PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
HENLEY HEALTHCARE, INC.
(Name of Registrant as specified in its Charter)
HENLEY HEALTHCARE, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which the transaction
applies: NOT APPLICABLE
(2) Aggregate number of securities to which the transaction
applies: NOT APPLICABLE
(3) Per unit price or other underlying value of the transaction
computed pursuant to Exchange Act Rule 0-11: NOT APPLICABLE
(4) Proposed maximum aggregate value of the transaction: NOT
APPLICABLE
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing:
(1) Amount previously paid: NOT APPLICABLE
(2) Form, Schedule or Registration Statement Number: NOT APPLICABLE
(3) Filing Party: NOT APPLICABLE
(4) Date Filed: NOT APPLICABLE
<PAGE>
HENLEY HEALTHCARE, INC.
120 INDUSTRIAL BOULEVARD
SUGAR LAND, TEXAS 77478
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 13, 1998
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Henley Healthcare, Inc. (the "Company") will be held at
the offices of the Company located at 120 Industrial Boulevard, Sugar Land,
Texas 77478, on Friday, November 13, 1998 at 10:00 a.m., local time, solely for
the following purposes:
1. To vote on a proposal to approve and reserve for issuance the full
number of shares of the Common Stock issuable (a) upon the conversion of the
Company's Series B Convertible Preferred Stock, par value $.10 per share (the
"Series B Preferred Stock"), issued in private placement completed in July and
August 1998 (the "Private Placement"), (b) as dividends, if any, and other
payments relating to such Series B Preferred Stock, and (c) upon exercise of
related investor and placement agent warrants. Such approval will remove the
1,076,640 share limitation on the number of shares of Common Stock issuable in
connection with the Private Placement which is currently required by the listing
rules of The Nasdaq SmallCap Stock Market.
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on
October 7, 1998 as the record date for the determination of the shareholders
entitled to notice of, and to vote at, the Special Meeting or any adjournment or
postponement thereof. A list of such shareholders will be available for
inspection by shareholders at the Company's principal office for a period of ten
days prior to the Special Meeting.
The enclosed proxy is solicited by the Board of Directors, which has
unanimously recommended that shareholders vote FOR the proposal. Please refer to
the attached Proxy Statement, which forms a part of this Notice and is
incorporated herein by reference, for further information with respect to the
business to be transacted at the Special Meeting.
Whether or not you plan to attend the Special Meeting in person, it is
important that you SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY in the
envelope provided to assure that your shares are represented at the Special
Meeting. If you later decide to attend the Special Meeting and wish to vote your
shares in person, you may do so. Your prompt attention is appreciated.
By Order of the Board of Directors,
/S/ DAN D. SUDDUTH
Dan D. Sudduth, Executive Vice President,
Chief Financial Officer and Secretary
October _____, 1998
THE ENCLOSED PROXY, WHICH IS BEING SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY, CAN BE RETURNED IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
HENLEY HEALTHCARE, INC.
120 INDUSTRIAL BOULEVARD
SUGAR LAND, TEXAS 77478
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
NOVEMBER 13, 1998
------------------------------------
GENERAL INFORMATION
This Proxy Statement is being furnished to shareholders of Henley
Healthcare, Inc., a Texas corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company (the "Board") of proxies
for use at the Special Meeting of Shareholders to be held at 10:00 a.m., local
time, on Friday, November 13, 1998, at the offices of the Company located at 120
Industrial Boulevard, Sugar Land, Texas 77478, for the purposes set forth in the
accompanying Notice of Special Meeting of Shareholders, and at all adjournments
thereof (the "Special Meeting"). This Proxy Statement is first being mailed to
the Company's shareholders on or about October __, 1998.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, holders of record of the Company's outstanding
shares of common stock, par value $0.01 per share (the "Common Stock"), will be
asked to consider and vote upon a proposal to approve the issuance of the full
number of shares of Common Stock (a) to the holders of the Company's Series B
Convertible Preferred Stock, par value $.10 per share (the "Series B Preferred
Stock"), upon conversion of the Series B Preferred Stock, (b) as dividends on
the Series B Preferred Stock, if any, and payments thereon, and (c) upon
exercise of related investor and placement agent warrants (the "Proposal").
Approval of the Proposal will remove the 1,076,640 share limitation on the
number of shares of Common Stock issuable in connection with the Private
Placement (as defined below) which is currently required by the listing rules of
the Nasdaq Stock Market (the "Nasdaq").
The Board unanimously recommends that shareholders vote FOR the
Proposal. As of the date of this Proxy Statement, the Board knows of no other
business to come before the Special Meeting.
RECORD DATE; QUORUM; VOTE REQUIRED
The Board has fixed the close of business on October 7, 1998, as the
record date for determination of the shareholders entitled to notice of, and to
vote at, the Special Meeting (the "Record Date"). As of the Record Date, there
were 5,383,205 shares of Common Stock outstanding. The presence, either in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Common Stock as of the Record Date is necessary to
constitute a quorum at the Special Meeting. Each share of Common Stock
outstanding on the Record Date entitles the record holder thereof to one vote on
each matter that may properly come before the Special Meeting. The affirmative
vote of a majority of the shares of Common Stock represented in person or by
properly executed proxies that are entitled to vote on, and that vote either for
or against or expressly abstain with respect to the Proposal is required to
approve the Proposal.
PROXIES
Because many shareholders are unable to attend the Special Meeting, the
Board of Directors solicits proxies to ensure that each shareholder has an
opportunity to vote on all matters scheduled to come before the Special Meeting.
Shareholders are urged to carefully read the material in this Proxy Statement
and register their votes by marking the appropriate boxes on the enclosed proxy
card and to sign, date and return the proxy card in the enclosed, addressed
stamped envelope. All shares of Common Stock that are represented at the Special
Meeting by properly executed proxies received prior to or at the Special Meeting
and not revoked at or before the Special Meeting will be voted at the Special
Meeting in accordance with the instructions indicated in such proxies. If no
instructions are indicated, such proxies will be voted FOR approval of the
Proposal.
1
<PAGE>
Shares represented by proxies that reflect abstentions or broker
non-votes shall be counted as present at the Special Meeting for purposes of
determining whether a quorum exists. With respect to the approval of the
Proposal, abstentions will be treated as a vote against the Proposal and broker
non-votes will be treated as unvoted and will have no effect on the Proposal
(except for purposes of determining whether a quorum is present at the Special
Meeting).
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Company, at or before the Special Meeting, a written notice of
revocation bearing a date later than the proxy, (ii) duly executing a subsequent
proxy relating to the same shares of Common Stock and delivering it to the
Company at or before the Special Meeting, or (iii) attending the Special Meeting
and voting in person (although attendance at the Special Meeting will not in any
of itself constitute a revocation of a proxy).
All of the directors and executive officers of the Company and certain
other related shareholders have agreed to vote all shares of Common Stock owned
by them in favor of the Proposal. Such directors, executive officers and related
shareholders owned 2,610,241 shares of Common Stock as of October 7, 1998,
representing 48.49% of the Company's outstanding Common Stock as of such date.
The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of Common Stock and will reimburse them for their reasonable expenses in
so doing. Certain directors, officers and other employees of the Company, not
specially employed for this purpose, may solicit proxies, without additional
remuneration therefor, by personal interview, mail, telephone, facsimile or
other electronic means.
PROPOSAL TO APPROVE THE ISSUANCE OF THE FULL
NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THE SERIES B PREFERRED STOCK
GENERAL
Pursuant to the terms of certain Securities Purchase Agreements, dated
as of July 1, 1998 and August 10, 1998 (collectively, the "Preferred Stock
Agreements"), the Company (i) issued and sold an aggregate of 4,700 units
("Units") comprised of one share of Series B Preferred Stock and warrants to
acquire 50 shares of Common Stock at an exercise prices of between $5.87 and
$6.00 during the next 40 months, for aggregate gross proceeds to the Company of
$4.7 million, and (ii) agreed to issue to the placement agent warrants to
purchase 126,539 shares of Common Stock having the same terms as the warrants
issued as part of the Units and exercise prices range from $5.87 to
$6.00. Such transactions are referred to herein as the "Private Placement," and
the related securities issuances (including shares of Common Stock issuable upon
exercise of the warrants and shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock) are referred to as the "Private Placement
Issuances." The 361,539 warrants issued as part of the Units and to the
placement agent, in the aggregate, are herein referred to as the "Warrants." All
of the securities sold in the Private Placement were sold in private placements
solely to accredited investors.
Shareholders are being asked to consider and vote upon the Proposal in
order to satisfy the requirements of the Nasdaq.
SUMMARY OF SERIES B PREFERRED STOCK TERMS
Set forth below is a summary of the material terms of the Private
Placement, which summary is qualified by reference to the full text of the
underlying documents which have been filed as exhibits to the Company's Current
Report on Form 8-K filed on July 13, 1998 and the Company's Quarterly Report on
Form 10-QSB for the three-month period ended June 30, 1998. See "Available
Information" and "Incorporation By Reference."
DIVIDENDS. The holders of the Series B Preferred Stock are not entitled
to receive dividends.
VOTING RIGHTS. The holders of the Series B Preferred Stock have no
voting rights, except as provided by law. The holders of the Series B Preferred
Stock have no right to vote on the proposal in this Proxy Statement; provided,
however, that pursuant to certain protective provisions contained in the
Statement of Designation of Rights and Preferences of the Series B Preferred
Stock (the "Statement of Designation") and so long as any shares of Series B
Preferred Stock are
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<PAGE>
outstanding, the Company shall not without first obtaining the approval of a
majority in interest of the holders of the then outstanding shares of Series B
Preferred Stock: (a) alter or change the rights, preferences or privileges of
the Series B Preferred Stock; (b) alter or change the rights, preferences or
privileges of any previously issued shares of capital stock of the Company so as
to affect adversely the Series B Preferred Stock; (c) create any new class or
series of capital stock having a preference over the Series B Preferred Stock as
to distribution of assets upon liquidation, dissolution or winding up of the
Company; (d) create any new class or series of capital stock ranking PARI PASSU
with the Series B Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company; (e) increase the authorized number of
shares of Series B Preferred Stock; (f) issue any shares of Senior Securities
(as defined in the Statement of Designation); (g) issue any shares of Series B
Preferred Stock other than pursuant to the Securities Purchase Agreements; (h)
redeem, or declare or pay any cash dividend or distribution on, any Junior
Securities (as defined in the Statement of Designation); or (i) increase the par
value of the Common Stock.
LIQUIDATION PREFERENCE. In the event of any bankruptcy, liquidation,
dissolution or winding up of the Company, either voluntary or involuntary,
including, but not limited to, the sale or transfer of all or substantially all
of the Company's assets in one transaction or in a series of related
transactions (a "Liquidation Event"), no distribution shall be made to the
holders of any shares of capital stock of the Company (other than senior
securities and PARI PASSU securities) upon liquidation, dissolution or winding
up unless prior thereto the holders of shares of Series B Preferred Stock shall
have received the amount of $1,000 per share plus a premium of 4% per annum (the
"Premium") thereon through the date of distribution (the "Liquidation
Preference") with respect to each share. If, upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series B Preferred Stock and holders of PARI PASSU securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Series B Preferred Stock and the PARI PASSU
securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.
The purchase or redemption by the Company of stock of any class, in
any manner permitted by law, shall not, for the purposes hereof, be regarded as
a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other entity nor the
sale or transfer by the Company of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company.
REDEMPTION. The Series B Preferred Stock is redeemable at the option of
the holders upon the occurrence of a Redemption Event, which for purposes of the
Statement of Designation includes the following events (each a "Redemption
Event"): (i) the Common Stock is suspended from trading on any of, or is not
listed for trading on at least one of the Nasdaq SmallCap Market, the Nasdaq
National Market, the New York Stock Exchange or the American Stock Exchange for
an aggregate of ten full trading days in any nine-month period; (ii) the Company
fails to remove any restrictive legend on any certificate or shares of Common
Stock issued to the holders of the Series B Preferred Stock upon conversion
thereof as required by the Statement of Designation; (iii) the Company provides
notice of its intention not to issue or otherwise refuses to issue shares of
Common Stock upon conversion of Series B Preferred Stock; (iv) the Company sells
all or substantially all of its assets, merges, consolidates or engages in any
other business combination where it is not the surviving corporation, (v) 50% or
more of the voting power of the Company is acquired by one person, entity or
group; and (vi) the Company breaches any material term of the Securities
Purchase Agreements. Upon receipt of a request for redemption from a holder of
the Series B Preferred Stock, the Company will be obligated to purchase for cash
such Series B Preferred Stock for an amount per share equal to the greater of
(i) the purchase price of the Series B Preferred Stock, plus any accrued
Premium, divided by the Conversion Price (as defined below) and multiplied by
the highest closing bid price of the Company's Common Stock during the period
beginning on the date on which the company receives a notice of redemption and
ending on the day prior to the payment of the Redemption Price, and (ii) 113%
of the Liquidation Preference (subject to certain reductions in certain events)
(the "Redemption Price") . The Company also has the right to redeem any shares
of Series B Preferred Stock which are the subject of a notice of conversion for
the same redemption price per share upon delivery in advance of the conversion
of written notice to the holders of the Series B Preferred Stock of the
Company's intention to effect redemptions in lieu of conversion. The Statement
of Designation also provides that the Series B Preferred Stock is subject to
redemption at the option of the holder upon the failure of the Company to comply
with certain covenants set forth in the Statement of Designation, including (i)
the failure of the Company to reserve for issuance 135% or more of the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock, (ii) the
failure of the Company to have sufficient authorized shares of Common Stock
available for issuance on conversion of the Series B Preferred Stock, and (iii)
the failure of the Company to list its Common Stock in amounts sufficient to
cover the issuance of shares upon conversion of the Series B Preferred Stock.
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<PAGE>
RANKING. The Series B Preferred Stock ranks prior to the Company's
Common Stock and prior to any class or series of capital stock of the Company
hereafter created that by its terms ranks junior to the Series B Preferred
Stock. The Series B Preferred Stock also ranks junior to any class or series of
capital stock hereafter created specifically ranking by its terms senior to the
Series B Preferred Stock and as PARI PASSU with the Series A Preferred Stock and
any other class or series of capital stock hereafter created specifically
ranking by its terms on parity with the Series B Preferred Stock.
CONVERSION. The shares of Series B Preferred Stock are convertible into
shares of Common Stock upon the earlier of (i) date on which the registration
statement relating to the resale of the Common Stock issuable upon conversion of
the Series B Preferred Stock becomes effective, (ii) the sale of the Company,
(iii) the acquisition of 50% or more of the Company by a third party or group,
or (iv) a Redemption Event. Subject to certain conditions, 2,500 of the shares
of Series B Preferred Stock will automatically convert into Common Stock on July
1, 2003, and the remaining 2,700 shares of Series B Preferred Stock will convert
automatically on August 10, 2003, to the extent any shares of Series B Preferred
Stock remain outstanding on those dates. Each share of Series B Preferred Stock
is convertible into that number of shares of Common Stock equal to the quotient
of (i) $1,000 plus the Premium divided by (ii) the Conversion Price. The
Conversion Price is an amount equal to the lesser of (i) 110% of the average
closing bid price for the Common Stock as reported by Nasdaq for the five
trading days prior to the issuance date ($5.961 for 2,500 shares of the Series B
Preferred Stock sold on July 1, 1998, and $5.665 for 2,200 shares of Series B
Preferred Stock sold on August 10, 1998), or (ii) 87% of the average bid price
for any three consecutive days of the 20-day period prior to conversion;
provided, however, that for so long as the Company meets certain quarterly and
annual net income and revenue criteria in the future, the Conversion Price shall
not be lower than $3.50.
The number of shares that any holder of Series B Preferred Stock may
convert prior to January 27, 1999 is limited according to a percentage of such
holder's shares of Series B Preferred Stock as follows.
PERCENTAGE CONVERTIBLE
TIME PERIOD DURING SUCH MONTH
- ------------------ ----------------------
On or after July 31, 1998 and before August 30, 1998 .................... 15%
On or after August 30, 1998 and before September 29, 1998 ............... 30%
On or after September 29, 1998 and before October 29, 1998 .............. 45%
On or after October 29, 1998 and before November 28, 1998 ............... 60%
On or after November 28, 1998 and before December 28, 1998 .............. 75%
On or after December 28, 1998 and before January 27, 1999 ............... 90%
On or after January 27, 1999 ............................................ 100%
The total number of shares of Common Stock issuable upon conversion of
the shares of Series B Preferred Stock and exercise of the Warrants cannot be
more than 1,076,640 shares of Common Stock (approximately 19.99% of the number
of shares of Common Stock outstanding on July, 1998) (the "Nasdaq Cap") without
obtaining shareholder approval in accordance with Nasdaq listing requirements.
If such shareholder approval is not obtained by January 28, 1999, the Company
will be required to redeem, upon receipt of a Redemption Notice from a holder of
the Series B Preferred Stock, at the Redemption Price, the smallest number of
shares of Series B Preference Stock which is sufficient, in the Company's
reasonable judgment, such that following such redemption, conversion of the
remaining shares of Series B Preferred Stock would not constitute a breach of
the Company's obligations under the Nasdaq Rules.
REGISTRATION RIGHTS. The Company has agreed to register the shares of
Common Stock issuable upon conversion of the Series B Preferred Stock and
exercise of the Warrants for resale under the Securities Act of 1933 within
certain time limitations, subject to an obligation to pay cash penalties if such
registration statement is not declared effective within the requisite time
period. The holders of the Series B Preferred Stock and the Warrants also have
certain piggyback registration rights. The Company has agreed to bear all
expenses in connection with these registration statements other than
underwriting discounts, commissions and costs of counsel to the holders of the
Series B Preferred Stock and the Warrants.
NO SHORT SALE. In addition, the purchasers of the Series B Preferred
Stock and their affiliates have agreed not to engage in any short sales, swaps,
purchasing of puts, or other hedging activities involving the Common Stock to
hedge their investment in the Series B Preferred Stock. These hedging
restrictions do not apply to certain short sales within three days of conversion
where the shares issuable upon conversion of the Series B Preferred Stock are
used to cover the short sale.
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NASDAQ RULES
The rules of the Nasdaq require, as a condition to listing, that the
Company obtain shareholder approval of any issuance of Common Stock equal to 20%
or more of the number of shares or voting power then issued and outstanding.
Shareholder approval is also required of transactions deemed to constitute a
"change in control." Although the Company does not believe that the Private
Placement Issuances constitute a "change in control" under the Nasdaq rules, if
the transactions were to be so construed, the approval sought hereby would also
be effective to satisfy the shareholder vote required thereby.
The exact number of shares of Common Stock issuable upon full
consummation of the Private Placement Issuances cannot currently be estimated
because the Series B Convertible Preferred Stock is subject to adjustment
mechanisms which cause the number of shares of Common Stock issuable to be
dependent on future events, principally consisting of the future trading prices
of the Common Stock in the marketplace and the conversion decisions made by
holders. The application of the adjustment and conversion formulas applicable to
such securities will cause the number of shares of Common Stock to be issued to
vary inversely with the market price of the Common Stock. In order to assure
continued compliance with the applicable rules of the Nasdaq, the transaction
documents governing the Private Placement Issuances expressly provide that no
more than an aggregate of approximately 1,076,640 shares of Common Stock
(slightly less than 20.0% of the shares of Common Stock outstanding on the date
of the Private Placement) may be issued in connection therewith unless and until
the approval sought hereby is obtained.
By approving the Proposal, shareholders will be approving the issuance
by the Company of the full number shares of Common Stock in satisfaction of its
obligations under the securities issued in the Private Placement as described in
this Proxy Statement. No further shareholder vote or approval related to the
Private Placement Issuances will be sought or required. If the approval sought
hereby is not obtained, the Company may be required to make a cash payment to
holders of Series B Preferred Stock to redeem a portion of the Series B
Preferred Stock as described below. See "--Consequences If Shareholder Approval
Not Obtained."
PLACEMENT AGENT COMPENSATION
The placement agent for the Private Placement was The Zanett Securities
Corporation. In consideration for placing the Series B Preferred Stock, the
placement agent was paid a cash commission of 6% and a nonaccountable expense
allowance of 1.5% of the gross proceeds received by the Company and was
reimbursed for certain expenses. Further, the Company also issued to certain
designees of the placement agent Warrants to acquire an aggregate of 126,539
shares of Series B Preferred Stock which are exercisable at prices ranging from
$5.87 to $6.00 per share for a period of 40 months. The Company has agreed to
register the shares of Common Stock issuable upon conversion of the shares of
Series B Preferred Stock and upon exercise of the Warrants for resale under the
Securities Act. The placement agent will retain its compensation whether or not
the shareholder approval sought hereby is obtained.
CONSEQUENCES IF SHAREHOLDER APPROVAL NOT OBTAINED
If the stockholder approval sought hereby is not obtained, the Company
will be prohibited under the terms of its listing agreement with the Nasdaq from
issuing more than an aggregate of approximately 1,076,640 shares of Common Stock
in connection with the Private Placement Issuances (slightly less than 20.0% of
the shares of Common Stock outstanding on the date of the Private Placement),
excluding any shares held as treasury stock. If the approval sought hereby is
not granted by shareholders or if such approval is not for any reason received
by January 28, 1999, the Company may be obligated to redeem, upon receipt of a
notice of redemption from any holder of the Series B Preferred Stock, at the
Redemption Price (as defined above), Series B Preferred Stock which, in its
reasonable judgment, will permit conversion of the remaining shares of Series B
Preferred Stock without breaching any obligation of the Company under the
Company's listing agreement with the Nasdaq.
Under the terms of the Preferred Stock Agreements and the Statement of
Designation, the amount of cash which the Company would be required to return in
the event of shareholder disapproval will depend on the per share market price
on the Common Stock on the date such payment must be made. Because of the manner
in which the Conversion Price is determined under the terms of the Series B
Preferred Stock, the number of shares of Common Stock issuable upon conversion
of the Series B Preferred Stock will increase if the market price of the Common
Stock decreases. Accordingly, if the market price of the Common Stock decreases,
the number of shares of Series B Preferred Stock which could not be
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converted into Common Stock would increase and the amount of cash that the
Company would be required to pay to holders of the Series B Preferred Stock
would increase. There can be no assurance that the Company will have available
cash resources to satisfy such future obligations which might arise depending on
the future market price of the Common Stock, or that such payments would not
have a material adverse effect on the Company's financial position or ability to
execute its growth plans.
EFFECT OF CONVERSION OF SERIES B PREFERRED STOCK ON HOLDERS OF COMMON STOCK
The issuance of Common Stock upon the conversion of the Series B
Preferred Stock will have no effect on the rights or privileges of existing
shareholders except to the extent that the interest of each shareholder in the
economic results and voting rights of the Company are diluted pro rata based on
the number of shares owned by existing shareholders prior to any issuance.
Further, prior to conversion, the holders of the Series B Preferred Stock will
be entitled to receive distributions on a liquidation in preference to the
claims of the holders of the Common Stock. See "--Summary of Series B Preferred
Stock Terms."
As noted above, the exact number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock cannot currently be determined but
such issuances will vary inversely with the market price of the Common Stock.
The current holders of Common Stock will be diluted by issuances of Common Stock
upon conversion of the Series B Preferred Stock to an extent that depends on the
future market price of the Common Stock, the timing of conversions of Series B
Preferred Stock and exercise of the related placement agent warrants, and
whether the Company opts to pay cash in lieu of additional shares of Common
Stock upon conversion of Series B Preferred Stock. The potential effects of any
such dilution on the existing shareholders of the Company include the
significant diminution of the current shareholders' economic and voting
interests in the Company.
USE OF PROCEEDS
The aggregate net proceeds received by the Company from the issuance of
Series B Preferred Stock in the Private Placement were approximately $4.3
million (after cash fees to the placement agents and transaction expenses). The
net proceeds of the Private Placement were used to repay obligations incurred in
connection with the acquisition by the Company of Enraf-Nonius B.V., as
described in the Company's Report on Form 8-K dated June 15, 1998, as amended on
August 15 and 19, 1998. SEE "Incorporation by Reference."
INTERESTS OF CERTAIN PERSONS
Prior to the Private Placement, none of the investors therein was a
director, executive officer or five percent shareholder of the Company or an
affiliate of any such person or entity.
CERTAIN VOTING AND STANDOFF AGREEMENTS
All of the directors and executive officers of the Company and certain
other related shareholders have agreed to vote all shares of Common Stock owned
by them in favor of the Proposal. Such directors, executive officers and related
shareholders owned 2,610,241 shares of Common Stock as of October 7, 1998,
representing 48.49% of the Company's outstanding Common Stock as of such date.
VOTE REQUIRED
Approval by the Company's shareholders of the Proposal requires the
affirmative vote of a majority of the votes cast at the Special Meeting by the
holders of Common Stock. THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE PROPOSAL.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the
beneficial ownership of the Company's Common Stock at the Record Date by (a)
each shareholder known by the Company to be the beneficial owner of more than
five percent of the outstanding shares of Common Stock, (b) each director and
executive officer of the Company and (c) all directors and executive officers as
a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OF CLASS
- ----------------------- -------------------- --------
<S> <C> <C>
Ernest J. Henley, Ph.D ............................. 3,045,000(3) 43.95%
Kenneth W. Davidson ................................ 3,020,000(3) 43.75%
10300 49th Street North
Clearwater, Florida 33762
Maxxim Medical, Inc. ............................... 3,000,000(4) 43.58%
10300 49th Street North
Clearwater, Florida 33762
Chadwick F. Smith, MD .............................. 430,666(5) 7.67%
1127 Wilshire Blvd ..............................
Los Angeles, California 90017
Michael M. Barbour ................................. 421,748(6) 7.52%
Pedro A. Rubio, MD, Ph.D ........................... 145,792(7) 2.67%
Dan D. Sudduth ..................................... 88,511(8) 1.63%
All Executive Officers and Directors as a Group
(9 persons) ..................................... 4,152,057(9) 54.97%
</TABLE>
- -----------
(1) Unless otherwise specified, the address of each beneficial owner is c/o
Henley Healthcare, Inc. 120 Industrial Boulevard, Sugar Land, Texas
77478.
(2) Except as otherwise indicated, all shares are beneficially owned, and
the sole investment and voting power is held, by the person named. This
table is based on information supplied by the officers, directors and
principal shareholders and reporting forms, if any, filed with the
Securities and Exchange Commission on behalf of such persons. A person
is deemed to beneficially own shares of Common Stock underlying options,
warrants or other convertible securities if the stock can be acquired by
such person within sixty days of the date hereof.
(3) Includes 1,500,000 shares issuable upon the conversion of the Company's
convertible subordinated promissory note, as amended, in the principal
amount of $3 million issued to Maxxim (the "Maxxim Note"), and 1,500,000
shares currently owned by Maxxim, as to which Dr. Henley and Mr.
Davidson, who are directors of both the Company and Maxxim, may be
deemed the beneficial owners by virtue of their affiliation with Maxxim.
The additional 45,000 and 20,000 shares listed for each of Dr. Henley
and Mr. Davidson, respectively, consist entirely of warrants and/or
options exercisable as of the date hereof.
(4) In addition to holding 1,500,000 shares of Common Stock, Maxxim is the
holder of the Maxxim Note, which is convertible into an additional
1,500,000 shares of Common Stock.
(5) Includes 235,000 shares issuable upon exercise of currently exercisable
options.
(6) Includes 228,333 shares issuable upon exercise of currently exercisable
options.
(7) Includes 78,333 shares issuable upon exercise of currently exercisable
options.
(8) Includes 63,333 shares issuable upon exercise of currently exercisable
options or warrants.
(9) In addition to the 1,500,000 shares issuable upon conversion of the
Maxxim Note and the currently exercisable options and warrants listed
above, this amount includes (i) 40 shares beneficially owned by Theron
L. Morrow, the Company's Vice President of U.S. Sales and Marketing,
(ii) 100 shares beneficially owned by Daniel M. Lavelle, the Company's
Vice President of International Sales and Marketing, and (iii) 200
shares beneficially owned by Tracy L. Mathews, the Company's Vice
President and Controller.
7
<PAGE>
SHAREHOLDER PROPOSALS
If a shareholder wishes to have a proposal considered for inclusion in
the Company's proxy solicitation materials in connection with the Annual Meeting
of Shareholders to be held in 1999, the proposal must comply with the Securities
and Exchange Commission's proxy rules, be stated in writing, and be submitted on
or before March 17, 1999, to the Company at its principal executive offices at
120 Industrial Boulevard, Sugar Land, Texas 77478.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
statements and other information with the Commission. Reports, proxy statements
and other information filed by the Company may be inspected and copies at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Seven World Trade Center, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Chicago, Illinois 60621-2511, or
by way of the Commission's Internet address http://www.sec.gov. Copies of such
materials may be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference the following documents into this
Proxy Statement, copies of which are being provided to the shareholders with
this Proxy Statement:
1. Annual Report on Form 10-K for the year ended December 31, 1997.
2. Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
3. Current Report filed on Form 8-K on June 15, 1998.
OTHER MATTERS
The Company will bear the cost of solicitation of proxies, including
expenses in connection with the preparation and mailing of this Proxy Statement.
The Company will reimburse banks, brokers and nominees their reasonable expenses
for sending proxy materials to the beneficial owners of the Common Stock. In
addition to solicitation by mail, proxies may be solicited in person or by
telephone or telegram by officers or regular employees of the Company.
Management knows of no business to be brought before the Special Meeting
other than as set out above. If other matters properly come before the meeting,
it is the intention of the persons named in the solicited proxy to vote such
proxy thereon in accordance with their judgment.
Even though you plan to attend the meeting in person, please sign, date
and return the enclosed proxy promptly. If you attend the meeting, the proxy can
be voided at your request and you can vote in person. A post-paid
return-addressed envelope is enclosed for your convenience. Your cooperation in
giving this your immediate attention will be appreciated.
By Order of the Board of Directors
Dan D. Sudduth,
Chief Financial Officer and Secretary
8
<PAGE>
HENLEY HEALTHCARE, INC.
THE BOARD OF DIRECTORS SOLICITS THIS PROXY FOR THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 13, 1998
PROXY
FOR
SPECIAL
MEETING
OF
SHAREHOLDERS
NOVEMBER 13, 1998
The undersigned shareholder of Henley Healthcare, Inc. (the "Company")
hereby appoints Michael M. Barbour and Dan D. Sudduth, or either of them, the
true and lawful attorneys, agents and proxies of the undersigned, each with full
power of substitution, to vote on behalf of the undersigned at the Special
Meeting of Shareholders of the Company to be held at the offices of the Company
located at 120 Industrial Boulevard, Sugar Land, Texas 77478, on Friday,
November 13, 1998, at 10:00 a.m., local time, and at any adjournments of said
meeting, all of the shares of the Company's Common Stock in the name of the
undersigned or which the undersigned may be entitled to vote.
1. PROPOSAL NUMBER 1
[ ] FOR the approval of the issuance of the full number of shares of
the Common Stock issuable (a) upon the conversion of the
Company's Series B Convertible Preferred Stock, par value $.10
per share (the "Series B Preferred Stock"), issued in private
placement completed in July and August 1998 (the "Private
Placement"), (b) as dividends, if any, and other payments
relating to such Series B Preferred Stock, and (c) upon exercise
of related investor and placement agent warrants. Such approval
will remove the 1,076,640 share limitation on the number of
shares of Common Stock issuable in connection with the Private
Placement which is currently required by the listing rules of
The Nasdaq SmallCap Stock Market.
[ ] AGAINST the approval of Proposal Number 1.
2. In their discretion, upon such other matters as may properly come before
the meeting; hereby revoking any proxy or proxies heretofore given by the
undersigned.
(THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE.)
9
<PAGE>
(CONTINUED FROM OTHER SIDE)
PROXY
FOR
SPECIAL
MEETING
OF
SHAREHOLDERS
NOVEMBER 13, 1998
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted FOR the approval of Proposal Number 1 as detailed above and in
accordance with the discretion of the persons designated above with respect to
any other business properly before the meeting.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and the Proxy Statement furnished herewith.
Dated ____________________, 1998
_________________________________
Shareholder's Signature
_________________________________
Signature if held jointly
Signature should agree with name printed
hereon. If Stock is held in the name of more
than one person, EACH joint owner should
sign. Executors, administrators, trustees,
guardians and attorneys should indicate the
capacity in which they sign. Attorneys
should submit powers of attorney.
PLEASE MARK, SIGN, DATE AND RETURN IN THE ENVELOPE ENCLOSED
10
