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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 25, 1998
----------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16453
HEARx LTD.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 22-2748248
- ----------------------------------------------- -----------------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
471 Spencer Drive, West Palm Beach, Florida 33409
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 478-8770
--------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Common Stock, par value $0.10 per share American Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or any
amendment to this Form 10-K/A. [ ]
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
There are five directors of the Company, each holding office until the
next Annual Meeting of Stockholders and until his successor is elected and
qualified, or as otherwise provided by the Company's Bylaws or by Delaware law.
All members of the Board have been previously elected as directors by the
Company's stockholders.
The directors are:
<TABLE>
<CAPTION>
Director Positions with
Name and Age Since the Company
- ------------------------------ --------------- -------------------------------
<S> <C> <C>
Paul A. Brown 1986 Chairman of the Board and
(61) Chief Executive Officer
Stephen J. Hansbrough 1997 President, Chief Operating
(52) Officer and Director
Thomas W. Archibald 1993 Director
(61)
David J. McLachlan 1986 Director
(60)
Joseph L. Gitterman III 1997 Director
(62)
</TABLE>
Paul A. Brown, M.D., holds an A.B. from Harvard College and an M.D. from
Tufts University School of Medicine. From 1970 to 1984, Dr. Brown was Chairman
of the Board of MetPath Inc., a New Jersey-based corporation offering a full
range of clinical laboratory services to physicians and hospitals, which he
founded in 1967 while a resident in pathology at Columbia Presbyterian Medical
Center in New York City. MetPath developed into the largest clinical lab in the
world with over 3,000 employees and was listed on the American Stock Exchange
prior to being sold to Corning in 1982 for $140 million. Dr. Brown is the past
Chairman of the Board of Overseers of Tufts University School of Medicine as
well as an emeritus member of the Board of Trustees of Tufts University, a
member of the Visiting Committee of the Boston University School of Medicine and
a part-time lecturer in pathology at Columbia University of Physicians and
Surgeons. Dr. Brown has served as a member of the Board of Directors of UroCor
Inc. since 1988.
Stephen J. Hansbrough, President, Chief Operating Officer and Director
joined the Company in December 1993. Mr. Hansbrough has an extensive background
in the retail arena. He served as Chairman and Chief Executive Officer of Dart
Drug Stores until 1988. Subsequently and prior to joining the Company, he was an
independent consultant specializing in turn-around and start-up operations
primarily in the retail field.
Thomas W. Archibald attended the London School of Economics and received
a B.A. degree in economics from Denison University and a Juris Doctor degree
from the Ohio State University Law School. He retired from the Bank of New York
in 1995 where he served as Executive Vice President of the Personal Trust
Sector. He held that position at Irving Trust
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Company when it merged with The Bank of New York in 1988. Mr. Archibald is a
past Director of Group Health Incorporated, the only not-for-profit health
insurance carrier chartered to operate throughout New York State.
David J. McLachlan holds an A.B. Degree in engineering from Harvard
College and a M.B.A. Degree from Harvard Graduate School of Business
Administration. He has been the Executive Vice President of Enzyme Company since
December 1989. Prior to that he was the Vice President, Treasurer and Chief
Financial Officer of Adams-Russell Co., Inc., an owner and operator of cable
television systems and Adams-Russell Electronics, Inc. a defense electronics
manufacturer.
Joseph L. Gitterman III attended the University of Virginia and Columbia
University. He is the manager of EIP Group LLC, an investing, trading and
consulting firm which he founded in 1994. Until 1994, he was the Senior Managing
Director of LeBranche & Co. He was a member of the New York Stock Exchange for
over thirty years and was appointed a Governor in 1986. At the New York Stock
Exchange, he was on over fourteen committees, serving as chairman of some of
them. He is director of Classic Turf Co., Intrepid International, Mill Bridge
Inc. and Custom Data Services. He is also a trustee of the Margaret Bartlett
Foundation, the Steep Rock Association and the Westminster School.
There are no family relationships between any director or executive
officer of the Company.
The information required by this Item for executive officers of the
Company is set forth in Part I of this report under the heading "Executive
Officers of the Company."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own beneficially more
than ten percent of any class of equity security of the Company to file with the
Securities and Exchange Commission initial reports of such ownership and reports
of changes in such ownership. Officers, directors and such beneficial owners are
required by Securities and Exchange Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, during the fiscal year ended December 25,
1998, all Section 16(a) filing requirements applicable to its executive officers
and directors were made except as follows: for Paul A. Brown, one transaction
was for the 1997 fiscal year; for Stephen J. Hansbrough, one transaction was
reported late for the 1996 fiscal year; and for James W. Peklenk, one
transaction was reported late for the 1997 fiscal year, and one transaction was
reported late for the 1996 fiscal year.
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SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation for
services rendered in all capacities to the Company during the 1998, 1997 and
1996 fiscal years, of those persons who were at fiscal year-end 1998 (i) the
Chief Executive Officer and (ii) the other executive officers whose salary and
bonus exceeded $100,000 (these three persons are collectively referred to herein
as the "Named Executive Officers"):
<TABLE>
<CAPTION>
================================================================================
SUMMARY COMPENSATION TABLE
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Annual Compensation
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Name and Year Salary Bonus Options
Position Principal ($) ($) (#)
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<S> <C> <C> <C> <C>
Paul A. Brown, M.D. 1998 $225,000 $85,000 -0-
Chairman and Chief 1997 200,000 70,000 -0-
Executive Officer 1996 100,000 -0- -0-
Stephen J. Hansbrough 1998 $200,000 $70,000 -0-
President and Chief 1997 175,000 50,000 -0-
Operating Officer 1996 151,462 18,510 175,000
James W. Peklenk 1998 $125,000 $25,000 20,000
Vice President - Finance 1997 100,000 20,000 25,000
Chief Financial Officer 1996 83,846 20,000 125,000
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</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grants of
options to the Named Executive Officers during the fiscal year ended December
25, 1998:
<TABLE>
<CAPTION>
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Potential
Realizable Value at
Percent of Assumed Annual
Total Options Rates of Stock
Options Granted to Price Appreciation
Granted Employees in Exercise Expiration For Option Term
Name (#) Fiscal Year Price Date 5% 10%
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<S> <C> <C> <C> <C> <C> <C>
Stephen J. Hansbrough (1) 175,000 3.31% $1.50 10/1/06 $ 275,625 $ 288,750
100,000 1.89% .75 9/29/05 78,750 82,500
1,000,000 18.94% .75 12/12/05 787,500 825,000
175,000 3.31% .75 10/1/06 137,813 144,375
James W. Peklenk (1) 20,000 .38% $1.5625 5/18/08 $ 32,813 $ 34,375
110,000 2.08% 1.50 10/1/06 173,250 181,500
50,000 0.95% .75 11/15/05 39,375 41,250
15,000 0.28% .75 1/18/06 11,813 12,375
25,000 0.47% .75 5/22/97 19,688 20,625
20,000 0.38% .75 5/18/08 15,750 16,500
110,000 2.08% .75 10/1/06 86,625 90,750
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</TABLE>
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(1) All options granted to Mr. Hansbrough and Mr. Peklenk (excluding to 20,000
options granted to Mr. Peklenk at an exercise price of $1.5625) were granted in
connection with the repricing of certain outstanding options approved by the
Board of Directors in December 1998.
OPTION EXERCISES AND AGGREGATED FISCAL YEAR END OPTION VALUES
The following table sets forth certain information with respect to stock
option exercises and unexpired stock options granted in fiscal years prior to
1998 and held by the Named Executive Officers as of the end of fiscal 1998:
<TABLE>
<CAPTION>
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Shares Number of Value of Unexercised
Acquired Value Unexercised Options In-the-Money Options at
On Exercise Realized Fiscal Year- End Fiscal Year-End
(#) (#)
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Exercisable/ Exercisable/
Name Unexercisable Unexercisable
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<S> <C> <C> <C> <C>
Paul A. Brown, M.D. -0- -0- 100,000/-0- -0-/-0-
Stephen J. Hansbrough -0- -0- 1,505,000/362,500 990,903/177,625
James W. Peklenk -0- -0- 106,250/113,750 52,063/55,738
================================================================================================================
</TABLE>
TEN-YEAR OPTION REPRICING
The following table sets forth information with respect to the Company's
repricing of certain employee stock options, including two of the Named
Executive Officers during the fiscal year ended December 25, 1998:
<TABLE>
<CAPTION>
========================================================================================================================
Number of Length of
Securities Market price Exercise Original
Underlying of Stock at Price at Option Term
Options Time of Time of New Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Amended Amendment Amendment Price Repricing or
Name Date ($) ($) ($) ($) Amendment
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Hansbrough 4/23/98 175,000 $1.5625 $2.875 $1.50 101 months
12/14/98 100,000 0.5625 0.8650 0.75 82 months
12/14/98 1,000,000 0.5625 1.21 0.75 84 months
12/14/98 175,000 0.5625 1.50 0.75 94 months
James W. Peklenk 4/23/98 110,000 $1.5625 $2.8750 $1.50 101 months
12/14/98 50,000 0.5625 0.8350 0.75 83 months
12/14/98 15,000 0.5625 1.49 0.75 85 months
12/14/98 25,000 0.5625 1.875 0.75 101 months
12/14/98 20,000 0.5625 1.5625 0.75 118 months
12/14/98 110,000 0.5625 1.50 0.75 94 months
========================================================================================================================
</TABLE>
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REPORT OF THE BOARD OF DIRECTORS ON REPRICING STOCK OPTIONS
The Company's employee stock option program is administered by the Board
of Directors. All options issued pursuant to the Company's stock option plan
were issued at the then market price. The market price for the Company's stock,
however, has declined, and as a result, a majority of the employee stock options
were substantially above the current market price. The Board believes that
employee stock options are important to incentivize its employees and align
their interests with those of the stockholders. The Board concluded that to
allow the options to remain "out of money" did not serve the best interests of
the Company and its stockholders. The Board believed that a repricing of these
"out of money" options would allow the options to serve their intended purposes
and enhance the Company's ability to retain important employees, which includes
over 130 licensed hearing professionals. The inability of the Company to retain
such employees would reduce its ability to distinguish itself from competing
networks of hearing aid retailers and thus adversely affect the Company's
business.
BOARD OF DIRECTORS
Paul A. Brown M.D. - Chairman
Stephen J. Hansbrough
Thomas W. Archibald
David L. McLachlan
Joseph L. Gitterman III
REPORT OF THE BOARD OF DIRECTORS ON COMPENSATION
The Company's executive compensation program is administered by the Board
of Directors. In addition to base salary, compensation for the Company's
executive officers may include annual performance bonuses, stock options
pursuant to the Company's stock option plan and otherwise and stock grants
pursuant to the Company's stock bonus plan. It is the intention of the Board of
Directors to use salary and bonuses as compensation for current and past
performance, while using stock options and restricted stock grants to provide
incentives for superior long-term performance.
To establish compensation for the Company's executive officers, the Board
of Directors uses subjective performance evaluations, compensation statistics of
other similar size health care organizations, and with respect to executive
officers other than Dr. Brown, the salary and bonus recommendations of Dr.
Brown.
BOARD OF DIRECTORS
Paul A. Brown M.D. - Chairman
Stephen J. Hansbrough
Thomas W. Archibald
David L. McLachlan
Joseph L. Gitterman III
ITEM 11. EXECUTIVE COMPENSATION
BOARD OF DIRECTORS COMPENSATION
The Board of Directors received no cash compensation during the fiscal
year ended December 25, 1998 for their services as directors and it is not
intended that the Board will receive any such compensation during the current
fiscal year. The Company reimburses directors for their out-of-pocket expenses
for attendance at meetings of the Board. Messrs. Archibald,
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McLachlan and Gitterman each received on May 18, 1998 an option to acquire
15,000 shares of Common Stock at a price of $1.5625 per share (the then per
share fair market value of the Company's Common Stock), pursuant to the
Company's stockholder approved Non-Qualified Stock Option Plan for Non-Employee
Directors. These options were immediately exercisable for a period of ten years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Brown is the Chairman of the Board of Directors and the Company's
Chief Executive Officer. Mr. Hansbrough is the President and Chief Operating
Officer of the Company. The other members of the Board of Directors are not
employees or former employees of the Company.
COMMON STOCK PERFORMANCE
As part of the executive compensation information presented here, rules
of the Securities and Exchange Commission require a five-year comparison of the
stock performance for the Company with stock performance of other companies. The
closing price of the Common Stock at December 25, 1998 was $0.625 per share. The
Common Stock has been traded on the American Stock Exchange since March 15,
1996. Prior thereto, the Company's stock was traded on the over-the-counter
market with prices being reported by the National Association of Securities
Dealers, Inc., OTC Bulletin Board Service. The Company has selected each of the
AMEX market Value Index and the Hambrecht & Quist Healthcare (excluding
biotechnology) Index. The graph on the following page reflects all comparison
indexes and depicts a comparison of five-year cumulative total returns for each
of the Company, the AMEX Market Value and the Hambrecht and Quist Healthcare
Index, excluding biotechnology.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG HEARX LTD., THE AMEX MARKET VALUE INDEX
AND THE HAMBRECHT & QUIST HEALTHCARE-EXCLUDING BIOTECHNOLOGY INDEX
<TABLE>
<CAPTION>
HAMBRECHT & QUIST
HEALTHCARE-EXCLUDING
HEARX LTD. AMEX MARKET VALUE BIOTECHNOLOGY
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<S> <C> <C> <C>
12/93 100 100 100
12/94 110 91 106
12/95 205 115 177
12/96 450 122 196
12/97 250 148 234
12/98 90 151 284
</TABLE>
* $100 INVESTED ON 12/31/93 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
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ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of April 2, 1999, the names of all
persons known by the Company to be beneficial owners of more than five percent
of the Common Stock. On April 2, 1999, there were 106,276,396 shares of Common
Stock issued and outstanding.
<TABLE>
<CAPTION>
Amount and Nature
Title Name and Address of Of Beneficial Percent of
Class Beneficial Owner Ownership Class
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Paul A. Brown, M.D. 11,134,178 (1) 10.5%
1250 Northpoint Parkway
West Palm Beach, FL 33407
Common Stock Minnesota Mining and 8,969,931 8.9%
Manufacturing Company
3M Center
St. Paul, MN 55144
</TABLE>
(1) Includes 100,000 shares of Common Stock subject to non-qualified options,
all of which are currently exercisable.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 2, 1999, the number of shares
of Common Stock owned beneficially by each director, each Named Executive
Officer and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name Beneficial Ownership (1) Class
- --------------------------------------------------------------------------------------
<S> <C> <C>
Paul A. Brown, M.D. 11,134,178 (2) 10.5%
Stephen J. Hansbrough 1,630,363 (3) 1.5%
James W. Peklenk 121,550 (4) *
David J. McLachlan 400,459 (5) *
Thomas W. Archibald 261,700 (6) *
Joseph L. Gitterman III 1,127,500 (7) 1%
All directors and executive 14,675,750 (8) 13.8%
Officers as a group (6 persons)
- --------------------------------------------------------------------------------------
</TABLE>
(1) The named individuals have both sole investment power and sole voting
power with respect to all securities listed as beneficially owned by
them.
(2) Includes 100,000 shares of Common Stock subject to non-qualified options,
all of which are currently exercisable.
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(3) Includes 1,505,000 employee stock options, which are currently
exercisable (or exercisable within 60 days).
(4) Includes 121,250 employee stock options, which are currently exercisable
(or exercisable within 60 days).
(5) Includes (i) 135,000 shares of Common Stock issuable upon the exercise of
non-qualified options, all of which are currently exercisable, and (ii)
30,000 shares of Common Stock issuable upon the exercise of Common Stock
purchase warrants acquired as part of a 1989 private placement.
(6) Includes 90,000 shares of Common Stock issuable upon the exercise of
non-qualified options, all of which are currently exercisable.
(7) Includes 127,500 shares of Common Stock issuable upon the exercise of
warrants acquired as part of the 1993 private placement.
(8) Includes 2,108,750 shares of Common Stock issuable upon the exercise of
options and warrants, which are currently exercisable (or exercisable
within 60 days)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEARx LTD.
Date: April 21, 1999
By: /s/ Paul A. Brown, M.D.
------------------------------------------
Paul A. Brown, M.D.
Chairman of the Board
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