<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------------------- ----------------------
Commission file number 0-16453
HEARx LTD.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 22-2748248
- ------------------------------------------- ----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
471 Spencer Drive, West Palm Beach, Florida 33409
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 478-8770
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------------ -----------------------------------------
Common Stock, par value $0.10 per
share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in PART III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 29, 1995, the aggregate market value of the Registrant's
Common Stock held by non-affiliates (based upon the closing bid and asked
prices on the NASD OTC Bulletin Board) was approximately $63,696,000.
On December 29, 1995, 47,956,783 shares of the registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's definitive Proxy Statement for the 1996 Annual
Meeting of the Registrant's Stockholders ("1996 Proxy Statement"), as filed
with the Securities and Exchange Commission, are incorporated by reference into
Part III.
PART I
Item 1. Business
HEARx Ltd. ("HEARx" or the "Company") operates a network of hearing care
centers which provide a full range of audiological products and services for
the hearing impaired. The Company's strategy focuses on contracting with
managed care and health insurance companies to provide to their members and
beneficiaries high quality hearing care utilizing state-of-the-art facilities
with a full range of diagnostic and rehabilitative services, qualified
professional staff and hearing education learning programs. The Company also
provides such quality hearing care to the general population at the Company's
centers. The Company believes it is well positioned to successfully address
the concerns of access, quality and cost of the managed care and insurance
companies, the diagnostic needs of referring physicians and, ultimately, the
hearing health needs of consumers. HEARx believes that such success requires
the Company to offer convenient distribution points, uniform centers (meaning
standardized personnel qualifications, testing formats, prices and ancillary
services) and a documented quality control program.
HEARx intends, as its ultimate goal, to establish a nationwide network of
hearing care centers, located in metropolitan areas or in regions with high
concentrations of elderly consumers who are more likely to need the Company's
products and services. At the present time, HEARx operates 44 centers in New
York, New Jersey and Florida. It also operates three company-owned centers
situated in AARP Pharmacies located in Florida, Virginia and Oregon. The HEARx
expansion strategy is controlled and deliberate, opening new centers to fulfill
the requirements of new or existing providers pursuant to negotiated contracts
between those providers and the Company.
During the fiscal year ended December 29, 1995, HEARx derived its revenues
from two primary sources: sales of hearing care products (approximately 87%,
89% and 94% of revenues for the fiscal years ended December 29, 1995,
December 30, 1994, and September 30, 1993, respectively), and the provision of
hearing care diagnostics related to diseases of the ear (approximately 13%, 11%
<PAGE> 3
and 6% of revenues for the fiscal years ended December 29, 1995, December 30,
1994, and September 30, 1993, respectively).
HEARx was incorporated in Delaware on April 11, 1986.
Facilities and Services
Each HEARx center is staffed or supervised by a minimum of one
professionally trained, licensed and certified audiologist and at least one
patient care coordinator. The majority of the Company centers are located in
conveniently accessible strip shopping centers and are typically 1,500 to 2,000
square feet in size. The Company's goal is to have all centers virtually
identical in interior space design, exterior markings and signage. This
uniform appearance helps reinforce the consistent service and quality the
Company provides to customers at all locations. Each center provides
comprehensive hearing services that include:
* A facility equipped with soundproof testing booths and state-of-the-
art testing equipment that meets or exceeds all state standards.
* A full range of diagnostic and auditory-vestibular tests that assist
the physician in the treatment of patients with hearing and balance
disorders. Some of these services include auditory brainstem evoked
potentials, electronystagmography and immittance audiometry.
* An aural rehabilitation program available to all patients to help them
better understand their disability.
* A wide variety of hearing aid brands to meet the patient's needs.
* A standardized medical reporting system for feedback to the referring
physicians.
Products
Unlike the national franchise organizations (Miracle Ear and Beltone) which
sell only their own brand of hearing aid, HEARx has selected approximately six
of the major worldwide manufacturers' products (Siemens, Rexton, 3M, GN
Danavox, ReSound and Telex) to make available through the HEARx network in
order to provide the best possible hearing care for HEARx customers.
In addition, HEARx offers a large selection of other hearing enhancement
devices including telephone and television amplifiers, telecaptioners and
decoders, pocket talkers, and specially adapted telephones, alarm clocks,
doorbells and fire alarms. These products are sold in most of the centers and
through a direct mail catalog.
Customers and Marketing
Approximately 86% of HEARx's hearing aid sales in the fiscal year ended
December 29, 1995, came either as a result of physician referrals or through
contracts with various institutional buyers (such as health maintenance
organizations, insurance companies, unions or AARP Pharmacy Service). The
Company believes that its future growth depends on its ability to inform
hearing impaired consumers of the importance of professional hearing testing
<PAGE> 4
and the availability of quality hearing devices. The Company expects to
continue to establish relationships with health organizations and physicians
that promote HEARx to the hearing impaired.
Because HEARx believes that hearing loss is a medical problem and not
simply a "retail opportunity", the Company encourages all patients to see a
physician prior to purchasing a hearing aid. All patients referred to HEARx
from a physician receive a special discount intended to cover the cost of their
medical visit. With this program, the Company believes it has established
strong relationships with area physicians which represent a significant source
of patient referrals. HEARx further maintains these relationships using its
computerized medical reporting system to provide each referring physician a
full report on each of their patient's visits to HEARx.
HEARx's marketing plan focuses on educating both physicians and patients on
the need for regular hearing testing and the importance of hearing aids and
other assistive listening devices in improving qualify of life for the hearing
impaired. The Company works to further its image as a provider of highly
professional services, quality products, and comprehensive, post-sale consumer
education. In connection with its marketing program, HEARx has developed a
direct consumer marketing campaign which utilizes television, radio, newspaper
and magazine advertisements, direct mailings, and company-operated free
seminars on hearing and hearing loss.
Physician Marketing Program
In order to strengthen the relationship between referring physicians and
HEARx, the Company signed a contract with Tufts University School of Medicine
for the development of a program of Continuing Medical Education ("CME")
related to hearing care and specifically directed to primary care physicians.
It is anticipated that marketing of this program will begin during fiscal 1996.
Physicians will receive CME credits when purchasing this program from Tufts.
Tufts will receive compensation for each physician exam submitted for credit.
The profits derived from the sale of this program will accrue 60% to Tufts and
40% to HEARx.
Growth Strategy
Company-owned Centers
The Company currently operates 44 centers located in Florida, New York, and
New Jersey. It also operates three company-owned centers situated in AARP
Pharmacies located in Florida, Virginia and Oregon. This represents a net
increase over fiscal 1994 of twenty-two centers. Eleven of the new centers
were opened in early January 1996 to fulfill the Company's contractual
requirements with its new provider, Oxford Health Plans. The Company's current
contracts contemplate ten additional centers in the immediate future. Over the
next several years, HEARx's primary emphasis, depending on the availability of
capital (see "Management's Discussion of Results of Operations and Analysis of
Financial Condition -- Liquidity and Capital Resources"), will be opening
additional (or selectively acquiring) Company-owned centers in these states.
The Company's ultimate goal, where the population warrants, is to open
"clusters" of four to six centers within a city or county in order to take
advantage of certain operational and marketing efficiencies created by having
multiple locations within a particular region.
<PAGE> 5
Managed Care and Institutional Contracts
Since the beginning of 1991, the Company has entered into arrangements with
institutional buyers relating to the provision of discounted hearing care
products and services. HEARx believes that to implement successfully its
growth strategy, contractual relationships with institutional buyers of hearing
aids are essential. These institutions include managed care companies, health
maintenance organizations, insurance companies, senior citizen buying groups
and unions. By developing contractual arrangements for the referral of
patients, marketing costs are kept to a minimum, and relationships with local
area physicians are enhanced. Critical to providing care to the members of
these groups is the availability of distribution sites, quality control and the
standardization of products and services. The Company believes its system of
high quality, standardized centers will be successful in meeting the needs of
the patients and their providers.
HEARx utilizes the concept of entering into provider agreements with health
insurance or managed care organizations for the furnishing of hearing aids on
three different bases: (a) Fee for service with a predetermined discount (all
paid for by the patient); (b) a per capita basis, which is a fixed fee per
patient per month, determined by the number of patients to be served and the
amount to be paid by the insurance or managed care organization (the balance is
paid by the individual member); or (c) an encounter basis where the Company is
paid a fixed fee by the insurance or managed care organization for each hearing
aid (the balanced is paid by the individual member).
Distinguishing Features
Integral to the success of HEARx's strategy is the strengthening of
consumer's confidence in the hearing care industry and the differentiation of
HEARx from typical hearing aid dispensers. To that end, the Company has
established several unique programs which are highlighted below:
Scientific Advisory Board
HEARx has formed a Scientific Advisory Board consisting of some of the
leading experts in otolaryngology and audiology in an effort to instill
consumer confidence. Each of the five members of the Scientific Advisory Board
is a highly-trained professional with extensive experience in the hearing field
and is affiliated with prestigious universities and institutions. Company
officials consult with members of this Board to keep the Company abreast of
developments in otolaryngology and audiology and for advice as to the Company's
overall business strategy. Additionally, the Scientific Advisory Board meets
annually to review corporate planning and discuss improvements in any of the
services or products which the Company offers. The Scientific Advisory Board
also advises the Company with respect to the introduction of new or improved
services or products, assists the Company in developing and reviewing quality
assurance programs, and advises the Company as to the effect of any proposed or
existing regulatory activity upon customers of the Company.
<PAGE> 6
The current members of the Scientific Advisory Board and the area of
Company operations with respect to which each consults are listed below:
Hearing Diseases
Harold F. Schuknecht, M.D.
Walter Augustus Lecompte Professor of Otology and Laryngology
Harvard Medical School
Emeritus Chief of Otolaryngology
Massachusetts Eye and Ear Infirmary
Boston, Massachusetts
Hearing Testing
James Jerger, Ph.D.
Professor of Audiology
Baylor College of Medicine and The Methodist Hospital
Director, Department of Audiology and Speech Pathology
The Methodist Hospital
Houston, Texas
Hearing Aids and Devices
Charles I. Berlin, Ph.D.
Professor of Otorhinolaryngology & Biocommunications
Louisiana State University
Director, Kresge Hearing Research Laboratory of the South
New Orleans, Louisiana
Product and Service Quality Assurance
Jerry L. Northern, Ph.D.
Professor of Otolaryngology
University of Colorado School of Medicine
Head, Audiology Division
University of Colorado School of Medicine
Denver, Colorado
Professional and Government Relations
Derald Brackmann, M.D.
Member
Otologic Medical Group, Inc.
Clinical Professor of Otolaryngology
University of Southern California
Los Angeles, California
<PAGE> 7
Each member presently receives compensation of $5,000 annually, payable in
shares of Common Stock, as well as $1,000 in cash for attending each annual
Scientific Advisory Board meeting.
Medical Reporting and HEARx Data Link
A computerized medical reporting system gives referring physicians the
results of, and recommended action for, every patient examined at HEARx. To
the Company's knowledge, no other dispenser or audiologist presently offers any
referring physician similar computerized documentation. The Company believes
that as hearing acuity and correction become an expected part of an
individual's health profile, accurate records of past audiological test
results, prescriptions and pathology should be available and accessible to
those treating the patient. To address this need, the Company has developed a
centralized computer data storage and retrieval system which provides
information compiled from each HEARx center visit.
Competition
The hearing care industry is highly fragmented with approximately 11,000
practitioners providing testing and dispensing products and services. Roughly
2,500 of these practitioners are qualified audiologists working for hospitals
or physicians, 2,000 of whom are licensed audiologists in private practice, and
the remaining 6,500 are hearing aid specialists (individuals who may not have
any formal training or qualifications). Industry surveys estimate that
approximately 5% of all outstanding hearing aids are sold in physicians'
offices, 40% are dispensed by qualified audiologists in private practice and
the remaining are sold by hearing aid specialists.
Most competitors are small retailers generally focusing on the sale of
hearing aids without providing comprehensive audiometric testing and other
professional services. Among the larger distributors of hearing aids are:
(1) Bausch & Lomb, a hearing aid manufacturer whose distribution system is
through a national network of over 1,000 franchised stores (Miracle Ear)
including 400 located in Sears Roebuck & Co. stores; and (2) Beltone
Electronics Corp., a privately-owned hearing aid manufacturer that distributes
its products primarily through its network of approximately 600 franchised
dealers. A statistically meaningful number of these stores and dealers are
located in the areas the Company serves.
HEARx believes that these networks will not, as presently operated,
continue to be competitive with the Company's centers. These networks
primarily offer hearing aids only and do not provide the comprehensive
diagnostic services or ancillary products offered by the Company. More
importantly, they do not use the services of audiologists in the majority of
their centers. However, these networks are owned by companies having far
greater resources than HEARx, and there can be no assurance that one or more of
these competitors will not expand and change their operations to capture the
market targeted by the Company. Nor can there be any assurance that the
largely fragmented hearing care market cannot be successfully consolidated by
the establishment of co-operatives, alliances, confederations or the like.
<PAGE> 8
Manufacturers
The hearing aid manufacturing industry is highly competitive with
approximately 40 manufacturers serving the worldwide market. Few manufacturers
offer dramatic product differentiation, which further compounds the industry's
competitive nature. The major hearing aid manufacturers include Bausch & Lomb,
Beltone, Philips Electronics, Siemens, Starkey, 3M, GN Danavox and ReSound.
Regulation
Federal
The United States Food and Drug Administration ("FDA") is responsible for
monitoring the hearing care industry. Currently there are only two regulations
affecting the sale of hearing aids: 1) a physician's review and 2) a return
policy. The FDA requires first time hearing aid purchasers to receive medical
clearance from a physician prior to purchase; however, patients may sign a
waiver in lieu of a physician's examination. In 1993, the State of Vermont
petitioned the FDA to drop the waiver provision and mandate a physician visit.
A final decision has never been generated. FDA hearings were held in
Washington, D.C. in the fall of 1993 regarding changes for regulations
affecting the hearing industry. New regulations were expected to be
promulgated in 1995, but never took place. Although the FDA has mandated that
states adopt a return policy for consumers offering them the right to return
their products, generally within 3-30 days, HEARx offers its customers up to a
60-day return policy. The extension of HEARx's normal 30-day term is given to
patients provided that the purchaser participates in the HEARx Educational
Learning Program (H.E.L.P.).
State
Most states have established formal licensing boards that certify qualified
audiologists or dispensers before they may begin their practice, though some
states such as Massachusetts, New York and Colorado have no certification
requirements. Inspection of facilities, quality control and advertising are
largely unregulated at the State level.
The Company believes it is in material compliance with all applicable
federal and state regulatory requirements.
Product and Professional Liability
In the ordinary course of its business, HEARx may be subject to product and
professional liability claims alleging the failure of, or adverse effects
claimed to have been caused by, products sold or services provided by the
Company. The Company maintains insurance at a level which the Company believes
to be adequate. A successful claim in excess of the policy limits of the
Company's liability insurance could have a material adverse effect upon the
Company. As the distributor of products manufactured by others, the Company
believes it would properly have recourse against the manufacturer in the event
of a product liability claim; however, there can be no assurance that recourse
against a manufacturer by the Company would be successful.
<PAGE> 9
Employees
At December 29, 1995, HEARx had approximately 134 full-time and 8 part-time
employees.
Item 2. Properties
HEARx's corporate offices are located in 7,752 square feet of space in West
Palm Beach, Florida. The lease covering such space provides for an annual rent
of $65,892 with annual escalations ($69,768 in 1995). The lease is renewable
yearly and expires in January 1999.
As of December 29, 1995, the Company operated twenty-eight centers in
Florida as well as one center in Virginia and another center in Oregon. All of
the locations are leased for one to six year terms pursuant to generally non-
cancelable leases (with renewal options in some cases). Each center consists
of between 900 and 3,200 square feet with annual base rents ranging from
approximately $8,000 to $98,000. In addition, HEARx manages one audiology
facility for a physician.
The Company believes its facilities are adequate and suitable for its
current operations.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE> 10
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information as of the date hereof with
respect to the Company's executive officers. They have been appointed to terms
which will expire at the annual meeting of the Board of Directors held at the
time of the 1996 Annual Meeting of Stockholders, or at the time their
successors are duly elected and qualified:
Name and Position Age First Served as Officer
- ------------------------------------------------- --- -----------------------
Paul A. Brown, M.D 58 1986
Chairman of the Board, Chief Executive Officer
and Director
Stephen J. Hansbrough 49 1993
President and Chief Operating Officer
Tommy E. Kee 47 1993
Vice President and Chief Financial Officer
David W. Forman 54 1986
Vice President - Facilities Management
& Secretary
Donna L. Taylor 40 1993
Vice President - Operations
There are no family relationships among any of the executive officers and
directors of the Company.
Paul A. Brown, M.D., holds an A.B. from Harvard College and an M.D. from
Tufts University School of Medicine. From 1970 to 1984, Dr. Brown was Chairman
of the Board and Chief Executive Officer of MetPath Inc. ("MetPath"), 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 laboratory in the world with over 3,000
employees and was listed on the American Stock Exchange prior to being sold to
Corning Glass Works in 1982. In 1984, after leaving MetPath, Dr. Brown and a
small group of investors founded SCI/MED Advances Corporation, a venture
capital, business development and management services company, but the company
was ultimately unsuccessful in raising the $80 million in a public offering
sought to commence this venture. Dr. Brown founded HEARx in 1986. Dr. Brown
is formerly Chairman of the Board of Overseers of Tufts University School of
Medicine as well as a member of the Board of Trustees, 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.
Stephen J. Hansbrough, President and Chief Operating Officer, joined HEARx
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 had been an independent consultant specializing
in turn-around and start-up operations primarily in the retail field.
Tommy E. Kee, Vice President and Chief Financial Officer, joined HEARx in
September 1993. He holds a B.S. degree in accounting from the University of
Tennessee and an M.B.A. from the University of Memphis. Prior to joining
HEARx, Mr. Kee owned an international consulting business and served as Chief
<PAGE> 11
Financial Officer for United Studios of America, Inc. from 1991 through 1993.
From 1973 through 1991, he was Corporate Financial Director for the
International Division of Holiday Inns, Inc., whereas he founded the
International Finance and Accounting Department and directed the financial and
accounting activities for the worldwide operations.
David W. Forman 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 1970, Mr. Forman served in the United States Navy as a Medical Laboratory
Technologist.
Donna L. Taylor, Vice President - Operations, holds an M.A. in Audiology
and joined HEARx in July 1987. Ms. Taylor has an extensive background in
establishing and developing Audiology and Hearing Aid Dispensing programs
including a private ENT practice, Washington University Medical School in St.
Louis from 1983 to 1985 and as an independent contractor.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company was traded in the over-the-counter market
during 1995; however, the stock is now trading on the American Stock Exchange,
effective March 15, 1996, under the symbol of "EAR". For 1995, the prices were
reported by the National Association of Securities Dealers, Inc., OTC Bulletin
Board Service ("NASDBB") and the Common Stock traded under the symbol "HRXL".
The following table sets forth the high and low bid prices of the Common
Stock in the over-the-counter market, as reported by NASDBB for the fiscal
quarters indicated. Such prices reflect interdealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions:
Fiscal Quarter Common Stock
-------------- --------------
High Low
------ ------
1994
----
First 23/32 1/4
Second 3/8 1/8
Third .56 1/8
Fourth .71 .15
1995
----
First 1.44 .50
Second 1.44 7/16
Third 1-5/32 5/16
Fourth 1-15/32 .82
As of December 29, 1995, there were 742 holders of record of Common Stock.
The Company estimates that included within the holders of record are
approximately 3,271 beneficial owners of Common Stock.
<PAGE> 12
Dividend Policy
HEARx has never paid and does not intend to pay any dividends on the Common
Stock in the foreseeable future but instead intends to retain any earnings for
use in the Company's business operations.
Item 6. Selected Financial Data
The following selected financial data of the Company should be read in
conjunction with the financial statements and notes thereto and the following
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The financial data set forth on the next two pages have been
derived from the audited financial statements of the Company:
<TABLE>
OPERATING STATEMENT DATA
<CAPTION>
Year Year Three Months
Ended Ended Ended
December 29, December 30, December 31, Year ended September 30,
------------ ------------ ------------ ----------------------------------------
1995 1994 1993 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $11,170,068 $ 4,331,148 $ 1,042,576 $ 7,335,067 $ 5,300,114 $ 4,233,428
Total costs and expenses 13,100,786 6,201,287 1,568,825 12,669,759 7,724,750 7,724,903
Loss from Continuing
Operations (2,213,453) (2,105,635) (561,517) (5,579,446) (2,481,083) (3,892,483)
Loss from Discontinued
Operations -- -- -- (918,720) (202,851) (251,251)
Net loss (2,213,453) (2,105,635) (561,517) (6,498,166) (2,683,934) (4,143,734)
Loss per Common Share:
Continuing Operations (0.05) (0.06) (0.02) (0.18) (0.09) (0.19)
Discontinued Operations -- -- -- (0.03) (0.01) (0.01)
Net loss per Common Share (0.05) (0.06) (0.02) (0.21) (0.10) (0.20)
Weighted Average Number of
Shares of Common Stock
Outstanding 45,164,091 36,278,205 31,031,790 30,819,790 27,606,013 20,523,083
Cash Dividends per
Common Share None None None None None None
</TABLE>
<PAGE> 13
<TABLE>
BALANCE SHEET DATA
<CAPTION>
December 29, December 30, December 31, September 30,
------------ ------------ ------------ ----------------------------------------
1995 1994 1993 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets $ 6,450,628 $ 3,504,967 $ 2,659,794 $ 2,800,222 $ 3,288,771 $ 2,567,346
Working Capital
(Deficit) (1,317,179) (623,200) (2,560,618) (2,936,745) 266,276 (661,146)
Long-term obligations:
Long-term debt and
obligations under
capital leases, net
of current portion 2,316,300 2,376,199 1,175,372 607,097 213,868 570,344
Subordinated debenture -
Principal Stockholder -- -- -- -- -- 500,000
Mandatorily Redeemable
Preferred Stock -- -- -- -- -- 3,034,800
Book Value per Share -- (0.04) (0.08) (0.08) 0.04 (0.17)
</TABLE>
Item 7. Management's Discussion of Results of Operations and Analysis of
Financial Condition
Effective December 31, 1993, the Company's fiscal year was changed from
September 30 to the Friday nearest to December 31. Therefore, results are
compared for the twelve months ended December 29, 1995, the twelve months ended
December 30, 1994 and the twelve months ended September 30, 1993. A discussion
of the results of operations and financial condition for the three months ended
December 31, 1993 would not be meaningful if compared to the other periods.
Accordingly, such discussion has not been included.
Year ended December 29, 1995 vs. Year ended December 30, 1994, and Year ended
December 30, 1994 vs. Year ended September 30, 1993
Results of Operations
For the year ended December 29, 1995, the Company's revenues were
$11,170,068, an increase of $6,838,920 or 158% from 1994. This increase
resulted from the first year of revenue from the 18 Florida retail hearing
aid centers acquired from Hearing Health Services, Inc. ("HHS"), plus revenues
recognized from seven contracts with managed care companies signed in late
1994. Included in sales for the year ended December 29, 1995, are capitation
revenues of $1,570,000 and approximately $2,330,000 for additional sales to
members of the managed care companies. The Company has capitation contracts
with certain managed care companies to provide hearing care services.
Generally, these contracts provide for a set dollar discount (from $200 to
$1,100) from published retail prices. As generally provided in these
<PAGE> 14
contracts, the recipient can receive this discount once every three years.
During the three years, any additional services or products purchased and the
price of the services and products provided on the first visit over the group
discount are the obligation of the recipient. 1994 revenues were $4,331,148
which represented a decrease of $3,003,919 or 41% from 1993. This decrease was
primarily due to the restructuring and expense reduction program completed
during 1994 in which 14 unprofitable centers were closed.
Cost of products sold for the year ended December 29, 1995 was $3,571,725,
an increase of $1,980,549 or 124% from 1994. This increase was related to the
increased sales volume from the 18 centers purchased in late 1994 from HHS and
the increased volume generated from the seven managed care contracts. 1994
cost of products sold of $1,591,176 decreased by $1,261,189 or 44% from 1993
due to the 14 centers closed in 1994 as a result of the restructuring program.
Cost of products sold as a percentage of sales was lower in 1995 compared to
1994 and 1993 mainly due to agreements with vendors in 1995 to reduce costs
based on planned increases in future purchases.
Operating expenses are comprised primarily of salaries, advertising and
marketing expenses, real estate rents, and depreciation and amortization.
Operating expenses totaled $9,529,061 for 1995 as compared to $4,734,622 for
1994, an increase of $4,794,439 or 101%. This increase was caused by the
additional costs from the operation of the 18 centers that were purchased from
HHS in late 1994. 1994 operating expenses totaled $4,734,622 as compared to
$8,390,107 for 1993, a decrease of $3,655,485 or 44%. This decrease was
caused by the closing of 14 centers in 1994 as well as the implementation of an
expense reduction program which included the reduction of corporate overhead by
the elimination of three officers' positions and numerous corporate positions.
Fourth Quarter Adjustments - Years ended December 29, 1995 and December 30,
1994 and Year ended September 30, 1993
Fourth quarter adjustments for 1995 were an increase in the allowance for
doubtful accounts of $178,101 and the recording of additional public relations
expense of $284,201.
There were no significant fourth quarter adjustments for the year ended
December 30, 1994.
Other than the provision of $1,427,827 for the estimated costs of closing
of 14 centers and certain corporate restructuring expenses, losses in the
fourth quarter of the year ended September 30, 1993 increased by $1,406,000 as
a result of certain adjustments (some of which pertained to prior quarters)
primarily related to correcting an intercompany account, adjusting the sales
returns allowance account, adjusting various accruals and adjustments to
allowance for doubtful accounts. The total closing provision and the fourth
quarter adjustments contributed to an overall increase in the net loss of
$2,833,287, or $.09 per share. The Company believes that the restructuring
costs were necessary, in part, in response to the general downturn in the
market caused by adverse national publicity affecting the industry at that
time.
Discontinued Operations - Year ended September 30, 1993
During September 1993, management formulated a plan to dispose of its
Special Instrument Division so that it could concentrate its resources on its
<PAGE> 15
main business. This Division had a loss of $316,507 in 1993 and had assets of
$498,713 at September 30, 1993. Although the Company received a note for
$450,000 upon the sale of the division in January, 1994, management felt the
full amount of $498,713 should be reserved. Additional costs associated with
closing this division were estimated to be $103,500, resulting in a net loss of
$918,720 for 1993.
Liquidity and Capital Resources
Historically, the Company's principal sources of funds have been borrowings
from and stock purchases by its stockholders, private and public offerings of
stock and warrants, and a commercial bank line of credit. During 1995, cash
flow from financing activities consisted of a $1,500,000 private placement from
individual investors, three institutional private placements for a total of
$1,600,600, plus a short term loan from two investors for $1,100,000 and a loan
of $270,000 from the principal shareholder. These funds were used to pay for
the construction of 15 new centers in New York and New Jersey plus the payment
of associated costs for the new point-of-sale and accounting computer systems.
On December 29, 1995, the Company had a working capital deficiency of
$1,317,179 as compared to a working capital deficiency of $623,200 on
December 30, 1994 of which $1,100,000 related to a short term loan from two
investors. On December 29, 1995, the Company was in compliance with all
covenants in its loan agreements.
Future sources of funds include funds generated from operations as well as
the offer and sale of the Company's securities. In January 1996, the Company
successfully completed a placement of 6,000 shares of 1996 Senior Preferred
Stock and Common Stock purchase warrants for a total purchase price of
$6,000,000, consisting of $4,900,000 in cash and the conversion of the
$1,100,000 short term loan.
During fiscal years 1995, 1994 and 1993, the Company has sustained losses.
In January 1996, the Company took steps to correct its working capital deficit
by completing a private placement with a total purchase price of $6,000,000
(see Footnote 3a). The Company believes it has the ability to raise additional
funds, if needed, through the sales of its securities.
Management believes that the impact of the positive working capital from
this transaction coupled with the estimated revenues to be generated from the
new Northeast centers (see Footnote 3b) will be sufficient to cover any
foreseeable 1996 operating deficit. To further positively impact cash flow,
the Company entered into a trade financing agreement to provide its diagnostic
equipment needs (see Footnote 3c).
Net cash used in operating activities was $1,486,465 for the year ended
December 29, 1995, as compared to $1,936,270 and $2,917,881 for the years
ended December 30, 1994 and September 30, 1993. The decrease in the net cash
used in operating activities for 1994 compared to 1993 was primarily due to a
decrease in net loss of $4,392,531 offset by the decrease in the accrual for
restructuring cost of $2,622,991.
Net cash used by investing activities was $1,689,455 for the year ended
December 29, 1995 as compared to cash provided of $175,206 for the year ended
December 30, 1994, a net decrease of $1,864,661 between the two years. The
decrease was primarily related to the purchase of property and equipment in
1995 due to the expansion of new centers in the Northeast ($610,188) and the
<PAGE> 16
implementation of new computer and accounting systems ($872,454) for the
Company. Net cash provided by investing activities was $175,206 for the year
ended December 30, 1994, as compared to cash used of $1,492,840 during the year
ended September 30, 1993, a net increase in cash of $1,668,046 between the two
years. This increase was due primarily to fewer purchases of property and
equipment in 1994 compared to 1993 and the loss from discontinued operations in
1993.
Net cash provided by financing activities was $3,780,452 for the year ended
December 29, 1995, as compared to $1,778,313 for the year ended December 30,
1994 and $4,207,283 for the year ended September 30, 1993. The increase in
1995 was related to additional private placements as well as additional loans
of $1,370,000 plus the conversion of a vendor's accounts payable into debt.
Net cash provided by financing activities in 1994 was $2,428,970 less than 1993
primarily due to a decrease of $731,391 in net proceeds from borrowings, and
decrease in net proceeds from issuance of capital stock of $1,772,579.
During 1993, cash flow from financing activities was the result of 3M's
exercise of its right to purchase the Senior Preferred Stock Series D and G for
a total of $2,000,000, net proceeds from a private warrant offering of
$748,526, and the completion in October 1992 of a public warrant offering for
$256,747. The funds were used principally to acquire the new centers in 1993
and for working capital.
Item 8. Financial Statements and Supplementary Data
Page
Index to Financial Statements
Financial Statements:
Report of Independent Certified Public Accountants....................... 17
Consolidated Balance Sheets at December 29, 1995 (Pro Forma and Actual)
and December 30, 1994................................................ 18
Consolidated Statements of Operations for the years ended December 29,
1995, December 30, 1994, and September 30, 1993, and three months
ended December 31, 1993.............................................. 20
Consolidated Statements of Changes in Stockholders' Equity
(Capital Deficit) for the years ended December 29, 1995,
December 30, 1994, and September 30, 1993, and three months ended
December 31, 1993.................................................... 21
Consolidated Statements of Cash Flows for the years ended
December 29, 1995, December 30, 1994, and September 30, 1993,
and three months ended December 31, 1993............................. 28
Notes to Consolidated Financial Statements............................... 32
Financial Statement Schedules:
For the years ended December 29, 1995 and December 30, 1994,
three months ended December 31, 1993, and the year ended
September 30, 1993................................................. 51
II Valuation Accounts............................................. 51
<PAGE> 17
Report of Independent Certified Public Accountants
Board of Directors
HEARx Ltd.
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheets of HEARx Ltd. and
Subsidiaries as of December 29, 1995 and December 30, 1994, and the related
consolidated statements of operations, changes in stockholders' equity,
(capital deficit) and cash flows for the years ended December 29, 1995,
December 30, 1994 and September 30, 1993, and the three months ended
December 31, 1993. We have also audited the schedule listed in the
accompanying index. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and schedule
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HEARx Ltd. and
Subsidiaries at December 29, 1995, December 30, 1994, and the results of their
operations and their cash flows for the periods mentioned above, in conformity
with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
West Palm Beach, Florida BDO Seidman, LLP
April 5, 1996
<PAGE> 18
<TABLE>
HEARx Ltd.
Consolidated Balance Sheets
Pro Forma December 29, 1995, December 29, 1995
and December 30, 1994
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma
(Note 3 (a)) 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Current:
Cash and cash equivalents $ 5,425,539 $ 933,539 $ 329,007
Accounts and notes receivable, less allowance for doubtful
accounts of $341,234, and $154,330 1,227,993 1,227,993 862,868
Receivable from private placement -- -- 500,000
Inventories 395,983 395,983 337,564
Prepaid expenses 529,418 529,418 43,780
------------ ------------ ------------
Total current assets 7,578,933 3,086,933 2,073,219
Net property and equipment (Notes 4 and 5) 2,523,882 2,523,882 975,354
Other 839,813 839,813 456,394
------------ ------------ ------------
$10,942,628 $ 6,450,628 $ 3,504,967
============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 19
<TABLE>
HEARx Ltd.
Consolidated Balance Sheets
(Concluded)
Pro Forma December 29, 1995, December 29, 1995
and December 30, 1994
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Pro Forma
(Note 3(a)) 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Liabilities and Stockholders' Equity (Capital Deficit):
Liabilities
Current liabilities:
Accounts payable and accrued expenses $ 2,217,132 $ 2,217,132 $ 2,174,240
Current maturities of long-term debt (Notes 4 and 5) 678,980 2,186,980 522,179
------------ ------------ ------------
Total current liabilities 2,896,112 4,404,112 2,696,419
------------ ------------ ------------
Long-term debt, less current maturities (Notes 4 and 5) 2,316,300 2,316,300 2,376,199
------------ ------------ ------------
Commitments and contingencies (Notes 4, 5, 8 and 11)
Stockholders' Equity (Capital Deficit):
Non-Redeemable Preferred Stock: (Note 6 A)
(Aggregate liquidation preference $5,400,000)
$1 par; authorized 2,000,000 shares, issued and outstanding
1992, Senior A, 30,000 shares; 30,000 30,000 30,000
1992, Senior B, 22,500 shares; 22,500 22,500 22,500
1993, Senior D, 14,926 shares; 14,926 14,926 14,926
1993, Senior G, 14,926 shares; 14,926 14,926 14,926
1995, Senior E, 6,472 shares; 6,472 6,472 --
------------ ------------ ------------
88,824 88,824 82,352
Series C, Convertible 1992, 10,000 shares; (Note 6B) 10,000 10,000 10,000
1994, Convertible, 5,000 shares; (Note 6D) 5,000 5,000 5,000
1996, Senior, 6,000 shares (Note 3(a)) 6,000 -- --
------------ ------------ ------------
109,824 103,824 97,352
Common stock, (Notes 4 and 6) $.10 par; authorized 100,000,000
shares, issued: 47,956,783, and 41,672,354 outstanding 4,795,678 4,795,678 4,167,235
Additional paid-in capital 29,073,016 23,079,016 20,216,109
Accumulated deficit (28,234,803) (28,234,803) (26,021,350)
Unamortized deferred compensation (13,499) (13,499) (26,997)
------------ ------------ ------------
Total stockholders' equity, (capital deficit) 5,730,216 (269,784) (1,567,651)
------------ ------------ ------------
$10,942,628 $ 6,450,628 $ 3,504,967
============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 20
<TABLE>
HEARx Ltd.
Consolidated Statements of Operations
Years ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months
Ended
December 29, December 30, September 30, December 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $11,170,068 $ 4,331,148 $ 1,042,576 $ 7,335,067
Costs and expenses:
Cost of products sold 3,571,725 1,591,176 354,324 2,852,365
Personnel costs 5,338,531 2,766,572 685,579 4,664,425
Advertising, marketing, and selling 1,113,692 397,926 63,506 864,815
Occupancy (Note 5) 1,994,174 1,096,382 298,893 1,717,849
Depreciation and amortization 305,593 126,735 50,471 314,520
General and administrative 777,071 347,007 116,052 828,498
Restructuring charges/(credits) (Note 9) -- (124,511) -- 1,427,287
------------ ------------ ------------ ------------
Total costs and expenses 13,100,786 6,201,287 1,568,825 12,669,759
------------ ------------ ------------ ------------
Loss from operations (1,930,718) (1,870,139) (526,249) (5,334,692)
------------ ------------ ------------ ------------
Other (expense) income:
Interest income 4,630 4,473 327 8,006
Interest expense (Note 11) (254,124) (223,159) (29,939) (234,007)
Miscellaneous (33,241) (16,810) (5,656) (18,753)
------------ ------------ ------------ ------------
(282,735) (235,496) (35,268) (244,754)
------------ ------------ ------------ ------------
Loss from continuing operations (2,213,453) (2,105,635) (561,517) (5,579,446)
Loss from discontinued operations (Note 10) -- -- -- (918,720)
------------ ------------ ------------ ------------
Net loss $(2,213,453) $(2,105,635) $(561,517) $(6,498,166)
============ ============ ============ ============
Loss per Common Share:
Continuing operations $(.05) $(.06) $(.02) $(.18)
Discontinued operations -- -- -- $(.03)
------------ ------------ ------------ ------------
Net loss per common share $(.05) $(.06) $(.02) $(.21)
============ ============ ============ ============
Weighted average number of shares of common
stock outstanding 45,164,091 36,278,205 31,031,790 30,819,790
============ ============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 21
<TABLE>
HEARx Ltd.
Consolidated Statements of Changes in Stockholder's Equity (Capital Deficit)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Non-Redeemable
Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at September 30, 1992 62,500 $62,500 29,974,306 $2,997,431
Continued exercise of warrant offering from
September, 1992, net of associated expenses of
$85,593 (Note 6 F) -- -- 427,925 42,792
Return of Common Stock due to termination of employee -- -- (90,000) (9,000)
Exercise of employee stock options -- -- 2,750 275
Executive stock bonuses -- -- 42,877 4,288
Cancellation of treasury shares -- -- (77,000) (7,700)
Issuance of Common Stock-consultants -- -- 2,110 211
Issuance of Common Stock- Advisory Board -- -- 29,760 2,976
Private warrant offering, net of associated expenses
of $1,474 (Note 6 F) -- -- 937,500 93,750
Amortization of deferred compensation -- -- -- --
Stock option exercised by 3-M for Senior Preferred
Stock Series D (Note 6 A (iii)) 14,926 14,926 -- --
Stock option exercised by 3-M for Senior Preferred
Stock Series G (Note 6 A (iii)) 14,926 14,926 -- --
Net loss for the year -- -- -- --
------------ ------------ ------------ ------------
Balance at September 30, 1993 92,352 $92,352 31,250,228 $3,125,023
------------ ------------ ------------ ------------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 22
<TABLE>
HEARx Ltd.
Consolidated Statements of Changes in Stockholder's Equity (Capital Deficit)
(Continued)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Additional Unamortized Total
Paid In Accumulated Treasury Deferred Stockholders'
Capital Deficit Stock Compensation Equity
------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 $14,880,638 $(16,856,032) $(1,400) $(57,025) $1,026,112
Continued exercise of warrant
offering from September, 1992,
net of associated expenses of
$85,593 (Note 6 F) 213,955 -- -- -- 256,747
Return of Common Stock due to
termination of employee (900) -- -- 9,457 (443)
Exercise of employee stock options 1,024 -- -- -- 1,299
Executive stock bonuses 30,890 -- -- -- 35,178
Cancellation of treasury shares 6,300 -- 1,400 -- --
Issuance of Common Stock-consultants 1,561 -- -- -- 1,772
Issuance of Common Stock-
Advisory Board 22,024 -- -- -- 25,000
Private warrant offering, net of
associated expenses of $1,474
(Note 6 F) 654,776 -- -- -- 748,526
Amortization of deferred compensation -- -- -- 14,485 14,485
Stock option exercised by 3-M for
Senior Preferred Stock Series D
(Note 6 A (iii)) 985,074 -- -- -- 1,000,000
Stock option exercised by 3-M for
Senior Preferred Stock Series G
(Note 6 A (iii)) 985,074 -- -- -- 1,000,000
Net loss for the year -- (6,498,166) -- -- (6,498,166)
------------ ------------- ------------ ------------ ------------
Balance at September 30, 1993 $17,780,416 $(23,354,198) $ -- $(33,083) $(2,389,490)
============ ============= ============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 23
<TABLE>
HEARx Ltd.
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit)
(Continued)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Non-Redeemable
Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at September 30, 1993 92,352 $92,352 31,250,228 $3,125,023
Payments from 3M towards exercise of Senior E
Preferred Stock series (Note 6 A (iv)) -- -- -- --
Amortization of deferred compensation -- -- -- --
Net loss for the period -- -- -- --
------------ ------------ ------------ ------------
Balance at December 31, 1993 92,352 $92,352 31,250,228 $3,125,023
============ ============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Additional Unamortized Total
Paid In Accumulated Treasury Deferred Stockholders'
Capital Deficit Stock Compensation Equity
------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 $17,780,416 $(23,354,198) $ -- $(33,083) $(2,389,490)
Payments from 3M towards exercise
of Senior E Preferred Stock series
(Note 6 A (iv)) 325,000 -- -- -- 325,000
Amortization of deferred
compensation -- -- -- 2,542 2,542
Net loss for the period -- (561,517) -- -- (561,517)
------------ ------------- ------------ ------------ -------------
Balance at December 31, 1993 $18,105,416 $(23,915,715) $ -- $(30,541) $(2,623,465)
============ ============= ============ ============ =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 24
<TABLE>
HEARx Ltd.
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit)
(Continued)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Non-Redeemable
Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 92,352 $92,352 31,250,228 $3,125,023
Payments from 3M towards exercise of Senior E
Preferred Stock series (Note 6 A (iv)) -- -- -- --
Conversion of debenture debt ($700,000) plus
accrued interest payable ($27,682) to
Common Stock (Notes 4 and 6 D) -- -- 3,638,414 363,841
1994 Private placements, net of associated
expenses of $51,965, to Common Stock (Note 6 D) -- -- 6,500,000 650,000
Issuance of Common Stock-Advisory Board -- -- 40,985 4,098
Executive stock bonuses -- -- 22,727 2,273
Issuance of Common Stock to officers -- -- 70,000 7,000
Issuance of Common Stock to public relations
company -- -- 150,000 15,000
Issuance of Private Placement Convertible Preferred
Stock during December 1994 (Note 6 E) 2,500 2,500 -- --
Issuance of Convertible Preferred Stock for
acquisition of centers from Hearing Health
Services, Inc. (Note 6 E) 2,500 2,500 -- --
Amortization of deferred compensation -- -- -- --
Net loss for the year -- -- -- --
------------ ------------ ------------ ------------
Balance at December 30, 1994 97,352 $97,352 41,672,354 $4,167,235
============ ============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 25
<TABLE>
HEARx Ltd.
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit)
(Continued)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Additional Unamortized Total
Paid In Accumulated Treasury Deferred Stockholders'
Capital Deficit Stock Compensation Equity
------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $18,105,416 $(23,915,715) $ -- $(30,541) $(2,623,465)
Payments from 3M towards exercise
of Senior E Preferred Stock series
(Note 6 A (iv)) 75,000 -- -- -- 75,000
Conversion of debenture debt
($700,000) plus accrued interest
payable ($27,682) to Common Stock
(Notes 4 and 6 D) 363,841 -- -- -- 727,682
1994 Private placements, net of
associated expenses of $51,965, to
Common Stock (Note 6 D) 598,035 -- -- -- 1,248,035
Issuance of Common Stock-
Advisory Board 20,902 -- -- -- 25,000
Executive stock bonuses 5,227 -- -- -- 7,500
Issuance of Common Stock to officers 30,188 -- -- (37,188) --
Issuance of Common Stock to public
relations company 22,500 -- -- -- 37,500
Issuance of Private Placement
Convertible Preferred
Stock during December 1994 (Note 6 E) 497,500 -- -- -- 500,000
Issuance of Convertible Preferred Stock
for acquisition of centers from
Hearing Health Services, Inc.
(Note 6 E) 497,500 -- -- -- 500,000
Amortization of deferred compensation -- -- -- 40,732 40,732
Net loss for the year -- (2,105,635) -- -- (2,105,635)
------------ ------------- ------------ ------------ -------------
Balance at December 30, 1994 $20,216,109 $(26,021,350) $ -- $(26,997) $(1,567,651)
============ ============= ============ ============ =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 26
<TABLE>
HEARx Ltd.
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit)
(Concluded)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Non-Redeemable
Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 30, 1994 97,352 $97,352 41,672,354 $4,167,235
1995 Individual private placements, net of
associated expenses of $63,192 (Note 6C) -- -- 2,427,184 242,718
1995 institutional private placements, net of
associated expenses of $297,315 (Note 6C) -- -- 2,602,572 260,257
Issuance of Common Stock - Advisory Board -- -- 87,419 8,742
Executive stock bonuses (Note 8C) -- -- 115,138 11,514
Exercise of employee stock options (Note 8A(iii)) -- -- 278,650 27,865
Issuance of Common Stock to consultants -- -- 373,466 37,347
Stock option exercise by Consultants (Note 8D) -- -- 400,000 40,000
Issuance of Senior E Preferred Stock series
(Note 6A(iv)) 6,472 6,472 -- --
Amortization of deferred compensation -- -- -- --
Net loss for the year -- -- -- --
------------ ------------ ------------ ------------
Balance at December 29, 1995 103,824 $103,824 47,956,783 $4,795,678
============ ============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 27
<TABLE>
HEARx Ltd.
Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit)
(Concluded)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Additional Unamortized Total
Paid In Accumulated Treasury Deferred Stockholders'
Capital Deficit Stock Compensation Equity
------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 30, 1994 $20,216,109 $(26,021,350) $ -- $(26,997) $(1,567,651)
1995 Individual private placements,
net of associated expenses
of $63,192 (Note 6C) 1,194,090 -- -- -- 1,436,808
1995 institutional private placements,
net of associated expenses
of $297,315 (Note 6C) 1,172,336 -- -- -- 1,432,593
Issuance of Common Stock -
Advisory Board 26,258 -- -- -- 35,000
Executive stock bonuses (Note 8C) 115,562 -- -- -- 127,076
Exercise of employee stock options
(Note 8A(iii)) 60,233 -- -- -- 88,098
Issuance of Common Stock to
consultants 240,900 -- -- -- 278,247
Stock option exercise by Consultants
(Note 8D) 60,000 -- -- -- 100,000
Issuance of Senior E Preferred
Stock series (Note 6A(iv)) (6,472) -- -- -- --
Amortization of deferred compensation -- -- -- 13,498 13,498
Net loss for the year -- (2,213,453) -- -- (2,213,453)
------------ ------------- ------------ ------------ -------------
Balance at December 29, 1995 $23,079,016 $(28,234,803) $ -- $(13,499) $(269,784)
============ ============= ============ ============ =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 28
<TABLE>
HEARx Ltd.
Consolidated Statements of Cash Flows
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months
Ended
December 29, December 30, September 30, December 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(2,213,453) $(2,105,635) $(561,517) $(6,498,166)
Adjustments to reconcile net loss to net cash
used in operating activities:
Discontinued operations -- -- -- 918,720
Depreciation and amortization 305,593 126,735 50,471 314,520
Provision for losses on accounts receivable 198,298 51,247 -- 293,508
Non-cash expense to advisors/consultants/
public relations 222,530 62,500 -- 26,772
Non-cash expense for executive stock bonuses 127,076 7,500 -- 35,178
(Increase) decrease in (net of discontinued
operations):
Accounts and notes receivable (63,423) (105,612) (314) (71,768)
Inventories (58,419) 134,818 41,198 214,538
Prepaid expenses and other current assets (485,638) 99,184 (8,387) 29,481
Deferred charges and other (369,921) (62,845) (17,661) 78,952
Increase (decrease) in:
Accounts payable 733,806 696,541 207,347 187,745
Accrued expenses 117,086 251,502 (285,304) 21,853
Accrued costs for restructuring and discontinued
operations -- (1,092,205) (438,581) 1,530,786
------------ ------------ ------------ ------------
Net cash used in operating activities (1,486,465) (1,936,270) (1,012,748) (2,917,881)
------------ ------------ ------------ ------------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 29
<TABLE>
HEARx Ltd.
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months
Ended
December 29, December 30, September 30, December 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from investing activities:
Purchase of property and equipment (1,711,203) (40,110) (11,042) (482,647)
Proceeds from sale of property and equipment 21,748 132,568 -- 1,515
Discontinued operations -- 82,748 22,601 (852,708)
Purchase of customer list -- -- -- (159,000)
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities (1,689,455) 175,206 11,559 (1,492,840)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Short-term borrowings 1,370,000 -- -- 1,150,000
Proceeds from issuance of:
Long-term debt-principal stockholder -- 500,000 175,000 --
Long-term debt-other -- -- -- 515,259
Convertible subordinated debentures - other -- 138,750 450,375 88,375
Deposits on exercise of stock option -- 75,000 325,000 --
Principal payments:
Short-term borrowings -- -- -- (439,958)
Long-term debt (279,255) (130,972) (15,290) (127,007)
Forgiveness of long-term debt (293,843) (52,500) -- --
Proceeds from issuance of capital stock,
net of offering costs 2,983,550 1,248,035 -- 3,020,614
------------ ------------ ------------ ------------
Net cash provided by financing activities 3,780,452 1,778,313 935,085 4,207,283
------------ ------------ ------------ ------------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 30
<TABLE>
HEARx Ltd.
Consolidated Statements of Cash Flows
(Continued)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and Three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months
Ended
December 29, December 30, September 30, December 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents $604,532 17,249 (66,104) (203,438)
Cash and cash equivalents at beginning of period 329,007 311,758 377,862 581,300
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $933,539 $329,007 $311,758 $377,862
============ ============ ============ ============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 31
<TABLE>
HEARx Ltd.
Consolidated Statements of Cash Flows
(Concluded)
Years Ended December 29, 1995, December 30, 1994 and
September 30, 1993 and three Months Ended December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months
Ended
December 29, December 30, September 30, December 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $253,479 $211,490 $26,352 $173,167
============ ============ ============ ============
Supplemental schedule of non-cash investing and
financing activities:
Convertible debentures and accrued interest payable
exchanged for Common Stock $ -- $727,682 $ -- $ --
Issuance of Common Stock for professional services 187,530 37,500 -- 1,772
Issuance of Common Stock to Advisory Board for
services 35,000 25,000 -- 25,000
Issuance of Common Stock to employees 127,076 44,688 -- 35,178
In connection with a business acquisition:
Convertible Preferred Stock issued -- 500,000 -- --
Acquisition costs -- 61,569 -- --
Fair value of assets acquired -- (492,224) -- --
Costs in excess of fair value of net assets
acquired 55,117 69,345 -- --
Conversion of accounts payable into notes payable 808,000 721,832 -- --
Repayment of bank line of credit by principal
shareholder/officer for a note payable -- 1,000,000 -- --
Forgiveness of note payable by minimum required
purchases 293,843 -- -- --
Issuance of Common Stock for offering costs and
software 299,186 -- -- --
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 32
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. The Company
HEARx Ltd. ("HEARx" or "the Company"), a Delaware corporation, was
organized in April 1986 for the purpose of creating a nationwide chain of
retail centers (HEARX Centers) to serve the needs of the hearing impaired.
Change in fiscal year-end
Effective December 31, 1993, the Company changed its fiscal year-end from
September 30 to the Friday nearest December 31.
2. Summary of Significant Accounting Policies
Principles of consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Inventories
Inventories, which consist of hearing aids, special hearing devices and
related items, are priced at the lower of cost (first-in, first-out) or
market.
Property and equipment
Property and equipment are carried at cost. Depreciation of property and
equipment are recorded on a straight-line basis over the estimated useful
lives of the related property. Leasehold improvements are amortized over
the shorter of the term of the lease or the useful life of the asset.
Sales return policy
Customers purchasing hearing aids are given a specific return period,
usually 30 days, if dissatisfied with the product. The Company provides an
allowance in accrued liabilities for returns based on prior experience.
The return period can be extended to 60 days if the customer attends the
Company's H.E.L.P. program.
Deferred compensation
The value in excess of the selling price of shares of common stock granted
to officers is being amortized over the vesting period of such shares.
<PAGE> 33
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Warranties
Hearing aids sold by the Company generally are covered by manufacturers'
warranties.
Capitation Revenue
The Company has capitation contracts with certain health care organizations
under which the Company is paid an amount, per enrollee of the health
maintenance organization, to provide a once every three years discount on
certain hearing products and services. The amount paid to the Company by
the healthcare organization is calculated on a per-capita basis and is
referred to as capitation revenue.
Revenue under capitation contracts is recorded based on estimates of
utilization adjusted for actual utilization by the member populations of
the health care organizations with whom the Company has contracted to
provide hearing-care services.
Income Taxes
Deferred taxes are provided for temporary differences arising from the
differences between financial statement and income tax bases of assets and
liabilities.
Net loss per share of common stock
Net loss per share of common stock was computed using the weighted average
number of shares outstanding during the year.
Convertible preferred stock, convertible subordinated debentures, stock
options and stock warrants are excluded from the computation of earnings
per share because the effect of their inclusion would be antidilutive.
Consolidated statements of cash flows
For purposes of the Statement of Cash Flows, temporary cash investments
which have a maturity of ninety days or less are considered cash
equivalents.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified in
order to conform to the 1995 presentation.
<PAGE> 34
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. Liquidity, Subsequent Events and Pro Forma Adjustment
The Company has sustained losses of $2,213,453, $2,105,635 and $6,498,166
for the years ended December 29, 1995, December 30, 1994 and September 30,
1993. At December 29, 1995 the Company has a working capital deficit of
$1,317,179. In order to enable the Company to continue operations
Management has taken certain actions including the raising of additional
capital (see (a)) the signing of a contract with a health care provider in
the Northeast (see (b)), and as more fully described in (c) the Company
obtained financing from a vendor for the diagnostic equipment in the new
centers. Management believes that the actions taken as outlined in 3(a),
3(b) and 3(c) will be sufficient to fund any foreseeable 1996 operating
deficit.
(a) On January 29, 1996, the Company completed a private placement of 6,000
shares, $1 par, of the 1996 Senior Preferred Stock and 10,909,090 Common
Stock purchase warrants in consideration for $4.9 million of cash and the
conversion of a $1.1 million note payable. The warrants are exercisable
over five years at a price of $.55 per share. The 1996 Senior Preferred
Stock may be redeemed by the Company for $6 million at any time. If not
redeemed within four years, the investors will be entitled to exercise, for
a one year period, warrants to purchase an additional 4,000,000 shares of
Common Stock at an exercise price of $.55 per share. Under the terms of
the 1996 Senior Preferred Stock, the investors generally have the right to
approve future debt or equity offerings by the Company. In connection with
the private placement, the Company issued warrants to purchase 2,250,000
shares of Common Stock at a price of $.63 per share to an investment banker
as a placement fee. Additionally, the agreement provides that the Company
will effect a 15 for 1 reverse stock split. Such stock split would require
approval of the Board of Directors and the stockholders.
<PAGE> 35
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The pro forma adjustments, to give effect to the issuance of the 6,000
shares of 1996 Senior Preferred Stock for consideration of the $4.9 million
and the conversion of the $1.1 million note payable, as if it had occurred
on December 29, 1995 are as follows:
---------------------------------------------------------------------------
Assets
Net increase in cash $ 4,492,000
---------------------------------------------------------------------------
Liabilities
Decrease in current maturities of long-term debt:
Investors note payable 1,100,000
Note payable to principal stockholder/officer 100,000
Note payable to vendor 308,000
---------------------------------------------------------------------------
1,508,000
---------------------------------------------------------------------------
Stockholders' Equity
Increase in 1996 Senior Preferred Stock (6,000)
Increase in additional paid-in-capital (5,994,000)
---------------------------------------------------------------------------
(6,000,000)
---------------------------------------------------------------------------
$ --
===========================================================================
(b) During January and February, 1996, the Company opened 13 in a
projected series of 25-30 new HEARx Centers in the New York and New Jersey
area to provide hearing care to members of Oxford Health Plans and Select
Providers, Inc. Management estimates this contract will generate $4.25
million in annual revenues in each of the next three years; however, it can
be cancelled with ninety days notice by either party at any time.
(c) On March 5, 1996, the Company completed a $2.5 million trade financing
agreement with a vendor whereby the vendor will provide financing for the
purchase of diagnostic equipment to be utilized by the Company's
distribution network. A percentage of all hearing aid purchases by the
Company from the supplier will be applied to repayment of financed amounts
under the financing agreement.
(d) On January 29, 1996, the principal stockholder/officer converted his
Series C Preferred Stock to 1,040,000 shares of Common Stock. In exchange
for his waiver to receive payment of cumulative dividends due for the
Series C Preferred Stock, the Company issued a promissory note in the
amount of $214,666. For so long as shares of 1996 Senior Preferred Stock
of the Company are outstanding, without the approval of the holders of a
majority of the outstanding shares of 1996 Senior Preferred Stock, the
principal of this promissory note shall not be payable. An additional
promissory note was issued to the principal stockholder/officer for
$233,000 during January, 1996, representing $170,000 from 1995 short term
advances plus accrued interest payable from previous years of $63,007. The
<PAGE> 36
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
note payable is due in three years and bears interest at 3 percent above
prime.
(e) On March 15, 1996, the Company's Common Stock was listed on the
American Stock Exchange under the symbol of "EAR".
(f) In January, 1996, the Company entered into an agreement to acquire the
customer list and selected assets of Suffolk County Hearing Aid Center,
Inc. for $150,000, 150,000 shares of Common Stock, and a five year note in
the amount of $250,000 including interest. The note payable bears interest
at 5-1/2 percent and is payable in five annual installments of $50,000
beginning January 22, 1997.
(g) For additional subsequent events see notes 4, 6A and 6E.
4. Debt
Long-term debt consists of the following:
---------------------------------------------------------------------------
December 29, December 30,
1995 1994
------------ ------------
Note payable to principal stockholder,
due April 1, 1997 bearing interest at
prime plus 3% (11.75% at December 29,
1995) $1,675,000 $1,675,000
7% notes payable, to investors, due
December 11, 1996 (see below) 1,100,000 --
Note payable to supplier, due
January 31, 1999, interest at 12%,
beginning 1996 (see below) 808,000 --
Note payable to supplier, collateralized
by equipment, due December 31, 1996.
No interest rate requirements provided
purchase requirements are met. (Interest
imputed at 6%). 460,517 903,910
Short term advances from principal stockholder
(see below) 270,000 --
Other notes payable 146,313 248,074
Note payable, collateralized by certain
equipment, due February 1, 1997.
Interest rate of 7.25% at December 29, 1995. 43,450 71,394
------------ ------------
4,503,280 2,898,378
Less current portion 2,186,980 522,179
------------ ------------
$2,316,300 $2,376,199
============ ============
---------------------------------------------------------------------------
<PAGE> 37
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The approximate annual maturities of long-term debt for the years after
December 29, 1995 are as follows:
1996 $2,187,000
1997 1,831,000
1998 302,000
1999 152,000
Thereafter 31,000
During December, 1995, two individuals loaned the Company $1,000,000 and
$100,000 represented by short term notes payable. These notes payable were
converted to preferred stock during January, 1996, in connection with the
Company's private placement of $6 million of 1996 Senior Preferred Stock
(see note 3 (a)).
On May 1, 1995, the Company reached an agreement with Minnesota Mining and
Manufacturing Company ("3M") to convert $808,000 of accounts payable into
long-term debt. This agreement provides for conversion of a portion of
this long-term debt into equity upon the Company reaching certain product
sales goals. The Company paid $308,000 in January 1996.
During 1995, the principal stockholder/officer advanced $270,000 to the
Company. In January, 1996, $100,000 was repaid, and $170,000 of the
advances were converted into a note payable bearing interest at prime plus
3%.
During 1994, Convertible Subordinated Debentures ("Debentures") of
$700,000, (including $538,750 outstanding at December 31, 1993, and an
additional $161,250 issued during 1994, plus accrued interest payable of
$27,682) were converted into 3,638,414 shares of Common Stock and warrants
for the purchase of 1,050,000 shares of Common Stock at $1.00 per share
until January 1, 2000 and $2.00 per share until January 1, 2004.
During 1994, the principal stockholder loaned the Company $1.5 million and
converted two other loans ($125,000 and $50,000) into a $1,675,000 note
payable. $1.0 million of the proceeds were used to pay a bank line of
credit. The remaining $500,000 was used for working capital purposes.
<PAGE> 38
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
5. Property and Equipment and Leases
Property and equipment consist of the following:
December 29, December 30,
1995 1994
------------ ------------
Equipment, furniture and fixtures $2,357,101 $1,975,857
Leasehold improvements 729,144 779,347
Computer systems 872,454 --
Leasehold improvements in progress 436,673 --
------------ ------------
4,395,372 2,755,204
Less accumulated depreciation 1,871,490 1,779,850
------------ ------------
Net property and equipment $2,523,882 $ 975,354
============ ============
Remaining commitments under contracts in progress related to the northeast
expansion (see Note 3(b)) totals $803,000.
Approximate future minimum rental commitments under operating leases are as
follows:
Years following December 29, 1995
---------------------------------------------------------------------------
1996 $1,314,000
1997 941,000
1998 801,000
1999 651,000
2000 605,000
Thereafter 2,016,000
------------
Total minimum lease payments $6,328,000
============
Equipment and building rent expense for the years ended December 29, 1995,
December 30, 1994 and September 30, 1993 and three months ended
December 31, 1993 was approximately:
December September
---------------------------------------- ------------
1995 1994 1993 1993
------------ ------------ ------------ ------------
$1,267,000 $ 930,000 $ 296,000 $1,151,000
============ ============ ============ ============
<PAGE> 39
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
6. Capital Deficit
A. 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
other shares of Common Stock as one class. The shares of Senior
Preferred Stock have no right to dividends except pari passu with the
Common 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 the
Common Stock and the Series C Preferred Stock and is pari passu with
the 1994 Convertible Preferred Stock and the 1996 Senior Preferred
Stock (discussed below).
Each share of Senior Preferred Stock is convertible at the option of
the holder into 100 shares of Common Stock. The shares of Senior
Preferred Stock are automatically converted into shares of Common
Stock upon the listing of the shares of Common Stock on the American
or New York Stock Exchange. Upon the Company's listing on the
American Stock Exchange on March 15, 1996, all shares of the Senior
Preferred Stock automatically converted into shares of Common Stock,
(see Note 3(e)).
(i) Senior Series A and Senior Series B
Pursuant to an October 31, 1991 agreement with 3M, 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. The principal
stockholder/officer has agreed not to sell for five years any
shares of Common Stock beneficially owned by himself or
securities convertible into or exchangeable for Common Stock.
He agreed to give 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 withheld unreasonably. The principal
stockholder/officer's agreement does not apply to the sale in
the open market or gift of up to five percent of his security
holdings (on a fully converted basis).
Simultaneously with the execution of the Stock Purchase Agree-
ment, 3M and the Company entered into a new arrangement in
which 3M appointed the Company as 3M's exclusive distributor
(with the exception of existing distributorships) for
programmable hearing aids for a five year period ending
December 31, 1997 with an option for 3M to renew for an
additional five years. During 1995, this arrangement was
modified in that the Company will no longer be the exclusive
distributor of 3M products.
<PAGE> 40
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
(ii) Transactions as to the Senior Series C are as follows:
In February 1991, the Company and 3M entered into an arrange-
ment 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 $50,000), and 3M paid the Company a test
marketing fee of $300,000. In connection with these
transactions, 3M was granted the right, in exchange for
transfer of title to the fitting systems and agreement to
forego repayment of the funds advanced as a test marketing
fee, to acquire for a nominal consideration, 11,000 shares of
Senior Series C. This has not been exercised by 3M.
(iii) Transactions as to the Senior Series D and G are as follows:
On June 28, 1993, 3M exercised its right to acquire 14,926
shares of Senior Preferred Stock, Series D, par value $1.00
per share ("Senior Series D") for $1,000,000 and to acquire
14,926 shares of Senior Preferred Stock, Series G, par value
$1.00 per share ("Senior Series G") for $1,000,000.
(iv) Transactions as to Senior Series E are as follows:
During 1993 and 1994, 3M paid $400,000 as a partial payment
towards the exercise of Senior Preferred Stock, Series E, par
value $1.00 per share ("Senior Series E"). On May 1, 1995,
the Company and 3M agreed to and the Company did issue 6,472
shares of Senior Series E Stock in consideration for the
$400,000.
B. Series C Preferred Stock
The Series C Preferred Stock bears cumulative dividends at the rate of
$5.60 per share per annum, payable quarterly, commencing June 30 1992,
and is junior to the Senior Series Preferred Stock discussed above and
the 1994 Convertible Preferred stock discussed below; it is senior to
the Common Stock in the event of the liquidation, dissolution or
winding up of the Company. The Series C Preferred Stock has 104 votes
per share (1,040,000 votes total) and, except as otherwise required by
Delaware law, votes with the holders of shares of Common Stock as one
class. The Series C Preferred Stock may be redeemed at the sole
option of the Company at a redemption price of $70 per share. During
January, 1996, the Series C Preferred Stock was converted into
1,040,000 shares of Common Stock, and the cumulative dividends of
$214,666 were converted into a promissory note.
C. 1995 Placements
During 1995, the Company completed a private placement of Common
Stock for $1,500,000 from individual investors for a total of
2,427,184 shares of Common Stock with associated costs of $63,192.
<PAGE> 41
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The Company also completed three Regulation S offerings
totaling $1,600,600. Costs related to the offerings were
$297,315. A total of 2,602,572 shares of Common Stock was
issued in the transactions. The stock purchase agreement
provides the investors warrants exercisable monthly through
October 1996, The warrants allow the investors the right to
purchase additional shares (based on a pre-set formula) at
$.10 per share should the market price fall below $.85 per
share.
D. 1994 Common Stock Offerings
$700,000 of subordinated debentures plus $27,682 in accrued interest
payable were converted into 3,638,414 shares of Common Stock (see
Note 4).
$800,000 was received in a private placement of 4,000,000 shares of
Common Stock and warrants to purchase 1,200,000 shares of Common Stock
at $1.00 per share until January 1, 2000 and $2.00 per share until
January 1, 2004 (see Note 6 F).
The Company received $500,000 in a private placement through the sale
of 2,500,000 shares of Common Stock and warrants to purchase 750,000
shares of Common Stock at $1.00 per share until January 1, 2000 and at
$2.00 per share until January 1, 2004.
E. 1994 Convertible Preferred Stock
In connection with the acquisition described in Note 7, Hearing Health
Services, Inc. ("HHS") was issued 2,500 shares of the Company's 1994
Convertible Preferred Stock, par value $1.00 per share. The 1994
Convertible Preferred Stock has 1,000 votes per share (2,500,000 votes
total) and also has voting rights and powers equal to the voting
rights and powers of the Common Stock. Each share is convertible at
any time at the option of the holder. In connection with this
business transaction, HHS also received warrants to purchase
2,500,000 shares of Common Stock at a price of $.25 per share with
standard anti-dilution rights. These warrants were exercised on
January 29, 1996, in a cashless exercise resulting in the issuance to
HHS of 2,250,000 shares of Common Stock. On March 8, 1996, HHS
converted all of its 1994 Convertible Preferred Stock into 2,500,000
shares of Common Stock.
On December 30, 1994, the Company and three limited partnerships
affiliated with HHS (collectively the "Investors") entered into a
stock purchase agreement pursuant to which the Investors purchased
2,500 shares of 1994 Convertible Preferred Stock, par value $1.00 per
share at a total cash purchase price of $500,000 ($200 per share),
paid on January 4, 1995. These shares have the same rights,
privileges, and conversion features as the above mentioned shares of
1994 Convertible Preferred Stock. On March 8, 1996, the Investors
converted all their 1994 Convertible Preferred stock into 2,500,000
shares of Common Stock.
<PAGE> 42
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
F. Warrants
As discussed in Note 4, during 1994, the Company converted $700,000 of
subordinated convertible debentures into 3,638,414 shares of Common
Stock and 1,050,000 warrants to purchase the same number of shares of
Common Stock at a price of $1.00 per share until January 1, 2000 and
$2.00 per share until January 1, 2004. In connection with private
placements, an additional 1,950,000 warrants were issued. In
connection with the debenture conversions and the private placements,
a combined 3,000,000 warrants were issued. The exercise price is $1.00
per share until January 1, 2000 and $2.00 per share until January 1,
2004. Each warrant may be called for redemption at a price of $.01 if
the average of the closing prices of the Common Stock for a 60
calendar day period preceding the next date of call for redemption,
is twice the then applicable exercise price.
As noted in (E) above, 2,500,000 warrants to purchase Common Stock
were issued to HHS. These warrants were exercised in early 1996.
On January 22, 1993, the Company offered to the owners of the
1,106,250 warrants acquired in the Company's 1989 and 1991 private
placements, the opportunity to exercise those warrants at a reduced
price of $.80 per share and, simultaneously, to receive a new ten
year, non-callable warrant to purchase an equal number of shares for
$1.25 per share. During February and March 1993, 937,500 warrants
were exercised for proceeds of $750,000. Costs associated with this
offer were $1,474.
The aggregate number of shares reserved for issuance upon the exercise
of warrants is 8,191,250 as of December 29, 1995. Exercise prices
range from $.01 to $2.00, and are exercisable as follows:
Expiration
Number of ------------------------------------------
Warrants Outstanding Date Price
-------------------------- -------------------- --------------------
100,000 June 1996 1.00
100,000 December 1996 1.00
1,100,000 February, 1998 .01
118,750 September 1998 2.00
240,000 June 1999 .50
45,000 June 1999 .67
20,000 September 1999 1.50
30,000 December 1999 1.50
937,500 January 2003 1.25
2,250,000 January 2004 2.00
750,000 January 2004 2.00
2,500,000 December 2004 .25
---------------------------------------------------------------------
8,191,250
=====================================================================
<PAGE> 43
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
7. Business Acquisition
On December 30, 1994, the Company entered into a purchase agreement to
acquire certain assets and assume certain liabilities of 18 Florida retail
hearing aid centers from HHS for consideration consisting of 2,500 shares
of 1994 Convertible Preferred Stock (conversion ratio of 1 preferred share
to 1,000 common) valued at $200 per share ($500,000). In addition the
Company incurred $116,686 of acquisition costs. The estimated fair value
of the net assets acquired was $492,224, resulting in cost in excess of
fair value of net assets acquired of $124,462. This amount is amortized
over 15 years using the straight-line method. The acquisition was
accounted for under the purchase method of accounting. Since the purchase
occurred on December 30, 1994, the results of operations of the acquired
centers are not included in the Company's operations for 1994. The
following represents pro forma results of operations for the years ended
December 30, 1994 and September 30, 1993, as if the acquisition had
occurred at the beginning of those periods:
December 30, September 30,
1994 1993
------------ ------------
Net sales $ 7,742,000 $11,065,000
Loss from operations (2,957,000) (5,509,000)
Loss from continuing operations (3,243,000) (5,754,000)
============ ============
Loss from continuing operations per Common Share $(.08) $(.17)
============ ============
8. Stock Option Plans
A. Employee Stock Option Plans
(i) Under the Company's 1987 plan, the Company's Board of
Directors, or a committee thereof, is authorized to grant
options to purchase up to an aggregate of 2,500,000 shares of
the Company's Common Stock. Officers and other key employees
of the Company, other than the principal stockholder and
individuals who hold ten percent or more of the Company's
Common Stock, are eligible to receive either incentive stock
options or non-incentive stock options. The option price for
non-incentive stock options may be any price determined by the
Board of Directors or the Committee. The option price for
incentive stock options may not be less than the fair market
value of the shares at the time the option is granted.
(ii) In June 1995, the Company's stockholders approved the adoption
of the HEARx Ltd. 1995 Flexible Stock Plan ("Flexible Stock
Plan"), pursuant to which a committee of the Board of
Directors (whose members shall not receive awards under the
1995 Flexible Stock Plan or any other discretionary grant
plans of the Company) may make awards to eligible participants
in the form of stock options, stock appreciation rights,
<PAGE> 44
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
restricted stock, performance shares and other stock-based
awards. The number of shares of Common Stock which may be
issued in connection with awards under the 1995 Flexible Stock
Plan may not exceed 2,500,000, plus an automatic annual
increase of ten percent of the number of shares subject to the
Plan as of the prior year.
(iii) As of December 29, 1995, 122 employees of the Company held
options under the Stock Option Plans permitting them to
purchase 3,252,950 shares of Common Stock at prices ranging
from $.20 to $1.35 per share. Options are exercisable for a
period of nine years commencing one year following the date of
grant and are exercisable in cumulative annual installments of
25 percent per year.
The following table sets forth the option activity for the years ended
December 29, 1995, December 30, 1994 and September 30, 1993 and three
months ended December 31, 1993.
Beginning Ending
Options Options
Annual Issued and Issued and
Activity Outstanding Granted Exercised Terminated Outstanding
------------ ----------- --------- --------- ------------ -----------
1993 1,003,800 402,300 (2,750) (126,450) 1,276,900
Oct-Dec 1993 1,276,900 576,000 -- (61,100) 1,791,800
1994 1,791,800 1,619,850 -- (1,021,150) 2,390,500
1995 2,390,500 1,391,600 (278,650) (250,500) 3,252,950
<PAGE> 45
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Number of Options
------------------------------------------------------
December September
Exercise Price 1995 1994 1993 1993
------------------- ------------ ------------ ------------ ------------
$ .200 815,050 1,012,450 -- --
.340 24,800 -- -- --
.375 37,800 48,800 72,900 79,900
.406 87,000 176,000 -- --
.438 -- -- 100,000 100,000
.470 4,300 13,050 92,050 103,050
.500 16,500 16,500 21,450 25,575
.531 378,700 445,400 576,000 --
.540 197,600 351,300 -- --
.625 12,000 12,000 16,000 20,000
.688 180,800 181,300 442,300 443,675
.700 1,000 4,000 24,000 24,000
.750 6,300 7,100 -- --
.781 17,400 34,200 106,100 112,100
.810 52,200 57,500 250,400 264,200
.835 111,600 -- -- --
.865 212,000 -- -- --
.875 25,900 26,900 86,600 100,400
1.210 1,024,800 -- -- --
1.250 34,400 -- -- --
1.310 8,800 -- -- --
1.350 4,000 4,000 4,000 4,000
------------ ------------ ------------ ------------
3,252,950 2,390,500 1,791,800 1,276,900
============ ============ ============ ============
The options are exercisable as follows:
Years following December 29, 1995
---------------------------------------------------------------------------
1996 572,211
1997 851,563
1998 804,638
1999 676,638
2000 347,900
---------------------------------------------------------------------------
3,252,950
===========================================================================
B. Non-employee Director Plan
In April 1993, the stockholders of the Company approved the adoption
of the HEARx Ltd. Non-Qualified Stock Option Plan for Non-Employee
Directors ("Directors Plan"). The purpose of the Directors Plan is to
increase the proprietary interest of non-employee directors in the
Company by granting non-qualified stock options that will promote
long-term stockholder value. Grants under the Directors Plan may not
<PAGE> 46
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
exceed 500,000 shares of Common Stock in the aggregate and may be
granted until the Annual Meeting of Stockholders in 2003.
Each year, upon election to the Board, each non-employee director
shall be granted a 10-year non-qualified stock option ("Option") to
acquire 15,000 shares of Common Stock. The exercise price shall be
100 percent of the fair market value of the shares as of the close of
business on the business day immediately prior to the date on which
the Option is granted. As of December 29, 1995, three non-employee
directors hold options under the plan allowing them to purchase the
following shares: 90,000 at $.6875; 45,000 shares at $.78125; 45,000
shares at $.34; and 45,000 shares at $1.25.
C. Stock Bonus Plan
The Board of Directors has adopted a Stock Bonus Plan ("Bonus Plan").
It is the purpose of the Bonus Plan to create an incentive for senior
management personnel to work to the very best of their abilities for
the achievement of the Company's strategic objectives. To accomplish
this purpose, the Board of Directors intends to award shares of Common
Stock to eligible employees.
The Bonus Plan is administered by the Board of Directors.
Participants in the Bonus Plan must be key executives of the Company
or its subsidiaries who are determined by the Board of Directors to be
important to the success of the Company. Members of the Board of
Directors are not eligible to participate so long as the Board is
administering the Bonus Plan. There are approximately nine persons
eligible to participate in the Plan.
The aggregate number of shares of Common Stock which may be issued
under the Bonus Plan may not exceed 500,000. A total of 115,138 and
22,727 shares were issued under this plan during the years ended
December 29, 1995 and December 30, 1994, respectively.
D. Other
On July 11, 1995, the Company granted options expiring ten years from
date of grant to a consultant to purchase 700,000 shares of Common
Stock at $1.00 a share. 58,333 optioned shares vested immediately,
with the remaining shares to vest at a rate of 58,333 shares per month
beginning August 1, 1995. None of these options have been exercised.
On July 1, 1994, the Company granted an option to the same consultant
to purchase 600,000 shares at $.25 a share. These options vest at the
rate of 50,000 shares per month beginning October 1, 1994. The
consultant exercised 400,000 options in 1995 and 150,000 options in
1994. The remaining 50,000 options expire July 1, 1997.
On July 11, 1995, the Company granted an option to purchase 144,000
shares of Common Stock to an individual in exchange for consulting
services to be rendered over a period to three years, beginning
July 11, 1995. The option price is $1.00 per share, and the shares
<PAGE> 47
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
vest at the rate of 4,000 shares per month beginning August 1, 1995.
None of these options have been exercised.
On January 15, 1993, the Board of Directors granted the principal
stockholder/officer a ten year option in lieu of salary to acquire
100,000 shares of Common Stock at $2.00 per share.
9. Restructuring Charges
During the year ended September 30, 1993, the Company began formalizing a
restructuring program designed to reduce costs, improve operating
efficiencies and increase stockholder value. The program included the
closings of selected locations and the elimination of certain corporate
departments. The estimated restructuring cost of $1,427,287 included the
costs of abandoning leased locations and severance pay. This amount is
shown as a separate line item in the accompanying Statement of Operations.
This restructuring program was completed during 1994 resulting in an
increase in income of $124,511 for the remaining unused accrual.
10. Discontinued Operations
The table below reflects the components of the loss from discontinued
operations for the year ended September 30, 1993:
---------------------------------------------------------------------------
Loss from operations $(316,507)
Estimated loss on disposal (602,213)
---------------------------------------------------------------------------
Total loss from discontinued operations $(918,720)
===========================================================================
Revenues applicable to the discontinued operations prior to the date of
discontinuance were $604,226 in 1993.
11. Related Party Transactions
In addition to the related party transactions described in Notes 4 and 6,
the following related party transactions occurred during 1995, 1994, and
1993:
Working capital funds were provided during fiscal 1995, 1994 and 1993
through periodic loans from the principal stockholder/officer.
Interest expense related to the principal stockholder/officer was
$198,181 for the year ended December 29, 1995, $120,139 for the year
ended December 30, 1994, $2,380 for the three months ended December
31, 1993, and $113,511 for the year ended September 30, 1993. As of
December 30, 1995, accrued interest of $81,931 is due on these loans.
During each of the years 1995, 1994 and 1993, the principal
stockholder/officer received no cash compensation for services
rendered to the Company. Under the terms of an agreement with the
<PAGE> 48
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
Company, the principal stockholder/officer has elected to waive his
right to annual cash compensation of $100,000 until the Company has
experienced two successive quarters of profitability. In 1993, in
lieu of cash compensation, the principal stockholder/officer received
options to purchase 100,000 shares at an exercise price of $2.00 per
share. Such options have a term of 10 years. As the exercise price
was in excess of fair market value, there was no charge to earnings.
No options were granted to the principal stockholder/officer in 1994
or 1995.
12. Income Taxes
The Company and its subsidiaries file a consolidated income tax return. It
has accounted for certain items (principally depreciation and deferred
compensation) for financial reporting purposes in periods different from
those for tax reporting purposes.
Deferred tax assets are comprised of the following:
December 1995 1994
----------------------------------------------- ------------ ------------
Depreciation $ 54,000 $ 63,000
Allowance for doubtful accounts 163,000 88,000
Net operating loss carryforward 9,658,000 8,979,000
------------ ------------
9,875,000 9,130,000
Less valuation allowance (9,875,000) (9,130,000)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
At December 29, 1995, the Company had net operating loss carryforwards of
approximately $25.7 million for both tax and financial reporting purposes.
The losses are available for carryforward for a fifteen year period and
will expire beginning in 2002. Any future significant changes in the
ownership of the Company or its subsidiaries may limit the annual
utilization of the tax net operating loss carryforwards.
13. Significant Fourth Quarter Adjustments
Fourth quarter adjustments for 1995 were an increase in the allowance for
doubtful accounts of $178,101 and the recording of additional public
relations expense of $284,201.
There were no significant fourth quarter adjustments for fiscal 1994.
In the fourth quarter of fiscal 1993, the Company made certain adjustments
(certain of which pertained to prior quarters) primarily related to
correcting an intercompany account, adjusting the sales returns allowance
account and adjusting various accruals, which had the effect of increasing
the net loss $1,406,230 or $.05 a share. Additionally, a provision of
<PAGE> 49
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
$1,427,827 was recorded for the estimated costs of closing fourteen (14)
centers and the elimination of certain corporate departments (see Note 9).
Further, discontinued operations recorded in the fourth quarter include its
reserve for its note receivable of $450,000 along with a reserve for
disposition of $103,500 (see Note 10).
14. Fair Value of Financial Instruments
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 107 which requires the
disclosure of fair value of financial instruments. The estimated fair
value amounts have been determined by the Company's management using
available market information and other valuation methods. However,
considerable judgement is required to interpret market data in developing
the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methods may have a material effect on the estimated fair value
amounts. Furthermore, the Company does not intend to dispose of a
significant portion of its financial instruments and, thus, any aggregate
unrealized gains or losses should not be interpreted as a forecast of
future earnings and cash flows.
SFAS No. 107 excludes certain financial instruments from its disclosure
requirements, such as leases. In addition, disclosure of fair value
estimates are not required for nonfinancial assets and liabilities, such as
fixed assets, intangibles and anticipated future business. As a result,
the following fair values are not comprehensive and therefore do not
reflect the underlying value of the Company.
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
Cash and Cash Equivalents - the carrying amounts reported in the balance
sheet approximate those assets' fair value.
Accounts Receivable - the carrying amounts reported in the balance sheet
approximate those assets' fair value.
Accounts Payable, Accrued Expenses and Notes Payable - the carrying amounts
reported in the balance sheet approximate those liabilities' fair value.
<PAGE> 50
HEARx Ltd.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
The approximate carrying amounts and estimated fair values of the Company's
financial instruments at December 29, 1995 are as follows:
(In Thousands)
--------------------------
Carrying Fair
Amount Value
------------ ------------
Financial Assets:
Cash and cash equivalents $ 933,539 $ 933,539
Accounts receivable 1,227,993 1,227,993
Financial Liabilities:
Accounts payable and accrued expenses 2,217,132 2,217,132
Notes payable 4,503,280 4,503,280
15. Recent Accounting Pronouncements
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-
Lived Assets to be Disposed of" provides guidance on how and when
impairment losses are recognized on long-lived assets. This statement,
when adopted, is not expected to have a material impact on the Company.
SFAS No. 123 "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting for stock-based employee compensation
plans. This statement was issued by the FASB during October 1995 and is
effective for transactions entered into in fiscal years that begin after
December 15, 1995. The Company has not yet determined the impact of this
statement.
<PAGE> 51
<TABLE>
HEARx Ltd.
Valuation Accounts
Schedule II
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Balance at Balance at
Beginning End
of Period Additions Deductions of Period
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
December 29, 1995:
Allowance for doubtful accounts $154,330 $436,971 <F1> $(250,067) <F4> $341,234
=============== =============== =============== ===============
December 30, 1994:
Allowance for doubtful accounts $255,755 $180,071 <F2> $(281,496) <F4> $154,330
Allowance for obsolete inventories -- -- -- --
--------------- --------------- --------------- ---------------
$255,755 180,071 (281,496) 154,330
=============== =============== =============== ===============
December 31, 1993:
Allowance for doubtful accounts $306,478 $ -- $(50,723) <F4> $255,755
Allowance for obsolete inventories -- -- -- --
--------------- --------------- --------------- ---------------
$306,478 $ -- $(50,723) $255,755
=============== =============== =============== ===============
September 30, 1993:
Allowance for doubtful accounts $190,158 $293,508 <F3> $(177,188) <F4> $306,478
Allowance for obsolete inventories 67,972 -- (67,972) <F4> --
--------------- --------------- --------------- ---------------
$258,130 $293,508 $(245,160) $306,478
=============== =============== =============== ===============
<FN>
<F1> Charged to costs and expense $198,298, transfer from long term notes receivable allowance $238,673.
<F2> Charged to costs and expense $51,247, transfer from long term note receivable allowance for $128,824.
<F3> Charged to costs and expense.
<F4> Write off to reserve.
</TABLE>
<PAGE> 52
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers
The information required by this Item for directors is set forth in the
Company's 1996 Proxy Statement under the heading "Election of Directors" and is
incorporated herein by this reference as if set forth in full.
The information required by this Item for executive officers is set forth
in Part I of this report under the heading "Executive Officers of the Company."
Item 11. Executive Compensation
The information required by this Item is set forth in the Company's 1996
Proxy Statement under the heading "Election of Directors" and is incorporated
herein by this reference as if set forth in full.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth in the Company's 1996
Proxy Statement under the heading "Election of Directors" and is incorporated
herein by this reference as if set forth in full.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is set forth in the Company's 1996
Proxy Statement under the heading "Election of Directors" and is incorporated
herein by this reference as if set forth in full.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K
(a) (1) The following financial statements are filed as part of this report:
(i) Consolidated Balance Sheets as of December 29, 1995 and
December 30, 1994.
(ii) Consolidated Statements of Operations for the years ended
December 29, 1995, December 30, 1994 and September 30, 1993
and three months ended December 31, 1993.
(iii) Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 29, 1995, December 30, 1994 and
September 30, 1993 and three months ended December 31, 1993.
<PAGE> 53
(iv) Consolidated Statements of Cash Flows for the years ended
December 29, 1995, December 30, 1994 and September 30, 1993
and three months ended December 31, 1993.
(v) Notes to Consolidated Financial Statements.
(2) The following financial statement schedules are filed as part of
this report and are contained on page 55.
Schedule II Valuation Accounts
(3) Exhibits:
3.1(a)* Restated Certificate of Incorporation of HEARx Ltd.,
as amended to February 8, 1988. [3.1(a)]
3.1(b)*** Certificate dated August 8, 1991, of Designations,
Preferences and Rights of the Company's Preferred
stock, Series A and B. [3.1(b)]
3.1.(c)*** Certificate dated October 29, 1991, of Designations,
Preference and Rights of the Company's Senior
Preferred Stock, Series A, B and C. [3.1(c)]
3.1(d)** Certificate of Amendment dated December 23, 1991, of
the Company's Restated Certificate of Incorporation.
[3.1(d)]
3.1(e)***** Certificate dated April 8, 1992, of Designation,
Preference and Rights of the Company's Preferred
Stock, Series C. [3.1(e)]
3.1(f) Certificates of Correction to the Certificate of
Incorporation, filed with the Delaware Office of the
Secretary of State on January 25, 1996.
3.1(g) Certificate of Designations, Preferences and Rights of
Senior Preferred Stock, Series E, filed with the
Delaware Office of the Secretary of State on
January 25, 1996.
3.1(h) Certificate of Designations, Preferences and Rights of
1996 Senior Preferred Stock, filed with the Delaware
Office of the Secretary of State on January 26, 1996.
3.2* By-Laws of HEARx, Ltd.
4.1* Specimen of Certificate representing Common Stock.
10.1* Form of Consulting Agreement, dated January 1, 1987,
as of June 1, 1986, by and between HEARx Ltd. and each
of the six members of the Company's Scientific
Advisory Board. [10.1]
# 10.2* Form of Directors' Restricted Stock Agreement, dated
July 1, 1987, by and between HEARx Ltd. and each of
Fred N. Gerard, David J. McLachlan and Daniel J.
Miller, M.D. [10.3]
<PAGE> 54
# 10.3* HEARx Ltd. 1987 Stock Option Plan. [10.11]
# 10.4* Current Form of Restricted Stock Agreement.
[10.28(a)*]
10.5*** Stock Purchase Agreement dated as of October 31, 1991,
by and between Minnesota Mining and Manufacturing
Company ("3M") and the Company and Exhibit A thereto,
being the form of Certificate of Designations,
Preferences and Rights of Senior Preferred Stock,
Series A, B and C. [10.29]
10.6*** (a) and (b) Warrant Certificates for Purchase of Stock
of the Company each dated February 20, 1991, relating
to 6,000 and 5,000 shares, respectively, of Senior
Preferred Stock, Series C. [10.30]
10.7***** Option to Purchase Agreement dated as of May 15, 1992,
between 3M and the Company and Appendix A thereto,
being the terms of the Senior Preferred stock,
Series D, E and F. [10.33]
# 10.8** (a) HEARx Ltd. Stock Option Plan for Non-Employee
Directors and (b) Form of Option Agreement. [10.35]
10.9**** Amendment dated January 6, 1993, to Option to Purchase
Agreement dated May 15, 1992, between 3M and the
Company. [10.45]
10.10+ Amendment dated June 28, 1993, to Option to Purchase
Agreement dated May 15, 1992, between 3M and the
Company. [10.48]
10.11+ Letter Agreement dated November 19, 1993, between 3M
and the Company. [10.49]
10.12++ Promissory Note dated January 4, 1994 by and between
HEARx Ltd. and Audiology Sales & Service, Inc. [10.51]
10.13++ Bill of Sale by and between HEARx Ltd., Seller, and
Audiology Sales & Service, Inc., Buyer, dated March 8,
1994. [10.52]
10.14++ Letter of Intent, dated November 14, 1994, between
HEARx Ltd. and Av-Med. [10.62]
10.15++ Bill of Sale and Asset Purchase Agreement by and
between HEARx Ltd., Buyer, and Hearing Health
Services, Inc., Seller, dated December 30, 1994.
[10.64]
10.16++ Agreement, dated January 4, 1995, between CareFlorida
HealthCare Plans and HEARx Ltd. [10.65]
10.17 Consolidated and Amended Loan Agreement by and among
the Company, Siemens Hearing Instruments, Inc., and
Rexton, Inc., dated effective January 1, 1995.
<PAGE> 55
10.18 Care Florida Agreement
# 10.19+++ 1995 Flexible Employee Stock Plan
10.20 Securities Purchase Agreement by and between the
Company and Kew Capital Corporation, Ltd., dated as of
June 29, 1995.
10.21 Form of Offshore Securities Subscription Agreement
entered into by and between the Company and each of
Zanett Lombardier, Ltd., Harlow Enterprises, Inc., and
Bruno Guazzoni, dated September 29, 1995, and
October 19, 1995.
10.22 Promissory Note in favor of Bruce M. Langone in the
amount of $100,000 dated December 11, 1995.
10.23 Promissory Note in favor of Kenneth G. Langone in the
amount of $1,000,000 dated December 11, 1995.
10.24 Agreement between the Company and Oxford Health Plans
dated effective January 1, 1996, as amended by letter
agreements dated February 21, 1996, and February 29,
1996.
10.25 Stock Purchase Agreement and Registration Rights
Agreement, each dated January 26, 1996, by and among
the Company, Invemed Associates, Inc., and certain
Investors therein named.
10.26 Amended and Restated Promissory Note in favor of
Paul A. Brown, M.D., in the amount of $1,675,000 dated
January 26, 1996.
10.27 Promissory Note in favor of Paul A. Brown, M.D., in
the amount of $214,666 dated January 29, 1996.
22 List of subsidiaries of HEARx Ltd.
23(a) Consent of Independent Certified Public Accountants.
27 Financial Data Schedule (provided for the information
of the U.S. Securities and Exchange Commissio only)
- ---------------
# Denotes officer/director compensation plan or arrangement.
* Filed as an exhibit to the Company's Registration Statement on Form
S-18 (Registration No. 33-17041-NY) as the exhibit number indicated in
brackets and incorporated by reference herein.
** Filed as an exhibit to Post-Effective Amendment No. 1 to the Company's
Registration Statement on Form S-18 and incorporated by reference
herein.
*** Filed as an exhibit to the Company's Current Report on Form 8-K dated
November 8, 1991, as the exhibit number indicated in brackets and
incorporated by reference herein.
<PAGE> 56
**** Filed as an exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1992, as the exhibit number indicated in
brackets and incorporated by reference herein.
***** Filed as an exhibit to the Company's Current Report on Form 8-K dated
June 2, 1992, as the exhibit number indicated in brackets and
incorporated by reference herein.
+ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the year ended September 30, 1993, as the exhibit number indicated in
brackets and incorporated by reference herein.
++ Filed as an exhibit to the Company's Annual Report on Form 10-K for
the year ended December 30, 1994, as the exhibit number indicated in
brackets and incorporated by reference herein.
+++ Filed as an exhibit to the Company's 1995 Proxy Statement, and
incorporated by reference herein.
(b) Reports on Form 8-K -- None.
<PAGE> 57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HEARx Ltd.
(Registrant)
Date: April 11, 1996 By: /s/ Paul A. Brown, M.D.
-------------------------------------
Paul A. Brown, M.D.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------ ------------------------------ ---------------
/s/ Paul A. Brown, M.D. Chairman of the Board; April 11, 1996
- ------------------------------ Chief Executive Officer
Paul A. Brown, M.D. and Director
/s/ Stephen J. Hansbrough President and Chief April 11, 1996
- ------------------------------ Operating Officer
Stephen J. Hansbrough
/s/ Tommy E. Kee Vice President and Chief April 11, 1996
- ------------------------------ Financial Officer
Tommy E. Kee
/s/ David W. Forman Vice President - April 11, 1996
- ------------------------------ Facilities Management and
David W. Forman Corporate Secretary
/s/ Donna L. Taylor Vice President - Operations April 11, 1996
- ------------------------------
Donna L. Taylor
/s/ Fred N. Gerard Director April 11, 1996
- ------------------------------
Fred N. Gerard
/s/ David J. McLachlan Director April 11, 1996
- ------------------------------
David J. McLachlan
/s/ Thomas W. Archibald Director April 11, 1996
- ------------------------------
Thomas W. Archibald
<PAGE> 58
EXHIBIT INDEX
Exhibit Number Description
- -------------- --------------------------------------------------------------
3.1(f) Certificates of Correction to the Certificate of
Incorporation, filed with the Delaware Office of the Secretary
of State on January 25, 1996.
3.1(g) Certificate of Designations, Preferences and Rights of Senior
Preferred Stock, Series E, filed with the Delaware Office of
the Secretary of State on January 25, 1996.
3.1(h) Certificate of Designations, Preferences and Rights of 1996
Senior Preferred Stock, filed with the Delaware Office of the
Secretary of State on January 26, 1996.
10.17 Consolidated and Amended Loan Agreement by and among the
Company, Siemens Hearing Instruments, Inc., and Rexton, Inc.,
dated effective January 1, 1995.
10.18 Care Florida letter agreement dated January 18, 1995.
10.20 Securities Purchase Agreement by and between the Company and
Kew Capital Corporation, Ltd., dated as of June 29, 1995.
10.21 Form of Offshore Securities Subscription Agreement entered
into by and between the Company and each of Zanett Lombardier,
Ltd., Harlow Enterprises, Inc., and Bruno Guazzoni, dated
September 29, 1995, and October 19, 1995.
10.22 Promissory Note in favor of Bruce M. Langone in the amount of
$100,000 dated December 11, 1995.
10.23 Promissory Note in favor of Kenneth G. Langone in the amount
of $1,000,000 dated December 11, 1995.
10.24 Agreement between the Company and Oxford Health Plans dated
August 10, 1995 (effective January 1, 1996), as amended by
letter agreements dated February 21, 1996, and February 29,
1996.
10.25 Stock Purchase Agreement and Registration Rights Agreement,
each dated January 26, 1996, by and among the Company, Invemed
Associates, Inc., and certain Investors therein named.
10.26 Amended and Restated Promissory Note in favor of Paul A.
Brown, M.D., in the amount of $1,675,000 dated January 26,
1996.
10.27 Promissory Note in favor of Paul A. Brown, M.D., in the amount
of $214,666 dated January 29, 1996.
22 List of subsidiaries of HEARx Ltd.
23(a) Consent of Independent Certified Public Accountants.
27 Financial Data Schedule (provided for the information of the
U.S. Securities and Exchange Commission only)
<PAGE> 1
EXHIBIT 3.1(f)
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A PREFERRED STOCK AND
SERIES B PREFERRED STOCK
(Adopted by HEARx LTD.)
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby certify that:
A Certificate of Designations, Preferences and Rights of Series A Preferred
Stock and Series B Preferred Stock (the "Certificate of Designations"), filed
with the Delaware Secretary of State on August 12, 1991, is an inaccurate
record of the corporate action therein referred to in that Paragraph 3 of
Section A of the Certificate of Designations did not correctly recite the
parties' intention that the Corporation may authorize and issue classes or
series of Preferred Stock ranking senior to the Series A Preferred with the
unanimous consent of the holders of the Series A Preferred and that the
Corporation may authorize and issue classes or series of Preferred Stock
ranking pari passu with the Series A Preferred with the unanimous consent of
the holders of the Series A Preferred and that Paragraph 7 of Section A of the
Certificate of Designations did not correctly recite the parties' intention
that the liquidation preference provisions shall conform with Paragraph 3 of
Section A of the Certificate of Designations, and that such Paragraph 3 and
such Paragraph 7 of Section A of the Certificate of Designations in their
corrected form should read in their entirety as follows:
"3. Priority. The Series A Preferred shall be senior to
the Common Stock and all Preferred Stock of the Corporation
but pari passu with the Series B Preferred hereinafter
described, provided that the Corporation may authorize and
issue additional classes or series of Preferred Stock that
rank senior to the Series A Preferred with the unanimous
consent of the holders of the Series A Preferred and provided
further that the Corporation may authorize and issue
additional classes or series of Preferred Stock that rank pari
passu with the Series A Preferred with the unanimous consent
of the holders of the Series A Preferred."
"7. Liquidation, Dissolution or Winding Up
(a) Subject to the rights of the holders of any class or
series of Preferred Stock ranking senior to the Series A
Preferred, upon any liquidation, dissolution or winding up of
the Corporation, no distribution shall be made to the holders
of the Common Stock of the Corporation unless the holders of
the Series A Preferred shall have received an aggregate amount
equal to $150 per share of Series A Preferred, plus an amount
equal to all accrued but unpaid dividends thereon.
(b) In the event the assets to be distributed to the
holders of Series A Preferred and any other class or series of
Preferred Stock ranking pari passu with the Series A Preferred
<PAGE> 2
shall be insufficient to permit the payment of the full
preferential amount owed to the holders of the Series A
Preferred as aforesaid and the full preferential amount owed
to the holders of any other class or series of Preferred Stock
ranking pari passu with the Series A Preferred, then all the
assets of the Corporation to be distributed shall be
distributed to the holders of the Series A Preferred and the
Series B Preferred and such other pari passu Preferred Stock
on a pro rata basis in proportion to the respective amounts
that would otherwise be payable in respect of the shares held
by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(c) In the event that assets of the Corporation remain
after distribution to holders of Series A Preferred and Series
B Preferred and any other class or series of Preferred Stock
ranking pari passu with the Series A Preferred in accordance
with subparagraphs (a) and (b) of this paragraph (A)(7), the
holders of the Common Stock shall be entitled to distribution
of such assets on a pro rata basis in proportion to their
respective claims."
and that Paragraph 3 of Section C of the Certificate of Designations did not
correctly recite the parties' intention that the Corporation may authorize and
issue classes or series of Preferred Stock ranking senior to the Series B
Preferred with the unanimous consent of the holders of the Series B Preferred
and that the Corporation may authorize and issue classes or series of Preferred
Stock ranking pari passu with the Series B Preferred with the unanimous consent
of the holders of the Series B Preferred and that Paragraph 7 of Section C of
the Certificate of Designations did not correctly recite the parties' intention
that the liquidation preference provisions shall conform with Paragraph 3 of
Section C of the Certificate of Designations, and that such Paragraph 3 and
such Paragraph 7 of Section C of the Certificate of Designations in their
corrected form should read in their entirety as follows:
"3. Priority. The Series B Preferred shall be senior to
the Common Stock and all Preferred Stock of the Corporation
but pari passu with the Series A Preferred, provided that the
Corporation may authorize and issue additional classes or
series of Preferred Stock that rank senior to the Series B
Preferred with the unanimous consent of the holders of the
Series B Preferred and provided further that the Corporation
may authorize and issue additional classes or series of
Preferred Stock that rank pari passu with the Series B
Preferred with the unanimous consent of the holders of the
Series B Preferred."
"7. Liquidation, Dissolution or Winding Up
(a) Subject to the rights of the holders of any class or
series of Preferred Stock ranking senior to the Series B
Preferred, upon any liquidation, dissolution or winding up of
the Corporation, no distribution shall be made to the holders
of the Common Stock of the Corporation unless the holders of
the Series B Preferred shall have received an aggregate amount
equal to $150 per share of Series B Preferred, plus an amount
equal to all declared but unpaid dividends thereon.
<PAGE> 3
(b) In the event the assets to be distributed to the
holders of Series B Preferred and any other class or series of
Preferred Stock ranking pari passu with the Series B Preferred
shall be insufficient to permit the payment of the full
preferential amount owed to the holders of the Series B
Preferred as aforesaid and the full preferential amount owed
to the holders of any other class or series of Preferred Stock
ranking pari passu with the Series B Preferred, then all the
assets of the Corporation to be distributed shall be
distributed to the holders of the Series B Preferred and the
Series A Preferred and such other pari passu Preferred Stock
on a pro rata basis in proportion to the respective amounts
that would otherwise be payable in respect of the shares held
by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(c) In the event that assets of the Corporation remain
after distribution to holders of Series B Preferred and Series
A Preferred and any other class or series of Preferred Stock
ranking pari passu with the Series B Preferred in accordance
with subparagraphs (a) and (b) of this paragraph (C)(7), the
holders of the Common Stock shall be entitled to distribution
of such assets on a pro rata basis in proportion to their
respective claims."
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer, this ___ day of ___________, 1996.
HEARx LTD.
BY
--------------------------------------
Name:
Title:
<PAGE> 4
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SENIOR PREFERRED STOCK,
SERIES A, B AND C
(Adopted by HEARx LTD.)
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby certify that:
A Certificate of Designations, Preferences and Rights of Senior Preferred
Stock, Series A, B and C (the "Certificate of Designations"), filed with the
Delaware Secretary of State on November 12, 1991, is an inaccurate record of
the corporate action therein referred to in that Paragraph 3 of Section A of
the Certificate of Designations did not correctly recite the parties' intention
that the Corporation may authorize and issue classes or series of Preferred
Stock that rank pari passu with the Senior A Preferred with the unanimous
consent of the holders of the Senior A Preferred and that Paragraph 4 of
Section A of the Certificate of Designations did not correctly recite the
parties' intention that the liquidation preference provisions shall conform
with Paragraph 3 of Section A of the Certificate of Designations, and that such
Paragraph 3 and such Paragraph 4 of Section A of the Certificate of
Designations in their corrected form should read in their entirety as follows:
"3. Priority. The Senior A Preferred shall be senior to
the Common Stock and all Preferred Stock of the Corporation
but rank pari passu with the Senior B Preferred and the
Senior C Preferred, provided that the Corporation may
authorize and issue additional classes or series of Preferred
Stock that rank pari passu with the Senior A Preferred with
the unanimous consent of the holders of the Senior A
Preferred."
"4. Liquidation, Dissolution or Winding Up
(a) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of
the Common Stock or of any class or series of Preferred Stock
ranking junior to the Senior A Preferred, the Senior B
Preferred and the Senior C Preferred unless the holders of the
Senior A Preferred, the Senior B Preferred and the Senior C
Preferred shall have received an aggregate amount equal to
$50, $67 and $50 per share, respectively.
(b) In the event the assets to be distributed to the
holders of Senior A Preferred, Senior B Preferred, the Senior
C Preferred and any class or series of Preferred Stock ranking
pari passu with the Senior A Preferred, the Senior B Preferred
and the Senior C Preferred shall be insufficient to permit the
payment of the full preferential amount owed to the holders of
the Senior A Preferred, the Senior B Preferred, the Senior C
Preferred and any class or series of Preferred Stock ranking
pari passu with the Senior A Preferred, the Senior B Preferred
and the Senior C Preferred, then all the assets of the
Corporation to be distributed shall be distributed to the
<PAGE> 5
holders of the Senior A Preferred, the Senior B Preferred, the
Senior C Preferred and such other pari passu Preferred Stock on a
pro rata basis in proportion to the respective amounts that would
otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to
such shares were paid in full.
(c) In the event that assets of the Corporation remain
after distribution to holders of Senior A Preferred, Senior B
Preferred, Senior C Preferred and any class or series of
Preferred Stock ranking pari passu with the Senior A
Preferred, the Senior B Preferred and the Senior C Preferred
in accordance with subparagraphs (a) and (b) of this paragraph
(A)(4), and paragraphs (B)(4) and (C)(4), the holders of
shares of other Preferred Stock ranking junior to the Senior A
Preferred, the Senior B Preferred, the Senior C Preferred and
any class or series of Preferred Stock ranking pari passu with
the Senior A Preferred, the Senior B Preferred and the Senior
C Preferred and the holders of shares of the Common Stock of
the Corporation shall be entitled to distribution of such
assets in accordance with their respective rights thereto."
and that Paragraph 3 of Section B of the Certificate of Designations did not
correctly recite the parties' intention that the Corporation may authorize and
issue classes or series of Preferred Stock that rank pari passu with the
Senior B Preferred with the unanimous consent of the holders of the Senior B
Preferred and that Paragraph 4 of Section B of the Certificate of Designations
did not correctly recite the parties' intention that the liquidation preference
provisions shall conform with Paragraph 3 of Section B of the Certificate of
Designations, and that such Paragraph 3 and such Paragraph 4 of Section B of
the Certificate of Designations in their corrected form should read in their
entirety as follows:
"3. Priority. The Senior B Preferred shall be senior to
the Common Stock and all Preferred Stock of the Corporation
but rank pari passu with the Senior A Preferred and the
Senior C Preferred, provided that the Corporation may
authorize and issue additional classes or series of Preferred
Stock that rank pari passu with the Senior B Preferred with
the unanimous consent of the holders of the Senior B
Preferred."
"4. Liquidation, Dissolution or Winding Up
(a) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of
the Common Stock or of any class or series of Preferred Stock
ranking junior to the Senior B Preferred, the Senior A
Preferred and the Senior C Preferred unless the holders of the
Senior B Preferred, the Senior A Preferred and the Senior C
Preferred shall have received an aggregate amount equal to
$67, $50 and $50 per share, respectively.
(b) In the event the assets to be distributed to the
holders of Senior A Preferred, Senior B Preferred, Senior C
Preferred and any class or series of Preferred Stock ranking
pari passu with the Senior A Preferred, the Senior B Preferred
and the Senior C Preferred shall be insufficient to permit the
<PAGE> 6
payment of the full preferential amount owed to the holders of the
Senior A Preferred, the Senior B Preferred, the Senior C Preferred
and any class or series of Preferred Stock ranking pari passu with
the Senior A Preferred, the Senior B Preferred and the Senior C
Preferred, then all the assets of the Corporation to be
distributed shall be distributed to the holders of the Senior A
Preferred, the Senior B Preferred and the Senior C Preferred and
such other pari passu Preferred Stock on a pro rata basis in
proportion to the respective amounts that would otherwise be
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full.
(c) In the event that assets of the Corporation remain
after distribution to holders of Senior A Preferred, Senior B
Preferred, Senior C Preferred and any class or series of
Preferred Stock ranking pari passu with the Senior A
Preferred, the Senior B Preferred and the Senior C Preferred
in accordance with subparagraphs (a) and (b) of this paragraph
(B) (4), and paragraphs (A) (4) and (C) (4), the holders of
shares of other Preferred Stock ranking junior to the Senior A
Preferred, the Senior B Preferred, the Senior C Preferred and
any class or series of Preferred Stock ranking pari passu with
the Senior A Preferred, the Senior B Preferred and the Senior
C Preferred and the holders of shares of the Common Stock of
the Corporation shall be entitled to distribution of such
assets in accordance with their respective rights thereto."
and that Paragraph 3 of Section C of the Certificate of Designations did not
correctly recite the parties' intention that the Corporation may authorize and
issue classes or series of Preferred Stock that rank pari passu with the Senior
C Preferred with the unanimous consent of the holders of the Senior C Preferred
and that Paragraph 4 of Section C of the Certificate of Designations did not
correctly recite the parties' intention that the liquidation preference
provisions shall conform with Paragraph 3 of Section C of the Certificate of
Designations, and that such Paragraph 3 and such Paragraph 4 of Section C of
the Certificate of Designations in their corrected form should read in their
entirety as follows:
"3. Priority. The Senior C Preferred shall be senior to
the Common Stock and all Preferred Stock of the Corporation
but rank pari passu with the Senior A Preferred and the Senior
B Preferred, provided that the Corporation may authorize and
issue additional classes or series of Preferred Stock that
rank pari passu with the Senior C Preferred with the consent
of the holders of the Senior C Preferred."
"4. Liquidation, Dissolution or Winding Up
(a) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of
the Common Stock or of any class or series of Preferred Stock
ranking junior to the Senior C Preferred, the Senior A
Preferred and the Senior B Preferred unless the holders of the
Senior C Preferred, the Senior A Preferred and the Senior B
Preferred shall have received an aggregate amount equal to
$50, $50 and $67 per share, respectively.
<PAGE> 7
(b) In the event the assets to be distributed to the
holders of Senior A Preferred, Senior B Preferred, the Senior
C Preferred and any class or series of Preferred Stock ranking
pari passu with the Senior A Preferred, the Senior B Preferred
and the Senior C Preferred shall be insufficient to permit the
payment of the full preferential amount owed to the holders of
the Senior A Preferred, the Senior B Preferred, the Senior C
Preferred and any class or series of Preferred Stock ranking
pari passu with the Senior A Preferred, the Senior B Preferred
and the Senior C Preferred, then all the assets of the
Corporation to be distributed shall be distributed to the
holders of the Senior A Preferred, the Senior B Preferred and
the Senior C Preferred and such other pari passu Preferred
Stock on a pro rata basis in proportion to the respective
amounts that would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
(c) In the event that assets of the Corporation remain
after distribution to holders of Senior A Preferred, Senior B
Preferred, Senior C Preferred and any class or series of
Preferred Stock ranking pari passu with the Senior A
Preferred, the Senior B Preferred and the Senior C Preferred
in accordance with subparagraphs (a) and (b) of this paragraph
(C)(4), and paragraphs (A)(4) and (B)(4), the holders of
shares of other Preferred Stock ranking junior to the Senior A
Preferred, the Senior B Preferred, the Senior C Preferred and
any class or series of Preferred Stock ranking pari passu with
the Senior A Preferred, the Senior B Preferred and the Senior
C Preferred and the holders of shares of the Common Stock of
the Corporation shall be entitled to distribution of such
assets in accordance with their respective rights thereto."
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer, this ___ day of ___________, 1996.
HEARx LTD.
BY
--------------------------------------
Name:
Title:
<PAGE> 8
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C PREFERRED STOCK
(Adopted by HEARx LTD.)
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby certify that:
A Certificate of Designations, Preferences and Rights of Series C Preferred
Stock (the "Certificate of Designations"), filed with the Delaware Secretary of
State on April 9, 1992, is an inaccurate record of the corporate action therein
referred to in that Paragraph 3 of the Certificate of Designations did not
correctly recite the parties' intention that the Corporation may authorize and
issue classes or series of Preferred Stock ranking senior to the Series C
Preferred with the unanimous consent of the holders of the Series C Preferred
and that the Corporation may authorize and issue classes or series of Preferred
Stock ranking pari passu with the Series C Preferred with the unanimous consent
of the holders of the Series C Preferred, and that the Series C Preferred shall
rank junior to the Senior Preferred Stock, Series C, par value $1.00, and that
Paragraph 7 of the Certificate of Designations did not correctly recite the
parties' intention that the liquidation preference provisions shall conform
with Paragraph 3 of the Certificate of Designations, and that such Paragraph 3
and such Paragraph 7 of the Certificate of Designations in their corrected form
should read in their entirety as follows:
"3. Priority. The Series C Preferred shall be senior to
the Common Stock of the Corporation but junior to the Senior
Preferred Stock Series A, par value $1.00 per share, the
Senior Preferred Stock Series B, par value $1.00 per share and
the Senior Preferred Stock Series C, par value $1.00 per
share, and shall rank pari passu with the Series B Preferred
Stock, par value $1.00 per share ("Series B Preferred"),
provided further that the Corporation may authorize and issue
additional classes or series of Preferred Stock that rank
senior to the Series C Preferred with the unanimous consent of
the holders of the Series C Preferred and provided that the
Corporation may authorize and issue additional classes or
series of Preferred Stock that rank pari passu with the Series
C Preferred with the unanimous consent of the holders of the
Series C Preferred."
"7. Liquidation, Dissolution or Winding Up
(a) Subject to the rights of the holders of any class or
series of Preferred Stock ranking senior to the Series C
Preferred, upon any liquidation, dissolution or winding up of
the Corporation, no distribution shall be made to the holders
of the Common Stock of the Corporation unless the holders of
the Series C Preferred shall have received an aggregate amount
equal to $70 per share of Series C Preferred, plus an amount
equal to all accrued but unpaid dividends thereon.
(b) In the event the assets to be distributed to the
holders of Series C Preferred and any other class or series of
<PAGE> 9
Preferred Stock ranking pari passu with the Series C Preferred
shall be insufficient to permit the payment of the full
preferential amount owed to the holders of the Series C Preferred
as aforesaid and the full preferential amount owed to the holders
of any other class or series of Preferred Stock ranking pari passu
with the Series C Preferred, then all the assets of the
Corporation to be distributed shall be distributed to the holders
of the Series C Preferred and the Series B Preferred and such
other pari passu Preferred Stock on a pro rata basis in proportion
to the respective amounts that would otherwise be payable in
respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in
full.
(c) In the event that assets of the Corporation remain
after distribution to holders of Series B Preferred and Series
C Preferred and any other class or series of Preferred Stock
ranking pari passu with the Series C Preferred in accordance
with subparagraphs (a) and (b) of this paragraph (7), the
holders of the Common Stock shall be entitled to distribution
of such assets on a pro rata basis in accordance with their
respective holdings of Common Stock."
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer, this ___ day of ___________, 1996.
HEARx LTD.
BY
--------------------------------------
Name:
Title:
<PAGE> 10
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SENIOR PREFERRED STOCKS
SERIES D AND G
(Adopted by HEARx LTD.)
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby certify that:
A Certificate of Designations, Preferences and Rights of Senior Preferred
Stock, Series D and G (the "Certificate of Designations"), filed with the
Delaware Secretary of State on June 30, 1993, is an inaccurate record of the
corporate action therein referred to in that Paragraph C of the Certificate of
Designations did not correctly recite the parties' intention that the
Corporation may authorize and issue classes or series of Preferred Stock
ranking pari passu with the Senior D and G Preferred with the unanimous consent
of the holders of the Senior D and G Preferred and that Paragraph D of the
Certificate of Designations did not correctly recite the parties' intention
that the liquidation preference provisions shall conform with Paragraph C of
the Certificate of Designations, and that such Paragraph C and such Paragraph D
of the Certificate of Designations in their corrected form should read in their
entirety as follows:
"C. Priority. The Senior D and G Preferred shall be
senior to all shares of capital stock of the Corporation other
than the Senior Preferred Stock, Series A, par value $1.00 per
share ("Senior A Preferred"), Senior Preferred Stock, Series
B, par value $1.00 per share ("Senior B Preferred"), the
Senior Preferred Stock, Series C, par value $1.00 per share
("Senior C Preferred"; the Senior A, B, C, D and G Preferred
being together called the "Senior Preferred") and shall rank
pari passu with the Senior A, B and C Preferred, provided that
the Corporation may authorize and issue additional classes or
series of Preferred Stock that rank pari passu with the Senior
D and G Preferred with the unanimous consent of the holders of
the Senior D and G Preferred."
"D. Liquidation, Dissolution or Winding Up
1. Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of
any class or series of Preferred Stock ranking junior to the
Senior D and G Preferred or the Common Stock of the
Corporation unless the holders of the Senior A Preferred, the
Senior B Preferred, the Senior C Preferred and the Senior D
and G Preferred shall have received an aggregate amount equal
to $50, $67, 50 and $67 per share, respectively.
2. In the event the assets to be distributed to the
holders of Senior Preferred and any other class or series of
Preferred Stock ranking pari passu with the Senior Preferred
shall be insufficient to permit the payment of the full
preferential amount owed to the holders of the Senior
Preferred and any class or series of Preferred Stock ranking
<PAGE> 11
pari passu with the Senior Preferred, then all the assets of the
Corporation to be so distributed shall be distributed to the
holders of the Senior Preferred and such other pari passu
Preferred Stock on a pro rata basis in proportion to the
respective amounts that would otherwise be payable in respect of
the shares held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
3. In the event that assets of the Corporation remain
after distribution to holders of Senior Preferred and any
other class or series of Preferred Stock ranking pari passu
with the Senior Preferred in accordance with subparagraphs 1
and 2 of this paragraph D, the holders of shares of the Common
Stock and other Preferred Stock ranking junior to the Senior
Preferred Stock and any other class or series of Preferred
Stock ranking pari passu with the Senior Preferred shall be
entitled to distribution of such assets in accordance with
their respective rights thereto."
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer, this ___ day of ___________, 1996.
HEARx LTD.
BY
--------------------------------------
Name:
Title:
<PAGE> 12
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
1994 CONVERTIBLE PREFERRED STOCK
(Adopted by HEARx LTD.)
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware does hereby certify that:
A Certificate of Designations, Preferences and Rights of 1994 Convertible
Preferred Stock (the "Certificate of Designations"), filed with the Delaware
Secretary of State on January 3, 1995, is an inaccurate record of the corporate
action therein referred to in that Paragraph C of the Certificate of
Designations did not correctly recite the parties' intention that the
Corporation may authorize and issue classes or series of Preferred Stock
ranking pari passu with the 1994 Preferred with the unanimous consent of the
holders of the 1994 Preferred and that Paragraph H of the Certificate of
Designations did not correctly recite the parties' intention that the
liquidation preference provisions shall conform with Paragraph C of the
Certificate of Designations, and that such Paragraph C and such Paragraph H of
the Certificate of Designations in their corrected form should read in their
entirety as follows:
"C. Priority. The 1994 Preferred shall be senior to the
Common Stock and all Preferred Stock of the Corporation except
the Senior Preferred Stock, Series A, par value $1.00 per
share, the Senior Preferred Stock, Series B, par value $1.00
per share, the Senior Preferred Stock, Series C, par value
$1.00 per share, the Senior Preferred Stock, Series D, par
value $1.00 per share, and the Senior Preferred Stock, Series
G, par value $1.00 per share, with which the 1994 Preferred
shall rank pari passu in liquidation only, provided that the
Corporation may authorize and issue additional classes or
series of Preferred Stock that rank pari passu with the 1994
Preferred with the unanimous consent of the holders of the
1994 Preferred."
"H. Liquidation, Dissolution or Winding Up
(1) Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of
any class or series of Preferred Stock ranking junior to the
1994 Preferred as to liquidation or the Common Stock unless
the holders of the 1994 Preferred shall have received an
aggregate amount equal to $200 per share.
(2) In the event the assets to be distributed to the
holders of 1994 Preferred and any class or series of Preferred
Stock ranking pari passu with the 1994 Preferred as to
liquidation shall be insufficient to permit the payment of the
full preferential amount owed to the holders of the 1994
Preferred and any class or series of Preferred Stock ranking
pari passu with the 1994 Preferred Stock as to liquidation,
then all the assets of the Corporation to be so distributed
shall be distributed to the holders of the 1994 Preferred and
<PAGE> 13
such other pari passu Preferred Stock on a pro rata basis in
proportion to the respective amounts that would otherwise be
payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such
shares were paid in full.
(3) In the event that assets of the Corporation remain
after distribution to holders of 1994 Preferred and any other
class or series of Preferred Stock ranking pari passu with the
1994 Preferred as to liquidation in accordance with
subparagraphs 1 and 2 of this paragraph H, the holders of
other Preferred Stock ranking junior to the 1994 Preferred as
to liquidation and any other class or series of Preferred
Stock ranking pari passu with the 1994 Preferred and the
holders of shares of the Common Stock shall be entitled to
distribution of such assets in accordance with their
respective rights thereto."
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer, this ___ day of ___________, 1996.
HEARx LTD.
BY
--------------------------------------
Name:
Title:
<PAGE> 14
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), does hereby certify:
That paragraph First of the Certificate of Amendment of Restated
Certificate of Incorporation ("Certificate of Amendment"), filed with the
Delaware Secretary of State on June 20, 1995, incorrectly purported to amend
Article 4 "in its entirety" when the intent of the corporation was to amend
only the first paragraph of Article 4 of the Restated Certificate of
Incorporation without affecting the remainder of Article 4 or any certificates
of designations, preferences and rights filed pursuant thereto and pursuant to
Section 151 of the General Corporation Law. Thus, the second sentence of
paragraph First of the Certificate of Amendment in its corrected form should
read as follows:
"The resolution setting forth the proposed amendment is as follows:
RESOLVED: That the Board of Directors proposes and declares
advisable that the first paragraph of Article 4 of the Restated
Certificate of Incorporation of the Corporation be amended as set
forth below, and that such amendment be submitted to the
stockholders at the Annual Meeting to be held on June 16, 1995:
'The first paragraph of Article 4 is hereby amended 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."'"
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer this ___ day of _________, 1996.
HEARx LTD.
BY
--------------------------------------
Name
Title
<PAGE> 15
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), does hereby certify:
That paragraph First of the Certificate of Amendment of Restated
Certificate of Incorporation ("Certificate of Amendment"), filed with the
Delaware Secretary of State on November 15, 1994, incorrectly purported to
amend Article 4 "in its entirety" when the intent of the corporation was to
amend only the first paragraph of Article 4 of the Restated Certificate of
Incorporation without affecting the remainder of Article 4 or any certificates
of designations, preferences and rights filed pursuant thereto and pursuant to
Section 151 of the General Corporation Law. Thus, the second sentence of
paragraph First of the Certificate of Amendment in its corrected form should
read as follows:
"The resolution setting forth the proposed amendment is as follows:
RESOLVED: That the Board of Directors proposes and declares
advisable that the first paragraph of Article 4 of the Restated
Certificate of Incorporation of the Corporation be amended as set
forth below, and that such amendment be submitted to the stockholders
at a Special Meeting in lieu of Annual Meeting to be held on
November 7, 1994:
'The first paragraph of Article 4 is hereby amended to
read as follows:
"4. The total number of shares of stock which the
Corporation shall have authority to issue is seventy-
seven million (77,000,000), consisting of two million
(2,000,000) shares of Preferred Stock of the par value
of One Dollar ($1.00) per share and seventy-five
million (75,000,000) shares of Common Stock of the par
value of Ten Cents ($.10) per share."'"
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer this ___ day of _________, 1996.
HEARx LTD.
BY
--------------------------------------
Name
Title
<PAGE> 16
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), does hereby certify:
That paragraph First of the Certificate of Amendment of Restated
Certificate of Incorporation ("Certificate of Amendment"), filed with the
Delaware Secretary of State on December 23, 1991, incorrectly purported to
amend Article 4 "in its entirety" when the intent of the corporation was to
amend only the first paragraph of Article 4 of the Restated Certificate of
Incorporation without affecting the remainder of Article 4 or any certificates
of designations, preferences and rights filed pursuant thereto and pursuant to
Section 151 of the General Corporation Law. Thus, the second sentence of
paragraph First of the Certificate of Amendment in its corrected form should
read as follows:
"The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Board of Directors proposes and declares advisable
that the first paragraph of Article 4 of the Restated Certificate of
Incorporation of the Corporation be amended as set forth below, and
that such amendment be submitted to the stockholders at a Special
Meeting to be held on December 23, 1991:
'The first paragraph of Article 4 is hereby amended to read as
follows:
"4. The total number of shares of stock which the
Corporation shall have authority to issue is fifty-two
million (52,000,000), consisting of two million
(2,000,000) shares of Preferred Stock of the par value
of One Dollar ($1.00) per share and fifty million
(50,000,000) shares of Common Stock of the par value
of Ten Cents ($.10) per share."'"
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer this ___ day of _________, 1996.
HEARx LTD.
BY
--------------------------------------
Name
Title
<PAGE> 17
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
(Pursuant to Section 103(f) of the
General Corporation Law of the State of Delaware)
HEARx LTD., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "General Corporation
Law"), does hereby certify:
That the third paragraph of the Certificate of Amendment of Restated
Certificate of Incorporation ("Certificate of Amendment"), filed with the
Delaware Secretary of State on September 2, 1987, incorrectly purported to
amend Article 4 "in its entirety" when the intent of the corporation was to
amend only the first paragraph of Article 4 of the Restated Certificate of
Incorporation without affecting the remainder of Article 4 or any certificates
of designations, preferences and rights filed pursuant thereto and pursuant to
Section 151 of the General Corporation Law. Thus, the third paragraph of the
Certificate of Amendment in its corrected form should read as follows:
"The first paragraph of Article 4 is hereby amended to read as
follows:
'4. The total number of shares of stock which the
Corporation shall have authority to issue is twenty-seven
million (27,000,000), consisting of two million (2,000,000)
shares of Preferred Stock of the par value of One Dollar
($1.00) per share and twenty-five million (25,000,000) shares
of Common Stock of the par value of Ten Cents ($.10) per
share.'"
IN WITNESS WHEREOF, HEARx LTD. has caused this Certificate of Correction to
be executed by its duly authorized officer this ___ day of _________, 1996.
HEARx LTD.
BY
--------------------------------------
Name
Title
<PAGE> 1
EXHIBIT 3.1 (g)
HEARx LTD.
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SENIOR PREFERRED STOCK
SERIES E
Pursuant to Section 151 of the General
Corporation Law of the
State of Delaware
HEARx Ltd., a corporation organized on April 11, 1986 and existing
under the laws of the State of Delaware ("Corporation"), the Restated
Certificate of Incorporation of which was filed in the office of the Secretary
of State of Delaware on February 5, 1987, does by its Chairman hereby certify:
That pursuant to the authority vested in the Board of Directors by the
Restated Certificate of Incorporation, the Board, at a meeting duly held on
January 18, 1996, adopted the following resolutions:
RESOLVED, that pursuant to the authority so conferred upon it, the
Board of Directors hereby authorizes the issuance of 6,472 shares of Senior
Preferred Stock, Series E, par value $1.00 per share ("Senior E Preferred"), to
Minnesota Mining and Manufacturing Company ("3M") for a total purchase price of
$400,000; and
RESOLVED, that the voting powers, preferences and relative rights and
privileges and other rights granted to the Senior E Preferred and the
qualifications, limitations or restrictions imposed thereon be, and they hereby
are, as follows:
A. Dividends and Distribution. The holders of the Senior E Preferred
shall be entitled to receive when, as and if declared by the Board of Directors
out of funds legally available for the purpose, the same amount paid on or with
respect to shares of Common Stock, par value $ .10 per share ("Common Stock"),
of the Corporation, each share of Senior E Preferred being deemed equal to the
number of shares of Common Stock into which it is then convertible.
B. Voting Rights. The holders of the Senior E Preferred shall have
100 votes per share of Senior E Preferred and shall have voting rights and
powers equal to the voting rights and powers of the Common Stock. Except as
may be required by law, the holders of the Senior E Preferred shall not vote
separately as a class but shall instead vote with the holders of the Common
Stock on all matters as to which stockholders are entitled to vote under
Delaware law.
C. Priority. The Senior E Preferred shall be senior to all shares
of capital stock of the Corporation other than the Senior Preferred Stock,
Series A, par value $1.00 per share ("Senior A Preferred"); Senior Preferred
Stock, Series B, par value $1.00 per share ("Senior B Preferred"); the Senior
Preferred Stock, Series C, par value $1.00 per share ("Senior C Preferred");
Senior Preferred Stock, Series D, par value $1.00 per share ("Senior D
Preferred"); the Senior Preferred Stock, Series G, par value $1.00 per share
("Senior G Preferred"); and the 1994 Convertible Preferred Stock, par value
$1.00 per share (the "1994 Convertible Preferred") (the Senior A, B, C, D and
G Preferred and the 1994 Convertible Preferred being together called the
"Senior Preferred") and shall rank pari passu with the Senior Preferred,
provided that the Corporation may authorize and issue additional classes or
<PAGE> 2
series of Preferred Stock that rank pari passu with the Senior E Preferred with
the unanimous consent of the holders of the Senior E Preferred.
D. Liquidation, Dissolution or Winding Up.
1. Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of any class or
series of preferred stock ranking junior to the Senior E Preferred or the
Common Stock of the Corporation unless the holders of the Senior A Preferred,
the Senior B Preferred, the Senior C Preferred, the Senior D Preferred, the
Senior E Preferred, the Senior G Preferred and the 1994 Convertible Preferred
shall have received an aggregate amount equal to $50, $67, $50, $67, $62, $67
and $200 per share, respectively.
2. In the event the assets to be distributed to the holders of
the Senior Preferred, the Senior E Preferred and any other class or series of
Preferred Stock ranking pari passu with the Senior Preferred and the Senior E
Preferred shall be insufficient to permit the payment of the full preferential
amount owed to the holders of the Senior Preferred, the Senior E Preferred and
any class or series of Preferred Stock ranking pari passu with the Senior
Preferred and the Senior E Preferred, then all the assets of the Corporation to
be so distributed shall be distributed to the holders of the Senior Preferred,
the Senior E Preferred and such other pari passu Preferred Stock on a pro rata
basis in proportion to the respective amounts that would otherwise be payable
in respect of the shares held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
3. In the event that assets of the Corporation remain after
distribution to holders of Senior Preferred and Senior E Preferred and any
other class or series of Preferred Stock ranking pari passu with the Senior
Preferred and Senior E Preferred in accordance with subparagraphs 1 and 2 of
this paragraph D, the holders of the Common Stock and the holders of preferred
stock ranking junior to the Senior Preferred, the Senior E Preferred and any
other class or series of Preferred Stock ranking pari passu with the Senior
Preferred and Senior E Preferred shall be entitled to distribution of such
assets in accordance with their respective rights thereto.
E. Optional Conversion. Each share of Senior E Preferred shall be
convertible at any time at the option of the holder thereof into 100 fully paid
and non-assessable shares of Common Stock at the rate of $.62 per share
("Conversion Rate"), subject to adjustment of the Conversion Rate in accordance
with paragraph G hereof.
F. Mandatory Conversion. In the event that the shares of Common
Stock are listed on the American Stock Exchange or the New York Stock Exchange,
each share of Senior E Preferred shall be converted automatically into 100
fully paid and non-assessable shares of Common Stock at the rate of $.62 per
share.
<PAGE> 3
G. Adjustments to the Conversion Rate and Notices. The Conversion
Rate shall be subject to adjustment from time to time, calculated as follows
(except that no adjustment need be made until cumulative adjustments would
affect the Senior E Preferred Conversion Rate by one or more shares of Common
Stock):
1. If the Corporation:
(a) Pays a dividend or makes a distribution on its capital
stock in shares of Common Stock;
(b) Subdivides outstanding shares of Common Stock into a
greater number of shares;
(c) Combines outstanding shares of Common Stock into a smaller
number of shares; or
(d) Issues by reclassification of Common Stock any shares of
its capital stock,
then the Conversion Rate in effect immediately prior to such action shall be
adjusted so that each holder of shares of Senior E Preferred thereafter
converted may receive the number of shares of Common Stock which such holder
would have owned immediately following such action if such holder had converted
such shares of Senior E Preferred immediately prior to such action.
2. If the Corporation shall consolidate with or merge into any
other corporation or transfer all of its properties and assets as an entirety
to any person, then upon consummation of such transaction, each share of the
Senior E Preferred shall automatically become convertible into the kind and
amount of securities, cash or other assets to which the holder of such share
would have been entitled immediately after such consolidation, merger or
transfer if such holder had converted such share of Senior E Preferred into
Common Stock pursuant to paragraph E immediately prior to the effective date of
such transaction.
3. The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately after the
effective date in the case of (a) an issuance, a subdivision, combination, or
reclassification, or (b) consolidation or merger of the Corporation.
4. If the Corporation:
(a) Issues rights or warrants entitling holders of capital
stock to subscribe for or purchase shares of Common Stock or securities
convertible into Common Stock; or
(b) Distributes to the holders of its capital stock any of its
assets or debt securities or any rights or warrants to purchase debt
securities, assets or other securities of the Corporation,
then notice thereof shall be given in writing to the holders of the Senior E
Preferred no later than 30 days prior to the date of such issuance or
distribution.
<PAGE> 4
H. Mechanics of Conversion.
1. Upon receipt of written notice from the Corporation that
shares of Senior E Preferred have been converted automatically pursuant to
paragraph F hereof, which notice shall be given within 15 days of the
occurrence of such mandatory conversion, each holder of Senior E Preferred
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation. Thereupon, the Corporation shall promptly issue and
deliver to such holder of Senior E Preferred a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled.
2. In the event of conversion at the option of the holder of
shares of Senior E Preferred pursuant to paragraph E hereof, the holder shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation and shall give written notice to the Corporation of
such holder's election to convert same and shall state therein the number of
shares of Senior E Preferred being converted.
I. Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting conversion
of the shares of Senior E Preferred, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Senior E Preferred.
IN WITNESS WHEREOF, the Corporation has caused the foregoing
certificate to be signed by Paul A. Brown, its Chairman of the Board, on
January __, 1996.
HEARx LTD.
By:
-------------------------------------
Paul A. Brown, M.D.
Chairman of the Board
<PAGE> 1
EXHIBIT 3.1(h)
HEARx LTD.
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
1996 SENIOR PREFERRED STOCK
Pursuant to Section 151 of the General
Corporation Law of the
State of Delaware
HEARx Ltd., a corporation organized on April 11, 1986 and existing
under the laws of the State of Delaware ("Corporation"), the Restated
Certificate of Incorporation of which was filed in the office of the Secretary
of State of Delaware on February 5, 1987, does by its Chairman and its
Secretary hereby certify:
That pursuant to the authority vested in the Board of Directors by the
Restated Certificate of Incorporation, the Board, at a meeting duly held on
January 18, 1996, adopted the following resolutions:
RESOLVED, that pursuant to the authority so conferred upon it, the
Board of Directors hereby authorizes the issuance of 6,000 shares of 1996
Senior Preferred Stock, par value $1.00 per share ("1996 Preferred"), in
connection with a Stock Purchase Agreement to be entered into by the
Corporation; and
RESOLVED, that the voting powers, preferences and relative rights and
privileges and other rights granted to the 1996 Preferred and the
qualifications, limitations or restrictions imposed thereon be, and they hereby
are, as follows:
A. Dividends and Distributions. The holders of the 1996 Preferred
shall be entitled to receive dividends or other distributions of the
Corporation, other than liquidating distributions, only as and when declared by
special resolution of the Corporation's Board of Directors.
B. Voting Rights; Separate Vote of 1996 Preferred Required to Approve
Certain Corporate Actions. The holders of the 1996 Preferred shall have 2,485
votes per share of 1996 Preferred held by them and shall have voting rights and
powers equal to the voting rights and powers of Common Stock, except as set
forth below. Except as may be required by law or as set forth below, the
holders of the 1996 Preferred shall not vote separately as a class but shall
instead vote with the holders of Common Stock on all matters as to which
stockholders are entitled to vote under Delaware law.
Notwithstanding the foregoing, without the affirmative vote or written
consent of the holders of a majority of the outstanding shares of 1996
Preferred, voting separately as a class, the Corporation may not:
(a) Issue any securities (including any debt or equity securities) or
any indebtedness, other than pursuant to a Permitted Issuance (as defined
below).
(b) Repay any indebtedness due to Dr. Paul Brown (on the date hereof,
the Chairman of the Board and Chief Executive Officer of the Corporation) or
<PAGE> 2
his assignees, other than indebtedness (including accrued interest) in the
aggregate amount of $100,000.
As used herein, a "Permitted Issuance" is any one of the following:
(i) The issuance of up to 1,500,000 shares of Common Stock, $.10
par value, pursuant to employee stock options issued subsequent to the date
hereof, subject to appropriate adjustment in the event of stock splits, stock
dividends, combinations, reclassifications or similar events (e.g., in the
event of a 1-for-15 reverse stock split, the total number of shares issuable
pursuant to this clause (i) shall be 100,000).
(ii) The issuance of any securities of the Corporation pursuant to
the exercise or conversion of options, warrants and preferred stock outstanding
on the date hereof or pursuant to the terms of agreements existing on the date
hereof, in accordance with the terms of such securities and agreements in
effect on the date hereof.
(iii) The issuance of Common Stock of the Corporation pursuant to
the conversion of Senior Preferred Stock, Series C ("Senior C Preferred") in
accordance with the terms of such security on the date hereof, and which Senior
C Preferred is issued pursuant to the exercise of warrants outstanding on the
date hereof, in accordance with terms of such warrants in effect on the date
hereof.
(iv) The incurring of any trade indebtedness or short term (i.e.,
maturity of less than one year) bank financing (the term "bank" shall have the
meaning set forth in clauses (A), (B) and (C) of Section 3(a)(6) of the
Securities Exchange Act of 1934, as amended).
C. Priority. The 1996 Preferred shall be senior to all shares of
capital stock of the Corporation other than the Senior Preferred Stock, Series
A, par value $1.00 per share ("Senior A Preferred"); Senior Preferred Stock,
Series B, par value $1.00 per share ("Senior B Preferred"); the Senior
Preferred Stock, Series C, par value $1.00 per share ("Senior C Preferred");
the Senior Preferred Stock, Series D, par value $1.00 per share ("Senior D
Preferred"); the Senior Preferred Stock, Series E, par value $1.00 per share
("Senior E Preferred"); the Senior Preferred Stock, Series G, par value $1.00
per share ("Senior G Preferred"); and the 1994 Convertible Preferred Stock, par
value $1.00 per share (the "1994 Convertible Preferred") (the Senior A, B, C,
D, E and G Preferred and the 1994 Convertible Preferred being together called
the "Senior Preferred") and shall rank pari passu with the Senior Preferred in
liquidation only, provided that the Corporation may authorize and issue
additional classes or series of Preferred Stock that rank pari passu with the
1996 Preferred with the prior written consent of the holders of the majority of
the shares of outstanding 1996 Preferred.
D. No Conversion. Shares of the 1996 Preferred shall not be
convertible at any time into shares of Common Stock.
E. Redemption. The shares of 1996 Preferred shall be redeemed by the
Corporation, in whole but not in part, at the redemption price of $1,000 per
share, at such time as is determined by the Corporation. The Corporation shall
treat such redemption payment as a payment made in exchange for the 1996
Preferred and not as a dividend for U.S. Federal income tax purposes.
At least 10 days prior to the date fixed for redemption under this
paragraph E, the Corporation shall send notice of such redemption to each
<PAGE> 3
holder of record of the 1996 Preferred, by registered or certified mail
enclosed in a postage paid envelope addressed to such holder at such holder's
address as the same shall appear on the books of the Corporation. Such notice
shall (a) state that the Corporation is redeeming such shares, (b) state the
date fixed for the redemption thereof, (c) state the per share redemption
price, and (d) call upon each holder to surrender to the Corporation on or
after said date at the place designated in such notice, the certificate or
certificates representing the shares to be redeemed in accordance with such
notice. On or after the date fixed in such notice of redemption, each holder
of shares of 1996 Preferred to be so redeemed shall present and surrender the
certificate or certificates for such shares duly endorsed for transfer to the
Corporation at the place within the United States of America designated in said
notice and thereupon the redemption price of such shares shall be paid to, or
to the order of, the person whose name appears on such certificate or
certificates as the owner thereof.
From and after the date fixed as the day of redemption of the 1996
Preferred, unless default shall be made by the Corporation in providing for the
payment of the redemption price pursuant to such notice, all rights of the
holders of the 1996 Preferred as shareholders of the Corporation, except the
right to receive the redemption price, shall cease and terminate, provided,
however, that the Corporation shall deposit the amount required for the payment
of any part of the redemption price not claimed on the redemption date with a
bank or trust company doing business in the State of Florida and having a
capital and surplus of at least $50,000,000. Any interest allowed on moneys so
deposited shall be paid to the Corporation. Any moneys so deposited which
shall remain unclaimed by the holders of the 1996 Preferred at the end of six
years after the redemption date shall be paid by such bank or trust company to
the Corporation, but the Corporation shall remain obligated to make payment
thereof to the holders of 1996 Preferred entitled thereto (subject to any
applicable escheat or similar laws). Any shares of 1996 Preferred redeemed by
the Corporation shall be retired and shall not be reissued, and the Corporation
may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized 1996 Preferred.
F. Liquidation, Dissolution or Winding Up.
1. Upon any liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the holders of any class or
series of Preferred Stock ranking junior to the 1996 Preferred or to the
holders of Common Stock of the Corporation unless the holders of the Senior A
Preferred, the Senior B Preferred, the Senior C Preferred, the Senior D
Preferred, the Senior E Preferred, the Senior G Preferred, the 1994 Convertible
Preferred and the 1996 Preferred shall have received an aggregate amount equal
to $50, $67, $50, $67, $62, $67, $200 and $1,000, per share, respectively.
2. In the event the assets to be distributed to the holders of
the Senior Preferred, the 1996 Preferred and any other class or series of
Preferred Stock ranking pari passu with the Senior Preferred and the 1996
Preferred shall be insufficient to permit the payment of the full preferential
amount owed to the holders of the Senior Preferred, the 1996 Preferred and any
class or series of Preferred Stock ranking pari passu with the Senior Preferred
and the 1996 Preferred, then all the assets of the Corporation to be so
distributed shall be distributed to the holders of the Senior Preferred, the
1996 Preferred and such other pari passu Preferred Stock on a pro rata basis in
proportion to the respective amounts that would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
<PAGE> 4
3. In the event that assets of the Corporation remain after
distribution to holders of Senior Preferred and 1996 Preferred and any other
class or series of Preferred Stock ranking pari passu with the Senior Preferred
and 1996 Preferred in accordance with subparagraph 1 of this paragraph F, the
holders of the Common Stock and the holders of Preferred Stock ranking junior
to the Senior Preferred, the 1996 Preferred and any other class or series of
Preferred Stock ranking pari passu with the Senior Preferred and 1996 Preferred
shall be entitled to distribution of such assets in accordance with their
respective rights thereto.
IN WITNESS WHEREOF, the Corporation has caused the foregoing
certificate to be signed by Paul A. Brown, its Chairman of the Board on
January 26, 1996.
HEARx Ltd.
By:
-------------------------------------
Paul A. Brown, M.D.
Chairman of the Board
<PAGE> 1
EXHIBIT 10.17
CONSOLIDATED AND AMENDED LOAN AGREEMENT
THIS CONSOLIDATED AND AMENDED LOAN AGREEMENT ("Agreement") is made and
entered into this 8th day of May, 1995, to be effective as of the 1st day of
January 1995, by and between SIEMENS HEARING INSTRUMENTS, INC., a Delaware
corporation, with its principal place of business at 10 Constitution Avenue,
Piscataway, New Jersey 08855 ("Siemens"), REXTON, INC., an Illinois corporation
and a wholly-owned subsidiary of Siemens, with it principal place of business
at 2415 Xenium Lane, Plymouth, Minnesota 554541 ("Rexton") (Siemens and Rexton
are hereinafter referred to collectively as "Lender"), and HEARX, LIMITED, a
Delaware corporation, with its principal place of business at 471 Spencer
Drive, West Palm Beach, Florida 33409 ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower is currently indebted to Lender in the amount of
$904,360.00 as follows (the "Loans").
(i) Borrower is indebted to Rexton in the amount of $248,522.00,
including $231,872.00 in principal and $16,650.00 in accrued interest under
the terms of a Loan Agreement dated June 7, 1994 (the "Rexton Loan
Agreement") and Promissory Note of even date therewith (the "Rexton
Promissory Note"); and
(ii) Borrower is indebted to Siemens in the amount of $407,888.00,
including $384,538.00 in principal and $23,350.00 in accrued interest under
the terms of a Loan Agreement, dated June 7, 1994 (the "Siemens Loan
Agreement") and Promissory Note of even date therewith (the "Siemens
Promissory Note"); and
(iii) Borrower is indebted to Siemens in the amount of $247,950.00,
including $247,500.00 in principal and $450.00 in accrued interest under
the terms of a Loan Agreement dated May 1, 1993 (the "Equipment Loan
Agreement") and Promissory Notes, dated May 6, 1993 and May 27, 1993
(collectively, the "Equipment Loan Promissory Notes") (The Rexton Loan
Agreement, the Rexton Promissory Note, the Siemens Loan Agreement, the
Siemens Promissory Note, the Equipment Loan Agreement and the Equipment
Loan Agreement Promissory Notes are hereafter referred to collectively as
the "Existing Loan Documents"); and
WHEREAS, repayment of the Loans is secured by certain equipment and other
personal property of Borrower as described in the Loan Documents and in
Financing Statements filed with the Secretary of State of Florida on
September 27, 1994; and
WHEREAS, Borrower is also indebted to Lender for purchases from Lender in
the amount of $399,379.00 as of February 28, 1995 (the "Receivables"); and
WHEREAS, the parties hereto desire to reduce the amount of the Loans and to
consolidate and amend the Existing Loan Documents as set forth below;
<PAGE> 2
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth below, the parties hereto covenant and agree as
follows:
1. Reduction in the Amount of the Loans; Consolidation of Existing Loan
Documents. The amount of the Loans is hereby reduced to $846,360.00 (the
"Indebtedness"), by crediting against the amount of the Loans accrued interest
in the amount of $58,000.00 under the Rexton Promissory Note and the Siemens
Promissory Note, including interest in the amount of approximately $18,000.00
for the period from January 1, 1995 through March 31, 1995. The Indebtedness
shall be payable to Siemens, and the Existing Loan Documents are hereby
consolidated, amended and replaced by this Consolidated and Amended Loan
Agreement, a Consolidated and Amended Promissory Note in the form attached
hereto as Exhibit "A" (the "Note"), and a Consolidated and Amended Security
Agreement in the form attached hereto as Exhibit "B" (the "Security
Agreement").
2. Interest. Borrower shall not be required to pay any interest on the
Indebtedness so long as it meets the minimum product purchase requirements set
forth in Section 3(c) below. If Borrower fails to meet such product purchase
requirements, the Indebtedness shall bear interest at a rate equal to 2% per
annum plus the rate announced by Citibank, N.A., New York, New York, from time
to time as its prime rate, in accordance with the terms of the Note.
3. Payment of Indebtedness; Additional Payments from Borrower to Siemens.
a. Borrower shall be credited with a reduction in the principal
amount of the Indebtedness for its purchases of hearing aids manufactured by
Lender, excluding certain low priced Rexton BTE products and any returns
("Units"), during the period from May 1, 1994 through December 31, 1994,
measured on the basis of its purchase of Units for the period from May 1, 1994
through April 30, 1995 as shown on Exhibit "C" hereto.
b. In addition, for each calendar year during the term of this
Agreement, Borrower shall make additional payments to Siemens and the principal
amount of the Indebtedness shall be reduced based upon Borrower's purchase of
Units from Lender in accordance with the schedule attached hereto as
Exhibit "D".
c. If Borrower fails to purchase 3,500 Units during each calendar
year, it shall be required to pay interest on the Indebtedness as described in
Section 2 above and in the Note.
d. The total outstanding Indebtedness, as adjusted in accordance with
the terms of this Agreement, shall be due and payable to Siemens on
December 31, 1996.
4. Other Required Principal Payments.
a. No later than May 15, 1995, Borrower shall make a principal
payment to Siemens in the amount of ONE HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($150,000.00) to be credited against the Indebtedness.
b. Borrower shall make principal payments to Siemens in the amount of
thirty percent (30%) of the equity raised by Borrower after March 31, 1995, as
such funds are received by Borrower, but not to include the receipt of
approximately $1,000,000.00 expected on or about April 3, 1995, up to a maximum
<PAGE> 3
total amount of thirty percent (30%) of the principal amount of the
Indebtedness as of the end of the day on April 14, 1995.
c. Lender hereby waives any claim under the Rexton Loan Agreement and
the Siemens Loan Agreement to require principal payments based upon funds
raised by Borrower through either equity, debt or asset sale during the period
from May 1, 1994 through March 31, 1995.
5. Payment of Receivables. No later than May 31, 1995, Borrower shall
pay to Siemens the amount of all Receivables which have been outstanding for
more than thirty (30) days, and shall thereafter pay all invoices from Lender
within thirty (30) days after payment is due. In the event Borrower fails to
pay any Receivables within thirty (30) days after payment is due at any time
after March 31, 1995, Siemens may accelerate the Indebtedness in accordance
with the terms of the Note.
6. Release of Security Interest. At such time that the total
indebtedness from Borrower to Lender, whether or not secured, and exclusive of
Borrower's current Receivables maintained in accordance with Section 5 of this
Agreement, shall fall below $100,000.00, then Siemens shall release its
security interest under the Security Agreement upon the written request by
Borrower.
7. Purchase of Batteries. Borrower agrees to purchase at least 7,000
cartons of batteries from Siemens prior to April 1, 1996. In such event,
Borrower shall receive a rebate from Siemens in the amount of $10,000.00 to be
credited against the Indebtedness.
8. Insurance. The Borrower shall maintain insurance with responsible
companies in such amounts and against such risks as is customarily carried by
owners of similar businesses and property.
9. Default. Upon the occurrence of any of the following events, the
Indebtedness, together with the interest thereon, and all other indebtedness
then owing by the Borrower to the Lender shall become forthwith due and payable
on demand of Siemens without presentment, demand, notice of dishonor and
protest, all of which are hereby expressly waived by the Borrower:
a. The failure of Borrower to make any payment of principal or
interest when due as required herein;
b. Any breach or failure of the Borrower to make any other payment
required under this Agreement or perform any other term or condition of this
Agreement;
c. Commencement by Borrower, in any court pursuant to any statute of
the United States or of any State, territory or government, of an insolvency or
bankruptcy proceeding, including, without limitation, a proceeding for
liquidation, reorganization or for the adjustment of its indebtedness;
d. Commencement of any insolvency or bankruptcy proceeding
(including, without limitation, a proceeding for liquidation, reorganization or
for adjustment of indebtedness) against Borrower, if an order for relief is
entered against Borrower and the same is not stayed or vacated within thirty
(30) days after entry thereof, or if Borrower fails to secure a discharge of
the proceedings within sixty (60) days after the filing thereof;
e. Insolvency of Borrower;
<PAGE> 4
f. The making by Borrower of an assignment for the benefit of its
creditors or the filing of a petition for or the entering into of an
arrangement with its creditors;
g. The appointment or sufferance of a receiver, trustee or custodian
to take possession of all or substantially all of the property of Borrower,
whether or not judicial proceedings are instituted in connection with such
appointment or sufferance;
h. The placement of any lien against any property of Borrower which
is not discharged of record within thirty (30) days, or any levy under any such
lien; and
i. Any change in ownership of or power to vote a majority of the
outstanding voting stock of Borrower from the owners of such stock or those
controlling the power to vote such stock on the date of this Agreement.
10. Waiver. Neither the failure nor any delay on the part of the Lender
to exercise any right, power, or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power, or
privilege preclude any other or further exercise thereof, or the exercise of
any other right, power, or privilege.
11. Benefit. This Agreement shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns.
12. Attorneys' Fees. In the event that any proceeding at law or in equity
arises hereunder or in connection herewith (including, without limitation, any
appellate or bankruptcy proceedings), the prevailing party shall be awarded
costs, reasonable expert witness fees and reasonable attorneys' fees incurred
in connection with such proceeding.
13. Taxes. Borrower agrees that it shall be responsible for all stamp,
excise, intangibles and other taxes arising in connection with this transaction
and all other loans previously or hereafter made by Lender to Borrower, and
agrees to indemnify, defend and hold Lender harmless for any liability for any
such taxes, including any penalties and interest.
14. Time Is of the Essence. Time is of the essence of each of the
provisions of this Agreement.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, and all
prior agreements, representations and statements, whether written or oral, and
all contemporaneous oral agreements, representations and statements are merged
herein.
16. Construction. This agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
BORROWER:
ATTEST: HEARX, LIMITED,
a Delaware corporation
By: /s/ Paul A. Brown
- ----------------------------------- -------------------------------------
Secretary Printed Name: Paul A. Brown, MD
Title: Chairman of the Board, CEO
Date: May 6, 1995
LENDER:
ATTEST: SIEMENS HEARING INSTRUMENTS, INC.,
a Delaware corporation
By: /s/ John Krauter
- ----------------------------------- -------------------------------------
Secretary Printed Name: John Krauter
Title: Vice President Business
Administration and Finance,
Treasurer
Date: May 8, 1995
ATTEST: REXTON, INC., a Illinois corporation
By: /s/ DeLain Wright
- ----------------------------------- -------------------------------------
Secretary Printed Name: DeLain Wright
Title: President
Date: 5-15-95
<PAGE> 6
EXHIBIT "A"
CONSOLIDATED AND AMENDED PROMISSORY NOTE
$846,360.00 As of January 1, 1995
FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises to pay to the
order of SIEMENS HEARING INSTRUMENTS, INC. ("Payee"), at the principal office
of Payee at 10 Constitution Avenue, Piscataway, New Jersey 08855, or such place
as the holder may from time to time designate, the principal sum of EIGHT
HUNDRED FORTY-SIX THOUSAND THREE HUNDRED SIXTY AND NO/100 DOLLARS
($846,360.00), subject to adjustment in accordance with the terms of the
Consolidated and Amended Loan Agreement between Maker and Payee of even date
herewith (the "Loan Agreement"), payable in full in a single balloon payment on
December 31, 1996.
The unpaid principal balance hereof shall bear no interest so long as the
Maker complies with the requirements for the purchase of products from Payee
set forth in Section 3(c) of the Loan Agreement. For any calendar year in
which Maker has failed to comply with such product purchase requirements,
interest shall be due on the outstanding principal balance as of the last day
of such year (after making any adjustments to the principal balance for such
year required under the provisions of the Loan Agreement). Interest shall be
computed as if such balance was outstanding for the entire year, shall be
payable in full within thirty (30) days after the end of such year, and shall
be computed retroactively at a rate equal to two percent (2%) per annum plus
the rate announced by Citibank, N.A., New York, New York from time to time as
its prime rate, with the interest rate hereon changing as and when such prime
rate changes. Interest shall be calculated for the actual number of days
elapsed, using a daily rate determined by dividing the annual rate by 360.
Interest not paid shall accrue until it is paid. Principal amounts unpaid at
the maturity thereof (whether by fixed maturity or acceleration) shall bear
interest from and after maturity until paid, payable on demand, computed at a
rate equal to two percent (2%) per annum plus the rate otherwise payable
hereunder. Principal of and interest on this note shall be payable in lawful
money of the United States of America.
This note may be prepaid in full or in part at any time without premium or
penalty. All prepayments shall be applied against installments of principal
due hereunder in the inverse order of their maturity.
This note is subject to applicable provisions of the Loan Agreement, and is
secured by a Consolidated and Amended Security Agreement between Maker and
Payee of even date herewith (the "Security Agreement").
Without affecting the liability of any maker, indorser, surety or
guarantor, the holder may, from time to time and without notice, renew or
extend the time for payment, accept partial payments, release or impair any
collateral security for payment of this note, or agree not to sue any party
liable on it.
If any payment is not made when due, or if there is any default under the
Loan Agreement or the Security Agreement, the unpaid balance of this note
shall, at the option of the holder and without notice or demand, mature and
become immediately payable. The unpaid balance shall automatically mature and
become immediately payable in the event the maker becomes the subject of
bankruptcy or other insolvency proceedings. Payee's receipt of any payment
<PAGE> 7
after the occurrence of an event of default shall not constitute a waiver of
such default or of any of Payee's rights and remedies.
The Maker and any indorsers, sureties or guarantors waive presentment,
protest, notice of protest and dishonor, and agree to pay all costs of
collection, before and after judgment, including reasonable attorneys' fees and
costs.
This note is governed by the laws of the State of New Jersey, except to the
extent superseded by federal law.
ATTEST: HEARX, LIMITED, a Delaware corporation
By: /s/ Paul A. Brown
- ----------------------------------- -------------------------------------
Secretary Printed Name: Paul A. Brown, MD
Title: Chairman of the Board, CEO
[CORPORATE SEAL]
STATE OF New York )
)
COUNTY OF New York )
Executed before me this 6th day of May, 1995 in the State and County
aforesaid.
/s/ Meena M. Gulati
-----------------------------------------
Printed Name: Meena M. Gulati
[NOTARIAL SEAL] My Commission Expires:
<PAGE> 1
EXHIBIT 10.18
HEARx LTD.
- -------------------------------------------------------------------------------
Your Prescription for Better Hearing
January 18, 1995
Ms. Traci M. Schmidt
Manager, Provider Development
CareFlorida HealthCare Plans
7950 N.W. 53rd Street, Third Floor
Miami, Florida 33166
Dear Traci,
I am please that you, Barry and I were finally able to work out all the details
of how HEARx will provide services to the CareFlorida members. As per your
request, I have modified our January 4, 1995, agreement to reflect the
following changes:
A. A requirement to provide CareFlorida with quarterly statistics.
B. A quarterly adjustment of the per capita rate as it reflects binaural
purchases.
C. The annual adjustment based on utilization.
I hope, with these changes, that I have completed my tasks as a "contract
writer" and can go back to work dispensing hearing aids.
I have asked Donna Taylor, our Vice President of Operations, to contact you to
settle all of the details of how care will be provided to your members. I have
also asked Paige Brough, our Manager of Corporate Communications, to send you a
copy of the scheduled Monday Miami Herald ad for your immediate approval.
Let's get started.
Best regards,
/s/ Paul A. Brown
Paul A. Brown, M.D.
Chairman
PAB/dmd
Enclosures
P.S. For your information, the centers listed with stars are those
performing diagnostic testing.
P.A.B.
471 Spencer Drive, West Palm Beach, FL 33409 (407) 478-8770
<PAGE> 2
Changes to January 18 Agreement --
HMO Medicare Members $ .16 PMPM Audiology Services
$1.83 PMPM Monaural Hearing Aid Services
$ .42 PMPM Binaural Hearing Aid Services
2. Based on documented utilization of binaural purchases by CareFlorida
members, the $.42 per member per month fee will be adjusted in the event
that utilization indicates that binaural purchases are less than 50% of
monaural purchases.
3. Within forty-five days of the close of a quarter, HEARx will provide
CareFlorida with statistics indicating the number of CareFlorida members
attended to in the HEARx centers. This data will include no less than the
following information:
A. Number of patients receiving audiologic testing (Commercial and
Medicare).
B. Number of patients making a monaural purchase.
C. Number of patients making a binaural purchase.
From time to time, when mutually agreed, the information provided to
CareFlorida will be modified.
7. Unless otherwise terminated, this contract shall be for a term of one year
and automatically renew from year to year thereafter. The rate charged for
each subsequent year shall be based on a detailed summary of prior year's
experience in order to set a true and accurate cost of service for
CareFlorida members.
<PAGE> 3
HEARx LTD.
- -------------------------------------------------------------------------------
Your Prescription for Better Hearing
January 18, 1995
Ms. Traci M. Schmidt
Manager, Provider Development
CareFlorida HealthCare Plans
7950 N.W. 53rd Street, Third Floor
Miami, Florida 33166
Dear Traci,
The following is a summary of the agreement under which HEARx will provide
hearing care to CareFlorida Members.
Effective January 1995, CareFlorida agrees to pay prior to the tenth of each
month a Capitation Payment (PMPM) to HEARx Ltd. for each MEMBER eligible for
services under this agreement for HMO Commercial Members and HMO Medicare
Members. The rates are as follows:
Plan Description Capitation Benefit(s)
- ------------------------- ------------------------- -------------------------
HMO Medicare Members $ .16 PMPM Audiology Services
$1.83 PMPM Monaural Hearing Aid
Services
$ .42 PMPM Binaural Hearing Aid
Services
HMO Commercial Members $ .08 PMPM Audiology Services
Audiologic Services include:
- ----------------------------
Hearing Screening (pure-tone only) 92551 Covered in Full
Basic Comprehensive Audiometry 92557 Covered in Full
Pure-tone Audiometry (pure-tone only) 92552 Covered in Full
Conditioning Audiometry 92582 Covered in Full
Tympanometry 92567 Covered in Full
Acoustic Reflex 92568 Covered in Full
Acoustic Reflex Decay 92569 Covered in Full
Hearing Aid Services include:
- -----------------------------
Hearing Aid Selection 92590 Covered in Full
Hearing Aid Electroacoustic Evaluation 92594 Covered in Full
Earmold Impression(s) Covered in Full
Earmold (new and warranty replacement aids only) Covered in Full
Primary "Pre-selected"* Hearing Aid
(monaural fitting) Covered in Full*
471 Spencer Drive, West Palm Beach, FL 33409 (407) 478-8770
<PAGE> 4
Ms. Traci M. Schmidt
Page 2
January 18, 1995
Second "Pre-selected"* Hearing Aid
(binaural fitting) Discount of $400*
Alternate Choice - any "non-Pre-selected"
Hearing Aid Retail less $700
Post-fitting orientation/adjustment visits Covered in Full
Hearing Aid Warranty Period Covered/1 year
- ---------------
* see attached list of "Pre-selected Models"... Attachment A
Commercial Members (all hearing aid services) 15% Discount
Fee-for-Service Tests (at 80% of Medicare rates)
- ------------------------------------------------
Additional specialized diagnostic tests which may be required and will require
prior approval/authorization.
Medicare 80% Medicare
----------- ------------
Electronystagmography (ENG) 92543 $142.38 $113.90
Auditory Brainstem Response (ABR) 92585 $130.06 $104.05
Electrocochleography (ECoG) 92584 $ 70.61 $ 56.49
These specialized tests are not available at every HEARx location and will be
added as necessary to reasonably accommodate CareFlorida members.
Additional Terms and Conditions:
- --------------------------------
1. It is understood that CareFlorida shall only be responsible for the
capitation payments and any authorized fee-for-service tests. Charges
associated with either a second pre-selected hearing aid or any alternate
hearing aids shall be the financial responsibility solely of the
CareFlorida member.
2. Based on documented utilization of binaural purchases by CareFlorida
members, the $.42 per member per month fee will be adjusted in the event
that utilization indicates that binaural purchases are less than 50% of
monaural purchases.
3. Within forty-five days of the close of a quarter, HEARx will provide
CareFlorida with statistics indicating the number of CareFlorida members
attended to in the HEARx centers. This data will include no less than the
following information:
A. Number of patients receiving audiologic testing (Commercial and
Medicare).
<PAGE> 5
Ms. Traci M. Schmidt
Page 3
January 18, 1995
B. Number of patients making a monaural purchase.
C. Number of patients making a binaural purchase.
From time to time, when mutually agreed, the information provided to
CareFlorida will be modified.
5. HEARx's name will be included in the description of the hearing care
program provided to CareFlorida members.
6. CareFlorida agrees to notify its members of the new expanded program for
hearing care with HEARx.
7. Unless otherwise terminated, this contract shall be for a term of one year
and automatically renew from year to year thereafter. The rate charged for
each subsequent year shall be based on a detailed summary of prior year's
experience in order to set a true and accurate cost of service for
CareFlorida members.
8. Payments
--------
HEARx's Tax I.D. Number is 22-2748248. Payments should be sent as follows:
By Mail By Wire
------------------------------------ -------------------------------------
HEARx Ltd. ABA# 267090617
471 Spencer Drive Account# 0055742135
West Palm Beach, FL 33409 Republic Security Bank
603 Village Boulevard
West Palm Beach, FL 33409
HEARx Operating Account
<PAGE> 6
Ms. Traci M. Schmidt
Page 4
January 18, 1995
If this is your understanding of our agreement, please sign and return a copy
of this agreement so that formal contracts can be prepared outlining all of the
above terms. It is understood that by mutual agreement service can begin prior
to the signing of the formal documents.
Yours truly,
/s/ Paul A. Brown
Paul A. Brown, M.D.
Chairman
PAB/dmd
Agreed To:
- ----------
/s/
- ---------------------------------------
Name
Regional Director
- ---------------------------------------
Title
January 23, 1995
- ---------------------------------------
Date
<PAGE> 1
EXHIBIT 10.20
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK
AND SHOULD BE CONSIDERED ONLY BY PERSONS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT
SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT is dated as of the 29 day of June, 1995, by and between
HEARx LTD., a Delaware corporation (the "Company") and KEW CAPITAL CORPORATION
LTD. (the "Investor").
WITNESSETH:
WHEREAS, in reliance upon the respective representations and warranties of
the Company and the Investor, and the terms and conditions hereinafter set
forth, the Investor desires to purchase from the Company, and the Company is
willing to sell to the Investor, the number of shares (the "Shares") of the
Company's common stock, par value $.10 per share ("Common Stock"), as is set
forth on the signature page of this Agreement at a purchase price in the amount
of Seventy-Seven Cents ($.77) per Share, subject to adjustment as set forth in
Paragraph 1(b) below.
NOW, THEREFORE, in consideration of the premises and the respective
covenants hereinafter set forth, the Company and the Investor hereby agree as
follows:
1. SALE AND PURCHASE OF SECURITIES.
(a) The Company is hereby offering for sale up to a maximum of
3,000,000 shares of its Common Stock. The Company hereby agrees
to sell to the Investor and the Investor hereby agrees to purchase
from the Company the number of Shares set forth on the signature
page of this Agreement for the purchase price as set forth above.
Such sale and purchase shall take place upon payment of the
purchase price for the Shares in United States Dollars by cashiers
check or certified check or electronic transfer of funds to the
Company, or at Company's written instruction.
(b) The Company agrees to deliver additional Shares to the Investor if
the average of the closing high bid price per share of common
stock for the forty (40) trading days after the date of original
issuance of the Shares based on reports produced by the National
Quotation Bureau (herein the "Post Issuance Average Price") shall
be less $1.286. In the event that additional shares are required
to be issued hereunder, and the number of additional Shares to be
issued is not a whole number, then the number of additional Shares
to be issued will be rounded to the nearest whole number. (By way
of example only, if the Post Issuance Average Price were $1.00,
then additional Shares would be required to be issued to make up
the difference. Under the example, if the original number of
Shares purchased is 750,000, then the additional Shares to be
issued would be 214,500, calculated as follows: 750,000 x $1.286
= $964,500; less 750,000 x $1.00 = $750,000; for a difference of
$214,500; divided by the Post Issuance Average Price of $1.00 =
214,500 additional Shares.)
<PAGE> 2
2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants to the Company as follows:
(a) The Investor has received copies of the following documents of the
Company: its Form 10-K for the year ended December 30, 1994, as
amended on Form 10-K/A, both as filed with the United States
Securities and Exchange Commission (the "Commission") and its
quarterly report on Form 10-Q for the quarter ended March 31,
1995, and all subsequent Forms 8-K that may have been filed by the
Company with the Commission (all of the foregoing are collectively
called the "Disclosure Documents"), and the Investor has carefully
reviewed the Disclosure Documents and this Agreement.
(b) The Investor has the full right, power and authority to enter into
this Agreement and to carry out and consummate the transactions
contemplated herein. This Agreement constitutes the legal, valid
and binding obligation of the Investor enforceable in accordance
with its terms.
(c) The Investor is acquiring the Shares for its own account and risk,
and no other person has any interest in or participation in the
Shares or any right, option, security interest, pledge or other
interest in or to the Shares. The Investor understands and agrees
that it must bear the economic risk of its investment in the
Shares for an indefinite period of time. The Shares have not been
registered under the Securities Act of 1933, as amended (the
"Act"). The Shares may not be offered or sold, directly or
indirectly, in the United States or to any natural person who is a
resident of the United States or to any other U.S. Person, as
defined in Rule 902(o) of Regulation S of the Securities and
Exchange Commission under the Act ("Regulation S"), or for the
account or benefit of any U.S. Person unless registered or exempt
from registration under the Act and any applicable state
securities or blue sky laws (the "State Acts").
(d) The Investor is not a U.S. Person, and is not acquiring the
Shares, directly or indirectly, for the account or benefit of any
U.S. Person in violation of Regulation S pursuant to which
regulation these shares are intended to be sold.
(e) The Investor agrees to dispose of or encumber its Shares only if
(i) the Shares are duly registered under the Act and all
applicable State Acts, or (ii) such disposition or encumbrance has
an exemption from registration under the Act, including any
exemption from the registration requirement of the Act which may
be available pursuant to Regulation S, and all applicable State
Acts.
(f) This Agreement has not been executed or delivered by the Investor
in the United States, and neither the Investor nor any person
acting on behalf of the Investor engaged directly or indirectly in
any negotiations with respect to this Agreement in the United
States.
(g) The offer and sale of the Shares was made in an "offshore
transaction" as defined under Rule 902(i) of Regulation S.
Investor understands that an "offshore transaction" as defined
under Regulation S is any offer or sale not made to a person in
<PAGE> 3
the United States, and either (A) at the time the buy order is
originated, the purchaser is outside the United States, or the
seller and any person acting on its behalf reasonably believe that
the purchaser is outside the United States; or (B) the transaction
is executed in, or on or through the facilities of a "designated
offshore securities market," and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a purchaser in the United States. The Investor
understands that clause (B) of this Paragraph 2(g) does not apply
to the Shares or this Agreement.
(h) Neither the Investor nor any affiliate of the Investor or any
person acting on their behalf, has made or is aware of any
"directed selling efforts" in the United States, which is defined
in Regulation S to be any activity undertaken for the purpose of,
or that could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the
securities being purchased hereby.
(i) The Investor understands that the Company is the issuer of the
securities which are the subject of this Agreement, and that, for
purposes of Regulation S, a "distributor" is any underwriter,
dealer or other person who participates, pursuant to a contractual
arrangement, in the distribution of securities offered or sold in
reliance on Regulation S and that an "affiliate" is any partner,
officer, director or any person directly or indirectly
controlling, controlled by or under common control with the person
in question. In this regard, the Investor shall not, during the
40-day restricted period set forth under Rule 903(c)(2), as a
distributor, either directly or through any affiliate, nor shall
he sell, transfer, hypothecate or otherwise convey the stock or
interest therein, other than outside the United States to a non-
U.S. person.
(j) Except as set forth in the Disclosure Documents, no
representations or warranties have been made to the Investor by
the Company, the officers or directors of the Company, or any
agent, employee or affiliate of any of them, and in entering into
this transaction the Investor is not relying upon any information,
other than that contained in the Disclosure Documents, and the
results of its own independent investigation.
(k) If the Investor is a corporation or trust or other entity, the
officer or trustee or other person executing this Agreement
represents and warrants that he is authorized to so sign; that the
entity is authorized by the governing documents of the entity as
the case may be, to make this investment;
(l) Investor acknowledges that the certificates representing the
Shares will bear a legend in substantially the following form:
"THESE SHARES HAVE BEEN ISSUED PURSUANT TO REGULATION S AS AN EXEMPTION TO
THE REGISTRATION PROVISIONS UNDER SECURITIES ACT OF 1933, AS AMENDED. FOR
A 40-DAY RESTRICTED PERIOD AFTER THE DATE OF ISSUANCE OF THE SHARES, THESE
SHARES CANNOT BE TRANSFERRED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS (AS DEFINED IN RULE 902(O) OF REGULATION S) EXCEPT UPON
REGISTRATION OF THE SHARES UNDER SAID ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM SUCH REGISTRATION."
<PAGE> 4
(m) The Investor understands that the offer and sale of the Shares is
being made only by means of this Agreement. In deciding to
subscribe for Shares, the Investor has not considered any
information other than that contained in this Agreement and the
Disclosure Documents. In particular, the Investor understands
that the Company has not authorized the use of, and the Investor
confirms that it is not relying upon, any other information,
written or oral, other than material contained in this Agreement
and the Disclosure Documents. The Investor is aware that the
purchase of the Shares involves a high degree of risk and that the
Investor may sustain, and has the financial ability to sustain,
the loss of its entire investment. The Investor has had the
opportunity to ask questions of, and receive answers from, the
Company's management regarding the Company.
(n) The Investor acknowledges and understands that the Company will be
paying a fee to the parties who have assisted it in placing the
Shares equal to eight percent (8%) of the gross consideration
received by the Company from the sale of the Shares and an amount
of shares of the Company's Common Stock equal to eight percent
(8%) of the number of Shares sold to Investors in this offering.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor as follows:
(a) The Company has been duly organized, is validly existing and is in
good standing under the laws of the State of Delaware.
(b) This Agreement and the issuance of Shares have been duly
authorized by the Company and such securities will be issued to
the Investor pursuant to all corporate action necessary for such
issuance.
(c) The Company has all the requisite corporate power and authority to
enter into and perform its obligations under this Agreement.
(d) The Shares when issued upon payment of the purchase price as
provided for in this Agreement, will be validly issued, fully paid
and nonassessable and free from preemptive rights or rights of
first refusal held by any person.
(e) The Company is a "Reporting Issuer" as defined under Rule 902(l)
of Regulation S, its Common Stock is registered pursuant to
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended, and it has filed all the material required to be filed
pursuant to Section 13(a) or 15(d) of the Exchange Act for a
period of at least twelve months immediately preceding the
offering of the Shares.
(f) Neither the execution or delivery of this Agreement or the
performance by the Company of the transactions contemplated herein
violate any provision of law applicable to the Company or conflict
with or result in a breach or termination of any provision of, or
constitute a default, or will result in the creation of any lien,
charge or encumbrance upon any of the property or assets of the
Company pursuant to or under any corporate charter, by-laws,
mortgage, deed of trust, indenture or other agreement or
instrument, or any other judgment, decree, statute, regulation or
<PAGE> 5
any other restriction of any kind or character to which the
Company is party or by which any of the assets of the Company may
be bound with or without the giving of notice, the passage of time
or both, except with respect to applicable laws affecting
creditors rights.
(g) Neither the Company nor, to the Company's knowledge, any affiliate
or person acting on behalf of the Company, has made any "directed
selling efforts," as that term is defined in Rule 902(b) of
Regulation S with respect to the sale of the Shares.
(h) No stop order or other similar order or decree preventing the
offering of the Shares, or any order asserting that the
transactions contemplated by this Agreement are subject to the
registration requirements of the Act has been issued and no
proceeding for that purpose have been commenced or are pending or,
to the knowledge of the Company, are contemplated.
(i) The Disclosure Documents contain all the information specified in,
and meeting the requirements of Rule 144A(d)(4) of the Act and do
not, and any amendment or supplement thereto, will not, contain an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(j) The authorized, issued and outstanding capital stock and other
securities of the Company conform in all respects to the
descriptions thereof in the Disclosure Documents. The shares of
authorized, issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive or similar rights. There are
no material agreements relating to the capital stock of the
Company except as described in the Disclosure Documents.
(k) Except as described in the Disclosure Documents, there are no
outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares
of capital stock or other equity interest in any of the Company's
subsidiaries, if any.
(l) All tax returns required to be filed by the Company in all
jurisdictions have been so filed, with the exception of such tax
returns where the lack of filing would not have a material adverse
effect on the business, properties, prospects, net worth or
results of operations of the Company or its subsidiaries. All
material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due or claimed to be
due from such entities or that are due and payable have been paid,
other than those being contested in good faith and for which
adequate reserves have been provided or those currently payable
without penalty or interest. The Company does not know of any
material proposed additional tax assessments against it or any of
its subsidiaries.
(m) The Company and each of its subsidiaries, if any, are duly
registered or qualified as foreign corporations to conduct their
respective businesses, and are in good standing, in each
<PAGE> 6
jurisdiction where such qualification is required by reason of the
owning or leasing of property or the conducting of business, with
the exception of such jurisdictions where the lack of registration
or qualification would not have a material adverse effect on the
business, properties, prospects, net worth or results of
operations of the Company or its subsidiaries. The Company and
each of its subsidiaries, if any, are in compliance with all
material local, state and federal laws, ordinances and regulations
(including environmental laws) applicable to their properties
(whether owned or leased) and their businesses, with the exception
of violations of such laws, ordinances and regulations which would
not have a material adverse effect on the business, properties,
prospects, net worth or results of operations of the Company or
its subsidiaries.
(n) There is (i) no action, suit or proceeding before or by any court,
arbitrator or governmental agency, body or official, domestic or
foreign, now pending, threatened or, to the knowledge of the
Company, contemplated to which the Company or any of its
subsidiaries is or may be a party or to which the business or
property of the Company or any of its Subsidiaries is or may be
subject and (ii) no statute, rule, regulation or order that has
been enacted, adopted or issued by any governmental agency or that
has been proposed by any governmental body, in the case of clauses
(i) and (ii) above, that is not disclosed in the Disclosure
Documents and which might have a material adverse effect on the
Company, any of its subsidiaries, the property of the Company or
any of its subsidiaries, the issuance of the Shares or the
consummation of any of the transactions contemplated by this
Agreement. There is no material contract or document concerning
the Company or any of its subsidiaries that is not described in
the Disclosure Document. No injunction, restraining order or
order of any nature by a federal or state court of competent
jurisdiction has been issued that would prevent the issuance of
the Shares.
(o) The Company and each of its subsidiaries, if any, possess or has
filed for such certificates, authorities, licenses or permits
issued by the appropriate local, state, federal or foreign
regulatory agencies or bodies as are material to, or legally
required for, the operation of their respective businesses.
Neither the Company nor any of its subsidiaries, if any, has
received any notice of proceedings regulating to, or has reason to
believe that any governmental body or agency is considering,
limiting, suspending, modifying or revoking any such certificate,
authority, license or permit.
(p) No consent, approval, authorization, license or other order of any
regulatory body, administrative agency, or other governmental body
within the United States is legally required for the valid
issuance and sale of the Shares and the consummation of the
transactions contemplated by this Agreement. No consents or
waivers from any person are required to consummate the
transactions contemplated by this Agreement, other than such
consents and waivers as have been obtained.
(q) The Company has not taken, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or
<PAGE> 7
result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Shares.
(r) Subsequent to dates as of which information is given in the
Disclosure Documents, except as disclosed therein: (i) neither
the Company nor any of its subsidiaries has incurred any
liabilities or obligations, direct or contingent, or entered into
any transactions, not in the ordinary course of business, that are
material, individually or in the aggregate, to the business of the
Company and its subsidiaries, taken as a whole; (ii) there has
not been any decrease in the capital stock of the Company or any
increase in long-term indebtedness to meet working capital
requirements or any material increase in short-term indebtedness
of the Company or any of its subsidiaries (other than sales of the
Company's securities in the private placement of up to $1.5
million which is described in the Disclosure Documents and such
decreases or increases as are in the ordinary course of business)
or any payment of or declaration to pay any dividends or any other
distribution with respect to the Company's capital stock and
(iii) there has not been any material adverse change in the
condition (financial or other), business, properties, prospects,
net worth or results of operations of the Company or its
subsidiaries.
(s) Neither the Company nor any of its subsidiaries is involved in any
material labor dispute nor, to the knowledge of the Company, is
any such dispute threatened.
(t) Except as disclosed in the Disclosure Documents, no person or
entity is entitled, through contract or otherwise, to request or
demand the registration of any shares of the Company's capital
stock. In addition, except as contemplated by this Agreement or
as disclosed in the Disclosure Documents, no person or entity is
entitled, through contract or otherwise, directly or indirectly
(i) to acquire any shares of the Company's capital stock from the
Company or (ii) to register, offer, sell, contract to sell,
hypothecate, pledge, or otherwise dispose of, any shares of the
Company's capital stock or any securities convertible into or
exercisable or exchangeable for such capital stock.
(u) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(v) Assuming (i) that the Investor representations and warranties in
Section 2 are true, and (ii) that the Investor acquired the Shares
in an offshore transaction and the Investor is not a "U.S. Person"
(within the meaning of Regulation S under the Act), the purchase
and sale of the Shares pursuant hereto is exempt from the
registration requirements of the Act.
(w) No officer, director or 5% or more shareholder of the Company has
been:
i) Convicted within the preceding ten years of any felony or
misdemeanor in connection with the offer, purchase or sale
<PAGE> 8
of any security or commodity involving the making of a
false filing with the Commission.
ii) Subject to any order, judgment or decree of any court of
competent jurisdiction temporarily or preliminary
enjoining or restraining, or subject to any order,
judgment or decree of any court of competent jurisdiction,
entered within the preceding five years, permanently
enjoining or restraining such person from engaging in or
continuing any conduct or practice in connection with the
purchase or sale of any security or commodity or involving
the making or a false filing with the Commission or any
state, or arising out of the conduct of the business of
any underwriter, broker, dealer, municipal securities
dealer or investment advisor.
iii) Subject to an order of the Commission entered pursuant to
Section 15(b), 15B(a) or 15B(c) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); or subject
to an order or the Commission entered pursuant to
Section 203(e) or (f) of the Investment Advisers Act of
1940.
iv) Suspended or expelled from membership in, or suspended or
barred from association with a member of, an exchange
registered as a national securities exchange pursuant to
Section 6 of the Exchange Act, as association registered
as a national securities association under Section 15A of
the Exchange Act or a Canadian securities exchange or
association for any act or omission to act constituting
conduct inconsistent with just and equitable principles of
trade.
v) Filed a registration statement which is the subject of a
currently effective registration stop order entered
pursuant to the Act or any State Act within the preceding
five years.
vi) Subject to any state's administrative enforcement order or
judgment which prohibits, denies or revokes the use of any
exemption from registration in connection with the offer,
purchase or sale of securities.
4. NOTICE. Any notice under the provisions of this Agreement shall be
given in writing and by hand, overnight courier or messenger service,
against signed receipt or acknowledgment of receipt, registered or
certified mail, return receipt requested, or telecopier or similar
means of communication if receipt is confirmed or if transmission is
confirmed by mail as provided in this Paragraph 4, to the Investor at
its address or telecopier number set forth on the signature page of
this Agreement or to the Company at 471 Spencer Drive, West Palm
Beach, Florida 33409. Any party may, by like notice, change the
address to which notice should be given.
5. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement and understanding
of the parties, superseding any and all prior written and prior
and contemporaneous oral agreements, understandings and letters of
<PAGE> 9
intent, and may not be modified or amended nor may any right be
waived except by a writing which expressly refers to this
Agreement, states that it is a modification, amendment or waiver
and is signed by both parties in the case of a modification or
amendment or the party to be charged in the case of a waiver. No
course of conduct or dealing and no trade custom or usage shall be
construed to modify or amend any of the provisions of this
Agreement. The failure of any of the parties to this Agreement to
enforce any provision of this Agreement on any occasion shall not
be deemed to be a waiver of any preceding or succeeding breach of
such provision or of any other provision.
(b) The various representations, warranties, covenants and agreements
set forth in this Agreement shall survive the issuance and
delivery of the Shares for a period of one year therefrom.
(c) This Agreement, and the respective rights, duties and obligations
of the parties pursuant to this Agreement, shall be governed and
construed in accordance with the laws of the State of Florida
applicable to agreements executed and to be performed wholly
within such State. Each of the parties hereby (i) irrevocably
consents and agrees that any legal or equitable action or
proceeding arising under or in connection with this Agreement
shall be brought exclusively in any Federal or State court in the
County of Palm Beach, State of Florida, and (ii) by execution and
delivery of this Agreement, irrevocably submits to and accepts,
with respect to its properties and assets, generally and
unconditionally, the jurisdiction of the aforesaid courts.
(d) This Agreement shall bind and inure to the benefit of the parties,
and their respective executors, administrators, successors and
assigns.
(e) If any provision of this Agreement is found to be void or
unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement, shall, nevertheless, be binding upon
the parties with the same force and effect as though the
unenforceable part has been severed and deleted.
(f) Each of the parties to this Agreement shall execute and deliver to
the other party, without charge to the other party, any further
instruments and documents and take such other action as may be
requested by the other party in order to provide for the other
party the benefits of this Agreement.
(g) The headings contained in this Agreement are for the convenience
of the parties and for reference only, are not considered a part
of this Agreement and in no way shall modify, amplify or otherwise
affect the construction or enforcement of this Agreement.
(h) All references to the masculine, feminine and neuter genders shall
include the other genders, the singular shall include the plural,
and the plural shall include the singular.
(i) This Agreement may be executed in one or more counterparts, all of
which shall be deemed to be duplicate originals.
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement,
Number of Shares KEW CAPITAL CORPORATION LTD.
subscribed for: 780,000 Name of Investor
Purchase Price
of Shares
subscribed for
U.S.$0.77 each By: /s
-----------------------------------------
(Signature)
Title, if applicable Director
--------
Address: P.O. Box 116
Road Town, Tortola, British Virgin Islands
------------------------------------------
Country in which this Agreement is executed by Investor: British Virgin Islands
----------------------
Telecopier Number: 809 494 3041
------------
Social Security No. or Tax I.D. No. (if applicable): N.A.
----
Accepted this day of , 1995
HEARx LTD.
By:
-----------------------------------
<PAGE> 1
EXHIBIT 10.21
FORM OF
OFFSHORE SECURITIES SUBSCRIPTION AGREEMENT
THIS OFFSHORE SUBSCRIPTION AGREEMENT (the "Agreement"), dated this 29th day of
September, 1995, is entered into by and between HEARx, Ltd., a Delaware
Corporation (the "Issuer"), and Zanett Lombardier, Ltd. (the "Purchaser").
The issuer has offered for sale outside the United States, as that term is
defined in Regulation S ("Regulation S") under the United States Securities Act
of 1933, as amended (the "Act") to the Purchaser 161,813 shares of its common
stock, $.10 par value. Capitalized terms used herein and not defined herein
shall have the meanings given to them in Regulation S.
The parties hereto agree as follows:
1. Purchase and Sale of Shares. Upon the basis of the representations and
warranties, and subject to the terms and conditions, set forth in this
Agreement, the Issuer covenants and agrees to sell to the Purchaser on the
Closing Date (as hereinafter defined) 161,813 shares of the Issuer's common
stock, par value $.10 (the "Shares"), at a price equal to $0.618 per share (the
"Purchase Price"), for an aggregate Purchase Price of $100,000, and upon the
basis of the representations and warranties and subject to the terms and
conditions, set forth in this Agreement, the Purchaser covenants and agrees to
purchase from the Issuer on the Closing Date the Shares at the Purchase Price.
2. Warrants. For the consideration set forth above, in addition to issuance
of the Shares, Issuer hereby grants to Purchaser twelve (12) warrants to
purchase the Issuer's Common Stock, as follows:
a. The first Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of November 1995.
b. The second Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of December 1995.
c. The third Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of January 1996.
d. The fourth Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of February 1996.
e. The fifth Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of March 1996.
f. The sixth Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of April 1996.
g. The seventh Warrant may be exercised on the second-to-last business
day (in the State of New York) of the month of May 1996.
h. The eighth Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of June 1996.
i. The ninth Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of July 1996.
<PAGE> 2
j. The tenth Warrant may be exercised on the second-to-last business day
(in the State of New York) of the month of August 1996.
k. The eleventh Warrant may be exercised on the second-to-last business
day (in the State of New York) of the month of September 1996.
l. The twelfth Warrant may be exercised on the second-to-last business
day (in the State of New York) of the month of October 1996.
m. The Warrants shall be exercised by written notice sent pursuant to
paragraph 13 below, by midnight on the date of exercise.
n. The number of Shares into which the Warrants shall be exercisable
shall be calculated as follows:
$0.85 - Market Price) x 161,813
-------------------------------
Market Price
For the purposes of this calculation, "Market Price" shall mean the
average closing bid price per share as quoted on the OTC Bulletin Board or the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") for the five business days prior to each exercise date of the
Warrants.
o. Anti-Dilution Provisions. The number and kind of securities to be
issued upon the exercise of this Warrant shall be subject to adjustment, if
appropriate, from time to time as follows:
i. In case the Issuer shall (i) pay a dividend or make a distribution
on the outstanding common shares payable in common shares, (ii) subdivide the
outstanding common shares into a greater number of shares, (iii) combine the
outstanding common shares into a lesser number of shares, or (iv) issue by
reclassification of the common shares any common shares of the Issuer, the
holder of the Warrants shall thereafter be entitled, upon exercise, to receive
the number and kind of shares which, if this Warrant had been converted
immediately prior to the happening of such event, the holder would have owned
upon such exercise and been entitled to receive upon such dividend,
distribution, subdivision, combination, or reclassification. Such adjustment
shall become effective on the day next following the record date of such
dividend or distribution or the day upon which such subdivision, combination,
or reclassification shall become effective.
ii. In case the Issuer shall consolidate or merge into or with another
corporation, or in case the Issuer shall sell or convey to any other person or
persons all or substantially all the property of the Issuer, the holder of the
Warrants shall thereafter be entitled, upon exercise, to receive the kind and
amount of shares, other securities, cash, and property receivable upon such
consolidation, merger, sale, or conveyance by a holder of the number of common
shares which might have been received upon exercise of this Warrant immediately
prior to such consolidation, merger, sale, or conveyance, and shall have no
other exercise rights. In any such event, effective provision shall be made,
in the certificate or articles of incorporation of the resulting or surviving
corporation, in any contracts of sale and conveyance, or otherwise so that, so
far as appropriate and as nearly as reasonably may be, the provisions set forth
herein for the protection of the rights of the holder of the Warrants shall
thereafter be made applicable.
<PAGE> 3
iii. If at any time the Issuer is required to issue shares of its
common shares in excess of the number of common shares then authorized, both
the Issuer and the holder shall cooperate in taking any and all steps necessary
to increase the number of authorized common shares of the Issuer to effectuate
the purposes of this Section o.
iv. Irrespective of any adjustments in the number or kind of shares to
be received upon exercise of this Warrant, the form of warrants theretofore or
thereafter issued may continue to express the number and kind of shares as are
stated in this Warrant.
v. The Issuer will cause the certificate representing the additional
shares to be promptly delivered to Purchaser subject to a "restrictive legend"
as set forth in paragraph 4(l)(i) below, to be in effect until the 41st day
following the exercise date.
p. Registration Rights. If, prior to expiration of the Warrants, the
United States Securities and Exchange Commission (S.E.C.) amends or abolishes
Regulation S, the Purchaser shall have the right to request the Issuer to cause
one registration of the Common Stock underlying the Warrants (the "Common
Stock"), under the Securities Act. Such request shall conform to Section 13
"Notices" below. The Issuer agrees, to as expeditiously as possible, to effect
such registration and any supplements thereto to cause the registration
statement to become effective and to use its best efforts to qualify the
Common Stock for transfer under state securities laws in no more than two
states as the option holder may designate. The Issuer will pay all costs and
expenses incidental to the performance of the registration obligations
thereunder except for any underwriting commissions or discounts charged to the
option holder. In the event that Issuer does not register the Common Stock
within two (2) months of the request to register the Common Stock by Purchaser,
then for each day in excess of the two (2) month period, Issuer shall issue
5,000 additional shares of common stock to Purchaser. Such common stock shall
also be entitled to registration together with and at the same time as the
Common Stock issued upon exercise of the Warrants.
q. Repurchase of Warrants. Issuer shall have the right, at its sole
discretion and at any time, to repurchase any and all unexpired warrants for
the sum of $50,000.
3. Closing. The closing of the purchase and sale of the Shares shall take
place no later than October 16, 1995 (the "Closing Date"), at the offices of
MICHAEL QUAIN, at BANK JULIUS BAER (NYC) (the "Escrow Agent"), located at 333
Madison Avenue, New York, New York, 10017, or at such other date, time and
place as the Purchaser and the Issuer may agree upon in writing. The
certificates representing the Shares to be purchased by the Purchaser shall be
delivered by, or on behalf of, the Issuer at the above-mentioned offices of the
Escrow Agent. The Purchase Price shall be delivered in immediately available
funds by, or on behalf of, the Purchaser to the Escrow Agent. The Escrow Agent
shall be instructed by the Purchaser and the Issuer to deliver the said Shares
against payment therefor in accordance with the delivery instructions of the
Purchaser, subject to customary settlement procedures.
4. Representations and Warranties of the Purchaser. The Purchaser
understands, and represents and warrants to, and agrees with, the Issuer, that:
a. The Purchaser understands that no Federal or state agency has passed
on or made any recommendation or endorsement of the Shares.
<PAGE> 4
b. The Purchaser has received a copy of the Disclosure Documents (as
defined below) and understands that, except as set forth in the Disclosure
Documents and in this Agreement, no representations or warranties have been
made to the Purchaser by the Issuer or by any distributor, or by any of their
officers, directors, employees, agents or affiliates. The term "Disclosure
Documents" shall mean (a) the Issuer's latest Annual Report on Form 10-K
(without exhibits), as filed with the S.E.C.; and (b) the Issuer's Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, if any, filed with the
S.E.C. since the filing of the Form 10-K, and any written communication from
the Issuer or its officers to the Purchaser or any Reg S distributor involved
in this transaction. The Purchaser acknowledges that, in making the decision
to purchase the Shares, the Purchaser has relied solely upon independent
investigations made by the Purchaser and not upon any representations made by
the Issuer or any other person with respect to the Issuer or the Shares, except
as set forth in the Disclosure Documents.
c. The Purchaser understands that the Shares are being offered and sold
to the Purchaser in reliance on specific exemptions from or non-application of
the registration requirements of federal and state securities laws and that the
Issuer is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of the Purchaser
set forth herein in order to determine the applicability of such exemptions and
the suitability of the Purchaser to acquire the Shares.
d. The Purchaser is not a U.S. Person (as defined in Regulation S) and is
not an affiliate of the Issuer.
e. No offer of the Shares was made to the Purchaser in the United States.
f. At the time the buy order for the Shares was originated, the Purchaser
was located outside the United States.
g. None of the Purchasers, the Purchaser's affiliates, or any person
acting on behalf of the Purchaser or any such affiliate has engaged, or will
engage, in any Directed Selling Efforts with respect to the Shares; and the
Purchaser and the Purchaser's affiliates have complied, and will comply, with
the Offering Restrictions, and any other requirements, of Regulation S.
h. The Purchaser is aware that the Shares have not been and will not be
registered under the Act and may only be offered or sold pursuant to
registration under the Act or an available exemption therefrom.
i. The Purchaser:
i. will not, during the period, commencing on the Closing Date and
ending on the day 40 days after the Closing Date (the "Restricted Period"),
offer or sell the Shares in the United States, to a U.S. Person or for the
account or benefit of a U.S. Person other than in accordance with Rule 903 or
Rule 904 of Regulation S; and
ii. will, after the expiration of the Restricted Period, offer, sell,
pledge or otherwise transfer the Shares only pursuant to registration under the
Act or an available exemption therefrom and, in any case, in accordance with
applicable state securities laws.
j. If The Purchaser offers and sells the Shares during the Restricted
Period, then the Purchaser will do so only: in accordance with the provisions
of Regulation S, pursuant to registration of the Shares under the Act, or
<PAGE> 5
pursuant to an available exemption from the registration requirements of the
Act.
k. The transactions contemplated by this Agreement;
i. have not been pre-arranged with a purchaser located in the United
States or who is a U.S. Person; and
ii. are not part of a plan or scheme to evade the registration
provisions of the Act.
l. The Purchaser is purchasing the Shares for the Purchaser's own account
for the purpose of investment and not (i) with a view to, or for sale in
connection with, any distribution thereof; or (ii) for the account or on behalf
of any U.S. Person.
m. The Purchaser acknowledges that the certificates evidencing the Shares
will bear the following legend:
"These shares have been issued pursuant to Regulation S as an
exemption to the registration provisions under the Securities
Act of 1933, as amended. These shares cannot be transferred,
offered or sold in the U.S. or to U.S. persons (as defined in
Regulation S) until December 31, 1995."
The Issuer covenants and agrees that following the expiration of the
Restricted Period, the Issuer will advise the transfer agent for the Common
Stock, upon the request of a record holder of the Shares, that the foregoing
legend can be removed from the certificate for the Shares.
5. Representations and Warranties of the Issuer. The Issuer represents and
warrants to, and agrees with, the Purchaser that:
a. The Issuer has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
b. This Agreement has been duly authorized, executed and delivered by the
Issuer and is a valid and binding agreement enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and the Issuer
has full corporate power and authority necessary to enter into this Agreement
and to perform its obligations hereunder.
c. No consent, approval, authorization or order of any court,
governmental agency or body or arbitrator having jurisdiction over the Issuer
or any of its affiliates is required for execution of this Agreement,
including, without limitation, the issuance and sale of the Shares, or the
performance of its obligations hereunder.
d. Neither the sale of the Shares pursuant to, nor the performance of its
obligations under, this Agreement by the Issuer will:
i. violate, conflict with, result in a breach of, or constitute a
default (or an event which with the giving of notice or the lapse or time or
both would be reasonably likely to constitute a default) under (A) the Articles
of Incorporation, charter or by-laws of the Issuer or any of its affiliates;
(B) any decree, judgment, order, law, treaty, rule, regulation or determination
<PAGE> 6
applicable to the Issuer or any of its affiliates of any court, governmental
agency or body, or arbitrator having jurisdiction over the Issuer or any of its
affiliates or over the properties or assets of the Issuer or any of its
affiliates; (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Issuer or any
of its affiliates is a party, by which the Issuer or any of its affiliates is
bound, or to which any of the properties of the Issuer or any of its affiliates
is subject; or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Issuer or any of its affiliates
is a party; or
ii. result in the creation or imposition of any lien, charge or
encumbrance upon the Shares or any of the assets of the Issuer or any of its
affiliates.
e. The Shares:
i. are free and clear of any security interests, liens, claims or
other encumbrances;
ii. have been duly and validly authorized and on the Closing Date will
be duly and validly issued, fully paid and nonassessable;
iii. will not have been, individually or collectively, issued or
sold in violation of any preemptive or other similar rights of the holders of
any securities of the Issuer;
iv. will not subject the holders thereof to personal liability by
reason of being such holders; and
v. are quoted or listed on, and will be, following the completion of
the Restricted Period (if sold in accordance with the provisions of this
Agreement) eligible for trading on, the OTC Bulletin Board, NASDAQ or other
exchange.
f. The Issuer is a Reporting Issuer within the meaning of Rule 902(1) of
Regulation S, and has filed all reports required to be filed by Section 13(a)
or 15(d) of the United States Securities and Exchange Act of 1934 (the
"Exchange Act") during the preceding 12 months and has been subject to such
filing requirements for the past 90 days;
g. There is no pending, or to the best knowledge of the Issuer,
threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Issuer
or any of its affiliates that would materially affect the execution by the
Issuer of, or the performance by the Issuer of its obligations under, this
Agreement.
h. The Issuer, any person representing the Issuer, and to the best
knowledge of Issuer, any other person selling or offering to sell the Shares in
connection with the transaction contemplated by this Agreement, have not made,
at any time, through and including the date hereof, any oral communication in
connection with the offer or sale of the Shares which contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements, in the light of the circumstances under which
they were made, not misleading.
<PAGE> 7
i. The Issuer is not in possession of any material non-public information
that, if disclosed, would or could reasonably be expected to have, a material
adverse effect on the price of the Shares.
j. The sale of the Shares pursuant to this Agreement will be made in
accordance with the provisions and requirements of Regulation S and any
applicable state law.
k. No offer to buy the Shares was made to the Issuer by any person in the
United States.
l. None of the Issuer, any affiliate of the Issuer, or any person acting
on behalf of the Issuer or any such affiliate has engaged ,or will engage, in
any Directed Selling Efforts with respect to the Shares.
m. The transactions contemplated by this Agreement:
i. have not been pre-arranged with a purchaser who is in the United
States or is a U.S. Person; and
ii. are not part of a plan or scheme to evade the registration
provisions of the Act.
n. The Issuer has not issued, and after the Closing Date will not issue,
any stop transfer order or other order impeding the sale and delivery of the
Shares except for a stop order restricting the sale of the Shares into the
United States or to, or for the account or benefit of, U.S. Persons during the
Restricted Period.
6. Covenants of the Issuer. The Issuer covenants and agrees with the
Purchaser:
a. to continue to comply with all applicable reporting requirements of
the Exchange Act;
b. to refrain from publishing or disseminating any material in connection
with the offering of the Shares except as required by law;
c. to ensure that all Offering Restrictions applicable to the sale of
Shares pursuant to this Agreement are thoroughly complied with and satisfied;
d. to refrain from engaging, and insure that none of its affiliates will
engage, in any Directed Selling Efforts with respect to the Shares;
e. to notify the Purchaser promptly if at any time during the period
beginning on the date of this Agreement and ending on the Closing Date (i) any
event shall have occurred as a result of which the Disclosure Documents would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (ii) there is a
public disclosure of material information regarding the Issuer or its financial
condition or results of operations;
f. not to conduct a reverse split of its common stock; and not to issue
any additional shares of common stock or of any other class of securities,
including but not limited to options and warrants, in Regulation S offerings,
without the consent of the Purchaser, during the period from the date of the
<PAGE> 8
execution of this Agreement until the last exercise date of the Warrants being
granted pursuant to Section 2 of this Agreement.
7. Conditions Precedent to the Purchaser's Obligations. The obligations of
the Purchaser hereunder are subject to the performance by the Issuer of its
obligations hereunder and to the satisfaction of the condition precedent that
the representations and warranties made by the Issuer in this Agreement shall,
unless waived by the Purchaser, be true and correct as of the date hereof and
at the Closing Date, with the same force and effect as if they had been made on
and as of the Closing Date.
8. Conditions Precedent to the Issuer's Obligations. The obligations of the
Issuer hereunder are subject to the performance by the Purchaser of its
obligations hereunder and to the satisfaction of the following additional
condition precedents:
a. The representations and warranties made by the Purchaser in this
Agreement shall, unless waived by the Issuer, be true and correct as of the
date hereof and at the Closing Date, with the same force and effect as if they
had been made on and as of the Closing Date.
b. The delivery into escrow of the immediately available funds in the
amount of the Purchase price for the Shares.
9. Fees and Expenses. Each of the Purchaser and the Issuer agrees to pay its
own expenses incident to the performance of its obligations hereunder,
including but not limited to, the fees, expenses and disbursements of such
party's counsel.
10. Non-Delivery of the Shares. If, on the Closing Date, the Issuer shall fail
to deliver the Shares to the Purchaser pursuant to this Agreement for any
reason other than the failure by the Purchaser to comply with its obligations
hereunder, then the Issuer shall:
a. Hold the Purchaser harmless against any loss, claim or damage arising
from or as a result of such failure by the Issuer (including, without
limitation, any such loss, claim or damage resulting from an obligation to
resell the Shares); and
b. reimburse the Purchaser for all of its out-of-pocket expenses,
including fees and disbursements of its counsel, incurred by the Purchaser in
connection with this Agreement and the transactions contemplated herein;
provided, however, that the Issuer shall then be under no further liability to
the Purchaser except as provided in t his Section 10 and Section 11 hereof.
11. Indemnification.
a. Issuer agrees to indemnify and hold the Purchaser harmless as follows:
i. against any loss, liability, claim, damage and expense arising out
of (including but not limited to expenses reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever based upon) any untrue or alleged untrue statement of a
material fact contained in the Disclosure Documents, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; and
<PAGE> 9
ii. against any loss, liability, claim, damage and expense to the
extent of the aggregate amount paid in settlement of any litigation, commenced
or threatened, or of any claim based upon any untrue statement or omission or
any alleged untrue or omission as above provided (including but not limited to
expenses reasonably incurred in investigating, preparing or defending against
any such litigation or claim), if such settlement is effected with the written
consent of Issuer;
b. The Purchaser agrees to indemnify and hold harmless Issuer, its
directors, officers, employees, attorneys, accountants, agents and affiliates,
and each person, if any, who controls any of the foregoing persons within the
meaning of Section 15 of the Act as follows:
i. against any loss, liability, claim, damage or expense resulting
from or arising out of (including but not limited to expenses reasonably
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever based upon) (x) the
Purchaser's violation or alleged violation of Regulation S or any other
applicable law, and (y) any breach by the Purchaser of any of its
representations, warranties, covenants or agreements contained in this
Agreement; and
ii. against any loss, liability, claim, damage and expense to the
extent of the aggregate amount paid in settlement of any litigation, commenced
or threatened as above provided (including, but not limited to expenses
reasonably incurred in investigating, preparing or defending against any such
litigation or claim), if such settlement is effected with the written consent
of the Issuer.
12. Survival of Representations, Warranties, etc.. The respective agreements,
representations, warranties, indemnities and other statements made by or on
behalf of the Issuer and the Purchaser, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party of this Agreement or any
officer, director or employee of, or person controlling or under common control
with, such party and will survive delivery of any payment for the Shares.
13. Notices. All notices, requests, and demands given to or made upon the
parties hereto shall, except as otherwise specified herein, be in writing and
be shall be delivered, sent by certified or registered mail or by telecopier or
facsimile (fax) and confirmed as follows:
Purchaser:
Name: ZANETT LOMBARDIER LTD
Kirk House
PO Box 1100
Grand Cayman, Cayman Islands
British West Indies
Issuer:
Name: HEARx, LTD.
Address: 471 Spencer Drive
West Palm Beach, Florida 33409
Country: USA
Attention: Paul A. Brown, M.D.
<PAGE> 10
Any party may, by notice hereunder to the other party, designate a changed
address for such party. Any notice, if mailed properly addressed, postage
prepaid, registered or certified mail, shall be deemed dispatched on the
registered date or that stamped on the certified mail receipt, and shall be
deemed received the fifth business day thereafter, or when it is actually
received, whichever is sooner. All references to hours of the day shall mean
the official time in effect on the date in question in the State of New York,
U.S.A.
14. Miscellaneous.
a. This Agreement may be executed in any number of counterparts,
including counterparts transmitted by telecopier or FAX, any one of which shall
constitute an original of this Agreement. When counterparts of facsimile
copies have been executed by all parties, they shall have the same effect as if
the signatures to each counterpart or copy were upon the same document and
copies of such documents shall be deemed valid as originals. The parties agree
that all such signatures may be transferred to a single document upon the
request of any party.
b. This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective successor and, with respect to Section 11
hereof, the officers, directors and controlling persons thereof and each person
under common control therewith, and no other person shall have any right or
obligation hereunder.
c. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York (without giving effect to conflicts of laws
principles).
d. The headings of the sections of this document have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
e. The parties hereto agree to submit to arbitration by the American
Arbitration Association, under its Commercial Arbitration Rules, any dispute
among them concerning this Agreement and their rights, obligations and duties
hereunder, and expressly consent the entry of a judgment on the award rendered
in any court having jurisdiction thereof. Provided, however, neither party
shall be precluded from obtaining a preliminary injunction from a court of
appropriate jurisdiction, at any time, notwithstanding this arbitration
provision, to enforce the provisions of this Agreement.
15. Consent to Jurisdiction. Each of the Issuer and the Purchaser (i) hereby
irrevocably submits to the nonexclusive jurisdiction of the United States
District Court for New York City or any State Court sitting in New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Agreement and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in
an inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Issuer and the Purchaser consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this paragraph shall affect or limit
any right to serve process in any other manner permitted by law.
<PAGE> 11
16. Time of the Essence. Time shall be of the essence in this Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Offshore Securities
Subscription Agreement to be executed by a duly authorized officer.
Zanett Lombardier Ltd.
---------------------------------------------
Name of Purchaser
By: /s/ G. A. Cicogna
-----------------------------------------
NAME: Gianluca Cicogna
TITLE: Director to the Advisor
---------------------------------------------
Business Address
Kirk House
PO Box 1100
Grand Cayman, Cayman Islands
British West Indies
ACCEPTED:
HEARx, LTD.
By: /s/
----------------------------
NAME:
TITLE:
<PAGE> 1
EXHIBIT 10.22
PROMISSORY NOTE
$100,000 New York, NY
December 11, 1995
FOR VALUE RECEIVED, HEARx LTD., a Delaware corporation ("Borrower"), hereby
promises to pay to the order of BRUCE M. LANGONE (the "Holder"), the amount of
ONE HUNDRED THOUSAND DOLLARS ($100,000), together with interest thereon at the
rate of seven percent (7%) per annum.
Interest on the unpaid principal amount of this Note shall be paid in
arrears pro rata for the prior calendar month, and shall be payable on the
first day of each month, commencing on January 1, 1996.
Borrower shall repay the principal sum in full on December 11, 1996. This
Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty.
Payment received hereunder shall be applied first to the payment of
interest and then to the payment of principal, unless otherwise agreed by the
Holder.
Both principal and interest payments shall be made in lawful money of the
United States at the business office of the Holder, or at such other place as
the Holder may from time to time direct.
Upon an Event of Default (as defined below) hereunder, the principal sum
hereunder and all interest then accrued shall be immediately due and payable
without notice to or demand on Borrower, and interest accruing hereunder shall
increase by 200 basis points per annum. An Event of Default shall include:
(i) the failure of Borrower to make any payment of principal or
interest hereunder, which failure shall continue five days after notice
thereof provided by the Holder;
(ii) the failure by Borrower to make any other payment required
hereby, which failure shall continue five days after notice thereof
provided by the Holder;
(iii) the admission in writing by Borrower of its inability to pay
its debts as they become due;
(iv) the making by Borrower of a general assignment for the benefit
of creditors; or
(v) the institution by or against Borrower of any proceedings
seeking the appointment of a trustee, receiver, custodian or liquidator for
itself or a substantial part of its property, or seeking its liquidation,
reorganization, dissolution or winding-up or the composition or
readjustment of its debts, or seeking similar relief under any law relating
to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts; provided, however, if any such proceedings are
instituted against Borrower, such proceedings shall have remained
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of sixty or more days.
<PAGE> 2
This Note may be assigned by the Holder at any time.
In addition to and not in limitation of the foregoing, Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Note in endeavoring to collect any amounts payable hereunder
which are not paid when due.
Presentment for payment, demand, protest, dishonor and notice of dishonor
are hereby waived.
The parties intend that this Note shall be governed by and construed in
accordance with the substantive laws of the State of New York without regard to
principals of conflicts of laws or choice of law.
Borrower consents to the personal jurisdiction of the Federal or State
Courts located in the State of New York and agrees that venue shall be proper
and the forum shall be convenient in the County of New York if suit is filed to
enforce, interpret or construe this Note. ALL PARTIES HEREBY MUTUALLY AND
RECIPROCALLY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY PROCEEDING HEREON OR
RELATED HERETO.
IN WITNESS WHEREOF, Borrower has caused the due execution hereof on the day
and year first above written.
HEARx LTD.
Attest:
/s/ Doris M. Davis By: /s/
- -------------------------------- -----------------------------------------
Title: Assistant Secretary Title:
<PAGE> 1
EXHIBIT 10.23
PROMISSORY NOTE
$1,000,000 New York, NY
December 11, 1995
FOR VALUE RECEIVED, HEARx LTD., a Delaware corporation ("Borrower"), hereby
promises to pay to the order of KENNETH G. LANGONE (the "Holder"), the amount
of ONE MILLION DOLLARS ($1,000,000), together with interest thereon at the rate
of seven percent (7%) per annum, provided that the amount of $1,000,000 is wire
transferred to Borrower on Monday, December 12, 1995.
Interest on the unpaid principal amount of this Note shall be paid in
arrears pro rata for the prior calendar month, and shall be payable on the
first day of each month, commencing on January 1, 1996.
Borrower shall repay the principal sum in full on December 11, 1996. This
Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty.
Payment received hereunder shall be applied first to the payment of
interest and then to the payment of principal, unless otherwise agreed by the
Holder.
Both principal and interest payments shall be made in lawful money of the
United States at the business office of the Holder, or at such other place as
the Holder may from time to time direct.
Upon an Event of Default (as defined below) hereunder, the principal sum
hereunder and all interest then accrued shall be immediately due and payable
without notice to or demand on Borrower, and interest accruing hereunder shall
increase by 200 basis points per annum. An Event of Default shall include:
(i) the failure by Borrower to make any payment of principal or
interest hereunder, which failure shall continue five days after notice
thereof provided by the Holder;
(ii) the failure by Borrower to make any other payment required
hereby, which failure shall continue five days after notice thereof
provided by the Holder;
(iii) the admission in writing by Borrower of its inability to pay
its debts as they become due;
(iv) the making by Borrower of a general assignment for the benefit
of creditors; or
(v) the institution by or against Borrower of any proceedings
seeking the appointment of a trustee, receiver, custodian or liquidator for
itself or a substantial part of its property, or seeking its liquidation,
reorganization, dissolution or winding-up or the composition or
readjustment of its debts, or seeking similar relief under any law relating
to bankruptcy, insolvency, reorganization, winding-up or composition or
adjustment of debts; provided, however, if any such proceedings are
instituted against Borrower, such proceedings shall have remained
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of sixty or more days.
<PAGE> 2
This Note may be assigned by the Holder at any time.
In addition to and not in limitation of the foregoing, Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the holder of this Note in endeavoring to collect any amounts payable hereunder
which are not paid when due.
Presentment for payment, demand, protest, dishonor and notice of dishonor
are hereby waived.
The parties intend that this Note shall be governed by and construed in
accordance with the substantive laws of the State of New York without regard to
principals of conflicts of laws or choice of law.
Borrower consents to the personal jurisdiction of the Federal or State
Courts located in the State of New York and agrees that venue shall be proper
and the forum shall be convenient in the County of New York if suit is filed to
enforce, interpret or construe this Note. ALL PARTIES HEREBY MUTUALLY AND
RECIPROCALLY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY PROCEEDING HEREON OR
RELATED HERETO.
IN WITNESS WHEREOF, Borrower has caused the due execution hereof on the day
and year first above written.
HEARx LTD.
Attest:
By: /s/
- ----------------------------------- -------------------------------------
Title: Secretary Title:
<PAGE> 1
EXHIBIT 10.24
Oxford Health Plans
800 Connecticut Avenue . Norwalk, CT 06854 . 203-852-1442 . 800-444-6222
August 10, 1995
Paul A. Brown, MD.
Chairman
Hear-X, Ltd.
471 Spencer Drive
West Palm Beach, FL 33409
Dear Dr. Brown:
This letter of agreement sets forth the terms whereby Hear-X Ltd. ("Provider")
will provide services to members of Oxford's medical plans ("Members").
1. Services. Provider agrees to provide the services described in
Attachment A hereto to Members in accordance with Oxford policies. Provider
shall only render services to Members which have been authorized in advance by
each Member's Primary Care Physician or by Oxford ("Covered Service").
Provider agrees not to differentiate or discriminate in the treatment of his or
her patients on the basis of race, sex, age, religion, place of residence,
health status or source of payment, including Medicare and Medicaid, and to
observe, protect and promote the rights of Members as patients.
2. Promotion. Oxford shall promote the use of Provider among Oxford's
participating physicians. Additionally, Oxford shall make Provider's services
available to Members in accordance with Oxford policies.
3. Good Standing. Provider hereby represents and certifies that it is in
compliance and in good standing with all applicable local, state and federal
regulatory requirements, and has obtained, and will continue to maintain, all
necessary licenses and approvals, and will comply with all applicable
regulatory requirements.
4. Reimbursement Rules. The rates to be charged Oxford by Provider for
services to Members shall be at Oxford's rates. Oxford's maximum allowable
rates are set forth in Attachment B hereto.
5. Insurance. Provider shall provide and maintain such policies of
general and professional liability (malpractice) insurance as shall be
necessary to insure Provider and its employees against any claim or claims for
damages arising by reason of personal injuries or death occasioned, directly or
indirectly, in connection with the performance of any service by Provider. The
amount and extent of such insurance coverage shall be subject to the approval
of Oxford, and shall not be less than $1,000,000 per claim and $3,000,000 per
year.
6. Payment. Provider shall bill Oxford for reimbursement. Statements
shall be in form and detail acceptable to Oxford. Provider hereby agrees that
in no event, including, but not limited to non-payment by Oxford, Oxford's
insolvency or breach of this Agreement, shall Provider bill, charge, collect a
deposit from, seek compensation, remuneration or reimbursement from, or have
any recourse against any Member for covered services provided pursuant to this
<PAGE> 2
Agreement. Provider agrees to bill Members directly for services which are not
Covered Services. Oxford agrees to verify any Member's eligibility for Covered
Services on inquiry by Provider during business hours. Provider agrees to
submit to Oxford an diskette utilization data containing similar information
that a typical claim would contain. This information shall include, but not be
limited to, Member Name, Date of Service, Diagnosis, referral form, CPT Code
and/or Description of Service. This information will be submitted to Oxford
within 30 days of the end of each month, reflecting the monthly utilization.
All statements by Provider shall be considered final unless adjustment is made
by Provider within 45 days of receipt by Oxford. Oxford will not be liable for
the payment of statements received more than 45 days after the date services
included in such statement were delivered by Provider. Oxford shall make
payment for Covered Services to Provider within 30 days of receipt of statement
by Oxford.
7. Medical Records. Provider and Oxford agree that all Members' medical
records shall be treated as confidential so as to comply with all city, state
and federal laws regarding the confidentiality of patient records. To the
extent permitted by law, Oxford shall have the right to inspect at reasonable
times any accounting, administrative or medical records maintained by Provider
pertaining to Oxford, to Members or to Providers participating hereunder. In
addition, Provider agrees that it shall provide access to all medical records
of Members to Oxford Health Plans and to appropriate personnel of the State
Health Department in compliance with all applicable statutes and regulations.
8. Quality Assurance and Utilization Review. Provider agrees to
cooperate and participate in such peer review program, including utilization
review and quality assurance programs, external audit systems, and
administrative and grievance procedures, as are established by Oxford.
Provider agrees to comply with all final determinations rendered by Oxford's
quality assurance programs, peer review programs or grievance procedures.
Provider agrees that all services performed for Member shall be consistent with
the proper practice of medicine, and that such services shall be performed in
accordance with the customary rules of ethics and conduct of bodies, formal or
informal, governmental or otherwise, from which similar providers seek advice
and guidance or to which they are subject to licensing and control. Provider
shall immediately notify Oxford if any applicable medical license,
accreditation, certification board certification or sanction is ever revoked,
restricted, and/or levied.
9. Relationship of Parties. No provision of this Agreement is intended
to create nor shall be deemed or construed to create any relationship between
the parties hereto other than that of independent entities contracting with
each other hereunder solely for the purpose of effecting the provisions of this
Agreement. Neither of the parties hereto, nor any of their respective
employees, shall be construed to be the agent, employee or representative of
the other, nor does either party have an express or implied right or authority
to assume or create any obligation or responsibility on behalf of or in the
name of the other party. Neither Provider nor Oxford shall be liable to any
other party for any act, or any failure to act, of the other party to this
Agreement.
10. Arbitration. No civil action concerning any dispute arising under
this Agreement shall be instituted before any court, and all such disputes
shall be submitted to final and binding arbitration in the state where Provider
resides, pursuant to the rules of the American Arbitration Association with one
arbitrator. All costs and expenses of the arbitration, including actual
attorney's fees, shall be allocated among the parties to this Agreement
<PAGE> 3
according to the arbitrator's discretion. The arbitrator's award may be
confirmed and enforced as a final judgment in any court of competent
jurisdiction and enforced accordingly. Proceeding to arbitration and obtaining
an award thereunder shall be a condition precedent to the bringing or
maintaining of any action in any court with respect to any dispute arising
under this Agreement, accept for the institution of a civil action to maintain
the status quo during the pendency of any arbitration proceeding.
11. Term and Termination. The initial term of this Agreement shall be for
one year, from the commencement of services, which is anticipated to begin on
or about January 1, 1996. The term of this Agreement shall be automatically
renewed from year-to-year thereafter. This Agreement may be terminated by
Oxford or Provider, at any time, upon 90 days prior written notice. Upon
termination, by either party, the rights of each party hereunder shall
terminate, provided however, that such termination shall not release Provider
or Oxford of their obligations with respect to: payments accrued to Provider
prior to termination; Provider's agreement not to seek compensation from
Members for Covered Services provided prior to termination; completion of
treatment by Provider of Members then receiving services until continuation of
the Members' care can be arranged by Oxford; the arbitration provisions hereof.
This agreement may not be materially amended without the prior approval of the
Department of Health.
12. Non-Exclusivity. This Agreement with Provider is non-exclusive, and
does not in any way restrict Provider from entering into agreements with other
health care organizations.
Very truly yours,
OXFORD HEALTH PLANS
Thomas A. Travers, DDS, MPH
By: /s/ Thomas A. Travers Aug 11, 1995
Title: Vice President, Health Care Delivery -----------------------------
Date
Accepted and Agreed to:
HEAR-X LTD.
Paul A. Brown, M.D.
By: /s/ Stephen J. Hansbrough 10 Aug 1995
President/COO -----------------------------
Date
<PAGE> 4
Oxford Health Plans
800 Connecticut Avenue . Norwalk, CT 06854 . 203-852-1442 . 800-444-6222
February 21, 1995
Paul A. Brown, M.D.
Chairman
HEARx Ltd.
471 Spencer Drive
West Palm Beach, FL 33409
Dear Paul,
To follow up on your letter of February 5, I have outlined our views on the
issue of marketing.
Consumer Marketing
While we are very excited to work together on marketing efforts, we would like
to control the use of our name and logo. All advertisements which mention
Oxford need to be approved by either Hannah Schwartz or Kerry Horigan in our
marketing department. At this time we do not want any ads which mention our
name to be run in New Jersey or Connecticut newspapers.
Physician Marketing
Direct physician marketing is not a practice at Oxford. We do, however,
educate and inform our Physicians on clinical issues through a bi-monthly
newsletter. I will submit a copy of the physician education articles forwarded
to me by Dr. Patipa to the editor.
Attached is a signed copy of our projected expansion sites. Please note that
we have deleted Middlesex and Monmouth counties from the list. Feel free to
contact me if you have any questions or need any additional information.
Sincerely,
/s/ Alissa Jaffe
Alissa Jaffe
Project Manager, Medicare Advantage
Enclosure
cc: Stephen Hansbrough
Paige Brough
<PAGE> 5
COUNTIES TO BE COVERED --
New York --
Rockland County
Northern Westchester County
New Jersey
Camden
Burlington
Gloucester
Connecticut
Fairfield
New Haven
Agreed to: /s/
-------------------------------------
Name
Vice President Medicare
-------------------------------------
Title
2/20/96
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Date
<PAGE> 6
Oxford Health Plans
800 Connecticut Avenue . Norwalk, CT 06854 . 203-852-1442 . 800-444-6222
February 29, 1996
Mr. Paul A. Brown, M.D.
Chairman
HEARx, Ltd.
471 Spencer Drive
West Palm Beach, FL 33409
Dear Paul:
This letter serves as an addendum to our contract effective 1/1/96, and is
retroactive to that date.
As stipulated in the original contract, in the event of underutilization, HearX
shall owe Oxford a remittance. At the discretion of Oxford, this remittance
shall be in the form of either a check to Oxford or a reduced rate in the
following year.
The proper maintenance and analysis of this agreement will require timely and
accurate utilization data from HearX to Oxford. We will expect a quarterly
tape of encounter and service level utilization (i.e. claim level) by the third
week following the end of each quarter. We prefer a HCFA 1500 format, ideally
EDI compliant. For further specifications regarding this tape, please call
Scott Stratton, Director, Medical Analysis Group, at 203-851-2892.
This duration of this agreement will be for the time period 1/1/96 through
12/31/98, at which time the terms of this contract may be renegotiated.
Your signature below acknowledges your acceptance of the terms of this
agreement.
Accepted and agreed to by:
/s/ Paul A. Brown
- --------------------------------------- -------------------------------------
Thomas A. Travers, D.D.S., M.P.H. Paul A. Brown, M.D.
Vice President, Health Care Delivery Chairman
Oxford Health Plans, Inc. HearX, Ltd.
<PAGE> 1
EXHIBIT 10.25
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of the 26th day
of January, 1996 by and among HEARx Ltd., a Delaware corporation (the
"Company"), Invemed Associates, Inc., a New York corporation ("Invemed") and
the investors listed on Schedule A hereto (each, together with Invemed, an
"Investor" and collectively the "Investors").
In consideration of the mutual promises made herein, the parties
hereto agree as follows:
1. Definitions. The following terms, as used herein, have the following
meanings:
1.1 "Affiliate" means, with respect to any person, any other person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person.
1.2 "Agreements" means this Agreement, the Registration Rights
Agreement and the Sell Along Rights Agreement.
1.3 "Closing" means the consummation of the transaction contemplated
by this Agreement, which shall occur simultaneously with the execution hereof.
1.4 "Common Stock" means the Common Stock, par value $0.10 per share,
of the Company.
1.5 "Invemed Warrants" means warrants to purchase up to 2,250,000
shares of Common Stock at an exercise price of $0.63 per share, exercisable for
a period of five years from the date of issuance, the form of which is attached
hereto as Exhibit D.
1.6 "Investor Warrants" means Class A Warrants to purchase up to an
aggregate of 10,909,090 shares of Common Stock at an exercise price of $0.55
per share, exercisable for a period of five years from the date of issuance,
the form of which is attached hereto as Exhibit E-1; and Class B Warrants to
purchase up to an aggregate of 4,000,000 shares of Common Stock at an exercise
price of $0.55 per share, exercisable for a period of one year beginning on the
fourth anniversary of the date of this Agreement and non-detachable from the
1996 Preferred Stock until exercisable, the form of which is attached hereto as
Exhibit E-2.
1.7 "Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), business, assets, results of operations or
prospects of the Company and its subsidiaries, taken as a whole.
1.8 "Person" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.9 "1996 Preferred Stock" means the 1996 Senior Preferred Stock, par
value $1.00 per share, of the Company, having the rights and preferences and
subject to the terms and conditions stated in the Certificate of Designation,
Preferences and Rights of 1996 Senior Preferred Stock of even date herewith,
attached hereto as Exhibit A.
<PAGE> 2
1.10 "Registration Rights Agreement" means the Registration Rights
Agreement relating to the Common Stock issuable pursuant to the exercise of the
Warrants, in the form attached hereto as Exhibit B, to be entered into as of
the date hereof.
1.11 "SEC Filings" has the meaning set forth in Section 3.5.
1.12 "Securities" means the 1996 Preferred Stock, the Warrants and
the Common Stock issuable upon the exercise of Warrants.
1.13 "Sell Along Rights Agreement" means the Sell Along Rights
Agreement to be entered into pursuant to Section 6.2 hereof, in the form
attached hereto as Exhibit C, to be entered into as of the date hereof.
1.14 "Warrants" means the Invemed Warrants and the Investor
Warrants.
1.15 "1934 Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
1.16 "1933 Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2. Purchase and Sale of 1996 Preferred Stock and Warrants and Issuance of
Invemed Warrants. Subject to the terms and conditions of this Agreement, the
Investors hereby purchase and the Company hereby sells and issues to the
Investors 6,000 shares of 1996 Preferred Stock and the Investor Warrants at an
aggregate purchase price of $6,000,000, the receipt of which is hereby
acknowledged. Furthermore, the Company hereby issues the Invemed Warrants to
Invemed and the officers and employees of Invemed and the shareholders of
Invemed's parent corporation, all as set forth in Schedule A hereto (each of
whom, together with Invemed shall also be considered an "Investor" for purposes
of this Agreement), in consideration for services that have been provided by
Invemed in connection with this transaction. The respective numbers of shares
of Preferred Stock and shares underlying the Investor Warrants, and the
consideration paid therefor, and the respective numbers of shares underlying
Invemed Warrants with respect to each Investor is set forth in Schedule A.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investors that:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite power and authority to
carry on its business as now conducted. The copies of the Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), and By-Laws, as
amended (the "By-Laws") of the Company delivered to the Investors are true and
complete and have not, since the respective dates of such Certificate of
Incorporation, and By-Laws, been amended or repealed (except for the
Certificate of Designations, Preferences and Rights of 1996 Senior Preferred
Stock in the form set forth as Exhibit A to this Agreement which was not
included therein and is filed concurrently herewith with the Secretary of State
of the State of Delaware). The Company and each of its subsidiaries is duly
qualified as a foreign corporation in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property makes
such qualification necessary unless the failure to so qualify would not have a
Material Adverse Effect.
<PAGE> 3
3.2 Authorization. All requisite action on the part of the Company,
its officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of this Agreement and the Registration Rights Agreement,
(ii) the performance of all obligations of the Company hereunder or thereunder
and (iii) the authorization, issuance (or reservation for issuance) and
delivery of the Securities has been taken, and this Agreement and the
Registration Rights Agreement constitute the valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
their terms.
3.3 Valid Issuance; Fully Diluted Common Stock Before Closing.
(i) The authorized capital stock, and the outstanding capital
stock, of the Company consists, in each case immediately prior to the Closing,
solely of the shares indicated in part 1 of Exhibit F to this Agreement.
Immediately following the sale to the Investors at the Closing contemplated
hereby, the authorized capital stock, and the outstanding capital stock, of the
Company will consist in each case solely of the shares indicated in part 2 of
Exhibit F to this Agreement. The voting powers, designations, preferences and
relative, participating, optional and other rights of the 1996 Preferred Stock,
and the qualifications, limitations or restrictions thereof are as fully set
forth in Exhibit A to this Agreement. All of the outstanding shares of capital
stock indicated in part 2 of Exhibit F are duly authorized and are fully paid
and nonassessable and, assuming the representations of the Investors in
Sections 4.3, 4.6 and 4.9 of this Agreement are correct, issued in compliance
with all applicable securities laws. Except as set forth in part 3 of Exhibit
F, no one is entitled to preemptive or similar statutory or contractual rights
with respect to any securities of the Company. All necessary and appropriate
waivers of stockholders with respect to the consummation of the transactions
and the performance of the obligations of the Company contemplated hereby have
been obtained, and the Company shall promptly obtain any necessary waivers not
heretofore obtained. Except as disclosed in part 4 of Exhibit F to this
Agreement, there are no outstanding warrants, options, convertible securities
or other rights, agreements or arrangements of any character under which the
Company is or may be obligated to issue any equity securities of any kind, or
to transfer any equity securities of any kind, and the Company and its
subsidiaries do not have any present plan or intention to issue any equity
securities of any kind, or to transfer any equity securities of any kind owned
by them. Except as disclosed in part 5 of Exhibit F, the Company does not know
of any voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among any of the
securityholders of the Company relating to the securities held by them. The
Company has not agreed, and has no present intention, to register any of its
securities under the Securities Act of 1933, as amended, except as provided in
the agreements listed in part 6 of Exhibit F.
(ii) The number of outstanding shares of Common Stock
immediately prior to the Closing, as indicated in part 1 of Exhibit F of this
Agreement, plus the number of shares of Common Stock issuable pursuant to
outstanding rights and agreements on a fully diluted basis immediately prior to
the Closing, assuming the complete exercise or conversion of all rights to
acquire capital stock of the Company until such rights and subsequent rights
incident to exercise or conversion are fully exercised or converted for Common
Stock, together represent less than 75 million shares of Common Stock
immediately prior to the Closing.
3.4 Governmental Consents. The execution, delivery and performance by
the Company of the Agreements require no action by or in respect of, or filing
<PAGE> 4
with, any governmental body, agency, or official other than filings that have
been made pursuant to applicable state securities laws and post-sale filings
pursuant to applicable state and federal securities laws, which the Company
undertakes to file within the applicable time periods.
3.5 Delivery of SEC Filings. The Company has delivered or made
available to the Investors (i) its Annual Report on Form 10-K for its fiscal
year ended December 31, 1994, (ii) its quarterly reports on Form 10-Q for each
fiscal quarter subsequent to that fiscal year end, and (iii) any other
documents filed with the Securities and Exchange Commission (the "SEC") since
December 31, 1994 (collectively, the "SEC Filings").
3.6 Use of Proceeds. The proceeds of the sale of the Securities
hereunder shall be used by the Company for the build-out and opening of hearing
care centers in the New York area to comply with the Company's agreement with
Oxford Healthcare, completion and installation of the Company's point-of-sale
and database management system, retirement of debt listed in Schedule 3.6
hereto and general corporate purposes.
3.7 No Material Adverse Change. Except as set forth in Schedule 3.7,
since September 30, 1995, there has not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1995, except changes in the ordinary
course of business which have not had, in the aggregate, a Material Adverse
Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of
the Company, or any redemption or repurchase of any securities of the Company;
(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or any of its
subsidiaries;
(iv) any waiver by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
subsidiaries, except in the ordinary course of business and which is not
material to the assets, properties, financial condition, operating results or
business of the Company and its subsidiaries taken as a whole (as such business
is presently conducted and as it is proposed to be conducted);
(vi) any material change or amendment to a material contract or
arrangement by which the Company or any of their subsidiaries or any of its
assets or properties is bound or subject;
(vii) any material change in any compensation arrangement or
agreement with any employee of the Company or any of its subsidiaries who now
earns, or who would earn as a result of such change, in excess of $100,000 per
annum or any other officer of the Company or any of its subsidiaries;
(viii) any labor difficulties or labor union organizing
activities with respect to employees of the Company or any of its subsidiaries;
<PAGE> 5
(ix) any transaction entered into by the Company or any of its
subsidiaries other than in the ordinary course of business; or
(x) any other event or condition of any character which might
have a Material Adverse Effect, which is not reflected in the SEC Filings.
3.8 SEC Filings; Material Contracts.
(i) As of its filing date, each report filed by the Company
with the SEC pursuant to the 1934 Act, complied as to form in all material
respects with the requirements of the 1934 Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(ii) Each registration statement and any amendment thereto
filed by the Company pursuant to the 1933 Act and the rules and regulations
thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; and each prospectus filed pursuant to Rule 424(b) under the
1933 Act, as of its issue date and as of the closing of any sale or securities
pursuant thereto did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(iii) Except as listed in Schedule 3.8 hereto, there are no
agreements or instruments currently in force and effect that constitute a
"material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K) of the Company or that constitute a warrant, option,
convertible security or other right, agreement or arrangement of any character
under which the Company is or may be obligated to issue any equity security of
any kind, or to transfer any equity security of any kind. The Company has
delivered to the Investors prior to the Closing full and complete copies of all
agreements indicated in Schedule 3.8 hereto.
3.9 Reservation of Shares. The Company has reserved a sufficient
number of shares of Common Stock for issuance upon exercise of the Warrants,
and such shares, when issued in accordance with the terms of the Warrants, will
be duly authorized, validly issued, fully paid, non-assessable and free and
clear of all encumbrances and restrictions, except for restrictions on transfer
imposed by applicable securities laws.
3.10 Disclosures. No representation or warranty made under any
Section hereof and no information furnished by the Company pursuant hereto, or
in any other document delivered by the Company to an Investor or any authorized
representative of an Investor, pursuant to the Agreements or in connection
therewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the respective statements contained herein or
therein, in light of the circumstances under which the statements were made,
not misleading.
3.11 Registration Rights. The registration rights granted to the
Investors pursuant to the Registration Rights Agreement are at least as
favorable to the Investors as those granted to any holder of any securities of
the Company are to such holder.
<PAGE> 6
3.12 No Breach, Violation or Default. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement and the
issuance and sale of the Securities will not result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any statute,
any rule, regulation (assuming, for this purpose, that the representations of
the Investors in Sections 4.3, 4.6 and 4.9 are correct) or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or any such
subsidiary is a party or by which the Company or any such subsidiary is bound
or to which any of the properties of the Company or any such subsidiary is
subject, or the Certificate of Incorporation or By-Laws of the Company or any
such subsidiary.
3.13 Title to Properties. Except as disclosed in the SEC Filings,
the Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and its subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
3.14 Certificates, Authorities and Permits. The Company and its
subsidiaries possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by them and have not received any notice of proceedings relating
to the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
3.15 No Labor Disputes. No labor dispute with the employees of the
Company or any subsidiary exists or, to the knowledge of the Company, is
imminent that might have a Material Adverse Effect.
3.16 Intellectual Property. The Company and its subsidiaries own,
possess or can acquire on reasonable terms, adequate trademarks, trade names
and other rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively, "Intellectual
Property Rights") necessary to conduct the business now operated by them, or
presently employed by them, and have not received any notice of infringement of
or conflict with asserted rights of others with respect to any Intellectual
Property Rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect.
3.17 Environmental Matters. Neither the Company nor any of its
subsidiaries is in violation of any statute, any rule, regulation, decision or
order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human exposure
to hazardous or toxic substances (collectively, "Environmental Laws"), owns or
operates any real property contaminated with any substance that is subject to
any Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the
<PAGE> 7
Company is not aware of any pending investigation which might lead to such a
claim.
3.18 Litigation. Except as disclosed in the SEC Filings, there are
no pending actions, suits or proceedings against or affecting the Company, any
of its subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Securities; and to the Company's knowledge, no such actions, suits or
proceedings are threatened or contemplated.
3.19 Financial Statements. The financial statements included in
each SEC Filing present fairly the consolidated financial position of the
Company and its subsidiaries as of the dates shown and their consolidated
results of operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles applied on a consistent basis.
3.20 Insurance Coverage. The Company and its subsidiaries maintain
insurance coverage that is standard for comparably situated companies for the
business being conducted, and properties owned or leased, by the Company and
its subsidiaries.
4. Representations and Warranties of the Investors. Each of the
Investors hereby represents and warrants, as to itself only, to the Company
that:
4.1 Organization and Existence. If such Investor is a corporation or
partnership, such Investor is a validly existing corporation or partnership and
has all requisite corporate or partnership power and authority to invest in the
Securities of the Company pursuant to this Agreement.
4.2 Authorization. The execution, delivery and performance by such
Investor of the Agreements have been duly authorized. Upon execution and
delivery, the Agreements will each constitute the valid and legally binding
obligation of such Investor, enforceable against such Investor in accordance
with such agreement's terms.
4.3 Purchase Entirely for Own Account. The Securities to be received
by such Investor hereunder will be acquired for investment for the Investor's
own account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the 1933 Act, and such
Investor has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, such Investor
further represents that subject to the following proviso, such Investor does
not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or to any third person,
with respect to any of the Securities; an Investor that is a corporate entity
may distribute Securities to its executive officers, directors or shareholders
or, in the case of Invemed, to its employees who are registered representatives
under the 1934 Act; an Investor that is a partnership may distribute Securities
to its partners; and Invemed may transfer Invemed Warrants to its designee to
serve on the Company's Board of Directors.
4.4 Investment Experience. Such Investor acknowledges that it can
bear the economic risk and complete loss of its investment in the Securities
<PAGE> 8
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment contemplated
hereby.
4.5 Disclosure of Information. Such Investor has had an opportunity
to ask questions and receive answers from the Company regarding the Company,
its business and the terms and conditions of the offering of the Securities.
4.6 Restricted Securities. Such Investor understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, such
Investor represents that it understands the resale limitations imposed by the
1933 Act.
4.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, each Investor further agrees (except as
otherwise set forth in Section 4.3) not to make any disposition of all or any
portion of the Securities unless and until:
(a) There is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition, and (ii) if reasonably requested by the Company, such
Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company and its counsel, that such disposition
will not require registration of such shares under the 1933 Act. This
subsection shall be inapplicable to dispositions made pursuant to Rule 144.
4.8 Legends. It is understood that the certificates evidencing the
Securities may bear one or all of the following legends (until such time as the
Securities may be freely transferred pursuant to Rule 144(k), at which time
such legends shall be removed at the request of the Investor or its assignee):
(a) "These securities have not been registered under the
Securities Act of 1933 (the "Act"). They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under the Act or an exemption from the
registration requirements of the Act."
(b) If required by the authorities of any state in connection with
the issuance of sale of the Securities, the legend required by such state
authority.
4.9 Accredited Investor. Such Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.
4.10 Confidentiality. Such Investor shall maintain in confidence,
and shall not use or disclose without the prior written consent of the Company,
any information clearly marked "confidential" that is furnished to such
Investor by the Company in connection with this Agreement. This obligation of
confidentiality shall not apply, however, to any information (a) in the public
domain through no act or failure to act by such Investor that was not
authorized in writing by the Company, or (b) lawfully disclosed to such
<PAGE> 9
Investor by a third party who possessed such information without any obligation
of confidentiality to the Company.
4.11 Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of such Investor, threatened
against or affecting, such Investor before any court or arbitrator or any
governmental body, agency or official which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the transactions contemplated by
this Agreement.
4A. Additional Representation and Warranty of Invemed. Invemed hereby
represents and warrants that (i) it is a registered broker-dealer under the
1934 Act, and is similarly registered pursuant to the applicable securities
laws in the states of California, Connecticut, Florida, Georgia, New Jersey,
New York and Pennsylvania (the "Investor States"); (ii) Thomas L. Teague and G.
Allen Mebane did not solicit any persons in connection with the offering of the
Securities and are not receiving Invemed Warrants in connection with soliciting
any persons in connection with the offering of the Securities; (iii) Kenneth G.
Langone and Cristina H. Kepner are registered representatives with the National
Association of Securities Dealers and hold similar qualifications in each of
the Investor States; and (iv) Carlisle Jones is a registered representative
with the National Association of Securities Dealers and holds similar
qualifications in all of the Investor States other than Georgia, and did not
solicit any Georgia residents in connection with the offering of the
Securities.
5. Registration Rights Agreement. The parties acknowledge and agree that
part of the inducement for each Investor to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof,
the Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
6. Other Covenants and Agreements.
6.1 Board of Directors Representation. The Company hereby agrees that
for so long as Invemed or any of its executive officers or directors are the
registered and beneficial owners of any Securities and prior to redemption of
all outstanding 1996 Preferred Stock, the Company will nominate and use its
best efforts to cause to be elected one designated representative of Invemed to
serve on the Company's Board of Directors. If Invemed does not specify a
nominee to the Company within 30 days of the Closing, Invemed shall return to
the Company Invemed Warrants to purchase 250,000 shares of Common Stock.
6.2 Limitation on Sales by Certain Management. Dr. Paul A. Brown (the
Company's founder, Chief Executive Officer and Chairman of the Board) hereby
agrees that, in the event he proposes to transfer in one transaction or a
series of related transactions five percent (5%) of the shares of the Company's
Common Stock owned by him (other than sales effected on Nasdaq, through the
NASD Bulletin Board, or on a national securities exchange pursuant to Rule 144
under the 1933 Act), Dr. Brown shall permit the Investors to sell the same
proportionate number of shares of Common Stock held by the Investors (and/or
underlying the Investor Warrants that may then be exercised) as Dr. Brown shall
sell for the same consideration and otherwise on the same terms and conditions
to be received by Dr. Brown in the proposed sale. Dr. Brown and the Investors
acknowledge and agree that simultaneously with the execution hereof, they have
duly executed a Sell Along Rights Agreement detailing the parties respective
<PAGE> 10
rights and obligations in respect to this matter, as set forth in Exhibit C
attached hereto.
6.3 Return of Confidential Information. Each Investor shall return to
the Company information subject to Section 4.11 of this Agreement upon request
by the Company. Such Investor agrees that it will restrict access to the
Company's confidential information among its officers, directors, partners,
employees, agents and representatives to those persons with a need to use such
information.
6.4 Reverse Stock Split. The Company hereby agrees that it shall
effect a 1-for-15 reverse stock split of its Common Stock no later than the
next annual meeting of shareholders of the Company. In no event, however,
shall such meeting be held later than May 31, 1996.
6.5 No Dividends. The Company hereby agrees that it shall not declare
or pay any dividends prior to the redemption of all outstanding 1996 Preferred
Stock.
6.6 Opinion of Counsel. The Company has delivered, simultaneously
with the execution and delivery of this Agreement, the opinion of Bryan Cave
LLP, its counsel, in the form attached hereto as Exhibit G. Within a
reasonable time after the Closing, but in no event more than 60 days after the
date hereof, the Company shall deliver the opinion of Bryan Cave LLP in the
form attached hereto as Exhibit H.
6.7 Reservation of Common Stock Pursuant to Exercise of Warrants. The
Company hereby agrees to at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
permitting exercise of the Warrants, such number of shares of Common Stock as
shall from time to time be sufficient to permit the exercise of all Warrants in
accordance with the terms of the Warrants.
6.8 Relative Equity Interest Represented By the Warrants. In entering
into this Agreement, the Investors have relied upon, among other things, the
representation and warranty set forth in Section 3.3(ii) hereto concerning the
outstanding capital stock of the Company and rights to acquire capital stock of
the Company immediately prior to the Closing. In the event it is later
determined that the representation and warranty in Section 3.3(ii) hereto is
untrue and the sum expressed therein is greater than 75 million, the Company
shall notify each Investor within ten days of discovery and prepare, execute
and deliver to the Investors, within ten days thereafter, such additional
documents and certificates in order to equitably adjust the Warrants for the
benefit of the Investors. The adjustment referenced in the preceding sentence
shall involve the issuance of additional Warrants and/or the reduction of the
exercise price of the Warrants, which adjustment shall be approved in writing
by the holders of a majority of the Warrants.
7. Survival.
7.1 Survival of Provisions. All representations, warranties and
agreements contained in this Agreement shall be deemed to be representations,
warranties and agreements as of the date hereof and shall survive the execution
and delivery of this agreement for a period of five years and six months from
the date of this Agreement; provided, however, that the provisions contained in
Section 6 hereof shall survive in accordance therewith.
<PAGE> 11
8. Miscellaneous.
8.1 Successors and Assigns. This Agreement may not be assigned by
either party without the prior written consent of the other party hereto,
except that without the prior written consent of the Company, but after notice
duly given, an Investor may assign its rights and delegate its duties hereunder
to an Affiliate or to any permitted assignee under Section 4.3, and without the
prior written consent of Investor, but after notice duly given, the Company may
assign its rights and delegate its duties hereunder to any successor-in-
interest corporation in the event of a merger or consolidation of the Company
with or into another corporation, or any merger or consolidation of another
corporation with or into the Company which results directly or indirectly in an
aggregate change in the ownership or control of more than 50% of the voting
rights of the equity securities of the Company, or the sale of all or
substantially all of the Company's assets. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, or if
sent by telex or telecopier, upon receipt of the correct answer back, or upon
deposit with the United States Post Office, by registered or certified mail, or
upon deposit with an overnight air courier, in each case postage prepaid and
addressed to the party to be notified at the address as follows, or at such
other address as such party may designate by ten days' advance written notice
to the other party:
If to the Company:
HEARx Ltd.
471 Spencer Drive
West Palm Beach, Florida 33409
Attn: Dr. Paul A. Brown
with a copy to
Bryan Cave LLP
700 13th Street, N.W.
Washington, D.C. 20005
Attn: LaDawn Naegle, Esq.
<PAGE> 12
If to the Investors:
Invemed Associates, Inc.
375 Park Avenue
New York, NY 10152
Attn: Cristina H. Kepner
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Attn: Alan Singer, Esq.
8.5 Finder's Fee. Each party represents that (except for the delivery
by the Company of the Invemed Warrants pursuant to this Agreement) it neither
is nor will be obligated for any finder's fee or commission in connection with
this transaction.
8.6 Expenses. The Company shall pay all costs and expenses incurred
with respect to the negotiation, execution, delivery and performance of the
Agreements, including, without limitation, the fees of Morgan, Lewis & Bockius
LLP, counsel to Invemed.
8.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least 66-2/3% of the Securities other than the Invemed Warrants (for this
purpose, each share of Preferred Stock shall be deemed to be 1,000 Securities
and each share of Common Stock underlying the Investor Warrants shall be deemed
to be one Security). Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Securities purchased under
this Agreement at the time outstanding, each future holder of all such
securities, and the Company. Notwithstanding the foregoing, the provisions of
Section 6.1 hereto shall be amended only with the consent of the Company and
Invemed.
8.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance with
its terms.
8.9 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, the Registration Rights Agreement and the Sell Along Rights
Agreement, constitute the entire agreement among the parties hereof with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, both oral and written, between the parties with
respect to the subject matter hereof and thereof.
8.10 Further Assurances. The parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
<PAGE> 13
8.11 Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
* * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
The Company HEARx LTD.
By:
-------------------------------------
Name: Paul A. Brown, M.D.
Title: Chairman of the Board
Invemed INVEMED ASSOCIATES, INC.
By:
-------------------------------------
Name:
Title:
The Investors
-----------------------------------------
Michael C. Neus
-----------------------------------------
Michael Erlbaum
-----------------------------------------
Steven Erlbaum
-----------------------------------------
Harris Berenholz
-----------------------------------------
Scott Bessent
-----------------------------------------
Arthur M. Blank
-----------------------------------------
Ronald M. Brill
-----------------------------------------
Elliot P. Broidy
-----------------------------------------
Walter E. Burlock
<PAGE> 14
The Investors
-----------------------------------------
Walter Channing
-----------------------------------------
Stanley Druckenmiller
-----------------------------------------
John A. Ehinger
-----------------------------------------
Marianne Ehinger
-----------------------------------------
Gary Erlbaum
-----------------------------------------
Arminio Fraga
-----------------------------------------
Gary Gladstein
-----------------------------------------
John M. Hennessy
-----------------------------------------
Carlisle Jones
-----------------------------------------
Cristina H. Kepner
-----------------------------------------
Bruce M. Langone
-----------------------------------------
Kenneth G. Langone
-----------------------------------------
Elizabeth Larson
-----------------------------------------
Stephen A. Levin
<PAGE> 15
The Investors
-----------------------------------------
Bernard Marcus
-----------------------------------------
G. Allen Mebane
-----------------------------------------
Charles J. Murphy
-----------------------------------------
Gabriel Nechamkin
-----------------------------------------
Mark Sonnino
-----------------------------------------
George Soros
-----------------------------------------
Andrew R. Taussig
-----------------------------------------
Susan F. Taussig
-----------------------------------------
Thomas L. Teague
-----------------------------------------
Sean Warren
The undersigned joins in this Agreement
for the purpose of being bound by the
provisions of Section 6.2 hereof.
- ---------------------------------------
Paul A. Brown
<PAGE> 16
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered as of this 26th day of January, 1996, by and among HEARx LTD, a
Delaware corporation (the "Company"), Invemed Associates, Inc., a New York
corporation ("Invemed"), and the Investors listed on Schedule A hereto pursuant
to the Stock Purchase Agreement (the "SPA") dated as of the date hereof, by and
among the Company, Invemed and the Investors.
The parties hereby agree as follows:
1. Certain Definitions
As used in this Agreement, the following terms shall have the
following meanings:
"Common Stock" shall mean the Common Stock, par value $0.10 per
share, of the Company.
"Invemed Warrants" means warrants to purchase up to 2,250,000
shares of Common Stock issued pursuant to the SPA.
"Investors" shall mean the Investors as defined in the SPA.
"Investor Warrants" means warrants to purchase up to an aggregate
of 14,909,090 shares of Common Stock issued pursuant to the SPA.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and by all other amendments
and supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
"1996 Preferred Stock" shall mean the 1996 Senior Preferred Stock,
par value $1.00 per share, of the Company.
"Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act (as defined below), and the
declaration or ordering of effectiveness of such registration statement or
document.
"Registrable Securities" shall mean (i) the Common Stock acquired
upon the exercise of the Investor Warrants or the Invemed Warrants and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Common Stock, excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which its rights under this Agreement are
not assigned.
"Registration Statement" shall mean any registration statement of
the Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement, including post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
<PAGE> 17
"SEC" means the U.S. Securities and Exchange Commission.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Warrants" means the Invemed Warrants and the Investor Warrants.
2. Demand Registration.
(a) Request for Registration. The holders of more than 50% of the
Registrable Securities (computed in accordance with the provisions of the third
and fourth sentence of Section 9(b)) may request registration under the 1933
Act of those Registrable Securities described in the notice to the Company
requesting such registration. Within ten days after receipt of any such
request, the Company will give written notice of such request to all other
holders of Registrable Securities and will include in such registration all
Registrable Securities with respect to which the holder has given notice to the
Company of such holder's request for inclusion therein within 30 days after the
receipt by such holder of the Company's notice. The holders of those
Registrable Securities who originally requested registration and the holders
who, in the manner specified above, thereafter requested to be included in such
registration shall be collectively referred to herein as the "Participating
Holders." If adverse tax consequences to the holder might result from exercise
of the Warrant and the subsequent sale of the Common Stock acquired pursuant to
the Warrant, the Company will use its best efforts to cause the underwriter of
any underwritten Demand Registration or underwritten Piggyback Registration to
purchase and exercise such Warrant or portion thereof as may be proffered by
the holder thereof so that the holder may sell the Warrant or a portion
thereof.
(b) Demand Registration. The holders of Registrable Securities
will collectively be entitled to only one demand registration as provided in
subsection (a) above (the "Demand Registration") and that demand may be made at
any time specified in subsection (a) by the holders of at least 50% of all
outstanding Registrable Securities. The Company will pay all Registration
expenses associated therewith, excluding discounts, commissions, or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
fees or expenses of counsel to the holders in excess of $15,000. The Demand
Registration will be a short-form registration on Form S-3 or any successor
form thereof if the Company is permitted to use such short form. No securities
other than Registrable Securities shall be included in the Demand Registration
without the consent of the holders of at least 50% of all outstanding
Registrable Securities.
(c) Restrictions on Registration. The Company will not be
obligated to effect any long-form Registration within six months after the
effective date of a registration in which the holders of Registrable Securities
were given piggyback rights pursuant to paragraph 3. The Company may postpone
for up to three months the filing or the effectiveness of a registration
statement for the Demand Registration if the Company's Board of Directors
determines in good faith that the Demand Registration can be reasonably
expected to have a materially adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in a transaction or series of
transactions that are or may be material to the Company; provided that the
<PAGE> 18
Company may exercise this right only once in any 180 day period; and, provided
further, that in the event the Company exercises this right, the Participating
Holders will be entitled to withdraw such request and, if such request is
withdrawn, such demand will not count as the Demand Registration.
(d) Selection of Underwriters. The Participating Holders, by
action of the holders of a majority of the Registrable Securities to be
included in such registration, will have the right to select one or more
investment banker(s) and manager(s), reasonably acceptable to the Company, to
administer the offering.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register
any of its securities under the 1933 Act, other than (i) pursuant to the Demand
Registration, (ii) any other demand registration now outstanding to other
holders of the Company's securities (which holders have the right to exclude
holders of Registrable Securities from such registration) or (iii) registration
on Form S-8, the Company will give 30 days prior written notice to all holders
of Registrable Securities of the intention to effect such a registration and,
subject to the provisions of subsection (c) hereof, will include in such
registration all Registrable Securities with respect to which the holder has
given notice of request for inclusion therein to the Company within 15 days
after the receipt of the Company's notice (a "Piggyback Registration" and such
requesting holders of Registrable Securities being herein referred to as
"Piggyback Holders").
(b) Piggyback Expenses. The Company will pay all Registration
expenses of the Piggyback Holders, excluding discounts, commissions, or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities and
excluding fees or expenses of counsel to the holders in excess of $5,000.
(c) Priority on Piggyback Registration. If in respect of an
underwritten Piggyback Registration, the managing underwriters advise the
Company in writing that in their opinion, the number of securities to be
included in such registration exceeds the number which can be sold in such
offering, the priority of registration will be as follows: (i) first, the
shares sought by the Company to be registered shall be included in such
registration; and (ii) second, if all such shares are so included, all
Registrable Securities requested by the Piggyback Holders to be included in
such registration shall be so included along with other registrable securities
of other holders exercising or otherwise given piggyback registration rights,
pro rata on the basis of the number of shares requested to be included in each
registration by such holders.
(d) Selection of Underwriters. The Company will have the right to
select one or more investment banker(s) and manager(s) to administer the
offering.
4. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect any
public sale or distribution of equity securities of the Company, or any
securities convertible into or exercisable for such securities, during the
seven days prior to and the 90-day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
in which such holder's Registrable Securities are included (except as part of
<PAGE> 19
such underwritten registration) unless the underwriters managing the registered
public offering otherwise agree; provided, that in no event shall a holder of
Registrable Securities be subject to a limitation on sale or distribution that
covers a period longer than that to which any other securityholder whose
securities are included in the registration is subject.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registration
on Form S-8), unless the underwriters managing the registered public offering
otherwise agree, and (ii) to cause each holder of at least 5% of any class of
its equity securities, or any person that would own 5% of the Company's
outstanding equity securities on conversion, exchange or exercise of securities
convertible into or exchangeable or exercisable for such securities, purchased
from the Company at any time after the date of this Agreement (other than in a
registered public offering made subsequent to such offering) to agree not to
effect any public sale or distribution of any such securities during such
period (except as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the registered public offering
otherwise agree.
5. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company will
as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause such Registration Statement to become effective and to remain
continuously effective for a period which will terminate when all Registrable
Securities covered by such Registration Statement, as amended from time to
time, have been sold or a period of one year, whichever is shorter;
(b) prepare and file with the SEC such amendments and post-
effective amendments to the Registration Statement and the Prospectus as may be
necessary to keep the Registration Statement effective for the period specified
in Section 5(a) and to comply with the provisions of the 1933 Act and the 1934
Act with respect to the distribution of all Registrable Securities; provided
that, at a time reasonably prior to the filing of a Registration Statement or
Prospectus, or any amendments or supplements thereto, the Company will furnish
to the Participating Holders or the Piggyback Holders, as the case may be,
copies of all documents proposed to be filed, which documents will be subject
to the comments of the Participating Holders or the Piggyback Holders, as the
case may be, and their counsel;
(c) notify the Participating Holders or the Piggyback Holders, as
the case may be, promptly, and confirm such advice in writing, (i) when the
Prospectus or any supplement or post-effective amendment has been filed, and
with respect to the Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request by the SEC for
amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
<PAGE> 20
any proceedings for that purpose, and (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(d) make reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement;
(e) furnish to the Participating Holders or the Piggyback Holders,
as the case may be, at least five copies of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
(f) deliver to each Participating Holder or Piggyback Holder, as
the case may be, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such holder may
reasonably request in order to facilitate the disposition of the Registrable
Securities;
(g) prior to any public offering of Registrable Securities, use
its reasonable best efforts to register or qualify or cooperate with the
Participating Holders or the Piggyback Holders, as the case may be, and the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as the
Participating Holders or the Piggyback Holders, as the case may be, or any
underwriter reasonably requests in writing and do any and all other reasonable
acts or things necessary or advisable to enable the distribution in such
jurisdictions of the Registrable Securities covered by the Registration
Statement; provided that the Company will not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process in any such
jurisdiction where it is not then so subject;
(h) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange, interdealer quotation
system or other market on which similar securities issued by the Company are
then listed;
(i) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, usual and
customary in form, with the managing underwriter of such offering; the
Participating Holders or the Piggyback Holders, as the case may be, shall also
enter into and perform their obligations under such agreement, usual and
customary in form; the Company shall take such other actions as the
underwriters reasonably request in order to expedite or facilitate a
disposition of the Registrable Securities;
(j) upon request, furnish to each Participating Holder or
Piggyback Holder, as the case may be, a signed counterpart, addressed to such
holder, of (i) an opinion of counsel for the Company, dated the effective date
of such registration statement (or, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter, dated the effective date
of such registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants who have
<PAGE> 21
certified the Company's financial statements included in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case
of such accountants' letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities and, in the case of the accountants' letter,
such other financial matters, as the principal underwriter with respect to such
registration may reasonably request (or, if such registration does not involve
an underwritten offering, as may reasonably (i.e., in conformity with Statement
on Auditing Standards No. 72, as amended, or any successor statement thereto)
be requested by holders of a majority of the Registrable Securities included in
such registration);
(k) immediately notify each Participating Holder or Piggyback
Holder, as the case may be, at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the Prospectus included in
such Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and at the request of any such holder,
promptly prepare and furnish to such holder a reasonable number of copies of a
supplement to or an amendment of such Prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(l) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC under the 1933 Act and the 1934
Act, take such other actions as may be reasonably necessary to facilitate the
registration or the disposition of the Registrable Securities hereunder; and
make available to its security holders, as soon as reasonably practicable, but
not later than the Availability Date (as defined below), an earnings statement
covering a period of at least twelve months, beginning after the effective date
of the applicable Registration Statement, which earnings statement shall
satisfy the provisions of subsection 11(a) of the 1933 Act (for the purpose of
this subsection 5(b), "Availability Date" means the 45th day following the end
of the fourth fiscal quarter that includes the effective date of such
Registration Statement, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the 90th day
after the end of such fourth fiscal quarter).
6. Indemnification.
(a) Indemnification by Company. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law, each Participating
Holder or Piggyback Holder as the case may be, such holder's officers,
directors, partners and employees and each person who controls such holder
(within the meaning of the 1933 Act) and each underwriter, if any (including
any broker or dealer which may be deemed an underwriter) and each person who
controls any underwriter of the Registrable Securities against all losses,
claims, damages, liabilities, costs (including, without limitation, reasonable
attorney's fees) and expenses caused by (i) any untrue or alleged untrue
statement of a material fact contained in any Registration Statement,
Prospectus or any preliminary prospectus or any amendment or supplement thereto
<PAGE> 22
or any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are based upon any information furnished
in writing to the Company by such holder, expressly for use therein, or (ii)
any violation by the Company of any federal, state or common law, rule or
regulation applicable to the Company in connection with any Registration
Statement, Prospectus or any preliminary prospectus, or any amendment or
supplement thereto, and shall reimburse, as incurred, each of the foregoing
persons for any legal and any other expenses reasonably incurred in connection
with investigating or defending any such claims. The foregoing is subject to
the condition that, insofar as the foregoing indemnities relate to any untrue
statement, alleged untrue statement, omission or alleged omission made in any
preliminary prospectus or Prospectus which is eliminated or remedied in any
Prospectus or amendment or supplement thereto, the above indemnity obligations
of the Company shall not inure to the benefit of any indemnified party if a
copy of such final Prospectus or amendment or supplement thereto had been made
available to such indemnified party and was not sent or given by such
indemnified party at or prior to the time such action is required of such
indemnified party by the 1933 Act and if delivery of such Prospectus or
amendment or supplement thereto would have eliminated (or been a sufficient
defense to) any liability of such indemnified party with respect to such
statement or omission. Indemnity under this Section 4(a) shall remain in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the permitted transfer of the Registrable
Securities.
(b) Indemnification by Holder of Registrable Securities. In
connection with any registration pursuant to the terms of this Agreement, the
holder of Registrable Securities included in such registration will furnish to
the Company in writing such information as the Company reasonably requests
concerning the holder or the proposed manner of distribution for use in
connection with any Registration Statement or Prospectus and agrees to
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors and officers and each person who controls the Company
(within the meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expense resulting from any untrue statement of a material fact
or any omission of a material fact required to be stated in the Registration
Statement or Prospectus or preliminary prospectus or necessary to make the
statements therein not misleading, to the extent, but only to the extent, that
such untrue statement or omission is contained in any information furnished in
writing by the holder of Registrable Securities to the Company specifically for
inclusion in such Registration Statement or Prospectus and that such
information was substantially relied upon by the Company in preparation of the
Registration Statement or Prospectus or any amendment or supplement thereto.
In no event shall the liability of the holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the proceeds (net of
all expense paid by such holder and the amount of any damages such holder has
otherwise been required to pay by reason of such untrue statement or omission)
received by such holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled
to indemnification hereunder shall (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
<PAGE> 23
expenses of such counsel shall be at the expense of such person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest may exist between such person and the indemnifying party
with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying party shall
not have the right to assume the defense of such claim on behalf of such
person); and provided, further, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations hereunder, except to the extent that such failure to give notice
shall materially adversely affect the indemnifying party in the defense of any
such claim or litigation. It is understood that the indemnifying party shall
not, in connection with any proceeding in the same jurisdiction, be liable for
fees or expenses of more than one separate firm of attorneys (in addition to
local counsel) at any time for all such indemnified parties. No indemnifying
party will, except with the consent of the indemnified party, consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Contribution. If for any reason the indemnification provided
for in the preceding clauses (a) and (b) is unavailable to an indemnified party
or insufficient to hold it harmless, other than as expressly specified therein,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
indemnified party and the indemnifying party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
within the meaning of Section 11(f) of the 1933 Act shall be entitled to
contribution from any person not guilty of such fraudulent misrepresentation.
In no event shall the contribution obligation of a holder of Registrable
Securities be greater in amount than the dollar amount of the proceeds (net of
all expenses paid by such holder and the amount of any damages such holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission) received by it upon the sale of the
Registrable Securities giving rise to such contribution obligation.
7. Holders Entitled to Equivalent Rights. If the registration rights
of the holders of Registrable Securities granted pursuant to this Agreement are
less favorable to such holders than registration rights available to any other
holder ("Other Holder") of securities of the Company on the date hereof ("Other
Rights") are to such Other Holder, this Agreement shall be immediately and
automatically amended, without the requirement of any action by the parties
hereto, to provide the holders of Registrable Securities under this Agreement
with registration rights at least as favorable as such Other Rights.
8. Termination. The Company shall be under no obligation to effect
any registration under this Agreement with respect to any Registrable
Securities that may be sold pursuant to Rule 144(k) under the 1933 Act, and
this Agreement shall terminate with respect to those securities.
<PAGE> 24
9. Miscellaneous.
(a) Remedies. If the Company shall breach its obligations to
register the Registrable Securities pursuant to this Agreement, the Investors
shall be entitled to exercise all rights provided herein or granted by law,
including recovery of damages, or in equity, including specific performance.
(b) Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of the holder
or holders of at least 66-2/3% or more of the shares of Registrable Securities
(and, in the case of any amendment, action or omission to act that affects
adversely any specific holder of Registrable Securities or a specific group of
holders of Registrable Securities, the written consent of each such holder or
holders of 75% or more of the Registrable Securities held by such group). Each
holder of any Registrable Securities at the time and any subsequent holder of
Registrable Securities shall be bound by any consent authorized by this
subsection 9(b), whether or not such Registrable Securities shall have been
marked to indicate such consent. The percentage of Registrable Securities held
by a holder or holders for purposes of this paragraph shall be based on the sum
of the shares then currently issuable upon exercise of Warrants held by such
holder or holders plus shares issuable upon exercise of Warrants which such
holder or holders would be holding if Warrants for such shares owned by such
holder or holders had not been exercised. Warrants and shares issued upon the
exercise of Warrants that are not Registrable Securities will be excluded from
the computation set forth in the preceding sentence. Notwithstanding the
foregoing, this Agreement shall automatically be amended in accordance with the
provisions of Section 7.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made as set forth in Section 8.4 of the SPA.
(d) Assignments and Transfers by Investors. This Agreement and
all the rights and obligations of the Investors hereunder may not be assigned
or transferred to any transferee or assignee except as set forth herein. Each
Investor may make such assignment or transfer to any transferee or assignee of
any Registrable Securities, provided, that (i) such transfer is made expressly
subject to this Agreement and the transferee agrees in writing to be bound by
the terms and conditions hereof, and (ii) the Company is provided with written
notice of such assignment. The Investors may assign or transfer their rights
and obligations hereunder to each other, so long as the Company is provided
with written notice of any such assignment or transfer. In addition, the
Company hereby expressly consents to transfers or assignments of this Agreement
and all the rights and obligations of an Investor hereunder by the Investor
that is a partnership to its partners, pro rata in accordance with their
ownership interests in the Investor, by an Investor that is a corporation, to
its executive officers, directors, or shareholders, and by an Investor that is
an individual to his or her spouse or children, provided, however, that (i)
such transfer is made expressly subject to this Agreement and each transferee
agrees in writing to be bound by the terms and conditions hereof, and (ii) the
Company is provided with written notice of any such assignment.
(e) Assignments and Transfers by the Company. This Agreement may
not be assigned by the Company without the prior written consent of Investors,
except that without the prior written consent of the Investors, but after
notice duly given, the Company shall assign its rights and delegate its duties
hereunder to any successor-in-interest corporation, and such successor-in-
<PAGE> 25
interest shall assume such rights and duties, in the event of a merger or
consolidation of the Company with or into another corporation, or any merger or
consolidation of another corporation with or into the Company which results
directly or indirectly in an aggregate change in the ownership or control of
more than 50% of the voting rights of the equity securities of the Company, or
the sale of all or substantially all of the Company's assets.
(f) Benefits of the Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(i) Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
(j) Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance with
its terms.
(k) Further Assurances. The Parties shall execute and deliver all
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
(l) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(m) Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of law.
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: HEARx LTD.
By:
-----------------------------------------
Name: Paul A. Brown, M.D.
Title: Chairman of the Board
Invemed: INVEMED ASSOCIATES, INC.
By:
-----------------------------------------
Name:
Title:
The Investors:
---------------------------------------------
Harris Berenholz
---------------------------------------------
Scott Bessent
---------------------------------------------
Arthur M. Blank
---------------------------------------------
Ronald M. Brill
---------------------------------------------
Elliot P. Brody
---------------------------------------------
Walter E. Burlock
---------------------------------------------
Walter Channing
---------------------------------------------
Stanley Druckenmiller
---------------------------------------------
John A. Ehinger
<PAGE> 27
---------------------------------------------
Marianne Ehinger
---------------------------------------------
Gary Erlbaum
---------------------------------------------
Arminio Fraga
---------------------------------------------
Gary Gladstein
---------------------------------------------
John M. Hennessy
---------------------------------------------
Carlisle Jones
---------------------------------------------
Cristina H. Kepner
---------------------------------------------
Bruce M. Langone
---------------------------------------------
Kenneth G. Langone
---------------------------------------------
Elizabeth Larson
---------------------------------------------
Stephen A. Levin
---------------------------------------------
Bernard Marcus
---------------------------------------------
G. Allen Mebane
---------------------------------------------
Charles J. Murphy
<PAGE> 28
---------------------------------------------
Gabriel Nechamkin
---------------------------------------------
Mark Sonnino
---------------------------------------------
George Soros
---------------------------------------------
Andrew R. Taussig
---------------------------------------------
Susan F. Taussig
---------------------------------------------
Thomas L. Teague
---------------------------------------------
Sean Warren
---------------------------------------------
Michael C. Neus
---------------------------------------------
Michael Erlbaum
---------------------------------------------
Steven Erlbaum
<PAGE> 1
EXHIBIT 10.26
THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT.
THIS SUBORDINATED NOTE IS CALLABLE AT ANY TIME
HEARx LTD.
SUBORDINATED NOTE
(Amended and Restated as of January 26, 1996)
$1,675,000
HEARx Ltd., a Delaware corporation (hereinafter called the "Company",
which term includes any successor corporation), for value received, hereby
promises to pay to the order of Paul A. Brown, M.D., 1744 South Ocean
Boulevard, Palm Beach, Florida 33480, subject to the provisions of Article I
hereof, on April 1, 1997, the sum of One Million Six Hundred Seventy-Five
Thousand Dollars ($1,675,000.00), and to pay interest thereon from April 1,
1994, on the first day of each month, commencing on May 1, 1994, to the holder
hereof ("Holder") on each such interest payment date, at a per annum rate equal
to Three Percent (3%) over the "prime rate" charged by CitiBank N.A. until
payment of such sum in full. Interest hereunder shall be computed on the basis
of a year of 365 days for the actual number of days elapsed. Payment of the
principal of and interest on this Subordinated Note (the "Note") will be made
by check mailed to the Holder at the Holder's address or will be made available
at the principal office of the Company, at the Holder's election.
ARTICLE I
MATURITY DATE; PAYMENT OF PRINCIPAL
SECTION 1.01 Maturity Date. The Company shall pay the outstanding
principal balance of this Note to the Holder on the later of (i) April 1, 1997
and (ii) the first business day after the day on which the Company redeems all
the outstanding shares of the 1996 Senior Preferred Stock. The term "1996
Senior Preferred Stock" means the 1996 Senior Preferred Stock of the Company
issued to certain investors pursuant to a Stock Purchase Agreement dated as of
January 26, 1996 among the Company, Invemed Associates, Inc. and certain
investors named therein.
SECTION 1.02. Payment of Principal.
(a) Notwithstanding any provision of this Note to the contrary,
the Company shall make no payments to any Holder on account of the outstanding
principal balance of this Note until the first business day after the day on
which the Company redeems all the outstanding shares of the 1996 Senior
Preferred Stock.
(b) In the event that, notwithstanding the provisions of Section
1.02(a), any payment is made by the Company to the Holder on account of the
outstanding principal balance of this Note, such payment shall be immediately
returned by the Holder to the Company.
<PAGE> 2
ARTICLE II
SUBORDINATION OF THE NOTE
SECTION 2.01. Agreement to Subordinate. The Company, for itself, and
its successors and assigns, covenants and agrees, and each Holder of this Note,
by acceptance hereof, likewise covenants and agrees, that the indebtedness of
the Company evidenced by this Note and the payment of the principal hereof and
interest hereon is hereby expressly subordinated and junior in right of
payment, to the extent and in the manner hereinafter set forth, to the prior
payment in full of all Senior Debt, whether now existing or hereafter created,
assumed, guaranteed or incurred. The term "Senior Debt" means indebtedness for
money borrowed from or guaranteed to others (including, for this purpose, all
obligations of the Company under capitalized leases or purchase money
mortgages), unless in the instrument creating or evidencing such indebtedness,
it is expressly provided that such indebtedness is not senior in right of
payment to this Note.
SECTION 2.02. Priority of Senior Debt. Upon any distribution of the
assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company, whether in bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for the
benefit of creditors or any other marshalling of the assets and liabilities of
the Company or otherwise:
(a) the holders of all Senior Debt shall first be entitled to
receive payment in full of the principal thereof (and premium, if any) and
interest due thereon, or provision shall have been made for such payment in
money or money's worth, before the Holder of the Note shall be entitled to
receive any payment on account of the principal of or interest on the
indebtedness evidenced by the Note;
(b) any payment by, or distribution of assets of, the Company of
any kind or character, whether in cash, property or securities, to which the
Holder of the Note would be entitled except for the provisions of this Article
II shall be paid or delivered by the person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Senior Debt or their
representative or representatives, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Debt held or represented by each, to
the extent necessary to make payment in full on all Senior Debt remaining
unpaid after giving effect to any concurrent payment or distribution (or
provision therefor) to the holders of such Senior Debt;
(c) in the event that, notwithstanding the provisions of
subparagraphs (a) and (b) of this Section 2.02, any payment by, or distribution
of assets of, the Company of any kind or character, whether in cash, property
or securities, shall be received by the Holder of the Note before all Senior
Debt is paid in full, such payment or distribution shall be held in trust for
the benefit of, and shall be paid over to the holders of such Senior Debt or
their representative or representatives, ratably as aforesaid, for application
to the payment of all Senior Debt remaining unpaid until all such Senior Debt
shall have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Debt; and
(d) no act or failure to act on the part of the Company, and no
breach of any agreement of the Company, whether or not herein set forth, shall
in any way prevent or limit the holder of any Senior Debt from enforcing fully
the subordination herein provided for, irrespective of any knowledge or notice
thereof which such holder may at any time have or be otherwise charged with.
<PAGE> 3
SECTION 2.03. No Payments to Note Holder if Senior Debt is in
Default.
(a) Upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all principal thereof (and premium, if any) and
interest due thereon shall first be paid in full, or such payment duly provided
for in cash or in a manner satisfactory to the holder or holders of such Senior
Debt, before any payment is made on account of the principal of or interest on
the indebtedness evidenced by the Note.
(b) Upon the happening of an event of default with respect to any
Senior Debt, as such event of default is defined therein or in the instrument
under which it is issued, permitting the holders to accelerate the maturity
thereof, and, if the default is other than default in payment of the principal
of (or premium, if any) or interest on such Senior Debt, upon written notice
thereof given to the Company by the holder or holders of such Senior Debt or
their representative or representatives, then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no
payment shall be made by the Company with respect to the principal of or
interest on the indebtedness evidenced by the Note;
(c) In the event that, notwithstanding the provisions of
subparagraphs (a) and (b) of this Section 2.03 and under the circumstances
described therein, any payment is made on account of the principal of or
interest on the indebtedness evidenced by such Note, such payment shall be held
in trust for the benefit of, and shall be paid over to the holders of such
Senior Debt or their representative or representatives, ratably as aforesaid,
as required by said subparagraphs after giving effect to any concurrent payment
or distribution (or provision therefor) to the holders of such Senior Debt.
SECTION 2.04. Subrogation of Note Holder to Rights of Holders of
Senior Debt. Subject to the payment in full of all Senior Debt, the Holder of
this Note (equally and ratably with any other holder of Note or other
indebtedness of the Company which ranks pari passu with the Note and which is
entitled to subrogation rights which are equivalent to those applicable to the
Note) shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on the Note shall
be paid in full, and, as between the Company, its creditors (other than holders
of Senior Debt), and the Holders of the Note, no such payment or distribution
made to the holders of Senior Debt by virtue of this Article II which otherwise
would have been made to the Holders of the Note shall be deemed to be a payment
by the Company on account of the Senior Debt, it being understood that the
provisions of this Article II are and are intended solely for the purpose of
defining the relative rights of the Holders of the Note on the one hand, and
the holders of the Senior Debt, on the other hand.
SECTION 2.05. Obligation of the Company Unimpaired. Nothing
contained in this Article II or elsewhere in this Note is intended to or shall
impair, as between the Company, its creditors other than the holders of Senior
Debt, and the Holder of the Note, the obligation of the Company, which is
absolute and unconditional, to pay to the Holder of the Note the principal and
interest on the Note as and when the same shall become due and payable in
accordance with their respective terms, or affect the relative rights of the
Holders of the Note and creditors of the Company other than the holders of
Senior Debt, nor shall anything herein or therein prevent the Holder of this
Note from exercising all remedies otherwise permitted by applicable law upon
default under this Note, subject to the provisions of Article I hereof and the
<PAGE> 4
rights, if any, under this Article II of the holders of Senior Debt in respect
of cash, property or securities of the Company received upon the exercise of
any such remedy.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Holder of the Note shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which any such
dissolution, winding-up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder of the Note for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount paid or distributed thereon and all other facts pertinent thereto or to
this Article II.
SECTION 2.06. Obligation to Pay Note Holder Unaffected. Nothing
contained in this Article II shall affect the obligation of the Company to
make, or prevent the Company from making, at any time except during the
pendency of any dissolution, winding-up, liquidation or reorganization
proceeding, and except during the continuance of any event of default specified
in Section 2.03 (not cured or waived), payments at any time of principal of or
interest on the Note.
SECTION 2.07. Article II Not to Prevent Events of Default. The
failure to make a payment on account of principal or interest on the Note by
reason of any provision of this Article II shall not be construed as preventing
the occurrence of an Event of Default under Section 4.01.
ARTICLE III
PREPAYMENT
Subject to the provisions of Section 1.02(a) hereof, the Company may
prepay this Note at any time or from time to time either in whole or in part,
on at least thirty (30) but not more than sixty (60) days notice, in amounts of
$1,000 or integral multiples of $1,000, at a prepayment price equal to the
principal amount so prepaid, plus the amount of all interest accrued and unpaid
on such principal amount.
ARTICLE IV
REMEDIES
SECTION 4.01. Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(a) failure to pay the principal of or any interest on the
Note when due, whether at stated maturity or otherwise, and
continuance of such failure for more than fifteen (15) days;
or
(b) acceleration of the payment of any Senior Debt upon
the occurrence of an event of default under the instrument
<PAGE> 5
under which such Senior Debt was issued or by which it is
secured or evidenced, provided such acceleration is not
rescinded or annulled and such Senior Debt has not been
discharged; or
(c) adjudication of the Company as a bankrupt by a court
of competent jurisdiction, or the entry by such a court of an
order approving a petition seeking reorganization of the
Company under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State thereof, or the appointment by such a court of a
trustee or receiver or receivers of the Company or of all or
any substantial part of its property upon the application of
any creditor in any insolvency or bankruptcy proceeding or
other creditor's suit and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive
days; or
(d) the filing by the Company of a voluntary petition in
bankruptcy or the making by it of an assignment for the
benefit of creditors or the consenting by it to the
appointment of a receiver or receivers of all or any
substantial part of its property; or the filing by the Company
of a petition or answer seeking reorganization under the
federal bankruptcy laws or any other applicable law or statute
of the United States of America or any State thereof; or the
filing by the Company, of a petition to take advantage of any
debtor's act.
SECTION 4.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default, other than an Event of Default specified in clauses (c)
and (d) of Section 4.01, occurs and is continuing, then and in every such case
(unless all Events of Default shall have theretofore been remedied), the Holder
of the Note may declare the principal of and accrued interest on the Note to be
due and payable. Upon any such declaration, the principal and interest shall
be immediately due and payable, subject to the provisions of Section 1.02
hereof. If an Event of Default specified in clauses (c) and (d) of Section
4.01 occurs, such amount shall become and be immediately due and payable, to
the extent permitted by applicable law, without any declaration or other act on
the part of any Holder, subject to the provisions of Section 1.02 hereof.
SECTION 4.03. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Holder is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 4.04. Delay or Omission Not Waiver. No delay or omission of
the Holder of the Note to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence herein. Every right and remedy given
by this Article or by law to the Holder may be exercised from time to time, and
as often as may be deemed expedient, by the Holder.
<PAGE> 6
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Amendments, Etc. No amendment, modification,
termination or waiver of any provision of this Note nor consent to any
departure by the Company therefrom, shall in any event be effective unless the
same shall be consented to in writing by the Holder of the Note, and such
consent shall be effective only in the specific instance and for the specific
purpose for which given. Notwithstanding the foregoing, without the consent of
the Note Holder, the Company may amend or supplement the Note to cure any
ambiguity, defect or inconsistency or to make any change that does not
materially adversely affect the rights of any Note Holder.
SECTION 5.02. Addresses for Notices, Etc. All notices, requests,
demands, directions and other communications provided for under this Note shall
be in writing (including telegraphic communication) and mailed by certified
mail, return receipt requested, or telegraphed or delivered to the applicable
party. If to the Company, to it at:
HEARx LTD.
471 Spencer Drive
West Palm Beach, Florida 33409
and, if to the Holder of the Note, at the address specified in this Note or, as
to each party, at such other address as shall be designated by such party by
written notice to each other party complying as to delivery with the terms of
this Section. All such notices, requests, demands, directions and other
communications shall, when mailed or telegraphed, be effective when deposited
in the mails or delivered to the telegraph company, respectively, addressed as
aforesaid.
SECTION 5.03. Payment on Non-Business Days. Whenever any payment to
be made under this Note shall be stated to be due on a Saturday, Sunday or a
public holiday under the laws of the State of Florida such payment may be made
on the next succeeding business day, and such extension of time shall in such
case be included in the computation of payment of interest under this Note.
SECTION 5.04. Binding Effect; Assignment. This Note shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns.
SECTION 5.05. Governing Law. This Note shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such State.
SECTION 5.06. Headings. Article and Section headings in this Note
are included herein for convenience of reference only and shall not constitute
a part hereof for any other purpose.
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Note, as amended and
restated, to be executed by its proper corporate officers thereunto duly
authorized and its corporate seal to be impressed hereon, as of the 26th day of
January, 1996.
HEARx LTD.
By:
---------------------------------
Attest:
- ---------------------------------------
Secretary
<PAGE> 1
EXHIBIT 10.27
THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT.
THIS SUBORDINATED NOTE IS CALLABLE AT ANY TIME
HEARx LTD.
SUBORDINATED NOTE
$214,666.00 January 29, 1996
HEARx Ltd., a Delaware corporation (hereinafter called the "Company",
which term includes any successor corporation), for value received, hereby
promises to pay to the order of Paul A. Brown, M.D., 1744 South Ocean
Boulevard, Palm Beach, Florida, or the holder hereof ("Holder"), subject to the
provisions of Article I hereof, on January 1, 1998, the sum of Two Hundred
Fourteen Thousand Six Hundred Sixty-Six Dollars ($214,666.00). Payment of this
Subordinated Note (the "Note") will be made by check mailed to the Holder at
the Holder's address or will be made available at the principal office of the
Company, at the Holder's election.
ARTICLE I
MATURITY DATE; PAYMENT OF PRINCIPAL
SECTION 1.01 Maturity Date. The Company shall pay the outstanding
principal balance of this Note to the Holder on the later of (i) January 1,
1998 and (ii) the first business day after the day on which the Company redeems
all the outstanding shares of the 1996 Senior Preferred Stock. The term "1996
Senior Preferred Stock" means the 1996 Senior Preferred Stock of the Company
issued to certain investors pursuant to a Stock Purchase Agreement dated as of
January 26, 1996 among the Company, Invemed Associates, Inc. and certain
investors named therein.
SECTION 1.02. Payment of Principal.
(a) Notwithstanding any provision of this Note to the contrary,
the Company shall make no payments to any Holder on account of the outstanding
principal balance of this Note until the first business day after the day on
which the Company redeems all the outstanding shares of the 1996 Senior
Preferred Stock.
(b) In the event that, notwithstanding the provisions of Section
1.02(a), any payment is made by the Company to the Holder on account of the
outstanding principal balance of this Note, such payment shall be immediately
returned by the Holder to the Company.
<PAGE> 2
ARTICLE II
SUBORDINATION OF THE NOTE
SECTION 2.01. Agreement to Subordinate. The Company, for itself, and
its successors and assigns, covenants and agrees, and each Holder of this Note,
by acceptance hereof, likewise covenants and agrees, that the indebtedness of
the Company evidenced by this Note and the payment of the principal hereof is
hereby expressly subordinated and junior in right of payment, to the extent and
in the manner hereinafter set forth, to the prior payment in full of all Senior
Debt, whether now existing or hereafter created, assumed, guaranteed or
incurred. The term "Senior Debt" means indebtedness for money borrowed from or
guaranteed to others (including, for this purpose, all obligations of the
Company under capitalized leases or purchase money mortgages), unless in the
instrument creating or evidencing such indebtedness, it is expressly provided
that such indebtedness is not senior in right of payment to this Note.
SECTION 2.02. Priority of Senior Debt. Upon any distribution of the
assets of the Company upon any dissolution, winding up, liquidation or
reorganization of the Company, whether in bankruptcy, insolvency,
reorganization or receivership proceedings or upon an assignment for the
benefit of creditors or any other marshalling of the assets and liabilities of
the Company or otherwise:
(a) the holders of all Senior Debt shall first be entitled to
receive payment in full of the principal thereof (and premium, if any) and
interest due thereon, or provision shall have been made for such payment in
money or money's worth, before the Holder of the Note shall be entitled to
receive any payment on account of this Note;
(b) any payment by, or distribution of assets of, the Company of
any kind or character, whether in cash, property or securities, to which the
Holder of the Note would be entitled except for the provisions of this Article
II shall be paid or delivered by the person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or otherwise, directly to the holders of Senior Debt or their
representative or representatives, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Debt held or represented by each, to
the extent necessary to make payment in full on all Senior Debt remaining
unpaid after giving effect to any concurrent payment or distribution (or
provision therefor) to the holders of such Senior Debt;
(c) in the event that, notwithstanding the provisions of
subparagraphs (a) and (b) of this Section 2.02, any payment by, or distribution
of assets of, the Company of any kind or character, whether in cash, property
or securities, shall be received by the Holder of the Note before all Senior
Debt is paid in full, such payment or distribution shall be held in trust for
the benefit of, and shall be paid over to the holders of such Senior Debt or
their representative or representatives, ratably as aforesaid, for application
to the payment of all Senior Debt remaining unpaid until all such Senior Debt
shall have been paid in full, after giving effect to any concurrent payment or
distribution (or provision therefor) to the holders of such Senior Debt; and
(d) no act or failure to act on the part of the Company, and no
breach of any agreement of the Company, whether or not herein set forth, shall
in any way prevent or limit the holder of any Senior Debt from enforcing fully
the subordination herein provided for, irrespective of any knowledge or notice
thereof which such holder may at any time have or be otherwise charged with.
<PAGE> 3
SECTION 2.03. No Payments to Note Holder if Senior Debt is in
Default.
(a) Upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all principal thereof (and premium, if any) and
interest due thereon shall first be paid in full, or such payment duly provided
for in cash or in a manner satisfactory to the holder or holders of such Senior
Debt, before any payment is made on account of the principal of or interest on
the indebtedness evidenced by the Note.
(b) Upon the happening of an event of default with respect to any
Senior Debt, as such event of default is defined therein or in the instrument
under which it is issued, permitting the holders to accelerate the maturity
thereof, and, if the default is other than default in payment of the principal
of (or premium, if any) or interest on such Senior Debt, upon written notice
thereof given to the Company by the holder or holders of such Senior Debt or
their representative or representatives, then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no
payment shall be made by the Company with respect to the indebtedness evidenced
by the Note;
(c) In the event that, notwithstanding the provisions of
subparagraphs (a) and (b) of this Section 2.03 and under the circumstances
described therein, any payment is made on account of the indebtedness evidenced
by such Note, such payment shall be held in trust for the benefit of, and shall
be paid over to the holders of such Senior Debt or their representative or
representatives, ratably as aforesaid, as required by said subparagraphs after
giving effect to any concurrent payment or distribution (or provision therefor)
to the holders of such Senior Debt.
SECTION 2.04. Subrogation of Note Holder to Rights of Holders of
Senior Debt. Subject to the payment in full of all Senior Debt, the Holder of
this Note (equally and ratably with any other holder of Note or other
indebtedness of the Company which ranks pari passu with the Note and which is
entitled to subrogation rights which are equivalent to those applicable to the
Note) shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Debt until all amounts owing on the Note shall
be paid in full, and, as between the Company, its creditors (other than holders
of Senior Debt), and the Holders of the Note, no such payment or distribution
made to the holders of Senior Debt by virtue of this Article II which otherwise
would have been made to the Holders of the Note shall be deemed to be a payment
by the Company on account of the Senior Debt, it being understood that the
provisions of this Article II are and are intended solely for the purpose of
defining the relative rights of the Holders of the Note on the one hand, and
the holders of the Senior Debt, on the other hand.
SECTION 2.05. Obligation of the Company Unimpaired. Nothing
contained in this Article II or elsewhere in this Note is intended to or shall
impair, as between the Company, its creditors other than the holders of Senior
Debt, and the Holder of the Note, the obligation of the Company, which is
absolute and unconditional, to pay to the Holder of the Note the principal on
the Note as and when the same shall become due and payable in accordance with
their respective terms, or affect the relative rights of the Holders of the
Note and creditors of the Company other than the holders of Senior Debt, nor
shall anything herein or therein prevent the Holder of this Note from
exercising all remedies otherwise permitted by applicable law upon default
under this Note, subject to the provisions of Article I hereof and the rights,
<PAGE> 4
if any, under this Article II of the holders of Senior Debt in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Holder of the Note shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which any such
dissolution, winding-up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending or upon a certificate of the liquidating
trustee or agent or other person making any payment or distribution to the
Holder of the Note for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior Debt and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount paid or distributed thereon and all other facts pertinent thereto or to
this Article II.
SECTION 2.06. Obligation to Pay Note Holder Unaffected. Nothing
contained in this Article II shall affect the obligation of the Company to
make, or prevent the Company from making, at any time except during the
pendency of any dissolution, winding-up, liquidation or reorganization
proceeding, and except during the continuance of any event of default specified
in Section 2.03 (not cured or waived), payments at any time of principal on the
Note.
SECTION 2.07. Article II Not to Prevent Events of Default. The
failure to make a payment on the Note by reason of any provision of this
Article II shall not be construed as preventing the occurrence of an Event of
Default under Section 4.01.
ARTICLE III
PREPAYMENT
Subject to the provisions of Section 1.02(a) hereof, the Company may
prepay this Note at any time or from time to time either in whole or in part,
on at least thirty (30) but not more than sixty (60) days notice, in amounts of
at least $1,000 or integral multiples of $1,000.
ARTICLE IV
REMEDIES
SECTION 4.01. Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(a) failure to pay the principal of the Note when due,
whether at stated maturity or otherwise, and continuance of
such failure for more than fifteen (15) days; or
(b) acceleration of the payment of any Senior Debt upon
the occurrence of an event of default under the instrument
under which such Senior Debt was issued or by which it is
secured or evidenced, provided such acceleration is not
<PAGE> 5
rescinded or annulled and such Senior Debt has not been
discharged; or
(c) adjudication of the Company as a bankrupt by a court
of competent jurisdiction, or the entry by such a court of an
order approving a petition seeking reorganization of the
Company under the federal bankruptcy laws or any other
applicable law or statute of the United States of America or
any State thereof, or the appointment by such a court of a
trustee or receiver or receivers of the Company or of all or
any substantial part of its property upon the application of
any creditor in any insolvency or bankruptcy proceeding or
other creditor's suit and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive
days; or
(d) the filing by the Company of a voluntary petition in
bankruptcy or the making by it of an assignment for the
benefit of creditors or the consenting by it to the
appointment of a receiver or receivers of all or any
substantial part of its property; or the filing by the Company
of a petition or answer seeking reorganization under the
federal bankruptcy laws or any other applicable law or statute
of the United States of America or any State thereof; or the
filing by the Company, of a petition to take advantage of any
debtor's act.
SECTION 4.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default, other than an Event of Default specified in clauses (c)
and (d) of Section 4.01, occurs and is continuing, then and in every such case
(unless all Events of Default shall have theretofore been remedied), the Holder
of the Note may declare the principal of the Note to be due and payable. Upon
any such declaration, the principal shall be immediately due and payable,
subject to the provisions of Section 1.02 hereof. If an Event of Default
specified in clauses (c) and (d) of Section 4.01 occurs, such amount shall
become and be immediately due and payable, to the extent permitted by
applicable law, without any declaration or other act on the part of any Holder,
subject to the provisions of Section 1.02 hereof.
SECTION 4.03. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Holder is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 4.04. Delay or Omission Not Waiver. No delay or omission of
the Holder of the Note to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence herein. Every right and remedy given
by this Article or by law to the Holder may be exercised from time to time, and
as often as may be deemed expedient, by the Holder.
<PAGE> 6
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Amendments, Etc. No amendment, modification,
termination or waiver of any provision of this Note nor consent to any
departure by the Company therefrom, shall in any event be effective unless the
same shall be consented to in writing by the Holder of the Note, and such
consent shall be effective only in the specific instance and for the specific
purpose for which given. Notwithstanding the foregoing, without the consent of
the Note Holder, the Company may amend or supplement the Note to cure any
ambiguity, defect or inconsistency or to make any change that does not
materially adversely affect the rights of any Note Holder.
SECTION 5.02. Addresses for Notices, Etc. All notices, requests,
demands, directions and other communications provided for under this Note shall
be in writing (including telegraphic communication) and mailed by certified
mail, return receipt requested, or telegraphed or delivered to the applicable
party. If to the Company, to it at:
HEARx LTD.
471 Spencer Drive
West Palm Beach, Florida 33409
and, if to the Holder of the Note, at the address specified in this Note or, as
to each party, at such other address as shall be designated by such party by
written notice to each other party complying as to delivery with the terms of
this Section. All such notices, requests, demands, directions and other
communications shall, when mailed or telegraphed, be effective when deposited
in the mails or delivered to the telegraph company, respectively, addressed as
aforesaid.
SECTION 5.03. Payment on Non-Business Days. Whenever any payment to
be made under this Note shall be stated to be due on a Saturday, Sunday or a
public holiday under the laws of the State of Florida such payment may be made
on the next succeeding business day, and such extension of time shall in such
case be included in the computation of payment of interest under this Note.
SECTION 5.04. Binding Effect; Assignment. This Note shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns.
SECTION 5.05. Governing Law. This Note shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such State.
SECTION 5.06. Headings. Article and Section headings in this Note
are included herein for convenience of reference only and shall not constitute
a part hereof for any other purpose.
IN WITNESS WHEREOF, the Company has caused this Note, as amended and
restated, to be executed by its proper corporate officers thereunto duly
authorized and its corporate seal to be impressed hereon, as of the 29th day of
January, 1996.
HEARx LTD.
By:
-------------------------------------
<PAGE> 1
EXHIBIT 22
LIST OF SUBSIDIARIES
Sehas, Inc.
Hearx Georgia Franchising
Hearx Florida Franchising
Hearx New Jersey Franchising
Hearx Franchising Corporation
<PAGE> 1
EXHIBIT 23(a)
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 relating to the registration of 600,000 shares of Common
Stock, par value $.10 per share, of HEARx LTD. ("Registrant") of our report
dated April 5, 1996, relating to the consolidated financial statements and
schedule of the Registrant appearing in the Registrant's Annual Report on
Form 10-K for the year ended December 29, 1995.
West Palm Beach, Florida BDO Seidman, LLP
April 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR HEARX, LTD. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000821536
<NAME> HEARX, LTD.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-START> DEC-31-1994
<PERIOD-END> DEC-29-1995
<CASH> 933,539
<SECURITIES> 0
<RECEIVABLES> 1,569,227
<ALLOWANCES> (341,234)
<INVENTORY> 395,983
<CURRENT-ASSETS> 3,086,933
<PP&E> 4,395,372
<DEPRECIATION> (1,871,490)
<TOTAL-ASSETS> 6,450,628
<CURRENT-LIABILITIES> 4,404,112
<BONDS> 2,316,300
0
103,824
<COMMON> 4,795,678
<OTHER-SE> (5,169,286)
<TOTAL-LIABILITY-AND-EQUITY> 6,450,628
<SALES> 9,681,790
<TOTAL-REVENUES> 11,170,068
<CGS> 3,571,725
<TOTAL-COSTS> 13,100,786
<OTHER-EXPENSES> 28,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254,124
<INCOME-PRETAX> (2,213,453)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,213,453)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,213,453)
<EPS-PRIMARY> ($.05)
<EPS-DILUTED> ($.05)
</TABLE>
