EXHIBIT 3.1
STATEMENT OF DESIGNATION
OF RIGHTS AND PREFERENCES OF THE
SERIES E CONVERTIBLE PREFERRED STOCK
OF
HENLEY HEALTHCARE, INC.
Pursuant to the authority expressly granted and vested in the Board of
Directors (the "BOARD OF DIRECTORS" or the "BOARD") of Henley Healthcare,
Inc.(the "COMPANY") by Article 2.13 of the Texas Business Corporation Act (the
"TBCA") and the provisions of the Company's Articles of Incorporation, as
amended, the Board of Directors adopted the following resolution setting forth
the designations, powers, preferences and rights of its Series E Convertible
Preferred Stock (the "STATEMENT OF DESIGNATION") on November 16, 2000:
RESOLVED: That the designations, powers, preferences and rights of the
Series E Convertible Preferred Stock be, and they hereby are, as set forth
below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,000 shares of
Preferred Stock, par value $.10 per share, is the Series E Convertible Preferred
Stock (the "SERIES E PREFERRED STOCK").
II. CERTAIN DEFINITIONS
For purposes of this Statement of Designation, the following terms shall
have the following meanings:
A "BUY-IN ADJUSTMENT AMOUNT" means the amount equal to the excess, if any,
of (i) the Converting Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (ii) the net proceeds (after
brokerage commissions, if any) received by the Converting Holder from the sale
of the Sold Shares. By way of illustration and not in limitation of the
foregoing, if the Converting Holder (as defined in Article IV Paragraph B(6))
purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In (as defined in Article IV
Paragraph B(6)) with respect to shares of Common Stock it sold for net proceeds
of $10,000, the Buy-In Adjustment Amount which Company will be required to pay
to the Converting Holder will be $1,000.
B. "CLOSING BID PRICE" means the closing bid price of the Common Stock (in
U.S. Dollars) on the Principal Trading Market as reported by the Reporting
Service. If the Closing Bid Price cannot be calculated for such security on the
relevant date on the foregoing basis, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to
Holders of a majority of the then outstanding shares of Series E Preferred
Stock, with the costs of such appraisal
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to be borne by the Company. The manner of determining the Closing Bid Price of
the Common Stock set forth in the foregoing definition shall apply with respect
to any other security in respect of which a determination as to closing bid
price must be made hereunder.
C. "COMMON STOCK" means the Company's common stock, par value $.01 per
share.
D. "CONVERSION PRICE" means, with respect to any date, the lower of the
Fixed Conversion Price and the Variable Conversion Price, each in effect as of
such date.
E. "EFFECTIVE DATE" shall mean the date the relevant Registration
Statement for the shares of Common Stock issuable on conversion of the Series E
Preferred Stock is declared effective by the Securities and Exchange Commission.
F. "FIXED CONVERSION PRICE" means the Closing Bid Price of the Common
Stock on the trading day immediately preceding the Initial Closing Date, which
amount shall be subject to adjustment as provided herein.
G. "HOLDER" means a person or entity holding shares of the Series E
Preferred Stock.
H. "INITIAL CLOSING DATE" shall mean November 22, 2000.
I. "JUNIOR SECURITIES" means any class or series of capital stock of the
Company hereafter created that, by its terms, ranks junior to the Series E
Preferred Stock as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
J. "LIQUIDATION PREFERENCE" means, with respect to a share of Series E
Preferred Stock, an amount equal to the Stated Value thereof, plus the accrued
and unpaid dividends thereon through the date of final distribution.
K. "MARKET PRICE," as of any date, means the average of the lowest three
(3) Closing Bid Prices (in U.S. Dollars) (which need not be consecutive) during
the twenty two (22) consecutive trading days ending on the trading day
immediately preceding the relevant date (subject to equitable adjustment for any
stock splits, stock dividends, reclassifications or similar events during such
22 trading day period). If market value cannot be calculated as of such date on
the foregoing basis, the Market Price shall be the fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holder, with the costs of the appraisal to be borne
by the Company. The manner of determining the Market Price of the Common Stock
set forth in the foregoing definition shall apply with respect to any other
security in respect of which a determination as to market value must be made
hereunder.
L. "MATURITY DATE" means November 20, 2005.
M. "PARI PASSU SECURITIES" means any class or series of capital stock of
the
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Company hereafter created specifically ranking, by its terms, on parity with the
Series E Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
N. "PRINCIPAL TRADING MARKET" means The Nasdaq SmallCap Market, or if the
Common Stock is no longer listed on that market, the principal securities
exchange or trading market on which the Common Stock is listed or traded.
O. "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement dated the Initial Closing Date by and among the Company and the other
signatories thereto entered into in connection with the Securities Purchase
Agreement.
P. "REGISTRATION STATEMENT" means the Registration Statement(s) to be
filed by the Company pursuant to the Registration Rights Agreement for the
resale of, among other shares, the Common Stock issuable upon conversion of the
Series E Preferred Stock and any amendments thereto.
Q. "REPORTING SERVICE" means Bloomberg LP or if that service is not then
reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by the Holders of the Series E
Preferred Stock and reasonably acceptable to the Company.
R. "SECURITIES" means the shares of Series E Preferred Stock or the Common
Stock of the Company into which such shares are converted or convertible, as
contemplated hereby.
S. "SECURITIES PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement dated the Initial Closing Date, by and among the Company and the other
signatories thereto.
T. "SENIOR SECURITIES" shall mean the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock and any
other Preferred Stock created in the future that, by its terms, is Senior to the
Series E Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
U. "STATED VALUE" for the Series E Preferred Stock shall be $1,000.00 per
share.
V. "TRANSACTION AGREEMENTS" means the Securities Purchase Agreement,
Registration Rights Agreement, Warrants and all ancillary documents entered into
between the parties to those agreements.
W. "VARIABLE CONVERSION PRICE" means, as of any date of determination, the
amount obtained by multiplying 0.8 by the Market Price on the Conversion Date.
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X. "WARRANTS" means the warrants to purchase Common Stock issued to
certain of the initial Holders of the Series E Preferred Stock on the Closing
Date pursuant to the terms of Section 4(i) of the Securities Purchase Agreement.
III. DIVIDENDS
A. GENERALLY. The Holders of the Series E Preferred Stock shall be
entitled to receive a 8% cumulative dividend payable quarterly in arrears (the
"DIVIDEND PAYMENT DATE"). The dividend shall be payable in cash or in registered
Common Stock at the Holder's option. Such dividends shall be payable in
preference to dividends on any Common Stock or stock of any class ranking, as to
dividend rights, junior to the Series E Preferred Stock, and shall be junior as
to payment of dividends to the Senior Securities. Dividends shall be fully
cumulative and shall accrue (whether or not declared and whether or not there
shall be funds legally available for the payment of dividends), without
interest, and shall be payable on the Dividend Payment Date unless such payment
would be in violation of the TBCA.
B. DIVIDENDS PAID IN COMMON STOCK. If paid in Common Stock, the number of
shares of Common Stock to be received shall be determined by dividing the dollar
amount of the dividend by the Conversion Price on the Dividend Payment Date. If
the dividend is to be paid in Common Stock, said Common Stock shall be delivered
to the Holder, or per Holder's instructions, at the same time as the Conversion
Shares pursuant to Paragraph B(1) of Article IV.
C. DIVIDENDS PAID IN CASH. If the dividend is to be paid in cash, the
Company shall make such payment within ten (10) business days of the Dividend
Payment Date.
IV. CONVERSION
A. CONVERSION AT THE OPTION OF THE HOLDER. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each Holder of shares
of Series E Preferred Stock may, at any time and from time to time convert (an
"OPTIONAL CONVERSION") each of its shares of Series E Preferred Stock into a
number of fully paid and nonassessable shares of Common Stock determined in
accordance with the following formula:
STATED VALUE OF SHARES TO BE CONVERTED
CONVERSION PRICE
B. MECHANICS OF CONVERSION. Conversion shall be effectuated by faxing a
Notice of Conversion in the form attached hereto as Exhibit A ("NOTICE OF
CONVERSION") to the Company as provided in this Paragraph. The Notice of
Conversion shall be executed by the Holder of one or more shares of Series E
Preferred Stock and shall evidence such Holder's intention to convert all or a
portion of such shares. The date of conversion (the "CONVERSION DATE") shall be
deemed to be the date on which the Holder faxes or otherwise delivers a
conversion notice to the Company so that it is received by the Company on or
before such specified date, provided that, the
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Holder shall deliver to the Company the certificate or certificates representing
the shares being converted (the "CONVERSION CERTIFICATES") no later than 5
business days thereafter. Any Notice of Conversion received by the Company after
11:59 p.m. Sugar Land, Texas time shall be considered to have a Conversion Date
of the next business day.
1. DELIVERY OF COMMON STOCK UPON CONVERSION. The Common Stock to be
delivered upon conversion (the "CONVERSION SHARES") will be delivered to the
Converting Holder at the address specified in the Notice of Conversion (which
may be the Converting Holder's address for notices as contemplated by the
Securities Purchase Agreement or a different address), via express courier, by
electronic transfer or otherwise, within 3 business days if the address for
delivery is in the United States and within 5 business days if the address for
delivery is outside the United States (such third business day or fifth business
day, as the case may be, a "Delivery Date") after the later of (i) the date on
which the Notice of Conversion is delivered to the Company as contemplated in
this Paragraph or the Maturity Date, or (ii) the date on which the Conversion
Certificates are delivered to the Company.
2. TAXES. The Company shall pay any and all taxes which may be imposed
upon the Company with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Series E Preferred Stock other than
transfer taxes due upon conversion, if such Holder has transferred to another
party the Series E Preferred Stock or the right to receive Common Stock upon the
Holder's conversion thereof or any income taxes due on the part of the Holder.
The Company shall have the right to withhold any taxes as required by the United
States federal or state tax laws.
3. NO FRACTIONAL SHARES. If any conversion of Series E Preferred Stock
would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of the Series E Preferred Stock shall be rounded up or
down to the nearest whole share, it being understood that .5 of one share shall
be rounded up to the next highest share.
4. CONVERSION DISPUTES. In the case of any dispute with respect to a
conversion, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with Paragraph A of Article IV above. If
such dispute involves the calculation of the Conversion Price, the Company shall
first discuss such discrepancy with the Converting Holder. If the Company and
the Converting Holder are unable to agree upon the Conversion Price calculation,
the Company shall promptly submit the disputed calculations to an outside firm
of independent auditors. The auditors, at the expense of the party in error,
shall audit the calculations and notify the Company and the Holder of the
results as soon as practicable following the date it receives the disputed
calculations. The auditor's calculation shall be deemed conclusive, absent
manifest error. The Company shall then issue the appropriate number of shares of
Common Stock in accordance with the outside independent auditor's calculation of
the conversion price, all in accordance with Paragraph A of Article IV above.
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5. DELAY IN DELIVERING CONVERSION SHARES. The Company understands that a
delay in the delivery of the Conversion Shares beyond the Delivery Date could
result in economic loss to a Holder. As compensation to a Holder for such loss,
the Company agrees to pay late payments to such Holder for late delivery of
Conversion Shares in accordance with the following schedule (where "No. Business
Days Late" is defined as the number of business days beyond two (2) business
days after the Delivery Date):
Late Payment For Each $10,000 of Liquidation
No. Business Days Late Preference or Dividend Amount Being Converted
----------------------- ---------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business Day Late
beyond 10 days
The Company shall pay any payments incurred under this Paragraph in
immediately available funds upon demand. For purposes of this Paragraph B(5) of
Article IV, in connection with a Mandatory Conversion or Automatic Conversion
(as those terms are defined below), the term "Delivery Date" shall refer to the
earlier of (i) the Delivery Date determined in relation to a Notice of
Conversion actually submitted by the Holder to the Company or (ii) the third or
fifth business date, as the case may be, after written notice from the Holder
that the delivery of shares to the Holder in connection with a Mandatory
Conversion or Automatic Conversion has not been accomplished. The Company shall
pay any payments incurred under this Paragraph in immediately available funds
upon demand. Nothing herein shall limit the Holder's right to pursue actual
damages for the Company's failure to issue and deliver the Conversion Shares to
the Holder.
Furthermore, in addition to any other remedies which may be available to a
Holder, in the event that the Company fails for any reason to effect delivery of
such Conversion Shares within two (2) business days after the Delivery Date, the
Converting Holder will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company whereupon the Company and
the Converting Holder shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion.
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6. ALTERNATIVE REMEDY FOR BUY-IN. If, by the relevant Delivery Date, the
Company fails for any reason to deliver the Conversion Shares and after such
Delivery Date, the Holder of the Series E Preferred Stock being converted (a
"CONVERTING HOLDER") purchases, in an arm's-length open market transaction or
otherwise, shares of Common Stock (the "COVERING SHARES") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder (the
"SOLD SHARES"), which delivery such Converting Holder anticipated to make using
the shares to be issued upon such conversion (a "BUY-IN"), the Converting Holder
shall have the right, to require the Company to pay to the Converting Holder, in
lieu and instead of the amounts due under Paragraph B(5) of Article IV hereof
(but in addition to all other amounts contemplated in other provisions of the
Transaction Agreements, and not in lieu of any such other amounts), the Buy-In
Adjustment Amount. The Company shall pay the Buy-In Adjustment Amount to the
Company in immediately available funds immediately upon demand by the Converting
Holder.
7. DWAC CERTIFICATE DELIVERY. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of a Converting Holder and
his/her compliance with the provisions contained in this paragraph, so long as
the certificates therefor do not bear a legend and the Converting Holder thereof
is not obligated to return such certificate for the placement of a legend
thereon, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the
Converting Holder by crediting the account of Converting Holder's prime broker
with DTC through its Deposit Withdrawal Agent Commission system.
8. CONVERSION DEFAULT. If, at any time:
a. the Company challenges, disputes or denies the right of a Holder
of Series E Preferred Stock to effect a conversion of the Series E Preferred
Stock into Common Stock or otherwise dishonors or rejects any Notice of
Conversion delivered in accordance with the terms of this Agreement or this
Statement of Designations or any exercise of any Warrant in accordance with its
terms ("WARRANT EXERCISE"), or
b. any third party who is not and has never been an affiliate of
such Holder commences any lawsuit or proceeding or otherwise asserts any claim
before any court or public or governmental authority, which lawsuit, proceeding
or claim seeks to challenge, deny, enjoin, limit, modify, delay or dispute the
right of such Holder to effect the conversion of the Series E Preferred Stock
into Common Stock, and the Company refuses to honor any such Notice of
Conversion or Warrant Exercise, then such Holder shall have the right, by
written notice to the Company, to require the Company to redeem each share of
Series E Preferred Stock for which a Notice of Conversion has been refused
pursuant to Paragraphs B(8)(a) or (b) above for cash, at an amount per share
equal to the Redemption Amount (as defined in Article VI Paragraph B), pursuant
to the provisions of Article VI hereof, subject to the Company's right to cure
in Paragraph D of Article VI hereof.
9. CONVERSION IN BANKRUPTCY. The Holder of any Series E Preferred Stock
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shall be entitled to exercise its conversion privilege with respect to the
Series E Preferred Stock notwithstanding the commencement of any case under 11
U.S.C.ss.101 ET SEQ. (the "BANKRUPTCY CODE"). In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives, to the fullest
extent permitted, any rights to relief it may have under 11 U.S.C. ss.362 in
respect of such Holder's conversion privilege. The Company hereby waives, to the
fullest extent permitted, any rights to relief it may have under 11 U.S.C.
ss.362 in respect of the conversion of the Series E Preferred Stock. The Company
agrees, without cost or expense to such Holder, to take or to consent to any and
all action necessary to effectuate relief under 11 U.S.C. ss.362.
C. AUTOMATIC CONVERSION UPON MATURITY. Any shares of Series E
Preferred Stock not previously converted or redeemed as of the Maturity Date,
shall be deemed to be automatically converted (an "AUTOMATIC CONVERSION"),
without further action of any kind (including, but not necessarily limited to,
the giving of a Notice of Conversion) by the Holder, as of the Maturity Date at
the Conversion Price applicable on the Maturity Date.
D. LIMITATIONS ON CONVERSIONS. The conversion of shares of Series E
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
1. CAP REGULATIONS. Without limiting the other provisions thereof, if the
Company is limited in the number of shares of Common Stock it may issue by
virtue of (i) the number of authorized shares or (ii) the applicable rules and
regulations of its Principal Trading Market, including, but not necessarily
limited to, Nasdaq Rule 4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be
applicable (collectively, the "CAP REGULATIONS"), (i) the Company will take all
steps reasonably necessary to be in a position to issue shares of Common Stock
on conversion of the Series E Preferred Stock without violating the
CapRegulations, including calling a special meeting of the shareholders of the
Company (the "SPECIAL MEETING"). If at any time after the Special Meeting, the
then issuable number of shares of Common Stock upon conversion of all of the
then outstanding Series E Preferred Stock pursuant to the Cap Regulations (the
"CAP AMOUNT") is less than the number of shares of Common Stock which would then
be otherwise issuable upon conversion of all of the then outstanding shares of
Series E Preferred Stock without regard to such Cap Regulations (a "TRADING
MARKET TRIGGER EVENT"), the Company shall immediately notify the Holders of
Series E Preferred Stock of such occurrence and shall take immediate action
(including, if necessary, seeking the approval of its shareholders to authorize
the listing or issuance of the full number of shares of Common Stock which would
be issuable upon the conversion of the then outstanding shares of Series E
Preferred Stock but for the Cap Amount) to eliminate any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities on the Company's ability to list or issue
shares of Common Stock in excess of the Cap Amount ("TRADING MARKET
PROHIBITIONS"). In this event, the Holder of a share of Series E Preferred Stock
which can not be converted as result of the Cap Regulations after all such
Series E Preferred Stock which can be converted under the Cap Amount have been
converted (each
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such share, an "UNCONVERTED SHARE") shall have the option, exercisable in such
Holder's sole and absolute discretion, to elect either of the following
remedies:
a. If permitted by the Cap Regulations, require the Company to issue
shares of Common Stock in accordance with such holder's Notice of Conversion at
a conversion purchase price equal to the average of the closing price per share
of Common Stock for any three (3) trading days (which need not be consecutive,
but subject to certain equitable adjustments for certain events occurring during
such period) during the 60 trading days ending on the trading day immediately
preceding the date of Notice of Conversion; and/or
b. Require the Company to redeem such Unconverted Share at the
Holder's election for cash, at an amount per share equal to the Redemption
Amount (as defined in Article VI Paragraph B), pursuant to the provisions of
Article VI hereof subject to the Company's right to cure in Paragraph C of
Article VI hereof.
A Holder of more than one Unconverted Share may elect one of the above remedies
with respect to some of such Unconverted Shares and the other remedy with
respect to other Unconverted Shares. Anything herein to the contrary
notwithstanding, the remedy contained in clauses (a) and (b) of this Paragraph
D(1) of this Article IV shall not be available to the Holder of such shares
until after the earlier of (i) the Special Meeting or (ii) the expiration of 60
days from the date a Holder has exercised a right pursuant to which the last
share of Common Stock issuable under the Cap Regulations is to be issued. If
prior to such date, the Cap Regulations no longer apply to limit the Company's
issuance of shares of Common Stock in connection with the Series E Preferred
Stock or the transactions contemplated by the Transaction Agreements, the
remedies contained clauses (a) and (b) of this Paragraph D(1) of this Article IV
shall not be exercisable by a Holder.
2. NO TEN PERCENT HOLDERS. Notwithstanding any other provision hereof, or
any of the Transaction Agreements, in no event (except while there is
outstanding a tender offer for any or all of the shares of the Company's Common
Stock or on sixty-five (65) days prior notice to the Company) shall the Holder
be entitled to convert any share of this Series E Preferred Stock, or shall the
Company have the obligation to convert such share (and the Company shall not
have the right to pay dividends on shares of Series E Preferred Stock in shares
of Common Stock or require a Mandatory Conversion), to the extent that, after
such conversion or issuance of stock in payment of dividends, the sum of (a) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates, and (b) the number of shares of Common Stock issuable upon the
conversion of the shares of Series E Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 9.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion). For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
ACT"). If the Holder transfers or assigns any shares of the Series E Preferred
Stock to a party who or which would not be considered such an affiliate, such
assignment shall be made subject to the transferee's or assignee's specific
agreement to be
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bound by the provisions of this Paragraph D(2) of Article IV as if such
transferee or assignee were the original Holder hereof. Nothing herein shall
preclude the Holder from disposing of a sufficient number of other shares of
Common Stock beneficially owned by the Holder so as to thereafter permit the
continued conversion of the shares of Series E Preferred Stock.
V. RESERVATION OF SHARES OF COMMON STOCK
A. RESERVED AMOUNT. Upon the initial issuance of the shares of Series E
Preferred Stock, the Company shall reserve out of the authorized but unissued
shares of Common Stock for issuance upon conversion of the Series E Preferred
Stock such number of shares equal to 200% of the number of shares which would be
issuable if all of the authorized shares of Series E Preferred Stock were
converted in their entirety on the Initial Closing Date based on the Conversion
Price in effect on that date and thereafter the number of authorized but
unissued shares of Common Stock so reserved (the "RESERVED AMOUNT") shall not be
decreased, but may be increased pursuant to Paragraph B of this Article V, and
shall at all times be sufficient to provide for the conversion of the Series E
Preferred Stock outstanding at the then current Conversion Price thereof. The
Reserved Amount shall be allocated to the holders of Series E Preferred Stock as
provided in Article X Paragraph D.
B. INCREASES TO RESERVED AMOUNT. If the Reserved Amount for any 10
consecutive trading days (the last of such 10 trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 150% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series E
Preferred Stock, the Company shall immediately notify the holders of Series E
Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series E Preferred Stock. In the event the Company fails to so
increase the Reserved Amount within 90 days after an Authorization Trigger Date
(such event being the "RESERVED AMOUNT TRIGGER EVENT"), each Holder of Series E
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by delivery of a Redemption Notice (as
defined in Article VI Paragraph A(2) ) to the Company, to require the Company to
purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VI Paragraph B), a portion of the holder's Series E Preferred
Stock such that, after giving effect to such purchase, the holder's allocated
portion of the Reserved Amount exceeds 150% of the total number of shares of
Common Stock issuable to such Holder upon conversion of its Series E Preferred
Stock. If the Company fails to redeem any of such shares within 5 business days
after its receipt of such Redemption Notice, then such Holder shall be entitled
to the remedies provided in Article VI Paragraph E.
C. LIMITATIONS ON REDEMPTION RIGHT. Notwithstanding the provisions of
Paragraph B of this Article V, the holders of Series E Preferred Stock shall
have no right to require the Company to effect a redemption of their outstanding
shares of Series E Preferred Stock as provided in Paragraph B of this Article V
so long as (i) the Company has not, at any time, decreased
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the Reserved Amount below that number of shares of Common Stock computed as set
forth in Paragraphs A and B of this Article V ; (ii) the Company shall have
taken immediate action following the applicable Authorization Trigger Date
(including, if necessary, seeking stockholder approval to authorize the issuance
of additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series E Preferred Stock; and (iii) the Company continues to use its
commercially reasonable good faith best efforts (including the resolicitation of
stockholder approval to authorize the issuance of additional shares of Common
Stock) to increase the Reserved Amount to 200% of the number of shares of Common
Stock then issuable upon conversion of the outstanding Series E Preferred Stock.
The Company will be deemed to be using "its commercially reasonable good faith
best efforts" to increase the Reserved Amount so long as it solicits stockholder
approval to authorize the issuance of additional shares of Common Stock not less
than 3 times during each twelve month period following the applicable
Authorization Trigger Date during which any shares of Series E Preferred Stock
remain outstanding; provided that no such limitation on the redemption rights
set out in Paragraph B of this Article V, shall be effective if the Company
fails to obtain stockholder approval after 3 attempts.
VI. REDEMPTION
A. REDEMPTION BY HOLDER. In the event that any of the following occur
(individually, a "REDEMPTION EVENT"):
1. CAP REGULATIONS. The Company's inability to issue sufficient shares of
Common Stock upon conversion of Unconverted Shares in accordance with Paragraph
D(1) of Article IV hereof.
2. CONVERSION DEFAULT. The Company's inability or refusal to delivery
Conversion Shares under Paragraph B(8) of Article IV hereof.
then, upon the occurrence of any such Redemption Event, each Holder of shares of
Series E Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a notice requesting
the redemption all or part of such holders shares of Series E Preferred Stock (a
"REDEMPTION NOTICE") to the Company while such Redemption Event continues, to
require the Company to purchase for cash any or all of the then outstanding
shares of Series E Preferred Stock held by such Holder for an amount per share
equal to the Redemption Amount (as defined in Paragraph B below) in effect at
the time of the redemption hereunder. Upon the Company's receipt of any
Redemption Notice hereunder, the Company shall immediately (and in any event
within 5 business days following such receipt) deliver a written notice (a
"REDEMPTION ANNOUNCEMENT") to all holders of Series E Preferred Stock stating
the date upon which the Company received such Redemption Notice and the amount
of Series E Preferred Stock covered thereby. Following the date of the
Redemption Announcement, the Company shall have the right to cure as set out in
Paragraph C of Article VI hereof. If the Company is successful in eliminating
the Redemption Event pursuant to Paragraph C of Article VI, the Company will
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inform all holders of the Series E Preferred Stock of the cure and the
cancellation of the redemption.
B. DEFINITION OF REDEMPTION AMOUNT. The "REDEMPTION AMOUNT" with respect
to a share of Series E Preferred Stock being redeemed (a "Redeemed Share") means
an amount payable in cash, equal to:
V x M
-----------------
CP
where:
"V" means the Stated Value plus accrued dividends through the date of
payment of the Redemption Amount for the Redeemed Share (the "Redemption Payment
Date");
"CP" means the Conversion Price in effect on the Redemption Date (as
defined below);
"Redemption Date" means the date of delivery of the Redemption Notice from
the Holder electing redemption of a Redeemed Share; and
"M" means the highest closing price during the period beginning on the
Redemption Date and ending on the Redemption Payment Date.
C. ABILITY TO CURE. In the event of a Redemption Event pursuant to this
Article VI, the Company shall have 30 days after the latter of (i) its receipt
of a Redemption Notice, and (ii) the date of its Redemption Announcement within
which to cure the cause of the Redemption Event. In the event the Company is
successful in curing the Redemption Event, the Redemption Notice shall be null
and void. If the Company is not successful in curing the cause of the Redemption
Event, the Company shall pay the Redemption Amount (as defined in Article VI
hereof) to each of the holders who delivered a Redemption Notice pursuant to
Article VI hereof.
D. REDEMPTION DEFAULTS. If the Company fails to pay any Holder the
Redemption Amount with respect to any share of Series E Preferred Stock within
30 days after the latter of (i) its receipt of Redemption Notice, and (ii) the
date of its Redemption Announcement, then the Holder of Series E Preferred Stock
delivering such Redemption Notice shall be entitled to interest on the
Redemption Amount at a per annum rate equal to the highest interest rate
permitted by applicable law from the date on which the Company receives the
Redemption Notice until the date of payment of the Redemption Amount hereunder.
In the event the Company is not able to redeem all of the shares of Series E
Preferred Stock subject to Redemption Notices delivered prior to the date upon
which such redemption is to be effected, the Company shall redeem shares of
Series E Preferred Stock from each Holder pro rata, based on the total number of
shares of Series E Preferred Stock outstanding at the time of redemption
included by such Holder in all Redemption Notices delivered prior to the date
upon which such redemption is to be effected relative to the total number of
shares
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of Series E Preferred Stock outstanding at the time of redemption included in
all of the Redemption Notices delivered prior to the date upon which such
redemption is to be effected.
E. REDEMPTION BY COMPANY. (I) In the event that the Variable Conversion
Price is lower than the Fixed Conversion Price for10 consecutive Trading Days,
the Company shall have the right to redeem all or any of the then outstanding
principal amount of the Preferred Stock then held by the Holder, in cash for an
amount equal to (x) one hundred twenty five percent (125%) of the aggregate
amount of the Preferred Stock outstanding plus (y) accrued dividend thereon (the
"COMPANY REDEMPTION AMOUNT"), by giving not less than ten (10) days written
notice of such redemption to the Holders of Such Preferred Stock. The Company
shall not directly or indirectly use the proceeds obtained from the Preferred
Stock for the redemption of any other existing convertible securities unless
with the consent of the Holder.
(II) The Company shall give at least ten (10) business days' written
notice of such redemption to the holder of shares of Series E Preferred Stock to
be redeemed (the "NOTICE OF REDEMPTION"). Anything in the preceding provisions
of this Paragraph E to the contrary notwithstanding, the Company Redemption
Amount shall, unless otherwise agreed to in writing by the holder after
receiving the Notice of Redemption, be paid to the holder in good funds at least
five (5) but not more than ten (10) business days from the date for redemption
set forth in the Notice of Redemption, except that, with respect to any shares
of Series E Preferred Stock for which a Notice of Redemption is given, the
holder shall have the right, exercisable by submitting a Notice of Conversion to
the Company within nine (9) business days of the Holder's receipt of the
Company's Notice of Redemption, to convert any or all of the shares of Series E
Preferred Stock sought to be redeemed (a "REDEMPTION NOTICE CONVERSION") and the
Redemption Notice Conversion shall take precedence over the redemption
contemplated by the Notice of Redemption. Such shares of Series E Preferred
Stock shall be converted in accordance with the terms hereof. Furthermore, in
the event such Company Redemption Amount is not timely paid, any rights of the
Company to redeem outstanding shares of Series E Preferred Stock shall
terminate, and the Notice of Redemption shall be null and void. Any redemption
contemplated by this Paragraph D shall be made only in cash by the payment of
immediately available good funds to the Holder.
VII. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT. If the Company shall commence a voluntary case under
the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company or
of any substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the Company
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part
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<PAGE>
of its property, or ordering the winding up or liquidation of its affairs, and
any such decree or order shall be unstayed and in effect for a period of 60
consecutive days and, on account of any such event, the Company shall liquidate,
dissolve or wind up, or if the Company shall otherwise liquidate, dissolve or
wind up, including, but not limited to, the sale or transfer of all or
substantially all of the Company's assets in one transaction or in a series of
related transactions (a "LIQUIDATION EVENT"), no distribution shall be made to
the holders of any shares of capital stock of the Company (other than Senior
Securities and Pari Passu Securities) upon liquidation, dissolution or winding
up unless prior thereto the holders of shares of Series E Preferred Stock shall
have received the Liquidation Preference with respect to each share. If, upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series E Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Company legally available for distribution to the Series E
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. EXCLUSIONS. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other entity nor the
sale or transfer by the Company of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company.
VIII. ADJUSTMENTS TO THE CONVERSION PRICE
A. SALE. The Conversion Price shall be subject to adjustment from time to
time as follows: If, for as long as any shares of Series E Preferred Stock
remain outstanding, the Company enters into a merger (other than where the
Company is the surviving entity) or consolidation with another corporation or
other entity or a sale or transfer of all or substantially all of the assets of
the Company to another person (collectively, a "SALE"), the Company will
require, in the agreements reflecting such transaction, that the surviving
entity expressly assume the obligations of the Company hereunder.
Notwithstanding the foregoing, if the Company enters into a Sale and the holders
of the Common Stock are entitled to receive stock, securities or property in
respect of or in exchange for Common Stock, then as a condition of such Sale,
the Company and any such successor, purchaser or transferee will agree that the
Series E Preferred Stock may thereafter be converted on the terms and subject to
the conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
Holder of the number of shares of Common Stock into which then outstanding
shares of Series E Preferred Stock might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any such proposed
Sale, the Holder hereof shall have the right to convert by delivering a Notice
of Conversion to the
14
<PAGE>
Company within 15 days of receipt of notice of such Sale from the Company.
B. SPIN OFF. The Company agrees that for as long as shares of Series E
Preferred Stock remain outstanding, the Company will not, without the consent of
the Holder, spin off or otherwise divest itself of a part of its business or
operations or dispose all or of a part of its assets in a transaction (the "SPIN
OFF") in which the Company does not receive just compensation for such business,
operations or assets, but causes securities of another entity (the "SPIN OFF
SECURITIES") to be issued to security holders of the Company. If, for any
reason, prior to the Conversion Date or the date of payment of the Redemption
Amount hereunder, the Company, with the consent of the Holder, consummates a
Spin Off, then the Company shall cause (i) to be reserved Spin Off Securities
equal to the number thereof which would have been issued to the Holder had all
of the holder's shares of Series E Preferred Stock outstanding on the record
date (the "RECORD DATE") for determining the amount and number of Spin Off
Securities to be issued to security holders of the Company (the "OUTSTANDING
SERIES E PREFERRED STOCK") been converted as of the close of business on the
trading day immediately before the Record Date (the "RESERVED SPIN OFF SHARES"),
and (ii) to be issued to the Holder on the conversion of all or any of the
Outstanding Series E Stock, such amount of the Reserved Spin Off Shares equal to
(x) the Reserved Spin Off Shares multiplied by (y) a fraction, of which (a) the
numerator is the principal amount of the Outstanding Series E Preferred Stock
then being converted, and (b) the denominator is the principal amount of the
Outstanding Series E Preferred Stock.
C. STOCK SPLITS, ETC. If, at any time while any shares of Series E
Preferred Stock remain outstanding, the Company effectuates a stock split or
reverse stock split of its Common Stock or issues a dividend on its Common Stock
consisting of shares of Common Stock, the Fixed Conversion Price shall be
equitably adjusted to reflect such action. By way of illustration, and not in
limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its
Common Stock, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such split, the Fixed Conversion
Price shall be deemed to be one-half of what it had been calculated to be
immediately prior to such split; (ii) if the Company effectuates a 1:10 reverse
split of its Common Stock, thereafter, with respect to any conversion for which
the Company issues the shares after the record date of such reverse split, the
Fixed Conversion Price shall be deemed to be ten times what it had been
calculated to be immediately prior to such split; and (iii) if the Company
declares a stock dividend of one share of Common Stock for every 10 shares
outstanding, thereafter, with respect to any conversion for which the Company
issues the shares after the record date of such dividend, the Fixed Conversion
Price shall be deemed to be the amount of such Fixed Conversion Price calculated
immediately prior to such record date multiplied by a fraction, of which the
numerator is the number of shares (10 in the example) for which a dividend share
will be issued and the denominator is such number of shares plus the dividend
share(s) issuable or issued thereon (11 in the example).
D. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Fixed Conversion Price pursuant to this Article VIII, the
Company, at its expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to each
15
<PAGE>
Holder of Series E Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any Holder of Series E Preferred Stock, furnish to such Holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the Fixed
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series E Preferred Stock.
IX. VOTING RIGHTS
A. GENERALLY. The holders of the Series E Preferred Stock have no voting
power whatsoever, except as otherwise provided by the TBCA.
B. CLASS VOTING. To the extent that under the TBCA the vote of the holders
of the Series E Preferred Stock, voting separately as a class or series, as
applicable, is required to authorize a given action of the Company, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series E Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series E Preferred Stock
(except as otherwise may be required under the TBCA, a "Required Interest")
shall constitute the approval of such action by the class. To the extent that
under the TBCA holders of the Series E Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series E Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible (subject to
the limitations contained in Article IV Paragraph E) using the record date for
the taking of such vote of shareholders as the date as of which the Conversion
Price is calculated.
X. MISCELLANEOUS
A. RANK. The Series E Preferred Stock shall rank (i) prior to the
Company's Common Stock; (ii) prior to any Junior Securities; (iii) junior to any
Senior Securities; and (iv) PARI PASSU with any Pari Passu Securities; PROVIDED,
HOWEVER, that no additional Senior or Pari Passu Securities shall be created
without the written consent of a Required Interest.
B. CANCELLATION OF SERIES E PREFERRED STOCK. If any shares of Series E
Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Company as Series E Preferred Stock.
C. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Series E Preferred
Stock certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Company, or (z) in the case of mutilation, upon surrender and cancellation of
the Series E Preferred Stock certificate(s), the Company shall execute and
deliver new Series E Preferred
16
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Stock certificate(s) of like tenor and date. However, the Company shall not be
obligated to reissue such lost or stolen Series E Preferred Stock certificate(s)
if the Holder contemporaneously requests the Company to convert such Series E
Preferred Stock.
D. ALLOCATION OF CAP AMOUNT AND RESERVED AMOUNT. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the holders of
Series E Preferred Stock based on the number of shares of Series E Preferred
Stock issued to each Holder. Each increase to the Cap Amount and the Reserved
Amount shall be allocated pro rata among the holders of Series E Preferred Stock
based on the number of shares of Series E Preferred Stock held by each Holder at
the time of the increase in the Cap Amount or Reserved Amount. In the event a
Holder shall sell or otherwise transfer any of such holder's shares of Series E
Preferred Stock, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series E Preferred Stock shall be allocated to the remaining holders of
shares of Series E Preferred Stock, pro rata based on the number of shares of
Series E Preferred Stock originally purchased by such holders.
E. PAYMENT OF CASH; DEFAULTS. Whenever the Company is required to make any
cash payment to a Holder under this Statement of Designation (upon redemption or
otherwise), such cash payment shall be made to the Holder within 5 business days
after delivery by such Holder of a notice specifying that the Holder elects to
receive such payment in cash and the method (E.G., by check, wire transfer) in
which such payment should be made. If such payment is not delivered within such
5 business day period, such Holder shall thereafter be entitled to interest on
the unpaid amount at a per annum rate equal to the highest interest rate
permitted by applicable law until such amount is paid in full to the Holder.
F. STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion by a
Holder of Series E Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their listing or issuance
would exceed such holder's allocated portion of the Reserved Amount or Cap
Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a Holder of such converted shares of Series E Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such Holder because of a failure by the Company
to comply with the terms of this Statement of Designation or any other terms of
the Transaction Documents.
G. TRANSFER RESTRICTIONS. The Holder acknowledges that (i) the Preferred
Stock have not been and are not being registered under the provisions of the
1933 Act and, except as provided in the Registration Rights Agreement, the
Securities have not been and are not being registered under the 1933 Act, and
may not be transferred unless (a) subsequently registered thereunder or (b) the
Holder shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Series E Preferred
17
<PAGE>
Stock to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (ii) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder; and (iii) neither the Company nor
any other person is under any obligation to register the Securities (other than
pursuant to the Registration Rights Agreement) under the 1933 Act or to comply
with the terms and conditions of any exemption thereunder.
H. RESTRICTIVE LEGEND. The Holder acknowledges and agrees that the
Preferred Stock and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
I. NO MANIPULATION. So long as the Company is in compliance in all
material respects with its obligations to the Holder under this Statement and
the Transaction Agreements and so long as the Holder owns any of the Preferred
Stock, neither the Holder nor any person on behalf of the Holder shall engage in
any open market Short Sales of the Common Stock where the sale price of the
Common Stock for any such Short Sale is below $.75 per share (adjusted for any
stock splits or stock dividends effected after the date of the initial filing of
this Statement of Designation) during any period in the which the Conversion
Price is being computed for purposes of any conversion of Preferred Stock under
this Statement of Designations, other than upon the exercise of any rights to
cause the Company to issue shares of Common Stock to the Holder; provided,
however, that unless and until the Company has affirmatively demonstrated by the
use of specific evidence that the Holder is engaging in such open market Short
Sales, the Holder shall be assumed to be in compliance with the provisions of
this Article X(I) and the Company shall remain obligated to fulfill all of its
obligations under the Transaction Agreements; and provided, further, that the
Company shall under no circumstances be entitled to request or demand that the
Holder affirmatively demonstrate that it has not engaged in any such Short Sales
as a condition to the Company's fulfillment of its obligations under any of the
Transaction Agreements and shall not assert the Holder's failure to demonstrate
such absence of such Short Sales as a defense to any breach of the Company's
obligations under any of the Transaction Agreements. As used herein, "Short
Sales" has the meaning provided in Rule 3b-3
18
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under the 1934 Act. Nothing in this Article X(I) shall prohibit or limit a sale,
including a Short Sale, by the Holder effected on or after the date on which a
Holder of Securities gives appropriate notice to the Company entitling the
Holder to receive a number of shares of Common Stock equal to or greater than
the number of shares so sold.
Henley Healthcare, Inc.
By: /s/ JIM STURGEON
Jim Sturgeon
Chief Financial Officer
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EXHIBIT A
HENLEY HEALTHCARE, INC.
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series E Preferred Stock)
TO: HENLEY HEALTHCARE, INC. VIA TELECOPIER TO:
120 Industrial Boulevard (281) 276-7038
Sugar Land, TX 77478
Attn: Chief Operating Officer
FROM: ______________________________________________ ("Holder")
DATE: ______________________________________________ (the "Conversion Date")
RE: Conversion of___________ shares (the "Converted Shares") of the Series E
Convertible Preferred Stock ("Series E Stock") of HENLEY HEALTHCARE, INC.
(the "Company") into ____________ shares (the "Conversion Shares") of
Common Stock (defined below)
CONVERSION DATE: __________________________________________
The captioned Holder hereby gives notice to the Company, pursuant to the
Statement of Designations of Series E Convertible Preferred Stock, as amended,
of HENLEY HEALTHCARE, INC. (the "Statement of Designations"), that the Holder
elects to convert the Converted Shares into fully paid and non_assessable shares
of Common Stock, $.01 par value (the "Common Stock"), of the Company as of the
Conversion Date specified above. Said conversion shall be based on the following
Conversion Price (the lower of the two alternatives is checked):
[ ] $ __________, representing the Fixed Conversion Price (as defined in
the Statement of Designations)
[ ] $ __________, representing the Variable Conversion Price (as defined
in the Statement of Designations)
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Based on this Conversion Price, the number of Conversion Shares indicated above
should be issued in the following name(s):
Name and Record Address Conversion Shares
__________________________________ ______________________
__________________________________ ______________________
__________________________________ ______________________
As contemplated by the Statement of Designations and the Securities
Purchase Agreement, dated November 20, 2000 (the "Securities Purchase
Agreement"), to which the Company and the Holder are parties, this Notice of
Conversion is being sent by facsimile to the telecopier number and officer
indicated above.
The Holder has previously surrendered or will surrender (or cause to be
surrendered) the certificate(s) for the Converted Shares, duly endorsed, to the
Company at the address indicated above by express courier within 5 business days
after delivery or facsimile transmission of this Notice of Conversion.
The certificates representing the Conversion Shares (together with
certificate(s) representing the shares of Series E Preferred Stock not converted
hereby) should be transmitted by the Company to the Holder via express courier
or by electronic transfer within the time contemplated by the Statement of
Designations after receipt of this Notice of Conversion (by facsimile
transmission or otherwise) and the certificate(s) representing the Converted
Shares to:
_____________________________________________
_____________________________________________
_____________________________________________
As contemplated by Section Article III of the Statement of Designations,
the Company should also pay all unpaid dividends on the Converted Shares by
check payable to the Holder (unless such dividends are being paid in Common
Stock as contemplated by said section, in which event such shares should be
issued in the name of the Holder) delivered in the same manner as, and together
with, the Conversion Shares.
______________________________________
(Print name of Holder)
By: __________________________________
(Signature of Authorized Person)
______________________________________
(Printed Name and Title)
21
