s-4a
Table of Contents

As filed with the Securities and Exchange Commission on February 13, 2002.
Registration No. 333-73022


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Amendment No. 2

to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


HEARx LTD.

(Exact name of the registrant as specified in its charter)
         
Delaware   5990   22-2748248
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

1250 Northpoint Parkway

West Palm Beach, Florida 33407
(561) 478-8770
(Address and telephone number
of the registrant’s principal executive offices)

Dr. Paul A. Brown

Chairman and Chief Executive Officer
HEARx LTD.
1250 Northpoint Parkway
West Palm Beach, Florida 33407
(561) 478-8770
(Name, address and telephone number of agent for service)

Copies to:

LaDawn Naegle
Bryan Cave LLP
700 Thirteenth Street, NW
Washington, DC 20005
(202) 508-6046

     Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the Registration Statement becomes effective and the consummation of the transaction described herein.

     If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

     If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement offering.  o 


     If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o 


CALCULATION OF REGISTRATION FEE

                 


Proposed Maximum Proposed Maximum
Title of Each Class of Additional Amount Offering Price Aggregate Offering Amount of
Securities to be Registered to be Registered Per Unit Price Registration Fee

Common stock, $.10 par value per share(1)(2)
  4,041,441(1)   $1.03(3)   $4,162,684(3)   $383


(1)  Represents additional shares of the Registrant’s common stock to be issued from time to time under the HearUSA 2002 Flexible Stock Plan. In accordance with Rule 416, this registration statement also shall register any additional shares of the Registrant’s common stock that may become issuable pursuant to stock splits, stock dividends, or similar transactions.
 
(2)  Includes the preferred stock purchase rights associated with the common stock.
 
(3)  Estimated solely for purposes of calculating the registration fee under Rule 457(f)(1) based upon the average of the high and low prices reported on the American Stock Exchange of $1.03 for the Registrant’s common stock on February 7, 2002.


     The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.




Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting any offer to buy these securities in any state where the offer or sale is not permitted.

      SUBJECT TO COMPLETION, DATED FEBRUARY 13, 2002

HEARx LTD.

HELIX HEARING CARE OF AMERICA CORP.

           To the Stockholders of HEARx Ltd. and Helix Hearing Care of America Corp.:

      After careful consideration, the board of directors of HEARx and Helix have approved a combination of HEARx and Helix through a plan of arrangement under Canadian law. When the arrangement is completed, Helix will become an indirect subsidiary of HEARx and HEARx will change its name to HearUSA, Inc. Each share of Helix common stock will be exchanged for 0.3537 shares of HEARx common stock or 0.3537 exchangeable shares of a Canadian subsidiary of HEARx. Each exchangeable share is exchangeable for one share of HEARx common stock. Only Helix stockholders who are Canadian residents may elect to receive exchangeable shares. Based on the number of Helix common shares currently outstanding, up to 14.61 million shares of HEARx common stock representing approximately 51% of outstanding HEARx shares will be issued to Helix stockholders in connection with the arrangement. HEARx common stock is listed on the American Stock Exchange under the trading symbol “EAR” and on February 11, 2002, HEARx common stock closed at $1.06 per share.

      The transaction is structured to be Canadian tax deferred to Canadian resident Helix stockholders who validly elect to receive exchangeable shares and taxable to U.S. resident Helix stockholders. Canadian resident Helix stockholders should note that amendments have been proposed to the Canadian Income Tax Act that may require holders of exchangeable shares or HEARx common stock to report as income (or loss) annual changes in the value of such shares accruing after the date fixed by law on a “mark-to-market” basis.

      The accompanying joint proxy statement/prospectus provides detailed information about the arrangement and the related proposals to be voted on at your company’s special meeting. Formal notices of the stockholders meetings of each company appear in the accompanying joint proxy statement/prospectus. Please give all of the information contained in the joint proxy statement/prospectus your careful attention. You should carefully consider the discussion in the section entitled “Risk Factors” beginning on page 13 of the joint proxy statement/prospectus.

      The principal stockholders of Helix, who together hold approximately 47% of the outstanding Helix common shares, have agreed to vote in favor of the arrangement, in each case subject to the terms and conditions of a stockholders agreement described in the accompanying joint proxy statement/prospectus. In addition, HEARx holds approximately 10.5% of currently outstanding Helix common shares, which it intends to vote in favor of the arrangement.

      We cannot complete the arrangement without the approval of the stockholders of HEARx and Helix. We hope you will be able to attend your company’s meeting. Your vote is very important. Whether or not you plan to attend your company’s meeting, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed stamped envelope. Returning the proxy does not deprive you of your right to attend your company’s meeting and to vote your shares in person. Special instructions together with a letter of transmittal and election form for use by Helix stockholders to receive certificates for the exchangeable shares or HEARx common stock under the arrangement are enclosed. Thank you for your consideration of this matter.

     
Dr. Paul A. Brown
Chairman and Chief Executive Officer
HEARx Ltd.
  Steve Forget
President and Chief Executive Officer
Helix Hearing Care of America Corp.

      Neither the Securities and Exchange Commission nor any state or Canadian securities commission has approved or disapproved the arrangement described in the joint proxy statement/prospectus or the shares of HEARx common stock to be issued in connection with the arrangement, or determined if the joint proxy statement/prospectus is accurate or inadequate. Any representation to the contrary is a criminal offense.

      This joint proxy statement/prospectus is dated           , 2002, and is first being mailed to stockholders on or about           , 2002.


Table of Contents

HEARx LTD.

1250 Northpoint Parkway
West Palm Beach, Florida 33407

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be Held on                         , 2002

To the Stockholders of HEARx Ltd.:

      NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of HEARx Ltd. will be held on                          , 2002, at  at            a.m., Florida time, to vote on:

  1.  approval of the issuance of HEARx common stock in connection with the plan of arrangement with Helix Hearing Care of America Corp.;
 
  2.  approval of an amendment to our restated certificate of incorporation to increase the number of shares of our common stock and preferred stock authorized for issuance;
 
  3.  approval of an amendment to our restated certificate of incorporation to change our name to “HearUSA, Inc.”;
 
  4.  approval of the adoption of the HearUSA 2002 Flexible Stock Plan;
 
  5.  the adjournment of the special meeting, if necessary, to permit the solicitation of additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the above proposals; and
 
  6.  such other business, if any, as may properly be brought before the meeting.

      Only holders of our common stock as of                     , 2002, our record date, are entitled to notice of and to vote at this meeting or any adjournments of the meeting. The list of stockholders entitled to vote will be available for inspection by any HEARx stockholder at the offices of HEARx, 1250 Northpoint Parkway, West Palm Beach, Florida 33407, for ten days prior to the meeting.

      You are cordially invited to attend this meeting in person. You may vote in person at the HEARx special meeting even if you have returned a proxy.

  BY ORDER OF THE BOARD OF DIRECTORS
 
  Dr. Paul A. Brown
  Chairman and Chief Executive Officer

West Palm Beach, Florida

                    , 2002

      Your vote is important, regardless of the number of shares you own. Please complete, sign and date the enclosed proxy card and mail it promptly using the enclosed, pre-addressed, postage-paid envelope, so that your shares will be represented whether or not you attend the meeting. You may revoke your proxy at any time before the shares are voted at the meeting.


Table of Contents

HELIX HEARING CARE OF AMERICA CORP.

7100, Jean-Talon East
Suite 610
Montreal, QC H1M 3S3

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be Held on                         , 2002

To the Stockholders of Helix Hearing Care of America Corp.:

      NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Helix Hearing Care of America Corp., a Canadian corporation, will be held on                     , 2002, at                      at            a.m., Montreal time, for the following purposes:

  1.  for the Helix stockholders to consider and to pass, with or without variation, a special resolution, the full text of which is set forth in Annex F to the accompanying joint proxy statement/ prospectus, approving an arrangement pursuant to section 192 of the Canada Business Corporations Act, all as more particularly described in the joint proxy statement/ prospectus; and
 
  2.  such other business, if any, as may properly be brought before the meeting or any adjournment thereof.

      If you are not able to be present at the meeting, please exercise your right to vote by signing and returning the enclosed form of proxy (printed on blue paper) to Computershare Trust Company of Canada in the enclosed envelope so as to arrive not later than 5:00 p.m. (Montreal time) on                     , 2002, or, if the meeting is adjourned, 48 hours (excluding Saturdays, Sundays and holidays) before the time the adjourned meeting is to be reconvened. Proxies may also be deposited with the scrutineers of the meeting, to the attention of the chairman of the meeting, immediately prior to the commencement of the meeting, or any adjournment or postponement thereof.

      Pursuant to the order of the Superior Court of Québec, District of Montreal dated                     , 2002, registered holders of common shares of Helix have been granted the right to dissent in respect of the arrangement resolution. If the arrangement becomes effective, a registered holder of common shares of Helix who dissents will be entitled to be paid the fair value of such common shares if Helix shall have received from such dissenting stockholder prior to 5:00 p.m. (Montreal time) on the business day preceding the meeting a written objection to the arrangement resolution and the dissenting stockholder shall have otherwise complied with the dissent procedures (which are described in the joint proxy statement/ prospectus under the heading “Dissenters’ or Appraisal Rights” and in Annex J). A notice of dissent should be delivered to the Assistant Chief Operating Officer and Director of Legal Affairs of Helix, 7100 Jean-Talon East, Suite 610, Montreal, Québec, H1M 3S3. Failure to comply strictly with such dissent procedures may result in the loss or unavailability of any right of dissent.

  BY ORDER OF THE BOARD OF DIRECTORS
 
  Steve Forget
  President and Chief Executive Officer

Montreal, Québec

                    , 2002


Table of Contents

REFERENCES TO ADDITIONAL INFORMATION

      This joint proxy statement/prospectus incorporates important business and financial information about HEARx and Helix from documents that are not included in or delivered with this joint proxy statement/ prospectus. This information is available to you without charge upon either written or oral request. You can obtain documents incorporated by reference in this joint proxy statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

     
HEARx Ltd.
1250 Northpoint Parkway
West Palm Beach, Florida 33407
561-478-8770
  Helix Hearing Care of American Corp.
7100, Jean-Talon East, Suite 610
Montreal, Québec, Canada H1M 3S3
514-353-0001

      If you would like to request documents, please do so by                , in order to receive them before the special meetings.

      For additional sources of the documents incorporated by reference and other information about HEARx and Helix, see “Where You Can Find More Information” beginning on page 158.


TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE HEARx/HELIX ARRANGEMENT
SUMMARY
RISK FACTORS
CURRENCY
FORWARD-LOOKING STATEMENTS
SELECTED FINANCIAL INFORMATION
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED SELECTED FINANCIAL INFORMATION
MARKET PRICE AND DIVIDEND INFORMATION
COMPARATIVE MARKET PRICE DATA
COMPARATIVE PER SHARE DATA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
GENERAL INFORMATION
THE ARRANGEMENT
Opinion of Yorkton Securities Inc.
Exchangeable Share Rights
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE ARRANGEMENT
DESCRIPTION OF HEARx COMMON STOCK AND OTHER SECURITIES
HEARx Common Stock
COMPARISON OF STOCKHOLDERS’ RIGHTS
OTHER HEARx SPECIAL MEETING PROPOSALS
HEARx LTD.
Legal Proceedings
HELIX HEARING CARE OF AMERICA CORP.
Principal Stockholders of Helix
Security Ownership of Management
WHERE YOU CAN FIND MORE INFORMATION
LEGAL MATTERS
EXPERTS
DELIVERY OF DOCUMENTS TO STOCKHOLDERS
INDEX TO FINANCIAL STATEMENTS HEARx LTD.
ANNEX A
1. THE ARRANGEMENT
3. COVENANTS OF HEARX
4. FEES AND OTHER TERMINATION ARRANGEMENTS
9. MISCELLANEOUS
SCHEDULE A CONDITIONS PRECEDENT TO THE ARRANGEMENT
SCHEDULE G
SCHEDULE H REPRESENTATIONS AND WARRANTIES OF HELIX
SCHEDULE I REPRESENTATIONS AND WARRANTIES OF HEARx
ANNEX C VOTING AND EXCHANGE TRUST AGREEMENT
ARTICLE VI Concerning the Trustee
ARTICLE VII Compensation
ARTICLE VIII Indemnification and Limitation of Liability
ARTICLE IX Change of Trustee
ARTICLE X HEARx Successors
ARTICLE XI Amendments and Supplemental Trust Agreements
ARTICLE XII Termination
ARTICLE XIII General
SCHEDULE A NOTICE OF EXERCISE OF EXCHANGE RIGHT
SCHEDULE B NOTICE OF EXERCISE OF EXCHANGE RIGHT
ANNEX D SUPPORT AGREEMENT
ARTICLE I Definitions and Interpretation
ARTICLE II Covenants of Hearx and Hearx Acquisition
ANNEX E STOCKHOLDERS AGREEMENT
STOCKHOLDER’S AGREEMENT Exhibit A
ANNEX F Special Resolution for Helix Stockholders on Arrangement
ANNEX G
ANNEX I
ANNEX J Canada Business Corporation Act -- sec. 190 Dissenters’ Rights
Ex.8.1 Opinion of Bryan Cave LLP as to Tax Matters
Ex.8.2 Opinion of Fraser Milner Casgrain LLP
Form of 2002 Flexible Stock Plan
Ex. 23.3 Consent of BDO Seidman, LLP
Ex. 23.4 Consent of Deloitte & Touche LLP
Ex. 23.5 Consent of Demers Beaulne & Associes
Ex. 23.6 Consent of PriceWaterhouseCoopers LLP
Ex. 23.7 Consent of Raymond James
Ex. 23.8 Consent of Ernst&Young Corp. Finance Inc.
Consent of Yorkton Securities
Form of Proxy Card for HEARx lTD.


Table of Contents

TABLE OF CONTENTS

           
Page

QUESTIONS AND ANSWERS ABOUT THE HEARx/ HELIX ARRANGEMENT
    i  
SUMMARY
    1  
 
The Companies
    1  
 
The Arrangement
    2  
 
Regulatory Matters
    8  
 
Court Approval and Completion of the Arrangement
    8  
 
Other HEARx Proposals
    8  
 
Organizational Structure
    9  
 
Selected Historical Consolidated Financial Information of HEARx
    11  
 
Selected Historical Consolidated Financial Information of Helix
    12  
RISK FACTORS
    13  
 
Non-Income Tax Risks Relating to the Arrangement
    13  
 
Income Tax Risks Relating to the Arrangement
    14  
 
Risks Relating to HEARx Common Stock and Exchangeable Shares
    15  
 
Other Risks Relating to the Business of HEARx
    17  
 
Other Risks Relating to Both Businesses after the Arrangement
    20  
CURRENCY
    22  
FORWARD-LOOKING STATEMENTS
    23  
SELECTED FINANCIAL INFORMATION
    24  
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED SELECTED FINANCIAL INFORMATION
    27  
MARKET PRICE AND DIVIDEND INFORMATION
    28  
COMPARATIVE MARKET PRICE DATA
    29  
COMPARATIVE PER SHARE DATA
    30  
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
    31  
GENERAL INFORMATION
    36  
 
HEARx Special Meeting
    36  
 
Helix Special Meeting
    37  
 
Voting By Proxy
    38  
 
Other Voting Matters
    39  
THE ARRANGEMENT
    40  
 
The Amended and Restated Merger Agreement
    40  
 
Recommendations of the HEARx Board of Directors and Reasons for the Arrangement
    43  
 
Recommendations of the Helix Board of Directors and Reasons for the Arrangement
    44  
 
Opinion of Raymond James
    45  
 
Opinion of Ernst & Young Corporate Finance Inc.
    50  
 
Opinion of Yorkton Securities Inc. 
    54  
 
Interests of Certain Persons in the Arrangement
    61  
 
Accounting Treatment
    61  
 
Consequences under Securities Laws; Resale of Exchangeable Shares and HEARx Shares
    62  
 
Fees and Expenses
    62  
 
Voting Agreement and Proxy
    63  
 
Stock Options
    63  
 
Dissenters’ or Appraisal Rights
    63  


Table of Contents

             
Page

 
Exchange of Helix Common Share Certificates
    64  
 
Treatment of Outstanding Helix Stock Options, Warrants and Convertible Securities
    64  
 
Actions of HEARx and Helix Prior to the Arrangement
    65  
 
Covenant Regarding Non-Solicitation
    67  
 
Representations and Warranties
    67  
 
Conditions to Consummation
    68  
 
Termination of the Merger Agreement and the Payment of Fees
    70  
 
Arrangement Mechanics
    71  
 
Amendments
    72  
 
Management and Board of Directors After the Arrangement
    72  
 
Exchange Listing After the Arrangement
    72  
 
Description of Exchangeable Shares
    72  
 
Exchangeable Share Rights
    75  
 
The Stockholders Agreement
    75  
 
The Voting and Exchange Trust Agreement
    76  
 
The Support Agreement
    77  
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE ARRANGEMENT
    78  
 
Canadian Federal Income Tax Considerations For Helix Stockholders
    78  
   
Helix Stockholders Resident in Canada
    79  
   
Exchange of Helix Common Shares for HEARx Common Stock
    80  
   
Exchange of Helix Common Shares for All Exchangeable Shares
    81  
   
Exchange of Helix Common Shares for a Combination of HEARx Common Stock and Exchangeable Shares
    81  
   
Section 85 Election
    82  
   
Holders of Exchangeable Shares and HEARx Common Stock
    83  
   
Taxation of Capital Gain or Capital Loss
    85  
   
Foreign Property Information Reporting
    86  
   
Dissenting Helix Stockholders
    86  
   
Helix Optionholders Resident in Canada
    86  
   
Helix Stockholders not Resident in Canada
    87  
   
Proposed Amendments Relating to Foreign Investment Entities — For Information purposes only
    87  
   
Eligibility for Investment in Canada
    89  
 
United States Federal Income Tax Considerations
    90  
   
Stockholders that are United States Holders
    90  
   
Stockholders that are Non-United States Holders
    91  
DESCRIPTION OF HEARx COMMON STOCK AND OTHER SECURITIES
    94  
 
HEARx Common Stock
    94  
 
HEARx Preferred Stock
    94  
 
HEARx Rights Agreement
    96  
 
Special Voting Share
    98  
 
Warrants and Options
    99  
 
Delaware Law and Certain Provisions of the HEARx Certificate of Incorporation and Bylaws
    99  
 
Transfer Agent for HEARx
    99  


Table of Contents

           
Page

DESCRIPTION OF HELIX COMMON STOCK AND OTHER SECURITIES
    100  
 
Helix Common Shares
    100  
 
Helix Preferred Shares
    100  
 
Quebec Securities Commission Policy Q-8 Escrow
    100  
 
Transfer Agent and Registrar for Helix
    100  
COMPARISON OF STOCKHOLDERS’ RIGHTS
    101  
OTHER HEARx SPECIAL MEETING PROPOSALS
    109  
 
Amendment of the Certificate of Incorporation to Increase Authorized Capital Stock
    109  
 
Amendment of the Certificate of Incorporation to Change the Name of HEARx
    110  
 
Adoption of HearUSA 2002 Flexible Stock Plan
    110  
HEARx LTD
    115  
 
Business
    115  
 
Facilities and Services
    115  
 
Siemens Transaction
    116  
 
Products
    116  
 
Marketing
    117  
 
Operations
    117  
 
Renewal of Agreements With Health Insurance and Managed Care Organizations
    118  
 
Distinguishing Features
    119  
 
Center Management System, Medical Reporting and HEARx Data Link
    120  
 
Competition
    120  
 
Reliance On Manufacturers
    121  
 
Qualified Hearing Professionals
    121  
 
Regulation
    121  
 
Product and Professional Liability
    123  
 
Seasonality
    123  
 
Employees
    123  
 
Property
    123  
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    124  
 
Legal Proceedings
    129  
 
Principal Stockholders of HEARx
    130  
 
Security Ownership of Management
    130  
 
Directors and Executive Officers of HEARx
    131  
HELIX HEARING CARE OF AMERICA CORP. 
    135  
 
Business
    135  
 
NECP Transaction
    135  
 
Product Profile
    135  
 
Sources of Supply
    136  
 
Hearing and Speech Industry Overview
    136  
 
Marketing Strategy
    137  


Table of Contents

           
Page

 
Facilities and Operational Structure
    137  
 
Competition
    138  
 
Regulation
    138  
 
Product and Professional Liability; Product Returns
    139  
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    140  
 
Quantitative and Qualitative Disclosure About Market Risk
    143  
 
Changes In, and Disagreement with, Accountants on Accounting and Financial Disclosure
    143  
 
Legal Proceedings
    143  
 
Principal Stockholders of Helix
    144  
 
Security Ownership of Management
    145  
 
Directors and Executive Officers of Helix
    147  
MATERIAL CONTRACTS BETWEEN HEARx AND HELIX
    151  
PROPOSED MANAGEMENT OF HEARx AFTER THE ARRANGEMENT
    152  
 
Directors and Executive Officers after the Arrangement
    152  
 
Principal Stockholders of HEARx after the Arrangement
    154  
 
Security Ownership of Management after the Arrangement
    155  
WHERE YOU CAN FIND MORE INFORMATION
    158  
LEGAL MATTERS
    158  
EXPERTS
    158  
DELIVERY OF DOCUMENTS TO STOCKHOLDERS
    159  
FINANCIAL STATEMENTS
    F-1  
             
Annexes:        
Annex A
  Merger Agreement     A-1  
Annex B
  Interim Order of the Superior Court of Québec     B-1  
Annex C
  Form of Voting and Exchange Trust Agreement     C-1  
Annex D
  Form of Support Agreement     D-1  
Annex E
  Stockholders Agreement     E-1  
Annex F
  Special Resolution for Helix Stockholders on Arrangement     F-1  
Annex G
  Fairness Opinion of Raymond James & Associates, Inc.     G-1  
Annex H
  Fairness Opinion of Ernst & Young Corporate Finance Inc.     H-1  
Annex I
  Fairness Opinion of Yorkton Securities Inc.     I-1  
Annex J
  Canada Business Corporations Act Section 190-Dissenters’ Rights     J-1  
 


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE HEARx/ HELIX ARRANGEMENT

Q:  What is being proposed?

A:  We intend to combine the businesses of HEARx and Helix. To accomplish this, the boards of directors of HEARx and Helix are proposing an arrangement under Canadian law between Helix and HEARx, subject to final approval of the Superior Court of Québec. When the arrangement is completed, we expect to change the name of HEARx to HearUSA, Inc. and Helix will become an indirect subsidiary of HEARx.

Q:  Why are Helix and HEARx combining?

A:  HEARx and Helix believe that combining the two companies will result in a stronger and more competitive company capable of achieving greater financial strength, better access to capital markets and greater growth potential than either company would have on its own.

Q:  As a Helix stockholder, what will I receive in the arrangement?

A:  Under the arrangement, Helix stockholders, other than stockholders who exercise and perfect their dissent rights, have the option to receive as consideration for each Helix common share (a) 0.3537 shares of HEARx common stock, or (b) 0.3537 exchangeable shares of HEARx Canada Inc. Helix stockholders who are not Canadian residents for Canadian tax purposes will not be entitled to receive exchangeable shares.

   The exchangeable shares will be the economic equivalent of HEARx common stock. Each exchangeable share will be exchangeable at any time at the option of the holder, for one share of HEARx common stock, subject to any anti-dilution adjustments. Until exchanged for HEARx common stock, (i) each exchangeable share outstanding will entitle the holder to one vote per share at all meetings of HEARx common stockholders; (ii) if any dividends are declared on HEARx common stock, an equivalent dividend must be declared on such exchangeable shares and (iii) in the event of the liquidation, dissolution or winding-up of HEARx Canada Inc., such exchangeable shares will be exchanged for an equivalent number of shares of HEARx common stock. See “The Arrangement — Description of Exchangeable Shares; The Voting and Exchange Trust Agreement; and The Support Agreement.” The exchangeable shares provide an opportunity for Canadian resident stockholders of Helix to achieve a Canadian tax deferral for as long as the exchangeable shares are held. Proposed amendments to the Canadian Income Tax Act generally applicable to investments by Canadian residents in certain non-resident corporations may require the holders of exchangeable shares or HEARx common stock to report as income or loss on such shares annual changes in the value of such shares accruing after the date fixed by law on a “mark-to-market” basis. The exchangeable shares will be subject to mandatory exchange on and after the fifth anniversary of the effective date of the arrangement, subject to earlier mandatory exchange in certain circumstances.

Q:  As a HEARx stockholder, what will I receive in the arrangement?

A:  If you own HEARx common stock, your shares of HEARx common stock will remain outstanding after the arrangement.

Q:  What vote is required to approve the arrangement?

A:  To approve the arrangement, holders of at least two-thirds of the Helix common shares voted at the special meeting in person or by proxy must vote in favor of the arrangement. Holders of at least a majority of the shares of HEARx common stock outstanding must vote in favor of the proposed amendments of the HEARx certificate of incorporation. Holders of a majority of the HEARx shares present at the meeting in person or by proxy must vote in favor of the issuance of the HEARx common stock in connection with the arrangement, the approval of the adoption of the new HearUSA 2002 Flexible Stock Plan and the adjournment of the meeting, if necessary, to permit the solicitation of additional proxies.

i


Table of Contents

Q:  Do the companies recommend voting in favor of the transaction?

A:  Yes. The board of directors of HEARx and the board of directors of Helix approved the merger agreement and recommend that their respective stockholders vote in favor of the proposals to approve the transaction.

Q:  Will I have dissenters’ or appraisal rights?

A:  Under applicable law, dissenters’ rights are not available to the holders of HEARx common stock. Dissenters’ rights are available to the holders of Helix common shares, as described in the section entitled “The Arrangement — Dissenters’ or Appraisal Rights.”

Q:  When do the companies expect to complete the arrangement?

A:  We are working to complete the arrangement as quickly as possible. Currently, we expect to complete the arrangement before the end of the second quarter of 2002, subject to stockholder and court approval.

Q:  What are the income tax consequences of the arrangement for Helix stockholders?

A:  Helix stockholders should read carefully the information under “Federal Income Tax Considerations Relating to the Arrangement — Canadian Federal Income Tax Considerations for Helix Stockholders.” No advance income tax rulings have been sought or obtained with respect to any of the transactions described herein.

   The exchange of Helix common shares for exchangeable shares by Canadian resident Helix stockholders who hold their Helix common shares as capital property and file a joint election with HEARx Canada Inc. will allow for a full or partial deferral of any Canadian federal income tax that would otherwise become payable. An election form (printed on yellow paper) for use by Helix shareholders to make the tax election is enclosed with this joint proxy statement/prospectus. The exchange by a Canadian resident Helix stockholder of Helix common shares for HEARx common stock will be a taxable transaction to such Helix stockholder. See “Federal Income Tax Considerations Relating to the Arrangement — Canadian Federal Income Tax Considerations for Helix Stockholders.”
 
   The exchange by a U.S. resident holder of Helix common shares held as a capital asset for HEARx common stock pursuant to the arrangement will result in recognition of capital gain or loss to such holder.
 
   The tax consequences of the arrangement to you will depend on your own situation. Stockholders should consult their tax advisors for a full understanding of these tax consequences.

Q:  What are the income tax consequences of the arrangement for HEARx stockholders?

A:  HEARx stockholders will not recognize any gain or loss for U.S. federal income tax purposes as a result of the arrangement.

Q:  When and where are the stockholders’ meetings?

A:  The HEARx special meeting will be held at                               , on                     , 2002, at                               a.m., Florida time.

    The Helix special meeting will be held at                               , on                               , 2002, at                               a.m., Montreal time.
 
Q:  Who can vote?

A:  All record holders of HEARx common stock at the close of business on                     , 2002, can vote at the HEARx special meeting.

    All record holders of Helix common shares at the close of business on                     , 2002, can vote at the Helix special meeting.

ii


Table of Contents

Q:  What do I do to vote?

A:  After reading this joint proxy statement/prospectus, you should cast your vote by mail, by proxy or in person at your company’s meeting. To cast your vote by mail, complete, date, sign and mail the enclosed proxy card in the enclosed, postage pre-paid envelope. Votes cast by mail must be received prior to the vote at the meeting in order to be counted. When you cast your vote using the proxy card, you also appoint certain members of your company’s management as your representatives, or proxies, at the meeting. They will vote your shares at the meeting in accordance with your instructions on the proxy card. You also may vote in person at the meeting. If you hold your shares in street name, then you must contact your broker or other nominee and request a legal proxy to vote in person at the meeting.

Q:  What happens if I do not indicate my preference for or against a particular proposal?

A:  If you submit a proxy without specifying the manner in which you would like your shares to be voted on a particular proposal, your shares will be voted “FOR” that proposal.

Q:  If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A:  If you do not provide your broker with instructions on how to vote your “street name” shares on a particular proposal, your broker may not be permitted to vote those shares on that proposal. Therefore, you should be sure to provide your broker with specific instructions as to how to vote your shares on each proposal presented.

Q:  What does it mean if I receive more than one proxy card?

A:  It means that you have multiple accounts with the transfer agent and/or with stockbrokers. Please sign and return all proxy cards that you receive in order to ensure that all of your shares are voted.

Q:  What if I vote by proxy and then change my mind?

A:  You can revoke your proxy by attending your company’s meeting and casting your vote in person, by submitting a new proxy with a later date by mail in time so that the new proxy card is received before your company’s meeting, or by writing to your company. Your last vote will be the vote that is counted.

Q:  How will my shares be listed for trading?

A:  The HEARx common stock is currently listed on the American Stock Exchange. In addition, we intend to apply to list the HEARx common stock and the exchangeable shares on The Toronto Stock Exchange.

Q:  What do I do to receive my exchangeable shares or HEARx common stock?

A:  Enclosed with this joint proxy statement/prospectus is a letter of transmittal and election form which are being delivered only to Helix stockholders. The letter of transmittal and election form, when properly completed and signed and returned together with the certificate or certificates for Helix common shares and all other required documents to Computershare, at one of the addresses set out on the last page of the letter of transmittal and election form no later than                          , 2002, will enable each holder of Helix common shares to obtain a certificate for that number of exchangeable shares or HEARx common stock, or a combination thereof, equal to the number of Helix common shares previously held by such holder multiplied by the exchange ratio. A Canadian resident holder of Helix common shares will automatically receive exchangeable shares in exchange for its Helix common shares unless the holder elects to receive HEARx common stock.

iii


Table of Contents

Q:  Who can help answer other questions?

A:  If you have additional questions about the arrangement, you should contact:

    HEARx stockholders:

  HEARx Ltd.
  1250 Northpoint Parkway
  West Palm Beach, Florida 33407
  Attn: Bryan Burgett
  Telephone: (561) 478-8770

    Helix stockholders:

  Helix Hearing Care of America Corp.
  7100, Jean-Talon East, Suite 610
  Montreal, Québec, Canada H1M 3S3
  Attn: François Tellier
  Telephone: (514) 353-0001

iv


Table of Contents

SUMMARY

      The following summary highlights selected information from this joint proxy statement/prospectus and may not contain all of the information that is important to you. You should read this entire joint proxy statement/prospectus and attachments carefully, especially the “Risk Factors” beginning on page 13 and the merger agreement.

The Companies

     HEARx Ltd.

      HEARx Ltd. operates a network of company-owned and operated hearing care centers that provide a full range of audiological products and services for the hearing impaired. HEARx serves three geographic markets: Florida (including Miami, Fort Lauderdale, West Palm Beach, Tampa and Orlando), the Northeast (including the New York metropolitan area and New Jersey) and California (including Los Angeles and San Diego). HEARx’s strategy for increasing market penetration includes advertising to the non-insured self-pay patient market and positioning HEARx as the leading provider of hearing care to the managed care marketplace in its geographic markets. HEARx believes it is well positioned to successfully address the concerns of access, quality and cost for the patients of managed care and other health insurance companies, diagnostic needs of referring physicians and, ultimately, the hearing health needs of consumers. HEARx believes that such success results from its ability to offer convenient distribution points, a quality assurance program and centers with standardized credentializing, procedures, policies, testing, formats, products, prices and ancillary services.

      HEARx and its subsidiary HEARx West LLC, a joint venture with Kaiser Permanente, currently receive a per-member-per-month fee for more than 1.3 million managed care members. In total, HEARx services over 170 benefit programs for hearing care with various health maintenance organizations (HMOs), preferred provider organizations (PPOs), insurers, benefit administrators, and healthcare providers. In recent years, HEARx has increased its attention to the self-pay market, focusing on advertising and marketing programs directed to the uninsured patient. HEARx intends to increase its sales to these patients, introducing competitive price points to the public through advertising and marketing programs that include newspaper ads, direct mail, and telemarketing.

      HEARx currently operates a total of 80 full service centers and two part-time centers in Florida, New York, New Jersey and through HEARx West, in California.

      HEARx was incorporated in Delaware on April 11, 1986. HEARx formed its joint venture, HEARx West LLC, with Kaiser Permanente in 1998. HEARx’s principal corporate office is located at 1250 Northpoint Parkway, West Palm Beach, Florida 33407 and its telephone number is (561) 478-8770.

      HEARx Canada Inc. is an indirect subsidiary of HEARx. HEARx Canada Inc. was incorporated under the laws of Canada on November 7, 2001, for the sole purpose of participating in the arrangement. HEARx Canada Inc. currently has nominal assets and activities. After the arrangement is completed, HEARx Canada Inc. will be a holding company that holds all of the outstanding Helix common shares other than those held by HEARx or HEARx Acquisition ULC.

      HEARx Acquisition ULC is a wholly owned subsidiary of HEARx. HEARx Acquisition ULC is an unlimited liability company formed under the laws of the Province of Nova Scotia on October 3, 2001, for the sole purpose of participating in the arrangement. HEARx Acquisition ULC holds all of the outstanding common shares of HEARx Canada Inc. HEARx Acquisition ULC will deliver HEARx common stock in exchange for Helix common shares to those holders of Helix common shares electing to receive HEARx common stock under the arrangement and will hold the call rights related to the exchangeable shares.

     Helix Hearing Care of America Corp.

      Helix, through its primary operating subsidiaries, manages and provides supply services to a large network of hearing health care clinics in the Province of Québec, Canada and owns and operates hearing health care

1


Table of Contents

clinics in the Province of Ontario, Canada and in nine states in the United States. Helix offers a variety of services in the hearing health care field including the provision of facilities, management, administrative and technical support, supply services and marketing support, to hearing health care professionals. In general, clinics managed by Helix offer hearing impaired people a complete range of products and services, including sophisticated hearing instruments and assistive listening devices designed to improve the quality of life. Helix currently manages a total of 128 clinics in the United States and Canada.

      Helix offers services related to the management of hearing care professional offices including:

  •  inventory purchasing and management;
 
  •  office service support;
 
  •  new products and services introduction and marketing;
 
  •  general administration;
 
  •  training and seminars for staff; and
 
  •  setting up and training for the patient management software.

      Helix was formed on August 26, 1996 by Articles of Incorporation issued pursuant to the provisions of the Business Corporations Act (Alberta). On July 9, 1999, the articles were amended to allow the continuance of Helix under the Canada Business Corporations Act. The articles of Helix were again modified on November 30, 2000, to allow for the amalgamation of Helix and its subsidiary, Regional Hearing Consultants, Inc. Helix’s principal corporate office is located at 7100, Jean-Talon East, Suite 610, Montreal, Québec, Canada H1M 3S3 and its telephone number is (514) 353-0001.

      Helix has established a U.S. holding company, Helix Hearing Care of America (U.S.A.) Corp., to facilitate its acquisition of hearing clinics located in the United States through wholly owned subsidiaries of Helix U.S.A. For example, Helix has established wholly owned indirect subsidiaries to acquire and operate clinics in Massachusetts, Minnesota, Michigan, Missouri, New York, Ohio, Pennsylvania, Washington and Wisconsin.

The Arrangement

      This joint proxy statement/prospectus describes the proposed business combination of HEARx and Helix through an arrangement under Canadian law between Helix and HEARx pursuant to the merger agreement discussed below. The arrangement is subject to approval of the stockholders of HEARx and Helix and final approval by the Superior Court of Québec. When the arrangement is completed, Helix will become an indirect subsidiary of HEARx. The merger agreement is the primary legal document that governs the arrangement. The merger agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated herein by this reference. We encourage you to read the merger agreement in its entirety.

     Recommendations of the Boards and Reasons for the Arrangement

      The board of directors of HEARx believes that the arrangement is advisable, fair to and in the best interests of HEARx stockholders and recommends that HEARx stockholders vote “FOR” approval of the issuance of the HEARx common stock under the arrangement and “FOR” approval of the related proposals to amend the HEARx certificate of incorporation and to adopt the new flexible stock plan for employees. See “The Arrangement — Recommendations of the HEARx Board of Directors and Reasons for the Arrangement.”

      The board of directors of Helix believes that the arrangement is advisable, fair to and in the best interests of Helix stockholders and recommends that Helix stockholders vote “FOR” approval of the arrangement. See “The Arrangement — Recommendations of the Helix Board of Directors and Reasons for the Arrangement.”

2


Table of Contents

      In the course of evaluating the arrangement, HEARx and Helix identified several business benefits that they believe will contribute to the success of the combined company. These potential benefits include the following:

  •  The arrangement provides HEARx and Helix with an opportunity to add an established store base in certain markets where the other is not operating currently, thus facilitating both companies’ nationwide expansion plans.
 
  •  Helix’s HearUSA network business strategy is consistent with HEARx’s network strategy in its proposed business venture with Siemens and, through the arrangement, allows both companies to launch a national network business on an accelerated timeframe.
 
  •  The arrangement is expected to permit a reduction in corporate overhead expenses and the achievement of operating efficiencies and economies of scale.
 
  •  Although the issuance of HEARx common stock may have a short term dilutive effect on earnings per share, the arrangement is expected to contribute to earnings per share over the long term.
 
  •  The strong corporate management of HEARx and Helix is complementary in that HEARx is an experienced hearing center operator while Helix has experience in hearing center acquisition and integration. The combined company will benefit through a larger pool of skilled and experienced managers.
 
  •  The similar industry consolidator format and operating philosophy of the two companies will help facilitate a combination of the businesses.
 
  •  The fact that Canadian resident holders of Helix common shares who hold their Helix common shares as capital property and file a joint election with HEARx Canada Inc. will be able to exchange their Helix common shares for exchangeable shares under the arrangement on a tax-deferred basis under Canadian federal income tax legislation.
 
  •  Helix stockholders will be entitled to receive or acquire exchangeable shares and HEARx common stock such that they will continue to participate in the hearing aid industry through HEARx, a widely held US public company with a strong market position, better geographic diversity of operations and greater liquidity than Helix.

      In considering the transaction, HEARx and Helix also recognized potentially negative risks to the transaction, including that the potential benefits may not be realized, the uncertainties of operating a network business, that key management personnel might not remain employed by the combined corporations, fluctuations in the price of HEARx common stock prior to the closing of the arrangement and the fact that Helix stockholders may realize taxable gain on exchange of their Helix shares or the exchangeable shares for HEARx common stock.

      See “The Arrangement — Recommendations of the HEARx Board of Directors and Reasons for the Arrangement” and “The Arrangement — Recommendations of the Helix Board of Directors and Reasons for the Arrangement”.

     Share Ownership of Management and Voting Intent

      On the record date, HEARx directors and executive officers owned                               outstanding shares of HEARx common stock representing approximately           % of the outstanding shares. These directors and executive officers have indicated that they intend to vote “FOR” all of the HEARx proposals.

      On the record date, Helix directors and executive officers beneficially owned or had voting control or direction over      outstanding Helix common shares representing approximately           % of the outstanding shares. These directors and executive officers have indicated that they intend to vote “FOR” the arrangement proposal.

3


Table of Contents

      The principal stockholders of Helix, including some of Helix’s directors and executive officers, who together hold approximately 47% of the outstanding Helix common shares, have entered into a stockholders agreement with HEARx pursuant to which they each have irrevocably agreed to vote their Helix common shares in favor of the arrangement, against any acquisition proposal from a party other than HEARx and, with the exception of certain permitted transfers, not to sell or otherwise transfer any of their Helix common shares prior to the effective time of the arrangement. In addition, HEARx holds approximately 10.5% of currently outstanding Helix common shares, which it intends to vote in favor of the arrangement.

     Fairness Opinions

      Raymond James & Associates, Inc. (“Raymond James”) has delivered to the board of directors of HEARx a written opinion that, as of July 27, 2001, the exchange ratio provided for in the arrangement was fair, from a financial point of view, to the stockholders of HEARx. See “The Arrangement — Opinion of Raymond James.”

      The full text of the written opinion of Raymond James is attached as Annex G. The fairness opinion describes important exceptions, assumptions and limitations and should be read carefully and in its entirety. Raymond James’s opinion is directed to the board of directors of HEARx and does not constitute a recommendation to any stockholder with respect to any matter relating to the arrangement.

      The board of directors of Helix has received two written opinions regarding the fairness of the consideration to be received by the stockholders of Helix.

      The board of directors of Helix received the first written opinion on July 11, 2001, from Ernst & Young Corporate Finance Inc. (“EYCF”). The opinion provides that, as of July 11, 2001, except in certain circumstances, the consideration to be received by the stockholders of Helix pursuant to the merger agreement was fair to the stockholders of Helix from a financial point of view. The opinion provides that for Helix shareholders who want to dispose of a small block of their shares, the arrangement may not be fair from a financial point of view, if the market value of the HEARx common stock following the arrangement does not recover. See “The Arrangement — Opinion of Ernst & Young Corporate Finance Inc.”

      The second opinion was rendered by Yorkton Securities Inc. (“Yorkton”) to the board of directors of Helix on February 1, 2002. The Yorkton opinion provides that, as of February 1, 2002, the exchange ratio is fair, from a financial point of view, to the stockholders of Helix. See “The Arrangement — Opinion of Yorkton Securities Inc.”

      The full text of the written opinions of EYCF and Yorkton are attached as Annex H and Annex I. The fairness opinions describe important exceptions, assumptions and limitations and should be read carefully and in their entirety. The opinions are directed to the board of directors of Helix and do not constitute a recommendation to any stockholder with respect to any matter relating to the arrangement.

      We encourage you to read these opinions carefully.

     No Change in HEARx Shares

      After the arrangement, each certificate representing shares of HEARx common stock will, without any action on the part of HEARx stockholders, continue to represent HEARx common stock. HEARx stockholders do not need to exchange their stock certificates after the arrangement.

     Eligibility for Investment

      Provided that the exchangeable shares are listed on The Toronto Stock Exchange or another prescribed stock exchange in Canada, the exchangeable shares and exchangeable share rights will be qualified investments under the Canadian Income Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and registered education savings plans. Further, if HEARx Canada Inc. maintains a substantial Canadian presence within the meaning of the Canadian Income Tax Act and if the exchangeable shares are listed on a prescribed stock exchange in Canada (which currently includes The Toronto Stock Exchange), the exchangeable shares and exchangeable share

4


Table of Contents

rights will not be foreign property under the Canadian Income Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and for certain other persons to whom such rule is applicable. HEARx common stock will be a qualified investment for such plans provided the stock remains listed on the American Stock Exchange or another prescribed stock exchange. The preferred share purchase rights related to the HEARx common stock will not be qualified investments for such plans. HEARx common stock and the related preferred share purchase rights will be deemed to be foreign property. See “Federal Income Tax Considerations Relating to the Arrangement — Canadian Federal Income Tax Considerations for Helix Stockholders — Eligibility for Investment in Canada.”

     Interests of Certain Persons in the Arrangement

      Some of the directors and executive officers of HEARx and Helix have interests in the arrangement that are different from, or are in addition to, the interests of their respective stockholders. These interests include the potential for positions as directors or executive officers of HEARx and the exchange of options to purchase Helix’s common shares for options to purchase shares of HEARx common stock. See “The Arrangement — Interests of Certain Persons in the Arrangement.”

     Ownership And Board Composition of HEARx after the Arrangement

      From and after the effective time of the arrangement, it is expected that the board of directors of HEARx shall be composed of Paul A. Brown (Chairman), Steve Forget (Vice Chairman), Stephen J. Hansbrough, Thomas W. Archibald, Joseph L. Gitterman III, David J. McLachlan, Martin Cousineau, Michel Labadie and Mark Wayne. See “Proposed Management of HEARx after the Arrangement.”

      Immediately following the arrangement, the executive officers and directors of HEARx will own approximately 30% of the outstanding HEARx common stock and exchangeable shares.

     Comparative Rights of Stockholders

      The rights of Helix stockholders are currently governed by Canadian corporate law and by Helix’s articles and bylaws. The rights of HEARx stockholders are currently governed by Delaware corporate law and HEARx’s certificate of incorporation and bylaws. If the arrangement is completed, the rights of Helix stockholders will change and their rights as HEARx stockholders will be governed by Delaware corporate law and HEARx’s certificate of incorporation and bylaws. While the rights and privileges of a stockholder of a Delaware corporation are, in many instances, comparable to those of stockholders of a Canadian corporation, there are differences. These differences include the following:

  •  The Canada Business Corporations Act requires that corporate transactions such as amalgamations, continuances, sales, leases or exchanges of all or substantially all the property of the corporation, other than in the ordinary course of business, be approved by a special resolution approved by not less than two-thirds of the votes cast by the stockholders who voted in respect of the resolution, while Delaware General Corporation Law requires only the affirmative vote of a majority of the outstanding stock entitled to vote on such transactions.
 
  •  Under the Canada Business Corporations Act, a special meeting of the stockholders may be called upon a request to the board of directors by the holders of not less than five percent of shares entitled to vote at the meeting. Under the bylaws of HEARx, stockholders are not permitted to call (or to require the board of directors to call) a special meeting of the stockholders.
 
  •  The Canada Business Corporations Act provides that stockholders of a corporation who are entitled to vote on some matters are entitled to dissent rights with respect to those matters and to be paid the fair value of their shares when they exercise those rights. These matters include any amalgamation with another corporation, an amendment to the corporation’s articles to add, change or remove any provisions restricting the issue, transfer or transfer of ownership of shares, an amendment to the corporation’s articles to add, change or remove any restrictions upon the business or businesses that the

5


Table of Contents

  corporation may carry on, and others. Under the Delaware General Corporation law, holders of shares of any class or series have the right to dissent from a merger or consolidation by demanding payment in cash for their shares equal to the fair value of such shares as determined by a court.
 
  •  The Canada Business Corporations Act requires a board of directors of a publicly-traded corporation be composed of no fewer than three directors, at least two of whom are not officers or employees of that corporation or any of its affiliates, and that at least 25% of the directors of every corporation be resident Canadians. However, if the corporation has less than four directors, at least one director must be a resident Canadian. The Delaware General Corporation Law does not contain any independence or residency requirements for directors.

      These different provisions under Delaware law may be less favorable to Helix stockholders. Some of these differences may have the effect of delaying, deferring or preventing a change in control of HEARx or other transactions that might involve a premium price for HEARx shares or otherwise be in the best interests of HEARx stockholders. See “Comparison of Stockholders’ Rights.”

     HEARx Rights Agreement

      On December 14, 1999, the board of directors of HEARx approved the adoption of a stockholder rights plan, in which a dividend of one preferred share purchase right for each outstanding share of HEARx common stock was declared and payable to the stockholders of record on December 31, 1999. The rights will be exercisable only if a person or group acquires 15% or more of the HEARx common stock or announces a tender offer that would result in ownership of 15% or more of the HEARx common stock. The rights entitle the holder to purchase one one-hundredth of a share of Series H Junior Participating Preferred Stock at an exercise price of $28.00. The rights will expire on December 31, 2009. The HEARx board of directors has specifically excepted from operation of the rights plan the transactions contemplated by the merger agreement between HEARx and Helix and the HEARx board of directors has amended the rights plan to accommodate the existence of the exchangeable shares.

      See “Description of HEARx Common Stock and Other Securities — HEARx Rights Agreement.”

     Exchangeable Share Rights Plan

      Prior to the effective time of the arrangement, HEARx Canada, Inc. will adopt an exchangeable share rights plan substantially equivalent to the HEARx stockholder rights plan. Pursuant to the exchangeable share rights plan, each exchangeable share issued in the arrangement will have an associated exchangeable share right entitling the holder of such exchangeable share right to acquire additional exchangeable shares on terms and conditions substantially the same as the terms and conditions upon which a holder of HEARx common stock is entitled to purchase HEARx Series H Junior Participating Preferred Stock. The exchangeable share rights are intended to have characteristics essentially equivalent in economic effect to the HEARx rights. See “The Arrangement — Exchangeable Share Rights Agreement.”

     Accounting Treatment

      The arrangement, for accounting and financial reporting purposes, will be accounted for using the purchase method of accounting.

     Conditions of the Merger Agreement

      Completion of the arrangement is dependent upon the fulfillment of a number of conditions, including the following material conditions:

  •  the arrangement and such other matters as require approval of the stockholders of HEARx and Helix to consummate the arrangement and the other transactions contemplated by the arrangement have been approved and adopted by the stockholders of HEARx and Helix;
 
  •  all necessary regulatory and court approvals have been obtained;

6


Table of Contents

  •  all necessary consents from third parties have been obtained;
 
  •  HEARx has obtained financing of a principal amount of no less than $25,000,000 with a lender on terms acceptable to HEARx and Helix;
 
  •  there has not occurred any change in the business, operations, assets, or financial condition of Helix, which in the sole judgment of HEARx, is materially adverse to the business of Helix or to the value of the Helix shares;
 
  •  HEARx has determined, in its sole judgment, that Helix has not taken any action that might make it inadvisable for HEARx to proceed with the arrangement, or that would be materially adverse to the business of Helix; and
 
  •  Helix stockholders holding an aggregate of more than 5% of the outstanding common shares have not exercised their dissent rights.

      The merger agreement permits each of the parties to waive any of these conditions that are for its benefit. If a party elects to waive any of these conditions, this joint proxy statement/prospectus will be amended or supplemented, as appropriate, and will be recirculated to the affected stockholders if the waiver occurs prior to approval of the arrangement by the stockholders. See “The Arrangement — Conditions to Consummation.”

     Termination of the Merger Agreement and Payment of Fees

      The arrangement agreement may be terminated at any time prior to the effective date in the following circumstances:

  •  by mutual written agreement;
 
  •  by either Helix or HEARx, if the transaction has not been consummated on or prior to June 30, 2002, so long as the terminating party has not failed to fulfill any material obligation under the merger agreement that caused or resulted in the transaction failing to be consummated by that date;
 
  •  by HEARx, if the board of directors of Helix has withdrawn, redefined or changed any of its recommendations or determinations concerning the arrangement in a manner adverse to HEARx or shall have resolved to do so prior to the effective time, in which case Helix shall pay a termination fee of $1 million;
 
  •  by HEARx, if the board of directors of Helix has failed to reaffirm its recommendation of the arrangement by press statement within five days after the public announcement or commencement of a proposal by another company to acquire Helix, and in a director’s circular, if any, within 10 days after the mailing of any such proposal, in which case Helix shall pay a termination fee of $1 million;
 
  •  by HEARx, if Helix consummates a merger or arrangement with another company, in which case Helix shall pay a termination fee of $1 million;
 
  •  by HEARx, if Helix fails to comply with or breaches any of its any representations, warranties or covenants set forth in the arrangement agreement, in which case Helix shall pay a termination fee of $1 million;
 
  •  by Helix, if the board of directors of HEARx has withdrawn, redefined or changed any of its recommendations or determinations concerning the arrangement in a manner adverse to Helix, in which case HEARx shall pay a termination fee of $1 million;
 
  •  by Helix, if HEARx fails to comply with or breaches any of its any representations, warranties or covenants set forth in the merger agreement, in which case HEARx shall pay a termination fee of $1 million; and
 
  •  by HEARx if any Helix shares are issued after July 27, 2001, upon conversion of certain convertible debentures or upon exercise of certain preemptive or subscription rights.

      See “The Arrangement — Termination of the Merger Agreement and the Payment of Fees.”

7


Table of Contents

Regulatory Matters

      The completion of the arrangement is subject to obtaining governmental consents and approvals, including consents and approvals from, and notices to, The Toronto Stock Exchange, the Quebec Securities Commission and the Canadian Office of the Superintendent of Financial Institutions.

      HEARx has applied to and is waiting for approval from the Quebec Securities Commission to obtain relief from the prospectus and registration requirements for the issuance of the exchangeable shares to residents of Quebec. HEARx has also made application to and is waiting for approval from The Toronto Stock Exchange for the listing of the exchangeable shares and the HEARx common stock.

Court Approval and Completion of the Arrangement

      An arrangement under the Canada Business Corporations Act requires court approval. Before mailing this joint proxy statement/prospectus, Helix obtained an interim order of the court providing for the calling and holding of the meeting and other procedural matters.

      Subject to the approval of the arrangement by the Helix stockholders at the meeting, the hearing in respect of the final order is scheduled to take place on                     , 2002 at 10:00 a.m. (Montreal time) in room 2.16 of the Superior Court of Québec, District of Montreal, at 1, Notre-Dame Street East, Montreal, Québec. Any Helix stockholder who wishes to present evidence or arguments at the hearing must file and deliver an appearance and any affidavits on which it relies, in accordance with the rules of the court and the provisions of the interim order issued by the court. The court will consider, among other things, the fairness and reasonableness of the arrangement. The court may approve the arrangement unconditionally or subject to compliance with any conditions the court deems appropriate.

Other HEARx Proposals

      Stockholders of HEARx are also being asked to approve three other proposals.

  •  To increase the number of shares of HEARx common stock authorized under its certificate of incorporation from 20,000,000 shares to 50,000,000 shares and to increase the number of shares of authorized preferred stock from 2,000,000 shares to 5,000,000 shares. The purpose of the proposed increase is to provide sufficient shares in connection with the arrangement and to ensure that additional shares will be available if and when needed for issuance from time to time after the arrangement.
 
  •  To change the name of HEARx Ltd. to “HearUSA, Inc.” effective upon consummation of the arrangement.
 
  •  To approve the adoption of the HearUSA 2002 Flexible Stock Plan to facilitate the issuance of replacement stock options to Helix employees and directors who currently hold Helix stock options.

      The HEARx board of directors recommends that you vote “FOR” each of the other proposals described above.

8


Table of Contents

Organizational Structure

HEARx – Before the Arrangement

Organizational Structure

Helix – Before the Arrangement

Organizational Structure

Helix Subsidiaries

•  Les services de gestion
Hearing Care of America SGHCA Inc.
•  Les services d’approvisionnement
Hearing Care of America SAHCA Inc.
•  Les services de location Hearing Care of America SLHCA Inc.
•  3371727 Canada Inc.
•  Helix Hearing Care of America (U.S.A.) Corp.
•  Helix Hearing Care of America (Ohio) Corp.
•  Helix Hearing Care of America (New York) Corp.
•  Helix Hearing Care of America (Missouri) Corp.
•  Helix Hearing Care of America (Wisconsin) Corp.
•  Helix Hearing Care of America (Minnesota) Corp.
•  Helix Hearing Care of America (Indiana) Corp.
•  Helix Hearing Care of America (Pennsylvania) Corp.
•  Helix Hearing Care of America (Arizona) Corp.
•  Helix Hearing Care of America (Washington) Corp.
•  Helix Hearing Care of America (Michigan) Corp.
•  American Hearing Centers, Inc.
•  Thomas W. Fell Co., Inc.
•  Auxiliary Health Benefits Corporation/NECP

9


Table of Contents

HEARx – After the Arrangement

Organizational Structure

Helix Subsidiaries

•  Les services de gestion
Hearing Care of America SGHCA Inc.
•  Les services d’approvisionnement
Hearing Care of America SAHCA Inc.
•  Les services de location Hearing Care of America SLHCA Inc.
•  3371727 Canada Inc.
•  Helix Hearing Care of America (U.S.A.) Corp.
•  Helix Hearing Care of America (Ohio) Corp.
•  Helix Hearing Care of America (New York) Corp.
•  Helix Hearing Care of America (Missouri) Corp.
•  Helix Hearing Care of America (Wisconsin) Corp.
•  Helix Hearing Care of America (Minnesota) Corp.
•  Helix Hearing Care of America (Indiana) Corp.
•  Helix Hearing Care of America (Pennsylvania) Corp.
•  Helix Hearing Care of America (Arizona) Corp.
•  Helix Hearing Care of America (Washington) Corp.
•  Helix Hearing Care of America (Michigan) Corp.
•  American Hearing Centers, Inc.
•  Thomas W. Fell Co., Inc.
•  Auxiliary Health Benefits Corporation/NECP

10


Table of Contents

Selected Historical Consolidated Financial Information of HEARx

                                                           
Nine Months Ended Year Ended


September 29, September 29, December 29, December 31, December 25, December 26, December 27,
2001 2000 2000 1999(1) 1998 1997 1996







(Unaudited) (Unaudited)
STATEMENT OF
OPERATIONS DATA:
Net Revenues
  $ 36,200,177     $ 41,425,575     $ 56,114,832     $ 47,476,764     $ 26,891,186     $ 23,316,260     $ 17,964,985  
Total operating costs and expenses
    42,574,880       43,700,322       59,696,818       52,010,728       39,159,599 (2)     33,359,436       26,168,145  
     
     
     
     
     
     
     
 
Loss from operations
    (6,374,703 )     (2,274,747 )     (3,581,986 )     (4,533,964 )     (12,268,413 )     (10,043,176 )     (8,203,160 )
     
     
     
     
     
     
     
 
Non-operating income (expense)
                                                       
 
Interest income
    174,783       217,640       294,132       210,104       602,663       897,619       525,576  
 
Interest expense
    (417,325 )     (22,502 )     (28,723 )     (27,713 )     (62,492 )     (58,444 )     (181,395 )
     
     
     
     
     
     
     
 
Loss before minority interest & equity in loss of joint venture
    (6,617,245 )     (2,079,609 )     (3,316,577 )     (4,351,573 )     (11,728,242 )     (9,204,001 )     (7,858,979 )
Minority Interest
                      347,677                      
Equity in loss of joint venture
                                (615,420 )            
Net Loss
    (6,617,245 )     (2,079,609 )     (3,316,577 )     (4,003,896 )     (12,343,662 )     (9,204,001 )     (7,858,979 )
Dividends on preferred stock
    (649,237 )     (564,623 )     (1,346,872 )     (821,387 )     (587,893 )     (1,992,123 )     (10,036,507 )
     
     
     
     
     
     
     
 
Net loss applicable to common Stockholders
  $ (7,266,482 )   $ (2,644,232 )   $ (4,663,449 )   $ (4,825,283 )   $ (12,931,555 )   $ (11,196,124 )   $ (17,895,486 )
     
     
     
     
     
     
     
 
Loss per common share:
                                                       
Basic and diluted, including dividends on preferred stock
  $ (0.56 )   $ (0.22 )   $ (0.39 )   $ (0.45 )   $ (1.28 )   $ (1.25 )   $ (2.51 )
     
     
     
     
     
     
     
 
Weighted average number of common shares outstanding
    12,938,350       11,826,380       11,834,388       10,775,006       10,126,979       8,960,503       7,119,712  
     
     
     
     
     
     
     
 
Cash dividends per common share
    None       None       None       None       None       None       None  
     
     
     
     
     
     
     
 


(1)  As discussed in Note 1 to the Consolidated Financial Statements, commencing in 1999 HEARx’s Consolidated Financial Statements include the accounts of HEARx West, its 50% subsidiary.
 
(2)  During December 1998, HEARx recorded a restructure charge of $2,233,857 in connection with the closing of 12 centers in the northeast in January 1999.
                                                 
As of

September 29, December 29, December 31, December 25, December 26, December 27,
2001 2000 1999 1998 1997 1996






(Unaudited)
BALANCE
SHEET DATA:
Total assets
  $ 21,817,444     $ 21,872,123     $ 21,377,110     $ 25,208,317     $ 28,359,547     $ 26,627,484  
Working capital
    828,570       2,350,832       938,815       7,614,042       13,136,147       12,456,391  
Long-term debt, net of current portion
    5,950,202       175,887       322,332       123,316       177,897       230,258  

11


Table of Contents

Selected Historical Consolidated Financial Information of Helix

                                                 
Nine Months Ended Year Ended


August 31, August 31, November 30, November 30, November 30, November 30,
2001 2000 2000 1999 1998(1) 1997(1)






(Unaudited) (Unaudited)
All amounts are in Canadian Dollars
STATEMENT OF OPERATIONS DATA:
CDN GAAP(2)
                                               
Net Revenues
  $ 36,030,070     $ 24,601,441     $ 35,981,994     $ 24,803,824     $ 14,300,630     $ 8,138,993  
Total costs and expenses
    42,295,403       25,215,481       38,617,304       29,167,256       13,085,934       7,356,235  
     
     
     
     
     
     
 
Income (loss) before income taxes
    (6,265,333 )     (614,040 )     (2,635,310 )     (4,363,432 )     1,214,696       782,758  
Income tax (expense) benefit
    (181,252 )     210,983       946,497       1,701,738       (462,836 )     (329,635 )
     
     
     
     
     
     
 
Net income (loss)
  $ (6,446,585 )   $ (403,057 )   $ (1,688,813 )   $ (2,661.694 )   $ 751,860     $ 453,123  
     
     
     
     
     
     
 
Income (loss) per common share:
                                               
Basic and diluted
  $ (0.16 )   $ (0.01 )   $ (0.06 )   $ (0.09 )   $ 0.04     $ 0.03  
     
     
     
     
     
     
 
US GAAP
                                               
Net Revenues
  $ 36,030,070     $ 24,601,441     $ 35,981,994     $ 24,803,824              
Total costs and expenses
    43,093,722       25,552,429       39,247,506       29,058,998              
     
     
     
     
     
     
 
Income (loss) before income taxes
    (7,063,652 )     (950,988 )     (3,265,512 )     (4,255,174 )            
Income tax (expense) benefit
    (181,252 )     210,983       946,497       1,701,738              
     
     
     
     
     
     
 
Net income (loss)
  $ (7,244,904 )   $ (740,005 )   $ (2,319,015 )   $ (2,553,436 )   $     $  
     
     
     
     
     
     
 
Income (loss) per common share:
                                               
Basic and diluted
  $ (0.18 )   $ (0.02 )   $ (0.08 )   $ (0.09 )   $     $  
     
     
     
     
     
     
 
Weighted average number of common shares outstanding
    40,423,185       30,316,043       30,683,763       28,238,717       20,960,681       18,228,777  
     
     
     
     
     
     
 
Cash dividends per common share
    None       None       None       None       None       None  
     
     
     
     
     
     
 
                                         
As of

August 31, November 30, November 30, November 30, November 30,
2001 2000 1999 1998(1) 1997(1)





(Unaudited)
All amounts are in Canadian Dollars
BALANCE SHEET DATA:
CDN GAAP
                                       
Total assets
    $54,250,456       57,274,919       $31,343,706       $19,136,136       $8,457,263  
Working capital
    2,088,806       2,526,517       7,348,710       2,360,619       580,448  
Long-term debt, net of current portion
    19,399,868       18,136,667       10,653,186       5,918,369       626,406  
 
BALANCE SHEET DATA:
                                       
US GAAP
                                       
Total assets
    $50,485,183       $52,399,260       $30,828,171              
Working capital
    2,088,806       2,526,517       7,348,710              
Long-term debt, net of current portion
    18,804,712       17,318,328       9,537,269              


(1)  The Selected Historical Consolidated Financial Information as of November 30, 1998 and 1997 and for the two years ended November 30, 1998 is not required to be reconciled to US GAAP in accordance with SEC rules.
 
(2)  In Canada, the Accounting Standards Board has approved an addendum to “Business Combinations, Section No. 1580” that permits goodwill amortization expense to be presented net-of-tax on a separate line in the Consolidated Income Statement. This presentation is not currently permitted under United States GAAP. For your convenience, the statement of operations data in Canadian GAAP was presented on a comparative basis with the information presented for US GAAP purposes.

12


Table of Contents

RISK FACTORS

      You should carefully consider the risks described below and all other information contained in this joint proxy statement/prospectus in evaluating the arrangement. Some of these risks relate to the arrangement while others relate to the business of HEARx and Helix. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of may become important factors that affect us. If any of the following risks occur, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our shares could decline, and you may lose part or all of your investment.

Non-Income Tax Risks Relating to the Arrangement

 
Expected benefits from the arrangement between HEARx and Helix may not be realized.

      A failure to realize the benefits anticipated from the arrangement could adversely affect the market value of the combined companies. See “The Arrangement — Recommendations of the HEARx Board of Directors and Reasons for the Arrangement” for a discussion of the anticipated benefits.

 
The ownership interest of current stockholders of HEARx will be substantially reduced, resulting in a dilution of current stockholders’ voting power.

      Immediately following the effectiveness of the arrangement, Helix’s outstanding capital stock will consist of approximately 46.2 million common shares, all of which will be held by HEARx or HEARx Canada Inc. Based on the exchange ratio, the former holders of Helix common shares will hold an aggregate of approximately 14.61 million exchangeable shares and shares of HEARx common stock. Current HEARx stockholders will lose the ability to control the outcome of stockholder votes. Former holders of Helix common shares will initially have the power to vote approximately 51% of the outstanding votes at meetings of stockholders following the arrangement. However, on a fully diluted basis, assuming the exercise or conversion of all outstanding options or convertible securities of Helix and HEARx, former holders of Helix common shares will have the power to vote approximately 46% of the outstanding votes at meetings of stockholders following the arrangement.

 
Some directors of HEARx and Helix had potential conflicts of interest in approving and recommending the arrangement.

      Some of the directors and executive officers of HEARx and Helix have interests in the arrangement that are different from, or are in addition to, the interests of their stockholders. These interests include the potential for positions as directors or executive officers of HEARx and the exchange of options to purchase Helix’s common shares for options to purchase shares of HEARx common stock. See “The Arrangement — Interests of Certain Persons in the Arrangement.”

 
If HEARx and Helix do not successfully integrate their operations, the transaction may not benefit HEARx or Helix.

      The combination of HEARx and Helix involves the integration of separate companies that have previously operated independently. If the integration is not completed successfully or takes longer than planned, the anticipated benefits of the combination may be lost or delayed. HEARx and Helix cannot assure that they will be able to integrate their operations without encountering difficulties or experiencing the loss of key employees, customers or suppliers.

13


Table of Contents

Income Tax Risks Relating to the Arrangement

 
      Helix stockholders may have to pay income taxes upon the exchange of Helix common shares or exchangeable shares for HEARx common stock.

      When stockholders exchange Helix common shares or exchangeable shares for HEARx common stock, they may be required to pay tax on any gain they may have under the laws of Canada and the United States. Tax consequences under the laws of Canada and the United States vary depending on, among other things:

  •  where the stockholder is a resident for tax purposes;
 
  •  whether the stockholder receives exchangeable shares or HEARx common stock;
 
  •  whether the stockholder exchanges exchangeable shares by way of redemption, retraction or has their shares purchased by HEARx Acquisition ULC pursuant to its call rights;
 
  •  how long the stockholder has held the exchangeable shares; and
 
  •  the amount of outstanding exchangeable shares held by HEARx Acquisition ULC immediately after the exchange.

      We strongly urge stockholders to consult with their tax advisors with respect to the tax consequences of the exchange of Helix common shares or exchangeable shares for shares of HEARx common stock. See “Federal Income Tax Considerations Relating to the Arrangement — Canadian Federal Income Tax Considerations for Helix Stockholders.”

 
Canadian residents who exchange their exchangeable shares for HEARx common stock may be liable to pay Canadian income tax on the exchange.

      If a stockholder’s exchangeable shares are redeemed or retracted and HEARx Acquisition ULC does not exercise the call right, and if under the Canadian Income Tax Act

  •  the stockholder is a Canadian resident holding exchangeable shares as capital property;
 
  •  the stockholder deals at arm’s-length with HEARx; and
 
  •  the stockholder is not otherwise affiliated with HEARx;

then, under the Canadian Income Tax Act, the stockholder will be deemed to have received a dividend equal to the amount paid to the stockholder on the redemption or retraction, less the paid-up capital of his or her exchangeable shares. If the net proceeds of disposition, less any deemed dividend, exceed the adjusted cost base for the exchangeable shares exchanged, the stockholder will also be treated as if he or she realized a capital gain to the extent of that excess. If the net proceeds of disposition less any deemed dividend are less than the adjusted cost base for the exchangeable shares that are exchanged, the stockholder will be treated as if he or she realized a capital loss to the extent of that shortfall.

      If HEARx Acquisition ULC exercises the call rights, stockholders who exchange their exchangeable shares for shares of HEARx common stock will be considered, to the extent the three conditions described in the preceding paragraph are satisfied, to have realized a capital gain equal to the amount, if any, by which the net proceeds of disposition exceed the adjusted cost base for the exchangeable shares exchanged. If the net proceeds of disposition are less than the adjusted cost base for the exchangeable shares exchanged, the stockholder will be considered to have realized a capital loss to the extent of that shortfall.

 
U.S. income taxes will be imposed on U.S. persons who acquire HEARx common stock upon an exchange for Helix shares.

      “U.S. persons” for U.S. federal income tax purposes will recognize a gain or loss when they exchange their Helix shares for shares of HEARx common stock. This gain or loss will be equal to the difference between the fair market value of the shares of HEARx common stock received in the exchange and the basis in the Helix shares exchanged. The gain or loss will be a capital gain or loss on Helix shares held as a capital

14


Table of Contents

asset, except that ordinary income may be recognized with respect to any declared but unpaid dividends on the Helix shares. A capital gain or loss will be a long-term capital gain or loss under current law if a stockholder’s holding period for Helix shares is more than one year at the time of the exchange.

Risks Relating to HEARx Common Stock and Exchangeable Shares

 
Stock price fluctuations will affect the value of the HEARx common stock you will receive.

      The relative prices of shares of HEARx common stock and Helix common shares at the effective time of the arrangement may vary significantly from the relative prices as of the date of the merger agreement, the date of this joint proxy statement/prospectus and the dates of the special meetings. The exchange ratio is fixed at 0.3537 and there is no minimum value for the fraction of a share of HEARx common stock or exchangeable shares that Helix shareholders will receive for each Helix common share.

 
You may be unable to sell your HEARx common stock or exchangeable shares at a profit.

      Upon completion of the arrangement, holders of Helix common shares will become holders of exchangeable shares or HEARx common stock. The price of HEARx’s common stock and the exchangeable shares may be affected by factors different from those affecting the price of Helix common shares.

      The price of HEARx’s common stock and the exchangeable shares could fluctuate significantly, and you may be unable to sell your shares at a profit. There are significant price and volume fluctuations in the market generally that may be unrelated to HEARx’s operating performance, but which nonetheless may adversely affect the market price for HEARx common stock. The price of HEARx common stock could change suddenly due to factors such as:

  •  the amount of HEARx’s cash resources and ability to obtain additional funding;
 
  •  economic conditions in markets HEARx is targeting;
 
  •  fluctuations in operating results;
 
  •  changes in government regulation of the healthcare industry;
 
  •  failure to meet estimates or expectations of the market; and
 
  •  rate of acceptance of hearing aid products in the geographic markets HEARx is targeting.

      Any of these conditions may cause the price of HEARx common stock to fall, which may reduce business and financing opportunities available to HEARx and reduce your ability to sell your shares at a profit, or at all.

 
HEARx might fail to maintain a listing for its common stock on the American Stock Exchange making it more difficult for stockholders to dispose of or to obtain accurate quotations as to the value of their HEARx stock.

      HEARx’s common stock is presently listed on the American Stock Exchange. 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.

      HEARx may not be able to maintain its listing on the American Stock Exchange and there may be no public market for the HEARx common stock. 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

15


Table of Contents

market. As a result, you would likely find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, your HEARx common stock.

      HEARx has had sustained net losses in its five most recent fiscal years. On April 30, 2001, HEARx was advised by the American Stock Exchange that it would review HEARx’s progress toward eliminating losses, including its pending merger with Helix and its relationship with Siemens Hearing Instruments, Inc.

      To mitigate the foregoing risks, Helix and HEARx have agreed in the merger agreement that HEARx would list its common stock on The Toronto Stock Exchange shortly after the completion of the arrangement. This listing will have the effect of providing an alternative market for holders of HEARx common stock in the future and a continued Canadian market for Helix stockholders. However, there can be no assurance that HEARx will maintain its listing on The Toronto Stock Exchange.

 
  If “penny stock” regulations apply to the HEARx common stock, you may not be able to sell or dispose of your shares.

      If the HEARx common stock were delisted from the American Stock Exchange, the “penny stock” regulations of the Securities and Exchange Commission might apply to transactions in the common stock. A “penny stock” generally includes any over-the-counter equity security that has a market price of less than $5.00 per share. 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. A broker-dealer effecting transactions in penny stocks must make 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 transactions in shares of the HEARx common stock, they could adversely affect your ability to sell or otherwise dispose of your shares.

 
The market price of exchangeable shares may not be identical, or even similar to, the market price of HEARx common stock, which could make achievement of favorable tax consequences under Canadian law more difficult for former Helix shareholders.

      HEARx and Helix anticipate that the market price of one exchangeable share on The Toronto Stock Exchange and the market price of one share of HEARx common stock on the American Stock Exchange will reflect essentially equivalent values. There can be no assurance, however, that the market price of HEARx common stock will be identical, or even similar, to the market price of one exchangeable share. This may impose on holders of the exchangeable shares considerations other than time and HEARx common stock market price in deciding whether and when to exchange those shares for HEARx common stock.

 
Active trading markets for the exchangeable shares may not develop or continue, making it difficult for holders of the exchangeable shares to control the timing of taxation under Canadian law.

      While the listing of the exchangeable shares on The Toronto Stock Exchange is required by the merger agreement, an active and liquid trading market for the exchangeable shares may not develop or be sustained in the future. If an active trading market does not exist for the exchangeable shares, holders of exchangeable shares who want to sell will be forced to exchange their shares for HEARx common stock and sell the HEARx common stock.

 
Conversion of outstanding shares of HEARx convertible preferred stock and exercise of outstanding HEARx options and warrants could cause substantial dilution.

      As of January 14, 2002, outstanding convertible preferred stock, warrants and options of HEARx included:

  •  4,777 shares of 1998 Convertible Preferred Stock;
 
  •  Warrants to purchase approximately 462,383 shares of common stock; and
 
  •  Options to purchase approximately 1,699,782 shares of common stock.

16


Table of Contents

      To the extent outstanding preferred stock is converted, options or warrants are exercised or additional shares of capital stock are issued, stockholders receiving HEARx common stock will incur additional dilution.

     Future sales of shares may depress the price of HEARx common stock.

      If substantial stockholders 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 1,639,549 shares of HEARx common stock that are the subject of an effective resale registration statement and that 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 soon 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. Finally, HEARx has agreed to register 470,530 common shares in connection with the exchange of its non-convertible Series J Preferred Stock for its Series I Convertible Preferred Stock.

 
  Because of the HEARx rights agreement and the related rights plan for the exchangeable shares, a third party may be discouraged from making a takeover offer which could be beneficial to HEARx and its stockholders.

      HEARx has entered into a rights agreement with The Bank of New York, as rights agent. HEARx Canada, Inc. will adopt a similar rights plan relating to the exchangeable shares. The rights agreements contain 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 agreements could also result in reducing the price that certain investors might be willing to pay for shares of the common stock of HEARx and making the market price lower than it would be without the rights agreement.

 
Because HEARx stockholders do not receive dividends, stockholders 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.

Other Risks Relating to the Business of HEARx

 
HEARx may not be able to access funds under its credit facility with Siemens if HEARx cannot maintain compliance with the financial covenants contained therein and may incur a substantial penalty upon a change of control.

      On December 7, 2001, HEARx and Siemens Hearing Instruments Inc. entered into a credit agreement pursuant to which HEARx obtained a $51,875,000 secured credit facility from Siemens. To continue to access the credit facility, HEARx is required to comply with the terms of the credit facility, including compliance with financial covenants. There can be no assurance that HEARx will be able to comply with these financial covenants in the future and, accordingly, may be unable to access the funds provided under the credit facility. Furthermore, if HEARx and Helix do not complete the arrangement, a material portion of the credit facility will not be accessible to HEARx. As part of its agreement with Siemens, if HEARx undergoes a change of control and terminates its agreements with Siemens, HEARx must pay $50 million to Siemens. HEARx and Siemens have agreed that the Helix acquisition will not constitute a change of control for this purpose.

17


Table of Contents

     HEARx may not be able to obtain additional capital on reasonable terms, or at all, to fund its operations.

      If capital requirements vary from those currently planned or losses are greater than expected, HEARx may require additional financing. If additional funds are raised through the issuance of convertible debt or equity securities, the percentage ownership of existing stockholders may be diluted, the securities issued may have rights and preferences senior to those of stockholders, and the terms of the securities may impose restrictions on operations. If adequate funds are not available on reasonable terms, or at all, HEARx will be unable to take advantage of future opportunities to develop or enhance its business or respond to competitive pressures and possibly even to remain in business.

     If the arrangement is not completed, HEARx may not be able to recover its investment in Helix.

      HEARx purchased $2.7 million of Helix common shares using funds borrowed under HEARx’s credit facility with Siemens. See “Material Contracts Between HEARx and Helix.” HEARx’s ability to sell its Helix shares is restricted by applicable securities and stock exchange regulations. If the arrangement is not completed, HEARx may not be able to sell its Helix shares at a profit or at all. Nevertheless, HEARx will have to repay the funds it borrowed under the Siemens credit facility with interest.

     HEARx has a history of operating losses and may never be profitable.

      HEARx has incurred net losses in each year since its organization and its accumulated deficit at September 29, 2001 was $87,013,182. HEARx expects its quarterly and annual operating results to fluctuate, depending primarily on the following factors:

  •  Timing of product sales;
 
  •  Level of consumer 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 or ever.

     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. Large discount retailers, such as Costco, also sell hearing aids and present a competitive threat in HEARx’s markets. In addition, it is possible that the hearing care market could be effectively consolidated by the establishment of cooperatives, alliances or associations 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 major manufacturers to supply its hearing aids and 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. HEARx’s strategic and financial relationship with Siemens requires HEARx to purchase from Siemens a certain portion of its requirements of hearing aids for a period of ten years at specified prices. Although Siemens is the world’s largest manufacturer of hearing devices, there can be no assurance that Siemens’ technology and product line will remain desirable in the marketplace. Furthermore, if Siemens’ manufacturing capacity cannot keep pace with the demand of HEARx and other customers, HEARx’s business may be adversely affected.

18


Table of Contents

      HEARx relies on qualified audiologists, without whom its business may be adversely affected.

      HEARx currently employs 127 licensed hearing professionals, of whom 108 are audiologists. 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 that 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 Kaiser Permanente, operates 20 full service centers in California as well as two satellite locations in Kaiser facilities. Since their inception, HEARx West centers have derived approximately two-thirds of their revenues from sales to Kaiser Permanente members, including revenues through an agreement between the joint venture and Kaiser Permanente’s California division servicing its hearing benefited membership. 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. In addition, HEARx West centers would be adversely affected by the loss of the ability to market to Kaiser members and promote the business within Kaiser’s medical centers, including the referral of potential customers by Kaiser.

      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, have experienced and are continuing to experience significant difficulties arising from the widespread growth and reach of available plans and benefits. In fact, primarily as a result of these problems of the managed care organizations, HEARx has focused marketing resources on the self-pay market and has, since 1999, closed or relocated 12 of its centers primarily in the Northeast and Florida. There can be no assurance that HEARx can maintain all of its centers. HEARx will close centers where warranted and such closures could have a material adverse effect on HEARx.

      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 (JCAHO). 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 currently renewing this accreditation with JCAHO and must take both the arrangement with Helix and the proposed network business into account in this renewal. There is no assurance that JCAHO will reaccredit HEARx, nor can there be an assurance that the JCAHO accreditation will extend to Helix centers or the network business.

19


Table of Contents

      HEARx is exposed to potential product and professional liability that could adversely affect the company if a successful claim is made in excess of insurance policy limits.

      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.

      A change in voting control of HEARx could cause loss of key directors and officers and adversely affect the company.

      Former holders of Helix common shares will initially have the power to vote approximately 51% of the outstanding voting power of HEARx at meetings of stockholders following the arrangement. On a fully diluted basis, however, assuming the exercise or conversion of all outstanding options or convertible securities of Helix and HEARx, former holders of Helix common shares will have the power to vote approximately 46% of the outstanding voting power of HEARx at meetings of stockholders. Because of the initial 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.

Other Risks Relating to Both Businesses after the Arrangement

      Future acquisitions or investments could negatively affect the company’s operations and financial results or dilute the ownership percentage of stockholders of HEARx after the arrangement.

      While all current binding agreements are described in this joint proxy statement/prospectus, HEARx expects to review acquisition and investment prospects that would complement or expand their current services or otherwise offer growth opportunities. The company may have to devote substantial time and resources in order to complete potential acquisitions. The company may not identify or complete acquisitions in a timely manner, on a cost-effective basis or at all.

      In the event of any future acquisitions, HEARx could:

  •  issue additional stock that would further dilute current stockholders’ percentage ownership;
 
  •  incur debt;
 
  •  assume unknown or contingent liabilities; or
 
  •  experience negative effects on reported operating results from acquisition-related charges and amortization of acquired technology, goodwill and other intangibles.

      These transactions involve numerous risks that could harm operating results and cause HEARx’s stock price to decline, including:

  •  potential loss of key employees of acquired organizations;
 
  •  problems integrating the acquired business, including its information systems and personnel;
 
  •  unanticipated costs that may harm operating results;
 
  •  diversion of management’s attention from business concerns; and
 
  •  adverse effects on existing business relationships with customers.

      Any of these risks could harm the business and operating results of HEARx.

20


Table of Contents

      Existing or future regulations where HEARx or Helix operate may require them 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 in the United States. The sale of hearing aids, however, is subject to certain limited regulations of the U.S. 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 or Helix currently operate 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 and Helix to make expensive changes to be in compliance or to cease operations in areas where the regulations exist if they cannot comply.

      The sale of hearing-aid devices in the province of Quebec is governed by the Hearing-Aid Acousticians Act which forbids the selling of hearing aids by persons other than hearing-aid acousticians. The Acousticians Act further provides that all persons qualified to practice the profession of hearing-aid acousticians in Quebec be a member of the “Ordre professionnel des audioprothésistes du Québec” or the “Ordre des audioprothésistes du Québec” which are governed by a professional code of conduct. The practice of the profession of hearing-aid acoustician includes every act the object of which is to sell, fit, adjust or replace a hearing aid. The Acousticians Act does not forbid, however, hearing-aid acousticians from having administrative work, accounting work, as well as other clerical activities completed by third parties. Furthermore, the Acousticians Act does not forbid hearing-aid acousticians from renting space from a business whose principal activity is space rental.

      The Québec based hearing-aid acousticians partnership owned by the founders of Helix, Cousineau, Doucet, Parent et Forget, audioprothésistes, s.e.n.c., is a member of the “Ordre professionnel des audioprothésistes du Québec”. This partnership entered into management agreements with some of Helix’s subsidiaries in Québec in order to outsource its administrative, supply and management activities. Helix and its Québec subsidiaries provide these services pursuant to those agreements, and are not required to be members of the acousticians corporation. Although Helix believes its management agreements with Cousineau, Doucet, Parent et Forget, audioprothésistes, s.e.n.c., are consistent with the Acousticians Act requirements, there is no assurance that this is the correct interpretation. Also, the laws governing audiology and the sale of hearing aids at either the provincial or federal level, including the Acousticians Act, may change requiring HEARx and Helix to make expensive changes to meet compliance or to cease all or part of their operations if they cannot comply.

      Increased exposure to currency fluctuations after the combination could have adverse effects on HEARx’s reported earnings.

      Most of HEARx’s sales and costs are denominated in U.S. dollars. Most of Helix’s sales are also denominated in U.S. dollars, but many of its costs are denominated in Canadian dollars. After giving effect to the transaction, HEARx will have exposure to fluctuations in the Canadian dollar. As a result, HEARx’s earnings will be affected by increases or decreases in the value of the Canadian dollar. Increases in the value of the Canadian dollar versus the U.S. dollar would tend to reduce reported earnings in U.S. dollar terms, and decreases in the value of the Canadian dollar would tend to increase reported earnings.

21


Table of Contents

CURRENCY

      Unless otherwise indicated, all dollar amounts in this joint proxy statement/prospectus are expressed in U.S. dollars.

      The following tables show the rates of exchange for a Canadian dollar per US $1 in effect at the end of certain periods. All rates are based on the noon buying rate, certified by the Federal Reserve Bank of New York for customs purposes in New York City for cable transfers in Canadian dollars.

                                                 
Year Ended December 31,

Nine Months Ended
1996 1997 1998 1999 2000 September 29, 2001






(Canadian Dollars)
Average for the Period*
    1.3637       1.3849       1.4836       1.4858       1.4852       1.5409  


The average for the period was calculated by averaging the noon buying rate or noon spot rate, as applicable, on the last business day of each month during the period.

High and Low Price for the Last Six Months

                 
Month Low High



August
    1.5275       1.5490  
September
    1.5535       1.5797  
October
    1.5582       1.5905  
November
    1.5717       1.6023  
December
    1.5635       1.5990  
January
    1.5899       1.6128  

On February 11, 2002, the noon buying rate in Canadian dollars reported by the Federal Reserve Bank of New York was US $1 = CDN $1.5895.

22


Table of Contents

FORWARD-LOOKING STATEMENTS

      This joint proxy statement/ prospectus contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. These statements include, in particular, statements about our plans, strategies and prospects under the headings “Questions and Answers About the HEARx/ Helix Arrangement,” “Summary,” “The Arrangement,” “Unaudited Pro Forma Condensed Combined Financial Information,” “HEARx” and “Helix.” You can identify certain forward-looking statements by our use of forward-looking terminology such as the words “may,” “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to the factors described in the “Risk Factors” section and elsewhere in this joint proxy statement/ prospectus. We are not obligated to update or revise these forward-looking statements to reflect new events or circumstances.

23


Table of Contents

SELECTED FINANCIAL INFORMATION

HEARx Selected Historical Consolidated Financial Information

      The HEARx selected historical consolidated statement of operations data for each of the three years ended December 29, 2000, and the selected historical consolidated balance sheet data as of December 29, 2000 and December 31, 1999 are derived from the audited consolidated financial statements of HEARx included elsewhere in this joint proxy statement/prospectus. The selected historical consolidated statement of operations data for each of the two years ended December 26, 1997 and December 27, 1996, and the selected historical consolidated balance sheet data as of December 25, 1998, December 26, 1997 and December 27, 1996 is derived from the audited consolidated financial statements of HEARx which in accordance with SEC rules are not included elsewhere herein. The selected consolidated financial information of HEARx as of September 29, 2001 and for the nine month periods ended September 29, 2001 and September 29, 2000 are derived from the unaudited consolidated financial statements of HEARx included elsewhere in this joint proxy statement/prospectus, and in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information. Operating results for the interim periods are not necessarily indicative of the results of HEARx that may be expected for the entire year. The following selected historical consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information of HEARx included elsewhere in this joint proxy statement/prospectus.

Statement of Operations Data:

                                                           
Nine Months Ended Year Ended


September 29, September 29, December 29, December 31, December 25, December 26, December 27,
2001 2000 2000 1999(1) 1998 1997 1996







(Unaudited) (Unaudited)
Net Revenues
  $ 36,200,177     $ 41,425,575     $ 56,114,832     $ 47,476,764     $ 26,891,186     $ 23,316,260     $ 17,964,985  
Total operating costs and expenses
    42,574,880       43,700,322       59,696,818       52,010,728       39,159,599 (2)     33,359,436       26,168,145  
     
     
     
     
     
     
     
 
Loss from operations
    (6,374,703 )     (2,274,747 )     (3,581,986 )     (4,533,964 )     (12,268,413 )     (10,043,176 )     (8,203,160 )
     
     
     
     
     
     
     
 
Non-operating income (expense)
                                                       
 
Interest income
    174,783       217,640       294,132       210,104       602,663       897,619       525,576  
 
Interest expense
    (417,325 )     (22,502 )     (28,723 )     (27,713 )     (62,492 )     (58,444 )     (181,395 )
     
     
     
     
     
     
     
 
Loss before minority interest & equity in loss of joint venture
    (6,617,245 )     (2,079,609 )     (3,316,577 )     (4,351,573 )     (11,728,242 )     (9,204,001 )     (7,858,979 )
Minority Interest
                      347,677                      
Equity in loss of joint venture
                            (615,420 )            
     
     
     
     
     
     
     
 
Net Loss
    (6,617,245 )     (2,079,609 )     (3,316,577 )     (4,003,896 )     (12,343,662 )     (9,204,001 )     (7,858,979 )
Dividends on preferred stock
    (649,237 )     (564,623 )     (1,346,872 )     (821,387 )     (587,893 )     (1,992,123 )     (10,036,507 )
     
     
     
     
     
     
     
 
Net loss applicable to common Stockholders
  $ (7,266,482 )   $ (2,644,232 )   $ (4,663,449 )   $ (4,825,283 )   $ (12,931,555 )   $ (11,196,124 )   $ (17,895,486 )
     
     
     
     
     
     
     
 
Loss per common share:
                                                       
Basic and diluted, including dividends on preferred stock
  $ (0.56 )   $ (0.22 )   $ (0.39 )   $ (0.45 )   $ (1.28 )   $ (1.25 )   $ (2.51 )
     
     
     
     
     
     
     
 
Weighted average number of common shares outstanding
    12,938,350       11,826,380       11,834,388       10,775,006       10,126,979       8,960,503       7,119,712  
     
     
     
     
     
     
     
 
Cash dividends per common share
    None       None       None       None       None       None       None  


(1)  As discussed in Note 1 to the Consolidated Financial Statements, commencing in 1999 HEARx’s Consolidated Financial Statements include the accounts of HEARx West, its 50% subsidiary.
 
(2)  During December 1998, HEARx recorded a restructure charge of $2,233,857 in connection with the closing of 12 centers in the northeast in January 1999.

24


Table of Contents

Balance Sheet Data:

                                                 
As of

September 29, December 29, December 31, December 25, December 26, December 27,
2001 2000 1999 1998 1997 1996






(Unaudited)
Total assets
  $ 21,817,444     $ 21,872,123     $ 21,377,110     $ 25,208,317     $ 28,359,547     $ 26,627,484  
Working capital
    828,570       2,350,832       938,815       7,614,042       13,136,147       12,456,391  
Long-term debt, net of current portion
    5,950,202       175,887       322,332       123,316       177,897       230,258  

Helix Selected Historical Consolidated Financial Information

      The Helix selected historical consolidated statement of operations data for each of the three years ended November 30, 2000, and the selected historical consolidated balance sheet data as of November 30, 2000 and 1999 are derived from the audited consolidated financial statements of Helix included elsewhere in this joint proxy statement/prospectus. The selected historical consolidated statement of operations data for the year ended November 30, 1997 and the selected historical consolidated balance sheet data as of November 30, 1998 and 1997 is derived from the audited consolidated financial statements of Helix, which in accordance with SEC rules are not included elsewhere herein. The selected consolidated financial information of Helix as of August 31, 2001 and for the nine month periods ended August 31, 2001 and 2000 are derived from the unaudited consolidated financial statements of Helix included elsewhere in this joint proxy statement/prospectus, and in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information. Operating results for the interim periods are not necessarily indicative of the results of Helix that may be expected for the entire year. Helix prepares its financial statements in accordance with Canadian GAAP and in Canadian Dollars. The significant differences between Canadian GAAP and U.S. GAAP that are relevant to Helix’s consolidated financial statements included elsewhere in this joint proxy statement/prospectus are presented in Note 16 thereto, which presents a reconciliation to U.S. GAAP of Helix’s consolidated net loss and shareholders’ equity for the years ended November 30, 2000 and 1999 and the nine month periods ended August 31, 2001 and 2000. The following selected historical consolidated statement of operations data for all periods presented are in accordance with Canadian GAAP. In addition, the following selected historical consolidated statement of operations data for each of the years ended November 30, 2000 and 1999 and the nine month periods ended August 31, 2001 and 2000 reflect those differences necessary for them to be in accordance with U.S. GAAP. The following selected historical consolidated balance sheet data as of each period end presented are in accordance with Canadian GAAP. In addition, the following selected historical consolidated balance sheet data as of August 31, 2001, November 30, 2000 and 1999 reflect those differences necessary for them to be in accordance with U.S. GAAP. All Helix financial information below is in Canadian dollars. The following selected historical consolidated financial data should be read in conjunction with the consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information of Helix included elsewhere in this joint proxy statement/prospectus.

25


Table of Contents

Statement of Operations Data:

                                                 
Nine Months Ended Year Ended


August 31, August 31, November 30, November 30, November 30, November 30,
2001 2000 2000 1999 1998(1) 1997(1)






(Unaudited) (Unaudited)
All amounts are in Canadian Dollars
CDN GAAP(2)
                                               
Net Revenues
  $ 36,030,070     $ 24,601,441     $ 35,981,994     $ 24,803,824     $ 14,300,630     $ 8,138,993  
Total costs and expenses
    42,295,403       25,215,481       38,617,304       29,167,256       13,085,934       7,356,235  
     
     
     
     
     
     
 
Income (loss) before income taxes
    (6,265,333 )     (614,040 )     (2,635,310 )     (4,363,432 )     1,214,696       782,758  
Income tax (expense) benefit
    (181,252 )     210,983       946,497       1,701,738       (462,836 )     (329,635 )
     
     
     
     
     
     
 
Net income (loss)
  $ (6,446,585 )   $ (403,057 )   $ (1,688,813 )   $ (2,661,694 )   $ 751,860     $ 453,123  
     
     
     
     
     
     
 
Income (loss) per common share:
                                               
Basic and diluted
  $ (0.16 )   $ (0.01 )   $ (0.06 )   $ (0.09 )   $ 0.04     $ 0.03  
     
     
     
     
     
     
 
US GAAP
                                               
Net Revenues
  $ 36,030,070     $ 24,601,441     $ 35,981,994     $ 24,803,824              
Total costs and expenses
    43,093,722       25,552,429       39,247,506       29,058,998              
     
     
     
     
     
     
 
Income (loss) before income taxes
    (7,063,652 )     (950,988 )     (3,265,512 )     (4,255,174 )            
Income tax (expense) benefit
    (181,252 )     210,983       946,497       1,701,738              
     
     
     
     
     
     
 
Net income (loss)
  $ (7,244,904 )   $ (740,005 )   $ (2,319,015 )   $ (2,553,436 )   $     $  
     
     
     
     
     
     
 
Income (loss) per common share:
                                               
Basic and diluted
  $ (0.18 )   $ (0.02 )   $ (0.08 )   $ (0.09 )   $     $  
     
     
     
     
     
     
 
Weighted average number of common shares outstanding
    40,423,185       30,316,043       30,683,763       28,238,717       20,960,681       18,228,777  
     
     
     
     
     
     
 
Cash dividends per common share
    None       None       None       None       None       None  
     
     
     
     
     
     
 

Balance Sheet Data:

                                         
As of

August 31, November 30, November 30, November 30, November 30,
2001 2000 1999 1998(1) 1997(1)





(Unaudited)
All amounts are in Canadian Dollars
CDN GAAP
                                       
Total assets
  $ 54,250,456     $ 57,274,919     $ 31,343,706     $ 19,136,136     $ 8,457,263  
Working capital
    2,088,806       2,526,517       7,348,710       2,360,619       580,448  
Long-term debt, net of current portion
    19,399,868       18,136,667       10,653,186       5,918,369       626,406  
 
US GAAP
                                       
Total assets
  $ 50,485,183     $ 52,399,260     $ 30,828,171              
Working capital
    2,088,806       2,526,517       7,348,710              
Long-term debt, net of current portion
    18,804,712       17,318,328       9,537,269              


(1)  The selected historical consolidated statement of operations data for each of the two years ended November 30, 1998 and the selected historical consolidated balance sheet data as of November 30, 1998 and 1997 is not required to be reconciled to US GAAP in accordance with SEC rules.
 
(2)  In Canada, the Accounting Standards Board has approved an addendum to “Business Combinations, Section No. 1580” that permits goodwill amortization expense to be presented net-of-tax on a separate line in the Consolidated Income Statement. This presentation is not currently permitted under United States GAAP. For your convenience, the statement of operations data in Canadian GAAP was presented on a comparative basis with the information presented for US GAAP purposes.

26


Table of Contents

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED

SELECTED FINANCIAL INFORMATION

      The following tables present summary unaudited pro forma combined financial information after giving effect to the proposed acquisition of Helix by HEARx under the purchase method of accounting. The tables have been derived from, or prepared on a basis consistent with, the unaudited pro forma combined information included elsewhere in this joint proxy statement/prospectus. The selected pro forma combined financial information should be read in conjunction with, and is qualified in its entirety by reference to, the unaudited pro forma condensed combined financial information and notes thereto. See “Unaudited Pro Forma Condensed Combined Financial Information.” The following data are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred or that will occur after the consummation of the proposed acquisition.

      The pro forma condensed combined balance sheet data gives effect to the proposed acquisition as if it had occurred on September 29, 2001, combining the balance sheets of HEARx at September 29, 2001 with that of Helix as of August 31, 2001. The pro forma condensed combined statements of operations data give effect to the proposed acquisition as if it had occurred at the beginning of the earliest period presented, combining the results of HEARx for the nine months ended September 29, 2001 and the year ended December 29, 2000 with those of Helix for the nine months ended August 31, 2001 and the year ended November 30, 2000, respectively. In addition, the pro forma condensed combined statement of operations data for the year ended December 29, 2000 includes the results of American Hearing Centers, Inc. for the 10-month period prior to its acquisition by Helix, effective September 30, 2000.

Summary Unaudited Pro Forma Condensed Combined Statement of Operations Data:

                 
Nine Months
Ended Year Ended
September 29, December 29,
2001 2000


All amounts are in U.S. dollars
Net Revenues
  $ 59,698,560     $ 88,651,026  
Total operating costs and expenses
    69,852,593       94,333,251  
     
     
 
Loss from operations
    (10,154,033 )     (5,682,225 )
Interest income
    174,783       294,132  
Interest expense
    (1,633,825 )     (1,316,431 )
     
     
 
Loss before income taxes
    (11,613,075 )     (6,704,524 )
(Provision) benefit for income taxes
    (118,210 )     630,022  
Net Loss
    (11,731,286 )     (6,074,502 )
Dividends on preferred stock
    (649,237 )     (1,346,872 )
     
     
 
Net loss applicable to common stockholders
  $ (12,380,522 )   $ (7,421,374 )
     
     
 
Loss per common share:
               
Basic and diluted, including dividends on preferred stock
  $ (0.45 )   $ (0.28 )
     
     
 
Weighted average number of common shares outstanding
    27,545,350       26,441,388  
     
     
 
Cash dividends per common share
    None       None  
     
     
 

27


Table of Contents

Summary Unaudited Pro Forma Condensed Combined Balance Sheet Data:

         
As of
September 29,
2001

All amounts
are in U.S.
Dollars
Total assets
  $ 68,086,857  
Working capital
    2,178,189  
Long-term debt, net of current portion
    18,100,304  

MARKET PRICE AND DIVIDEND INFORMATION

Market Price Information

      HEARx’s common stock is listed on the American Stock Exchange and is traded under the symbol “EAR”. Helix’s common shares are listed on The Toronto Stock Exchange and are traded under the symbol “HCA”.

The Market Price Range By Quarter

      The following table sets forth, for the calendar quarter indicated, the high and low closing sale prices of HEARx common stock as reported by the American Stock Exchange:

                                                   
2001 2000 1999



High Low High Low High Low






HEARx U.S.$
                                               
 
1st quarter
    2         1 1/5       6 7/16       4 1/16       7 1/2       5  
 
2nd quarter
    2         1 1/7       4 1/4       3 9/16       5 5/8       4 3/8  
 
3rd quarter
    1 3/4        5/8       3 3/4       2 9/16       5 3/8       4 3/8  
 
4th quarter
    1.28       .60       2 13/16       1 1/16       4 7/8       3 9/16  

      The following table sets forth, for the calendar quarter indicated, the high and low closing sale prices of Helix common stock as reported by The Toronto Stock Exchange:

                                                   
2001 2000 1999



High Low High Low High Low






Helix CDN$
                                               
 
1st quarter
    1.73       1.30       1.55       1.27       1.85       1.55  
 
2nd quarter
    1.50       1.21       1.44       1.05       1.85       1.55  
 
3rd quarter
    1.54       0.92       1.19       0.95       1.80       1.40  
 
4th quarter
    0.95       0.50       1.83       0.95       1.55       1.30  

28


Table of Contents

COMPARATIVE MARKET PRICE DATA

      The following table sets forth:

  •  the last reported sale price of one share of HEARx common stock, as reported on the American Stock Exchange, on May 22, 2001, the last full trading day prior to the public announcement of the proposed arrangement, and on February 11, 2002, the last day for which that information could be calculated prior to the date of this joint proxy statement/prospectus, and
 
  •  the market value of one Helix common share on an equivalent per share basis as if the arrangement had been completed on May 22, 2001, the last full trading day prior to the public announcement of the proposed arrangement, and on February 11, 2002, the last day for which that information could be calculated prior to the date of this joint proxy statement/prospectus. The equivalent price per share data for Helix common shares has been determined by multiplying the last reported sale price of one share of HEARx common stock on each of these dates by the exchange ratio in the arrangement.

Comparative Market Price Data

                         
Equivalent Price
HEARx Helix Per Share of
Common Stock Common Stock Helix Common Stock



May 22, 2001
    US $1.65       CDN $1.35       US $0.58  
February 11, 2002
    US $1.06       CDN $0.65       US $0.38  

      You are urged to obtain current market quotations for HEARx common stock before making any investment decision.

29


Table of Contents

COMPARATIVE PER SHARE DATA

      To assist you in your analysis of the proposed arrangement, the following table sets forth net income (loss), book value and cash dividend per share of HEARx common stock and Helix common shares for the year ended December 29, 2000 and November 30, 2000, respectively, and the nine months ended September 29, 2001 and August 31, 2001, respectively, on a historical and pro forma per share basis for HEARx and a historical and equivalent pro forma per share basis for Helix. The information presented in this tabulation is in U.S. dollars and U.S. GAAP and should be read in conjunction with the unaudited pro forma condensed combined financial information and the separate financial statements and information, including applicable notes, of the respective companies appearing elsewhere in this joint proxy statement/prospectus.

As of and For the Nine Months Ended September 29, 2001 and August 31, 2001 (Unaudited)

                                   
HEARx Historical Helix Historical Helix


HEARx Equivalent
(Nine Months (Nine Months Pro Forma Pro Forma
Ended 9/29/01) Ended 8/31/01) Combined Combined(1)




Net income (loss) per common share
                               
 
Basic
  $ (.56 )   $ (.12 )   $ (.45 )   $ (.16 )
 
Diluted
  $ (.56 )   $ (.12 )   $ (.45 )   $ (.16 )
Book value per common share
  $ .35     $ .33     $ 1.14     $ .40  
Cash dividend per common share
    N/A       N/A       N/A       N/A  

As of and For the Year Ended December 29, 2000 and November 30, 2000

                                   
HEARx Helix
Historical Historical Helix


HEARx Equivalent
(Year Ended (Year Ended Pro Forma Pro Forma
12/29/00) 11/30/00) Combined Combined(1)




Net income (loss) per common share
                               
 
Basic
  $ (.39 )   $ (.05 )   $ (.28 )   $ (.10 )
 
Diluted
  $ (.39 )   $ (.05 )   $ (.28 )   $ (.10 )
Book value per common share
  $ .99     $ .39       N/A       N/A  
Cash dividend per common share
    N/A       N/A       N/A       N/A  


(1)  Helix equivalent pro forma combined per share information has been computed by multiplying the HEARx pro forma combined amounts by the exchange ratio of 0.3537.

     Dividend Information

      HEARx has not declared or paid any cash dividends on its capital stock. HEARx had 1,776 stockholders of record as of January 14, 2002.

      Helix has not declared or paid any cash dividends on its capital stock. Helix had 87 stockholders of record as of February 7, 2002.

30


Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

      On July 27, 2001, HEARx entered into a definitive agreement to acquire all of the issued and outstanding shares of the common stock of Helix in exchange for approximately 14,607,000 shares of HEARx common stock at a price of $1.72, the market price of HEARx common stock on the day preceding the public announcement of the definitive agreement. In addition, HEARx will issue options and warrants to purchase approximately 2,319,000 shares of HEARx common stock to holders of Helix options and warrants. The fair value of the HEARx options and warrants to be issued is estimated to be approximately $2,000,000, using fair value assumptions of: no dividends, expected volatility of approximately 95%, risk-free interest rate of approximately 5%, and expected lives ranging from 1 to 8 years. This resulted in a total purchase price of approximately $27,124,000.

      The Unaudited Pro Forma Condensed Combined Financial Information reflects the financial information which gives effect to HEARx’s proposed acquisition of all of the outstanding shares of common stock of Helix and the assumed replacement of all options and warrants to acquire Helix common stock with options and warrants to purchase HEARx common stock. The share, option and warrant amounts were calculated using an exchange ratio of 0.3537 shares of HEARx common stock to one share of Helix common stock, assuming approximately 41,298,000 shares of Helix common stock and 6,556,000 options and warrants to purchase Helix common stock are outstanding at September 29, 2001. The Pro Forma Financial Information included herein reflects the purchase method of accounting, after giving effect to the pro forma adjustments discussed in the accompanying notes. Such financial information has been prepared from, and should be read in conjunction with, the historical consolidated financial statements and notes thereto of HEARx and Helix included elsewhere in this joint proxy statement/prospectus.

      The accompanying Pro Forma Condensed Combined Financial Information gives effect to the acquisition on HEARx’s financial position and results of operations. The Pro Forma Condensed Combined Balance Sheet gives effect to the acquisition as if it had occurred on September 29, 2001, combining the historical balance sheet of HEARx as of that date with that of Helix as of August 31, 2001. The Pro Forma Condensed Combined Statements of Operations give effect to the acquisition as if it had occurred at the beginning of the earliest period presented, combining the results of HEARx for the nine months ended September 29, 2001 and the year ended December 29, 2000, with those of Helix for nine months ended August 31, 2001 and the year ended November 30, 2000, respectively.

      Effective September 30, 2000, Helix acquired all of the issued and outstanding stock of American Hearing Centers, Inc. (“AHC”) for a total purchase price of approximately $5,264,000, including cash of $2,551,000, notes payable of $916,000, and Helix common stock of $1,797,000. The acquisition of AHC by Helix resulted in costs in excess of net assets acquired of approximately $6,800,000, which is being amortized over a period of 20 years. Therefore, the Pro Forma Condensed Combined Statement of Operations for the year ended December 29, 2000 includes the results of AHC for the 10 month period prior to its acquisition by Helix, effective September 30, 2000.

      The consolidated financial statements of Helix included in the Pro Forma Condensed Combined Financial Information utilize US GAAP and were translated at the following exchange rates: Canadian dollars were translated to US dollars at the rate of 0.6461, 0.6522, and 0.6754, respectively, with respect to the Balance Sheet at August 31, 2001 and the Statements of Operations for the nine months ended August 31, 2001 and the year ended November 30, 2000.

      The Pro Forma Condensed Combined Statements of Operations presented do not include any potential cost savings. HEARx believes that it may be able to reduce salaries and related costs and office and general expenses as it eliminates duplication of overhead. However, there can be no assurance that HEARx will be successful in effecting any such cost savings.

      The Pro Forma Condensed Combined Financial Information is unaudited, and is not necessarily indicative of the consolidated results, which actually would have occurred if the above transaction had been consummated at the beginning of the periods presented, nor does it purport to present the future financial position and results of operations for future periods. In particular, the Pro Forma Condensed Combined Financial Information is based on management’s current estimate of the allocation of the purchase price, the actual allocation of which may differ.

31


Table of Contents

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)

Twelve Months Ended December 29, 2000

                                                   
AHC Helix
Purchase Purchase
Helix Accounting Accounting Combined
HEARx Converted AHC Adjustments Adjustments Pro forma






US Dollars US Dollars US Dollars(b) US Dollars
Net Revenues
  $ 56,114,832     $ 24,302,306     $ 8,233,888     $     $     $ 88,651,026  
Operating costs and expenses:
                                               
Cost of products sold
    18,966,110       10,237,891       3,295,652                     32,499,653  
 
Center operating expenses
    29,328,114       10,472,257       4,776,901                     44,577,272  
 
General and administrative expenses
    8,830,546       2,467,109                           11,297,655  
 
Depreciation and amortization
    2,572,048       2,198,025       387,598       283,000 (c)     518,000 (2)     5,958,671  
     
     
     
     
     
     
 
Total operating costs and expenses
    59,696,818       25,375,282       8,460,151       283,000       518,000       94,333,251  
     
     
     
     
     
     
 
Loss from operations
    (3,581,986 )     (1,072,976 )     (226,263 )     (283,000 )     (518,000 )     (5,682,225 )
Non-operating income (expense)
                                               
 
Interest income
    294,132                               294,132  
 
Interest expense
    (28,723 )     (1,132,557 )     (155,151 )                 (1,316,431 )
     
     
     
     
     
     
 
Loss before taxes and dividends on preferred stock
    (3,316,577 )     (2,205,533 )     (381,414 )     (283,000 )     (518,000 )     (6,704,524 )
(Provision) benefit for income taxes
          639,266       (9,244 )                 630,022  
Dividends on preferred stock
    (1,346,872 )                             (1,346,872 )
     
     
     
     
     
     
 
Net loss applicable to common shareholders
  $ (4,663,449 )   $ (1,566,267 )   $ (390,658 )   $ (283,000 )   $ (518,000 )   $ (7,421,374 )
     
     
     
     
     
     
 
Net loss per common share — basic and diluted
  $ (0.39 )                                   $ (0.28 )
     
     
     
     
     
     
 
Weighted average number of shares of Common stock outstanding
    11,834,388                               14,607,000 (a)     26,441,388  


(a)  Gives effect to the additional shares expected to be issued in connection with the transaction. It is assumed Helix shareholders will exchange all of their common shares outstanding for 14,607,000 shares of HEARx common stock.
 
(b)  Gives effect to the results of AHC for the ten months prior to its acquisition by Helix.
 
(c)  Gives effect to amortization of approximately $6,800,000 of goodwill resulting from the acquisition of AHC by Helix for the ten months prior to the acquisition.

See Notes to Pro Forma Condensed Combined Financial Statements (Unaudited).

32


Table of Contents

PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (Unaudited)

Nine Months Ended September 29, 2001

                                     
Purchase
Helix Accounting Combined
HEARx Converted Adjustments Pro forma




US Dollars US Dollars US Dollars
Net Revenues
  $ 36,200,177     $ 23,498,383     $     $ 59,698,560  
Operating costs and expenses:
                             
 
Cost of products sold
    11,406,377       9,804,159             21,210,536  
 
Center operating expenses
    21,711,624       12,370,508             34,082,132  
 
General and administrative expenses
    7,606,356       3,051,287             10,657,643  
 
Depreciation and amortization
    1,850,523       1,662,759       389,000 (2)     3,902,282  
     
     
     
     
 
   
Total operating costs and expenses
    42,574,880       26,888,713       389,000       69,852,593  
     
     
     
     
 
Loss from operations
    (6,374,703 )     (3,390,330 )     (389,000 )     (10,154,033 )
Interest income
    174,783                   174,783  
Interest expense
    (417,325 )     (1,216,500 )           (1,633,825 )
     
     
     
     
 
Loss before taxes and dividends on preferred stock
    (6,617,245 )     (4,606,830 )     (389,000 )     (11,613,075 )
Provision for income taxes
          (118,210 )           (118,210 )
Dividends on preferred stock
    (649,237 )                 (649,237 )
     
     
     
     
 
Net loss applicable to common shareholders
  $ (7,266,482 )   $ (4,725,040 )   $ (389,000 )   $ (12,380,522 )
     
     
     
     
 
Net loss per common share — basic and diluted
  $ (0.56 )                   $ (0.45 )
Weighted average number of shares of Common stock outstanding
    12,938,350               14,607,000 (a)     27,545,350  


(a)  Gives effect to the additional shares expected to be issued in connection with the transaction. It is assumed Helix shareholders will exchange all of their common shares outstanding for 14,607,000 shares of HEARx common stock.

See Notes to Pro Forma Condensed Combined Financial Statements (Unaudited).

33


Table of Contents

PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)

September 29, 2001

                                   
Purchase
Helix Accounting Combined
HEARx Converted Adjustments Pro forma




US Dollars US Dollars US Dollars
ASSETS
                               
Current Assets:
                               
Cash and cash equivalents
  $ 1,549,644     $ 1,490,341     $       $ 3,039,985  
Investment Securities
    4,151,286                     4,151,286  
Accounts and notes receivable, net
    4,961,810       5,883,135               10,844,945  
Inventories
    528,394       680,698               1,209,092  
Prepaid income taxes
          76,601               76,601  
Prepaid expenses
    872,886       214,155               1,087,041  
     
     
             
 
 
Total current assets
    12,064,020       8,344,930               20,408,950  
Property and equipment — net
    7,230,926       3,435,137               10,666,063  
Other assets
                               
Deferred income taxes
          2,006,765               2,006,765  
Intangibles, net
    1,025,018       18,585,713       13,649,924 (1)     33,260,655  
Other
    1,497,480       246,944               1,744,424  
     
     
     
     
 
 
Total other assets
    2,522,498       20,839,422       13,649,924       37,011,844  
     
     
     
     
 
    $ 21,817,444     $ 32,619,489     $ 13,649,924     $ 68,086,857  
     
     
     
     
 
Current liabilities:
                               
Accounts payable and accrued expenses
  $ 7,165,177     $ 4,721,720     $       $ 11,886,897  
Accrued salaries and other compensation
    526,060                     526,060  
Current maturities of long term debt
    1,698,033       2,273,591               3,971,624  
Dividends payable
    1,846,180                     1,846,180  
     
     
             
 
 
Total current liabilities
    11,235,450       6,995,311               18,230,761  
     
     
             
 
Long term debt:
                               
Notes payable
    5,950,202       6,888,524               12,838,726  
Convertible debentures
          5,261,578               5,261,578  
     
     
             
 
 
Total long term debt
    5,950,202       12,150,102               18,100,304  
     
     
             
 
Commitments and contingencies
                         
Stockholders’ equity
                               
Preferred stock
    5,301                     5,301  
Common stock
    1,385,262       21,789,437       (20,328,710 )(1)     2,845,989  
Stock subscription
    (412,500 )                   (412,500 )
Additional paid-in-capital
    93,150,352       384,542       25,278,731 (1)     118,813,625  
Accumulated deficit
    (87,013,182 )     (9,002,523 )     9,002,523 (1)     (87,013,182 )
Cumulative translation adjustment
          302,620       (302,620 )(1)      
Treasury stock, at cost
    (2,483,441 )                   (2,483,441 )
     
     
     
     
 
 
Total stockholders’ equity
    4,631,792       13,474,076       13,649,924       31,755,792  
     
     
     
     
 
    $ 21,817,444     $ 32,619,489     $ 13,649,924     $ 68,086,857  
     
     
     
     
 

See Notes to Pro Forma Condensed Combined Financial Statements (Unaudited).

34


Table of Contents

Notes to Pro Forma Condensed Combined Financial Statements (Unaudited)

Note A. The pro forma adjustments to the condensed combined balance sheet are as follows:

      1.     To reflect the acquisition of Helix and the allocation of the purchase price on the basis of the fair values of the assets acquired and liabilities assumed. The components of the purchase price and its allocation to the assets and liabilities are as follows:

           
Components of the purchase price:
       
 
HEARx Common Stock
  $ 25,124,000  
 
HEARx Options and Warrants
    2,000,000  
     
 
Total purchase price
    27,124,000  
Allocation of purchase price:
       
Tangible assets acquired and Liabilities assumed:
       
 
Current assets
    (8,344,930 )
 
Property and equipment
    (3,435,137 )
 
Deferred income taxes
    (2,006,765 )
 
Other assets
    (246,944 )
 
Current liabilities
    6,995,311  
 
Long term debt
    12,150,102  
     
 
Net tangible liabilities
    5,111,637  
     
 
Identifiable intangible assets Acquired:
       
 
Patient files
    (7,775,000 )
 
Trademarks and tradenames
    (6,035,000 )
     
 
Net identifiable intangible assets acquired
    (13,810,000 )
     
 
Cost in excess of net assets acquired
  $ 18,425,637  
     
 

Note B. The pro forma adjustments to the condensed combined statements of operations are as follows:

      The Financial Accounting Standards Board has adopted Statement No. 141, “Business Combinations” (SFAS 141) and Statement No. 142 “Goodwill and Other Intangible Assets” (SFAS 142). SFAS 141 requires the use of the purchase method of accounting for business combinations initiated after June 30, 2001 and for purchase business combinations completed after July 1, 2001, and requires that the Company recognize acquired intangible assets apart from goodwill, if the acquired intangible assets meet certain criteria. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Accordingly, no amortization of goodwill for the proposed Helix acquisition is reflected in the Unaudited Pro Forma Condensed Combined Statements of Operations. In addition, patient files identified as intangible assets are being amortized over their estimated finite useful lives of fifteen years on a straight-line basis. Trademarks and tradenames are not being amortized as their lives are estimated to be indefinite under SFAS 142. See Note 14 Recent Accounting Pronouncements and Note 16(x) in the historical consolidated financial statements of HEARx and Helix, respectively, contained elsewhere in this joint proxy statement/prospectus for a discussion of the impact of SFAS 141 and 142 on HEARx and Helix.

      2.     The estimated finite useful life of patient files intangible asset is fifteen years based upon the historical behavior of the patient populations included in the patient files. Adjustments to record amortization of patient files were approximately $389,000 and $518,000 for the nine months ended September 29, 2001, and the year ended December 29, 2000, respectively.

35


Table of Contents

GENERAL INFORMATION

HEARx Special Meeting

     Date, Time and Place

      HEARx’s special meeting will be held at [                ] on                     , 2002, at                a.m., Florida time.

 
Purpose of the HEARx Special Meeting

      At the HEARx special meeting, HEARx stockholders will vote upon proposals to approve the issuance of the HEARx common stock in connection with the arrangement pursuant to the terms of the merger agreement, approve an employee flexible stock plan to facilitate the replacement of Helix options outstanding at the time of the arrangement with HEARx options and to adjourn the special meeting, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the special meeting to approve all of the HEARx proposals. Stockholders will also be asked to vote upon proposals to amend HEARx’s restated certificate of incorporation:

  •  to increase the authorized number of shares of HEARx common stock from 20,000,000 to 50,000,000 and the number of shares of preferred stock from 2,000,000 to 5,000,000; and
 
  •  to change the name of HEARx to “HearUSA, Inc.”

      HEARx knows of no other matter to be brought before the HEARx special meeting. If any other business should properly come before the HEARx special meeting, the persons named in the proxy card will vote in their discretion on such matter.

 
Record Date; Stock Entitled To Vote; Quorum

      Only holders of record of HEARx common stock at the close of business on                     , 2002, are entitled to receive notice of and to vote at the HEARx special meeting. On the record date,                     shares of HEARx common stock were issued and outstanding and held by approximately           holders of record.

      The presence in person or by proxy of a majority of the outstanding shares entitled to vote is required to constitute a quorum at the annual meeting. Abstentions are counted as “shares present” for purposes of determining the presence of a quorum, and have the effect of a vote “against” any matter as to which they are specified. Broker non-votes with respect to any matter are not considered “shares present” and will not affect the outcome of the vote on such matter.

 
Votes Required

      The affirmative vote of a majority of the shares of HEARx common stock present in person or by proxy at the special meeting is required for approval of the issuance of the HEARx common stock as contemplated by the merger agreement, approval of the flexible stock plan and to adjourn the special meeting, if necessary, to solicit additional proxies. The affirmative vote of a majority of the outstanding shares of HEARx common stock is required for approval of the amendments to the restated certificate of incorporation.

      The holders of HEARx common stock will be entitled to one vote for each share of HEARx common stock they hold.

 
Voting By HEARx Directors and Officers

      At the close of business on the record date, directors and executive officers of HEARx beneficially owned and were entitled to vote an aggregate of approximately                      shares of HEARx common stock, which represented approximately           % of the shares of HEARx common stock outstanding on that date. These directors and executive officers have indicated that they intend to vote “FOR” the approval of the HEARx proposals.

36


Table of Contents

      There are no agreements or arrangements regarding voting by HEARx or HEARx’s directors and executive officers.

 
Adjournments

      Adjournments may be made for the purpose of soliciting additional proxies. Any adjournment may be made by approval of the holders of shares representing a majority of the votes present in person or by proxy at the special meeting. A quorum is not needed for an adjournment. The persons named as proxies in the enclosed form of proxy may vote for one or more adjournments of the special meeting, including adjournments for the purpose of soliciting additional proxies. No proxy voted against all of the HEARx proposals will be voted in favor of any adjournment of the special meeting.

Helix Special Meeting

 
Date, Time and Place

      The Helix special meeting will be held at                                                        , Canada on                               ,                     , 2002, at                               a.m., Montreal time.

 
Purpose of the Helix Special Meeting

      At the Helix special meeting, Helix stockholders will be asked to vote on a special resolution to approve the arrangement pursuant to the terms of the merger agreement between HEARx and Helix.

      Helix knows of no other matter to be brought before the Helix special meeting. If any other business should properly come before the Helix special meeting, the persons named in the proxy card will vote in their discretion on such matter.

 
Record Date; Stock Entitled To Vote; Quorum

      Only holders of record of Helix common shares at the close of business on                     , 2002, are entitled to notice of and to vote at the Helix special meeting. On the record date,                               Helix common shares were issued and outstanding and were held by                holders of record.

      The presence in person or by proxy of a majority of the outstanding shares entitled to vote is required to constitute a quorum at the special meeting. Abstentions are counted as “shares present” for purposes of determining the presence of a quorum, and have the effect of a vote “against” any matter as to which they are specified. Broker non-votes with respect to any matter are not considered “shares present” and will not affect the outcome of the vote on such matter.

 
Votes Required

      The affirmative vote of two-thirds of the shares then represented at the special meeting and entitled to vote will constitute the act of the stockholders.

      The holders of Helix common shares will be entitled to one vote for each Helix common share they hold.

 
Voting By Helix Directors and Officers

      At the close of business on the record date, directors and executive officers of Helix and its affiliates beneficially owned or had voting control or direction over and were entitled to vote           Helix common shares, which represented approximately      % of the Helix common shares outstanding on that date.

      The principal stockholders of Helix, who together hold approximately 47% of the outstanding Helix common shares, have entered into a stockholders agreement with HEARx pursuant to which they each have granted an irrevocable proxy to Paul A. Brown, M.D. and Stephen J. Hansbrough to vote their Helix common shares in favor of the arrangement and against any acquisition proposal from a party other than HEARx. In

37


Table of Contents

addition, HEARx holds approximately 10.5% of currently outstanding Helix common shares, which it intends to vote in favor of the arrangement.

      There are no other agreements or arrangements regarding voting by Helix or Helix’s directors and executive officers.

 
Adjournments

      Any adjournment may be made by approval of the holders of shares representing a majority of the votes present in person or by proxy at the special meeting. A quorum is not needed for an adjournment.

Voting By Proxy

 
How To Vote By Proxy

      Complete, sign, date and return the enclosed form of proxy in the enclosed envelope. Proxies must be received prior to the date of the applicable meeting. The persons named as proxies in the enclosed form of proxy are members of your company’s management. Each stockholder has the right to appoint a proxy, other than the persons designated on the enclosed form of proxy, to attend and act for such stockholder and on such stockholder’s behalf at the meeting of stockholders. To exercise such right, the names of the proxies identified on the enclosed form of proxy may be crossed out and the names of the stockholders’ proxies legibly printed in the blank space provided in the form of proxy.

 
Voting of Proxies

      You are urged to mark the appropriate boxes on the proxy card to indicate how your shares are to be voted. All shares of HEARx common stock and Helix common shares represented by properly executed proxies will be voted at the applicable stockholders’ meeting in the manner specified in the proxies. If a HEARx or Helix stockholder does not return a signed proxy card, that stockholder’s shares will not be voted.

      Properly executed proxies representing HEARx common stock that do not contain voting instructions will be voted:

  FOR the approval of the issuance of shares of common stock in connection with the arrangement; and
 
  FOR the approval of the amendment to HEARx’s restated articles of incorporation to increase the number of shares of common stock and preferred stock authorized; and

      FOR the approval of the amendment to HEARx’s restated articles of incorporation in connection with the arrangement to change HEARx’s name to “HearUSA, Inc.”; and

  FOR the approval of the HearUSA 2002 Flexible Stock Plan; and

      FOR the adjournment of the special meeting, if necessary, to permit the solicitation of additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the above proposals.

      Properly executed proxies representing Helix common shares that do not contain voting instructions will be voted:

      FOR the approval, with or without variation, of the special resolution approving the arrangement pursuant to section 192 of the Canada Business Corporations Act, all as more particularly described in the joint proxy statement/prospectus.

      Properly executed proxies also will give discretion to the proxies to vote upon such other business as may properly come before the meetings, including any adjournment or postponement thereof.

38


Table of Contents

     Revocability of Proxies

      You may revoke your proxy at any time before your proxy is voted at the applicable stockholders’ meeting. You can do that by:

  •  attending the applicable stockholders’ meeting and voting in person;
 
  •  completing, signing and mailing in a new proxy card in time that the new proxy card is received before the applicable stockholders’ meeting; or
 
  •  sending a written notice to the applicable corporate Secretary of HEARx or Helix, stating that you are revoking your proxy in time that the notice is received prior to the applicable stockholders’ meeting.

     Solicitation of Proxies

      Each company will bear the cost of any proxy solicitation on its behalf. In addition to solicitation by mail, certain directors, officers, and regular employees of HEARx and Helix may, without compensation other than their regular salaries and fees, solicit proxies personally, by telephone, facsimile or e-mail. Brokerage houses and other custodians, nominees and fiduciaries will be requested to forward soliciting materials to the beneficial owners of HEARx common stock and Helix common shares owned of record by those organizations. HEARx and Helix will pay the reasonable expenses of forwarding such materials.

Other Voting Matters

     Abstention

      You may specify an abstention on any or all of the proposals. If you submit a proxy with an abstention, you will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business. An abstention by a HEARx stockholder will have the same effect as a vote against the proposal.

     Subsequent Transferees of Helix Common Shares

      A transferee of Helix common shares acquired after the record date will be entitled to vote at the Helix meeting if he or she produces properly endorsed share certificates for such shares or otherwise establishes that he or she owns such shares. Helix must also receive from the transferee, at least 10 days before the meeting, a demand that his or her name be included in the list prepared as of the record date of stockholders entitled to vote at the meeting.

39


Table of Contents

THE ARRANGEMENT

The Amended and Restated Merger Agreement

      This section is a summary of the material terms of the amended and restated merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus. The following description does not purport to be complete and is qualified in its entirety by reference to the amended and restated merger agreement. HEARx stockholders and Helix stockholders should refer to the full text of the amended and restated merger agreement for details of the arrangement and the terms and conditions of the amended and restated merger agreement.

     General

      The merger agreement provides the legal framework for the acquisition of the outstanding Helix common shares by HEARx Canada Inc., an indirect wholly owned subsidiary of HEARx. It covers, among other things:

  •  the effective time of the arrangement;
 
  •  the corporate organization and governance of the combined companies after the arrangement;
 
  •  the exchange of Helix common shares and options, warrants and convertible securities into exchangeable shares or HEARx common stock, or HEARx options, warrants or convertible securities;
 
  •  representations and warranties of the parties;
 
  •  agreements as to what the parties must do and not do prior to the effective time of the arrangement;
 
  •  conditions that must be fulfilled before each party is obligated to complete the arrangement;
 
  •  the circumstances under which the merger agreement may be terminated and the effect of such termination; and
 
  •  various miscellaneous items, such as amendments to the merger agreement and expenses and fees associated with the merger agreement.

     Background of the Arrangement

      On or about March 17, 2000, representatives of HEARx contacted representatives of Helix to arrange a meeting to discuss business opportunities in relation to their respective businesses. Until that date, both Helix and HEARx had been major retailers operating independently in the hearing health care industry in the United States. The managements of both HEARx and Helix wished to explore options that would enable their respective companies to gain a national presence and thereby establish themselves as the single retail leader in the North American hearing retail market. Because there was no overlap in the territories served by the two companies, HEARx and Helix were seen as a strong match in establishing an increased national presence. In addition, both HEARx and Helix had decided to explore the creation of a network business strategy, and the managements of both companies recognized that by combining the two companies, the development of a network business could be accelerated.

      HEARx considered alternative strategies, including the possibility of other acquisition targets and strategic partnerships. In fact, from time to time HEARx has had discussions with other industry participants about possible transactions. None of those, however, were considered by the HEARx board of directors to be in the best interests of the stockholders and the company’s longer term strategic plan. Helix also considered alternative strategies, including maintaining its independence and attempting to launch a network business on its own based on the recently acquired HEAR USA division.

      On November 28, 2000, an informal meeting was held during which both sides reached the conclusion that synergies and business opportunities were indeed possible between the two companies. It was decided to proceed with negotiations, due diligence examinations and, if the former were conclusive, to finalize an

40


Table of Contents

agreement upon terms and conditions acceptable to both parties. On November 30, 2000, a confidentiality agreement was signed by the parties to secure the exchange of proprietary information and documents.

      Throughout November and December 2000 and January 2001, several meetings and conference calls were held between representatives of Helix and HEARx to further define the conditions of an eventual combination or merger between the parties. These discussions also addressed the necessity of obtaining appropriate financing to proceed with the proposed transaction. A meeting was called by HEARx on February 16, 2001, with the intention of introducing Siemens Hearing Instruments as a potential source of financing to the contemplated merger. As a result of this meeting, Siemens orally committed to financially support the merger upon its completion.

      For the remainder of February and the beginning of March, further discussions were held in an attempt to finalize a letter of intent containing the terms and conditions under which both parties would be willing to proceed with the proposed transaction. These efforts culminated in the signature of a first letter of intent on March 6, 2001.

      Soon after signing this first letter of intent, Helix and HEARx agreed to the procedures to allow them to conduct due diligence examinations. After agreeing on a common diligence list of items to verify, each side prepared a document room containing the required materials to be provided to the other party. A first diligence visit was made by HEARx to Helix in Montreal the week of April 9, 2001. In addition to the HEARx representatives, representatives of HEARx’s financial and legal advisors participated in the due diligence. During the week of April 19, 2001, Helix representatives and their financial advisors visited the HEARx corporate office in West Palm Beach, Florida to conduct their due diligence. Following these visits, each party provided the other with a report of the outstanding items it had identified during its examination. Each party responded to the other’s inquiries and most issues were to be addressed to both parties’ satisfaction in the final merger agreement.

      While these exchanges were taking place, a meeting was held in Montreal on May 30 and 31, 2001 to begin the preparation of the projected common business plan. This business plan contains the projected results from the combined operations as well as the intended development of a network.

      After further discussions regarding the due diligence findings and the business plan, from May 16 to May 21 the senior management representatives of the parties discussed revising the March 6, 2001 letter of intent. Although HEARx and Helix had agreed in the March 6, 2001 letter of intent to a basic resulting ownership percentage by their shareholders, after conducting due diligence and the completion of a common business plan, the companies reached modified understandings on the economics of the business combination under which HEARx would be the acquiror. The existence of HEARx’s convertible preferred stock was seen by Helix as a detriment to HEARx’s long term stock performance. Therefore, management of both HEARx and Helix agreed that under the business combination, Helix’s shareholders would receive an amount of HEARx common stock sufficient to give them an equivalent 42% ownership of HEARx on a basis where (i) all vested derivative securities in the companies having a strike price under a $1.55 were counted as issued and outstanding shares of common stock, and (ii) all the outstanding and issued convertible preferred stock of HEARx was assumed to be converted to common stock at a conversion price of $1.55. The parties agreed that Helix shareholders would have the option to receive exchangeable shares or common stock of HEARx upon the exchange of their Helix common shares. This structure was agreed upon to provide Helix stockholders resident in Canada an opportunity to receive full or partial deferral of Canadian federal income tax. The parties agreed to and executed a new letter of intent on May 22, 2001. On May 23, 2001, the parties issued a press release announcing the signing of the new letter of intent. The parties then began to negotiate a definitive merger agreement and related documents. During this time, each party continued its due diligence investigation of the other.

      On July 11, 2001, the board of directors of Helix met to review the final terms of the merger agreement and related agreements as well as to receive a presentation on the financial aspects of the proposed transaction. After discussing the proposed transaction, the board of directors approved entering into the merger agreement.

41


Table of Contents

      On July 16, 2001, the board of directors of HEARx met to evaluate the terms of the merger agreement and related agreements as well as to receive an opinion from Raymond James as to the fairness from a financial point of view to the HEARx stockholders of the consideration to be paid to the stockholders of Helix pursuant to the arrangement.

      On July 27, 2001, after completion of the disclosure schedules to the merger agreement and negotiation of the terms of the stockholders agreement with the individual stockholders party to the stockholders agreement, the board of directors of HEARx met to review the final terms of the merger agreement and related agreements as well as to receive an updated fairness opinion by Raymond James. The board of directors of HEARx then unanimously approved the merger agreement.

      The merger agreement was executed by the parties on Friday, July 27, 2001 and was publicly announced prior to the opening of the markets on Monday, July 30, 2001.

      On November 6, 2001, the parties amended and restated the merger agreement to reflect changes in the proposed management of HEARx after the arrangement.

      On January 8, 2002, the board of directors of Helix met to review the possibility of updating the fairness opinion already rendered in connection with the arrangement and/or requesting other financial advisors to consider and opine on the fairness of the proposed transaction to the Helix shareholders. After discussing the available options and considering the amount of time that had elapsed since the initial fairness opinion of July 11, 2001, the board of directors of Helix approved engaging Yorkton Securities Inc. to consider and opine on the financial aspects of the proposed transaction to the Helix shareholders from a financial point of view.

      On February 1, 2002, the board of directors of Helix met to review the then current draft of the joint proxy statement/prospectus as well as to receive an opinion from Yorkton as to the fairness from a financial point of view to the Helix stockholders of the consideration to be paid to the stockholders of Helix pursuant to the arrangement.

     Effect of the Arrangement

      When the arrangement becomes effective, each outstanding Helix common share, other than those owned by dissenting stockholders, will be exchanged for 0.3537 exchangeable shares or 0.3537 shares of HEARx common stock. Helix stockholders will no longer have rights as holders of Helix common shares and will have only the right to receive the arrangement consideration.

      HEARx Canada Inc., HEARx’s Canadian subsidiary, will become the holder of the common shares of Helix, other than shares held by HEARx or HEARx Acquisition ULC, and Helix will become an indirect subsidiary of HEARx.

     Court Approval and Completion of the Arrangement

      The arrangement requires approval of the Superior Court of Québec, District of Montreal, under the Canada Business Corporations Act. Before mailing this joint proxy statement/prospectus, Helix obtained an interim order of the court providing for the calling and holding of the special meeting and other procedural matters.

      Subject to the approval of the arrangement by the Helix stockholders at the meeting, the hearing in respect of the final order is scheduled to take place on                     , 2002, at 10:00 a.m. (Montreal time) in room 2.16 of the Superior Court of Québec, District of Montreal, at 1, Notre-Dame Street East, Montreal, Québec. Any Helix stockholder who wishes to present evidence or arguments at the hearing must file and deliver an appearance and any affidavits on which it relies, in accordance with the rules of the court and the provisions of the interim order issued by the court. The court will consider, among other things, the fairness and reasonableness of the arrangement. The court may approve the arrangement unconditionally or subject to compliance with any conditions the court deems appropriate.

      The court has broad discretion under the Canada Business Corporations Act when issuing orders relating to the arrangement. The court may approve the arrangement either as proposed or as amended in any manner

42


Table of Contents

the court directs. Under Canadian law, for the court to grant the final order, the court must conclude, among other things, that the arrangement is fair and reasonable to all affected persons. No material amendment to the arrangement will be made without obtaining further Helix stockholder approval.
 
Effective Time of the Arrangement

      The arrangement will be effective when the Director under the Canada Business Corporations Act issues a certificate of arrangement. If the final order obtained on                     , 2002, is satisfactory to Helix and HEARx, and all other conditions to the arrangement are satisfied or waived, we expect that the effective date of the arrangement will be                     , 2002.

 
Recommendations of the HEARx Board of Directors and Reasons for the Arrangement

      The board of directors of HEARx believes that the combination of Helix and HEARx on the terms contained in the merger agreement will be beneficial to HEARx and its stockholders and that the consideration to be paid to Helix stockholders under the merger agreement is fair to HEARx stockholders. Accordingly, the board of directors, at a meeting held on July 27, 2001, unanimously approved the transaction and recommended that holders of HEARx common stock vote to approve the proposal for the arrangement and the issuance of HEARx common stock in connection with the arrangement.

      In considering the arrangement, the board of directors of HEARx noted that the arrangement would offer the HEARx stockholders the opportunity to participate in any future growth and profitability of Helix’s business.

      In deciding to approve the arrangement, the board of directors considered a number of other factors, including:

  •  historical information concerning HEARx’s and Helix’s businesses, financial performance and condition, operations, competitive positions and management;
 
  •  HEARx’s and Helix’s current industries, market and economic conditions, including current financial market conditions and historical market prices, volatility and trading information of HEARx common stock;
 
  •  the relationship between the market value of HEARx common stock and the consideration to be paid by HEARx to Helix stockholders in the arrangement, along with a comparison of comparable arrangement transactions;
 
  •  the stronger financial condition of the combined companies, considering the infusion of cash from Siemens;
 
  •  the results of the due diligence investigations of Helix conducted by HEARx’s management and legal advisors;
 
  •  the expected accounting treatment of the arrangement;
 
  •  the terms and conditions of the merger agreement, including the fact that five directors of HEARx will be appointed to the combined company’s board of directors;
 
  •  the risks and potential rewards associated with, as an alternative to the arrangement, continuing to execute HEARx’s business and strategic plan as an independent entity;
 
  •  the impact of the arrangement on HEARx’s stockholders and employees;
 
  •  the likelihood that the arrangement would be completed; and
 
  •  presentations and advice of HEARx’s senior management, financial advisor and legal counsel.

43


Table of Contents

      The board of directors also considered potentially negative risks of the arrangement, including:

  •  despite the efforts of the combined companies, key management personnel might not remain employed by the combined companies;
 
  •  potential benefits sought in the arrangement might not be fully realized;
 
  •  risks associated with Helix’s business and prospects including its continuing operating losses, significant outstanding debt and integration of its numerous recent acquisitions; and
 
  •  other risks described under the caption “Risk Factors” presented earlier in this joint proxy statement/prospectus.

      This discussion is not intended to include all the factors considered by the board of directors. Each member of the board of directors may have considered different factors and may have assigned different relative weights to the factors considered. In addition, the board of directors did not quantify or reach any specific conclusion with respect to each of the factors considered or any aspect of any particular factor. Instead, the board of directors conducted an overall analysis of these factors.

      Based on the considerations described above, the board of directors of HEARx has unanimously approved the arrangement and the issuance of HEARx common stock in connection with the arrangement and recommends that HEARx stockholders vote “FOR” the share issuance.

 
Recommendations of the Helix Board of Directors and Reasons for the Arrangement

      The board of directors of Helix believes that the arrangement on the terms contained in the merger agreement will be beneficial to Helix and its stockholders and that the consideration to be paid to Helix stockholders under the merger agreement is fair to the Helix stockholders. Accordingly, Helix’s board of directors approved the transaction and recommended that holders of Helix common shares vote to approve the merger agreement and the transactions contemplated by the merger agreement.

      In deciding to approve the acquisition of Helix, the Helix directors considered a number of other factors, including:

  •  historical information concerning HEARx’s and Helix’s businesses, financial performance and condition, operations, competitive positions and management;
 
  •  HEARx’s and Helix’s current industries, market and economic conditions, including current financial market conditions and historical market prices, volatility and trading information of HEARx common stock;
 
  •  the relationship between the market value of HEARx common stock and the consideration to be paid by HEARx to Helix stockholders in the arrangement, along with a comparison of comparable arrangement transactions;
 
  •  the strong financial condition of the combined companies, considering the infusion of cash from Siemens;
 
  •  the results of the due diligence investigations of HEARx conducted by Helix’s management and legal advisors;
 
  •  the expected accounting treatment of the arrangement;
 
  •  the terms and conditions of the merger agreement, including the fact that four directors of Helix will be appointed to the combined company’s board of directors;
 
  •  the impact of the arrangement on Helix’s stockholders and employees;
 
  •  the likelihood that the arrangement would be completed; and
 
  •  presentations and advice of Helix’s senior management, financial advisor and legal counsel.

44


Table of Contents

      The Helix board of directors also considered potentially negative risks of the arrangement, including:

  •  any fluctuations in the price of HEARx common stock prior to the closing of the arrangement;
 
  •  the tax impact on Helix stockholders who may realize taxable gain on the exchange of their Helix shares or the exchangeable shares for HEARx common stock;
 
  •  despite the efforts of the combined companies, key management personnel might not remain employed by the surviving corporation;
 
  •  potential benefits sought in the arrangement might not be fully realized;
 
  •  certain members of Helix’s management and board of directors may have interests in the arrangement in addition to the interests of the other Helix stockholders; and
 
  •  the other risks described under the caption “Risk Factors” presented earlier in this joint proxy statement/prospectus.

      This discussion is not intended to include all of the factors considered by the Helix board of directors. Each member of the Helix board of directors may have considered different factors and may have assigned different relative weights to the factors considered. In addition, the Helix board of directors did not quantify or reach any specific conclusion with respect to each of the factors considered or any aspect of any particular factor. Instead, the Helix board of directors conducted an overall analysis of these factors.

      Based on the considerations described above, the Helix board of directors has approved the merger agreement and recommends that Helix stockholders vote “FOR” the merger agreement and the transactions contemplated by the merger agreement.

 
Opinion of Raymond James

      HEARx retained Raymond James to render an opinion to the HEARx board of directors as to the fairness from a financial point of view to the HEARx stockholders of the consideration to be paid to the stockholders of Helix pursuant to the arrangement. Raymond James is actively engaged in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions. HEARx chose Raymond James because of Raymond James’ significant experience in the valuation of securities in connection with business combinations and similar transactions, especially with respect to healthcare companies.

      Presentation by Raymond James. The following summarizes the material financial analyses presented by Raymond James to HEARx’s board of directors at its meeting on July 27, 2001, which were considered by Raymond James in rendering the opinion described below. This summary is not a complete description of the analyses underlying the opinion of Raymond James or the information presented at meetings between Raymond James and representatives of HEARx held before the consideration of the arrangement by the HEARx Board.

      Transaction Summary. Raymond James presented to the HEARx Board an analysis of the consideration to be paid to the stockholders of Helix in connection with the arrangement.

           
Exchange ratio
    0.3537  
HEARx share price (as of May 22, 2001)
    $1.65  
Helix:
       
 
common stock value per share
    $0.58  
 
shares outstanding*
    41.3 million  
 
equity value
    $24.1 million  
 
debt (as of June 30, 2001)
    $15.3 million  
 
cash and cash equivalents (as of June 30, 2001)
    $1.4 million  
 
enterprise value**
    $38.0 million  

45


Table of Contents


 *  calculated using the treasury stock method to account for outstanding options and warrants
 
**  enterprise value equals the market value of equity plus debt less cash and cash equivalents

For purposes of its opinion, Raymond James did not attempt to determine a value for the HEARx common stock but instead assumed that its current price fairly reflects its value and that the exchangeable shares will have the same value as the underlying HEARx common stock into which they are exchangeable.

      Historically Implied Exchange Ratios. Raymond James presented to the HEARx board a summary financial comparison of the implied exchange ratio between the common shares of Helix and the common stock of HEARx. The implied exchange ratio is calculated by dividing the price of a Helix common share by the price of a share of HEARx common stock adjusting for currency conversion at the prevailing exchange rate on the applicable day. The implied exchange ratio is 0.3537.

      The results of the analysis for the following time periods are listed below:

                         
Implied
Time Period HEARx Helix Exchange Ratio




May 22, 2001
  $ 1.65     $ 0.88       0.5304  
Average of 30-Days Prior
    1.75       0.88       0.5023  
Average of 60-Days Prior
    1.79       0.87       0.4872  
Average of 90-Days Prior
    1.76       0.89       0.5044  
Average of 180-Days Prior
    1.73       0.96       0.5521  
Average of 360-Days Prior
    2.37       0.89       0.3763  

      Merger and Acquisition Price Premium Analysis. Raymond James reviewed the minimum, mean, and maximum stock price premiums paid in 78 transactions over the last year for 100% change of control transactions with target total enterprise values between $50 million and $250 million for 1, 15, 30, and 120 day(s) prior to a business combination transaction. The proposed transaction stock price premium (discount) was calculated based on the percentage difference between the proposed transaction stock price, or offer price, and the actual price of Helix common stock 1, 15, 30, and 120 day(s) prior to May 23, 2001. The results of the analysis comparing the minimum, mean and maximum stock price premiums from these transactions with the proposed arrangement during the following periods are listed below:

Premium (Discount) to Market on Transaction Date

Precedent Transactions
                                 
Precedent Transactions
Time Prior to Proposed
Transaction Date Transaction Min Mean Max





1 Day
    (33.7 %)     (78.3 %)     42.5 %     200.4 %
15 Days
    (33.6 %)     (90.5 %)     56.5 %     436.0 %
30 Days
    (28.4 %)     (90.5 %)     56.8 %     236.5 %
120 Days
    (39.7 %)     (76.5 %)     43.3 %     227.7 %

      Comparable Company Analysis. Raymond James presented to the HEARx board a summary financial comparison of Helix to five public healthcare retail oriented companies. Excluding Helix and HEARx, the only comparable public hearing aid retailer is Sonus Corp. In order to obtain a more representative universe of companies delivering healthcare products and services in a retail format, the universe of comparable companies was expanded to include public eyewear retailers, whose businesses appeared reasonably similar to Helix. The public companies considered consisted of:

•  Cole National Corp.
•  Emerging Vision, Inc.
•  Sight Resources Corp.
•  Sonus Corp.
•  U.S. Vision, Inc.

46


Table of Contents

      Raymond James examined the following four key financial multiples for these selected healthcare retail companies: enterprise value (market value plus debt less cash and cash equivalents) to revenues; enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA); enterprise value to earnings before interest and taxes (EBIT); and market value to book value. Revenue, EBITDA, EBIT and book value were calculated for the last twelve months reported (LTM) and for the last quarter annualized (LQA).

      The comparable company analysis resulted in a calculated enterprise value to LTM revenue multiple range of 0.2x to 1.0x, with a mean of 0.4x and a median of 0.3x. The comparable company analysis also resulted in a calculated LQA revenue multiple range of 0.2x to 1.0x, with a mean of 0.4x and a median of 0.3x. The calculated enterprise value to LTM EBITDA multiple range was 4.9x to 21.0x with a mean of 11.4x and a median of 9.9x. The calculated enterprise value to LTM EBIT multiple range was 9.8x to 12.6x with a mean of 11.2x and a median of 11.2x. Lastly, the market value to book value multiple was calculated at 0.2x to 1.5x with a mean of 0.9x and median of 0.6x.

      Using Helix’s LTM revenue, LQA revenue and book value of $25.3 million, $33.2 million and $16.8 million, and applying the minimum, mean and maximum multiples derived from the selected publicly traded comparable companies, results in the following implied valuations:

                           
Min Mean Max



($ millions)
Enterprise value to LTM revenue
                       
 
multiple of comparable companies
    0.2 x     0.4 x     1.0 x
 
Implied enterprise value of Helix
  $ 4.3     $ 11.1     $ 25.0  
 
Implied equity value of Helix
  $ (9.6 )   $ (2.8 )   $ 11.1  
Enterprise value to LQA revenue
                       
 
multiple of comparable companies
    0.2 x     0.4 x     1.0 x
 
Implied enterprise value of Helix
  $ 5.7     $ 14.3     $ 31.9  
 
Implied equity value of Helix
  $ (8.2 )   $ 0.4     $ 18.0  
Market value to book value
                       
 
multiple of comparable companies
    0.2 x     0.9 x     1.5 x
 
Implied enterprise value of Helix
  $ 17.8     $ 28.4     $ 38.9  
 
Implied equity value of Helix
  $ 3.9     $ 14.5     $ 25.0  
 
Transaction enterprise value to LTM
revenue multiple of Helix
            1.5 x        
 
Transaction enterprise value to LQA
revenue multiple of Helix
            1.1 x        
 
Transaction market value to book value
multiple of Helix
            1.4 x        
Transaction enterprise value of Helix
          $ 38.0          
Transaction equity value of Helix
          $ 24.1          

      Given that Helix had negative values for EBITDA and EBIT over the last twelve months and the last quarter, it was not possible to compare Helix to the comparable companies using these measures of historical performance. Furthermore, the basis for comparison and valuation is limited due to the limited availability of comparable hearing aid retailers.

47


Table of Contents

      Precedent Transaction Analysis. Raymond James presented to the HEARx board a summary of fifteen precedent merger transactions, greater than $10 million in enterprise value, that have closed since 1995 involving healthcare retail oriented companies, consisting of the following:

     
Acquirer Target
• Eye Care Centers of America
• Cole National Corp.
• Pearle Trust B.V.
• Cole National Corp.
• Eye Care Centers of America
• Thomas H. Lee
• National Vision Associates
• Eye Care Centers of America
• National Vision Associates
• GN Resound
• Eye Care Centers of America
• William Demant
• William Demant
• Amplifon
• Luxottica Group (Lenscrafters)
  • VisionWorks
• Pearle Vision
• Pearle Vision (European Division)
• American Vision Centers
• Hour Eyes
• Eye Care Centers of America
• Frame & Lens
• Dr. Bizers Vision World
• New West Eyeworks, Inc.
• ReSound Corp.
• Vision Twenty-One
• Hidden Hearing
• AVADA
• Acoudire BV
• Sunglass Hut

      Due to limited financial disclosure regarding these transactions, and given that Helix had negative values for EBITDA and EBIT over the last twelve months and the last quarter, Raymond James only evaluated enterprise value to LTM revenue multiples. The calculated enterprise value to LTM revenue multiple had a range of 0.3x to 3.6x with a mean of 1.2x and a median of 1.0x.

      Using Helix’s LTM revenue, LQA revenue and book value of $25.3 million, $33.2 million and $16.8 million, and applying the minimum, mean and maximum multiples derived from the selected precedent transactions resulted in the following implied valuations:

                           
Min Mean Max



($ millions)
Enterprise value to LTM revenue
                       
 
multiple of comparable companies
    0.3 x     1.2 x     3.6 x
Implied enterprise value of Helix
  $ 8.4     $ 31.4     $ 90.7  
Implied equity value of Helix
  $ (5.5 )   $ 17.5     $ 76.8  
Enterprise value to LTM revenue
multiple of comparable companies
    0.3 x     1.2 x     3.6 x
Implied enterprise value of Helix*
  $ 11.0     $ 41.2     $ 119.1  
Implied equity value of Helix*
  $ (2.8 )   $ 27.4     $ 105.3  
Transaction enterprise value to LTM
revenue multiple of Helix
            1.5 x        
Transaction enterprise value to LQA
revenue multiple of Helix
            1.1 x        
Transaction enterprise value of Helix
          $ 38.0          
Transaction equity value of Helix
          $ 24.1          

calculated using Helix LQA revenues of $33.2 million

48


Table of Contents

      Discounted Cash Flow Analysis. Raymond James presented to the HEARx board the results of a discounted cash flow analysis for fiscal years 2001 to 2006 to estimate the present value of the unleveraged free cash flows that Helix is expected to generate on a stand alone basis.

      For purposes of this analysis, unleveraged free cash flows were defined as EBITDA, less capital expenditures and investment in working capital. Raymond James performed its analyses based on financial forecasts and assumptions provided by Helix.

      Raymond James used 2006 as the terminal year for the analysis and calculated terminal values for Helix by applying a range of multiples of EBITDA for the fiscal year ending December 31. These multiples ranged from 11.0x to 15.0x. The unleveraged projected free cash flows and terminal values were then discounted using a range of discount rates from 12.0% to 16.0%, which reflect the projected cost of capital associated with executing Helix’s business plan.

      This analysis yielded implied equity values of Helix ranging from $13.6 million to $32.1 million or $0.33 to $0.78 per share. The proposed arrangement has an implied equity value for Helix of $24.1 million or $0.58 per share.

      Analyses Summary. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. Raymond James believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering the analyses taken as a whole, would create an incomplete view of the process underlying the analyses set forth in its opinion. In addition, Raymond James considered the results of all such analyses and did not assign relative weights to any of the analyses, so the ranges of valuations resulting from any particular analysis described above should not be taken to be Raymond James’ view of the actual value of Helix.

      In performing its analyses, Raymond James made numerous assumptions with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond the control of HEARx and Helix. The analyses performed by Raymond James are not necessarily indicative of actual values, trading values or actual future results which might be achieved, all of which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Raymond James’ analysis of the fairness of the arrangement to HEARx stockholders from a financial point of view and were provided to the HEARx board of directors. The analyses do not purport to be appraisals or to reflect the prices at which a company might attract investments or be sold. In addition, as described above, the opinion of Raymond James was one of many factors taken into consideration by the HEARx board of directors in making its determination to approve the arrangement. Consequently, the analyses described above should not be viewed as determinative of the HEARx board’s or HEARx management’s opinion with respect to the value of Helix. HEARx placed no limits on the scope of the analysis performed, or opinion expressed, by Raymond James.

      As compensation for its services in connection with the arrangement, HEARx paid Raymond James a fee of $220,000 payable upon delivery of the Raymond James opinion. No portion of the fee was contingent upon the conclusions reached by Raymond James. HEARx also agreed to indemnify Raymond James and related persons against certain liabilities, including liabilities arising under federal securities laws, arising out of the engagement of Raymond James. In the ordinary course of business, Raymond James may trade in the securities of HEARx or Helix for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

      Opinion of Raymond James. At the July 27, 2001 meeting of the HEARx board, Raymond James gave its written opinion that, as of such date and based upon and subject to various qualifications and assumptions described with respect to its opinion, the consideration to be paid by HEARx to the stockholders of Helix pursuant to the arrangement was fair from a financial point of view to the HEARx stockholders.

      The full text of the written opinion of Raymond James, dated July 27, 2001, which sets forth assumptions made, matters considered and limits on the scope of review undertaken, is attached as Annex G to this joint proxy statement/prospectus. HEARx stockholders are urged to read this opinion in its entirety. Raymond James’ opinion, which is addressed to the HEARx Board, is directed only to the fairness of the

49


Table of Contents

arrangement to HEARx stockholders from a financial point of view and does not constitute a recommendation to any HEARx stockholder as to how such stockholder should vote at the HEARx special meeting and does not address any other aspect of the proposed arrangement or any related transaction. The summary of the opinion of Raymond James set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion.

      In connection with rendering its opinion, Raymond James has, among other things, reviewed Helix’s and HEARx’s audited financials and annual report to stockholders for fiscal years 1999 and 2000, Helix’s and HEARx’s quarterly reports to stockholders filed during fiscal years 1999 and 2000 and other publicly available financial information of Helix and HEARx; reviewed certain non-public information prepared by the management of Helix and HEARx, including financial statements, financial projections, and other financial and operating data concerning Helix and HEARx; discussed the past and current operations and financial condition and the prospects with senior executives from Helix and HEARx; reviewed publicly available financial and stock market data with respect to certain other companies in lines of business generally comparable to those of Helix and HEARx; considered the pro forma effects of the arrangement on HEARx’s financial statements; reviewed the historical market prices of the Helix and HEARx common stock; compared the financial terms of the arrangement with the financial terms of certain other transactions which are generally comparable to the arrangement; reviewed a draft of the merger agreement; and conducted other financial analyses, studies, and investigations, and considered other information as Raymond James deemed necessary or appropriate.

      In connection with its review, Raymond James did not assume any responsibility for independent verification for any of the information reviewed by Raymond James for the purpose of the opinion and relied on the information being complete and accurate in all material respects. In addition, Raymond James did not make or receive any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of Helix, nor was Raymond James furnished with any such evaluation or appraisal. With respect to the financial forecasts, estimates, projections, pro forma effects, and other information referred to above, Raymond James assumed, at the direction of Helix, that they have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Helix. Raymond James relied upon each party to advise Raymond James promptly if any such information previously provided to or discussed with Raymond James became inaccurate or was required to be updated during the period of the review.

      Raymond James’ opinion was based on economic, market, and other conditions as in effect on, and the information available to it as of, the date of its opinion. Raymond James did not express any opinion as to the range of prices at which the HEARx common stock might trade subsequent to the arrangement.

Opinion of Ernst & Young Corporate Finance Inc.

      Helix retained EYCF in connection with its consideration of the proposed arrangement. Helix chose EYCF because of its qualifications, expertise and reputation.

      Presentation by EYCF. The following summarizes the material financial analyses presented by EYCF to certain members of the Helix board of directors on July 11, 2001, which were considered by EYCF in rendering the opinion described below. This summary is not a complete description of the analyses underlying the opinion of EYCF or the information presented at meetings between EYCF and representatives of Helix held in advance of the consideration of the arrangement by the Helix board of directors.

      Approach. In considering the fairness of the arrangement, from a financial point of view, to the shareholders of Helix, EYCF performed a variety of financial and comparative analyses, including:

        1.     Comparing the historic and current market prices and volume for the shares of both Helix and HEARx. From this analysis EYCF, among other things, took the following factors into account:

        a.     Activity on Helix’s shares is very low (average monthly volume approximates less than 1% of outstanding shares). Therefore, if a large block of shares was sold on the market it could have a depressing effect on the quoted market price.

50


Table of Contents

        b.     Based on HEARx’s historical trading volume, the shareholders should have a more liquid market available to them to dispose of their shares after the arrangement.
 
        c. Historic and current market prices
 
        The following table presents the results from this analysis and the implied per share value to Helix’s shareholders based on the exchange ratio of 0.3537:
                         
Per share value
Helix HEARx to Helix’
In USD Price Price shareholders




Low
  $ 0.86     $ 1.70     $ 0.60  
High
  $ 0.99     $ 2.40     $ 0.85  

        2. Comparing the proposed exchange ratio to the relative value of Helix and HEARx implied by the analysis of value for both corporations as stand-alone entities (without acquisitions). Based on the exchange ratio of 0.3537, shareholders of Helix and HEARx will respectively own 42% and 58% of the merged entity after the arrangement. For this analysis, EYCF used the following methods and criteria: discounted cash flow, multiple of revenue, capitalization of operating earnings (before corporate expenses) and net tangible assets.

        a. Discounted cash flow method
 
        The application of the discounted cash flow method requires that estimation be made regarding the future cash flows of each corporation as stand-alone entities. Management of each company prepared these future cash flows. EYCF analysed and discussed with management of each company these projections and their underlying assumptions. The discounted cash flow approach also required that assumptions be made regarding the discount rate and terminal value.
 
        The terminal value at the end of fiscal year 2006 was calculated with two methods: through the application of a multiple of EBITDA of 5X and through the application of a “terminal year” multiplier based on a perpetual growth rate of 3.5%. EYCF used discount rates of 14.5% to 16.5% to discount the future cash flows and the terminal value. In determining the appropriate discount rates and terminal value, EYCF took into account the risk related to achieving the financial forecasts, the general conditions in the industry, the general economic conditions and rates of return available on other type of investments as well as the growth potential at the end of the projections’ period.
 
        The following table presents the results of this analysis:
                                 
Helix HEARx Helix HEARx
In USD Equity Value Equity Value relative % relative %





Low
  $ 23M     $ 39M       37 %     63 %
High
  $ 30M     $ 45M       40 %     60 %
Agreement Implied Ratio
                    42 %     58 %

        b. Multiple of revenues and operating earnings (before corporate expenses):
 
        For the analysis based on a multiple of revenue and the capitalization of operating earnings (before corporate expenses), EYCF reviewed the current and projected results for the next fiscal year and considered, among other things, trading multiples of comparable public companies, implied multiples from comparable transactions, general economic conditions and rates of return available on other types of investments. EYCF retained budgeted results for fiscal 2001 to account for Helix’s recent transactions. Moreover, for the analysis based on the capitalization of operating earnings EYCF took into account the announced costs reduction.

51


Table of Contents

        The following table presents the results of the analysis based on a multiple of revenues:
                                 
Helix HEARx Helix HEARx
In USD Equity Value Equity Value relative % relative %





Low
  $ 24M     $ 46M       34 %     66 %
High
  $ 33M     $ 60M       36 %     64 %
Agreement Implied Ratio
                    42 %     58 %

        The following table presents the results of the analysis based on a multiple of operating earnings (before corporate expenses):
                                 
Helix HEARx Helix HEARx
In USD Equity Value Equity Value relative % relative %





Low
  $ 17M     $ 37M       32 %     68 %
High
  $ 30M     $ 58M       36 %     64 %
Agreement Implied Ratio
                    42 %     58 %

        c. Net tangible asset
 
        The net tangible asset for both corporations is not significant.
 
        d. Sensitivity analyses
 
        Finally, for all analyses, EYCF performed sensitivity analysis on certain key assumptions.

        3. Comparing the value of Helix as a stand-alone entity before the arrangement with the value of the new combined entity belonging to Helix’s shareholders after the arrangement:

        a. The value of the new combined entity belonging to Helix’s shareholders after the arrangement was derived from applying the proposed percentage ownership for Helix’s shareholders to the value of the new combined entity. The value was based on the result of the application of the discounted cash flow method. Management of both corporations prepared together the future cash flows used in the discounted cash flow analysis. EYCF analysed and discussed with management of each corporation these projections and their underlying assumptions. In determining the appropriate discount rates and terminal value, EYCF took into account the factors mentioned previously in the context of the combined entity;
 
        b. The value of Helix was based on the result of the application of the discounted cash flow method as well as Helix’s recent equity financings and prices that potential purchasers could be willing to pay for Helix. The discounted cash flow analysis was performed based on the financial forecasts prepared by management for Helix on a stand-alone basis;
 
        c. Summary
 
        In both cases, the analysis was done under two scenarios: (i) Helix makes no acquisitions; (ii) Helix makes a number of acquisitions to grow its business.

52


Table of Contents

        The following table presents the per share value to Helix’s shareholders derived from this analysis:
                 
In USD Helix Merged entity



Without acquisitions
               
Low
  $ 0.55     $ 0.90  
High
  $ 0.72     $ 1.10  
With acquisitions
               
Low
  $ 0.71     $ 1.50  
High
  $ 1.16     $ 2.00  
Recent financings
               
Low
  $ 0.92       n/a  
High
  $ 0.99       n/a  

        4. Considering any other factors or analyses which EYCF judged, based upon its experience, to be relevant in the circumstances.

      In arriving at its Opinion, EYCF did not attribute any particular weight to any specific analysis or factor considered, but rather have made a qualitative judgment based upon its experience in rendering such opinions and on the circumstances of the arrangement as well as the information, taken as a whole, concerning Helix, HEARx and the possible combined entity that was reviewed.

      Opinion of EYCF. On July 11, 2001, EYCF met with members of the board of directors of Helix and gave its opinion that based on the proposed exchange ratio and on the current quoted market prices for the Helix common shares and the HEARx common stock, the arrangement results in an erosion of value for the shareholders. Accordingly, for Helix shareholders who want to dispose of a small block of their shares, the arrangement may not be fair, from a financial point of view, if the market value of the HEARx common stock, following the consummation of the arrangement, does not recover.

      Subject to the foregoing, it was EYCF’s opinion that, as of July 11, 2001, the arrangement was fair, from a financial point of view, to the Helix shareholders. EYCF based its opinion that the arrangement is fair, from a financial point of view, on a variety of factors, including, among others, its assessment of the inherent value of Helix, HEARx and of the combined entity as well as their respective profitability and prospects for growth.

      EYCF believes that its analysis must be considered as a whole and that selecting portions of its analysis or the factors considered, without considering all factors and analyses together, could create a misleading view of the process underlying its opinion. The preparation of the opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Any attempt to do so could lead to undue emphasis on particular factors or elements of the analysis.

      EYCF has relied upon, and has assumed the completeness, accuracy and fair presentation of all financial and other information, data, advice, opinions and representations obtained from public sources or provided to EYCF by Helix or HEARx’s management or advisors or otherwise pursuant to its engagement. The opinion is conditional upon such completeness, accuracy and fair presentation. Subject to the exercise of professional judgment and except as expressly described in its opinion, EYCF has not attempted to verify independently the accuracy or completeness of any such information, data, advice, opinions or representations.

      The opinion is rendered on the basis of securities markets, economic and general business and financial conditions prevailing as at the date of the opinion and the condition and prospects, financial and otherwise, of Helix and HEARx as they were reflected in the information or the materials concerning Helix and HEARx reviewed by EYCF and as they were represented to EYCF in its discussions with the management of both Helix and HEARx. In its analyses and in connection with the preparation of its opinion, EYCF made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the arrangement.

53


Table of Contents

While EYCF believes that assumptions used are appropriate in the circumstances, some or all of the assumptions may prove to be incorrect.

      As compensation for its services in connection with the arrangement, Helix paid EYCF a fee of CDN $90,000 payable upon delivery of the opinion. No portion of the fee was contingent upon the conclusions reached by EYCF. For the purposes of rendering its opinion, EYCF reviewed documents and information provided by Helix and HEARx. Helix has agreed to indemnify EYCF for any fees, damages or judgments incurred, claimed or rendered against EYCF in connection with: (i) an intentional or unintentional omission or inaccuracy contained in any reviewed document or information approved by Helix’ authorized officer or director; or (ii) a legal or regulatory procedure instituted by a third party in connection with the EYCF fairness opinion.

      The full text of the written opinion of EYCF, dated July 11, 2001, which sets forth assumptions made, matters considered and restrictions, is attached as Annex H to this joint proxy statement/prospectus. Helix stockholders are urged to read this opinion in its entirety. EYCF opinion, which is addressed to the Helix board, is directed only to the fairness of the arrangement to Helix stockholders from a financial point of view and does not constitute a recommendation to any Helix stockholder as to how such stockholder should vote at the Helix special meeting and does not address any other aspect of the proposed arrangement or any related transaction. The summary of the opinion of EYCF set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion.

Opinion of Yorkton Securities Inc.

      Helix retained Yorkton Securities Inc. on January 8, 2002, to consider whether the proposed arrangement was still fair to the Helix shareholders, from a financial point of view, given the time that had elapsed since the merger agreement was originally signed. Helix chose Yorkton because of its qualifications, expertise and reputation. The following summarizes the material financial analysis conducted by Yorkton and the opinion presented to the board of directors of Helix on February 1, 2002.

     Opinion Process

      In arriving at the opinion, Yorkton, among other things:

        1. Reviewed certain publicly available business and financial information relating to Helix that Yorkton deemed to be relevant;
 
        2. Reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Helix and HEARx, furnished to Yorkton by Helix and HEARx, respectively;
 
        3. Conducted discussions with members of senior management and representatives of Helix and HEARx concerning the matters described in 1 and 2 above, as well as their respective business and prospects before and after giving effect to the transaction;
 
        4. Reviewed the trading volumes, market prices and valuation multiples for Helix’s and HEARx’s common stock and compared them with those of certain publicly traded companies that Yorkton deemed to be relevant;
 
        5. Compared the proposed financial terms of the transaction with the financial terms of certain other transactions that it deemed to be relevant;
 
        6. Reviewed the potential pro forma impact of the transaction;
 
        7. Reviewed the Amended and Restated Merger Agreement dated November 6, 2001; and
 
        8. Reviewed Amendment No. 1 to the Form S-4 Registration Statement, filed by HEARx with the Securities and Exchange Commission on January 15, 2002.

54


Table of Contents

      In arriving at an opinion, Yorkton performed a comparable company analysis, a precedent transaction analysis, a discounted cash flow analysis and a market value analysis.

     Comparable Company Analysis

      Yorkton compared the financial results of Helix and HEARx to eight public companies in four related areas of the healthcare industry. Outside of Helix and HEARx, there is only one other public hearing aid retailer, Sonus Corp. As such, additional public companies were considered in the areas of healthcare retail and service in order to obtain a more representative universe of companies. The companies reviewed include:

  Eye Care Retailers
 
  Cole National Corp.
  Emerging Vision Inc.
  Sight Resounce Corp.
  U.S. Vision Inc.
 
  Dialysis Clinic Operators
 
  DaVita Inc.
  Renal Care Group Inc.
 
  Hearing Aid Manufacturers
 
  Sonic Innovations Inc.
 
  Hearing Aid Retailers
 
  Sonus Corp.

      Yorkton examined the following four key financial multiples for the aforementioned healthcare companies: (1) enterprise value (market capitalization plus debt less cash and cash equivalents) (“EV”) to trailing twelve month (“T12”) revenue, (2) EV to run rate (“RR”) revenue, and (3) market capitalization (“Price”) to T12 revenue and (4) Price to RR revenue.

      The comparable company analysis yielded an EV to T12 revenue and an EV to RR revenue of 0.3x for those companies focused on the healthcare retail sector (Eye Care and Hearing Aid Retailers) and an adjusted average (excluding both the highest and lowest values) of 0.7x for all companies considered. The healthcare retail companies had Price to T12 revenue multiples and Price to RR revenue multiples of 0.2x and an adjusted average of 0.6x.

55


Table of Contents

      Applying these multiples to both Helix and HEARx results in the following implied relative exchange ratios:

Enterprise Value Analysis

                                                                         
Helix HEARx HEARx*
Min Max Min Max Min Max



T12 Revenue
          $ 47.4                     $ 82.0                     $ 67.6          
EV/ T12 Revenue Multiple
    0.3x               0.7x       0.3x               0.7x       0.3x               0.7x  
Implied EV
  $ 14.2             $ 33.2     $ 24.6             $ 57.4     $ 20.29             $ 47.35  
Add:  Cash
          $ 2.8                     $ 9.1                     $ 9.1          
Less:  Debt
          $ 22.7             $ 12.3                             $ 12.3          
Implied Equity Value
  $ (5.7)             $ 13.3     $ 21.5             $ 54.3     $ 17.2             $ 44.2  
Shares Outstanding (million)
            46.2                       16.2                       16.2          
Implied Value Per Share
  $ (0.12)             $ 0.29     $ 1.33             $ 3.35     $ 1.06             $ 2.73  
 
Implied Exchange Ratio
                          (0.0929) - 0.0857   (0.1161) - 0.1052


Excludes 50% of HEARx West revenue

Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$
                                                                         
Helix HEARx HEARx*
Min Max Min Max Min Max



RR Revenue
          $ 45.5                     $ 79.8                     $ 66.5          
EV/ RR Revenue Multiple
    0.3x               0.7x       0.3x               0.7x       0.3x               0.7x  
Implied EV
  $ 13.7             $ 31.9     $ 23.9             $ 55.9     $ 19.96             $ 46.58  
Add:  Cash
          $ 2.8                     $ 9.1                     $ 9.1          
Less:  Debt
          $ 22.7                     $ 12.3                     $ 12.3          
Implied Equity Value
  $ (6.3)             $ 11.9     $ 20.8             $ 52.7     $ 16.8             $ 43.5  
Shares Outstanding (million)
            46.2                       16.2                       16.2          
Implied Value Per Share
  $ (0.14)             $ 0.26     $ 1.29             $ 3.26     $ 1.04             $ 2.68  
 
Implied Exchange Ratio
                          (0.1054) - 0.0794   (0.1303) - 0.0964


Excludes 50% of HEARx West revenue

Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$

56


Table of Contents

Market Capitalization Analysis

                                                                         
Helix HEARx HEARx*
Min Max Min Max Min Max



T12 Revenue
          $ 47.4                     $ 82.0                     $ 67.6          
Price/ T12 Revenue Multiple
    0.2x               0.6x       0.2x               0.6x       0.2x               0.6x  
Implied Price
  $ 9.5             $ 28.4     $ 16.4             $ 49.2     $ 13.5             $ 40.6  
Shares Outstanding (million)
            46.2                       16.2                       16.2          
Implied Value Per Share
  $ 0.21             $ 0.62     $ 1.01             $ 3.04     $ 0.84             $ 2.51  
 
Implied Exchange Ratio
                          0.2027   0.2457


Excludes 50% of HEARx West revenue

Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$
                                                                         
Helix HEARx HEARx*
Min Max Min Max Min Max



RR Revenue
          $ 45.5                     $ 79.8                     $ 66.5          
Price/ T12 Revenue Multiple
    0.2x               0.6x       0.2x               0.6x       0.2x               0.6x  
Implied Price
  $ 9.1             $ 27.3     $ 16.0             $ 47.9     $ 13.3             $ 39.9  
Shares Outstanding (million)
            46.2                       16.2                       16.2          
Implied Value Per Share
  $ 0.20             $ 0.59     $ 0.99             $ 2.96     $ 0.82             $ 2.46  
 
Implied Exchange Ratio
                          0.1999   0.2399


Excludes 50% of HEARx West revenue

Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$

     Additional multiples were considered such as EV to earnings before interest, taxes and depreciation and amortization (“EBITDA”) and EV to earnings before interest and taxes (“EBIT”). However, applying these multiples to both Helix and HEARx was not possible as each company had either negative or limited results for both EBITDA and EBIT during the last twelve months and in the most recent quarter.

     Precedent Transaction Analysis

      Yorkton analyzed seven precedent transactions including one transaction involving companies in the hearing care industry (Amplifon Group’s purchase of Acoudire BV). The remaining six transactions involved companies in the eye care industry.

     
Acquirer Target


Norcross Roberts Group
  U.S. Vision
Luxottica Group
  Sunglass Hut International
Amplifon Group
  Acoudire BV
Eye Care Centers of America
  Vision Twenty-One Inc.
National Vision Associates Ltd.
  Frame-n-Lens Optical Inc.
National Vision Associates Ltd.
  New West Eyeworks Inc.
Thomas H. Lee Co.
  Eye Care Centers of America Inc.

57


Table of Contents

      Due to the limited financial disclosure available for these transactions combined with either the limited or negative results for Helix and HEARx for both EBITDA and EBIT over the last twelve months and the most recent quarter, the financial analysis performed concentrated on EV to T12 revenue and Price to T12 revenue for each company. The adjusted average for the seven transactions selected is 1.0x for EV to T12 revenue and 0.8x for price to T12 revenue implying the following relative exchange ratios for Helix shareholders:

Enterprise Value Analysis

                                                 
Helix HEARx
Min Max Min Max


T12 Revenue
          $ 47.4                     $ 82.0          
EV/ T12 Revenue Multiple
    0.9x               1.1x       0.9x               1.1x  
Implied EV
  $ 42.7             $ 52.1     $ 73.8             $ 90.2  
Add:  Cash
          $ 2.8                     $ 9.1          
Less:  Debt
          $ 22.7                     $ 12.3          
Implied Equity Value
  $ 22.8             $ 32.2     $ 70.7             $ 87.1  
Shares Outstanding (million)
            46.2                       16.2          
Implied Value Per Share
  $ 0.49             $ 0.70     $ 4.36             $ 5.37  
 
Implied Exchange Ratio
                          0.1130 - 0.1299


Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$
                                                 
Helix HEARx
Min Max Min Max


T12 Revenue
          $ 47.4                     $ 67.6          
EV/ T12 Revenue Multiple
    0.9x               1.1x       0.9x               1.1x  
Implied EV
  $ 42.7             $ 52.1     $ 60.9             $ 74.4  
Add:  Cash
          $ 2.8                     $ 9.1          
Less:  Debt
          $ 22.7                     $ 12.3          
Implied Equity Value
  $ 22.8             $ 32.2     $ 57.8             $ 71.3  
Shares Outstanding (million)
            46.2                       16.2          
Implied Value Per Share
  $ 0.49             $ 0.70     $ 3.56             $ 4.40  
 
Implied Exchange Ratio
                          0.1382 - 0.1587


Excludes 50% of HEARx West revenue

Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$

58


Table of Contents

Market Capitalization Analysis

                                                 
Helix HEARx
Min Max Min Max


T12 Revenue
          $ 47.4                     $ 82.0          
Price/ T12 Revenue Multiple
    0.7x               0.9x       0.7x               0.9x  
Implied Price
  $ 33.2             $ 42.7     $ 57.4             $ 73.8  
Shares Outstanding (million)
            46.2                       16.2          
Implied Value Per Share
  $ 0.72             $ 0.92     $ 3.54             $ 4.56  
 
Implied Exchange Ratio
  0.2027


Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$
                                                 
Helix HEARx
Min Max Min Max


T12 Revenue
          $ 47.4                     $ 67.6          
Price/ T12 Revenue Multiple
    0.7x               0.9x       0.7x               0.9x  
Implied Price
  $ 33.2             $ 42.7     $ 47.4             $ 60.9  
Shares Outstanding (million)
            46.2                       16.2          
Implied Value Per Share
  $ 0.72             $ 0.92     $ 2.92             $ 3.76  
 
Implied Exchange Ratio
  0.2457


Excludes 50% of HEARx West revenue

Notes:

1.  All figures in CDN$ millions except for per share amounts
 
2.  Helix financial numbers as at November 30, 2001; HEARx financial numbers as at September 29, 2001
 
3.  Shares outstanding as at January 14, 2002
 
4.  Based on exchange rate of 1.603 CDN$:US$

     Discounted Cash Flow Analysis

      Yorkton performed a discounted cash flow analysis (DCF) for Helix, HEARx, and the combined entities for the years 2002 to 2006. The unlevered cash flows (EBITDA less capital expenditures and investment in working capital) were based on financial forecasts provided by Helix.

      The unlevered cash flows were discounted using a range of discount rates from 14% to 16%, which reflects the internal rate of return (IRR) an average investor would seek taking into account the current status of each of the respective businesses. The terminal year used was 2006 with a perpetual growth rate of 3% applied to that year which was then discounted at rates discussed above.

      The DCF analysis yielded an implied exchange ratio (Helix/ HEARx) ranging from 0.0862 to 0.1430 compared to the negotiated exchange ratio of 0.3537.

59


Table of Contents

     Market Value Analysis

      Yorkton examined the relative exchange ratio over various time periods and compared that to the negotiated exchange ratio of 0.3537. The following table summarizes the historical relative exchange ratios (Helix/ HEARx):

                         
Implied Ratio
Helix HEARx (HCA/EAR)



Spot Price (01/24/02)
  $ 0.80     $ 1.92       0.4159  
30-day Average
  $ 0.80     $ 1.58       0.5062  
60-day Average
  $ 0.81     $ 1.56       0.5223  
365-day Average
  $ 1.10     $ 2.19       0.5018  
Average
                    0.4865  

      In reviewing the relative exchange ratios outlined above, Yorkton also analyzed the liquidity in the trading of Helix shares. Although the proposed arrangement between Helix and HEARx does not qualify as a special transaction, Yorkton looked to the liquidity guidelines outlined under rule 61-501 of the Ontario Securities Act under Section 1.3 (“Liquid Market in a Class of Securities”). Specifically, Yorkton examined the following liquidity factors:

        1. Number of shares outstanding
 
        2. Number of shares traded over the last twelve months
 
        3. Number of trades over the last twelve months
 
        4. Aggregate value of the trades over the last twelve months
 
        5. The total market capitalization of the company

      The aggregated value of the trades over the last twelve months was only $3.9 million representing less than 15% of the current market value of Helix. Helix has never traded at a market capitalization greater than $75 million at any time over the last twelve months. This illiquidity of the Helix shares outlined above, reduced Yorkton’s focus on the implied relative exchange ratios outlined above.

     Analysis Summary

      In preparation of the opinion, Yorkton assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to it, discussed with or reviewed by or for it, or publicly available, and has not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of Helix or HEARx. In addition, Yorkton has not assumed any obligation to conduct, nor has it conducted, any physical inspection of the properties or facilities of Helix or HEARx. With respect to the financial forecast information furnished by Helix or HEARx, Yorkton has assumed that the information has been reasonably prepared and reflects the best currently available estimates and judgements of Helix’s or HEARx’s management as to the expected future financial performance of Helix or HEARx, as the case may be. Yorkton also assumes that the final form of the arrangement will be substantially similar to the last draft reviewed by it.

      Yorkton’s opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated on, and on the information made available to them as of, the date hereof. Yorkton has assumed that in the course of obtaining the necessary regulatory or other consents or approvals (contractual or otherwise) for the transaction, no restrictions including any divestiture requirements or amendments or modifications, will be imposed that will have a material adverse effect on the contemplated benefits of the merger. In the event that there is any material change in any fact or matter affecting the opinion after the date of the opinion, Yorkton reserves the right to change, modify or withdraw the opinion.

      In connection with the preparation of this opinion, Yorkton has not been authorized by Helix or the board of directors to solicit, nor has it solicited, third-party indications of interest for all or any part of Helix.

60


Table of Contents

      Helix has agreed to indemnify Yorkton for certain liabilities arising out of its engagement. In the ordinary course of its business, Yorkton may actively trade Helix’s common stock, as well as HEARx’s common stock for its own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. As compensation for Yorkton’s services in connection with the opinion, Helix paid Yorkton a fee of CDN $200,000 payable upon delivery of the opinion. No portion of the fee was contingent upon the conclusions reached by Yorkton.

      In arriving at this opinion, Yorkton did not attribute any particular weight to any analysis or factor considered by it, but rather, made qualitative judgements as to the significance and relevance of each analysis and factor. Accordingly, Yorkton believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering all analyses, would create an incomplete view of the process underlying this opinion.

     Opinion of Yorkton

      On the basis of and subject to the foregoing, Yorkton is of the opinion that, as of February 1, 2002, the exchange ratio is fair, from a financial point of view, to the stockholders of Helix.

      The full text of the written opinion of Yorkton, dated February 1, 2002, which sets forth assumptions made, matters considered and restrictions, is attached as Annex I to this joint proxy statement/prospectus. Helix stockholders are urged to read this opinion in its entirety. The Yorkton opinion which is addressed to the Helix board, is rendered only to the fairness of the arrangement to Helix stockholders from a financial point of view; it does not constitute a recommendation to any Helix stockholder as how such stockholder should vote at the Helix special meeting and does not address any other aspect of the proposed arrangement or any related transaction. The summary of the opinion of Yorkton set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion.

Interests of Certain Persons in the Arrangement

      The determinations of the boards of HEARx and Helix to participate in the arrangement may have been affected by interests that certain members of management and the board of directors of each of HEARx and Helix may have in the arrangement, including those referred to below. These interests may present those persons with actual or potential conflicts of interest in connection with the arrangement. The directors of HEARx and Helix were aware of these interests and considered them before their final unanimous approval of the arrangement.

      Immediately following the effective time, the board of directors of HEARx will consist of a number of current directors of each of HEARx and Helix. In addition, under the terms of the merger agreement, HEARx has agreed to offer to retain some members of the management of Helix and to offer them employment agreements that will provide for payments to each of those employees in the event of termination of their employment without cause, or upon death, disability or resignation of or by the employee in certain instances at any time within five years of the date of their employment agreement. These employees will also be released, in such events, from the vesting and other conditions placed on their options or other securities on the date of grant or issuance thereof. The employment agreements will provide for the grant of certain rights to the employee in the event of a change of control of HEARx.

Accounting Treatment

      For financial reporting purposes, the arrangement is reflected as the acquisition by a wholly owned subsidiary of HEARx of the Helix common shares, at the value of those shares immediately before the announcement of the July 27, 2001 definitive agreement. The arrangement will be accounted for as a purchase. HEARx will become the continuing reporting entity and the financial statements of HEARx will incorporate the results of Helix from the date of consummation of the arrangement. Helix will cease to be a separate accounting entity at that date.

61


Table of Contents

 
Consequences under Securities Laws; Resale of Exchangeable Shares and HEARx Shares
 
United States

      The issuance of exchangeable shares to Helix stockholders will not be registered under U.S. federal securities laws. These shares will be issued in reliance upon the exemption provided by Section 3(a)(10) of the Securities Act of 1933. Section 3(a)(10) exempts securities issued in exchange for one or more bona fide outstanding securities from the general requirement of registration where the terms and conditions of the issuance and exchange of those securities have been approved by any court, after a hearing upon the fairness of the terms and conditions of the issuance and exchange at which all persons to whom the securities will be issued have the right to appear.

      In connection with the arrangement, the Superior Court of Québec, District of Montreal, will conduct a hearing to determine the fairness of the terms and conditions of the arrangement, including the proposed issuance of securities in exchange for other outstanding securities. The court rendered its interim order on                     , 2002. If the arrangement is approved by the Helix stockholders, a hearing on the fairness of the arrangement will be held on                     , 2002 by the court. For more details, see “The Arrangement — The Amended and Restated Merger Agreement — Regulatory Matters.”

      HEARx has registered under the Securities Act, pursuant to a registration statement of which this joint proxy statement/prospectus forms a part, 14.7 million shares of HEARx common stock that will be issued in the arrangement and that will be issued from time to time upon the exchange of the exchangeable shares and 4.3 million shares that may be issued upon the exercise of the replacement options, warrants and convertible securities. These share amounts were calculated by applying the exchange ratio to the number of shares of Helix outstanding as of the date of this joint proxy statement/prospectus and then adding the number of HEARx shares of common stock necessary for exercise of the replacement options, warrants and convertible securities of Helix derived by multiplying the exchange ratio by the number of Helix shares otherwise underlying such securities. In each case, the resulting number was rounded up to the next tenth of a million shares. HEARx has also registered pursuant to the registration statement of which this joint proxy statement/ prospectus forms a part an additional approximately 4 million shares to be issued from time to time under the HearUSA 2002 Flexible Stock Plan.

      There will be no U.S. federal securities law restrictions upon the resale or transfer of the shares of HEARx common stock by Helix stockholders, except for those stockholders who are considered “affiliates” of HEARx, as that term is defined in Rule 144 and Rule 145 adopted under the Securities Act. Exchangeable shares and shares of HEARx common stock received by those stockholders who are considered to be “affiliates” of HEARx may be resold without registration only as provided by Rule 145 or as otherwise permitted under the Securities Act. Persons who may be considered to be affiliates of HEARx generally include individuals or entities that control, are controlled by, or are under common control with HEARx and may include the executive officers and directors of HEARx as well as its principal stockholders.

 
Canada

      HEARx, HEARx Canada Inc. and Helix will apply for rulings or orders of certain securities regulatory authorities in Canada to permit the issuance of the exchangeable shares and the shares of HEARx common stock upon exchange of exchangeable shares and upon exercise of the replacement options, warrants and convertible securities. Application will be made to permit resale of those shares in various jurisdictions without restriction by persons other than “control persons.”

 
Fees and Expenses

      The combined estimated fees and expenses of HEARx and Helix in connection with the arrangement, including financial advisors’ fees, filing fees, legal and accounting fees, soliciting fees and printing and mailing costs, is approximately $2.3 million. Approximately $700,000 of these fees and expenses were paid by HEARx as of September 29, 2001 and approximately $348,000 of these fees and expenses were paid by Helix as of August 31, 2001. These amounts are reflected in the unaudited pro forma condensed combined financial information included elsewhere in this joint proxy statement/prospectus.

62


Table of Contents

 
Voting Agreement and Proxy

      Pursuant to a stockholders agreement, 3319725 Canada, Inc., Les Partenaires de Montreal, s.e.c., Duval Holdings, Inc., Steve Forget, Martin Cousineau, Richard Doucet, Luc Parent and Gestion Fremican Inc. have agreed to vote their Helix common shares in favor of the approval of the arrangement, the proposals set forth in this joint proxy statement/prospectus and any other transaction proposed by Helix. They have also agreed to vote their Helix common shares against any proposal for an extraordinary transaction with respect to Helix, including an arrangement or merger other than the arrangement described in this joint proxy statement/prospectus or a sale of a material amount of the assets of Helix. In addition, these stockholders have granted to Paul A. Brown and Stephen J. Hansbrough an irrevocable proxy to vote their Helix common shares in a manner consistent with the preceding sentence. See “The Arrangement — The Stockholders Agreement” for a more detailed description of the terms of the stockholders agreement.

 
Stock Options

      Helix’s executive officers and directors hold options to acquire Helix common shares. At the effective time, all such options, whether or not exercisable, will be converted, based upon the exchange ratio, into and become rights with respect to HEARx common stock. HEARx will assume each such option in accordance with its terms and the related stock option agreement. At February 7, 2002, the directors and executive officers and affiliates of Helix collectively held options, whether or not then exercisable, to acquire a total of 1,988,990 Helix common shares at a weighted average exercise price of $1.40 per share.

 
Dissenters’ or Appraisal Rights

      Under applicable law, HEARx stockholders do not have rights to dissent or to appraisal of the value of their shares in connection with the arrangement.

      As indicated in the notice of the Helix meeting, any holder of Helix common shares is entitled to be paid the fair value of all, but not less than all, of those shares in accordance with section 190 of the Canada Business Corporations Act if the stockholder dissents to the arrangement and the arrangement becomes effective. A holder of Helix common shares is not entitled to dissent with respect to the arrangement if he votes any of such shares in favor of the proposal and the special resolution authorizing the arrangement. A holder may only object to the proposal in writing and not through the execution of a proxy. The execution or exercise of a proxy does not constitute a written objection for purposes of the Canada Business Corporations Act.

      The following summary is not a complete statement of the procedures to be followed by a dissenting stockholder under the Canada Business Corporations Act. The Canada Business Corporations Act requires adherence to the procedures and failure to do so may result in the loss of all dissenter’s rights. Accordingly, each stockholder who might desire to exercise dissenter’s rights should carefully consider and comply with the provisions of section 190 and consult his legal adviser. The full text of section 190 of the Canada Business Corporations Act is set out in Annex J to this joint proxy statement/prospectus.

      A dissenting stockholder who seeks payment of the fair value of his Helix common shares is required to send a written notice of objection to the special resolution to Helix at or prior to the Helix meeting. A failure to vote against the proposal at or before the meeting does not constitute a waiver of dissent and appraisal rights as long as the written notice of objection is transmitted to Helix at or before the meeting. The address for Helix for such purpose is Helix Hearing Care of America Corp., 7100 Jean-Talon East, Montreal, Québec, H1M 3S3, Attention: Secretary. A vote against the proposal, and therefore, the special resolution or withholding a vote does not constitute a written objection. A written objection is defined in Section 190 of the Canada Business Corporations Act.

      Within 10 days after the proposal and the special resolution is approved by stockholders, Helix must so notify the dissenting stockholder who is then required, within 20 days after receipt of such notice, (or if he does not receive such notice within 20 days after he learns of the approval of the special resolution), to send to Helix a written notice containing his name and address, the number and class of shares in respect of which he dissents and a demand for payment of the fair value of such shares. Within 30 days after sending such written

63


Table of Contents

notice, the dissenting shareholder must send Helix or its transfer agent, Computershare Trust Company of Canada, the appropriate share certificate or certificates.

      If the proposal contemplated in the special resolution becomes effective, Helix is required to determine the fair value of the shares and to make a written offer to pay such amount to the dissenting stockholder. If such offer is not made or not accepted within 50 days after the proposal and the special resolution becomes effective, Helix may apply to the court to fix the fair value of such shares. There is no obligation on Helix to apply to the court. If Helix fails to make such an application, a dissenting stockholder has the right to so apply within the next 20 days. If an application is made by either party, the dissenting stockholder will be entitled to be paid the amount fixed by the court. The fair value of the Helix common shares as determined for such purpose by a court will not necessarily be the same as, and could vary significantly from the fair market value, of such shares as determined for purposes of the arrangement.

      Persons who wish to dissent and who are beneficial owners of Helix common shares registered in the name of a broker, custodian, nominee or other intermediary should be aware that ONLY A REGISTERED STOCKHOLDER IS ENTITLED TO DISSENT. A stockholder who beneficially owns Helix common shares but is not the registered holder thereof, should contact the registered holder for assistance.

 
Exchange of Helix Common Share Certificates

      At the effective time of the arrangement, HEARx Canada Inc. will become the legal and beneficial owner of all of the Helix common shares other than Helix common shares held by HEARx or HEARx Acquisition ULC. Each certificate formerly representing Helix common shares will represent only the right to receive the exchangeable shares or the HEARx common stock issuable in the arrangement until those certificates are surrendered to the exchange agent. The exchange agent for the arrangement is Computershare Trust Company of Canada.

      Helix stockholders will receive with this joint proxy statement/prospectus a letter of transmittal and election form for use in exchanging Helix common share certificates for exchangeable share certificates or HEARx common stock certificates. When a Helix stockholder surrenders his share certificates, together with a signed letter of transmittal and election form, he will receive in exchange, after the effective time of the arrangement, certificate(s) representing the whole exchangeable shares or shares of HEARx common stock to which he is entitled.

      If you are a holder of Helix common shares and are contemplating voting against the arrangement and requesting dissenter’s rights, please see “The Arrangement — Dissenters’ or Appraisal Rights” above for a detailed explanation of the procedures for doing so.

 
Treatment of Outstanding Helix Stock Options, Warrants and Convertible Securities

      On February 7, 2002, Helix had outstanding various options, warrants and convertible securities exercisable for up to 11,967,563 common shares. These options, when vested, would be exercisable to acquire a total of approximately 2,710,090 Helix common shares at prices between CDN$1.40 and CDN$1.45 with various expiration dates through December 31, 2005. The warrants are exercisable to acquire a total of approximately 3,687,212 Helix common shares at prices between CDN$1.55 and CDN$2.75 with various expiration dates to November 29, 2003. The convertible securities are exercisable to acquire a total of approximately 5,570,261 Helix common shares at prices between CDN$1.53 and CDN$3.00 with various expiration dates to August 6, 2003.

      After completion of the arrangement, each outstanding Helix option will be exchanged for a replacement option issued under the HearUSA 2002 Flexible Stock Plan. Each replacement option will entitle its holder to purchase a number of shares of HEARx common stock equal to the number of common shares of Helix for which it is exercisable multiplied by the exchange ratio. The replacement option will provide for an exercise price per share of HEARx common stock equal to the exercise price per share of the Helix option immediately prior to the effectiveness of the arrangement converted from Canadian dollars to U.S. dollars at the noon spot rate announced by the Federal Reserve on the business day immediately preceding the effective date of the arrangement divided by the exchange ratio. The term to expiration of the option will be extended to ten years, but the vesting schedule will be unchanged. The replacement option will be subject to the terms and

64


Table of Contents

conditions of the HearUSA 2002 Flexible Stock Plan. See “Other HEARx Special Meeting Proposals — Adoption of the HearUSA 2002 Flexible Stock Plan” for a detailed discussion of the plan.

      Each outstanding Helix warrant and convertible security will remain outstanding and be exercisable for exchangeable shares based on the exchange ratio. Each warrant and convertible security will entitle its holder to purchase the number of exchangeable shares equal to the number of common shares of Helix for which it was exercisable multiplied by the exchange ratio. The exercise price shall be the exercise price per share of such security immediately prior to the effective time of the arrangement divided by the exchange ratio. The term to expiration of the warrants and convertible securities and all other terms and conditions of the warrants and convertible securities will otherwise remain unchanged. Any document or agreement previously evidencing a Helix warrant or convertible security will remain unchanged, except that it will apply to exchangeable shares.

Actions of HEARx and Helix Prior to the Arrangement

      The merger agreement contains covenants customary in transactions of this type for each of HEARx and Helix, which apply between July 27, 2001, and completion of the arrangement. The following summarizes some of these covenants:

  •  to operate their businesses and to cause each of their subsidiaries to conduct their businesses in the usual, ordinary and regular course consistent with past practice and not to enter into any commitments of a capital expenditure nature or incur any contingent liability that would exceed CDN$100,000 in the aggregate;
 
  •  not to issue, sell, pledge, lease, dispose of, encumber any additional shares of, or any options, warrants, calls, conversion privileges or rights of any kind to acquire any shares of capital stock or agree to do any of the foregoing or to sell any assets other than in the ordinary course of business;
 
  •  not to amend or propose to amend their articles or certificate of incorporation or bylaws or those of any of their respective subsidiaries;
 
  •  not to subdivide, consolidate or reclassify any outstanding securities or declare, set aside or pay any dividend or other distribution payable in cash, securities, property or otherwise with respect to any of their outstanding securities;
 
  •  not to redeem, purchase or offer to purchase any outstanding securities;
 
  •  not to reorganize, combine or merge with any other person;
 
  •  not to reduce their stated capital;
 
  •  not to acquire or agree to acquire (by merger, combination, acquisition of shares or assets or otherwise) any person, corporation, partnership or other business organization or division or acquire or agree to acquire any material assets,
 
  •  not to satisfy any material claims or liabilities, repay (other than regularly scheduled principal and interest payments) any indebtedness for borrowed money or relinquish any material contractual rights, other than the repayment by Helix of certain of its convertible debt;
 
  •  not to incur or commit to incur any indebtedness for borrowed money or issue any debt securities, or guarantee or otherwise become responsible for the obligations of any other person, corporation, partnership or other entity, organization or division whatsoever, or enter into any interest rate, currency or commodity swaps, hedges or other similar financial instruments;
 
  •  not to enter into any new line of business, enter into any material transaction not in the ordinary course of business, enter into any material contract or agreement, or amend in any material respect any material contracts, including without limitation any agreements or arrangements with suppliers or vendors, or any real property leases;
 
  •  not to take any action that is intended or that may reasonably be expected to result in any of their representations or warranties set forth in the merger agreement being or becoming untrue, or in any of the conditions of the arrangement not being satisfied;

65


Table of Contents

  •  not to change their methods of accounting except as required by changes in generally accepted accounting principles in concurrence with each of Helix and HEARx’s independent auditors;
 
  •  not to enter into any agreement or arrangement that would limit or restrict any of their or their respective subsidiaries or any successor thereto, from engaging or competing in any line of business or in any geographic area;
 
  •  not to enter into or modify any employment, severance, collective bargaining, incentive stock option or similar agreements, policies or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any officers or directors other than pursuant to agreements, policies or arrangements in effect (without amendment) on July 27, 2001;
 
  •  in the case of employees who are not officers or directors, not to take any action other than reasonable actions in the ordinary, regular and usual course of business and consistent with past practice with respect to the entering into or modifying of any employment, severance, collective bargaining or similar agreements, policies or arrangements or with respect to the grant of any bonuses, salary increases, stock options, pension benefits, retirement allowances, deferred compensation, severance or termination pay or any other form of compensation or profit sharing or with respect to any increase of benefits payable otherwise than pursuant to agreements, policies or arrangements in effect (without amendment) on the date of the merger agreement;
 
  •  not to enter into or modify any consulting or similar commitment, agreement or arrangement;
 
  •  not to hire any new employees at a rate of compensation including salary and bonuses in excess of US$75,000 annually;
 
  •  to use their best efforts to cause their current insurance (or re-insurance) policies not to be canceled or terminated or any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance and re-insurance companies of nationally recognized standing providing coverage equal to or greater than the coverage under the canceled, terminated or lapsed policies for substantially similar premiums are in full force and effect;
 
  •  to use their best efforts, and cause each of their subsidiaries to use its best efforts, to preserve intact their respective business organizations and goodwill, to keep available the services of their officers and employees as a group and to maintain satisfactory relationships with suppliers, agents, distributors, customers and others having business relationships with their or their subsidiaries;
 
  •  to maintain all of their properties and assets in good repair, order and condition;
 
  •  to maintain their books of account and records in the usual, regular and ordinary manner, in accordance with generally accepted accounting principles, consistently applied;
 
  •  to comply with all laws, regulations and orders applicable to their and the conduct of their businesses;
 
  •  not to take any action, or permit any of their subsidiaries to take any action that would render, or that reasonably may be expected to render, any representation or warranty made by their untrue at any time on or prior to the effective date;
 
  •  to confer on a regular basis each other with respect to operational matters and promptly notify the other orally and in writing of any material adverse change in the normal course of its or its subsidiaries’ businesses or in the operation of their or their subsidiaries’ businesses or properties (in each case on a consolidated basis), and of any material governmental or third party complaints, investigations or hearings (or communications indicating that the same may be contemplated);
 
  •  not to settle or compromise any claim brought by any present, former or purported holder of any of their securities or any party to any agreement with their in connection with the arrangement; and
 
  •  to ensure that their board of directors refrains from taking any action pursuant to employment agreements or similar agreements between their and any of their officers or employees which would have the effect of permitting such persons to terminate their employment and to thereupon become

66


Table of Contents

  entitled to receive payments from the other party, as a result of the arrangement or any other action contemplated hereby.

Covenant Regarding Non-Solicitation

      Helix has agreed not to solicit any proposal to be acquired by another party. However, if another party does propose to acquire Helix and the Helix board of directors determines in good faith that the proposal is a superior proposal, then the board of directors can negotiate and approve the superior proposal and recommend it to the Helix stockholders. In that event, however, HEARx can terminate the merger agreement and Helix must pay HEARx the break-up fee of $1.0 million. An acquisition proposal will be considered superior if the board of directors determines in good faith, after receiving advice of its financial advisors and its outside counsel and after taking into account all relevant factors, that the proposal would result in a transaction financially superior for the Helix stockholders than the arrangement. Those factors can include the conditions to such proposal, the timing of the closing thereof, the risk it will not be consummated, the ability of the person making the proposal to finance the transaction and any required consents, filings and approvals.

      In the event of a superior proposal, Helix has agreed to provide HEARx with five days prior notice and an opportunity to amend the merger agreement to provide for substantially similar financial terms to those included in the superior proposal.

Representations and Warranties

      The merger agreement contains, subject to specified exceptions and qualifications, representations and warranties customary in transactions of this type for each of HEARx and Helix, including representations and warranties with regard to the following:

  •  organization, qualification, standing and similar corporate matters for the Company and its subsidiaries;
 
  •  its capital structure, including the number of authorized shares and the number of shares outstanding;
 
  •  the authorization, performance and enforceability of the arrangement agreement;
 
  •  the absence of any violation of its or the Company’s subsidiaries’ governing instruments or applicable laws and agreements, governmental filings, authorizations and consents required to complete the arrangement;
 
  •  the absence of any default or violation of its or the Company’s subsidiaries’ judgments, decrees, orders, agreements and other instruments;
 
  •  since the end of its most recently completed fiscal year, the Company and its subsidiaries have conducted their respective businesses only in the ordinary course of business, there has been;
 
  •  material adverse changes relating to its financial condition, results of operations, prospects, assets, liabilities or material damage to the Company’s or its subsidiaries’ business or properties;
 
  •  no payment of any dividend or other distribution in respect of its capital stock or redemption or repurchase of the same;
 
  •  no change in its capitalization;
 
  •  no material liability has been incurred;
 
  •  no disposal or acquisition of any property or assets other than in the ordinary course of business;
 
  •  no change to its accounting principals and practices or compensation of any of its employees;
 
  •  no material loans or advances and no payments to or agreements with any party not dealing at arm’s length with the Company or its subsidiaries;

67


Table of Contents

  •  the filing of all required securities reports and financial statements with securities regulators and the American Stock Exchange or The Toronto Stock Exchange;
 
  •  the absence of any untrue statements of material fact or omission of material facts in the documents filed with securities regulators;
 
  •  that its material contracts, employee compensation plans, employee agreements, intellectual property, debt instruments and guarantees are as stated in the schedules to the arrangement agreement;
 
  •  the disclosure of all material adverse information;
 
  •  the fair presentation of its financial condition in the financial statements filed with securities regulators;
 
  •  compliance with all material applicable laws and disclosure of all material litigation;
 
  •  that its environmental, tax matters, employee benefit matters, intellectual property matters and the title to its properties all are as stated in the arrangement agreement; and
 
  •  the absence of any broker or financial advisor fees to be paid by it in connection with the arrangement.

The representations and warranties will not be a basis for indemnity claims after the completion of the arrangement.

Conditions to Consummation

      The obligations of HEARx to complete the arrangement are subject to satisfaction or waiver of the following conditions:

  •  the accuracy of the representations and warranties of Helix in all material respects at the effective time of the arrangement;
 
  •  the performance and compliance by Helix in all material respects of the covenants and agreements under the merger agreement;
 
  •  the approval of the respective stockholders of the arrangement and the transactions contemplated by the merger agreement;
 
  •  the absence of any act, action, suit or proceeding pending or threatened that could reasonably be expected to have the effect of making illegal, or otherwise restraining or prohibiting the arrangement or making it materially more costly, prohibiting or materially limiting the ownership or operation of all or any material portion of the business or assets of Helix or any of its subsidiaries, imposing or confirming limitations on the ability of HEARx, directly or indirectly, effectively to acquire or hold or to exercise full rights of ownership of the Helix common shares, requiring divestiture of any Helix common shares or material assets of Helix or any of its subsidiaries, or materially adversely affecting the business, financial condition or results of operations of Helix and its subsidiaries taken as a whole or the value of the Helix common shares to HEARx;
 
  •  the absence of any prohibition at law against completion of the arrangement or of any breach or default under any loan agreement, indenture, mortgage, lease or other material agreement of HEARx or Helix resulting from the completion of the arrangement;
 
  •  the absence of any change (or any condition, event or development involving a prospective change) in the business, operations, assets, capitalization, financial condition, licenses, permits, rights, privileges, prospects or liabilities (including without limitation any contingent liabilities that may arise through outstanding, pending or threatened litigation or otherwise), whether contractual or otherwise, of Helix or any of its subsidiaries which, in the sole judgment of HEARx, is or would be materially adverse to the business of Helix and its subsidiaries considered on a consolidated basis or to the value of the Helix common shares to HEARx;
 
  •  HEARx shall have determined in its sole judgment that Helix has not taken or proposed to take any action, or publicly disclosed that it intends to take any action, and HEARx shall not have otherwise

68


Table of Contents

  learned of any previous action taken by Helix which had not been publicly disclosed, which, in the sole judgment of HEARx, might make it inadvisable for HEARx to proceed with the Arrangement, or that would be materially adverse to the business of Helix and the Helix subsidiaries considered on a consolidated basis or to the value of the Helix common shares to HEARx; including, without limiting the generality of the foregoing, any action with respect to any agreement, proposal, offer or understanding relating to any material sale, disposition or other dealing with any of the assets or contracts of Helix or any of the Helix subsidiaries (other than any such sale, disposition or other dealing between Helix and any wholly owned Helix subsidiary), any issue of shares, options or other securities of Helix to any person other than a wholly owned Helix subsidiary, any material acquisition from a third party of assets or securities by Helix or any of the Helix subsidiaries, or any take over bid, amalgamation, statutory arrangement, capital reorganization, merger, business combination or similar transaction involving Helix or any of the Helix subsidiaries, or any material capital expenditure by Helix or any of the Helix subsidiaries not in the ordinary course of business;
 
  •  all approvals or exemptions under the Investment Canada Act in connection with the arrangement shall have been obtained on terms and conditions satisfactory to HEARx in its sole determination;
 
  •  any other requisite regulatory approvals (including without limitation those of any stock exchanges, securities authorities or other regulatory authorities) in connection with the arrangement shall have been obtained on terms satisfactory to HEARx, in its sole judgment;
 
  •  it shall not have been publicly disclosed or HEARx shall not have otherwise become aware that beneficial ownership or control of 15% or more of the outstanding Helix common shares has been acquired by any person or group (including without limitation Helix or any of the Helix subsidiaries or affiliates), other than HEARx or any of its affiliates, or the board of directors of Helix or any committee thereof shall not have approved or recommended any proposal or any other acquisition of Helix common shares other than the arrangement, any corporation, partnership, person or other entity or group shall not have entered into a definitive agreement or an agreement in principle with Helix with respect to a take-over bid (other than the arrangement), tender offer or exchange offer, merger, sale of assets, amalgamation, plan of arrangement, reorganization, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction with or involving Helix or any of its subsidiaries, or the board of directors of Helix or any committee thereof shall not have resolved to do any of the foregoing;
 
  •  if dissent rights have been granted in respect of the arrangement, holders of not more than 5% of the Helix common shares shall have exercised the right of dissent;
 
  •  HEARx shall have obtained financing for a principal amount of no less than US$25,000,000 with a lender on terms reasonably acceptable to HEARx and Helix;
 
  •  Helix shall have obtained the consent of SCC Canada, Inc., as agent for Sirrom Capital Corporation and The Toronto Dominion Bank, and Les Partenaires de Montreal, s.e.c. to the arrangement and the transactions contemplated in connection with the arrangement on such terms and conditions as are reasonably acceptable to HEARx; and
 
  •  Helix shall have terminated the subscription agreement between Helix and Les Partenaires de Montreal s.e.c., 175778 Canada Inc., Marcel Dutil, Gestion Fremican Inc., Steve Forget, Luc Parent, Martin Cousineau and Richard Doucet on such terms and conditions as are reasonably acceptable to HEARx.

      The obligations of Helix to complete the arrangement are subject to satisfaction or waiver of the following conditions:

  •  the accuracy of the representations and warranties of HEARx in all material respects at the effective time of the arrangement;
 
  •  the performance and compliance by HEARx in all material respects of the covenants and agreements under the merger agreement;

69


Table of Contents

  •  the approval of the respective stockholders of HEARx and Helix of the arrangement and the transactions contemplated by the merger agreement;
 
  •  the absence of any act, action, suit or proceeding pending or threatened that could reasonably be expected to have the effect of making illegal, or otherwise restraining or prohibiting the arrangement or making it materially more costly;
 
  •  any requisite regulatory approvals (including without limitation those of any stock exchanges, securities authorities or other regulatory authorities) in connection with the arrangement shall have been obtained on terms reasonably satisfactory to Helix;
 
  •  any other third party approvals and waivers necessary in connection with consummation of the arrangement and the transactions contemplated by the merger agreement, including the waiver of the right of first refusal by The Permanente Federation LLC in connection with the HEARx West LLC agreement as between The Permanente Federation LLC and HEARx, shall have been obtained by HEARx on terms reasonably satisfactory to Helix;
 
  •  HEARx shall have obtained financing for a principal amount of no less than US$25,000,000 with a lender on terms reasonably acceptable to HEARx and Helix; and
 
  •  HEARx shall have provided Helix with evidence that HEARx has provided its prior written approval of the arrangement to the rights agent under the HEARx rights agreement such that no benefits under that agreement will be received by any holders.

Termination of the Merger Agreement and the Payment of Fees

      The merger agreement may be terminated and the merger contemplated by the merger agreement abandoned, at any time prior to the closing date of the merger agreement, as follows:

  •  by mutual written agreement;
 
  •  by either Helix or HEARx, if the transaction has not been consummated on or prior to June 30, 2002, so long as the terminating party has not failed to fulfill any material obligation under the arrangement agreement which caused or resulted in the transaction failing to be consummated by such date;
 
  •  by HEARx, if the board of directors of Helix has withdrawn, redefined or changed any of its recommendations or determinations concerning the arrangement in a manner adverse to HEARx or shall have resolved to do so prior to the effective time and Helix pays a termination fee of US$1.0 million;
 
  •  by HEARx, if the board of directors of Helix shall have failed to reaffirm its recommendation of the arrangement by press statement within 5 days after the public announcement or commencement of a proposal by another company to acquire Helix, and in a director’s circular, if any, within 10 days after the mailing of any such proposal and Helix pays a termination fee of US$1.0 million;
 
  •  by HEARx, if Helix consummates a merger or arrangement with another company and Helix pays a termination fee of US$1.0 million;
 
  •  by HEARx, if Helix fails to comply with or breaches any of its any representations, warranties or covenants set forth in the merger agreement and Helix pays a termination fee of US$1.0 million;
 
  •  by Helix, if the board of directors of HEARx has withdrawn, redefined or changed any of its recommendations or determinations concerning the arrangement in a manner adverse to Helix and HEARx pays a termination fee of US $1.0 million;
 
  •  by Helix, if HEARx fails to comply with or breaches any of its any representations, warranties or covenants set forth in the merger agreement and Helix pays a termination fee of US$1.0 million; and
 
  •  by HEARx if any Helix shares are issued after July 27, 2001, upon conversion of certain convertible debentures or upon exercise of certain preemptive or subscription rights.

70


Table of Contents

      In addition to the termination fee, Helix and HEARx have agreed that in the event the merger agreement is terminated prior to the effective time for the reasons set forth in bullets two (in the case of bullet two, if the termination is initiated by Helix) through six, HEARx will be granted a 49% interest in the HearUSA Network being formed through a joint venture among HEARx, Helix and Siemens Hearing Instruments, Inc. In the event the merger agreement is terminated prior to the effective time for any other reason, HEARx will have an option to purchase 49% of the HearUSA Network at its appraised fair market value.

Arrangement Mechanics

      When the arrangement becomes effective, the following events will occur in the following order:

  •  each outstanding Helix common share, other than shares held by dissenting stockholders who are ultimately entitled to be paid the fair value of their shares, will be automatically transferred by the holder to HEARx Canada Inc. in exchange for, at the election of the holder, 0.3537 fully-paid and non-assessable exchangeable shares of HEARx Canada Inc. or 0.3537 shares of HEARx common stock together with the associated purchase rights under the HEARx rights agreement. Holders of Helix common shares that are not Canadian residents will not be entitled to elect to receive exchangeable shares and any election otherwise will be deemed to be an election to receive HEARx common stock. The ratio of one Helix common share to 0.3537 exchangeable shares or shares of HEARx common stock is sometimes referred to as the exchange ratio. The exchange ratio is subject to adjustment to reflect any share split, reverse split, share dividend, reorganization, recapitalization or other like change;
 
  •  each Helix option will be exchanged for a replacement option that is exercisable for a number of shares of HEARx common stock determined by multiplying the number of Helix common shares subject to such option by the exchange ratio at an exercise price per share of HEARx common stock equal to the exercise price per share of such Helix option immediately prior to the effective time of the arrangement (adjusted for conversion from Canadian dollars to US dollars) divided by the exchange ratio;
 
  •  each outstanding Helix warrant or convertible security will become exercisable into a number of exchangeable shares based on the exchange ratio; and
 
  •  HEARx will issue and deposit the special voting share with the trustee.

      Immediately following the effectiveness of the arrangement, Helix’s outstanding capital stock will consist of approximately 46.2 million common shares, all of which will be held by HEARx or HEARx Canada Inc. Based on the exchange ratio, the former holders of Helix common shares will hold an aggregate of approximately 14.61 million exchangeable shares and shares of HEARx common stock. Former holders of Helix common shares will initially have the power to vote approximately 51% of the outstanding votes at meetings of stockholders following the arrangement. However, on a fully diluted basis, assuming the exercise or conversion of all outstanding options or convertible securities of Helix and HEARx, former holders of Helix common shares will have the power to vote approximately 46% of the outstanding votes at meetings of stockholders following the arrangement.

      The exchange ratio is subject to adjustment on any stock split, reverse stock split, stock dividend, recapitalization or other like change with respect to HEARx common stock or Helix common shares prior to the effectiveness of the arrangement.

      No fractional exchangeable shares or shares of HEARx common stock will be delivered in exchange for Helix common shares pursuant to the arrangement. Any Helix stockholder otherwise entitled to a fractional interest in an exchangeable share or HEARx common stock, as the case may be, will receive a certificate adjusted to the next lower whole number of exchangeable shares or shares of HEARx common stock, as the case may be.

      See “The Arrangement — Exchange of Helix Common Share Certificates” for procedures to be followed to obtain certificates representing the exchangeable shares or HEARx common stock issuable in the arrangement.

71


Table of Contents

Amendments

      The merger agreement may be amended, modified or supplemented only in writing signed by the parties to the merger agreement.

Management and Board of Directors After the Arrangement

      Immediately following the effective time of the arrangement, the board of directors of HEARx shall be composed of Paul A. Brown (Chairman), Steve Fo