As filed with the Securities and Exchange Commission on April 16, 1997
Registration No. 333-17177
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
______________
Carrington Laboratories, Inc.
(Exact name of registrant as specified in its charter)
Texas 75-1435663
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 Walnut Hill Lane
Irving, Texas 75038
(972) 518-1300
(Address, including zip code, and telephone number, including
area code, of registrant s principal executive offices)
CHRISTOPHER S. RECORD
Vice President, Business Development Copy to:
and Strategic Planning NORMAN R. ROGERS
Carrington Laboratories, Inc. Thompson & Knight,
2001 Walnut Hill Lane A Professional Corporation
Irving, Texas 75038 1700 Pacific Avenue, Suite 3300
(972) 518-1300 Dallas, Texas 75201
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective
as determined by market conditions.
If the only securities being registered on this Form are
being offered pursuant to dividend or interest reinvestment plans,
please check the following box.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. X X
<PAGE>
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for
the same offering.
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box.
The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933
or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED APRIL ___, 1997
PROSPECTUS
953,753 Shares
Carrington Laboratories, Inc.
Common Stock
This Prospectus relates to the sale from time to
time by certain shareholders (the "Selling
Shareholders") of Carrington Laboratories, Inc., a
Texas corporation ("Carrington" or the "Company"), of
shares (the "Shares") of Common Stock, par value $.01
per share ("Common Stock"), of the Company that may be
acquired from time to time by the Selling Shareholders
upon conversion of shares of Series E Convertible
Preferred Stock of the Company (the "Series E
Preferred Stock" ) sold by the Company to the Selling
Shareholders in a private placement in October 1996.
See Selling Shareholders. The Company will receive
none of the proceeds from sales of the Shares. The
Common Stock is listed on the Nasdaq National Market
("Nasdaq") under the symbol "CARN".
The conversion price per share of Series E
Preferred Stock (the "Conversion Price") is equal to
the lower of (x) $25.20 (as adjusted for any stock
split or stock dividend with respect to the Common
Stock) and (y) 87% of the average of the daily closing
bid prices of the Common Stock on Nasdaq for the three
consecutive trading days ending on the trading day
immediately preceding the date of conversion of the
Series E Preferred Stock (such average daily closing
bid price, the "Current Market Price"). Accordingly,
the number of Shares a Selling Shareholder acquires
upon any conversion of its Series E Preferred Stock,
and thus the number of Shares offered by such Selling
Shareholder pursuant to this Prospectus, will depend
on the Current Market Price of the Common Stock on the
date of conversion. If all the presently outstanding
shares of Series E Preferred Stock are converted into
Common Stock, and assuming a Current Market Price of
the Common Stock on the date of conversion of $3.98,
<PAGE>
the total number of Shares offered hereby would be
953,753. On April 11, 1997, the closing sales price
of the Common Stock on Nasdaq was $5.125 per share.
See "Selling Shareholders."
The Shares may be sold from time to time by the
Selling Shareholders, or by their pledgees, donees or
other successors in interest. Such sales may be made
on Nasdaq or otherwise at prices and on terms related
to the then current market price of the Common Stock
or in negotiated transactions. The Shares may be sold
by any one or more of the following methods: (a) a
block trade in which the broker or dealer so engaged
will attempt to sell the Shares as agent, but may
position and resell a portion of a block as principal
to facilitate the transaction; (b) purchases by a
broker or dealer as principal, and resale by such
broker or dealer, for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers;
and (d) privately negotiated transactions.
See Plan of Distribution.
The Company has agreed with the Selling Shareholders to
register the Shares offered hereby. The Company has also agreed to pay
all reasonable expenses incident to such registration, other than
underwriting discounts and commissions and other fees and expenses of
investment bankers and other than brokerage commissions. It is
estimated that the fees and expenses payable by the Company in
connection with the registration of the Shares will be approximately
$50,000. The Company intends to keep the Registration Statement (as
hereinafter defined), of which this Prospectus is a part, effective for
a period ending no later than October 21, 1998. See Selling
Shareholders.
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE RISK FACTORS BEGINNING ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____________________, 1997.
<PAGE>
No person is authorized in connection with the offering
made hereby to give any information or to make any representation not
contained or incorporated by reference in this Prospectus, and any
information or representation not contained or incorporated by
reference herein must not be relied upon as having been authorized by
the Company or any Selling Shareholder. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom
it is unlawful to make such offer in such jurisdiction. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information herein
is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
Page
Available Information . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Disclosure Regarding Forward-Looking Statements . . . . . . . . . . .6
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . .7
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . .8
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
AVAILABLE INFORMATION
The Company is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Reports, registration statements, proxy statements and
other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at 7 World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can also be obtained from the Commission at prescribed rates through
its Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549. These reports, registration statements, proxy statements
and other information may be obtained from the web site that the
Commission maintains at http://www.sec.gov.
The Company has filed with the Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, as amended, for
the registration of 1,732,279 shares of Common Stock with respect to
the offering made hereby (such Registration Statement, including all
amendments or supplements thereto, the "Registration Statement"). This
<PAGE>
Prospectus, which forms a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement,
certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. Statements contained herein
concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such
document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission (File No. 0-11997) pursuant to the Exchange Act are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (as amended by Form 10-K/A filed on
April 7, 1997);
(2) The description of the Common Stock contained in
the Registration Statement on Form 8-A of the Company heretofore filed
by the Company with the Commission, including any amendments or reports
filed for the purpose of updating such description; and
(3) All other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus and prior to the termination of the
offering of the Shares.
Any statement contained herein or in a document or
information incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in
any subsequently filed document which also is, or is deemed to be,
incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
The Company will provide without charge to each person
to whom this Prospectus is delivered, upon the written or oral request
of any such person, a copy of any and all of the foregoing documents or
information that has been incorporated by reference in this Prospectus,
other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests
should be directed to Christopher S. Record, Vice President, Business
Development and Strategic Planning, Carrington Laboratories, Inc., 2001
Walnut Hill Lane, Irving, Texas 75038, telephone (972) 518-1300.
<PAGE>
THE COMPANY
Carrington is a research-based pharmaceutical and
medical device company engaged in the development, manufacturing and
marketing of naturally derived complex carbohydrate and other natural
product therapeutics for the treatment of major illnesses and the
dressing and management of wounds. The Company sells, using a network
of distributors, non-prescription products through its Wound and Skin
Care Division, veterinary medical devices and pharmaceuticals through
its Veterinary Medical Division and consumer products through its
consumer products subsidiary, Caraloe, Inc. The Company's research
and product portfolio are based primarily on complex carbohydrate
technology derived from the Aloe vera plant.
The Company s principal executive offices are located at
2001 Walnut Hill Lane, Irving, Texas 75038, and its telephone number is
(972) 518-1300.
RECENT DEVELOPMENTS
On October 31, 1996, the Company announced the results
of a recently completed Phase III Pivotal trial of the Company's
proprietary compound Aliminase[TM] for the treatment of ulcerative
colitis. Results of this trial indicated no statistically significant
differences that would support a conclusion that Aliminase[TM] has a
therapeutic effect in treating ulcerative colitis. As a result, the
Company terminated a planned second clinical trial of Aliminase[TM] and
placed further testing of Aliminase[TM] on hold.
On March 4, 1997, the Company completed a repurchase of
50% of its outstanding Series E Preferred Stock at a purchase price of
$11,300 per share, for a total cash purchase price of $3,729,000. See
"Selling Shareholders."
Effective March 31, 1997, the Company's supply contract
relating to the sale of Manapol[R], a freeze dried Aloe vera powder, was
terminated. See "Risk Factors - Mannatech Contract."
RISK FACTORS
The shares of Common Stock offered hereby involve a high
degree of risk. Prospective purchasers should carefully consider the
following risk factors, in addition to the other information contained
or incorporated by reference in this Prospectus.
No Assurance of Profits. The Company incurred a net
loss in each of the fiscal years 1983, the year of its initial public
offering, through 1990 and had to rely on outside sources of funds to
maintain its liquidity during this period. In each of the fiscal years
1991 through 1994, the Company had positive earnings. However, the
Company sustained net losses during 1995 and 1996, although it made a
small profit (approximately $17,000) in the fourth quarter of 1996.
Thus, there can be no assurance that the Company will conduct its
operations profitably, either currently or in the future.
<PAGE>
Mannatech Contract. In March 1995, Caraloe, Inc., a
wholly owned subsidiary of the Company, and Mannatech, Inc.
("Mannatech") entered into a supply agreement (the "Supply Agreement")
pursuant to which Mannatech agreed to purchase from Caraloe, Inc.
certain quantities of Manapol[R], a freeze-dried Aloe vera powder. The
Supply Agreement provided for renegotiation by the parties by March 15,
1997 of the purchase price to be paid by Mannatech for Manapol[R].
Because the purchase price was not mutually agreed to by the parties by
that time, the Supply Agreement terminated on March 31, 1997.
Mannatech was the Company's largest customer in 1996, accounting for
total sales of $3,273,000 and a contribution margin of $672,000 after
cost of goods. As the Supply Agreement between Mannatech and the
Company was not renewed, the exclusive license agreement for Manapol
[R] also terminated on March 31, 1997. The Company is now able to sell
Manapol[R] to other third parties as well as use it in the Company's
products. It is expected that Mannatech will continue to purchase
Manapol[R] on an as needed basis. Termination of the Supply Agreement
could have a material adverse effect on the Company's results of
operations. However, the Company believes that its cost reduction
programs in combination with its current cash resources, over
$6,800,000 as of March 31, 1997, will provide the funds necessary to
fund its current operations. Although the Company intends to
aggressively seek new customers for Manapol[R], there is no assurance it
will succeed in that effort. Virtually all Manapol[R] is produced on an
as required basis to fill open purchase orders. As such, the
termination of the Supply Agreement will not have a significant impact
on inventory valuation. The Company's management is also exploring the
potential for new products to fill capacity in the Costa Rica facility
where Manapol[R] is currently produced. Additionally, the Company has
already planned for further cost reductions at the Costa Rica facility
in the event lost production cannot be replaced with sales of new
products.
Potential Write-Down of Costa Rica Assets. The production capacity of
the Company's aloe vera processing plant in Costa Rica, where its bulk
freeze-dried aloe vera extract is manufactured, is greater than the
Company's current level of usage of the plant. Although the Company is
currently exploring other options to utilize the available capacity,
there is no assurance that the Company will be able to utilize fully
the Costa Rica plant's capacity. The Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS 121") in the first quarter of 1996. SFAS 121 requires that
long-lived assets held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amounts of the assets may not be recoverable. At the time of adoption,
there was no impairment of asset value in Costa Rica based on
historical production levels and future capacity requirements needed to
produce the Company's drug Aliminase[TM], then under initial phase III
clinical trials. Under SFAS 121, when there is an event or change in
circumstances that may impair the recoverability of the assets, the
carrying amount of the asset should be assessed. In late October 1996,
the Company received the results of the initial phase III clinical
trial for the testing of Aliminase[TM] oral capsules which indicated no
statistically significant differences that would support a conclusion
<PAGE>
that Aliminase[TM] oral capsules provide a therapeutic effect in the
treatment of ulcerative colitis. As a result, the Company terminated
the second large scale clinical trial and placed further testing of
Aliminase[TM] on hold. These results triggered a new assessment of
recoverability of the Costa Rica plant's assets using the methodology
provided by SFAS 121 in the fourth quarter of 1996. The net book value
of the Costa Rica Plant assets as of December 31, 1996, was $3,958,000.
The Company evaluated the value of Costa Rica produced components in
its current product mix to determine the amount of net revenues,
excluding Manapol[R] powder sales to Mannatech, attributable to the Costa
Rica plant. Sales to Mannatech were excluded from the analysis as the
Company had been informed by Mannatech that the Supply Agreement in
effect throughout 1996 would not be renewed. As the Supply Agreement
between Mannatech and the Company was not renewed, the exclusive
license agreement for the Manapol[R] trademark also terminated on March
31, 1997. The Company can sell Manapol[R] powder or license the
trademark to other third parties as well as use it in the Company's
products. Mannatech may continue to purchase Manapol[R] powder on an as-
needed basis, but no such purchases could be anticipated for the SFAS
121 analysis. Cash inflows for 1997 and future years were estimated
using management's current forecast and business plan. All direct
costs of the facility, including certain allocations of Company
overhead, were considered in the evaluation of cash outflows. Results
indicate there is no impairment of value under SFAS 121. However,
there is no assurance that future changes in product mix or the content
of Costa Rica produced components in the current products will generate
sufficient revenues to recover the costs of the plant under SFAS 121
methodology.
No Assurance of Regulatory Approvals. The
commercialization of certain of the Company's proposed products will
require approvals from the Food and Drug Administration and comparable
regulatory agencies in most foreign countries. To obtain such
approvals, the safety and efficacy of the products must be demonstrated
through extensive preclinical testing and human clinical trials. There
is no assurance that the safety or efficacy of a product, to the extent
demonstrated in preclinical testing, will be pertinent to the
development of, or indicative of the safety or efficacy of, a product
for the human market. In addition, there is no assurance that the
results of clinical trials of a product will be consistent with results
obtained in preclinical tests. Furthermore, there is no assurance that
any product will be shown to be safe and effective or that regulatory
approval for any product will be obtained on a timely basis, if at all.
No Assurance Pharmaceutical Products Will be
Commercialized. The Company currently derives no revenue from the sale
of prescription pharmaceutical products. The Company currently has
several complex carbohydrate pharmaceutical compounds under
development, which are in preclinical and clinical trials. There is no
assurance that the Company's product development efforts will be
successfully completed or that required approvals can be obtained.
Even if products are approved, they may not achieve commercial success.
Furthermore, although the Company has an established sales force
experienced in the marketing of nonprescription pharmaceutical
<PAGE>
products, the Company's sales force has very limited experience in the
marketing of prescription-only drugs. There is no assurance that the
Company will be able to establish an experienced sales force for this
purpose.
Need for Additional Funds; No Bank Credit Facility.
Substantial funding will be required to complete the development of and
to commercialize the Company's proposed prescription pharmaceutical
products. The Company does not expect that revenues from its
operations will be sufficient to fund the development and
commercialization of such products. No assurances are given as to the
Company's success in obtaining additional funding or as to the terms of
any such funding. In addition, the Company does not currently have a
bank line of credit or other bank credit facility available to it.
Limited Manufacturing Experience. Although members of
the Company's management have extensive experience in the business of
developing, manufacturing and marketing human and animal health
products, the Company does not have experience in the large scale
manufacture of bulk or finished dosage forms of complex carbohydrates
or any other pharmaceutical compound. In addition, the Company will be
required to expand its current manufacturing facilities or contract
with third parties to meet any requirement to produce commercial
quantities of finished oral dosage forms of its complex carbohydrates
and to meet any long-term requirement to produce commercial quantities
of finished injectable dosage forms.
Government Regulation. The Company is subject to
regulation by numerous governmental authorities in the United States
and other countries. Certain of the Company's proposed products will
require governmental approval or licensing prior to commercial use.
The approval process applicable to prescription pharmaceutical products
usually takes several years and typically requires substantial
expenditures. The Company and any licensees of the Company may
encounter significant delays or excessive costs in their respective
efforts to secure necessary approvals or licenses. Future United
States or foreign legislative or administrative acts could also prevent
or delay regulatory approval of the Company's or its licensees
products. Failure to obtain requisite governmental approvals or
failure to obtain approvals of the scope requested could delay or
preclude the Company and any licensees of the Company from marketing
their products, or could limit the commercial use of the products, and
thereby have a material adverse effect on the Company's liquidity and
financial condition.
Highly Competitive Industry. There is substantial
competition in the pharmaceutical industry. Potential competitors in
the United States are numerous and include pharmaceutical, chemical and
biotechnology companies. Many of these companies have substantially
greater capital resources, research and development staffs, facilities
and expertise (including in research and development, manufacturing,
testing, obtaining regulatory approvals and marketing) than the
Company. Furthermore, some competitors may achieve product
commercialization earlier than the Company.
<PAGE>
Volatility of Stock Price. Since the Company's initial
public offering in 1983, the market price of the Common Stock has
fluctuated over a wide range, and it is likely that the price of the
Common Stock will fluctuate in the future. Announcements of a positive
or negative nature regarding technical innovations, new commercial
products, regulatory approvals, patent or proprietary rights or other
developments concerning the Company or its competitors could have a
significant impact on the market price of the Common Stock.
Shares Eligible for Future Sale. Future sales of shares
of Common Stock by existing shareholders, or by shareholders (including
the Selling Shareholders) who receive shares of Common Stock through
the exercise of options or warrants, the conversion of preferred stock
or otherwise, or the perception that such sales might occur, could have
an adverse effect on the price of the Common Stock.
No Dividends Anticipated in the Foreseeable Future. The
Company has not paid any cash dividends on the Common Stock since its
initial public offering in 1983 and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. Declaration
of cash dividends on the Common Stock will depend upon, among other
things, future earnings, the operating and financial condition of the
Company, its capital requirements and general business conditions.
Under the terms of a bank loan agreement with NationsBank of Texas,
N.A. (originally relating to a line of credit that terminated in
January 1996 but which remains in effect with respect to an outstanding
$1,500,000 letter of credit issued by the bank to a supplier of the
Company and secured by a certificate of deposit of the Company in an
amount equal to the letter of credit), the Company is prohibited from
declaring or paying cash dividends on any of its capital stock. In
addition, from and after October 21, 1998, the Company may not pay any
dividends on Common Stock unless and until all dividend rights on any
outstanding shares of the Company's Series E Convertible Preferred
Stock have been satisfied.
Product Liability Exposure. The Company could be
subject to product liability claims in connection with the use of
products that the Company and its licensees are currently
manufacturing, testing or selling or that the Company and any licensees
may manufacture, test or sell in the future. There is no assurance
that the Company would have sufficient resources to satisfy any
liability resulting from these claims or would be able to have its
customers indemnify or insure the Company against such claims. The
Company currently carries product liability insurance in the amount of
$3,000,000, but there is no assurance that such coverage will be
adequate in terms and scope to protect it against material adverse
effects in the event of a successful product liability claim.
Patents. The Company has obtained patents or filed
patent applications in the United States and certain other countries in
three series regarding the compositions of acetylated mannan
derivatives, the processes by which they are produced and the methods
of their use. The Company believes that the patents it has obtained
and those it is seeking constitute valuable assets. However, patent
rights resulting from issued patents are not self-enforcing. The
Company must enforce the rights if and when they are infringed.
Accordingly, there are no assurances that any patents issued to the
Company give significant commercial protection.
<PAGE>
Obsolescence. The pharmaceutical industry has undergone
rapid and significant change. The Company expects that this field will
continue to develop rapidly, and the Company's future success will
depend, in large part, on its ability to maintain a competitive
position. Rapid technological development may result in the Company's
products or processes becoming obsolete before marketing of those
products or before the Company recovers a significant portion of the
research, development and commercialization expenses incurred with
respect to those products.
Dependence Upon Key Personnel. The Company's success
depends in large part upon its ability to attract and retain highly
qualified scientific, manufacturing, marketing and management
personnel. The Company believes that it employs highly qualified
personnel in all these areas. The Company, however, faces competition
for such personnel from other companies, academic institutions,
government entities and other organizations. There is no assurance
that the Company will be successful in hiring or retaining the
requisite personnel.
Antitakeover Matters. Certain provisions of the
Company's Restated Articles of Incorporation and Bylaws may be deemed
to have an antitakeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a shareholder of the Company might
consider in such shareholder s best interest, including attempts that
might result in the payment of a premium over the market price for
shares of Common Stock. These provisions include a provision in the
Company's Restated Articles of Incorporation authorizing the issuance
of "blank check" preferred stock by the Board of Directors of the
Company without further shareholder approval. They also include
provisions in the Company's Bylaws that divide the directors of the
Company into three classes that are elected for staggered three-year
terms and that establish advance notice procedures with respect to
submissions by shareholders of proposals to be acted on at shareholder
meetings and of nominations of candidates for election as directors.
In addition, the Company has instituted a shareholder rights plan,
which may have the effect of discouraging an unsolicited takeover
proposal.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes or incorporates by reference
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in, or
incorporated by reference in, this Prospectus are forward-looking
statements, including without limitation, statements under the caption
"Risk" Factors. Forward-looking statements generally include or are
accompanied by words such as "anticipate", "believe", "estimate",
"expect", "intend" or similar words. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove
to have been correct. Important factors that could cause actual
results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed under the caption Risk
Factors in this Prospectus. Cautionary Statements include but are not
limited to the possibilities that the Company may be unable to obtain
<PAGE>
the funds needed to carry out large scale clinical trials and other
research and development projects, that the results of the Company's
clinical trials may not be sufficiently positive to warrant continued
development and marketing of the products tested, that new products may
not receive required approvals by the appropriate government agencies
or may not meet with adequate customer acceptance, that the Company may
not be able to obtain financing when needed, that the Company may not
be able to obtain appropriate licensing agreements for products that it
wishes to market or products that it needs assistance in developing,
that demand for the Company's products may not be sufficient to enable
it to recover the cost of its Costa Rica plant or to absorb all of that
plant's operating costs, and that the Company's efforts to improve its
sales may not be sufficient to enable it to fund its operating costs
from revenues and available cash resources. All forward-looking
statements included or incorporated by reference in this Prospectus,
and all subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf, are
expressly qualified in their entirety by the Cautionary Statements.
SELLING SHAREHOLDERS
The Shares offered hereby are shares of Common Stock
that are issuable upon the conversion of outstanding shares of Series E
Preferred Stock sold by the Company to the Selling Shareholders in a
private placement in October 1996 (the "Private Placement"). A total
of 660 shares of Series E Preferred Stock were sold in the Private
Placement. On March 4, 1997, the Company purchased from the Selling
Shareholders an aggregate of 330 shares of Series E Preferred Stock for
an amount in cash equal to $11,300 per share of Series E Preferred
Stock, representing an aggregate purchase price of $3,729,000.
Subject to certain conditions, each share of Series E
Preferred Stock is convertible, at the option of the holder thereof,
into shares of Common Stock beginning on December 20, 1996. In
addition, subject to certain conditions, all shares of Series E
Preferred Stock that remain outstanding on October 21, 1999 shall
automatically be deemed to have been surrendered for conversion (and
shall be automatically converted) into shares of Common Stock on such
date. The conversion price per share of Series E Preferred Stock (the
"Conversion Price") is equal to the lower of (x) $25.20 (as adjusted
for any stock split, reverse stock split or stock dividend with respect
to the Common Stock), and (y) 87% of the average of the daily closing
bid prices of the Common Stock on Nasdaq for the three consecutive
trading days ending on the trading day immediately preceding the date
of conversion of the Series E Preferred Stock (such average daily
closing bid price, the Current Market Price ). Each share of Series E
Preferred Stock is convertible into the number of whole shares of
Common Stock determined by dividing (a) $10,000 (as adjusted for any
stock split, reverse stock split, stock dividend or similar event
resulting in a change in the Series E Preferred Stock) plus, in the
case of the automatic conversion of the Series E Preferred Stock on
October 21, 1999, an amount equal to all dividends accrued but unpaid
on such share of Series E Preferred Stock, by (b) the Conversion Price
in effect on the date of conversion.
<PAGE>
The total number of Shares offered hereby, as set forth
on the cover page of this Prospectus, has been calculated based on an
assumed conversion prior to October 21, 1999 of all 330 presently
outstanding shares of Series E Preferred Stock at a Conversion Price of
$3.46. Such Conversion Price was determined by multiplying 87% times
an assumed Current Market Price of the Common Stock of $3.98. The
lowest closing sales price of the Common Stock on Nasdaq during the
period January 1, 1996 to April 11, 1997 was $5.125 per share. On
April 11, 1997, the closing sales price of the Common Stock on Nasdaq
was $5.125 per share. The actual number of Shares a Selling
Shareholder acquires upon any conversion of its Series E Preferred
Stock will depend on the Current Market Price of the Common Stock on
the date of conversion.
Concurrently with the closing of the Private Placement,
the Company entered into Registration Rights Agreements (the
"Registration Rights Agreements") with each of the Selling
Shareholders. Pursuant to the Registration Rights Agreements, the
Company agreed, subject to certain terms and conditions, to prepare and
file with the Commission a registration statement or statements
covering the sale by the Selling Shareholders of the shares of Common
Stock received by the Selling Shareholders upon conversion of their
shares of Series E Preferred Stock. In connection with the
Company's repurchase of 330 shares of Series E Preferred Stock, the
Company agreed with the Selling Shareholders that if the Commission
does not declare the registration statement covering the Shares
effective by May 15, 1997, the Company will pay the holders of the
Series E. Preferred Stock an amount in cash equal to 1% of the original
purchase price through June 15, 1997 and 2% for each additional 30-day
period, prorated to the date on which the Commission declares the
Registration Statement effective. The Company agreed to use its best
efforts to keep such registration statement or statements effective at
all times until the earliest of (i) October 21, 1998, (ii) the date
when the Selling Shareholders may sell all the Shares under Rule 144
promulgated under the Securities Act of 1933, or (iii) the date when
the Selling Shareholders no longer own any Shares. The Company has
registered the Shares for sale pursuant to this Prospectus as required
by the Registration Rights Agreements. See Plan of Distribution.
The following table sets forth certain information with
respect to the ownership of the Common Stock, as of April 11, 1997, and
as adjusted to reflect the sale of the Shares offered hereby, by each
of the Selling Shareholders. Each Selling Shareholder has sole voting
and investment power with respect to all shares indicated as being
beneficially owned by such person.
<PAGE>
Beneficial Maximum Beneficial
Ownership of Number of Ownership of
Common Stock Shares Common Stock
Before Being After the
the Offering(1) Offered(1) Offering(2)
Number Number
of of
Name Shares Percent Shares Percent
--------------------- ------- -------- ------ -------
Bernstein Liebhard &
Lifshitz 144,508 1.5% 144,508 0 0%
Bridge Ltd. 93,930 1.0% 93,930 0 0%
Colophon N.V. 36,127 * 36,127 0 0%
EuroFactors
International Inc. 65,028 * 65,028 0 0%
FTS Worldwide
Corporation 202,312 2.1% 202,312 0 0%
Harmen Partners 36,127 * 36,127 0 0%
Kapok International
Inc. 36,127 * 36,127 0 0%
Ramlu Trading Corp. 86,705 * 86,705 0 0%
The Tail Wind Fund Ltd. 108,381 1.1% 108,381 0 0%
Wolfson Equities 144,508 1.5% 144,508 0 0%
------- -------
Total 953,753 953,753
____________________
* Less than 1%.
(1) Consists solely of Shares the Selling Shareholder has the
right to acquire through the conversion of shares of Series E
Preferred Stock held by the Selling Shareholder. The number
of Shares set forth in the table for each Selling Shareholder
has been calculated based on an assumed conversion by such
Selling Shareholder prior to October 21, 1999 of all of its
Series E Preferred Stock at a Conversion Price of $3.46. Such
Conversion Price was determined by multiplying 87% times an
assumed Current Market Price of the Common Stock of $3.98.
The actual number of Shares a Selling Shareholder acquires
upon any conversion of its Series E Preferred Stock will
depend on the Current Market Price of the Common Stock on the
date of conversion.
(2) Assumes that all Shares being offered are sold.
<PAGE>
PLAN OF DISTRIBUTION
The Shares may be sold from time to time by the Selling
Shareholders, or by their pledgees, donees or other successors in
interest. Such sales may be made by the Selling Shareholders on Nasdaq
or otherwise at prices and on terms related to the then current market
price of the Common Stock or in negotiated transactions. The Shares
may be sold by any one or more of the following methods:
(a) a block trade in which the broker or dealer so engaged will
attempt to sell the Shares as agent, but may position and resell a
portion of a block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal, and resale by
such broker or dealer, for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and
(d) privately negotiated transactions.
The Selling Shareholders may effect such transactions by selling the
Shares to or through brokers or dealers. Such brokers or dealers will
receive compensation in the form of discounts or commissions from the
Selling Shareholders, and they may also receive commissions from the
purchasers of the Shares for whom they may act as agents. Such
discounts or commissions from the Selling Shareholders or such
purchasers are not expected to exceed those customary in the types of
transactions involved.
The Company has agreed to pay all reasonable expenses incident to
registration of the Shares, other than underwriting discounts and
commissions and other fees and expenses of investment bankers and other
than brokerage commissions. It is estimated that the fees and expenses
payable by the Company in connection with the registration of the
Shares will be approximately $50,000. The Company will receive none of
the proceeds from sales of the Shares.
In the event the Shares are offered to the public by the Selling
Shareholders, they may be deemed underwriters within the meaning of
the Securities Act of 1933. Any broker-dealer selling the Shares as
agent for a Selling Shareholder and any broker-dealer purchasing and
reselling the Shares for its own account may also be deemed an
underwriter.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for
the Company by Thompson & Knight, A Professional Corporation, Dallas,
Texas.
<PAGE>
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and
have been so incorporated by reference in reliance upon the authority
of said firm as experts in giving said report.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses, other than brokerage
discounts and commissions, expected to be incurred in connection with
the offering of the Shares registered hereby. All amounts, except the
Securities and Exchange Commission registration fee, are estimated.
Securities and Exchange Commission Registration Fee . . . $4,364
Accounting Fees and Expenses . . . . . . . . . . . . . . . 9,000
Legal Fees and Expenses . . . . . . . . . . . . . . . . . 35,000
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . 1,636
-------
Total . . . . . . . . . . . . . . . . . . . . $50,000
=======
Pursuant to the terms of the registration rights agreement
filed as Exhibit 10.3 to this Registration Statement, under which the
Selling Shareholders have been granted registration rights in
connection with the registration being effected hereby, the Selling
Shareholders will pay any underwriting discounts and commissions and
other fees and expenses of investment bankers and any brokerage
commissions payable in respect of sales of the Shares. The Company
will bear all other reasonable expenses incident to the registration of
the Shares pursuant to this Registration Statement.
Item 15. Indemnification of Directors and Officers.
The Company is a Texas corporation. Article 1302-7.06 of the
Texas Miscellaneous Corporation Laws Act authorizes Texas corporations,
such as the Company, to eliminate or limit, pursuant to a provision in
their articles of incorporation, the liability of directors thereof to
the corporation and its shareholders for certain acts or omissions in
the director's capacity as a director, subject to certain limitations.
Reference is made to Article Fifteen of the Company's Restated Articles
of Incorporation, which are filed as Exhibit 4.1 hereto, that
eliminates the liability of directors of the Company for monetary
damages for certain acts or omissions, subject to certain limitations.
<PAGE>
Article 2.02-1 of the Texas Business Corporation Act permits
(and in certain circumstances requires) Texas corporations, such as the
Company, to indemnify directors and officers thereof under certain
conditions and subject to certain limitations. Reference is made to
Article Nine of the Company's Bylaws, which are filed as Exhibit 4.2
hereto, that provides for indemnification of directors and officers of
the Company, subject to certain limitations.
The Company maintains a directors and officers liability
insurance policy insuring its directors and officers against certain
liabilities and expenses incurred by them in their capacities as such
and insuring the Company, under certain circumstances, in the event
that indemnification payments are made by the Company to such directors
and officers.
Pursuant to the terms of the registration rights agreement
filed as Exhibit 10.3 to this Registration Statement, the Selling
Shareholders have agreed to indemnify the Company and its directors,
officers and controlling persons against certain liabilities, including
liabilities under the Securities Act of 1933, arising out of untrue
statements or omissions in the Registration Statement made in reliance
upon and in conformity with information furnished in writing to the
Company by the Selling Shareholders.
The foregoing summaries are necessarily subject to the
complete text of the statutes, Restated Articles of Incorporation,
Bylaws, insurance policy and agreement referred to above and are
qualified in their entirety by reference thereto.
Item 16. Exhibits.
The information required by this Item 16 is set forth in the
Index to Exhibits accompanying this Registration Statement.
Item 17. Undertakings.
(a) Rule 415 Offering.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to the
Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
<PAGE>
(ii) to reflect in the Prospectus any facts or
events arising after the effective date of the
Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar
value of securities offered would not exceed that which
was registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement;
(iii) to include any material information with
respect to the plan of distribution not previously
disclosed in the Registration Statement or any material
change to such information in the Registration
Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) Filings Incorporating Subsequent Exchange Act Documents
by Reference.
T h e undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's Annual Report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE>
(h) Acceleration of Effectiveness.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly
caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Irving, State of Texas, on the 16 day of April, 1997.
Carrington Laboratories, Inc.
(Registrant)
By:/s/ SHERI L. PANTERMUEHL
Sheri L. Pantermuehl
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
Signature Title Date
_______*_________ *Chairman of the Board April 16, 1997
George DeMott
*Chief Executive Officer,
__________*_____________ President and April 16, 1997
Carlton E. Turner, Ph.D. Director (Principal Executive
Officer)
<PAGE>
*Chief Financial Officer and
_________*___________ Treasurer April 16, 1997
Sheri L. Pantermuehl (Principal Financial Officer
and Accounting Officer)
______*________ *Director April 16, 1997
Selvi Vescovi
________*_________ *Director April 16, 1997
Thomas J. Marquez
_________*_____________ *Director April 16, 1997
Robert A. Fildes, Ph.D.
________*_________ *Director April 16, 1997
James T. O Brien
________*________ *Director April 16, 1997
R. Dale Bowerman
* /s/ CARLTON E. TURNER
Carlton E. Turner, Ph.D.
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
Sequentially
Numbered
Page
4.1 --- Restated Articles of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 to
the Company's 1988 Annual Report on Form 10-K).
4.2 --- Bylaws of the Company, as amended through April 27,
1995 (incorporated herein by reference to Exhibit
3.5 to the Company's 1995 Annual Report on Form 10-K).
4.3 --- Statement of Resolution Establishing Series E
Convertible Preferred Stock of the Company
(incorporated herein by reference to Exhibit 3.1 to
the Company's Report on Form 8-K dated November 13,
1996).
4.4 --- Rights Agreement dated as of September 19, 1991,
between the Company and Ameritrust Company National
Association (incorporated herein by reference to
Exhibit 1 to the Company's Report on Form 8-K dated
September 19, 1991).
5.1*--- Opinion of Thompson & Knight, A Professional
Corporation.
10.1 --- Stock Purchase Agreement between the Company and
each of the purchasers of shares of the Company's
Series E Convertible Preferred Stock (incorporated
herein by reference to Exhibit 10.4 to the Company's
Report on Form 8-K dated November 13, 1996).
10.2 --- Amendment to Stock Purchase Agreement dated October
15, 1996 between the Company and each of the
purchasers of shares of the Company's Series E
Convertible Preferred Stock (incorporated herein by
reference to Exhibit 10.5 to the Company's Report on
Form 8-K dated November 13, 1996).
10.3 --- Registration Rights Agreement between the Company
and each of the purchasers of shares of the
Company's Series E Convertible Preferred Stock
(incorporated herein by reference to Exhibit 10.6 to
the Company's Report on Form 8-K dated November 13,
1996).
10.4*--- Offer and Agreement of Sale and Purchase of
Convertible Preferred Series E Stock between holders
of the Company's Series E Convertible Preferred
Stock and the Company, dated February 26, 1997
(incorporated herein by reference to Exhibit 10.69
to the Company's 1996 Report on Form 10-K).
23.1*--- Consent of Arthur Andersen LLP.
23.2 --- Consent of Thompson & Knight, A Professional
Corporation (included in Exhibit 5.1).
24.1 --- Power of Attorney (included in Part II of the
Registration Statement).
______________________
* Filed herewith.
Previously filed.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
---------------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our report
dated February 7, 1997 (except with respect to the matter discussed in
Note Eighteen, as to which the date is March 4, 1997) included in the
Carrington Laboratories, Inc. Form 10-K for the year ended December 31,
1996 and to all references to our firm included in this Registration
Statement.
Arthur Anderson LLP
Dallas, Texas
April 15, 1997
<PAGE>
