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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-QSB
---------------
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE
ACT
For the transition period from to
Commission File Number 0-28566
HENLEY HEALTHCARE, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 76-0335587
(State or other jurisdiction of No.) (IRS Employer Identification
incorporation or organization)
120 Industrial Boulevard, Sugar Land, Texas 77478
(Address of principal executive offices)
713-276-7000
(Issuer's telephone number)
Check whether the issuer (i) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (ii)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
As of May 13, 1998, the issuer had 5,383,205 shares of common stock
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [x]
================================================================================
1
<PAGE>
PART I. FINANCIAL INFORMATION
THIS REPORT INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS REPORT ARE FORWARD LOOKING
STATEMENTS. SUCH FORWARD LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" REGARDING THE
COMPANY'S ESTIMATE OF SUFFICIENCY OF EXISTING CAPITAL RESOURCES AND ITS ABILITY
TO RAISE ADDITIONAL CAPITAL TO FUND CASH REQUIREMENTS FOR FUTURE OPERATIONS AND
ACQUISITIONS. ALTHOUGH THE COMPANY BELIEVES THE EXPECTATIONS REFLECTED IN SUCH
FORWARD LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS REFLECTED IN SUCH FORWARD LOOKING STATEMENTS WILL PROVE TO HAVE
BEEN CORRECT. THE ABILITY TO ACHIEVE THE COMPANY'S EXPECTATIONS IS CONTINGENT
UPON A NUMBER OF FACTORS WHICH INCLUDE (I) ONGOING COST OF RESEARCH AND
DEVELOPMENT ACTIVITIES, (II) TIMELY APPROVAL OF THE COMPANY'S PRODUCT CANDIDATES
BY APPROPRIATE GOVERNMENTAL AND REGULATORY AGENCIES, (III) EFFECT OF ANY CURRENT
OR FUTURE COMPETITIVE PRODUCTS, (IV) THE COMPANY'S ABILITY TO MANUFACTURE AND
MARKET ITS PRODUCTS COMMERCIALLY, (V) THE RETENTION OF KEY PERSONNEL AND (VI)
CAPITAL MARKET CONDITIONS. THIS REPORT MAY CONTAIN TRADEMARKS AND SERVICE MARKS
OF OTHER COMPANIES
ITEM 1. FINANCIAL STATEMENTS
The information required hereunder is included in this report as set
forth in the "Index to Financial Statements."
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
Consolidated Balance Sheets 3
Consolidated Statements of Operations
4
Consolidated Statements of Cash Flows
5
Notes to Consolidated Financial Statements 6-8
2
<PAGE>
HENLEY HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................... $ 928,732 $ 123,620
Accounts receivable, net of allowance for
doubtful accounts of $2,272,155 and
$2,165,124, respectively ..................... 7,525,262 6,675,800
Inventory ....................................... 8,797,195 8,147,357
Prepaid expenses ................................ 202,234 228,165
Other current assets ............................ 10,294 71,960
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS ..................... 17,463,717 15,246,902
PROPERTY, PLANT AND EQUIPMENT, net ................ 5,404,230 3,994,231
GOODWILL AND OTHER INTANGIBLES, net ............... 6,308,076 5,670,004
OTHER ASSETS, net ................................. 1,206,505 1,244,580
- --------------------------------------------------------------------------------
TOTAL ASSETS ...................................... $ 30,382,528 $ 26,155,717
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit - bank ........................... $ 7,056,174 $ 7,105,868
Current maturities of long-term debt ............ 433,763 433,763
Accounts payable ................................ 3,901,292 3,970,270
Accrued expenses and other current liabilities .. 1,056,394 1,099,572
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES ................ 12,447,623 12,609,473
INTEREST PAYABLE .................................. 289,501 536,667
LONG-TERM DEBT, net of current maturities ......... 6,706,383 9,466,179
- --------------------------------------------------------------------------------
TOTAL LIABILITIES ........................ 19,443,507 22,612,319
STOCKHOLDERS' EQUITY
Preferred stock - $.10 par value; authorized
2,500,000 shares; issued and outstanding
1,825 shares of Series A ...................... 1,368,750 --
Common stock - $.01 par value; authorized
20,000,000 shares; issued 5,662,205 and
3,473,897, respectively ....................... 56,622 34,738
Additional paid-in-capital ...................... 20,030,058 14,117,079
Accumulated deficit ............................. (10,290,230) (10,382,240)
- --------------------------------------------------------------------------------
11,165,200 3,769,577
Treasury stock, at cost, 279,000 common shares .. (226,179) (226,179)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY ................ 10,939,021 3,543,398
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 30,382,528 $ 26,155,717
================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
HENLEY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
================================================================================
Three months ended March 31, 1998 1997
- --------------------------------------------------------------------------------
NET SALES .......................................... $ 7,984,201 $ 4,866,626
COST OF SALES ...................................... 4,186,722 1,967,537
- --------------------------------------------------------------------------------
GROSS PROFIT ....................................... 3,797,479 2,899,089
OPERATING EXPENSES ................................. 3,185,853 2,469,241
- --------------------------------------------------------------------------------
INCOME FROM OPERATIONS ............................. 611,626 429,848
INTEREST EXPENSE ................................... (332,895) (242,768)
OTHER INCOME (EXPENSE), net ........................ (186,721) (33,901)
- --------------------------------------------------------------------------------
NET INCOME ......................................... $ 92,010 $ 153,179
- --------------------------------------------------------------------------------
DEEMED PREFERRED STOCK DIVIDENDS $ 68,000 $ -
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS......... $ 24,010 $ -
================================================================================
NET INCOME PER COMMON SHARE - basic and diluted .... $ 0.01 $ 0.06
================================================================================
SHARES USED IN COMPUTING NET INCOME
PER COMMON SHARE - basic and diluted ............ 3,913,896 2,780,493
================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HENLEY HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
============================================================================================
<S> <C> <C>
Three months ended March 31, 1998 1997
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
$ 92,010 $ 153,179
- --------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization expense ...................... 308,075 130,358
Interest expense imputed on notes payable .................. 59,500 94,500
Bad debt expense ........................................... 107,031 484,117
Changes in operating assets and liabilities:
Increase in accounts receivable .......................... (739,899) (735,604)
Increase in inventory .................................... (5,360) (172,887)
Decrease in prepaid expenses and other
current assets ........................................ 97,891 22,793
Decrease (increase) in other assets ...................... 2,118 (91,398)
(Decrease) increase in accounts payable, accrued
expenses and other current liabilities ................ (479,539) 233,873
- --------------------------------------------------------------------------------------------
Total adjustments ................................. (650,183) (34,248)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (558,173) 118,931
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired of $8,230 .................. 8,230 (458,584)
Capital expenditures .......................................... (1,402,819) (21,243)
- --------------------------------------------------------------------------------------------
Net cash used in investing activities .............. (1,394,589) (479,827)
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock ................. 1,800,000 --
Proceeds from line of credit .................................. 2,560,373 2,372,891
Payments of line of credit .................................... (2,755,067) (1,976,829)
Proceeds from long-term debt .................................. 1,260,000 --
Principal payments of long-term debt .......................... (107,432) (109,460)
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities ........... 2,757,874 286,602
- --------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ............ 805,112 (74,294)
Cash and cash equivalents at beginning of period ................ 123,620 507,892
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ...................... $ 928,732 $ 433,598
============================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest .................................................... $ 247,166 $ 105,586
============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
HENLEY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements of
Henley Healthcare, Inc. (the "Company"), have been prepared in
accordance with generally accepted accounting principles and the rules
of the Securities and Exchange Commission (the "SEC"), and should be
read in conjunction with the audited consolidated financial statements
and notes thereto contained in the Company's latest Annual Report filed
with the SEC on Form 10-KSB. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of financial position and the results of operations
for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative
of the results to be expected for the full year. Notes to the
consolidated financial statements which would substantially duplicate
the disclosure contained in the audited consolidated financial
statements for the most recent fiscal year, 1997, as reported in the
Form 10-KSB, have been omitted.
2. ACQUISITIONS:
In January 1998, the Company acquired all of the issued and outstanding
common stock of Garvey Company, a Minnesota corporation, as a
wholly-owned subsidiary, for an estimated purchase price of
approximately $880,000, plus related acquisition costs of approximately
$40,000. The purchase price was paid by the issuance of 120,308 shares
of the Company's common stock. The acquisition was accounted for as a
purchase.
In February, 1998, the Company purchased substantially all of the assets
and assumed certain liabilities associated with AMC Acquisition Corp., a
Texas corporation, for an estimated purchase price of approximately
$450,000, plus related acquisition costs of approximately $30,000. The
purchase price was paid by the issuance of 68,000 shares of common
stock. The acquisition was accounted for as a purchase.
On March 6, 1998, the Company entered into a definitive purchase
agreement with Delft Instruments N.V., an international conglomerate
with headquarters in The Netherlands and key operations in medical,
defense, aerospace, industrial and scientific industries, to acquire its
Enraf-Nonius, B.V. ("Enraf") wholly-owned subsidiary. Enraf specializes
in the development, manufacture and sale of medical products, including
ultra-sound and electrical stimulation, used in pain management,
physical therapy and rehabilitation. The proposed acquisition is subject
to various conditions including obtaining sufficient financing by the
Company and approvals of the Boards of Directors of both companies.
While the Company is currently in negotiations for financing the
transaction and has postponed the expected completion date of the
acquisition, there can be no assurance that the Company will obtain the
necessary financing or that the acquisition will be completed under its
current terms, if at all.
3. FINANCINGS:
In February 1998, the Company entered into an agreement with Maxxim
Medical, Inc. ("Maxxim") whereby it acquired from Maxxim an
office/warehouse building located at 140 Industrial Boulevard, Sugar
Land, Texas, for an estimated purchase price of approximately $1.2
million. The purchase price was paid in cash which the Company obtained
pursuant to a second amendment of its Amended Loan Agreement (the
"Second Amendment") with Comerica Bank-Texas, a Texas banking
corporation ("Comerica".) In connection with the Second Amendment with
Comerica, the Company obtained a Term Note C in the principal amount of
$1,260,000 with a maturity date of February 12, 2013. Term Note C bears
interest at the Prime Rate plus one-half of one percent per annum, is
payable in monthly principal installments of $7,000 plus all accrued
interest thereon and subject to the terms and conditions of the Amended
Loan Agreement with Comerica. All of the borrowings from Comerica are
secured by substantially all of the assets of the Company.
On February 20, 1998 and March 13, 1998, the Company entered into
agreements with Maxxim pursuant to which Maxxim converted an aggregate
of $4,000,000 outstanding under its convertible promissory note (the
"Note") into an aggregate of 2,000,000 shares of the Company's common
stock, par value $.01 per share. The conversions were based
6
<PAGE>
HENLEY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
on the current conversion price of $2.00 per share under the Note. The
agreements also provide that the entire $4 million conversion shall be
applied to the Company's full redemption obligation due in the year 2003
and partially to the Company's redemption obligation due in the year
2002 as provided in the Note. The Company has filed a registration
statement covering the resale of the shares of Common Stock issued to
Maxxim as a result of the conversions described above.
In March, 1998, the Company entered into an agreement with certain
private institutional investors pursuant to which the Company issued to
the investors $1,825,000 of its Series A Convertible Preferred Stock
(the "Preferred Stock") for cash. The Preferred Stock is convertible
into Henley's Common Stock at the lesser of (i) 75% of the average
closing bid price for Henley's Common Stock as reported by Nasdaq for
the 5 trading days prior to conversion or (ii) $6.50. For so long as the
Company is listed on The Nasdaq SmallCap or National Markets or any
national securities exchange, the conversion price shall not be lower
than $2.90. In addition, the Company may, at its option, redeem the
Preferred Stock by paying 130% of the purchase price. The Preferred
Stock shall pay an annual dividend of 4%, payable quarterly on each
subsequent March 31st, June 30th, September 30th and December 31st, in
cash or shares of Common Stock at the Company's option. In connection
with the agreement, the Company also issued to the investors 5-year
warrants to purchase an aggregate of 146,000 shares of the Company's
Common Stock at exercise prices ranging from $7.125 to $9.619. No value
was assigned to the warrants as the value was immaterial.
The Company has filed a registration statement covering the resale of
the shares of Common Stock issuable upon the conversion of the Preferred
Stock and exercise of the warrants sold to the investors described
above. As a result of the guaranteed discount, the Company will incur a
deemed dividend in the future for the conversion of the Preferred Stock.
Such dividend is calculated as the discount over fair market value as of
the date the Preferred Stock was sold to the investors. This discount
amount of $456,250 will be treated as a dividend to the holders of the
Preferred Stock and will be recorded ratably over 120 days, the earliest
conversion date of the Preferred Stock. For the three months ended March
31, 1998, the deemed dividend amounted to aproximately $68,000.
4. NET INCOME PER COMMON SHARE:
The Company adopted SFAS No. 128, which requires the presentation of
both basic and diluted earnings per common share . Basic earnings per
common share is based on the weighted
7
<PAGE>
HENLEY HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
average number of common shares outstanding during the period, while
diluted earnings per common share considers the dilutive effect of stock
options and warrants reflected under the treasury stock method. The
common shares resulting from the assumed conversion of the Preferred
Stock at the time of issuance (which are considered under the
if-converted method) and the Company's outstanding stock options and
warrants have not been included in the calculation because their effect
would be anti-dilutive. As a result, both basic and diluted earnings per
common share are the same.
5. SUBSEQUENT EVENTS:
In April 1998, the Company entered into an agreement with certain
private institutional investors pursuant to which the Company issued to
the investors $675,000 of the Preferred Stock for cash, under the same
terms and conditions as the Preferred Stock issued in March 1998.
However, in connection with this agreement, the Company issued to the
investors 5-year warrants to purchase an aggregate of 54,000 shares of
the Company's Common Stock at exercise prices ranging from $6.375 to
$8.606. No value was assigned to the warrants as the value was
immaterial.
The Company has filed a registration statement covering the resale of
the shares of Common Stock issuable upon the conversion of the Preferred
Stock and exercise of the warrants sold to the investors described
above. As a result of the guaranteed discount, the Company will incur a
deemed dividend in the future for the conversion of the Preferred Stock.
Such dividend is calculated as the discount over fair market value as of
the date the Preferred Stock was sold to the investors. This discount
amount of $168,750 will be treated as a dividend to the holders of the
Preferred Stock and will be recorded ratably over 120 days, the earliest
conversion date of the Preferred Stock.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company's principal business strategies are to (i) expand
distribution channels and explore new markets, (ii) consolidated the
highly-fragmented physical therapy and rehabilitation industry by pursuing
strategic acquisitions that complement existing product lines and increase
market share, (iii) maximize the utilization of existing manufacturing
facilities for increased productivity, (iv) improve profitability, (v) reduce
long-term indebtedness, and (vi) obtain market clearance from the U.S. Food and
Drug Administration for the Microlight 830TM.
Prior to April 30, 1996, the Company was primarily engaged in the
development and application for marketing clearance of the Microlight 830TM.
Beginning with the acquisition of Maxxim's Henley Division, the Company has
pursued a strategy of consolidating the highly-fragmented physical therapy and
rehabilitation industry. Since that time, the Company has grown significantly as
a result of additional acquisitions. All acquisitions have been accounted for
under the purchase method of accounting for business combinations and
accordingly, the results of operations for such acquisitions are included in the
Company's financial statements only from the applicable date of acquisition. As
a result, the Company believes that its historical results of operations for the
periods presented may not be directly comparable. The Company believes the
historical results of operations do not fully reflect the operating efficiencies
and improvements that are expected to be achieved by integrating the acquired
businesses and product lines.
The Company intends to continue its evaluation of acquisitions, and a
period of rapid growth could place a significant strain on the Company's
management, operations and other resources. There can be no assurance that the
Company will continue to be able to identify attractive or willing acquisition
candidates, or that the Company will be able to acquire such candidates on
economically acceptable terms. The Company's ability to grow through
acquisitions and manage such growth will require the Company to continue to
invest in its operational, financial and management information systems and to
attract, retain, motivate and effectively manage its employees. The inability of
the Company's management to manage growth effectively would have a material
adverse effect on the financial condition, results of operations and business of
the Company. As the Company pursues its acquisition strategy in the future, its
financial position and results of operations may fluctuate significantly from
period to period.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto and other detailed
information contained in the Company's Annual Report for fiscal year 1997 filed
with the SEC on Form 10-KSB.
RESULTS OF OPERATIONS
Net sales were approximately $7,984,000 for the quarter ended March 31,
1998, representing an increase of approximately $3.1 million over the amount
reported for the same period in 1997. This increase is primarily from increased
sales attributable to the newly acquired businesses.
Gross margin as a percentage of sales for the quarter ended March 31,
1998 decreased to approximately 48% from approximately 60% reported for the same
period in 1997. This decrease resulted primarily from larger sales of
high-dollar lower margin products during the first quarter of 1998.
Operating expenses for the quarter ended March 31, 1998 increased
approximately $717,000 over the approximate $2.5 million reported for the same
period in 1997. However, as a percent of sales, operating expenses for the
quarter ended March 31, 1998 decreased to
9
<PAGE>
approximately 40% compared to approximately 51% for the same period in 1997. The
increase in operating expenses is due to the increased relative costs associated
with the acquisitions and integration of the acquired operations into existing
activities. However, the decrease in operating expenses as a percentage of sales
reflects the effects of larger overall sales from the acquired operations.
Interest expense for quarter ended March 31, 1998 was approximately
$333,000 compared to approximately $243,000 for the same period in 1997. The
increase in interest expense was primarily due to the interest-bearing notes
issued to finance some of the Company's acquisitions.
As a result of the foregoing, the Company reported consolidated net
income of approximately $92,000 for the quarter ended March 31, 1998 compared to
approximately $153,000 reported for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had cash and cash equivalents in the
amount of $928,732 compared with cash and cash equivalents of $123,620 at
December 31, 1997. The increase in cash and cash equivalents was primarily from
the proceeds from the issuance of preferred stock. At March 31, 1998, the
Company had working capital of approximately $5,000,000 and its current ratio
was 1.4 to 1 as compared to $2,637,000 and 1.2 to 1 at December 31, 1997. This
increase in the current ratio is primarily due to the decrease in the amount of
outstanding line of credit. At March 31, 1998, the Company had no material
capital expenditure commitments.
Between March and April 1998, the Company sold an aggregate of 2,500
shares of the Preferred Stock at $1000 per share in private offerings, resulting
in gross proceeds of $2.5 million. The Preferred Stock is convertible into the
Company's common stock at the lesser of (i) 75% of the average closing bid price
for the Company's common stock as reported on The Nasdaq SmallCap Market for the
5 trading days prior to conversion, or (ii) $6.50 per share. For so long as the
Company is listed on The Nasdaq SmallCap or National Markets or any national
securities exchange, the conversion price shall not be lower than $2.90. In
addition, the Company may, at its option, redeem the Preferred Stock by paying
130% of the purchase price. The Preferred Stock shall pay an annual dividend of
4%, payable quarterly on each subsequent March 31st, June 30th, September 30th
and December 31st, in cash or shares of Common Stock at the Company's option. In
connection with the agreement, the Company also issued to the investors 5-year
warrants to purchase an aggregate of 200,000 shares of the Company's Common
Stock at exercise prices ranging from $6.375 to $9.619. No value was assigned to
the warrants as the value was immaterial.
The Company has filed a registration statement covering the resale of
the shares of Common Stock issuable upon the conversion of the Preferred Stock
and exercise of the warrants sold to the investors described above. As a result
of the guaranteed discount, the Company will incur a deemed dividend in the
future for the conversion of the Preferred Stock. Such dividend is calculated as
the discount over fair market value as of the date the Preferred Stock was sold
to the investors. This discount amount of $625,000 will be treated as a dividend
to the holders of the Preferred Stock and will be recorded ratably over 120
days, the earliest conversion date of the Preferred Stock.
The Company's current sources of liquidity consist primarily of (i)
funds from operations, (ii) proceeds from the sale of the Preferred Stock, (iii)
funds held at the end of fiscal year 1997 and (iv) the amounts, if any,
available under the Amended Loan Agreement with Comerica. The Amended Loan
Agreement with Comerica provides for (i) a one-year revolving loan ("Line of
Credit"), which permits borrowings up to $8,000,000 through January 1999 and
(ii) three term loans in the amounts of $1,430,000 ("Term Note A"), $1,616,000
("Term Note B") and $1,260,000
10
<PAGE>
("Term Note C"). Term Note A, Term Note B and Term Note C are payable in monthly
installments of $23,833, $8,978 and $7,000, respectively, plus interest through
September 2002, May 2011 and February 2013, respectively. The Line of Credit
also includes a $250,000 letter of credit facility. Interest on the Line of
Credit and the three term loans is payable monthly and is calculated at a rate
equal to the Prime Rate plus one-half of one percent per annum. Term Note B is
callable by Comerica beginning on the fifth anniversary of the Amended Loan
Agreement. All of the borrowings from Comerica are secured by substantially all
of the assets of the Company. As of March 31, 1998, the Company had
approximately $944,000 available for borrowing under the Line of Credit. The
total amount available for borrowing under the Line of Credit is the lesser of
(i) $8,000,000 and (ii) a variable borrowing base calculated based on the amount
and type of outstanding accounts receivable and the value of certain items of
inventory.
The Company is currently assessing the potential impact of the present
computer technology issue generally referred to as the "Year 2000 Problem." The
Year 2000 Problem, which is common to most corporations, relates to the
inability of information systems, primarily computer software programs, to
properly recognize and process date sensitive information related to the year
2000 and beyond. The Company is currently evaluating the expected costs to be
incurred in connection with the Year 2000 Problem, and expects that such costs
will not be material.
Management believes that the funds generated from operations, along with
the Company's current working capital position and bank credit facilities will
be sufficient to satisfy the Company's capital requirements for the Company's
existing operations for the foreseeable future. However, the Company will need
to obtain significant additional capital to finance its acquisition strategy,
including the Enraf-Nonius acquisition. (See Footnotes to Consolidated Financial
Statements.) If the Company's operating cash flows are inadequate or if the
Company is unable to obtain sufficient financing, there can be no assurance that
the Company will be able to successfully fund its current operations or
implement its acquisition strategy. The Company believes that its success in
obtaining the necessary financing will depend upon, among other factors,
successfully operating the recently acquired businesses. Sources of additional
financing may include additional bank debt or the public or private sale of
equity or debt securities. There can be no assurance that the Company will be
successful in arranging such financing at all or on terms commercially
acceptable to the Company.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the
quarter ended March 31, 1998, in private transactions in which the Company
relied on the exemption from registration available under Section 4(2) of the
Securities Act of 1993, as amended:
In connection with the acquisition of Garvey and AMC, the Company issued
to the sellers an aggregate of 188,308 shares of common stock. (See Footnotes to
Consolidated Financial Statements).
During March 1998, the Company issued to certain institutional investors
1,825 shares of Preferred Stock and 5-year warrants to purchase an aggregate of
146,000 shares of common stock. (See Footnotes to Consolidated Financial
Statements).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
See "Index of Exhibits" below which lists the documents filed as
exhibits to this report.
(b) REPORTS ON FORM 8-K
During the quarter ended March 31, 1998, the Company filed a Current
Report on Form 8-K in which it reported the conversion into common stock of an
aggregate $4.0 million of the $7.0 million Note by Maxxim and the issuance of
the Company's convertible Series A Preferred Stock.
12
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
HENLEY HEALTHCARE, INC.
(Registrant)
BY : /s/ MICHAEL M. BARBOUR
-------------------------
Michael M. Barbour
(President and Chief Executive Officer)
By : /s/ DAN D. SUDDUTH
Date: May 13, 1998 -------------------------
Dan D. Sudduth
(Executive Vice President and
Chief Financial Officer)
By : /s/CHIKE J. OGBOENYIYA
Date: May 13, 1998 --------------------------
Chike J. Ogboenyiya
(Vice President and Chief Accounting Officer)
13
<PAGE>
HENLEY HEALTHCARE, INC.
EXHIBITS TO FORM 10-QSB
for the quarter ended March 31, 1998
INDEX OF EXHIBITS
Exhibits incorporated by reference to a prior filing are designated by
an asterisk (*); all exhibits not so designated are documents filed herewith.
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Certificate of Designation for the Series A Preferred Stock as filed
with the Texas Secretary of State on March 13, 1998 (as corrected by the
Certificate of Correction filed on March 18, 1998).
4.1 Form of Subscription Agreement between the Company and the Series A
Preferred Stock Investors.
4.2 Form of Stock Purchase Warrant issued to Series A Preferred Stock
Investors.
4.3 Form of Registration Rights Agreement between the Company and the Series
A Preferred Stock Investors.
10.1 Letter Agreement dated February 20, 1998, between the Company and Maxxim
relating to the conversion of the Note.
10.2 Letter Agreement dated March 13, 1998, between the Company and Maxxim
relating to the conversion of the Note.
27.1 Financial Data Schedule for the quarter ended March 31, 1998.
14
EXHIBIT 3.1
EXHIBIT A
STATEMENT OF DESIGNATION
OF RIGHTS AND PREFERENCES OF THE
SERIES A CONVERTIBLE PREFERRED STOCK OF
HENLEY HEALTHCARE, INC.
We, being respectively the President and Secretary of Henley Healthcare,
Inc. a corporation organized and existing under and by virtue of the Texas
Business Corporation Act of the State of Texas (hereinafter the "Corporation"),
DO HEREBY CERTIFY:
FIRST:
That pursuant to authority expressly granted and vested in the Board of
Directors of said Corporation by Article 213 of the Texas Business Corporation
Act and the provisions of the Articles of Incorporation, said Board of
Directors, on March 13th, 1998, adopted the following resolution setting forth
the designations, powers, preferences and rights of its Series A Convertible
Preferred Stock (the "Statement of Designation").
RESOLVED: That the designations, powers, preferences and rights of the
Series A Convertible Preferred Stock be, and they hereby are, as set forth
below:
1. NUMBER OF SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK.
The Corporation hereby authorizes the issuance of up to 5,000 (five
thousand) shares of Series A Convertible Preferred Stock par value $10 per share
(the "Preferred Stock"). This Preferred Stock shall pay an annual dividend of
4%, payable quarterly on each subsequent March 31st, June 30th, September 30th
and December 31st, and shall be payable in cash or shares of Common Stock at the
Corporation's option.
Any outstanding Preferred Stock shall be converted automatically on the
terms pursuant to Section 5(a) of this Statement of Designation, three (3) years
from the date of issue.
2. VOTING.
(a) Except as provided by law, by the provisions of Subparagraph
2(b) below, holders of Preferred Stock (the "Holders") shall not have
the right to vote on any matter affecting the Corporation.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Preferred Stock so as
to affect adversely the Preferred Stock, without
<PAGE>
the written consent or affirmative vote of the Holders of at least a two
thirds majority of the then outstanding shares of Preferred Stock to be
affected by amendment, alteration or repeal, given in writing or by vote
at a meeting, consenting or voting (as the case may be,) separately as a
class. For this purpose, without limiting the generality of the
foregoing, the authorization or issuance of any series of preferred
stock with preference or priority over or on a parity with the Preferred
Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the
Corporation shall not be deemed to affect adversely the designated class
of Preferred Stock.
3. LIQUIDATION.
In the event of a voluntary or involuntary dissolution, liquidation, or
winding up of the Corporation, the Holders of Preferred Stock shall be entitled
to receive out of the assets of the Corporation legally available for
distribution to holders of its capital stock, before any payment or distribution
shall be made to holders of Common Stock or any other class of stock ranking
junior to the Preferred Stock, an amount per share of Preferred Stock equal to
$1,000 (the "Stated Value") plus any accrued and unpaid dividends. If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the Holders of Preferred Stock
shall be insufficient to permit payment to the Holders of Preferred Stock of the
amount distributable as aforesaid, then the entire assets of the Corporation to
be so distributed shall be distributed ratably among the Holders of Preferred
Stock. Upon any such liquidation, dissolution or winding up of the Corporation,
after the Holders of Preferred Stock shall have been paid in full the amounts to
which they shall be entitled, the remaining net assets of the Corporation may be
distributed to the Holders of stock ranking on liquidation junior to the
Preferred Stock. Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the liquidation payments and the place
where said liquidation payments shall be payable, shall be given by mail,
postage prepaid or by telex or facsimile to non-U.S. residents, not less than 10
days prior to the payment date stated therein, to the Holders of record of
Preferred Stock, such notice to be addressed to each such Holder at its address
as shown by the records of the Corporation. For purposes hereof the Common
Stock, shall rank on liquidation junior to the Preferred Stock.
4. RESTRICTIONS.
The Corporation will not modify the terms of the Preferred Stock at any
time when shares of Preferred Stock are outstanding, without the approval of the
Holders of at least a two thirds majority of the then outstanding shares of
Preferred Stock given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a series, except where the vote or written
consent of the Holders of a greater number of shares of the Corporation is
required by law or by the Corporation's Articles of Incorporation, as amended,
provided, however, that pursuant to the power granted to them in the
Corporation's Articles of Incorporation, the Corporation's Board of Directors
may, without approval of any of the Holders of the Preferred Stock, resolve to:
(i) increase the number of shares of the Preferred Stock issuable under this
Statement of Designation, or (ii) decrease the
2
<PAGE>
number of shares of Preferred Stock issuable under this Statement of Designation
to the number of shares of Preferred Stock then outstanding.
5. OPTIONAL CONVERSION.
The Holders of shares of Preferred Stock shall have the following
conversion rights:
(A) RIGHT TO CONVERT: CONVERSION PRICE. Subject to the terms,
conditions, and restrictions of this Section 5, the Holder of any share
or shares of Preferred Stock shall have the right to convert each such
share of Preferred Stock into a number of shares of Common Stock equal
to the Stated Value of the Preferred Stock plus all accrued but unpaid
dividends of such share or shares of Preferred Stock divided by the
"Conversion Price" which shall be equal to the lesser of (i) 75% of the
average closing bid price of the Common Stock (the "Average Closing
Price"), during the period of five trading days immediately preceding
the date of conversion (the "Conversion Date"), or (ii) 100% of the
closing bid price of the Common Stock on the original issuance date of
such share of shares of Preferred Stock (the "Issuance Date").
Notwithstanding the above, the Conversion Price shall not be lower than
$2.90 (the "Conversion Floor"). If at any time the Company's Common
Stock is not listed for trading on The Nasdaq SmallCap Market, The
Nasdaq National Market, the American Stock Exchange or the New York
Stock Exchange, the Conversion Price requirement in alternative (i)
above shall be reduced to 65% of the Average Closing Price and the
Conversion Floor shall not apply. All such bid price information
referred to herein shall be as reported by the Nasdaq SmallCap Market or
any other such exchange or quotation system on which the Common Stock is
then listed for trading.
If at any time the Preferred is outstanding, the closing bid
price of the Company's Common Stock for ten (10) consecutive trading
days is lower than $2.90, the Company shall pay to the Holders of the
Preferred Stock a cash penalty of 2% per month of the outstanding Stated
Value of the Preferred. The cash penalty shall commence on the such time
the Common Stock trades at a closing bid of no lower than $3.89 for ten
(10) consecutive days. The cash penalty shall be paid on the thirtieth
(30th) day following the day the penalty commences, and on each thirty
(30) days thereafter. For purposes of receipt of the penalty, the
Holders of the Preferred Stock shall be creditors of the Corporation.
(B) CONVERSION DATES. The Holder of any share or shares of
Preferred Stock may convert cumulatively any of such shares as follows:
on the earlier of the date on which a registration statement covering
the resale of the Common Stock issuable upon conversion of the Preferred
Stock is declared effective by the Commission or, 100 days following the
Issuance Date. The 4% dividend shall be waived by the Holder for any
conversion by such Holder prior to 6 months after the Issuance Date.
(C) CONVERSION NOTICE. The right of conversion shall be exercised
by the Holder thereof by telecopying or faxing an executed and completed
written notice (the "Conversion
3
<PAGE>
Notice") to the Corporation that the Holder elects to convert a
specified number of shares of Preferred Stock representing a specified
Stated Value thereof into Common Stock and by delivering by express
courier the original Conversion Notice and a certificate or certificates
of Preferred Stock being converted to the Corporation at its principal
office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the Holders of the
Preferred Stock), together with a statement of the name or names (with
address) in which the certificate or certificates for shares of Common
Stock shall be issued. The business date indicated on a Conversion
Notice which is telecopied to and received by the Corporation in
accordance with the provisions hereof shall be deemed a Conversion Date.
The Conversion Notice shall include therein the Stated Value of shares
of Preferred Stock to be converted, and a calculation (a) of the Average
Closing Bid Price, (b) the Conversion Price, and (c) the number of
shares of Common Stock to be issued in connection with such conversion.
The Corporation shall have the right to review the calculations included
in the Conversion Notice, and shall provide notice of any discrepancy or
dispute therewith within three (3) business days of the receipt thereof.
The Holder shall deliver to the Corporation an original Notice of
Conversion and the original Preferred to be converted within three (3)
business days from the date of the Notice of Conversion.
(D) ISSUANCE OF CERTIFICATES - TIME CONVERSION EFFECTED.
Promptly, but in no event more than five (5) business days, after the
receipt of the Conversion Notice referred to in Subparagraph (5)(c) and
surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the Holder, registered
in such name or names as such Holder may direct, a certificate or
certificates for the number of whole shares of Common Stock into which
such shares of Preferred Stock are converted. Such conversion shall be
deemed to have been effected as of the close of business on the date on
which such Conversion Notice shall have been received by the
Corporation, and the rights of the Holder of such share or shares of
Preferred Stock shall cease, at such time, and the person or persons in
whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have
become the Holder or Holders of record of the shares represented
thereby. Issuance of shares of Common Stock issuable upon conversion
which are requested to be registered in a name other than that of the
registered Holder shall be subject to compliance with all applicable
federal and state securities laws. The Company shall pay a penalty of
$10.00 per $1,000.00 stated value of Preferred Stock for every day
subsequent to five (5) business days after the latter of (i) the receipt
of an original Conversion Notice and (ii) the receipt of the original
certificate or certificates representing the share or shares of
Preferred Stock that the Company fails to send the Common Stock to the
Holder by overnight courier.
(E) FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of any Preferred Stock into Common Stock. All fractional
shares shall be aggregated and then rounded down to the nearest whole
share. In case the number of shares of Preferred Stock represented by
the certificate or certificates surrendered pursuant to Subparagraph
5(a)
4
<PAGE>
exceeds the number of shares converted, the Corporation shall, upon such
conversion, execute and deliver to the Holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares
of Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted.
(F) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that Holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such
reorganization or reclassification, lawful and adequate provisions shall
be made whereby each Holder of a share or shares of Preferred Stock
shall thereupon have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon the conversion of
such share or shares of Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of
such Holder to the end that the provisions hereof (including without
limitation provisions for adjustments of the conversion rights) shall
thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights.
(G) ADJUSTMENTS FOR SPLITS, COMBINATIONS ETC., The Conversion
Price and the number of shares of Common Stock into which the Preferred
Stock shall be convertible shall be adjusted for stock splits,
combinations, or other similar events. Additionally, an adjustment will
be made in the case of an exchange of Common Stock, consolidation or
merger of the Corporation with or into another corporation or sale of
all or substantially all of the assets of the Corporation in order to
enable the Holder of Preferred Stock to acquire the kind and the number
of shares of stock or other securities or property receivable in such
event by a Holder of the Preferred Stock of the number of shares that
might otherwise have been issued upon the conversion of the Preferred
Stock. No adjustment to the Conversion Price will be made for dividends
(other than stock dividends), if any, paid on the Common Stock or for
securities issued for fair value.
6. REDEMPTION OF PREFERRED STOCK.
(A) RIGHT TO REDEEM PREFERRED STOCK. At any time, prior to
receiving a Conversion Notice, the Corporation may redeem, in whole or
in part, if the Company's share price is less than the closing bid price
on the Issuance Date of such shares, in whole or in part, the then
issued and outstanding shares of Preferred Stock, by paying to the
Holder an amount (the "Redemption Price") equal to 130% of the Stated
Value plus all accrued but unpaid
5
<PAGE>
dividends of the Preferred Stock redeemed. The Corporation may not in
any circumstance redeem the Preferred Stock after receiving a Conversion
Notice.
(B) NOTICE OF REDEMPTION. The Corporation shall provide each
Holder of record of the Preferred Stock with written notice of
redemption, not less than five (5) days, prior to the redemption of the
Preferred Stock (the "Redemption Date"). The Redemption Notice shall
contain (i) the Redemption Date, (ii) the number of shares of Preferred
Stock to be redeemed from the Holder to whom the Redemption Notice is
delivered, (iii) instructions for surrender to the Corporation of the
certificate or certificates representing the shares of Preferred Stock
to be redeemed, (iv) specification by the Corporation of the total
number of shares of Preferred Stock to be redeemed as provided in this
Section 6, and (v) the Redemption Price. In no case may the Redemption
Date be more than five (5) business days after the Redemption Notice. If
the Company fails to pay to the Holder the required amount in cash no
later than the Redemption Date, the Redemption shall for all purposes be
null and void and the Holder may convert the Preferred Stock pursuant to
Section 5, and all future rights of Redemption, as provided in this
Section 6 shall be forfeited by the Company.
(C) SURRENDER OF CERTIFICATES: PAYMENT OF REDEMPTION PRICE. On or
before the Redemption Date, each Holder of the shares of Preferred Stock
to be redeemed shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner and at the
place designated in the Redemption Notice, and upon such surrender, the
Redemption Price for such shares shall be paid by the Corporation on the
Redemption Date via wire transfer to the order of the person whose name
appears on such certificate or certificates as the owner thereof, and
each such surrendered certificate shall be canceled and retired. If a
certificate is surrendered and all the shares evidenced thereby are not
being redeemed, the Corporation shall issue new certificates to be
registered in the names of the person(s) whose name(s) appear(s) as the
owners on the respective surrendered certificates and deliver such
certificate to such person(s).
7. ASSIGNMENT.
Subject to all applicable restrictions on transfer, the rights and
obligations of the Corporation and the Holder of the Preferred Stock shall be
binding upon and benefit the successors, assigns, heirs, administrators, and
transferees of the parties.
8. SHARES TO BE RESERVED.
The Corporation, upon the effective date of this Statement of
Designation, has a sufficient number of shares of Common Stock available to
reserve for issuance upon the conversion of all outstanding shares of Preferred
Stock, pursuant to the terms and conditions set forth in Paragraph 5. The
Corporation will at all times reserve and keep available out of its authorized
Common Stock, solely for the purpose of issuance upon the conversion of
Preferred Stock as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding
6
<PAGE>
shares of Preferred Stock. The Corporation covenants that all shares of Common
Stock which shall be so issued shall be duly and validly issued, fully paid and
non assessable. The Corporation will take all such action as may be required, if
the total number of shares of Common Stock issued and issuable after such action
upon conversion of the Preferred Stock would exceed the total number of shares
of Common Stock then authorized by the Corporation's Articles of Incorporation,
as amended, in order to increase the number of authorized shares of Common Stock
to a number sufficient to permit conversion of the Preferred Stock.
9. NO REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK.
Shares of Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
10. CLOSING OF BOOKS.
The Corporation will at no time close its transfer books against the
transfer of any Preferred Stock or of any shares of Common Stock issued or
issuable upon the conversion of any shares of Preferred Stock in any manner
which interferes with the timely conversion of such Preferred Stock, except as
may otherwise be required to comply with applicable securities laws.
conversion of such Preferred Stock, except as may otherwise be required to
comply with applicable securities laws.
11. DEFINITION OF COMMON STOCK.
As used in this Statement of Designation, the term "Common Stock" shall
mean and include the Corporation's authorized Common Stock, as constituted on
the date of filing of these terms of the Preferred Stock, and shall also include
any capital stock of any class of the Corporation thereafter authorized which
shall neither be limited to a fixed sum or percentage of par value in respect of
the rights of the Holders thereof to participate in dividends nor entitled to a
preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the corporation; provided that the
shares of Common Stock receivable upon conversion of shares of Preferred Stock
shall include only shares designated as Common Stock of the Corporation on the
date of filing of this instrument, or in case of any reorganization,
reclassification, or stock split of the outstanding shares thereof, the stock,
securities or assets provided for hereof.
The said determination of the designation, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, relating to the Preferred Stock was duly made by the Board
of Directors pursuant to the provisions of the Corporation's Articles of
Incorporation and in accordance with the provisions of the Business Corporation
Act of the State of Texas.
7
<PAGE>
IN WITNESS HEREOF, this Statement of Designation has been signed by:
Michael M. Barber, President on this 13th day of March, 1998.
_______________________________________
President, Henley Healthcare, Inc.
8
EXHIBIT 4.1
FORM OF
REGULATION D
PRIVATE SECURITIES SUBSCRIPTION AGREEMENT
HENLEY HEALTHCARE, INC.
THIS PRIVATE SECURITIES SUBSCRIPTION AGREEMENT (hereinafter "Agreement")
has been executed by the undersigned in connection with the purchase in a
private placement pursuant to Section 4(2) of the SECURITIES ACT of Securities,
as amended (the "SECURITIES ACT") of up to 2,500 shares of certain convertible
preferred securities (hereinafter the "Preferred"), convertible into shares of
common stock, par value .01 per share (hereinafter "Common Stock"), and certain
Common Stock purchase warrants (hereinafter called "Warrants), from Henley
Healthcare, Inc., 120 Industrial Boulevard, Sugar Land, Texas, 77478, USA, a
Company organized under the laws of Texas (hereinafter the "Company" or
"Seller") by _____________________, organized under the laws of the ________,
(hereinafter "Buyer"). Such shares of Common Stock issuable upon conversion of
the Preferred and exercise of the Warrants are referred to hereinafter
collectively as the "Shares". Seller and Buyer (hereinafter collectively the
"parties") each hereby represents, warrants and agrees as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE:
(i) Buyer hereby subscribes for _______ shares of Series A
Convertible Preferred Stock, par value $0.10 per share as set out
in the Statement of Designation attached as Exhibit A, attached,
to, and forming an integral part of this agreement at a purchase
price per share of $1,000 USD for a total aggregate consideration
of $_____________ USD;
(ii) Buyer will receive Warrants to purchase ________ shares
substantially in the form attached as Exhibit B to and forming an
integral part of this Agreement. The Warrants will be issued in
the following amounts and exercise prices:
25% exercisable @ the closing bid price of the Common
Stock on the Closing Date (as hereinafter defined)
on the Nasdaq SmallCap Market or any such other
exchange or quotation system on which the Common
Stock is then listed (the "Closing Bid Price");
25% @ 115% of the Closing Bid Price;
25% @ 120% of the Closing Bid Price; and
25% @ 135% of the Closing Bid Price.
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The Warrants will expire five (5) years after the Closing
Date.
(iii) Buyer shall on or before the Closing execute a copy
of the Registration Rights Agreement (the "Registration
Rights Agreement") substantially in the form attached as
Exhibit "C" to and forming an integral part of this
Agreement;
(iv) The Company shall within thirty (30) days Closing
Date, file a registration statement under the Securities
Act covering the registration of all the Buyer's Shares
issuable upon conversion of the Preferred, and the
exercise of the Warrants ("Registrable Securities").
2. BUYER'S REPRESENTATIONS
Buyer represents and warrants as follows:
(i) Authorization: Such Buyer has full power and authority to
enter into this Agreement and the Registration Rights Agreement,
(collectively, the "Transaction Documents") and that the Transaction
Documents, when executed and delivered will constitute a valid and
legally binding obligation of Buyer in accordance with their terms,
subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws now or hereafter in effect
relating to creditors' rights and (B) that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceedings therefor may be brought.
(ii) Purchase Entirely for Own Account: This Agreement is made by
Seller in reliance upon Buyer's representation to the Company, which by
such Buyer's execution of this Agreement Buyer hereby confirms, that the
Preferred and Warrants to be purchased by Buyer and the Common Stock
issuable upon conversion and exercise thereof (collectively, the
"Securities") will be acquired for investment for Buyers own account,
not a nominee as agent, and not with a view to the resale or
distribution of any part thereof. By execution of this Agreement, Buyer
further represents that Buyer does not have any contract, undertaking,
agreement or arrangement with any person, to sell, transfer or grant
participation to such person or to any third person, with respect to any
of the Securities.
(iii) Buyer is not a company, syndicate, partnership or other
form of incorporation entity or company created solely to permit the
purchase of the Securities by a group of individuals whose individual
share in the aggregate acquisition cost of the Securities is less than
$150,000 and Buyer is not purchasing the Securities as a result of an
advertisement of the Securities, including an advertisement in printed
media of general and regular paid circulation, radio or television.
2
<PAGE>
(iv) Buyer understands that the Securities may not be sold,
transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom.
(v) INFORMATION ON COMPANY. Buyer has been furnished with and has
read the Company's Forms 10-KSB, 10-QSB, 8-K reports, and proxy or
information statements filed subsequent thereto, (collectively, with
exhibits thereto, hereinafter referred to as the "Reports"). In
addition, the Buyer has received from the Company such other information
concerning its operations, financial condition and other matters as the
Buyer has requested, and considered all factors the Buyer deems material
in deciding on the advisability of investing in the Securities (such
information in writing is collectively, the "Other Written
Information").
(vi) INFORMATION ON BUYER. The Buyer is an "accredited investor",
as such term is defined in Regulation D promulgated by the Commission
under the Act, is experienced in investments and business matters, has
made investments of a speculative nature and has purchased securities of
United States publicly-owned companies in the past and, with its
representatives, has such knowledge and experience in financial, tax and
other business matters as to enable the Buyer to utilize the information
made available by the Company to evaluate the merits and risks of and to
make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Buyer has the
authority and is duly and legally qualified to purchase and own the
Securities.
(vii) NO MARKET MANIPULATION; SHORT SALES. Neither the Buyer, nor
its Affiliates have taken, and will not take, directly or indirectly,
any action designed to, or that might reasonably be expected to, cause
or result in a manipulation of the price of the Company Shares,
including making, or causing to be made, any short sales of the
Company's Common Stock.
3. SELLER'S REPRESENTATIONS
Seller represents and warrants as follows:
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Texas, and
has all requisite corporate power and authority to carry on its business
as now conducted and as currently proposed to be conducted. The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material
adverse effect on the business or the properties of the Company and its
subsidiaries taken as a whole. To its knowledge, the Company is not the
subject of any pending, threatened or contemplated investigation or
administrative or legal proceedings by the Internal Revenue Service, the
taxing authorities of any State of
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local jurisdiction, or the Commission, or any State Securities
Commission, or any other governmental entity.
(ii) Seller has not conducted any general solicitation or general
advertising with respect to any of the Securities offered hereby.
(iii) The Statement of Designation, when executed and delivered
pursuant to the terms of this Agreement, will have been duly authorized
and executed and the Preferred, when issued and delivered will be fully
paid and non assessable constitute valid and legally binding obligations
of the Company in accordance with their terms, subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws now or hereafter in effect relating to
creditors' rights and (B) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought.
(iv) The Shares, when issued and delivered upon conversion of the
Preferred or exercise of the Warrants in accordance with their terms,
will be duly and validly authorized and issued fully paid and non
assessable and will not subject the Buyers thereof to personal liability
by reason of being such Buyers. There are no preemptive rights of any
shareholder of Seller with respect to the Shares contained in Seller's
Articles of Incorporation or any agreement to which Seller is a party.
The Shares, when issued and delivered upon conversion will be
"restricted securities" as defined in Rule 144(a)(3) of the Securities
Act and as such will bear the following restrictive legend:
(a) The securities evidenced hereby have not been
registered under the Securities Act of 1933, as amended
(the "Securities Act"), or under any applicable state
securities laws, and they cannot be offered for sale,
sold, transferred, pledged or otherwise hypothecated
except in accordance with the registration requirements of
the Securities Act and such state laws or upon delivery to
the Corporation of an opinion of legal counsel
satisfactory to the Corporation that an exemption from
registration is available.
(v) The Transaction Documents, including the Statement of
Designation and Warrants, have been duly authorized, validly executed
and delivered on behalf of Seller and each is a valid and binding
agreement of Seller in accordance with its terms and subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws new or hereafter in effect relating to
creditors' rights and (B) that the remedy of specific performance and
injunctive and
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<PAGE>
other forms of equitable relief may be subject to equitable deficiencies
and to the discretion of the court before which any proceedings
thereafter may be brought.
(vi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement do not
and will not conflict with or result in a breach by Seller of any of the
terms or provisions of, or constitute default under, the Articles of
Incorporation (or charter) or by-laws of Seller, or any indenture,
mortgage, deed of trust or other material agreement or instrument to
which Seller is a party or by which it or any of its proprietors or
agents are bound, or any existing applicable decree, judgment or order
of any court, federal or state regulatory body, administrative agency or
governmental body having jurisdiction over Seller or any of its
properties or assets.
(vii) No authorization, approval or consent of or filing with any
federal, state or local governmental body of the United States, is
legally required for the issuance and sale of the Preferred and
(provided no commission or other remuneration is paid or given directly
or indirectly by Seller for soliciting such conversion) the issuance of
the Shares upon conversion of the Preferred in accordance with their
terms, as contemplated by this Agreement, except the filing of a Form D
and Form 8-K with the Commission.
(viii) To the best of the Company's knowledge, after reasonable
investigation, the information contained in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996, and Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1997 as filed
with the Commission does not contain any untrue statement of material
fact or omit any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made
not misleading. Since September 30, 1997 and except as set forth on
Schedule 1 hereto, there has been no material adverse development in the
business, properties, operations, financial condition or results of
operations of Seller.
(ix) Seller will issue one or more certificates representing the
Preferred in the name of Buyer in such denominations to be specified by
Buyer prior to closing and will issue one or more certificates
representing the Shares in such denominations to be specified by the
Buyer upon conversion of the Preferred. Seller further warrants that the
Preferred and the Shares shall be transferable on the books and records
of Seller as and to the extent provided in the Transaction Documents,
subject to compliance with Federal and States securities laws.
(x) The Company is not involved in any litigation which if
determined adversely to the Company, could reasonably be expected to
have a material adverse effect upon the Company's financial position.
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(xi) The Company is eligible to register with the Securities and
Exchange Commission, the Common Stock for resale on Form S-3.
(xii) No other entities currently hold registration rights except
as listed:
Maxxim Medical Inc.;
Vicki C. Belcher;
James V. Warren; and
J.L. (Skip) Moore.
4. RESERVATION OF SHARES
The Company shall at all times have authorized, and reserved for
the purpose of issuance sufficient number of shares of Common Stock to
provide for the full conversion of the outstanding Preferred Shares and
issuance of the Conversion Shares in connection therewith (based on the
conversion price of the Preferred Shares in effect from time to time)
and the full exercise of the Warrants and the issuance of the Warrant
Shares in connection therewith (based upon the exercise price of the
Warrants in effect from time to time). The Company shall not reduce the
number of shares of Common Stock reserved for issuance upon conversion
of the Preferred or exercise of the Warrants without the consent of each
Buyer, which consent will not be unreasonably withheld. The Company
shall use its best efforts at all times to maintain the number of shares
of Common Stock so reserved for issuance at no less than 1-1/2 times the
number that is then actually issuable upon full conversion of the
Preferred and full exercise of the Warrants (based on the conversion
price of the Preferred or exercise price of the Warrants in effect from
time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion
Shares and Warrant Shares issued and issuable upon conversion of the
Preferred and exercise of the Warrants (based on the conversion price of
the Preferred and exercise price of the Warrants then in effect), the
Company will promptly take all corporate action necessary to authorize
and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders.
5. LISTING
The Company shall timely secure the listing of the Shares upon
The Nasdaq SmallCap Market or such national securities exchange or
automated quotation system, if any, upon which shares of Common Stock
are then listed (subject to official notice of issuance). The Company
will use its commercially practicable best efforts to maintain the
listing and trading of its Common Stock on The Nasdaq SmallCap Market or
other national securities exchange or automated quotation system and
will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of The Nasdaq SmallCap
Market or such exchanges or
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quotation systems, as applicable. The Company shall promptly provide to
the Buyer copies of any notices it receives regarding the continued
eligibility of the Common Stock for listing on The Nasdaq SmallCap
Market or other principal exchange or quotation system on which the
Common Stock is then listed or traded.
i. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
Preferred or Warrants, the Company shall maintain its corporate
existence in good standing under the laws of the jurisdiction in which
it is incorporated and shall not sell all or substantially all of the
Company's assets, except in the event of a merger or consolidation or
sale of all or substantially all of the Company's assets where the
surviving or successor entity in such transaction assumes the Company's
obligations hereunder and under the agreements and instruments entered
into in connection herewith.
ii. COMPLIANCE WITH LAW. The Company will conduct its business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business (including without
limitation, all applicable local, state and federal environmental laws
and regulations), except where the failure to comply with such laws,
rules or regulations would not have a material adverse effect.
iii. INSURANCE. The Company shall maintain liability, casualty
and other insurance (subject to customary deductions and retentions)
with responsible insurance companies against such risk of the types and
in the amounts customarily maintained by companies of comparable size to
the Company.
5(A). INSTRUCTIONS TO TRANSFER AGENT
The Company shall on the date the registration statement
registering the Common Stock underlying the Preferred and Warrants is
declared effective by the Securities and Exchange Commission, instruct
their Transfer Agent to issue, upon receipt by the Company of a Notice
of Conversion from the Buyer, the required number of shares of Common
Stock, subject to the Notice of Conversion.
6. CLOSING
The Preferred and Warrants shall be delivered to Buyer and the funds
therefor shall be delivered to Seller on the __th day of _______, 1998
(the "Closing"), or at such time to be mutually agreed.
At the closing, Seller shall execute the appropriate copies of the
Transaction Documents (the "Seller's Closing Documents") and deliver the
executed documents to Hechter and Associates, counsel for Buyer, with
instructions to hold the documents in trust and not to release the
documents to Buyer until advised to do so by Seller. Buyer shall execute
the appropriate copies of the Transactions Documents (the "Buyer's
Closing Documents") and deliver the executed documents to Porter &
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Hedges, L.L.P. counsel for Seller, with instructions to hold the
documents in trust and not to release the documents to Seller until
advised to do so by Buyer.
Immediately after Buyer has confirmed that its counsel has received the
Seller's Closing Documents executed by Seller, then Buyer shall pay to
Seller the aggregate purchase price of the Preferred for which Buyer
subscribed (the "Purchase Price"). Buyer shall pay the Purchase Price,
less all appropriate legal fees and commissions by wire transfer of
immediately available funds in accordance with the following
instructions:
Bank Name:
ABA #:
Credit:
Account #:
On the banking day that Seller has confirmed that its counsel has
received the Buyer's Closing Documents and is credited with having
received the Purchase Price (the "Closing Date"), Seller shall advise
Buyer. Immediately thereafter, Seller shall advise Hechter and
Associates to release the Seller's Closing Documents to Buyer and Buyer
shall advise Porter & Hedges, L.L.P. to release the Buyer's Closing
Documents to Seller. The transaction Documents shall not be deemed to
have been delivered except in accordance with the procedures described
in this Section 6.
If the Closing does not occur before _________, 1998 then either party
may terminate this Agreement immediately upon written notice to the
other party and all Transaction Documents shall be returned to the
appropriate parties and will be deemed to be null and void.
7. CONDITIONS TO CLOSING
(i) Buyer understands that Seller's obligation to sell the
Preferred and Warrants is conditioned upon the receipt in immediately
available funds of the amount set forth in Paragraph 1 hereof.
(ii) Seller understands that Buyer's obligation to purchase the
Preferred and Warrants, is conditioned upon delivery of certificate(s)
representing the Preferred and Warrants as described in Exhibits A and B
herein and receipt of an opinion of Seller's counsel, satisfactory to
Buyer's Counsel.
8. RESTRICTIONS ON FUTURE FINANCINGS
The Issuer will not enter into another equity financing that (a)
would cause additional Common Stock issued in such equity financing to
become freely tradable before 90 days after the Closing Date or, (b)
would effect the orderly process of the registration statement
associated with this transaction being declared effective, unless
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(i) 85% of the Preferred Stock has been converted or, (ii) the Purchaser
gives written approval for additional financings.
9. GOVERNING LAW: INTERPRETATION AND DISPUTES.
This Agreement shall be governed by and construed under the laws of the
State of Texas and the laws applicable therein without regard to its
choice of law principles.
10. ARBITRATION
All disputes arising under this Agreement (other than claims in equity)
shall be resolved by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Arbitration
shall be by a single arbitrator experienced in the matters at issue and
selected by the Company and the Buyer in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. If the
Company and Purchaser cannot agree on an arbitrator within twenty (20)
days, then the arbitrator shall be appointed by the American Arbitration
Association. The arbitration shall be held in such place in New York,
New York as may be specified by the arbitrator (or any place agreed to
by the Company, the Buyer and the arbitrator). The decision of the
arbitrator shall be final and binding as to any matters submitted under
this Agreement, provided, however, if necessary, such decision and
satisfaction procedure may be enforced by either the Company or the
Buyer in any court of record having jurisdiction over the subject matter
or over any of the parties to this Agreement. All reasonable out of
pocket costs and expenses incurred in connection with any such
arbitration proceeding (including reasonable attorneys fees) shall be
borne by the party against which the decision is rendered, or, if no
decision is rendered, such costs and expenses shall be borne equally by
the Company as one party and the Buyer as the other party. If the
arbitrator's decision is a compromise, the determination of which party
or parties bears the costs and expenses incurred in connection with any
such arbitration proceeding shall be made by the arbitrator on the basis
of the arbitrator's assessment of the relative merits of the parties'
positions.
11. CONFIDENTIALITY.
The parties hereto agree to maintain the confidentiality of this
Agreement and not to disclose to any person or entity information
concerning the transaction contemplated hereby unless required by law to
do so.
12. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement among the parties hereof
with respect to the subject matter hereof and supersedes any and all
prior contemporaneous representations, warranties, agreements and
understandings in connection therewith. This Agreement may be amended
only by a writing executed by all parties hereto.
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This Agreement may be executed in counterparts and the facsimile
transmission of an executed counterpart to this Agreement shall be
effective as an original.
13. NOTICES
All notices or other communications to be given or made hereunder must
be in writing and will be delivered personally or mailed, by registered
or certified mail, or sent by facsimile, to the undersigned, at the
address set forth in this Agreement, with copies to such persons, at
such addresses, as are set forth in this Agreement.
15. FULL NAME AND ADDRESS OF BUYER
FOR REGISTRATION PURPOSES:
NAME:_________________________________________
ADDRESS:______________________________________
______________________________________
______________________________________
TEL. No.:_____________________________________
Fax. No.:_____________________________________
CONTACT
NAME:_________________________________________
16. DELIVERY INSTRUCTIONS: (IF DIFFERENT FROM
REGISTRATION NAME):
NAME:_________________________________________
ADDRESS:______________________________________
______________________________________
TEL. No.:_____________________________________
FAX. No.:_____________________________________
CONTACT
NAME:_________________________________________
SPECIAL
INSTRUCTIONS:_________________________________
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IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written below
Dated this ____day of the month of _________, 1998.
NAME: ______________________________
______________________________
BY: ______________________________
TITLE: ______________________________
HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugar Land, Texas, 77478-3128
BY:____________________________________
I have the full authority to bind HENLEY HEALTHCARE, INC.
_____(initial)
NAME: ____________________________
TITLE: ____________________________
11
NO. ___ EXHIBIT 4.2
EXHIBIT B
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK FOR WHICH IT IS
EXERCISABLE, HAVE BEEN REGISTERED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND THIS WARRANT HAS BEEN
ISSUED IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH LAWS FOR TRANSACTIONS NOT
INVOLVING ANY PUBLIC OFFERING. THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED, PLEDGED OR DISPOSED OF IN ANY MANNER
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS COVERING
SUCH TRANSACTION OR, IN THE ABSENCE THEREOF, AN OPINION OF BUYER'S COUNSEL
ACCEPTABLE TO THE COMPANY'S COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED AND
ALL CONDITIONS NECESSARY FOR THE AVAILABILITY OF ANY EXEMPTIONS FROM SUCH
REGISTRATION REQUIREMENTS HAVE BEEN SATISFIED.
FORM OF
HENLEY HEALTHCARE INC.
STOCK PURCHASE WARRANT
This is to certify that, the Holder (as defined below) is entitled upon
the due exercise hereof to purchase from Henley Healthcare Inc. a Texas
Corporation (the "Company") up to _____ of the authorized but unissued shares
(subject to adjustment as provided herein) of the $.0 1 par value Common Stock
of the Company at a price per share as specified in Paragraph (1)(ii) of the
Private Securities Subscription Agreement dated ____________, 1998 (subject to
adjustment as provided herein) and to exercise the other rights, power and
privileges hereinafter provided, all on the terms and subject to the conditions
specified herein.
SECTION 1. CERTAIN DEFINITIONS. Unless the context otherwise requires,
the following terms as used in this Warrant shall have the following meanings:
"Common Stock" shall mean the Company's $.01 par value per share
Common Stock or any stock into which such stock shall have been changed or any
stock resulting from reclassification of such stock.
"Company" shall mean Henley Healthcare Inc., a Texas corporation,
and its successors and assigns.
"Exercise Date" has the meaning set forth in Section 3 hereof.
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"Exercise Price" shall mean the price specified in Paragraph
(1)(ii) of the Private Securities Subscription Agreement dated ___________, 1998
hereof, as the same shall be adjusted from time to time pursuant to the
provisions of this Warrant.
"Expiration Date" shall mean ___________, 2003.
"Fair Market Value" shall mean (i) the last sales price for a
share of Common Stock as officially reported on the principal national
securities exchange, quotation system, or domestic over-the-counter market on
which the Common Stock is at the time listed or traded at the time of
determination of such Fair Market Value or (ii) if such Common Stock is not at
such time listed on a national securities exchange, quotation system or domestic
over-the-counter market, the fair market value as determined by the Board of
Directors of the Company in good faith after review of all relevant factors.
"Holder" or "Warrant Holder" shall mean _________________, and
its successors and registered assigns of this Warrant.
"Subscription Agreement" shall mean that certain Private
Securities Subscription Agreement dated as of ______________, 1998 relating to
the purchase of Series A Convertible Preferred Stock into shares of Common Stock
as the same may be amended and modified from time to time, and "Preferred Stock"
shall mean any of the preferred stock issued thereunder.
"Warrant" means this Warrant dated as of _____________, 1998
issued to a Holder hereby and all warrants issued upon the transfer or division
of or in substitution for such Warrant.
SECTION 2. EXERCISE PRICE. The Exercise Price shall be $_______ and
shall be paid in cash or wired funds.
SECTION 3. EXERCISE. Prior to the Expiration Date, this Warrant may be
exercised by the Holder, as to all or less than all of the shares of Common
Stock covered hereby, by surrender of this Warrant at the Company's principal
office (for all purposes of this Warrant, 120 Industrial Boulevard, Sugar Land,
Texas, 77478, USA or such other address as the Company may advise the registered
Holder hereof by notice given by certified or registered mail) with the form of
election to subscribe attached hereto as Exhibit A duly executed and upon tender
of payment to the Company of the Exercise Price for shares so purchased in cash
or by wired funds. Upon the date of such receipt by the Company (herein called
the "Exercise Date"), this Warrant shall be deemed to have been exercised and
the person exercising the same shall become a holder of record of shares of
Common Stock (or of the other securities or property to which he or it is
entitled upon such exercise) purchased hereunder for all purposes, and a
certificate or certificates for such shares so purchased shall be delivered to
the Holder or its transferee within a reasonable time (not exceeding 10 days)
after this Warrant shall have been exercised as set forth hereinabove. In the
event that this Warrant is exercised in part, the Company will execute and
deliver a new Warrant of like tenor exercisable for the number of shares
remaining for which this Warrant may then be exercised. If this Warrant is not
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exercised on or prior to the Expiration Date, this Warrant shall become void and
all rights of the Holder hereunder shall cease.
SECTION 4. TAXES. The Company shall pay all expenses in connection with,
and all transfer taxes and other governmental charges that may be imposed with
respect to the issue or delivery of the shares of Common Stock covered hereby
unless such tax or charge is imposed by law upon the Holder, in which case such
taxes or charges shall be paid by the Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of the Holder, and in
such case the Company shall not be required to issue or deliver any stock
certificate until such tax or the charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
SECTION 5. WARRANT REGISTER. The Company shall at all times while any
portion of this Warrant remains outstanding and exercisable keep and maintain at
its principal office a register (the "Warrant Register") in which the
registration, transfer and exchange of this Warrant shall be recorded. The
Warrant Register shall contain the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his or her address
as shown on the Warrant Register by written notice to the Company requesting
such change. Any notice or written communication required or permitted to be
given to the Holder may be delivered or given by mail to such Holder as shown on
the Warrant Register and at the address shown on the Warrant Register. The
Company shall not at any time, except upon the dissolution, liquidation or
winding up of the Company, close such register so as to result in preventing or
delaying the exercise or transfer of this Warrant. If at any time, the Company
shall appoint an agent (the "Warrant Agent") to maintain such register, the
Company shall promptly give notice by certified or registered mail to the
registered Holder hereof of the name of such Warrant Agent and of the place or
places at which this Warrant may be presented for transfer, exchange or
exercise. The terms of the agreement between the Company and any Warrant Agent
at any time in effect will be in conformity with the terms of this Warrant.
SECTION 6. TRANSFER. The Company shall register the transfer of any
Warrant upon records to be maintained by the Company for that purpose, upon
surrender of this Warrant, with the form of transfer authorization attached
hereto as Exhibit B duly filled in and signed, to the Company at the office
specified herein. Upon any such registration of transfer, a new Warrant, in
substantially the form of this Warrant, evidencing the Warrant rights so
transferred, shall be issued to the transferee and a new Warrant, in similar
form, evidencing the remaining Warrant rights not so transferred, if any, shall
be issued to the then registered Holder thereof. The Holder understands that
this Warrant has not been and will not be registered under the Securities Act of
1933, as amended (the "Securities Act") and that the Warrant and the shares of
Common Stock issuable upon exercise hereof may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of in the absence of an
effective registration statement under the Securities Act, relating to such
Warrant or shares; provided, however that this Warrant and the shares of Common
Stock issuable upon exercise hereof may be sold, assigned, transferred, pledged
or otherwise encumbered or disposed of if the holder obtains a
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written opinion of counsel acceptable to the Company to the effect that the
proposed sale, assignment, transfer, pledge or other encumbrance or disposition
is exempt from registration under the Securities Act, and all other applicable
securities laws.
SECTION 7. EXCHANGE. This Warrant is exchangeable, upon the surrender
hereof by the Holder at the principal offices of the Company, together with the
form of transfer authorization attached hereto duly executed, for new warrants
of like tenor and date, in such denominations as the Holder shall designate at
the time of surrender for exchange, provided that the total number of shares of
Common Stock issuable upon the exercise of the Warrant shall not be changed as a
result thereof.
SECTION 8. COVENANTS OF THE COMPANY.
(a) The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be fully paid and nonassessable, free from preemptive rights, and free from all
taxes, liens, encumbrances and charges with respect to the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue). The Company further covenants and agrees that during the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of
Common Stock to provide for the exercise in full of the rights represented by
this Warrant.
(b) As long as the Warrant remains outstanding, the Company shall
maintain an office or agency (which may be the principal executive office of the
Company) where the Warrant may be presented for exercise, registration of
transfer, exchange, division or combination as provided in this Warrant.
SECTION 9. ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS.
(a) In the event the Company should at any time or from time to time
after the date of issuance hereof fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof, then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Exercise
Price of this Warrant shall be appropriately decreased and the number of shares
of Common Stock issuable upon exercise of this Warrant shall be. increased in
proportion to such increase of outstanding shares.
(b) If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, following
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the record date of such combination, the Exercise Price for this Warrant shall
be appropriately increased and the number of shares of Common Stock issuable on
exercise hereof shall be decreased in proportion to such decrease in outstanding
shares.
SECTION 10. HOLDER'S RIGHTS. This Warrant shall not entitle the Holder
to any rights of a stockholder of the Company, except that should the Company,
during the period in which this Warrant is exercisable, declare a dividend upon
the Common Stock payable other than in cash out of earnings or surplus (computed
in accordance with generally accepted accounting principles consistently
applied) or other than in Common Stock or securities convertible into Common
Stock, then, thereafter, the Warrant Holder, upon exercise of this Warrant,
shall receive the number of shares of Common Stock purchasable upon such
exercise and, in addition and without further payment, the cash, stock or other
securities and/or other property which the Warrant Holder would have received by
way of dividends (otherwise than in cash out of earnings or earned surplus or in
Common Stock or securities convertible into Common Stock) and/or any other
distributions in respect of the Common Stock as if, continuously since the date
hereof, such Warrant Holder (a) had been the record holder of the number of
shares of Common Stock then being purchased, and (b) had retained all such cash,
stock and other securities (other than dividends in cash out of earnings or
earned surplus or in Common Stock or securities convertible into Common Stock)
and/or other property payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends and originating directly or indirectly
from such Common Stock.
SECTION 11. NOTICE OF ADJUSTMENTS. If there shall be any adjustment as
provided in Section 9, the Company shall forthwith cause written notice thereof
to be sent by facsimile, overnight or registered mail, postage prepaid, to the
registered Holder of this Warrant at the address of such Holder shown on the
books of the Company. At the request of Holder and upon surrender of this
Warrant, the Company shall reissue this Warrant in a form conforming to such
adjustments.
SECTION 12. CASH IN LIEU OF FRACTIONAL SHARES. The Company shall not be
required to issue fractional shares upon the exercise of this Warrant. If, by
reason of any change made pursuant to Section 9 or 10 hereof, the Holder of this
Warrant would be entitled, upon the exercise of any rights evidenced hereby, to
receive a fractional interest in a share, the Company shall, upon such exercise,
purchase such fractional interest for an amount in cash equal to the fair market
value of such fractional interest, determined as of the Exercise Date.
SECTION 13. LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If this
Warrant is lost, stolen, mutilated, or destroyed, the Company will issue, in
exchange for and upon cancellation of the mutilated Warrant, or in substitution
for the lost, stolen or destroyed Warrant, a new Warrant, in substantially the
form of this Warrant, of like tenor and representing the right to purchase the
equivalent number of the remaining shares of Common Stock issuable upon exercise
hereof, but, in the case of loss, theft or destruction, only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of this
Warrant and, if requested by the Company, an indemnification also satisfactory
to it (it being understood that the written agreement of the Holder shall be
sufficient
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indemnity), provided, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
SECTION 14. CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
shall be required to make a determination in good faith of the fair value of any
item under Section 9, such determination may be challenged in good faith by the
Holder, and any dispute shall be resolved by an investment banking firm of
recognized national standing in the United States selected by the Company and
acceptable to the Holder.
SECTION 15. CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the current Exercise Price to be less
than the par value per share of Common Stock.
SECTION 16. NO IMPAIRMENT. The Company represents and warrants that
there are no restrictions in the Company's Articles of Incorporation or Bylaws
which prevent it from satisfying its obligation to issue the shares of Common
Stock issuable upon exercise of the Warrant. The Company shall not by any action
including, without limitation, amending its Articles of Incorporation or Bylaws,
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, to avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant, and will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of the Holder against impairment.
SECTION 17. APPLICABLE LAW; PAYMENTS. The validity, interpretation and
performance of this Warrant shall be governed by the laws of the State of Texas.
All payments shall be in U. S. Dollars by immediately available funds.
SECTION 18. SUCCESSORS AND ASSIGNS. This Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Company and the Holder.
SECTION 19. HEADINGS. Headings of the paragraphs in this Warrant are for
convenience and reference only and shall not, for any purpose, be deemed a part
of this Warrant.
SECTION 20. ARBITRATION. All disputes arising under this Agreement
(other than claims in equity) shall be resolved by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by the Company and the Holder in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. If the Company and
Holder cannot agree on an arbitrator within twenty (20) days, an arbitrator
shall be chosen by the American Arbitration Association. The arbitration shall
be held in such place in New York, New York, as may be specified by the
arbitrator (or any place agreed to by the Company, the Holder and the
arbitrator). The decision of the arbitrator shall be final and binding as to any
matters submitted under this Agreement;
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provided, however, if necessary, such decision and satisfaction procedure may be
enforced by either the Company or the Holder in any court of record having
jurisdiction over the subject matter or over any of the parties to this
Agreement. All reasonable out of pocket costs and expenses incurred in
connection with any such arbitration proceeding (including reasonable attorneys
fees) shall be borne by the party against which the decision is rendered, or, if
no decision is rendered, each party shall bears its respective costs and
expenses. If the arbitrator's decision is a compromise, the determination of
which party or parties bears the reasonable out-of-pocket costs and expenses
incurred in connection with any such arbitration proceeding shall be made by the
arbitrator on the basis of the arbitrator's assessment of the relative merits of
the parties' positions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed under seal by its duly authorized officer this ____ day of
____________, 1998.
HENLEY HEALTHCARE INC.
By:____________________________
Name:__________________________
Title:_________________________
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EXHIBIT A
FORM OF SUBSCRIPTION
The undersigned, registered holder or assignee of such registered holder
of the within Warrant, hereby (1) subscribes for _________ shares (subject to
adjustment as provided herein) which the undersigned is entitled to purchase
under the terms of the within Warrant, (2) makes the full cash payment called
for by the within Warrant, and (3) directs that the shares issuable upon
exercise of said Warrant be issued as follows:
Name:_____________________________
By:_______________________________
Title:____________________________
Date:_____________________________
__________________________________
NOTICE: The name and signature on this subscription form must correspond with
the name as written upon the face of the within Warrant, or upon the assignment
form on the reverse thereof, in every particular, without alteration or
enlargement and must be guaranteed by a bank or by a firm having membership on a
registered national securities exchange in the United States.
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EXHIBIT B
FORM OF ASSIGNMENT
FOR VALUE RECEIVED __________________hereby sells, assigns, and transfers unto
________________, of ______________ the right to purchase ____________ shares
(subject to adjustment as provided herein) evidenced by the within Warrant, and
hereby irrevocably constitutes and appoints to transfer such right on the books
of the Company, with full power of substitution.
Date:_________________________, 19____
Name:__________________________
By:____________________________
Title:_________________________
Date:________________________________
_____________________________________
NOTICE: The name and signature on this assignment correspond with the name with
the name as written upon the face of the within upon any assignment form duly
executed pursuant to the within Warrant, in every particular, without alteration
or and must be guaranteed by a bank, or by a firm having on a registered
national securities exchange in the United States.
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EXHIBIT 4.3
EXHIBIT C
FORM OF
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of _________, 1998 by and among Henley Healthcare, Inc. a Texas
corporation (the "Company"), and, the undersigned Purchasers of the Company's
Series A Convertible Preferred Stock (the "Investors").
A. Pursuant to the terms of a Private Securities Subscription Agreement, dated
as of ________, 1998 (as the same may be amended, the "Subscription Agreement"),
by and between the Company and the Investors, the Investors shall purchase the
$_____________ aggregate principal amount of 4% Series A Convertible Preferred
(the "Preferred"), of the Company, which may be converted into shares of the
$.01 par value per share common stock of the company (the "Common Stock").
B. Pursuant to the Subscription Agreement, the Investors shall acquire warrants
to purchase up to __________ shares of the Common Stock (the "Warrants").
C. The Company has agreed, as a condition precedent to the Investors obligations
under the Subscription Agreement, to grant the Investors certain registration
rights.
D. The Company and the Investors desire to define such registration rights on
the terms and subject to the conditions herein set forth.
In consideration of the foregoing premises and for other good and valuable
consideration, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms have the respective meanings set
forth below:
COMMISSION: shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the federal Securities laws;
CLOSING DATE: shall mean the Closing Date, as defined by the Subscription
Agreement;
EXCHANGE ACT: shall mean the Securities Exchange Act of 1934, as amended;
HOLDER: shall mean any holder of Registrable Securities;
PERSON: shall mean an individual, partnership, joint stock company, corporation,
trust or unincorporated organization, and a government or agency or political
subdivision thereof;
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REGISTER, REGISTERED AND REGISTRATION: shall mean a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act (and any post-effective amendments filed or required to be filed) and the
declaration or ordering of effectiveness of such registration statement;
REGISTRABLE SECURITIES: shall mean (A) an unlimited number of shares of Common
Stock into which the Preferred are convertible, or for which the Warrants are
exercisable, (B) any securities of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares of Common Stock referred to in clause (A), and (C) the shares of Common
Stock issuable to the Placement Agent upon the exercise of Warrants pursuant to
the Engagement Letter; provided, that Registrable Securities shall not include
(i) securities with respect to which a registration statement with respect to
the sale of such securities has become effective under the Securities Act and
all such securities have been disposed of in accordance with such registration
statement, (ii) such securities as may be sold without limitations on volume
pursuant to Rule 144K (or any successor provision thereto) under the Securities
Act ("Rule 144"), (iii) such securities as are acquired by the Company or any of
its subsidiaries or (iv) Common Stock into which Preferred are convertible or
for which Warrants are exercisable, if such Preferred have not been converted or
such Warrants exercised, and such Preferred or Warrants cease to be outstanding;
REGISTRATION EXPENSES: shall mean all expenses incurred by the Company in
compliance with Sections 2(a), (b) and (c) hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, fees and expenses of one counsel for
the Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company);
SECURITY, SECURITIES: shall have the meaning set forth in Section 2(1) of the
Securities Act;
SECURITIES ACT: shall mean the Securities Act of 1933, as amended; and
SELLING EXPENSES: shall mean all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities and all fees and disbursements
of counsel for each of the Holders other than fees and expenses of one counsel
for all the Holders.
2. SHELF REGISTRATION
(a) Within 30 days after the Closing Date, the Company shall file a "shelf"
registration statement pursuant to Rule 415 under the Securities Act (the "Shelf
Registration") with respect to the Registrable Securities to be issued under the
Subscription Agreement. The Shelf Registration shall be on Form S-3 under the
Securities Act or such other appropriate form selected by the Company, and
approved by Investors legal counsel, which allows resales of Registrable
Securities. The Company shall use its reasonable best efforts to cause the Shelf
Registration to become effective within 100 days of the Closing Date, and shall
use its reasonable best efforts to keep the Shelf
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Registration continuously effective from the date such Shelf Registration is
effective until the earlier to occur of (i) the second anniversary of the
Closing Date, or (ii) the date on which all Registrable Securities have been
sold, in order to permit the prospectus forming a part thereof to be usable by
Holders during such period. The Shelf Registration may include securities of the
Company other than Registrable Securities. If the Shelf Registration has not
been filed with the Commission with 30 days, (default) or is not declared
effective by the Commission on or before the 100th day after the Closing Date
(default), then the Company shall accrue to each Investor, as liquidated
damages, an amount in cash equal to two percent (2%) of the liquidation value of
the Preferred then held by such Investors for each thirty (30) days thereafter
until the Shelf Registration is declared effective by the Commission. The
liquidated damages shall be paid within 30 days of the Company's default, and
shall increase to three percent (3%) for all defaults of 60 days or more.
(b) The Company shall supplement or amend the Shelf Registration only as it
relates to the Investors or placement agent, (i) as required by the registration
form utilized by the Company or by the instructions applicable to such
registration form or by the Securities Act or the rules and regulations
promulgated thereunder, (ii) to include in such Shelf Registration any
additional securities that become Registrable Securities by operation of the
definition thereof, and (iii) following the written request of a Holder pursuant
to Section 2(c) below, to cover offers and sales of all or a part of the
Registrable Securities by means of an underwriting including the incorporation
of any information required pursuant to Section 2(e)(ix) below. The Company
shall furnish to the Holders of the Registrable Securities to which the Shelf
Registration relates copies of any such supplement or amendment sufficiently in
advance (but in no event less than two business days in advance) of its use
and/or filing with the Commission to allow the Holders a meaningful opportunity
to comment thereon.
(c) The Holders may, at their election and upon written notice by the Holders to
the Company, effect offers and sales under the Shelf Registration by means of
one or more underwritten offerings. If the Holders intend to distribute the
Registrable Securities by means of an underwriting, they shall so advise the
Company. An underwritten registration under this Section 2(c) may include other
Securities of the Company held by Persons who, by virtue of agreements with the
Company, are entitled to include their Securities in any such registration
("Other Stockholders"). If Other Stockholders request inclusion in any such
registration, the Holders shall offer to include the Securities of such Other
Stockholders in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 2. The Holders
whose shares are to be included in such underwriting and the Company shall
(together with all Other Stockholders proposing to distribute their securities
through such underwriting) enter into underwriting and related agreements in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Company and reasonably acceptable to the
Holders. Such underwriting agreement will contain such representations and
warranties by the Company and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution to the effect and to
the extent provided in Section 2(f) hereof and the provision of customary
opinions of counsel and accountants' letters, and the representations and
warranties by, and the other agreements on the part of, the
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Company to and for the benefit of such underwriters shall also be made to and
for the benefit of the Holders. The Company shall cooperate fully with the
Holders and the underwriters in connection with any underwritten offering.
Notwithstanding any other provision of this Section 2(c), if the underwriter
advises the Holders in writing that marketing factors require a limitation on
the number of shares to be underwritten, the Securities of the Company held by
Other Stockholders shall be excluded from such registration to the extend so
required by such limitation. If, after the exclusion of such shares, still
further reductions are required, the number of shares included in the
registration by each Holder shall be reduced on a pro rata basis (based on the
number of shares held by such Holder), by such minimum number of shares as is
necessary to comply with such request. No Registrable Securities or any other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such underwriting. If any Other
Stockholder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Holders. If
the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company and officers and directors of the
Company may include its or their securities for its or their own account in such
registration if the underwriter so agrees and if the number of Registrable
Securities and other securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(d) EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to this Section 2
shall be borne by the Company, and all Selling Expenses shall be borne by the
Holders of the securities so registered pro rata on the basis of the number of
their shares so registered.
(e) REGISTRATION PROCEDURES. In the case of each registration effected by the
Company pursuant to this Section 2, the Company will keep the Holders, as
applicable, advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, the Company will:
(i) furnish to each Holder, and to any underwriter before filing with
the Commission, copies of any registration statement (including all exhibits)
and any prospectus forming a part thereof and any amendments and supplements
thereto (including all documents incorporated or deemed incorporated by
reference therein prior to the effectiveness of such registration statement and
including each preliminary prospectus, any summary prospectus or any term sheet
(as such term is used in Rule 434 under the Securities Act)) and any other
prospectus filed under Rule 424 under the Securities Act, which documents, other
than documents incorporated or deemed incorporated by reference, will be subject
to the review of the Holders and any such underwriter for a period of at least
two (2) business days, and the Company shall not file any such registration
statement or such prospectus or any amendment or supplement to such registration
statement or prospectus to which any Holder or any such underwriter shall
reasonably object within two (2) business days after the receipt thereof. A
Holder or such underwriters, if any, shall be deemed to have reasonably objected
to such filing only if the registration statement, amendment, prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission;
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(ii) furnish to each Holder and to any underwriter, such number of
conformed copies of the applicable registration statement and of each amendment
and supplement thereto (in each case including all exhibits) and such number of
copies of the prospectus forming a part of such registration statement
(including each preliminary prospectus, any summary prospectus or any term sheet
(as such term is used in Rule 434 under the Securities Act)) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, including without
limitation documents incorporated or deemed to be incorporated by reference
prior to the effectiveness of such registration, as each of the Holders or any
such underwriter, from time to time may reasonably request;
(iii) make available at reasonable times for inspection by the Holders,
any underwriter participating in any disposition pursuant to such registration
and any attorney or accountant retained by the Holders or any such underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company and cause the officers, directors and employees of the Company to
supply all information reasonably requested by the Holders and any such
underwriters, attorneys or accountants in connection with such registration
subsequent to the filing of the applicable registration statement and prior to
the effectiveness of the applicable registration statement;
(iv) use its commercially reasonable best efforts (x) to register or
qualify all Registrable Securities and other securities covered by such
registration under such other securities or blue sky laws of such States of the
United States of America where an exemption is not available and as the sellers
of Registrable Securities covered by such registration shall reasonably request,
(y) to keep such registration or qualification in effect for so long as the
applicable registration statement remains in effect, and (z) to take any other
action which may be reasonably necessary or advisable to enable such sellers to
consummate the disposition in such jurisdictions of the securities to be sold by
such sellers, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any jurisdiction
where it is not so qualified, or to subject itself to taxation in any such
jurisdiction, or to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act or applicable rules or regulations thereunder;
(v) subject to Section 2(h) hereof, promptly notify each Holder of
Registrable Securities covered by a registration statement (A) upon discovery
that, or upon the happening of any event as a result of which, the prospectus
forming a part of such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, (B) of the
issuance by the Commission of any stop order suspending the effectiveness of
such registration statement or the initiation of proceedings for that purpose,
(C) of any request by the Commission for (1) amendments to such registration
statement or any document incorporated or deemed to be incorporated by reference
in any such registration statement, (2) supplements to the prospectus forming a
part of such registration statement or (3) additional information, or (D) of the
receipt by the Company of any notification with respect to the suspension
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of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation of any proceeding for
such purpose, and at the request of any such Holder promptly prepare and furnish
to it a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(vi) use its commercially reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any such registration,
or the lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction;
(vii) if requested by the initiating Holders, or any underwriter,
promptly incorporate in such registration statement or prospectus, pursuant to a
supplement or post effective amendment if necessary, such information as the
Holders and any underwriter may reasonably request to have included therein,
including, without limitation, information relating to the "plan of
distribution" of the Registrable Securities, information with respect to the
principal amount or number of shares of Registrable Securities being sold to
such underwriter, the purchase price being paid therefor and any other terms of
the offering of the Registrable Securities to be sold in such offering and make
all required filings of any such prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the matters to
be incorporated in such prospectus supplement or post effective amendment;
(viii) in the event of an underwritten offering of Registrable
Securities, furnish to the underwriters, addressed to them, an opinion of
counsel for the Company, dated the date of the closing under the underwriting
agreement, and use its reasonable best efforts to furnish to the underwriters,
addressed to them, a "cold comfort" letter signed by the independent certified
public accountants who have certified the Company's financial statements
included in such registration, covering substantially the same matters with
respect to such registration (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities and such other matters as the underwriters may
reasonably request;
(ix) otherwise use its commercially reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months, but not more than 18
months, beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 promulgated
thereunder;
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(x) provide promptly to the Holders upon request any document filed by
the Company with the Commission pursuant to the requirements of Section 13 and
Section 15 of the Exchange Act; and
(xi) use its commercially reasonable best efforts to cause all
Registrable Securities included in any registration pursuant hereto to be listed
on each securities exchange on which securities of the same class are then
listed, or, if not then listed on any securities exchange, to be eligible for
trading in any over-the-counter market or trading system in which securities of
the same class are then traded.
(f) INDEMNIFICATION.
(i) The Company will indemnify each of the Holders, and as applicable,
each of their respective officers, directors, members and partners, and each
person controlling each of the Holders, with respect to each registration which
has been effected pursuant to this Section 2, and each underwriter, if any, and
each person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or the Exchange Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each of the Holders, each of its officers,
directors, members and partners, and each person controlling each of the
Holders, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action. provided that the Company will not be liable in any such
case to the extent that any such claim loss, damage, liability or expense arises
out of or is based on any untrue statement or omission based upon written
information furnished to the Company by the Holders or underwriter and stated to
be specifically for use therein. PROVIDED, FURTHER, that the Company shall not
be liable to any Holder or underwriter in respect of any Prospectus to the
extent that (i) the Prospectus did not contain the untrue statement or alleged
untrue statement or omission or alleged omission giving rise to such loss,
claim, damage, liability or action, and (ii) the Prospectus was not sent or
given to the purchaser of the Registrable Securities in question at or prior to
the time at which the written confirmation of the sale of such Registrable
Securities was sent or given to such person.
(ii) Each of the Holders will, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and each underwriter, if any, of the Company's securities covered by
such a registration statement and each person who controls the Company or such
underwriter, each Other Stockholder and each of their officers, directors,
members and partners, and each person controlling such Other Stockholder against
all claims, losses, damages and liabilities (or
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actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by such Holder,
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, and will reimburse the Company and such Other Stockholders,
directors, officers, partners, members, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein; provided,
however, that the obligations of each of the Holders hereunder and under clause
(vi) below shall be limited to an amount equal to the net proceeds to such
Holder of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this Section 2(f)
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Patty in such action, in which case the
fees and expenses of one such counsel for all Indemnified Parties shall be at
the expense of the Indemnifying Party), and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 2 unless the
Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party (which consent shall not be unreasonably withheld or
delayed), consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 2(f) is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or
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expense, as well as any other relevant equitable considerations. The relative
fault of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue (or alleged untrue)
statement of a material fact or the omission (or alleged omission) to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(v) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with any underwritten public offering contemplated by this
Agreement are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall be controlling.
(g) INFORMATION BY THE HOLDERS. Each of the Holders holding securities included
in any registration shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section
2.
(h) ASSIGNMENT. The registration rights set forth in Section 2 hereof may be
assigned, in whole or in part, to any transferee of Registrable Securities (i)
who is an affiliate of the Investors, or (ii) who is a purchaser of at least 25%
of the then outstanding Registrable Securities. Any such transferee shall be
considered thereafter to be a Holder (provided that any transferee who is not an
affiliate of Investors shall be a Holder only with respect to such Registrable
Securities so acquired and any stock of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of,
such Registrable Securities) and shall be bound by all obligations and
limitations of this Agreement.
(i) ACTION TO SUSPEND EFFECTIVENESS; SUPPLEMENT TO REGISTRATION STATEMENT.
Immediately upon receipt of any notice from the Company pursuant to Section
2(e)(v), each Holder shall cease to offer or sell any Registrable Securities
pursuant to the Shelf Registration and, if so requested by the Company, return
to the Company, at the Company's expense, all copies (other than permanent file
copies) of such registration statement. As soon as possible after any such
notice from the Company, the Company will notify each Holder of the date on
which the Holder of the date on which the Holders may offer and sell pursuant to
the Shelf Registration.
(j) HOLDBACK AGREEMENT - RESTRICTIONS ON PUBLIC SALE BY HOLDER. To the extent
not inconsistent with applicable law, each Holder whose Registrable Securities
are included in the Shelf Registration or any other registration statement
agrees not to effect any public sale or distribution of the issue being
registered or a similar security of the Company, or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during the thirty (30) days prior
to, and during the ninety (90) day period beginning on, the effective date of
any such other registration statement filed by the Company (except as part of
the registration), if and to the extent requested by the Company in the case of
a nonunderwritten
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public offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
3. RULE 144 REPORTING
With a view to making available the benefits of certain rules and regulations of
the Commission which may permit the sale of restricted securities to the public
without registration, the Company agrees to:
(i) make and keep public information available (as those terms are
understood and defined in Rule 144) at all times;
(ii) use its reasonable best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) so long as there are outstanding any Registrable Securities,
furnish to each Holder, upon request, a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 and of the Securities
Act and the Exchange Act, a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any such securities without
registration.
4. INTERPRETATION OF THIS AGREEMENT
(a) DIRECTLY OR INDIRECTLY. Where any provision in this Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(b) GOVERNING LAW. This Agreement shall be governed by and construed
accordance with the laws of the State of Texas.
(c) SECTION HEADINGS. The headings of the sections and subsections of
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part thereof.
(d) ARBITRATION. All disputes arising under this Agreement (other than
claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by the Company and the Investors in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. If the Company and
Investors cannot agree on an arbitrator within twenty (20) days, an arbitrator
shall be appointed by the American Arbitration Association. The arbitration
shall be held in such place in New York, New York, as may be specified by the
arbitrator (or any place agreed to by the Company, the Investors and the
arbitrator). The decision of the arbitrator shall be final and binding as to any
matters submitted under this Agreement; provided,
10
<PAGE>
however, if necessary, such decision and satisfaction procedure may be enforced
by either the Company or the Investors in any court of record having
jurisdiction over the subject matter or over any of the parties to this
Agreement. All reasonable out of pocket costs and expenses incurred in
connection with any such arbitration proceeding (including reasonable attorneys
fees) shall be become by the party against which the decision is rendered, or,
if no decision is rendered, each party shall bear its respective costs and
expenses. If the arbitrator's decision is a compromise, the determination of
which party or parties bears the costs and expenses incurred in connection with
any such arbitration proceeding shall be made by the arbitrator on the basis of
the arbitrator's assessment of the relative merits of the parties' positions.
5. MISCELLANEOUS
(a) Notices.
(i) All communications under this Agreement shall be in writing
and shall be delivered by facsimile or by hand or mailed by overnight courier or
by registered or certified mail, postage prepaid:
(A) if to the company, to Henley Healthcare Inc.,
Attention: Chief Executive Officer, or at such other address as it may have
furnished in writing to the Investors;
(B) if to the Investors, at the address listed on the
signature page hereto, or at such other address as may have been furnished the
Company in writing.
(ii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier, on the
first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.
(b) REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
thereto, including, without limitation, any consents, waivers and modifications
which may hereafter be executed may be reproduced by the lnvestors by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and the Investors may destroy any original document so
reproduced. The parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Investors in the regular course
of business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties.
11
<PAGE>
(d) ENTIRE AGREEMENT: AMENDMENT AND WAIVER. This Agreement constitutes
the entire understanding of the parties hereto and supersedes all prior
understanding among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the Holders of a majority of the then
outstanding Registrable Securities.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
(f) NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement.
(g) REMEDIES. Each Holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(h) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended and understood that all of the rights and privileges
of each of the Holders shall be enforceable to the fullest extent permitted by
law.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
HENLEY HEALTHCARE, INC.
By:___________________________
Name:_________________________
Title:________________________
12
<PAGE>
INVESTOR:
By:___________________________
Name:_________________________
Title:________________________
ADDRESS:
_________________________________
_________________________________
_________________________________
_________________________________
13
EXHIBIT 10.1
February 20, 1998
Maxxim Medical, Inc.
10300 49th Street North
Clearwater, FL 34622
Gentlemen:
This letter will serve as our agreement relating to certain issues
concerning the conversion by Maxxim Medical, Inc., a Delaware corporation,
("Maxxim"), of a portion of the certain convertible subordinated promissory note
dated April 30, 1996, in the original principal amount of $7,000,000, as amended
by that certain note modification agreement dated September 20, 1997 (the
"Convertible Note"), issued by Henley Healthcare, Inc., a Texas corporation,
("Henley"), to Maxxim. For good and valuable consideration, the receipt of
sufficiency of which are hereby acknowledged, the parities hereto agree as
follows:
1. Pursuant to Section 4.1 of the Convertible Note, Maxxim gives notice of
the conversion of $2,000,000 of the principal amount of the Convertible
note into 1,000,000 shares of the common stock, par value $.01 per share
("Common Stock"), of Henley, based on the current conversion price of
$2.00 per share under the Convertible Note. The data of such conversion
is effective as of the date of this letter and Henley hereby tenders to
Maxxim a certificate representing the 1,000,000 shares of Common stock.
Notwithstanding the provisions of Section 4.1 of the Convertible Note,
the parties agree that the entire $2,000,000 of the convertible Note so
converted reduces the principal amount of the Convertible Note and such
sum shall be applied to Henley's full redemption obligation due in the
year 2003 and partially to Henley's redemption obligation due in the
year 2002 as provided in Section 2.3 of the Convertible Note. All
accrued and unpaid interest on the Convertible Note through February 28,
1998 in the aggregate amount of $26,667 is hereby paid in cash by
Henley.
2. As further consideration for the agreement of Maxxim to convert the
amount of Convertible Note set forth above, Henley hereby agrees to use
its commercially reasonable best efforts to file a shelf registration
statement on Form S-3, as amended from time to time, (the "Registration
Statement") with the U. S. Securities and Exchange Commission ("SEC) to
register resales of the Common Stock issued to Maxxim hereby as soon as
reasonably practicable after the date hereof; provided, that, Maxxim
hereby acknowledges and agrees that the Registration Statement will not
be filed until such time as Henley has completed the audit of its
consolidated financial statements at and as of December 31, 1997, and
filed its Annual Report on Form 10-K with the SEC including the results
of such audit which matters Henley agrees to accomplish as soon as
practicable. Henley shall use its commercially reasonable best efforts
to have the Registration Statement declared effective as soon as
possible after such filing, and to keep such Registration Statement
continuously effective until the second anniversary of the initial date
effectiveness of such Registration Statement subject to extension as
herein provided; provided, however, that Henley may voluntarily form
time to time suspend the effectiveness of the Registration Statement for
a limited time, which in no event shall be longer than 90 days in any
instance and 150 days in the aggregate, if Henley has been advised in
writing by its counsel or its underwriters that the offering of shares
of
<PAGE>
Common Stock pursuant to the Registration Statement would materially
and adversely affect, or would be improper in view of ( improper without
disclosure in a prospectus), a proposed financing, public offering,
reorganization, re-capitalization, merger, consolidation or similar
transaction involving Henley, in which case Henley shall be required to
keep such anniversary date equal to the number of days the effectiveness
thereof is suspended pursuant to this provision. Upon the occurrence of
any event that would cause the Registration Statement to contain a
material misstatement or omission or not to be effective and usable
during the period that such Registration Statement is required to be
effective and usable. Henley shall promptly notify Maxxim in writing
specifying the reasons that the Registration Statement may not be used
to sell Common stock including a copy of the written advice received by
Henley from its counsel or underwriters and Henley shall promptly file
an amendment to the Registration Statement and use its commercially
reasonable best efforts to cause such amendment to be declared effective
as soon as practicable thereafter. Henley will bear all costs and
expenses related to the Registration Statement other than the expenses
incurred by Maxxim for underwriters' commissions and discounts or legal
fees incurred by Maxxim. Maxxim shall furnish to Henley such information
regarding its holdings and the proposed manner of distribution of Common
Stock as Henley may reasonably request and as shall be required by the
rules and regulations of the SEC in connection with the Registration
Statement. Notwithstanding the foregoing, Maxxim hereby acknowledges and
agrees that Henley may include in the Registration Statement the
offering for resale of additional shares of its common stock issuable
upon the conversion of other securities of Henley to be issued in
connection with proposed private placement to be accomplished by Henley
in the next 30 days after the date of this letter; provided, however,
that such inclusion will not reduce in any manner the number of Maxxim
shares to be included in the Registration Statement.
3. The Registration Rights Agreement entered by and between Maxxim and
Henley dated April 30, 1996 ("Registration Rights Agreement"), remains
in full force and effect, except that the shares of Common Stock issued
by Henley to Maxxim, as set forth in paragraph 1 above, shall no longer
be "Registerable Securities" as defined in such Registration Statement
as provided herein. Henley acknowledges and agrees that registration of
the Maxxim Common Stock does not constitute a Demand Registration
pursuant to the provisions of the Registration Rights Agreement.
4. Henley and Maxxim agree that the indemnification and contribution rights
and obligations of the parties as provided in Section 5 of the
Registration Rights Agreement shall be applicable to the Transactions
herein described and are incorporated herein by this reference as if
fully set forth.
5. Each of Henley, Chadwick F. Smith and Michael M. Barbour hereby waive
and release in full their rights of first refusal granted under Section
2 of that certain Voting Agreement dated April 20, 1996, executed by
such persons and Maxxim insofar as such rights apply to the sale by
Maxxim of the shares of Common Stock to be included in the Registration
Statement. Henley agrees that any legend on the Maxxim Common Stock
certificate shall be removed by Henley's Registrar or Transfer agent
within 24 hours of notice to Henley, that Maxxim has sold any of the
Common Stock pursuant to the Registration Statement.
6. This letter may not be amended without the written approval of the
parities hereto and shall be construed, interpreted and enforced under
the laws of the State of Texas.
Please acknowledge your acceptance and agreement of the above by
acknowledging this agreement in the space provided below.
<PAGE>
Very truly yours,
HENLEY HEALTHCARE, INC.
By: /s/ MICHAEL M. BARBOUR
Title: PRESIDENT & CEO
Acknowledged and agreed to by:
MAXXIM MEDICAL, INC.
By: /s/ KENNETH W. DAVIDSON
Title: CHAIRMAN, PRESIDENT & CEO
Date: FEBRUARY 20, 1998
/s/ CHADWICK F. SMITH
Chadwick F. Smith
Date: FEBRUARY 20, 1998
/S/ MICHAEL M. BARBOUR
Michael M. Barbour
Date: FEBRUARY 20, 1998
EXHIBIT 10.2
March 13, 1998
Maxxim Medical, Inc.
10300 49th Street North
Clearwater, FL 34622
Gentlemen:
This letter will serve as our agreement relating to certain issues
concerning the conversion by Maxxim Medical, Inc., a Delaware corporation,
("Maxxim"), of a portion of the certain convertible subordinated promissory note
dated April 30, 1996, in the original principal amount of $7,000,000, as amended
by that certain note modification agreement dated September 20, 1997 (the
"Convertible Note"), issued by Henley Healthcare, Inc., a Texas corporation,
("Henley"), to Maxxim. For good and valuable consideration, the receipt of
sufficiency of which are hereby acknowledged, the parities hereto agree as
follows:
1. Pursuant to Section 4.1 of the Convertible Note, Maxxim gives notice of
the conversion of $2,000,000 of the principal amount of the Convertible
note into 1,000,000 shares of the common stock, par value $.01 per share
("Common Stock"), of Henley, based on the current conversion price of
$2.00 per share under the Convertible Note. The data of such conversion
is effective as of the date of this letter and Henley hereby tenders to
Maxxim a certificate representing the 1,000,000 shares of Common stock.
Notwithstanding the provisions of Section 4.1 of the Convertible Note,
the parties agree that the entire $2,000,000 of the convertible Note so
converted reduces the principal amount of the Convertible Note and such
sum shall be applied to Henley's full redemption obligation due in the
year 2003 and 2002 and partially to Henley's redemption obligation due
in the year 2001 as provided in Section 2.3 of the Convertible Note. All
accrued and unpaid interest on the Convertible Note through March 31,
1998 in the aggregate amount of $66,667 is hereby paid in cash by
Henley.
2. As further consideration for the agreement of Maxxim to convert the
amount of Convertible Note set forth above, Henley hereby agrees to use
its commercially reasonable best efforts to file a shelf registration
statement on Form S-3, as amended from time to time, (the "Registration
Statement") with the U. S. Securities and Exchange Commission ("SEC) to
register resales of the Common Stock issued to Maxxim hereby as soon as
reasonably practicable after the date hereof; provided, that, Maxxim
hereby acknowledges and agrees that the Registration Statement will not
be filed until such time as Henley has completed the audit of its
consolidated financial statements at and as of December 31, 1997, and
filed its Annual Report on Form 10-K with the SEC including the results
of such audit which matters Henley agrees to accomplish as soon as
practicable. Henley shall use its commercially reasonable best efforts
to have the Registration Statement declared effective as soon as
possible after such filing, and to keep such Registration Statement
continuously effective until the second anniversary of the initial date
effectiveness of such Registration Statement subject to extension as
herein provided; provided, however, that Henley may voluntarily form
time to time suspend the effectiveness of the Registration Statement for
a limited time, which in no event shall be longer than 90 days in any
instance and 150 days in the aggregate, if Henley has been advised in
writing by its counsel or its underwriters that the offering of shares
of
<PAGE>
Common Stock pursuant to the Registration Statement would materially
and adversely affect, or would be improper in view of ( improper without
disclosure in a prospectus), a proposed financing, public offering,
reorganization, re-capitalization, merger, consolidation or similar
transaction involving Henley, in which case Henley shall be required to
keep such anniversary date equal to the number of days the effectiveness
thereof is suspended pursuant to this provision. Upon the occurrence of
any event that would cause the Registration Statement to contain a
material misstatement or omission or not to be effective and usable
during the period that such Registration Statement is required to be
effective and usable. Henley shall promptly notify Maxxim in writing
specifying the reasons that the Registration Statement may not be used
to sell Common stock including a copy of the written advice received by
Henley from its counsel or underwriters and Henley shall promptly file
an amendment to the Registration Statement and use its commercially
reasonable best efforts to cause such amendment to be declared effective
as soon as practicable thereafter. Henley will bear all costs and
expenses related to the Registration Statement other than the expenses
incurred by Maxxim for underwriters' commissions and discounts or legal
fees incurred by Maxxim. Maxxim shall furnish to Henley such information
regarding its holdings and the proposed manner of distribution of Common
Stock as Henley may reasonably request and as shall be required by the
rules and regulations of the SEC in connection with the Registration
Statement. Notwithstanding the foregoing, Maxxim hereby acknowledges and
agrees that Henley may include in the Registration Statement the
offering for resale of additional shares of its common stock issuable
upon the conversion of other securities of Henley to be issued in
connection with proposed private placement to be accomplished by Henley
in the next 30 days after the date of this letter; provided, however,
that such inclusion will not reduce in any manner the number of Maxxim
shares to be included in the Registration Statement.
3. The Registration Rights Agreement entered by and between Maxxim and
Henley dated April 30, 1996 ("Registration Rights Agreement"), remains
in full force and effect, except that the shares of Common Stock issued
by Henley to Maxxim, as set forth in paragraph 1 above, shall no longer
be "Registerable Securities" as defined in such Registration Statement
as provided herein. Henley acknowledges and agrees that registration of
the Maxxim Common Stock does not constitute a Demand Registration
pursuant to the provisions of the Registration Rights Agreement.
4. Henley and Maxxim agree that the indemnification and contribution rights
and obligations of the parties as provided in Section 5 of the
Registration Rights Agreement shall be applicable to the Transactions
herein described and are incorporated herein by this reference as if
fully set forth.
5. Each of Henley, Chadwick F. Smith and Michael M. Barbour hereby waive
and release in full their rights of first refusal granted under Section
2 of that certain Voting Agreement dated April 20, 1996, executed by
such persons and Maxxim insofar as such rights apply to the sale by
Maxxim of the shares of Common Stock to be included in the Registration
Statement. Henley agrees that any legend on the Maxxim Common Stock
certificate shall be removed by Henley's Registrar or Transfer agent
within 24 hours of notice to Henley, that Maxxim has sold any of the
Common Stock pursuant to the Registration Statement.
6. This letter may not be amended without the written approval of the
parities hereto and shall be construed, interpreted and enforced under
the laws of the State of Texas.
Please acknowledge your acceptance and agreement of the above by
acknowledging this agreement in the space provided below.
<PAGE>
Very truly yours,
HENLEY HEALTHCARE, INC.
By:/s/ MICHAEL M. BARBOUR
Title: PRESIDENT & CEO
Acknowledged and agreed to by:
MAXXIM MEDICAL, INC.
By: /s/ ALAN S. BLAZEI
Title: VICE PRESIDENT CORPORATE CONTROLLER
Date: MARCH 13, 1998
/s/ CHADWICK F. SMITH
Chadwick F. Smith
Date: MARCH 13, 1998
/s/ MICHAEL M. BARBOUR
Michael M. Barbour
Date: MARCH 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 928,732
<SECURITIES> 0
<RECEIVABLES> 7,525,262
<ALLOWANCES> 0
<INVENTORY> 8,797,195
<CURRENT-ASSETS> 17,463,717
<PP&E> 5,404,230
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,382,528
<CURRENT-LIABILITIES> 12,447,623
<BONDS> 0
0
1,368,750
<COMMON> 56,622
<OTHER-SE> 10,939,021
<TOTAL-LIABILITY-AND-EQUITY> 30,382,528
<SALES> 7,984,201
<TOTAL-REVENUES> 7,984,201
<CGS> 4,186,722
<TOTAL-COSTS> 4,186,722
<OTHER-EXPENSES> 3,185,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (332,895)
<INCOME-PRETAX> 92,010
<INCOME-TAX> 0
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<NET-INCOME> 92,010
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