<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
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 Rule 14a-11(c) or Rule 14a-12
HEARx Ltd.
- - -------------------------------------------------------------------------------
(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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
[X] 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.
<PAGE> 2
HEARx LTD.
471 Spencer Drive
West Palm Beach, Florida 33409
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
To be held on June 16, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of HEARx Ltd., a
Delaware corporation ("Company"), will be held at the HEARx Center, 9960 N.
Central Park Boulevard, Third Floor, Boca Raton, Florida 33428, on Friday,
June 16, 1995, at 2:00 P.M., Eastern Time, to consider and act upon:
1. The election of four directors of the Company, each to hold office
until the next Annual Meeting of Stockholders and thereafter until his
successor is duly elected and qualified, or as otherwise provided by
the By-Laws or statute;
2. The proposal to amend the Restated Certificate of Incorporation of the
Company to increase to 100,000,000 the number of shares of Common
Stock, par value $.10 per share, which the Company may issue;
3. The adoption of the HEARx Ltd. 1995 Flexible Stock Plan;
4. The ratification of the selection of BDO Seidman as the Company's
independent public accountants for its fiscal year ending December 29,
1995; and
5. The transaction of such other business as may properly come before the
meeting.
The close of business on May 12, 1995, has been fixed as the record date for
the determination of stockholders who are entitled to notice of, and to vote
at, the meeting. The voting rights of the stockholders are described in the
Proxy Statement.
By order of the Board of Directors,
David W. Forman
Secretary
May 12, 1995
PLEASE SPECIFY YOUR CHOICES, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING SO
THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
<PAGE> 3
HEARx LTD.
471 Spencer Drive
West Palm Beach, Florida 33409
PROXY STATEMENT
for
ANNUAL MEETING OF STOCKHOLDERS
To be held on June 16, 1995
This Proxy Statement, with the accompanying proxy card, is being mailed or
given to stockholders commencing on or about May 15, 1995, in connection with
the solicitation of proxies by the Board of Directors of HEARx Ltd. ("Company")
to be used at the Annual Meeting of Stockholders of the Company to be held at
the HEARx Center, 9960 N. Central Park Boulevard, Third Floor, Boca Raton,
Florida, on Friday, June 16, 1995, at 2:00 P.M. eastern time and at any
adjournment or adjournments thereof.
Proxy Procedure
If the enclosed proxy card is properly executed and returned prior to the
meeting, the shares represented thereby will be voted in accordance with the
stockholder's directions or, if no directions are indicated, the shares will be
voted in accordance with the recommendations of the Board of Directors as
specified in this Proxy Statement. The Board of Directors does not know of any
other business to be brought before the meeting, but it is intended that, as to
any such other business, a vote may be cast pursuant to the proxy in accordance
with the judgment of the person or persons acting thereunder. Any stockholder
executing a proxy may revoke that proxy at any time prior to the voting thereof
either by delivering written notice to the Secretary of the Company or by
voting in person at the meeting.
Proxy Solicitation
All costs of the solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by the use of the mails, the Company
may utilize the services of some of the officers and regular employees of the
Company (who will receive no compensation therefor in addition to their regular
salaries) to solicit proxies personally and by telephone. The Company will
request banks, brokers, custodians, nominees and fiduciaries to forward copies
of the proxy solicitation materials to beneficial owners of shares held of
record and to request authority for the execution of proxies. The Company will
reimburse such persons or entities for their expenses in so doing.
Voting at Meeting
Holders of record of shares of Senior Preferred Stock, Series A, B, D and
G, par value $1.00 per share ("Senior A, B, D and G Preferred," respectively),
Series C Preferred Stock, par value $1.00 per share ("Series C Preferred"),
1994 Convertible Preferred Stock, par value $1.00 per share ("1994 Preferred")
and Common Stock, par value $.10 per share ("Common Stock"), as of the close of
business on May 12, 1995, are entitled to notice of, and to vote at, the
meeting. As of that date the holders of the above-mentioned shares of capital
stock were entitled to a total of 56,466,602 votes, consisting of 3,000,000
votes for the Senior A Preferred, 2,250,000 votes for the Senior B Preferred,
<PAGE> 4
1,492,600 votes each for the Senior D and G Preferred, 1,040,000 votes for the
Series C Preferred, 5,000,000 votes for the 1994 Preferred and 42,191,402 votes
for the Common Stock (the Senior A, B, D and G Preferred, the Series C
Preferred, the 1994 Preferred and the Common Stock together being called the
"Capital Stock"). See "Security Ownership of Certain Beneficial Owners and
Management" herein. The holders of a majority of all shares of Capital Stock
issued and outstanding will constitute a quorum at the meeting. They will vote
as a single class on the matters to be brought before the meeting and the
affirmative vote of the holders of a majority of the shares of Capital Stock
represented in person or by proxy at the meeting is required to approve each
matter presented to the meeting.
Under Section 216 of the Delaware General Corporation Law, any stockholder
who abstains from voting on any particular matter described herein will be
counted for purposes of determining a quorum. Shares of Capital Stock
represented by proxies which are marked "withhold authority" with respect to
the election of one or more nominees for director and abstentions with respect
to the other proposals have the same effect as if the shares represented
thereby were voted against such nominee or nominees and against such other
matters, respectively. Broker non-votes will be treated as not represented at
the meeting as to any matter for which a non-vote is indicated on the broker's
proxy.
The Company's principal executive offices are located at 471 Spencer Drive,
West Palm Beach, Florida 33409.
<PAGE> 5
ELECTION OF DIRECTORS
Proposal No. 1
Four directors of the Company are to be elected at the meeting, each to
hold office until the next Annual Meeting of Stockholders and until his
successor is elected and qualified, or as otherwise provided by the Company's
By-Laws or by statute.
The Board of Directors has nominated the four persons hereinafter named for
election as directors, all of whom are presently serving as such. It is
intended that the shares represented by the enclosed proxy will be voted for
the election of these four nominees (unless such authority is withheld by a
stockholder). In the event that any of the nominees should become unable or
unwilling to serve as a director (which is not anticipated), it is intended
that the proxy will be voted for the election of such person or persons, if
any, as shall be designated by the Board of Directors.
The nominees for election as directors are:
<TABLE>
<CAPTION>
Director Position with
Names and Ages Since the Company
- - ------------------------- ------------------------- -------------------------
<C> <C> <C>
Paul A. Brown, M.D. 1986 Chairman of the Board and
(57) Chief Executive Officer
Thomas W. Archibald 1993 Director
(57)
Fred N. Gerard, Esq. 1986 Director
(65)
David J. McLachlan 1986 Director
(56)
</TABLE>
Paul A. Brown, M.D., holds a B.A. from Harvard College and an M.D. from
Tufts University School of Medicine. From 1970 to 1984, Dr. Brown was Chairman
of the Board of MetPath Inc., a New Jersey-based corporation offering a full
range of clinical laboratory services to physicians and hospitals, which he
founded in 1967 while a resident in pathology at Columbia Presbyterian Medical
Center in New York City. MetPath developed into the largest clinical lab in
the word with over 3,000 employees and was listed on the American Stock
Exchange prior to being sold to Corning Glass Works in 1982 for $140 million.
Dr. Brown is currently Vice-Chairman of the Board of Overseers of Tufts
University School of Medicine as well as an emeritus member of the Board of
Trustees of Tufts University, a member of the Visiting Committee of the Boston
University School of Medicine and a part-time lecturer in pathology at Columbia
University College of Physicians and Surgeons.
Thomas W. Archibald attended the London School of Economics and received a
B.A. degree in economics from Denison University and a Juris Doctor degree from
the Ohio State University Law School. He recently retired from The Bank of New
York where he served as Executive Vice President of the Personal Trust Sector.
He had held that position at Irving Trust Company when it merged with The Bank
<PAGE> 6
of New York in 1988. Mr. Archibald is also a Director of Group Health
Incorporated, the only not-for-profit health insurance carrier chartered to
operate throughout New York State.
Fred N. Gerard holds an A.B. Degree from the City University of New York
and an LL.B. Degree from Columbia Law School. He has been counsel since
November 1992 to Bryan Cave in that firm's Phoenix office. Previously during
1991 and 1992, he was with the law firms of Scult, Lazarus, French, Zwillinger
and Smock; and Gallagher & Kennedy, Phoenix, Arizona. Previously for more than
five years, he was a partner in the New York office of the law firm of
Seyfarth, Shaw, Fairweather & Geraldson, New York, New York. He is also a
director of Bowmar Instrument Company.
David J. McLachlan holds an A.B. Degree in engineering from Harvard College
and an M.B.A. Degree from Harvard Graduate School of Business Administration.
He has been the Senior Vice President-Finance of Genzyme Company since December
1989. Prior to that he was the Vice-President, Treasurer and Chief Financial
Officers of Adams-Russell Co., Inc., which owned and operated CATV systems and
Adams-Russell Electronics, Inc., which was a defense electronics manufacturer.
He is also a director of IG Laboratories, Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE ELECTION OF ALL THE ABOVE-NAMED NOMINEES AS DIRECTORS OF THE COMPANY.
Directors' Compensation, Meeting Attendance and Committees
The Board of Directors received no cash compensation during the fiscal year
ended December 30, 1994 and will not receive any such compensation during the
current fiscal year. The Company does reimburse out-of-pocket expenses for
attendance at meetings.
Each non-management director (i.e., Messrs. Archibald, Gerard and
McLachlan) received on November 7, 1994, pursuant to the Company's stockholder
approved Non-Qualified Stock Option Plan for Non-Employee Directors, an option
to acquire 15,000 shares of Common Stock at a price of $.34 per share (the then
fair market value of such shares). These options are for a period of ten years
and vested immediately. Under that Plan each non-employee director elected at
the 1995 Annual Meeting will be entitled to options for 15,000 shares at their
then fair value. There were four meetings of the Board of Directors during the
fiscal year ended December 30, 1994, and each director attended at least three
of them. The Board of Directors has no committees.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own beneficially more than ten
percent of any class of equity security of the Company to file with the
Securities and Exchange Commission initial reports of such ownership and
reports of changes in such ownership. Officers, directors and such beneficial
owners are required by Securities and Exchange Commission regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 30, 1994, all
Section 16(a) filing requirements applicable to its officers, directors and
<PAGE> 7
greater than ten-percent beneficial owners were complied with, except that two
reports, relating to two transactions covering the sale of 20,000 shares each,
were filed late by Paul A. Brown.
Executive Compensation
The following table sets forth the annual and long-term compensation for
services rendered in all capacities to the Company and its subsidiaries during
the 1994, 1993 and 1992 fiscal years, of those persons who were at fiscal year-
end 1994 (i) the chief executive officer and (ii) the other most highly
compensated executive officer whose salary and bonus exceeded $100,000 (both
persons are hereafter referred to as the "Named Executive Officers"):
<TABLE>
===============================================================================
SUMMARY COMPENSATION TABLE
===============================================================================
<CAPTION>
Options/ All Other
Name and Year Salary Bonus SARs Compensation
Principal Position ($) ($) (#) <F1> ($)
- - -------------------------------- ---- -------- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Paul A. Brown, M.D. <F2> 1994 -0- -0- -0- -0-
Chairman and Chief Executive 1993 -0- -0- 100,000 -0-
Officer 1992 -0- -0- -0- -0-
Stephen J. Hansbrough 1994 $100,000 -0- 700,000 -0-
President and Chief 1993 N/A
Operating Officer 1992 N/A
- - -------------------------------------------------------------------------------
<FN>
<F1> The Company did not award any SARs during the three fiscal years.
<F2> Dr. Brown is entitled to receive compensation at the rate of $100,000
per annum, but he has waived payment of such compensation until the
Company has had two successive fiscal quarters of profitability.
===============================================================================
</TABLE>
<PAGE> 8
Option Grants In Last Fiscal Year
The following table sets forth information with respect to the grants of
options to the Named Executive Officers to purchase Common Stock during fiscal
year ended December 30, 1994:
<TABLE>
==================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
==================================================================================================
<CAPTION>
Individual Grants Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
For Option Term
-------------------------------------------- -----------------------------
Name Options Percent of Exercise Expiration 5% 10%
SARs Total Options Price Date
Granted Granted to
(#) Employees
<F1> in Fiscal
Year
- - --------------------- ------- ------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul A. Brown, M.D. -0- N/A --- --- --- ---
Stephen J. Hansbrough 100,000 40% $.40625 4/1/04 $ 42,656 $ 44,687
600,000 $.20 7/7/04 $126,000 $132,000
- - -------------------------------------------------------------------------------------------------
<FN>
<F1> The Company did not award any SARs during the fiscal year.
=================================================================================================
</TABLE>
<PAGE> 9
Option Exercises and Aggregated Fiscal Year End Option Values
The following table sets forth information with respect to stock option
exercises, unexpired options to purchase shares of the Company's Common Stock
and the value of such unexercised options granted in fiscal years prior to 1994
and held by the Named Executive Officers as of the end of fiscal 1994:
<TABLE>
==========================================================================================================
OPTION EXERCISE AND AGGREGATED FISCAL YEAR-END OPTION VALUES
==========================================================================================================
<CAPTION>
Shares Acquired Value Number of Unexercised Value of Unexercised
on Exercise Realized Options at In-the-Money
(#) ($) Fiscal Year-End Options at
(#) Fiscal Year-End
Name & Principal Position ($)
- - ------------------------- --------------- -------- ------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul A. Brown, M.D. -0- -0- 100,000/-0- -0-/-0-
Chairman and Chief
Executive Officer
Stephen J. Hansbrough -0- -0- 62,500/887,500 $9,609/$347,908
President and Chief
Operating Officer
==========================================================================================================
</TABLE>
<PAGE> 10
Report of the Board of Directors on Compensation
Compensation decisions are made by the full Board of Directors. In
addition to base salary, compensation for the Company's executive officers may
include bonuses, stock options pursuant to the Company's stock option plan and
otherwise and stock grants pursuant to the Company's stock bonus plan. It is
the intention of the Board of Directors to use salary and bonuses as
compensation for current and past performance, while using stock options and
restricted stock grants to provide incentives for superior long-term
performance.
The Board of Directors does not use any formulae or other objective
criteria to establish compensation for its executive officers. Instead, the
decisions are based on subjective performance evaluations and, with respect to
executive officers other than Dr. Brown, the Company's Chief Executive Officer,
the salary and bonus recommendations of Dr. Brown. In light of the Company's
financial position, Dr. Brown determined to waive payment of any cash
compensation to him until the Company can achieve two successive quarters of
profitability. Based on advice from the Company's former independent auditors
to remedy an unintended adverse financial consequence to the Company of Dr.
Brown's salary waiver, the Company granted Dr. Brown an option in fiscal 1993
to purchase 100,000 shares of the Company's Common Stock at a purchase price of
$2.00 per share. No options were granted to Dr. Brown in fiscal 1994.
BOARD OF DIRECTORS
Paul A. Brown, M.D., Chairman
Thomas W. Archibald
Fred N. Gerard, Esq.
David J. McLachlan
Compensation Committee Interlocks and Insider Participation
Dr. Brown is the Chairman of the Board of Directors and the Company's Chief
Executive Officer. The other members of the Board of Directors are not
employees or former employees of the Company.
Mr. Gerard is, and during fiscal 1994 was, associated with the law firm of
Bryan Cave. The Company retained Bryan Cave as legal counsel in 1994 and
intends to retain that firm in 1995.
<PAGE> 11
Common Stock Performance
As part of the executive compensation information presented in this Proxy
Statement, the Securities and Exchange Commission requires a five-year
comparison of stock performance for the Company with stock performance of other
companies. The closing price of the Common Stock at December 30, 1994, was
$.685 per share. The Common Stock is traded on the over-the-counter market
with prices being reported by the National Association of Securities Dealers,
Inc., OTC Bulletin Board Service ("NASDBB"). The following chart depicts a
comparison of five-year cumulative total returns for each of the Company, the
NASDAQ Stock Market - US and the NASDAQ Non-Financial Index.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Cumulative Total Return
------------------------------------------------------
09/89 09/90 09/91 09/92 09/93 12/93 12/94
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
HEARx Ltd. 100 100 200 260 190 200 220
NASDAQ Stock Market-US 100 74 117 131 172 174 170
NASDAQ Non-Financial 100 79 124 131 171 175 168
</TABLE>
Certain Relationships and Related Transactions
Relationship with Minnesota Mining and Manufacturing Company. Pursuant to
the Stock Purchase Agreement dated as of October 31, 1991 ("Stock Purchase
Agreement"), by and between Minnesota Mining and Manufacturing Company ("3M")
and the Company, 3M purchased from the Company 30,000 shares of the Company's
Senior Preferred Stock, Series A, par value $1.00 per share ("Senior A
Preferred") for $1,500,000 in cash. In connection with that purchase 3M
received the right to acquire 22,500 shares of Senior Preferred Stock, Series
B, par value $1.00 per share ("Senior B Preferred"), for an additional
$1,500,000 in cash at any time on or before September 30, 1992.
On May 15, 1992, 3M purchased the 22,500 shares of Senior B Preferred and
paid the Company $1,500,000 in cash. In connection therewith, 3M received
three options, each exercisable for approximately $1,000,000 in cash, to
purchase (a) 14,926 shares of the Company's Senior Preferred Stock, Series D,
par value $1.00 per share ("Senior D Preferred"), at a price of $67.00 per
share, at any time on or before December 31, 1993, (b) 11,111 shares of the
Company's Senior Preferred Stock, Series E, par value $1.00 per share
("Senior E Preferred"), at a price of $90.00 per share, at any time on or
before December 31, 1993, and (c) 8,000 shares of the Company's Senior
Preferred Stock, Series F, par value $1.00 per share ("Senior F Preferred"), at
a price of $125.00 per share, at any time on or before April 30, 1997 (which
last option shall expire if 3M's outstanding share of the equity of the Company
falls below 10% of the outstanding equity on a fully converted basis). The
arrangement with 3M provided that, unless the Company raised $1.5 million of
additional equity capital prior to September 30, 1992, the per share option
prices of the Senior D Preferred and the Senior E Preferred would be reduced to
$50.00 per share from $67.00 and to $67.00 from $90.00, respectively.
<PAGE> 12
In January 1993, 3M and the Company entered into an agreement pursuant to
which 3M waived the provisions for the reduction of the option prices in
consideration for (a) the grant to 3M of an option to acquire shares of the
Company's Senior Preferred Stock, Series G, par value $1.00 per share ("Senior
G Preferred"), at a price of $1 million (the Senior G Preferred being
convertible into Common Stock at the rate of $.80 per share) and (b) the
extension of the expiration date of the option to acquire the Senior E
Preferred to December 31, 1994. In June 1993, in order to induce 3M to
exercise its options to acquire the Senior D and G Preferred, the number of
shares of Senior Preferred to be received in each case was increased to 14,926,
thereby effectively reducing the conversion price to $.67 per share of Common
Stock. As a result, 3M exercised these options and acquired the Senior D and G
Preferred for a total price of $2,000,000.
During late 1993 and early 1994, 3M paid the Company $400,000 toward the
exercise of a portion of the Company's Senior E Preferred. The Company expects
to consummate the transaction in 1995 at the exercise price of $.85 per share.
Under the Stock Purchase Agreement, the Company agreed not to seek capital
from any person, other than financial investors or through a public offering,
as opposed to persons having an interest in the hearing aid industry, without
3M's prior written approval. Paul A. Brown, M.D., the Chairman of the Board
and Chief Executive Officer of the Company, agreed not to sell for five years
any shares of Common Stock or securities convertible into or exchangeable for
Common Stock, and thereafter, he will afford 3M (a) a right of first refusal to
purchase all or any portion of such shares or securities and (b) the right to
approve any potential purchaser, which approval is not to be unreasonably
withheld. Dr. Brown's agreement does not apply to the sale in the open market
or the transfer by gift of up to 5% of his security holdings (on a fully
converted basis). 3M does not have any right to representation on the Board of
Directors of the Company and does not participate in the decision-making
meetings of senior management of the Company.
Simultaneously with the execution of the Stock Purchase Agreement, 3M and
the Company entered into a revised arrangement pursuant to which 3M appointed
the Company as 3M's exclusive (with certain exceptions) distributor in
southeastern Florida, Georgia and New York City for programmable hearing aids
for a five-year period ending December 31, 1996, with an option for 3M to renew
for an additional five years. The arrangement has since been revised to
provide such exclusive rights only for the geographic area of southeastern
Florida. The Company has certain minimum purchase obligations, and 3M and the
Company have other rights and obligations of the type usually contained in
agreements of this kind.
In February 1991, the Company and 3M had originally entered into an
arrangement pursuant to which, among other things, the Company marketed 3M's
"Memory Mate"[TRADEMARK] brand hearing aids and certain other 3M hearing
related products, on a non-exclusive basis. 3M furnished one of its
"Master-Fit"[TRADEMARK] hearing aid fitting systems in each of the Company's
retail locations (valued at $250,000), and 3M paid the Company a test marketing
fee of $300,000. As a result, 3M has been granted the right to acquire for a
nominal consideration 11,000 shares of Senior C Preferred.
The Senior A through G Preferred are together referred to as the "Senior
Preferred Stock." The shares of Senior Preferred Stock have 100 votes per
share and, unless otherwise required by Delaware law, vote with the holders of
shares of Preferred Stock and Common Stock as one class. The shares of Senior
Preferred Stock have no right to dividends except pari passu with the Common
<PAGE> 13
Stock based on the number of shares of Common Stock into which they are then
convertible when, as and if a dividend is declared by the Board of Directors.
The Senior Preferred Stock is senior to all shares of capital stock of the
Company in the event of the liquidation, dissolution or winding up of the
Company. The aggregate liquidation preference of the shares of Senior A, B, D,
E (when 3M's option is fully exercised) and G Preferred is $6,550,000.
Each share of Senior Preferred Stock is convertible into 100 shares of
Common Stock. The shares of Senior Preferred Stock will be automatically
converted into shares of Common Stock upon the listing of the shares of Common
Stock on the American or New York Stock Exchange. The Company does not
anticipate it will qualify for such listing in the next several years. The
convertibility feature of the Senior Preferred Stock is entitled to certain
anti-dilution protection. The shares of Senior Preferred Stock are not subject
to either mandatory or optional redemption by the Company.
Transactions with Paul A. Brown, M.D. During 1994, Paul A. Brown, M.D.,
the Chairman of the Board, Chief Executive Officer and the principal
stockholder of the Company, made a $1,500,000 loan to the Company and converted
two other loans ($125,000 and $50,000) made during 1993 into a new $1,675,000
note payable. This new note is due on April 1, 1997 with interest at prime
plus 3% (9.25% as of December 30, 1994).
<PAGE> 14
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 31, 1995, the names of all
persons known by the Company to be the beneficial owners of more than five
percent of the Common Stock. On March 31, 1995, there were 42,191,402 shares
of Common Stock issued and outstanding.
<TABLE>
<CAPTION>
Amount and Nature Percent
Title of Name and Address of of Beneficial of
Class Beneficial Owner Ownership Class
- - -------- ----------------------------------------- ----------------- -------
<C> <C> <C> <C>
Common Hearing Health Services, Inc. <F1> 7,500,000 <F2> 15.09%
Stock Business Development Capital
Limited Partnership-III
Abbingdon Venture Partners
Limited Partnership
Abbingdon Venture Partners
Limited Partnership-II
1018 West Ninth Avenue
King of Prussia, PA 19406
Common Minnesota Mining and 9,335,200 <F3> 18.1%
Stock Manufacturing Company ("3M")
3M Center
St. Paul, MN 55144
Common Paul A. Brown, M.D. 12,839,317 <F4> 29.6%
Stock 471 Spencer Drive
West Palm Beach, FL 33409
- - ---------------
<FN>
<F1> The parties listed constitute a group within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
and jointly filed a Schedule 13D with the Securities and Exchange
Commission on January 11, 1995.
<F2> The Schedule 13D filed by the group reflects an aggregate beneficial
ownership of 7,500,000 shares of Common Stock, consisting of the
following: Hearing Health Service, Inc. ("HHS") beneficial ownership
of 5,000,000 shares issuable upon exercise of warrants and conversion
of 2,500 shares of 1994 Preferred; Business Development Capital
Limited Partnership-III beneficial ownership of 648,000 shares
issuable upon the conversion of 648 shares of 1994 Preferred;
Abbingdon Venture Partners Limited Partnership-II beneficial ownership
of 162,000 shares issuable upon the conversion of 162 shares of 1994
Preferred; and Abbingdon Venture Partners Limited Partnership
("Abbingdon") beneficial ownership of 1,690,000 shares issuable upon
the conversion of 1,690 shares of 1994 Preferred plus beneficial
ownership of the 5,000,000 shares issuable to HHS upon the conversion
of 5,000 shares of 1994 Preferred. The Schedule 13D states that each
<PAGE> 15
member of the group has sole power to vote or direct the voting and
sole power to dispose of or to direct the disposition of the shares
beneficially owned by it except that Abbingdon has sole voting and
dispositive power only with respect to 1,690,000 shares of Common
Stock beneficially owned by it and shares such power with HHS with
respect to the remaining 5,000,000 shares of Common Stock owned
beneficially by HHS. Abbingdon is the holder of approximately 58% of
the Common Stock of HHS. The percent of class stated above for this
group assumes conversion of all 1994 Preferred and exercise by HHS of
its warrants. The group members own 100% of the outstanding shares of
1994 Preferred.
<F3> Assumes the conversion by 3M of all of its shares of Senior A, B, D
and G Preferred, and all of its 11,000 shares of Senior C Preferred.
Does not include shares of Senior E and F Preferred which 3M has the
option to acquire. 3M owns or would own 100% of the outstanding
shares of each of the Senior A, B, C, D and G Preferred Stock.
<F4> Assumes the conversion of all 10,000 shares of Series C Preferred into
1,040,000 shares of Common Stock, as well as 100,000 shares of Common
Stock issuable upon the exercise of options granted to him by the
Company. Dr. Brown owns 100% of the Series C Preferred.
</TABLE>
Security Ownership of Management
The following table sets forth, as of March 31, 1995, the number of shares
of Common Stock owned beneficially by each director, each Named Executive
Officer and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name Beneficial Ownership <F1> Class
- - ---------------------------------------- ------------------------- ----------
<S> <C> <C>
Paul A. Brown, M.D. 12,839,317 <F2> 29.6%
Stephen J. Hansbrough 175,363 <F3> <F8>
Fred N. Gerard, Esq. 121,250 <F4> <F8>
David J. McLachlan 325,459 <F5> <F8>
Thomas W. Archibald 215,000 <F6> <F8>
All directors and executive officers
as a group (8 persons) 13,995,754 <F7> 32%
- - ---------------
<FN>
<F1> The named individuals have both sole investment power and sole voting
power with respect to all securities listed as beneficially owned by
them.
<PAGE> 16
<F2> See footnote (4) to the preceding table.
<F3> Includes 87,500 employee stock options which are currently exercisable
(or exercisable within 60 days).
<F4> Includes (i) 75,000 shares of Common Stock issuable upon the exercise
of non-qualified options, all of which are currently exercisable, and
(ii) 15,000 shares of Common Stock issuable upon the exercise of
common stock purchase warrants, which warrants were purchased as part
of a 1989 private placement.
<F5> Includes (i) 75,000 shares of Common Stock issuable upon the exercise
of non-qualified options, all of which are currently exercisable, and
(ii) 15,000 shares of Common Stock issuable upon the exercise of
Common Stock purchase warrants, which warrants were purchased as part
of a 1989 private placement.
<F6> Includes (i) 30,000 shares of Common Stock issuable upon the exercise
of non-qualified options, all of which are currently exercisable, and
(ii) 125,000 shares of Common Stock and 37,500 Warrants from the 1994
private placement.
<F7> Includes 369,750 shares of Common Stock issuable upon the exercise of
non-qualified options granted under the stockholder approved option
plans for directors, officers and employees, all of which are
currently exercisable or exercisable within 60 days and 100,000 shares
of Common Stock issuable to Dr. Brown upon the exercise of an option
granted to him by the Company.
<F8> Does not exceed 1% of the class.
</TABLE>
<PAGE> 17
Executive Officers
The following table sets forth certain information with respect to the
executive officers of the Company. These officers have been elected to terms
which will expire at the next annual meeting of the Board and until their
successors are elected and qualified.
<TABLE>
<CAPTION>
Officer
Name Age Since Titles
- - --------------------- --- ------- ------------------------------------------
<S> <C> <C> <C>
Paul A. Brown, M.D. 57 1986 Chairman of the Board and
Chief Executive Officer
Stephen J. Hansbrough 48 1993 President and
Chief Operating Officer
David W. Forman 53 1986 Vice President-Facilities
Management and Secretary
Tommy E. Kee 46 1993 Vice President, Controller and
Chief Accounting Officer
Donna L. Taylor 39 1993 Vice President Operations
</TABLE>
Biographical information relating to Dr. Brown follows the table listing
nominees for election as directors.
Stephen J. Hansbrough, President and Chief Operating Officer, joined the
Company in December 1993. Mr. Hansbrough has an extensive background in the
retail arena. He served as Chairman and Chief Executive Officer of Dart Drug
Stores until 1988. Subsequently, he has been an independent consultant
specializing in turn-around and start-up operations primarily in the retail
field.
David W. Forman, Vice President - Facilities Management and Secretary,
holds a B.A. in Biology from the University of Ottawa. Prior to joining the
Company in 1986, Mr. Forman served as the Vice President of Operations at
SCI/MED where he directed product research, development, and production. From
1970 to 1985 he was employed by MetPath in various research development and
production capacities including Director of Operations. Prior to 1979, Mr.
Forman serviced in the United States Navy as a Medical Laboratory Technologist.
Tommy E. Kee, Vice President and Chief Financial Officer, joined the
Company in September 1993. He holds a B.S. degree in accounting from the
University of Tennessee and an M.B.A. from Memphis State University. Prior to
joining the Company, Mr. Kee owned an international consulting business and
served as Chief Financial Officer for United Studios of America, Inc., from
1991 through 1993. From 1973 through 1991, he was the Corporate Financial
Director for the International Division of Holiday Inns, Inc., where he founded
the International Finance and Accounting Department and directed the financial
and accounting activities for worldwide operations.
<PAGE> 18
Donna L. Taylor, Vice President - Operations, holds an M.A. in Audiology
and joined the Company in July 1987. Ms. Taylor has an extensive background in
establishing and developing Audiology and Hearing Aid Dispensing programs
including a private ENT practice, both at Washington University Medical School
in St. Louis from 1983 to 1985 and as an independent contractor.
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
Proposal No. 2
Of the Company's 75,000,000 shares of authorized Common Stock, 42,191,402
shares were outstanding on March 31, 1995, and most of the remaining shares
were reserved for issuance in connection with options, warrants and convertible
securities currently outstanding.
The Board of Directors has recommended an increase of the number of shares
of Common Stock which the Company is authorized to issue, to be accomplished by
an amendment to the Restated Certificate of Incorporation. The proposed
amendment would increase the total number of shares of Common Stock which the
Company is authorized to issue from 75,000,000 to 100,000,000 shares. The
Company is also authorized to issue up to 2,000,000 shares of Preferred Stock,
par value $1.00 per share. Shares of Senior A, B, D, and G Preferred and of
the 1994 Convertible Preferred are outstanding (Senior E and F Preferred are
authorized but unissued as are shares of Series C Preferred). The proposed
amendment will not change the number of authorized shares of Preferred Stock.
The Board of Directors believes it desirable to have these additional
shares available primarily for acquisition purposes (although the Board has
made no commitments for these shares) and for such other future issuance as the
Board may deem advisable, such as future financings (including public
offerings), stock options and employee benefit plans, without the necessity of
future stockholder action.
Except for issuances to satisfy obligations under outstanding options,
warrants, conversion of the Senior Preferred and the Preferred Shares, the
Board of Directors has no present plans or agreements, written or oral, with
respect to the issuance of any shares of Preferred Stock or of Common Stock.
The additional shares for which authorization is sought would be identical to
the shares of Common Stock now authorized and outstanding. No stockholder will
have any preemptive rights to purchase or subscribe for any shares of Common
Stock that may be issued.
Although the proposal to authorize additional shares of Common Stock is
made for the reasons stated above, the newly authorized shares would be
available for issuance by the Board of Directors without further stockholder
approval in response to an actual or threatened takeover bid. The issuance of
such shares could have the effect of diluting the stock ownership of persons
seeking to obtain control of the Company and, therefore, the proposed amendment
may have the effect of discouraging efforts to gain control of the Company in a
manner not approved by the Board. The Board is not aware of any pending or
threatened takeover bid for the Company, and the proposed amendment was not
designed or intended by the Board to discourage takeover efforts. Because of
the holdings of the Company's Common Stock and the rights of 3M described in
this Proxy Statement, the Board regards any takeover bid as unlikely.
<PAGE> 19
Because the proposed amendment may discourage some takeover attempts,
stockholders could be deprived of opportunities to sell their shares at an
increased price that might result from a takeover attempt. On the other hand,
because the proposed amendment would permit the Company to satisfy existing
obligations and to have shares available for future financings and
acquisitions, the Board believe that passage of such amendment would have a
tendency to improve the overall market for the Common Stock.
There are no provisions in the Restated Certificate of Incorporation or the
By-Laws that may be viewed as having anti-takeover effects, the management has
no intention of proposing any amendments to either with such effect.
The full text of the resolution of the Board of Directors authorizing the
proposed amendment, is as follows:
"RESOLVED: That the Board of Directors proposes and declares
advisable that Article 4 of the Restated Certificate of Incorporation of
the Corporation be amended in its entirety, as set forth below, and that
such amendment be submitted to the stockholders at the Annual Meeting to be
held on June 16, 1995:
"Article 4 is hereby amended in its entirety to read as follows:
"4. The total number of shares of stock which the Corporation
shall have authority to issue is one hundred two million
(102,000,000), consisting of two million (2,000,000) shares of
Preferred Stock of the par value of One Dollar ($1.00) per share
and one hundred million (100,000,000) shares of Common Stock of
the par value of Ten Cents ($.10) per share.
"Authority is hereby expressly vested in the Board of
Directors to adopt from time to time resolutions providing for the
issuance of the authorized shares of Preferred Stock, which
resolutions shall provide for the division of shares into classes
and series and the designations thereof and shall fix any or all
voting powers, preferences and relative, participating, optional
or other rights, if any, or the qualifications, limitations or
restrictions thereof, including provisions as may be desired for
the redemption of such shares and/or the conversion of such shares
into shares of any other class or series of stock. Such authority
shall be deemed to include the power to specify the number of
shares of any series and to increase or decrease the number of
shares in a class or series previously determined by the Board of
Directors or to change the designation of the shares of any class
or series and to change the preferences and rights of the shares
of Preferred Stock or any class or series thereof, providing that
such increase, decrease or change shall not affect issued shares."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK THAT ARE AUTHORIZED FOR ISSUANCE.
<PAGE> 20
APPROVAL OF THE 1995 FLEXIBLE STOCK PLAN
Proposal No. 3
General
The Company's Board of Directors has adopted, subject to shareholder
approval, the HEARx Ltd. 1995 Flexible Stock Plan ("1995 Plan") to aid the
Company in attracting, retaining, motivating and rewarding management employees
through the granting of various stock and stock-based awards.
Set forth below is a description of the essential features of the 1995
Plan. This description is subject to and qualified in its entirety by the full
text of the 1995 Plan which is attached to this Proxy Statement as Exhibit A.
Description of the 1995 Plan
The 1995 Plan provides for benefits (collectively "Benefits") to be awarded
to eligible participants in the form of stock options, stock appreciation
rights, restricted stock, performance shares, and other stock-based awards.
Any award of a derivative security (i.e. an option or similar right) to a
person who is subject to Section 16 of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), shall not be transferrable other than by will or the
laws of descent and distribution or the provisions of a qualified domestic
relations order.
On and after the effective date of the 1995 Plan, the total number of
shares ("Shares") of Common Stock which may be issued in connection with all
possible Benefits under the Plan shall not exceed 2,500,000 Shares plus an
automatic annual increase of 10% of the number of Shares subject to the Plan as
of the prior year, beginning in fiscal 1996. If an option and/or stock
appreciation right expires, terminates or is surrendered without having been
fully exercised, or if Shares of restricted stock or Performance Shares are
forfeited, the unpurchased Shares or forfeited Shares subject to the option,
stock appreciation right or grant of restricted stock or performance Shares
shall again be made available for purposes of the 1995 Plan to the fullest
extent permitted under Rule 16b-3. The closing price of a Share as quoted on
the NASD Bulletin Board on April 28, 1995 was $1.06.
As of April 28, 1995, there were available under the Company's current
stock option plan, options to acquire 96,700 Shares.
Administration and Beneficiaries of the 1995 Plan
The 1995 Plan will be administered by a committee ("Committee"). The
Committee will consist of two or more members of the Board who were not (during
the one year prior to service as a member of the Committee or are not during
such service) granted or awarded equity securities pursuant to the 1995 Plan or
any other discretionary stock award plan of the Company. The members of the
Committee are appointed by and serve at the pleasure of the Board, which may
appoint members in substitution for members previously appointed to fill
vacancies in the Committee.
Benefits may be awarded to individuals selected by the Committee. In
general, Benefits may be awarded only to employees of the Company and
affiliated entities with which the Company or its affiliates have business
relationships.
<PAGE> 21
Amendment, Termination and Change in Control
The Board of Directors may amend the 1995 Plan at any time, but stockholder
approval is required if such amendment (i) would cause options which are
intended to qualify as "incentive stock options" under the Internal Revenue
Code (described below) to fail to so qualify, (ii) would cause the 1995 Plan to
fail to meet the requirements of Rule 16b-3, or (iii) would violate applicable
law.
The 1995 Plan has no fixed termination date and shall continue in effect
until terminated by the Board of Directors.
In the event of a change of control (as defined below), of the Company, the
Committee may provide such protection as it deems necessary to maintain a
participant's rights. The Committee may, among other things: (i) provide for
the acceleration of the exercise or realization of any Benefit; (ii) provide
for purchase of a Benefit upon the Participant's request for an amount in cash
equal to the amount which could have been attained upon the exercise or
realization of the Benefit had it been currently exercisable or payable; (iii)
make such adjustment to the Benefit as the Committee deems appropriate; and/or
(iv) cause the Benefits to be assumed by the surviving company. "Change in
Control" means: the acquisition, after the Effective Date (anticipated to be
June 16, 1995, if the 1995 Plan is approved by the stockholders at the Annual
Meeting), without the approval of the Board of Directors, by any person, other
than the Company and certain related entities, of more than 20% of the
outstanding shares of Common Stock; the liquidation or dissolution of the
Company following a sale or other disposition of substantially all of its
assets; a merger or consolidation involving the Company in which the Company is
not the surviving company; or a change in the majority of the members of the
Board of Directors of the Company during any two year period not approved by at
least two-thirds of the members of the Board of Directors who were members at
the beginning of the two year period.
Stock Options
Stock options granted under the 1995 Plan intended to qualify for special
tax treatment under Section 422 of the Internal Revenue Code of 1986 ("Code")
are referred to as "Incentive Stock Options," and options not intended to so
qualify are referred to as "Non-Qualified Stock Options." The option price per
Share in the case of Non-Qualified Stock Options shall be the fair market value
of the Shares on the date the option is granted. Except as provided in the
following paragraph, the per Share option price in the case of Incentive Stock
Options shall be no less than the fair market value of the Shares on the date
the option is granted.
The other terms of options shall be determined by the Committee, and, in
the case of options intended to qualify as Incentive Stock Options, such terms
shall meet all requirements of Section 422 of the Code.
Payment for shares purchased pursuant to the exercise of options may be
made either (i) in cash, or (ii) with the consent of the Committee, (a) by
exchanging shares of the Company's Common Stock having an aggregate fair market
value equal to the cash exercise price of the option being exercised, (b) in
other property or (c) by any combination of the foregoing.
<PAGE> 22
Stock Appreciation Rights
The Committee may grant Stock Appreciation Rights. A Stock Appreciation
Right is the right to receive an amount equal to the appreciation, if any, in
the fair market value of a Share from the date of grant to the date of payment.
Payment shall be made in cash, in Shares or in any combination thereof, as
determined by the Committee.
The Committee may grant Stock Appreciation Rights to an employee in tandem
with a stock option, in which case the exercise of the option shall cause a
correlative reduction in Stock Appreciation Rights then standing to a
participant's credit which were granted in tandem with the option, and the
payment of a Stock Appreciation Right shall cause a correlative reduction in
Shares under such option.
Restricted Stock Awards
The Committee may grant Shares of Restricted Stock at no cost. Such Shares
shall be issued and delivered at the time of the grant but shall be subject to
forfeiture until those conditions set forth in the Restricted Stock Agreement
are satisfied. Stock certificates representing Shares of Restricted Stock
shall bear a legend referring to the 1995 Plan, noting the risk of forfeiture
of the Shares and stating that such Shares are nontransferable until all
restrictions have been satisfied. As of the date Restricted Stock is granted,
the grantee shall be entitled to full voting and dividend rights with respect
to all Shares of such stock.
Performance Shares
The Committee may grant awards of Performance Shares, which represent the
right to receive Common Stock or cash equal to the fair market value of the
Shares at a future date in accordance with the terms of such grant. Generally,
such right shall be based upon the attainment of targeted profit and/or other
performance objective.
Other Stock-Based Awards
The Committee may grant other stock-based awards at such time, in such
amounts and subject to such terms and conditions as it deems appropriate.
Federal Income Tax Consequences
The following is a summary of the Federal income tax consequences of the
1995 Plan, based upon the Company's understanding of current income tax laws,
regulations and rulings. Any time a distribution is made under the 1995 Plan,
whether in cash or in Shares of stock, the Company may withhold from such
payment any amount necessary to satisfy Federal, state and local income tax
withholding requirements with respect to the distribution. Such withholding
may be in cash or in Shares.
<PAGE> 23
Incentive Stock Options
Subject to the effect of the Alternative Minimum Tax, discussed below, an
optionee does not recognize income on the grant of an Incentive Stock Option.
If an optionee exercises an Incentive Stock Option in accordance with the terms
of the option and does not dispose of the Shares acquired within two years from
the date of the grant of the option nor within one year from the date of
exercise, the optionee will not realize any income by reason of the exercise
and the Company will be allowed no deduction by reason of the grant or
exercise. The optionee's basis in the Shares acquired upon exercise will be
the amount paid upon exercise. (See the discussion below for the tax
consequences of the exercise of an option with stock already owned by
optionee.) If the optionee holds the Shares as a capital asset at the time of
sale or other disposition of the Shares, his gain or loss, if any, recognized
on the sale or other disposition will be capital gain or loss. The amount of
his gain or loss will be the difference between the amount realized on the
disposition of the Shares and his basis in the Shares.
If an optionee disposes of the Shares within two years from the date of
grant of the option or within one year from the date of exercise (an "Early
Disposition"), the optionee will realize ordinary income at the time of such
Early Disposition which will equal the excess, if any, of the lesser of (i) the
amount realized on the Early Disposition or (ii) the fair market value of the
Shares on the date of exercise, over the optionee's basis in the Shares. The
Company will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such Shares
over the fair market value of the Shares on the date of exercise will be long-
term or short-term capital gain, depending upon the holding period of the
Shares, provided the optionee holds the Shares as a capital asset at the time
of Early Disposition. If an optionee disposes of such Shares for less than his
basis in the Shares, the difference between the amount realized and his basis
will be long-term or short-term capital loss, depending upon the holding period
of the Shares, provided the optionee holds the Shares as a capital asset at the
time of disposition.
The excess of the fair market value of the Shares at the time the Incentive
Stock Option is exercised over the exercise price for the Shares is an item of
tax preference.
Non-Qualified Stock Options
Non-Qualified Stock Options do not qualify for the special tax treatment
accorded to Incentive Stock Options under the Code. Although an optionee does
not recognize income at the time of the grant of the option, he recognizes
ordinary income upon the exercise of a Non-Qualified Option in an amount equal
to the difference between the fair market value of the stock on the date of
exercise of the option and the amount of cash paid for the stock.
As a result of the Optionee's exercise of a Non-Qualified Stock Option, the
Company will be entitled to deduct as compensation an amount equal to the
amount included in the optionee's gross income. The Company's deduction will
be taken in the Company's taxable year in which the option is exercised.
The excess of the fair market value of the stock on the date of exercise of
a Non-Qualified Stock Option over the exercise price is not an item of "tax
preference" as such term is used in the Code.
<PAGE> 24
Stock Appreciation Rights
Recipients of Stock Appreciation Rights do not recognize income upon the
grant of such an award. When a participant elects to receive payment under a
Stock Appreciation Right, he or she will recognize ordinary income in an amount
equal to the cash and fair market value of Shares received and the Company is
entitled to a deduction equal to such amount.
Payment in Shares
If the optionee exercises an option and surrenders stock already owned by
him ("Old Shares"), the following rules apply:
1. To the extent the number of Shares acquired ("New Shares") exceeds the
number of Old Shares exchanged, the optionee will recognize ordinary
income on the receipt of such additional Shares (provided the option
is not an Incentive Stock Option) in an amount equal to the fair
market value of such additional Shares less any cash paid for them and
the Company will be entitled to a deduction in an amount equal to such
income. The basis of such additional Shares will be equal to the fair
market value of such Shares (or, in the case of an Incentive Stock
Option, the cash, if any, paid for the additional Shares) on the date
of exercise and the holding period for such additional Shares will
commence on the date the option is exercised.
2. Except as provided below, to the extent the number of New Shares
acquired does not exceed the number of Old Shares exchanged, no gain
or loss will be recognized on such exchange, the basis of the New
Shares received will be equal to the basis of the Old Shares
surrendered, and the holding period of the New Shares received will
include the holding period of the Old Shares surrendered. However, it
is believed that, if the optionee exercises an Incentive Stock Option
by surrendering Old Shares, then, for purposes of determining whether
there has been an early disposition of the New Shares and the amount
of ordinary income on any such Early Disposition, the holding period
for the New Shares will begin on the date the New Shares are
transferred to the optionee, and the Optionee will be deemed to have
disposed of the New Shares with the lowest basis first. If the
optionee exercises an Incentive Stock Option by surrendering Old
Shares which were acquired through the exercise of an Incentive Stock
Option, and if the surrender occurs prior to the expiration of the
holding period applicable to Incentive Stock Options, the surrender
will be deemed to be an Early Disposition of the Old Shares. The
federal income tax consequences of an Early Disposition are discussed
above.
3. If the Old Shares surrendered were acquired by the optionee by
exercise of an Incentive Stock Option, then, except as provided in 2
above, the exchange will not constitute an Early Disposition of the
Old Shares.
4. Based upon prior rulings of the Internal Revenue Service in analogous
areas, it is believed that if an optionee exercises an Incentive Stock
Option and surrenders Old Shares and if he disposes of the New Shares
received upon exercise within two years from the date of the grant of
the option or within one year from the date of exercise, the following
tax consequences would result:
<PAGE> 25
(i) To the extent the number of New Shares received upon exercise
does not exceed the number of Old Shares surrendered, the
disposition of the New Shares will not constitute an Early
Disposition (unless the disposition is a surrender of the New
Shares in the exercise of an Incentive Stock Option).
(ii) The disposition of the New Shares will constitute an Early
Disposition to the extent the number of New Shares received
upon exercise and disposed of exceeds the number of Old Shares
surrendered.
Payment in Cancellation of Stock Option
If the Committee authorized payment in cancellation of a Shares option, the
optionee will recognize income equal to the amount of any such cash received
and the fair market value of any Shares received. The optionee's holding
period for such Shares would begin on the date he receives the Shares.
The Company will be entitled to deduct as compensation the amount
includible in the optionee's gross income as a result of the payment. The
Company's deduction will be taken in its taxable year in which the payment is
made.
The optionee's basis in the Shares is equal to the amount includible in his
gross income as a result of the payment in Shares.
If the Shares so acquired are later sold or exchanged, the difference
between the sales price and the optionee's basis in the Shares is taxable as
long-term or short-term capital gain or loss depending upon the holding period
of the Shares, provided the optionee holds the Shares as a capital asset at the
time of disposition.
Restricted Stock; Performance Shares
Grantees of Restricted Stock and Performance Shares do not recognize income
at the time of the grant of such Shares. However, when Shares of Restricted
Stock become free from any restrictions or when Performance Shares are paid,
grantees recognize ordinary income in an amount equal to the fair market value
of the Shares on the date all restrictions are satisfied.
Taxation of Preference Items
Section 55 of the Code imposes an Alternative Minimum Tax equal to the
excess, if any, of (i) 21% of the optionee's "alternative minimum taxable
income" over (ii) his "regular" federal income tax. Alternative minimum
taxable income is determined by adding the optionee's Stock Option Preference
and any other items of tax preference to the optionee's adjusted gross income
and then subtracting certain allowable deductions and an exemption amount. At
this date, the exemption amount is $30,000 for single taxpayers, $40,000 for
married taxpayers filing jointly and $20,000 for married taxpayers filing
separately. However, these exemption amounts are phased out beginning at
certain levels of alternative minimum taxable income.
<PAGE> 26
Change of Control
If there is an acceleration of the vesting or payment of benefits and/or an
acceleration of the exercisability of stock options upon a Change of Control,
all or a portion of the accelerated benefits may constitute "Excess Parachute
Payments" under Section 280G of the Code. The employee receiving an Excess
Parachute Payment incurs an excise tax of 20% of the amount of the payment in
excess of the employee's average annual compensation over the five calendar
years preceding the year of the Change of Control, and the Company is not
entitled to a deduction for such payment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE 1995 FLEXIBLE STOCK PLAN.
RATIFICATION OF SELECTION OF AUDITORS
Proposal No. 4
The Board of Directors has selected the accounting firm of BDO Seidman as
the Company's independent public accountants for its fiscal year ending
December 29, 1995. Stockholder ratification of the selection is not required
under the laws of the State of Delaware, but the Board has nevertheless decided
to ascertain the views of stockholders in this regard. If the selection of
such firm is not ratified at the meeting, the Board will consider the selection
of other auditors.
One or more representatives of BDO Seidman are expected to be present at
the meeting and will have the opportunity to make a statement if they desire to
do so. In addition, they will be available to respond to appropriate questions
from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE RATIFICATION OF THE SELECTION OF BDO SEIDMAN AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR ITS FISCAL YEAR ENDED DECEMBER 29, 1995.
OTHER MATTERS
As of the date hereof, the Board of Directors know of no other matters
which are likely to be presented for consideration at the meeting. However, in
the event any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote said proxy in
accordance with their best judgment.
STOCKHOLDER PROPOSALS
All proposals of stockholders of the Company intended to be presented at
the 1995 Annual Meeting of Stockholders must be received by the Company no
later than January 14, 1996, in order to be included in the Company's Proxy
Statement and form of proxy relating to that meeting.
By Order of the Board of Directors,
David W. Forman
Secretary
May 15, 1994
<PAGE> 27
A copy of the Company's Annual Report on Form 10-K (as amended) for its
fiscal year ended December 30, 1994, filed with the Securities and Exchange
Commission is available without charge to those stockholders who wish more
detailed information concerning the Company. The exhibits to the Form 10-K
will also be furnished to any stockholder who so requests and pays a fee equal
to the Company's reasonable expenses in furnishing such exhibits. If you wish
a copy of the Form 10-K, the exhibits or both, please write to David W. Forman,
Secretary of the Company, at 471 Spencer Drive, West Palm Beach, Florida 33409.
<PAGE> 28
APPENDIX A
FORM OF PROXY
[FRONT]
HEARx LTD.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
for the
Annual Meeting To Be Held On June 16, 1995
The undersigned stockholder(s) of HEARx Ltd. ("Company") hereby appoint(s)
Paul A. Brown, M.D., Stephen J. Hansbrough and David W. Forman, and each of
them, proxies with full power to vote all shares which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders of
the Company to be held at the HEARx Center, 9960 N. Central Park Boulevard,
Third Floor, Boca Raton, Florida 33428, on Friday, June 16, 1995, at 2:00 P.M.,
Eastern Time, and at any and all adjournments thereof, on the following
matters:
1. The election of the following nominees as directors of the Company:
Paul A. Brown, M.D., Thomas W. Archibald, Fred N. Gerard, Esq. and
David J. McLachlan.
[ ] FOR all nominees as a group
[ ] WITHHOLD authority to vote for all nominees as a group
YOU MAY WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) BY LINING THROUGH OR
OTHERWISE STRIKING OUT THE NAME OF SUCH NOMINEE(S).
2. [ ] FOR or [ ] AGAINST or [ ] ABSTAIN with respect to increasing
the number of shares of authorized common stock as specified in the
Proxy Statement.
3. [ ]FOR or [ ] AGAINST or [ ] ABSTAIN with respect to adoption of
the HEARx Ltd. 1995 Flexible Stock Plan.
4. [ ] FOR or [ ] AGAINST or [ ] ABSTAIN with respect to the
ratification of the selection of the auditors referred to in the Proxy
Statement.
5. The transaction of such other business as may properly come before the
meeting and any and all adjournments thereof.
(Continued and to be SIGNED on the reverse side)
<PAGE> 29
[BACK]
THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE
STOCKHOLDER'S DIRECTIONS HEREIN, BUT WHERE NO DIRECTIONS ARE INDICATED, SAID
SHARES WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED ON
REVERSE SIDE, FOR THE PROPOSAL TO INCREASE THE AUTHORIZED CAPITAL STOCK OF THE
COMPANY, FOR APPROVAL OF THE 1995 FLEXIBLE STOCK PLAN, FOR THE RATIFICATION OF
THE SELECTION OF THE AUDITORS, AND, IN THE DISCRETION OF THE PROXIES, ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, ALL IN ACCORDANCE WITH
THE COMPANY'S PROXY STATEMENT, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED.
Dated: _______________________________________, 1995
_____________________________________________
_____________________________________________
Signature(s) of Stockholder(s)
(Please sign exactly as your name(s)
appear(s) hereon. Joint holders must each
sign. Persons signing as executors,
administrators, trustee, guardians, etc. will
please so indicate when signing.)
PLEASE DATE, SIGN AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED REPLY ENVELOPE.
<PAGE> 1
EXHIBIT A
HEARx LTD.
1995 FLEXIBLE STOCK PLAN
ARTICLE I - NAME AND PURPOSE
----------------------------
1.1 Name. The name of the Plan is the "HEARx Ltd. 1995 Flexible Stock
Plan."
1.2 Purpose. The Company has established the Plan to attract, retain,
motivate and reward Employees and other individuals, to encourage
ownership of the Company's Common Stock by Employees and other
individuals, and to promote and further the best interests of the
Company.
ARTICLE II - DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION
-----------------------------------------------------------
2.1 General Definitions. The following words and phrases, when used in
the Plan, unless otherwise specifically defined or unless the context
clearly otherwise requires, shall have the following respective
meanings:
(a) Agreement. The document which evidences the grant of any
Benefit under the Plan and which sets forth the Benefit and
the terms, conditions and provisions of, and restrictions
relating to, such Benefit.
(b) Benefit. Any benefit granted to a Participant under the Plan.
(c) Board. The Board of Directors of the Company.
(d) Change of Control. The acquisition after the Effective Date,
without the approval of the Board, by any person or entity,
other than the Company or a Related Entity, of more than 20%
of the outstanding Shares through a tender offer, exchange
offer or otherwise; the liquidation or dissolution of the
Company following a sale or other disposition of all or
substantially all of its assets; a merger or consolidation
involving the Company which results in the Company not being
the surviving parent corporation; or any time during any two-
year period in which individuals who constituted the board at
the start of such period (or whose election was approved by at
least two-thirds of the then members of the Board who were
members at the start of the two-year period) do not constitute
at least 50% of the Board for any reason. A Related Entity is
a Subsidiary or any employee benefit plan (including a trust
forming a part of such a plan) maintained by the Company or a
Subsidiary.
(e) Code. The Internal Revenue Code of 1986, as amended. Any
reference to the Code includes the regulations promulgated
pursuant to the Code.
(f) Company. HEARx Ltd.
<PAGE> 2
(g) Committee. The Committee described in Section 5.1.
(h) Common Stock. The Company's Common Stock, $.10 par value.
(i) Effective Date. The date that the Plan is approved by the
shareholders of the Company, which must occur within one year
after approval by the Board. Any grants of Benefits prior to
the approval by the shareholders of the Company shall be void
if such approval is not obtained.
(j) Employee. Any person employed by the Employer.
(k) Employer. The Company and all Subsidiaries.
(l) Exchange Act. The Securities Exchange Act of 1934, as
amended.
(m) Fair Market Value. The last reported sale price, regular way,
of the Shares on any day or, in case no such reported sale
takes place on such day, the average of the reported closing
bid and asked prices, regular way, in either case on the
principal national securities exchange on which the Shares are
listed or if the Shares are not listed on a national
securities exchange and are listed on the Nasdaq Stock Market,
the sale price determined in the same fashion or, if the
Shares are not so listed on any of the foregoing, the average
of the bid and asked prices on such day as furnished by
dealers in the Shares in the over-the-counter market. All
calculations of the current market price shall be made to the
nearest cent.
(n) Fiscal Year. The taxable year of the Company which ends on
the Saturday closest to December 31 of each year.
(o) ISO. An Incentive Stock Option as defined in Section 422 of
the Code.
(p) NQSO. A Non-Qualified Stock Option, which is an Option that
does not qualify as an ISO.
(q) Option. An option to purchase Shares granted under the Plan.
(r) Other Stock Based Award. An award under ARTICLE XVII that is
valued in whole or in part by reference to, or is otherwise
based on, Common Stock.
(s) Participant. A person who is granted a Benefit under the
Plan. Benefits may be granted only to Employees, employees
and owners of entities which are not Subsidiaries but which
have a direct or indirect ownership interest in an Employer or
in which an Employer has a direct or indirect ownership
interest, persons who, and employees and owners of entities
which, are customers and suppliers of an Employer, persons
who, and employees and owners of entities which, render
services to an Employer, and persons who, and employees and
owners of entities, which have ownership or business
affiliations with any persons or entity previously described.
<PAGE> 3
(t) Performance Share. A Share awarded to a Participant under
ARTICLE XVI of the Plan.
(u) Plan. The HEARx Ltd. 1995 Flexible Stock Plan and all
amendments and supplements to it.
(v) Restricted Stock. Shares issued under ARTICLE XV of the Plan.
(w) Rule 16b-3. Rule 16b-3 promulgated by the SEC pursuant to
Section 16(b) of the Exchange Act, as such rule may be
amended, or any successor rule in effect from time to time.
(x) SEC. The Securities and Exchange Commission.
(y) Share. A share of Common Stock.
(z) SAR. A Stock Appreciation Right, which is the right to
receive an amount equal to the appreciation, if any, in the
Fair Market Value of a Share from the date of the grant of the
right to the date of its payment.
(aa) Subsidiary. Any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of
grant of an Option or other Benefit, each of the corporations,
other than the last corporation in the unbroken chain, owns
stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in such chain.
2.2 Other Definitions. In addition to the above definitions, certain
words and phrases used in the Plan and any Agreement may be defined in
other portions of the Plan or in such Agreement.
2.3 Conflicts in Plan. In the case of any conflict in the terms of the
Plan relating to a Benefit, the provisions in the ARTICLE of the Plan
which specifically grants such Benefit shall control those in a
different ARTICLE.
ARTICLE III - COMMON STOCK
--------------------------
3.1 Number of Shares. The number of Shares which may be issued or sold or
for which Options, SARs or Performance Shares may be granted under the
Plan shall initially be 2,500,000 Shares. Such number of Shares shall
increase annually, effective as of the first day of each Fiscal Year,
commencing with the 1996 Fiscal Year, by a number of Shares equal to
10% of the number of Shares subject to the Plan during the preceding
Fiscal Year. Such Shares may be authorized but unissued Shares,
Shares held in the treasury, or both.
3.2 Reusage. If an Option or SAR expires or is terminated, surrendered,
or canceled without having been fully exercised, if Restricted Shares
or Performance Shares are forfeited, or if any other grant results in
any Shares not being issued, the Shares covered by such Option or SAR,
grant of Restricted Shares, Performance Shares or other grant, as the
case may be, shall again be available for use under the Plan, to the
fullest extent permitted under Rule 16b-3.
<PAGE> 4
3.3 Adjustments. If there is any change in the Common Stock of the
Company by reason of any stock dividend, spin-off, split-up, spin-out,
recapitalization, merger, consolidation, reorganization, combination
or exchange of shares, the number of SARs and number and class of
shares available for Options and grants of Restricted Stock,
Performance Shares and Other Stock Based Awards and the number of
Shares subject to outstanding Options, SARs, grants of Restricted
Stock and Performance Shares which are not vested, and Other Stock
Based Awards, and the price thereof, as applicable, shall be
appropriately adjusted by the Committee.
ARTICLE IV - ELIGIBILITY
------------------------
4.1 Determined By Committee. The Participants and the Benefits they
receive under the Plan shall be determined solely by the Committee.
In making its determinations, the Committee shall consider past,
present and expected future contributions of Participants and
potential Participants to the Employer, including, without limitation,
the performance of, or the refraining from the performance of,
services.
ARTICLE V - ADMINISTRATION
--------------------------
5.1 Committee. The Plan shall be administered by the Committee. The
Committee shall consist of two or more members of the Board who are
"disinterested persons" as defined in Rule 16b-3. The members of the
Committee shall be appointed by and shall serve at the pleasure of the
Board, which may from time to time appoint members in substitution for
members previously appointed and fill vacancies, however caused, in
the Committee. The Committee may select one of its members as its
Chairman and shall hold its meetings at such times and places as it
may determine. A majority of its members shall constitute a quorum.
All determinations of the Committee shall be made by a majority of its
members. Any decision or determination reduced to writing and signed
by a majority of the members shall be fully as effective as if it had
been made by a majority vote at a meeting duly called and held.
5.2 Authority. Subject to the terms of the Plan, the Committee shall have
discretionary authority to: (a) determine the individuals to whom
Benefits are granted, the type and amounts of Benefits to be granted
and the time of all such grants; (b) determine the terms, conditions
and provisions of, and restrictions relating to, each Benefit granted;
(c) interpret and construe the Plan and all Agreements; (d) prescribe,
amend and rescind rules and regulations relating to the Plan; (e)
determine the content and form of all Agreements; (f) determine all
questions relating to Benefits under the Plan; (g) maintain accounts,
records and ledgers relating to Benefits; (h) maintain records
concerning its decisions and proceedings; (i) employ agents,
attorneys, accountants or other persons for such purposes as the
Committee considers necessary or desirable; (j) take, at any time, any
action permitted by Section 9.1 irrespective of whether any Change of
Control has occurred or is imminent; and (k) do and perform all acts
which it may deem necessary or appropriate for the administration of
the Plan and carry out the purposes of the Plan.
<PAGE> 5
5.3 Delegation. Except as required by Rule 16b-3 with respect to grants
of Options, Stock Appreciation Awards, Performance Shares, Other Stock
Based Awards, or other Benefits to individuals who are subject to
Section 16 of the Exchange Act or as otherwise required for compliance
with Rule 16b-3 or other applicable law, the Committee may delegate
all or any part of its authority under the Plan to any Employee,
Employees or committee.
5.4 Adjudication of Claims. The Committee shall have discretionary
authority to make all determinations as to the right to Benefits under
the Plan. In the event that a Participant believes he has not
received the Benefits to which he is entitled under the Plan, a claim
shall be made in writing to the Committee. The claim shall be
reviewed by the Committee. If the claim is approved or denied, in
full or in part, the Committee shall provide a written notice of
approval or denial within 90 days with, in the case of a denial, the
specific reasons for the denial and specific reference to the
provisions of the Plan and/or Agreement upon which the denial is
based. A claim shall be deemed denied if the Committee does not take
any action within the aforesaid 90 day period. If a claim is denied
or deemed denied and a review is desired, the Participant shall notify
the Committee in writing within 60 days of the receipt of notice of
denial or the date on which the claim is deemed to be denied, as the
case may be. In requesting a review, the Participant may review the
Plan or any document relating to it and submit any written issues and
comments he may deem appropriate. The Committee shall then review the
claim and provide a written decision within 60 days. This decision,
if adverse to the Participant, shall state the specific reasons for
the decision and shall include reference to specific provisions of the
Plan and/or Agreement on which the decision is based. The Committee's
decision on review shall be final.
ARTICLE VI - AMENDMENT
----------------------
6.1 Power of Board. Except as hereinafter provided, the Board shall have
the sole right and power to amend the Plan at any time and from time
to time.
6.2 Limitation. The Board may not amend the Plan, without approval of the
shareholders of the Company: (a) in a manner which would cause
Options which are intended to qualify as ISOs to fail to qualify; (b)
in a manner which would cause the Plan to fail to meet the
requirements of Rule 16b-3; or (c) in a manner which would violate
applicable law.
ARTICLE VII - TERM AND TERMINATION
----------------------------------
7.1 Term. The Plan shall commence as of the Effective Date and, subject
to the terms of the Plan, including those requiring approval by the
shareholders of the Company and those limiting the period over which
ISOs or any other Benefits may be granted, shall continue in full
force and effect until terminated.
<PAGE> 6
7.2 Termination. The Plan may be terminated at any time by the Board.
ARTICLE VIII - MODIFICATION OR TERMINATION OF BENEFITS
------------------------------------------------------
8.1 General. Subject to the provisions of Section 8.2, the amendment or
termination of the Plan shall not adversely affect a Participant's
right to any Benefit granted prior to such amendment or termination.
8.2 Committee's Right. Any Benefit granted may be converted, modified,
forfeited or canceled, in whole or in part, by the Committee if and to
the extent permitted in the Plan or applicable Agreement or with the
consent of the Participant to whom such Benefit was granted.
ARTICLE IX - CHANGE OF CONTROL
------------------------------
9.1 Right of Committee. In order to maintain a Participant's rights in
the event of a Change of Control, the Committee, in its sole
discretion, may, in any Agreement evidencing a Benefit, or at any time
prior to, or simultaneously with or after a Change in Control, provide
such protection as it may deem necessary. Without, in any way,
limiting the generality of the foregoing sentence or requiring any
specific protection, the Committee may:
(a) provide for the acceleration of any time periods relating to
the exercise or realization of such Benefit so that such
Benefit may be exercised or realized in full on or before a
date fixed by the Committee;
(b) provide for the purchase of such Benefit, upon the
Participant's request, for an amount of cash equal to the
amount which could have been attained upon the exercise or
realization of such Benefit had such Benefit been currently
exercisable or payable;
(c) make such adjustment to the Benefits then outstanding as the
Committee deems appropriate to reflect such transaction or
change; and/or
(d) cause the Benefits then outstanding to be assumed, or new
Benefits substituted therefor, by the surviving corporation in
such change.
ARTICLE X - AGREEMENTS AND CERTAIN BENEFITS
-------------------------------------------
10.1 Grant Evidenced by Agreement. The grant of any Benefit under the Plan
may be evidenced by an Agreement which shall describe the specific
Benefit granted and the terms and conditions of the Benefit. The
granting of any Benefit shall be subject to, and conditioned upon, the
recipient's execution of any Agreement required by the Committee.
Except as otherwise provided in an Agreement, all capitalized terms
used in the Agreement shall have the same meaning as in the Plan, and
the Agreement shall be subject to all of the terms of the Plan.
<PAGE> 7
10.2 Provisions of Agreement. Each Agreement shall contain such provisions
that the Committee shall determine to be necessary, desirable and
appropriate for the Benefit granted which may include, but not be
limited to, the following with respect to any Benefit: description of
the type of Benefit; the Benefit's duration; its transferability; if
an Option, the exercise price, the exercise period and the person or
persons who may exercise the Option; the effect upon such Benefit of
the Participant's death or termination of employment; the Benefit's
conditions; when, if, and how any Benefit may be forfeited, converted
into another Benefit, modified, exchanged for another Benefit or
replaced; and the restrictions on any Shares purchased or granted
under the Plan.
10.3 Certain Benefits. Any Benefit granted to an individual who is subject
to Section 16 of the Exchange Act shall be not transferable other than
by will or the laws of descent and distribution and shall be
exercisable during his lifetime only by him, his guardian or his legal
representative.
ARTICLE XI - REPLACEMENT AND TANDEM AWARDS
------------------------------------------
11.1 Replacement. The Committee may permit a Participant to elect to
surrender a Benefit in exchange for a new Benefit.
11.2 Tandem Awards. Awards may be granted by the Committee in tandem.
However, no Benefit may be granted in tandem with an ISO except SARs.
ARTICLE XII - PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING
----------------------------------------------------------
12.1 Payment. Upon the exercise of an Option or in the case of any other
Benefit that requires a payment to the Company, the amount due the
Company is to be paid:
(a) in cash;
(b) by the tender to the Company of Shares owned by the optionee
and registered in his name having a Fair Market Value equal to
the amount due to the Company;
(c) in other property, rights and credits, including the
Participant's promissory note; or
(d) by any combination of the payment methods specified in (a),
(b) and (c) above.
Notwithstanding the foregoing, any method of payment other than (a)
may be used only with the consent of the Committee or if and to the
extent so provided in an Agreement. The proceeds of the Sale of
Common Stock purchased pursuant to an Option and any payment to the
Company for other Benefits shall be added to the general funds of the
Company or to the Shares held in treasury, as the case may be, and
used for the corporate purposes of the Company as the Board shall
determine.
<PAGE> 8
12.2 Dividend Equivalents. Grants of Benefits in Shares or Share
equivalents may include dividend equivalent payments or dividend
credit rights.
12.3 Deferral. The right to receive any Benefit under the Plan may, at the
request of the Participant, be deferred for such period and upon such
terms as the Committee shall determine, which may include crediting of
interest on deferrals of cash and crediting of dividends on deferrals
denominated in Shares.
12.4 Withholding. The Company, at the time any distribution is made under
the Plan, whether in cash or in Shares, may withhold from such
distribution any amount necessary to satisfy federal, state and local
income tax withholding requirements with respect to such distribution.
Such withholding shall be in cash or, in the Committee's sole
discretion, Shares.
ARTICLE XIII - OPTIONS
----------------------
13.1 Types of Options. It is intended that both ISOs and NQSOs may be
granted by the Committee under the Plan.
13.2 Shares for ISOs. Notwithstanding the provisions of Section 3.1, the
number of Shares for which ISOs may be granted on or after the
Effective Date shall not exceed 150,000 Shares.
13.3 Grant of ISOs and Option Price. Each ISO must be granted to an
Employee and granted within ten years from the Effective Date. The
purchase price for Shares under any ISO shall be no less than the Fair
Market Value of the Shares at the time the Option is granted.
13.4 Other Requirements for ISOs. The terms of each Option which is
intended to qualify as an ISO shall meet all requirements of Section
422 of the Code.
13.5 NQSOs. The terms of each NQSO shall provide that such Option will not
be treated as an ISO. The purchase price for Shares under any NQSO
shall be the Fair Market Value of the Shares at the time the Option is
granted.
13.6 Determination by Committee. Except as otherwise provided in Section
13.2 through Section 13.5, the terms of all Options shall be
determined by the Committee.
ARTICLE XIV - SARS
------------------
14.1 Grant and Payment. The Committee may grant SARs. Upon electing to
receive payment of a SAR, a Participant shall receive payment in cash,
in Common Stock, or in any combination of cash and Common Stock, as
the Committee shall determine.
14.2 Grant of Tandem Award. The Committee may grant SARs in tandem with an
Option, in which case: the exercise of the Option shall cause a
correlative reduction in SARs standing to a Participant's credit which
<PAGE> 9
were granted in tandem with the Option; and the payment of SARs shall cause a
correlative reduction of the Shares under such Option.
14.3 ISO Tandem Award. When SARs are granted in tandem with an ISO, the
SARs shall have such terms and conditions as shall be required for the
ISO to qualify as an ISO.
14.4 Payment of Award. SARs shall be paid, to the extent payment is
elected by the Participant (and is otherwise due and payable), as soon
as practicable after the date on which such election is made.
ARTICLE XV - RESTRICTED STOCK
-----------------------------
15.1 Description. The Committee may grant Benefits in Shares available
under ARTICLE III of the Plan as Restricted Stock. Shares of
Restricted Stock shall be issued and delivered at the time of the
grant but shall be subject to forfeiture until provided otherwise in
the applicable Agreement or the Plan. Each certificate representing
Shares of Restricted Stock shall bear a legend referring to the Plan
and the risk of forfeiture of the Shares and stating that such Shares
are nontransferable until all restrictions have been satisfied. The
grantee shall be entitled to full voting and dividend rights with
respect to all shares of Restricted Stock from the date of grant.
15.2 Cost of Restricted Stock. Grants of Shares of Restricted Stock shall
be made at no cost to the Participant.
15.3 Non-Transferability. Shares of Restricted Stock shall not be
transferable until after the removal of the legend with respect to
such Shares.
ARTICLE XVI - PERFORMANCE SHARES
--------------------------------
16.1 Description. Performance Shares are the right of an individual to
whom a grant of such Shares is made to receive Shares or cash equal to
the Fair Market Value of such Shares at a future date in accordance
with the terms of such grant. Generally, such right shall be based
upon the attainment of targeted profit and/or performance objectives.
16.2 Grant. The Committee may grant an award of Performance Shares. The
number of Performance Shares and the terms and conditions of the grant
shall be set forth in the applicable Agreement.
ARTICLE XVII - OTHER STOCK BASED AWARDS AND OTHER BENEFITS
----------------------------------------------------------
17.1 Other Stock Based Awards. The Committee shall have the right to grant
Other Stock Based Awards which may include, without limitation, the
grant of Shares based on certain conditions, the payment of cash based
on the performance of the Common Stock, and the grant of securities
convertible into Shares.
<PAGE> 10
17.2 Other Benefits. The Committee shall have the right to provide types
of Benefits under the Plan in addition to those specifically listed,
if the Committee believes that such Benefits would further the
purposes for which the Plan was established.
ARTICLE XVIII - MISCELLANEOUS PROVISIONS
----------------------------------------
18.1 Underscored References. The underscored references contained in the
Plan are included only for convenience, and they shall not be
construed as a part of the Plan or in any respect affecting or
modifying its provisions.
18.2 Number and Gender. The masculine and neuter, wherever used in the
Plan, shall refer to either the masculine, neuter or feminine; and,
unless the context otherwise requires, the singular shall include the
plural and the plural the singular.
18.3 Governing Law. This Plan shall be construed and administered in
accordance with the laws of the State of Delaware.
18.4 Purchase for Investment. The Committee may require each person
purchasing Shares pursuant to an Option or other award under the Plan
to represent to and agree with the Company in writing that such person
is acquiring the Shares for investment and without a view to
distribution or resale. The certificates for such Shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer. All certificates for Shares delivered under
the Plan shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under all applicable
laws, rules and regulations, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
references to such restrictions.
18.5 No Employment Contract. The adoption of the Plan shall not confer
upon any Employee any right to continued employment nor shall it
interfere in any way with the right of the Employer to terminate the
employment of any of its Employees at any time.
18.6 No Effect on Other Benefits. The receipt of Benefits under the Plan
shall have no effect on any benefits to which a Participant may be
entitled from the Employer, under another plan or otherwise, or
preclude a Participant from receiving any such benefits.
