SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
CARRINGTON LABORATORIES, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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computed pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was determined):
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Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
CARRINGTON LABORATORIES, INC.
2001 Walnut Hill Lane
Irving, Texas 75038
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On May 14, 1998
NOTICE is hereby given that the annual meeting of
shareholders of CARRINGTON LABORATORIES, INC. (the "Company") will be
held on May 14, 1998, at 8:30 a.m., local time, at the Las Colinas
Country Club, 4900 North O'Connor Boulevard, Irving, Texas 75062, for
the following purposes:
(1) To elect two persons to serve as directors of the
Company for terms expiring at the annual meeting of
shareholders in 2001;
(2) To consider and vote upon a proposal to approve
amendments to the Company's 1995 Stock Option Plan
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;
(3) To approve the appointment of Ernst & Young LLP as
independent public accountants for the Company for
the fiscal year ending December 31, 1998; and
(4) To transact such other business as may properly
come before the meeting or any adjournment thereof.
<PAGE>
Only shareholders of record at the close of business on
April 13, 1998 are entitled to notice of and to vote at the meeting
or any adjournment thereof. A record of the Company's activities
during 1997 and financial statements for the fiscal year ended
December 31, 1997 are contained in the accompanying 1997 Annual
Report.
You are urged, whether or not you plan to attend the
meeting in person, to mark, sign and date the enclosed proxy and
return it promptly in the accompanying envelope. If you do attend
the meeting in person, you may withdraw your proxy and vote in
person. The prompt return of proxies will assure the representation
of sufficient shares to take the actions described above and save
your Company the expense of further solicitation.
By Order of the Board of Directors
/s/ George DeMott
George DeMott
Chairman of the Board
Irving, Texas
April 13, 1998
<PAGE>
CARRINGTON LABORATORIES, INC.
2001 Walnut Hill Lane
Irving, Texas 75038
(214) 518-1300
PROXY STATEMENT
For Annual Meeting of Shareholders
To Be Held On May 14, 1998
This Proxy Statement is furnished to the shareholders of
Carrington Laboratories, Inc., a Texas corporation (the "Company"),
in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the annual meeting of
shareholders to be held on May 14, 1998. Proxies in the form
enclosed will be voted at the meeting if properly executed, returned
to the Company prior to the meeting and not revoked. A proxy may be
revoked at any time before it is voted by giving written notice or a
duly executed proxy bearing a later date to the President of the
Company, or by voting in person.
The approximate date on which this Proxy Statement and the
accompanying proxy are first being sent to shareholders is April 16,
1998.
OUTSTANDING CAPITAL STOCK
The record date for the determination of shareholders
entitled to notice of and to vote at the annual meeting is April 13,
1998 (the "Record Date"). At the close of business on the Record
Date, the Company had 9,315,236 shares of Common Stock, $.01 par
value ("Common Stock"), issued and outstanding and entitled to vote
at the meeting.
ACTION TO BE TAKEN AT THE MEETING
Shares represented by a validly executed proxy in the
accompanying form, unless the shareholder otherwise specifies in the
proxy, will be voted (i) for the election of the two persons named as
nominees under the caption "Election of Directors" as directors of
the Company, (ii) for the approval of the amendments to the Company's
1995 Stock Option Plan, (iii) for the approval of the appointment by
the Company's Board of Directors of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1998, and (iv) at the discretion of the proxy holders,
on any other matter that may properly come before the meeting or any
adjournment thereof.
Where shareholders have appropriately specified how their
proxies are to be voted, they will be voted accordingly. If any
other matter or business is brought before the meeting, the proxy
holders may vote the proxies at their discretion. The directors do
not know of any such other matter or business to be presented for
consideration.
<PAGE>
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a
majority of the shares of Common Stock outstanding as of the Record
Date is necessary to constitute a quorum at the annual meeting. In
deciding all questions, a holder of Common Stock is entitled to one
vote, in person or by proxy, for each share held in such holder's
name on the Record Date.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of
March 31, 1998, unless otherwise indicated, with respect to the
shareholders known by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock of the Company,
based on the information available to the Company on such date.
Except as otherwise indicated, each shareholder named in the table
has sole voting and investment power with respect to all shares
indicated as being beneficially owned by such shareholder.
Shares of
Common Stock
Beneficial Owner Beneficially Owned Percent of Class
Thomas J. Marquez 827,440(1) 8.8%
c/o Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
John C. Oxley 718,800(2)(3)(4) 7.7%
One West 3rd Street
Williams Center Tower I
Suite 1300
Tulsa, Oklahoma 74103
Thomas E. Oxley 699,800(3)(4)(5) 7.5%
One West 3rd Street
Williams Center Tower I
Suite 1305
Tulsa, Oklahoma 74103
Charles C. Killin 661,500(2)(6) 7.1%
15 East 5th Street
Suite 2400
Tulsa, Oklahoma 74103
(1) Includes 39,300 shares held in a trust controlled by Mr.
Marquez and 40,100 shares that he has the right to acquire
pursuant to options exercisable within 60 days after March
31, 1998, subject to shareholder approval of amendments to
the Company's 1995 Stock Option Plan.
<PAGE>
(2) Based on a report on Schedule 13D dated February 20, 1997
filed by John C. Oxley with the Securities and Exchange
Commission. John C. Oxley may be deemed to have
beneficial ownership of 627,500 shares of the Company's
Common Stock held by him as a Co-Executor of the Estate of
John T. Oxley, 23,000 shares held by him as a Co-Trustee
of the Oxley Foundation, and 68,300 shares held of record
by Boca Polo, Inc., a Nevada corporation of which he owns
50% of the outstanding shares. With respect to the 23,000
s h ares held by him as a Co-Trustee of the Oxley
Foundation, John C. Oxley shares voting and dispositive
powers with Mary Jane Oxley Tritsch.
(3) John C. Oxley, Thomas E. Oxley and Charles C. Killin share
voting and dispositive powers with respect to, and
disclaim beneficial ownership of, the 627,500 shares of
the Company's Common Stock held by them as Co-Executors of
the Estate of John T. Oxley.
(4) John C. Oxley and Thomas E. Oxley share voting and
dispositive powers with respect to the 68,300 shares of
the Company's Common Stock owned by Boca Polo, Inc.
(5) Based on a report on Schedule 13D dated February 20, 1997
filed by Thomas E. Oxley with the Securities and Exchange
Commission. Thomas E. Oxley individually owns 4,000
shares of the Company's Common Stock and may be deemed to
have beneficial ownership of 627,500 shares held by him as
a Co-Executor of the Estate of John T. Oxley, and 68,300
shares held of record by Boca Polo, Inc., a Nevada
corporation of which he is a director and owns 50% of the
outstanding shares.
(6) Based on a report on Schedule 13D dated February 24, 1997
filed by Charles C. Killin with the Securities and
Exchange Commission. Mr. Killin may be deemed to have
beneficial ownership of 627,500 shares of the Company's
Common Stock held by him as a Co-Executor of the Estate of
John T. Oxley, 11,500 shares held by him as the Trustee of
the Mary Jane Tritsch Trust, and 22,500 shares held by him
as the Trustee of the Thomas E. Oxley Trust.
The Company knows of no arrangements the operation of
which may at a subsequent date result in a change of control of the
Company.
<PAGE>
REQUIRED AFFIRMATIVE VOTE AND VOTING PROCEDURES
With regard to the election of directors, votes may be
cast in favor of or withheld from each nominee. The two nominees who
receive a plurality of the votes cast by shareholders present or
represented by proxy at the annual meeting, and entitled to vote on
the election of directors, will be elected as directors of the
Company. Thus, any abstentions, "broker non-votes" (shares held by
brokers or nominees as to which they have no discretionary authority
to vote on a particular matter and have received no instructions from
the beneficial owners or persons entitled to vote thereon) or other
limited proxies will have no effect on the election of directors.
The Company's Bylaws provide that the vote required to
approve matters other than the election of directors is the
affirmative vote of the holders of a majority of the shares entitled
to vote on, and voted for or against, the matter at a meeting at
which a quorum is present. Abstentions may be specified on all
proposals except the election of directors. Under applicable law and
the Company's Bylaws, abstentions and shares represented by broker
non-votes or other limited proxies for a particular proposal will be
counted as present for purposes of determining the existence of a
quorum at the meeting but will be excluded entirely from the voting
tabulation for that proposal. Therefore, abstentions, broker non-
votes and other limited proxies will have no effect on the outcome of
the proposals to amend the Company s 1995 Stock Option Plan and to
approve the appointment of independent public accountants.
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Company's operations
will be governed by the Board of Directors, which is elected by the
shareholders. The Company's Board of Directors is divided into three
classes with staggered three-year terms. All directors of one class
hold their positions until the annual meeting of shareholders at
which the terms of the directors in such class expire and their
respective successors are elected and qualified, or until their
earlier death, resignation, disqualification or removal from office.
The Company's Bylaws provide that the number of directors shall not
be less than five nor greater than nine, and the exact number of
directors that shall constitute the Board of Directors shall be fixed
from time to time by resolution of the Board. The Board of Directors
has determined that the number of directors will be seven.
All duly submitted and unrevoked proxies will be voted for
the nominees selected by the Board of Directors, except where
authorization to so vote is withheld. If any nominee should become
unavailable for election for any presently unforeseen reason, the
persons designated as proxies will have full discretion to vote for
another person designated by the Board.
<PAGE>
The Board of Directors has nominated Selvi Vescovi and
Thomas J. Marquez for election at the annual meeting as directors to
serve three-year terms expiring in 2001. Messrs. Vescovi and Marquez
are currently directors of the Company, with terms expiring at the
1998 annual meeting, and each has consented to serve as a director if
elected. The five other directors of the Company have been elected
to terms that do not expire at the 1998 annual meeting. R. Dale
Bowerman and James T. O'Brien are currently serving terms expiring in
1999, and George DeMott, Robert A. Fildes, Ph.D. and Carlton E.
Turner, Ph.D., D.Sc. are currently serving terms expiring in 2000.
Information about all seven directors of the Company, including the
current nominees, is set forth in the following paragraphs.
R. DALE BOWERMAN, 58, has served as a director of the
Company since January 1991. Mr. Bowerman was President and Chief
Executive Officer of Southwest Health Alliances, L.L.C. from May 1994
until his retirement in October 1997. From 1973 to April 1994, he
was Chief Financial Officer of High Plains Baptist Health Systems, a
nonprofit hospital system. Mr. Bowerman is also a director of
Sunrise Technologies, Inc., a publicly traded company.
GEORGE DEMOTT, 65, has served as a director of the Company
since May 1990 and Chairman of the Board since April 1995. He has
been an independent business consultant since 1987. From 1963 to
1987, Mr. DeMott held various positions with American Home Products
Corporation, a worldwide marketer of pharmaceuticals,
over-the-counter drugs and household products, serving as Group Vice
President from 1978 to 1987. From 1964 to 1978, Mr. DeMott was with
the Whitehall Laboratories Division of that corporation, and he
served as President of that division from 1974 until 1978.
ROBERT A. FILDES, Ph.D., 59, has served as a director of
the Company since March 1991 and, on an independent contractor basis,
as the Company s interim Executive Vice President, Research and
Development since October 1, 1997. From February 1993 to August
1997, he was Chairman of the Board and Chief Executive Officer of
Scotgen Biopharmaceuticals, Inc., a biotechnology company. From
August 1990 to January 1993, he was an independent business
consultant in the pharmaceutical industry. Dr. Fildes was President
and Chief Executive Officer of Cetus Corporation, a biopharmaceutical
company, from 1982 to 1990. From 1980 to 1982, he was President of
Biogen, Inc., the United States subsidiary of Biogen, N.V., Geneva,
Switzerland. Prior to joining Biogen, Dr. Fildes was Vice President
of Operations for the Industrial Division of Bristol-Myers Company.
Dr. Fildes is also a director of the following biopharmaceutical
companies: La Jolla Pharmaceutical Co. and Atlantic Pharmaceuticals,
each a publicly traded company; and Cascade Oncogenics, Cytovax and
Laboratory Skin Care, each a private company.
<PAGE>
THOMAS J. MARQUEZ, 60, has served as a director of the
Company since August 1987. In addition, from August 1987 until May
1990, Mr. Marquez was Chairman of the Board and Chief Executive
Officer of the Company. From 1965 to 1979, Mr. Marquez was an
officer of Electronic Data Systems, Inc., a computer services
company, and he served as a director of that corporation from 1965 to
1984. Since his resignation as an officer of Electronic Data
Systems, he has been engaged primarily in personal investment
activities and a number of public service projects. Mr. Marquez is
also a director of Aquinas Funds, Inc.
JAMES T. O'BRIEN, 59, has served as a director of the
Company since June 1992. Since September 1996, Mr. O'Brien has been
President and Chief Executive Officer of O'Brien Marketing and
Communications. In addition, Mr. O'Brien has been Chairman of the
Board of Access Corporation, a designer of human resources software,
since September 1991. Mr. O'Brien was President and Chief Operating
Officer of Elan Corporation, PLC, a pharmaceutical company, from 1989
to 1991. From 1986 to 1989, he was President and Chief Executive
Officer of O'Brien Pharmaceuticals, Inc. From 1980 to 1986, Mr.
O'Brien held various positions with Revlon Health Care Group,
including President of USV Laboratories and Armour Pharmaceutical
Company. Mr. O'Brien is also a director of TheraTech, Inc., a
publicly traded company; of Palatin Technologies, Inc., a publicly
traded company; and of Cydex, Inc., a private drug development
company.<PAGE>
CARLTON E. TURNER, Ph.D., D.Sc., 57, has served as a
director of the Company since May 1989 and as President and Chief
Executive Officer of the Company since April 1995. In addition, from
January 1994 to November 1994, Dr. Turner was Executive Vice
President of the Company and from November 1994 to April 1995 he was
Chief Operating Officer of the Company. He was President and Chief
Executive Officer of Princeton Diagnostic Laboratories of America,
Inc., a biomedical and pharmaceutical testing laboratory, from 1987
through May 1993. He also served as a director of that corporation
from 1987 to January 1994. From 1981 through 1987, he was Director
of the Drug Abuse Policy Office of the White House, President
Reagan's principal advisor on drug abuse policy. From 1970 to 1981,
Dr. Turner was a research professor and director of the Research
Institute of Pharmaceutical Sciences at the University of Mississippi
School of Pharmacy.
<PAGE>
SELVI VESCOVI, 67, has served as a director of the Company
since May 1989. Mr. Vescovi served as Chairman of the Board from May
1990 to April 1995. In addition, Mr. Vescovi served as interim
President and Chief Executive Officer of the Company from March 1995
to April 1995. He was employed by The Upjohn Company ("Upjohn"), a
manufacturer of human pharmaceuticals and pharmaceutical chemicals,
in various capacities from 1954 until his retirement in 1988 from his
positions as Corporate Vice President of Upjohn, a position he had
held since 1977, and President and General Manager of Upjohn
International, Inc., the subsidiary of Upjohn responsible for
international operations. He had held the latter position since
1985. Following his retirement, Mr. Vescovi served as Adjunct
Professor, International Management, at Western Michigan University
from 1988 to 1993 and as a member of the Advisory Board of the
College of Business Administration of the University of South
Carolina from 1988 to 1994. Mr. Vescovi is also a director of
Centaur Pharmaceutical, Inc., a private company.
The business and affairs of the Company are managed by the
Board of Directors, which exercises all corporate powers and
establishes corporate policies. The Board has established an
Executive Committee which may exercise all (except in certain cases)
the authority and powers of the Board of Directors in the business
and affairs of the Company when the Board of Directors is not in
session. The current members of the Executive Committee are Selvi
Vescovi (Chairman), George DeMott and Carlton E. Turner, Ph.D., D.Sc.
The Board has established an Audit Committee for the purposes of
reviewing the results and scope of, and the fees for, the annual
audit, reviewing the financial statements and any significant
transactions or events and any changes in accounting principles and
practices with the independent auditors, and reviewing the internal
controls and audit procedures of the Company. The current members of
the Audit Committee are Robert A. Fildes (Chairman), James T. O'Brien
and R. Dale Bowerman. The Board does not have a standing nominating
committee. The Compensation and Stock Option Committee serves as a
compensation committee and makes recommendations to the Board with
respect to compensation of executive officers of the Company. The
current members of the Compensation and Stock Option Committee are
James T. O'Brien (Chairman), George DeMott and Selvi Vescovi. During
fiscal 1997, the Board of Directors held nine meetings, the Executive
Committee held six meetings, the Audit Committee held two meetings,
and the Compensation and Stock Option Committee held one meeting.
All incumbent directors attended at least 75% of the meetings held by
the Board and the committees on which they served during 1997.
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are Carlton E.
Turner, Ph.D., D.Sc., Robert A. Fildes, Ph.D., Luiz F. Cerqueira, V.
Kirkland Meares, Christopher S. Record and Robert W. Schnitzius.
Biographical information for Dr. Turner and Dr. Fildes is set forth
under "Election of Directors" above.
Luiz F. Cerqueira, 50, has been employed by the Company
since August 1993, as Vice President, Manufacturing/Operations. From
1989 to 1993, Mr. Cerqueira was the Vice President, Pharmaceutical
Manufacturing, for Centocor, Inc., with assignment in the
Netherlands. From 1984 to 1989, Mr. Cerqueira was employed by
Schering-Plough Corporation in Manati, Puerto Rico, where he served
as Operations Director from 1988 to 1989, Materials Manager from
1986 to 1988, and Antibiotics Plant Manager from 1984 to 1986. From
1981 to 1984, Mr. Cerqueira was employed by Schering-Plough in Rio De
Janeiro, Brazil, serving as Industrial Director from 1983 to 1984 and
as Chemical & Biochemical Plants Manager from 1981 to 1983. From
1975 to 1980, Mr. Cerqueira was employed by American Cyanamid in
Brazil, where he served as Materials Manager from 1980 to 1981,
Medical Products Plant Manager from 1978 to 1980, Antibiotic
Production Manager from 1976 to 1978 and Antibiotic Production
Assistant Manager in 1975. From 1973 to 1975, Mr. Cerqueira was
employed by Johnson & Johnson, Sao Paulo, Brazil, as Sutures
Production General Supervisor.
V. Kirkland Meares, 54, has been Vice President, Sales and
Marketing of the Company since April 1996. In addition, he has been
an independent manufacturer's representative for Carrington since
1984. From 1967 to 1984, he was primarily a practicing pharmacist in
Alabama.
Christopher S. Record, 47, has been Vice President,
Business Development, Secretary and General Counsel of the Company
since October 1995. From June 1997 to November 1997, he also served
as interim Chief Financial Officer and Treasurer of the Company.
From April 1994 to October 1995, Mr. Record served as Vice President,
Finance and Administration, Chief Financial Officer, Secretary,
Treasurer, and General Counsel of the Company. Mr. Record is an
attorney with a master's degree in business administration. From
January 1990 to February 1994, he was Chairman of Electronic Product
Information Corporation. From 1985 to 1990, he was Vice President,
Corporate and Business Development, General Counsel and Secretary of
Autodesk, Inc.
Robert W. Schnitzius, 40, has been Chief Financial Officer
and Treasurer of the Company since November 1997. From 1996 to 1997,
Mr. Schnitzius was the Corporate Controller for Medeva Americas,
Inc., a U.S. subsidiary of Medeva PLC. From 1991 to 1996, Mr.
Schnitzius served with Medeva Pharmaceuticals, also a subsidiary of
Medeva PLC, first as Controller (1991 to 1993) and then as Director
of Finance (1994 to 1996). From 1983 to 1991, Mr. Schnitzius served
as Controller for Shoreline Products, Inc., a boat trailer
manufacturer, and from 1978 to 1983 he served as Treasurer of Texas
Testing Laboratories, an engineering testing laboratory.
<PAGE>
All executive officers of the Company are elected
annually by the Board of Directors to serve until their respective
successors are chosen and qualified or until their earlier death,
resignation or removal from office.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 31, 1998, the
beneficial ownership of Common Stock of the Company by each director
of the Company, each named executive officer listed in the Summary
Compensation Table included elsewhere in this Proxy Statement and all
directors and executive officers as a group. Except as otherwise
indicated, each person named in the table below has sole voting and
investment power with respect to all shares indicated as being
beneficially owned by him.
Common Stock
Beneficially Owned
Number Percent
Name of Shares of Class
Directors
R. Dale Bowerman 58,500(1) *
George DeMott 15,000(2) *
Robert A. Fildes, Ph.D. 21,000(3) *
Thomas J. Marquez 827,440(4) 8.8%
James T. O'Brien 15,500(5) *
Carlton E. Turner, Ph.D., D.Sc. 56,373(6) *
Selvi Vescovi 21,000(7) *
Named Executive Officers (excluding
any director named above) and Group
Luiz F. Cerqueira 25,216(8) *
V. Kirkland Meares 7,569 *
Christopher S. Record 5,990 *
David G. Shand, M.D., Ph.D. 29,958(9) *
All directors and executive
officers as a group (12 persons) 1,085,546(10) 11.5%
* Less than one percent.
(1) Includes 22,500 shares that Mr. Bowerman has the right to
a c quire pursuant to options and warrants that are
presently exercisable or exercisable within 60 days after
March 31, 1998 (including options for 12,500 shares which
are subject to shareholder approval of amendments to the
Company's 1995 Stock Option Plan).
(2) Includes 10,000 shares that Mr. DeMott has the right to
acquire pursuant to options exercisable within 60 days
after March 31, 1998, subject to shareholder approval of
amendments to the Company's 1995 Stock Option Plan.
(3) Includes 12,500 shares that Dr. Fildes has the right to
acquire pursuant to options exercisable within 60 days
after March 31, 1998, subject to shareholder approval of
amendments to the Company's 1995 Stock Option Plan.
<PAGE>
(4) Includes 39,300 shares held in a trust controlled by Mr.
Marquez and 40,100 shares that he has the right to acquire
pursuant to options exercisable within 60 days after March
31, 1998, subject to shareholder approval of amendments to
the Company's 1995 Stock Option Plan.
(5) Includes 12,500 shares that Mr. O'Brien has the right to
acquire pursuant to options exercisable within 60 days
after March 31, 1998, subject to shareholder approval of
amendments to the Company's 1995 Stock Option Plan.
(6) Includes 18,875 shares that Dr. Turner has the right to
acquire pursuant to options that are presently
exercisable.
(7) Includes 12,500 shares that Mr. Vescovi has the right to
acquire pursuant to options exercisable within 60 days
after March 31, 1998, subject to shareholder approval of
amendments to the Company's 1995 Stock Option Plan.
(8) Includes 24,550 shares that Mr. Cerqueira has the right to
acquire pursuant to presently exercisable options.
(9) Includes 27,500 shares that Dr. Shand has the right to
acquire pursuant to presently exercisable options.
(10) Includes 181,025 shares that such directors and executive
officers have the right to acquire pursuant to options and
warrants that are presently exercisable or exercisable
within 60 days after March 31, 1998 (including options for
100,100 shares which are subject to shareholder approval
of amendments to the Company's 1995 Stock Option Plan).
PROPOSAL TO APPROVE AMENDMENTS TO
1995 STOCK OPTION PLAN
Introduction
At the annual meeting in April 1995, the shareholders of
the Company approved the adoption of the Carrington Laboratories,
Inc. 1995 Stock Option Plan (the "Option Plan"). The Option Plan
became effective on April 1, 1995 and replaced the Company's 1985
Stock Option Plan, which expired in February 1995. A total of
1,500,000 shares of Common Stock are reserved for issuance under the
Option Plan. On March 27, 1996, the Board of Directors unanimously
adopted amendments to the Option Plan to provide for the granting of
options to certain advisors and consultants of the Company, and the
shareholders approved such amendments at the 1996 annual meeting. On
January 15, 1998, the Board of Directors unanimously adopted, and
recommended to the shareholders for approval, additional amendments
to the Option Plan (the "1998 Amendments"), as described below.
<PAGE>
A copy of the Option Plan, as amended and restated by the
Board of Directors, is attached hereto as Exhibit A. At the annual
meeting to be held on May 14, 1998, the shareholders will be asked to
consider and adopt a proposal (the "Proposal") to approve the 1998
Amendments, as reflected in Exhibit A. The 1998 Amendments will not
be effective unless the Proposal is adopted by the shareholders. If
the shareholders adopt the Proposal, the 1998 Amendments will be
effective as of the date of their adoption by the Board of Directors.
The description in this Proxy Statement of the Option Plan and the
1998 Amendments is intended solely as a summary, does not purport to
be complete, and is qualified in its entirety by the full text of the
Option Plan attached hereto as Exhibit A.
Principal Effects of and Reasons for the Proposal
Amendments to Article II of the Option Plan (a) remove
previously existing restrictions on the power and authority of the
Compensation and Stock Option Committee (the "Committee") and the
Board of Directors with respect to options granted or to be granted
to non-employee directors of the Company ("outside directors"), (b)
give the Committee and the Board of Directors the same power and
authority with respect to options granted or to be granted to outside
directors that they have with respect to options granted or to be
granted to employees and consultants, (c) delete provisions that
prohibited the Board of Directors from granting options to employee-
directors or officers and (d) delete provisions which made members of
the Committee ineligible to receive any options except the options
granted automatically under the provisions of Article III of the
Option Plan.
Amendments to Article III of the Plan (a) delete the
provisions that specified that (i) each outside director would
receive an automatic grant of an option for 10,000 shares upon his
initial election to the Board of Directors and (ii) each outside
director who was in office immediately after each annual meeting of
shareholders and had served as an outside director for at least six
months preceding that date would receive an automatic grant of an
option for 2,500 shares on that date; (b) provide that on and after
January 15, 1998, options may be granted to any outside director for
such number of shares as the Committee may determine (since amended
Article II gives the Board of Directors the same power and authority
as the Committee has, the Board of Directors would likewise be able
to grant options to any outside director for such number of shares as
it might determine); and (c) make it clear that the exercise price
of each option granted to an outside director will be determined by
the Committee (or by the Board of Directors, under Article II of the
Option Plan) but may not be less than 100% of the fair market value
of the Common Stock on the date of grant.
Amendments to Article IV of the Option Plan (a) increase
the maximum number of shares of Common Stock for which options may be
granted under the Option Plan to any one employee during any calendar
year from 50,000 to 75,000; and (b) delete the previously existing
provision that prohibited the aggregate number of shares for which
options were granted under the Option Plan to all employee-directors
from exceeding 40% of the total number of shares covered by the
Option Plan.
<PAGE>
Amendments to Article VI, Section 6.02 of the Option Plan
(a) delete the previously existing provisions that specified the
types of amendments to the Option Plan that were required to be
approved by shareholders; (b) add a new provision stating that the
Board may suspend, terminate, amend or modify the Option Plan at any
time, except that no amendment or modification of the Option Plan may
become effective without shareholder approval if the Company, upon
advice of counsel, determines that shareholder approval is necessary
or desirable; and (c) add a provision making it clear that upon
termination of the Option Plan, its terms and provisions will
continue to apply to options granted prior to such termination.
Amendments to Article VI, Section 6.07 of the Option Plan
provide that (a) the 1998 Amendments will be effective as of January
15, 1998, provided they are approved by shareholders at the 1998
annual meeting; and (b) if the shareholders do not approve the 1998
Amendments, (i) the 1998 Amendments will be null and void, (ii) the
Option Plan will continue in effect as it existed immediately prior
to the Board of Director s adoption of the 1998 Amendments, and (iii)
all options granted to outside directors on or after January 15, 1998
and prior to the date of the 1998 annual meeting of shareholders will
be null and void.
On January 15, 1998 the Committee also authorized the
Company to offer to each outside director of the Company who held
outstanding options granted under the Option Plan the opportunity to
surrender any or all of such options for cancellation and to receive
in exchange for the surrendered options a new four-year nonqualified
stock option granted pursuant to the Option Plan, as amended by the
1998 Amendments, for the total number of shares of Common Stock
covered by the options surrendered by such outside director. The
Committee s authorization provided, however, that (i) the new options
granted to the outside directors in exchange for options surrendered
by them would not be exercisable unless and until the 1998 Amendments
are approved by the Company s shareholders, and (ii) the surrender
and cancellation of such outstanding options and the grant of the new
options in exchange therefor would be null and void if the Company s
shareholders fail to approve the 1998 Amendments at the 1998 annual
meeting or any adjournment thereof. Outside directors who wished to
accept the exchange offer were required to surrender their old
options for cancellation on or before January 29, 1998. Subject to
the shareholders approval of the 1998 Amendments, new, fully vested
options for an aggregate of 52,500 shares of Common Stock covered by
options surrendered by outside directors were granted on January 30,
1998. The exercise price of the new options is $4.8125, the closing
price of the Company s Common Stock on the Nasdaq Stock Market
("Nasdaq") on the date of grant of the new options.
Effective January 30, 1998, the Committee also granted to
each of the six outside directors a nonqualified option to purchase
2,500 shares of Common Stock at an exercise price of $4.8125 per
share (the closing price of the Common Stock on Nasdaq on the date of
grant). As in the case of all options granted to outside directors
under the Option Plan, these options each have a term of four years
and were fully vested on the date of grant. However, these options
may not be exercised unless and until the 1998 Amendments are
approved by the shareholders, and if the 1998 Amendments are not
approved at the annual meeting, these options will be null and void.
<PAGE>
Also effective January 30, 1998, the Committee granted to
Thomas J. Marquez, an outside director of the Company, a nonqualified
option to purchase 32,600 shares of Common Stock at an exercise price
of $4.8125 per share (the closing price of the Common Stock on Nasdaq
on the date of grant). This option was granted to replace two 10-
year options that had previously been granted to Mr. Marquez but had
terminated because of a technical change in his status from that of a
director and part-time employee to that of an outside director, a
change that was not anticipated when those two options were granted
to him. The terminated options had been granted on November 1, 1989
and August 17, 1995 and entitled him to purchase, respectively, 7,600
shares of Common Stock at a price of $19.375 per share and 25,000
shares of Common Stock at a price of $32.25 per share. Because the
terminated options had been granted to Mr. Marquez in recognition of
valuable services performed by him for the Company, it was the
Committee s opinion that a new option should be granted to him to
replace the terminated options. As in the case of all options
granted to outside directors under the Option Plan, the new option
has a term of four years and was fully vested on the date of grant.
However, the new option may not be exercised unless and until the
1998 Amendments are approved by the shareholders, and if the 1998
Amendments are not approved at the annual meeting, the new option
will be null and void.
At the same time that the Committee and the Board of
Directors authorized making the offer to grant new options to outside
directors in exchange for options surrendered for cancellation, the
Committee and the Board of Directors also authorized making a similar
offer to employees of the Company. This exchange and the new options
granted are not subject to the shareholders approval of the 1998
Amendments. Employees were given the opportunity to surrender, on an
option-by-option basis, either their entire outstanding option or the
portion thereof that was not vested. As in the case of the exchange
offer made to outside directors, employees who wished to accept the
exchange offer were required to surrender their old options for
cancellation on or before January 29, 1998. Each new option granted
pursuant to the exchange on January 30, 1998 (i) is an incentive
stock option to the extent permitted by the Option Plan and a
nonqualified stock option to the extent it is not permitted to be an
incentive stock option, (ii) has an exercise price per share of
$4.8125, (iii) has a term of 10 years from the date of grant, (iv) is
not exercisable during the first year of its term, (v) becomes
exercisable at the rate of 25% per year during each of the second
through fifth years of its term, and (vi) is subject to the Option
Plan and the terms and provisions of the agreement evidencing such
option.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
The following table sets forth information concerning the
options surrendered by certain executive officers and the outside
directors of the Company in exchange for new options for the same
numbers of shares granted effective January 30, 1998 pursuant to the
above-described option exchange offers made to employees and outside
directors.
Options Surrendered in January 1998
No. of Shares Exercise Price Expiration Date
Underlying of Surrendered of Surrendered
Name and Position Options Options Options
Carlton E. Turner, Ph.D. 8,125 $ 9.875 10/17/04
President and Chief 20,000 $ 11.125 01/05/05
Executive Officer 30,000 $ 16.563 05/01/05
40,000 $ 28.750 06/11/06
40,000 $ 7.500 05/21/07
Luiz F. Cerqueira 1,400 $ 12.750 08/13/04
Vice President, 3,750 $ 11.125 01/05/05
Manufacturing/Operations 15,000 $ 27.000 12/04/05
15,000 $ 7.500 05/21/07
Christopher S. Record 15,000 $ 11.500 04/27/04
Vice President, 7,500 $ 11.125 01/05/05
Business Development 15,000 $ 27.000 12/04/05
10,000 $ 7.500 05/21/07
V. Kirkland Meares 30,000 $ 24.500 04/07/06
Vice President, 15,000 $ 7.500 05/21/07
Sales and Marketing
R. Dale Bowerman 2,500 $ 10.625 04/28/98
Outside Director 2,500 $ 18.000 04/26/99
2,500 $ 47.750 05/22/00
2,500 $ 7.500 05/21/01
George DeMott 2,500 $ 18.000 04/26/99
Outside Director 2,500 $ 47.750 05/22/00
2,500 $ 7.500 05/21/01
Robert A. Fildes, Ph.D. 2,500 $ 10.625 04/28/98
Outside Director 2,500 $ 18.000 04/26/99
2,500 $ 47.750 05/22/00
2,500 $ 7.500 05/21/01
Thomas J. Marquez 2,500 $ 47.750 05/22/00
Outside Director 2,500 $ 7.500 05/21/01
James T. O Brien 2,500 $ 10.625 04/28/98
Outside Director 2,500 $ 18.000 04/26/99
2,500 $ 47.750 05/22/00
2,500 $ 7.500 05/21/01
Selvi Vescovi 2,500 $ 10.625 04/28/98
Outside Director 2,500 $ 18.000 04/26/99
2,500 $ 47.750 05/22/00
2,500 $ 7.500 05/21/01
<PAGE>
The above table does not contain information with respect to
David G. Shand, M.D., Ph.D., because he retired from his positions as
an executive officer and employee effective September 30, 1997 and
did not surrender or receive any options subsequent to that date.
Options for an aggregate of 333,122 shares with exercise prices
ranging from $5.3125 to $47.75 per share and expiration dates ranging
from October 31, 1999 to November 16, 2007 were surrendered by all
employees of the Company, excluding the executive officers, in
exchange for new options for the same aggregate number of shares with
a new exercise price of $4.8125 per share and a term expiring on
January 29, 2008. The new options become exercisable at the rate of
25% per year during the four-year period beginning on January 30,
1999. See "New Plan Benefits" below.
New Plan Benefits
The following table sets forth certain information concerning
the options granted effective January 30, 1998 under the Option Plan,
as amended by the 1998 Amendments, to the executive officers named
below, to all current executive officers who are employees of the
Company as a group, to all non-executive directors (i.e., outside
directors) as a group, and to all employees who are not executive
officers as a group. No information is given with respect to David
G. Shand, M.D., Ph.D., because he retired from his positions as an
executive officer and employee effective September 30, 1997 and did
not receive any options subsequent to that date. Only the options
granted to the outside directors are subject to the approval by
shareholders of the 1998 Amendments.
No. of Shares
Underlying Exercise Price Expiration Date
Name and Position New Options of New Options of New Options
Carlton E. Turner, Ph.D. 138,125 $ 4.8125 01/29/08
President and CEO
Luiz F. Cerqueira 35,150 $ 4.8125 01/29/08
Vice President,
Manufacturing/Operations
Christopher S. Record 47,500 $ 4.8125 01/29/08
Vice President,
Business Development
V. Kirkland Meares 45,000 $ 4.8125 01/29/08
Executive Group(1) 295,775 $ 4.8125 01/29/08
Non-Executive Director 100,100(3) $ 4.8125 01/29/02
Group(2)
Non-Executive Officer 333,122 $ 4.8125 01/29/08
Employee Group
<PAGE>
(1) Excludes Robert A. Fildes, Ph.D., who is currently
serving as interim Executive Vice President, Research and Development
but is not an employee of the Company.
(2) Includes Robert A. Fildes, Ph.D., who is currently
serving as interim Executive Vice President, Research and Development
but is not an employee of the Company.
(3) Includes options for an aggregate of 52,500 shares
issued upon the surrender of old options for the same aggregate
number of shares; options for an aggregate of 15,000 shares, for
which no old options were surrendered; and an option for 32,600
shares granted to Thomas J. Marquez to replace options that had
previously terminated.
Except for the options granted to the outside directors,
all of the options reflected in the above table become exercisable at
the rate of 25% per year during the four-year period beginning
January 30, 1999. The options granted to the outside directors will
become exercisable in full if and when the 1998 Amendments are
approved by the shareholders. If the 1998 Amendments are not
approved by the shareholders at the annual meeting, the options
granted to the outside directors on January 30, 1998 will become null
and void, and the old options that were surrendered in exchange for
those options will be reinstated, except in the case of any old
options that shall have expired since they were surrendered.
Included in the options granted to the outside directors
on January 30, 1998 were options for a total of 40,100 shares granted
to Thomas J. Marquez and options for a total of 12,500 shares granted
to Selvi Vescovi. Messrs. Marquez and Vescovi are the nominees for
election as directors of the Company at the annual meeting.
The closing price of the Common Stock on Nasdaq on April
6, 1998 was $5.00 per share.
The amendments to the Option Plan are intended to promote
the interests of the Company and its shareholders by giving the
Company additional flexibility to grant options to adequately reward
and provide incentives to the Company s employees and outside
directors. Some of the provisions of the Option Plan that are
changed by the 1998 Amendments were originally included in the Option
Plan to comply with Securities and Exchange Commission ("SEC") rules.
For example, the original provisions of the Option Plan calling for
automatic grants of options for fixed numbers of shares at fixed
times were included in order to comply with an SEC rule. However, a
subsequent amendment to that rule has made it unnecessary to continue
the use of automatic grants of options to outside directors. The
1998 Amendments remove the provisions for automatic grants and give
the Committee and the Board discretion to grant options to outside
directors at such times and for such numbers of shares as the
Committee or the Board may determine. The Committee and the Board
currently have no plans to grant options to any outside director;
however, see the discussion above for information regarding options
granted to outside directors in January 1998 that will be null and
void if the shareholders do not approve the 1998 Amendments.<PAGE>
<PAGE>
Certain other provisions of the Option Plan were
originally included to make it as similar as possible to the
Company s 1985 Stock Option Plan, which expired in February 1995.
Subsequent experience has led the Committee and the Board to conclude
that those provisions should be changed or eliminated. For example,
the Committee and the Board determined that the limit on the total
number of shares for which any employee could be granted options in
any one year should be increased from 50,000 to 75,000 and that the
provision prohibiting the total number of shares for which options
were granted to all employee-directors under the Option Plan from
exceeding 40% of the number of shares covered by the Option Plan was
unnecessary and should be eliminated. However, neither the Committee
nor the Board has any current plans to grant options that would
exceed either of those limits as they existed prior to the adoption
of the 1998 Amendments.
The amendment to the provision of the Option Plan that
sets forth the circumstances under which amendments to the Option
Plan must be approved by shareholders was adopted to enable the
Company to avoid incurring the delay and expense of obtaining
shareholder approval of amendments under circumstances in which there
is no compelling reason to obtain such approval. Shareholder
approval of amendments to stock option plans is sometimes required by
tax law or regulations, SEC rules, Nasdaq or stock exchange rules or
for other reasons, but those requirements change from time to time.
The Committee and the Board determined that it would be preferable
not to include in the Option Plan any requirements for shareholder
approval that were based on law or regulations that exist today but
may not exist in the future. In this way, if there is no external
requirement for shareholder approval of an amendment to the Option
Plan and the Company and its counsel determine that there is no other
compelling reason to seek such approval, the Company will be able to
implement the approval without the delay and expense that would be
incurred in seeking shareholder approval.
<PAGE>
Description of the Option Plan as Currently in Effect
The Option Plan authorizes the granting to employees of
the Company and its affiliates of both incentive stock options, as
defined under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and nonqualified stock options to purchase
Common Stock. All employees of the Company and its affiliates are
eligible to participate in the Option Plan. The Option Plan also
authorizes the granting to outside directors of nonqualified stock
options to purchase Common Stock. Pursuant to the Option Plan, an
option to purchase 10,000 shares of Common Stock is to be granted
automatically to each outside director who is newly elected to the
Company's Board. In addition, an option to purchase 2,500 shares of
Common Stock is granted automatically, on the date of each annual
meeting of shareholders of the Company, to each outside director who
has served in that capacity for the past six months and continues to
serve following such meeting. Accordingly, each of the outside
directors of the Company received an automatic grant of an option to
purchase 2,500 shares of Common Stock on the dates of the 1995, 1996
and 1997 annual meetings of shareholders. Any outside director may
decline to accept any option granted to him under the Option Plan.
At March 31, 1998, there were 271 employees and six outside directors
of the Company who were eligible to be granted options under the
Option Plan.
The Board of Directors or the Committee is responsible for
the administration of the Option Plan and determines the employees to
be granted options, the period during which each option will be
exercisable, the number of shares and exercise price of the Common
Stock covered by each option granted to employees and whether an
option will be a nonqualified or an incentive stock option. The
Committee has no authority to administer or interpret the provisions
of the Option Plan relating to the grant of options to outside
directors. The current members of the Committee are James T. O'Brien
(Chairman), George DeMott and Selvi Vescovi.
<PAGE>
No option granted pursuant to the Option Plan is
transferable otherwise than by will or the laws of descent and
distribution. The term of each option granted to an employee under
the Option Plan is determined by the Board of Directors or the
Committee, but in no event may such term exceed 10 years from the
date of grant. The exercise price for the purchase of shares subject
to such an option cannot be less than 100% of the fair market value
of the Common Stock on the date the option is granted. Furthermore,
the exercise price for any incentive stock option granted to an
employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or an
affiliate must be at least 110% of the fair market value of the
Common Stock at the date of the grant. Upon exercise of an option by
an employee, the purchase price must be paid in full in cash.
Unpurchased shares of Common Stock subject to options that have
expired or terminated without being exercised in full are again
available for grant under the Option Plan. The Option Plan contains
a $100,000 limitation on the value (determined at the grant date) of
stock for which incentive stock options granted to any employee may
become exercisable for the first time in any calendar year. In
addition, the aggregate number of shares of Common Stock for which
any employee may be granted options during any one calendar year may
not exceed 50,000.
Each option granted to an outside director under the
Option Plan is exercisable in whole or in part during the four-year
period commencing on the date of grant of such option. Any option
granted to an outside director remains effective during its entire
term regardless of whether such director continues to serve as a
director. The purchase price per share of Common Stock under each
option granted to an outside director is the fair market value of
such share on the date of grant.
<PAGE>
The Option Plan also authorizes the granting of
nonqualified stock options to purchase Common Stock to consultants
and advisors to the Company or an affiliate ("Consultants"), provided
that bona fide services are rendered by the Consultants and such
services are not in connection with the offer or sale of securities
in a capital-raising transaction. The purchase price per share of
Common Stock under each option granted to a Consultant is determined
by the Committee, but in no event may be less than 100 percent of the
fair market value per share of Common Stock at the time the option is
granted. Each option granted to a Consultant under the Option Plan
is exercisable during such period as the Committee determines;
provided, however, that the unexpired portion of any option granted
to a Consultant may expire no later than the first to occur of (i)
the expiration of ten years from the date the option was granted, or
(ii) the expiration of one year from the date of the Consultant's
death. The unexpired portion of any option granted to a Consultant
expires immediately upon the termination of the Consultant's services
to the Company (or an affiliate of the Company) by reason of the
Consultant's fraud, dishonesty or performance of other acts
detrimental to the Company (or an affiliate), or if, at any time
during or after the performance of the Consultant's services to the
Company (or an affiliate), the Company determines that there is good
cause to cancel such option. The Committee may limit the number of
shares purchasable under the option agreement evidencing an option
granted to a Consultant in any period or periods of time during which
the option is exercisable and may impose such other terms and
conditions as are not inconsistent with the terms of the Option Plan.
The Committee, in its discretion, may accelerate the exercise date of
any such option.
Neither the Option Plan nor an option agreement evidencing
an option granted under the Option Plan to a Consultant may confer
upon a Consultant any right to continue as a Consultant of the
Company (or any affiliate) or in any way interfere with the right of
the Company (or an affiliate) to terminate the services of the
Consultant at any time, with or without cause.
In the event that the Company effects a split of the
outstanding shares of Common Stock or a dividend payable in Common
Stock, or that the outstanding Common Stock is combined into a
smaller number of shares, the maximum number of shares as to which
options may be granted under the Option Plan will be increased or
decreased proportionately, and the shares subject to outstanding
options and the purchase price per share of such options will be
increased or decreased proportionately so that the aggregate purchase
price for all the shares then subject to such options will remain the
same as immediately prior to such split, dividend or combination. In
the event of a reclassification of Common Stock not covered by the
foregoing, or in the event of a liquidation or reorganization
(including merger, consolidation or sale of assets) of the Company,
the Board of Directors of the Company will make such adjustments, if
any, as it deems appropriate in the number, purchase price and kind
of shares covered by the unexercised portions of options theretofore
granted under the Option Plan, to the extent permitted by applicable
law.
<PAGE>
Upon the occurrence of a "change in control" of the
Company, the maturity of all options then outstanding under the
Option Plan, excluding those that have been granted to Consultants,
will be accelerated automatically, so that all such options will
become exercisable in full with respect to all shares that have not
been previously exercised or become exercisable. A "change in
control" includes certain mergers, consolidations, reorganizations or
sales of assets, or a dissolution of the Company, a change in the
control of the Board of Directors or the acquisition by a shareholder
of 20% or more of the Common Stock of the Company.
Unless sooner terminated, the Option Plan will expire on
March 31, 2005. The Board of Directors of the Company may alter,
amend or terminate the Option Plan, except that it may not, without
the approval of the shareholders of the Company, make any alteration
or amendment which would operate to (i) abolish the Committee, change
the qualifications of its members or withdraw the administration of
the Option Plan from the supervision of the Committee, (ii) increase
the total number of shares of Common Stock for which options may be
granted under the Option Plan (other than proportionate adjustments
described above), (iii) extend the term of the Option Plan or the
maximum exercise period provided under the Option Plan, (iv) decrease
the minimum purchase price provided under the Option Plan, (v)
materially increase the benefits accruing to participants under the
Option Plan, or (vi) materially modify the requirements as to
eligibility for participation in the Option Plan. No amendment or
termination of the Option Plan may adversely affect the rights of an
optionee under an option without the consent of such optionee.
Federal Income Tax Consequences
Nonqualified Stock Options. No income will be recognized
by an optionee for federal income tax purposes upon the grant of a
nonqualified stock option. Upon exercise of a nonqualified stock
option, the optionee will recognize ordinary income in an amount
equal to the excess of the fair market value of the shares on the
date of exercise over the option price of such shares. Income
recognized by optionees who are employees of the Company upon the
exercise of nonqualified stock options will be considered
compensation subject to withholding at the time such income is
recognized, and therefore, the Company or one of its affiliates must
make the necessary arrangements with the optionee to ensure that the
amount of the tax required to be withheld is available for payment.
The nonqualified stock options granted under the Option Plan are
designed to provide the Company with a deduction, subject to the
deduction limitations described below, equal to the amount of
ordinary income recognized by the optionee at the time of such
recognition.
The basis of shares transferred to an optionee pursuant to
exercise of a nonqualified stock option is the price paid for such
shares plus an amount equal to any income recognized by the optionee
as a result of the exercise of such option. If an optionee
thereafter sells shares acquired upon exercise of a nonqualified
stock option, the difference between the amount realized and the
basis of such shares will constitute capital gain or loss to such
optionee for federal income tax purposes.
<PAGE>
Incentive Stock Options. No income will be recognized by
an optionee for federal income tax purposes upon the grant or the
exercise of an incentive stock option. The basis of shares
transferred to an optionee pursuant to the exercise of an incentive
stock option is the price paid for such shares. If the optionee
holds such shares for at least one year after transfer of the shares
to the optionee and two years after the grant of the option,
whichever is later, the optionee will recognize capital gain or loss
upon sale of the shares received upon such exercise equal to the
difference between the amount realized on such sale and the exercise
price. Generally, if the shares are not held for that period, the
optionee will recognize ordinary income upon disposition in an amount
equal to the excess of the fair market value of the purchased shares
on the date of exercise over the option price of such shares, or if
less (and if the disposition is a transaction in which loss, if any,
will be recognized), the gain on disposition. Any additional gain
realized by the optionee upon such disposition will be a capital
gain.
The excess of the fair market value of shares on the date
of the exercise of an incentive stock option over the option price
for such shares is an item of adjustment for purposes of the
alternative minimum tax.
The Company is not entitled to a deduction upon the
exercise of an incentive stock option by an optionee. If the
optionee disposes of the shares of stock received pursuant to such
exercise prior to the expiration of one year following transfer of
the shares to the optionee or two years after grant of the option,
however, the Company may, subject to the deduction limitations
described below, deduct an amount equal to the ordinary income
recognized by the optionee upon disposition of the shares at the time
such income is recognized by the optionee.
Limitations on the Company's Compensation Deduction.
Section 162(m) of the Code limits the deduction that the Company may
take for otherwise deductible compensation payable to certain
executive officers of the Company to the extent that compensation
paid to such officers for such year exceeds $1 million, unless such
compensation is performance-based, is approved by the Company's
shareholders and meets certain other criteria. Although the Company
intends that options granted to employees under the Option Plan will
satisfy the requirements to be considered performance-based for
purposes of Section 162(m) of the Code, there is no assurance that
such options will satisfy such requirements and, accordingly, the
Company may be limited by Section 162(m) of the Code in the amount of
deductions it would otherwise be entitled to take (as described in
the foregoing summary) with respect to options awarded under the
Option Plan.
<PAGE>
Section 280G of the Code limits the deductibility of
certain "parachute payments" to disqualified individuals by the
Company. Generally, "parachute payments" consist of payments made in
connection with a change in control of the Company. It is possible
that accelerated vesting of options that occurs automatically upon a
change in control of the Company could be a "parachute payment"
subject to the deduction limitations of Section 280G of the Code. In
addition, Section 4999 of the Code imposes a 20% nondeductible excise
tax upon the disqualified individual receiving certain "parachute
payments."
The above summary relates to U.S. federal income tax
consequences only and applies to U.S. citizens and foreign persons
who are U.S. residents. The U.S. tax consequences associated with
the grant of options to nonresident aliens depends upon a number of
factors, including whether such grant is considered to be U.S. source
income and whether the provisions of any treaty are applicable.
Recommendation of the Board of Directors
THE ADOPTION OF THE 1998 AMENDMENTS TO THE OPTION PLAN IS
CONDITIONED ON, AND IS OF NO FORCE OR EFFECT UNLESS IT RECEIVES,
APPROVAL BY THE REQUISITE VOTE OF SHAREHOLDERS OF THE COMPANY.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE VOTED IN FAVOR OF THE PROPOSAL UNLESS SHAREHOLDERS SPECIFY
OTHERWISE.
APPROVAL OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company's Board of Directors has appointed the
accounting firm of Ernst & Young LLP as the Company's independent
public accountants for the fiscal year ending December 31, 1998.
Shareholders will be asked to approve the appointment of Ernst &
Young LLP at the annual meeting. If the appointment is not approved
by the holders of a majority of the shares of Common Stock present or
represented and voted for or against such approval at the meeting,
the Board will reconsider its appointment of independent public
accountants of the Company. Representatives of Ernst & Young LLP are
expected to be present at the annual meeting and will be given an
opportunity to make a statement, if they so desire. They will also
be available to respond to appropriate questions addressed to them.
Arthur Andersen LLP served as the Company's independent
public accountants for the fiscal year ended December 31, 1996 and
resigned on March 19, 1997. The appointment of Ernst & Young, LLP,
effective March 19, 1997, was made on the recommendation of the
Board s Audit Committee and was approved by the shareholders of the
Company at the 1997 annual meeting.
<PAGE>
During the Company's fiscal year ended December 31, 1996
and from January 1 through March 18, 1997, there were no
disagreements between the Company and Arthur Andersen LLP on any
matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, and there were no
reportable events as described in Item 304(a)(1)(v) of Regulation S-K
under the Securities Act of 1933 and the Securities Exchange Act of
1934 (the "Exchange Act"). The reports of Arthur Andersen LLP and
Ernst & Young LLP on the Company's financial statements for the
fiscal years ended December 31, 1996 and 1997, respectively,
contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting
principles. A copy of a letter from Arthur Andersen LLP to the
Securities and Exchange Commission confirming its agreement with the
facts stated with respect to it in the preceding portion of this
paragraph was filed as Exhibit 16.1 to the Form 10-K/A amendment to
the Company's Form 10-K Annual Report for the year ended December 31,
1996, which amendment was filed with the Securities and Exchange
Commission on April 7, 1997.
The Company's Board of Directors recommends that
shareholders vote FOR the approval of the appointment of Ernst &
Young LLP as the Company's independent public accountants for fiscal
1998.
EXECUTIVE COMPENSATION
The report of the Compensation and Stock Option Committee
of the Board of Directors set forth below and the information under
the heading "Performance Graph" shall not be deemed to be "soliciting
material" or to be "filed" with the SEC or subject to the SEC's proxy
rules, other than those rules requiring disclosure herein, or to the
liability of Section 18 of the Exchange Act, and such information
shall not be deemed to be incorporated by reference into any filing
made by the Company under the Securities Act of 1933 or the Exchange
Act.
Compensation Committee Interlocks and Insider Participation
The Company's executive compensation program is
administered by the Compensation and Stock Option Committee of the
Board of Directors (the "Committee"). During 1997, the Committee was
composed of James T. O Brien, Chairman, George DeMott and Dr. Robert
A. Fildes until September 17, 1997, when Dr. Fildes resigned from the
Committee and was succeeded by Selvi Vescovi, who has served on the
Committee since that time. All of the persons who served on the
Committee during 1997 were and still are outside directors of the
Company.
Dr. Fildes has served as the Company s interim Executive
Vice President, Research and Development since October 1, 1997. Mr.
Vescovi served as interim President and Chief Executive Officer of
the Company in March and April 1995.
<PAGE>
Report of the Compensation Committee
The following is a report submitted by the members of the
Committee, addressing the Company's compensation policy as it related
to the named executive officers, including the President and Chief
Executive Officer (the "CEO"), for fiscal 1997.
Compensation Philosophy
The Company's executive compensation program is designed
to align executive compensation with financial performance, business
strategies and Company values and objectives. To achieve these
objectives, the Committee has developed and implemented an executive
compensation program which provides executives with compensation
opportunities that are competitive with companies of comparable size
in the pharmaceutical industry.
In applying this philosophy, the Committee has established
a program to accomplish the following objectives:
* attract and retain executives of outstanding abilities
who are critical to the long-term success of the
Company;
* reward executives for achievement of internal Company
goals as well as for Company performance relative to
industry performance levels; and
* reward executives for long-term strategic management
and the enhancement of shareholder value by providing
equity ownership in the Company.
Through these objectives, the Company integrates its
executive compensation program with its annual and long-term
strategic planning.
Against the foregoing background, the Company's executive
compensation policies integrate annual base salary compensation with
a bonus award system which is based upon both corporate and
individual performance levels.
Fiscal 1997 Compensation
For fiscal 1997, the Company's executive compensation
program consisted of (i) base salary, adjusted from the prior year,
(ii) bonus payable in cash and stock, and (iii) stock options. With
respect to base salary, the Company considers published executive
compensation data of comparable companies in the industry and
utilizes surveys to establish base salaries that are within the range
of those paid to persons holding comparably responsible positions at
such companies. In addition, the Committee considers evaluations by
the CEO of the individual performance of each executive, other than
the CEO, in setting such executive's salary for the year. The
performance of the CEO is evaluated by the Executive Committee of the
Board of Directors in collaboration with the Committee.
<PAGE>
The Committee determined that current salary levels for
key Company executives are competitive within the industry and
basically rank in the average range.
Bonuses are granted to executives based upon criteria
established by the Company's 1995 Management Compensation Plan (the
"Compensation Plan") adopted by the Company's Board of Directors and
approved by its shareholders in 1995. Under the Compensation Plan,
executives of the Company are eligible to receive incentive
compensation in the form of annual bonuses payable 50% in cash and
50% in Common Stock of the Company. An executive's bonus under the
Compensation Plan consists of a target bonus multiplied by a
performance component. The target bonus is a specified percentage of
the executive's base salary, with the percentage being dependent on
the executive's position grade. The maximum target bonus for the
highest position grade is currently 35% of the executive's base
salary. The performance component is a percentage rate measuring
results achieved in comparison to the Company's Annual Operating
Budget. Performance is judged on the basis of three scenarios: (i)
sales at Annual Operation Budget; (ii) profit at Annual Operating
Budget; and (iii) achievement of remaining bonus criteria and
individual goals as established by the Committee. These goals are
designed to achieve the Company's short-term and long-term
objectives. Following determination by the Committee of the amounts
of bonus payable, if any, to executives, 50% of the bonus is paid in
cash and 50% is paid in shares of the Company's Common Stock. The
number of shares is determined by dividing 50% of the total bonus by
the fair market value of the Common Stock on the date of
certification of payment of the bonus by the Committee.
No incentive bonuses were paid to executive officers in
1997 based upon the Compensation Plan criteria set forth above.
Pursuant to authority delegated to the Committee by the Board of
Directors to grant cash bonuses on a discretionary basis outside of
the Compensation Plan, the Committee authorized bonuses of $5,000
each to be paid to Luiz Cerqueira and Kirk Meares for 1997 based on
the performance of the operations under their responsibility, as well
as the bonus to Dr. Carlton Turner described below.
The Committee has discretion to grant stock options to
executive officers under the Company's 1995 Stock Option Plan. In
determining the time and date of grant and the number of shares
subject thereto, the Committee may take into account the nature of
the services rendered, the executive's potential contributions to the
success of the Company's business, and such other facts as the
Committee in its discretion deems appropriate. Each of the 1997
option awards to executive officers of the Company was made in
accordance with the Company's 1995 Stock Option Plan.
<PAGE>
CEO Compensation
Carlton E. Turner, Ph.D., D.Sc., was promoted to President
and Chief Executive Officer of the Company as of April 26, 1995. Dr.
Turner's 1997 base pay was determined by the Committee on the basis
of its overall assessment of Dr. Turner's responsibilities, his past
performance with the Company, and competitive market data on salary
levels for pharmaceutical companies of similar size.
On May 22, 1997, the Committee granted Dr. Turner an
incentive stock option to purchase 40,000 shares of Common Stock
pursuant to the Company's 1995 Stock Option Plan. This award was
made based on the Committee's evaluation of Dr. Turner's overall
performance.
Dr. Turner was paid a bonus of $10,000 for 1997 based on
his successful efforts in reversing a loss in the previous year and
showing a profit in 1997, as well as for opening new areas of
opportunity, especially in the consumer segment.
Summary
The Committee believes that linking executive compensation
to corporate performance results in a better alignment of
compensation with corporate goals and shareholder interests. As
performance goals are met or exceeded, resulting in increased value
to shareholders, executives are awarded commensurately. The
Committee believes that compensation levels during fiscal 1997
adequately reflected the Company's compensation goals and policies.
Dated: March 26, 1998
By the Members of the Committee:
James T. O'Brien, Chairman
George DeMott
Selvi Vescovi
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
<TABLE>
EXECUTIVE COMPENSATION TABLES
The following table sets forth certain summary information
regarding compensation awarded to, earned by or paid to the Chief
Executive Officer of the Company and each other executive officer of
the Company whose combined salary and bonus for the fiscal year ended
December 31, 1997 exceeded $100,000 (collectively, the "named
executive officers") for the years indicated.
Table 1
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
Securities All
Other Underlying Other
Annual Options (No. Compen-
Name and Fiscal Bonus Compen- of Shares) sation
Principal Position Year Salary (1) sation ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Carlton E. Turner, 1997 $225,000 $10,000 40,000
Ph.D.,D.Sc., 1996 $225,000 40,000
President and Chief 1995 $216,692 $1,468 50,000 $ 29,341(3)
Executive Officer (2)
David G. Shand, 1997 $160,000 15,000
M.D.,Ph.D.,Executiv 1996 $200,000 15,000 $ 16,470(5)
e Vice President, 1995 $188,461 50,000 $ 5,334(5)
Research &
Development (4)
Luiz F. 1997 $154,500 $ 5,000 15,000
Cerqueira,Vice 1996 $154,500
President, 1995 $154,500 30,000
Manufacturing
/Operations
Christopher S. 1997 $150,000 10,000
Record,Vice 1996 $150,000
President, Business 1995 $150,000 25,000
Development (6)
V. Kirkland 1997 $150,000 $ 5,000 15,000 $324,699(8)
Meares,Vice 1996 $106,154 $ 5,000 30,000 $372,907(9)
President, Sales 1995
and Marketing(7)
</TABLE>
<PAGE>
(1) Each bonus for 1997 was paid in cash. No bonuses were
paid for 1996 or 1995.
(2) Dr. Turner was promoted to President and Chief Executive
Officer of the Company in April 1995. Dr. Turner was
first elected as an executive officer of the Company in
January 1994.
(3) Represents relocation expenses reimbursed to Dr. Turner by
the Company.
(4) Dr. Shand was first elected as an executive officer of the
Company in January 1995 and retired as an officer and
employee of the Company effective September 30, 1997.
(5) Represents relocation expenses reimbursed to Dr. Shand by
the Company.
(6) Mr. Record was first elected as an executive officer of
the Company in April 1994.<PAGE>
(7) Mr. Meares was first elected as an executive officer of
the Company in April 1996.
(8) Consists of commissions paid by the Company to Meares
Medical Sales Associates, a business wholly owned by Mr.
Meares that serves as an independent manufacturer's
representative for the Company. See "Certain Transactions."
(9) Consists of $6,000 of relocation expenses reimbursed to
Mr. Meares by the Company, plus $366,907 of commissions
paid by the Company to Meares Medical Sales Associates, a
business wholly owned by Mr. Meares that serves as an
independent manufacturer's representative for the Company.
See "Certain Transactions."
<PAGE>
<TABLE>
The following table sets forth certain information relating to
options granted under the Company's 1995 Stock Option Plan to the
named executive officers in fiscal year 1997.
Table 2
Options Granted During Year Ended December 31, 1997
Potential
Realizable Value at
Assumed Annual Rates
of Stock Price
Appreciation
Individual Grants for Option Term (1)
Number of
Securities % of Total
Underlying Options Exercise
Options Granted to Price
Granted Employees Per Expiration
Name (No. of in Fiscal Share Date 5% 10%
Shares) Year
<S> <C> <C> >C> <C> <C> <C>
Carlton E. 40,000 (2)(3) 8.51% $7.50 5/21/07 $ 188,668 $478,123
Turner, Ph.D., D.Sc.
David G. Shand, 15,000 (2)(5) 3.19% $7.50 5/21/07 $ 70,751 $179,296
M.D., Ph.D. (4)
Luiz F. Cerqueira 15,000 (2)(3) 3.19% $7.50 5/21/07 $ 70,751 $179,296
Christopher S. 10,000 (2)(3) 2.13% $7.50 5/21/07 $ 47,167 $119,531
Record
V. Kirkland 15,000 (2)(3) 3.19% $7.50 5/21/07 $ 70,751 $179,296
Meares
</TABLE>
<PAGE>
(1) The assumed five percent and ten percent rates of stock price
appreciation are specified by the SEC's proxy rules and do not
reflect expected actual appreciation. The amounts shown
represent the assumed values of the stock options (less the
exercise prices) at the end of the ten-year periods beginning
on the dates of grant and ending on the option expiration
dates.
(2) Incentive stock option with a term of 10 years and an exercise
price equal to the fair market value of the Company's Common
Stock on the date of grant. Option becomes exercisable with
respect to one-fourth of the shares covered thereby in each
year in the four-year period beginning one year after the date
of grant.
(3) Pursuant to an option exchange offer made to employees in
January 1998, options covering these shares were exchanged for
options for an equivalent number of shares. The new options
have an exercise price of $4.8125 per share and an expiration
date of January 30, 2008. See "Proposal to Approve Amendments
to 1995 Stock Option Plan Reasons for and Principal Effects of
the Proposal."
(4) Dr. Shand retired as an officer and employee of the Company
effective September 30, 1997 and entered into an agreement
with the Company under which he performs consulting services
for the Company on a part-time basis. In connection with his
retirement and the new consulting agreement, he was allowed to
surrender options to purchase 20,000 shares of Common Stock at
$12.50 per share, 10,000 shares at $35.25 per share, 7,500
shares at $28.75 per share, and 15,000 shares at $7.50 in
exchange for new nonqualified stock options granted to him as
a consultant on October 1, 1997 to purchase (i) 10,000 shares
at $12.50 per share during a term expiring September 30, 2000,
and (ii) 42,500 shares at $6.00 per share (the closing price
of the Common Stock on Nasdaq on the date of grant) during a
term expiring September 30, 2007. The new 10,000-share option
is fully vested and subject to early termination one year
after Dr. Shand s death. The new 42,500- share option vests
at the rate of 10,625 shares per year beginning October 1,
1998 and is subject to early termination 30 days after the end
of the consulting term or one year after the date of Dr.
Shand s death, if the consulting term terminates due to his
death.
(5) The option for these shares was one of the options surrendered
by Dr. Shand in exchange for a new nonqualified option to
purchase shares of Common Stock at a price of $6.00 per share.
The new option has a new term and a new vesting schedule. See
note (4) immediately above.
<PAGE>
<TABLE>
The following table sets forth certain information with
respect to the exercise of options to purchase Common Stock of the
Company during the year ended December 31, 1997, and outstanding
options held at such date, by the named executive officers. For
purposes of this table, the "value" of an outstanding option is the
difference between the market price at December 31, 1997 of the
shares of Common Stock underlying the option and the aggregate
exercise price of such option. The unexercisable portions of such
options have been valued as if such portions were exercisable in full
on December 31, 1997, in accordance with SEC rules. During fiscal
1997, no outstanding options held by any of the persons listed in
this table were repriced or otherwise amended by the Company. In
January 1998, an option exchange offer was made to employees,
pursuant to which certain options were exchanged. See "Proposal to
Approve Amendments to 1995 Stock Option Plan Reasons for and
Principal Effects of the Proposal."
Table 3
Aggregated Option Exercises in Fiscal Year
Ended December 31, 1997 and Fiscal Year-End Option Values
Shares Number of Securities Value of Unexercised
Acquired on Underlying Unexercised In-the-Money Options
Exercise Options at 12/31/97 at 12/31/97
(No. of Value (No. of Shares) Exercisable Unexercisable
Name Shares) Realized Exercisable Unexercisable
<S> <C> <C>
Carlton E. Turner, 63,875 93,125
Ph.D., D.Sc.
David G. Shand, 27,500 42,500
M.D., Ph.D. *
Luiz F. Cerqueira 29,700 30,000
Christopher S. 17,500 30,000
Record
V. Kirkland Meares 7,500 37,500
* See notes (4) and (5) to Table 2 above for information
relating to Dr. Shand s retirement as an officer and employee
of the Company, his agreement to perform consulting services
for the Company, and the exchange of options that occurred in
connection with his retirement and consulting agreement.
</TABLE>
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth the cumulative total
shareholder return for the Company's Common Stock, the Nasdaq Stock
Market U.S. Index and a Company-constructed peer group for the years
indicated as required by SEC rules. The information reflected in the
peer group index was provided to the Company by Research Holdings,
Ltd. of San Francisco, California, and such index comprises 37
companies that conduct business in the pharmaceutical industry and
whose stock is traded on a stock exchange or on the Nasdaq National
Market.
[LINE GRAPH APPEARS HERE]
Cumulative Total Return(1)
11/92 11/93 11/94 12/95 12/96 12/97
Carrington 100 86.61 61.61 221.43 55.36 30.80
Laboratories, Inc.
Peer Group(2) 100 90.68 102.35 159.88 198.97 306.12
Nasdaq Stock 100 115.79 116.02 164.54 202.38 248.34
Market U.S.
(1) Total return assuming reinvestment of dividends. Assumes $100
invested on November 30, 1992 in the Company's Common Stock,
the Nasdaq Stock Market U.S. Index and a Company-constructed
peer group. During 1995, the Company changed its fiscal year
end from November 30 to December 31. Thus, the total return
for fiscal year 1995 includes the thirteen-month period from
December 1, 1994 through December 31, 1995.
(2) The peer group index comprises the following companies: the
Company, Ivax Corporation, Alza Corporation, Abbott
Laboratories, Carter-Wallace, Inc., Pfizer Inc., Schering-
Plough Corporation, American Home Products Corp., Eli Lilly
and Company, Warner-Lambert Company, Johnson & Johnson, Merck
& Co. Inc., Elan Corporation, PLC, Bristol-Myers Squibb
Company, Forest Laboratories, Inc., Alpharma Inc., Mylan
Laboratories Inc., Glaxo Wellcome PLC, Natural Alternatives
International, Polydex Pharmaceuticals Ltd., United Guardian
Inc., R.P. Scherer Corporation, Medeva PLC, Allou Health &
Beauty Care, Inc., Novo Nordisk A/S, Pharmaceutical Resources
Incorporated, Barr Laboratories Inc., Bergen Brunswig
Corporation, Escagenetics Corporation, McKesson Corporation,
Allergan, Inc., Genentech, Inc., Columbia Laboratories Inc.,
Moore Medical Corp., Medco Research Inc., KV Pharmaceutical
Company and ICN Pharmaceuticals, Inc. Two companies that were
included in the 1996 peer group index are not included in the
1997 peer group index because they were acquired by other
companies.
<PAGE>
Compensation of Directors
Until October 1997, the Company paid each outside director
$500 for each Board meeting that he attended, unless the meeting
lasted more than one day, in which case the Company paid each outside
director $1,000 for each additional day of attendance. The Company
also paid $500 and reasonable travel expenses to each outside
director who did not live in the Dallas, Texas area for each Board
meeting that he attended in person. Each outside director who was a
member of the Executive Committee or the Audit Committee received
$500 for each meeting of such committee that he attended. If the
committee meeting was not held on the same day as a Board meeting,
the Company also paid $500 and reasonable travel expenses to each
outside director/committee member who did not live in the Dallas,
Texas area for each committee meeting that he attended in person.
Members of the Compensation and Stock Option Committee received no
compensation for attending meetings of that committee.<PAGE>
In October 1997, the Company s director compensation policy
was changed to pay each outside director a quarterly retainer of
$1,500 and $1,500 for each Board meeting that he attends, unless the
meeting lasts more than one day, in which case the Company pays each
outside director $1,500 for each additional day of attendance. The
Company also reimburses reasonable travel expenses to each outside
director who does not live in the Dallas, Texas area for each Board
meeting that he attends in person. Each outside director who is a
member of the Executive Committee receives $1,500 for each meeting
that he attends. The Company pays each outside director who is a
member of the Compensation and Stock Option or Audit Committee $1,000
for each meeting that he attends, unless the meeting is held on the
same day as a Board meeting, in which case the Company pays $500.
Reasonable travel expenses are reimbursed to each outside
director/committee member who does not live in the Dallas, Texas area
for each committee meeting that he attends in person.
See "Proposal to Approve Amendments to 1995 Option Stock
Option Description of the Option Plan as Currently in Effect" above
for information concerning options granted to the Company s outside
directors under the Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In March 1998, V. Kirkland Meares filed an amendment to his
initial Form 3 report, which he had filed in 1996, to correct an
inadvertent failure to report his ownership of some shares of Common
Stock that he owned when he became an executive officer of the
Company.
<PAGE>
CERTAIN TRANSACTIONS
V. Kirkland Meares has been Vice President, Sales and
Marketing of the Company since April 1996. Prior to his employment
by the Company, he had been an independent manufacturer's
representative for the Company since 1984, and he has continued to
own and operate that business, a sole proprietorship known as Meares
Medical Sales Associates ("MMSA"), since joining the Company. Most
of the selling activities of MMSA are now performed by other
individuals. The relationship between the Company and MMSA is
governed by an Independent Sales Representative Agreement dated
October 1, 1996, which designates the states of Alabama and Georgia
and portions of Northern Florida and Tennessee as the areas for which
MMSA is responsible. The term of the agreement expires two years
after January 1, 1997, unless earlier terminated. The Company pays
MMSA a commission equal to 20% of the sales it generates, which is
the standard commission that the Company pays to other manufacturer's
representatives. During 1997, the Company paid MMSA commissions
totaling approximately $324,699.
SHAREHOLDER PROPOSALS
The 1999 annual meeting of the shareholders of the Company is
tentatively scheduled to be held on May 20, 1999. The Bylaws of the
Company provide that to be considered for inclusion in the proxy
material for an annual meeting, shareholder proposals nominating
persons for election to the Board of Directors of the Company must be
received at the Company's principal executive office not later than
90 days prior to the annual meeting; and all other shareholder
proposals must be received not later than 60 days in advance of the
annual meeting if the meeting is to be held within 30 days preceding
the anniversary of the previous year's annual meeting, or 90 days in
advance of the meeting if it is to be held on or after the
anniversary of the previous year's meeting.
ANNUAL REPORT
The Company has provided without charge to each person whose
proxy is solicited hereby a copy of the Company's 1997 Annual Report.
Additional copies of the 1997 Annual Report may be obtained without
charge upon written request to Christopher S. Record, Vice President,
Secretary and General Counsel, Carrington Laboratories, Inc., 2001
Walnut Hill Lane, Irving, Texas 75038.
<PAGE>
MISCELLANEOUS
The accompanying proxy is being solicited on behalf of the
Board of Directors of the Company. The expense of preparing,
printing and mailing the form of proxy and the material used in the
solicitation thereof will be borne by the Company. In addition to
the use of the mails, proxies may be solicited by personal interview,
telephone, telefacsimile and telegram by directors, officers, and
employees of the Company, who will receive no additional compensation
for such activities. Additionally, the Company has retained Beacon
Hill Partners, Inc. to assist in the solicitation of proxies, at a
cost not to exceed $3,500 plus reasonable out-of-pocket expenses.
Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of
record by such persons, and the Company may reimburse them for
reasonable out-of-pocket expenses incurred by them in connection
therewith.
By order of the Board of Directors
George DeMott
Chairman of the Board
Irving, Texas
April 14, 1998
A copy of the Company's Form 10-K Annual Report for the fiscal
year ended December 31, 1997, as filed with the Securities and
Exchange Commission, is available without charge to each person whose
proxy is solicited hereby upon written request directed to
Christopher S. Record, Vice President, Secretary and General Counsel,
Carrington Laboratories, Inc., 2001 Walnut Hill Lane, Irving, Texas
75038.
<PAGE>
CARRINGTON LABORATORIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 14, 1998
The undersigned hereby appoints Carlton E. Turner, Ph.D., D.Sc.
and Christopher S. Record as proxies, each with the power to appoint
his substitute, and hereby authorizes them to represent and to vote,
as designated on the reverse hereof, all the shares of common stock
of Carrington Laboratories, Inc. (the "Company") held of record by
the undersigned on April 13, 1998, at the Annual Meeting of
Shareholders of the Company to be held on May 14, 1998, at 8:30 a.m.
local time, at the Las Colinas Country Club, 4900 North O'Connor
Boulevard, Irving, Texas 75062, and at any adjournment(s) thereof.
Receipt of the Notice of Annual Meeting of Shareholders and the Proxy
Statement in connection therewith and of the Company's 1997 Annual
Report to Shareholders is hereby acknowledged.
(Continued and to be Signed on Reverse Side)
<PAGE>
1. ELECTION OF DIRECTORS:
Nominees:
[ ] FOR all nominees listed at right
[ ] WITHHOLD AUTHORITY to vote Selvi Vescovi
(except as marked to contrary below)
for all nominees listed at right Thomas J. Marquez
INSTRUCTION: (To withhold authority to vote for any
individual nominee, write that nominee's name on the line below.)
------------------------------------------------
2. Adoption of the proposal to approve amendments to the Company's
1995 Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the appointment of Ernst & Young LLP as independent
public accountants for the Company for the fiscal year ending
December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote with
respect to any other matter which may properly come before the
meeting or any adjournment(s) thereof.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS HEREON. IN THE ABSENCE OF SUCH SPECIFICATIONS, THIS
PROXY WILL BE VOTED FOR THE ELECTION TO THE BOARD OF DIRECTORS OF THE
NOMINEES LISTED IN THIS PROXY, APPROVAL OF THE AMENDMENTS TO THE 1995
STOCK OPTION PLAN, APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP
AS INDEPENDENT PUBLIC ACCOUNTANTS AND IN THE DISCRETION OF THE
PROXIES ON ANY OTHER BUSINESS.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN
THE ENCLOSED ENVELOPE.
The undersigned hereby revokes any proxy or proxies
heretofore given to represent or vote such common stock and hereby
ratifies and confirms all actions that the proxies named herein,
their substitutes, or any of them, may lawfully take in accordance
with the terms hereof.
Dated: , 1998 Signature(s)*
Signature if held jointly
* NOTE: When signing on behalf of a corporation, partnership,
estate, trust or in any representative capacity, please sign name
and title. For joint accounts, each joint owner must sign.
<PAGE>
Exhibit
10.49 Carrington Laboratories, Inc., 1995 Stock Option
Plan, As Amended and Restated Effective January 15,
1998 (filed herewith).
EXHIBIT 10.79
CARRINGTON LABORATORIES, INC.
*
1995 STOCK OPTION PLAN
As Amended and Restated Effective January 15, 1998
ARTICLE I
General
Section 1.01. Purpose. It is the purpose of the Plan to
promote the interests of the Company and its shareholders by
attracting, retaining and stimulating the performance of selected
Employees, Directors and Consultants by giving such Employees,
Directors and Consultants the opportunity to acquire a proprietary
interest in the Company and an increased personal interest in its
continued success and progress.
Section 1.02. Definitions. As used herein the following
terms have the following meanings:
(a) " Affiliate" means any parent or subsidiary
corporation of the Company within the meaning of Section
424(e) and (f) of the Code.
(b) "Board" means the Board of Directors of the
Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) " Committee" means the Stock Option Committee
described in Article II hereof.
(e) "Common Stock" means the $0.01 par value Common
Stock of the Company.
(f) "Company" means Carrington Laboratories, Inc., a
Texas corporation.
(g) "Consultant" means any consultant or advisor of the
Company or an Affiliate who is not an Employee or Director,
provided that bona fide services are rendered by the
consultant or advisor and such services are not in connection
with the offer or sale of securities in a capital-raising
transaction.
(h) "Director" means a member of the Board.
(i) "Employee" means any employee of the Company or an
Affiliate.
*
As amended by the Board of Directors on January 15, 1998. Language
added to the Plan is double underscored and language deleted is
struck through.
<PAGE>
(j) "Employee-Director" means an Employee who is a
Director.
(k) "Fair Market Value" means (A) the closing sales
price of the Common Stock on the date in question (or, if
there is no reported sale on such date, then on the last
preceding date on which a reported sale occurred), as reported
on the NASDAQ National Market (if the Common Stock is not
listed on a national securities exchange and sales of the
Common Stock are regularly reported on such market), or as
reported on a national securities exchange (if the Common
Stock is listed for trading on such exchange), or (B) the mean
between the bid and ask prices of the Common Stock on the date
in question (or, if there is no report of such prices on such
date, then on the last preceding date on which such prices
were reported), as reported by the National Association of
Securities Dealers, Inc.
(l) "Option" means any option to purchase shares of
Common Stock granted pursuant to the provisions of the Plan.
(m) "Optionee" means an Employee, Outside Director or
Consultant who has been granted an Option under the Plan.
(n) "Outside Director" means a Director who is not an
Employee.
(o) "Plan" means this Carrington Laboratories, Inc.
1995 Stock Option Plan, as amended and restated effective
January 15, 1998.
Section 1.03. Number of Shares. Options may be granted by
the Company from time to time under the Plan to purchase an aggregate
of 1,500,000 shares of the authorized Common Stock. If any Option
expires or terminates for any reason without having been exercised in
full, the unpurchased shares subject to such expired or terminated
Option shall be available for purposes of the Plan.
ARTICLE II
Administration
The Plan shall be administered by a Stock Option Committee
which shall consist of two or more Outside Directors, each of whom
shall be a disinterested person within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"),
or any similar rule or regulation promulgated thereunder. Each
member of the Committee shall be appointed by and shall serve at the
pleasure of the Board. The Board shall have the sole continuing
authority to appoint members of the Committee both in substitution
for members previously appointed and to fill vacancies however
caused. The following provisions shall apply to the administration
of the Plan:
<PAGE>
(a) The Committee shall designate one of its members as
Chairman and shall hold meetings at such times and places as
it may determine. Each member of the Committee shall be
notified in writing of the time and place of any meeting of
the Committee at least two days prior to such meeting,
provided that such notice may be waived by a Committee member.
A majority of the members of the Committee shall constitute a
quorum, and any action taken by a majority of the members of
the Committee present at any duly called meeting at which a
quorum is present (as well as any action unanimously approved
in writing) shall constitute action by the Committee.
(b) The Committee may appoint a Secretary (who need not
be a member of the Committee) who shall keep minutes of its
meetings. The Committee may make such rules and regulations
for the conduct of its business as it may determine.
(c) The Committee shall have full authority, subject to
the express provisions of the Plan, to interpret the Plan, to
provide, modify and rescind rules and regulations relating
thereto, to determine the terms and provisions of each Option
and the form of each option agreement evidencing an Option
granted under the Plan and to make all other determinations
and perform such actions as the Committee deems necessary or
advisable to administer the Plan. In addition, the Committee
shall have full authority, subject to the express provisions
of the Plan, to determine the Employees, Outside Directors and
Consultants to whom Options shall be granted, the time or date
of grant of each such Option, the number of shares subject
thereto, and the price at which such shares may be purchased.
In making such determinations, the Committee may take into
account the nature of the services rendered by the Employee,
Outside Director or Consultant, his present and potential
contributions to the success of the Company's business and
such other facts as the Committee in its discretion shall deem
appropriate to carry out the purposes of the Plan.
(d) Notwithstanding the authority hereby delegated to
the Committee to grant Options under the Plan, the Board also
shall have full authority, subject to the express provisions
of the Plan, to grant Options under the Plan, to interpret the
Plan, to provide, modify and rescind rules and regulations
relating to it, to determine the terms and provisions of
Options granted under the Plan and to make all other
determinations and perform such actions as the Board deems
necessary or advisable to administer the Plan.
(e) No member of the Committee or the Board shall be
liable for any action taken or determination made in good
faith with respect to the Plan or any Option granted
hereunder.
<PAGE>
ARTICLE III
Grants of Options to Outside Directors
Section 3.01. Grants of Options. At any time and from time
to time on or after January 15, 1998, during the term of the Plan and
subject to the express provisions hereof, Options may be granted by
the Committee to any Outside Director for such number of shares of
Common Stock as the Committee in its discretion shall deem to be in
the best interest of the Company and which will serve to further the
purposes of the Plan. The Options granted under this Article III
shall not be incentive stock options under Section 422 of the Code.
Section 3.02. Price. The purchase price per share of Common
Stock under each Option granted under this Article III shall be
determined by the Committee but in no event shall be less than 100%
of the Fair Market Value per share of Common Stock on the date of
grant of such Option.
Section 3.03. Option Period and Terms of Exercise of
Options. Except as otherwise provided for herein, each Option
granted to an Outside Director under the Plan shall be exercisable in
whole or in part during the four-year period commencing on the date
of grant of such Option. Any Option granted to an Outside Director
shall remain effective during its entire term regardless of whether
the Optionee continues to serve as a Director; provided, however,
that the otherwise unexpired portion of any Option granted hereunder
to an Outside Director shall expire and become null and void
immediately upon the termination of such Outside Director's Board
membership if such Outside Director ceases to serve on the Board by
reason of such Outside Director's (a) fraud or intentional
misrepresentation, or (b) embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any
Affiliate. Nothing in the Plan or in any option agreement evidencing
an Option granted under the Plan to an Outside Director shall confer
upon such Director any right to continue as a Director of the
Company.
<PAGE>
ARTICLE IV
Grants of Options to Employees
Section 4.01. Grants of Options. At any time and from time
to time during the term of the Plan and subject to the express
provisions hereof, Options may be granted by the Committee to any
Employee for such number of shares of Common Stock as the Committee
in its discretion shall deem to be in the best interest of the
Company and which will serve to further the purposes of the Plan.
The Committee, in its discretion, may designate any Option granted to
an Employee as an incentive stock option intended to qualify under
Section 422 of the Code; provided, however, that the aggregate Fair
Market Value of the Common Stock with respect to which incentive
stock options granted to an Employee under the Plan (including all
options qualifying as incentive stock options pursuant to Section 422
of the Code granted to such Employee under any other plan of the
Company or any Affiliate) are exercisable for the first time by such
Employee during any calendar year shall not exceed $100,000,
determined as of the date the incentive stock option is granted. If
an Option that is intended to be an incentive stock option shall be
granted and such Option does not comply with the proviso of the
immediately preceding sentence, such Option shall not be void but
shall be deemed to be an incentive stock option to the extent it does
not exceed the limit established by such proviso and shall be deemed
a nonqualified stock option to the extent it exceeds that limit.
The aggregate number of shares of Common Stock for which any
Employee may be granted Options under the Plan during any one
calendar year shall not exceed 75,000.
Section 4.02. Price. The purchase price per share of
Common Stock under each Option granted under this Article IV shall be
determined by the Committee but in no event shall be less than 100%
of the Fair Market Value per share of Common Stock at the time the
Option is granted; provided, however, that the purchase price per
share of Common Stock under any incentive stock option granted to an
Optionee who, at the time such incentive stock option is granted,
owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any Affiliate shall
be at least 110% of the Fair Market Value per share of Common Stock
at the date of grant.
<PAGE>
Section 4.03. Option Period and Terms of Exercise of
Employee Options. Except as otherwise provided for herein, each
Option granted to an Employee under the Plan shall be exercisable
during such period as the Committee shall determine; provided,
however, that the otherwise unexpired portion of any Option granted
to an Employee shall expire and become null and void no later than
upon the first to occur of (i) the expiration of ten years from the
date such Option was granted, (ii) the expiration of 30 days from the
date of termination of the Optionee's employment with the Company or
an Affiliate for any reason other than his retirement, death or
disability, (iii) the expiration of one year from the date of
termination of the Optionee's employment with the Company or an
Affiliate by reason of his death or disability, (iv) the expiration
of three years from the date of termination of such Optionee's
employment with the Company or an Affiliate by reason of his
retirement, or (v) the expiration of two years from the date of such
Optionee's death following the termination of his employment with the
Company or an Affiliate by reason of his retirement.
Anything herein to the contrary notwithstanding, the
otherwise unexpired portion of any Option granted to an Employee
hereunder shall expire and become null and void immediately upon the
termination of such Employee's employment with the Company or an
Affiliate by reason of such Employee's fraud, dishonesty or
performance of other acts detrimental to the Company or an Affiliate,
or if, following the termination of the Employee's employment with
the Company or an Affiliate, the Company determines that there is
good cause to cancel such Option.
Any incentive stock option granted to an Optionee who, at
the time such incentive stock option is granted, owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any Affiliate shall not be
exercisable after the expiration of five years from the date of its
grant.
Under the provisions of any option agreement evidencing an
Option granted to an Employee, the Committee may limit the number of
shares purchasable thereunder in any period or periods of time during
which the Option is exercisable and may impose such other terms and
conditions upon the exercise of an Option as are not inconsistent
with the terms of the Plan; provided, however, that the Committee, in
its discretion, may accelerate the exercise date of any such Option.
Section 4.04. Termination of Employment. A transfer of
employment among the Company and any of its Affiliates shall not be
considered to be a termination of employment for the purposes of the
Plan. Nothing in the Plan or in any option agreement evidencing an
Option granted under the Plan to an Employee, including an
Employee-Director, shall confer upon any Optionee any right to
continue in the employ of the Company or any Affiliate or in any way
interfere with the right of the Company or any Affiliate to terminate
the employment of the Optionee at any time, with or without cause.
<PAGE>
ARTICLE V
Grant of Options to Consultants
Section 5.01. Grant of Options. At any time and from time
to time during the term of the Plan and subject to the express
provisions hereof, Options may be granted by the Committee to any
Consultant for such number of shares of Common Stock as the Committee
in its discretion shall deem to be in the best interest of the
Company and which will serve to further the purposes of the Plan.
The Options granted under this Article V shall not be incentive stock
options under Section 422 of the Code.
Section 5.02. Price. The purchase price per share of
Common Stock under each Option granted under this Article V shall be
determined by the Committee but in no event shall be less than 100%
of the Fair Market Value per share of Common Stock at the time the
Option is granted.
Section 5.03. Option Period and Terms of Exercise of
Consultant Options. Except as otherwise provided for herein, each
Option granted to a Consultant under the Plan shall be exercisable
during such period as the Committee shall determine; provided,
however, that the otherwise unexpired portion of any Option granted
to a Consultant shall expire and become null and void no later than
upon the first to occur of (i) the expiration of ten years from the
date such Option was granted or (ii) the expiration of one year from
the date of the Consultant's death. Anything herein to the contrary
notwithstanding, the otherwise unexpired portion of any Option
granted to a Consultant hereunder shall expire and become null and
void immediately upon the termination of the Consultant's services to
the Company or an Affiliate by reason of the Consultant's fraud,
dishonesty or performance of other acts detrimental to the Company or
an Affiliate, or if, at any time during or after the performance of
the Consultant's services to the Company or an Affiliate, the Company
determines that there is good cause to cancel such Option.
Under the provisions of any option agreement evidencing an
Option granted to a Consultant, the Committee may limit the number of
shares purchasable thereunder in any period or periods of time during
which the Option is exercisable and may impose such other terms and
conditions upon the exercise of an Option as are not inconsistent
with the terms of the Plan; provided, however, that the Committee, in
its discretion, may accelerate the exercise date of any such Option.
Section 5.04. Termination of Consulting Services. Nothing
in the Plan or in any option agreement evidencing an Option granted
under the Plan to a Consultant shall confer upon any Consultant any
right to continue as a consultant or advisor of the Company or any
Affiliate or in any way interfere with the right of the Company or
any Affiliate to terminate the services of the Consultant at any
time, with or without cause.
<PAGE>
ARTICLE VI
Miscellaneous
Section 6.01. Adjustments Upon Changes in Common Stock. In
the event the Company shall effect a split of the Common Stock or a
dividend payable in Common Stock, or in the event the outstanding
Common Stock shall be combined into a smaller number of shares, the
maximum number of shares as to which Options may be granted under the
Plan shall be decreased or increased proportionately. In the event
that, before delivery by the Company of all of the shares of Common
Stock for which any Option has been granted under the Plan, the
Company shall have effected such a split, dividend or combination,
the shares still subject to such Option shall be increased or
decreased proportionately and the purchase price per share shall be
decreased or increased proportionately so that the aggregate purchase
price for all of the shares then subject to such Option shall remain
the same as immediately prior to such split, dividend or combination.
In the event of a reclassification 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
covered by the unexercised portions of Options theretofore granted
under the Plan. The provisions of this Section shall only be
applicable if, and only to the extent that, the application thereof
does not conflict with any valid governmental statute, regulation or
rule.
Subject to Article VI, Section 6.02 of the Plan, and
notwithstanding any indication to the contrary in the preceding
paragraphs of this Section 6.01, upon the occurrence of a "Change in
Control" (as hereinafter defined) of the Company, the maturity of all
Options then outstanding under the Plan (other than Options granted
under Article V hereof) shall be accelerated automatically, so that
all such Options shall become exercisable in full with respect to all
shares as to which they shall not have previously been exercised or
become exercisable; provided, however, that no such acceleration
shall occur with respect to Options held by optionees whose
employment with the Company or an Affiliate shall have terminated
prior to the occurrence of such Change in Control.
<PAGE>
For purposes of the Plan, a "Change in Control" of the
Company shall be deemed to have occurred if:
(a) the shareholders of the Company shall approve:
(i) any merger, consolidation or reorganization of
the Company (a "Transaction") in which the shareholders of
the Company immediately prior to the Transaction would
not, immediately after the Transaction, beneficially own,
directly or indirectly, shares representing in the
aggregate more than 50% of all votes to which all
shareholders of the corporation issuing cash or securities
in the Transaction (or of its ultimate parent corporation,
if any) would be entitled under ordinary circumstances in
the election of directors, or in which the members of the
Company's Board immediately prior to the Transaction would
not, immediately after the Transaction, constitute a
majority of the board of directors of the corporation
issuing cash or securities in the Transaction (or of its
ultimate parent corporation, if any),
(ii) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions
contemplated or arranged by any party as a single plan) of
all or substantially all of the Company's assets, or
(iii) any plan or proposal for the liquidation or
dissolution of the Company;
(b) individuals who constitute the Company's Board as
of April 1, 1995 (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board;
provided, however, that for purposes of this subparagraph (b),
any individual who becomes a Director of the Company
subsequent to April 1, 1995, and whose election, or nomination
for election by the Company's shareholders, is approved by a
vote of at least a majority of the Incumbent Directors who are
Directors at the time of such vote, shall be considered an
Incumbent Director; or
(c) any "person," as that term is defined in Section
3(a)(9) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Company, any of its
subsidiaries, any employee benefit plan of the Company or any
of its subsidiaries, or any entity organized, appointed or
established by the Company for or pursuant to the terms of
such plan), together with all "affiliates" and "associates"
(as such terms are defined in Rule 12b-2 under the Exchange
Act) of such person, shall become the "beneficial owner" or
"beneficial owners" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of securities of
the Company representing in the aggregate 20% or more of
either (i) the then outstanding shares of Common Stock or (ii)
the combined voting power of all then outstanding securities
of the Company having the right under ordinary circumstances
to vote in an election of the Company's Board ("Voting
Securities"), in either such case other than as a result of
acquisitions of such securities directly from the Company.
<PAGE>
Notwithstanding the foregoing, a "Change in Control" of
the Company shall not be deemed to have occurred for purposes of
subparagraph (c) of this Section 6.01 solely as the result of an
acquisition of securities by the Company which, by reducing the
number of shares of Common Stock or other Voting Securities
outstanding, increases (i) the proportionate number of shares of
Common Stock beneficially owned by any person to 20% or more of the
shares of Common Stock then outstanding or (ii) the proportionate
voting power represented by the Voting Securities beneficially owned
by any person to 20% or more of the combined voting power of all then
outstanding Voting Securities; provided, however, that if any person
referred to in clause (i) or (ii) of this sentence shall thereafter
become the beneficial owner of any additional shares of Common Stock
or other Voting Securities (other than as a result of a stock split,
stock dividend or similar transaction), then a "Change in Control" of
the Company shall be deemed to have occurred for purposes of
subparagraph (c) of this Section 6.01.
Section 6.02. A m endment and Termination of the Plan.
Subject to the right of the Board to terminate the Plan prior
thereto, the Plan shall terminate at the expiration of ten years from
April 1, 1995. No Options may be granted after termination of the
Plan. The Board may at any time suspend, terminate, amend or modify
the Plan; provided, however, that no amendment or modification of the
Plan shall become effective without the approval of such amendment or
modification by the shareholders of the Company if the Company, on
the advice of counsel, determines that such shareholder approval is
necessary or desirable. Upon termination of the Plan, the terms and
provisions of the Plan shall, notwithstanding such termination,
continue to apply to Options granted prior to such termination. No
suspension, termination, or amendment or modification of the Plan
shall adversely affect the rights of an Optionee under an Option,
except with the consent of such Optionee.
Section 6.03. Payment of Purchase Price; Application of
Funds. Upon exercise of an Option, the purchase price shall be paid
in full in cash or by check; provided, however, that at the request
of an Optionee and to the extent permitted by applicable law, the
Company shall approve reasonable arrangements with Optionees who are
Outside Directors and may, in its sole and absolute discretion,
approve reasonable arrangements with one or more Optionees who are
Employees or Consultants and their respective brokerage firms, under
which such an Optionee may exercise his Option by delivering to the
Company an irrevocable notice of exercise, together with such other
documents as the Company shall require, and the Company shall, upon
receipt of full payment in cash or by check of the purchase price and
any other amounts due in respect of such exercise, deliver to such
Optionee's brokerage firm one or more certificates representing the
shares of Common Stock issued in respect of such exercise. The
proceeds of any sale of Common Stock covered by Options shall
constitute general funds of the Company. Upon exercise of an Option,
the Optionee will be required to pay to the Company the amount of any
federal, state or local taxes required by law to be withheld in
connection with such exercise.
<PAGE>
Section 6.04. Requirements of Law. The granting of Options
and the issuance of Common Stock upon the exercise of an Option shall
be subject to all applicable laws, rules and regulations and to such
approval by governmental agencies as may be required.
Section 6.05. Nontransferability of Options. An Option
granted under the Plan shall not be transferable by the Optionee
except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Optionee only by the
Optionee.
Section 6.06. Investment Letter. The Company's obligation
to deliver Common Stock with respect to an Option shall be
conditioned upon its receipt from the Optionee to whom such Common
Stock is to be delivered of an executed investment letter containing
such representations and agreements as the Committee may determine to
be necessary or advisable in order to enable the Company to issue and
deliver such Common Stock to such Optionee in compliance with the
Securities Act of 1933 and other applicable federal, state or local
securities laws or regulations.
Section 6.07. Date of Adoption and Effective Date of the
Plan. The original Carrington Laboratories, Inc. 1995 Stock Option
Plan (the "Original Plan") became effective on April 1, 1995. The
first amendment and restatement of the Original Plan became effective
on March 27, 1996. This second amendment and restatement of the
Original Plan was approved by the Board on January 15, 1998 and shall
be deemed effective as of that date, provided it is duly approved by
the holders of a majority of the shares of Common Stock present or
represented and entitled to vote at the 1998 annual meeting of
shareholders of the Company. If not so approved, this second
amendment and restatement of the Original Plan shall be null and
void, any Options granted hereunder to Outside Directors on or after
January 15, 1998 and prior to the date of the 1998 annual meeting of
shareholders of the Company shall be null and void, and the first
amendment and restatement of the Original Plan shall remain in full
force and effect in accordance with its terms.
Section 6.08. Gender. Words of any gender used in the Plan
shall be construed to include any other gender, unless the context
requires otherwise.
