SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 21, 1996
CARRINGTON LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Texas 0-11997 75-1435663
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
2001 Walnut Hill Lane, Irving, Texas 75038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 518-1300
<PAGE> 1
Item 5. Other Events.
General
On October 21, 1996, the Registrant sold a total of 660 shares of its
Series E Convertible Preferred Stock, $100 par value per share (the
"Shares"), for an aggregate consideration of $6,600,000 in a private
placement (the "Private Placement") to "accredited investors," as
defined in Rule 501(a) promulgated under the Securities Act of 1933,
as amended (the "Securities Act"). Net proceeds to the Registrant are
expected to be approximately $6,266,600 after payment of fees to the
placement agent and an escrow agent as well as other expenses.
Proceeds will be used by the Registrant to continue its clinical
research programs and for general corporate purposes.
The Shares
The following statements regarding the preferences, limitations and
relative rights of the Shares are subject to the detailed provisions
of the Statement of Resolution Establishing Series E Convertible
Preferred Stock of the Registrant (the "Statement") and are qualified
in their entirety by reference to the Statement, a copy of which is
filed as Exhibit 3.1 to this Report.
Each of the Shares is convertible, at the option of the holder
thereof, into shares of the Registrant's common stock, par value $.01
per share (the "Common Stock"), beginning on December 20, 1996. All
of the Shares outstanding on October 21, 1999 shall automatically be
deemed to have been surrendered for conversion (and shall be
automatically converted) into shares of Common Stock on such date.
The conversion price per Share (the "Conversion Price") is equal to
the lower of (x) $25.20 (as adjusted for any stock split, reverse
stock split or stock dividend with respect to the Common Stock) and
(y) 87 percent of the average of the daily closing bid prices of the
Common Stock for three consecutive trading days ending on the trading
day immediately preceding the date of conversion. Each Share will be
convertible into the number of whole shares of Common Stock determined
by dividing (a) $10,000 (as adjusted for any stock split, reverse
stock split, stock dividend or similar event resulting in a change in
the Shares) plus, in the case of the mandatory conversion as of
October 21, 1999, an amount equal to all dividends accrued but unpaid
on such Share, by (b) the Conversion Price on the date of conversion.
Subject to the rights of the holders of any other class of stock of
the Registrant ranking senior to the Shares with respect to the right
to receive dividends, the holders of the Shares shall be entitled to
receive, when, as, and if declared by the Board of Directors of the
Registrant, in cash out of funds legally available therefor or in
shares of Common Stock legally issuable as dividends, or partly in
cash and partly in Common Stock, at the option of the Registrant,
dividends at but not exceeding the rate of $500.00 per Share per
annum, and no more (the "Series E Dividend"). The Series E Dividend
shall be payable on October 21, 1999, such payment to be in respect of
the twelve-month period commencing on October 21, 1998 and ending on
<PAGE> 2
and including October 20, 1999. No dividends are payable on the
Shares during or in respect of any period prior to October 21, 1998.
Notwithstanding the foregoing, unless the shareholder approval
referred to below in this paragraph has previously been obtained, the
Registrant is not required to issue any shares of Common Stock
pursuant to any optional or mandatory conversion of Shares to the
extent that (i) the issuance of such shares of Common Stock, when
taken together with all prior issuances of Common Stock pursuant to
any conversion of Shares or in payment of the Series E Dividend, would
result in the issuance by the Registrant of a number of shares of
Common Stock at least as great as 20 percent of the number of shares
of Common Stock outstanding on October 21, 1996 (a "20 Percent
Issuance"), and such 20 Percent Issuance requires the prior approval
of the shareholders of the Registrant pursuant to any rule or policy
of the NASDAQ Stock Market, or (ii) the Board of Directors of the
Registrant determines in good faith that the issuance of such Common
Stock upon conversion otherwise requires the prior approval of the
shareholders of the Registrant pursuant to any applicable rule or
policy of any stock exchange or stock market on which the shares of
Common Stock are then listed or admitted to trading (such prior
approval of the shareholders referred to in clauses (i) and (ii) above
herein called the "Shareholder Approval Requirement").
Following the first conversion of Shares to which the Shareholder
Approval Requirement is applicable, the Registrant must promptly give
to all holders of the Shares a notice stating that the Registrant is
unable to issue any shares of Common Stock upon conversion of the
Shares, and that the Shares cannot be converted, without compliance
with the Shareholder Approval Requirement, and the Registrant shall
take one of the following actions, at its election: (i) notify holders
of the Shares that it intends to seek shareholder approval (provided,
however, that if shareholder approval is not obtained within 75 days
following the date of the Registrant's notice to such holders, the
Registrant shall, promptly following the end of such 75-day period,
notify all holders of the Shares that it is redeeming all outstanding
Shares), (ii) obtain from the stock exchange or stock market on which
the shares of Common Stock are then listed or admitted to trading a
waiver of or exception to the Shareholder Approval Requirement, or
(iii) notify all holders of the Shares that it is redeeming all
outstanding Shares.
If the Registrant elects or is required to redeem the Shares, it shall
redeem, out of funds legally available therefor, all of the Shares at
a price per Share equal to $11,490 (as adjusted for any stock split,
reverse stock split, stock dividend, or similar event resulting in a
change in the Shares) plus an amount equal to all dividends, if any,
accrued but unpaid on such Share to the earlier of the date fixed for
redemption or October 21, 1999. The redemption date shall not be
later than 20 days following the date of notice of redemption. The
obligation of the Registrant to redeem the Shares is subject to such
limitations and restrictions as may be imposed on the Registrant under
applicable law or regulation. The Registrant is not required to
maintain any sinking fund for the redemption of Shares.
<PAGE> 3
In the event of the voluntary or involuntary liquidation, dissolution
or winding up of the Registrant, the holders of the Shares shall be
entitled to have set apart for them or to be paid out of the assets of
the Registrant available for distribution to shareholders, before any
distribution is made or set apart for holders of Common Stock or of
any other class of stock of the Registrant ranking junior to the
Shares upon liquidation, dissolution or winding up, an amount in cash
equal to $10,000 per Share (as adjusted for any stock split, reverse
stock split, stock dividend or similar event resulting in a change in
the Shares), plus an amount equal to all dividends accrued but unpaid
on the Shares to the payment date. The holders of the Shares shall
not be entitled to any further payment in connection with the
voluntary or involuntary liquidation, dissolution or winding up of the
Registrant. A change in control of the Registrant (as defined in the
Statement) is deemed to be a liquidation, dissolution and winding up
of the Registrant.
Holders of the Shares are not entitled to vote on any matter submitted
to a vote at a meeting of shareholders except as provided by
applicable law; provided, however, that the affirmative vote or
consent of the holders of at least 66-2/3% of the Shares outstanding
shall be necessary to permit or effect (i) the authorization, creation
or issuance, or any increase in the authorized or issued amount, of
any class or series of shares senior to the Shares with respect to the
right of the holders thereof to receive dividends or to participate in
the assets of the Registrant distributable to shareholders upon any
liquidation, dissolution, or winding up of the Registrant or (ii) the
amendment, alteration or repeal of any of the provisions of the
Registrant's Restated Articles of Incorporation which would materially
and adversely affect the rights of the Shares or the holders thereof.
Registration Rights
Concurrently with the closing of the Private Placement, the Registrant
entered into Registration Rights Agreements (the "Registration Rights
Agreements") with each purchaser of the Shares. Pursuant to the
Registration Rights Agreements, the Registrant agreed, subject to
certain terms and conditions, to prepare and file a shelf registration
statement on Form S-3 or other appropriate form covering the sale by
such purchasers (the "Selling Shareholders") of all or any portion of
the shares of Common Stock received by the Selling Shareholders
(collectively, the "Registrable Securities") (i) upon conversion of
their Shares, (ii) in payment of the Series E Dividend, and (iii)
pursuant to Section 2(d) of the Registration Rights Agreements, under
which the Registrant is obligated to pay a penalty to the Selling
Shareholders if the registration statement covering the Registrable
Securities is not declared effective by the Securities and Exchange
Commission on or before January 9, 1997. If the registration
s t atement covering the Registrable Securities is not declared
effective by the Securities and Exchange Commission on or before
January 9, 1997, then the Registrant must make payments to each
Selling Shareholder in an amount equal to the following percent of the
purchase price paid by the Selling Shareholder for the Shares
purchased by it: (i) one percent if the registration statement is
<PAGE> 4
declared effective by February 8, 1997 and (ii) two percent for each
30-day period thereafter prior to declaration of effectiveness
(prorated for each period that is less than 30 days). Such amount
shall be paid in cash and/or shares of Common Stock at the
Registrant's election. The Registrant agreed to use its best efforts
to keep such registration statement effective at all times until the
earliest of (i) October 21, 1998, (ii) the date when the Selling
Shareholders may sell all Registrable Securities under Rule 144
promulgated under the Securities Act, or (iii) the date when the
Selling Shareholders no longer own any Registrable Securities.
Management believes that the registration statement covering the
Registrable Securities will be declared effective by January 9, 1997.
Item 7.
Financial Statements and Exhibits.
(c)
Exhibits
Item
Exhibit
3.1 S t a tement of Resolution
Establishing Series E Convertible
Preferred Stock of the Registrant.
10.1 Placement Agent Agreement between
the Registrant and First Granite
Securities, Inc.
10.2 Indemnification Agreement between
the Registrant and First Granite
Securities, Inc.
10.3 Joint Escrow Instructions from the
Registrant and accepted by Krieger
& Prager, Esqs., as escrow agent.
10.4 Stock Purchase Agreement between
the Registrant and each of the
p u r chasers of shares of the
Registrant's Series E Convertible
Preferred Stock.
10.5 Amendment to the Stock Purchase
Agreement dated October 15, 1996
between the Registrant and each of
the purchasers of shares of the
Registrant's Series E Convertible
Preferred Stock.
10.6 Registration Rights Agreement
between the Registrant and each of
the purchasers of shares of the
Registrant's Series E Convertible
Preferred Stock.
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Date: November 13, 1996 CARRINGTON LABORATORIES, INC.
By:/s/ Sheri L. Pantermuehl
------------------------------
Chief Financial Officer
and Treasurer
<PAGE> 6
INDEX TO EXHIBITS
Exhibit
Number Exhibit
3.1 S t atement of Resolution Establishing Series E
Convertible Preferred Stock of the Registrant.
10.1 Placement Agent Agreement between the Registrant and
First Granite Securities, Inc.
10.2 Indemnification Agreement between the Registrant and
First Granite Securities, Inc.
10.3 Joint Escrow Instructions from the Registrant and
accepted by Krieger & Prager, Esqs., as escrow
agent.
10.4 Stock Purchase Agreement between the Registrant and
each of the purchasers of shares of the Registrant's
Series E Convertible Preferred Stock.
10.5 Amendment to the Stock Purchase Agreement dated
October 15, 1996 between the Registrant and each of
the purchasers of shares of the Registrant's Series
E Convertible Preferred Stock.
10.6 Registration Rights Agreement between the Registrant
and each of the purchasers of shares of the
Registrant's Series E Convertible Preferred Stock.
<PAGE> 7
EXHIBIT 3.1
STATEMENT OF RESOLUTION
ESTABLISHING SERIES E CONVERTIBLE PREFERRED STOCK
OF CARRINGTON LABORATORIES, INC.
To the Secretary of State of Texas:
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, the undersigned corporation submits the following
statement for the purpose of establishing and designating 2,000 shares
of its Preferred Stock, par value $100 per share, as "Series E
Convertible Preferred Stock" (the "Series E Shares") and fixing and
determining the relative rights and preferences of the Series E Shares:
1. The name of the corporation is Carrington Laboratories,
Inc.
2. Attached hereto as Exhibit A is a true and correct copy of
the resolution establishing and designating the Series E
Shares and fixing and determining the relative rights and
preferences thereof.
3. Such resolution was duly adopted by the Board of Directors
of Carrington Laboratories, Inc. on September 19, 1996.
4. Such resolution was duly adopted by all necessary action on
the part of Carrington Laboratories, Inc.
Dated: October 11, 1996.
CARRINGTON LABORATORIES, INC.
By:
Carlton E. Turner
President and Chief Executive Officer
<PAGE> 1
EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS
OF CARRINGTON LABORATORIES, INC.
RESOLVED, that, pursuant to authority vested in the Board of
Directors of Carrington Laboratories, Inc. (the "Company") by the
Restated Articles of Incorporation of the Company (the "Restated
Articles of Incorporation"), the Board of Directors of the Company
hereby establishes a series of preferred stock of the Company from the
authorized shares of Preferred Stock, par value $100 per share, of the
Company, to consist of 2,000 shares, and hereby fixes the designation,
preferences, limitations, and relative rights of such series of
preferred stock (in addition to the preferences, limitations, and
relative rights set forth in the Restated Articles of Incorporation
which are applicable to such series of preferred stock) as follows:
1. Designation and Number. The distinctive designation of the
series shall be the Series E Convertible Preferred Stock (the "Series E
Shares"), and the number of Series E Shares which the Company shall
have authority to issue is 2,000.
2. Certain Definitions.
For purposes of this resolution, the following terms shall have
the meanings indicated:
"Base Date" shall mean the Date of Issuance of the first issuance
of Series E Shares following the date of adoption of this resolution.
"Common Shares" shall mean and include the shares of Common
Stock, par value $.01 per share, of the Company as constituted on the
date of adoption of this resolution and shall also include any class of
shares of capital stock of the Company thereafter authorized that shall
not be limited to a fixed sum or percentage in respect of the right of
the holders thereof to receive dividends and to participate in the
a s s ets of the Company distributable to shareholders upon any
liquidation, dissolution, or winding up of the Company; provided,
however, that the shares that the Company may distribute in payment of
the Series E Dividend pursuant to Section 3 hereof and the shares into
which the Series E Shares shall be convertible pursuant to Section 5
hereof shall mean and include, and, as used in Sections 3 and 5 hereof,
the term "Common Shares" shall mean and include, only the Common Stock,
par value $.01 per share, of the Company as constituted on the date of
adoption of this resolution or, in the case of any reclassification of
or change in the outstanding Common Shares (as defined in this proviso)
as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value
to par value, such Common Shares as so reclassified or changed.
"Conversion Date" shall mean (i) in the case of a conversion
pursuant to Section 5(a) hereof, either (A) the date of receipt by the
Company at the principal executive offices of the Company (or at such
other place or places as may be designated by the Company) of the
notice of such conversion required pursuant to Section 5(a) hereof,
<PAGE> 2
provided that the certificate or certificates for the Series E Shares
to be converted pursuant to such conversion are surrendered to the
Company as required by Section 5(a) hereof not later than the third
business day immediately following the date of receipt by the Company
of such notice of conversion, or (B) if the certificate or certificates
for such Series E Shares are surrendered to the Company after such
third business day, the date the option to convert is exercised as
provided in the first sentence of Section 5(a) hereof, and (ii) in the
case of a conversion pursuant to Section 5(c) hereof, the Maturity
Date.
"Conversion Price" shall have the meaning assigned to it in
Section 5(d) hereof.
"Current Market Price" of the Common Shares shall mean the
average of the daily closing prices of the Common Shares for the three
consecutive trading days immediately preceding the day in question.
The closing price for each such trading day shall be the closing bid
quotation for the Common Shares as reported for the principal national
stock exchange or stock market on which the Common Shares are then
listed, or, if not reported for such exchange or market, on the
composite tape, or, if the Common Shares are not listed on any national
stock exchange or stock market, the high bid quotation for the Common
Shares in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotations System or a
similar organization; provided, however, that if the Common Shares are
not listed on any national stock exchange or stock market, and no such
quotations are available, the closing price of the Common Shares shall
be the then current fair market value of one full Common Share as
determined in good faith by the Board of Directors of the Company.
"Date of Issuance" shall mean, for any Series E Share, the date
on which such Series E Share is originally issued.
"Dividend Accrual Date" shall mean the second anniversary of the
Base Date.
"Dividend Payment Date" shall mean the Maturity Date.
"Equivalent Value of Common Shares" shall mean, with respect to
the Series E Dividend that becomes payable by the Company on the
Dividend Payment Date, the number of Common Shares equal to (x) the
aggregate amount of the Series E Dividend that the Company elects to
pay in Common Shares divided by (y) the Conversion Price in effect on
the Dividend Payment Date.
"Junior Shares" shall mean (i) Common Shares and (ii) all those
classes and series of preferred or special shares which, by the terms
of the Restated Articles of Incorporation (as may be subsequently
amended) or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Restated Articles of Incorporation
(as may be subsequently amended), shall designate the special rights
and limitations of each such class and series of preferred or special
shares, shall be subordinate to the Series E Shares with respect to,
for purposes of Section 3 hereof, the right of the holders thereof to
<PAGE> 3
receive dividends and, for purposes of Section 4 hereof, the right of
the holders thereof to participate in the assets of the Company
distributable to shareholders upon any liquidation, dissolution, or
winding up of the Company.
"Maturity Date" shall mean the third anniversary of the Base
Date.
"Parity Shares" shall mean all those classes and series of
preferred or special shares which, by the terms of the Restated
Articles of Incorporation (as may be subsequently amended) or of the
instrument by which the Board of Directors, acting pursuant to
authority granted in the Restated Articles of Incorporation (as may be
s u b sequently amended), shall designate the special rights and
limitations of each such class and series of preferred or special
shares, shall be on a parity with the Series E Shares with respect to,
for purposes of Section 3 hereof, the right of the holders thereof to
receive dividends and, for purposes of Section 4 hereof, the right of
the holders thereof to participate in the assets of the Company
distributable to shareholders upon any liquidation, dissolution, or
winding up of the Company.
"Redemption" shall have the meaning assigned to it in Section
6(c) hereof.
"Redemption Price" shall have the meaning assigned to it in
Section 6(c) hereof.
"Senior Shares" shall mean all those classes and series of
preferred or special shares which, by the terms of the Restated
Articles of Incorporation (as may be subsequently amended) or of the
instrument by which the Board of Directors, acting pursuant to
authority granted in the Restated Articles of Incorporation (as may be
s u b sequently amended), shall designate the special rights and
limitations of each such class and series of preferred or special
shares, shall be senior to the Series E Shares with respect to, for
purposes of Section 3 hereof, the right of the holders thereof to
receive dividends and, for purposes of Section 4 hereof, the right of
the holders thereof to participate in the assets of the Company
distributable to shareholders upon any liquidation, dissolution, or
winding up of the Company.
"Series E Dividend" shall have the meaning assigned to it in
Section 3(a) hereof.
3. Dividend.
(a) Subject to the prior rights of the holders of Senior
Shares, if any, the holders of the Series E Shares, in preference to
the holders of Junior Shares, shall be entitled, in conjunction with
any provision then being made for the holders of Parity Shares, if any,
and subject to the further provisions of this Section 3, to receive,
when, as, and if declared by the Board of Directors of the Company, in
cash out of funds legally available therefor or in Common Shares
legally issuable as dividends, or partly in cash and partly in Common
<PAGE> 4
Shares, at the option of the Company, dividends at but not exceeding
the rate of $500.00 per Series E Share per annum, and no more (the
"Series E Dividend"). The Series E Dividend shall be payable on the
D i vidend Payment Date, such payment to be in respect of the
twelve-month period commencing on the Dividend Accrual Date and ending
on and including the day next preceding the Dividend Payment Date.
Notwithstanding anything contained in this resolution to the contrary,
no dividends shall be payable on the Series E Shares (i) during or in
respect of any period prior to the Dividend Accrual Date or (ii) in
respect of any period on and after the Maturity Date.
(b) If the Company elects to pay the Series E Dividend (or any
portion thereof) in Common Shares, the Series E Dividend (or portion
thereof) payable in Common Shares shall be payable in the Equivalent
Value of Common Shares. In such event, all Series E Shares on which
the Series E Dividend is payable shall receive the same (or as nearly
the same as is practicable) percentage allocation of the Equivalent
Value of Common Shares distributed by the Company in payment of the
Series E Dividend (or portion thereof), but each holder of Series E
Shares will only be entitled to receive whole Common Shares and will
not be entitled to receive any fractional Common Share or cash or other
payment in lieu thereof.
(c) The Series E Dividend shall be paid only on Series E Shares
that are outstanding at both the record date (or, if no record is
taken, the date as of which the holders of Series E Shares entitled to
receive such dividend are determined) and the Dividend Payment Date.
Subject to the other provisions of this Section 3, the Series E
Dividend shall accrue and be cumulative on a day-to-day basis, whether
or not declared, on each Series E Share from and after, but not before,
the Dividend Accrual Date through and including the day next preceding
the Dividend Payment Date. Cumulations of dividends on Series E Shares
shall not bear interest. No dividends shall be paid on Series E Shares
except as expressly permitted by this resolution.
(d) The Company may at any time and from time to time pay
dividends that are in arrears, except to the extent, if any, that the
payment thereof is prohibited by applicable law, any provision hereof,
or the Restated Articles of Incorporation (as may be subsequently
amended). If the Company at any time pays less than the total amount
of the stated dividends on the Series E Shares then accrued and
payable, the Series E Shares and all Parity Shares, if any, shall share
ratably in the amount of such payment in accordance with the amount of
dividends that would be payable on such shares if all dividends were
paid in full.
(e) From and after the Dividend Accrual Date, as long as any
Series E Shares are outstanding, no dividends whatsoever shall be
declared or paid, and no distribution shall be made, on Junior Shares,
other than a dividend or distribution payable in Junior Shares or in
options, warrants, or other rights to purchase, or in securities
convertible into or exchangeable for, Junior Shares, nor shall any
Junior Shares be purchased, redeemed, or otherwise acquired by the
Company or any subsidiary of the Company for consideration, unless all
dividends on the Series E Shares shall have been paid or shall have
<PAGE> 5
been declared and an amount in cash and/or a number of Common Shares
sufficient for the payment thereof set apart for such purpose.
4. Liquidation.
(a) The Series E Shares shall be preferred as to assets over
Junior Shares so that, in the event of the voluntary or involuntary
liquidation, dissolution, or winding up of the Company, the holders of
the Series E Shares shall be entitled, in conjunction with any
provision then being made for the holders of Parity Shares, if any, to
have set apart for them or to be paid out of the assets of the Company,
after payment or provision for payment of the debts and other
liabilities of the Company and after provision for the holders of
Senior Shares, if any, but before any distribution is made to or set
apart for the holders of Junior Shares, an amount in cash equal to
$10,000 per Series E Share (as adjusted for any stock split, reverse
stock split, stock dividend, or similar event resulting in a change in
the Series E Shares), plus an amount equal to all dividends accrued but
unpaid on such Series E Share to the date that payment is made
available to the holders of the Series E Shares. The holders of the
Series E Shares shall not be entitled to any further payment in
connection with the voluntary or involuntary liquidation, dissolution,
or winding up of the Company. If, upon such liquidation, dissolution,
or winding up of the Company, the assets of the Company available for
distribution to the holders of the Series E Shares and the holders of
Parity Shares, if any, shall be insufficient to permit the distribution
in full of the amounts receivable as aforesaid by the holders of the
Series E Shares and the amounts receivable by the holders of Parity
Shares, if any, then all such assets of the Company shall be
distributed ratably among the holders of the Series E Shares and the
holders of Parity Shares, if any, in proportion to the amounts that
each would have been entitled to receive if such assets were sufficient
to permit distribution in full as aforesaid.
(b) A Change in Control (as defined below) of the Company shall
be deemed to be a liquidation, dissolution and winding up of the
Company for the purposes of this Section 4. Upon the occurrence of a
Change in Control of the Company, the holders of the Series E Shares
shall be entitled to receive, in connection with such Change in
Control, and in exchange for or pursuant to the conversion of the
Series E Shares, an amount in cash equal to $10,000 per Series E Share
(as adjusted for any stock split, reverse stock split, stock dividend,
or similar event resulting in a change in the Series E Shares) plus an
amount equal to all dividends accrued but unpaid on such Series E Share
to the date of such Change in Control. The obligation of the Company
to make such payment shall be subject to such limitations and
restrictions as may then be imposed on the Company under applicable law
or governmental regulation. The exchange or conversion of the Series E
Shares pursuant to this Section 4(b) shall be subject to such
procedures as may be adopted by the Company to facilitate such exchange
or conversion.
(c) For purposes of this Section 4, a "Change in Control" of
the Company shall be deemed to have occurred upon consummation of:
<PAGE> 6
(i) any merger, consolidation, or reorganization of the
Company (a "Transaction") in which the shareholders of the
Company immediately prior to the Transaction do not, immediately
after the Transaction, beneficially own, directly or indirectly,
shares representing in the aggregate more than 50% of all votes
to which all shareholders of the corporation issuing cash or
securities in the Transaction (or of its ultimate parent
corporation, if any) are entitled under ordinary circumstances in
the election of directors, or in which the members of the
Company's Board of Directors immediately prior to the Transaction
do not, immediately after the Transaction, constitute a majority
of the board of directors of the corporation issuing cash or
securities in the Transaction (or of its ultimate parent
corporation, if any); or
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions contemplated or
arranged by any party as a single plan) of all or substantially
all of the Company's assets.
(d) Except as otherwise provided in this Section 4, neither the
c o nsolidation nor merger of the Company with or into another
corporation, nor the sale, lease, or transfer by the Company of any
part of its assets, nor the reduction of the authorized or issued
shares of the Company of any class, whether now or hereafter
authorized, shall be deemed to be a liquidation, dissolution, or
winding up of the Company for the purposes of this Section 4.
5. Conversion.
(a) Subject to the terms and conditions of this resolution, the
Series E Shares shall be convertible, at any time and from time to time
commencing on the 60th day following the Base Date and prior to the
Maturity Date, at the option of the holder thereof, into Common Shares
by surrender of the certificate or certificates for the Series E Shares
so to be converted at the principal executive offices of the Company
(or at such other place or places as may be designated by the Company)
at any time during normal business hours, together with notice that the
holder elects to convert such Series E Shares, or a stated number of
such shares, in accordance with the provisions of this Section 5. Such
notice shall also state the name or names (with addresses) in which the
certificate or certificates for Common Shares shall be issued. The
number of Common Shares that any such holder shall receive in return
for the Series E Shares converted by such holder shall be computed by
(i) multiplying (x) the sum of $10,000 (as adjusted for any stock
split, reverse stock split, stock dividend, or similar event resulting
in a change in the Series E Shares) times (y) the number of Series E
Shares being converted, and (ii) dividing the result by the Conversion
Price (as specified in Section 5(d) hereof) in effect on the Conversion
Date of such conversion.
(b) As promptly as practicable after exercise by any holder of
Series E Shares of such holder's option to convert Series E Shares
pursuant to the provisions of Section 5(a) hereof, the Company shall
deliver or cause to be delivered to or upon the written order of such
<PAGE> 7
holder one or more certificates representing the number of Common
Shares issuable upon such conversion, issued in such name or names as
s u ch holder may direct, together with, if the certificate or
certificates surrendered evidence a greater number of Series E Shares
than the number of Series E Shares to be converted, one or more
certificates evidencing the Series E Shares not to be converted, and
together with any cash in respect of any fractional interest in a
Common Share issuable upon such conversion. Each such conversion shall
be deemed to have been made immediately prior to the close of business
on the Conversion Date of such conversion, and all rights of the
converting holder as the holder of the Series E Shares surrendered for
conversion shall cease at such time and the person or persons in whose
name or names the certificate or certificates for the Common Shares
issuable upon conversion are to be issued shall be treated for all
purposes as having become the record holder or holders thereof at such
time, except that, if the Conversion Date of such conversion is a date
when the stock transfer books of the Company are closed, such person or
persons shall be deemed to have become the holder or holders of such
shares at the close of business on the next succeeding date on which
the stock transfer books are open.
(c) Subject to the terms and conditions of this resolution, all
Series E Shares outstanding on the Maturity Date shall automatically be
d e emed to have been surrendered for conversion (and shall be
automatically converted) into Common Shares on the Maturity Date. The
number of Common Shares that each holder of such Series E Shares shall
receive in return for each Series E Share deemed surrendered for
conversion by such holder shall be computed by dividing (x) the sum of
$10,000 (as adjusted for any stock split, reverse stock split, stock
dividend, or similar event resulting in a change in the Series E
Shares) plus an amount equal to all dividends accrued but unpaid on
such Series E Share to the day next preceding the Maturity Date by (y)
the Conversion Price in effect on the Maturity Date. Such conversion
shall be deemed to have been made at 5:00 p.m., Dallas time, on the
Maturity Date, and all rights of the holders of the Series E Shares as
such holders shall cease at such time and the person or persons in
whose name or names the certificate or certificates for the Common
Shares issuable upon such conversion are to be issued shall be treated
for all purposes as having become the record holder or holders thereof
at such time, except that, if the Maturity Date is a date when the
stock transfer books of the Company are closed, such person or persons
shall be deemed to have become the holder or holders of such shares at
the close of business on the next succeeding date on which the stock
transfer books are open. As promptly as practicable after the
certificates for the Series E Shares are actually surrendered for
conversion at the principal executive offices of the Company (or at
such other place or places as may be designated by the Company), the
Company shall deliver or cause to be delivered to or upon the written
order of the holder of such Series E Shares one or more certificates
representing the number of Common Shares issuable upon such conversion
as aforesaid, issued in such name or names as such holder may direct,
together with any cash in respect of any fractional interest in a
Common Share issuable upon such conversion.
(d) The Conversion Price applicable to any conversion of Series
E Shares pursuant to this Section 5 shall be an amount (rounded up to
<PAGE> 8
the nearest whole cent) equal to the lesser of (i) 120% of the Current
Market Price of the Common Shares as of the Base Date (the "Base
Conversion Price") and (ii) 87% of the Current Market Price of the
Common Shares as of the Conversion Date of such conversion; provided
that if the Company shall pay a dividend or make any other distribution
to all holders of the Common Shares payable in Common Shares or shall
subdivide its outstanding Common Shares into a greater number of
shares, the Base Conversion Price in effect immediately prior thereto
shall be proportionately reduced, and if the Company shall combine its
outstanding Common Shares into a smaller number of shares, the Base
C o nversion Price in effect immediately prior thereto shall be
proportionately increased. An adjustment made pursuant to the proviso
o f t he immediately preceding sentence shall become effective
retroactively immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision or combination.
(e) In case of (i) any reclassification of or change in the
outstanding Common Shares (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or
merger of the Company with or into another corporation (other than a
merger in which the Company is the surviving corporation and which does
not result in any reclassification of or change in the outstanding
Common Shares or a consolidation or merger as a result of which the
Series E Shares are converted into cash, shares of stock or other
securities or other property upon the effectiveness thereof), or (iii)
any sale or conveyance to another entity of the assets of the Company
as an entirety or substantially as an entirety (other than a sale or
conveyance as a result of which the Series E Shares are exchanged for
or converted into cash or other property pursuant to Section 4(b)
hereof or otherwise), then, in each such case, appropriate provision
shall be made, effective as of the effective date of any such
reclassification, change, consolidation, merger, sale, or conveyance,
as the case may be, whereby the holder of each Series E Share then
outstanding shall have the right thereafter to convert such Series E
Share into the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, change,
consolidation, merger, sale, or conveyance by a holder of the number of
Common Shares into which such Series E Share could have been converted
immediately prior to such reclassification, change, consolidation,
merger, sale, or conveyance. In each such case, appropriate adjustments
shall be made in the application of the provisions of this resolution
with respect to the rights and interests thereafter of the holders of
the Series E Shares, to the end that the provisions of this resolution
shall thereafter be applicable, as nearly as reasonably may be, to the
shares of stock or other securities or property thereafter deliverable
upon the conversion of Series E Shares. The above provisions of this
Section 5(e) shall similarly apply to successive reclassifications,
changes, consolidations, mergers, sales, and conveyances.
(f) Whenever the Base Conversion Price is adjusted as provided
in Section 5(d) hereof, then, in each such case, the Company shall
promptly give to the holders of the Series E Shares, of record not more
than 15 days before the date such notice is given, a notice stating the
<PAGE> 9
adjusted Base Conversion Price then and thereafter effective under this
Section 5. An affidavit of the Secretary of the Company that any such
notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(g) In case at any time:
(i) the Board of Directors of the Company shall
declare a dividend (or any other distribution) on the
Common Shares (other than a dividend or distribution
payable in cash or Common Shares); or
(ii) the Board of Directors of the Company shall
authorize the granting to all holders of the Common Shares
of options, warrants, or rights to subscribe for or to
purchase any shares of stock of any class or of any other
options, warrants, or rights; or
(iii) the Board of Directors of the Company shall
authorize any reclassification of the Common Shares (other
than a subdivision or combination of the outstanding Common
Shares or a change in par value, or from par value to no
par value, or from no par value to par value), any
consolidation or merger of the Company for which approval
of any shareholders of the Company is required, or the sale
or conveyance of all or substantially all the assets of the
Company; or
(iv) the Board of Directors of the Company shall
a u thorize the voluntary liquidation, dissolution, or
winding up of the Company;
then the Company shall cause to be given to each holder of Series E
Shares, as promptly as possible but in any event at least 15 days prior
to the applicable date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, or granting of options, warrants, or rights, or, if a
record is not to be taken, the date as of which the holders of Common
Shares of record to be entitled to such dividend, distribution, or
options, warrants, or rights are to be determined, or (y) the date on
which such reclassification, consolidation, merger, sale, conveyance,
l i quidation, dissolution, or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Shares of record shall be entitled to exchange their Common
S h ares for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, conveyance, liquidation,
dissolution, or winding up. Failure to give any such notice or any
defect therein shall not affect the validity of the proceedings
referred to in clauses (i), (ii), (iii), and (iv) above.
(h) No fractional Common Shares shall be issued upon the
conversion of Series E Shares. If more than one Series E Share shall
be surrendered for conversion at one time by the same holder, the
number of full Common Shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of Series E Shares so
<PAGE> 10
surrendered. If any fractional interest in a Common Share would,
except for the provisions of this Section 5(h), be deliverable upon the
conversion of any Series E Share or Shares, the Company shall, in lieu
of delivering the fractional share therefor, pay to the holder of such
surrendered Series E Share or Shares an amount in cash (computed to the
nearest whole cent) equal to such fraction multiplied by the Current
Market Price of the Common Shares as of the Conversion Date of such
conversion.
(i) The Company shall at all times reserve and keep available
out of its authorized but unissued shares solely for the purpose of
issue upon conversion of the Series E Shares, as provided in this
Section 5, such number of Common Shares as shall from time to time be
sufficient to effect the conversion of all outstanding Series E Shares,
and upon the issuance thereof upon conversion, all in accordance with
the provisions of this Section 5, such Common Shares shall be validly
issued, fully paid, and nonassessable.
(j) The issuance of certificates for Common Shares shall be
made without charge for any tax in respect of such issuance. However,
if any such certificate is to be issued in a name other than that of
the holder of the converted Series E Shares, the Company shall not be
required to issue or deliver any certificate or certificates unless (i)
the holder has paid to the Company the amount of any tax that may be
payable in respect of any transfer involved in such issuance or shall
establish to the satisfaction of the Company that such tax has been
paid and (ii) the certificate for the Series E Shares surrendered for
conversion shall be duly endorsed or accompanied by a duly executed
stock power.
6. Redemption.
(a) Notwithstanding anything contained in this resolution to
the contrary, unless the approval of the shareholders referred to in
clause (i) or (ii) below has previously been obtained, the Company
shall not be required to issue any Common Shares pursuant to any
optional or automatic conversion of Series E Shares under Section 5
hereof, and the Series E Shares shall not be convertible into Common
Shares, if, and to the extent that, (i) the issuance of such Common
Shares upon conversion, when taken together with all prior issuances of
Common Shares pursuant to Section 3 or 5 hereof, would result in the
issuance by the Company of a number of Common Shares equal to or
greater than 20% of the number of Common Shares outstanding on the Base
Date (a "20% Issuance"), and such 20% Issuance requires the prior
approval of the shareholders of the Company pursuant to any rule,
regulation, stated policy, practice or interpretation of the NASDAQ
Stock Market applicable to the Company, or (ii) the Board of Directors
of the Company determines in good faith that the issuance of such
Common Shares upon conversion (whether or not constituting a 20%
Issuance) otherwise requires the prior approval of the shareholders of
the Company pursuant to any applicable rule, regulation, stated policy,
practice or interpretation of any stock exchange or stock market on
which the Common Shares are then listed or admitted to trading (such
prior approval of the shareholders referred to in clauses (i) and (ii)
above herein called the "Shareholder Approval Requirement").
<PAGE> 11
(b) Following the first conversion of Series E Shares (whether
pursuant to Section 5(a) or 5(c) hereof) to which the provisions of
Section 6(a) hereof are applicable, the Company (i) shall promptly give
to all holders of the Series E Shares (determined of record not more
than 15 days before the date such notice is given) a notice stating
that the Company is unable to issue any Common Shares upon conversion
of Series E Shares, and that the Series E Shares cannot be converted,
without compliance with the Shareholder Approval Requirement, and (ii)
shall take one of the following actions, at its election, within 20
days following the date of such notice:
(i) the Company shall notify all such holders of the
Series E Shares that it intends to seek shareholder approval
pursuant to the Shareholder Approval Requirement, in which event
the Company shall thereafter take all action necessary to duly
call, give notice of, convene and hold a meeting of its
shareholders as promptly as reasonably practicable to consider
and vote on such matter; or
(ii) the Company shall obtain from the stock exchange or
stock market on which the Common Shares are then listed or
admitted to trading a waiver of or exception to the Shareholder
A p p r oval Requirement and shall commence any mailing to
shareholders notifying them of such waiver or exception that is
required by the rules of such stock exchange or stock market; or
(iii) the Company shall notify all such holders of the
Series E Shares that it is redeeming all outstanding Series E
Shares pursuant to the following provisions of this Section 6;
provided, however, that if the Company elects to seek shareholder
approval pursuant to clause (i) above, and such shareholder approval is
not obtained within 75 days following the date of the Company's notice
to the holders of the Series E Shares that it intends to seek such
shareholder approval, the Company shall promptly following the end of
such 75-day period notify all holders of the Series E Shares that it is
redeeming all outstanding Series E Shares pursuant to the following
provisions of this Section 6. If the Shareholder Approval Requirement
is complied with or if a waiver of or exception to the Shareholder
Approval Requirement is obtained, the conversion rights of the holders
of the Series E Shares shall be reinstated.
(c) If the Company elects or is required to redeem the Series E
Shares pursuant to Section 6(b) hereof, the Company shall redeem, out
of funds legally available therefor, the whole of the Series E Shares
(a "Redemption") at a price per Series E Share equal to $11,490 (as
adjusted for any stock split, reverse stock split, stock dividend, or
similar event resulting in a change in the Series E Shares) plus an
amount equal to all dividends, if any, accrued but unpaid on such share
to the earlier of the date fixed for redemption or the Maturity Date
(the "Redemption Price").
(d) The Company's notice of redemption pursuant to Section 6(b)
hereof shall be given to each holder of record of the Series E Shares
to be redeemed and shall specify the redemption date of such Redemption
<PAGE> 12
(which redemption date shall not be later than 20 days following the
date of such notice of redemption), the place or places at which such
Redemption shall be effected and the Redemption Price and shall call
upon such holder to surrender to the Company, in the manner and at a
place designated, the certificate or certificates representing the
Series E Shares of such holder to be redeemed. No failure on the part
of the Company to give any notice of redemption required to be given by
it under this Section 6, and no defect in such notice or in the giving
thereof, shall affect the validity of the proceedings for such
Redemption, except as to a holder of Series E Shares (i) to whom the
Company has failed to give such notice or (ii) whose notice was
defective. An affidavit of the Secretary of the Company that notice of
redemption has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(e) Notwithstanding anything contained in this resolution to
the contrary, the obligation of the Company to redeem Series E Shares
at any given time shall be subject to such limitations and restrictions
as may then be imposed on the Company under applicable law or
governmental regulation. If, on the date on which a Redemption is to
be effected, the Company shall be unable, because of any applicable law
or governmental regulation, to redeem the total number of Series E
Shares to be redeemed on such date, the Company shall redeem, ratably
among the holders of the Series E Shares to be redeemed, the maximum
number of such Series E Shares (if any) which it shall be permitted to
redeem under such law or regulation. At any time thereafter when funds
of the Company are legally available for the redemption of Series E
Shares, such funds shall immediately be used to redeem the balance of
the Series E Shares that the Company has become obligated to redeem on
any such date or dates but which it has not redeemed. If such funds
are insufficient to redeem the total number of such Series E Shares,
such Series E Shares shall be redeemed ratably among the holders of the
Series E Shares.
(f) F r o m and after the date fixed for a Redemption,
notwithstanding that any certificate for Series E Shares to be redeemed
in such Redemption shall not have been surrendered for cancellation,
such Series E Shares shall no longer be deemed to be outstanding,
dividends thereon, if any, shall cease to accrue from and after the
earlier of the date so fixed or the Maturity Date, and all rights of
the holders of such Series E Shares shall forthwith after such
redemption date cease and terminate, excepting only the right of the
holders thereof to receive the Redemption Price thereof, but without
interest, upon the surrender of their respective certificates therefor;
provided that if, on or after the date fixed in any notice as the date
of redemption, the Company shall default in the payment of the
Redemption Price of any Series E Share entitled to redemption upon the
surrender of the certificate therefor, the dividend and all other
rights of the holder of such share (other than any conversion rights)
shall be reinstated retroactively to such redemption date.
(g) From and after the date fixed for a Redemption, the Company
shall, at the place or places specified in the notice of redemption,
upon presentation and surrender to the Company by the holder thereof of
one or more certificates representing the Series E Shares to be
<PAGE> 13
redeemed, deliver or cause to be delivered to or upon the written order
of such holder, a sum in cash equal to the Redemption Price of each
Series E Share of such holder to be redeemed, together with, if the
certificate or certificates presented and surrendered by such holder
represent a greater number of Series E Shares than the number of Series
E Shares to be redeemed from such holder, one or more new certificates
registered in the name of such holder and representing the Series E
Shares not redeemed.
(h) Except as provided in this Section 6, the Series E Shares
are not subject to any mandatory redemption by the Company. Except as
provided in Section 3(e) hereof, nothing in this resolution shall be
deemed to prohibit the Company from purchasing or otherwise acquiring
outstanding shares of its capital stock, whether now or hereafter
authorized, at any time and in any manner not prohibited by applicable
law.
(i) The Company shall not be required to maintain any sinking
fund for the redemption of Series E Shares pursuant to this Section 6.
7. Voting Rights.
(a) The holders of the Series E Shares shall not be entitled by
virtue of being such holders to vote on any matter submitted to a vote
at a meeting of shareholders except as specifically otherwise provided
by applicable statute and except as specified below in this Section 7.
(b) So long as any Series E Shares remain outstanding, the
affirmative vote or consent of the holders of at least 66-2/3% of the
Series E Shares outstanding at the time, given in person or by proxy,
either in writing or at a meeting, shall be necessary to permit, effect
or validate (i) the authorization, creation or issuance, or any
increase in the authorized or issued amount, of any class or series of
Senior Shares or (ii) the amendment, alteration or repeal of any of the
provisions of the Restated Articles of Incorporation which would
materially and adversely affect any right, preference, privilege or
voting power of Series E Shares or the holders thereof. The increase
in the amount of authorized preferred stock of the Company or the
authorization, creation and issuance, or increase in the authorized or
issued amount, of Parity Shares or Junior Shares shall not be deemed to
affect materially and adversely such rights, preferences, privileges or
voting power.
8. Miscellaneous.
(a) Series E Shares redeemed, purchased or otherwise acquired
by the Company or converted pursuant to Section 5 hereof shall
thereupon be deemed cancelled and shall be restored to the status of
authorized but unissued shares of Preferred Stock, par value $100 per
share, of the Company (without serial designation) and may be reissued
as Series E Shares or shares of any other series of Preferred Stock as
shall be determined by the Board of Directors of the Company.
(b) Any notice or other communication to be given under this
resolution shall be in writing and shall be deemed to have been given
<PAGE> 14
if (i) delivered personally, (ii) mailed by registered or certified
United States mail, postage prepaid, return receipt requested, (iii)
sent by prepaid overnight courier service or (iv) sent by telecopy or
facsimile transmission, answer back requested, addressed as follows: if
to the Company, at its principal executive offices to the attention of
the President of the Company, and if to a holder of Series E Shares, at
the last address of such holder as it shall appear on the register
m a i n tained by or for the Company. Such notices and other
communications shall be effective (i) if delivered personally or sent
by courier service, upon actual receipt by the intended recipient, (ii)
if mailed, upon the date of delivery as shown by the return receipt
therefor or (iii) if sent by telecopy or facsimile transmission, when
the answer back is received.
<PAGE> 15
EXHIBIT 10.1
PLACEMENT AGENT AGREEMENT
Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Gentlemen:
This letter will confirm our mutual agreement with respect to our engagement
as exclusive Placement Agent ("Distributor") to act on behalf of Carrington
Laboratories, Inc. (the "Company") in connection with the offer and sale on
a best efforts basis of 660 Shares of Series E Convertible Preferred Stock
($100 par value) of the Company ("Preferred Shares") pursuant to Regulation
D promulgated under the Securities Act of 1933, as amended (the "Act").
Irrespective of the name given to the Preferred Shares, no dividends shall
be payable on the Preferred Shares during or in respect of the first 24
months following their issuance, and any dividends payable on the Preferred
Shares may be paid either in cash or in shares of Common Stock, or both, as
the Company elects.
1. The engagement hereunder shall commence upon the execution of this letter
by the Company, and terminate on October 22, 1996. You represent that no
other offering under Regulation S or Regulation D is presently in progress
by the Company which has not been disclosed to us.
2.(a) The net proceeds to be received by the Company after deducting the
Distributor's fees of $257,400 shall be $6,342,600. Other than the
Distributor's fees payable hereunder, the Distributor shall not be entitled
to any additional compensation from the Company, nor shall Distributor be
reimbursed for its expenses. The Company shall pay the Escrow Agent's (as
defined below) fee of $10,000.
(b) Each purchaser of Preferred Shares will, within two business days after
acceptance by the Company of a Stock Purchase Agreement ("Stock Purchase
Agreement") signed by such purchaser in the form annexed hereto as Exhibit
A, pay the purchase price for the Preferred Shares in escrow to the Escrow
Agent. The Escrow Agent is authorized to release the funds of all
purchasers to the Company, the Distributor and the Escrow Agent, in
accordance with their respective interests, after
(I) the Company approves such purchasers and their subscription documents (in
the form of an exhibit hereto) which have been submitted and signed by such
purchasers, and
(ii) the Company has caused to be delivered to the Escrow Agent or his
designee, one or more certificates for the Preferred Shares purchased by such
purchasers and the opinion of counsel attached as Annex IV to the Stock
Purchase Agreement, and
<PAGE> 1
(iii). The Escrow Agent has received and is holding in escrow good funds
representing the total purchase price of $6,600,000 for the Preferred Shares.
(c) Each purchaser of Preferred Shares will be an accredited investor as said
term is defined in Rule 501 under Regulation D promulgated under the Act.
(d) The Company shall have the right in its sole discretion to reject any
subscription for Preferred Shares, and to disapprove any person or entity
which is proposed by the Distributor to be a purchaser of any Preferred
Shares.
3. The Company will cause the certificates representing the Preferred Shares
purchased pursuant to such Stock Purchase Agreement to be delivered to
Krieger & Prager, Esqs. as escrow agent (the "Escrow Agent") pursuant to the
terms of the Joint Escrow Instructions attached as Annex II to the Stock
Purchase Agreement.
4.(a) The Distributor represents, warrants and agrees that each purchaser of
the Preferred Shares will be qualified to purchase the Preferred Shares under
the laws of the jurisdiction in which such person resides and that the offer
and sale of the Preferred Shares will not violate the securities or other
laws of such jurisdiction. The Company and Distributor acknowledge that the
Distributor will primarily offer the Preferred Shares to persons not resident
in the United States. Distributor will inform the Company if the Company is
required to make any filings or take any other action in order to comply with
applicable laws or regulations of any jurisdiction outside the United States
in connection with the offering or sale of the Preferred Shares. The Company
agrees that with respect to any offerees resident in the United States, the
Company will file, at the request of Distributor, any applications with any
applicable state securities regulatory authority that are required to be
filed by the Company to qualify for an exemption from securities registration
or qualification requirements for the offer and sale of the Preferred Shares
to such offerees, provided, that all offerees will be accredited investors.
(b) The Distributor understands that the Preferred Shares have not been
registered under the Act and may not be offered or sold within the United
States or to, or for the account or benefit of, United States persons except
in accordance with the Act or pursuant to an exemption from the registration
requirements of the Act.
5.The Distributor further agrees that:
(a) all offering materials and documents used in connection with offers and
sales of the Preferred Shares prior to the expiration of the engagement
period shall be approved in advance in writing by the Company, and shall
include statements to the effect that the Preferred Shares have not been
registered under the Act and that neither the purchaser, nor any direct or
indirect purchaser of the Preferred Shares from such purchaser, may directly
or indirectly offer or sell the Preferred Shares in the United States or to
U.S. persons unless the Preferred Shares are registered under the Act, or an
exemption from the registration requirements of the Act is available;
<PAGE> 2
(b)Distributor is registered as a broker-dealer under the Exchange Act (as
hereinafter defined) and has (or, prior to making any offer or sale of the
Preferred Shares, will have) all licenses or registrations that it is
required to have under the securities or blue sky laws and regulations of
each jurisdiction in which it will make any offer of the Preferred Shares;
(c) Distributor will comply with all laws, rules and regulations of the
jurisdictions in which the Preferred Shares are offered and sold, and will
not make any offer or placement of any of the Preferred Shares to anyone in
the State of New York other than a bank, corporation, savings institution,
trust company, insurance company, investment company (as defined in the
Investment Company Act of 1940, as amended), pension or profit-sharing trust,
or other financial institution or institutional buyer; and
(d) Distributor has no authority to act on behalf of the Company or otherwise
bind the Company except as expressly set forth herein.
6. Distributor is an independent contractor, and is not the agent of the
Company. It is not authorized to bind the Company, or to make any
representations or warranties on behalf of the Company.
7. The Company represents, warrants, and agrees that, in addition to the
warranties to be made by the Company to the purchasers of Preferred Shares:
(a) the Common Stock to be issued upon conversion of the Preferred Shares has
been registered pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Company has timely filed all the
material required to be filed pursuant to Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve months preceding the date
hereof, except as otherwise disclosed by the Company to Distributor, and the
Company will continue to file all such material on a timely basis;
(b) the Company has registered its Common Stock pursuant to Section 12 of the
Exchange Act and the Common Stock is listed on the NASDAQ/NMS, and the
Company has received no notice, either oral or written, with respect to its
continued eligibility for such listing, except as annexed hereto as Exhibit
C;
(c). the Preferred Shares will be offered and sold in compliance with the
requirements for exemption from registration pursuant to Section 5 of the Act
contained in Regulation D, and with all other U.S. securities laws and
regulations; it being understood that this representation, warranty and
agreement is made relying exclusively on the representations, warranties and
agreements made by the Distributor and/or the purchasers of Preferred Shares
herein or in the applicable subscription documents. The Company will, at its
expense, make all filings and applications, if any, required under the Act
and any applicable domestic securities exchange or trading market in respect
of the offering contemplated hereby and the Conversion Shares;
(d). all information furnished by the Company to purchasers of Preferred
Shares under Regulation D will not contain any untrue statement of material
fact or omit to state a material fact required to be stated or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty does not extend to written material furnished to
the Company by Distributor relating to Distributor or the distribution
process;
<PAGE> 3
(e) the Company will not, for a period of one hundred eighty (180) days from
the date hereof, offer for sale or sell any securities if such offer or sale
would adversely affect the exemption under Regulation D from the requirement
to register the offering and sale of the Preferred Shares under Section 5 of
the Act;
(f) the Company has all requisite corporate power and authority to execute
and perform this agreement. All corporate action of the Company necessary
for the authorization, execution, delivery and performance by the Company of
this agreement and the transaction contemplated hereby has been taken. This
agreement constitutes a valid and binding obligation of the Company;
(g) the execution and performance of this agreement by the Company and the
offer and sale of the Preferred Shares will not violate any provision of the
Articles of Incorporation or Bylaws of the Company or any material agreement
or other instrument to which the Company is party or by which it is bound,
and which violation(s) would have a material adverse effect on the business
or financial condition of the Company. Any material necessary approvals,
U.S. governmental and private, required with respect to the issuance and sale
of the Preferred Shares will be obtained by the Company prior to the issuance
of the Preferred Shares;
(h) the Company makes no other representation or warranty with respect to the
Company, its finances, assets, business or prospects or otherwise, except as
expressly set forth herein or in the Stock Purchase Agreement. Distributor
will advise each purchaser and potential purchaser of Preferred Shares of the
foregoing, and that such purchaser is relying on its own investigation with
respect to all such matters, and that it will be given reasonable access to
any and all material publicly available documents and Company personnel it
may require for such investigation; and
(I) The Company will deliver to each purchaser of Preferred Shares, a
Registration Rights Agreement substantially in the form annexed to the Stock
Purchase Agreement as Annex III, and will comply with all of its obligations
thereunder.
8. The Company will provide Escrow Agent, as Agent for the purchaser, with
an opinion of counsel substantially in the form attached as Annex IV to the
Stock Purchase Agreement.
<PAGE> 4
9. If, during the period of one hundred eighty (180) days immediately
following the Closing Date, the Company proposes to engage a third party to
act as placement agent, for compensation, in a private placement by the
Company of Common Stock or securities convertible into Common Stock, the
Company will give the Distributor written notice of such fact. Such notice
shall describe the proposed terms of the third party's engagement and the
proposed terms of the private placement. If, within ten (10) days after its
receipt of such notice, the Distributor notifies the Company in writing that
it is willing to act as placement agent and to make such private placement
on the terms set forth in the Company's notice or on other terms acceptable
to the Company, the Company shall engage the Distributor to act as placement
agent and to make the private placement on such terms, unless the Company
elects not to make the proposed private placement or not to engage any
placement agent in connection therewith. If the Distributor does not no
notify the Company within such ten (10) day period, the Company shall be free
to engage a third party to act as placement agent and to make the private
placement on terms that are substantially the same as those described in the
Company's above-mentioned notice to the Distributor, provided such engagement
and such private placement occur within ninety (90) days after the expiration
of the above-mentioned ten (10) day period. The foregoing provisions of this
Section 9 shall have no application to the engagement by the Company of (a)
a third party to assist the Company in connection with a transaction
involving the Company's issuance of securities as consideration for its
acquisition of a business or the assets thereof or (b) underwriters for an
underwritten public offering of securities.
10. As more fully described in Exhibit B hereto, which is incorporated herein
by reference, each party hereto will indemnify and hold the other (including
its directors, officers, agents, employees, and controlling persons within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
harmless from and against certain claims, liabilities, losses, damages and
expenses incurred, including fees and disbursements of counsel, related to
or arising out of this engagement. Exhibit B will be executed and delivered
simultaneously with this agreement.
11. This agreement shall be governed by and construed under the laws of the
State of New York without giving effect to principles governing the conflicts
of laws. A facsimile transmission of this signed agreement shall be legal
and binding on all parties hereto. Capitalized terms not defined herein
shall have the respective meanings ascribed to them in the Stock Purchase
Agreement.
Dated: _____________________, 1996
FIRST GRANITE SECURITIES, INC.
By: _____________________________________
AGREED & ACCEPTED:
CARRINGTON LABORATORIES, INC.
By: _________________________________________
Its _________________________________
<PAGE> 5
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
In consideration of the agreement of FIRST GRANITE SECURITIES, INC.
(hereinafter "Distributor") to act on behalf of CARRINGTON LABORATORIES, INC.
(the "Company") pursuant to the Placement Agent Agreement (the "Agreement")
dated ______________, 1996, the Company agrees to indemnify and hold harmless
Distributor and each of its directors, officers, agents, employees and
controlling persons (within the meaning of the Securities Act of 1933, as
amended) (Distributor and each such other person or entity are hereinafter
referred to as an "Indemnified Person"), from and against any losses, claims,
damages, expenses and liabilities or actions in respect thereof (collectively
"Losses"), as they may be incurred including all reasonable legal fees and
other reasonable expenses incurred in connection with investigating,
preparing, defending, paying, settling or compromising any Losses (whether
or not in connection with any pending or threatened litigation in which any
Indemnified Person is a named party) to which any of them may become subject
(including in any settlement effected with the Company's consent) as a result
of any claim, investigation or legal proceeding made or instituted by any
third party relating to or arising out of Distributor's engagement under the
Agreement (excluding any engagement that may arise out of the right of first
refusal set forth in Section 9 of the Agreement). The Company will not,
however, be responsible under the foregoing provisions with respect to any
Losses (a) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such Losses resulted primarily from
actions taken or omitted to be taken by an Indemnified Person due to its
gross negligence, bad faith, willful misconduct, or breach of any covenant,
representation or warranty in the Agreement, (b) resulting solely from one
or more decreases in the market price of the Company's common stock, or (c)
to the extent that such Losses consist of amounts paid or agreed to be paid
in settlement of any claim or lawsuit, if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld.
<PAGE> 1
If the indemnity referred to in this agreement should be, for any reason
whatsoever (other than any of the reasons set forth in the last sentence of
the immediately preceding paragraph), unenforceable, unavailable or otherwise
insufficient to hold such Indemnified Person harmless for any Losses for
which the Company has agreed to hold such Indemnified Person harmless
hereunder, the Company shall pay to or on behalf of each Indemnified Person
contributions for Losses so that each Indemnified Person ultimately bears
only a portion of such Losses as is appropriate (i) to reflect the relative
benefits received by each such Indemnified Person, respectively, on the one
hand and the Company on the other hand in connection with the transaction,
or (ii) if the allocation on that basis is not permitted by applicable law,
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of each such Indemnified Person, respectively, and
the Company as well as any other relevant equitable considerations; provided,
however, that in no event shall the aggregate contribution of all Indemnified
Persons to all Losses in connection with any transaction exceed the value of
the consideration actually received by Distributor pursuant to the Agreement.
The respective relative benefits received by Distributor and the Company in
connection with any transaction shall be deemed to be in the same proportion
as the aggregate consideration received by Distributor in connection with the
transaction bears to the total consideration of the transaction. The
relative fault of each Indemnified Person and the Company shall be determined
by reference to, among other things, whether the actions or omissions to act
were by such Indemnified Person or the Company, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action or omission to act.
The Company also agrees that no Indemnified Person shall have any liability
to the Company or its affiliates, directors, officers, employees, agents or
shareholders, directly or indirectly, related to or arising out of the
Agreement, except that each Indemnified Person shall indemnify and hold
harmless the Company, its directors, officers, agents, consultants and
controlling persons from and against any Losses as they are incurred, which
result primarily from actions taken or omitted to be taken by such
Indemnified Person due to its gross negligence, bad faith, willful misconduct
or breach of any covenant, representation or warranty made by Distributor in
the Agreement. In no event, regardless of the legal theory advanced, shall
the Company or any Indemnified Person be liable for any consequential,
indirect, incidental or special damages of any nature.
<PAGE> 2
If any action is brought against any Indemnified Person in respect of which
indemnity may be sought against the Company hereunder, such Indemnified
Person shall promptly notify the Company in writing of such action and the
Company shall be entitled to participate therein and, to the extent the
Company shall wish, assume the defense thereof. Upon the request of an
Indemnified Person, the Company shall retain counsel reasonably satisfactory
to such Indemnified Person to represent such Indemnified Person and any
others the Company may designate in such action and shall pay the reasonable
fees and expenses of such counsel related thereto as they are incurred. In
any such action, an Indemnified Person shall have the right to retain its own
counsel at its own expense, except that the Company shall pay as they are
incurred the reasonable fees and expenses of counsel retained by such
Indemnified Person only in the event that (i) the Company and such
Indemnified Person shall have mutually agreed to the retention of such
counsel or (ii) the Company has directed counsel to represent one or more
parties in addition to such Indemnified Person in such action, and in the
written opinion of such counsel, representation of both such Indemnified
Person and such other party or parties by the same counsel would be
inappropriate due to actual or potential conflict of interests between them,
it being understood that the Company shall not be liable for the reasonable
fees and expenses of more than one separate firm for all the Indemnified
Persons. No indemnification provided for herein shall be available to any
Indemnified Person that fails to give notice as provided above if the Company
was unaware of the action to which such notice would have related and was
substantially prejudiced by such failure or to any Indemnified Person that
retains its own counsel in accordance with the immediately preceding sentence
except in the circumstances set forth in clause (i) or (ii) thereof. The
Company agrees that without Distributor's prior written consent it shall not
settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding related to the Agreement unless
the settlement, compromise or consent also includes an express unconditional
release of all Indemnified Persons from all liability and obligations arising
therefrom. If the Company pays any amount to or for the benefit of any
Indemnified Person(s) pursuant to this agreement, and it is subsequently
determined by a final judgment of a court of competent jurisdiction that the
Company was not obligated to pay such amount hereunder, the Indemnified
Person(s) to or for whose benefit such amount was paid shall, upon demand by
the Company, immediately pay such amount in full to the Company.
The respective obligations of the Company and the Indemnified Persons
referred to above shall be in addition to any rights that any Indemnified
Person or the Company, as the case may be, may otherwise have and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of any Indemnified Person and the Company. It is
understood that the respective obligations of the Company and the Indemnified
Persons will remain operative regardless of any termination or completion of
Distributor's services pursuant to the Agreement.
<PAGE> 3
FIRST GRANITE SECURITIES, INC.
By: _____________________________________
Title: __________________________
CARRINGTON LABORATORIES, INC.
By: _____________________________________
Title: __________________________
<PAGE> 4
EXHIBIT 10.3
ANNEX II
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the Stock
Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Attention: Samuel M. Krieger, Esq.
Dear Sirs:
As escrow agent for both Carrington Laboratories, Inc., a Texas
corporation (the "Company"), and the purchaser (the "Purchaser")
of shares (the "Preferred Shares") of Series E Convertible
Preferred Stock, $100 par value, of the Company, who is named in
the Stock Purchase Agreement between the Company and the
Purchaser to which a copy of these Joint Escrow Instructions is
attached as Annex II (the "Agreement"), you (hereafter, the
"Escrow Agent") are hereby authorized and directed to hold the
documents and funds (together with any interest thereon, the
"Escrow Funds") delivered to the Escrow Agent pursuant to the
terms of the Agreement in accordance with the following
instructions:
<PAGE> 1
1. The Escrow Agent shall, as promptly as feasible, notify the
Company of receipt of the purchase price for the Preferred
Shares from the Purchaser, and notify the Purchaser (or such
agent as the Purchaser may designate in writing) of receipt of
certificates for the Preferred Shares (each a "Certificate" and
collectively the "Certificates"). As promptly as feasible after
the Escrow Agent's receipt of notices (whether oral or written)
from the Company and the Purchaser that the respective
conditions precedent in the Agreement to the sale and purchase
of the Preferred Shares have been satisfied (which notices shall
not be unreasonably withheld), the Escrow Agent shall release
the Escrow Funds as follows: (a) an amount equal to the fee due
to Distributor under the letter agreement dated October , 1996
(the "Placement Agent Agreement") between the Company and
Distributor shall be released to or upon the order of the
Distributor; (2) an amount equal to $10,000 shall be released to
or upon the order of the Escrow Agent in payment of the Escrow
Agent's fees pursuant to the Placement Agent Agreement; and (3)
the entire remaining balance of the Escrow Funds shall be
released to or upon the order of the Company. The Escrow Agent
shall be deemed to have received such notice of satisfaction of
conditions precedent from the Purchaser if the Purchaser does
not give such notice to Escrow Agent within two (2) business
days following the Escrow Agent's delivery to the Purchaser by
telecopy of the photocopies Certificates, unless the Purchaser
notifies the Escrow Agent prior to the expiration of such two
business days that the conditions precedent to the obligations
of the Company were not waived or satisfied. If the
Certificates are not deposited with the Escrow Agent within ten
(10) days after receipt by the Company of notice of receipt by
the Escrow Agent of the Escrow Funds from the Purchaser, Escrow
Agent shall so notify the Purchaser and Purchaser shall be
entitled to cancel the subscription for the Preferred Shares and
demand repayment of the Escrow Funds. If the Company or the
Purchaser notifies the Escrow Agent that on the Closing Date (as
defined in the Agreement) the conditions precedent to the
obligations of the Company or the Purchaser, as the case may be,
under the Agreement were not satisfied or waived, then the
Escrow Agent shall return the Escrow Funds to the Purchaser and
shall return the Certificates to the Company. Prior to return
of the Escrow Funds to the Purchaser, the Purchaser shall
furnish such tax reporting or other information as shall be
appropriate for the Escrow Agent to comply with applicable
United States laws. The Escrow Agent shall deposit all funds
received hereunder in the Escrow Agent's interest-bearing
attorney escrow account at The Bank of New York.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the
Purchaser and the Escrow Agent.
<PAGE> 2
3. The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely
and shall be protected in relying or refraining from acting on
any instrument reasonably believed by the Escrow Agent to be
genuine and to have been signed or presented by the proper party
or parties. The Escrow Agent shall not be personally liable for
any act the Escrow Agent may do or omit to do hereunder as
Escrow Agent while acting in good faith, except for fraud or
other willful misconduct or gross negligence, and any act done
or omitted by the Escrow Agent pursuant to the advice of the
Escrow Agent's independent attorneys-at-law shall be evidence of
such good faith.
4. The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any
other person or corporation, excepting only orders or process of
courts of law, and is hereby expressly authorized to comply with
and obey orders, judgments or decrees of any court. In case the
Escrow Agent obeys or complies with any such order, judgment or
decree, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person, firm or corporation by
reason of such decree being subsequently reversed, modified,
annulled, set aside, vacated or found to have been entered
without jurisdiction, in the absence of fraud or other willful
misconduct or gross negligence on the part of the Escrow Agent.
5. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or
delivering or purporting to execute or deliver the Agreement or
any documents or papers deposited or called for hereunder, in
the absence of fraud or other willful misconduct or gross
negligence on the part of the Escrow Agent.
6. The Escrow Agent shall be entitled to employ such legal counsel
and other experts as the Escrow Agent may deem necessary
properly to advise the Escrow Agent in connection with the
Escrow Agent's duties hereunder, may rely upon the advice of
such counsel, and may pay such counsel reasonable compensation
therefor. The Escrow Agent has acted as legal counsel for
Distributor in connection with the Agreement and may continue to
act as legal counsel for Distributor, from time to time,
notwithstanding its duties as Escrow Agent hereunder.
7. The Escrow Agent's responsibilities as Escrow Agent hereunder
shall terminate if the Escrow Agent shall resign by written
notice to the Company and the Purchaser. In the event of any
such resignation, the Purchaser and the Company shall appoint a
successor Escrow Agent, and the Escrow Agent shall promptly
deliver all Escrow Funds, Certificates and documents in its
possession hereunder to the successor Escrow Agent.
8. If the Escrow Agent reasonably requires other or further
instruments in connection with these Joint Escrow Instructions
or obligations in respect hereto, the necessary parties hereto
shall join in furnishing such instruments.
<PAGE> 3
9. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession
of the Certificates, documents or Escrow Funds held by the
Escrow Agent hereunder, the Escrow Agent is authorized and
directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or
any part of said documents or Escrow Funds until such disputes
shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree or judgment of
a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent
shall be under no duty whatsoever to institute or defend any
such proceedings, or (2) to deliver the Escrow Funds and any
other property and documents held by the Escrow Agent hereunder
to a state or federal court having competent subject matter
jurisdiction and located in the State and City of New York in
accordance with the applicable procedure therefor.
10. The Company agrees to indemnify and hold harmless the Escrow
Agent from any and all claims, liabilities, costs or expenses in
any way arising from or relating to the duties or performance of
the Escrow Agent hereunder other than any such claim, liability,
cost or expense to the extent the same shall have been
determined by final, unappealable judgment of a court of
competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Escrow Agent.
11. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed
effectively given upon personal delivery (including but not
limited to delivery by telefacsimile, cable, telegram, telex, or
courier) or three business days after deposit in the United
States Postal Service, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at such other
addresses as a party may designate by written notice to each of
the other parties hereto.
COMPANY: Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
ATT: Chief Financial Officer
Telefacsimile: (972) 756-0108
PURCHASER: At the address set forth in the Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
Telecopier No. (212) 213-2077
<PAGE> 4
12. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint
Escrow Instructions; the Escrow Agent does not become a party to
the Agreement. The Company and the Purchaser have become
parties hereto by their execution and delivery of the Agreement,
as provided therein.
13. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and
permitted assigns and shall be governed by the laws of the State
of New York without giving effect to principles governing the
conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and
binding on all parties hereto.
14. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
ACCEPTED BY ESCROW AGENT:
KRIEGER & PRAGER
By: _______________________________________
Date: _____________________________________
<PAGE> 5
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the date of acceptance set forth
below, is entered into by and between CARRINGTON LABORATORIES, INC., a Texas
corporation, with headquarters located at 2001 Walnut Hill Lane, Irving,
Texas 75038 (the "Company"), and the undersigned (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 under Regulation D ("Regulation D") as promulgated by
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to the
conditions of this Agreement, Series E Convertible Preferred Stock (par value
$100 per share) (the "Preferred Stock") of the Company which will be
convertible into shares of Common Stock, $.01 par value (the "Common Stock"),
of the Company upon the terms and subject to the conditions of such Preferred
Stock, subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase. The Buyer hereby agrees to purchase from the Company the
number of shares of Preferred Stock of the Company set forth on the signature
page of this Agreement and having the terms and conditions and being
substantially in the form of the Statement of Resolution attached hereto as
Annex I, at a purchase price of $10,000 per share. The aggregate purchase
price to be paid by Buyer for the Preferred Stock shall be as set forth on
the signature page hereto and shall be payable in United States Dollars.
b. Form of Payment. The Buyer shall pay the aggregate purchase price for
the Preferred Stock by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in the
Joint Escrow Instructions attached hereto as Annex II (the "Joint Escrow
Instructions") as set forth below. Subject to satisfaction of the conditions
set forth herein, promptly following payment by the Buyer to the Escrow Agent
of the aggregate purchase price of the Preferred Stock, the Company shall
deliver a certificate for the Preferred Stock, registered in the name of
Buyer and duly executed on behalf of the Company, to the Escrow Agent. By
signing this Agreement, the Buyer and the Company each agrees to all of the
terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by this
reference as if set forth in full.
<PAGE> 1
c. Method of Payment. Payment into escrow of the purchase price for the
Preferred Stock shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Escrow Account No. 637-1496910
Not later than 1:00 p.m., New York time, on the date which is three (3) New
York Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the
aggregate purchase price for the Preferred Stock, in immediately available
funds. Time is of the essence with respect to such payment, and failure by
the Buyer to make such payment, shall allow the Company to cancel this
Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with, the
Company, as of the date of acceptance of this Agreement and as of the Closing
Date (as defined in Section 7 hereof), as follows:
a. The Buyer is purchasing the Preferred Stock, and will be acquiring the
shares of Common Stock issuable upon conversion of, or in payment of
dividends on, the Preferred Stock, or issuable pursuant to Section 2(d) of
the Registration Rights Agreement (as hereinafter defined) (all such shares
of Common Stock herein referred to as the "Shares" and, together with the
Preferred Stock, the "Securities") for its own account for investment only
and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is defined in Rule
501 of the General Rules and Regulations under the 1933 Act by reason of Rule
501(a)(3), and (ii) experienced in making investments of the kind described
in this Agreement, and the related documents, (iii) able, by reason of the
business and financial experience of its officers and professional advisors
(who are not affiliated with or compensated in any way by the Company or any
of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Preferred Stock.
c. All subsequent offers and sales of any of the "Securities" by the Buyer
shall be made pursuant to registration of the Shares under the 1933 Act or
with respect to the Securities pursuant to an exemption from registration.
<PAGE> 2
d. The Buyer understands that the Preferred Stock is being offered and sold,
and the Shares are being offered, to it in reliance on specific exemptions
from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy
of, and the Buyer's compliance with, the representations, warranties,
agreements, acknowledgements and understandings of the Buyer set forth herein
in order to determine the availability of such exemptions and the eligibility
of the Buyer to acquire the Preferred Stock and to receive an offer of the
Shares. The Buyer understands that, upon the issuance thereof, the
Securities will be characterized as "restricted securities" under United
States federal securities laws, and that under such laws and applicable
regulations such Securities cannot be sold or otherwise disposed of without
registration under the 1933 Act or an exemption therefrom. In this
connection, the Buyer represents that it is familiar with Rule 144
promulgated under the 1933 Act, as currently in effect, and understands the
resale limitations imposed thereby and by the 1933 Act.
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Preferred Stock and the
offer of the Shares which have been requested by the Buyer, including Exhibit
A hereto. The Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and have received complete and
satisfactory answers to any such inquiries. Without limiting the generality
of the foregoing, the Buyer has also had the opportunity to obtain and to
review the Company's (1) Annual Report on Form 10-K and Annual Report to
Shareholders for the fiscal year ended December 31, 1995, (2) Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1996, and June
30, 1996 (3) definitive Proxy Statement for the annual meeting of
shareholders of the Company held on May 23, 1996 and (4) the private
placement memorandum attached as Exhibit A hereto.
f. The Buyer understands that its investment in the Securities involves a
high degree of risk.
g. The Buyer understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability
to general principles of equity and to bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally.
I. The Buyer is not purchasing the Preferred Stock for the purpose of
covering any short sales of the Common Stock made by the Buyer with the
Shares.
<PAGE> 3
j. The execution, delivery, and performance by Buyer of this Agreement and
the Registration Rights Agreement (as defined in Section 3(b) hereof), and
the consummation by it of the transactions contemplated hereby and thereby
do not and will not (i) if Buyer is a corporation, limited liability company,
partnership, trust, or other entity, conflict with or result in a violation
of any provision of the charter, bylaws, or similar organizational documents
of Buyer, (ii) conflict with or result in a violation of any provision of,
or constitute (with or without the giving of notice or the passage of time
or both) a default under, or give rise (with or without the giving of notice
or the passage of time or both) to any right or termination, cancellation,
or acceleration under, any agreement or other instrument or obligation to
which Buyer is a party or by which Buyer or any of its properties may be
bound, (iii) result in the creation or imposition of any lien or encumbrance
upon the properties of Buyer, or (iv) violate any applicable law binding upon
Buyer.
k. No consent, approval, order, or authorization of, or declaration, filing,
or registration with, any governmental agency or authority or any court
(including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976)
is required to be obtained or made by Buyer in connection with the execution,
delivery, or performance by Buyer of this Agreement or the consummation by
it of the transactions contemplated hereby.
l. Buyer hereby acknowledges and affirms that it has completed its own
independent investigation, analysis, and evaluation of the Company, that it
has made all such reviews and inspections of the business, assets, results
of operations, condition (financial or otherwise), and prospects of the
Company as it has deemed necessary or appropriate, and that in making its
decision to enter into this Agreement and to consummate the transactions
contemplated hereby it has relied solely on (i) its own independent
investigation, analysis, and evaluation of the Company and (ii) the
representations and warranties of the Company contained in this Agreement.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. Concerning the Shares. The Preferred Stock and the Shares have been (or
prior to the Closing Date will be) duly authorized and, when issued against
payment, will be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive rights of any stockholder of the
Company, as such, to acquire the Shares. The Company has registered its
Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934
and the Common Stock is listed on NASDAQ/NMS, and has received no notice,
either oral or written, with respect to discontinuance of its continued
eligibility for such listing.
<PAGE> 4
b. Stock Purchase Agreement; Registration Rights Agreement and Stock. This
Agreement and the Registration Rights Agreement, the form of which is
attached hereto as Annex III (the "Registration Rights Agreement"), have been
duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the
Registration Rights Agreement, when executed and delivered by the Company,
will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium, and
other similar laws affecting the enforcement of creditors' rights generally,
and, in the case of the Registration Rights Agreement, to public policy
considerations with respect to the enforceability of the indemnification
provisions thereof, and the Preferred Stock will, prior to the Closing Date,
be duly and validly authorized for issuance and, when issued and delivered
by the Company against payment therefor in accordance with this Agreement,
will be validly issued, fully paid and nonassessable.
c. Non-contravention. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by the
Company of the issuance of the Securities and the other transactions
contemplated by this Agreement and the Registration Rights Agreement do not
and will not (assuming the authorizations, approvals and consents referred
to in Section 3(d) are duly obtained) conflict with or result in a breach by
the Company of any of the terms or provisions of, or constitute a default
under, the articles of incorporation or by-laws of the Company, or any
indenture, mortgage, deed of trust, or other material agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any material existing applicable law, rule, or
regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its
properties or assets; it being understood that this representation and
warranty is made relying exclusively on the representations, warranties and
agreements made by the Distributor (as defined in Section 8(d) hereof) and
Buyer and the other purchasers of the Preferred Stock pursuant to the
offering contemplated by Exhibit A.
d. Approvals. Except for (i) approval of the listing of the Shares on the
NASDAQ/NMS, and (ii) any authorizations, approvals or consents required under
state securities or "blue sky" laws or under foreign securities laws, and
(iii) filing of the State of Resolution attached hereto as Annex I with the
Secretary of State of Texas, no authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the stockholders of the Company is required
to be obtained by the Company for the issuance and sale of the Securities to
the Buyer as contemplated by this Agreement; it being understood that this
representation and warranty is made relying exclusively on the
representations, warranties and agreements made by the Distributor (as
defined in Section 8(d) hereof) and Buyer and the other purchasers of the
Preferred Stock pursuant to the offering contemplated by Exhibit A.
<PAGE> 5
e. Information Provided. The information provided by or on behalf of the
Company to the Buyer and referred to in the last sentence of Section 2(e) of
this Agreement, as of the date of filing thereof with the SEC (in the case
of the annual reports, quarterly reports and proxy statement) and as of the
date of Exhibit A (in the case of the private placement memorandum), does not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading, provided that this
representation and warranty does not extend to written material furnished to
the Company by Distributor relating to Distributor or the distribution
process.
f. Absence of Certain Changes. Since June 30, 1996, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, outstanding securities, or
results of operations of the Company, except as disclosed in the documents
referred to in Section 2(e) hereof.
g. Absence of Litigation. Except as disclosed in the documents referred to
in Section 2(e) hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or any of its subsidiaries, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business, condition (financial or other), or results of
operations of the Company and its subsidiaries taken as a whole or the
transactions contemplated by this Agreement or which would adversely affect
the validity or enforceability of, or the authority or ability of the Company
to perform its obligations under, this Agreement or the Registration Rights
Agreement.
h. Absence of Events of Default. No Event of Default, as defined in any
agreement to which the Company is a party, and no event which, with the
giving of notice or the passage of time or both, would become an Event of
Default (as so defined), has occurred and is continuing under any material
agreement to which the Company is a party, which would have a material
adverse effect on the business, properties, condition (financial or other)
or results of operations of the Company and its subsidiaries taken as a
whole.
Except as set forth in this Agreement, the Company makes no
representations or warranties to Buyer and hereby disclaims all liability and
responsibility for any representation, warranty, statement, or information
made or communicated (orally or in writing) to Buyer in connection with this
Agreement or the transactions contemplated hereby (including but not limited
to any opinion, information, projection, or advice that may have been
provided to Buyer by an officer, director, employee, agent, consultant or
representative of the Company).
<PAGE> 6
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. The Buyer acknowledges that (1) the Preferred
Stock has not been and is not being registered under the provisions of the
1933 Act or any other applicable securities laws and, except as provided in
the Registration Rights Agreement, the Shares have not been and are not being
registered under the 1933 Act or any other applicable securities laws, and
may not be transferred unless (A) subsequently registered thereunder or (B)
the Buyer shall have delivered to the Company an opinion of counsel, such
counsel to be reasonably satisfactory to the Company and such opinion to be
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of
the Securities made in reliance on Rule 144 promulgated under the 1933 Act
may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Securities under
circumstances in which the seller, or the person through whom the sale is
made, may be deemed to be an underwriter, as that term is used in the 1933
Act, may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (3) neither the Company
nor any other person is under any obligation to register the Securities
(other than pursuant to the Registration Rights Agreement) under the 1933 Act
or any other applicable securities laws or to comply with the terms and
conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees, and each
transferee of the Securities shall acknowledge and agree, that the Preferred
Stock, and, until such time as the Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement and sold in
accordance with such Registration Statement, the certificates for the Shares,
shall bear a restrictive legend in substantially the following form and any
other legends required by agreement or applicable law (and a stop-transfer
order may be placed against transfer of the certificates for the Securities):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
c. Registration Rights Agreement. Subject to and contingent upon the
closing of the sale and purchase of the Preferred Stock, the parties hereto
agree to enter into the Registration Rights Agreement, in the form attached
hereto as Annex III, on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all necessary filings
in connection with the sale of the Preferred Stock to Buyer as required by
United States laws and regulations, or by any domestic securities exchange
or trading market, and to provide a copy thereof to the Buyer promptly after
such filing.
e. NASDAQ Notification. The Company shall timely file all required reports
with respect to the listing of the Shares on the NASDAQ/NMS with the National
Association of Securities Dealers, Inc. and shall provide evidence of such
filing to the Buyer.
<PAGE> 7
f. Use of Proceeds. The Company will use the proceeds from the sale of the
Preferred Stock (excluding amounts paid by the Company for legal fees and
finder's and other fees and expenses in connection with the sale of the
Preferred Stock) as described in the private placement memorandum attached
as Exhibit A.
5. TRANSFER AGENT INSTRUCTIONS.
Subject to the occurrence of the closing hereunder, and not later than the
Closing Date, the Company will irrevocably instruct its transfer agent to
issue certificates for the Shares from time to time upon conversion of the
Preferred Stock as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act and sale of
the Shares pursuant to such registration, registered in the name of the Buyer
or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Preferred Stock. The Company warrants
that no instruction other than such instructions referred to in this Section
5 and stop transfer and other instructions to give effect to Sections 4(a)
and (b) hereof prior to registration of the Shares under the 1933 Act and
sale of the Shares pursuant to such registration will be given by the Company
to the transfer agent with respect to the Shares and that the Shares shall
otherwise be freely transferable on the books and records of the Company as
and to the extent provided in and subject to this Agreement, the Registration
Rights Agreement, and applicable law. Nothing in this Section shall affect
in any way the Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities. If the Buyer
provides the Company with an opinion of counsel reasonably satisfactory to
the Company, and in accordance with clause (1)(B) of Section 4(a) of this
Agreement that registration of a resale by the Buyer of any of the Securities
is not required under the 1933 Act or any other applicable securities laws,
the Company shall (except as provided in clause (2) of Section 4(a) of this
Agreement) permit the transfer of the Securities and, in the case of the
Shares, promptly instruct the Company's transfer agent to issue one or more
share certificates in such name and in such denominations as specified by the
Buyer to effect such transfer.
6. STOCK DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof on a delivery against payment basis at the
closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock to Buyer
hereunder (the "Closing Date") shall be not later than 12:00 Noon, New York
time on October ____, 1996, or such other mutually agreed to time or date,
but not later than _________________, 1996 unless waived by the Company. The
closing shall occur on the Closing Date at the offices of the Escrow Agent
in New York City or such other location mutually agreed upon.
<PAGE> 8
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell and deliver the
Preferred Stock to the Buyer pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Company of this Agreement as evidenced
by execution of this Agreement by the Company for at least $20,000,000 in
Preferred Stock (or such lesser amount as the Company, in its sole
discretion, shall determine);
b. Delivery by the Buyer to the Escrow Agent and by the Escrow Agent to the
Company of good funds as payment in full of an amount equal to the aggregate
purchase price for the Preferred Stock in accordance with Sections 1(b) and
(c) hereof;
c. The accuracy on the Closing Date of the representations and warranties
of the Buyer contained in this Agreement as if made on the Closing Date and
the performance by the Buyer on or before the Closing Date of all covenants
and agreements of the Buyer required to be performed on or before the Closing
Date;
d. The accuracy on the Closing Date of the representations and warranties
of First Granite Securities, Inc. (the "Distributor"), the placement agent
for the offering and sale of the Preferred Stock, contained in the placement
agent agreement between the Company and the Distributor as if made on the
Closing Date, and the performance by the Distributor on or before the Closing
Date of all covenants and agreements of the Distributor required to be
performed on or before the Closing Date under such agreement, and the
delivery by the Distributor to the Company of a certificate to such effect,
dated the Closing Date.
e. Consummation on the Closing Date of the sale by the Company pursuant to
the offering contemplated by Exhibit A of not less than an aggregate of 2,000
shares of Preferred Stock for an aggregate purchase price of not less than
U.S. $20,000,000; and
f. There shall not be in effect any law, rule or regulation or court or
governmental order, injunction or decree, prohibiting or restricting the
transactions contemplated hereby or by the private placement memorandum
attached as Exhibit A, or requiring any consent or approval which shall not
have been obtained, and no legal proceeding shall be pending or threatened
seeking to restrain, prohibit, or obtain damages or other relief in
connection with such transactions;
g. All authorizations, consents and approvals of or filings with
governmental authorities or other persons necessary or required in connection
with the transactions contemplated by this Agreement and the private
placement memorandum attached as Exhibit A hereto shall have been duly
obtained or made.
<PAGE> 9
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the Preferred
Stock is conditioned upon:
a. Acceptance by the Company of this Agreement for the sale of Preferred
Stock, as indicated by execution of this Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the Preferred Stock and
the Registration Rights Agreement in accordance with this Agreement;
c. The accuracy on the Closing Date of the representations and warranties
of the Company contained in this Agreement as if made on the Closing Date and
the performance by the Company on or before the Closing Date of all covenants
and agreements of the Company required to be performed on or before the
Closing Date; and
d. On the Closing Date, the Escrow Agent, on behalf of the Buyers, having
received an opinion of counsel for the Company, dated the Closing Date,
substantially in the form set forth in Annex IV attached hereto.
10. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
abandoned at any time prior to the closing in the following manner:
a. By mutual written consent of the Company and Buyer; or
b. By the Company, if, on the Closing Date, any of the conditions to its
obligations set forth in this Agreement shall not have been satisfied and
shall not have been waived by the Company; or
c. By Buyer, if, on the Closing Date, any of the conditions to its
obligations set forth in this Agreement shall not have been satisfied and
shall not have been waived by Buyer.
11. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Any action brought to enforce, or
otherwise arising out of, this Agreement shall be heard and determined only
in either a federal or state court sitting in the County of New York in the
State of New York, U.S.A. A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto. This Agreement may be
signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference
and shall not form part of, or affect the interpretation of, this Agreement.
b. If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity
or enforceability of this Agreement in any other jurisdiction.
c. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement.
<PAGE> 10
d. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof.
e. Any notices required or permitted to be given under the terms of this
Agreement shall be in writing and shall be sent by United States registered
or certified mail with postage prepaid, return-receipt requested, or
delivered personally or by prepaid courier, or by telefacsimile, cable,
telegram or telex, and shall be effective three business days after being
placed in the mail, if mailed, or upon receipt, if delivered personally or
by courier, in each case addressed to a party at such party's address shown
in the introductory paragraph or on the signature page of this Agreement or
such other address as a party shall have provided by notice to the other
party in accordance with this provision.
f. Neither Buyer nor any of its affiliates shall issue any press release or
otherwise make any public statement with respect to this Agreement or the
transactions contemplated hereby without the prior written consent of the
Company.
g. Except as otherwise expressly provided in this Agreement, the Joint
Escrow Instructions or the Registration Rights Agreement, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fee or expense.
h. The parties hereto agree to indemnify and hold harmless each other from
and against any claim or demand for a commission or other compensation by any
financial advisor, broker, agent, finder, or similar intermediary claiming
to have been employed by or on behalf of such indemnifying party and to bear
the cost of legal fees and expenses incurred in defending against any such
claim or demand.
I. The representations and warranties of the parties hereto contained in
this Agreement or in any certificate, instrument, or document delivered
pursuant hereto shall survive the closing, regardless of any investigation
made by or on behalf of any party.
j. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors,
and permitted assigns. Neither this Agreement nor any of the rights,
interests, or obligations hereunder shall be assigned by any of the parties
hereto. Nothing in this Agreement, express or implied, is intended to or
shall confer upon any person other than the parties hereto, and their
respective heirs, legal representatives, successors, and permitted assigns,
any rights, benefits, or remedies of any nature whatsoever under or by reason
of this Agreement.
k. No failure or delay by a party hereto in exercising any right, power, or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power, or privilege. The provisions of
this Agreement may not be waived except by an instrument in writing signed
by or on behalf of the party against whom such waiver is sought to be
enforced.
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyer or one
of its officers thereunto duly authorized as of the date set forth below.
<PAGE> 11
NUMBER OF SHARES OF PREFERRED STOCK TO BE PURCHASED:
AGGREGATE PURCHASE PRICE OF SUCH PREFERRED STOCK:$
SIGNATURE(S) FOR INDIVIDUAL SUBSCRIBER(S)
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements
are true and correct and that he, she or they have executed this Stock
Purchase Agreement this ______ day of ______________, 1996.
_______________________________________________________________________
Printed Name Signature
_______________________________________________________________________
Address
Telecopier No. ________________________________________________________
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements
are true and correct and that it has caused this Stock Purchase Agreement to
be duly executed on its behalf this ________ day of ___________________,
1996.
________________________________ _____________________________________
Address Printed Name of Subscriber
________________________________
By: _________________________________
Telecopier No. _________________(Signature of Authorized Person)
_____________________________________
________________________________ Printed Name and Title
Jurisdiction of Incorporation
or Organization
This Agreement has been accepted as of the date set forth below.
CARRINGTON LABORATORIES, INC.
By:
Title:
Date:
ANNEX STATEMENT OF RESOLUTION OF SERIES E CONVERTIBLE PREFERRED STOCK
ANNEX IIJOINT ESCROW INSTRUCTIONS
ANNEX IIIREGISTRATION RIGHTS AGREEMENT
ANNEX IVOPINION OF COUNSEL
EXHIBIT APRIVATE PLACEMENT MEMORANDUM
<PAGE> 12
EXHIBIT 10.5
AMENDMENT
TO
STOCK PURCHASE AGREEMENT
This Amendment is being executed and delivered by Carrington
Laboratories, Inc., a Texas corporation (the "Company"), for the
purpose of amending that certain Stock Purchase Agreement (herein so
called) between the Company and the Buyer whose name is set forth on
the signature page hereof, relating to the sale by the Company to the
Buyer of shares of the Company's Series E Convertible Preferred Stock
(the "Preferred Stock").
WHEREAS, on October 11, 1996, the Company filed with the
Secretary of State of Texas a Statement of Resolution establishing the
Preferred Stock (the "Statement of Resolution"); and
WHEREAS, Section 6(b) of the Statement of Resolution requires the
Company, under certain circumstances, to take, at its election, one of
three specified actions (the action relating to shareholder approval
that is specified in Section 6(b)(i) of the Statement of Resolution is
herein called the "Shareholder Approval Action", the action relating to
obtaining a waiver of or exception to shareholder approval that is
specified in Section 6(b)(ii) of the Statement of Resolution is herein
called the "Waiver Action", and the action relating to redemption of
the Preferred Stock specified in Section 6(b)(iii) of the Statement of
Resolution is herein called the "Redemption Action"); and
WHEREAS, the Company has agreed to take such actions in a
specific order of priority, as set forth herein;
NOW, THEREFORE, the Company hereby agrees to amend the Stock
Purchase Agreement as follows:
A. Section 4 of the Stock Purchase Agreement is hereby amended
to add the following paragraph at the end of such Section:
g. Subject to the occurrence of the closing hereunder,
the Company hereby agrees with Buyer that, at such time as the
Company is required to take the Shareholder Approval Action, the
Waiver Action or the Redemption Action specified in Section
6(b)(i), (ii) and (iii) of the Statement of Resolution, the
Company will elect to take the Redemption Action, unless the
Board of Directors of the Company determines, in its reasonable
discretion, that taking the Redemption Action will result in a
financial hardship on the Company, and if the Board of Directors
of the Company determines that taking the Redemption Action will
result in such financial hardship, the Company will then use
commercially reasonable efforts to obtain the waiver or exception
described in the Waiver Action within the time period specified
for such action, and, only if the Company determines that it is
unable to obtain such waiver or exception within such specified
time period, will the Company then elect to take the Shareholder
Approval Action.
<PAGE> 1
B. As amended by this Amendment, the Stock Purchase Agreement
is in all respects ratified and confirmed, and the Stock Purchase<PAGE>
Agreement, as so amended, shall be read, taken and construed as one and
the same instrument. This Amendment shall become effective as of
October 15, 1996.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
signed by its duly authorized officer, as of October 15, 1996.
CARRINGTON LABORATORIES, INC.
By:__________________________
Sheri L. Pantermuehl
Chief Financial Officer
Name of Buyer:
<PAGE> 2
EXHIBIT 10.6
Annex III
to
Stock Purchase
Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of , 1996 (this
"Agreement"), is made by and between CARRINGTON LABORATORIES, INC., a Texas
corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Stock Purchase
Agreement, dated as of , 1996, between the Initial Investor and the
Company (the "Stock Purchase Agreement"), the Company has agreed to issue
and sell to the Initial Investor Series E Convertible Preferred Stock of the
Company (the "Preferred Stock") which will be convertible into shares of the
common stock, $.01 par value (the "Common Stock"), of the Company (the
"Conversion Shares") upon the terms and subject to the conditions of such
Preferred Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the Stock
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(I) "Investor" means the Initial Investor and any permitted transferee or
assignee of the Preferred Stock or the Conversion Shares who agrees to
become bound by the provisions of this Agreement in accordance with Section
9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the
Securities Act or any successor rule providing for offering securities on
a continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
<PAGE> 1
(iii) "Registrable Securities" means the Conversion Shares, any shares of
Common Stock issued in payment of dividends on the Preferred Stock, and any
shares of Common Stock issued pursuant to Section 2(d) of this Agreement.
(iv) "Registration Statement" means a registration statement of the Company
under the Securities Act.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Stock Purchase Agreement.
Registration.
Mandatory Registration. The Company shall, after the Closing Date (as that
term is defined in Section 7 of the Stock Purchase Agreement) prepare and
file with the SEC either a Registration Statement on Form S-3 covering at
least an aggregate of _________ shares of Common Stock for the Initial
Investors and any other purchasers of the Preferred Stock (pro rata) as
Registrable Securities (or such lesser number as may be required by the SEC,
but in no event less than the number of Conversion Shares into which the
Preferred Stock would be convertible at the time of filing of the Form S-3),
or an amendment to any pending Company Registration Statement on Form S-3,
and such Registration Statement or amended Registration Statement shall
state that, in accordance with Rule 416 under the Securities Act, it also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Stock to prevent dilution
resulting from stock splits, or stock dividends. If at any time the number
of shares of Common Stock into which the Preferred Stock may be converted
exceeds _________ shares of Common Stock, the Company shall, within ten (10)
business days after receipt of a written notice from any Investor requesting
the Company to do so, either (i) amend the Registration Statement filed by
the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to
register all shares of Common Stock into which the Preferred Stock may be
converted, or (ii) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an additional
Registration Statement on Form S-3 to register the shares of Common Stock
into which the Preferred Stock may be converted that exceed the _________
shares of Common Stock already registered.
Underwritten Offering. If any offering pursuant to a Registration Statement
pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities
subject to such underwritten offering shall have the right to select one
legal counsel to represent their interests, and an investment banker or
bankers and manager or managers to administer the offering, which investment
banker or bankers or manager or managers shall be reasonably satisfactory
to the Company. The Investors who hold the Registrable Securities to be
included in such underwriting shall pay all underwriting discounts and
commissions and other fees and expenses of such investment banker or bankers
and manager or managers so selected in accordance with this Section 2(b)
(other than fees and expenses relating to registration of Registrable
Securities under federal or state securities laws, which are payable by the
Company pursuant to Section 5 hereof) with respect to their Registrable
Securities and the fees and expenses of such legal counsel so selected by
the Investors.
<PAGE> 2
(c) Limitation on Right to Sell. Notwithstanding anything to the contrary
in this Agreement, if at any time or from time to time during the
effectiveness of the Registration Statement, the Company is engaged in or
proposes to engage in a registered public offering of securities of the
Company or any other transaction or activity which, in the good faith
determination of the Board of Directors of the Company, would be adversely
affected by offers or sales of Registrable Securities pursuant to the
Registration Statement to the detriment of the Company, the Investors shall,
upon the written request of the Company, cease making offers and sales of
Registrable Securities pursuant to the Registration Statement and sales
pursuant to Rule 144 under the Securities Act for the period of time
specified by the Company, which period shall not (i) in the case of a
registered public offering, exceed the period beginning ten (10) days prior
to the effective date of the registration statement relating to such
offering and ending thirty (30) days after such effective date, and (ii) in
the case of any other transaction or activity, exceed the period beginning
ten (10) days prior to, and ending thirty (30) days after, the date of
commencement of such other activity or date of consummation of such other
transaction. The period of time during which the Company is obligated to
maintain the effectiveness of the Registration Statement hereunder shall be
tolled during the period Investors must cease making offers and sales of
Registrable Securities pursuant to the Company's request under this Section
2(c). Each Investor agrees to enter into such further agreements with the
Company or any underwriter of securities of the Company as are reasonably
deemed necessary by the Company or any such underwriter to carry out the
purpose of this Section 2(c).
(d) Payments by the Company. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to
Section 2(a) hereof is not declared effective by the SEC on or before the
date that is eighty (80) days after the Closing Date (or, if such eightieth
day is a Saturday, Sunday or an SEC holiday, then on or before the date that
is the next business day following such eightieth day) (the "Initial Date"),
the Company will make payments to the Initial Investor in such amounts and
at such times as shall be determined pursuant to this Section 2(d). The
amount to be paid by the Company to the Initial Investor (the "Periodic
Amount") shall be equal to one percent (1%) of the purchase price paid by
the Initial Investor for the Preferred Stock pursuant to the Stock Purchase
Agreement for the first Computation Period (as hereinafter defined) and two
percent (2%) of such purchase price for each Computation Period, if any,
thereafter; provided, however, that if a Computation Period is fewer than
thirty (30) days, the Periodic Amount for such Computation Period shall be
prorated accordingly. The Periodic Amount shall be paid in cash or shares
of Common Stock or a combination of both, whichever the Company elects. If
the Company elects to pay all or any part of the Periodic Amount in shares
of Common Stock, the number of shares of Common Stock to be issued shall
have an Aggregate Market Value (as hereinafter defined) equal to the
Periodic Amount or the portion thereof that the Company has elected to pay
in shares of Common Stock. The full Periodic Amount shall be paid by the
Company within five (5) business days after the end of each Computation
Period.
<PAGE> 3
As used in this Section 2(d), the following terms shall have the following
meanings:
"Aggregate Market Value" of any shares of Common Stock for any Computation
Period means the product obtained by multiplying (a) such number of shares
of Common Stock times (b) the mean average of the closing bid prices per
share of Common Stock (or of the mean average of the high and low bid prices
per share of Common Stock on any trading day for which no sales are
reported) for the ten (10) consecutive trading days ending on the last day
of such Computation Period (or, if the last day of such Computation Period
is not a trading day, on the last trading day preceding the last day of such
Computation Period) on the principal trading market for the Common Stock,
as reported by such market.
"Computation Date" means:
(I) in the case of the first Computation Date, the date that is thirty (30)
days after the Initial Date; and
(ii) if the Registration Statement is not declared effective by the SEC on
or before the first Computation Date, each date that is thirty (30) days
after the last preceding Computation Date.
"Computation Period" means the period between one Computation Date and the
earlier of (i) the next succeeding Computation Date, or (ii) the date on
which the Registration Statement is declared effective by the SEC.
(e) Eligibility for Form S-3. The Company represents and warrants that it
meets all the requirements for the use of Form S-3 for registration of the
sale of Registrable Securities by the Initial Investor or any Investor who
purchases the Registrable Securities and the Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as
to maintain such eligibility for the use of Form S-3.
Obligations of the Company. In connection with the registration of the
Registrable Securities, the Company shall do each of the following:
Prepare and file with the SEC as soon as reasonably possible after the
Closing Date, a Registration Statement with respect to not less than the
number of Registrable Securities as provided in Section 2(a), above, and
thereafter use its best efforts to cause each Registration Statement
relating to Registrable Securities to become effective as soon as possible
after such filing, and keep the Registration Statement effective pursuant
to Rule 415 at all times until the earliest (the "Registration Period") of
(i) the date that is two years after the Closing Date, (ii) the date when
the Investors may sell all Registrable Securities under Rule 144 or (iii)
the date when the Investors no longer own any of the Registrable Securities.
The Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, but the Company shall
not be responsible for any untrue statement or omission made in reliance
upon and in conformity with information furnished in writing to the Company
by or on behalf of any Investor or any underwriter expressly for use in
connection with the preparation of the Registration Statement (including any
amendment or supplement thereto or prospectus contained therein);
<PAGE> 4
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to
keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act applicable to the Company with respect to
the disposition of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel, (i) promptly after the
same is prepared and publicly distributed, filed with the SEC, or received
by the Company, one (1) copy of the Registration Statement, each preliminary
prospectus and prospectus, and each amendment or supplement thereto, and
(ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other
documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities
or blue sky laws of such jurisdictions as the Investors who hold a majority
in interest of the Registrable Securities being offered reasonably request
and in which significant volumes of shares of Common Stock are traded
(except to the extent that exemptions from such registration or
qualification are available), (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to
such registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii)
take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period,
and (iv) take all other actions reasonably necessary or advisable to qualify
the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or
as a condition thereto to (A) qualify to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
3(d), (B) subject itself to general taxation in any such jurisdiction, (C)
file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to
the Company or (E) make any change in its charter or by-laws, which in each
case the Board of Directors of the Company determines to be contrary to the
best interests of the Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and use its best efforts
promptly to prepare a supplement or amendment to the Registration Statement
or other appropriate filing with the SEC to correct such untrue statement
or omission, and deliver a number of copies of such supplement or amendment
to each Investor as such Investor may reasonably request;
<PAGE> 5
(f) As promptly as practicable after becoming aware of such event, notify
each Investor who holds Registrable Securities being sold (or, in the event
of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time;
(g) Use its best efforts, if eligible, either to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed
on a national securities exchange and on each additional national securities
exchange on which securities of the same class or series issued by the
Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii)
secure designation of all the Registrable Securities covered by the
Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ") "national market system security"
within the meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the quotation of the
Registrable Securities on the NASDAQ/NMS; or if, despite the Company's best
efforts to satisfy the preceding clause (i) or (ii), the Company is
unsuccessful in doing so, to secure NASDAQ authorization and quotation for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities;
(h) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing Registrable Securities
sold pursuant to the Registration Statement, and enable such certificates
to be in such denominations or amounts, as the case may be, as the Investors
may reasonably request and registered in such names as the Investors may
request; and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with
copies to the Investors whose Registrable Securities are included in such
Registration Statement) an appropriate instruction and opinion of such
counsel; and
(j) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
2. Obligations of the Investors. In connection with the registration of
the Registrable Securities, the Investors shall have the following
obligations:
<PAGE> 6
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect
the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request. At least five (5) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If at least
two (2) business days prior to the filing date the Company has not received
the Requested Information from an Investor (a "Non-Responsive Investor"),
then the Company may file the Registration Statement without including
Registrable Securities of such Non-Responsive Investor, and the Company
shall thereafter have no obligation to include any Registrable Securities
of such Non-Responsive Investor in any Registration Statement for a period
of thirty (30) days after the date of filing of such Registration Statement,
and all expenses of such additional Registration Statement shall be borne
by such Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e) or 3(f),
above, such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 3(e) or 3(f) and, if so
directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate
of destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
(d) Each Investor agrees that it will not make any sale, transfer or other
disposition of any of the Registrable Securities that would constitute a
violation of the Securities Act, the Exchange Act, or any state securities
law or any rule or regulation under the Securities Act, the Exchange Act or
any state securities law.
(e) As promptly as possible after becoming aware of such fact, each
Investor shall notify the Company of any untrue statement of a material fact
regarding such Investor contained in the Registration Statement or the then
current prospectus related thereto, or any omission to state a material fact
regarding such Investor required to be stated therein, or necessary to make
the statements therein regarding such Investor, in light of the
circumstances in which they were made, not misleading; and such Investor
shall provide to the Company in writing all information necessary to correct
such untrue statement or omission.
<PAGE> 7
3. Expenses of Registration. All reasonable expenses, other than
underwriting discounts and commissions and other fees and expenses of
investment bankers and other than brokerage commissions, incurred in
connection with registrations, filings or qualifications pursuant to Section
3, but including, without limitation, all registration, listing, and
qualifications fees, printers and accounting fees, and the fees and
disbursements of counsel for the Company, shall be borne by the Company.
4. Indemnification. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors,
if any, of such Investor, the officers, if any, of such Investor, each
person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against
any losses, claims, damages, liabilities or expenses (joint or several)
incurred (collectively, "Claims") to which any of them may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations in the Registration Statement, or any
post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment
thereof or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements
therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the
Exchange Act or any state securities law (provided such violation or alleged
violation was not attributable to a violation by any Investor of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state
securities law) (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall reimburse the
Investors, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other expenses reasonably incurred by them
in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (I) apply
to a Claim arising out of or based upon a Violation which occurs in reliance
upon and in conformity with information furnished in writing to the Company
by or on behalf of any Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made available
by the Company pursuant to Section 3(b) hereof; (II) with respect to any
<PAGE> 8
preliminary prospectus, inure to the benefit of any such person from whom
the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling
such person) if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected in the final prospectus, as then
amended or supplemented, if such final prospectus was timely made available
by the Company pursuant to Section 3(b) hereof; (III) be available to the
extent such Claim is based on a failure of the Investor to deliver or cause
to be delivered the prospectus made available by the Company; or (IV) apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not
be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
(b) To the extent permitted by law, each Investor will indemnify and hold
harmless the Company, its directors, officers, agents, and persons who
control the Company within the meaning of the Securities Act or the Exchange
Act (each of the foregoing being hereinafter called an "Indemnified Party"),
against any losses, claims, damages, liabilities and expenses to which any
of them may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement (including any post-effective amendment
thereto), any preliminary prospectus used prior to the effective date of the
Registration Statement, or the final prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto with the
SEC), or (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which the statements therein
were made, not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any of such documents in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, or (iii) any violation or alleged violation by such
Investor of the Securities Act, the Exchange Act, any state securities law
or any rule or regulation under the Securities Act, the Exchange Act, or any
state securities law (provided such violation or alleged violation was not
attributable to a Violation by the Company). Each Investor shall reimburse
the Company, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other expenses reasonably incurred by the
Company in connection with investigating or defending any claim for which
the Company is entitled to be indemnified under this Section 6(b).
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) shall not apply to
amounts paid by the Company in settlement of any claim if such settlement
is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld. The indemnity provided for in
this Section 6(b) shall remain in full force and effect regardless of any
investigation made by or on behalf of any Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
<PAGE> 9
(c) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including
any governmental action), such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person or the Indemnified Party,
as the case may be; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel and
participate in the defense of such action, but the fees and expenses of such
Indemnified Person's or Indemnified Party's separate counsel shall not be
payable by the indemnifying party unless, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. In such event, the Company
shall pay for only one separate legal counsel for the Investors; such legal
counsel shall be selected by the Investors holding a majority in interest
of the Registrable Securities included in the Registration Statement to
which the Claim relates. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend
such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
5. Contribution. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make
the maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by law;
provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty
of such fraudulent misrepresentation; and (c) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable
Securities.
6. Reports under Exchange Act. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
<PAGE> 10
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so
filed by the Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule
144 without registration.
7. Assignment of the Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of all or any
portion of such securities (or all or any portion of any Preferred Stock of
the Company which is convertible into such securities) of Registrable
Securities only if: (a) the Investor agrees in writing with the transferee
or assignee to assign such rights, and a copy of such agreement is furnished
to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee
or assignee and (ii) the securities with respect to which such registration
rights are being transferred or assigned, (c) immediately following such
transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received
the written notice contemplated by clause (b) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein. In the event of any delay in filing the
Registration Statement as a result of such assignment, the Company shall not
be liable for any damages arising from such delay.
8. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with
the written consent of the Company and Investors who hold a majority in
interest of the Registrable Securities. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each Investor and
the Company.
9. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities.
If the Company receives conflicting instructions, notices or elections from
two or more persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
<PAGE> 11
(b) Notices required or permitted to be given hereunder shall be in writing
and shall be deemed to be sufficiently given when personally delivered (by
hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, at Carrington Laboratories, Inc., 2001 Walnut Hill Lane, Irving,
Texas 75038 Attention: President, with a copy to Thompson & Knight, P.C.,
1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201, ATT: Norman R. Rogers,
Esq., (ii) if to the Initial Investor, at the address set forth under its
name in the Stock Purchase Agreement, with a copy to Samuel Krieger, Esq.,
Krieger & Prager, 319 Fifth Avenue, Third Floor, New York, NY 10016 and
(iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such
party furnishes by notice given in accordance with this Section 11(b), and
shall be effective, when personally delivered, upon receipt and, when so
sent by certified mail, four (4) calendar days after deposit with the United
States Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State. In the event that any
provision of this Agreement is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to
the extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any provision hereof which may
prove invalid or unenforceable under any law shall not effect the validity
or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior agreements
and understandings among the parties hereto with respect to the subject
matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h)The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning thereof.
(i) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(i), or any delay in such performance could
result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused
by any such failure or delay, unless same is the result of force majeure.
Neither party shall be liable for consequential damages.
<PAGE> 12
(j) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the
day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
____________________________________________
By:
Name:
Title:
<PAGE> 13
