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Filed pursuant to Rule 424(B)(1)
Registration No. 333-38862
PROSPECTUS
HEARx LTD.
3,292,487 Shares of Common Stock
The selling shareholders are offering to sell up to 3,292,487 shares
of the common stock of HEARx Ltd. (and attached preferred stock purchase rights)
issuable to them upon the conversion of shares of 7% Series I Convertible
Preferred Stock and the exercise of warrants. HEARx will not receive any of the
proceeds from sales of these shares of common stock by the selling shareholders.
The selling shareholders may sell the shares of common stock offered
by this prospectus at prices determined by the prevailing market prices for the
common stock or in negotiated transactions. The selling shareholders may also
sell the shares to or with the assistance of broker-dealers.
HEARx common stock is traded on the American Stock Exchange under the
symbol "EAR." On June 5, 2000, the last reported sale price of the common stock
on the American Stock Exchange was $4.00 per share.
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Before buying any shares, you should read the discussion of risks of
investing in HEARx common stock in "Risk Factors" beginning on page 1.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is June 19, 2000.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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Risk Factors......................................................................................................1
The Company.......................................................................................................7
Use of Proceeds...................................................................................................8
Selling Shareholders..............................................................................................8
Plan of Distribution.............................................................................................11
Common Stock.....................................................................................................12
Available Information............................................................................................13
Information Incorporated By Reference............................................................................13
Cautionary Statement Regarding Forward-Looking Statements........................................................13
Legal Matters....................................................................................................13
Experts..........................................................................................................13
</TABLE>
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RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the following risks and uncertainties, together with the other
information contained in this prospectus, before purchasing the common stock
offered by this prospectus. If any of the following risks actually occurs, the
business, financial condition or operating results of HEARx could be materially
adversely affected.
HEARx HAS A HISTORY OF OPERATING LOSSES AND MAY NOT BE PROFITABLE
HEARx has incurred net losses in each year since its organization and its
accumulated deficit at March 31, 2000 was $75,902,746. HEARx expects its
quarterly and annual operating results to fluctuate, depending primarily on the
following factors:
- Timing of product sales;
- Level of patient demand for its products;
- Timing and success of new centers; and
- Timing and amounts of payments by health insurance and managed
care organizations.
There can be no assurance that HEARx will achieve profitability in the near or
long term.
HEARx MAY NOT EFFECTIVELY COMPETE IN THE HEARING CARE INDUSTRY
The hearing care industry is highly fragmented and barriers to entry are
low. Approximately 11,000 practitioners provide testing and dispense products
and services that compete with those provided and sold by HEARx. HEARx also
competes with small retailers, as well as large networks of franchisees and
distributors established by larger companies, such as those manufacturing and
selling Miracle Ear and Beltone products. Some of the larger companies have far
greater resources than HEARx and could expand and/or change their operations to
capture the market targeted by HEARx. In addition, it is possible that the
hearing care market could be effectively consolidated by the establishment of
cooperatives, alliances or confederations that could compete more successfully
for the market targeted by HEARx.
HEARx IS DEPENDENT ON MANUFACTURERS WHO MAY NOT PERFORM
HEARx is not a hearing aid manufacturer. It relies on approximately five
major manufacturers to supply its hearing aids, as well as other manufacturers
to supply hearing enhancement devices. A significant disruption in supply from
any or all of these manufacturers could materially adversely affect the
company's business. In the event of a disruption of supply from one or more of
its current suppliers, HEARx 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 HEARx or on a timely basis or at all.
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HEARx RELIES ON QUALIFIED AUDIOLOGISTS, WITHOUT WHOM ITS BUSINESS MAY BE
ADVERSELY AFFECTED
HEARx currently employs 150 licensed hearing professionals, of whom 120
are audiologists. HEARx believes that it distinguishes itself in the hearing
care industry by having qualified audiologists available to supervise or manage
all of the company's centers. If HEARx is not able to attract and retain
qualified audiologists, the company will be less able to compete with networks
of hearing aid retailers or with the independent audiologists who also sell
hearing aids, and its business may be adversely affected.
HEARx MAY NOT BE ABLE TO MAINTAIN EXISTING AGREEMENTS OR ENTER INTO NEW
AGREEMENTS WITH HEALTH INSURANCE AND MANAGED CARE ORGANIZATIONS, WHICH MAY
RESULT IN REDUCED REVENUES
HEARx enters into provider agreements with health insurance companies and
managed care organizations for the furnishing of hearing care in exchange for
fees. The terms of most of these agreements are to be renegotiated annually,
and these agreements may be terminated by either party on 90 days or less
notice at any time. There is no certainty that HEARx will be able to maintain
these agreements on favorable terms or at all. If HEARx cannot maintain these
contractual arrangements or enter into new arrangements, there will be a
material adverse effect on the company's revenues and results of operations. In
addition, the early termination or failure to renew the agreements which
provide for payment to HEARx on a per-patient-per-month basis would cause HEARx
to lower its estimates of revenues to be received over the life of the
agreements. This could have a material adverse effect on the company's results
of operations.
HEARx DEPENDS ON ITS JOINT VENTURE FOR ITS CALIFORNIA OPERATIONS AND MAY NOT BE
ABLE TO ATTRACT SUFFICIENT PATIENTS TO ITS CALIFORNIA CENTERS WITHOUT IT
HEARx West LLC, the company's joint venture with the Permanente Federation
LLC, operates eighteen retail centers in California. HEARx West centers
currently serve primarily Kaiser Permanente members through an agreement
between the joint venture and Kaiser Permanente. If Kaiser Permanente does not
perform its obligations under the agreement, or if the agreement is not renewed
upon expiration, the loss of Kaiser patients in the HEARx West centers would
adversely affect the company's business.
HEARx RELIES ON EFFORTS AND SUCCESS OF MANAGED CARE COMPANIES THAT MAY NOT BE
ACHIEVED OR SUSTAINED
Many 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
the managed care market. In fact, primarily as a result of these problems of the
managed care
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organizations, HEARx closed twelve of its centers in the northeast in January
of 1999. Managed care organizations have announced their withdrawal from
certain other geographic 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.
THE SUCCESS OF HEARx DEPENDS UPON SENIOR MANAGEMENT WHO MAY NOT REMAIN WITH THE
COMPANY
The operations of HEARx are highly dependent upon the efforts of its
senior management, including 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 such senior management could
adversely affect the conduct and operation of the company's business. HEARx 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. This insurance coverage may not be
sufficient to compensate HEARx for a loss of Dr. Brown's services. There can be
no assurance that HEARx will be successful in retaining senior management or in
hiring additional persons with the necessary business experience and skills.
HEARx MAY NOT BE ABLE TO MAINTAIN JCAHO ACCREDITATION AND HEARx REVENUES MAY
SUFFER
During 1998, HEARx was awarded a three-year accreditation from the Joint
Committee on Accreditation of Healthcare Organizations. This status
distinguishes HEARx from other hearing care providers and is widely used by
HEARx in its marketing efforts. If HEARx is not able to maintain its accredited
status, it will not be able to distinguish itself on this basis and its
revenues may suffer.
HEARx IS EXPOSED TO POTENTIAL PRODUCT AND PROFESSIONAL LIABILITY THAT COULD
ADVERSELY AFFECT THE COMPANY
In the ordinary course of its business, HEARx may be subject to product
and professional liability claims alleging that products sold or services
provided by the company failed or had adverse effects. HEARx maintains
liability insurance at a level which it believes to be adequate. A successful
claim in excess of the policy limits of the liability insurance could
materially adversely affect the company. As the distributor of products
manufactured by others, HEARx believes it would properly have recourse against
the manufacturer in the event of a product liability claim. There can be no
assurance, however, that recourse against a manufacturer by HEARx would be
successful, or that any manufacturer will maintain adequate insurance or
otherwise be able to pay such liability.
EXISTING OR FUTURE REGULATIONS WHERE HEARx OPERATES OR MAY OPERATE MAY REQUIRE
HEARx TO MAKE EXPENSIVE CHANGES OR TO CEASE OPERATING IN CERTAIN AREAS
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 of
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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 HEARx
plans to open centers or will not be promulgated in states in which HEARx
currently operates centers or at the Federal level. 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.
Such regulations may require HEARx to make expensive changes to be in
compliance or to cease operations in areas where the regulations exist if HEARx
cannot comply.
THE PRICE OF THE COMMON STOCK COULD BE VOLATILE AND COULD DECLINE
The market prices for HEARx common stock can be highly volatile. There are
significant price and volume fluctuations in the market generally that may be
unrelated to HEARx operating performance, but which nonetheless may adversely
affect the market price for HEARx stock. The price of HEARx common stock could
change suddenly due to factors such as the following:
- the amount of the company's cash resources and ability to obtain
additional funding;
- fluctuations in operating results;
- changes in government regulation of the healthcare industry;
- failure to meet estimates or expectations of the market;
- rate of acceptance of hearing aid products in the geographic
markets HEARx is targeting; and
- general market conditions.
Any of these events may cause the price of the common stock to fall,
which may reduce business and financing opportunities available to HEARx. In
addition, broad market fluctuations in the market generally may adversely affect
the trading price of HEARx common stock, regardless of the company's operating
performance or prospects.
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CONVERSION OF OUTSTANDING SHARES OF CONVERTIBLE PREFERRED STOCK AND EXERCISE OF
OPTIONS AND WARRANTS COULD CAUSE SUBSTANTIAL DILUTION
As of June 5, 2000, outstanding equity securities of HEARx included:
- 5,515 shares of 1998 Convertible Preferred Stock, currently
convertible into approximately 1,788,000 shares of common
stock;
- 500 shares of 7% Series I Convertible Preferred Stock,
currently convertible into approximately 1,130,000 shares of
common stock (assuming all shares of preferred stock were
converted on June 5, 2000);
- Warrants to purchase approximately 761,000 shares of common
stock; and
- Options to purchase approximately 795,000 shares of common
stock.
If holders of the preferred stock, options and warrants listed above
converted or exercised all of their shares as of June 5, 2000, the holders
would receive approximately 4,474,000 shares of common stock (representing
approximately 37.5% of the outstanding shares of HEARx common stock on a fully
diluted basis as of June 5, 2000). To the extent outstanding preferred stock is
converted, options or warrants are exercised or additional shares of capital
stock are issued, investors purchasing common stock may incur additional
dilution.
FUTURE SALES OF SHARES MAY DEPRESS THE PRICE OF HEARx COMMON STOCK
If substantial shareholders sell shares of HEARx common stock into the
public market, or investors become concerned that substantial sales might
occur, the market price of HEARx common stock could decrease. Such a decrease
could make it difficult for HEARx to raise capital by selling stock or to pay
for acquisitions using stock. There are currently approximately 2,000,000
shares of common stock which are the subject an effective resale registration
statement and may be sold into the public market. In addition, HEARx employees
hold a significant number of options to purchase shares, many of which are
presently exercisable. Employees may exercise their options and sell shares
shortly after such options become exercisable, particularly if they need to
raise funds to pay for the exercise of such options or to satisfy tax
liabilities that they may incur in connection with exercising their options.
BECAUSE HEARx SHAREHOLDERS DO NOT RECEIVE DIVIDENDS, SHAREHOLDERS MUST RELY ON
STOCK APPRECIATION FOR ANY RETURN ON THEIR INVESTMENT IN HEARx
HEARx has never declared or paid cash dividends on any of its capital
stock. HEARx currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying cash dividends in the future. As a result,
only appreciation of the price of the common stock will provide a return to
investors who purchase or acquire securities pursuant to this prospectus.
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THERE MAY BE INSUFFICIENT SHARES AVAILABLE FOR ISSUANCE UPON CONVERSION AND
EXERCISE OF OUTSTANDING PREFERRED STOCK, OPTIONS AND WARRANTS
The number of shares of common stock issuable upon conversion of preferred
stock and exercise of warrants and options could exceed the 20,000,000 shares of
common stock, HEARx is currently authorized to issue under its Restated
Certificate of Incorporation. If a holder of preferred stock elects to convert
at a time when HEARx does not have sufficient authorized but unissued shares of
common stock to effect the conversion, HEARx 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. In
addition, the holder will have the right to require HEARx to redeem its shares
of preferred stock that can not be converted.
HEARx MAY NOT BE ABLE TO MAINTAIN ITS LISTING ON THE AMERICAN STOCK EXCHANGE
AND THERE MAY BE NO PUBLIC MARKET FOR THE COMMON STOCK
The common stock was listed and began trading on the American Stock
Exchange on March 15, 1996. The American Stock Exchange 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 HEARx common stock were delisted from the American Stock
Exchange, trading, if any, in the common stock would be conducted in the
over-the-counter market. The ability of holders to sell or otherwise dispose of
such shares could be adversely affected.
IF "PENNY STOCK" REGULATIONS APPLY TO THE COMMON STOCK, HOLDERS MAY NOT BE ABLE
TO SELL OR DISPOSE OF THEIR SHARES
If the HEARx common stock were delisted from the American Stock Exchange,
the "penny stock" regulations of the Securities and Exchange Commission may
apply to transactions in the common stock. A "penny stock" includes any
over-the-counter equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. The Commission 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
make certain disclosures (including disclosure of commissions) and provide
monthly statements to the customer with information on the limited market in
penny stocks. These requirements may discourage broker-dealers from effecting
transactions in penny stocks. If the penny stock regulations were to become
applicable to
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transactions in shares of the HEARx common stock, they could adversely affect
the ability of holders to sell or otherwise dispose of such shares.
A CHANGE IN VOTING CONTROL OF HEARX COULD CAUSE LOSS OF KEY DIRECTORS AND
OFFICERS AND ADVERSELY AFFECT THE COMPANY
As of June 5, 2000, the directors and executive officers of HEARx
beneficially owned, as a group, approximately 24% of the shares of the company's
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 June 5, 2000, the directors and executive officers would
beneficially own approximately 16% of the then outstanding common stock. In the
event of a change in voting control of HEARx, the current key directors and
officers of the company could be replaced. There can be no assurance that any
person who may replace any key director or officer will have the necessary
business experience and skills.
BECAUSE OF THE HEARX RIGHTS AGREEMENT, A THIRD PARTY MAY BE DISCOURAGED FROM
MAKING A TAKEOVER OFFER WHICH COULD BE BENEFICIAL TO HEARX AND ITS
STOCKHOLDERS.
On December 14, 1999, HEARx entered into a rights agreement with The Bank
of New York, as rights agent. The rights agreement contains provisions that
could delay or prevent a third party from acquiring HEARx or replacing members
of the HEARx board of directors, even if the acquisition or the replacements
would be beneficial to HEARx stockholders. The rights agreement could also
result in reducing the price that certain investors might be willing to pay for
shares of the common stock and making the market price lower than it would be
without the rights agreement.
THE COMPANY
HEARx Ltd. 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 for sales growth and market penetration includes positioning
the company as the leading provider of hearing care to the managed care
marketplace, and aggressively advertising to the non-insured self-pay market.
HEARx believes it is well positioned to successfully address the concerns of
access, quality and cost of managed care and health insurance companies, the
diagnostic needs of referring physicians and, ultimately, the hearing health
needs of consumers. HEARx believes that success requires the company to offer
convenient distribution points, uniform centers (meaning standardized personnel
qualifications, testing, formats, products, prices and ancillary services) and
a documented quality control program.
HEARx and its subsidiary, HEARx West, LLC, a joint venture with the
Permanente Federation LLC, currently receive a per-member-per-month fee for
more than 1.3 million managed care members. In total, HEARx has over 170
contracts for hearing care with various healthcare providers. To the extent the
company is successful in contracting with the providers of Medicare managed
care for hearing care goods and services, HEARx can enjoy the benefits of the
continuing shift of Medicare patients to managed care. In addition, HEARx
intends to increase its sales to uninsured patients, while creating greater
awareness of HEARx by the managed care patients covered by contracts with the
company.
The principal executive offices of HEARx Ltd. are located at 1250
Northpoint Parkway, West Palm Beach, Florida 33407, and its telephone number is
(561) 478-8770.
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USE OF PROCEEDS
HEARx will not receive any proceeds from the sale of the shares being
offered by the selling shareholders.
SELLING SHAREHOLDERS
HEARx is registering all 3,292,487 shares of common stock covered by this
prospectus on behalf of the selling shareholders named in the table below.
HEARx has registered the shares to permit the selling shareholders and their
pledgees, donees, transferees or other successors-in-interest that receive
their shares from the selling shareholders as a gift, partnership distribution
or other non-sale related transfer after the date of this prospectus to resell
the shares when they deem appropriate.
All of the shares of common stock covered by this prospectus are issuable
by HEARx upon conversion of shares of its 7% Series I Convertible Preferred
Stock and upon exercise of warrants. In a private placement which closed on May
9, 2000, HEARx sold a total of 500 shares of the preferred stock and warrants to
purchase 203,390 shares of common stock to one of the selling shareholders.
HEARx also issued to two finders warrants to purchase an aggregate 131,695
shares of common stock. The shares of preferred stock are convertible into
shares of common stock from August 6, 2000 at an initial conversion price of
$4.46. Dividends are payable upon conversion in an amount equal to 7% of the
stated value of the preferred stock ($10,000 per share) per annum in cash or
common stock. In certain circumstances, the conversion price will be adjusted to
the "Variable Conversion Price," defined as the lesser of $4.46 and the average
of the five lowest closing prices of the common stock during the thirty trading
days preceding the date of conversion. In addition, if the actual conversion
price of the preferred stock is less than the closing price of HEARx common
stock on the date of issuance of the preferred stock ($3.69), HEARx will have to
record a deemed preferred stock dividend.
The selling shareholders have represented that they acquired the preferred
stock and/or warrants, and will acquire the common stock issuable upon exercise
of the warrants, for investment and with no present intention of distributing
those shares, but they did not represent that they would hold those shares for
any length of time. In addition, the selling shareholders have represented that
they qualify as "accredited investors" as such term is defined in Rule 501 under
the Securities Act of 1933. HEARx has agreed to prepare and file a registration
statement on or prior to June 8, 2000 and to bear all expenses for such
registration other than underwriting commissions and brokerage fees.
Accordingly, in recognition of the fact that the selling shareholders may wish
to be legally permitted to sell the shares of common stock underlying the
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preferred stock and the warrants when each deems appropriate, HEARx filed with
the SEC a registration statement on Form S-3, of which this prospectus forms a
part. HEARx has also agreed to prepare and file any amendments and supplements
to the registration statement as may be necessary to keep the registration
statement effective until all shares of common stock covered by the registration
statement have been resold or may be resold without registration in accordance
with Rule 144(k) under the Securities Act of 1933.
None of the selling shareholders has had any position, office or other
material relationship with HEARx within the past three years except as a result
of the ownership of the shares offered by this prospectus and except for Jesup
& Lamont Securities Corp. and IDEAL Management, Inc. which served as finders in
connection with the transaction involving the offer and sale of the 7% Series I
Convertible Preferred Stock.
The following table sets forth the name of each of the selling
shareholders, the number of shares of common stock beneficially owned by each
of the selling shareholders, the number of shares that may be offered for
resale under this prospectus, and the number of shares of common stock that
will be beneficially owned by each of the selling shareholders after this
offering is completed. The number of shares in the column "Shares Being
Offered" represents all of the shares that each selling shareholder may offer
under this prospectus. HEARx does not know how long the selling shareholders
will hold the shares before selling them and currently has no agreements,
arrangements or understandings with any of the selling shareholders regarding
the sale of any of the shares. The table assumes that all shares being offered
in this offering are sold to non-affiliates of the selling shareholders. The
selling shareholders named below may, but are not required to, offer from time
to time the shares offered by this prospectus.
Advantage Fund II, Ltd. purchased an aggregate of $5 million of preferred
stock and warrants from HEARx in the private placement transaction which closed
on May 9, 2000. As part of that private placement, Advantage was issued shares
of preferred stock that may be converted into shares of HEARx common stock and
warrants to acquire shares of common stock. A holder of preferred stock and
warrants is prohibited from using them to convert into and acquire shares of
common stock to the extent that the conversion or acquisition would result in
the holder, together with any of its affiliates, beneficially owning in excess
of 4.999% and 9.999%, respectively, of the outstanding shares of HEARx common
stock following the conversion or acquisition. These restrictions may be waived
by the holder on not less than 61 days' notice to HEARx. Since the number of
shares of common stock issuable upon conversion of the preferred stock may
change based upon fluctuations of the market price of the common stock prior to
a conversion (as described below), the actual number of shares of common stock
that will be issued upon conversion of the preferred stock, and consequently the
number of shares of common stock that will be beneficially owned by Advantage,
cannot be determined at this time. Because of this fluctuating characteristic,
HEARx has agreed to register a number of shares of common stock that exceeds the
number of shares beneficially owned by Advantage. The number of shares of common
stock listed in the table below as being beneficially owned by Advantage
includes the shares of common stock that are issuable to it, subject to the
4.999% and 9.999% limitations, upon conversion of its preferred stock and
exercise of its warrants. The 4.999% and 9.999% limitations, however, would not
prevent Advantage from acquiring and
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selling in excess of 4.999% and 9.999% of the outstanding HEARx common stock
through a series of conversions and sales under the preferred stock and
acquisitions and sales under the warrants.
Genesee International Inc., of which Mr. Donald R. Morken is the
controlling stockholder, has voting and investment power over the securities
beneficially owned by Advantage.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Being Shares Beneficially Owned
Name of Selling Shareholder Prior to Offering Offered After Offering
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Advantage Fund II Ltd. 3,160,792 3,160,792 0
Jesup & Lamont Securities Corp. 101,695 101,695 0
IDEAL Management, Inc. 30,000 30,000 0
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Total 3,292,487 3,292,487 0
========= ========== =
</TABLE>
The number of shares of common stock offered by this prospectus includes
175% of the number of shares of common stock issuable upon conversion in full
of all of the preferred stock held by the selling shareholders, assuming:
- the preferred stock is outstanding for three years,
- dividends are added to the stated value of the preferred stock
and thus paid in shares of common stock,
- conversion occurred on June 7, 2000, and
- the "Variable Conversion Price" under the Certificate of
Designations, Rights and Preferences relating to
the preferred stock applies.
The number of shares of common stock offered by this prospectus also
includes warrants to purchase 203,390 shares of common stock issued to the
purchaser of the preferred stock and warrants to purchase 131,695 shares of
common stock issued to two finders.
The selling shareholders, together with any of their affiliates, may not
beneficially own more than 4.999% of the outstanding shares of common stock
following a conversion of preferred stock and/or exercise of warrants. In
addition, the selling shareholders, together with any of their affiliates, may
not beneficially own more than 9.999% of the outstanding shares of common stock
following a conversion of preferred stock and/or exercise of warrants.
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 exercise of the warrants. Each of these restrictions
may be waived by any selling shareholder as to itself upon not less than 61
days' notice to HEARx.
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PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- broker-dealers may agree with the selling shareholders to sell a
specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
The selling shareholders may also engage in short sales, short sales
against the box, puts and calls and other transactions in securities of HEARx
or derivatives of HEARx securities and may sell or deliver shares in connection
with these trades. The selling shareholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
shareholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the selling shareholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling shareholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling shareholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in
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connection with such sales. In such event, any commissions received by such
persons and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
HEARx is required to pay all fees and expenses incident to the
registration of the shares. HEARx has agreed to indemnify the selling
shareholders and the selling shareholders have agreed to indemnify HEARx against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.
COMMON STOCK
Each share of HEARx common stock trades with and has attached to it a
right to purchase shares of preferred stock. The terms of the rights are set
forth in a rights agreement dated as of December 14, 1999 between HEARx and The
Bank of New York, as rights agent. Each right entitles the holder to purchase
from HEARx one one-hundredth of a share of Series H Junior Participating
Preferred Stock, par value $1.00 per share, at a price of $28.00, subject to
adjustment. The rights will be evidenced by common stock certificates and are
not exercisable until the earlier of:
- the close of business on the tenth business day following
the date of public announcement of or the date on which HEARx
first has notice or determines that a person or group of
affiliated or associated persons has acquired, or has obtained
the right to acquire, 15% or more of the outstanding shares of
HEARx voting stock without the prior express written consent of
the Board of Directors, or
- the close of business on the tenth business day following
the commencement of a tender offer or exchange offer by a
person, without the prior written consent of the Board of
Directors, which offer, upon consummation would result in such
person's control of 15% or more of HEARx voting stock.
If not exercised by the holders or earlier redeemed or exchanged by HEARx, the
rights will expire on December 31, 2009. The purchase price payable, and the
number of share of Series H preferred stock or other securities or property
issuable, upon exercise of the rights are subject to adjustment from time to
time to prevent dilution by action of the Board of Directors and in
circumstances described in the Rights Agreement.
For more information regarding the rights attached to HEARx common
stock, you should read the company's Form 8-K dated December 14, 1999, filed
with the Commission on December 17, 1999.
AVAILABLE INFORMATION
HEARx has filed with the Securities and Exchange Commission,
Washington, DC 20549, a registration statement on Form S-3 under the Securities
Act with respect to the shares of common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules filed with the
registration statement. Certain items are omitted in accordance with the rules
and regulations of the Commission. For further information with respect to
HEARx and the common stock offered by this prospectus, reference is made to the
registration statement and the exhibits and schedules filed with the
registration statement. Statements contained in this prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
A copy of the registration statement, and the exhibits and schedules
filed with it, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, NW,
Washington, DC 20549, and the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The public may obtain information on the operation of the public
reference room by calling the Commission at 1-800-SEC-0330. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, including HEARx. The address of the site is
http://www.sec.gov. The registration statement, including all its exhibits and
amendments, has been filed electronically with the Commission.
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INFORMATION INCORPORATED BY REFERENCE
The Commission allows HEARx to "incorporate by reference" the
information HEARx provides in documents filed with the Commission, which means
that HEARx can disclose important information by referring to those documents.
The information incorporated by reference is an important part of this
prospectus. Any statement contained in a document that is incorporated by
reference in this prospectus is automatically updated and superseded if
information contained in this prospectus, or information that HEARx later files
with the Commission, modifies and replaces this information. HEARx incorporates
by reference the following documents HEARx has filed with the Commission:
(1) Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
(2) Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2000.
(3) Current Report on Form 8-K dated May 9, 2000, filed on May 22,
2000.
(4) Description of common stock contained in the Registration
Statement on Form 8-A, filed on March 4, 1996.
In addition, all documents filed by HEARx with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus and prior to the filing of a post-effective
amendment that indicates that all securities offered hereby have been sold or
that deregisters all securities remaining unsold, will be considered to be
incorporated by reference into this prospectus and to be a part of this
prospectus from the dates of the filing of such documents.
You may get copies of any of the incorporated documents (excluding
exhibits, unless the exhibits are specifically incorporated) at no charge to
you by writing or calling Corporate Secretary, HEARx Ltd., 1250 Northpoint
Parkway, West Palm Beach, Florida 33407, telephone (561) 478-8770.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements:
- statements set forth in this prospectus or statements incorporated by
reference from documents HEARx has filed with the Commission, including
possible or assumed future results of operations, including but not
limited to any statements contained herein or therein concerning:
- statements about the Company's future growth and expansion;
- the manner in which such expansion will be funded and demands on
resources relating to the expansion;
- the ability to obtain comparable products from other
manufacturers in the event of disruption of supply from one or
more of HEARx's current suppliers;
- the adequacy of insurance and the ability to have recourse
against a manufacturer in the event of a product liability
claim;
- the ability to continue to establish relationships with health
organizations and physicians that promote HEARx to the hearing
impaired;
- the continued competitiveness with HEARx's centers of certain
networks of hearing aid stores or distributors;
- the effect of a new federal or state physician referral mandate
on HEARx;
- the effect on HEARx of the loss of any single managed care
contract;
- any statements preceded by, followed by or that include the words
"believes," "expects," "predicts," "anticipates," "intends,"
"estimates," "should," "may," or similar expressions; and
- other statements contained or incorporated by reference in this
prospectus regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to those discussed in "Risk Factors"
above.
You should not place undue reliance on such statements, which speak only as
of the date that they were made. These cautionary statements should be
considered in connection with any written or oral forward-looking statements
that HEARx may issue in the future. HEARx does not undertake any obligation to
release publicly any revisions to such forward-looking statements after
completion of the offering to reflect later events or circumstances or to
reflect the occurrence of unanticipated events.
LEGAL MATTERS
The legality of the shares of common stock offered by this prospectus has
been passed upon for HEARx by Bryan Cave LLP, Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of HEARx Ltd. as of
December 31, 1999 and December 25, 1998, and for the years ended December 31,
1999, December 25, 1998 and December 26, 1997, have been audited by BDO Seidman,
LLP, independent certified public accountants, as indicated in their report with
respect thereto, and are included in the HEARx Ltd.
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