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:
|_| Preliminary Proxy Statement
|X| 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>
120 Industrial Boulevard, Sugar Land, Texas 77478-3128 -- 281-276-7000
A Worldwide Leader in
- ---------------------
[HENLEY HEALTHCARE LOGO]
- ---------------------
Pain Management
MICHAEL M. BARBOUR
President and
Chief Executive Officer
June 1, 1999
Dear Shareholder,
On behalf of our entire Board of Directors, I cordially invite you to
attend our annual meeting of shareholders on Friday, July 2, 1999. At the
meeting, we will review Henley's performance for 1998.
A notice of the meeting and Proxy Statement follow. You will also find
enclosed your proxy voting card and the 1998 Annual Report. Your vote is
important. Please take a moment now to complete, sign and date the enclosed
proxy voting card and return it in the postage-paid envelope we have provided.
I look forward to seeing you on July 2nd and addressing your questions
and comments.
Sincerely,
Michael M. Barbour
<PAGE>
120 Industrial Boulevard, Sugar Land, Texas 77478-3128 -- 281-276-7000
A Worldwide Leader in
- ---------------------
[HENLEY HEALTHCARE LOGO]
- ---------------------
Pain Management
June 1, 1999
NOTICE OF THE 1999
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of Henley Healthcare, Inc. will be held
on Friday, July 2, 1999, at 10:00 a.m., at the Sweetwater Country Club, Salon
B, 4400 Palm Royale Boulevard, Sugar Land, Texas to consider and take action on
the following matters:
1. Election of six directors to serve until the next annual meeting
of shareholders;
2. Approval of the elimination of our obligations to redeem shares of
Series B and C convertible preferred stock when shares of common
stock are issued on conversion of the Series B and C shares and the
exercise of related warrants in excess of limitations set by the
Nasdaq SmallCap rules; and
3. Transaction of any other business that is properly raised at the
meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE TWO MATTERS.
Sincerely,
Dan D. Sudduth
EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY
<PAGE>
HENLEY HEALTHCARE, INC.
120 Industrial Boulevard
Sugar Land, Texas 77478-3128
- -------------------------------------------------------------------------------
PROXY STATEMENT
- -------------------------------------------------------------------------------
ANNUAL MEETING INFORMATION
This proxy statement contains information related to our annual meeting of
shareholders to be held on Friday, July 2, 1999, beginning at 10 a.m., at the
Sweetwater Country Club, Salon B, 4400 Palm Royale Boulevard, Sugar Land,
Texas, and at any postponements or adjournments of the meeting. This proxy
statement was prepared under the direction of our Board of Directors to solicit
your proxy for use at the annual meeting. It is being mailed to shareholders on
June 1, 1999.
WHO IS ENTITLED TO VOTE?
Shareholders owning our common stock on May 25, 1999, the record date, are
entitled to vote at the annual meeting, or any postponement or adjournment of
the meeting. Each shareholder has one vote per share on all matters to be voted
on. On May 25, 1999, there were 5,823,726 shares of common stock outstanding.
WHAT AM I VOTING ON?
You will be asked to elect nominees to serve on the Board of Directors and to
approve the elimination of our redemption obligations related to possible future
issuances of common stock in excess of Nasdaq limitations. We are not aware of
any other matters to be presented for action at the meeting. If any other matter
requiring your vote should arise, your proxy holders, Michael Barbour and Dan
Sudduth, will vote in accordance with their best judgment.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
The Board recommends a vote FOR each of the nominees and FOR the approval of
the elimination of our redemption obligations related to possible future
issuances of common stock in excess of Nasdaq limitations.
2
<PAGE>
HOW DO I VOTE?
Sign and date the proxy card you receive and return it in the prepaid
envelope. If you sign your proxy card, but do not mark your choices, your proxy
holders will vote for the persons nominated for election as directors and as
approving the elimination of our redemption obligations related to possible
future issuances of common stock in excess of the Nasdaq limitations.
CAN I REVOKE MY PROXY?
You can revoke your proxy card at any time before it is exercised. To do so,
you must:
o give written notice of revocation to the Corporate Secretary at the
address listed on the front page of this proxy statement;
o submit another properly signed proxy card with a more recent date; or
o vote in person at the meeting.
WHAT IS A QUORUM?
A "quorum" is the presence at the meeting, in person or by proxy, of the
holders of the majority of the outstanding shares. There must be a quorum for
the meeting to be held. Abstentions are counted for purposes of determining the
presence or absence of a quorum. Shares held by brokers in street name and for
which the beneficial owners have withheld the discretion to vote from brokers
are called "broker non-votes." They are not counted to determine if a quorum is
present and are not considered a vote cast under Texas law.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
The director nominees will be elected by a plurality of the votes cast at the
annual meeting. All other matters to be considered at the meeting require the
affirmative vote of a majority of the votes cast. In a plurality vote,
abstentions are not considered a vote cast and will not affect the outcome. In a
majority vote, however, express abstentions are considered a vote cast and have
the effect of a vote against a particular matter. Broker non-votes will not
affect the outcome of any vote on the matters presented at the annual meeting
because they are not considered a vote cast under Texas law.
3
<PAGE>
WHO WILL COUNT THE VOTE?
The Inspector of the Election will be present to tabulate the votes cast by
proxy or in person at the annual meeting.
WHAT ARE THE DEADLINES FOR SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING?
You may submit proposals on matters appropriate for shareholder action at
future annual meetings by following the rules of the Securities and Exchange
Commission. We must receive proposals intended for inclusion in next year's
proxy statement and proxy card no later than February 1, 2000.
If we do not receive notice of any other matter that you wish to raise at the
annual meeting in 2000 by April 19, 2000 and that matter is raised at that
meeting, the proxy holders will have discretionary authority to vote on the
matter. All proposals and notifications should be addressed to the Corporate
Secretary at the address listed on the front of this proxy statement.
HOW MUCH DID THIS PROXY SOLICITATION COST?
We have not engaged anyone to solicit proxies for us. We do, however,
reimburse banks, brokerage firms and other institutions, nominees, custodians
and fiduciaries for their reasonable expenses for sending proxy materials to
beneficial owners and obtaining their voting instructions. Our directors,
officers and regular employees and those of our subsidiaries may solicit proxies
personally or by telephone or facsimile without additional compensation.
4
<PAGE>
- -------------------------------------------------------------------------------
ITEM 1 -- ELECTION OF DIRECTORS
- -------------------------------------------------------------------------------
NOMINEES
Six directors will be elected at the annual meeting. Directors will serve
until the next annual meeting or until their earlier resignation or removal. If
any nominee is not available for election, proxies will be voted for another
person nominated by the Board of Directors or the size of the Board will be
reduced. All six members of the Board of Directors elected at last year's annual
meeting are standing for election this year.
The nominees are:
- -------------------------------------------------------------------------------
MICHAEL M. BARBOUR
DIRECTOR SINCE 1991
AGE 54
- -------------------------------------------------------------------------------
Mr. Barbour has served as President and Chief Executive Officer of the
Company since May 1991. He has over 13 years experience in the field of laser
products. Before forming Lasermedics, Inc., our predecessor, he was the
President of Medical Training Centers of America, formerly The Houston Laser
Institute, from January 1987 to April 1991, which he founded to train doctors in
the medical and surgical use of lasers. From April 1984 to January 1987, he was
President of Surgimedics, a Houston, Texas, manufacturer and distributor of
medical products. He graduated from the University of Houston in 1967 with a
B.B.A. in marketing.
- -------------------------------------------------------------------------------
DAN D. SUDDUTH
DIRECTOR SINCE 1996
AGE 57
- -------------------------------------------------------------------------------
Mr. Sudduth joined the Company as Executive Vice President and Chief
Financial Officer in February 1997. He has been a director of the Company since
January 1996. He was Chief Financial Officer for Mezzanine Telecom, Inc., a
Houston-based telecommunications company, from 1994 to January 1997 and
currently serves as a director of that company. During 1995 and 1996, he was
President and a director of AMC Home Healthcare, Inc., a respiratory therapy
company in Houston, Chairman of Mezzanine Financial Relations, Inc., a merchant
banking firm in Houston, and Chief Financial Officer and a director of Creative
Communications International, Inc., a Houston telecommunications company. From
1992 to 1994, he served as Chairman and Chief Executive Officer of Heart Labs of
America, Inc. From 1988 to 1992, he was President and Chief Financial Officer of
American Biomed, Inc. He received a B.B.A. in 1964 from Lamar University.
5
<PAGE>
- -------------------------------------------------------------------------------
CHADWICK F. SMITH, M.D.
DIRECTOR SINCE 1991
AGE 65
- -------------------------------------------------------------------------------
Dr. Smith has served as a director of the Company since May 1991 and Chairman
of the Board since June 1993. He has also been a consultant to the Company. He
is a Clinical Professor of Orthopedic Surgery at the University of Southern
California School of Medicine, a position he has held since 1981. He has also
been a member of the Medical Staff of Orthopedic Hospital, Los Angeles,
California since 1966. He graduated with a B.A. from Southern Methodist
University in 1954 and graduated from the University of Texas medical school in
1958. He has been a diplomat of the American Board of Orthopedic Surgery since
1968.
- -------------------------------------------------------------------------------
PEDRO A. RUBIO, M.D., PH.D.
DIRECTOR SINCE 1996
AGE 53
- -------------------------------------------------------------------------------
Dr. Rubio has been a Director of the Company since January 1996. He is
currently a Clinical Associate Professor of Surgery at the University of Texas
Health Science Center in Houston. He served as World President of the
International College of Surgeons in 1995, and was Chairman of the Department of
Surgery at the Columbia/ HCA Medical Center Hospital in Houston from 1976 to
1994, when he became Chairman Emeritus. He is a member of the European Academy
of Sciences, the Mexican Academy of Medical Sciences and the Academia Mexicana
de Cirugia. He is a diplomate of eleven American and Mexican medical boards and
holds sub-specialty certifications in two fields. He holds the degrees of
Bachelor of Science, Master of Science in Surgical Technology, Doctor of
Philosophy in Biomedical Technology and Doctor of Medicine and Surgery. He is
Chairman of the Board and Medical Director of the National Association of
Preferred Providers. He is also a widely published author, as well as a medical
legal consultant and arbitrator.
- -------------------------------------------------------------------------------
KENNETH W. DAVIDSON
DIRECTOR SINCE 1996
AGE 51
- -------------------------------------------------------------------------------
Mr. Davidson has been a Director of the Company since April 1996. He has also
been President, Chief Executive Officer and Chairman of the Board of Maxxim
Medical, Inc. since November 1986, and a director since 1982. For more
information about his relationship with Maxxim, see the section below entitled
"Certain Relationships and Related Transactions." Before then, he was the
Corporate Director of Business Development at Intermedics, Inc., which is
principally a manufacturer of implantable devices such as pacemakers. He is also
a director of Encore Orthopedics, Inc., a designer and manufacturer of
implantable orthopedic devices.
6
<PAGE>
- -------------------------------------------------------------------------------
ERNEST J. HENLEY, PH.D.
DIRECTOR SINCE 1996
AGE 72
- -------------------------------------------------------------------------------
Dr. Henley has been a director of the Company since April 1996, and is also a
consultant to the Company. He has been a director of Maxxim since 1976. For more
information about his relationship with Maxxim, see the section below entitled
"Certain Relationships and Related Transactions." His principal employment for
more than fifteen years has been as a Professor of Chemical Engineering at the
University of Houston.
BOARD COMMITTEES AND MEETING ATTENDANCE
The Board of Directors has two committees, the Audit and Compensation
Committees. These committees report their actions to the full Board at its next
regular meeting. A description of each committee's duties follows the table
below.
--------------------------------------------------
COMMITTEE MEMBERSHIP AND MEETINGS HELD
--------------------------------------------------
NAME AUDIT COMPENSATION
--------------------------------------------------
Mr. Barbour
--------------------------------------------------
Mr. Sudduth
--------------------------------------------------
Dr. Smith X
--------------------------------------------------
Dr. Rubio X
--------------------------------------------------
Mr. Davidson X
--------------------------------------------------
Dr. Henley X
--------------------------------------------------
No. of Meetings in
Fiscal 1998* 2 3
--------------------------------------------------
X Member
* The full Board held eleven meetings during 1998. All
incumbent directors attended at least 75% of the aggregate
of all meetings of the Board of Directors and its
committees.
7
<PAGE>
AUDIT COMMITTEE
o Examines the activities of our independent auditors to determine whether
their activities are reasonably designed to assure the soundness of
accounting and financial procedures.
o Reviews our accounting policies and the objectivity of our financial
reporting.
o Considers annually the qualifications of our independent auditors and the
scope of their audit and makes recommendations to the Board as to their
selection.
COMPENSATION COMMITTEE
o Reviews and determines the salaries for senior executive officers and key
officers and employees who participate in various incentive compensation
plans.
o Approves the granting of stock options, including the number of shares
subject to and the exercise price of, each stock option granted under our
various stock option plans.
o Reviews personnel compensation policies, benefit programs, and any major
changes to such policies and programs, as well as administering them.
8
<PAGE>
COMPENSATION OF DIRECTORS
DIRECTORS' EQUITY COMPENSATION PLANS
Effective January 15, 1996, the Board of Directors adopted the following
plans which were approved by our shareholders in July 1996:
- -------------------------------------------------------------------------------
AGGREGATE
AMOUNT
OF COMMON TYPES OF AWARDS
ELIGIBLE STOCK ISSUABLE UNDER AMOUNT
NAME OF PLAN PARTICIPANTS ISSUABLE(1) PLAN OF AWARD
- -------------------------------------------------------------------------------
Options,
Officers, Restricted
Employees, Stock, Phantom
Consultants Stock, Common Determined by
1996 Incentive and Employee Stock, Cash Compensation
Stock Plan Directors 1,200,000 Bonus Committee
- -------------------------------------------------------------------------------
Option for
25,000 shares
upon initial
election;
option for
1996 Non-Employee Non-Qualified 10,000 shares
Directors Stock Non-Employee Stock Options upon re-
Option Plan Directors 250,000 (2) election
- -------------------------------------------------------------------------------
(1) On February 17, 1998, we filed a registration statement on Form S-8 covering
all of the shares issuable under both plans with the Securities and Exchange
Commission.
(2) The Company may also pay a cash fee to non-employee directors for serving on
and attending meetings of the Board of Directors. The Board of Directors
sets the amount of such fees from time to time. During 1998, we paid our
non-employee directors $500 for each meeting attended.
1998 TOTAL DIRECTOR COMPENSATION
The following table shows all components of 1998 director compensation:
- -------------------------------------------------------------------------------
STOCK OPTIONS (1)
-----------------------------------------
CASH 1996 NON-EMPLOYEE
COMPENSATION 1996 INCENTIVE DIRECTORS STOCK OPTION
TYPE OF DIRECTOR PER MEETING STOCK PLAN PLAN
- -------------------------------------------------------------------------------
Employee Directors ______ 25,000 ______
- -------------------------------------------------------------------------------
Non-Employee
Directors $500 ______ 10,000
- -------------------------------------------------------------------------------
(1) Amounts shown are the maximum number of shares of common stock acquirable
under each option.
9
<PAGE>
EXECUTIVE OFFICERS
Our executive officers serve at the pleasure of the Board of Directors and
are subject to annual appointment by the Board of Directors at its first meeting
after the annual meeting of shareholders.
All of our executive officers are listed in the following table, and certain
information about those officers who are not also members of the Board of
Directors follows the table:
- --------------------------------------------------------------------------------
NAME AGE POSITION
- --------------------------------------------------------------------------------
Michael M. Barbour 54 Director, President and Chief Executive Officer
- --------------------------------------------------------------------------------
Dan D. Sudduth 57 Director, Executive Vice President and Chief
Financial Officer and Secretary
- --------------------------------------------------------------------------------
Theron L. Morrow 44 Vice President -- U.S. Sales and Marketing
- --------------------------------------------------------------------------------
Daniel M. Lavelle 48 Vice President-- International Sales and Marketing
- --------------------------------------------------------------------------------
Tracy L. Mathews 37 Vice President and Controller
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THERON L. MORROW has been our Vice President-Sales and Marketing
since November 1997. He has over 12 years of experience in the medical
devices industry. From 1991 to 1996, he was Divisional Vice President of
Marketing for Maxxim. He holds a B.S. degree in sports medical sciences
from Texas Christian University.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DANIEL M. LAVELLE has been our Vice President of International Sales
and Marketing since May 1996. He has 19 years of experience in the
physical medicine rehabilitation markets with major emphasis on
international distribution. From 1989 to May 1996, he was a Divisional
Vice President for Maxxim Medical, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRACY L. MATHEWS has been our Vice President since June 1998 and Controller
since April 1996. He has over 14 years of experience in accounting after
graduating from Lamar University in 1984 with a B.B.A. in accounting. He worked
as a staff accountant and then an accounting manager for Goodman Manufacturing,
one of the world's largest manufacturers of air conditioners, from 1984 to
1990. From 1990 to 1991, he was an accounting manager for Thermal Supply.
Beginning in 1991, he worked as a staff accountant for Southwest Medical
Packaging until he was promoted to Controller when it was acquired by Maxxim in
April 1994. Before our acquisition of Maxxim's Henley Healthcare division in
April 1996, he became the controller of the Henley division and remains in that
position today. He is a certified public accountant.
- --------------------------------------------------------------------------------
10
<PAGE>
SUMMARY OF EXECUTIVE COMPENSATION
The following table provides information concerning compensation paid or
accrued during the fiscal years ended December 31, 1998, 1997 and 1996 to our
three highest paid executive officers, Messrs. Barbour, Sudduth and Morrow.
During 1998, 1997 and 1996, no other executive officers received compensation
which exceeded $100,000.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- --------------------------------------------------------------------------------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#)
- --------------------------------------------------------------------------------
Michael M. Barbour
PRESIDENT AND 1998 $147,200 $50,000 -- 11,666
CHIEF EXECUTIVE 1997 $160,000 $40,000 -- 3,333
OFFICER 1996 $171,657 -- -- --
- --------------------------------------------------------------------------------
Dan D. Sudduth (1)
CHIEF FINANCIAL 1998 $138,000 $30,000 11,666
OFFICER 1997 $134,811 -- -- 3,333
- --------------------------------------------------------------------------------
Theron L. Morrow
VICE PRESIDENT - 1998 $87,016 $15,000 -- 1,667
SALES AND 1997 $60,000 -- -- --
MARKETING 1996 $55,000 -- -- --
- --------------------------------------------------------------------------------
(1) Mr. Sudduth was a consultant to the Company prior to February 1997, at which
time he became an employee.
The following table provides certain information about common stock
options granted during 1998 by Messrs. Barbour, Sudduth and Morrow:
- --------------------------------------------------------------------------------
OPTION GRANTS DURING 1998
- --------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS GRANTED GRANTED TO PRICE EXPIRATION
NAME (#) EMPLOYEES ($/SHARE) DATE
- --------------------------------------------------------------------------------
Michael M.Barbour 25,000 29% 6.125 7/16/2008
- --------------------------------------------------------------------------------
Dan D. Sudduth 25,000 29% 6.125 7/16/2008
- --------------------------------------------------------------------------------
Theron L. Morrow 5,000 6% 3.000 12/30/2008
- --------------------------------------------------------------------------------
11
<PAGE>
The following table provides certain information about option exercises
during 1998 by Messrs. Barbour, Sudduth and Morrow:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES DURING 1998 AND YEAR END OPTION VALUES
- ------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
ACQUIRED UNDERLYING UNEXERCISED AT
ON VALUE OPTIONS AT FISCAL FISCAL YEAR END
NAME EXERCISE REALIZED YEAR END (#) REALIZED ($) (1)
- ------------------------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael M. Barbour -- -- 240,000 20,000 -- --
- ------------------------------------------------------------------------------------------------------
Dan D. Sudduth -- -- 50,000 20,000 -- --
- ------------------------------------------------------------------------------------------------------
Theron L. Morrow -- -- 5,000 3,333 -- --
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated by multiplying the number of shares underlying outstanding
in-the-money options by the difference between the last sales price of the
common stock on December 31, 1998 ($3.00 per share) and the exercise prices,
which range between $3.00 and $7.88 per share. Options are in-the-money if
the fair market value of the underlying common stock exceeds the exercise
price of the option.
EXECUTIVE EMPLOYMENT CONTRACTS
In November 1996, we entered into an agreement with Mr. Barbour, effective
May 1, 1996, employing him as our Chief Executive Officer at an annual base
salary of $160,000. The agreement also provided for an annual bonus amount based
on a specific formula as provided in the agreement. The agreement terminated on
December 31, 1998.
VOTING AGREEMENTS REGARDING ELECTION
Under the terms of a purchase agreement between us and Maxxim Medical, Inc.
dated April 30, 1996, we acquired certain assets and assumed certain liabilities
of the Henley Healthcare Division of Maxxim. Dr. Smith, Mr. Barbour and Maxxim
entered into a voting agreement related to the purchase agreement under which
Dr. Smith and Mr. Barbour agreed to vote their shares of common stock for a
designee of Maxxim until certain specified conditions are met. Under the voting
agreement, Mr. Davidson was designated by Maxxim to be its designee and was
named as one of our directors effective May 1, 1996. Mr. Davidson is nominated
for re-election at the annual meeting.
12
<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT
The following table contains information about the number and percentage of
shares of common stock beneficially owned on May 25, 1999, by:
o any person or group known by us to beneficially own 5 percent or more of
our common stock;
o each executive officer;
o each director; and
o all executive officers and directors as a group
- --------------------------------------------------------------------------------
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OF CLASS
- --------------------------------------------------------------------------------
Maxxim Medical, Inc.
10300 49th Street North
Clearwater, FL 33762 2,525,000 (3) 34.5%
- --------------------------------------------------------------------------------
Chadwick F. Smith, MD
1127 Wilshire Blvd.
Los Angeles, California 90017 540,666 (4) 8.9%
- --------------------------------------------------------------------------------
Michael M. Barbour 491,748 (5) 8.1%
- --------------------------------------------------------------------------------
Pedro A. Rubio, MD, Ph.D 239,128 (6) 4.0%
- --------------------------------------------------------------------------------
Dan D. Sudduth 158,511 (7) 2.7%
- --------------------------------------------------------------------------------
Ernest J. Henley, Ph.D. 55,000 (8) *
- --------------------------------------------------------------------------------
Kenneth W. Davidson
10300 49th Street North
Clearwater, FL 33762 30,000 (8) *
- --------------------------------------------------------------------------------
Tracy Matthews 15,867 (9) *
- --------------------------------------------------------------------------------
Dan Lavelle 15,767 (9) *
- --------------------------------------------------------------------------------
Theron Morrow 15,667 (9) *
- --------------------------------------------------------------------------------
All Executive Officers and Directors
as a Group (9 persons) 1,562,354 23.8%
- -----------------------------------------------------------------------------
* Less than 1.0% of outstanding shares
13
<PAGE>
NOTES TO BENEFICIAL OWNERSHIP TABLE ON PREVIOUS PAGE
(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) In addition to holding 1,025,000 shares of common stock, Maxxim is the
holder of the Maxxim Note, which is currently convertible into 1,500,000
shares of common stock (subject to adjustment). See "Certain Relationships
and Related Transactions."
(4) Includes 245,000 shares issuable upon exercise of currently exercisable
options.
(5) Includes 240,000 shares issuable upon exercise of currently exercisable
options.
(6) Includes 88,333 shares issuable upon exercise of currently exercisable
options.
(7) Includes 75,000 shares issuable upon exercise of currently exercisable
options or warrants.
(8) The 55,000 and 30,000 shares listed for each of Dr. Henley and Mr. Davidson,
respectively, consist entirely of warrants and/or options exercisable as of
the date hereof and do not include the 2,525,000 shares beneficially owned
by Maxxim Medical, Inc. of which Dr. Henely and Mr. Davidson are directors.
Dr. Henley and Mr. Davidson disclaim beneficial ownership of all shares
owned by Maxxim.
(9) Includes 1,667 shares issuable upon exercise of currently exercisable
options.
SECTION 16(a) -- BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on our records, we believe that in 1998 all of our directors, officers
and principal shareholders complied with all Securities and Exchange Commission
reporting requirements applicable to them.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 30, 1996, we signed an agreement with Maxxim, under which we
purchased certain assets and assumed certain liabilities for a purchase price of
approximately $13.5 million. The purchase price was paid by the issuance of our
convertible subordinated promissory note in the principal amount of $7 million,
with the balance of the purchase price paid in cash provided through bank
financing. Mr. Davidson and Dr. Henley are currently employed by Maxxim, with
Mr. Davidson serving as Chairman of the Board, Chief Executive Officer and
President and Dr. Henley serving as a director and consultant. Dr. Henley's
consulting agreement, which was entered into in 1987, was acquired in the
transaction with Maxxim. The agreement included a monthly consulting fee of
$5,833 and terminated on October 31, 1997. We currently use Dr. Henley's
services on an as-needed basis for a monthly consulting fee of $1,750.
In connection with the April 1996 agreement with Maxxim, we issued Maxxim a
convertible subordinated promissory note in the principal amount of $7 million.
The note is due and payable on May 1, 2003 with interest payable semi-annually
on November 1 and May 1 of each year and calculated at a rate equal to 2 percent
per year and increasing at a rate of 2 percent per
14
<PAGE>
year. The note is secured by a second lien on substantially all of our assets.
We may redeem all or any portion of the outstanding principal amount of the note
at redemption prices ranging from 104 percent to 110 percent of the principal
amount being redeemed, depending upon when the redemption occurs. In addition,
the note is subject to mandatory redemption in annual principal installments of
$1.4 million beginning on May 1, 1999 at premiums starting at 7 percent and
decreasing by 1 percent each year. We are currently in negotiations with Maxxim
concerning this initial principal payment. We are also required to redeem 40
percent of the note upon the completion of a public offering. The note was
originally convertible into common stock at a conversion price of $3 per share.
However, the conversion price was lowered to $2 per share during September 1997
in connection with certain amendments to our credit facilities with Comerica
Bank at that time. Upon any default under the note, the conversion price will be
automatically adjusted to an amount equal to the lesser of the conversion price
then in effect or 80 percent of the average market price for our common stock
for the 30 trading days immediately before the default. The conversion price is
also subject to adjustment upon the occurrence of certain events, including
issuances of common stock for less than the conversion price, to provide
antidilution protection.
In February and March 1998, we signed agreements with Maxxim under which
Maxxim converted an aggregate of $4 million of the note into an aggregate of 2
million shares of our common stock. The conversions were based on the conversion
price of $2.00 per share under the note. The agreements also provide that the
entire $4 million converted under the note reduces the principal amount of the
note and will be applied to our full redemption obligation due in the years 2003
and 2002 and partially to our redemption obligation due in the year 2001. We
have filed a registration statement covering the resale of the shares of common
stock issued to Maxxim as a result of the conversions described above.
Effective May 1996, we signed a consulting agreement with Dr. Smith, one of
our directors. The agreement included annual compensation of $90,000 and
terminated on December 31, 1998.
In May 1996, the Company entered into an agreement with Mezzanine Financial
Relations, Inc., a financial relations company, under which Mezzanine agreed to
provide financial consulting services for potential mergers and acquisitions for
a monthly fee of $10,000. Mr. Sudduth, our Executive Vice President, Chief
Financial Officer and a Director, is a shareholder of Mezzanine and its Chairman
of the Board. The agreement terminated on January 31, 1997.
In February 1998, we signed an agreement with Maxxim under which we acquired
an office and warehouse building located in Sugar Land, Texas, for a purchase
price of approximately $1.3 million. The purchase price was financed with a $1.3
million bank term note due on February 12, 2013.
On February 9, 1998, we purchased substantially all of the assets and assumed
certain liabilities from AMC Acquisition Corp. for an estimated purchase price
of $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, with a
market price of approximately $6.618 per share. Mr. Sudduth and his son, Britton
D. Sudduth, were shareholders of AMC and each received 17,000 shares of common
stock valued at $112,506.
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In addition to the compensation earned by the named executive officers, the
following executive officers and managers earned compensation as listed below
during 1998:
- --------------------------------------------------------------------------------
TOTAL
NAME POSITION COMPENSATION
- --------------------------------------------------------------------------------
Vice President - International Sales and
Daniel M. Lavelle Marketing $69,618
- --------------------------------------------------------------------------------
Tracy L. Mathews Vice President - Operations, Controller $73,517
- --------------------------------------------------------------------------------
Steve Barbour (1) Sales Manager $108,402
- --------------------------------------------------------------------------------
(1) Mr. Barbour is the brother of Michael M. Barbour, our Chief Executive
Officer.
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as our independent auditors since October
1997. We have not proposed any formal action to be taken at the annual meeting
concerning the continued employment of Arthur Andersen.
Representatives of Arthur Andersen plan to attend the annual meeting and will
be available to answer appropriate questions. Its representatives will be able
to make a statement at the meeting if they wish, but we do not expect them to do
so.
Before October 1997, Goldstein Golub Kessler & Company, P.C., certified
public accountants, served as our independent auditors. During 1997, the audit
committee of the Board of Directors considered several independent public
accounting firms for possible selection as our auditors for 1997, including GGK.
After this review, Arthur Andersen was selected as our independent auditors for
1997. Management had no disagreement with GGK on any material matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. GGK's report on the financial statements for the year ended
December 31, 1996 did not contain an adverse opinion or a disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles.
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- --------------------------------------------------------------------------------
ITEM 2 -- APPROVAL OF THE ELIMINATION
OF OUR REDEMPTION OBLIGATIONS RELATED
TO POSSIBLE FUTURE ISSUANCES OF COMMON
STOCK IN EXCESS OF NASDAQ LIMITATIONS
- --------------------------------------------------------------------------------
THE SERIES C PRIVATE PLACEMENT
On April 12, 1999, we sold 750 units, at $1,000 each, consisting of :
o one share of Series C Convertible Preferred Stock, convertible into
shares of common stock; and
o one warrant to acquire 166.667 shares of common stock,
to Zannett Lombardier, Ltd. in a private placement. The units were sold through
The Zannett Securities Corporation, who also served as placement agent for the
issuance of similar units of Series B Convertible Preferred Stock and warrants
during 1998.
In order to induce Zannett Securities and Zannett Lombardier to consent to
the private placement of the Series C units, we also:
o amended the Statement of Designation of Rights and Preferences of our
Series B Convertible Preferred Stock; and
o amended certain outstanding warrants to purchase common stock issued in
connection with the private placement of the Series B shares on July 1
and August 10, 1998.
RELATED AMENDMENTS TO SERIES B PREFERRED STOCK AND RELATED WARRANTS
Zannett Lombardier, the sole Series C shareholder, also holds Series B shares
and, as a condition to the issuance of the Series C units, required certain
amendments to the Series B units. As a result, the Series B Statement of
Designation was amended to lower the fixed conversion price to $4.00 from its
prior level. The original fixed conversion price was $5.961 for the 2,500 Series
B shares sold on July 1, 1998 and $5.665 for the 2,200 Series B shares sold on
August 10, 1998. The Series B warrants were amended to reduce the exercise price
from $6.00 to $2.64.
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SUMMARY OF NASDAQ LIMITATIONS
Under The Nasdaq SmallCap Market rules, we may not list or issue shares in
excess of 20% of our outstanding common stock until we obtain your approval.
Therefore, until we receive your approval, the Series B and Series C
shareholders may not convert their preferred shares or exercise their related
warrants into more than 1,164,744 shares of common stock. Under the terms of an
agreement with the Series C shareholder, we have agreed to seek your approval at
the annual meeting for the issuance of the full amount of shares of common stock
issuable upon conversion of the Series B and Series C shares and the exercise of
the related warrants to eliminate this limitation imposed by The Nasdaq SmallCap
Market rules.
CONSEQUENCES IF WE DO NOT OBTAIN YOUR APPROVAL
If we do not obtain your approval, we will be prohibited under the terms of
our listing agreement with the Nasdaq from issuing more than approximately
1,164,744 shares of common stock in connection with the placement of the Series
C units and the amendment of the Series B units. This number of shares is
slightly less than 20% of the shares of common stock outstanding on the record
date, excluding any shares held in treasury. If we do not obtain your approval
at the annual meeting, we will be obligated to redeem at a premium for cash any
portion of the Series B or Series C shares not convertible into common shares as
a result of these Nasdaq limitations.
SUMMARY OF SERIES C PREFERRED STOCK TERMS
DIVIDENDS
The Series C shares bear no dividends, and the Series C shareholder is not
entitled to receive any dividends on them.
However, the Series C shareholder is entitled to a premium on the Series C
shares to be paid at the time of conversion of the shares or the redemption of
the premium. The amount of the premium depends primarily upon the number of days
elapsed between the date of issuance and the date the Series C shares are
converted by the Series C shareholder or the premium is redeemed by us. The
maximum annual premium for each Series C share is $100.
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<PAGE>
VOTING RIGHTS
The Series C shareholder has no voting power whatsoever, except as otherwise
provided by Texas law. This means that whenever the vote of a particular class
of stock that includes the Series C shares is required for a particular matter,
the Series C shareholder will be entitled to vote on that matter.
LIQUIDATION PREFERENCE
If we liquidate, dissolve or wind up our operations, the Series C shareholder
and the holders of any other classes of stock that rank equal to or higher than
the Series C shares will receive a distribution equal to the stated value of
their shares, plus any accrued premium. If our assets at the time of liquidation
are not sufficient to satisfy the liquidation value of the Series C shares and
the other preferred classes of stock, then the holders of those securities will
each receive their pro-rata portion of our assets legally available for
distribution at that time.
REDEMPTION
The Series C shares may be redeemed under certain circumstances. The Series C
shareholder may require us to redeem the Series C shares if:
o any shares of common stock are suspended from trading or cease to be
listed on an exchange or national market;
o we fail to remove any restrictive legend on shares of common stock
issued upon conversion of the Series C shares;
o we notify the Series C shareholder that we will not issue any common
stock upon conversion of its Series C shares; or
o we undergo a change in control.
At any time we may redeem the Series C shares instead of allowing a
conversion of the shares and issuing common stock. The redemption price is
determined by a formula in the Series C Statement of Designation which includes
a premium over the face value of the shares.
We must also redeem any Series C shares that cannot be converted into common
stock due to Nasdaq limitations. See the section above entitled "Consequences If
We Do Not Obtain Your Approval."
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<PAGE>
RANKING
For purposes of distribution of assets upon our liquidation, dissolution or
winding up, the Series C shares rank:
o higher than the common stock;
o higher than any class or series of stock created in the future that, by
its terms, ranks lower than the Series C shares;
o lower than any class or series of stock created in the future that, by
its terms, ranks higher than the Series C shares; and
o equally with the Series A preferred stock, the Series B preferred stock
and any other class or series of stock created in the future.
However, we must obtain the consent of the Series C shareholder before
creating any class of stock that ranks equal to or higher than the Series C
shares.
CONVERSION
The Series C shares are convertible into common stock at the lesser of :
o 87% of the average closing bid price for our common stock as reported by
Nasdaq for any three consecutive trading days chosen by the Series C
shareholder during the period beginning on the twentieth day before the
conversion date for that conversion and ending on such conversion date;
or
o $2.875, the closing price for our common stock on April 12, 1999.
However, the conversion price cannot be less than $1.75 if we meet certain
quarterly and annual revenue and net income tests for the first quarter of 1999
and continue to meet these tests in the future.
REGISTRATION RIGHTS
We have agreed to prepare and file a registration statement with the SEC to
register at least 175% of the number of shares of common stock issuable at the
time of filing on the conversion of the Series C shares and the related warrants
on or before May 27, 1999.
If the registration statement does not become effective on or before 120
days after the filing date, we will be subject to a penalty of approximately
$11,250 per month for each month the common shares remain unregistered beyond
that period.
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<PAGE>
NO SHORT SALES
The Series C shareholder has agreed not take any action intended to increase
or decrease the trading price of the common stock during any period when this
type of activity could affect the conversion price of the Series C shares.
EFFECT OF CONVERSION OF PREFERRED STOCK AND RELATED WARRANTS ON YOU
When the Series B and C shareholders convert their shares of preferred stock
and exercise their related warrants, we will issue the amount of common stock
required by the Series B and C Statements of Designation and the warrants. The
issuance of common stock on the conversion of the preferred stock and exercise
of the related warrants will have no effect on your rights or privileges as
common shareholders, other than reducing your voting power and economic benefit
in proportion to the percentage of the outstanding common shares you own at the
time of the issuance. Before conversion of their preferred shares, the Series B
and C shareholders will have a higher liquidation preference if we dissolve or
liquidate.
The exact number of shares of common stock issuable on conversion of the
Series B and C shares cannot currently be determined, but the amount of any
issuances will vary inversely with the market price of the common stock. Your
economic benefits and voting power may be diluted by issuances of common stock
on conversion of the Series B and C shares and exercise of the related warrants
to an extent that depends on:
o the future market price of the common stock;
o the timing of conversions of Series B and C shares and exercise of the
related warrants; and
o whether we opt to pay cash to the Series B and C shareholders in lieu of
issuing additional shares of common stock.
USE OF PROCEEDS AND CERTAIN RELATIONSHIPS
USE OF PROCEEDS
We received net proceeds of approximately $623,750 from the Series C private
placement, which we used:
o to pay approximately $418,050 in penalties owed to the Series A preferred
shareholders as a result of delays in securing the effectiveness of their
related registration statements; and
o to pay accrued dividends on the Series A shares in the amount of $39,060.
We used the remaining $169,640 for general working capital purposes.
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<PAGE>
INTERESTS OF CERTAIN PERSONS
Due to a contractual limitation in the Series B and C unit documents limiting
its ownership at any one time to 4.99%, Zannett Lombardier, the sole purchaser
of the Series C units, did not hold 5 percent or more of our common stock, nor
is it an affiliate of any of our directors, executive officers or 5 percent
shareholders.
CERTAIN VOTING AND STANDOFF AGREEMENTS
Some of our directors and executive officers have agreed to vote all shares
of common stock owned by them for the approval of this item of business. As of
the record date these directors and executive officers have the power to vote
840,020 shares of common stock, representing 14.1% of our outstanding shares.
VOTE REQUIRED
A majority of the shares cast at the annual meeting must affirmatively vote
to approve the elimination of our redemption obligations related to the possible
issuance of common stock in excess of the Nasdaq limitations. Our Board of
Directors recommends that you vote FOR this item of business.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We incorporate by reference the following documents into this proxy
statement, copies of which are being provided to you with this proxy statement:
1. Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999.
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<PAGE>
AVAILABLE INFORMATION
We are subject to the information requirements of the Securities Exchange Act
of 1934 and are required to file reports, proxy statements and other information
with the SEC. The reports, proxy statements and other information that we file
may be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC 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 on the SEC's Internet website at http://www.sec.gov. You
may obtain copies of these materials by mail from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
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<PAGE>
HENLEY HEALTHCARE, INC.
THE BOARD OF DIRECTORS SOLICITS THIS PROXY FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 2, 1999
PROXY The undersigned shareholder of Henley Healthcare, Inc.
FOR (the "Company") hereby appoints Michael M. Barbour and Dan D.
ANNUAL Sudduth, or either of them, the true and lawful attorneys,
MEETING agents and proxies of the undersigned, each with full power of
OF substitution, to vote on behalf of the undersigned at the
SHAREHOLDERS Annual Meeting of Shareholders of the Company to be held at
the Sweetwater Country Club, Salon B, located at 4400 Palm
JULY 2, 1999 Royale Boulevard, Sugar Land, Texas 77479, on Friday, July 2,
1999, at 10:00 a.m., Houston Time, and at any adjournments of
the 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. THE ELECTION OF DIRECTORS
[ ] FOR the election of Michael M. Barbour, Dr. Chadwick F. Smith, Dan D.
Sudduth, Dr. Pedro A. Rubio, Kenneth W. Davidson and Dr. Ernest J.
Henley as directors.
[ ] WITHHOLD AUTHORITY to vote on ALL nominees for director listed above.
[ ] WITHHOLD AUTHORITY to vote ONLY for the nominee or nominees, written
on the line provided below:
2. APPROVAL OF THE ELIMINATION OF OUR REDEMPTION OBLIGATIONS RELATED TO
POSSIBLE FUTURE ISSUANCES OF COMMON STOCK IN EXCESS OF NASDAQ LIMITATIONS
[ ] FOR the elimination of our redemption obligations related to possible
future issuances of common stock in excess of Nasdaq limitations.
[ ] AGAINST the elimination of our redemption obligations related to
possible future issuances of common stock in excess of Nasdaq
limitations.
[ ] ABSTAIN from voting on the elimination of our redemption obligations
related to the possible future issuances of common stock in excess of
Nasdaq limitations.
3. 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.)
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<PAGE>
(CONTINUED FROM OTHER SIDE)
PROXY This Proxy, when properly executed, will be voted in the
FOR manner directed herein by the undersigned shareholder. If no
ANNUAL direction is made, this Proxy will be voted FOR the election of
MEETING the nominees above and for the elimination our redemption
OF obligations related to future issuances of common stock in excess
SHAREHOLDERS of the Nasdaq limitations and in accordance with the discretion
of the persons designated above with respect to any other
JULY 2, 1999 business properly before the meeting.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and the Proxy Statement furnished herewith.
Dated ____________________, 1999
_____________________________________
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
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