure.
6.3 EXPENSES. The Company and Purchaser shall pay the
expenses incurred by each of them in connection with the
preparation and execution of this Agreement.
6.4 NOTICES. All notices required to be given hereunder
shall be in writing any may be given in person or by United
States mail, by delivery service, or by electronic submission.
Any notice directed to a party to this Agreement shall become
effective upon the earliest of the following: (1) actual receipt
by that party; (ii) delivery to the designated address of that
party, addressed to that party; or (iii) if given by certified or
registered United States mail, five (5) business days after
deposit with the United States Post Service, postage prepaid,
addressed to that party at its designated address, attention of,
in the case of Purchaser, Gebran J. Sabongi and, attention of, in
the case of the Company, Dr. Paul A. Brown. The designated
address of a party shall be as set forth above unless a party
specifies another address to the other party by means of a notice
given in accordance with the provisions of this paragraph.
6.5 INTERPRETATION. This Agreement has been prepared and
negotiations in connection herewith have been carried on by the
joint efforts of the parties. This Agreement is to be construed
fairly and simply and not strictly for or against either of the
parties hereto.
6.6 OTHER AGREEMENTS. This Agreement is executed pursuant
to the Agreement dated May 1, 1995, between Company and
Purchaser. Application of $400,000.00 by HEARx to the purchase
of Senior Preferred Stock, Series E, by 3M will reduce its debt
to 3M by $400,000.00.
6.7 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together constitute one
and the same instrument.
6.8 FURTHER ASSURANCES. At any time, upon request of the
other party, the Company and the Purchaser will perform, execute,
acknowledge and deliver all further transfers, documents, and
assurances as might be necessary or appropriate to effectuate the
transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed their
names, all as of the day, month and year first above written.
MINNESOTA AND
MANUFACTURING COMPANY
By: /s/ Gebran J. Sabongi
------------------------------
Gebran J. Sabongi
Business Manager, Hearing Health
HEARx LTD.
By: /s/ Paul A. Brown
------------------------------
Dr. Paul A. Brown
Chairman of the Board
EXHIBIT A
HEARx LTD.
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SENIOR PREFERRED STOCK,
SERIES E
Pursuant to Section 151 of the General
Corporation Law of the
State of Delaware
HEARx Ltd., a corporation organized on April 11, 1986
and existing under the laws of the State of Delaware
("Corporation"), the Restated Certificate of Incorporation of
which was filed in the office of the Secretary of State of
Delaware on February 5, 1987, does by its chairman and its
Secretary hereby certify;
That pursuant to the authority vested in the Board of
Directors by the Restated Certificate of Incorporation, the
Board, at a meeting duly held on June 16, 1995, adopted the
following resolutions:
RESOLVED, that pursuant to the authority so conferred
upon it, the Board of Directors hereby authorizes the issuance of
11,765 shares of Senior Preferred Stock, Series E, par value
$1.00 per share ("Senior E Preferred"), to Minnesota Mining and
Manufacturing Company for a total purchase price of $1,000,000.
RESOLVED, that the voting powers, preferences and
relative rights and privileges and other rights granted to the
Senior E Preferred and the qualifications, limitations or
restrictions imposed thereon be, and they hereby are, as follows:
A. DIVIDENDS AND DISTRIBUTION. The holders of the
Senior E Preferred shall be entitled to receive when, as and if
declared by the Board of Directors out of funds legally available
for the purpose, the same amount paid on or with respect to
shares of Common Stock, par value $.10 per share ("Common
Stock"), of the corporation, each share of Senior E Preferred
being deemed equal to the number of shares of Common Stock into
which it is then convertible.
B. VOTING RIGHTS. The holders of the senior B
Preferred shall have 100 votes per share of Senior E Preferred
and shall have voting rights and powers equal to the voting
rights and powers of the Common Stock. Except as may be required
by law, the holders of the Senior E Preferred shall not vote
separately as a class but shall instead vote with the holders of
the Common Stock on all matters as to which stockholders are
entitled to vote under Delaware law.
C. PRIORITY. The Senior E Preferred shall be senior
to all shares of capital stock of the Corporation other than the
Senior Preferred Stock, Series A, par value $1.00 per share
("Senior A Preferred"), Senior Preferred Stock, Series B, par
value $1. 00 per share ("Senior B Preferred"), the Senior
Preferred Stock, Series C, par value $1.00 per share ("Series C
Preferred"), Senior Preferred Stock, Series D, par value $1.00
per share ("Senior D Preferred") , and Senior Preferred Stock,
Series G, par value $1.00 per share ("Senior G Preferred"); the
Senior A, B, C, D, E and G preferred being together called the
"Senior Preferred") and shall rank pari passu with the Senior A,
B, C, D, E and G Preferred.
D. LIQUIDATION, DISSOLUTION OR WINDING UP
1. Upon any liquidation, dissolution or winding
up of the Corporation, no distribution shall be made to the
holders of any class of Preferred stock or Common Stock of the
corporation unless the holders of the Senior A Preferred, the
Senior B Preferred, the Senior C Preferred, the Senior D, the
Senior E and Senior G Preferred shall have received an aggregate
amount equal to $50, $67, $50, $67, $85, and $67 per share,
respectively.
2. In the event the assets to be distributed to
the holders of Senior Preferred shall be insufficient to permit
the payment to holders of the full preferential amount aforesaid,
then all the assets of the Corporation to be so distributed shall
be distributed to the holders of the Senior Preferred on a pro
rata basis in accordance with their respective holdings of such
Senior Preferred and the respective rights of such shares.
3. In the event that assets of the Corporation
remain after distribution to holders of Senior Preferred in
accordance with subparagraphs 1 and 2 of this paragraph D, the
holders of other shares of capital stock of the Corporation shall
be entitled to distribution of such assets in accordance with
their respective rights thereto.
E. OPTIONAL CONVERSION. Each share of Senior E
Preferred shall be convertible at any time at the option of the
holder thereof into 100 fully paid and non-assessable shares of
Common Stock at the rate of $.85 per share ("Conversion Rate"),
subject to adjustment of the Conversion Rate in accordance with
paragraph G hereof.
F. MANDATORY CONVERSION. In the event that the
shares of Common Stock are listed on the American Stock Exchange
or the New York Stock Exchange, each share of Senior E Preferred
shall be converted automatically into 100 fully paid and non-
assessable shares of Common Stock at the rate of $.85 per share.
G. ADJUSTMENTS TO THE CONVERSION RATE AND NOTICES.
The Conversion Rate shall be subject to adjustment from time to
time, calculated as follows, (except that no adjustment need be
made until cumulative adjustments would affect the Senior E
Preferred Conversion Rate by one or more shares of Common Stock):
1. if the Corporation:
(a) Pays a dividend or makes a distribution
on its capital stock in shares of Common Stock;
(b) Subdivides outstanding shares of Common
Stock into a greater number of shares;
(c) combines outstanding shares of Common
Stock into a smaller number of shares; or
(d) Issues by reclassification of Common
Stock any shares of its capital stock; then the Conversion Rate
in effect immediately prior to such action shall be adjusted so
that each holder of shares of Senior E Preferred thereafter
converted may receive the number of shares of Common Stock which
such holder would have owned immediately following such action if
such holder had converted such shares of Senior E Preferred
immediately prior to such action.
2. If the Corporation shall consolidate with or
merge into any other corporation or transfer all of its
properties and assets as an entirety to any person, then upon
consummation of such transaction, each share of the Senior E
Preferred shall automatically become convertible into the kind
and amount of securities, cash or other assets to which the
holder of such share would have been entitled immediately after
such consolidation, merger or transfer if such holder had
converted such share of Senior D and G Preferred immediately
prior to the effective date of such transaction.
3. The adjustment shall become effective
immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case
of (a) an issuance, a subdivision, combination, or
reclassification, or (b) consolidation or merger of the
Corporation.
4. If the Corporation:
(a) Issues rights or warrants entitling
holders of capital stock to subscribe for or purchase shares of
Common Stock or securities convertible into Common Stock; or
(b) Distributes to the holders of its
capital stock any of its assets or debt securities or any rights
or warrants to purchase debt securities, assets or other
securities of the Corporation; then notice thereof shall be given
in writing to the holders of the Senior E Preferred no later than
30 days prior to the date of such issuance or distribution.
H. MECHANICS OF CONVERSION.
1. Upon receipt of written notice from the
Corporation that shares of Senior E Preferred have been converted
automatically pursuant to paragraph F hereof, which notice shall
be given within 15 days of the occurrence of such mandatory
conversion, each holder of Senior E Preferred shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the Corporation. Thereupon, the Corporation shall
promptly issue and deliver to such holder of Senior E Preferred a
certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled.
2. In the event of conversion at the option of
the holder of shares of Senior E Preferred pursuant to paragraph
E hereof, the holder shall surrender the certificate or
certificates therefore, duly endorsed, at the office of the
corporation and shall give written notice to the Corporation of
such holders election to convert same and shall state therein the
number of shares of Senior E Preferred being converted.
I. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall at all times thereafter reserve and keep
available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting conversion of the
shares of Senior E Preferred, such number of shares of Common
Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Senior E Preferred.
RESOLVED, that the proper officers of the Corporation
be, and they hereby are, authorized and directed to take such
action as they may deem necessary to carry into effect the
foregoing resolutions.
IN WITNESS WHEREOF, the corporation has caused the
foregoing certificate to be signed by Paul A. Brown, M.D., its
Chairman of the Board, and attested by David W. Forman, its
secretary, on July 24, 1995.
HEARx LTD.
By: /s/ Paul A. Brown
-----------------------------
Paul A. Brown, M.D.
Chairman of the Board
ATTEST:
/s/ David W. Forman
- ----------------------------
David W. Forman
Secretary
[3M LETTERHEAD]
December 21, 1995
Paul A. Brown, M-D.
Chairman of the Board
HEARx Ltd.
471 Spencer Drive
West Palm Beach, FL 33409 FAX: 407/478-9603
Dear Paul:
Thank you for your letter dated December 12, 1995. We are
prepared to agree to the following.
HEARx will
1. pay to 3M $308,000 by December 31, 1995;
2. commit that its centers will expand their 3m purchases;
3. reduce the conversion price of debt to common stock
from $0.85 to $0.618 for the initial conversion of
$400,000 from debt to equity pursuant to Paragraph I of
the May 1, 1995 Agreement. To accomplish this, H will
appropriately amend the Stock Purchase Agreement, dated
July 24, 1995, and Certificate of Designations,
Preferences and Rights of Senior Preferred Stock Series
E, which is attached to the Stock Purchase Agreement as
Exhibit A. HEARx will promptly send to 3M a certificate
for an additional 1,270 shares of Senior Preferred
Stock Series E, which is convertible to common stock at
a ratio of 1:100.
Upon condition that HEARx performs these obligations, 3M will
1. reduce the $808,000 HEARx owes to 3M pursuant to our
agreement dated May 1, 1995 by $308,000. Paragraph 4
of the May 1, 1995 Agreement will be amended to show
that the remaining debt will be $500,000, instead of
$600,000.
2. waive the requirement in paragraph 3 of the May 1, 1995
Agreement that HEARx pay to 3M $280,000 plus interest
by December 12, 1995.
2. waive the requirement that HEARx purchase 3,200 3M
hearing instruments in 1995.
3. waive its demand for $22,000 that you disputed, which
is apart from our May 1, 1995 agreement.
All other terms and conditions of the May 1, 1995 agreement
remain in effect.
If HEARx agrees with this, please sign below and fax a signed
copy to me. Please wire the $380,000 by December 31 to 3M at the
following address:
Norwest Bank Minnesota N.A.
Minneapolis, MN
ABA#: 091 00 00 19
Benefactor: 3M Company
Account #: 0030-103.
Sincerely
/s/ Gabi J. Sabongi
Gabi J. Sabongi
Business Manager
AGREED
HEARx, Ltd.
By /s/ Paul A. Brown
-------------------------
Paul A. Brown, M.D.
Chairman
cc: Howard J. Bergman
Scott T. Henderson
Kimberly F. Chaney
[LETTERHEAD OF HEARX LTD.]
January 26, 1996
VIA FEDERAL EXPRESS
Howard J. Bergman, Esq.
Senior Counsel
Minnesota Mining and Manufacturing Company
Legal Department
3M Center Bldg. 220-11E-03
St. Paul, Minnesota 55144
Re: HEARx Ltd.; Senior Preferred Stock Series E
Dear Mr. Bergman:
Enclosed is stock certificate number 0011E evidencing
6,472 shares of Senior Preferred Stock, Series E which has been
issued by HEARx Ltd. (the "Company") to Minnesota Mining and
Manufacturing Company ("3M") pursuant to the Agreement between
the Company and 3M dated May 1, 1995 and the subsequent Stock
Purchase Agreement dated July 24, 1995, both as amended by the
letter agreement between the Company and 3M dated December 21,
1995. Please allow this letter to confirm your agreement that
upon the issuance of the enclosed stock certificate to you, 3M
will waive any default by the Company in not having issued and
delivered this stock to 3M prior to the date hereof.
Thank you for your cooperation in this matter.
Sincerely,
/s/ Paul A. Brown
Paul A. Brown, M.D.
Chairman of the Board
