UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File Number 0-11997
Carrington Laboratories, Inc.
(Exact name of Registrant as specified in its charter)
Texas 75-1435663
(State of Incorporation) (IRS Employer ID No.)
2001 Walnut Hill Lane, Irving, Texas 75038
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 518-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of class)
Preferred Share Purchase Rights
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the Registrant on March 14, 1997, was $51,179,297. (This
figure was computed on the basis of the closing price of such stock on
the NASDAQ National Market on March 14, 1997 using the aggregate number
of shares held on that date by, or in nominee name for, shareholders
who are not officers, directors or record holders of 10% or more of the
Registrant's outstanding voting stock. The characterization of such
officers, directors and 10% shareholders as affiliates is for purposes
of this computation only and should not be construed as an admission
for any other purpose that any of such persons are, in fact, affiliates
of the Registrant.)
<PAGE>
Indicate the number of shares outstanding of each of the
Registrant's classes of Common Stock, as of the latest practicable
date:
8,873,639 shares of Common Stock, par value $.01 per share, were
outstanding on March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting
of shareholders to be held on May 22, 1997 are incorporated by
reference into Part III hereof, to the extent indicated herein.
PART I
ITEM 1. BUSINESS.
General
Carrington Laboratories, Inc. ("Carrington" or the "Company") is a
research-based pharmaceutical and medical device company engaged in the
development, manufacturing and marketing of naturally derived complex
carbohydrate and other natural product therapeutics for the treatment
of major illnesses and the dressing and management of wounds. The
Company comprises three business divisions. See Note Sixteen to the
consolidated financial statements in this annual report for financial
information about these business divisions. The Company sells, using a
network of distributors, nonprescription products through its Wound and
Skin Care Division, veterinary medical devices and pharmaceutical
through its Veterinary Medical Division and consumer products through
its consumer products subsidiary, Caraloe, Inc. The Company's research
and product portfolio are based primarily on complex carbohydrate
technology derived from the Aloe vera plant.
The Company was incorporated in Texas in 1973, as Ava Cosmetics, Inc.
In 1986, the Company sold the direct sales business it was then
operating and changed its name to Carrington Laboratories, Inc.
Wound and Skin Care Division
Carrington's Wound and Skin Care Division markets a comprehensive line
of wound management products to hospitals, alternative care facilities
and the home health care market. The Company's products are designed
to maintain a moist wound environment which aids the healing process
and to maintain the integrity of contiguous healthy skin. Carrington
products are used in a wide range of acute and chronic wound and skin
conditions and for incontinence and ostomy care.
The Company is committing significant resources to its wound and skin
care business. Primary marketing emphasis is directed toward
hospitals, managed care organizations, alternate care facilities and
home health care providers, with wound and skin care products being
promoted primarily to physicians and specialty nurses, e.g.
enterostomal therapists. Opportunities in the growing alternate care
and home health care markets are also addressed through a telemarketing
sales team and a National Accounts Department.
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The Company's hospital field sales force currently employs 31 sales
representatives, each assigned to a specific geographic area in the
United States, four regional sales managers and a representative in
Puerto Rico. The Company also uses three independent sales company
employing eight sales representatives to sell its products on a
commission basis and an independent sales representative in Canada. In
addition to this field sales force, the Wound and Skin Care Division
employs five telemarketers who focus on alternative care facilities and
the home health care market, and three persons in its National Accounts
Department.
The Company's products are primarily sold through a network of
distributors. Three of the Company's largest distributors in the
hospital market for the last several years have been Allegiance
Healthcare Corporation ("Allegiance", formerly Baxter Healthcare
Corporation), Owens & Minor and Bergen Brunswig, which acquired Durr
Medical and Colonial Healthcare in December 1996. During fiscal 1994,
1995 and 1996, sales of wound and skin care products to Allegiance
represented 11%, 10% and 9%, respectively, of the Company's total net
sales. Sales to Owens & Minor represented 7%, 14%, and 11%,
respectively, of total net sales over the same period. Sales to Bergen
Brunswig represented 8%, 10%, and 12%, respectively, of total net sales
over the same period.
In November 1995, the Company signed a Sales Distribution Agreement
with Laboratories PiSA S.A., a Mexican corporation, for the exclusive
distribution rights to sell the Company's wound care products in
Mexico, Guatemala, Nicaragua, Panama, El Salvador, and the Dominican
Republic for a period of five years.
In May 1996, the Company entered into an agreement with Trudell Medical
Group ("Trudell") granting Trudell exclusive Canadian distribution
rights for the Company's wound care products.
In May 1996, the Company granted Ching Hwa Pharmaceutical Company, Ltd.
("CHP"), exclusive distribution rights to market the Comapny's wound care
products in the Republic of China. CHP is required to register the Company's
products for sale in Taiwan within a specified time.
In October 1996, the Company signed an exclusive contract with Faulding
Pharmaceuticals to market the Company's wound care products in Australia
and New Zealand. In December 1996, the Company entered into an agreement
with Suco International Corp. ("Suco") whereby the Company appointed Suco as
exclusive distributor of certain of the Company's products in Haiti,
Columbia, Venezuela, Uruguay, Bolivia, Peru, Paraguay, and Ecuador for
a five-year term, subject to early termination under certain
circumstances. The agreement requires Suco to register the products
covered by the agreement in each of those countries.
In December 1996, the Company and Darrow Laboratorios S/A ("Darrow")
entered into a Sales Distribution Agreement whereby the Company
appointed Darrow as a marketer and distributor of certain of the
Company's wound care products for a term of 10 years (subject to early
termination under certain circumstances) in Brazil, with a limited right
of first refusal to distribute those products in Argentina, Uruguay,
Paraguay, and Chile. The agreement requires Darrow to register such of
the Company's products as the Company directs, at the Company's
expense, in Brazil and each other country where Darrow is authorized to
distribute such products.
<PAGE>
In December 1996, the Company and its Belgian subsidiary entered into
an agreement with Recordati Industria Chimica & Farmaceutica S.P.A.
("Recordati") whereby the Company and its subsidiary jointly granted
exclusive distribution rights to Recordati for certain of the Company's
products in Italy, Vatican City and San Marino for a term of 10 years,
subject to automatic renewal for an additional two years unless
either party elects to terminate the agreement at the end of the
initial term, and subject to early termination under certain
circumstances. In return for the grant of the distribution rights,
Recordati made an initial payment to the Company and is obligated to
make two additional payments contingent on the occurrence of certain
events. Under the agreement, the Company is obligated to apply for a
CE mark for the products covered by the agreement in the United Kingdom
or another member of the European Economic Community, and Recordati is
obligated to register those products in each area covered by the
agreement.
In 1996, sales of the Company related to the above mentioned
international agreements were less than $100,000. The Company can not
estimate what sales associated with these agreements will be in 1997.
Consumer Health
Caraloe, Inc., a separate subsidiary of the Company ("Caraloe"),
markets or licenses consumer products and bulk ingredients utilizing
the Company's patented complex carbohydrate technology. Attention has
been focused on three goals, the first of which is to sell Caraloe's
Aloe Nutritional[R] brand products through the health food store market.
The second goal has been to develop private label aloe products for
entrepreneurs seeking a high quality line of aloe products. The third
goal has been to become a supplier of bulk Aloe vera raw materials to
commercial companies incorporating Aloe vera mucilaginous
polysaccharides into their established product lines.
In May 1994, Caraloe signed an agreement with Mannatech, Inc., formerly
Emprise International, Inc., to supply it a product known as bulk
Manapol[R] powder. In February 1996, an agreement was signed with
Mannatech granting it an exclusive license in the United States for
Manapol[R] powder. During fiscal 1994, 1995, and 1996, sales of Manapol
[R] powder to Mannatech represented 4%, 10%, and 15%, respectively, of the
Company's total net sales. In January 1997, the Company received
notification from Mannatech that the current supply agreement for
Manapol[R] powder would be terminated effective March 31, 1997. As the
supply agreement between Caraloe and Mannatech will not be renewed, the
exclusive license agreement for the Manapol[R] trade name will also
terminate and the Company will then be able to sell Manapol[R] powder
and/or license the trademark to other third parties as well as use
Manapol[R] powder in the Company's products. The Company plans to
reintroduce its Manapol[R] capsules in April 1997.
In October 1996, Caraloe made a $200,000 investment in Aloe Commodities
International, Inc. ("ACI"). In February, 1997 Caraloe entered into a
Supply Agreement with ACI for a term of 10 years (subject to early
termination under certain circumstances). The agreement contemplates
that ACI will purchase from Caraloe all of certain bulk raw materials
that ACI needs for drinks and other consumer products.
<PAGE>
In February 1997, Caraloe entered into a Supply Agreement with Light
Resources Unlimited ("LRU"), and effective March 1, 1997, Carrington
entered into a related Trademark License Agreement with LRU. The terms
of the Supply Agreement and the Trademark License Agreement end on May
12, 2002 and May 4, 2002, respectively, and the term of each agreement
is subject to early termination under certain circumstances. The
Supply Agreement provides that during the first three months of the
term, LRU will purchase from Caraloe quantities of AVMP[R] Powder and/or
Manapol[R] Gold[TM] Powder ("Product") to be mutually agreed upon, and
beginning May 12, 1997, LRU will purchase from Caraloe annually at
least the minimum quantities of Product specified in the agreement.
The Supply Agreement also contemplates that LRU will be Caraloe's sole
distributor of Product to natural health care practitioners in the
United States and Canada, subject to Caraloe's right to sell simple
purchase bulk Product to natural health care practitioners in
quantities exceeding certain specified limits. The Trademark License
Agreement grants LRU a non-exclusive license to use the trademarks AVMP[R]
Powder and Manapol[R] Gold[TM] Powder in connection with the advertising and
sale of Product.
Veterinary Medical Division
The Carrington Veterinary Medical Division ("CVMD") markets Acemannan
Immunostimulant, a vaccine adjuvant, and several wound and skin care
products to the veterinary market. Acemannan Immunostimulant was
conditionally approved by the United States Department of Agriculture
("USDA") in November 1991, for use as an aid in the treatment of canine
and feline fibrosarcoma, a form of soft tissue cancer that affects dogs
and cats. A conditional approval means that efficacy and potency tests
are required, and the product's label must specify that these studies
are in progress. The "conditional" aspect of the approval is renewed
on an annual basis and will be removed upon completion and acceptance
by the USDA of additional potency testing. However, there can be no
assurance that these tests will result in the removal of the
conditional restriction on the USDA s approval of Acemannan
Immunostimulant.
In September 1990, the Company granted Solvay Animal Health, Inc.
("Solvay") an exclusive, worldwide license to use and sell a bulk
pharmaceutical mannan adjuvant for poultry disease. In January 1992,
Solvay received approval from the USDA to market the bulk
pharmaceutical mannan as an adjuvant to a vaccine for Marek's disease,
a virus infection that kills chickens or renders them unfit for human
consumption. Solvay sells the product under the trademark ACM I.
In March 1996, the Company signed an agreement with Farnam Companies,
Inc., a leading veterinary marketing company, to promote and sell the
CarraVet[R] product line, including Acemannan Immunostimulant. The
CarraVet[R] product line currently consist of nine products.
Research and Development
General
In 1984, the Company isolated and identified a polymeric compound with
a molecular weight between one and two million Daltons from the Aloe
vera plant. This compound has been given the generic name "acemannan"
by the United States Adopted Names Council. The Company intends to
<PAGE>
seek approval of the Food and Drug Administration (the "FDA") and other
regulatory agencies to sell products based on a family of complex
carbohydrates in the United States and in foreign countries: (i) to
treat various forms of cancer; (ii) to treat inflammatory bowel
diseases, including ulcerative colitis, a widespread, chronic,
inflammatory disease of the colon; (iii) to treat non-healing and other
wounds; and (iv) for use as an adjuvant to various vaccines. For a
more comprehensive listing of the type, indication and status of
products currently under development by the Company, see "Research and
Development -- Summary" below. The regulatory approval process, both
domestically and internationally, can be protracted and expensive, and
there is no assurance that the Company will obtain approval to sell its
products for any treatment or use (see "Governmental Regulation"
below).
The Company is marketing or developing several products which in the
past were given the general name of acemannan, suggesting the products
were identical. This is not correct because there are ten products in
development or being marketed that are derived from 3 basic extracts of
the Aloe vera plant. The basic freeze-dried Aloe vera extract is
reconstituted to produce Manapol[R] and AVMP[R] powders for both food grade
and cosmetic grade products. Further refinement produces Bulk
Pharmaceutical Mannans ("BAM's") that are used to produce hydrogels;
the Carrington[TM] Patch, an oral care product; Carra Sorb[T]) M, a freeze-
dried wound dressing; adjuvants, ACM I marketed by Solvay, and CARN 500
which is being developed as an adjuvant for various vaccines; and
Aliminase[TM] capsules (formerly CARN 1000) which were being developed for
the ulcerative colitis program. Finally, Bulk Injectable Mannans ("BIM's")
are marketed as Acemannan Immunostimulant (CARN 700), and a product has
been developed for the treatment of cancer, CarraVex[TM] injectable
(formerly CARN 750).
The Company expended approximately $5,334,000, $5,370,000, and
$5,927,000 on research and development in fiscal 1994, 1995, and 1996,
respectively. The Company estimates that in fiscal 1997 it will spend
substantially less on research and development than in 1996.
Currently, the Company's research staff comprises eight full-time
employees as compared to 13 full-time employees at the end of 1995.
Preclinical Research
The Company identified the characteristics of its naturally occurring
complex carbohydrates by a series of studies in the Company's
laboratories and in several contract laboratories. Based on toxicology
tests sponsored by the Company on different animal species with dosages
up to 40 times the proposed intravenous human dosage, in vitro and in
vivo tests for mutagenicity, dermal sensitization tests, results of a
Phase I safety study of an oral product in humans and a Phase I safety
study of an intravenously administered preparation in humans, no
clinically significant toxicity of the Company s products has been
noted. Further safety studies may be required by the FDA prior to the
approval of any applications of complex carbohydrates.
Other preclinical studies conducted in the Company's laboratories and
in outside laboratories have shown that certain of the Company's
complex carbohydrates stimulate macrophages and other white blood cells
to produce cytokines, including interleukin-1, interleukin-6, tumor
necrosis factor alpha ("TNFA") and nitric oxide ("NO"), that regulate
other cells. Interleukin-1 stimulates fibroblasts, which are essential
<PAGE>
to wound healing and NO is involved in blood vessel regeneration.
Tumor necrosis factor alpha acts against tumors in the body. In
addition, laboratory experiments conducted by the Company have shown
that some Aloe vera components have both pro- and anti-inflammatory
actions and some products bind to and extend the life of growth
factors.
The Company believes that its products' pharmacological actions and
lack of toxicity make them excellent candidates for further development
as therapeutic agents for the treatments and uses for which the Company
intends to seek regulatory approvals (see "Research and Development --
General" above). There is no assurance, however, that the Company will
be successful in its efforts.
The Company operates a research and development laboratory at the Texas
A&M University Research Park to expand preclinical research in various
wound healing applications and mechanisms of action. Pursuant to this
arrangement, the Company has access to leading authorities in
immunology, as well as facilities and equipment to engage in
experimentation and analysis at the basic research level.
Animal Studies
The Company has pursued a strategy of developing products for certain
animal indications, clinical testing of which may have application to
studies for treatment of human diseases. Animal clinical testing
necessary to obtain eventual approval of a product for treatment of
human diseases may also provide data sufficient to obtain approval for
the related veterinary indication. This approach enables the Company
to obtain revenues from its research efforts at an earlier date and
also expands data available from actual use of the product in animals.
The Company's clinical research efforts to date have focused on the
indications described below.
Vaccine Adjuvants. An adjuvant is a substance that enhances the
antibody response to an antigen. The ability to generate a vigorous
immune response to an antigen is critical to the effectiveness of a
vaccine. The Company's studies indicate that acetylated mannans, when
used as a vaccine adjuvant, produce marked stimulation of the immune
system.
In 1990, the Company received approval from the USDA to sell an
adjuvant to licensed manufacturers for use in combination with animal
vaccines. This use as a vaccine adjuvant for certain poultry diseases
was licensed to Solvay pursuant to an agreement between Solvay and the
Company entered into in September 1990. In January 1992, Solvay
received approval from the USDA to market an adjuvant to its vaccine
for Marek's disease (see "Veterinary Medical Division" above).
The Company has conducted or sponsored studies of CARN 500 adjuvants
with other vaccines for animals. Based on these studies, the Company,
either directly or through third party licensees, intends to pursue
development of adjuvants for other animal vaccines. In 1993, a program
was begun to develop adjuvants for mammalian vaccines and for vaccines
for marine animals under licenses with one European company. There can
be no assurance however, that such development will be successful or
that the Company will be able to develop, or to enter into any
licensing agreements for the development of, any additional adjuvants.
<PAGE>
Evaluation of Anti-Tumor Activity. Acetylated mannans, including
CarraVex[TM] injectable (formerly CARN 750), are immunomodulating agents
that increase circulating levels of interleukin-1 and tumor necrosis
factor alpha. A series of studies conducted at Texas A&M University in
1988 and 1989 on mice with highly malignant tumors indicated that a
single intraperitoneal dose caused significant tumor reduction in a
statistically significant percentage of mice. This effect in many
instances was dramatic, with complete regression of the tumor and with
continuing immunity. Recovered animals were resistant to syngeneic
tumor reimplantation for up to six months after initial tumor
regression.
In 1991, the USDA granted the Company conditional approval to market an
injectable form of a complex carbohydrate as an aid in the treatment of
canine and feline fibrosarcoma, a form of soft tissue cancer, under the
name Acemannan Immunostimulant. The Company believes, based on
discussions with the USDA in 1996, that the USDA's remaining requirements
to remove the conditional restriction can be completed in 1997
(see "Veterinary Medical Division" above). Of course, there can be no
assurance as to whether or when the USDA will remove the conditional
restriction on its approval of this product.
Human Studies
Evaluation of Aliminase[TM] (formerly CARN 1000) oral capsules in the
Treatment of Inflammatory Bowel Diseases. In October 1991, the Company
filed an investigational new drug ("IND") application requesting
approval to conduct human clinical trials on the efficacy of Aliminase[TM]
capsules in the treatment of ulcerative colitis. In November 1991, the
Company received notice that the FDA was withholding approval of the
study, pending submission of additional information. Additional
studies requested by the FDA were completed, and the results were
submitted in October 1992. In December 1992, the Company received
authorization from the FDA to commence human clinical trials under the
IND application. In early 1993, the Company began a pilot safety and
efficacy study with oral Aliminase[TM] capsules in the treatment of
ulcerative colitis patients who are experiencing an acute flare-up of
the disease. This study, completed in May 1994, was conducted by
treating 54 patients with 400 or 800 milligram doses twice daily for
two or four weeks. After four weeks, the disease activity index and
the signs and symptoms of the disease were significantly improved, and
the safety of the oral product continued to be confirmed. A large
controlled trial of Aliminase[TM] capsules in patients with ulcerative
colitis began in September 1995. Over 300 patients were enrolled in
four groups comparing a placebo with three doses of Aliminase[TM] capsules
(150, 300 and 600 mg dosage levels, administered twice daily for six
weeks). Results were assessed in October 1996 and failed to show a
therapeutic effect of Aliminase[TM] capsules as compared with the placebo.
The program was placed on hold pending an in-depth evaluation of dosage
form, timing of dosing, frequency of dosing and route of
administration. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.")
Evaluation of CarraVex[TM] injectable (formerly CARN 750) in the Treatment
of Solid Tumors in Humans. The Company believes that CarraVex[TM]
injecttible may be broadly useful in cancer therapy, with potential
application in the treatment of major solid tumors, including melanoma,
<PAGE>
breast carcinoma, prostate carcinoma, colon carcinoma, hypernephroma
and soft tissue sarcoma. The Company initiated a Phase I human
clinical trial of CarraVex[TM] injectable in certain solid tumor
indications. The trial began in the United States in late 1995. As a
result of the success of Acemannan Immunostimulant in treating dogs and
cats, the Company has reason to believe that CarraVex[TM] injectable may
play a significant role in the treatment of cancer in humans.
Evaluation of the Carrington[TM] Patch in the Treatment of Aphthous
Ulcers. Carrington's efforts to broaden the claims for wound care
products containing Carrasyn[R] Hydrogel were expanded to include an
application within the oral health care field. Two studies were
conducted at Baylor College of Dentistry to examine the efficacy and
safety of two formulations of Carrasyn[R] Hydrogel wound dressing in the
treatment of oral aphthous ulcers (canker sores). The first study
involved Carrasyn[R] Hydrogel wound dressing modified for intraoral use
versus a leading product. The second trial involved the modified oral
formulation of Carrasyn[R] Hydrogel that had been freeze-dried. This
product, the Carrington[TM] Patch, reduced the pain of these ulcers. The
Company was given clearance by the FDA to market the freeze-dried
formulation for the management of oral aphthous ulcers in 1994. In
1996, the FDA cleared these additional indications to market: oral
wounds, mouth sores, injuries and ulcers of the oral mucosa including
traumatic ulcers such as those caused by braces and ill fitting
dentures. The product is being marketed as the Carrington[TM] Patch.
Evaluation of Carrasyn[R] in Wound Healing. In 1993, a study was
conducted at M.D. Anderson Cancer Center to determine if Carrasyn[R]
Hydrogel was of benefit in treating radiation-induced skin reactions of
mice. These studies clearly showed that, when compared to controls,
Carrasyn[R] Hydrogel could significantly reduce radiation-induced
inflammation and tissue damage in animals. As a result of this work, a
small clinical trial was performed in 1994, studying the radiation-
sparing effects of Carrasyn[R] Hydrogel wound dressing in four oncology
patients. A study conducted at the Diabetic Foot and Wound Center in
Denver, Colorado, suggested a higher incidence in wounds healed at
sixteen weeks with Carrasyn[R] wound gel as compared to saline gauze.
Four new indications (post-surgical incisions, sunburn, diabetic ulcers
and radiation dermatitis) for Carrasyn[R] were added in 1995. Further
studies may be conducted in 1997.
Evaluation of RadiaCare[TM] Gel in the Treatment of Radiation Dermatitis.
In 1996, a study was begun at the Texas Oncology Center of Dallas to
determine if RadiaCare[TM] Gel was of benefit in treating radiation
dermatitis in humans. The results of this study should be known in mid-
1997.
Evaluation of Carrasyn[R] Freeze-Dried Gel (Carra Sorb[TM] M) in Wound
Healing. Following the submission of a 510(k) pre-market notification
for a preservative-free freeze-dried gel for wound care, the FDA
cleared Carrington to market CarraSorb[TM] M, and it was launched in early
1996. The Company is performing a case study to support the marketing
effort for this product.
Summary. The following table outlines the status of the products and
potential indications of the Company's aloe-based products developed,
planned or under development. There is no assurance of successful
development, completion or regulatory approval of any product not yet
on the market.
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PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED,
PLANNED OR UNDER DEVELOPMENT
PRODUCT OR
POTENTIAL INDICATION POTENTIAL MARKET APPLICATIONS STATUS
Topical
Dressings Pressure and Vascular Ulcers Marketed
Cleansers Wounds
Marketed
Antifungal Candida Marketed
Oral
Human
Anti-inflammatory Ulcerative Colitis On hold
Injectable
Human
Anticancer Melanoma, Breast, Prostate, Colon, Phase I
Hypernephroma, and Soft Tissue Clinical
Sarcoma Trial
Veterinary
Anticancer Fibrosarcoma Marketed
Dental
Pain reduction Aphthous Ulcers, Oral Wounds Marketed
Vaccine Adjuvant
Veterinary
Poultry Vaccines Marek's Disease Marketed
Livestock Cattle, Sheep Clinical
Trials
Marine
(water treatment) Trout, Shrimp Clinical
Trials
Licensing Strategy
The Company expects that prescription pharmaceutical products
containing certain defined mannans will require a substantial degree of
development effort and expense. Before governmental approval to market
any such product is obtained, the Company may license these mannans for
certain indications to other pharmaceutical companies in the United
States or foreign countries and require such licensees to undertake the
steps necessary to obtain marketing approval for specific indications
or in a particular country.
Similarly, the Company intends to license third parties to market
products containing defined mannans for certain human indications when
it lacks the expertise or financial resources to market effectively.
If the Company is unable to enter into such agreements, it may
undertake to market the products itself for such indications. The
Company's ability to market these mannans for specific indications will
depend largely on its financial condition at the time and the results
of related clinical trials. There is no assurance that the Company
will be able to enter into any license agreements with third parties or
that, if such license agreements are concluded, they will contribute to
the Company's overall profits.
<PAGE>
Raw Materials and Processing
The principal raw material used by the Company in its operations is the
leaf of the plant Aloe barbadensis Miller, popularly known as Aloe
vera. Through a patented process, the Company produces bulk
pharmaceutical and injectable mannans and freeze-dried aloe extract
from the central portion of the Aloe vera leaf known as the gel. Bulk
pharmaceutical mannan, in the form of a hydrogel, is used as an
ingredient in certain of the Company's wound and skin care products.
Through additional processing, bulk mannans may be produced in both
oral and injectable dosage forms.
In May 1990, the Company purchased a 405-acre farm in the Guanacaste
province of northwest Costa Rica which currently has approximately 210
acres planted with Aloe vera. The Company plans to plant additional
acreage as demand for Aloe vera leaves increases. The Company believes
that the Costa Rica farm will be capable of providing substantially all
of the Aloe vera leaves required to meet the Company's presently
anticipated needs (see "Properties --Costa Rica Facility" below).
Manufacturing
Prior to the second quarter of 1995, the Company produced substantially
all of its wound and skin care products in a leased facility in Dallas,
Texas. During the first quarter of 1994, the Company completed an
evaluation of the production requirements that would be needed to meet
all federal regulatory requirements as a fully integrated
pharmaceutical manufacturer, as well as the production capacity that
would be required to meet continued growth in the Company's wound and
skin care business. It was decided to move its wound and skin care
manufacturing operation to the Company's headquarters facility in
Irving, Texas, and expand the facility through higher capacity
equipment. The moving, upgrading and expansion of the manufacturing
operation began in the fourth quarter of 1994, and the project was
completed and production began during the third quarter of 1995. At
the same location, the Company has upgraded its capabilities to produce
injectable grade pharmaceutical products. The Company believes that
the new plant's capacity will provide sufficient capacity for the
present line of products, and accommodate new products and sales
growth. Final packaging of certain of the Company's wound care
products is completed by outside vendors. The Company's calcium
alginates, films, foam dressings, gel sheets, tablets, capsules, and
freeze-dried products are being provided by third parties.
All of the Company's bulk pharmaceutical mannans, bulk injectable
mannans and freeze-dried Aloe vera extracts are produced in its
processing plant in Costa Rica. This facility has the ability to
supply the bulk aloe raw materials requirements of the Company's
current product lines for the foreseeable future. During the first
quarter of 1994, the Company initiated a project in Costa Rica to
upgrade the production plant to meet regulatory requirements for the
production of bulk pharmaceutical oral and injectable mannans as
required for IND's. This project was completed in the fourth quarter
of 1994. Finished oral and injectable dosage forms will be produced by
outside vendors until in-house production becomes economically
justified.
<PAGE>
The production capacity of the Costa Rica plant is larger than the
Company's current usage level. Management believes, however, that the
cost of the Costa Rica facility will eventually be recovered through
operations. The larger production capacity will be required to conduct
large scale clinical trials with bulk pharmaceutical and injectable
mannans.
Competition
Research and Development. The biopharmaceutical field is expected to
continue to undergo rapid and significant technological change.
Potential competitors in the United States are numerous and include
pharmaceutical, chemical and biotechnology companies. Many of these
companies have substantially greater capital resources, research and
development staffs, facilities and expertise (including in research and
development, manufacturing, testing, obtaining regulatory approvals and
marketing) than the Company. This competition can be expected to
become more intense as commercial applications for biotechnology and
pharmaceutical products increase. Some of these companies may be
better able than the Company to develop, refine, manufacture and market
products which have application to the same indications as bulk
pharmaceutical mannans and bulk injectable mannans. The Company
understands that certain of these competitors are in the process of
conducting human clinical trials of, or have filed applications with
government agencies for approval to market, certain products that will
compete with the Company's products.
Wound and Skin Care Division, Caraloe, Inc., and CVMD. The Company
competes against many companies that sell products which are
competitive with the Company's products, with many of its competitors
using very aggressive marketing efforts. Many of the Company's
competitors are substantially larger than the Company in terms of sales
and distribution networks and have substantially greater financial and
other resources. The Company's ability to compete against these
companies will depend in part on the continued expansion of the
marketing network for its products. The Company believes that the
principal competitive factors in the marketing of its products is their
quality, and that they are naturally based and competitively priced.
Governmental Regulation
The production and marketing of the Company's products, and the
Company's research and development activities, are subject to
regulation for safety, efficacy and quality by numerous governmental
authorities in the United States and other countries. In the United
States, drugs for human use are subject to rigorous FDA regulation.
The Federal Food, Drug and Cosmetic Act, as amended, the regulations
promulgated thereunder, and other federal and state statutes and
regulations govern, among other things, the testing, manufacture,
safety, effectiveness, labeling, storage, record keeping, approval,
advertising and promotion of the Company's products. For marketing
outside the United States, the Company is subject to foreign regulatory
requirements governing human clinical trials and marketing approval for
drugs and devices. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement may vary widely
from country to country.
<PAGE>
Food and Drug Administration. The contents, labeling and advertising
of many of the Company's products are regulated by the FDA. The
Company is required to obtain FDA approval before it can study or
market any proposed prescription drugs and may be required to obtain
such approval for proposed nonprescription products. This procedure
involves extensive clinical research, and separate FDA approvals are
required at various stages of product development. The approval
process requires, among other things, presentation of substantial
evidence to the FDA, based on clinical studies, as to the safety and
efficacy of the proposed product.
In order to initiate human clinical trials on a product, extensive
basic research and development information must be submitted to the FDA
in an investigational new drug ("IND") application. The IND
application contains a general investigational plan, a copy of the
investigator's brochure (a comprehensive document provided by the drug
manufacturer), copies of the initial protocol for the first study, a
review of the chemistry, manufacturing and controls information for the
drug, pharmacology and toxicology information, any previous human
experience with the drug, results of preclinical studies and any other
information requested by the FDA.
If permission is obtained to proceed to clinical trials based on the
IND application, initial trials, usually categorized as Phase I, are
instituted. The initial or Phase I trials typically involve the
administration of small, increasing doses of the investigational drug
to healthy volunteers, and sometimes patients, in order to determine
the general overall safety profile of the drug and how it is
metabolized. Once the safety of the drug has been established, Phase
II efficacy trials are conducted in which the expected therapeutic
doses of the drug are administered to patients having the disease for
which the drug is indicated, and a therapeutic response is sought as
compared to the expected progression of the underlying disease or
compared to a competitive product or placebo. Information also is
sought on any possible short-term side effects of the drug. If
efficacy and safety are observed in the Phase II trials, Phase III
trials are undertaken on an expanded group in which the patients
receiving the drug are compared to a different group receiving either a
placebo or some form of accepted therapy in order to establish the
relative safety and efficacy of the new drug compared with the control
group. Data are also collected to provide an adequate basis for future
physician prescribing information.
If Phases I through III are successfully completed, the data from these
trials are compiled into a new drug application ("NDA"), which is filed
with the FDA in an effort to obtain marketing approval. In general, an
NDA will include a summary of the components of the IND application, a
clinical data section reviewing in detail the studies from Phases I
through III and the proposed description of the benefits, risks and
uses, or labeling, of the drug.
<PAGE>
In general, a more comprehensive NDA and a more prolonged review
process are required for drugs not previously approved for marketing by
the FDA. If a second indication for an already approved product is
sought, since many of the components of the review process are the
same, a shortened review process generally can be anticipated.
However, the FDA gives high priority to novel drugs providing unique
therapeutic benefits and a correspondingly lower priority to drugs
similar to or providing comparable benefits to others already on the
market.
In addition to submitting safety and efficacy data derived from
clinical trials for FDA approval, NDA approval requires the
manufacturer of the drug to demonstrate the identity, potency, quality
and purity of the active ingredients of the product involved, the
stability of these ingredients and compliance of the manufacturing
facilities, processes and quality control with the FDA's current Good
Manufacturing Practices regulations. After approval, manufacturers
must continue to expend time, money and effort in production and
quality control to assure continual compliance with the current Good
Manufacturing Practices regulations.
Certain of the Company's wound and skin care products are registered
with the FDA as "devices" pursuant to the regulations under Section
510(k) of the Federal Food, Drug and Cosmetic Act, as amended. A
device is a product used for a particular medical purpose, such as to
cover a wound, with respect to which no pharmacological claim can be
made. A device which is "substantially equivalent" to another device
existing in the market prior to May 1976 can be registered with the FDA
under Section 510(k) and marketed without further testing. A device
which is not "substantially equivalent" is subject to an FDA approval
process similar to that required for a new drug, beginning with an
Investigational Device Exemption and culminating in a Premarket
Approval. The Company has sought and obtained all its device approvals
under Section 510(k). With respect to certain of its wound and skin
care products, the Company intends to develop claims for which IND and
NDA submissions will be required.
Department of Agriculture. Certain products being developed by the
Company for animal health indications must be approved by the USDA.
The procedure involves extensive clinical research, and USDA approvals
are required at various stages of product development. The approval
process requires, among other things, presentation of substantial
evidence to the USDA as to the safety and efficacy of the proposed
product. Furthermore, even if approval to test a product is obtained,
there is no assurance that ultimate approval for marketing the product
will be granted. USDA approval procedures can be protracted.
Other Regulatory Authorities. The Company's advertising and sales
practices are subject to regulation by the Federal Trade Commission,
the FDA and state agencies. The Company's processing and manufacturing
plants are subject to federal, state and foreign laws and to regulation
by the Bureau of Alcohol, Tobacco and Firearms of the Department of the
Treasury and by the Environmental Protection Agency as well as the FDA.
The Company believes that it is in substantial compliance with all
applicable laws and regulations relating to its operations, but there
is no assurance that such laws and regulations will not be changed.
Any such change may have a material adverse effect on the Company's
operations.
<PAGE>
Patents and Proprietary Rights
As is industry practice, the Company has a policy of using patent,
trademark and trade secret protection with a view to preserving its
right to exploit the results of its research and development activities
and, to the extent it may be necessary or advisable, to exclude others
from appropriating the Company's proprietary technology. The Company's
policy is to protect aggressively its proprietary technology by seeking
and enforcing patents in a worldwide program.
The Company has obtained patents or filed patent applications in the
United States and approximately 24 other countries in three series
regarding the compositions of acetylated mannan derivatives, the
processes by which they are produced and the methods of their use. The
first series of patent applications, relating to the compositions of
acetylated mannan derivatives and certain basic processes of their
production, was filed in a chain of United States patent applications
and its counterparts in the other 24 countries. The first United
States patent application in this first series, covering the
composition claims of acetylated mannan derivatives, matured into
United States Patent No. 4,735,935 (the "935 Patent"), which was issued
on April 5, 1988. United States Patent No. 4,917,890 (the "890
Patent") issued on April 17, 1990 from a divisional application to the
935 Patent. This divisional application pertains to most of the
remaining claims in the original application not covered by the 935
Patent. The 890 Patent generally relates to the basic processes of
producing acetylated mannan derivatives, to certain specific examples
of such processes and to certain formulations of acetylated mannan
derivatives. Two other divisional applications covering the remaining
claims not covered by the 890 Patent matured into patents, the first on
September 25, 1990, as United States Patent No. 4,959,214, and the
second on October 30, 1990, as United States Patent No. 4,966,892.
Foreign patents that are counterparts to the foregoing United States
patents have been granted in some of the member states of the European
Economic Community and several other countries.
The second series of patent applications related to preferred processes
for the production of acetylated mannan derivatives. One of them
matured into United States Patent No. 4,851,224, which was issued on
July 25, 1989. This patent is the subject of a Patent Cooperation
Treaty application and national foreign applications in several
countries. An additional United States patent based on the second
series was issued on September 18, 1990, as United States Patent
No. 4,957,907.
The third series of patent applications, relating to the uses of
acetylated mannan derivatives, was filed subsequent to the second
series. Three of them matured into United States Patent
Nos. 5,106,616, issued on April 21, 1992, 5,118,673, issued on June 2,
1992, and 5,308,838, issued on May 3, 1994. The Company intends to
file a number of divisional applications to these patents, each dealing
with specific uses of acetylated mannan derivatives. A Patent
Cooperation Treaty application based on the parent United States
application has been filed designating a number of foreign countries in
which the Company has the option to file specific applications.
<PAGE>
In addition, the Company has also obtained a patent in the United
States relating to a wound cleanser, U.S. Patent No. 5,284,833, issued
on February 8, 1994. This patent application is the subject of a
Patent Cooperation Treaty application designating a number of foreign
countries in which the Company has the option to file specific
applications in the designated foreign countries.
The Company has obtained a patent in the United States relating to a
therapeutic device made from freeze-dried complex carbohydrate hydrogel
(U.S. Patent No. 5,409,703 issued on April 25, 1995).
The Company intends to file patent applications with respect to
subsequent developments and improvements when it believes such
protection is in the best interest of the Company. Although the scope
of protection which ultimately may be afforded by the patents and
patent applications of the Company is difficult to quantify, the
Company believes its patents will afford adequate protection to conduct
the business operations of the Company. However, there can be no
assurance that (i) any additional patents will be issued to the Company
in any or all appropriate jurisdictions, (ii) litigation will not be
commenced seeking to challenge the Company's patent protection or such
challenges will not be successful, (iii) processes or products of the
Company do not or will not infringe upon the patents of third parties
or (iv) the scope of patents issued to the Company will successfully
prevent third parties from developing similar and competitive products.
It is not possible to predict how any patent litigation will affect the
Company's efforts to develop, manufacture or market its products.
The Company also relies upon, and intends to continue to rely upon,
trade secrets, unpatented proprietary know-how and continuing
technological innovation to develop and maintain its competitive
position. The Company typically enters into confidentiality agreements
with its scientific consultants, and the Company's key employees have
entered into agreements with the Company requiring that they forbear
from disclosing confidential information of the Company and assign to
the Company all rights in any inventions made while in the Company's
employ relating to the Company's activities. Accordingly, the Company
believes that its valuable trade secrets and unpatented proprietary
know-how are adequately protected.
The technology applicable to the Company's products is developing
rapidly. A substantial number of patents have been issued to other
biopharmaceutical companies. In addition, competitors have filed
applications for, or have been issued, patents and may obtain
additional patents and proprietary rights relating to products or
processes competitive with those of the Company.
<PAGE>
To the Company's knowledge, acetylated mannan derivatives do not
infringe any valid, enforceable, United States patents. A number of
patents have been issued to others with respect to various extracts of
the Aloe vera plant and their uses and formulations, particularly in
respect to skin care and cosmetic uses. While the Company is not aware
of any existing patents which conflict with its current and planned
business activities, there can be no assurance that holders of such
other Aloe vera based patents will not claim that particular
formulations and uses of acetylated mannan derivatives in combination
with other ingredients or compounds infringe, in some respect, these
other patents. In addition, others may have filed patent applications
and may have been issued patents relating to products and technologies
potentially useful to the Company or necessary to commercialize its
products or achieve their business goals. There is no assurance that
the Company will be able to obtain licenses of such patents on
acceptable terms.
The Company has given the trade name Carrasyn[R] to certain of its
products containing acetylated mannan derivatives. A selected series
of domestic and foreign trademark applications exists for the marks
Carrisyn[R], Manapol[R] and Carrasyn[R] which are registered in the United
States and several foreign countries. Further, the Company has filed
applications for the registration of a number of other trademarks,
including AVMP[R], both in the United States and in certain foreign
countries. The Company believes that its trademarks and trade names
are valuable assets.
Employees
As of March 3, 1997, the Company employed 252 persons, of whom 19 were
engaged in the operation and maintenance of its Irving processing
plant, 127 were employed at the Company's facility in Costa Rica and
the remainder were executive, research, quality assurance,
manufacturing, administrative, sales, and clerical personnel. Of the
total number of employees, 87 were located in Texas, 127 in Costa Rica
and one in Puerto Rico. In addition, 37 sales personnel were located
in 21 other states. The Company considers relations with its employees
to be good. The employees are not represented by a labor union.
Financing
In January 1995, the Company entered into a financing arrangement with
NationsBank of Texas, N.A. (the Bank ). The agreement was composed of
a $2,000,000 line of credit which expired one year from the date of the
agreement and a $6,300,000 term loan that was to mature five years from
the date of the agreement. The interest rate on both credit facilities
was the Company's option of prime plus one-half percent or the London
Interbank Offering Rate plus 200 basis points set for a period of
thirty, sixty, ninety or one hundred eighty days. The loans were
collateralized by the Company's assets and contained certain covenants.
As of December 31, 1995, the Company was not in compliance with the
term loan s fixed charge ratio covenant. Rather than amend the terms
of the term loan agreement, on April 29, 1996, the Company's management
elected to pay off the entire term loan balance of $2,977,000 plus
$18,000 in accrued interest with available cash to eliminate the
interest expense on the term loan. The Company's line of credit
expired January 30, 1996. The Company had reached an oral agreement
with the Bank for a new line of collateralized credit for approximately
<PAGE>
$1,200,000. However due to fees that were payable for the unused line
of credit and the Company's lack of immediate need of cash, management
elected to withdraw from discussions with the Bank and allowed the
agreement to be tabled until such time as a line of credit is desirable
and favorable to the Company.
ITEM 2. PROPERTIES.
The Company believes that all its farming property, manufacturing and
laboratory facilities, as described below, and material farm,
manufacturing and laboratory equipment are in satisfactory condition
and are adequate for the purposes for which they are used.
Walnut Hill Facility. The Company's corporate headquarters and
principal U.S. manufacturing facility occupy all of the 35,000 square
foot office and manufacturing building (the "Walnut Hill Facility"),
which is situated on an approximately 6.6 acre tract of land located in
the Las Colinas area of Irving, Texas. The Company owns the land and
the building. During the fourth quarter of 1994, the Company began a
project to move its manufacturing operation from a leased facility in
Dallas to the unused space in this facility and expand the amount of
office space. This project was completed during the third quarter of
1995. The manufacturing operations occupy approximately 19,000 square
feet of the facility, and administrative offices occupy approximately
16,000 square feet.
Laboratory Facility. The Company leases 24,000 square feet of office,
manufacturing and laboratory space (the "Laboratory Facility") in
Irving, Texas pursuant to a lease that expires in January 2000. The
Company's in-house research and development and quality assurance
activities are conducted at the Laboratory Facility. The Company also
maintains sterile production facilities (which occupy 4,000 square feet
of the total space) at the Laboratory Facility for the production of
injectable dosage forms of Acemannan Immunostimulant.
Warehouse and Distribution Facility. In August 1994, the Company
leased a 35,050 square foot office and warehouse facility in Irving,
Texas near the Walnut Hill Facility, and moved its warehouse and
distribution center from a leased facility in Dallas to this location
in September 1994. The warehouse and distribution center occupy
approximately 27,000 square feet and the remaining space is used for
offices. This lease expires in October 2001.
Costa Rica Facility. The Company owns approximately 405 acres of land
in the Guanacaste province of northwest Costa Rica. This land is being
used for the farming of Aloe vera plants and for a processing plant to
produce bulk pharmaceutical and injectable mannans and freeze-dried
Aloe vera extracts used in the Company s operations. Construction of
the processing plant was completed during the second quarter of 1993,
and the plant became operational in June 1993. The Company believes
that the Costa Rica farm will provide substantially all the Aloe vera
leaves required to meet the Company's needs. Development of this
facility was partially financed with borrowings under a five-year, U.S.
dollar-denominated loan from Corporacion Privada de Inversiones de
CentroAmerica, S.A., a private bank operating in San Jose, Costa Rica.
The loan was paid off in May 1995. During the first quarter of 1994,
the Company initiated a project in Costa Rica to upgrade the production
<PAGE>
plant to meet regulatory requirements for the production of bulk
pharmaceutical oral and injectable mannans as required for IND's. This
project was completed in the fourth quarter of 1994.
ITEM 3. LEGAL PROCEEDINGS.
On March 2, 1996, Dianna Gold (the "Plaintiff"), a former employee of
the Company, filed an action styled Dianna Gold vs. Carrington
Laboratories, Inc., and Fireman's Fund Insurance Company with the
Workers Compensation Appeals Board for the State of California (Case
No. SFO 394660). On March 27, 1996, Plaintiff filed an Application for
Discrimination Benefits Pursuant to Labor Code Section 132(a) in that
case. The Company is vigorously defending this action.
On June 26, 1996, Robert W. Brown ("Brown"), a former employee of the
Company, filed a lawsuit styled Robert W. Brown vs. Carrington
Laboratories, Inc., Cause No. 96-6469-L in the 193rd District Court of
Dallas County, Texas, alleging breach of contract, promissory estoppel,
fraud, negligent misrepresentation and slander in connection with his
employment and the termination of his employment with the Company.
Brown sought to recover unspecified common law and statutory damages,
punitive damages, interest, attorneys fees and cost of suit.
On December 6, 1996, the Judge signed an Order of Nonsuit in Cause No.
96-6469-L that dismissed the suit without prejudice to any party and
ordered each party to bear its own costs and attorneys fees.
On November 3, 1996, Brown filed a Charge of Discrimination against the
Company with the Equal Employment Opportunity Commission ("EEOC")
alleging age discrimination. The Company received a notification of
this charge dated February 13, 1997 from the EEOC. To date, the EEOC
has not required any action of the Company. The Company intends to
vigorously defend this charge.
On September 13, 1996, Linda M. Miller ("Miller"), a former employee of
the Company, filed a lawsuit styled Linda M. Miller vs. Carrington
Laboratories, Inc., Cause No. 96-9971 in the 191st District Court of
Dallas County, Texas, alleging breach of contract in connection with
her employment with the Company. Miller seeks to recover damages in
excess of $50,000, exclusive of interest and costs. The Company is
vigorously defending this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders
during the fourth quarter of the fiscal year covered by this Annual
Report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of the Company is traded on the NASDAQ National Market
under the symbol "CARN." The following table sets forth the high and
low sales prices of the Common Stock for each of the periods indicated.
Fiscal 1995 High Low
----------- ------- -------
First Quarter $13 1/8 $11
Second Quarter 24 1/2 11 1/4
Third Quarter 40 3/4 25 1/2
Fourth Quarter 32 1/2 14 3/4
Fiscal 1996 High Low
----------- ------- -------
First Quarter $34 1/2 $23 1/2
Second Quarter 50 7/8 21
Third Quarter 26 3/4 17 1/2
Fourth Quarter 23 1/4 6 7/8
At March 10, 1997, there were 971 holders of record. (including
brokerage firms and other nominees)
The Company has not paid any cash dividends on the Common Stock and
presently intends to retain all earnings for use in its operations.
Any decision by the Board of Directors of the Company to pay cash
dividends in the future will depend upon, among other factors, the
Company's earnings, financial condition and capital requirements.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data below should be read in
conjunction with the consolidated financial statements of the Company and
notes thereto and Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations. The selected consolidated financial
information for the five years ended December 31, 1996, is derived from
the consolidated financial statements of the Company which have been
audited by Arthur Andersen LLP, independent public accountants.
<TABLE>
Years Ended November 30, 1992, 1993, and 1994,
and Month Ended December 31, 1994 and
Years Ended December 31, 1995 and 1996
(Dollars and numbers of shares in thousands,
except per share amounts)
<CAPTION>
November 30, December 31,
----------------------------- ------------------------------
1992 1993 1994 1994 1995 1996
--------- --------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Operations Statement Information:
Net Sales $ 20,064 $ 21,184 $ 25,430 $ 1,781 $ 24,374 $ 21,286
Cost and expenses:
Cost of sales 5,113 5,289 6,415 516 7,944 10,327
Selling, general and
administrative 9,687 9,371 11,968 985 12,442 10,771
Research and development 4,141 5,397 5,334 327 5,370 5,927
Cost of uncompleted public
offering 400 - - - - -
Interest, net 249 218 133 23 115 (304)
----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 474 909 1,580 (70) (1,497) (5,435)
Provision for income taxes 159 104 159 - 131 88
Net income (loss) $ 315 $ 805 $ 1,421 $ (70) $ (1,628) $ (5,523)
Net income (loss) per common
and common equivalent share: $ .03 $ .09 $ .18 $ (.01) $ (.22) $ (.63)
-----------------------------------------------------------------------------------------------------------------
Weighted average shares
used in per share computations 6,801 7,324 7,341 7,344 7,933 8,798
-----------------------------------------------------------------------------------------------------------------
BALANCE SHEET INFORMATION:
Working capital $ 5,702 $ 5,292 $ 4,720 $ 4,472 $ 9,095 $ 13,910
Total assets 15,115 16,305 19,797 18,899 27,934 31,202
Long-term debt,
net of current portion 2,821 2,168 2,035 1,997 88 46
Total shareholders' investment $ 10,062 $ 11,041 $ 12,509 $ 12,439 $ 22,399 $ 27,757
----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ITEM 7. 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
naturally occurring complex carbohydrate and other natural products for
therapeutics in the treatment of major illnesses and the dressing and
management of wounds and other skin conditions. The Company sells
nonprescription products through its wound and skin care division;
veterinary medical devices and pharmaceutical products through its
veterinary medical division; and consumer products through its consumer
products subsidiary, Caraloe, Inc. (see Note 16 for financial
information on each of the segments). The Company's research and
product portfolio is primarily based on complex carbohydrate technology
derived naturally from the Aloe vera plant.
Liquidity and Capital Resources
At December 31, 1996 and 1995, the Company held cash and cash
equivalents of $11,406,000 and $6,222,000, respectively. The increase
in cash of $5,184,000 is attributable to a private placement of
preferred stock (see Note Eight to the consolidated financial
statements) and the issuance of common stock through the exercise of
stock options and warrants (see Note Nine to the consolidated financial
statements) that resulted in an additional $10,883,000 cash. This
increase in cash was partially offset by the retirement of all bank
debt and the purchase of a $1,500,000 certificate of deposit ("CD")
(see Note Four to the consolidated financial statements) as well as
increased research and development expenditures. In March 1997, the
Company repurchased 50% of the outstanding preferred stock for cash
(see Note Eighteen to the consolidated financial statements).
Although wound care sales for 1996 were lower than projected, the
Company was able to effectively manage and reduce inventory levels
throughout 1996. The Company regularly evaluates its inventory levels
and adjusts production at both its Costa Rica plant, where the bulk
freeze-dried Aloe extracts are manufactured, and at its U.S. plant to
meet anticipated demand. As a result of these evaluations, inventory
reduction programs were initiated in the latter part of 1995 and early
1996. These programs included reduced production at the Company's
manufacturing facility in Irving, Texas, as well as the Costa Rica
facility. As a result of these programs, inventory levels were reduced
by $1,481,000 during 1996, including a $630,000 reduction in the
production cost of Aloe vera derived products as described below. As a
result of the decreased production levels, the Company expensed
$1,396,000 of unabsorbed overhead as cost of goods sold in 1996.
The production capacity of the Costa Rica plant is larger than the
Company's current usage level. The Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), in the first quarter of 1996. SFAS 121 requires that
<PAGE>
long-lived assets held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amounts of the assets may not be recoverable. At the time of adoption,
there was no impairment of asset value in Costa Rica based on
historical production levels and future capacity requirements needed to
produce the Company's drug Aliminase[TM], then under initial phase III
clinical trials (see discussion below). In late October 1996, the
Company received the results of the initial phase III clinical trial
for the testing of Aliminase[TM] oral capsules, which indicated no
statistically significant differences that would support a conclusion
that Aliminase[TM] oral capsules provides a therapeutic effect in the
treatment of ulcerative colitis. As a result, the Company terminated
the second large scale clinical trial and placed further testing of
Aliminase[TM] oral capsules on hold. These results triggered a new
assessment of the recoverability of the costs of the Costa Rica plant's
assets using the methodology provided by SFAS 121 in the fourth quarter
of 1996. The net book value of the Costa Rica Plant assets as of
December 31, 1996, was $3,958,000. The Company evaluated the value of
Costa Rica produced components in its current product mix to determine
the amount of net revenues, excluding Manapol[R] powder sales to
Mannatech (see discussion of Caraloe sales to Mannatech below),
attributable to the Costa Rica plant. Cash inflows for 1997 and future
years were estimated using management's current forecast and business
plan. All direct costs of the facility, including certain allocations
of Company overhead, were considered in the evaluation of cash
outflows. Results indicate there is no impairment of value under SFAS
121. However, there is no assurance that future changes in product mix
or the content of Costa Rica produced components in the current
products will generate sufficient revenues to recover the costs of the
plant under SFAS 121 methodology.
As of March 14, 1997, the Company had no material capital commitments
other than its leases and agreements with suppliers. In January 1995,
the Company entered into an agreement with NationsBank of Texas, N.A.
(the "Bank") for a $2,000,000 line of credit and a $6,300,000 term
loan. Proceeds from the term loan were used to fund planned capital
expenditures, a letter of credit required by a supplier, as discussed
below, and planned research projects. The line of credit was to be
used for operating needs, as required. As of December 31, 1995, the
Company was not in compliance with the term loan's fixed charge ratio
covenant. Rather than amend the terms of the term loan, on April 29,
1996, the Company's management elected to pay off the entire term loan
balance of $2,977,000 plus $18,000 in accrued interest with available
cash to eliminate the interest expense on the term loan. All assets
previously collateralizing the term loan were released by the Bank.
The Company pledged a $1,500,000 CD to secure the letter of credit as
described below.
Although the aforementioned CD matures every 90 days, the Company's
management has elected not to classify the CD as a cash equivalent. As
the CD secures a letter of credit, described below, it is effectively
unavailable to the Company for other purposes until such time as the
letter of credit expires or is otherwise released. Therefore, the CD
is included in other non-current assets for reporting purposes.
<PAGE>
The line of credit agreement expired January 30, 1996. The Company had
reached an oral agreement with the Bank for a new line of
collateralized credit for approximately $1,200,000. However, due to
fees that were payable for the unused line of credit and the Company's
lack of immediate need of cash, management elected to withdraw from
discussions with the Bank and allowed the agreement to be tabled until
such time as a line of credit is desirable and favorable to the
Company.
In February 1995, the Company entered into a supply agreement with its
supplier of freeze-dried products. The agreement required that the
Company establish a $1,500,000 letter of credit. The term loan with
NationsBank was initially used to fund this letter of credit. The
funding of the letter of credit reduced the amount that the Company
could borrow under the term loan but did not increase the Company's
debt unless the letter of credit was utilized by the supplier. As of
March 14, 1997, the supplier had not made a presentation for payment
under the letter of credit. In April 1996, and in conjunction with the
Company's settlement of the term loan, the Bank agreed to reduce the
fees on the letter of credit by one percentage point in consideration
of the Company's agreement to purchase and assign to the Bank a CD in
an amount equal to the letter of credit. The Company will maintain the
CD until such time as the letter of credit expires or is otherwise
released. The contract also requires the Company to accept minimum
monthly shipments of $30,000 and to purchase a minimum of $2,500,000
worth of product over a period of five years. At the request of the
supplier, the minimum purchase requirements were waived for the three
month period ending December 31, 1996. The supplier currently
produces the CarraSorb[TM] M Freeze Dried Gel and the Carrington[TM]
(Aphthous Ulcer) Patch for the Company. Both of these products
represent new technology and are still in the product acceptance and
launch phase. The Company had approximately $325,000 and $370,000 of
CarraSorb[TM] M and Carrington[TM] (Aphthous Ulcer) Patch inventory on hand
as of December 31, 1996 and March 11, 1997, respectively. Current
sales of both items 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. As of March 11, 1997, the Company has purchased products
totaling approximately $281,000 from this supplier. The Company is in
full compliance with the agreement and, as of March 14, 1997, has the
available resources to meet all future minimum purchase requirements.
In November 1995, the Company signed a licensing agreement with a
supplier of calcium alginates and other wound care products. Under the
agreement, the Company has exclusive marketing rights for ten years to
advanced calcium alginate products for North and South America and in
the People's Republic of China. Under the agreement, the Company made
an up-front payment to the supplier of $500,000. This payment resulted
in increasing the prepaid assets of the Company. Additional payments
totaling $500,000 will be made to the supplier as new products are
delivered.
The Company began a large scale clinical trial during the third quarter
of 1995 for the testing of its Aliminase[TM] oral capsules for the
treatment of acute flare-ups of ulcerative colitis. The cost of this
clinical trial was approximately $2,300,000. All expenses related to
<PAGE>
this trial have been recognized and paid. In the third quarter of
1996, the Company began a second large scale clinical trial for the
testing of Aliminase[TM] oral capsules for the treatment of ulcerative
colitis. The cost of this trial was expected to be approximately
$2,500,000, of which approximately $212,000 was required as an initial
payment when the research contract was signed on September 19, 1996.
The full amount of the initial payment was expensed in the third
quarter. In late October 1996, the Company received the results of the
initial phase III clinical trial for the testing of Aliminase[TM] oral
capsules, which indicated 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 placed
further testing of Aliminase[TM] oral capsules on hold. Approximately
$150,000 in cancellation fees was recorded in relation to this
termination. No significant additional expenses related to phase III
trials of Aliminase[TM] oral capsules are anticipated as of March 14,
1997.
In late 1995, the Company began an initial Phase I 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 $201,000 had been expensed as of December 31,
1996. An additional $95,000 has been expensed in the first quarter of
1997.
Also in late 1995, the Company initiated an ongoing program to reduce
expenses and the cost of manufacturing, thereby increasing the gross
margin on existing sales. This program included a restructuring of the
work force in Costa Rica as well as a change in the manufacturing
process for Aloe vera based raw materials. Product costs have been
decreased through changes in product packaging and other costs have
been reduced through competitive bidding. Where appropriate, the
Company now complies with lower USDA or food grade requirements instead
of more stringent FDA requirements. The Company has restructured the
sales force to position it for growth and is refocusing the sales
effort to increase market share in the alternative care markets. As
part of this restructuring, the Company eliminated six sales positions,
including representatives in five sales territories. The Company
replaced three of these positions with commission based independent
manufacturer's representatives. Two of the positions were integrated
into existing sales territories. And finally, sales representatives in
territories that were contributing a low return are now compensated
under a compensation plan that emphasizes increased sales. This
compensation plan rewards the employee by paying a commission on every
sales dollar. To offset the higher commissions, the employees have a
significantly lower base salary and are responsible for covering their
own travel and entertainment expenses. This program will continue into
the foreseeable future and will continually challenge the costs of
doing business and where possible, further reduce the cost of
operations.
In October 1996, the Company completed a $6,600,000 financing involving
the private placement of Series E Convertible Preferred Stock (the
"Series E Shares". At that time, plans called for much of the
proceeds from this sale to be used to continue Carrington's clinical
research programs (see Footnote Eight to the consolidated financial
statements). On October 31, 1996, the Company announced the results of
the first Phase III trial of Aliminase[TM] oral capsules. Due to the
<PAGE>
unfavorable results of the first Phase III trial, the Aliminase[TM]
project was placed on hold. Additionally, the Company's management
canceled the second Phase III clinical trial then under contract. This
event resulted in significant changes in the Company's planned uses of
and need for these funds.
In addition to the change in the Company's needs, the decline in the
market price of the Company's Common Stock has increased the extent of
the dilution that would have occurred if all of the Series E Shares then
outstanding were converted into Common Stock. For these and other
reasons, the Company's Board of Directors concluded that it was in the
best interest of the Company and its shareholders that the Company use a
portion of its existing funds to repurchase 50% of the Series E Shares
(see Note Eighteen to the consolidated financial statements). On
March 4, 1997, the Company completed a repurchase of 50% of the above
Series E Shares.
The Company believes that its available cash resources, after the above
described repurchase of the Series E Shares, 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>
Fiscal 1996 Compared to Fiscal 1995
Net sales were $21,286,000 in 1996, compared with $24,374,000 in 1995.
This decrease of $3,088,000, or 12.6%, resulted from a decrease of
$3,845,000 in sales of the Company's wound and skin care products from
$21,147,000 to $17,302,000, or 18.2%. New products introduced in late
January accounted for $1,182,000 in wound and skin care sales during
1996. The decrease in wound and skin care sales was partially offset
by a $787,000, or 27.1%, increase in sales of Caraloe, Inc., the
Company's consumer products subsidiary.
In the past, the Company's wound and skin care products have been
marketed primarily to hospitals and select acute care providers. This
market has become increasingly competitive as a result of pressures to
control health care costs. Hospitals and distributors have reduced
their inventory levels and the number of suppliers used. Also, health
care providers have formed group purchasing consortiums to leverage
their buying power. This environment required the Company to offer
greater discounts and allowances to maintain customer accounts.
Additionally, in the fourth quarter of 1995, the Medicare/ Medicaid
reimbursement rate for hydrogels was significantly reduced (from 1
ounce per day to 3 ounces per month). This change significantly
reduced the demand for hydrogels in the market place. In February
1996, the Company revised its price list to more accurately reflect
current market conditions. Overall wound and skin care prices were
lowered by a weighted average of 19.1%. With the February price
reduction, the Company expected, and began to realize, a decrease in
the amount of discounts required. In addition to these cost pressures,
over the last several years the average hospital stay has decreased
over 50%, resulting in more patients being treated at alternative care
facilities and at home by home health care providers. This also had a
negative impact on sales since the Company's sales force had been
primarily focused on the hospital market. To counter the market
changes, the sales force is now also aggressively pursuing the
alternative and home health care markets.
To continue to grow its wound care business, the Company realized that
it had to expand from the estimated $38 million hydrogel market in
which it competed to a much larger segment of the estimated billion
dollar wound care market. To achieve this objective, an aggressive
program of new product development and licensing was undertaken in 1995
with the goal of creating a complete line of wound care products to
address all stages of wound management. As a result of this program,
the Company launched three new wound care product types in late January
1996. The Company expects to launch additional products in 1997.
Caraloe's sales increased from $2,907,000 to $3,694,000, or 27.1%.
Caraloe sales to Mannatech increased from $2,488,000 to $3,273,000. Of
the 1996 sales, $3,213,000 was related to the sale of bulk Manapol[R]
powder. Pursuant to the Supply Agreement, Mannatech is currently
required to purchase a minimum of 225 kilograms of Manapol[R] powder per
month at a purchase price of $1,200 per kilogram. The Supply Agreement
provides for an increase in Mannatech's minimum purchase requirement
commencing in April 1997, but it also provides for renegotiation by the
parties by March 15, 1997 of the purchase price to be paid by Mannatech
for Manapol[R] powder. The Company has been informed by Mannatech that
the supply agreement will not be renewed. Mannatech has indicated it
<PAGE>
will honor the minimum purchase requirements through March 31, 1997,
the termination date. As the Supply Agreement between Mannatech and
the Company will not be renewed, the exclusive license agreement for
the Manapol[R] trade mark will also terminate on March 31, 1997. The
Company will then be able to sell Manapol[R] powder or license the trade
mark to other third parties as well as use it in the Company's
products. Mannatech may continue to purchase Manapol[R] powder on an as-
needed basis. The termination of the Supply Agreement could have a
material effect on the Company s results of operations.
Sales of the Company's veterinary products decreased from $320,000 to
$290,000. 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
1997, the Company will begin to private label the veterinary line under
the Farnam name. Farnam has increased its sales force to improve the
market share of the private labeled products.
Cost of sales increased from $7,944,000 to $10,327,000, or 30.0%. As a
percentage of sales, cost of sales increased from 32.2% to 42.0% after
adjusting for a $630,000 inventory valuation decrease on June 30, 1996,
as described below, and period costs of $104,000 and $766,000 in 1995
and 1996, respectively. The period costs are related to the annual
shutdown of the facility in Costa Rica for routine maintenance and
inventory reduction programs. The increase in cost of goods sold is
largely attributable to the increased sales of bulk Manapol[R] powder,
which had a substantially lower profit margin in the first quarter of
1996 as compared to 1995, as a result of decreased production levels in
the first quarter of 1996, and as compared to the margins on the
Company's wound and skin care products, and the overall 19.1% price
decrease which occurred in February of 1996. Additionally, all of the
new products introduced in the first half of 1996 are manufactured for
the Company by third-party manufacturers and have a lower profit margin
than the products manufactured by the Company.
As a result of the implementation of programs to reduce operating and
production costs, several changes were implemented at the Company's
Costa Rica production facility in early 1996. This facility produces
all of the Company's freeze dried Aloe vera raw materials. Among these
changes was a restructuring of the work force as well as improvements
in efficiencies in the manufacturing process. The implementation of
these changes significantly reduced the cost of Costa Rica production
in the second quarter of 1996. As a result of these reductions in
cost, the actual cost of production under FIFO as of June 30, 1996, was
approximately 18% lower than the Company's standard cost, which was
equal to the FIFO cost of production at December 31, 1995 and March 31,
1996. The Company determined that the standard cost should be reset to
the then current actual cost of production. This reduction in standard
FIFO cost decreased inventory valuation by $630,000. This amount
represents the change in the accumulated value of all items in inventory
as of June 30, 1996 that were produced in Costa Rica as well as those
finished goods that contain component items produced in Costa Rica. This
decrease in inventory value was expensed in the second quarter as a
period cost and is included in cost of sales.
<PAGE>
To accelerate new product development and reduce overhead, the Company
was restructured in 1995. The restructuring included the lay-off of
seventeen high level and under-utilized positions in administration,
marketing, and research and development, for a net reduction in
salaries and benefits of approximately $120,000 per month.
Approximately $15,000 of these savings were offset with the hiring of
Kirk Meares, Vice President of Sales and Marketing, in the second
quarter of 1996. Also, the Company relocated its manufacturing
operations to its current facility on Walnut Hill in Irving, Texas, and
immediately realized a reduction in overhead and production costs as
the new facility is more efficient than the prior location. As the
Walnut Hill facility is owned by the Company, rent and other facility
expenses related to the former production facility of approximately
$25,000 per month were eliminated. Each of these items is expected to
reduce future expenses and improve cash flow results. As a result of
the restructuring, approximately $1,400,000 of one-time charges were
taken during 1995. Of these charges, approximately $147,000 of
severance compensation was paid in the first two quarters of 1996. Of
this amount, $75,000 was a final payment to a single former high
ranking research and development employee. This negotiated payment
relieved the Company of $128,000 in future severance compensation
liability to this employee. As of June 30, 1996, all liabilities
resulting from the restructuring were paid in full or otherwise
relieved.
Selling, general and administrative ("SG&A") expenses decreased to
$10,771,000 from $12,442,000, or 13.4%. This decrease was attributable
in part to approximately $900,000 in one-time charges in the first nine
months of 1995. These one-time charges were related to severance
agreements, legal expenses and settlements and debt refinancing costs.
This was partially offset as the Company incurred approximately
$150,000 in additional costs related to the launch of three new product
types and a one-time write-off of approximately $92,000 of bank and
legal charges related to the early retirement of all bank debt in 1996.
Also contributing to the reduced SG&A expenses were the benefits
received from the cost reduction programs put in place earlier in the
year as well as savings generated from the restructuring of the sales
force.
Research and development ("R&D") expenses increased to $5,927,000 from
$5,370,000, or 10.4%. This increase was the result of beginning the
initial large scale phase III clinical trial for the testing of
Aliminase[TM] oral capsules for the treatment of acute flare-ups of
ulcerative colitis during the third quarter of 1995. 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. In late October 1996, the
Company received the results of the initial phase III clinical trial
for the testing of Aliminase[TM] oral capsules, which indicated 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 placed further testing of the Aliminase[TM]
oral formulation on hold. Approximately $150,000 in cancellation fees
was recorded in the third quarter of 1996. Additional R&D costs
related to the ongoing cancer research contributed to the increase in
R&D during 1996 as well. These costs were partially offset by a
reduction of internal salaries and other operating expenses.
<PAGE>
Net interest income of $304,000 was realized in 1996, versus net
interest costs of $115,000 in 1995, due to having more excess cash to
invest as well as the retirement of all bank debt in April 1996.
Net loss for 1996 was $5,523,000, versus a net loss of $1,628,000 for
1995. This change is a result of a changing product mix, more products
manufactured by third parties, decreased sales which resulted from a
change in the Medicare reimbursement rates, and increased research and
development expenditures related to the Phase III ulcerative colitis
study and the ongoing Phase I cancer study. Loss per share was $.63 in
1996, compared to a loss per share of $.22 in 1995.
Fiscal 1995 Compared to Fiscal 1994
Net sales decreased from $25,430,000 to $24,374,000, or 4%. The
decrease of $1,056,000 resulted from a $2,557,000, or 11%, decrease in
sales of the Company's wound and skin care products. Sales of these
products decreased from $23,665,000 to $21,147,000. Fourth quarter
sales of the wound and skin care products decreased from $5,900,000 to
$4,348,000, or 26%. The Company's wound and skin care products have
been marketed primarily to hospitals and select acute care providers.
This market has become increasingly competitive as a result of
pressures to control health care costs. Hospitals and distributors
have reduced their inventory levels and the number of suppliers used.
Also, health care providers have formed group purchasing consortiums to
leverage their buying power. This environment required the Company to
offer greater discounts and allowances during 1995 to maintain customer
accounts. Discounts and allowances increased from $1,267,000 to
$3,063,000. They averaged 6.2% of gross wound care sales in the fiscal
fourth quarter of 1994, compared with an 18.3% average during the fourth
quarter of 1995. In February 1996, the Company revised its price list
to more accurately reflect current market conditions. Overall wound
care prices were lowered by an average of 19%. In addition to these
cost pressures, over the last several years the average hospital stay
has decreased over 50%, resulting in more patients being treated at
alternative care facilities and at home by home health care providers.
This also had a negative impact on sales since the Company's sales
force had been primarily focused on the hospital market. To counter
the market changes, the sales force is now also aggressively pursuing
the alternative and home health care markets.
The decrease in the Company's wound and skin care products was
partially offset by an increase in sales of Caraloe, Inc., the
Company's consumer products subsidiary. Caraloe's sales increased from
$1,361,000 to $2,907,000, or 114%. Of this, $1,513,000 is related to
the sale of bulk Manapol[R] powder to one customer, Mannatech. Sales of
bulk Manapol[R] powder to Mannatech increased from $934,000 to
$2,447,000. Sales of the Company's veterinary products decreased from
$404,000 to $320,000. In March 1996, the Company entered into an
agreement with Farnam Companies, Inc., a leading marketer of veterinary
products, to promote and sell its veterinary line on a broader scale.
Cost of sales increased from $6,415,000 to $7,944,000, or 23.8%. As a
percentage of sales, cost of sales increased from 25.2% to 32.6%. This
increase was attributable in part to the increased sales of bulk
Manapol[R] powder, which has a substantially lower profit margin, 33%, as
compared to the Company's wound and skin care products. In January
<PAGE>
1996, the profit margin on Manapol[R] powder was reduced to 8% as a
result of current production levels and costs at the Company's Costa
Rica facility. Also, the increasing discounts, as discussed earlier,
resulted in the Company's wound and skin care product costs increasing
by approximately 4% as a percentage of sales.
To accelerate new product development and reduce overhead, the Company
was restructured in 1995. The restructuring included the lay-off of
seventeen high level and under-utilized positions in administration,
marketing, and research and development for a net reduction in salaries
and benefits of approximately $120,000 per month. Also, the Company
relocated its manufacturing operations to its current facility on
Walnut Hill in Irving, Texas, and immediately realized a reduction in
overhead and production costs as the new facility is more efficient
than the prior location. As the Walnut Hill facility is owned by the
Company, rent and other facility expenses related to the former
production facility of approximately $25,000 per month were eliminated.
Each of these items is expected to reduce future expenses and improve
cash flow results. As a result of the restructuring, approximately
$1,400,000 of one-time charges were taken during 1995. Of these
charges, only $275,000 remained unpaid as of December 31, 1995.
Of the above charges, approximately $700,000 were selling, general and
administrative expenses, $500,000 related to severance agreements,
$130,000 was due to increased legal fees and a $70,000 write off of
unamortized legal and banking costs that resulted when the Company
refinanced its long-term debt in 1993. Approximately, $90,000 of costs
were incurred in 1995 to complete the refinancing. These costs were
included in other long-term assets and were amortized over the term of
the loan. As a result, selling, general and administrative expenses
increased from $11,968,000 to $12,442,000, or 4%.
Research and development expenses increased from $5,334,000 to
$5,370,000, or 1%. During the first half of 1995, $564,000 of cost
associated with severance agreements resulting from the above described
restructuring was charged to research and development. These charges
will reduce internal salaries on an ongoing basis. However, this
reduction was offset in 1995 by beginning the large scale clinical
trial for the testing of Aliminase[TM] (formerly CARN 1000) oral capsules
for the treatment of acute flare-ups of ulcerative colitis during the
third quarter of 1995.
Interest expense increased from $171,000 to $251,000, or 47%, due to
increased borrowings during the first four months of 1995. Interest
income increased from $38,000 to $136,000, or 258%, due to having more
excess cash to invest.
The net loss for 1995 was $1,628,000, compared with net income of
$1,421,000 for 1994. This change is a result of a changing product
mix, increased discounts and one-time charges related to restructuring.
Losses per share were $.22 in 1995, compared to earnings per share of
$.18 in 1994.
All statements other than statements of historical fact contained in
this report, including but not limited to statements in this
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" (and similar statements contained in the Notes
to Consolidated Financial Statements) concerning the Company's
financial position, liquidity, capital resources and results of
<PAGE>
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 or ability to recover the cost
of the Costa Rica plant, to absorb the plant s operating cost, to
achieve growth in demand for, or sales of, products, to reduce expenses
and manufacturing costs and increase gross margin on existing sales, to
use the proceeds from its sale of Series E Convertible Preferred Stock
to continue its clinical research programs, to file a registration
statement and have it declared effective within the time required by
its agreements with the holders of its Series E Convertible Preferred
Stock, to vigorously defend the legal proceedings described in this
report, to maintain the CD that secures its outstanding letter of
credit, to obtain financing when it is needed, to increase the
Company's market share in the alternative and home health 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 and increase its market share in the alternative care markets,
to promote and sell its veterinary products on a broader 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 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 and reduce its costs 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Consolidated Financial Statements of the
Company and its subsidiaries listed on page F-1 of this Annual Report,
which are hereby incorporated by reference in this Item 8.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Effective March 10, 1997, the Company appointed the accounting firm of
Ernst & Young LLP as the Company's independent public accountants for
fiscal 1997 to replace Arthur Andersen LLP effective with such
appointment. The Company's Board of Directors approved the selection
of Ernst & Young LLP as independent public accountants upon the
recommendation of the Board s Audit Committee.
During the two most recent fiscal years, there have been no
disagreements with Arthur Andersen LLP on any matter of accounting
principle or practice, financial statement disclosure or auditing scope
or procedures or any reportable events. Arthur Andersen LLP's report
on the financial statements for the past two years contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles.
The Company has provided Arthur Andersen LLP with a copy of this
disclosure and has requested that Arthur Andersen LLP furnish it with a
letter addressed to the Securities and Exchange Commission (the
"Commission") stating whether it agrees with the above statements. (A
copy of Arthur Andersen LLP's letter to the Commission, dated March
19 1997, is filed as Exhibit 16.1 to this report.)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K is hereby incorporated
by reference from the information appearing under the captions
"Election of Directors", "Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive
Proxy Statement relating to its 1997 annual meeting of shareholders,
which will be filed pursuant to Regulation 14A within 120 days after
the Company's fiscal year ended December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is hereby incorporated
by reference from the information appearing under the caption
"Executive Compensation" in the Company's definitive Proxy Statement
relating to its 1997 annual meeting of shareholders, which will be
filed pursuant to Regulation 14A within 120 days after the Company's
fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by Item 12 of Form 10-K is hereby incorporated
by reference from the information appearing under the captions
"Security Ownership of Management" and "Principal Shareholders" in the
Company's definitive Proxy Statement relating to its 1997 annual
meeting of shareholders, which will be filed pursuant to Regulation 14A
within 120 days after the Company's fiscal year ended December 31,
1996.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of Form 10-K is hereby incorporated
by reference from the information appearing under the caption "Certain
Transactions" in the Company's definitive Proxy Statement relating to
its 1997 annual meeting of shareholders, which will be filed pursuant
to Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a)(1) Financial Statements.
Reference is made to the index on page F-1 for a list of all
financial statements filed as a part of this Annual Report.
(2) Financial Statement Schedules.
Reference is made to the index on page F-1 for a list of all
financial statement schedules filed as a part of this Annual Report.
(3) Exhibits.
Reference is made to the Index to Exhibits on pages E-1 through
E-10 for a list of all exhibits filed as a part of this Annual Report.
(b) Reports on Form 8-K.
During the last quarter of 1996, the Company filed a Form 8- K Current
Report dated October 21, 1996 with the Securities and Exchange
Commission describing the Comapny's private placement of 660 shares of
Series E Convertible Preferred Stock. See Notes Seven and Seventeen to
the consolidated financial statements for a description of that private
placement and subsequent repurchase by the Company of 330 of such
shares.
<PAGE>
CARRINGTON LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements of the Company:
Consolidated Balance Sheets --
December 31, 1995 and 1996 F - 2
Consolidated Statements of Operations -- year ended
November 30, 1994, month ended December 31, 1994
and years ended December 31, 1995 and 1996 F - 3
Consolidated Statements of Shareholders' Investment --
year ended November 30 1994, month ended December 31, 1994
and years ended December 31, 1995 and 1996 F - 4
Consolidated Statements of Cash Flows -- year ended
November 30, 1994, month ended December 31, 1994
and years ended December 31, 1995 and 1996 F - 5
Notes to Consolidated Financial Statements F - 6
Report of Independent Public Accountants F - 28
<PAGE>
<TABLE>
Consolidated Balance Sheets
(Dollar amounts in thousands, except share amounts)
<CAPTION>
December 31, December 31,
As of 1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,222 $11,406
Accounts receivable, net of
allowance for doubtful accounts of
$227 and $213 as of December 31,
1995 and 1996, respectively 2,227 1,912
Inventories 5,235 3,623
Prepaid expenses 858 368
--------- -------
Total current assets 14,542 17,309
Property, plant and equipment, at cost 18,933 18,851
Less: Accumulated depreciation (6,222) (7,173)
--------- -------
12,711 11,678
Other assets 681 2,215
--------- --------
Total assets $27,934 $31,202
========= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
LIABILITIES:
Current portion of long-term debt $ 3,026 $ 29
Accounts payable 590 1,621
Accrued liabilities 1,831 1,749
Short-term borrowings - -
-------- --------
Total current liabilities 5,447 3,399
Long-term debt,
net of current portion 88 46
SHAREHOLDERS' INVESTMENT:
Preferred stock, 1,000,000 shares
authorized (all series)
Series C, $100 par value,
11,840, and 0 shares issued
December 31, 1995 and
1996, respectively 1,167 -
Series E Convertible, $100 par value
and 660 issued at December 31, 1996 - 66
<PAGE>
Common stock, $.01 par value,
30,000,000 shares authorized,
8,378,999, and 8,869,819
shares issued and outstanding at
December 31, 1995 and 1996,
respectively 84 89
Capital in excess of par value 44,666 56,680
Deficit (23,344) (28,904)
Foreign currency translation adjustment (174) (174)
-------- ---------
Total shareholders' investment 22,399 27,757
-------- ---------
Total liabilities and
shareholders' investment $27,934 $31,202
======= =========
</TABLE>
[FN]
The accompanying notes are an integral part of these balance sheets.
F - 2
<PAGE>
<TABLE>
Consolidated Statements of Operations For the Year Ended November 30, 1994,
the Month Ended December 31, 1994 and the Years Ended December 31, 1995 and 1996
(Dollar amounts in thousands, except per share amounts)
<CAPTION>
November 30, December 31,
------------ --------------------------------
1994 1994 1995 1996
------ ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $25,430 $1,781 $24,374 $21,286
Cost and expenses:
Cost of sales 6,415 516 7,944 10,327
Selling, general and
administrative 11,968 985 12,442 10,771
Research and development 5,334 327 5,370 5,927
Interest expense 171 23 251 88
Interest income (38) - (136) (392)
Income (loss) before
income taxes 1,580 (70) (1,497) (5,435)
Provision for
income taxes 159 - 131 88
------- ------- -------- --------
Net income (loss) $ 1,421 $ (70) $(1,628) $(5,523)
======= ======= ======== ========
Weighted average
shares outstanding 7,341 7,344 7,933 8,798
Net income (loss) per common
and common equivalent share: $ .18 $ (.01) $ (.22) $ (.63)
======== ======= ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
F - 3
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Investment
For the Year Ended November 30, 1994, the Month
Ended December 31, 1994, and the Years Ended
December 31, 1995 and 1996
(Dollar amounts and share amounts in thousands)
<CAPTION>
Foreign
Capital in Currency
Preferred Common Excess of Translation
Stock Stock Par Value Deficit Adjustment
Shares Amount Shares Amount
------ ------ ------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Balance,
November 30, 1993 10 $928 7,336 $ 74 $33,016 $(22,802) $(174)
------------------------------------------------------------------------------------------
Issuance of
common stock upon
exercise of stock
options and warrants - - 8 - 59 - -
Dividends on
Preferred stock 1 113 - - - (125) -
Net income - - - - - 1,421 -
------------------------------------------------------------------------------------------
Balance,
November 30, 1994 11 $1,041 7,344 $ 74 $33,075 $(21,506) $(174)
------------------------------------------------------------------------------------------
Net loss - - - - - (70) -
------------------------------------------------------------------------------------------
Balance,
December 31, 1994 11 $1,041 7,344 $ 74 $33,075 $(21,576) $(174)
------------------------------------------------------------------------------------------
Sales of common stock
at $10 per share,
net of issuance
costs of $41,000 - - 300 3 2,956 - -
Issuance of common
stock upon exercise
of stock options
and warrants - - 711 7 8,426 - -
Issuance of common
stock for management
and directors
compensation - - 24 - 209 - -
Dividends on
preferred stock 1 126 - - - (140) -
Net loss - - - - - (1,628) -
-----------------------------------------------------------------------------------------
Balance,
December 31, 1995 12 $1,167 8,379 $ 84 $44,666 $(23,344) $(174)
-----------------------------------------------------------------------------------------
<PAGE>
Issuance of common
stock upon exercise
of stock options,
warrants and
employee stock
purchase plan - - 316 3 4,604 - -
Dividends on
preferred stock - 35 - - - (37) -
Conversion of
preferred to common
stock (Series C) (12) (1,202) 175 2 1,200 - -
Sales of preferred
convertible stock
(Series E), $100 Par,
net of issuance costs
of $58,000 1 66 - - 6,210 - -
Net loss - - - - - (5,523) -
-----------------------------------------------------------------------------------------
Balance,
December 31, 1996 1 66 8,870 89 56,680 (28,904) (174)
-----------------------------------------------------------------------------------------
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
F - 4
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
For the Year Ended November 30, 1994, the
Month Ended December 31, 1994 and the Years Ended
December 31, 1995 and 1996
(Dollar amounts in thousands)
<CAPTION>
November 30, December 31,
------------ ------------------------
1994 1994 1995 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,421 $ (70) $(1,628) $(5,523)
Adjustments to reconcile income (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization 1,206 110 1,277 1,273
Changes in assets and liabilities:
(Increase) decrease in accounts receivable, net (603) 6 658 315
(Increase) decrease in inventories (2,072) (411) (188) 1,612
(Increase) decrease in prepaid expenses (428) 102 (319) 490
Decrease (increase) in other assets 8 36 (514) (1,534)
Increase (decrease) in accounts payable
and accrued liabilities 838 (638) (545) 949
------- ------ ------- -------
Net cash provided (used) by operating
activities 370 (865) (1,259) (2,418)
------- ------ ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,014) (286) (4,206) (242)
------- ------ ------- -------
Net cash used by investing activities (3,014) (286) (4,206) (242)
------- ------ ------- -------
Cash flows from financing activities:
Issuances of common stock 59 - 11,393 4,607
Issuance of preferred stock - - - 6,276
Proceeds from short- and long-term borrowings 1,500 - 5,742 -
Payments of short- and long-term debt (385) (187) (5,848) (2,999)
Principal payments of capital lease obligations (49) (3) (64) (40)
------- ------ ------- -------
Net cash provided (used) by financing activities 1,125 (190) 11,223 7,844
------- ------ ------- -------
Net (decrease) increase in cash and
cash equivalents (1,519) (1,341) 5,758 5,184
Cash and cash equivalents at beginning of year 3,324 1,805 464 6,222
------- ------- ------- -------
Cash and cash equivalents at end of year $ 1,805 $ 464 $ 6,222 $11,406
======== ======== ======= ========
<PAGE>
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the year for interest $ 206 $ 20 $ 281 $ 87
Cash paid during the year for income taxes 124 - 99 13
Supplemental Disclosure of Non-Cash
Financing Activities:
Equipment acquired through capital leases 114 - - 39
Issuances of common stock and warrants - - 209 -
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
F - 5
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
In February 1995, the Company changed its fiscal year end from November 30
to December 31. Comparative financial statements reflect the fiscal year
ended November 30, 1994, the single month of December 1994, and the fiscal
years ended December 31, 1995 and 1996.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of Carrington Laboratories, Inc. (the "Company"), and
its subsidiaries, all of which are wholly owned. All intercompany
accounts and transactions have been eliminated in consolidation. Certain
prior year amounts have been reclassified to conform with 1996
presentation.
CASH EQUIVALENTS The Company's policy is that all highly liquid
investments purchased with a maturity of three months or less are
considered to be cash equivalents unless otherwise restricted.
REVENUE RECOGNITION The Company recognizes revenue when title to the
goods transfers. For the majority of the Company's sales, this occurs at
the time of shipping. However, certain customers do not take title until
the goods are delivered to their location or agent at which time revenue
is recognized.
DEPRECIATION AND AMORTIZATION Land improvements, buildings and
improvements, furniture and fixtures and machinery and equipment are
depreciated on the straight-line method over their estimated useful lives
(3 - 40 years). Leasehold improvements and equipment under capital leases
are depreciated over the terms of the respective leases (2 - 5 years).
TRANSLATION OF FOREIGN CURRENCIES Based on an evaluation of the
activities of its Costa Rica subsidiaries, as of September 1, 1993, the
Company concluded that the functional currency for these operations was
the U.S. dollar. Accordingly, such foreign entities translate monetary
assets and liabilities at year-end exchange rates while non-monetary items
are translated at historical rates. Revenue and expense accounts are
translated at the average rates in effect during the year, except for
depreciation and cost of sales which are translated at historical rates.
Translation adjustments and transaction gains or losses are recognized in
consolidated income in the year of occurrence.
Prior to September 1, 1993, all assets and liabilities of foreign
subsidiaries were translated into U.S. dollars at the exchange rates in
effect at the balance sheet date. Revenue and expense accounts were
translated at weighted average exchange rates. Translation gains and
losses were reflected as a separate component of shareholders' investment.
FEDERAL INCOME TAXES The Company applies Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109")
which was issued in February 1992 to account for federal income taxes.
F - 6
<PAGE>
Deferred income taxes reflect the tax effect of temporary differences
between the amount of assets and liabilities recognized for financial
reporting and tax purposes. These deferred taxes are measured by applying
currently enacted tax laws. The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Certain of the Company's research and development expenditures qualify for
tax credits and such credits are accounted for as a reduction of the
current provision for income taxes in the year they are realized.
RESEARCH AND DEVELOPMENT Research and development costs are expensed
as incurred. Certain laboratory and test equipment determined to have
alternative future uses in other research and development activities has
been capitalized and is depreciated as research and development expense
over the life of the equipment.
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS The Company does not
offer any post-retirement or post-employment benefits.
EARNINGS PER SHARE Earnings per share are based on the weighted
average number of common and common equivalent shares outstanding during
each period. Stock options and warrants are included as common stock
equivalents if the dilutive effect on net earnings per share is greater
than 3%. The common stock equivalents were either antidilutive, or
represented dilution of less than 3%, in 1994, 1995 and 1996. The
weighted average numbers of common shares used in computing earnings per
share were 7,340,982, 7,932,675, and 8,798,211 for the fiscal years ended
November 30, 1994, and December 31, 1995 and 1996, respectively.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE TWO. INVENTORIES:
Inventories are recorded at the lower of first-in, first-out cost or
market. The following summarizes the components of inventory at December
31, 1995 and 1996:
(Dollar amounts in thousands)
1995 1996
------------------------------------------------------
Raw materials and supplies $ 714 $ 658
Work-in-process 2,726 1,197
Finished goods 1,795 1,768
------------------------------------------------------
Total $5,235 $3,623
------------------------------------------------------
F - 6
<PAGE>
Included in work-in-process are $2,538,000 and $1,124,000 of freeze-dried
Aloe vera inventory as of December 31, 1995 and 1996, respectively.
Finished goods consist of materials, labor and manufacturing overhead.
NOTE THREE. PROPERTY, PLANT AND EQUIPMENT:
The Company has a 6.6 acre tract of land and a 35,000 square foot office
and manufacturing building situated thereon. This facility is located in
Irving, Texas, a suburb of Dallas, and is used as the Company's
headquarters and primary manufacturing facility.
During July 1995, the Company completed the manufacturing and distribution
project started during the first quarter of 1994. The project involved
the physical relocation of its manufacturing operation from a leased
facility in Dallas to an unused portion of the Company's corporate
headquarters facility in Irving, Texas. The new facility is intended to
meet all federal regulatory requirements applicable to provide the
production capacity needed to meet long-term sales growth. At the same
location, the Company has upgraded its capability to enable it to produce
injectable products that meet FDA standards. The total cost expended on
the project was $4,469,000.
During the first quarter of 1994, the Company initiated a project in Costa
Rica to upgrade its production plant to meet regulatory requirements for
the production of bulk acetylated oral and injectable mannans as required
for investigational new drugs ("INDs"). This project was completed in the
fourth quarter of 1994 and cost approximately $1,200,000. Funding was
provided by existing cash on hand and cash flow from operations. The
Company's net investment in property, plant, equipment and other assets in
Costa Rica at November 30, 1994 and December 31, 1995 and 1996 were
$4,545,000, $4,280,000, and $3,958,000, respectively.
The production capacity of the Company's Aloe vera processing plant in
Costa Rica, where its bulk freeze-dried Aloe vera extract is manufactured,
is greater than the Company's current level of usage of the plant. The
Company is currently exploring other options to utilize the available
capacity. There is no assurance that the Company will be able to fully
utilize the Costa Rica plant s capacity. The Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS
121") in the first quarter of 1996. SFAS 121 requires that long-lived
assets held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amounts of
the assets may not be recoverable. At the time of adoption, there was no
impairment of asset value in Costa Rica based on historical production
levels and future capacity requirements needed to produce the Company's
drug Aliminase[TM], then under initial phase III clinical trials. Under
SFAS 121, when there is an event or change in circumstances that may
impair the recoverability of the assets, the carrying amount of the asset
should be assessed. In late October 1996, the Company received the results
of the initial phase III clinical trial for the testing of Aliminase[TM]
oral capsules, which no statistically significant differences that would
support a conclusion that Aliminase[TM] oral capsules provide a
therapeutic effect in the treatment of ulcerative colitis. As a result,
the Company terminated the second large scale clinical trial and placed
further testing of Aliminase[TM] oral formulation on hold. These results
triggered a new assessment of the
F - 6
<PAGE>
recoverability of the costs of The Costa Rica plant's assets using the
methodology provided by SFAS 121 in the fourth quarter of 1996. The net
book value of the Costa Rica Plant assets as of December 31, 1996, was
$3,958,000. The Company evaluated the value of Costa Rica produced
components in its current product mix to determine the amount of net
revenues, excluding Manapol[R] powder sales to Mannatech (see also Note
Thirteen), attributable to the Costa Rica plant. Sales to Mannatech were
excluded from the analysis as the Company has been informed by Mannatech
that the supply agreement in effect throughout 1996 will not be renewed.
Mannatech has indicated it will honor the minimum purchase requirements
through March 31, 1997, the termination date. As the Supply Agreement
between Mannatech and the Company will not be renewed, the exclusive
license agreement for the Manapol[R] trademark will also terminate on
March 31, 1997. The Company will then be able to sell Manapol[R] powder
or license the trademark to other third parties as well as use it in the
Company's products. Mannatech may continue to purchase Manapol[R] powder
on an as-needed basis, but no such purchases could be anticipated for the
SFAS 121 analysis. Cash inflows for 1997 and future years were estimated
using management's current forecast and business plan. All direct costs
of the facility, including certain allocations of Company overhead, were
considered in the evaluation of cash outflows. Results indicate there is
no impairment of value under SFAS 121. However, there is no assurance that
future changes in product mix or the content of Costa Rica produced
components in the current products will generate sufficient revenues to
recover the costs of the plant under SFAS 121 methodology.
The following summarizes the components of property, plant and equipment
at December 31, 1995 and 1996:
(Dollar amounts in thousands)
1995 1996
----------------------------------------------------------------
Land and improvements $ 1,389 $ 1,389
Buildings and improvements 8,073 8,085
Furniture and fixtures 868 880
Machinery and equipment 7,826 7,589
Leasehold improvements 330 756
Equipment under capital leases 447 152
-----------------------------------------------------------------
Total $18,933 $18,851
-----------------------------------------------------------------
NOTE FOUR. OTHER ASSETS
The Company owns a $1,500,000 certificate of deposit ("CD") that matures
every 90 days. Although includable in cash as a cash equivalent, the
Company's management has elected not to classify the CD as such. Because
the CD secures a letter of credit (see Note Seven), it is effectively
unavailable to the Company for other purposes until such time as the
letter of credit expires or is otherwise released. Therefore, the CD is
included in other non-current assets for reporting purposes.
F - 6
<PAGE>
Also included in other assets are the unamortized portion of a Product
Development and Exclusive Distribution Agreement with Innovative
Technologies Limited ("IT"), capitalized legal and start-up costs related
to the Costa Rica operation, and a $200,000 investment in Aloe Commodities
International, Inc. ("ACI").
The following summarizes the components of other assets at December 31,
1995 and 1996:
(Dollar amounts in thousands) 1995 1996
-----------------------------------------------------------------------
Certificate of Deposit $ - $1,500
IT Product Development
and Exclusive Distribution Agreement 442 392
Callable Note to ACI - 200
Costa Rica Start-up Costs 123 81
Cost of 1995 restructuring bank debt 77 -
Other 39 42
------------------------------------------------------------------------
Total $681 $2,215
------------------------------------------------------------------------
NOTE FIVE. ACCRUED LIABILITIES:
The following summarizes significant components of accrued liabilities at
December 31, 1995 and 1996:
(Dollar amounts in thousands)
1995 1996
-------------------------------------------------------------------------
Accrued payroll $ 210 $ 232
Accrued sales commissions 251 187
Accrued taxes 165 512
Preferred dividends (Series C Shares) 124 -
Accrued severance liability 267 -
Rebates 182 129
Legal 30 125
Other 602 564
-------------------------------------------------------------------------
Total $1,831 $1,749
-------------------------------------------------------------------------
F - 6
<PAGE>
NOTE SIX. SHORT-TERM BORROWINGS:
Short-term debt activity for each of the years ended December 31, 1995 and
1996 was as follows:
(Dollar amounts in thousands)
1995 1996
------------------------------------------------------
Average amount
of short-term
debt outstanding
during the year $ 468 $ 991
Maximum amount
of short-term
debt outstanding
during the year 2,977 2,977
Average interest rate
for the year 7.9% 7.7%
------------------------------------------------------
NOTE SEVEN. DEBT:
In January 1995, the Company entered into an agreement with NationsBank of
Texas, N.A., (the "Bank") for a $2,000,000 line of credit and a $6,300,000
term loan. Proceeds from the term loan were used to fund planned capital
expenditures, a letter of credit required by a supplier, as discussed
below, and planned research projects. The line of credit was to be used
for operating needs, as required. The term loan was payable in equal
quarterly installments of $250,000 principal plus accrued interest
beginning March 31, 1995 and ending January 30, 1999, when the unpaid
balance was due. The interest rate on both credit facilities was the
Company's option of prime plus .5% or 30, 60, 90, or 180 day reserve
adjusted LIBOR (London Interbank Offering Rate) plus 2%. The Company paid
a commitment fee of $31,500 on the closing date. In February 1995, the
Bank waived the requirement that the Costa Rica assets be pledged to
secure the term loan. The Company agreed to pay an additional commitment
fee of $31,500 at that time. As of December 31, 1995, the Company was not
in compliance with the term loan's fixed charge ratio covenant.
Therefore, the entire balance was classified as current debt for reporting
purposes. Rather than amend the terms of the term loan, on April 29,
1996, the Company's management elected to pay off the entire term loan
balance of $2,977,000 plus $18,000 in accrued interest with available cash
to eliminate the interest expense on the term loan. All assets previously
collateralizing the term loan were released by the Bank. The Company
pledged a $1,500,000 CD to secure the letter of credit as described below.
The interest rate on the borrowing ranged from 7.70% to 8.125% between
January 30, 1995 and December 31, 1995. In 1996, the interest rate was
7.7% from January 1, 1996 through April 29, 1996.
In order to help finance the development of the Company's Costa Rica
facilities, the Company arranged a five-year U.S. dollar-denominated loan
in the amount of $600,000 from Corporacion Privada de Inversiones de
CentroAmerica, S.A. In May 1995, the note was paid off using proceeds of
the Company's private placement (see Note Nine).
F - 6
<PAGE>
In February 1995, the Company entered into a supply agreement with its
supplier of freeze-dried products. The agreement required that the
Company establish a $1,500,000 letter of credit. The term loan with
NationsBank was used to fund this letter of credit. The funding of the
letter of credit reduced the amount that the Company could borrow under
the term loan but did not increase the Company's debt unless the letter of
credit was utilized by the supplier. As of March 14, 1997, the supplier
had not made a presentation for payment under the letter of credit. In
April 1996, and in conjunction with the Company's settlement of the term
loan, the Bank agreed to reduce the fees on the letter of credit by one
percentage point in consideration of the Company's agreement to purchase
and assign to the Bank a CD in an amount equal to the letter of credit.
The Company will maintain the CD until such time as the letter of credit
expires or is otherwise released.
Long-term debt of the Company for the years ended December 31, 1995 and
1996 is summarized as follows:
(Dollar amounts in thousands)
1995 1996
--------------------------------------------------------
Term Loan $2,977 $ -
Obligations under capital leases 137 75
--------------------------------------------------------
3,114 75
Less - Current portion 3,026 29
--------------------------------------------------------
Long-term debt, net of current $ 88 $ 46
--------------------------------------------------------
The Company leases certain computer and other equipment under capital
leases expiring at various dates through 2001. The following is a
schedule of future minimum lease payments under the capital lease
agreements together with the present value of these payments as of
December 31, 1996:
(Dollar amounts in thousands)
Fiscal years ending December 31,
-----------------------------------------------
1997 $ 35
1998 35
1999 9
2000 6
2001 1
-----------------------------------------------
Aggregate minimum lease payments 86
Less - Imputed interest included in
aggregate minimum lease payments 11
-----------------------------------------------
Present value of aggregate minimum
lease payments $ 75
-----------------------------------------------
F - 6
<PAGE>
NOTE EIGHT. PREFERRED STOCK:
SERIES C SHARES In June 1991, the Company completed a transaction
whereby the Company issued 7,909 shares of Series C 12% cumulative
convertible preferred stock (the "Series C Shares") in exchange for
convertible debentures plus interest accrued to the date of exchange to a
private investor (the "Investor"). The Series C Shares had a par value of
$100 per share, were convertible at par into common stock of the Company
at a price of $7.58 per share (subject to certain adjustments), and were
callable by the Company, after January 14, 1996 and provided for dividend
payments to be made only through the issuance of additional Series C
Shares.
In January 1996, all of the outstanding Series C shares were converted to
174,935 shares of the Company's common stock.
The Company had previously issued to the Investor warrants to purchase
55,000 shares of common stock of the Company at $15 per share through
February 1, 1996. In addition to issuing the Series C Shares to the
Investor, the Company reduced the exercise price of warrants held by the
Investor from $15 per share to $12.75 per share, which was above the
market price of the common stock at the date of adjustment. These
warrants were exercised in the first quarter of 1996. The Company also
extended by three years, to February 1, 1996, the life of certain warrants
that had previously been issued to this Investor for the purchase of
20,000 shares of common stock of the Company (all of which are now owned
10,000 shares each by two executives of the Investor, one of whom is a
director of the Company), and reduced the exercise price of such warrants
from $25 to $15 per share, which was above the market price of the common
stock at the date of adjustment.
SERIES E SHARES 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"). Each Series E
Share has a par value of $100 and an initial purchase price of $10,000.
After placement fees, legal and other costs related to the private
placement, the Company expects to realize net proceeds of $6,266,000. 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.
The Series E Shares are convertible, at the option of the holder thereof,
into shares of the Compan'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 as calculated
over the three trading-day period ended on the last trading day 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 Conversion Price is subject to adjustment to
take into account stock dividends, stock splits and share combinations
involving the Company's common stock. Each Series E Share will be
convertible into the number of whole shares of common stock determined by
dividing $10,000 by the Conversion Price.
F - 6
<PAGE>
Each Series E Share outstanding on the Maturity Date will automatically
convert into common stock at the then current Conversion Price. Holders
of Series E Shares will be entitled to receive an annual dividend payment
equal to $500 per share for the one year period commencing on October 21,
1998 and ending on October 20, 1999 (equal to 5% of the per share Purchase
Price). Dividends are payable only if the preferred shares are held to
maturity, and are payable either in shares of common stock at the then
current Conversion Price or in cash, or a combination of both, at the
option of the Company.
The Company entered into Registration Rights Agreements (collectively, the
"Registration Agreements") with the holders of the Series E Shares
obligating the Company to prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement (the
"Registration Statement") with respect to the resale of the underlying
shares of common stock (including any shares issued in payment of
dividends on the Series E Shares or the periodic payments described below.
The Registration Agreements provided that if the Commission did not
declare the Registration Statement effective on or before January 9, 1997,
the Company would make periodic payments to the holders of the Series E
Shares equal to 1% of the Purchase Price for the first 30-day period
thereafter and 2% of the Purchase Price for each additional 30-day period,
prorated to the date on which the Commission declared the Registration
Statement effective. Such payments could be made in cash or shares of
common stock or a combination of both, at the election of the Company.
The Company filed the Registration Statement with the Commission on
December 2, 1996.
In March 1997, the Company repurchased 50% of the above Series E shares
for $3,729,000. See Note Eighteen for further discussion.
NOTE NINE. COMMON STOCK:
PRIVATE PLACEMENT OF COMMON STOCK In April 1995, the Company completed
a self-directed private placement of 300,000 shares of common stock at a
price of $10.00 per share. The average of the high and low sale prices of
the Company's common stock on the NASDAQ National Market on the day of the
placement was $10.69 per share. Total proceeds net of issuance costs were
$2,956,000. The Company agreed to use its best efforts to file a
registration statement with the Securities and Exchange Commission within
90 days after the placement. Effective July 11, 1995, shares related to
the private placement were registered for resale with the Securities and
Exchange Commission. Proceeds from the placement were used for planned
capital expenditures, payment of bank debt, research and development
expenditures and other operating needs.
EMPLOYEE STOCK PURCHASE PLAN On October 29, 1992, the Company adopted
an Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the
Stock Purchase Plan, employees may purchase common stock at a price equal
to the lesser of 85% of the market price of the Company's common stock on
the last business day preceding the enrollment date (defined as January 1,
April 1, July 1 or October 1 of any plan year) or 85% of the market price
on the last business day of the month. If any employee elects to
terminate participation in the Stock Purchase Plan, the employee is not
F - 6
<PAGE>
eligible to re-enroll until the first enrollment date following six months
from such election. The Stock Purchase Plan provides for the grant of
rights to employees to purchase a maximum of 500,000 shares of common
stock of the Company commencing on January 1, 1993. As of December 31,
1996, 62,970 shares had been purchased by employees at prices ranging from
$7.23 to $29.54 per share.
STOCK OPTIONS The Company has an incentive stock option plan (the
"Option Plan") under which incentive stock options and nonqualified stock
options may be granted to certain employees as well as non-employee
directors. Options are granted at a price no less than the market value
of the shares on the date of the grant, except for incentive options to
employees who own more than 10% of the total voting power of the Company's
common stock, which are granted at a price no less than 110% of the market
value. Options granted expire four to ten years from the dates of grant.
The Company accounts for employee stock based compensation under APB Opinion
No. 25, under which no compensation cost has been recognized. Had
compensation cost been determined based on the fair value of options at their
grant dates consistent with the method of Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), the Company's net loss and losses per share
would have been reduced to the following pro forma amounts:
--------------------------------------------------------
1995 1996
--------------------------------------------------------
Net loss (in thousands):
As reported $(1,628) $(5,523)
Pro forma (2,656) (8,022)
Loss per share:
As reported $ (0.22) $ (0.63)
Pro forma (0.35) (0.92)
--------------------------------------------------------
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the pro forma compensation cost may not
be representative of the pro forma cost to be expected in future years.
F - 6
<PAGE>
The following summarizes stock option activity for each of the three years
ended November 30, 1994 and December 31, 1995 and 1996:
(Shares in thousands)
Options Outstanding
-------------------------------------------------------------------------
Weighted
Average
Exercise
Shares Price Per Share Price
-------------------------------------------------------------------------
Balance, November 30, 1993 754 $ 6.25 to $29.00 $13.96
Granted 268 $ 8.25 to $12.75 $11.47
Lapsed or canceled (118) $ 6.25 to $21.72 $14.45
Exercised (7) $ 6.25 to $10.25 $ 6.25
-------------------------------------------------------------------------
Balance, November 30, 1994 897 $ 6.25 to $29.00 $12.95
Granted 592 $11.12 to $35.25 $20.63
Lapsed or canceled (72) $ 8.62 to $20.12 $11.93
Exercised (581) $ 6.25 to $29.00 $12.45
-------------------------------------------------------------------------
Balance, December 31, 1995 836 $ 6.25 to $35.25 $18.82
Granted 141 $24.25 to $47.75 $32.69
Lapsed or canceled (109) $11.25 to $28.75 $23.81
Exercised (201) $ 6.25 to $29.00 $15.33
-------------------------------------------------------------------------
Balance, December 31, 1996 667 $ 8.25 to $47.75 $21.99
-------------------------------------------------------------------------
Options exercisable at
December 31, 1996 223 $ 8.25 to $47.75 $22.84
-------------------------------------------------------------------------
Weighted Average Fair Value of Options
Granted using SFAS 123 Valuation Method:
1995 $11.86
1996 18.70
-------------------------------------------------------------------------
<PAGE>
<TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------- ---------------------------------
Number Weighted-Avg Number
Range of Outstanding Remaining Weighted-Avg Exercisable Weighted-Avg
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<C> <C> <C> <C> <C> <C>
$ 8.25 to $13.13 227 7.0 years $11.18 71 $10.74
$16.56 to $20.13 107 7.0 $18.22 45 $18.62
$24.25 to $30.25 251 9.1 $27.16 62 $27.62
$35.25 45 8.6 $35.25 30 $35.25
$47.75 37 7.0 $47.75 15 $47.75
---------------- ----------- --------------- ------------- ---------- -------------
$ 8.25 to $47.75 667 7.9 $21.99 223 $22.84
================ =========== =============== ============= ========== =============
</TABLE>
The fair value of each option granted is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996,
respectively: risk-free interest rates of 6.50% and 6.47%, expected
volatility of 64.2% and 63.0%. The Company used the following weighted-
average assumptions for grants in 1995 and 1996: expected dividend yields
of 0% and expected lives of 5.0 years on options granted to employees and
4.0 years on grants to directors.
The Company has reserved 1,500,000 shares of common stock for issuance
under the Option Plan. As of December 31, 1996, options to purchase
525,125 shares had been granted under the option plan, of which options
for 17,200 shares had been exercised. As of December 31, 1996, options
covering 422,675 shares were outstanding with exercise prices between
$16.56 and $47.75, with a weighted average exercise price of $27.87 and a
weighted average contractual life of 8.8 years. Of these options, 134,518
are currently exercisable with a weighted average exercise price of
$29.56.
The Company's 1985 Stock Option Plan expired in February 1995. The
Company had reserved 1,400,000 shares of common stock for issuance under
this plan. At the time the plan expired, options to purchase 1,150,440
had been granted, of which options for 863,540 shares have been exercised.
As of December 31, 1996, options covering 244,089 shares were outstanding
with exercise prices between $6.25 and $29.00, with a weighted average
exercise price of $11.81 and a weighted average contractual life of 6.8
years. Of these options, 88,330 are currently exercisable with a weighted
average exercise price of $12.57.
F - 6
<PAGE>
STOCK WARRANTS From time to time, the Company has granted warrants to
purchase common stock to the Company's research consultants and certain
other persons rendering services to the Company. The exercise price of
such warrants was normally the market price or in excess of the market
price of the common stock at date of issuance. The following summarizes
warrant activity for each of the years ended November 30, 1994, and
December 31, 1995 and 1996:
Warrants Outstanding
(Shares in thousands) --------------------------------------------
Weighted
Average
Exercise
Shares Price per Share Price
--------------------------------------------------------------------------
Balance, November 30, 1993 331 $ 6.25 to $26.00 $14.43
Granted 10 $ 9.75 $ 9.75
Lapsed or canceled (42) $18.00 to $26.00 $23.66
--------------------------------------------------------------------------
Balance, November 30, 1994 299 $ 6.25 to $26.00 $14.27
Granted 20 $16.00 $16.00
Lapsed or canceled (88) $11.25 to $26.00 $17.88
Exercised (102) $ 6.25 to $16.25 $11.88
--------------------------------------------------------------------------
Balance, December 31, 1995 129 $ 9.75 to $20.13 $13.99
Lapsed or canceled (3) $12.13 $12.13
Exercised (75) $12.75 to $15.00 $13.35
--------------------------------------------------------------------------
Balance, December 31, 1996 51 $ 9.75 to $20.13 $15.03
--------------------------------------------------------------------------
Warrants exercisable at
December 31, 1996 49 $ 9.75 to $20.13 $15.14
--------------------------------------------------------------------------
<TABLE>
The following table summarizes information about stock warrants oustanding
at December 31, 1996:
<CAPTION>
Warrants Outstanding Warrants Exercisable
------------------------------------------------------- --------------------------------
Number Weighted-Avg Number
Range of Outstanding Remaining Weighted-Avg Exercisable Weighted-Avg
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<C> <C> <C> <C> <C> <C>
$ 9.75 to $13.00 20 2.8 Years $11.38 18 $11.14
$16.00 to $20.13 31 2.8 $17.39 31 $17.39
---------------- ----------- ---------------- -------------- ----------- --------------
$ 9.75 to $20.13 51 2.8 $15.03 49 $15.14
================ =========== ================ ============== =========== ==============
</TABLE>
F - 6
<PAGE>
NOTE TEN. SHARE PURCHASE RIGHTS PLAN:
In September 1991, the Company's Board of Directors adopted a share
purchase rights plan by declaring a dividend distribution of one preferred
share purchase right (a "Right") on each outstanding share of the
Company's common stock (the "Common Shares"). The dividend distribution
was made October 15, 1991, payable to shareholders of record on that date.
The Rights are subject to an agreement (the "Rights Agreement") between
the Company and the Company's stock transfer agent, and will expire
October 15, 2001, unless redeemed at an earlier date.
Pursuant to the Rights Agreement, each Right will entitle the holder
thereof to buy one one-hundredth of a share of the Company's Series D
Preferred Stock (the "Preferred Shares"), at an exercise price of $80,
subject to certain antidilution adjustments. The Rights will not be
exercisable or transferable apart from the Common Shares, until (i) the
tenth day after a person or group acquires 20% or more of the Common
Shares or (ii) the tenth business day following the commencement of, or
the announcement of an intention to make, a tender or exchange offer for
20% or more of the Common Shares. The Rights will not have any voting
rights or be entitled to dividends. If the Company is acquired in a
merger or other business combination, each Right will entitle its holder
to purchase, at the exercise price of the Right, a number of the acquiring
company's common shares having a current market value of twice such price.
Alternatively, if a person or group acquires 20% or more of the Common
Shares, then each Right not owned by such acquiring person or group will
entitle the holder to purchase, for the exercise price, a number of Common
Shares having a market value of twice such price. The Rights are
redeemable at the Company's option for $.01 per Right at any time prior to
the close of business on the seventh day after the first date of public
announcement that a person or group has acquired beneficial ownership of
20% or more of the Common Shares. At any time after a person or group
acquires 20% or more of the Common Shares, but prior to the time such
acquiring person acquires 50% or more of the Common Shares, the Company's
Board of Directors may redeem the Rights (other than those owned by the
acquiring person or group), in whole or in part, by exchanging one Common
Share for each Right.
NOTE ELEVEN. OPERATING LEASES:
The Company conducts a significant portion of its operations from an
office/ warehouse/distribution facility and an office/laboratory facility
under operating leases that expire over the next five years. In addition,
the Company leases certain office equipment under operating leases that
expire over the next four years.
F - 6
<PAGE>
The Company is committed under noncancellable operating leases, with
minimum lease payments as of December 31, 1996 as follows:
(Dollar in thousands)
Fiscal Years Ending December 31,
----------------------------------------------
1997 $ 409
1998 421
1999 394
2000 394
Thereafter 97
----------------------------------------------
Total minimum lease payments $1,715
----------------------------------------------
Total rental expenses under operating leases were $447,000, $364,000 and
$451,000 for the years ended November 30, 1994 and December 31, 1995 and
1996, respectively.
NOTE TWELVE. INCOME TAXES:
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1996 are as
follows:
(Dollars in thousands)
1995 1996
--------------------------------------------------------
Net operating loss carryforward $ 9,835 $ 12,875
Research and development
and other credits 839 839
Patent fees 308 318
Other, net 795 791
Less - Valuation allowance (11,777) (14,823)
--------------------------------------------------------
Deferred income tax asset $ - $ -
--------------------------------------------------------
Pursuant to the requirements to SFAS 109, a valuation allowance is
provided when it is more likely than not the deferred income tax asset
will not be realized. The Company has provided a valuation allowance
against the entire deferred tax asset at December 31, 1995 and 1996.
F -6
<PAGE>
The provisions for federal income and state franchise taxes for the years
ended November 30, 1994 and December 31, 1995 and 1996 consisted of the
following:
(Dollars in thousands)
1994 1995 1996
-------------------------------------------------------
Current provision $159 $131 $ 88
Deferred provision, net - - -
-------------------------------------------------------
Total provision $159 $131 $ 88
-------------------------------------------------------
The differences (expressed as a percentage of pre-tax income) between the
statutory and effective federal income tax rates are as follows:
1994 1995 1996
-------------------------------------------------------
Statutory tax rate 34.0% (34.0%) (34.0%)
State income taxes 5.4 2.8 .5
Recognition of previously
unrecognized deferred
tax benefits (35.3) - -
Unrecognized deferred tax
benefit - 34.6 34.9
Expenses related to foreign
operations 4.7 4.1 -
Research and development
tax credit adjustment .5 - -
Other .8 1.3 .2
-------------------------------------------------------
Effective tax rate 10.1% 8.8% 1.6%
-------------------------------------------------------
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $37,868,000 for federal income tax purposes, which expire
during the period from 1999 to 2011, and investment and research and
development tax credit carryforwards of approximately $839,000, which
expire during the period from 1999 to 2008, all of which are available to
offset federal income taxes due in future periods.
NOTE THIRTEEN. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist
primarily of trade accounts receivable. The Company's customers are not
concentrated in any specific geographic region but are concentrated in the
health care industry. Significant sales were made to three unaffiliated
customers. Allegiance Healthcare Corporation (Allegiance, formerly
Baxter Healthcare Corporation) accounted for $2,775,000, $2,492,000 and
F - 6
<PAGE>
$1,877,000; Owens & Minor accounted for $1,795,000, $3,348,000 and
$2,433,000; and Bergen Brunswig, which acquired Durr Medical and Colonial
Healthcare in December 1996, accounted for $2,042,000, $2,359,000, and
$2,568,000 of the Company's net sales in 1994, 1995 and 1996,
respectively. Sales by Caraloe, Inc., to an unaffiliated customer,
Mannatech, Inc., formerly Emprise International, Inc., accounted for
$934,000, $2,488,000 and $3,273,000 of the Company's net sales in 1994,
1995 and 1996, respectively. The Company performs ongoing credit
evaluations of its customers' financial condition and establishes an
allowance for doubtful accounts based on factors surrounding the credit
risk of specific customers and historical trends and other information.
In the first quarter of 1997, the Company granted extended payment terms
to Mannatech for orders placed in January through March, 1997, after which
Mannatech's exclusive supply agreement will terminate. Orders placed in
1997, which should total approximately $810,000, will be paid in even
monthly installments of $101,250 from February through September 1997.
The Company's normal terms for sales to Mannatech are net 30.
NOTE FOURTEEN. FAIR VALUES OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the fair value of financial instruments. The
following methods and assumptions were used by the Company in estimating
the fair value disclosures for its financial instruments. For cash, trade
receivables and payables, the net carrying amounts reported in the
Consolidated Balance Sheets approximate fair value. The carrying amounts
for revolving notes and notes payable approximate fair value based upon
the borrowing rates currently available to the Company for similar bank
loans. No such instruments were outstanding as of December 31, 1996.
NOTE FIFTEEN. RELATED PARTY TRANSACTIONS
In April 1996, the Company hired an independent manufacturer's
representative as Vice President of Sales and Marketing. This individual
continues to maintain his sales territory, primarily Alabama and Georgia,
as an independent manufacturer's representative and currently employs
three sales representatives to cover the territory. From April 1996
through December 31, 1996, the Company paid commissions of approximately
$268,000 to this individual.
F - 6
<PAGE>
NOTE SIXTEEN. SALES BY DIVISION
<TABLE>
The following summarizes the Company's sales by division and consolidated
sales for the years ended November 30, 1994, December 31, 1995, and
December 31, 1996:
(Dollar amounts in thousands)
<CAPTION>
Carrington Laboratories Consolidated
------------------------------- ----------------
Year Ended Wound Carrington Caraloe Total
November 30, 1994 Care Veterinary Sales Inc. Sales
------------------- -------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales $23,665 $404 $24,069 $1,361 $25,430
Cost of Sales 5,392 190 5,582 833 6,415
-------- ------ -------- ------- -------
Gross Margin $18,273 $214 $18,487 $ 528 $19,015
======== ====== ======== ======= =======
Year Ended
December 31, 1995
------------------
Net Sales $21,147 $320 $21,467 $2,907 $24,374
Cost of Sales 5,971 163 6,134 1,810 7,944
-------- ------ -------- ------- -------
Gross Margin $15,176 $157 $15,333 $1,097 $16,430
======== ====== ======== ======= =======
Year Ended
December 31, 1996
------------------
Net Sales $17,302 $290 $17,592 $3,694 $21,286
Cost of Sales 7,128 249 7,377 2,950 10,327
-------- ------ -------- ------- -------
Gross Margin $10,174 $ 41 $10,215 $ 744 $10,959
======== ====== ======== ======= =======
</TABLE>
F - 6
<PAGE>
NOTE SEVENTEEN. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
The unaudited selected quarterly financial data below reflect the fiscal
years ended December 31, 1995 and 1996, respectively.
<TABLE>
(Dollar and share amounts in thousands, except per share amounts)
<CAPTION>
1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $6,276 $6,408 $6,621 $ 5,069
Gross profit 4,636 4,332 4,351 3,111
Net (loss) income (497) (287) 163 (1,007)
(Loss) income
per share $ (.07) $ (.04) $ .02 $ (.12)
Weighted average
common shares 7,359 7,813 8,213 8,345
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------
Net sales $5,515 $5,438 $5,112 $5,221
Gross profit 2,584 2,073 2,967 3,335
Net (loss) income (2,156) (2,545) ( 839) 17
(Loss) income
per share $ (.25) $ (.29) $ (.09) $ -
Weighted average
common shares 8,666 8,805 8,855 8,868
--------------------------------------------------------------------------
</TABLE>
NOTE EIGHTEEN. SUBSEQUENT EVENT
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 the dilution that would have
occurred if all of the outstanding Series E Shares issued in October 1996
were converted into common stock (see Note Eight). Also, since the
Registration Statement covering the shares of common stock underlying the
Series E Shares had not been declared effective by the Commission, the
periodic payments required by the Registration Agreements had begun to
accrue (see Note Eight).
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 50% of the outstanding Series E Shares, and
that repurchase was completed on March 4, 1997 (the "Repurchase Date").
The price paid by the Company was $11,300 per Series E Share, or a premium
of $1,300 over the original Purchase Price. In connection with the
repurchase, the parties agreed (i) that no periodic payments would be due
F - 6
<PAGE>
for the period from February 15, 1997 through May 15, 1997; (ii) that the
Company would pay in cash on the Repurchase Date the periodic payments
that had accrued from January 10 through February 14, 1997; (iii) that the
Company would pay the holders of the Series E Shares interest at the rate
of 7% per annum on the original Purchase Price of their outstanding Series
E Shares for the period from February 15, 1997 through the earliest of (a)
May 15, 1997, (b) the Repurchase Date (in the case of Series E Shares
repurchased by the Company), or (c) the date on which the Registration
Statement is declared effective by the Commission; and (iv) that if the
Commission does not declare the Registration Statement effective on or
before May 15, 1997, the periodic payments required by the Registration
Agreements will resume accruing on May 16, 1997, but will be equal to 1%
of the original Purchase Price of the outstanding Series E Shares through
June 15, 1997 and 2% for each additional 30-day period, prorated to the
date on which the Commission declares the Registration Statement
effective, and will be payable only in cash.
On the Repurchase Date, the Company paid the Series E Shareholders
$3,729,000 (330 Series E Shares at $11,300 per share), $92,400 (periodic
payment due on all 660 Series E Shares from January 10, 1997 through
February 14, 1997) and $10,759 (7% per annum interest earned on $3,300,000
from February 15, 1997 to the Repurchase Date). These amounts will be
shown as a reduction of Shareholders Investment in the first quarter of
1997.
F - 6
<PAGE>
-------------------------------------------------------------------------
Report of Independent Public Accountants
-------------------------------------------------------------------------
To the Shareholders and Board of Directors
of Carrington Laboratories, Inc., and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Carrington
Laboratories, Inc. (a Texas corporation), and subsidiaries as of December
31, 1995, and December 31, 1996, and the related consolidated statements
of operations, shareholders' investment, and cash flows for the year ended
November 30, 1994, the month ended December 31, 1994, and the two years
ended December 31, 1995 and December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Carrington Laboratories, Inc., and subsidiaries as of December 31, 1995
and December 31, 1996, and the results of their operations and their cash
flows for the year ended November 30, 1994, the month ended December
31, 1994 and the two years ended December 31, 1995 and December 31, 1996,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
February 9, 1997 (except with respect to the matter discussed in Note
Eighteen, as to which the date is March 4, 1997).
F - 6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 26, 1997 By: /s/ Carlton E. Turner
--------------------------
Carlton E. Turner, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Carlton E. Turner President, Chief Executive March 26, 1997
------------------------- Officer and Director
Carlton E. Turner
/s/ Sheri L. Pantermuehl Chief Financial Officer March 26, 1997
------------------------- (principal financial and
Sheri L. Pantermuehl accounting officer)
/s/ R. Dale Bowerman Director March 26, 1997
-----------------------------
R. Dale Bowerman
/s/ George DeMott Director March 26, 1997
-----------------------------
George DeMott
/s/ Robert A. Fildes, Ph.D. Director March 26, 1997
-----------------------------
Robert A. Fildes, Ph.D.
/s/ Thomas J. Marquez Director March 26, 1997
-----------------------------
Thomas J. Marquez
/s/ James T. O'Brien Director March 26, 1997
-----------------------------
James T. O'Brien
/s/ Selvi Vescovi Director March 26, 1997
-----------------------------
Selvi Vescovi
S - 1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 26, 1997 By: --------------------------
Carlton E. Turner, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
President, Chief Executive March 26, 1997
------------------------- Officer and Director
Carlton E. Turner
Chief Financial Officer March 26, 1997
------------------------- (principal financial and
Sheri L. Pantermuehl accounting officer)
Director March 26, 1997
-------------------------
R. Dale Bowerman
Director March 26, 1997
-------------------------
George DeMott
Director March 26, 1997
-------------------------
Robert A. Fildes, Ph.D.
Director March 26, 1997
-------------------------
Thomas J. Marquez
Director March 26, 1997
-------------------------
James T. O'Brien
Director March 26, 1997
-------------------------
Selvi Vescovi
S - 1
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
3.1 Restated Articles of Incorporation of
Carrington Laboratories, Inc. (incorporated herein
by reference to Exhibit 3.1 to Carrington's 1988
Annual Report on Form 10-K).
3.2 Statement of Cancellation of Redeemable Shares
of Carrington Laboratories, Inc., dated June 9,
1989 (incorporated herein by reference to Exhibit 3.2
to Carrington's 1991 Annual Report on Form 10-K).
3.3 Statement of Change of Registered Office and
Registered Agent of Carrington Laboratories, Inc.
(incorporated herein by reference to Exhibit 3.1 to
Carrington's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1991).
3.4 Statement of Resolution Establishing Series D
Preferred Stock of Carrington Laboratories, Inc.
(incorporated herein by reference to Exhibit 3.1 to
Carrington's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1991).
3.5 Statement of Resolution Establishing Series E
Convertible Preferred Stock of Carrington Laboratories, Inc.
(incorporated herein by reference to Exhibit 3.1 to Carrington's
Form 8-K Current Report dated October 21, 1996).
3.6 Bylaws of Carrington Laboratories, Inc., as amended
through April 27, 1995 (incorporated herein by reference
to Exhibit 3.5 to Carrington's 1995 Annual Report on Form 10-K).
4.1 Form of certificate for Common Stock of
Carrington Laboratories, Inc. (incorporated herein by
reference to Exhibit 4.5 to Carrington's Registration
Statement on Form S-3 (No. 33-57360) filed with
the Securities and Exchange Commission on
January 25, 1993).
4.23 Rights Agreement dated as of September 19, 1991, between
Carrington Laboratories, Inc., and Ameritrust Company
National Association (incorporated herein by
reference to Exhibit 1 to Carrington's Report
on Form 8-K dated September 19, 1991).
E - 1
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.1+ 1985 Stock Option Plan of Carrington Laboratories, Inc.,
as amended through April 28, 1994 (incorporated herein
by reference to Exhibit 4.1 to Carrington's Form S-8
Registration Statement (No. 33-64407) filed with the
Securities and Exchange Commission on November 17, 1995).
10.2+ Form of Nonqualified Stock Option Agreement for
employees, as amended, relating to Carrington's
1985 Stock Option Plan (incorporated herein by
reference to Exhibit 4.2 to Carrington's
Registration Statement on Form S-8 (No. 33-
50430) filed with the Securities and Exchange
Commission on August 4, 1992).
10.3+ Form of Nonqualified Stock Option Agreement for
nonemployee directors, as amended, relating to
Carrington's 1985 Stock Option Plan (incorporated
herein by reference to Exhibit 4.3 to Carrington's
Registration Statement on Form S-8 (No. 33-64407)
filed with the Securities and Exchange Commission
on November 17, 1995).
10.4 License Agreement dated September 20, 1990,
between Carrington Laboratories, Inc., and Solvay
Animal Health, Inc. (incorporated herein by reference
to Exhibit 10.1 to Carrington's Quarterly Report
on Form 10-Q for the quarter ended August 31, 1990).
10.5 Contract Research Agreement dated as of August
8, 1991, between Carrington Laboratories, Inc., and
Texas Agriculture Experimental Station, as agent for
the Texas A&M University System (incorporated
herein by reference to Exhibit 10.55 to
Carrington's 1991 Annual Report on Form 10-K).
10.6 Lease Agreement dated as of August 30, 1991,
between Carrington Laboratories, Inc., and Western Atlas
International, Inc. (incorporated herein by
reference to Exhibit 10.59 to Carrington's 1991
Annual Report on Form 10-K).
10.7+ Employee Stock Purchase Plan of Carrington Laboratories,
Inc., as amended through June 15, 1995 (incorporated
herein by reference to Exhibit 10.29 to Carrington's
1995 Annual Report of Form 10-K).
E - 2
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.8+ Employment Agreement dated July 6, 1993, between
Carrington Laboratories, Inc., and Luiz F. Cerqueira
(incorporated herein by reference to Exhibit 10.43
to Carrington's 1993 Annual Report on Form 10-K).
10.9 Common Stock Purchase Warrant dated September
14, 1993, issued by Carrington Laboratories, Inc.,
to E. Don Lovelace (incorporated herein by reference to
Exhibit 10.44 to Carrington's 1993 Annual Report on
Form 10-K).
10.10 Common Stock Purchase Warrant dated September
14, 1993, issued by Carrington Laboratories, Inc.,
to Jerry L. Lovelace (incorporated herein by
reference to Exhibit 10.45 to Carrington's 1993
Annual Report on Form 10-K).
10.11+ Agreement Regarding Termination of Employment
and Full and Final Release dated February 16,
1994, between Carrington Laboratories, Inc.,
and David A. Hotchkiss (incorporated herein by
reference to Exhibit 10.49 to Carrington's 1993
Annual Report on Form 10-K).
10.12 License Agreement dated March 18, 1994, between
Carrington Laboratories, Inc., and Socie'te'
Europe'enne de Biotechnologie (incorporated herein by
reference to Exhibit 10.53 to Carrington's 1994
Annual Report on Form 10-K).
10.13 Agreement dated March 28, 1994, between
Carrington Laboratories, Inc., and Keun Wha
Pharmaceutical Co., Ltd., (incorporated herein by
reference to Exhibit 10.54 to Carrington's 1994 Annual
Report on Form 10-K).
10.14 Lease Agreement dated June 15, 1994, between
DFW Nine, a California limited partnership, and
Carrington Laboratories, Inc. (incorporated herein by
reference to Exhibit 10.55 to Carrington's 1994 Annual
Report on Form 10-K).
10.15 Lease Amendment dated August 23, 1994, amending
Lease Agreement listed as Exhibit 10.14
(incorporated herein by reference to Exhibit
10.57 to Carrington's 1994 Annual Report on
Form 10-K).
E - 3
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.16 License Agreement dated September 29, 1994, between
Carrington Laboratories, Inc., and Immucell Corporation
(incorporated herein by reference to Exhibit 10.58
to Carrington's 1994 Annual Report on Form 10-K).
10.17 Third Lease Amendment dated December 1, 1994,
amending Lease Agreement listed as Exhibit
10.6 (incorporated herein by reference to
Exhibit 10.60 to Carrington's 1994 Annual
Report on Form 10-K).
10.18 Production Contract dated February 13, 1995,
between Carrington Laboratories, Inc., and
Oregon Freeze Dry, Inc. (incorporated herein
by reference to Exhibit 10.63 to Carrington's
1994 Annual Report on Form 10-K).
10.19+ Management Compensation Plan (incorporated
herein by reference to Exhibit 10.64 to
Carrington's 1994 Annual Report on Form 10-K).
10.20 Research Agreements dated June 24, 1994,
September 16, 1994, and February 2, 1995,
between Southern Research Institute and
Carrington Laboratories, Inc. (incorporated
herein by reference to Exhibit 10.65 to
Carrington's 1994 Annual Report on Form 10-K).
10.21 Trademark License Agreement between Caraloe,
Inc. (Licensor) and Emprise International, Inc.
(Licensee) dated March 31, 1995 (incorporated
herein by reference to Exhibit 10.2 to
Carrington's Second Quarter 1995 Report on Form
10-Q).
10.22 Supply Agreement between Caraloe, Inc. (Seller),
and Emprise International, Inc. (Buyer), dated
March 31,1995 (incorporated herein by reference
to Exhibit 10.3 to Carrington's Second Quarter
1995 Report on Form 10-Q).
10.23 Sales Distribution Agreement between the
Chinese Academy of Sciences and Carrington
Laboratories, Inc., dated August 16, 1995
(incorporated herein by reference to Exhibit
10.1 to Carrington's Third Quarter 1995 Report
on Form 10-Q).
E - 4
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.24 Sales Distribution Agreement between the
Chinese Academy of Sciences and Carrington
Laboratories, Inc., dated August 16, 1995
(incorporated herein by reference to Exhibit
10.2 to Carrington's Third Quarter 1995 Report
on Form 10-Q).
10.25 Sales Distribution Agreement between the
Chinese Academy of Sciences and Carrington
Laboratories, Inc., dated August 16, 1995
(incorporated herein by reference to Exhibit
10.3 to Carrington's Third Quarter 1995 Report
on Form 10-Q).
10.26 Supply and Distribution Agreement between
Medical Polymers, Inc., and Carrington
Laboratories, Inc., dated September 15, 1995
(incorporated herein by reference to Exhibit
10.4 to Carrington's Third Quarter 1995 Report
on Form 10-Q).
10.27 Clinical Services Agreement between
Pharmaceutical Products Development, Inc., and
Carrington Laboratories, Inc., dated July 10,
1995 (incorporated herein by reference to
Exhibit 10.5 to Carrington's Third Quarter 1995
Report on Form 10-Q).
10.28 Non-exclusive Sales and Distribution Agreement
between Innovative Technologies Limited and
Carrington Laboratories, Inc., dated August 22,
1995 (incorporated herein by reference to
Exhibit 10.6 to Carrington's Third Quarter 1995
Report on Form 10-Q).
10.29 Supplemental Agreement to Non-exclusive Sales
and Distribution Agreement between Innovative
Technologies Limited and Carrington
Laboratories, Inc., dated October 16, 1995
(incorporated herein by reference to Exhibit
10.7 to Carrington's Third Quarter 1995 Report
on Form 10-Q).
10.30 Product Development and Exclusive Distribution
Agreement between Innovative Technologies
Limited and Carrington Laboratories, Inc., dated
November 10, 1995 (incorporated herein by
reference to Exhibit 10.8 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
E - 5
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.31+ Resignation Agreement and Full and Final
Release dated February 24, 1995, between
Carrington Laboratories, Inc., and Bill H.
McAnalley (incorporated herein by reference
to Exhibit 10.68 to Carrington's 1995 Annual
Report on Form 10-K).
10.32+ Revised and Restated Resignation Agreement
dated March 14, 1995, between Carrington Laboratories,
Inc., and Karl H. Meister (incorporated herein by
reference to Exhibit 10.69 to Carrington's 1995
Annual Report on Form 10-K).
10.33 Common Stock Purchase Warrant dated August 4,
1995, issued by Carrington Laboratories, Inc., to
Clifford T. Kalista. (incorporated herein by
reference to Exhibit 10.70 to Carrington's 1995
Annual Report on Form 10-K).
10.34 Form of Stock Purchase Agreement dated April 5, 1995
between Carrington Laboratories, Inc., and persons
named in Annex I thereto (incorporated herein by
reference to Exhibit 2.1 to Carrington's Registration
Statement 33-60833 on Form S-3).
10.35 Form of Registration Rights Agreement dated
June 20, 1995 between Carrington Laboratories, Inc.,
and persons named in Annex I thereto (incorporated herein
by reference to Exhibit 2.2 to Carrington's
Registration Statement 33-60833 on Form S-3).
10.36 Supply and Distribution Agreement between
Farnam Companies, Inc., and Carrington
Laboratories, Inc., dated March 22, 1996.
(incorporated herein by reference to Exhibit
10.76 to Carrington's 1995 Annual Report on
Form 10-K).
10.37 Placement Agent Agreement between Carrington Laboratories,
Inc., and First Granite Securities, Inc. (incorporated
herein by reference to Exhibit 10.1 to Carrington's
Current Report on Form 8-K dated October 21, 1996).
10.38 Indemnification Agreement between Carrington laboratories,
Inc., and First Granite Securities, Inc. (incorporated herein
by reference to Exhibit 10.2 to Carrington's Current Report
on Form 8-K dated October 21, 1996).
E - 6
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.39 Joint Escrow Instructions from Carrington Laboratories, Inc.,
and accepted by Krieger & Prager, Esqs., as escrow agent
(incorporated herein by reference to Exhibit 10.3 to
Carrington's Current Report on Form 8-K dated
October 21, 1996).
10.40 Stock Purchase Agreement between Carrington Laboratories,
Inc., and each of the purchasers of shares of the
Registrant's Series E Convertible Preferred Stock
(incorporated herein by reference to Exhibit 10.4 to
Carrington's Current Report on Form 8-K dated
October 21, 1996).
10.41 Amendment to the Stock Purchase Agreement between
Carrington Laboratories, Inc., and each of the purchasers
of shares of Carrington's Series E Convertible Preferred
Stock, dated October 15, 1996 (incorporated herein by
reference to Exhibit 10.5 to Carrington's Current Report
on Form 8-K dated October 21, 1996).
10.42 Registration Right Agreement between Carrington
Laboratories, Inc., and each of the purchasers of shares
of Carrington's Series E Convertible Preferred Stock
(incorporated herein by reference to Exhibit 10.6 to
Carrington's Current Report on Form 8-K dated
October 21, 1996).
10.43 Distribution Agreement between Carrington
Laboratories, Inc., and Ching Hwa Pharmaceutical
Co., Ltd., dated March 1, 1996 (incorporated herein
by reference to Exhibit 10.1 to Carrington's First
Quarter 1996 Report on Form 10-Q).
10.44 Fourth Amendment to Credit Agreement and Term
Note between Carrington Laboratories, Inc., and
NationsBank of Texas, N.A., dated May 1, 1996
(incorporated herein by reference to Exhibit 10.2
to Carrington's First Quarter 1996 Report on Form 10-Q).
10.45 Assignment of Certificate of Deposit to
NationsBank of Texas, N.A., dated May 1, 1996
(incorporated herein by reference to Exhibit 10.3
to Carrington's First Quarter 1996 Report on Form 10-Q).
E - 7
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.46 Release of Liens agreement between Carrington
Laboratories, Inc., and NationsBank of Texas,
N.A., dated May 1, 1996 (incorporated herein by reference
to Exhibit 10.4 to Carrington's First Quarter 1996
Report on Form 10-Q).
10.47+ Form of Nonqualified Stock Option Agreement for
Employees (incorporated herein by reference to
Exhibit 4.1 to Carrington's Second Quarter 1996
Report on Form 10-Q).
10.48+ Carrington Laboratories, Inc., 1995 Stock Option
Plan, As Amended and Restated effective March
27, 1996 (incorporated herein by reference to
Exhibit 4.2 to Carrington's Second Quarter 1996
Report on Form 10-Q).
10.49+ Form of Nonqualified Stock Option Agreement for
Nonemployee Directors (incorporated herein by
reference to Exhibit 4.3 to Carrington's Second
Quarter 1996 Report on Form 10-Q).
10.50+ Form of Incentive Stock Option Agreement for
Employees (incorporated herein by reference to
Exhibit 4.4 to Carrington's Second Quarter 1996
Report on Form 10-Q).
10.51 Sales Distribution Agreement between Faulding
Pharmaceuticals Laboratories and Carrington
Laboratories, Inc., dated September 30, 1996
(incorporated herein by reference to Exhibit 10.1
to Carrington's Third Quarter 1996 Report on Form 10-Q).
10.52 Sales Distribution Agreement between Trudell
Medical Marketing Limited and Carrington
Laboratories, Inc., dated may 15, 1996 (incorporated
herein by reference to Exhibit 10.2 to Carrington's Third
Quarter 1996 Report on Form 10-Q).
10.53 Clinical Research Agreement between ICON and
Carrington Laboratories, Inc., dated July 15, 1996
(incorporated herein by reference to Exhibit 10.3 to
Carrington's Third Quarter 1996 Report on Form
10-Q).
10.54* Sales Distribution Agreement between Suco
International Corp. and Carrington Laboratories,
Inc., dated December 1, 1996.
E - 8
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.55* Sales Distribution Agreement between Recordati,
S.P.A., and Carrington Laboratories, Inc., and
Carrington Laboratories Belgium N.V., dated December
20, 1996.
10.56* Nonexclusive Distribution Agreement between
Polymedica Industries, Inc., and Carrington
Laboratories, Inc., dated November 15, 1996.
10.57* Sales Distribution Agreement between Gamida-
Medequip Ltd., and Carrington Laboratories,
Inc., dated December 24, 1996.
10.58* Sales Distribution Agreement between Gamida For
Life BV, and Carrington Laboratories, Inc., dated
December 24, 1996.
10.59* Sales Distribution Agreement between Darrow
Laboratorios S/A and Carrington Laboratories,
Inc., dated December 4, 1996.
10.60* Independent Sales Representative Agreement
between Vision Medical and Carrington
Laboratories, Inc., dated October 1, 1996.
10.61* Independent Sales Representative Agreement
between Think Medical, Inc., and Carrington
Laboratories, Inc., dated October 1, 1996.
10.62* Independent Sales Representative Agreement
between Meares Medical Sales Associates and
Carrington Laboratories, Inc., dated October
1, 1996.
10.63* Supply Agreement between Aloe Commodities
International, Inc., and Caraloe, Inc., dated
February 13, 1997.
10.64* Trademark License Agreement between Light
Resources Unlimited and Carrington Laboratories,
Inc., dated March 1, 1997.
10.65* Supply Agreement between Light Resources
Unlimited and Caraloe, Inc., dated february 13, 1997.
10.66* Sales Distribution Agreement between Penta
Farmaceutica, S.A., and Carrington Laboratories,
Inc., dated December 27, 1996.
10.67* Stock Subscription Offer of Aloe Commodities,
Inc., and Caraloe, Inc., dated October 30, 1996.
E - 9
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
10.68* Modification Number Two to the Production
Contract dated February 13, 1995, between
Carrington Laboratories, Inc., and Oregon Freeze Dry,
Inc., listed as Exhibit 10.18, dated November 19, 1996.
10.69* Offer and Agreement of Sale and Purchase of
Convertible Preferred Series E Stock between
Holders' of Carrington Laboratories, Inc., Convertible
Preferred Series E Stock and Carrington
Laboratories, Inc., dated February 26, 1997.
10.70* Sales Distribution Agreement between Laboratorios PiSA
S.A. DE C.V. and Carrington Laboratories, Inc., dated
November 1, 1995.
10.71* Terminination Acknowledgement between China Academy of
Sciences and Carrington Laboratories, Inc., dated February
12, 1996, regarding the three agreements listed as Exhibits
10.23, 10.24 and 10.25.
10.72* Letter from Immucell Corporation to Carrington Laboratories
Inc., dated February 7, 1996 canceling the License Agreement
listed as Exhibit 10.16.
11.1* Computation of Net Income (Loss) Per Common and
Common Equivalent Share.
16.1* Letter from Arthur Andersen LLP to the
Securities and Exchange Commission.
21.1* Subsidiaries of Carrington.
23.1* Consent of Arthur Andersen LLP
27.1* Financial Data Schedule
* Filed herewith.
+ Management contract or compensatory plan.
E - 10
<PAGE>
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT ( Agreement ) is made and entered into as of this
1st day of December, 1996, by and between CARRINGTON LABORATORIES,
INC., a Texas corporation ("Carrington"), and SUCO INTERNATIONAL
CORP., a Florida corporation ("Suco").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of manufacturing,
selling and distributing certain medical devices and is desirous of
establishing a competent and exclusive distribution source for sales
of such products in the listed countries in Latin America (defined in
Article 1 hereof as the Territory ); and
WHEREAS, Suco is desirous of distributing such products in the
Territory and is willing and able to provide a competent distribution
organization in each country in the Territory, and Suco desires to be
Carrington's exclusive sales distributor for such products in the
Territory;
NOW, THEREFORE, the Parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have
the meanings specified in this Article 1.1:
(a) "Products" shall mean the wound and skin care products
manufactured by or for Carrington set forth on Exhibit A
hereto. Carrington will provide a ninety (90) day notice
to Suco on its intent to add or discontinue Products to
Exhibit A. Suco shall be granted a ninety (90) day right
of first refusal for new products Carrington may develop
or license from third parties. If the Carrington and Suco
cannot agree on terms and conditions for such products
within that time, Carrington shall be free to distribute
or sell said products to anyone in the Territory,
provided, however, Carrington shall not accept terms less
favorable than offered by Suco.
(b) "Territory" shall mean the following countries: Dominican
Republic, Haiti, Colombia, Venezuela, Uruguay, Bolivia,
Peru, Paraguay, Ecuador.
<PAGE>
(c) Parties shall mean Carrington and Suco and Party shall
mean either of them as the context indicates.
(d) Know-how shall mean secret and substantial technical and
scientific information regarding the Products, which may
be necessary, useful or advisable to enable Suco to obtain
the Registration of, promote, market and sell the Products
in the Territory, and as is or will be specified in the
documentation which Carrington has delivered or will
deliver to Suco after execution of this Agreement.
(e) Registration shall mean any official approval, or
authorization, or licensing regarding the Products by the
appropriate and competent authorities in the Territory,
including, if applicable, the Products selling prices and
social security approvals, allowing the lawful marketing
of the Products.
(f) Trademarks shall mean all Carrington Trademarks, trade
names, service marks, logos and derivatives thereof
relating to the Products. Said Trademarks and other
required Registrations shall be obtained by Suco at
Carrington s sole expense with ownership exclusively
retained by Carrington.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints Suco as Carrington's exclusive sales
distributor in the Territory for the sale of Products, and Suco hereby
accepts such appointment. As sales distributor in the Territory, Suco
shall, subject to the terms and conditions of this Agreement, have the
right to sell Products in the Territory, but shall have no right to
sell Products outside the Territory.
2.2 In a manner reasonably satisfactory to Carrington, Suco
agrees to (a) make and maintain all declarations, filings, and
Registrations with, and obtain all approvals and authorizations from,
governmental and regulatory authorities required to be made or
obtained in connection with the promotion, marketing, sale or
distribution of the Products in the Territory, (b) devote its best
efforts to the diligent promotion, marketing, sale and distribution of
the Products in each country in the Territory, (c) provide and
maintain a competent and aggressive organization for the promotion,
marketing, sale and distribution of the Products in each country in
the Territory, (d) assure competent and prompt handling of inquiries,
orders, shipments, billings and collections, and returns of or with
r e s p ect to the Products and careful attention to customers
requirements for all Products, and (e) promptly assign back to
Carrington any product Registrations in the Territory upon termination
of Agreement.
<PAGE>
2.3 D u ring the term of this Agreement, Suco shall be
considered an independent contractor and shall not be considered a
partner, employee, agent or servant of Carrington. As such, Suco has
no authority of any nature whatsoever to bind Carrington or incur any
liability for or on behalf of Carrington or to represent itself as
anything other than a sales distributor and independent contractor.
Suco agrees to make clear in all dealings with customers or
prospective customers that it is acting as a distributor of the
Products and not as an agent of Carrington.
2.4 Nothing in this Agreement shall be construed as giving
Suco any right to use or otherwise deal with the Know-how for purposes
other than those expressly provided for in this Agreement.
2.5 S u co shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention. After
having dicsussed such situaiton with Suco, Carrington shall have sole
and absolute discretion to take such action as it deems appropriate.
Suco, at its sole expense, if Suco has intentionally or negligently
allowed such Know-how to be disclosed or misappropriated shall assist
Carrington in taking legal action, if deemed necessary, against such
misappropriation.
2.6 All costs and expenses connected with Suco's activities or
performance under this Agreement are to be borne solely by Suco.
Article 3. Certain Performance Requirements
3.1 Suco agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the
Territory for ultimate use within the Territory. Suco will not, under
any circumstances, either directly or indirectly through third
parties, promote, market, sell, or distribute Products within or to,
or for ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that Suco is in compliance
with Article 3.1, Suco agrees that:
(a) Suco will send to Carrington monthly sales reports in a
mutually agreed upon format which set forth mutually
agreed upon items such as the number of units of each
Product sold;
(b) Suco will send to Carrington quarterly inventory reports
of the Products; and
(c) Carrington may mark for identification all Products sold
by Carrington to Suco hereunder.
3.3 Suco shall promptly provide Carrington with written
reports of any importation or sale of any of the Products in the
Territory if Suco has knowledge thereof from any source other than
Carrington, as well as with any other information which Carrington may
reasonably request in order to be updated on the market conditions in
the Territory.
<PAGE>
3.4 Suco shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market
segments. Suco shall maintain all its inventory of Products clearly
segregated and meeting all storage and other standards required by
applicable governmental authorities. All such inventory and Suco's
facilities shall be subject to inspection by Carrington or its agents
upon 72 hours written notice.
3.5 Suco shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by Suco of Products. Upon
written request from Suco, Carrington shall provide Suco with such
certificates or other documents as may be reasonably required to
establish any applicable exemptions from the collection of such taxes,
charges and fees.
3.6 All Products shall be packaged and delivered by Carrington
to Suco. All Products shall be labeled, advertised, marketed, sold
and distributed by Suco in compliance with the rules and regulations,
as amended from time to time, of (i) all applicable governmental
authorities within the Territory in which the Products are marketed
and (ii) all other applicable laws, rules and regulations. Suco shall
pay all expenses associated with (i) any alterations to the packaging
and labeling of the Products which deviate from Carrington's standard
packaging materials, designs, methods and/or procedures, (ii) any
language modifications to the packaging or labeling and/or (iii) any
additions to inserts in the general packaging. The Parties shall
agree on minimum production runs for such custom labels.
3.7 Suco shall not make any alterations or permit any
alterations to be made to the Products, except as mutually agreed to
in Section 3.6 above..
3.8 S u c o shall be responsible for complying with all
a p p l icable laws, regulations and requirements concerning the
Registration, inventory, use, promotion, distribution and sale of the
Products in the Territory. Suco shall assume full responsibility for
the Registration filing, inventory, use, promotion, distribution and
sale of the Products in the Territory and correspondingly for any
damage, claim, liability, loss or expense which Suco may suffer or
i n cur by reason of said Registration filing, inventory, use,
promotion, distribution and sale and shall hold Carrington harmless
from any claim resulting therefrom being directed against Carrington
by any third party. Provided, however, Carrington warrants and
represents that the products supplied by Carrington to Suco shall
conform to Carrington's standards and specifications and that if any
claim or demand is made for damages or liability resulting from the
product, raw material and active ingredients, if any, contained
therein, or industrial property rights pertaining thereto, except as
hereinbelow stated, Carrington shall be solely responsible for such
claims or demands and shall hold Suco harmless therefore.
<PAGE>
In the event that, following delivery of the Product to Suco, the
Product is improperly transported or stored, is mishandled, becomes
contaminated or is otherwise damaged through no fault of Carrington,
Suco shall be solely responsible for any claim or demand made in
regard to the Product.
3.9 Suco agrees not to make, or permit any of its employees,
agents or representatives to make, any claims of any properties or
results relating to any Product, unless such claims have received
written approval from Carrington or from the applicable governmental
authorities.
3.10 Suco shall not use any label, advertisement or marketing
material on or with respect to or relating to any Product unless such
label, advertisement or marketing material has first been submitted to
and approved by Carrington in writing.
3.11 Suco will actively and aggressively promote, develop
demand for and maximize the sale of the Products to all customers and
potential customers within the Territory. Suco agrees not to
manufacture, promote, market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to and approval from Carrington, any competitive wound care, or
incontinence care product.
3.12 Suco represents that its books, records and accounts
pertaining to all its operations hereunder associated with Carrington
products or sales are complete and accurate in all material respects
and have been maintained in accordance with sound and generally
accepted accounting principles. Suco's auditor shall deliver to
Carrington, in accordance with Article 13, at the end of each 12-month
period during the term of the Agreement, a declaration that the
accounts rendered are correct. Carrington shall have the right to
have such books, records, and accounts examined, at its expense, by a
qualified accountant nominated by Carrington.
Article 4. Sale of Products by Carrington to Suco
4.1 Subject to the terms and conditions of this Agreement,
including specifically Article 4.6 hereof, Carrington shall sell to
Suco the Products at a specified price for each Product (the "Contract
Price"). For orders placed by Suco during the first 12-month period
of the term of this Agreement, the Contract Prices for the Products
listed on Exhibit A are set forth on such exhibit opposite each
Product. At least ninety (90) days prior to the end of each 12-month
period of the term of this Agreement, (a) Suco shall provide in
writing to Carrington both a sales forecast and a purchase forecast
for the following 12-month period, and (b) the Parties shall commence
good faith negotiations to determine and agree upon the Contract
Prices for Products for the next 12-month period of the term.
<PAGE>
4.2 A s c onsideration for its appointment as a sales
distributor entitled to a Product discount, Suco agrees to purchase
from Carrington, during each 12-month period of the term of this
Agreement, commencing with the 12-month period beginning _________,
19__ through ___________, 19__, at the Contract Price, a specified
minimum aggregate dollar amount (based on the Contract Price) of the
Products (the "Specified Minimum Purchase Amount"). For the first 12-
month period of the term of this Agreement, the Specified Minimum
Purchase Amount for each country shall be waived. The Specified
Minimum Purchase Amounts for each subsequent 12-month period shall be
determined by mutual agreement of the Parties no later than thirty
(30) days prior to the beginning of such period based on Suco's
reasonable, good faith projections of future sales growth and such
other factors as the Parties may deem relevant.
4.3 Suco shall order Products by submitting a purchase order
to Carrington describing the type and quantity of the Products to be
purchased. All orders are subject to acceptance by Carrington. All
purchases shall be spaced in a reasonable manner. If Carrington
accepts the order, Carrington will invoice Suco upon shipment of the
Products. Unless otherwise agreed, Suco shall pay all invoices in
full within 120 days of the date of invoice. Suco shall be solely
responsible for all costs in connection with affecting payments. All
sales and payments shall be made, and all orders shall be accepted, in
the State of Texas.
4.4 Carrington shall not be obligated to ship Products to Suco
at any time when payment of an amount owed by Suco is overdue or when
Suco is otherwise in breach of this Agreement.
4.5 All shipments shall be initiated by a Purchase Order.
Product shipment dates will be specified in the Purchase Order. These
dates may not be scheduled prior to ninety (90) days after the date
the Purchase Order is received and acknowledged in writing by
Carrington, unless by mutual consent of the Parties. Purchase Orders
will be non-cancelable. Suco will issue to Carrington on a monthly
basis, a twelve (12) month rolling forecast so that Carrington may
incorporate said forecasts in to is planning system. The triggering
document for production activities is, however, the Purchase Order, as
stated above. Carrington will guarantee delivery dates for Product
quantities that vary up to 20% above the last monthly rolling forecast
issued prior to the Purchase Order placed by Suco. Variation above
twenty percent (20%) shall be discussed between the Parties and
Carrington will use reasonable best efforts to maintain delivery dates
requested by Suco.
4.6 All shipments of Products to Suco will be packaged in
accordance with Carrington's standard packaging procedures and shipped
per Carrington's existing distribution policy. All Contract Prices
are F.O.B., (invoice price includes seller's expense for delivery to
Miami or any other named destination) Carrington's facility, Dallas,
Texas. Ownership of and title to Products and all risks of loss with
respect thereto shall pass to Suco upon delivery of such Products by
Carrington to the carrier at the designated delivery (F.O.B.) point.
Deliveries of Products shall be made by Carrington under normal trade
conditions in the usual and customary manner being utilized by
Carrington at the time and location of the particular delivery.
<PAGE>
4.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by Suco under this Agreement.
However, if necessary in the best judgment of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including Suco, on such basis as it
shall deem reasonable, practicable and equitable, without liability
for any failure of performance or lost sales which may result from
such allocations.
4.8 Carrington accepts liability for defective Products and
agrees to replace such defective Products should they occur with new
Products. Carrington carries liability insurance and is willing to
have Suco added as a covered Party under this policy. Except as may
be expressly stated by Carrington on the Product or on Carrington's
packaging, or in Carrington's information accompanying the Product, at
t h e time of shipment to Suco hereunder, CARRINGTON MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE
PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. CARRINGTON
NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY OBLIGATION
OR LIABILITY IN CONNECTION WITH THE PRODUCTS. Suco shall not make any
representation or warranty with respect to the Products that is more
extensive than, or inconsistent with, the limited warranty set forth
in this Article 4.8 or that is inconsistent with the policies or
publications of Carrington relating to the Products.
SUCO'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS
THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
SUCO'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY
FOR DAMAGES TO SUCO OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT
NOT LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS,
DAMAGE OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE,
LOSS OF USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
SUCO SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS CARRINGTON AND
CARRINGTON S AFFILIATES, 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 USE, SALE OR OTHER DISPOSITION OF
PRODUCTS, KNOW-HOW OR TRADEMARKS BY SUCO OR ANY OTHER PARTY, (ii) ANY
BREACH BY SUCO OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS
UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF
SUCO OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND
SUCO S AUTHORIZATION GRANTED HEREIN.
4.9 Credits for defective Products to Suco shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Price of the items returned, whether
identified by lot number or another method.
<PAGE>
Article 5. Term and Termination
5.1 The term of this Agreement shall be for a period of five
years from the effective date of this Agreement. After such term,
this Agreement shall be automatically terminated unless the parties
mutually agree in writing to extend the term hereof. Notwithstanding
the foregoing, this Agreement may be terminated earlier in accordance
with the provisions of this Article 5 and as expressly provided
elsewhere in this Agreement.
5.2 Carrington shall have the absolute right to terminate this
Agreement if Suco fails to perform or breaches, in any material
respect, any of the terms or provisions of this Agreement. Without
limiting the events which shall be deemed to constitute a breach or
material breach of this Agreement by Suco, Suco understands and agrees
that it shall be in material breach of this Agreement, and Carrington
shall have the right to terminate this Agreement under this Article
5.2, if:
(i) Suco fails or refuses to pay to Carrington any sum
when due;
(ii) Suco breaches any provision of Article 2.2, 3.1,
3.5, 3.7, 3.9, 4.2, 4.8, 6 or 7; or
(iii) S u co fails to purchase the Specified Minimum
Purchase Amounts of Product for any required period provided,
however, if governmental actions such as public price changes or
similar limitations prevent the Specified Minimum Purchase
Amount from being achieved for that particular country the
Specified Minimum Purchase Amounts shall be revised on mutually
agreeable terms.
5.3 Each Party shall have the absolute right to terminate this
Agreement in the event the other Party shall become insolvent, or if
there is instituted by or against the other Party procedures in
b a n k ruptcy, or under insolvency laws or for reorganization,
receivership or dissolution, or if the other Party loses any franchise
or license to operate its business as presently conducted in any part
of the Territory.
5.4 This Agreement shall automatically terminate effective at
the end of any 12-month period of the term of this Agreement referred
to in Articles 4.1 and 4.2 hereof if the Parties are unable to agree
upon the Contract Prices or the Specified Minimum Amounts for the next
12-month period of the term for the particular country under
discussion.
<PAGE>
5.5 During the one-year period following termination of this
Agreement, any inventory of Products held by Suco at the termination
of this Agreement may be sold by Suco to customers in the Territory in
the ordinary course; provided, however, that for the period required
to liquidate such inventory, all of the provisions contained herein
governing Suco's performance obligations and Carrington's rights shall
remain in effect. In order to accelerate the liquidation of any such
inventory, Carrington shall have the option, but not the obligation,
to purchase all or any part of such remaining inventory at the price
at which the inventory was originally sold by Carrington to Suco,
including importation and shipping.
5.6 The termination of this Agreement shall not impair the
rights or obligations of either Party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 4.7,
5.5, 6, 7 and 15 and the rights and obligations of the Parties
thereunder shall survive the termination of this Agreement for a
period of one (1) year.
Article 6. Trademarks/Registration
6.1 All Carrington Trademarks, Registrations (Sanitary or
otherwise) trade names, service marks, logos and derivatives thereof
relating to the Products (the "Trademarks"), and all patents,
technology and other intellectual property (also known as "Know-how")
relating to the Products, are the sole and exclusive property of
Carrington or its affiliates. The Products shall be promoted, sold
and distributed only under the Trademarks. Carrington hereby grants
Suco permission to use the Trademarks for the limited purpose of
performing its obligations under this Agreement. Carrington may, in
i t s sole discretion after consultation with Suco, modify or
discontinue the use of any Trademark and/or use one or more additional
or substitute marks or names, and Suco shall be obligated to do the
same.
6.2 Carrington's Trademarks should appear on all Products
packaging, labels, and inserts and other materials which Suco uses for
the marketing of the Products in such form and manner as Carrington
shall reasonably require. Carrington retains the right to review and
approve all intended uses of the Trademarks in any packaging
promotional or other materials relating to the Products prior to
Suco's actual use thereof.
6.3 Suco agrees to use the Trademarks in full compliance with
the rules prescribed from time to time by Carrington. The Trademarks
shall always be used together with the sign[TM] or the sign TM. Suco
may not use any Trademark as part of any corporate name or with any
prefix, suffix or other modifying word, term, design or symbol. In
addition, Suco may not use any Trademark in connection with the sale
of any unauthorized product or service or in any other manner not
explicitly authorized in writing by Carrington.
<PAGE>
6.4 In the event of any known infringement of, or threatened
or presumed infringement of, or challenge to Suco's use of any
Trademark or of any Suco trademark, Suco is obligated to notify
Carrington immediately. Suco shall investigate any alleged violation
and, if necessary, shall take the appropriate legal action to resolve
the issue and to prevent other competitors from infringing on said
intellectual property rights with in the Territory. In its own name
and at its expense, Carrington shall have sole and absolute discretion
to take such action relative to its Trademark as it deems appropriate.
6.5 In the event of the termination of this Agreement for any
reason, Suco's right to use the Trademarks shall cease, and Suco shall
cease using such Trademarks at such time as Suco's inventory of
Products has been sold. Suco shall, as soon as it is reasonably
possible, remove all Trademarks which appear on or about the premises
of the office(s) of Suco and any of the advertising of Suco used in
connection with the Products.
6.6 In the event of a breach or threatened breach by Suco of
the provisions of this Article 6, Carrington shall be entitled to an
injunction or injunctions to prevent such breaches. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 6, including the recovery of damages from Suco.
6.7 Should for some reason the Trademark be prevented from
being used in any part or whole of the Territory, the Parties shall
consult as to a suitable other trademark (which trademark shall then
be also defined as Trademark for purposes of this Agreement) owned
by Carrington or to be transferred from Suco to Carrington for use in
connection with the marketing and sale of the Products; it being
agreed, however, that Carrington retains the right to ultimately
determine what such alternative Trademark shall be used. provided it
is not confusingly similar to a Trademark owned by Suco in the
Territory.
6.8 Nothing in this Agreement shall be construed as giving
Suco the right to use the Trademark outside the Territory or for any
other product than the Products.
Article 7. Confidential Information
7.1 Suco recognizes and acknowledges that Suco might have
access to confidential information and trade secrets of Carrington and
other entities doing business with Carrington relating to research,
development, manufacturing, marketing, financial and other business-
related activities ("Confidential Information"). Such Confidential
Information constitutes valuable, special and unique property of
Carrington and/or other entities doing business with Carrington.
Other than as is necessary to perform the terms of this Agreement,
Suco shall not, during and after the term of this Agreement, make any
use of such Confidential Information, or disclose any of such
C o n fidential Information to any person or firm, corporation,
association or other entity, for any reason or purpose whatsoever,
e x c e pt as specifically allowed in writing by an authorized
representative of Carrington. In the event of a breach or threatened
breach by Suco of the provisions of this Article 7, Carrington shall
be entitled to an injunction restraining Suco from disclosing and/or
<PAGE>
using, in whole or in part, such Confidential Information. Nothing
herein shall be construed as prohibiting Carrington from pursuing
other remedies available to it for such breach or threatened breach of
this Article 7, including the recovery of damages from Suco. For
purposes of this paragraph the term "confidential information" shall
include and be limited to, information disclosed by Carrington to Suco
that was not:
1) know to Suco at the time of such disclosure acquired
from a source other than Carrington,
2) at the time of disclosure or thereafter known to or
available to the public, or
3) disclosed to Suco in good faith by another party
legally entitled to disclose such information who does not, in
turn, require Suco to keep the information confidential.
7.2 Suco shall not disclose the existence of this Agreement or
any of the terms herein without the prior written consent of
Carrington.
Article 8. Force Majeure
8.1 Neither Suco nor Carrington shall have any liability
hereunder if either is prevented from performing any of its
obligations hereunder by reason of any factor beyond its control,
including, without limitation, fire, explosion, accident, riot, flood,
d r ought, 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"), nor shall Suco or Carrington's obligations,
except as may be necessary, be suspended during the period of such
Force Majeure, nor shall either Party s obligations be cancelled with
respect to such Products as would have been sold hereunder but for
such suspension. Such affected Party shall give to the other Party
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
both Party's obligations under this Agreement. Should the Force
Majeure continue for more than six (6) months, then the other shall
have the right to cancel this Agreement and the Parties shall seek an
equitable agreement on the Parties reward of interests.
8.2 The Parties agree that any obligation to pay money is
never excused by Force Majeure.
<PAGE>
Article 9. Amendment
9.1 No oral explanation or oral information by either Party
hereto shall alter the meaning or interpretation of this Agreement.
No modification, alteration, addition or change in the terms hereof
shall be binding on either Party hereto unless reduced to writing and
executed by the duly authorized representative of each Party.
Article 10. Entire Agreement
10.1 This Agreement represents the entire Agreement between the
P a r t i es and shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or
in writing and whether explicit or implicit, which may have been
entered into prior to the execution hereof between the Parties, their
officers, directors or employees as to the subject matter hereof.
Neither of the Parties hereto has relied upon any oral representation
or oral information given to it by any representative of the other
Party.
10.2 Should any provision of this Agreement be rendered invalid
or unenforceable, it shall not affect the validity or enforceability
of the remainder.
Article 11. Assignment
11.1 N e i ther this Agreement nor any of the rights or
obligations of Suco hereunder shall be transferred or assigned by Suco
without the prior written consent of Carrington, executed by a duly
authorized officer of Carrington.
Article 12. Governing Law
12.1 It is expressly agreed that the validity, performance and
construction of this Agreement shall be governed by the laws and
jurisdiction of Texas.
Article 13. Notices
13.1 Any notice required or permitted to be given under this
Agreement by one of the Parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial
courier services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038; Attention: President, or
at such other address as Carrington shall have theretofore
furnished in writing to Suco. (Fax No. 972-714-5009)
(b) Suco at: Suco International Corporation, 499 Sheridan
Street, Suite 210, Dania, FL 33004 Attention: President,
or at such other address as Suco shall have theretofore
furnished in writing to Carrington. (Fax No. 954-927-
8822)
<PAGE>
Article 14. Waiver
14.1 Neither Suco's nor Carrington's failure to enforce at any
time any of the provisions of this Agreement or any right with respect
thereto, shall be considered a waiver of such provisions or rights or
in any way affect the validity of same. Neither Suco s nor
Carrington's exercise of any of its rights shall preclude or prejudice
either Party thereafter from exercising the same or any other right
it may have, irrespective of any previous action by either Party.
Article 15. Arbitration
15.1 E x cept as expressly provided otherwise herein, any
dispute, controversy or claim arising out of or in relation to or in
connection with this Agreement, the operations carried out under this
Agreement or the relationship of the Parties created under this
Agreement, shall be exclusively and finally settled by confidential
arbitration, and any Party may submit such a dispute, controversy or
claim to arbitration. The arbitration proceeding shall be held at the
location of the non-instituting Party in the English language and
shall be governed by the rules of the International Chamber of
Commerce (the "ICC") as amended from time to time. Any procedural
rule not determined under the rules of the ICC shall be determined by
the laws of the State of Texas, other than those laws that would refer
the matter to another jurisdiction.
A single arbitrator shall be appointed by unanimous
consent of the Parties. If the Parties cannot reach agreement on an
arbitrator within forty-five (45) days of the submission of a notice
of arbitration, the appointing authority for the implementation of
such procedure shall be the ICC, who shall appoint an independent
arbitrator who does not have any financial or conflicting interest in
the dispute, controversy or claim. If the ICC is unable to appoint,
or fails to appoint, an arbitrator within ninety (90) days of being
requested to do so, then the arbitration shall be heard by three
arbitrators, one selected by each Party within the thirty (30) days of
being required to do so, and the third promptly selected by the two
arbitrators selected by the Parties.
The arbitrators shall announce the award and the reasons
therefor in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the Parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the Parties.
Judgment upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each Party
involved in the arbitration shall bear the expense of its own counsel,
experts and presentation of proof, and the expense of the arbitrator
and the ICC (if any) shall be divided equally among the Parties to the
arbitration.
<PAGE>
Article 16. Exhibits
A n y and all exhibits referred to herein shall be
considered an integral part of this Agreement.
Article 17. No Inconsistent Actions
17.1 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 Articles 4.7 and 8 hereof, will promptly perform all acts and take
all measures as may be appropriate to comply with the terms,
conditions and provisions of this Agreement.
Article 18. Currency of Account
18.1 This Agreement evidences a transaction for the sale of
goods in which the specification of U.S. dollars is of the essence,
and U.S. dollars shall be the currency of account in all events. All
payments to be made by Suco to Carrington hereunder shall be made
either (i) in immediately available funds by confirmed wire transfer
to a bank account to be designated by Carrington or (ii) in the form
of a bank cashier's check payable to the order of Carrington.
Article 19. Binding Effect
19.1 This Agreement shall inure to the benefit of and be
binding upon the respective successors of the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
SUCO INTERNATIONAL CORP.
By:
Name:
Title:
<PAGE>
EXHIBIT A
SUCO INTERNATIONAL CORP.
PRODUCT
NO. PRODUCT NAME PRICE
-------- ----------------------------------------- -------
WOUND CARE
101005 CARRINGTON CARRASYN HYDROGEL WOUND $2.40
DRESSING, 1/2 oz. tube
101010 CARRINGTON CARRASYN HYDROGEL WOUND $5.34
DRESSING, 1 oz. tube
101030 CARRINGTON CARRASYN HYDROGEL WOUND $6.80
DRESSING, 3 oz. tube
101080 CARRINGTON CARRASYN HYDROGEL WOUND $20.00
DRESSING, (spray gel),8 oz. bottle
101025 CARRINGTON CARRASYN V (VISCOUS) $3.16
HYDROGEL WOUND DRESSING, 1/2 oz. tube
101002 CARRINGTON CARRASYN V (VISCOUS) $1.78
HYDROGEL WOUND DRESSING, 1 oz. sachet
101023 CARRINGTON CARRASYN V (VISCOUS) $4.25
HYDROGEL WOUND DRESSING, 3 oz. tube
101017 CARRINGTON CARRAGAUZE , 2"x 2" pads $1.40
101015 CARRINGTON CARRAGAUZE , 4"x 4" pads $2.40
102060 CARRINGTON CARRAKLENZ WOUND & SKIN $4.05
CLEANSER, 6 oz. pump
102062 CARRINGTON CARRAKLENZ WOUND & SKIN $5.62
CLEANSER, 8 oz. spray
102160 CARRINGTON CARRAKLENZ WOUND & SKIN $7.40
CLEANSER, 16 oz. spray
INCONTINENCE CARE PRODUCTS
104004 CARRINGTON MOISTURE BARRIER CREAM, $0.40
0.4 oz. packet
104040 CARRINGTON MOISTURE BARRIER CREAM, $3.06
3.5 oz. tube
ENVIRONMENTAL PRODUCTS
107010 CARRINGTON CARRASCENT Odor $1.58
Eliminator, 1 oz. bottle
*Introductory Price Only - Subject to Change
<PAGE>
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the
Effective Date (as defined below), by and between CARRINGTON
LABORATORIES, INC., a Texas corporation having its registered office in
Dallas, Texas, and CARRINGTON LABORATORIES BELGIUM N.V., a Belgium
corporation having its registered office in Waasmunster, Belgium,
jointly (together hereinafter referred to as Carrington ) and
RECORDATI, S.P.A., an Italian corporation having its registered office
located at Via M Civitali, 1, 20148 Milano, Italia (hereinafter
referred to as "Recordati").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of developing,
manufacturing, selling and distributing certain medical devices and is
desirous of establishing a competent and exclusive marketing and
distribution source for sales of such products in Italy (defined in
Article 1 hereof as the Territory); and
WHEREAS, Recordati is desirous of marketing and distributing such
products in the Territory, represents that it has experience in
obtaining registration of pharmaceuticals and other healthcare related
products in the Territory, is well introduced on the market, is willing
and able to provide a competent distribution organization in the
Territory, and Recordati desires to be Carrington's exclusive
distributor for such products in the Territory;
NOW, THEREFORE, the Parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have
the meanings specified in this Article 1.1:
(a) "Effective Date" shall mean the date of last signature of
the Parties hereto.
(b) Governmental Authorities shall mean any and all
appropriate authorities, including but not limited to,
governmental, regulatory, legislative, and health
authorities.
(c) "Italian Registration" shall mean the notification by
Recordati to the appropriate Italian Governmental
Authorities of the grant of the Registration, and any other
official approval, authorization or recordation necessary
for the lawful marketing of the Products in the Territory.
<PAGE>
(d) Know-how shall mean Carrington's secret and substantial
technical, clinical and scientific information,
manufacturing processes and procedures, testing methods,
and controls regarding the Products, which may be
necessary, useful or advisable to enable Recordati to
obtain the Italian Registration and to promote, distribute,
market and sell the Products in the Territory, and as is or
will be specified in the Registration documentation which
Carrington has delivered or will deliver to Recordati after
the Effective Date and during the term of this Agreement.
(e) Parties shall mean Carrington, as defined above, and
Recordati and Party shall mean either of them as the
context indicates.
(f) "Products" shall mean the wound, oral, and skin care
products manufactured by or for Carrington set forth on
Exhibit A hereto. No Product shall be added or
discontinued with respect to Exhibit A without Recordati's
approval, excepting (i) Products which Carrington
discontinues worldwide and (ii) Products which experience
material, adverse regulatory complications, including but
not limited to government required changes in manufacturing
or packaging requirements, additional clinical trials or
studies, or Product reformulation. Carrington will provide
a ninety (90) day notice to Recordati of its intent to add
Products to Exhibit A and not less than twelve (12) months
notice of its intent to discontinue Products. If Recordati
does not respond to such notice of intention within said
period, then said intention shall be automatically deemed
approved by Recordati.
(g) "Registration" shall mean the granting of the CE mark to
the Products, in accordance with the relevant requirements
of Council Directive 93/42/EEC of June 14, 1993 concerning
medical devices, by the competent authorities of the United
Kingdom or any other European Member State.
(h) "Territory" shall mean the following country: Italy,
including Vatican City and the State of San Marino.
(i) Trademarks shall mean all mutually agreed upon Carrington
Trademarks, trade names, service marks, logos and
derivatives thereof relating to the Products.
(j) Trade name shall mean Recordati s company name.
<PAGE>
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints Recordati as Carrington's exclusive sales
distributor in the Territory for the promotion, distribution, marketing
and sale of the Products under the Trademarks and Recordati's Trade
name, and Recordati hereby accepts such appointment. As the exclusive
sales distributor in the Territory, Recordati shall, subject to the
terms and conditions of this Agreement, have the right to obtain the
Italian Registration and to promote, distribute, market and sell the
Products in the Territory on an exclusive basis. Recordati shall not
solicit orders from third parties outside the Territory.
2.2 As consideration for Recordati's appointment as the
exclusive sales distributor for the Products in the Territory,
Recordati hereby agrees to pay to Carrington the sum of $300,000.00
U.S. as follows:
(a) $100,000.00 U.S. within thirty (30) days of the Effective
Date;
(b) $100,000.00 U.S. within thirty (30) days of the approval of
the Registration; and,
(c) $100,000.00 U.S. within thirty (30) days of the initial
launch of the Products in the Territory.
If the Registration of the Products does not occur within
eighteen (18) months after submission of the relevant filing to the
United Kingdom Governmental Authorities or any other mutually agreed
upon authority or if Recordati is not allowed to promote, distribute,
market and sell the Products by the Italian Governmental Authorities
within twelve (12) months of Recordati s notification to the Italian
Governmental Authorities, then Carrington shall refund the amount
actually paid by Recordati to Carrington. No refund shall be required
by Carrington, however, if the Italian Governmental Authorities
disapprove of Registration as a result of Recordati s negligence or
willful intent or omission.
2.3 Carrington will provide Recordati with training and support
of manufacturing or marketing personnel, if necessary. In the event
Recordati requires such training and support, and such assistance by
Carrington requires travel to Recordati's facilities in Milan, Italy or
such other mutually agreed upon location, Recordati agrees to be
solely responsible for and cover all of Carrington s reasonable direct
expenses for such travel, training and support.
<PAGE>
2.4 In a manner reasonably satisfactory to Carrington, and at
Recordati's sole expense, Recordati agrees to (a) make and maintain all
declarations, filings, and the Italian Registration with, and obtain
all approvals and authorizations from, Governmental Authorities in the
Territory required to be made or obtained in connection with the
promotion, marketing, sale or distribution of the Products, (b) devote
its reasonable efforts to the diligent promotion, marketing, sale and
distribution of the Products in the Territory, (c) provide and maintain
a competent organization for the promotion, marketing, sale and
distribution of the Products in the Territory, (d) assure competent and
prompt handling of inquiries, orders, shipments, billings and
collections, and returns of or with respect to the Products and careful
attention to customers requirements for all Products, and (e) promptly
assign back to Carrington any Product Registrations in the Territory,
if Carrington does not hold them, upon termination of Agreement.
2.5 The Parties agree to use their reasonable efforts to
negotiate manufacturing rights for certain Products in the Territory;
provided, however, that all applicable regulatory, quality control,
quality assurance, licenses, confidentiality and business terms and
conditions can be mutually agreed upon by the Parties.
2.6 During the term of this Agreement, Recordati shall be
considered an independent contractor and shall not be considered a
partner, employee, agent or servant of Carrington. As such, Recordati
has no authority of any nature whatsoever to bind Carrington or incur
any liability for or on behalf of Carrington or to represent itself as
anything other than a distributor and independent contractor.
2.7 Nothing in this Agreement shall be construed as giving
Recordati any right to use or otherwise deal with the Know-how for
purposes other than those expressly provided for in this Agreement
during the term of this Agreement.
2.8 Recordati shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention. After
having discussed such situation with Recordati, Carrington shall have
sole and absolute discretion to take such action as it deems
appropriate and Recordati, at its own cost but subject to reimbursement
by Carrington of its out-of-pocket expenses, shall assist Carrington in
taking legal action, if deemed necessary, against such
misappropriation.
2.9 Unless otherwise stated in this Agreement, costs and
expenses connected with Recordati s activities or performance under
this Agreement are to be borne solely by Recordati.
Article 3. Certain Performance Requirements
3.1 Recordati agrees to promote and market the Products only to
customers and potential customers within the Territory for ultimate use
within the Territory. Recordati shall not, under any circumstances,
either directly or indirectly through third parties, (i) promote or
market Products within or to, or for ultimate use within, the United
States or any place outside the Territory, or (ii) establish any branch
or warehouse for the distribution or sale of the Products outside the
Territory.
<PAGE>
3.2 In order to assure Carrington that Recordati is in
compliance with Article 3.1, Recordati agrees that:
(a) Recordati shall send to Carrington quarterly sales reports
which set forth the number of units and sizes of each
Product sold; the number of units of free medical samples
distributed, and to whom, if any, such Products were sold
and/or distributed outside the Territory during such
quarter; and
(b) Recordati shall send to Carrington quarterly inventory
reports of the Products.
(c) Recordati shall send a forecast of anticipated annual sales
for the upcoming year by no later than December 1, of the
preceding year.
3.3 Recordati shall promptly provide Carrington with written
reports of any importation or sale of any of the Products in the
Territory of which Recordati has knowledge from any source other than
Carrington, as well as with any other information which Carrington may
reasonably request in order to be updated on the market conditions in
the Territory.
3.4 Recordati shall maintain a sufficient inventory of Products
to assure an adequate supply of Products to serve all its market
segments. Recordati shall maintain all its inventory of Products
clearly segregated and meeting all storage and other standards required
by applicable Governmental Authorities. All such inventory and
Recordati s facilities shall be subject to inspection by Carrington or
its agents upon five (5) business days written notice and not more than
once in any twelve (12) month period.
3.5 Recordati shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by Recordati of Products. Upon
written request from Recordati, Carrington shall provide Recordati with
such certificates or other documents as may be reasonably required to
establish any applicable exemptions from the collection of such taxes,
charges and fees.
3.6 All Products shall be labeled, advertised, marketed, sold
and distributed by Recordati in compliance the Italian Registration and
with the rules and regulations, as amended from time to time, of (i)
all applicable Governmental Authorities within the Territory in which
the Products are marketed, and (ii) all other applicable laws, rules
and regulations. Recordati shall pay all expenses associated with (i)
any alterations to the packaging and labeling of the Products which
deviate from Carrington's standard packaging materials, designs,
methods and/or procedures, and (ii) any additional inserts in the
general packaging. The Parties shall agree on minimum production runs
for such custom labels.
3.7 Save as provided in Article 3.6, Recordati shall not make
any alterations or permit any alterations to be made to the Products.
<PAGE>
3.8 Recordati shall assume all responsibility for and at all
times comply with all applicable laws, regulations and requirements
concerning the Registration and the Italian Registration, inventory,
use, promotion, distribution and sale of the Products in the Territory.
3.9 Recordati agrees not to make, or permit any of its
employees, agents or representatives to make, any claims of any
properties or results relating to any Product, unless such claims have
received written approval from Carrington or from the applicable
Governmental Authorities.
3.10 Recordati shall not use any packaging, label, advertisement
or marketing material on or with respect to or relating to any Product
unless such packaging, label, advertisement or marketing material has
first been submitted to and approved by Carrington in writing.
Approval by Carrington shall be deemed granted if no response is
received from Carrington within thirty (30) days from Recordati s
submission.
3.11 Recordati will actively and aggressively promote, develop
demand for and maximize the sale of the Products to all customers and
potential customers within the Territory. Recordati agrees not to
manufacture, promote, market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to and approval from Carrington, any competitive wound care
product.
Article 4 Registration of Products
4.1 It being understood that Carrington shall file for
Registration within three (3) months from the Effective Date and shall
supply Recordati with a copy of the Registration dossier and that
Registration is a prerequisite to obtaining the Italian Registration
and to the lawful sale of the Products in the Territory, Carrington
hereby agrees to supply Recordati, promptly after the execution of this
Agreement, with any Know-how or relevant documentation necessary for
preparing the Italian Registration dossier to be submitted to the
applicable Governmental Authorities of the Territory.
4.2 It shall be the responsibility of Recordati, at its sole
expense, to apply for, obtain and maintain the Italian Registration.
Subject to having obtained the prior approval of Carrington and
subsequent to Registration, Recordati shall notify the grant of the
Registration to all applicable Governmental Authorities in the
Territory, and said notification shall be in the name of Carrington,
with Recordati being named as Products distributor for the Territory.
Recordati expressly acknowledges and agrees that the absolute and
exclusive ownership of the Registration and all rights originating out
of or from the same shall at all times belong only and exclusively to
Carrington.
4.3 As soon as Recordati has received the Know-how and the
Registration dossiers from Carrington, Recordati shall prepare, at its
sole expense, the Italian Registration dossier and notification and any
translation which may be required by the applicable authorities of the
Territory. Recordati shall promptly supply Carrington with a copy of
the said Italian Registration dossier and submission and Carrington
shall be entitled to a free and unrestrained use of the same outside
the Territory.
<PAGE>
4.4 Subject to having obtained Carrington's written approval of
all such documentation and any subsequent amendments thereto, Recordati
shall, as soon as possible and in any case within sixty (60) days of
Carrington's approval, submit the Italian Registration to the
appropriate authorities of the Territory.
4.5 Recordati shall copy and keep Carrington fully and timely
informed, throughout the term of this Agreement, of all material
communications sent to or received from all applicable authorities,
including the health authorities, of the Territory concerning the
Products.
4.6 Carrington makes no warranty that the supplied Know-how
will necessarily result in the grant of the Italian Registration and
Recordati shall have no claim against Carrington arising out of any
delay or refusal by the authorities to issue the Italian Registration,
other than the refund stated in Article 2.2.
4.7 Recognizing the importance of sampling to the success of a
product launch, upon Registration approval, the parties shall meet in
good faith to discuss the sampling budget required for the first year.
Article 5. Sale of Products by Carrington to Recordati
5.1a Subject to the terms and conditions of this Agreement,
including specifically Article 5.6 hereof, Carrington shall sell to
Recordati and Recordati agrees to purchase from Carrington the Products
in finished packaged form ready for sale at a specified price for each
of the Products (the "Contract Prices"). For orders placed by
Recordati during the first two 12-month periods of the term of this
Agreement, the Contract Prices for the Products listed on Exhibit A are
set forth on such exhibit opposite each Product. At least 90 days
prior to the end of each 12-month period of the term of this Agreement,
(a) Recordati shall provide in writing to Carrington a purchase
forecast for the following 12-month period, and (b) at least 90 days
prior to the end of the second of the two 12 month periods aforesaid,
the Parties shall commence good faith negotiations to determine and
agree upon the Contract Prices for Products for the next 12-month
period of the term. Not more than once during any twelve (12) month
period following the first two 12-month periods, Carrington reserves
the right to change its Contract Price for each Product, only as
permitted in this Article and in Article 5.1b below. Notwithstanding
the foregoing, the adjustment of Contract Prices shall in no event
exceed the annual increase in the Producers Price Index, Drugs and
Pharmaceuticals, subdivision code 063 issued by the U.S. Department of
Commerce. Any change of the Contract Prices and/or adjustment thereto
shall apply on a Product by Product basis commencing as each individual
Product is launched.
5.1b In the event that the specified index is discontinued or in
the event the basis of its calculation is modified, a comparable index
mutually agreed upon shall be applied. Should the applicable index not
be available when needed, an estimate of the missing index shall be
made. In such case, a recalculation of the Contract Prices shall be
made when the applicable index is available and an adjustment shall be
included in the next invoice submitted to Recordati.
<PAGE>
The above applies as long as the Products are sold as a medical
device. If new material claims or a new classification occurs and such
claims or classification result in a material change to the end-user
purchase price for the Products, then the Contract Prices shall be
renegotiated without the limitation stated above.
Further, if Recordati increases its selling prices greater than
the increase in the margin of the above-stated index calculation,
Carrington and Recordati shall agree upon a similar percentage increase
in the Contract Prices. If for any reason, Carrington's Product costs
become higher than the index permits, the Parties shall attempt to
mutually agree on a change to the Contract Prices. If the Parties fail
to agree upon a change to the Contract Prices in this instance, then
said issue may be submitted for arbitration; provided, however, until
such arbitration is completed, Carrington shall not be required to sell
any Product at a loss.
5.2 As consideration for its appointment as the exclusive sales
distributor entitled to a Product discount, Recordati agrees to
purchase from Carrington, during each 12-month period of the term of
this Agreement, commencing with the 12-month period beginning on the
second anniversary of the Effective Date through and ending on the
expiry of the initial term of this Agreement at the Contract Prices, a
specified minimum aggregate dollar amount (based on the Contract
Prices) of the Products (the "Specified Minimum Purchase Amount"). The
first two 12-month periods of the term of this Agreement shall be
considered benchmark years and there shall be no Specified Minimum
Purchase Amount. The Specified Minimum Purchase Amounts for each
subsequent 12-month period shall correspond to fifty (50%) percent of
Recordati s sales forecast for each of the following 12-month periods.
5.3 Recordati shall order Products by submitting a purchase
order to Carrington describing the type and quantity of the Products to
be purchased. All purchases shall be spaced in a reasonable manner in
agreed upon volumes. Purchase orders exceeding the most recent
purchase forecast by more than 120% are subject to acceptance by
Carrington. Carrington will invoice Recordati upon delivery of the
Products. Unless otherwise agreed, Recordati shall pay all invoices in
full within sixty (60) days of the date of invoice. Recordati shall be
solely responsible for all costs in connection with affecting payments.
All sales and payments shall be made in the State of Texas.
5.4 Carrington shall not be obligated to deliver Products to
Recordati at any time when payment of an amount owed by Recordati is
more than 30 days overdue or when Recordati is otherwise in material
breach of this Agreement.
<PAGE>
5.5 All deliveries shall be initiated by a purchase order.
Product delivery dates will be specified in the purchase order. These
dates may not be scheduled prior to ninety (90) days after the date the
purchase order is received and acknowledged in writing by Carrington,
unless by mutual consent of the Parties. Purchase orders will be non-
cancelable. Recordati will issue to Carrington on a monthly basis, a
twelve (12) month rolling forecast so that Carrington may incorporate
said forecasts into its planning system. The triggering document for
roduction activities is, however, the purchase order, as stated above.
Carrington will guarantee delivery dates for Product quantities that
vary up to 20% above the last monthly rolling forecast issued prior to
the purchase order placed by Recordati. Variation above 20% shall be
discussed between the Parties and Carrington will use its best efforts
to maintain delivery dates requested by Recordati.
5.6 All deliveries of Products will be packaged in accordance
with the requirements of the Registration and using Carrington's
standard packaging procedures. Recordati shall supply Carrington with
labeling masters, instructions and specifications for labeling and
packaging of the Products. All packaging and labeling shall be in the
Italian language only and sold under the Recordati Trade name.
Carrington shall supply to Recordati a written statement of
manufacturing, processing and/or packaging procedures, quality control
procedures and methods of analysis together with samples from each
batch of Products supplied. Recordati shall perform analyses on such
samples and send its approval of such batch of Products to Carrington
within forty five (45) days from delivery. If any batch fails to
conform to the specifications therefor then Recordati shall promptly
notify Carrington in writing together with copies of its quality
control results from testing such samples. If Carrington does not
accept Recordati s evaluation thereof after re-analyzing the relevant
batch then the Parties shall nominate an independent, reputable
laboratory acceptable to both for determination as to whether or not
such batch fails to conform to the specifications therefor. All
Contract Prices are F.C.A. (Incoterms, 1990) Carrington's facility,
Irving, Texas. Ownership of and title to Products and all risks of
loss with respect thereto shall pass to Recordati upon delivery of such
Products by Carrington.
5.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by Recordati under this Agreement.
However, if necessary in the best judgment of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including Recordati, on such basis as
it shall deem reasonable, practicable and equitable, without liability
for any failure of performance or lost sales which may result from such
allocations provided that Carrington shall continue to supply Recordati
with a minimum of seventy five percent (75%) of its forecasted
requirements.
<PAGE>
5.8 Liability and Indemnification: Carrington accepts
liability for defective Products and agrees to replace such defective
Products should they occur with new Products. Carrington warrants that
upon delivery by Carrington the finished Products will comply with all
Product specifications as set forth in the Registration. Except as
warranted aforesaid or as may be expressly stated by Carrington on the
Product or on Carrington's packaging, or in Carrington's information
accompanying the Product, at the time of delivery to Recordati
hereunder, CARRINGTON MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY
KIND WITH RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. CARRINGTON NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME
FOR IT ANY OBLIGATION OR LIABILITY IN CONNECTION WITH THE PRODUCTS.
Recordati shall not make any representation or warranty with respect to
the Products that is more extensive than, or inconsistent with, the
limited warranty set forth in this Article 5.8 or that is inconsistent
with the policies or publications of Carrington relating to the
Products.
RECORDATI'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER
IS THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS
IN REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
RECORDATI'S OPTION. SUBJECT TO THE PROVISIONS OF THIS ARTICLE 5.8,
CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO
RECORDATI OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT NOT LIMITED
TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR
OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS, DAMAGE OR
EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, LOSS OF
USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
RECORDATI SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS CARRINGTON
AND CARRINGTON S AFFILIATES, 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) RECORDATI'S NEGLIGENT ACTS OR OMISSIONS IN
RELATION TO THE HANDLING OR STORAGE OF THE PRODUCTS, (ii) ANY BREACH BY
RECORDATI OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER
THIS AGREEMENT, OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF RECORDATI
OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND
RECORDATI'S AUTHORIZATION GRANTED HEREIN.
CARRINGTON SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS RECORDATI
AND RECORDATI'S AFFILIATES, 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 ANY (i) THIRD PARTY PRODUCT LIABILITY CLAIM
ARISING FROM AN INHERENT DEFECT IN THE PRODUCTS (I.E. WHICH OCCURS OR
ARISES THROUGH NO NEGLIGENCE OF RECORDATI S OR THE ABOVE-REFERENCED
ASSOCIATES THEREOF), (ii) INFRINGEMENT OF THIRD PARTIES INTELLECTUAL
PROPERTY RIGHTS IN CONNECTION WITH THE MANUFACTURE, USE AND/OR SALE OF
THE PRODUCTS IN THE TERRITORY IN ACCORDANCE WITH THE TERMS OF THE
AGREEMENT, (iii) WILFUL ACTS OR OMISSIONS OR NEGLIGENCE OF CARRINGTON,
AND (iv) USE, SALE OR DISPOSITION OF THE PRODUCTS.
<PAGE>
IN NO EVENT SHALL ANY PARTY OR ITS AFFILIATES BE LIABLE TO THE
OTHER PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING, BUT NOT LIMITED TO
NEGLIGENCE, FAILURE TO WARN OR FAILURE TO TEST), STRICT LIABILITY OR
OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE,
LOSS OF USE OF THE PRODUCT.
5.9 Adverse Events. Each Party shall:
(a) inform the other Party in writing in English of any
serious (i.e. fatal, life threatening,
causing/prolonging hospitalization, causing
severe/permanent disability, or related to cancer,
congenital anomaly or overdose) or unexpected adverse
event concerning the active ingredient or the
Products. Carrington shall report serious or
unexpected adverse events to Recordati in standard
CIOMS format within twenty-four (24) hours of such
event coming to its knowledge and shall co-operate
with Recordati in providing any additional
information required by Recordati and technical
support to Recordati (i.e. a copy of the original
documentation, direct contact with the physician or
other person who generated the Adverse Event Alert).
Recordati shall notify Carrington of any serious or
unexpected adverse events in standard CIOMS format as
soon as consistent information on any such adverse
event is collected. In addition, promptly following
such written notification the notifying Party shall
submit all further details which come to its
knowledge with respect to such events;
(b) no later than June 30 and December 31 of each year,
inform the other Party in writing of any adverse
events other than those refereed to in Article 5.9(a)
that have occurred during the preceding six (6) month
period;
(c) be responsible for notifying events reported to it
under this Article to the governmental authorities in
accordance with the legal requirements applying in
the Parties respective territories; and
(d) provide to the other Party the name of an appointed
representative ("the Representative") to whom all
adverse event information set forth above shall be
addressed.
In the event of termination or expiration of this Agreement, each
Party s adverse event reporting obligations shall continue for a period
of twelve (12) months after such termination or expiration.
5.10 Credits for defective Products to Recordati shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Prices of the Products returned, whether
identified by lot number or another method. Carrington shall provide
Recordati with a copy of its liability Insurance Certificate and shall
include Recordati thereunder.
<PAGE>
5.11 For purposes of clarification, all references herein to
Carrington shall include both Carrington Laboratories, Inc. and
Carrington Laboratories Belgium, N.V., and each shall be jointly and
severally liable regarding all of Carrington's obligations under this
Agreement.
Article 6. Term and Termination
6.1 The term of this Agreement shall be for an initial term of
ten (10) years from the effective date of Registration of the Products.
After such term, this Agreement shall be automatically renewed for a
two year term unless either Party gives the other notice to terminate
the Agreement at least six months prior to the end of the initial term
hereof. Notwithstanding the foregoing, this Agreement may be
terminated earlier in accordance with the provisions of this Article 6
or as expressly provided elsewhere in this Agreement.
6.2a Either Party shall have the right to terminate this
Agreement if the other Party fails to perform or breaches, in any
material respect, the terms or provisions of this Agreement without
remedying the same within sixty (60) days of being notified of such
failure to perform or material breach. Without limiting the events
which shall be deemed to constitute a breach or material breach of this
Agreement by Recordati, Recordati understands and agrees that it shall
be in material breach of this Agreement, and Carrington subject to the
aforesaid shall have the right to terminate this Agreement under this
Article 6.2a, if:
(i) Recordati fails or refuses to pay to Carrington any
sum when due; or
(ii) Recordati breaches any provision of Article 2.2, 3.4,
4, 5.3, 5.8, 7 or 8.
6.2b In the event, Recordati fails to purchase the Specified
Minimum Purchase Amounts of Product for any required period other than
a result of Carrington's failure to supply the Products, Carrington
shall have the option on sixty (60) days notice to convert the
Agreement from an exclusive to a semi-exclusive status; i.e.,
Carrington shall be permitted to appoint one (1) other distributor, in
addition to Recordati, to promote and market the Products in the
Territory under their separate, respective trademarks.
6.3 Each Party shall have the right to terminate this Agreement
in the event that the other Party shall become insolvent, or if there
is instituted by or against the other Party procedures in bankruptcy,
or under insolvency laws or for reorganization, receivership or
dissolution, or if the other Party is acquired by another company.
Additionally, Carrington shall have the right to terminate this
Agreement if Recordati acquires another company which manufactures,
sells or distributes competing wound care products, unless Recordati
(i) continues to satisfy the Specified Minimum Purchase Amount
requirements and (ii) provides Carrington ninety (90) days notice of
such acquisition.
<PAGE>
6.4 During the one-year period following termination of this
Agreement, any inventory of Products held by Recordati at the
termination of this Agreement may be sold by Recordati to customers in
the Territory in the ordinary course; provided, however, that for the
period required to liquidate such inventory, all of the provisions
contained herein governing Recordati's performance obligations and
Carrington's rights shall remain in effect. In order to accelerate the
liquidation of any such inventory, Carrington shall have the option,
but not the obligation, to purchase all or any part of such remaining
inventory at the price at which the inventory was originally sold by
Carrington to Recordati, plus importation and shipping costs.
6.5 The termination of this Agreement shall not impair the
rights or obligations of either Party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 5.8,
5.9, 6.4, 7, 8, 13 and 16 and the rights and obligations of the Parties
thereunder shall survive the termination of this Agreement.
Article 7. Trademarks and Patents
7.1 The Trademarks and all patents, Know-how, and other
intellectual property relating to the Products and of the goodwill
associated therewith, are the sole and exclusive property of Carrington
and/or its affiliates. The Products shall be promoted, sold and
distributed only under the Trademarks and Recordati s Trade name.
Carrington hereby grants Recordati an exclusive license to use the
Trademarks for the sole purpose of performing its obligations under
this Agreement. Carrington may, upon mutual consent with Recordati,
modify or discontinue the use of any Trademark and/or use one or more
additional or substitute marks or names, and Recordati shall be
obligated to do the same.
7.2 The Trademarks shall appear on all Product packaging,
labels, and inserts and other materials which Recordati uses for the
marketing of the Products in such form and manner as Carrington shall
reasonably require. Carrington retains the right to review and approve
all intended uses by Recordati of the Trademarks in any packaging,
inserts, labels, or promotional or other materials relating to the
Products prior to Recordati s actual use thereof. Carrington's right
of approval thereof shall be exercised within thirty (30) days from
receipt of Recordati s proposal. Approval shall be deemed granted if
Carrington does not respond by the end of said period.
7.3 It shall be the sole responsibility of Carrington, at its
sole expense, to keep in force and maintain the Trademarks in the
Territory by paying all necessary fees throughout the term of this
Agreement. The Trademarks shall always be used together with the sign
[R] or the sign [TM]. Recordati may not use any Trademark as part of
any corporate name or with any prefix, suffix or other modifying word,
term, design or symbol. In addition, Recordati may not use any
Trademark in connection with the sale of any unauthorized product or
service or in any other manner not explicitly authorized in writing by
Carrington.
<PAGE>
7.4 Except as provided in Article 6.4, in the event of the
termination of this Agreement for any reason, Recordati's right to use
the Trademarks shall cease, and Recordati shall cease using such
Trademarks at such time as Recordati's inventory of Products has been
sold. Recordati shall, as soon as it is reasonably possible, remove
all Trademarks which appear on or about the premises of the office(s)
of Recordati and any of the advertising of Recordati used in connection
with the Products.
7.5 In the event of a breach or threatened breach by Recordati
of the provisions of this Article 7, Carrington shall be entitled to
apply for an injunction or injunctions to prevent such breaches.
Nothing herein shall be construed as prohibiting Carrington from
pursuing other remedies available to it for such breach or threatened
breach of this Article 7, including the recovery of damages from
Recordati.
7.6 In the event that Recordati becomes aware of any
infringement of, or challenge to, Recordati s use of any of the
Trademarks or any Carrington patent on the Products Recordati is
obligated to notify Carrington immediately. Carrington and Recordati
shall investigate any alleged violation and, if necessary, Carrington
will within sixty (60) days of receipt of such notification take
appropriate legal action to resolve the issue and to prevent other
competitors from infringing on said intellectual property rights within
the Territory. In any event, Carrington shall have sole and absolute
discretion to take such action as it deems appropriate. In the event
that Carrington determines not to take any action or fails to take any
action within the sixty (60) days aforesaid, then Recordati shall have
the right to take such action as it sees fit; using Carrington's name,
if necessary, and Carrington shall provide Recordati with all
reasonable assistance in connection therewith.
7.7 Should for some reason the Trademark be prevented from
being used in any part or whole of the Territory, the Parties shall
consult as to a suitable other trademark (which trademark shall be also
defined as Trademark for purposes of this Agreement) owned by
Carrington or to be transferred from Recordati to Carrington for use in
connection with the marketing and sale of the Products; it being
agreed, however, that Carrington retains the right to ultimately
determine what such alternative Trademark shall be used, provided it is
not confusingly similar to a Trademark owned by Recordati in the
Territory.
Article 8. Confidential Information
8.1 Recordati recognizes and acknowledges that Recordati will
have access to confidential information and trade secrets, including
"Know-how", of Carrington and other entities doing business with
Carrington relating to research, development, manufacturing, marketing,
financial and other business-related activities ("Confidential
Information"). Such Confidential Information constitutes valuable,
<PAGE>
special and unique property of Carrington and/or other entities doing
business with Carrington. Other than as is necessary to perform the
terms of this Agreement, Recordati shall not, during and after the term
of this Agreement, make any use of such Confidential Information, or
disclose any of such Confidential Information to any person or firm,
corporation, association or other entity, for any reason or purpose
whatsoever, except as specifically allowed in writing by an authorized
representative of Carrington. In the event of a breach or threatened
breach by Recordati of the provisions of this Article 8, Carrington
shall be entitled to apply for an injunction restraining Recordati from
disclosing and/or using, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting
Carrington from pursuing other remedies available to it for such breach
or threatened breach of this Article 8, including the recovery of
damages from Recordati. The above does not apply to information or
material that was known to the public or generally available to the
public prior to the date it was received by Recordati becomes available
or known to the public thereafter due to no fault of Recordati or is
received by Recordati from a third party not bound by an obligation of
confidentiality in connection therewith.
8.2 Recordati shall not disclose any of the terms of this
Agreement without prior written consent of Carrington.
8.3 Carrington undertakes obligations of confidentiality and
non-use in terms identical to those given by Recordati in Article 8.1
in relation to any confidential business or other information supplied
to Carrington hereunder.
Article 9. Force Majeure
9.1 Neither Recordati nor Carrington shall have any liability
hereunder if either is 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 Recordati or Carrington's obligations, so far as
may be necessary, shall be suspended during the period of such Force
Majeure. Such affected Party shall give to the other Party 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 both Party's
obligations under this Agreement. Should the Force Majeure continue
for more than six (6) months, then the other Party shall have the right
to terminate this Agreement.
9.2 The Parties agree that any obligation to pay money is never
excused by Force Majeure.
<PAGE>
Article 10. Amendment
10.1 No oral explanation or oral information by either Party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall
be binding on either Party hereto unless reduced to writing and
executed by the duly authorized representative of each Party.
Article 11. Entire Agreement
11.1 Excepting the Confidential Disclosure Agreement dated June
8, 1996, this Agreement represents the entire Agreement between the
Parties and shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or
in writing and whether explicit or implicit, which may have been
entered into prior to the execution hereof between the Parties, their
officers, directors or employees as to the subject matter hereof.
Neither of the Parties hereto has relied upon any oral representation
or oral information given to it by any representative of the other
Party.
11.2 Should any provision of this Agreement be rendered invalid
or unenforceable, this shall not affect the validity or enforceability
of the remainder.
Article 12. Assignment
12.1 Neither this Agreement nor any of the rights or obligations
of Recordati hereunder shall be transferred or assigned by Recordati
without the prior written consent of Carrington (such consent not to be
unreasonably withheld or delayed), executed by a duly authorized
officer of Carrington provided that Recordati shall be free to transfer
or assign its rights or obligations hereunder to an affiliate.
Article 13. Governing Law
13.1 It is expressly agreed that the validity, performance and
construction of this Agreement will be governed by the laws and
jurisdiction of Texas.
Article 14. Notices
14.1 Any notice required or permitted to be given under this
Agreement by one of the Parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial courier
services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038; Attention President, or at
such other address as Carrington shall have theretofore
furnished in writing to Recordati (Fax No. 972-518-1020).
(b) Recordati at: Recordati, Via M. Civitali, 1 - 20148 Milano,
Italia, Attention VP and Director, Corporate Development or
at such other address as Recordati shall have theretofore
furnished in writing to Carrington. (Fax No. 39 2 48 70 52
23)
<PAGE>
Article 15. Waiver
15.1 Neither Recordati nor Carrington's failure to enforce at
any time any of the provisions of this Agreement or any right with
respect thereto, shall be considered a waiver of such provisions or
rights or in any way affect the validity of same. Neither Recordati's
nor Carrington's exercise of any of its rights shall preclude or
prejudice either Party thereafter from exercising the same or any
other right it may have, irrespective of any previous action by either
Party.
Article 16. Arbitration
16.1 Except as expressly provided otherwise herein, any dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement, the operations carried out under this Agreement or
the relationship of the Parties created under this Agreement not having
been resolved by the Parties within ninety (90) days of such dispute,
controversy or claim having arising, shall be exclusively and finally
settled by confidential arbitration, and any Party may submit such a
dispute, controversy or claim to arbitration. The arbitration
proceeding shall be held in London, England in the English language and
shall be governed by the rules of the International Chamber of Commerce
(the "ICC") as amended from time to time. Any procedural rule not
determined under the rules of the ICC shall be determined by the laws
of the State of Texas, other than those laws that would refer the
matter to another jurisdiction.
A single arbitrator shall be appointed by unanimous consent
of the Parties. If the Parties cannot reach agreement on an arbitrator
within 45 days of the submission of a notice of arbitration, the
appointing authority for the implementation of such procedure shall be
the ICC, who shall appoint an independent arbitrator who does not have
any financial or conflicting interest in the dispute, controversy or
claim. If the ICC is unable to appoint, or fails to appoint, an
arbitrator within 90 days of being requested to do so, then the
arbitration shall be heard by three arbitrators, one selected by each
Party within the 30 days of being required to do so, and the third
promptly selected by the two arbitrators selected by the Parties.
The arbitrators shall announce the award and the reasons
therefor in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the Parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the Parties.
Judgment upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each Party involved
in the arbitration shall bear the expense of its own counsel, experts
and presentation of proof, and the expense of the arbitrator and the
ICC (if any) shall be divided equally among the Parties to the
arbitration.
<PAGE>
Article 17 Interpretation
17.1 The language of this Agreement is English. No translation
into any other language shall be taken into account in the
interpretation of the Agreement itself.
17.2 The headings in this Agreement are inserted for convenience
only and shall not affect its construction.
17.3 Where appropriate, the terms defined in Article 1 and
denoting a singular number only shall include the plural and vice
versa.
Article 18. Exhibits
18.1 Any and all Exhibits referred to herein shall be considered
an integral part of this Agreement.
Article 19. Currency of Account
19.1 This Agreement evidences a transaction for the sale of
goods in which the specification of U.S. dollars is of the essence, and
U.S. dollars shall be the currency of account in all events. All
payments to be made by Recordati to Carrington hereunder shall be made
either (i) in immediately available funds by confirmed wire transfer to
a bank account to be designated by Carrington or (ii) in the form of a
bank cashier's check payable to the order of Carrington.
Article 20. Binding Effect
20.1 This Agreement shall inure to the benefit of and be binding
upon the respective successors of the Parties.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the day and year first below written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
Date:
CARRINGTON LABORATORIES BELGIUM N.V.
By:
Name:
Title:
Date:
RECORDATI INDUSTRIA CHIMICA &
FARMACEUTICA S.P.A.
<PAGE>
EXHIBIT A
RECORDATI, S.P.A.
Products & Contract Price
December, 1996
Product Contract
No. Product Price
------- -------------------------------------------- ------------
HYDROGEL WOUND DRESSINGS
101002 Carrasyn V Hydrogel $1.61/unit
(1.0oz.Pouch) (Up to 200,000
units)
101002 Carrasyn V Hydrogel (1.0 oz. $1.51/unit
Pouch) (200,001 - 250,000
units)
101002 Carrasyn V Hydrogel (1.0 oz. $1.45/unit
Pouch) (250,001 - 300,000
units)
101002 Carrasyn V Hydrogel (1.0 oz. $1.36/unit
Pouch) (over 300,001 units)
101023 Carrasyn V Hydrogel Wound $4.25/unit
Dressing, 3 oz. tube
101017 CarraGauze 2" x 2" Pad (1 $63.00/case
pkg., 15 pkgs/bx., 6
bxs./cs.) ($0.70 per unit)
101015 CarraGauze 4" x 4" Pad (1 $112.50/case
pkg., 15 pkgs/bx., 6
bxs./cs.) (Up to 150,000
units $1.25 per unit)
WOUND & SKIN CLEANSERS
102060 CarraKlenz Wound & Skin $2.97/bottle
Cleanser ( 6 oz. Pump)
102062 CarraKlenz Wound & Skin $3.97/bottle
Cleanser ( 8 oz. Pump)
102160 CarraKlenz Wound & Skin $6.07/bottle
Cleanser (16 oz. Pump)
<PAGE>
Product Contract
No. Product Price
------- -------------------------------------------- ------------
CALCIUM ALGINATES
101032 CarraSorb H Calcium Alginate $125.00/case
Wound Dressing (2 x 2)
10bxs./10ea., 10bxs./case
($1.25/unit)
101033 CarraSorb H Calcium Alginate $272.00/case
Wound Dressing (4 x 4)
10bxs./10ea., 10bxs./case
($2.72/unit)
FREEZE-DRIED GELS
101035 CarraSorb M Freeze-Dried Gel $196.20/box
Wound Dressing (4" diameter)
15 ea./bx., 4 bxs./cs.
($3.27/unit)
ORAL TECHNOLOGY
The Carrington Patch (6 per $0.75/sleeve
sleeve)
Note: Any volume discounts are based on yearly purchases which
correspond with the specified 12-month period as set forth in Article
5.1 of this Agreement.
NONEXCLUSIVE DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of November 15, 1996,
(The "Effective Date"), by and between POLYMEDICA INDUSTRIES, INC., a
Massachusetts corporation, having its principal offices at 11 State
Street, Woburn, MA 01801 ( Manufacturer ) and CARRINGTON LABORATORIES,
INC. a Texas corporation having its principal offices at 2001 Walnut
Hill Lane, Irving, TX 75038 ( Distributor ).
WITNESSETH:
In consideration of the mutual covenants and conditions herein
contained, and intending to be legally bound hereby, the parties
mutually agree as follows:
1. Products and Territory
(a) Manufacturer hereby appoints Distributor as a distributor
for the products listed in Exhibit A hereto (the "Products") during the
term of this Agreement for the purposes of reselling the Products to the
professional healthcare marketplace, so long as those purchasers are
located in the United States of America and any other mutually agreed
upon geographic territories added hereunder from time to time in
writing (the "Territory").
(b) Manufacturer reserves the right to appoint additional
distributors in the Territory and shall itself be free to sell Products
directly to purchasers in the Territory.
(c) Distributor shall refrain from establishing or maintaining
any branch, warehouse or distribution facility for Products outside the
Territory. Distributor shall not engage in any advertising or
promotional activities relating to the Products directed primarily to
customers located outside the Territory. Distributor shall not solicit
orders from any prospective purchaser located outside the Territory. If
Distributor receives an order for Products from a prospective purchaser
located outside the Territory, Distribution shall refer that order to
Manufacturer.
(d) Distributor may appoint a secondary or subdistributor to
sell the Products in the Territory so long as: (i) such secondary or
subdistributor confirms in writing to Manufacturer that it will comply
with all of Distributor s obligations under this Agreement; and (ii)
Manufacturer approves such secondary or subdistributor.
<PAGE>
2. Ordering, Prices and Payment
(a) At the earliest possible date, Distributor shall provide
Manufacturer with non-binding estimates of its orders of Products for
the next six (6) months on a rolling basis. Such forecasts shall be
stated on a monthly basis. Once a month is forecasted, such forecasted
amount may be increased or decreased by twenty-five percent (25%) before
a firm order for that month is placed pursuant to Section 2(b) below.
(b) Distributor (unless otherwise agreed in writing from time to
time) shall furnish Manufacturer with firm orders in writing for
Products not later than three (3) months prior to the required date for
receipt of the shipment of such Products. Firm orders for each calendar
month shall be no less than seventy-five percent (75%) and no greater
than one hundred twenty-five (125%) of the estimate contained in the
forecast for such calendar month provided in accordance with Section
2(a) above.
(c) Distributor shall order Products from Manufacturer by
submitting a written purchase order identifying the Products ordered and
requested delivery date(s). Said delivery dates must be within nine
months of the date of receipt of the written purchase order.
Manufacturer always undertakes to maintain a capacity to enable
Manufacturer to meet one hundred twenty-five percent (125%) of
Distributor s estimated requirements of the Products provided in
accordance with Section 2(a) above.
(d) If a purchase order is accepted in accordance with Section
2(c) above, the prices for Products covered by such purchase order shall
be Manufacturer s net distributor prices F.O.B. Golden, Colorado, USA
which are in effect on the date of the order. The initial price for
each Product under this Agreement is set out in Exhibit B hereto. Such
prices are F.O.B. Golden, Colorado, USA. Manufacturer shall review the
initial price for each Product on an annual basis, starting at the
beginning of the 1998 calendar year, and the parties may mutually agree
in writing to change the price for each Product once during each
calendar year, starting with the 1998 calendar year provided, however,
no price increase shall exceed five percent (5%). Any such change shall
become effective sixty (60) days after Distributor's receipt of notice
thereof; provided however, that no price change shall affect purchase
orders offered by Distributor and received by Manufacturer prior to the
date such price change becomes effective.
(e) Distributor shall be free to establish its own pricing for
Products which it sells.
(f) Distributor hereby agrees: (i) to assist Manufacturer in
obtaining any required licenses or permits required by Manufacturer by
supplying such documentation or information as may be reasonably
requested by Manufacturer; (ii) to comply with all governmental decrees,
statutes, rules and regulations; (iii) to maintain the necessary records
to comply with such decrees, statutes, rules and regulations; (iv) not
to export any Products except in compliance with such decrees, statutes,
<PAGE>
rules and regulations; (v) to obtain all governmental approvals and
licenses necessary to import the Products into any country in the
Territory; and (vi) not to sell, transfer or otherwise dispose of
Products in violation of the export laws of the United States. Each
party agrees to indemnify and hold harmless the other party from any and
all fines damages, losses, costs and expenses (including reasonable
attorneys fees) incurred by such other party as a result of any breach
of this Section 2(f) by the indemnifying party.
(g) Unless Distributor requests otherwise, all Products ordered
by Distributor shall be packed for shipment and storage in accordance
with Manufacturer's standard commercial practices and laws, rules and
regulations applicable in the Territory. It is Distributor's
obligations to notify Manufacturer of any special packaging requirements
(which shall be at Distributor's expense) and Manufacturer shall adhere
to all packaging, labeling and inserts instructions requested by
Distributor as a result of any laws, rules and regulations applicable in
the Territory. Distributor shall provide any required film work and art
work at its expense. Manufacturer shall deliver Products into the
possession of a common carrier designated by Distributor no later than
the date specified for such delivery on the relevant purchase order for
such Products; provided, however, that if Distributor does not designate
such carrier at least ten (10) days prior to such specified date, then
Manufacturer may designate such carrier on Distributor s behalf. Risk
of loss and damage to a Product shall pass to Distributor upon the
delivery of such Products to the common carrier designated hereunder.
(h) All amounts due and payable with respect to a Product
delivered by Manufacturer in accordance with Section 2(g) hereof shall
be paid in full within 45 days after the end of the calendar month in
which the invoice is received or dated with a 2% discount if paid within
30 days. All such amounts shall be paid against invoice in U.S. dollars
by wire transfer or check to such bank or account as Manufacturer may
from time to time designate in writing. All costs incurred in
connection with such wire transfer shall be the responsibility of
Distributor.
(i) Whenever any amount under Sections 2 or 3 hereof is due on a
day which is not a day on which banks in Denver, Colorado are open for
business (a Business Day ), such amount shall be paid on the next such
Business Day. Amounts hereunder shall be considered to be paid as of
the day on which funds are received by Manufacturer s designated bank.
(j) All amounts due and owing to Manufacturer under Sections 2
or 3 hereof but not paid by Distributor on the due date thereof shall
bear interest at the rate of the lesser of either: (i) one percent (1%)
per month; or (ii) the maximum lawful interest rate permitted under
applicable law. Such interest shall accrue on the balance of unpaid
amounts from time to time outstanding from the date on which portions of
such amounts become due and owing until payment thereof in full.
3. Other Obligations of Distributor
(a) Distributor shall maintain an adequate stock of Products so
as to render prompt and adequate service to the users of the Products in
the Territory.
<PAGE>
(b) Each party to this Agreement shall report to the other party
with respect to all complaints received concerning the Products. For
any complaint likely to cause a risk to patient health, such complaint
shall be reported to the other party with urgency, but in no event more
than forty-eight (48) hours after receipt thereof. Where possible, the
reporting party shall provide copies of each complaint when reporting to
the other party in accordance with this Section 3(e).
4. Obligations of Manufacturer
(a) Manufacturer hereby agrees to provide to Distributor with
each shipment of Products, a certificate of conformity. Such
certificate shall state that such Products satisfy the agreed upon
specifications for such Products.
(b) To have any required licenses or permits, such as a valid
510(k) for Products it delivers to Distributor.
(c) Subject to Section 2(g) only deliver Product with
Distributor packaging labeling insert and artwork requirements.
The manufacturer shall print or label the Product ordered by
the Distributor in the manner designated by the Distributor from time to
time in accordance with FDA requirements. If the Distributor designates
substantial changes to the form of label initially designated by the
Distributor as set forth in Exhibit A for the Product then the
Distributor shall reimburse the Manufacturer for its out-of-pocket costs
in making such changes.
(d) Deliver no Product that has a remaining shelf life of less
than two years.
5. Relationship of the Parties
(a) Distributor shall be considered to be an independent
contractor. The relationship between Manufacturer and Distributor shall
not be construed to be that of employer and employee, nor to constitute
a partnership, joint venture or agency of any kind.
(b) Distributor shall pay all of its expenses, including without
limitation all travel, lodging and entertainment expenses, incurred in
connection with its services hereunder. Manufacturer shall not
reimburse Distributor for any of those expenses.
(c) Distributor shall have no right to enter into any contracts
or commitments in the name of, or on behalf of, Manufacturer, or to bind
Manufacturer in any respect whatsoever. In addition, Distributor shall
not obligate or purport to obligate Manufacturer by issuing or making
any affirmations, representations, warranties or guaranties with respect
to Products to any third party, other than the warranties described in
Exhibit B attached hereto and made a part hereof.
<PAGE>
6. Minimum Purchase Requirements
(a) Distributor shall purchase a sufficient amount of Products
from Manufacturer so as to meet or exceed 100,000 units per purchase
order.
For the purposes of Section 2(d) above, (i) a purchase of
Products within a specified time period shall mean Distributor
submitting a firm order to Manufacturer for such Products; (ii) a unit
of Products; and (ii) a "unit" of Products shall mean an amount of
Product equal to a 4 ins. by 4 ins. swatch. For example, a Product
measuring 8 ins. by 8 ins. shall count as four (4) units.
7. Liability
(a) Product Warranties. Manufacturer warrants that the
Products, as delivered to the Distributor, shall (i) conform to the
product purchase specification attached hereto as Exhibit A; and (ii) be
manufactured and stored before delivery in accordance with all
applicable regulatory requirements.
(b) Correction of Non-Conformity. Should any failure to conform
with the warranties set out in Section 9(a) appear within (1) month from
the date of delivery of the Product (whether discovered by Distributor
or their customers), and if given written notice by Distributor to
Manufacture within thirty (30) days from the date of the discovery,
Manufacturer shall correct such nonconformity, at its option, by
(i) replacement of the nonconforming Product; or
(ii) refund of the purchase price of the nonconforming
Product.
(c) Limitation of Warranties. The warranties shall not apply to
any Product which
(i) has been tampered with or otherwise altered;
(ii) has been subjected to alteration, misuse, negligence
or accident; or
(iii) has been stored, handled or used in a manner contrary
to applicable laws or other governmental requirements or
Manufacturer's instructions.
(d) DISCLAIMER. THE FOREGOING WARRANTIES IN THIS SECTION 7 ARE
EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF QUALITY AND
PERFORMANCE, WRITTEN, ORAL OR IMPLIED, AND ALL OTHER WARRANTIES
INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY MANUFACTURER, ITS AFFILIATES
AND THEIR SUBCONTRACTORS.
<PAGE>
(e) Exclusive Remedy. Except as provided in Section 8(a) below,
correction of non-conformities in the manner and for the period of time
provided in Section 7(b) above shall be Distributor's exclusive remedy
and shall constitute fulfillment of all liabilities of Manufacturer, its
Affiliates and their subcontractors (including any liability for direct,
indirect, special, incidental or consequential damages), whether in
warranty, contract, tort (including, but not limited to, negligence,
failure to warn or failure to test), strict liability, or otherwise with
respect to any non-conformance of or defect or deficiency in the
Product.
8. Indemnifications and Insurance
(a) Indemnification of Distributor. Manufacturer shall
indemnify and hold Distributor and its Affiliates, directors, officers
and employees harmless from and against any and all loss, liability,
damage, expense and cost (including, without limitation, reasonable
attorney s fees and other costs of defense) arising out of legally
justified claims under Section 7, section 12, item 12(k) or from a third
party in respect of personal injuries to customers or users to the
extent caused by a defective Product, excluding, however, all such
losses, liabilities, damages, expenses and costs to the extent caused by
any act or omission of Distributor, its Affiliates or sub-distributors
or any failure by them to comply with their obligations under this
Agreement.
(b) Indemnification of Manufacturer. Distributor shall
indemnify and hold Manufacturer and its Affiliates, directors, officers
and employees harmless from and against any and all loss, liability,
damage, expense and cost (including without limitation, reasonable
attorney s fees and other costs of defense) to the extent arising out of
legally justified claims from a third party related to the Product
caused by any act or omission of Distributor, its Affiliates or sub-
distributors or any failure by them to comply with their obligations
under this Agreement.
(c) Defense of Actions. Each party indemnified hereunder (an
Indemnified Party ) will give the Indemnifying Party written notice of
any action or proceeding relating to any claim or loss for which
Indemnity is sought hereunder within ten (10) business days after any
such Indemnified Party shall have had actual notice thereof and the
Indemnifying Party, at its option, shall be entitled to participation in
or direct the defense or settlement of such action; provided the
Indemnifying Party employs counsel reasonably acceptable to the
Indemnified Party. The Indemnifying Party shall not be liable to the
Indemnified Party in respect of settlements effected by the Indemnified
Party without the written consent of the Indemnifying Party. In the
event that any Indemnifying Party shall undertake to compromise or
defend any action or proceeding, it shall promptly notify the
Indemnified Party of its intention to do so and the Indemnified Party
agrees to cooperate fully with the Indemnifying Party and its counsel in
any such compromise or defense.
<PAGE>
(d) Insurances. The parties represent that they have and shall
maintain during the term hereof, and for three (3) years thereafter,
financial reserves and insurance with policy limits and coverage
reasonably adequate to cover all perils customarily protected against in
performing their respective obligations hereunder. Each party agrees to
provide the other party with a certificate of insurance upon the request
of the other party.
(e) Limitation of Liability. IN NO EVENT SHALL ANY PARTY OR ITS
AFFILIATES BE LIABLE TO THE OTHER PARTY FOR SPECIAL INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT
(INCLUDING, BUT NOT LIMITED TO NEGLIGENCE, FAILURE TO WARN OR FAILURE TO
TEST), STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO,
LOSS OF PROFITS OR REVENUE, LOSS OF USE OF THE PRODUCT, DELAY OR CLAIMS
OF CUSTOMERS OF DISTRIBUTOR OR OTHER USERS OF THE PRODUCT.
9. Term and Termination
(a) Upon the occurrence of a material breach or default as to
any obligation hereunder by either party and the failure of the
breaching party to promptly pursue (within thirty (30) days after
receiving written notice thereof from the non-breaching party) a
reasonable remedy designed to cure (in the reasonable judgment of the
non-breaching party) such material breach or default, this Agreement may
be terminated by the non-breaching party by giving written notice of
termination to the breaching party, such termination being immediately
effective upon the giving of such notice of termination.
(b) Upon the filing of a petition in bankruptcy, insolvency or
reorganization against or by either party, or either party becoming
subject to a composition for creditors, whether by law or agreement, or
either party going into receivership or otherwise becoming insolvent
(such party hereinafter referred to as the insolvent party ), this
Agreement may be terminated by the other party by giving written notice
of termination to the insolvent party, such termination being
immediately effective upon the giving of such notice of termination.
(c) The term of this Agreement shall begin on the Effective
Date. Unless terminated earlier pursuant to the terms of Sections 9(a)
or 9(b) above, the term of this Agreement shall expire on the fifth
anniversary of the Effective Date.
(d) In the event of a termination pursuant to either of Sections
9(a) or 9(b) above or upon expiration of this Agreement pursuant to
Section 9(c) above, neither party shall have any obligation to the
terminated party, or to any employee of the terminated party, for
compensation or for damages of any kind, whether on account of the loss
by the terminated party or such employee of present or prospective
sales, investments, compensation or goodwill or otherwise, provided,
however, that this Section 9(d) is without prejudice to any rights the
terminated party may have in case of breach of this Agreement by the
terminating party. The terminated party, for itself and on behalf of
each of its employees, hereby waives any rights which may be granted to
it or them under the laws and regulations of the Territory or otherwise
which are not granted to it or them by this Agreement. The terminated
party hereby indemnifies and holds the terminating party harmless from
and against any and all claims, costs, damages and liabilities
<PAGE>
whatsoever asserted by any employee, agent or representative of the
terminated party under any applicable termination, labor, social
security or other similar laws or regulations.
(e) Termination of this Agreement shall not affect the
obligation of Distributor to pay Manufacturer all amounts owing or to
become owing or to become owing as a result of Products delivered by
Manufacturer to the common carrier on or before the date of such
termination, as well as interest thereon to the extent any such amounts
are paid after the date they became or will become due pursuant to this
Agreement.
(f) Notwithstanding anything else in this Agreement to the
contrary, the parties agree that Section 7, 8, 9(d) and (e), 10, 11 and
12 shall survive the termination or expiration of this Agreement, as the
case may be.
10. Publicity
Distributor agrees that any publicity or advertising which shall
be released by it in which Manufacturer is identified in connection with
the Products shall be in accordance with the terms of this Agreement and
with any information or data which Manufacturer has furnished in
connection with this Agreement. Copies of all such publicity and
advertising shall be forwarded promptly to Manufacturer.
11. Confidentiality Maintained
(a) Each party agrees that the other party has a proprietary
interest in any information provided by the other party, whether in
connection with this Agreement or otherwise, whether in written or oral
form, which is (i) a trade secret, confidential or proprietary
information, (ii) not publicly known, and (iii) annotated by a legend,
stamp or other written identification as confidential or proprietary
information (hereinafter referred to as Proprietary Information ).
Each party shall disclose the Proprietary Information provided by the
other party only to those of its agents and employees to whom it is
necessary in order to properly carry out their duties as limited by the
terms and conditions hereof. Both during and after the term of this
Agreement, all disclosures by the party receiving Proprietary
Information to its agents and employees shall be held in strict
confidence by such agents and employees. During and after the term of
this Agreement, such receiving party, its agents and employees shall not
use the Proprietary Information for any purpose other than in connection
with discharging its duties in the Territory pursuant to this Agreement.
The receiving party shall, at its expense, return to the disclosing
party the Proprietary Information provided by such disclosing party as
soon as practicable after the termination or expiration of this
Agreement. During the term of this Agreement and thereafter, all such
Proprietary Information shall remain the exclusive property of the party
which provided it. This Section 11 shall also apply to any consultants
or subcontractors that the receiving party may engage in connection with
its obligations under this Agreement.
<PAGE>
(b) Notwithstanding anything contained in this Agreement to the
contrary, each party shall not be liable for a disclosure of the
Proprietary Information of the other party if the information so
disclosed: (i) was in the public domain at the time of disclosure
without breach of this Agreement; or (ii) was known to or contained in
the records of receiving party from a source other than providing party
at the time of disclosure by providing party to receiving party and can
be so demonstrated; or (iii) was independently developed and is so
demonstrated promptly upon receipt of the documentation and technology
by receiving party; or (iv) becomes known to the receiving party from a
source other than providing party without breach of this Agreement by
receiving party and can be so demonstrated; or (v) was disclosed
pursuant to court order or as otherwise compelled by law.
12. Miscellaneous
(a) No modification or change may be made in this Agreement
except by written instrument duly signed by each party.
(b) This Agreement and the rights and obligations hereunder may
not be assigned, delegated or transferred by either party without the
prior written consent of the other party; provided, however, that the
other party s consent shall not be required with respect to any
assignment, delegation or transfer by a party to any affiliate of such
party. To the extent permitted by this Agreement, this Agreement shall
inure to the benefit of the permitted successors and assigns of both
parties.
(c) All notices given under this Agreement shall be in writing
and shall be addressed to the parties at their respective addresses set
forth above. Either party may change its address for purposes of this
Agreement by giving the other party written notice of its new address.
Any such notice if given or made by registered or recorded delivery
letter shall be deemed to have been received on the earlier of the date
actually received and the date three (3) calendar days after the same
was posted (and in proving such it shall be sufficient to prove that the
envelope containing the same was properly addressed and posted as
aforesaid) and if given or made by telecopy transmission shall be deemed
to have been received at the time of dispatch, unless such date of
deemed receipt is not a Business Day, in which case the date of deemed
receipt shall be the next such succeeding Business Day.
(d) None of the conditions or provisions of this Agreement shall
be held to have been waived by any act or knowledge on the part of
either party, except by an instrument in writing signed by a duly
authorized officer or representative of such party. Further, the waiver
by either party of any right hereunder or the failure to enforce at any
time any of the provisions of this Agreement, or any rights with respect
thereto, shall not be deemed to be a waiver of any other rights
hereunder or any breach or failure of performance of the other party.
<PAGE>
(e) This Agreement shall be construed and governed according to
the laws of Massachusetts applicable to contracts made and to be fully
performed therein, excluding (i) the United Nations Convention on
Contracts for the International Sale of Goods; (ii) the 1974 Convention
on the Limitation Period in the International Sale of Goods (the 1974
Convention ), and (iii) the Protocol amending the 1974 Convention, done
at Vienna, April 11, 1980.
(f) Any dispute, controversy or claim arising out of or relating
to this Agreement or to a breach hereof, including its interpretation,
performance or termination, shall be finally resolved by arbitration.
The arbitration shall be conducted by three (3) arbitrators, one to be
appointed by Manufacturer, one to be appointed by Distributor and a
third being nominated by the two arbitrators so selected or, if they
cannot agree on a third arbitrator, by the American Arbitration
Association; provided, however, in the event any such dispute,
controversy or claim involves a claim of damages for $100,000 or less,
the arbitration shall be conducted by one (1) arbitrator appointed by
Manufacturer and Distributor or, if they cannot agree on an arbitrator,
by the American Arbitration Association. The arbitration shall be
conducted in English and in accordance with the rules of the American
Arbitration Association, which shall administer the arbitration and act
as appointing authority. The arbitration, including the rendering of
the award, shall take place in Denver, Colorado and shall be the
exclusive forum for resolving such dispute, controversy or claim. The
decision of the arbitrators shall be binding upon the parties hereto,
and the expense of the arbitration (including without limitation the
award of attorneys fees to the prevailing party) shall be paid as the
arbitrators determine. The decision of the arbitrators shall be
executory, and judgment thereon may be entered by any court of competent
jurisdiction. Not withstanding anything contained in this Section 12(g)
to the contrary, each party shall have the right to institute judicial
proceedings against the other party or anyone acting by, through or
under such other party, in order to enforce the instituting party s
rights hereunder through reformation of contract, specific performance,
injunction or similar equitable relief.
(g) No rights or licenses with respect to the Products or the
Trademarks are granted or deemed granted hereunder or in connection
herewith, other than those rights expressly granted in this Agreement.
(h) Taxes, now or hereafter imposed with respect to the
transactions contemplated hereunder (with the exception of income taxes
or other taxes imposed upon Manufacturer and measured by the gross or
net income of Manufacturer) shall be the responsibility of Distributor,
and if paid or required to be paid by Manufacturer, the amount thereof
shall be added to and become a part of the amounts payable by
Distributor hereunder.
(i) Distributor may not customize, modify or have customized or
modified any Product unless it obtains the prior written consent of
Manufacturer, which consent may be withheld in the sole discretion of
Manufacturer. Any unauthorized customizing or modification of any
Product by Distributor or any third party shall relieve Manufacturer
from any obligation it would otherwise have had with respect to such
Product under the warranties described.
<PAGE>
(j) Neither Manufacturer nor Distributor shall be liable in
damages, or shall be subject to termination of this Agreement by the
other party, for any delay or default in performing any obligation
hereunder (other than a payment obligation) if that delay or default is
due to any cause beyond the reasonable control and without fault or
negligence of that party; provided that, in order to excuse its delay or
default hereunder, a party shall notify the other of the occurrence or
the cause, specifying the nature and particulars thereof and the
expected duration thereof; and provided, further, that within fifteen
(15) calendar days after the termination of such occurrence or cause,
such party shall give notice to the other party specifying the date of
termination thereof. All obligations of both parties shall return to
being in full force and effect upon the termination of such occurrence
or cause. For the purposes of this 12(i) a cause beyond the reasonable
control of a party shall include, without limiting the generality of
the phrase, any act of God, act of any government or other authority or
statutory undertaking, industrial dispute, fire, explosion, accident,
power failure, flood, riot or war (declared or undeclared).
(k) Each of Distributor and Manufacturer convenants that all of
its activities under or pursuant to this Agreement shall comply with all
applicable laws, rules and regulations, and neither is a party to any
agreement which would prevent the sale or purchase of the Products.
(l) If any provision of this Agreement is declared invalid or
unenforceable by a court having competent jurisdiction, it is mutually
agreed that this Agreement shall endure except for the part declared
invalid or unenforceable by order of such court. The parties shall
consult and use their best efforts to agree upon a valid and enforceable
provision which shall be a reasonable substitute for such invalid or
unenforceable provision in light of the intent of this Agreement.
(m) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
(n) For the purposes of this Agreement, affiliates shall mean
all companies, natural persons, partnerships and other business entities
controlled by, under common control with or controlling either party to
this Agreement.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement.
CARRINGTON LABORATORIES, INC., as Distributor
By
Name: Dr. Carlton E. Turner
Title: President & CEO
POLYMEDICA INDUSTRIES INC., as Manufacturer
By
Name:
Title:
<PAGE>
EXHIBIT A
POLYMEDICA
Product Purchase Specification
General Description:
The Product is a breathable, absorptive, self-adhesive dressing.
The Product has hydrophilic properties and is designed to manage
wound exudate by a combination of its absorption and evaporative
properties.
The dressings are constructed of three layers:
1) Layer one, a non-transparent pigmented (tan
coloration), hydrophilic polyurethane film;
2) Layer two, a hydrophilic, asymmetric, microporous,
open-cell polyurethane membrane; and
3) Layer three, a porous, acrylic, copolymer, pressure
sensitive adhesive.
The dressing is supplied on a release paper which is cut to
provide an easy peel facility (crack and peel). The dressing is
packaged in individual pouches. Pouched dressings are packaged
with an Instructions for Use leaflet in a carton. The dressings
packed in pouches, and cartons are gamma irradiated to produce
sterile product.
Product Properties:
Mechanical Properties:
Tensile Strength: >= 0.1 Kg/mm(2)
% Elongation: >= 100%
Moisture Vapor Transport Rate (MVTR):
Upright >= 1100 g/m(2)/24 hrs.
Ratio Inverted/Upright:
>= 2.0 g/m(2)/24 hrs.
Lot Code: To be a minimum of 1/8" high on pouch. All
letters and numerals must be legible
individually.
Expiration Date: Present and legible on pouch and carton.
Pouch Seal: Is complete and not over Product.
<PAGE>
EXHIBIT A
POLYMEDICA
Product Purchase Specification
(Continued)
Sterility:
Packaged product is sterilized by gamma irradiation with a minimum
dose of 2.5 Mrads (25 Kgys) for a Sterility Assurance Level of 6-
10 . Validation and release criteria to be those set forth in
the current Guideline for Gamma Radiation Sterilization :
Association for the Advancement of Medical Instrumentation (AAMI).
Indications For Use:
The Product is intended for use in the management of:
Venous stasis ulcers Partial-thickness wounds
Diabetic ulcers Superficial burns
Pressure sores Abrasions and
lacerations
Donor sites Full-thickness wounds
The Product is not indicated for third degree burns.
Product Dating:
Product packaging is individually stamped with an expiry code
which is 3 years from the date of manufacture.
Product Labeling:
Examples of initially designated labeling from Distributor is
attached.
<PAGE>
EXHIBIT B
POLYMEDICA
Product Pricing
Nominal Size Price (eaches)
------------ --------------
2" x 3" $ 0.71
4" x 4" $ 1.11
6" x 8" $ 3.85
All prices FOB, Golden, Colorado, USA
<PAGE>
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of this
day of , 1996, by and between CARRINGTON
LABORATORIES, INC., a Texas corporation hereinafter referred to as
("Carrington"), and GAMIDA-MEDEQUIP LTD., an Israeli corporation
hereinafter referred to as ("GME").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of developing,
manufacturing, selling and distributing certain pharmaceutical products
and medical devices and is desirous of establishing a competent and
exclusive distribution source for sales of such products in Israel and
South Africa (defined in Article 1 hereof as the Territory); and
WHEREAS, GME is desirous of distributing such products in the
Territory, represents that it has experience in obtaining registration
of pharmaceutical preparations or products and medical devices in the
Territory, is well introduced on the market, is willing and able to
provide a competent distribution organization in the Territory, and GME
desires to be Carrington's sales distributor for such products in the
Territory;
NOW, THEREFORE, the Parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have
the meanings specified in this Article 1.1:
(a) "Products" shall mean the wound and skin care products
manufactured by or for Carrington set forth on Exhibit A
hereto. Carrington will provide a ninety (90) day notice
to GME on its intent to add or discontinue Products to
Exhibit A.
(b) "Territory" shall mean the following countries: Israel
(including Israeli-administered territories and the areas
of Palestinian authority).
(c) "Parties" shall mean Carrington and GME and Party shall
mean either of them as the context indicates.
(d) "Know-how" shall mean secret and substantial technical and
scientific information regarding the Products, which may be
necessary, useful or advisable to enable GME to obtain the
<PAGE>
Registration of, promote, market and sell the Products in
the Territory, and as is or will be specified in the
documentation which Carrington has delivered or will
deliver to GME after execution of this Agreement.
(e) "Registration" shall mean any official approval, or
authorization, or licensing regarding the Products by the
appropriate and competent authorities in the Territory,
including, if applicable, the Products selling prices and
social security approvals, allowing the lawful marketing of
the Products.
(f) "Trademarks" shall mean all Trademarks, trade names,
service marks, logos and derivatives thereof relating to
the Products.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints GME as Carrington's sales distributor in the
Territory for the sale of Products, and GME hereby accepts such
appointment. As sales distributor in the Territory, GME shall, subject
to the terms and conditions of this Agreement, have the right to obtain
the Registration of, promote, distribute and sell Products in the
Territory, but shall have no right to take any such action outside the
Territory. During the term of this Agreement, Carrington undertakes to
appoint no other sales distributor for the Products in the Territory,
nor itself to sell the Products in the Territory other than through
GME.
2.2 In a manner reasonably satisfactory to Carrington, and at
GME's sole expense, GME agrees to (a) make and maintain all
declarations, filings, and Registrations with, and obtain all approvals
and authorizations from, governmental and regulatory authorities
required to be made or obtained in connection with the promotion,
marketing, sale or distribution of the Products in the Territory, (b)
devote its best efforts to the diligent promotion, marketing, sale and
distribution of the Products in the Territory, (c) provide and maintain
a competent and aggressive organization for the promotion, marketing,
sale and distribution of the Products in the Territory, (d) assure
competent and prompt handling of inquiries, orders, shipments, billings
and collections, and returns of or with respect to the Products and
careful attention to customers requirements for all Products, and (e)
promptly assign back to Carrington any product Registrations in the
Territory upon termination of Agreement.
2.3 During the term of this Agreement, GME shall be considered
an independent contractor and shall not be considered a partner,
employee, agent or servant of Carrington. As such, GME has no
authority of any nature whatsoever to bind Carrington or incur any
liability for or on behalf of Carrington or to represent itself as
anything other than a sales distributor and independent contractor. GME
agrees to make clear in all dealings with customers or prospective
customers that it is acting as a distributor of the Products and not as
an agent of Carrington.
<PAGE>
2.4 Nothing in this Agreement shall be construed as giving GME
any right to use or otherwise deal with the Know-how for purposes other
than those expressly provided for in this Agreement.
2.5 GME shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention.
Carrington shall have sole and absolute discretion to take such action
as it deems appropriate and shall reimburse GME for any costs or
expenses pre-approved or authorized by Carrington which GME incurs in
protecting or defending the Know-how, unless such misappropriation of
Know-how was caused in whole or part by GME.
2.6 All costs and expenses connected with GME s activities or
performance under this Agreement are to be borne solely by GME.
Article 3. Certain Performance Requirements
3.1 GME agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the Territory
for ultimate use within the Territory. GME will not, under any
circumstances, either directly or indirectly through third Parties,
promote, market, sell, or distribute Products within or to, or for
ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that GME is in compliance
with Article 3.1, GME agrees that upon written request:
(a) GME will send to Carrington a quarterly sales report (not
more than once quarterly) which sets forth the number of
units and sizes of each Product sold, as well as net sales;
and
(b) Carrington may mark for identification all Products sold by
Carrington to GME hereunder.
3.3 GME shall promptly provide Carrington with written reports
of any importation or sale of any of the Products in the Territory of
which GME has knowledge from any source other than Carrington, as well
as with any other information which Carrington may reasonably request
in order to be updated on the market conditions in the Territory.
3.4 GME shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market segments.
GME shall maintain all its inventory of Products clearly segregated and
meeting all storage and other standards required by applicable
governmental authorities. All such inventory and GME's facilities
shall be subject to inspection by Carrington or its agents upon 72
hours written notice.
3.5 GME shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by GME of Products. Upon written
request from GME, Carrington shall provide GME with such certificates
or other documents as may be reasonably required to establish any
applicable exemptions from the collection of such taxes, charges and
fees.
<PAGE>
3.6 All Products shall be packaged and delivered by Carrington
to GME. All Products shall be labeled, advertised, marketed, sold and
distributed by GME in compliance with the rules and regulations, as
amended from time to time, of (i) all applicable governmental
authorities within the Territory in which the Products are marketed,
and (ii) all other applicable laws, rules and regulations. GME shall
pay all expenses associated with (i) any alterations to the packaging
and labeling of the Products which deviate from Carrington's standard
packaging materials, designs, methods and/or procedures, (ii) any
language modifications to the packaging or labeling and/or (iii) any
additions to inserts in the general packaging. The Parties shall agree
on minimum production runs for such custom labels.
3.7 GME shall not make any alterations or permit any
alterations to be made to the Products without Carrington's written
consent.
3.8 GME shall assume all responsibility for its compliance with
all applicable laws, regulations and requirements concerning the
Registration, inventory, use, promotion, distribution and sale of the
Products in the Territory and correspondingly for any damage, claim,
liability, loss or expense which Carrington may suffer or incur by
reason of GME's non-compliance with such applicable laws, regulations
and requirements concerning said Registration, inventory, use,
promotion, distribution and sale and shall hold Carrington harmless
from any claim resulting therefrom being directed against Carrington or
GME by any third party.
3.9 GME agrees not to make, or permit any of its employees,
agents or representatives to make, any claims of any properties or
results relating to any Product, unless such claims have received
written approval from Carrington or from the applicable governmental
authorities.
3.10 GME shall not use any label, advertisement or marketing
material on or with respect to or relating to any Product unless such
label, advertisement or marketing material has first been submitted to
and approved by Carrington in writing.
3.11 GME will actively and aggressively promote, develop demand
for and maximize the sale of the Products to all customers and
potential customers within the Territory. GME agrees not to
manufacture, promote, market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to and approval from Carrington, any competitive wound care,
skin care, oral care or incontinence care product which is competitive
with any Product listed on Exhibit A at such time.
3.12 GME represents that its books, records and accounts
pertaining to all its operations hereunder are complete and accurate in
all material respects and have been maintained in accordance with sound
and generally accepted accounting principles.
<PAGE>
Article 4 Registration of Products
4.1 It being understood that Registration is a prerequisite to
the lawful sale of the Products in the Territory, Carrington hereby
agrees to supply GME, promptly after the execution of this Agreement,
with any Know-how or relevant documentation necessary for preparing the
Registration dossier to be submitted to the applicable governmental
authorities of the Territory.
4.2 It shall be the responsibility of GME, at its sole expense
to apply for, obtain and maintain in force the Registration of the
Products. Subject to having obtained the prior approval of Carrington,
the application shall be submitted to all applicable governmental
authorities, including the health authorities of the Territory and
shall be in the name of Carrington, with GME being named as Products
distributor in the Territory. GME expressly acknowledges and agrees
that the absolute and exclusive ownership of the Registration and all
rights originating out of or from the same shall at all times belong
only and exclusively to Carrington.
4.3 As soon as GME has received Know-how from Carrington, GME
shall prepare, at its sole expense, the Registration dossier and
submission and any translation which may be required by the applicable
authorities of the Territory. GME shall promptly supply Carrington
with a copy of the said Registration dossier and submission and
Carrington shall be entitled to a free and unrestrained use of the
same.
4.4 Subject to having obtained Carrington's written approval of
all such documentation and any subsequent amendments thereto, GME
shall, as soon as possible and in any case within sixty (60) days of
Carrington's approval, submit the Registration application to the
appropriate authorities of the Territory.
4.5 GME shall use its best endeavors to obtain the Registration
within six (6) months from the relevant submission. GME shall notify
Carrington in writing at least 3 (three) months before the expiration
of said term of any need for an extension in time to obtain
Registration. The notification shall specify the duration of, and the
reason for, any proposed extension. Carrington shall consider any such
request, evaluating the objective situation and GME's fulfilment of its
obligations in this respect. It is, however, understood that GME's
dead-line to obtain Registration is one year from the date of filing.
4.6 GME shall copy and keep Carrington fully and timely
informed, throughout the term of this Agreement, of all communications
sent to or received from all applicable governmental authorities,
including the health authorities, of the Territory concerning the
Products.
4.7 Carrington makes no warranty that the supplied Know-how
will necessarily result in the grant of the Registration and GME shall
have no claim against Carrington arising out of any delay or refusal by
the authorities to issue the Registration.
<PAGE>
Article 5. Sale of Products by Carrington to GME
5.1 Subject to the terms and conditions of this Agreement,
including specifically Article 5.7 hereof, Carrington shall sell to GME
the Products at a specified price for each Product (the "Contract
Price"). For orders placed by GME during the first 12-month period of
the term of this Agreement, the Contract Prices for the Products listed
on Exhibit A are set forth on such exhibit opposite each Product. At
least ninety (90) days prior to the end of each 12-month period of the
term of this Agreement, (a) GME shall provide in writing to Carrington
both a sales forecast and a purchase forecast for the following 12-
month period, and (b) the Parties shall commence good faith
negotiations to determine and agree upon the Contract Prices for
Products for the next 12-month period of the term.
5.2 As consideration for its appointment as a sales distributor
entitled to a Product discount, GME agrees to purchase from Carrington,
during each 12-month period of the term of this Agreement, commencing
with the 12-month period beginning _________, 19__ through ___________,
19__, at the Contract Price, a specified minimum aggregate dollar
amount (based on the Contract Price) of the Products (the "Specified
Minimum Purchase Amount"). The first 12-month period of the term of
this Agreement shall be considered a benchmark year and there shall be
no Specified Minimum Purchase Amount, but rather a sales target of
$________.00. The Specified Minimum Purchase Amounts for each
subsequent 12-month period shall be determined by mutual agreement of
the Parties no later than thirty (30) days prior to the beginning of
such period based on GME's reasonable, good faith projections of future
sales growth and such other factors as the Parties may deem relevant.
5.3 GME shall order Products by submitting a purchase order to
Carrington describing the type and quantity of the Products to be
purchased. All orders are subject to acceptance by Carrington. All
purchases shall be spaced in a reasonable manner. If Carrington
accepts the order, Carrington will invoice GME upon shipment of the
Products. Unless otherwise agreed, GME shall pay all invoices in full
within ninety (90) days of the date of invoice. GME shall be solely
responsible for all costs in connection with affecting payments. All
sales and payments shall be made, and all orders shall be accepted, in
the State of Texas.
5.4 Carrington shall not be obligated to ship Products to GME
at any time when payment of an amount owed by GME is overdue or when
GME is otherwise in breach of this Agreement.
5.5 All shipments will be initiated by a Purchase Order.
Product shipment dates will be specified in the Purchase Order. These
dates may not be scheduled prior to ninety (90) days after the date the
Purchase Order is received and acknowledged in writing by Carrington,
unless by mutual consent of the Parties. Purchase Orders will be non-
cancelable. GME will issue to Carrington on a quarterly basis, a twelve
(12) month rolling forecast so that Carrington may incorporate said
forecasts into its planning system. The triggering document for
production activities is, however, the Purchase Order, as stated above.
Carrington will guarantee delivery dates for product quantities that
vary up to 20% above the last quarterly rolling forecast issued prior
to the Purchase Order placed by GME. Variation above 20% shall be
discussed between the Parties and Carrington will use its best efforts
to maintain delivery dates requested by GME.
<PAGE>
5.6 All shipments of Products to GME will be packaged in
accordance with Carrington's standard packaging procedures and shipped
per Carrington s existing distribution policy. All Contract Prices are
F.O.B., (invoice price includes seller's expense for delivery to the
named destination) Carrington's facility, Irving, Texas. Ownership of
and title to Products and all risks of loss with respect thereto shall
pass to GME upon delivery of such Products by Carrington to the carrier
at the designated delivery (F.O.B.) point. Deliveries of Products
shall be made by Carrington under normal trade conditions in the usual
and customary manner being utilized by Carrington at the time and
location of the particular delivery.
5.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by GME under this Agreement.
However, if necessary in the best judgment of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including GME, on such basis as it
shall deem reasonable, practicable and equitable, without liability for
any failure of performance or lost sales which may result from such
allocations.
5.8a Carrington accepts liability for defective products and
agrees to replace such defective Products should they occur with new
Products. Except as may be expressly stated by Carrington on the
Product or on Carrington's packaging, or in Carrington's information
accompanying the Product, at the time of shipment to GME hereunder,
CARRINGTON MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH
RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
CARRINGTON NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY
OBLIGATION OR LIABILITY IN CONNECTION WITH THE PRODUCTS. GME shall not
make any representation or warranty with respect to the Products that
is more extensive than, or inconsistent with, the limited warranty set
forth in this Article 5.8 or that is inconsistent with the policies or
publications of Carrington relating to the Products.
GME'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS
THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
GME'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY
FOR DAMAGES TO GME OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT NOT
LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS, DAMAGE
OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, LOSS OF
USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
5.8b Carrington shall indemnify, defend and hold GME and GME's
officers, directors and employees harmless from and against any
liability, losses, damages, costs and expenses (including reasonable
attorney s fees and disbursements) arising out of or with respect to:
(i) any third party claims, actions or suits alleging product
liability; or
(ii) any claims, actions or suits alleging that the Products or
Trademarks infringe the intellectual property rights or other
proprietary rights of any third party.
<PAGE>
5.8c GME shall indemnify, defend and hold Carrington and
Carrington s officers, directors and employees harmless from and
against any liability, losses, damages, costs and expenses (including
reasonable attorney s fees and disbursements) arising out of or with
respect to any third party claims, actions or suits due to the
following acts or omissions by GME, its agents, servants or employees:
(i) any alterations or mishandling (subsequent to delivery by
Carrington) of the Products;
(ii) any unauthorized claims regarding the Products, including,
but not limited to, misrepresentations of any aspect, element,
component or result of use of the Products;
(iii) any misuse or unauthorized use of the Trademarks or Know-
how; or
(iv) any breach by GME of any of its representations,
warranties, or covenants under this agreement.
5.8d EACH PARTY S INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
ARTICLE 5.8 SHALL NOT APPLY TO THE EXTENT THAT THE ACT OR OMISSIONS
CONTAINED THEREIN ARE ATTRIBUTED TO OR CAUSED BY THE OTHER PARTY,
WHETHER INTENTIONALLY OR NEGLIGENTLY.
5.9 Credits for defective Products to GME shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Price of the items returned, whether
identified by lot number or another method. Carrington shall provide
GME with a copy of its liability Insurance Certificate and shall
include GME thereunder.
Article 6. Term and Termination
6.1 The term of this Agreement shall be for a period of five
years from the effective date of this Agreement. After such term, this
Agreement shall be automatically renewed for successive periods of five
(5) years each unless or until either Party terminates this Agreement
pursuant to the termination provisions set forth herein, or by giving
notice of termination to the other Party on the last day of any period,
providing at least 365 days prior notice to such effect.
Notwithstanding the foregoing, this Agreement may be terminated earlier
in accordance with the provisions of this Article 6 or as expressly
provided elsewhere in this Agreement.
6.2a Carrington shall have the absolute right to terminate this
Agreement if GME fails to perform or breaches, in any material respect,
any of the terms or provisions of this Agreement and fails to rectify
such non-performance or breach within ninety (90) days (or, in the case
of a financial breach, thirty (30) days) of receipt of a written demand
from Carrington. Without limiting the events which shall be deemed to
constitute a breach or material breach of this Agreement by GME, GME
understands and agrees that it shall be in material breach of this
Agreement, and Carrington shall have the right to terminate this
Agreement under this Article 6.2, if:
<PAGE>
(i) GME fails or refuses to pay to Carrington any sum
when due; or
(ii) GME breaches any provision of Article 2.2, 3.4, 4,
5.3, 5.8a, 7 or 8.
6.2b In the event GME fails to purchase the Specified Minimum
Purchase Amount of Product for any given period for a particular
Territory and Carrington provides a written notice of breach of such
performance, and breach of such performance is not remedied within
sixty (60) days, then Carrington shall have the absolute right to
remove that particular Territory from the Agreement and terminate the
Agreement with regard to same Territory.
6.3 Each Party shall have the absolute right to terminate this
Agreement in the event the other Party shall become insolvent, or if
there is instituted by or against the other Party procedures in
bankruptcy, or under insolvency laws or for reorganization,
receivership or dissolution, or if the other Party loses any franchise
or license to operate its business as presently conducted in any part
of the Territory.
6.4 This Agreement shall automatically terminate effective at
the end of any 12-month period of the term of this Agreement referred
to in Articles 5.1 and 5.2 hereof if the Parties are unable to agree
upon the Contract Prices or the Specified Minimum Amounts for the next
12-month period of the term.
6.5 During the one-year period following termination of this
Agreement, any inventory of Products held by GME at the termination of
this Agreement may be sold by GME to customers in the Territory in the
ordinary course; provided, however, that for the period required to
liquidate such inventory, all of the provisions contained herein
governing GME's performance obligations and Carrington's rights shall
remain in effect. In order to accelerate the liquidation of any such
inventory, Carrington shall have the option, but not the obligation, to
purchase all or any part of such remaining inventory at the price at
which the inventory was originally sold by Carrington to GME, including
importation and shipping.
6.6 The termination of this Agreement shall not impair the
rights or obligations of either Party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 5.8,
6.5, 7, 8 and 15 and the rights and obligations of the Parties
thereunder shall survive the termination of this Agreement for a period
of three (3) years.
<PAGE>
Article 7. Trademarks
7.1 All Carrington Trademarks, trade names, service marks,
logos and derivatives thereof relating to the Products (the
"Trademarks"), and all patents, technology and other intellectual
property (also known as "Know-how") relating to the Products and of the
goodwill associated therewith, are the sole and exclusive property of
Carrington and/or its affiliates. The Products shall be promoted, sold
and distributed only under the Trademarks. Carrington hereby grants
GME permission to use the Trademarks for the limited purpose of
performing its obligations under this Agreement. Carrington may, in
its sole discretion after consultation with GME, modify or discontinue
the use of any Trademark and/or use one or more additional or
substitute marks or names, and GME shall be obligated to do the same.
7.2 Carrington's Trademarks shall appear on all Product
packaging, labels, and inserts and other materials which GME uses for
the marketing of the Products in such form and manner as Carrington
shall reasonably require. Carrington retains the right to review and
approve all intended uses of the Trademark in any packaging, inserts,
labels, or promotional or other materials relating to the Products
prior to GME s actual use thereof.
7.3 It shall be the sole responsibility of Carrington, at its
sole expense, to keep in force and maintain the Trademarks in the
Territory by paying all necessary fees throughout the term of this
Agreement. GME agrees to use the Trademarks in full compliance with
the rules prescribed from time to time by Carrington. The Trademarks
shall always be used together with the sign [R] or the sign [TM]. GME
may not use any Trademark as part of any corporate name or with any
prefix, suffix or other modifying word, term, design or symbol. In
addition, GME may not use any Trademark in connection with the sale of
any unauthorized product or service or in any other manner not
explicitly authorized in writing by Carrington.
7.4 In the event of any infringement of, or threatened or
presumed infringement of, or challenge to GME's use of any Trademark or
of any GME trademark, GME is obligated to notify Carrington
immediately. GME shall investigate any alleged violation and, if
necessary, shall take the appropriate legal action to resolve the issue
and to prevent other competitors from infringing on said intellectual
property rights within the Territory. Carrington shall have sole and
absolute discretion to take such action as it deems appropriate.
7.5 In the event of the termination of this Agreement for any
reason, GME's right to use the Trademarks shall cease, and GME shall
cease using such Trademarks at such time as GME's inventory of Products
has been sold. GME shall, as soon as it is reasonably possible, remove
all Trademarks which appear on or about the premises of the office(s)
of GME and any of the advertising of GME used in connection with the
Products.
7.6 In the event of a breach or threatened breach by GME of the
provisions of this Article 7, Carrington shall be entitled to an
injunction or injunctions to prevent such breaches. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 7, including the recovery of damages from GME.
<PAGE>
7.7 Should for some reason the Trademark be prevented from
being used in any part or whole of the Territory, the Parties shall
consult as to a suitable other trademark (which trademark shall
trademark be also defined as Trademark for purposes of this
Agreement) owned by Carrington or to be transferred from GME to
Carrington for use in connection with the marketing and sale of the
Products; it being agreed, however, that Carrington retains the right
to ultimately determine what such alternative Trademark shall be used,
provided it is not confusingly similar to a Trademark owned by GME in
the Territory.
7.8 Nothing contained in this Agreement shall be construed as
giving GME the right to use the Trademark outside the Territory or for
any other product than the Products.
Article 8. Confidential Information
8.1 GME recognizes and acknowledges that GME will have access
to confidential information and trade secrets, including "Know-how", of
Carrington and other entities doing business with Carrington relating
to research, development, manufacturing, marketing, financial and other
business-related activities ("Confidential Information"). Such
Confidential Information constitutes valuable, special and unique
property of Carrington and/or other entities doing business with
Carrington. Other than as is necessary to perform the terms of this
Agreement, GME shall not, during and after the term of this Agreement,
make any use of such Confidential Information, or disclose any of such
Confidential Information to any person or firm, corporation,
association or other entity, for any reason or purpose whatsoever,
except as specifically allowed in writing by an authorized
representative of Carrington. In the event of a breach or threatened
breach by GME of the provisions of this Article 8, Carrington shall be
entitled to an injunction restraining GME from disclosing and/or using,
in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 8, including the recovery of damages from GME. The above does
not apply to information or material that was known to the public or
generally available to the public prior to the date it was received by
GME.
8.2 GME shall not disclose any of the terms of this Agreement
without the prior written consent of Carrington.
Article 9. Force Majeure
9.1 Neither GME nor Carrington shall have any liability
hereunder if either is 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 neither GME's nor Carrington's obligations, so
far as may be necessary, shall be suspended during the period of such
<PAGE>
Force Majeure nor shall either Party s obligations be cancelled with
respect to such Products as would have been sold hereunder but for such
suspension. Such affected Party shall give to the other Party 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 both Party's
obligations under this Agreement. Should the Force Majeure continue
for more than six (6) months, then the other Party shall have the right
to cancel this Agreement and the Parties shall seek an equitable
agreement on the Parties rights and remedies.
9.2 The Parties agree that any obligation to pay money is never
excused by Force Majeure.
Article 10. Amendment
10.1 No oral explanation or oral information by either Party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall
be binding on either Party hereto unless reduced to writing and
executed by the duly authorized representative of each Party.
Article 11. Entire Agreement
11.1 This Agreement represents the entire Agreement between the
Parties and shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or
in writing and whether explicit or implicit, which may have been
entered into prior to the execution hereof between the Parties, their
officers, directors or employees as to the subject matter hereof.
Neither of the Parties hereto has relied upon any oral representation
or oral information given to it by any representative of the other
Party.
11.2 Should any provision of this Agreement be rendered invalid
or unenforceable, this shall not affect the validity or enforceability
of the remainder.
Article 12. Assignment
12.1 Neither this Agreement nor any of the rights or obligations
of GME hereunder shall be transferred or assigned by GME without the
prior written consent of Carrington, executed by a duly authorized
officer of Carrington, except that GME by notice in writing to
Carrington may delegate any or all of its rights and obligations
hereunder to one or more of its Affiliates responsible for business in
the Territory or particular countries thereof. In this Agreement, an
"Affiliate" of GME shall mean any company controlling, controlled by or
under common control with GME, "control" for the purposes hereof
meaning the holding, directly or through one or more intermediaries, of
more than fifty per cent (50%) of the voting equity share capital of or
an equivalent interest in the controlled company, or the power
otherwise to direct or cause the direction of its general policies and
management. This Agreement shall inure to the benefit of and fully
bind the permitted assigns and successors-in-interest of each of the
Parties.
<PAGE>
Article 13. Governing Law
13.1 It is expressly agreed that the validity, performance and
construction of this Agreement will be governed by the laws and
jurisdiction of Texas.
Article 14. Notices
14.1 Any notice required or permitted to be given under this
Agreement by one of the Parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial courier
services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038; Attention: President, or
at such other address as Carrington shall have theretofore
furnished in writing to GME. (Fax No. 972-714-5009)
(b) GME at: _____________________; Attention: _______________,
or at such other address as GME shall have theretofore
furnished in writing to Carrington. (Fax No.____________).
All notices provided by mail or courier services shall also be promptly
copied by fax.
Article 15. Waiver
15.1 Neither GME's nor Carrington's failure to enforce at any
time any of the provisions of this Agreement or any right with respect
thereto, shall be considered a waiver of such provisions or rights or
in any way affect the validity of same. Neither GME's nor Carrington's
exercise of any of its rights shall preclude or prejudice either Party
thereafter from exercising the same or any other right it may have,
irrespective of any previous action by either Party.
Article 16. Arbitration
16.1 Except as expressly provided otherwise herein, any dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement, the operations carried out under this Agreement or
the relationship of the Parties created under this Agreement, shall be
exclusively and finally settled by confidential arbitration, and any
Party may submit such a dispute, controversy or claim to arbitration.
The arbitration proceeding shall be held at the location of the non-
instituting Party in the English language and shall be governed by the
rules of the International Chamber of Commerce (the "ICC") as amended
from time to time. Any procedural rule not determined under the rules
of the ICC shall be determined by the laws of England, other than those
laws that would refer the matter to another jurisdiction.
<PAGE>
A single arbitrator shall be appointed by unanimous consent
of the Parties. If the Parties cannot reach agreement on an arbitrator
within 45 days of the submission of a notice of arbitration, the
appointing authority for the implementation of such procedure shall be
the ICC, who shall appoint an independent arbitrator who does not have
any financial or conflicting interest in the dispute, controversy or
claim. If the ICC is unable to appoint, or fails to appoint, an
arbitrator within 90 days of being requested to do so, then the
arbitration shall be heard by three arbitrators, one selected by each
Party within the 30 days of being required to do so, and the third
promptly selected by the two arbitrators selected by the Parties.
The arbitrators shall announce the award and the reasons
therefor in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the Parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the Parties.
Judgment upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each Party involved
in the arbitration shall bear the expense of its own counsel, experts
and presentation of proof, and the expense of the arbitrator and the
ICC (if any) shall be divided equally among the Parties to the
arbitration.
Article 17 Interpretation
17.1 The language of this Agreement is English. No translation
into any other language shall be taken into account in the
interpretation of the Agreement itself.
17.2 The headings in this Agreement are inserted for convenience
only and shall not affect its construction.
17.3 Where appropriate, the terms defined in Article 1 and
denoting a singular number only shall include the plural and vice
versa.
17.4 References to any law, regulation, statute or statutory
provision includes a reference to the law, regulation, statute or
statutory provision as from time to time amended, extended or re-
enacted.
Article 18. Exhibits
18.1 Any and all Exhibits referred to herein shall be considered
an integral part of this Agreement.
Article 19. No Inconsistent Actions
19.1 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 Articles 5.7 and 9 hereof, will promptly perform all acts and take
all measures as may be appropriate to comply with the terms, conditions
and provisions of this Agreement.
<PAGE>
Article 20. Currency of Account
20.1 This Agreement evidences a transaction for the sale of
goods in which the specification of U.S. dollars is of the essence, and
U.S. dollars shall be the currency of account in all events. All
payments to be made by GME to Carrington hereunder shall be made either
(i) in immediately available funds by confirmed wire transfer to a bank
account to be designated by Carrington or (ii) in the form of a bank
cashier's check payable to the order of Carrington.
Article 21. Binding Effect
21.1 This Agreement shall inure to the benefit of and be binding
upon the respective successors of the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
GAMIDA-MEDEQUIP, LTD.
By:
Name:
Title:
<PAGE>
EXHIBIT A
GAMIDA-MEDEQUIP, INC.
Products & Contract Price
___________, 1996
Current
Product Price
---------------------------------------- -----------
Carrington Patch (6 patches per sleeve) $.75/sleeve
Note: Any volume discounts are based on yearly purchases which
correspond with the specified 12-month period as set forth in Article
5.1 of this Agreement.
Projected Purchases:
Israel First Year 50,000 sleeves (300,000
patches)
<PAGE>
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of this
day of , 1996, by and between CARRINGTON
LABORATORIES, INC., with offices located at 2001 Walnut Hill Lane,
Irving, Texas 75038, hereinafter referred to as ("Carrington"), and
GAMIDA FOR LIFE BV, with offices located at Marton Meeswag 51,
Rotterdam, The Netherlands, 3068 AV, hereinafter referred to as
("GBV").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of developing,
manufacturing, selling and distributing certain pharmaceutical products
and medical devices and is desirous of establishing a competent and
exclusive distribution source for sales of such products in Israel and
South Africa (defined in Article 1 hereof as the Territory); and
WHEREAS, GBV is desirous of distributing such products in the
Territory, represents that it has experience in obtaining registration
of pharmaceutical preparations or products and medical devices in the
Territory, is well introduced on the market, is willing and able to
provide a competent distribution organization in the Territory, and GBV
desires to be Carrington's sales distributor for such products in the
Territory;
NOW, THEREFORE, the Parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have
the meanings specified in this Article 1.1:
(a) "Products" shall mean the wound and skin care products
manufactured by or for Carrington set forth on Exhibit A
hereto. Carrington will provide a ninety (90) day notice
to GBV on its intent to add or discontinue Products to
Exhibit A.
(b) "Territory" shall mean the following countries: South
Africa.
(c) "Parties" shall mean Carrington and GBV and Party shall
mean either of them as the context indicates.
<PAGE>
(d) "Know-how" shall mean secret and substantial technical and
scientific information regarding the Products, which may be
necessary, useful or advisable to enable GBV to obtain the
Registration of, promote, market and sell the Products in
the Territory, and as is or will be specified in the
documentation which Carrington has delivered or will
deliver to GBV after execution of this Agreement.
(e) "Registration" shall mean any official approval, or
authorization, or licensing regarding the Products by the
appropriate and competent authorities in the Territory,
including, if applicable, the Products selling prices and
social security approvals, allowing the lawful marketing of
the Products.
(f) "Trademarks" shall mean all Trademarks, trade names,
service marks, logos and derivatives thereof relating to
the Products.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints GBV as Carrington's sales distributor in the
Territory for the sale of Products, and GBV hereby accepts such
appointment. As sales distributor in the Territory, GBV shall, subject
to the terms and conditions of this Agreement, have the right to obtain
the Registration of, promote, distribute and sell Products in the
Territory, but shall have no right to take any such action outside the
Territory. During the term of this Agreement, Carrington undertakes to
appoint no other sales distributor for the Products in the Territory,
nor itself to sell the Products in the Territory other than through
GBV.
2.2 In a manner reasonably satisfactory to Carrington, and at
GBV's sole expense, GBV agrees to (a) make and maintain all
declarations, filings, and Registrations with, and obtain all approvals
and authorizations from, governmental and regulatory authorities
required to be made or obtained in connection with the promotion,
marketing, sale or distribution of the Products in the Territory, (b)
devote its best efforts to the diligent promotion, marketing, sale and
distribution of the Products in the Territory, (c) provide and maintain
a competent and aggressive organization for the promotion, marketing,
sale and distribution of the Products in the Territory, (d) assure
competent and prompt handling of inquiries, orders, shipments, billings
and collections, and returns of or with respect to the Products and
careful attention to customers requirements for all Products, and (e)
promptly assign back to Carrington any product Registrations in the
Territory upon termination of Agreement.
2.3 During the term of this Agreement, GBV shall be considered
an independent contractor and shall not be considered a partner,
employee, agent or servant of Carrington. As such, GBV has no
authority of any nature whatsoever to bind Carrington or incur any
liability for or on behalf of Carrington or to represent itself as
anything other than a sales distributor and independent contractor. GBV
agrees to make clear in all dealings with customers or prospective
customers that it is acting as a distributor of the Products and not as
an agent of Carrington.
<PAGE>
2.4 Nothing in this Agreement shall be construed as giving GBV
any right to use or otherwise deal with the Know-how for purposes other
than those expressly provided for in this Agreement.
2.5 GBV shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention.
Carrington shall have sole and absolute discretion to take such action
as it deems appropriate and shall reimburse GBV for any costs or
expenses pre-approved or authorized by Carrington which GBV incurs in
protecting or defending the Know-how, unless such misappropriation of
Know-how was caused in whole or part by GBV.
2.6 All costs and expenses connected with GBV s activities or
performance under this Agreement are to be borne solely by GBV.
Article 3. Certain Performance Requirements
3.1 GBV agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the Territory
for ultimate use within the Territory. GBV will not, under any
circumstances, either directly or indirectly through third Parties,
promote, market, sell, or distribute Products within or to, or for
ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that GBV is in compliance
with Article 3.1, GBV agrees that upon written request:
(a) GBV will send to Carrington a quarterly sales report (not
more than once quarterly) which sets forth the number of
units and sizes of each Product sold, as well as net sales;
and
(b) Carrington may mark for identification all Products sold by
Carrington to GBV hereunder.
3.3 GBV shall promptly provide Carrington with written reports
of any importation or sale of any of the Products in the Territory of
which GBV has knowledge from any source other than Carrington, as well
as with any other information which Carrington may reasonably request
in order to be updated on the market conditions in the Territory.
3.4 GBV shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market seGBVnts.
GBV shall maintain all its inventory of Products clearly segregated and
meeting all storage and other standards required by applicable
governmental authorities. All such inventory and GBV's facilities
shall be subject to inspection by Carrington or its agents upon 72
hours written notice.
3.5 GBV shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by GBV of Products. Upon written
request from GBV, Carrington shall provide GBV with such certificates
or other documents as may be reasonably required to establish any
applicable exemptions from the collection of such taxes, charges and
fees.
<PAGE>
3.6 All Products shall be packaged and delivered by Carrington
to GBV. All Products shall be labeled, advertised, marketed, sold and
distributed by GBV in compliance with the rules and regulations, as
amended from time to time, of (i) all applicable governmental
authorities within the Territory in which the Products are marketed,
and (ii) all other applicable laws, rules and regulations. GBV shall
pay all expenses associated with (i) any alterations to the packaging
and labeling of the Products which deviate from Carrington's standard
packaging materials, designs, methods and/or procedures, (ii) any
language modifications to the packaging or labeling and/or (iii) any
additions to inserts in the general packaging. The Parties shall agree
on minimum production runs for such custom labels.
3.7 G B V shall not make any alterations or permit any
alterations to be made to the Products without Carrington's written
consent.
3.8 GBV shall assume all responsibility for its compliance with
all applicable laws, regulations and requirements concerning the
Registration, inventory, use, promotion, distribution and sale of the
Products in the Territory and correspondingly for any damage, claim,
liability, loss or expense which Carrington may suffer or incur by
reason of GBV's non-compliance with such applicable laws, regulations
a n d requirements concerning said Registration, inventory, use,
promotion, distribution and sale and shall hold Carrington harmless
from any claim resulting therefrom being directed against Carrington or
GBV by any third party.
3.9 GBV agrees not to make, or permit any of its employees,
agents or representatives to make, any claims of any properties or
results relating to any Product, unless such claims have received
written approval from Carrington or from the applicable governmental
authorities.
3.10 GBV shall not use any label, advertisement or marketing
material on or with respect to or relating to any Product unless such
label, advertisement or marketing material has first been submitted to
and approved by Carrington in writing.
3.11 GBV will actively and aggressively promote, develop demand
for and maximize the sale of the Products to all customers and
p o tential customers within the Territory. GBV agrees not to
manufacture, promote, market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to and approval from Carrington, any competitive wound care,
skin care, oral care or incontinence care product which is competitive
with any Product listed on Exhibit A at such time.
3.12 GBV represents that its books, records and accounts
pertaining to all its operations hereunder are complete and accurate in
all material respects and have been maintained in accordance with sound
and generally accepted accounting principles.
<PAGE>
Article 4 Registration of Products
4.1 It being understood that Registration is a prerequisite to
the lawful sale of the Products in the Territory, Carrington hereby
agrees to supply GBV, promptly after the execution of this Agreement,
with any Know-how or relevant documentation necessary for preparing the
Registration dossier to be submitted to the applicable governmental
authorities of the Territory.
4.2 It shall be the responsibility of GBV, at its sole expense
to apply for, obtain and maintain in force the Registration of the
Products. Subject to having obtained the prior approval of Carrington,
the application shall be submitted to all applicable governmental
authorities, including the health authorities of the Territory and
shall be in the name of Carrington, with GBV being named as Products
distributor in the Territory. GBV expressly acknowledges and agrees
that the absolute and exclusive ownership of the Registration and all
rights originating out of or from the same shall at all times belong
only and exclusively to Carrington.
4.3 As soon as GBV has received Know-how from Carrington, GBV
shall prepare, at its sole expense, the Registration dossier and
submission and any translation which may be required by the applicable
authorities of the Territory. GBV shall promptly supply Carrington
with a copy of the said Registration dossier and submission and
Carrington shall be entitled to a free and unrestrained use of the
same.
4.4 Subject to having obtained Carrington's written approval of
all such documentation and any subsequent amendments thereto, GBV
shall, as soon as possible and in any case within sixty (60) days of
Carrington s approval, submit the Registration application to the
appropriate authorities of the Territory.
4.5 GBV shall use its best endeavors to obtain the Registration
within six (6) months from the relevant submission. GBV shall notify
Carrington in writing at least 3 (three) months before the expiration
of said term of any need for an extension in time to obtain
Registration. The notification shall specify the duration of, and the
reason for, any proposed extension. Carrington shall consider any such
request, evaluating the objective situation and GBV s fulfilment of its
obligations in this respect. It is, however, understood that GBV s
dead-line to obtain Registration is one year from the date of filing.
4.6 GBV shall copy and keep Carrington fully and timely
informed, throughout the term of this Agreement, of all communications
sent to or received from all applicable governmental authorities,
including the health authorities, of the Territory concerning the
Products.
4.7 Carrington makes no warranty that the supplied Know-how
will necessarily result in the grant of the Registration and GBV shall
have no claim against Carrington arising out of any delay or refusal by
the authorities to issue the Registration.
<PAGE>
Article 5. Sale of Products by Carrington to GBV
5.1 Subject to the terms and conditions of this Agreement,
including specifically Article 5.7 hereof, Carrington shall sell to GBV
the Products at a specified price for each Product (the "Contract
Price"). For orders placed by GBV during the first 12-month period of
the term of this Agreement, the Contract Prices for the Products listed
on Exhibit A are set forth on such exhibit opposite each Product. At
least ninety (90) days prior to the end of each 12-month period of the
term of this Agreement, (a) GBV shall provide in writing to Carrington
both a sales forecast and a purchase forecast for the following 12-
m o n th period, and (b) the Parties shall commence good faith
negotiations to determine and agree upon the Contract Prices for
Products for the next 12-month period of the term.
5.2 As consideration for its appointment as a sales distributor
entitled to a Product discount, GBV agrees to purchase from Carrington,
during each 12-month period of the term of this Agreement, commencing
with the 12-month period beginning _________, 19__ through ___________,
19__, at the Contract Price, a specified minimum aggregate dollar
amount (based on the Contract Price) of the Products (the "Specified
Minimum Purchase Amount"). The first 12-month period of the term of
this Agreement shall be considered a benchmark year and there shall be
no Specified Minimum Purchase Amount, but rather a sales target of
$________.00. The Specified Minimum Purchase Amounts for each
subsequent 12-month period shall be determined by mutual agreement of
the Parties no later than thirty (30) days prior to the beginning of
such period based on GBV's reasonable, good faith projections of future
sales growth and such other factors as the Parties may deem relevant.
5.3 GBV shall order Products by submitting a purchase order to
Carrington describing the type and quantity of the Products to be
purchased. All orders are subject to acceptance by Carrington. All
purchases shall be spaced in a reasonable manner. If Carrington
accepts the order, Carrington will invoice GBV upon shipment of the
Products. Unless otherwise agreed, GBV shall pay all invoices in full
within ninety (90) days of the date of invoice. GBV shall be solely
responsible for all costs in connection with affecting payments. All
sales and payments shall be made, and all orders shall be accepted, in
the State of Texas.
5.4 Carrington shall not be obligated to ship Products to GBV
at any time when payment of an amount owed by GBV is overdue or when
GBV is otherwise in breach of this Agreement.
5.5 All shipments will be initiated by a Purchase Order.
Product shipment dates will be specified in the Purchase Order. These
dates may not be scheduled prior to ninety (90) days after the date the
Purchase Order is received and acknowledged in writing by Carrington,
unless by mutual consent of the Parties. Purchase Orders will be non-
cancelable. GBV will issue to Carrington on a quarterly basis, a twelve
(12) month rolling forecast so that Carrington may incorporate said
forecasts into its planning system. The triggering document for
production activities is, however, the Purchase Order, as stated above.
Carrington will guarantee delivery dates for product quantities that
vary up to 20% above the last quarterly rolling forecast issued prior
to the Purchase Order placed by GBV. Variation above 20% shall be
discussed between the Parties and Carrington will use its best efforts
to maintain delivery dates requested by GBV.
<PAGE>
5.6 All shipments of Products to GBV will be packaged in
accordance with Carrington's standard packaging procedures and shipped
per Carrington s existing distribution policy. All Contract Prices are
F.O.B., (invoice price includes seller's expense for delivery to the
named destination) Carrington's facility, Irving, Texas. Ownership of
and title to Products and all risks of loss with respect thereto shall
pass to GBV upon delivery of such Products by Carrington to the carrier
at the designated delivery (F.O.B.) point. Deliveries of Products
shall be made by Carrington under normal trade conditions in the usual
and customary manner being utilized by Carrington at the time and
location of the particular delivery.
5.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by GBV under this Agreement.
However, if necessary in the best judGBVnt of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including GBV, on such basis as it
shall deem reasonable, practicable and equitable, without liability for
any failure of performance or lost sales which may result from such
allocations.
5.8a Carrington accepts liability for defective products and
agrees to replace such defective Products should they occur with new
Products. Except as may be expressly stated by Carrington on the
Product or on Carrington's packaging, or in Carrington's information
accompanying the Product, at the time of shipment to GBV hereunder,
CARRINGTON MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH
RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
CARRINGTON NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY
OBLIGATION OR LIABILITY IN CONNECTION WITH THE PRODUCTS. GBV shall not
make any representation or warranty with respect to the Products that
is more extensive than, or inconsistent with, the limited warranty set
forth in this Article 5.8 or that is inconsistent with the policies or
publications of Carrington relating to the Products.
GBV'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS
THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
GBV'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY
FOR DAMAGES TO GBV OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT NOT
LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS, DAMAGE
OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, LOSS OF
USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
5.8b Carrington shall indemnify, defend and hold GBV and GBV's
officers, directors and employees harmless from and against any
liability, losses, damages, costs and expenses (including reasonable
attorney's fees and disbursements) arising out of or with respect to:
(i) any third party claims, actions or suits alleging product
liability; or
(ii) any claims, actions or suits alleging that the Products or
Trademarks infringe the intellectual property rights or other
proprietary rights of any third party.
<PAGE>
5.8c GBV shall indemnify, defend and hold Carrington and
Carrington's officers, directors and employees harmless from and
against any liability, losses, damages, costs and expenses (including
reasonable attorney's fees and disbursements) arising out of or with
respect to any third party claims, actions or suits due to the
following acts or omissions by GBV, its agents, servants or employees:
(i) any alterations or mishandling (subsequent to delivery by
Carrington) of the Products;
(ii) any unauthorized claims regarding the Products, including,
but not limited to, misrepresentations of any aspect, element,
component or result of use of the Products;
(iii) any misuse or unauthorized use of the Trademarks or Know-
how; or
(iv) a n y breach by GBV of any of its representations,
warranties, or covenants under this agreement.
5.8d EACH PARTY S INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS
ARTICLE 5.8 SHALL NOT APPLY TO THE EXTENT THAT THE ACT OR OMISSIONS
CONTAINED THEREIN ARE ATTRIBUTED TO OR CAUSED BY THE OTHER PARTY,
WHETHER INTENTIONALLY OR NEGLIGENTLY.
5.9 Credits for defective Products to GBV shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Price of the items returned, whether
identified by lot number or another method. Carrington shall provide
GBV with a copy of its liability Insurance Certificate and shall
include GBV thereunder.
Article 6. Term and Termination
6.1 The term of this Agreement shall be for a period of five
years from the effective date of this Agreement. After such term, this
Agreement shall be automatically renewed for successive periods of five
(5) years each unless or until either Party terminates this Agreement
pursuant to the termination provisions set forth herein, or by giving
notice of termination to the other Party on the last day of any period,
p r o v iding at least 365 days prior notice to such effect.
Notwithstanding the foregoing, this Agreement may be terminated earlier
in accordance with the provisions of this Article 6 or as expressly
provided elsewhere in this Agreement.
6.2a Carrington shall have the absolute right to terminate this
Agreement if GBV fails to perform or breaches, in any material respect,
any of the terms or provisions of this Agreement and fails to rectify
such non-performance or breach within ninety (90) days (or, in the case
of a financial breach, thirty (30) days) of receipt of a written demand
from Carrington. Without limiting the events which shall be deemed to
constitute a breach or material breach of this Agreement by GBV, GBV
understands and agrees that it shall be in material breach of this
Agreement, and Carrington shall have the right to terminate this
Agreement under this Article 6.2, if:
<PAGE>
(i) GBV fails or refuses to pay to Carrington any sum
when due; or
(ii) GBV breaches any provision of Article 2.2, 3.4, 4,
5.3, 5.8a, 7 or 8.
6.2b In the event GBV fails to purchase the Specified Minimum
Purchase Amount of Product for any given period for a particular
Territory and Carrington provides a written notice of breach of such
performance, and breach of such performance is not remedied within
sixty (60) days, then Carrington shall have the absolute right to
remove that particular Territory from the Agreement and terminate the
Agreement with regard to same Territory.
6.3 Each Party shall have the absolute right to terminate this
Agreement in the event the other Party shall become insolvent, or if
there is instituted by or against the other Party procedures in
b a n k r uptcy, or under insolvency laws or for reorganization,
receivership or dissolution, or if the other Party loses any franchise
or license to operate its business as presently conducted in any part
of the Territory.
6.4 This Agreement shall automatically terminate effective at
the end of any 12-month period of the term of this Agreement referred
to in Articles 5.1 and 5.2 hereof if the Parties are unable to agree
upon the Contract Prices or the Specified Minimum Amounts for the next
12-month period of the term.
6.5 During the one-year period following termination of this
Agreement, any inventory of Products held by GBV at the termination of
this Agreement may be sold by GBV to customers in the Territory in the
ordinary course; provided, however, that for the period required to
liquidate such inventory, all of the provisions contained herein
governing GBV's performance obligations and Carrington's rights shall
remain in effect. In order to accelerate the liquidation of any such
inventory, Carrington shall have the option, but not the obligation, to
purchase all or any part of such remaining inventory at the price at
which the inventory was originally sold by Carrington to GBV, including
importation and shipping.
6.6 The termination of this Agreement shall not impair the
rights or obligations of either Party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 5.8,
6.5, 7, 8 and 15 and the rights and obligations of the Parties
thereunder shall survive the termination of this Agreement for a period
of three (3) years.
<PAGE>
Article 7. Trademarks
7.1 All Carrington Trademarks, trade names, service marks,
l o g o s and derivatives thereof relating to the Products (the
"Trademarks"), and all patents, technology and other intellectual
property (also known as "Know-how") relating to the Products and of the
goodwill associated therewith, are the sole and exclusive property of
Carrington and/or its affiliates. The Products shall be promoted, sold
and distributed only under the Trademarks. Carrington hereby grants
GBV permission to use the Trademarks for the limited purpose of
performing its obligations under this Agreement. Carrington may, in
its sole discretion after consultation with GBV, modify or discontinue
the use of any Trademark and/or use one or more additional or
substitute marks or names, and GBV shall be obligated to do the same.
7.2 Carrington's Trademarks shall appear on all Product
packaging, labels, and inserts and other materials which GBV uses for
the marketing of the Products in such form and manner as Carrington
shall reasonably require. Carrington retains the right to review and
approve all intended uses of the Trademark in any packaging, inserts,
labels, or promotional or other materials relating to the Products
prior to GBV s actual use thereof.
7.3 It shall be the sole responsibility of Carrington, at its
sole expense, to keep in force and maintain the Trademarks in the
Territory by paying all necessary fees throughout the term of this
Agreement. GBV agrees to use the Trademarks in full compliance with
the rules prescribed from time to time by Carrington. The Trademarks
shall always be used together with the sign [R] or the sign [TM]. GBV
may not use any Trademark as part of any corporate name or with any
prefix, suffix or other modifying word, term, design or symbol. In
addition, GBV may not use any Trademark in connection with the sale of
any unauthorized product or service or in any other manner not
explicitly authorized in writing by Carrington.
7.4 In the event of any infringement of, or threatened or
presumed infringement of, or challenge to GBV's use of any Trademark or
o f any GBV trademark, GBV is obligated to notify Carrington
immediately. GBV shall investigate any alleged violation and, if
necessary, shall take the appropriate legal action to resolve the issue
and to prevent other competitors from infringing on said intellectual
property rights within the Territory. Carrington shall have sole and
absolute discretion to take such action as it deems appropriate.
7.5 In the event of the termination of this Agreement for any
reason, GBV's right to use the Trademarks shall cease, and GBV shall
cease using such Trademarks at such time as GBV's inventory of Products
has been sold. GBV shall, as soon as it is reasonably possible, remove
all Trademarks which appear on or about the premises of the office(s)
of GBV and any of the advertising of GBV used in connection with the
Products.
7.6 In the event of a breach or threatened breach by GBV of the
provisions of this Article 7, Carrington shall be entitled to an
injunction or injunctions to prevent such breaches. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 7, including the recovery of damages from GBV.
<PAGE>
7.7 Should for some reason the Trademark be prevented from
being used in any part or whole of the Territory, the Parties shall
consult as to a suitable other trademark (which trademark shall
trademark be also defined as "Trademark" for purposes of this
Agreement) owned by Carrington or to be transferred from GBV to
Carrington for use in connection with the marketing and sale of the
Products; it being agreed, however, that Carrington retains the right
to ultimately determine what such alternative Trademark shall be used,
provided it is not confusingly similar to a Trademark owned by GBV in
the Territory.
7.8 Nothing contained in this Agreement shall be construed as
giving GBV the right to use the Trademark outside the Territory or for
any other product than the Products.
Article 8. Confidential Information
8.1 GBV recognizes and acknowledges that GBV will have access
to confidential information and trade secrets, including "Know-how", of
Carrington and other entities doing business with Carrington relating
to research, development, manufacturing, marketing, financial and other
b u s iness-related activities ("Confidential Information"). Such
Confidential Information constitutes valuable, special and unique
property of Carrington and/or other entities doing business with
Carrington. Other than as is necessary to perform the terms of this
Agreement, GBV shall not, during and after the term of this Agreement,
make any use of such Confidential Information, or disclose any of such
C o n f idential Information to any person or firm, corporation,
association or other entity, for any reason or purpose whatsoever,
e x c e p t as specifically allowed in writing by an authorized
representative of Carrington. In the event of a breach or threatened
breach by GBV of the provisions of this Article 8, Carrington shall be
entitled to an injunction restraining GBV from disclosing and/or using,
in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 8, including the recovery of damages from GBV. The above does
not apply to information or material that was known to the public or
generally available to the public prior to the date it was received by
GBV.
8.2 GBV shall not disclose any of the terms of this Agreement
without the prior written consent of Carrington.
Article 9. Force Majeure
9.1 Neither GBV nor Carrington shall have any liability
hereunder if either is 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,
s t orm, earthquake, lightning, frost, civil commotion, sabotage,
vandalism, smoke, hail, embargo, act of God or the public enemy, other
c a s u alty, strike or lockout, or interference, prohibition or
<PAGE>
restriction imposed by any government or any officer or agent thereof
("Force Majeure"), and neither GBV's nor Carrington's obligations, so
far as may be necessary, shall be suspended during the period of such
Force Majeure nor shall either Party s obligations be cancelled with
respect to such Products as would have been sold hereunder but for such
suspension. Such affected Party shall give to the other Party 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 both Party's
obligations under this Agreement. Should the Force Majeure continue
for more than six (6) months, then the other Party shall have the right
to cancel this Agreement and the Parties shall seek an equitable
agreement on the Parties rights and remedies.
9.2 The Parties agree that any obligation to pay money is never
excused by Force Majeure.
Article 10. Amendment
10.1 No oral explanation or oral information by either Party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall
be binding on either Party hereto unless reduced to writing and
executed by the duly authorized representative of each Party.
Article 11. Entire Agreement
11.1 This Agreement represents the entire Agreement between the
P a r t i e s and shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or
in writing and whether explicit or implicit, which may have been
entered into prior to the execution hereof between the Parties, their
officers, directors or employees as to the subject matter hereof.
Neither of the Parties hereto has relied upon any oral representation
or oral information given to it by any representative of the other
Party.
11.2 Should any provision of this Agreement be rendered invalid
or unenforceable, this shall not affect the validity or enforceability
of the remainder.
Article 12. Assignment
12.1 Neither this Agreement nor any of the rights or obligations
of GBV hereunder shall be transferred or assigned by GBV without the
prior written consent of Carrington, executed by a duly authorized
officer of Carrington, except that GME by notice in writing to
Carrington may delegate any or all of its rights and obligations
hereunder to one or more of its Affiliates responsible for business in
the Territory or particular countries thereof. In this Agreement, an
"Affiliate" of GME shall mean any company controlling, controlled by or
under common control with GME, "control" for the purposes hereof
<PAGE>
meaning the holding, directly or through one or more intermediaries, of
more than fifty per cent (50%) of the voting equity share capital of or
an equivalent interest in the controlled company, or the power
otherwise to direct or cause the direction of its general policies and
management.. This Agreement shall inure to the benefit of and fully
bind the permitted assigns and successors-in-interest of each of the
Parties.
Article 13. Governing Law
13.1 It is expressly agreed that the validity, performance and
construction of this Agreement will be governed by the laws and
jurisdiction of Texas.
Article 14. Notices
14.1 Any notice required or permitted to be given under this
Agreement by one of the Parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial courier
services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038; Attention: President, or
at such other address as Carrington shall have theretofore
furnished in writing to GBV. (Fax No. 972-714-5009)
(b) GBV at: _____________________; Attention: _______________,
or at such other address as GBV shall have theretofore
furnished in writing to Carrington. (Fax No.____________).
All notices provided by mail or courier services shall also be promptly
copied by fax.
Article 15. Waiver
15.1 Neither GBV's nor Carrington's failure to enforce at any
time any of the provisions of this Agreement or any right with respect
thereto, shall be considered a waiver of such provisions or rights or
in any way affect the validity of same. Neither GBV's nor Carrington's
exercise of any of its rights shall preclude or prejudice either Party
thereafter from exercising the same or any other right it may have,
irrespective of any previous action by either Party.
Article 16. Arbitration
16.1 Except as expressly provided otherwise herein, any dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement, the operations carried out under this Agreement or
the relationship of the Parties created under this Agreement, shall be
exclusively and finally settled by confidential arbitration, and any
Party may submit such a dispute, controversy or claim to arbitration.
The arbitration proceeding shall be held at the location of the non-
instituting Party in the English language and shall be governed by the
rules of the International Chamber of Commerce (the "ICC") as amended
from time to time. Any procedural rule not determined under the rules
of the ICC shall be determined by the laws of England, other than those
laws that would refer the matter to another jurisdiction.
<PAGE>
A single arbitrator shall be appointed by unanimous consent
of the Parties. If the Parties cannot reach agreement on an arbitrator
within 45 days of the submission of a notice of arbitration, the
appointing authority for the implementation of such procedure shall be
the ICC, who shall appoint an independent arbitrator who does not have
any financial or conflicting interest in the dispute, controversy or
claim. If the ICC is unable to appoint, or fails to appoint, an
arbitrator within 90 days of being requested to do so, then the
arbitration shall be heard by three arbitrators, one selected by each
Party within the 30 days of being required to do so, and the third
promptly selected by the two arbitrators selected by the Parties.
The arbitrators shall announce the award and the reasons
therefor in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the Parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the Parties.
JudGBVnt upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judGBVnt or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each Party involved
in the arbitration shall bear the expense of its own counsel, experts
and presentation of proof, and the expense of the arbitrator and the
ICC (if any) shall be divided equally among the Parties to the
arbitration.
Article 17 Interpretation
17.1 The language of this Agreement is English. No translation
i n t o any other language shall be taken into account in the
interpretation of the Agreement itself.
17.2 The headings in this Agreement are inserted for convenience
only and shall not affect its construction.
17.3 Where appropriate, the terms defined in Article 1 and
denoting a singular number only shall include the plural and vice
versa.
17.4 References to any law, regulation, statute or statutory
provision includes a reference to the law, regulation, statute or
statutory provision as from time to time amended, extended or re-
enacted.
Article 18. Exhibits
18.1 Any and all Exhibits referred to herein shall be considered
an integral part of this Agreement.
<PAGE>
Article 19. No Inconsistent Actions
19.1 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 Articles 5.7 and 9 hereof, will promptly perform all acts and take
all measures as may be appropriate to comply with the terms, conditions
and provisions of this Agreement.
Article 20. Currency of Account
20.1 This Agreement evidences a transaction for the sale of
goods in which the specification of U.S. dollars is of the essence, and
U.S. dollars shall be the currency of account in all events. All
payments to be made by GBV to Carrington hereunder shall be made either
(i) in immediately available funds by confirmed wire transfer to a bank
account to be designated by Carrington or (ii) in the form of a bank
cashier's check payable to the order of Carrington.
Article 21. Binding Effect
21.1 This Agreement shall inure to the benefit of and be binding
upon the respective successors of the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
GAMIDA FOR LIFE BV
By:
Name:
Title:
<PAGE>
EXHIBIT A
GAMIDA FOR LIFE BV
Products & Contract Price
___________, 1996
Current
Product Price
----------------------------------------------------- -----------
Carrington Patch (6 patches per sleeve) $.75/sleeve
Note: Any volume discounts are based on yearly purchases which
correspond with the specified 12-month period as set forth in Article
5.1 of this Agreement.
Projected Purchases:
South Africa First Year 67,000 sleeves (400,000
patches)
<PAGE>
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of this
4th day of December, 1996, by and between CARRINGTON LABORATORIES,
INC., a Texas corporation ("Carrington"), and DARROW LABORATORIOS S/A,
a Brazilian corporation ("Darrow").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of manufacturing,
selling and distributing certain medical devices and is desirous of
establishing a competent and exclusive distribution source for sales of
such products in Brazil (defined in Article 1 hereof as the
Territory ); and
WHEREAS, Darrow is desirous of marketing and distributing such
products in the Territory, represents that it has experience in
obtaining registration of medical devices in the Territory, is well
introduced in the market, is willing and able to provide a competent
marketing and distribution organization in the Territory, and Darrow
desires to be Carrington's marketer, seller and distributor for such
products in the Territory, as will have the option to locally fill and
pack some of the Carrington's products, according to the conditions and
restrictions stipulated in Article 3.7.
NOW, THEREFORE, the Parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have
the meanings specified in this Article 1.1:
(a) "Products" shall mean the wound and skin care products
manufactured by or for Carrington set forth on Exhibit A
hereto. Carrington will provide a ninety (90) day notice
to Darrow on its intent to add or discontinue Products to
Exhibit A.
(b) "Territory" shall mean the following countries: Brazil and
the limited right of first refusal for specified Products
listed on Exhibit A for the Mercosul countries: Argentina,
Uruguay, Paraguay and Chile. Carrington shall present any
offer it receives for any particular country and Products,
and Darrow shall have thirty (30) days to meet or exceed
that offer by sending a written acceptance to Carrington.
If Darrow is unable to respond accordingly, then that
country and Products shall be free from any obligation to
Darrow by Carrington.
<PAGE>
(c) "Parties" shall mean Carrington and Darrow and Party
shall mean either of them as the context indicates.
(d) "Know-how" shall mean secret and proprietary technical and
scientific information regarding the Products, which may be
necessary, useful or advisable to enable Darrow to obtain
the Registration of, promote, market and sell the Products
in the Territory, and as is or will be specified in the
documentation which Carrington has delivered or will
deliver to Darrow prior to execution of this Agreement.
(e) "Registration" shall mean any official approval, or
authorization, or licensing regarding the Products by all
appropriate and competent authorities in the Territory,
including, if applicable, the Products selling prices and
social security approvals, allowing the lawful marketing of
the Products.
(f) "Trademarks" shall mean all Carrington Trademarks, trade
names, service marks, logos and derivatives thereof
relating to the Products.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints Darrow as Carrington's marketer, sales
distributor in the Territory for the sale of Products, and Darrow
hereby accepts such appointment. As marketer, sales distributor in the
Territory, Darrow shall, subject to the terms and conditions of this
Agreement, have the right to sell Products in the Territory, but shall
have no right to sell Products outside the Territory.
2.2 In a manner reasonably satisfactory to Carrington, and at
Darrow's sole expense, Darrow agrees to (a) devote its best efforts to
the diligent promotion, marketing, sale and distribution of the
Products in the Territory, (b) provide and maintain a competent and
aggressive organization for the promotion, marketing, sale and
distribution of the Products in the Territory, (c) assure competent and
prompt handling of inquiries, orders, shipments, billings and
collections, and returns of or with respect to the Products and careful
attention to customers requirements for all Products, and (d) promptly
assign back to Carrington any product Registrations in the Territory
upon termination of Agreement. Carrington agrees, at its sole expense,
to direct Darrow to make and maintain all agreed upon declarations,
filings, and Registrations with, and obtain all approvals and
authorizations from, governmental and regulatory authorities required
to be made or obtained in connection with the promotion, marketing,
sale or distribution of the Products in the Territory. Provided,
however, Carrington at its sole option, has the absolute right to
determine at any time that any such requirements mentioned above are
uneconomic and not justified relative to the benefits Carrington
anticipates receiving and, therefore, may not be required to accept
further expenses. For the first five years Carrington agrees to pay up
to $10,000.00 for two products during the first five years for
registration expenses for Products classified as "drugs" and up to
$1,000.00 per product per five year period for products classified as
medical devices.
<PAGE>
2.3 During the term of this Agreement, Darrow shall be
considered an independent contractor and shall not be considered a
partner, employee, agent or servant of Carrington. As such, Darrow has
no authority of any nature whatsoever to bind Carrington or incur any
liability for or on behalf of Carrington or to represent itself as
anything other than a sales distributor and independent contractor.
Darrow agrees to make clear in all dealings with customers or
prospective customers that it is acting as a distributor of the
Products and not as an agent of Carrington.
2.4 Nothing in this Agreement shall be construed as giving
Darrow any right to use or otherwise deal with the Know-how for
purposes other than those expressly provided for in this Agreement.
2.5 Darrow shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention. After
having dicsussed such situaiton with Darrow, Carrington shall have sole
and absolute discretion to take such action as it deems appropriate and
Darrow, at its sole expense, shall reasonably assist Carrington in
taking legal action, if deemed necessary, against such
misappropriation.
2.6 All costs and expenses connected with Darrow's activities
or performance under this Agreement are to be borne solely by Darrow.
Article 3. Certain Performance Requirements
3.1 Darrow agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the Territory
for ultimate use within the Territory. Darrow will not, under any
circumstances, either directly or indirectly through third parties,
promote, market, sell, or distribute Products within or to, or for
ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that Darrow is in compliance
with Article 3.1, Darrow agrees that:
(a) Darrow will send to Carrington quarterly sales reports
which set forth the number of units of each Product sold,
the net sales, the number of units of free medical samples
distributed, and to whom such Products were sold and/or
distributed during such quarter;
(b) Darrow will send to Carrington quarterly inventory reports
of the Products; and
(c) Carrington may mark for identification all Products sold by
Carrington to Darrow hereunder.
3.3 Darrow shall promptly provide Carrington with written
reports of any importation or sale of any of the Products in the
Territory of which Darrow has knowledge from any source other than
Carrington, as well as with any other information which Carrington may
reasonably request in order to be updated on the market conditions in
the Territory.
<PAGE>
3.4 Darrow shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market segments.
Darrow shall maintain all its inventory of Products clearly segregated
and meeting all storage and other standards required by applicable
governmental authorities. All such inventory and Darrow's facilities
shall be subject to inspection by Carrington or its agents upon 72
hours written notice.
3.5 Darrow shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by Darrow of Products. Upon
written request from Darrow, Carrington shall provide Darrow with such
certificates or other documents as may be reasonably required to
establish any applicable exemptions from the collection of such taxes,
charges and fees.
3.6 All Products shall be packaged and delivered by Carrington
to Darrow for a period of at least six (6) months after the execution
of this Agreement, after which, Darrow may exercise its option to
locally fill and pack some of the Products, subject to the requirements
outlined in Article 3.7 of this Agreement. All Products shall be
labeled, advertised, marketed, sold and distributed by Darrow in
compliance with the rules and regulations, as amended from time to
time, of (i) all applicable governmental authorities within the
Territory in which the Products are marketed and (ii) all other
applicable laws, rules and regulations. Darrow shall pay all increased
expenses associated with (i) any requested alterations to the standard
packaging and labeling costs of the Products which deviate from
Carrington's standard packaging materials, designs, methods costs
and/or procedures, (ii) any language modifications to the packaging or
labeling and/or (iii) any additions to inserts in the general
packaging. The Parties shall agree on minimum production runs for such
custom labels.
3.7 Darrow has the option to fill and pack some of the Products
in its manufacturing plant, provided Carrington's process and products
specifications are met, the operation is in compliance with the
required Good Manufacturing Practices and as per Carrington's periodic
audits of Darrow's designated areas for the production, storage and
distribution of such Products, quality systems and pertinent
documentation as well as corroboration of assay and test results of
packaging components and finished goods in periodic basis. This
Article is further limited by the obligations stated in Article 3.9
below.
3.8 Darrow shall not make any alterations or permit any
alterations to be made to the Products except as specifically provided
herein.
3.9 Darrow shall be responsible for complying with all
applicable laws, regulations and requirements contained in the
Registration, or concerning inventory, use, promotion, filling,
packing, distribution and sale of the Products in the Territory while
such Products are in its custody. Darrow shall assume full
responsibility for the Registration, inventory, promotion, filling,
<PAGE>
packing, distribution and sale of the Products in the Territory and
correspondingly for any damage, claim, liability, loss or expense which
Darrow may suffer or incur by reason of said Registration, inventory,
promotion, distribution and sale and shall hold Carrington harmless
from any claim resulting therefrom being directed against Carrington by
any third party.
3.10 Darrow agrees not to make, or permit any of its employees,
agents or representatives to make, any claims of any properties or
results relating to any Product other than those according to the
registration, unless such claims have received written approval from
Carrington or from the applicable governmental authorities.
3.11 Darrow shall not use any label, advertisement or marketing
material on or with respect to or relating to any Product unless such
label, advertisement or marketing material has first been submitted to
and approved by Carrington in writing except as provided for in Article
3.10 above, such labels, advertisements or marketing materials which
need not be submitted for approval if they are in accordance with all
governmental regulations.
3.12 Darrow will actively and aggressively promote, develop
demand for and maximize the sale of the Products to all customers and
potential customers within the Territory. Darrow agrees not to
manufacture, promote, market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to and approval from Carrington, any competitive wound care,
skin care, or incontinence care product other than Darrow s existing
products.
3.13 Darrow represents that its books, records and accounts
pertaining to all its operations hereunder are complete and accurate in
all material respects and have been maintained in accordance with sound
and generally accepted accounting principles. Darrow's auditor shall
deliver to Carrington, in accordance with Article 13, at the end of
each 12-month period during the term of the Agreement, a declaration
that the accounts rendered are correct. Carrington shall have the
right to have such books, records, and accounts examined, at its
expense, by a qualified accountant nominated by Carrington with the
purpose of assuring compliance with the obligations as defined in
Article 3.2.
Article 4. Sale of Products by Carrington to Darrow
4.1 Subject to the terms and conditions of this Agreement,
including specifically Article 4.6 hereof, Carrington shall sell to
Darrow the Products at a specified price for each Product (the
"Contract Price"). For orders placed by Darrow during the first 12-
month period of the term of this Agreement, the Contract Prices for the
Products listed on Exhibit A are set forth on such exhibit opposite
each Product. At least ninety (90) days prior to the end of each 12-
month period of the term of this Agreement, (a) Darrow shall provide
in writing to Carrington both a sales forecast and a purchase forecast
for the following twelve (12) month period, and (b) the Parties shall
commence good faith negotiations to determine and agree upon the
Contract Prices for Products for the next twelve (12)month period of
the term. During any twelve (12) month period Carrington reserves the
right to change its Contract Price for each Product for the next
(twelve) 12 month period.
<PAGE>
4.2 As consideration for its appointment as a marketer, seller
and distributor entitled to a Product discount, Darrow agrees to
purchase from Carrington, during each twelve (12) month period of the
term of this Agreement following the effective date of each Products
registration acceptance, commencing with the twelve (12) month period
beginning _____________, 19__ through ___________, 19__, at the
Contract Price, a specified minimum aggregate dollar amount (based on
the Contract Price) of the Products (the "Specified Minimum Purchase
Amount"). For the first twelve (12) month period of the term of this
Agreement, there will be no Specified Minimum Purchase Amount however
Darrow commits to do its best effort to generate purchase from
Carrington for $200,000 of Products in the first twelve (12) month
period of this Agreement. The Specified Minimum Purchase Amounts for
each subsequent twelve (12) month period shall be determined by mutual
agreement of the Parties no later than 30 days prior to the beginning
of such period based on the Parties reasonable, good faith projections
of future sales growth and such other factors as the Parties may deem
relevant.
4.3 Darrow shall order Products by submitting a purchase order
to Carrington describing the type and quantity of the Products to be
purchased. All orders exceeding the limits referred to in Articles 4.2
and 4.5 are subject to acceptance by Carrington. All purchases shall
be spaced in a reasonable manner. If Carrington accepts the order,
Carrington will invoice Darrow upon shipment of the Products. Unless
otherwise agreed, Darrow shall pay all invoices in full within ninety
(90) days of the date of invoice. Darrow shall be solely responsible
for all costs in connection with affecting payments. All sales and
payments shall be made, and all orders shall be accepted, in the State
of Texas.
4.4 Carrington shall not be obligated to ship Products to
Darrow at any time when payment of an amount owed by Darrow is overdue
or when Darrow is otherwise in breach of this Agreement.
4.5 All shipments shall be initiated by a Purchase Order.
Product shipment dates will be specified in the Purchase Order. These
dates may not be scheduled prior to ninety (90) days after the date the
Purchase Order is received and acknowledged in writing by Carrington,
unless by mutual consent of the Parties. Purchase Orders will be non-
cancelable. Darrow will issue to Carrington on a monthly basis, a
twelve (12) month rolling forecast so that Carrington may incorporate
said forecasts in to is planning system. The triggering document for
production activities is, however, the Purchase Order, as stated above.
Carrington will guarantee delivery dates for Product quantities that
vary up to twenty percent (20%) above the last monthly rolling forecast
issued prior to the Purchase Order placed by Darrow. Variation above
twenty percent (20%) shall be discussed between the Parties and
Carrington will use its best efforts to maintain delivery dates
requested by Darrow.
<PAGE>
4.6 All shipments of Products to Darrow will be packaged in
accordance with Carrington's standard packaging procedures and shipped
per Carrington s existing distribution policy. All Contract Prices are
F.O.B., (invoice price includes seller's expense for delivery to the
named destination) Carrington's facility, Dallas, Texas. Ownership of
and title to Products and all risks of loss with respect thereto shall
pass to Darrow upon delivery of such Products by Carrington to the
carrier at the designated delivery (F.O.B.) point. Deliveries of
Products shall be made by Carrington under normal trade conditions in
the usual and customary manner being utilized by Carrington at the time
and location of the particular delivery.
4.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by Darrow under this Agreement.
However, if necessary in the best judgment of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including Darrow, on such basis as it
shall deem reasonable, practicable and equitable, without liability for
any failure of performance or lost sales which may result from such
allocations.
4.8 Carrington accepts liability for defective Products and
agrees to replace such defective Products should they occur with new
Products. Carrington carries liability insurance and is willing to
have Darrow added as a covered Party under this policy. Except as may
be expressly stated by Carrington on the Product or on Carrington's
packaging, or in Carrington's information accompanying the Product, at
the time of shipment to Darrow hereunder, CARRINGTON MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCTS,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. CARRINGTON NEITHER ASSUMES NOR
AUTHORIZES ANYONE TO ASSUME FOR IT ANY OBLIGATION OR LIABILITY IN
CONNECTION WITH THE PRODUCTS. Darrow shall not make any representation
or warranty with respect to the Products that is more extensive than,
or inconsistent with, the limited warranty set forth in this Article
4.8 or that is inconsistent with the policies or publications of
Carrington relating to the Products.
DARROW'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS
THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
DARROW'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR
LIABILITY FOR DAMAGES TO DARROW OR ANY OTHER PERSON OF ANY TYPE,
INCLUDING, BUT NOT LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES, LOSS OF PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY
OTHER LOSS, DAMAGE OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE
SALE, USE, LOSS OF USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
DARROW SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS CARRINGTON AND
CARRINGTON'S AFFILIATES, 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 USE, SALE OR OTHER DISPOSITION OF
PRODUCTS, KNOW-HOW OR TRADEMARKS BY DARROW OR ANY OTHER PARTY, (ii) ANY
BREACH BY DARROW OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS
UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF
DARROW OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND
DARROW'S AUTHORIZATION GRANTED HEREIN.
<PAGE>
4.9 Credits for defective Products to Darrow shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Price of the items returned, whether
identified by lot number or another method.
Article 5. Term and Termination
5.1 The term of this Agreement shall be for a period of ten
(10) years from the effective date of this Agreement. After such term,
this Agreement shall be automatically terminated unless the parties
mutually agree in writing to extend the term hereof. Notwithstanding
the foregoing, this Agreement may be terminated earlier in accordance
with the provisions of this Article 5 and as expressly provided
elsewhere in this Agreement.
5.2 Carrington shall have the absolute right to terminate this
Agreement if Darrow fails to perform or breaches, in any material
respect, any of the terms or provisions of this Agreement. Without
limiting the events which shall be deemed to constitute a breach or
material breach of this Agreement by Darrow, Darrow understands and
agrees that it shall be in material breach of this Agreement, and
Carrington shall have the right to terminate this Agreement under this
Article 5.2, if:
(i) Darrow fails or refuses to pay to Carrington any sum
when due;
(ii) Darrow breaches any provision of Article 2.2, 3.1,
3.5, 3.7, 3.9, 4.2, 4.8, 6 or 7; or 8
(iii) Darrow fails to purchase the Specified Minimum
Purchase Amounts of Product for any required period.
5.3 Each Party shall have the absolute right to terminate this
Agreement in the event the other Party shall become insolvent, or if
there is instituted by or against the other Party procedures in
bankruptcy, or under insolvency laws or for reorganization,
receivership or dissolution, or if the other Party loses any franchise
or license to operate its business as presently conducted in any part
of the Territory.
5.4 This Agreement shall automatically terminate effective at
the end of any twelve (12) month period of the term of this Agreement
referred to in Articles 4.1 and 4.2 hereof if the Parties are unable to
agree upon the Contract Prices or the Specified Minimum Amounts for the
next twelve (12) month period of the term.
5.5 During the one (1) year period following termination of
this Agreement, any inventory of Products held by Darrow at the
termination of this Agreement may be sold by Darrow to customers in the
Territory in the ordinary course; provided, however, that for the
period required to liquidate such inventory, all of the provisions
contained herein governing Darrow's performance obligations and
Carrington's rights shall remain in effect. In order to accelerate the
liquidation of any such inventory, Carrington shall have the option,
but not the obligation, to purchase all or any part of such remaining
inventory at the price at which the inventory was originally sold by
Carrington to Darrow, including importation and shipping plus ten
percent (10%)
<PAGE>
5.6 The termination of this Agreement shall not impair the
rights or obligations of either Party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 4.7,
5.5, 6, 7 and 15 and the rights and obligations of the Parties
thereunder shall survive the termination of this Agreement for a period
of one (1) year.
Article 6. Trademarks
6.1 All Carrington Trademarks, trade names, service marks,
logos and derivatives thereof relating to the Products (the
"Trademarks"), and all patents, technology and other intellectual
property (also known as "Know-how") relating to the Products, are the
sole and exclusive property of Carrington or its affiliates. The
Products shall be promoted, sold and distributed only under the
Trademarks. Carrington hereby grants Darrow permission to use the
Trademarks for the limited purpose of performing its obligations under
this Agreement. Carrington may, in its sole discretion after
consultation with Darrow, modify or discontinue the use of any
Trademark and/or use one or more additional or substitute marks or
names, and Darrow shall be obligated to do the same.
6.2 Carrington's Trademarks should appear on all Products
packaging, labels, and inserts and other materials which Darrow uses
for the marketing of the Products in such form and manner as Carrington
shall reasonably require. Carrington retains the right to review and
approve all intended uses of the Trademarks in any packaging
promotional or other materials relating to the Products prior to
Darrow's actual use thereof.
6.3 It shall be the sole responsibility of Carrington, at its
sole expense, to keep in force and maintain the Trademarks in the
Territory by paying all necessary fees throughout the term of this
Agreement. Darrow agrees to use the Trademarks in full compliance
with the rules prescribed from time to time by Carrington. The
Trademarks shall always be used together with the sign [TM] or the sign
[R]. Darrow may not use any Trademark as part of any corporate name or
with any prefix, suffix or other modifying word, term, design or
symbol. In addition, Darrow may not use any Trademark in connection
with the sale of any unauthorized product or service or in any other
manner not explicitly authorized in writing by Carrington.
6.4 In the event of any infringement of, or threatened or
presumed infringement of, or challenge to Darrow's use of any
Trademark or of any Darrow trademark, Darrow is obligated to notify
Carrington immediately. Darrow shall investigate any alleged violation
and, if necessary, shall take the appropriate legal action to resolve
the issue and to prevent other competitors from infringing on said
intellectual property rights with in the Territory. Carrington shall
have sole and absolute discretion to take such action as it deems
appropriate.
6.5 In the event of the termination of this Agreement for any
reason, Darrow 's right to use the Trademarks shall cease, and Darrow
shall cease using such Trademarks at such time as Darrow's inventory of
Products has been sold. Darrow shall, as soon as it is reasonably
possible, remove all Trademarks which appear on or about the premises
of the office(s) of Darrow and any of the advertising of Darrow used in
connection with the Products.
<PAGE>
6.6 In the event of a breach or threatened breach by Darrow of
the provisions of this Article 6, Carrington shall be entitled to an
injunction or injunctions to prevent such breaches. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 6, including the recovery of damages from Darrow.
6.7 Should for some reason the Trademark be prevented from
being used in any part or whole of the Territory, the Parties shall
consult as to a suitable other trademark (which trademark shall then be
also defined as Trademark for purposes of this Agreement) owned by
Carrington or to be transferred from Darrow to Carrington for use in
connection with the marketing and sale of the Products; it being
agreed, however, that Carrington retains the right to ultimately
determine what such alternative Trademark shall be used, provided it is
not confusingly similar to a Trademark owned by Darrow in the
Territory.
6.8 Nothing in this Agreement shall be construed as giving
Darrow the right to use the Trademark outside the Territory or for any
other product than the Products.
Article 7. Confidential Information
7.1 Darrow recognizes and acknowledges that Darrow will have
access to confidential information and trade secrets of Carrington and
other entities doing business with Carrington relating to research,
development, manufacturing, marketing, financial and other business-
related activities ("Confidential Information"). Such Confidential
Information constitutes valuable, special and unique property of
Carrington and/or other entities doing business with Carrington. Other
than as is necessary to perform the terms of this Agreement, Darrow
shall not, during and after the term of this Agreement, make any use of
such Confidential Information, or disclose any of such Confidential
Information to any person or firm, corporation, association or other
entity, for any reason or purpose whatsoever, except as specifically
allowed in writing by an authorized representative of Carrington. In
the event of a breach or threatened breach by Darrow of the provisions
of this Article 7, Carrington shall be entitled to an injunction
restraining Darrow from disclosing and/or using, in whole or in part,
such Confidential Information. Nothing herein shall be construed as
prohibiting Carrington from pursuing other remedies available to it for
such breach or threatened breach of this Article 7, including the
recovery of damages from Darrow. The above does not apply to
information or material that was known to the public or generally
available to the public prior to the date it was received by Darrow.
7.2 Darrow shall not disclose the existence of this Agreement
or any of the terms herein without the prior written consent of
Carrington.
<PAGE>
Article 8. Force Majeure
8.1 Neither Darrow nor Carrington shall have any liability
hereunder if either is 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"), nor shall Darrow or Carrington's obligations, except
as may be necessary, be suspended during the period of such Force
Majeure, nor shall either Party's obligations be cancelled with respect
to such Products as would have been sold hereunder but for such
suspension. Such affected Party shall give to the other Party 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 both Party's
obligations under this Agreement. Should the Force Majeure continue
for more than six (6) months, then the other shall have the right to
cancel this Agreement and the Parties shall seek an equitable agreement
on the Parties reward of interests.
8.2 The Parties agree that any obligation to pay money is never
excused by Force Majeure.
Article 9. Amendment
9.1 No oral explanation or oral information by either Party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall
be binding on either Party hereto unless reduced to writing and
executed by the duly authorized representative of each Party.
Article 10. Entire Agreement
10.1 This Agreement represents the entire Agreement between the
Parties and shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or
in writing and whether explicit or implicit, which may have been
entered into prior to the execution hereof between the Parties, their
officers, directors or employees as to the subject matter hereof.
Neither of the Parties hereto has relied upon any oral representation
or oral information given to it by any representative of the other
Party.
10.2 Should any provision of this Agreement be rendered invalid
or unenforceable, it shall not affect the validity or enforceability of
the remainder.
<PAGE>
Article 11. Assignment
11.1 Neither this Agreement nor any of the rights or obligations
of Darrow hereunder shall be transferred or assigned by Darrow without
the prior written consent of Carrington, executed by a duly authorized
officer of Carrington.
Article 12. Governing Law
12.1 It is expressly agreed that the validity, performance and
construction of this Agreement shall be governed by the laws and
jurisdiction of Texas.
Article 13. Notices
13.1 Any notice required or permitted to be given under this
Agreement by one of the Parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial courier
services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038; Attention: President, or
at such other address as Carrington shall have theretofore
furnished in writing to Darrow. (Fax No. 214-518-1020)
(b) Darrow at: Darrow Laboratorios, S/A; Rua Marques de Olinta,
69 Botafogo, Rio De Janerio, Brazil RJ CEP 1-040,
Attention: Nelson Torres Duarte Junior, or at such other
address as Darrow shall have theretofore furnished in
writing to Carrington. (Fax No. 55-21-552-1877)
Article 14. Waiver
14.1 Neither Darrow's nor Carrington's failure to enforce at
any time any of the provisions of this Agreement or any right with
respect thereto, shall be considered a waiver of such provisions or
rights or in any way affect the validity of same. Neither Darrow's
nor Carrington's exercise of any of its rights shall preclude or
prejudice either Party thereafter from exercising the same or any other
right it may have, irrespective of any previous action by either Party.
Article 15. Arbitration
15.1 Except as expressly provided otherwise herein, any dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement, the operations carried out under this Agreement or
the relationship of the Parties created under this Agreement, shall be
exclusively and finally settled by confidential arbitration, and any
Party may submit such a dispute, controversy or claim to arbitration.
The arbitration proceeding shall be held at the location of the non-
instituting Party in the English language and shall be governed by the
rules of the International Chamber of Commerce (the "ICC") as amended
from time to time. Any procedural rule not determined under the rules
of the ICC shall be determined by the laws of the State of Texas, other
than those laws that would refer the matter to another jurisdiction.
<PAGE>
A single arbitrator shall be appointed by unanimous consent
of the Parties. If the Parties cannot reach agreement on an arbitrator
within forty-five (45) days of the submission of a notice of
arbitration, the appointing authority for the implementation of such
procedure shall be the ICC, who shall appoint an independent arbitrator
who does not have any financial or conflicting interest in the dispute,
controversy or claim. If the ICC is unable to appoint, or fails to
appoint, an arbitrator within ninety (90) days of being requested to do
so, then the arbitration shall be heard by three arbitrators, one
selected by each Party within the thirty (30) days of being required to
do so, and the third promptly selected by the two arbitrators selected
by the Parties.
The arbitrators shall announce the award and the reasons
therefore in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the Parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the Parties.
Judgment upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each Party involved
in the arbitration shall bear the expense of its own counsel, experts
and presentation of proof, and the expense of the arbitrator and the
ICC (if any) shall be divided equally among the Parties to the
arbitration.
Article 16. Exhibits
Any and all exhibits referred to herein shall be considered
an integral part of this Agreement.
Article 17. No Inconsistent Actions
17.1 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 Articles 4.7 and 8 hereof, will promptly perform all acts and take
all measures as may be appropriate to comply with the terms, conditions
and provisions of this Agreement.
Article 18. Currency of Account
18.1 This Agreement evidences a transaction for the sale of
goods in which the specification of U.S. dollars is of primary essence,
and U.S. dollars shall be the currency of account in all events. All
payments to be made by Darrow to Carrington hereunder shall be made
either (i) in immediately available funds by confirmed wire transfer to
a bank account to be designated by Carrington or (ii) in the form of a
bank cashier's check payable to the order of Carrington.
<PAGE>
Article 19. Binding Effect
19.1 This Agreement shall inure to the benefit of and be binding
upon the respective successors of the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
DARROW LABORATORIOS S/A
By:
Name:
Title:
<PAGE>
EXHIBIT A
DARROW LABORATORIES
PRODUCT
NO. PRODUCT NAME PRICE
------- -------------------------------------------- -------
WOUND CARE
101030 CARRINGTON CARRASYN HYDROGEL WOUND $8.23
DRESSING, 3 oz. tube
101080 CARRINGTON CARRASYN HYDROGEL WOUND $21.11
DRESSING, (spray gel),8 oz. bottle
101025 CARRINGTON CARRASYN V (VISCOUS) HYDROGEL $2.99
WOUND DRESSING, 1/2 oz. tube
101023 CARRINGTON CARRASYN V (VISCOUS) HYDROGEL $8.23
WOUND DRESSING, 3 oz. tube
101012 CARRINGTON CARRAGAUZE STRIPS, 1/2" x 5 yds, $5.70
bottle
101009 CARRINGTON CARRAGAUZE STRIPS, 1" x 5 yds, $6.68
bottle
101017 CARRINGTON CARRAGAUZE , 2"x 2" pads $2.02
101015 CARRINGTON CARRAGAUZE , 4"x 4" pads $2.92
102060 CARRINGTON CARRAKLENZ WOUND & SKIN CLEANSER, $3.77
6 oz. pump
102160 CARRINGTON CARRAKLENZ WOUND & SKIN CLEANSER, $8.51
16 oz. spray
101032 CARRINGTON CARRASORB H CALCIUM ALGINATE $1.32
WOUND DRESSING, 2" x 2" pad
101033 CARRINGTON CARRASORB H CALCIUM ALGINATE $2.85
WOUND DRESSING, 4" x 4" pad
101034 CARRINGTON CARRASORB H CALCIUM ALGINATE $2.75
WOUND DRESSING, 12" rope
101035 CARRINGTON CARRASORB M FREEZE-DRIED GEL $3.22
WOUND DRESSING, 4" diameter pad
101036 CARRINGTON CARRAFILM TRANSPARENT FILM $0.91
DRESSING, 4" x 5" 1/2 sheet
101037 CARRINGTON CARRAFILM TRANSPARENT FILM $1.98
DRESSING, 5" x 7" sheet
101038 CARRINGTON CARRAFILM TRANSPARENT FILM $2.07
DRESSING, 6" x 6" sheet
<PAGE>
EXHIBIT A
DARROW LABORATORIES
PRODUCT
NO. PRODUCT NAME PRICE
-------- -------------------------------------------- -------
101039 CARRINGTON CARRAFILM TRANSPARENT FILM $0.26
DRESSING, 2 3/4" x 2 3/8" sheet
101040 CARRINGTON CARRAFILM TRANSPARENT FILM $2.08
DRESSING, 8" x 10" sheet
101041 CARRINGTON CARRAFILM TRANSPARENT FILM $1.85
DRESSING, 4" x 10" sheet
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
This Agreement, entered into as of October 1, 1996, by and
between VISION MEDICAL (the "Independent Sales Representative"), and
CARRINGTON LABORATORIES, INC., a Texas corporation (the "Company").
WITNESSETH:
WHEREAS, the Company is engaged in the business of manufacturing
and selling various medical products and supplies; and
WHEREAS, the Company desires to engage the Independent Sales
Representative to promote the sale of and solicit orders for the
Company's products, and the Independent Sales Representative desires to
be so engaged;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
1. Engagement. The Company hereby appoints and engages the
Independent Sales Representative, and the Independent Sales
Representative hereby accepts such appointment and engagement, to
promote the sale of and solicit orders for the Company's products in
accordance with the terms and conditions of this Agreement.
2. Duties of Independent Sales Representative. The
Independent Sales Representative shall use its best efforts to promote
the sale of the Company's products, to solicit orders therefore and to
perform such other functions of a manufacturer's Independent Sales
Representative as the Company shall from time to time request. The
Independent Sales Representative shall keep the Company informed at all
times of the Independent Sales Representative's progress and of any
problems relating to or affecting the Company's business, products or
customers. The Independent Sales Representative shall visit existing
and prospective customers in person as often as necessary to carry out
its duties in order to meet its sales goals hereunder in a legal and
ethical manner and in accordance with normal and accepted business and
regulatory practices. The Independent Sales Representative shall bear
all expenses incurred by it in carrying out its duties and
responsibilities under this Agreement.
3. Sole Area of Responsibility. The geographic area in which
the Independent Sales Representative shall devote its sole efforts and
for which it shall have sole responsibility under this Agreement shall
be all the zip codes in the State(s) of Missouri, Kansas, Nebraska and
the mutually agreeable zip codes in Southern Iowa and Southern
Illinois, as listed and described on Exhibit B attached hereto and made
a part hereof (the "Sole Area of Responsibility"). Sales outside the
Sole Area of Responsibility shall not be subject to a commission.
4. Term and Termination. The term of this Agreement shall
commence on the date hereof and shall expire two (2) years after
January 1, 1997, unless earlier terminated in accordance with any of
the following provisions:
<PAGE>
(a) This Agreement may be terminated at any time by
written agreement of the parties hereto.
(b) This Agreement may be terminated by the Company at
any time by written notice given to the Independent Sales
Representative (i) if the Independent Sales Representative, his
employees or agents commit a material breach of this Agreement,
such a material breach being defined as non-compliance with the
confidentiality provisions herein or non-compliance with FDA
rules or regulations, (ii) if the Independent Sales
Representative or any of its agents or employees commits any act
of fraud or dishonesty with respect to the Company or any of its
customers, is convicted of any crime (other than minor traffic
violations), or engages in any conduct which tends to hold the
Company up to ridicule by others or is otherwise detrimental to
the best interest of the Company and Independent Sales
Representative fails to take immediate action, agreeable to the
Company to correct the situation, and (iii) if Mike Carroll shall
die, shall become totally and permanently disabled, or shall
suffer any physical or mental impairment which exists for sixty
(60) days or more (whether or not consecutive) and which, in the
opinion of the Company, adversely affects the ability of the
Independent Sales Representative to carry out its duties and
responsibilities under this Agreement.
(c) This Agreement may be terminated by the Independent
Sales Representative at any time by written notice given to the
Company if the Company commits a material breach of this
Agreement.
(d) This Agreement may also be terminated by thirty (30)
days written notice if Independent Sales Representative fails to
increase territory net sales by five percent (5%) or more from
1/1/97 to 1/1/98 over comparative sales of 1/1/96 to 1/1/97.
After 1/1/99 the sales percentage increase for the Territory for
the upcoming year shall be mutually agreed upon for the annual
renewal of this Agreement.
The expiration or termination of this Agreement shall not terminate,
limit or otherwise affect any rights or obligations of the parties
hereto which shall have arisen hereunder at or prior to the time of
such expiration or termination.
5. Commissions.
(a) In consideration of the services performed by the
Independent Sales Representative hereunder, the Company shall pay
the Independent Sales Representative commissions, at the
applicable rates specified in Schedule A attached hereto and made
a part hereof, on all products specified in Schedule A which the
Company sells during the term of this Agreement to customers
located and doing business in the Sole Area of Responsibility.
Such commissions shall be deemed earned when the products are
shipped and billed by the Company. The amount of the commissions
payable hereunder shall be determined on the basis of the invoice
<PAGE>
prices of the products sold (which shall be the prices charged by
the Company to its distributors), net of returns, allowances,
discounts and adjustments, and exclusive of freight, insurance
and other shipping and handling charges, taxes, interest, late
fees, service or carrying charges and other similar charges. The
Company shall have the right to delete product or otherwise
change the list of products specified on Schedule A at any time,
provided the Company gives written notice of such changes to the
Independent Sales Representative not less that sixty (60) days
prior to the date such changes are to become effective.
(b) Within fifteen (15) days after the end of each
calendar month during the term of this Agreement:
(i) The Company shall furnish to the Independent
Sales Representative a statement showing all products
shipped to, products returned by, and allowances, discounts
and adjustments granted to customers in the Sole Area of
Responsibility, and all debits and credits to the
Independent Sales Representative's commission account,
during such month; and
(ii) The Company shall pay to the Independent Sales
Representative all commissions earned during such month,
net of any deductions due to products returned by or
allowances, discounts and adjustments granted to customers
in the Sole Area of Responsibility during such month.
(c) The Company shall be entitled to recover from the
Independent Sales Representative an amount equal to all
commissions paid by the Company to the Independent Sales
Representative in respect of products which are subsequently
returned by the customer or with respect to which the Company
subsequently grants an allowance, discount or adjustment to the
customer. The Company may recover such amount either by
requiring the Independent Sales Representative to make payment
thereof to the Company or by deducting such amount from future
commissions earned by the Independent Sales Representative,
whichever the Company shall elect.
(d) Notwithstanding anything to the contrary in this
Agreement, the Company may from time to time designate one or
more customers as national accounts or house accounts, and no
commissions shall be payable under this Agreement on products for
which the Company receives orders more than ten (10) days after
it has given written notice of such designation to the
Independent Sales Representative.
6. Orders. All orders solicited or obtained by the
Independent Sales Representative are subject to approval and acceptance
by the Company at its offices in Dallas County, Texas. The Independent
Sales Representative is not authorized and shall not purport to accept
any orders for the Company's products. The Company shall have the
right, in its sole discretion, to accept or reject each order for its
products; to determine whether and when to ship any products; to grant
or refuse credit to any customer and to determine the terms thereof; to
<PAGE>
accept or reject any customer's request or attempt to return any
products; to grant any allowances, discounts or adjustments; and to
change the prices it charges its distributors for the products listed
on Schedule A hereto (provided that the Company shall give the
Independent Sales Representative written notice of any such price
change not less than sixty (60) days before such change becomes
effective).
7. Duties of the Company. The Company shall use its
reasonable best efforts to maintain a sufficient inventory of the
products listed on Schedule A to enable it to ship the products ordered
by customers in the Sole Area of Responsibility on a reasonably prompt
basis.
8. Status of Independent Sales Representative and Its
Personnel. The Independent Sales Representative is and shall at all
times remain an independent contractor, and nothing in this Agreement
is intended or shall be construed to constitute the Independent Sales
Representative an employee, agent or partner of the Company. As an
independent contractor, the Independent Sales Representative shall be
entitled to employ such personnel as it shall desire, on such terms as
it shall deem appropriate, and to utilize such personnel in carrying
out its obligations under this Agreement. Such personnel shall at all
times and for all purposes constitute employees or agents of the
Independent Sales Representative, and nothing in this Agreement is
intended or shall be construed to constitute such personnel employees
or agents of the Company.
9. FDA Compliance
Independent Sales Representative and its employees agrees
to strictly comply with all applicable rules and regulations of the
Federal Food and Drug Administration (FDA) and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
10. Compliance by Third Parties
Independent Sales Representative agrees to take all steps
reasonably necessary to ensure that its representatives comply with all
applicable rules and regulations of the FDA and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
11. Competitive Products
Independent Sales Representative agrees to refrain from
marketing competitive products during the term of this Agreement.
<PAGE>
12. Confidentiality
Independent Sales Representative and any employees or
agents thereof shall hold in trust and strictest confidence for
Carrington all Carrington Confidential Information and shall not
disclose to any person or use such information for any purpose other
than in connection with the performance of Independent Sales
Representative duties and responsibilities during the term of this
Agreement. Confidential Information shall mean, but not limited to,
prices, sales, customer or distribution information or lists as well as
any related product planning or research information.
The provisions of this Agreement shall survive and continue
after expiration or termination of this Agreement and any and all
Confidential Information and copies thereof shall be promptly returned
to Company upon its request. Independent Sales Representative shall
certify to Company that it and all its employees have returned all
Confidential Information and copies thereof.
13. Notices. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given
when delivered in person or when mailed by certified or registered
United States mail, postage paid, addressed to the appropriate party at
the address shown for such party below:
If to the Company, to:
President
Carrington Laboratories, Inc.
P.O. Box 168128
Irving, TX 75016-8128
If to the Independent Sales Representative, to:
Patrice M. Carroll
Vision Medical
15009 Manchester Road, #295
Ballwin, MO 63011
Either party may change its address for notices hereunder by giving
notice of such change to the other party in the manner set forth above.
14. Waiver. No delay on the part of either party in exercising
any right, power or remedy which it may have in connection herewith
shall operate as a waiver thereof, nor shall any waiver thereof or any
single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or remedy. No waiver
of any provision of this Agreement, and no consent to any departure
therefrom, shall be effective unless such waiver or consent is in
writing and signed by the party against whom it is sought to be
enforced, and no such waiver or consent shall be effective except with
respect to the particular case and purpose for which it is given.
15. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Texas.
<PAGE>
16. Entirety and Modification. This Agreement contains the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements, whether
written or oral, between such parties relating to such subject matter.
No modification, alteration, amendment or supplement to this Agreement
shall be valid or effective unless the same is in writing and signed by
the party against whom it is sought to be enforced.
17. Severability. If any provision of this Agreement is held
to be unenforceable, (a) this Agreement shall be considered divisible,
(b) such provision shall be deemed inoperative to the extent it is
unenforceable, and (c) in all other respects this Agreement shall
remain in full force and effect; provided, however, that if any such
provision may be made 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.
18. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns; provided, however, that neither of
the parties shall, without the consent of the other, assign or transfer
this agreement or any interest herein, and any such assignment or
transfer attempted without the consent of the other party hereto shall
be void and of no effect whatsoever. Notwithstanding the foregoing, in
the event of a merger, consolidation or transfer or sale of all or
substantially all of the assets of the Company, this Agreement may be
transferred to the successor to the Company's business and assets
without the consent of the Independent Sales Representative.
19. Captions. The captions of the various sections of this
Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
20. Gender. Words of any gender used in this Agreement shall
be construed to include each gender.
21. Counterparts. This Agreement may be signed in
counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:__________________________
Carlton E. Turner, Ph.D.
President and CEO
By:__________________________
Name:________________________
Title:_______________________
<PAGE>
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
This Agreement, entered into as of October 1, 1996, by and
between THINK MEDICAL, INC., (the "Independent Sales Representative"),
and CARRINGTON LABORATORIES, INC., a Texas corporation (the "Company").
WITNESSETH:
WHEREAS, the Company is engaged in the business of manufacturing
and selling various medical products and supplies; and
WHEREAS, the Company desires to engage the Independent Sales
Representative to promote the sale of and solicit orders for the
Company's products, and the Independent Sales Representative desires to
be so engaged;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
1. Engagement. The Company hereby appoints and engages the
Independent Sales Representative, and the Independent Sales
Representative hereby accepts such appointment and engagement, to
promote the sale of and solicit orders for the Company's products in
accordance with the terms and conditions of this Agreement.
2. D u t i e s of Independent Sales Representative. The
Independent Sales Representative shall use its best efforts to promote
the sale of the Company's products, to solicit orders therefor and to
perform such other functions of a manufacturer's Independent Sales
Representative as the Company shall from time to time request. The
Independent Sales Representative shall keep the Company informed at all
times of the Independent Sales Representative's progress and of any
problems relating to or affecting the Company's business, products or
customers. The Independent Sales Representative shall visit existing
and prospective customers in person as often as necessary to carry out
its duties in order to meet its sales goals hereunder in a legal and
ethical manner and in accordance with normal and accepted business and
regulatory practices. The Independent Sales Representative shall bear
all expenses incurred by it in carrying out its duties and
responsibilities under this Agreement.
3. Sole Area of Responsibility. The geographic area in which
the Independent Sales Representative shall devote its sole efforts and
for which it shall have sole responsibility under this Agreement shall
be the all the zip codes in the State of North Carolina as mutualy
agreed upon, as listed and described on Exhibit B attached hereto and
made a part hereof (the Sole Area of Responsibility ). Sales outside
the Sole Area of Responsibility shall not be subject to a commission.
4. Term and Termination. The term of this Agreement shall
commence on the date hereof and shall expire two (2) years after
January 1, 1997, unless earlier terminated in accordance with any of
the following provisions:
<PAGE>
(a) This Agreement may be terminated at any time by
written agreement of the parties hereto.
(b) This Agreement may be terminated by the Company at
any time by written notice given to the Independent Sales
Representative (i) if the Independent Sales Representative, his
employees or agents commit a material breach of this Agreement,
such a material breach being defined as non-compliance with the
confidentiality provisions herein or non-compliance with FDA
rules or regulations, (ii) if the Independent Sales
Representative or any of its agents or employees commits any act
of fraud or dishonesty with respect to the Company or any of its
customers, is convicted of any crime (other than minor traffic
violations), or engages in any conduct which tends to hold the
Company up to ridicule by others or is otherwise detrimental to
t h e best interest of the Company and Independent Sales
Representative fails to take immediate action, agreeable to the
Company to correct the situation, and (iii) if Hack Sells shall
die, shall become totally and permanently disabled, or shall
suffer any physical or mental impairment which exists for sixty
(60) days or more (whether or not consecutive) and which, in the
opinion of the Company, adversely affects the ability of the
Independent Sales Representative to carry out its duties and
responsibilities under this Agreement.
(c) This Agreement may be terminated by the Independent
Sales Representative at any time by written notice given to the
Company if the Company commits a material breach of this
Agreement.
(d) This Agreement may also be terminated by thirty (30)
days written notice if Independent Sales Representative fails to
increase territory net sales by five percent (5%) or more from
1/1/97 to 1/1/98 over comparative sales of 1/1/96 to 1/1/97.
After 1/1/99 the renewal of this Agreement shall be upon the
mutually agreeable terms.
The expiration or termination of this Agreement shall not terminate,
limit or otherwise affect any rights or obligations of the parties
hereto which shall have arisen hereunder at or prior to the time of
such expiration or termination.
5. Commissions.
(a) In consideration of the services performed by the
Independent Sales Representative hereunder, the Company shall pay
t h e Independent Sales Representative commissions, at the
applicable rates specified in Schedule A attached hereto and made
a part hereof, on all products specified in Schedule A which the
Company sells during the term of this Agreement to customers
located and doing business in the Sole Area of Responsibility.
Such commissions shall be deemed earned when the products are
shipped and billed by the Company. The amount of the commissions
payable hereunder shall be determined on the basis of the invoice
prices of the products sold (which shall be the prices charged by
<PAGE>
the Company to its distributors), net of returns, allowances,
discounts and adjustments, and exclusive of freight, insurance
and other shipping and handling charges, taxes, interest, late
fees, service or carrying charges and other similar charges. The
Company shall have the right to delete product or otherwise
change the list of products specified on Schedule A at any time,
provided the Company gives written notice of such changes to the
Independent Sales Representative not less that sixty (60) days
prior to the date such changes are to become effective.
(b) Within fifteen (15) days after the end of each
calendar month during the term of this Agreement:
(i) The Company shall furnish to the Independent
Sales Representative a statement showing all products
shipped to, products returned by, and allowances, discounts
and adjustments granted to customers in the Sole Area of
R e s ponsibility, and all debits and credits to the
Independent Sales Representative's commission account,
during such month; and
(ii) The Company shall pay to the Independent Sales
Representative all commissions earned during such month,
net of any deductions due to products returned by or
allowances, discounts and adjustments granted to customers
in the Sole Area of Responsibility during such month.
(c) The Company shall be entitled to recover from the
I n d ependent Sales Representative an amount equal to all
commissions paid by the Company to the Independent Sales
Representative in respect of products which are subsequently
returned by the customer or with respect to which the Company
subsequently grants an allowance, discount or adjustment to the
customer. The Company may recover such amount either by
requiring the Independent Sales Representative to make payment
thereof to the Company or by deducting such amount from future
commissions earned by the Independent Sales Representative,
whichever the Company shall elect.
(d) Notwithstanding anything to the contrary in this
Agreement, the Company may from time to time designate one or
more customers as national accounts or house accounts, and no
commissions shall be payable under this Agreement on products for
which the Company receives orders more than ten (10) days after
i t has given written notice of such designation to the
Independent Sales Representative.
6. O r d ers. All orders solicited or obtained by the
Independent Sales Representative are subject to approval and acceptance
by the Company at its offices in Dallas County, Texas. The Independent
Sales Representative is not authorized and shall not purport to accept
any orders for the Company's products. The Company shall have the
right, in its sole discretion, to accept or reject each order for its
products; to determine whether and when to ship any products; to grant
or refuse credit to any customer and to determine the terms thereof; to
accept or reject any customer's request or attempt to return any
products; to grant any allowances, discounts or adjustments; and to
<PAGE>
change the prices it charges its distributors for the products listed
on Schedule A hereto (provided that the Company shall give the
Independent Sales Representative written notice of any such price
change not less than sixty (60) days before such change becomes
effective).
7. Duties of the Company. The Company shall use its
reasonable best efforts to maintain a sufficient inventory of the
products listed on Schedule A to enable it to ship the products ordered
by customers in the Sole Area of Responsibility on a reasonably prompt
basis.
8. S t a tus of Independent Sales Representative and Its
Personnel. The Independent Sales Representative is and shall at all
times remain an independent contractor, and nothing in this Agreement
is intended or shall be construed to constitute the Independent Sales
Representative an employee, agent or partner of the Company. As an
independent contractor, the Independent Sales Representative shall be
entitled to employ such personnel as it shall desire, on such terms as
it shall deem appropriate, and to utilize such personnel in carrying
out its obligations under this Agreement. Such personnel shall at all
times and for all purposes constitute employees or agents of the
Independent Sales Representative, and nothing in this Agreement is
intended or shall be construed to constitute such personnel employees
or agents of the Company.
9. FDA Compliance
Independent Sales Representative and its employees agrees
to strictly comply with all applicable rules and regulations of the
Federal Food and Drug Administration (FDA) and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
10. Compliance by Third Parties
Independent Sales Representative agrees to take all steps
reasonably necessary to ensure that its representatives comply with all
applicable rules and regulations of the FDA and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
11. Competitive Products
Independent Sales Representative agrees to refrain from
marketing competitive products during the term of this Agreement.
12. Confidentiality
Independent Sales Representative and any employees or
agents thereof shall hold in trust and strictest confidence for
Carrington all Carrington Confidential Information and shall not
disclose to any person or use such information for any purpose other
t h a n in connection with the performance of Independent Sales
Representative duties and responsibilities during the term of this
Agreement. Confidential Information shall mean, but not limited to,
prices, sales, customer or distribution information or lists as well as
any related product planning or research information.
<PAGE>
The provisions of this Agreement shall survive and continue
after expiration or termination of this Agreement and any and all
Confidential Information and copies thereof shall be promptly returned
to Company upon its request. Independent Sales Representative shall
certify to Company that it and all its employees have returned all
Confidential Information and copies thereof.
13. Notices. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given
when delivered in person or when mailed by certified or registered
United States mail, postage paid, addressed to the appropriate party at
the address shown for such party below:
If to the Company, to:
President
Carrington Laboratories, Inc.
P.O. Box 168128
Irving, TX 75016-8128
If to the Independent Sales Representative, to:
Hack Sells
Think Medical, Inc.
3900 Yew Circle
Raleigh, NC 27612
Either party may change its address for notices hereunder by giving
notice of such change to the other party in the manner set forth above.
14. Waiver. No delay on the part of either party in exercising
any right, power or remedy which it may have in connection herewith
shall operate as a waiver thereof, nor shall any waiver thereof or any
single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or remedy. No waiver
of any provision of this Agreement, and no consent to any departure
therefrom, shall be effective unless such waiver or consent is in
writing and signed by the party against whom it is sought to be
enforced, and no such waiver or consent shall be effective except with
respect to the particular case and purpose for which it is given.
15. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Texas.
16. Entirety and Modification. This Agreement contains the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements, whether
written or oral, between such parties relating to such subject matter.
No modification, alteration, amendment or supplement to this Agreement
shall be valid or effective unless the same is in writing and signed by
the party against whom it is sought to be enforced.
<PAGE>
17. Severability. If any provision of this Agreement is held
to be unenforceable, (a) this Agreement shall be considered divisible,
(b) such provision shall be deemed inoperative to the extent it is
unenforceable, and (c) in all other respects this Agreement shall
remain in full force and effect; provided, however, that if any such
provision may be made 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.
18. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns; provided, however, that neither of
the parties shall, without the consent of the other, assign or transfer
this agreement or any interest herein, and any such assignment or
transfer attempted without the consent of the other party hereto shall
be void and of no effect whatsoever. Notwithstanding the foregoing, in
the event of a merger, consolidation or transfer or sale of all or
substantially all of the assets of the Company, this Agreement may be
transferred to the successor to the Company's business and assets
without the consent of the Independent Sales Representative.
19. Captions. The captions of the various sections of this
Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
20. Gender. Words of any gender used in this Agreement shall
be construed to include each gender.
21. Counterparts. This Agreement may be signed in
counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:___________________________
Carlton E.Turner, Ph.D.
President and CEO
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
SCHEDULE A
COMMISSIONS
Carrington Wound Gel 3 oz. 20%
Carrington Wound Gel 1/2 oz. 20%
Cara-Klenz 16 oz. 20%
Cara-Klenz 6 oz. 20%
Carrington Moisture Barrier 20%
Carrington Incontinence Skin Care Kit 20%
Carrington Foot Cream 20%
Carrington Odor Eliminator 1 oz. 20%
Carrington Odor Eliminator 8 oz. 20%
Carrington Whirlpool Solution 20%
Perineal Cleansing Foam 8 oz. 20%
Aloe Skin Balm 20%
Commissions are paid on Distributor pricing. Commission program can be
changed without notice.
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
This Agreement, entered into as of October 1, 1996, by and
between MEARES MEDICAL SALES ASSOCIATES (the "Independent Sales
Representative"), and CARRINGTON LABORATORIES, INC., a Texas
corporation (the "Company").
WITNESSETH:
WHEREAS, the Company is engaged in the business of manufacturing
and selling various medical products and supplies; and
WHEREAS, the Company desires to engage the Independent Sales
Representative to promote the sale of and solicit orders for the
Company's products, and the Independent Sales Representative desires to
be so engaged;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
1. Engagement. The Company hereby appoints and engages the
Independent Sales Representative, and the Independent Sales
Representative hereby accepts such appointment and engagement, to
promote the sale of and solicit orders for the Company's products in
accordance with the terms and conditions of this Agreement.
2. Duties of Independent Sales Representative. The
Independent Sales Representative shall use its best efforts to promote
the sale of the Company's products, to solicit orders therefor and to
perform such other functions of a Manufacturer's Independent Sales
Representative as the Company shall from time to time request. The
Independent Sales Representative shall keep the Company informed at all
times of the Independent Sales Representative's progress and of any
problems relating to or affecting the Company's business, products or
customers. The Independent Sales Representative shall visit existing
and prospective customers in person as often as necessary to carry out
its duties in order to meet its sales goals hereunder in a legal and
ethical manner and in accordance with normal and accepted business and
regulatory practices. The Independent Sales Representative shall bear
all expenses incurred by it in carrying out its duties and
responsibilities under this Agreement.
3. Sole Area of Responsibility. The geographic area in which
the Independent Sales Representative shall devote its sole efforts and
for which it shall have sole responsibility under this Agreement shall
be all of the zip codes in the State(s) of Alabama and Georgia and the
mutually agreeable zip codes in Northern Florida and Tennessee, as
listed and described on Exhibit B attached hereto and made a part
hereof (the "Sole Area of Responsibility"). Sales outside the Sole
Area of Responsibility shall not be subject to a commission.
<PAGE>
4. Term and Termination. The term of this Agreement shall
commence on the date hereof and shall expire two (2) years after
January 1, 1997, unless earlier terminated in accordance with any of
the following provisions:
(a) This Agreement may be terminated at any time by
written agreement of the parties hereto.
(b) This Agreement may be terminated by the Company at
any time by written notice given to the Independent Sales
Representative (i) if the Independent Sales Representative, his
employees or agents commit a material breach of this Agreement,
such a material breach being defined as non-compliance with the
confidentiality provisions herein or non-compliance with FDA
rules or regulations, (ii) if the Independent Sales
Representative or any of its agents or employees commits any act
of fraud or dishonesty with respect to the Company or any of its
customers, is convicted of any crime (other than minor traffic
violations), or engages in any conduct which tends to hold the
Company up to ridicule by others or is otherwise detrimental to
the best interest of the Company and Independent Sales
Representative fails to take immediate action, agreeable to the
Company to correct the situation, and (iii) if Kirk Meares shall
die, shall become totally and permanently disabled, or shall
suffer any physical or mental impairment which exists for sixty
(60) days or more (whether or not consecutive) and which, in the
opinion of the Company, adversely affects the ability of the
Independent Sales Representative to carry out its duties and
responsibilities under this Agreement.
(c) This Agreement may be terminated by the Independent
Sales Representative at any time by written notice given to the
Company if the Company commits a material breach of this
Agreement.
(d) This Agreement may also be terminated by thirty (30)
days written notice if Independent Sales Representative fails to
increase territory net sales by five percent (5%) or more from
1/1/97 to 1/1/98 over comparative sales of 1/1/96 to 1/1/97.
After 1/1/99 the renewal of this Agreement shall be upon the
mutually agreeable terms.
The expiration or termination of this Agreement shall not terminate,
limit or otherwise affect any rights or obligations of the parties
hereto which shall have arisen hereunder at or prior to the time of
such expiration or termination.
5. Commissions.
(a) In consideration of the services performed by the
Independent Sales Representative hereunder, the Company shall pay
the Independent Sales Representative commissions, at the
applicable rates specified in Schedule A attached hereto and made
a part hereof, on all products specified in Schedule A which the
Company sells during the term of this Agreement to customers
located and doing business in the Sole Area of Responsibility.
Such commissions shall be deemed earned when the products are
shipped and billed by the Company. The amount of the commissions
<PAGE>
payable hereunder shall be determined on the basis of the invoice
prices of the products sold (which shall be the prices charged by
the Company to its distributors), net of returns, allowances,
discounts and adjustments, and exclusive of freight, insurance
and other shipping and handling charges, taxes, interest, late
fees, service or carrying charges and other similar charges. The
Company shall have the right to delete product or otherwise
change the list of products specified on Schedule A at any time,
provided the Company gives written notice of such changes to the
Independent Sales Representative not less that sixty (60) days
prior to the date such changes are to become effective.
(b) Within fifteen (15) days after the end of each
calendar month during the term of this Agreement:
(i) The Company shall furnish to the Independent
Sales Representative a statement showing all products
shipped to, products returned by, and allowances, discounts
and adjustments granted to customers in the Sole Area of
Responsibility, and all debits and credits to the
Independent Sales Representative's commission account,
during such month; and
(ii) The Company shall pay to the Independent Sales
Representative all commissions earned during such month,
net of any deductions due to products returned by or
allowances, discounts and adjustments granted to customers
in the Sole Area of Responsibility during such month.
(c) The Company shall be entitled to recover from the
Independent Sales Representative an amount equal to all
commissions paid by the Company to the Independent Sales
Representative in respect of products which are subsequently
returned by the customer or with respect to which the Company
subsequently grants an allowance, discount or adjustment to the
customer. The Company may recover such amount either by
requiring the Independent Sales Representative to make payment
thereof to the Company or by deducting such amount from future
commissions earned by the Independent Sales Representative,
whichever the Company shall elect.
(d) Notwithstanding anything to the contrary in this
Agreement, the Company may from time to time designate one or
more customers as national accounts or house accounts, and no
commissions shall be payable under this Agreement on products for
which the Company receives orders more than ten (10) days after
it has given written notice of such designation to the
Independent Sales Representative.
6. Orders. All orders solicited or obtained by the
Independent Sales Representative are subject to approval and acceptance
by the Company at its offices in Dallas County, Texas. The Independent
Sales Representative is not authorized and shall not purport to accept
any orders for the Company's products. The Company shall have the
right, in its sole discretion, to accept or reject each order for its
products; to determine whether and when to ship any products; to grant
<PAGE>
or refuse credit to any customer and to determine the terms thereof; to
accept or reject any customer's request or attempt to return any
products; to grant any allowances, discounts or adjustments; and to
change the prices it charges its distributors for the products listed
on Schedule A hereto (provided that the Company shall give the
Independent Sales Representative written notice of any such price
change not less than sixty (60) days before such change becomes
effective).
7. Duties of the Company. The Company shall use its
reasonable best efforts to maintain a sufficient inventory of the
products listed on Schedule A to enable it to ship the products ordered
by customers in the Sole Area of Responsibility on a reasonably prompt
basis.
8. Status of Independent Sales Representative and Its
Personnel. The Independent Sales Representative is and shall at all
times remain an independent contractor, and nothing in this Agreement
is intended or shall be construed to constitute the Independent Sales
Representative an employee, agent or partner of the Company. As an
independent contractor, the Independent Sales Representative shall be
entitled to employ such personnel as it shall desire, on such terms as
it shall deem appropriate, and to utilize such personnel in carrying
out its obligations under this Agreement. Such personnel shall at all
times and for all purposes constitute employees or agents of the
Independent Sales Representative, and nothing in this Agreement is
intended or shall be construed to constitute such personnel employees
or agents of the Company.
9. FDA Compliance
Independent Sales Representative and its employees agrees
to strictly comply with all applicable rules and regulations of the
Federal Food and Drug Administration (FDA) and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
10. Compliance by Third Parties
Independent Sales Representative agrees to take all steps
reasonably necessary to ensure that its representatives comply with all
applicable rules and regulations of the FDA and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
11. Competitive Products
Independent Sales Representative agrees to refrain from
marketing competitive products during the term of this Agreement.
12. Confidentiality
Independent Sales Representative and any employees or
agents thereof shall hold in trust and strictest confidence for
Carrington all Carrington Confidential Information and shall not
disclose to any person or use such information for any purpose other
than in connection with the performance of Independent Sales
Representative duties and responsibilities during the term of this
<PAGE>
Agreement. Confidential Information shall mean, but not limited to,
prices, sales, customer or distribution information or lists as well as
any related product planning or research information.
The provisions of this Agreement shall survive and continue
after expiration or termination of this Agreement and any and all
Confidential Information and copies thereof shall be promptly returned
to Company upon its request. Independent Sales Representative shall
certify to Company that it and all its employees have returned all
Confidential Information and copies thereof.
13. Notices. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given
when delivered in person or when mailed by certified or registered
United States mail, postage paid, addressed to the appropriate party at
the address shown for such party below:
If to the Company, to:
President
Carrington Laboratories, Inc.
P.O. Box 168128
Irving, TX 75016-8128
If to the Independent Sales Representative, to:
Kirk Meares
Meares Medical Sales Associates
7400 Native Oak
Irving, Texas 75063
Either party may change its address for notices hereunder by giving
notice of such change to the other party in the manner set forth above.
14. Waiver. No delay on the part of either party in exercising
any right, power or remedy which it may have in connection herewith
shall operate as a waiver thereof, nor shall any waiver thereof or any
single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or remedy. No waiver
of any provision of this Agreement, and no consent to any departure
therefrom, shall be effective unless such waiver or consent is in
writing and signed by the party against whom it is sought to be
enforced, and no such waiver or consent shall be effective except with
respect to the particular case and purpose for which it is given.
15. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Texas.
16. Entirety and Modification. This Agreement contains the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements, whether
written or oral, between such parties relating to such subject matter.
No modification, alteration, amendment or supplement to this Agreement
shall be valid or effective unless the same is in writing and signed by
the party against whom it is sought to be enforced.
<PAGE>
17. Severability. If any provision of this Agreement is held
to be unenforceable, (a) this Agreement shall be considered divisible,
(b) such provision shall be deemed inoperative to the extent it is
unenforceable, and (c) in all other respects this Agreement shall
remain in full force and effect; provided, however, that if any such
provision may be made 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.
18. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns; provided, however, that neither of
the parties shall, without the consent of the other, assign or transfer
this agreement or any interest herein, and any such assignment or
transfer attempted without the consent of the other party hereto shall
be void and of no effect whatsoever. Notwithstanding the foregoing, in
the event of a merger, consolidation or transfer or sale of all or
substantially all of the assets of the Company, this Agreement may be
transferred to the successor to the Company's business and assets
without the consent of the Independent Sales Representative.
19. Captions. The captions of the various sections of this
Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
20. Gender. Words of any gender used in this Agreement shall
be construed to include each gender.
21. Counterparts. This Agreement may be signed in
counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By:__________________________
Carlton E. Turner, Ph.D.
President and CEO
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
SCHEDULE A
COMMISSIONS
Carrington Wound Gel 3 oz. 20%
Carrington Wound Gel 1/2 oz. 20%
Cara-Klenz 16 oz. 20%
Cara-Klenz 6 oz. 20%
Carrington Moisture Barrier 20%
Carrington Incontinence Skin Care Kit 20%
Carrington Foot Cream 20%
Carrington Odor Eliminator 1 oz. 20%
Carrington Odor Eliminator 8 oz. 20%
Carrington Whirlpool Solution 20%
Perineal Cleansing Foam 8 oz. 20%
Aloe Skin Balm 20%
Commissions are paid on Distributor pricing. Commission program can be
changed without notice.
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of February
13, 1997, is by and between CARALOE, INC., a Texas corporation
("Seller"), and ALOE COMMODITIES INTERNATIONAL, INC., a Texas
corporation ("Buyer"),
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, Caraloe's bulk raw material for drinks and other
consumer products (hereinafter referred to under the name "Products")
in the quantities, at the price, and upon the terms and conditions
hereinafter set forth; and
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 February
13, 1997, and shall end at midnight on January 31, 2007 , unless sooner
terminated as provided herein (the "Term").
2. Sale and Purchase. Subject to the terms and conditions of
this Agreement, Seller shall sell to Buyer, and Buyer shall purchase
from Seller, during each year of the Term, agreed upon monthly
quantities equal to all of Buyer's needs for bulk raw material for the
Products. Seller shall, however, not be required to sell monthly
quantities in excess of Seller's present plant, farm or manufacturing
capacity. The Products specifications shall be mutually agreed upon
by the Parties within ninety (90) days from the date of execution of
this Agreement. Failure to reach agreement on the specifications
within ninety (90) days shall cause this Agreement to terminate unless
an extension thereto is mutually agreed upon by the Parties hereto.
The initial Products and specifications shall not include Manapol
powder but such product may be added after March 31, 1997, if the
Parties so agree.
3. Quality. Seller warrants to Buyer that all bulk raw material
sold by Seller pursuant to this Agreement will generally conform to the
quality specifications set forth in Exhibit A to this Agreement as per
Buyer and Seller mutual agreement referenced above. 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 BULK RAW MATERIAL TO BE SOLD HEREUNDER, AND NONE
SHALL BE IMPLIED BY LAW.
4. 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 bulk raw material to be delivered to
it hereunder, (i) as to the quantities of bulk raw material 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 an annual basis prior to the beginning of
each year of the Term a nonbinding forecast of Buyer's minimum and
<PAGE>
maximum aggregate delivery requirements for bulk raw material for such
year (provided that such forecast for the second year of the Term shall
be provided to Seller by February 1, 1998), and (b) on a quarterly
basis at least thirty (30) days prior to the end of each three-month
period of the Term a forecast acceptable to Seller (which shall be
binding on Buyer) of Buyer's minimum and maximum delivery requirements
for bulk raw material for each month of the next three-month period
(provided that such forecast for the initial period of the Term ending
on April 30, 1997, shall be provided to Seller by February 28, 1997).
The quantities of bulk raw material 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 bulk raw material in excess of
125% of the maximum delivery requirement for such period set forth in
the binding forecast for such period accepted by Seller. Deliveries of
bulk raw material 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 bulk raw material
delivered to Buyer hereunder shall be packaged per agreement of the
Parties. All deliveries of bulk raw material to Buyer hereunder shall
be made by Seller F.O.B. at the facilities of Seller or its affiliates
located in either Dallas, Texas or Liberia, Costa Rica as agreed upon.
5. Purchase Price. All bulk raw material to be purchased by
Buyer under this Agreement shall be purchased by it, during the first
and second years of this Agreement, at a price per Product as set forth
on Exhibit B to this Agreement. Thereafter, Buyer and Seller shall
meet on a yearly basis to mutually agree upon prices for the upcoming
contract year. If prices for the upcoming year cannot be agreed upon
the Agreement shall terminate on March 5 of the contract year in
question. At delivery point, Buyer shall bear all freight, insurance
and similar costs, and all sales taxes, with respect to such purchases
from that point forward. The purchase price of bulk raw material,
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.
6. Labels and Advertising
(a) FDA Compliance of Labels and Advertising. All labels and
advertising relating to the bulk raw material that reference Carrington
Laboratories or Seller sold hereunder must strictly comply with all
applicable rules and regulations of the FDA and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to product ingredients.
(b) Claims by Aloe Commodities International, Inc. ("ACI")
Unlimited. ACI 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 bulk raw material and Carrington Laboratories or
Seller, unless such claims have received written approval from the
Seller.
<PAGE>
(c) FDA Approval of Claims. If ACI desires to seek FDA approval
as to any specific claims with respect to the bulk raw material, ACI
hereby agrees to (i) notify Caraloe of the claims and the application
prior to filing and (ii) to keep informed as to the progress of the
application, including but not limited to sending Caraloe copies of all
communications or notices to or from the FDA, as applicable.
(d) Right to Approve Labels, etc. If Caraloe so requests, ACI
shall not use any label, advertisement or marketing material or
individual spokesman associated with the bulk raw material and
Carrington Laboratories or Seller, unless such label, advertisement or
marketing material or individual spokesman has first been submitted to
and approved by Caraloe. Caraloe shall not unreasonably withhold its
approval of any such label, advertisement or marketing material.
(e) Compliance by Third Parties. ACI shall take all steps
reasonably necessary to ensure that its distributors and any other
parties to whom it sells any of the bulk raw material for resale do not
relabel, repackage, advertise, sell or attempt to sell the bulk raw
material in a manner that would violate this Agreement if done by ACI.
7. Confidentiality. In the performance of Seller's obligations
pursuant to this 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.
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 bulk raw
material 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.
<PAGE>
9. Rights Upon Default.
(a) Seller's Rights Upon Default. If Buyer (i) fails to purchase
the quantities of bulk raw material 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 5 days
(in the case of a failure to make a payment) or 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 bulk raw
material 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.
(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 bulk raw material 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
<PAGE>
(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 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.
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 constitutes the entire
agreement between the parties hereto relating to the matters covered
hereby and supersede any and all prior understandings, whether written
or oral, with respect to such matters. 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.
<PAGE>
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: Aloe Commodities International, Inc.
12901 Nicholson, Suite 370
Farmers Branch, TX 75234
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.
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 8 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:___________________________
Name:_________________________
Title:________________________
ALOE COMMODITIES INTERNATIONAL, INC.
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
EXHIBIT A
[TO BE AGREED UPON WITHIN NINETY (90) DAYS}
<PAGE>
EXHIBIT B
Product Prices F.O.B. Irving, Texas
1. Aloe Vera Gel $1.557 per Kilogram
2. Bifurcated Aloe Vera Gel $1.07 per Kilogram
3. Aloe Vera Gel ENZ $1.79 per Kilogram
4. Bifurcated Aloe Vera Gel ENZ $1.20 per Kilogram
5. Pulp Aloe Vera Gel Fillet $1.557 per Kilogram
Prices F.O.B. Carrington
Product Costa Rica Plant
6.Aloe Juice with AVMP powder $1.93 per Quart
plus Bifurcated Powder
NOTE: Exact specifications for the Products listed in
Exhibit B are set forth in Exhibit A. Exhibit A is
to be mutually agreed upon by the parties hereto
within ninety (90) days of the effective date of
the Agreement.
<PAGE>
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), effective as of
March 1, 1997, is made by and between CARRINGTON LABORATORIES, INC.
("Licensor"), a Texas corporation, having its principal place of
business at 2001 Walnut Hill Lane, Irving, Texas 75038, and DAVID
WHEELER, doing business as LIGHT RESOURCES UNLIMITED ("Licensee") with
its principal place of business at 20 West 20th Street, #803, New York,
New York, 10011.
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement,
Licensor and Licensee are entering into a Supply Agreement of even date
herewith (the "Supply Agreement") for the sale by Licensor and purchase
by Licensee of bulk AVMP[TM] Powder and/ or Manapol[R] Gold [TM] Powder
(hereinafter referred to under the product name of bulk AVMP[TM] Powder
and/ or Manapol[R] Gold[TM] Powder to be sold in bulk by Licensee ("the
Products");
WHEREAS, Carrington Laboratories, Inc., a Texas corporation
("Carrington"), claims the ownership of the trademarks AVMP[TM] Powder and
Manapol[R] Gold[TM] Powder (the "Marks") and has granted to Licensee a
license to use the Marks on a non-exclusive basis;
WHEREAS, Licensee is desirous of obtaining from Licensor, and
Licensor is willing to grant to Licensee, a license, but not an
obligation, to use the product names AVMP[TM] Powder and Manapol[R] Gold
[TM] Powder (the "Marks") in connection with the advertising and sale of the
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 the Products sold in connection with the
Marks;
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 Marks in connection
with the labeling, advertising and sale of the Products sold by
Licensee during the term of this Agreement. During the term of this
Agreement, Licensee shall have the non-exclusive right to use the Marks
in connection with the Products only containing AVMP[TM] Powder and/or
Manapol[R] Gold[TM] Powder that are intended for sale to the ultimate
consumer in the United States and Canada. However, Licensee shall not
be required to use either mark if it makes no representations or
references to the source of the bulk powder product it sells.
1.2 License Coterminous With Supply Agreement. The license
granted by this Agreement shall run coterminously with the Supply
Agreement, as well as non-exclusive extensions thereto, and any actions
or events which shall operate to extend or terminate the Supply
Agreement shall automatically extend or terminate this Agreement
simultaneously.
1.3 Sublicenses. Licensee shall not have the right without
written permission from Licensor to grant sublicenses with respect to
the license granted herein; however, Licensee may engage a third party
or parties to make and affix labels for the Products in compliance with
Articles 2,3, and 4 hereof, and/or to distribute and sell the 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.
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
Marks. Licensee acknowledges that its use of the Marks shall inure to
the benefit of Licensor and shall not create in Licensee's favor any
right, title or interest in or to the Marks.
2.2 Discontinuation of Use of Marks. Upon the expiration or
termination of this Agreement any non-exclusive Supply 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 Marks which is confusingly or deceptively similar to the
Marks, except that Licensee may continue to use the Marks under the
terms and conditions of this Agreement in connection with any remaining
supplies of the Products purchased by Licensee from Licensor until such
supplies are exhausted.
2.3 Standards. All bulk products on which the Marks are used
by Licensee shall be of consistent quality and shall meet or exceed all
standards set by Licensor, in Licensor's sole discretion, from time to
time. Licensee shall have thirty (30) days from the receipt of written
notice of any change in the standards to comply with any new
requirements.
<PAGE>
2.4 FDA Compliance of Products. All bulk products on which the
Marks are used by Licensee shall be 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, and (ii) all other applicable laws, rules
and regulations.
2.5 Inspection. Licensor reserves the right to inspect
Licensee's products bearing the Marks and Licensee's packaging
facilities at all reasonable times to insure Licensee's compliance with
this Agreement.
2.6 Use of Trademark. Licensee shall not use the Marks except
as specifically set forth herein. Without limiting the generality of
the preceding sentence, Licensee shall not use the Marks in connection
with the sale or advertising of any products other than the Products.
2.7 Trademark Registration. At Licensor's request and expense
and, except as otherwise provided herein at Licensor's sole discretion
and option, Licensee shall take whatever action is reasonably necessary
to assist Carrington or its assigns in registering the Marks 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 Marks. Licensee understands that Carrington or its assigns may
rely solely on Licensee's use of the Marks to obtain or maintain
registration with the USPTO.
Article 3
SALE
3.1 Combination With Other Products. Licensee shall not
combine the Products with any product or substance in any manner which
would violate any laws, regulations of any state, federal or other
governmental body. Licensee shall not combine the Products with any
other substance in a 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.
3.2 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 Products for resale do not relabel,
repackage, advertise, sell or attempt to sell the Products or any of
the 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
advertising relating to the Products offered in connection with the
Marks must strictly comply with all applicable rules and regulations of
the FDA and all other applicable laws, rules and regulations, including
but not limited to FDA requirements relating to product ingredients.
Information regarding the ingredients of the Products shall be
furnished to Licensee by Licensor from time to time.
<PAGE>
4.2 Mandatory Requirements. Licensee shall cause all labels,
packaging, advertising and promotional materials used by it in
advertising, marketing and selling the Products by or on behalf of
Licensee include the following legend:
AVMP[TM] Powder is a trademark of Carrington Laboratories, Inc.
Manapol[R] Gold[TM] Powder is a 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 the Products, unless such
claims have received written approval from the FDA.
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 the
Products, 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 Marks 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 Marks
or of any registration that may subsequently be granted for such Marks;
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 MARKS OR
ANY OF THE PRODUCTS MADE OR SOLD BY LICENSEE.
<PAGE>
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.
5.4 Indemnity 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 use by
Licensee of the Marks 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 Marks.
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 May 4, 2002. 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 the Products 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
<PAGE>
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.
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 injunctive
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
<PAGE>
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 8.6 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.
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 8.6
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.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
DAVID WHEELER, dba
LIGHT RESOURCES UNLIMITED
By:
<PAGE>
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of February
13, 1997, is by and between CARALOE, INC., a Texas corporation
("Seller"), and DAVID WHEELER, doing business as LIGHT RESOURCES
UNLIMITED, ("Buyer"),
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, Caraloe's AVMP[TM] Powder and/or Manapol[R] Gold[TM]
Powder (hereinafter referred to under the name "Product") in the
quantities, at the price, and upon the terms and conditions hereinafter
set forth; and
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 February
13, 1997, and shall end at midnight on May 12, 2002, unless sooner
terminated as provided herein (the "Term").
2. Sale and Purchase. Subject to the terms and conditions of
this Agreement, Seller shall sell to Buyer, and Buyer shall purchase
from Seller, mutually agreed upon monthly quantities for the first
three months ending May 12, 1997. Thereafter, Buyer shall purchase the
minimum amounts listed on Exhibit A for the respective periods listed.
Seller shall not discontinue the production and sale of the Product
unless it provides Buyer with a reasonable substitute.
3. Sole Distribution Rights. It is the intent of this Agreement
to appoint Buyer as the Sole Distributor of Product to natural health
care practitioners ("NHCP") in the United States and Canada. If
ambiguity exists relative to defining NHCP the parties shall meet to
agree upon a workable definition as defined herein. Buyer and Seller
shall use reasonable best efforts to achieve this objective by i)
Seller not selling simple purchase bulk Product under 10 kilos to
NHCP's in the United States during the first contract year. This
minimum shall increase to 20 kilos for the second contract year and to
30 kilos for the third, fourth and fifth contract years provided Buyer
continually meets its quarterly and yearly purchase requirements.
If the Sole Distributor provision is terminated for failure by
Buyer to make its minimum purchase requirements, Seller agrees to
refrain from selling bulk to the Buyer's Protected Customers, such list
to be provided from time to time and accepted by Buyer; for three (3)
months from the termination date for every full year the Agreement has
been in existence. For example, if the Agreement has been in existence
for two years, then Seller shall not promote bulk product sales to the
Protected Customer list for six (6) months from the termination date.
<PAGE>
Additionally, Seller 1) shall agree to protect Buyer's
established NHCP customer base with the United States and Canada once
Seller is notified of such customer and 2) for a period of six (6)
months from the effective date hereof, Seller further agrees to protect
an additional seventy-five (75) large potential NHCP customers provided
by Buyer regardless of purchase minimums.
4. Quality. Seller warrants to Buyer that all Product sold by
Seller pursuant to this Agreement will conform to the quality
specifications set forth in Exhibit B to this Agreement. EXCEPT AS
PROVIDED IN THIS PARAGRAPH 4, 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 PRODUCT TO BE SOLD
HEREUNDER, AND NONE SHALL BE IMPLIED BY LAW.
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 Product to be delivered to it
hereunder, (i) as to the quantities of Product 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 an annual basis prior to the beginning of each
year of the Term a nonbinding forecast of Buyer's minimum and maximum
aggregate delivery requirements for Product for such year, and (b) on a
quarterly basis at least thirty (30) days prior to the end of each
three-month period of the Term a forecast acceptable to Seller and
Buyer (which shall be binding on Buyer) of Buyer's minimum and maximum
delivery requirements for Product for each month of the next three (3)
month period (provided that such forecast for the initial period of the
Term ending on May 12, 1997, shall be provided to Seller by April 1,
1997). The quantities of Product 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 (3) month period a quantity of Product in excess of 125% of
the maximum delivery requirement for such period set forth in the
binding forecast for such period accepted by Seller. Deliveries of
Product 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. All deliveries of the Product to
Buyer hereunder shall be made by Seller F.O.B. at the facilities of
Seller or its affiliates located in Irving, Texas.
6. Purchase Price. All Product to be purchased by Buyer under
this Agreement shall be purchased by it, during the Term of the
Agreement, at a price of $1,600.00 per Kilo, or in accordance with the
volume discount pricing schedule set forth in Exhibit C. Buyer shall
bear all freight, insurance and similar costs, and all sales taxes,
with respect to such purchases. The purchase price of Product 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.
<PAGE>
7. Labels and Advertising
(a) FDA Compliance of Labels and Advertising. It is Buyer's
obligation to ensure that All labels and advertising relating to the
Product sold hereunder must strictly comply with all applicable rules
and regulations of the FDA and all other applicable laws, rules and
regulations, including but not limited to FDA requirements relating to
product ingredients.
(b) Claims by Light Resources Unlimited. Buyer 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 the Product,
unless such claims have received written approval from the FDA.
(c) FDA Approval of Claims. If Buyer desires to seek FDA approval
as to any specific claims with respect to the Product, Buyer hereby
agrees to (i) notify Seller of the claims and the application prior to
filing and (ii) to keep Seller informed as to the progress of the
application, including but not limited to sending Seller copies of all
communications or notices to or from the FDA, as applicable.
(d) Right to Approve Labels, etc. If Seller so requests, Buyer
shall not use any label, advertisement or marketing material, or
individual spokesman associated with the Product, unless such label,
advertisement or marketing material, or individual spokesman has first
been submitted to and approved by Seller. Seller shall not
unreasonably withhold its approval of any such label, advertisement or
marketing material; or individual spokesperson.
(e) Compliance by Third Parties. Seller shall take all steps
reasonably necessary to ensure that its distributors and any other
parties to whom it sells any of the Product for resale do not relabel,
repackage, advertise, sell or attempt to sell the Product in a manner
that would violate this Agreement if done by Buyer.
8. Confidentiality. In the performance of the Parties
obligations pursuant to this Agreement or the License Agreement, each
may acquire from the other or its affiliates technical, commercial,
operating or other proprietary information relative to the business or
operations of the other or its affiliates (the "Confidential
Information"). Both Parties agree to maintain the confidentiality, and
take all necessary precautions to safeguard the secrecy, of any and all
Confidential Information it may acquire from the other. Neither shall
use any of such Confidential Information for its own benefit or for the
benefit of anyone else.
9. Force Majeure. Neither Party shall have any liability 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 both
Parties 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 Product as would have been sold hereunder
but for such suspension. Each Party shall give to other Party prompt
<PAGE>
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.
10. Rights Upon Default.
(a) Seller's Rights Upon Default. If Buyer (i) fails to purchase
the quantities of Product 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 fourteen (14) 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 Product 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.
(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 thirty (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 Product 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.
<PAGE>
11. 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.
12. Equitable Relief. A breach by Buyer of the provisions of
Article 7, 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.
13. 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 8,10,11, and 12 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.
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 and Buyer may assign the Agreement once to a
Corporation he is forming in Oregon and in which he shall own at least
fifty-one percent (51%) of the shares of the Corporation. 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 constitutes the entire
agreement between the parties hereto relating to the matters covered
hereby and supersede any and all prior understandings, whether written
or oral, with respect to such matters. 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
<PAGE>
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.
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: Light Resources, Inc.
20 West 20th Street, #803
New York, NY 10011
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.
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 8 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.
<PAGE>
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:_____________________________
Name:___________________________
Title:__________________________
DAVE WHEELER, dba
LIGHT RESOURCES UNLIMITED
By:_____________________________
<PAGE>
EXHIBIT A
LIGHT RESOURCES UNLIMITED
Contract Minimum Non-binding
Year Yearly Purchase* Target Sales
-------- ---------------- ------------
1 (Beginning May, 1997) 180 Kilos 300 Kilos
2 350 Kilos 500 Kilos
3 450 Kilos 800 Kilos
4 550 Kilos ** 1,000 Kilos
5 650 Kilos ** 1,500 Kilos
The minimum yearly purchase shall be monitored on a quarterly basis
and minimum monthly purchases shall be mutually agreed upon at the
beginning of each Contract Year. If Buyer fails to purchase less
than 80% of the agreed upon quarterly minimum, Seller may place
Buyer on termination notice. If Buyer fails to purchase 90% of the
agreed upon minimum for the next quarter, Seller may terminate this
agreement's sole distribution provisions at the end of that quarter
and Buyer shall no longer be considered the sole distributor for
the defined market. Buyer shall be free, however, to continue to
purchase bulk product for the remainder of the term of the
Agreement.
** The minimum yearly purchases for Contract Years four and five shall
be the greater of 550 Kilos for the fourth year and 650 Kilos for
the fifth year or year three s actual total purchases plus twenty
percent for year four and year four's actual total purchases plus
twenty percent for year five.
<PAGE>
EXHIBIT B
LIGHT RESOURCES UNLIMITED
SPECIFICATIONS
--------------
MANAPOL[R] Aloe vera extract
TEST NAME (GOLD[TM]) AVMP[R]
--------- ---------- -----------------
Appearance Fine white to beige powder Fine white powder
Aloe vera Complex 35 - 50% 40 - 60%
Carbohydrate
content, wt.%
Water, wt.% <=14% >=9%
Residue on Ignition, <=16% <=10%
wt.%
Microbiological Meets USP Meets USP
Purity Standard Standard
Fiber, wt.% <=55% <=60%
Solubility* 240 mg/oz 240 mg/oz
Gelization
pH Not adjusted Adjusted to 4.0
Fiber Enriched Enriched
Viscosity (cP) 40 50
4 mg/ml solution
Total Acid Value 0.82 0.80
(as malic acid)
Price per gram $1.20 $1.60
1 - AVMP[R] Aloe vera freeze-dried extract
<PAGE>
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of this
day of , 1996, by and between CARRINGTON
LABORATORIES, INC., a Texas corporation hereinafter referred to as
("Carrington"), and PENTA FARMACEUTICA, S.A., an Argentine corporation
("PENTA").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of developing,
manufacturing, selling and distributing certain pharmaceutical products
and medical devices and is desirous of establishing a competent and
exclusive distribution source for sales of such products in Argentina
(defined in Article 1 hereof as the Territory); and
WHEREAS, Penta is desirous of distributing such products in the
Territory, represents that it has experience in obtaining registration
of pharmaceutical preparations or products and medical devices in the
Territory, is well introduced on the market, is willing and able to
provide a competent distribution organization in the Territory, and
Penta desires to be Carrington's sales distributor for such products in
the Territory;
NOW, THEREFORE, the Parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have
the meanings specified in this Article 1.1:
(a) "Products" shall mean the oral care products manufactured
by or for Carrington set forth on Exhibit A hereto.
Carrington will provide a ninety (90) day notice to Penta
on its intent to add or discontinue Products to Exhibit A.
(b) "Territory" shall mean the following country: Argentina.
(c) "Parties" shall mean Carrington and Penta and Party shall
mean either of them as the context indicates.
(d) "Know-how" shall mean secret and substantial technical and
scientific information regarding the Products, which may be
necessary, useful or advisable to enable Penta to obtain
the Registration of, promote, market and sell the Products
in the Territory, and as is or will be specified in the
documentation which Carrington has delivered or will
deliver to Penta after execution of this Agreement.
<PAGE>
(e) "Registration" shall mean any official approval, or
authorization, or licensing regarding the Products by the
appropriate and competent authorities in the Territory,
including, if applicable, the Products selling prices and
social security approvals, allowing the lawful marketing of
the Products.
(f) "Trademarks" shall mean all Trademarks, trade names,
service marks, logos and derivatives thereof relating to
the Products.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints Penta as Carrington's exclusive sales
distributor in the Territory for the sale of Products, and Penta hereby
accepts such appointment. As sales distributor in the Territory, Penta
shall, subject to the terms and conditions of this Agreement, have the
right to obtain the Registration of, promote, distribute and sell
Products in the Territory, but shall have no right to take any such
action outside the Territory.
2.2 In a manner reasonably satisfactory to Carrington, and at
Penta's sole expense, Penta agrees to (a) make and maintain all
declarations, filings, and Registrations with, and obtain all approvals
and authorizations from, governmental and regulatory authorities
required to be made or obtained in connection with the promotion,
marketing, sale or distribution of the Products in the Territory, (b)
devote its best efforts to the diligent promotion, marketing, sale and
distribution of the Products in the Territory, (c) provide and maintain
a competent and aggressive organization for the promotion, marketing,
sale and distribution of the Products in the Territory, (d) assure
competent and prompt handling of inquiries, orders, shipments, billings
and collections, and returns of or with respect to the Products and
careful attention to customers requirements for all Products, and (e)
promptly assign back to Carrington any product Registrations in the
Territory upon termination of Agreement.
2.3 During the term of this Agreement, Penta shall be
considered an independent contractor and shall not be considered a
partner, employee, agent or servant of Carrington. As such, Penta has
no authority of any nature whatsoever to bind Carrington or incur any
liability for or on behalf of Carrington or to represent itself as
anything other than a sales distributor and independent contractor.
Penta agrees to make clear in all dealings with customers or
prospective customers that it is acting as a distributor of the
Products and not as an agent of Carrington.
2.4 Nothing in this Agreement shall be construed as giving
Penta any right to use or otherwise deal with the Know-how for purposes
other than those expressly provided for in this Agreement.
2.5 Penta shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention. After
having discussed such situation with Penta, Carrington shall have sole
and absolute discretion to take such action as it deems appropriate and
Penta, at its own cost, shall assist Carrington in taking legal action,
if deemed necessary, against such misappropriation.
<PAGE>
2.6 All costs and expenses connected with Penta's activities or
performance under this Agreement are to be borne solely by Penta.
Article 3. Certain Performance Requirements
3.1 Penta agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the Territory
for ultimate use within the Territory. Penta shall not, under any
circumstances, either directly or indirectly through third Parties,
promote, market, sell, or distribute Products within or to, or for
ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that Penta is in compliance
with Article 3.1, Penta agrees that:
(a) Penta shall send to Carrington quarterly sales reports
which set forth the number of units and sizes of each
Product sold, the net sales, the number of units of free
medical samples distributed, and to whom such Products were
sold and/or distributed during such quarter;
(b) Penta shall send to Carrington quarterly inventory reports
of the Products; and
(c) Carrington may mark for identification all Products sold by
Carrington to Penta hereunder.
3.3 Penta shall promptly provide Carrington with written
reports of any importation or sale of any of the Products in the
Territory of which Penta has knowledge from any source other than
Carrington, as well as with any other information which Carrington may
reasonably request in order to be updated on the market conditions in
the Territory.
3.4 Penta shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market segments.
Penta shall maintain all its inventory of Products clearly segregated
and meeting all storage and other standards required by applicable
governmental authorities. All such inventory and Penta's facilities
shall be subject to inspection by Carrington or its agents upon 72
hours written notice.
3.5 Penta shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by Penta of Products. Upon
written request from Penta, Carrington shall provide Penta with such
certificates or other documents as may be reasonably required to
establish any applicable exemptions from the collection of such taxes,
charges and fees.
3.6 All Products shall be packaged and delivered by Carrington
to Penta. All Products shall be labeled, advertised, marketed, sold
and distributed by Penta in compliance with the rules and regulations,
as amended from time to time, of (i) all applicable governmental
authorities within the Territory in which the Products are marketed,
and (ii) all other applicable laws, rules and regulations. Penta shall
pay all expenses associated with (i) any alterations to the packaging
<PAGE>
and labeling of the Products which deviate from Carrington's standard
packaging materials, designs, methods and/or procedures, (ii) any
language modifications to the packaging or labeling and/or (iii) any
additions to inserts in the general packaging. The Parties shall agree
on minimum production runs for such custom labels.
3.7 Penta shall not make any alterations or permit any
alterations to be made to the Products without Carrington's written
consent.
3.8 Penta shall assume all responsibility for and comply with
all applicable laws, regulations and requirements concerning the
Registration, inventory, use, promotion, distribution and sale of the
Products in the Territory and correspondingly for any damage, claim,
liability, loss or expense which Carrington may suffer or incur by
reason of said Registration, inventory, use, promotion, distribution
and sale and shall hold Carrington harmless from any claim resulting
therefrom being directed against Carrington or Penta by any third
party.
3.9 Penta agrees not to make, or permit any of its employees,
agents or representatives to make, any claims of any properties or
results relating to any Product, unless such claims have received
written approval from Carrington or from the applicable governmental
authorities.
3.10 Penta shall not use any label, advertisement or marketing
material on or with respect to or relating to any Product unless such
label, advertisement or marketing material has first been submitted to
and approved by Carrington in writing.
3.11 Penta shall actively and aggressively promote, develop
demand for and maximize the sale of the Products to all customers and
potential customers within the Territory. Penta agrees not to
manufacture, promote, market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to and approval from Carrington, any competitive oral care
product.
3.12 Penta represents that its books, records and accounts
pertaining to all its operations hereunder are complete and accurate in
all material respects and have been maintained in accordance with sound
and generally accepted accounting principles. Penta's auditor shall
hand over to Carrington at the end of each 12-month period during the
term of the Agreement a declaration that the accounts rendered are
correct. Carrington shall have the right to have such books, records,
and accounts examined, at its expense, by a qualified accountant
nominated by Carrington.
Article 4 Registration of Products
4.1 It being understood that Registration is a prerequisite to
the lawful sale of the Products in the Territory, Carrington hereby
agrees to supply Penta, promptly after the execution of this Agreement,
with any Know-how or relevant documentation necessary for preparing the
Registration dossier to be submitted to the applicable governmental
authorities of the Territory.
<PAGE>
4.2 It shall be the responsibility of Penta, at its sole
expense to apply for, obtain and maintain in force the Registration of
the Products. Subject to having obtained the prior approval of
Carrington, the application shall be submitted to all applicable
governmental authorities, including the health authorities of the
Territory and shall be in the name of Carrington, with Penta being
named as Products distributor in the Territory. Penta expressly
acknowledges and agrees that the absolute and exclusive ownership of
the Registration and all rights originating out of or from the same
shall at all times belong only and exclusively to Carrington.
4.3 As soon as Penta has received Know-how from Carrington,
Penta shall prepare, at its sole expense, the Registration dossier and
submission and any translation which may be required by the applicable
authorities of the Territory. Penta shall promptly supply Carrington
with a copy of the said Registration dossier and submission and
Carrington shall be entitled to a free and unrestrained use of the
same.
4.4 Subject to having obtained Carrington's written approval of
all such documentation and any subsequent amendments thereto, Penta
shall, as soon as possible and in any case within sixty (60) days of
Carrington's approval, submit the Registration application to the
appropriate authorities of the Territory.
4.5 Penta shall use its best endeavors to obtain the
Registration within six (6) months from the relevant submission. Penta
shall notify Carrington in writing at least 3 (three) months before the
expiration of said term of any need for an extension in time to obtain
Registration. The notification shall specify the duration of, and the
reason for, any proposed extension. Carrington shall consider any such
request, evaluating the objective situation and Penta's fulfilment of
its obligations in this respect. It is, however, understood that
Penta's deadline to obtain Registration is one year from the date of
filing.
4.6 Penta shall copy and keep Carrington fully and timely
informed, throughout the term of this Agreement, of all communications
sent to or received from all applicable governmental authorities,
including the health authorities, of the Territory concerning the
Products.
4.7 Carrington makes no warranty that the supplied Know-how
will necessarily result in the grant of the Registration and Penta
shall have no claim against Carrington arising out of any delay or
refusal by the authorities to issue the Registration.
Article 5. Sale of Products by Carrington to Penta
5.1 Subject to the terms and conditions of this Agreement,
including specifically Article 5.7 hereof, Carrington shall sell to
Penta the Products at a specified price for each Product (the "Contract
Price"). For orders placed by Penta during the first 12-month period
of the term of this Agreement, the Contract Prices for the Products
listed on Exhibit A are set forth on such exhibit opposite each
Product. At least ninety (90) days prior to the end of each 12-month
period of the term of this Agreement, (a) Penta shall provide in
<PAGE>
writing to Carrington a purchase forecast for the following 12-month
period, and (b) the Parties shall commence good faith negotiations to
determine and agree upon the Contract Prices for Products for the next
12-month period of the term. During any twelve (12) month period
Carrington reserves the right to change its Contract Price for each
Product.
5.2 As consideration for its appointment as a sales distributor
entitled to a Product discount, Penta agrees to purchase from
Carrington, during each 12-month period of the term of this Agreement,
commencing with the 12-month period beginning _________, 19__ through
___________, 19__, at the Contract Price, a specified minimum aggregate
dollar amount (based on the Contract Price) of the Products (the
"Specified Minimum Purchase Amount"). For the first 12-month period of
the term of this Agreement, the Specified Minimum Purchase Amount shall
be $__________. The Specified Minimum Purchase Amounts for each
subsequent 12-month period shall be determined by mutual agreement of
the Parties no later than thirty (30) days prior to the beginning of
such period based on Penta's reasonable, good faith projections of
future sales growth and such other factors as the Parties may deem
relevant.
5.3 Penta shall order Products by submitting a purchase order
to Carrington describing the type and quantity of the Products to be
purchased. All orders are subject to acceptance by Carrington. All
purchases shall be spaced in a reasonable manner. If Carrington
accepts the order, Carrington will invoice Penta upon shipment of the
Products. Unless otherwise agreed, Penta shall pay all invoices in
full within sixty (60) days of the date of invoice. Penta shall be
solely responsible for all costs in connection with affecting payments.
All sales and payments shall be made, and all orders shall be accepted,
in the State of Texas.
5.4 Carrington shall not be obligated to ship Products to Penta
at any time when payment of an amount owed by Penta is overdue or when
Penta is otherwise in breach of this Agreement.
5.5. All shipments will be initiated by a Purchase Order.
Product shipment dates will be specified in the Purchase Order. These
dates may not be scheduled prior to ninety (90) days after the date the
Purchase Order is received and acknowledged in writing by Carrington,
unless by mutual consent of the Parties. Purchase Orders will be non-
cancellable. Penta will issue to Carrington on a monthly basis, a
twelve (12) month rolling forecast so that Carrington may incorporate
said forecasts into its planning system. The triggering document for
production activities is, however, the Purchase Order, as stated above.
Carrington will guarantee delivery dates for product quantities that
vary up to 20% above the last monthly rolling forecast issued prior to
the Purchase Order placed by Penta. Variation above 20% shall be
discussed between the Parties and Carrington will use its best efforts
to maintain delivery dates requested by Penta.
5.6 All shipments of Products to Penta will be packaged in
accordance with Carrington's standard packaging procedures and shipped
per Carrington's existing distribution policy. All Contract Prices are
F.O.B., (invoice price includes seller's expense for delivery to the
named destination) Carrington's facility, Irving, Texas. Ownership of
<PAGE>
and title to Products and all risks of loss with respect thereto shall
pass to Penta upon delivery of such Products by Carrington to the
carrier at the designated delivery (F.O.B.) point. Deliveries of
Products shall be made by Carrington under normal trade conditions in
the usual and customary manner being utilized by Carrington at the time
and location of the particular delivery.
5.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by Penta under this Agreement.
However, if necessary in the best judgement of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including Penta, on such basis as it
shall deem reasonable, practicable and equitable, without liability for
any failure of performance or lost sales which may result from such
allocations.
5.8 Carrington accepts liability for defective Products and
agrees to replace such defective Products should they occur with new
Products. Except as may be expressly stated by Carrington on the
Product or on Carrington's packaging, or in Carrington's information
accompanying the Product, at the time of shipment to Penta hereunder,
CARRINGTON MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH
RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
CARRINGTON NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY
OBLIGATION OR LIABILITY IN CONNECTION WITH THE PRODUCTS. Penta shall
not make any representation or warranty with respect to the Products
that is more extensive than, or inconsistent with, the limited warranty
set forth in this Article 5.8 or that is inconsistent with the policies
or publications of Carrington relating to the Products.
PENTA'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS
THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
PENTA'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY
FOR DAMAGES TO PENTA OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT
NOT LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS, DAMAGE
OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, LOSS OF
USE, NON-PERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
PENTA SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS CARRINGTON AND
CARRINGTON'S AFFILIATES, 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 USE, SALE OR OTHER DISPOSITION OF
PRODUCTS, KNOW-HOW OR TRADEMARKS BY PENTA OR ANY OTHER PARTY, (ii) ANY
BREACH BY PENTA OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS
UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF
PENTA OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND
PENTA S AUTHORIZATION GRANTED HEREIN.
5.9 Credits for defective Products to Penta shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Price of the items returned, whether
identified by lot number or another method. Carrington shall provide
Penta with a copy of its liability Insurance Certificate and shall
include Penta thereunder.
<PAGE>
Article 6. Term and Termination
6.1 The term of this Agreement shall be for a period of five
years from the effective date of this Agreement. After such term, this
Agreement shall be automatically terminated unless the parties mutually
agree in writing to extend the term hereof. Notwithstanding the
foregoing, this Agreement may be terminated earlier in accordance with
the provisions of this Article 6 or as expressly provided elsewhere in
this Agreement.
6.2 Carrington shall have the absolute right to terminate this
Agreement if Penta fails to perform or breaches, in any material
respect, any of the terms or provisions of this Agreement. Without
limiting the events which shall be deemed to constitute a breach or
material breach of this Agreement by Penta, Penta understands and
agrees that it shall be in material breach of this Agreement, and
Carrington shall have the right to terminate this Agreement under this
Article 6.2, if:
(i) Penta fails or refuses to pay to Carrington any sum
when due;
(ii) Penta breaches any provision of Article 2.2, 3.4, 4,
5.3, 5.8, 7 or 8; or,
(iii) Penta fails to purchase the Specified Minimum
Purchase Amounts of Product for any required period.
6.3 Each Party shall have the absolute right to terminate this
Agreement in the event the other Party shall become insolvent, or if
there is instituted by or against the other Party procedures in
bankruptcy, or under insolvency laws or for reorganization,
receivership or dissolution, or if the other Party loses any franchise
or license to operate its business as presently conducted in any part
of the Territory.
6.4 This Agreement shall automatically terminate effective at
the end of any 12-month period of the term of this Agreement referred
to in Articles 5.1 and 5.2 hereof if the Parties are unable to agree
upon the Contract Prices or the Specified Minimum Amounts for the next
12-month period of the term.
6.5 During the one-year period following termination of this
Agreement, any inventory of Products held by Penta at the termination
of this Agreement may be sold by Penta to customers in the Territory in
the ordinary course; provided, however, that for the period required to
liquidate such inventory, all of the provisions contained herein
governing Penta's performance obligations and Carrington's rights shall
remain in effect. In order to accelerate the liquidation of any such
inventory, Carrington shall have the option, but not the obligation, to
purchase all or any part of such remaining inventory at the price at
which the inventory was originally sold by Carrington to Penta,
including importation and shipping.
6.6 The termination of this Agreement shall not impair the
rights or obligations of either Party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 5.8,
6.5, 7, 8 and 15 and the rights and obligations of the Parties
thereunder shall survive the termination of this Agreement for a period
of one (1) year.
<PAGE>
Article 7. Trademarks
7.1 All Carrington Trademarks, trade names, service marks,
logos and derivatives thereof relating to the Products (the
"Trademarks"), and all patents, technology and other intellectual
property (also known as "Know-how") relating to the Products and of the
goodwill associated therewith, are the sole and exclusive property of
Carrington and/or its affiliates. The Products shall be promoted, sold
and distributed only under the Trademarks. Carrington hereby grants
Penta permission to use the Trademarks for the limited purpose of
performing its obligations under this Agreement. Carrington may, in
its sole discretion after consultation with Penta, modify or
discontinue the use of any Trademark and/or use one or more additional
or substitute marks or names, and Penta shall be obligated to do the
same.
7.2 Carrington's Trademarks shall appear on all Product
packaging, labels, and inserts and other materials which Penta uses for
the marketing of the Products in such form and manner as Carrington
shall reasonably require. Carrington retains the right to review and
approve all intended uses of the Trademark in any packaging, inserts,
labels, or promotional or other materials relating to the Products
prior to Penta s actual use thereof.
7.3 It shall be the sole responsibility of Carrington, at its
sole expense, to keep in force and maintain the Trademarks in the
Territory by paying all necessary fees throughout the term of this
Agreement. Penta agrees to use the Trademarks in full compliance with
the rules prescribed from time to time by Carrington. The Trademarks
shall always be used together with the sign [TM] or the sign [R]. Penta
may not use any Trademark as part of any corporate name or with any
prefix, suffix or other modifying word, term, design or symbol. In
addition, Penta may not use any Trademark in connection with the sale
of any unauthorized product or service or in any other manner not
explicitly authorized in writing by Carrington.
7.4 In the event of any infringement of, or threatened or
presumed infringement of, or challenge to Penta's use of any Trademark
or of any Penta trademark, Penta is obligated to notify Carrington
immediately. Penta shall investigate any alleged violation and, if
necessary, shall take the appropriate legal action to resolve the issue
and to prevent other competitors from infringing on said intellectual
property rights within the Territory. Carrington shall have sole and
absolute discretion to take such action as it deems appropriate.
7.5 In the event of the termination of this Agreement for any
reason, Penta's right to use the Trademarks shall cease, and Penta
shall cease using such Trademarks at such time as Penta's inventory of
Products has been sold. Penta shall, as soon as it is reasonably
possible, remove all Trademarks which appear on or about the premises
of the office(s) of Penta and any of the advertising of Penta used in
connection with the Products.
7.6 In the event of a breach or threatened breach by Penta of
the provisions of this Article 7, Carrington shall be entitled to an
injunction or injunctions to prevent such breaches. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 7, including the recovery of damages from Penta.
<PAGE>
7.7 Should for some reason the Trademark be prevented from
being used in any part or whole of the Territory, the Parties shall
consult as to a suitable other trademark (which trademark shall
trademark be also defined as Trademark for purposes of this
Agreement) owned by Carrington or to be transferred from Penta to
Carrington for use in connection with the marketing and sale of the
Products; it being agreed, however, that Carrington retains the right
to ultimately determine what such alternative Trademark shall be used,
provided it is not confusingly similar to a Trademark owned by Penta in
the Territory.
7.8 Nothing contained in this Agreement shall be construed as
giving Penta the right to use the Trademark outside the Territory or
for any other product than the Products.
Article 8. Confidential Information
8.1 Penta recognizes and acknowledges that Penta will have
access to confidential information and trade secrets, including Know-
how , of Carrington and other entities doing business with Carrington
relating to research, development, manufacturing, marketing, financial
and other business-related activities ("Confidential Information").
Such Confidential Information constitutes valuable, special and unique
property of Carrington and/or other entities doing business with
Carrington. Other than as is necessary to perform the terms of this
Agreement, Penta shall not, during and after the term of this
Agreement, make any use of such Confidential Information, or disclose
any of such Confidential Information to any person or firm,
corporation, association or other entity, for any reason or purpose
whatsoever, except as specifically allowed in writing by an authorized
representative of Carrington. In the event of a breach or threatened
breach by Penta of the provisions of this Article 8, Carrington shall
be entitled to an injunction restraining Penta from disclosing and/or
using, in whole or in part, such Confidential Information. Nothing
herein shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 8, including the recovery of damages from Penta. The above
does not apply to information or material that was known to the public
or generally available to the public prior to the date it was received
by Penta.
8.2 Penta shall not disclose any of the terms of this Agreement
without the prior written consent of Carrington.
Article 9. Force Majeure
9.1 Neither Penta nor Carrington shall have any liability
hereunder if either is 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"), nor shall Penta's or Carrington's obligations,
except as may be necessary, be suspended during the period of such
Force Majeure, nor shall either Party's obligations be cancelled with
<PAGE>
respect to such Products as would have been sold hereunder but for such
suspension. Such affected Party shall give to the other Party 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 both Party's
obligations under this Agreement. Should the Force Majeure continue
for more than six (6) months, then the other Party shall have the right
to cancel this Agreement and the Parties shall seek an equitable
agreement on the Parties reward of interests.
9.2 The Parties agree that any obligation to pay money is never
excused by Force Majeure.
Article 10. Amendment
10.1 No oral explanation or oral information by either Party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall
be binding on either Party hereto unless reduced to writing and
executed by the duly authorized representative of each Party.
Article 11. Entire Agreement
11.1 This Agreement represents the entire Agreement between the
Parties and shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or
in writing and whether explicit or implicit, which may have been
entered into prior to the execution hereof between the Parties, their
officers, directors or employees as to the subject matter hereof.
Neither of the Parties hereto has relied upon any oral representation
or oral information given to it by any representative of the other
Party.
11.2 Should any provision of this Agreement be rendered invalid
or unenforceable, it shall not affect the validity or enforceability of
the remainder.
Article 12. Assignment
12.1 Neither this Agreement nor any of the rights or obligations
of Penta hereunder shall be transferred or assigned by Penta without
the prior written consent of Carrington, executed by a duly authorized
officer of Carrington.
Article 13. Governing Law
13.1 It is expressly agreed that the validity, performance and
construction of this Agreement will be governed by the laws and
jurisdiction of the State of Texas.
<PAGE>
Article 14. Notices
14.1 Any notice required or permitted to be given under this
Agreement by one of the Parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial courier
services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038; Attention: President, or
at such other address as Carrington shall have theretofore
furnished in writing to Penta. (Fax No. 972-714-5009)
(b) Penta at: Penta Farmaceutica, S.A.; Helguera 254/58 (1406)
Buenos Aires, Argentina, Attention: _______________ or at
such other address as Penta shall have theretofore
furnished in writing to Carrington. (Fax No. 54-1-856-
4691)
Article 15. Waiver
15.1 Neither Penta's nor Carrington's failure to enforce at any
time any of the provisions of this Agreement or any right with respect
thereto, shall be considered a waiver of such provisions or rights or
in any way affect the validity of same. Neither Penta s nor
Carrington's exercise of any of its rights shall preclude or prejudice
either Party thereafter from exercising the same or any other right it
may have, irrespective of any previous action by either Party.
Article 16. Arbitration
16.1 Except as expressly provided otherwise herein, any dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement, the operations carried out under this Agreement or
the relationship of the Parties created under this Agreement, shall be
exclusively and finally settled by confidential arbitration, and any
Party may submit such a dispute, controversy or claim to arbitration.
The arbitration proceeding shall be held at the location of the non-
instituting Party in the English language and shall be governed by the
rules of the International Chamber of Commerce (the "ICC") as amended
from time to time. Any procedural rule not determined under the rules
of the ICC shall be determined by the laws of Canada, other than those
laws that would refer the matter to another jurisdiction.
A single arbitrator shall be appointed by unanimous consent
of the Parties. If the Parties cannot reach agreement on an arbitrator
within forty (45) days of the submission of a notice of arbitration,
the appointing authority for the implementation of such procedure shall
be the ICC, who shall appoint an independent arbitrator who does not
have any financial or conflicting interest in the dispute, controversy
or claim. If the ICC is unable to appoint, or fails to appoint, an
arbitrator within 90 days of being requested to do so, then the
arbitration shall be heard by three arbitrators, one selected by each
Party within the thirty (30) days of being required to do so, and the
third promptly selected by the two arbitrators selected by the Parties.
<PAGE>
The arbitrators shall announce the award and the reasons
therefor in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the Parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the Parties.
Judgement upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judgement or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each Party involved
in the arbitration shall bear the expense of its own counsel, experts
and presentation of proof, and the expense of the arbitrator and the
ICC (if any) shall be divided equally among the Parties to the
arbitration.
Article 17 Interpretation
17.1 The language of this Agreement is English. No translation
into any other language shall be taken into account in the
interpretation of the Agreement itself.
17.2 The headings in this Agreement are inserted for convenience
only and shall not affect its construction.
17.3 Where appropriate, the terms defined in Article 1 and
denoting a singular number only shall include the plural and vice
versa.
17.4 References to any law, regulation, statute or statutory
provision includes a reference to the law, regulation, statute or
statutory provision as from time to time amended, extended or re-
enacted.
Article 18. Exhibits
18.1 Any and all Exhibits referred to herein shall be considered
an integral part of this Agreement.
Article 19. No Inconsistent Actions
19.1 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 Articles 5.7 and 9 hereof, will promptly perform all acts and take
all measures as may be appropriate to comply with the terms, conditions
and provisions of this Agreement.
Article 20. Currency of Account
20.1 This Agreement evidences a transaction for the sale of
goods in which the specification of U.S. dollars is of the essence, and
U.S. dollars shall be the currency of account in all events. All
payments to be made by Penta to Carrington hereunder shall be made
either (i) in immediately available funds by confirmed wire transfer to
a bank account to be designated by Carrington or (ii) in the form of a
bank cashier's check payable to the order of Carrington.
<PAGE>
Article 21. Binding Effect
21.1 This Agreement shall inure to the benefit of and be binding
upon the respective successors of the Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
PENTA FARMACEUTICA, S.A.
By:
Name:
Title:
<PAGE>
EXHIBIT A
PENTA FARMACEUTICA, S.A.
Products & Contract Price
December, 1996
Product Current Price
Voralex Patch, 6 pack (Less than 10,000 $0.90/sleeve
sleeves)
Voralex Patch, 6 pack (10,000 - 49,999 sleeves) $0.85/sleeve
Voralex Patch, 6 pack (50,000 - 99,999 sleeves) $0.80/sleeve
Voralex Patch, 6 pack (100,000 or more sleeves) $0.75/sleeve
Note: The Voralex Patch 6 pack contains one sleeve of six patches.
Any volume discounts are based on Specified Minimum Purchase
Amounts which correspond with the specified 12-month period as
set forth in Articles 5.1 and 5.2 of this Agreement.
<PAGE>
STOCK SUBSCRIPTION OFFER
ALOE COMMODITIES, INC.
To: Board of Directors
1. Subscription. Caraloe, Inc. (the "Undersigned"), whose address is
2001 Walnut Hill Ln, Irving, Texas 75038 hereby offers to subscribe for
200,000 shares of Common Stock (the "Stock") of Aloe Commodities, Inc.,
a Texas corporation (the "Company") whose address is 12901 Nicholson,
Suite 370, Farmers Branch, Texas 75234. The par value of the Common
Stock is no par stock, The Undersigned agrees to pay $200,000.00,
payable at the time of subscription for said Shares.
2. Representations and Warranties of the Undersigned. The
Undersigned hereby represents and warrants that:
A. The Undersigned is financially responsible, able to meet his/her
obligations hereunder, and acknowledges this investment may be lon term
and is by its nature speculative; further, the Undersigned acknowledges
he/she is financially capable of bearing the risk of this investment.
B. The Undersigned has had substantial experience in business or
investments in one or more of the following:
(I) knowledge of and investment experience with securities, such
as stocks and bonds;
(ii) ownership of interests in new ventures and/or start-up
companies;
(iii) experience in business and financial dealings and parlance,
and the Undersigned can protect his/her own interests in an investment
of this nature and does not have a Purchaser Representative , as that
term is defined in Regulation D of the Securities Act of 1933, as
amended, (the "Securities Act") and does not need such a representative.
C. The Undersigned is capable of bearing the high degree of economic
risks and burdens of this investment, including, but not limited to, the
possibility of complete loss of all his/her investment capital and the
lack of a liquid public market, such that he/she may not be able to
readily liquidate the investment whenever desired or at the then current
asking price of the Stock.
<PAGE>
D. The Undersigned has had access to the information set forth in
Paragraph 4 hereof and is able to request copies of such information,
ask questions of and receive answers from the Company regarding such
information and any other information he/she desires concerning the
terms and conditions of this transaction and all such questions have
been answered to his/her full satisfaction. The Undersigned understands
that the Stock has not been registered under the Securities Act and the
applicable state securities laws in reliance on the exemption provided
by Section 4 (2) of the Securities Act and Regulation D relating to
transactions not involving a public offering. The Undersigned further
understands that he/she is purchasing the Stock without being furnished
any offering literature, prospectus or private offering memorandum,
other than that supplied under or identified in this Offer.
E. At no time was the Undersigned presented with or solicited by any
leaflet, public promotional meeting, circular, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising ortherwise than in connection and concurrently with this
Offer.
F. The Stock which the Undersigned hereby subscribes is being acquired
soley for his/her own account, for investment, and is not being
purchased with a view to or for the resale or distribution thereof and
the Undersigned has no present plans to enter into any contract,
undertaking, agreement or arrangement for such resale or distribution.
G. The Undersigned is aware of the following:
(I) The Company's financial and operating history;
(ii) The existence of substantial restrictions on the
transferability of the stock;
(iii) The Stock will not be, and the Undersigned will have no rights
to require, that the Company register the Stock under the Securities Act
or any state securities laws; and
(iv) The Undersigned may not be able to avail him/her selves of the
provisions of Rule 144 adopted by the Securities and Exchange Commission
under the Securities Act or any applicable state securities acts with
respect to the release of the Stock, and, accordingly, it may not be
possible for the Undersigned to liquidate part or all of their
investment in the Company or to liquidate at the ten current asking
price of the Stock, if any.
H. It has at no time been represented, guaranteed, or warranted to the
Undersigned by an officer or director of the Company, or the agents or
employees thereof, or any other person, expressly or impliedly, any of
the following:
(I) An exact or approximate length of time the Undersigned will or
will not remain as owner of the Stock;
(ii) A percentage of profit and/or amount or type of consideration,
profit, loss, credits or deductions to be realized, if any, as a result
of the Undersigned's ownership of the Stock; or
(iii) Past performance on the part of any director or officer of the
Company, or the agents or employees thereof, that will in any way
indicate the predictable results accruing from ownership of the Stock.
<PAGE>
I. The Company is under no duty to register the Stock or comply with
any exemption from registration under the Securties Act of any state
securities law, including supplying to the appropriate agency or to the
Undersigned any information required in connection with transfers under
appropriate rules and regulations.
The foregoing representations and warranties shall be true and
accurate as of the date hereof and as of the date of any acceptance of
this Offer by the Company and shall survive the date of such acceptance
by the Company.
3. Indemnification. The Undersigned acknowledges that he/she
understands the meaning and legal consequence of the representations and
warranties contained in Paragraph 2 hereof and the Undersigned hereby
agrees to indemnify and hold harmless all loss, damage or liability due
to or arising out of (I) a breach of any such representation or
warranty, or (ii) a breach of any warranty of the Undersigned contained
in this Offer.
4. Access to and Furnishings Information. The Company has provided the
Undersigned access to and furnished to the Undersigned, if requested,
all corporate records, including Articles of Incorporation, By-Laws,
Minute and Stock Books, and agreements with officers, directors,
stockholders and employees, and information related to the business of
the Company dated on or before the date of this offer. The Undersigned
hereby acknowledges that he/she has had an opportunity to review and
understand the foregoing and have, if he/she deemed necessary, consulted
with a legal and/or tax advisor.
5. Transferability The Undersigned agrees not to transfer or assign
this Offer, or any of the Undersigned's interest therein, and further
agrees that the assignment and and transferability of the Stock acquired
pursuant hereto shall be made only in accordance with this Offer. The
Company shall issue stop transfer instructions to its transfer agent for
its common stock with respect to the Stock and shall place the following
legend on the certificates representing the Stock:
The shares represented by this certificate have been acquired pursuant
to a transaction effected in reliance upon Section $(2) of the
Securities Act of 1933 as amended, (the "Act") and have not been the
subject of a Registration Statement under the Act or any state
securities act. These securities may not be sold or otherwise
transferred in the absence of such registration or applicable exemption
therefrom under the Act or any applicable state securities act.
6. Revocation. The Undersigned agrees that he/she shall not cancel,
terminate or revoke this Agreement or any provisions hereof or any
agreement of the Undersigned made hereunder.
7. Notices. All notices or other communications given or made hereunder
shall be in writing and shall be delivered or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the
Undersigned or the Company at their respective addresses set forth
below.
<PAGE>
8. Governing Law. This Agreement and other transactions contemplated
hereunder shall be construed in accordance with and governed by the laws
of the State of Texas.
9. Entire Agreement. This Offer constitutes the entire agreement amoung
the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by all parties.
IN WITNESS WHEREOF, the parties hereto have executed this
Offer as of this 30th day of October, 1996.
By:/S/Carlton Turner
Signature
Caraloe, Inc.
Name
2001 Walnut Hill Ln.
Address
Irving, TX 75038
City, State, Zip
972-518-1300
Telephone
THIS OFFER IS ACCEPTED BY: ALOE COMMODITIES INTERNATIONAL, INC.
By:/S/ L. Scott Mcknight
Its: President
Title
<PAGE>
MODIFICATION NUMBER TWO
Pursuant to our production Contract of February 13, 1995, the
requirements of Article Three Subsection C are waived for the months of
October, November, and December, 1996.
The requirements of Article Three Subsection C remain in force through
the remainder of the term of the Production Contract.
IN WITNESS WHEREOF
The undersigned parties have duly executed this modification to their
agreement on the date last written below.
CARRINGTON LABORATORIES, INC. OREGON FREEZE DRY, INC.
By:/S/Luiz Cerqueira By:/S/Philip A. Unverzagt
Name: Luiz Cerqueira Name: Philip A. Unverzagt
Title: VP Oper./Mfg. & L.A. Sales Title: Sr. VP/CFO
Date: 11/19/96 Date: 11/11/96
<PAGE>
CARRINGTON LABORATORIES, INC.
2001 Walnut Hill Lane
Irving, Texas 75038
OFFER AND AGREEMENT OF SALE AND PURCHASE
February 26, 1997
TO: Each Holder of Series E Convertible Preferred Stock
This letter constitutes an offer (the "Offer") from Carrington
Laboratories, Inc. (the "Company") to purchase 50% of your shares, as
adjusted pursuant to Paragraph 1 (the "Subject Shares"), of the
Company's Series E Convertible Preferred Stock (the "Preferred Stock")
for the consideration, and subject to the terms, set forth herein. If
you accept the Offer, this letter will also constitute a legally
binding agreement (this "Agreement") between the Company and you in
accordance with the terms hereof. In addition, if the holders of a
majority in interest of the Preferred Stock accept the Offer and the
purchase contemplated by the Offer is consummated, this Agreement will
constitute an amendment to each of the Registration Rights Agreements
signed in October 1996 (collectively, the "RRA") between the Company
and the holders of the Preferred Stock. More specifically, the terms
of this Agreement are as follows:
1. Agreement of Sale and Purchase. At the Closing (as herein
defined), and subject to you and the other holders of the Preferred
Stock tendering an aggregate of at least 330 shares to the Company for
purchase (which condition may be waived by the Company), the Company
will purchase from you, and you will sell to the Company, the Subject
Shares in consideration of the payments to be made by the Company to
you in the amounts, and at the times, set forth in Paragraph 2 hereof.
At or before the Closing, (i) you will deliver your certificate or
certificates for the Subject Shares, together with a duly executed
Stock Power in the form enclosed herewith, to First Granite
Securities, Inc., as agent (the "Agent"), at 1276 50th Street, Suite
700, Brooklyn, New York 11210, and (ii) the Company will wire transfer
to the Agent funds in an amount equal to those payments due to you at
the Closing. The Company will purchase fractional shares of Preferred
Stock, as necessary, in connection with the Offer.
Although the Offer is for 50% of your shares of Preferred
Stock, if some holders of Preferred Stock (the "Under 50% Sellers")
are not willing to sell at least 50% of their Preferred Stock and
other holders of Preferred Stock (the "Over 50% Sellers") are willing
to sell more than 50% of their Preferred Stock, the Company may, in
its discretion, purchase all of the Preferred Stock that the Under 50%
Sellers are willing to sell and purchase from the Over 50% Sellers a
sufficient number of shares of Preferred Stock to result in the
purchase of an aggregate of 330 shares. In such case, the Company
will purchase from each of the Over 50% Sellers pro rata according to
the number of shares of Preferred Stock that each of the Over 50%
<PAGE>
Sellers indicates a willingness to sell pursuant to the Offer.
Accordingly, please indicate in the blank below your signature line
the maximum number of shares you are willing to sell pursuant to the
Offer. The Company will, within 10 business days after the Closing,
send to you a new stock certificate for any shares (including any
fractional shares) not purchased pursuant to the Offer. If you prefer
to have the cash payments set forth in Paragraph 2 wire transferred
directly to your account rather than to the Agent, please so indicate
by completing the optional wire transfer instructions below your
signature line on this Agreement.
The closing of the sale and purchase of the Subject Shares
(the "Closing") will occur at 10:00 a.m., Eastern Standard Time, on
March 6, 1997 or on such earlier date as the Company may, in its
discretion, designate following the Agent's receipt of stock
certificates and duly executed stock powers for an aggregate of at
least 330 shares of Preferred Stock. If stock certificates and stock
powers for an aggregate of at least 330 shares of Preferred Stock are
not received by 6:00 p.m., Eastern Standard Time, on March 5, 1997,
the Offer will expire. The Company reserves the right at its
discretion to withdraw the Offer at any time prior to the Closing or
to extend the Offer beyond the above-specified time and date of
expiration.
2. Payments. The Company will make the following payments to
you in the amounts, and at the times, indicated below:
(a) Closing Consideration. At the Closing, the Company will
pay you in cash an amount equal to the sum of
(1) $11,300 for each Subject Share;
(2) a "Periodic Amount" (as defined in Section
2(d) of the RRA) for the "Computation Period"
(as defined in Section 2(d) of the RRA) from
January 9, 1997 through February 8, 1997,
inclusive, equal to the mathematical product
of (A) 1% multiplied by (B) $10,000 for each
share of Preferred Stock you owned during such
30-day period; and
(3) a Periodic Amount for the Computation Period
from February 9, 1997 through February 14,
1997, inclusive, equal to the mathematical
product of (A) 6/30 multiplied by (B) 2%
multiplied by (C) $10,000 for each share of
Preferred Stock you owned during such six-day
period.
<PAGE>
(b) Interest. Within five business days after the
Interest Period (as defined below), the Company will
pay you, in cash, interest at the rate of 7% per
annum on $10,000 for each share of Preferred Stock
that you owned from time to time during the period
from February 15, 1997 through the earlier of May
15, 1997 or the date the Registration Statement (as
defined in Section 1(a)(iv) of the RRA) is declared
effective by the Securities and Exchange Commission
(the "Interest Period").
(c) Periodic Amount. If the Registration Statement is
not declared effective by the Securities and
Exchange Commission on or before May 15, 1997, the
Company will pay you, in cash, a Periodic Amount
pursuant to Section 2(d) of the RRA from the
Computation Date of May 16, 1997 until the
Registration Statement is declared effective by the
Securities and Exchange Commission; provided,
however, that the rate of the Periodic Amount that
shall be applicable during the Computation Period
from May 16, 1997 through June 15, 1997 shall be 1%,
and the rate of the Periodic Amount that shall be
applicable during each Computation Period beginning
on or after June 16, 1997 shall be 2%; and provided,
further, any such Periodic Amount shall be prorated
to take into account the portion of a Computation
Period during which the Registration Statement was
effective.
Except as provided in subparagraphs (a)(2) and (a)(3) of
this Paragraph 2, no Periodic Amount shall be payable if the
Registration Statement is declared effective by the Securities and
Exchange Commission on or before May 15, 1997 and, in any event, no
Periodic Amount shall accrue from February 15, 1997 through May 15,
1997, inclusive.
3. Certain Representations. The Company represents and
warrants that it is duly authorized, and has full corporate power and
authority, to execute and deliver this Agreement. You represent and
warrant to the Company that (i) you have received and read the
Confidential Disclosure Memorandum dated February 26, 1997, delivered
to you by the Company in connection with the Offer, and each of the
documents incorporated by reference therein as listed on pages 1 and 2
thereof; (ii) you are duly authorized, and have full power and
authority, to execute and deliver this Agreement; and (iii) you have,
and at the Closing the Company will receive, good and marketable title
to the Subject Shares free and clear of any liens, security interests,
pledges, voting trusts, voting agreements, stock transfer restrictions
or other encumbrances of any nature whatsoever.
4. Amendment of RRA. This Agreement constitutes an amendment
to the RRA. In the event of any inconsistency between this Agreement
and the RRA, the provisions of this Agreement shall control.
<PAGE>
5. Miscellaneous Provision.
(a) Applicable Law. This Agreement will be governed by,
and construed in accordance with, the laws of the
State of New York.
(b) Entire Agreement; Amendment. This Agreement
constitutes the entire agreement between the Company
and you with respect to the subject matter hereof.
This Agreement may not be amended except by an
instrument in writing executed by both the Company
and you.
(c) Successors and Permitted Assigns. This Agreement
will be binding upon, and will inure to the benefit
of, the Company, its successors and assigns, and
you, your successors, assigns, heirs, devisees and
personal representatives. Neither the Company nor
you may assign this Agreement without the prior
written consent of the other party hereto.
If you wish to accept the Offer, and if this Agreement correctly
reflects your understanding with the Company, please so indicate by
signing below in the space provided and returning an original of this
Agreement to the Agent.
Sincerely yours,
CARRINGTON LABORATORIES, INC.
By:
Sheri L. Pantermuehl
Treasurer and Chief
Financial Officer
<PAGE>
ACCEPTED AND AGREED:
--------------------------------- Maximum Number of Shares
Print or Type Name of Shareholder Tendered for Purchase:
of Record]
--------------------------
By: Optional Wire Transfer
------------------------------ Instructions:
[Signature of Authorized Person]
Bank:
----------------------
Name:
-------------------------
Account No.:
---------------
Title:
------------------------
ABA Routing No.:
-----------
cc: Samuel Krieger, Esq.
Krieger & Prager
319 Fifth Avenue
Third Floor
New York, New York 10016
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of the day of
, 1995, by and between CARRINGTON LABORATORIES,
INC., a Texas corporation ("Carrington"), and LABORATORIOS PiSA S.A. DE
C.V., a Mexican corporation ("PiSA").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of manufacturing,
selling and distributing certain pharmaceutical products and is
desirous of establishing a competent and exclusive distribution source
for sales of such products in Mexico and certain countries in Central
America and the Caribbean (defined in Article I hereof as the
Territory); and
WHEREAS, PiSA is desirous of distributing such products in the
Territory and is willing and able to provide a competent distribution
organization in the Territory, and PiSA desires to be Carrington's
sales distributor for such products in the Territory;
NOW, THEREFORE, the parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have
the meanings specified in this Article 1.1:
(a) "Products" shall mean the wound and skin care products
manufactured by or for Carrington set forth on Exhibit A
hereto. Carrington will provide a ninety (90) day notice
to PiSA on its intent to add or discontinue Products to
Exhibit A.
(b) "Territory" shall mean the following countries: Mexico,
Guatemala, Nicaragua, Panama, El Salvador, and the
Dominican Republic.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints PiSA as Carrington's sales distributor in
the Territory for the sale of Products, and PiSA hereby accepts such
appointment. As sales distributor in the Territory, PiSA shall,
subject to the terms and conditions of this Agreement, have the right
to sell Products in the Territory, but shall have no right to sell
Products outside the Territory. During the term of this Agreement,
Carrington agrees not to appoint any other persons as distributors for
the Products in the Territory, provided in this Agreement.
<PAGE>
2.2a. In a manner reasonably satisfactory to Carrington, and at
PiSA's sole expense, PiSA agrees to (a) make all declarations, filings,
and registrations with, and obtain all approvals and authorizations
from, governmental and regulatory authorities required to be made or
obtained in connection with the promotion, marketing, sale or
distribution of the Products in the Territory, (b) devote its best
efforts to the diligent promotion, marketing, sale and distribution of
the Products in the Territory, (c) provide and maintain a competent and
aggressive organization for the promotion, marketing, sale and
distribution of the Products in the Territory, and (d) assure competent
and prompt handling of inquiries, orders, shipments, billings and
collections, and returns of or with respect to the Products and careful
attention to customers requirements for all Products, (e) promptly
assign back to Carrington any product registrations in the Territory
upon termination of Agreement.
2.2b. If Carrington terminates the Agreement without cause under
the Agreement, excluding the instance where the parties fail to reach
agreement on price or minimums, then Carrington agrees to a one year
sales moratorium in the Territory.
2.3 Carrington will provide PiSA with such (i) reasonable sales
personnel training in relation to the Products in Irving, Texas or a
mutually agreed upon location in Mexico, and (ii) promotional Product
literature of Carrington, as PiSA may request from time to time.
Carrington and PiSA shall cover their respective direct expenses.
2.4 During the term of this Agreement, PiSA shall be considered
an independent contractor and shall not be considered a partner,
employee, agent or servant of Carrington. As such, PiSA has no
authority of any nature whatsoever to bind Carrington or incur any
liability for or on behalf of Carrington or to represent itself as
anything other than a sales distributor and independent contractor.
Article 3. Certain Performance Requirements
3.1 PiSA agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the Territory
for ultimate use within the Territory. PiSA will not, under any
circumstances, either directly or indirectly through third parties,
promote, market, sell, distribute or ship Products within or to, or for
ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that PiSA is not repatriating
Products to the United States or elsewhere outside the Territory, PiSA
agrees that:
(a) PiSA will send to Carrington a monthly sales report on the
number of units of each Product sold;
(b) PiSA will send to Carrington a monthly inventory report of
the Products; and
(c) Carrington may mark for identification all Products sold by
Carrington to PiSA hereunder.
<PAGE>
3.3 PiSA shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market segments.
PiSA shall maintain all its inventory of Products clearly segregated
and meeting all storage and other required standards applicable
governmental authorities. All such inventory shall be subject to
inspection by Carrington or its agents with 72 hours written notice.
3.4 PiSA shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by PiSA of Products. Upon written
request from PiSA, Carrington shall provide PiSA with such certificates
or other documents as may be reasonably required to establish any
applicable exemptions from the collection of such taxes, charges and
fees.
3.5 All Products shall be packaged, labeled, advertised,
marketed, sold and distributed by PiSA in compliance with the rules and
regulations of the applicable governmental authority within the
territory in which the Products are marketed, as amended from time to
time, and (ii) all other applicable laws, rules and regulations.
3.6 PiSA agrees not to make, or permit any of its employees,
agents or representatives to make, any claims of any properties or
results relating to any Product, unless such claims have received
written approval from Carrington and from the applicable governmental
authority.
3.7 PiSA shall not use any label, advertisement or marketing
material on or with respect to or relating to any Product unless such
label, advertisement or marketing material has first been submitted to
and approved by Carrington in writing.
3.8 PiSA agrees that Carrington shall have the right to inspect
PiSA's facilities at all reasonable times to ensure PiSA's compliance
with the provisions of this Agreement.
3.9 PiSA will actively and aggressively promote the sale of the
Products to all customers and potential customers within the Territory.
PiSA agrees not to market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to Carrington, any wound care, skin care, or incontinence care.
Article 4. Sale of Products by Carrington to PiSA
4.1 Subject to the terms and conditions of this Agreement,
including specifically Article 4.6 hereof, Carrington shall sell to
PiSA its requirements for the Products at a price for each Product (the
"Contract Price") which represents a discount from Carrington's
distributor price for such Product as set forth in Carrington's
published distributor price list (the "Published Price List"). For
orders placed by PiSA during the first 12-month period of the term of
this Agreement, the Contract Prices for the Products listed on Exhibit
A are set forth on such exhibit opposite each Product. At least 90
days prior to the end of each 12-month period of the term of this
Agreement, the parties shall commence good faith negotiations to
determine and agree upon the Contract Prices for Products for the next
12-month period of the term. During any twelve (12) month period
<PAGE>
Carrington reserves the right to change its distributor prices for
Products as set forth in the Published Price List if mutually agreed to
by PiSA. Such cost increases shall be no greater than 5% of the U.S.
inflation rate.
4.2 As consideration for its appointment as a sales distributor
entitled to a Product discount, PiSA agrees to purchase from
Carrington, during each 12-month period of the term of this Agreement,
commencing with the 12-month period beginning January 1, 1996 through
December 31, 1996, at the Contract Price, a specified minimum aggregate
dollar amount (based on the Contract Price) of the Products (the
"Specified Minimum Amount"). For the first 12-month period of the term
of this Agreement, the Specified Minimum Amount shall be $300,000. The
Specified Minimum Amounts for each subsequent 12-month period shall be
determined by mutual agreement of the parties prior to the beginning of
such period based on PiSA's reasonable, good faith projections of
future sales growth and such other factors as the parties may deem
relevant.
4.3 PiSA shall order Products by submitting a purchase order to
Carrington describing the type and quantity of the Products to be
purchased. Orders are subject to acceptance by Carrington. All
purchases shall be spaced in a reasonable manner. If Carrington
accepts the order, Carrington will invoice PiSA upon shipment of the
Products. Unless otherwise agreed, PiSA shall pay all invoices in full
within 90 days of the date of invoice. All sales and payments shall be
made, and all orders shall be accepted, in the State of Texas.
4.4 Carrington shall not be obligated to ship Products to PiSA
at any time when payment of an amount owed by PiSA is overdue or when
PiSA is otherwise in breach of this Agreement.
4.5 All shipments of Products to PiSA will be packaged in
accordance with Carrington's standard packaging procedures and shipped
per Carrington's existing distribution policy. All Contract Prices are
C.I.F., Carrington's facility, Dallas or Laredo, Texas. Ownership of
and title to Products and all risks of loss with respect thereto shall
pass to PiSA upon delivery of such Products by Carrington to the
carrier at the designated delivery (C.I.F.) point. Deliveries of
Products shall be made by Carrington under normal trade conditions in
the usual and customary manner being utilized by Carrington at the time
and location of the particular delivery.
4.6 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by PiSA under this Agreement.
However, if necessary in the best judgment of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including PiSA, on such basis as it
shall deem reasonable, practicable and equitable, without liability for
any failure of performance or lost sales which may result from such
allocations.
4.7 Carrington accepts liability for defective products and
agrees to replace such defective product should they occur with new
products. Carrington carries liability insurance and is willing to
have PiSA added as a covered party under this policy. Except as may be
expressly stated by Carrington on the Product or on Carrington's
<PAGE>
packaging, or in Carrington's information accompanying the Product, at
the time of shipment to PiSA hereunder, CARRINGTON MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH RESPECT TO THE PRODUCTS,
EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. CARRINGTON NEITHER ASSUMES NOR
AUTHORIZES ANYONE TO ASSUME FOR IT ANY OBLIGATION OR LIABILITY IN
CONNECTION WITH THE PRODUCTS. PiSA shall not make any representation
or warranty with respect to the Products that is more extensive than,
or inconsistent with, the limited warranty set forth in this Article
4.7 or that is inconsistent with the policies or publications of
Carrington relating to the Products.
PiSA'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS
THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
PiSA'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY
FOR DAMAGES TO PiSA OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT NOT
LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS, DAMAGE
OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, LOSS OF
USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
CARRINGTON AND PiSA SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS
EACH OTHER 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 USE, SALE OR OTHER DISPOSITION OF PRODUCTS BY CARRINGTON
AND PiSA OR ANY OTHER PARTY, (ii) ANY BREACH BY CARRINGTON AND PiSA OF
ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THIS
AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF CARRINGTON AND
PiSA OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND
PiSA'S AUTHORIZATION GRANTED HEREIN.
4.8 Credits on defective Products by PiSA shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Price of the items returned, whether
identified by lot number or another method. Carrington shall provide
PiSA a copy of its Insurance Certificate and shall include PiSA
thereunder.
Article 5. Term and Termination
5.1 The initial term of this Agreement shall be for a period of
five years from the date of this Agreement. After such initial term,
this Agreement shall be automatically extended for an additional term
of five years, unless this Agreement is terminated at the end of the
initial five-year term by written notice given by either party to the
other party not less than six months prior to the end of such initial
term. Notwithstanding the foregoing, this Agreement may be terminated
earlier in accordance with the provisions of this Article 5.
5.2 Carrington shall have the absolute right to terminate this
Agreement if PiSA fails to perform or breaches, in any material
respect, any of the terms or provisions of this Agreement. Without
limiting the events which shall be deemed to constitute a breach or
material breach of this Agreement by PiSA, PiSA understands and agrees
<PAGE>
that it shall be in material breach of this Agreement, and Carrington
shall have the right to terminate this Agreement under this Article
5.3, if:
(i) PiSA fails or refuses to pay to Carrington any sum
when due;
(ii) PiSA breaches any provision of Article 2.2, 3.1, 3.5,
3.7, 3.9, 4.3, 4.7, 6 or 7; or
(iii) PiSA fails to purchase the Specified Minimum Amount
of Product for any required period starting in year two (2).
5.3 Each Party shall have the absolute right to terminate this
Agreement in the event the Party shall become insolvent, or if there is
instituted by or against the Party procedures in bankruptcy, or under
insolvency laws or for reorganization, receivership or dissolution, or
if the Party loses any franchise or license to operate its business as
presently conducted in any part of the Territory.
5.4 This Agreement shall automatically terminate effective at
the end of any 12-month period of the term of this Agreement referred
to in Articles 4.1 and 4.2 hereof if the parties are unable to agree
upon the Contract Prices or the Specified Minimum Amount for the next
12-month period of the term. Carrington shall give PiSA six months
notice of its intent to terminate.
5.5 During the one-year period following termination of this
Agreement, any inventory of Products held by PiSA at the termination of
this Agreement may be sold by PiSA to customers in the Territory in the
ordinary course; provided, however, that for the period required to
liquidate such inventory, all of the provisions contained herein
governing PiSA's performance obligations and Carrington's rights shall
remain in effect. In order to accelerate the liquidation of any such
inventory, Carrington shall have the option, but not the obligation, to
purchase all or any part of such remaining inventory at the price at
which the inventory was originally sold by Carrington to PiSA including
importation and shipping.
5.6 The termination of this Agreement shall not impair the
rights or obligations of either party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 4.7,
6, 7 and 15 and the rights and obligations of the parties thereunder
shall survive the termination of this Agreement for a period of one (1)
year.
Article 6. Trademarks and Trade Names
6.1 All trademarks, trade names, service marks, logos and
derivatives thereof relating to the Products (the "Trademarks"), and
all patents, technology and other intellectual property relating to the
Products, are the sole and exclusive property of Carrington or its
affiliates. Carrington hereby grants PiSA permission to use the
Trademarks for the limited purpose of performing its obligations under
this Agreement. Carrington may, in its sole discretion after
consultation with PiSA, modify or discontinue the use of any Trademark
and/or use one or more additional or substitute marks or names, and
PiSA shall be obligated to do the same.
<PAGE>
6.2 PiSA agrees to use the Trademarks in full compliance with
the rules prescribed from time to time by Carrington. PiSA may not use
any Trademark as part of any corporate name or with any prefix, suffix
or other modifying words, terms, designs or symbols. In addition, PiSA
may not use any Trademark in connection with the sale of any
unauthorized product or service or in any other manner not explicitly
authorized in writing by Carrington.
6.3 In the event of any infringement of, or challenge to,
PiSA's use of any Trademark, PiSA is obligated to notify Carrington
immediately, and Carrington shall have sole and absolute discretion to
take such action as it deems appropriate.
6.4 In the event of the termination of this Agreement for any
reason, PiSA's right to use the Trademarks shall cease, and PiSA shall
cease using such Trademarks at such time as PiSA's inventory of
Products has been sold. PiSA shall, as soon as it is reasonably
possible, remove all Trademarks which appear on or about the premises
of the office(s) of PiSA and any of the advertising of PiSA used in
connection with Products.
6.5 In the event of a breach or threatened breach by PiSA of
the provisions of this Article 6, Carrington shall be entitled to an
injunction or injunctions to prevent such breaches. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 6, including the recovery of damages from PiSA.
Article 7. Confidential Information
7.1 PiSA recognizes and acknowledges that PiSA will have access
to confidential information and trade secrets of Carrington and other
entities doing business with Carrington relating to research,
development, manufacturing, marketing, financial and other business-
related activities ("Confidential Information"). Such Confidential
Information constitutes valuable, special and unique property of
Carrington and/or other entities doing business with Carrington. Other
than as is necessary to perform the terms of this Agreement, PiSA shall
not, during and after the term of this Agreement, make any use of such
Confidential Information, or disclose any of such Confidential
Information to any person or firm, corporation, association or other
entity, for any reason or purpose whatsoever, except as specifically
allowed in writing by an authorized representative of Carrington. In
the event of a breach or threatened breach by PiSA of the provisions of
this Article 7, Carrington shall be entitled to an injunction
restraining PiSA from disclosing and/or using, in whole or in part,
such Confidential Information. Nothing herein shall be construed as
prohibiting Carrington from pursuing other remedies available to it for
such breach or threatened breach of this Article 7, including the
recovery of damages from PiSA. The above does not apply to information
or material that was known to the public or generally available to the
public prior to the date it was received by PiSA.
7.2 PiSA shall not disclose the existence of this Agreement or
any of the terms hereof without the prior written consent of
Carrington.
<PAGE>
Article 8. Force Majeure
8.1 Neither PiSA nor Carrington shall have any liability
hereunder if either is 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 Neither PiSA nor Carrington'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 Products as
would have been sold hereunder but for such suspension. Such shall give
to other 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 a party's obligations under this Agreement.
Article 9. Amendment
9.1 No oral explanation or oral information by either party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall
be binding on either party hereto unless reduced to writing and
executed by the duly authorized representative of each party.
Article 10. Entire Agreement
10.1 This Agreement shall supersede any and all prior
agreements, understandings, arrangements, promises, representations,
warranties, and/or any contracts of any form or nature whatsoever,
whether oral or in writing and whether explicit or implicit, which may
have been entered into prior to the execution hereof between the
parties, their officers, directors or employees as to the subject
matter hereof. Neither of the parties hereto has relied upon any oral
representation or oral information given to it by any representative of
the other party.
Article 11. Assignment
11.1 Neither this Agreement nor any of the rights or obligations
of PiSA hereunder shall be assigned by PiSA without the prior written
consent of Carrington, executed by a duly authorized officer of
Carrington.
Article 12. Governing Law
12.1 It is expressly agreed that the validity, performance and
construction of this Agreement will be governed by the laws and
jurisdiction of Canada.
<PAGE>
Article 13. Notices
13.1 Any notice required or permitted to be given under this
Agreement by one of the parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial courier
services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038, attention Chris Record, or
at such other address as Carrington shall have theretofore
furnished in writing to PiSA. (Fax No. 214-518-1020)
(b) PiSA at: Laboratories PiSA S.A. De C.V., Av. Espan'a No.
1840, Guadalajara, Jal. 44190, Mexico, attention
________________, or at such other address as PiSA shall
have theretofore furnished in writing to Carrington. (Fax
No. 52(3) 610 1609)
Article 14. Waiver
14.1 Neither PiSA nor Carrington's failure to enforce at any
time any of the provisions of this Agreement or any right with respect
thereto, shall not be considered a waiver of such provisions or rights
or in any way affect the validity of same. Neither PiSA's nor
Carrington's exercise of any of its rights shall not preclude or
prejudice neither PiSA nor Carrington thereafter from exercising the
same or any other right it may have, irrespective of any previous
action by neither PiSA nor Carrington.
Article 15. Arbitration
15.1 Except as provided in Articles 6.5 and 7.1, any dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement, the operations carried out under this Agreement or
the relationship of the parties created under this Agreement, shall be
exclusively and finally settled by confidential arbitration, and any
party may submit such a dispute, controversy or claim to arbitration.
The arbitration proceeding shall be held at the location of the non-
instituting party in the English language and shall be governed by the
rules of the International Chamber of Commerce (the "ICC") as amended
from time to time. Any procedural rule not determined under the rules
of the ICC shall be determined by the laws of the Canada, other than
those laws that would refer the matter to another jurisdiction.
A single arbitrator shall be appointed by unanimous consent
of the parties. If the parties cannot reach agreement on an arbitrator
within 45 days of the submission of a notice of arbitration, the
appointing authority for the implementation of such procedure shall be
the ICC, who shall appoint an independent arbitrator who does not have
any financial interest in the dispute, controversy or claim. If the
ICC is unable to appoint, or fails to appoint, an arbitrator within 90
days of being requested to do so, then the arbitration shall be heard
by three arbitrators, one selected by each party within the 30 days of
being required to do so, and the third promptly selected by the two
arbitrators selected by the parties.
<PAGE>
The arbitrators shall announce the award and the reasons
therefor in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the parties.
Judgment upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the party owing the
judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each party involved
in the arbitration shall bear the expense of its own counsel, experts
and presentation of proof, and the expense of the arbitrator and the
ICC (if any) shall be divided equally among the parties to the
arbitration.
Article 16 Tender Clause
16.1 Carrington s acknowledges that PiSA may submit bids to sell
the products to public entities in the Territory pursuant to public
contracts which impose substantial damages or penalties for failure to
deliver the products on time or according to the specifications
requested. PiSA agrees to submit all such public contracts and
specifications involving the products to Carrington for approval prior
to commitment by PiSA. In the event Carrington accepts the contract
and specifications, it shall also accept liability for direct damages
PiSA becomes liable for as a result of Carrington's negligence.
Carrington shall indemnify PiSA for such direct costs or penalties that
results from Carrington's negligence if Carrington is given reasonable
notice of the negligent act, fails to correct it, it if agrees one
occurred or is allowed to defend itself should it believe no such
negligent act caused damage under the contract.
Article 17. No Inconsistent Actions
17.1 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 Articles 4.6 and 8 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.
Article 18. Currency of Account
18.1 This Agreement evidences a transaction for the sale of
goods in which the specification of U.S. dollars is of the essence, and
U.S. dollars shall be the currency of account in all events. All
payments to be made by PiSA to Carrington hereunder shall be made
either (i) in immediately available funds by confirmed wire transfer to
a bank account to be designated by Carrington or (ii) in the form of a
bank cashier's check payable to the order of Carrington.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
CARRINGTON LABORATORIES, INC.
By:
Name:
Title:
LABORATORIES PiSA S.A. DE C.V.
By:
Name:
Title:
<PAGE>
TERMINATION ACKNOWLEDGMENT
China Academy of Sciences (hereinafter referred to as the "Academy") and
Carrington Laboratories, Inc. (hereinafter referred to as "Carrington")
have met on this 12th day of February, 1996 at the Carrington location
in Irving, Texas, USA to discuss the agreements (see below) previously
entered into by the aforementioned parties. The Academy is represented
by Ms. En-liang Wang of the Academy and Carrington by Chris Record. The
following acknowledgment and agreement is to be officially executed and
effective immediately:
1. Based on the mutual interest and the best knowledge then
available to both parties, Academy and Carrington entered
into the initial Agreement in August, 1995 (the
"Agreements") to explore the potential Chinese market for
Carrington's existing lines of products including the
possibility of jointly developing and testing certain types
of Carrington products that are currently still at the
experimental phase;
2. As the result of all the honesty and commitment of both
parties, three separate Agreements were signed as a serious
starting point for the hoped for long-term joint efforts to
develop the Chinese markets for Carrington products. In the
Agreements, several practical phases were established to
satisfy the specific requests as raised by Carrington and
the Academy regarding the approved domestic testing by the
Academy, any additional Chinese government approval and
registration with the proper government agency to obtain all
necessary permits or licenses and the initial market
research to be independently conducted by the Academy prior
to the end of the year;
3. The three Agreements also laid out detailed plans for the
purchase of Carrington products with different discounts and
pricing as well as the minimum purchasing requirement for
each period of the initial year and, specific time frames
were assigned to such plans and to each of the different
phases as set forth in the above 2;
4. Yet, for reasons beyond the Academy's control, the Academy
could not obtain the necessary approval from the Chinese
government agency even though the Academy tried its best in
such endeavor;
5. Carrington has made numerous inquiries and requests during
the process for both the return of the originally signed
copy of the Agreements taken by mistake by the Academy for a
revised Chinese translation and for an update of the status
directly by Carrington and indirectly through third parties
to both the representative office in Dallas, Texas and the
Academy headquarters in Beijing by mail, telephone and fax.
However, there has been a lack of official communication
from the Academy and Carrington was, unfortunately, not
properly updated concerning the development and the status
of the Academy's efforts;
<PAGE>
6. Based on the terms of said Agreements, deadlines for the
initial phases as stipulated in the original Agreements have
expired or elapsed with no substantial progress or result as
prescribed and required by the Agreements. It is therefore
understood and agreed that neither party is liable for the
unfruitful result of the goodwill effort and that neither
party will be liable under the terms and obligations of the
said three Agreements now or in the future;
7. Finally, both parties agree by signing this termination
acknowledgment that all previously signed documents
including any oral or written commitment, rights,
obligations, authorizations, promises and entitlement; if
any, based on such documents become immediately null and
void.
8. This final termination acknowledgment serves the sole
purpose to exempt and terminate the contractual obligations
of the Academy and Carrington to each other and any other
third parties regarding the previously said three Agreements
for now and forever. However, this termination
acknowledgment shall never affect the business relationship
and the personal friendship established during the process
between the Academy and Carrington. Further, both parties
agree to continue further discussions in any areas of common
interest in the future including new possible arrangements
to jointly market Carrington products in China.
9. This agreement has been provided in Chinese for the mere
purpose of courtesy reference and convenience to the
Academy s official representative and the final signed
English version of the agreement shall be the sole and
correct official copy. Any discrepancy between the two
versions shall be interpreted by the true meaning of its
English original and English version only.
Signed this _____________________ day of _____________, 1996 at
Carrington Laboratories, Inc. in Irving, Texas, USA.
by:
Authorized Representative of Authorized
Representative of
China Academy of Sciences: Carrington
Laboratories, Inc.
_____________________________
___________________________
WANG, EN-LIANG CHRISTOPHER S. RECORD
<PAGE>
Immucell
56 Evergreen Drive
Portlano, Maine 04103
--------------------------------------------------------------------------
February 7, 1996
Carrington Laboratories, Inc.
Attention: President and CEO
2001 Walnut Hill Lane
Irving, Texas 75038
Dear Sir:
I talked to Bill Yates on the phone yesterday concerning our license
agreement dated September 29, 1994. We licensed acemannan from Carrington
to test in a crypto vaccine for calves. After repeated efforts in 1995,
we concluded in November that it does not give the immune boost to our
crypto vaccine that we were looking for. Therefore, per the terms of the
license agreement, I am giving you notice of cancellation.
I mentioned to Bill that we may have other applications of acemannan in
animal health products. We both agreed that we should address its use in
those applications when they arise rather than try to keep the current
license agreement going.
I would like to note that Bill was very helpful as we worked through our
crypto vaccine program. We spent well in excess of $100,000 last year on
the budget but simply couldn t get a combination to work. We continue our
search.
We wish Carrington well in its corporate development and hope to be able
to do business again in the future.
Respectfully yours,
/s/Thomas C. Hatch
Thomas C. Hatch
President and CEO
<TABLE>
<CAPTION>
Exhibit 11.1
CARRINGTON LABORATORIES, INC., AND SUBSIDIARIES COMPUTATION OF NET INCOME PER
COMMON AND COMMON EQUIVALENT SHARE
November 30, December 31,
----------- ----------------------------------------
1994 1994 1995 1996
------ ------ -------- -------
<S> <C> <C> <C> <C>
Net Income $1,421,238 $ (70,069) $(1,628,267) $(5,522,672)
Preferred stock
dividend requirement (125,113) - (140,127) (37,078)
----------- ---------- ------------ ------------
Income (loss) for
computing income per
common share from
operations $1,296,125 $ (70,069) $(1,768,394) $(5,559,750)
=========== ========== ============ ============
Weighted average common
and common equivalent
shares outstanding 7,340,982 7,344,390 7,932,675 8,798,211
=========== ========== ============ ============
Net income per common
and common equivalent
share outstanding $ .18 $ (.01) $ (.22) $ (.63)
=========== ========== ============ ============
</TABLE>
[FN]
(1) Common stock equivalents have been excluded since the effect of net income
(loss) per share of their inclusion would be either antidilutive or represent a
dilution of less than 3%.
March 21, 1997
Office of the Chief Accountant
Securities and Exchange Commission
Mail Stop 11-3
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We have read Item 9 included in the attached Form 10-K dated for the year
ended December 31, 1996, of Carrington Laboratories, Inc.(the Registrant)
filed with the Securities and Exchange Commission, and are in agreement
with the statements contained therein.
Very Truly yours,
Arthur Anderson LLP
By /s/
Steve G. Scott
PLR
Copy to:
Ms. Sheri Pantermuehl, Chief Financial Officer
Carrington Laboratories, Inc.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF CARRINGTON
Jurisdiction of
Name of Subsidiary Organization
------------------ ------------
Carrington Laboratories, Belgium, N.V. Belgium
Finca Savila, S.A. Costa Rica
Carrington Laboratories International, Inc. Texas
Hilcoa Corporation California
Caraloe, Inc. Texas
Carrington Laboratories of Canada, Ltd. Canada
Sabila Industrial, S.A. Costa Rica
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 7, 1997, included in the
Carrington Laboratories, Inc., Form 10-K for the year ended December 31,
1996, into the Company's previously filed Registration Statements on
Form S-8 (File No. 33-64403 and File No.33-64405). It should be noted
that we have not audited any financial statements of the Company
subsequent to December 31, 1996, or perform any audit procedures
subsequent to the date of our report.
Arthur Anderson LLP
Dallas, Texas
March 25, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,406
<SECURITIES> 0
<RECEIVABLES> 2,125
<ALLOWANCES> 213
<INVENTORY> 3,623
<CURRENT-ASSETS> 17,309
<PP&E> 18,851
<DEPRECIATION> 7,173
<TOTAL-ASSETS> 31,202
<CURRENT-LIABILITIES> 3,400
<BONDS> 46
0
66
<COMMON> 89
<OTHER-SE> 23,410
<TOTAL-LIABILITY-AND-EQUITY> 31,202
<SALES> 21,286
<TOTAL-REVENUES> 21,286
<CGS> 10,327
<TOTAL-COSTS> 10,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (324)
<INCOME-PRETAX> (5,523)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,523)
<EPS-PRIMARY> (.063)
<EPS-DILUTED> (.063)
</TABLE>
