As filed with the Securities and Exchange Commission on December 21, 2000.
REGISTRATION NO. 333-_________
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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)
TEXAS 76-0335587
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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)
JAMES L. STURGEON
CHIEF FINANCIAL OFFICER
120 INDUSTRIAL BOULEVARD
SUGAR LAND, TEXAS 77478
(281) 276-7000
(281) 276-7038 (FAX)
(Name, address and telephone number, including area code, of agent for service)
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WITH COPIES TO:
ROBERT G. REEDY
PORTER & HEDGES, L.L.P.
700 LOUISIANA, 35TH FLOOR
HOUSTON, TEXAS 77002
(713) 226-0674
(713) 226-0274 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time 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 dividend or
interest reinvestment plans, 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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE (1) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value, $.01 per share (2) 15,571,428 $ .36 $ 5,605,714.08 $ 1,480
Common Stock, par value, $.01 per share (3) 3,149,316 .36 1,133,753.76 299
Common Stock, par value, $.01 per share (4) 1,241,584 .36 446,970.24 118
Common Stock, par value, $.01 per share 180,000 .36 64,800.00 17
Common Stock, par value, $.01 per share(5) 6,698,276 1.69 11,320,086.44 2,989
Common Stock, par value, $.01 per share(6) 425,000 1.69 718,250.00 190
Common Stock, par value, $.01 per share(7) 803,792 1.69 1,358,408.48 359
Common Stock, par value, $.01 per share(8) 532,278 1.69 899,549.82 237
===========================================================================================================================
TOTAL........................................ 28,601,674 -- $21,547,532.82 $5,689
===========================================================================================================================
</TABLE>
(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 December 19,
2000 of $.36 per share. Of the total fee of $5,689, $1,914 is paid
herewith. The filing fee of $3,775 for the additional
<PAGE>
8,459,346 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 statement on Form S-3 (File No. 333-39436) was paid
on June 16, 2000
(2) Issuable upon conversion of 2,500 shares of Series E Convertible Preferred
Stock. The Series E 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) the closing bid price for the Company's Common Stock as
reported by Bloomberg L.P. for the trading day immediately proceeding the
initial issuance of the Series E Preferred Stock (November 21, 2000), or
(ii) the amount obtained by multiplying .8 by the average closing bid
price for the Company's Common Stock as reported by Bloomberg L.P. for the
lowest three trading days during the period beginning on the twenty-second
day prior to the conversion date for such conversion and ending on such
conversion date. 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 E Preferred Stock
on December 1, 2000 (7,142,857) 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 E
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 for a total of 3,149,316 shares. This
amount includes (i) warrants for 1,595,745 shares at an exercise price of
$.52 per share, and (ii) warrants for 75,000 shares at an exercise price
of $.57 per share. The number also includes (i) warrants for 1,428,571
shares at an exercise price of $.39 per share, and (ii) warrants for
50,000 shares at an exercise price of $.43 per share estimated for the
purpose of determining the number of shares of common stock to be included
in this Registration Statement, of which this prospectus is a part. To
calculate the number of warrants to be issued at the additional closing,
assuming a conversion of 1,000 shares of our Series E Preferred Stock at
December 1, 2000. 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.
(4) For the purpose of estimating the number of shares of common stock that
are issuable for payment of dividends or penalties on the Series E
Preferred Stock, we estimated the number of shares of common stock that
would be sufficient to allow us to meet our obligation to (i) pay
dividends for two years (467,772) and (ii) pay any penalties due on the
Series E Preferred Stock (153,020), and multiplied each of those numbers
by 200%.
(5) Issuable upon conversion of 3,885 shares of Series D Convertible Preferred
Stock. The Series D 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) 105% of the average closing bid price for the Company's
Common Stock as reported by Bloomberg L.P. for the 10 consecutive trading
days immediately proceeding the initial issuance of the Series D Preferred
Stock (May 23, 2000), or (ii) the amount obtained by multiplying .8 by the
average closing bid price for the Company's Common Stock as reported by
Bloomberg L.P. for the lowest three trading days during the period
beginning on the fifteenth day prior to the conversion date for such
conversion and ending on such conversion date. 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 D Preferred Stock on June 7, 2000 (3,349,138) 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 D 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.
333-39476).
(6) Issuable upon exercise of warrants for a total of 425,000 shares comprised
of (i) warrants for 200,000 shares at an exercise price of $1.99 per
share, (ii) warrants for 175,000 shares at an exercise price of $2.19 per
share which was subsequently reduced to an exercise price of $.75 per
share and (ii) warrants for 50,000 shares at an exercise price of $2.00
per share. 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.
333-39476).
(7) For the purpose of estimating the number of shares of common stock that
are issuable, at our option, for payment of dividends on the Series D
Preferred Stock, we estimated the number of shares of common stock that
would be sufficient to allow us to meet our obligation to pay dividends
for two years (401,896) and multiplied that number by 200%. These shares
of common stock were registered in an earlier registration statement on
Form S-3 (Reg. No. 333-39476).
(8) These shares of common stock were registered in an earlier registration
statement on Form S-3 (Reg. No. 333-39476).
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS WHICH FORMS
A PART OF THIS REGISTRATION STATEMENT ALSO RELATES TO 8,459,346 SHARES OF COMMON
STOCK REGISTERED FOR RESALE BY CERTAIN SELLING SHAREHOLDERS PURSUANT TO OUR
EARLIER REGISTRATION STATEMENT ON FORM S-3 (FILE NO. 333-39476).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Cover Page 2 of 2
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT IS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 2000
PROSPECTUS
HENLEY HEALTHCARE, INC.
28,601,674 SHARES
COMMON STOCK
------------------
The selling shareholders identified in this prospectus are offering:
o shares of our common stock which are currently issued and
outstanding,
o shares of our common stock issuable upon the exercise of outstanding
warrants to purchase shares of all common stock,
o shares of our common stock issuable upon conversion of our Series D
Convertible Preferred Stock; and
o shares of our common stock issuable upon conversion of our Series E
Convertible Preferred Stock.
The selling stockholders may sell shares of our common stock from time to
time in privately-negotiated transactions, in underwritten offerings, or by a
combination of such methods of sale. Sales of shares of common stock may be made
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. 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.
We are not offering any shares of our common stock for sale under this
prospectus and we will not receive any of the proceeds from the sale of shares
by selling stockholders under this prospectus. However, we will receive
approximately $2,076,680 if the warrants representing shares of our common stock
in this offering are exercised for cash.
Our common stock is traded on the Nasdaq Small Cap Market under the symbol
"HENL."
------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 IN THIS PROSPECTUS.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This prospectus is dated December 21, 2000.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
Where You Can Find More Information..........................................3
Risk Factors.................................................................4
About Us....................................................................12
Use of Proceeds.............................................................12
Selling Shareholders........................................................13
Plan of Distribution........................................................16
Legal Matters...............................................................17
Experts.....................................................................17
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed two registration statements on Form S-3 with the SEC to
register the securities offered by this prospectus. This prospectus does not
contain all the information set forth in the registration statements. You should
refer to the registration statements and their related exhibits and schedules
for further information with respect to our company and the shares offered in
this prospectus. Statements contained in this prospectus concerning the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of that document filed as an exhibit to the
registration statement or otherwise filed with the SEC and each such statement
is qualified by this reference. The registration statement and its exhibits and
schedules are on file at the offices of the SEC and may be inspected without
charge. The registration statements are registration nos. 333-39476 and
333-_________.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file, including
the registration statement, at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at l-800-SEC-0330 for
further information on the operation of the Public Reference Room. Our public
filings are also available from commercial document retrieval services and at
the Internet World Wide Web site maintained by the SEC at "http://www.sec.gov."
SEC rules allow us to include some of the information required to be in
the registration statement 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-K for the year ended December 31, 1999, as
amended;
o Quarterly Report on Form 10-Q for the period ended March 31, 2000;
o Quarterly Report on Form 10-Q for the period ended June 30, 2000;
o Quarterly Report on Form 10-Q for the period ended September 30,
2000;
o Current Reports on Form 8-K filed on June 7, 2000, September 1,
2000, September 21, 2000 and December 7, 2000; 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 telephoning us at the following address:
Henley Healthcare, Inc.
120 Industrial Boulevard
Sugar Land, Texas 77478
(281) 276-7000
Attention: Chief Financial Officer
You should rely only on the information incorporated by reference or
contained in this prospectus. We have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. The selling stockholders
are not making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the
3
<PAGE>
information appearing in this prospectus is accurate as of the date on the front
cover of this prospectus only. Our business, financial condition, results of
operations and prospects may have changed since that date.
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO BUY ANY SHARES OF COMMON STOCK.
RISKS RELATING TO OUR OPERATIONS
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL IN ORDER TO FUND OUR CURRENT
OPERATIONS AND TO CONTINUE OUR FUTURE OPERATIONS AND THERE IS SUBSTANTIAL DOUBT
AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We recorded a net less of $5,831,000 and $5,350,000 for 1998 and 1999,
respectively. Additionally, we recorded a net loss of $1,577,932 or $.32 per
share for the quarter ended September 30, 2000 on net sales of $7,285,564 and
there can be no assurance that we will be able to achieve profitability for the
long term. At September 30, 2000, we had a working capital deficit of
$1,163,645, which has since improved because of recent financing transactions.
In addition, our ability to produce, sell and deliver products has been
adversely impacted under our credit agreement with Comerica Bank-Texas due to
the restrictions on the use of collections of operating revenues. Due to these
issues, our independent public accountants have modified their opinion issued
with respect to our December 31, 1999 audited financial statements, by
indicating that there is substantial doubt as to our ability to continue as a
going concern. In attempting to rectify these problems, we
o renegotiated our line of credit with Comerica,
o renegotiated our convertible note with Maxxim Medical, Inc.,
o sold shares of Series D Preferred Stock for $3,500,000, and
o paid some of our vendor claims with shares of our common stock.
In addition, to raise additional capital, we recently
o sold shares of Series E Preferred Stock for $1,500,000;
o negotiated an additional sale of shares of Series E Preferred Stock
for $1,000,000; and
o entered into an equity line of credit of up to $7,500,000 with the
same purchasers of our Series D and Series E Preferred Stock.
Under the terms of the credit agreement with Comerica, as long as we are
within the prescribed amended borrowing base and in compliance with the
agreement, we no longer have any restrictions on the use of the collections of
our operating revenues. While the steps indicated above have improved our
ability to purchase supplies and raw materials to manufacture and deliver
products, we can make no assurances that we have improved our working capital
position enough to successfully continue our operations. In addition, we still
need additional capital to satisfy outstanding vendor obligations, overdue
royalty obligations, our note with Maxxim and outstanding debt obligations under
the line of credit with Comerica. As of September 30, 2000, our working capital
deficit was approximately $1,163,645. If we are not successful in eliminating
our working capital deficit and satisfying our outstanding debt obligations by
obtaining sufficient financing or generating sufficient cash flow from
operations, we may not be able to continue our current operations. While we have
negotiated an additional
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<PAGE>
sale of shares of Series E Convertible Preferred Stock for $1,000,000, there can
be no assurance that the funding will be sufficient to continue our current
operations.
In addition, while we have negotiated a $7,500,000 equity line of credit,
we can make no assurances that we can call upon the amount available, if any,
under the equity. Furthermore, we have agreed to call for a minimum of
$1,000,000 under the equity line, or we will be liable for a significant
penalty. The maximum amount that we call on any closing date under the equity
line is limited to 15% of the total dollar volume of our common stock in the
preceding thirty days. We must have a registration statement covering the resale
of the shares of common stock prior to closing on any amounts under the equity
line.
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 THE 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 due to the level of turnover of our executive
officers. In particular, the services of James L. Sturgeon would be difficult to
replace. We currently have no employment agreement with Mr. Sturgeon. We do not
have any key life insurance policies in place on any of our 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. Further, the loss of Mr. Sturgeon triggers an event of
default under the terms of the renegotiated credit agreement with Comerica. 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.
RISKS RELATING TO OUR BUSINESS GENERALLY
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.
5
<PAGE>
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 $2,000,000 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 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.
OUR BUSINESS IS SUBJECT TO STRICT REGULATION BY THE U.S. FOOD AND DRUG
ADMINISTRATION
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
6
<PAGE>
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 have recently
concluded 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
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. Until we obtain
FDA market clearance, we are unable to sell the product in commercial quantities
for human application in the U.S. market.
OUR REVENUES MAY BE AFFECTED BY GOVERNMENT AND THIRD-PARTY REIMBURSEMENT REFORMS
Governmental and other efforts to reduce healthcare spending have
affected, and will continue to affect, our operating results. The cost of a
significant portion of health care in the United States is funded by government
and private insurance programs, such as Medicare, Medicaid, health maintenance
organizations, and private insurers, including Blue Cross/Blue Shield plans.
Government imposed limits on reimbursement of hospitals and other health care
providers have significantly curtailed their spending budgets. Under certain
government insurance programs, a healthcare provider is reimbursed a fixed sum
for services rendered in treating a patient, regardless of the actual charge for
such treatment. Private and third-party reimbursement plans are also developing
increasingly sophisticated methods of controlling healthcare costs through
redesign of benefits and exploration of more cost-effective methods of
delivering healthcare. In general, these government and private cost-containment
measures have caused healthcare providers to be more selective in the purchase
of medical products.
Under most third-party reimbursement plans, the coverage of an item or
service and the amount of payment that will be made are separate decisions.
Efforts to reduce or control healthcare spending are likely to limit both the
coverage of certain medical and therapeutic devices, especially newly approved
products, and the amount of payment that will be allowed. Restrictions on
coverage and payment of our products by third-party payors could have an adverse
impact on us.
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In the third quarter of fiscal 1998, the Health Care Financing
Administration implemented salary equivalency reimbursement guidelines for
occupational therapy and speech language pathology services and revised
guidelines for physical therapy services. The net effect of these guidelines was
to reduce the long-term care reimbursement rates and gross profit percentage
from previous levels. Additionally, the Balanced Budget Act of 1997 requires a
change from these salary equivalency guidelines for therapy services to a
prospective payment system referred to as a PPS, for Medicare Part A services
and a fee schedule with annual maximum payments per patient for Medicare Part B
services. Management does not believe the PPS section of the Balanced Budget Act
of 1997 will have a significant impact on our revenues because the guidelines
primarily cover reimbursement for therapy services rather than therapy devices.
In addition, 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.
Although the scope and timing of such reforms cannot be predicted at this time,
it is a continuing trend in U.S. health care for such payments to be under
continual scrutiny and downward pressure. We believe that reimbursement in the
future will be subject to increased restrictions, both in the United States and
in foreign markets and that the overall escalating cost of medical products and
services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products which we offer. If adopted and implemented, any
such cost reduction reforms 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 81% of our total sales for 2000 will be 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
8
<PAGE>
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 it uses
internally will accommodate this transition and any required policy or operating
changes will not have a material adverse effect on future results.
Sales of 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 delay by our customers in obtaining the requisite
regulatory approvals for exported instruments it manufactures 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. If
and when we have a 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.
9
<PAGE>
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 it attempts to design around blocking patents, or it could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed.
Although 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.
RISKS RELATING TO OUR SECURITIES
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;
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 for our common stock. Accordingly, such factors
may affect the market for our common stock.
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<PAGE>
THE MARKET PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF
RESTRICTED AND OTHER SECURITIES.
As of November 30, 2000, there were approximately 15,286,364 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 November 30, 2000,
other outstanding options and warrants were exercisable to purchase
approximately 3,432,310 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 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 CONVERTIBLE 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 Preferred
Stock is limited by provision which prohibits the applicable conversion price
from going below $2.90. However, the Series B, Series C, Series D and Series E
Preferred Stock do 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, Series C, Series D and Series E Preferred Stock. Therefore, any drop in the
market price will increase the potential dilution which could occur upon
conversion of the Series B or Series C or Series D or Series E Preferred Stock,
which could, in turn, cause the market price to go lower, and have the effect of
creating a declining market price. In addition, the existence of the floating
conversion rate preferred stock and, in particular, the absence of a floor price
with respect to the Series B, Series C, Series D and Series E Preferred Stock,
could increase our vulnerability to short-selling strategies.
As a result, a total of 4,932,310 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 approximately
32% of the then outstanding shares of common stock. 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 THE COMPANY.
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.
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<PAGE>
THE COMPANY DOES 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, SERIES D PREFERRED STOCK AND SERIES E PREFERRED STOCK AND PREMIUMS ON OUR
SERIES B AND SERIES C 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 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. In addition, our Series
D Preferred Stock and Series E Preferred Stock accrue a dividends of 6% and 8%
per year, respectively, payable at our discretion in cash or shares of common
stock based on a share price equal to the closing price of our common stock on
The Nasdaq Small Cap Market on the particular dividend date. In the event we
issue any shares of Series F Preferred Stock, such shares accrue dividends of 8%
per year, payable quarterly in arrears in cash or common stock at our option. We
are also required to pay a premium on the Series B and Series C Preferred Stock
on conversion of such shares.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The statements made in this prospectus or in the documents we have
incorporated by reference that are not statements of historical fact, are
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate" or "believe," or similar terminology.
The forward-looking statements include discussions about business strategy
and expectations concerning market position, future operations, margins,
profitability, liquidity and capital resources, and statements concerning the
integration into our business of the operations we have acquired. Although we
believe that the expectations in such statements are reasonable, we can not give
any assurance that those expectations will be correct. We caution you not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this prospectus.
Our operations are subject to several uncertainties, risks and other
influences, many of which are outside our control and any of which could
materially affect our results of operations and ultimately prove the statements
we make to be inaccurate. Important factors that could cause actual results to
differ materially from our expectations are discussed under this "Risk Factors"
section and in documents incorporated in this prospectus by reference.
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 proceeds from the sale of our common stock by the
selling stockholders pursuant to this prospectus. However, we may receive up to
approximately $2,076,680 if all of the warrants held by the
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selling shareholders are exercised for cash. The net proceeds from the exercise
of any warrants is anticipated to be used to repay indebtedness and/or general
corporate purposes.
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 stockholders
and certain of their respective pledgees, donees, transferors or other
successors in interest to offer the shares 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>
The Endeavour Capital Investment Fund S.A. (4)(5)(6). 17,660,025 17,472,940 187,085 *
Esquire Trade & Finance Inc. (4)(5)(7)............... 3,767,122 3,767,122 0 *
Celeste Trust Reg (4)(5)(8).......................... 2,354,452 2,354,452 0 *
Endeavour Management Inc. (4)(5)..................... 406,404 406,404 0 *
Union Atlantic Capital LC (4)(5)(9).................. 1,474,482 1,474,482 0 *
Union Atlantic LC (4)(5)(10)......................... 368,620 368,620 0 *
RSL Com U.S.A., Inc.................................. 75,000 75,000 0 *
Lasermedics Sales Corp............................... 35,000 35,000 0 *
Pedro A. Rubio, M.D., PhD.(11)....................... 239,128 50,000 189,128 *
Taglich Brothers, Inc. .............................. 20,000 20,000 0 *
QAD, Inc. ........................................... 283,000 283,000 0 *
Alpha Circuits....................................... 4,437 4,437 0 *
Chas P. Young........................................ 77,074 77,074 0 *
North American Van Lines............................. 50,834 50,834 0 *
Lakeview Enterprises................................. 14,195 14,195 0 *
Elgin Exercise....................................... 4,500 4,500 0 *
Charles Dale......................................... 712 712 0 *
Leland Dale Levey.................................... 1,780 1,780 0 *
Arthur Jansen........................................ 11,746 11,746 0 *
Porter & Hedges, L.L.P. (12)......................... 84,000 84,000 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%. Pursuant to the terms of the Series D and Series E
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 in excess of
9.99%.
(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 issuable upon conversion of the Series E
Preferred Stock. The Series E 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) the closing bid price for the Company's Common Stock as
reported by Bloomberg L.P. for the trading day immediately proceeding the
initial issuance of the Series E Preferred Stock (November 21, 2000), or
(ii) the amount obtained by multiplying .8 by the average closing bid
price for the Company's Common Stock as reported by Bloomberg L.P. for the
lowest three trading days during the period beginning on the twenty-second
day prior to the conversion date for such conversion and ending on such
conversion date. 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 E Preferred Stock
on December 1, 2000 (7,785,714) and multiplied that number by 200%. The
Series E Preferred Stock pays an annual dividend of 8%, payable quarterly
in arrears in cash or shares of common stock at our option. For the
purposes of estimating the number of shares of common stock that are
issuable, at our option, for payment of dividends on the Series E
Preferred Stock, we estimated the number of shares of common stock that
would be sufficient to allow us to meet our obligation to pay dividends
for two years (467,772) and multiplied that number by 200%. If 935,544
dividend shares were issued to the holders of the Series E Preferred
Stock, the number for each of the selling shareholders in the table would
also include the following number of dividend shares: The Endeavour
Capital Investment Fund - 635,140; Esquire - 137,327; Celeste - 85,830;
Endeavour Management - 17,164; Union Atlantic Capital - 48,063; and Union
Atlantic - 12,020. In addition, assuming we are required to pay any
penalties due in shares of common stock, the number for each of the
selling shareholders in the table would also include the following number
of penalty shares: The Endeavour Capital Investment Fund - 226,470;
Esquire - 48,966; and Celeste - 30,604.
(5) Represents shares of common stock issuable upon conversion of the Series D
Preferred Stock. The Series D 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) 105% of the average closing bid price for the Company's
Common Stock as reported by Bloomberg L.P. for the 10 consecutive trading
days immediately proceeding the initial issuance of the Series D Preferred
Stock (May 23, 2000), or (ii) the amount obtained by multiplying .8 by the
average closing bid price for the Company's Common Stock as reported by
Bloomberg L.P. for the lowest three trading days during the period
beginning on the fifteenth day prior to the conversion date for such
conversion and ending on such conversion date. 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 D Preferred Stock on June 7, 2000 (3,349,138) and
multiplied that number by 200%. The Series D Preferred Stock pays an
annual dividend of 6%, payable upon conversion in cash or shares of common
stock at our option. For the purposes of estimating the number of shares
of common stock that are issuable, at our option, for payment of dividends
on the Series D Preferred Stock, we estimated the number of shares of
common stock that would be sufficient to allow us to meet our obligation
to pay dividends for two years (401,896) and multiplied that number by
200%. If 803,792 dividend shares were issued to the holders of the Series
D Preferred Stock, the number for each of the selling shareholders in the
table would also include the following number of dividend shares: The
Endeavour Capital Fund - 536,130; Esquire - 115,746; Celeste - 72,342;
Endeavour Management - 14,468; Union Atlantic Capital - 52,246; and Union
Atlantic - 12,860.
(6) The number also represents warrants to purchase 1,378,851 shares of common
stock, consisting of (i) a warrant to purchase 1,180,851 shares of common
stock with an exercise price of $.52 per share that expire in November
2005, (ii) a warrant to purchase 148,000 shares of common stock with an
exercise price of $1.99 per share that expire in May 2005 and (iii) a
warrant to purchase 50,000 shares of common stock at an exercise price of
$2.00 per share that expire in May 2005. The number also includes a
warrant to purchase 1,057,143 shares of common stock with an exercise
price of $.39 per share that expire in December 2005. For the purpose of
determining the warrant to be issued in connection with the
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<PAGE>
additional closing of 1,000 shares of the Series E Preferred Stock, we
assumed a conversion price at December 1, 2000 ($.35). Also 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 December 1, 2000, the 395 currently outstanding shares
of Series A Preferred Stock would have been convertible into the maximum
of 136,206 shares of common stock based upon the five-day average closing
bid price of $.38 resulting in the use of the $2.90 minimum conversion
price. Also includes warrants to purchase 42,000 shares of common stock at
an exercise price of $7.49 which expire April, 2003.
(7) The number also includes warrants to purchase 287,319 shares of common
stock, consisting of (i) a warrant to purchase 255,319 shares of common
stock with an exercise price of $.52 per share that expire in November
2005, and (ii) a warrant to purchase 32,000 shares of common stock with an
exercise price of $1.99 per share that expire in May 2005. The number also
includes a warrant to purchase 228,571 shares of common stock with an
exercise price of $.39 per share that expire in December 2005. For the
purpose of determining the warrant to be issued in connection with the
additional closing of 1,000 shares of the Series E Preferred Stock, we
assumed a conversion price at December 1, 2000, ($.35).
(8) The number also includes warrants to purchase 179,575 shares of common
stock, consisting of (i) a warrant to purchase 159,575 shares of common
stock with an exercise price of $.52 per share that expire in November
2005, and (ii) a warrant to purchase 20,000 shares of common stock with an
exercise price of $1.99 per share that expire in May 2005. The number also
includes a warrant to purchase 142,857 shares of common stock with an
exercise price of $.39 per share that expire in December 2005. For the
purpose of determining the warrant to be issued in connection with the
additional closing of 1,000 shares of the Series E Preferred Stock, we
assumed a conversion price at December 1, 2000, ($.35).
(9) The number also includes warrants to purchase 200,000 shares of common
stock, consisting of (i) a warrant to purchase 60,000 shares of common
stock with an exercise price of $.57 per share that expire in November
2005, and (ii) a warrant to purchase 140,000 shares of common stock with
an exercise price of $.75 per share that expire in May 2005. The number
also includes a warrant to purchase 40,000 shares of common stock with an
exercise price of $.42 per share that expire in December 2005. For the
purpose of determining the exercise price of the warrant to be issued in
connection with the additional closing of 1,000 shares of the Series E
Preferred Stock, we assumed a conversion price at December 1, 2000,
($.35).
(10) The number also includes warrants to purchase 50,000 shares of common
stock, consisting of (i) a warrant to purchase 15,000 shares of common
stock with an exercise price of $.57 per share that expire in November
2005, and (ii) a warrant to purchase 50,000 shares of common stock with an
exercise price of $.75 per share that expire in May 2005. The number also
includes a warrant to purchase 10,000 shares of common stock with an
exercise price of $.42 per share that expire in December 2005. For the
purpose of determining the exercise price of the warrant to be issued in
connection with the additional closing of 1,000 shares of the Series E
Preferred Stock, we assumed a conversion price at December 1, 2000,
($.35).
(11) The number also includes options to purchase 75,000 shares of common
stock. Dr. Rubio has served as one of our directors since January 1996. He
also currently serves as our Chairman of the Board, President and Chief
Executive Officer.
(12) Represents shares of common stock received by Porter & Hedges, L.L.P. in
consideration for legal services rendered. Porter & Hedges, L.L.P. has
opined to certain legal matters relating to the validity of the common
stock.
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<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may sell shares of our common stock in
transactions on exchanges or markets as our common stock may be then listed for
trading. Shares may be sold in privately-negotiated transactions, in
underwritten offerings, or by a combination of such methods of sale. Sales of
shares of common stock may be made 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 in this prospectus,
"selling stockholders" includes pledgees, donees, transferees and other
successors in interest to the selling stockholders selling shares received from
a selling stockholder after the date of this prospectus. The selling
stockholders may effect such transactions by selling the shares 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
stockholders or the purchasers of the shares for whom such broker-dealers may
act as agent or to whom they sell as principal, or both (which compensation to a
particular broker-dealer might be in excess of customary commissions).
Other methods by which selling stockholders may sell shares of our common
stock include, without limitation:
o "at the market" to or through market makers or into an existing
market for our 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 block trades,
o through short sales, or
o any combination of any such methods of sale.
The selling stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to those broker dealers of the common
stock offered by this prospectus, which common stock such broker- dealers may
resell under this prospectus. The selling stockholders may also make sales under
Rule 144 of the Securities Act if an exemption from registration is available.
The selling stockholders and any broker-dealers who act in connection with
the sale of shares of our common stock under this prospectus 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 of our
common stock as principal might be deemed to be underwriting discounts and
commissions under the Securities Act.
Under certain registration rights agreements with certain of the selling
stockholders, we have agreed to indemnify certain of the selling stockholders
and each underwriter, if any, against certain liabilities, including certain
liabilities under the Securities Act as amended, or will contribute to payments
such selling stockholders or underwriters may be required to make in respect of
certain losses, claims, damages or liabilities.
After we are notified by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
o the name of each such selling stockholder and of the participating
broker-dealer(s),
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o the type and number of securities involved,
o the price at which such securities were sold,
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable,
o that such broker-dealer(s) did not conduct any investigations to
verify the information set out or incorporated by reference in this
prospectus, and
o other facts material to the transaction.
LEGAL MATTERS
Certain legal matters relating to the validity of the common stock will be
passed upon by Porter & Hedges, L.L.P., Houston, Texas. Porter & Hedges, L.L.P.
owns 84,000 shares of our common stock and is identified as a selling
shareholder herein.
EXPERTS
The consolidated financial statements incorporated by reference in this
prospectus and elsewhere in the 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 our ability to continue as a going concern as discussed in
Note 1 to the consolidated financial statements.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses to be
incurred in connection with the issuance and distribution of the securities
registered hereby, other than underwriting discounts and commissions.
Registration Fee Under Securities Act $ 1,914
Legal Fees........................... 20,000
Accounting Fees...................... 10,000
Printing and Engraving............... 5,000
Miscellaneous Fees................... 2,000
--------
Total.......................... $ 38,914
========
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 our
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 our 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.
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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 our 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 our 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
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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 our
officers and directors providing for indemnity to the maximum extent permitted
under the Texas Business Corporation Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
*5.1 -- Opinion of Porter & Hedges, L.L.P.
*23.1 -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1)
*23.2 -- Consent of Arthur Andersen LLP
*24.1 -- Power of Attorney (included on signature page)
------------------------
* Filed herewith
(b) Financial Statement Schedules
Schedules are omitted since the information required to be submitted has
been included in the Consolidated Financial Statements of Henley Healthcare,
Inc., or the notes thereto, or the required information is not applicable.
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 of 1933;
(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 this registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement; provided, however, that subparagraphs
(i) and (ii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is
contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities and
Exchange Act of 1934 that are incorporated by reference in
this registration statement.
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(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered herein, 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.
(4) The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange of 1934
that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 SEC such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the 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 a 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Henley Healthcare, Inc. 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 Sugar Land, State of Texas on December 15, 2000.
Henley Healthcare, Inc.
By: /S/ JAMES L. STURGEON
JAMES L. STURGEON, CHIEF FINANCIAL
OFFICER AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed below by the following
persons in the capacities and on the dates indicated; and each of the
undersigned officers and directors of Henley Healthcare, Inc. hereby severally
constitutes and appoints Pedro A. Rubio, M.D., Ph.D and James L. Sturgeon, and
each of them, to sign for him, and in his name in the capacity indicated below,
such Registration Statement on Form S-3 and for the purpose of registering such
securities under the Securities Act of 1933, as amended, and any and all
amendments thereto, including without limitation any registration statements or
post-effective amendment thereof filed under and meeting the requirements of
Rule 462(b) under the Securities Act, hereby ratifying and confirming our
signatures as they may be signed by our attorneys to such Registration Statement
and any and all amendments thereto.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ PEDRO A. RUBIO, M.D. PH.D President and Chairman of the Board December 15, 2000
Pedro A. Rubio, M.D., Ph.D (Principal Executive Officer)
/S/ JAMES L. STURGEON Chief Financial Officer December 15, 2000
James L. Sturgeon (Principal Financial and Accounting
Officer)
/S/ WALTER CUNNINGHAM Director December 18, 2000
Walter Cunningham
/S/ J. TERRY MANNING Director December 15, 2000
J. Terry Manning
/S/ GABRIEL L. SHAHEEN Director December 18, 2000
Gabriel L. Shaheen
</TABLE>
<PAGE>
EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
*5.1 -- Opinion of Porter & Hedges, L.L.P.
*23.1 -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1)
*23.2 -- Consent of Arthur Andersen LLP
*24.1 -- Power of Attorney (included on signature page)
----------------------------
* Filed herewith
