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 Rule 240.14a-11(c) or
Rule 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):
[X] 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:
3) Per unit price or other underlying value of
transaction 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):
4) Proposed maximum aggregate value of
transaction:
5) Total fee paid:
[ ] 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 20, 1999
NOTICE is hereby given that the annual meeting of
shareholders of CARRINGTON LABORATORIES, INC. (the "Company") will be
held on May 20, 1999, 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 one person to serve as a director of the
Company for a term expiring at the annual meeting of
shareholders in 2002;
(2) To approve the appointment of Ernst & Young LLP as
independent public accountants for the Company for the
fiscal year ending December 31, 1999; and
(3) To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only shareholders of record at the close of business on April
2, 1999 are entitled to notice of and to vote at the meeting or any
adjournment thereof. A record of the Company's activities during 1998
and financial statements for the fiscal year ended December 31, 1998 are
contained in the accompanying 1998 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
George DeMott
Chairman of the Board
Irving, Texas
April 16, 1999
<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 20, 1999
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 20, 1999. 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,
1999.
OUTSTANDING CAPITAL STOCK
The record date for the determination of shareholders
entitled to notice of and to vote at the annual meeting is April 2, 1999
(the "Record Date"). At the close of business on the Record Date, the
Company had 9,357,564 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 person named as nominee
under the caption "Election of Directors" as a director of the Company,
(ii) 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, 1999, and (iii) 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, 1999, 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 597,500(2) 6.2%
One West 3rd Street
Williams Center Tower I
Suite 1300
Tulsa, Oklahoma 74103
Thomas E. Oxley 597,500(2) 6.2%
One West 3rd Street
Williams Center Tower I
Suite 1305
Tulsa, Oklahoma 74103
Charles C. Killin 597,500(2) 6.2%
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, 1999.
(2) Based on Amendment No. 1 dated March 22, 1999 to a report on
Schedule 13D dated February 24, 1997 filed by Charles C.
Killin with the Securities and Exchange Commission. John C.
Oxley, Thomas E. Oxley and Charles C. Killin share voting and
dispositive powers with respect to, and disclaim beneficial
ownership of, 597,500 shares of the Company's Common Stock
held by them as Co-Executors of the Estate of John T. Oxley,
and each of them may be deemed to have beneficial ownership
of such 597,500 shares.
<PAGE>
The Company knows of no arrangements the operation of which
may at a subsequent date result in a change of control of the Company.
REQUIRED AFFIRMATIVE VOTE AND VOTING PROCEDURES
With regard to the election of directors, votes may be cast
in favor of or withheld from the nominee. The nominee who receives 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 a director 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 proposal to approve the appointment
of independent public accountants.
All duly submitted and unrevoked proxies will be voted
for the nominee selected by the Board of Directors, except where
authorization to so vote is withheld. If the 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.
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.
<PAGE>
At the meeting, one director will be elected, and one Board
position will be vacant after the meeting. James T. O'Brien, who has
been a director since June 1992 and whose term expires at the 1999 annual
meeting, will not stand for re-election and will resign as a director
effective as of the time of the annual meeting. The Board has not
selected a nominee to replace Mr. O'Brien but is searching for a
qualified candidate to fill his position at a later date. The Board has
the power to fill the vacant position without any requirement for
approval or ratification by the shareholders. However, if the Board
fills the vacant position, the Board expects that such appointment will
be presented to the shareholders for ratification at a subsequent annual
meeting of shareholders.
The Board of Directors has nominated R. Dale Bowerman for
election as a director at the annual meeting, to serve a three-year term
expiring in 2002. Mr. Bowerman is currently a director of the Company,
with a term expiring at the 1999 annual meeting, and has consented to
serve as a director if elected. All duly submitted and unrevoked proxies
will be voted for Mr. Bowerman, except where authorization to vote for
him is withheld. If Mr. Bowerman 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.
The other five directors of the Company have been elected to
terms that do not expire at the 1999 annual meeting. George DeMott,
Robert A. Fildes, Ph.D. and Carlton E. Turner, Ph.D., D.Sc. are currently
serving terms expiring in 2000, and Selvi Vescovi and Thomas J. Marquez
are currently serving terms expiring in 2001. Information about all
seven directors of the Company, including the current nominee, is set
forth in the following paragraphs.
R. DALE BOWERMAN, 59, 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, 66, 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.
<PAGE>
ROBERT A. FILDES, Ph.D., 60, 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. Since January 1998 he has served as president of
SB2 Inc., a biopharmaceutical company, and from June 1998 to December
1998 he served as Chief Executive Officer of Atlantic Pharmaceuticals, a
biopharmaceutical company. 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 Cytovax
Biotechnologies and SB2 Inc., each a private company.
THOMAS J. MARQUEZ, 61, 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.
CARLTON E. TURNER, Ph.D., D.Sc., 58, 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.
SELVI VESCOVI, 68, 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
<PAGE>
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.
JAMES T. O'BRIEN, 60, 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 Palatin Technologies, Inc., a publicly traded company; and of
Cydex, Inc., a private drug development 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
1998, the Board of Directors held eight meetings, the Executive Committee
held six meetings, the Audit Committee held three 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 1998.
EXECUTIVE OFFICERS
The executive officers of the Company are Carlton E. Turner,
Ph.D., D.Sc., Kenneth M. Yates, D.V.M., Robert W. Schnitzius and Robert
A. Fildes, Ph.D. Biographical information for Dr. Turner and Dr. Fildes
is set forth under "Election of Directors" above.
<PAGE>
Kenneth (Bill) M. Yates, D.V.M., 48, was appointed Vice
President of Research and Development in January 1999. Dr. Yates
initially served as a consultant to the Company beginning in 1989 and
became a full-time employee in 1990. He has served in various capacities
for the Company in Research and Development during the last nine years,
including Product Development Coordinator for Wound Care, and his
activities have included a significant role in the completion of a
successful preclinical safety program for Aliminase[TM]. Since 1992, Dr.
Yates has served as an Adjunct Assistant Professor, Department of
Comparative Medicine, University of Texas Southwestern Medical School.
Robert W. Schnitzius, 41, has been Chief Financial Officer
and Treasurer of the Company since November 1997 and Secretary of the
Company since May 1998. 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.
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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 31, 1999, 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 48,500 (1) *
George DeMott 15,000 (2) *
Robert A. Fildes, Ph.D. 22,500 (3) *
Thomas J. Marquez 827,440 (4) 8.8%
James T. O'Brien 15,500 (5) *
Carlton E. Turner, Ph.D., D.Sc. 97,210 (6) 1.0%
Selvi Vescovi 21,000 (7) *
Named Executive Officers (excluding
any director named above) and Group
Robert W. Schnitzius 19,500 (8) *
Kenneth M. Yates, D.V.M. 24,975 (9) *
Christopher S. Record 5,990 (10) *
V. Kirkland Meares 33,321 (11) *
All current directors and executive
officers as a group (9 persons) 1,091,625 (12) 11.4%
* Less than one percent.
(1) Includes 12,500 shares that Mr. Bowerman has the right to
acquire pursuant to options and warrants exercisable within
60 days after March 31, 1999.
(2) Includes 10,000 shares that Mr. DeMott has the right to
acquire pursuant to options exercisable within 60 days after
March 31, 1999.
(3) Includes 12,500 shares that Dr. Fildes has the right to
acquire pursuant to options exercisable within 60 days after
March 31, 1999.
(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, 1999.
(5) Includes 12,500 shares that Mr. O'Brien has the right to
acquire pursuant to options exercisable within 60 days after
March 31, 1999.
<PAGE>
(6) Includes 53,406 shares that Dr. Turner has the right to
acquire pursuant to options exercisable within 60 days after
March 31, 1999.
(7) Includes 12,500 shares that Mr. Vescovi has the right to
acquire pursuant to options exercisable within 60 days after
March 31, 1999.
(8) Includes 17,500 shares that Mr. Schnitzius has the right to
acquire pursuant to options exercisable within 60 days after
March 31, 1999.
(9) Includes 21,233 shares that Dr. Yates has the right to
acquire pursuant to options exercisable within 60 days after
March 31, 1999.
(10) Mr. Record resigned as an executive officer of the Company
effective April 30, 1998, but continued in the employ of the
Company until February 14, 1999. Beneficial ownership shown
for Mr. Record is as of February 14, 1999, the most recent
date for which the Company has such information.
(11) Mr. Meares resigned as an executive officer of the Company
effective December 31, 1998. Includes 22,250 shares that Mr.
Meares has the right to acquire pursuant to options that are
presently exercisable.
(12) Includes 192,239 shares that current directors and executive
officers have the right to acquire pursuant to options and
warrants exercisable within 60 days after March 31, 1999.
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, 1999. 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 (the "SEC") 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 SEC 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 1999.
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 1998, the Committee was composed of James T.
O'Brien, Chairman, George DeMott and Selvi Vescovi. All of the persons
who served on the Committee during 1998 were and still are outside
directors of the Company. Mr. Vescovi served as interim President and
Chief Executive Officer of the Company in March and April 1995.
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 1998.
<PAGE>
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 1998 Compensation
For fiscal 1998, 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.
The Committee determined that current salary levels for key
Company executives are competitive within the industry and basically rank
in the average range.
<PAGE>
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 1998
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 a bonus of $9,800 to be paid to Kenneth M.
Yates for 1998 based on the performance of the operations under his
responsibility.
Stock Option Grants
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.
<PAGE>
The Compensation Committee grants stock options with the
goals of providing compensation and incentive to work toward the long-
term success of the Company. In January 1998, in an effort to provide
outstanding stock options previously awarded in accordance with the
Company's 1995 Stock Option Plan with the incentive and compensatory
value they were intended to have, the Compensation Committee authorized
the Company's offer to employees of the Company to replace outstanding
options with new options having an exercise price more closely
approximating the market price. Employees, including executive officers,
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. Employees who accepted the exchange offer surrendered their
old options for cancellation and on January 30, 1998 were granted new
options, each with an exercise price per share of $4.8125 and a term of
10 years from the date of grant, exercisable at the rate of 25% per year
during each of the second through fifth years of its term. See the table
included under "Executive Compensation Ten Year Option/SAR Repricings"
for further information on the option repricing.
Each of the 1998 option awards to executive officers of the
Company was made in accordance with the Company's 1995 Stock Option Plan.
In an effort to provide compensation packages competitive with similar
companies, certain options granted to executive officers in December
1998 are immediately exercisable with respect to one-half of the
underlying shares, with the other one-half becoming exercisable in equal
installments over three years beginning one year after the date of grant.
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 1998 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.
In January 1998, Dr. Turner was granted stock options to
purchase an aggregate of 138,125 shares of Common Stock in replacement of
previously granted stock options pursuant to the Company's exchange offer
discussed above. See "Executive Compensation Ten Year Option/SAR
Repricings."
In December 1998, the Committee granted Dr. Turner an
incentive stock option to purchase 30,000 shares of Common Stock pursuant
to the Company's 1995 Stock Option Plan. This option becomes
exercisable with respect to one-third of the underlying shares in each
year in the three-year period beginning one year after the date of grant.
This award was made based on the Committee's evaluation of Dr. Turner's
overall performance.
<PAGE>
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 1998 adequately reflected the Company's compensation goals
and policies.
Dated: April 12, 1999
By the Members of the Committee:
James T. O'Brien, Chairman
George DeMott
Selvi Vescovi
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<PAGE>
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, 1998 exceeded $100,000 (collectively, the "named executive
officers") for the years indicated.
<TABLE>
Table 1
Summary Compensation Table
Long-Term
Compensation
------------
Annual Compensation Awards
------------------------------------------------------
Other Securities
Annual Underlying All Other
Name and Fiscal Compen- Options (No. Compen-
Principal Position Year Salary Bonus(1) sation of Shares) sation
------------------ ---- ------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Carlton E. Turner, Ph.D., 1998 $225,000 -- -- 138,125(3) --
D.Sc., President and 30,000
Chief Executive Officer 1997 $225,000 $10,000 -- 40,000 --
(2) 1996 $225,000 -- -- 40,000 --
Robert W. Schnitzius, 1998 $120,000 -- -- 30,000(3) --
Chief Financial 20,000
Officer (4) 1997 $ 11,538 -- -- 30,000 --
1996 -- -- -- -- --
Kenneth M. Yates, D.V.M., 1998 $108,700 $9,800 -- 44,930(3) --
Vice President, 1997 $ 98,491 -- -- 33,000 --
Research & 1996 $ 88,000 -- -- -- --
Development(5)
Christopher S. Record, 1998 $121,687 -- -- 47,500(3) --
former Vice 1997 $150,000 -- -- 10,000 --
President, Business 1996 $150,000 -- -- -- --
Development (6)
V. Kirkland Meares, 1998 $155,000 -- -- 45,000(3) $283,210 (8)
former Vice 20,000
President, Sales 1997 $150,000 $5,000 -- 15,000 $324,699 (8)
and Marketing (7) 1996 $150,000 -- -- 30,000 $372,907 (9)
</TABLE>
<PAGE>
(1) Each bonus for 1998 and 1997 was paid in cash. No bonuses
were paid for 1996.
(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 options granted in exchange for the surrender of
previously granted options covering an equal number of
shares. Each new option has an exercise price of $4.8125 per
share. See "Executive Compensation Ten Year Option/SAR
Repricings."
(4) Mr. Schnitzius was first elected as an executive officer of
the Company on November 17, 1997.
(5) Dr. Yates was first elected as an executive officer of the
Company on January 14, 1999.
(6) Mr. Record resigned as an executive officer of the Company
effective April 30, 1998, but continued in the employ of the
Company until February 14, 1999. Approximately $61,500 of the
1998 salary amount shown for Mr. Record represents salary
paid during his service as an executive officer of the
Company.
(7) Mr. Meares resigned as an executive officer of the Company
effective December 31, 1998.
(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>
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 1998.
<TABLE>
Table 2
Options Granted During Year Ended December 31, 1998
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 in Per Expiration
Name (No. of Shares) Fiscal Year Share Date 5% 10%
---- ------------- ----------- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Carlton E. Turner, 138,125(2) 10.3% $ 4.8125 01/30/08 418,043 1,059,403
Ph.D., D.Sc. 30,000 (3) 2.2% $ 2.5000 12/22/08 47,167 119,531
Robert W. Schnitzius 30,000 (2) 2.2% $ 4.8125 01/30/08 90,797 230,097
20,000 (4) 1.5% $ 2.5000 12/22/08 31,445 79,687
Kenneth M. Yates 44,930 (2) 3.3% $ 4.8125 01/30/08 135,983 344,608
20,000 (4) 1.5% $ 2.5000 12/22/08 31,445 79,687
Christopher S. Record 47,500 (2) 3.5% $ 4.8125 01/30/08 143,761 364,320
V. Kirkland Meares 45,000 (2) 3.3% $ 4.8125 01/30/08 45,398 115,048
20,000 (4) 1.5% $ 2.5000 12/22/08 31,445 79,687
</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) Pursuant to an option exchange offer made to employees in January
1998, stock options covering these shares were granted in
exchange for the surrender of previously granted options covering
an equal number of shares. Each new option has an exercise price
of $4.8125 per share and an expiration date of January 30, 2008
and 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. See "Executive Compensation Ten
Year Option/SAR Repricings."
(3) 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-third of the shares covered thereby in each year
in the three-year period beginning one year after the date of
grant.
(4) 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 is immediately exercisable
with respect to one-half of the shares covered thereby and
becomes exercisable with respect to one-sixth of the shares
covered thereby in each year in the three-year period beginning
one year after the date of grant.
<PAGE>
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, 1998, 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, 1998 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, 1998, in accordance with SEC rules.
<TABLE>
Table 3
Aggregated Option Exercises in Fiscal Year
Ended December 31, 1998 and Fiscal Year-End Option Values
Shares Number of Securities
Acquired Underlying Unexercised Value of Unexercised
on Options at 12/31/98 In-the-Money
Exercise (No. of Shares) Options at 12/31/98
(No. of Value -------------------------- -------------------------
Name Shares) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carlton E. Turner, -- -- 18,875 168,125 -- --
Ph.D., D.Sc.
Robert W. Schnitzius -- -- 10,000 40,000 -- --
Kenneth M. Yates -- -- 12,000 44,930 -- --
Christopher S. Record -- -- -- 47,500 -- --
V. Kirkland Meares -- -- 10,000 45,000 -- --
</TABLE>
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<PAGE>
TEN-YEAR OPTION/SAR REPRICINGS
The following table sets forth certain information with respect to
the cancellation of outstanding options held by and the grant of
replacement options to executive officers of the Company in 1998. See
"Executive Compensation Report of the Compensation Committee Stock Option
Grants." All of the repricings set forth in the table below were pursuant
to the Company's option exchange offer in 1998. Other than those set
forth in the table and discussion below, the Company has not repriced any
options held by any of the Company's executive officers during the last
ten years.
<TABLE>
Length of
Market Price Exercise Original
Number of of Stock at Price At Option Term
Options/ Time of Time of Remaining
SARs Repricing or Repricing or New at Date of
Repriced or Amendment Amendment Exercise Repricing or
Name Date Amended (#) ($) ($) Price ($) Amendment
---- ---- ----------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Luiz F. Cerqueira 01/30/98 1,400 4.8125 12.7500 5.2500 6 yrs, 195 days
(1) 01/30/98 3,750 4.8125 11.1250 5.2500 5 yrs, 360 days
01/30/98 15,000 4.8125 27.0000 5.2500 6 yrs, 308 days
01/30/98 15,000 4.8125 7.5000 5.2500 9 yrs, 111 days
Robert Fildes (2) 05/14/98 2,500 5.2500 10.6250 5.2500 (3)
05/14/98 2,500 5.2500 18.0000 5.2500 347 days
05/14/98 2,500 5.2500 47.7500 5.2500 2 yrs, 8 days
05/14/98 2,500 5.2500 7.5000 5.2500 3 yrs, 7 days
V. Kirkland 01/30/98 30,000 4.8125 24.5000 5.2500 8 yrs, 67 days
Meares (4) 01/30/98 15,000 4.8125 7.5000 5.2500 9 yrs, 151 days
Carlton E. Turner 01/30/98 8,125 4.8125 9.8750 4.8125 6 yrs, 260 days
01/30/98 20,000 4.8125 11.1250 4.8125 6 yrs, 360 days
01/30/98 30,000 4.8125 16.5630 4.8125 7 yrs, 132 days
01/30/98 40,000 4.8125 28.7500 4.8125 8 yrs, 132 days
01/30/98 40,000 4.8125 7.5000 4.8125 9 yrs, 111 days
Christopher S. 01/30/98 15,000 4.8125 11.5000 5.2500 6 yrs, 87 days
Record (5) 01/30/98 7,500 4.8125 11.1250 5.2500 6 yrs, 360 days
01/30/98 15,000 4.8125 27.0000 5.2500 6 yrs, 308 days
01/30/98 10,000 4.8125 7.5000 5.2500 9 yrs, 111 days
Robert W. 01/30/98 30,000 4.8125 5.3125 4.8125 8 yrs, 290 days
Schnitzius
Kenneth M. Yates 01/30/98 780 4.8125 20.1250 4.8125 3 yrs, 359 days
(6) 01/30/98 650 4.8125 10.2500 4.8125 4 yrs, 357 days
01/30/98 1,500 4.8125 12.7500 4.8125 5 yrs, 350 days
01/30/98 3,500 4.8125 11.1250 4.8125 6 yrs, 343 days
01/30/98 7,500 4.8125 27.0000 4.8125 7 yrs, 311 days
01/30/98 6,000 4.8125 7.5000 4.8125 8 yrs, 360 days
01/30/98 5,000 4.8125 7.5000 4.8125 9 yrs, 114 days
01/30/98 20,000 4.8125 5.7500 4.8125 9 yrs, 233 days
</TABLE>
<PAGE>
(1) Mr. Cerqueira resigned as an executive officer of the Company
effective May 31, 1998
(2) Dr. Fildes has served, on an independent contractor basis, as the
Company's interim Executive Vice President, Research and Development
since October 1, 1997.
(3) Options covering these shares were surrendered for replacement prior
to the scheduled expiration date of April 28, 1998. The grant of
replacement options was subject to shareholder approval, which was
received on May 14, 1998.
(4) Mr. Meares resigned as an executive officer of the Company effective
December 31, 1998.
(5) Mr. Record resigned as an executive officer of the Company effective
April 30, 1998, but continued in the employ of the Company until
February 14, 1999.
(6) Dr. Yates was not an executive officer of the Company at the time of
repricing.
The above table does not contain information with respect to David G.
Shand, M.D., Ph.D., who 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 expiring January 16, 2005; 10,000
shares at $35.25 per share expiring August 17, 2005; 7,500 shares at
$28.75 per share expiring June 12, 2006; and 15,000 shares at $7.50
expiring May 22, 2007 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 REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
<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 36 companies that conduct business in
the pharmaceutical industry and whose stock is traded on a stock exchange
or on the Nasdaq National Market.
[ PERFORMANCE GRAPH APPEARS HERE ]
Cumulative Total Return(1)
11/93 11/94 11/95 12/96 12/97 12/98
-------------------------------------------------
Carrington
Laboratories, Inc. 100 71 256 64 36 18
Peer Group(2) 100 113 177 220 338 500
Nasdaq Stock -
Market U.S. 100 100 142 175 214 301
(1) Total return assuming reinvestment of dividends. Assumes $100
invested on November 30, 1993 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., 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. One company that was included in the
1997 peer group index is not included in the 1998 peer group index
because it was acquired by another company.
<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.
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.
In 1998 the Compensation and Stock Option and of the Company's
Board of Directors authorized the grant of certain stock options to the
outside directors, subject to the consent of the shareholders at the
annual meeting to certain amendments to the Company's 1995 Stock Option
Plan. The shareholders of the Company approved the amendments at the
annual meeting, and the following options to purchase shares of the
Company's Common Stock at a price of $5.25 per share were granted to the
six outside directors on May 14, 1998: (i) options for an aggregate of
52,500 shares issued in exchange for old options for the same aggregate
number of shares, which old options were surrendered by the outside
directors in connection with an option exchange offer that the Company
also made to its employees; (ii) options for an aggregate of 15,000 shares
(2,500 for each outside director), for which no old options were
surrendered; and (iii) an option for 32,600 shares granted to Thomas J.
Marquez to replace two options that had previously terminated due to his
ceasing to be an employee-director and becoming an outside director. All
of such options have a four-year term from their date of grant and are
exercisable in whole or in part at any time from their date of grant until
the expiration of their four-year term.
<PAGE>
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.
CERTAIN TRANSACTIONS
V. Kirkland Meares served as Vice President, Sales and Marketing
of the Company from April 1996 until December 31, 1998. Prior to his
employment by the Company, he had been an independent manufacturer's
representative for the Company since 1984, and during 1998 he continued to
own and operate that business, a sole proprietorship known as Meares
Medical Sales Associates ("MMSA"). During 1998, most of the selling
activities of MMSA were performed by other individuals. The relationship
between the Company and MMSA is governed by an Independent Sales
Representative Agreement dated June 1, 1998, which has a term expiring two
years after June 1, 1998. The agreement designates the states of Alabama
and Georgia, portions of Northern Florida and Tennessee and, effective as
of January 1, 1999 pursuant to an amendment, also the states of Arkansas,
Texas, Louisiana, Oklahoma, Mississippi and the remainder of Tennessee as
the areas for which MMSA is responsible. The term of the agreement
expires two years after June 1, 1998. 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
1998, the Company paid MMSA commissions totaling approximately $283,210.
SHAREHOLDER PROPOSALS
The 2000 annual meeting of the shareholders of the Company is
tentatively scheduled to be held on May 18, 2000. Shareholder proposals
intended to be included in the Company's proxy statement for the 2000
annual meeting must be received by the Company no later than December 17,
1999, in accordance with Rule 14a-8 under the Exchange Act.
With respect to shareholder proposals which are not intended to be
included in the Company's proxy statement, the Bylaws of the Company
provide that notice of any such shareholder proposal 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 1998 Annual Report.
Additional copies of the 1998 Annual Report may be obtained without charge
upon written request to Robert W. Schnitzius, Chief Financial Officer,
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 16, 1999
A copy of the Company's Form 10-K Annual Report for the fiscal
year ended December 31, 1998, 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 Robert W. Schnitzius,
Chief Financial Officer, 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 20, 1999
The undersigned hereby appoints Carlton E. Turner, Ph.D., D.Sc., and
Robert W. Schnitzius 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 2, 1999, at the Annual Meeting of Shareholders of
the Company to be held on May 20, 1999, 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 1998 Annual Report to Shareholders is
hereby acknowledged.
(Continued and to be Signed on Reverse Side)
<PAGE>
1. ELECTION OF DIRECTOR. Nominee:
[ ] FOR nominee listed [ ] WITHHOLD AUTHORITY R. Dale Bowerman
at right (except as to vote for nominee
marked to contrary below) listed at right
INSTRUCTION: (To withhold authority to vote the nominee, write the
nominee's name on the line below.)
--------------------------------------------------------------------
2. Approval of the appointment of Ernst & Young LLP as independent
public accountants for the Company for the fiscal year ending
December 31, 1999.
[ ] 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 NOMINEE LISTED IN THIS PROXY,
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: _______________, 1999 _________________________________________
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.
