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As filed with the Securities and Exchange Commission on December 23, 1998
Registration No. 333-64571
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 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.
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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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities registered offering price aggregate offering registration
to be registered per unit (1) price (1) fee (2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par 13,134,750 $0.563 $7,394,864 $2,055.77
value per share
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</TABLE>
(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
December 21, 1998.
(2) A registration fee of $2,832 on 11,850,000 shares of the securities being
registered on this form was paid on a previous filing.
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.
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PROSPECTUS
13,134,750 SHARES
HEARX LTD.
COMMON STOCK
This Prospectus relates to the resale of 13,134,750 shares (the "Shares")
of common stock, par value $.10 per share (the "Common Stock"), of HEARx LTD.,
a Delaware corporation (the "Company"). All of the Shares offered hereby are
being sold by the Selling Shareholders. Of the total Shares, 11,850,000 Shares
are issuable by the Company upon the conversion of 7,500 shares of the
Company's 1998 Convertible Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), the exercise of warrants issued to the purchasers of the
Preferred Stock (the "Investor Warrants"), and the exercise of certain warrants
(the "Finder Warrants"). The remaining 1,284,750 Shares are issuable by the
Company upon the exercise of certain warrants issued to replace outstanding
warrants previously issued in connection with the private placement of the
Company's 1997 Convertible Preferred Stock and upon conversion of the Company's
Series B-1 Preferred Stock (collectively, the "Replacement Warrants" and
together with the Investor Warrants and the Finder Warrants, the "Warrants").
The Company issued the Preferred Stock and the Investor Warrants in a private
placement transaction. The Finder Warrants were issued by the Company as
compensation in connection with the private placement transaction. The Company
issued the Replacement Warrants also in private placements in exchange for the
cancellation of certain outstanding warrants issued in connection with the
private placement of the Company's 1997 Convertible Preferred Stock and upon
conversion of the Company's Series B-1 Preferred Stock. 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 Shares have not been registered under the blue sky or securities laws
of any jurisdiction, and any broker or dealer should assure the existence of an
exemption from registration or effectuate such registration in connection with
the offer and sale of the Shares.
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 December 21, 1998 was
$0.563 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" BEGINNING ON PAGE 5.
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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 December __, 1998.
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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. Information on the operation of the public
reference facilities maintained by the Commission may be obtained by calling
the Commission at 1-800-SEC-0330. 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 26,
1997, filed on March 17, 1998;
(2) Quarterly Report on Form 10-Q for the fiscal quarter ended March
27, 1998, filed on May 11, 1998;
(3) Quarterly Report on Form 10-Q for the fiscal quarter ended June
26, 1998, filed on July 10, 1998;
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(4) Quarterly Report on Form 10-Q for the fiscal quarter ended
September 25, 1998, filed on November 9, 1998;
(5) Current Report on Form 8-K dated August 27, 1998, filed on
September 3, 1998; and
(6) Description of Common Stock contained in the Registration
Statement on Form S-18, filed on September 4, 1987.
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 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 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. 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"); 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 the Company
to the hearing impaired (see "Business - Products and -- Customers and
Marketing" in the Company's annual report on Form 10-K for the fiscal year
ended December 26, 1997 (the "Form 10-K")); the number of centers expected to
open in Southern California (see "Risk Factors -- Recent and Future Expansion;
New Venture, Management of Growth"); 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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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; NEW VENTURE; MANAGEMENT OF GROWTH
The Company has expanded its network of hearing care centers recently and
plans to continue such expansion, currently through the recently announced
joint venture with The Permanente Federation. The Company is a 50% owner of
the joint venture. Initially the joint venture will open 15 centers in Southern
California. After an initial equity investment, the Company will provide the
venture with a $5 million interest-bearing loan to fund the establishment of
those centers. The Company intends to fund this and other expansion with
existing capital, the proceeds from the offering of the 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. In addition, there can be no
assurance that the Company will be successful in its efforts on behalf of the
joint venture with The Permanente Federation, that the centers will be open by
the targeted deadline of January 1999 or that, once open, the centers will
generate sufficient revenues to support continued operations.
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.
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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 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. The Company is not aware of any potential
contract terminations at this time.
RELIANCE ON EFFORTS AND SUCCESS OF MANAGED CARE COMPANIES
A number of managed care organizations, including some of those with whom
HEARx has contracts, are experiencing significant difficulties arising from the
widespread growth and reach of available plans and benefits. Some of these
organizations have focused substantial resources on correcting their own
administrative, cost and information systems instead of expanding their plan
memberships. As a result, HEARx has not experienced the growth it expected
from this market.
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In fact, primarily as a result of these problems of the managed care
organizations, HEARx centers in the northeast market have yet to generate
sufficient revenues to be profitable. There can be no assurance that these
centers will be profitable. A number of managed care organizations have
announced their withdrawal from certain geographical areas, some of which
include HEARx markets. There can be no assurance that HEARx can maintain all
of its centers in those markets. HEARx will close centers where warranted.
RELIANCE ON MANUFACTURERS AND QUALIFIED AUDIOLOGISTS
Through its hearing care centers, the Company makes available to customers
hearing aids supplied by approximately six 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 to supervise or manage all of the Company's
centers. 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
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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 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 over the
past two years. Since the stock began trading on the AMEX on March 15, 1996,
and through November 30, 1998, the stock has traded as high as $7.375 and as
low as $0.563 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, 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 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.
On November 30, 1998, there were issued and outstanding a total of
102,597,803 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 November 30, 1998, there would be issuable
approximately 34,144,166 shares of Common Stock. Upon such conversion and
exercise, there would be outstanding approximately 134,999,716 shares of Common
Stock. Of these, the Company currently has registered for resale approximately
25,971,749 shares (including the Shares offered hereby) and has granted
registration rights in respect of approximately 202,250 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.
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LIMITATION ON AVAILABLE SHARES
The number of shares of Common Stock issuable upon conversion of the
Preferred Stock and the Company's 1997 Convertible Preferred Stock (the "1997
Preferred Stock"), and upon exercise of the Warrants and the Company's
previously issued options and warrants, could exceed the 130,000,000 shares of
Common Stock the Company is currently authorized to issue under its Restated
Certificate of Incorporation. See "-- Potential Dilution; Shares Eligible for
Future Sales; Possible Effect on Additional Equity Financing." If all of the
outstanding Preferred Stock and 1997 Preferred Stock were converted at December
20, 1998, approximately 13,651,465 and 11,870,720, respectively, shares of
Common Stock would be issuable to the holders of such preferred stock. If a
holder of the Preferred Stock elects to convert at a time when the Company does
not have sufficient authorized but unissued shares of Common Stock to effect
the conversion, the Corporation is obligated to use its best efforts to obtain
shareholder approval to increase the authorized number of shares of Common
Stock and to pay to the holder conversion default payments. However, under the
terms of the Preferred Stock, if a holder elects to convert at a time when the
market price of the Common Stock is less than $1.00, the Company has a right to
redeem such Preferred Stock at a price equal to 108% of its stated value plus
applicable premium. Under the terms of the 1997 Preferred Stock, if a holder
elects to convert at a time when the market price of the Common Stock is less
than $1.50, the Company has a right to redeem such 1997 Preferred Stock at a
price equal to 115% of its stated value plus applicable premium. The Company
intends to exercise these rights of redemption if necessary to prevent the
Company's outstanding Common Stock from exceeding 130,000,000 shares.
Furthermore, the Company has commenced a stock repurchase program pursuant to
which it may further reduce the number of outstanding shares of Common Stock.
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
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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.
POTENTIAL CHANGE IN VOTING CONTROL OF THE COMPANY
As of November 30, 1998, the directors and executive officers of the
Company beneficially owned, as a group, approximately 14.4% of the 100,855,550
shares of outstanding 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 November 30, 1998, the directors and
executive officers would beneficially own approximately 11% 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.
YEAR 2000
Many computer systems experience problems handling data beyond year 1999.
Many existing computer programs only use two digits to identify a year in the
date field. Such systems and programs must be modified or replaced prior to
January 1, 2000 in order to remain functional. The Company has undertaken a
company-wide review of its Year 2000 exposure. The Company has identified its
key manufacturers and suppliers and intends to send written requests for
information on their Year 2000 compliance status. As required to address
potential failures of these parties to be Year 2000 ready, the Company will
send additional requests and develop contingency plans.
Failure by the Company and/or the third parties with whom it does business
to be prepared for and properly address the Year 2000 issue could have a
material adverse effect on the Company and its ability to conduct business.
The Company expects to implement successfully the systems and programming
changes necessary to address the Year 2000 issue and does not believe the cost
of such actions will have a material adverse effect on the Company, its results
of operations or financial condition.
10
<PAGE> 13
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 75 centers primarily located in Connecticut, Florida, New
York, New Jersey, and Pennsylvania.
The Company recently completed the formation of HEARx West LLC, a joint
venture with The Permanente Federation LLC. The Permanente Federation is the
national association of Permanente Medical Groups, one of the three health
delivery systems of Kaiser Permanente, America's largest not-for-profit health
maintenance organization. The joint venture will concentrate initially on
providing hearing aids and diagnostic audiology testing through HEARx centers
located in the State of California. The parties intend that the centers will
serve the needs of Kaiser Permanente's membership, members of other managed
care organizations and the "self-pay" patients in the geographic region. The
venture is owned 50/50 by HEARx and The Permanente Federation. HEARx will be
responsible for day-to-day operations management of the centers. The first
centers are expected to open in January 1999.
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.
11
<PAGE> 14
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 (1)(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zanett Lombardier, Ltd. 13,159,994 (3) (4) (5) 8,104,000 (6) 5,055,994
Goldman Sachs Performance 1,989,955 (3) (4) 1,580,250 (7) 409,705
Partners, L.P.
Goldman Sachs Performance 1,610,916 (3) (4) 1,279,250 (8) 332,024
Partners (Offshore), L.P.
Kuhn, Loeb & Co. 546,058 (3) (4) 429,000 (9) 117,058
Capital Ventures International 4,223,582 (11) 254,750 0
Claudio Guazzoni 210,938 (10) 210,938 0
David McCarthy 210,937 (10) 210,937 0
Tony Milbank 140,625 (10) 140,625 0
NP Partners 2,980,834 (11) 87,500 0
Olympus Securities, Ltd. 2,857,452 (11) 62,500 0
Bruno Guazzoni 774,000 11) 774,000 0
The Zanett Securities 1,000 (1) 1,000 0
Corporation
- -------------------------------------------------------------------------------------------------------------
Total 28,706,291 13,134,750 5,914,781
====================== ============== =========
</TABLE>
(1) Assumes that all of the Preferred Stock and the Company's 1997 Convertible
Preferred Stock (the "1997 Preferred Stock") held by the Selling
Shareholders is converted at a conversion price of $0.563, including
shares issuable in respect of any premium. Pursuant to the terms of the
Preferred Stock, the 1997 Preferred Stock, the Warrants and certain other
Warrants held by the Selling Shareholders, such securities are
convertible and exerciseable 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 for each Selling
Shareholder may exceed the actual number of shares of Common Stock
that such Selling Shareholder could acquire at any given time through its
conversion of the Preferred Stock and the 1997 Preferred Stock and the
exercise of the Warrants in light of such limitation.
(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 Preferred Stock.
(4) Includes shares issuable upon the exercise of the Investor Warrants.
(5) Includes shares issuable upon the exercise of Replacement Warrants.
(6) Includes 7,579,000 shares issuable upon conversion of Preferred Stock,
420,000 shares issuable upon exercise of Investor Warrants and 105,000
shares issuable upon exercise of Replacement Warrants.
(7) Includes 1,501,500 shares issuable upon conversion of Preferred Stock and
78,750 shares issuable upon exercise of
12
<PAGE> 15
Investor Warrants.
(8) Includes 1,215,500 shares issuable upon conversion of Preferred Stock and
63,750 shares issuable upon exercise of Investor Warrants.
(9) Includes 429,000 shares issuable upon conversion of Preferred Stock.
(10) Includes shares issuable upon the exercise of the Finder Warrants.
Claudio Guazzoni and David McCarthry are officers, and Tony Milbank is an
employee, of The Zanett Securities Corporation.
(11) Represents shares issuable upon the exercise of Replacement Warrants.
10,725,000 of the Shares offered hereby are issuable upon the
conversion of 7,500 shares of the Preferred Stock, and 2,409,750 of the Shares
offered hereby are issuable upon the exercise of the Warrants. Upon conversion
of a share of Preferred Stock, holders will be entitled to receive a number of
shares of Common Stock determined by dividing the sum of the stated value of
the Preferred Stock ($1,000 per share), plus a premium (unless the Company
elects to pay that premium in cash), by a conversion price equal to the lesser
of the average closing bid prices for the Common Stock on five days selected by
the holder during the twenty trading-day period prior to conversion, and $1.80
(subject to adjustment upon the occurrence of certain dilutive events). The
premium payable upon conversion will be equal to 8% of the stated value of the
Preferred Stock ($1,000 per share) from the date of issuance until one year
following such date, and shall increase by 0.5% each year, commencing on the
date which is one year following the date of issuance. The Preferred Stock may
not be converted for the 180-day period after the closing (i.e. to February 23,
1999). Thereafter, up to one third of a holder's Preferred Stock may be
converted until the period ending 270 days after the closing (i.e. to May 24,
1999), up to two third's may be converted after day 270 and up to the period
ending 360 days after the closing (i.e. to August 12, 1999), after which time
all of the Preferred Stock may be converted. If the Preferred Stock is not
converted by holders in accordance with these terms prior to August 27, 2003,
on such date it will automatically convert to Common Stock.
If a holder of the Preferred Stock elects to convert at a time when the
Company does not have sufficient authorized but unissued shares of Common Stock
to effect the conversion, the Corporation is obligated to use its best efforts
to obtain shareholder approval to increase the authorized number of shares of
Common Stock and to pay to the holder conversion default payments. The Company
has the right upon receipt of notice of conversion of any shares of the
Preferred Stock to redeem shares of the Preferred Stock tendered for conversion
in lieu of conversion at a price equal to 108% of its stated value plus the
premium, if the closing price of the Common Stock as reported on AMEX for the
date immediately prior to the conversion date is equal to or less than $1.00
per share. The holders of the Preferred Stock have no voting power except with
respect to certain actions by the Company that might adversely affect the
rights of such holders and as otherwise provided by Delaware General
Corporation Law.
1,125,000 Shares offered hereby are issuable upon the exercise of the Finder
Warrants and the Investor Warrants. Upon exercise, holders will be entitled to
receive shares of Common Stock for an exercise price of $1.80 per share. The
Finder Warrants and the Investor Warrants may be exercised any time prior to
August 27, 2003.
13
<PAGE> 16
1,284,750 Shares offered hereby are issuable upon the exercise of the
Replacement Warrants. Upon exercise, holders will be entitled to receive
shares of Common Stock for an exercise price of $2.00 per share. Of the
Replacement Warrants, 404,750 may be exercised any time prior to August 24,
2003 and 880,000 may be exercised any time prior to December 23, 2003. The
Replacement Warrants were issued by the Company in exchange for cancellation of
certain warrants previously issued in connection with the private placement of
the Company's 1997 Convertible Preferred Stock and upon the exercise of the
Company's Series B-1 Preferred Stock. The Company issued Replacement Warrants
covering 1,284,750 shares exercisable at a price of $2.00 per share in exchange
for the cancellation of outstanding warrants covering 4,927,500 shares
exercisable at prices of $6.47, $5.00 and $2.00 per share.
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 Preferred Stock. In addition, the number of shares issuable upon
conversion of the Preferred Stock and the exercise of the Warrants is subject
to adjustment upon the occurrence of certain dilutive events. The 13,134,750
shares offered hereby represent the number of shares that would be issuable if
the Preferred Stock were converted at a conversion price of $1.00 per share,
the premium is paid in cash, the Warrants were exercised and no limitation or
adjustments were applicable, plus an additional 4,350,000 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.)
The foregoing summary is qualified in its entirety by the terms of the
Preferred Stock and the Warrants.
14
<PAGE> 17
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Shareholders. As used herein, "Selling Shareholders" includes donees and
pledgees selling shares received from a named Selling Shareholder after the
date of this prospectus. All costs, expenses and fees in connection with the
registration of the Shares offered hereby will be borne by the Company.
Brokerage commissions and similar selling expenses, if any, attributable to the
sale of Shares will be borne by the Selling Shareholders. Sales of Shares may
be effected by Selling Shareholders from time to time in one or more types of
transactions (which may include block transactions) on the AMEX, in the
over-the-counter market, in negotiated transactions, through put or call
options transactions relating to the Shares, through short sales of Shares, or
a combination of such methods of sale, at market prices prevailing at the time
of sale, or at negotiated prices. Such transactions may or may not involve
brokers or dealers. The Selling Shareholders have advised the Company that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their securities, nor
is there an underwriter or coordinating broker acting in connection with the
proposed sale of Shares by the Selling Shareholders.
The Selling Shareholders may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Shareholders and/or the
purchasers of Shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers that act in connection with
the sale of Shares might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by such
broker-dealers and any profit on the resale of the Shares sold by them while
acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act. The Company has agreed to indemnify each
Selling Shareholder against certain liabilities, including liabilities arising
under the Securities Act. The Selling Shareholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving
sales of the Shares against certain liabilities, including liabilities arising
under the Securities Act.
Because Selling Shareholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Shareholders will
be subject to the prospectus delivery requirements of the Securities Act, which
may include delivery through the facilities of the AMEX pursuant to Rule 153
under the Securities Act. The Company has informed the Selling Shareholders
that the anti-manipulative provisions of Regulation M promulgated under the
Exchange Act may apply to their sales in the market.
Selling Shareholders also may resell all or a portion of the Shares in open
market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
Upon the Company being notified by a Selling Shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of Shares
through a block trade, special offering,
15
<PAGE> 18
exchange distribution or secondary distribution or a purchase by a broker or
dealer, a supplement to this prospectus will be filed, if required, pursuant to
Rule 424(b) under the Act, disclosing (i) the name of each such selling
shareholder and of the participating broker-dealer(s), (ii) the number of
shares involved, (iii) the price at which such shares were sold, (iv) the
commissions paid or discounts or concessions allowed to such broker-dealer(s),
where applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus and (vi) other facts material to the transaction. In addition,
upon the company being notified by a Selling Shareholder that a donee or
pledgee intends to sell more than 500 shares, a supplement to this prospectus
will be filed.
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 26, 1997 and December 27, 1996, and for the years ended December 26,
1997, December 27, 1996 and December 29, 1995, 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 26, 1997, and are incorporated
herein by reference, in reliance upon the authority of such firm as experts in
accounting and auditing in giving said reports.
16
<PAGE> 19
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:
<TABLE>
<S> <C>
SEC registration fee............................................ $ 2,885.00
Accounting fees and expenses.................................... 1,500.00
Legal fees and expenses......................................... 15,000.00
Miscellaneous expenses.......................................... 0.00
----------
Total $19,385.00
==========
</TABLE>
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
II-1
<PAGE> 20
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he 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,
II-2
<PAGE> 21
individually or in the aggregate, represent a fundamental change in the
information set forth in this registration statement;
(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.
II-3
<PAGE> 22
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 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 December 23,
1998.
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.
<TABLE>
<CAPTION>
Name Title Date
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chairman of the Board; Chief Executive Officer
/s/ Paul A. Brown and Director December 23, 1998
- ----------------------------
Paul A. Brown, M.D.
/s/ Paul A. Brown* President and Chief Operating Officer and
- ---------------------------- Director December 23, 1998
Stephen J. Hansbrough
/s/ Paul A. Brown* Director December 23, 1998
- ----------------------------
Joseph L. Gitterman
December 23, 1998
/s/ Paul A. Brown* Director
- ----------------------------
David J. McLachlan
/s/ Paul A. Brown* Director December 23, 1998
- ----------------------------
Thomas W. Archibald
</TABLE>
* Executed by Paul A. Brown as attorney in fact for the person indicated
pursuant to the power of attorney included on the signature page of the
Registration Statement amended hereby.
II-4
<PAGE> 23
EXHIBIT INDEX
Exhibit Number Description
4.1 Specimen of Certificate representing Common Stock*
4.2 Certificate of Designations, Preferences and Rights of the
1998 Convertible Preferred Stock of the Company**
4.3 Securities Purchase Agreement, dated as of August 27, 1998
between HEARx Ltd. and each of the purchasers set forth on
the signature pages thereto**
4.4 Registration Rights Agreement, dated as of August 27, 1998
between HEARx Ltd. and each of the purchasers set forth on
the signature pages thereto**
4.5 Placement Agent Agreement, dated as of August 27, 1998
between HEARx Ltd. and The Zanett Securities Corporation,
Claudio Guazzoni, David McCarthy and Tony Milbank**
4.6 Form of Warrant issued to purchasers of the 1998
Convertible Preferred Stock and the Placement Agent**
4.7 Form of Replacement Warrant issued in exchange for the
cancellation of certain warrants issued in connection with
the private placement of the Company's 1997 Convertible
Preferred Stock and upon conversion of the Company's Series
B-1 Preferred Stock***
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 (included on the signature page
hereto)****
- ------------------
* Filed as an Exhibit to the Company's Registration Statement on Form
S-18 (Registration No. 33-17041-NY).
** Filed as an Exhibit to the Company's Current Report on Form 8-K dated
August 27, 1998.
*** Filed herewith.
**** Previously filed.
153126v3
II-5
<PAGE> 1
EXHIBIT 4.7
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS
EXPRESSLY SET FORTH HEREIN, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF REGISTRATION UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Date of Original Issuance:____________________, 1998
HEARx LTD.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________
or its registered assigns, is entitled to purchase from HEARx LTD., a Delaware
corporation (the "Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, ____________________ (_______) fully paid and
nonassessable shares of the Company's Common Stock, par value $.10 per share
(the "Common Stock"), at an exercise price of $2.00 per share (the "Exercise
Price"). The term "Warrant Shares", as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered (or evidence of loss, theft or
destruction thereof), the completed Exercise Agreement shall have been
delivered, and payment shall have been made for such shares as set forth above.
Certificates for the
<PAGE> 2
Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding two (2) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall be in
such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or such other name as shall be designated
by such holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no
event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants) and (ii) the number of shares of Common Stock issuable
upon exercise of the Warrants (or portions thereof) with respect to which the
determination described herein is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder
(collectively, "Section 13(d)"), except as otherwise provided in clause (i)
thereof.
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or
from time to time on or after the date on which this Warrant is issued and
before 5:00 p.m., New York City time on the fifth (5th) anniversary of the date
of original issuance (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be
validly issued, fully paid, and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period,
the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of this
Warrant.
(c) LISTING. The Company shall promptly secure the
listing of the shares of Common Stock issuable upon exercise of the
Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance upon exercise of this
Warrant) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable
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<PAGE> 3
upon the exercise of this Warrant; and the Company shall so list
on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of,
any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same
class shall be listed on such national securities exchange or
automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise
privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant.
Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise
Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation,
or acquisition of all or substantially all the Company's assets.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
UPON ISSUANCE OF COMMON STOCK. Except as otherwise provided in
Paragraphs 4(c) and 4(e) hereof, if and whenever on or after the
original issuance date of this Warrant, the Company issues or sells,
or in accordance with Paragraph 4(b) hereof is deemed to have issued
or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or
commissions or underwriting discounts or allowances in connection
therewith) less than the Market Price (as hereinafter defined) on
the date of issuance (a "Dilutive Issuance"), then effective
immediately upon the Dilutive Issuance, the Exercise Price will be
reduced to a price determined by multiplying the Exercise Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i)
the numerator of which is an amount equal to the sum of (x) the
number of shares of Common Stock Deemed Outstanding (as hereinafter
defined) immediately prior to the Dilutive Issuance, plus (y) the
aggregate consideration, calculated as set forth in Section 4(b)
hereof, received by
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<PAGE> 4
the Company upon such Dilutive Issuance, divided by the Market
Price in effect immediately prior to the Dilutive Issuance, and
(ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding immediately after the Dilutive
Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under Paragraph
4(a) hereof, the following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company
in any manner issues or grants any warrants, rights
or options, whether or not immediately exercisable, to
subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common
Stock ("Convertible Securities") (such warrants, rights
and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and
the price per share for which Common Stock is issuable
upon the exercise of such Options is less than the
Market Price on the date of issuance of the Options,
then the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options will, as
of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For
purposes of the preceding sentence, the "price per share
for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as
consideration for the issuance or granting of all such
Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of
such Options, the minimum aggregate amount of additional
consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion
of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise
of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such
Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible
Securities, whether or not immediately convertible
(other than where the same are issuable upon the
exercise of Options) and the price per share for which
Common Stock is issuable upon such conversion or
exchange is less than the Market Price on the date of
issuance of such convertible securities, then the
maximum total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible
Securities will, as of the date of the
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<PAGE> 5
issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of
the preceding sentence, the "price per share for which
Common Stock is issuable upon such conversion or
exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to
the Company upon the conversion or exchange thereof at
the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price
will be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible
Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If
there is a change at any time in (i) the amount of
additional consideration payable to the Company upon the
exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the
conversion or exchange of any Convertible Securities; or
(iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other
than under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect
at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such
time had such Options or Convertible Securities still
outstanding provided for such changed additional
consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total
number of shares of Common Stock issuable upon exercise
of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the
rights to exercise such Option or to convert or exchange
such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been
in effect at the time of such expiration or termination
had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or
termination (other than in respect of the actual number
of shares of Common Stock issued upon exercise or
conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any
Common Stock, Options or Convertible Securities are
issued, granted or sold for cash, the consideration
received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before
deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such
issuance,
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<PAGE> 6
grant or sale. In case any Common Stock, Options or
Convertible Securities are issued or sold for a
consideration part or all of which shall be other than
cash, the amount of the consideration other than cash
received by the Company will be the fair value of such
consideration, except where such consideration consists
of securities, in which case the amount of consideration
received by the Company will be the Market Price thereof
as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in
connection with any merger or consolidation in which the
Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of
the non-surviving corporation as is attributable to such
Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other
than cash or securities will be determined in good faith
by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE.
No adjustment to the Exercise Price will be made (i)
upon the exercise of any warrants, options or
convertible securities issued and outstanding on the
date of the original issuance of this Warrant; (ii) upon
the grant or exercise of any stock or options which may
hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be
implemented in the future, so long as the issuance of
such stock or options is approved by a majority of the
independent members of the Board of Directors of the
Company or a majority of the members of a committee of
independent directors established for such purpose; or
(iii) upon the exercise of this Warrant.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the
shares of Common Stock acquirable hereunder into a greater number of
shares, then, after the date of record for effecting such
subdivision, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common
Stock acquirable hereunder into a smaller number of shares, then,
after the date of record for effecting such combination, the
Exercise Price in effect immediately prior to such combination will
be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Paragraph
4, the number of shares of Common Stock issuable upon exercise of
this Warrant shall be adjusted by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the
number of shares of Common Stock issuable upon exercise of this
Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
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<PAGE> 7
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any
other corporation, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in
connection with a plan of complete liquidation of the Company, then
as a condition of such consolidation, merger or sale or conveyance,
adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such
shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of shares of Common
Stock immediately theretofore acquirable and receivable upon
exercise of this Warrant had such consolidation, merger or sale or
conveyance not taken place. In any such case, the Company will make
appropriate provision to insure that the provisions of this
Paragraph 4 hereof will thereafter be applicable as nearly as may be
in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not
effect any consolidation, merger or sale or conveyance unless prior
to the consummation thereof, the successor corporation (if other
than the Company) assumes by written instrument the obligations
under this Paragraph 4 and the obligations to deliver to the holder
of this Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the holder may be entitled
to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets to holders of Common
Stock as a partial liquidating dividend, by way of return of capital
or otherwise, then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon
exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder
been the holder of such shares of Common Stock on the record date
for the determination of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any
event which requires any adjustment of the Exercise Price, then, and
in each such case, the Company shall give notice thereof to the
holder of this Warrant, which notice shall state the Exercise Price
resulting from such adjustment and the increase or decrease in the
number of Warrant Shares purchasable at such price upon exercise,
setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall
be certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment
of the Exercise Price shall be made in an amount of less than 1% of
the Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment shall
be carried forward and shall be made at the time and together
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<PAGE> 8
with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than
1% of such Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the
Company shall pay a cash adjustment in respect of any fractional
share which would otherwise be issuable in an amount equal to the
same fraction of the Market Price of a share of Common Stock on the
date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend
upon the Common Stock payable in shares of stock of any
class or make any other distribution (other than
dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for
subscription pro rata to the holders of the Common Stock
any additional shares of stock of any class or other
rights;
(iii) there shall be any capital
reorganization of the Company, or reclassification of
the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially
all its assets to, another corporation or entity; or
(iv) there shall be a voluntary or
involuntary dissolution, liquidation or winding-up of
the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but
not expressly provided for by such provisions,
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<PAGE> 9
the Company will give notice of such event as provided in Paragraph
4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of
shares of Common Stock acquirable upon exercise of this Warrant so
that the rights of the Holder shall be neither enhanced nor
diminished by such event.
(l) CERTAIN DEFINITIONS.
(i) "Common Stock Deemed Outstanding" shall
mean the number of shares of Common Stock actually
outstanding (not including shares of Common Stock held
in the treasury of the Company), plus (x) the number of
shares of Common Stock issuable upon exercise or
conversion of all Options and Convertible Securities
outstanding at such time and which were outstanding as
of May 3, 1996, plus (y) in the case of Paragraph
4(b)(i) hereof, the maximum total number of shares of
Common Stock issuable upon the exercise of the Options
issued in the transaction for which the adjustment is
required under this Section 4, calculated as of the date
of such issuance or grant of such Options, if any, and
(z) in the case of Paragraph 4(b)(ii) hereof, the
maximum total number of shares of Common Stock issuable
upon conversion or exchange of the Convertible
Securities issued in the transaction for which the
adjustment is required under this Section 4, calculated,
as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i)
means the average of the last reported sale prices for
the shares of Common Stock as reported by the American
Stock Exchange ("AMEX") for the ten (10) trading days
immediately preceding such date, or (ii) if AMEX is not
the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on
the principal trading market for the Common Stock during
the same period, or (iii) if market value cannot be
calculated as of such date on any of the foregoing
bases, the Market Price shall be the average fair market
value as reasonably determined in good faith by the
Board of Directors of the Company. The manner of
determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with
respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this
Paragraph 4, includes the Common Stock, par value $.10
per share, and any additional class of stock of the
Company having no preference as to dividends or
distributions on liquidation, provided that the shares
purchasable pursuant to this Warrant shall include only
shares of Common Stock, par value $.10 per share, in
respect of which this Warrant is exercisable, or shares
resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(e) hereof, the
stock or other securities or property provided for in
such Paragraph.
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<PAGE> 10
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part,
upon surrender of this Warrant, together with a properly executed
assignment in the form attached hereto, at the office or agency of
the Company referred to in Paragraph 7(e) below, provided, however,
that any transfer or assignment shall be subject to the conditions
set forth in Paragraph 7(f) hereof. Until due presentment for
registration of transfer on the books of the Company, the Company
may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by
any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Paragraph 8
are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of even date with
the original issuance of this Warrant, by and among the Company and
the other signatories thereto (the "Registration Rights Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.
This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the office or agency of the Company referred to in
Paragraph 7(e) below, for new Warrants of like tenor representing in
the aggregate the right to purchase the number of shares of Common
Stock which may be purchased hereunder, each of such new Warrants to
represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any
such loss, theft, or destruction, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company,
or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
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<PAGE> 11
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the
surrender of this Warrant in connection with any transfer, exchange,
or replacement as provided in this Paragraph 7, this Warrant shall
be promptly canceled by the Company. The Company shall pay all taxes
(other than securities transfer taxes) and all other expenses (other
than legal expenses, if any, incurred by the Holder or transferees)
and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), a
register for this Warrant, in which the Company shall record the
name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee and each
prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at
the time of the surrender of this Warrant in connection with any
exercise, transfer, or exchange of this Warrant, this Warrant (or,
in the case of any exercise, the Warrant Shares issuable hereunder),
shall not be registered under the Securities Act and under
applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or
exchange, (i) that the holder or transferee of this Warrant, as the
case may be, furnish to the Company a written opinion of counsel,
which opinion and counsel are reasonably acceptable to the Company,
to the effect that such exercise, transfer, or exchange may be made
without registration under said Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and
substance acceptable to the Company and (iii) that the transferee be
an "accredited investor" as defined in Rule 501(a) promulgated under
the Securities Act; provided that no such opinion, letter or status
as an "accredited investor" shall be required in connection with a
transfer pursuant to Rule 144 under the Securities Act; provided
further, however, that no "Subject Holder" (as defined below) may
sell or otherwise transfer the Warrants, except (i) to the Company
or to a stockholder or a group of stockholders who immediately prior
to the sale control a majority of the Company's voting shares (a
"Controlling Stockholder" or "Controlling Group", as applicable);
(ii) to an affiliate of such Holder; (iii) in connection with any
merger, consolidation, reorganization or sale of more than 50% of
the outstanding Common Stock of the Company (a "Reorganization");
(iv) in a registered public offering or a public sale pursuant to
Rule 144 or other applicable exemption from the registration
requirements of the Securities Act (or any successor rule or
regulation); or (v) in a private sale (otherwise than to the
Company, to a Controlling Stockholder or a Controlling Group, to an
affiliate of such Holder, or in a Reorganization), provided that the
Holder shall not sell or otherwise transfer during any ninety (90)
day period a portion(s) of the Warrants which, if converted into
Common Stock, would represent, at the time of the transfer, in the
aggregate (together with any other shares of Common Stock the
beneficial ownership of which is transferred), beneficial ownership
by the transferee(s) of more than 4.9% percent of the Common Stock
then outstanding. Subject Holder means any Holder who, but
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<PAGE> 12
for the provisions contained in the last paragraph of Section 1,
would beneficially own 5% or more of the outstanding Common Stock of
the Borrower. The first holder of this Warrant, by taking and
holding the same, represents to the Company that such holder is
acquiring this Warrant for investment and not with a view to the
distribution thereof. For the purposes of this paragraph, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended.
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. NOTICES. All notices, requests, and other communications required
or permitted to be given or delivered hereunder to the holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 1250 Northpoint Parkway,
West Palm Beach, FL 33407, Attention: Paul A. Brown, M.D., Chairman, or at such
other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice (or upon such
person's refusal to accept such notice) at the address of such person for
purposes of this Paragraph 9, or, if mailed by registered or certified mail or
with a recognized overnight mail courier upon deposit with the United States
Post Office or such overnight mail courier, if postage is prepaid and the
mailing is properly addressed, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof
may only be amended by an instrument in writing signed by the
Company and the holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of
the several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction of
any of the provisions hereof.
-12-
<PAGE> 13
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act, this Warrant may be
exercised by presentation and surrender of this Warrant to the
Company at its principal executive offices with a written notice of
the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless
Exercise"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant
for that number of shares of Common Stock determined by multiplying
the number of Warrant Shares to which it would otherwise be entitled
by a fraction, the numerator of which shall be the difference
between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
HEARx LTD.
By:
----------------------------------
Name: Paul A. Brown, M. D.
--------------------------
Title Chairman
--------------------------
-13-
<PAGE> 14
FORM OF EXERCISE AGREEMENT
Dated: ________, ____.
To:_____________________________
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
----------------------------------
Signature:
------------------------------
Address:
------------------------------
------------------------------
Note: The above signature should correspond exactly with
the name on the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE> 15
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
- ------------------
Name:
-----------------------------------
Signature:
------------------------
Title of Signing Officer or Agent (if any):
---------------------------------
Address:
-------------------------
-------------------------
Note: The above signature should correspond
exactly with the name on the face of the within
Warrant.
<PAGE> 1
EXHIBIT 5.1
December 23, 1998
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 13,134,750 shares of the Company's
common stock, par value $.10 per share (the "Shares"), issuable upon the
conversion of 7,500 shares of the Company's 1998 Convertible Preferred Stock,
par value $1.00 per share (the "Preferred Stock"), the exercise of certain
warrants issued to purchasers of the Preferred Stock (the "Investor Warrants"),
and the exercise of certain warrants issued to replace outstanding warrants
previously issued in connection with the private placement of the Company's 1997
Convertible Preferred Stock and upon conversion of Company's Series B-1
Preferred Stock (collectively, the "Replacement Warrants" and together with the
Investor Warrants and the Finder Warrants, the "Warrants"). A Registration
Statement on Form S-3 (Registration No. 333-64571) 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
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
and exercise of the Warrants, in accordance with their terms, will be validly
issued, fully paid and non-assessable.
<PAGE> 2
HEARx Ltd.
December 23, 1998
Page 2
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
<PAGE> 1
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 13,134,750 shares of Common Stock, par value $.10 per share, of
HEARx Ltd. ("Registrant") of our report dated March 13, 1998, 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 26, 1997.
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
December 23, 1998
