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 June 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
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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
- ------------ ------------------------------------------------------------
(Address of principal executive offices and Zip Code)
214-518-1300
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------
(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
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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. 8,858,450 shares of
Common Stock, $.01 par value were outstanding at August 12, 1996.
<PAGE>
INDEX
Part I. FINANCIAL INFORMATION Page Number
-------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1996 (unaudited) and December 31, 1995 3, 4
Condensed Consolidated Statements of Operations
for the three months and six months ended
June 30, 1996 and 1995 (unaudited) 5, 6
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 (unaudited) 7
Notes to Condensed Consolidated Financial
Statements (unaudited) 8 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13 - 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 22
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
<TABLE>
(unaudited)
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 4,784 $ 6,222
Accounts Receivable, net 2,429 2,227
Inventories 3,540 5,104
Prepaid Expenses 291 858
-------- --------
Total Current Assets 11,044 14,411
-------- --------
Property, Plant and Equipment, net 12,240 12,711
Other Assets 2,259 812
-------- --------
Total Assets $25,543 $27,934
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
<TABLE>
(unaudited)
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Portion of Long-Term Debt $ 44 $ 3,026
Accounts Payable and Accrued Liabilities 3,274 2,420
------- --------
Total Current Liabilities 3,318 5,446
Long-Term Debt, Net of Current Portion 63 89
Shareholders' Investment:
Preferred Stock - 1,167
Common Stock 89 84
Capital in Excess of Par 50,327 44,666
Deficit (28,080) (23,344)
Foreign Currency Translation Adjustment (174) (174)
--------- ---------
Total Shareholders' Investment 22,162 22,399
--------- ---------
$25,543 $27,934
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts in 000's, except per share amounts)
<TABLE>
Three Months Ended
June 30,
1996 1995
-------- --------
<S> <C> <C>
Net Sales $5,438 $6,408
Cost and Expenses:
Cost of Sales 3,365 2,076
Selling, General and Administrative 2,920 3,262
Research and Development 1,755 1,305
Interest, net (57) 51
-------- --------
Loss from Operations Before
Income Taxes (2,545) (286)
Provision for Income Taxes - -
-------- --------
Net Loss ($2,545) ($ 286)
======== ========
Net Loss per Common Equivalent Share ($ 0.29) ($ 0.04)
======== =========
Weighted Average Common and
Common Equivalent Shares 8,804,567 7,884,046
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts in 000's, except per share amounts)
<TABLE>
Six Months Ended
June 30,
1996 1995
-------- ---------
<S> <C> <C>
Net Sales $10,952 $12,684
Cost and Expenses:
Cost of Sales 6,296 3,716
Selling, General and Administrative 5,749 6,867
Research and Development 3,703 2,749
Interest, net (95) 119
--------- ---------
Loss from Operations Before
Income Taxes (4,701) (767)
Provision for Income Taxes - 16
--------- ---------
Net Loss ($ 4,701) ($ 783)
========= =========
Net Loss per Common Equivalent Share ($ 0.54) ($ 0.09)
========= =========
Weighted Average Common and
Common Equivalent Shares 8,735,367 7,621,712
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Condensed Statements of Cash Flow (unaudited)
(Dollar amount in 000's)
<TABLE>
Six Months Ended
June 30,
1996 1995
--------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss ($4,701) ($ 783)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 631 630
Changes in Assets and Liabilities:
(Increase) Decrease in Receivables, net (202) 326
Decrease (Increase) in Inventories, net 1,564 (967)
Decrease in Prepaid Expenses 567 51
(Increase) Decrease in Other Assets (1,464) 122
Increase in Accounts Payable
and Accrued Liabilities 849 333
-------- --------
Net Cash Used by Operating Activities (2,756) (288)
======== ========
Cash Flows from Investing Activities:
Purchases of Property, Plant and Equipment (138) (3,412)
-------- --------
Net Cash Used by Investing Activities (138) (3,412)
======== ========
Cash Flows from Financing Activities:
Issuances of Common Stock 4,464 5,442
Proceeds from Borrowing - 5,510
Repayment of Debt (2,977) (5,782)
Debt Payments (31) (86)
-------- --------
Net Cash Provided by Financing Activities 1,456 5,084
======== ========
Net (Decrease) Increase in Cash and
Cash Equivalents (1,438) 1,384
-------- --------
Cash and Cash Equivalents, Beginning of Period 6,222 464
-------- --------
Cash and Cash Equivalents, End of Period $4,784 $1,848
======== ========
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for Interest $ 82 $ 163
Cash Paid During the Period for Income Taxes $ - $ 12
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Condensed Consolidated Financial Statements:
The condensed consolidated balance sheet as of June 30, 1996 and the
condensed consolidated statements of operations for the three and six month
periods ended June 30, 1996 and 1995 and the condensed consolidated
statement of cash flows for the six month periods ended June 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 June 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 June 30, 1996 and
December 31, 1995:
<TABLE>
June 30, December 31,
(in 000's) 1996 1995
---------- -------------
<S> <C> <C>
Raw Material and Supplies $ 919 $ 583
Work-in-process 1,628 2,726
Finished Goods 993 1,795
---------- -------------
Total Inventory, net $3,540 $5,104
========== =============
</TABLE>
Although wound care sales were lower than projected, the Company was able
to effectively manage and reduce inventory levels in the first six 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. As a result of these
programs, inventory levels were reduced by $934,000 during the first two
quarters of 1996.
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
(2) Inventories - Continued
Operating costs of $484,000 and $563,000, related to the Irving, Texas
facility and the Costa Rica facility, respectively, have been expensed in
the first six months. These costs resulted from temporary shutdown of the
Costa Rica plant for annual routine maintenance and programs to reduce
inventory levels to be more in line with current demand. The Comapny believes
that future growth in demand will eventually absorb all of the operating costs.
Also contributing to lower inventory levels is a one-time $630,000 write-
down of certain inventoried items. As of June 30, 1996, the Company
determined that it was in its best interest to modify 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 is the buildup
of materials related to products introduced in the first quarter of 1996 as
well as those to be introduced in the latter half of 1996. Total Aloe vera
extract inventory as of June 30, 1996 and December 31, 1995 was $1,388,000
and $2,538,000, respectively.
(3) Property, Plant and Equipment:
Net investment in property, plant and equipment as of June 30, 1996 and
December 31, 1995 was $12,240,000 and $12,711,000, respectively. Included
in these amounts is the net investment in property, plant and equipment in
Costa Rica as of June 30, 1996 and December 31, 1995 of $4,026,000 and
$4,157,000, respectively.
The production capacity of the Costa Rica plant is larger than the
Company's current usage level. Management believes, however, that the cost
of the Costa Rica facility will be recovered through operations. The
facility will provide for the production of large scale clinical trials as
well as future product demand. Management will continue to assess the
realizability of the Costa Rica plant assets and will use the methodology
described in SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
(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 than amend 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 have been released by the Bank.
The Company has 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.
Notes to Condensed Consolidated Financial Statements (unaudited)
(5) Shareholders' Investment:
Options - Each option is a nonqualified option with an exercise price
equal to the fair market value of the Company's common stock on the date of
grant. Each 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 options expires 10 years
from the date of the grant. Options issued to non-employee directors of the
Company are exercisable as of, and expire four years from the grant date.
As of June 30, 1996, 632,050 options to purchase shares of common stock were
outstanding. Option prices on the outstanding shares range from $8.25 to
$47.75 per share. During the second quarter of 1996, options for 116,500
shares of common stock were exercised at a price of $6.25 to $27.00 per
share. Total proceeds to the Company on the exercise of these options were
$1,615,000.
<PAGE>
Warrants - From time to time, the Company has granted warrants to purchase
common stock to the Company's research consultants and certain other
persons rendering services to the Company. The exercise price of such
warrants was the market price or in excess of the market price of the
common stock at date of issuance. Warrants for 3,000 shares expired in the
second quarter of 1996. As of June 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, 52,725 shares have been purchased by
employees at prices ranging from $7.23 to $29.54 per share through June 30,
1996.
Preferred Stock - 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>
Notes to Condensed Consolidated Financial Statements (unaudited)
(6) Sales by Division:
The following summarizes sales by division and consolidated sales for the
three month periods ending June 30, 1996 and 1995:
(Dollar amounts in 000's)
<TABLE>
Three Months Ended Wound Carrington Caraloe Total
June 30, 1996 Care Veterinary Sales Inc. Sales
-------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales, net $4,392 $ 101 $4,493 $ 945 $5,438
Cost of Goods Sold 2,461 83 2,544 821 3,365
-------- -------- --------- -------- --------
Gross Margin $1,931 $ 18 $1,949 $ 124 $2,073
======== ======== ========= ======== ========
Three Months Ended
June 30, 1995
Sales, net $5,624 $ 118 $5,742 $ 666 $6,408
Cost of Goods Sold 1,601 59 1,660 416 2,076
-------- -------- --------- -------- --------
Gross Margin $4,023 $ 59 $4,082 $ 250 $4,332
======== ======== ========= ======== ========
</TABLE>
The following summarizes sales by division and consolidated sales for the
six month periods ending June 30, 1996 and 1995:
(Dollar amounts in 000's)
<TABLE>
Six Months Ended Wound Carrington Caraloe Total
June 30, 1996 Care Veterinary Sales Inc. Sales
-------- ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Sales, net $8,646 $167 $8,813 $2,139 $10,952
Cost of Goods Sold 4,328 123 4,451 1,845 6,296
-------- ------- ------- -------- --------
Gross Margin $4,318 $ 44 $4,362 $ 294 $ 4,656
======== ======= ======= ======== ========
Six Months Ended
June 30, 1995
Sales, net $11,416 $179 $11,595 $1,089 $12,684
Cost of Goods Sold 2,970 91 3,061 655 3,716
-------- ------- --------- -------- ---------
Gross Margin $ 8,446 $ 88 $ 8,534 $ 434 $ 8,968
======== ======= ========= ======== =========
</TABLE>
<PAGE>
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 June 30, 1996 and December 31, 1995, the Company held cash and cash
equivalents of $4,784,000 and $6,222,000, respectively. The decrease in
cash of $1,438,000 from December 31, 1995 to June 30, 1996 was largely
attributable to the retirement of all bank debt and the purchase of a
$1,500,000 CD (see Note 4 to the consolidated financial statements) as well
as increased research and development expenditures net of cash raised
through the exercise of options and warrants, and purchase of shares
through the Employee Stock Purchase Plan, that resulted in an additional
$4,464,000 cash in the first six months of 1996. These cash outflows were
partially offset through the exercise of options and warrants that resulted
in an additional $4,464,000 cash in the first six months of 1996.
Although wound care sales were lower than projected in the first six months
of 1996, the Company was able to effectively manage and reduce inventory
levels. 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 $1,564,000 during the first two 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 expensed
$1,047,000 of unabsorbed overhead as cost of goods sold in the first two
quarters of 1996.
The production capacity of the Costa Rica plant is larger than the
Company's current usage level. Management believes, however, that the cost
of the Costa Rica facility will be recovered through operations. The
facility will provide for the production of products for large scale clinical
trials as well as future product demand. As of August 14, 1996, the Company
had no material capital commitments other than its leases, agreements with
suppliers and clinical trials.
<PAGE>
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 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 have
been released by the Bank. The Company has 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
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 August 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 advance 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. Additional payments totaling $500,000 will be made to the
supplier as new products are delivered.
<PAGE>
From April 1996 through June 1996, 59 employees and 3 nonemployee directors
exercised options for 116,500 shares of common stock. The option prices
ranged from $6.25 to $27.00. A total of $1,615,000 was raised by the Company
through the exercise of these options.
The Company began a large scale clinical trial during the third quarter of
1995 for the testing of its Aliminase(TM) (formerly CARN 1000) oral capsules
for the treatment of acute flare-ups of ulcerative colitis. The Company
estimates that the cost of this clinical trial will be approximately
$2,300,000, of which approximately $300,000 remains outstanding. Payments
made in advance to the clinical research organization resulted in prepaid
expenses increasing in 1995. In late 1995, the Company began an initial Phase
I study using an injectable Alovex(TM) (formerly CARN 750) in cancer patients
involving six cancer types. The estimated cost of this study is $475,000.
In the second half of 1996, the Company will begin a second large scale
clinical trial for the testing of Aliminase(TM) oral capsules for the treatment
of ulcerative colitis. The cost of this trial is expected to be approximately
$2,500,000 of which approximately 15% will be required as an initial payment
when the research contract is signed. The remainder of the cost will be
expended over approximately fourteen months. The Company anticipates signing
a contract with a clinical research organization in late August 1996.
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. 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.
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>
Second Quarter of 1996 Compared With Second Quarter of 1995
Net sales were $5,438,000 in the second quarter of 1996, compared with
$6,408,000 in the second quarter of 1995. This decrease of $970,000, or
15.1%, resulted from a decrease of $1,232,000 in sales of the Company's
wound and skin care products from $5,624,000 to $4,392,000, or 21.9%. New
product lines introduced in late January accounted for $345,000 in wound
and skin care sales during the second quarter of 1996.
The decrease in the Company's wound and skin care products was partially
offset by an increase in sales of Caraloe, Inc., the Company's consumer
products subsidiary. Caraloe's sales increased from $666,000 to $945,000,
or 41.9%. Caraloe sales to Mannatech, which are primarily Manapol(R),
increased from $544,000 to $832,000. Sales of the Company's veterinary
products decreased from $118,000 to $101,000. In March 1996, the Company
entered into an agreement with Farnam Companies, Inc., a leading marketer of
veterinary products, to promote and sell its veterinary line on a broader
scale.
Cost of sales increased from $2,076,000 to $3,365,000, or 62.1%. As a
percentage of sales, cost of sales increased from 30.1% to 39.9% after
adjusting for a $630,000 write down of inventory on June 30, 1996 (see
description of write down below) and period costs of $145,000 and $563,000
in the second quarter 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. 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.
As of June 30, 1996, the Company determined that it was in its best
interest to modify the inventory valuation of products produced in its Costa
Rica facility. This facility produces all of the Companies freeze-dried
aloe vera products. The modified 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 product
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.
Operating costs of $563,000 related to the Costa Rica facility have been
expensed in the second quarter. These costs resulted from a temporary
shutdown of the plant for annual routine maintenance and to reduce inventory
levels to be more in line with current demand. The Company believes that
future growth in demand for Costa Rica produced products will eventually
absorb all of the operating costs.
<PAGE>
Selling, general and administrative expenses decreased to $2,920,000 from
$3,262,000, or 10.5%. This decrease is primarily attributable to one-time
charges in the second quarter of 1995 related to severance agreements and
the closing of the Belgium office. This decrease was partially offset by a
one-time write-off of approximately $92,000 of bank and legal charges
related to the early retirement of all debt.
Research and development (R&D) expenses increased to $1,755,000 from
$1,305,000, or 34.5%. This increase was the result of beginning the large
scale 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. Additional R&D costs related to the ongoing cancer research
contributed to the increase in R&D during the second quarter of 1996 as
well. These costs were partially offset by a reduction of internal
salaries and other operating expenses.
Net interest income of $57,000 was realized in the second quarter of 1996,
versus net interest costs of $51,000 in the second 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>
First Six Months of 1996 Compared With First Six Months of 1995
Net sales were $10,952,000 in the first six months of 1996, compared with
$12,684,000 in the first six months of 1995. This decrease of $1,732,000,
or 13.7%, resulted from a decrease of $2,770,000 in sales of the Company's
wound and skin care products from $11,416,000 to $8,646,000, or 24.2%. New
product lines introduced in late January accounted for $670,000 in wound
and skin care sales during the first six months of 1996. The decrease in
wound and skin care sales was partially offset by a $1,050,000, or 96.4%,
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 lines in late
January 1996. The Company expects to launch additional products in 1996.
The decrease in sales of the Company's wound and skin care products was
partially offset by an increase in sales of Caraloe, Inc., the Company's
consumer products subsidiary. Caraloe's sales increased from $1,089,000 to
$2,139,000, or 96.4%. Caraloe sales to Mannatech increased from $818,000 to
$1,902,000. Of the 1996 sales, $1,863,000 is related to the sale of bulk
Manapol(R). Sales of the Company's veterinary products decreased from
$179,000 to $167,000. In March 1996, the Company entered into an agreement
with Farnam Companies, Inc., a leading marketer of veterinary products, to
promote and sell its veterinary line on a broader scale.
<PAGE>
Cost of sales increased from $3,716,000 to $6,296,000, or 69.5%. As a
percentage of sales, cost of sales increased from 28.9% to 42.1% after
adjusting for a $630,000 write down of inventory on June 30, 1996 and
period costs of $52,000 and $1,047,000 in the first six 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.
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 $5,749,000 from
$6,867,000, or 16.3%. This decrease was attributable to approximately
$900,000 in one-time charges in the first six months of 1995. This was
partially offset as the Company incurred approximately $150,000 in
additional costs related to the cost of launching three new product lines
and a one-time write-off of approximately $92,000 of bank and legal charges
related to the early retirement of all debt.
Research and development (R&D) expenses increased to $3,703,000 from
$2,749,000, or 34.7%. This increase was the result of beginning the large
scale 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. Additional R&D costs related to the ongoing cancer research
contributed to the increase in R&D during the first six months of 1996 as
well. These costs were partially offset by a reduction of internal
salaries and other operating expenses.
Net interest income of $95,000 was realized in the first six months of
1996, versus net interest costs of $119,000 in the first six 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 operation, 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 similar words.
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 enter into agreements for and
fund the planned second large scale clinical trial of Aliminase(TM) for the
treatment of ulcerative colitis, 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, to promote and sell
its veterinary products on a broader scale, and various other matters.
<PAGE>
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 (including the planned second large scale trial of Aliminase
(TM) for the treatment of ulcerative colitis) and other research and
development projects, that the results of the Company's clinical trials may
not be sufficiently positive to warrant continued developement 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>
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 seeks 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 actions, unspecified "exemplary and
punitive damages" on three of the eight alleged causes of action, unspecified
"double damages" on one of the alleged causes of actions, unspecified
"treble damages" on one of the alleged causes of actions, interest and costs
on all eight alleged causes of action, and unspecified attorney's fees on
three of such alleged causes of action.
The Comapny removed this case from state court to the U.S. District Court for
the Northern District of California (Case No. C-96-2072-WHO). The Plaintiff
then filed a motion to remand the case to the state court, and both parties
have filed other motions in the case. The U.S. District Court has scheduled
a hearing on all of the motions on August 22, 1996.
The Plaintiff has also filed an action styled Dianna Gold vs. 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 both of th above-described cases
filed by the Plaintiff.
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 the lawsuit.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the 1996 Annual Meeting of Shareholders held on May 23, 1996, R. Dale
Bowerman and James T. O'Brien were elected to serve as directors of the
Company for terms expiring at the 1999 annual meeting. The votes for each
director were:
R. Dale Bowerman: 7,397,742
James T. O'Brien: 7,397,559
Amendments to the Company's 1995 Stock Option Plan were approved by a vote
of outstanding shares of the Company's common stock. The principal purpose
of the amendments was to permit the granting of options to certain advisors
and consultants to the Company. The vote on the amendments to the 1995 Stock
Option Plan was:
For: 6,444,646
Against: 844,163
Abstained: 54,293
The appointment of Arthur Andersen LLP as independent auditors for the
Company for the fiscal year ended December 31, 1996 was approved by a vote of
outstanding shares of the Company's common stock. The vote was:
For: 7,867,518
Against: 7,333
Abstained: 33,919
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
-----------
4.1 Form of Nonqualified Stock Option Agreement for Employees
4.2 Carrington Laboratories, Inc 1995 Stock Option Plan,
As Amended and Restated Effective March 27, 1996
4.3 Form of Nonqualified Stock Option Agreement for Nonemployee
Directors
4.4 Form of Incentive Stock Option Agreement for Employees
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 June 30, 1996.
<PAGE>
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: August 14, 1996 By: /s/ Carlton E. Turner
- --------------------- -----------------------
Carlton E. Turner,
President
Date: August 14, 1996 By: /s/ Sheri L. Pantermuehl
- --------------------- ------------------------
Sheri L. Pantermuehl,
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS:
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
4.1 Form of Nonqualified Stock Option Agreement for
Employees
4.2 Carrington Laboratories, Inc. 1995 Stock Option Plan,
As Amended and Restated Effective March 27, 1996
4.3 Form of Nonqualified Stock Option Agreement for
Nonemployee Directors
4.4 Form of Incentive Stock Option Agreement for
Employees
11.1 Computation of Net Income per Common and
Common Equivalent Share
27.1 Financial Data Schedule
<PAGE>
CARRINGTON LABORATORIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
This Agreement, made as of ____________________, by and between
CARRINGTON LABORATORIES, INC., a Texas corporation (the "Company"),
and_____________________ ("Employee").
W I T N E S S E T H :
WHEREAS, it has been determined (i) that Employee is eligible to
receive a nonqualified stock option under the Company's 1985 Stock
Option Plan, as amended (the "Plan"), and (ii) that such an option
should be granted to Employee;
NOW, THEREFORE, the Company and Employee hereby agree as follows:
1.Definitions. As used in this Agreement, the following
terms shall have the following meanings, respectively:
(a) "Affiliate" shall have the meaning set forth in
Article I, Section 2(a) of the Plan and shall include any
party now or hereafter coming within that definition.
(b) "Commencement Date" shall mean the date which is one
(1) year from the date of this Agreement.
(c)"Common Stock" shall have the meaning set forth in
Article I, Section 2 (e) of the Plan.
(d) "Expiration Date" shall mean the date which is ten
(10) years from the date of this Agreement.
2. Option. The Company hereby grants to Employee the option to
purchase, on the terms hereinafter set forth, _______ shares of the
Company's Common Stock at a price of $_______ per share during the
period beginning on the Commencement Date and ending on the first to
occur of (a) the Expiration Date or (b) the date on which the
employment of Employee by the Company or any of its Affiliates
terminates for any reason; provided, however, that if such employment
terminates on or after the Commencement Date and on or before the
Expiration Date, other than by reason of Employee's death or
disability, then Employee may exercise this option, to the extent he
was entitled to do so at the date of such termination of employment, at
any time within thirty (30) days after the date of such termination but
not after the Expiration Date; and provided further, that if such
employment terminates on or after the Commencement Date and on or
before the Expiration Date
<PAGE>
by reason of Employee's becoming permanently and totally disabled
(within the meaning of Section 22(e) (3) of the Internal Revenue Code
of 1986, as amended), or by reason of amended), or by reason of
Employee's death, then Employee (or Employee's legal representative, if
Employee is legally incompetent), the executor or administrator of
Employee's estate or anyone who shall have acquired this option by will
or pursuant to the laws of descent and distribution may exercise this
option, to the extent Employee was entitled to do so at the date of
such termination, at any time within one (1) year after such
termination but not after the Expiration Date. Notwithstanding
anything to the contrary herein, this option shall terminate
immediately upon the termination of Employee's employment on account of
fraud, dishonesty or the performance of other acts detrimental to the
Company or an Affiliate, or if, following the date of termination of
Employee's employment, the Company determines that there is good cause
to cancel this option. A transfer of employment among the Company and
any of its Affiliates without interruption of service shall not be
considered a termination of employment for purposes of this Agreement.
3. Exercise During Employment. Except as provided in Section 2
hereof, this option may not be exercised unless Employee is at the time
of exercise an employee of the Company or an Affiliate.
4. Exercisability. Subject to the provisions of Sections 2 and 3
hereof, this option may be exercised during the period beginning on the
Commencement Date and ending on the Expiration Date in accordance with
the following schedule:
(a) that number of whole shares of Common Stock which equals
or most closely approximates (but does not exceed) 25% of the total
number of shares covered by this option may be purchased in whole at
any time, or in part from time to time, on or after the Commencement
Date;
(b) an additional number of whole shares of Common Stock which
equals or most closely approximates (but does not exceed) 25% of the
total number of shares covered by this option may be purchased in whole
at any time, or in part from time to time, on or after the date which
is two (2) years after the date of this Agreement;
(c) an additional number of whole shares of Common Stock which
equals or most closely approximates (but does not exceed) 25% of the
total number of shares covered by this option may be purchased in whole
at any time, or in part from time to time, on or after the date which
is three (3) years after the date of this Agreement; and
(d) all remaining shares of Common Stock covered by this
option may be purchased in whole at any time, or in part from time to
time, on or after the date which is four (4) years after the date of
this Agreement.
<PAGE>
Notwithstanding any contrary indication in this Agreement, (i) no
fractional shares of Common Stock may be purchased upon exercise of
this option, and (ii) upon the occurrence of a Change in Control (as
defined in the Plan) prior to the termination of this option, this
option shall immediately and automatically become exercisable with
respect to all of the shares of Common Stock, if any, as to which it
was not already exercisable, and this provision shall be applicable
regardless of whether such Change in Control occurs before or after the
Commencement Date; provided, however, that this provision shall not be
interpreted to increase the number of shares of Common Stock for which
this option may be exercised by Employee if his employment by the
Company or any of its Affiliates shall have terminated prior to the
occurrence of such Change in Control.
5. Manner of Exercise. This option may be exercised by written
notice signed by the person entitled to exercise the same and delivered
to the President of the Company or sent by United States registered
mail addressed to the Company (for the attention of the President) at
its corporate office in Irving, Texas. Such notice shall state the
number of shares of Common Stock as to which this option is exercised
and shall be accompanied by payment of the full purchase price of such
shares, plus the amount of any federal, state or local taxes required
by law to be paid or withheld in connection with such exercise.
6. Payment. The purchase price for shares of Common Stock
purchased upon exercise of this option shall be paid in cash or by
check in United States dollars.
7. Delivery of Shares. Delivery of the certificate or
certificates representing the shares of Common Stock purchased upon
exercise of this option shall be made promptly after the Company's
receipt of notice of exercise and payment. If the Company so elects,
its obligation to deliver shares of Common Stock upon the exercise of
this option shall be conditioned upon its receipt from the person
exercising this option of any additional documents that, in the opinion
of the Company and its legal counsel are required in order to comply
with applicable securities laws.
8. Adjustments. In the event that, before delivery by the
Company of all the shares of Common Stock in respect of which this
option is granted, the Company shall have effected a Common Stock split
or a dividend payable in Common Stock, or the outstanding Common Stock
of the Company shall have been combined into a smaller number of
shares, the shares of Common Stock still subject to this option shall
be increased or decreased to reflect proportionately the increase or
decrease in the number of shares outstanding, and the purchase price
per share shall be decreased or increased to make the aggregate
purchase price for all the shares then subject to this option the same
as immediately prior to such stock split, stock dividend or
combination. In the event of a reclassification of the shares of
Common Stock not covered by the foregoing, or in the event of a
liquidation or reorganization (including a merger, consolidation or
sale of assets) of the Company, the Board of Directors of the Company
shall make such adjustments, if any, as it may deem appropriate in the
number, purchase price and kind of shares still subject to this option.
<PAGE>
9. Transferability. This option is not transferable otherwise
than by will or the laws of descent and distribution, and during the
lifetime of Employee this option is exercisable only by Employee or, if
Employee is legally incompetent, by Employee's legal representative.
10. Employment. Nothing in this Agreement confers upon employee
any right to continue in the employ of the Company or any Affiliate,
nor shall this Agreement interfere in any manner with the right of the
Company or any Affiliate to terminate the employment of Employee with
or without cause at any time.
11. Option Subject to Plan. By execution of this Agreement,
Employee agrees that this option and the shares of Common Stock to be
received upon exercise hereof shall be governed by and subject to all
applicable provisions of the Plan.
12. Construction. This option is not intended to be treated as an
incentive stock option under Section 422A of the Internal Revenue Code
of 1986, as amended. This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the State of
Texas. Words of any gender used in this Agreement shall be construed
to include any other gender, unless the context requires otherwise.
The headings of the various sections of this Agreement are intended for
convenience of reference only and shall not be used in construing the
terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By__________________________
________________________
Signature of Employee
_____________________________
(Type or print name of Employee)
<PAGE>
RECORD OF EXERCISE:
DATE NO. OF SHARES EXERCISED INITIAL/AGREED
_____ ______________________ ______________
_____ ______________________ ______________
_____ ______________________ ______________
_____ ______________________ ______________
CARRINGTON LABORATORIES, INC.
1995 STOCK OPTION PLAN
As Amended and Restated Effective March 27, 1996
ARTICLE I
General
Section 1.01. Purpose. It is the purpose of the Plan to promote the
interests of the Company and its shareholders by attracting, retaining
and stimulating the performance of selected Employees, Directors and
Consultants by giving such Employees, Directors and Consultants the
opportunity to acquire a proprietary interest in the Company and an
increased personal interest in its continued success and progress.
Section 1.02. Definitions. As used herein the following terms have
the following meanings:
(a) "Affiliate" means any parent or subsidiary corporation of the
Company within the meaning of Section 424(e) and (f) of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Stock Option Committee described in
Article II hereof.
(e) "Common Stock" means the $0.01 par value Common Stock of the
Company.
(f) "Company" means Carrington Laboratories, Inc., a Texas
corporation.
(g) "Consultant" means any consultant or advisor of the Company or an
Affiliate who is not an Employee or Director, provided that bona fide
services are rendered by the consultant or advisor and such services are
not in connection with the offer or sale of securities in a capital-raising
transaction.
(h) "Director" means a member of the Board.
(i) "Employee" means any employee of the Company or an Affiliate.
(j) "Employee-Director" means an Employee who is a Director.
<PAGE>
(k) "Fair Market Value" means (A) the closing sales price of the
Common Stock on the date in question (or, if there is no reported sale on
such date, then on the last preceding date on which a reported sale
occurred), as reported on the NASDAQ National Market (if the Common Stock
is not listed on a national securities exchange and sales of the Common
Stock are regularly reported on such market), or as reported on a national
securities exchange (if the Common Stock is listed for trading on such
exchange), or (B) the mean between the bid and ask prices of the Common
Stock on the date in question (or, if there is no report of such prices on
such date, then on the last preceding date on which such prices were
reported), as reported by the National Association of Securities Dealers,
Inc.
(l) "Option" means any option to purchase shares of Common Stock
granted pursuant to the provisions of the Plan.
(m) "Optionee" means an Employee, Outside Director or Consultant who
has been granted an Option under the Plan.
(n) "Outside Director" means a Director who is not an Employee.
(o) "Plan" means this Carrington Laboratories, Inc. 1995 Stock Option
Plan, as amended and restated effective March 27, 1996.
Section 1.03. Number of Shares. Options may be granted by the Company
from time to time under the Plan to purchase an aggregate of 1,500,000 shares
of the authorized Common Stock. If any Option expires or terminates for any
reason without having been exercised in full, the unpurchased shares
subject to such expired or terminated Option shall be available for
purposes of the Plan.
ARTICLE II
Administration
The Plan shall be administered by a Stock Option Committee which
shall consist of two or more Outside Directors, each of whom shall be a
disinterested person within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"), or any similar rule or
regulation promulgated thereunder; provided, however, that the Committee
shall have no authority to administer or interpret the provisions of the
Plan relating to the grant of Options to Outside Directors. Each member
of the Committee shall be appointed by and shall serve at the pleasure of
the Board. The Board shall have the sole continuing authority to appoint
members of the Committee both in substitution for members previously
appointed and to fill vacancies however caused. The following provisions
shall apply to the administration of the Plan:
<PAGE>
(a) The Committee shall designate one of its members as
Chairman and shall hold meetings at such times and places as it may
determine. Each member of the Committee shall be notified in writing of
the time and place of any meeting of the Committee at least two days prior
to such meeting, provided that such notice may be waived by a Committee
member. A majority of the members of the Committee shall constitute a
quorum, and any action taken by a majority of the members of the Committee
present at any duly called meeting at which a quorum is present (as well
as any action unanimously approved in writing) shall constitute action by
the Committee.
(b) The Committee may appoint a Secretary (who need not be a
member of the Committee) who shall keep minutes of its meetings. The
Committee may make such rules and regulations for the conduct of its
business as it may determine.
(c) The Committee shall have full authority, subject to the
express provisions of the Plan, to interpret the Plan as it relates to
options granted or to be granted to Employees and Consultants under the
Plan, to provide, modify and rescind rules and regulations relating
thereto, to determine the terms and provisions of each Option granted to
an Employee or Consultant and the form of each option agreement evidencing
an Option granted to an Employee or Consultant under the Plan and to make
all other determinations and perform such actions as the Committee deems
necessary or advisable to administer the Plan as it relates to Options
granted or to be granted to Employees and Consultants under the Plan. In
addition, the Committee shall have full authority, subject to the express
provisions of the Plan, to determine the Employees and Consultants to whom
Options shall be granted, the time or date of grant of each such Option,
the number of shares subject thereto, and the price at which such shares
may be purchased. In making such determinations, the Committee may take
into account the nature of the services rendered by the Employee or
Consultant, his present and potential contributions to the success of the
Company's business and such other facts as the Committee in its discretion
shall deem appropriate to carry out the purposes of the Plan.
(d) Notwithstanding the authority hereby delegated to the
Committee to grant Options to Employees and Consultants under the Plan,
the Board also shall have full authority, subject to the express
provisions of the Plan, to grant Options to Employees and Consultants
under the Plan, to interpret the Plan, to provide, modify and rescind
rules and regulations relating to it, to determine the terms and
provisions of Options granted to Employees, Consultants and Outside
Directors under the Plan and to make all other determinations and perform
such actions as the Board deems necessary or advisable to administer the
Plan; provided, however, that (i) the Board shall not grant any Option to
any Employee-Director or officer (as defined in Rule 16b-3) of the
Company, and (ii) the Board shall have no authority, discretion or power
to select the Outside Directors who will receive Options under the Plan,
to set the number of shares to be covered by any Option granted to an
Outside Director, to set the exercise price or the period within which
such Options may be exercised, or to alter any other terms or conditions
specified herein relating to such Options except in accordance with the
express provisions of the Plan, including Section 6.02 of Article VI
hereof.
<PAGE>
(e) No member of the Committee or the Board shall be liable for
any action taken or determination made in good faith with respect to the
Plan or any Option granted hereunder.
(f) No member of the Committee shall be eligible to receive an
Option, except Options granted in accordance with the terms of Article III
of the Plan.
ARTICLE III
Grants of Options to Outside Directors
Section 3.01. Grants of Options. Beginning with the year 1995,
Options shall be granted by the Company to its Outside Directors on the
terms and conditions herein described. The Options granted under this
Article III shall not be incentive stock options under Section 422 of the
Code.
(a) Initial Grant. An Option to purchase 10,000 shares of
Common Stock shall be granted automatically to each Outside Director who
is newly elected to the Board, irrespective of whether such Outside
Director is elected by the Board or by the shareholders. The date of
grant of such Option shall be the effective date of such Outside
Director's election to the Board, unless such date is not a business day,
in which case the date of grant shall be the next business day immediately
following such effective date. For purposes of this Section 3.01, the
term "newly elected to the Board" shall mean that the Outside Director was
not serving as a Director or an Outside Director immediately prior to the
time of his election in respect of which such Option is granted.
(b) Annual Grant. An Option to purchase 2,500 shares of Common
Stock shall be granted automatically, on the date of each annual meeting
of shareholders of the Company (or, if such date is not a business day, on
the next business day immediately following the date of such annual
meeting), to each person who (i) is an Outside Director on the date of
such grant and immediately following such annual meeting and (ii) has
served in that capacity for at least six months immediately preceding the
date of such grant.
Section 3.02. Declination. Any Outside Director may decline to
accept any Option granted to him pursuant to this Article III by giving
written notice to the Company of his election to decline to accept such
Option or by refusing to execute a stock option agreement relating to such
Option.
Section 3.03. Price. The purchase price per share of Common
Stock under each Option granted under this Article III shall be the Fair
Market Value per share of Common Stock on the date of grant of such
Option.
<PAGE>
Section 3.04. Option Period and Terms of Exercise of Options.
Except as otherwise provided for herein, each Option granted to an Outside
Director under the Plan shall be exercisable in whole or in part during
the four-year period commencing on the date of grant of such Option. Any
Option granted to an Outside Director shall remain effective during its
entire term regardless of whether the Optionee continues to serve as a
Director; provided, however, that the otherwise unexpired portion of any
Option granted hereunder to an Outside Director shall expire and become
null and void immediately upon the termination of such Outside Director's
Board membership if such Outside Director ceases to serve on the Board by
reason of such Outside Director's (a) fraud or intentional
misrepresentation, or (b) embezzlement, misappropriation or conversion of
assets or opportunities of the Company or any Affiliate. Nothing in the
Plan or in any option agreement evidencing an Option granted under the
Plan to an Outside Director shall confer upon such Director any right to
continue as a Director of the Company.
ARTICLE IV
Grant of Options to Employees
Section 4.01. Grant of Options. At any time and from time to
time during the term of the Plan and subject to the express provisions
hereof, Options may be granted by the Committee to any Employee for such
number of shares of Common Stock as the Committee in its discretion shall
deem to be in the best interest of the Company and which will serve to
further the purposes of the Plan. The Committee, in its discretion, may
designate any Option granted to an Employee as an incentive stock option
intended to qualify under Section 422 of the Code; provided, however, that
the aggregate Fair Market Value of the Common Stock with respect to which
incentive stock options granted to an Employee under the Plan (including
all options qualifying as incentive stock options pursuant to Section 422
of the Code granted to such Employee under any other plan of the Company
or any Affiliate) are exercisable for the first time by such Employee
during any calendar year shall not exceed $100,000, determined as of the
date the incentive stock option is granted. If an Option that is intended
to be an incentive stock option shall be granted and such Option does not
comply with the proviso of the immediately preceding sentence, such Option
shall not be void but shall be deemed to be an incentive stock option to
the extent it does not exceed the limit established by such proviso and
shall be deemed a nonqualified stock option to the extent it exceeds that
limit.
The aggregate number of shares of Common Stock for which any
Employee may be granted Options under the Plan during any one calendar
year shall not exceed 50,000. The aggregate number of shares for which
Options are granted under the Plan to Employee-Directors shall not exceed
40% of the total number of shares covered by the Plan; provided, however,
that if any Option granted to an Employee-Director terminates without
being exercised in full, the shares as to which such Option was not
exercised shall not be deemed to have been granted to an Employee-Director
for purposes of determining compliance with this restriction.
<PAGE>
Section 4.02. Price. The purchase price per share of Common
Stock under each Option granted under this Article IV shall be determined
by the Committee but in no event shall be less than 100% of the Fair
Market Value per share of Common Stock at the time the Option is granted;
provided, however, that the purchase price per share of Common Stock under
any incentive stock option granted to an Optionee who, at the time such
incentive stock option is granted, owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or
any Affiliate shall be at least 110% of the Fair Market Value per share of
Common Stock at the date of grant.
Section 4.03. Option Period and Terms of Exercise of Employee
Options. Except as otherwise provided for herein, each Option granted to
an Employee under the Plan shall be exercisable during such period as the
Committee shall determine; provided, however, that the otherwise unexpired
portion of any Option granted to an Employee shall expire and become null
and void no later than upon the first to occur of (i) the expiration of
ten years from the date such Option was granted, (ii) the expiration of 30
days from the date of termination of the Optionee's employment with the
Company or an Affiliate for any reason other than his retirement, death or
disability, (iii) the expiration of one year from the date of termination
of the Optionee's employment with the Company or an Affiliate by reason of
his death or disability, (iv) the expiration of three years from the date
of termination of such Optionee's employment with the Company or an
Affiliate by reason of his retirement, or (v) the expiration of two years
from the date of such Optionee's death following the termination of his
employment with the Company or an Affiliate by reason of his retirement.
Anything herein to the contrary notwithstanding, the otherwise
unexpired portion of any Option granted to an Employee hereunder shall
expire and become null and void immediately upon the termination of such
Employee's employment with the Company or an Affiliate by reason of such
Employee's fraud, dishonesty or performance of other acts detrimental to
the Company or an Affiliate, or if, following the termination of the
Employee's employment with the Company or an Affiliate, the Company
determines that there is good cause to cancel such Option.
Any incentive stock option granted to an Optionee who, at the time
such incentive stock option is granted, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company or any Affiliate shall not be exercisable after the expiration of
five years from the date of its grant.
Under the provisions of any option agreement evidencing an Option
granted to an Employee, the Committee may limit the number of shares
purchasable thereunder in any period or periods of time during which the
Option is exercisable and may impose such other terms and conditions upon
the exercise of an Option as are not inconsistent with the terms of the
Plan; provided, however, that the Committee, in its discretion, may
accelerate the exercise date of any such Option.
<PAGE>
Section 4.04. Termination of Employment. A transfer of
employment among the Company and any of its Affiliates shall not be
considered to be a termination of employment for the purposes of the Plan.
Nothing in the Plan or in any option agreement evidencing an Option
granted under the Plan to an Employee, including an Employee-Director,
shall confer upon any Optionee any right to continue in the employ of the
Company or any Affiliate or in any way interfere with the right of the
Company or any Affiliate to terminate the employment of the Optionee at
any time, with or without cause.
ARTICLE V
Grant of Options to Consultants
Section 5.01. Grant of Options. At any time and from time to
time during the term of the Plan and subject to the express provisions
hereof, Options may be granted by the Committee to any Consultant for such
number of shares of Common Stock as the Committee in its discretion shall
deem to be in the best interest of the Company and which will serve to
further the purposes of the Plan. The Options granted under this Article
V shall not be incentive stock options under Section 422 of the Code.
Section 5.02. Price. The purchase price per share of Common
Stock under each Option granted under this Article V shall be determined
by the Committee but in no event shall be less than 100% of the Fair
Market Value per share of Common Stock at the time the Option is granted.
Section 5.03. Option Period and Terms of Exercise of Consultant
Options. Except as otherwise provided for herein, each Option granted to
a Consultant under the Plan shall be exercisable during such period as the
Committee shall determine; provided, however, that the otherwise unexpired
portion of any Option granted to a Consultant shall expire and become null
and void no later than upon the first to occur of (i) the expiration of
ten years from the date such Option was granted or (ii) the expiration of
one year from the date of the Consultant's death. Anything herein to the
contrary notwithstanding, the otherwise unexpired portion of any Option
granted to a Consultant hereunder shall expire and become null and void
immediately upon the termination of the Consultant's services to the
Company or an Affiliate by reason of the Consultant's fraud, dishonesty or
performance of other acts detrimental to the Company or an Affiliate, or
if, at any time during or after the performance of the Consultant's
services to the Company or an Affiliate, the Company determines that there
is good cause to cancel such Option.
Under the provisions of any option agreement evidencing an Option
granted to a Consultant, the Committee may limit the number of shares
purchasable thereunder in any period or periods of time during which the
Option is exercisable and may impose such other terms and conditions upon
the exercise of an Option as are not inconsistent with the terms of the
Plan; provided, however, that the Committee, in its discretion, may
accelerate the exercise date of any such Option.
<PAGE>
Section 5.04. Termination of Consulting Services. Nothing in the
Plan or in any option agreement evidencing an Option granted under the
Plan to a Consultant shall confer upon any Consultant any right to
continue as a consultant or advisor of the Company or any Affiliate or in
any way interfere with the right of the Company or any Affiliate to
terminate the services of the Consultant at any time, with or without
cause.
ARTICLE VI
Miscellaneous
Section 6.01. Adjustments Upon Changes in Common Stock. In the
event the Company shall effect a split of the Common Stock or a dividend
payable in Common Stock, or in the event the outstanding Common Stock
shall be combined into a smaller number of shares, the maximum number of
shares as to which Options may be granted under the Plan shall be
decreased or increased proportionately. In the event that, before
delivery by the Company of all of the shares of Common Stock for which any
Option has been granted under the Plan, the Company shall have effected
such a split, dividend or combination, the shares still subject to such
Option shall be increased or decreased proportionately and the purchase
price per share shall be decreased or increased proportionately so that
the aggregate purchase price for all of the shares then subject to such
Option shall remain the same as immediately prior to such split, dividend
or combination.
In the event of a reclassification of Common Stock not covered by
the foregoing, or in the event of a liquidation or reorganization
(including a merger, consolidation or sale of assets) of the Company, the
Board shall make such adjustments, if any, as it may deem appropriate in
the number, purchase price and kind of shares covered by the unexercised
portions of Options theretofore granted under the Plan. The provisions of
this Section shall only be applicable if, and only to the extent that, the
application thereof does not conflict with any valid governmental statute,
regulation or rule.
Subject to Article VI, Section 6.02 of the Plan, and
notwithstanding any indication to the contrary in the preceding paragraphs
of this Section 6.01, upon the occurrence of a "Change in Control" (as
hereinafter defined) of the Company, the maturity of all Options then
outstanding under the Plan (other than Options granted under Article V
hereof) shall be accelerated automatically, so that all such Options shall
become exercisable in full with respect to all shares as to which they
shall not have previously been exercised or become exercisable; provided,
however, that no such acceleration shall occur with respect to Options
held by optionees whose employment with the Company or an Affiliate shall
have terminated prior to the occurrence of such Change in Control.
<PAGE>
For purposes of the Plan, a "Change in Control" of the Company
shall be deemed to have occurred if:
(a) the shareholders of the Company shall approve:
(I) any merger, consolidation or reorganization of the Company
(a "Transaction") in which the shareholders of the Company immediately
prior to the Transaction would not, immediately after the Transaction,
beneficially own, directly or indirectly, shares representing in the
aggregate more than 50% of all votes to which all shareholders of the
corporation issuing cash or securities in the Transaction (or of its
ultimate parent corporation, if any) would be entitled under ordinary
circumstances in the election of directors, or in which the members of the
Company's Board immediately prior to the Transaction would not,
immediately after the Transaction, constitute a majority of the board of
directors of the corporation issuing cash or securities in the Transaction
(or of its ultimate parent corporation, if any),
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions contemplated or arranged
by any party as a single plan) of all or substantially all of the
Company's assets, or
(iii) any plan or proposal for the liquidation or
dissolution of the Company;
(b) individuals who constitute the Company's Board as of April 1,
1995 (the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board; provided, however, that for purposes of
this subparagraph (b), any individual who becomes a Director of the
Company subsequent to April 1, 1995, and whose election, or nomination for
election by the Company's shareholders, is approved by a vote of at least
a majority of the Incumbent Directors who are Directors at the time of
such vote, shall be considered an Incumbent Director; or
(c) any "person," as that term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any of its subsidiaries, any employee benefit
plan of the Company or any of its subsidiaries, or any entity organized,
appointed or established by the Company for or pursuant to the terms of
such plan), together with all "affiliates" and "associates" (as such terms
are defined in Rule 12b-2 under the Exchange Act) of such person, shall
become the "beneficial owner" or "beneficial owners" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of
securities of the Company representing in the aggregate 20% or more of
either (i) the then outstanding shares of Common Stock or (ii) the
combined voting power of all then outstanding securities of the Company
having the right under ordinary circumstances to vote in an election of
the Company's Board ("Voting Securities"), in either such case other than
as a result of acquisitions of such securities directly from the Company.
<PAGE>
Notwithstanding the foregoing, a "Change in Control" of the
Company shall not be deemed to have occurred for purposes of subparagraph
(c) of this Section 6.01 solely as the result of an acquisition of
securities by the Company which, by reducing the number of shares of
Common Stock or other Voting Securities outstanding, increases (i) the
proportionate number of shares of Common Stock beneficially owned by any
person to 20% or more of the shares of Common Stock then outstanding or
(ii) the proportionate voting power represented by the Voting Securities
beneficially owned by any person to 20% or more of the combined voting
power of all then outstanding Voting Securities; provided, however, that
if any person referred to in clause (i) or (ii) of this sentence shall
thereafter become the beneficial owner of any additional shares of Common
Stock or other Voting Securities (other than as a result of a stock split,
stock dividend or similar transaction), then a "Change in Control" of the
Company shall be deemed to have occurred for purposes of subparagraph (c)
of this Section 6.01.
Section 6.02. Amendment and Termination of the Plan. Subject to
the right of the Board to terminate the Plan prior thereto, the Plan shall
terminate at the expiration of ten years from April 1, 1995. No Options
may be granted after termination of the Plan. The Board may alter or
amend the Plan but may not, without the approval of the shareholders of
the Company, make any alteration or amendment thereof which operates to
(i) abolish the Committee, change the qualifications of its members or
withdraw the administration of the Plan from its supervision,
(ii) increase the total number of shares of Common Stock which may be
granted under the Plan (other than as provided in Section 6.01 of this
Article VI), (iii) extend the term of the Plan or the maximum exercise
periods provided in Section 3.04 of Article III, Section 4.03 of Article
IV and Section 5.03 of Article V hereof, (iv) decrease the minimum
purchase price for Common Stock under the Plan, (v) materially increase
the benefits accruing to participants under the Plan, or (vi) materially
modify the requirements as to eligibility for participation in the Plan.
Notwithstanding any other provision of this Section, the provisions of the
Plan governing (A) the number of Options to be awarded to Outside
Directors, (B) the number of shares of Common Stock to be covered by each
such Option, (C) the exercise price per share under each such Option, (D)
when and under what circumstances each such Option will be granted and (E)
the period within which each such Option may be exercised, shall not be
amended or altered more than once every six months, other than to comport
with changes in the Code or the rules promulgated thereunder.
No termination or amendment of the Plan shall adversely affect
the rights of an Optionee under an Option, except with the consent of such
Optionee.
Section 6.03. Payment of Purchase Price; Application of Funds.
Upon exercise of an Option, the purchase price shall be paid in full in
cash or by check; provided. however, that at the request of an Optionee
and to the extent permitted by applicable law, the Company shall approve
reasonable arrangements with Optionees who are Outside Directors and may,
in its sole and absolute discretion, approve reasonable arrangements with
<PAGE>
one or more Optionees who are Employees or Consultants and their
respective brokerage firms, under which such an Optionee may exercise his
Option by delivering to the Company an irrevocable notice of exercise,
together with such other documents as the Company shall require, and the
Company shall, upon receipt of full payment in cash or by check of the
purchase price and any other amounts due in respect of such exercise,
deliver to such Optionee's brokerage firm one or more certificates
representing the shares of Common Stock issued in respect of such
exercise. The proceeds of any sale of Common Stock covered by Options
shall constitute general funds of the Company. Upon exercise of an
Option, the Optionee will be required to pay to the Company the amount of
any federal, state or local taxes required by law to be withheld in
connection with such exercise.
Section 6.04. Requirements of Law. The granting of Options and
the issuance of Common Stock upon the exercise of an Option shall be
subject to all applicable laws, rules and regulations and to such approval
by governmental agencies as may be required.
Section 6.05. Nontransferability of Options. An Option granted
under the Plan shall not be transferable by the Optionee except by will or
by the laws of descent and distribution and shall be exercisable during
the lifetime of the Optionee only by the Optionee.
Section 6.06. Investment Letter. The Company's obligation to
deliver Common Stock with respect to an Option shall be conditioned upon
its receipt from the Optionee to whom such Common Stock is to be delivered
of an executed investment letter containing such representations and
agreements as the Committee may determine to be necessary or advisable in
order to enable the Company to issue and deliver such Common Stock to such
Optionee in compliance with the Securities Act of 1933 and other
applicable federal, state or local securities laws or regulations.
Section 6.07. Date of Adoption and Effective Date of the Plan.
The Plan constitutes an amendment and restatement of the Carrington
Laboratories, Inc. 1995 Stock Option Plan, which became effective on April
1, 1995 (the "Original Plan"). This amendment and restatement of the
Original Plan was approved by the Board on March 27, 1996 and shall be
deemed effective as of such date, provided it is duly approved by the
holders of a majority of the shares of Common Stock present or represented
and entitled to vote at the 1996 annual meeting of shareholders of the
Company. If the Plan is not so approved, the Plan shall terminate, any
Option granted hereunder shall be null and void and the Original Plan
shall remain in full force and effect in accordance with its terms.
Section 6.08. Gender. Words of any gender used in the Plan
shall be construed to include any other gender, unless the context
requires otherwise.
CARRINGTON LABORATORIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
WITH NONEMPLOYEE DIRECTOR
This Agreement, made as of _________________, by and between
CARRINGTON LABORATORIES, INC., a Texas corporation (the "Company"), and
______________________, ("Director"),
W I T N E S S E T H:
WHEREAS, the Company's 1995 Stock Option Plan (the "Plan") provides
that a four-year, nonqualified stock option to purchase 2,500 shares of
the Company's Common Stock shall be granted automatically, on the date of
each annual meeting of shareholders of the Company, to each person who (i)
is a nonemployee director of the Company on the date of such grant and
immediately following such annual meeting and (ii) has served in that
capacity for at least six months immediately preceding the date of such
grant; and
WHEREAS, the annual meeting of shareholders of the Company for the
current calendar year was held on the date of this Agreement, and Director
satisfies the conditions described in clauses (i) and (ii) of the
immediately preceding paragraph and is willing to accept the option that
he is entitled to receive under the Plan on the date of this Agreement;
NOW, THEREFORE, the Company and Director hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings, respectively:
(a) "Affiliate" shall have the meaning set forth in Article I,
Section 1.02(a) of the Plan and shall include any party now or hereafter
coming within that definition.
(b) "Board" means the Board of Directors of the Company.
(c) "Commencement Date" shall mean the date of this Agreement.
(d) "Common Stock" shall have the meaning set forth in Article I,
Section 1.02(e) of the Plan.
(e) "Expiration Date" shall mean the date which is four (4) years
from and inclusive of the date of this Agreement. (By way of example, if
the date of this Agreement were January 1, 1996, the Expiration Date would
be December 31, 1999.)
<PAGE>
2. Option. The Company hereby grants to Director the option to
purchase, on the terms hereinafter set forth, __________ shares of the
Company's Common Stock at a price of $_______ per share during the period
beginning on the Commencement Date and ending on the Expiration Date.
Except as otherwise provided herein, this option shall remain effective
during its entire term, regardless of whether the Director continues to
serve as a director of the Company. In the event of Director's death on
or before the Expiration Date, the executor or administrator of Director's
estate or anyone who shall have acquired this option by will or pursuant
to the laws of descent and distribution may exercise this option at any
time on or before the Expiration Date, to the extent Director was entitled
to do so at the time of his death. Notwithstanding anything to the
contrary herein, this option shall terminate immediately on the
termination of Director's Board membership if he ceases to serve on the
Board by reason of his (a) fraud or intentional misrepresentation, or (b)
embezzlement, misappropriation or conversion of assets or opportunities of
the Company or any Affiliate.
The Stock Option Committee that administers the Plan shall have
the authority to make, in its sole discretion, any and all determinations
that are required to be made in connection with this Agreement regarding
the reasons for or circumstances of Director's ceasing to serve on the
Board, including but not limited to the determinations of (1) whether
Director ceased to serve on the Board for any of the reasons set forth in
clause (a) or clause (b) of the immediately preceding paragraph and (2)
what criteria or requirements, if any, should be applied in making the
determinations described in clause (1) of this sentence.
3. Exercisability. Subject to the provisions of Section 2 hereof,
this option may be exercised in whole at any time, or in part from time to
time, during the period beginning on the Commencement Date and ending on
the Expiration Date. Notwithstanding any contrary indication in this
Agreement, no fractional shares of Common Stock may be purchased upon
exercise of this option.
4. Manner of Exercise. This option may be exercised by written
notice signed by the person entitled to exercise the same and delivered to
the President of the Company or sent by United States registered mail
addressed to the Company (for the attention of the President) at its
corporate office in Irving, Texas. Such notice shall state the number of
shares of Common Stock as to which this option is exercised and shall be
accompanied by payment of the full purchase price of such shares, plus the
amount of any federal, state or local taxes required by law to be paid or
withheld in connection with such exercise.
5. Payment. The purchase price for shares of Common Stock purchased
upon exercise of this option shall be paid in cash or by check in United
States dollars.
<PAGE>
6. Delivery of Shares. Delivery of the certificate or certificates
representing the shares of Common Stock purchased upon exercise of this
option shall be made promptly after the Company's receipt of notice of
exercise and payment. If the Company so elects, its obligation to deliver
shares of Common Stock upon the exercise of this option shall be
conditioned upon its receipt from the person exercising this option of any
additional documents that, in the opinion of the Company and its legal
counsel, are required in order to comply with any applicable law.
7. Adjustments. In the event that, before delivery by the Company
of all the shares of Common Stock in respect of which this option is
granted, the Company shall have effected a Common Stock split or a
dividend payable in Common Stock, or the outstanding Common Stock of the
Company shall have been combined into a smaller number of shares, the
shares of Common Stock still subject to this option shall be increased or
decreased to reflect proportionately the increase or decrease in the
number of shares outstanding, and the purchase price per share shall be
decreased or increased to make the aggregate purchase price for all the
shares then subject to this option the same as immediately prior to such
stock split, stock dividend or combination. In the event of a
reclassification of the shares of Common Stock not covered by the
foregoing, or in the event of a liquidation or reorganization (including a
merger, consolidation or sale of assets) of the Company, the Board shall
make such adjustments, if any, as it may deem appropriate in the number,
purchase price and kind of shares still subject to this option.
8. Transferability. This option is not transferable otherwise than
by will or the laws of descent and distribution, and during the lifetime
of Director this option is exercisable only by Director or, if Director is
legally incompetent, by Director's legal representative.
9. Board Membership. Nothing in this Agreement confers upon
Director any right to continue to serve as a director of the Company, nor
shall this Agreement interfere in any manner with the right of the
Company's shareholders to terminate Director's position as a director of
the Company with or without cause at any time.
10. Option Subject to Plan. By execution of this Agreement, Director
agrees that this option and the shares of Common Stock to be received upon
exercise hereof shall be governed by and subject to all applicable
provisions of the Plan.
11. Construction. This option shall not be treated as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as
amended. This Agreement is governed by, and shall be construed and
enforced in accordance with, the laws of the State of Texas. Words of any
gender used in this Agreement shall be construed to include any other
gender, unless the context requires otherwise. The headings of the
various sections of this Agreement are intended for convenience of
reference only and shall not be used in construing the terms hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:____________________________________
Carlton E. Turner, Ph.D., President
_______________________________________
Signature of Director
_____________________________________
[Type or Print Name of Director]
13653 07404 CORP 80502
<PAGE>
RECORD OF EXERCISE
DATE NO. OF SHARES EXERCISED INITIAL/AGREED
_____ ______________________ _____________
_____ ______________________ _____________
______ ______________________ _____________
______ ______________________ _____________
CARRINGTON LABORATORIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement, made as of ______________, 19____, by and between
CARRINGTON LABORATORIES, INC., a Texas corporation (the "Company"), and
___________________ ______________________ ("Employee"),
W I T N E S S E T H:
WHEREAS, it has been determined (i) that Employee is eligible to receive an
incentive stock option under the Company's 1995 Stock Option Plan, as
amended (the "Plan"), and (ii) that such an option should be granted to
Employee;
NOW, THEREFORE, the Company and Employee hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings, respectively:
(a) "Affiliate" shall have the meaning set forth in Article I, Section
1.02(a) of the Plan and shall include any party now or hereafter coming
within that definition.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Commencement Date" shall mean the date which is one (1) year from the
date of this Agreement. (By way of example, if the date of this Agreement
were January 1, 1996, the Commencement Date would be January 1, 1997.)
(d) "Common Stock" shall have the meaning set forth in Article I, Section
1.02(e) of the Plan.
(e) "Expiration Date" shall mean the date which is ten (10) years from and
inclusive of the date of this Agreement. (By way of example, if the date
of this Agreement were January 1, 1996, the Expiration Date would be
December 31, 2005.)
(f) "Fair Market Value" shall have the meaning set forth in Article I,
Section 1.02(k) of the Plan.
<PAGE>
2. Option. The Company hereby grants to Employee the option to purchase,
on the terms hereinafter set forth, ____________ shares of the Company's
Common Stock at a price of $_________ per share during the period beginning
on the Commencement Date and ending on the first to occur of (i) the
Expiration Date or (ii) the date on which the employment of Employee by the
Company or any of its Affiliates terminates for any reason; provided,
however, that
(a) if such employment terminates on or after the Commencement Date and
on or before the Expiration Date, other than by reason of Employee's
retirement, death or disability, then Employee may exercise this option, to
the extent he was entitled to do so at the date of such termination of
employment, at any time within thirty (30) days after the date of such
termination but not after the Expiration Date; or
(b) if such employment terminates on or after the Commencement Date and on
or before the Expiration Date by reason of Employee's becoming permanently
and totally disabled (within the meaning of Section 22(e)(3) of the Code),
or by reason of Employee's death, then Employee (or Employee's legal
representative, if Employee is legally incompetent), the executor or
administrator of Employee's estate or anyone who shall have acquired this
option by will or pursuant to the laws of descent and distribution may
exercise this option, to the extent Employee was entitled to do so at the
date of such termination, at any time within one (1) year after such
termination but not after the Expiration Date; or
(c) if such employment terminates on or after the Commencement Date and on
or before the Expiration Date by reason of Employee's retirement, Employee
may exercise this option, to the extent he was entitled to do so at the
date of such retirement, at any time within three (3) years after the date
of such retirement; provided, however, that if Employee shall die within
such three-year period, then the executor or administrator of Employee's
estate or anyone who shall have acquired this option by will or pursuant to
the laws of descent and distribution may exercise this option, to the
extent Employee was entitled to do so at the date of his death, at any time
within the first to expire of (i) two (2) years after the date of his death
or (ii) three (3) years after the date of his retirement, but not after the
Expiration Date in any event. Employee acknowledges that to the extent
this option is exercised more than three months after his employment
terminates by reason of his retirement, and unless Employee dies within
such three-month period, this option will constitute a stock option that
does not qualify as an incentive stock option under Section 422 of the
Code, with the resulting federal income tax consequences.
Notwithstanding anything to the contrary herein, this option shall
terminate immediately upon the termination of Employee's employment on
account of fraud, dishonesty or the performance of other acts detrimental
to the Company or an Affiliate, or if, following the date of termination of
Employee's employment, the Company determines that there is good cause to
cancel this option. A transfer of employment among the Company and any of
its Affiliates without interruption of service shall not be considered a
termination of employment for purposes of this Agreement.
<PAGE>
The Stock Option Committee that administers the Plan shall have the
authority to make, in its sole discretion, any and all determinations that
are required to be made in connection with this Agreement regarding the
reasons for or circumstances of the termination of Employee's employment
with the Company or any Affiliate, including but not limited to the
determinations of (1) whether Employee's employment by the Company or any
of its Affiliates terminated by reason of Employee's retirement, death or
disability or on account of fraud, dishonesty or the performance of other
acts detrimental to the Company or whether there is good cause to cancel
this option, and (2) what criteria or requirements, if any, should be
applied in making the determinations described in clause (1) of this
sentence.
3. Exercise During Employment. Except as provided in Section 2 hereof,
this option may not be exercised unless Employee is at the time of exercise
an employee of the Company or an Affiliate.
4. Exercisability. Subject to the provisions of Sections 2 and 3 hereof,
this option may be exercised during the period beginning on the
Commencement Date and ending on the Expiration Date in accordance with the
following schedule:
(a) that number of whole shares of Common Stock which equals or most
closely approximates (but does not exceed) 25% of the total number of
shares covered by this option may be purchased in whole at any time, or in
part from time to time, on or after the Commencement Date;
(b) an additional number of whole shares of Common Stock which equals or
most closely approximates (but does not exceed) 25% of the total number of
shares covered by this option may be purchased in whole at any time, or in
part from time to time, on or after the date which is two (2) years from
and inclusive of the date of this Agreement;
(c) an additional number of whole shares of Common Stock which equals or
most closely approximates (but does not exceed) 25% of the total number of
shares covered by this option may be purchased in whole at any time, or in
part from time to time, on or after the date which is three (3) years from
and inclusive of the date of this Agreement; and
(d) all remaining shares of Common Stock covered by this option may be
purchased in whole at any time, or in part from time to time, on or after
the date which is four (4) years from and inclusive of the date of this
Agreement.
Notwithstanding any contrary indication in this Agreement,
(i) no fractional shares of Common Stock may be purchased upon exercise of
this option; and
<PAGE>
(ii) upon the occurrence of a Change in Control (as defined in the Plan)
prior to the termination of this option, this option shall immediately and
automatically become exercisable with respect to all of the shares of
Common Stock, if any, as to which it was not already exercisable, and this
provision shall be applicable regardless of whether such Change in Control
occurs before or after the Commencement Date; provided, however, that this
provision shall not be interpreted to increase the number of shares of
Common Stock for which this option may be exercised by Employee if his
employment by the Company or any of its Affiliates shall have terminated
prior to the occurrence of such Change in Control. Employee acknowledges
that the operation of this provision may have the effect of causing all or
part of this option to constitute a stock option that does not qualify as
an incentive stock option under Section 422 of the Code, with the resulting
federal income tax consequences.
5. Manner of Exercise. This option may be exercised by written notice
signed by the person entitled to exercise the same and delivered to the
President of the Company or sent by United States registered mail addressed
to the Company (for the attention of the President) at its corporate office
in Irving, Texas. Such notice shall state the number of shares of Common
Stock as to which this option is exercised and shall be accompanied by
payment of the full purchase price of such shares, plus the amount of any
federal, state or local taxes required by law to be paid or withheld in
connection with such exercise.
6. Payment. The purchase price for shares of Common Stock purchased upon
exercise of this option shall be paid in cash or by check in United States
dollars.
7. Delivery of Shares. Delivery of the certificate or certificates
representing the shares of Common Stock purchased upon exercise of this
option shall be made promptly after the Company's receipt of notice of
exercise and payment. If the Company so elects, its obligation to deliver
shares of Common Stock upon the exercise of this option shall be
conditioned upon its receipt from the person exercising this option of any
additional documents that, in the opinion of the Company and its legal
counsel, are required in order to comply with any applicable law.
8. Adjustments. In the event that, before delivery by the Company of all
the shares of Common Stock in respect of which this option is granted, the
Company shall have effected a Common Stock split or a dividend payable in
Common Stock, or the outstanding Common Stock of the Company shall have
been combined into a smaller number of shares, the shares of Common Stock
still subject to this option shall be increased or decreased to reflect
proportionately the increase or decrease in the number of shares
outstanding, and the purchase price per share shall be decreased or
increased to make the aggregate purchase price for all the shares then
subject to this option the same as immediately prior to such stock split,
stock dividend or combination. In the event of a reclassification of the
shares of Common Stock not covered by the foregoing, or in the event of a
liquidation or reorganization (including a merger, consolidation or sale of
assets) of the Company, the Board of Directors of the Company shall make
such adjustments, if any, as it may deem appropriate in the number,
purchase price and kind of shares still subject to this option.
<PAGE>
9. Transferability. This option is not transferable otherwise than by
will or the laws of descent and distribution, and during the lifetime of
Employee this option is exercisable only by Employee or, if Employee is
legally incompetent, by Employee's legal representative.
10. Limit on Incentive Options. Employee acknowledges that if, under any
circumstances, the aggregate Fair Market Value (determined, with respect to
each option, as of its date of grant) of the number of shares of Common
Stock that would first become eligible for purchase in any calendar year
under all incentive stock options (including this option) granted to
Employee after December 31, 1986 and on or before the date of this
Agreement under the Plan or any other stock option plan of the Company or
any Affiliate would exceed $100,000, then to the extent of such excess this
option and/or such other incentive stock options may constitute options
that do not qualify as incentive stock options under Section 422 of the
Code, with the resulting federal income tax consequences. Such a result
could occur because of, among other things, (i) the schedule upon which
this option becomes exercisable in accordance with its terms, (ii) a
discretionary acceleration of such schedule, or (iii) a mandatory
acceleration of such schedule due to a Change in Control.
11. Disqualifying Disposition. Employee acknowledges that if shares
purchased upon exercise of this option are sold or otherwise disposed of
before the expiration of the later of one year after such shares are
transferred to Employee or two years after the date of grant of this
option, this option may not qualify as an incentive stock option under
Section 422 of the Code with respect to such shares, which may have certain
federal income tax consequences both to Employee and to the Company.
Accordingly, in such event Employee shall give written notice to the
Company, on or about the date of each such sale or other disposition,
specifying the date of such sale or other disposition, the nature of the
transaction, and the amount of any consideration received or to be received
by Employee as a result thereof.
12. Payment of Amounts Required to be Withheld. If for any reason the
Company shall be required by law or agreement to withhold any amounts by
reason of the grant or exercise of this option or the sale or other
disposition of any shares purchased upon exercise hereof, Employee shall
pay to the Company, at the time the Company is required to make such
withholding, the full amount that the Company is required to withhold in
respect of such grant, exercise or sale or other disposition.
13. Employment. Nothing in this Agreement confers upon Employee any right
to continue in the employ of the Company or any Affiliate, nor shall this
Agreement interfere in any manner with the right of the Company or any
Affiliate to terminate the employment of Employee with or without cause at
any time.
14. Option Subject to Plan. By execution of this Agreement, Employee
agrees that this option and the shares of Common Stock to be received upon
exercise hereof shall be governed by and subject to all applicable
provisions of the Plan.
<PAGE>
15. Construction. This option is intended to be treated as an incentive
stock option under Section 422 of the Code. However, if for any reason
this option shall not qualify as an incentive stock option, that fact shall
not affect the validity of this option, which, to the extent that it does
not constitute an incentive stock option under Section 422 of the Code,
shall constitute a nonqualified stock option having all of the terms set
forth in this Agreement, excluding the first sentence of this section.
Neither the Company nor any of its shareholders, directors, officers,
employees, agents, accountants or attorneys shall have any liability
whatsoever to Employee or any other person resulting from any failure of
this option to constitute an incentive stock option under Section 422 of
the Code.
This Agreement is governed by, and shall be construed and enforced in
accordance with, the laws of the State of Texas. Words of any gender used
in this Agreement shall be construed to include any other gender, unless
the context requires otherwise. The headings of the various sections of
this Agreement are intended for convenience of reference only and shall not
be used in construing the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:____________________________________
Carlton E. Turner, Ph.D., President
_______________________________________
Signature of Employee
_______________________________________
(Type or print name of Employee)
<PAGE>
13653 09645 CORP 119525 RECORD OF EXERCISE
DATE NO. OF SHARES EXERCISED INITIAL/AGREED
_____ ______________________ ______________
_____ ______________________ ______________
_____ ______________________ ______________
_____ ______________________ ______________
Exhibit 11.1
Computation of Net Income Per Common and Common Equivalent Share (unaudited)
(Dollar amount in 000's, except shares and per share amounts)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- ------ ------- -------
<S> <C> <C> <C> <C>
Net Income ($2,545) ($286) ($4,701) ($783)
Preferred Stock Dividend
Requirement -- (36) (34) (69)
Net Income for Computing
Income per Common Share ($2,545) ($322) ($4,735) ($852)
Average Common and Common
Equivalent Shares
Outstanding 8,804,567 7,884,046 8,735,367 7,621,712
Net Income per Common and
Common Equivalent Share ($0.29) ($0.04) ($0.54) ($0.11)
</TABLE>
(1) Common stock equivalents have been excluded since the effect on net
income per share of their inclusions would either be antidilutive or
represent dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4784
<SECURITIES> 0
<RECEIVABLES> 2429
<ALLOWANCES> 0
<INVENTORY> 3540
<CURRENT-ASSETS> 11044
<PP&E> 18854
<DEPRECIATION> 6615
<TOTAL-ASSETS> 25543
<CURRENT-LIABILITIES> 3318
<BONDS> 63
0
0
<COMMON> 88
<OTHER-SE> 22074
<TOTAL-LIABILITY-AND-EQUITY> 25543
<SALES> 10952
<TOTAL-REVENUES> 10952
<CGS> 6296
<TOTAL-COSTS> 9451
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (94)
<INCOME-PRETAX> (4701)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4701)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4701)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
