UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
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Commission file number 0-11997
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CARRINGTON LABORATORIES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1435663
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 Walnut Hill Lane, Irving, Texas 75038
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(Address of principal executive offices and Zip Code)
972-518-1300
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
9,315,236 shares of Common Stock, $.01 par value, were outstanding at
July 31, 1998.
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INDEX
Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at June 30, 1998 (unaudited) and
December 31, 1997 3
Condensed Consolidated Statements of
Operations for the three and six
months ended June 30, 1998 and
1997 (unaudited) 4-5
Consolidated Statements of Cash Flows
for the six months ended June 30,
1998 and 1997 (unaudited) 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Dollar amounts in 000's)
(unaudited)
June 30, December 31,
1998 1997
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<S> <C> <C>
Assets
Cash and cash equivalents $ 4,396 $ 4,023
Accounts receivable, net 3,529 3,457
Inventories 5,039 5,003
Prepaid expenses 684 328
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Total current assets 13,648 12,811
Property, plant and equipment, net 11,157 10,815
Other assets 1,413 2,537
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Total assets $26,218 $26,163
======= =======
Liabilities and Shareholders' Investment
Accounts payable $ 1,015 $ 1,143
Accrued liabilities 2,090 2,194
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Total current liabilities 3,105 3,337
Shareholders' investment:
Common stock 93 93
Capital in excess of par 51,660 51,585
Deficit (28,640) (28,852)
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Total shareholders' investment 23,113 22,826
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Total liabilities and
shareholders investment $26,218 $26,163
======= =======
The accompanying notes are an integral part of these statements.
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Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Three Months Ended
June 30,
1998 1997
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<S> <C> <C>
Net sales $6,027 $ 5,121
Cost and expenses:
Cost of sales 2,599 1,886
Selling, general and administrative 2,778 2,816
Research and development 647 796
Interest, net (57) 154
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Income (loss) from operations
before income taxes 60 (531)
Provision for income taxes - -
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Net income (loss) $ 60 $ (531)
Dividends and income attributed
to preferred shareholders - (2)
Net income (loss) available to
common shareholders $ 60 $ (533)
======= ========
Net income (loss) available to
common shareholders per share -
basic and diluted $ 0.00 $ (0.05)
======= ========
The accompanying notes are an integral part of these statements.
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Condensed Consolidated Statements of Operations (unaudited)
(Dollar amounts and shares in 000's, except per share amounts)
Six Months Ended
June 30,
1998 1997
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<S> <C> <C>
Net sales $11,815 $11,204
Cost and expenses:
Cost of sales 5,180 4,393
Selling, general and administrative 5,282 5,567
Research and development 1,245 1,594
Interest, net (114) 98
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Income (loss) from operations
before income taxes 222 (448)
Provision for income taxes 10 -
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Net income (loss) $ 212 $ (448)
Dividends and income attributed
to preferred shareholders - (70)
Net income (loss) available to
common shareholders $ 212 $ (518)
======= ========
Net income (loss) available to
common shareholders per share -
basic and diluted $ 0.02 $ (0.05)
======= ========
The accompanying notes are an integral part of these statements.
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Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollar amounts in 000's)
Six Months
Ended
June 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 212 $ (448)
Adjustments to reconcile net income (loss) to
net cash provided (used) by
operating activities:
Depreciation and amortization 557 616
Provision for inventory obsolescence 127 313
Changes in assets and liabilities:
Receivables, net (72) (1,025)
Inventories (163) (797)
Prepaid expenses (355) 72
Other assets 1,100 290
Accounts payable and accrued liabilities (216) (510)
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Net cash provided (used) by
operating activities 1,190 (1,489)
Cash flows from investing activities:
Purchases of property, plant and equipment (876) (194)
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Net cash used by investing activities (876) (194)
Cash flows from financing activities:
Issuances of common stock 75 2,556
Repurchase of preferred stock - (7,766)
Debt payments (16) (15)
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Net cash provided (used) by
financing activities 59 (5,255)
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Net increase (decrease) in cash
and cash equivalents 373 (6,908)
Cash and cash equivalents,
beginning of period 4,023 11,406
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Cash and cash equivalents, end of period $ 4,396 $ 4,498
======== =======
Supplemental disclosure of cash flow
information
Cash paid during the period for interest $ 2 $ 3
Cash paid during the period for
federal, state and local income taxes 65 77
The accompanying notes are an integral part of these statements.
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Notes to Condensed Consolidated Financial Statements (unaudited)
(1) Condensed Consolidated Financial Statements:
The condensed consolidated balance sheet as of June 30, 1998, the
condensed consolidated statements of operations for the three and six
month periods ended June 30, 1998 and 1997 and the condensed
consolidated statements of cash flows for the six month periods ended
June 30, 1998 and 1997 have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include
all normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows
at June 30, 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These
condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto
included in the Company's annual report to shareholders or Form 10-K
for the year ended December 31, 1997.
(2) Net Income Per Share:
Basic net income available to common shareholders per share for the
second quarters was computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding of 9,315,000 and 8,896,000 at June 30, 1998 and 1997,
respectively. The weighted average number of common shares
outstanding for the six month periods were 9,309,000 and 8,878,000 at
June 30, 1998 and 1997, respectively.
Total dilutive securities were insignificant in the three and six
month periods ended June 30, 1998 and had no impact on diluted net
income available to common shareholders per share. In calculating
the diluted net income available to common shareholders per share for
the three and six month periods ended June 30, 1997, no effect was
given to options, warrants, and convertible preferred stock. The
effect of including these securities would have been antidilutive
because of net losses incurred in the three and six month periods of
1997.
(3) Business Segments:
The Company operates in two business segments: Wound Care Products
and Caraloe, Inc., a consumer products subsidiary, including bulk
ingredients, consumer beverages, nutritional and skin care products.
Corporate Income Before Income Taxes set forth in the following table
includes research and development expenses which were related to the
development of pharmaceutical products not associated with the
reporting segments. Assets which are used in more than one segment
are reported in the segment where the predominant use occurs. The
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Company's production facility in Costa Rica, which provides bulk
ingredients for all segments, and total cash for the Company are
included in Corporate assets.
Business Segments (in thousands)
Quarter Ended Wound Caraloe
June 30, 1998 Care Inc. Corporate Total
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Sales to unaffiliated
customers $ 4,494 $1,533 $ - $ 6,027
Income (loss) before
income taxes 329 293 (562) 60
Identifiable assets 14,070 2,055 10,093 26,218
Capital expenditures 168 9 379 556
Depreciation and
amortization 149 - 123 272
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Quarter Ended
June 30, 1997
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Sales to unaffiliated
customers $ 4,460 $ 661 $ - $ 5,121
Income (loss) before
income taxes 23 139 (693) (531)
Identifiable assets 14,097 1,711 9,211 25,019
Capital expenditures 14 - 103 117
Depreciation and
amortization 169 - 134 303
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Six Months Ended Wound Caraloe
June 30, 1998 Care Inc. Corporate Total
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Sales to unaffiliated
customers $ 8,474 $3,341 $ - $ 11,815
Income (loss) before
income taxes 602 703 (1,083) 222
Capital expenditures 193 18 665 876
Depreciation and
amortization 299 - 258 557
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Six Months Ended
June 30, 1997
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Sales to unaffiliated
customers $ 9,115 $2,089 $ - $ 11,204
Income (loss) before
income taxes 493 446 (1,387) (448)
Capital expenditures 41 - 153 194
Depreciation and
amortization 345 - 271 616
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(4) Income Taxes:
The tax effects of temporary differences have given rise to deferred
tax assets. At December 31, 1997, the Company provided a valuation
allowance against the entire deferred tax asset due to the
uncertainty as to the realization of the asset. At December 31,
1997 , the Company had net operating loss carryforwards of
approximately $36,670,000 for federal income tax purposes, which
expire during the period from 1999 to 2011, 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. The
provision for federal income taxes for the first six months of 1998
was $10,000, which represents the alternative minimum tax. The
remaining tax on income for the six months ended June 30, 1998 was
offset by a reduction in the valuation allowance.
(5) Commitments and Contingencies:
In February 1995 the Company entered into a commitment to purchase
$2.5 million of freeze dried products from its principal supplier
over a 66 month period ending in August 2000. The commitment, which
also provides for monthly minimum purchases, is required to be
supported to the extent of 60% of the remaining commitment by a
letter of credit from a bank or a pledged certificate of deposit.
Through June 30, 1998, the Company has purchased $559,000 of products
pursuant to this commitment and made prepayments of $234,000 toward
future deliveries under the commitment. Although management believes
that new products which the Company began to actively market in late
1997, as well as additional products to be developed, will result in
no losses pursuant to this commitment, the Company could incur
significant losses if it is not able to meet the minimum purchase
commitments.
(6) 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, consultants and advisors. 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 to employees normally become exercisable at the rate of 25%
per year after the first anniversary of the grant. Options granted
to directors are exercisable in whole or in part, beginning on the
date of the grant. Options granted expire four to ten years from the
dates of grant. The Company has reserved 1,500,000 shares of common
stock for issuance under the Option Plan.
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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.
As of January 30, 1998 the Company offered all option holders the
opportunity to exchange their outstanding options for new options at
$4.81 per share, which was the closing market price on that date.
Outstanding options for 681,397 shares were surrendered, and options
for an equal number of shares were issued in connection with the
offer. The surrendered options were canceled. The new options
granted consisted of options for 628,897 shares granted to employees
and options for 52,500 shares granted to non-employee directors. As
disclosed in the Company's Supplement to Proxy Statement, the options
for 52,500 shares granted to non-employee directors as part of the
option exchange offer, as well as options for 47,600 shares also
granted to non-employee directors on January 30, 1998, were
rescinded. As contemplated by the Supplement to Proxy Statement, new
options for a total of 100,100 shares were subsequently granted to
the non-employee directors on May 14, 1998 at a price of $5.25, which
was the closing market price on that date. As of June 30, 1998,
options to purchase 266,727 shares which were not exchanged on
January 30, 1998 or May 14, 1998 remained outstanding, with exercise
prices between $5.31 and $35.25, a weighted average exercise price of
$9.37 and a weighted average contractual life of 6.99 years. Of
these options, 99,250 shares were exercisable at June 30, 1998 with a
weighted average exercise price of $13.25.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Background
The Company is a research-based pharmaceutical and medical device
company engaged in the development, manufacturing and marketing of
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 and consumer products and bulk ingredients through its
consumer products subsidiary, Caraloe, Inc. (See Note 3 to the
condensed consolidated financial statements for financial information
on each of the segments.) The Company's research and product
portfolio are primarily based on complex carbohydrate technology
derived naturally from the Aloe vera plant.
Liquidity and Capital Resources
At June 30, 1998 and December 31, 1997, the Company held cash and
cash equivalents of $4,396,000 and $4,023,000, respectively. The net
increase in cash of $373,000 is attributable to freeing an additional
$1,250,000 in operating funds, as a certificate of deposit previously
serving as collateral for a letter of credit agreement was no longer
required as of April 1998. The additional funds were offset by
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capital expenditures of $876,000 for the six month period ended June
30, 1998.
The Company has invested in inventory to support sales of bulk
products to Mannatech, Inc. and Aloe Commodities International, Inc
("ACI"). Receivables from these two customers totaled $780,000 and
$281,000, respectively, as of June 30, 1998. In June 1998 the
Company advanced ACI $200,000 on a short-term basis to enable ACI to
invest in a leaf supplier from which the Company expects to purchase
aloe vera leaves pursuant to a letter of intent (discussed below)
between the leaf supplier and Caraloe. ACI's obligation to repay
this advance is evidenced by a 60-day unsecured note bearing interest
at the rate of 10% per annum.
As of July 31, 1998, the Company had no material capital commitments
other than its leases and agreements with suppliers. In February
1995, the Company entered into a supply agreement with its supplier
of freeze-dried products. The agreement required that the Company
establish a letter of credit equal to 60% of the minimum purchase
commitment of $2,500,000, but allowed for the amount of the letter of
credit to be reduced by 60% of the payments made under the agreement.
In April 1998, the letter of credit was reduced under this provision
of the agreement to $1,100,000. 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 early phase of marketing. The
Company had approximately $585,000 of CarraSorb[TM] M and
Carrington[TM] (Aphthous Ulcer) Patch inventory on hand as of June
30, 1998.
The supply agreement also requires the Company to make minimum
monthly purchases of $30,000. In February 1998, the supply agreement
was amended to allow for unmet monthly minimum purchase amounts to be
met by prepayments, to be applied to future purchases under the
agreement, which allows the Company to keep inventory at levels
appropriate for sales demand. 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 aggregate minimum purchase requirement. As of
June 30, 1998, the Company had purchased products and made
prepayments totaling approximately $793,000 from this supplier. The
Company is in full compliance with the agreement and, as of July 31,
1998, had the available resources to meet all future minimum purchase
requirements. There is, however, no assurance that the Company will
be able to sell all of the products it is required to purchase from
this supplier. If and to the extent that the Company makes
prepayments under the agreement but does not apply those prepayments
to pay for products that it can sell, such prepayments would
eventually have to be charged against the Company's earnings. As of
June 30, 1998, prepayments of $234,000 have been made.
In November 1997, the Company entered into an agreement with Comerica
Bank-Texas for a $3,000,000 line of credit, secured by accounts
receivable and inventory. This credit facility will be used for
operating needs, as required, and to secure the letter of credit
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described above. This resulted in reporting an additional $1,250,000
in operating funds in April 1998, as the certificate of deposit which
had served as collateral for the letter of credit is no longer
required.
In November 1995, the Company signed a licensing agreement with a
supplier of calcium alginates and other wound care products. Under
the agreement, the Company has exclusive marketing rights for ten
years to advanced calcium alginate products for North and South
America and the People's Republic of China. Under the agreement, the
Company made an up-front payment of $500,000 to the supplier in
November 1995, and in July 1997 and October 1997, additional payments
of $166,000 and $167,000, respectively, were paid to this supplier
upon delivery of the CarraSmart[TM] Hydrocolloid, a new product
launched in the third quarter of 1997. These payments resulted in
increasing the prepaid assets of the Company. As of June 30, 1998,
the net book value of this agreement was $664,000.
In late 1995, the Company began an initial Phase I dosing study using
CarraVex[TM] injectable (formerly CARN 750) in cancer patients
involving six cancer types. As of December 31, 1997, approximately
$295,000 had been expensed against this study. No expenses were
incurred in the first half of 1998, as the Company has placed the
study on clinical hold, pending further work on drug formulation.
During 1995 and 1996, the aloe vera plants on the Company's farm in
Costa Rica sustained some flood damage and a fungal disease that
severely reduced the supply of aloe vera leaves available from the
farm. In addition, during 1997, Caraloe experienced a sharp increase
in sales of raw materials processed at the Company's processing
facility in Costa Rica. As a result, the Company's demand for aloe
vera leaves has exceeded and continued to exceed both the current and
the normal production capacity of its farm. It has therefore been
necessary for the Company to purchase aloe vera leaves from other
sources at costs that are significantly higher than the cost of
leaves produced on its own farm.
The Company has been exploring other options to obtain the leaves it
needs at lower costs. In March 1998, Caraloe signed a letter of
intent to enter into a supply agreement with a company to be formed
(the "leaf supplier") for the purpose of growing aloe vera plants at
a location in Costa Rica that is less than 15 miles from the
Company's processing plant. The proposed supply agreement would
provide for Caraloe to purchase from the leaf supplier, at mutually
agreeable, locally competitive prices, all of the leaves Caraloe
needs, to the extent its needs exceed the leaves available from the
Company's farm plus up to 200,000 kilograms of leaves per month from
another local source. The terms of the proposed supply agreement
have not been negotiated, and there is no assurance that the proposed
agreement will be entered into. Even if Caraloe or the Company
enters into the proposed agreement, the leaf supplier does not yet
have the ability to supply aloe vera leaves to purchasers, and it is
unlikely that it would be able to supply the Company with any
significant quantities of leaves before the first quarter of 1999.
The Company has made investments and advances to the leaf supplier in
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the amount of $212,000 toward the commencement of its operations.
There is no assurance that the Company will be able to continue
acquiring adequate supplies of aloe vera leaves from other sources or
that it will be able to purchase leaves at costs that will allow the
Company's and Caraloe's products to be price-competitive.
The Company has reformulated its proprietary product Aliminase[TM]
and is preparing for new Phase III clinical trials of that drug for
the treatment of ulcerative colitis. Although the Company hopes to
begin those trials during the first quarter of 1999, there can be no
assurance as to whether or when such trials will begin or, if begun,
whether or not when they will be completed or what the results will
be.
The Company believes that its available cash resources and expected
cash flows from operations will provide the funds necessary to
finance its current operations. However, the Company does not expect
that its current cash resources will be sufficient to finance the
major clinical studies and costs of filing new drug applications
necessary to develop its products to their full commercial potential.
Additional funds, therefore, may have to be raised through equity
offerings, borrowings, licensing arrangements or other means, and
there is no assurance that the Company will be able to obtain such
funds on satisfactory terms when they are needed.
The Company is subject to regulation by numerous governmental
authorities in the United States and other countries. Certain of the
Company's proposed products will require governmental approval prior
to commercial use. The approval process applicable to prescription
pharmaceutical products usually takes several years and typically
requires substantial expenditures. The Company and any licensees may
encounter significant delays or excessive costs in their respective
efforts to secure necessary approvals. Future United States or
foreign legislative or administrative acts could also prevent or
delay regulatory approval of the Company's or any licensees'
products. Failure to obtain requisite governmental approvals or
failure to obtain approvals of the scope requested could delay or
preclude the Company or any licensees from marketing their products,
or could limit the commercial use of the products, and thereby have a
material adverse effect on the Company's liquidity and financial
condition.
Impact of Inflation
The Company does not believe that inflation has had a material impact
on its results of operations.
Second Quarter of 1998 Compared With Second Quarter of 1997
Net sales were $6,027,000 in the second quarter of 1998, compared
with $5,121,000 in the second quarter of 1997, an increase of
$906,000, or 17.7%. Caraloe, Inc., the Company's consumer products
subsidiary, increased sales from $661,000 to $1,533,000, or 131.9%.
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Caraloe sales to Mannatech, Inc., which are primarily Manapol[R]
powder, increased from $365,000 in the second quarter of 1997 to
$1,170,000 in the second quarter of 1998. Sales of the Company's
wound and skin care products remained constant with $4,494,000 in the
second quarter of 1998 as compared to $4,460,000 in the second
quarter of 1997.
Cost of sales increased from $1,886,000 to $2,599,000, or 37.8%. As
a percentage of sales, cost of sales increased from 36.8% in the
second quarter of 1997 to 43.1% in the second quarter of 1998. This
was due to the weighted impact of increased sales of Caraloe s
products, which have a lower gross margin than the Company's wound
and skin care products.
Selling, general and administrative expenses decreased from
$2,816,000 in the second quarter of 1997 to $2,778,000 in 1998
despite the increase in sales. This was primarily attributable to
reduced selling expenses as the Company continued to reap the ongoing
cost benefits of a streamlined sales force and to the lower wound
care sales volume.
Research and development expenses decreased to $647,000 from
$796,000, or 18.7%. This was due to an overall reduction of general
operating expenses.
Net interest income of $57,000 in the second quarter of 1998 compared
to $154,000 of net interest expense in the second quarter of 1997.
In the second quarter of 1997, the Company realized losses of
$204,000 on its mutual fund account when the account was converted to
cash.
Net income for the second quarter of 1998 was $60,000, versus a net
loss of $531,000 for the second quarter of 1997. This was due
primarily to an increase in sales and a reduction in selling expenses
and research expenditures. Assuming dilution, net income per share
was $0.00 in the second quarter of 1998, compared to a net loss per
share of $(0.05) during the same period in 1997.
First Six Months of 1998 Compared With First Six Months of 1997
Net sales were $11,815,000 in the first six months of 1998, compared
with $11,204,000 in the first six months of 1997. This increase of
$611,000, or 5.5%, resulted from an increase of $1,252,000 in sales
of Caraloe, Inc., the Company's consumer products subsidiary.
Caraloe's sales increased from $2,089,000 to $3,341,000, or 60.0%.
Caraloe's sales to Mannatech, Inc., which were primarily Manapol[R]
powder, increased from $1,446,000 in 1997 to $2,340,000 in 1998.
Partially offsetting the above sales increase was a decrease in sales
of the Company's wound and skin care products from $9,115,000 in 1997
to $8,474,000 in 1998, or 7.0%. Decreased wound care sales are
primarily due to generally soft conditions in the wound care market
created by changes in government reimbursement programs, the impact
of managed care, and consolidation of distributors. New products
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introduced in 1996 and 1997 accounted for $741,000 in wound and skin
care sales in the first six months of 1998.
Cost of sales increased from $4,393,000 to $5,180,000, or 17.9%. As
a percentage of sales, cost of sales increased from 39.2% in the
first six months of 1997 to 43.8% in the first six months of 1998.
As is true for the quarter, this was due to the weighted impact of
increased sales of Caraloe's products, which have a lower gross
margin than the Company's wound and skin care products.
Selling, general and administrative expenses decreased to $5,282,000
from $5,567,000, or 5.1%. This decrease was primarily attributable
to reduced selling expenses as a result of a more streamlined sales
force and to the lower wound care sales volume.
Research and development ("R&D") expenses decreased to $1,245,000
from $1,594,000, or 21.9%. Contributing to the decrease in R&D
expenses was a reduction of internal salaries and general operating
expenses.
Net interest income of $114,000 was realized in the fist six months
of 1998, versus net interest expense of $98,000 in the first six
months of 1997. In the first half of 1997, the Company realized
losses on its mutual fund account of $204,000, or 1.8% of the
beginning year cash balance, when the account was converted to cash
to meet the financing needs of the Company.
Net income for the first six months of 1998 was $212,000, versus a
net loss of $448,000 for the first six months of 1997. This change
was a result of reduced selling expenses and research expenditures.
Assuming dilution, net income per share was $0.02 in the first six
months of 1998, compared to a loss per share of $(0.05) in 1997. The
loss per common share in 1997 included the recognition of a $70,000,
or $0.01 per common share, deemed dividend on the Company's Series E
Convertible Preferred Stock in the calculation of loss per common
share for the six month period ended June 30, 1997.
All statements other than statements of historical fact contained in
this report, including statements in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" (and
similar statements contained in the Notes to Condensed Consolidated
Financial Statements), concerning the Company's financial position,
liquidity, capital resources and results of operations, its prospects
for the future and other matters, are forward-looking statements.
Forward-looking statements in this report generally include or are
accompanied by words such as "anticipate", "believe", "estimate",
"expect", "intend", "hopes", "exploring" or words of similar import.
Such forward-looking statements include, but are not limited to,
statements regarding the Company's belief that it will be able to
sell all of the freeze dried, calcium alginate and certain other
wound care products that it is required to purchase under its
existing agreements with the suppliers of those products; the
Company's plan to enter into (or to have Caraloe enter into) an
agreement with a supplier that will sell aloe vera leaves to the
Company or Caraloe at prices equal to or less than the Company's cost
16
<PAGE>
of growing leaves on its own farm, and to continue purchasing aloe
vera leaves from other sources as necessary; the Company's plan to
conduct Phase III clinical trials of Aliminase[TM]; the Company s
belief that its available cash and revenues from operations will
provide the funds necessary to finance its current operations; 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 demand for the Company's freeze dried, calcium
alginate and certain other wound care products may not be sufficient
to enable it to sell the products it is required to purchase from its
suppliers under existing supply agreements; that the Company may be
unable to negotiate a satisfactory agreement with the leaf supplier
that proposes to grow aloe vera leaves and sell them to the Company,
or the leaf supplier may be unable to supply such leaves when they
are needed by the Company, and the Company may not be able to
purchase sufficient quantities of aloe vera leaves to enable it to
satisfy the demand for the Company's and Caraloe's products or to
meet the Company's or Caraloe's obligations under supply agreements
with customers, or the cost of purchasing such leaves may be so high
that the Company and Caraloe will not be able to sell their products
at competitive prices; that the Company may be unable to obtain the
approval of the FDA, or to obtain the funds necessary, to proceed
with the planned clinical trials of Aliminase[TM]; and that the
Company's available cash and expected cash flow from operations may
not be sufficient to finance the Company's current operations for a
variety of reasons.
All forward-looking statements in this report are expressly qualified
in their entirety by the cautionary statements in the two immediately
preceding paragraphs.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
The Company is not required to make the disclosures contemplated by
Item 3 in this report.
17
<PAGE>
Part II
Item 1. Legal Proceedings
As previously reported by the Company, on June 12, 1997 Allison Kindt
("Kindt"), a former employee of the Company, filed a lawsuit styled
Allison Kindt v. Carrington Laboratories, Inc., Civil Action No. 5-
97-CV-469-BO(1), in the United States District Court for the Eastern
District of North Carolina, Western Division, alleging sex
discrimination and retaliation and employment action in violation of
public policy against sex discrimination in connection with her
employment with the Company and seeking to recover such additional
compensation and other benefits of employment and back pay as she
would have received had her employment not been terminated. In June
1998, the Company and Kindt entered into a compromise settlement
agreement pursuant to which the Company paid Kindt $20,000, and an
order dismissing the lawsuit was entered by the court on July 7,
1998.
As previously reported by the Company, in November 1997 the Company
received a letter from the Texas Department of Licensing and
Regulation (the "TDLR") alleging that the Company's Walnut Hill
facility in Irving, Texas had been inspected and found in non-
compliance with provisions of the Texas Architectural Barriers Act
(the "Act") and regulations issued thereunder. The Act and the
related regulations contain design requirements to ensure that
disabled persons can make use of public facilities. An inspection
report describing the alleged deficiencies was enclosed with the
letter. The letter stated that the Walnut Hill facility was required
to be brought into compliance and written verification furnished to
the TDLR within 30 days, and that the Company should contact the TDLR
if compliance could not be accomplished within that time. The letter
also stated that failure to respond to the letter would result in the
matter being referred to the TDLR's Enforcement Division, which could
result in a maximum administrative penalty of $1,000 per violation
per day.
The Company has subsequently taken a number of steps to correct the
alleged deficiencies and has kept the TDLR informed, orally and in
writing, of its plans and its progress. The Company believes that
the remaining work necessary to correct the alleged deficiences will
be completed by September 30, 1998. The cost of the work performed
and to be performed to correct the alleged deficiencies is estimated
to be approximately $40,000. As far as the Company is aware, the
TDLR has not turned this matter over to its enforcement division or
made any claims for penalties to date.
18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the 1998 Annual Meeting of Shareholders held on May 14, 1998,
Thomas J. Marques and Selvi Vescovi were elected to serve as
directors of the Company for terms expiring at the 2001 annual
meeting. The votes for each director were:
FOR AGAINST
--------- ---------
Thomas J. Marquez: 7,517,053 486,934
Selvi Vescovi: 7,520,487 483,500
The other directors whose terms of office continued after the meeting
are R. Dale Bowerman, George DeMott, Robert A. Fildes, Ph.D., James
T. O'Brien and Carlton E. Turner, Ph.D., D.Sc.
Amendments to the Company's 1995 Stock Option Plan were approved to
(a) provide for the discretionary granting of options to outside
directors, (b) remove prohibitions on grants of options to employee-
directors and officers and on discretionary grants to members of the
Compensation Committee, (c) delete provisions providing for automatic
option grants to outside directors, (d) increase the maximum number
of shares of Common Stock for which options may be granted under the
plan to any one employee during any calendar year from 50,000 to
75,000, (e) delete the provision limiting the aggregate number of
shares for which options may be granted under the plan to all
employee-directors to 40% of the total number of shares covered by
the plan, (f) provide that shareholder approval of amendments to the
plan is required only if the Company, upon advice of counsel,
determines that such approval is necessary or desirable, and (g) make
certain other changes to the plan. The vote was:
For: 6,426,457
Against: 1,496,598
Abstained: 80,932
The appointment of Ernst & Young LLP as independent auditors for the
Company for the fiscal year ending December 31, 1998 was approved by
a vote of outstanding shares of the Company's common stock. The vote
was:
For: 7,934,520
Against: 42,557
Abstained: 26,910
19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
-------------------
4.1 Resignation and Consulting Agreement effective May 31,
1998 between Carrington Laboratories, Inc., and Luiz
F. Cerqueira.
10.1 Agency and Sales Distribution Agreement dated April 13,
1998, between Carrington Laboratories, Inc., and
Carrington Laboratories Belgium N.V., and Egyptian
American Medical Industries, Inc.
10.2 Sales Distribution Agreement dated April 24, 1998,
between Carrington Laboratories, Inc., and Carrington
Laboratories Belgium N.V., and CSC Pharmaceuticals
Ltd., Dublin.
10.3 Form of Nonqualified Stock Option Agreement with
Outside Director, relating to the Registrant's 1995
Stock Option Plan, as amended.
10.4 Promissory Note of Aloe Commodities International,
Inc., dated June 17, 1998, payable to the order of
the Registrant in the principal amount of $200,000.
27.1 Financial Data Schedule
b. Reports on Form 8-K:
--------------------
The Registrant did not file any reports on Form 8-K
during the quarter ended June 30, 1998.
Management contract or compensatory plan.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CARRINGTON LABORATORIES, INC.
(Registrant)
Date: August 6, 1998 By: /s/ Carlton E. Turner
------------------ ------------------------
Carlton E. Turner,
President and C.E.O.
(principal executive officer)
Date: August 6 , 1998 By: /s/ Robert W. Schnitzius
------------------ -----------------------
Robert W. Schnitzius,
Chief Financial Officer
(principal financial and
accounting officer)
RESIGNATION AND CONSULTING AGREEMENT
This Resignation and Consulting Agreement (the "Agreement")
is made by and between CARRINGTON LABORATORIES, INC., a Texas
corporation ("Carrington"), and LUIZ F. CERQUEIRA ("Cerqueira") for
the purpose of documenting the terms of Cerqueira's resignation as an
officer and employee of Carrington and his engagement as a consultant
to Carrington, all as set forth below:
1. Resignation. Effective May 31, 1998 (the "Resignation
Date"), (a) Cerqueira hereby voluntarily resigns from all positions
that he occupies as an employee and/or officer of Carrington and any
of its subsidiary corporations, including but not limited to his
position as Vice President, Manufacturing and Operations, of
Carrington; and (b) the letter agreement between Carrington and
Cerqueira dated July 6, 1993 and signed by Cerqueira on July 6, 1993,
is hereby terminated in its entirety.
(a) Compensation and Benefits. Through the Resignation
Date, Carrington shall pay Cerqueira his regular compensation at
the rate currently in effect, less all legal deductions, and all
benefits to which he is currently entitled under Carrington s
existing employee benefit plans and policies. Carrington shall
pay Cerqueira for any vacation time that is accrued and unused
as of the Resignation Date. Cerqueira acknowledges that he is
not and will not be entitled to receive anything under
Carrington's 1995 Management Compensation Plan.
(b) Reimbursement of Expenses. Carrington shall reimburse
Cerqueira for all reasonable and properly reimbursable business
expenses incurred by him prior to the Resignation Date promptly
after Cerqueira timely submits a proper expense report and
supporting documentation to Carrington.
(c) Stock Options. On the Resignation Date, Cerqueira
shall surrender to Carrington all of the stock options
previously granted to him by Carrington that are then
outstanding (the "Old Options"), subject to his receipt of the
New Options provided for in Section 4(d) of this Agreement.
(d) Authority. After the Resignation Date, (i) Cerqueira
will not be, and will not hold himself out as being, a director,
officer or employee of Carrington or any of its subsidiary
corporations, and (ii) Cerqueira will not be obligated or
authorized, and will not hold himself out as being authorized,
to make any representations, enter into any contracts,
commitments, or obligations, or perform any other acts as any
kind whatsoever on behalf of Carrington or any of its subsidiary
corporations, except to the extent, if any, that the President
or a Vice President of Carrington expressly authorizes him to do
so in connection with his performance of Services, as that term
is defined in Section 3 of this Agreement.
<PAGE>
2. Consulting Term. Beginning June 1, 1998, Cerqueira shall
serve as a consultant to Carrington for a term (the "Consulting
Term") that shall end on the earliest to occur of the following
dates:
(a) February 28, 1999;
(b) the date of Cerqueira's death;
(c) the date on which Carrington's President and/or Board of
Directors elects to terminate the Consulting Term for
"Cause", as hereinafter defined;
(d) the date on which Cerqueira becomes a full-time employee of
a third party, or enters into any employment arrangement
with a third party that in the good faith opinion of
Carrington's President or Board of Directors creates a
conflict or potential conflict with the best interests of
Carrington; or
(e) the date on which Carrington and Cerqueira mutually agree
in writing to terminate the Consulting Term.
For purposes of this Paragraph 2, the term "Cause" shall
mean any of the following: (a) any act by Cerqueira that is, in the
good faith opinion of Carrington's President or Board of Directors,
adverse to the best interests of Carrington; (b) conduct by
Cerqueira that (i) constitutes willful misconduct or gross
negligence in the performance of his assigned Services, (ii) is in
derogation of his duties or obligations under this Agreement, or
(iii) constitutes fraud, dishonesty, or a criminal act, whether or
not with respect to Carrington, or (c) Cerqueira's failure to
substantially perform his assigned duties as a consultant to
Carrington (including but not limited to his failure to be available
to perform the Services requested by Carrington on the dates set
forth in Schedule A hereto and at the locations requested by
Carrington, or on such other dates and/or at such other locations as
shall be determined by mutual agreement of Carrington and Cerqueira,
or his failure to meet objective criteria established by mutual
agreement of Carrington and Cerqueira).
The expiration or termination of the Consulting Term shall
not terminate any rights of either party that shall have accrued at
or prior to the time of such expiration or termination, including but
not limited to the right of either party to recover damages from the
other party due to the other party's breach of this Agreement.
<PAGE>
3. Consulting Services. During the Consulting Term, Cerqueira
shall perform for Carrington such consulting services as Carrington
from time to time reasonably requests ("Services"). The Services
requested by Carrington may be of the same general nature as the
services that Cerqueira performed for Carrington while in its employ,
other duties necessary to manage the production and shipment
of Carrington products to customers, distributors and licensees
worldwide, and other duties as may be assigned from time to time
related to the international business of Carrington. Cerqueira
agrees to make himself fully available to Carrington to perform
Services on the dates set forth on Schedule A attached to this
Agreement and made a part hereof, unless Carrington agrees to amend
such schedule at least ten business days in advance of the date of
any proposed scheduling change. Notwithstanding the foregoing,
however, Cerqueira shall not be required to perform Services for more
than three days per business week (Monday through Friday), unless he
and Carrington agree otherwise. Carrington shall not be obligated to
request the performance of any Services by Cerqueira.
4. Consulting Compensation and Benefits.
(a) Compensation. Cerqueira's compensation during the
Consulting Period shall be the total sum of $115,875.00,
payable as follows: (a) $38,625.00 within five business
days of the Effective Date of this Agreement, as defined by
Paragraph 16 below, less the amount of $6,000.00 advanced
to Cerqueira by Carrington on May 22, 1998 in good faith
that this Agreement will be accepted and executed by
Cerqueira, and (b) $9,656.25 on the first day of each
calendar month (or, if the first day of a month is a
Saturday, Sunday or holiday, on the last business day
preceding the first day of such month) beginning July 1,
1998 and ending with a final payment February 1, 1999.
Carrington shall deduct from such retainer the cost payable
by Cerqueira for participating in Carrington's group
insurance plan(s) as contemplated by Section 4(c) of this
Agreement.
(b) Reimbursement of Expenses. Carrington shall reimburse
Cerqueira for all reasonable and properly reimbursable
business expenses incurred by him during the Consulting
Term in connection with his performance of Services
(including reasonable expenses for travel, meals and
lodging, if he is required to travel in connection with the
performance of his Services), provided (i) Cerquiera
obtains advance written authorization from the President or
a Vice President of Carrington to incur such expenses and
(ii) Cerqueira timely submits a proper expense report and
supporting documentation to Carrington.
<PAGE>
(c) Group Insurance. During the Consulting Term,
Cerqueira may participate in Carrington's group health
insurance plan, subject to the terms of such plan and
provided he timely pays any cost that he is required to pay
in connection therewith. Unless earlier terminated in
accordance with the terms of such plan, Cerqueira s
participation in such plan shall terminate upon the
expiration or termination of the Consulting Term, except to
the extent (if any) that he is entitled, and elects, to
continue insurance coverage thereafter at his own expense
pursuant to the terms of the Consolidated Omnibus Budget
Reconciliation Act of 1985.
(d) Stock Options. In consideration of Cerqueira's
agreement to all of the terms and conditions of this
Agreement, and also in consideration of and subject to
Cerqueira's surrender to Carrington on the Resignation Date
of all of the Old Options, Carrington shall grant to
Cerqueira, effective as of the first day of the Consulting
Term and pursuant to Carrington's 1995 Stock Option Plan,
as amended (the "Option Plan"), new stock options (the "New
Options") as follows: (a) an option to purchase 17,050
shares of Carrington common stock at an exercise price of
$13.125, such shares to be fully vested upon grant; (b) an
option to purchase 7,500 shares of the Carrington common
stock at an exercise price of $11.125, such shares to be
fully vested upon grant; and (c) an option to purchase
8,788 shares of Carrington common stock at an exercise
price equivalent to the closing price of Carrington common
stock on Nasdaq as of the date of grant, such shares to
vest fully on January 30, 1999. The New Options (i) shall
not be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as
amended; (ii) shall expire and become null and void on
March 30, 1999, and shall in no event be exercisable after
the earlier of (A) the thirtieth day after the expiration
or termination of the Consulting Term for any reason other
than Cerqueira's death or (B) March 30, 1999, if the
Consulting Term expires or terminates before February 28,
1999 due to Cerqueira's death, and (iii) shall comply with
the provisions of Article V and all other applicable
provisions of the Option Plan.
5. Independent Contractor. During the Consulting Term,
Cerqueira shall be an independent contractor of Carrington and shall
not be considered an employee of Carrington for any purpose
whatsoever. Accordingly, Carrington will not withhold any amounts
for income or employment taxes from the compensation it pays him
under Section 4(a) of this Agreement, and Cerqueira shall be
responsible for paying all income and self-employment taxes payable
with respect to such compensation.
<PAGE>
6. Return of Property. Cerqueira acknowledges his obligation
to return to Carrington any and all items of its property, including
without limitation keys, computers, software, calculators, equipment,
c r edit cards, forms, files, manuals, correspondence, business
records, personnel data, lists of employees, salary and benefits
information, customer lists and files, lists of suppliers and
vendors, price lists, contracts, contract information, marketing
plans, brochures, catalogs, training materials, product samples,
computer tapes and diskettes or other portable media, computer-
readable files and data stored on any hard drive or other installed
device, and data processing reports, and any and all other documents
or property which he has had possession of or control over during the
course of his employment with Carrington. Such of Carrington s
property as is not needed for the conduct of Cerqueira's duties
during the Consulting Term will be returned by not later than June
10, 1998; and all other items will be returned by not later than the
date of the expiration of the Consulting Term.
7. Use of Confidential Information. Cerqueira acknowledges
that (i) he is a party to an existing agreement entitled Employee's
Confidentiality and Noncompetition Agreement, a copy of which is
attached hereto as Exhibit A and is hereby reconfirmed and ratified,
his obligations under which continue in full force and effect and
undiminished in any way by this Agreement; and (ii) all of the
documents and information to which he presently has during his
employment or will during the Consulting Term have had access ,
including but not limited to all information pertaining to any
specific business transactions in which Carrington or any of the
other Released Parties (as defined in Paragraph 8 below) were, are,
or may be involved, all information concerning salary and benefits
paid to current or former employees of Carrington or any of the other
Released Parties, all personnel information relating in any way to
current or former employees of Carrington or those of any of the
other Released Parties, all information pertaining in any way to
customers and suppliers of Carrington or those of any of the other
Released Parties, pricing information, all financial and budgetary
information, information regarding Carrington's sales methods and
techniques, information regarding Carrington's training methods and
techniques, all other information specified in Paragraph 6 above, and
in general, the business and operations of Carrington or any of the
other Released Parties are considered confidential and are not to be
disseminated or disclosed by Cerqueira to any other parties, except
as may be required by law or judicial process. In the event it
appears that Cerqueira will be compelled by law or judicial process
to disclose such confidential information, to avoid potential
liability Cerqueira should notify Carrington's president and CEO in
writing immediately upon his receipt of a subpoena or other legal
process.
<PAGE>
8. General Release. In consideration of the remuneration
provided pursuant to Paragraph 4 hereof, Cerqueira and his family
members, heirs, successors, and assigns (collectively the "Releasing
Parties") hereby release, acquit, and forever discharge any and all
claims and demands of whatever kind or character, whether vicarious,
derivative, or direct, that Cerqueira or any of the other Releasing
Parties, individually, collectively, or otherwise, may have or assert
against: (i) Carrington; (ii) any parent company, subsidiary, or
affiliated company of Carrington; or (iii) any officer, director,
stockholder, fiduciary, agent, employee, representative, insurer,
attorney, or any successors and assigns of the entities just named
(collectively the "Released Parties"). This General Release includes
but is not limited to any claim or demand based on any federal,
state, or local statutory or common law or constitutional provision
that applies or is asserted to apply, directly or indirectly, to the
formation, continuation, or termination of Cerqueira's employment
relationship with Carrington. Thus, Cerqueira and the other
Releasing Parties agree not to make any claims or demands against
Carrington or any of the other Released Parties such as for wrongful
discharge, unlawful employment discrimination on the basis of age or
any other form of unlawful employment discrimination; retaliation;
breach of contract (express or implied); breach of the duty of good
faith in and fair dealing; violation of the public policy of the
United States, the State of Texas, or any other state; intentional or
negligent infliction of emotional distress, tortious interference
with contract; promissory estoppel; detrimental reliance; defamation
of character; duress; negligent misrepresentation; intentional
misrepresentation or fraud; invasion of privacy; loss of consortium;
assault; batter; conspiracy; bad faith; negligent hiring, retention,
or supervision; any intentional or negligent act of personal injury;
any alleged act of harassment or intimidation; or any other
intentional or negligent tort; or any alleged violation of the Age
Discrimination in Employment Act of 1967, Title VII of the Civil
Rights Act of 1964, the Americans with Disabilities Act of 1990, the
Family and Medical Leave Act of 1993, the Employee Retirement Income
Security Act of 1974, the Fair Labor Standards Act, the Fair Credit
Reporting Act, the Texas Commission on Human Rights Act, the Texas
Wage Payment Statute.
<PAGE>
The effect of Cerqueira's acceptance of this Agreement is to
release, acquit, and forever discharge any and all claims and demands
of whatever kind or character that he or any of the other Releasing
Parties may now have or hereafter have or assert against Carrington
or any of the other Released Parties for any liability, whether
vicarious, derivative, or direct. This release includes any claims
or demands for damages (actual or punitive), back wages, future wages
or front pay, commissions, bonuses, severance benefits, medical
expenses and the costs of any counseling, reinstatement or priority
placement, promotion, accrued vacation leave benefits, past and
future medical or other employment benefits (except as to which there
is existing contractual or vested entitlement) including
contributions to any employee benefit plans, retirement benefits
(except as to which there is vested entitlement), relocation
expenses, compensatory damages, injunctive relief, liquidated
damages, penalties, equitable relief, attorney's fees, costs of
court, disbursements, interest, and any and all other loss, expense,
or detriment of whatever kind or character, resulting from, growing
out of, connected with, or related in any way to the formation,
continuation, or termination of his employment relationship with
Carrington. This General Release applies and is fully enforceable
with respect to all rights or claims existing on or before the date
this Agreement is executed by Cerqueira, and does not act to waive
any rights or claims that arise after the date of execution.
9. Confidentiality, Nonprosecution, Nondisparagement and
Cooperation.
(a) The terms of this Agreement shall be and remain
confidential, and shall not be disclosed by Cerqueira to any
persons other than the Releasing Parties and Cerqueira's
attorney and accountant or tax return preparer if such persons
have agreed to keep such information confidential. If any
confidential information is released by Cerqueira, such release
shall be grounds for immediate termination of all benefits
listed herein. Notwithstanding the foregoing, either Cerqueira
or Carrington may make any disclosures concerning the terms of
the Agreement that are required by law.
(b) Except as requested by Carrington or as compelled by law or
judicial process, Cerqueira will not assist, cooperate with, or
supply information of any kind to any individual or private-
party litigant or their agents or attorneys (i) in any
proceeding, investigation, or inquiry raising issues under the
Age Discrimination in Employment Act of 1967, Title VII of the
Civil Rights Act of 1964, the Americans with Disabilities Act of
1990, the Family and Medical leave Act of 1993, the Employee
Retirement Income Security Act of 1974, the Fair Labor Standards
Act, the Fair Credit Reporting Act, the Texas Commission on
Human Rights Act, the Texas Wage Payment Statute, or any other
federal, state, or local law involving the formation,
continuation, or termination of Cerqueira's employment
relationship, or the employment of other persons by Carrington
or any of the other Released Parties; or (ii) in any other
litigation against Carrington or any of the other Released
Parties.
<PAGE>
(c) Except as permitted by law, Cerqueira will not initiate any
investigation or inquiry, or any other action of any kind,
including an administrative charge with any governmental agency,
with respect to Carrington's facilities, employment practices,
or business operations, relating to the termination of his
employment as provided for in this Agreement.
(d) Cerqueira will not make to any other parties any statement,
oral or written, which directly or indirectly impugns the
quality or integrity of Carrington's or any of the other
Released Parties business or employment practices, or any other
disparaging or derogatory remarks about Carrington or any of the
other Released Parties, their officers, directors, stockholders,
managerial personnel, or other employees.
(e) It shall not be a breach of the obligations set forth in
this Paragraph 9 for Cerqueira, his spouse, or his attorneys to
state to any person that any differences, if he believes any to
exist, between Cerqueira and Carrington have been settled or
satisfactorily resolved.
(f) During and after the Consulting Term with Carrington,
Cerqueira agrees to cooperate fully and completely with
Carrington, or the other Released Parties in any matter related
to Carrington's business or activities, as follows: to be
available at mutually agreeable times, personally or by
telephone, as necessary, (i) at such reasonable times and
without unreasonable interference with his future employment or
personal activities, to provide such information as may be from
time to time requested by Carrington in its sole discretion in
connection with various matters in which Cerqueira was involved
during his employment with Carrington; and (ii) in all pending
and future litigation involving Carrington or any of the other
Released Parties, which obligation includes promptly meeting
with counsel for Carrington and/or the other Released Parties at
reasonable times upon its or their request, and providing
testimony in court or upon deposition that is truthful,
accurate, and complete, according to information known to him.
If Cerqueira appears as a witness in any pending or future
litigation at the request of Carrington or any of the other
Released Parties, Carrington agrees to reimburse Cerqueira, upon
submission of substantiating documentation, for necessary and
reasonable expenses, including actual lost earnings, incurred by
him as a result of his testifying.
10. Agreement Regarding Solicitation of Employees, Customers
and Suppliers. For a period of one year following the Resignation
Date, and thereafter to the extent provided by law, Cerqueira will
not, directly or indirectly, for his own account or for the benefit
of any other person or party:
(a) Solicit, induce, entice, or attempt to entice any employee,
contractor, or subcontractor of Carrington to terminate his or
her employment or contract with Carrington, or
<PAGE>
(b) Solicit, induce, entice or attempt to entice any customer
or supplier of Carrington, including any firms that have been
customers or suppliers of Carrington within one year preceding
the Resignation Date, to terminate its business relationship
with Carrington.
Should Cerqueira breach this obligation, Carrington will be
entitled to enforce the provisions of this Paragraph 10 by seeking
injunctive relief in addition to recovering any monetary damages
Carrington may sustain as a result of such breach, and Cerqueira may
be required to repay any amounts provided to him under the provisions
of Paragraph 4 of this Agreement.
11. Effect and Use of Agreement. This Agreement does not in
any manner constitute an admission of liability or wrongdoing on the
part of Carrington or any of the other Released Parties, but
Carrington expressly denies any such liability or wrongdoing. Except
to the extent necessary to enforce this Agreement, neither this
Agreement nor any part of it may be construed, used, or admitted into
evidence in any judicial, administrative or arbitral proceeding as an
admission of any kind by Carrington or any of the other Released
Parties.
12. Authority to Execute. Cerqueira represents and warrants
that he has the authority to execute this Agreement on behalf of all
the Releasing Parties. Cerqueira further agrees to indemnify fully
and hold harmless Carrington and any of the other Released Parties
from any and all claims brought by the Releasing parties or
derivative of his own with respect to the subject matter of this
Agreement, including the amount of any such claims Carrington or any
of the other Released Parties are compelled to pay, and the costs and
attorney's fees incurred in defending against all such claims.
13. Governing Law and Interpretation. This Agreement and the
rights and duties of the parties under it shall be governed by and
construed in accordance with the laws of the State of Texas. If any
provision of this Agreement is held to be unenforceable, such
provision shall be considered separate, distinct, and severable from
the other remaining provisions of this Agreement, and shall not
affect the validity or enforceability of such other remaining
provisions, and, in all other respects, this Agreement shall remain
in full force and effect. If any provision of this Agreement is held
to be unenforceable as written but may be made to be enforceable by
limitation thereof, then such provision shall be enforceable to the
maximum extent permitted by applicable law. The language of all
parts of this Agreement shall in all cases be construed as a whole,
according to its fair meaning, and not strictly for or against any of
the parties.
<PAGE>
14. Effect of Breach. Cerqueira acknowledges and agrees that
should he or any of the other Releasing Parties breach any of their
obligations set forth in this Agreement, (i) Carrington will have no
further obligation to comply with its undertakings in Paragraphs 2, 3
and 4 hereof, but all of the other provisions of this Agreement shall
remain in full force and effect; (ii) Cerqueira may be required to
repay any payments made to him and reimburse Carrington for any
payments made on his behalf or for his benefit pursuant to Paragraphs
2 and 4 hereof; and (iii) the Releasing Parties also may be liable
for any of the Released Parties damages caused by the breach,
including without limitation their costs and attorney's fees incurred
in defending claims brought in breach of this Agreement or bringing
claims to enforce this Agreement.
15. Time for Consideration, Consultation with Attorney, and
Knowing and Voluntary Action. Cerqueira acknowledges that (i) he has
had the opportunity to consider the terms of the General Release
contained in Paragraph 8 above, including its waiver of any claims
under the Age Discrimination in Employment Act, for more than 21
days; (ii) he has been advised by Carrington of his right to consult
an attorney of his choosing in connection with his consideration of
the terms of this Agreement, including such General Release and
waiver; and (iii) his execution of this Agreement is knowing and
voluntary.
16. Effective Date. This Agreement will become effective and
enforceable upon the expiration of seven days after Cerqueira s
execution of it (the "Effective Date"). At any time before
the Effective Date of this Agreement, Cerqueira may revoke his
acceptance.
17. Entire Agreement. This Agreement contains and constitutes
the entire understanding and agreement between Cerqueira and
Carrington, and may be modified only by a writing of contemporaneous
or subsequent date executed by both Cerqueira and an authorized
official of Carrington.
<PAGE>
SIGNED on the dates shown below.
CARRINGTON LABORATORIES, INC.
Dated: ________________________, 1998 By : __________________________
Carlton E. Turner
President & CEO
Date: _________________________, 1998 ______________________________
Luiz F. Cerqueia
EXHIBIT 10.1
AGENCY & 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 and CARRINGTON LABORATORIES
BELGIUM N.V., a Belgium corporation, jointly (together hereinafter
referred to as "Carrington"), and EGYPTIAN AMERICAN MEDICAL
INDUSTRIES, INC., an Egyptian corporation ("EAMI").
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 agent and exclusive distribution source for sales of such
products in Egypt (defined in Article 1 hereof as the Territory); and
WHEREAS, EAMI is desirous of distributing such products in
the Territory, represents that it has experience in obtaining
registration of 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 EAMI desires to be
Carrington's sales agent and 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) "Know-how" shall mean secret and substantial technical and
scientific information regarding the Products, which may be
necessary, useful or advisable to enable EAMI 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 EAMI after the Effective Date and during the
term of this Agreement.
(c) "Parties" shall mean Carrington and EAMI and "Party" shall
mean either of them as the context indicates.
<PAGE>
(d) "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 EAMI on its intent to add or discontinue Products to
Exhibit A.
(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) "Territory" shall mean the following country: Egypt
(g) "Trademarks" shall mean all Trademarks, trade names,
service marks, logos and derivatives thereof relating to
the Products.
(h) "Packaging" shall mean the packaging of bulk gels, creams,
or lotions into tubes or other appropriate containers.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints EAMI as Carrington's agent and exclusive
sales distributor in the Territory for the sale of Products, and EAMI
hereby accepts such appointment. As agent and sales distributor in
the Territory, EAMI 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
EAMI's sole expense, EAMI 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.
<PAGE>
2.3 During the term of this Agreement, EAMI shall be considered
Carrington's agent acting as an independent contractor and shall not
be considered a partner, employee, and servant of Carrington. As
such, EAMI 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 agent and
distributor. EAMI agrees to make clear in all dealings with
customers or prospective customers that it is acting as an agent and
sales distributor of the Products.
2.4 Nothing in this Agreement shall be construed as giving EAMI
any right to use or otherwise deal with the Know-how for purposes
other than those expressly provided for in this Agreement.
2.5 EAMI shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention. After
having discussed such situation with EAMI, Carrington shall have sole
and absolute discretion to take such action as it deems appropriate
and EAMI, at its own cost, shall assist Carrington in taking legal
action, if deemed necessary, against such misappropriation.
2.6 All costs and expenses connected with EAMI's activities or
performance under this Agreement are to be borne solely by EAMI.
Article 3. Certain Performance Requirements
3.1 EAMI agrees as agent and distributor to promote, market,
sell and distribute the Products only to customers and potential
customers within the Territory for ultimate use within the Territory.
EAMI 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 EAMI is in compliance
with Article 3.1, EAMI agrees that:
(a) EAMI will send to Carrington annual sales reports which set
forth the number of units and sizes of each Product sold,
the net sales and the number of units of free medical
samples distributed;
(b) EAMI will send to Carrington annual inventory reports of
the Products; and
(c) Carrington may mark for identification all Products sold by
Carrington to EAMI hereunder.
3.3 EAMI shall promptly provide Carrington with written reports
of any importation or sale of any of the Products in the Territory of
which EAMI 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 EAMI shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market
segments. EAMI shall maintain all its inventory of Products clearly
segregated and meeting all storage and other standards required by
applicable governmental authorities.
3.5 EAMI 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 EAMI of Products. Upon
written request from EAMI, Carrington shall provide EAMI 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 Initially, all Products shall be packaged and delivered by
Carrington to EAMI. After agreed upon volumes have been decided upon
between the Parties to ensure economic local Packaging, all Products
shall be packaged, labeled, advertised, marketed, sold and
distributed by EAMI 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. EAMI
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 EAMI shall not make any alterations or permit any
alterations to be made to the Products without Carrington's written
consent.
3.8 EAMI 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 EAMI by any third
party.
3.9 EAMI 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 EAMI 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.
<PAGE>
3.11 EAMI will actively and aggressively promote, develop demand
for and maximize the sale of the Products to all customers and
potential customers within the Territory. EAMI 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.
3.12 EAMI 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.
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 EAMI, 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 EAMI, 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 said application shall be in the name of Carrington,
with EAMI being named as Products agent and distributor in the
Territory. EAMI expressly acknowledges and agrees that the absolute
a n d 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 and EAMI is Carrington's agent,
therefore.
4.3 As soon as EAMI has received Know-how from Carrington, EAMI
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. EAMI 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, EAMI
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.
<PAGE>
4.5 EAMI shall use its best endeavors to obtain the
Registration within one (1) year from the relevant submission. EAMI
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
EAMI's fulfilment of its obligations in this respect. It is,
however, understood that EAMI's deadline to obtain Registration is
one year from the date of filing.
4.6 EAMI 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 EAMI
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 EAMI
5.1 Subject to the terms and conditions of this Agreement,
including specifically Article 5.7 hereof, Carrington shall sell to
EAMI the Products at a specified price for each Product (the
"Contract Price"). For orders placed by EAMI 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) EAMI 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. 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, EAMI agrees to purchase from
Carrington, during each 12-month period of the term of this
Agreement, commencing with the 12-month period beginning thirty (30)
days after product registration approval _______________, 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 $125,000. 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 EAMI's reasonable, good faith
projections of future sales growth and such other factors as the
Parties may deem relevant.
<PAGE>
5.3 EAMI 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 EAMI upon shipment of the
Products. Unless otherwise agreed, EAMI shall pay all invoices in
full within ninety (90) days of the date of invoice. EAMI 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 EAMI
at any time when payment of an amount owed by EAMI is overdue or when
EAMI is otherwise in breach of this Agreement.
5.5. 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
dated the Purchase Order is received and acknowledged in writing by
Seller, unless by mutual consent of the parties Purchase Orders will
be non-cancellable. EAMI 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 EAMI. Variation
above 20% shall be discussed between the Parties and Carrington will
use its best efforts to maintain delivery dates requested by EAMI.
5.6 All shipments of Products to EAMI 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 EAMI 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 EAMI 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 EAMI, 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.
<PAGE>
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 EAMI 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. EAMI 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.
EAMI'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
EAMI'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR
LIABILITY FOR DAMAGES TO EAMI 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.
EAMI 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 EAMI OR ANY OTHER
PARTY, (ii) ANY BREACH BY EAMI OF ANY OF ITS REPRESENTATIONS,
WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR (iii) ANY ACTS OR
OMISSIONS ON THE PART OF EAMI OR ITS AGENTS, SERVANTS OR EMPLOYEES
WHICH ARE OUTSIDE OR BEYOND EAMI'S AUTHORIZATION GRANTED HEREIN.
5.9 Credits for defective Products to EAMI 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 EAMI with a copy of its liability Insurance
Certificate and shall include EAMI 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 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.
<PAGE>
6.2 Carrington shall have the absolute right to terminate this
Agreement if EAMI 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 EAMI, EAMI 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) EAMI fails or refuses to pay to Carrington any sum
when due;
(ii) EAMI breaches any provision of Article 2.2, 3.4, 4,
5.3, 5.8, 7 or 8; or,
(iii) EAMI 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 EAMI at the termination
of this Agreement may be sold by EAMI 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 EAMI'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 EAMI, 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 EAMI 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 EAMI,
modify or discontinue the use of any Trademark and/or use one or more
additional or substitute marks or names, and EAMI 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 EAMI 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 EAMI'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. EAMI 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]".
EAMI 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, EAMI 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 EAMI's use of any Trademark
or of any EAMI trademark, EAMI is obligated to notify Carrington
immediately. EAMI 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, EAMI's right to use the Trademarks shall cease, and EAMI
shall cease using such Trademarks at such time as EAMI's inventory of
Products has been sold. EAMI shall, as soon as it is reasonably
possible, remove all Trademarks which appear on or about the premises
of the office(s) of EAMI and any of the advertising of EAMI used in
connection with the Products.
<PAGE>
7.6 In the event of a breach or threatened breach by EAMI 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 EAMI.
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 EAMI 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 EAMI in the
Territory.
7.8 Nothing contained in this Agreement shall be construed as
giving EAMI the right to use the Trademark outside the Territory or
for any other product than the Products.
Article 8. Confidential Information
8.1 EAMI recognizes and acknowledges that EAMI 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, EAMI 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 EAMI of the provisions of this Article 8,
Carrington shall be entitled to an injunction restraining EAMI 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 EAMI. 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 EAMI.
8.2 EAMI shall not disclose any of the terms of this Agreement
without the prior written consent of Carrington.
<PAGE>
Article 9. Force Majeure
9.1 Neither EAMI 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 EAMI'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 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.
<PAGE>
Article 12. Assignment
12.1 Neither this Agreement nor any of the rights or obligations
of EAMI hereunder shall be transferred or assigned by EAMI 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 shall 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 EAMI. (Fax No. 214-518-1020)
(b) EAMI at: _____________________; Attention: _______________,
or at such other address as EAMI shall have theretofore
furnished in writing to Carrington. (Fax No.____________)
Article 15. Waiver
15.1 Neither EAMI'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 EAMI'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 Switzerland, 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
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.
<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 EAMI 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.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the day and year as written below.
CARRINGTON LABORATORIES, INC.
By:
Name: Carlton E. Turner, Ph.D., D.Sc.
Title: President & CEO
Date: _________________________________
CARRINGTON LABORATORIES BELGIUM N.V.
By:
Name: Carlton E. Turner, Ph.D., D.Sc.
Title: President & CEO
Date: April 13, 1998
EGYPTIAN AMERICAN MEDICAL INDUSTRIES, INC.
By:
Name: Salah Abdo
Title: President & Chief Executive Officer
Date: April 1, 1998
EXHIBIT 10.2
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 and CARRINGTON LABORATORIES
BELGIUM N.V., a Belgium corporation, jointly (together hereinafter
referred to as "Carrington"), and CSC PHARMACEUTICALS LTD., DUBLIN, a
Swiss corporation ("CSC").
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 Austria, Hungary, Czech Republic, Slovak Republic,
Romania, Bulgaria, Poland, (defined in Article 1 hereof as the
Territory); and
WHEREAS, CSC is desirous of distributing such products in
the Territory, represents that it has experience in obtaining
registration of pharmaceutical preparations in the Territory, is well
introduced on the market, is willing and able to provide a competent
distribution organization in the Territory, and CSC 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) "Effective Date" shall mean the date of last signature of
the Parties hereto.
(b) "Know-how" shall mean secret and substantial technical and
scientific information regarding the Products, which may be
necessary, useful or advisable to enable CSC 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 CSC after the Effective Date and during the term
of this Agreement.
(c) "Parties" shall mean Carrington and CSC and "Party" shall
mean either of them as the context indicates.
(d) "Products" shall mean the wound and skin care products
manufactured by or for Carrington set forth on Exhibit A
hereto.
<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) "Territory" shall mean the following countries: Austria,
Croatia, Hungary, Czech Republic, Slovak Republic, Romania,
Bulgaria, Slovenia, and Poland.
(g) "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 CSC as Carrington's sales distributor in
the Territory for the sale of Products, and CSC hereby accepts such
appointment. As sales distributor in the Territory, CSC shall,
subject to the terms and conditions of this Agreement, have the right
to obtain in it's own name 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
CSC's sole expense, CSC 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, at Carrington's expenses, any product Registrations in
the Territory upon termination of Agreement. Such expenses shall be
limited to the actual direct expenses previously paid by CSC for the
Registrations.
2.3 During the term of this Agreement, CSC shall be considered
an independent contractor and shall not be considered a partner,
employee, agent or servant of Carrington. As such, CSC 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.
CSC 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 CSC
any right to use or otherwise deal with the Know-how for purposes
other than those expressly provided for in this Agreement.
2.5 CSC shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention. After
having discussed such situation with CSC, Carrington shall have sole
and absolute discretion to take such action as it deems appropriate
and CSC, at its own cost, shall assist Carrington in taking legal
action, if deemed necessary, against such misappropriation.
2.6 All costs and expenses connected with CSC's activities or
performance under this Agreement are to be borne solely by CSC.
Article 3. Certain Performance Requirements
3.1 CSC agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the
Territory for ultimate use within the Territory. CSC 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 CSC is in compliance
with Article 3.1, CSC agrees that:
(a) CSC will send to Carrington annual 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 which countries such Products were sold
and/or distributed during such year;
(b) CSC will send to Carrington annual inventory reports of the
Products; and
(c) Carrington may mark for identification all Products sold by
Carrington to CSC hereunder.
3.3 CSC shall promptly provide Carrington with written reports
of any importation or sale of any of the Products in the Territory of
which CSC 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 CSC shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market
segments. CSC 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 CSC's
facilities shall be subject to inspection by Carrington or its agents
upon 72 hours written notice.
<PAGE>
3.5 CSC 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 CSC of Products. Upon
written request from CSC, Carrington shall provide CSC 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 CSC. All Products shall be labeled, advertised, marketed, sold
and distributed by CSC 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. CSC 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 CSC shall not make any alterations or permit any
alterations to be made to the Products without Carrington's written
consent.
3.8 CSC 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 CSC by any third
party.
3.9 CSC 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 CSC 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 CSC will actively and aggressively promote, develop demand
for and maximize the sale of the Products to all customers and
potential customers within the Territory. CSC 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 directly competitive
product.
<PAGE>
3.12 CSC 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.
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 CSC, 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 Upon receipt by Carrington of the CE mark for the DiaB[TM]
and RadiaCare[TM] lines, Carrington shall forward the pertinent file
information to CSC. CSC shall then file the appropriate registration
documents with the Ministries of Health for the following countries:
Austria, Hungary, Czech Republic, Slovak, Romania, Bulgaria, Poland.
When CSC received approval from the Ministries of Health in Austria,
Hungary, Slovenia and the Czech Republic CSC shall commit to purchase
a minimum of $100,000 (U.S.) of Carrington Products within the next
twelve months. Further, when the Austrian government accepts the CE
mark for Carrington Products, CSC shall promptly pay an additional
$10,000 (U.S.) to Carrington to offset a portion of Carrington s
prior registration costs.
4.3 It shall be the responsibility of CSC, 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. CSC 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 after the termination of the Agreement.
All local governmental taxes for said registration, will be paid by
CSC, provided however, upon reassignment of the Registration,
Carrington shall pay any taxes required by the local government for
reassignment.
4.4 As soon as CSC has received Know-how from Carrington, CSC
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. Upon request by Carrington,
CSC 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.
4.5 Subject to having obtained Carrington's documentation ,CSC
shall, as soon as possible and in any case within 120 days of
execution of this Agreement, submit the Registration application to
the appropriate authorities of the Territory.
<PAGE>
4.6 CSC shall use its best endeavors to obtain the
Registrations as soon as possible from the relevant submission. It
is, however, understood that CSC's deadline to obtain Registration is
twenty-four (24) months from the date of filing.
4.7 Upon termination of this Agreement, Carrington agrees to
pay to CSC any transfer taxes or other associated fees required by
any country as a condition of the transfer of any Registration from
CSC to Carrington.
4.8 CSC 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.
4.9 Carrington makes no warranty that the supplied Know-how
will necessarily result in the grant of the Registration and CSC
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 CSC
5.1 Subject to the terms and conditions of this Agreement,
including specifically Article 5.7 hereof, Carrington shall sell to
CSC the Products at a specified price for each Product (the "Contract
Price"). For orders placed by CSC 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) CSC 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. 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, CSC agrees to purchase from
Carrington, after the first year of registration and each 12-month
period of the term of this Agreement, commencing with the 12-month
period beginning October, 1999 through October, 2000, 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 $100,000.
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 CSC's reasonable, good faith projections of future sales
growth and such other factors as the Parties may deem relevant.
<PAGE>
5.3 CSC 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 CSC upon shipment of the
Products. Unless otherwise agreed, CSC shall pay all invoices in
full within ninety (90) days of the date of invoice. CSC 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 CSC
at any time when payment of an amount owed by CSC is overdue or when
CSC is otherwise in breach of this Agreement.
5.5. All shipments shall be initiated by a Purchase Order.
Product shipment dates will be specified in the Purchase Order.
These dates may not e scheduled prior to ninety (90) days after the
dated the Purchase Order is received and acknowledged in writing by
Seller, unless by mutual consent of the parties Purchase Orders will
be non-cancellable. CSC 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 CSC. Variation
above 20% shall be discussed between the Parties and Carrington will
use its best efforts to maintain delivery dates requested by CSC.
5.6 All shipments of Products to CSC will be packaged in
accordance with Carrington's standard packaging procedures and
shipped per Carrington's existing distribution policy. All final
Contract Prices are CIP Vienna, (final Invoice Price shall include
seller's expense for delivery to the named destination) from
Carrington's facility, Irving, Texas. Ownership of and title to
Products and all risks of loss with respect thereto shall pass to CSC
upon delivery of such Products by Carrington to the carrier at the
designated delivery (CIP) 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 unless otherwise agreed by the
Parties hereto.
5.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by CSC 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 CSC, 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.
<PAGE>
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 CSC 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. CSC 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.
CSC'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
CSC'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY
FOR DAMAGES TO CSC 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.
CSC 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 CSC OR ANY OTHER
PARTY, (ii) ANY BREACH BY CSC OF ANY OF ITS REPRESENTATIONS,
WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR (iii) ANY ACTS OR
OMISSIONS ON THE PART OF CSC OR ITS AGENTS, SERVANTS OR EMPLOYEES
WHICH ARE OUTSIDE OR BEYOND CSC'S AUTHORIZATION GRANTED HEREIN.
5.9 Credits for defective Products to CSC 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 CSC with a copy of its liability Insurance
Certificate and shall include CSC thereunder.
Article 6. Term and Termination
6.1 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 6 or as
expressly provided elsewhere in this Agreement.
<PAGE>
6.2 Carrington shall have the absolute right to terminate this
Agreement if CSC 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 CSC, CSC 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) CSC fails or refuses to pay to Carrington any sum when
due;
(ii) CSC breaches any provision of Article 2.2, 3.4, 4,
5.3, 5.8, 7 or 8; or,
(iii) CSC 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 CSC at the termination
of this Agreement may be sold by CSC 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 CSC'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 CSC,
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 CSC 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 CSC,
modify or discontinue the use of any Trademark and/or use one or more
additional or substitute marks or names, and CSC 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 CSC 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 CSC'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. CSC 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]".
CSC 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, CSC 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 CSC's use of any Trademark
or of any CSC trademark, CSC is obligated to notify Carrington
immediately. CSC 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, CSC's right to use the Trademarks shall cease, and CSC shall
cease using such Trademarks at such time as CSC's inventory of
Products has been sold. CSC shall, as soon as it is reasonably
possible, remove all Trademarks which appear on or about the premises
of the office(s) of CSC and any of the advertising of CSC used in
connection with the Products.
<PAGE>
7.6 In the event of a breach or threatened breach by CSC 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 CSC.
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 CSC 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 CSC in the
Territory.
7.8 Nothing contained in this Agreement shall be construed as
giving CSC the right to use the Trademark outside the Territory or
for any other product than the Products.
Article 8. Confidential Information
8.1 CSC recognizes and acknowledges that CSC 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, CSC 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 CSC of the provisions of this Article 8,
Carrington shall be entitled to an injunction restraining CSC 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 CSC. 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 CSC.
8.2 CSC shall not disclose any of the terms of this Agreement
without the prior written consent of Carrington.
<PAGE>
Article 9. Force Majeure
9.1 Neither CSC 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 CSC'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 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 remain.
<PAGE>
Article 12. Assignment
12.1 Neither this Agreement nor any of the rights or obligations
of CSC hereunder shall be transferred or assigned by CSC 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 shall 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 CSC. (Fax No. 972-714-5009)
(b) CSC at: CSC Pharmaceuticals, Heiligenstaedter Strasse 395
b, A-1190 Vienna, Austria, Attention: CEO, Dr. Y.
Zarmanian, or at such other address as CSC shall have
theretofore furnished in writing to Carrington. (Fax No:
011-43-1-369 04 44 20)
Article 15. Waiver
15.1 Neither CSC'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 CSC'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.
<PAGE>
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 the United Kingdom, 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.
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.
<PAGE>
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 CSC 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.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the day and year written below.
CARRINGTON LABORATORIES, INC.
By: _______________________________________
Name: Carlton E. Turner, Ph.D., D.Sc.
Title: President & CEO
Date: April 24, 1998
CARRINGTON LABORATORIES BELGIUM N.V.
By: ________________________________________
Name: Carlton E. Turner, Ph.D., D.Sc.
Title: President & CEO
Date: April 24, 1998
CSC PHARMACEUTICALS, LTD.
By: ________________________________________
Name: Dr.Yervant Zarmanian
Title: CEO
Date: June 17, 1998
<PAGE>
EXHIBIT A
CSC PHARMACEUTICALS, LTD.
Products & Contract Price
Product Contract
No. Product Price
DIABETIC CARE
101011 DiaB[TM] Gel Daily Care Gel (1/2 oz. tube) $1.95/unit
12/cs.
101048 DiaB[TM] Gel Hydrogel Wound Dressing (3 oz. $4.70/unit
tube) 12/cs.
101027 DiaB[TM] Cream (3 oz. tube) 12/cs. $3.33/unit
RADIATION THERAPY CARE
106043 RadiaCare[TM] Gel Hydrogel Wound Dressing (1/2 $1.50/unit
oz. tube) 36/cs.
106042 RadiaCare[TM] Gel Hydrogel Wound Dressing (3 $4.56/unit
oz. tube) 12/cs.
101052 RadiaCare[TM] Gel Sheet (Clear Hydrogel Sheet) $3.10/unit
4 x 4, 6/cs.
103042 RadiaCare[TM] Post Healing Cream (0.14 oz. $0.45/unit
sachet) 600/cs.
103041 RadiaCare[TM] Post Healing Cream (2 oz. tube) $3.05/unit
12/cs.
101006 RadiaCare[TM] Oral Wound Rinse 1 oz. btl. $9.75/unit
12/cs.
WOUND & SKIN CLEANSERS
102060 CarraKlenz[TM] Wound & Skin Cleanser 6 oz. $2.99/unit
pump btl. 12/cs.
Final Product Invoice Price shall include delivery cost.
EXHIBIT 10.3
CARRINGTON LABORATORIES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
WITH OUTSIDE DIRECTOR
This Agreement, made as of __________, by and between CARRINGTON
LABORATORIES, INC., a Texas corporation (the "Company"), and
______________ ("Optionee"),
W I T N E S S E T H:
WHEREAS, the Company's 1995 Stock Option Plan, as amended (the
"Plan"), provides that four-year, nonqualified stock options to
purchase shares of the Company's Common Stock may be granted to the
persons who are Outside Directors (as defined below); and
WHEREAS, Optionee is an Outside Director, and it has been
determined that such an option should be granted to him;
NOW, THEREFORE, the Company and Optionee hereby agree as
follows:
1. Definitions. As used in this Agreement, the following
terms have the following meanings, respectively:
(a) "Affiliate" has the meaning set forth in Article I,
Section 1.02(a) of the Plan and includes any party now or
hereafter coming within that definition.
(b) "Board" means the Board of Directors of the Company.
(c) "Commencement Date" means the date of this Agreement.
(d) "Common Stock" has the meaning set forth in Article I,
Section 1.02(e) of the Plan.
(e) "Expiration Date" means the date that is four (4)
years from and inclusive of the date of this Agreement. (By way
of example, if the date of this Agreement were June 1, 1998, the
Expiration Date would be May 31, 2002.)
(f) "Outside Director" has the meaning set forth in
Article I, Section 1.02(n) of the Plan.
<PAGE>
2. Option. The Company hereby grants to Optionee the option
to purchase, on the terms hereinafter set forth, ________ shares of
the Company's Common Stock at a price of $5.25 per share during the
period beginning on the Commencement Date and ending on the
Expiration Date. Except as otherwise provided herein, this option
shall remain effective during its entire term, regardless of whether
Optionee continues to serve as an Outside Director. In the event of
Optionee's death on or before the Expiration Date, the executor or
administrator of Optionee's estate or anyone who shall have acquired
this option by will or pursuant to the laws of descent and
distribution may exercise this option at any time on or before the
Expiration Date, to the extent Optionee was entitled to do so at the
time of his death. Notwithstanding anything to the contrary herein,
this option shall terminate immediately on the termination of
Optionee's Board membership if he ceases to serve on the Board by
reason of his (a) fraud or intentional misrepresentation, or (b)
embezzlement, misappropriation or conversion of assets or
opportunities of the Company or any Affiliate.
The Stock Option Committee that administers the Plan shall
have the authority to make, in its sole discretion, any and all
determinations that are required to be made in connection with this
Agreement regarding the reasons for or circumstances of Optionee's
ceasing to serve on the Board, including but not limited to the
determinations of (i) whether Optionee ceased to serve on the Board
for any of the reasons set forth in clause (a) or clause (b) of
the immediately preceding paragraph and (ii) what criteria or
requirements, if any, should be applied in making the determinations
described in clause (1) of this sentence.
3. Exercisability. Subject to the provisions of Section 2
hereof, this option may be exercised in whole at any time, or in part
from time to time, during the period beginning on the Commencement
Date and ending on the Expiration Date. Notwithstanding any contrary
indication in this Agreement, no fractional shares of Common Stock
may be purchased upon exercise of this option.
4. Manner of Exercise. This option may be exercised by
written notice signed by the person entitled to exercise the same and
delivered to the President of the Company or sent by United States
registered mail addressed to the Company (for the attention of the
President) at its corporate office in Irving, Texas. Such notice
shall state the number of shares of Common Stock as to which this
option is exercised and shall be accompanied by payment of the full
purchase price of such shares, plus the amount of any federal, state
or local taxes required by law to be paid or withheld in connection
with such exercise.
5. Payment. The purchase price for shares of Common Stock
purchased upon exercise of this option shall be paid in cash or by
check in United States dollars.
<PAGE>
6. Delivery of Shares. Delivery of the certificate or
certificates representing the shares of Common Stock purchased upon
exercise of this option shall be made promptly after the Company's
receipt of notice of exercise and payment. If the Company so elects,
its obligation to deliver shares of Common Stock upon the exercise of
this option shall be conditioned upon its receipt from the person
exercising this option of any additional documents that, in the
opinion of the Company and its legal counsel, are required in order
to comply with any applicable law.
7. Adjustments. In the event that, before delivery by the
Company of all the shares of Common Stock in respect of which this
option is granted, the Company shall have effected a Common Stock
split or a dividend payable in Common Stock, or the outstanding
Common Stock of the Company shall have been combined into a smaller
number of shares, the shares of Common Stock still subject to this
option shall be increased or decreased to reflect proportionately the
increase or decrease in the number of shares outstanding, and the
purchase price per share shall be decreased or increased to make the
aggregate purchase price for all the shares then subject to this
option the same as immediately prior to such stock split, stock
dividend or combination. In the event of a reclassification of the
shares of Common Stock not covered by the foregoing, or in the event
of a liquidation or reorganization (including a merger, consolidation
or sale of assets) of the Company, the Board shall make such
adjustments, if any, as it may deem appropriate in the number,
purchase price and kind of shares still subject to this option.
8. Transferability. This option is not transferable otherwise
than by will or the laws of descent and distribution, and during the
lifetime of Optionee this option is exercisable only by Optionee or,
if Optionee is legally incompetent, by Optionee's legal
representative.
9. Board Membership. Nothing in this Agreement confers upon
Optionee any right to continue to serve as an Outside Director, nor
shall this Agreement interfere in any manner with the right of the
Company's shareholders to terminate Optionee's position as an Outside
Director with or without cause at any time.
10. Option Subject to Plan. By execution of this Agreement,
Optionee agrees that this option and the shares of Common Stock to be
received upon exercise hereof shall be governed by and subject to all
applicable provisions of the Plan.
<PAGE>
11. Construction. This option shall not be treated as an
incentive stock option under Section 422 of the Internal Revenue Code
of 1986, as amended. This Agreement is governed by, and shall be
construed and enforced in accordance with, the laws of the State of
Texas. Words of any gender used in this Agreement shall be construed
to include any other gender, unless the context requires otherwise.
The headings of the various sections of this Agreement are intended
for convenience of reference only and shall not be used in construing
the terms hereof.
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
<PAGE>
RECORD OF EXERCISE
DATE NO. OF SHARES EXERCISED INITIAL/AGREED
EXHIBIT 10.4
PROMISSORY NOTE
$200,000.00 Dallas, Texas
June 17, 1998
FOR VALUE RECEIVED, the undersigned, ALOE COMMODITIES
INTERNATIONAL, INC., a Texas corporation (the "Maker"), hereby
promises to pay to the order of CARRINGTON LABORATORIES, INC., a
Texas corporation (the "Payee"), the principal sum of Two Hundred
Thousand and No/100 Dollars ($200,000.00), with interest on the
unpaid balance thereof from the date hereof until maturity at the
rate or rates hereinafter provided, both principal and interest
being payable as hereinafter provided in lawful money of the
United States of America at 2001 Walnut Hill Lane, Irving, Texas
75038, or at such other place as may be designated from time to time
by the holder of this Note.
The unpaid principal of this Note outstanding from time to
time shall bear interest prior to maturity at the rate of ten
percent (10%) per annum or the maximum interest rate permitted under
applicable law, whichever is less. All past due principal and/or
interest or installments thereof shall bear interest from maturity
until paid at the rate of eighteen percent (18%) per annum or the
maximum interest rate permitted under applicable law, whichever is
less.
The principal of and interest on this Note shall be due
and payable on August 17, 1999, (the "Final Due Date"), on which
date all unpaid principal of and accrued interest on this Note shall
be due and payable.
The Maker shall have the right to prepay, without penalty,
at any time and from time to time prior to maturity, all or any
part of the unpaid principal balance of this Note, provided that
any such principal thus prepaid is accompanied by accrued interest
on such principal.
<PAGE>
It is the intent of the Maker and the Payee, in the
execution and acceptance of this Note and all other instruments now
or hereafter securing this Note, to contract in strict compliance
with applicable usury law. In furtherance thereof, the Maker and
the Payee stipulate and agree that none of the terms and provisions
contained in this Note, or in any other instrument executed in
connection herewith, shall ever be construed to create a contract to
pay, for the use, forbearance or detention of money, interest at
a rate in excess of the maximum interest rate permitted to be
charged by applicable law; that neither the Maker nor any guarantors,
endorsers or other parties now or hereafter becoming liable for
payment of this Note shall ever be obligated or required to pay
interest on this Note at a rate in excess of the maximum interest
rate that may be lawfully charged under applicable law; and that the
provisions of this paragraph shall control over all other provisions
of this Note and any other instruments now or hereafter executed
in connection herewith that may be in apparent conflict herewith.
The holder of this Note expressly disavows any intention to
charge or collect excessive unearned interest or finance charges in
the event the maturity of this Note is accelerated. If the
maturity of this Note shall be accelerated for any reason, or if the
principal of this Note is paid prior to the end of the term of this
Note, and as a result thereof the interest received for the actual
period of existence of the indebtedness evidenced by this Note
exceeds the applicable maximum lawful rate, the holder of this
Note shall, at its option, either refund to the Maker the amount of
such excess or credit the amount of such excess against the
principal balance of this Note then outstanding and thereby shall
render inapplicable any and all penalties of any kind provided by
applicable law as a result of such excess interest. If the Payee
or any other holder of this Note shall collect money that is deemed
to constitute interest that would increase the effective interest
rate on this Note to a rate in excess of that permitted to be
charged by applicable law, an amount equal to interest in
excess of the lawful rate shall, upon such determination, at the
option of the holder of this Note, be either immediately returned
to the Maker or credited against the principal balance of this
Note then outstanding, in which event any and all penalties of any
kind under applicable law as a result of such excess interest
shall be inapplicable. By execution of this Note, the Maker
acknowledges that it believes the indebtedness evidenced by this
Note to be non-usurious and agrees that if, at any time, the Maker
should have reason to believe that such indebtedness is in fact
usurious, it will give the holder of this Note notice of such
condition, and such holder shall have ninety (90) days from the date
such notice is given in which to make appropriate refund or other
adjustment in order to correct such condition, if in fact such
exists. The term "applicable law," as used in this Note, shall mean
the laws of the State of Texas or the laws of the United States,
whichever laws allow the greater rate of interest, as such laws now
exist or may be changed or amended or come into effect in the future.
<PAGE>
If the indebtedness represented by this Note or any part
thereof is collected at law or in equity or through any bankruptcy,
receivership, probate or other court proceedings, or if this
Note is placed in the hands of an attorney for collection after
default, the Maker and all endorsers, guarantors and sureties of
this Note jointly and severally agree to pay to the holder of this
Note, in addition to the principal and interest due and payable
hereon, all the costs and expenses of such holder in enforcing this
Note, including without limitation reasonable attorney's fees and
legal expenses.
The Maker and all endorsers, guarantors and sureties of
this Note and all other persons liable or to become liable on this
Note severally waive presentment for payment, demand, notice of
demand and of dishonor and nonpayment of this Note, notice of
intention to accelerate the maturity of this Note, notice of
acceleration, protest and notice of protest, diligence in
collecting, and the bringing of suit against any other party, and
agree to all renewals, extensions, modifications, partial payments,
and releases or substitutions of security, in whole or in part, with
or without notice, before or after maturity.
This Note and the rights, duties and liabilities of the
parties hereunder and/or arising from or relating in any way to the
indebtedness evidenced by this Note or the transaction of which such
indebtedness is a part shall be governed by and construed for
all purposes in accordance with the laws of the State of Texas and
the laws of the United States applicable to transactions within such
state.
<PAGE>
IN WITNESS WHEREOF, the Maker has executed this Note on the
date first set forth above.
ALOE COMMODITIES INTERNATIONAL, INC.
By: L. Scott McKnight
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from (1) Statements of Balance Sheets, (2) Statements of
Operations and (3) Statements of Cash Flows, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
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<SECURITIES> 0 0
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<ALLOWANCES> 363 228
<INVENTORY> 5,039 4,107
<CURRENT-ASSETS> 13,648 11,838
<PP&E> 20,022 19,045
<DEPRECIATION> 8,865 7,769
<TOTAL-ASSETS> 26,218 25,019
<CURRENT-LIABILITIES> 3,105 2,892
<BONDS> 0 0
0 0
0 0
<COMMON> 93 93
<OTHER-SE> 23,020 22,005
<TOTAL-LIABILITY-AND-EQUITY> 26,218 22,098
<SALES> 11,815 11,204
<TOTAL-REVENUES> 11,815 11,204
<CGS> 5,180 4,393
<TOTAL-COSTS> 11,707 11,554
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (114) 98
<INCOME-PRETAX> 222 (448)
<INCOME-TAX> 10 0
<INCOME-CONTINUING> 212 (448)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 212 (448)
<EPS-PRIMARY> 0.02 (0.05)
<EPS-DILUTED> 0.02 (0.05)
</TABLE>
