<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Hearx Ltd.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY COPY
HEARX LTD.
1250 NORTHPOINT PARKWAY
WEST PALM BEACH, FLORIDA 33407
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of HEARx
Ltd., a Delaware corporation ("Company"), will be held at The Princeton Club of
New York, 15 West 43rd Street, New York, New York 10036-7497, on June 7, 1999 at
2:30 P.M. Eastern Time, to consider and act upon:
1. The election of five directors of the Company, each to hold office until the
next Annual Meeting of Stockholders and thereafter until his successor is
duly elected and qualified, or as otherwise provided by law;
2. To approve an amendment to the Company's Amended and Restated Certificate of
Incorporation authorizing a 1 for 10 reverse stock split of the Company's
Common Stock, par value $.10 per share and related reduction in authorized
Common Stock from 130,000,000 to 20,000,000; and
3. The transaction of such other business as may properly come before the
meeting.
The close of business on April 19, 1999 has been fixed as the record date for
the determination of stockholders who are entitled to notice of, and to vote at,
the meeting. The voting rights of the stockholders are described in the Proxy
Statement.
By order of the Board of Directors,
Barbara A. Bachman
Secretary/Controller
April 30, 1999
PLEASE SPECIFY YOUR CHOICES, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING SO
THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
<PAGE> 3
PRELIMINARY COPY
HEARX LTD.
1250 NORTHPOINT PARKWAY
WEST PALM BEACH, FLORIDA 33407
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 1999
This Proxy Statement with the accompanying proxy card, is being mailed or
given to shareholders commencing on or about April 30, 1999, in connection with
the solicitation of proxies by the Board of Directors of HEARx Ltd. ("Company")
to be used at the Annual Meeting of Stockholders of the Company to be held at
The Princeton Club of New York, 15 West 43rd Street, New York, New York
10036-7497, on Monday, June 7, 1999 at 2:30 Eastern Time and any adjournments
thereof.
PROXY PROCEDURE
If the enclosed proxy card is properly executed and returned prior to the
meeting, the shares represented thereby will be voted in accordance with the
stockholder's directions or, if no directions are indicated, the shares will be
voted in accordance with the recommendations of the Board of Directors as
specified in this Proxy Statement. The Board of Directors does not know of any
other business to be brought before the meeting, but it is intended that, as to
any such other business, a vote may be cast pursuant to the proxy in accordance
with the judgment of the person or persons acting thereunder. Any stockholder
executing a proxy may revoke that proxy at any time prior to the voting thereof
either by delivering written notice to the Secretary of the Company or by voting
in person at the meeting.
PROXY SOLICITATION
All costs of the solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by use of the mails, the Company may
utilize the services of some of the officers and regular employees of the
Company (who will receive no compensation therefor in addition to their regular
salaries) to solicit proxies personally and by telephone. The Company will
request banks, brokers, custodians, nominees and fiduciaries to forward copies
of the proxy solicitation materials to beneficial owners and to request
authority for the execution of proxies. The Company will reimburse such persons
or entities for their expenses in doing so.
VOTING AT MEETING
Holders of record of shares of Common Stock, par value $.10 per share
("Common Stock"), as of the close of business on April 19, 1999, are entitled to
notice of, and to vote at, the meeting. As of that date, there were outstanding
xxx,xxx,xxx shares of Common Stock. Each holder of Common Stock is entitled to
one vote for each share held. The holders of a majority of the shares of Common
Stock issued and outstanding as of the close of business on April 19, 1999, will
constitute a quorum at the meeting. Those five director nominees receiving the
greatest number of votes will be elected directors.
Assuming a quorum is present at the meeting, Proposal No. 2 to approve an
amendment to the Company's Amended and Restated Certificate of Incorporation
authorizing a reverse stock split of the Common Stock and related reduction in
the authorized capital of the Company will be approved if it receives the
affirmative vote of the holders of at least a majority of the shares of Common
Stock entitled to vote, present in person or represented by proxy, at the
meeting. Abstention from voting on this proposal will have the same effect as
voting against that proposal.
<PAGE> 4
Under the Delaware General Corporation Law, any stockholder who abstains
from voting on a particular matter described herein will be counted for purposes
of determining a quorum. Shares of Common Stock represented by proxies that are
marked "without authority" with respect to the election of one or more nominees
for director and abstentions with respect to the other proposals have the same
effect as if the shares represented thereby were voted against such other
matters, respectively. Broker non-votes will be treated as not represented at
the meeting as to any matter for which a non-vote is indicated on the broker's
proxy.
The Company's principle executive offices are located at 1250 Northpoint
Parkway, West Palm Beach, Florida 33407.
2
<PAGE> 5
ELECTION OF DIRECTORS
PROPOSAL NO. 1
Five directors of the Company are to be elected at the meeting, each to
hold office until the next Annual Meeting of Stockholders and until his
successor is elected and qualified, or as otherwise provided by the Company's
Bylaws or by Delaware law.
The Board of Directors has nominated the five persons named below for
election as directors, all of whom are presently serving as such. All members of
the Board have been previously elected as directors by the Company's
stockholders. It is intended that the shares represented by the enclosed proxy
will be voted for the election of these five nominees (unless such authority is
withheld by a stockholder). In the event that any of the nominees should become
unable or unwilling to serve as a director (which is not anticipated), it is
intended that the proxy will be voted for the election of such person or
persons, if any, who shall be designated by the Board of Directors.
The nominees for election as directors are:
<TABLE>
<CAPTION>
Director Position 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
(52) Operating Officer and
Director
Thomas W. Archibald 1993 Director
(61)
David J. McLachlan 1986 Director
(60)
Joseph L. Gitterman 1997 Director
III
(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 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
3
<PAGE> 6
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 relationship between any director or executive officer
of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL THE ABOVE-NAMED NOMINEES AS DIRECTORS OF THE COMPANY.
DIRECTORS' COMPENSATION, MEETING ATTENDANCE AND COMMITTEES
The Board of Directors received no cash compensation during the fiscal year
ended December 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, 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. Under the Plan, each
non-employee director elected at the 1999 Annual Meeting will be entitled to
receive options for 15,000 shares of Common Stock, exercisable at the then fair
market value.
There were six meetings of the Board of Directors during the fiscal year
ended December 25, 1998. Each of the incumbent directors attended all meetings
of the Board of Directors and all the meetings of the committee on which they
serve, held while they were on such committee, during the year ended December
25,1998.
The standing committee of the Board of Directors is the Audit Committee.
The Board has not appointed a nominating committee or a compensation committee.
Messrs. Archibald, McLachlan and Gitterman are members of the Audit
Committee. The functions of the Audit Committee are to review the adequacy of
systems and procedures for preparing the financial statements of the Company as
well as the suitability of internal financial controls, and to review and
approve the scope and performance of the independent auditors' work. The Audit
Committee met once during the fiscal year ended December 25, 1998.
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
4
<PAGE> 7
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.
EXECUTIVE COMPENSATION
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 $100,000 (these three persons are collectively referred to herein
as the "Named Executive Officers"):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual
Compensation
-------------------
Name and Salary Bonus Options
Principal Position Year ($) ($) (#)
- ------------------------------------------------------------------------------------------
<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
- ------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grants of
options to the Named Executive Officers during the fiscal year ended December
25, 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
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%
- ---------------------------------------------------------------------------------------------------
<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
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) All options granted to Mr. Hansbrough and Mr. Peklenk (excluding to 20,000
options granted to Mr. Peklenk at an exercise price of $1.5625) were granted
in connection with the repricing of certain outstanding options approved by
the Board of Directors in December 1998.
OPTION EXERCISES AND AGGREGATED FISCAL YEAR END OPTION VALUES
The following table sets forth certain information with respect to stock
option exercises and unexpired stock options granted in fiscal years prior to
1998 and held by the Named Executive Officers as of the end of fiscal 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Shares Number of
Acquired Unexercised Options Value of Unexercised
On Exercise Value Fiscal Year-End In-the-Money Options at
(#) Realized (#) Fiscal Year-End
- ---------------------------------------------------------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul A. Brown, M.D. -0- -0- 100,000/-0- -0-/-0-
Stephen J. Hansbrough -0- -0- 1,505,000/362,500 990,903/177,625
James W. Peklenk -0- -0- 106,250/113,750 52,063/55,738
- ---------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 9
TEN-YEAR OPTION REPRICING
The following table sets forth information with respect to the Company's
repricing of certain employee stock options, including two of the Named
Executive Officers during the fiscal year ended December 25, 1998:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Length of
Securities Market price Exercise Original
Underlying of Stock at Price at Option Term
Options Time of Time of New Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Amended Amendment Amendment Price Repricing or
Name Date ($) ($) ($) ($) 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>
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 the money" did not serve the best interests
of the Company and its stockholders. The Board believed that a repricing of
these "out of the money" options would allow the options to serve their intended
purposes and enhance the Company's ability to retain important employees, which
include 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
7
<PAGE> 10
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
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 in the Proxy
Statement, the Securities and Exchange Commission requires 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.
8
<PAGE> 11
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>
HEARX LTD. AMEX MARKET VALUE HAMBRECHT & QUIST
---------- ----------------- HEALTHCARE-EXCLUDING
BIOTECHNOLOGY
--------------------
<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.
9
<PAGE> 12
RELATED PARTY TRANSACTIONS
Pursuant to a series of agreements, the first of which was executed in
October, 1991, between the Company and Minnesota Mining and Manufacturing
Company ("3M"), 3M acquired from the Company or obtained options to acquire from
the Company a total of seven series of Senior Preferred Stock, par value $1.00
per share, at varying purchase prices. The Company also entered into a number of
different arrangements with 3M pursuant to which the Company became an
authorized distributor of hearing aids manufactured by 3M. This arrangement
terminated as a result of the divestiture by 3M of its hearing aid operation.
The terms of each series of Senior Preferred Stock subscribed for by or
subject to options granted to 3M provided that upon the listing of the Common
Stock on the American Stock Exchange, the outstanding Senior Preferred Stock and
the options to acquire shares of Senior Preferred Stock would be automatically
converted into shares of Common Stock and the right to acquire shares of Common
Stock, respectively. Accordingly, on March 15, 1996, when the Common Stock was
listed on the American Stock Exchange, 3M's holdings of Senior Preferred Stock
were automatically converted into 8,882,400 shares of Common Stock.
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.
10
<PAGE> 13
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
officers as a group (6 persons) 14,675,750(8) 13.8%
- --------------------------------------------------------------------------------------------
</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.
(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 share 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)
11
<PAGE> 14
APPROVAL OF
REVERSE STOCK SPLIT
PROPOSAL NO. 2
GENERAL
On March 5, 1999 the Board of Directors approved, and recommends that the
shareholders of the Company approve, amendments to the Company's Amended and
Restated Certificate of Incorporation authorizing a reverse stock split of the
Common Stock and related reduction in the authorized capital stock of the
Company ("Reverse Stock Split"). If the Reverse Stock Split is approved by the
shareholders, each holder of record of Common Stock on the effective date of the
Reverse Stock Split will thereafter be deemed to hold one share of Common Stock
for every ten presently issued and outstanding shares of Common Stock held of
record on that date. In addition, if approved by the shareholders, the number of
shares of Common Stock authorized for issuance will be decreased after
effectiveness of the Reverse Stock Split and amendments to the Amended and
Restated Certificate of Incorporation from 130,000,000 to 20,000,000. After the
effectiveness of the Reverse Stock Split, it is not anticipated that the
financial condition of the Company, the percentage ownership of management, the
number of the Company's shareholders or any aspect of the Company's business
would materially change as a result of the Reverse Stock Split. In addition, the
Board believes that while the number of shares held by each shareholder will be
reduced by the Reverse Stock Split, the value representing the Company will not
be so reduced.
As discussed more fully below, the Board of Directors believes the Reverse
Stock Split is in the best interest of the Company because the decrease in the
number of shares outstanding and the resulting anticipated increased price level
of the Common Stock:
- Will encourage greater interest in the Common Stock by the investment
community and thereby may facilitate the development of a stronger base
of institutional investors in the Company's Common Stock;
- May promote greater liquidity for the holders of Common Stock; and
- Will enable the Company's institutional customers to compare more
directly the Company's Common Stock value with the value of the publicly
held common stock of the Company's principal competitors, each of whom
have significantly fewer shares outstanding but comparable aggregate
market capitalization.
PURPOSES OF THE PROPOSED REVERSE STOCK SPLIT
The principal purpose of the Reverse Stock Split is to reduce the number of
shares of Common Stock outstanding and authorized for issuance. The Board of
Directors believes that the total number of shares currently outstanding is
disproportionately large relative to the Company's present market
capitalization. The Board of Directors believes that a decrease in the number of
outstanding shares of Common Stock, without any material alteration of the
proportionate economic interest in the Company held by individual stockholders,
may increase the trading price of the outstanding shares to a price more
appropriate for a security listed on the American Stock Exchange, although no
assurance can be given that the market price of the Common Stock will rise in
proportion to the reduction in the number of outstanding shares resulting from
the Reverse Stock Split or that the post-Reverse Stock Split market price can be
maintained.
The Board of Directors believes that the current per share price of the
Common Stock may limit the effective marketability of the Common Stock. Many
brokerage firms and institutional investors are reluctant to recommend
lower-priced stocks to their clients or to hold them in their own portfolios.
Certain policies and practices involve time-consuming procedures that make the
handling of lower-priced stocks economically unattractive. The brokerage
commission on a sale of a lower-priced stock may also represent a higher
percentage of the sale price than the brokerage
12
<PAGE> 15
commission on a higher-priced issue. Any reduction in brokerage commission
resulting from the Reverse Stock Split may be offset, however, in whole or in
part, by increased brokerage commission required to be paid by shareholders
selling "odd lots" created by the Reverse Stock Split.
The Board of Directors believes that the decrease in the number of shares
of Common Stock outstanding as a consequence of the proposed Reverse Stock Split
and the resulting anticipated increased price level will encourage greater
interest in the Common Stock by the financial community and the investment
public. The Board of Directors believes the Company must begin to better develop
its base of institutional investors. The Board believes the Reverse Stock Split
will help facilitate that objective. Also, the Board believes the increased
involvement by institutional investors and the investment community may promote
greater liquidity for the Company's shareholders. It is possible, however, that
liquidity could be affected adversely by the reduced number of shares
outstanding after the Reverse Stock Split. Although any increase in the market
price of the Common Stock resulting from the Reverse Stock Split may be
proportionately less than the decrease in the number of shares outstanding, the
proposed Reverse Stock Split could result in a market price for the shares that
would be high enough to overcome the reluctance, policies and practices of
institutional investors and brokerage houses.
Finally, it has been Management's experience that healthcare providers and
third party payors to whom the Company is marketing its services, view
negatively the low market price of the Company's Common Stock relative to the
market price of the shares of the Company's competitors with substantially fewer
shares outstanding. Although the Company's aggregate market capitalization is
comparable to that of its competitors, its per share market price is
substantially lower. The Board believes the increased stock price which may
result from the Reverse Stock Split will make comparisons of the Company and its
competitors more balanced.
IMPLEMENTATION OF THE REVERSE STOCK SPLIT
Pursuant to the Reverse Stock Split each holder of ten shares of Common
Stock, par value $.10 per share (the "Old Common Stock"), immediately prior to
the effectiveness of the Reverse Stock Split would become the holder of one
share of Common Stock, par value $.10 per share (the "New Common Stock").
No fractional shares of New Common Stock will be issued in connection with
the Reverse Stock Split. Instead, holders of the Old Common Stock who would
otherwise be entitled to receive fractional shares of the New Common Stock
because they hold a number of Old Common Stock not evenly divisible by ten will
be entitled to receive from the Company a cash payment equal to the fair market
value, as determined by the Board of Directors, of any fractional shares of New
Common Stock resulting from the Reverse Stock Split. The fair market value shall
be based on the average of the closing price for the Old Common Stock as
determined by the American Stock Exchange on each of the five days preceding the
date on which the Reverse Stock Split becomes effective. The funds required to
purchase fractional shares resulting from the Reverse Stock Split will be paid
from the Company's current cash funds. It is not expected that the amount
necessary to effect the cancellation of fractional shares will be material.
The Reverse Stock Split would become effective upon the filing of a
Certificate of Amendment of the Amended and Restated Certificate of
Incorporation related thereto with the Delaware Secretary of State. If the
Reverse Stock Split is approved by the shareholders, the Board of Directors
intends to cause the Certificate of Amendment to be filed as soon as practicable
after the date of the meeting. Upon the effectiveness of the proposed amendment,
Article Four of the Company's Amended and Restated Certificate of Incorporation
would be amended substantially as set forth in Annex I hereto.
Upon the effectiveness of such Certificate of Amendment, the Reverse Stock
Split will occur without any further action on the part of shareholders of the
Company and without regard to the date or dates on which the stock certificates
are physically surrendered in exchange for certificates
13
<PAGE> 16
representing the number of shares of New Common Stock such shareholders are
entitled to receive as a consequence of the Reverse Stock Split. As soon as
practicable after the effectiveness of the Reverse Stock Split, transmittal
letters will be mailed to each record holder of the Company's Common Stock on
the date of such effectiveness to be used in forwarding their certificates for
surrender and exchange for certificates representing the number of shares of New
Common Stock such shareholders are entitled to receive as a result of the
Reverse Stock Split. After receipt of such transmittal letter, each shareholder
should surrender the stock certificates issued prior to the Reverse Stock Split
and such shareholder will receive in exchange therefor certificates representing
the whole number of shares of New Common Stock to which he or she is entitled
and any cash which may be payable in lieu of any fractional share. Such
transmittal letters will be accompanied by instructions specifying other details
of the exchange. Shareholders should not send in their certificates until they
receive a transmittal letter.
After the effectiveness of the Reverse Stock Split, each certificate
representing shares of Old Common Stock will, until surrendered and exchanged as
provided above, be deemed, for all corporate purposes, to evidence ownership of
the whole number of shares of New Common Stock, and the right to receive from
the Company the amount of cash for any fractional shares, into which the shares
evidenced by such certificate have been converted.
Shareholders whose shares are held of record by their brokerage firm or
nominees need not take any action to exchange shares. The brokerage firm or
other nominee, as the record holder of such shares, will receive the letter of
transmittal and will be required to surrender the Old Common Stock certificates,
together with the completed and executed letter of transmittal, in order to
receive new certificates.
No service charges will be payable by holders of shares of Common Stock in
connection with the exchange of certificates. All of such expenses will be borne
by the Company.
EFFECTS OF THE REVERSE STOCK SPLIT
With the exception of the number of issued and outstanding shares, the
rights and preferences of the shares of Common Stock prior and subsequent to the
Reverse Stock Split will remain the same.
The Company is presently authorized to issue a maximum of 130,000,000
shares of Common Stock and 2,000,000 shares of preferred stock, par value $1.00
per share (the "Preferred Stock"). As of April 19, 1999, xxx,xxx,xxx shares of
Common Stock and 10,944 shares of Preferred Stock were issued and outstanding.
The authorized number of shares will change in connection with the Reverse Stock
Split. The per share par value of the Common Stock will not change as a result
of the Reverse Stock Split. After the Reverse Stock Split, the Company will have
authority to issue up to 20,000,000 shares of Common Stock, of which
approximately xxx,xxx,xxx will be issued and outstanding. The Company has
obligations to set aside approximately xxx,xxx,xxx shares of Common Stock for
the conversion of certain preferred stock and for the exercise of outstanding
warrants, options and other contractual commitments. The exercise price or
conversion rate of these commitments as well as the number of shares authorized
under the Company's employee benefit plans will be adjusted proportionately upon
the effectiveness of the Reverse Stock Split.
The shares of Common Stock issuable upon approval of the Reverse Stock
Split would be fully paid and nonassessable. The voting rights and other
privileges of the continuing holders of Common Stock would not be affected
substantially by adoption of the reverse Stock Split or subsequent
implementation thereof.
TAX CONSEQUENCES
The conversion and reconstitution of the Old Common Stock into the New
Common Stock should have no material federal tax consequences to most
shareholders. Nonetheless, sharehold-
14
<PAGE> 17
ers should consult their own tax advisors as to the federal, state, local and
foreign tax effects of the Reverse Stock Split in light of their individual
circumstances.
VOTE REQUIRED FOR APPROVAL
In order for the shareholders of the Company to authorize the Reverse Stock
Split by adoption of the aforementioned amendment to the Amended and Restated
Certificate of Incorporation, a majority of the shares of outstanding Common
Stock entitled to vote, present in person or by proxy at the meeting must vote
in favor of this proposals.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THIS PROPOSAL.
OTHER MATTERS
As of the date hereof, the Board of Directors knows of no other matters
which are likely to be presented for consideration at the meeting. In the event
any other matters properly come before the meeting, however, it is the intention
of the persons named in the enclosed proxy to vote said proxy in accordance with
their best judgment.
STOCKHOLDERS PROPOSALS
Any shareholder of the Company that wishes to submit a stockholder proposal
pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), for presentation at the Company's 2000 Annual Meeting
of Stockholders, must submit such proposal to the Company at its principal
office no later than January 7, 2000 in order to be considered for inclusion, if
appropriate, in the Company's proxy statement and form of proxy relating to such
meeting. A Company stockholder proposal submitted other than pursuant to Rule
14a-8 will be timely for purposes of Rule 14a-4(c)(a) promulgated under the 1934
Act only if submitted to the Company on or before February 20, 2000.
By Order of the Board of Directors,
Barbara A. Bachman
Secretary/Controller
April 30, 1999
15
<PAGE> 18
ANNEX 1
Amendments to Article 4 of the Restated Certificate of Incorporation of HEARx
Ltd., as amended:
The first paragraph only of Article 4 shall be amended to read as follows:
The total number of shares of stock which the Corporation shall have
authority to issue is twenty two million (22,000,000), consisting of two
million (2,000,000) shares of Preferred Stock of the par value of One
Dollar ($1.00) per share and twenty million (20,000,000) shares of
Common Stock of the par value of Ten Cents ($.10) per share.
A new second paragraph of Article 4 shall be added as follows:
The Corporation hereby declares that each ten (10) of the outstanding
shares of the Corporation's Common Stock, par value $.10 per share, as
of the date of filing of this Certificate of Amendment to the Restated
Certificate of Incorporation, be converted and reconstituted into one
share of Common Stock, par value $.10 per share. No fractional shares
shall be issued upon such conversion and reconstitution, and the number
of shares of Common Stock to be issued shall be rounded down to the
nearest whole share. If a fractional interest in a share of Common Stock
would, except for the provisions of the preceding sentence, be
deliverable upon such conversion and reconstitution, the Corporation
shall pay an amount in cash equal to the fair market value of such
fractional interest, as determined by the Corporation's Board of
Directors, to each holder of shares of Common Stock to whom such
fractional interest would have been deliverable.
<PAGE> 19
1. The election of the following nominees as directors of the Company.
FOR all nominees listed below { }
WITHHOLD AUTHORITY to vote for all nominees listed below { }
*EXCEPTIONS { }
Nominees: Paul A. Brown, M.D., Stephen J. Hansbrough, Thomas W. Archibald, David
J. McLachlan and Joseph L. Gitterman III.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions ____________________________________________________________________
2. To approve amendments to the Company's Amended and Restated Certificate of
Incorporation authorizing a 1 for 10 reverse stock split of the Company's
Common Stock, par value $.10 per share and related reduction in the
authorized Common Stock of the Company from 130,000,000 to 20,000,000
shares.
FOR { } AGAINST { } ABSTAIN { }
3. The transaction of such other business as may properly come before the
meeting and any and all adjournments thereof.
Change of Address Mark Here { }
(Please sign exactly as your name(s) appear(s)
hereon. Joint holders must each sign. Persons signing
as Executors, administrators, trustee, guardians,
etc. will Please so indicate when signing.)
Date: _________________________________________, 1999
_____________________________________________________
Signature(s) of Stockholder(s)
_____________________________________________________
Signature(s) of Stockholder(s)
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK.
{X}
PLEASE DATE, SIGN AND MAIL THIS PROXY
PROMPTLY IN THE ENCLOSED REPLY ENVELOPE
HEARx LTD.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING TO BE HELD ON JUNE 7, 1999
The undersigned stockholder(s) of HEARx Ltd. ("Company") hereby
appoint(s) Paul A. Brown, M.D., and Stephen J. Hansbrough, and each of them,
proxies with full power to vote all shares which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Stockholders of
the Company to be held at The Princeton Club of New York, 15 West 43rd Street,
New York, New York 10036-7497 on Monday June 7, 1999 at 2:30 P.M., Eastern Time,
and any and all adjournments thereof, on the following matters.
THE SHARES REPRESENTED HEREBY WILL BE VOTED IN ACCORDANCE WITH THE
STOCKHOLDER'S DIRECTIONS HEREIN, BUT WHERE NO DIRECTIONS ARE INDICATED, SAID
SHARES WILL BE VOTED FOR THE ELECTION OF DIRECTORS OF THE NOMINEES LISTED ON THE
REVERSE SIDE, FOR APPROVAL OF AMENDMENTS TO THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AUTHORIZING A 1 FOR 10 REVERSE STOCK SPLIT OF THE
COMPANY'S COMMON STOCK, PAR VALUE $.10 PER SHARE, AND RELATED REDUCTION IN
AUTHORIZED COMMON STOCK AND IN THE DISCRETION OF THE PROXIES, ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, ALL IN ACCORDANCE WITH THE
COMPANY'S PROXY STATEMENT, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED.
HEARx Ltd.
P.O. Box 11319
New York, N.Y. 10203-0319
(Continued and to be SIGNED on the reverse side)
