UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
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Commission file number 0-11997
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CARRINGTON LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1435663
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Walnut Hill Lane, Irving, Texas 75038
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(Address of principal executive offices and Zip Code)
972-518-1300
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
9,319,177 shares of Common Stock, $.01 par value, were outstanding at
October 31, 1997.
<PAGE>
INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at September 30, 1997 (unaudited) and
December 31, 1996 3
Condensed Consolidated Statements of
Operations for the three and nine
months ended September 30, 1997 and
1996 (unaudited) 4-5
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1997 and 1996 (unaudited) 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
September 30, December 31,
1997 1996
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(unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents $ 4,150 $11,406
Accounts receivable, net 3,345 1,912
Inventories 4,533 3,623
Prepaid expenses 238 368
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Total current assets 12,266 17,309
Property, plant and equipment, net 11,039 11,678
Other assets 2,014 2,215
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Total assets $25,319 $31,202
======= =======
Liabilities and Shareholders' Investment
Current portion of long-term debt $ 32 $ 29
Accounts payable and accrued liabilities 2,826 3,370
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Total current liabilities 2,858 3,399
Long-term debt, net of current portion 19 46
Shareholders' investment:
Preferred stock - 66
Common stock 93 89
Capital in excess of par 51,545 56,680
Deficit (29,022) (28,904)
Foreign currency translation adjustment (174) (174)
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Total shareholders' investment 22,442 27,757
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Total liabilities and
shareholders investment $25,319 $31,202
======= =======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Three Months Ended
September 30,
1997 1996
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<S> <C> <C>
Net sales $6,229 $ 5,112
Costs and expenses:
Cost of sales 2,576 2,145
Selling, general and administrative 2,500 2,504
Research and development 742 1,376
Interest, net (74) (74)
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Income (loss) from operations
before income taxes 485 (839)
Provision for state income taxes 22 -
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Net income (loss) $ 463 $ (839)
======= ========
Net income (loss) per common and
common equivalent share $ 0.05 $ (0.09)
======= ========
Weighted average common and
common equivalent shares 9,305 8,855
======= ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Nine Months Ended
September 30,
1997 1996
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<S> <C> <C>
Net sales $17,433 $16,064
Costs and expenses:
Cost of sales 6,970 8,440
Selling, general and administrative 8,018 8,253
Research and development 2,336 5,079
Interest, net 24 (168)
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Income (loss) from operations
before income taxes 85 (5,540)
Provision for state income taxes 70 -
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Net income (loss) $ 15 $(5,540)
======= ========
Net income (loss) per common and
common equivalent share $ 0.01 $ (0.63)
Less: Earnings attributable to
preferred shareholders (Series E) (0.01) -
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Net income (loss) available to common
shareholders per common
and common equivalent share $ 0.00 $ (0.63)
======= ========
Weighted average common and
common equivalent shares 8,932 8,775
======= ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Condensed Statements of Cash Flows (unaudited)
(Dollar amounts in 000's)
Nine Months
Ended
September 30,
1997 1996
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 15 $(5,540)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 912 958
Changes in assets and liabilities:
Receivables, net (1,433) 283
Inventories, net (1,039) 1,505
Prepaid expenses 130 635
Other assets 172 (1,314)
Accounts payable and accrued liabilities (543) 708
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Net cash used by operating activities (1,786) (2,765)
Cash flows from investing activities:
Purchases of property, plant and equipment (244) (183)
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Net cash used by investing activities (244) (183)
Cash flows from financing activities:
Issuances of common stock 2,584 4,562
Repurchase of preferred stock (7,785) -
Repayment of bank debt - (2,977)
Debt payments (25) (44)
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Net cash (used) provided by financing activities (5,226) 1,541
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Net decrease in cash
and cash equivalents (7,256) (1,407)
Cash and cash equivalents, beginning of period 11,406 6,222
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Cash and cash equivalents, end of period $ 4,150 $ 4,815
======== =======
Supplemental disclosure of cash flow
information
Cash paid during the period for interest $ 5 $ 84
Cash paid during the period for
federal, state and local income taxes $ 85 -
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Condensed Consolidated Financial Statements:
The condensed consolidated balance sheet as of September 30, 1997 and the
condensed consolidated statements of operations for the three and nine
month periods ended September 30, 1997 and 1996 and the condensed
consolidated statements of cash flows for the nine month periods ended
September 30, 1997 and 1996, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include all
normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows at
September 30, 1997, 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, 1996.
(2) Debt:
The Company had no outstanding bank debt as of September 30, 1997 and
December 31, 1996. The Company s long-term debt represents capital
equipment lease obligations of the Company.
(3) Shareholders' Investment:
Common Stock - On June 20, 1997, the Company sold a total of 415,000
shares of its Common Stock, par value $.01 per share (the Shares ), to
accredited investors, as defined in Rule 501(a) promulgated under the
Securities Act of 1933, as amended, for an aggregate of approximately
$2,496,000 in a self-managed private placement. The purchase price was
determined through discussions between the Company and a representative
of the investors and was based on the last reported sale price of the
Common Stock on June 3, 1997 ($6.875), less a discount of 12.5% to
approximate the liquidity risk inherent in unregistered stock. Net
proceeds to the Company were approximately $2,475,000 after payment of
expenses. Proceeds of the sale will be used by the Company for general
corporate purposes.
Preferred Stock (Series E) - On October 21, 1996 (the Closing Date ),
the Company completed a $6,600,000 financing involving the private
placement of Series E Convertible Preferred Stock (the Series E
Shares ). The Company realized net proceeds of $6,266,000.
The Series E Shares were convertible, at the option of the holder
thereof, into shares of the Company s common stock beginning on December
20, 1996, and prior to October 21, 1999 (the Maturity Date ), at a
conversion price per share (the Conversion Price ) equal to the lower of
$25.20 (120% of the market price of the Company s common stock
<PAGE>
immediately prior to the Closing Date) or 87% of the market price as
calculated over the three trading-day period ending on the last trading
day immediately preceding the conversion date.
The SEC has taken the position that when preferred stock is convertible
to common stock at a conversion rate that is the lower of a rate fixed at
issuance or a fixed discount from the common stock market price at the
time of conversion, the discounted amount is an assured incremental
yield, the beneficial conversion feature, to the preferred shareholders
and should be accounted for as an embedded dividend to preferred
shareholders. As such, a dividend of $986,000, or $0.11 per share, was
recognized in the earnings per share calculation as of December 31, 1996.
At the Closing Date, the Company s plans called for much of the proceeds
from this sale to be used to continue Carrington s clinical research
programs. On October 31, 1996, the Company announced that the results of
its first Phase III trial of Aliminase[TM] oral capsules were not
favorable and that the Company had placed the Aliminase[TM] project on
hold and terminated the second Phase III trial of that product. Those
developments resulted in changes in the Company s planned uses of and
need for funds. In addition, a decline in the market price of the
Company s common stock that followed that announcement increased the
extent of dilution that would have occurred if all of the outstanding
Series E Shares issued in October 1996 were converted into common stock.
Accordingly, the Company s Board of Directors concluded that it was in
the best interest of the Company and its shareholders to use a portion of
its existing funds to repurchase the outstanding Series E Shares. The
repurchase of 50% of the outstanding Series E Shares was completed on
March 4, 1997 (the Repurchase Date ).A premium of 13% was paid over the
original Purchase Price. On the Repurchase Date, the Company paid the
Series E Shareholders $3,832,159. Amounts paid to preferred shareholders
in excess of par total $68,000 more than the embedded dividend recognized
in the fourth quarter of 1996. This additional deemed dividend was used
in the earnings per share calculation for the first quarter of 1997 to
reduce net income available to common shareholders.
On May 21, 1997, the Company repurchased the remaining shares of its
Series E Shares from the Series E Shareholders for a total cash purchase
price of approximately $3,852,000.
(4) New Accounting Pronouncement:
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share ( SFAS 128"), which is required
to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock
options will be excluded. Utilizing the new method would not impact
either primary income (loss) per share or fully diluted income (loss) per
share for the quarters or nine month periods ended September 30, 1997 or
September 30, 1996.
<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
a third party distributor, Farnam Companies, Inc; 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 L. plant.
The following summarizes unaudited sales by division and unaudited
consolidated sales for the three month periods ended September 30, 1997
and 1996: (Dollar amounts in 000's)
Carrington Laboratories, Inc.
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Three Months Ended Wound Carrington Caraloe Consolidated
September 30, 1997 Care Veterinary Sales Inc. Sales
------------------ ------ ---------- ------- ------- ------
Sales, net $4,618 $ 63 $ 4,681 $1,548 $6,229
Cost of sales 1,440 55 1,495 1,081 2,576
------ ----- ------- ------ ------
Gross margin $3,178 $ 8 $ 3,186 $ 467 $3,653
====== ===== ======= ====== ======
Three Months Ended
September 30, 1996
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Sales, net $4,143 $ 78 $4,221 $ 891 $5,112
Cost of sales 1,447 42 1,489 656 2,145
------ ----- ------ ------ ------
Gross margin $2,696 $ 36 $2,732 $ 235 $2,967
====== ===== ====== ====== ======
The following summarizes unaudited sales by division and unaudited
consolidated sales for the nine month periods ended September 30, 1997
and 1996: (Dollar amounts in 000's)
Carrington Laboratories, Inc.
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Nine Months Ended Wound Carrington Caraloe Consolidated
September 30, 1997 Care Veterinary Sales Inc. Sales
------------------ ------ ---------- ------- ------- -------
Sales, net $13,677 $120 $13,797 $3,636 $17,433
Cost of sales 4,255 106 4,361 2,609 6,970
------ ----- ------- ------ -------
Gross margin $9,422 $ 14 $ 9,436 $1,027 $10,463
====== ===== ======= ====== =======
<PAGE>
Nine Months Ended
September 30, 1996
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Sales, net 12,788 $246 $13,034 $3,030 $16,064
Cost of sales 5,638 165 5,803 2,637 8,440
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Gross margin $7,150 $ 81 $7,231 $ 393 $ 7,624
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Liquidity and Capital Resources
At September 30, 1997 and December 31, 1996, the Company held cash and
cash equivalents of $4,150,000 and $11,406,000, respectively. The
decrease in cash of $7,256,000 from December 31, 1996 to September 30,
1997 was largely attributable to the repurchase of 100% of the Series E
Shares outstanding (see Note 3 to the condensed consolidated financial
statements). Also contributing to the decrease in cash was the payment
of approximately $150,000 in cancellation fees related to the second
Phase III clinical study for Aliminase[TM] oral capsules (described
below). Additionally, the Company has invested in inventory to support
the launch of several new product lines during the first nine months of
1997 and to support sales to Mannatech, Inc., and Aloe Commodities
International, Inc. Receivables from these two customers totaled
$771,000 and $326,000, respectively, as of September 30, 1997. As of
November 14, 1997, $545,000 of the above balance has been collected.
These draws on the Company s cash were partially offset by a $2,475,000
private placement of common stock on June 20, 1997 (see Note 3 to the
condensed consolidated financial statements).
As of November 14, 1997, the Company had no material capital commitments
other than its leases and agreements with suppliers. 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 letter of credit equal to 60% of the minimum purchase commitment, as
described below. As of September 30, 1997, the Company had purchased
products totaling approximately $515,000 from this supplier and the
future minimum purchase commitment is $1,985,000. Current sales of the
affected products are lower than the minimum purchase requirement, but
the Company believes that as licensing, acceptance and demand for the new
technology increases, demand will exceed the minimum purchase
requirement. The Company is in full compliance with the agreement and,
as of November 14, 1997, has the available resources to meet all future
minimum purchase requirements. A certificate of deposit collateralizing
the letter of credit of $1,250,000 is included in other non-current
assets for reporting purposes.
In November 1997, the Company entered into an agreement with Comerica
Bank-Texas for a $3,000,000 line of credit. The line of credit is to be
used for operating needs, as required, and to secure the reissuance of
the letter of credit described above. This will result in freeing an
additional $1,250,000 in operating funds, as the certificate of deposit
currently serving as collateral is no longer required.
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
<PAGE>
advanced calcium alginate products for North and South America and in the
People's Republic of China. Under the agreement, the Company made an
up-front payment of $500,000 to the supplier in November 1995, and in
July 1997 and October 1997, additional payments of $166,000 and $167,000,
respectively, were paid to this supplier upon delivery of the
CarraSmart[TM] Hydrocolloid, a new product launched in the third quarter
of 1997. These payments resulted in increasing the prepaid assets of the
Company. As of September 30, 1997, the net book value of this agreement
was $565,000. Additional payments totaling $167,000 will be made to the
supplier as additional new products are delivered.
In late 1995, the Company began an initial Phase I dosing study using
CarraVex[TM] injectable (formerly CARN 750) in cancer patients involving
six cancer types. The estimated cost of this study is $475,000, of which
approximately $315,000 had been expensed as of September 30, 1997. Based
on results of the study, the Company is currently developing a different
and more soluble formula of CarraVex[TM]. The reformulated product and
decision on the future of the cancer clinical trial is expected in late
1998.
The Company believes that its available cash resources and expected cash
flows from operations will provide the funds necessary to finance its
current operations. However, the Company does not expect that its
current cash resources will be sufficient to finance the major clinical
studies and costs of filing new drug applications necessary to develop
its products to their full commercial potential. Additional funds,
therefore, may have to be raised through equity offerings, borrowings,
licensing arrangements or other means, and there is no assurance that the
Company will be able to obtain such funds on satisfactory terms when they
are needed.
The Company is subject to regulation by numerous governmental authorities
in the United States and other countries. Certain of the Company's
proposed products will require governmental approval prior to commercial
use. The approval process applicable to prescription pharmaceutical
products usually takes several years and typically requires substantial
expenditures. The Company and any licensees may encounter significant
delays or excessive costs in their respective efforts to secure necessary
approvals. Future United States or foreign legislative or administrative
acts could also prevent or delay regulatory approval of the Company's or
any licensees' products. Failure to obtain requisite governmental
approvals or failure to obtain approvals of the scope requested could
delay or preclude the Company or any licensees from marketing their
products, or could limit the commercial use of the products, and thereby
have a material adverse effect on the Company's liquidity and financial
condition.
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its results of operations.
<PAGE>
Third Quarter of 1997 Compared With Third Quarter of 1996
Net sales were $6,229,000 in the third quarter of 1997, compared with
$5,112,000 in the third quarter of 1996, an increase of $1,117,000, or
21.9%. Caraloe, the Company s consumer products subsidiary, increased
sales from $891,000 to $1,548,000, or 73.7%. Caraloe sales to Mannatech,
Inc., which are primarily Manapol[R] powder, increased from $540,000 in
1996 to $1,197,000 in 1997. In August 1997, the Company entered into a
new supply agreement with Mannatech. Additionally, Caraloe made
shipments to Aloe Commodities International, Inc., ( ACI ) under a supply
agreement signed in late 1996. These shipments resulted in $182,000 in
sales in the third quarter of 1997.
Partially offsetting the above sales increases was a reduction in sales
of the Company's veterinary products from $78,000 to $63,000. In March
1996, the Company entered into an agreement with Farnam Companies, Inc.,
a leading marketer of veterinary products, to promote and sell the
Company's veterinary line on a broader scale. In early 1998, the Company
will begin to private label the veterinary line under the Farnam name.
In 1997, Farnam s sales of Carrington products have been negatively
impacted by the backorder of Acemannan immunostimulant. Production
should recommence on schedule in the latter part of 1997 and all of 1998
Farnam has increased its sales force and expects to improve its market
share with the private labeled products.
Also contributing to the increase in net sales was an increase of
$475,000 in sales of the Company's wound and skin care products from
$4,143,000 to $4,618,000, or 11.5%. New products introduced in the first
nine months of 1997 accounted for $228,000 in wound and skin care sales
during the third quarter of 1997.
Cost of sales increased from $2,145,000 to $2,576,000, or 20.1%. As a
percentage of sales, cost of sales decreased from 42.0% in the third
quarter of 1996 to 41.4% in the third quarter of 1997.
Selling, general and administrative expenses remained constant at
$2,500,000 as compared to $2,504,000 in the third quarter of 1996, even
though sales increased. This steady spending level is primarily
attributable to cost reduction programs put in place in 1996, including
savings generated from the restructuring of the sales force.
Research and development ("R&D") expenses decreased to $742,000 from
$1,376,000, or 46.1%. This decrease was the result of the completion of
the first Phase III pivotal large scale clinical trial for the testing of
Aliminase[TM] oral capsules for the treatment of acute flare-ups of
ulcerative colitis begun during the third quarter of 1995. This study
was substantially completed in the third quarter of 1996. In September
of 1996, the Company initiated the second pivotal Phase III testing of
Aliminase[TM] oral capsules. The initial payment of approximately
$212,000 was expensed in the third quarter of 1996. In late October
1996, the Company received the results of the initial phase III clinical
trial for the testing of Aliminase[TM] oral capsules. Indications were
that no statistically significant differences were found to support a
therapeutic effect. As a result, the Company terminated the second large
scale clinical trial and further testing of the Aliminase[TM] oral
<PAGE>
formulation was placed on hold. Approximately $150,000 in cancellation
fees was expensed in the third quarter of 1996. Also contributing to the
decrease in R&D expenses was a reduction of internal salaries and other
operating expenses.
Net interest income of $74,000 in the third quarter of 1997 is comparable
to the $74,000 of net interest income in the third quarter of 1996.
Net income for the third quarter of 1997 was $463,000, versus a net loss
of $(839,000) for the third quarter of 1996. This change is due
primarily to increased sales volume, and reduced research expenditures.
Net income per share was $0.05 in the third quarter of 1997, compared to
a loss per share of $(0.09) during the same period in 1996.
First Nine Months of 1997 Compared With First Nine Months of 1996
Net sales were $17,433,000 in the first nine months of 1997, compared
with $16,064,000 in the first nine months of 1996. This increase of
$1,369,000, or 8.5%, resulted from an increase of $889,000 in sales of
the Company's wound and skin care products from $12,788,000 to
$13,677,000, or 7.0%. New products introduced in the first nine months
of 1997 accounted for $466,000 in wound and skin care sales.
Also contributing to the above sales increase was an increase in sales of
Caraloe, Inc., the Company's consumer products subsidiary. Caraloe's
sales increased from $3,030,000 to $3,636,000, or 20.0%. Caraloe sales
to Mannatech, Inc., which were primarily Manapol[R] powder, increased
from $2,403,000 in 1996 to $2,643,000 in 1997. In August 1997, the
company entered into a new supply agreement with Mannatech.
Additionally, Caraloe made its first shipments to Aloe Commodities
International, Inc., ( ACI ) under a supply agreement signed in late
1996. These shipments resulted in $483,000 in sales in the first nine
months of 1997.
Partially offsetting the increase in net sales was a reduction in sales
of the Company's veterinary products from $246,000 to $120,000. In March
1996, the Company entered into an agreement with Farnam Companies, Inc.,
a leading marketer of veterinary products, to promote and sell the
Company's veterinary line on a broader scale. In early 1998, the Company
will begin to private label the veterinary line under the Farnam name.
Farnam has increased its sales force and expects to improve its market
share with the private labeled products.
Cost of sales decreased from $8,440,000 to $6,970,000, or 17.4%. As a
percentage of sales, cost of sales decreased from 52.5% in the first nine
months of 1996 to 40.0% in the fist nine months of 1997. The high 1996
cost of sales was the result of period costs related to inventory
reduction programs in the first half of 1996. In 1997, these period
costs were eliminated as desired inventory levels had been obtained by
the latter half of 1996.
Selling, general and administrative expenses decreased to $8,018,000 from
$8,253,000, or 2.8%. This decrease was primarily attributable to cost
<PAGE>
reduction programs put in place in 1996, including savings generated from
the restructuring of the sales force.
Research and development ("R&D") expenses decreased to $2,336,000 from
$5,079,000, or 54.0%. This decrease was the result of the completion and
discontinuance of the large scale clinical trial for the testing of
Aliminase[TM] oral capsules for the treatment of acute flare-ups of
ulcerative colitis begun during the third quarter of 1995. This study
was substantially completed in the third quarter of 1996. Also
contributing to the decrease in R&D expenses was a reduction of internal
salaries and other operating expenses.
Net interest and other expenses of $24,000 was realized in the fist nine
months of 1997, versus net interest income of $168,000 in the first nine
months of 1996. In the first half of 1997, the Company realized losses
on its mutual fund account of $204,000, or 1.8% of the beginning year
cash balance, when the account was converted to cash to meet the
financing needs of the Company.
Net income for the first nine months of 1997 was $15,000, versus a net
loss of $5,540,000 for the first nine months of 1996. This change was a
result of the elimination of period costs associated with the inventory
reduction programs put in place in early 1996, and reduced research
expenditures. Net income per share was $0.00 in the first nine months of
1997, compared to a loss per share of $(0.63) during the same period in
1996. The net income per common share in 1997 was reduced by $70,000, or
$0.01 per common share, deemed dividend on the Company s Series E
Convertible Preferred Stock in the calculation of net income per common
share for the nine month period ended September 30, 1997.
All statements other than statements of historical fact contained in this
report, including statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (and similar
statements contained in the Notes to Condensed Consolidated Financial
Statements), concerning the Company's financial position, liquidity,
capital resources and results of operations, its prospects for the future
and other matters, are forward-looking statements. Forward-looking
statements in this report generally include or are accompanied by words
such as "anticipate", "believe", "estimate", "expect", "intend" or words
of similar import. Such forward-looking statements include, but are not
limited to, statements regarding the Company's plan to achieve growth in
demand for, or sales of, products, to reduce expenses and manufacturing
costs and increase gross margin on existing sales, to obtain financing
when it is needed, to increase the Company's market share in the
alternative care markets, to improve its revenues and fund its operations
from such revenues and other available cash resources, to enter into
licensing agreements, to develop and market new products and increase
sales of existing products, to obtain government approval to market new
products, to expand its business into a larger segment of the market for
wound care products, to increase its market share in the alternative care
markets, to promote and sell its veterinary products on abroad scale and
various other matters.
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, no assurance can be given that
<PAGE>
such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements include but are not limited to the
possibilities that the Company may be unable to obtain the funds needed
to carry out large scale clinical trials and other research and
development projects, that the results of the Company's clinical trials
may not be sufficiently positive to warrant continued development and
marketing of the products tested, that new products may not receive
required approvals by the appropriate government agencies or may not meet
with adequate customer acceptance, that the Company may not be able to
obtain financing when needed, that the Company may not be able to obtain
appropriate licensing agreements for products that it wishes to market or
products that it needs assistance in developing, that demand for the
Company's products may not be sufficient to enable it to recover the cost
of the Costa Rica plant or to absorb all of that plant's operating costs,
and that the Company's efforts to improve its sales may not be sufficient
to enable it to fund its operating costs from revenues and available cash
resources.
All forward-looking statements in this report are expressly qualified in
their entirety by the cautionary statements in the two immediately
preceding paragraphs.
<PAGE>
Part II
Item 1. Legal Proceedings
On June 12, 1997, Allison Kindt ( Kindt ), a former employee of the
Company, filed a lawsuit styled Allison Kindt v. Carrington Laboratories,
Inc., Civil Action No. 5-97-CV-469-BO(1), in the United States District
Court for the Eastern District of North Carolina, Western Division,
alleging sex discrimination and retaliation and employment action in
violation of public policy against sex discrimination in connection with
her employment with the Company. Kindt seeks to recover such additional
compensation and other benefits of employment and back pay as she would
have received had her employment not been terminated. The Company has
responded to these allegations and is vigorously defending this action.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
-------------------
4.1 * Retirement and Consulting Agreement dated August 14, 1997,
between Carrington Laboratories, Inc., and David G. Shand
4.2 * First Amendment to Retirement and Consulting Agreement
dated September 30, 1997, between Carrington Laboratories,
Inc., and David G. Shand
10.1* Trademark License and Product Supply Agreement dated
July 22, 1997, between Caraloe, Inc., and Nu Skin
Internationl, Inc.
10.2* Supply Agreement dated August 14, 1997, between Caraloe
Inc., and Mannatech, Inc.
10.3* Trademark License Agreement dated August 14, 1997, between
Caraloe, Inc., and Mannatech, Inc.
11.1* Computation of Net Income (Loss) Per Common and Common
Equivalent Share
27.1* Financial Data Schedule
b. Reports on Form 8-K:
-------------------
No report on Form 8-K was filed by the Company during the
quarter ended September 30, 1997.
* Filed herewith.
Management contract or compensatory plan.
<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: November 14, 1997 By: /s/ Carlton E. Turner
------------------ ------------------------
Carlton E. Turner,
President and C.E.O.
Date: November 14, 1997 By: /s/ Christopher S.Record
------------------ -----------------------
Christopher S.Record,
V.P. Finance
RETIREMENT AND CONSULTING AGREEMENT
This Retirement and Consulting Agreement (this "Agreement") is
made by and between CARRINGTON LABORATORIES, INC., a Texas
corporation ("Carrington"), and DAVID G. SHAND, M.D., Ph.D.
("Shand"), for the purpose of documenting the terms of Shand's
retirement as an officer and employee of Carrington and his
engagement as a consultant to Carrington, all as set forth below:
1. Retirement. Effective as September 30, 1997 (the
Retirement Date ), (a) Shand hereby voluntarily retires from all
positions that he now occupies as an employee and/or officer of
Carrington and any of its subsidiary corporations, including but not
limited to his position as Executive Vice President, Research and
Development, of Carrington; and (b) the letter agreement between
Carrington and Shand dated December 12, 1994, and signed by Shand on
December 14, 1994, is hereby terminated in its entirety.
(a) Compensation and Benefits. Through the Retirement
Date, Carrington shall continue to pay Shand his regular
compensation at the rate currently in effect, less all legal
deductions, and all benefits to which he is currently entitled
under Carrington's existing employee benefit plans and policies.
Carrington shall pay Shand for any vacation time that is accrued
and unused as of the Retirement Date. Shand acknowledges that
he is not and will not be entitled to receive anything under
Carrington's 1995 Management Compensation Plan.
(b) Reimbursement of Expenses. Carrington shall reimburse
Shand for all reasonable and properly reimbursable business
expenses incurred by him prior to the Retirement Date promptly
a f ter Shand timely submits a proper expense report and
supporting documentation to Carrington.
(c) Stock Options. On the Retirement Date, Shand shall
surrender to Carrington all of the stock options previously
granted to him by Carrington that are then outstanding (the "Old
Options"), subject to his receipt of the New Options provided
for in Section 4(d) of this Agreement.
(d) Authority. After the Retirement Date, (i) Shand will
not be, and will not hold himself out as being, a director,
officer or employee of Carrington or any of its subsidiary
c o r porations, and (ii) Shand will not be obligated or
authorized, and will not hold himself out as being authorized,
t o make any representations, enter into any contracts,
commitments, or obligations, or perform any other acts of any
kind whatsoever on behalf of Carrington or any of its subsidiary
corporations, except to the extent, if any, that the President
or a Vice President of Carrington expressly authorizes him to do
so in connection with his performance of Services, as that term
is defined in Section 3 of this Agreement.
<PAGE>
2. Consulting Term. Beginning on October 1, 1997, Shand shall
serve as a consultant to Carrington for a term (the "Consulting
Term") that shall end on the earliest to occur of the following
dates:
(a) the first anniversary of the Retirement Date;
(b) the date of Shand's death;
(c) the date on which Carrington's Board of Directors
elects to terminate the Consulting Term for "Cause,"
as hereinafter defined;
(d) the date on which Shand elects to terminate the
Consulting Term by written notice to Carrington due to
a material breach of this Agreement by Carrington; or
(e) the date on which Carrington and Shand mutually agree
in writing to terminate the Consulting Term.
The Consulting Term shall not terminate solely by reason of
Shand's becoming a part-time or full-time employee of a third party,
provided he complies with the terms of this Agreement.
This Agreement may be renewed for up to five (5) additional
one-year terms upon the written agreement of both parties.
As used in this Agreement, the term "Cause" shall mean (i)
any act by Shand that is, in the good faith opinion of Carrington's
Board of Directors, adverse to the best interests of Carrington, or
(ii) the breach by Shand of any of his obligations under this
Agreement or the Confidentiality Agreement referred to in Section 8
hereof.
The expiration or termination of the Consulting Term shall
not terminate any rights of either party that shall have accrued at
or prior to the time of such expiration or termination, including but
not limited to the right of either party to recover damages from the
other party due to the other party's breach of this Agreement.
<PAGE>
3. Consulting Services. During the Consulting Term, Shand
shall perform for Carrington such consulting services as Carrington
from time to time reasonably requests ("Services"). The amount of
time to be spent by Shand in performing Services requested by
Carrington shall be agreed to by Shand and Carrington in advance of
the performance of such Services. The Services requested by
Carrington shall be of the same general nature as the services that
Shand performed for Carrington while in its employ and may include
designing, or advising and assisting in the designing of, clinical
trials and selecting, or advising and assisting in the selection of,
clinical research organizations. The Services shall be performed by
Shand at such times and upon such schedule as shall be mutually
agreeable to Shand and Carrington. Notwithstanding the foregoing,
however, Shand shall not be required to perform Services for more
than fifteen (15) days during any "Contract Quarter," as that term is
hereinafter defined, unless he and Carrington so agree. As used
herein, the term "Contract Quarter" means a period of three (3)
consecutive months beginning on the first day of the first, fourth,
seventh or tenth month of the Consulting Term. Carrington shall not
be obligated to request the performance of any Services by Shand.
4. Consulting Compensation and Benefits.
(a) Compensation. The compensation payable by Carrington
to Shand for his agreement to perform and his performance of Services
under this Agreement shall be as follows:
(i) Retainer. During the Consulting Term, Carrington
shall pay Shand a retainer of $3,333.33 per month, payable on
the fifteenth day of each calendar month (or, if the fifteenth
day of a month is a Saturday, Sunday or holiday, on the last
business day preceding the fifteenth day of such month).
Carrington shall deduct from such retainer the cost payable by
Shand for participating in Carrington's group insurance plan(s)
as contemplated by Section 4(c) of this Agreement.
(ii) Fees for Services. The retainer payments made by
Carrington pursuant to Section 4(a)(i) hereof shall constitute
payment in full to Shand for his performance of Services for up
to fifteen (15) days during each Contract Quarter. If
Carrington and Shand agree that he shall spend in excess of
fifteen (15) days during any Contract Quarter performing
Services, Carrington shall pay Shand an additional consulting
fee at the rate of $375 per hour for the excess time that he
spends performing such Services. Any such additional consulting
fees shall be paid by Carrington to Shand promptly after he
submits to Carrington a proper bill for the Services performed.
(b) Reimbursement of Expenses. Carrington shall reimburse
Shand for all reasonable and properly reimbursable business expenses
incurred by him during the Consulting Term in connection with his
performance of Services (including reasonable expenses for travel,
meals and lodging, if he is required to travel in connection with the
performance of Services), provided (i) Shand obtains advance written
authorization from the President or a Vice President of Carrington to
incur such expenses and (ii) Shand timely submits a proper expense
report and supporting documentation to Carrington.
<PAGE>
(c) Group Insurance. During the Consulting Term, Shand
may participate in Carrington's group insurance plan(s), subject to
the terms of such plan(s) and provided he timely pays any cost that
he is required to pay in connection therewith. Unless earlier
terminated in accordance with the terms of such plan(s), Shand's
participation in such plan(s) shall terminate upon the expiration or
termination of the Consulting Term, except to the extent (if any)
that he is entitled, and elects, to continue insurance coverage
thereafter at his own expense pursuant to the Consolidated Omnibus
Budget Reconciliation Act.
(d) Stock Options. In consideration of Shand's agreement
to all of the terms and conditions of this Agreement, and also in
consideration of and subject to Shand's surrender to Carrington on
the Retirement Date of all of the Old Options, Carrington shall grant
to Shand, effective as of the first day of the Consulting Term and
pursuant to Carrington's 1995 Stock Option Plan, as amended (the
"Option Plan"), new stock options (the "New Options") having
substantially the same terms and conditions as the unexercised
portions of the Old Options, including the right to purchase the same
numbers of shares of Carrington's Common Stock at the same times and
for the same prices as he would have been entitled to purchase them
under the Old Options if he had continued as an employee of
C a r r i n g ton and the Old Options had remained in effect.
Notwithstanding the foregoing, the New Options (i) shall not be
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, (ii) shall expire and
become null and void no later than upon the expiration of thirty (30)
days from the date on which the Consulting Term expires or
terminates, for any reason other than Shand s death, and (iii) shall
comply with the provisions of Article V and all other applicable
provisions of the Option Plan.
5. Independent Contractor. During the Consulting Term, Shand
shall be an independent contractor of Carrington and shall not be
considered an employee of Carrington for any purpose whatsoever.
Accordingly, Carrington will not withhold any amounts for income or
employment taxes from the retainer payments or fees that it pays him
under Section 4(a) of this Agreement, and Shand shall be responsible
for paying all income and self-employment taxes payable with respect
to such compensation.
<PAGE>
6. A. General Release. Shand and his family members, heirs,
successors, and assigns (hereinafter referred to collectively as the
"Releasing Parties") hereby release, acquit, and forever discharge
C a r rington, its subsidiary corporations and their respective
shareholders, directors, officers, fiduciaries, agents, servants,
employees, representatives, attorneys, insurers, successors, and
assigns (collectively, the "Released Parties") from any and all
claims, demands, and causes of action of every kind and character,
whether vicarious, derivative, or direct, that any of the Releasing
Parties now has or may hereafter have or assert against any or all of
the Released Parties growing out of, resulting from, or connected in
any way with Shand's employment or his retirement from employment
with Carrington, including but not limited to any and all claims for
damages (actual, exemplary, liquidated, or unliquidated), back pay,
future pay, deferred compensation, bonuses, commissions, severance
p a y ments, vacation and leave benefits, unreimbursed business
expenses, overtime compensation, reinstatement or priority placement,
past and future medical or other employee benefits for Shand or his
dependents, employee retirement benefits, contributions to company-
sponsored 401(k) plans (except as presently vested in any savings
plan sponsored by Carrington in which Shand is a participant),
medical and counseling costs, injunctive relief, declaratory relief,
attorney's fees, costs of court, disbursements, interest, or any
other form whatsoever of legal or equitable relief to which any of
the Releasing Parties claims or might claim entitlement as a result
of any alleged act or omission of any of the Released Parties,
including but not limited to any alleged unlawful age discrimination
or any other form of unlawful employment discrimination, retaliation,
wrongful termination, breach of contract (express or implied),
tortious interference with contract, promissory estoppel, detrimental
reliance, negligent or intentional infliction of emotional distress,
negligent hiring and supervision, assault, battery, defamation of
character, any alleged act of harassment or intimidation, negligent
or intentional misrepresentation or fraud, invasion of privacy, or
any other intentional or negligent tort, or any alleged violation of
the Age Discrimination in Employment Act of 1967, Title VII of the
Civil Rights Act of 1964, the Americans With Disabilities Act of
1990, the Family and Medical Leave Act of 1993, the Employee
Retirement Income Security Act of 1974, the Fair Labor Standards Act,
the Fair Credit Reporting Act, the Texas Commission on Human Rights
Act, the Texas Wage Payment Statute, the public policy of the United
States, the State of Texas, or any other state, or any other federal
or state statutory or common law, or any other alleged adverse
employment action by any of the Released Parties, and all other loss,
expense, or detriment of every kind and character, whether past or
future, that any of the Releasing Parties may have sustained or may
hereafter sustain by reason of any act or omission of any of the
Released Parties growing out of, resulting from, or connected in any
way with Shand's employment or his retirement from employment with
Carrington. IT IS THE EXPRESS INTENTION AND AGREEMENT OF THE PARTIES
THAT THE FOREGOING PROVISIONS OF THIS SECTION 6 RELEASE THE RELEASED
PARTIES FROM ANY AND ALL LIABILITY FOR THEIR OWN NEGLIGENCE. The
preceding provisions of this Section 6 do not apply to any rights or
claims that may arise after the date this Agreement is executed by
Shand.
<PAGE>
B. Release by Carrington. Carrington hereby releases,
acquits and forever discharges Shand from any and all claims, demands
and causes of action of every kind and character that Carrington now
has or may hereafter have or assert against Shand growing out of,
resulting from or connected in any way with Shand s employment or the
termination of his employment with Carrington. This general release
does not apply to any rights or claims that may arise after the date
the Agreement is executed by Carrington.
7. Nondisparagement. Shand shall not make any statements,
orally or in writing, or engage in any other acts that would directly
or indirectly cause any harm or damage to Carrington or any of the
other Released Parties. Likewise, Carrington shall not make any
statements, orally or in writing, or engage in any other acts that
would directly or indirectly cause any harm or damage to Shand.
8. Confidentiality Obligations. All agreements and
obligations, including the obligation of confidentiality, set forth
in the Employee's Confidentiality Agreement dated January 16, 1995
between Carrington and Shand (the "Confidentiality Agreement") shall
continue in effect notwithstanding Shand's retirement from employment
with Carrington and shall be applicable during the Consulting Term.
To the extent that the Confidentiality Agreement imposes obligations
upon Shand for any period(s) following the termination of his
employment with Carrington, those obligations shall continue in
effect for equal period(s) following the expiration or termination of
the Consulting Term. In addition, Shand shall hold in confidence the
terms of this Agreement and shall not disclose the same to any
person, except that he may disclose the same to his spouse, attorney,
and accountant or tax return preparer if such persons have agreed to
keep such information confidential, and he may disclose the same if
and to the extent that such disclosure is required by law or judicial
process.
9. Attorneys' Fees. If either party to this Agreement
institutes any action or proceeding in any court to enforce any
provision hereof or to recover any damages by reason of the breach of
any provision hereof or seeking any other judicial remedy with
respect hereto, the prevailing party shall be entitled to collect
from the other party hereto such costs incurred in connection with
such action or proceeding (including but not limited to court costs
and reasonable attorneys' fees) as the court shall allow.
10. Effective Period of Offer. Carrington's offer of the terms
set forth in this Agreement will expire at 12:01 a.m. on the twenty-
second day following the date of Carrington's execution of this
Agreement, i.e., on September 5, 1997 Shand may accept this offer at
any time before such expiration by executing this Agreement and
returning it to Carrington.
11. Effective Date of Agreement. This Agreement will become
effective and enforceable on the expiration of seven (7) days after
Shand's execution of this Agreement (the "Effective Date"). At any
time before the Effective Date, Shand may revoke his acceptance of
this Agreement.
<PAGE>
12. Consultation with an Attorney. Carrington hereby advises
Shand that he has the right to consult an attorney before executing
this Agreement.
13. Notices. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when
delivered to the addressee in person, sent to the addressee by
telefacsimile transmission to the telephone number at which the
a d d r essee normally receives telefacsimile communications, or
deposited in the United States mail, postage prepaid, certified or
r e g istered mail, return receipt requested, addressed to the
appropriate party at the address set forth opposite such party's name
below, or at such other address as such party shall have theretofore
designated by written notice given to the other party in accordance
with this section:
Carrington: Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: Chief Executive Officer
Shand: Dr. David G. Shand
1205 Travis Circle South
Irving, Texas 75038
14. Miscellaneous. Shand and Carrington agree that this
Agreement and the Confidentiality Agreement (which are hereinafter
collectively called the "Final Agreement") (a) contain and constitute
the entire understanding and agreement between them regarding the
subject matter hereof; (b) contain captions and definitions that are
included only for convenience of reference and are not intended and
shall not be construed to change the express provisions of the Final
Agreement; (c) supersede and cancel any previous negotiations,
agreements, commitments and writings regarding the subject matter of
the Final Agreement; (d) may not be released, discharged, abandoned,
supplemented, changed or modified in any manner except by a writing
of concurrent or subsequent date signed by both parties hereto; (e)
are binding on and shall inure to the benefit of Shand, his heirs,
successors and assigns, and Carrington and its successors and
assigns, and that the terms of Section 6 hereof shall inure to the
benefit of and be enforceable by all of the Released Parties; and (f)
shall be governed by and construed in accordance with the laws of the
State of Texas and the applicable laws of the United States.
Shand and Carrington further agree that (i) if any
provision of this Agreement is held to be unenforceable, such
provision shall be considered to be separate, distinct, and severable
from the remaining provisions of this Agreement and shall not affect
the validity or enforceability of such remaining provisions, all of
which shall remain in full force and effect; and (ii) if any
provision of this Agreement is held to be unenforceable as written
but may be made to be enforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable
to the maximum extent permitted by applicable law.
<PAGE>
SIGNED on the dates set forth below.
CARRINGTON LABORATORIES, INC.
Dated: August 14, 1997 By: /s/ Carlton E Turner
----------------------------------
Carlton E. Turner, Ph.D., D.Sc.
President & Chief Executive Officer
Dated: August 14, 1997 By: /s/ David G. Shand
----------------------------------
DAVID G. SHAND, M.D., Ph.D.
FIRST AMENDMENT TO
RETIREMENT AND CONSULTING AGREEMENT
This First Amendment to Retirement and Consulting Agreement
( Amendment ) is made as of September 30, 1997, by and between
CARRINGTON LABORATORIES, INC., a Texas corporation ( Carrington ),
and DAVID G. SHAND, M.D., Ph.D. ( Shand ) for the purpose of amending
the Retirement and Consulting Agreement dated August 14, 1997 (the
Consulting Agreement ) between Carrington and Shand in the following
respects:
1. Amendment to Section 1(c). Section 1(c) of the Consulting
Agreement is hereby amended to read in its entirety as follows:
(c) Stock Options. Effective as of the Retirement Date,
and subject to the receipt by Shand of the New Options provided
for in Section 4(d) of this Agreement,
(i) Shand shall surrender to Carrington the stock
option granted to him by Carrington on January 16, 1995
(the First Old Option ), to the extent of all 20,000
shares of Carrington s Common Stock covered by such option
on the Retirement Date;
(ii) The stock options granted to Shand by Carrington
on August 17, 1995, June 12, 1996 and May 22, 1997
(collectively, the Other Old Options ) shall be deemed to
h a v e been surrendered by Shand to Carrington for
cancellation to the extent of all shares of Carrington s
Common Stock for which such options are outstanding and not
exercisable on the Retirement Date (10,000 shares in the
case of the August 17, 1995 option, a total of 7,500 shares
in the case of the two June 12, 1996 options, and 15,000
shares in the case of the May 22, 1997 option); and
<PAGE>
(iii) To the extent that the Other Old Options are
outstanding and exercisable on the Retirement Date (10,000
shares in the case of the August 17, 1995 option and a
total of 7,500 shares in the case of the two June 12, 1996
o p t ions), such options shall remain outstanding in
accordance with and subject to the applicable provisions of
Carrington s 1995 Stock Option Plan, as amended (the
Option Plan ), and the terms of the applicable agreements
evidencing the Other Old Options (collectively, the Other
Old Option Agreements ), including but not limited to the
provisions of Section 4.03 (iv) and (v) of the Option Plan
and Section 2(c) of the Other Old Option Agreements
relating to the effect of Shand s retirement.
Notwithstanding any contrary indication in this Agreement
or in the Other Old Option Agreements, and in accordance
with the last sentence of Section 2(c) of the Other Old
Option Agreements, Shand hereby acknowledges and agrees
that, to the extent any of the Other Old Options are
exercised more than three months after the Retirement Date,
and unless he dies within such three-month period, the
options so exercised will constitute nonqualified stock
options, i.e., stock options that do not qualify as
incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, with the resulting
federal income tax consequences.
2. Amendment to Section 4(d). Section 4(d) of the Consulting
Agreement is hereby amended to read in its entirety as follows:
(d) Stock Options. In consideration of Shand s agreement
to all of the terms and conditions of this Agreement, and
also in consideration of and subject to Shand s surrender to
Carrington as of the Retirement Date of the First Old Option
and the deemed surrender of the unexercisable portions of
the Other Old Options then outstanding, Carrington shall
grant to Shand, effective as of October 1, 1997 and pursuant
to the Option Plan, the following new nonqualified stock
options (collectively, the New Options ):
(i) An option to purchase 10,000 shares of
Carrington s Common Stock at a price of $12.50 per
share, which option shall be exercisable in whole at
any time or in part from time to time on and after
October 1, 1997, and shall be evidenced by an agreement
having the terms set forth in the form of Nonqualified
Stock Option Agreement attached to and made a part of
this Agreement as Exhibit A; and
<PAGE>
(ii) An option to purchase 42,500 shares of
Carrington s Common Stock at a price per share equal to
the closing sales price per share of Carrington s
Common Stock on the Nasdaq National Market on October
1, 1997, which option shall become exercisable with
respect to 10,625 shares beginning on October 1, 1998,
and with respect to an additional 10,625 shares
beginning on October 1 of each of the years 1999
through 2001, and shall be evidenced by an agreement
having the terms set forth in the form of Nonqualified
Stock Option Agreement attached to and made a part of
this Agreement as Exhibit B.
3. C e r t ain References. All references to this
Agreement, and all references such as hereby, herein,
hereinafter, hereof, hereto and hereunder, contained in
the Consulting Agreement or in this Amendment shall be deemed to
refer to the Consulting Agreement as amended by this Amendment.
4. R a tification of Consulting Agreement as Amended.
Carrington and Shand hereby ratify and confirm the Consulting
Agreement as amended by this Amendment and agree that, except as
amended by this Amendment, the Consulting Agreement shall remain
in full force and effect as originally written.
IN WITNESS WHEREOF, Carrington and Shand have executed this
Amendment as of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:
Carlton E. Turner, Ph.D., D.Sc.
President and Chief Executive Officer
DAVID G. SHAND, M.D., Ph.D.
EXCLUSIVE TRADEMARK LICENSE AND PRODUCT SUPPLY AGREEMENT
THIS EXCLUSIVE TRADEMARK LICENSE AND PRODUCT SUPPLY AGREEMENT
( Agreement ), effective as of July 22, 1997, is made by and between
CARALOE, INC. ( Licensor ), a Texas corporation, having its principal
place of business at 2001 Walnut Hill Lane, Irving, Texas 75038, and
NU SKIN INTERNATIONAL, INC. ( Licensee ), a Utah corporation, having
its principal place of business at 75 West Center Street, Provo, Utah
84601.
W I T N E S S E T H:
WHEREAS, Licensor and Aloe Commodities, Inc. ( ACI ) have
previously entered into a Supply Agreement (the Supply Agreement )
for the sale by Licensor and purchase by ACI of bulk Aloe vera
mucilaginous polysaccharide (a freeze dried Powder produced from the
inner gel of Aloe vera L processed pursuant to U.S., Japanese and
other patents) including one particular product (hereinafter referred
to under the product name of Manapol or Manapol Powder) to be used
as one of the ingredients in a drink or drinks manufactured by ACI
a l s o containing other ingredients and substances (the ACI
Manufactured Products ); and
WHEREAS, Carrington Laboratories, Inc., a Texas corporation
( Carrington ), is the owner of the Trademark Manapol (the Mark
having a Japan Trademark Number of 3,235,669) and has granted to
Licensor a license to use the Mark and to license others to use the
Mark on an exclusive and/or a non-exclusive basis; and
WHEREAS, Licensee is desirous of obtaining from Licensor, and
Licensor is willing to grant to Licensee, a license to use the
Trademark Manapol (the Mark ) in connection with the advertising
and sale of the ACI Manufactured Products and to use the Manapol
Powder subject to the terms, conditions and restrictions set forth
herein; and
WHEREAS, Licensor and Licensee are mutually desirous of insuring
the consistent quality of all products sold in connection with the
Mark.
NOW, THEREFORE, in consideration of the premises, the mutual
covenants, promises and agreement set forth herein, and other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby covenant, promise and agree
as follows:
<PAGE>
Article 1
LICENSE
1.1 Terms and Conditions. Licensor hereby grants to Licensee
the non-transferable right and exclusive license to use the Mark and
associated product, (Manapol Powder), said product being more
specifically defined by the specifications outlined in Exhibit A
attached hereto and made part hereof, in connection with the
manufacturing, labeling, advertising and sale of the ACI Manufactured
Products manufactured and sold by ACI to Licensee during the term of
this Agreement. During the term of this Agreement, Licensee shall
have the exclusive right to use the Mark and Manapol Powder in
connection with the ACI Manufactured Products in a drink or drinks
that are intended for sale to the ultimate consumer in Japan; and
Licensee shall not grant any other person or entity the right to use
the Mark in connection with the labeling, advertising or sale of any
drink(s) product intended for sale to the ultimate consumer in Japan,
whether said drink(s) products are manufactured by ACI or by another
manufacturer. Also, During the term of this Agreement, Licensee
shall have the exclusive right to use the Manapol Powder in a
drink(s) product that is intended for the sale to the ultimate
consumer in Japan pursuant to the terms set forth herein whether or
not manufactured by ACI.
1.2 License Coterminous With Supply Agreement. The licenses
granted by this Agreement shall run coterminously with the Supply
Agreement, and any actions or events which shall operate to extend or
terminate the Supply Agreement shall extend or terminate this
Agreement simultaneously; upon mutual agreement between Licensee and
Licensor.
1.3 Sublicenses. Licensee shall not have the right without
written permission from Licensor to grant sublicenses with respect to
the licenses granted herein; however, Licensee may engage a third
party or parties to make and affix labels for the ACI Manufactured
Products in compliance with Articles 2, 3, and 4 hereof, and/or to
distribute and sell the ACI Manufactured Products in compliance with
the terms and conditions of this Agreement. Licensee shall be
expressly obligated to ensure full compliance with all terms and
conditions of this Agreement.
1.4 Right of First Refusal. At any time during the term of
this Agreement, Licensee shall have the right to obtain Mark and
Manapol Powder use rights and/or licenses, for use in a drink(s)
product as granted herein for the country of Japan, and for the
countries of Taiwan, Hong Kong and Thailand; provided that said
rights and/or licenses have not already been granted to a third
party. In the event Licensor contemplates licensing said rights to
a third party, it shall first offer said rights to Licensee for the
same terms and conditions as set forth herein for Japan; and, in the
event Licensee rejects said offer, Licensor shall then be free to
grant said rights to the third party. Licensee shall have fifteen
(15) days to accept or reject Licensor s offer.
<PAGE>
Article 2
CERTAIN OBLIGATIONS OF LICENSEE
2.1 Representations by Licensee. Licensee shall not represent
in any manner that it owns any right, title or interest in or to the
Mark. Licensee acknowledges that its use of the Mark shall inure to
the benefit of Licensor and shall not create in Licensee s favor any
right, title or interest in or to the Mark; provided, however, that
Licensee shall have the right, in order to promote and sell the ACI
Manufactured Product(s), to advertise that it has the exclusive
right, in Japan, to use the Mark and the Manapol Powder in drink(s)
products in Japan .
2.2 Discontinuation of Use of Mark and Manapol Powder. Upon
the expiration or termination of this Agreement, Licensee will cease
and desist from all use of the Mark and Manapol Powder in any manner
and will not adopt or use, without Licensor s prior written consent,
any word or mark which is confusingly or deceptively similar to the
Mark, except that Licensee may continue to use the Mark and Manapol
Powder under the terms and conditions of this Agreement in connection
with any remaining supplies of the ACI Manufactured Products until
such supplies are exhausted.
2.3 Standards. All ACI Manufactured Products on which the Mark
is used by Licensee shall be of consistent quality and shall meet or
exceed all reasonable standards set by Licensor from time to time.
Licensee shall have thirty (30) days from the receipt of written
notice of any change in the reasonable standards to comply with any
new requirements; provided, however, that Licensee shall not be
required to rework or remake any packaging or works in progress
2.4 Use of Trademark. Licensee shall not use the Mark except
as specifically set forth herein. Without limiting the generality of
the preceding sentence, Licensee shall not use the Mark in connection
with the sale or advertising of any products other than the ACI
Manufactured Products.
Article 3
MANUFACTURING AND SALE
3.1 Combination With Other Products. Licensee shall not
combine or cause to be combined Manapol Powder with any product or
substance in any manner which would violate any laws, rules or
regulations of any state, federal or other governmental body.
3.2 Compliance by Third Parties. Licensee shall take all steps
reasonably necessary to ensure that its independent distributors and
any other parties to whom it sells any of the ACI Manufactured
Products for resale, do not relabel, repackage, advertise, sell or
attempt to sell Manapol Powder or any of the ACI Manufactured
Products in a manner that would violate this Agreement if done by
Licensee.
<PAGE>
Article 4
LABELS AND ADVERTISING
4.1 Regulatory Compliance of Labels and Advertising. All
labels and advertising relating to the ACI Manufactured Products
offered in connection with the Mark must strictly comply with all
applicable laws, rules and regulations in Japan relating to the
product ingredients.
4.2 Mandatory Requirements. Licensee shall cause all labels,
packaging, advertising and promotional materials used by it in
advertising, marketing and selling any ACI Manufactured Product to
c o n t ain (i) the Mark, (ii) a statement setting forth the
concentration of Manapol Powder contained in such ACI Manufactured
Product, and (iii) the following legend:
Manapol
As a right, not a mandatory requirement, NSI may print the
Japanese patented number on its ACI Manufactured Products for sale to
consumers in Japan.
4.3 Claims by Licensee. Licensee hereby agrees not to make, or
permit any of its employees or agents to make, and shall take all
steps reasonably necessary to ensure its independent distributors do
not make any claims of any properties relating to Manapol or
Manapol Powder, unless such claims comply with the applicable laws,
rules and regulations of Japan.
<PAGE>
Article 5
ROYALTY
5.1 Licensee agrees to pay to Licensor a royalty of twelve and
one-half cents for the first 2,500,000 bottles of ACI Manufactured
Product it purchases from ACI and ten cents ($0.10) per bottle
thereafter.
5.2 It is agreed to by Licensor that Licensee shall make the
royalty payment to Licensor s agent, ACI, within thirty (30) days of
receipt of an invoice from ACI for ACI s Manufactured Products
(drinks) shipped to Licensee or Licensee s affiliate company. And it
is the understanding of the parties that upon receipt of such
payment, ACI shall immediately forward the total royalty payment due
to Licensor to Licensor. Once Licensee issues payment for an invoice
to ACI, it shall be relieved of further liability for the royalty on
the products covered under the invoice and Licensor shall look to its
agent, ACI, for payment.
5.3 Payments made hereunder are to be paid in U.S. currency to
ACI at the following address: 12901 Nicholson, Suite 370, Farmers
Branch, Texas 75234, Attention :___________________.
5.4 It is agreed that royalties paid on ACI Manufactured
Products that are returned to ACI due to manufacturing defects, may
be recouped by Licensee.
Article 6
MINIMUMS
6.1 In order to maintain the exclusivity granted hereunder,
Licensee agrees to purchase no less than 250,000 bottles of ACI
Manufactured Products from ACI during the first contract year of this
Agreement (July 15, 1997 to July 15, 1998). At least ninety (90)
days before the end of the first contract year, the parties shall
meet to mutually agree upon minimums for the second contract year.
The same procedure shall thereafter be followed for the third
contract year.
6.2 In the event Licensee fails to meet the minimums set forth
above, it will lose the exclusive rights granted herein but may
continue to use the Mark and Manapol Powder in ACI Manufactured
Products for the duration of this Agreement and under the same terms
and conditions.
<PAGE>
Article 7
INFRINGEMENT, REPRESENTATIONS, WARRANTIES AND INDEMNITY
7.1 Infringement: If either the Manapol Powder patent or the
Mark is infringed in Japan by a third party, Licensor shall, at its
expense, take all steps it deems reasonably necessary in order to
terminate or abate the infringement. Licensor shall defend Licensee
against any claims of patent or trademark infringement resulting from
Licensee s use of the Mark or the Manapol Powder in Japan as set
forth herein. If any such actions are prosecuted to final judgment,
Licensor shall pay such judgment or judgments including all costs of
suit or suits, including reasonable attorney s fees.
7.2 Patent Invalidity or Lapse: In the event the Japanese
trademark registration for the Mark or the Japanese patent protection
for the Manapol Powder, for use in a drink(s), is not maintained in
Japan for whatever reason, including lapse of necessary patent fees
or patent invalidity, then the royalties stated hereinabove for the
continued use of the Mark and Manapol Powder in Japan under this
Agreement shall terminate or Licensee may decrease its royalty by
50%.
7.3 Warranties and representations: Licensee warrants and
represents that (i) the party executing this Agreement is authorized
to bind Licensee and that execution of this Agreement does not
contradict or violate any law, ordinance, regulation, Article of
Incorporation or By-Law of Licensee. Licensor warrants and
represents that (i) the party executing this Agreement is authorized
to bind Licensor, (ii) that it has exclusive right, title, and
interest in the Japanese Manapol Powder patent and the Japanese Mark
to enable it to grant the rights herein set forth and that it shall
maintain such rights during the term of this Agreement, (iii) that
there are no outstanding agreements, by it or its subsidiary
companies, or any other entity, granting to any other person or
entity any conflicting right relating to the rights herein granted,
(iv) that it is under no contractual obligation, nor is it aware of
any contractual obligation inconsistent with entering into this
Agreement, nor is it a party to any agreement, the breach of which
would have material and/or adverse effects on its ability to perform
in accordance with this Agreement.
7.4 Each party shall indemnify the other against, and hold the
other party harmless, from any loss, expense or damage (including
reasonable attorney s fees) that the other may suffer by reason of
its breach of its respective representations and warranties made in
this Agreement.
<PAGE>
7.5 Negation of Warranties, etc. Except as otherwise stated
above, nothing in this Agreement shall be construed or interpreted
as:
(a) a warranty or representation by Licensor that any ACI
Manufactured Products made, used, sold or otherwise disposed of under
the license granted in this Agreement is or will be free of
infringement or the like of the rights of third parties; or
Powder
(b) granted by implication, estoppel or otherwise any licenses
or rights other than those expressly granted hereunder.
7.6 Disclaimer. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A
PARTICULAR PURPOSE, AND EXCEPT AS OTHERWISE PROVIDED FOR HEREIN,
ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO THE USE, SALE
OR OTHER DISPOSITION BY LICENSEE OR ITS CUSTOMERS, VENDORS OR OTHER
TRANSFEREES, WITH RESPECT TO THE ACI MANUFACTURED PRODUCTS.
7.7 Liability of Licensee for Products. Except as provided in
Section 5.2, as between Licensor and Licensee, Licensee shall assume
all financial and other obligations for the ACI Manufactured Products
made for it and sold by it under this Agreement and Licensor shall
not incur any liability or responsibility to Licensee or to third
parties arising out of or connected in any manner with Licensee s
products made or sold pursuant to this Agreement.
7.8 I n demnity of Licensor. Licensee agrees to defend,
indemnify and hold Licensor, its officers, directors, employees,
agents, harmless against all claims, liabilities, demands, damages,
expenses or losses arising out of or connected with its negligent
use, sale or other disposition of ACI Manufactured Products.
7.9 Trademark Infringement: Licensor shall, however, defend
Licensee against any claims of trademark or patent infringement
resulting from Licensee s use of the trademark Manapol or Manapol
Powder in Japan.
<PAGE>
Article 8
TERM AND TERMINATION
8.1 Term. Unless terminated earlier as provided for herein,
this Agreement shall remain in full force and effect for a three (3)
year period ending at midnight on July ___, 2000. This Agreement may
be extended or renewed as provided in Section 1.2, by the written
agreement of the parties, or for successive one year periods at
Licensees sole discretion as long as Licensee continues to met the
minimum purchase requirements set forth herein..
8.2 Breach of Agreement. Except as provided in Section 8.3, if
either party breaches any material provision of this Agreement and
fails to cure the breach within thirty (30) days after receipt of
written notice from the nonbreaching party specifying the breach,
then the nonbreaching party may terminate this agreement upon written
notice to the breaching party, which right of termination shall be in
addition to, and not in lieu of, all other rights and remedies the
nonbreaching party may have against the breaching party under this
agreement, at law of in equity. Failure by either party to give
notice of termination with respect to any such failure shall not be
deemed a waiver of its right at a later date to give such notice if
such failure continues or again occurs, or if another failure occurs.
8.3 Immediate Termination.
8.3.1 Licensor may immediately terminate this Agreement,
upon written notice to Licensee, upon the occurrence of any one or
more of the following events: (i) Licensee breaches any material
p r ovision of Articles 2, 3, or 4; (ii) Powder(ii) Licensee
voluntarily seeks protection under any federal or state bankruptcy or
insolvency laws; (iii) a petition for bankruptcy or the appointment
of a receiver is filed against Licensee and is not dismissed within
thirty (30) days thereafter; (iv) Licensee makes any assignment for
the benefit of its creditors; or (v) Licensee ceases doing business.
8.3.2 Licensee may immediately terminate this Agreement,
upon written notice to Licensor, upon the occurrence of any one or
more of the following events: (i) Licensor breaches any material
provision of Article 7, (ii) Licensor voluntarily seeks protection
under any federal or state bankruptcy or insolvency laws; (iii) a
petition for bankruptcy or the appointment of a receiver is filed
against Licensor and is not dismissed within thirty (30) days
thereafter; (iv) Licensor makes any assignment for the benefit of its
creditors; or (v) Licensor ceases doing business.
8.4 Survival of Provisions. In the event of termination,
cancellation or expiration of this Agreement for any reason, Sections
2.2, 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 9.1 and 9.2 hereof
shall survive such termination, cancellation or expiration and remain
in full force and effect.
<PAGE>
Article 9
MISCELLANEOUS
9.1 Equitable Relief. A breach or default by Licensee of any
of the provisions of Article 2, 3, and 4 hereof shall cause Licensor
to suffer irreparable harm and, in such event, Licensor shall be
entitled, as a matter of right, to a restraining order and other
i n j unctive relief from any court of competent jurisdiction,
restraining any further violation thereof by Licensee, its officers,
agents, servants, employees and those persons in active concert or
participation with them. The right to a restraining order or other
injunctive relief shall be supplemental to any other right or remedy
Licensor may have, including, without limitation, the recovery of
damages for the breach or default of any of the terms of this
Agreement.
9.2 Confidentiality. No party to this Agreement or any person
acting for or on behalf, including their respective attorneys, shall
directly or indirectly reveal to any person any of the terms or
conditions of this Agreement, or any fact or evidence which supports
or relates to any of the allegations contained in the business
relationship, or release any publicity or make any public statement
with respect thereto, except as may be required by law or court
o r d e r , or by the parties for the reasonable purposes of
administration and the orderly continuance of its operations. In no
event, will Licensor discuss this Agreement with the independent
distributors of Licensee or its affiliate companies without first
obtaining Licensee s prior written approval.
9.3 Amendment. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by each of the
parties hereto.
9.4 Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto and supersedes any and all
prior understandings, whether written or oral, with respect to the
subject matter hereof.
9.5 No Waiver. The failure of either party to insist upon
strict performance of any obligation hereunder by the other party,
irrespective of the length of time for which such failure continues,
shall not be a waiver of its right to demand strict compliance in the
future. No consent or waiver, express or implied, by either party to
or of any breach or default in the performance of any obligation
hereunder by the other party shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or
any other obligation hereunder.
9.6 Notices. All notices required or permitted to be made or
given pursuant to this Agreement shall be in writing and shall be
considered as properly given or made when personally delivered or
when duly deposited in the mail, first class, postage prepaid, or
when transmitted by prepaid telegram, and addressed to the applicable
address first above written or such other address or addresses shall
have theretofore specified in a written notice to the notifying
party.
<PAGE>
9.7 Assignment. This Agreement or any of the rights or
obligations created herein may be assigned, in whole or in part, by
Licensor. However, this Agreement is personal to Licensee, and,
unless otherwise stated herein, Licensee may not assign this
Agreement or any of its rights, duties or obligations under this
Agreement to any third party without Licensor s prior written
consent, and any attempted assignment by Licensee not in accordance
with this Section 9.5 shall be void.
9.8 Relationship of Parties. Nothing contained herein shall be
construed to create or constitute any employment, agency, partnership
or joint venture arrangement by and between the parties, and neither
of them has the power of authority, express or implied, to obligate
or bind the three in any manner whatsoever.
9.9 Remedies Cumulative. Unless otherwise expressly provided
herein, the rights and remedies hereunder are in addition to, and not
in limitation of, any other rights and remedies, at law or in equity,
and the exercise or right or remedy will not be deemed a waiver of
any other rights or remedy.
9.10 Successor and Assigns. The provisions of the Agreement
shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, provided., however, that the
foregoing shall not be deemed to expand or otherwise affect the
limitations on assignment and delegation set forth in Section 8.6
hereof, and except as otherwise expressly provided in this Agreement,
no other person or business entity is intended to or shall have
application of the laws of any other state or country.
9.11 Headings. The headings used in this Agreement are for
convenience of reference only and shall not be used to interpret this
Agreement.
9.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of
which will constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date
first above written.
CARALOE, INC.
By: __/s/_____________________________
Name: _____________________________
Its: ________________________________
NU SKIN INTERNATIONAL, INC.
By: __/s/_____________________________
Name: _____________________________
Its: ________________________________
<PAGE>
EXHIBIT A
TO THAT CERTAIN EXCLUSIVE TRADEMARK LICENSE AND PRODUCT SUPPLY
AGREEMENT DATED JULY 22, 1997 BY AND BETWEEN CARALOE, INC. AND NU
SKIN INTERNATIONAL, INC.
MANAPOL [R] POWDER PRODUCT SPECIFICATION
Source:
Freeze dried Powder produced from inner gel of Aloe Vera L.
Processing:
Patented: U.S. and other patents.
Product Specifications:
Appearance Fine white to beige Powder
Complex carbohydrates + - 30% of soluble fraction
Moisture + - 14%
Residue on ignition + - 16%
Microbiological purity Meets U.S.P. specifications
Gel Points approximately 240 mg/oz
Viscosity (cP) @ 4 mg/ml approximately 40
Total acid value
(as malic acid) approximately 0.7% by AOAC method
Fiber content (>5 um) + - 60%
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of August 14,
1 9 97, is by and between CARALOE, INC., a Texas corporation
("Seller"), and MANNATECH, INC., a Texas corporation ("Buyer"),
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, bulk aloe vera mucilaginous polysaccharide
(hereinafter referred to under the product name of "MANAPOL[R][R]
powder") in the quantities, at the price, and upon the terms and
conditions hereinafter set forth; and
WHEREAS, simultaneously with the execution of this Agreement,
Seller and Buyer are entering into a Trademark License Agreement of
even date herewith (the "License Agreement") pursuant to which, among
other things, Seller is granting to Buyer a license to use the
product name MANAPOL[R] in connection with the labeling, advertising
and sale of products manufactured by or for Buyer that contain
MANAPOL[R] powder; as one of the ingredients in products manufactured
by or for Buyer also containing other ingredients and substances (the
"Manufactured Products").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree
as follows:
1. Term. The term of this Agreement shall commence on August 15,
1997, and shall end at midnight on August 14, 2000, unless further
extended or sooner terminated as provided herein (such term, as
extended, herein called the "Term"). The Term (including each one-
year extension of the Term) shall be extended automatically for an
additional one-year period, provided that, at least thirty (30) days
prior to the end of the Term, Seller and Buyer mutually agree in
writing on the quantity and price of MANAPOL[R] to be sold by Seller
and purchased by Buyer hereunder during such additional one-year
period. At least sixty (60) days prior to the end of the Term,
Seller and Buyer shall commence good faith negotiations to determine
and agree upon such quantity and price for such additional one-year
period. If the parties are unable to so agree on such quantity and
price, this Agreement shall terminate effective at the end of the
current Term. Nothing contained in this Paragraph 1 shall be deemed
to (i) obligate the parties to agree upon such quantity and price,
(ii) obligate a party to negotiate with the other party regarding
such quantity and price if such other party is then in breach of or
in default under this Agreement or the License Agreement or (iii)
limit the rights to the parties under Paragraph 8 hereof. This
Agreement shall terminate automatically upon the expiration or
termination of the License Agreement.
2. Sale and Purchase License.
(a) Subject to the terms and conditions of this Agreement,
Seller shall sell to Buyer, and Buyer shall purchase from Seller, not
less than 300 kilograms per month.
<PAGE>
(b) Buyer agrees that all MANAPOL[R] powder purchased by it
hereunder shall be used only (i) as an additive in human or animal
health food products (in capsule or liquid form) manufactured by or
for Buyer that are intended for sale to the ultimate consumer in the
United States or elsewhere and subject to compliance with Buyer s
obligations under the License Agreement, including without limitation
Buyers obligations under Article III thereof. Such food products
are herein called "Buyer Products".
3. Quality. Seller warrants to Buyer that all MANAPOL[R] powder
sold by Seller pursuant to this Agreement will conform to the quality
specifications set forth in Exhibit A to this Agreement. EXCEPT AS
PROVIDED IN THIS PARAGRAPH 3, THERE ARE NO WARRANTIES OR
REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A
PARTICULAR PURPOSE, MADE WITH RESPECT TO THE MANAPOL[R] POWDER TO BE
SOLD HEREUNDER, AND NONE SHALL BE IMPLIED BY LAW. THE FOREGOING
NOTWITHSTANDING, SELLER DOES REPRESENT THAT THE MANAPOL[R] POWDER
DOES MEET THE SPECIFICATIONS OUTLINED ON EXHIBIT A AND THAT IT IS A
FOOD SUPPLEMENT UNDER THE FDA RULES AND REGULATIONS.
4. Insurance. Carrington shall maintain insurance during the
term of this Agreement, and any extensions thereof, with not less
than the same coverage, endorsements, limits and notice of
cancellation as shown in the insurance certificate attached hereto as
Exhibit C. Carrington shall, within thirty (30) days after this
Agreement is executed by both Parties, provide Mannatech with a copy
of its insurance certificate naming Mannatech as an additional
insured and listing the coverage, endorsements, limits, and notice of
cancellation provisions. Carrington shall not cancel or materially
alter such policy without providing at least thirty (30) days prior
written notice to all named insured. Failure by Carrington to
maintain insurance coverage in accordance with this Article 4 shall
constitute a material breach of this Agreement. It is understood and
agreed that the furnishing of such insurance certificate will not
relieve Carrington of its other respective obligations under this
Agreement.
<PAGE>
5. Deliveries. Buyer shall instruct Seller from time to time
during the Term, by placing a purchase order with Seller reasonably
in advance of the date Buyer desires MANAPOL[R] powder to be
delivered to it hereunder, (i) as to the quantities of MANAPOL[R]
powder to be delivered to Buyer, (ii) as to the specific date of
delivery, (iii) as to the specific location of delivery and (iv) as
to the carrier or particular type of carrier for such delivery.
During the Term, Buyer shall provide Seller (a) on a quarterly basis
commencing on August 15, a binding forecast of Buyer's minimum and
maximum aggregate delivery requirements for MANAPOL[R] powder for
such period, and (b) on a yearly basis a good faith forecast
acceptable to Seller (which shall be binding on Buyer) of Buyer's
minimum and maximum delivery requirements for MANAPOL[R] powder for
each month of the next twelve (12) month period. The quantities of
MANAPOL[R] powder ordered by Buyer pursuant to this Agreement from
time to time shall be spaced in a reasonable manner, and Buyer shall
order such quantities in accordance with Buyer's binding forecasts.
In no event shall Seller be required to deliver to Buyer in any
three-month period a quantity of MANAPOL[R] powder in excess of 125%
of the maximum delivery requirement for such period set forth in the
binding forecast for such period accepted by Seller. In no event
shall Mannatech be required to purchase more than 300 kilos of
Manapol[R] powder per month, unless a higher minimum monthly amount
has been projected by Seller pursuant to 5(a). Deliveries of
MANAPOL[R] powder shall be made by Seller under normal trade
conditions in the usual and customary manner being utilized by Seller
at the time and location of the particular delivery. The MANAPOL[R]
powder delivered to Buyer hereunder shall be packaged in five (5)
kilogram or fifteen (15) kilogram containers. All deliveries of
MANAPOL[R] powder to Buyer hereunder shall be made by Seller F.O.B.
at the facilities of Seller or its affiliates located in Irving,
Texas.
6. Price. All MANAPOL[R] powder to be purchased by Buyer under
this Agreement shall be purchased by it, during the first year of the
Term, at a price as outlined in Attachment B, and during each year
(if any) of the Term, at the price per kilogram agreed upon by the
parties for such additional year pursuant to the provisions of
Paragraph 1 hereof. Buyer shall bear all freight, insurance and
similar costs, and all sales taxes, with respect to such purchases.
The purchase price of MANAPOL[R] powder, together with all related
freight, insurance and similar costs, and sales taxes, shall be paid
by Buyer to Seller within thirty (30) days after the date of invoice.
7. Confidentiality. In the performance of Seller's obligations
pursuant to this Agreement or the License Agreement, Buyer may
acquire from Seller or its affiliates technical, commercial,
operating or other proprietary information relative to the business
or operations of Seller or its affiliates (the "Confidential
Information"). Buyer shall maintain the confidentiality, and take
all necessary precautions to safeguard the secrecy, of any and all
Confidential Information it may acquire from Seller or its
affiliates. Buyer shall not use any of such Confidential Information
for its own benefit or for the benefit of anyone else. Buyer shall
not publicly disclose the existence of this Agreement or the terms
hereof without the prior written consent of Seller.
<PAGE>
8. Force Majeure. Seller shall not have any liability hereunder
if it shall be prevented from performing any of its obligations
hereunder by reason of any factor beyond its control, including,
without limitation, fire, explosion, accident, riot, flood, drought,
storm, earthquake, lightning, frost, civil commotion, sabotage,
vandalism, smoke, hail, embargo, act of God or the public enemy,
other casualty, strike or lockout, or interference, prohibition or
restriction imposed by any government or any officer or agent thereof
("Force Majeure"), and Seller's obligations, so far as may be
necessary, shall be suspended during the period of such Force Majeure
and shall be cancelled in respect of such quantities of MANAPOL[R]
powder as would have been sold hereunder but for such suspension.
Seller shall give to Buyer prompt notice of any such Force Majeure,
the date of commencement thereof and its probable duration and shall
give a further notice in like manner upon the termination thereof.
Each party hereto shall endeavor with due diligence to resume
compliance with its obligations hereunder at the earliest date and
shall do all that it reasonably can to overcome or mitigate the
effects of any such Force Majeure upon its obligations under this
Agreement.
9. Rights Upon Default.
(a) Seller's Rights Upon Default. If Buyer (i) fails to purchase
the quantities of MANAPOL[R] powder specified for purchase by Buyer
hereunder, (ii) fails to make a payment hereunder when due or (iii)
otherwise breaches any term of this Agreement, and such failure or
breach is not cured to Seller's reasonable satisfaction within five
(5) days (in the case of a failure to make a payment) or thirty (30)
days (in any other case) after receipt of notice thereof by Buyer, or
if Buyer fails to perform or observe any covenant or condition on its
part to be performed when required to be performed or observed, and
such failure continues after the applicable grace period, if any,
specified in the Agreement, Seller may refuse to make further
deliveries hereunder and may terminate this Agreement upon notice to
Buyer and, in addition, shall have such other rights and remedies,
including the right to recover damages, as are available to Seller
under applicable law or otherwise. If Buyer becomes bankrupt or
insolvent, or if a petition in bankruptcy is filed by or against it,
or if a receiver is appointed for it or its properties, Seller may
refuse to make further deliveries hereunder and may terminate this
Agreement upon notice to Buyer, without prejudice to any rights of
Seller existing hereunder or under applicable law or otherwise. Any
subsequent shipment of MANAPOL[R] powder by Seller after a failure by
Buyer to make any payment hereunder, or after any other default by
Buyer hereunder, shall not constitute a waiver of any rights of
Seller arising out of such prior default; nor shall Seller's failure
to insist upon strict performance of any provision of this Agreement
be deemed a waiver by Seller of any of its rights or remedies
hereunder or under applicable law or a waiver by Seller of any
subsequent default by Buyer in the performance of or compliance with
any of the terms of this Agreement.
<PAGE>
(b) Buyer's Rights Upon Default. If Seller fails in any material
respect to perform its obligations hereunder, and such failure is not
cured to Buyer's reasonable satisfaction within 30 days after receipt
of notice thereof by Seller, Buyer shall have the right to refuse to
accept further deliveries hereunder and to terminate this Agreement
upon notice to Seller and, in addition, shall have such other rights
and remedies, including the right to recover damages, as are
available to Buyer under applicable law or otherwise. Any subsequent
acceptance of delivery of MANAPOL[R] powder by Buyer after any
default by Seller under this Agreement shall not constitute a waiver
of any rights of Buyer arising out of such prior default; nor shall
Buyer's failure to insist upon strict performance of any provision of
this Agreement be deemed a waiver by Buyer of any of its rights or
remedies hereunder or under applicable law or a waiver by Buyer of
any subsequent default by Seller in the performance of or compliance
with any of the terms of this Agreement.
10. Disclaimer and Indemnity. Buyer shall assume all financial
and other obligations for Buyer Products, and Seller shall not incur
any liability or responsibility to Buyer or to third parties arising
out of or connected in any manner with Buyer Products. In no event
shall Seller be liable for lost profits, special damages,
consequential damages or contingent liabilities arising out of or
connected in any manner with this Agreement or Buyer Products. Buyer
shall defend, indemnify and hold harmless Seller and its affiliates,
and their respective officers, directors, employees and agents, from
and against all claims, liabilities, demands, damages, expenses and
losses (including reasonable attorneys' fees and expenses) arising
out of or connected with (i) any manufacture, use, sale or other
disposition of Buyer Products, or any other products of Buyer, by
Buyer or any other party and (ii) any breach by Buyer of any of its
obligations under this Agreement.
11. Equitable Relief. A breach by Buyer of the provisions of
Paragraph 2(b) shall cause Seller to suffer irreparable harm and, in
such event, Seller shall be entitled, as a matter of right, to a
restraining order and other injunctive relief from any court of
competent jurisdiction, restraining any further violation thereof by
Buyer, its officers, agents, servants, employees and those persons in
active concert or participation with them. The right to a
restraining order or other injunctive relief shall be supplemental to
any other right or remedy Seller may have, including, without
limitation, the recovery of damages for the breach of such provisions
or of any other provisions of this Agreement.
12. Survival. The expiration or termination of the Term shall not
impair the rights or obligations of either party hereto which shall
have accrued hereunder prior to such expiration or termination. The
provisions of Paragraphs 2(b), 3, 7, 9, 10 and 11 hereof, and the
rights and obligations of the parties thereunder, shall survive the
expiration or termination of the Term.
13. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Texas.
<PAGE>
14. Succession. Neither party hereto may assign or otherwise
transfer this Agreement or any of its rights or obligations hereunder
(including, without limitation, by merger or consolidation) without
the prior written consent of the other party; provided, however, that
Seller may assign any of its rights or obligations hereunder to any
affiliate of Seller. Subject to the immediately preceding sentence,
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
15. Entire Agreement. This Agreement and the License Agreement
constitute the entire agreement between the parties hereto relating
to the matters covered hereby The terms of this Agreement shall
prevail over any inconsistent terms contained in any purchase order
issued by Buyer and acknowledgment or acceptance thereof issued by
Seller. No modification, waiver or discharge of this Agreement or
any of its terms shall be binding unless in writing and signed by the
party against which the modification, waiver or discharge is sought
to be enforced. This Agreement is separate from and, except for the
License Agreement, unrelated to any other agreement between the
parties hereto and has been entered into for separate and independent
consideration, the sufficiency of which is hereby acknowledged by the
parties.
16. Notices. All notices and other communications with respect to
this Agreement shall be in writing and shall be deemed to have been
duly given when delivered personally or when duly deposited in the
mails, first class mail, postage prepaid, to the address set forth
below, or such other address hereafter specified in like manner by
one party to the other:
If to Seller: Caraloe, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: President
If to Buyer: Mannatech, Inc.
600 S. Royal Lane, Suite 200
Coppell, Texas 75019
Attention: President
17. Interpretation. In the event that any provision of this
Agreement is illegal, invalid or unenforceable as written but may be
rendered legal, valid and enforceable by limitation thereof, then
such provision shall be deemed to be legal, valid and enforceable to
the maximum extent permitted by applicable law. The illegality,
invalidity or unenforceability in its entirety of any provision
hereof will not affect the legality, validity or enforceability of
the remaining provisions of this Agreement.
<PAGE>
18. No Inconsistent Actions. Each party hereto agrees that
it will not voluntarily undertake any action or course of action
inconsistent with the provisions or intent of this Agreement and,
subject to the provisions of Paragraph 7 hereof, will promptly do all
acts and take all measures as may be appropriate to comply with the
terms, conditions and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers as of the day and year
first above written.
CARALOE, INC.
By: __/s/________________________
Name:___________________________
Title:____________________________
MANNATECH, INC.
By:____/s/_________________________
Name:___________________________
Title:____________________________
<PAGE>
EXHIBIT A
To that certain Trademark License and Supply Agreement
dated August 14, 1997 by and between Caraloe, Inc. and Mannatech, Inc.
MANAPOL[R] POWDER PRODUCT SPECIFICATION
Source:
Freeze dried powder produced
from inner gel of Aloe vera L.
Processing:
Patented: U.S. and other patents.
Product Specifications:
Appearance Fine white to beige powder
Complex carbohydrates > = 30% of soluble fraction
Moisture < = 14%
Residue on ignition < = 16%
Microbiological purity Meets U.S.P. specifications
Gel Points approximately 240 mg/oz
Viscosity (cP) @ 4 mg/ml approximately 40
Total acid value
(as malic acid) approximately 0.7% by AOAC method
Fiber content (>5 m) < = 60%
Manapol[R] Powder
Monthly Quantity Price/Kg
200 to 300 Kg $1,225/Kg
301 to 400 Kg 1,200/Kg
401 to 500 Kg 1,150/Kg
501 to 600 Kg 1,125/Kg
601 to 700 Kg 1,100/Kg
The above pricing will be re-evaluated in May, 1998 or when monthly
purchases exceed 700 kilograms.
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), effective as of
August 14, 1997, is made by and between CARALOE, INC. ("Licensor"), a
Texas corporation, having its principal place of business at 2001
W a lnut Hill Lane, Irving, Texas 75038, and MANNATECH, INC.,
("Licensee"), a Texas corporation, having its principal place of
business at 600 S. Royal Lane, Suite 200, Coppell, Texas 75019.
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement,
Licensor and Licensee are entering into an non-exclusive Supply
Agreement of even date herewith (the "Supply Agreement") for the sale
by Licensor and purchase by Licensee of bulk aloe vera mucilaginous
polysaccharide (hereinafter referred to under the product name of
"MANAPOL[R] powder") to be used in products manufactured by Licensee
in capsule (the "Manufactured Products");
WHEREAS, Carrington Laboratories, Inc., a Texas corporation
("Carrington"), claims the ownership of the trademark MANAPOL[R]
(the "Mark") and has granted to Licensor a license to use the Mark
and to license others to use it on an exclusive and/or a non-
exclusive basis;
WHEREAS, Licensee is desirous of obtaining from Licensor, and
Licensor is willing to grant to Licensee, a license to use the
product name MANAPOL[R] (the "Mark") in connection with the
advertising and sale of the Manufactured Products subject to the
terms, conditions and restrictions set forth herein; and
WHEREAS, Licensor and Licensee are mutually desirous of insuring
the consistent quality of all products sold in connection with the
Mark;
NOW, THEREFORE, in consideration of premises, the mutual
covenants, promises and agreement set forth herein, and other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby covenant, promise and agree
as follows:
<PAGE>
Article 1
LICENSE
1.1 Terms and Conditions. Licensor hereby grants to Licensee
the non-transferable right and license to use the Mark in connection
with the labeling, advertising and sale of Manufactured Products
manufactured and sold by Licensee during the term of this Agreement.
During the term of this Agreement, Licensee shall have (a) the non-
exclusive right to use the Mark in connection with Manufactured
Products containing MANAPOL[R] powder that are intended for sale to
the ultimate consumer in the United States, Canada, and Mexico, and
(b) the non-exclusive right to use the Mark in connection with
Manufactured Products containing MANAPOL[R] powder that are intended
for sale to the ultimate consumer in places other than the United
States and Canada, that are specifically and mutually agreed upon
from time to time and listed in Exhibit A hereto. The countries in
Exhibit A may be removed by Caraloe upon written notice to Mannatech
that an exclusive Trademark License Agreement has been executed for
that country. In that event, Mannatech shall no longer be allowed to
use the Manapol[R] Trademark within the country removed by Caraloe
after its existing supplies have been exhausted. Relative to Japan,
Mannatech may use the Trademark on a non-exclusive under the same
conditions as those listed in Exhibit A except no drink may be sold
using Manapol[R] powder or the Trademark.
1.2 License Coterminous With Supply Agreement. The license
granted by this Agreement shall run coterminously with the Supply
Agreement, and any actions or events which shall operate to extend or
t e rminate the Supply Agreement shall automatically extend or
terminate this Agreement simultaneously.
1.3 Sublicenses. Licensee shall not have the right to grant
sublicenses without the written permission of Licensor with respect
to the license granted herein; however, Licensee may engage a third
party or parties to make and affix labels for the Manufactured
Products in compliance with Articles 2,3, and 4 hereof, and/or to
distribute and sell the Manufactured Products in compliance with the
terms and conditions of this Agreement. Licensee shall be expressly
obligated to ensure full compliance with all terms and conditions of
this Agreement.
<PAGE>
Article 2
CERTAIN OBLIGATIONS OF LICENSEE AND LICENSOR
2.1 Representations by Licensee. Licensee shall not represent
in any manner that it owns any right, title or interest in or to the
Mark. Licensee acknowledges that its use of the Mark shall inure to
the benefit of Licensor and shall not create in Licensee's favor any
right, title or interest in or to the Mark.
2.2 Discontinuation of Use of Mark. Upon the expiration or
termination of this Agreement, Licensee will cease and desist from
all use of the Mark in any manner and will not adopt or use, without
Licensor's prior written consent, any word or mark which is
confusingly or deceptively similar to the Mark, except that Licensee
may continue to use the Mark under the terms and conditions of this
Agreement in connection with any remaining supplies of MANAPOL[R]
powder purchased by Licensee from Licensor until such supplies are
exhausted.
2.3 FDA Compliance of Products. All products on which the Mark
is used by Licensee shall be manufactured, packaged, labeled,
advertised, marketed and sold in compliance with (i) the Federal
Food, Drug and Cosmetic Act and the rules and regulations promulgated
thereunder, as amended from time to time if sold for use within the
United States, and (ii) all other applicable laws, rules and
regulations if sold for use outside of the United States.
2.4 Inspection. Upon reasonable notice, Licensor reserves the
right to inspect Licensee's products bearing the Mark and Licensee's
manufacturing facilities at all reasonable times to insure Licensee's
compliance with this Agreement.
2.5 Use of Trademark. Licensee shall not use the Mark except
as specifically set forth herein. Without limiting the generality of
the preceding sentence, Licensee shall not use the Mark in connection
with the sale or advertising of any products other than the
Manufactured Products. Any use of the trademark, "Manapol[R]"
pursuant to this agreement is non-exclusive. Whenever the Licensee
uses the trademark, "Manapol[R]", it shall also indicate that such
name is the registered trademark of Licensor and shall take all
reasonable measures to assure that there is no confusion of ownership
of the mark or the substance which it identifies, the same being the
proprietary property of the Licensee. Likewise, Licensor, if
referring to Ambrotose[TM], shall indicate that the same is the
trademark of Mannatech, Incorporated and shall take all reasonable
measures to assure that there is no confusion of ownership the mark
or the substance which it identifies, the same being the proprietary
property of the Licensor.
2.6 Trademark Registration. At Licensor's request and expense
a n d, except as otherwise provided herein at Licensor's sole
discretion and option, Licensee shall take whatever action is
r e asonably necessary to assist Carrington or its assigns in
registering the Mark with the U.S. Patent and Trademark Office
("USPTO") and/or in perfecting, protecting or enforcing Carrington's
and Licensor's rights in and to the Mark. Licensee understands that
Carrington or its assigns may rely solely on Licensee's use of the
Mark to obtain or maintain registration with the USPTO.
<PAGE>
Article 3
MANUFACTURING AND SALE
3.1 M a nufacturing Facilities. All manufacturing of the
Manufactured Products shall be done in the Licensee's own facilities
or qualified contract manufacturing facilities.
3.2 Combination With Other Products. Licensee shall not
combine MANAPOL[R] powder with any product or substance in any
manner which would violate any laws, rules or regulations of any
state, federal or other governmental body. Licensee shall not
combine MANAPOL[R] powder with any other substance in a Manufactured
Product that is to be advertised or sold for use or consumption by
humans or animals if the approval of the U.S. Food and Drug
Administration (the "FDA") or the U.S. Department of Agriculture
("USDA") for such use or consumption is required and has not been
obtained.
3.3 Compliance by Third Parties. Licensee shall take all steps
reasonably necessary to ensure that its distributors and any other
parties to whom it sells any of the Manufactured Products for resale
do not relabel, repackage, advertise, sell or attempt to sell
MANAPOL[R] powder or any of the Manufactured Products in a manner
that would violate this Agreement if done by Licensee.
Article 4
LABELS AND ADVERTISING
4.1 FDA Compliance of Labels and Advertising. All labels and
a d vertising relating to the Manufactured Products offered in
connection with the Mark must strictly comply with all applicable
rules and regulations of the FDA if sold for use within the United
States, and all other applicable laws, rules and regulations
wherever sold. Information regarding the ingredients of MANAPOL[R]
powder shall be furnished to Licensee by Licensor from time to time.
4.2 Mandatory Requirements. Licensee shall cause all labels,
packaging, advertising and promotional materials used by it in
advertising, marketing and selling any product manufactured by or on
behalf of Licensee that contains MANAPOL[R] to contain (i) the Mark,
(ii) a statement setting forth the concentration of MANAPOL[R] powder
contained in such product, and (iii) the following legend:
MANAPOL[R] is a registered trademark of Carrington Laboratories, Inc.
4.3 Claims by Licensee. Licensee hereby agrees not to make, or
permit any of its employees, agents or distributors to make, any
claims of any properties or results relating to MANAPOL[R] powder or
any Manufactured Product which would violate any applicable law.
<PAGE>
4.4 FDA or USDA Approval of Claims. If Licensee desires to
seek FDA or USDA approval as to any specific claims with respect to
MANAPOL[R] powder or any Manufactured Product, Licensee hereby agrees
to (i) notify Licensor of the claims and the application prior to
filing and (ii) to keep Licensor informed as to the progress of the
application, including but not limited to sending Licensor copies of
all communications or notices to or from the FDA or USDA, as
applicable.
4.5 Right to Approve Labels, etc. If Licensor so requests,
Licensee shall not use any label, advertisement or marketing material
that contains the Mark unless such label, advertisement or marketing
material has first been submitted to and approved by Licensor.
Licensor shall not unreasonably withhold its approval of any such
label, advertisement or marketing material.
Article 5
NEGATION OF WARRANTIES, DISCLAIMER AND INDEMNITY
5.1 Negation of Warranties, etc. Nothing in this Agreement
shall be construed or interpreted as:
(a) a warranty or representation by Licensor that any product
made, used, sold or otherwise disposed of under the license granted
in this Agreement is or will be free of infringement or the like of
the rights of third parties; or
(b) an obligation by Licensor to bring or prosecute actions or
suits against third parties for infringement or the like of the Mark
or of any registration that may subsequently be granted for such
Mark; or
(c) granting by implication, estoppel or otherwise any licenses
or rights other than those expressly granted hereunder.
5.2 Disclaimer. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A
PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH
RESPECT TO THE USE, SALE OR OTHER DISPOSITION BY LICENSEE OR ITS
CUSTOMERS, VENDEES OR OTHER TRANSFEREES, WITH RESPECT TO THE MARK OR
A N Y P R O DUCTS MADE OR SOLD BY LICENSEE. THE FOREGOING
NOTWITHSTANDING, SELLER DOES REPRESENT THAT THE MANAPOL[R] POWDER
DOES MEET THE SPECIFICATIONS OUTLINED ON EXHIBIT A AND THAT IT IS A
FOOD SUPPLEMENT UNDER THE FDA RULES AND REGULATIONS.
5.3 Liability of Licensee for Products. Licensee shall assume
all financial and other obligations for the products made and sold by
it under this Agreement and Licensor shall not incur any liability or
responsibility to Licensee or to third parties arising out of or
connected in any manner with Licensee's products made or sold
pursuant to this Agreement. In no event shall Licensor be liable for
lost profits, special damages, consequential damages or contingent
liabilities arising out of or connected in any manner with this
Agreement or the products made or sold by Licensee under this
Agreement.
<PAGE>
5.4 I n demnity of Licensor. Licensee agrees to defend,
indemnify and hold Licensor, its officers, directors, employees and
agents, harmless against all claims, liabilities, demands, damages,
expenses or losses arising out of or connected with (a) the wrongful
or negligent use by Licensee of the Mark or (b) any use, sale or
other disposition of Licensee's products by Licensee or by any other
party.
5.5 Negation of Trademark Warranty. Licensee acknowledges that
Licensor makes no warranty, express or implied, with respect to its
ownership of any rights relating to the Mark.
Article 6
TERM AND TERMINATION
6.1 Term. Unless terminated earlier as provided for herein,
this Agreement shall remain in full force and effect for a five (5)-
year period ending at midnight on August 14, 2001. This Agreement
may be extended or renewed as provided in Section 1.2, or otherwise
by the written agreement of the parties.
6.2 Breach of Agreement. Except as provided otherwise in
Section 6.3, if either party breaches any material provision of this
Agreement and fails to cure the breach within thirty (30) days after
receipt of written notice from the nonbreaching party specifying the
breach, then the nonbreaching party may terminate this Agreement upon
written notice to the breaching party, which right of termination
shall be in addition to, and not in lieu of, all other rights and
remedies the nonbreaching party may have against the breaching party
under this Agreement, at law or in equity. Failure by Licensor to
give notice of termination with respect to any such failure shall not
be deemed a waiver of its right at a later date to give such notice
if such failure continues or again occurs, or if another failure
occurs. A breach by either party of a material provision of the
Supply Agreement shall be deemed a breach by such party of a material
provision of this Agreement.
6.3 Immediate Termination. Licensor may immediately terminate
this Agreement, upon written notice to Licensee, upon the occurrence
of any one or more of the following events: (i) Licensee breaches
any provision of Articles 2, 3, or 4; (ii) Licensee fails to purchase
and/or to pay for the quantities of MANAPOL[R] powder that it is
obligated to purchase and pay for under the Supply Agreement in
accordance with the terms thereof; (iii) Licensee voluntarily seeks
protection under any federal or state bankruptcy or insolvency laws;
(iv) a petition for bankruptcy or the appointment of a receiver is
filed against Licensee and is not dismissed within thirty (30) days
thereafter; (v) Licensee makes any assignment for the benefit of its
creditors; or (vi) Licensee ceases doing business.
6.4 Survival of Provisions. In the event of termination,
cancellation or expiration of this Agreement for any reason, Sections
2.2, 5.1, 5.2, 5.3, 5.4, 5.5 and 7.1 hereof shall survive such
termination, cancellation or expiration and remain in full force and
effect.
<PAGE>
Article 7
MISCELLANEOUS
7.1 Equitable Relief. A breach or default by Licensee of any
of the provisions of Articles 2, 3 and 4 hereof shall cause Licensor
to suffer irreparable harm and, in such event, Licensor shall be
entitled, as a matter of right, to a restraining order and other
i n j unctive relief from any court of competent jurisdiction,
restraining any further violation thereof by Licensee, its officers,
agents, servants, employees and those persons in active concert or
participation with them. The right to a restraining order or other
injunctive relief shall be supplemental to any other right or remedy
Licensor may have, including, without limitation, the recovery of
damages for the breach or default of any of the terms of this
Agreement.
7.2 Amendment. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by each of the
parties hereto.
7.3 Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto and supersedes any and all
prior understandings, whether written or oral, with respect to the
subject matter hereof.
7.4 No Waiver. The failure of either party to insist upon
strict performance of any obligation hereunder by the other party,
irrespective of the length of time for which such failure continues,
shall not be a waiver of its right to demand strict compliance in the
future. No consent or waiver, express or implied, by either party to
or of any breach or default in the performance of any obligation
hereunder by the other party shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or
any other obligation hereunder.
7.5 Notices. All notices required or permitted to be made or
given pursuant to this Agreement shall be in writing and shall be
considered as properly given or made when personally delivered or
when duly deposited in the mails, first class mail, postage prepaid,
or when transmitted by prepaid telegram, and addressed to the
applicable address first above written or to such other address as
the addressee shall have theretofore specified in a written notice to
the notifying party.
7.6 Assignment. This Agreement or any of the rights or
obligations created herein may be assigned, in whole or in part, by
Licensor. However, this Agreement is personal to Licensee, and
Licensee may not assign this Agreement or any of its rights, duties
or obligations under this Agreement to any third party without
Licensor's prior written consent, and any attempted assignment by
Licensee not in accordance with this Section 7.6 shall be void.
7.7 Relationship of Parties. Nothing contained herein shall be
construed to create or constitute any employment, agency, partnership
or joint venture arrangement by and between the parties, and neither
of them has the power or authority, express or implied, to obligate
or bind the other in any manner whatsoever.
<PAGE>
7.8 Remedies Cumulative. Unless otherwise expressly provided
herein, the rights and remedies hereunder are in addition to, and not
in limitation of, any other rights and remedies, at law or in equity,
and the exercise or one right or remedy will not be deemed a waiver
of any other right or remedy.
7.9 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, provided, however, that the
foregoing shall not be deemed to expand or otherwise affect the
limitations on assignment and delegation set forth in Section 7.6
hereof, and except as otherwise expressly provided in this Agreement,
no other person or business entity is intended to or shall have any
right or interest under this Agreement.
7.10 Governing Law. This Agreement shall be governed by and
interpreted, construed and enforced in accordance with the laws of
the State of Texas, excluding, however, any conflicts of law rules
that would require the application of the laws of any other state or
country.
7.11 Headings. The headings used in this Agreement are for
convenience of reference only and shall not be used to interpret this
Agreement.
7.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of
which will constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date
first above written.
CARALOE, INC.
By: /s/
Name:
Title:
MANNATECH, INC.
By: /s/
Name:
Title:
<PAGE>
EXHIBIT A
To that certain Trademark License and Supply Agreement
dated August 14, 1997 by and between Caraloe, Inc. and Mannatech, Inc.
Switzerland
The countries of the European Union as of August 14, 1997
Singapore
Malaysia
Australia
New Zealand
The Phillippines
Taiwan
Hong Kong
Japan
<TABLE>
Exhibit 11.1
Computation of Net Income Per Common and Common equivalent Share (unaudited)
(Dollar amounts in 000's, except shares and per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $463 ($839) $15 ($5,540)
Preferred Stock Dividend
Requirement (Series C) -- -- -- (34)
Earnings Attributable to
Preferred Holders (Series E) -- -- (70) --
------ -------- ------ --------
Net Income for Computing
Income per Common Share $463 ($839) ($55) ($5,574)
====== ======== ====== ========
Average Common and Common
Equivalent Shares
Outstanding (1) 9,305,291 8,854,533 8,931,633 8,775,089
Net Income per Common and
Common Equivalent Share $0.05 ($0.09) $0.00 ($0.63)
====== ======== ====== ========
(1) Common stock equivalents have been excluded since the effect on net
income per share of their inclusions would either be antidilutive
or represent dilution of less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from (1) Statements of Balance Sheets, (2) Statements of
Operations and (3) Statements of Cash Flows, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,150
<SECURITIES> 0
<RECEIVABLES> 3,622
<ALLOWANCES> 277
<INVENTORY> 4,533
<CURRENT-ASSETS> 12,266
<PP&E> 19,095
<DEPRECIATION> 8,056
<TOTAL-ASSETS> 25,319
<CURRENT-LIABILITIES> 2,858
<BONDS> 19
0
0
<COMMON> 93
<OTHER-SE> 22,442
<TOTAL-LIABILITY-AND-EQUITY> 25,319
<SALES> 17,433
<TOTAL-REVENUES> 17,433
<CGS> 6,970
<TOTAL-COSTS> 6,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 85
<INCOME-TAX> 70
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
