<PAGE>
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 March 31, 1996
------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
---------------------- -------------
Commission file number 0-11997
---------------------------------------------------
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
------------- ------------
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
---------- -----------
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.
8,771,017 shares of Common Stock, $.01 par value were outstanding at
May 10, 1996.
<PAGE>
INDEX
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1996 (unaudited) and December
31, 1995. 3, 4
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1996 and 1995 (unaudited). 5
Consolidated Statements of Cash Flows
for the three months ended March 31,
1996 and 1995 (unaudited). 6
Notes to Condensed Consolidated
Financial Statements (unaudited). 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 11-15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $8,054 $6,222
Accounts receivable, net 2,424 2,227
Inventories 4,482 5,104
Prepaid expenses and other 605 858
----------- -----------
Total Current Assets 15,565 14,411
----------- -----------
Property, plant and equipment, net 12,502 12,711
Other assets 949 812
----------- -----------
$29,016 $27,934
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current portion of long-term debt $ 3,020 $ 3,026
Accounts payable and accrued liabilities 3,082 2,420
---------- ------------
Total Current Liabilities 6,102 5,446
Long-term debt, net of current portion 87 89
Shareholders' Investment:
Preferred stock 0 1,167
Common stock 87 84
Capital in excess of par 48,449 44,666
Deficit (25,535) (23,344)
Foreign currency translation adjustment (174) (174)
---------- ------------
Total Shareholders' Investment 22,827 22,399
---------- ------------
$29,016 $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>
<CAPTION>
Three Months Ended March 31, 1996 1995
--------- ---------
<S> <C> <C>
NET SALES $5,514 $6,276
COST AND EXPENSES:
Cost of sales 2,930 1,639
Selling, General
and Administrative 2,830 3,576
Research and development 1,948 1,473
Interest, net (38) 69
--------- ---------
LOSS BEFORE INCOME TAXES (2,156) (481)
Provision for income taxes 0 16
--------- ---------
NET LOSS ($2,156) ($ 497)
========= =========
NET LOSS PER COMMON
EQUIVALENT SHARE ($ 0.25) ($ 0.07)
========= =========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES 8,666,167 7,359,377
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Carrington Laboratories, Inc., and Subsidiaries
Condensed Statements of Cash Flow (unaudited)
(Dollar amounts in 000's)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,156) ($ 497)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 323 327
Changes in assets and liabilities:
(Increase) decrease in receivables, net (197) 377
Decrease (increase) in inventories, net 622 (957)
Decrease in prepaid expenses and other 253 114
(Increase) decrease in other assets (148) 72
Increase in accounts payable and accrued 663 240
-------- --------
Net Cash Used By Operating Activities (640) (324)
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant & equipment, (104) (1,463)
-------- --------
Net Cash Used By Financing Activities (104) (1,463)
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock 2,585 167
Proceeds from borrowing 0 1,795
Debt payments (9) (50)
-------- --------
Net Cash Provided By Financing 2,576 1,912
======== ========
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,832 125
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,222 464
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $8,054 $ 589
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Cash paid during the period for interest $ 2 $ 56
Cash paid during the period for income $ 0 $ 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 March 31, 1996 and the
condensed consolidated statements of operations and cash flows for the
three month periods ended March 31, 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 March 31, 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 March 31, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
March 31, December 31,
(In 000's) 1996 1995
--------- ------------
<S> <C> <C>
Raw Materials and
Supplies $ 736 $ 583
Work-In-Process 2,653 2,726
Finished Goods 1,093 1,795
--------- ------------
Total Inventory $4,482 $5,104
========= ============
</TABLE>
Lower than forecasted sales of the Company's bulk Aloe vera products and
less than projected sales of the Company's wound and skin care products
during the latter half of 1995 through the first quarter of 1996 resulted
in higher than expected inventory levels as of December 31, 1995 and March
31, 1996. The Company regularly evaluates its inventory levels and adjusts
production levels at both its Costa Rica plant, where the bulk freeze-dried
aloe vera extract is manufactured, and at its U.S. plant to meet
anticipated demand. As a result of these evaluations, inventory reduction
programs were initiated in the latter part of 1995 and into 1996. As a
result of these programs, inventory levels were reduced by $622,000 during
the first quarter of 1996. These programs included reduced production at
the Company's manufacturing facility in Irving, Texas. The lowering of
production levels resulted in unabsorbed overhead costs totaling $484,000
that would have normally been capitalized into inventory. The unabsorbed
overhead was included in wound care cost of goods sold.
<PAGE>
Included in work-in-process is $2,385,000 and $2,538,000 of freeze-dried
aloe vera inventory as of March 31, 1996 and December 31, 1995,
respectively. Finished goods consist of materials, labor and manufacturing
overhead.
(3) Property, Plant and Equipment:
Net investment in property, plant and equipment as of March 31, 1996 and
December 31, 1995 was $12,502,000 and $12,711,000 respectively. Net
investment in property, plant and equipment in Costa Rica as of March 31,
1996 and December 31, 1995 was $4,084,000 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 products for 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."
(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, 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. As of
March 31, 1996, the Company was in discussions with the Bank to obtain a
long-term resolution to the non-compliance. 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 certificate of deposit (CD) to secure the
letter of credit as described below.
The line of credit agreement expired January 30, 1996. As of May 15, 1996,
the Company is working with the Bank to establish a new line of credit.
As an agreement has not yet been reduced to writing or signed by the parties,
there can be no assurance as to whether or when the Company will be able to
secure a new line of credit.
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. The funding of the letter
of credit reduced the amount that the Company could borrow under the term
loan but did not increase the Company's debt unless the letter of credit
was utilized by the supplier. As of May 14, 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
<PAGE>
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.
(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 expire 10 years
from the date of the grant. Options issued to a Director of the Company
are exercisable as of, and expire four years from, the grant date. As of
March 31, 1996, 687,750 options to purchase shares of common stock were
outstanding. Option prices on the outstanding shares range from $6.25 to
$35.25 per share. During the first quarter of 1996, options for 82,516
shares of common stock were exercised at a price of $6.25 to $29.00 per
share. Total proceeds to the Company on the exercise of these options was
$1,421,500.
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. During the first quarter of 1996,
warrants for 75,000 shares were exercised at prices ranging from $12.75 to
$18.75 per share. Total proceeds to the Company on the exercise of these
warrants was $1,039,000. As of March 31, 1996, warrants for 54,000 shares
were outstanding with exercise prices of $9.75 to $20.125 per share.
Warrants for 3,000 shares expire in 1996. The remaining warrants for 51,000
shares 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, 50,572 shares have been purchased by
employees at prices ranging from $7.23 to $29.54 per share through March
31, 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 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>
(6) Sales by Product Line
The following summarizes sales by product for the three month periods
ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In 000's) Wound
March 31, 1996 Care Consumer Veterinary Total
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sales, net $4,253 $1,195 $ 66 $5,514
Cost of Goods Sold 1,867 1,023 40 2,930
-------- -------- ---------- --------
Gross Margin $2,386 $ 172 $ 26 $2,584
======== ======== ========== ========
March 31, 1995
Sales, net $5,791 $ 424 $ 61 $6,276
Cost of Goods Sold 1,377 230 32 1,639
-------- -------- ---------- --------
Gross Margin $4,414 $ 194 $ 29 $4,637
======== ======== ========== ========
</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 March 31, 1996 and December 31, 1995, the Company held cash and cash
equivalents of $8,054,000 and $6,222,000, respectively. The increase in
cash of $1,832,000 from March 31, 1995 to March 31, 1996 was largely
attributable to the exercise of options and warrants (see Note 5 to the
consolidated financial statements) that resulted in an additional
$2,460,500 cash. The cash raised through the exercise of options and
warrants has been used for capital expenditures of $104,000, and to fund
ongoing research and development as well as continuing operations.
Lower than forecasted sales of the Company's bulk Aloe vera products and
less than projected sales in the Company's wound and skin care products
during the latter half of 1995 through the first quarter of 1996 resulted
in higher than expected inventory levels as of December 31, 1995 and March
31, 1996. The Company regularly evaluates its inventory levels and adjusts
production levels at both its Costa Rica plant, where the bulk freeze-dried
aloe vera extract is manufactured, and at its U.S. plant to meet
anticipated demand. As a result of these evaluations, inventory reduction
programs were initiated in the latter part of 1995 and through 1996. As a
result of these programs, inventory levels were reduced by $622,000 during
the first quarter of 1996. These programs included reduced production at
the Company s manufacturing facility in Irving, Texas. The lowering of
production levels resulted in unabsorbed overhead costs totaling $484,000
that would have normally been capitalized into inventory. The unabsorbed
overhead was included in wound care cost of goods sold.
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. As of
March 31, 1996, the Company was in discussions with the Bank to obtain a
long-term resolution to the non-compliance. 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 certificate of deposit (CD) to secure the
letter of credit as described below.
<PAGE>
The line of credit agreement expired January 30, 1996. As of May 15, 1996,
the Company is working with the Bank to establish a new line of credit.
As an agreement has not yet been reduced to writing or signed by the parties,
there can be no assurance as to whether or when the Company will be able to
secure a new line of credit.
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. The funding of the letter
of credit reduced the amount that the Company could borrow under the term
loan but did not increase the Company's debt unless the letter of credit
was utilized by the supplier. As of May 14, 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.
From January 1996 through March 1996, 41 employees exercised options for
82,516 shares of common stock. The option prices ranged from $6.25 to
$29.00 per share. A total of $1,421,500 was raised by the Company through
the exercise of these options. Warrants covering a total of 20,000 shares
were exercised at prices of $12.75 to $18.75 per share, resulting in the
Company's receipt of a total of $1,039,000.
The Company began a large scale clinical trial during the third quarter of
1995 for the testing of its Aliminase(TM) (formerly CARN 1000) oral capsules
for the treatment of acute flare-ups of ulcerative colitis. The Company
estimates that the cost of this clinical trial will be approximately
$2,000,000, of which 20% was required as an up-front payment. Payments
made in advance to the clinical research organization resulted in prepaid
expenses increasing. In late 1995, the Company began an initial Phase I
study using an injectable Alovex(TM) (formerly CARN 750) in cancer patients
involving six cancer types. The estimated cost of this study is $475,000.
In the second half 1996, the Company may begin a second large scale clinical
trial for the testing of Aliminase oral capsules for the treatment of
ulcerative colitis. The cost of this trial is expected to be approximately
the same as the one that began in the third quarter of 1995.
In November 1995, the Company signed a licensing agreement with a supplier
of calcium alginates and other wound care products. Under the agreement,
the Company has exclusive marketing rights for ten years to advanced
calcium alginate products for North and South America and in the People's
Republic of China. Pursuant to 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>
The Company has initiated a program to reduce expenses and the cost of
manufacturing thereby increasing the gross margin on existing sales. The
Company is also restructuring 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 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.
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 May 15, 1996,
the Company had no material capital commitments other than its promissory
notes, leases, agreements with suppliers and clinical trials.
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its results of operations.
First Quarter of 1996 Compared With First Quarter of 1995
Net sales were $5,514,000 in the first quarter of 1996, compared with
$6,276,000 in the first quarter of 1995. This decrease of $762,000, or
12.1%, resulted from a decrease of $1,481,000 in sales of the Company's
wound and skin care products from $5,824,000 to $4,253,000, or 27.0%. New
product lines introduced in late January accounted for $325,000 in wound and
skin care sales during the first quarter of 1996. The decrease in wound and
skin care sales was partially offset by a $771,000, or 182.1%, increase in
sales of Caraloe, Inc., the Company's consumer products subsidiary. Of
this increase, $675,000 is related to the sale of bulk Manapol(R).
<PAGE>
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. Hospital 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 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 currently
competes to a much larger segment of the billion dollar plus wound care
market. To achieve this objective, an aggressive program of new product
development and licensing was undertaken in 1995 with the goal 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 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 $424,000 to
$1,195,000, or 181.8%. Sales to Mannatech increased from $285,000 to
$1,103,000. Of this, $1,051,000 is related to the sale of bulk Manapol(R).
Sales of the Company's veterinary products increased from $61,000 to
$66,000. 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 $1,639,000 to $2,930,000, or 78.8%. As a
percentage of sales, cost of sales increased from 26.1% to 53.1%. This
increase is largely attributable to the increased sales of bulk Manapol(R),
which has a substantially lower profit margin, 8%, as compared to the
Company's wound and skin care products. Additionally, all of the new
products introduced in the first quarter 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 discussed earlier, also
included in cost of goods sold is $484,000 of unabsorbed overhead resulting
from programs to reduce inventory levels. Also, the increased discounts
and lowering of prices, as discussed earlier, resulted in the Company's
wound and skin care product costs increasing by approximately 4.9% as a
percentage of sales.
<PAGE>
Selling, general and administrative expenses decreased to $2,830,000 from
$3,576,000, or 20.9%. This decrease was attributable to approximately
$700,000 in one-time charges in the first quarter of 1995. In the first
quarter of 1996, decreased sales resulted in lower distribution costs to
the Company. This was partially offset as the Company incurred
approximately $150,000 in additional costs related to the cost of launching
three new product lines.
Research and development (R&D) expenses increased to $1,948,000 from
$1,472,000, or 32.3%. 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 quarter of 1996 as
well. These costs were partially offset by a reduction of internal
salaries.
Net interest income of $36,000 was realized in the first quarter of 1996
versus net interest costs of $68,000 in the first quarter of 1995, due to
having more excess cash to invest.
<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 action,
unspecified "exemplary and punitive damages" on three of the eight alleged
causes of action, unspecified "double damages" on one of the alleged causes
of action, unspecified "treble damages" on one of the alleged causes of
action, interest and costs on all eight alleged causes of action, and
unspecified attorney's fees on three of such alleged causes of action. The
Company intends to vigorously defend the lawsuit.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
-----------
10.1 Distribution agreement between Carrington Laboratories, Inc.
and Ching Hwa Pharmaceutical Co., Ltd.
10.2 Fourth Amendment to Credit Agreement and Term Note between
Carrington Laboratories, Inc. and NationsBank of Texas, N.A.
10.3 Assignment of Certificate of Deposit to NationsBank of
Texas, N.A.
10.4 Release of Liens agreement between Carrington Laboratories,
Inc. and NationsBank of Texas, N.A.
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 March 31, 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: May 12, 1996 By:
-------------- ------------------------
Carlton E. Turner,
President
Date: May 12, 1996 By:
-------------- ------------------------
Sheri L. Pantermuehl,
Chief Financial Officer
<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: May 12, 1996 By: /s/ Carlton E. Turner
-------------- -------------------------
Carlton E. Turner,
President
Date: May 12, 1996 By: /s/ Sheri L. Pantermuehl
-------------- -------------------------
Sheri L. Pantermuehl,
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
-------- ------- --------------
10.1 Distribution agreement between
Carrington Laboratories, Inc. and
Ching Hwa Pharmaceutical Co., Ltd.
10.2 Fourth Amendment to Credit Agreement
and Term Note between Carrington
Laboratories, Inc. and NationsBank of
Texas, N.A.
10.3 Assignment of Certificate of Deposit
to NationsBank of Texas, N.A.
10.4 Release of Liens agreement between
Carrington Laboratories, Inc. and
NationsBank of Texas, N.A.
11.1 Computation of Net Loss Per Common
and Common Equivalent Share.
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 8054
<SECURITIES> 0
<RECEIVABLES> 2424
<ALLOWANCES> 0
<INVENTORY> 4482
<CURRENT-ASSETS> 15565
<PP&E> 19037
<DEPRECIATION> 6534
<TOTAL-ASSETS> 29016
<CURRENT-LIABILITIES> 4125
<BONDS> 2063
0
0
<COMMON> 87
<OTHER-SE> 22828
<TOTAL-LIABILITY-AND-EQUITY> 29016
<SALES> 5514
<TOTAL-REVENUES> 5514
<CGS> 2931
<TOTAL-COSTS> 4777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (2194)
<INTEREST-EXPENSE> (38)
<INCOME-PRETAX> (2156)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2156)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
Exhibit 10.1
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT (this "Agreement") is made this 1st day of
March, 1996 by and between Carrington Laboratories, Inc., a Texas
Corporation ("Manufacturer") and Ching Hwa Pharmaceutical Co., Ltd. a
Taiwan Corporation ("Distributor").
WHEREAS, Manufacturer is the manufacturer of dental, wound care and other
products which it wishes to sell World wide.
WHEREAS, Distributor desires to engage in the direct marketing, sale,
delivery and follow-up service of these products which it wishes to sell in
Taiwan, R.O.C. and its island possessions and territories as a distributor
of Manufacturer.
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter set forth, Manufacturer and Distributor agree as
follows:
1. Appointment
a. Manufacturer appoints Distributor as its exclusive distributor
during the Term (as defined herein) for the marketing, sale and delivery
within the Territory (as defined below) of the products listed in Exhibit
A, as modified from the time to time by mutual agreement of the parties
(hereinafter the "Product") to customers located in the Territory.
b. Distributor shall refrain from seeking customers, or from
establishing a branch or maintaining a distribution depot for the purpose
of the sale of the Product, outside the Territory without the prior written
consent of Manufacturer. Manufacturer shall refrain, and shall exercise
its best efforts to ensure that its other distributors shall refrain, from
seeking customers within the Territory, or from establishing a branch or
maintaining a distribution depot within the Territory, for the purpose of
the sale of the Product.
c. The Territory means Taiwan, R.O.C. its possessions and territories.
d. Distributor shall have the right to designate independent sub-
distributors for the sale of the Product in the Territory. Distributor
shall inform Manufacturer of such designations and, at least semi-annually,
of the current activities of such designations. Distributor shall use its
best efforts to cause any sub-distributor to comply with the terms of
Section 11 of this Agreement (relating to Confidential Information).
2. Term
The term of this Agreement (the "Term") shall commence on the effective
date of this Agreement and shall expire on the fifth anniversary date
thereof, unless sooner terminated as provided in Section 14, or unless the
parties agree to an earlier termination in writing. The parties may agree
in writing to renew this Agreement for successive one year periods by the
execution of an agreement to that effect at least six weeks prior to the
expiration of the then-current Term.
<PAGE>
3. Duties of Distributor
a. Distributor shall use its best efforts to sell and distribute the
Product and to establish markets and organizations for the sale, service
and distribution of the Product within the Territory. To this end,
Distributor will maintain a suitable place of business and a suitable
storage facility within the Territory, hire and train an reasonable number
of competent personnel to market, distribute and sell the Product, maintain
an reasonable inventory of the Product for the prompt filling of customer
orders, maintain good customer relations, provide prompt delivery and
service of the Product, and perform any and all acts reasonably necessary
or desirable to fulfill its obligations hereunder.
b. Distributor will be responsible for providing sales and educational
assistance to its customers within the Territory. Distributor will act as
liaison with its customers to handle all issues concerning returns,
allowances, quality control, shipping delays and other customer complaints;
provided, however, that in providing such liaison service Distributor will
have no authority to commit or bind Manufacturer in any manner without
Manufacturer's prior approval.
4. Purchases, Prices and Terms of Payment
a. Distributor shall place orders for the Product during the Term in
such quantities and at such times as Distributor requires. Distributor
shall purchase and resell the Product for its own account. The current
purchase price for individual items included in the Product is set forth on
Exhibit B hereto, but Manufacturer has the right to change the purchase
price from time to time in its sole discretion upon at least 90 days
advance written notice to Distributor, and so long as the price charged the
Distributor is no greater than the price charged other distributors of the
Manufacturer.
b. All orders submitted to Manufacturer by Distributor for the purchase
of the Product shall be submitted using Distributor's standard order form.
Any terms and conditions contained in any orders for the Product that
conflict with the terms of this Agreement shall be of no force and effect
unless the parties specifically agree to the new term in writing.
Manufacturer shall retain stock on hand sufficient to supply Product on a
timely basis and shall ship all ordered Product within ten days of the
receipt of the order.
c. Distributor will pay Manufacturer for all Product by Document Against
Acceptance ("DA") within 60 days of despatch of such product to Distributor
by Manufacturer. Distributor's failure to timely pay such invoices shall
render Distributor in default under this Agreement.
d. All payments to be made to Manufacturer under this Agreement shall be
made in U.S. Dollars. Distributor may offset against any payments due
Manufacturer any amounts Manufacturer may owe Distributor, including, but
not limited to, replacement of damaged or defective goods, overcharges, and
warranty claims.
e. Distributor shall be responsible for negotiating the delivery terms
and making all arrangements with the necessary common carriers for the
shipment of the Product from its facility in Dallas, Texas to purchasers of
the Product.
<PAGE>
5. Risk of Loss; Insurance
The Manufacturer shall bear the risk of loss, deterioration and damage and
shall be responsible for insuring against such loss, deterioration and
damage of the Product until passage of title to the Product to
Distributor's customer.
6. Promotional Materials; Technical Assistance
a. Manufacturer agrees, at its own cost, to make technical and
promotional information available to Distributor as it becomes available or
is revised and to assist in Distributor's marketing efforts. Manufacturer
also authorizes Distributor to provide all such promotional materials to
its customers in the Territory, provided the translation of such materials
into Chinese does not change the content of the promotional materials.
Manufacturer additionally agrees that Distributor may send a representative
to all sales representatives' meetings held by Manufacturer and that it
will provide Distributor with all information concerning the Product which
Manufacturer provides to its sales representatives.
b. Distributor may use, display, and publish any advertising or
promotional material that it may prepare for the market within the
Territory with respect to the Product without the prior approval thereof in
writing by Manufacturer, provided that Manufacturer shall have the right to
object to any representations about the content, performance or qualities
of the Product which are not in accordance with its labeling or which have
not been previously approved in writing by Manufacturer.
7. Production
To enable Manufacturer to anticipate the quantity of Product to be shipped
to Distributor, prior to the end of each calendar year, Distributor shall
submit to Manufacturer a forecast of the purchases of the Product for the
following calendar year. No later than twenty (20) days before the end of
each quarter, Distributor shall submit to Manufacturer the adjusted
forecast of the purchase orders for the Product for the following quarter.
8. Governmental Specifications
a. Each shipment of the Product shall meet all applicable governmental
specifications. Manufacturer agrees that if it is informed by Distributor
that special packaging and/or labeling is required under the laws of the
Territory, Manufacturer will provide and adhere any special labeling and/or
packaging for the Product to be shipped to the Territory and resold by
Distributor, as may be required by applicable law of the Territory.
b. Distributor shall be responsible for obtaining the necessary
approvals for the importation of the Product into the Territory and any
approvals and certificates necessary to sell the Product in the Territory.
9. Relationship of Parties
Notwithstanding any other language used herein, this Agreement does not in
any way create the relationship of joint venture, partnership, or principal
and agent between Manufacturer and Distributor. Distributor is an
independent contractor, and as such, shall not act or attempt to act, or
represent itself, director or by implication, as agent for Manufacturer or
its affiliates or in any manner assume or create any obligation on behalf
<PAGE>
of or in the name of Manufacturer or its affiliates or, otherwise bind
Manufacturer or its affiliates in any manner other than specifically
authorized herein. Distributor shall not act or represent itself as an
affiliate of any other distributor of Manufacturer. Distributor has no
power to and shall not pledge the credit of Manufacturer or its affiliates.
Distributor shall represent itself only as an independent contractor who
has been appointed as a person or firm from whom the Product may be
obtained for resale.
10. Expenses
Distributor shall be solely responsible for all expenses incurred by it in
the operation of its sales efforts pursuant to this Agreement, except as
otherwise specifically provided herein.
11. Confidential Information
Distributor acknowledges that in the course of performing this Agreement,
it may acquire and develop knowledge, information, and materials concerning
the Product which are or may be trade secrets, and confidential and
proprietary information of Manufacturer (hereinafter "Confidential
Information"). Distributor shall hold such Confidential Information in
strict confidence and, unless such Confidential Information is or has
fallen into the public domain through no fault of Distributor, its agents,
affiliates or employees, Distributor shall not disclose it to any person or
entity other than Manufacturer, or use it in any way, or permit others to
use it in any way, commercially or otherwise, except as provided in this
Agreement, and shall not allow unauthorized persons access to it, without
the prior written consent of Manufacturer. This section shall survive the
termination of expiration of this Agreement.
12. Termination of Agreement
a. Manufacturer may terminate this Agreement (i) if Distributor fails to
pay Manufacturer in accordance with Section 4, (ii) if Manufacturer is
unable to deliver, at a price acceptable to Manufacturer and Distributor,
Product meeting specifications mandated by any appropriate governmental
authority after the date hereof, (iii) if Distributor uses or discloses
Confidential Information in violation of Section 11. Termination shall
become effective ninety (90) days after receipt by Distributor of written
notice of termination from Manufacturer.
b. Either party terminate this Agreement effective upon written notice
of termination to the other party in any of the following events:
(i) the other party materially breaches this Agreement and such breach
remains uncured for sixty (60) days following the terminating party's
sending its initial written notice of the Breach.
(ii) A petition for relief in bankruptcy is filled by or against the
other party or the other party is otherwise insolvent. In the event of
Manufacturer's insolvency or bankruptcy, Distributor's exclusive rights
hereunder shall continue notwithstanding any other assignment of
Manufacturer's rights. If any applicable court governing Manufacturer's
bankruptcy or insolvency shall set this contract aside, Distributor shall
have the right of first refusal to acquire Manufacturer's rights from
Manufacturer's estate, subject to any bankruptcy court's approval.
<PAGE>
c. Distributor shall upon termination of this Agreement be allowed to
fulfill orders which it has received prior to the effective date of
termination and Manufacturer agrees to supply Distributor, on the terms of
this Agreement, with any Products required to fulfill such orders.
d. Distributor shall be allowed to sell in the Territory and Product
which it has received from Manufacturer before or after the effective date
of termination. Manufacturer shall have the right to repurchase, at the
purchase price payable by Distributor to Manufacturer plus any shipping
costs, any such Products for which a binding contract for resale has not
been entered into as of the effective date of termination of this
Agreement.
13. Assignment
This contract and any rights hereunder are transferable or assignable in
whole or in part by Distributor.
14. Licenses
a. Manufacturer hereby grants to Distributor an exclusive royalty-free
license to sell the Product in the Territory under the patents, trademarks,
copyrights and applications therefor applicable to the Product set forth on
Exhibit D hereto. Distributor hereby agrees to use the patents, copyrights
and trademarks, but only in connection with the sale and marketing of the
Product. Distributor acknowledges and agrees that Manufacturer is the sole
owner of such patents, copyrights, and trademarks.
b. Manufacturer agrees to defend, hold harmless and indemnify
Distributor with respect to any and all claims asserted to or instituted
against Distributor alleging that any of the Products sold pursuant to this
Agreement infringes any letters patent, trademarks or copyrights.
Distributor shall promptly notify Manufacturer of any claims and shall
cooperate fully with Manufacturer in the defense of such claims.
15. Warranties
All Products sold to Distributor by Manufacturer shall be subject to the
standard warranty issued by Manufacturer for such Products. Manufacturer
also warrants to Distributor that all the Products sold hereunder will be
fit for use as directed on any label approved by Manufacturer and that the
Product will perform as described in the instructions and other information
published about the Product by Manufacturer.
Manufacturer hereby represents and warrants to Distributor that
Manufacturer is, to Manufacturer's knowledge, the sole and exclusive owner
of the Product, that Manufacturer has, to Manufacturer's knowledge, the
right to grant the license set forth in Section 14 above and other rights
to Distributor hereunder to sell the Product, and that the Product does
not, to Manufacturer's knowledge, infringe the rights in any patents,
copyrights, trademarks, trade secrets, rights in confidential information,
or licenses held by other parties, and the Product will, to Manufacturer's
knowledge, perform as described in the instructions and other information
published about the Product by Manufacturer.
Distributor shall not grant any warranties to its customers in excess of
the warranties granted to Distributor hereunder.
<PAGE>
16. Litigation
a. This Agreement shall in all respects be subject to and construed in
accordance with the laws of the State of Texas, without reference to its
choice of law provisions.
b. The parties hereby submit themselves to the jurisdiction of the State
and Federal courts located within Dallas County, Texas in the event of any
suit arising under or in connection with this Agreement or any provision
hereof. The obligations and undertakings of each of the parties to the
Agreement shall be performable in Dallas County, Texas.
c. Each party agrees that it will not seek removal (other than removal
from state court to federal court within Dallas County) of any suit brought
in the State or Federal courts located within Dallas County, Texas, and
arising under or in connection with this Agreement or any provision hereof
for any reason, including but not limited to forum non conveniens.
d. Manufacturer hereby appoints as its duly authorized agent and attorney
in fact for the purpose of accepting service for the Manufacturer or being
served with citation in any suit brought against it by the Distributor in
any court in Dallas, County, Texas. The service of any civil process upon
this agent in any suit or proceeding by the Distributor shall be taken and
held to be valid.
17. Controlling Language
The English language version of this Agreement shall be the controlling
version irrespective of subsequent translations and reliance by any party
upon such translations. In the event of any dispute between the parties,
the English language version of the Agreement shall be used to resolve the
dispute.
18. Miscellaneous
a. Entire Agreement; Modifications; Waivers. This Agreement sets forth
the entire understanding between the parties hereto and supersedes all
prior understandings in connection therewith. No modification or
alteration shall be binding unless executed in writing by the parties. No
waiver or any provision of this Agreement shall be deemed or construed a
waiver of any other provisions hereof whether or not similar nor shall a
waiver be construed a continuing waiver unless expressly so started.
b. Corporate Authority. The person executing this Agreement covenants
and warrants that he has the right, power, legal capacity and appropriate
authority, corporate or otherwise, to enter into this Agreement on behalf
of the entity for which he signs below.
c. Notices. All notices, requests, consents and other communications
to any party hereunder shall be in writing (including, without limitation,
telex, telefax or similar writing) and shall be given:
<PAGE>
If to Distributor: with a copy, which shall not constitute notice, to:
ATTN: ATTN:
----------------------- -------------------------
----------------------- -------------------------
----------------------- -------------------------
----------------------- -------------------------
If to Manufacturer: with a copy, which shall not constitute notice, to:
ATTN: ATTN:
Christopher S. Record -------------------------
Carrington Laboratories, Inc. -------------------------
2001 Walnut Hill Lane -------------------------
Irving, Texas 75038 -------------------------
(214) 518-1300 -------------------------
or such other address, telex or telefax number as such party may hereafter
specify by notice to the other parties. Each such notice, request or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the
appropriate answer back is received, (ii) if given by telefax, when such
telefax is transmitted to the facsimile number specified in this Section
and written confirmation of receipt is received by the sender (unless the
recipient is able to demonstrate that such telefax was illegible) or (iii)
if given by any other means, when delivered at the address specified in
this Section 18(c).
d. Remedies No Exclusive. Any remedy conferred by any of the specific
provisions of this Agreement is not intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise. The election of any one or
more remedies by either party shall not constitute a waiver of the right to
pursue other available remedies.
<PAGE>
e. Counterparts. The Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
f. Captions and Paragraph Headings. Captions and paragraph headings
used herein are for convenience only and are not a part of this Agreement
and shall not be used in construing it.
g. Parties Bound. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representative, transferees, successors and to the
extent permitted, assigns.
h. Severability. If any provision of this Agreement shall be held to
contravene or be invalid under the laws of any county in which this
Agreement shall be performed or enforced, then such provision shall be
severable and the remaining provisions of this Agreement shall be valid and
enforceable as if not containing the provision held to contravene or be
invalid, and the rights and obligations of the parties shall be construed
and enforced accordingly.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
MANUFACTURER:
By:
Its:
DISTRIBUTOR:
By:
Its:
<PAGE>
EXHIBIT A
CARRINGTON ORAL CARE PATCH
This Exhibit shall be amended from time to time upon the mutual
agreement of the parties hereto to include those products with approved
registrations in Taiwan.
Once a Carrington product is agreed upon for registration, Distributor
shall use reasonable best efforts to successfully complete the registration
within one year from the date all necessary documentation is received by
Distributor. If registration is not approved for the selected product
within that time period then the parties will review the efforts to
register the product and mutually decide to continue the process or release
the products from this Exhibit.
<PAGE>
EXHIBIT B
This Exhibit shall be amended from time to time upon the mutual agreement
of the parties hereto to include additional products and the agreed upon
prices thereto for a twelve month period. At the end of each twelve month
period the parties shall review the prices and minimum sales to maintain
exclusivity of each product and agree upon the price minimums for each for
the next twelve month period.
Exhibit 10.2
FOURTH AMENDMENT TO CREDIT AGREEMENT AND TERM NOTE
This Fourth Amendment to Credit Agreement and Term Notes (this
"Amendment") is executed as of May 1, 1996, by and between Carrington
Laboratories, Inc. ("Borrower") and NationsBank of Texas, N.A. ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower and Lender entered into that certain Credit
Agreement, dated as of January 30, 1995, as amended by that certain First
Amendment to Credit Agreement (the "First Amendment") dated as of February
28, 1995 between Lender and Borrower, and as further amended on July 17,
1995, and August 18, 1995 (as amended, the "Credit Agreement") (each
capitalized term not expressly defined herein shall have the meaning given
to such term in the Credit Agreement); and
WHEREAS, as provided in the Credit Agreement, Lender purchased that
certain Promissory Note dated May 5, 1985, in the original principal amount
of $2,350,000.00, executed by E. Don Lovelace and Jerry L. Lovelace and
payable to the order of Resource Savings Association and assigned to
Chemical Bank pursuant to that certain Assignment of Deed of Trust and
Promissory Note dated June 1, 1992, recorded in Volume 93181, Page 3495, of
the Deed of Trust Records of Dallas County, Texas (the "Original Chemical
Note"); and
WHEREAS, in order to reflect the terms of the Credit Agreement, the
Original Chemical Note was amended and restated by that certain Amended and
Restated Term Note dated February 16, 1995 in the original principal amount
of One Million Eight Hundred Twenty-Seven Thousand Seventy-Three and 08/100
Dollars ($1,827,073.08) executed by Borrower and payable to the order of
Lender (the "First NationsBank Note"); and
WHEREAS, in connection with the First Amendment, the First NationsBank
Note was amended and restated by that certain Second Amendment and
Restatement of Term Note dated as of February 16, 1995 in the original
principal amount of One Million Eight Hundred Twenty-Seven Thousand
Seventy-Three and 08/100 Dollars ($1,827,073.08) executed by Borrower and
payable to the order of Lender (the "Second NationsBank Note") (the
Original Chemical Note, as amended and restated by the First NationsBank
Note and the Second NationsBank Note, is referred to herein as the "First
Term Note"); and
WHEREAS, also pursuant to the terms of the Credit Agreement, Borrower
executed and delivered to Lender that certain Term Note dated February 16,
1995 in the original principal amount of Four Million Four Hundred Seventy-
Two Thousand Nine Hundred Twenty-Six and 92/100 Dollars ($4,472,926.92)
executed by Borrower and payable to the order of Lender (the "Original
Second Term Note"); and
<PAGE>
WHEREAS, in connection with the First Amendment, the Original Second
Term Note was amended and restated by that certain Amended and Restated
Term Note dated February 16, 1995 in the original principal amount of Four
Million Four Hundred Seventy-Two Thousand Nine Hundred Twenty-Six and
92/100 Dollars ($4,472,926.92) executed by Borrower and payable to the
order of Lender (the "Amended Second Term Note") (the Original Second Term
Note, as amended and restated by the Amended Second Term Note is referred
to herein as the "Second Term Note"; and, the loans evidenced by the First
Term Note and the Second Term Note are collectively referred to herein as
the "Term Loan"); and
WHEREAS, under the Second Term Note Borrower obtained advances in an
aggregate amount equal to One Million One Hundred Fifty Thousand and No/100
Dollars ($1,150,000.00); and Lender has issued on behalf of Borrower a
letter of credit (the "Letter of Credit") in the amount of One Million Five
Hundred Thousand and No/100 Dollars ($1,500,000.00) for which Lender has
reserved funds under the Second Term Note from which Lender will advance
any amounts which Lender is required to fund under the Letter of Credit.
Other than the Letter of Credit, Lender has no further obligation or
commitment to make funds available to Borrower under the Loans; and
WHEREAS, pursuant to Section 9.1 of the Credit Agreement, Borrower
covenanted and agreed not to permit the ratio of (i) the sum of (A) Pretax
Net Income plus (B) Interest Expense plus Lease Expense, to (ii) Fixed
Charges to be less than 1.75 to 1.00 at any time (the "Fixed Charge Ratio
Covenant"); and
WHEREAS, Borrower was not in compliance with the Fixed Charge Ratio
Covenant as of November 30, 1995 and December 31, 1995; and
WHEREAS, Borrower has requested that Lender (i) remove certain
financial covenants from the Credit Agreement (including, without
limitation, the Fixed Charge Ratio Covenant), (ii) reduce the rate of
interest charged on the Term Loan, and (iii) reduce the fee currently paid
by Borrower to Lender in connection with the maintenance of the Letter of
Credit; and
WHEREAS, subject to the terms and conditions contained herein,
including, without limitation, the payment by Borrower to Lender of an
amount sufficient to pay off the First Term Note, and pay the outstanding
principal balance of the Second Term Note down to zero, with the only
existing obligation under the Term Loan being the obligation of Borrower to
repay any amounts funded by Lender under the Letter of Credit, Lender has
agreed to such requests.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are all hereby
acknowledged, Borrower and Lender hereby covenant and agree as follows:
<PAGE>
ARTICLE I
Amendments
Section 1.01. Definitions. Article I of the Credit Agreement is
amended to add the following definitions:
Certificate of Deposit means the Initial Certificate of Deposit and
any and all certificates of deposit given in renewal, replacement or
substitution thereof from time to time pursuant to the terms of the Credit
Agreement.
Fixed Rate means the per annum interest rate in effect with respect to
the Term Loan, which shall be equal to one percent (1%) plus the rate of
interest earned by Borrower on the Certificate of Deposit securing the Term
Loan, such Fixed Rate to change as and when a new Certificate of Deposit
satisfactory to Lender is given in replacement or substitution of an
existing Certificate of Deposit; provided that if no Certificate of Deposit
is securing the Term Loan at any particular time, the last Fixed Rate then
in effect shall continue in effect until a new Certificate of Deposit is
obtained by Borrower and pledged to Lender as required by this Credit
Agreement.
Initial Certificate of Deposit means that certain certificate of
deposit number 428059, in the face amount of One Million Five Hundred
Thousand and No/100 Dollars ($1,500,000.00) issued by Lender to Borrower.
Letter of Credit Fee means a fee in the amount of one half of one
percent (.5%) of the amount of the commitment of Lender under the Letter of
Credit (as that term is defined in the Fourth Amendment (hereinafter
defined)), per year, payable quarterly as provided in the Fourth Amendment
to Credit Agreement and Term Note, dated May 1, 1996, executed by Borrower
and Lender (the "Fourth Amendment")
Section 1.02. Term Loan Interest Rate. Section 3.4 of the Credit
Agreement is modified and amended in its entirety as follows:
Section 3.4. Interest Rate. Interest shall accrue on the outstanding
principal balance of the Term Loan prior to the occurrence of an Event of
Default at a rate per annum equal to the lesser of (a) the Fixed Rate (the
"Applicable Term Rate"), or (b) the Maximum Lawful Rate; provided, however,
if at any time the Applicable Term Rate exceeds the Maximum Lawful Rate,
resulting in the charging of interest hereunder to be limited to the
Maximum Lawful Rate, then any subsequent reduction in the Applicable Term
Rate shall not reduce the rate of interest below the Maximum Lawful Rate
until the total amount of interest accrued on the Term Loan equals the
amount of interest which would have accrued on such indebtedness if the
Applicable Term Rate had at all times been in effect.
Section 1.03. Term Loan Principal and Interest Payments. Section
3.5 of the Credit Agreement is modified and amended in its entirety as
follows:
<PAGE>
Section 3.5. Principal and Interest Payments. Commencing on June 1,
1996, and continuing on the first day of each calendar month thereafter
through and including the Term Loan Termination Date, Borrower shall pay
Lender all accrued but unpaid interest owing with respect to the Second
Term Note (as that term is defined in the Fourth Amendment). The
outstanding principal balance of, and all accrued but unpaid interest on,
the Second Term Note shall be due and payable in full on the Term Loan
Termination Date. From and after the effective date of the Fourth
Amendment, the only obligation remaining under the Loans shall be the
obligation of Borrower to repay any amounts advanced by Lender under the
Letter of Credit.
Section 1.04. Financial Covenants. Section 9.1 of the Credit
Agreement is hereby deleted in its entirety.
Section 1.05. Amendment to Second Term Note. Section 1(b) of the
Second Term Note is modified and amended in its entirety as follows:
(b) Accrual of Interest. Prior to the occurrence of an Event of
Default, interest on this Term Note shall accrue at a rate per annum equal
to the lesser of (1) the Fixed Rate (the "Applicable Term Rate"), or (2)
the Maximum Lawful Rate; provided, however, if at any time the Applicable
Term Rate exceeds the Maximum Lawful Rate, resulting in the charging of
interest hereunder to be limited to the Maximum Lawful Rate, then any
subsequent reduction in the Applicable Term Rate shall not reduce the rate
of interest below the Maximum Lawful Rate until the total amount of
interest accrued on the indebtedness evidenced hereby equals the amount of
interest which would have accrued on such indebtedness if the Applicable
Term Rate had at all times been in effect. Interest on this Term Note
shall be calculated at a daily rate equal to 1/360 of the annual percentage
rate which this Term Note bears, subject to the provisions hereof limiting
interest to the Maximum Lawful Rate. Without notice to Maker or any other
Person, the Maximum Lawful Rate shall automatically fluctuate upward and
downward, subject always to limitations
contained in this Term Note.
Section 1.06. Additional Security. In consideration for Lender's
agreement to delete the financial covenants as provided in Section 1.04
above and reduce the interest rate as herein provided, Borrower has agreed
to grant to Lender, as additional security for the Obligations (including,
without limitation, as security for the obligations of Lender under the
Letter of Credit), a security interest in a Certificate of Deposit to be
purchased by Borrower from a financial institution acceptable to Lender in
<PAGE>
its sole and absolute discretion, together with all proceeds and
replacements thereof. To initially satisfy such agreement, Borrower has
elected to purchase the Initial Certificate of Deposit and pledge the same
to Lender. Borrower agrees to execute and deliver such security documents
as are requested by Lender to evidence and perfect Lender's interest in the
Certificate of Deposit (the "Additional Security Agreement"). Prior to a
Default, Borrower shall be entitled to substitute for the Initial
Certificate of Deposit, a new Certificate of Deposit in form acceptable to
Lender; provided, that, in no event shall Lender be required to release an
existing Certificate of Deposit, or the proceeds thereof, until such time
that Lender has received any and all documents, certificates and agreements
required by Lender to evidence and perfect its interest in the replacement
Certificate of Deposit (including, without limitation, a consent and
bailment agreement from the financial institution (if other than Lender)
issuing a replacement Certificate of Deposit).
Section 1.07 Letter of Credit Fee. In consideration for
Borrower's agreement to modify the Credit Agreement as herein provided,
Lender has agreed to reduce the fee currently paid by Borrower to Lender
for the maintenance of the Letter of Credit and Borrower has agreed to pay
the Letter of Credit Fee. The Letter of Credit Fee shall be payable in
equal consecutive quarterly installments commencing on June 30, 1996, and
continuing on the last day of each March, June, September and December
thereafter, with a final pro-rated installment being due and payable on the
Term Loan Termination Date.
Section 1.08 Release of Collateral. In consideration for the
payment in full by Borrower of the Loans (except for obligations related to
the Letter of Credit) and the other agreements contained in this Amendment,
Lender has agreed to release all of the collateral securing the Loans,
except for the Certificate of Deposit which is being assigned to Lender by
Borrower in connection with the transactions contemplated by this
Amendment. Lender shall execute all releases of liens, UCC termination
statements and such other documents and releases as shall be necessary to
evidence and place of record such release.
Section 1.09. Definition of Loan Documents. The term "Loan
Documents", as defined in the Credit Agreement and as used in the Credit
Agreement, the other Loan Documents and herein, shall be, and hereby is,
modified to include this Amendment, the Additional Security Agreement and
any and all other documents executed in connection with this Amendment.
All references to the term "Loan Documents" contained in the Credit
Agreement and the other Loan Documents are hereby modified and amended
wherever necessary to reflect such modification of such term.
<PAGE>
ARTICLE II
Miscellaneous
Section 2.01. Payment of Expenses. Borrower agrees to pay to
Lender, upon demand, one-half of the reasonable attorneys' fees and
expenses of Lender's counsel and other reasonable expenses incurred by
Lender in connection with this Amendment.
Section 2.02. Conditions to Closing. As conditions precedent to
the execution of this Amendment by Lender, all of the following shall have
been satisfied:
(a) Borrower and Guarantors shall have executed and delivered
to Lender this Amendment;
(b) Borrower shall have executed and delivered to Lender the
Additional Security Agreement;
(c) Borrower shall have paid to Lender cash or other
immediately available funds equal to the sum of Two Million Nine Hundred
Ninety-Five Thousand Five Hundred Thirty-Nine and 20/100 Dollars
($2,995,539.20), which constitutes an amount sufficient to pay off the
outstanding principal balance and to pay all accrued but unpaid interest
owing with respect to the funded portion of the Term Loan as of the date
hereof; and
(d) Borrower and Guarantors shall have delivered to Lender all
resolutions, certificates or documents as Lender may request relating to
the existence of Borrower and Guarantors, the corporate authority for the
execution and delivery of this Amendment, the Additional Security
Agreement, and all other documents, instruments and agreements and any
other matters relevant hereto or thereto, all in form and substance
satisfactory to Lender.
<PAGE>
Section 2.03 Usury Savings Clause. Notwithstanding anything to
the contrary in this Amendment, the Credit Agreement or any other Loan
Document, or in any other agreement entered into in connection with the
Credit Agreement or securing the indebtedness evidenced by the Notes,
whether now existing or hereafter arising and whether written or oral, it
is agreed that the aggregate of all interest and other charges constituting
interest, or adjudicated as constituting interest, and contracted for,
chargeable or receivable under the Notes or otherwise in connection with
the Notes shall under no circumstances exceed the maximum rate of interest
permitted by applicable law. In the event the maturity of the Notes is
accelerated by reason of an election by the holder thereof resulting from a
default thereunder or under any other document executed as security
therefor or in connection therewith, or by voluntary prepayment by the
Borrower, or otherwise, then earned interest may never include more than
the maximum rate of interest permitted by applicable law. If, from any
circumstance, any holder of the Notes shall ever receive interest or any
other charges constituting interest, or adjudicated as constituting
interest, the amount, if any, which would exceed the maximum rate of
interest permitted by applicable law shall be applied to the reduction of
the principal amount owing on such Notes or on account of any other
principal indebtedness of the Borrower to the holder of such Notes, and not
to the payment of interest, or if such excessive interest exceeds the
unpaid balance of principal thereof and such other indebtedness, the amount
of such excessive interest that exceeds the unpaid balance of principal
thereof and such other indebtedness shall be refunded to the Borrower. All
sums paid or agreed to be paid to the holder of the Notes for the use,
forbearance or detention of the indebtedness of the Borrower to the holder
of such Notes shall be amortized, prorated, allocated and spread throughout
the full term of such indebtedness until payment in full for the purpose of
determining the actual rate on such indebtedness is uniform throughout the
term thereof.
Section 2.04. Binding Agreement. This Amendment shall be binding
upon, and shall inure to the benefit of, the parties' respective heirs,
representatives, successors and assigns.
Section 2.05. Waiver of Fixed Charge Covenant Noncompliance;
Nonwaiver of Other Events of Default. The deletion of Section 9.1 of the
Credit Agreement by Section 1.04 of this Amendment shall constitute a
waiver by Lender of Borrower's noncompliance with the Fixed Charge Ratio
Covenant as it was in effect prior to the execution of this Amendment.
Except as provided in the preceding sentence, neither this Amendment nor
any other document executed in connection herewith constitutes or shall be
deemed (a) a waiver of, or consent by Lender to, any default or event of
default which may exist or hereafter occur under any of the Loan Documents,
(b) a waiver by Lender of any of Borrower's obligations under the Loan
Documents, (c) a waiver by Lender of any rights, offsets, claims, or other
causes of action that Lender may have against Borrower, or (d) an extension
of any rights of Borrower or obligations of Lender, or the maturity or term
of any other Credit Facility, which have expired prior to the date hereof
or which are, by their terms, subject to expiration or termination at a
stated future date. Borrower acknowledges and agrees that Lender has no
further obligation to advance any funds under the Loans other than any
advances which may result from the funding by Lender of amounts under the
Letter of Credit.
<PAGE>
Section 2.06. No Defenses. Borrower and each of the Guarantors, by
its execution of this Agreement, hereby declares that it has no set-offs,
counterclaims, defenses or other causes of action against Lender arising
out of the Loans, the modification of the Term Loan, any documents
mentioned herein or otherwise; and, to the extent any such setoffs,
counterclaims, defenses or other causes of action may exist, whether known
or unknown, such items are hereby waived by Borrower and each of the
Guarantors.
Section 2.07. Counterparts. This Amendment may be executed in
several counterparts, all of which are identical, each of which shall be
deemed an original, and all of which counterparts together shall constitute
one and the same instrument, it being understood and agreed that the
signature pages may be detached from one or more of such counterparts and
combined with the signature pages from any other counterpart in order that
one or more fully executed originals may be assembled.
Section 2.08. Choice of Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, EXCEPT TO
THE EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF TEXAS.
Section 2.09. Entire Agreement. This Amendment, together with the
other Loan Documents, contain the entire agreements between the parties
relating to the subject matter hereof and thereof. This Amendment and the
other Loan Documents may be amended, revised, waived, discharged, released
or terminated only by a written instrument or instruments, executed by the
party against which enforcement of the amendment, revision, waiver,
discharge, release or termination is asserted. Any alleged amendment,
revision, waiver, discharge, release or termination which is not so
documented shall not be effective as to any party.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES RELATED TO THE SUBJECT MATTER HEREIN
CONTAINED AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first written above.
CARRINGTON LABORATORIES, INC.,
a Texas corporation
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
NATIONSBANK OF TEXAS, N.A.,
a national banking association
By:
---------------------------------
Rachel Johnston, Vice President
<PAGE>
CONSENT OF GUARANTORS
The undersigned Guarantors hereby acknowledge and consent to the
modifications and amendments contained in this Amendment and agree that
their obligations are not reduced, modified, impaired or affected in any
manner by such modifications or amendments.
FINCA SAVILA, S.A.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
SABILA INDUSTRIAL, S.A.
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
CARALOE, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Exhibit 10.3
ASSIGNMENT OF CERTIFICATE OF DEPOSIT
This ASSIGNMENT OF CERTIFICATE OF DEPOSIT (this "Assignment") is
executed as of the 1st day of May, 1996, by CARRINGTON LABORATORIES, INC.,
a Texas corporation ("Assignor") in favor of NATIONSBANK OF TEXAS, N.A., a
national banking association ("Assignee").
R E C I T A L S:
I This Assignment is executed and delivered in connection with that
certain Second Amendment to Credit Agreement and Term Note (the
"Amendment") dated of even date herewith by and between Assignor and
Assignee. Each capitalized term used herein but not defined herein shall
have the meaning set forth in the Amendment.
II. Assignor desires to establish with and assign to Assignee that
certain Certificate of Deposit No. 428059 in the amount of $1,500,000.00 in
the name of Assignor (as from time to time replaced or substituted, the
"Certificate of Deposit"), as additional collateral for the Term Loan.
NOW, THEREFORE, KNOW ALL PERSONS BY THESE PRESENTS: That, for valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
and confessed, the parties hereby agree as follows:
1. Assignment; Security Interest; Setoff. (a) Assignor has
PLEDGED, ASSIGNED, SET OVER AND TRANSFERRED, and by these presents does
hereby PLEDGE, ASSIGN, SET OVER AND TRANSFER unto Assignee, and grants to
Assignee a security interest in, the Certificate of Deposit, and any and
all extensions, renewals, substitutions or replacements of such Certificate
of Deposit, whether or not evidenced by a certificate of deposit or
passbook, together with all of Assignor's right, title and interest in and
to the Certificate of Deposit, all sums now or at any time hereafter on
deposit therein, credited thereto or payable thereon including, without
limitation, accrued interest, and all instruments, documents and other
writings evidencing the Certificate of Deposit (collectively, the
"Account").
(b) This Assignment shall secure payment and performance of the
Obligations, including, without limitation, all indebtedness and
obligations of Assignor under (i) the Notes, (ii) the Credit Agreement,
(iii) the Mortgages, (iv) any and all other Loan Documents, and (v) all
renewals, extensions, modifications and rearrangements of the Notes, the
Credit Agreement, the Mortgages or any such other Loan Documents and any
and all agreements or promissory notes made or given in modification,
renewal, extension, rearrangement or replacement thereof.
(c) In addition to the security interest granted in this
Assignment, the right of setoff is hereby expressly granted with respect to
and shall apply to amounts on deposit in the Account. Assignee shall have
absolute and exclusive control and dominion over the Account and all funds
therein. Notwithstanding the foregoing, any release of funds from the
<PAGE>
Account shall not impair or affect the assignment, security interest,
setoff rights or other rights and remedies of Assignee hereunder or under
the other Loan Documents. All rights, titles, interests, liens and
remedies of Assignee under this Section are cumulative of each other and of
every other right, title, interest, lien or remedy which Assignee may
otherwise have hereunder or under any other Loan Document, or at law or in
equity (including, without limitation, the rights of setoff of Assignee
with respect to the funds in the Account) or under any other contract or
other writing for the enforcement of the assignment and security interest
herein or the collection of the Obligations, and the exercise of one or
more rights or remedies shall not prejudice, waive or impair the concurrent
or subsequent exercise of other rights or remedies. Assignor shall execute
and deliver to Assignee such financing statements and other instruments,
documents and agreements as Assignee shall request with respect to the
assignment of and security interest in the Account herein granted, and
Assignee shall be entitled to file of record any such financing statements.
2. Representations, Warranties, Covenants and Agreements of Assignor.
(a) Assignor represents and warrants that: (i) Assignor is the
owner of the Account and has authority to execute and deliver this
Assignment; (ii) except for any financing statement that may have been
filed by Assignee, no financing statement covering the Account, or any part
thereof, has been filed with any filing officer; (iii) no other pledge,
assignment or security agreement has been executed with respect to the
Account; and (iv) the Account is not subject to any liens (including,
without limitation, tax liens) or offsets of any person, firm or
corporation other than Assignee.
(b) So long as the Obligation or any part thereof remains
unpaid, Assignor covenants and agrees to: (i) deliver to Assignee any and
all documents evidencing the Account, and any replacements or substitutions
thereof; (ii) from time to time promptly execute and deliver to Assignee
all such other assignments, certificates, instruments, passbooks,
supplemental writings and financing statements and do all other acts or
things as Assignee may reasonably request in order to more fully evidence
and perfect the security interest herein created; (iii) promptly furnish
Assignee with any information or writings that Assignee may reasonably
request concerning the Account; (iv) promptly notify Assignee of any change
in any fact or circumstance warranted or represented by Assignor herein or
in any other writing furnished by Assignor to Assignee in connection with
the Account or the Obligation; (v) promptly notify Assignee of any claim,
action or proceeding affecting title to the Account, or any part thereof,
or the security interest herein, and, at the request of Assignee, appear in
and defend any such action or proceeding; and (vi) pay to Assignee the
amount of any court costs and reasonable attorneys' fees assessed by a
court and incurred by Assignee following default hereunder. Assignor
covenants and agrees that without the prior written consent of Assignee,
Assignor will not: (A) create any other security interest in, mortgage, or
otherwise encumber, or assign the Account, or any part thereof, or permit
the same to be or become subject to any lien, attachment, execution,
sequestration, other legal or equitable process, or any encumbrance of any
kind or character, except the lien herein created; or (B) make or allow to
be made any withdrawal of funds from the Account. Should any funds payable
with respect to the Account be received by Assignor, they shall immediately
upon such receipt become subject to the lien hereof and while in the hands
of Assignor be segregated from all other funds of Assignor and be held in
trust for Assignee. Assignor shall have absolutely no dominion or control
over such funds except to immediately pay them into the Account.
<PAGE>
(C) Assignor hereby constitutes and appoints Assignee the true
and lawful attorney of Assignor, with full power of substitution, to ask,
demand, collect, receive, receipt for, sue for, compound and give
acquittance for any and all amounts which may be or become due or payable
under the Account, to execute any and all withdrawal receipts or other
orders for the payment of money drawn on the Account and to endorse the
name of the undersigned on all commercial paper given in payment or in part
payment thereof, and in its discretion to file any claim or take any other
action or proceeding, either in its own name or in the name of Assignor or
otherwise, which Assignee may deem necessary or appropriate to protect and
preserve the right, title and interest of Assignee hereunder, and without
limiting the foregoing Assignee shall have and is hereby given full power
and authority to transfer the Account into the name of Assignee or its
nominee.
3. Remedies. (a) Upon the occurrence of an Event of Default,
Assignee, in addition to any other remedies it may have under the Loan
Documents, at law or in equity, may require all or any portion of the
unpaid balance of the Obligation immediately due and payable and may demand
payment of all or any portion thereof from the funds in or credited to the
Account. Upon written demand from Assignee following any such Event of
Default, the depository of the Account is hereby authorized and directed by
Assignor to make payment directly to Assignee of the funds in or credited
to the Account, or such part thereof as Assignee may request, and such
depository shall be fully protected in relying upon the written statement
of Assignee that the Account is at the time of such demand assigned
hereunder and that Assignee is entitled to payment of the Obligation
therefrom; provided that no such written demand shall be necessary if
Assignee is the depository of the Account. Assignee's receipt for sums
paid it pursuant to such demand shall be a full and complete release,
discharge and acquittance to the depository making such payment to the
extent of the amount so paid. Assignor hereby authorizes Assignee upon the
occurrence of an Event of Default and so long as any part of the Obligation
remains unpaid, (i) to withdraw, collect and receipt for any and all funds
on deposit in or payable on the Account; (ii) on behalf of Assignor to
endorse the name of Assignor upon any checks, drafts or other instruments
payable to Assignor evidencing payment on the Account; (iii) to surrender
or present for notation of withdrawal the passbook, certificate or other
instruments or documents issued to Assignor in connection with the Account,
all such documents and instruments to be issued to and retained in the
possession of Assignee; and (iv) to apply the funds in the Account to the
Obligations. Assignee shall not be liable for any loss of interest on or
any penalty or charge assessed by the depository institution against funds
in, payable on or credited to the Account as a result of Assignee's
exercising any of its rights or remedies under this Assignment.
(b) Assignee shall be entitled to apply any and all funds
received by it hereunder toward payment of the Obligation in such order and
manner as Assignee, in its sole and absolute discretion, may elect. If
such funds are not sufficient to pay the Obligation in full, Assignor shall
remain liable for any deficiency.
<PAGE>
(c) All rights, titles, interests, liens and remedies of
Assignee hereunder are cumulative of each other and of every other right,
title, interest, lien or remedy which Assignee may otherwise have under the
Loan Documents or at law or in equity (including, without limitation, any
right of setoff Assignee may have with respect to the funds in the Account)
or under any other contract or other writing for the enforcement of the
security interest granted herein or the collection of the Obligation, and
the exercise of one or more rights or remedies shall not prejudice, waive
or impair the concurrent or subsequent exercise of other rights or
remedies. Should Assignor have heretofore executed or hereafter execute
any other security agreement in favor of Assignee, the security interest
therein created and all other rights, powers and privileges vested in
Assignee by the terms thereof shall exist concurrently with the security
interest created herein.
4. Miscellaneous. (a) Assignee shall never be liable for its
failure to use due diligence in the collection of the Obligation, or any
part thereof, or for its failure to give notice to Assignor of default in
the payment of the Obligation, or any part thereof, or in the payment of or
upon any security, whether pledged hereunder or otherwise.
(b) Should any other person have heretofore executed or
hereafter execute, in favor of Assignee, any deed of trust, mortgage or
security agreement, or have heretofore pledged or hereafter pledge any
other property to secure the payment of the Obligation, or any part
thereof, the exercise by Assignee of any right or power conferred upon it
in any such instrument, or by any such pledge, shall be wholly
discretionary with it, and the exercise or failure to exercise any such
right or power shall not impair or diminish Assignee's rights, titles,
interests, liens and powers existing hereunder.
(c) Should any part of the Obligation be payable in
installments, the acceptance by Assignee at any time and from time to time
of part payment of the aggregate amount of all installments then matured
shall not be deemed to be a waiver of the default then existing. No waiver
by Assignee of any default shall be deemed to be a waiver of any other
subsequent default, nor shall any such waiver by Assignee be deemed to be a
continuing waiver. No delay or omission by Assignee in exercising any
right or power hereunder, or under any other Loan Documents shall impair
any such right or power or be construed as a waiver thereof or any
acquiescence therein, nor shall any single or partial exercise of any such
right or power preclude other or further exercise thereof, or the exercise
of any other right or power of Assignee hereunder or under such other
writings.
<PAGE>
(d) It is the intent of Assignor and Assignee and all other
parties to the Loan Documents to conform to and contract in strict
compliance with applicable usury law from time to time in effect. All
agreements between Assignor and Assignee (or any other party liable with
respect to the Obligation) are hereby limited by the provisions of this
Section which shall override and control all such agreements, whether now
existing or hereafter arising and whether written or oral (however,
reference to the term "oral" shall not be construed to modify or negate any
provisions hereof or of any other Loan Document regarding the absence or
ineffectiveness of oral agreements). In no way, nor in any event or
contingency (including but not limited to prepayment, default, demand for
payment, or acceleration of the maturity of any obligation), shall the
interest taken, reserved, contracted for, charged or received under this
Assignment, the Mortgages, the Notes, or otherwise, exceed the maximum
amount permissible under applicable law. If, from any possible
construction of any document, interest would otherwise be payable in excess
of the maximum lawful amount, any such construction shall be subject to the
provisions of this Section and such document shall be automatically
reformed and the interest payable shall be automatically reduced to the
maximum amount permitted under applicable law, without the necessity of
execution of any amendment or new document. If Assignee shall ever receive
anything of value which is characterized as interest under applicable law
and which would apart from this provision be in excess of the maximum
lawful amount, an amount equal to the amount which would have been
excessive interest shall, without penalty, be applied to the reduction of
the principal amount owing on the Obligation in the inverse order of its
maturity and not to the payment of interest, or refunded to Assignor or the
other payor thereof if and to the extent such amount which would have been
excessive exceeds such unpaid principal. The right to accelerate maturity
of the Notes or any other Obligation does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Assignee does not intend to charge or receive any
unearned interest in the event of acceleration. All interest paid or
agreed to be paid to Assignee shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full
stated term (including any renewal or extension) of such Obligation, so
that the amount of interest on account of such Obligation does not exceed
the maximum permitted by applicable law. As used in this Section, the term
"applicable law" shall mean the laws of the State of Texas or the federal
laws of the United States, whichever laws allow the greater interest, as
such laws now exist or may be changed or amended or come into effect in the
future.
(e) This Assignment may not be amended, revised, waived,
discharged, released or terminated orally, but only by a written instrument
or instruments executed by the party against which enforcement of the
amendment, revision, waiver, discharge, release or termination is asserted.
Any alleged amendment, revision, waiver, discharge, release or termination
that is not so documented shall not be effective as to any party.
<PAGE>
(f) This Assignment shall be binding on Assignor and Assignor's
legal representatives, successors and assigns, and shall inure to the
benefit of Assignee and its legal representatives, successors and assigns.
(g) This Assignment (together with the other Loan Documents)
contains the entire agreement between the parties relating to the subject
matter hereof and supersedes any and all prior agreements relative thereto
that are not contained herein or therein.
<PAGE>
THIS WRITTEN ASSIGNMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS,
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
ASSIGNOR ACKNOWLEDGES RECEIPT OF A COPY OF THIS ASSIGNMENT.
EXECUTED by Assignor on the date above written.
ASSIGNOR:
CARRINGTON LABORATORIES, INC.,
a Texas corporation
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ASSIGNEE:
-----------------------------
NATIONSBANK OF TEXAS, N.A.,
a national banking association
By:
-----------------------------------
Rachel Johnston, Vice President
Exhibit 10.4
STATE OF TEXAS
RELEASE OF LIENS
COUNTY OF DALLAS
R E C I T A L S:
WHEREAS, Carrington Laboratories, Inc. ("Borrower") and NationsBank of
Texas, N.A. ("Lender") entered into that certain Credit Agreement, dated as
of January 30, 1995, as amended by that certain First Amendment to Credit
Agreement, dated as of February 28, 1995 between Lender and Borrower, and
as further amended on July 17, 1995, and August 18, 1995 (as amended, the
"Credit Agreement") (each capitalized term not expressly defined herein
shall have the meaning given to such term in the Credit Agreement); and
WHEREAS, the Chemical Bank Note is secured by, among other things, the
liens and security interests created by that certain (i) Deed of Trust,
Security Agreement and Assignment of Rents (as heretofore amended or
modified, the "Deed of Trust") of even date therewith, executed by E. Don
Lovelace and Jerry L. Lovelace ("Original Borrowers") to William B.
Sechrest, Trustee, for the benefit of Resource Savings Association
("Original Lender"), recorded in Volume 85093, Page 5923, of the Deed of
Trust Records of Dallas County, Texas, covering certain real property
situated in the County of Dallas, Texas, more particularly described in
Exhibit A attached hereto, (ii) Assignment of Lessor's Interest in Lease
(as heretofore amended or modified, the "Assignment of Lease") dated May 9,
1985, executed by Original Borrowers in favor of Original Lender, recorded
in Volume 85093, Page 5944 of the Deed of Trust Records of Dallas County,
Texas, (iii) Absolute Assignment of Rents (as heretofore amended or
modified, the "Assignment of Rents") dated December 29, 1988, executed by
Original Borrowers in favor of Original Lender, recorded in Volume 89155,
Page 1529, of the Deed of Trust Records of Dallas County, Texas, and (iv)
Security Agreement (as heretofore amended or modified, the "Security
Agreement") dated May 9, 1985, executed by Original Borrowers in favor of
Original Lender; and
WHEREAS, the Chemical Bank Note, the Deed of Trust, the Assignment of
Lease, the Assignment of Rents and the Security Documents were amended,
modified or reinstated pursuant to the terms of that certain (i)
Reinstatement, Modification and Renewal Agreement dated September 1, 1988
between Original Lender and Original Borrowers, (ii) Assumption Agreement
dated August 2, 1989, between Original Lender, Original Borrowers and
Borrower, recorded in Volume 89155, Page 1559, of the Deed of Trust Records
of Dallas County, Texas, and (iii) Modification and Extension Agreement
dated September 15, 1993 between Borrower, Original Borrowers and Chemical
Bank, as Trustee recorded in Volume 93181, Page 3498, of the Deed of Trust
Records of Dallas County, Texas (the liens created by the Deed of Trust,
Assignment of Lease, Assignment of Rents and Security Agreement, all as
amended, modified or reinstated, are referred to herein collectively as the
"Chemical Liens"); and
<PAGE>
WHEREAS, the Term Notes and the other Obligations are secured by, among
other things, the liens and security interests created by that certain
(i) Security Agreement dated January 30, 1995 granted by Borrower to Lender
(the "NationsBank Security Agreement"), (ii) Patent, Copyright and
Trademark Collateral Assignment and Security Agreement dated January 30,
1995 granted by Borrower to Lender (the "Patent Security Agreement"),
(iii) Stock Pledge Agreement dated January 30, 1995 granted by Borrower to
Lender (the "Stock Pledge Agreement"), and (iv) Second Lien Deed of Trust,
Assignment, Security Agreement and Financing Statement dated February 16,
1995 granted by Borrower to Lender (the "Second Lien Deed of Trust") (the
liens created by the NationsBank Security Agreement, the Patent Security
Agreement, the Stock Pledge Agreement and the Second Lien Deed of Trust are
referred to herein collectively as the "NationsBank Liens"; the Chemical
Liens and the NationsBank Liens are referred to herein collectively as the
"Liens"); and
WHEREAS, Borrower and Lender have executed that certain Fourth
Amendment to Credit Agreement and Term Note dated as of May 1, 1996 (the
"Fourth Amendment") pursuant to which, in part, (i) Borrower has paid the
currently outstanding amounts under the Term Loan (ii) Borrower has granted
Lender a security interest in a Certificate of Deposit in the amount of
$1,500,000.00 to secure obligations of Borrower to repay to Lender any
amounts Lender is required to fund under the Letter of Credit and (iii)
Lender has agreed to release the Liens.
R E L E A S E:
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS: That, for and in
consideration of Ten and No/100 ($10.00), and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged
and confessed, Lender has RELEASED and DISCHARGED, and by these presents
does hereby RELEASE and DISCHARGE, the Liens, including, but not limited
to, the following:
1. Deed of Trust, Security Agreement and Assignment of Rents of even
date with the Chemical Bank Note, executed by E. Don Lovelace and Jerry L.
Lovelace to William B. Sechrest, Trustee, for the benefit of Resource
Savings Association, recorded in Volume 85093, Page 5923, of the Deed of
Trust Records of Dallas County, Texas, covering certain real property
situated in the County of Dallas, Texas, more particularly described in
Exhibit A attached hereto, as amended, restated or modified from time to
time;
2. Assignment of Lessor's Interest in Lease dated May 9, 1985,
executed by E. Don Lovelace and Jerry L. Lovelace in favor of Resource
Savings Association, recorded in Volume 85093, Page 5944 of the Deed of
Trust Records of Dallas County, Texas, as amended, restated or modified
from time to time;
<PAGE>
3. Absolute Assignment of Rents dated December 29, 1988, executed by
E. Don Lovelace and Jerry L. Lovelace in favor of Resource Savings
Association, recorded in Volume 89155, Page 1529, of the Deed of Trust
Records of Dallas County, Texas, as amended, restated or modified from time
to time; and
4. Second Lien Deed of Trust, Assignment, Security Agreement and
Financing Statement dated February 16, 1995 executed by Borrower in favor
of Lender, recorded in Volume 95036, Page 01126 of the Deed of Trust
Records of Dallas County, Texas, as amended, restated or modified from time
to time.
Borrower hereby acknowledges and agrees that nothing contained in this
release shall in any way affect, release or diminish the security interest
created by that certain Assignment of Certificate of Deposit dated as of
May 1, 1996 granted by Borrower to Lender covering that certain Certificate
of Deposit No. 428059 in the amount of $1,500,000.00, as such certificate
is replaced from time to time.
FURTHER, Lender agrees, at the request of Borrower, to duly execute and
deliver Uniform Commercial Code releases with respect to the Liens released
hereby.
EXECUTED as of the _____ day of May, 1996.
LENDER
NATIONSBANK OF TEXAS, N.A.,
a national banking association
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
BORROWER
CARRINGTON LABORATORIES, INC.,
a Texas corporation
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on the ___ day of May,
1996, by ___________________, _____________________ of NationsBank of
Texas, N.A., a national banking association on behalf of such association.
___________________________________
Notary Public - State of Texas
___________________________________
My Commission Expires
___________________________________
Printed Name of Notary Public
<PAGE>
THE STATE OF TEXAS
COUNTY OF DALLAS
This instrument was acknowledged before me on the ___ day of May, 1996,
by ___________________, _____________________ of Carrington Laboratories,
Inc., a Texas corporation on behalf of such corporation.
___________________________________
Notary Public - State of Texas
___________________________________
My Commission Expires
___________________________________
Printed Name of Notary Public
<PAGE>
EXHIBIT A
DESCRIPTION
BEING a tract of land situated in the William Bennet Survey, Abstract No.
147, and the John W. Johnson Survey, Abstract No. 1640, and being out of
Tract D of the Las Colinas Walnut Hill Distribution Center Addition, an
addition to the City of Irving, Texas, according to the plat recorded in
Volume 75126, Page 2076 of the Map Records of Dallas County, Texas, and now
being Lot 5 of the Las Colinas Walnut Hill Distribution Center, Sixth
Installment, an addition to the City of Irving, Texas, according to the
plat recorded in Volume 80188, Page 1906, of the Map Records of Dallas
County, Texas, and being more particularly described as follows:
BEGINNING at the intersection of the South line of Hereford Drive, (a 60
foot R.O.W.) with the Westerly line of Walnut Hill Lane, (a 110 foot
R.O.W.), said point also being the most Easterly corner of said Lot 5, an
iron stake for corner;
THENCE Southwesterly with the Northwesterly line of Walnut Hill Lane, same
being with a curve to the right having a central angle of 33 degrees 15
minutes 06 seconds, a radius of 994.05 feet, tangent bears South 10 degrees
28 minutes 58 seconds West, an arc distance of 576.90 feet, an iron stake
found for corner;
THENCE South 43 degrees 44 minutes 02 seconds West, continuing with the
said Northwest line of Walnut Hill Lane, a distance of 129.81 feet, to the
most Southerly corner of said Lot 5, an iron stake for corner;
THENCE North 46 degrees 18 minutes 44 seconds West, with the common line of
Lots 1 and 5, a distance of 449.78 feet to the common Westerly corner of
Lots 1 and 5, an iron stake found for corner;
THENCE North 44 degrees 05 minutes 33 seconds East, with the common line of
Lots 2 and 5, a distance of 145.59 feet, an iron stake found for corner;
THENCE North 33 degrees 15 minutes 06 seconds West, with the common line of
Lots 2 and 5, a distance of 121.05 feet to the common corner of Lots 4 and
5, an iron stake found for corner;
THENCE North 44 degrees 51 minutes 35 seconds East, with the common line of
Lots 4 and 5, a distance of 323.78 feet to a point in the said Southwest
line of Hereford Drive, an iron stake for corner;
THENCE Southwesterly with the said Southwest line of Hereford Drive, same
being with a curve to the left, having a central angle of 31 degrees 48
minutes 13 seconds, a radius of 545.16 feet, tangent bearing South 49
degrees 28 minutes 27 seconds East, an arc distance of 302.61 feet to the
end of said curve, an iron stake for corner;
THENCE South 81 degrees 16 minutes 40 seconds East, with the said Southwest
line of Hereford Drive, a distance of 140.92 feet to the Place of Beginning
and
CONTAINING 287,769 square feet or 6.606 acres of land, more or less.
Exhibit 11.1
Computation of Net Loss Per Common and Common Equivalent Share
(unaudited)
(Dollar amounts in 000's, except per share amounts)
Three Months Ended
March 31,
1996 1995
--------- ---------
Net loss ($2,156) ($497)
Preferred stock dividend -- (33)
requirements
--------- ---------
Net loss for computing
loss per common share (2,156) (530)
Average common and common
equivalent shares
outstanding (1) 8,666,167 7,359,377
--------- ---------
Net loss per common and
common equivalent share ($0.25) ($0.07)
========= =========
(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%.
<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: May 12, 1996 By /s/ Carlton E. Turner,
President
Date: May 12, 1996 By /s/ Sheri L. Pantermuehl,
Chief Financial Officer
