UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-----------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
---------------------- -----------
Commission file number 0-11997
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CARRINGTON LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1435663
--------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Walnut Hill Lane, Irving, Texas 75038
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(Address of principal executive offices and Zip Code)
972-518-1300
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
------------- ------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
8,865,503 shares of Common Stock, $.01 par value, were outstanding at
November 11, 1996.
<PAGE>
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at September 30, 1996 (unaudited) and 3, 4
December 31, 1995
Condensed Consolidated Statements of
Operations for the three months and
nine months ended September 30, 1996
and 1995 (unaudited) 5, 6
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1996 and 1995 (unaudited) 7
Notes to Condensed Consolidated
Financial Statements (unaudited) 8-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14-22
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 24
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
<CAPTION>
(unaudited)
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 4,815 $ 6,222
Accounts Receivable, net 1,943 2,227
Inventories 3,599 5,104
Prepaid Expenses 224 858
---------- ------------
Total Current Assets 10,581 14,411
Property, Plant and Equipment, net 11,968 12,711
Other Assets 2,071 812
---------- ------------
Total Assets $24,620 $27,934
========== ============
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE> 3
<TABLE>
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
<CAPTION>
(unaudited)
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Portion of Long-Term Debt $ 45 $ 3,026
Accounts Payable and Accrued Liabilities 3,132 2,420
----------- ------------
Total Current Liabilities 3,177 5,446
Long-Term Debt, Net of Current Portion 50 89
Shareholders' Investment:
Preferred Stock - 1,167
Common Stock 89 84
Capital in Excess of Par 50,424 44,666
Deficit (28,946) (23,344)
Foreign Currency Translation Adjustment (174) (174)
----------- ------------
Total Shareholders' Investment 21,393 22,399
----------- ------------
$ 24,620 $ 27,934
=========== ============
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE> 4
<TABLE>
Condensed Consolidated Statement of Operations (unaudited)
(Dollar amounts in 000's, except per share amounts)
<CAPTION>
Three Months Ended
September 30,
1996 1995
--------- ---------
<S> <C> <C>
Net Sales $5,112 $6,621
Cost and Expenses:
Cost of Sales 2,145 2,270
Selling, General and Administrative 2,504 2,867
Research and Development 1,376 1,287
Interest, net (74) 19
--------- ---------
(Loss) Income from Operations Before
Income Taxes (839) 178
Provision for Income Taxes - 15
--------- ---------
Net (Loss) Income ($ 839) $ 163
========= =========
Net (Loss) Income per Common
Equivalent Share ($ 0.09) $ 0.01
========= =========
Weighted Average Common and
Common Equivalent Shares 8,854,533 8,965,476
========= =========
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE> 5
<TABLE>
Condensed Consolidated Statement of Operations (unaudited)
(Dollar amounts in 000's, except per share amounts)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
--------- ---------
<S> <C> <C>
Net Sales $16,064 $19,305
Cost and Expenses:
Cost of Sales 8,440 5,973
Selling, General and Administrative 8,253 9,501
Research and Development 5,079 4,282
Interest, net (168) 139
---------- ----------
Loss from Operations Before
Income Taxes (5,540) (590)
Provision for Income Taxes - 31
---------- ----------
Net Loss ($ 5,540) ($ 621)
========== ==========
Net Loss per Common Equivalent Share ($ 0.63) ($ 0.09)
========== ==========
Weighted Average Common and
Common Equivalent Shares 8,775,089 7,854,076
========== ==========
</TABLE>
[FN]
The accompanying notes are an integral part of these
statements.
<PAGE> 6
<TABLE>
Condensed Statement of Cash Flows (unaudited)
(Dollar amounts in 000's)
<CAPTION>
Nine Months
Ended
September 30,
1996 1995
------- --------
<S> <C> <C>
Cash Flows from Operating Activities --------
Net Loss ($5,540) ($ 621)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 958 926
Changes in Assets and Liabilities:
Decrease in Receivables, net 283 30
Decrease (Increase) in Inventories, net 1,505 (224)
Decrease in Prepaid Expenses 635 20
(Increase) Decrease in Other Assets (1,314) 31
Increase (Decrease) in Accounts Payable And
Accrued Liabilities 708 (334)
-------- --------
Net Cash Used by Operating Activities (2,765) (172)
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment (183) (4,130)
-------- --------
Net Cash Used by Investing Activities (183) (4,130)
Cash Flows from Financing Activities:
Issuances of Common Stock 4,562 11,188
Proceeds from Borrowing - 5,510
Repayment of Long-Term Bank Debt (2,977) (5,787)
Debt Payments (44) (94)
-------- --------
Net Cash Provided by Financing Activities 1,541 10,817
-------- --------
Net (Decrease) Increase in Cash and Cash (1,407) 6,515
Equivalents
Cash and Cash Equivalents, Beginning of Period 6,222 464
-------- --------
Cash and Cash Equivalents, End of Period $4,815 $6,979
======== ========
Supplemental Disclosure of Cash Flow
Information $ 84 $ 224
Cash Paid During the Period for Interest
Cash Paid During the Period for Income Taxes $ - $ 12
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE> 7
Notes to Condensed Consolidated Financial Statements
(unaudited)
(1) Condensed Consolidated Financial Statements:
The condensed consolidated balance sheet as of September 30, 1996 and
the condensed consolidated statements of operations for the three and
nine month periods ended September 30, 1996 and 1995 and the condensed
consolidated statement of cash flows for the nine month periods ended
September 30, 1996 and 1995, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include
all normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows
at September 30, 1996, and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the
Company's annual report to shareholders or Form 10-K for the year
ended December 31, 1995.
(2) Inventories:
Inventories are recorded at the lower of first-in-first-out cost or
market. The following summarizes the components of inventory at
September 30, 1996 and December 31, 1995:
September 30, December 31,
(in 000's) 1996 1995
--------- -----------
Raw material and supplies $ 704 $ 583
Work-in-process 1,344 2,726
Finished goods 1,551 1,795
--------- --------
Total inventory $3,599 $5,104
========= ========
Although wound care sales were lower than projected, the Company was
able to effectively manage and reduce inventory levels in the first
nine months of 1996. The Company regularly evaluates its inventory
levels and adjusts production at both its Costa Rica plant, where the
bulk freeze-dried aloe vera extract is manufactured, and at its U.S.
plant to meet anticipated demand. As a result of these evaluations,
inventory reduction programs were initiated in the latter part of 1995
and early 1996. These programs included reduced production at the
Company's manufacturing facility in Irving, Texas as well as the
Costa Rica facility.
<PAGE> 8
(2) Inventories - Continued
As a result of these programs, inventory levels were reduced by $1,505,000
during the first three quarters of 1996 including a $630,000 write-down of
inventory as described below.
Period costs of $458,000 and $568,000, related to the Irving, Texas
facility and the Costa Rica facility, respectively, were expensed in
the first nine months. These costs resulted from a temporary shutdown
of the Costa Rica plant for annual routine maintenance and the
aforementioned programs to reduce inventory levels to be more in line
with current demand.
Also contributing to the lower inventory balance was a one-time
$630,000 write-down of certain inventoried items in the second quarter
of 1996. As of June 30, 1996, the Company determined that it was in
its best interest to update the inventory valuation of products
produced in its Costa Rica facility. This facility produces all of
the Company's freeze dried Aloe vera products. The modified valuation
is based on lower of cost or market (LCM). The LCM valuation allows
for a more realistic costing of products produced in this facility by
eliminating the capture of inefficiencies related to lower production
levels and will allow the Company to better evaluate and position its
products for future sales growth.
Contributing to the increase in raw materials and supplies was the
buildup of materials related to products to be introduced in the
latter half of 1996.
Total Aloe vera extract inventory as of September 30, 1996 and
December 31, 1995 was $709,000 and $2,538,000, respectively.
(3) Property, Plant and Equipment:
Net investment in property, plant and equipment as of September 30,
1996 and December 31, 1995 was $11,968,000 and $12,711,000,
respectively. Included in these amounts is the net investment in
property, plant and equipment in Costa Rica as of September 30, 1996
and December 31, 1995 of $3,946,000 and $4,157,000, respectively.
The production capacity of the Costa Rica plant is larger than the
Company's current usage level. In the fourth quarter of 1996,
management will assess the realizability of the Costa Rica plant assets
and will use the methodology described in SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of."
<PAGE> 9
(4) Debt:
In January 1995, the Company entered into an agreement with
NationsBank of Texas, N.A. (the "Bank") for a $2,000,000 line of
credit and a $6,300,000 term loan. Proceeds from the term loan were
used to fund planned capital expenditures, a letter of credit required
by a supplier and planned research projects. The line of credit was
to be used for operating needs, as required. As of December 31, 1995,
the Company was not in compliance with the term loan's fixed charge
ratio covenant. Rather than amend the terms of the term loan, on
April 29, 1996, the Company's management elected to pay off the entire
term loan balance of $2,977,000 plus $18,000 in accrued interest with
available cash to eliminate the interest expense on the term loan.
All assets previously collateralizing the term loan were released by
the Bank. The Company pledged a $1,500,000 certificate of deposit
("CD") to secure the letter of credit.
Although the aforementioned CD matures every 90 days, the Company's
management has elected not to classify the CD as a cash equivalent.
As the CD secures a letter of credit, it is effectively unavailable to
the Company for other purposes until such time as the letter of credit
expires or is otherwise released. Therefore, the CD is included in
Other non-current assets for reporting purposes.
The line of credit agreement expired January 30, 1996. The Company
had reached an agreement with the Bank for a new line of
collateralized credit for approximately $1,200,000. However, due to
fees that were attached to the line of credit and the Company's lack
of immediate need of cash, management elected to withdraw from
discussions with the Bank and allowed the agreement to be tabled until
such time as a line of credit is desirable and favorable to the
Company.
(5) Shareholders' Investment:
Options - Each employee option is either a nonqualified or an
incentive stock option with an exercise price equal to the fair market
value of the Company's common stock on the date of grant. Each
employee option normally becomes exercisable with respect to
one-fourth of the shares covered thereby in each year in the four-year
period beginning one year after the date of grant unless specifically
modified by the Company's Stock Option Committee. Each of the
employee options expires 10 years from the date of the grant. Options
issued to non-employee directors of the Company are nonqualified
options that are exercisable as of, and expire four years from the
grant date. As of September 30, 1996, 694,165 options to purchase
shares of common stock were outstanding. Exercise prices of the
outstanding options range from $8.25 to $47.75 per share. During the
third quarter of 1996, options for 2,473 shares of common stock were
exercised at a price of $8.625 to $12.75 per share. Total proceeds to
the Company from the exercise of these options were $28,000.
<PAGE> 10
Warrants - From time to time, the Company has granted warrants to
purchase common stock to the Company's research consultants and
certain other persons rendering services to the Company. The exercise
price of each of such warrants was normally the market price or in
excess of the market price of the common stock at date of grant. As
of September 30, 1996, warrants for 51,000 shares were outstanding with
exercise prices of $9.75 to $20.125 per share. These warrants expire
between 1998 and 2002.
Employee Stock Purchase Plan - On October 29, 1992, the Company
adopted an Employee Stock Purchase Plan (the "Plan") under which
eligible employees are granted the opportunity to purchase shares of
the Company's common stock. Under the Plan, employees may purchase
common stock at a price equal to the lesser of 85% of the market price
of the Company's common stock on January 1 (or on the quarterly
enrollment date on which the employee's participation in the Plan
commences) or 85% of the market price on the last business day of each
month. The Plan provides for the grant of rights to employees to
purchase a maximum of 500,000 shares of common stock of the Company.
Under the Plan, 55,862 shares have been purchased by employees at
prices ranging from $7.23 to $29.54 per share through September 30,
1996.
Preferred Stock (Series C)- In June 1991, the Company completed a
transaction whereby the Company issued 7,909 shares of Series C 12%
cumulative convertible preferred stock (the "Series C Shares") in
exchange for convertible debentures plus interest accrued to the date
of exchange to a private investor (the "Investor"). The Series C
Shares had a par value of $100 per share, were convertible at par into
common stock of the Company at a price of $7.58 per share (subject to
certain adjustments), were callable by the Company and convertible by
the Investor after January 14, 1996 and provided for dividend payments
to be made only through the issuance of additional Series C Shares.
In the first quarter of 1996, all of the outstanding Series C Shares
were converted to 174,935 shares of the Company's common stock.
<PAGE> 11
(6) Sales by Division
<TABLE>
The following summarizes sales by division and consolidated sales for
the three month periods ending September 30, 1996 and 1995:
(Dollar amounts in 000's)
<CAPTION>
Three Months Ended Wound Carrington Caraloe Total
September 30, 1996 Care Veterinary Sales Inc. Sales
------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales, net $4,143 $ 78 $ 4,221 $ 891 $ 5,112
Cost of Goods
Sold 1,447 42 1,489 656 2,145
------- ------ -------- ------ -------
Gross Margin $2,696 $ 36 $ 2,732 $ 235 $ 2,967
======= ====== ======== ====== =======
<CAPTION>
Three Months Ended
September 30, 1995
<S> <C> <C> <C> <C> <C>
Sales, net $5,353 $ 84 $ 5,437 $1,184 $ 6,621
Cost of Goods
Sold 1,444 44 1,488 782 2,270
------- ------ -------- ------ -------
Gross Margin $3,909 $ 40 $ 3,949 $ 402 $ 4,351
======= ====== ======== ====== =======
</TABLE>
<TABLE>
The following summarizes sales by division and consolidated sales for
the nine month periods ending September 30, 1996 and 1995:
(Dollar amounts in 000's)
<CAPTION>
Nine Months Ended Wound Carrington Caraloe Total
September 30, 1996 Care Veterinary Sales Inc. Sales
-------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales, net $12,788 $246 $13,034 $3,030 $16,064
Cost of Goods
Sold 5,638 165 5,803 2,637 8,440
-------- ------ -------- ------- -------
Gross Margin $ 7,150 $ 81 $ 7,231 $ 393 $ 7,624
======== ====== ======== ======= =======
<CAPTION>
Nine Months Ended
September 30, 1995
<S> <C> <C> <C> <C> <C>
Sales, net $16,769 $263 $17,032 $2,273 $19,305
Cost of Goods
Sold 4,396 135 4,531 1,442 5,973
-------- ------ ------- ------- -------
Gross Margin $12,373 $128 $12,501 $ 831 $13,332
======== ====== ======= ======= =======
</TABLE>
<PAGE> 12
(7) Subsequent Event
On October 21, 1996 (the "Closing Date"), the Company completed a
$6,600,000 financing involving the private placement of Series E
Convertible Preferred Stock (the "Series E Shares"). Each Series E
Share has a par value of $100 and a purchase price of $10,000. After
placement fees, legal and other costs related to the private
placement, the Company expects to realize net proceeds of $6,266,000.
Current plans call for much of the proceeds from this sale to be used
to continue Carrington's clinical research programs.
The Series E Shares are convertible, at the option of the holder
thereof, into shares of the Company's common stock beginning on
December 20, 1996, and prior to October 21, 1999 ("the Maturity Date"),
at a conversion price per share (the "Conversion Price") equal to the lower
of $25.20 (120 percent of the current market price of the Company's common
stock as calculated over the three trading-day period ending on the last
trading day prior to the Closing Date) or 87% of the current market price
as calculated over the three trading-day period ending on the last trading
day immediately preceding the conversion date. The Conversion Price is
subject to adjustment to take into account stock dividends, stock splits
and share combinations involving the Company's common stock. Each Series
E Share will be convertible into the number of whole shares of common stock
determined by dividing $10,000 by the Conversion Price.
Each Series E Share outstanding on the Maturity Date shall automatically
convert into common stock at the then current Conversion Price. Holders of
Series E Shares shall be entitled to receive an annual dividend payment
equal to $500 per share for the one year period commencing on October 21,
1998 and ending on October 22, 1999 (equal to 5% of the per share Purchase
Price). Dividends are payable only if the preferred shares are held to
maturity, and are payable either in shares of common stock at the then
current Conversion Price or in cash, or both, at the option of the Company.
The Company has agreed to prepare and file a registration statement
(the "Registration Statement") with respect to the resale of the
underlying shares of common stock (including any shares issued in payment
of dividends on the Series E Shares or the periodic payments described
below) with the Securities and Exchange Commission (the "Commission".)
The Company must use its best efforts to cause the Registration Statement
to be declared effective by the Commission on or before the eightieth day
after the Closing Date. If the Registration Statement is not declared
effective on or before the eightieth day after the Closing Date, the
Company must make periodic payments equal to 1% of the Purchase Price for
the first thirty days after such eightieth day, and 2% of the Purchase
Price for each additional thirty day period, pro rata to the date the
Registration Statement is declared effective. These payments, if
required, may be made in either cash or common shares, or both, at the
election of the Company.
Management believes that the Registration Statement will be filed and
declared effective in a timely fashion and that no such payments will be
required.
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Background
The Company is a research-based pharmaceutical and medical device
company engaged in the development, manufacturing and marketing of
carbohydrate-based therapeutics for the treatment of major illnesses
and the dressing and management of wounds and other skin conditions.
The Company sells nonprescription products through its wound and skin
care division; veterinary medical devices and pharmaceutical products
through its veterinary medical division; and consumer products through
its consumer products subsidiary, Caraloe, Inc. The Company's research
and product portfolio is primarily based on complex carbohydrate
technology derived naturally from the Aloe vera plant.
Liquidity and Capital Resources
At September 30, 1996 and December 31, 1995, the Company held cash and
cash equivalents of $4,815,000 and $6,222,000, respectively. The
decrease in cash of $1,407,000 from December 31, 1995 to September 30,
1996 was largely attributable to the retirement of all bank debt and
the purchase of a $1,500,000 certificate of deposit ("CD") (see Note 4 to
the consolidated financial statements) as well as increased research
and development expenditures. These cash outflows were partially
offset through the exercise of options and warrants, and purchases of
shares through the Employee Stock Purchase Plan, that resulted in an
additional $4,548,000 cash in the first nine months of 1996.
Although wound care sales have been lower than projected, the Company
has been able to effectively manage and reduce inventory levels
throughout 1996. The Company regularly evaluates its inventory levels
and adjusts production at both its Costa Rica plant, where the bulk
freeze-dried aloe vera extract is manufactured, and at its U.S. plant
to meet anticipated demand. As a result of these evaluations,
inventory reduction programs were initiated in the latter part of 1995
and early 1996. These programs included reduced production at the
Company's manufacturing facility in Irving, Texas, as well as the Costa
Rica facility. As a result of these programs, inventory levels were
reduced by $1,505,000 during the first three quarters of 1996, which
includes a $630,000 write-down of Aloe vera derived products as
described below. As a result of the decreased production levels, the
Company has expensed $1,026,000 of unabsorbed overhead as cost of goods
sold in the first nine month of 1996.
The production capacity of the Costa Rica plant is larger than the
Company's current usage level. In the fourth quarter of 1996,
management will assess the realizability of the Costa Rica plant assets
and will use the methodology described in SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
disposed of." As of November 14, 1996, the Company had no material
capital commitments other than its leases, agreements with suppliers and
clinical trials.
<PAGE> 14
Item 2. Management's Discussion and Analysis - continued
In January 1995, the Company entered into an agreement with NationsBank
of Texas, N.A. (the "Bank") for a $2,000,000 line of credit and a
$6,300,000 term loan. Proceeds from the term loan were used to fund
planned capital expenditures, a letter of credit required by a
supplier, as discussed below, and planned research projects. The line
of credit was to be used for operating needs, as required. As of
December 31, 1995, the Company was not in compliance with the term
loan's fixed charge ratio covenant. Rather than amend the terms of the
term loan, on April 29, 1996, the Company's management elected to pay
off the entire term loan balance of $2,977,000 plus $18,000 in accrued
interest with available cash to eliminate the interest expense on the
term loan. All assets previously collateralizing the term loan were
released by the Bank. The Company pledged a $1,500,000 CD to secure
the letter of credit as described below.
Although the aforementioned CD matures every 90 days, the Company's
management has elected not to classify the CD as a cash equivalent. As
the CD secures a letter of credit, described below, it is effectively
unavailable to the Company for other purposes until such time as the
letter of credit expires or is otherwise released. Therefore, the CD
is included in Other non-current assets for reporting purposes.
The line of credit agreement expired January 30, 1996. The Company
had reached an agreement with the Bank for a new line of
collateralized credit for approximately $1,200,000. However, due to
fees that were attached to the line of credit and the Company's lack
of immediate need of cash, management elected to withdraw from
discussions with the Bank and allowed the agreement to be tabled until
such time as a line of credit is desirable and favorable to the
Company.
In February 1995, the Company entered into a supply agreement with its
supplier of freeze-dried products. The agreement required that the
Company establish a $1,500,000 letter of credit. The term loan with
the Bank was originally used to fund this letter of credit. As of
November 13, 1996, the supplier had not made a presentation for
payment under the letter of credit. The contract also requires the
Company to accept minimum monthly shipments of $30,000 and to purchase
a minimum of $2,500,000 worth of product over a period of five years.
In April 1996, and in conjunction with the Company's settlement of the
term loan, the Bank agreed to reduce the fees on the letter of credit
by one percentage point in consideration of the Company's agreement to
purchase and assign to the Bank a CD in an amount equal to the letter
of credit. The Company will maintain the CD until such time as the
letter of credit expires or is otherwise released.
In November 1995, the Company signed a licensing agreement with a
supplier of calcium alginates and other wound care products. Under
the agreement, the Company has exclusive marketing rights for ten
years to advanced calcium alginate products for North and South
America and in the People's Republic of China. Under the agreement,
the Company made an up-front payment to the supplier of $500,000.
This payment resulted in increasing the prepaid assets of the Company.
<PAGE> 15
Additional payments totaling $500,000 will be made to the supplier as
new products are delivered.
The Company began a large scale clinical trial during the third
quarter of 1995 for the testing of its Aliminase(TM) oral capsules for
the treatment of acute flare-ups of ulcerative colitis. The cost of
this clinical trial was approximately $2,300,000. All expenses
related to this trial have been recognized and paid. In the third
quarter of 1996, the Company began a second large scale clinical trial
for the testing of Aliminase(TM) oral capsules for the treatment of
ulcerative colitis. The cost of this trial was expected to be
approximately $2,500,000 of which approximately $212,000 was required
as an initial payment when the research contract was signed on
September 19, 1996. The full amount of the payment was expensed in the
third quarter. In late October 1996, the Company received the results
of the initial phase III clinical trial for the testing of Aliminase(TM).
Indications are that no statistically significant differences were found
to support a therapeutic effect. As a result, the Company has terminated
the second large scale clinical trial and further testing of Aliminase(TM)
has been placed on hold. Approximately $150,000 in cancellation fees was
recorded in the third quarter and will be paid in the fourth quarter in
relation to this termination. No additional expenses related to phase III
trials of Aliminase(TM) are anticipated as of November 14, 1996.
In late 1995, the Company began an initial Phase I study using
injectable CarraVex(TM) (formerly Alovex(TM)) in cancer patients involving
six cancer types. The estimated cost of this study is $475,000.
The Company has initiated a program to reduce expenses and the cost of
manufacturing, thereby increasing the gross margin on existing sales.
The Company has restructured the sales force to position it for growth
and is refocusing the sales effort to increase market share in the
alternative care markets. If the implementation of these programs is
successful, the Company believes that its cash resources, including
available cash and improved revenues, will provide the funds necessary
to finance its current operations. Subsequent to the third quarter end,
the Company completed a $6,600,000 financing involving the private
placement of Series E Convertible Preferred Stock. Current plans call
for much of the proceeds from this sale to be used to continue
Carrington's clinical research programs (see Footnote 7 to the
consolidated financial statements). The Company does not expect that
these cash resources will be sufficient to finance the major clinical
studies and costs of filing new drug applications necessary to develop
its products to their full commercial potential. Additional funds,
therefore, may have to be raised through equity offerings, borrowings,
licensing arrangements or other means, and there is no assurance that
the Company will be able to obtain such funds on satisfactory terms
when they are needed.
<PAGE> 16
The Company is subject to regulation by numerous governmental
authorities in the United States and other countries. Certain of the
Company's proposed products will require governmental approval prior
to commercial use. The approval process applicable to prescription
pharmaceutical products usually takes several years and typically
requires substantial expenditures. The Company and any licensees may
encounter significant delays or excessive costs in their respective
efforts to secure necessary approvals. Future United States or foreign
legislative or administrative acts could also prevent or delay
regulatory approval of the Company's or any licensees' products.
Failure to obtain requisite governmental approvals or failure to
obtain approvals of the scope requested could delay or preclude the
Company or any licensees from marketing their products, or could limit
the commercial use of the products, and thereby have a material adverse
effect on the Company's liquidity and financial condition.
Impact of Inflation
The Company does not believe that inflation has had a material impact
on its results of operations.
<PAGE> 17
Third Quarter of 1996 Compared With Third Quarter of 1995
Net sales were $5,112,000 in the third quarter of 1996, compared with
$6,621,000 in the third quarter of 1995. This decrease of $1,509,000,
or 22.8%, resulted from a decrease of $1,210,000 in sales of the
Company's wound and skin care products from $5,353,000 to $4,143,000,
or 22.6%. New products introduced in late January accounted for
$242,000 in wound and skin care sales during the third quarter of 1996.
Also contributing to the decrease in net sales was a decrease in sales
of Caraloe, Inc., the Company's consumer products subsidiary.
Caraloe's sales decreased from $1,184,000 to $891,000, or 32.9%.
Caraloe sales to Mannatech, Inc., which are primarily Manapol(R),
decreased from $1,090,000 to $830,000. Sales of the Company's
veterinary products decreased from $84,000 to $78,000. In March 1996,
the Company entered into an agreement with Farnam Companies, Inc., a
leading marketer of veterinary products, to promote and sell the
Company's veterinary line on a broader scale.
Cost of sales decreased from $2,270,000 to $2,145,000, or 5.5%. As a
percentage of sales, cost of sales increased from 33.7% to 42.2% after
adjusting for period costs of $36,000 and ($10,000) in the third quarter
of 1995 and 1996, respectively. The period costs are related to the
aforementioned inventory reduction programs. The increase in cost of
goods sold is largely attributable to the 19% overall price decrease
which occurred in February of 1996. Additionally, all of the new
products introduced in the first half of 1996 are manufactured for the
Company by third-party manufacturers and have a lower profit margin
than the products manufactured by the Company.
Selling, general and administrative expenses decreased to $2,504,000
from $2,867,000, or 12.7%. This decrease is primarily attributable to
cost reduction programs put in place earlier in the year as well as
savings generated from the restructuring of the sales force.
Research and development ("R&D") expenses remained constant with only
a small increase to $1,376,000 from $1,287,000, or 6.9%. This
increase was the result of the first phase III pivotal large scale
clinical trial for the testing of Aliminase(TM) oral capsules for the
treatment of acute flare-ups of ulcerative colitis begun during the
third quarter of 1995. This study was substantially completed in the
third quarter of 1996. In September of 1996, the Company initiated
the second pivotal phase III testing of Aliminase(TM). The initial
payment of approximately $212,000 was expensed in the third quarter.
In late October 1996, the Company received the results of the initial
phase III clinical trial for the testing of Aliminase(TM). Indications are
that no statistically significant differences were found to support a
therapeutic effect. As a result, the Company has terminated the second
large scale clinical trial and further testing of Aliminase(TM) has been
placed on hold. Approximately $150,000 in cancellation fees was recorded
in the third quarter and will be paid in the fourth quarter in relation to
this termination. This increase was offset by a reduction of internal
salaries and other operating expenses.
Net interest income of $74,000 was realized in the third quarter of 1996,
versus net interest costs of $19,000 in the third quarter of 1995, due to
having more excess cash to invest as well as the early retirement of all
bank debt in April of 1996.
<PAGE> 18
First Nine Months of 1996 Compared With First Nine Months of 1995
Net sales were $16,064,000 in the first nine months of 1996, compared
with $19,305,000 in the first nine months of 1995. This decrease of
$3,241,000, or 16.8%, resulted from a decrease of $3,981,000 in sales
of the Company's wound and skin care products from $16,769,000 to
$12,788,000, or 23.8%. New products introduced in late January
accounted for $912,000 in wound and skin care sales during the first
nine months of 1996. The decrease in wound and skin care sales was
partially offset by a $757,000, or 33.3%, increase in sales of
Caraloe, Inc., the Company's consumer products subsidiary.
In the past, the Company's wound and skin care products have been
marketed primarily to hospitals and select acute care providers. This
market has become increasingly competitive as a result of pressures to
control health care costs. Hospitals and distributors have reduced
their inventory levels and the number of suppliers used. Also, health
care providers have formed group purchasing consortiums to leverage
their buying power. This environment required the Company to offer
greater discounts and allowances to maintain customer accounts. In
February 1996, the Company revised its price list to more accurately
reflect current market conditions. Overall wound and skin care prices
were lowered by a weighted average of 19.1%. With the February price
reduction, the Company expects, and has begun to realize, a decrease
in the amount of discounts required. In addition to these cost
pressures, over the last several years the average hospital stay has
decreased over 50%, resulting in more patients being treated at
alternative care facilities and at home by home health care providers.
This also had a negative impact on sales since the Company's sales
force had been primarily focused on the hospital market. To counter
the market changes, the sales force is now also aggressively pursuing
the alternative care markets.
To continue to grow its wound care business, the Company realized that
it had to expand from the $38 million hydrogel market in which it
competed to a much larger segment of the billion dollar plus wound
care market. To achieve this objective, an aggressive program of new
product development and licensing was undertaken in 1995 with the goal
of creating a complete line of wound care products to address all
stages of wound management. As a result of this program, the Company
launched three new wound care product types in late January 1996.
The Company expects to launch additional products in late 1996 and 1997.
<PAGE> 19
Caraloe's sales increased from $2,273,000 to $3,030,000, or 40.7%.
Caraloe sales to Mannatech increased from $2,488,000 to $2,733,000.
Of the 1996 sales, $2,673,000 is related to the sale of bulk Manapol(R).
Sales of the Company's veterinary products decreased from $263,000 to
$243,000. In March 1996, the Company entered into an agreement with
Farnam Companies, Inc., a leading marketer of veterinary products, to
promote and sell the Company's veterinary line on a broader scale.
Cost of sales increased from $5,973,000 to $8,440,000, or 41.3%. As a
percentage of sales, cost of sales increased from 30.5% to 42.2% after
adjusting for a $630,000 write-down of inventory on June 30, 1996 and
period costs of $94,000 and $1,026,000 in the first nine months of
1995 and 1996, respectively. The period costs are related to the
annual shutdown of the facility in Costa Rica for routine maintenance
and inventory reduction programs. The increase in cost of goods sold
is largely attributable to the increased sales of bulk Manapol(R), which
has a substantially lower profit margin in 1996 as compared to the
margin on Manapol(R) in the prior year and the margins on the Company's
wound and skin care products, and the overall 19% price decrease which
occurred in February of 1996. Additionally, all of the new products
introduced in the first half of 1996 are manufactured for the Company
by third-party manufacturers and have a lower profit margin than the
products manufactured by the Company.
In the second quarter of 1996, the Company determined that it was in
its best interest to update the inventory valuation of products
produced in its Costa Rica facility. This facility produces all of
the Company's freeze dried aloe vera products. The updated valuation
is based on LCM. The LCM valuation allows for a more realistic
costing of products produced in this facility by eliminating the
capture of inefficiencies related to lower production levels and will
allow the Company to better evaluate and position its products for
future sales growth. This lower valuation required a $630,000 write-
down of inventory as of June 30, 1996.
Selling, general and administrative ( SG&A ) expenses decreased to
$8,253,000 from $9,501,000, or 13.1%. This decrease was attributable
to approximately $900,000 in one-time charges in the first nine months
of 1995. These one-time charges were related to severance agreements,
legal expenses and settlements and debt refinancing costs. This was
partially offset as the Company incurred approximately $150,000 in
additional costs related to the launch of three new product types and a
one-time write-off of approximately $92,000 of bank and legal charges
related to the early retirement of all bank debt. Also contributing to
the reduced SG&A expenses were the benefits received from the cost
reduction programs put in place earlier in the year as well as savings
generated from the restructuring of the sales force.
Research and development ("R&D") expenses increased to $5,079,000 from
$4,282,000, or 18.6%. This increase was the result of beginning the
large scale phase III clinical trial for the testing of Aliminase(TM)
oral capsules for the treatment of acute flare-ups of ulcerative
colitis during the third quarter of 1995. This study was
substantially completed in the third quarter of 1996. In September of
1996, the Company initiated the second pivotal phase III testing of
Aliminase(TM). The initial payment of approximately $212,000 was expensed
in the third quarter. In late October 1996, the Company received the
<PAGE> 20
results of the initial phase III clinical trial for the testing of
Aliminase(TM). Indications are that no statistically significant
differences were found to support a therapeutic effect. As a result,
the Company has terminated the second large scale clinical trial and
further testing of Aliminase(TM) has been placed on hold. Approximately
$150,000 in cancellation fees was recorded in the third quarter and will be
paid in the fourth quarter of 1996. Additional R&D costs related to the
ongoing cancer research contributed to the increase in R&D during the first
nine months of 1996 as well. These costs were partially offset by a
reduction of internal salaries and other operating expenses.
Net interest income of $168,000 was realized in the first nine months
of 1996, versus net interest costs of $139,000 in the first nine
months of 1995, due to having more excess cash to invest as well as
the retirement of all bank debt in April 1996.
All statements other than statements of historical fact contained in
this report, including statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (and
similar statements contained in the Notes to Condensed Consolidated
Financial Statements) concerning the Company's financial position,
liquidity, capital resources and results of operations, its prospects
for the future and other matters, are forward-looking statements.
Forward-looking statements in this report generally include or are
accompanied by words such as "anticipate", "believe", "estimate","expect",
"intend" or words of similar import. Such forward-looking statements
include, but are not limited to, statements regarding the Company's plan or
ability to recover the cost of the Costa Rica plant, to absorb the plant's
operating cost, to achieve growth in demand for, or sales of, products,
to reduce expenses and manufacturing costs and increase gross margin on
existing sales, to use the proceeds from its sale of Series E
Convertible Preferred Stock to continue its clinical research programs,
to file a registration statement and have it declared effective within
the time required by its agreements with the holders of its Series E
Convertible Preferred Stock, to vigorously defend the legal proceedings
described in this report, to maintain the CD that secures its outstanding
letter of credit, to obtain financing when it is needed, to increase the
Company's market share in the alternative care markets, to improve its
revenues and fund its operations from such revenues and other available
cash resources, to enter into licensing agreements, to develop and market
new products and increase sales of existing products, to obtain
government approval to market new products, to expand its business into a
larger segment of the market for wound care products, increase its market
share in the alternative care markets, to promote and sell its
veterinary products on abroad scale and various other matters.
<PAGE> 21
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, no assurance can be given
that such expectations will prove correct. Factors that could cause
the Company's results to differ materially from the results discussed
in such forward-looking statements include but are not limited to the
possibilities that the Company may be unable to obtain the funds
needed to carry out large scale clinical trials and other research and
development projects, that the results of the Company's clinical
trials may not be sufficiently positive to warrant continued
development and marketing of the products tested, that new products
may not receive required approvals by the appropriate government
agencies or may not meet with adequate customer acceptance, that the
Company may not be able to obtain financing when needed, that the
Company may not be able to obtain appropriate licensing agreements for
products that it wishes to market or products that it needs assistance
in developing, that demand for the Company's products may not be
sufficient to enable it to recover the cost of the Costa Rica plant or
to absorb all of that plant's operating costs, and that the Company's
efforts to improve its sales may not be sufficient to enable it to
fund its operating costs from revenues and available cash resources.
All forward-looking statements in this report are expressly qualified
in their entirety by the cautionary statements in the two immediately
preceding paragraphs.
<PAGE> 22
Part II
Item 1. Legal Proceedings
On March 29, 1996, Dianna Gold (the "Plaintiff"), a former employee of
the Company, filed a lawsuit styled Dianna Gold vs. Carrington
Laboratories, Inc., Jeff Rubel, and Does 1 to 20, inclusive, Case No.
977253 in the Superior Court of the State of California in and for the
County of San Francisco, alleging breach of contract, intentional and
negligent misrepresentation, and violations of the California Labor
Code in connection with her employment and the termination thereof by
the Company. The Plaintiff sought to recover unspecified damages "in
excess of $50,000" on each of five alleged causes of action,
unspecified damages "in accordance with proof of trial" on each of
three additional alleged causes of action, unspecified "exemplary and
punitive damages" on three of the eight alleged causes of action,
unspecified "double damages" on one of the alleged causes of action,
unspecified "treble damages" on one of the alleged causes of action,
interest and costs on all eight alleged causes of action, and
unspecified attorney's fees on three of such alleged causes of action.
On September 4, 1996, the Judge signed an Order for the Stipulation
and Request for Dismissal (with prejudice) of the case. Both parties
will bear their own costs and fees with no other future liabilities.
The Plaintiff has also filed an action styled Dianna Gold v.
Carrington Laboratories, Inc., and Fireman's Fund Insurance Company
with the Workers' Compensation Appeals Board for the State of
California (Case No. SFO 394660). On March 26, 1996, Plaintiff filed
an Application for Discrimination Benefits Pursuant to Labor Code
Section 132(a) in that case. The Company intends to vigorously defend
this action.
On June 26, 1996, Robert W. Brown ("Brown"), a former employee of the
Company, filed a lawsuit styled Robert W. Brown vs. Carrington
Laboratories, Inc., Cause No. 96-6469 in the 193rd District Court of
Dallas County, Texas, alleging breach of contract, promissory
estoppel, fraud, negligent misrepresentation and slander in connection
with his employment and the termination of his employment with the
Company. Brown seeks to recover unspecified common law and statutory
damages, punitive damages, interest, attorneys fees and costs of
suit. Trial has been set for December 16, 1996. The Company intends
to vigorously defend this lawsuit.
On September 13, 1996, Linda M. Miller ("Miller"), a former employee
of the Company, filed a lawsuit styled Linda M. Miller vs. Carrington
Laboratories, Inc., Cause No. 96-9971 in the 191st District Court of
Dallas County, Texas, alleging breach of contract in connection with
her employment and the termination of her employment with the Company.
Miller seeks to recover damages in excess of $50,000, exclusive of
interests and costs. The Company intends to vigorously defend this
lawsuit.
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
-------------------
10.1 Sales Distribution Agreement between
Faulding Pharmaceuticals Laboratories and
Carrington Laboratories, Inc.
10.2 Sales Distribution Agreement between Trudell
Medical Marketing Limited and Carrington
Laboratories, Inc.
10.3 Clinical Research Agreement between ICON and
Carrington Laboratories, Inc.
11.1 Computation of Net Loss Per Common and Common
Equivalent Share
27.1 Financial Data Schedule
b. Reports on Form 8-K:
--------------------
No report on Form 8-K was filed by the Company during the
quarter ended September 30, 1996.
<PAGE> 24
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 thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
(Registrant)
Date: November 14, 1996 By: /s/ Carlton E. Turner
------------------ ------------------------
Carlton E. Turner,
President and C.E.O.
Date: November 14, 1996 By: /s/ Sheri L. Pantermuehl
------------------ ------------------------
Sheri L. Pantermuehl,
Chief Financial Officer
and Treasurer
<PAGE> 24
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 thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
(Registrant)
Date: November 14, 1996 By:
------------------ ------------------------
Carlton E. Turner,
President and C.E.O.
Date: November 14, 1996 By:
------------------ ------------------------
Sheri L. Pantermuehl,
Chief Financial Officer
and Treasurer
<PAGE>
INDEX TO EXHIBITS:
10.1 Sales Distribution Agreement between
Faulding Pharmaceuticals Laboratories and
Carrington Laboratories, Inc.
10.2 Sales Distribution Agreement between Trudell
Medical Marketing Limited and Carrington
Laboratories, Inc.
10.3 Clinical Research Agreement between ICON and
Carrington Laboratories, Inc.
11.1 Computation of Net Loss Per Common and Common
Equivalent Share
27.1 Financial Data Schedule
<PAGE>
Exhibit 11.1
<TABLE>
Computation of Net Income Per Common and Common Equivalent Share
(unaudited)
(Dollar amounts in 000's, except shares and per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net (Loss) Income ($839) $163 ($5,540) ($621)
Preferred Stock Dividend
Requirement - (36) (34) (105)
Net (Loss) Income for
Computing (Loss) Income
per Common Share ($839) $127 ($5,574) ($726)
Average Common and
Common Equivalent
Shares Outstanding (1) 8,854,533 8,965,476 8,775,089 7,854,076
Net (Loss) Income per
Common and Common
Equivalent Share ($0.09) $0.01 ($0.63) ($0.09)
</TABLE>
[FN]
(1) Common stock equivalents have been excluded since the effect on
net income per share of their inclusion would either be antidilutive
or represent dilution of less than 3%.
<PAGE>
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of the day of
, 1996, by and between CARRINGTON LABORATORIES, INC.,
a Texas corporation ("Carrington"), and FAULDING PHARMACEUTICALS/DAVID BULL
LABORATORIES, an Australian corporation ("Faulding").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of manufacturing, selling and
distributing certain pharmaceutical products and is desirous of establishing
a competent and exclusive distribution source for sales of such products in
Australia and New Zealand (defined in Article I hereof as the Territory);
and
WHEREAS, Faulding is desirous of distributing such products in the Territory
and is willing and able to provide a competent distribution organization in
the Territory, and Faulding desires to be Carrington's sales distributor for
such products in the Territory;
NOW, THEREFORE, the parties hereto, in consideration of the premises and
mutual covenants and undertakings herein contained, agree as follows:
Article 1.Definitions
1.1As used in this Agreement, the following terms shall have the meanings
specified in this Article 1.1:
(a)"Products" shall mean the wound and skin care products manufactured by
or for Carrington set forth on Exhibit A hereto. Carrington will provide
a ninety (90) day notice to Faulding on its intent to add or discontinue
Products to Exhibit A. No Product shall be discontinued or removed from
Exhibit A during the term of this Agreement unless agreed to in writing by
both parties.
(b)"Territory" shall mean the following countries: Australia and New
Zealand.
Article 2.Appointment
2.1 Subject to the terms and conditions of this Agreement, Carrington hereby
appoints Faulding as Carrington's exclusive sales distributor in the
Territory for the sale of Products, and Faulding hereby accepts such
appointment. As sales distributor in the Territory, Faulding shall, subject
to the terms and conditions of this Agreement, have the right to sell
Products in the Territory, but shall have no right to sell Products outside
the Territory. During the term of this Agreement, Carrington agrees not to
appoint any other persons as distributors for the Products in the Territory,
provided in this Agreement.
<PAGE> 1
2.2a. At standards mutually agreeable to both Faulding and Carrington, and
at Faulding's sole expense, Faulding agrees to (a) make and maintain all
declarations, filings, and registrations with, and obtain all approvals and
authorizations from, governmental and regulatory authorities required to be
made or obtained in connection with the promotion, marketing, sale or
distribution of the Products in the Territory, (b) devote, at minimum,
efforts consistent with those utilized in its own product line to the
diligent promotion, marketing, sale and distribution of the Products in the
Territory, and (c) provide and maintain a competent organization for the
promotion, marketing, sale and distribution of the Products in the
Territory. In a manner reasonably satisfactory to Carrington, and at
Faulding's sole expense, Faulding agrees to (a) assure competent and prompt
handling of inquiries, orders, shipments, billings and collections, and
returns of or with respect to the Products and careful attention to
customers' requirements for all Products, and (b) promptly assign back to
Carrington any product registrations in the Territory upon termination of
Agreement.
2.2b. Carrington agrees to provide to Faulding all data, information and
results of additional tests ("Data") it possesses which may be necessary to
obtain approval of and complete and maintain registration. In the event
Carrington does not possess such Data, Carrington shall attempt to obtain
the same and provide it to Faulding. Carrington is not obligated, however,
to obtain and provide such Data if, in Carrington's opinion, the cost of
such is prohibitive or if the Data appears impossible or unreasonable to
obtain.
2.2c.Carrington agrees that if it terminates this Agreement without cause
Carrington will reimburse Faulding for all appropriate fees and expenses
incurred by Faulding in procuring registration of the Products.
2.3 Carrington will provide Faulding with such (i) reasonable sales personnel
training in relation to the Products in Irving, Texas or a mutually agreed
upon location, and (ii) promotional Product literature of Carrington, as
Faulding may request from time to time. Carrington is not obligated to
travel to Australia more than one time to provide such sales training.
Faulding agrees to pay for one return business class flight for Carrington
from the United States or Australia; and to reimburse Carrington at a per
diem rate of $100.00 for any additional days over two per trip; however,
Faulding has no obligation to share any other expenses.. If any additional
training in or travel to Australia is requested of Carrington or by
Faulding, the Parties shall mutually agree in writing on the terms of such
travel and expenses to be shared, but under no circumstances is Carrington
obligated to provide such additional training in Australia. Carrington'S
expenses incurred in relation to said sales training shall not exceed 5% of
projected sales of the Product as set forth in Faulding's sales forecast for
the first 12 month period of the term of this Agreement.
2.4a During the term of this Agreement, Faulding shall be considered an
independent contractor and shall not be considered a partner, employee,
agent or servant of Carrington. As such, Faulding has no authority of any
nature whatsoever to bind Carrington or incur any liability for or on behalf
of Carrington or to represent itself as anything other than a sales
distributor and independent contractor.
<PAGE> 2
2.4b Carrington shall grant to Faulding the first right of refusal to
additional products Carrington develops or acquires within or for the wound
dressing market. From time to time, as products become available,
Carrington shall present new products to Faulding for evaluation. Faulding
shall have ninety days to decide whether it desires to include such products
under this Agreement. If Faulding decides not to accept these products or
fails to reply within the ninety days, then Carrington shall be free to
market or distribute the products as it sees fit. If Faulding desires the
product, Carrington and Faulding shall commence good faith negotiations
relative to price and other pertinent terms associated with the sale. If
the parties are unable to reach agreement on these terms within thirty days
or within an extended time period mutually agreed upon between the Parties,
then Faulding's first right of refusal shall automatically terminate with
regard to that particular product. Carrington agrees that it shall not
offer distribution rights to such additional products to any third party at
more favorable terms without first offering, for a period of sixty days,
those terms to Faulding.
2.4c When and where appropriate, Faulding shall incorporate or request
incorporation of Carrington's complex carbohydrates into appropriate
complimentary wound care products such as alginates, hydrocolloids and other
composite dressings.
Article 3. Certain Performance Requirements
3.1 Faulding agrees to promote, market, sell and distribute the Products only
to customers and potential customers within the Territory for ultimate use
within the Territory. Faulding will not, under any circumstances, either
directly or indirectly through third parties, knowingly promote, market,
sell, distribute or ship Products within or to, or for ultimate use within,
the United States or any place outside the Territory.
3.2 In order to assure Carrington that Faulding is not repatriating Products
to the United States or elsewhere outside the Territory, Faulding agrees
that:
(a) Faulding will send to Carrington a quarterly sales report on the number
of units of each Product sold; and
(b) Faulding will send to Carrington a quarterly inventory report of the
Products.
3.3 Faulding shall maintain a sufficient inventory of Products to assure an
adequate supply of Products to serve all its market segments. Faulding's
inventory maintenance of the Products shall meet all storage and other
required standards as mandated by applicable governmental authorities. All
such inventory shall be subject to annual inspection by a maximum of two
Carrington employees or agents. Carrington shall provide Faulding 72 hours
written notice of inspection and such inspection shall be made during normal
business hours.
<PAGE> 3
3.4 Faulding shall in no way be responsible for any tax in the nature of an
income tax imposed on Carrington. Faulding shall be responsible for and
shall collect all governmental and regulatory sales and other taxes, charges
and fees that may be due and owing upon sales by Faulding of Products. Upon
written request from Faulding, Carrington shall provide Faulding with such
certificates or other documents as may be reasonably required to establish
any applicable exemptions from the collection of such taxes, charges and
fees.
3.5 All Products shall be packaged and delivered by Carrington to Faulding.
All Products shall be labeled, advertised, marketed, sold and distributed
by Faulding in compliance with the rules and regulations of the applicable
governmental authority within the Territory, as amended from time to time,
and (ii) all other applicable laws, rules and regulations. Carrington
agrees to consult with Faulding regarding the materials and design to be
utilized in the packaging of the Products. Faulding shall pay all expenses
associated with any alterations to the packaging and labeling of the
Products which deviate from Carrington's standard packaging materials,
designs, methods and/or procedures and the Parties shall agree on minimum
production runs for such custom labels.
3.6 Faulding agrees not to make, or permit any of its employees, agents or
representatives to make, any claims of any properties or results relating
to any Product, unless such claims have received written approval from
Carrington or from the applicable governmental authorities.
3.7 Faulding agrees to provide Carrington its general marketing strategy,
prior to the labeling, advertising, or marketing of the Products. If
Carrington does not respond to Faulding within three business days of
Carrington's receipt of said material, then Faulding shall assume said
material has been deemed acceptable. Either upon Carrington's written
approval of such marketing plan or in the event the material is deemed
accepted as set forth above, Faulding shall have sole discretion on the
details and implementation of said plan and, consequently, on its strategy
in achieving the minimum sales volume forecasted.
3.8 The Parties agree that each shall have the right to inspect the other's
facilities two times each year to ensure compliance with the provisions of
this Agreement. Each Party agrees to provide the other three business days
notice of inspection and such inspection shall be made by a maximum of two
of the Party's employees or agents during each visit.
3.9 Faulding will actively and aggressively promote the sale of the Products
to all customers and potential customers within the Territory. Faulding's
wound care division or operation agrees not to market, sell or distribute
to any customers or potential customers in the Territory without ninety (90)
days written notice to Carrington, any competitive hydrogel product.
Carrington acknowledges that Faulding's Healthcare and Distribution
Operations may market, sell, and distribute competitive products.
<PAGE> 4
3.10 Faulding represents that its books, records and accounts pertaining to
all its operations hereunder are complete and accurate in all material
respects and have been maintained in accordance with sound and generally
accepted accounting principles. Faulding's auditor shall hand over to
Carrington at the end of each 12-month period during the term of this
Agreement a declaration that the accounts as rendered are correct.
Carrington shall have the right to have such books, records and accounts
examined by a qualified accountant nominated by Carrington at Carrington's
expense.
Article 4. Sale of Products by Carrington to Faulding
4.1 Subject to the terms and conditions of this Agreement, including
specifically Article 4.6 hereof, Carrington shall sell to Faulding its
requirements for the Products at a price for each Product (the "Contract
Price"). For orders placed by Faulding during the first 12-month period of
the term of this Agreement, the Contract Prices for the Products listed on
Exhibit A are set forth on such exhibit opposite each Product. At least 90
days prior to the end of each 12-month period of the term of this Agreement,
(a) Faulding shall provide in writing to Carrington both a sales forecast
and purchase forecast for the Products for the following 12-month period,
and (b) the parties shall commence good faith negotiations to determine and
agree upon the Contract Prices for Products for the next 12-month period of
the term. During any twelve (12) month period Carrington reserves the right
to change its distributor prices for Products as set forth in the Published
Price List if mutually agreed to by Faulding. Such cost increases shall be
no greater than the U.S. inflation rate plus 5% of said rate.
4.2 As consideration for its appointment as an exclusive sales distributor
entitled to a Product discount, Faulding agrees to purchase from Carrington,
during each 12-month period of the term of this Agreement, commencing with
the 12-month period beginning July 1, 1997 through June 30, 1998, at the
Contract Price, a specified minimum aggregate dollar amount (based on the
Contract Price) of the Products (the "Specified Minimum Amount"). For the
first 12-month period of the term of this Agreement there shall be no
Specified Minimum Amount. The Specified Minimum Amounts for each subsequent
12-month period shall be determined by mutual agreement of the parties prior
to the beginning of such period based on Faulding's reasonable, good faith
projections of future sales growth and such other factors as the parties may
deem relevant.
4.3a Faulding shall order Products by submitting a purchase order to
Carrington describing the type and quantity of the Products to be purchased.
All orders are subject to acceptance by Carrington. All purchases shall be
spaced in a reasonable manner. If Carrington accepts the order, Carrington
will invoice Faulding upon shipment of the Products. Unless otherwise
agreed, Faulding shall pay all invoices in full within 30 days from the date
of receipt thereof. All sales and payments shall be made, and all orders
shall be accepted, in the State of Texas.
4.3b In the event Faulding places a purchase order for more than 120% of its
most recent sales forecast, and Carrington agrees to accept such purchase
order, Carrington agrees (1) to supply Faulding up to 120% of the amount in
the forecast, subject to the provisions in Articles 4.4 and 4.6, and (2)
to use all reasonable efforts to supply Faulding the complete amount of
Products ordered.
<PAGE> 5
4.4 Carrington shall not be obligated to ship Products to Faulding at any
time (i) when Faulding is otherwise in material breach of this Agreement,
or (ii) when payment of an undisputed amount owed by Faulding is overdue.
If payment is overdue because of a dispute, the undisputed amount is still
due. For example, an invoiced shipment of 100 units is sent but only 80
units arrive, then Faulding shall pay for the 80 units actually received and
the disputed 20 units shall be resolved separately.
4.5 All shipments of Products to Faulding will be packaged in accordance with
Carrington's standard packaging procedures and shipped per Carrington's
existing distribution policy. All Contract Prices are F.O.B. (invoice price
includes Seller's expense for delivery to the named destination),
Carrington's facility, Dallas, Texas for single shipments totaling less than
$40,000.00 U.S.; otherwise, for single orders greater than $40,000.00 U.S.
the Contract Prices shall be C.I.F. (invoice price includes cost, insurance
and freight). The shipping point shall be Faulding's facility, Salisbury
Adelaide, South Australia, Australia. Ownership of and title to Products
and all risks of loss with respect thereto shall pass to Faulding upon
delivery of such Products by Carrington to the carrier at the designated
delivery (F.O.B. or C.I.F.) point. Deliveries of Products shall be made by
Carrington under normal trade conditions in the usual and customary manner.
4.6 Carrington shall use its reasonable best efforts to ensure availability
of all Products ordered by Faulding under this Agreement. However, if
necessary in the best judgment of Carrington, Carrington may allocate its
available supply of Products among all its customers, distributors or other
purchasers, including Faulding, on such basis as it shall deem reasonable,
practicable and equitable, without liability for any failure of performance
or lost sales which may result from such allocations.
4.7a Carrington accepts liability for defective products and agrees to
replace such defective Products should they occur with new Products. Except
as specifically set forth in this Agreement and, except as may be expressly
stated by Carrington on the Product or on Carrington'S packaging, or in
Carrington'S information accompanying the Product, at the time of shipment
to Faulding hereunder, CARRINGTON MAKES NO REPRESENTATIONS OR WARRANTIES OF
ANY KIND WITH RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
CARRINGTON NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY
OBLIGATION OR LIABILITY IN CONNECTION WITH THE PRODUCTS. Faulding shall not
make any representation or warranty with respect to the Products that is
more extensive than, or inconsistent with, the limited warranty set forth
in this Article 4.7 or that is inconsistent with the policies or
publications of Carrington relating to the Products.
4.7b SUBJECT TO ALL OTHER PARAGRAPHS IN THIS ARTICLE 4.7, FAULDING'S
EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS THE DELIVERY BY
CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN REPLACEMENT OF THE
NON-CONFORMING PRODUCTS OR THE REFUND OF THE CONTRACT PRICE FOR THE PRODUCTS
THAT ARE COVERED BY THE WARRANTY, AT FAULDING'S OPTION. CARRINGTON SHALL
HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO FAULDING OR ANY OTHER
PERSON OF ANY TYPE, INCLUDING, BUT NOT LIMITED TO, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS,
OR ANY OTHER LOSS, DAMAGE OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH
THE SALE, USE, LOSS OF USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
<PAGE> 6
4.7c CARRINGTON SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS FAULDING AND
FAULDING'S AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FROM AND
AGAINST ALL CLAIMS, LIABILITIES, DEMANDS, DAMAGES, EXPENSES AND LOSSES
(INCLUDING REASONABLE ATTORNEY'S FEES AND EXPENSES) ARISING OUT OF OR
CONNECTED WITH ANY USE OF CARRINGTON'S TRADEMARKS OR THE SALE OF
CARRINGTON'S PRODUCTS BY FAULDING, ANY BREACH BY CARRINGTON OF ANY OF ITS
REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR ANY ACTS
OR OMISSIONS ON THE PART OF CARRINGTON OR ITS AGENTS, SERVANTS OR EMPLOYEES
WHICH ARE OUTSIDE OR BEYOND CARRINGTON'S AUTHORIZATION GRANTED HEREIN;
PROVIDED, THAT THIS INDEMNITY SHALL NOT EXTEND TO ANY SUCH LOSS, DAMAGE,
COSTS OR OTHER EXPENSES ARISING OUT OF ANY ACT OR OMISSION OF FAULDING, ITS
OFFICERS, SERVANTS OR AGENTS IN CONNECTION WITH ITS OBLIGATIONS UNDER THIS
AGREEMENT.
4.7d FAULDING SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS CARRINGTON AND
CARRINGTON'S AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FROM AND
AGAINST ALL CLAIMS, LIABILITIES, DEMANDS, DAMAGES, EXPENSES AND LOSSES
(INCLUDING REASONABLE ATTORNEY'S FEES AND EXPENSES) ARISING OUT OF OR
CONNECTED WITH ANY USE OF FAULDING'S TRADEMARKS OR THE SALE OF CARRINGTON'S
PRODUCTS BY FAULDING, ANY BREACH BY FAULDING OF ANY OF ITS REPRESENTATIONS,
WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR ANY ACTS OR OMISSIONS ON THE
PART OF FAULDING OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR
BEYOND FAULDING'S AUTHORIZATION GRANTED HEREIN; PROVIDED, THAT THIS
INDEMNITY SHALL NOT EXTEND TO ANY SUCH LOSS, DAMAGE, COSTS OR OTHER EXPENSES
ARISING OUT OF ANY ACT OR OMISSION OF CARRINGTON, ITS OFFICERS, SERVANTS OR
AGENTS IN CONNECTION WITH ITS OBLIGATIONS UNDER THIS AGREEMENT.
4.7eCARRINGTON SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS FAULDING AND ITS
OFFICERS, SERVANTS AND AGENTS AGAINST ANY AND ALL LOSS, DAMAGE, COSTS OR
OTHER EXPENSES (EXCEPT CONSEQUENTIAL LOSS SUCH AS LOSS OF PROFITS OR
BUSINESS) ARISING OUT OF:
(1) THE SUPPLY, SALE, USE OR ANY DEFECT IN THE PRODUCTS SOLD BY FAULDING AND,
WITHOUT LIMITATION, EXTENDS TO: (a) ANY FAILURE OF THE PRODUCTS TO COMPLY
WITH CARRINGTON'S SPECIFICATIONS, AND (b) ANY FAILURE OF THE PRODUCTS TO
COMPLY WITH THE SPECIFICATIONS IN THE REGISTRATIONS; OR
(2) AN INFRINGEMENT ON THIRD PARTY INTELLECTUAL PROPERTY RIGHTS AS A RESULT
OF THE USE OF CARRINGTON'S PRODUCTS, PATENTS OR TRADEMARKS IN THE TERRITORY,
PROVIDED THAT THIS INDEMNITY SHALL NOT EXTEND TO ANY SUCH LOSS, DAMAGES,
COSTS OR OTHER EXPENSES ARISING OUT OF ANY ACT OR OMISSION OF FAULDING, ITS
OFFICERS, SERVANTS OR AGENTS IN CONNECTION WITH ITS OBLIGATIONS UNDER THIS
AGREEMENT.
4.7f CARRINGTON SHALL, IN SUPPORT OF THE ABOVE INDEMNITY, WITHOUT LIMITING
CARRINGTON'S LIABILITY ARISING FROM THE PRECEDING, EFFECT AND MAINTAIN SUCH
INSURANCE AS FAULDING MAY REASONABLY REQUEST NOTING THE INTEREST TO FAULDING
THEREON IN AN AMOUNT OF $3,000,000.00 PER CLAIM WITH A REPUTABLE AND SOLVENT
INSURANCE COMPANY. CARRINGTON SHALL, FROM TIME TO TIME, UPON REQUEST FROM
FAULDING, PROVIDE FAULDING WITH EVIDENCE THAT THE INSURANCE AS AFORESAID HAS
BEEN EFFECTED AND PROVIDE COPIES OF THE RELEVANT INSURANCE POLICY TO
FAULDING.
<PAGE> 7
4.8 Credits on defective Products by Faulding shall include importation and
shipment expenses and will be calculated by Carrington based on the original
Contract Price of the items returned, whether identified by lot number or
another method. Carrington shall provide Faulding a copy of its Insurance
Certificate and shall include Faulding thereunder.
4.9 Each Party shall promptly notify the other of all material information
and complaints to its knowledge or coming into its possession regarding the
Products, concerning, without limitation, unexpected side effects, injury,
toxicity or sensitivity reactions. Faulding shall maintain a file for all
such complaints and Faulding shall investigate complaints and, at its sole
discretion, shall decide on the action to be taken after reasonably
discussing the situation with Carrington. Carrington agrees to assist
Faulding in the investigation of such complaints as Faulding may reasonably
request from time to time.
Article 5. Term and Termination
5.1 The term of this Agreement shall be for a period of five years from the
effective date of this Agreement. After such term, this Agreement shall be
automatically renewed for a term of five years, every five years, during
the effective life of the Product(S), unless the parties mutually agree in
writing to terminate this Agreement. Notwithstanding the foregoing, this
Agreement may be terminated in accordance with the provisions of this
Article 5.
5.2a Carrington shall have the absolute right to terminate this Agreement if
Faulding fails to perform or breaches, in any material respect, any of the
terms or provisions of this Agreement. Without limiting the events which
shall be deemed to constitute a breach or material breach of this Agreement
by Faulding, Faulding understands and agrees that it shall be in material
breach of this Agreement, and Carrington shall have the right to terminate
this Agreement under this Article 5.2, if:
(I) Faulding fails or refuses to pay to Carrington any sum when due;
(ii) Faulding breaches any provision of Article 2.2, 3.1, 3.5, 3.7, 3.9, 4.3,
4.7, 6 or 7; or
(iii) Faulding fails to purchase the Specified Minimum Amount of Product for
any required period starting in year two (2).
Provided, however, in the event of a failure by Faulding to meet agreed upon
minimums, Faulding may continue to distribute the Products for an additional
year, if Faulding meets agreed upon purchases for that subsequent year. In
any event, Carrington reserves the right to purchase such remaining
inventory from Faulding at the Contract Price.
5.2b Faulding shall have the absolute right to terminate this Agreement,
either in its entirety or with respect to particular Products or particular
countries in the Territory where: (i) the attempt to obtain Product(s)
registration fails, or (ii) a Serious Adverse Health Event occurs, or (iii)
registrations are withdrawn from the Territory.
<PAGE> 8
5.2c In the event either Party fails to perform or breaches the terms of this
Agreement as set forth in Article 5.2a, the other Party agrees to provide
the breaching Party notice of its intention to terminate this Agreement.
The breaching Party shall have sixty days from the date of receipt of such
notice to remedy its breach and/or failure to perform in accordance with the
terms and provisions of this Agreement.
5.3 Each Party shall have the absolute right to terminate this Agreement in
the event the Party shall become insolvent, or if there is instituted by or
against the other Party procedures in bankruptcy, or under insolvency laws
or for reorganization, receivership or dissolution, or if the other Party
loses any franchise or license to operate its business as presently
conducted in any part of the Territory.
5.4 This Agreement shall automatically terminate effective at the end of any
12-month period of the term of this Agreement referred to in Articles 4.1
and 4.2 hereof if the parties are unable to agree upon the Contract Prices
or the Specified Minimum Amount for the next 12-month period of the term.
Carrington shall give Faulding six months notice of its intent to terminate.
The Parties agree that contract Prices or Specified Minimum Amounts shall
not be unreasonably increased or decreased and shall be based on reasonable,
good faith projections of future sales growth and other relevant market,
competitive and regulatory factors discussed between the Parties.
5.5 During the one-year period following termination of this Agreement, any
inventory of Products held by Faulding at the termination of this Agreement
may be sold by Faulding to customers in the Territory in the ordinary
course; provided, however, that for the period required to liquidate such
inventory, all of the provisions contained herein governing Faulding's
performance obligations and Carrington's rights shall remain in effect. In
order to accelerate the liquidation of any such inventory, Carrington shall
have the option, but not the obligation, to purchase all or any part of such
remaining inventory at the price at which the inventory was originally sold
by Carrington to Faulding including importation and shipping.
5.6 The termination of this Agreement shall not impair the rights or
obligations of either party hereto which shall have accrued hereunder prior
to such termination. The provisions of Articles 4.7, 6, 7 and 15 and the
rights and obligations of the parties thereunder shall survive the
termination of this Agreement for a period of one (1) year.
Article 6. Trademarks and Trade Names
6.1 All Carrington trademarks, trade names, service marks, logos and
derivatives thereof relating to the Products (the "Trademarks"), and all
patents, technology and other intellectual property relating to the
Products, are the sole and exclusive property of Carrington or its
affiliates. Carrington hereby grants Faulding permission to use the
Trademarks for the limited purpose of performing its obligations under this
Agreement. Carrington agrees to disclose and make available to Faulding any
relevant and appropriate intellectual property information regarding the
Products for the limited purposes set forth in this Agreement. Carrington
may, in its sole discretion after consultation with Faulding, modify or
discontinue the use of any Trademark and/or use one or more additional or
substitute marks or names, and Faulding shall be obligated to do the same.
<PAGE> 9
6.2 It shall be the sole responsibility of Carrington, at its sole expense,
to keep in force and maintain the Trademarks in the Territory by paying all
necessary fees throughout the term of this Agreement. Faulding agrees to
use the Trademarks in full compliance with the rules prescribed from time
to time by Carrington. Faulding may not use any Trademark as part of any
corporate name or with any prefix, suffix or other modifying words, terms,
designs or symbols. In addition, Faulding may not use any Trademark in
connection with the sale of any unauthorized product or service or in any
other manner not explicitly authorized in writing by Carrington.
6.3 Carrington hereby grants to Faulding the option to include Faulding's
trademark on the Products. In the event of any infringement of, or
challenge to, the use of any Trademark or of any Faulding trademark, the
informed party is obligated to notify the other party immediately. The
challenged party shall investigate any alleged violation and, if necessary,
will take appropriate legal action to resolve the issue and to prevent other
competitors from infringing on its intellectual property rights within the
Territory. Otherwise, each party shall have sole and absolute discretion
to take such action as it deems appropriate.
6.4 In the event of the termination of this Agreement for any reason,
Faulding's right to use the Trademarks shall cease, and Faulding shall cease
using such Trademarks at such time as Faulding's inventory of Products has
been sold. Faulding shall, as soon as it is reasonably possible, remove all
Trademarks which appear on or about the premises of the office(s) of
Faulding and any of the advertising of Faulding used in connection with
Products.
6.5 In the event of a breach or threatened breach by Faulding of the
provisions of this Article 6, Carrington shall be entitled to an injunction
or injunctions to prevent such breaches. Nothing herein shall be construed
as prohibiting Carrington from pursuing other remedies available to it for
such breach or threatened breach of this Article 6, including the recovery
of damages from Faulding.
<PAGE> 10
Article 7. Confidential Information
7.1 Each party recognizes and acknowledges that both will have access to
confidential information and trade secrets of the other and other entities
doing business with both parties relating to research, development,
manufacturing, marketing, financial and other business-related activities
("Confidential Information"). Such Confidential Information constitutes
valuable, special and unique property of each party and/or other entities
doing business with each party. Other than as is necessary to perform the
terms of this Agreement, neither party shall, during and after the term of
this Agreement, make any use of such Confidential Information, or disclose
any of such Confidential Information to any person or firm, corporation,
association or other entity, for any reason or purpose whatsoever, except
as specifically allowed in writing by an authorized representative of the
other party. In the event of a breach or threatened breach by either party
of the provisions of this Article 7, each shall be entitled to an injunction
restraining the other from disclosing and/or using, in whole or in part,
such Confidential Information. Nothing herein shall be construed as
prohibiting either party from pursuing other remedies available to it for
such breach or threatened breach of this Article 7, including the recovery
of damages from the other party. The above does not apply to information
or material that was known to the public or generally available to the
public prior to the date it was received by either party.
7.2 Faulding shall not disclose the existence of this Agreement or any of the
terms hereof without the prior written consent of Carrington.
Article 8. Force Majeure
8.1 Neither Faulding nor Carrington shall have any liability hereunder if
either is prevented from performing any of its obligations hereunder by
reason of any factor beyond its control, including, without limitation,
fire, explosion, accident, riot, flood, drought, storm, earthquake,
lightning, frost, civil commotion, sabotage, vandalism, smoke, hail,
embargo, act of God or the public enemy, other casualty, strike or lockout,
or interference, prohibition or restriction imposed by any government or any
officer or agent thereof ("Force Majeure"), and neither Faulding's nor
Carrington's obligations, so far as may be necessary, shall be suspended
during the period of such Force Majeure nor shall either party's obligations
be cancelled in respect of such Products as would have been sold hereunder
but for such suspension. Such shall give to other prompt notice of any such
Force Majeure, the date of commencement thereof and its probable duration
and shall give a further notice in like manner upon the termination thereof.
Each party hereto shall endeavor with due diligence to resume compliance
with its obligations hereunder at the earliest date and shall do all that
it reasonably can to overcome or mitigate the effects of any such Force
Majeure upon a party's obligations under this Agreement. Should the Force
Majeure continue for more than six (6) months, then the other Party shall
have the right to cancel this Agreement and the Parties' shall seek an
equitable agreement on the Parties' reward of interests.
8.2 The Parties agree that any obligation to pay money is never excused by
Force Majeure.
<PAGE> 11
Article 9. Amendment
9.1 No oral explanation or oral information by either party hereto shall
alter the meaning or interpretation of this Agreement. No modification,
alteration, addition or change in the terms hereof shall be binding on
either party hereto unless reduced to writing and executed by the duly
authorized representative of each party.
Article 10. Entire Agreement
10.1 This Agreement shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties, and/or
any contracts of any form or nature whatsoever, whether oral or in writing
and whether explicit or implicit, which may have been entered into prior to
the execution hereof between the parties, their officers, directors or
employees as to the subject matter hereof. Neither of the parties hereto
has relied upon any oral representation or oral information given to it by
any representative of the other party not included in this Agreement.
Article 11. Assignment
11.1 Neither this Agreement nor any of the rights or obligations of either
party hereunder shall be assigned by either party without the prior written
consent of the other, executed by a duly authorized officer of each party.
Consent by either Party shall not be unreasonably withheld.
Article 12. Governing Law
12.1 It is expressly agreed that the validity, performance and construction
of this Agreement will be governed by the laws and jurisdiction of
Australia.
Article 13. Notices
13.1 Any notice required or permitted to be given under this Agreement by
one of the parties to the other shall be given for all purposes by delivery
in person, registered air-mail, commercial courier services, postage
prepaid, return receipt requested, or by fax addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut Hill Lane,
Irving, Texas 75038, attention: President, or at such other address as
Carrington shall have theretofore furnished in writing to Faulding. (Fax
No. 972-518-1020)
(b) Faulding at: Faulding Pharmaceuticals, 1-23 Lexia Place, Mulgrave
Victoria 3170 , attention: Bruce Hewett, General Manager, or at such other
address as Faulding shall have theretofore furnished in writing to
Carrington. (Fax No. 613-950-9081)
Article 14. Waiver
14.1 Neither Faulding's nor Carrington's failure to enforce at any time any
of the provisions of this Agreement or any right with respect thereto, shall
be considered a waiver of such provisions or rights or in any way affect the
validity of same. Neither Faulding's nor Carrington's exercise of any of
its rights shall preclude or prejudice either party thereafter from
exercising the same or any other right it may have, irrespective of any
previous action by either party.
<PAGE> 12
Article 15. Arbitration
15.1 Except as provided in Articles 6.5 and 7.1, any dispute, controversy or
claim arising out of or in relation to or in connection with this Agreement,
the operations carried out under this Agreement or the relationship of the
parties created under this Agreement, shall be exclusively and finally
settled by confidential arbitration, and any party may submit such a
dispute, controversy or claim to arbitration. The arbitration proceeding
shall be held at the location of the non-instituting party in the English
language and shall be governed by the rules of the International Chamber of
Commerce (the "ICC") as amended from time to time. Any procedural rule not
determined under the rules of the ICC shall be determined by the laws of
Australia, other than those laws that would refer the matter to another
jurisdiction.
A single arbitrator shall be appointed by unanimous consent of the parties.
If the parties cannot reach agreement on an arbitrator within 45 days of the
submission of a notice of arbitration, the appointing authority for the
implementation of such procedure shall be the ICC, who shall appoint an
independent arbitrator who does not have any financial interest in the
dispute, controversy or claim. If the ICC is unable to appoint, or fails
to appoint, an arbitrator within 90 days of being requested to do so, then
the arbitration shall be heard by three arbitrators, one selected by each
party within the 30 days of being required to do so, and the third promptly
selected by the two arbitrators selected by the parties.
The arbitrators shall use their best efforts to announce the award and the
reasons therefor in writing within sixty days after the conclusion of the
presentation of evidence and oral or written argument, or within such longer
period as the parties may agree upon in writing. The decision of the
arbitrators shall be final and binding upon the parties. Judgment upon the
award rendered may be entered in any court having jurisdiction over the
person or the assets of the party owing the judgment or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. Unless otherwise determined by the
arbitrator, each party involved in the arbitration shall bear the expense
of its own counsel, experts and presentation of proof, and the expense of
the arbitrator and the ICC (if any) shall be divided equally among the
parties to the arbitration.
Article 16. No Inconsistent Actions
16.1 Each party hereto agrees that it will not voluntarily undertake any
action or course of action inconsistent with the provisions or intent of
this Agreement and, subject to the provisions of Articles 4.6 and 8 hereof,
will promptly do all acts and take all measures as may be appropriate to
comply with the terms, conditions and provisions of this Agreement.
Article 17. Currency of Account
17.1 This Agreement evidences a transaction for the sale of goods in which
the specification of U.S. dollars is of the essence, and U.S. dollars shall
be the currency of account in all events. All payments to be made by
Faulding to Carrington hereunder shall be made either (i) in immediately
available funds by confirmed wire transfer to a bank account to be
designated by Carrington or (ii) in the form of a bank cashier's check
payable to the order of Carrington.
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name: Carlton E. Turner, Ph.D.
Title: President and CEO
FAULDING PHARMACEUTICALS/DAVID BULL LABORATORIES
By: __________________________________
Name: Bruce Hewett
Title: General Manager
PAGE
<PAGE>
ANNEXURE 1
THE PRODUCTS
TRADEMARKS TO BE REGISTERED BY CARRINGTON DURING THE TERM OF THE AGREEMENT
Carrasyn (R)
<PAGE> 14 ANNEXURE 2
OVERALL QUALITY CONTROL AND RELEASE RESPONSIBILITY PERSON
Name:Dr. Ed Oppenheimer
Title:Director, QC/QA
Company:Carrington Laboratories, Inc.
Name:
Title:
Company:
<PAGE> 15
EXHIBIT A
HydroHeal Gel Unit Forecast and Pricing
Year 1: July 1st, 1997 - June 30th, 1998
Contract
Unit Forecast Transfer Prices
Min Max $U.S.
------ ------ ---------
8 gm ( .28 oz.) tubes (ea.) 2300 5200 $1.66
15 gm ( .52 oz.) tubes (ea.) 1800 4550 1.99
25 gm ( .88 oz.) tubes (ea.) 7000 17550 2.77
85 gm (3.00 oz.) tubes (ea.) 6500 15600 6.87
195 gm (6.88 oz.) tubes (ea.) 800 1950 11.28
* Products sold to and prices paid by Faulding
shall be in U.S. dollars.
<PAGE> 16
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of the day of
, 1996, by and between CARRINGTON LABORATORIES, INC.,
a Texas corporation ("Carrington"), and TRUDELL MEDICAL MARKETING LIMITED,
an Ontario corporation ("Trudell").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of manufacturing, selling
and distributing certain pharmaceutical products and is desirous of
establishing a competent and exclusive distribution source for sales of
such products in Canada (defined in Article 1 hereof as the Territory);
and
WHEREAS, Trudell is desirous of distributing such products in the
Territory and is willing and able to provide a competent distribution
organization in the Territory, and Trudell desires to be Carrington's
sales distributor for such products in the Territory;
NOW, THEREFORE, the Parties hereto, in consideration of the premises and
mutual covenants and undertakings herein contained, agree as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have the meanings
specified in this Article 1.1:
(a) "Products" shall mean the wound and skin care products manufactured by
or for Carrington set forth on Exhibit A hereto. Carrington will provide
a ninety (90) day notice to Trudell on its intent to add or discontinue
Products to Exhibit A. No Product shall be discontinued or removed from
Exhibit A during the term of this Agreement, without Trudell's prior
approval, unless regulatory approvals of the Products are removed or
withdrawn by the governing authority or if Carrington discontinues
distribution of the Product in the Territory.
(b) "Territory" shall mean: Canada, inclusive of Quebec.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement, Carrington
hereby appoints Trudell as Carrington's exclusive sales distributor in the
Territory for the sale of Products, and Trudell hereby accepts such
appointment. As sales distributor in the Territory, Trudell shall,
subject to the terms and conditions of this Agreement, have the exclusive
right to sell Products in the Territory, but shall have no right to sell
Products outside the Territory. During the term of this Agreement,
Carrington agrees not to appoint any other persons as distributors for the
Products in the Territory.
<PAGE> 1
2.2.a In a manner reasonably satisfactory to Carrington, and at Trudell's
sole expense, Trudell agrees to (a) devote reasonable efforts consistent
with other significant product lines to the diligent promotion, marketing,
sale and distribution of the Products in the Territory, (b) provide and
maintain a competent and aggressive organization for the promotion,
marketing, sale and distribution of the Products in the Territory, and (c)
assure competent and prompt handling of inquiries, orders, shipments,
billings and collections, and returns of or with respect to the Products
and careful attention to customers' requirements for all Products.
2.2b Carrington shall, at its sole expense, for all Products mutually
agreed to be sold hereunder, make all declarations, filings, and
registrations with, and obtain all approvals and authorizations from,
governmental and regulatory authorities (including but not limited to the
Health Protection Branch of the Department of Health Canada) required to
be made or obtained in connection with the promotion, marketing, sale and
distribution of the Products in the Territory. Carrington shall maintain
accurate and appropriate records of all regulatory approvals of the
Products and will promptly notify Trudell, in accordance with Article 13,
of such approvals and of the status of the Product registrations
throughout the term of this Agreement.
2.2c Except for Products referenced by Product numbers 102060, 102062,
102160, 102040, 102080, 104040, 106040, Carrington represents that it has
made all declarations, filings and registrations with, and obtained all
approvals and authorizations from, governmental and regulatory authorities
(including, but not limited to, the Health Protection Branch of the
Department of Health Canada) required to be made or obtained in connection
with the promotion, marketing, sale and distribution of Products in the
Territory for the Products listed in Exhibit A. Furthermore, Carrington
covenants that (i) it will use its reasonable best efforts to make all
declarations, filings and registrations with, and obtain all approvals and
authorizations from, governmental and regulatory authorities (including,
but not limited to, the Health Protection Branch of the Department of
Health Canada) of the excepted Products referenced above in this Article
2.2c, and (ii) it will have made and obtained all such declarations,
filings, registrations, approvals and authorizations for future Products
prior to their addition to Exhibit A.
2.3 Carrington will provide Trudell with such reasonable sales personnel
training in relation to the Products in Irving, Texas or a mutually agreed
upon location. Additionally, Carrington agrees to provide, at its sole
expense, reasonable quantities of (i) its current domestic catalogues,
literature, and applicable policies and procedures, if any, and (ii)
promotional Product literature and Product samples of Carrington, as
Trudell may request from time to time. Except for the foregoing
provisions in this Article 2.3, Carrington and Trudell shall cover their
respective direct expenses, unless otherwise agreed. Carrington shall
provide by telephone periodic sales and technical assistance to Trudell to
assist them in effective marketing of Products, education of customers and
relations with customers. In addition, Carrington's professional
clinicians, including the Medical Director from time to time, shall be
made available to Trudell on mutually agreed upon times at agreed upon
costs.
<PAGE> 2
2.4 During the term of this Agreement, each Party shall be considered an
independent contractor and shall not be considered a partner, employee,
agent or servant of the other. As such, neither Party has any authority
of any nature whatsoever to bind the other or incur any liability for or
on behalf of the other or to represent itself as anything other than a
buyer and seller.
Article 3. Certain Performance Requirements
3.1 Trudell agrees to promote, market, sell and distribute the Products
only to customers and potential customers within the Territory for
ultimate use within the Territory. Trudell will not, under any
circumstances, either directly or indirectly through third parties,
knowingly promote, market, sell, distribute or ship Products within or to,
or for ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that Trudell is not repatriating
Products to the United States or elsewhere outside the Territory, Trudell
agrees that:
(a) Trudell will send to Carrington a quarterly sales report on the number
of units of each Product sold;
(b) Trudell will send to Carrington a quarterly inventory report of the
Products; and
(c) Carrington may mark for identification all Products sold by Carrington
to Trudell hereunder.
3.3 Trudell shall maintain a sufficient inventory of Products to assure an
adequate supply of Products to serve all its market segments. Trudell
shall maintain all its inventory of Products clearly segregated and
meeting all storage and other required standards applicable governmental
authorities. All such inventory shall be subject to inspection by
Carrington or its agents during normal business hours with 72 hours
written notice.
3.4 Trudell shall be responsible for and shall collect all governmental
and regulatory sales and other taxes, charges and fees that may be due and
owing upon sales by Trudell of Products in Canada. Upon written request
from Trudell, Carrington shall provide Trudell with such certificates or
other documents as may be reasonably required to establish any applicable
exemptions from the collection of such taxes, charges and fees for
Canadian sales.
3.5 All Products shall be advertised, marketed, sold and distributed by
Trudell in compliance with the rules and regulations of the applicable
governmental authority within the Territory in which the Products are
marketed, as amended from time to time, and (ii) all other applicable
laws, rules and regulations.
3.6 Trudell agrees not to make, or permit any of its employees, agents or
representatives to make, any claims of any properties or results relating
to any Product, unless such claims have received written approval from
Carrington and from the applicable governmental authority.
<PAGE> 3
3.7 Trudell shall not use any label, advertisement or marketing material
on or with respect to or relating to any Product unless such label,
advertisement or marketing material has first been submitted to and
approved by Carrington in writing. Such approval shall not be
unreasonably withheld by Carrington.
3.8 Trudell will actively and aggressively promote the sale of the
Products to all customers and potential customers within the Territory.
Trudell agrees not to market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to Carrington, any wound care, skin care, or incontinence care
product which are competitive with the Carrington Products ("Competitive
Products"). A complete list of said Competitive Products are set forth on
Exhibit B hereto. This condition shall not apply to Professional
Respiratory Home Care Service Corporation ("ProRESP").
Article 4. Sale of Products by Carrington to Trudell
4.1 Subject to the terms and conditions of this Agreement, including
specifically Article 4.6 hereof, Carrington shall sell to Trudell its
agreed upon requirements for the Products at a price for each Product (the
"Contract Price") which represents a discount from Carrington's
distributor price for such Product as set forth in Carrington's published
distributor price list (the "Published Price List"). For orders placed by
Trudell during the first 12-month period of the term of this Agreement,
the Contract Prices for the Products listed on Exhibit A are set forth on
such exhibit opposite each Product. At least 90 days prior to the end of
each 12-month period of the term of this Agreement, the Parties shall
commence good faith negotiations to determine and agree upon the Contract
Prices for Products for the next 12-month period of the term. During any
twelve (12) month period Carrington reserves the right to change its
distributor prices for Products as set forth in the Published Price List
if mutually agreed to by Trudell.
4.2 As consideration for its appointment as a sales distributor entitled to
a Product discount, Trudell agrees to purchase from Carrington, during
each 12-month period of the term of this Agreement, commencing with the
12-month period beginning May 15, 1996 through May 14, 1997, at the
Contract Price, a specified minimum aggregate dollar amount (based on the
Contract Price) of the Products (the "Specified Minimum Purchase Amount").
The first 12-month period of the term of this Agreement shall be
considered a benchmark year and there shall be no Specified Minimum
Purchase Amount, but rather a targeted sales range of $125,000.00 to
$200,000.00 in Canadian Currency. The Specified Minimum Purchase Amount
for each subsequent 12-month period shall be determined by mutual
agreement of the Parties prior to the beginning of such period based on
Trudell's reasonable, good faith projections of future sales growth and
such other factors as the Parties may deem relevant. Products for which
regulatory approval has not been obtained by Carrington in accordance with
Articles 2.2b and 2.2c shall not be considered in the calculation of the
Specified Minimum Purchase Amounts. In the event the Parties fail to
agree on Specified Minimum Purchase Amounts, the dispute shall be resolved
pursuant to Article 5.5 of this Agreement.
<PAGE> 4
4.3 Trudell shall order Products by submitting a purchase order to
Carrington describing the type and quantity of the Products to be
purchased. Orders are subject to acceptance by Carrington. All purchases
shall be spaced in a reasonable manner. If Carrington accepts the order,
Carrington will invoice Trudell upon shipment of the Products. Unless
otherwise agreed, Trudell shall pay all invoices in full within 31 days of
the date of invoice. All sales and payments shall be made, and all orders
shall be accepted, in the State of Texas. All orders for Products which
have a cost of more than $750.00 U.S. will be prepaid freight. Terms are
1%, 30/Net31.
4.4 Carrington shall not be obligated to ship Products to Trudell at any
time when payment of an amount owed by Trudell is overdue or when Trudell
is otherwise in material breach of this Agreement.
4.5 All shipments of Products to Trudell will be packaged in accordance
with Carrington's standard packaging procedures and shipped per
Carrington's existing distribution policy. All Contract Prices are FOB,
Irving, Texas. Ownership of and title to Products and all risks of loss
with respect thereto shall pass to Trudell upon delivery of such Products
by Carrington to the carrier at the designated delivery (FOB) point.
Deliveries of Products shall be made by Carrington under normal trade
conditions in the usual and customary manner being utilized by Carrington
at the time and location of the particular delivery.
4.6 Carrington shall use its reasonable best efforts to ensure availability
of all Products ordered by Trudell under this Agreement. However, if
necessary in the best judgment of Carrington, Carrington may allocate its
available supply of Products among all its customers, distributors or
other purchasers, including Trudell, on such basis as it shall deem
reasonable, practicable and equitable, without liability for any failure
of performance or lost sales which may result from such allocations.
4.7 Carrington accepts liability for defective Products and agrees to
replace such defective products with new products. Carrington shall carry
adequate products liability insurance for the Products containing a broad
Vendor's endorsement in favor of Trudell. Carrington warrants and
guarantees that (a) upon delivery by Carrington the Products will comply
with all specifications expressly stated by Carrington on the Products or
on Carrington's packaging and will be of comparable quality to all samples
delivered to Trudell, (b) the Products will not be altered, misbranded,
falsely labeled or advertised, or falsely invoiced by Carrington within
the meaning of any local, provincial or federal law or amendments thereto
now in force, (c) the Products will be labeled, advertised and invoiced by
Carrington in accordance with the requirements (if applicable) of the
Consumer Packaging and Labeling Act, the National Trademark Act and True
Labeling Act and any and all other governmental laws and the respective
rules and regulations thereunder, (d) the Products will be properly
labeled by Carrington as to content as required by all applicable laws,
rules, and regulations, (e) subject to Trudell's notice to Carrington of
potential infringement of property rights belonging to others, the
Products do not and will not infringe upon or violate any patent,
copyright, trademark, tradename or, without limitation, any other
intellectual property rights belonging to others, (f) all weights,
<PAGE> 5
measures, sizes, legends, or descriptions printed, stamped, attached or
otherwise indicated by Carrington with regard to the Products are true and
correct and conform and comply with all laws, rules, regulations,
ordinances, codes or standards relating to Products of federal, provincial
and local governments, and (g) the Products are not knowingly in violation
of any other laws, ordinances, statues, rules, or regulations of Canada or
any provincial or local government or any subdivision or agency thereof.
Except as expressly stated in Article 4.7 and except as may be expressly
stated by Carrington on the Product or on Carrington's packaging, or in
Carrington's information accompanying the Product, at the time of shipment
to Trudell hereunder, CARRINGTON MAKES NO REPRESENTATIONS OR WARRANTIES OF
ANY KIND WITH RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
CARRINGTON NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY
OBLIGATION OR LIABILITY IN CONNECTION WITH THE PRODUCTS. Trudell shall
not make any representation or warranty with respect to the Products that
is more extensive than, or inconsistent with, the limited warranty set
forth in this Article 4.7 or that is inconsistent with the policies or
publications of Carrington relating to the Products.
TRUDELL'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS THE
DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE CONTRACT
PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT TRUDELL'S
OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR
DAMAGES TO TRUDELL OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT NOT
LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS
OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS, DAMAGE OR
EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, LOSS OF USE,
NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
4.8. Carrington shall indemnify, defend and hold Trudell and
Trudell's affiliates, officers, directors and employees harmless from and
against any liability, losses, damages, costs and expenses (including
reasonable attorney's fees and disbursements) arising out of or with
respect to:
(a) any third party claims, actions or suits for damage to property, death
or injury where the Products are alleged to have caused or contributed to
the damage, injury or death;
(b) any claims, actions or suits alleging that the Products infringe the
patent, trademarks or other proprietary rights of any third party; or
(c) any breach of Carrington's obligations, representations, or covenants
contained in Articles 2.2b or 2.2c.
Carrington's indemnification obligations contained in this Article 4.8
shall not apply in any case which arises from, or is attributable to,
Trudell's negligence. Carrington's indemnification obligations contained
in this Article 4.8 shall not be limited or altered by Article 4.7.
<PAGE> 6
Trudell shall indemnify, defend and hold Carrington and its officers,
directors and employees harmless from and against any liability, losses,
damages, costs and expenses (including reasonable attorney's fees and
disbursements) arising out of or with respect to any third party claims,
actions or suits for damage to property, death or injury resulting from
use of the Products due to any of the following actions by Trudell or its
affiliates, officers, directors or employees: a) any intentional or
negligent alteration of the Products or b) any claims which negligently
misrepresent the Products.
Trudell's indemnification obligations contained in the Article 4.8 shall
not apply in any case which arises from, or is attributable to,
Carrington's negligence.
For the purpose of this Article 4.8, the Party intending to claim
indemnification shall promptly notify the other in writing. The Party
claiming indemnification shall permit the other to control the defense or
settlement of any claim, action or suit, and shall co-operate with the
other in any defense or settlement.
The indemnification obligations contained in the Article 4.8 shall survive
for a period of five (5) years after the date of termination or expiration
of this Agreement.
4.9a Carrington shall maintain insurance during the term of this Agreement,
and any extensions thereof, with not less than the same coverage,
endorsements, limits and notice of cancellation as shown in the insurance
certificate attached hereto as Exhibit C. Carrington shall, within thirty
(30) days after this Agreement is executed by both Parties, provide
Trudell with a copy of its insurance certificate naming Trudell as an
additional insured and listing the coverage, endorsements, limits, and
notice of cancellation provisions. Carrington shall not cancel or
materially alter such policy without providing at least thirty (30) days
prior written notice to all named insured. Failure by Carrington to
maintain insurance coverage in accordance with this Article 4 shall
constitute a material breach of this Agreement. It is understood and
agreed that the furnishing of such insurance certificate will not relieve
Carrington of its other respective obligations under this Agreement.
4.9b Credits on defective Products by Trudell shall include importation and
shipment expenses and will be calculated by Carrington based on the
original Contract Price of the items returned, whether identified by lot
number or another method.
Article 5. Term and Termination
5.1 The initial term of this Agreement shall be for a period of five years
from the date of this Agreement. After such initial term, this Agreement
shall be automatically extended for an additional term of five years,
unless this Agreement is terminated at the end of the initial five-year
term by written notice given by either Party to the other Party not less
than six months prior to the end of such initial term. Notwithstanding
the foregoing, this Agreement may be terminated earlier in accordance with
the provisions of this Article 5.
<PAGE> 7
5.2a Either Party shall have the absolute right to terminate this
Agreement if the other Party fails to perform or breaches, in any material
respect, any of the terms or provisions of this Agreement. Without
limiting the events which shall be deemed to constitute a breach or
material breach of this Agreement by either Party, Trudell understands and
agrees that it shall be in material breach of this Agreement, and
Carrington shall have the right to terminate this Agreement under this
Article 5.3, if:
(I) Trudell fails or refuses to pay to Carrington any sum when due;
(ii) Trudell breaches any provision of Article 2.2a, 3.1, 3.5, 3.7, 3.8,
4.3, 4.7, 6 or 7; or
(iii) Trudell fails to purchase the agreed upon Specified Minimum Purchase
Amount of Product for any required period starting in year two (2)
excluding, however, purchases that failed to occur by virtue of any one or
a combination of Carrington's (a) failure to deliver, excluding
Carrington's failure to deliver as a result of Trudell's failure to pay
any terms due to Carrington, (b) discontinuation of the Product, (c)
recall of the Product, or (d) failure to obtain regulatory approval of the
Product in accordance with Articles 2.2b and 2.2c..
5.2b In the event Trudell fails to perform or breaches any of the terms of
this Agreement, Carrington agrees to provide Trudell notice of intention
to terminate this Agreement. Trudell shall have thirty (30) days from the
date of receipt of such notice to remedy its breach and/or failure to
perform in accordance with the terms and provisions of this Agreement.
5.3 Each Party shall have the absolute right to terminate this Agreement in
the event the Party shall become insolvent, or if there is instituted by
or against the Party procedures in bankruptcy, or under insolvency laws or
for reorganization, receivership or dissolution, or if the Party loses any
franchise or license to operate its business as presently conducted in any
part of the Territory.
5.4 This Agreement shall automatically terminate effective six months after
the end of any 12-month period of the term of this Agreement referred to
in Articles 4.1 and 4.2 hereof if the Parties are unable to agree upon the
Contract Prices for the next 12-month period of the term or the Specified
Minimum Purchase Amounts after the fourth 12-month period of the term of
this Agreement.
5.5 Any failure to agree on the Specified Minimum Purchase Amount shall be
referred to arbitration, in accordance with Article 15, for resolution
during the first four (4) 12-month periods of the term of this Agreement.
The arbitrator shall be mutually agreed upon and have experience in
international marketing and sales agreements. The arbitrator shall review
general market conditions including increases or decreases in the growth
of the Canadian wound care market, pricing trends, competitors' marketing
and sales efforts, regulatory changes affecting the market or affecting
Carrington Products, and other similar factors that may impact the sale of
Carrington Products. After the fourth 12-month period of the term of this
Agreement, the Parties will meet in good faith to agree upon Specified
Minimum Purchase Amounts and if the Parties do not reach a mutual
agreement on said issue, then the Agreement shall terminate in accordance
with Article 5.4.
<PAGE> 8
5.6 During the one-year period following termination of this Agreement, any
inventory of Products held by Trudell at the termination of this Agreement
may be sold by Trudell to customers in the Territory in the ordinary
course; provided, however, that for the period required to liquidate such
inventory, all of the provisions contained herein governing Trudell's
performance obligations and Carrington's rights shall remain in effect.
In order to accelerate the liquidation of any such inventory and in the
event a) Carrington terminates this Agreement, b) Trudell terminates this
Agreement because of Carrington's material breach thereof, or c) this
Agreement terminates automatically pursuant to Section 5.4, Carrington
shall, if requested by Trudell during the one year period after the date
of termination of this Agreement, repurchase all or any part of the
remaining inventory of Products at the price at which the inventory was
originally sold by Carrington to Trudell, including importation and
shipping charges. The inventory will be shipped back by Trudell to
Carrington F.O.B. London, Ontario. Notwithstanding the foregoing, if
Trudell terminates this Agreement other than because of Carrington's
material breach thereof, Carrington shall have the option, but not the
obligation, to repurchase all or any part of the remaining inventory of
Products at the same above-stated price.
5.7 The termination of this Agreement shall not impair the rights or
obligations of either Party hereto which shall have accrued hereunder
prior to such termination. The provisions of Articles 4.7, 6, 7 and 15
and the rights and obligations of the Parties thereunder shall survive the
termination of this Agreement for a period of one (1) year.
Article 6. Trademarks and Trade Names
6.1 All trademarks, trade names, service marks, logos and derivatives
thereof relating to the Products (the "Trademarks"), and all patents,
technology and other intellectual property relating to the Products, are
the sole and exclusive property of Carrington or its affiliates.
Carrington hereby grants Trudell permission to use the Trademarks for the
limited purpose of performing its obligations under this Agreement.
Carrington may, in its sole discretion after consultation with Trudell,
modify or discontinue the use of any Trademark and/or use one or more
additional or substitute marks or names, and Trudell shall be obligated to
do the same.
6.2 Trudell agrees to use the Trademarks in full compliance with the rules
prescribed from time to time by Carrington. Trudell may not use any
Trademark as part of any corporate name or with any prefix, suffix or
other modifying words, terms, designs or symbols. In addition, Trudell
may not use any Trademark in connection with the sale of any unauthorized
product or service or in any other manner not explicitly authorized in
writing by Carrington.
6.3 In the event of any infringement of, or challenge to, Trudell's use of
any Trademark, Trudell is obligated to notify Carrington immediately, and
Carrington shall have sole and absolute discretion to take such action as
it deems appropriate.
<PAGE> 9
6.4 In the event of the termination of this Agreement for any reason,
Trudell's right to use the Trademarks shall cease, and Trudell shall cease
using such Trademarks at such time as Trudell's inventory of Products has
been sold. Trudell shall, as soon as it is reasonably possible, remove
all Trademarks which appear on or about the premises of the office(s) of
Trudell and any of the advertising of Trudell used in connection with
Products.
6.5 In the event of a breach or threatened breach by Trudell of the
provisions of this Article 6, Carrington shall be entitled to seek an
injunction or injunctions to prevent such breaches. Nothing herein shall
be construed as prohibiting Carrington from pursuing other remedies
available to it for such breach or threatened breach of this Article 6,
including the recovery of damages from Trudell.
Article 7. Confidential Information
7.1 Each Party recognizes and acknowledges that both will have access to
confidential information and trade secrets of the other and other entities
doing business with each relating to research, development, manufacturing,
marketing, financial and other business-related activities ("Confidential
Information"). Such Confidential Information constitutes valuable,
special and unique property of each Party and/or other entities doing
business with either Company. Other than as is necessary to perform the
terms of this Agreement, neither Party shall, during and after the term of
this Agreement, make any use of such Confidential Information, or disclose
any of such Confidential Information to any person or firm, corporation,
association or other entity, for any reason or purpose whatsoever, except
as required by law to be disclosed or as specifically allowed in writing
by an authorized representative of the other. In the event of a breach or
threatened breach by either Party of the provisions of this Article 7,
each shall be entitled to an injunction restraining the other from
disclosing and/or using, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting either
Party from pursuing other remedies available to it for such breach or
threatened breach of this Article 7, including the recovery of damages
from the other Party. The above does not apply to information or material
that was (a) disclosed to the receiving Party by a third Party under no
obligation of confidentiality , (b) known to the public or generally
available to the public prior to the date it was received by either Party,
or (c) required by law to be disclosed.
Article 8. Force Majeure
8.1 Neither Trudell nor Carrington shall be liable hereunder if either is
prevented from performing any of its obligations hereunder by reason of
any factor beyond its reasonable control, including, without limitation,
fire, explosion, accident, riot, flood, drought, storm, earthquake,
lightning, frost, civil commotion, sabotage, vandalism, smoke, hail,
embargo, act of God or the public enemy, other casualty, strike or
lockout, or interference, prohibition or restriction imposed by any
government or any officer or agent thereof ("Force Majeure"). Excepting
<PAGE> 11
delay of performance as reasonably necessary due to Force Majeure, Trudell
or Carrington's obligations shall not be suspended or canceled during the
period of such Force Majeure. Such Party shall give to other prompt
notice of any such Force Majeure, the date of commencement thereof and its
probable duration and shall give a further notice in like manner upon the
termination thereof. Each Party hereto shall endeavor with due diligence
to resume compliance with its obligations hereunder at the earliest date
and shall do all that it reasonably can to overcome or mitigate the
effects of any such Force Majeure upon a Party's obligations under this
Agreement. Should the Force Majeure continue for more than six (6)
months, then either Party shall have the right to terminate this Agreement
and the Parties' shall seek an equitable agreement on the Parties' reward
of interests.
Article 9. Amendment
9.1 No oral explanation or oral information by either Party hereto shall
alter the meaning or interpretation of this Agreement. No modification,
alteration, addition or change in the terms hereof shall be binding on
either Party hereto unless reduced to writing and executed by the duly
authorized representative of each Party.
Article 10. Entire Agreement
10.1 This Agreement shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or in
writing and whether explicit or implicit, which may have been entered into
prior to the execution hereof between the Parties, their officers,
directors or employees as to the subject matter hereof. Neither of the
Parties hereto has relied upon any oral representation or oral information
given to it by any representative of the other Party.
Article 11. Assignment
11.1 Neither this Agreement nor any of the rights or obligations of under
it hereunder shall be assigned by either Party without the prior written
consent of the other, executed by a duly authorized officer of each.
Article 12. Governing Law
12.1 Any controversy arising under this Agreement or in relation to this
Agreement shall be governed and construed in accordance with the local
domestic laws of the Province of Ontario and the local domestic laws of
Canada applicable therein. The Parties hereto agree that the application
of the United Nations Convention on Contracts for the International Sale
of Goods to this Agreement does not apply and is strictly excluded.
Subject to Article 15, the Parties hereto attorn and submit to the
non-exclusive jurisdiction of the Courts of law in Ontario, Canada.
Article 13. Notices
<PAGE> 12
13.1 Any notice required or permitted to be given under this Agreement by
one of the Parties to the other shall be given for all purposes by
delivery in person, registered air-mail, commercial courier services,
postage prepaid, return receipt requested, or by fax addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut Hill Lane,
Irving, Texas 75038, attention: President, or at such other address as
Carrington shall have theretofore furnished in writing to Trudell. (Fax
No. 972-714-5009)
(b) Trudell at: 926 Leathorne Street, P.O. Box 382, London, Ontario, Canada
N6A 4W1 attention: President or at such other address as Trudell shall
have theretofore furnished in writing to Carrington. (Fax No.
519-685-8993)
Article 14. Waiver
14.1 Either Party's failure to enforce, at any time, any of the provisions
of this Agreement or any right with respect thereto, shall not be
considered a waiver of such provisions or rights or in any way affect the
validity of same. Either Party's exercise of any of its rights shall not
preclude or prejudice said Party thereafter from exercising the same or
any other right it may have, irrespective of any previous action by said
Party.
Article 15. Arbitration
15.1 Except as provided in Articles 6.5 and 7.1, any dispute, controversy
or claim arising out of or in relation to or in connection with this
Agreement, the operations carried out under this Agreement or the
relationship of the Parties created under this Agreement, shall be
exclusively and finally settled by confidential arbitration, and any Party
may submit such a dispute, controversy or claim to arbitration. The
arbitration proceeding shall be held in Chicago, Illinois in the English
language and shall be governed by the procedural rules of the
International Chamber of Commerce (the "ICC") and by the substantive local
domestic laws of the Province of Ontario and the substantive local
domestic laws of Canada applicable therein, as amended from time to time.
Any procedural rule not determined under the rules of the ICC shall be
determined by the local domestic laws of the Province of Ontario and the
local domestic laws of Canada applicable therein, other than those laws
that would refer the matter to another jurisdiction.
A single arbitrator shall be appointed by unanimous consent of the
Parties. If the Parties cannot reach agreement on an arbitrator within 45
days of the submission of a notice of arbitration, the appointing
authority for the implementation of such procedure shall be the ICC, who
shall appoint an independent arbitrator who does not have any financial
interest in the dispute, controversy or claim. If the ICC is unable to
appoint, or fails to appoint, an arbitrator within 90 days of being
requested to do so, then the arbitration shall be heard by three
arbitrators, one selected by each Party within the 30 days of being
required to do so, and the third promptly selected by the two arbitrators
selected by the Parties.
<PAGE> 13
The arbitrators shall announce the award and the reasons therefor in
writing within six months after the conclusion of the presentation of
evidence and oral or written argument, or within such longer period as the
Parties may agree upon in writing. The decision of the arbitrators shall
be final and binding upon the Parties. Judgment upon the award rendered
may be entered in any court having jurisdiction over the person or the
assets of the Party owing the judgment or application may be made to such
court for a judicial acceptance of the award and an order of enforcement,
as the case may be. Unless otherwise determined by the arbitrator, each
Party involved in the arbitration shall bear the expense of its own
counsel, experts and presentation of proof, and the expense of the
arbitrator and the ICC (if any) shall be divided equally among the Parties
to the arbitration. The arbitration shall be held in Chicago, Illinois,
unless otherwise mutually agreed to by the Parties.
Article 16 Tender Clause
16.1 Carrington's acknowledges that Trudell may submit bids to sell the
Products to public entities in the Territory pursuant to public contracts
which impose substantial damages or penalties for failure to deliver the
Products on time or according to the specifications requested. Trudell
agrees to submit all such public contracts and specifications involving
the Products to Carrington for approval prior to commitment by Trudell.
In the event Carrington accepts and approves the contract and
specifications, it shall also accept liability for direct damages and
penalties Trudell becomes liable for under such public contracts as a
result of Carrington's negligence or breach of its obligations under this
Agreement. Carrington shall indemnify, defend and hold Trudell, its
affiliates, officers, directors and employees harmless from and against
all such direct damages and penalties arising out of or with respect to
Carrington's breach of its obligations under this Agreement or arising out
of its negligence. The foregoing indemnity in this Article 16.1 shall be
effective and enforceable only in the event Carrington is given reasonable
notice of the breach or negligent act and fails to remedy the same.
16.2 The Parties' indemnification obligations contained in this Article 16
shall survive for a period of two (2) years after the expiration or
termination date of this Agreement. The Parties' obligations in this
Article 16 shall not be limited or altered by Articles 4.6 or 4.7.
Article 17. No Inconsistent Actions
17.1 Each Party hereto agrees that it will not voluntarily undertake any
action or course of action inconsistent with the provisions or intent of
this Agreement and, subject to the provisions of Articles 4.6 and 8
hereof, will promptly do all acts and take all measures as may be
appropriate to comply with the terms, conditions and provisions of this
Agreement.
Article 18. Currency of Account
18.1 This Agreement evidences a transaction for the sale of goods in which
the specification of U.S. dollars is of the essence, and U.S. dollars
shall be the currency of account in all events, except as set forth in
Article 4.2. All payments to be made by Trudell to Carrington hereunder
shall be made either (i) in immediately available funds by confirmed wire
transfer to a bank account to be designated by Carrington or (ii) in the
form of a bank cashier's check payable to the order of Carrington.
<PAGE> 14
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name: Carlton E. Turner, Ph.D.
Title: President and CEO
TRUDELL MEDICAL MARKETING LIMITED
By:
Name:
Title:
<PAGE> 15
EXHIBIT A
Distributor Wholesale Price
Trudell Medical Marketing Limited
PRICE
PRODUCT PRODUCT US $ PER
NO DESCRIPTION PACKAGE CASE
- ------- -------------------------------------------- ------- ---------
HYDROGEL WOUND DRESSINGS
101005 Carrasyn(R) Hydrogel Wound Dressing 1/2 oz. tube 36/case $52.56
101010 Carrasyn(R) Hydrogel Wound Dressing 1 oz. tube 12/case $24.96
101030 Carrasyn(R) Hydrogel Wound Dressing 3 oz. tube 12/case $62.40
101080 Carrasyn(R) Hydrogel Wound Dressing 8 oz. 6/case $75.00
spray bottle
101025 Carrasyn(R) V (Viscous) Hydrogel Wound Dressing 36/case $57.60
1/2 oz. tube
101002 Carrasyn(R) V (Viscous) Hydrogel Wound Dressing 100/case $66.00
1 oz. pouch
101023 Carrasyn(R) V (Viscous) Hydrogel Wound Dressing 12/case $68.28
3 oz. tube
101012 CarraGauze(R) Strips 1/2" x 5 yds., bottle 12/case $44.64
101009 CarraGauze(R) Strips 1" x 5 yds., bottle 12/case $46.44
101017 CarraGauze(R) 2" x 2" pad 1 pkg., 15 $138.60
pkgs/bx.,
6 bxs/case
101015 CarraGauze(R) 4" x 4" pad 1 pkg., 15 $185.40
pkgs./bxs., 6
bxs./case
CALCIUM ALGINATES
101032 CarraSorb(TM)H Calcium Alginate Wound 10bxs/10ea $83.00
Dressing 2" x 2"
101033 CarraSorb(TM)H Calcium Alginate Wound 10bxs/10ea $196.00
Dressing 4" x 4"
101034 CarraSorb(TM)H Calcium Alginate Wound 10bxs/10ea $109.00
Dressing 12" rope
<PAGE> 16
PRICE
PRODUCT PRODUCT US $ PER
NO DESCRIPTION PACKAGE CASE
- ------- -------------------------------------------- --------- --------
FREEZE-DRIED GEL
101035 CarraSorb(TM) M Freeze-Dried Gel Wound 4bxs/15ea $137.40
Dressing 4" diameter
WOUND & SKIN CLEANSER
102060 *CarraKlenz(TM) Wound & Skin Cleaners 6 oz. 12/case $21.24
pump botte
102062 *CarraKlenz(TM) Wound & Skin Cleaners 8 oz. 6/case $14.16
spray bottle
102160 *CarraKlenz(TM) Wound & Skin Cleaners 16 oz. 6/case $23.88
spray bottle
INCONTINENCE CARE PRODUCTS
102040 *CarraFoam(TM) Skin & Perineal Cleanser 12/case $24.84
(Aerosol) 4oz can
102080 *CarraFoam(TM) Skin & Perineal Cleanser 12/case $34.56
(Aerosol) 8oz can
101044 CarraFoam(TM) Non-Aerosol Skin & Perineal 12/case $17.04
Cleanser 3.5 oz bottle
101043 CarraFoam(TM) Non-Aerosol Skin & Perineal 12/case $21.24
Cleanser 7.8 oz bottle
104040 *Carrington(TM) Moisture Barrier Cream 3.5 oz. 12/case $22.80
tube
ODOR ELIMINATION PRODUCTS
107010 Carrascent(TM) Odor Eliminator 1 oz. 48/case $70.08
spray bottle
107080 Carrascent(TM) Odor Eliminator 8 oz. 12/case $69.96
spray bottle
101003 CarraFree(TM) Odor Eliminator 1 oz. 48/case $70.08
spray bottle
SKIN CARE PRODUCTS
106040 *Carrington(TM) Skin Balm 4 oz. tube 12/case $26.40
103040 Carrington(TM) Foot & Body Moisturizing 12/case $26.40
Cream 4 oz tube
111108 Carrington(TM) Shampoo & Body Wash 12/case $16.80
8 oz. bottle
*The above marked Products are not to be sold by Trudell until Carrington
and Trudell mutually agree upon their release into the Canadian market.
The prices for CarraFoam Skin & Perineal Cleansers (4 oz. and 8 oz.
aerosol) shall be $12.48 and $21.48, respectively, for the Parkwood
Hospital bid which was agreed upon by Carrington and previously submitted
by Trudell.
EXHIBIT B
COMPETITIVE PRODUCTS
THERE ARE NONE AT THIS TIME
<PAGE> 17
CLINICAL RESEARCH AGREEMENT
This Agreement, entered into as of the 15th day of July 1996 ("Effective
Date"), between ICON ("ICON"), a clinical research corporation having its
principal place of business at 190 West Germantown Pike, Suite 200,
Norristown, PA 19401, and Carrington Laboratories, Inc. ("Carrington")
having its principal place of business at 1300 East Rochelle Boulevard,
Irving, TX 75016-8128.
WITNESSETH:
WHEREAS, ICON is engaged in the business of organizing, managing,
monitoring and reporting clinical research programs; and
WHEREAS, Carrington is engaged in the development of pharmaceutical
products; and
WHEREAS, Carrington desires ICON to initiate, manage, monitor and
coordinate a clinical study program entitled:
Protocol 9009: A Double-Blind, Randomized, Placebo-Controlled Study of
the Safety and Efficacy of Three Dose Regimens of Aliminase(TM) in the
Treatment of Active Ulcerative Colitis.
and ICON desires to perform such activities relating to the clinical
study program, all in accordance with the terms and conditions of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
SECTION 1
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
1.1 "Study" shall mean the clinical study program known as:
Protocol 9009: A Double-Blind, Randomized, Placebo-Controlled Study of
the Safety and Efficacy of Three Dose Regimens of Aliminase in the
Treatment of Active Ulcerative Colitis.
1.2 "Protocol" shall mean the clinical protocol 9009 for the Study
attached hereto as Exhibit C and incorporated herein by reference.
1.3 "Study Drug" shall mean the investigational drug Aliminase .
1.4 "Declaration" shall mean the Declaration of Helsinki, and subsequent
amendments.
<PAGE> 1
1.5 "GCP Guidelines" shall mean Good Clinical Practices as defined by
the United States Food and Drug Administration.
1.6 "IRB" shall mean the Institutional Review Board as that term is
defined under the Federal Food, Drug and Cosmetic Act.
1.7 "Regulatory Agency" shall collectively mean the United States Food
and Drug Administration.
1.8 "Monitored Site" shall mean a hospital or clinic of a practicing
physician selected by ICON to conduct the Study. Such Monitored Site
shall provide patients for the Study, administer Study Drug to such
patients, and record the patient data for the Study, in accordance with
the Protocol.1.9 "Qualified Patient" shall mean any patient who meets
the criteria for continuing participation in the Study, as set forth more
fully in Protocol 9009, signs an IRB-approved informed consent form for the
Study, and receives Study Drug.
1.10 "Completed Patient" shall mean any Qualified Patient who completes
the Study and who, by reason of Protocol adherence and the completeness
and accuracy of the data contained in the case report form ("CRF") can be
included in the pool of cases whereby the clinical efficacy and safety
of Study Drug may be assessed.
SECTION 2
SCOPE OF SERVICES
2.1 Services Under the terms and conditions hereof, ICON shall initiate,
manage and monitor the Study. The Study shall involve the participation
of 280 Qualified Patients and the Study shall be considered completed
once completed CRFs for 280 such Patients are transferred to Carrington.
The specifications and assumptions for the Study are attached as Exhibit
A.
2.2 ICON Responsibilities ICON's services hereunder are as further
described in Section 3 and 4 below. ICON shall give due consideration to
any consultation or advice that Carrington from time to time may wish to
make respecting ICON's conduct of the Study.
SECTION 3
CLINICAL MONITORING RESPONSIBILITIES
3.1 Conduct of Program. ICON shall carry out its obligations in
accordance with the terms and conditions of this Agreement, the mandates
of the IRB, the Declaration, the GCP Guidelines and all applicable
national and local laws, and guidelines. ICON shall conduct the Study in
a competent and professional manner consistent with the current state of
clinical research. ICON shall at all times consult with Carrington on
matters regarding safety considerations and Study implementation, and
will adhere to Carrington's advice concerning same.
<PAGE> 2
3.2 Staffing. ICON shall be responsible for providing all clinical
research personnel involved in Study monitoring undertaken by it
hereunder, as well as any necessary replacements. ICON shall provide
clinical research associates (CRAs), qualified by education and
experience to monitor clinical studies, all of whom will be exclusively
dedicated to the study for the period of this Agreement.
3.3 Establishment of IRB. ICON shall ensure that an appropriate IRB
established and constituted in accordance with GCP Guidelines, oversees
the conduct of the Study at each site and that ICON's initiation,
management, monitoring and coordination of the Study shall comply with
the mandates of such IRB in respect thereof.
3.4 Informed Consent; CRFs; Supplies. ICON shall prepare a standard form
of informed consent for patients to sign prior to their participation in
the Study, which informed consent shall include the patient's
authorization for Carrington, its representative or governmental
agencies, including the Regulatory Agency, to review the patient's
medical records and CRFs, and which shall be subject to the approval of
Carrington and the IRB prior to any use thereof. Carrington shall have
the responsibility of designing, reviewing and printing the CRFs.
Carrington shall be responsible for providing adequate Study Drug,
appropriately packaged, as required by the Protocol, and shall be
responsible for shipment of the Study Drug to the Monitored Sites.
3.5 Investigator Meetings
The costs of investigator meetings, if required, shall be paid by
Carrington separately from and in addition to ICON's fees as set out
under Section 6.1 of this Agreement.
3.6 Monitoring Visits
(a)During the term of this Agreement, ICON personnel shall conduct
regular on-site monitoring visits for all of the enrolled patients at
Monitored Sites. Such visits shall be scheduled as considered necessary
by ICON in consultation with Carrington for proper conduct of the Study,
and the interval between successive visits will not normally exceed six
weeks. In addition, ICON shall make regular telephone contact, at least
once weekly, with each Monitored Site for a status report on the conduct
of the Study.
(b)Carrington or a Carrington designee may conduct any additional
monitoring and/or quality assurance visits if Carrington so desires and
such Carrington personnel or Carrington designee may be accompanied by
ICON personnel on these visits.
(c)In the event an ICON clinical monitor is unable, for any reason during
the term of this Agreement, to fulfill his/her supervisory role in the
monitoring responsibilities set forth herein, ICON shall replace the
clinical monitor with a suitably qualified replacement monitor at no
additional cost to Carrington.
<PAGE> 3
3.7 Monitoring Procedures. The Monitored Sites shall be monitored by
ICON in order to ensure that the Study, as conducted at each Monitored
Site, complies with the requirements of the Protocol, the mandates of the
IRB, the Declaration, the GCP Guidelines and all applicable national and
local regulations and guidelines, as well as to monitor the following:
(a) the progress of the Study as conducted at each Monitored Site; (b)
the continued acceptability of each Monitored Site and its clinical
investigator; (c) the adequate maintenance of required records at each
Monitored Site, which includes source documents, Monitored Site copies of
CRFs, Study initiation documents, correspondence, and monitor records,
(d) the occurrence of any adverse events; (e) the quality of data
preparation at each Monitored Site including but not limited to
verification that CRFs are complete, authentic and accurate; (f)
information regarding any Qualified Patients who do not complete the
Study; (g) drug inventory and accountability records of each Monitored
Site, (h) the records of biological sampling and records of sample
shipments at each Monitored Site; and (i) any such additional responsibilities
as are hereafter agreed upon in writing by Carrington and ICON. On a periodic
basis, or as requested in writing by Carrington, ICON shall advise and consult
with Monitored Sites and/or their clinical investigators regarding questions
concerning the Protocol, the conduct of the Study, and the preparation of
data thereof.
3.8 Monitoring Visit Records. ICON shall maintain written records of
each monitoring visit conducted by it hereunder, with an accurate record
of each visit made to each Monitored Site by the Clinical Monitor or
his/her designees, as well as a record of any inspections conducted by
any governmental or Regulatory Agency. In no case shall a CRF be finally
removed from a Monitored Site prior to its verification by a monitoring
site visit.
3.9 Status Reports/Project Meetings ICON shall provide Carrington with
monthly written reports on the progress of the Study, which reports shall
advise of any problems, delays or extraordinary incidents occurring in
the Study. Should Carrington require ICON personnel to attend project
meetings at Carrington, the cost of such meetings shall be paid for by
Carrington, separately from and in addition to ICON's fees under the
terms of this Agreement.
3.10 Clinical/Statistical Report Carrington shall be responsible for the
full clinical/statistical report.
3.11 Warranties ICON warrants that its activities shall be undertaken in
compliance with the Declaration, GCP Guidelines and all applicable
national and local laws, regulations and guidelines.
3.12 Regulatory Inspection Upon notification of an impending inspection
by any Regulatory Agency or other government authority at ICON's
premises, or at any Monitored Site, ICON shall notify Carrington
immediately.
<PAGE> 4
3.13 Further Compliance Upon request by any authorized officer or
employee of any relevant Regulatory Agency, or other government
authority, ICON shall permit such officer or employee, at reasonable
times, to have access to and copy and verify any records and reports in
ICON's possession or under ICON's custody or control relating to the
Study, and shall submit such records or reports or copies thereof to the
said Regulatory Agency upon its request.
SECTION 4
ADDITIONAL RESPONSIBILITIES
4.1 Administrative Services ICON shall perform the following Study
administration services in conjunction with its monitoring
responsibilities with respect to each Monitored Site:
(a) Identification and verification of qualifications and experience of
prospective clinical investigators and submission of same to Carrington.
ICON shall evaluate 35 appropriately qualified and experienced clinical
investigators of which 30 will be initiated for the Study.
(b) Coordination of Study initiation at each Monitored Site to assure
timely submission of appropriate documents and receipt of adequate
supplies to facilitate enrollment and commencement of the Study.
(c) Orientation and training of all clinical investigators and relevant
support personnel with regard to compliance with the Protocol and the
Declaration, the GCP Guidelines and all applicable national and local
laws, regulations and guidelines.
(d) Confirmation of clinical investigator performance with regard to the
following aspects of the Study conducted at the respective Monitored
Site: the number of patients enrolled in the Study, the number of
Qualified Patients participating in the Study, the number of Patients
resulting from the Study, and the number of serious or unexpected adverse
reactions occurring during the Study.
(e) Distribution to clinical investigators of safety information
regarding Study Drug, which information shall be provided to ICON by
Carrington.
(f) Notification of the Monitored Site/IRB of any subsequent Protocol
amendments and of significant adverse events as provided for under
Section 9 below.
4.2 Other Services ICON shall also assist Carrington in any other way
Carrington deems necessary or appropriate to coordinate with the
Regulatory Agencies, IRB, or Monitored Sites in their completion of the
Study and submission of Study data on a timely and satisfactory basis. If
any additional services requested by Carrington result in extra costs to
ICON which are not covered by the terms of this Agreement, such
additional costs will be charged by ICON to Carrington as they are
incurred (after prior discussion with Carrington).
<PAGE> 5
SECTION 5
TERM AND TERMINATION
5.1 Term This Agreement shall, subject to Section 5.2 below, commence on
the Effective Date and continue for 12 months, or such date as 280
completed CRFs for Qualified Patients are obtained by ICON. The
termination date of the Study is defined as 7 days after ICON's
notification by Carrington that patient recruitment is to cease.
5.2 Termination Not withstanding Section 5.1 above this Agreement may be
terminated as follows:
(a) Default. Notice by either party to the other party in the event such
other party materially breaches any provision of this Agreement, which
breach continues and is not remedied within thirty (30) calendar days
after the date of receipt of such notice.
(b) Insolvency. Notice of either party to the other party upon the
insolvency or bankruptcy of such other party.
(c) Notice. Carrington or ICON may terminate this Agreement at any time
upon sixty (60) days prior written notice to the other party; provided,
however, that if the Study is terminated for reasons of patient safety,
the 60-day notice requirement shall not apply and termination shall be
effective immediately upon notification by telephone, which shall then be
followed by written confirmation.
5.3 Transfer of Data and Materials. All data and other information
resulting from the Study shall be the sole property of Carrington and
shall be subject to Carrington's exclusive use, commercial or otherwise.
Upon the termination of this Agreement or the Study for any reason, ICON
shall provide for the return to Carrington of all completed, partially
completed and unused CRFs, all unused supplies of Study Drug and all
other materials of Carrington's in ICON's and Monitored Sites' possession
or control, including but not limited to all data and other information
resulting from the Study, within sixty (60) days of such termination. In
the event that this Agreement or the Study is prematurely terminated,
ICON shall complete work on the Study as expeditiously as possible and in
accordance with Carrington's instructions and all applicable national and
local laws, regulations, and guidelines.
SECTION 6
PAYMENT
6.1 Payment Subject to the terms and conditions hereof, in
consideration for the services to be provided by ICON under the terms of
this agreement, Carrington shall pay to ICON a fixed fee of $US2,123,218
(Two million, one hundred twenty-three thousand, two hundred and eighteen
US dollars). Such fee shall be paid in accordance with the following
schedule attached as Exhibit B.
6.2 Additional Payments
<PAGE> 6
6.2.1 Extension Period Payments
In the event the Study is not completed by ICON during the term of this
Agreement, for any of the following reasons, Carrington shall have the
right to extend the period of the Study on a month-by-month basis, by
paying staff costs in the sum of $US($49,156)(Forty nine thousand, one
hundred and fifty six US dollars) plus expenses per month (or part of a
month), such payment to be made on or before the first day of each month
(or part of a month), so extended.
Such reasons are:
(a) Carrington fails to provide the Study Drug, or other information or
materials required by the Protocol by one month from the date of this
agreement.
(b) Carrington requests a delay or change in the Study that materially
affects the progress of the Study.
(c) The progress of the Study is delayed due to causes customarily
considered as force majeure, including fire, strike, war, embargo, delays
in transportation, inability to obtain necessary supplies, or the act of
any regulatory or governmental authority.
6.2.2. Other Services
ICON shall also assist Carrington in any other way Carrington deems
necessary or appropriate to coordinate with Monitored Sites in their
completion of the Study and submission of Study data on a timely and
satisfactory basis. Should these services require an allocation of staff
in addition to that provided for under other Sections of this Agreement,
or the purchase of materials by ICON, Carrington shall pay such charges
as agreed to in advance.
6.2.3 Payment for Premature Termination
(a) In the event this Agreement is terminated before conclusion of the
Study for any reason, ICON shall use its best efforts to reduce the cost
and/or loss incurred or suffered by Carrington as a result of such
premature termination.
(b) In the event that this Agreement is terminated before conclusion of
the Study by reason of any willful default by ICON, ICON shall repay to
Carrington all payments made under this Agreement.
In the event this Agreement is terminated prior to conclusion of the
Study for any reason other than ICON's default, insolvency or bankruptcy,
then in lieu of amounts otherwise payable under Section 6.1 Carrington
shall pay ICON in the amount of:
$US($147,468)(One hundred forty seven thousand, four hundred and sixty
eight US dollars)
<PAGE> 7
6.3 Address for Payments
All payments required to be made to ICON by Carrington shall be in the
form of electronic funds or checks drawn on a U.S. bank, payable to ICON,
whichever is faster. Checks should be mailed to:
ICON Clinical Research, Inc.
190 West Germantown Pike
Suite 200
Norristown, PA 19401
Electronic funds transfer should be made to:
CoreStates Bank
Trappe Center Branch Office
FC 3-6-1-1
130 West Main Street
Trappe, PA 19426-2025
For Credit to:ICON, Inc.
A/C No.:5917-1453
Sort Code No.:0310-00011
SECTION 7
CONFIDENTIALITY, PUBLICATIONS, INVENTIONS, NON-COMPETITION
7.1 Confidentiality. All information received by ICON from Carrington
and all data and other information developed with respect to Carrington
or the study by ICON or its employees, agents, subcontractors or
affiliates, is and shall be considered throughout the term of this
Agreement and thereafter as Confidential Information, except for
information which:
(a) at the time of disclosure thereof is or becomes part of the public
domain through no breach or fault of ICON or its employees, agents,
subcontractors, or affiliates. For the purpose of this Agreement,
"affiliate" shall mean any company, partnership or other entity which
directly or indirectly controls, is controlled by, or is under control
with, ICON, "control" meaning an ownership of 50% or more of any issued
share capital or the legal power to direct or cause the direction of the
general management and policies of ICON.
(b) at the time of disclosure thereof by Carrington, is in ICON's lawful
possession as evidenced by ICON's competent written records;
<PAGE> 8
ICON receives from a third party who has the right to disclose the same
and who did not obtain such information in violation of Carrington's
rights;
ICON shall hold such Confidential Information in strict confidence and
shall only disclose Confidential Information to its employees, agents,
and representatives including but not limited to clinical investigators
and other personnel at all Monitored Sites on a need-to-know basis. ICON
shall ensure that such employees, agents and representatives shall be
bound and obligated by identical provisions of confidentiality as is ICON
hereunder. ICON shall not disclose to any third party any of the
Confidential Information without specific prior written authorization
from Carrington with respect to such disclosure.
7.2 Papers Utilizing Study Data. ICON agrees, on behalf of itself, its
employees, agents, subcontractors, and affiliates, not to publish or
present the results of the Study without the prior written consent of
Carrington, which consent is within Carrington's discretion. Before any
such paper or abstract is submitted for publication or any such
presentation or announcement is made, a complete copy of such paper or
abstract, or a transcript of such presentation or announcement, shall be
given to Carrington at least 60 (sixty) days prior to submission,
presentation or announcement thereof to any third party. Carrington shall
review any such paper, abstract or transcript and give its comments to
the author and ICON promptly. ICON shall comply with Carrington's request
to delete reference to Carrington's Confidential Information in any such
paper, abstract, presentation or announcement, and to withhold
publication, presentation or announcement of same for an additional 60
(sixty) days in order to permit Carrington to obtain patent or other
proprietary protection, if Carrington deems it necessary or appropriate.
Any publication approved by Carrington and published by Carrington or by
one or more of the study investigators should incorporate at least one
named co-author from ICON.
7.3 Inventions, etc. The results of the Study and all documentation
generated therein (including CRFs and all or any intellectual property
rights (including any copyrights therein)) and any inventions or
discoveries (whether or not patentable), innovations, suggestions, ideas
and reports made or developed by ICON as a result of performing services
hereunder shall be promptly disclosed to Carrington and shall be sole
property of Carrington Upon Carrington's request and at Carrington's
expense, ICON shall execute such documents and take such actions as
Carrington deems necessary or appropriate to obtain patent or other
proprietary protection in Carrington's name concerning any of the
foregoing. The obligations of this Section 7.3 shall apply to ICON's
employees, agents and representatives involved in the services to be
performed by it hereunder and ICON agrees to cause such parties to
execute agreements ensuring compliance with this section.
<PAGE> 9
SECTION 8
INDEMNIFICATION
8.1 Indemnification by Carrington
Subject to Section 8.2 below Carrington shall indemnify ICON, its
employees, affiliates, members of the IRB and clinical investigators (the
"Indemnitees"), for the cost of defense and compensatory damages awarded,
if any, arising out of any claim or lawsuit resulting from bodily injury
caused by the administration of Study Drug supplied by Carrington for use
in the Study, provided that:
(a)emdemnitees have used the Study Drug in accordance with accepted
medical practices and in compliance with the Protocol and all
precautions, indications and other instructions furnished by Carrington;
and
(b)such bodily injury was not in any way caused by the negligence or
wilful misconduct of Indemnitees.
8.2 Indemnification by ICON.
ICON shall indemnify Carrington, its employees, affiliates, and agents
for the cost of defense and compensatory damages awarded, if any, arising
out of any claim or lawsuit resulting from bodily injury caused by the
negligence or wilful misconduct of ICON, its employees, affiliates or
agents, or the failure of ICON, its affiliates, employees or agents, to
perform in accordance with the terms and conditions of this Agreement or
in compliance with accepted medical practices or any precautions,
indications or other instructions furnished by Carrington.
SECTION 9
ADVERSE EVENTS
9.1 Adverse Events. A Monitored Site shall have the right to provide
reasonable and customary treatment to any person involved in the Study
who exhibits symptoms of an adverse event. Carrington shall pay for all
necessary diagnostic assessment and medical treatment for any patient
injury or illness directly resulting from administration of the Study
Drug hereunder, when the Study Drug is used in accordance with the
Protocol. If in the opinion of the clinical investigator and Carrington,
the suspected adverse event proves to be non-Study Drug related,
Carrington shall pay only the reasonable and customary costs associated
with the diagnosis. Carrington's agreement to pay for the foregoing
expenses is without prejudice to its right to seek financial
reimbursement from such Monitored Site or ICON or in the event injury or
illness results from the negligence or wilful misconduct of such
Monitored Site or ICON or their respective employees or agents.
<PAGE> 10
9.2 Notification. ICON shall report all significant adverse events,
including but not limited to those that are serious and unexpected, to
Carrington and if appropriate to the IRB. All serious adverse events
shall be reported by ICON to Carrington orally within 24 hours of ICON
being so notified, and then promptly thereafter followed up with written
documentation. Carrington shall also notify the Regulatory Agency of
serious adverse events or reactions after it has received clinical
investigator reports thereof. Adverse events will also be recorded on
CRFs.
SECTION 10
MISCELLANEOUS
10.1 Modification and waiver. No modification of this Agreement shall be
deemed effective unless in writing and signed by each of the parties
hereto, and no waiver of any right set forth herein shall be deemed
effective unless in writing and signed by the party against whom
enforcement of the waiver is sought.
10.2 Integration of Agreement. This Agreement represents the entire
Agreement between the parties and supersedes all prior negotiations,
representations or agreements, written or oral, regarding the Study. In
the event of any conflict between the terms and conditions of this
Agreement and those of the Protocol, the terms and conditions of this
Agreement shall control.
10.3 Descriptive Headings. The descriptive headings of the sections of
this Agreement are inserted for convenience only and shall not control or
affect the meaning or construction of any provision hereof.
10.4 Applicable Law. This agreement shall be governed and construed in
accordance with the laws of the the state of Texas.
10.5 Independent Contractor. ICON's status hereunder is that of an
independent contractor and ICON has no authority to bind or act on behalf
of Carrington except as otherwise specifically stated herein.
10.6 Use of Names. Each party, on behalf of itself, its employees and
agents, agrees not to use the name of the other party or its employees or
agents in any publication, promotional material or other written or oral
statement for public distribution, relative to the subject matter or
existence of this Agreement, except as otherwise required by law or as
permitted under Section 7.2 of this Agreement or previously consented to
in writing by the other party.
<PAGE> 11
10.7 Notices. All notices hereunder shall be in writing as follows:
If to ICON address to:ICON Clinical Research, Inc.
190 West Germantown Pike
Suite 200
Norristown, PA 19401
If to Carrington address to:
Carrington Laboratories, Inc.
1300 East Rochelle Boulevard
Irving, TX 75016-8128
Or to such other persons or addresses as either party may request by
notice given as set forth above. Notices shall be deemed given at the
time of personal delivery or 3 (three) business days after the date
mailed in the manner set forth in this Section.
10.8 Third Parties; Assignment. ICON warrants and represents that
proceeding and performing hereunder is not inconsistent with any
contractual or other legal obligations it has and shall not be
inconsistent with any contractual or other legal obligations it may
hereafter have. ICON may not assign this agreement or its obligations
hereunder, nor may it contract with third parties to perform any of its
obligations hereunder, without Carrington's prior written consent.
10.9 Severability. If any of the provisions of, or a portion of any of
the provisions of, this Agreement is held to be unenforceable or invalid
by a court of competent jurisdiction, the validity and enforceability of
the enforceable portion of any such provision and/or the remaining
provisions shall not be affected thereby.
10.10 Counterparts. This agreement shall be executed in 2 counterparts,
each of which shall be deemed an original, but both of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned by their duly authorized
representatives have executed this Agreement as of the Effective Date.
Carrington Laboratories, Inc. ICON Clinical Research, Inc.
By:________________________ By:_________________________
Carlton E. Turner, M.D.Douglas W. Reed
Title: President and CEO Title: Secretary/Treasurer
<PAGE> 12
Exhibit A Fixed Fee Estimate and Assumptions
STUDY FEE ESTIMATE
Sponcer: Carrington Laboratories
Study: Protocol 9009:Placebo-Controlled Study of Oral
Acemannan in Ulcerative Colitis
Date: September 9, 1996
- -----------------------------------------------------------------------
US Dollars
1. Investigator Grants:
Investigator Fees: 280 patients@$3,500 per patient $980,000
2. IRB Approval:
3. Project Team (12 months) *
Project Manager 62,058
CRAs 369,240
Clinical Research Assistant 70,524
Clinical Data Auditor 25,776
Medical Reviewer 28,644
Quality Assurance 33,610
Secretarial Personnel 21,450
-------
Subtotal 611,320
4. Travel Costs *
Site Evaluations 35 visits 42,000
Initiation 30 visits 36,000
Monitoring 150 visits 187,920
QA 6 visits 7,920
Close Out 30 visits 39,600
-------
Subtoal 313,440
5. Communications with the sites: * 29,700
6. Investigator Meeting (83 attendees)
2 delegates per site (70), 7 ICON & 6 Carrington
Personnel 108,000
7. Clinical Grant Administration * 16,500
8. Overhead 58,258
* Overhead charge is applied to these items
--------
GRAND TOTAL $2,123,218
<PAGE> 13
STUDY FEE ESTIMATE
Sponcer: Carrington Laboratories
Study: Protocol 9009:Placebo-Controlled Study of Oral
Acemannan in Ulcerative Colitis
Date: September 9, 1996
- -----------------------------------------------------------------------
ASSUMPTIONS
ICON has based its fixed fee cost estimate on an 12-month study
period, including a 5-month patient enrollment period.
1.Per Protocol 9009, 280 patients will be enrolled.
2.Visits include 1 placement to 35 sites and 1 initiation visit, 5
monitoring visits, and 1 close-out visit to 30 sites (8 visits/site).
Six sites will undergo a QA audit.
3.Costs for running off-site meetings have not been included.
4.Cost does not include drug distribution.
5.CRF printing costs have not been included.
6.Carrington Labs will be responsible for subcontracting the central
laboratory (SciCor).
7.Investigator fee payments will be prorated according to visits
completed as follows:
Visit # 1(Screen) 2 3 Total
Cost per Visit $1610.00 $460.00 $1430.00 $3500.00
8.All courier services will be paid by Carrington on a pass-through
basis. The main courier will be UPS. UPS charges will be charged
directly to Carrington's UPS account number. Carrington also agrees
that, at the discretion of the ICON Clinical Project Manager, FedEx may
be used to expedite shipments as needed.
9.ICON will use the following travel policy during the conduct of the
study:
A. Documentation. Retain receipts for all amounts in excess of $25.
B. Airfare. Carrington Laboratories will reimburse ICON for airfare at
actual cost, but not greater than economy or coach rates unless
Carrington Laboratories has provided prior approval.
C. Hotels. ICON will put forth its best efforts to reserve hotel rooms
at reasonable business travel rates.
D. Rental Cars. ICON has negotiated a special rate with Avis. Where
available, ICON staff will rent a compact class car or smaller.
E. Meal Reimbursement. Meals will be reimbursed at actual cost, but in
no case will reimbursement total more than $65 per day. The $65 per day
rate cannot be "carried" from day to day. Meal reimbursement will be
tallied separately on each expense summary.
<PAGE> 14
F. Sundries and Incidentals. Ordinarily, it is expected that
reimbursements for sundries and incidentals (for example, toiletries,
batteries, passports) should not be necessary. Incidental expenses of a
personal nature will generally not be reimbursable by Carrington
Laboratories. An exception is reasonable laundry expenses, which will be
reimbursed by Carrington Laboratories when ICON staff travel for greater
than three consecutive days away from home on Carrington
Laboratories-related business only.
G. Tipping Tipping should follow local customs for business
travel(approximately 15%).
H.Telephone. One personal long distance call home per day of reasonable
duration will be reimbursable. A telephone credit card will be used
where possible to avoid hotel telephone surcharges.
I.Entertainment. Shows, movies, video rentals, magazines and newspapers
are not reimbursable.
Exhibit B Payment Schedule*
Payment Schedule
Carrington Laboratories: Protocol 9009; Ulcerative Colitis
Monthly
Payment No. 1996 Installment Description Total
- ---------- ---- ----------- -------------------------- --------
1** Sep $212,322 10% up-front $212,000
2 Oct 212,322 first patient enrolled 212,322
3 Nov 212,322 patients 2-70 enrolled 212,322
4 Dec 212,322 patients 71-140 enrolled 212,322
1997
5 Jan 212,322 patients 141-210 enrolled 212,322
6 Feb 212,322 patients 211-280 enrolled 212,322
7 Mar 212,322 patients 1-70 completed 212,322
8 Apr 212,322 patients 71-140 completed 212,322
9 May 212,322 patients 141-210 completed 212,322
10 Jun 212,320 10% final payment 212,320
Total $2,123,218 $2,123,218
* Each payemnt shall be due and payable within thirty (30) days of
receipt
of the invoice by Carrington Laboratories.
** None-refundable start-up payment.
*** Final payment to be paid upon ICON's completion of all services
provided For in this Agreement and Carrington's receipt of all study
documents, including resolution of all queries generated from
Carrington's internal audit of the case report.
Exhibit C
Protocol
<PAGE> 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM 1) STATEMENTS OF BALANCE SHEETS, 2) STATEMENTS OF OPERATIONS
AND 3) STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4815
<SECURITIES> 0
<RECEIVABLES> 1943
<ALLOWANCES> 0
<INVENTORY> 3599
<CURRENT-ASSETS> 10581
<PP&E> 18900
<DEPRECIATION> 6932
<TOTAL-ASSETS> 24620
<CURRENT-LIABILITIES> 3177
<BONDS> 50
0
0
<COMMON> 89
<OTHER-SE> 21304
<TOTAL-LIABILITY-AND-EQUITY> 24620
<SALES> 16064
<TOTAL-REVENUES> 16064
<CGS> 8440
<TOTAL-COSTS> 8440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (168)
<INCOME-PRETAX> (5540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5540)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
