As filed with the Securities and Exchange Commission on December 2, 1996
Registration No. 333-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
______________
Carrington Laboratories, Inc.
(Exact name of registrant as specified in its charter)
Texas 75-1435663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Walnut Hill Lane
Irving, Texas 75038
(972) 518-1300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------------------------------------------
CHRISTOPHER S. RECORD
Vice President, Business Development Copy to:
and Strategic Planning NORMAN R. ROGERS
Carrington Laboratories, Inc. Thompson & Knight,
2001 Walnut Hill Lane A Professional Corporation
Irving, Texas 75038 1700 Pacific Avenue, Suite 3300
(972) 518-1300 Dallas, Texas 75201
(Name, address, including zip code,
and telephone number, including
area code, of agent for service)
----------------------------------------------------------
Approximate date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective as
determined by market conditions.
-----------------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
Title of each class Amount Proposed Maximum Proposed Maximum Amount of
of securities to to be offering price aggregate registration
be registered registered per share (1) offering price(1) fee
Common Stock,
par value $.01 1,732,279
per share shares(2) $8.3125 $14,399,569 $4,364
</TABLE>
(1) Estimated pursuant to Rule 457(c) solely for purposes of calculating the
registration fee based on the average of the high and low prices of the Common
Stock on the NASDAQ National Market on November 22, 1996.
(2) Includes an equal number of preferred share purchase rights issuable
pursuant to the registrant's share purchase rights plan, which rights are
transferable with shares of Common Stock.
--------------------------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
==============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1996
PROSPECTUS
1,732,279 Shares
Carrington Laboratories, Inc.
Common Stock
This Prospectus relates to the sale from time to time by certain shareholders
(the "Selling Shareholders") of Carrington Laboratories, Inc., a Texas
corporation ("Carrington" or the "Company"), of up to 1,732,279 shares (the
"Shares") of Common Stock, par value $.01 per share ("Common Stock"), of the
Company that may be acquired from time to time by the Selling Shareholders upon
conversion of shares of Series E Convertible Preferred Stock of the Company sold
by the Company to the Selling Shareholders in a private placement in October
1996. See "Selling Shareholders." The Company will receive none of the
proceeds from sales of the Shares.
The Common Stock is listed on the NASDAQ National Market ("NASDAQ") under the
symbol "CARN." On November 25, 1996, the closing sales price of the Common
Stock on NASDAQ was $9.31 per share.
The Shares may be sold from time to time by the Selling Shareholders, or by
their pledgees, donees or other successors in interest. Such sales may be made
on NASDAQ or otherwise at prices and on terms related to the then current market
price of the Common Stock or in negotiated transactions. The Shares may be sold
by any one or more of the following methods: (a) a block trade in which the
broker or dealer so engaged will attempt to sell the Shares as agent, but may
position and resell a portion of a block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal, and resale by
such broker or dealer, for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) privately negotiated transactions. See "Plan of Distribution."
The Company has agreed with the Selling Shareholders to register the Shares
offered hereby. The Company has also agreed to pay all reasonable expenses
incident to such registration, other than underwriting discounts and commissions
and other fees and expenses of investment bankers and other than brokerage
commissions. It is estimated that the fees and expenses payable by the Company
in connection with the registration of the Shares will be approximately
$17,000. The Company intends to keep the Registration Statement (as hereinafter
defined), of which this Prospectus is a part, effective for a period ending no
later than October 21, 1998. See "Selling Shareholders."
------------------------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------------
The date of this Prospectus is _____________________, 1996.
<PAGE>
No person is authorized in connection with the offering made hereby to give
any information or to make any representation not contained or incorporated by
reference in this Prospectus, and any information or representation not
contained or incorporated by reference herein must not be relied upon as having
been authorized by the Company or any Selling Shareholder. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof.
TABLE OF CONTENTS
Page
Available Information 2
Incorporation of Certain Documents by Reference 2
The Company 3
Recent Development 3
Risk Factors 4
Disclosure Regarding Forward-Looking Statements 6
Selling Shareholders 7
Plan of Distribution 8
Legal Matters 9
Experts 9
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, registration
statements, proxy statements and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Commission at prescribed rates through its Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. These reports, registration statements,
proxy statements and other information may be obtained from the web site that
the Commission maintains at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended, with respect to the Common
Stock offered hereby (including all amendments or supplements thereto, the
"Registration Statement"). This Prospectus, which forms a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of certain documents are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 0-11997) pursuant to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;
<PAGE> 2
(3) The Company's Current Report on Form 8-K dated November 13, 1996 (Date
of Event: October 21, 1996);
(4) The description of the Common Stock contained in the Registration
Statement on Form 8-A of the Company heretofore filed by the Company with the
Commission, including any amendments or reports filed for the purpose of
updating such description; and
(5) All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Shares.
Any statement contained herein or in a document or information incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is, or is
deemed to be, incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person, a
copy of any and all of the foregoing documents or information that has been
incorporated by reference in this Prospectus, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests should be directed to Christopher S. Record, Vice
President, Business Development and Strategic Planning, Carrington
Laboratories, Inc., 2001 Walnut Hill Lane, Irving, Texas 75038, telephone
(972) 518-1300.
THE COMPANY
Carrington is a research-based pharmaceutical and medical device company
engaged in the development, manufacturing and marketing of carbohydrate-based
therapeutics for the treatment of major illnesses and the dressing and
management of wounds. The Company sells, using a network of distributors, non-
prescription products through its Wound and Skin Care Division, veterinary
medical devices and pharmaceuticals through its Veterinary Medical Division and
consumer products through its consumer products' subsidiary, Caraloe, Inc. The
Company's research and product portfolio are based primarily on complex
carbohydrate technology derived from the Aloe vera plant.
The Company's principal executive offices are located at 2001 Walnut Hill
Lane, Irving, Texas 75038, and its telephone number is (972) 518-1300.
RECENT DEVELOPMENT
On October 31, 1996, the Company announced the results of a recently
completed Phase III Pivotal trial of the Company's proprietary compound
Aliminase(TM) for the treatment of ulcerative colitis. Results of this trial
indicated no statistically significant differences that would support a
conclusion that Aliminase(TM) has a therapeutic effect in treating ulcerative
colitis. The Company plans to analyze data from the trial to determine whether
a change in formulation of the compound or a change in dosage regimen is
merited. In September 1996, the Company entered into an agreement with an
independent clinical research organization to conduct a second Phase III Pivotal
trial of Aliminase(TM) in the treatment of ulcerative colitis. This second
trial has been terminated and further testing of Aliminase(TM) has been
suspended pending completion of the analysis of data from the first trial.
<PAGE> 3
RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk.
Prospective purchasers should carefully consider the following risk factors, in
addition to the other information contained or incorporated by reference in this
Prospectus.
No Assurance of Profits. The Company incurred a net loss in each of the
fiscal years 1983, the year of its initial public offering, through 1990 and had
to rely on outside sources of funds to maintain its liquidity during this
period. In each of the fiscal years 1991 through 1994, the Company had positive
earnings. However, the Company incurred a net loss of $1,628,000 in fiscal year
1995, and also incurred net losses of $2,156,000, $2,545,000 and $839,000 in the
first, second and third quarters, respectively, of fiscal year 1996. The
Company expects to incur a net loss for fiscal year 1996. Thus, there is no
assurance that the Company will conduct its operations profitably in the future.
Mannatech Contract. In March 1995, Caraloe, Inc., a wholly owned subsidiary
of the Company, and Mannatech, Inc. ("Mannatech") entered into a supply
agreement (the "Supply Agreement") pursuant to which Mannatech agreed to
purchase from Caraloe, Inc. certain quantities of Manapol(R), a freeze-dried
aloe vera powder. Pursuant to the Supply Agreement, Mannatech is currently
required to purchase a minimum of 225 kilograms of Manapol(R) per month at a
purchase price of $1,200 per kilogram. The Supply Agreement provides for an
increase in Mannatech's minimum purchase requirement commencing in April 1997,
but it also provides for renegotiation by the parties by March 15, 1997 of the
purchase price to be paid by Mannatech for Manapol(R). If the purchase price is
not mutually agreed to by the parties by that time, the Supply Agreement will
terminate on March 31, 1997.
The Company recently conducted an audit of Mannatech's inventory of Manapol(R),
and determined that Mannatech appeared to have an excessive supply of Manapol(R)
in inventory. During the first nine months of 1996, Mannatech was the Company's
largest customer. There is no assurance that the Supply Agreement with
Mannatech will not terminate in March 1997. Furthermore, even if the Supply
Agreement remains in effect, there is no assurance that the purchase price or
minimum purchase requirements under the agreement will increase or that the
present terms of the agreement will continue. Any termination of the Supply
Agreement or any change in its terms could have a material adverse effect on the
Company.
Potential Write-Down of Costa Rica Assets. The production capacity of the
Company's aloe vera processing plant in Costa Rica, where its bulk freeze-dried
aloe vera extract is manufactured, is greater than the Company's current level
of usage of the plant. During the fourth quarter of 1996, the Company plans to
assess the recoverability of the costs of the Costa Rica plant's assets using
the methodology provided by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable. The net book value of the Costa Rica Plant assets as of October
31, 1996, was $3,920,000.
No Assurance of Regulatory Approvals. The commercialization of certain of
the Company's proposed products will require approvals from the Food and Drug
Administration and comparable regulatory agencies in most foreign countries. To
obtain such approvals, the safety and efficacy of the products must be
demonstrated through extensive preclinical testing and human clinical trials.
There is no assurance that the safety or efficacy of a product, to the extent
demonstrated in preclinical testing, will be pertinent to the development of, or
indicative of the safety or efficacy of, a product for the human market. In
addition, there is no assurance that the results of clinical trials of a product
will be consistent with results obtained in preclinical tests. Furthermore,
there is no assurance that any product will be shown to be safe and effective or
that regulatory approval for any product will be obtained on a timely basis, if
at all.
No Assurance Pharmaceutical Products Will be Commercialized. The Company
currently derives no revenue from the sale of prescription pharmaceutical
products. The Company currently has several complex carbohydrate pharmaceutical
compounds under development, which are in preclinical and clinical trials.
There is no assurance
<PAGE> 4
that the Company's product development efforts will be successfully completed or
that required approvals can be obtained. Even if products are approved, they
may not achieve commercial success. Furthermore, although the Company has an
established sales force experienced in the marketing of nonprescription
pharmaceutical products, the Company's sales force has very limited experience
in the marketing of prescription-only drugs. There is no assurance that the
Company will be able to establish an experienced sales force for this purpose.
Need for Additional Funds; No Bank Credit Facility. Substantial funding will
be required to complete the development of and to commercialize the Company's
proposed prescription pharmaceutical products. The Company does not expect that
revenues from its operations will be sufficient to fund the development and
commercialization of such products. No assurances are given as to the Company's
success in obtaining additional funding or as to the terms of any such funding.
In addition, the Company does not currently have a bank line of credit or other
bank credit facility available to it.
Limited Manufacturing Experience. Although members of the Company's
management have extensive experience in the business of developing,
manufacturing and marketing human and animal health products, the Company does
not have experience in the large scale manufacture of bulk or finished dosage
forms of complex carbohydrates or any other pharmaceutical compound. In
addition, the Company will be required to expand its current manufacturing
facilities or contract with third parties to meet any requirement to produce
commercial quantities of finished oral dosage forms of its complex carbohydrates
and to meet any long-term requirement to produce commercial quantities of
finished injectable dosage forms.
Government Regulation. 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 or licensing
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 of the Company may
encounter significant delays or excessive costs in their respective efforts to
secure necessary approvals or licenses. Future United States or foreign
legislative or administrative acts could also prevent or delay regulatory
approval of the Company's or its licensees' products. Failure to obtain
requisite governmental approvals or failure to obtain approvals of the scope
requested could delay or preclude the Company and any licensees of the Company
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.
Highly Competitive Industry. There is substantial competition in the
pharmaceutical industry. Potential competitors in the United States are
numerous and include pharmaceutical, chemical and biotechnology companies. Many
of these companies have substantially greater capital resources, research and
development staffs, facilities and expertise (including in research and
development, manufacturing, testing, obtaining regulatory approvals and
marketing) than the Company. Furthermore, some competitors may achieve product
commercialization earlier than the Company.
Volatility of Stock Price. Since the Company's initial public offering in
1983, the market price of the Common Stock has fluctuated over a wide range, and
it is likely that the price of the Common Stock will fluctuate in the future.
Announcements of a positive or negative nature regarding technical innovations,
new commercial products, regulatory approvals, patent or proprietary rights or
other developments concerning the Company or its competitors could have a
significant impact on the market price of the Common Stock.
Shares Eligible for Future Sale. Future sales of shares of Common Stock by
existing shareholders, or by shareholders (including the Selling Shareholders)
who receive shares of Common Stock through the exercise of options or warrants,
the conversion of preferred stock or otherwise, or the perception that such
sales might occur, could have an adverse effect on the price of the Common
Stock.
No Dividends Anticipated in the Foreseeable Future. The Company has not paid
any cash dividends on the Common Stock since its initial public offering in 1983
and does not anticipate paying cash dividends on the Common Stock in the
foreseeable future. Declaration of cash dividends on the Common Stock will
depend upon, among other things, future earnings, the operating and financial
condition of the Company, its capital requirements and general
<PAGE> 5
business conditions. Under the terms of a bank loan agreement with NationsBank
of Texas, N.A. (originally relating to a line of credit that terminated in
January 1996 but which remains in effect with respect to an outstanding
$1,500,000 letter of credit issued by the bank to a supplier of the Company and
secured by a certificate of deposit of the Company in an amount equal to the
letter of credit), the Company is prohibited from declaring or paying cash
dividends on any of its capital stock. In addition, from and after October 21,
1998, the Company may not pay any dividends on Common Stock unless and until all
dividend rights on any outstanding shares of the Company's Series E Convertible
Preferred Stock have been satisfied.
Product Liability Exposure. The Company could be subject to product
liability claims in connection with the use of products that the Company and its
licensees are currently manufacturing, testing or selling or that the Company
and any licensees may manufacture, test or sell in the future. There is no
assurance that the Company would have sufficient resources to satisfy any
liability resulting from these claims or would be able to have its customers
indemnify or insure the Company against such claims. The Company currently
carries product liability insurance in the amount of $3,000,000, but there is no
assurance that such coverage will be adequate in terms and scope to protect it
against material adverse effects in the event of a successful product liability
claim.
Patents. The Company has obtained patents or filed patent applications in
the United States and certain other countries in three series regarding the
compositions of acetylated mannan derivatives, the processes by which they are
produced and the methods of their use. The Company believes that the patents it
has obtained and those it is seeking constitute valuable assets. However,
patent rights resulting from issued patents are not self-enforcing. The Company
must enforce the rights if and when they are infringed. Accordingly, there are
no assurances that any patents issued to the Company give significant commercial
protection.
Obsolescence. The pharmaceutical industry has undergone rapid and
significant change. The Company expects that this field will continue to
develop rapidly, and the Company's future success will depend, in large part, on
its ability to maintain a competitive position. Rapid technological development
may result in the Company's products or processes becoming obsolete before
marketing of those products or before the Company recovers a significant portion
of the research, development and commercialization expenses incurred with
respect to those products.
Dependence Upon Key Personnel. The Company's success depends in large part
upon its ability to attract and retain highly qualified scientific,
manufacturing, marketing and management personnel. The Company believes that it
employs highly qualified personnel in all these areas. The Company, however,
faces competition for such personnel from other companies, academic
institutions, government entities and other organizations. There is no
assurance that the Company will be successful in hiring or retaining the
requisite personnel.
Antitakeover Matters. Certain provisions of the Company's Restated Articles
of Incorporation and Bylaws may be deemed to have an antitakeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder of
the Company might consider in such shareholder's best interest, including
attempts that might result in the payment of a premium over the market price for
shares of Common Stock. These provisions include a provision in the Company's
Restated Articles of Incorporation authorizing the issuance of "blank check"
preferred stock by the Board of Directors of the Company without further
shareholder approval. They also include provisions in the Company's Bylaws that
divide the directors of the Company into three classes that are elected for
staggered three-year terms and that establish advance notice procedures with
respect to submissions by shareholders of proposals to be acted on at
shareholder meetings and of nominations of candidates for election as directors.
In addition, the Company has instituted a shareholder rights plan, which may
have the effect of discouraging an unsolicited takeover proposal.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act. All statements other than statements of
historical fact included in, or incorporated by reference in, this Prospectus
are forward-looking statements, including without limitation, statements under
the caption "Risk Factors." Forward-looking statements
<PAGE> 6
generally include or are accompanied by words such as "anticipate," "believe,"
"estimate," "expect," "intend" or similar words. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed under the caption "Risk Factors" in this Prospectus. Cautionary
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 included or incorporated by reference in this
Prospectus, and all subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf, are expressly
qualified in their entirety by the Cautionary Statements.
SELLING SHAREHOLDERS
The Shares offered hereby are shares of Common Stock that are issuable upon
the conversion of shares of Series E Convertible Preferred Stock of the Company
(the "Series E Preferred Stock") sold by the Company to the Selling Shareholders
in a private placement in October 1996 (the "Private Placement"). A total of
660 shares of Series E Preferred Stock were sold in the Private Placement.
Subject to certain conditions, each share of Series E Preferred Stock is
convertible, at the option of the holder thereof, into shares of Common Stock
beginning on December 20, 1996. In addition, subject to certain conditions, all
shares of Series E Preferred Stock that remain outstanding on October 21, 1999
shall automatically be deemed to have been surrendered for conversion (and shall
be automatically converted) into shares of Common Stock on such date. The
conversion price per share of Series E Preferred Stock (the "Conversion Price")
is equal to the lower of (x) $25.20 (as adjusted for any stock split, reverse
stock split or stock dividend with respect to the Common Stock), and (y) 87% of
the average of the daily closing bid prices of the Common Stock on Nasdaq for
the three consecutive trading days ending on the trading day immediately
preceding the date of conversion of the Series E Preferred Stock (such average
daily closing bid price, the "Current Market Price"). Each share of Series E
Preferred Stock is convertible into the number of whole shares of Common Stock
determined by dividing (a) $10,000 (as adjusted for any stock split, reverse
stock split, stock dividend or similar event resulting in a change in the Series
E Preferred Stock) plus, in the case of the automatic conversion of the Series E
Preferred Stock on October 21, 1999, an amount equal to all dividends accrued
but unpaid on such share of Series E Preferred Stock, by (b) the Conversion
Price in effect on the date of conversion. The total number of Shares offered
hereby has been calculated based on an assumed conversion prior to October 21,
1999 of all 660 presently outstanding shares of Series E Preferred Stock at a
Conversion Price of $3.81. Such Conversion Price was determined by multiplying
87% times an assumed Current Market Price of the Common Stock of $4.37. The
lowest closing sales price of the Common Stock on Nasdaq during the period
January 1, 1996 to November 25, 1996 was $7.25 per share. On November 25, 1996,
the closing sales price of the Common Stock on Nasdaq was $9.31 per share. The
actual number of Shares a Selling Shareholder acquires upon any conversion of
its Series E Preferred Stock will depend on the Current Market Price of the
Common Stock on the date of conversion.
Concurrently with the closing of the Private Placement, the Company entered
into Registration Rights Agreements (the "Registration Rights Agreements") with
each of the Selling Shareholders. Pursuant to the Registration Rights
Agreements, the Company agreed, subject to certain terms and conditions, to
prepare and file with the Commission a registration statement or statements
covering the sale by the Selling Shareholders of the shares of Common Stock
received by the Selling Shareholders upon conversion of their shares of Series E
Preferred Stock. The Company agreed to use its best efforts to keep such
registration statement or statements effective at all times until the earliest
of (i) October 21, 1998, (ii) the date when the Selling Shareholders may sell
all the Shares under Rule 144 promulgated under the Securities Act of 1933, or
(iii) the date when the Selling Shareholders no
<PAGE> 7
longer own any Shares. The Company has registered the Shares for sale pursuant
to this Prospectus as required by the Registration Rights Agreements. See "Plan
of Distribution."
The following table sets forth certain information with respect to the
ownership of the Common Stock, as of November 25, 1996, and as adjusted to
reflect the sale of the Shares offered hereby, by each of the Selling
Shareholders. Each Selling Shareholder has sole voting and investment power
with respect to all shares indicated as being beneficially owned by such person.
<TABLE>
Beneficial Maximum Beneficial
Ownership of Number of Ownership of
Common Stock Before Shares Common Stock After
the Offering(1) Being Offered(1) the Offering(2)
Number of Number of
Name Shares Percent Shares Percent
<S> <C> <C> <C> <C> <C>
Bernstein Liebhard &
Lifshitz 262,467 2.88% 262,467 0 0%
Bridge Ltd. 170,603 1.89% 170,603 0 0%
Colophon N.V. 65,616 * 65,616 0 0%
EuroFactors
International Inc. 118,110 1.31% 118,110 0 0%
FTS Worldwide
Corporation 367,454 3.98% 367,454 0 0%
Harmen Partners 65,616 * 65,616 0 0%
Kapok International Inc. 65,616 * 65,616 0 0%
Ramlu Trading Corp. 157,480 1.75% 157,480 0 0%
The Tail Wind Fund Ltd. 196,850 2.17% 196,850 0 0%
Wolfson Equities 262,467 2.88% 262,467 0 0%
____________________
* Less than 1%.
</TABLE>
(1) Consists solely of Shares the Selling Shareholder has the right to
acquire, beginning on December 20, 1996, through the conversion of shares
of Series E Preferred Stock held by the Selling Shareholder. The number
of Shares set forth in the table for each Selling Shareholder has been
calculated based on an assumed conversion by such Selling Shareholder
prior to October 21, 1999 of all of its Series E Preferred Stock at a
Conversion Price of $3.81. Such Conversion Price was determined by
multiplying 87% times an assumed Current Market Price of the Common Stock
of $4.37. The actual number of Shares a Selling Shareholder acquires upon
any conversion of its Series E Preferred Stock will depend on the Current
Market Price of the Common Stock on the date of conversion.
(2) Assumes that all Shares being offered are sold.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling Shareholders, or by
their pledgees, donees or other successors in interest. Such sales may be made
by the Selling Shareholders on NASDAQ or otherwise at prices and on terms
related to the then current market price of the Common Stock or in negotiated
transactions. The Shares may be sold by any one or more of the following
methods:
(a) a block trade in which the broker or dealer so engaged will attempt to
sell the Shares as agent, but may position and resell a portion of a block as
principal to facilitate the transaction;
<PAGE> 8
(b) purchases by a broker or dealer as principal, and resale by such broker
or dealer, for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
(d) privately negotiated transactions.
The Selling Shareholders may effect such transactions by selling the Shares
to or through brokers or dealers. Such brokers or dealers will receive
compensation in the form of discounts or commissions from the Selling
Shareholders, and they may also receive commissions from the purchasers of the
Shares for whom they may act as agents. Such discounts or commissions from the
Selling Shareholders or such purchasers are not expected to exceed those
customary in the types of transactions involved.
The Company has agreed to pay all reasonable expenses incident to
registration of the Shares, other than underwriting discounts and commissions
and other fees and expenses of investment bankers and other than brokerage
commissions. It is estimated that the fees and expenses payable by the Company
in connection with the registration of the Shares will be approximately $17,000.
The Company will receive none of the proceeds from sales of the Shares.
In the event the Shares are offered to the public by the Selling
Shareholders, they may be deemed "underwriters" within the meaning of the
Securities Act of 1933. Any broker-dealer selling the Shares as agent for a
Selling Shareholder and any broker-dealer purchasing and reselling the Shares
for its own account may also be deemed an "underwriter."
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the Company
by Thompson & Knight, A Professional Corporation, Dallas, Texas.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and have been so incorporated by
reference in reliance upon the authority of said firm as experts in giving said
report.
<PAGE> 9
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses, other than brokerage discounts
and commissions, expected to be incurred in connection with the offering of the
Shares registered hereby. All amounts, except the Securities and Exchange
Commission registration fee, are estimated.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 3,871
Accounting Fees and Expenses 1,000
Legal Fees and Expenses 10,000
Miscellaneous Expenses 2,129
-----------
Total $ 17,000
===========
____________________
</TABLE>
Pursuant to the terms of the registration rights agreement filed as Exhibit
10.3 to this Registration Statement, under which the Selling Shareholders have
been granted registration rights in connection with the registration being
effected hereby, the Selling Shareholders will pay any underwriting discounts
and commissions and other fees and expenses of investment bankers and any
brokerage commissions payable in respect of sales of the Shares. The Company
will bear all other reasonable expenses incident to the registration of the
Shares pursuant to this Registration Statement.
Item 15. Indemnification of Directors and Officers.
The Company is a Texas corporation. Article 1302-7.06 of the Texas
Miscellaneous Corporation Laws Act authorizes Texas corporations, such as the
Company, to eliminate or limit, pursuant to a provision in their articles of
incorporation, the liability of directors thereof to the corporation and its
shareholders for certain acts or omissions in the director's capacity as a
director, subject to certain limitations. Reference is made to Article Fifteen
of the Company's Restated Articles of Incorporation, which are filed as Exhibit
4.1 hereto, that eliminates the liability of directors of the Company for
monetary damages for certain acts or omissions, subject to certain limitations.
Article 2.02-1 of the Texas Business Corporation Act permits (and in
certain circumstances requires) Texas corporations, such as the Company, to
indemnify directors and officers thereof under certain conditions and subject to
certain limitations. Reference is made to Article Nine of the Company's Bylaws,
which are filed as Exhibit 4.2 hereto, that provides for indemnification of
directors and officers of the Company, subject to certain limitations.
The Company maintains a directors' and officers' liability insurance policy
insuring its directors and officers against certain liabilities and expenses
incurred by them in their capacities as such and insuring the Company, under
certain circumstances, in the event that indemnification payments are made by
the Company to such directors and officers.
Pursuant to the terms of the registration rights agreement filed as Exhibit
10.3 to this Registration Statement, the Selling Shareholders have agreed to
indemnify the Company and its directors, officers and controlling persons
against certain liabilities, including liabilities under the Securities Act of
1933, arising out of untrue
<PAGE> II-1
statements or omissions in the Registration Statement made in reliance upon and
in conformity with information furnished in writing to the Company by the
Selling Shareholders.
The foregoing summaries are necessarily subject to the complete text of the
statutes, Restated Articles of Incorporation, Bylaws, insurance policy and
agreement referred to above and are qualified in their entirety by reference
thereto.
Item 16. Exhibits.
The information required by this Item 16 is set forth in the Index to
Exhibits accompanying this Registration Statement.
Item 17. Undertakings.
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to the Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
<PAGE> II-2
(b) Filings Incorporating Subsequent Exchange Act Documents by
Reference.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Acceleration of Effectiveness.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE> II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irving, State of Texas, on the 29th day of November,
1996.
Carrington Laboratories, Inc.
(Registrant)
By: /s/ SHERI L. PANTERMUEHL
_____________________________
Sheri L. Pantermuehl
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
constitutes and appoints Carlton E. Turner and Christopher S. Record, and each
of them (with full power to act alone), his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to sign on his behalf
individually and in each capacity stated below any amendment, including post-
effective amendments, to this Registration Statement, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and either of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Signature Title Date
/s/ GEORGE DEMOTT Chairman of the Board November 29, 1996
_____________________
George DeMott
/s/ CARLTON E. TURNER Chief Executive Officer,
_____________________ President and Director November 29, 1996
Carlton E. Turner, Ph.D. (Principal Executive Officer)
/s/ SHERI L. PANTERMUEHL Chief Financial Officer
_____________________ and Treasurer November 29, 1996
Sheri L. Pantermuehl (Principal Financial Officer
and Accounting Officer)
/s/ SELVI VESCOVI Director November 29, 1996
_____________________
Selvi Vescovi
<PAGE> II-4
Signature Title Date
/s/ THOMAS J. MARQUEZ Director November 29, 1996
________________________
Thomas J. Marquez
/s/ ROBERT A. FILDES Director November 29, 1996
________________________
Robert A. Fildes, Ph.D.
/s/ JAMES T. O'BRIEN Director November 29, 1996
________________________
James T. O'Brien
/s/ R. DALE BOWERMAN Director November 29, 1996
________________________
R. Dale Bowerman
<PAGE> II-5
INDEX TO EXHIBITS
Sequentially
Numbered
Number Exhibit Page
4.1 --- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to
the Company's 1988 Annual Report on Form 10-K).
4.2 --- Bylaws of the Company, as amended through April 27,
1995 (incorporated herein by reference to Exhibit 3.5
to the Company's 1995 Annual Report on Form 10-K).
4.3 --- Statement of Resolution Establishing Series E
Convertible Preferred Stock of the Company
(incorporated herein by reference to Exhibit 3.1 to
the Company's Report on Form 8-K dated November 13,
1996).
4.4 --- Rights Agreement dated as of September 19, 1991,
between the Company and Ameritrust Company National
Association (incorporated herein by reference to
Exhibit 1 to the Company's Report on Form 8-K dated
September 19, 1991).
5.1* --- Opinion of Thompson & Knight, A Professional
Corporation.
10.1 --- Stock Purchase Agreement between the Company and each
of the purchasers of shares of the Company's Series
E Convertible Preferred Stock (incorporated herein by
reference to Exhibit 10.4 to the Company's Report on
Form 8-K dated November 13, 1996).
10.2 --- Amendment to Stock Purchase Agreement dated October
15, 1996 between the Company and each of the
purchasers of shares of the Company's Series E
Convertible Preferred Stock (incorporated herein by
reference to Exhibit 10.5 to the Company's Report on
Form 8-K dated November 13, 1996).
10.3 --- Registration Rights Agreement between the Company and
each of the purchasers of shares of the Company's
Series E Convertible Preferred Stock (incorporated
herein by reference to Exhibit 10.6 to the Company's
Report on Form 8-K dated November 13, 1996).
23.1* --- Consent of Arthur Andersen LLP.
23.2* --- Consent of Thompson & Knight, A Professional
Corporation (included in Exhibit 5.1).
24.1* --- Power of Attorney (included in Part II of the
Registration Statement).
______________________
* Filed herewith.
<PAGE> II-6
EXHIBIT 5.1
(214) 969-1700
November 27, 1996
Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel for Carrington Laboratories, Inc., a Texas
corporation (the "Company"), in connection with the preparation of the Company's
Registration Statement on Form S-3 (the "Registration Statement"), filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), in connection with the proposed
sale of up to 1,732,279 shares (the "Shares") of Common Stock, par value $.01
per share, of the Company by certain shareholders of the Company (the "Selling
Shareholders"). The Shares are proposed to be sold by the Selling Shareholders
in the manner set forth in the Prospectus constituting Part I of the
Registration Statement under the caption "Plan of Distribution." The Shares are
not currently outstanding but are issuable upon conversion of outstanding shares
of the Company's Series E Convertible Preferred Stock, par value $100 per share
(the "Series E Preferred Stock").
In connection with the foregoing, we have examined the originals or copies,
certified or otherwise authenticated to our satisfaction, of such corporate
records of the Company, certificates of public officials and other instruments
and documents as we have deemed necessary to require as a basis for the opinions
hereinafter expressed. As to questions of fact material to such opinions, we
have, where relevant facts were not independently established, relied upon
statements of officers of the Company.
On the basis of the foregoing and in reliance thereon, we advise you that in
our opinion the Shares that may be sold by the Selling Shareholders pursuant to
the Registration Statement, when issued upon conversion of the shares of Series
E Preferred Stock in accordance with the terms of the Series E Preferred Stock,
will be legally issued, fully paid and nonassessable.
<PAGE>
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 of the Registration Statement and to the reference to us in the
Prospectus under the caption "Legal Matters." In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules or regulations of
the Commission thereunder.
Respectfully submitted,
THOMPSON & KNIGHT
A Professional Corporation
By: /s/ PAUL M. JOHNSTON
_________________________
Paul M. Johnston
Attorney
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 9, 1996,
included in the Carrington Laboratories, Inc. Form 10-K for the year ended
December 31, 1995, and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
November 27, 1996
