As filed with the Securities and Exchange Commission on January 28, 1999.
REGISTRATION NO. 333-63915
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NUMBER 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
HENLEY HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
TEXAS 3842 76-0335587
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
120 INDUSTRIAL BLVD.
SUGAR LAND, TEXAS 77478
(281) 276-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DAN D. SUDDUTH WITH COPIES TO:
HENLEY HEALTHCARE, INC. ROBERT G. REEDY
120 INDUSTRIAL BLVD. PORTER & HEDGES, L.L.P.
SUGAR LAND, TEXAS 77478 700 LOUISIANA, 35TH FLOOR
(281) 276-7000 HOUSTON, TEXAS 77002-2764
(Name and address, including zip code, and telephone (713) 226-0600
number, including area code, of agent for service)
------------------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with a dividend or
interest reinvestment plan, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ] ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
HENLEY HEALTHCARE, INC.
4,764,629 SHARES
COMMON STOCK
This Prospectus relates to 4,764,629 shares of common stock, par value
$.01 per share (the "Common Stock"), of Henley Healthcare, Inc., a Texas
corporation (the "Company"), which shares will be offered for resale from time
to time by certain stockholders of the Company (the "Selling Stockholders"). All
but 8,000 of these shares relate to the Company's private placement of its
Series B Convertible Preferred Stock, par value $.10 per share (the "Series B
Preferred Stock"), that was completed in two separate closings held on July 1,
1998, and August 10, 1998 (the "Private Placement"). As of January 25, 1999, the
4,700 shares of Series B Preferred Stock sold in the Private Placement were
convertible into approximately 2,197,545 shares of Common Stock as determined by
its floating conversion rate (subject to adjustment). Pursuant to the
Registration Rights Agreement between the Company and the Series B Preferred
Stockholders, the Company has registered 200% of the currently issuable amount
resulting in an aggregate of 4,395,090 shares of Common Stock (the "Conversion
Shares"). The purchasers in the Private Placement also received warrants (the
"Warrants") to purchase up to 235,000 shares of Common Stock (the "Warrant
Shares"). In addition, The Zanett Securities Corporation ("Zanett"), the
placement agent in the Private Placement, received warrants (the "Placement
Agent Warrants") to purchase up to 126,539 shares of Common Stock (the
"Placement Agent Warrant Shares") which the placement agent subsequently
assigned to three of its principals. The remaining 8,000 shares of Common Stock
were issued to Havkit Corporation in settlement of certain claims against the
Company (the "Havkit Shares"). The Conversion Shares, the Warrant Shares, the
Placement Agent Warrant Shares and the Havkit Shares are sometimes herein
collectively referred to as the "Shares." As of January 25, 1999, the Company
had 5,391,205 shares of Common Stock issued and outstanding. As of that same
date, including the currently issuable Shares registered hereby, an additional
6,753,387 shares of Common Stock were issuable upon conversion or exercise of
the Company's outstanding Common Stock equivalents, and, if all of these shares
of Common Stock were issued on that date, they would represent approximately
55.6% of the Company's then issued and outstanding Common Stock. For a detailed
description of the Company's currently outstanding securities, please see the
Risk Factors entitled "Shares Available for Future Sale; Registration Rights,"
and "Potential Dilution."
Pursuant to this Prospectus, the Shares may be offered by the Selling
Stockholders, or by certain pledgees, donees, transferees or other successors in
interest to the Selling Stockholders, from time to time in transactions on The
Nasdaq SmallCap Market ("Nasdaq") or such other exchange or market as the Common
Stock may be listed from time to time, in privately negotiated transactions, in
an underwritten offering, or by a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders or
the purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Stockholders" and "Plan of Distribution."
Other methods by which the Shares may be sold include, without limitation:
(i) transactions which involve cross or block trades or any other transaction
permitted by the Nasdaq or other trading markets, (ii) "at the market" to or
through market makers or into an existing market for the Common Stock, (iii) in
other ways not involving market makers or established trading markets, including
direct sales to purchasers or sales effected through agents, (iv) through
transactions in options or swaps or other derivatives (whether exchange-listed
or otherwise), (v) through short sales, or (vi) any combination of any such
methods of sale. The Selling Stockholders may also enter into option or other
transactions with broker-dealers which require the delivery to such broker
dealers of the Common Stock offered hereby, which Common Stock such
broker-dealers may resell pursuant to this Prospectus. The Selling Shareholders
may also make sales pursuant to Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"), if such exemption from registration is otherwise
available.
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. However, the Company will receive
up to approximately $2,132,003 upon the exercise of the Warrants and the
Placement Agent Warrants. The Company has agreed to bear certain expenses (other
than any underwriting discounts and selling commissions and any fees and
disbursements of counsel for the Selling Stockholders not specifically provided
for by the parties), estimated to be approximately $38,271, in connection with
the registration and sale of the Shares being offered by the Selling
Stockholders. Pursuant to Registration Rights Agreements with certain Selling
Stockholders, the Company has agreed to indemnify certain of the Selling
Stockholders and each underwriter against certain liabilities, including certain
liabilities under the Securities Act, or will contribute to payments such
Selling Stockholders or underwriters may be required to make in respect of
certain losses, claims, damages or liabilities.
The shares of Common Stock are quoted on the Nasdaq under the symbol
"HENL." On January 25, 1999, the last reported sale price of the Common Stock
was $3.4375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1999.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. and at the Commission's regional offices at the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, Suite 1300, New York, 10048. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, the Commission maintains a World Wide Web site
at http://www.sec.gov that contains reports, proxy and information statements,
and other information regarding registrants that file electronically with the
Commission.
The Company has filed with the Commission a Registration Statement on Form
S-3 (including any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules thereto. Statements made in this Prospectus regarding the contents
of any contract or document filed as an exhibit to the Registration Statement
are not necessarily complete and, in each instance, reference is hereby made to
the copy of such contract or document so filed. Each such statement is qualified
in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following are hereby incorporated by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997, as amended;
(2) The Company's Quarterly Reports on Form 10-QSB for the quarters
ended March 31, June 30 and September 30, 1998, as each has been
amended;
(3) The Company's Current Reports on Form 8-K filed on March 16, June 15,
and July 13, 1998, and January 28, 1999, as each has been amended;
and
(4) The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A effective June 26, 1996
(Commission File No. 000-28566), including any amendments or reports
filed for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the offering covered hereby will be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document that
also is or is deemed to be incorporated by reference modifies or replaces such
statement.
The Company will provide, without charge and on oral or written request,
to each person to whom this Prospectus is delivered, a copy of any or all of the
documents incorporated by reference in this Prospectus other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates. In addition, a copy of
the Company's most recent annual report to stockholders will be promptly
furnished, without charge and on oral or written request, to such persons. All
such requests should be directed to Henley Healthcare, Inc., 120 Industrial
Boulevard, Sugar Land, Texas 77478, Attention: Dan D. Sudduth, Executive Vice
President, Chief Financial Officer and Secretary (telephone (281) 276-7000).
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THE COMPANY
Henley Healthcare, Inc. (the "Company"), a leader in the growing pain
management industry, develops, manufactures and distributes products and related
accessories used in the control of acute or chronic pain. The Company's
diversified line of non-invasive physical medicine and rehabilitation products
are used in the treatment of disabilities or injuries with therapeutic exercise
and the application of various heat, fluidotherapy, traction, ultrasound or
other modalities. The Company is also seeking approval from the United States
Food and Drug Administration (the "FDA") on its MicroLight 830(TM), a hand-held,
low-energy (non-surgical) laser for the treatment of repetitive stress injuries
such as carpal tunnel syndrome. The Company's principal executive offices are
located at 120 Industrial Boulevard, Sugar Land, Texas 77478, and its telephone
number is (281) 276-7000.
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RISK FACTORS
IN EVALUATING THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER ALL OF THE INFORMATION SET FORTH IN THIS PROSPECTUS AND
SHOULD GIVE PARTICULAR ATTENTION TO THE FOLLOWING RISK FACTORS.
FUTURE CAPITAL NEEDS; NEED FOR ADDITIONAL FUNDING.
The Company recorded a net loss available to common shareholders of
$4,245,493 or $.87 per share for the nine month period ended September 30, 1998
on net sales of $28,854,155. Although sales have been increasing in recent
periods, there can be no assurance that the Company will be successful in
increasing sales for the long term, or that it will be able to achieve
profitability. Further, the Company has had working capital deficits in the
past. As of December 31, 1998, the Company had no additional borrowing
availability under its line of credit. The Company's long-term capital
requirements will depend on many factors, including, but not limited to, cash
flow from operations, working capital requirements, product development expenses
and capital expenditures. The Company may also require substantial additional
capital for it to implement its acquisition and growth strategy. Historically,
the Company has relied upon the sale of equity securities and bank financing as
sources of funding to finance acquisitions. To the extent that existing
resources are insufficient to fund the Company's acquisition activities in the
short or long term, the Company will need to raise additional funds through
public or private financings. It is anticipated that the Company will require
additional capital to complete any future acquisitions. No assurance can be
given that additional financing will be available or that, if available at all,
the terms of such financing will be favorable to the Company or to its
shareholders without substantial dilution of their ownership and rights. If
adequate funds are not available to satisfy either short- or long-term
requirements, the Company may be required to significantly curtail its
acquisition and growth strategy.
LIMITED COMBINED OPERATING HISTORY; HISTORY OF OPERATING LOSSES.
The Company was incorporated in November 1990 in order to develop a
portable hand-held, battery-operated, low-energy laser device to be used to
treat soft tissue. Since that time, the Company has completed eleven
acquisitions related to the non-invasive pain management and rehabilitation
industry. As a result of this rapid growth in its operations, the Company has a
limited combined operating history. Although the Company experienced significant
revenue growth from fiscal 1996 to fiscal 1997, it incurred net losses of
$879,337 and $2,124,433 for the years ended December 31, 1996 and 1997,
respectively, and net income available to common shareholders of $279,033 and a
net loss available to common shareholders of $4,245,493 for the nine month
periods ended September 30, 1997 and 1998, respectively. There can be no
assurance that the Company will be able to successfully integrate the acquired
businesses and become profitable in the future. In addition, the Company may
experience delays, complications and expenses in integrating the newly acquired
businesses. The inability of the Company to successfully integrate or operate
the recently acquired businesses would have a material adverse effect on the
Company's business, financial condition and results of operations and would make
it unlikely that the Company's acquisition program will be successful.
MANAGEMENT OF GROWTH; NEED TO ESTABLISH INFRASTRUCTURE; ADDITIONAL PERSONNEL.
Over the last three years, the Company has completed eleven acquisitions,
and this rapid growth has placed, and is expected to continue to place, a
significant strain on the Company's managerial, operational and financial
resources. To manage its growth, the Company must continue to implement and
improve its operational and financial systems and to expand, train and manage
its employee base. There can be no assurance that the Company has adequately
evaluated the costs and risks associated with this expansion, that the Company's
systems, procedures or controls will be adequate to support the Company's
operations or that the Company's management will be able to achieve the rapid
execution necessary to successfully offer the Company's products and services
and implement its business plan on a profitable basis. The Company's future
operating results will also depend on its ability to expand its support
organization commensurate with the growth of its business and to integrate newly
acquired operations. Any failure by the Company's management to effectively
anticipate, implement and manage the changes required to sustain the Company's
growth would have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to effectively manage such change.
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VOLATILE MARKETS/DEPENDENCE ON NEW PRODUCTS.
The pain management market is a relatively mature and competitive market,
subject to significant fluctuations in profitability caused by foreign
competition, questions of therapeutic efficacy and governmental regulation and
private rates of reimbursement. The rehabilitation market is an evolving and
fragmented market with a number of different companies offering competing
treatments without any clear indication of preference among treating clinicians.
There can be no assurance that the Company will ever be able to capture a
significant portion of the pain management market or that it can establish a
significant position in the rehabilitation market.
COMPETITION.
Competition in the industry from other pain management and rehabilitation
device companies, as well as from pharmaceutical companies, and biotechnology
companies, is intense. Some of the companies with which the Company competes
have significantly greater resources, established direct sales organizations and
greater experience in the marketing and sales of products through direct
distribution. Although the Company believes that the broad range of
rehabilitation products it sells distinguishes it from such competitors, there
can be no assurance that the Company will be able to compete effectively.
UNCERTAINTY REGARDING GOVERNMENT HEALTH CARE REFORM.
Several states and the federal government are investigating a variety of
alternatives to reform the health care delivery system and further reduce and
control health care spending. These reform efforts include proposals to limit
spending on health care items and services, limit coverage for new technology,
and limit or control directly the prices health care providers and drug and
device manufacturers may charge for their services and products. The scope and
timing of such reforms cannot be predicted at this time, but if adopted and
implemented, they could have a material adverse effect on the Company.
PRODUCT LIABILITY.
Like most producers of medical products, the Company faces the risk of
product liability claims and unfavorable publicity in the event that the use of
its products causes injury or has other adverse effects. Although the Company
has product liability insurance for risks of up to $3,000,000 and has not been
subject to any material claims for product liability, there can be no assurance
that such insurance would prove adequate to cover all potential product claims,
that it will be able to maintain such insurance indefinitely, or that it will be
able to avoid product liability exposure.
PRODUCT RECALLS.
If a device that is designed or manufactured by the Company is found to be
defective, whether due to design or manufacturing defects, to improper use of
the product, or to other reasons, the device may need to be recalled, possibly
at the Company's expense. Furthermore, the adverse effect of a product recall on
the Company might not be limited to the cost of a recall. For example, a product
recall could cause a general investigation of the Company by applicable
regulatory authorities as well as cause other customers to review and
potentially terminate their relationships with the Company. Recalls, especially
if accompanied by unfavorable publicity or termination of customer
relationships, could result in substantial costs, loss of revenues, and a
diminution of the Company's reputation, each of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS.
The Company's operating results may fluctuate significantly in the future
as a result of a variety of factors, some of which are outside of the Company's
control. These factors include general economic conditions, specific economic
conditions in the pain management and rehabilitation, seasonal trends in sales,
capital expenditures, new acquisitions and other costs relating to the expansion
of operations, the introduction of new products or services by the Company or
its competitors, the mix of the products and services sold and the channels
through which they are sold and pricing changes. As a strategic response to a
changing competitive environment, the Company may elect from time to time to
make certain pricing, service or marketing decisions or acquisitions that could
have a material adverse effect on the Company's business, results of operations
and financial condition. Due to all of the foregoing factors, it is likely that
in some future quarter, the
5
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Company's operating results may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
may be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL.
The Company's performance is substantially dependent on the performance of
its executive officers and key employees all of whom have worked together for a
relatively short period of time. In particular, the services of Michael M.
Barbour and Dan D. Sudduth would be difficult to replace. The Company has
entered into an employment agreement with Mr. Barbour. In addition, the Company
has a $3,000,000 key person life insurance policy on the life of Mr. Barbour;
however, the proceeds of that policy may not be sufficient to compensate the
Company for the loss of Mr. Barbour's services. The Company does not have such
policies in place on any of its other employees. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the business, results of operations or financial condition of the
Company. The Company is heavily dependent upon its ability to attract, retain
and motivate skilled technical and managerial personnel. The Company's future
success also depends on its continuing ability to identify, hire, train and
retain other highly qualified technical and managerial personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract, assimilate or retain other highly qualified technical
and managerial personnel in the future. The inability to attract, hire or retain
the necessary technical and managerial personnel could have a material adverse
effect upon the Company's business, results of operations or financial
condition.
GOVERNMENTAL REGULATION AND FDA APPROVAL.
The development of the Company's MicroLight 830(TM) product and certain of
its other products are subject to extensive and rigorous regulation by the FDA
pursuant to the Federal Food, Drug, and Cosmetic Act (the "FDA Act"), by
comparable agencies in foreign countries, and by state regulatory agencies.
Under the FDA Act, medical devices must receive FDA clearance before they can be
commercially marketed in the United States. The process of obtaining marketing
clearance from the FDA for new products can take a number of years and require
the expenditure of substantial resources, and may involve rigorous pre-clinical
and clinical testing. The time required for completing such testing and
obtaining FDA clearance is uncertain, and there is no assurance that the Company
will have sufficient resources to complete the required testing and regulatory
review process, that such clearances will be granted, or that FDA review will
not involve delays that will adversely affect the Company's ability to
commercialize additional products. Delays or rejections may be encountered based
upon changes in FDA policy during the period of product development and FDA
review of each submitted application. Similar delays may also be encountered in
other countries. Even if regulatory approvals to market a product are obtained
from the FDA, these approvals may entail limitations on the indicated uses of
the product. In addition, as can be expected with any investigational device,
modifications will be made to the Company's products to incorporate and enhance
their functionality and performance based upon new data and design review. There
can be no assurance that the FDA will not request additional information
relating to product improvements, that any such improvements will not require
further regulatory review thereby delaying the testing, approval and
commercialization of the Company's development products, or that ultimately any
such improvements will receive FDA clearance. Product approvals by the FDA can
also be withdrawn due to failure to comply with regulatory standards or the
occurrence of unforseen problems following initial approval. Later discovery of
previously unknown problems with a product, manufacturer, or facility may result
in restrictions on such product or manufacturer, including fines, delays or
suspensions or regulatory clearances, seizures or recalls of products, operating
restrictions and criminal prosecution, and could have a material adverse effect
on the Company. FDA regulations depend heavily on administrative interpretation,
and there can be no assurance that future interpretations made by the FDA or
other regulatory bodies, with possible retroactive effect, will not adversely
affect the Company.
The MicroLight 830(TM), a Class III medical device, has been defined by
the FDA as a "non-significant risk" device. The Company is allowed to conduct
clinical trials under an approved Investigational Device Exemption ("IDE") using
the MicroLight 830(TM). In August 1997, the FDA accepted the Company's Pre-IDE
Clinical Investigation Plan for a multi-center, double-blind, randomized,
clinical study to evaluate the efficacy of the MicroLight 830(TM) in the
treatment of carpel tunnel syndrome ("CTS"). These clinical trials are subject
to IDE regulations, including record keeping, adverse event reporting and other
clinical study requirements. Pursuant to IDE regulations the Company's clinical
researchers are required to be reviewed and approved by an Institutional Review
Board ("IRB") to treat human patients for research purposes. The objective of
these clinical trials is to evaluate the therapeutic effects of low-level laser
energy in pain management, soft tissue trauma and dental applications. The
Company is sponsoring independent research studies of the MicroLight 830(TM) at
various clinical sites in the U.S.
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No assurances can be given that (i) the results of the various research
studies that are being or have been conducted using the MicroLight 830(TM), will
demonstrate to the FDA's satisfaction the safety and effectiveness of the
MicroLight 830(TM) in treating CTS, (ii) the FDA will agree that the design of
the studies is satisfactory, (iii) the FDA will not require additional clinical
studies, or (iv) the Company can obtain the necessary FDA marketing clearance
for the MicroLight 830(TM) on a timely basis, if at all. The FDA's rejection of
the clinical design or the data generated could lead to rejection of the
application for commercial marketing of the MicroLight 830(TM) and/or the need
to conduct additional clinical trials.
RISKS OF INTERNATIONAL TRANSACTIONS; CURRENCY FLUCTUATIONS.
The Company has arrangements with several foreign distributors to
distribute products in Europe, Southeast Asia, the Far East, Central America and
South America. In addition, the Company obtains certain supplies from foreign
suppliers. The acquisition of Enraf-Nonius has also significantly expanded the
Company's foreign operations. International transactions subject the Company to
several potential risks, including fluctuating exchange rates (to the extent the
Company's transactions are not in U.S. dollars), varying economic and political
conditions, cultures and business practices in different countries or regions,
regulation of fund transfers by foreign governments, overlapping or differing
tax structures, and United States and foreign export and import duties and
tariffs. Fluctuations in the exchange rates between the U.S. dollar and the
currencies of the other countries in which the Company operates will affect the
results of the Company's international operations reported in U.S. dollars. It
is anticipated that approximately one-half of the Company's total sales for 1998
will be in currencies other than U.S. dollars. In addition, the Company may make
loans to and/or receive dividends and loans from certain of its foreign
subsidiaries and may suffer a loss as a result of adverse exchange rate
movements between the relevant currencies. There can be no assurance that any of
the foregoing will not have a material adverse effect upon the business of the
Company.
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to adopt the Euro as their common legal currency. Following
the introduction of the Euro, the local currencies are scheduled to remain legal
tender in the participating countries until January 1, 2002. During this
transition period, goods and services may be paid for using either the Euro or
the participating country's local currency. Thereafter, the local currencies
will be canceled and the Euro currency will be used for all transactions between
the eleven participating members of the European Union. The Euro conversion
raises strategic as well as operational issues. The conversion is expected to
result in a number of changes, including the stimulation of cross-border
competition by creating cross-border price transparency. The Company is
assessing Euro issues related to its product pricing, contract, treasury
operations and accounting systems. Although the evaluations of these items is
still in process, the Company believes that the hardware and software systems it
uses internally will accommodate this transition and any required policy or
operating changes will not have a material adverse effect on future results.
Sales of the Company's medical products outside the United States are
subject to regulatory requirements that vary widely from country to country. The
time required to obtain clearance for sale in foreign countries may be longer or
shorter than that required for FDA clearance, and the requirements may differ.
The FDA also regulates the sale of exported medical devices, although to a
lesser extent than devices sold in the United States. For medical products
exported to countries in Europe, the Company anticipates that its customers will
want their products to qualify for distribution under the "CE Mark." The CE Mark
is a designation given to products which comply with certain European Economic
Area policy directives and therefore may be freely traded in almost every
European country. Commencing in 1998, medical product manufacturers will be
required to obtain certifications necessary to enable the CE Mark to be affixed
to medical products they manufacture for sale throughout the European Community.
In addition, the Company's distributors and customers must comply with other
laws generally applicable to foreign trade, including technology export
restrictions, tariffs, and other regulatory barriers. There can be no assurance
that the Company's distributors and customers will obtain all required
clearances or approvals for exported products on a timely basis, if at all.
Failure or delay by the Company's customers in obtaining the requisite
regulatory approvals for exported instruments manufactured by the Company may
have a material adverse effect on the Company's business, results of operations,
and financial condition.
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UNCERTAINTY REGARDING PATENTS AND PROPRIETARY INFORMATION.
The Company actively seeks patent protection for its proprietary
technology, both in the U.S. and abroad. The Company owns several U.S. issued
patents and various foreign counterparts. The Company's success will depend, in
part, on its ability to obtain patents and to operate without infringing on the
proprietary rights of others. There can be no assurance that patents issued to
or licensed by the Company will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide competitive advantages to the
Company. There can be no assurance that the Company's pending patent
applications or patent applications in preparation presently or in the future,
if and when issued, will be valid and enforceable and withstand litigation.
There can be no assurance that others will not independently develop
substantially equivalent or superseding proprietary technology or that an
equivalent product will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's proprietary
rights. The Company currently has one patent application pending in the U.S.
There is a substantial backlog of patent applications at the U.S. Patent and
Trademark Office ("PTO"). Because patent applications in the U.S. are maintained
in secrecy until patents issue, and because publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries by
several months, there can be no assurance that the Company will obtain patent
protection for its inventions. In addition, patent protection, even if obtained,
is affected by the limited period of time for which a patent is effective.
Furthermore, patent positions are highly uncertain and involve complex legal and
factual questions. Therefore, the scope or enforceability of claims allowed in
the patents on which the Company will rely cannot be predicted with any
certainty.
The Company also relies on trade secrets, know-how and continuing
technological advancement to maintain its competitive position. Although the
Company has entered into confidentiality agreements with its employees and
consultants, which contain assignment of invention provisions, no assurance can
be given that others will not gain access to these trade secrets, that such
agreements will be honored or that the Company will be able to effectively
protect its rights to its unpatented trade secrets. Moreover, no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets.
In addition to protecting its proprietary technology and trade secrets,
the Company may be required to obtain licenses to patents or other proprietary
rights from third parties. No assurance can be given that any licenses required
under any patents or proprietary rights would be made available on acceptable
terms, if at all. If the Company does not obtain required licenses, it could
encounter delays in product introductions while it attempts to design around
blocking patents, or it could find that the development, manufacture or sale of
products requiring such licenses could be foreclosed.
Although, the Company has conducted searches to discover any patents which
its products or their use might infringe and is not aware of any such patents,
there can be no assurance that no such infringement has or will occur. The
Company could incur substantial costs in defending any patent infringement suits
or in asserting any patent rights, including those granted by third parties, in
a suit with another party. The PTO could institute interference proceedings
involving the Company in connection with one or more of the Company's patents or
patent applications, and such proceedings could result in an adverse decision as
to priority of invention. The PTO or a comparable agency of a foreign
jurisdiction could also institute re-examination or opposition proceedings
against the Company in connection with one or more of the Company's patents or
patent applications and such proceedings could result in an adverse decision as
to the validity or scope of the patents.
POSSIBLE VOLATILITY OF STOCK PRICE; TRADING MARKET FOR COMMON STOCK.
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In particular, the market price of the Company's
securities may be highly volatile. Factors such as announcements by the Company
or its competitors concerning acquisitions, technological innovations, new
commercial products or procedures by the Company or its competitors, proposed
governmental regulations and developments in both the U.S. and foreign
countries, disputes relating to patents or proprietary rights, publicity
regarding actual or potential medical results relating to products sold by the
Company or its competitors, public concern as to the safety of these products,
and economic and other external factors, as well as period-to-period
fluctuations and financial results, may have a significant effect on the market
price of the Company's securities.
From time to time, there has been limited trading volume with respect to
the Common Stock. In addition, there can be no assurance that there will
continue to be a trading market or that any analysts will continue to provide
research coverage
8
<PAGE>
with respect to the Common Stock. Accordingly, with respect to the Common Stock
being offered hereby, no assurances can be made that such factors will not
affect the market for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS.
As of January 25, 1999, substantially all of the Company's outstanding
shares of Common Stock were eligible for immediate sale in the public market.
Approximately 1,450,000 shares of Common Stock are issuable upon exercise of
employee and director stock options (which either have been or will be issued)
and will become eligible for sale in the public markets at prescribed times in
the future. The Company's issuances of such 1,450,000 shares are registered on a
Form S-8 Registration Statement. As of January 25, 1999, the Company currently
has a total of 875,000 outstanding options. The Company also has outstanding
warrants which are exercisable into an aggregate of 1,318,776 shares of Common
Stock. In addition, the Company's Series A Preferred Stock, par value $.10 per
share (the "Series A Preferred Stock"), is convertible into a maximum of 862,066
shares of Common Stock (assuming the Company remains listed on The Nasdaq
SmallCap Market), which the Company has registered on its Registration Statement
on Form S-3 No. 333-50769 (the "Series A Form S-3"), and the outstanding shares
of the Company's Series B Preferred Stock, as of January 25, 1999, were
convertible into an estimated 2,197,545 shares of Common Stock. In addition to
the 1,075,000 Shares offered pursuant to the Series A Form S-3, Maxxim is the
beneficial holder of 1,500,000 shares of Common Stock which are "restricted
securities" under Rule 144(a)(3) of the Securities Act that are issuable upon
the conversion of the $3,000,000 of remaining outstanding principal on the
Maxxim Note. Pursuant to a registration rights agreement between the Company and
Maxxim, the Company is obligated to register those shares upon request by
Maxxim. In addition, the holders of approximately 326,852 shares of Common Stock
hold piggy-back registration rights. The issuance of a significant number of
shares of Common Stock upon the exercise of stock options and warrants, the
conversion of the Series A Preferred Stock, the Series B Preferred Stock or the
outstanding principal of the Maxxim Note or the sales of a substantial number of
shares of Common Stock pursuant to Rule 144 or otherwise, could adversely affect
the market price of the Common Stock.
POTENTIAL DILUTION.
A substantial number of shares of Common Stock are issuable by the Company
upon the conversion of the outstanding principal balance of the Maxxim Note, the
outstanding shares of its convertible Class A and Class B Preferred Stock
(collectively, the "Preferred Stock") and upon the exercise of warrants and
options which the Company has issued. Such issuances could result in dilution to
a shareholder's percentage ownership interest in the Company and could adversely
affect the market price of the Common Stock. Under the applicable conversion
formulas of the Series A and Series B Preferred Stock, the number of shares of
Common Stock issuable upon conversion is inversely proportional to the market
price of the Common Stock at the time of conversion (i.e., the number of shares
increases as the market price of the Common Stock decreases). The maximum number
of shares of Common Stock which may be issuable upon conversion of the Series A
Preferred Stock is limited by a provision which prohibits the conversion price
from going below $2.90 (subject to anti-dilution adjustments). However, the
Series B Preferred Stock does not currently have any such conversion price
limitation and there is no maximum on the number of shares which could issue
upon conversion of the Series B Preferred Stock. Therefore, any drop in the
market price will increase the potential dilution which could occur upon
conversion of the Series B, which could, in turn, cause the market price to go
lower, and have the effect of creating a declining market price. In addition,
the existence of the floating conversion rate Preferred Stock and, in
particular, the absence of a floor price with respect to the Series B Preferred
Stock, could increase the Company's vulnerability to short-selling strategies.
As of January 25, 1999, the Company had 5,391,205 shares of Common Stock
outstanding. As of that same date, the Company's currently outstanding shares of
Preferred Stock were convertible into an aggregate of approximately 3,059,611
shares of Common Stock, and the remaining $3 million of outstanding principal
balance on the Maxxim Note was convertible into an additional 1,500,000 shares
of Common Stock, for a total of 3,059,611 shares of Common Stock. If all of
these shares of Common Stock were issued on that date, they would represent
approximately 36.2% of the then issued and outstanding shares of Common Stock.
In addition, the Company currently has outstanding options exercisable into a
total of 875,000 shares of Common Stock, and outstanding warrants exercisable
for a total of 1,318,776 shares of Common Stock. As a result, a total of
6,753,387 shares of Common Stock are currently issuable upon the exercise or
conversion of such Preferred Stock, options, warrants, and the Maxxim Note (the
"Common Stock Equivalents"), which, if issued, would represent 55.6% of the then
outstanding shares of Common Stock and result in a change of control. In
addition, if the average closing bid price of the Common Stock during any
consecutive three trading day period is equal to or less than $1.00, the
currently outstanding Series B Preferred Stock would then be convertible into a
number of shares of
9
<PAGE>
Common Stock sufficient to result in a change of control. The number of shares
issuable upon the exercise or conversion of each of the Company's Common Stock
Equivalents is subject to adjustment upon the occurrence of certain dilutive
events.
ANTI-TAKEOVER PROVISIONS.
The Company's Certificate of Incorporation and the Texas Business
Corporation Act (the "TBCA") contain certain provisions that may delay or
prevent an attempt by a third-party to acquire control of the Company. In
addition, the severance provisions of employment agreements with certain members
of management could impede an attempted change of control of the Company.
DIVIDENDS.
The Company cannot give any assurance that the proposed operations of the
Company will result in sufficient revenues to enable the Company to operate at a
profitable level. The Company has not paid any dividends on its Common Stock to
date, and has no plans to pay any dividends on its Common Stock for the
foreseeable future. The Company's Series A Preferred Stock accrues a dividend of
4% per year, payable at the Company's discretion in cash or in shares of the
Company's Common Stock based on a share price equal to the closing price of the
Company's Common Stock on the Nasdaq on the particular dividend date.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS.
This Prospectus contains certain statements that are "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended.
Those statements including, among other things, the discussions of the Company's
business strategy and expectations concerning market position, future
operations, margins, profitability, liquidity and capital resources. Forward
Looking Statements are included in this section under "Future Capital Needs;
Need for Additional Funding," "Limited Combined Operating History; History of
Operating Losses," "Management of Growth; Need to Establish Infrastructure;
Additional Personnel," "Volatile Markets/Dependence on New Products,"
"Competition," "Uncertainty Regarding Government Health Care Reform," "Product
Liability," "Product Recalls," "Potential Fluctuations in Quarterly Results,"
"Dependence on Key Personnel," "Governmental Regulation and FDA Approval,"
"Risks of International Transactions; Currency Fluctuations," "Uncertainty
Regarding Patents and Proprietary Information," "Possible Volatility of Stock
Price; Trading Market for Common Stock," "Shares Eligible for Future Sale;
Registration Rights," "Potential Dilution," "Anti-Takeover Provisions," and
"Dividends." Although the Company believes that the expectations reflected in
Forward Looking Statements are reasonable, they can give no assurance that such
expectations will prove to have been correct. Generally, these statements relate
to business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, or projections involving anticipated
revenues, expenses, earnings, levels of capital expenditures, liquidity or
indebtedness or other aspects of operating results or financial position. All
phases of the operations of the Company are subject to a number of
uncertainties, risks and other influences, many of which are outside the control
of the Company and any one of which, or a combination of which, could materially
affect the results of the Company's operations and whether the Forward Looking
Statements made by the Company ultimately prove to be accurate. Important
factors that could cause actual results to differ materially from the Company's
expectations are disclosed in this "Risk Factors" Section.
10
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information concerning each Selling
Stockholder. The Shares are being registered to permit the Selling Stockholders
and certain of their respective pledgees, donees, transferors or other
successors in interest to offer the Shares for resale from time to time. See
"Plan of Distribution."
<TABLE>
<CAPTION>
SELLING STOCKHOLDERS NUMBER OF SHARES NUMBER OF NUMBER OF
OWNED AND TO BE SHARES BEING SHARES
OWNED PRIOR TO OFFERED (2) OWNED AFTER
OFFERING (1)(2) OFFERING (3)
- -------------------------------------------------------------- ------------------ --------------- -----------------
<S> <C> <C> <C>
Zanett Lombardier, Ltd. ("Lombardier") (4).................... 282,730 3,053,889 0
Goldman Sachs Performance Partners, L.P. ("GSPP")(4) ......... 282,730 870,063 0
Goldman Sachs Performance Partners (Offshore), L.P.
("GSPPO") (4)........................................... 282,730 706,138 0
Claudio M. Guazzoni (5)....................................... 47,452 47,452 0
David M. McCarthy (5)......................................... 47,452 47,452 0
Samuel L. Milbank (5)......................................... 31,635 31,635 0
Havkit Corporation............................................ 8,000 8,000 0
</TABLE>
(1) The Selling Stockholders have sole voting and sole investment power with
respect to all Shares owned.
(2) Ownership is determined in accordance with Rule 13d-3 under the Exchange
Act. The actual number of Shares beneficially owned and offered for sale
hereunder is subject to adjustment and could be materially less or more
than the estimated amount indicated depending upon factors which cannot be
predicted by the Company at this time. Pursuant to the terms of the Series
B Preferred Stock and Warrants, no holder thereof can convert such Series
B Preferred Stock and Warrants if such conversion would increase such
holders' beneficial ownership of Common Stock to in excess of 4.99%.
Absent such limitation at December 30, 1998, the Common Stock issuable
upon conversion of the Series B Preferred Stock, the Warrants and the
Placement Agent Warrants would have represented approximately 29.0% of the
then issued and outstanding Common Stock.
(3) Assumes the sale of all of the Shares offered hereby to persons who are
not affiliates of the Selling Stockholders.
(4) The Series B Preferred Stock has a floating conversion price calculated by
dividing the $1,000 Stated Value of the shares being converted by an
amount equal to the lesser of (i) 87% of the average closing bid price of
the Common Stock during any consecutive three trading day period, as
chosen by the holder, during the period beginning on the twentieth trading
day preceding any such conversion date, or (ii) 110% of the five day
average closing bid price of the Common Stock on the original 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). For the purpose of estimating the number of shares of
Common Stock to be included in this Registration Statement, the Company
calculated the number of shares of Common stock issuable in connection
with the conversion of the Company's Series B Preferred Stock as of
December 30, 1998 and multiplied by 200%. The number of shares included in
the table next to each of these Selling Shareholders' name was calculated
using this estimated maximum number. As of January 25, 1999, the Series B
Preferred Stock would have been convertible into an aggregate of
approximately 2,197,545 shares of Common Stock based upon the lowest three
day average closing bid price of $2.4583. The number for each of these
Selling Stockholders also includes the following number of Warrants to
purchase Common Stock: Lombardier - 154,700; GSPP - 44,000; and GSPPO -
36,300. Of the Warrants held by Lombardier, 125,000 of such Warrants are
exercisable at $6.00 and expire on November 1, 2001. All the Warrants held
by GSPP and GSPPO and the remaining 29,700 Warrants held by Lombardier are
exercisable at $5.78 and expire on December 10, 2001. Upon conversion of
the Series B Preferred Stock, the shareholders of the Series B Preferred
Stock are entitled to a 4% premium on the stated value of each
shareholder's holdings over the period since its issuance, in cash or
additional shares of Common Stock at the Company's option. This premium
may increase to 10% if the Company fails to achieve certain levels of
average daily trading volume in the future.
(5) These Shares are issuable upon exercise of 126,539 Placement Agent
Warrants to purchase that number of Shares. The first 67,308 of these
Placement Agent Warrants have an exercise price of $6.00 per share
(subject to adjustment), and will expire on November 1, 2001. The
remaining 59,231 Placement Agent Warrants have an exercise price of $5.78
per share (subject to adjustment), and will expire on December 10, 2001.
Zanett has subsequently assigned the Placement Agent Warrants to three
individuals who are principals of Zanett.
11
<PAGE>
PLAN OF DISTRIBUTION
Pursuant to this Prospectus, the Selling Stockholders may sell Shares from
time to time in transactions on the Nasdaq or such other exchanges or markets as
the Common Stock may be listed for trading from time to time, in
privately-negotiated transactions, in an underwritten offering, or by a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. As used herein, "Selling
Stockholders" includes pledgees, donees, transferees and other successors in
interest to the Selling Stockholders selling shares received from a Selling
Stockholder after the date of this Prospectus. The Selling Stockholders may
effect such transactions by selling the Shares to or through broker-dealers, and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders or the purchasers of
the Shares for whom such broker-dealers may act as agent or to whom they sell as
principal, or both (which compensation to a particular broker-dealer might be in
excess of customary commissions).
Other methods by which the Shares may be sold include, without limitation:
(i) transactions which involve cross or block trades or any other transaction
permitted by the Nasdaq or other trading markets, (ii) "at the market" to or
through market makers or into an existing market for the Common Stock, (iii) in
other ways not involving market makers or established trading markets, including
direct sales to purchasers or sales effected through agents, (iv) through
transactions in options or swaps or other derivatives (whether exchange-listed
or otherwise), (v) through short sales, or (vi) any combination of any such
methods of sale. The Selling Stockholders may also enter into option or other
transactions with broker-dealers which require the delivery to such broker
dealers of the Common Stock offered hereby, which Common Stock such
broker-dealers may resell pursuant to this Prospectus. The Selling Shareholders
may also make sales pursuant to Rule 144 under the Securities Act of 1933, as
amended, if such exemption from registration is otherwise available.
The Selling Stockholders and any broker-dealers who act in connection with
the sale of Shares hereunder may be deemed to be "underwriters" as that term is
defined in the Securities Act, and any commissions received by them and profit
on any resale of the Shares as principal might be deemed to be underwriting
discounts and commissions under the Securities Act.
Pursuant to certain Registration Rights Agreements with certain Selling
Stockholders, the Company has agreed to indemnify certain of the Selling
Stockholders and each underwriter against certain liabilities, including certain
liabilities under the Securities Act as amended, or will contribute to payments
such Selling Stockholders or underwriters may be required to make in respect of
certain losses, claims, damages or liabilities.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for the
Company by Porter & Hedges, L.L.P., Houston, Texas.
EXPERTS
The financial statements as of and for the year ended December 31, 1997
which have been incorporated by reference in this registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report. The
financial statements for the year ended December 31, 1996 which have been
incorporated by reference in this registration statement have been audited by
Goldstein Golub Kessler LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. The 1997 combined
financial statements of The Enraf-Nonius Companies, which have been incorporated
herein by reference to the Company's Current Report (Form 8-K/A) as filed on
August 14, 1998, as amended, have been audited by Moret Ernst & Young
Accountants, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
12
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES IN WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
PAGE
Available Information...............................2
Incorporation of Certain Documents
by Reference..................................2
The Company.........................................3
Risk Factors........................................4
Selling Stockholders...............................11
Plan of Distribution...............................12
Legal Matters......................................12
Experts............................................12
------------------
HENLEY HEALTHCARE, INC.
4,764,629 SHARES
OF
COMMON STOCK
------------------
PROSPECTUS
------------------
------------------
________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
offering of the shares of Common Stock to be registered and offered hereby are
as follows:
SEC registration fee.......................................... $ 3,271
Legal fees and expenses....................................... 20,000
Blue Sky fees and expenses (including legal expenses)......... 5,000
Accounting fees and expenses.................................. 5,000
Miscellaneous................................................. 5,000
-----------
Total................................................... $ 38,271
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
the articles of incorporation of a Texas corporation may provide that a director
of that corporation shall not be liable, or shall be liable only to the extent
provided in the articles of incorporation, to the corporation or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director, except that the articles of incorporation cannot provide
for the elimination or limitation of liability of a director to the extent that
the director is found liable for (i) a breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) an act or omission not in good
faith that constitutes a breach of duty of the director to the corporation or an
act or omission that involves intentional misconduct or a knowing violation of
the law, (iii) any transaction from which the director received an improper
personal benefit, or (iv) an act or omission for which the liability of a
director is expressly provided by an applicable statute.
In accordance with Article 1302-7.06, Article Six of the Company's Amended
and Restated Articles of Incorporation eliminates a director's liability to the
Company and its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except that such provision does not eliminate
or limit a director's liability for: (1) a breach of a director's duty of
loyalty to the Company or its shareholders, (2) an act or omission not in good
faith or that involves intentional misconduct or a knowing violation of law, (3)
a transaction from which a director received an improper benefit, whether or not
the benefit resulted from an action taken within the scope of the director's
office, (4) an act or omission for which the liability of a director is
expressly provided for by statute, or (5) an act related to an unlawful payment
of a dividend. Article Six of the Company's Amended and Restated Articles of
Incorporation further provides that if the Texas Miscellaneous Corporation Laws
Act or any other statute is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Company shall be eliminated or limited to the full extent
permitted by such statute, as so amended. If a director breaches any fiduciary
duty other than those listed in Article Six in performing his duties as a
director, neither the Company nor its shareholders could recover monetary
damages from the director; only equitable remedies, such as an action to enjoin
or rescind a transaction involving a breach of fiduciary duty, may be available.
To the extent certain claims against directors are limited to equitable
remedies, the provision in the Company's Amended and Restated Articles of
Incorporation may reduce the likelihood of derivative litigation and may
discourage shareholders or management from initiating litigation against
directors for breach of their fiduciary duties. Additionally, equitable remedies
may not be effective in many situations. If a shareholder's only remedy is to
enjoin the completion of the board of directors' action, such remedy would be
ineffective if the shareholder does not become aware of a transaction or event
until after it has been completed. In such a situation, it is possible that the
Company and its shareholders would have no effective remedy against the
directors.
II-1
<PAGE>
In addition, Article 2.02-1 of the Texas Business Corporation Act ("TBCA")
empowers the Company to indemnify present and former directors, officers,
employees, agents and other persons acting on the Company's behalf against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses (including court costs and attorneys' fees) actually
incurred by them in connection with a proceeding brought against them in their
respective present or former capacities as directors, officers, employees or
agents of the Company, or of any other entity in which they are or were serving
in such capacities at the Company's request. However, the TBCA provides that
unless a court of competent jurisdiction determines otherwise, indemnification
is available only if the person (1) acted in good faith, (2) reasonably believed
that he acted (a) in his official capacity, in a manner which was in the
Company's best interests, and (b) in other than in his official capacity, in a
manner which he reasonably believed was at least not opposed to the Company's
best interests, and (3) in the case of any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. Even if these three
elements are established, if a person is found liable to the Company, or liable
on the basis that he received an improper personal benefit, indemnification is
(i) limited to his reasonable expenses, and (ii) prohibited if he is found
liable for willful or intentional misconduct in performing his duties to the
Company.
The TBCA prescribes procedures which the Company must use in determining
whether a claim is indemnifiable under the statute; if so, whether to authorize
indemnification (unless it is made mandatory by articles of incorporation,
bylaws, director or shareholder resolution, or agreement); and the
reasonableness of any expenses for which indemnification is sought. Each of
these determinations must be made by (i) a majority vote of a quorum of
disinterested directors, (ii) if such quorum is unobtainable, then by a majority
vote of a special committee of disinterested directors appointed by a majority
vote of all directors, (iii) special legal counsel selected by the board of
directors or a committee of the board by vote as described in (i) or (ii), or if
such quorum is unobtainable or such committee cannot be established, then by a
majority vote of all directors, or (iv) a vote of disinterested shareholders.
The Company is obligated under Article 2.02-1 to indemnify a director or
officer against reasonable expenses incurred by him in connection with a
proceeding in which he is named defendant or respondent because he is or was a
director or officer if he has been wholly successful, on the merits or
otherwise, in the defense of the proceeding. Under Article 2.02-1, the Company
may (i) indemnify and advance expenses to an officer, employee, agent or other
person who are or were serving at the request of the Company as a director,
officer, partner venturer, proprietor, trustee, employee, agent or similar
functionary of another entity to the same extent that it may indemnify and
advance expenses to directors, (ii) indemnify and advance expenses to directors
and such other persons to such further extent, consistent with law, as may be
provided in the Company's articles of incorporation, bylaws, action of its board
of directors, or contract or as permitted by common law, and (iii) purchase and
maintain insurance or another arrangement on behalf of directors and such other
persons against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person regardless of whether the
Company could indemnify him against such liability under the TBCA.
Article V of the Company's Amended and Restated Bylaws sets forth specific
provisions for indemnification of directors, officers, agents and other persons
which are substantially identical to the provisions of Article 2.02-1 described
above. The Amended and Restated Bylaws provide for advance payment of any
expenses subject to authorization of the board of directors and a written
promise to repay the payment unless it is determined that he is entitled to
indemnification. Article V further provides that the rights to indemnification
are not exclusive of any other rights to which a person may be entitled by law,
bylaw, agreement, vote of shareholders or otherwise. Such rights to
indemnification by the Amended and Restated Bylaws shall continue after the
person has ceased to hold a position and shall inure to that person's heirs and
personal representatives. The Amended and Restated Bylaws also provide for
reports to the shareholders of the Company as to indemnification payments,
advance payments and insurance payments.
The above discussion of the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws, as amended, and Texas statutes is
not intended to be exhaustive and is qualified in its entirety by such Articles,
Bylaws and statutes.
The Company maintains officers' and directors' indemnity insurance against
expenses of defending claims or payment of amounts arising out of good-faith
conduct believed by the officer or director to be in or not opposed to the best
interest of the Company. Pursuant to employment agreements entered into by the
Company with its executive officers and certain other key employees, the Company
must indemnify such officers and employees in the same manner and to the same
extent that the Company is required to indemnify its directors under the
Company's Bylaws. In addition, the Company has entered into indemnification
agreements with its officers and directors providing for indemnity to the
maximum extent permitted under the TBCA.
II-2
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
- ------ -------------------------
*5.1 Opinion of Porter & Hedges, L.L.P.
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Goldstein Golub Kessler LLP
*23.3 Consent of Moret Ernst & Young Accountants
*23.4 Consent of Porter & Hedges, L.L.P. (included in its Opinion
filed as Exhibit 5.1 hereto).
- --------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation or Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the
plan of distribution nor previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment Number 2
to this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on this 27th
day of January, 1999.
HENLEY HEALTHCARE, INC.
*
Michael M. Barbour,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated and on this 27th day of January, 1999.
SIGNATURE TITLE
--------- -----
*
Michael M. Barbour President, Chief Executive Officer and Director
/s/ DAN D. SUDDUTH Executive Vice President, Chief Financial
Dan D. Sudduth Officer, Chief Accounting Officer and Director
* Medical Director, Chairman of the Board and
Chadwick F. Smith Director
________________________ Director
Kenneth W. Davidson
* Director
Ernest J. Henley, Ph.D.
*
Pedro A. Rubio, M.D., Ph.D. Director
* /s/ DAN D. SUDDUTH
Dan D. Sudduth,
as attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER IDENTIFICATION OF EXHIBIT PAGE NO.
- ------ ------------------------- --------
*5.1 Opinion of Porter & Hedges, L.L.P.
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Goldstein Golub Kessler LLP
*23.3 Consent of Moret Ernst & Young Accountants
*23.4 Consent of Porter & Hedges, L.L.P. (included
in its Opinion filed as Exhibit 5.1 hereto).
- --------------
* Filed herewith.
II-5
EXHIBIT 5.1
January 27, 1999
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
Ladies and Gentlemen:
We have acted as counsel to Henley Healthcare, Inc., a Texas
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-3 (the "Registration Statement") with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended. The Registration Statement relates to an aggregate of 4,764,629 shares
of the Company's common stock, par value $.01 per share (the "Common Stock"),
which may be offered and sold from time to time by selling security holders (the
"Selling Security Holders") of the Company.
We have examined such corporate records, documents, instruments and
certificates of the Company and have received such representations from the
officers and directors of the Company and have reviewed such questions of law as
we have deemed necessary, relevant or appropriate to enable us to render the
opinion expressed herein. In such examination, we have assumed the genuineness
of all signatures and the authenticity of all documents, instruments, records
and certificates submitted to us as originals.
Based on such examination and review and on representations made to us
by the officers and directors of the Company, we are of the opinion that (i) up
to 4,395,090 shares of Common Stock which may be issued by the Company upon the
conversion of the 4,700 issued and outstanding shares of the Company's Series B
Preferred Stock and offered pursuant to the Registration Statement will be, when
so issued, validly issued, fully-paid and nonassessable outstanding shares of
Common Stock, (ii) up to 361,539 shares of Common Stock to be issued by the
Company upon the exercise of the Warrants and Placement Agent Warrants offered
pursuant to the Registration Statement will be, when so issued, validly issued,
fully-paid and nonassessable outstanding shares of Common Stock, and (iii) the
8,000 shares of Common Stock issued to Havkit Corporation are validly issued,
fully-paid and nonassessable outstanding shares of Common Stock.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm under the heading "Legal Matters" in
the Prospectus included in the Registration Statement.
Very truly yours,
/s/ PORTER & HEDGES, L.L.P.
PORTER & HEDGES, L.L.P.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
March 13, 1998 included in Henley Healthcare, Inc.'s Form 10-KSB/A-2, and our
report dual dated March 13, 1998 and August 11, 1998 included in Henley
Healthcare, Inc.'s Form 8-K (dated January 28, 1999), each report for the year
ended December 31, 1997, and to all references to our Firm included in this
registration statement. It should be noted that we have performed no audit
procedures subsequent to March 13, 1998, the date of our report, except with
respect to the subsequent sale of the Homecare division as described in Note 17
in the Form 8-K, as to which the date is August 11, 1998. Furthermore, we have
not audited any financial statements of Henley Healthcare, Inc. as of any date
or for any period subsequent to December 31, 1997.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
January 27, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-3 of our reports dated February 23, 1997, on
the consolidated statements of operations, stockholders' equity and cash flows
for the year ended December 31, 1996, included in Henley Healthcare, Inc.'s Form
10-KSB/A-2 for the year ended December 31, 1997 and Form 8-K dated January 28,
1999, and to the reference to our Firm under the caption "Experts" in this
Registration Statement.
/s/ GOLDSTEIN GOLUB KESSLER LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 27, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
this Amendment No. 2 to the Registration Statement on Form S-3 and the related
prospectus of Henley Healthcare, Inc. for the registration of 4,764,629 shares
of its common stock and to the incorporation by reference therein of our report
dated July 31, 1998, with respect to the 1997 combined financial statements of
The Enraf-Nonius Companies included in the amendments to Henley Healthcare,
Inc.'s Current Report on Form 8-K dated June 15, 1998.
The Hague
January 22, 1999
/s/ Moret Ernst & Young Accountants
MORET ERNST & YOUNG ACCOUNTANTS
