As filed with the Securities and Exchange Commission on June 14, 1999.
REGISTRATION NO. 333-___________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
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 BOULEVARD
SUGAR LAND, TEXAS 77478
(281) 276-7000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
<TABLE>
<CAPTION>
<S> <C>
DAN D. SUDDUTH
HENLEY HEALTHCARE, INC. WITH COPIES TO:
120 INDUSTRIAL BOULEVARD ROBERT G. REEDY
SUGAR LAND, TEXAS 77478 PORTER & HEDGES, L.L.P.
(281) 276-7000 700 LOUISIANA, 35TH FLOOR
(Name and address, including zip code, and telephone HOUSTON, TEXAS 77002-2764
number, including area code, of agent for service) (713) 226-0600
</TABLE>
------------------------------------
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.[ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (1) AGGREGATE OFFERING PRICE (1) REGISTRATION FEE (1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share (2) 750,000 $ 1.7500 $ 1,312,500.00 $ 365
Common Stock, par value $.01 per share (3) 187,500 $ 1.7500 $ 328,125.00 $ 92
Common Stock, par value $.01 per share (4) 862,066 $ 6.6875 $ 5,765,066.38 $ 1,701
Common Stock, par value $.01 per share (5) 30,000 $ 6.6875 $ 200,625.00 $ 59
Common Stock, par value $.01 per share (6) 200,000 $ 6.6875 $ 1,337,500.00 $ 395
Common Stock, par value $.01 per share (7) 40,000 $ 6.6875 $ 267,500.00 $ 79
Common Stock, par value $.01 per share 1,781,148 $ 6.6875 $ 11,911,427.25 $ 3,514
Common Stock, par value $.01 per share (8) 4,395,090 $ 2.4688 $ 10,850,598.19 $ 3,017
Common Stock, par value $.01 per share (9) 361,539 $ 2.4688 $ 892,567.48 $ 248
Common Stock, par value $.01 per share 8,000 $ 2.4688 $ 19,750.40 $ 6
TOTAL.............................. 8,615,343 - $ 32,885,659.70 $ 9,476
=================================================================================================================================
</TABLE>
[Footnotes on Following Page]
Cover Page 1 of 2
<PAGE>
(1) Pursuant to Rule 457(c), the registration fee was calculated based on the
average of the high and low prices for the common stock on June 8, 1999 of
$1.75 per share. Of the total fee of $9,476, $457 is paid herewith. The
filing fee of $9,019 for the additional 7,677,843 shares included in this
prospectus pursuant to Rule 429 of the Securities Act of 1933, as amended,
which were registered pursuant to our earlier registration statements on
Form S-3 (File Nos. 333-50769 and 333-63915), was paid on April 23,
September 21 and December 31, 1998, in the amounts of $5,747, $2,425 and
$846, respectively.
(2) Issuable upon conversion of 750 shares of Series C Preferred Stock. The
Series C Preferred Stock has a floating conversion price calculated by
dividing the $1,000 stated value of the shares being converted (plus any
accrued, but unpaid premium) by an amount equal to the lesser of (i) 87% of
the average closing bid price for our common stock as reported by Nasdaq for
any three consecutive trading days chosen by the holder of the Series C
Preferred Stock during the period beginning on the twentieth day prior to
the conversion date for such conversion and ending on such conversion date,
and (ii) $2.875; PROVIDED; HOWEVER, that the conversion price shall not be
less than $1.75 for so long as we continue to meet certain quarterly and
annual revenue and net income tests for the second quarter of 1999 and
continue to meet such tests in the future. For the purpose of estimating the
number of shares of common stock to be included in the registration
statement of which this prospectus is a part, we calculated the number of
shares of common stock issuable in connection with the conversion of our
Series C Preferred Stock on June 8, 1999 (428,571) and multiplied that
number by 175%. In addition to the estimated number of shares set forth in
the table, the amount to be registered includes a presently indeterminate
number of shares issuable upon conversion of or otherwise in respect of the
Series C Preferred Stock as such number may be adjusted as a result of stock
split, stock dividend and antidilution provisions in accordance with Rule
416.
(3) Issuable upon exercise of warrants to purchase 187,500 shares at an exercise
price of $2.64 per share. Also includes an indeterminate number of shares
issuable on exercise of such warrants as adjusted pursuant to antidilution
provisions of such warrants in accordance with Rule 416.
(4) Issuable upon conversion of 2,500 shares of Series A Preferred Stock. The
Series A 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) 75% of the average closing bid price of the
common stock during the period of five trading days immediately preceding
the conversion date, or (ii) 100% of the closing bid price of the common
stock on the original issuance date ($6.50 for 1,825 shares of the Series A
Preferred Stock sold on March 13, 1998, and $6.375 for 675 shares of Series
A Preferred Stock sold on April 9, 1998); provided, however, that such
conversion price shall not be less than $2.90. For the purpose of estimating
the number of shares of common stock to be included in this registration
statement, we calculated the maximum number of shares of common stock
issuable in connection with the conversion of our Series A Preferred Stock
using the minimum conversion price of the Series A Preferred Stock of $2.90.
This would result in the issuance of 862,066 shares of common stock. The
amount also includes shares issuable in lieu of certain cash penalties
payable to the Series A Preferred Shareholders. In addition to the estimated
number of shares set forth in the table, the amount to be registered
includes a presently indeterminate number of shares issuable upon conversion
of or otherwise in respect of the Series A Preferred Stock as such number
may be adjusted as a result of stock split, stock dividend and antidilution
provisions in accordance with Rule 416. These shares of common stock were
registered in an earlier registration statement on Form S-3 (Reg. No.
333-50769).
(5) These 30,000 shares of common stock are issuable, at our option, for payment
of dividends on the Series A Preferred Stock, and are estimated to be
sufficient to allow us to meet our obligation to pay dividends for one year.
These shares of common stock were registered in an earlier registration
statement on Form S-3 (Reg. No. 333-50769).
(6) Issuable upon exercise of warrants for a total of 200,000 shares comprised
of (i) four groups of warrants for 36,500 shares each at exercise prices of
$7.125, $8.194, $8.550 and $9.619, respectively, and (ii) four groups of
warrants for 13,500 shares each at exercise prices of $6.375, $7.331, $7.65
and $8.606, respectively. Also includes an indeterminate number of shares
issuable on exercise of the warrants as adjusted pursuant to antidilution
provisions of such warrants in accordance with Rule 416. These shares of
common stock were registered in an earlier registration statement on Form
S-3 (Reg. No. 333-50769).
(7) Issuable upon exercise of an option for 40,000 shares at an exercise price
of $4.00 per share. Also includes an indeterminate number of shares issuable
on exercise of the option as adjusted pursuant to antidilution provisions of
such options in accordance with Rule 416. These shares of common stock were
registered in an earlier registration statement on Form S-3 (Reg. No.
333-50769).
(8) Issuable upon conversion of 4,700 shares of Series B Convertible Preferred
Stock. The Series B Preferred Stock has a floating conversion price
calculated by dividing the $1,000 stated value of the shares being converted
(plus any accrued, but unpaid premium) 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) $4.00. For the purpose of estimating the number of shares of
common stock to be included in this registration statement, we calculated
the number of shares of common stock issuable in connection with the
conversion of our Series B Preferred Stock on December 31, 1998 (2,197,545)
and multiplied that number by 200%. In addition to the estimated number of
shares set forth in the table, the amount to be registered includes a
presently indeterminate number of shares issuable upon conversion of or
otherwise in respect of the Series B Preferred Stock as such number may be
adjusted as a result of stock split, stock dividend and antidilution
provisions in accordance with Rule 416. These shares of common stock were
registered in an earlier registration statement on Form S-3 (Reg. No.
333-63915).
(9) Issuable upon exercise of warrants to purchase 361,539 shares at an exercise
price of $2.64. Also includes an indeterminate number of shares issuable on
exercise of the warrants as adjusted pursuant to antidilution provisions of
such warrants in accordance with Rule 416. These shares of common stock were
registered in an earlier registration statement on Form S-3 (Reg. No.
333-63915).
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS WHICH FORMS A
PART OF THIS REGISTRATION STATEMENT ALSO RELATES TO 7,677,843 SHARES OF COMMON
STOCK REGISTERED FOR RESALE BY CERTAIN SELLING SHAREHOLDERS PURSUANT TO OUR
EARLIER REGISTRATION STATEMENTS ON FORM S-3 (FILE NOS. 333-50769 AND 333-63915),
AS AMENDED.
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.
Cover Page 2 of 2
<PAGE>
PROSPECTUS
HENLEY HEALTHCARE, INC.
------------------
8,615,343 SHARES
COMMON STOCK
------------------
Henley Healthcare, Inc. has prepared this prospectus for use by the selling
shareholders listed on page 11 of this prospectus to allow them to sell such
shares of our common stock without restriction. This prospectus includes 937,500
newly registered shares of common stock and 7,677,843 shares of common stock
registered in previously filed registration statements.
The selling shareholders have indicated that sales may be made by the
methods described in the section entitled "Plan of Distribution" in this
prospectus. We will file a supplemental prospectus if required to do so by
applicable securities laws to describe specific sales of shares or to identify
any selling shareholders not listed in this prospectus.
Our common stock trades on The Nasdaq SmallCap Market under the symbol
"HENL." On June 8, 1999, the last reported sale price of the common stock was
$1.813 per share.
We will not receive any portion of the proceeds resulting from the sale of
the shares offered by the selling stockholders under this prospectus. In
addition, we will pay for certain of the expenses relating to the registration
of the shares. However, we may receive up to approximately $4,413,802 if all of
the options and warrants held by the selling stockholders are exercised in full.
See "Plan of Distribution" and "Selling Shareholders."
Our principal executive offices are located at 120 Industrial Boulevard,
Sugar Land, Texas 77478, and our telephone number is (281) 276-7000.
------------------
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" ON PAGES 3-10 OF THIS
PROSPECTUS BEFORE DECIDING TO BUY OUR SECURITIES.
------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the securities to be issued under this prospectus or
determined if this prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
The date of this prospectus is _______________, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
Where You Can Find More Information......................................... 2
Risk Factors................................................................ 3
About Us.................................................................... 9
Use of Proceeds............................................................. 9
Selling Shareholders........................................................10
Plan of Distribution........................................................14
Legal Matters...............................................................14
Experts.....................................................................14
WHERE YOU CAN FIND MORE INFORMATION
We have filed three registration statements on Form S-3 with the SEC to
register the securities offered by this prospectus. This prospectus does not
contain all of the information contained in the registration statements,
including their exhibits and schedules. You should refer to the registration
statements for further information about us and the securities the selling
shareholders are offering. Statements made in this prospectus about certain
contracts or other documents are not necessarily complete. When we make such
statements, we refer you to the copies of those contracts or other documents
that are filed as exhibits to the registration statements, because those
statements are qualified in all respects by reference to those exhibits. The
registration statements, including exhibits and schedules, are on file at the
offices of the SEC and may be inspected without charge. The registration
statements are Registration Nos. 333-50769, 333-63915 and 333-________.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings, including the registration
statements, are available to the public over the Internet at the SEC's web site
at http://www.sec.gov. You also may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C.; New York, New York; and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
about the public reference rooms.
SEC rules allow us to include some of the information required to be in the
registration statements by incorporating that information by reference to other
documents we file with them. That means we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus, and information that we file
later with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of
1934 until all of the securities covered by this prospectus are sold:
o Annual Report on Form 10-KSB for the year ended December 31, 1998, as
amended;
o Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999;
o Current Reports on Form 8-K as filed on January 28, 1999, and April 20,
1999 as amended; and
o The description of our common stock contained in the Form 8-A effective
June 26, 1996 (Commission File No. 000-28566), including any amendments
or reports filed to update the description.
You may request a copy of these filings, which we will provide to you at no
cost, by writing or calling us at the following address:
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
Attention: Chief Financial Officer
(Telephone (281) 276-7000)
2
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING TO BUY OUR SECURITIES.
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL IN ORDER TO FUND OUR CURRENT
OPERATIONS AND TO CONTINUE OUR GROWTH STRATEGY.
We recorded a net loss of $5,831,183 or $1.62 per share for the year ended
December 31, 1998 on net sales of $41,931,617. Although we recorded net income
of $252,830 or $.03 per share for the three-month period ended March 31, 1999,
there can be no assurance that we will be able to achieve profitability for the
long term. Further, we had a working capital deficit of $7,546,000 as of March
31, 1999 and have had working capital deficits in the past. Our $6,000,000 line
of credit under our loan agreement with Comerica Bank-Texas is currently set to
expire on June 30, 1999. In addition, a note payment of $1,500,000 to Maxxim was
due on May 1, 1999 under a convertible promissory note. As a result, we are
seeking to replace our current credit facility with a different source of
funding and to reschedule the payment due under the Maxxim note. We expect to
have a new credit facility in place within the next few months. However, we may
not be able to obtain a sufficient replacement credit facility on favorable
terms or at all. If we are unable to extend the term of our line of credit and
reschedule the loan payment due to Maxxim under the note, we will continue to be
out of compliance with the terms of both agreements. Without a sufficient credit
facility, there is substantial doubt as to our ability to continue as a going
concern. If we are successful in obtaining a sufficient replacement credit
facility and rescheduling the loan payment to Maxxim, we believe that our
sources of funds during 1999 will be sufficient to eliminate our working capital
deficit and fund our existing operations for the immediate future. However, we
will need to obtain additional capital to finance any future acquisitions. If
our operating cash flows are inadequate or if we are unable to raise sufficient
financing, we may not be able to successfully fund our current operations or
finance any future acquisitions. We believe that our success in obtaining the
necessary financing will depend upon, among other factors, successfully
generating positive cash flows and profitable operations. Sources of additional
financing may include additional bank debt or the public or private sale of
equity or debt securities. We may not be successful in arranging such financing
at all or on commercially acceptable terms.
DUE TO ITS LIMITED NATURE, YOU SHOULD NOT RELY ON OUR COMBINED OPERATING HISTORY
AS AN INDICATOR OF OUR FUTURE PERFORMANCE.
We were incorporated in November 1990 to develop a portable hand-held,
battery-operated, low-energy laser device to be used to treat soft tissue. Since
that time, we have completed eleven acquisitions related to the non-invasive
pain management and rehabilitation industry. As a result of this rapid growth in
our operations, we have a limited combined operating history. Although we
experienced significant revenue growth from fiscal 1997 to fiscal 1998, we
incurred net losses of $2,124,433 and $5,831,183 for the years ended December
31, 1997 and 1998, respectively, and net income of $92,010 and $252,830 for the
three-month periods ended March 31, 1998 and 1999, respectively. We may not be
able to successfully integrate the acquired businesses and become profitable in
the future. In addition, we may experience delays, complications and expenses in
integrating the newly acquired businesses. Our inability to successfully
integrate or operate the recently acquired businesses would have a material
adverse effect on our business, financial condition and results of operations.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO EFFECTIVELY MANAGE OUR GROWTH.
Over the last three years, we have completed eleven acquisitions, and this
rapid growth continues to place a significant strain on our managerial,
operational and financial resources. To manage our growth, we must continue to
implement and improve our operational and financial systems and to expand, train
and manage our employee base. We may not have adequately evaluated the costs and
risks associated with this expansion, and our systems, procedures and controls
may not be adequate to support our operations. In addition, our management may
not be able to achieve the rapid execution necessary to successfully offer our
products and services and implement our business plan on a profitable basis. Our
future operating results will also depend on our ability to expand our support
organization commensurate with the growth of our business and to integrate any
newly acquired operations. Any failure by our management to effectively
anticipate, implement and manage the changes required to sustain our growth
would have a material adverse effect on our business, financial condition and
results of operations. We may not be able to effectively manage such change.
3
<PAGE>
THE MARKETS FOR OUR PRODUCTS ARE VOLATILE AND WE MAY NOT BE ABLE TO ACHIEVE OR
MAINTAIN SUFFICIENT MARKET SHARE.
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. 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. We may never be able to capture a
significant portion of the pain management market or establish a significant
position in the rehabilitation market.
WE ARE IN AN EXTREMELY COMPETITIVE INDUSTRY THAT IS DOMINATED BY SEVERAL
COMPANIES WHICH HAVE SIGNIFICANTLY GREATER FINANCIAL, TECHNICAL, AND MARKETING
RESOURCES THAN WE HAVE.
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 we compete have
significantly greater resources, established direct sales organizations and
greater experience in the marketing and sales of products through direct
distribution. Although we believe that the broad range of rehabilitation
products we sell distinguishes us from such competitors, there can be no
assurance that we will be able to compete effectively.
WE MAY BE LIABLE FOR SUBSTANTIAL MONETARY DAMAGES SHOULD OUR PRODUCTS INJURE
SOMEONE.
Like most producers of medical products, we face the risk of product
liability claims and unfavorable publicity in the event that the use of our
products causes injury or has other adverse effects. Although we have product
liability insurance for risks of up to $3,000,000 and have not been subject to
any material claims for product liability, such insurance may be inadequate to
cover all potential product claims. In addition, we may not be able to maintain
such insurance indefinitely or be able to avoid product liability exposure.
PRODUCT RECALLS COULD MATERIALLY AFFECT OUR RESULTS OF OPERATIONS.
If a device that we designed or manufactured is found to be defective,
whether due to design or manufacturing defects, improper use of the product, or
other reasons, the device may need to be recalled, possibly at our expense.
Furthermore, the adverse effect of a product recall on us might not be limited
to the cost of a recall. For example, a product recall could cause a general
investigation of our products and operations by applicable regulatory
authorities as well as cause other customers to review and potentially terminate
their relationships with us. Recalls, especially if accompanied by unfavorable
publicity or termination of customer relationships, could result in substantial
costs, loss of revenues, and a diminution of our reputation, any of which could
have a material adverse effect on our business, results of operations and
financial condition.
VARIOUS MARKET AND ECONOMIC FACTORS MAY CAUSE OUR FUTURE QUARTERLY OPERATING
RESULTS TO VARY.
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, some of which are outside of our control. These factors
include general economic conditions, specific economic conditions in the pain
management and rehabilitation industries, 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 us or our
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, we may elect from time to time to make certain pricing,
service or marketing decisions or acquisitions that could have a material
adverse effect on our business, results of operations and financial condition.
Due to the foregoing factors, it is likely that in some future quarter, our
operating results may be below the expectations of public market analysts and
investors. In such event, the price of our common stock may be materially
adversely affected.
OUR SUCCESS IS HEAVILY DEPENDENT UPON OUR RETENTION OF CERTAIN KEY EMPLOYEES.
Our performance is substantially dependent on the performance of our
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. We currently have no
employment agreements with Messrs. Barbour or Sudduth. We have 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 us for the loss of Mr.
Barbour's services.
4
<PAGE>
We do not have such policies in place on any of our other employees. The loss of
the services of any of our executive officers or other key employees could have
a material adverse effect on our business, results of operations or financial
condition. In addition, we are heavily dependent upon our ability to attract,
retain and motivate skilled technical and managerial personnel. Our future
success also depends on our continuing ability to identify, hire, train and
retain other highly qualified technical and managerial personnel. Competition
for such personnel is intense, and we may not 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 our business, results of
operations or financial condition.
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION AND MAY BE
ADVERSELY AFFECTED BY FUTURE CHANGES TO THOSE REGULATIONS.
The development of our MicroLight 830(TM) product and certain of our other
products are subject to extensive and rigorous regulation by the FDA pursuant to
the Federal Food, Drug, and Cosmetic Act, by comparable agencies in foreign
countries, and by state regulatory agencies. Under the Food and Drug 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 we may not obtain sufficient resources to complete
the required testing and regulatory review process. In addition, we may not
obtain such FDA clearances, or may encounter delays that will adversely affect
our 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 our products to
incorporate and enhance their functionality and performance based upon new data
and design review. The FDA may request additional information relating to
product improvements, and could require further regulatory review thereby
delaying the testing, approval and commercialization of our development
products, and could withhold approval of any such improvement. The FDA can
withdraw product approvals 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 of regulatory clearances, seizures or recalls of products,
operating restrictions and criminal prosecution, and could have a material
adverse effect on us. FDA regulations depend heavily on administrative
interpretation, and future interpretations made by the FDA or other regulatory
bodies, with possible retroactive effect, could adversely affect us.
The MicroLight 830(TM), a Class III medical device, has been defined by the
FDA as a "non-significant risk" device. We are allowed to conduct clinical
trials under an approved Investigational Device Exemption using the MicroLight
830(TM). In August 1997, the FDA accepted our Pre-Investigational Device
Exemption 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 carpal tunnel syndrome. These clinical trials are subject to
Investigational Device Exemption regulations, including record keeping, adverse
event reporting and other clinical study requirements. Pursuant to
Investigational Device Exemption regulations our clinical researchers are
required to be reviewed and approved by an Institutional Review Board 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. We are sponsoring
independent research studies of the MicroLight 830(TM) at various clinical sites
in the U.S.
We cannot predict whether
o 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 carpal tunnel syndrome;
o the FDA will agree that the design of the studies is satisfactory;
o the FDA will not require additional clinical studies; or
5
<PAGE>
o we will be able to 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.
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 us.
INTERNATIONAL TRANSACTIONS AND TRANSACTIONS IN FOREIGN CURRENCIES PRESENT RISKS
THAT COULD MATERIALLY AFFECT OUR BUSINESS AND FINANCIAL PERFORMANCE.
We have arrangements with several foreign distributors to distribute
products in Europe, Southeast Asia, the Far East, Central America and South
America. In addition, we obtain certain supplies from foreign suppliers. The
acquisition of Enraf-Nonius significantly expanded our foreign operations.
International transactions subject us to several potential risks, including:
o fluctuating exchange rates (to the extent our transactions are not in
U.S. dollars);
o varying economic and political conditions;
o cultures and business practices in different countries or regions;
o regulation of fund transfers by foreign governments;
o overlapping or differing tax structures; and
o 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 we operate will affect the results of
our international operations reported in U.S. dollars. It is anticipated that
approximately one-half of our total sales for 1999 will be in currencies other
than U.S. dollars. In addition, we may make loans to and/or receive dividends
and loans from certain of our foreign subsidiaries and may suffer a loss as a
result of adverse exchange rate movements between the relevant currencies. Any
of the foregoing could have a material adverse effect upon our business.
On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the Euro as their common legal currency. Following the
introduction of the Euro, the local currencies 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. We are assessing Euro issues related
to our product pricing, contract, treasury operations and accounting systems.
Although the evaluation of these items is still in process, we believe that the
hardware and software systems we use internally will accommodate this transition
and any required policy or operating changes will not have a material adverse
effect on future results.
Sales of our 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 sales 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, we anticipate that our 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 are 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, our distributors and customers must comply with other laws generally
applicable to foreign trade, including technology export restrictions, tariffs,
and other regulatory barriers. Our distributors and customers may not be able to
obtain all required clearances or approvals for exported products on a timely
basis, if at all. Failure or
6
<PAGE>
delay by our customers in obtaining the requisite regulatory approvals for
exported instruments we manufacture may have a material adverse effect on our
business, results of operations, and financial condition.
OUR SUCCESS IS HEAVILY DEPENDENT UPON A VARIETY OF PROPRIETARY INTELLECTUAL
PROPERTY RIGHTS. OUR CURRENT PROTECTIONS MAY NOT BE SUFFICIENT TO PROTECT THESE
TECHNOLOGIES.
We actively seek patent protection for our proprietary technology, both in
the U.S. and abroad. We own several U.S. issued patents and various foreign
counterparts. Our success will depend, in part, on our 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 us will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to us. Our pending patent applications or patent
applications in preparation presently or in the future, if and when issued, may
not be valid and enforceable and withstand litigation. In addition, others may
independently develop substantially equivalent or superseding proprietary
technology and equivalent products may be marketed in competition with our
products, thereby substantially reducing the value of our proprietary rights. We
currently have one patent application pending in the U.S. There is a substantial
backlog of patent applications at the U.S. Patent and Trademark Office. 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, we may not obtain
patent protection for our inventions. In addition, patent protection, even if
obtained, is effective only for a limited period of time. 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
we will rely cannot be predicted with any certainty.
We also rely on trade secrets, know-how and continuing technological
advancement to maintain our competitive position. Although we have entered into
confidentiality agreements with our employees and consultants, which contain
assignment of invention provisions, we cannot be certain that others will not
gain access to these trade secrets, that such agreements will be honored or that
we will be able to effectively protect our rights to our unpatented trade
secrets. Moreover, others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets.
In addition to protecting our proprietary technology and trade secrets, we
may be required to obtain licenses to patents or other proprietary rights from
third parties. We cannot be certain that any licenses required under any patents
or proprietary rights would be made available on acceptable terms, if at all. If
we do not obtain required licenses, we could encounter delays in product
introductions while we attempt to design around blocking patents, or we could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed.
Although, we have conducted searches to discover any patents on which our
products or their use might infringe and are not aware of any such patents, we
cannot be certain that no such infringement has or will occur. We 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 U.S. Patent and Trademark Office could institute interference
proceedings with us in connection with one or more of our patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The U.S. Patent and Trademark Office or a comparable
agency of a foreign jurisdiction could also institute reexamination or
opposition proceedings against us in connection with one or more of our patents
or patent applications and such proceedings could result in an adverse decision
as to the validity or scope of the patents.
THE CURRENT PUBLIC MARKET FOR OUR COMMON STOCK IS LIMITED AND HIGHLY VOLATILE.
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 our securities is
highly volatile. The following factors may have a significant effect on the
market price of our securities:
o announcements by us or our competitors concerning acquisitions;
o technological innovations;
o new commercial products or procedures by us or our competitors;
o proposed governmental regulations and developments in both the U.S. and
foreign countries;
o disputes relating to patents or proprietary rights;
o publicity regarding actual or potential medical results relating to
products sold by us or our competitors;
o public concern as to the safety of these products;
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<PAGE>
o economic and other external factors;
o period-to-period fluctuations; and
o financial results.
From time to time, there has been limited trading volume with respect to our
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 with respect to our common stock. Accordingly, such factors may affect
the market for our common stock.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF
RESTRICTED AND OTHER SECURITIES.
As of June 8, 1999, there were approximately 5,823,726 shares of our common
stock issued and outstanding. Approximately 1,450,000 shares of common stock are
issuable upon exercise of employee and director stock options under our
incentive stock plans and will become eligible for sale in the public markets at
prescribed times in the future. Our issuance of such 1,450,000 shares is
registered on a Form S-8 Registration Statement. As of June 8, 1999, other
outstanding options were exercisable to purchase approximately 125,000 shares of
common stock. We also have outstanding warrants which are exercisable into an
aggregate of 1,632,815 shares of common stock. In addition, 1,500,000 shares of
common stock are issuable upon conversion of the remaining $3,000,000 principal
balance of a convertible promissory note issued to Maxxim Medical, Inc. Lastly,
each series of preferred stock is convertible into additional shares of our
common stock. The following table illustrates the maximum number of shares of
common stock issuable upon the conversion of our outstanding preferred stock:
<TABLE>
<CAPTION>
PREFERRED STOCK
- ------------------------------------------------------------------------------------------------------
AUTHORIZED ISSUED AND CONVERTIBLE INTO CURRENTLY ISSUABLE
CLASS OF PREFERRED SHARES OUTSTANDING COMMON STOCK (MAX.) SHARES
- ------------------------------------ ---------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C>
Series A Preferred Stock............ 5,000 1,570 541,379 541,379
Series B Preferred Stock............ 8,000 4,700 N/A 3,015,237
Series C Preferred Stock............ 2,250 750 428,571 428,571
</TABLE>
The maximum number of shares issuable upon the conversion of the outstanding
shares of our Series B Preferred Stock cannot be estimated since the Series B
Preferred Stock has no minimum on the conversion price. In addition, the
conversion price floor of $1.75 for the Series C Preferred Stock will only
remain in effect if we continue to meet certain revenue, net income and share
trading volume targets outlined in the Series C Preferred Stock Statement of
Designation. Since all of the preferred shares have floating conversion rates,
the number of shares issuable upon conversion will vary inversely to the market
price of our common stock.
The issuance and sale of a significant number of shares of common stock upon
the exercise of stock options and warrants, the conversion of our outstanding
preferred stock, 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.
THE ISSUANCE OF ADDITIONAL COMMON STOCK UPON THE CONVERSION OR EXERCISE OF
OUTSTANDING DERIVATIVE SECURITIES COULD RESULT IN DILUTION TO EACH SHAREHOLDER'S
PERCENTAGE OWNERSHIP INTEREST AND COULD MATERIALLY AFFECT THE MARKET PRICE OF
THE COMMON STOCK.
A substantial number of shares of common stock are issuable by us upon the
conversion of the outstanding principal balance of the Maxxim Note, the
outstanding shares of our convertible preferred stock and upon the exercise of
warrants and options which we have issued. Such issuances could result in
dilution to a shareholder's percentage ownership interest and could adversely
affect the market price of the common stock. Under the applicable conversion
formulas of our 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 and Series C
Preferred Stock is limited by provision which prohibits the applicable
conversion price from going below $2.90 and $1.75, respectively. However, the
Series B Preferred Stock does not have any such conversion price limitation and
there is no maximum to 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.
8
<PAGE>
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 our vulnerability to short-selling strategies.
As a result, a total of 8,048,003 shares of common stock are currently
issuable upon the exercise or conversion of such preferred stock, options,
warrants, and the Maxxim Note, which, if issued, would represent 58% of the then
outstanding shares of common stock and result in a change of control. The number
of shares issuable upon the exercise or conversion of each of our common stock
equivalents is subject to adjustment upon the occurrence of certain dilutive
events.
CERTAIN PROVISIONS CONTAINED IN OUR ARTICLES OF INCORPORATION AND TEXAS LAW MAY
PREVENT OR DELAY A THIRD-PARTY ATTEMPT TO ACQUIRE CONTROL OF US.
Our Articles of Incorporation and the Texas Business Corporation Act contain
certain provisions that may delay or prevent an attempt by a third-party to
acquire control of us. For instance, our board of directors may authorize the
issuance of additional shares of preferred stock without shareholder approval.
In addition, the severance provisions of employment agreements with certain
members of management could impede an attempted change of control of us.
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK IN THE NEAR FUTURE,
BUT WE ARE REQUIRED TO PAY DIVIDENDS ON OUR SERIES A PREFERRED STOCK.
Our proposed operations may not result in sufficient revenues to enable us
to operate at a profitable level. We have not paid any dividends on our common
stock to date, and have no plans to pay any dividends on our common stock for
the foreseeable future. However, our Series A Preferred Stock accrues a dividend
of 4% per year, payable at our discretion in cash or in shares of our common
stock based on a share price equal to the closing price of our common stock on
The Nasdaq SmallCap Market 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 include, among other things, the discussions of our business
strategy and expectations concerning market position, future operations,
margins, profitability, liquidity and capital resources. Forward-looking
statements are also included under each of the paragraphs in this section
entitled "Risk Factors." Although we believe that the expectations reflected in
forward-looking statements are reasonable, they may not 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 our operations are
subject to a number of uncertainties, risks and other influences, many of which
are outside our control and any one of which, or a combination of which, could
materially affect the results of our operations and whether the forward-looking
statements we made ultimately prove to be accurate. Important factors that could
cause actual results to differ materially from our expectations are disclosed in
this "Risk Factors" section.
ABOUT US
We develop, manufacture and distribute products and related accessories used
in the control of acute or chronic pain. Our 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. We are
also seeking approval from the United States Food and Drug Administration for
the MicroLight 830(TM), a hand-held, low-energy (non-surgical) laser for the
treatment of repetitive stress injuries such as carpal tunnel syndrome. Our
principal executive offices are located at 120 Industrial Boulevard, Sugar Land,
Texas 77478, and our telephone number is (281) 276-7000.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common stock
offered by the selling shareholders. However, we may receive up to approximately
$4,413,802 if all of the options and warrants held by the selling shareholders
are exercised for cash.
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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information concerning each of the
selling shareholders. Assuming that the selling shareholders offer all of their
shares of common stock, the selling shareholders will not have any beneficial
ownership. The shares are being registered to permit the selling shareholders
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>
NUMBER OF SHARES
OWNED AND TO BE NUMBER OF NUMBER OF PERCENTAGE OF
OWNED PRIOR TO SHARES BEING SHARES OWNED SHARES OWNED
SELLING SHAREHOLDERS OFFERING (1)(2) OFFERED (2) AFTER OFFERING (3) AFTER OFFERING (3)
- ------------------------------------------------------- ---------------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
RBB Bank Aktiengesellschaft ("RBB Bank") (4)........... 169,931 169,931 0 *
AMRO International S.A. ("AMRO") (4)................... 424,827 424,827 0 *
Fourys Co. ("Fourys") (4).............................. 42,482 42,482 0 *
Bennett Yanowitz ("Yanowitz") (4)...................... 21,241 21,241 0 *
Reg S Intercontinental Investment, Ltd. ("Reg S") (4).. 53,103 53,103 0 *
Buntok Holdings S.A. ("Buntok") (4).................... 127,448 127,448 0 *
The Endeavor Capital Fund S.A. ("Endeavor") (4)........ 223,034 223,034 0 *
Maxxim Medical, Inc. ("Maxxim") (5) ................... 2,575,000 1,075,000 1,500,000 10.9%
Eddy Patterson......................................... 50,000 50,000 0 *
Arkansas Teacher Retirement System..................... 233,000 233,000 0 *
Steven Barbour (6)(7).................................. 19,000 14,000 5,000 *
Michael M. Barbour (6)(7).............................. 511,748 65,000 446,748 3.6%
Britton D. Sudduth (6)(8).............................. 37,611 14,000 23,611 *
Dan D. Sudduth (6)(8).................................. 178,511 65,000 113,511 *
Theron L. Morrow (6)(9)................................ 19,000 14,000 5,000 *
Tracy L. Mathews (6)(10)............................... 19,200 14,000 5,200 *
Karson Carpenter (6)(11)............................... 243,637 11,000 232,637 1.9%
Daniel M. Lavelle, Sr. (6)(12)......................... 19,100 14,000 5,100 *
Ronald V. Shields (6)(13).............................. 24,000 14,000 10,000 *
Pedro A. Rubio, M.D., Ph.D. (6)(14).................... 239,128 100,000 139,128 1.1%
Chadwick F. Smith (6)(15).............................. 540,666 100,000 440,666 3.5%
Vicky Belcher ("Belcher").............................. 233,548 48,148 185,400 1.5%
Market Pathways, Inc. (16)............................. 40,000 40,000 0 *
Zanett Lombardier, Ltd. ("Lombardier") (17)(18)........ 290,630 3,928,889 0 *
Goldman Sachs Performance Partners, L.P. ("GSPP")(18) . 290,630 870,063 0 *
Goldman Sachs Performance Partners (Offshore), L.P.
("GSPPO") (18)......................................... 290,630 706,138 0 *
Claudio M. Guazzoni (19)............................... 47,452 47,452 0 *
David M. McCarthy (19)................................. 47,452 47,452 0 *
Samuel L. Milbank (19)................................. 31,635 31,635 0 *
Zanett Securities Corporation (20)..................... 62,500 62,500 0 *
Havkit Corporation..................................... 8,000 8,000 0 *
</TABLE>
* Less than 1%.
(1) The selling shareholders 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 account indicated depending upon factors which we
cannot predict at this time. Pursuant to the terms of the Series B and
Series C Preferred Stock and associated warrants, no holder thereof can
convert such shares of preferred stock and warrants if such conversion
would increase such holders' beneficial ownership of common stock to in
excess of 4.99%.
(3) Assumes the sale of all of the shares offered hereby to persons who are
not affiliates of the selling shareholders.
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<PAGE>
(4) Represents shares of common stock issued or issuable upon conversion of
our Series A Preferred Stock. The Series A Preferred Stock is convertible
into our common stock at the lesser of (i) 75% of the average closing bid
price for the common stock as reported on The Nasdaq SmallCap Market for
the 5 trading days prior to conversion, or (ii) $6.50 per share. For so
long as the common stock is listed on The Nasdaq SmallCap or National
Markets or any national securities exchange, the conversion price shall
not be lower than $2.90. As of June 8, 1999, the 1570 currently
outstanding shares of Series A Preferred Stock would have been convertible
into the maximum of 541,379 shares of common stock based upon the five-day
average closing bid price of $1.41 resulting in the use of the $2.90
minimum conversion price. The number for each of the selling shareholders
includes the following number of warrants to purchase common stock: RBB
Bank - 32,000; AMRO - 80,000; Fourys - 8,000; Yanowitz - 4,000; Reg S -
10,000; Buntok - 24,000; and Endeavor - 42,000. These warrants are
exercisable at prices ranging from $6.375 and $9.619. These warrants
expire in March and April 2003. The Series A Preferred Stock pays an
annual dividend of 4%, payable quarterly in cash or shares of common stock
at our option. Included in this prospectus are 30,000 dividend shares
which are estimated to be sufficient to meet our obligation to pay
dividends for one year. If all 30,000 dividend shares were issued to the
holders of the Series A Preferred Stock, the number for each of the
selling shareholders in the table would also include the following number
of dividend shares: RBB Bank - 4,800; AMRO - 12,000; Fourys - 1,200;
Yanowitz - 600; Reg S - 1,500; Buntok - 3,600; and Endeavor - 6,300. The
amount also includes shares issuable in lieu of certain cash penalties
payable to the Series A Preferred Shareholders. As of June 8, 1999, we had
issued a total of 348,615 shares of common stock upon conversion of 930
shares of Series A Preferred Stock including 27,927 shares of common stock
as dividends upon those shares.
(5) The 2,575,000 shares beneficially owned by Maxxim prior to the offering
include 1,500,000 shares of common stock which are issuable upon
conversion of the $3,000,000 remaining principal on a convertible
promissory note which are not being registered or offered hereby based
upon the current conversion price of $2.00. Interest on the note currently
accrues at a rate of 6% per annum and increases 2% per annum on each May 1
of each calendar year. Accrued Interest is due and payable on November 1
and May 1 of each calendar year until May 1, 2003. In addition to those
shares beneficially owned by Maxxim as listed in the table, Maxxim
beneficially owns a number of shares equal to the accrued and unpaid
interest on the note divided by the conversion price under the note. As of
June 1, 1999, this would have resulted in Maxxim being deemed to be the
beneficial owner of approximately 7,500 additional shares of common stock.
Until we complete a public offering, the principal amount of the Maxxim
Note is less than $1.5 million or Maxxim owns less than 10% of the
outstanding common stock, we and certain of our shareholders have agreed
to use their best efforts to have one member of the board of directors be
chosen by Maxxim. As of the date of this prospectus, Maxxim's nominee was
Kenneth W. Davidson, who is also the President of Maxxim.
(6) These shares represent 425,000 shares of common stock sold by Maxxim to
the listed officers, directors and our employees on October 30, 1998 at a
purchase price of $3.00 per share.
(7) Mr. Steven Barbour has worked as our employee since 1996 and is the
brother of Mr. Michael Barbour who has served as our President, Chief
Executive Officer and Director since 1991. The additional shares listed as
beneficially held by Mr. Steven Barbour, which will be owned after
completion of this offering, represent 5,000 shares of common stock
issuable upon exercise of employee stock options. The additional shares
listed as beneficially held by Mr. Michael Barbour, which will be owned
after completion of this offering, include 186,748 shares of common stock
currently held by him and 260,000 shares of common stock issuable upon
exercise of currently exercisable employee stock options. Both Barbours
expressly disclaim any beneficial ownership interest in the shares
beneficially owned by the other.
(8) Mr. Britton D. Sudduth has worked as our employee since 1997 and is the
adult son of Mr. Daniel D. Sudduth, who has served as our Executive Vice
President and Chief Financial Officer since February 1997 and as one of
our directors since January 1996. The additional shares listed as
beneficially held by Mr. Britton D. Sudduth, which will be owned after
completion of this offering, include 18,611 shares of common stock
currently held by him and 5,000 shares of common stock issuable upon
exercise of employee stock options. The additional shares listed as
beneficially held by Mr. Daniel D. Sudduth, which will be owned after
completion of this offering, include 18,511 shares of common stock
currently held by him, 70,000 shares of common stock issuable upon
exercise of currently exercisable employee stock options, and 25,000
shares of common stock issuable upon exercise of currently exercise
warrants. Both Sudduths expressly disclaim any beneficial ownership
interest in the shares beneficially owned by the other.
11
<PAGE>
(9) Mr. Morrow has served as our Vice President-U.S. Sales and Marketing since
November 1997. The additional shares listed as beneficially held by Mr.
Morrow, which will be owned after completion of this offering, represent
5,000 shares of common stock issuable upon exercise of employee stock
options.
(10) Mr. Mathews has served as our Vice President and Controller since April
1996. The additional shares listed as beneficially held by Mr. Mathews,
which will be owned after completion of this offering, include 200 shares
of common stock currently held by him and 5,000 shares of common stock
issuable upon exercise of employee stock options.
(11) Mr. Carpenter has worked as our employee since 1996. The additional shares
listed as beneficially held by Mr. Carpenter, which will be owned after
completion of this offering, represent 232,637 shares of common stock
currently held by him.
(12) Mr. Lavelle has served as our Vice President-International Sales and
Marketing since May 1996. From 1989 to May 1996, Mr. Lavelle was a
Divisional Vice President for Maxxim Medical, Inc. The additional shares
listed as beneficially held by Mr. Lavelle, which will be owned after
completion of this offering, include 100 shares of common stock currently
held by him and 5,000 shares of common stock issuable upon exercise of
employee stock options.
(13) Mr. Shields has served as our Treasurer since August 1998. The additional
shares listed as beneficially held by Mr. Shields, which will be owned
after completion of this offering, represent 10,000 shares of common stock
issuable upon exercise of employee stock options.
(14) Dr. Rubio has served as one of our directors since 1996. The additional
shares listed as beneficially owned by Dr. Rubio, which will be owned
after completion of this offering, include 50,795 shares of common stock
currently held by him, 55,000 shares of common stock issuable upon
exercise of currently exercisable director stock options, and 33,333
shares of common stock issuable upon exercise of currently exercisable
warrants.
(15) Dr. Smith has served as one of our directors since 1991 and is currently
our Chairman of the Board. The additional shares listed as beneficially
owned by Dr. Smith, which will be owned after completion of this offering,
include 195,666 shares of common stock currently held by him and 245,000
shares of common stock issuable upon exercise of currently exercisable
director stock options.
(16) These shares are issuable upon exercise of an option to purchase that
number of shares at an exercise price of $4.00 per share (subject to
adjustment). The first 20,000 options expired on March 12, 1999, and the
remaining 20,000 will expire on September 12, 1999.
(17) The Series C Preferred Stock has a floating conversion price calculated by
dividing the $1,000 stated value of the shares being converted (plus any
accrued, but unpaid premium) 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) $2,875; provided, however, that the conversion
price cannot be below $1.75 as long as we continue to achieve certain
revenue, net income and stock trading volume targets. For the purpose of
estimating the number of shares of common stock to be included in this
prospectus, we calculated the number of shares of common stock issuable in
connection with the conversion of our Series C Preferred Stock as of June
8, 1999 (428,571) and multiplied by 175%. As of June 8, 1999, the Series C
Preferred Stock would have been convertible into an aggregate of
approximately 428,571 shares of common stock based upon the lowest
three-day average closing bid price of $1.55875 resulting in the use of
the $1.75 minimum conversion price. The number also includes 125,000
warrants to purchase common stock. These warrants are exercisable at a
price of $2.64 and expire in April 2003. Upon conversion of the Series C
Preferred Stock, the shareholders of the Series C Preferred Stock are
entitled to a 7% premium on the stated value of each shareholder's
holdings over the period since our issuance, in cash or additional shares
of common stock at our option. This premium may increase to 10% if we fail
to achieve certain levels of average daily trading volume in the future.
(18) The Series B Preferred Stock has a floating conversion price calculated by
dividing the $1,000 stated value of the shares being converted (plus any
accrued, but unpaid premium) 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) $4.00. For the purpose of estimating the number
of shares of common stock to be
12
<PAGE>
included in this prospectus, we calculated the number of shares of common
stock issuable in connection with the conversion of our Series B Preferred
Stock as of December 31, 1998 (2,197,545) 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 June 8, 1999, the Series B Preferred Stock would have been convertible
into an aggregate of approximately 3,015,237 shares of common stock based
upon the lowest three-day average closing bid price of $1.55875. The
number for each of these selling shareholders also includes the following
number of warrants to purchase common stock: Lombardier - 154,700; GSPP -
44,000; and GSPPO - 36,300. All of these warrants are exercisable at a
price of $2.64 and expire in November and December 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 our issuance, in cash or
additional shares of common stock at our option. This premium may increase
to 10% if we fail to achieve certain levels of average daily trading
volume in the future.
(19) These shares are issuable upon exercise of 126,539 placement agent
warrants to purchase that number of shares. All of these warrants are
exercisable at a price of $2.64 and expire in November and December 2001.
Zanett subsequently assigned the placement agent warrants to three
individuals who are principals of Zanett.
(20) Represent shares issuable upon exercise of placement agent warrants at an
exercise price of $2.64 per share.
13
<PAGE>
PLAN OF DISTRIBUTION
Pursuant to this prospectus, the selling shareholders may sell shares of
common stock from time to time in transactions on such 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
shareholders" includes pledgees, donees, transferees and other successors in
interest to the selling shareholders selling shares received from a selling
shareholder after the date of this prospectus. The selling shareholders may
effect such transactions by selling the shares of common stock to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling shareholders 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 of common stock may be sold include,
without limitation:
o transactions which involve cross or block trades or any other
transaction permitted by The Nasdaq SmallCap Market or other trading
markets;
o "at the market" to or through market makers or into an existing market
for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents;
o through transactions in options or swaps or other derivatives (whether
exchange-listed or otherwise);
o through short sales; or
o any combination of any such methods of sale.
The selling shareholders 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 shareholders and any broker-dealers who act in connection with
the sale of shares of common stock 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 of the
selling shareholders, we have agreed to indemnify certain of the selling
shareholders and each underwriter, if any, against certain liabilities,
including certain liabilities under the Securities Act as amended, or will
contribute to payments such selling shareholders 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 us by
Porter & Hedges, L.L.P., Houston, Texas.
EXPERTS
The financial statements as of and for the years ended December 31, 1997 and
1998 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.
Reference is made to said report, which includes an explanatory paragraph with
respect to the uncertainty regarding the Company's ability to continue as a
going concern as discussed in Note 1 to the Consolidated Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
WE HAVE NOT AUTHORIZED ANY DEALER,
SALESPERSON OR ANY OTHER PERSON TO GIVE ANY HENLEY HEALTHCARE, INC.
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED
IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES
NOT OFFER TO SELL OR BUY ANY SHARES IN ANY
JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION
IN THIS PROSPECTUS IS CURRENT AS OF THE DATE BELOW. 8,615,343 SHARES
OF
COMMON STOCK
------------------
------------------
TABLE OF CONTENTS PROSPECTUS
------------------
PAGE
Where You Can Find More Information.................. 2
Risk Factors......................................... 3
About Us............................................. 9
Use of Proceeds...................................... 9
Selling Shareholders.................................10
Plan of Distribution.................................14
Legal Matters........................................14
Experts..............................................14 ------------------
------------------ ______________, 1999
- ------------------------------------------------------- -----------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses we must pay in connection with the offering of the
shares of common stock to be registered and offered hereby are as follows:
SEC registration fee.............................................. $ 457
Legal fees and expenses........................................... 20,000
Blue Sky fees and expenses (including legal expenses)............. 2,500
Accounting fees and expenses...................................... 10,000
Miscellaneous..................................................... 2,500
------------
Total......................................................... $ 35,457
============
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 our Amended and
Restated Articles of Incorporation eliminates a director's liability to us and
our 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 us or
our 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 our 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 our directors 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 we nor our 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 our 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 we
and our shareholders would have no effective remedy against the directors.
II-1
<PAGE>
In addition, Article 2.02-1 of the Texas Business Corporation Act empowers
us to indemnify present and former directors, officers, employees, agents and
other persons acting on our 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 our directors, officers, employees or agents, or of any other entity in which
they are or were serving in such capacities at our request. However, the Texas
Business Corporation Act 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 our best interests, and (b) in other than in
his official capacity, in a manner which he reasonably believed was at least not
opposed to our 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 us, 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 us.
The Texas Business Corporation Act prescribes procedures which we 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.
We are 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, we may (i) indemnify and
advance expenses to an officer, employee, agent or other person who are or were
serving at our request 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 our 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 we could indemnify him against such liability under
the Texas Business Corporation Act.
Article V of our 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 our shareholders as to
indemnification payments, advance payments and insurance payments.
The above discussion of our 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.
We maintain 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 our best
interest. Pursuant to employment agreements we entered into with our executive
officers and certain other key employees, we must indemnify such officers and
employees in the same manner and to the same extent that we are required to
indemnify our directors under our Bylaws. In addition, we have entered into
indemnification agreements with its officers and directors providing for
indemnity to the maximum extent permitted under the Texas Business Corporation
Act.
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 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.
II-4
<PAGE>
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on this 11th day of June,
1999.
HENLEY HEALTHCARE, INC.
/s/ MICHAEL M. BARBOUR
Michael M. Barbour,
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Michael M.
Barbour and Dan D. Sudduth, and both of them, either of whom may act without the
joinder of the other, as his true and lawful attorney-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any registration
statement for the same offering filed pursuant to Rule 462 under the Securities
Act of 1933, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Commission, granting unto said
attorney-in-fact and agents full power and authority to do and perform each and
every act and thing appropriate or necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
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 11th day of June, 1999.
SIGNATURE TITLE
/s/ MICHAEL M. BARBOUR President, Chief Executive Officer and
Michael M. Barbour Director (Chief Executive Officer)
/s/ DAN D. SUDDUTH Executive Vice President, Chief Financial
Dan D. Sudduth Officer, Secretary and Director (Chief
Financial Officer and Chief Accounting
Officer)
____________________________ Medical Director, Chairman of the Board and
Chadwick F. Smith Director
____________________________ Director
Kenneth W. Davidson
/s/ ERNEST J. HENLEY, Ph.D. Director
Ernest J. Henley, Ph.D.
/s/ PEDRO A. RUDIO, M.D., Ph.D. Director
Pedro A. Rubio, M.D., Ph.D.
II-5
<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 Porter & Hedges, L.L.P. (included in its
Opinion filed as Exhibit 5.1 hereto).
- --------------
* Filed herewith.
II-6
EXHIBIT 5.1
[PORTER & HEDGES, L.L.P. LETTERHEAD]
June 11, 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 8,615,343 shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), including
(i) 937,500 newly registered shares of Common Stock, and (ii) 7,677,843 shares
of Common Stock which are incorporated into the Registration Statement pursuant
to Rule 429, all of 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 the (i) up
to 750,000 shares of Common Stock which may be issued by the Company upon the
conversion of the 750 issued and outstanding shares of the Company's Series C
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, and (ii) up to 187,500 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.
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,
PORTER & HEDGES, L.L.P.
EXHIBIT 23.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
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 26, 1999
included in Henley Healthcare, Inc.'s Form 10-KSB for the year ended December
31, 1998, and to all references to our Firm included in this registration
statement.
ARTHUR ANDERSEN LLP
Houston, Texas
June 11, 1999
