As filed with the Securities and Exchange Commission on June 24, 1997
Registration No. 333-24357
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
HEARx LTD.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
22-2748248
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(I.R.S. Employer Identification No.)
1250 Northpoint Parkway
West Palm Beach, Florida 33407
(561) 478-8770
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(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Paul A. Brown, M.D.
Chairman and Chief Executive Officer
HEARx LTD.
1250 Northpoint Parkway
West Palm Beach, Florida 33407
(561) 478-8770
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all correspondence to:
LaDawn Naegle, Esq.
Bryan Cave LLP
700 13th Street, N.W., Suite 700
Washington, D.C. 20005-3960
(202) 508-6000
Approximate date of commencement of proposed sale to public: From time to time
after this Registration Statement becomes effective.
<PAGE>
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered offering price aggregate offering registration fee(2)(3)
per unit (1) price (1)
- -------------------------------------- ---------------- ---------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par value per share 2,109,851 shares $1.47 $3,101,481 $940
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<FN>
(1) Estimated solely for purposes of determining the registration fee
pursuant to Rule 457(c), based upon the average of the high and low
sales prices for the Common Stock as reported on the American Stock
Exchange on June 17, 1997.
(2) 5,082,101 shares previously included in the Registration Statement on
Form S-3 of the Registrant, Commission File No. 333- 4303, as to which
a registration fee of $6,791 was paid, are, pursuant to Rule 429, being
carried forward and included in the Prospectus forming a part of this
Registration Statement.
(3) A filing fee of $4,530.88 on 7,252,115 shares of the securities being
registered on this form was paid on previous filings.
</TABLE>
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS INCLUDED
IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS RELATING ALSO TO
5,082,101 SHARES REGISTERED UNDER REGISTRATION STATEMENT NO. 333-4303 PREVIOUSLY
FILED BY THE REGISTRANT ON FORM S-3 AND DECLARED EFFECTIVE ON AUGUST 8, 1996. IN
THE EVENT ANY OF SUCH PREVIOUSLY REGISTERED SHARES OF COMMON STOCK ARE OFFERED
PRIOR TO THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT, THEY WILL NOT BE
INCLUDED IN ANY PROSPECTUS HEREUNDER.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
14,444,067 SHARES
HEARX LTD.
COMMON STOCK
This Prospectus relates to the resale of 14,444,067 shares (the "Shares")
of common stock, par value $.10 per share (the "Common Stock"), of HEARx LTD., a
Delaware corporation (the "Company"), of which 5,082,101 shares have been
previously registered under the Registration Statement on Form S-3 previously
filed by the Company and declared effective on August 8, 1996. All of the Shares
offered hereby are being sold by the Selling Shareholders. 14,043,690 of the
Shares are issuable by the Company upon the conversion of 10,000 shares of the
Company's 1997 Convertible Preferred Stock, par value $1.00 per share (the "1997
Preferred Stock"), upon the conversion of 750 shares of the Company's 1996
Series B-1 Convertible Preferred Stock (the "Series B-1 Preferred Stock") and
exercise of the warrants (the "B-1 Warrants") issued upon prior conversions of
shares of the Series B-1 Preferred Stock, upon conversion of 500 shares of the
Company's 1996 Series B-2 Convertible Preferred Stock (the "Series B-2 Preferred
Stock" and together with the 1997 Preferred Stock and the Series B-1 Preferred
Stock, the "Preferred Stock") and upon the exercise of certain warrants (the
"Finder Warrants", and together with the B-1 Warrants, the "Warrants"). 400,377
of the Shares were issued by the Company upon the conversion of 500 shares of
the Series B-2 Preferred Stock. The Company issued the Preferred Stock in
certain private placement transactions and the B-1 Warrants upon the prior
conversion of certain shares of the Series B-1 Preferred Stock. The Finder
Warrants were issued by the Company as compensation in connection with certain
capital-raising and consulting services. See "Selling Shareholders." Additional
Shares that may become issuable as a result of the anti-dilution provisions of
the Preferred Stock and the Warrants are offered for resale hereby pursuant to
Rule 416 under the Securities Act of 1933, as amended (the "Securities Act").
The Company will not receive any proceeds from the sale of Shares by the
Selling Shareholders, but will receive the exercise price payable upon the
exercise of the Warrants if those Warrants are exercised for cash. There can be
no assurance that all or any part of the Warrants will be exercised or that they
will be exercised for cash. All expenses incurred in connection with this
offering are being borne by the Company, other than any commissions or discounts
paid or allowed by the Selling Shareholders to underwriters, dealers, brokers or
agents and legal fees of counsel to the Selling Shareholders. There can be no
assurance that the Selling Shareholders will sell any or all of the Shares
offered hereby.
The Selling Shareholders have not advised the Company of any specific plans
for the distribution of the Shares, but it is anticipated that the Shares may be
sold from time to time in transactions (which may include block transactions) on
the American Stock Exchange (the "AMEX") at the market prices then prevailing.
Sales of the Shares may also be made through negotiated transactions or
otherwise. The Selling Shareholders and the brokers and dealers through which
the sales of the Shares may be made may be deemed to be "underwriters" within
the meaning set forth in the Securities Act of 1933, as amended (the "Securities
Act"), and their commissions and discounts and other compensation may be
regarded as underwriters' compensation. See "Plan of Distribution."
The Common Stock is traded on the AMEX under the symbol "EAR." The closing
price of the Common Stock as reported on the AMEX on June 17, 1997 was $1.50 per
share.
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION UNDER "RISK
FACTORS" ON PAGES 4 THROUGH 9.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is June __, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). These reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Electronic filings of such
documents are publicly available on the Commission's Web Site at
http://www.sec.gov. Copies of such materials can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. In addition, the Common Stock is traded on the
American Stock Exchange under the symbol "EAR" and copies are available for
inspection at the American Stock Exchange, 86 Trinity Place, New York, New York
10006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement or the exhibits thereto.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information contained or incorporated by reference in the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document filed or incorporated by reference as
an exhibit to the Registration Statement are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed or incorporated by reference as an exhibit to the Registration Statement.
For further information, reference is hereby made to the Registration Statement
and exhibits thereto, copies of which may be inspected at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtained from
the Commission at the same address at prescribed rates.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
(1) Annual Report on Form 10-K for the fiscal year ended December 27, 1996,
filed pursuant to Section 13(a) of the Exchange Act, as amended on Form
10-K/A;
(2) Current Report on Form 8-K dated March 26, 1997 filed pursuant to
Section 13(a) of the Exchange Act; and
(3) Quarterly Report on Form 10-Q for the fiscal quarter ended March 28,
1997, filed pursuant to Section 13(a) of the Exchange Act, as amended
on Form 10-Q/A.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
shall hereby be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such
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<PAGE>
documents. See "Available Information." Any statement contained in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated herein by reference modifies or
supersedes such statement. Any statement contained herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained in any subsequently filed document incorporated or deemed to
be incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS (EXCLUDING EXHIBITS
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE
INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST CLASS MAIL WITHOUT
CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST BY SUCH PERSON TO HEARx LTD., 1250 NORTHPOINT PARKWAY, WEST PALM BEACH,
FLORIDA 33407, ATTENTION: TOMMY KEE, CORPORATE SECRETARY (TELEPHONE: (561)
478-8770).
No person has been authorized in connection with this offering to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company,
the Selling Shareholders or any other person. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to purchase, any
securities other than those to which it relates, nor does it constitute an offer
to sell or a solicitation of an offer to purchase by any person in any
jurisdiction in which it is unlawful for such person to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Prospectus, as well as information incorporated by reference herein,
contains certain "forward looking" statements. The Company desires to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the express purpose of
availing itself of the protections of such safe harbor with respect to all of
such forward-looking statements. Such forward-looking statements include,
without limitation, statements about the Company's future growth and expansion,
the manner in which such expansion will be funded and demands on Company
resources relating to the expansion (see "Risk Factors -- Recent and Future
Expansion; Management of Growth", below, and "Business -- Growth Strategy" in
the Company's annual report on Form 10-K for the fiscal year ended December 27,
1996 (the "Form 10-K")); the Company's ability to obtain comparable products
from other manufacturers in the event of disruption of supply from one or more
of the Company's current suppliers (see "Risk Factors -- Reliance on
Manufacturers and Qualified Audiologists"); the adequacy of the Company's
insurance and the ability to have recourse against a manufacturer in the event
of a product liability claim (see "Risk Factors - Product and Professional
Liability"); the Company's ability to continue to establish relationships with
health organizations and physicians that promote HEARx to the hearing impaired
(see "Business -- Products -- Customers and Marketing" in the Form 10-K); the
number of centers expected to be opened in early 1997 (see "Business -- Growth
Strategy -- Company Owned Centers" in the Form 10-K); the ability to meet
capital needs for currently anticipated growth with funds raised in 1996 and
early 1997 (see "Business -- Growth Strategy -- Management of Growth" in the
Form 10-K); the continued competitiveness with the Company's centers of certain
networks of hearing aid stores or distributors (see "Business -- Competition" in
the Form 10-K); the effect of a new federal or state physician referral mandate
on the Company (see "Business - Regulation -- Federal" in the Form 10-K); and
the effect on the Company of the loss of any single managed care contract (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General" in the Form 10-K). Actual events or results may differ
materially from those discussed in the forward looking statements as a result of
various factors, including those discussed in "Risk Factors," below and
generally in the Form 10-K and other documents incorporated by reference herein.
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<PAGE>
RISK FACTORS
The following factors should be carefully considered in evaluating the
Company and its business before purchasing any of the Shares offered hereby.
RECENT AND FUTURE EXPANSION; MANAGEMENT OF GROWTH
The Company has expanded its network of hearing care centers recently and
plans to continue such expansion. The Company intends to fund this expansion
with existing capital, the proceeds from the offering of the 1997 Preferred
Stock, earnings and, to the extent necessary and available on favorable terms to
the Company (of which there can be no assurance), commercial lines of credit.
The Company's operating results will be adversely affected if revenues do not
increase sufficiently to compensate for the increase in operating expenses
resulting from this expansion. In addition, this expansion will increase the
demands on the Company's management, technical, financial and other resources.
If the Company is unable to manage growth effectively, or to integrate fully its
infrastructure systems throughout its network of hearing care centers, its
operating results may be adversely affected.
HISTORY OF OPERATING LOSSES
The Company has incurred losses in each year since its organization. There
can be no assurance that the Company will achieve profitability in the near or
long term.
USE OF PROCEEDS
The Company will not receive any proceeds from the offer or sale of the
Shares by the Selling Shareholders, but will receive the exercise price, payable
upon exercise of the Warrants, if the Warrants are exercised for cash. The
Company intends to use the proceeds, if any, from the exercise of the Warrants
to fund the operations of the Company. There can be no assurance that any of the
Warrants will be exercised or that they will be exercised for cash.
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future.
RELIANCE ON SENIOR MANAGEMENT
The operations of the Company are dependent in large part upon the efforts
of Paul A. Brown, M.D., Chairman of the Board and Chief Executive Officer, and
Stephen J. Hansbrough, President and Chief Operating Officer. The loss of the
services of Dr. Brown or Mr. Hansbrough could adversely affect the conduct and
operation of the Company's business. The
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Company has purchased a "key man" insurance policy on Dr. Brown's life in the
amount of $3,000,000 for the benefit of the Company.
COMPETITION
The hearing care industry is highly fragmented with approximately 11,000
practitioners providing testing and dispensing products and services. Most
competitors are small retailers generally focusing on the sale of hearing aids
without providing comprehensive audiometric testing and other professional
services. Among the Company's larger competitors are: (i) Bausch & Lomb Inc., 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 (ii) Beltone Electronics Corp., a privately-owned
hearing aid manufacturer that distributes its products primarily through its
network of approximately 1,000 "authorized" distributors. A number of these
franchises and distributors are located in the areas the Company serves.
Although the Company believes it offers more comprehensive services and
products, there can be no assurance that these large, established companies,
which have far greater resources than the Company, will not expand and change
their operations to capture the market targeted by the Company. Nor can there be
any assurance that the hearing care market can be consolidated successfully by
the Company or its competitors, or that associations of independent audiologists
will not form and compete successfully for the Company's targeted market.
RENEWAL OF AGREEMENTS WITH HEALTH INSURANCE AND MANAGED CARE ORGANIZATIONS
Since 1991, the Company has entered into agreements with certain health
insurance and managed care organizations to provide hearing care products and
services, and has established hearing care centers in the related market areas.
The terms of a number of these agreements are to be renegotiated annually, and
most of these agreements may be terminated by either party on 90-days notice at
any time. The early termination or failure to renew the agreements could
materially adversely affect the operation of the hearing care centers located in
the related market areas. In addition, the early termination or failure to renew
the agreements which provide for payment to the Company on a per capita basis
would cause the Company to lower its estimates of revenues to be received over
the life of the agreements and could have a material adverse effect on the
Company's results of operations. As previously disclosed, effective May 31,
1996, Humana Health Care Plans of Florida ("Humana") declined to renew its
contract with the Company to provide coverage to Humana medicare members living
on the east coast of Florida (the contract to service Humana medicare members on
the west coast of Florida was unaffected). Total revenues from Humana east coast
members were approximately $2 million in 1995, or 18% of the Company's total
revenues. While the Company has obtained new contracts in other markets which
should more than offset the loss of revenues represented by the Humana east
coast contract non-renewal, there can be no assurance that other contracts will
not be the subject of a non-renewal or early termination. The Company is not
aware of any current intention on the part of any health insurance or managed
care organization to terminate any current contracts with the Company.
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<PAGE>
RELIANCE ON MANUFACTURERS AND QUALIFIED AUDIOLOGISTS
Through its hearing care centers, the Company makes available to customers
hearing aids supplied by approximately five major manufacturers, as well as
hearing enhancement devices manufactured by other companies. The Company relies
on these manufacturers to supply such products and a significant disruption in
supply from any or all of these manufacturers could materially adversely affect
the Company's business. There are currently approximately 40 manufacturers of
hearing aids and related hearing enhancement devices worldwide however, so that
in the event of disruption of supply from one or more of the Company's current
suppliers, the Company believes it could obtain comparable products from other
manufacturers. There can be no assurance, however, that such products could be
obtained at prices favorable to the Company or on a timely basis. The Company
has not experienced any significant disruptions in supply in the past. In
addition, the Company's centers employ audiologists, and the Company believes
that it distinguishes itself in the industry by having qualified audiologists
available in all of the Company's centers to provide on-site patient diagnosis
and related service. The inability of the Company to attract and retain
qualified audiologists may reduce the Company's ability to distinguish itself
from competing networks of hearing aid retailers and thus adversely affect its
business. Management believes that it will be able to attract and retain
qualified audiologists sufficient to staff its centers for the foreseeable
future.
PRODUCT AND PROFESSIONAL LIABILITY
In the ordinary course of its business, the Company may be subject to
product and professional liability claims alleging the failure of or adverse
effect 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 materially adversely affect 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, or that any manufacturer will
maintain adequate insurance or otherwise be able to pay such liability.
REGULATION
The practice of audiology and the dispensing of hearing aids are not
presently regulated on the Federal level. The sale of hearing aids, however, is
subject to certain limited regulations promulgated by the United States Food and
Drug Administration. Generally, state regulations, where they exist, are
concerned primarily with the formal licensure of audiologists and of those who
dispense hearing aids and with practices and procedures involving the fitting
and dispensing of hearing aids. There can be no assurance that regulations do
not exist in jurisdictions in which the Company plans to open centers or will
not be promulgated in states in which the Company currently operates centers or
at the Federal level. Such regulations may have a material adverse effect upon
the Company. Such regulations might include stricter licensure requirements for
dispensers of hearing aids, inspection of centers for the dispensing of hearing
aids and the regulation of advertising by dispensers of hearing aids. The
Company knows of no current or
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<PAGE>
proposed regulations in the jurisdictions in which it operates with which it, as
currently operated, could not comply.
POSSIBLE VOLATILITY OF PRICES
The market price of the Common Stock has changed significantly since
October 1995. The highest bid and the lowest offer on the Nasdaq Bulletin Board
from October 2, 1995 until the Company's Common Stock was listed on the AMEX on
March 15, 1996 was $5.8125 and $.82 per share, respectively. Since the stock
began trading on the AMEX and through June 17, 1997, the stock has traded as
high as $7.375 and as low as $1.50 per share. Future changes in the market price
of the Common Stock may bear no relation to the Company's results of operations.
Quarterly operating results, changes in the condition of the economy generally
or in the healthcare industry, or developments affecting the Company or its
competitors could cause the market price of the Common Stock to fluctuate
substantially.
POTENTIAL DILUTION; SHARES ELIGIBLE FOR FUTURE SALES; POSSIBLE EFFECT ON
ADDITIONAL EQUITY FINANCING
A substantial number of shares of Common Stock are or will be issuable by
the Company upon the conversion of convertible preferred stock and the exercise
of warrants and options which the Company has issued, which would result in
substantial dilution to a shareholder's percentage ownership interest in the
Company and could adversely affect the market price of the Common Stock. Under
the applicable conversion formulas of the Preferred Stock if the market price of
the Common Stock is less than $5.00 per share, the number of shares of Common
Stock issuable upon conversion is inversely proportional to the market price of
the Common Stock at the time of conversion (i.e., the number of shares increases
as the market price of the Common Stock decreases); and except with respect to
certain redemption rights of the Company for the 1997 Preferred Stock, there is
no cap on the number of shares of Common Stock which may be issuable. In
addition, the number of shares issuable upon the conversion of the Preferred
Stock and the exercise of warrants and options is subject to adjustment upon the
occurrence of certain dilutive events.
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<PAGE>
On June 16, 1997, there were issued and outstanding a total of 84,895,719
shares of Common Stock. If all convertible preferred stock, warrants and options
which the Company has issued were deemed converted and exercised, as the case
may be, as of June 16, 1997, there would be issuable 34,396,251 shares of Common
Stock. Upon such conversion and exercise, there would be outstanding 119,291,970
shares of Common Stock. Of these, the Company currently has registered for
resale 39,755,173 shares (including the Shares offered hereby) and has granted
demand registration rights in respect of approximately 2,547,200 additional
shares. The sale or availability for sale of a significant number of shares of
Common Stock in the public market could adversely affect the market price of the
Common Stock. In addition, certain holders of outstanding securities of the
Company have rights to approve and/or participate in certain types of future
equity financing by the Company. The availability to the Company of additional
equity financing, and the terms of any such financing, may be adversely affected
by the foregoing.
CONTINUED AMEX LISTING
The Common Stock was listed and began trading on the AMEX on March 15,
1996. The AMEX will consider delisting a company's securities if, among other
things, the company fails to maintain stockholder's equity of at least
$2,000,000 if the company has sustained losses from continuing operations or net
losses in two of its three most recent fiscal years; the company fails to
maintain stockholder's equity of $4,000,000 if the company has sustained losses
from continuing operations or net losses in three of its four most recent fiscal
years; or the company has sustained losses from continuing operations or net
losses in its five most recent fiscal years. In the event the Company's Common
Stock was delisted from the AMEX, trading, if any, in the Common Stock would be
conducted in the over-the-counter market, and the ability of holders to sell or
otherwise dispose of such shares could be adversely affected. In addition, if
such delisting were to occur, transactions in shares of the Common Stock could
become subject to the Commission's "penny stock" regulations. The Company is
unaware of any intention on the part of the AMEX to delist its Common Stock.
"PENNY STOCK" REGULATIONS
The Commission has adopted regulations that define a "penny stock" to
include any over-the-counter equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. The regulations require the
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prescribed by the Commission relating to the penny stock market, subject to
certain exemptions. A broker-dealer effecting transactions in penny stocks must
disclose the commissions payable to both the broker-dealer and any registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent to the customer disclosing the recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. If the penny stock regulations were to become applicable to transactions
in shares of the Common Stock, they could adversely affect the ability of
holders to sell or otherwise dispose of such shares.
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POTENTIAL CHANGE IN VOTING CONTROL OF THE COMPANY
As of June 16, 1997, the directors and executive officers of the Company
beneficially owned, as a group, approximately 14.6% of the 84,895,719 shares of
Common Stock. If all convertible preferred stock, warrants and options which the
Company has issued or agreed to issue were deemed converted and/or exercised on
June 16, 1997, the directors and executive officers would beneficially own
approximately 12.5% of the then outstanding Common Stock. See "-- Potential
Dilution; Shares Eligible for Future Sales; Possible Effect on Additional Equity
Financing." In the event of a change in voting control of the Company, the
current directors and officers of the Company could be replaced.
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THE COMPANY
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 currently operates 73 centers primarily located in Connecticut,
Florida, New York, New Jersey, and Pennsylvania. Over the next several years,
the Company's primary emphasis will be opening (or selectively acquiring)
additional Company-owned centers in these states and others where the Company
has obtained contracts to provide services and products.
The Company's principal executive offices are located at 1250 Northpoint
Parkway, West Palm Beach, Florida 33407, and its telephone number is (561)
478-8770.
10
<PAGE>
SELLING SHAREHOLDERS
None of the Selling Shareholders is an affiliate of the Company or has had
any position, office or other material relationship with the Company within the
past three years except as a shareholder of the Company or as noted below. The
following table sets forth information with respect to the Selling Shareholders,
based upon information provided to the Company by them.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Being Shares Beneficially Owned
Name of Selling Shareholder Prior to Offering (1) Offered After Offering (2)
- ------------------------------ ------------------------- ------------ -------------------------
<S> <C> <C> <C>
Zanett Lombardier, Ltd. (8) 1,807,355 (4)(6)(9) 1,807,355 0
Capital Ventures International 5,039,024 (5)(6) 5,039,024 0
Olympus Securities, Ltd. 2,137,011 (3)(5) 2,137,011 0
Nelson Partnes 2,488,439 (3)(5) 2,488,439 0
Zanett Securities, Inc. (8) 1,000 (6) 1,000 0
Charles B. Krusen 125,000 (6)(7) 125,000 0
Bruno Guazzoni 774,000 (6)(7) 774,000 0
Taft Securities 148,750 (6) 148,750 0
Aragon Investments, Ltd. 148,750 (6) 148,750 0
Jules H. Augus 163 (6) 163 0
Ronald E. Barsa 163 (6) 163 0
Eugene S. Bassin 325 (6) 325 0
Frederick G. Brackis 163 (6) 163 0
Michael Rabinowitz 1,626 (6) 1,626 0
Victor T. Sicuranza 488 (6) 488 0
James D. Sullivan 163 (6) 163 0
Nancy Voisin Paulay 10,811 (6) 10,811 0
James C. Dyer 163 (6) 163 0
Walter W. Muller 1,626 (6) 1,626 0
James P. Orazio 650 (6) 650 0
George E. Allis and/or
Phyllis A. Allis JTWROS 16,666 (6) 16,666 0
Austin Moscowitz 16,993 (6) 16,993 0
Paul Fetscher 35,000 (10) 35,000 0
- ------------------------------ ------------------------- ------------ -------------------------
Total 12,754,329 12,754,329 0
========================= ============ =========================
- ---------------
<FN>
(1) Assumes that all the Series B-1 and B-2 Preferred Stock held by the Selling
Shareholders is converted at a conversion price based on the 10-day AMEX
average closing bid on June 16, 1997 of $1.6850, including shares issuable
in respect of any premium. Assumes that all the 1997 Preferred Stock held by
the Selling Shareholders is converted at a conversion price based on the
10-day AMEX closing trade on June 16, 1997 of $1.7313, including shares
issuable in respect of any premium. Pursuant to the terms of the Preferred
Stock, the Preferred Stock is convertible by the holders thereof only to the
extent that the number of shares of Common Stock thereby issuable, together
with the number of shares of Common Stock then held by such holder and its
affiliates (not including shares underlying unconverted shares of Preferred
Stock and unexercised warrants) would not exceed 4.9% of the then
outstanding Common Stock as determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended. Accordingly, the number of
shares of Common Stock set forth below for each Selling Shareholder may
exceed the actual number of shares of Common Stock that such Selling
Shareholder could own beneficially at any given time through its ownership
of the Preferred Stock and the Warrants.
(2) Assumes all shares offered hereby are sold to persons who are not affiliates
of the Selling Shareholders. The Selling Shareholders may, but are not
required to, sell all shares offered hereby.
(3) Includes shares issuable upon conversion of the Series B-1 Preferred Stock.
11
<PAGE>
(4) Includes shares issuable upon conversion of the Series B-2 Preferred Stock.
(5) Includes shares issuable upon the exercise of the B-1 Warrants.
(6) Includes shares issuable upon the exercise of Finder Warrants issued in
connection with certain capital-raising services.
(7) 125,000 shares shown as beneficially owned by Charles B. Krusen and 625,000
of the shares shown as beneficially owned by Bruno Guazzoni are issuable
upon exercise of certain Finder Warrants that vest pro rata over a four-year
period. Only 20% of such totals are currently exercisable; the remaining 80%
vest over such four-year period commencing November 26, 1997.
(8) Zanett Securities, Inc. also received from the Company a cash finders fee in
connection with the sale of the 1997 Preferred Stock. Zanett Capital, Inc.
received from the Company a finders fee in the amount of approximately
$1,053,000 in connection with the sale of the Series B-1 and B-2 Preferred
Stock. Zanett Securities, Inc. is an affiliate of Zanett Capital, Inc.
Zanett Lombardier, Ltd. is not affiliated with Zanett Securities, Inc. or
Zanett Capital, Inc.
(9) Includes for Zanett Lombardier, Ltd. 400,377 Shares which were issued upon
the conversion of 500 shares of the Series B-2 Preferred Stock.
(10)35,000 shares shown as beneficially owned by Paul Fetscher are issuable upon
exercise of Finder Warrants issued to Mr. Fetscher in connection with
certain consulting services performed for the Company relating to the
selection of sites for new hearing care centers.
</TABLE>
5,862,410 Shares offered hereby are issuable upon the conversion of 10,000
shares of the 1997 Preferred Stock and 1,685,000 of the Shares offered hereby
are issuable upon the exercise of the Finder Warrants. Upon conversion of the
1997 Preferred Stock, holders will be entitled to receive a number of shares of
Common Stock determined by dividing the stated value of the 1997 Preferred Stock
($1,000 per share), plus a premium in the amount of 6% per annum of the stated
value from the date of issuance (unless the Company chooses to pay that premium
in cash), by a conversion price equal to the lesser of $5.00 or a percentage
(either 100% or 85% depending upon the conversion date) of the average of the
closing prices for shares of Common Stock during a ten-day period prior to
conversion, subject to adjustment upon the occurrence of certain dilutive
events. The 1997 Preferred Stock may not be converted for the 90-day period
after the closing (i.e., to June 16, 1997) unless the closing price of the
Company's Common Stock on the AMEX prior to a conversion is $5.00 or more (in
which case the 1997 Preferred Stock may be converted at the $5.00 conversion
price). For the next 60 days (i.e., to August 14, 1997), so long as the Common
Stock is trading at less than $5.00 per share prior to a conversion, the 1997
Preferred Stock may be converted only at the market price. If the Common Stock
trades at a price of $5.00 or more per share during that period, the 1997
Preferred Stock may be converted at the lesser of $5.00 or 85% of the market
price. For the next 90-day period (i.e., to November 12, 1997), up to one-half
of the 1997 Preferred Stock may be converted at the lesser of $5.00 or 85% of
the market price (the remaining one-half is convertible during that period at
the lesser of $5.00 or the market price). Any 1997 Preferred Stock not yet
converted at and after November 12, 1997 may be converted at the lesser of $5.00
or 85% of the market price. The 1997 Preferred Stock may be converted by holders
in accordance with these terms at any time prior to March 17, 2000, and
automatically converts on such date, unless the Common Stock is trading at $1.50
per share or below and the Company elects to redeem the 1997 Preferred Stock for
a price equal to 115% of its stated value plus the premium.
The Company has the right upon receipt of notice of an optional conversion
of any shares of the 1997 Preferred Stock to redeem shares of the 1997 Preferred
Stock tendered for conversion in lieu of conversion at a price equal to 115% of
its stated value plus the premium, if the closing price of the Common Stock as
reported on the AMEX for the date immediately prior to the conversion date is
equal to or less than $1.50 per share. Certain of
12
<PAGE>
the Finder Warrants vest over a four-year period and the remainder may be
exercised by the holders at any time prior to the fifth anniversary of their
issuance.
4,806,542 Shares offered hereby are issuable upon the conversion of 750
shares of the Series B-1 Preferred Stock, the exercise of the B-1 Warrants
previously issued upon such conversion, and the conversion of 500 shares of the
Series B-2 Preferred Stock. 400,377 Shares offered hereby were issued by the
Company upon the conversion of 500 shares of the Series B-2 Preferred Stock.
Upon conversion of the Series B-1 and B-2 Preferred Stock, holders will be
entitled to receive a number of shares of Common Stock determined by dividing
the stated value of the Series B-1 and B-2 Preferred Stock ($1,000 per share),
plus a premium in the amount of 8% per annum of the stated value from the date
of issuance (unless the Company chooses to redeem the shares otherwise issuable
in respect of that premium), by a conversion price equal to the lesser of (i)
$5.00, and (ii) a percentage ranging from (100% on or before July 7, 1996, to
75% after May 7, 1997) of the average closing bid prices for shares of Common
Stock for the ten trading day period immediately prior to conversion, subject to
adjustment upon the occurrence of certain dilutive events. The Series B-1 and
B-2 Preferred Stock may be converted by holders at any time prior to May 7,
1999, and must be converted on that date. The B-1 Warrants may be exercised by
the holders at any time prior to the fifth anniversary of their issuance.
The foregoing summary is qualified in its entirety by the terms of the
Preferred Stock and the Warrants.
Under the applicable conversion formula, the number of shares of Common
Stock issuable upon conversion of the Preferred Stock will be higher if the
market price of the Common Stock at the time of conversion is lower, and there
is no cap on the number of shares of Common Stock that may be issuable in
respect of the Series B-1 and B-2 Preferred Stock. Pursuant to the terms of the
1997 Preferred Stock, the Company has the right to redeem shares of the 1997
Preferred Stock tendered for conversion at a price equal to 115% of its stated
value plus the premium, if the closing price of the Common Stock as reported on
the AMEX for the date immediately prior to the conversion is $1.50 or less per
share. In addition, the number of shares issuable upon conversion of the
Preferred Stock and the exercise of the Warrants is subject to the adjustment
upon the occurrence of certain dilutive events. The 14,444,067 shares offered
hereby represent the number of shares that would be issuable if the Preferred
Stock were converted on June 16, 1997, the Warrants were exercised and no
limitation or adjustments were applicable, plus an additional 1,689,738 shares.
(Additional shares that may become issuable as a result of the anti-dilution
provisions of the Preferred Stock and Warrants are also offered hereby pursuant
to Rule 416 under the Securities Act.)
PLAN OF DISTRIBUTION
The Shares offered hereby may be offered and sold from time to time by the
Selling Shareholders, or by pledgees, donees, transferees or other successors in
interest. Such offers and sales may be made from time to time on the AMEX or
otherwise, at prices and on terms then prevailing or at prices related to the
then-current market price, or at negotiated prices. The methods by which the
shares may be sold may include, but are not limited to, the following: (a) a
block trade in which the broker or dealer so engaged will attempt to sell the
Shares as agent but
13
<PAGE>
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) privately negotiated
transactions; (e) short sales; and (f) a combination of any such methods of
sale. In effecting sales, brokers or dealers engaged by the Selling Shareholders
may receive commissions or discounts from the Selling Shareholders or from the
purchasers in amounts to be negotiated immediately prior to the sale. The
Selling Shareholders may also sell shares in accordance with Rule 144 under the
Securities Act.
The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the Shares offered hereby until the earlier
of the date upon which all of the Shares offered hereby have been sold or until
the date on which the Shares may be sold without registration, whichever is
shorter.
The Selling Shareholders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of the Securities Act. Any
commissions paid or any discounts or concessions allowed to any broker, dealer,
underwriter, agent or market maker and, if any such broker, dealer, underwriter,
agent or market maker purchases any of the Shares as principal, any profits
received on the resale of such Shares, may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is bearing all of the costs relating to the registration of the
Shares, except commissions, discounts or other fees payable to a broker, dealer,
underwriter, agent or market maker in connection with the sale of any of the
Shares and legal fees of the Selling Shareholders all of which will be borne by
the Selling Shareholders. The Company will not receive any of the proceeds from
this offering. There can be no assurance that the Selling Shareholders will sell
any or all of the Shares offered hereby.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby has been passed
upon for the Company by Bryan Cave LLP, Washington, D.C.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 27, 1996, and December 29, 1995, and for the years ended December 27,
1996, December 29, 1995, and December 30, 1994, have been audited by BDO
Seidman, LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 27, 1996, and are incorporated
herein by reference, in reliance upon the authority of such firm as experts in
accounting and auditing in giving said reports.
14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions), which other than the SEC registration fee are
estimates, payable by the Company in connection with the sale and distribution
of the shares registered hereby:
SEC registration fee........................................ $ 5,470.88
Accounting fees and expenses................................ 1,500.00
Legal fees and expenses..................................... 15,000.00
Miscellaneous expenses...................................... 0.00
-------------
Total....................................................... $ 21,970.88
=============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware (the "DGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he
15
<PAGE>
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; that indemnification provided for
by Section 145 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of such persons' heirs, executors and
administrators; and empowers the corporation to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under Section 145.
Article VII of the Company's By-laws provides that the Company shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by the DGCL.
Section 102(b)(7) of DGCL provides that a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that such provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derived an improper personal benefit. Article 7 of the
Company's Certificate of Incorporation provides that the directors of the
Company shall have no personal liability to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent provided by Section 102(b)(7).
ITEM 16. EXHIBITS
See Exhibit Index.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this registration
statement;
16
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement; provided,
however, that paragraphs (i) and (ii) do not apply if the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Form S-3 Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of West Palm Beach, State of Florida, on
June 20, 1997.
HEARx LTD.
By: /s/ Paul A. Brown
------------------------------------
Name: Paul A. Brown, M.D.
Title: Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
- --------------------- ------------------------------------------ -------------
/s/ Paul A. Brown Chairman of the Board; Chief Executive June 20, 1997
- --------------------- Officer and Director
Paul A. Brown, M.D.
/s/ Paul A. Brown* President and Chief Operating Officer and June 20, 1997
- --------------------- Director
Stephen J. Hansbrough
/s/ Paul A. Brown* Vice President and Principal Financial June 20, 1997
- --------------------- and Accounting Officer
James W. Peklenk
/s/ Paul A. Brown* Director June 20, 1997
- ---------------------
Fred N. Gerard
/s/ Paul A. Brown* Director June 20, 1997
- ---------------------
David J. McLachlan
/s/ Paul A. Brown* Director June 20, 1997
- ---------------------
Thomas W. Archibald `
- ---------------
* Executed by Paul A. Brown as attorney in fact for the person indicated.
18
<PAGE>
HEARX LTD.
EXHIBIT INDEX
Exhibit Number Description
- -------------- ----------------------------------------------------------------
4.1 Specimen of Certificate representing Common Stock*
4.2 Form of Finders Warrant (to purchase up to 850,000 shares of
Common Stock at an exercise price equal to $5.00 per share)**
4.3 Form of Finders Warrant (to purchase up to 750,000 shares of
Common Stock at an exercise price equal to $2.00 per share)***
4.4 Form of Finders Warrant (to purchase up to 50,000 shares of
Common Stock at an exercise price equal to $3.00 per share)***
4.5 Form of Finders Warrant (to purchase up to 35,000 shares of
Common Stock at an exercise price equal to $4.00 per share)
5.1 Opinion of Bryan Cave LLP
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Bryan Cave LLP (included in Exhibit 5.1)
24.1 Power of Attorney***
- ---------------
* Filed as an Exhibit to the Company's Registration Statement on Form S-18
(Registration No. 33-17041-NY).
** Filed as Exhibit 4.3 to the Company's Current Report on Form 8-K dated March
26, 1997 (File No. 001-11655).
*** Previously Filed.
19
THIS WARRANT AND THE WARRANT SHARES REFERRED TO HEREIN HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
COVERING THIS WARRANT OR THOSE WARRANT SHARES, AS THE CASE MAY BE, UNDER SAID
ACT OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT.
VOID AFTER 5:00 P.M. NEW YORK TIME ON SEPTEMBER 12, 2001 ("EXPIRATION
DATE").
HEARx LTD.
WARRANT TO PURCHASE SHARES OF
COMMON STOCK, PAR VALUE $0.10 PER SHARE
This is to certify that, for VALUE RECEIVED, Paul Fetscher
("Warrantholder"), is entitled to purchase, subject to the provisions of this
Warrant, from HEARx Ltd., a Delaware corporation ("Company"), at any time not
later than 5:00 P.M., New York time, on the Expiration Date, at the exercise
price of Four Dollars per share ($4.00) (the exercise price in effect being
herein called the "Warrant Price"), 35,000 shares ("Warrant Shares") of Common
Stock, par value $0.10 per share ("Common Stock"), of the Company. The number of
Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time as described herein.
Section 1. Registration. The Company shall maintain books for the transfer
and registration of the Warrant. Upon the initial issuance of the Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
Section 2. Transfers. As provided herein, the Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act of
1933, as amended ("Securities Act") or an exemption from registration
thereunder. Subject to such restrictions, the Company shall transfer from time
to time, the Warrant, upon the books to be maintained by the Company for that
purpose, upon surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer upon any such transfer, and a new Warrant
shall be issued to the transferee and the surrendered Warrant shall be cancelled
by the Company.
Section 3. Exercise of Warrant. Subject to the provisions hereof, the
Warrantholder may exercise the Warrant in whole or in part at any time upon
surrender of the Warrant, together with delivery of the duly executed Warrant
exercise form attached thereto, to the Company, at or prior to 5:00 P.M. New
York Time on the Expiration Date, together with payment of the Warrant Price, as
such may be adjusted from time to time in accordance with Section 9, for the
number of Warrant Shares in respect of which the Warrant is then exercisable. To
the extent that this Warrant remains outstanding at 5:01 P.M. on the Expiration
Date, such Warrant shall automatically expire and be of no further force and
<PAGE>
effect, and the holders thereof shall have no further right to exercise or
transfer the same. Payment of the Warrant Price shall be made in cash or by
certified check payable in United States dollars, to the order of the Company.
Subject to Section 5, upon such surrender of the Warrant and payment of the
Warrant Price as aforesaid, the Company shall issue and cause to be delivered to
the Warrantholder or to such other person as the Warrantholder may designate, a
certificate or certificates for the number of full Warrant Shares so purchased
upon the exercise of the Warrant, together with cash, as provided in Section 10
hereof in respect of any fraction of a Warrant Share otherwise issuable upon
such surrender. Such certificate or certificates shall be deemed to have been
issued, and the person to whom they are issued shall be deemed to have become a
holder of record of the Warrant Shares, as of the date of the surrender of the
Warrant and payment of the Warrant Price as aforesaid unless counsel for the
Company advises the Company in writing that an earlier date is permissible for
purposes of applicable securities laws. The rights of purchase represented by
the Warrant shall be exercisable, at the election of the Warrantholder either as
an entirety or from time to time for part only of the Warrant Shares and, in the
event that the Warrant is exercised in respect of less than all of the Warrant
Shares specified herein at any time prior to the Expiration Date, a new Warrant
will be issued to Warrantholder for the remaining number of Warrant Shares
specified in the Warrant so surrendered within five business days.
Section 4. Exercise and Transfer to Company with the Securities Act of
1933. Neither this Warrant nor the Common Stock issued upon exercise hereof nor
any other security issued or issuable upon exercise of this Warrant may be
offered or sold except as provided in this agreement and in conformity with the
Securities Act of 1933, as amended, and then only against receipt of an
agreement of such person to whom such offer of sale is made to comply with the
provisions of this Section 4 with respect to any resale or other disposition of
such security. The Company may cause the legend set forth on the first page of
this Warrant to be set forth on each Warrant or any security issued or issuable
upon exercise of this Warrant, unless counsel for the Company is of the opinion
as to any such security that such legend is unnecessary or such security may
then be sold pursuant to Rule 144(k) under the Securities Act of 1933.
Section 5. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue or delivery of any certificates for Warrant Shares in a
name other than that of the registered holder of the Warrant in respect of which
such shares are issued, and in such case, the Company shall not be required to
issue or deliver any certificate for Warrant Shares or any Warrant until the
person requesting the same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has been paid.
Section 6. Mutilated or Missing Warrants. In case the Warrant shall be
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mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of Warrant Shares, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity or bond, if requested by the Company.
Section 7. Reservation of Common Stock. The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved, out of the authorized and unissued Common Stock, a number
of shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrant, and the American Stock Transfer & Trust Company, the
transfer agent for the Common Stock ("Transfer Agent"), and every subsequent
transfer agent for the Common Stock or other shares of the Company's capital
stock issuable upon the exercise of any of the right of purchase aforesaid shall
be irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares of Common Stock as shall be requisite for such
purpose. The Company agrees that all Warrant Shares issued upon exercise of the
Warrant shall be, at the time of delivery of the certificates for such Warrant
Shares, duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock of the Company. The Company will supply from time to time the
Transfer Agent with duly executed stock certificates required to honor the
outstanding Warrant. After the Expiration Date, no Common Stock shall be subject
to reservation in respect to such Warrant which shall have expired.
Section 8. Warrant Price. The Warrant Price, subject to adjustment as
provided in Section 9, shall, if payment is made in cash or by certified check,
be payable in lawful money of the United States of America.
Section 9. Adjustments. Subject and pursuant to the provisions of this
Section 9, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.
(a) If the Company shall at any time or from time to time while the Warrant
is outstanding, pay a dividend or make a distribution on its Common Stock in
shares of Common Stock, subdivide its outstanding shares of Common Stock into a
greater number of shares or combine its outstanding shares into a smaller number
of shares or issue by reclassification of its outstanding shares of Common Stock
any shares of its capital stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then the number of Warrant Shares purchasable upon exercise of the
Warrant and the Warrant Price in effect immediately prior to the date upon which
such change shall become effective, shall be adjusted by the Company so that the
Warrantholder thereafter exercising the Warrant shall be entitled to receive the
number of shares of Common Stock or other capital stock which the Warrantholder
would have received if the Warrant had been exercised immediately prior to such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
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(b) If any capital reorganization, reclassification of the
capital stock of the Company, consolidation or merger of the Company with
another corporation, or sale, transfer or other disposition of all or
substantially all of the Company's properties to another corporation shall be
effected, then, as a condition of such reorganization, reclassification,
consolidation, merger, sale, transfer or other disposition, lawful and adequate
provision shall be made whereby each Warrantholder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
herein specified and in lieu of the Warrant Shares immediately theretofore
issuable upon exercise of the Warrant, such shares of stock, securities or
properties as may be issuable or payable with respect to or in exchange for a
number of outstanding Warrant Shares equal to the number of Warrant Shares
immediately theretofore issuable upon exercise of the Warrant, had such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of each Warrantholder to the end
that the provisions hereof (including, without limitations, provision for
adjustment of the Warrant Price) shall thereafter be applicable, as nearly
equivalent as may be practicable in relation to any shares of stock, securities
or properties thereafter deliverable upon the exercise thereof. The Company
shall not effect any such consolidation, merger, sale, transfer or other
disposition unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing or otherwise acquiring
such assets or other appropriate corporation or entity shall assume, by written
instrument executed and delivered to the Company, the obligation to deliver to
the holder of the Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase and the other obligations under this Warrant.
The above provisions of this paragraph (b) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, transfers or
other dispositions.
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(c) In case the Company shall fix a record date for the making
of a distribution to all holders of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidences of indebtedness or assets
(other than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends or distributions referred to in Section
9(a)), or subscription rights or warrants, the Warrant Price to be in effect
after such record date shall be determined by multiplying the Warrant Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding multiplied
by the Market Price per share of Common Stock (as determined pursuant to Section
3), less the fair market value (as determined by the Company's Board of
Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such current Market Price per share of Common Stock. Such adjustment shall be
made successively whenever such a record date is fixed.
(d) (i) After the date hereof, if the Company shall at any
time or from time to time while the Warrant is outstanding, issue or sell any
shares of Common Stock (other than Excluded Stock, as hereinafter defined) for a
consideration per share less than the Warrant Price in effect immediately prior
to the time of such issue or sale then, forthwith upon such issue or sale, the
Warrant Price shall be reduced (but not increased) to the consideration per
share received by the Company for such shares of Common Stock issued or sold.
Such adjustment shall be made successively whenever such issuance or sale is
made. No adjustment of the Warrant Price, however, shall be made in an amount
less than $.01 per share, but any such lesser adjustment shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment. In no event shall the Warrant Price be adjusted so that the Warrant
Price per share is less than the then par value per share of Common Stock. For
purposes hereof, the term "Excluded Stock" shall mean (i) shares of Common Stock
issued 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, and (ii) shares of Common Stock issued
pursuant to the exercise of employee stock options granted subsequent to the
date hereof pursuant to the Company's employee stock option plan, subject to
appropriate adjustment in the event of stock splits, stock dividends,
combinations, reclassifications or similar events.
(ii) Upon each adjustment of the Warrant Price, the Warrantholder shall
thereafter be entitled to purchase at the Warrant Price resulting from such
adjustment, that number of Warrant Shares obtained by multiplying the Warrant
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant Price resulting from such
adjustment. Upon each adjustment of the Warrant Price, the number of Warrant
Shares represented by this Warrant shall be adjusted to equal the number of
shares of Common Stock purchasable by the Warrantholder.
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(e) An adjustment shall become effective immediately after the
record date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an adjustment.
(f) The form of Warrant need not be changed because of any
change pursuant to this Section 9, and Warrants issued after such change may
state the same Warrant Price and the same number of Warrant Shares as is stated
in the Warrant initially issued pursuant hereto. However, subject to the consent
of the Warrantholder, which shall not be unreasonably withheld, the Company may
at any time in its sole discretion make any change on the Warrant that the
Company may deem appropriate which does not affect the substance thereof, and
any Warrants thereafter issued, whether in exchange or substitution for any
outstanding Warrant Shares or otherwise, may be in the form as so changed.
(g) In the event that, as a result of an adjustment made
pursuant to Section 9(a), the holder of the Warrant shall become entitled to
receive any shares of capital stock of the Company other than shares of Common
Stock, the number of such other shares so receivable upon exercise of the
Warrant shall be subject thereafter to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with respect
to the Warrant Shares contained in this Warrant.
(h) Shares of Common Stock owned by or held for the account of
the Company or any majority-owned subsidiary shall not be deemed outstanding for
the purpose of any computation under this Agreement.
Section 10. Fractional Interest. The Company shall not be required to
issue fractions of Warrant Shares upon the exercise of the Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon the exercise of the Warrant (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the current
market value of such fraction based upon the current Market Price (determined
pursuant to Section 3) of a Warrant Share. All calculations under this Section
10 shall be made to the nearest cent or to the nearest one-hundredth of a share,
as the case may be.
Section 11. Benefits. Nothing in this Warrant shall be construed to
give any person, firm or corporation (other than the Company and the
Warrantholder) any legal or equitable right, remedy or claim, it being agreed
that this Warrant shall be for the sole and exclusive benefit of the Company and
the Warrantholder.
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Section 12. Notices to Warrantholder. Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall forthwith give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. The certificate of the Company's independent certified
public accountants shall be conclusive evidence of the correctness of any
computation made, absent manifest error. Failure to give such notice to the
Warrantholder or any defect therein shall not affect the legality or validity of
the subject adjustment.
Section 13. Identity of Transfer Agent. The Transfer Agent for the
Common Stock is American Stock Transfer & Trust Company, 99 Wall Street, New
York, New York 10005. Forthwith upon the appointment of any subsequent transfer
agent for the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the Warrant,
the Company will mail to the Warrantholder a statement setting forth the name
and address of such transfer agent.
Section 14. Notices. Any notice pursuant hereto to be given or made by
the Warrantholder to or on the Company shall be sufficiently given or made if
sent by certified mail, return receipt requested, postage prepaid, addressed as
follows:
HEARx LTD.
Attention: Paul A. Brown, M.D.
Chairman and Chief Executive Officer
1250 Northpoint Parkway
West Palm Beach, Florida 33407
or such other address as the Company may specify in writing by notice to the
Warrantholder complying as to delivery with the terms of this Section 14.
Any notice pursuant hereto to be given or made by the Company to or on
the Warrantholder shall be sufficiently given or made if sent by certified mail,
return receipt requested, postage prepaid, to the address set forth on the books
of the Company or, as to each of the Company and the Warrantholder, at such
other address as shall be designated by such party by written notice to the
other party complying as to delivery with the terms of this Section 14. All such
notices, requests, demands, directions and other communications shall, when
mailed be effective when deposited in the mails addressed as aforesaid.
Section 15. Supplements and Amendments. The Company may from time to
time supplement or amend this Warrant without the approval of the Warrantholder
in order to cure any ambiguity or to correct or supplement any provisions
contained herein which may be defective or inconsistent with any other provision
herein or to make any other provisions in regard to matters or questions arising
hereunder which shall not be inconsistent with the
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provisions of the Warrant and which shall not in any manner adversely affect the
interests of the Warrantholder.
Section 16. Successors. All the covenants and provisions hereof by or for
the benefit of the Company shall bind and inure to the benefit of its respective
successors and assigns hereunder.
Section 17. Governing Law. This Warrant shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
construed in accordance with the laws of said State.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
duly executed, as of September 12, 1996.
HEARx LTD.
By:
------------------------------
Paul A. Brown M.D.
Chairman of the Board
Attest:
- ------------------------------
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<PAGE>
HEARx LTD.
WARRANT EXERCISE FORM
HEARx LTD.
1250 Northpoint Parkway
West Palm Beach, Florida 33407
This undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant ("Warrant") for, and to purchase
thereunder by cash or certified check _______________ shares of Common Stock
("Warrant Shares") provided for therein, and requests that certificates for the
Warrant Shares be issued as follows:
-------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
--------------------------------
Federal Tax Identification No.
or Social Security No.
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of such Warrant be registered in
the name of the undersigned Warrantholder or the undersigned's Assignee as below
indicated and delivered to the address stated below.
Dated:___________________, ____
Signature:______________________________
------------------------------
Name (please print)
------------------------------
Address
------------------------------
------------------------------
Federal Identification or
Social Security No.
Note: The above signature must
correspond with the name of
the registered holder as
written on the first page of
the Warrant in every
particular, without
alteration or enlargement or
any change whatever, unless
the Warrant has been
assigned.
EXHIBIT 5.1
BRYAN CAVE LLP
700 13TH STREET, N.W., SUITE 700
WASHINGTON, D.C. 20005-3960
(202) 508-6000
June 23, 1997
HEARx Ltd.
1250 Northpoint Parkway
West Palm Beach, Florida 33407
Ladies and Gentlemen:
We have acted as counsel to HEARx Ltd. (the "Company") in connection with
the registration by the Company of up to 14,444,067 shares of the Company's
common stock, par value $.10 per share (the "Shares"), issuable upon conversion
of 10,000 shares of the Company's 1997 Convertible Preferred Stock, par value
$1.00 per share (the "1997 Preferred Stock"), upon the conversion of 750 shares
of the Company's 1996 Series B-1 Convertible Preferred Stock (the "Series B-1
Preferred Stock") and exercise of the warrants (the "B-1 Warrants") issued upon
prior conversions of shares of the Series B-1 Preferred Stock, upon conversion
of 1,000 shares of the Company's 1996 Series B-2 Convertible Preferred Stock
(the "Series B-2 Preferred Stock" and together with the 1997 Preferred Stock and
the Series B-1 Preferred Stock, the "Preferred Stock") and upon the exercise of
certain warrants (the "Finder Warrants", and together with the B-1 Warrants, the
"Warrants") for offer and sale by the holders of the Preferred Stock and the
Warrants (the "Selling Shareholders"). A Registration Statement on Form S-3
under the Securities Act of 1933, as amended, covering the Shares, has been
filed with the Securities and Exchange Commission.
In connection herewith we have examined and relied as to matters of fact
upon such certificates of public officials, such certificates of officers of the
Company and originals or copies certified to our satisfaction of the Restated
Certificate of Incorporation and Bylaws of the Company (each amended through the
date hereof), proceedings of the Board of Directors of the Company and other
corporate records, documents, certificates and instruments as we have deemed
necessary or appropriate in order to enable us to render the opinion expressed
below.
In rendering the following opinion, we have assumed the genuineness of all
signatures on all documents examined by us, the authenticity of all documents
submitted to us as originals and the conformity to authentic originals of all
documents submitted to us as certified or photostatted copies, and we have
relied as to matters of fact upon statements and certifications of officers of
the Company. In addition, we have assumed that the certificate for the Shares
conforms to the specimen thereof examined by us and has been duly registered and
<PAGE>
HEARx Ltd.
June 23, 1997
Page 2
countersigned by the Company's transfer agent, assumptions which we are not
independently verifying by inspection.
Based on the foregoing, we are of the opinion that the Shares are duly and
validly authorized and, when issued upon conversion of the Preferred Stock in
accordance with its terms and upon exercise of the Warrants in accordance with
their terms, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
aforesaid Registration Statement on Form S-3 and to the use of our name under
the caption "Legal Opinions" in the Prospectus filed as a part thereof.
Very truly yours,
/s/ Bryan Cave LLP
Bryan Cave LLP
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement on Form S-3 relating to the
registration of 14,444,067 shares of Common Stock, par value $.10 per share, of
HEARx LTD. ("Registrant") of our report dated March 25, 1997, relating to the
consolidated financial statements and schedule of the Registrant and its
subsidiaries appearing in the Registrant's Annual Report on Form 10-K, as
amended, for the year ended December 27, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/S/ BDO Seidman, LLP
BDO Seidman, LLP
West Palm Beach, Florida
June 23, 1997
