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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission File Number 0-11997
Carrington Laboratories, Inc.
(Exact name of Registrant as specified in its charter)
Texas 75-1435663
(State of Incorporation) (IRS Employer ID No.)
2001 Walnut Hill Lane, Irving, Texas 75038
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 518-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock ($.01 par value) NASDAQ National Market
Preferred Share Purchase Rights NASDAQ National Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant on March 15, 1996, was $231,721,284. (This figure was computed
on the basis of the closing price of such stock on the NASDAQ National Market on
March 15, 1996 using the aggregate number of shares held on that date by, or in
nominee name for, shareholders who are not officers, directors or record holders
of 10% or more of the Registrant's outstanding voting stock. The
characterization of such officers, directors and 10% shareholders as affiliates
is for purposes of this computation only and should not be construed as an
admission for any other purpose that any of such persons are, in fact,
affiliates of the Registrant.)
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date:
8,657,421 shares of Common Stock, par value $.01 per share, were
outstanding on March 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on May 23, 1996 are incorporated by reference into Part
III hereof, to the extent indicated herein.
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PART I
ITEM 1. BUSINESS.
General
Carrington Laboratories, Inc. ("Carrington" or the "Company") is a
research-based pharmaceutical and medical device company engaged in the
development, manufacturing and marketing of carbohydrate-based therapeutics for
the treatment of major illnesses and the dressing and management of wounds. The
Company sells, using a network of distributors, nonprescription products through
its Wound and Skin Care Division, veterinary medical devices and pharmaceutical
through its Veterinary Medical Division and consumer products through its
consumer products subsidiary, Caraloe, Inc. The Company's research and product
portfolio are based primarily on complex carbohydrate technology derived from
the Aloe vera plant.
The Company was incorporated in Texas in 1973, as Ava Cosmetics, Inc. In
1986, the Company sold the direct sales business it was then operating and
changed its name to Carrington Laboratories, Inc.
Wound and Skin Care Division
Carrington's Wound and Skin Care Division markets a comprehensive line of
wound management products to hospitals, alternative care facilities and the home
health care market. The Company's products are designed to maintain a moist
wound environment which aids the healing process and to maintain the integrity
of contiguous healthy skin. Carrington products are used in a wide range of
acute and chronic wound and skin conditions and for incontinence and ostomy
care.
The Company is committing significant resources to its wound and skin care
business. Primary marketing emphasis is directed toward hospitals, managed care
organizations, alternate care facilities and home health care providers, with
wound and skin care products being promoted primarily to physicians and
specialty nurses, e.g. enterostomal therapists. Opportunities in the alternate
care and home health care markets are also addressed through a telemarketing
sales team and a National Accounts Department.
The Company's hospital field sales force currently employs 43 sales
representatives, each assigned to a specific geographic area in the United
States, five regional sales managers, a representative in Puerto Rico and a
managing director of the Wound and Skin Care Division. The Company also uses an
independent sales company employing four sales representatives to sell its
products on a commission basis and an independent sales representative in
Canada. In addition to this field sales force, the Wound and Skin Care Division
employs seven telemarketers who focus on alternative care facilities and the
home health care market, and three persons in its National Accounts Department.
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The Company's products are primarily sold through a network of
distributors. Two of the Company's largest distributors in the hospital market
for the last several years have been Baxter Healthcare Corporation ("Baxter")
and Owens & Minor. During fiscal 1993, 1994 and 1995, sales of wound and skin
care products to Baxter represented 10%, 11% and 10%, respectively, of the
Company's total net sales. Sales to Owens & Minor represented 8%, 7%, and 14%,
respectively, of total net sales over the same period.
Consumer Health
Caraloe, Inc., a separate subsidiary of the Company, markets or licenses
consumer products and bulk ingredients utilizing the Company's patented complex
carbohydrate technology. Attention has been focused on three goals, the first of
which is to sell Caraloe's Aloe Nutritional(TM) brand products through the
health food store market. The second goal has been to develop private label aloe
products for entrepreneurs seeking a high quality line of aloe products. The
third goal has been to become a supplier of bulk AVMP(TM) (Aloe vera
mucilaginous polysaccharide) to commercial companies incorporating aloe vera
mucilaginous polysaccharides into their established product lines. In May 1994,
an agreement was signed with Mannatech, Inc., formerly Emprise International,
Inc., to supply it bulk Manapol(R). In February 1996, an agreement was signed
with Mannatech granting it an exclusive license in the United States for
Manapol(R). During fiscal 1994 and 1995, sales of Manapol(R) to Mannatech
represented 4% and 10%, respectively, of the Company's total net sales.
Veterinary Medical Division
The Carrington Veterinary Medical Division ("CVMD") markets Acemannan
Immunostimulant, a vaccine adjuvant, and several wound and skin care products to
the veterinary market. Acemannan Immunostimulant was conditionally approved by
the United States Department of Agriculture ("USDA") in November 1991, for use
as an aid in the treatment of canine and feline fibrosarcoma, a form of soft
tissue cancer that affects dogs and cats. A conditional approval means that
efficacy and potency tests are required, and the product's label must specify
that these studies are in progress. The "conditional" aspect of the approval
will be removed upon completion of additional potency testing which is in the
final stages of development. The Company expects to complete these tests in
1996. There can be no assurance that these tests will result in the removal of
the conditional restriction on the USDA's approval of Acemannan Immunostimulant.
In September 1990, the Company granted Solvay Animal Health, Inc.
("Solvay") an exclusive, worldwide license to use and sell a bulk pharmaceutical
mannan adjuvant for poultry disease. In January 1992, Solvay received approval
from the USDA to market the bulk pharmaceutical mannan as an adjuvant to a
vaccine for Marek's disease, a virus infection that kills chickens or renders
them unfit for human consumption. Solvay sells the product under the trademark
ACM I.
In March 1996, the Company signed an agreement with Farnam Companies,
Inc., a leading veterinary marketing company, to promote and sell the
CarraVet(TM) product line, including Acemannan Immunostimulant.
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Research and Development
General
In 1984, the Company isolated and identified a polymeric compound with a
molecular weight between one and two million Daltons from the Aloe vera plant.
This compound has been given the generic name "acemannan" by the United States
Adopted Names Council. The Company intends to seek approval of the Food and Drug
Administration (the "FDA") and other regulatory agencies to sell products based
on complex carbohydrates in the United States and in foreign countries: (I) to
treat inflammatory bowel diseases, including ulcerative colitis, a widespread,
chronic, inflammatory disease of the colon; (ii) to treat various forms of
cancer; (iii) for use as an adjuvant to various vaccines; and (iv) to treat
non-healing and other wounds. For a more comprehensive listing of the type,
indication and status of products currently under development by the Company,
see "Research and Development--Summary" below. The regulatory approval process,
both domestically and internationally, can be protracted and expensive, and
there is no assurance that the Company will obtain approval to sell its products
for any treatment or use (see "Governmental Regulation" below).
The Company is marketing or developing several products which in the past
were given the general name of acemannan, suggesting the products were
identical. This is not correct because there are ten products in development or
being marketed that are derived from 3 basic extracts of the Aloe vera plant.
The basic freeze-dried aloe vera extract is reconstituted to produce Manapol(R)
and AVMP(TM) for both food grade and cosmetic grade products. Further refinement
produces Bulk Pharmaceutical Mannans that are used to produce hydrogels; the
Carrington(TM) Patch, an oral care product; Carra(TM)Sorb M, a freeze-dried
wound dressing; adjuvants, ACM I marketed by Solvay, and CARN 500 which is being
developed as an adjuvant for various vaccines; and Aliminase(TM) (formerly CARN
1000) capsules which are being developed for ulcerative colitis. Finally, Bulk
Injectable Mannans are marketed as Acemannan Immunostimulant (CARN 700), and a
product has been developed for the treatment of cancer, Alovex(TM) (formerly
CARN 750).
The Company expended approximately $5,397,000, $5,334,000, and $5,370,000
on research and development in fiscal, 1993, 1994, and 1995, respectively. The
Company estimates that in fiscal 1996 it will spend more on research and
development than in 1995. Currently, the Company's research staff comprises 13
full-time employees as compared to 21 full-time employees at the end of 1994.
Preclinical Research
The Company identified the characteristics of its complex carbohydrates by
a series of studies in the Company's laboratories and in several contract
laboratories. Based on toxicology tests sponsored by the Company on different
animal species with dosages up to 40 times the proposed intravenous human
dosage, in vitro and in vivo tests for mutagenicity, dermal sensitization tests,
results of a Phase I safety study of an oral product in humans and a Phase I
safety study of an intravenously administered preparation in humans, no
clinically significant toxicity of the
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Company's products has been noted. Further safety studies may be required by the
FDA prior to the approval of any applications of complex carbohydrates.
Other preclinical studies conducted in the Company's laboratories and in
outside laboratories have shown that certain of the Company's complex
carbohydrates stimulate macrophage and other white blood cells to produce
lymphokines, including interleukin-1 and tumor necrosis factor alpha, that
regulate other cells. Interleukin-1 stimulates fibroblasts, which are essential
to wound healing. Tumor necrosis factor alpha acts against tumors in the body.
In addition, laboratory experiments conducted by the Company have shown that
some complex carbohydrates have both pro- and anti-inflammatory actions.
The Company believes that its products' pharmacological actions and lack
of toxicity make them excellent candidates for further development as
therapeutic agents for the treatments and uses for which the Company intends to
seek regulatory approvals (see "Research and Development --General" above).
There is no assurance, however, that the Company will be successful in its
efforts.
The Company operates a research and development laboratory at the Texas
A&M University Research Park to expand preclinical research in various wound
healing applications and mechanisms of action. Pursuant to this arrangement, the
Company has access to leading authorities in immunology, as well as facilities
and equipment to engage in experimentation and analysis at the basic research
level.
Animal Studies
The Company has pursued a strategy of developing products for certain
animal indications, clinical testing of which may have application to studies
for treatment of human diseases. Animal clinical testing necessary to obtain
eventual approval of a product for treatment of human diseases may also provide
data sufficient to obtain approval for the related veterinary indication. This
approach enables the Company to obtain revenues from its research efforts at an
earlier date and also expands data available from actual use of the product in
animals. The Company's clinical research efforts to date have focused on the
indications described below.
Vaccine Adjuvants. An adjuvant is a substance that enhances the antibody
response to an antigen. The ability to generate a vigorous immune response to an
antigen is critical to the effectiveness of a vaccine. The Company's studies
indicate that acetylated mannans, when used as a vaccine adjuvant, produce
marked stimulation of the immune system.
In 1990, the Company received approval from the USDA to sell an adjuvant
to licensed manufacturers for use in combination with animal vaccines. This use
as a vaccine adjuvant for certain poultry diseases was licensed to Solvay
pursuant to an agreement between Solvay and the Company entered into in
September 1990. In January 1992, Solvay received approval from the USDA to
market an adjuvant to its vaccine for Marek's disease (see "Veterinary Medical
Division" above).
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The Company has conducted or sponsored studies of CARN 500 adjuvants with
other vaccines for animals. Based on these studies, the Company, either directly
or through third party licensees, intends to pursue development of adjuvants for
other animal vaccines. In 1993, initiation of a program was begun to develop
adjuvants for mammalian vaccines and for vaccines for marine animals under
licenses with one European company. There can be no assurance however, that such
development will be successful or that the Company will be able to develop, or
to enter into any licensing agreements for the development of, any additional
adjuvants.
Evaluation of Anti-Tumor Activity. Acetylated mannans (CARN 750) are
immunomodulating agents that increase circulating levels of interleukin-1 and
tumor necrosis factor alpha. A series of studies conducted at Texas A&M
University in 1988 and 1989 on mice with highly malignant tumors indicated that
a single intraperitoneal dose caused significant tumor reduction in a
statistically significant percentage of mice. This effect in many instances was
dramatic, with complete regression of the tumor and with continuing immunity.
Recovered animals were resistant to syngeneic tumor reimplantation for up to six
months after initial tumor regression.
In 1991, the USDA granted the Company conditional approval to market an
injectable form of a complex carbohydrate as an aid in the treatment of canine
and feline fibrosarcoma, a form of soft tissue cancer, under the name Acemannan
Immunostimulant. The Company believes that the USDA's remaining requirements to
remove the conditional restriction can be completed in 1996 (see "Veterinary
Medical Division" above). Of course, there can be no assuarance as to whether or
when the USDA will remove the conditional restriction on its approval of this
product.
Human Studies
Evaluation of Aliminase(TM) (formerly CARN 1000) in the Treatment of
Inflammatory Bowel Diseases. In October 1991, the Company filed an
investigational new drug ("IND") application requesting approval to conduct
human clinical trials on the efficacy of Aliminase(TM) in the treatment of
ulcerative colitis. In November 1991, the Company received notice that the FDA
was withholding approval of the study, pending submission of additional
information. Additional studies requested by the FDA were completed, and the
results were submitted in October 1992. In December 1992, the Company received
authorization from the FDA to commence human clinical trials under the IND
application. In early 1993, the Company began a pilot safety and efficacy study
with oral Aliminase(TM) in the treatment of ulcerative colitis patients who are
experiencing an acute flare-up of the disease. This study was conducted by
treating 54 patients with 400 or 800 milligram doses twice daily for two or four
weeks. After four weeks, the disease activity index and the signs and symptoms
of the disease were significantly improved, and the safety of the oral product
continued to be confirmed. A large controlled trial of Aliminase(TM) in patients
with ulcerative colitis began in September 1995. A total of 288 patients will be
enrolled in four groups comparing a placebo with three doses of Aliminase(TM)
(150, 300 and 600 mg dosage levels, administered twice daily for six weeks).
Results are expected in 1996.
Evaluation of Alovex(TM) (formerly CARN 750) in the Treatment of Solid
Tumors in Humans. The Company believes that this intravenous product may be
broadly useful in cancer therapy, with potential application in the treatment of
major solid tumors, including melanoma, breast carcinoma,
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prostate carcinoma, colon carcinoma, hypernephroma and soft tissue sarcoma. The
Company initiated a Phase I human clinical trial of injectable Alovex(TM) in
certain solid tumor indications. The trial began in the United States in late
1995. As a result of the success of Acemannan Immunostimulant in dogs and cats,
the Company has reason to believe that injectable Alovex(TM) may play a
significant role in the treatment of cancer in humans.
Evaluation of Carrington(TM) Patch in the Treatment of Aphthous Ulcers.
Carrington's efforts to broaden the claims for wound care products containing
Carrasyn(R) Hydrogel were expanded to include an application within the oral
health care field. Two studies were conducted at Baylor College of Dentistry to
examine the efficacy and safety of two formulations of Carrasyn(R) Hydrogel
wound dressing in the treatment of oral aphthous ulcers (canker sores). The
first study involved Carrasyn(R) Hydrogel wound dressing modified for intraoral
use versus a leading product. The second trial involved the modified oral
formulation of Carrasyn(R) Hydrogel that had been freeze-dried. This product,
Carrington(TM) Patch, reduced the pain of these ulcers. A 510(k) was submitted
to the FDA for permission to market the freeze-dried formulation for the
management of oral aphthous ulcers. This was granted by the FDA, and the product
will be marketed as Carrington(TM) Patch for the reduction of pain due to
aphthous ulcers.
Evaluation of Carrasyn(R) in Wound Healing. In 1993, a study was conducted
at M.D. Anderson Cancer Center to determine if Carrasyn(R) Hydrogel was of
benefit in treating radiation-induced skin reactions of mice. These studies
clearly showed that, when compared to controls, Carrasyn(R) Hydrogel could
significantly reduce radiation-induced inflammation and tissue damage in
animals. As a result of this work, a small clinical trial was performed in 1994,
studying the radiation-sparing effects of Carrasyn(R) Hydrogel wound dressing in
four oncology patients. Further trials will continue in 1996. Four new
indications (post-surgical incisions, sunburn, diabetic ulcers and radiation
dermatitis) for Carrasyn(R) were added in 1995.
Evaluation of Carrasyn(R) Freeze-Dried Gel (Carra(TM)Sorb M) in Wound
Healing. Following the submission of a 510(k) for a preservative-free
freeze-dried gel for wound care, the FDA allowed Carrington to market this
product, and it was launched in early 1996.
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Summary. The following table outlines the status of the products and
potential indications of the Company's complex carbohydrates developed, planned
or under development. There is no assurance of successful development,
completion or regulatory approval of any product not yet on the market.
PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED, PLANNED OR UNDER DEVELOPMENT
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PRODUCT OR
POTENTIAL INDICATION POTENTIAL MARKET APPLICATIONS STATUS
- -------------------- ----------------------------- ------
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Topical
Dressings Pressure and Vascular Ulcers Marketed
Cleansers Wounds Marketed
Antifungal Candida Marketed
Oral
Human
Anti-inflammatory Ulcerative Colitis Phase III
Clinical Trial
Injectable
Human
Anticancer Melanoma, Breast, Prostate, Colon, Phase I
Hypernephroma, and Soft Tissue Clinical Trial
Sarcoma
Veterinary
Anticancer Fibrosarcoma Marketed
Dental
Pain reduction Aphthous Ulcers Marketed
Vaccine Adjuvant
Veterinary
Poultry Vaccines Marek's Disease Marketed
Livestock Cattle, Sheep Clinical Trials
Marine (water treatment) Trout, Shrimp Clinical Trials
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Licensing Strategy
The Company expects that prescription pharmaceutical products containing
certain defined mannans will require a substantial degree of development effort
and expense. Before governmental approval to market any such product is
obtained, the Company may license these mannans for certain indications to other
pharmaceutical companies in the United States or foreign countries and require
such licensees to undertake the steps necessary to obtain marketing approval for
specific indications or in a particular country.
Similarly, the Company intends to license third parties to market
products containing defined mannans for certain human indications when it lacks
the expertise or financial resources to market effectively. If the Company is
unable to enter into such agreements, it may undertake to market the products
itself for such indications. The Company's ability to market these mannans for
specific indications will depend largely on its financial condition at the time
and the results of related clinical trials. There is no assurance that the
Company will be able to enter into any license agreements with third parties or
that, if such license agreements are concluded, they will contribute to the
Company's overall profits.
In November 1995, the Company signed a licensing agreement with a
supplier of calcium alginates and other wound care products. Under the
agreement, the Company has exclusive marketing rights to advanced calcium
alginates products for North and South America and the People's Republic of
China. The Company will continue to seek opportunities to license products from
third parties that will enhance its product portfolio.
Raw Materials and Processing
The principal raw material used by the Company in its operations is the
leaf of the plant Aloe barbadensis Miller, popularly known as aloe vera. Through
a patented process, the Company produces bulk pharmaceutical and injectable
mannans and freeze-dried aloe vera extract from the central portion of the aloe
vera leaf known as the gel. Bulk pharmaceutical mannan, in the form of a
hydrogel, is used as an ingredient in certain of the Company's wound and skin
care products. Through additional processing, bulk mannans may be produced in
oral and injectable dosage forms.
In May 1990, the Company purchased a 405-acre farm in the Guanacaste
province of northwest Costa Rica which currently has approximately 125 acres
planted with aloe vera. The Company plans to plant additional acreage as demand
for aloe vera leaves increases. The Company believes that the Costa Rica farm
will be capable of providing substantially all of the aloe vera leaves required
to meet the Company's presently anticipated needs (see "Properties--Costa Rica
Facility" below).
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Manufacturing
Prior to the second quarter of 1995, the Company produced substantially
all its wound and skin care products in a leased facility in Dallas, Texas.
During the first quarter of 1994, the Company completed an evaluation of the
production requirements that would be needed to meet all federal regulatory
requirements as a fully integrated pharmaceutical manufacturer, as well as the
production capacity that would be required to meet continued growth in the
Company's wound and skin care business. The Company decided to move its wound
and skin care manufacturing operation from its present location to an unused
portion of the Company's headquarters facility in Irving, Texas, and expand the
facility through higher capacity equipment. The moving, upgrading and expansion
of the manufacturing operation began in the fourth quarter of 1994, and the
project was completed and production began during the third quarter of 1995. At
the same location, the Company has upgraded its capabilities to produce
injectable grade pharmaceutical products. The Company believes that the new
plant's capacity will provide sufficient capacity for the present line of
products, and accommodate new products and sales growth. Final packaging of
certain of the Company's wound care products is completed by outside vendors.
The Company's calcium alginates, films and freeze-dried products are being
provided by third parties.
All of the Company's bulk pharmaceutical mannans, bulk injectable mannans
and freeze-dried aloe vera extracts are produced in its aloe vera processing
plant in Costa Rica. This facility has the ability to supply the bulk aloe vera
raw materials requirements of the Company's current product lines for the
foreseeable future. During the first quarter of 1994, the Company initiated a
project in Costa Rica to upgrade the production plant to meet regulatory
requirements for the production of bulk pharmaceutical oral and injectable
mannans as required for IND's. This project was completed in the fourth quarter
of 1994. Finished oral and injectable dosage forms will be produced by outside
vendors until in-house production becomes economically justified.
The production capacity of the Costa Rica plant is larger than the
Company's current usage level. Management believes, however, that the cost of
the Costa Rica facility will eventually be recovered through operations. The
larger production capacity will be required to conduct large scale clinical
trials with bulk pharmaceutical and injectable mannans.
Competition
Research and Development. The biopharmaceutical field is expected to
continue to undergo rapid and significant technological change. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies. Many of these companies have substantially
greater capital resources, research and development staffs, facilities and
expertise (including in research and development, manufacturing, testing,
obtaining regulatory approvals and marketing) than the Company. This competition
can be expected to become more intense as commercial applications for
biotechnology and pharmaceutical products increase. Some of these companies may
be better able than the Company to develop, refine, manufacture and market
products which have application to the same indications as bulk pharmaceutical
mannans and bulk injectable mannans. The Company understands that certain of
these competitors are in the process
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of conducting human clinical trials of, or have filed applications with
government agencies for approval to market, certain products that will compete
with the Company's products.
Wound and Skin Care Division, Caraloe, Inc., and CVMD. The Company
competes against many companies that sell products which are competitive with
the Company's products, with many of its competitors using very aggressive
marketing efforts. Many of the Company's competitors are substantially larger
than the Company in terms of sales and distribution networks and have
substantially greater financial and other resources. The Company's ability to
compete against these companies will depend in part on the continued expansion
of the marketing network for its products. The Company believes that the
principal competitive factors in the marketing of its products is their quality,
and that they are naturally based and competitively priced.
Governmental Regulation
The production and marketing of the Company's products, and the Company's
research and development activities, are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, drugs for human use are subject to
rigorous FDA regulation. The Federal Food, Drug and Cosmetic Act, as amended,
the regulations promulgated thereunder, and other federal and state statutes and
regulations govern, among other things, the testing, manufacture, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of the Company's products. For marketing outside the United States,
the Company is subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs and devices. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement may vary widely from country to country.
Food and Drug Administration. The contents, labeling and advertising of
many of the Company's products are regulated by the FDA. The Company is required
to obtain FDA approval before it can study or market any proposed prescription
drugs and may be required to obtain such approval for proposed nonprescription
products. This procedure involves extensive clinical research, and separate FDA
approvals are required at various stages of product development. The approval
process requires, among other things, presentation of substantial evidence to
the FDA, based on clinical studies, as to the safety and efficacy of the
proposed product.
In order to initiate human clinical trials on a product, extensive basic
research and development information must be submitted to the FDA in an
investigational new drug ("IND") application. The IND application contains a
general investigational plan, a copy of the investigator's brochure (a
comprehensive document provided by the drug manufacturer), copies of the initial
protocol for the first study, a review of the chemistry, manufacturing and
controls information for the drug, pharmacology and toxicology information, any
previous human experience with the drug, results of preclinical studies and any
other information requested by the FDA.
If permission is obtained to proceed to clinical trials based on the IND
application, initial trials, usually categorized as Phase I, are instituted. The
initial or Phase I trials typically involve the
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administration of small, increasing doses of the investigational drug to healthy
volunteers, and sometimes patients, in order to determine the general overall
safety profile of the drug and how it is metabolized. Once the safety of the
drug has been established, Phase II efficacy trials are conducted in which the
expected therapeutic doses of the drug are administered to patients having the
disease for which the drug is indicated, and a therapeutic response is sought as
compared to the expected progression of the underlying disease or compared to a
competitive product or placebo. Information also is sought on any possible
short-term side effects of the drug. If efficacy and safety are observed in the
Phase II trials, Phase III trials are undertaken on an expanded group in which
the patients receiving the drug are compared to a different group receiving
either a placebo or some form of accepted therapy in order to establish the
relative safety and efficacy of the new drug compared with the control group.
Data are also collected to provide an adequate basis for future physician
prescribing information.
If Phases I through III are successfully completed, the data from these
trials are compiled into a new drug application ("NDA"), which is filed with the
FDA in an effort to obtain marketing approval. In general, an NDA will include a
summary of the components of the IND application, a clinical data section
reviewing in detail the studies from Phases I through III and the proposed
description of the benefits, risks and uses, or labeling, of the drug.
In general, a more comprehensive NDA and a more prolonged review process
are required for drugs not previously approved for marketing by the FDA. If a
second indication for an already approved product is sought, since many of the
components of the review process are the same, a shortened review process
generally can be anticipated. However, the FDA gives high priority to novel
drugs providing unique therapeutic benefits and a correspondingly lower priority
to drugs similar to or providing comparable benefits to others already on the
market.
In addition to submitting safety and efficacy data derived from clinical
trials for FDA approval, NDA approval requires the manufacturer of the drug to
demonstrate the identity, potency, quality and purity of the active ingredients
of the product involved, the stability of these ingredients and compliance of
the manufacturing facilities, processes and quality control with the FDA's
current Good Manufacturing Practices regulations. After approval, manufacturers
must continue to expend time, money and effort in production and quality control
to assure continual compliance with the current Good Manufacturing Practices
regulations.
Certain of the Company's wound and skin care products are registered with
the FDA as "devices" pursuant to the regulations under Section 510(k) of the
Federal Food, Drug and Cosmetic Act, as amended. A device is a product used for
a particular medical purpose, such as to cover a wound, with respect to which no
pharmacological claim can be made. A device which is "substantially equivalent"
to another device existing in the market prior to May 1976 can be registered
with the FDA under Section 510(k) and marketed without further testing. A device
which is not "substantially equivalent" is subject to an FDA approval process
similar to that required for a new drug, beginning with an Investigational
Device Exemption and culminating in a Premarket Approval. The Company has sought
and obtained all its device approvals under Section 510(k). With respect to
certain of its wound and skin care products, the Company intends to develop
claims for which IND and NDA submissions will be required.
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Department of Agriculture. Certain products being developed by the
Company for animal health indications must be approved by the USDA. The
procedure involves extensive clinical research, and USDA approvals are required
at various stages of product development. The approval process requires, among
other things, presentation of substantial evidence to the USDA as to the safety
and efficacy of the proposed product. Furthermore, even if approval to test a
product is obtained, there is no assurance that ultimate approval for marketing
the product will be granted. USDA approval procedures can be protracted.
Other Regulatory Authorities. The Company's advertising and sales
practices are subject to regulation by the Federal Trade Commission, the FDA and
state agencies. The Company's processing and manufacturing plants are subject to
federal, state and foreign laws and to regulation by the Bureau of Alcohol,
Tobacco and Firearms of the Department of the Treasury and by the Environmental
Protection Agency as well as the FDA.
The Company believes that it is in substantial compliance with all
applicable laws and regulations relating to its operations, but there is no
assurance that such laws and regulations will not be changed. Any such change
may have a material adverse effect on the Company's operations.
Patents and Proprietary Rights
As is industry practice, the Company has a policy of using patent,
trademark and trade secret protection with a view to preserving its right to
exploit the results of its research and development activities and, to the
extent it may be necessary or advisable, to exclude others from appropriating
the Company's proprietary technology. The Company's policy is to protect
aggressively its proprietary technology by seeking and enforcing patents in a
worldwide program.
The Company has obtained patents or filed patent applications in the
United States and approximately 24 other countries in three series regarding the
compositions of acetylated manna derivatives, the processes by which they are
produced and the methods of their use. The first series of patent applications,
relating to the compositions of acetylated manna derivatives and certain basic
processes of their production, was filed in a chain of United States patent
applications and its counterparts in the other 24 countries. The first United
States patent application in this first series, covering the composition claims
of acetylated manna derivatives, matured into United States Patent No. 4,735,935
(the "935 Patent"), which was issued on April 5, 1988. United States Patent No.
4,917,890 (the "890 Patent") issued on April 17, 1990 from a divisional
application to the 935 Patent. This divisional application pertains to most of
the remaining claims in the original application not covered by the 935 Patent.
The 890 Patent generally relates to the basic processes of producing acetylated
manna derivatives, to certain specific examples of such processes and to certain
formulations of acetylated manna derivatives. Two other divisional applications
covering the remaining claims not covered by the 890 Patent matured into
patents, the first on September 25, 1990, as United States Patent No. 4,959,214,
and the second on October 30, 1990, as United States Patent No. 4,966,892.
Foreign patents that are counterparts to the foregoing United States patents
I-12
<PAGE>
have been granted in some of the member states of the European Economic
Community and several other countries.
The second series of patent applications related to preferred processes
for the production of acetylated manna derivatives. One of them matured into
United States Patent No. 4,851,224, which was issued on July 25, 1989. This
patent is the subject of a Patent Cooperation Treaty application and national
foreign applications in several countries. An additional United States patent
based on the second series was issued on September 18, 1990, as United States
Patent No. 4,957,907.
The third series of patent applications, relating to the uses of
acetylated manna derivatives, was filed subsequent to the second series. Three
of them matured into United States Patent Nos. 5,106,616, issued on April 21,
1992, 5,118,673, issued on June 2, 1992, and 5,308,838, issued on May 3, 1994.
The Company intends to file a number of divisional applications to these
patents, each dealing with specific uses of acetylated manna derivatives. A
Patent Cooperation Treaty application based on the parent United States
application has been filed designating a number of foreign countries in which
the Company has the option to file specific applications.
In addition, the Company has also obtained a patent in the United States
relating to a wound cleanser, U.S. Patent No. 5,284,833, issued on February 8,
1994. This patent application is the subject of a Patent Cooperation Treaty
application designating a number of foreign countries in which the Company has
the option to file specific applications in the designated foreign countries.
The Company has obtained a patent in the United States relating to a
therapeutic device made from freeze-dried complex carbohydrate hydrogel (U.S.
Patent No. 5,409,703 issued on April 25, 1995).
The Company intends to file patent applications with respect to
subsequent developments and improvements when it believes such protection is in
the best interest of the Company. Although the scope of protection which
ultimately may be afforded by the patents and patent applications of the Company
is difficult to quantify, the Company believes its patents will afford adequate
protection to conduct the business operations of the Company. However, there can
be no assurance that (I) any additional patents will be issued to the Company in
any or all appropriate jurisdictions, (ii) litigation will not be commenced
seeking to challenge the Company's patent protection or such challenges will not
be successful, (iii) processes or products of the Company do not or will not
infringe upon the patents of third parties or (iv) the scope of patents issued
to the Company will successfully prevent third parties from developing similar
and competitive products. It is not possible to predict how any patent
litigation will affect the Company's efforts to develop, manufacture or market
its products.
The Company also relies upon, and intends to continue to rely upon, trade
secrets, unpatented proprietary know-how and continuing technological innovation
to develop and maintain its competitive position. The Company typically enters
into confidentiality agreements with its scientific consultants, and the
Company's key employees have entered into agreements with the Company requiring
that they forbear from disclosing confidential information of the Company and
assign to the Company all rights in any inventions made while in the Company's
employ relating to
I-13
<PAGE>
the Company's activities. Accordingly, the Company believes that its valuable
trade secrets and unpatented proprietary know-how are adequately protected.
The technology applicable to the Company's products is developing
rapidly. A substantial number of patents have been issued to other
biopharmaceutical companies. In addition, competitors have filed applications
for, or have been issued, patents and may obtain additional patents and
proprietary rights relating to products or processes competitive with those of
the Company.
To the Company's knowledge, acetylated manna derivatives do not infringe
any valid, enforceable, United States patents. A number of patents have been
issued to others with respect to various extracts of the Aloe vera plant and
their uses and formulations, particularly in respect of skin care and cosmetic
uses. While the Company is not aware of any existing patents which conflict with
its current and planned business activities, there can be no assurance that
holders of such other aloe vera based patents will not claim that particular
formulations and uses of acetylated manna derivatives in combination with other
ingredients or compounds infringe, in some respect, these other patents. In
addition, others may have filed patent applications and may have been issued
patents relating to products and technologies potentially useful to the Company
or necessary to commercialize its products or achieve their business goals.
There is no assurance that the Company will be able to obtain licenses of such
patents on terms acceptable to it.
The Company has given the trade name Carrisyn(R) to certain of its
products containing acetylated manna derivatives. A selected series of domestic
and foreign trademark applications exists for the marks Carrisyn(R), Manapol(R)
and Carrasyn(R) which are registered in the United States and several foreign
countries. Further, the Company has filed applications for the registration of a
number of other trademarks, including AVMP(TM), both in the United States and in
certain foreign countries. The Company believes that its trademarks and trade
names are valuable assets.
Employees
As of March 1, 1996, the Company employed 276 persons, of whom 26 were
engaged in the operation and maintenance of its Irving processing plant, 131
were employed at the Company's facility in Costa Rica and the remainder were
executive, research, quality assurance, manufacturing, administrative, sales,
and clerical personnel. Of the total number of employees, 102 were located in
Texas, 131 in Costa Rica and one in Puerto Rico. In addition, 45 sales personnel
were located in 26 other states. The Company considers relations with its
employees to be good. The employees are not represented by a labor union.
Financing
In January 1995, the Company entered into a financing arrangement with
NationsBank of Texas, N.A. The agreement is composed of a $2,000,000 line of
credit which expired one year from the date of the agreement and a $6,300,000
term loan that matures five years from the date of the agreement. The interest
rate on both credit facilities is prime plus one-half percent or the London
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<PAGE>
Interbank Offering Rate plus 200 basis points set for a period of thirty, sixty,
ninety or one hundred eighty days. The loans are collateralized by the Company's
assets and contain certain covenants. As of December 31, 1995, the Company was
not in compliance with the term loan's fixed charge ratio covenant. The Company
is in discussions with the Bank and is currently working toward a long-term
resolution to the non-compliance. As no binding amendments to the term-loan have
been agreed upon as of March 31, 1996, all outstanding debt under the term loan
has been presented as current for reporting purposes. Given the current cash
position, the Company's short- and long-term liquidity will not be significantly
affected. As of March 15, 1996, borrowings outstanding under the line of credit
and term loan were $0 and $2,977,073, respectively.
ITEM 2. PROPERTIES.
The Company believes that all its farming property, manufacturing and
laboratory facilities, as described below, and material farm, manufacturing and
laboratory equipment are in satisfactory condition and are adequate for the
purposes for which they are used.
Walnut Hill Facility. The Company's corporate headquarters occupy all of
the 35,000 square foot office and manufacturing building (the "Walnut Hill
Facility") which is situated on an approximately 6.6 acre tract of land located
in the Las Colinas area of Irving, Texas. The Company owns the land and
building, which are subject to a mortgage that secures the note assumed by the
Company in connection with its acquisition of the property and assigned to
NationsBank of Texas, N.A. During the fourth quarter of 1994, the Company began
a project to move its manufacturing operation from its Dallas Facility to the
unused space at this facility and expand the amount of office space. This
project was completed during the third quarter of 1995. The manufacturing
operations occupy approximately 19,000 square feet of the facility, and
administrative offices occupy approximately 16,000 square feet.
Laboratory Facility. The Company leases 24,000 square feet of office,
manufacturing and laboratory space (the "Laboratory Facility") in Irving, Texas
pursuant to a lease which expires in January 2000. The Company's in-house
research and development activities are conducted at the Laboratory Facility.
The Company maintains sterile production facilities (which occupy 4,000 square
feet of the total space) at the Laboratory Facility for the production of
injectable dosage forms of Acemannan Immunostimulant.
Dallas Facility. The Company leased a facility with 55,000 square feet of
office, manufacturing and warehouse space in Dallas, Texas (the "Dallas
Facility") pursuant to a lease that expired in June 1995. The Company did not
renew this lease. Until August of 1994, the Company's manufacturing facilities
occupied approximately 11,000 square feet, and its warehouse and distribution
center facilities occupied approximately 32,000 square feet, of the Dallas
Facility. In September 1994, the warehouse and distribution center was moved to
a new leased facility in Irving, Texas near the Walnut Hill Facility.
Substantially all the Company's wound and skin care products were produced at
the Dallas Facility. In the second quarter of 1995, the Company's manufacturing
operations were moved to the Walnut Hill Facility.
Warehouse and Distribution Facility. In August 1994, the Company leased a
35,050 square feet office and warehouse facility in Irving, Texas near the
Walnut Hill Facility. This lease expires in October 2001. The Company moved its
warehouse and distribution center from its Dallas Facility
I-15
<PAGE>
to this facility in September 1994. The warehouse and distribution center occupy
approximately 27,000 square feet, and the remaining space is used for offices.
Costa Rica Facility. The Company owns approximately 405 acres of land in
the Guanacaste province of northwest Costa Rica. This land is being used for the
farming of Aloe vera plants and for a processing plant to produce bulk
pharmaceutical and injectable mannans and freeze-dried aloe vera extracts used
in the Company's operations. Construction of the aloe vera processing plant was
completed during the second quarter of 1993, and the plant became operational in
June 1993. The Company believes that the Costa Rica farm will provide
substantially all the aloe vera leaves required to meet the Company's needs.
Development of this facility was partially financed with borrowings under a
five-year, U.S. dollar-denominated loan from Corporacion Privada de Inversiones
de Centroamerica, S.A. ("CPI"), a private bank operating in San Jose, Costa
Rica. The loan was paid off in May 1995. During the first quarter of 1994, the
Company initiated a project in Costa Rica to upgrade the production plant to
meet regulatory requirements for the production of bulk pharmaceutical oral and
injectable mannans as required for IND's. This project was completed in the
fourth quarter of 1994.
ITEM 3. LEGAL PROCEEDINGS.
On October 17, 1995, David L. Hinchey (the "Plaintiff")filed a lawsuit
styled David L. Hinchey v. Carrington Laboratories, Inc., Cause No. 95-11007-C
in the 68th Judicial District Court of Dallas County, Texas, alleging breach of
contract in connection with the termination of his employment by the Company.
The lawsuit alleged that the Plaintiff's damages were in excess of $50,000 but
did not allege a specific amount of damages. The Company filed an answer
generally denying the Plaintiff's allegations.
On March 25, 1996, the parties orally and informally agreed to a
settlement of the lawsuit that would, among other things, (i) change the date of
termination of the Plaintiff's employment from the original date to the date on
which the settlement agreement is signed, but without obligating the Company to
pay him any additional compensation, (ii) confirm that the option previously
granted to him under the Company's 1995 Stock Option Plan to purchase 10,000
shares of Common Stock of the Company at the original price of $18.625 per share
is still in effect, (iii) accelerate the vesting of that option so that it is
exercisable in full, (iv) confirm that in accordance with the terms of that
option he has a period of 30 days from the termination of his employment in
which to exercise the option, and (v) result in a dismissal of the lawsuit with
prejudice and release the Company from any liability to the Plaintiff arising
out of his employment or the termination thereof.
Inasmuch as the settlement agreement has not yet been reduced to writing
or signed by the parties, there can be no assurance as to whether or when the
lawsuit will be settled or, if settled, whether the terms of settlement will be
as described above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders
during the fourth quarter of the fiscal year covered by this Annual Report.
I-16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on the NASDAQ National Market
under the symbol "CARN". The following table sets forth the high and low sales
prices of the Common Stock for each of the periods indicated.
<TABLE>
<CAPTION>
Fiscal 1994 High Low
----------- ---- ---
<S> <C> <C>
First Quarter $ 14 5/8 $ 11 3/4
Second Quarter 13 5/8 9 5/8
Third Quarter 11 7/8 8
Fourth Quarter 10 3/4 9 5/8
Fiscal 1995 High Low
----------- ---- ---
First Quarter $ 11 $ 13 1/8
Second Quarter 11 1/4 24 1/2
Third Quarter 25 1/2 40 3/4
Fourth Quarter 14 3/4 32 1/2
</TABLE>
At March 15, 1996, there were 971 holders of record (including brokerage
firms and other nominees) of Common Stock.
The Company has not paid any cash dividends on the Common Stock and
presently intends to retain all earnings for use in its operations. Any decision
by the Board of Directors of the Company to pay cash dividends in the future
will depend upon, among other factors, the Company's earnings, financial
condition and capital requirements. The Company's line of credit and term loan
agreements with NationsBank of Texas, N.A. prohibits the Company from declaring
or paying cash dividends on any of its capital stock.
II-1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Selected Consolidated Financial Information
- -------------------------------------------------------------------------------------------------------------
Years Ended November 30, 1991, 1992, 1993,
1994 and Month Ended December 31, 1994 and
Year Ended December 31, 1995
November 30, December 31,
(Dollars and numbers of shares in thousands ---------------------------------------- ------------------
except per share amounts) 1991 1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT INFORMATION:
Net Sales $15,420 $20,064 $21,184 $25,430 $ 1,781 $24,374
Cost and expenses:
Cost of sales 3,288 5,113 5,289 6,415 516 7,944
Selling, general and
administrative 7,748 9,687 9,371 11,968 985 12,442
Research and development 2,896 4,141 5,397 5,334 327 5,370
Cost of uncompleted public
offering -- 400 -- -- -- --
Interest, net 310 249 218 132 23 115
- --------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,178 474 909 1,581 (70) (1,497)
Provision for income taxes 31 159 104 160 -- 131
Net income (loss) 1,147 315 805 1,421 (70) (1,628)
Net income (loss) per common
and common equivalent share: $.14 $.03 $.09 $.18 $(.01) $(.22)
- --------------------------------------------------------------------------------------------------------------
Weighted average shares
used in per share computations 6,482 6,801 7,324 7,341 7,344 7,933
- --------------------------------------------------------------------------------------------------------------
BALANCE SHEET INFORMATION:
Working capital $ 2,517 $ 5,702 $ 5,292 $ 4,720 $ 4,472 $ 8,962
Total assets 9,692 15,115 16,305 19,797 18,899 27,934
Long-term debt,
net of current portion 2,725 2,821 2,168 2,035 1,997 86
Total shareholders' investment $ 5,191 $10,062 $11,041 $12,509 $12,439 $22,399
- --------------------------------------------------------------------------------------------------------------
</TABLE>
II-2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
BACKGROUND
The Company is a research-based pharmaceutical and medical device company
engaged in the development, manufacturing and marketing of carbohydrate-based
therapeutics for the treatment of major illnesses and the dressing and
management of wounds and other skin conditions. The Company sells
nonprescription products through its wound and skin care division; veterinary
medical devices and pharmaceutical products through its veterinary medical
division; and consumer products through its consumer products subsidiary,
Caraloe, Inc. The Company's research and product portfolio is primarily based
on complex carbohydrate technology derived naturally from the Aloe vera plant.
In February 1995, the Company changed its fiscal year ending from November 30 to
December 31. Comparative financial statements reflect the single month of
December 1994, the fiscal year ended December 31, 1995, and the preceding fiscal
years ended November 30.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 and November 30, 1994, the Company held cash and cash
equivalents of $6,222,000 and $1,805,000, respectively. The increase in cash of
$4,417,000 from November 30, 1994 to December 31, 1995 was attributable to the
issuance of common stock through a private placement and the exercise of options
and warrants (see Note 8 to the consolidated financial statements) that resulted
in an additional $11,602,000 cash. The cash raised through the sale of common
stock has been used for capital expenditures of $4,492,000, to increase
inventory by $468,000, to reduce debt by a net amount of $570,000, to reduce
trade accounts payable and accrued liabilities by $1,183,000 and to increase
prepaid expenses and other assets by $666,000. Prior to the private placement,
these expenditures were funded using the Company's line of credit. Subsequent to
the private placement, the line of credit was paid off and no additional
borrowings under the line have occurred. The capital expenditures related to
construction at the Company's headquarters in Irving, Texas and the relocation
of its manufacturing facility at a leased site to an unused portion of its
headquarters (see Note 3 to the Consolidated Financial Statements).
During the first quarter of 1994, the Company completed an evaluation of the
production requirements necessary to meet all federal regulatory requirements as
a fully-integrated pharmaceutical manufacturer and to provide the production
capacity needed to meet long-term sales growth. The Company has moved its wound
and skin care manufacturing operation from a leased location to an unused
portion of the Company's headquarters facility in Irving, Texas, and expanded
its production capability through the addition of higher capacity equipment. At
the same location, the Company has upgraded its capability to enable it to
produce injectable products that meet FDA standards.
An increase in inventory was planned during the first half of the year to meet
sales requirements during the period the manufacturing operations were
relocating. However, less than forecasted sales of the Company's bulk Aloe vera
products and less than projected sales in the Company's wound and skin care
products during the year has resulted in higher than expected inventory levels.
The Company regularly evaluates its inventory levels and adjusts production
levels at both its Costa Rica plant, where the bulk freeze-dried aloe vera
extract is manufactured, and at its U.S. plant to meet anticipated demand.
As a result of these evaluations, inventory levels were reduced by $910,000
during the second half of the year.
In January 1995, the Company entered into an agreement with NationsBank of
Texas, N.A. for a $2,000,000 line of credit and a $6,300,000 term loan (see Note
6 to the consolidated financial statements). This agreement increased the
Company's available borrowing capacity by over $3,000,000. As of December 31,
1995, the Company had available $2,000,000 under the line of credit and $823,000
under the term loan. In addition to increasing the Company's credit capacity,
the agreement lowered the interest rate that the Company has to pay on its
outstanding debt by over one percent. Proceeds from the term loan were used to
fund planned capital expenditures, a letter of credit required by a supplier, as
discussed below, and planned research projects. The line of credit will be used
for operating needs, as required. As of December 31, 1995, the Company was not
in compliance with
II-3
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis, continued
- --------------------------------------------------------------------------------
with the term loan's fixed charge ratio covenant. The Company is in discussions
with the Bank and is curently working toward a long-term resolution to the non-
compliance. As no binding amendments to the term-loan have been agreed upon as
of March 31, 1996, all outstanding debt under the term loan has been presented
as current for reporting purposes. Given the current cash position, the
Company's short- and long-term liquidity will not be significantly affected.
In February 1995, the Company entered into a supply agreement with its supplier
of freeze-dried products. The agreement required that the Company establish a
$1,500,000 letter of credit. The term loan with NationsBank was used to fund
this letter of credit. The funding of the letter of credit reduces the amount
that the Company can borrow under the term loan but does not increase the
Company's debt unless the letter of credit is utilized by the supplier. As of
March 21, 1996, the supplier has not made a presentation for payment under the
letter of credit. The contract also requires the Company to accept minimum
monthly shipments of $30,000 and to purchase a minimum of $2,500,000 worth of
product over a period of five years.
On April 5, 1995, the Company completed a self-directed private placement of
300,000 shares of common stock at a price of $10 per share (see Note 8 to the
consolidated financial statements). The net proceeds from this offering were
$2,956,000. Of these proceeds, $1,919,000 was used to pay off the outstanding
balance and related interest on the Company's line of credit with NationsBank.
Additionally, $150,000 was used to pay off debt related to the Company's Costa
Rica operations that bore an interest rate of 10.875%. Remaining proceeds are
being used to fund capital expenditures, research projects and other operating
needs.
From February 1995 through December 1995, 71 employees and 6 directors exercised
options for 580,951 shares of common stock. The option prices ranged from $6.25
to $29.00. A total of $7,349,000 was raised by the Company through the exercise
of these options. As part of registering for resale the shares issued in the
April 1995 private placement, the Company allowed certain warrant holders to
include the shares of common stock underlying their warrants in the
registration if they would exercise the warrants within 30 days of the effective
date of the registration statement. Warrants covering a total of 92,000 shares
were exercised at prices of $6.25 to $16.25 per share, resulting in the
Company's receipt of a total of $1,084,000.
The Company began a large scale clinical trial during the third quarter of 1995
for the testing of its Aliminase(TM) (formerly CARN 1000) oral capsules for the
treatment of acute flare-ups of ulcerative colitis. The Company estimates that
the cost of this clinical trial will be approximately $2,000,000, of which 20%
was required as an upfront payment. Payments made in advance to the clinical
research organization resulted in prepaid expenses increasing. In late 1995, the
Company began an initial Phase I study using an injectable Alovex(TM) (formerly
CARN 750) in cancer patients involving six cancer types. The estimated cost of
this study is $475,000. In the middle of 1996, the Company may begin a second
large scale clinical trial for the testing of Aliminase(TM) oral capsules for
the treatment of ulcerative colitis. The cost of this trial is expected to be
approximately the same as the one that began in the third quarter of 1995.
In November 1995, the Company signed a licensing agreement with a supplier of
calcium alginates and other wound care products. Under the agreement, the
Company has exclusive marketing rights for ten years to advanced calcium
alginate products for North and South America and in the People's Republic of
China. Per the agreement, the Company made an up-front payment to the supplier
of $500,000. This payment resulted in increasing the prepaid assets of the
Company. Additional payments totaling $500,000 will be made to the supplier as
new products are delivered.
The Company believes that its cash resources, including available cash, bank
line of credit and term loan agreement (see Note 6 to the consolidated financial
statements) and expected revenues from sales of wound and skin care, veterinary
and consumer products will provide the funds necessary to finance its current
operations. The Company does not expect that these cash resources will be
sufficient to finance the major clinical studies necessary to develop its
products to their full commercial potential. Additional funds, therefore, may
have to be raised through equity offerings, borrowings, licensing arrangements,
or other means.
II-4
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis, continued
- --------------------------------------------------------------------------------
The Company is subject to regulation by numerous governmental authorities in the
United States and other countries. Certain of the Company's proposed products
will require governmental approval prior to commercial use. The approval process
applicable to prescription pharmaceutical products usually takes several years
and typically requires substantial expenditures. The Company and any licensees
may encounter significant delays or excessive costs in their respective efforts
to secure necessary approvals. Future United States or foreign legislative or
administrative acts could also prevent or delay regulatory approval of the
Company's or any licensees' products. Failure to obtain requisite governmental
approvals or failure to obtain approvals of the scope requested could delay or
preclude the Company or any licensees from marketing their products, or could
limit the commercial use of the products, and thereby have a material adverse
effect on the Company's liquidity and financial condition.
The production capacity of the Costa Rica plant is larger than the Company's
current usage level. Management believes, however, that the cost of the Costa
Rica facility will be recovered through operations. The upgraded facility will
provide for the production of products needed for large scale clinical trials.
At March 11, 1996, the Company had no material capital commitments other than
its promissory notes, leases, agreement with suppliers and clinical trials
described above.
IMPACT OF INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations.
FISCAL 1994 COMPARED TO FISCAL 1995
Net sales decreased from $25,430,000 to $24,374,000, or 4%. The decrease of
$1,056,000 resulted from a $2,557,000, or 11%, decrease in the Company's wound
and skin care products. Sales of these products decreased from $23,703,000 to
$21,146,000. Fourth quarter sales of the wound and skin care products decreased
from $5,900,000 to $4,348,000, or 26%. The Company's wound and skin care
products have been marketed primarily to hospitals and select acute care
providers. This market has become increasing competitive as a result of
pressures to control health care costs. Hospital and distributors have reduced
their inventory levels and the number of suppliers used. Also, health care
providers have formed group purchasing consortia to leverage their buying power.
This environment has required the Company to offer greater discounts and
allowances throughout the year to maintain customer accounts. Discounts and
allowances increased from $1,267,000 to $3,063,000. They averaged 6.2% of gross
wound care sales in the fiscal fourth quarter of 1994, compared with a 18.3%
average during the fourth quarter of 1995. In February 1996, the Company revised
its price list to more accurately reflect current market conditions. Overall
wound care prices were lowered by an average of 19%. In addition to these cost
pressures, over the last several years the average hospital stay has decreased
over 50% resulting in more patients being treated at alternative care facilities
and at home by home health care providers. This also had a negative impact on
sales since the Company's sales force had been primarily focused on the hospital
market. To counter the market changes, the sales force is now also aggressively
pursuing the alternative care markets.
To continue to grow its wound care business, the Company realized that it had to
expand from the $38 million hydrogel market in which it currently competes to a
much larger segment of the billion dollar plus wound care market. To achieve
this objective, an aggressive program of new product development and licensing
was undertaken in 1995 with the goal to create a complete line of wound care
products to address all stages of wound management. As a result of this program,
the Company launched three new wound care product lines in late January 1996.
The Company expects to launch additional products in 1996. However, the Company
expects the first quarter of 1996 wound care sales to be over $1.5 million less
than the first quarter of 1995 as a result of the reduced prices and other
competitive market factors. The Company expects the new products to improve
sales during the second quarter.
The decrease in the Company's wound and skin care products was partially offset
by an increase in sales of Caraloe, Inc., the Company's consumer products
subsidiary. Caraloe's sales increased from $1,361,000 to $2,907,000, or 114%. Of
this, $1,513,000 is related to the sale of bulk Manapol(R) to one customer,
Mannatech. Sales of bulk Manapol(R) to Mannatech increased from $934,000 to
$2,447,000. Sales of the
II-5
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis, continued
- --------------------------------------------------------------------------------
Company's veterinary products decreased from $366,000 to $321,000. In March
1996, the Company entered into an agreement with Farnam, Companies, Inc., a
leading marketer of veterinary products, to promote and sell its veterinary line
on a broader scale.
Cost of sales increased from $6,415,000 to $7,944,000, or 23.8%. As a percentage
of sales, cost of sales increased from 25.2% to 32.6%. This increase is
attributable to the increased sales of bulk Manapol(R), which has a
substantially lower profit margin, 33%, as compared to the Company's wound and
skin care products. In January 1996, the profit margin on Manapol(R) was reduced
to 8% as a result of current production levels and costs at the Company's Costa
Rica facility. Also, the increasing discounts, as discussed earlier, resulted in
the Company's wound and skin care product costs increasing by approximately 4%
as a percentage of sales.
Selling, general and administrative expenses increased from $11,968,000 to
$12,442,000, or 4%. To accelerate new product development and reduce overhead,
the Company was restructured. As a result of the restructuring, approximately
$1.4 million of one-time charges were taken during 1995. Of these charges,
approximately $700,000 were selling, general and administrative expenses,
$500,000 related to severance agreements, $130,000 in increased legal fees and
$70,000 to writing off refinancing costs that were incurred when the Company
refinanced its long term debt in 1993.
Research and development expenses increased from $5,334,000 to $5,370,000, or
1%. During the first half of 1995, $564,000 of cost associated with severance
agreements was charged to research and development. These charges reduced
internal salaries on an ongoing basis. However, this reduction was offset by
beginning the large scale clinical trial for the testing of Aliminase(TM)
(formerly CARN 1000) oral capsules for the treatment of acute flare-ups of
ulcerative colitis during the third quarter of 1995. The Company expects its
research and development costs to increase by over $2,000,000 in 1996 due to the
ulcerative colitis and cancer studies.
Interest expense increased from $171,000 to $251,000, or 47%, due to increased
borrowings during the first four months of 1995. Interest income increased from
$38,000 to $136,000, or 258%, due to having more excess cash to invest.
Net income for 1994 was $1,421,000, compared with a net loss of $1,628,000 for
1995. This change is a result a changing product mix, increased discounts and
one-time charges related to restructuring. Earnings per share were $.18 in
1994, compared to a loss per share of $.22 in 1995.
FISCAL 1993 COMPARED TO FISCAL 1994
Net sales increased from $21,184,000 to $25,430,000, or 20%. The increase of
$4,246,000 resulted from a $3,220,000, or 16%, increase in sales of the
Company's wound and skin products due to a price increase that went into effect
in January 1994. Actual unit sales of the wound and skin care products were
unchanged from 1993 to 1994. Also attributing to this increase is a $1,084,000,
or 393%, increase in sales of Caraloe, Inc., products, including bulk
Manapol(R). These increases were partially offset by a $58,000, or 13%, decline
in sales of veterinary products.
Cost of sales increased from $5,288,000 to $6,415,000, or 21%, due to increase
in net sales. As a percentage of net sales, cost of sales was 25% in 1993 and
1994.
Selling, general and administrative expenses increased from $9,371,000 to
$11,968,000, or 28%, representing a $1,904,000 volume-related increase in sales
and marketing expenses and a $693,000 increase in general and administrative
expenses attributable to increases in personnel-related costs and legal
expenses.
Research and development expenses decreased from $5,397,000 to $5,334,000, or
1%. Significant research and development expenditures were postponed in 1994
principally due to deferred clinical studies while the Company was upgrading its
manufacturing facilities to meet specification requirements for new products and
while it was obtaining the necessary FDA clearances to conduct the clinical
studies.
Interest expense decreased from $259,000 to $171,000. Interest income decreased
slightly from $40,000 to $38,000. Net income increased from $805,000 to
$1,421,000, or 77%, with earnings per share increasing from $.09 to $.18.
II-6
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Consolidated Financial Statements of the Company
and its subsidiaries listed on page F-1 of this Annual Report, which are hereby
incorporated by reference in this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no changes in or disagreements with accountants on accounting
and financial disclosure matters during any period covered by the financial
statements filed herein or any period subsequent thereto.
II-7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K is hereby incorporated by
reference from the information appearing under the captions "Election of
Directors," "Executive Officers" and "Section 16(a) Compliance" in the Company's
definitive Proxy Statement relating to its 1996 annual meeting of shareholders,
which will be filed pursuant to Regulation 14A within 120 days after the
Company's fiscal year ended December 31, 1995.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is hereby incorporated by
reference from the information appearing under the caption "Executive
Compensation" in the Company's definitive Proxy Statement relating to its 1996
annual meeting of shareholders, which will be filed pursuant to Regulation 14A
within 120 days after the Company's fiscal year ended December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is hereby incorporated by
reference from the information appearing under the captions "Security Ownership
of Management" and "Voting Securities and Principal Shareholders" in the
Company's definitive Proxy Statement relating to its 1996 annual meeting of
shareholders, which will be filed pursuant to Regulation 14A within 120 days
after the Company's fiscal year ended December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of Form 10-K is hereby incorporated by
reference from the information appearing under the caption "Certain
Transactions" in the Company's definitive Proxy Statement relating to its 1996
annual meeting of shareholders, which will be filed pursuant to Regulation 14A
within 120 days after the Company's fiscal year ended December 31, 1995.
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
Reference is made to the index on page F-1 for a list of all financial
statements filed as a part of this Annual Report.
(a)(2) Financial Statement Schedules.
Reference is made to the index on page F-1 for a list of all financial
statement schedules filed as a part of this Annual Report.
(a)(3) Exhibits.
Reference is made to the Index to Exhibits on pages E-1 through E-7 -- for
a list of all exhibits filed as a part of this Annual Report.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the last quarter of its
fiscal year ended December 31, 1995.
IV-1
<PAGE>
CARRINGTON LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Consolidated Financial Statements of the Company:
Consolidated Balance Sheets -- November 30, 1994, December 31, 1994 and 1995 ....................... F - 2
Consolidated Statement of Operations -- years ended November 30, 1993 and
1994, month ended December 31, 1994
and year ended December 31, 1995 ................................................................. F - 3
Consolidated Statements of Shareholders' Investment --years ended November
30, 1993 and 1994, month ended December 31, 1994
and year ended December 31, 1995 ................................................................. F - 4
Consolidated Statements of Cash Flows -- years ended November 30, 1993 and
1994, month ended December 31, 1994
and year ended December 31, 1995 ................................................................. F - 5
Notes to Consolidated Financial Statements ......................................................... F - 6
Report of Independent Public Accountants .......................................................... F - 12
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
- ----------------------------------------------------------------------------------------------------------------------------------
As of November 30, 1994 December 31, 1994 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,804,638 $ 464,367 $ 6,222,008
Accounts receivable, net of allowance
for doubtful accounts of $197,586, $204,905
and $226,884 at November 30, 1994, December 31,
1994 and December 31, 1995, respectively 2,891,375 2,884,911 2,226,651
Inventories 4,635,769 5,047,149 5,103,988
Prepaid expenses and other 641,184 538,650 858,506
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 9,972,966 8,935,077 14,411,153
- ----------------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, at cost 14,441,430 14,726,840 18,932,959
Less -- Accumulated depreciation (4,981,041) (5,070,401) (6,222,309)
- ----------------------------------------------------------------------------------------------------------------------------------
9,460,389 9,656,439 12,710,650
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 363,391 307,460 812,294
- ----------------------------------------------------------------------------------------------------------------------------------
$ 19,796,746 $ 18,898,977 $ 27,934,097
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 649,993 $ 450,395 $ 3,026,287
Accounts payable 1,217,511 1,557,946 589,607
Accrued liabilities 2,385,842 1,408,075 1,830,573
Short-term borrowings 1,000,000 1,046,532 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,253,346 4,462,948 5,446,467
- ----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, net of current portion 2,034,563 1,997,261 88,506
- ----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' INVESTMENT:
Preferred stock, $100 par value, 1,000,000 shares
authorized, 10,572, 10,572 and 11,840 Series C shares
issued at November 30, 1994, December 31, 1994
and December 31, 1995, respectively 1,040,634 1,040,634 1,167,434
Common stock, $.01 par value, 30,000,000 shares
authorized, 7,344,390, 7,344,390 and 8,378,999 shares
issued and outstanding at November 30, 1994,
December 31, 1994 and December 31, 1995, respectively 73,444 73,444 83,790
Capital in excess of par value 33,074,508 33,074,508 44,666,112
Deficit (21,505,938) (21,576,007) (23,344,401)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (173,811) (173,811) (173,811)
- ----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' investment 12,508,837 12,438,768 22,399,124
$19,796,746 $ 18,898,977 $ 27,934,097
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations
- ---------------------------------------------------------------------------------------------------------------------------
For the Years Ended November 30, 1993, 1994, November 30, December 31,
and the Month Ended December 31, 1994 -------------------------- ------------------------
and the Year Ended December 31, 1995 1993 1994 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $21,183,774 $25,429,654 $1,781,017 $24,374,090
COST AND EXPENSES:
Cost of sales 5,288,450 6,414,757 516,247 7,944,271
Selling, general and administrative 9,370,946 11,968,200 984,535 12,441,972
Research and development 5,397,000 5,333,780 326,916 5,370,109
Interest expense 258,606 170,755 23,413 250,751
Interest income (39,860) (38,411) (25) (136,096)
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 908,632 1,580,573 (70,069) (1,496,917)
Provision for income taxes 104,000 159,335 -- 131,350
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 804,632 $ 1,421,238 $ (70,069) $(1,628,267)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE: $.09 $.18 $(.01) $(.22)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Investment
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended November 30, Foreign
1993 and 1994, and the Month Preferred Stock Common Stock Capital in Currency
Ended December 31, 1994, and the ----------------------------------------------------- Excess of Translation
Year Ended December 31, 1995, Shares Amount Shares Amount Par Value Deficit Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, November 30, 1992 8,429 $ 826,334 7,296,202 $72,962 $32,761,703 $(23,495,021) $(103,923)
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock
upon exercise of stock
options and warrants -- -- 40,377 404 253,933 -- --
Dividends on preferred stock 1,011 101,100 -- -- -- (111,674) --
Net income for the year -- -- -- -- -- 804,632 --
Translation adjustment -- -- -- -- -- -- (69,888)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, November 30, 1993 9,440 927,434 7,336,579 73,366 33,015,636 (22,802,063) (173,811)
- -------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock
upon exercise of stock
options and warrants -- -- 7,811 78 58,872 -- --
Dividends on preferred stock 1,132 113,200 -- -- -- (125,113) --
Net income for the year -- -- -- -- -- 1,421,238 --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, November 30, 1994 10,572 $1,040,634 7,344,390 $73,444 $33,074,508 $(21,505,938) $(173,811)
- -------------------------------------------------------------------------------------------------------------------------------
Net loss for the month -- -- -- -- -- (70,069) --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994 10,572 $1,040,634 7,344,390 $73,444 $33,074,508 $(21,576,007) $(173,811)
- -------------------------------------------------------------------------------------------------------------------------------
Sale of common stock at
$10 per share, net of
issuance
costs of $40,732 -- -- 300,000 3,000 2,956,268 -- --
Issuance of common stock
upon exercise of stock
options and warrants -- -- 710,536 7,105 8,426,340 -- --
Issuance of common stock for
management and directors'
compensation -- -- 24,073 241 208,996 -- --
Dividends on preferred stock 1,268 126,800 -- -- -- (140,127) --
Net loss for the year -- -- -- -- -- (1,628,267) --
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 11,840 $1,167,434 8,378,999 $83,790 $44,666,112 $(23,344,401) $(173,811)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------
For the Years Ended November 30, 1993
and 1994 and the Month Ended November 30, December 31,
December 31, 1994 and the ------------------------- -------------------------
Year Ended December 31, 1995
1993 1994 1994 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 804,632 $ 1,421,238 $ (70,069) $(1,628,267)
Adjustments to reconcile
income (loss)
to net cash provided
(used)
by operating activities:
Depreciation and
amortization 964,380 1,206,323 109,648 1,277,466
Changes in assets and
liabilities:
Decrease (increase) in
accounts receivable, net 483,691 (603,534) 6,464 658,260
(Increase) in inventories (230,018) (2,072,239) (411,380) (56,839)
Decrease (increase) in
prepaid expenses and
other 227,782 (427,752) 102,534 (319,856)
(Increase) decrease in
other assets (90,290) 7,535 35,642 (630,391)
Increase (decrease) in
accounts payable and
accrued liabilities.. 773,838 838,264 (637,332) (559,168)
- ------------------------------------------------------------------------------------------------
Net cash provided (used) by
operating activities.... 2,934,015 369,835 (864,493) (1,258,795)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property,
plant and equipment (1,575,426) (3,014,053) (285,410) (4,206,119)
- ------------------------------------------------------------------------------------------------
Net cash used by
investing activities.... (1,575,426) (3,014,053) (285,410) (4,206,119)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuances of common stock 254,337 58,951 -- 11,392,713
Proceeds from short and
long-term borrowings -- 1,500,000 -- 5,741,569
Payments of short and
long-term debt (590,730) (385,224) (187,111) (5,847,644)
Principal payments of
capital lease obligations (69,819) (48,266) (3,257) (64,083)
- ------------------------------------------------------------------------------------------------
Net cash (used) provided by
financing activities (406,212) 1,125,461 (190,368) 11,222,555
- ------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (4,034) -- -- --
- ------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND
CASH EQUIVALENTS 948,343 (1,518,757) (1,340,271) 5,757,641
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 2,375,053 3,323,396 1,804,638 464,367
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 3,323,396 $ 1,804,639 $ 464,367 $ 6,222,008
- ------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the
year for interest $ 283,938 $ 206,129 $ 20,386 $ 281,476
Cash paid during the
year for income taxes 166,210 124,120 -- 99,157
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING
ACTIVITIES:
Equipment acquired
through capital leases -- 114,203 -- --
Issuances of common
stock and warrants -- -- -- 209,237
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In February 1995, the Company changed its fiscal year ending from November 30 to
December 31. Comparative financial statements reflect the single month of
December 1994, the fiscal year ended December 31, 1995, and the preceding fiscal
years ended November 30.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of Carrington Laboratories, Inc. (the "Company") and its
subsidiaries, all of which are wholly owned. All intercompany accounts and
transactions have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform with 1995 presentation.
CASH EQUIVALENTS The Company's policy is that all highly liquid investments
purchased with a maturity of three months or less are considered to be cash
equivalents.
DEPRECIATION AND AMORTIZATION Land improvements, buildings and improvements,
furniture and fixtures and machinery and equipment are depreciated on the
straight-line method over their estimated useful lives (3 - 40 years). Leasehold
improvements and equipment under capital leases are depreciated over the terms
of the respective leases (2 - 5 years).
TRANSLATION OF FOREIGN CURRENCIES Based on an evaluation of the activities
of its Costa Rica subsidiaries, as of September 1, 1993, the Company concluded
that the functional currency for these operations was the U.S. dollar.
Accordingly, such foreign entities translate monetary assets a nd liabilities at
year-end exchange rates while non-monetary items are translated at historical
rates. Revenue and expense accounts are translated at the average rates in
effect during the year, except for depreciation and cost of sales which are
transl ated at historical rates. Translation adjustments and transaction gains
or losses are recognized in consolidated income in the year of occurrence.
Prior to September 1, 1993, all assets and liabilities of foreign subsidiaries
were translated into U.S. dollars at the exchange rates in effect at the balance
sheet date. Revenue and expense accounts were translated at weighted average
exchange rates. Translation gains and losses were reflected as a separate
component of shareholders' investment.
FEDERAL INCOME TAXES Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," was issued in February 1992. As permitted
under SFAS No. 109, the Company elected to adopt the new standard retroactively
to December 1, 1989. The adoption of SFAS No. 109 had no significant impact on
the financial condition and results of operations for any of the years
presented.
Deferred income taxes reflect the tax effect of temporary differences between
the amount of assets and liabilities recognized for financial reporting and tax
purposes. These deferred taxes are measured by applying currently enacted tax
laws. The effect on deferred income tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Certain of the Company's research and development expenditures qualify for tax
credits and such credits are accounted for as a reduction of the current
provision for income taxes in the year they are realized.
RESEARCH AND DEVELOPMENT Research and development costs are expensed as
incurred. Certain laboratory and test equipment determined to have alternative
future uses in other research and development activities have been capitalized
and are depreciated as research and development expense over the life of the
equipment.
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS The Financial Accounting
Standards Board has issued SFAS No. 106, "Employers' Accounting for Post-
Retirement Benefits Other Than Pensions" and SFAS No. 112, "Employers'
Accounting for Post-Employment Benefits." The Company does not offer any post-
retirement or post-employment benefits; therefore, these statements have no
impact on the Company.
EARNINGS PER SHARE Earnings per share are based on the weighted average
number of common and common equivalent shares outstanding during each period.
Stock options and warrants are included as common stock equivalents if the
dilutive effect on net earnings per share is greater than 3%. The common stock
equivalents were either antidilutive, or represented dilution of less than 3%,
in 1993, 1994 and 1995. The weighted average number of common shares used in
computing earnings per share was 7,323,521, 7,340,982 and 7,932,675 for the
years ended November 30, 1993, 1994 and December 31, 1995.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-6
<PAGE>
NOTE TWO. INVENTORIES:
Inventories are recorded at the lower of first-in, first-out cost or market. The
following summarizes the components of inventory at November 30, 1994 and
December 31, 1995:
<TABLE>
<CAPTION>
1994 1995
- ----------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 577,475 $ 583,408
Work-in-process 2,615,090 2,725,399
Finished goods 1,443,204 1,795,181
- ----------------------------------------------------
$4,635,769 $5,103,988
- ----------------------------------------------------
</TABLE>
Included in work-in-process is $2,495,021 and $2,537,546 of freeze-dried aloe
vera inventory as of November 30, 1994 and December 31, 1995, respectively.
Finished goods consist of materials, labor and manufacturing overhead.
NOTE THREE. PROPERTY, PLANT AND EQUIPMENT:
The Company has a 6.6 acre tract of land and a 35,000 square foot office and
manufacturing building situated thereon. This facility is located in Irving,
Texas, a suburb of Dallas, and is used as the Company's headquarters.
During July 1995, the Company completed the manufacturing and distribution
project started during the first quarter of 1994. The project involved the
physical relocation of its manufacturing operation from a leased facility in
Dallas to an unused portion at the Company's corporate headquarters facility in
Irving, Texas. The new facility is intended to meet all federal regulatory
requirements applicable to provide the production capacity needed to meet long-
term sales growth. At the same location, the Company has upgraded its capability
to enable it to produce FDA injectable products that meet FDA standards. The
total cost expended on the project was $4,469,000.
During the first quarter of 1994, the Company initiated a project in Costa Rica
to upgrade its production plant to meet regulatory requirements for the
production of bulk acetylated oral and injectable mannans as required for
investigational new drugs (INDs). This project was completed in the fourth
quarter of 1994 and cost approximately $1,200,000. Funding was provided by
existing cash on hand and cash flow from operations. The Company's net
investment in property, plant, equipment and other assets in Costa Rica at
November 30, 1994 and December 31, 1995 were $4,545,000 and $4,280,000,
respectively.
The production capacity of the Costa Rica plant is larger than the Company's
current usage level. Management believes, however, that the cost of the Costa
Rica facility will be recovered through operations. The upgraded facility will
provide for the production of products needed for large scale clinical trials.
Management will continue to assess the realizability of the Costa Rica plant
assets and will use the methodology described in SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
when it adopts that statement in 1996.
The following summarizes the components of property, plant and equipment at
November 30, 1994 and December 31, 1995:
<TABLE>
<CAPTION>
1994 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 1,389,433 $ 1,389,334
Buildings and improvements 4,166,115 8,072,992
Furniture and fixtures 822,666 867,571
Machinery and equipment 7,314,440 7,825,667
Leasehold improvements 301,846 330,465
Equipment under capital leases 446,930 446,930
- ----------------------------------------------------------------------------
$14,441,430 $18,932,959
- ----------------------------------------------------------------------------
</TABLE>
NOTE FOUR. ACCRUED LIABILITIES:
The following summarizes significant components of accrued liabilities at
November 30, 1994 and December 31, 1995:
<TABLE>
<CAPTION>
1994 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Accrued payroll $ 587,038 $ 210,185
Accrued management
incentive compensation
386,533 -
Accrued sales commissions 199,622 251,511
Accrued taxes 133,055 165,249
Preferred dividends 111,168 124,495
Accrued severance liability 126,554 266,735
Other 841,872 812,398
- ----------------------------------------------------------------------------
$ 2,385,842 $ 1,830,573
- ----------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
- --------------------------------------------------------------------------------
Notes, continued
- --------------------------------------------------------------------------------
NOTE FIVE. SHORT-TERM BORROWINGS:
Short-term debt activity for each of the years ended November 30, 1994 and
December 31, 1995 was as follows:
<TABLE>
<CAPTION>
1994 1995
- ------------------------------------------------------
<S> <C> <C>
Average amount
of short-term
debt outstanding
during the year $ 3,000 $ 467,667
Maximum amount
of short-term
debt outstanding
during the year 1,000,000 1,905,259
Average interest rate
at year end 9.25% -
Average interest rate
for the year - 8.9%
- ------------------------------------------------------
</TABLE>
NOTE SIX. DEBT:
On January 30, 1995, the Company entered into an agreement with NationsBank of
Texas, N.A. (the "Bank"). The agreement is composed of a $2,000,000 line of
credit that expires one year from the date of the agreement and a $6,300,000
term loan that matures four years from the date of the agreement. The term loan
is payable in equal quarterly installments of $250,000 principal, plus accrued
interest beginning March 31, 1995 and ending January 30, 1999, when the unpaid
balance is due. The interest rate on both credit facilities is the Company's
option of prime plus .5% or 30, 60, 90, 180 day reserve adjusted LIBOR (London
Interbank Offering Rate) plus 2%. The Company paid a commitment fee of $31,500
on the closing date. In February, the Bank waived the requirement that the Costa
Rica assets be pledged to secure the term loan. The Company agreed to pay an
additional commitment fee of $31,500 at that time. $1,900,000 of the borrowings
from the Bank were used to pay off all of the outstanding balances on notes due
to Texas Commerce Bank Dallas, N.A. and $1,827,000 was used to pay off the
outstanding balance on the mortgage on the Company's headquarters building in
Irving, Texas. Of the term loan, $1,500,000 was carved out to provide a letter
of credit to a supplier. The letter of credit did not increase long-term debt
but reduced the amount available to borrow under the term loan. The remaining
proceeds will be used to fund planned capital expenditures, planned research
projects, and other operating needs. As of December 31, 1995, no amounts were
outstanding under the line of credit and $2,977,000 was outstanding under the
term loan. The interest rate on the borrowing ranged from 7.70% to 8.125%
between January 30, 1995 and December 31, 1995.
The borrowings under the agreement are secured by the Company's assets in the
United States. The Company is required to maintain a consolidated tangible net
worth of $12,000,000 through November 29, 1995; $13,750,000 thereafter through
November 29, 1996; $15,250, 000 thereafter through November 29, 1997; and
$16,750,000 thereafter. Also, the Company cannot permit the ratio of its
consolidated total liabilities to consolidated tangible net worth to exceed 1.0
to 1.0 at any time; the ratio of the sum of pretax net income plus unusual
charges (severance, extraordinary legal fees and debt refinancing costs related
to terminated debt agreements) plus interest expense plus lease expense to fixed
charges (interest expense and lease expense) to be less than 1.75 to 1.0; or
capital expenditures to exceed $6,500,000 from the date of the agreement to
December 31, 1995 or $2,000,000 per year for the calendar years thereafter. In
addition, the Company may not pay cash dividends. As of December 31, 1995, the
Company was not in compliance with the term loan's fixed charge ratio covenant.
The Company is in discussions with the Bank and is currently working toward a
long-term resolution to the non-compliance. As no binding amendments to the
term-loan have been agreed upon as of March 31, 1996, all outstanding debt under
the term loan has been presented as current for reporting purposes. Given the
current cash position, the Company's short- and long-term liquidity will not be
significantly affected.
In order to help finance the development of the Company's Costa Rica facilities,
the Company arranged a five-year U.S. dollar-denominated loan in the amount of
$600,000 from Corporacion Privada de Inversiones de CentroAmerica, S.A. In May
1995, the note was paid off using proceeds of the Company's private placement
(see Note 8.)
Long-term debt of the Company for the years ended November 30, 1994 and December
31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
- ----------------------------------------------------------
<S> <C> <C>
Note payable on land
and building $1,829,199 $
Note payable on Costa Rica
development costs 233,318 -
Term Loan 416,667 2,977,071
Obligations under capital leases 205,372 137,722
- ----------------------------------------------------------
2,684,556 3,114,793
Less - Current portion 649,993 3,026,287
- ----------------------------------------------------------
$2,034,563 $ 88,506
- ----------------------------------------------------------
</TABLE>
F-8
<PAGE>
The Company leases certain computer and other equipment under capital leases
expiring at various dates through 1998. The following is a schedule of future
minimum lease payments under the capital lease agreements together with the
present value of these payments as of December 31, 1995:
<TABLE>
<CAPTION>
Fiscal Years Ending December 31,
<S> <C>
- -----------------------------------------------
1996 $ 58,910
1997 51,164
1998 45,425
- -----------------------------------------------
Aggregate minimum lease payments 155,499
Less - Imputed interest included in
aggregate minimum lease payments 17,777
- -----------------------------------------------
Present value of aggregate minimum
lease payments $137,722
- -----------------------------------------------
</TABLE>
NOTE SEVEN. PREFERRED STOCK:
SERIES C SHARES In June 1991, the Company completed a transaction whereby
the Company issued 7,909 shares of Series C 12% cumulative convertible preferred
stock (the "Series C Shares") in exchange for convertible debentures plus
interest accrued to the date of exchange to a private investor (the "Investor").
The Series C Shares have a par value of $100 per share, are convertible at par
into common stock of the Company at a price of $7.58 per share (subject to
certain adjustments), are callable by the Company after Ja nuary 14, 1996 and
provide for dividend payments to be made only through the issuance of additional
Series C Shares.
Subsequent to year end, all cumulative convertible preferred stock was converted
to 174,935 shares of the Company's common stock.
The Company had previously issued to the Investor a warrant to purchase 25,000
shares of common stock of the Company at $15 per share through February 1, 1996.
The Company also extended by three years, to February 1, 1996, the life of
certain warrants t hat had previously been issued to this Investor for the
purchase of 50,000 shares of common stock of the Company (20,000 of which are
now owned 10,000 shares each by two executives of the Investor, one of whom is a
director of the Company), and reduced the exercise price of such warrants from
$25 to $15 per share, which was above the market price of the common stock at
the date of adjustment.
In addition to issuing the Series C Shares to the Investor, the Company also
reduced the exercise price of warrants held by the Investor and one of its
executive officers to purchase 65,000 shares of the Company's common stock from
$15 per share to $12.75 per share, which was above the market price of the
common stock at the date of adjustment.
Subsequent to year end, the Investor exercised 25,000 warrants and the remaining
30,000 warrants at $12.75 per share.
NOTE EIGHT. COMMON STOCK:
PRIVATE PLACEMENT OF COMMON STOCK In April 1995, the Company completed a
self-directed private placement of 300,000 shares of unregistered common stock
at a price of $10.00 per share. The average of the high and low sale price of
the Company's common stock on the NASDAQ National Market on the day of the
placement was $10.69 per share. Total proceeds net of issuance cost was
$2,956,268. The Company agreed to use its best efforts to file a registration
statement with the Securities and Exchange Commission within 90 days after the
placement. Effective July 11, 1995, shares related to the private placement were
registered for resale with the Securities and Exchange Commission. Proceeds from
the placement were used for planned capital expenditures, payment of bank debt,
research and development expenditures and other operating needs.
STOCK OPTIONS The following summarizes stock option activity for each of the
three years ended November 30, 1993, 1994 and December 31, 1995:
<TABLE>
<CAPTION>
Options Outstanding
Shares Price Per Share
- ------------------------------------------------------------
<S> <C> <C>
Balance, November 30, 1992 644,855 $6.25 to $29.00
Granted 240,205 $8.625 to $13.50
Lapsed or cancelled (114,320) $6.25 to $29.00
Exercised (17,025) $6.25 to $10.25
- ------------------------------------------------------------
Balance, November 30, 1993 753,715 $6.25 to $29.00
Granted 268,350 $8.25 to $12.75
Lapsed or cancelled (118,275) $6.25 to $21.725
Exercised (7,100) $6.25 to $10.25
- ------------------------------------------------------------
Balance, November 30, 1994 896,690 $6.25 to $29.00
Granted 575,475 $11.125 to $35.25
Lapsed or cancelled (72,036) $8.625 to $20.125
Exercised (580,951) $6.25 to $29.00
- ------------------------------------------------------------
Balance, December 31, 1995 819,178 $6.25 to $35.25
- -------------------------------------------------------------
Options exercisable at
December 31, 1995 175,424 $6.25 to $29.00
- -------------------------------------------------------------
</TABLE>
The Company has an incentive stock option plan (the "Option Plan") under which
incentive stock options and nonqualified stock options may be granted to certain
employees. Options are granted at a price no less than the market value of the
shares on the date of the grant, except for incentive options to employees who
own more than 10% of the total voting power of the Company's common stock, to
whom incentive options are granted at a price no less than
F-9
<PAGE>
110% of the market value. Options granted expire four to ten years from the
dates of grant.
The Company has reserved 1,500,000 shares of common stock for issuance under the
Option Plan. As of December 31, 1995 options to purchase 369,725 shares have
been granted under the option plan, of which no options for shares have been
exercised. The Company's 1985 Option Plan expired February 1995. The Company has
reserved 1,400,000 shares of common stock for issuance under this plan. At the
time the plan expired, options to purchase 1,150,440 had been granted, of which
options for 678,951 shares have been exercised.
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was
issued. The disclosure requirements of this statement are effective for
financial statements for fiscal years beginning after December 15, 1995. The
Company intends to elect the option allowing it to continue to apply the
accounting provisions of APB Opinion 25, "Accounting for Stock Issued to
Employees." With the Company's plan of adoption, the impact will be limited to
additional footnote disclosure.
STOCK WARRANTS From time to time, the Company has granted warrants to purchase
common stock to the Company's research consultants and certain other persons
rendering services to the Company. The exercise price of such warrants was the
market price or in excess of the market price of the common stock at date of
issuance. The following summarizes warrant activity for each of the years ended
November 30, 1993, 1994 and December 31, 1995:
<TABLE>
<CAPTION>
Warrants Outstanding
Shares Price Per Share
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, November 30, 1992 330,376 $ 5.25 to $30.50
Granted 10,000 $13.00
Lapsed or cancelled (41,126) $19.75 to $30.50
Exercised (20,750) $ 5.25 to $ 6.25
- -----------------------------------------------------------------------
Balance, November 30, 1993 278,500 $ 6.25 to $26.00
Lapsed or cancelled (42,500) $18.00 to $26.00
- -----------------------------------------------------------------------
Balance, November 30, 1994 236,000 $ 6.25 to $20.125
Lapsed or cancelled (130,000) $11.25 to $26.00
Exercised (92,000) $ 6.25 to $16.25
- -----------------------------------------------------------------------
Balance, December 31, 1995 99,000 $12.125 to $20.125
- -----------------------------------------------------------------------
Warrants exercisable at
December 31, 1995 99,000 $12.125 to $20.125
- -----------------------------------------------------------------------
</TABLE>
Warrants for 78,000 shares expire in 1996. The remaining warrants for 21,000
shares expire between 2000 and 2002.
EMPLOYEE STOCK PURCHASE PLAN On October 29, 1992, the Company adopted an
Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the Stock
Purchase Plan, employees may purchase common stock at a price equal to the
lesser of 85% of the market price of the Company's common stock on the last
business day preceding the enrollment date as defined as January 1, April 1,
July 1 or October 1 or any plan year or 85% of the market price on the last
business day of the month. If any employee elects to terminate participation in
the Stock Purchase Plan, the employee is not eligible to re-enroll until the
first enrollment date following six months from such election. The Stock
Purchase Plan provides for the grant of rights to employees to purchase a
maximum of 500,000 shares of common stock of the Company commencing on January
1, 1993. As of December 31, 1995, 48,731 shares had been purchased by employees
at prices ranging from $7.23 to $29.54 per share.
NOTE NINE. SHARE PURCHASE RIGHTS PLAN:
The Company's Board of Directors adopted a share purchase rights plan by
declaring a dividend distribution of one preferred share purchase right (a
"Right") on each outstanding share of the Company's common stock (the "Common
Shares"). The dividend distribution was made October 15, 1991, payable to
shareholders of record on that date. The Rights are subject to an agreement (the
"Rights Agreement") between the Company and the Company's stock transfer agent,
and will expire October 15, 2001, unless redeemed at an earlier date.
Pursuant to the Rights Agreement, each Right will entitle the holder thereof to
buy one one-hundredth of a share of the Company's Series D Preferred Stock (the
"Preferred Shares"), at an exercise price of $80, subject to certain
antidilution adjustments. The Rights will not be exercisable or transferable
apart from the Common Shares, until (i) the tenth day after a person or group
acquires 20% or more of the Common Shares or (ii) the tenth business day
following the commencement of, or the announcement of an intention to make, a
tender or exchange offer for 20% or more of the Common Shares. The Rights will
not have any voting rights or be entitled to dividends. If the Company is
acquired in a merger or other business combination, each Right will entitle its
holder to purchase, at the exercise price of the Right, a number of the
acquiring company's common shares having a current market value of twice such
F-10
<PAGE>
price. Alternately, if a person or group acquires 20% or more of the Common
Shares, then each Right not owned by such acquiring person or group will entitle
the holder to purchase, for the exercise price, a number of Common Shares having
a market value of twice such price. The Rights are redeemable at the Company's
option for $.01 per Right at any time prior to the close of business on the
seventh day after the first date of public announcement that a person or group
has acquired beneficial ownership of 20% or more of the Common Shares. At any
time after a person or group acquires 20% or more of the Common Shares, but
prior to the time such acquiring person acquires 50% or more of the Common
Shares, the Company's Board of Directors may redeem the Rights (other than those
owned by the acquiring person or group), in whole or in part, by exchanging one
Common Share for each Right.
NOTE TEN. OPERATING LEASES:
The Company conducts a significant portion of its operations from an
office/warehouse/distribution facility and an office/laboratory facility under
operating leases that expire over the next seven years. In addition, the Company
leases certain office equipment under operating leases that expire over the next
four years.
The Company is committed under noncancellable operating leases, with minimum
lease payments as of December 31, 1995 as follows:
<TABLE>
<CAPTION>
Fiscal Years Ending December 31,
- ----------------------------------------------
<S> <C>
1996 $ 403,425
1997 410,130
1998 419,733
1999 394,128
2000 134,055
Thereafter 82,809
- ----------------------------------------------
Total minimum lease payments $1,844,280
- ----------------------------------------------
</TABLE>
Total rental expense under operating leases was $422,337, $446,935 and $363,973
for the years ended November 30, 1993, 1994 and December 31, 1995, respectively.
NOTE ELEVEN. INCOME TAXES:
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at November 30, 1994 and December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
1994 1995
- -----------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------
Net operating loss carryforward $6,744,072 $ 9,834,875
Research and development
and other credits 860,509 839,189
Patent fees 287,450 308,110
Other, net 526,930 794,948
Less - Valuation allowance (8,418,961) (11,777,122)
- -----------------------------------------------------------------
Deferred income tax asset $ - $ -
- -----------------------------------------------------------------
</TABLE>
Pursuant to the requirements to SFAS No. 109, a valuation allowance is provided
when it is more likely than not the deferred income tax asset will not be
realized. The Company has provided a valuation allowance against the entire
deferred tax asset at November 30, 1994 and December 31, 1995.
The provision for income taxes for the years ended November 30, 1993, 1994 and
December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Current provision $104,000 $159,335 $131,350
Deferred provision, net - - -
- -------------------------------------------------------
Total provision $104,000 $159,335 $131,350
- -------------------------------------------------------
</TABLE>
The differences (expressed as a percentage of pre-tax income) between the
statutory and effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
- -----------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 34.0% 34.0% (34.0%)
State income taxes 6.2 5.4 2.8
Recognition of previously
unrecognized deferred
tax benefits (36.6) (35.3) -
Unrecognized deferred tax
benefit - - 34.6
Expenses related to foreign
operations 6.2 4.7 4.1
Research and development
tax credit adjustment .7 .5 -
Other .9 .8 1.3
- -----------------------------------------------------
Effective tax rate 11.4% 10.1% 8.8%
- -----------------------------------------------------
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $28,926,000 for federal income tax purposes, which expire during
the period from 2000 to 2010, and investment and research and development tax
credit carryforwards of approximately $839,000, which expire during the period
from 1999 to 2008, all of which are available to offset federal income taxes due
in future periods.
F-11
<PAGE>
NOTE TWELVE.
CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially expose the Company to concentrations of
credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are not concentrated in any specific
geographic region but are concentrated in the health care industry. Significant
sales were made to two unaffiliated customers, Baxter Healthcare Corporation
accounted for $2,146,000, $2,775,000 and $3,347,768 and Owens & Minor accounted
for $1,780,308, $1,794,609 and $3,347,768 of the Company's net sales in 1993,
1994 and 1995, respectively. Sales by Caraloe, Inc. to an unaffiliated customer,
Mannatech, Inc., formerly Emprise, Inc., accounted for $0, $934,000 and
$2,488,000 of the Company's net sales in 1993, 1994 and 1995, respectively. The
Company performs ongoing credit evaluations of its customers' financial
condition and establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers and historical trends and
other information.
NOTE THIRTEEN. FAIR VALUES OF
FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of financial instruments. The following methods and
assumptions were used by the Company in estimating the fair value disclosures
for its financial instruments. For cash, trade receivables and payables, the
carrying amounts reported in the Consolidated Balance Sheets approximate fair
value. The carrying amounts for revolving notes and notes payable approximate
fair value based upon the borrowing rates currently available to the Company for
similar bank loans.
Note Fourteen. Unaudited Selected Quarterly Financial Data:
The unaudited selected quarterly financial data below reflect the fiscal years
ended November 30, 1994 and December 31, 1995, respectively.
<TABLE>
<CAPTION>
1994 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $6,414,153 $5,969,416 $6,303,426 $ 6,742,659
Gross profit 5,092,901 4,508,094 4,682,973 4,730,929
Net income 402,795 403,752 391,750 222,941
Income per
share .05 .05 .05 .03
Weighted
average shares 7,337,458 7,339,148 7,342,932 7,344,390
1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- -------------------------------------------------------------------------
Net sales $6,275,759 $6,407,881 $6,621,396 $ 5,069,054
Gross profit 4,636,540 4,331,661 4,351,009 3,110,609
Net income (496,782) (286,555) 162,522 (1,007,452)
Income
per share (.07) (.04) .02 (.12)
Weighted
average shares 7,359,387 7,812,878 8,213,508 8,344,929
- -------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------
Report of Independent Public Accountants
- -------------------------------------------------------------------------
To the Shareholders and Board of Directors
of Carrington Laboratories, Inc., and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Carrington
Laboratories, Inc. (a Texas corporation), and subsidiaries as of November 30,
1994, December 31, 1994, and December 31, 1995, and the related consolidated
statements of operations, shareholders' investment, and cash flows for each of
the two years in the period ended November 30, 1994, the month ended December
31, 1994, and the year ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
mis-statement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Carrington
Laboratories, Inc., and subsidiaries as of November 30, 1994, December 31, 1994
and December 31, 1995, and the results of their operations and their cash flows
for the two years ended November 30, 1994, the month ended December 31, 1994 and
the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Dallas, Texas
February 9, 1996
F-12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
Date: April 1, 1996 By: /s/ Carlton E. Turner
-----------------------
Carlton E. Turner, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Carlton E. Turner President, Chief Executive April 1, 1996
- ----------------------------- Officer and Director
Carlton E. Turner
/s/ Sheri L. Pantermuehl Chief Financial Officer April 1, 1996
- ----------------------------- (principal financial and
Sheri L Pantermuehl accounting officer)
/s/ R. Dale Bowerman Director April 1, 1996
- -----------------------------
R. Dale Bowerman
/s/ George DeMott Director April 1, 1996
- -----------------------------
George DeMott
/s/ Robert A. Fildes, Ph.D. Director April 1, 1996
- -----------------------------
Robert A. Fildes, Ph.D.
/s/ Thomas J. Marquez Director April 1, 1996
- -----------------------------
Thomas J. Marquez
/s/ James T. O'Brien Director April 1, 1996
- -----------------------------
James T. O'Brien
/s/ Selvi Vescovi Director April 1, 1996
- -----------------------------
Selvi Vescovi
</TABLE>
S - 1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
Date: April 1, 1996 By:
------------------------------
Carlton E. Turner, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
- ----------------------------- President, Chief Executive April 1, 1996
Carlton E. Turner Officer and Director
- ----------------------------- Chief Financial Officer April 1, 1996
Sheri L. Pantermuehl (principal financial and
accounting officer)
- ----------------------------- Director April 1, 1996
R. Dale Bowerman
- ----------------------------- Director April 1, 1996
George DeMott
- ----------------------------- Director April 1, 1996
Robert A. Fildes, Ph.D.
- ----------------------------- Director April 1, 1996
Thomas J. Marquez
- ----------------------------- Director April 1, 1996
James T. O'Brien
- ----------------------------- Director April 1, 1996
Selvi Vescovi
</TABLE>
S - 2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
3.1 Restated Articles of Incorporation of Carrington
(incorporated herein by reference to Exhibit 3.1 to
Carrington's 1988 Annual Report on Form 10-K).
3.2 Statement of Cancellation of Redeemable Shares of
Carrington dated June 9, 1989 (incorporated herein by
reference to Exhibit 3.2 to Carrington's 1991 Annual
Report on Form 10-K).
3.3 Statement of Change of Registered Office and Registered
Agent of Carrington (incorporated herein by reference to
Exhibit 3.1 to Carrington's Quarterly Report on Form 10-
Q for the quarter ended May 31, 1991).
3.4 Statement of Resolution Establishing Series D Preferred
Stock of Carrington (incorporated herein by reference to
Exhibit 3.1 to Carrington's Quarterly Report on Form 10-
Q for the quarter ended August 31, 1991).
3.5* Bylaws of Carrington, as amended through April 27,
1995.
4.1 Form of certificate for Common Stock of Carrington
(incorporated herein by reference to Exhibit 4.5 to
Carrington's Registration Statement on Form S-3 (No.
33-57360) filed with the Securities and Exchange
Commission on January 25, 1993).
4.23 Rights Agreement dated as of September 19, 1991,
between Carrington and Ameritrust Company National
Association (incorporated herein by reference to Exhibit
1 to Carrington's Report on Form 8-K dated September
19, 1991).
10.1+ 1985 Stock Option Plan of Carrington (incorporated
herein by reference to Exhibit 10.2 to Carrington's 1993
Annual Report on Form 10-K).
10.2+ Form of Nonqualified Stock Option Agreement for
employees, as amended, relating to Carrington's 1985
Stock Option Plan (incorporated herein by reference to
Exhibit 4.2 to Carrington's Registration Statement on
Form S-8 (No. 33-50430) filed with the Securities and
Exchange Commission on August 4, 1992).
</TABLE>
E - 1
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.3+ Form of Nonqualified Stock Option Agreement for
nonemployee directors, relating to Carrington's 1985
Stock Option Plan (incorporated herein by reference to
Exhibit 4.3 to Carrington's Registration Statement on
Form S-8 (No. 33-50430) filed with the Securities and
Exchange Commission on August 4, 1992).
10.4 Continuing Guaranty dated June 30, 1987, by Carrington
in favor of American Hospital Supply Corporation
(incorporated herein by reference to Exhibit 10.88 to
Carrington's 1987 Annual Report on Form 10-K).
10.5 Lease agreement dated as of July 28, 1988, between
Carrington and ESBO Holdings, Inc. (incorporated herein
by reference to Exhibit 10.71 to Carrington's 1988 Annual
Report on Form 10-K).
10.6 Assumption Agreement dated August 2, 1989, between
Resource Savings Association, E. Don Lovelace, Jerry L.
Lovelace and Carrington (relating to the assumption by
Carrington of obligations under the Promissory Note
listed as Exhibit 10.9 and the Deed of Trust, Security
Agreement and Assignment of Rents listed as Exhibit
10.10) (incorporated herein by reference to Exhibit 10.62
to Carrington's 1991 Annual Report on Form 10-K).
10.7 Promissory Note in the principal amount of $2,350,000,
dated May 9, 1985, made by E. Don Lovelace and Jerry
L. Lovelace and payable to Resource Savings Association
(assumed by Carrington pursuant to the Assumption
Agreement listed as Exhibit 10.8) (incorporated herein by
reference to Exhibit 10.63 to Carrington's 1991 Annual
Report on Form 10-K).
10.8 Deed of Trust, Security Agreement and Assignment of
Rents dated May 9, 1985, made by E. Don Lovelace and
Jerry L. Lovelace in favor of William B. Sechrest for the
benefit of Resource Savings Association (assumed by
Carrington pursuant to the Assumption Agreement listed
as Exhibit 10.8)
10.9 First Amendment to Lease dated October 6, 1989,
amending Lease listed as Exhibit 10.5 (incorporated
herein by reference to Exhibit 10.58 to Carrington's 1990
Annual Report on Form 10-K).
</TABLE>
E - 2
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.10 Common Stock Purchase Warrant (amended and
restated) dated June 28, 1991, issued by Carrington to
High Plains Baptist Hospital (incorporated herein by
reference to Exhibit 10.12 to Carrington's 1993 Annual
Report on Form 10-K).
10.11 Form of Common Stock Purchase Warrant issued by
Carrington to certain persons in February 1990
(incorporated herein by reference to Exhibit 10.52 to
Carrington's 1989 Annual Report on Form 10-K).
10.12 Common Stock Purchase Warrant dated March 27, 1990,
issued by Carrington to Barry Kitt (incorporated herein
by reference to Exhibit 10.45 to Carrington's 1990 Annual
Report on Form 10-K).
10.13 Common Stock Purchase Warrant dated July 19, 1990,
issued by Carrington to H. Reginald McDaniel, M.D.
(incorporated herein by reference to Exhibit 10.46 to
Carrington's 1990 Annual Report on Form 10-K).
10.14 License Agreement dated September 20, 1990, between
Carrington and Solvay Animal Health, Inc. (incorporated
herein by reference to Exhibit 10.1 to Carrington's
Quarterly Report on Form 10-Q for the quarter ended
August 31, 1990).
10.15+ Employment Agreement dated as of December 11, 1990,
between Carrington and Karl H. Meister (incorporated
herein by reference to Exhibit 10.54 to Carrington's 1990
Annual Report on Form 10-K).
10.16 English translation of Loan Agreement dated as of
December 14, 1990, between Finca Savila, S.A. and
Corporacion Privada de Inversiones de Centroamerica,
S.A., together with Carrington's continuing guarantee
dated as of December 17, 1990 in favor of lender
(incorporated herein by reference to Exhibit 19.1 to
Carrington's 1991 Annual Report on Form 10-K).
10.17 Form of Common Stock Purchase Warrant (amended and
restated) dated June 28, 1991, issued by Carrington to
High Plains Baptist Hospital (incorporated herein by
reference to Exhibit 10.19 to Carrington's 1993 Annual
Report on Form 10-K).
</TABLE>
E - 3
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.18 Form of Common Stock Purchase Warrant dated January
11, 1991, issued by Carrington to R. Dale Bowerman
(incorporated herein by reference to Exhibit 10.49 to
Carrington's 1990 Annual Report on Form 10-K).
10.19 Form of Common Stock Purchase Warrant (amended and
restated) dated June 28, 1991, issued by Carrington to
T.H. Holloway, Jr. (incorporated herein by reference to
Exhibit 10.21 to Carrington's 1993 Annual Report on
Form 10-K).
10.20 Contract Research Agreement dated as of August 8,
1991, between Carrington and Texas Agriculture
Experimental Station, as agent for the Texas A&M
University System (incorporated herein by reference to
Exhibit 10.55 to Carrington's 1991 Annual Report on
Form 10-K).
10.21 Lease Agreement dated as of August 30, 1991, between
Carrington and Western Atlas International, Inc.
(incorporated herein by reference to Exhibit 10.59 to
Carrington's 1991 Annual Report on Form 10-K).
10.22 Form of Common Stock Purchase Warrant dated
September 19, 1991, issued by Carrington to each of Ian
R. Tizard, Ph.D., J. Harold Helderman, M.D., Maurice C.
Kemp, David L. Busbee and Gerald R. Bratton
(incorporated herein by reference to Exhibit 10.34 to
Carrington's 1991 Annual Report on Form 10-K).
10.23 Second Amendment to Lease dated November 14, 1991,
amending Lease listed as Exhibit 10.5 (incorporated
herein by reference to Exhibit 10.58 to Carrington's 1991
Annual Report on Form 10-K).
10.24 Form of Common Stock Purchase Warrant dated March
19, 1992, issued by Carrington to Hedgemoor
Consultants, Inc. (incorporated herein by reference to
Exhibit 10.65 to Carrington's 1992 Annual Report on
Form 10-K).
10.25 Form of Common Stock Purchase Warrant dated April
29, 1992, issued by Carrington to Haskell and Joyce Sells
(incorporated herein by reference to Exhibit 10.66 to
Carrington's 1992 Annual Report on Form 10-K).
</TABLE>
E - 4
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.26 Form of Common Stock Purchase Warrant dated April
29, 1992, issued by Carrington to Vance Kirkland Meares
(incorporated herein by reference to Exhibit 10.67 to
Carrington's 1992 Annual Report on Form 10-K).
10.27 Form of Common Stock Purchase Warrant dated April
29, 1992, issued by Carrington to Patrice M. Carroll
(incorporated herein by reference to Exhibit 10.68 to
Carrington's 1992 Annual Report on Form 10-K).
10.28 Form of Common Stock Purchase Warrant dated April
29, 1992, issued by Carrington to Michael A. Carroll
(incorporated herein by reference to Exhibit 10.69 to
Carrington's 1992 Annual Report on Form 10-K).
10.29+* Employee Stock Purchase Plan of Carrington as amended
through June 15, 1995.
10.30 Stock Purchase Agreement dated October 27, 1992,
between Carrington and the investors named therein
(incorporated herein by reference to Exhibit 2.1 to
Carrington's Registration Statement Form S-3 (No. 33-
57360) filed with the Securities and Exchange
Commission on January 25, 1993).
10.31 Registration Rights Agreement between Carrington and
Leslie B. Clements and related letter from Carrington to
Mr. Clements dated January 21, 1993 (incorporated
herein by reference to Exhibit 2.3 to Carrington's
Registration Statement on Form S-3 (No. 33-57360) filed
with the Securities and Exchange Commission on January
25, 1993).
10.32 Registration Rights Agreement between Carrington and
Dr. Robert H. Carpenter and related letter from
Carrington to Dr. Carpenter dated January 21, 1993
(incorporated herein by reference to Exhibit 2.4 to
Carrington's Registration Statement on Form S-3 (No.
33-57360) filed with the Securities and Exchange
Commission on January 25, 1993).
10.33 Registration Rights Agreement between Carrington and
Charles F. May and related letter from Carrington to Mr.
May dated January 21, 1993 (incorporated herein by
reference to Exhibit 2.5 to Carrington's Registration
Statement on Form S-3 (No. 33-57360) filed with the
Securities and Exchange Commission on January 25,
1993).
</TABLE>
E - 5
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.34 Registration Rights Agreement between Carrington and
Bertram D. Siegel and related letter from Carrington to
Mr. Siegel dated January 21, 1993 (incorporated herein
by reference to Exhibit 2.6 to Carrington's Registration
Statement on Form S-3 (No. 33-57360) filed with the
Securities and Exchange Commission on January 25,
1993).
10.35+ Employment Agreement dated as of August 11, 1992,
between Carrington and Stephen G. Madison
(incorporated herein by reference to Exhibit 10.76 to
Carrington's 1992 Annual Report on Form 10-K).
10.36 Common Stock Purchase Warrant dated September 14,
1993, issued by Carrington to E. Don Lovelace
(incorporated herein by reference to Exhibit 10.44 to
Carrington's 1993 Annual Report on Form 10-K).
10.37 Common Stock Purchase Warrant dated September 14,
1993, issued by Carrington to Jerry L. Lovelace
(incorporated herein by reference to Exhibit 10.45 to
Carrington's 1993 Annual Report on Form 10-K).
10.38 Modification and Extension Agreement dated as of
September 15, 1993, relating to Assumption Agreement
listed as Exhibit 10.8, Promissory Note listed as Exhibit
10.9 and Deed of Trust, Security Agreement and
Assignment of Rents listed as Exhibit 10.10 (incorporated
herein by reference to Exhibit 10.46 to Carrington's 1993
Annual Report on Form 10-K).
10.39 Non-Exclusive Supply Agreement dated as of January 26,
1994, between Carrington and Cambrex Hydrogels, Inc.
(incorporated herein by reference to Exhibit 10.47 to
Carrington's 1993 Annual Report on Form 10-K).
10.40 Third Amendment to Lease dated as of February 15,
1994, amending Lease listed as Exhibit 10.5
(incorporated herein by reference to Exhibit 10.48 to
Carrington's 1993 Annual Report on Form 10-K).
10.41 Agreement Regarding Termination of Employment and
Full and Final Release dated February 16, 1994, between
Carrington and David A. Hotchkiss (incorporated herein
by reference to Exhibit 10.49 to Carrington's 1993 Annual
Report on Form 10-K).
</TABLE>
E - 6
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.42+ 1995 Stock Option Plan (incorporated herein by reference
to Exhibit 10.50 to Carrington's 1994 Annual Report on
Form 10-K).
10.43 Supply Agreement dated May 16, 1994, between Caraloe,
Inc. and Emprise International, Inc. (incorporated herein
by reference to Exhibit 10.51 to Carrington's 1994 Annual
Report on Form 10-K).
10.44 Trademark License Agreement dated May 16, 1994,
between Caraloe, Inc. and Emprise International, Inc.
(incorporated herein by reference to Exhibit 10.52 to
Carrington's 1994 Annual Report on Form 10-K).
10.45 License Agreement dated March 18, 1994, between
Carrington and Societe Europeenne de Biotechnologie
(incorporated herein by reference to Exhibit 10.53 to
Carrington's 1994 Annual Report on Form 10-K).
10.46 Agreement dated March 28, 1994, between Carrington
and Keun Wha Pharmaceutical Co., Ltd., (incorporated
herein by reference to Exhibit 10.54 to Carrington's 1994
Annual Report on Form 10-K).
10.47 Lease Agreement dated June 15, 1994, between DFW
Nine, a California limited partnership, and Carrington
(incorporated herein by reference to Exhibit 10.55 to
Carrington's 1994 Annual Report on Form 10-K).
10.48+ Agreement Regarding Termination of Employment and
Full and Final Release dated August 17, 1994, between
Carrington and Stephen G. Madison (incorporated herein
by reference to Exhibit 10.56 to Carrington's 1994 Annual
Report on Form 10-K).
10.49 Lease Amendment dated August 23, 1994, amending
Lease Agreement listed as Exhibit 10.54 (incorporated
herein by reference to Exhibit 10.57 to Carrington's 1994
Annual Report on Form 10-K).
10.50 License Agreement dated September 29, 1994, between
Carrington and Immucell Corporation (incorporated
herein by reference to Exhibit 10.58 to Carrington's 1994
Annual Report on Form 10-K).
10.51 Consulting Agreement dated November 17, 1994,
between Carrington and R. Dale Bowerman (incorporated
herein by reference to Exhibit 10.59 to Carrington's 1994
Annual Report on Form 10-K).
</TABLE>
E - 7
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.52 Third Lease Amendment dated December 1, 1994,
amending Lease Agreement listed as Exhibit 10.21
(incorporated herein by reference to Exhibit 10.60 to
Carrington's 1994 Annual Report on Form 10-K).
10.53 Credit Agreement dated January 30, 1995, between
Carrington and NationsBank of Texas, N.A.
(incorporated herein by reference to Exhibit 10.61 to
Carrington's 1994 Annual Report on Form 10-K).
10.54 Settlement Agreement dated February 7, 1995, between
Carrington, Bill H. McAnalley, Clinton H. Howard and
Royal Bodycare, Inc. (incorporated herein by reference to
Exhibit 10.62 to Carrington's 1994 Annual Report on
Form 10-K).
10.55 Production Contract dated February 13, 1995, between
Carrington and Oregon Freeze Dry, Inc. (incorporated
herein by reference to Exhibit 10.63 to Carrington's 1994
Annual Report on Form 10-K).
10.56 Management Compensation Plan (incorporated herein by
reference to Exhibit 10.64 to Carrington's 1994 Annual
Report on Form 10-K).
10.57 Research Agreements dated June 24, 1994, September
16, 1994, and February 2, 1995, between Southern
Research Institute and Carrington (incorporated herein by
reference to Exhibit 10.65 to Carrington's 1994 Annual
Report on Form 10-K).
10.58 Trademark License Agreement between Caraloe, Inc.
(Licensor) and Emprise International, Inc. (Licensee)
dated March 31, 1995 (incorporated herein by reference
to Exhibit 10.2 to Carrington's Second Quarter 1995
Report on Form 10-Q).
10.59 Supply Agreement between Caraloe, Inc. (Seller) and
Emprise International, Inc. (Buyer) dated March 31,1995
(incorporated herein by reference to Exhibit 10.3 to
Carrington's Second Quarter 1995 Report on Form 10-Q).
10.60 Sales Distribution Agreement between the Chinese
Academy of Sciences and Carrington Laboratories, Inc.
dated August 16, 1995 (incorporated herein by reference
to Exhibit 10.1 to Carrington's Third Quarter 1995
Report on Form 10-Q).
</TABLE>
E - 8
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.61 Sales Distribution Agreement between the Chinese
Academy of Sciences and Carrington Laboratories, Inc.
dated August 16, 1995 (incorporated herein by reference
to Exhibit 10.2 to Carrington's Third Quarter 1995
Report on Form 10-Q).
10.62 Sales Distribution Agreement between the Chinese
Academy of Sciences and Carrington Laboratories, Inc.
dated August 16, 1995 (incorporated herein by reference
to Exhibit 10.3 to Carrington's Third Quarter 1995
Report on Form 10-Q).
10.63 Supply and Distribution Agreement between Medical
Polymers, Inc., and Carrington Laboratories, Inc., dated
September 15, 1995 (incorporated herein by reference to
Exhibit 10.4 to Carrington's Third Quarter 1995 Report
on Form 10-Q).
10.64 Clinical Services Agreement between Pharmaceutical
Products Development, Inc., and Carrington
Laboratories, Inc., dated July 10, 1995 (incorporated
herein by reference to Exhibit 10.5 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
10.65 Non-exclusive Sales and Distribution Agreement between
Innovative Technologies Limited and Carrington
Laboratories, Inc. dated August 22, 1995 (incorporated
herein by reference to Exhibit 10.6 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
10.66 Supplemental Agreement to Non-exclusive Sales and
Distribution Agreement between Innovative Technologies
Limited and Carrington Laboratories, Inc. dated October
16, 1995 (incorporated herein by reference to Exhibit
10.7 to Carrington's Third Quarter 1995 Report on Form
10-Q).
10.67 Product Development and Exclusive Distribution
Agreement between Innovative Technologies Limited and
Carrington Laboratories, Inc. dated November 10, 1995
(incorporated herein by reference to Exhibit 10.8 to
Carrington's Third Quarter 1995 Report on Form 10-Q).
10.68+* Resignation Agreement and Full and Final Release dated
February 24, 1995, between Carrington and Bill H.
McAnalley.
</TABLE>
E - 9
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Exhibit Numbered Page
-------------- ------- -------------
<S> <C>
10.69+* Revised and Restated Resignation Agreement dated March
14, 1995, between Carrington and Karl H.
Meister.
10.70* Common Stock Purchase Warrant dated August 4, 1995,
issued by Carrington to Clifford T. Kalista.
10.71* Consulting Agreement dated May 5, 1995, between
Carrington and Clifford T. Kalista.
10.72+* Form of Nonqualified Stock Option Agreement for
employees relating to Carrington's 1995 Stock Option
Plan (incorporated herein by reference to Exhibit 10.50 to
Carrington's 1994 Annual Report on Form 10-K.)
10.73+* Form of Nonqualified Stock Option Agreement for
nonemployee directors relating to Carrington's 1995
Stock Option Plan.
10.74 Form of Stock Purchase dated April 5, 1995 between
Carrington and persons named in Annex I thereto
(incorporated herein by reference to Exhibit 2.1 to
Carrington's Registration Statement 33-60833 on Form
S-3).
10.75 Form of Registration Rights Agreement dated June 20,
1995 between Carrington and persons named in Annex I
thereto (incorporated herein by reference to Exhibit 2.2 to
Carrington's Registration Statement 33-60833 on Form
S-3).
10.76* Supply and Distribution Agreement between Farnam
Companies, Inc. and Carrington Laboratories, Inc. dated
March 22, 1996.
10.77+* Termination Agreement and Full and Final Release dated
August 18, 1995, between Carrington and Terry M. Nida.
11.1* Computation of Net Income (Loss) Per Common and
Common Equivalent Share.
21.1* Subsidiaries of Carrington.
23.1* Consent of Arthur Andersen LLP
27.1* Financial Data Schedule
</TABLE>
- ----------
* Filed herewith.
+ Management contract or compensatory plan.
E - 10
<PAGE>
EXHIBIT 3.5
AS AMENDED THROUGH
APRIL 27, 1995
BYLAWS
OF
CARRINGTON LABORATORIES, INC.
ARTICLE ONE
OFFICES
The Corporation may have, in addition to its registered office in the
State of Texas, such other offices and places of business at such locations,
both within and without the State of Texas, as the Board of Directors may from
time to time determine or the business and affairs of the Corporation may
require.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
Section 1. Annual Meetings. An annual meeting of the shareholders,
commencing with the year 1989, shall be held at such time and place, and on such
date during the month of March, April or May of each year, as shall be
determined by or in the manner authorized by the Board of Directors. At each
annual meeting, the shareholders shall elect a board of directors and transact
such other business as may properly be brought before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, the Articles of
Incorporation or these Bylaws, may be called by the Chairman of the Board, the
President, the Board of Directors or the holders of at least ten (10) percent of
all the shares entitled to vote at the proposed special meeting, unless the
Articles of Incorporation provide for a number of shares greater than or less
than ten (10) percent, but not greater than fifty (50) percent, in which event
special meetings of the shareholders may be called by the holders of at least
the percentage of shares so specified in the Articles of Incorporation. Only
business within the purpose or purposes described in the notice of special
meeting of shareholders may be conducted at the meeting.
Section 3. Place of Meetings. Meetings of shareholders shall be held at
such places, within or without the State of Texas, as may from time to time be
fixed by the Board of Directors or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
Section 4. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares
<PAGE>
held by each, which list, for a period of ten (10) days prior to such meeting,
shall be kept on file at the registered office or principal place of business of
the Corporation and shall be subject to inspection by any shareholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any shareholder during the whole time of the meeting. The original stock
transfer books shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
Section 5. Notice of Meetings. Written or printed notice stating the
place, day and hour of each meeting of the shareholders and, in case of a
special meeting, the purpose or purposes for which the meeting is called, shall
be delivered not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, the Secretary or the body, officer or
person calling the meeting, to each shareholder of record entitled to vote at
the meeting.
Section 6. Quorum of Shareholders. With respect to any matter, the
holders of a majority of the shares entitled to vote on that matter, present in
person or represented by proxy, shall be requisite to and shall constitute a
quorum at each meeting of shareholders for the transaction of business with
respect to that matter, except as otherwise provided by statute, the Articles of
Incorporation or these Bylaws. Unless otherwise provided in the Articles of
Incorporation or these Bylaws, the shareholders represented in person or by
proxy at a meeting of shareholders at which a quorum is not present may adjourn
the meeting until such time and to such place as may be determined by a vote of
the holders of a majority of the shares represented in person or by proxy at
that meeting. At any such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted that might have been transacted
at the meeting as originally convened.
With respect to any matter, other than the election of
directors or a matter for which the affirmative vote of the holders of a
specified portion of the shares entitled to vote is required by statute, the
Articles of Incorporation or these Bylaws, in which case the vote of such
specified portion shall be requisite to constitute the act of the meeting, the
affirmative vote of the holders of a majority of the shares entitled to vote on
that matter and represented in person or by proxy at a meeting of shareholders
at which a quorum is present shall be the act of the shareholders. Unless
otherwise provided in the Articles of Incorporation or these Bylaws, once a
quorum is present at a meeting of shareholders the shareholders represented in
person or by proxy at the meeting may conduct such business as may be properly
brought before the meeting until it is adjourned, and the subsequent withdrawal
from the meeting of any shareholder or the refusal of any shareholder
represented in person or by proxy to vote shall not affect the presence of a
quorum at the meeting.
Section 7. Voting of Shares. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except as and to the extent otherwise provided by
statute or by the Articles of Incorporation. At any meeting of the shareholders,
every shareholder having the right to vote shall be entitled to vote either in
person or by proxy executed in writing by such shareholder. A telegram, telex,
cablegram or similar transmission by the shareholder, or a photographic,
photostatic, facsimile or similar reproduction of
- 2 -
<PAGE>
a writing executed by the shareholder, shall be treated as an execution in
writing for purposes of this Section.
No proxy shall be valid after eleven (11) months from the date
of its execution unless otherwise provided in the proxy. Each proxy shall be
revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest. Proxies coupled with an
interest include the appointment as proxy of: (1) a pledgee; (2) a person who
purchased or agreed to purchase, or owns or holds an option to purchase, the
shares; (3) a creditor of the Corporation who extended it credit under terms
requiring the appointment; (4) an employee of the Corporation whose employment
contract requires the appointment; or (5) a party to a voting agreement created
under Section B, Article 2.30 of the Texas Business Corporation Act. Each proxy
shall be filed with the Secretary of the Corporation prior to or at the time of
the meeting.
Section 8. Action Without a Meeting. Any action required to be taken at
any annual or special meeting of shareholders of the Corporation, or any action
which may be taken at any annual or special meeting of such shareholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by all the
shareholders entitled to vote with respect to the subject matter thereof.
Section 9. Telephone Meetings. Subject to the provisions of applicable
law and these Bylaws regarding notice of meetings, shareholders may, unless
otherwise restricted by the Articles of Incorporation or these Bylaws,
participate in and hold a meeting by using conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except when a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting was not lawfully
called or convened.
Section 10. Notice of Shareholder Business. At a meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must (a) be specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors or by or at the direction of
the shareholders calling the meeting pursuant to Section 2 of this Article Two,
(b) otherwise be properly brought before the meeting by or at the direction of
the Board of Directors or (c) otherwise (i) be properly requested to be brought
before the meeting by a shareholder of record entitled to vote in the election
of directors generally, and (ii) constitute a proper subject to be brought
before such meeting.
Any shareholder who intends to bring any matter (other than
the election of directors) before a meeting of shareholders and is entitled to
vote on such matter must deliver written notice of such shareholder's intent to
bring such matter before the meeting of shareholders, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation. Such notice must be received by the Secretary not later than the
following dates: (A) with respect to an annual meeting of shareholders, 60 days
in advance of such meeting if such meeting is to be held on a day which is
within 30 days preceding the anniversary of the previous year's annual
- 3 -
<PAGE>
meeting, or 90 days in advance of such meeting if such meeting is to be held on
or after the anniversary of the previous year's annual meeting; and (B) with
respect to any other meeting of shareholders, the close of business on the
seventh day following the date on which notice of such meeting is first given to
shareholders. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the meeting of shareholders (1)
a brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (2) the name and
address, as they appear on the Corporation's books, of the shareholder proposing
such business, (3) the class and number of shares of the Corporation which are
owned by the shareholder and (4) any material interest of the shareholder in
such business.
No business shall be conducted at a meeting of shareholders
except in accordance with the procedures set forth in this Section 10. If any
business proposed to be brought before a meeting is not a proper subject for the
meeting or was not properly brought before the meeting in accordance with the
provisions of this Section 10, the chairman of the meeting shall so declare to
the meeting, and such business shall not be conducted.
ARTICLE THREE
BOARD OF DIRECTORS
Section 1. Management of the Corporation. The powers of the Corporation
shall be exercised by or under the authority of, and the business and affairs of
the Corporation shall be managed under the direction of, the Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute, the Articles of Incorporation or these
Bylaws directed or required to be exercised or done by the shareholders.
Section 2. Number; Qualifications; Chairman. The Board of Directors
shall consist of not less than five (5) and not more than nine (9) directors,
and the exact number of directors which shall constitute the Board of Directors
shall be fixed from time to time by resolution of the Board; provided, however,
that no decrease in the number of directors constituting the Board shall have
the effect of shortening the term of any incumbent director. None of the
directors need be shareholders of the Corporation or residents of the State of
Texas.
The directors, other than those who may be elected by the
holders of shares of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation pursuant to the terms of any
resolution or resolutions providing for the issuance of such stock adopted by
the Board, shall be classified, with respect to the time for which they
severally hold office, into three classes with, as nearly as possible, an equal
number of directors in each class. If at any time the number of directors
constituting the Board of Directors, as fixed by resolution of the Board, is not
evenly divisible by three, then, subject to the requirements of the immediately
preceding sentence, the Board shall determine the number of directors that each
class of directors shall comprise; provided, however, that this sentence shall
not empower the Board of Directors to change the term of any incumbent director.
- 4 -
<PAGE>
At the 1992 annual meeting of shareholders, the shareholders
shall elect that number of directors constituting the entire Board, divided into
three classes with terms expiring, respectively, at the 1993, 1994 and 1995
annual meetings of shareholders. At the 1993 annual meeting of shareholders, and
at each annual meeting of shareholders thereafter, the shareholders shall elect
the successors of the class of directors whose term expires at such meeting, to
hold office for a term expiring at the annual meeting of shareholders held in
the third year following the year of their election.
In each election of directors, the persons receiving a
plurality of the votes cast, up to the number of directors to be elected in such
election, shall be deemed elected. Each director elected shall hold office for
the term for which he is elected and until his successor is elected and
qualified or until his earlier death, resignation, disqualification or removal
from office.
At its first meeting following each annual meeting of
shareholders, the Board of Directors shall elect one of its members as the
Chairman of the Board. The person so elected shall serve as chairman of the
Board of Directors and shall preside when present at meetings of the
shareholders and of the Board of Directors. In addition to the powers and duties
prescribed by these Bylaws, the Chairman of the Board shall have such other
powers and perform such other duties as are delegated or assigned to him from
time to time by the Board of Directors or the Executive Committee. The Chairman
of the Board shall not be deemed to be an officer of the Corporation.
Section 3. Notification of Nominations. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or by any shareholder entitled
to vote for the election of directors. Any shareholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such shareholder's intent to make such
nominations is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of shareholders, 90 days
in advance of such meeting, and (ii) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders.
Each such notice shall set forth: (a) the name and address of
the shareholder who intends to make the nomination of the person or persons to
be nominated; (b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the written consent of each nominee to serve as a
director of the Corporation if so elected. The
- 5 -
<PAGE>
chairman of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedure.
Section 4. Removal; Filling of Vacancies. Any or all of the directors
may be removed, either for or without cause, at any meeting of shareholders
called expressly for that purpose, by the affirmative vote, in person or by
proxy, of the holders of a majority of the shares then entitled to vote at an
election of directors. Any vacancy occurring in the Board of Directors,
resulting from the death, resignation, retirement, disqualification or removal
from office of any director, or otherwise than as the result of an increase in
the number of directors, may be filled by the affirmative vote of a majority of
the remaining directors, though less than a quorum of the Board of Directors, or
may be filled by election at any annual or special meeting of the shareholders
called for that purpose. A director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office.
A directorship to be filled by reason of any increase in the
number of directors may be filled by the Board of Directors for a term of office
continuing only until the next election of one (1) or more directors by the
shareholders, or may be filled by election at any annual or special meeting of
the shareholders called for that purpose; provided that the Board of Directors
may not fill more than two (2) such directorships during the period between any
two (2) successive annual meetings of shareholders.
Section 5. Place of Meetings. Meetings of the Board of Directors,
annual, regular or special, may be held either within or without the State of
Texas.
Section 6. Annual Meetings. The first meeting of each newly elected
Board of Directors shall be held for the purpose of organization and the
transaction of any other business, without notice, immediately following the
annual meeting of shareholders, and at the same place, unless by unanimous
consent of the directors then elected and serving such time or place shall be
changed.
Section 7. Regular Meetings. Regular meetings of the Board of
Directors, of which no notice shall be necessary, shall be held at such times
and places as may be fixed from time to time by resolution adopted by the Board
and communicated to all directors. Except as otherwise provided by statute, the
Articles of Incorporation or these Bylaws, any and all business may be
transacted at any regular meeting.
Section 8. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on twenty-four (24)
hours' notice to each director, either personally or by mail or by telegram.
Special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of two (2) directors. Except as may be
otherwise expressly provided by statute or by the Articles of Incorporation or
by these Bylaws, neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
Section 9. Quorum and Manner of Acting. At all meetings of the Board of
Directors the presence of a majority of the number of directors fixed by or in
the manner provided in these Bylaws
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shall be necessary and sufficient to constitute a quorum for the transaction of
business except as otherwise provided by statute, the Articles of Incorporation
or these Bylaws. The act of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors unless the
act of a greater number is required by statute, the Articles of Incorporation or
these Bylaws, in which case the act of such greater number shall be requisite to
constitute the act of the Board. If a quorum shall not be present at any meeting
of the directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. At any such adjourned meeting any business may be
transacted that might have been transacted at the meeting as originally
convened.
Section 10. Action Without a Meeting. Unless otherwise restricted by
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 11. Telephone Meetings. Subject to the provisions of applicable
law and these Bylaws regarding notice of meetings, members of the Board of
Directors or members of any committee designated by such Board may, unless
otherwise restricted by the Articles of Incorporation or these Bylaws,
participate in and hold a meeting of such Board of Directors or committee by
using conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this Section shall constitute presence in person at
such meeting, except when a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting was not lawfully called or convened.
Section 12. Interested Directors and Officers. No contract or
transaction between the Corporation and one or more of its directors or officers
or between the Corporation and any other corporation, partnership, association,
or other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his relationship or interest and as to the contract or transaction are disclosed
or are known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the shareholders;
or (3) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified by the Board of Directors, a committee
thereof or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
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Section 13. Directors' Compensation. The Board of Directors shall have
authority to determine, from time to time, the amount of compensation, if any,
which shall be paid to its members for their services as directors and as
members of standing or special committees. The Board of Directors shall also
have power in its discretion to provide for and to pay to directors rendering
services to the Corporation not ordinarily rendered by directors as such,
special compensation appropriate to the value of such services as determined by
the Board of Directors from time to time. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 14. Advisory Directors. The Board of Directors may appoint such
number of advisory directors as it shall from time to time determine. Each
advisory director appointed shall hold office for the term for which he is
elected or until his earlier death, resignation, retirement or removal by the
Board of Directors. The advisory directors shall attend and be present at the
meetings of the Board of Directors, although a meeting of the Board of Directors
may be held without notice to the advisory directors and the advisory directors
shall not be considered in determining whether a quorum of the Board of
Directors is present. The advisory directors shall advise and counsel the Board
of Directors on the business and operations of the Corporation as requested by
the Board of Directors; however, the advisory directors shall not be entitled to
vote on any matter presented to the Board of Directors.
ARTICLE FOUR
NOTICES
Section 1. Manner of Giving Notice. Whenever under the provisions of
the statutes, the Articles of Incorporation or these Bylaws, notice is required
to be given to any committee member, director or shareholder of the Corporation,
and no provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing
by mail, postage prepaid, addressed to such member, director or shareholder at
his address as it appears on the records or (in the case of a shareholder) the
stock transfer books of the Corporation. Any notice required or permitted to be
given by mail shall be deemed to be delivered when the same shall be thus
deposited in the United States mail, as aforesaid.
Section 2. Waiver of Notice. Whenever any notice is required to be
given to any committee member, director or shareholder of the Corporation under
the provisions of the statutes, the Articles of Incorporation or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance of a director at a meeting
of the Board of Directors shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
Section 3. When Notice Not Required. Any notice required to be given to
any shareholder under any provision of the statutes, the Articles of
Incorporation or these Bylaws need not be given
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to the shareholder if: (1) notice of two (2) consecutive annual meetings and all
notices of meetings held during the period between those annual meetings, if
any, or (2) all (but in no event less than two (2)) payments (if sent by first
class mail) of distributions or interest on securities during a twelve (12)-
month period have been mailed to that person, addressed at his address as shown
on the records of the Corporation, and have been returned undeliverable. Any
action or meeting taken or held without notice to such a person shall have the
same force and effect as if the notice had been duly given and, if the action
taken by the Corporation is reflected in any articles or document filed with the
Secretary of State, those articles or that document may state that notice was
duly given to all persons to whom notice was required to be given. If such a
person delivers to the Corporation a written notice setting forth his then
current address, the requirement that notice be given to that person shall be
reinstated.
ARTICLE FIVE
EXECUTIVE COMMITTEE
Section 1. Constitution and Powers. The Board of Directors, by
resolution adopted by affirmative vote of a majority of the number of directors
fixed by or in the manner provided in these Bylaws, may designate one (1) or
more directors (with such alternates, if any, as may be deemed desirable) to
constitute an Executive Committee, which Executive Committee shall have and may
exercise, when the Board of Directors is not in session, all the authority and
powers of the Board of Directors in the business and affairs of the Corporation,
even though such authority and powers be herein provided or directed to be
exercised by a designated officer of the Corporation; provided, however, that
the Executive Committee shall not have the authority of the Board of Directors
(a) to amend the Articles of Incorporation, except that the Executive Committee
may, to the extent provided in the resolution designating that committee or in
the Articles of Incorporation or these Bylaws, exercise the authority of the
Board of Directors vested in it in accordance with Article 2.13 of the Texas
Business Corporation Act relating to the issuance of certain shares; (b) to
propose a reduction of the stated capital of the Corporation; (c) to approve a
plan of merger or share exchange of the Corporation; (d) to recommend to the
shareholders the sale, lease, or exchange of all or substantially all of the
property and assets of the Corporation otherwise than in the usual and regular
course of its business; (e) to recommend to the shareholders a voluntary
dissolution of the Corporation or revocation thereof; (f) to amend, alter or
repeal the Bylaws of the Corporation or adopt new Bylaws of the Corporation; (g)
to fill vacancies in the Board of Directors; (h) to fill vacancies in or
designate alternate members of the Executive Committee; (i) to fill any
directorship to be filled by reason of an increase in the number of directors;
(j) to elect or remove officers of the Corporation or members or alternate
members of the Executive Committee; (k) to fix the compensation of any member or
alternate member of the Executive Committee; (l) to alter or repeal any
resolution of the Board of Directors that by its terms provides that it shall
not be so amendable or repealable; or (m) unless the resolution designating the
Executive Committee, the Articles of Incorporation or these Bylaws expressly so
provide, to authorize a distribution or the issuance of shares of the
Corporation.
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The designation of the Executive Committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors or any
member thereof of any responsibility imposed upon it or him by law. So far as
practicable, members of the Executive Committee and their alternates (if any)
shall be appointed by the Board of Directors at its first meeting after each
annual meeting of shareholders and, unless sooner discharged by affirmative vote
of a majority of the number of directors fixed by or in the manner provided in
these Bylaws, shall hold office until their respective successors are appointed
and qualify or until their earlier respective deaths, resignations, retirements
or disqualifications.
Section 2. Meetings. Regular meetings of the Executive Committee, of
which no notice shall be necessary, shall be held at such times and places as
may be fixed from time to time by resolution adopted by affirmative vote of a
majority of the whole Committee and communicated to all the members thereof.
Special meetings of the Executive Committee may be called by the Chairman of the
Board, the President or any two (2) members thereof at any time on twenty-four
(24) hours' notice to each member, either personally or by mail or telegram.
Except as may be otherwise expressly provided by statute, the Articles of
Incorporation or these Bylaws, neither the business to be transacted at, nor the
purpose of, any meeting of the Executive Committee need be specified in the
notice or waiver of notice of such meeting.
A majority of the Executive Committee shall constitute a
quorum for the transaction of business, and the act of a majority of those
present at any meeting at which a quorum is present shall be the act of the
Executive Committee. The members of the Executive Committee shall act only as a
committee, and the individual members shall have no power as such. The
Committee, at each meeting thereof, may designate one of its members to act as
chairman and preside at the meeting or, in its discretion, may appoint a
chairman from among its members to preside at all its meetings held during such
period as the Committee may specify.
Section 3. Records. The Executive Committee shall keep a record of its
acts and proceedings and shall report the same, from time to time, to the Board
of Directors. The Secretary of the Corporation, or, in his absence, an Assistant
Secretary, shall act as secretary of the Executive Committee, or the Committee
may, in its discretion, appoint its own secretary.
Section 4. Vacancies. Any vacancy in the Executive Committee may be
filled by affirmative vote of a majority of the number of directors fixed by or
in the manner provided in these Bylaws.
ARTICLE SIX
OTHER COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors may, by resolution adopted by affirmative vote
of a majority of the number of directors fixed by or in the manner provided in
these Bylaws, designate one or more directors (with such alternates, if any, as
may be deemed desirable) to constitute another committee or committees for any
purpose. Any such committee, to the extent so provided in such resolution or in
the Articles of Incorporation or these Bylaws, shall have and may exercise the
authority of the
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Board of Directors, subject to any limitations imposed by statute, the Articles
of Incorporation, or these Bylaws. Any such committee that is not granted the
power to exercise any authority of the Board of Directors shall have and may
exercise only the power of recommending action to the Board of Directors (and/or
the Executive Committee, if any) and of carrying out and implementing any
instructions or any policies, plans and programs theretofore approved,
authorized and adopted by the Board of Directors or the Executive Committee.
ARTICLE SEVEN
OFFICERS, EMPLOYEES AND AGENTS;
POWERS AND DUTIES
Section 1. Elected Officers. The elected officers of the Corporation
shall be a President, such number of Vice Presidents as may be determined from
time to time by the Board (and in the case of each such Vice President, with
such descriptive title, if any, as the Board of Directors shall deem
appropriate), a Secretary and a Treasurer. None of the elected officers need be
a member of the Board of Directors.
Section 2. Election. So far as is practicable, all elected officers
shall be elected by the Board of Directors at its first meeting after each
annual meeting of shareholders.
Section 3. Appointive Officers. The Board of Directors may also appoint
one or more Assistant Secretaries and Assistant Treasurers and such other
officers and assistant officers and agents (none of whom need be a member of the
Board) as it shall from time to time deem necessary, who shall exercise such
powers and perform such duties as shall be set forth in these Bylaws or
determined from time to time by the Board or by the Executive Committee.
Section 4. Two or More Offices. Any two (2) or more offices may be held
by the same person.
Section 5. Compensation. The compensation of all officers of the
Corporation shall be fixed from time to time by the Board of Directors or the
Executive Committee. The Board of Directors or the Executive Committee may from
time to time delegate to the President the authority to fix the compensation of
any or all of the other officers of the Corporation.
Section 6. Term of Office; Removal; Filling of Vacancies. Each elected
officer of the Corporation shall hold office until his successor is chosen and
qualified in his stead or until his earlier death, resignation, retirement,
disqualification or removal from office. Each appointive officer shall hold
office at the pleasure of the Board of Directors without the necessity of
periodic reappointment. Any officer or agent elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors whenever in
its judgment the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create
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contract rights. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
Section 7. President. The President shall be the chief executive
officer of the Corporation and, subject to the provisions of these Bylaws, shall
have general supervision of the affairs of the Corporation and shall have
general and active control of all its business. In the event of the absence or
disability of the Chairman of the Board, the President shall preside when
present at meetings of the shareholders and of the Board of Directors. He shall
have power and general authority to execute bonds, deeds and contracts in the
name of the Corporation and to affix the corporate seal thereto; to sign stock
certificates; to cause the employment or appointment of such employees and
agents of the Corporation as the proper conduct of operations may require and to
fix their compensation, subject to the provisions of these Bylaws; to remove or
suspend any employee or agent who shall have been employed or appointed under
his authority or under authority of an officer subordinate to him; to suspend
for cause, pending final action by the authority which shall have elected or
appointed him, any officer subordinate to the President; and in general to
exercise all the powers usually appertaining to the office of president of a
corporation, except as otherwise provided by statute, the Articles of
Incorporation or these Bylaws. In the event of the absence or disability of the
President, his duties shall be performed and his powers may be exercised by the
Vice Presidents in the order of their seniority, unless otherwise determined by
the President, the Executive Committee or the Board of Directors.
Section 8. Vice Presidents. Each Vice President shall generally assist
the President and shall have such powers and perform such duties and services as
shall from time to time be prescribed or delegated to him by the President, the
Executive Committee or the Board of Directors.
Section 9. Secretary. The Secretary shall see that notice is given of
all meetings of the shareholders and special meetings of the Board of Directors
and shall keep and attest true records of all proceedings at all meetings
thereof. He shall have charge of the corporate seal and have authority to attest
any and all instruments or writings to which the same may be affixed. He shall
keep and account for all books, documents, papers and records of the Corporation
except those for which some other officer or agent is properly accountable. He
shall have authority to sign stock certificates and shall generally perform all
duties usually appertaining to the office of secretary of a corporation. In the
event of the absence or disability of the Secretary, his duties shall be
performed and his powers may be exercised by the Assistant Secretaries in the
order of their seniority, unless otherwise determined by the Secretary, the
President, the Executive Committee or the Board of Directors.
Section 10. Assistant Secretaries. Each Assistant Secretary shall
generally assist the Secretary and shall have such powers and perform such
duties and services as shall from time to time be prescribed or delegated to him
by the Secretary, the President, the Executive Committee or the Board of
Directors.
Section 11. Treasurer. The Treasurer shall be the chief accounting and
financial officer of the Corporation and shall have active control of and shall
be responsible for all matters pertaining to the accounts and finances of the
Corporation. He shall audit all payrolls and vouchers of the
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Corporation and shall direct the manner of certifying the same; shall
supervise the manner of keeping all vouchers for payments by the Corporation and
all other documents relating to such payments; shall receive, audit and
consolidate all operating and financial statements of the Corporation and its
various departments; shall have supervision of the books of account of the
Corporation, their arrangement and classification; shall supervise the
accounting and auditing practices of the Corporation and shall have charge of
all matters relating to taxation.
The Treasurer shall have the care and custody of all monies,
funds and securities of the Corporation; shall deposit or cause to be deposited
all such funds in and with such depositories as the Board of Directors or the
Executive Committee shall from time to time direct or as shall be selected in
accordance with procedures established by the Board of Directors or the
Executive Committee; shall advise upon all terms of credit granted by the
Corporation; shall be responsible for the collection of all its accounts and
shall cause to be kept full and accurate accounts of all receipts and
disbursements of the Corporation. He shall have the power to endorse for deposit
or collection or otherwise all checks, drafts, notes, bills of exchange and
other commercial paper payable to the Corporation and to give proper receipts or
discharges for all payments to the Corporation. The Treasurer shall generally
perform all duties usually appertaining to the office of treasurer of a
corporation. In the event of the absence or disability of the Treasurer, his
duties shall be performed and his powers may be exercised by the Assistant
Treasurers in the order of their seniority, unless otherwise determined by the
Treasurer, the President, the Executive Committee or the Board of Directors.
Section 12. Assistant Treasurers. Each Assistant Treasurer shall
generally assist the Treasurer and shall have such powers and perform such
duties and services as shall from time to time be prescribed or delegated to him
by the Treasurer, the President, the Executive Committee or the Board of
Directors.
Section 13. Additional Powers and Duties. In addition to the foregoing
especially enumerated duties, services and powers, the several elected and
appointed officers of the Corporation shall perform such other duties and
services and exercise such further powers as may be provided by statute, the
Articles of Incorporation or these Bylaws, or as the Board of Directors or the
Executive Committee may from time to time determine or as may be assigned to
them by any competent superior officer.
Section 14. Titles of Non-Officer Employees. The President of the
Corporation shall have the power and authority to determine the titles to be
used by employees who are not officers of the Corporation. Such titles may
include, but shall not be limited to, titles such as "Vice President" and
"Assistant Vice President" (with or without additional descriptive terms in each
case). The employees using such titles shall not be considered officers of the
Corporation for any purpose, notwithstanding the fact that there may be duly
elected or appointed officers of the Corporation whose titles are similar to
those of such employees. It is the intent of these Bylaws that the only persons
who are and shall be considered officers of the Corporation are the persons
elected or appointed as officers by the Board pursuant to Section 1 or Section 3
of this Article Seven.
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ARTICLE EIGHT
SHARES AND TRANSFERS OF SHARES
Section 1. Certificates Representing Shares. Certificates in such form
as may be determined by the Board of Directors and as shall conform to the
requirements of the statutes, the Articles of Incorporation and these Bylaws
shall be delivered representing all shares to which shareholders are entitled.
Such certificates shall be consecutively numbered and shall be entered in the
books of the Corporation as they are issued. Each certificate shall state on the
face thereof that the Corporation is organized under the laws of Texas, the
holder's name, the number and class of shares, and the par value of such shares
or a statement that such shares are without par value. Each certificate shall be
signed by the President or a Vice President and the Secretary or an Assistant
Secretary and may be sealed with the seal of the Corporation or a facsimile
thereof. The signatures of such officers may be facsimiles.
Section 2. Lost Certificates. The Board of Directors, the Executive
Committee, the President or such other officer or officers or any agent of the
Corporation as the Board of Directors may from time to time designate, in its or
his discretion, may direct a new certificate representing shares to be issued in
place of any certificate theretofore issued by the Corporation and alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen or destroyed.
When authorizing such issue of a new certificate, the Board of Directors, the
Executive Committee, the President or any such other officer or agent in its or
his discretion and as a condition precedent to the issuance thereof may require
the owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as it or he shall require
and/or give the Corporation a bond in such form, in such sum, and with such
surety or sureties as it or he may direct, as indemnity against any claim that
may be made against the Corporation with respect to the certificate alleged to
have been lost, stolen or destroyed.
Section 3. Transfers of Shares. Shares of the Corporation shall be
transferable only on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney. If a certificate representing shares
is presented to the Corporation or the transfer agent of the Corporation with a
request to register transfer, it shall be the duty of the Corporation or the
transfer agent of the Corporation to register the transfer, cancel the old
certificate and issue a new certificate if:
(a) the certificate is duly endorsed;
(b) reasonable assurance is given that those endorsements are
genuine and effective;
(c) the Corporation has no duty as to adverse claims or has
discharged the duty;
(d) any applicable law relating to the collection of taxes has
been complied with;
and
(e) the transfer is in fact rightful or is to a bona fide
purchaser.
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Section 4. Registered Shareholders.
(a) Unless otherwise provided in the Texas Business
Corporation Act or other applicable law, (1) the Corporation may regard the
person in whose name any shares issued by the Corporation are registered in the
stock transfer books of the Corporation at any particular time as the owner of
those shares at that time for purposes of voting or giving proxies with respect
to those shares, receiving distributions thereon or notices in respect thereof,
transferring those shares, exercising rights of dissent, exercising or waiving
any preemptive right or entering into any agreements with respect to those
shares, and (2) neither the Corporation nor any of its directors, officers,
employees or agents shall be liable for regarding that person as the owner of
those shares at that time for those purposes, regardless of whether that person
does not possess a certificate for those shares.
(b) When shares are registered in the stock transfer books of
the Corporation in the names of two or more persons as joint owners with the
right of survivorship, after the death of a joint owner and before the time that
the Corporation receives actual written notice that a party or parties other
than the surviving joint owner or owners claim an interest in the shares or any
distributions thereon, the Corporation may record on its books and otherwise
effect the transfer of those shares to any person, firm or corporation
(including the surviving joint owner or owners individually) and
pay any distributions made in respect of those shares, in each case as if the
surviving joint owner or owners were the absolute owners of the shares.
ARTICLE NINE
INDEMNIFICATION
Section 1. Indemnification of Directors. The Corporation shall
indemnify a person who was, is, or is threatened to be made, a named defendant
or respondent in a proceeding because the person is or was a director against
any judgments, penalties (including excise and similar taxes), fines,
settlements and reasonable expenses actually incurred by the person in
connection with the proceeding if it is determined, in the manner described
below, that the person (a) conducted himself in good faith, (b) reasonably
believed, in the case of conduct in his official capacity as a director of the
Corporation, that his conduct was in the Corporation's best interests, and in
all other cases, that his conduct was at least not opposed to the Corporation's
best interests and (c) in the case of any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful; provided that if the person is found
liable to the Corporation or is found liable on the basis that personal benefit
was improperly received by the person, the indemnification (i) shall be limited
to reasonable expenses actually incurred by the person in connection with the
proceeding and (ii) shall not be made in respect of any proceeding in which the
person shall have been found liable for willful or intentional misconduct in the
performance of his duty to the Corporation.
The determinations required above that the person has
satisfied the prescribed conduct and belief standards must be made (1) by a
majority vote of a quorum consisting of directors who at the time of the vote
are not named defendants or respondents in the proceeding, (2) if such a
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quorum cannot be obtained, by a majority vote of a committee of the Board of
Directors, designated to act in the matter by a majority vote of all directors,
consisting solely of two (2) or more directors who at the time of the vote are
not named defendants or respondents in the proceeding, (3) by special legal
counsel selected by the Board of Directors or a committee of the Board by vote
as set forth in clause (1) or (2) of this sentence, or, if such a quorum cannot
be obtained and such a committee cannot be established, by a majority vote of
all directors, or (4) by the shareholders in a vote that excludes the shares
held by directors who are named defendants or respondents in the proceeding. The
determination as to reasonableness of expenses must be made in the same manner
as the determination that the person has satisfied the prescribed conduct and
belief standards, except that if the determination that the person has satisfied
the prescribed conduct and belief standards is made by special legal counsel,
the determination as to reasonableness of expenses must be made by the Board of
Directors or a committee of the Board by vote as set forth in clause (1) or (2)
of the immediately preceding sentence or, if such a quorum cannot be obtained
and such a committee cannot be established, by a majority vote of all directors.
The termination of a proceeding by judgment, order, settlement
or conviction, or on a plea of nolo contendere or its equivalent is not of
itself determinative that the person did not meet the requirements for
indemnification set forth above. A person shall be deemed to have been found
liable in respect of any claim, issue or matter only after the person shall have
been so adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom.
Notwithstanding any other provision of these Bylaws, the
Corporation shall pay or reimburse expenses incurred by a director in connection
with his appearance as a witness or other participation in a proceeding at a
time when he is not a named defendant or respondent in the proceeding.
Section 2. Advancement of Expenses to Directors. Reasonable expenses
incurred by a director who was, is, or is threatened to be made, a named
defendant or respondent in a proceeding shall be paid or reimbursed by the
Corporation, in advance of the final disposition of the proceeding and without
any of the determinations specified in Section 1 of this Article, after the
Corporation receives a written affirmation by the director of his good faith
belief that he has met the standard of conduct necessary for indemnification
under Section 1 of this Article and a written undertaking by or on behalf of
such director to repay the amount paid or reimbursed if it is ultimately
determined that he has not met that standard or if it is ultimately determined
that indemnification of the director against expenses incurred by him in
connection with that proceeding is prohibited by law. The written undertaking
described in the immediately preceding sentence to repay the amount paid or
reimbursed to the director by the Corporation must be an unlimited general
obligation of the director but need not be secured and it may be accepted
without reference to financial ability to make repayment.
Section 3. Officers. The Corporation shall indemnify and advance
expenses to an officer of the Corporation to the same extent that it is required
to indemnify and advance expenses to directors under these Bylaws or by statute.
In addition, the Corporation may indemnify and advance expenses to an officer of
the Corporation to such further extent, consistent with law, as may be
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provided by the Articles of Incorporation, these Bylaws, general or specific
action of the Board of Directors, or contract or as permitted or required by
common law.
Section 4. Others. The Corporation may indemnify and advance expenses
to an employee or agent of the Corporation to the same extent that it is
required to indemnify and advance expenses to directors under these Bylaws or by
statute. The Corporation may indemnify and advance expenses to persons who are
not or were not officers, employees or agents of the Corporation but who are or
were serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
corporation for profit subject to the provisions of the Texas Business
Corporation Act, corporation for profit organized under laws other than the laws
of Texas, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise to the same extent that it is required to
indemnify and advance expenses to directors under this Article or by statute.
The Corporation may indemnify and advance expenses to an employee, agent or
other person serving at the request of the Corporation (as described above in
this Section 4) who is not a director to such further extent, consistent with
law, as may be provided by the Articles of Incorporation, these Bylaws, general
or specific action of the Board of Directors, or contract or as permitted or
required by common law.
Section 5. Insurance and Other Arrangements. The Corporation may
purchase and maintain insurance or establish and maintain another arrangement on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or who is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another corporation for profit subject to the provisions
of the Texas Business Corporation Act, corporation for profit organized under
laws other than the laws of Texas, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against or in
respect of any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
Corporation would have the power to indemnify him against that liability under
these Bylaws or by statute. If the insurance or other arrangement is with a
person or entity that is not regularly engaged in the business of providing
insurance coverage, the insurance or arrangement may provide for payment of a
liability with respect to which the Corporation would not have the power to
indemnify the person only if including coverage for the additional liability has
been approved by the shareholders of the Corporation.
Without limiting the power of the Corporation to purchase,
procure, establish or maintain any kind of insurance or other arrangement, the
Corporation may, for the benefit of persons indemnified by the Corporation, (1)
create a trust fund; (2) establish any form of self-insurance; (3) secure its
indemnity obligation by grant of a security interest or other lien on the assets
of the Corporation; or (4) establish a letter of credit, guaranty or surety
arrangement. The insurance or other arrangement may be purchased, procured,
maintained or established within the Corporation or with any insurer or other
person deemed appropriate by the Board of Directors regardless of whether all or
part of the stock or other securities of the insurer or other person are owned
in whole or part by the Corporation. In the absence of fraud, the judgment of
the Board of Directors as to the terms and conditions of the insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive and the insurance or arrangement shall not be
voidable and shall not subject the directors approving the insurance or
arrangement to
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liability, on any ground, regardless of whether directors participating in the
approval are beneficiaries of the insurance or arrangement.
Section 6. Report to Shareholders. Any indemnification of or advance of
expenses to a director in accordance with this Article or the provisions of any
statute shall be reported in writing to the shareholders with or before the
notice or waiver of notice of the next shareholders' meeting or with or before
the next submission to shareholders of a consent to action without a meeting
and, in any case, within the 12-month period immediately following the date of
the indemnification or advance.
Section 7. Entitlement. These indemnification provisions shall inure to
each of the directors, officers, employees and agents of the Corporation, and
other persons serving at the request of the Corporation (as provided in this
Article), whether or not the claim asserted against him is based on matters that
antedate the adoption of this Article, and in the event of his death shall
extend to his legal representatives; but such rights shall not be exclusive of
any other rights to which he may be entitled.
Section 8. Definitions. For purposes of this Article:
(a) The term "expenses" includes court costs and attorneys
fees;
(b) The term "proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or proceeding,
and any inquiry or investigation that could lead to such an action, suit or
proceeding;
(c) The term "director" means any person who is or was a
director of the Corporation and any person who, while a director of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another corporation for profit subject to the provisions of the
Texas Business Corporation Act, corporation for profit organized under laws
other than the laws of Texas, partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise;
(d) The term "corporation" includes any domestic or foreign
predecessor entity of the corporation in a merger, consolidation or other
transaction in which the liabilities of the predecessor are transferred to the
corporation by operation of law and in any other transaction in which the
corporation assumes the liabilities of the predecessor but does not specifically
exclude liabilities that are the subject matter of this Article;
(e) The term "official capacity" means, when used with respect
to a director, the office of director in the corporation and, when used with
respect to a person other than a director, the elective or appointive office in
the corporation held by the officer or the employment or agency relationship
undertaken by the employee or agent on behalf of the corporation, but does not
include service for any other corporation for profit subject to the provisions
of the Texas Business
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Corporation Act or corporation for profit organized under laws
other than the laws of Texas or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise; and
(f) The Corporation is deemed to have requested a director to
serve an employee benefit plan whenever the performance by him of his duties to
the Corporation also imposes duties on or otherwise involves services by him to
the plan or participants or beneficiaries of the plan. Excise taxes assessed on
a director with respect to an employee benefit plan pursuant to applicable law
are deemed fines. Action taken or omitted to be taken by a director with respect
to an employee benefit plan in the performance of his duties for a purpose
reasonably believed by him to be in the interest of the participants and
beneficiaries of the plan is deemed to be for a purpose which is not opposed to
the best interests of the Corporation.
Section 9. Severability. The provisions of this Article are intended to
comply with Articles 2.02A(16) and 2.02-1 of the Texas Business Corporation Act.
To the extent that any provision of this Article authorizes or requires
indemnification or the advancement of expenses contrary to such statutes or the
Articles of Incorporation, the Corporation's power to indemnify or advance
expenses under such provision shall be limited to that permitted by such
statutes and the Articles of Incorporation and any limitation required by such
statutes or the Articles of Incorporation shall not affect the validity of any
other provision of this Article.
ARTICLE TEN
MISCELLANEOUS
Section 1. Distributions and Share Dividends. Distributions in the form
of dividends and share dividends on the outstanding shares of the Corporation,
subject to any restrictions in the Articles of Incorporation and to the
limitations imposed by the statutes, may be declared by the Board of Directors
at any regular or special meeting. Distributions in the form of dividends may be
declared and paid in cash, in property, or in evidences of the Corporation's
indebtedness, or in any combination thereof, and may be declared and paid in
combination with share dividends. Distributions of cash or property (tangible or
intangible) made or payable by the Corporation, whether in liquidation or from
earnings, profits, assets or capital, including all distributions that were
payable but not paid to the registered owner of the shares, his heirs,
successors or assigns but that are now being held in suspense by the Corporation
or that were paid or delivered by it into an escrow account or to a trustee or
custodian, shall be payable by the Corporation, escrow agent, trustee or
custodian to the person registered as owner of the shares in the Corporation's
stock transfer books as of the record date determined for the distribution, his
heirs, successors or assigns. The person in whose name the shares are or were
registered in the stock transfer books of the Corporation as of the record date
shall be deemed to be the owner of the shares registered in his name at that
time.
Section 2. Reserves. The Corporation may, by resolution of the Board of
Directors, create a reserve or reserves out of its surplus or designate or
allocate any part or all of its surplus in any manner for any proper purpose or
purposes, and may increase, decrease or abolish any such reserve, designation or
allocation in the same manner.
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Section 3. Signature of Negotiable Instruments. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned by such officer, officers, agent or agents, and in such manner, as
are permitted by these Bylaws and as from time to time may be prescribed by
resolution (whether general or special) of the Board of Directors or the
Executive Committee.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Seal. The seal of the Corporation shall be in such form as
shall be adopted and approved from time to time by the Board of Directors. The
seal may be used by causing it, or a facsimile thereof, to be impressed,
affixed, imprinted or in any manner reproduced.
Section 6. Loans and Guaranties. The Corporation may lend money to,
guaranty obligations of and otherwise assist its directors, officers and
employees if the Board of Directors determines that such a loan, guaranty or
assistance reasonably may be expected to benefit, directly or indirectly, the
Corporation.
Section 7. Closing of Transfer Books and Record Date. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
by the Corporation (other than a distribution involving a purchase or redemption
by the Corporation of any of its own shares) or a share dividend, or in order to
make a determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders, in which case the record date for
such purpose shall be determined pursuant to the provisions of Article 2.26C of
the Texas Business Corporation Act), the Board of Directors may provide that the
stock transfer books of the Corporation shall be closed for a stated period but
not to exceed, in any case, sixty (60) days. If the stock transfer books shall
be closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least
ten (10) days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case not to be more than sixty
(60) days and, in case of a meeting of shareholders, not less than ten (10) days
prior to the date on which the particular action requiring such determination of
shareholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, or entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such distribution or share dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. The record date
for determining shareholders entitled to call a special meeting is the date the
first shareholder signs the notice of that meeting.
When a determination of shareholders entitled to vote at any
meeting has been made as provided in this Section, such determination shall
apply to any adjournment thereof except where
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the determination has been made through the closing of the stock transfer books
and the stated period of closing has expired.
Section 8. Surety Bonds. Such officers and agents of the Corporation
(if any) as the Board of Directors may direct from time to time shall be bonded
for the faithful performance of their duties and for the restoration to the
Corporation, in case of their death, resignation, retirement, disqualification
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Corporation, in such amounts and by such surety companies as the Board of
Directors may determine. The premiums on such bonds shall be paid by the
Corporation, and the bonds so furnished shall be in the custody of the
Secretary.
Section 9. Gender. Words of any gender used in these Bylaws shall be
construed to include each other gender, unless the context requires otherwise.
ARTICLE ELEVEN
AMENDMENTS
These Bylaws may be amended or repealed, or new bylaws may be adopted,
exclusively by the affirmative vote of a majority of the directors present at
any meeting of the Board of Directors at which a quorum is present or by
unanimous written consent of the directors.
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EXHIBIT A
AS AMENDED THROUGH
OCTOBER 26, 1993
BYLAWS
OF
CARRINGTON LABORATORIES, INC.
ARTICLE ONE
OFFICES
The Corporation may have, in addition to its registered office in the State
of Texas, such other offices and places of business at such locations, both
within and without the State of Texas, as the Board of Directors may from time
to time determine or the business and affairs of the Corporation may require.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
Section 1. Annual Meetings. An annual meeting of the shareholders,
commencing with the year 1989, shall be held at such time and place, and on such
date during the month of March, April or May of each year, as shall be
determined by or in the manner authorized by the Board of Directors. At each
annual meeting, the shareholders shall elect a board of directors and transact
such other business as may properly be brought before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, the Articles of
Incorporation or these Bylaws, may be called by the Chairman of the Board, the
President, the Board of Directors or the holders of at least ten (10) percent of
all the shares entitled to vote at the proposed special meeting, unless the
Articles of Incorporation provide for a number of shares greater than or less
than ten (10) percent, but not greater than fifty (50) percent, in which event
special meetings of the shareholders may be called by the holders of at least
the percentage of shares so specified in the Articles of Incorporation. Only
business within the purpose or purposes described in the notice of special
meeting of shareholders may be conducted at the meeting.
Section 3. Place of Meetings. Meetings of shareholders shall be held at
such places, within or without the State of Texas, as may from time to time be
fixed by the Board of Directors or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
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Section 4. Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten (10) days prior to such meeting, shall be kept
on file at the registered office or principal place of business of the
Corporation and shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original stock transfer
books shall be prima facie evidence as to who are the shareholders entitled to
examine such list or transfer books or to vote at any meeting of shareholders.
Section 5. Notice of Meetings. Written or printed notice stating the place,
day and hour of each meeting of the shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, the Secretary or the body, officer or
person calling the meeting, to each shareholder of record entitled to vote at
the meeting.
Section 6. Quorum of Shareholders. With respect to any matter, the holders
of a majority of the shares entitled to vote on that matter, present in person
or represented by proxy, shall be requisite to and shall constitute a quorum at
each meeting of shareholders for the transaction of business with respect to
that matter, except as otherwise provided by statute, the Articles of
Incorporation or these Bylaws. Unless otherwise provided in the Articles of
Incorporation or these Bylaws, the shareholders represented in person or by
proxy at a meeting of shareholders at which a quorum is not present may adjourn
the meeting until such time and to such place as may be determined by a vote of
the holders of a majority of the shares represented in person or by proxy at
that meeting. At any such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted that might have been transacted
at the meeting as originally convened.
With respect to any matter, other than the election of directors or a
matter for which the affirmative vote of the holders of a specified portion of
the shares entitled to vote is required by statute, the Articles of
Incorporation or these Bylaws, in which case the vote of such specified portion
shall be requisite to constitute the act of the meeting, the affirmative vote of
the holders of a majority of the shares entitled to vote on that matter and
represented in person or by proxy at a meeting of shareholders at which a quorum
is present shall be the act of the shareholders. Unless otherwise provided in
the Articles of Incorporation or these Bylaws, once a quorum is present at a
meeting of shareholders the shareholders represented in person or by proxy at
the meeting may conduct such business as may be properly brought before the
meeting until it is adjourned, and the subsequent withdrawal from the meeting of
any shareholder or the refusal of any shareholder represented in person or by
proxy to vote shall not affect the presence of a quorum at the meeting.
Section 7. Voting of Shares. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except as and to the
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extent otherwise provided by statute or by the Articles of Incorporation. At any
meeting of the shareholders, every shareholder having the right to vote shall be
entitled to vote either in person or by proxy executed in writing by such
shareholder. A telegram, telex, cablegram or similar transmission by the
shareholder, or a photographic, photostatic, facsimile or similar reproduction
of a writing executed by the shareholder, shall be treated as an execution in
writing for purposes of this Section.
No proxy shall be valid after eleven (11) months from the date of its
execution unless otherwise provided in the proxy. Each proxy shall be revocable
unless the proxy form conspicuously states that the proxy is irrevocable and the
proxy is coupled with an interest. Proxies coupled with an interest include the
appointment as proxy of: (1) a pledgee; (2) a person who purchased or agreed to
purchase, or owns or holds an option to purchase, the shares; (3) a creditor of
the Corporation who extended it credit under terms requiring the appointment;
(4) an employee of the Corporation whose employment contract requires the
appointment; or (5) a party to a voting agreement created under Section B,
Article 2.30 of the Texas Business Corporation Act. Each proxy shall be filed
with the Secretary of the Corporation prior to or at the time of the meeting.
Section 8. Action Without a Meeting. Any action required to be taken at any
annual or special meeting of shareholders of the Corporation, or any action
which may be taken at any annual or special meeting of such shareholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by all the
shareholders entitled to vote with respect to the subject matter thereof.
Section 9. Telephone Meetings. Subject to the provisions of applicable law
and these Bylaws regarding notice of meetings, shareholders may, unless
otherwise restricted by the Articles of Incorporation or these Bylaws,
participate in and hold a meeting by using conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except when a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting was not lawfully
called or convened.
Section 10. Notice of Shareholder Business. At a meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must (a) be specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors or by or at the direction of
the shareholders calling the meeting pursuant to Section 2 of this Article Two,
(b) otherwise be properly brought before the meeting by or at the direction of
the Board of Directors or (c) otherwise (i) be properly requested to be brought
before the meeting by a shareholder of record entitled to vote in the election
of directors generally, and (ii) constitute a proper subject to be brought
before such meeting.
Any shareholder who intends to bring any matter (other than the election
of directors) before a meeting of shareholders and is entitled to vote on such
matter must deliver written notice of such shareholder's intent to bring such
matter before the meeting of shareholders, either by
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personal delivery or by United States mail, postage prepaid, to the Secretary of
the Corporation. Such notice must be received by the Secretary not later than
the following dates: (A) with respect to an annual meeting of shareholders, 60
days in advance of such meeting if such meeting is to be held on a day which is
within 30 days preceding the anniversary of the previous year's annual meeting,
or 90 days in advance of such meeting if such meeting is to be held on or after
the anniversary of the previous year's annual meeting; and (B) with respect to
any other meeting of shareholders, the close of business on the seventh day
following the date on which notice of such meeting is first given to
shareholders. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the meeting of shareholders (1)
a brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (2) the name and
address, as they appear on the Corporation's books, of the shareholder proposing
such business, (3) the class and number of shares of the Corporation which are
owned by the shareholder and (4) any material interest of the shareholder in
such business.
No business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 10. If any business
proposed to be brought before a meeting is not a proper subject for the meeting
or was not properly brought before the meeting in accordance with the provisions
of this Section 10, the chairman of the meeting shall so declare to the meeting,
and such business shall not be conducted.
ARTICLE THREE
BOARD OF DIRECTORS
Section 1. Management of the Corporation. The powers of the Corporation
shall be exercised by or under the authority of, and the business and affairs of
the Corporation shall be managed under the direction of, the Board of Directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute, the Articles of Incorporation or these
Bylaws directed or required to be exercised or done by the shareholders.
Section 2. Number and Qualifications. The Board of Directors shall consist
of not less than five (5) and not more than nine (9) directors, and the exact
number of directors which shall constitute the Board of Directors shall be fixed
from time to time by resolution of the Board; provided, however, that no
decrease in the number of directors constituting the Board shall have the effect
of shortening the term of any incumbent director. None of the directors need be
shareholders of the Corporation or residents of the State of Texas.
The directors, other than those who may be elected by the holders of
shares of any class or series of stock having a preference over the Common Stock
as to dividends or upon liquidation pursuant to the terms of any resolution or
resolutions providing for the issuance of such stock adopted by the Board, shall
be classified, with respect to the time for which they severally hold office,
into three classes with, as nearly as possible, an equal number of directors in
each class. If at any time the number of directors constituting the Board of
Directors, as fixed by resolution of the
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Board, is not evenly divisible by three, then, subject to the requirements of
the immediately preceding sentence, the Board shall determine the number of
directors that each class of directors shall comprise; provided, however, that
this sentence shall not empower the Board of Directors to change the term of any
incumbent director.
At the 1992 annual meeting of shareholders, the shareholders shall elect
that number of directors constituting the entire Board, divided into three
classes with terms expiring, respectively, at the 1993, 1994 and 1995 annual
meetings of shareholders. At the 1993 annual meeting of shareholders, and at
each annual meeting of shareholders thereafter, the shareholders shall elect the
successors of the class of directors whose term expires at such meeting, to hold
office for a term expiring at the annual meeting of shareholders held in the
third year following the year of their election.
In each election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected. Each director elected shall hold office for the term for
which he is elected and until his successor is elected and qualified or until
his earlier death, resignation, disqualification or removal from office.
Section 3. Notification of Nominations. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or by any shareholder entitled
to vote for the election of directors. Any shareholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such shareholder's intent to make such
nominations is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of shareholders, 90 days
in advance of such meeting, and (ii) with respect to an election to be held at a
special meeting of shareholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to shareholders.
Each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination of the person or persons to be
nominated; (b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the written consent of each nominee to serve as a
director of the Corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
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Section 4. Removal; Filling of Vacancies. Any or all of the directors may
be removed, either for or without cause, at any meeting of shareholders called
expressly for that purpose, by the affirmative vote, in person or by proxy, of
the holders of a majority of the shares then entitled to vote at an election of
directors. Any vacancy occurring in the Board of Directors, resulting from the
death, resignation, retirement, disqualification or removal from office of any
director, or otherwise than as the result of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board of Directors, or may be filled
by election at any annual or special meeting of the shareholders called for that
purpose. A director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office.
A directorship to be filled by reason of any increase in the number of
directors may be filled by the Board of Directors for a term of office
continuing only until the next election of one (1) or more directors by the
shareholders, or may be filled by election at any annual or special meeting of
the shareholders called for that purpose; provided that the Board of Directors
may not fill more than two (2) such directorships during the period between any
two (2) successive annual meetings of shareholders.
Section 5. Place of Meetings. Meetings of the Board of Directors, annual,
regular or special, may be held either within or without the State of Texas.
Section 6. Annual Meetings. The first meeting of each newly elected Board
of Directors shall be held for the purpose of organization and the transaction
of any other business, without notice, immediately following the annual meeting
of shareholders, and at the same place, unless by unanimous consent of the
directors then elected and serving such time or place shall be changed.
Section 7. Regular Meetings. Regular meetings of the Board of Directors, of
which no notice shall be necessary, shall be held at such times and places as
may be fixed from time to time by resolution adopted by the Board and
communicated to all directors. Except as otherwise provided by statute, the
Articles of Incorporation or these Bylaws, any and all business may be
transacted at any regular meeting.
Section 8. Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board or the President on twenty-four (24)
hours' notice to each director, either personally or by mail or by telegram.
Special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of two (2) directors. Except as may be
otherwise expressly provided by statute or by the Articles of Incorporation or
by these Bylaws, neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
Section 9. Quorum and Manner of Acting. At all meetings of the Board of
Directors the presence of a majority of the number of directors fixed by or in
the manner provided in these Bylaws shall be necessary and sufficient to
constitute a quorum for the transaction of business except as otherwise provided
by statute, the Articles of Incorporation or these Bylaws. The act of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of
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Directors unless the act of a greater number is required by statute, the
Articles of Incorporation or these Bylaws, in which case the act of such greater
number shall be requisite to constitute the act of the Board. If a quorum shall
not be present at any meeting of the directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. At any such
adjourned meeting any business may be transacted that might have been transacted
at the meeting as originally convened.
Section 10. Action Without a Meeting. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 11. Telephone Meetings. Subject to the provisions of applicable law
and these Bylaws regarding notice of meetings, members of the Board of Directors
or members of any committee designated by such Board may, unless otherwise
restricted by the Articles of Incorporation or these Bylaws, participate in and
hold a meeting of such Board of Directors or committee by using conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section shall constitute presence in person at such meeting,
except when a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting was
not lawfully called or convened.
Section 12. Interested Directors and Officers. No contract or transaction
between the Corporation and one or more of its directors or officers or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 13. Directors' Compensation. The Board of Directors shall have
authority to determine, from time to time, the amount of compensation, if any,
which shall be paid to its members for their services as directors and as
members of standing or special committees. The Board of Directors shall also
have power in its discretion to provide for and to pay to directors
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rendering services to the Corporation not ordinarily rendered by directors as
such, special compensation appropriate to the value of such services as
determined by the Board of Directors from time to time. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
Section 14. Advisory Directors. The Board of Directors may appoint such
number of advisory directors as it shall from time to time determine. Each
advisory director appointed shall hold office for the term for which he is
elected or until his earlier death, resignation, retirement or removal by the
Board of Directors. The advisory directors shall attend and be present at the
meetings of the Board of Directors, although a meeting of the Board of Directors
may be held without notice to the advisory directors and the advisory directors
shall not be considered in determining whether a quorum of the Board of
Directors is present. The advisory directors shall advise and counsel the Board
of Directors on the business and operations of the Corporation as requested by
the Board of Directors; however, the advisory directors shall not be entitled to
vote on any matter presented to the Board of Directors.
ARTICLE FOUR
NOTICES
Section 1. Manner of Giving Notice. Whenever under the provisions of the
statutes, the Articles of Incorporation or these Bylaws, notice is required to
be given to any committee member, director or shareholder of the Corporation,
and no provision is made as to how such notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given in writing
by mail, postage prepaid, addressed to such member, director or shareholder at
his address as it appears on the records or (in the case of a shareholder) the
stock transfer books of the Corporation. Any notice required or permitted to be
given by mail shall be deemed to be delivered when the same shall be thus
deposited in the United States mail, as aforesaid.
Section 2. Waiver of Notice. Whenever any notice is required to be given to
any committee member, director or shareholder of the Corporation under the
provisions of the statutes, the Articles of Incorporation or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance of a director at a meeting
of the Board of Directors shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
Section 3. When Notice Not Required. Any notice required to be given to any
shareholder under any provision of the statutes, the Articles of Incorporation
or these Bylaws need not be given to the shareholder if: (1) notice of two (2)
consecutive annual meetings and all notices of meetings held during the period
between those annual meetings, if any, or (2) all (but in no event less than two
(2)) payments (if sent by first class mail) of distributions or interest on
securities during a twelve (12)-month period have been mailed to that person,
addressed at his address as shown on the records
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of the Corporation, and have been returned undeliverable. Any action or meeting
taken or held without notice to such a person shall have the same force and
effect as if the notice had been duly given and, if the action taken by the
Corporation is reflected in any articles or document filed with the Secretary of
State, those articles or that document may state that notice was duly given to
all persons to whom notice was required to be given. If such a person delivers
to the Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
ARTICLE FIVE
EXECUTIVE COMMITTEE
Section 1. Constitution and Powers. The Board of Directors, by resolution
adopted by affirmative vote of a majority of the number of directors fixed by or
in the manner provided in these Bylaws, may designate one (1) or more directors
(with such alternates, if any, as may be deemed desirable) to constitute an
Executive Committee, which Executive Committee shall have and may exercise, when
the Board of Directors is not in session, all the authority and powers of the
Board of Directors in the business and affairs of the Corporation, even though
such authority and powers be herein provided or directed to be exercised by a
designated officer of the Corporation; provided, however, that the Executive
Committee shall not have the authority of the Board of Directors (a) to amend
the Articles of Incorporation, except that the Executive Committee may, to the
extent provided in the resolution designating that committee or in the Articles
of Incorporation or these Bylaws, exercise the authority of the Board of
Directors vested in it in accordance with Article 2.13 of the Texas Business
Corporation Act relating to the issuance of certain shares; (b) to propose a
reduction of the stated capital of the Corporation; (c) to approve a plan of
merger or share exchange of the Corporation; (d) to recommend to the
shareholders the sale, lease, or exchange of all or substantially all of the
property and assets of the Corporation otherwise than in the usual and regular
course of its business; (e) to recommend to the shareholders a voluntary
dissolution of the Corporation or revocation thereof; (f) to amend, alter or
repeal the Bylaws of the Corporation or adopt new Bylaws of the Corporation; (g)
to fill vacancies in the Board of Directors; (h) to fill vacancies in or
designate alternate members of the Executive Committee; (i) to fill any
directorship to be filled by reason of an increase in the number of directors;
(j) to elect or remove officers of the Corporation or members or alternate
members of the Executive Committee; (k) to fix the compensation of any member or
alternate member of the Executive Committee; (l) to alter or repeal any
resolution of the Board of Directors that by its terms provides that it shall
not be so amendable or repealable; or (m) unless the resolution designating the
Executive Committee, the Articles of Incorporation or these Bylaws expressly so
provide, to authorize a distribution or the issuance of shares of the
Corporation.
The designation of the Executive Committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors or any member
thereof of any responsibility imposed upon it or him by law. So far as
practicable, members of the Executive Committee and their alternates (if any)
shall be appointed by the Board of Directors at its first meeting after each
annual meeting of shareholders and, unless sooner discharged by affirmative vote
of a majority of
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the number of directors fixed by or in the manner provided in these Bylaws,
shall hold office until their respective successors are appointed and qualify or
until their earlier respective deaths, resignations, retirements or
disqualifications.
Section 2. Meetings. Regular meetings of the Executive Committee, of which
no notice shall be necessary, shall be held at such times and places as may be
fixed from time to time by resolution adopted by affirmative vote of a majority
of the whole Committee and communicated to all the members thereof. Special
meetings of the Executive Committee may be called by the Chairman of the Board,
the President or any two (2) members thereof at any time on twenty-four (24)
hours' notice to each member, either personally or by mail or telegram. Except
as may be otherwise expressly provided by statute, the Articles of Incorporation
or these Bylaws, neither the business to be transacted at, nor the purpose of,
any meeting of the Executive Committee need be specified in the notice or waiver
of notice of such meeting.
A majority of the Executive Committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of the Executive
Committee. The members of the Executive Committee shall act only as a committee,
and the individual members shall have no power as such. The Committee, at each
meeting thereof, may designate one of its members to act as chairman and preside
at the meeting or, in its discretion, may appoint a chairman from among its
members to preside at all its meetings held during such period as the Committee
may specify.
Section 3. Records. The Executive Committee shall keep a record of its acts
and proceedings and shall report the same, from time to time, to the Board of
Directors. The Secretary of the Corporation, or, in his absence, an Assistant
Secretary, shall act as secretary of the Executive Committee, or the Committee
may, in its discretion, appoint its own secretary.
Section 4. Vacancies. Any vacancy in the Executive Committee may be filled
by affirmative vote of a majority of the number of directors fixed by or in the
manner provided in these Bylaws.
ARTICLE SIX
OTHER COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors may, by resolution adopted by affirmative vote of a
majority of the number of directors fixed by or in the manner provided in these
Bylaws, designate one or more directors (with such alternates, if any, as may be
deemed desirable) to constitute another committee or committees for any purpose.
Any such committee, to the extent so provided in such resolution or in the
Articles of Incorporation or these Bylaws, shall have and may exercise the
authority of the Board of Directors, subject to any limitations imposed by
statute, the Articles of Incorporation, or these Bylaws. Any such committee that
is not granted the power to exercise any authority of the Board of Directors
shall have and may exercise only the power of recommending action to the Board
of Directors (and/or the Executive Committee, if any) and of carrying out and
implementing any
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instructions or any policies, plans and programs theretofore approved,
authorized and adopted by the Board of Directors or the Executive Committee.
ARTICLE SEVEN
OFFICERS, EMPLOYEES AND AGENTS;
POWERS AND DUTIES
Section 1. Elected Officers. The elected officers of the Corporation shall
be a Chairman of the Board, a President, such number of Vice Presidents as may
be determined from time to time by the Board (and in the case of each such Vice
President, with such descriptive title, if any, as the Board of Directors shall
deem appropriate), a Secretary and a Treasurer. None of the elected officers,
with the exception of the Chairman of the Board, need be a member of the Board
of Directors.
Section 2. Election. So far as is practicable, all elected officers shall
be elected by the Board of Directors at its first meeting after each annual
meeting of shareholders.
Section 3. Appointive Officers. The Board of Directors may also appoint one
or more Assistant Secretaries and Assistant Treasurers and such other officers
and assistant officers and agents (none of whom need be a member of the Board)
as it shall from time to time deem necessary, who shall exercise such powers and
perform such duties as shall be set forth in these Bylaws or determined from
time to time by the Board or by the Executive Committee.
Section 4. Two or More Offices. Any two (2) or more offices may be held by
the same person.
Section 5. Compensation. The compensation of all officers of the
Corporation shall be fixed from time to time by the Board of Directors or the
Executive Committee. The Board of Directors or the Executive Committee may from
time to time delegate to the Chairman of the Board or the President the
authority to fix the compensation of any or all of the other officers of the
Corporation.
Section 6. Term of Office; Removal; Filling of Vacancies. Each elected
officer of the Corporation shall hold office until his successor is chosen and
qualified in his stead or until his earlier death, resignation, retirement,
disqualification or removal from office. Each appointive officer shall hold
office at the pleasure of the Board of Directors without the necessity of
periodic reappointment. Any officer or agent elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors whenever in
its judgment the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors.
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Section 7. Chairman of the Board. The Chairman of the Board shall serve as
chairman of the Board of Directors and shall preside when present at meetings of
the shareholders and of the Board of Directors. He shall advise and counsel the
President and the other officers of the Corporation and shall exercise such
powers and perform such duties as shall be assigned to or required of him from
time to time by the Board of Directors or the Executive Committee.
Section 8. President. The President shall be the chief executive officer of
the Corporation and, subject to the provisions of these Bylaws, shall have
general supervision of the affairs of the Corporation and shall have general and
active control of all its business. In the event of the absence or disability of
the Chairman of the Board, or if such officer shall not have been elected or be
serving, the President shall preside when present at meetings of the
shareholders and of the Board of Directors. He shall have power and general
authority to execute bonds, deeds and contracts in the name of the Corporation
and to affix the corporate seal thereto; to sign stock certificates; to cause
the employment or appointment of such employees and agents of the Corporation as
the proper conduct of operations may require and to fix their compensation,
subject to the provisions of these Bylaws; to remove or suspend any employee or
agent who shall have been employed or appointed under his authority or under
authority of an officer subordinate to him; to suspend for cause, pending final
action by the authority which shall have elected or appointed him, any officer
subordinate to the President; and in general to exercise all the powers usually
appertaining to the office of president of a corporation, except as otherwise
provided by statute, the Articles of Incorporation or these Bylaws. In the event
of the absence or disability of the President, his duties shall be performed and
his powers may be exercised by the Vice Presidents in the order of their
seniority, unless otherwise determined by the President, the Executive Committee
or the Board of Directors.
Section 9. Vice Presidents. Each Vice President shall generally assist the
President and shall have such powers and perform such duties and services as
shall from time to time be prescribed or delegated to him by the President, the
Chairman of the Board, the Executive Committee or the Board of Directors.
Section 10. Secretary. The Secretary shall see that notice is given of all
meetings of the shareholders and special meetings of the Board of Directors and
shall keep and attest true records of all proceedings at all meetings thereof.
He shall have charge of the corporate seal and have authority to attest any and
all instruments or writings to which the same may be affixed. He shall keep and
account for all books, documents, papers and records of the Corporation except
those for which some other officer or agent is properly accountable. He shall
have authority to sign stock certificates and shall generally perform all duties
usually appertaining to the office of secretary of a corporation. In the event
of the absence or disability of the Secretary, his duties shall be performed and
his powers may be exercised by the Assistant Secretaries in the order of their
seniority, unless otherwise determined by the Secretary, the President, the
Chairman of the Board, the Executive Committee or the Board of Directors.
Section 11. Assistant Secretaries. Each Assistant Secretary shall generally
assist the Secretary and shall have such powers and perform such duties and
services as shall from time to time be prescribed or delegated to him by the
Secretary, the President, the Chairman of the Board, the Executive Committee or
the Board of Directors.
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Section 12. Treasurer. The Treasurer shall be the chief accounting and
financial officer of the Corporation and shall have active control of and shall
be responsible for all matters pertaining to the accounts and finances of the
Corporation. He shall audit all payrolls and vouchers of the Corporation and
shall direct the manner of certifying the same; shall supervise the manner of
keeping all vouchers for payments by the Corporation and all other documents
relating to such payments; shall receive, audit and consolidate all operating
and financial statements of the Corporation and its various departments; shall
have supervision of the books of account of the Corporation, their arrangement
and classification; shall supervise the accounting and auditing practices of the
Corporation and shall have charge of all matters relating to taxation.
The Treasurer shall have the care and custody of all monies, funds and
securities of the Corporation; shall deposit or cause to be deposited all such
funds in and with such depositories as the Board of Directors or the Executive
Committee shall from time to time direct or as shall be selected in accordance
with procedures established by the Board of Directors or the Executive
Committee; shall advise upon all terms of credit granted by the Corporation;
shall be responsible for the collection of all its accounts and shall cause to
be kept full and accurate accounts of all receipts and disbursements of the
Corporation. He shall have the power to endorse for deposit or collection or
otherwise all checks, drafts, notes, bills of exchange and other commercial
paper payable to the Corporation and to give proper receipts or discharges for
all payments to the Corporation. The Treasurer shall generally perform all
duties usually appertaining to the office of treasurer of a corporation. In the
event of the absence or disability of the Treasurer, his duties shall be
performed and his powers may be exercised by the Assistant Treasurers in the
order of their seniority, unless otherwise determined by the Treasurer, the
President, the Chairman of the Board, the Executive Committee or the Board of
Directors.
Section 13. Assistant Treasurers. Each Assistant Treasurer shall generally
assist the Treasurer and shall have such powers and perform such duties and
services as shall from time to time be prescribed or delegated to him by the
Treasurer, the President, the Chairman of the Board, the Executive Committee or
the Board of Directors.
Section 14. Additional Powers and Duties. In addition to the foregoing
especially enumerated duties, services and powers, the several elected and
appointed officers of the Corporation shall perform such other duties and
services and exercise such further powers as may be provided by statute, the
Articles of Incorporation or these Bylaws, or as the Board of Directors or the
Executive Committee may from time to time determine or as may be assigned to
them by any competent superior officer.
Section 15. Titles of Non-Officer Employees. The President of the
Corporation shall have the power and authority to determine the titles to be
used by employees who are not officers of the Corporation. Such titles may
include, but shall not be limited to, titles such as "Vice President" and
"Assistant Vice President" (with or without additional descriptive terms in each
case). The employees using such titles shall not be considered officers of the
Corporation for any purpose, notwithstanding the fact that there may be duly
elected or appointed officers of the Corporation whose titles are similar to
those of such employees. It is the intent of these Bylaws that the only
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persons who are and shall be considered officers of the Corporation are the
persons elected or appointed as officers by the Board pursuant to Section 1 or
Section 3 of this Article Seven.
ARTICLE EIGHT
SHARES AND TRANSFERS OF SHARES
Section 1. Certificates Representing Shares. Certificates in such form as
may be determined by the Board of Directors and as shall conform to the
requirements of the statutes, the Articles of Incorporation and these Bylaws
shall be delivered representing all shares to which shareholders are entitled.
Such certificates shall be consecutively numbered and shall be entered in the
books of the Corporation as they are issued. Each certificate shall state on the
face thereof that the Corporation is organized under the laws of Texas, the
holder's name, the number and class of shares, and the par value of such shares
or a statement that such shares are without par value. Each certificate shall be
signed by the Chairman of the Board, the President or a Vice President and the
Secretary or an Assistant Secretary and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of such officers may be
facsimiles.
Section 2. Lost Certificates. The Board of Directors, the Executive
Committee, the Chairman of the Board, the President or such other officer or
officers or any agent of the Corporation as the Board of Directors may from time
to time designate, in its or his discretion, may direct a new certificate
representing shares to be issued in place of any certificate theretofore issued
by the Corporation and alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors, the Executive Committee, the Chairman of the Board, the
President or any such other officer or agent in its or his discretion and as a
condition precedent to the issuance thereof may require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it or he shall require and/or give the Corporation a bond
in such form, in such sum, and with such surety or sureties as it or he may
direct, as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 3. Transfers of Shares. Shares of the Corporation shall be
transferable only on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney. If a certificate representing shares
is presented to the Corporation or the transfer agent of the Corporation with a
request to register transfer, it shall be the duty of the Corporation or the
transfer agent of the Corporation to register the transfer, cancel the old
certificate and issue a new certificate if:
(a) the certificate is duly endorsed;
(b) reasonable assurance is given that those endorsements are genuine
and effective;
(c) the Corporation has no duty as to adverse claims or has
discharged the duty;
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(d) any applicable law relating to the collection of taxes has been
complied with;
and
(e) the transfer is in fact rightful or is to a bona fide purchaser.
Section 4. Registered Shareholders.
(a) Unless otherwise provided in the Texas Business Corporation Act or
other applicable law, (1) the Corporation may regard the person in whose name
any shares issued by the Corporation are registered in the stock transfer books
of the Corporation at any particular time as the owner of those shares at that
time for purposes of voting or giving proxies with respect to those shares,
receiving distributions thereon or notices in respect thereof, transferring
those shares, exercising rights of dissent, exercising or waiving any preemptive
right or entering into any agreements with respect to those shares, and (2)
neither the Corporation nor any of its directors, officers, employees or agents
shall be liable for regarding that person as the owner of those shares at that
time for those purposes, regardless of whether that person does not possess a
certificate for those shares.
(b) When shares are registered in the stock transfer books of the
Corporation in the names of two or more persons as joint owners with the right
of survivorship, after the death of a joint owner and before the time that the
Corporation receives actual written notice that a party or parties other than
the surviving joint owner or owners claim an interest in the shares or any
distributions thereon, the Corporation may record on its books and otherwise
effect the transfer of those shares to any person, firm or corporation
(including the surviving joint owner or owners individually) and pay any
distributions made in respect of those shares, in each case as if the surviving
joint owner or owners were the absolute owners of the shares.
ARTICLE NINE
INDEMNIFICATION
Section 1. Indemnification of Directors. The Corporation shall indemnify a
person who was, is, or is threatened to be made, a named defendant or respondent
in a proceeding because the person is or was a director against any judgments,
penalties (including excise and similar taxes), fines, settlements and
reasonable expenses actually incurred by the person in connection with the
proceeding if it is determined, in the manner described below, that the person
(a) conducted himself in good faith, (b) reasonably believed, in the case of
conduct in his official capacity as a director of the Corporation, that his
conduct was in the Corporation's best interests, and in all other cases, that
his conduct was at least not opposed to the Corporation's best interests and (c)
in the case of any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful; provided that if the person is found liable to the
Corporation or is found liable on the basis that personal benefit was improperly
received by the person, the indemnification (i) shall be limited to reasonable
expenses actually incurred by the person in connection with the proceeding and
(ii) shall not be made in
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respect of any proceeding in which the person shall have been found liable for
willful or intentional misconduct in the performance of his duty to the
Corporation.
The determinations required above that the person has satisfied the
prescribed conduct and belief standards must be made (1) by a majority vote of a
quorum consisting of directors who at the time of the vote are not named
defendants or respondents in the proceeding, (2) if such a quorum cannot be
obtained, by a majority vote of a committee of the Board of Directors,
designated to act in the matter by a majority vote of all directors, consisting
solely of two (2) or more directors who at the time of the vote are not named
defendants or respondents in the proceeding, (3) by special legal counsel
selected by the Board of Directors or a committee of the Board by vote as set
forth in clause (1) or (2) of this sentence, or, if such a quorum cannot be
obtained and such a committee cannot be established, by a majority vote of all
directors, or (4) by the shareholders in a vote that excludes the shares held by
directors who are named defendants or respondents in the proceeding. The
determination as to reasonableness of expenses must be made in the same manner
as the determination that the person has satisfied the prescribed conduct and
belief standards, except that if the determination that the person has satisfied
the prescribed conduct and belief standards is made by special legal counsel,
the determination as to reasonableness of expenses must be made by the Board of
Directors or a committee of the Board by vote as set forth in clause (1) or (2)
of the immediately preceding sentence or, if such a quorum cannot be obtained
and such a committee cannot be established, by a majority vote of all directors.
The termination of a proceeding by judgment, order, settlement or
conviction, or on a plea of nolo contendere or its equivalent is not of itself
determinative that the person did not meet the requirements for indemnification
set forth above. A person shall be deemed to have been found liable in respect
of any claim, issue or matter only after the person shall have been so adjudged
by a court of competent jurisdiction after exhaustion of all appeals therefrom.
Notwithstanding any other provision of these Bylaws, the Corporation
shall pay or reimburse expenses incurred by a director in connection with his
appearance as a witness or other participation in a proceeding at a time when he
is not a named defendant or respondent in the proceeding.
Section 2. Advancement of Expenses to Directors. Reasonable expenses
incurred by a director who was, is, or is threatened to be made, a named
defendant or respondent in a proceeding shall be paid or reimbursed by the
Corporation, in advance of the final disposition of the proceeding and without
any of the determinations specified in Section 1 of this Article, after the
Corporation receives a written affirmation by the director of his good faith
belief that he has met the standard of conduct necessary for indemnification
under Section 1 of this Article and a written undertaking by or on behalf of
such director to repay the amount paid or reimbursed if it is ultimately
determined that he has not met that standard or if it is ultimately determined
that indemnification of the director against expenses incurred by him in
connection with that proceeding is prohibited by law. The written undertaking
described in the immediately preceding sentence to repay the amount paid or
reimbursed to the director by the Corporation must be an unlimited general
obligation of the director but need not be secured and it may be accepted
without reference to financial ability to make repayment.
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Section 3. Officers. The Corporation shall indemnify and advance expenses
to an officer of the Corporation to the same extent that it is required to
indemnify and advance expenses to directors under these Bylaws or by statute. In
addition, the Corporation may indemnify and advance expenses to an officer of
the Corporation to such further extent, consistent with law, as may be provided
by the Articles of Incorporation, these Bylaws, general or specific action of
the Board of Directors, or contract or as permitted or required by common law.
Section 4. Others. The Corporation may indemnify and advance expenses to an
employee or agent of the Corporation to the same extent that it is required to
indemnify and advance expenses to directors under these Bylaws or by statute.
The Corporation may indemnify and advance expenses to persons who are not or
were not officers, employees or agents of the Corporation but who are or were
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
corporation for profit subject to the provisions of the Texas Business
Corporation Act, corporation for profit organized under laws other than the laws
of Texas, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise to the same extent that it is required to
indemnify and advance expenses to directors under this Article or by statute.
The Corporation may indemnify and advance expenses to an employee, agent or
other person serving at the request of the Corporation (as described above in
this Section 4) who is not a director to such further extent, consistent with
law, as may be provided by the Articles of Incorporation, these Bylaws, general
or specific action of the Board of Directors, or contract or as permitted or
required by common law.
Section 5. Insurance and Other Arrangements. The Corporation may purchase
and maintain insurance or establish and maintain another arrangement on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation or who is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another corporation for profit subject to the provisions
of the Texas Business Corporation Act, corporation for profit organized under
laws other than the laws of Texas, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise, against or in
respect of any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person, whether or not the
Corporation would have the power to indemnify him against that liability under
these Bylaws or by statute. If the insurance or other arrangement is with a
person or entity that is not regularly engaged in the business of providing
insurance coverage, the insurance or arrangement may provide for payment of a
liability with respect to which the Corporation would not have the power to
indemnify the person only if including coverage for the additional liability has
been approved by the shareholders of the Corporation.
Without limiting the power of the Corporation to purchase, procure,
establish or maintain any kind of insurance or other arrangement, the
Corporation may, for the benefit of persons indemnified by the Corporation, (1)
create a trust fund; (2) establish any form of self-insurance; (3) secure its
indemnity obligation by grant of a security interest or other lien on the assets
of the Corporation; or (4) establish a letter of credit, guaranty or surety
arrangement. The insurance or other arrangement may be purchased, procured,
maintained or established within the Corporation or with any insurer or other
person deemed appropriate by the Board of Directors regardless of whether all or
part of the stock or other securities of the insurer or other person are owned
in whole
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or part by the Corporation. In the absence of fraud, the judgment of the Board
of Directors as to the terms and conditions of the insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive and the insurance or arrangement shall not be
voidable and shall not subject the directors approving the insurance or
arrangement to liability, on any ground, regardless of whether directors
participating in the approval are beneficiaries of the insurance or arrangement.
Section 6. Report to Shareholders. Any indemnification of or advance of
expenses to a director in accordance with this Article or the provisions of any
statute shall be reported in writing to the shareholders with or before the
notice or waiver of notice of the next shareholders' meeting or with or before
the next submission to shareholders of a consent to action without a meeting
and, in any case, within the 12-month period immediately following the date of
the indemnification or advance.
Section 7. Entitlement. These indemnification provisions shall inure to
each of the directors, officers, employees and agents of the Corporation, and
other persons serving at the request of the Corporation (as provided in this
Article), whether or not the claim asserted against him is based on matters that
antedate the adoption of this Article, and in the event of his death shall
extend to his legal representatives; but such rights shall not be exclusive of
any other rights to which he may be entitled.
Section 8. Definitions. For purposes of this Article:
(a) The term "expenses" includes court costs and attorneys fees;
(b) The term "proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, any appeal in such an action, suit or proceeding, and any
inquiry or investigation that could lead to such an action, suit or proceeding;
(c) The term "director" means any person who is or was a director of the
Corporation and any person who, while a director of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of another
corporation for profit subject to the provisions of the Texas Business
Corporation Act, corporation for profit organized under laws other than the laws
of Texas, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise;
(d) The term "corporation" includes any domestic or foreign predecessor
entity of the corporation in a merger, consolidation or other transaction in
which the liabilities of the predecessor are transferred to the corporation by
operation of law and in any other transaction in which the corporation assumes
the liabilities of the predecessor but does not specifically exclude liabilities
that are the subject matter of this Article;
(e) The term "official capacity" means, when used with respect to a
director, the office of director in the corporation and, when used with respect
to a person other than a director, the
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elective or appointive office in the corporation held by the officer or the
employment or agency relationship undertaken by the employee or agent on behalf
of the corporation, but does not include service for any other corporation for
profit subject to the provisions of the Texas Business Corporation Act or
corporation for profit organized under laws other than the laws of Texas or any
partnership, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise; and
(f) The Corporation is deemed to have requested a director to serve an
employee benefit plan whenever the performance by him of his duties to the
Corporation also imposes duties on or otherwise involves services by him to the
plan or participants or beneficiaries of the plan. Excise taxes assessed on a
director with respect to an employee benefit plan pursuant to applicable law are
deemed fines. Action taken or omitted to be taken by a director with respect to
an employee benefit plan in the performance of his duties for a purpose
reasonably believed by him to be in the interest of the participants and
beneficiaries of the plan is deemed to be for a purpose which is not opposed to
the best interests of the Corporation.
Section 9. Severability. The provisions of this Article are intended to
comply with Articles 2.02A(16) and 2.02-1 of the Texas Business Corporation Act.
To the extent that any provision of this Article authorizes or requires
indemnification or the advancement of expenses contrary to such statutes or the
Articles of Incorporation, the Corporation's power to indemnify or advance
expenses under such provision shall be limited to that permitted by such
statutes and the Articles of Incorporation and any limitation required by such
statutes or the Articles of Incorporation shall not affect the validity of any
other provision of this Article.
ARTICLE TEN
MISCELLANEOUS
Section 1. Distributions and Share Dividends. Distributions in the form of
dividends and share dividends on the outstanding shares of the Corporation,
subject to any restrictions in the Articles of Incorporation and to the
limitations imposed by the statutes, may be declared by the Board of Directors
at any regular or special meeting. Distributions in the form of dividends may be
declared and paid in cash, in property, or in evidences of the Corporation's
indebtedness, or in any combination thereof, and may be declared and paid in
combination with share dividends. Distributions of cash or property (tangible or
intangible) made or payable by the Corporation, whether in liquidation or from
earnings, profits, assets or capital, including all distributions that were
payable but not paid to the registered owner of the shares, his heirs,
successors or assigns but that are now being held in suspense by the Corporation
or that were paid or delivered by it into an escrow account or to a trustee or
custodian, shall be payable by the Corporation, escrow agent, trustee or
custodian to the person registered as owner of the shares in the Corporation's
stock transfer books as of the record date determined for the distribution, his
heirs, successors or assigns. The person in whose name the shares are or were
registered in the stock transfer books of the Corporation as of the record date
shall be deemed to be the owner of the shares registered in his name at that
time.
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Section 2. Reserves. The Corporation may, by resolution of the Board of
Directors, create a reserve or reserves out of its surplus or designate or
allocate any part or all of its surplus in any manner for any proper purpose or
purposes, and may increase, decrease or abolish any such reserve, designation or
allocation in the same manner.
Section 3. Signature of Negotiable Instruments. All bills, notes, checks or
other instruments for the payment of money shall be signed or countersigned by
such officer, officers, agent or agents, and in such manner, as are permitted by
these Bylaws and as from time to time may be prescribed by resolution (whether
general or special) of the Board of Directors or the Executive Committee.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 5. Seal. The seal of the Corporation shall be in such form as shall
be adopted and approved from time to time by the Board of Directors. The seal
may be used by causing it, or a facsimile thereof, to be impressed, affixed,
imprinted or in any manner reproduced.
Section 6. Loans and Guaranties. The Corporation may lend money to,
guaranty obligations of and otherwise assist its directors, officers and
employees if the Board of Directors determines that such a loan, guaranty or
assistance reasonably may be expected to benefit, directly or indirectly, the
Corporation.
Section 7. Closing of Transfer Books and Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
by the Corporation (other than a distribution involving a purchase or redemption
by the Corporation of any of its own shares) or a share dividend, or in order to
make a determination of shareholders for any other proper purpose (other than
determining shareholders entitled to consent to action by shareholders proposed
to be taken without a meeting of shareholders, in which case the record date for
such purpose shall be determined pursuant to the provisions of Article 2.26C of
the Texas Business Corporation Act), the Board of Directors may provide that the
stock transfer books of the Corporation shall be closed for a stated period but
not to exceed, in any case, sixty (60) days. If the stock transfer books shall
be closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least
ten (10) days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case not to be more than sixty (60) days and, in
case of a meeting of shareholders, not less than ten (10) days prior to the date
on which the particular action requiring such determination of shareholders is
to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to vote at
a meeting of shareholders, or entitled to receive a distribution (other than a
distribution involving a purchase or redemption by the Corporation of any of its
own shares) or a share dividend, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. The
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record date for determining shareholders entitled to call a special meeting is
the date the first shareholder signs the notice of that meeting.
When a determination of shareholders entitled to vote at any meeting has
been made as provided in this Section, such determination shall apply to any
adjournment thereof except where the determination has been made through the
closing of the stock transfer books and the stated period of closing has
expired.
Section 8. Surety Bonds. Such officers and agents of the Corporation (if
any) as the Board of Directors may direct from time to time shall be bonded for
the faithful performance of their duties and for the restoration to the
Corporation, in case of their death, resignation, retirement, disqualification
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Corporation, in such amounts and by such surety companies as the Board of
Directors may determine. The premiums on such bonds shall be paid by the
Corporation, and the bonds so furnished shall be in the custody of the
Secretary.
Section 9. Gender. Words of any gender used in these Bylaws shall be
construed to include each other gender, unless the context requires otherwise.
ARTICLE ELEVEN
AMENDMENTS
These Bylaws may be amended or repealed, or new bylaws may be adopted,
exclusively by the affirmative vote of a majority of the directors present at
any meeting of the Board of Directors at which a quorum is present or by
unanimous written consent of the directors.
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EXHIBIT 10.29
AS AMENDED THROUGH
JUNE 15, 1995
CARRINGTON LABORATORIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Section 1. Purpose. It is the purpose of the Plan to promote the interests
of the Company and its shareholders by providing a method by which eligible
employees may use voluntary payroll deductions to purchase shares of Common
Stock at a discount, thereby affording them the opportunity to invest in the
Company at a preferential price, and to acquire a proprietary interest in the
Company and an increased personal interest in its continued success and
progress. The Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Code and shall be construed
accordingly.
Section 2. Definitions. As used herein the following terms have the
following meanings:
(a) "Affiliate" means any corporation that is a subsidiary corporation
of the Company within the meaning of Section 424(f) of the Code and that
has been designated by the Committee as an Affiliate for purposes of the
Plan.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Code" means the United States Internal Revenue Code of 1986, as
from time to time amended.
(d) "Committee" means the Committee described in Section 4 hereof.
(e) "Common Stock" means the $.01 par value Common Stock of the
Company.
(f) "Company" means Carrington Laboratories, Inc.
(g) "Compensation" means (i) with respect to a salaried employee, the
basic annual salary of such employee as of the first day of the Plan Year
(except with respect to a salaried employee whose participation in the Plan
begins on an Enrollment Date other than January 1, in which case, for the
Plan Year in which such participation begins, "Compensation" means that
portion of the basic annual salary of such employee, as of the Enrollment
Date on which such participation begins, that is payable for the period
from such Enrollment Date through the remainder of that Plan Year), and
shall not include bonuses, overtime pay, allowances, commissions, deferred
compensation payments or any other extraordinary compensation, and (ii)
with respect to an hourly compensated employee, the straight-time hourly
rate of pay of such employee as of the first day of the Plan Year,
multiplied by 2,080 (except with respect to an hourly compensated employee
whose participation in the Plan begins on April 1, July 1 or October 1, in
which case, for the Plan Year in which such participation begins,
"Compensation" means the straight-time hourly rate
<PAGE>
of pay of such employee as of such April 1, July 1 or October 1, multiplied
by 1,560, 1,040 or 520, respectively), and shall not include bonuses,
overtime pay, premium pay or other irregular payments. The Compensation of
an employee who does not receive salary or wages computed in United States
dollars shall be determined by converting such salary or wages into United
States dollars in accordance with the Compensation Exchange Rate.
(h) "Compensation Exchange Rate" means the New York foreign currency
exchange rate as reported in The Wall Street Journal for the last business
day in December immediately preceding the first day of the Plan Year.
(i) "Eligible Employee" means any employee of the Company or an
Affiliate who is eligible to participate in the Plan pursuant to Section 5
hereof.
(j) "Enrollment Date" means any January 1, April 1, July 1 or October
1 of any Plan Year.
(k) "Fair Market Value" means the closing sale price on the date in
question (or, if there was no reported sale on such date, on the last
preceding day on which any reported sale occurred) of the Common Stock on
the Nasdaq National Market or any national stock exchange or other stock
market on which the Common Stock may from time to time be traded.
(l) "Option" means any option to purchase shares of Common Stock
granted by the Committee pursuant to the provisions of the Plan.
(m) "Participant" means an Eligible Employee who elects to participate
in the Plan pursuant to Section 6 hereof.
(n) "Plan" means this Carrington Laboratories, Inc. Employee Stock
Purchase Plan.
(o) "Plan Year" means each period beginning on January 1 and ending on
the following December 31, commencing January 1, 1993.
Section 3. Number of Shares. The aggregate number of shares of Common Stock
issued pursuant to Options granted under the Plan shall not exceed a total of
500,000 shares. The maximum number of shares of Common Stock available for sale
under the Plan is subject to adjustment as provided in Section 14. The Common
Stock to be delivered upon exercise of Options may consist of authorized but
unissued shares of Common Stock or shares of Common Stock previously issued and
reacquired by the Company.
Section 4. Administration of the Plan. The Plan shall be administered by
the Committee, which shall consist of three or more employees of the Company.
Each member of the Committee shall be appointed by and shall serve at the
pleasure of the Board of Directors. The Board of Directors shall have the sole
continuing authority to appoint members of the Committee both in
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<PAGE>
substitution for members previously appointed and to fill vacancies however
caused. The following provisions shall apply to the administration of the Plan
by the Committee:
(a) The Committee shall designate one of its members as Chairman and
shall hold meetings at such times and places as it may determine. Each
member of the Committee shall be notified in writing of the time and place
of any meeting of the Committee at least two days prior to such meeting,
provided that such notice may be waived by a Committee member. A majority
of the members of the Committee shall constitute a quorum and any action
taken by a majority of the members of the Committee present at any duly
called meeting at which a quorum is present (or action unanimously approved
in writing) shall constitute action by the Committee.
(b) The Committee may appoint a Secretary (who need not be a member of
the Committee) who shall keep minutes of its meetings. The Committee may
make such rules and regulations for the conduct of its business as it may
determine.
(c) The Committee shall have full authority subject to the express
provisions of the Plan to interpret the Plan, to provide, modify and
rescind rules and regulations relating to it and to make all other
determinations and perform such actions as the Committee deems necessary or
advisable to administer the Plan.
(d) No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option
granted hereunder.
Section 5. Eligible Employees. Each employee of the Company or an Affiliate
shall be eligible to participate in the Plan; provided, however, that:
(a) An employee shall not be granted an Option if such employee would,
immediately after grant of the Option, own stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or any parent or subsidiary corporation of the Company (within the
meaning of Section 424(e) and (f) of the Code). For purposes of determining
stock ownership under this paragraph, the rules of Section 424(d) of the
Code shall apply, and stock which the employee may purchase under any
outstanding options shall be treated as stock owned by the employee; and
(b) No employee shall be granted an Option under the Plan which would
permit such employee's rights to purchase shares of stock under all
employee stock purchase plans of the Company and its parent and subsidiary
corporations (within the meaning of Section 424(e) and (f) of the Code) to
accrue (within the meaning of Section 423(b)(8) of the Code) at a rate
which exceeds U.S. $25,000 of fair market value of such stock (determined
at the time such option is granted) for each calendar year during which any
such option granted to such employee is outstanding at any time.
For purposes of this Section 5, the term "employee" shall not include an
employee whose customary employment is 20 hours or less per week or is for not
more than five months in any calendar year.
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<PAGE>
Section 6. Method of Participation. Each person who will be an Eligible
Employee on any Enrollment Date may elect to participate in the Plan by
executing and delivering to the Company, on or before such Enrollment Date, a
payroll deduction authorization form as provided in this Section. Such Eligible
Employee shall thereby become a Participant on such Enrollment Date and shall
remain a Participant until such Eligible Employee's participation is terminated
as provided in Section 11 or 12 hereof; provided, however, that if the Company
does not receive such payroll deduction authorization form in time to implement
the authorized withholding for the payroll period that includes such Enrollment
Date, no withholding shall be made on behalf of such Participant pursuant to
this Plan until the next succeeding payroll period.
The payroll deduction authorization form executed by a Participant
shall request withholding, by means of substantially equal payroll deductions
over the Plan Year, of an amount which shall be not more than 10% nor less than
1% of such Participant's Compensation for the Plan Year. A Participant may
change the withholding rate of his or her payroll deduction authorization within
such limits by delivering a new payroll deduction authorization form to the
Company; provided, however, that a change pursuant to this sentence may be made
by each Participant no more than three times in respect of any Plan Year; and
provided further, that if the Company does not receive such new payroll
deduction authorization form in time to implement the change for the payroll
period during which it receives such form, the change authorized thereby shall
not be made until the next succeeding payroll period. All amounts withheld in
accordance with a Participant's payroll deduction authorization shall be
credited to a withholding account for such Participant. No interest shall be
payable on withholding accounts.
Section 7. Grant of Options. Each Participant shall be granted an Option on
the first day of each Plan Year to purchase shares of Common Stock; provided,
however, that a Participant who begins participation on an Enrollment Date other
than January 1 in accordance with Section 6 shall be granted an Option on such
Enrollment Date and on the first day of each succeeding Plan Year. Each Option
shall be exercisable in installments on the last business day of each calendar
month during the Plan Year, beginning with the month in which the Option is
granted, for the number of whole shares of Common Stock to be determined by
dividing (a) the balance in the Participant's withholding account on the last
business day of the month by (b) the purchase price per share of the Common
Stock as determined under Section 8. In no event shall the number of shares with
respect to which an Option is granted to a Participant in a Plan Year exceed
that number of shares which has an aggregate Fair Market Value (determined on
the date of grant) of U.S. $25,000, and the number of shares actually purchased
by a Participant in a Plan Year may not exceed this number. The Company shall
reduce, on a substantially proportionate basis, the number of shares of Common
Stock receivable by each Participant upon exercise of an Option in any month in
the event that the total number of shares then available under the Plan is less
than the total number of shares with respect to which all Participants exercise
Options in such month.
Section 8. Option Price. The purchase price per share of Common Stock under
each installment of each Option shall equal the lesser of (a) 85% of the Fair
Market Value per share of Common Stock on the date of grant of the Option or (b)
85% of the Fair Market Value per share of Common Stock on the date on which the
installment is exercised.
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<PAGE>
Section 9. Exercise of Options. An employee who is a Participant in the
Plan on the last business day of a month shall be deemed automatically to have
exercised the current installment of the Option granted to him or her for that
Plan Year. Upon such exercise, the Company shall apply the entire balance of the
Participant's withholding account to the purchase of the maximum number of whole
shares of Common Stock as determined under Section 7. For purposes of this
Section 9, the balance in the withholding account of a Participant whose salary
or wages are not computed in United States dollars shall be converted into
United States dollars in accordance with the New York foreign currency exchange
rate as reported in The Wall Street Journal for the last business day of the
month. Shares of Common Stock purchased for a Participant under the Plan shall
be held in custody for the account of such Participant as provided in the
following paragraph unless he or she has requested, by written notice to the
Company at any time, with respect to any installment of an Option or with
respect to all installments, that certificates representing shares purchased for
his or her account under the Plan not be held in custody. The Company shall
issue and deliver to the Participant certificates representing shares for which
such a request has been made as soon as practicable after such shares are
purchased, subject to the limitations set forth in the following sentence of
this Section 9. Certificates representing shares for which such a request has
not previously been made and which are being held in custody shall be issued and
delivered to the Participant as soon as practicable after the end of the month
in which the Participant makes a written request to the Company therefor;
provided, however, that the obligation of the Company to deliver shares of
Common Stock shall be postponed for such period of time as may be necessary to
register or qualify the purchased shares under the Securities Act of 1933 and
any applicable foreign or state securities law; and, provided further, that the
Participant shall not be entitled to receive a certificate representing the
shares in his or her account under the Plan, other than at the end of a Plan
Year or upon withdrawal from the Plan pursuant to Section 11 or 12, unless there
are ten or more shares in such account.
The Company shall issue or cause to be issued one or more global
certificates (collectively, the "Global Certificate"), in the name of an officer
or officers of Company designated from time to time by the Committee to serve as
Custodian for Participants in the Plan, representing all shares purchased for
Participants under the Plan that the Company has not been requested to deliver
to the Participants. The Company shall maintain complete and accurate records
indicating the number of shares purchased for each Participant under the Plan
for which certificates have not been issued and delivered to such Participant,
and the Company shall, no less frequently than quarterly, deliver reports to
such Participants indicating such number of shares and containing such other
information as the Company may deem necessary or advisable. A Participant shall
possess all of the rights and privileges of a stockholder of the Company with
respect to Common Stock purchased under the Plan upon the issuance to or for the
benefit of the Participant of a certificate or certificates (including the
Global Certificate) representing such shares. The Company shall deliver or cause
to be delivered to each Participant for whom shares of Common Stock have been
purchased under the Plan and are represented by the Global Certificate all
dividends and distributions in respect of such shares and all notices, proxy
statements and other communications to the Company's shareholders in accordance
with applicable law and the rules and regulations of the Securities and Exchange
Commission.
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<PAGE>
No fractional shares shall be issued upon exercise of any installment
of an Option. Any balance remaining in a Participant's withholding account
following exercise of an installment shall be returned to the Participant,
except that any such balance representing a fractional share of Common Stock
shall be retained in the withholding account and applied to the purchase of
shares in the next month. The cash proceeds received by the Company upon
exercise of an Option shall constitute general funds of the Company. To the
extent any installment of an Option is exercised with respect to less than all
of the shares of Common Stock available for purchase under such installment, the
unexercised portion of the installment shall expire and become null and void as
of the end of the month for which such installment was exercisable. Any
unexercised portion of an Option shall expire and become null and void as of the
end of the Plan Year in which such Option was granted.
Section 10. Restrictions on Sale of Stock. Shares of Common Stock purchased
under the Plan may not be sold, pledged or otherwise transferred within two
years after the date of purchase unless such shares are first offered to the
Company for purchase at a price equal to the Fair Market Value of the shares on
the date on which the Participant delivers written notice of such offer to the
Company. The Company must accept or reject the offer no later than 5:00 p.m.,
Central Time, on the next business day following its receipt of the written
notice from the Participant. If the Company rejects or fails to accept the
offer, the Participant shall be free to sell, pledge or transfer the shares
covered by such offer; provided, however, that shares of Common Stock purchased
under the Plan may not be sold, pledged or otherwise transferred under any
circumstances prior to the approval of the Plan by the Company's shareholders in
accordance with Section 17. Certificates representing shares of Common Stock
issued under the Plan shall contain a restrictive legend describing or referring
to the restrictions imposed by this Section 10, in accordance with applicable
law, until such restrictions have terminated with respect to the shares
represented by such certificates.
Section 11. Cancellation of Option and Withdrawal From the Plan. A
Participant who holds an Option under the Plan may at any time prior to exercise
of the final installment thereof pursuant to Section 9 cancel the remaining
unexercised portion of such Option by written notice delivered to the Company.
Upon such cancellation, the balance in the Participant's withholding account and
any shares being held in custody shall be returned to such Participant and he or
she shall cease to be a Participant. Partial cancellation shall not be
permitted.
A Participant may terminate his payroll deduction authorization as of
any date by written notice delivered to the Company and shall thereby cease to
be a Participant as of such date. Partial termination of a payroll deduction
authorization shall not be permitted, except to the extent expressly permitted
by Section 6 of this Plan. Any Participant who voluntarily terminates his or her
payroll deduction authorization prior to the last business day of a month shall
be deemed to have cancelled the remaining unexercised portion of his or her
Option, including the installment that would have been exercisable on the last
business day of such month.
A Participant who withdraws from the Plan pursuant to this Section 11
may re-enroll as of any subsequent Enrollment Date on which he or she is an
Eligible Employee in accordance with the procedure set forth in Section 6 of
this Plan; provided, however, that a Participant shall not
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<PAGE>
be permitted to re-enroll in the Plan until an Enrollment Date that is at least
six months after the date of his or her withdrawal.
Section 12. Termination of Employment. Upon the termination of a
Participant's employment with the Company or an Affiliate for any reason, such
person shall cease to be a Participant, the unexercised portion of any Option
held by such Participant under the Plan shall be deemed cancelled, the balance
of such Participant's withholding account and any shares being held in custody
shall be returned to such Participant (or, in the event of the Participant's
death, to the executor or administrator of his or her estate) and he or she
shall have no further rights under the Plan.
All Participants shall have the same rights and privileges under the
Plan. Notwithstanding the foregoing, nothing in the Plan shall confer upon any
Participant any right to continue in the employ of the Company or an Affiliate
or in any way interfere with the right of the Company or an Affiliate to
terminate the employment of the Participant at any time, with or without cause.
Transfers of employment among the Company and its Affiliates and approved leaves
of absence not exceeding 90 days shall not be considered terminations of
employment for purposes of this Plan.
Section 13. Transferability. An Option granted under the Plan shall not be
transferable by the Participant and shall be exercisable only by the
Participant.
Section 14. Adjustments Upon Changes in Common Stock. In the event the
Company shall effect a split of the Common Stock or declare a dividend payable
in Common Stock, or in the event the outstanding Common Stock shall be combined
into a smaller number of shares, the maximum number of shares as to which
Options may be granted under the Plan shall be increased or decreased
proportionately, and the Fair Market Value per share of Common Stock as of the
date of grant of all outstanding Options shall be adjusted, for purposes of
making the determination required by Section 8 of this Plan, in a manner deemed
appropriate by the Board of Directors.
In the event of a reclassification of Common Stock not covered by the
foregoing, or in the event of a liquidation or reorganization of the Company,
including a merger, consolidation or sale of assets, the Board of Directors
shall make such adjustments, if any, as it may deem appropriate in the number,
purchase price and kind of shares that are covered by Options theretofore
granted under the Plan or that are otherwise subject to the Plan. The provisions
of this Section shall only be applicable if, and only to the extent that, the
application thereof does not conflict with any valid governmental statute,
regulation or rule.
Section 15. Amendment and Termination of the Plan. Subject to the right of
the Board of Directors to terminate the Plan prior thereto, the Plan shall
terminate when all or substantially all of the Common Stock reserved for
purposes of the Plan has been purchased. No Options may be granted after
termination of the Plan. The Board of Directors may alter or amend the Plan but
may not without the approval of the shareholders of the Company and of any
regulatory authorities having jurisdiction make any alteration or amendment
thereof which operates (a) to increase the total number of shares of Common
Stock which may be issued under the Plan (other than as provided in
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Section 14), (b) to modify the criteria for determining the employees (or class
of employees) eligible to receive Options under the Plan or (c) to materially
increase benefits accruing under the Plan to Participants who are subject to
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act").
No termination or amendment of the Plan shall adversely affect the
rights of a Participant under an outstanding Option, except with the consent of
such Participant.
Section 16. Requirements of Law. The granting of Options and the issuance
of Common Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations and to such approval by governmental
agencies as may be required.
Section 17. Effective Date of the Plan. The Plan shall become effective, as
of the date of its adoption by the Board of Directors, if it is duly approved at
the 1993 annual meeting of stockholders of the Company. The affirmative vote of
the holders of at least a majority of the shares of stock of the Company present
and voting on the approval of the Plan at the meeting, provided that the total
number of shares voting for the proposal represents more than 50% of the total
number of shares of stock entitled to vote at such annual meeting, shall be
required to approve the Plan. If the Plan is not so approved, the Plan shall
terminate, the unexercised portions of all Options granted hereunder shall be
null and void and all shares of Common Stock theretofore issued upon the
exercise of Options under the Plan shall be deemed cancelled. Certificates
representing shares issued to Participants prior to shareholder approval of the
Plan shall bear appropriate legends indicating that the shares have been issued
contingent upon shareholder approval and are cancellable in the event such
approval is not obtained. Upon such cancellation, Participants shall promptly
deliver to the Company all certificates representing cancelled shares and the
Company shall promptly return to the Participants, without interest, all funds
obtained from such Participants through payroll deductions and used for the
purchase of such shares.
Section 18. Rule 16b-3 Compliance. Transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors adopted under the Exchange Act, some of which conditions are not set
forth herein. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.
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EXHIBIT 10.68
RESIGNATION AGREEMENT
AND FULL AND FINAL RELEASE
Carrington Laboratories, Inc. ("Carrington") and Bill H. McAnalley
("McAnalley") hereby agree upon a compromise and full and final settlement of
all issues and disputes between them on the terms set forth below:
1. Resignation. McAnalley hereby voluntarily resigns from his position of
Senior Vice President of Research for Carrington effective February 24, 1995.
2. Salary and Benefits. In accordance with Carrington's existing policies,
McAnalley has received or will receive the following pay and benefits regardless
of whether he enters into this Agreement: (i) payment of McAnalley's regular
base salary through February 24,1995, less all normal withholdings; (ii) payment
for all accrued and unused vacation leave through February 24, 1995, less all
normal withholdings; and (iii) payment of the stock portion of McAnalley's 1994
Management Incentive Compensation bonus. In addition, Carrington will settle
promptly all authorized reimbursable business expenses, if any, when McAnalley
has submitted appropriate documentation to Carrington.
3. Special Separation Benefits. In consideration of the General Release,
Nondisparagement, and Confidentiality Obligations provisions of this Agreement,
and contingent upon McAnalley's acceptance of the terms of this Agreement,
Carrington offers to continue to employ McAnalley as an inactive employee at a
salary of $6,250 per month, payable in accordance with its normal payroll
practices and subject to normal withholdings, from February 25, 1995, until the
earlier to occur of the following two dates: (i) the date McAnalley obtains
Alternative Employment; or (ii) February 24, 1996 (the earlier date is
hereinafter referred to as the "Employment Termination Date"). For the purposes
of this Agreement, "Alternative Employment" means any arrangement whereby
McAnalley agrees to provide services, whether as an employee, independent
contractor, or otherwise, to any person or entity other than Carrington for
remuneration if the arrangement either: (i) requires McAnalley to work at least
thirty hours per week; or (ii) provides total compensation to McAnalley,
including but not limited to wages, salaries, bonuses, and benefits, at a rate
that is equal to or greater than $100,000 per year. The period from February 25,
1995, through the Employment Termination Date is hereinafter referred to as the
"Inactive Period." In addition, should McAnalley secure Alternative Employment
before February 24, 1996, Carrington will pay to McAnalley a bonus of $75,000,
subject to normal withholdings.
4. Employee Benefit Plans. In consideration of the General Release,
Nondisparagement, and Confidentiality Obligations provisions of this Agreement,
and contingent upon McAnalley's acceptance of the terms of this Agreement,
Carrington offers to continue McAnalley's eligibility to participate in any
group insurance or stock purchase plans offered by Carrington, subject to the
terms of each such plan and provided he timely pays any cost that he would be
required as an employee to pay in connection therewith, until the Employment
Termination Date. Unless earlier terminated in accordance with the terms of any
such plan, McAnalley's participation in all such plans shall terminate on the
Employment Termination Date,
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except to the extent (if any) that he is entitled, and elects, to continue
insurance coverage thereafter at his own expense pursuant to the Consolidated
Omnibus Budget Reconciliation Act.
5. Special Consulting Benefits. In consideration of the General Release,
Nondisparagement, and Confidentiality Obligations provisions of this Agreement,
and contingent upon McAnalley's acceptance of the terms of this Agreement, if as
of February 24, 1996, the Inactive Period has not ended by reason of McAnalley
having obtained Alternative Employment, then Carrington offers to retain
McAnalley as a consultant at a rate of pay of $6,250 per month from February 25,
1996, until the earlier to occur of the following two dates: (i) the date
McAnalley obtains Alternative Employment; or (ii) February 24, 1999 (the earlier
date is hereinafter referred to as the "Consulting Termination Date"). The
period, if any, during which McAnalley is retained in such a consultant capacity
is hereinafter referred to as the "Consulting Period." During the Consulting
Period, McAnalley acknowledges and agrees that he will be acting as an
independent contractor and that he will be responsible for any self-employment,
social security, or other taxes required by law to be paid regarding the fees
paid to him by Carrington.
6. Notification. McAnalley agrees to notify Carrington in writing
immediately upon obtaining Alternative Employment. Except as expressly provided
in this Agreement, McAnalley is not and will not be entitled to receive any
other compensation or payment from Carrington by reason of or in connection with
his employment with Carrington or the termination thereof.
7. Services. During the Inactive Period and, if any, the Consulting Period,
McAnalley agrees to make himself available to Carrington from time to time, and
to perform for Carrington upon reasonable request by Carrington, services
(hereinafter referred to as the "Services"). The Services shall include such
services as McAnalley performed for Carrington prior to McAnalley's resignation
as Senior Vice President of Research.
8. Authority. Alter February 24, 1995, McAnalley has not been and will not
be obligated or authorized, and has not held himself out and shall not hold
himself out as being authorized, to make any representations, enter into any
contracts, commitments, or obligations, or perform any other acts of any kind
whatsoever on behalf of Carrington. McAnalley also has not been and will not be
authorized to hold himself out as an agent or active employee of Carrington
after February 24, 1995.
9. Stock Options. In consideration of McAnalley's agreement to all of the
terms and conditions of this Agreement, Carrington hereby accelerates the
maturity of all existing options heretofore granted him by Carrington to
purchase shares of Carrington's common stock, so that all of such options, to
the extent they have not already expired or been exercised, shall be exercisable
in full from the Effective Date of this Agreement (as defined in Section 17
hereof) through the Employment Termination Date. McAnalley understands that all
of such options will expire on the close of business on the 30th day following
the Employment Termination Date, except to the extent that they are earlier
exercised or terminated in accordance with their terms.
If any of the options that expire because of the termination of
McAnalley's employment with Carrington have exercise prices that are in excess
of the closing price per share
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of Carrington's common stock on the American Stock Exchange (the "Amex") or the
NASDAQ National Market System ("NASDAQ"), as the case may be, on the date of
expiration of such options (or, if such date is not a trading date on the Amex
or NASDAQ, then on the trading date next following such expiration date [the
applicable date being hereinafter called the "Issue Date"]), Carrington will
issue to McAnalley, effective as of the Issue Date, a Common Stock Purchase
Warrant (the "Warrant"), in substantially the form attached to this Agreement as
Exhibit A, entitling him to purchase the same number of shares of Carrington's
common stock that he was entitled to purchase under such options immediately
prior to their expiration (the "Warrant Shares"), at an exercise price equal to
the closing price per share of Carrington's common stock on the Amex or NASDAQ,
as the case may be, on the Issue Date for a period of four years from the Issue
Date.
McAnalley understands and acknowledges that the Warrant and any Warrant
Shares that he purchases upon exercise thereof have not been and will not be
registered under any state or federal securities laws. McAnalley represents,
warrants and agrees that if the Warrant is issued to him, he will acquire the
Warrant and any Warrant Shares that he purchases upon exercise thereof for
investment and without a view to the distribution thereof and will execute and
deliver to Carrington, at the time of the issuance of the Warrant to him and
upon each exercise of the Warrant, an investment letter satisfactory to
Carrington.
10. General Release. McAnalley and his family members, heirs, successors,
and assigns (hereinafter referred to collectively as the "Releasing Parties")
hereby release, acquit, and forever discharge Carrington and its shareholders,
officers, directors, Fiduciaries, agents, servants, employees, representatives,
attorneys, insurers, successors, and assigns (hereinafter referred to
collectively as the "Released Parties") from any and all claims, demands, and
causes of action of every kind and character, whether vicarious, derivative, or
direct, that any of the Releasing Parties now has or may hereafter have or
assert against any or all of the Released Parties growing out of, resulting
from, or connected in any way with McAnalley's employment or the termination of
his employment with Carrington, including but not limited to any and all claims
for damages (actual, exemplary, liquidated, or unliquidated), back pay, future
pay, deferred compensation, bonuses, commissions, severance payments, vacation
and leave benefits, unreimbursed business expenses, overtime compensation,
reinstatement or priority placement, past and future medical or other employee
benefits for McAnalley or his dependents, employee retirement benefits,
contributions to company-sponsored 401(k) plans (except as presently vested in
any savings plan sponsored by Carrington in which McAnalley is a participant),
medical and counseling costs, injunctive relief, declaratory relief, attorney's
fees, costs of court, disbursements, interest, or any other form whatsoever of
legal or equitable relief to which any of the Releasing Parties claims or might
claim entitlement as a result of any alleged act or omission of any of the
Released Parties, including but not limited to any alleged unlawful age
discrimination or any other form of unlawful employment discrimination,
retaliation, wrongful termination, breach of contract (express or implied),
tortious interference with contract, promissory estoppel, detrimental reliance,
negligent or intentional infliction of emotional distress, negligent hiring and
supervision, assault, battery, defamation of character, any alleged act of
harassment or intimidation, negligent or intentional misrepresentation or fraud,
invasion of privacy, or any other intentional or negligent tort, or any alleged
violation of the Age Discrimination in Employment
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Act of 1967, Title VII of the Civil Rights Act of 1964, the Texas Commission on
Human Rights Act, the Americans With Disabilities Act, the Employee Retirement
Income Security Act of 1974, the public policy of the United States, the State
of Texas, or any other state, or any other federal or state statutory or common
law, or any other alleged adverse employment action by any of the Released
Parties, and all other loss, expense, or detriment of every kind and character,
whether past or future, that any of the Releasing Parties may have sustained or
may hereafter sustain by reason of any act or omission of any of the Released
Parties growing out of, resulting from, or connected in any way with McAnalley's
employment or the termination of his employment with Carrington. This general
release does not apply to any rights or claims that may arise after the date
this Agreement is executed by McAnalley.
11. Nondisparagement. McAnalley shall not make any statements, orally or in
writing, or engage in any other acts that would directly or indirectly cause any
harm or damage to Carrington or any of the other Released Parties, including,
but not limited to, directly or indirectly, (i) making any derogatory statement
whatsoever with regard to the validity or enforceability of any of the claims of
any of Carrington's current patents or, more specifically, stating or
representing to any person that any of Carrington's current patents, or any of
the claims of any of Carrington's current patents, are invalid or unenforceable
for any reason whatsoever; (ii) promoting, instigating, encouraging,
cooperating, assisting, or participating in any way whatsoever in any claim or
proceeding (judicial or administrative, including any proceeding in the United
States Patent and Trademark Office) in any way contesting or challenging the
enforceability or validity of any of the claims of any of the current Carrington
patents for any reason whatsoever, including, but not limited to, any request
for reissue or reexamination of any Carrington patent, in whole or in part; or
(iii) claiming, challenging, or contesting in any way or manner whatsoever,
either judicially or administratively (including, but not limited to, any
request for reissue or reexamination of any Carrington patent in the United
States Patent and Trademark Office), the validity or enforceability of any of
the claims of any of the Carrington patents.
12. Confidentiality Obligations. McAnalley acknowledges and confirms all
agreements and obligations, including the obligation of confidentiality, set
forth in that certain Employee's Confidentiality and Invention Agreement by and
between Carrington and McAnalley dated May 21,1991 (the "Confidentiality
Agreement"). In addition, McAnalley agrees that the terms of this Agreement
shall be and remain confidential, and shall not be disclosed by him to any
person other than his spouse, attorney, and accountant or tax return preparer if
such persons have agreed to keep such information confidential, and except as
may be required by law or judicial process.
13. Effect of Breach. McAnalley acknowledges and agrees that should he or
any of the other Releasing Parties breach any of their obligations set forth in
this Agreement, (i) Carrington will have no further obligation to comply with
its undertakings in Sections 3, 4, or 5 hereof, but that all of the other
provisions of this Agreement shall remain in full force and effect; (ii)
McAnalley may be required to repay any payments made to him and reimburse
Carrington for any payments made on his behalf or for his benefit pursuant to
Sections 3, 4, or 5 hereof; (iii) the Releasing Parties also may be liable for
any of the Released Parties' damages caused by the breach, including without
limitation their costs and attorney's fees incurred in defending claims brought
in breach of this Agreement or bringing claims to enforce this Agreement; and
(iv)
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Carrington may terminate and cancel the Warrant, refuse to issue any shares upon
any attempted exercise thereof, and require McAnalley to return to Carrington
the Warrant and any and all shares previously issued to him upon his exercise
thereof or, if any of such shares have been sold, the proceeds of sale thereof.
14. Effect and Use of Agreement. McAnalley agrees that this Agreement does
not in any manner constitute an admission of liability or wrongdoing on the part
of Carrington or any of the other Released Parties, but that Carrington
expressly denies any such liability or wrongdoing and enters into this Agreement
in compromise and settlement of a disputed claim for the sole purpose of
avoiding trouble, litigation and expense. McAnalley further agrees that, except
to the extent necessary to enforce this Agreement, neither this Agreement nor
any part of it may be construed, used, or admitted into evidence in any
judicial, administrative, or arbitral proceeding as an admission of any kind by
Carrington or any of the other Released Parties.
15. Representation Regarding Certain Laws. McAnalley understands and
acknowledges that various state and federal laws (including the Age
Discrimination in Employment Act of 1967) prohibit discrimination in employment
based on sex, race, age, color, national origin, religion, disability,
citizenship and veteran status, and that the law also prohibits breach of
contract (express or implied) and intentional or negligent tortious conduct.
16. Effective Period of Offer. Carrington's offer of the terms set forth in
this Agreement will expire at midnight on the twenty-first day following the
date of Carrington's execution of this Agreement, i.e., on March 17, 1995.
McAnalley may accept this offer at any time before such expiration by executing
this Agreement and returning it to Carrington.
17. Effective Date of Agreement. This Agreement will become effective and
enforceable seven (7) days after McAnalley's execution and delivery to
Carrington of this Agreement (the "Effective Date"). At any time before the
Effective Date, McAnalley may revoke his acceptance of this Agreement.
18. Consultation With An Attorney. Carrington hereby advises McAnalley to
consult an attorney before executing this Agreement.
19. Representation Regarding Meaning and Execution of the Agreement.
McAnalley further acknowledges and represents that he has read this Agreement,
that he has had the opportunity to have this Agreement read and explained to him
by his attorney, that he fully understands the meaning and effect of his action
in executing this Agreement, and that his execution of this Agreement is knowing
and voluntary.
20. Miscellaneous. McAnalley and Carrington agree that this Agreement and
the Confidentiality Agreement (a) contain and constitute the entire
understanding and agreement between them regarding the subject matter hereof;
(b) contain captions and definitions that are included only for convenience of
reference and are not intended and shall not be construed to change the express
provisions of this Agreement; (c) supersede and cancel any previous
negotiations, agreements, commitments and writings regarding the subject matter
of this
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Agreement; (d) may not be released, discharged, abandoned, supplemented, changed
or modified in any manner except by a writing of concurrent or subsequent date
signed by both parties hereto; (e) are binding on and shall inure to the benefit
of McAnalley, his heirs, successors and assigns, and Carrington and its
successors and assigns, and that the terms of Section 10 hereof shall inure to
the benefit of all of the Released Parties; and (f) shall be governed by and
construed in accordance with the laws of the State of Texas and the applicable
laws of the United States. McAnalley and Carrington further agree that (i) if
any provision of this Agreement is held to be unenforceable, such provision
shall be considered to be separate, distinct, and severable from the remaining
provisions of this Agreement and shall not affect the validity or enforceability
of such remaining provisions, all of which shall remain in full force and
effect; and (ii) if any provision of this Agreement is held to be unenforceable
as written but may be made to be enforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable to the
maximum extent permitted by applicable law.
SIGNED on the dates shown below.
CARRINGTON LABORATORIES, INC.
Dated: February 24, 1995 By:
Karl H. Meister --------------------------
President and CEO
Dated: , 1995
--------------------------- --------------------------------------
Bill H. McAnalley
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EXHIBIT A
NOTICE: THE WARRANTS REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY
JURISDICTION. THESE WARRANTS MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO THE EXPRESS PROVISIONS HEREOF. THE WARRANTS REPRESENTED BY
THIS INSTRUMENT ARE SUBJECT TO CANCELLATION AND TERMINATION UNDER CERTAIN
CIRCUMSTANCES PURSUANT TO A RESIGNATION AGREEMENT AND FULL AND FINAL RELEASE
DATED ________________, 1995 BETWEEN THE COMPANY AND THE WARRANTHOLDER.
Void after
CARRINGTON LABORATORIES, INC.
Common Stock Purchase Warrant
CARRINGTON LABORATORIES, INC. (the "Company") hereby certifies that for
valuable consideration, the receipt of which is hereby acknowledged, BILL H.
McANALLEY (the "Warrantholder") is entitled, subject to the terms set forth
below, to purchase from the Company, at any time or from time to time after
________________, 19____, and before 5:00 p.m. Dallas, Texas time on
_________________________ (the "Expiration Date"), ______________________
(________) fully paid and non-assessable shares of Common Stock of the Company
at the price of $________ per share (the "Purchase Price"); provided, however,
that the Warrants represented by this instrument are subject to cancellation and
termination under certain circumstances pursuant to a Resignation Agreement and
Full and Final Release dated ________________, 1995 between the Company and the
Warrantholder.
As used herein, the following terms have the following respective meanings
unless the context requires otherwise:
(a) The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized upon the Original Issue
Date or thereafter, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends
and distributions on any shares entitled to preference, and the holders of
which shall as a class, in the absence of contingencies, be entitled to
vote for the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of such a
contingency).
(b) The term "Company" includes any corporation which shall succeed to
or assume the obligations of the Company hereunder.
(c) The term "Original Issue Date" means _______________________, the
date as of which the Warrants were first issued.
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(d) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of the Warrants at any time shall be
entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 5
hereof or otherwise.
(e) The term "Purchase Price" shall be the then applicable exercise
price for one share of Common Stock hereunder.
(f) The term "Securities Acts" means the Securities Act of 1933, as
amended, and the securities or blue sky laws of any jurisdiction applicable
to any exercise, transfer or surrender for exchange of the Warrants or of
Common Stock (or Other Securities) previously issued upon exercise of the
Warrants.
(g) The term "Warrants" means the warrants represented by this
instrument.
1. Sale or Exercise Without Registration. Subject to the provisions of
Section 12 hereof, if, at the time of any exercise, transfer or surrender for
exchange of any Warrants or of Common Stock (or Other Securities) previously
issued upon the exercise of Warrants, such Warrants or Common Stock (or Other
Securities) shall not be registered under the Securities Acts, the Company may
require, as a condition of allowing such exercise, transfer or exchange, that
(i) the holder or transferee of such Warrants or Common Stock (or Other
Securities), as the case may be, furnish to the Company a satisfactory opinion
of counsel to the effect that such exercise, transfer or exchange may be made
without registration under the Securities Acts and (ii) the holder or transferee
execute and deliver to the Company an investment letter in form and substance
acceptable to the Company, provided that the disposition thereof shall at all
times be within the control of such holder or transferee, as the case may be.
The Warrantholder represents to the Company that he is acquiring the Warrants
for investment and not with a view to the distribution thereof.
2. Exercise of Warrants.
2.1 Exercise in Full. Subject to the provisions hereof, the Warrants may
be exercised in full by the holder hereof by surrender of this instrument, with
the Warrant Exercise Form attached hereto duly executed by such holder, to the
Company at its principal office in Dallas County, Texas, accompanied by payment,
in cash or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock called for on the face of this instrument (without giving effect to any
adjustment therein) by the Purchase Price.
2.2 Partial Exercise. Subject to the provisions hereof, the Warrants may
be exercised in part by surrender of this instrument in the manner and at the
place provided in Subsection 2.1, except that the amount payable by the holder
upon any partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock (without giving effect
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to any adjustment therein) designated by the holder in the Warrant Exercise Form
attached hereto by (b) the Purchase Price. Upon any such partial exercise, the
Company will forthwith issue and deliver to the holder hereof a new Common Stock
Purchase Warrant of like tenor, in the name of the holder hereof, calling in the
aggregate on the face thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this instrument minus the number of such shares
designated by the holder in the Warrant Exercise Form attached hereto. No
fractional shares of Common Stock may be purchased upon exercise of any
Warrants.
3. Delivery of Stock Certificates, Etc. on Exercise. As soon as practicable
after the exercise of the Warrants in full or in part, the Company will cause to
be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or Other
Securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 4 hereof or otherwise.
4. Adjustment for Dividends in Other Stock, Property, Etc.;
Reclassification, Etc. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock or Other Securities or property (other
than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation, by way of
dividend), except out of earned surplus of the Company, or
(c) other or additional (or less) stock or Other Securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
then, and in each such case, the holder of the Warrants, upon the exercise
thereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and Other Securities and property (including cash in the cases referred
to in Subsections (b) and (c) of this Section 4) which such holder would hold on
the date of such exercise if on the Original Issue Date such holder had been the
holder of record of the number of shares of Common Stock called for on the face
of this instrument and had thereafter, during the period from the Original Issue
Date to and including the date of such exercise, retained such shares and all
such other or additional (or less) stock and Other Securities and property
(including cash in the cases referred to in Subsections (b) and (c) of this
Section 4) receivable by him as aforesaid during such period, giving effect to
all adjustments called for during such period by Section 5 hereof.
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<PAGE>
5. Reorganization, Consolidation, Merger, Etc. In case the Company after
the Original Issue Date shall (a) effect a reorganization, (b) consolidate with
or merge into any other person, or (c) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, the
holder of this instrument, upon the exercise of the Warrants as provided in
Section 2 hereof at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall be entitled to receive (and the Company shall be entitled to
deliver), in lieu of the Common Stock (or Other Securities) issuable upon such
exercise prior to such consummation or such effective date, the stock and Other
Securities and property (including cash) to which such holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such holder had so exercised the Warrants immediately prior
thereto, all subject to further adjustment thereafter as provided in Section 4
hereof.
6. Notices of Record Dates, Etc. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend payable out of
earned surplus of the Company) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any Other Securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of the Warrants a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least twenty (20) days prior to the date therein
specified, unless the date so specified is officially established less than 20
days in advance of such date, in which case such notice shall be mailed not
later than three (3) business days after such date is officially established.
7. Reservation of Stock, Etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of the
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Warrants, all shares of Common Stock (or Other Securities) from time to time
issuable upon the exercise of the Warrants.
8. Listing on Securities Exchanges. If, at the time any of the Warrants are
exercised, the Company's Common Stock or Other Securities then subject to such
Warrants are listed on any national securities exchange and the shares issuable
upon exercise of such Warrants have not already been so listed, the Company
will, at its expense, promptly file an application to list on such exchange,
subject to official notice of issuance, all shares of Common Stock or Other
Securities, as the case may be, from time to time issuable upon the exercise of
the Warrants, and will use its best efforts to cause such shares to be so listed
as promptly as reasonably possible. In the event such a listing application must
be filed following the exercise of any Warrants, the Company may postpone the
issuance and delivery of the shares issuable in respect thereof until the
listing of such shares has been completed.
9. Exchange of Warrants. Subject to the provisions of Section 12 hereof,
upon surrender for exchange of this instrument, properly endorsed, to the
Company, the Company at its own expense will issue and deliver to the holder
thereof a new Common Stock Purchase Warrant of like tenor, in the name of such
holder, calling in the aggregate on the face thereof for the number of shares of
Common Stock that are subject to purchase upon exercise of the Warrants
represented by this instrument.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this instrument and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and
cancellation of this instrument, the Company at its expense will execute and
deliver, in lieu thereof, a new Common Stock Purchase Warrant of like tenor.
11. Warrant Agent. The Company may, by written notice to the holder of the
Warrants, appoint an agent having an office in Dallas County, Texas for the
purpose of issuing Common Stock (or Other Securities) upon the exercise of the
Warrants pursuant to Section 2 hereof, exchanging instruments representing the
Warrants pursuant to Section 9 hereof, and replacing instruments representing
the Warrants pursuant to Section 10 hereof, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
12. Restriction on Transfer, Etc. The Warrants and this instrument are
issued upon the following terms, to all of which the holder or owner hereof by
the taking hereof consents and agrees:
(a) notwithstanding any term or provision hereof to the contrary, this
instrument and the Warrants (and any instrument for which this instrument
may be exchanged or replaced) may not be transferred or assigned except by
will or pursuant to the laws of descent and distribution, and any such
transfer or assignment by will or pursuant to the laws of descent and
distribution shall be subject to the conditions set forth in Section 1
hereof; and
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(b) until the Warrants are transferred on the books of the Company,
the Company may treat the registered holder of this instrument as the
absolute owner hereof and of the Warrants for all purposes, notwithstanding
any notice to the contrary.
13. Notices, Etc. All notices and other communications from the Company to
the holder of the Warrants shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder, or, until an address is so furnished, to
and at the address of the last holder of the Warrants who has so furnished an
address to the Company.
14. Miscellaneous. This instrument and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. THIS INSTRUMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. The headings in this instrument
are for purposes of reference only and shall not limit or otherwise affect any
of the terms hereof.
Dated: ____________________
CARRINGTON LABORATORIES, INC.
By:
------------------------------
President
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CARRINGTON LABORATORIES, INC.
WARRANT EXERCISE FORM
The undersigned, being the owner and holder of the attached Common Stock
Purchase Warrant, hereby exercises the right to purchase _____________ shares of
Common Stock of Carrington Laboratories, Inc., in accordance with the terms and
conditions of such Common Stock Purchase Warrant, and herewith makes payment in
full of the aggregate Purchase Price of such shares, in the amount of
$______________.
Please issue and deliver a certificate or certificates representing such
shares, registered in the name of the undersigned, to the undersigned at the
address set forth below. If the number of shares hereby purchased is not all of
the shares purchasable under the attached Common Stock Purchase Warrant, please
also issue and deliver to the undersigned, at the address set forth below, a new
Common Stock Purchase Warrant of like tenor, registered in the name of the
undersigned, covering the number of shares remaining purchasable under the
attached Common Stock Purchase Warrant.
Dated:
-------------------------
Address: ------------------------------------
Signature
- ------------------------------------
- ------------------------------------ ------------------------------------
Type or Print Name
- ------------------------------------
- ------------------------------------ ------------------------------------
Social Security Number
<PAGE>
EXHIBIT 10.69
REVISED AND RESTATED
RESIGNATION AGREEMENT
This Revised and Restated Resignation Agreement (this "Agreement") is made
by and between CARRINGTON LABORATORIES, INC., a Texas corporation
("Carrington"), and KARL H. MEISTER ("Meister") for the purpose of changing the
employment relationship between the parties in accordance with the terms set
forth below:
1. Resignation; Termination of Employment Agreement. Effective as of the
Effective Date, as defined in Section 16 hereof, (a) Meister hereby voluntarily
resigns from his positions of Director, President and Chief Executive Officer of
Carrington and from all director and officer positions that he currently holds
with Carrington's subsidiary corporations, and (b) the existing Employment
Agreement dated December 12, 1990 between Carrington and Meister and the
Amendment thereto dated February 24, 1993 (collectively, the "Employment
Agreement") is hereby terminated in its entirety, except that Sections 27 and 29
thereof shall survive such termination and shall continue in full force and
effect.
2. Continuation and Term of Employment. After the Effective Date, Meister
shall continue to be an employee of Carrington for the term hereinafter set
forth but shall be on inactive status, subject to Section 5 hereof. The term of
Meister's employment with Carrington shall terminate effective upon the earliest
to occur of the following dates (the "Employment Termination Date"): (a) the
date of his death; (b) the date on which he gives written notice to Carrington
of his election to terminate such employment; (c) the date on which Carrington's
Board of Directors elects to terminate Meister's employment for Cause, as
hereinafter defined; or (d) December 11, 1998.
As used in this Agreement, the term "Cause" shall mean (a) any act by
Meister that is, in the good faith opinion of Carrington's Board of Directors,
adverse to the best interests of Carrington, or (b) the breach by Meister of any
of his obligations under (i) this Agreement, (ii) the Confidentiality Agreement
referred to in Section 11 hereof or (iii) Section 27 of the Employment
Agreement.
3. Compensation.
(a) Through the Effective Date, Carrington will continue to pay
Meister all salary and benefits to which he is entitled under the
Employment Agreement and in accordance with the terms thereof. If the
portion of the incentive compensation bonus that is payable to Meister in
shares of Carrington's Common Stock for 1994 shall not have been paid to
him by the Effective Date, Carrington shall deliver such shares to him as
promptly as possible after the Effective Date.
(b) During the period from the Effective Date through December 11,
1995, Carrington shall pay Meister a salary at the rate of $260,000 per
year, payable in accordance with its normal payroll practices and subject
to applicable withholdings.
(c) During the period from and after December 11, 1995 to the
Employment Termination Date, Carrington shall pay Meister a base salary of
$1.00 per year, payable in
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full, annually, on the next regular payroll payment date after December 11
of each year during the term of his employment with Carrington. If, during
the period from December 11, 1995 to the Employment Termination Date,
Meister performs any Services (as defined in Section 5 hereof) at
Carrington's request, Carrington shall pay Meister additional compensation
at the rate of $1,000 per day for such Services, which compensation shall
be payable in accordance with Carrington's normal payroll practices and
subject to applicable withholdings.
(d) Carrington shall reimburse Meister for all properly reimbursable
business expenses incurred by Meister prior to the Effective Date promptly
after Meister timely submits a proper expense report and supporting
documentation to Carrington. Carrington will reimburse Meister for business
expenses incurred by Meister after the Effective Date only if (i) Meister
obtains advance written authorization from the President or a Vice
President of Carrington to incur such expenses and (ii) Meister timely
submits a proper expense report and supporting documentation to Carrington.
(e) Except as expressly provided in this Agreement, Meister is not and
will not be entitled to receive any other compensation or payment from
Carrington by reason of or in connection with his employment with
Carrington or the termination thereof.
4. Employee Benefit Plans. Meister may continue to participate in any group
insurance, 401(k) or stock purchase plans offered by Carrington, subject to the
terms of each such plan and provided he timely pays any cost that he would
normally be required to pay in connection therewith, until the earliest of (a)
December 11, 1995, (b) the Employment Termination Date, or (c) the date on which
Meister obtains Other Employment, as that term is hereinafter defined (the
earliest of such dates being hereinafter called the "Benefits Termination
Date"). Unless earlier terminated in accordance with the terms of any such plan,
Meister's participation in all such plans shall terminate on the Benefits
Termination Date, except to the extent (if any) that he is entitled, and elects,
to continue insurance coverage thereafter at his own expense pursuant to the
Consolidated Omnibus Budget Reconciliation Act.
As used in this Agreement, the term "Other Employment" means any
arrangement whereby Meister agrees to provide services, whether as an employee,
independent contractor, or otherwise, to any person, group or entity other than
Carrington or any of its subsidiary corporations for remuneration if the
arrangement either (i) requires Meister to work at least thirty hours per week,
or (ii) calls for Meister to receive total compensation, including but not
limited to wages, salaries, bonuses, and benefits, at a rate that is equal to or
greater than $100,000 per year. Meister shall notify Carrington in writing
immediately upon obtaining Other Employment.
5. Services. During the period from the Effective Date to the Employment
Termination Date, Meister shall, upon reasonable request by Carrington from time
to time, perform for Carrington, or one or more of its subsidiary corporations,
services of the same general nature as he performed for Carrington prior to his
resignation as its President and Chief Executive Officer ("Services").
Notwithstanding the foregoing, however, after Meister obtains Other Employment,
he shall not be required to perform Services for more than eight hours in any
calendar month.
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6. Authority. After the Effective Date, (a) Meister will not be, and shall
not hold himself out as being, a director, officer or active employee of
Carrington or any of its subsidiary corporations, and (b) Meister will not be
obligated or authorized, and shall not hold himself out as being authorized, to
make any representations, enter into any contracts, commitments, or obligations,
or perform any other acts of any kind whatsoever on behalf of Carrington or any
of its subsidiary corporations.
7. Stock Options. In consideration of Meister's agreement to all of the
terms and conditions of this Agreement, Carrington hereby accelerates the
maturity of all existing options heretofore granted to him by Carrington to
purchase shares of Carrington's common stock, effective as of the Effective
Date, so that all of such options, to the extent they have not then already
expired or been exercised, shall be exercisable in full from the Effective Date
through the earlier of the Employment Termination Date or the respective dates
on which such options expire or terminate in accordance with their respective
terms. Meister understands that all of such options will expire at the close of
business on the 30th day following the Employment Termination Date, unless they
are earlier exercised or terminated or they earlier expire in accordance with
their terms, or unless the period for their exercise is extended in accordance
with their respective terms due to the termination of Meister's employment with
Carrington by reason of his death or disability.
8. General Release. Meister and his family members, heirs, successors, and
assigns (hereinafter referred to collectively as the "Releasing Parties") hereby
release, acquit, and forever discharge Carrington and its shareholders,
directors, officers, fiduciaries, agents, servants, employees, representatives,
attorneys, insurers, successors, and assigns (hereinafter referred to
collectively as the "Released Parties") from any and all claims, demands, and
causes of action of every kind and character, whether vicarious, derivative, or
direct, that any of the Releasing Parties now has or may hereafter have or
assert against any or all of the Released Parties growing out of, resulting
from, or connected in any way with Meister's employment or the termination of
his active or inactive employment with Carrington, including but not limited to
any and all claims for damages (actual, exemplary, liquidated, or unliquidated),
back pay, future pay, deferred compensation, bonuses, commissions, severance
payments, vacation and leave benefits, unreimbursed business expenses, overtime
compensation, reinstatement or priority placement, past and future medical or
other employee benefits for Meister or his dependents, employee retirement
benefits, contributions to company-sponsored 401(k) plans (except as presently
vested in any savings plan sponsored by Carrington in which Meister is a
participant), medical and counseling costs, injunctive relief, declaratory
relief, attorney's fees, costs of court, disbursements, interest, or any other
form whatsoever of legal or equitable relief to which any of the Releasing
Parties claims or might claim entitlement as a result of any alleged act or
omission of any of the Released Parties, including but not limited to any
alleged unlawful age discrimination or any other form of unlawful employment
discrimination, retaliation, wrongful termination, breach of contract (express
or implied), tortious interference with contract, promissory estoppel,
detrimental reliance, negligent or intentional infliction of emotional distress,
negligent hiring and supervision, assault, battery, defamation of character, any
alleged act of harassment or intimidation, negligent or intentional
misrepresentation or fraud, invasion of privacy, or any other intentional or
negligent tort, or any alleged violation of the Age Discrimination in Employment
Act of 1967, Title VII of the Civil Rights Act of 1964, the
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Texas Commission on Human Rights Act, the Americans With Disabilities Act, the
Employee Retirement Income Security Act of 1974, the public policy of the United
States, the State of Texas, or any other state, or any other federal or state
statutory or common law, or any other alleged adverse employment action by any
of the Released Parties, and all other loss, expense, or detriment of every kind
and character, whether past or future, that any of the Releasing Parties may
have sustained or may hereafter sustain by reason of any act or omission of any
of the Released Parties growing out of, resulting from, or connected in any way
with Meister's employment or the termination of his active or inactive
employment with Carrington. IT IS THE EXPRESS INTENTION AND AGREEMENT OF THE
PARTIES THAT THE FOREGOING PROVISIONS OF THIS SECTION 8 RELEASE THE RELEASED
PARTIES FROM ANY AND ALL LIABILITY FOR THEIR OWN NEGLIGENCE. This general
release does not apply to any rights or claims that may arise after the date
this Agreement is executed by Meister.
9. Indemnification.
(a) To the extent permitted by applicable law, Carrington (i) shall
indemnify and hold harmless Meister from and against any losses, damages
and liabilities that he may suffer or incur as a result of any claims,
actions or proceedings made or brought against him arising out of or based
upon any matters being investigated by the U. S. Attorney's Office in
Philadelphia, Pennsylvania, on behalf of the U. S. Department of Health and
Human Services, involving Carrington or any of its present or former
employees, and (ii) shall reimburse Meister for any reasonable legal and
other expenses reasonably incurred by him in defending and investigating
any such claim, action or proceeding. (A claim, action or proceeding of the
nature described in the immediately preceding sentence is hereinafter
called an "Action.")
(b) Notwithstanding the provisions of Section 9(a) hereof, Carrington
shall not be obligated to indemnify and hold harmless Meister against any
losses, damages or liabilities resulting from, or to reimburse him for any
expenses incurred in connection with, any Action in which he is found
liable for willful or intentional misconduct in the performance of his
duties to Carrington, or if and to the extent that it is determined by a
court of competent jurisdiction or in good faith by Carrington's Board of
Directors that such Action or any loss, damage, liability or expense
suffered or incurred by Meister in connection therewith resulted from (i) a
breach by Meister of his duty of loyalty to Carrington or its shareholders,
(ii) an act or omission of Meister that was not in good faith or that
involved intentional misconduct or a knowing violation of the law, (iii) a
transaction from which Meister received an improper benefit, whether or not
the benefit resulted from an action taken by him within the scope of his
positions with Carrington, (iv) an act or omission by Meister for which the
liability of a director or officer of a corporation is expressly provided
for by statute, (v) an act or omission by Meister that he did not
reasonably believe (in the case of conduct in his official capacity as a
director of Carrington) was in Carrington's best interest or (in all other
cases) was not opposed to Carrington's best interests, or (vi) in the case
of a criminal proceeding, an act or omission by Meister that he had
reasonable cause to believe was unlawful.
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(c) Promptly after the receipt by Meister of notice of the
commencement of any Action against him, he shall, if he intends to make a
claim in respect thereof for indemnification under this Section 9, notify
Carrington in writing of the commencement of such Action. The failure of
Meister so to notify Carrington, if prejudicial to Carrington's ability to
defend such Action, shall relieve Carrington of any liability to Meister
under this Section 9 with respect to such Action and any loss, damage,
liability or expense arising therefrom or incurred in connection therewith,
but such failure shall not relieve Carrington from any other liability that
it may have to Meister under this Section 9 or otherwise.
(d) If any such Action is asserted or brought against Meister,
Carrington shall be entitled to participate therein and, to the extent that
it may wish, to assume the defense thereof, with counsel reasonably
satisfactory to Meister. After notice from Carrington to Meister of its
election to assume the defense of such Action, Carrington shall not be
liable to Meister under this Section 9 for any legal or other expenses
subsequently incurred by Meister in connection with the defense of such
Action. Meister shall have the right to employ separate counsel in any such
Action and to participate in the defense thereof, but Carrington shall not
be liable for the fees and expenses of such counsel if Carrington has
assumed the defense of such Action with counsel reasonably satisfactory to
Meister.
(e) Carrington shall not be liable for any settlement of any Action
effected without its written consent, which shall not be unreasonably
withheld. If an Action to which this Section 9 is applicable is settled
with the written consent of Carrington, or if a final judgment is rendered
against Meister in any such Action, Carrington shall indemnify and hold
harmless Meister from and against such settlement or judgment as provided
in this Section 9.
(f) In addition to the indemnification provided for by subsections (a)
through (e) of this Section 9, Carrington shall at all times indemnify
Meister in accordance with the provisions of Article Nine of Carrington's
Bylaws, as in effect at the Effective Date. A copy of such Bylaws is
attached as Exhibit A to this Agreement.
10. Nondisparagement. Meister shall not make any statements, orally or in
writing, or engage in any other acts that would directly or indirectly cause any
harm or damage to Carrington or any of the other Released Parties. Likewise,
Carrington shall not make any statements, orally or in writing, or engage in any
other acts that would directly or indirectly cause any harm or damage to
Meister.
11. Confidentiality Obligations. Meister acknowledges and confirms all
agreements and obligations, including the obligation of confidentiality, set
forth in that certain Employee's Confidentiality and Invention Agreement dated
May 21, 1991 between Carrington and Meister (the "Confidentiality Agreement").
In addition, Meister agrees that the terms of this Agreement shall be and remain
confidential, and shall not be disclosed by him to any person other than his
spouse, attorney, and accountant or tax return preparer if such persons have
agreed to keep such information confidential, and except as may be required by
law or judicial process.
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12. Noncompetition. Meister agrees that, during the period from the
Effective Date through December 11, 1998, he will not, directly or indirectly,
for his own account or for the benefit of any other person, anywhere throughout
the United States, engage in any activity comparable to the activities he has
performed or had ultimate supervisory responsibility for and control over in his
capacity as the President and Chief Executive Officer of Carrington on behalf of
any firm, person, corporation or enterprise that is now or hereafter becomes
engaged in the business of developing, manufacturing or selling products for the
management of wounds and products based on aloe vera that are in direct
competition with those developed, manufactured or sold by Carrington or its
subsidiary corporations. Meister acknowledges that in his role as President and
Chief Executive Officer of Carrington he has performed or had ultimate
supervisory responsibility for and control over all research and development,
manufacturing and operations, business development, and marketing and sales
activities of Carrington and its subsidiary corporations, both domestically
(within and throughout the United States) and internationally. Carrington
acknowledges that this Section 12 is intended only to restrain competitive
activity by Meister to the extent necessary to protect Carrington's goodwill or
other business interests.
13. Effect of Breach. Meister acknowledges and agrees that should he or any
of the other Releasing Parties materially breach any of their obligations set
forth in this Agreement, (a) Carrington will have no further obligation to
comply with its undertakings in Sections 2, 3(b), 3(c), 4, and 9 hereof, but all
of the other provisions of this Agreement shall remain in full force and effect;
(b) Meister may be required to repay any payments made to him and reimburse
Carrington for any payments made on his behalf or for his benefit pursuant to
Sections 3(b), 3(c), 4, and 9 hereof; (c) Meister and the other Releasing
Parties shall also pay and be responsible for the Released Parties' damages
caused by the breach, including without limitation their costs and attorney's
fees incurred in (i) defending claims brought in breach of this Agreement or
(ii) successfully bringing claims to enforce this Agreement; and (d) Carrington
may terminate and cancel any or all of the stock options referred to in Section
7 hereof.
Carrington shall pay and be responsible for all legal fees and expenses
incurred by Meister as a result of Carrington's materially breaching any of its
obligations under this Agreement or as a result of Carrington's unsuccessfully
contesting the validity or enforceability of this Agreement.
14. Representation Regarding Certain Laws. Meister understands and
acknowledges that various state and federal laws (including the Age
Discrimination in Employment Act of 1967) prohibit discrimination in employment
based on sex, race, age, color, national origin, religion, disability,
citizenship and veteran status, and that the law also prohibits breach of
contract (express or implied) and intentional or negligent tortious conduct.
15. Effective Period of Offer. Carrington's offer of the terms set forth in
this Agreement will expire at midnight on the twenty-first day following the
date of Carrington's execution of this Agreement, i.e., on April 4, 1995.
Meister may accept this offer at any time before such expiration by executing
this Agreement and returning it to Carrington.
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16. Effective Date of Agreement. This Agreement will become effective and
enforceable seven (7) days after Meister's execution and delivery to Carrington
of this Agreement (the "Effective Date"). At any time before the Effective Date,
Meister may revoke his acceptance of this Agreement.
17. Consultation With An Attorney. Carrington hereby advises Meister to
consult an attorney before executing this Agreement.
18. Representation Regarding Meaning and Execution of Agreement. Meister
further acknowledges and represents that he has read this Agreement, that he has
had the opportunity to have this Agreement read and explained to him by his
attorney, that he fully understands the meaning and effect of his action in
executing this Agreement, and that his execution of this Agreement is knowing
and voluntary.
19. Notices. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed given when delivered to the addressee in
person, sent to the addressee by telefacsimile transmission to the telephone
number at which the addressee normally receives telefacsimile communications, or
deposited in the United States mail, postage prepaid, certified or registered
mail, return receipt requested, addressed to the appropriate party at the
address set forth opposite such party's name below, or at such other address as
such party shall have theretofore designated by written notice given to the
other party in accordance with this section:
Carrington: Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: Chief Executive Officer
Meister: Mr. Karl H. Meister
P. O. Box 601
New Vernon, New Jersey 07976
20. Miscellaneous. Meister and Carrington agree that this Agreement, the
Confidentiality Agreement and Sections 27 and 29 of the Employment Agreement
(all of which are hereinafter collectively called the "Final Agreement") (a)
contain and constitute the entire understanding and agreement between them
regarding the subject matter hereof; (b) contain captions and definitions that
are included only for convenience of reference and are not intended and shall
not be construed to change the express provisions of the Final Agreement; (c)
supersede and cancel any previous negotiations, agreements, commitments and
writings regarding the subject matter of the Final Agreement; (d) may not be
released, discharged, abandoned, supplemented, changed or modified in any manner
except by a writing of concurrent or subsequent date signed by both parties
hereto; (e) are binding on and shall inure to the benefit of Meister, his heirs,
successors and assigns, and Carrington and its successors and assigns, and that
the terms of Section 8 hereof shall inure to the benefit of and be enforceable
by all of the Released Parties; and (f) shall be governed by and construed in
accordance with the laws of the State of Texas and the applicable laws of the
United States.
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Meister and Carrington further agree that (i) if any provision of this
Agreement is held to be unenforceable, such provision shall be considered to be
separate, distinct, and severable from the remaining provisions of this
Agreement and shall not affect the validity or enforceability of such remaining
provisions, all of which shall remain in full force and effect; and (ii) if any
provision of this Agreement is held to be unenforceable as written but may be
made to be enforceable by limitation thereof, then such provision shall be
deemed to be so limited and shall be enforceable to the maximum extent permitted
by applicable law.
SIGNED on the dates shown below.
CARRINGTON LABORATORIES, INC.
Dated: March 14, 1995 By:
--------------------------------------
Selvi Vescovi, Chairman of the Board
Dated: March 14, 1995 ------------------------------------------
KARL H. MEISTER
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EXHIBIT 10.70
NOTICE: THE WARRANTS REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY
JURISDICTION. THESE WARRANTS MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO THE EXPRESS PROVISIONS HEREOF.
Void after May 4, 1999
CARRINGTON LABORATORIES, INC.
Common Stock Purchase Warrant
CARRINGTON LABORATORIES, INC. (the "Company") hereby certifies that for
valuable consideration, the receipt of which is hereby acknowledged, CLIFFORD T.
KALISTA (the "Warrantholder") is entitled, subject to the terms set forth below,
to purchase from the Company, at any time or from time to time after August 4,
1995, and before 5:00 p.m. Dallas, Texas time on May 4, 1999 (the "Expiration
Date"), Twenty Thousand (20,000) fully paid and non-assessable shares of Common
Stock of the Company at the price of $16.00 per share (the "Purchase Price").
As used herein, the following terms have the following respective meanings
unless the context requires otherwise:
(a) The term "Common Stock" includes all stock of any class or classes
(however designated) of the Company, authorized upon the Original Issue
Date or thereafter, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends
and distributions on any shares entitled to preference, and the holders of
which shall as a class, in the absence of contingencies, be entitled to
vote for the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of such a
contingency).
(b) The term "Company" includes any corporation which shall succeed to
or assume the obligations of the Company hereunder.
(c) The term "Original Issue Date" means May 5, 1995, the date as of
which the Warrants were first issued.
(d) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of the Warrants at any time shall be
entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 5
hereof or otherwise.
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(e) The term "Purchase Price" shall be the then applicable exercise
price for one share of Common Stock hereunder.
(f) The term "Securities Acts" means the Securities Act of 1933, as
amended, and the securities or blue sky laws of any jurisdiction applicable
to any exercise, transfer or surrender for exchange of the Warrants or of
Common Stock (or Other Securities) previously issued upon exercise of the
Warrants.
(g) The term "Warrants" means the warrants represented by this
instrument.
1. Sale or Exercise Without Registration. Subject to the provisions of
Section 12 hereof, if, at the time of any exercise, transfer or surrender for
exchange of any Warrants or of Common Stock (or Other Securities) previously
issued upon the exercise of Warrants, such Warrants or Common Stock (or Other
Securities) shall not be registered under the Securities Acts, the Company may
require, as a condition of allowing such exercise, transfer or exchange, that
(i) the holder or transferee of such Warrants or Common Stock (or Other
Securities), as the case may be, furnish to the Company a satisfactory opinion
of counsel to the effect that such exercise, transfer or exchange may be made
without registration under the Securities Acts and (ii) the holder or transferee
execute and deliver to the Company an investment letter in form and substance
acceptable to the Company, provided that the disposition thereof shall at all
times be within the control of such holder or transferee, as the case may be.
The Warrantholder represents to the Company that he is acquiring the Warrants
for investment and not with a view to the distribution thereof.
2. Exercise of Warrants.
2.1 Exercise in Full. Subject to the provisions hereof, the Warrants may
be exercised in full by the holder hereof by surrender of this instrument, with
the Warrant Exercise Form attached hereto duly executed by such holder, to the
Company at its principal office in Dallas County, Texas, accompanied by payment,
in cash or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock called for on the face of this instrument (without giving effect to any
adjustment therein) by the Purchase Price.
2.2 Partial Exercise. Subject to the provisions hereof, the Warrants may
be exercised in part by surrender of this instrument in the manner and at the
place provided in Subsection 2.1, except that the amount payable by the holder
upon any partial exercise shall be the amount obtained by multiplying (a) the
number of shares of Common Stock (without giving effect to any adjustment
therein) designated by the holder in the Warrant Exercise Form attached hereto
by (b) the Purchase Price. Upon any such partial exercise, the Company will
forthwith issue and deliver to the holder hereof a new Common Stock Purchase
Warrant of like tenor, in the name of the holder hereof, calling in the
aggregate on the face thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this instrument minus the number of such shares
designated by the holder in the Warrant Exercise Form attached hereto. No
fractional shares of Common Stock may be purchased upon exercise of any
Warrants.
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3. Delivery of Stock Certificates, Etc. on Exercise. As soon as practicable
after the exercise of the Warrants in full or in part, the Company will cause to
be issued in the name of and delivered to the holder hereof a certificate or
certificates for the number of fully paid and non-assessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or Other
Securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 4 hereof or otherwise.
4. Adjustment for Dividends in Other Stock, Property, Etc.;
Reclassification, Etc. In case at any time or from time to time after the
Original Issue Date the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor,
(a) other or additional stock or Other Securities or property (other
than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation, by way of
dividend), except out of earned surplus of the Company, or
(c) other or additional (or less) stock or Other Securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
then, and in each such case, the holder of the Warrants, upon the exercise
thereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and Other Securities and property (including cash in the cases referred
to in Subsections (b) and (c) of this Section 4) which such holder would hold on
the date of such exercise if on the Original Issue Date such holder had been the
holder of record of the number of shares of Common Stock called for on the face
of this instrument and had thereafter, during the period from the Original Issue
Date to and including the date of such exercise, retained such shares and all
such other or additional (or less) stock and Other Securities and property
(including cash in the cases referred to in Subsections (b) and (c) of this
Section 4) receivable by him as aforesaid during such period, giving effect to
all adjustments called for during such period by Section 5 hereof.
5. Reorganization, Consolidation, Merger, Etc. In case the Company after
the Original Issue Date shall (a) effect a reorganization, (b) consolidate with
or merge into any other person, or (c) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, the
holder of this instrument, upon the exercise of the Warrants as provided in
Section 2 hereof at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall be entitled to receive (and the Company shall be entitled to
deliver), in lieu of the Common Stock (or Other Securities) issuable upon such
exercise prior to such consummation or such effective date, the stock and Other
Securities and property (including cash) to which such holder would have been
entitled upon such consummation or in connection with such
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dissolution, as the case may be, if such holder had so exercised the Warrants
immediately prior thereto, all subject to further adjustment thereafter as
provided in Section 4 hereof.
6. Notices of Record Dates, Etc. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend payable out of
earned surplus of the Company) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any Other Securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to or consolidation or
merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder of the Warrants a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, and
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least twenty (20) days prior to the date therein
specified, unless the date so specified is officially established less than 20
days in advance of such date, in which case such notice shall be mailed not
later than three (3) business days after such date is officially established.
7. Reservation of Stock, Etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable upon the exercise of the Warrants.
8. Listing on Securities Exchanges. If, at the time any of the Warrants are
exercised, the Company's Common Stock or Other Securities then subject to such
Warrants are listed on any national securities exchange and the shares issuable
upon exercise of such Warrants have not already been so listed, the Company
will, at its expense, promptly file an application to list on such exchange,
subject to official notice of issuance, all shares of Common Stock or Other
Securities, as the case may be, from time to time issuable upon the exercise of
the Warrants, and will use its best efforts to cause such shares to be so listed
as promptly as reasonably possible. In the event such a listing application must
be filed following the exercise of any Warrants, the Company may postpone
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the issuance and delivery of the shares issuable in respect thereof until the
listing of such shares has been completed.
9. Exchange of Warrants. Subject to the provisions of Section 12 hereof,
upon surrender for exchange of this instrument, properly endorsed, to the
Company, the Company at its own expense will issue and deliver to the holder
thereof a new Common Stock Purchase Warrant of like tenor, in the name of such
holder, calling in the aggregate on the face thereof for the number of shares of
Common Stock that are subject to purchase upon exercise of the Warrants
represented by this instrument.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this instrument and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, upon surrender and
cancellation of this instrument, the Company at its expense will execute and
deliver, in lieu thereof, a new Common Stock Purchase Warrant of like tenor.
11. Warrant Agent. The Company may, by written notice to the holder of the
Warrants, appoint an agent having an office in Dallas County, Texas for the
purpose of issuing Common Stock (or Other Securities) upon the exercise of the
Warrants pursuant to Section 2 hereof, exchanging instruments representing the
Warrants pursuant to Section 9 hereof, and replacing instruments representing
the Warrants pursuant to Section 10 hereof, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
12. Restriction on Transfer, Etc. The Warrants and this instrument are
issued upon the following terms, to all of which the holder or owner hereof by
the taking hereof consents and agrees:
(a) notwithstanding any term or provision hereof to the contrary, this
instrument and the Warrants (and any instrument for which this instrument
may be exchanged or replaced) may not be transferred or assigned except by
will or pursuant to the laws of descent and distribution, and any such
transfer or assignment by will or pursuant to the laws of descent and
distribution shall be subject to the conditions set forth in Section 1
hereof; and
(b) until the Warrants are transferred on the books of the Company,
the Company may treat the registered holder of this instrument as the
absolute owner hereof and of the Warrants for all purposes, notwithstanding
any notice to the contrary.
13. Notices, Etc. All notices and other communications from the Company to
the holder of the Warrants shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder, or, until an address is so furnished, to
and at the address of the last holder of the Warrants who has so furnished an
address to the Company.
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14. Miscellaneous. This instrument and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. THIS INSTRUMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. The headings in this instrument
are for purposes of reference only and shall not limit or otherwise affect any
of the terms hereof.
Dated: May 5, 1995
CARRINGTON LABORATORIES, INC.
By:
-------------------------------------------
Carlton E. Turner, Ph.D., D.Sc.
President and Chief Executive Officer
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CARRINGTON LABORATORIES, INC.
WARRANT EXERCISE FORM
The undersigned, being the owner and holder of the attached Common Stock
Purchase Warrant, hereby exercises the right to purchase _____________ shares of
Common Stock of Carrington Laboratories, Inc., in accordance with the terms and
conditions of such Common Stock Purchase Warrant, and herewith makes payment in
full of the aggregate Purchase Price of such shares, in the amount of
$______________.
Please issue and deliver a certificate or certificates representing such
shares, registered in the name of the undersigned, to the undersigned at the
address set forth below. If the number of shares hereby purchased is not all of
the shares purchasable under the attached Common Stock Purchase Warrant, please
also issue and deliver to the undersigned, at the address set forth below, a new
Common Stock Purchase Warrant of like tenor, registered in the name of the
undersigned, covering the number of shares remaining purchasable under the
attached Common Stock Purchase Warrant.
Dated:
----------------------------------
Address: ------------------------------------
Signature
- ------------------------------------
- ------------------------------------ ------------------------------------
Type or Print Name
- ------------------------------------
- ------------------------------------ ------------------------------------
Social Security Number
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EXHIBIT 10.71
CARRINGTON, INC.
CONSULTING AGREEMENT
This Consulting Agreement is made as of May 5, 1995, by and between
Carrington, Inc., a Texas corporation (the "Company"), and Clifford T. Kalista
("Consultant").
It is agreed as follows:
1. EFFECTIVE DATE.
The effective date of this Agreement shall be May 5, 1995. It shall last
for a term of three (3) months from the effective date unless terminated
pursuant to the terms hereof.
2. EMPLOYMENT OF CONSULTANT.
Subject to the terms and conditions of this Agreement, the Company
hereby employs Consultant as an independent contractor, to consult with and
advise the Company with respect to general healthcare and managed care policies,
directions, strategies and financing alternatives.
3. PRINCIPAL DUTIES.
During the three (3) month term of this Agreement, Consultant shall at
all times use his best efforts to consult with and advise the Company with
respect to the foregoing matters. Such work shall be conducted at the facilities
of the Company, or as the parties agree.
4. COMPENSATION.
(a) As compensation for all of the services and covenants to be
performed by Consultant hereunder, the Company shall grant and issue to
Consultant a nontransferable Common Stock Purchase Warrant (the "Warrant")
entitling Consultant to purchase 20,000 shares of the Company's Common Stock at
a purchase price of $16.00 per share (being the closing price of the Company's
Common Stock on the NASDAQ on the date of this Agreement) during the period from
August 5, 1995 through May 4, 1999. The Warrant shall be substantially the same
in form and substance as the form of Common Stock Purchase Warrant attached to
this Agreement as Exhibit A.
(b) If this Agreement shall terminate prior to May 3, 1995 due to
Consultant's death, disability, or material breach of this Agreement, (i) the
number of shares of the Company's Common Stock that Consultant is entitled to
purchase pursuant to the Warrant shall be reduced to a number that bears the
same ratio to 20,000 as the number of days between and including the date of
this
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<PAGE>
Agreement and the date of termination of the Agreement bears to 91, and (ii)
Consultant shall promptly surrender the Warrant to the Company in exchange for a
new Warrant entitling him to purchase such reduced number of shares.
5. OWNERSHIP OF WORK PRODUCT.
The Company and Consultant agree that the work product of Consultant in
performance of services required by this Agreement, including, without
limitation, reports, information, data, documents, marketing plans, marketing
information, brochures, market studies and press materials, shall be the
exclusive property of the Company and shall be deemed a "work for hire." No work
product of Consultant shall be deemed to fall within any other classification
which would result in ownership rights of any description concerning such
materials vesting in Consultant. In the event any ownership rights in
Consultant's work product are deemed to vest in Consultant, Consultant hereby
assigns all such rights to the Company. Consultant agrees that any materials
produced by Consultant in the course of performing services under this Agreement
shall not be the subject of an application for copyright, perfection of
copyright or patent by or on behalf of Consultant and that Consultant shall
cooperate with the Company in any application for copyright or patent it deems
appropriate concerning any materials produced pursuant to this Agreement.
6. OTHER ACTIVITIES; CONFLICTS.
a) Consultant may engage in any other activities during the term of this
Agreement so long as such activities or services do not prevent or limit
Consultant from performing the tasks assigned hereunder in a reasonably diligent
fashion.
b) Consultant represents and agrees that:
(1) Consultant will not disclose to the Company any information which
may be deemed to be confidential or proprietary to any other party for which
Consultant may have rendered any services or otherwise obtained;
(2) Consultant is not a party to any agreement or arrangements which
prohibit Consultant from performing the services hereunder;
(3) Consultant does not believe that the services to be rendered to
the Company hereunder will conflict with any obligations which Consultant has or
may have had to any party for whom Consultant has performed services or
otherwise; and
(4) In the event that any task requested to be performed by
Consultant hereunder will result in any conflict with the representations
contained in this subparagraph (b), Consultant shall immediately so advise the
Company, in which case Consultant shall not be obligated to and shall not
perform such conflicting services.
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<PAGE>
(5) Consultant is an accredited investor as that term is defined and
used in accordance with the Federal Securities Laws and will execute and deliver
to the Company an investment letter, satisfactory in form and substance to the
Company, with respect to the Warrant and any shares of the Company's Common
Stock purchased by him upon exercise thereof.
7. TERM AND SURVIVAL.
This Agreement shall be effective as of the effective date referred to
in paragraph 1 above, and shall continue for a period of three (3) months unless
(a) Consultant dies, in which case this Agreement shall automatically terminate,
or (b) Consultant is unable, or fails or refuses, to perform services requested
of him of the Company hereunder for a period of thirty (30) days or more, in
which case the Company may terminate this Agreement by giving written notice of
termination to Consultant. The provisions of Section 4(b), 5 and 9 of this
Agreement shall survive the expiration or termination of this Agreement.
8. INDEPENDENT CONTRACTOR.
In performing services under this Agreement, Consultant shall be and act
as an independent contractor and shall be subject to the Company's direction
only as to specific areas of the Company's interests with respect to which the
Company desires the benefit of Consultant's services and advice.
9. CONFIDENTIAL INFORMATION.
Consultant shall hold any Company information (and any information of a
customer of the Company) which he obtains in the performance of this Agreement
in confidence and shall not, except as required in the conduct of the Company's
business or as authorized in advance, in writing, by the Company, publish or
disclose, or authorize anyone else to publish, disclose or make use of, any such
information unless and until such information shall have ceased to be
confidential or proprietary, as evidenced by general public knowledge through no
fault of Consultant.
10. COMMITMENTS.
Consultant agrees that Consultant will make no commitments on behalf of
the Company without specific prior written authorization by the Company.
Consultant further agrees to indemnify and hold the Company harmless from any
and all injury, loss or damage suffered by virtue of any unauthorized commitment
made by Consultant.
11. SUPERSEDES OTHER CONTRACTS.
This Agreement supersedes all prior agreements and understandings
between Consultant and the Company regarding the subject matter hereof.
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<PAGE>
12. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Texas.
13. NOTICES.
All notices required or permitted to be given by either party to the
other pursuant to this Agreement shall be in writing and shall be deemed
properly given if sent by (a) overnight courier, (b) hand delivery, (c) postage
paid certified or registered U. S. mail, return receipt requested, or (d)
telefacsimile to the addressee party at the address or telefacsimile number, as
the case may be, set forth beneath such party's signature below, or at such
other address or telefacsimile number as such party shall have theretofore
specified by written notice to the notifying party pursuant to this section.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
CARRINGTON, INC.
________________________________________ By: ________________________________
CLIFFORD T. KALISTA CARLTON E. TURNER, Ph.D., D.Sc.
PRESIDENT & CEO
2001 Walnut Hill Lane
Irving, TX 75038
Facsimile: (214) 518-1020
<PAGE>
EXHIBIT 10.72
CARRINGTON LABORATORIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement, made as of ______________, 19____, by and between
CARRINGTON LABORATORIES, INC., a Texas corporation (the "Company"), and
________________________ ______________________ ("Employee"),
W I T N E S S E T H:
WHEREAS, it has been determined (i) that Employee is eligible to receive a
nonqualified stock option under the Company's 1995 Stock Option Plan (the
"Plan"), and (ii) that such an option should be granted to Employee;
NOW, THEREFORE, the Company and Employee hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings, respectively:
(a) "Affiliate" shall have the meaning set forth in Article I, Section
1.02(a) of the Plan and shall include any party now or hereafter coming
within that definition.
(b) "Commencement Date" shall mean the date which is one (1) year from
the date of this Agreement. (By way of example, if the date of this
Agreement were January 1, 1996, the Commencement Date would be January 1,
1997.)
(c) "Common Stock" shall have the meaning set forth in Article I,
Section 1.02(e) of the Plan.
(d) "Expiration Date" shall mean the date which is ten (10) years from
and inclusive of the date of this Agreement. (By way of example, if the
date of this Agreement were January 1, 1996, the Expiration Date would be
December 31, 2005.)
2. Option. The Company hereby grants to Employee the option to purchase, on
the terms hereinafter set forth, shares of the Company's Common Stock at a price
of $_________ per share during the period beginning on the Commencement Date and
ending on the first to occur of (i) the Expiration Date or (ii) the date on
which the employment of Employee by the Company or any of its Affiliates
terminates for any reason; provided, however, that
(a) if such employment terminates on or after the Commencement Date
and on or before the Expiration Date, other than by reason of Employee's
retirement, death or
<PAGE>
disability, then Employee may exercise this option, to the extent he was
entitled to do so at the date of such termination of employment, at any
time within thirty (30) days after the date of such termination but not
after the Expiration Date; or
(b) if such employment terminates on or after the Commencement Date
and on or before the Expiration Date by reason of Employee's becoming
permanently and totally disabled (within the meaning of Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended), or by reason of amended),
or by reason of Employee's death, then Employee (or Employee's legal
representative, if Employee is legally incompetent), the executor or
administrator of Employee's estate or anyone who shall have acquired this
option by will or pursuant to the laws of descent and distribution may
exercise this option, to the extent Employee was entitled to do so at the
date of such termination, at any time within one (1) year after such
termination but not after the Expiration Date; or
(c) if such employment terminates on or after the Commencement Date
and on or before the Expiration Date by reason of Employee's retirement,
Employee may exercise this option, to the extent he was entitled to do so
at the date of such retirement, at any time within three (3) years after
the date of such retirement; provided, however, that if Employee shall die
within such three-year period, then the executor or administrator of
Employee's estate or anyone who shall have acquired this option by will or
pursuant to the laws of descent and distribution may exercise this option,
to the extent Employee was entitled to do so at the date of his death, at
any time within the first to expire of (i) two (2) years after the date of
his death or (ii) three (3) years after the date of his retirement, but not
after the Expiration Date in any event.
Notwithstanding anything to the contrary herein, this option shall
terminate immediately upon the termination of Employee's employment on account
of fraud, dishonesty or the performance of other acts detrimental to the Company
or an Affiliate, or if, following the date of termination of Employee's
employment, the Company determines that there is good cause to cancel this
option. A transfer of employment among the Company and any of its Affiliates
without interruption of service shall not be considered a termination of
employment for purposes of this Agreement.
The Stock Option Committee that administers the Plan shall have the
authority to make, in its sole discretion, any and all determinations that are
required to be made in connection with this Agreement regarding the reasons for
or circumstances of the termination of Employee's employment with the Company or
any Affiliate, including but not limited to the determinations of (1) whether
Employee's employment by the Company or any of its Affiliates terminated by
reason of Employee's retirement, death or disability or on account of fraud,
dishonesty or the performance of other acts detrimental to the Company or
whether there is good cause to cancel this option, and (2) what criteria or
requirements, if any, should be applied in making the determinations described
in clause (1) of this sentence.
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3. Exercise During Employment. Except as provided in Section 2 hereof, this
option may not be exercised unless Employee is at the time of exercise an
employee of the Company or an Affiliate.
4. Exercisability. Subject to the provisions of Sections 2 and 3 hereof,
this option may be exercised during the period beginning on the Commencement
Date and ending on the Expiration Date in accordance with the following
schedule:
(a) that number of whole shares of Common Stock which equals or most
closely approximates (but does not exceed) 25% of the total number of
shares covered by this option may be purchased in whole at any time, or in
part from time to time, on or after the Commencement Date;
(b) an additional number of whole shares of Common Stock which equals
or most closely approximates (but does not exceed) 25% of the total number
of shares covered by this option may be purchased in whole at any time, or
in part from time to time, on or after the date which is two (2) years from
and inclusive of the date of this Agreement;
(c) an additional number of whole shares of Common Stock which equals
or most closely approximates (but does not exceed) 25% of the total number
of shares covered by this option may be purchased in whole at any time, or
in part from time to time, on or after the date which is three (3) years
from and inclusive of the date of this Agreement; and
(d) all remaining shares of Common Stock covered by this option may be
purchased in whole at any time, or in part from time to time, on or after
the date which is four (4) years from and inclusive of the date of this
Agreement.
Notwithstanding any contrary indication in this Agreement, (i) no fractional
shares of Common Stock may be purchased upon exercise of this option, and (ii)
upon the occurrence of a Change in Control (as defined in the Plan) prior to the
termination of this option, this option shall immediately and automatically
become exercisable with respect to all of the shares of Common Stock, if any, as
to which it was not already exercisable, and this provision shall be applicable
regardless of whether such Change in Control occurs before or after the
Commencement Date; provided, however, that this provision shall not be
interpreted to increase the number of shares of Common Stock for which this
option may be exercised by Employee if his employment by the Company or any of
its Affiliates shall have terminated prior to the occurrence of such Change in
Control.
5. Manner of Exercise. This option may be exercised by written notice
signed by the person entitled to exercise the same and delivered to the
President of the Company or sent by United States registered mail addressed to
the Company (for the attention of the President) at its corporate office in
Irving, Texas. Such notice shall state the number of shares of Common Stock
- 3 -
<PAGE>
as to which this option is exercised and shall be accompanied by payment of the
full purchase price of such shares, plus the amount of any federal, state or
local taxes required by law to be paid or withheld in connection with such
exercise.
6. Payment. The purchase price for shares of Common Stock purchased upon
exercise of this option shall be paid in cash or by check in United States
dollars.
7. Delivery of Shares. Delivery of the certificate or certificates
representing the shares of Common Stock purchased upon exercise of this option
shall be made promptly after the Company's receipt of notice of exercise and
payment. If the Company so elects, its obligation to deliver shares of Common
Stock upon the exercise of this option shall be conditioned upon its receipt
from the person exercising this option of any additional documents that, in the
opinion of the Company and its legal counsel are required in order to comply
with any applicable law.
8. Adjustments. In the event that, before delivery by the Company of all
the shares of Common Stock in respect of which this option is granted, the
Company shall have effected a Common Stock split or a dividend payable in Common
Stock, or the outstanding Common Stock of the Company shall have been combined
into a smaller number of shares, the shares of Common Stock still subject to
this option shall be increased or decreased to reflect proportionately the
increase or decrease in the number of shares outstanding, and the purchase price
per share shall be decreased or increased to make the aggregate purchase price
for all the shares then subject to this option the same as immediately prior to
such stock split, stock dividend or combination. In the event of a
reclassification of the shares of Common Stock not covered by the foregoing, or
in the event of a liquidation or reorganization (including a merger,
consolidation or sale of assets) of the Company, the Board of Directors of the
Company shall make such adjustments, if any, as it may deem appropriate in the
number, purchase price and kind of shares still subject to this option.
9. Transferability. This option is not transferable otherwise than by will
or the laws of descent and distribution, and during the lifetime of Employee
this option is exercisable only by Employee or, if Employee is legally
incompetent, by Employee's legal representative.
10. Employment. Nothing in this Agreement confers upon Employee any right
to continue in the employ of the Company or any Affiliate, nor shall this
Agreement interfere in any manner with the right of the Company or any Affiliate
to terminate the employment of Employee with or without cause at any time.
11. Option Subject to Plan. By execution of this Agreement, Employee agrees
that this option and the shares of Common Stock to be received upon exercise
hereof shall be governed by and subject to all applicable provisions of the
Plan.
12. Construction. This option shall not be treated as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended. This
Agreement is governed by,
- 4 -
<PAGE>
and shall be construed and enforced in accordance with, the laws of the State of
Texas. Words of any gender used in this Agreement shall be construed to include
any other gender, unless the context requires otherwise. The headings of the
various sections of this Agreement are intended for convenience of reference
only and shall not be used in construing the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:____________________________________
Carlton E. Turner, Ph.D., President
_______________________________________
Signature of Employee
_______________________________________
(Type or print name of Employee)
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<PAGE>
RECORD OF EXERCISE
DATE NO. OF SHARES EXERCISED INITIAL/AGREED
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_______________ ___________________________ _________________
_______________ ___________________________ _________________
_______________ ___________________________ _________________
_______________ ___________________________ _________________
_______________ ___________________________ _________________
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<PAGE>
EXHIBIT 10.73
CARRINGTON LABORATORIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
WITH NONEMPLOYEE DIRECTOR
This Agreement, made as of ______________, 19__, by and between CARRINGTON
LABORATORIES, INC., a Texas corporation (the "Company"), and
________________________________________________ ("Director"),
W I T N E S S E T H:
WHEREAS, the Company's 1995 Stock Option Plan (the "Plan") provides that a
four-year, nonqualified stock option to purchase 2,500 shares of the Company's
Common Stock shall be granted automatically, on the date of each annual meeting
of shareholders of the Company, to each person who (i) is a nonemployee director
of the Company on the date of such grant and immediately following such annual
meeting and (ii) has served in that capacity for at least six months immediately
preceding the date of such grant; and
WHEREAS, the annual meeting of shareholders of the Company for the current
calendar year was held on the date of this Agreement, and Director satisfies the
conditions described in clauses (i) and (ii) of the immediately preceding
paragraph and is willing to accept the option that he is entitled to receive
under the Plan on the date of this Agreement;
NOW, THEREFORE, the Company and Director hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings, respectively:
(a) "Affiliate" shall have the meaning set forth in Article I, Section
1.02(a) of the Plan and shall include any party now or hereafter coming
within that definition.
(b) "Board" means the Board of Directors of the Company.
(c) "Commencement Date" shall mean the date of this Agreement.
(d) "Common Stock" shall have the meaning set forth in Article I,
Section 1.02(e) of the Plan.
(e) "Expiration Date" shall mean the date which is four (4) years from
and inclusive of the date of this Agreement. (By way of example, if the
date of this Agreement were January 1, 1996, the Expiration Date would be
December 31, 1999.)
2. Option. The Company hereby grants to Director the option to purchase, on
the terms hereinafter set forth, 2,500 shares of the Company's Common Stock at a
price of $_______ per share during the period beginning on the Commencement Date
and ending on the Expiration Date. Except as otherwise provided herein, this
option shall remain effective during its entire
<PAGE>
term, regardless of whether the Director continues to serve as a director of the
Company. In the event of Director's death on or before the Expiration Date, the
executor or administrator of Director's estate or anyone who shall have acquired
this option by will or pursuant to the laws of descent and distribution may
exercise this option at any time on or before the Expiration Date, to the extent
Director was entitled to do so at the time of his death. Notwithstanding
anything to the contrary herein, this option shall terminate immediately on the
termination of Director's Board membership if he ceases to serve on the Board by
reason of his (a) fraud or intentional misrepresentation, or (b) embezzlement,
misappropriation or conversion of assets or opportunities of the Company or any
Affiliate.
The Stock Option Committee that administers the Plan shall have the
authority to make, in its sole discretion, any and all determinations that are
required to be made in connection with this Agreement regarding the reasons for
or circumstances of Director's ceasing to serve on the Board, including but not
limited to the determinations of (1) whether Director ceased to serve on the
Board for any of the reasons set forth in clause (a) or clause (b) of the
immediately preceding paragraph and (2) what criteria or requirements, if any,
should be applied in making the determinations described in clause (1) of this
sentence.
3. Exercisability. Subject to the provisions of Section 2 hereof, this
option may be exercised in whole at any time, or in part from time to time,
during the period beginning on the Commencement Date and ending on the
Expiration Date. Notwithstanding any contrary indication in this Agreement, no
fractional shares of Common Stock may be purchased upon exercise of this option.
4. Manner of Exercise. This option may be exercised by written notice
signed by the person entitled to exercise the same and delivered to the
President of the Company or sent by United States registered mail addressed to
the Company (for the attention of the President) at its corporate office in
Irving, Texas. Such notice shall state the number of shares of Common Stock as
to which this option is exercised and shall be accompanied by payment of the
full purchase price of such shares, plus the amount of any federal, state or
local taxes required by law to be paid or withheld in connection with such
exercise.
5. Payment. The purchase price for shares of Common Stock purchased upon
exercise of this option shall be paid in cash or by check in United States
dollars.
6. Delivery of Shares. Delivery of the certificate or certificates
representing the shares of Common Stock purchased upon exercise of this option
shall be made promptly after the Company's receipt of notice of exercise and
payment. If the Company so elects, its obligation to deliver shares of Common
Stock upon the exercise of this option shall be conditioned upon its receipt
from the person exercising this option of any additional documents that, in the
opinion of the Company and its legal counsel, are required in order to comply
with any applicable law.
7. Adjustments. In the event that, before delivery by the Company of all
the shares of Common Stock in respect of which this option is granted, the
Company shall have effected a Common Stock split or a dividend payable in Common
Stock, or the outstanding Common Stock
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<PAGE>
of the Company shall have been combined into a smaller number of shares, the
shares of Common Stock still subject to this option shall be increased or
decreased to reflect proportionately the increase or decrease in the number of
shares outstanding, and the purchase price per share shall be decreased or
increased to make the aggregate purchase price for all the shares then subject
to this option the same as immediately prior to such stock split, stock dividend
or combination. In the event of a reclassification of the shares of Common Stock
not covered by the foregoing, or in the event of a liquidation or reorganization
(including a merger, consolidation or sale of assets) of the Company, the Board
shall make such adjustments, if any, as it may deem appropriate in the number,
purchase price and kind of shares still subject to this option.
8. Transferability. This option is not transferable otherwise than by will
or the laws of descent and distribution, and during the lifetime of Director
this option is exercisable only by Director or, if Director is legally
incompetent, by Director's legal representative.
9. Board Membership. Nothing in this Agreement confers upon Director any
right to continue to serve as a director of the Company, nor shall this
Agreement interfere in any manner with the right of the Company's shareholders
to terminate Director's position as a director of the Company with or without
cause at any time.
10. Option Subject to Plan. By execution of this Agreement, Director agrees
that this option and the shares of Common Stock to be received upon exercise
hereof shall be governed by and subject to all applicable provisions of the
Plan.
11. Construction. This option shall not be treated as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended. This
Agreement is governed by, and shall be construed and enforced in accordance
with, the laws of the State of Texas. Words of any gender used in this Agreement
shall be construed to include any other gender, unless the context requires
otherwise. The headings of the various sections of this Agreement are intended
for convenience of reference only and shall not be used in construing the terms
hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:____________________________________
Carlton E. Turner, Ph.D., President
_________________________________
Signature of Director
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<PAGE>
RECORD OF EXERCISE
<TABLE>
<CAPTION>
DATE NO. OF SHARES EXERCISED INITIAL/AGREED
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<S> <C> <C>
- ----------------------- ---------------------------------- ---------------
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- ----------------------- ---------------------------------- ---------------
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</TABLE>
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<PAGE>
EXHIBIT 10.76
SUPPLY and DISTRIBUTION AGREEMENT
by and between
FARNAM COMPANIES, INC.
and
CARRINGTON LABORATORIES, INC.
This "Supply and Distribution Agreement" (hereinafter "AGREEMENT") executed
on the ________ day of March, 1996, by and between FARNAM COMPANIES, INC.
(hereinafter "FARNAM"), an Arizona corporation with its principal place of
business at 301 West Osborn Road, Phoenix, Arizona 85013, and CARRINGTON
LABORATORIES, INC. (hereinafter "CARRINGTON"), a Texas corporation with its
principal place of business at 2001 Walnut Hill Lane, Irving, Texas 75038,
WITNESSETH:
WHEREAS, CARRINGTON has developed an injectable acemannan immunostimulant
product and various other aloe-based treatment cleansing and management products
which, along with any and all improvements thereto, shall hereinafter be known
as the "PRODUCTS"; said PRODUCTS being further described in Exhibit A attached
hereto, which is subject to change from time to time as improvements occur; and
WHEREAS, CARRINGTON has submitted for and received the necessary
approval(s) and/or license(s), specifically U.S. Vet. Lic. 384 issued by the
United States Department of Agriculture (hereinafter "U.S.D.A."), for the
manufacture, sale and distribution of the PRODUCTS, or any of them; and
WHEREAS, CARRINGTON desires to manufacture, and FARNAM desires to have
CARRINGTON manufacture for it, quantities of said PRODUCTS as per the terms and
conditions of this AGREEMENT.
NOW, THEREFORE, in consideration of the provisions, covenants, and mutual
undertakings of the parties as provided herein, the parties do hereby agree as
follows:
1. Grant of Exclusive Rights to Market, Sell, and Distribute.
(a) During the term of this AGREEMENT and any renewal(s) hereof, and
according to the terms and conditions set forth herein, CARRINGTON grants to
FARNAM the exclusive rights (exclusive even as to CARRINGTON) to market, sell,
and distribute the PRODUCTS in and through the over-the-
1
<PAGE>
counter (OTC) and ethical (i.e. veterinary) channels of distribution within the
animal health market for/within the United States and Canada. In the event
CARRINGTON possesses existing inventory of the PRODUCTS and desires to sell such
inventory within its usual channels of distribution, then FARNAM's rights, as
granted hereunder, shall be co-exclusive with CARRINGTON until such time, but in
any event not to exceed a six (6) month period of time, as CARRINGTON's existing
inventory of PRODUCTS is depleted.
(b) During the term of this AGREEMENT and any renewal(s) hereof, and
according to the terms and conditions set forth herein, CARRINGTON agrees to
grant to FARNAM the exclusive rights (exclusive even as to CARRINGTON) to
market, sell, and distribute the PRODUCTS in and through the over-the-counter
(OTC) and ethical (i.e. veterinary) channels of distribution within the animal
health market for/within international markets outside of the United States
and/or Canada as the parties later mutually agree. Any such international
markets shall be delineated in Exhibit B, attached hereto, said Exhibit B shall,
from time to time, be subject to revision and/or replacement in accordance with
this AGREEMENT.
2. Grant of Exclusive Rights - Trademarks.
(a) CARRINGTON grants to FARNAM, for the term of this AGREEMENT and any
renewal(s) hereof, the exclusive rights to use CARRINGTON's "CarraVet(TM)"
trademark/trade name, along with any and all associated trade dress, in
connection with FARNAM's marketing, selling, and distributing the PRODUCTS
hereunder. All labels, packaging, advertising and promotional material used by
FARNAM in connection with the PRODUCTS FARNAM markets, sells, and distributes
hereunder which bear CARRINGTON's "CarraVet(TM)" mark shall also bear the
following legend:
CarraVet(TM) is a trademark of Carrington Laboratories, Inc.
FARNAM shall not use CARRINGTON's "CarraVet(TM)" mark except as
specifically set forth herein. Without limiting the generality of the preceding
sentence, FARNAM shall not use CARRINGTON's "CarraVet(TM)" mark in connection
with the sale or advertising of any products other than the PRODUCTS.
At CARRINGTON's request and expense, FARNAM shall take whatever action is
reasonably necessary to assist CARRINGTON or its assigns in registering
CARRINGTON's "CarraVet(TM)" mark with the U.S. Patent and Trademark Office
(hereinafter "PTO"). FARNAM understands that
2
<PAGE>
CARRINGTON or its assigns may rely solely upon FARNAM's use of CARRINGTON's
"CarraVet(TM)" mark to obtain or maintain registration with the PTO.
Upon the termination of this AGREEMENT, FARNAM will cease and desist from
all use of CARRINGTON's "CarraVet(TM)" trademark/trade name, along with any and
all associated trade dress, in any manner and will not adopt or use, without
CARRINGTON's prior written consent, any word or mark which is confusingly or
deceptively similar to CARRINGTON's "CarraVet(TM)" mark, except that FARNAM may
continue to use CARRINGTON's "CarraVet(TM)" mark under the terms and conditions
of this AGREEMENT in connection with any remaining inventory of the PRODUCTS
until such inventory is exhausted.
(b) The foregoing notwithstanding, FARNAM may desire to use FARNAM's own
trademarks, trade names, and/or trade dress on or in connection with the
PRODUCTS it markets, sells, and distributes hereunder; and shall do so at
FARNAM's sole discretion.
3. Ownership of Formulations and Registrations. It is understood between the
parties that the PRODUCTS, the PRODUCTS' formulations, licenses/registrations
(except those licenses/registrations obtained by FARNAM pursuant to paragraph
11(b) hereunder), specifications, and any and all other data directly related to
the PRODUCTS, which was produced by or on behalf of CARRINGTON, shall be, and
remain, the sole and exclusive responsibility and property of CARRINGTON.
4. Manufacture of the PRODUCTS.
(a) During the term of this AGREEMENT and any renewal(s) hereof, and
according to the terms and conditions set forth herein, CARRINGTON agrees to
manufacture for FARNAM and FARNAM agrees to have CARRINGTON manufacture for it,
the PRODUCTS in strict accordance/compliance with the PRODUCTS' approval(s)
and/or license(s) and the PRODUCTS' labeled formulation/specifications as
delineated in Exhibit A, attached hereto.
(b) Within thirty (30) days of the execution of this AGREEMENT, FARNAM
shall supply to CARRINGTON the appropriate camera-ready art, if necessary, for
the PRODUCTS' labeling and packaging materials (i.e. cartons, inserts,
shippers). Notwithstanding the foregoing, FARNAM shall submit to CARRINGTON, for
CARRINGTON's advance written approval, draft samples of all labeling, packaging,
3
<PAGE>
advertising, and promotional material for the PRODUCTS; said approval shall
occur within ten (10) days of CARRINGTON's receipt of same and shall not be
unreasonably withheld.
(c) CARRINGTON shall furnish to FARNAM, for FARNAM's advance written
approval, samples of all final, ready for reproduction labeling and packaging
for the PRODUCTS.
(d) CARRINGTON shall supply the PRODUCTS as "finished goods" to FARNAM in
the form of finished goods, ready for resale. "Finished goods" shall consist of
the ready-for-resale PRODUCTS, including labels, product containers, cartons,
inserts, shippers, final containers, and all labor required to produce and
supply such. The finished goods product configurations for the PRODUCTS are
delineated in Exhibit C, attached hereto.
5. Pricing Terms.
(a) CARRINGTON shall provide the PRODUCTS (as specified in paragraph 4
hereinabove) to FARNAM in accordance with the pricing and minimum production
runs delineated in Exhibit D, attached hereto, freight-on-board (F.O.B.)
CARRINGTON's distribution facility.
(b) CARRINGTON may, beginning January 1, 1997 and no more than once per
calendar year thereafter, increase the price of the PRODUCTS, as delineated in
Exhibit D, by an amount not to exceed any increased costs of labor, raw
materials, and/or packaging since the first production run under this AGREEMENT,
and only to the extent that it is necessary for CARRINGTON to maintain
CARRINGTON's percentage gross margin at the level at which it was during the
first production run under this AGREEMENT, provided that FARNAM receives from
CARRINGTON a one hundred twenty (120) day advance written notice of such a price
increase before said price increase shall become effective, and further provided
that FARNAM does not exercise its right to terminate this AGREEMENT in
accordance with paragraph 5(c) hereinbelow.
Any and all PRODUCT(S) purchase orders made by FARNAM and received by
CARRINGTON prior to the date said written notice of such a price increase is
received by FARNAM shall be filled and paid for at the price existing prior to
said increase.
Any and all PRODUCT(S) purchase orders made by FARNAM and received by
CARRINGTON after the effective date of such a price increase pursuant to this
paragraph 5 shall be filled and paid for at the increased price.
4
<PAGE>
Any and all PRODUCT(S) purchase orders made by FARNAM and received by
CARRINGTON after said written notice of such a price increase is received by
FARNAM but before the effective date of said price increase pursuant to this
paragraph 5 shall be filled and paid for at the price existing prior to said
increase, provided that said order(s) are not significantly different in
quantity or timing from those of FARNAM's previous ordering history hereunder.
(c) FARNAM shall have the option to terminate this AGREEMENT effective upon
the date such a price increase is to take effect as provided in paragraph 5(b)
herein, provided that CARRINGTON receives from FARNAM written notice of FARNAM's
intent to so terminate at least ninety (90) days prior to the date such price
increase is to take effect as provided in paragraph 5(b) herein.
Both parties hereto agree that in the event of any conflict between the terms of
FARNAM's purchase order or CARRINGTON's acknowledgment or any other document,
and this AGREEMENT, the terms of this AGREEMENT shall govern.
6. Pricing in Effect for Calendar Year 1998. During calendar year 1998
(January 1, 1998 through December 31, 1998) and only for calendar year 1998,
CARRINGTON may, no more than once during the period, increase the current price
of the PRODUCTS to a price(s) which, in the opinion of CARRINGTON and FARNAM,
is/are based upon animal health market indicators and which the "market will
bear"; provided, however, that any such increase shall not be more than fifteen
percent (15%) of the existing price of the PRODUCTS, or any of them. All
provisions of paragraph 5, except that provision which determines the amount by
which pricing may be increased, shall remain in effect during calendar year
1998, specifically including the provisions of paragraph 5(c). Pricing for
calendar year 1999, and any and all calendar years thereafter during which this
AGREEMENT is in effect, shall be in conformance with paragraph 5.
7. Payment Terms. Payment terms shall be 1% fifteen (15) net thirty (30) days
from the date of invoice (i.e. 1% discount if paid within fifteen (15) days,
otherwise net amount due within thirty (30) days from the date of invoice).
5
<PAGE>
8. Title and Risk of Loss. Title and risk of loss for the goods supplied under
this AGREEMENT shall transfer from CARRINGTON to FARNAM upon CARRINGTON's
placement of the goods with a FARNAM designated carrier. In the event of any
conflict between the terms of FARNAM's purchase order or CARRINGTON's
acknowledgment or any other document, and this AGREEMENT, the terms of this
AGREEMENT shall govern.
9. Sales Forecasts and Purchase Orders. FARNAM shall, on a quarterly basis,
furnish to CARRINGTON a twelve (12) month rolling forecast of PRODUCT(S)
purchases/orders, with the first three (3) month period of said forecast serving
as a commitment by FARNAM which will be confirmed by FARNAM's written purchase
order(s). CARRINGTON shall acknowledge in writing all FARNAM purchase orders for
the PRODUCTS within fifteen (15) days of CARRINGTON's receipt of said purchase
orders, at which time any discrepancies and/or deficiencies in the purchase
order pricing shall be brought to FARNAM's attention by CARRINGTON. FARNAM
purchase orders for the PRODUCTS which are not acknowledged by CARRINGTON within
said fifteen (15) days shall be deemed accepted by CARRINGTON as written. Both
parties hereto agree that in the event of any conflict between the terms of
FARNAM's purchase order or CARRINGTON's acknowledgment or any other document,
and this AGREEMENT, the terms of this AGREEMENT shall govern.
10. Annual Minimum Purchase Amount. Beginning January 1, 1997, and for each
calendar year thereafter, in the event FARNAM's cumulative purchases per
calendar year of the PRODUCTS fail to reach the dollar amounts delineated in
Exhibit E, attached hereto, then CARRINGTON, at its sole and exclusive
discretion, and as its sole and exclusive remedy, may terminate the exclusivity
of FARNAM's rights to market, sell, and distribute the PRODUCTS. In the event
CARRINGTON exercises its right to terminate FARNAM's exclusive rights to market,
sell, and distribute the PRODUCTS, FARNAM's rights to market, sell, and
distribute the PRODUCTS shall be maintained, but on a non-exclusive basis for
the remaining term of this AGREEMENT and any renewal(s) hereof.
Beginning with the execution hereof and continuing through December 31,
1996, CARRINGTON and FARNAM each agree that FARNAM shall in no way be obligated
to purchase a minimum dollar amount of PRODUCTS and that the conditions and
provisions of this paragraph 10 are inapplicable during this period.
6
<PAGE>
11. PRODUCTS State and Federal Registrations.
(a) CARRINGTON shall be responsible for obtaining and/or maintaining any
and all federal registrations, approvals, licensures, etc. as may be required or
necessary for the lawful manufacture, marketing, sale, and distribution of the
PRODUCTS including, but not limited to, any and all interaction with the
U.S.D.A. and the United States Food and Drug Administration (hereinafter
"F.D.A.").
(b) CARRINGTON agrees to allow and/or authorize FARNAM to license/register,
or have licensed/registered for it, the PRODUCTS at the state/province level
with each and any of the United States and Canada, and at the
state/province/other political sub-division level of any and all international
countries/markets to which FARNAM has been granted rights pursuant to paragraph
1(b) herein. To this end, CARRINGTON agrees to fully cooperate with FARNAM in
any and all manner whatsoever, including, but not limited to, executing, filing,
and/or authorizing FARNAM to cite to any and all papers, documents, data, and/or
support materials and performing such other proper acts as may be deemed
necessary, in order to secure to FARNAM said licenses/registrations.
12. Right of First Refusal. During the term of this AGREEMENT and any
renewal(s) hereof, should CARRINGTON develop any new product formulations
intended for use in the animal health market, CARRINGTON agrees that CARRINGTON
shall forthwith grant to FARNAM, by written notice, a period of sixty (60) days
within which to evaluate the new product(s) and potentially negotiate and enter
into an agreement with CARRINGTON for rights to market, sell, and distribute
said new product(s). Should FARNAM then desire to market, sell, and distribute
said new product(s), CARRINGTON and FARNAM agree to negotiate in good faith and
with all good intentions in attempting to enter into an agreement for such
rights, said agreement to be reasonable upon all terms and conditions.
13. CARRINGTON's Representations and Warranties. CARRINGTON represents and
warrants to FARNAM that:
(a) the PRODUCTS supplied to FARNAM hereunder are manufactured in
accordance with the PRODUCTS' approval(s) and/or license(s), including without
limitation U.S. Vet. Lic. 384, and the PRODUCTS' labeled
formulation/specifications as provided in Exhibit A, attached hereto.
Furthermore, CARRINGTON shall test each lot of the PRODUCTS in order to ensure
that said lot meets said specifications, and CARRINGTON shall keep and maintain
a record of said test results; and
7
<PAGE>
(b) the PRODUCTS supplied to FARNAM hereunder have a minimum shelf life of
not less than two (2) years from the date of manufacture and CARRINGTON shall
not ship PRODUCTS to FARNAM with a remaining shelf life of less than twenty (20)
months; and
(c) the PRODUCTS supplied to FARNAM hereunder are quality goods and are fit
for the uses specified on the PRODUCTS' labels; and
(d) the PRODUCTS supplied to FARNAM hereunder are manufactured in
accordance with, and are otherwise in full compliance (in all material respects)
with, current Good Manufacturing Practices and any and all other laws, rules,
regulations, and licenses, state and/or federal, which may be applicable; and
(e) the manufacture, distribution, and/or sale of the PRODUCTS does not
infringe upon any patent, trade secret, or other proprietary right of any third
party; and
(f) the marketing, distribution, and/or sale of the PRODUCTS by FARNAM does
not, to the best of CARRINGTON's knowledge, reasonable investigation having been
made, violate any laws, rules, or regulations, state and/or federal, which may
be applicable including, without limitation, those laws, rules and/or
regulations of the U.S.D.A. and/or the F.D.A.; and
(g) all labels and advertising relating to the PRODUCTS comply with all
applicable rules and regulations of the U.S.D.A. and/or the F.D.A. and all other
applicable laws, rules and regulations, including but not limited to F.D.A.
requirements relating to product ingredients. Information regarding the
ingredients of the PRODUCTS shall be furnished by CARRINGTON to FARNAM from time
to time, and when furnished, shall be incorporated in Exhibit A, attached
hereto; and
(h) all information relating to the PRODUCTS in verbal or written form
provided to FARNAM by CARRINGTON prior to execution of this AGREEMENT and during
this AGREEMENT is truthful and accurate. No significant facts which may relate
to the salability of the PRODUCTS have been withheld or omitted by CARRINGTON;
and
(i) CARRINGTON acknowledges that it is subject to scrutiny from federal,
state and local authorities in the day-to-day operations of its business, and
represents that it is not presently the subject of any governmental
investigations, or demands regarding, inter alia, the proper and lawful disposal
of waste. CARRINGTON warrants to the best of its knowledge, reasonable inquiry
having been made, that it is complying and will continue to comply with all
federal, state and local laws, including those respecting,
8
<PAGE>
inter alia, the proper disposal of waste materials and other laws governing the
proper and lawful handling of chemicals, medical devices, etc.
It is further understood by both parties that FARNAM is and will be relying upon
these representations and warranties, the inaccuracy or incompleteness of any of
which shall be a material breach of this AGREEMENT.
14. FARNAM's Representations and Warranties. FARNAM represents and warrants to
CARRINGTON that:
(a) FARNAM will maintain a sufficient inventory of the PRODUCTS to assure
an adequate supply of PRODUCTS to serve the market segments granted to it in
paragraph 1 hereunder; and
(b) FARNAM's advertising, marketing, and distributor policies do not, to
the best of FARNAM's knowledge, reasonable investigation having been made,
violate any laws, rules or regulations, state and/or federal, which may be
applicable including, without limitation, those laws, rules and/or regulations
of the U.S.D.A. and/or the F.D.A.; and
(c) FARNAM will not make, or permit any of its employees, agents or
representatives to make, any claims of any properties or results relating to the
PRODUCTS, unless such have received written approval from CARRINGTON and from
the applicable governmental authority; and
(d) FARNAM will not use any label, advertisement or promotional material on
or with respect to or relating to the PRODUCTS unless such label, advertisement
or promotional material has first been submitted to and approved by CARRINGTON
in accordance with paragraph 4(b) herein; and
(e) FARNAM will actively and aggressively promote the sale of the PRODUCTS
to all customers and potential customers within the market segments granted to
it in paragraph 1 hereunder; and
(f) FARNAM will take all steps reasonably necessary to ensure that its
distributors and any other parties to whom it sells any of the PRODUCTS for
resale do not relabel, repackage, advertise, sell or attempt to sell the
PRODUCTS in a manner that would violate this AGREEMENT if done by FARNAM; and
(g) FARNAM acknowledges that it is subject to scrutiny from federal, state
and local authorities in the day-to-day operations of its business, and
represents that it is not presently the subject
9
<PAGE>
of any governmental investigations, or demands regarding, inter alia, the proper
and lawful disposal of waste. FARNAM warrants to the best of its knowledge,
reasonable inquiry having been made, that it is complying and will continue to
comply with all federal, state and local laws, including those respecting, inter
alia, the proper disposal of waste materials and other laws governing the proper
and lawful handling of chemicals, medical devices, etc.
It is further understood by both parties that CARRINGTON is and will be relying
upon these representations and warranties, the inaccuracy or incompleteness of
any of which shall be a material breach of this AGREEMENT.
15. Return of Outdated/Nonconforming PRODUCTS. CARRINGTON agrees to accept for
return and replacement, if appropriate under the circumstances, or, if
inappropriate under the circumstances, for return and credit, any PRODUCTS which
are out-of-date (e.g. the shelf life date of the PRODUCT(S) has expired) by one
hundred twenty (120) days or less or any PRODUCTS that do not conform to any of
CARRINGTON's representations or warranties specified herein, with all costs and
expenses involved in the return shipping and/or disposal of any such
nonconforming PRODUCTS to be borne by CARRINGTON. Any such replacement PRODUCTS
shall be invoiced and paid for at the same price as that which was in effect for
the non-conforming and returned PRODUCTS. CARRINGTON shall not be responsible
for outdated PRODUCT(S) which are returned to FARNAM and which are more than one
hundred twenty (120) days out-of-date (e.g. the shelf life date of the
PRODUCT(S) has been expired for more than one hundred twenty (120) days).
16. Recall. In the event of a recall of any of the PRODUCTS, due to CARRINGTON's
breach of any of its representations or warranties specified herein or due to
CARRINGTON's negligence or due to any other act or omission of CARRINGTON or due
to federal or state agency action, CARRINGTON shall bear all costs and expenses
associated with said recall including, but not limited to, all printing,
postage, and labor involved with the announcement of said recall, and all
freight and postage expense for the return of the PRODUCTS. If replacement of
the recalled-PRODUCT(S) is appropriate and permitted for under the recall, then
CARRINGTON may replace the recalled-PRODUCT(S) with like PRODUCT(S) not subject
to the recall. If replacement of the recalled-PRODUCT(S) is not appropriate or
is not allowed for under the
10
<PAGE>
recall, then CARRINGTON shall issue a credit to FARNAM for the
"recalled-PRODUCT(S) holder's" purchase price of the PRODUCTS involved in the
recall.
In the event of a recall of any of the PRODUCTS, due to FARNAM's negligence
or due to any other act or omission of FARNAM, FARNAM shall bear all costs and
expenses associated with said recall including, but not limited to, all
printing, postage, and labor involved with the announcement of said recall, and
all freight and postage expense for the return of the PRODUCTS.
17. Indemnification by CARRINGTON. CARRINGTON hereby indemnifies and holds
FARNAM, its divisions, parent company, subsidiaries, affiliates, agents,
employees, successors, and assigns forever harmless from and against any and all
liability, actions, claims, losses, costs, damages, fines, penalties, and
expenses (including, but not limited to, reasonable and necessary investigation
and attorneys fees), threatened and/or incurred, by reason of or arising out of
CARRINGTON's manufacture of the PRODUCTS, or any person or entity's purchase,
use, or attempted use of the PRODUCTS, or any third party's claim of
infringement of any patent, trade secret, or any other proprietary right
regarding the PRODUCTS, or CARRINGTON's breach of any of its representations,
warranties, or obligations specified herein, or CARRINGTON's negligence or other
act or omission, unless such is substantially due to FARNAM's negligence or the
use of FARNAM's trademark(s) or trade dress for/on the PRODUCTS.
Furthermore, CARRINGTON agrees to immediately assume the handling,
adjustment, and defense of any claim, allegation, petition, suit, or action
covered by this paragraph 17; and FARNAM, without waiving any of its rights
under this paragraph or this AGREEMENT, specifically reserves the right to
participate, at its own expense, in the handling, adjustment, and defense of any
such claim, allegation, petition, suit, or action.
CARRINGTON agrees to maintain, at its own expense, product liability
insurance in the amount of at least Three Million Dollars ($3,000,000.00).
CARRINGTON shall provide FARNAM with appropriate documentation evidencing such.
18. Indemnification by FARNAM. FARNAM hereby indemnifies and holds CARRINGTON,
its divisions, parent company, subsidiaries, affiliates, agents, employees,
successors, and assigns forever harmless from and against any and all liability,
actions, claims, losses, costs, damages, fines, penalties, and expenses
(including, but not limited to, reasonable and necessary investigation and
attorneys fees),
11
<PAGE>
threatened and/or incurred, by reason of or arising out of FARNAM's breach of
any of its representations, warranties, or obligations specified herein, or
FARNAM's negligence or other act or omission (of FARNAM), or the use of FARNAM's
trademark(s) or trade dress for/on the PRODUCTS.
Furthermore, FARNAM agrees to immediately assume the handling, adjustment,
and defense of any claim, allegation, petition, suit, or action covered by this
paragraph 18; and CARRINGTON, without waiving any of its rights under this
paragraph or this AGREEMENT, specifically reserves the right to participate, at
its own expense, in the handling, adjustment, and defense of any such claim,
allegation, petition, suit, or action.
FARNAM shall maintain, at its own expense, appropriate commercial insurance
in the amount of at least Three Million Dollars ($3,000,000.00). FARNAM shall
provide CARRINGTON with appropriate documentation evidencing such.
19. Term and Termination. Unless earlier terminated by any of the following
occurrences, this AGREEMENT shall be in full force and effect for an initial
period of five (5) years from the date of execution hereof and, thereafter,
shall automatically be renewed for five (5) year terms:
(a) If both parties agree in writing to terminate this AGREEMENT, then this
AGREEMENT shall so terminate according to the terms of said writing when fully
executed; or
(b) If either party notifies the other party in writing of its intent to
terminate this AGREEMENT at the end of the then-existing term, and the other
party receives said written notification at least ninety (90) days prior to the
end of the then-existing term, then this AGREEMENT shall terminate at the end of
said term; or
(c) If either party materially breaches this AGREEMENT, the non-breaching
party may terminate this AGREEMENT ninety (90) days following receipt by the
breaching party of written notice from the non-breaching party of said material
breach, provided that the breaching party has not cured said material breach
within the ninety (90) day time period. Any such termination shall be without
prejudice to any other rights or remedies available to the terminating party,
including, without limitation, the right to seek specific performance of this
AGREEMENT or to recover full damages for its breach; or
(d) If FARNAM decides to terminate in accordance with paragraph 5(c)
herein, then this AGREEMENT shall so terminate.
12
<PAGE>
The terms, conditions, rights, duties, and obligations set forth in paragraphs
13, 14, 15, 16, 17 and 18 herein shall survive any termination of this AGREEMENT
due to the continued existence of the PRODUCTS within the animal health market
and within the possession of consumers. Furthermore, after termination of this
AGREEMENT, FARNAM may market, sell and distribute any remaining inventories of
PRODUCTS which FARNAM had on hand upon the effective date of such termination;
provided, however, that within thirty (30) days of the termination of this
AGREEMENT, CARRINGTON may, at its discretion and option, purchase FARNAM's full
and existing inventory of the PRODUCTS at the same price paid by FARNAM for said
inventory.
20. Force Majeure. Neither party shall be liable for any failure to perform
under this AGREEMENT when such failure (other than failure to make any payment
of sums due hereunder) is caused by factors beyond the reasonable control of
such party, including by way of illustration, but not limited to, war, embargo,
fire or other calamity, strikes, unavailability of raw materials or ingredients,
supply allocations, or actions of governmental authorities.
21. No Partnership/Agency. Nothing in this AGREEMENT shall be deemed by
implication or otherwise to have created any partnership or principal/agent
relationship between the parties hereto.
22. Assignment. This AGREEMENT shall not be assignable in whole or in part by
either party without the prior written consent of the other party.
23. Binding Upon. This AGREEMENT shall be binding upon and shall inure to the
benefit of each of the parties hereto and their respective heirs, devisees,
legatees, executors, administrators, successors, and permitted assigns;
particularly, and without limiting the foregoing in any way whatsoever, this
AGREEMENT shall be binding upon any successor corporation or entity of either
party hereto, whether such successor entity is established through merger,
acquisition, buyout, partnership, association, change of ownership, or any
reorganization of any kind whatsoever
24. Non-waiver. Any failure or delay by either party to insist upon strict
performance of any provision hereof or to exercise any right, power, privilege,
or remedy consequent upon default hereunder
13
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shall not constitute a waiver of any provision, right, power, or privilege, or
of any available remedy under this AGREEMENT, including any provision the
performance of which was not insisted upon and/or any right, power, privilege,
and/or remedy which was not exercised.
25. Choice of Law and Forum. This AGREEMENT shall be construed in accordance
with and shall be governed by the laws of the State of Arizona. Any case or
controversy arising out of or related to this AGREEMENT may be filed in any
court within the state of Arizona, whether state or federal, having general
jurisdiction over the subject matter.
26. Severability. In the event that any one or more of the provisions (or
portion thereof) set forth in this AGREEMENT shall be for any reason held
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of this AGREEMENT, and
this AGREEMENT shall be construed as if the invalid, illegal, or unenforceable
provision(s) (or portion thereof) had never been set forth herein. If any one or
more of the provisions (or portion thereof) contained in this AGREEMENT shall
for any reason be held to be excessively broad as to time, duration, activity,
subject, or geographical scope, it shall be construed by reducing it so as to be
enforceable to the extent capable.
27. Entire Agreement. This AGREEMENT and that certain "Confidentiality
Agreement" by and between the parties dated on or about August 30, 1995 comprise
the entire agreement between the parties relative to the subject matter and
supersede all other understandings or agreements between the parties relative to
the subject matter.
28. Amendment/Modification. This AGREEMENT may not be amended or modified
except through a writing referencing this AGREEMENT and fully executed by both
parties hereto.
29. Paragraph Headings. The headings/titles to each paragraph of this AGREEMENT
are for reference purposes only and shall not be used to interpret said
paragraph, nor any other provision or paragraph of this AGREEMENT. All
interpretations of the meaning of each paragraph of this AGREEMENT shall rely
solely upon the content of that paragraph and/or the content of the AGREEMENT
and shall not incorporate the heading/title of that or any other paragraph for
such interpretation.
14
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IN WITNESS WHEREOF, each of the parties hereto has caused this AGREEMENT to
be executed by its duly authorized representative on the date first above given.
FARNAM CARRINGTON
Farnam Companies, Inc. Carrington Laboratories, Inc.
- ---------------------------------- -------------------------------
Charles B. Duff Carlton E. Turner, Ph.D., D.Sc.
President President and Chief Executive Officer
- ---------------------------------- -------------------------------
Date Date
- ---------------------------------- -------------------------------
David R. Arnold Witness
-------------------------------
Print
15
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EXHIBIT A
PRODUCTS Description, Formulation, and Label Ingredient Specifications
ACEMANNAN IMMUNOSTIMULANT
Acemannan immunostimulant
ACEMANNAN IMMUNOSTIMULANT (DILUENT)
Sodium chloride
CARRAVET(TM) WOUND DRESSING, 1.0 OZ., 3.5 OZ.
Purified Water, Trithanolamine, Polyvinylpyrrolidone, Panthenol, Carbomer 940,
Glutamic Acid, Methylparaben, Sodium Chloride, Imidazolidinyl Urea, Sodium
Benzoate, Potassium Sorbate, Sodium EDTA, Acemannan Hydrogel, Sodium
Metabisulfite, Citric Acid (may be added for pH adjustment)
CARRAVET(TM) SPRAY-GEL WOUND DRESSING, 8 OZ.
Purified Water, Trithanolamine, Polyvinylpyrrolidone, Panthenol, Carbomer 940,
Glutamic Acid, Methylparaben, Sodium Chloride, Imidazolidinyl Urea, Sodium
Benzoate, Potassium Sorbate, Sodium EDTA, Acemannan Hydrogel, Sodium
Metabisulfite, Citric Acid (may be added for pH adjustment)
CARRAVET(TM) WOUND CLEANSER, 8 OZ.
Cocoamphodiacetate, Dibasic Sodium Phosphate, Edetate Disodium, Glycerol
Laurate, Mannitol, Methylparaben, Purified water, Sucrose Laurate
CVMD(TM) WOUND CLEANSER, 12 OZ.
Purified Water, Mannitol, Sucrose Laurate, Disodium Phosphate, Methylparaben,
Disodium EDTA, Glyceryl Monolaurate, Cocoamphodiacetate
CARRAVET(TM) MULTI PURPOSE CLEANSING FOAM, 4 OZ.
Water, Isobutane, Propane, Ammonium Laureth Sulfate, Methylparaben, Fragrance,
Imidazolidinyl Urea, Potassium Sorbate, Sodium Benzoate, Sodium Laureth Sulfate,
Sodium Metabisulfite, Aloe Vera Gel Extract Containing Acemannan, Tocopherol
(Vitamin E)
CARRAVET(TM) 4" X 4" SURGICAL GAUZE PADS
Aloe Vera Gel Extract Containing Acemannan, Carbomer 940, Citric Acid, Edetate
Disodium, Imidurea, L-glutamic Acid, Methylparaben, Panthenol,
Polyvinylpyrrolidone, Potassium Sorbate, Purified Water, Sodium Benzoate, Sodium
Chloride, Sodium Metabisulfite, Trolamine
CARRAVET(TM) 2" X 2" SURGICAL GAUZE PADS
Aloe Vera Gel Extract Containing Acemannan, Carbomer 940, Citric Acid, Edetate
Disodium, Imidurea, L-glutamic Acid, Methylparaben, Panthenol,
Polyvinylpyrrolidone, Potassium Sorbate, Purified Water, Sodium Benzoate, Sodium
Chloride, Sodium Metabisulfite, Trolamine
16
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CARRASCENT(TM) ODOR ELIMINATOR, 1 OZ.
Water, Alcohol, Fragrance, Quaternium-15, FD&C Blue #1
CARRASCENT(TM) ODOR ELIMINATOR, 8 OZ.
Water, Alcohol, Fragrance, Quaternium-15, FD&C Blue #1
17
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EXHIBIT B
Other International Territories Granted to
FARNAM in Accordance with Paragraph 1(b)
None agreed to at this time.
18
<PAGE>
EXHIBIT C
Finished Goods Product Configurations for the PRODUCTS
ACEMANNAN IMMUNOSTIMULANT KIT
Each kit contains:
o 4-10 mL vials of diluent with black and white pressure sensitive label
o 4-10 mL vials Acemannan with black and white pressure sensitive label per
chipboard box with divider with a printed, pressure sensitive, 2-color
label (red and black)
o 1-black and white package insert per kit
o 3 kits per corrugated shipper with pre-printed, 1-color label
ACEMANNAN IMMUNOSTIMULANT INDIVIDUAL
Each kit contains:
o 1-10 mL vial of diluent with black and white pressure sensitive label
o 1-10 mL vial of Acemannan with black and white pressure sensitive label per
chipboard box with a printed, pressure sensitive, 2-color label (red and
black)
o black and white package insert per kit
o 12 kits per corrugated shipper with a pre-printed, 1-color label
CARRAVET(TM) WOUND DRESSING, 1.0 OZ.
o 1-4 color printed LDPE polyethylene tube
o 1-butterfly tube top
o 12 tubes per chipboard box printed with a 4-color label
o 6 chipboard boxes per corrugated shipper with a pre-printed, 1-color label
CARRAVET(TM) WOUND DRESSING, 3.5 OZ.
o 1-4 color printed LDPE polyethylene tube
o 1-butterfly tube top
o 12 tubes per corrugated shipper and a pre-printed, 1-color label
CARRAVET(TM) SPRAY-GEL WOUND DRESSING, 8 OZ.
o 1-HDPE white bottle
o 1-all white trigger sprayer (spray and stream)
o 1-pressure sensitive 4-color label
o 6-bottles per corrugated shipper with a pre-printed, 1-color label
CARRAVET(TM) WOUND CLEANSER, 8 OZ.
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o 1-HDPE white bottle
o 1-all white trigger sprayer (spray and stream)
o 1-pressure sensitive 4-color label
o 12-bottles per corrugated shipper with a pre-printed, 1-color label
20
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CVMD(TM) WOUND CLEANSER, 12 OZ.
o 1-HDPE white bottle
o 1-all white trigger sprayer (spray and stream)
o 1-pressure sensitive 4-color label
o 6-bottles per corrugated shipper with a pre-printed, 1-color label
CARRAVET(TM) MULTI PURPOSE CLEANSING FOAM, 4 OZ.
o 1 aerosol litho can with 4-color label
o 1-white plastic lid
o 12-cans per corrugated shipper and a pre-printed, 1-color label
CARRAVET(TM) 4" X 4" SURGICAL GAUZE PADS
o 1-4" x 4" twelve-ply gauze pad saturated with CarraVet Hydrogel Wound
Dressing
o 1-Dressing per foil pouch with a printed, 4-color label
o 10-foil pouches per chipboard box printed with a 4-color label
o 10-chipboard boxes per corrugated shipper with a pre-printed, 1-color label
CARRAVET(TM) 2" X 2" SURGICAL GAUZE PADS
o 1-2" x 2" twelve-ply gauze pad saturated with CarraVet Hydrogel Wound
Dressing
o 1-Dressing per foil pouch with a printed, 4-color label
o 10-foil pouches per chipboard box printed with a 4-color label
o 10-chipboard boxes per corrugated shipper with a pre-printed, 1-color label
CARRASCENT(TM) ODOR ELIMINATOR, 1 OZ.
o 1-4 color silkscreen LDPE silk-screened bottle
o 1-pump sprayer with cap
o 48 bottles per corrugated shipper with a pre-printed 1-color label
CARRASCENT(TM) ODOR ELIMINATOR, 8 OZ.
o 1-4 color silkscreen LDPE silk-screened bottle
o 1-pump sprayer with cap
o 12 bottles per corrugated shipper with a pre-printed 1-color label
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EXHIBIT D
"Finished Goods" Pricing
================================================================================
Item Description Price to FARNAM
================================================================================
Acemannan Immunostimulant Kit $ 23.75 each
- --------------------------------------------------------------------------------
Acemannan Immunostimulant Individual $ 6.09 each
- --------------------------------------------------------------------------------
CarraVet(TM)Wound Dressing, 1.0 oz. $ 1.23 each
- --------------------------------------------------------------------------------
CarraVet(TM)Wound Dressing, 3.5 oz. $ 2.65 each
- --------------------------------------------------------------------------------
CarraVet(TM)Spray-Gel Wound Dressing, 8 oz. $ 6.03 each
- --------------------------------------------------------------------------------
CVMD(TM)Wound Cleanser, 8 oz. $ 2.50 each
- --------------------------------------------------------------------------------
CarraVet(TM)Wound Cleanser, 12 oz. $ 2.88 each
- --------------------------------------------------------------------------------
CarraVet(TM)Multi Purpose Cleansing Foam, 4 oz. $ 2.30 each
- --------------------------------------------------------------------------------
CarraVet(TM)4" x 4" Surgical Gauze Pads, each $ 1.09 each
- --------------------------------------------------------------------------------
CarraVet(TM)2" x 2" Surgical Gauze Pads, each $ 0.75 each
CarraScent(TM)Odor Eliminator, 1 oz. $ 1.85 each
CarraScent(TM)Odor Eliminator, 8 oz. $ 3.15 each
TRC Animal Health Spray Gel, 2 oz. $ 2.00 each
- --------------------------------------------------------------------------------
TRC Animal Health Wound Dressing, 3.5 oz. $ 2.65 each
- --------------------------------------------------------------------------------
TRC Animal Health Wound Dressing, 1.0 oz. $ 1.23 each
- --------------------------------------------------------------------------------
TRC Animal Health Wound Cleanser, 8.0 oz. $ 2.50 each
================================================================================
22
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EXHIBIT E
Annual Cumulative Minimum Purchase Amounts of the
PRODUCTS Sold Within the United States
and Canada Necessary to Maintain FARNAM's Exclusivity Therein
For the period beginning January 1, 1997 and $ 450,000
ending December 31, 1998
For the calendar year beginning January 1, 1999 $ 300,000
For the calendar year beginning January 1, 2000 $ 350,000
For each calendar year beginning January 1, 2001 $ 500,000
and each calendar year thereafter
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EXHIBIT 10.77
TERMINATION AGREEMENT
AND FULL AND FINAL RELEASE
Carrington Laboratories, Inc. ("Carrington") and Terry Nida ("Nida") hereby
agree upon a compromise and full and final settlement of all issues and disputes
between them on the terms set forth below:
1. Salary and Benefits. In accordance with Carrington's existing
-------------------
policies, Nida has received or will receive the following pay and benefits
regardless of whether he enters into this Agreement: (i) payment of Nida's
regular base salary through August 18, 1995 less all normal withholdings; (ii)
payment for all accrued and unused vacation leave through August 18, 1995, less
all normal withholdings. In addition, Carrington will settle promptly all
authorized reimbursable business expenses, if any, when Nida has submitted
appropriate documentation to Carrington.
2. Special Separation Benefits. In consideration of the General Release,
---------------------------
Nondisparagement, and Confidentiality Obligations provisions of this Agreement,
and contingent upon Nida's acceptance of the terms of this Agreement, Carrington
offers to continue to employ Nida as an inactive employee at a salary rate of
$12,500.00 per month, payable in accordance with its normal payroll practices
and subject to normal withholdings, from August 18, 1995, until October 31, 1995
which shall be called the Employment Termination Date. The period from August
18, 1995, through the Employment Termination Date is hereinafter referred to as
the "Inactive Period."
3. Employee Benefit Plans. In consideration of the General Release,
----------------------
Nondisparagement, and Confidentiality Obligations provisions of this Agreement,
and contingent upon Nida's acceptance of the terms of this Agreement, Carrington
offers to continue Nida's eligibility to participate in any group insurance or
stock purchase plans offered by Carrington, subject to the terms of each such
plan and provided he timely pays any cost that he would be required as an
employee to pay in connection therewith, until the Employment Termination Date.
Unless earlier terminated in accordance with the terms of any such plan, Nida's
participation in all such plans shall terminate on the Employment Termination
Date, except to the extent (if any) that he is entitled, and elects, to continue
insurance coverage thereafter at his own expense pursuant to the Consolidated
Omnibus Budget Reconciliation Act.
4. Services. During the Inactive Period and, if any, the Consulting
--------
Period, Nida agrees to make himself available to Carrington and to perform for
Carrington upon reasonable request by Carrington, services (hereinafter referred
to as the "Services"). The Services shall include such services as Nida
performed for Carrington as Vice President of Marketing and Sales.
5. Authority. After August 18, 1995, Nida has not been and will not be
---------
obligated or authorized, and has not held himself out and shall not hold himself
out as being authorized, to make any representations, enter into any contracts,
commitments, or obligations, or perform any other acts of any kind whatsoever on
behalf of Carrington. Nida also has not been and will not be authorized to hold
himself out as an agent or active employee of Carrington after August 18, 1995.
1
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6. General Release. Nida and his family members, heirs, successors, and
---------------
assigns (hereinafter referred to collectively as the "Releasing Parties") hereby
release, acquit, and forever discharge Carrington and its shareholders,
officers, directors, fiduciaries, agents, servants, employees, representatives,
attorneys, insurers, successors, and assigns (hereinafter referred to
collectively as the "Released Parties") from any and all claims, demands, and
causes of action of every kind and character, whether vicarious, derivative, or
direct, that any of the Releasing Parties now has or may hereafter have or
assert against any or all of the Released Parties growing out of, resulting
from, or connected in any way with Nida's employment or the termination of his
employment with Carrington, including but not limited to any and all claims for
damages (actual, exemplary, liquidated, or unliquidated), back pay, future pay,
deferred compensation, bonuses, commissions, severance payments, vacation and
leave benefits, unreimbursed business expenses, overtime compensation,
reinstatement or priority placement, past and future medical or other employee
benefits for Nida or his dependents, employee retirement benefits, contributions
to company-sponsored 401(k) plans (except as presently vested in any savings
plan sponsored by Carrington in which Nida is a participant), medical and
counseling costs, injunctive relief, declaratory relief, attorney's fees, costs
of court, disbursements, interest, or any other form whatsoever of legal or
equitable relief to which any of the Releasing Parties claims or might claim
entitlement as a result of any alleged act or omission of any of the Released
Parties, including but not limited to any alleged unlawful age discrimination or
any other form of unlawful employment discrimination, retaliation, wrongful
termination, breach of contract (express or implied), tortious interference with
contract, promissory estoppel, detrimental reliance, negligent or intentional
infliction of emotional distress, negligent hiring and supervision, assault,
battery, defamation of character, any alleged act of harassment or intimidation,
negligent or intentional misrepresentation or fraud, invasion of privacy, or any
other intentional or negligent tort, or any alleged violation of the Age
Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of
1964, the Texas Commission on Human Rights Act, the Americans With Disabilities
Act, the Employee Retirement Income Security Act of 1974, the public policy of
the United States, the State of Texas, or any other state, or any other federal
or state statutory or common law, or any other alleged adverse employment action
by any of the Released Parties, and all other loss, expense, or detriment of
every kind and character, whether past or future, that any of the Releasing
Parties may have sustained or may hereafter sustain by reason of any act or
omission of any of the Released Parties growing out of, resulting from, or
connected in any way with Nida's employment or the termination of his employment
with Carrington. This general release does not apply to any rights or claims
that may arise after the date this Agreement is executed by Nida.
7. Nondisparagement Nida shall not make any statements, orally or in
----------------
writing, or engage in any other acts that would directly or indirectly cause any
harm or damage to Carrington or any of the other Released Parties.
8. Confidentiality Obligations. Nida acknowledges and confirms all
----------------------------
agreements and obligations, including the obligation of confidentiality, set
forth in that certain Employee's Confidentiality and Invention Agreement by and
between Carrington and Nida, which is attached as Appendix A, and shall be
executed in conjunction with this agreement. In addition, Nida agrees that the
terms of this Agreement shall be and remain confidential, and shall not be
disclosed by him to any person other than his spouse, attorney, and accountant
or tax return preparer if such persons
2
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have agreed to keep such information confidential, and except as may be required
by law or judicial process.
9. Effect of Breach. Nida acknowledges and agrees that should he or any
----------------
of the other Releasing Parties breach any of their obligations set forth in this
Agreement, (i) Carrington will have no further obligation to comply with its
undertakings in Sections 3 or 4 hereof, but that all of the other provisions of
this Agreement shall remain in full force and effect; (ii) Nida may be required
to repay any payments made to him and reimburse Carrington for any payments made
on his behalf or for his benefit pursuant to Sections 3 or 4 hereof; (iii) the
Releasing Parties also may be liable for any of the Released Parties' damages
caused by the breach, including without limitation their costs and attorney's
fees incurred in defending claims brought in breach of this Agreement or
bringing claims to enforce this Agreement.
10. Effect and Use of Agreement. Nida agrees that this Agreement does not
---------------------------
in any manner constitute an admission of liability or wrongdoing on the part of
Carrington or any of the other Released Parties, but that Carrington expressly
denies any such liability or wrongdoing and enters into this Agreement in
compromise and settlement of a disputed claim for the sole purpose of avoiding
trouble, litigation and expense. Nida further agrees that, except to the extent
necessary to enforce this Agreement, neither this Agreement nor any part of it
may be construed, used, or admitted into evidence in any judicial,
administrative, or arbitral proceeding as an admission of any kind by Carrington
or any of the other Released Parties.
11. Representation Regarding Certain Laws. Nida understands and
-------------------------------------
acknowledges that various state and federal laws (including the Age
Discrimination in Employment Act of 1967) prohibit discrimination in employment
based on sex, race, age, color, national origin, religion, disability,
citizenship and veteran status, and that the law also prohibits breach of
contract (express or implied) and intentional or negligent tortious conduct.
12. Effective Period of Offer. Carrington's offer of the terms set forth
-------------------------
in this Agreement will expire at midnight on the twenty-first day following the
date of Carrington's execution of this Agreement, i.e., on September 8, 1995.
----
Nida may accept this offer at any time before such expiration by executing this
Agreement and returning it to Carrington.
13. Effective Date of Agreement. This Agreement will become effective and
----------------------------
enforceable seven (7) days after Nida's execution and delivery to Carrington of
this Agreement (the "Effective Date"). At any time before the Effective Date,
Nida may revoke his acceptance of this Agreement.
14. Consultation With An Attorney. Carrington hereby advises Nida to
-----------------------------
consult an attorney before executing this Agreement.
15. Representation Regarding Meaning and Execution of Agreement. Nida
-----------------------------------------------------------
further acknowledges and represents that he has read this Agreement, that he has
had the opportunity to have this Agreement read and explained to him by his
attorney, that he fully understands the meaning and effect of his action in
executing this Agreement, and that his execution of this Agreement is knowing
and voluntary.
3
<PAGE>
16. Miscellaneous. Nida and Carrington agree that this Agreement and the
-------------
Confidentiality Agreement (a) contain and constitute the entire understanding
and agreement between them regarding the subject matter hereof; (b) contain
captions and definitions that are included only for convenience of reference and
are not intended and shall not be construed to change the express provisions of
this Agreement; (c) supersede and cancel any previous negotiations, agreements,
commitments and writings regarding the subject matter of this Agreement; (d) may
not be released, discharged, abandoned, supplemented, changed or modified in any
manner except by a writing of concurrent or subsequent date signed by both
parties hereto; (e) are binding on and shall inure to the benefit of Nida, his
heirs, successors and assigns, and Carrington and its successors and assigns,
and that the terms of Section 6 hereof shall inure to the benefit of all of the
Released Parties; and (f) shall be governed by and construed in accordance with
the laws of the State of Texas and the applicable laws of the United States.
Nida and Carrington further agree that (i) if any provision of this Agreement is
held to be unenforceable, such provision shall be considered to be separate,
distinct, and severable from the remaining provisions of this Agreement and
shall not affect the validity or enforceability of such remaining provisions,
all of which shall remain in full force and effect; and (ii) if any provision of
this Agreement is held to be unenforceable as written but may be made to be
enforceable by limitation thereof, then such provision shall be deemed to be so
limited and shall be enforceable to the maximum extent permitted by applicable
law.
SIGNED on the dates shown below.
CARRINGTON LABORATORIES, INC.
Dated: August 18, 1995 By:
_____________________________________
Dr. Carlton E. Turner
President and CEO
Dated: _____________, 1995
_____________________________________
Terry Nida
4
<PAGE>
Exhibit 11.1
CARRINGTON LABORATORIES, INC., AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
<TABLE>
<CAPTION>
November 30, December 31,
-------------------------- ----------------------------
1993 1994 1994 1995
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net Income $ 804,632 $ 1,421,238 $ (70,069) $ (1,628,267)
Preferred stock dividend requirement (111,674) (125,113) -- (140,127)
----------- ----------- ----------- -------------
Income for computing income per
common share from operations $ 692,938 $ 1,296,125 $ (70,069) $ (1,768,394)
=========== =========== =========== =============
Average common and common equivalent
shares outstanding 7,323,521 7,340,982 7,344,390 7,932,675
=========== =========== =========== =============
Net income per common and common
equivalent share $ .09 $ .18 $ (.01) $ (.22)
=========== =========== =========== =============
</TABLE>
(1) Common stock equivalents have been excluded since the effect of net income
(loss) per share of their inclusion would be either antidilutive or
represent a dilution of less than 3%.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF CARRINGTON
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Organization
- ------------------ ----------------------------
<S> <C>
Carrington Laboratories, Belgium, N.V. Belgium
Finca Savila, S.A. Costa Rica
Carrington Laboratories International, Inc. Texas
Hilcoa Corporation California
Caraloe, Inc. Texas
Carrington Laboratories of Canada, Ltd. Canada
Sabila Industrial, S.A. Costa Rica
</TABLE>
E - 14
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report dated February 9, 1996, included in the Carrington Laboratories, Inc.,
Form 10-K for the year ended December 31, 1995, into the Company's previously
filed Registration Statements on Form S-8 (File No. 33-22849, File No. 33-36041,
File No. 33-42002, File No. 33-50430, File No. 33-64407, File No. 33-64403 and
File No. 33-64405) and on Form S-3 (File No. 33-57360 and File No. 33-60833).
It should be noted that we have not audited any financial statements of the
Company subsequent to December 31, 1995, or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 1-MO
<PERIOD-START> JAN-01-1995 DEC-01-1994
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 6,222,008 464,367
<SECURITIES> 0 0
<RECEIVABLES> 2,453,535 3,089,816
<ALLOWANCES> (226,884) 204,905
<INVENTORY> 5,103,988 5,047,149
<CURRENT-ASSETS> 14,411,153 8,935,077
<PP&E> 18,932,959 14,726,840
<DEPRECIATION> (6,222,309) (5,070,401)
<TOTAL-ASSETS> 27,934,097 18,898,977
<CURRENT-LIABILITIES> 3,464,223 4,462,948
<BONDS> 0 0
0 0
1,167,434 1,040,634
<COMMON> 83,790 73,444
<OTHER-SE> 21,147,900 11,324,690
<TOTAL-LIABILITY-AND-EQUITY> 27,399,124 12,438,768
<SALES> 24,374,090 1,781,017
<TOTAL-REVENUES> 24,374,090 1,781,017
<CGS> 7,944,271 516,247
<TOTAL-COSTS> 12,441,972 984,535
<OTHER-EXPENSES> 5,370,109 326,916
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 250,751 23,413
<INCOME-PRETAX> (1,496,917) (70,069)
<INCOME-TAX> 131,350 0
<INCOME-CONTINUING> (1,628,267) (70,069)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,628,267) (70,069)
<EPS-PRIMARY> (.22) (.01)
<EPS-DILUTED> (.22) (.01)
</TABLE>
