UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission File Number 0-11997
Carrington Laboratories, Inc.
(Exact name of Registrant as specified in its charter)
Texas 75-1435663
(State of Incorporation) (IRS Employer ID No.)
2001 Walnut Hill Lane, Irving, Texas 75038
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 518-1300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
(Title of class)
Preferred Share Purchase Rights
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
<PAGE>
The aggregate market value of the Common Stock held by non-affiliates
of the Registrant on March 24, 1999, was $29,242,387. (This figure was
computed on the basis of the closing price of such stock on the NASDAQ
National Market on March 24, 1999, using the aggregate number of shares
held on that date by, or in nominee name for, shareholders who are not
officers, directors or record holders of 10% or more of the Registrant's
outstanding voting stock. The characterization of such officers,
directors and 10% shareholders as affiliates is for purposes of this
computation only and should not be construed as an admission for any
other purpose that any of such persons are, in fact, affiliates of the
Registrant.)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
9,357,564 shares of Common Stock, par value $.01 per share, were
outstanding on March 24, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on May 20, 1999 are incorporated by reference
into Part III hereof, to the extent indicated herein.
<PAGE>
PART I
ITEM 1. BUSINESS.
General
Carrington Laboratories, Inc. ("Carrington" or the "Company") is a
research-based biopharmaceutical, medical device and raw materials and
nutraceutical company engaged in the development, manufacturing and
marketing of naturally derived complex carbohydrate and other natural
product therapeutics for the treatment of major illnesses, the dressing
and management of wounds and nutritional supplements. The Company
comprises two business divisions. See Note Fourteen to the consolidated
financial statements in this Annual Report for financial information
about these business divisions. The Company sells, using a network of
distributors, prescription and nonprescription human and veterinary
products through its Wound and Skin Care Division and consumer and bulk
raw material products through its consumer products subsidiary, Caraloe,
Inc. The Company's research and product portfolio are based primarily on
complex carbohydrates isolated from the Aloe vera L plant.
The Company was incorporated in Texas in 1973, as Ava Cosmetics, Inc. In
1986, the Company sold the direct sales business it was then operating
and changed its name to Carrington Laboratories, Inc.
Wound and Skin Care Division
Carrington's Wound and Skin Care Division offers a comprehensive line of
wound management products to hospitals, nursing homes, alternative care
facilities and the home health care market. The Company's products are
designed to maintain a moist wound environment which aids the healing
process and to maintain the integrity of contiguous healthy skin.
Carrington products are used in a wide range of acute and chronic wound
and skin conditions and for incontinence and ostomy care.
The Company's primary marketing emphasis for its wound and skin care
business is directed toward hospitals and nursing homes, alternate care
facilities, home health care providers, managed care organizations, with
wound and skin care products being promoted primarily to physicians and
specialty nurses, e.g., enterostomal therapists. As some segments of the
market shift from home health care to nursing homes, the Company has
developed and is marketing a specialized educational and training program
to nursing homes. Opportunities in the growing Internet market are also
addressed through the Company's websites, www.carringtonlabs.com.and
www.woundcare.com.
The Company currently has 47 employees and independent representatives
engaged in the sales and marketing of the Company's products. The
Company's field sales force currently employs 20 sales representatives,
each assigned to a specific geographic area in the United States, 4
regional sales managers, 1 representative in Puerto Rico and 1 in Italy.
The Company also uses 4 independent sales companies employing 12 sales
representatives to sell its products on a commission basis. In addition
to this field sales force, the Wound and Skin Care Division employs 2
telemarketers, who focus on alternative care facilities and the home
health care market, and 9 employees in customer service and executive
management.
<PAGE>
The Company's products are primarily sold through a network of
distributors. Three of the Company's largest distributors in the
hospital market are McKesson General/Medical("McKesson), Owens & Minor
and Bergen Brunswig. During fiscal 1996, 1997 and 1998, sales of wound
and skin care products to McKesson represented 9%, 12%, and 11%,
respectively, of the Company's total net sales. Sales to Owens & Minor
represented 11%, 11%, and 10%, respectively, of total net sales during
the same periods. Sales to Bergen Brunswig represented 12%, 9%, and 5%,
respectively, of total net sales during the same periods.
The Company currently has 20 distribution and licensing agreements for
the promotion and sale of its products. In November 1995, the Company
signed a Sales Distribution Agreement with Laboratorios PiSA S.A. de
C.V., a Mexican corporation, for the exclusive distribution rights to
sell the Company's wound care products in Mexico, Guatemala, Nicaragua,
Panama, El Salvador and the Dominican Republic for a period of five
years. On May 15, 1998, the Sales Distribution Agreement was amended to
delete the Dominican Republic from the territories covered by the
agreement.
In May 1996, the Company entered into an agreement with Trudell Medical
Group ("Trudell) granting Trudell exclusive Canadian distribution rights
for the Company's wound care products. This agreement was canceled by
the Company on March 3, 1999 due to non-performance by Trudell. The
Company now sells into the Canadian market on a non-exclusive basis.
In May 1996, the Company granted Ching Hwa Pharmaceutical Company, Ltd.
("CHP"), exclusive distribution rights to market the Company's wound care
products in the Republic of China (Taiwan). CHP was required to register
the Company's products for sale in Taiwan within a specified time and
failed to do so. The Company has not yet taken action regarding this
failure to comply with the terms of the agreement.
In September 3, 1996, the Company signed an exclusive contract with
Faulding Pharmaceuticals to market the Company's wound care products in
Australia and New Zealand. On January 12, 1998, Faulding and Carrington
executed Amendment Number One to the existing Distribution Agreement
between the parties. This Amendment adds the following countries to the
territories covered under that Agreement: Thailand, Vietnam, Singapore,
the Philippines, Malaysia and Myanmar. Pursuant to the Amendment,
products are being shipped on order.
In December 1996, the Company entered into an agreement with Suco
International Corp. ("Suco") whereby the Company appointed Suco as
exclusive distributor of certain of the Company's products in Haiti,
Columbia, Venezuela, Uruguay, Bolivia, Peru, Paraguay, and Ecuador for a
five-year term, subject to early termination under certain circumstances.
The agreement requires Suco to register the products covered by the
agreement in each of those countries. On May 15, 1998, the agreement was
amended to include the Dominican Republic as a territory and to extend
the agreement's term for an additional two (2) years.
<PAGE>
In December 1996, the Company and Darrow Laboratories S/A ("Darrow")
entered into a Sales Distribution Agreement whereby the Company appointed
Darrow as a marketer and distributor of certain of the Company's wound
care products for a term of 10 years (subject to early termination under
certain circumstances) in Brazil, with a limited right of first refusal
to distribute those products in Argentina, Uruguay, Paraguay, and Chile.
The agreement requires Darrow to register in the Company's name such of
the Company's products as the Company directs, at the Company's expense,
in Brazil and each other country where Darrow is authorized to distribute
such products. As of December 31, 1998, these registrations were still
pending completion.
In December 1996, the Company and its Belgian subsidiary entered into an
agreement with Recordati Industria Chimica & Farmaceutica S.P.A.
("Recordati") whereby the Company and its subsidiary jointly granted
exclusive distribution rights to Recordati for certain of the Company's
products in Italy, Vatican City and San Marino for a term of 10 years,
subject to automatic renewal for an additional two years unless either
party elects to terminate the agreement at the end of the initial term,
and subject to early termination under certain circumstances. In return
for the grant of the distribution rights, Recordati made two initial
payments to the Company, the first when the agreement was signed and the
second when the products to be sold were registered, and is obligated to
make an additional payment contingent on the occurrence of certain
events. Under the agreement, the Company applied for, and was granted in
February 1998, the CE mark, a quality certification recognized by members
of the European Economic Community and certain other countries.
In January 1998, the Company signed a Sales Distribution Agreement with
Henry Schein UK Holdings, LTD. ("Schein"), a British company, for the
exclusive distribution rights to sell The Carrington[R] Patch in the
United Kingdom and Ireland for a period of ten years. Schein markets the
product under the name UlcerEze[TM].
In January 1998, the Company signed a Sales Distribution Agreement with
Saude 2000 ("Saude"), a Portuguese company, for the exclusive
distribution rights to sell The Carrington[R] Patch in Portugal for a
period of five years. Saude markets the product under the name
PazAftas[TM]. In June 1998, the Company also signed a letter of intent
granting Saude the exclusive distribution rights to sell the Company's
wound care products, including the DiaB[TM] product line, under the terms
of the initial agreement. Pricing for the wound care products is subject
to negotiation.
In March 1998, the Company signed a Sales Distribution Agreement with
Hemofarm, GmbH, a German company, for the exclusive distribution rights
to sell the Company's wound and skin care products and The Carrington[R]
Patch in Yugoslavia for a period of five years.
In March 1998, the Company signed an Exclusive Sales Distribution
Agreement with Vincula International Trade Company for the exclusive
distribution rights to sell the Company's wound and skin care products
and The Carrington[R] Patch in Oman and Saudi Arabia for a period of five
years, with options for other countries in the Middle East to be
negotiated in the future.
<PAGE>
In April 1998, the Company signed an Agency and Sales Distribution
Agreement with Egyptian American Medical Industries, Inc. for the
exclusive distribution rights to sell the Company's wound and skin care
products and The Carrington[R] Patch in Egypt for a period of five years.
In April 1998, the Company signed a Sales Distribution Agreement with
CSC Pharmaceuticals, LTD., an Austrian company, for the exclusive
distribution rights to sell the Company's DiaB[TM], RadiaCare[TM] and
CarraKlenz[TM] products in Austria, Croatia, Hungry, Czech Republic,
Slovak Republic, Romania, Bulgaria, Slovenia and Poland for a period of
ten years.
In 1998, total international sales were $1,260,000 of which $584,000 were
related to the above mentioned international agreements. The Company
presently estimates the expected sales associated with these agreements
in 1999 to be between $800,000 and $1,200,000.
The Company also markets "Acemannan Immunostimulant", a vaccine adjuvant,
and several wound and skin care products to the veterinary market.
Acemannan Immunostimulant was conditionally approved by the United States
Department of Agriculture ("USDA") in November 1991, for use as an aid in
the treatment of canine and feline fibrosarcoma, a form of soft tissue
cancer that affects dogs and cats. A conditional approval means that
efficacy and potency tests are required, and the product's label must
specify that these studies are in progress. The "conditional" aspect of
the approval is renewed on an annual basis and will be removed upon
completion and acceptance by the USDA of additional potency testing.
However, there can be no assurance that these tests will result in the
removal of the conditional restriction on the USDA's approval of
Acemannan Immunostimulant.
In September 1990, the Company granted Solvay Animal Health, Inc.
("Solvay") an exclusive, worldwide license to use and sell a bulk
pharmaceutical mannan adjuvant for poultry disease. In January 1992,
Solvay received approval from the USDA to market the bulk pharmaceutical
mannan as an adjuvant to a vaccine for Marek's disease, a virus infection
that kills chickens or renders them unfit for human consumption. On
March 1, 1997, Fort Dodge Animal Health("Fort Dodge), a division of
American Home Products Corporation, acquired the business and assets of
Solvay, including the License Agreement dated September 20, 1990 and an
Addendum thereto between Carrington and Solvay granting Solvay an
exclusive world-wide field of use license to use and sell acemannan as a
component/adjuvant to enhance the performance of poultry vaccines. Fort
Dodge notified Carrington in the summer of 1997 that, as successor in
interest to Solvay, it intended to terminate the License Agreement. This
agreement was terminated effective February 1, 1999. All sales of this
product are now on a non-exclusive basis.
In March 1996, the Company signed an agreement with Farnam Companies,
Inc., a leading veterinary marketing company, to promote and sell the
CarraVet[R] product line, including Acemannan Immunostimulant. The
CarraVet[R] product line currently consists of eight products.
<PAGE>
Consumer Health
Caraloe, Inc., a subsidiary of the Company ("Caraloe"), markets or
licenses consumer products and bulk ingredients utilizing the Company's
patented complex carbohydrate technology. Attention has been focused on
three goals, the first of which is to sell Caraloe's (Manapol[R] Powder),
a speciality raw material, to manufacturers who desire quality complex
carbohydrate ingredients for their finished products. The second goal is
to develop the contract manufacturing business by providing high quality
products for nutritional and skin care markets, and the third is to
expand Caraloe's Manapol[R] Powder franchise and establish it as a
leading brand in the health food market.
In February 1996, Caraloe signed an agreement with Mannatech, Inc.
("Mannatech") granting it an exclusive license in the United States for
Manapol[R] Powder. This agreement, including the grant of the exclusive
license, was terminated by Mannatech effective March 31, 1997, and
Caraloe began to market Manapol[R] Powder to third parties as well as use
it in Caraloe's products. In August 1997, Caraloe signed a new,
nonexclusive supply agreement with Mannatech to supply Manapol[R] Powder.
This agreement is effective through July 2000 and contains monthly
minimum purchase requirements. During 1996, 1997 and 1998, sales
of Manapol[R] Powder to Mannatech represented 15%, 15% and 23%,
respectively, of the Company's total consolidated net sales.
In December 1997, Caraloe signed a supply agreement with Met-Trim, Inc.
("Met-Trim"), for the sale of Manapol[R] Powder. The agreement was
terminated on January 11, 1999 due to the failure of Met-Trim to meet
first year minimum requirements. The Company is currently negotiating a
revised sales agreement with Met-Trim.
In October 1996, Caraloe made a $200,000 equity investment in Aloe
Commodities International, Inc. ("ACI"). In February 1997, Caraloe
entered into a Supply Agreement with ACI for a term of 10 years (subject
to early termination under certain circumstances). The agreement
contemplates that ACI will purchase from Caraloe all of certain raw
materials that ACI needs for drinks and other consumer products. In
December 1997, Caraloe made an additional equity investment of $400,000
in ACI. Carrington owns less than 10% of the total outstanding shares of
ACI. See Note Six to the consolidated financial statements in
this Annual Report for additional information regarding the Company's
relationship with ACI, the amount of ACI's indebtedness to the Company,
and the Company's creation of valuation reserves for the amounts of its
equity investment in ACI and the indebtedness owed to it by ACI.
<PAGE>
In February 1997, Caraloe entered into a Supply Agreement with Light
Resources Unlimited ("LRU"), and effective March 1, 1997, Carrington
entered into a related Trademark License Agreement with LRU. The terms
of the Supply Agreement and the Trademark License Agreement end on May
12, 2002, and May 4, 2002, respectively, and the term of each agreement
is subject to early termination under certain circumstances. The Supply
Agreement provides that LRU will purchase from Caraloe annually at least
the minimum quantities of Manapol[R] Powder specified in the agreement.
The Supply Agreement also contemplates that LRU will be Caraloe's sole
distributor of Manapol[R] Powder to natural health care practitioners in
the United States and Canada, subject to Caraloe's right to sell "simple
purchase bulk Product" to natural health care practitioners in quantities
exceeding certain specified limits. The Trademark License Agreement
grants LRU a non-exclusive license to use the trademarks AVMP[R] Powder
and Manapol[R] Powder in connection with the advertising and sale of the
LRU brand (Manapol[R] Gold[TM] Powder) to the targeted group. Sales to
LRU in 1997 under this agreement were $167,000. Sales in 1998 were
$197,000, an increase of 18% over 1997.
In October 1998, Caraloe signed a supply agreement and a trademark
license agreement with One Family, Inc.("One Family"), a direct sales
company with headquarters located in Colorado. One Family will be
marketing Manapol[R] Powder in capsule form. Sales under this agreement
will commence in 1999.
In December 1998, Caraloe signed a supply agreement and trademark license
agreement with Eventus International, Inc. ("Eventus"), the consumer
health subsidiary of BeautiControl. Eventus will market a variety of
products containing Manapol[R] Powder to promote a natural, healthy
lifestyle. The value of the agreement for the first three years based on
projections is approximately $4,900,000.
Research and Development
General
Carrington has developed a proprietary process for purifying a material
that has been designated bulk pharmaceutical mannan ("BPM"). This
material is a natural product mixture which contains a high percentage of
complex carbohydrate. The Company intends to seek approval of the Food
and Drug Administration (the "FDA") and other regulatory agencies to sell
drugs and/or medical devices derived from BPM based materials in the
United States and in foreign countries. For a more comprehensive listing
of the type, indication and status of products currently under
development by the Company, see "Research and Development -- Summary"
below. The regulatory approval process, both domestically and
internationally, can be protracted and expensive, and there is no
assurance that the Company will obtain approval to sell its products for
any treatment or use (see "Governmental Regulation" below).
<PAGE>
The Company expended approximately $5,927,000, $3,006,000, and $2,589,000
on research and development in fiscal 1996, 1997, and 1998, respectively.
The Company has adopted a focused approach to its research and
development efforts. The Company is planning on returning to the clinic
in April 1999 to conduct a Phase III trial in ulcerative colitis, and as
a result, estimates that in fiscal 1999 it will spend approximately
$5,200,000 on research and development. The Company expects to fund its
1999 research and development costs, including the cost of the Phase III
clinical trial, with cash flows from operations.
The Company initiated a program in 1996 which continued through 1998 to
restructure research and development to meet the challenges and demands
for drug development in the 21st century. This entailed establishing a
strong nucleus or infrastructure for chemistry, assay development and
formulation development with outsourcing capabilities for high throughput
drug screening, and preclinical and clinical drug and device development.
This approach allows the Company to maximize its opportunities in a
timely and cost effective manner. Currently, the Company's research
staff comprises ten full-time employees. Dr. Robert A. Fildes, a
director of the Company, has served as part-time, interim Executive Vice
President, Research and Development from October 1, 1997 to the present
time, and Dr. Bill Yates was promoted to Vice President, Research and
Development in January 1999.
Preclinical Research
The Company's main preclinical research and development objective for
1998 was to continue to assess the viability of the ulcerative colitis
program, interact with the FDA and make a decision by mid-year on whether
to proceed to new clinical trials for the indication. Following
extensive preclinical studies, formulation development and evaluation and
interaction with the FDA, the Company made a decision to return to the
clinic with a new dosage form of Aliminase[TM] as a powder for
reconstitution. The Company initiated a new Phase III trial in the first
quarter of 1999, and dosing of patients is scheduled for early April
1999.
Other preclinical studies conducted in the Company's laboratories and in
outside laboratories have shown that certain of the Company's complex
carbohydrates stimulate macrophages and other white blood cells to
produce cytokines, including interleukin-1, interleukin-6, and tumor
necrosis factor alpha which regulate other cells. Interleukin-1
stimulates fibroblasts, which are essential to wound healing. Tumor
necrosis factor alpha acts against tumors in the body. In addition,
laboratory experiments conducted by the Company have shown that some
compounds from Aloe vera L. have pro- or anti-inflammatory actions as
shown in animal models of wound healing and in inflammation of the lung,
colon, joint and ear. The Company believes that its products'
pharmacological actions and lack of toxicity make them excellent
candidates for further development as therapeutic agents for the
treatments and uses for which the Company intends to seek regulatory
approvals. There is no assurance, however, that the Company will be
successful in its efforts.
<PAGE>
The Company sponsors a research and development laboratory at Texas A&M
University in association with the College of Veterinary Medicine to
expand preclinical research in various wound healing applications and
mechanisms of action. Pursuant to this arrangement, the Company has
access to leading authorities in immunology, as well as facilities and
equipment to engage in experimentation and analysis at the basic research
level.
In 1998, the Company completed an animal preclinical wound healing study
in cooperation with the Scott Ritchie Foundation and Auburn University,
evaluating Carrasyn[R] Freeze-Dried Gel (CarraSorb[TM] M) as compared to
saline. The product demonstrated a significant increase in the early
development of granulation tissue, which is an important early step for
wound healing.
Further processed BPM, including CarraVex[TM] injectable (formerly
CARN 750), are immunomodulating agents that increase circulating levels
of interleukin-1 and tumor necrosis factor alpha. A series of animal
studies conducted at Texas A&M University in 1988 and 1989 indicated that
a single intraperitoneal dose caused significant tumor reduction in a
statistically significant percentage of animals with highly malignant
tumors. This effect in many instances was dramatic, with complete
regression of the tumor and with continuing immunity. Recovered animals
were resistant to syngeneic tumor reimplantation for up to six months
after initial tumor regression.
In 1991, the USDA granted the Company conditional approval to market an
injectable form of a complex carbohydrate as an aid to surgery in the
treatment of canine and feline fibrosarcoma, a form of soft tissue
cancer, under the name Acemannan Immunostimulant. The product was
conditionally approved based on safety and efficacy studies. The Company
continues to work on developing a suitable cost effective potency assay
that will meet USDA requirements for the purpose of removal of the
conditional status. A submission was made in November 1998 for this
purpose. Of course, there can be no assurance as to whether or when the
USDA will remove the conditional restriction on its approval of this
product.
An extensive series of animal studies was initiated in 1997 to assess the
direct and adjunct effects of CarraVex[TM] and Acemannan Immunostimulant.
The primary purpose of these studies was to identify a suitable model to
evaluate new product formulations (see Human Studies below). These
studies were completed successfully in 1998, and models have been
identified to assess future drug candidates.
In 1998, a new and unique pectin (complex carbohydrate) was isolated from
the cell walls of the inner gel of Aloe vera L. Basic research is
continuing on this material, and the Company is planning to produce the
product in pilot scale in 1999. The product has near term utility as a
product to be used in wound healing, and other future potential
applications are being explored. Two patent applications covering this
invention were filed in July 1998.
<PAGE>
Human Studies
Evaluation of Aliminase[TM] (formerly CARN 1000) oral capsules in the
Treatment of Ulcerative Colitis. In late 1996, the Company placed on hold
its testing of Aliminase[TM]oral capsules for the treatment of ulcerative
colitis. The Company has reformulated the product into a single unit
dose powder for reconstitution. (See "Preclinical Research" above and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" below.) The Company is initiating a Phase III trial of
the new dosage form, with the treatment of patients to commence in early
April 1999.
Evaluation of CarraVex[TM] injectable (formerly CARN 750) in the
Treatment of Solid Tumors in Humans. In 1993, the Company completed a
Phase I safety study in normal volunteers using CarraVex[TM] which led to
a Phase I clinical trial in disease patients using CarraVex[TM]
injectable in certain solid tumor indications. The trial began in the
United States in late 1995 and continued until mid-1997. Eighteen
patients completed the study, with no safety concerns noted. The product
required filtration at the bedside, which the Company believes is not the
best delivery approach for CarraVex[TM]. A program for improving the
formulation is in progress, and a decision on future clinical trials will
be made once a suitable formulation is developed.
Evaluation of Carrasyn[R] for Radiation-Induced Dermatitis. In 1993, a
study was conducted at M.D. Anderson Cancer Center to determine if
Carrasyn[R] hydrogel was of benefit in treating radiation-induced skin
reactions in an animal model. These studies clearly showed that, when
compared to controls, Carrasyn[R] Hydrogel could significantly reduce
radiation-induced inflammation and tissue damage in animals. As a result
of this work, a small clinical trial was performed in 1994, studying the
radiation-sparing effects of Carrasyn[R] Hydrogel wound dressing in four
oncology patients. These studies led to the development of RadiaCare[TM]
Gel for the management of radiation dermatitis.
In 1996, a study was begun at the Texas Oncology Center of Dallas to
determine if RadiaCare[TM] Gel was of benefit in preventing the
development of radiation dermatitis in humans. The 70-patient study was
designed to evaluate the prevention of radiation dermatitis as compared
to another hydrogel. No statistical difference was noted between the
groups.
Evaluation of Carrasyn[R] Freeze-Dried Gel (CarraSorb[TM] M) in Wound
Healing. Following the submission of a 510(k) pre-market notification for
a preservative-free freeze-dried gel for wound care, the FDA cleared
Carrington to market CarraSorb[TM] M, and it was launched in early 1996.
The Company is sponsoring a small pilot clinical study at the University
of Wales to evaluate the effect of CarraSorb[TM] M on wound macrophages.
The results of this study should be known in 1999.
Evaluation of RadiaCare[TM] Oral Wound Rinse. In March 1997, the FDA
cleared Carrington to market RadiaCare[TM] Oral Wound Rinse for the
management and relief of pain associated with mucositis and all types of
oral wounds. The Company is sponsoring individual case studies and co-
sponsoring a pilot study of 50 patients in a placebo-controlled, double-
blind trial in radiation-induced mucositis. Results will be known in
1999.
<PAGE>
Summary. The following table outlines the status of the products and
potential indications of the Company's aloe-based products developed,
planned or under development. There is no assurance of successful
development, completion or regulatory approval of any product not yet on
the market.
<TABLE>
PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED,
PLANNED OR UNDER DEVELOPMENT
PRODUCT OR POTENTIAL
POTENTIAL INDICATION MARKET APPLICATIONS STATUS
-------------------- ------------------- ------
<S> <C> <C>
Topical
Dressings Pressure and Vascular Marketed
Ulcers
Cleansers Wounds Marketed
Anti-fungal Cutaneous Fungal Infection Marketed
Hydrocolloids Wounds Marketed
Alginates Wounds Marketed
Oral
Human
Anti-inflammatory Ulcerative Colitis Phase III
Pain Reduction Mucositis Marketed
Dental
Pain Reduction Aphthous Ulcers, Oral Marketed
Wounds
Injectable
Human
Adjunct for cancer Melanoma, Breast, Prostate, New
Colon, Hypernephroma, and Formulation
Soft Tissue Sarcoma Required
Neutropenia Neutropenia associated with Preclinical
cancer and
Formulation
Development
Veterinary
Adjunct for cancer Fibrosarcoma Marketed
Vaccine Adjuvant
Veterinary
Poultry Vaccines Marek's Disease Marketed
</TABLE>
<PAGE>
Licensing Strategy
The Company expects that prescription pharmaceutical products containing
certain defined drug substances will require a substantial degree of
development effort and expense. Before governmental approval to market
any such product is obtained, the Company may license these products for
certain indications to other pharmaceutical companies in the United
States or foreign countries and require such licensees to undertake the
steps necessary to obtain marketing approval for specific indications or
in a particular country.
Similarly, the Company intends to license third parties to market
products containing defined chemical entities for certain human
indications when it lacks the expertise or financial resources to market
effectively. If the Company is unable to enter into such agreements, it
may undertake to market the products itself for such indications. The
Company's ability to market these products for specific indications will
depend largely on its financial condition at the time and the results of
related clinical trials. There is no assurance that the Company will be
able to enter into any license agreements with third parties or that, if
such license agreements are concluded, they will contribute to the
Company's overall profits.
Raw Materials and Processing
The principal raw material used by the Company in its operations is the
leaf of the plant Aloe barbadensis Miller, popularly known as Aloe vera
L. Through patented processes, the Company produces bulk pharmaceutical
and injectable mannans and freeze-dried aloe extract from the central
portion of the Aloe vera L leaf known as the gel. A basic bulk
pharmaceutical mannan, (Acemannan) in the form of a hydrogel, is used as
an ingredient in certain of the Company's wound and skin care products.
Through additional processing, bulk mannans may be produced in both oral
and injectable dosage forms.
In May 1990, the Company purchased a 405-acre farm in the Guanacaste
province of northwest Costa Rica which currently has approximately 125
acres planted with Aloe vera. The Company's current need for leaves
exceeds the supply of harvestable leaves from the Company's farm,
requiring the purchase of leaves from other sources in Central and South
America at considerably higher prices. Additional quantities of
harvestable leaves from the Company's farm will become available in the
second quarter of 1999, but will not completely eliminate the Company's
dependence on other sources of leaves. Due to economic and political
instability in the Central American region, the supply of imported leaves
cannot be guaranteed. A 10% increase in Aloe vera leaf prices from other
sources would result in a $162,000 decrease in gross profit. The
Company's sensitivity analysis of the effects of changes in leaf prices
does not factor in a potential change in sales levels or a change in the
percentage of leaves purchased from other sources. The Company has
been exploring other options to obtain leaves to meet its projected
requirements at lower costs.
<PAGE>
In May 1998, Aloe and Herbs International, Inc., a Panamanian corporation
("Aloe & Herbs"), was formed for the purpose of purchasing 5,000 acres of
land in Costa Rica and establishing an Aloe vera farm. The Company
received 1.5 million shares of Aloe & Herbs common stock for agreeing to
make certain loans to Aloe & Herbs, arranging for Aloe vera plants to be
supplied to the farm and providing know-how in farming Aloe vera plants.
Aloe & Herbs formed a Costa Rican subsidiary, Rancho Aloe (C.R.), S.A.
("Rancho Aloe"), which owns and operates the farm. The Company purchased
the initial plants for the farm on behalf of Rancho Aloe in exchange for
unsecured notes and accounts receivable.
In March 1998, prior to the incorporation of Aloe & Herbs, the Company's
Caraloe subsidiary signed a letter of intent with one of the organizers
of Aloe & Herbs to enter into a supply agreement with Aloe & Herbs to
purchase, at mutually agreeable, locally competitive prices, all of the
Aloe vera leaves that Caraloe needs, to the extent its needs exceed the
leaves available from the Company's farm plus up to 200,000 kilograms of
leaves per month from another local source. At the date of this report,
no such supply agreement has been negotiated or entered into, but in
March 1999, the Company began receiving approximately eight percent of
its monthly requirements of leaves from Rancho Aloe. However, Rancho
Aloe is not expected to be able to harvest and supply significant
quantities of leaves for another one to two years. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-- Liquidity and Capital Resources" and Note Six to the consolidated
financial statements for further information regarding the Company's
relationship with Aloe & Herbs.
Manufacturing
During the last quarter of 1994 and the first three quarters of 1995, the
Company moved its wound-and skin-care product manufacturing operations
from a leased facility in Dallas, Texas to the Company's headquarters in
Irving, Texas. In connection with this move, the Company upgraded and
expanded its manufacturing capacity by installing higher capacity
equipment and upgraded its capabilities to produce injectable-grade
pharmaceutical products. The Company believes that the plant's capacity
will provide sufficient capacity for the present line of products and
accommodate new products and sales growth. Final packaging of certain of
the Company's wound care products is completed by outside vendors. The
Company's calcium alginates, films, hydrocolloids, foam dressings, gel
sheets, tablets, capsules, and freeze-dried products are being provided
by third parties. In 1998 the Company engaged Elemco, a consulting firm,
to review and modernize the Company's manufacturing and quality control
processes and make recommendations for process improvements.
All of the Company's bulk pharmaceutical mannans, bulk injectable mannans
and freeze-dried Aloe vera L extracts are produced in its processing
plant in Costa Rica. This facility has the ability to supply the bulk
aloe raw materials requirements of the Company's current product lines
and bulk material contracts for the foreseeable future. Finished oral
and injectable dosage forms will be produced by outside vendors until in-
house production becomes economically justified.
<PAGE>
Competition
Research and Development. The biopharmaceutical field is expected
to continue to undergo rapid and significant technological change.
Potential competitors in the United States are numerous and include
pharmaceutical, chemical and biotechnology companies. Many of these
companies have substantially greater capital resources, research and
development staffs, facilities and expertise (in areas including research
and development, manufacturing, testing, obtaining regulatory approvals
and marketing) than the Company. This competition can be expected to
become more intense as commercial applications for biotechnology and
pharmaceutical products increase. Some of these companies may be better
able than the Company to develop, refine, manufacture and market products
which have application to the same indications as bulk pharmaceutical
mannans and bulk injectable mannans. The Company understands that
certain of these competitors are in the process of conducting human
clinical trials of, or have filed applications with government agencies
for approval to market, certain products that will compete with the
Company's products both in its present wound care market and in markets
associated with products the Company currently has under development.
Wound and Skin Care Division and Caraloe, Inc. The Company competes
against many companies that sell products which are competitive with the
Company's products, with many of its competitors using very aggressive
marketing efforts. Many of the Company's competitors are substantially
larger than the Company in terms of sales and distribution networks and
have substantially greater financial and other resources. The Company's
ability to compete against these companies will depend in part on the
expansion of the marketing network for its products. The Company
believes that the principal competitive factors in the marketing of its
products is their quality, and that they are naturally based and
competitively priced. In 1998 the Company began a marketing study to
evaluate ways to clearly separate its products from the perception of a
regular Aloe company. The results of this study should be known in 1999.
Governmental Regulation
The production and marketing of the Company's products, and the Company's
research and development activities, are subject to regulation for
safety, efficacy and quality by numerous governmental authorities in the
United States and other countries. In the United States, drugs for human
use are subject to rigorous FDA regulation. The Federal Food, Drug and
Cosmetic Act, as amended, the regulations promulgated thereunder, and
other federal and state statutes and regulations govern, among other
things, the testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of the
Company's products. For marketing outside the United States, the Company
is subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs and devices. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement may vary widely from country to country.
<PAGE>
Food and Drug Administration. The contents, labeling and advertising of
many of the Company's products are regulated by the FDA. The Company is
required to obtain FDA approval before it can study or market any
proposed prescription drugs and may be required to obtain such approval
for proposed nonprescription products. This procedure involves extensive
clinical research, and separate FDA approvals are required at various
stages of product development. The approval process requires, among
other things, presentation of substantial evidence to the FDA, based on
clinical studies, as to the safety and efficacy of the proposed product.
In order to initiate human clinical trials on a product, extensive basic
research and development information must be submitted to the FDA in an
investigational new drug ("IND") application. The IND application
contains a general investigational plan, a copy of the investigator's
brochure (a comprehensive document provided by the drug manufacturer),
copies of the initial protocol for the first study, a review of
the chemistry, manufacturing and controls information for the drug,
pharmacology and toxicology information, any previous human experience
with the drug, results of preclinical studies and any other information
requested by the FDA.
If permission is obtained to proceed to clinical trials based on the IND
application, initial trials, usually categorized as Phase I, are
instituted. The initial or Phase I trials typically involve the
administration of small, increasing doses of the investigational drug to
healthy volunteers, and sometimes patients, in order to determine the
general overall safety profile of the drug and how it is metabolized.
Once the safety of the drug has been established, Phase II efficacy
trials are conducted in which the expected therapeutic doses of the drug
are administered to patients having the disease for which the drug is
indicated, and a therapeutic response is sought as compared to the
expected progression of the underlying disease or compared to a
competitive product or placebo. Information also is sought on any
possible short-term side effects of the drug.
If efficacy and safety are observed in the Phase II trials, Phase III
trials (usually two trials) are undertaken on an expanded group in which
the patients receiving the drug are compared to a different group
receiving either a placebo or some form of accepted therapy in order to
establish the relative safety and efficacy of the new drug compared with
the control group. Data are also collected to provide an adequate basis
for future physician prescribing information.
If Phases I through III are successfully completed, the data from these
trials are compiled into a new drug application ("NDA"), which is filed
with the FDA in an effort to obtain marketing approval. In general, an
NDA will include a summary of the components of the IND application, a
clinical data section reviewing in detail the studies from Phases I
through III and the proposed description of the benefits, risks and uses,
or labeling, of the drug, and how both the drug substance and drug
product will be manufactured and controlled.
<PAGE>
In general, a more comprehensive NDA and a more prolonged review process
are required for drugs not previously approved for marketing by the FDA.
If a second indication for an already approved product is sought, since
many of the components of the review process are the same, a shortened
review process generally can be anticipated. However, the FDA gives high
priority to novel drugs providing unique therapeutic benefits and
a correspondingly lower priority to drugs similar to or providing
comparable benefits to others already on the market.
In addition to submitting safety and efficacy data derived from clinical
trials for FDA approval, NDA approval requires the manufacturer of the
drug to demonstrate the identity, potency, quality and purity of the
active ingredients of the product involved, the stability of these
ingredients and compliance of the manufacturing facilities, processes and
quality control with the FDA's current Good Manufacturing Practices
regulations. After approval, manufacturers must continue to expend time,
money and effort in production and quality control to assure continual
compliance with the current Good Manufacturing Practices regulations.
Also, under the new program for harmonization between Europe and the U.S.
and the ISO 9001 Certification Program, a company can, under certain
circumstances after application, have a new drug approved under a process
known as centralization rather than having to go through a country-by-
country approval in the European Union.
Certain of the Company's wound and skin care products are registered with
the FDA as "devices" pursuant to the regulations under Section 510(k) of
the Federal Food, Drug and Cosmetic Act, as amended. A device is a
product used for a particular medical purpose, such as to cover a wound,
with respect to which no pharmacological claim can be made. A device
which is "substantially equivalent" to another device existing in the
market prior to May 1976 can be registered with the FDA under Section
510(k) and marketed without further testing. A device which is not
"substantially equivalent" is subject to an FDA approval process similar
to that required for a new drug, beginning with an Investigational Device
Exemption and culminating in a Premarket Approval. The Company has
sought and obtained all its device approvals under Section 510(k). With
respect to certain of its wound and skin care products, the Company
intends to develop claims for which IND and NDA submissions will be
required. The Company currently markets seven (7) products which require
a prescription as medical devices.
Department of Agriculture. Certain products being developed by the
Company for animal health indications must be approved by the USDA. The
procedure involves extensive clinical research, and USDA approvals are
required at various stages of product development. The approval process
requires, among other things, presentation of substantial evidence to the
USDA as to the safety and efficacy of the proposed product. Furthermore,
even if approval to test a product is obtained, there is no assurance
that ultimate approval for marketing the product will be granted. USDA
approval procedures can be protracted.
Other Regulatory Authorities. The Company's advertising and sales
practices are subject to regulation by the Federal Trade Commission (the
"FTC"), the FDA and state agencies. The Company's processing and
manufacturing plants are subject to federal, state and foreign laws and
to regulation by the Bureau of Alcohol, Tobacco and Firearms of the
Department of the Treasury and by the Environmental Protection Agency
(the "EPA"), as well as the FDA.
<PAGE>
The Company believes that it is in substantial compliance with all
applicable laws and regulations relating to its operations, but there is
no assurance that such laws and regulations will not be changed. Any
such change may have a material adverse effect on the Company's
operations.
The manufacturing, processing, formulating, packaging, labeling and
advertising of products of the Company's subsidiary, Caraloe, are also
subject to regulation by one or more federal agencies, including the FDA,
the FTC, the USDA and the EPA. These activities are also regulated by
various agencies of the states, localities and foreign countries to which
Caraloe's products are distributed and in which Caraloe's products are
sold. The FDA, in particular, regulates the formulation, manufacture and
labeling of vitamin and other nutritional supplements.
On October 25, 1994, the President signed into law the Dietary Supplement
Health and Education Act of 1994 ("DSHEA"). This new law revised the
provisions of the Federal Food, Drug, and Cosmetic Act (the "FFDC Act")
concerning the composition and labeling of dietary supplements and, in
the judgement of the Company, is favorable to the dietary supplement
industry. The legislation created a new statutory class of "dietary
supplement." This new class includes vitamins, minerals, herbs, amino
acids and other dietary substances for human use to supplement the diet,
and the legislation grandfathers, with certain limitations, dietary
ingredients on the market before October 15, 1994. A dietary supplement
which contains a new dietary ingredient, one not on market before October
15, 1994, will require evidence of a history of use or other evidence of
safety establishing that it will reasonably be expected to be safe. The
majority of the products marketed by Caraloe are classified as dietary
supplements under the FFDC Act.
Both foods and dietary supplements are subject to the Nutrition Labeling
and Education Act of 1990 (the "NLEA"), which prohibits the use of any
health claim for foods, including dietary supplements, unless the health
claim is supported by significant scientific agreement and is either
pre-approved by the FDA or the subject of substantial government
scientific publications and a notification to the FDA. To date, the FDA
has approved the use of only limited health claims for dietary
supplements. However, among other things, the DSHEA amends, for dietary
supplements, the NLEA by providing that "statements of nutritional
support" may be used in labeling for dietary supplements without FDA
preapproval if certain requirements, including prominent disclosure on
the label of the lack of FDA review of the relevant statement, possession
by the marketer of substantiating evidence for the statement and post-use
notification to the FDA, are met. Such statements may describe how
particular nutritional supplements affect the structure, function or
general well-being of the body (e.g., "promotes your cardiovascular
health").
The FDA issued final dietary supplement labeling regulations in 1997 that
required Caraloe to revise most of its product labels by 1999, and
Caraloe completed the revisions required for compliance with these
regulations in January 1999. In compliance with these regulations,
Caraloe maintains supporting documentation on file for its "statement of
nutritional support".
<PAGE>
Advertising and label claims for dietary supplements and conventional
foods have been regulated by state and federal authorities under a number
of disparate regulatory schemes. There can be no assurance that a state
will not interpret claims presumptively valid under federal law as
illegal under that state's regulations, or that future FDA regulations or
FTC decisions will not restrict the permissible scope of such claims.
Governmental regulations in foreign countries where Caraloe plans to
commence or expand sales may prevent or delay entry into the market or
prevent or delay the introduction, or require the reformulation, of
certain of Caraloe's products. Compliance with such foreign governmental
regulations is generally the responsibility of Caraloe's distributors for
those countries. These distributors are independent contractors over
whom the Company has limited control.
As a result of Caraloe's efforts to comply with applicable statutes and
regulations, Caraloe has from time to time reformulated, eliminated or
relabeled certain of its products and revised certain provisions of its
sales and marketing program. Caraloe cannot predict the nature of any
future laws, regulations, interpretations or applications, nor can it
determine what effect additional governmental regulations or
administrative orders, when and if promulgated, would have on its
business in the future. They could, however, require the reformulation
of certain products to meet new standards, the recall or discontinuance
of certain products not capable of reformulating, additional record
keeping, expanded documentation of the properties of certain products,
expanded or different labeling, and/or scientific substantiation. Any or
all of such requirements could have a material adverse effect on the
Company's results of operations and financial condition.
Compliance with the provisions of national, state and local environmental
laws and regulations has not had a material adverse effect upon
the capital expenditures, earnings, financial position, liquidity or
competitive position of the Company. See also "Business -- Legal
Matters" and "-- Regulatory Matters."
Patents and Proprietary Rights
As is industry practice, the Company has a policy of using patents,
trademarks and trade secrets to protect the results of its research and
development activities and, to the extent it may be necessary or
advisable, to exclude others from appropriating the Company's proprietary
technology. The Company's policy is to protect aggressively its
proprietary technology by seeking and enforcing patents in a worldwide
program.
<PAGE>
The Company has obtained patents or filed patent applications in the
United States and approximately 26 other countries in three series
regarding the compositions of acetylated mannan derivatives, the
processes by which they are produced and the methods of their use. The
first series of patent applications, relating to the compositions of
acetylated mannan derivatives and certain basic processes of their
production, was filed in a chain of United States patent applications and
its counterparts in the other 26 countries. The first United States
patent application in this first series, covering the composition claims
of acetylated mannan derivatives, matured into United States Patent
No. 4,735,935 (the "935 Patent"), which was issued on April 5, 1988.
United States Patent No. 4,917,890 (the "890 Patent") was issued on
April 17, 1990 from a divisional application to the 935 Patent. This
divisional application pertains to most of the remaining claims in the
original application not covered by the 935 Patent. The 890 Patent
generally relates to the basic processes of producing acetylated mannan
derivatives, to certain specific examples of such processes and to
certain formulations of acetylated mannan derivatives. Two other
divisional applications covering the remaining claims not covered by the
890 Patent matured into patents, the first on September 25, 1990, as
United States Patent No. 4,959,214, and the second on October 30, 1990,
as United States Patent No. 4,966,892. Foreign patents that are
counterparts to the foregoing United States patents have been granted in
some of the member states of the European Economic Community and several
other countries.
The second series of patent applications related to preferred processes
for the production of acetylated mannan derivatives. One of them matured
into United States Patent No. 4,851,224, which was issued on July 25,
1989. This patent is the subject of a Patent Cooperation Treaty
application and national foreign applications in several countries. An
additional United States patent based on the second series was issued on
September 18, 1990, as United States Patent No. 4,957,907.
The third series of patent applications, relating to the uses of
acetylated mannan derivatives, was filed subsequent to the second series.
Three of them matured into United States Patent Nos. 5,106,616, issued on
April 21, 1992, 5,118,673, issued on June 2, 1992, and 5,308,838, issued
on May 3, 1994. The Company has filed a number of divisional
applications to these patents, each dealing with specific uses of
acetylated mannan derivatives. Patent Cooperation Treaty applications
based on the parent United States applications have been filed
designating a number of foreign countries where the applications are
pending. In addition, the Company has also obtained a patent in the
United States relating to a wound cleanser, U.S. Patent No. 5,284,833,
issued on February 8, 1994.
The Company has obtained a patent in the United States relating to a
therapeutic device made from freeze-dried complex carbohydrate hydrogel
(U.S. Patent No. 5,409,703 issued on April 25, 1995). A Patent Treaty
application based on the parent United States application has been filed
designating a number of foreign countries where the applications are
pending.
<PAGE>
The Company has obtained a patent in the United States (U.S. Patent No.
5,760,102, issued on June 2, 1998) and in Taiwan related to the uses of a
denture adhesive (Taiwan Patent No. 89390 issued on August 21, 1997) and
also a patent in the United States relating to methods for the prevention
and treatment of infections in animals (U.S. Patent No. 5,703,060 issued
on December 30, 1997).
Three additional patents concerning various areas of interest were issued
in 1998.
The Company has filed and intends to file patent applications with
respect to subsequent developments and improvements when it believes such
protection is in the best interest of the Company. Although the scope of
protection which ultimately may be afforded by the patents and patent
applications of the Company is difficult to quantify, the Company
believes its patents will afford adequate protection to conduct the
business operations of the Company. However, there can be no assurance
that (i) any additional patents will be issued to the Company in any or
all appropriate jurisdictions, (ii) litigation will not be commenced
seeking to challenge the Company's patent protection or such challenges
will not be successful, (iii) processes or products of the Company do not
or will not infringe upon the patents of third parties or (iv) the scope
of patents issued to the Company will successfully prevent third parties
from developing similar and competitive products. It is not possible to
predict how any patent litigation will affect the Company's efforts to
develop, manufacture or market its products.
The Company also relies upon, and intends to continue to rely upon, trade
secrets, unpatented proprietary know-how and continuing technological
innovation to develop and maintain its competitive position. The Company
typically enters into confidentiality agreements with its scientific
consultants, and the Company's key employees have entered into agreements
with the Company requiring that they forbear from disclosing confidential
information of the Company and assign to the Company all rights in any
inventions made while in the Company's employ relating to the Company's
activities. Accordingly, the Company believes that its valuable trade
secrets and unpatented proprietary know-how are adequately protected.
The technology applicable to the Company's products is developing
rapidly. A substantial number of patents have been issued to other
biopharmaceutical companies. In addition, competitors have filed
applications for, or have been issued, patents and may obtain additional
patents and proprietary rights relating to products or processes
competitive with those of the Company. To the Company's knowledge,
acetylated mannan derivatives do not infringe any valid, enforceable,
United States patents. A number of patents have been issued to others
with respect to various extracts of the Aloe vera L plant and their uses
and formulations, particularly in respect to skin care and cosmetic uses.
While the Company is not aware of any existing patents which conflict
with its current and planned business activities, there can be no
assurance that holders of such other Aloe vera L.-based patents will not
claim that particular formulations and uses of acetylated mannan
derivatives in combination with other ingredients or compounds infringe,
in some respect, on these other patents. In addition, others may have
filed patent applications and may have been issued patents relating to
products and technologies potentially useful to the Company or necessary
to commercialize its products or achieve their business goals. There is
no assurance that the Company will be able to obtain licenses of such
patents on acceptable terms.
<PAGE>
The Company has given the trade name Carrasyn[R] to certain of its
products containing acetylated mannans. The Company has filed a selected
series of domestic and foreign trademark applications for the marks
Manapol[R] Powder, Carrisyn[R] and Carrasyn[R]. Further, the Company has
registered the trademark AVMP[R] Powder and the trade name Carrington[R]
in the United States. The Company believes that its trademarks and trade
names are valuable assets.
Employees
As of March 5, 1999, the Company employed 313 persons, of whom 21 were
engaged in the operation and maintenance of its Irving, Texas processing
plant, 201 were employed at the Company's facility in Costa Rica and the
remainder were executive, research, quality assurance, manufacturing,
administrative, sales, and clerical personnel. Of the total number of
employees, 89 were located in Texas, 201 in Costa Rica and one in Puerto
Rico. In addition, 22 sales personnel were located in 14 other states.
The Company considers relations with its employees to be good. The
employees are not represented by a labor union.
Financing
In November 1997, the Company entered into a financing arrangement with
Comerica Bank-Texas ("Comerica"). The agreement was composed of a
$3,000,000 line of credit structured as a demand note without expiration
with an interest rate equal to the Comerica prime rate. The line of
credit is collateralized by the Company's accounts receivable and
inventory. This credit facility will be used for operating needs, as
required, and is currently being used to secure a letter of credit in the
amount of $1,250,000. As of December 31, 1998, there was no outstanding
balance owed to Comerica under the terms of the financing agreement. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" for information
regarding a supply agreement between the Company and its supplier of
freeze-dried products that obligates the Company to purchase more of such
products than it is currently able to sell.
Year 2000 Issues
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Issues" for information regarding the
Company's efforts to assess, and to deal with the effects of, problems
that may affect the Company as a result of the types of Year 2000 issues
described in that discussion.
<PAGE>
ITEM 2. PROPERTIES.
The Company believes that all its farming property, manufacturing
and laboratory facilities, as described below, and material farm,
manufacturing and laboratory equipment are in satisfactory condition and
are adequate for the purposes for which they are used, although the farm
is not adequate to supply all of the Company's needs for Aloe vera
leaves. (See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more information regarding the
Company's arrangements to purchase Aloe vera leaves.)
Walnut Hill Facility. The Company's corporate headquarters and principal
U.S. manufacturing facility occupy all of the 35,000 square foot office
and manufacturing building (the "Walnut Hill Facility"), which is
situated on an approximately 6.6 acre tract of land located in the Las
Colinas area of Irving, Texas. The Company owns the land and the
building. The manufacturing operations occupy approximately 19,000
square feet of the facility, and administrative offices occupy
approximately 16,000 square feet.
Laboratory Facility. The Company leases 24,000 square feet of office,
manufacturing and laboratory space (the "Laboratory Facility") in Irving,
Texas pursuant to a lease that expires in January 2000. The Company's
in-house research and development and quality assurance activities are
conducted at the Laboratory Facility for the production of injectable
dosage forms of Acemannan Immunostimulant. The Company is currently
evaluating whether to extend the lease or move into alternative
facilities.
Warehouse and Distribution Facility. Since September 1994, the Company's
warehouse and distribution center has been located in a 35,050 square
foot facility that the Company leases in Irving, Texas, near the
Walnut Hill Facility. The warehouse and distribution center occupies
approximately 27,000 square feet of the leased facility, and the
remaining space is used for offices. The lease expires in October 2001.
Costa Rica Facility. The Company owns approximately 405 acres of land in
the Guanacaste province of northwest Costa Rica. This land is being used
for the farming of Aloe vera plants and for a processing plant to produce
bulk pharmaceutical and injectable mannans and freeze-dried extracts from
Aloe vera used in the Company's operations. Construction of the
processing plant was completed during the second quarter of 1993, and the
plant became operational in June 1993. In 1994, the Company upgraded the
production plant to meet regulatory requirements for the production of
bulk pharmaceutical oral and injectable mannans as required for IND's.
This project was completed in the fourth quarter of 1994. In order to
meet demand for new products, a new compounding area and hi-speed filling
line were constructed as an addition to the Costa Rica facility during
1998. Also, other new equipment was installed in January 1999 to refine
the BPM manufacturing process.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In November 1997, the Company received a letter from the Texas Department
of Licensing and Regulation (the "TDLR") alleging that the Company's
Walnut Hill Facility in Irving, Texas had been inspected and found in
non-compliance with provisions of the Texas Architectural Barriers Act
(the "Act") and regulations issued thereunder. The Act and the related
regulations contain design requirements to ensure that disabled persons
can make use of public facilities. An inspection report describing the
alleged deficiencies was enclosed with the letter. The letter stated
that the Walnut Hill Facility was required to be brought into compliance
and written verification furnished to the TDLR within 30 days, and that
the Company should contact the TDLR if compliance could not be
accomplished within that time. The letter also stated that failure to
respond to the letter would result in the matter being referred
to the TDLR's Enforcement Division, which could result in a maximum
administrative penalty of $1,000 per violation per day.
The Company subsequently took a number of steps to correct the alleged
deficiencies, obtained extensions for completing the necessary work, and
kept the TDLR informed, orally and in writing, of its plans and its
progress. In June 1998, the Company sent the TDLR a letter describing
the work it had done and proposed to do and explaining why it was not
feasible to correct certain of the alleged deficiencies. Although the
Company expected that the work it proposed to do would be completed by
September 30, 1998, delays in receiving some of the necessary materials
prevented the completion of some of the work by that date. In October
1998, after the Company informed the TDLR that some of the alleged
deficiencies had been corrected, the TDLR sent the Company a letter
listing the remaining alleged deficiencies and informing the Company that
its proposal not to correct certain alleged deficiencies would be treated
as an enforcement issue after all of the work proposed to be done was
completed. By letter dated December 30, 1998, the Company informed the
TDLR that it had completed the remaining work that it had previously said
it would complete. The Company has received no communications from the
TDLR since the date of that letter. As far as the Company is aware, the
TDLR has not turned this matter over to its Enforcement Division or made
any claims for penalties to date.
On January 7, 1999 Parnell Pharmaceuticals, Inc., ("Parnell") a
California corporation, filed a lawsuit styled Parnell Pharmaceuticals,
Inc. v. Carrington Laboratories, Inc. No. C99-0035, in the U.S. District
Court, Northern California District, alleging infringement of their
federally registered trademark, MouthKote[R], and unfair competition
under California law. Parnell sought a permanent injunction banning the
Company from selling or marketing products using the name OraKote[TM].
On March 27, 1999, the Company signed a settlement agreement with Parnell
agreeing to cease using the name OraKote[TM] after May 1, 1999 in
exchange for Parnell's dismissal of the complaint.
<PAGE>
In October 1998, the Company was served with a Summons and Notice by the
Chapter 7 Trustee for the estates of FoxMeyer Corporation and certain
related companies ("FoxMeyer") regarding an alleged claim of $28,159.69.
In July 1998, the Company's counsel advised FoxMeyer that the Company
believed that the October 1998 claim had been settled in the July 1998
settlement. As of the date of this report, FoxMeyer has not contradicted
the Company's position, nor has it formally confirmed that it will
release the October 1998 claim. If FoxMeyer fails to acknowledge that
the October 1998 claim was previously settled, or if FoxMeyer asserts
that the October 1998 claim was not covered by the July 1998 settlement,
the Company intends to vigorously defend the October 1998 claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders
during the fourth quarter of the fiscal year covered by this Annual
Report.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of the Company is traded on the NASDAQ National Market
under the symbol "CARN." The following table sets forth the high and low
sales prices per share of the Common Stock for each of the periods
indicated.
<TABLE>
Fiscal 1997 High Low
----------- ---- ---
<S> <C> <C>
First Quarter $8 1/8 $5 1/4
Second Quarter 8 3/4 4 11/16
Third Quarter 6 1/2 4 13/16
Fourth Quarter 6 5/16 3 1/2
Fiscal 1998 High Low
----------- ---- ---
First Quarter $5 1/2 $4
Second Quarter 6 7/16 4
Third Quarter 5 3/8 2 1/2
Fourth Quarter 3 5/8 2
</TABLE>
At March 24, 1999, there were 970 holders of record (including brokerage
firms) of Common Stock.
The Company has not paid any cash dividends on the Common Stock and
presently intends to retain all earnings for use in its operations. Any
decision by the Board of Directors of the Company to pay cash dividends
in the future will depend upon, among other factors, the Company's
earnings, financial condition and capital requirements.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data below should be read in
conjunction with the consolidated financial statements of the Company and
notes thereto and "Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected consolidated
financial information for the five years ended December 31, 1998, is
derived from the consolidated financial statements of the Company, of
which the years 1994 through 1996, and the month of December 1994, have
been audited by Arthur Andersen LLP, independent public accountants,
and the years 1997 and 1998 have been audited by Ernst & Young LLP,
independent public accountants. The earnings per share amounts prior
to 1997 have been restated as required to comply with Statement of
Financial Accounting Standards No. 128, Earnings Per Share. For further
discussion of earnings per share and the impact of Statement No. 128, see
the notes to the consolidated financial statements beginning on page F-6.
II - 1
<PAGE>
<TABLE>
Years Ended November 30, 1994,
Month Ended December 31, 1994 and Years
Ended December 31, 1995, 1996, 1997 and 1998
(Dollars and numbers of shares in November 30 December 31
----------- -----------------------------------------
thousands except per share amounts) 1994 1994 1995 1996 1997 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT INFORMATION:
Net Sales $25,430 $1,781 $24,374 $21,286 $23,559 $23,625
Cost and Expenses:
Cost of Sales 6,415 516 7,944 10,327 9,530 10,870
Selling, general and
administrative 11,968 985 12,442 10,771 10,814 10,254
Research and development 5,334 327 5,370 5,927 3,006 2,589
Charges related to ACI and
Aloe & Herbs (1) - - - - - 1,750
Interest expense (income), net 133 23 115 (304) (37) (233)
------ ---- ------ ------ ------ ------
Income (loss) before income taxes 1,580 (70) (1,497) (5,435) 246 (1,605)
Provision for income taxes 159 - 131 88 20 10
------ ---- ------ ------ ------ ------
Net Income (loss) $ 1,421 $ (70) $(1,628) $(5,523) $ 226 $(1,615)
====== ==== ====== ====== ====== ======
Net Income (loss) per common
share - basic and diluted (2) $ .18 $(.01) $ (.22) $ (.74) $ .02 $(.17)
====== ==== ====== ====== ====== ======
Weighted average shares used in
per share computations 7,341 7,344 7,933 8,798 8,953 9,320
BALANCE SHEET INFORMATION:
Working capital $ 4,720 $ 4,472 $ 9,095 $13,910 $ 9,484 $ 9,716
Total assets 19,797 18,899 27,934 31,202 25,796 $24,247
Long-term debt, net of current
portion 2,035 1,997 88 - - -
Total shareholders' investment $12,509 $12,439 $22,399 $27,757 $22,826 $21,363
</TABLE>
(1) During the fourth quarter of 1998 the Company fully reserved its
investments in and advances to Aloe Commodities International, Inc.,
and Aloe and Herbs International, Inc., and subsidiaries in the amount
of a $1.75 million charge to operations primarily due to substantial
doubt regarding the entities' ability to continue as going concerns.
See Note Six to the consolidated financial statements.
(2) For a description of the calculation of basic and diluted net income
(loss) per share, see Note Two to the consolidated financial
statements.
II - 2
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Background
The Company is a research-based biopharmaceutical, medical device,
raw materials and nutraceutical company engaged in the development,
manufacturing and marketing of naturally-derived complex carbohydrate and
other natural product therapeutics for the treatment of major illnesses,
the dressing and management of wounds and nutritional supplements. The
Company is comprised of two business segments. See Note Fourteen to the
consolidated financial statements for financial information about these
business segments. The Company sells, using a network of distributors,
prescription and nonprescription human and veterinary products through
its wound and skin care division and consumer and bulk raw material
products through its consumer products subsidiary, Caraloe, Inc. The
Company's research and product portfolio are based primarily on complex
carbohydrate isolated from the Aloe vera L. plant.
Liquidity and Capital Resources
At December 31, 1998 and 1997, the Company held cash and cash equivalents
of $3,931,000 and $4,023,000, respectively, a decrease of $92,000. Net
cash provided by operating activities in 1998 was $1,065,000, as compared
to a cash outflow from operating activities in 1997 of $1,899,000.
Significant cash outflows during 1998 included investments in property
and equipment of $1,278,000. Customers with significant accounts
receivable balances at the end of 1998 include Mannatech, Inc.
($693,000), Aloe Commodities International, Inc. ("ACI") ($681,000),
McKesson/General Medical ($340,000); and of these amounts, $748,346
was collected as of March 4, 1999. The ACI balance, which was fully
reserved as of December 31, 1998, was converted to a note receivable on
February 8, 1999 (see Note Six to the consolidated financial statements
for additional discussion of ACI).
As of December 31, 1998, the Company had no material capital commitments
other than its leases and agreements with suppliers. In March 1998, the
Company, with four other investors, formed Aloe and Herbs International,
Inc., a Panamanian corporation, with the sole intent of acquiring a
5,000-acre tract of land in Costa Rica to be used for the production of
Aloe vera leaves to be sold to the Company at competitive, local market
rates. This would allow the Company to save approximately 50% on the
per-kilogram cost of leaves as compared to the cost of importing leaves
from other Central and South American countries. Aloe & Herbs
subsequently formed a wholly-owned subsidiary, Rancho Aloe (C.R.), S.A.,
a Costa Rica corporation, which acquired the land in April 1998. The
Company received 1,500,000 shares of Aloe & Herbs common stock, which
represents a 19.3% ownership position, in exchange for providing
expertise in farming aloe plants and providing a cash advance to Rancho
Aloe to be used for the purchase of aloe plants. This cash advance of
$187,000 is evidenced by a note receivable payable in installments, with
the final payment due in June 2000. The Company also advanced $300,000
to Aloe & Herbs in November 1998 for the acquisition of an irrigation
system to improve production on the farm and allow harvesting of leaves
year round. This advance was evidenced by a note receivable which is
payable in full in May 2000, and the Company was also granted a five-year
warrant to purchase 300,000 shares of common stock of Aloe & Herbs. The
first shipments of leaves from Rancho Aloe to the Company were made in
March 1999. In the fourth quarter of 1998, the Company fully reserved
all amounts due from Aloe & Herbs.
<PAGE>
In November 1997, the Company entered into an agreement with Comerica
Bank-Texas for a $3,000,000 line of credit, secured by accounts
receivable and inventory. This credit facility will be used for operating
needs, as required, and is currently being used to secure the letter of
credit described below.
In October 1996, the Company completed a $6,600,000 financing involving
the private placement of Series E Convertible Preferred Stock (the
"Series E Shares") with the intention of using the proceeds from this
sale to fund the Company's clinical research programs. Due to unfavorable
results of the first Phase III trial in the Aliminase[TM] project
and to market conditions creating potential additional dilution to the
outstanding shares of Common Stock, as well as other reasons, the
Company's Board of Directors concluded that it was in the best
interest of the Company and its shareholders that the Company repurchase
the Series E Shares, a process it completed in May 1997. Amounts paid to
preferred shareholders in excess of par totaled $70,000 more than the
embedded deemed dividend recognized in 1996 and thus, in the earnings
per share calculation in 1997, reduced net income available to common
shareholders.
In November 1995, the Company signed a licensing agreement with a
supplier of calcium alginates and other wound care products. Under the
agreement, the Company has exclusive marketing rights for ten years
to advanced calcium alginate products for North and South America and in
the People's Republic of China. Under the agreement, the Company made
an up-front payment to the supplier of $500,000 in November 1995. In
July 1997 and October 1997, additional payments of $166,000 and $167,000,
respectively, were paid to this supplier upon delivery of the
CarraSmart[TM] Hydrocolloid, a new product launched in the third quarter
of 1997. These payments resulted in increasing other assets of the
Company. As of December 31, 1998, the net book value of this agreement
was $619,000. Additional payments totaling $167,000 will be made to the
supplier as new products are delivered.
In February 1995, the Company entered into a supply agreement with its
supplier of freeze-dried products. The agreement required that the
Company establish a letter of credit equal to 60% of the minimum
purchase commitment of $2,500,000, but allowed for the amount of the
letter of credit to be reduced by 60% of the purchases made under the
agreement. As of December 31, 1998, the letter of credit was $1,250,000.
The supplier currently produces the CarraSorb[TM] M Freeze-Dried Gel
and The Carrington[R] (Aphthous Ulcer) Patch for the Company. Both of
these products represent new technology and are still in the early phase
of marketing. The Company had approximately $407,000 of CarraSorb[TM] M
and Carrington[R] (Aphthous Ulcer) Patch inventory on hand as of December
31, 1998.
<PAGE>
The supply agreement also requires the Company to make minimum monthly
purchases of $30,000. In February 1998, the supply agreement was amended
to allow for unmet monthly minimum purchase requirements to be met by
prepayments, to be applied to future purchases under the agreement, which
allows the Company to keep inventory at levels appropriate for sales
demand. Current sales of both items are lower than the minimum purchase
requirement, but the Company believes that as licensing, acceptance and
demand for the new technology increase, demand will exceed the aggregate
minimum purchase requirement. In December 1998, the supplier agreed to
add a freeze-dried gel product as a listed product under the agreement
and to consider an extension of the term of the agreement. As of March
5, 1999, the Company has purchased products totaling approximately
$610,000 from this supplier. The Company is in full compliance with the
agreement and, as of March 5, 1999, has the available resources to meet
all future minimum purchase requirements.
The Company believes that its available cash resources and expected cash
flows from operations will provide the funds necessary to finance
its current operations and the current Phase III clinical trial for
Aliminase[TM]. However, the Company does not expect that its current cash
resources will be sufficient to finance future major clinical studies and
costs of filing new drug applications necessary to develop its products
to their full commercial potential. Additional funds, therefore, may
have to be raised through equity offerings, borrowings, licensing
arrangements or other means, and there is no assurance that the Company
will be able to obtain such funds on satisfactory terms when they are
needed.
The Company is subject to regulation by numerous governmental authorities
in the United States and other countries. Certain of the Company's
proposed products will require governmental approval prior to commercial
use. The approval process applicable to prescription pharmaceutical
products usually takes several years and typically requires substantial
expenditures. The Company and any licensees may encounter significant
delays or excessive costs in their respective efforts to secure necessary
approvals. Future United States or foreign legislative or administrative
acts could also prevent or delay regulatory approval of the Company's or
any licensees' products. Failure to obtain requisite governmental
approvals or failure to obtain approvals of the scope requested could
delay or preclude the Company or any licensees from marketing their
products, or could limit the commercial use of the products, and thereby
have a material adverse effect on the Company's liquidity and financial
condition.
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its results of operations.
Fiscal 1998 Compared to Fiscal 1997
Net sales were $23,625,000 in 1998, compared with $23,559,000 in 1997.
Sales of consumer nutritional products by Caraloe, Inc., the Company's
consumer products subsidiary, increased 32.0%, from $5,444,000 in 1997 to
$7,187,000 in 1998. This increase in Caraloe sales was offset by a
decrease in wound care sales of 9.4%. Total sales of the Company's wound
and skin care products in 1998 were $16,292,000 as compared to
$17,990,000 in 1997.
<PAGE>
Of the 1998 Caraloe sales, $6,424,000 was related to the sale of
bulk Manapol[R] Powder. Caraloe currently sells bulk Manapol[R] Powder
to Mannatech under a three-year, non-exclusive supply and licensing
agreement which expires in August 2000. Sales to Mannatech increased
from $3,547,000 in 1997 to $5,508,000 in 1998. In October 1998, Caraloe
also signed supply and license agreements with One Family, Inc., allowing
One Family to purchase Manapol[R] Powder and market it in capsule form.
Sales under this agreement will commence in 1999. In December 1998,
Caraloe signed supply and license agreements with Eventus International,
Inc., allowing Eventus to market a variety of products containing
Manapol[R] Powder to promote a natural, healthy lifestyle. Estimated
sales during the first three years of these agreements are approximately
$4,900,000. Caraloe also continued to develop its contract manufacturing
business during 1998. In September 1998, Caraloe began to manufacture
products on a contract manufacturing basis for SkinCeuticals, Inc., a
direct sales company selling skin care products through licensed
professionals. Products to be manufactured include gels and creams
utilizing formulas developed by SkinCeuticals. Caraloe also has
arrangements to contract manufacture beverage products for Deynique
Cosmetics, GmbH.
The Company's wound and skin care products are marketed domestically to
hospitals, nursing homes, home health care agencies and acute care
providers. This market has continued to be very competitive and price
sensitive as a result of pressures to control health care costs. In
addition, the market is heavily influenced by government reimbursement
programs. The home health care segment of the market in particular
experienced significant turmoil in 1998 as many of the Company's
customers either went out of business or postponed buying decisions due
to changes in government reimbursement programs. This had a negative
impact on the Company's wound care sales to that segment. Nursing
homes were also impacted by government regulations in 1998, as
government-mandated reimbursement changes due to go into effect in
January 1999 were postponed until the year 2000. Many nursing home
facilities and the dealers who supply them postponed buying decisions
and liquidated inventory in anticipation of the regulations taking
effect. In response to the uncertainty in this segment of the market,
the Company developed its Smart Outcomes System[TM] program, designed
to educate nursing home administrators about the regulatory changes
and to promote the Company's products.
The Company also sells its wound care products to international
distributors, primarily in Italy, Australia, Singapore, Mexico and
Argentina, with lesser sales to a number of Central and South American
countries. Total international sales in 1998 were $1,260,000. Included
in this amount were sales of $685,000 of wound care products, which
was $546,000 over 1997.
Sales of the Company's oral technology products, which were launched late
in 1997, were $278,000 in 1998. Included in this line are products for
the management of oral mucositis/stomatitis and oral lesions and ulcers.
Sales of the Company's veterinary products increased from $125,000 in
1997 to $146,000 in 1998. These products were marketed on behalf of the
Company in 1998 by Farnam Companies, Inc., a leading marketer of
veterinary products.
<PAGE>
Cost of sales increased from $9,530,000 to $10,870,000, or 14.1%. As a
percentage of sales, cost of sales increased from 40.5% to 46.0%. The
increase in cost of goods sold was largely attributable to product mix,
as sales in 1998 of Caraloe products were a greater percentage of total
sales than in 1997, 30.4% as compared to 23.1%, and Caraloe products
have a higher cost as a percentage of sales than wound care products.
Selling, general and administrative ("SG&A") expenses decreased to
$10,254,000 from $10,814,000, or 5.2%. Selling expenses related to wound
care sales in 1998 were trimmed by $753,000 from the 1997 level as the
Company reduced expenditures in response to the changing market
conditions. Partially offsetting the decrease was an increase in Caraloe
selling and marketing expenses of $310,000. This increase primarily
represented costs for additional personnel for sales and formulation
development in support of Caraloe's raw material and contract
manufacturing efforts.
Research and development ("R&D") expenses decreased to $2,589,000 from
$3,006,000, or 13.9%. This decrease was primarily the result of the
completion of the Company's preclinical pharmacology studies in early
1998. The Company continued its efforts in basic research during
1998 and discovered a new and unique pectin in the inner gel of Aloe vera
L. which has potential near-term utility as a product to be used in wound
healing. Basic research on this material is ongoing. Included in the
total R&D activities during 1998 were various small clinical trials
designed to collect data in support of the Company's products, including
the reformulation of Aliminase[TM]. The Company will return to the clinic
with a Phase III trial of Aliminase[TM] in April 1999.
Beginning in the second quarter of 1998, the Company began to make
strategic investments into Aloe & Herbs and its subsidiary Rancho Aloe,
an aloe farm close to the Company's existing farm in Costa Rica. The
Company obtained a 19.3% equity interest in the farming venture in
return for agreement to provide farming expertise, working capital
and Aloe vera plants. The Company expects Aloe & Herbs, upon reaching
full production, to have the potential of reducing the Company's cost of
aloe leaves, which is a significant component of the Company's cost of
sales. Additionally, the Company expects that when the farm reaches full
production it will provide a supply of leaves to meet the Company's
growing demand in the raw materials product lines and expected future
demand if the Company receives FDA approval of Aliminase[TM]. Further,
the Company believes this supply will reduce the Company's dependence
upon leaves from other countries where consistency and quality of
supplies are uncertain.
<PAGE>
During the second and fourth quarters of 1998 the Company invested a
total of approximately $.5 million in Aloe & Herbs, generally in the
form of notes receivable. Aloe & Herbs has had difficulty acquiring the
additional financing required to complete its business plans and, based
upon the review of the financial statements of Aloe & Herbs, the Company
believes there is substantial doubt regarding Aloe & Herbs' ability
to remain a going concern without obtaining additional financing. Aloe
& Herbs has substantial capital requirements during 1999 and 2000 for
debt payments, ongoing investments in aloe plants and other general
start-up costs. The Company has not committed to provide the amount of
additional capital Aloe & Herbs requires. Consequently, the Company
has fully reserved the $.5 million invested in Aloe & Herbs due to the
risk and uncertainty of Aloe & Herb's ability to repay the amounts due
the Company. The Company continues to believe that strategies to reduce
the overall cost of leaves while increasing the supply and quality of
leaves for raw materials production are essential.
The Company had reserved approximately $.1 million at December 31, 1997
to cover potential exposures on the approximately $1.1 million of
investments in and notes and accounts receivable from ACI. The Company
continued to monitor its relationship with ACI and gradually increased
the reserve over the first three quarters of 1998 by approximately
$.1 million. In the fourth quarter of 1998 the Company obtained the
1997 audited financial statements and the October 1998 year-to-date
unaudited financial statements of ACI, which indicated a substantial
doubt regarding ACI's ability to continue as a going concern. In
addition, ACI had been unsuccessful in raising capital needed for its
operations. Consequently, the Company increased the reserves against
its investment, and notes and accounts receivable balances related to
ACI by approximately $1.2 million to fully reserve all such amounts
related to ACI.
Net interest income of $233,000 was realized in 1998, versus $37,000 in
1997, with the variance primarily due to the costs associated with the
repurchase of the Series E Preferred Stock in 1997.
Provision for income taxes was $10,000 in 1998 as compared to $20,000 in
1997. A tax benefit was not recognized in 1998 due to the Company
recording an offsetting deferred tax asset valuation allowance. The
Company had provided a valuation allowance against all deferred tax asset
balances at December 31, 1998 and 1997 due to uncertainty regarding
realization of the asset.
The Company's net loss for 1998 was $1,615,000, versus net income of
$226,000 for 1997. This change was primarily the result of charges
related to ACI and Aloe & Herbs in the amount of $1,750,000. Net loss per
share was $.17 in 1998, compared to net income per share of $.02 in 1997.
Net income per share in 1998, excluding the charges related to ACI and
Aloe & Herbs, was $.01.
<PAGE>
Fiscal 1997 Compared to Fiscal 1996
Net sales were $23,559,000 in 1997, compared with $21,286,000 in 1996.
This increase of $2,273,000, or 10.7%, resulted from an increase of
$1,750,000, or 47.4%, in sales of Caraloe, Inc., the Company's consumer
products subsidiary, and an increase of $688,000, or 4.0%, in sales of
the Company's wound and skin care products. Total sales of the Company's
wound and skin care products in 1997 were $17,990,000, as compared to
$17,302,000 in 1996. New products introduced in 1997 accounted for
$682,000 in wound and skin care sales during 1997. Caraloe sales to
Mannatech increased from $3,273,000 to $3,547,000. Of the 1997 Caraloe
sales, $4,102,000 was related to the sale of bulk Manapol[R] Powder.
Sales of the Company's veterinary products decreased from $283,000 to
$125,000, primarily due to the Company's inability to supply Acemannan
Immunostimulant during part of the year.
Cost of sales decreased from $10,327,000 to $9,530,000, or 7.7%. As a
percentage of sales, cost of sales decreased from 42.2%, after adjusting
for period cost write-offs (discussed below), to 40.5%. The decrease in
cost of goods sold was largely attributable to volume-related
manufacturing efficiencies realized in Costa Rica due to the increased
Caraloe Manapol[R] Powder sales. The benefits of these manufacturing
efficiencies were partially offset by the lower profit margins earned on
Manapol[R] Powder as compared to wound care products. Cost of goods
sold in 1996 included $1,396,000 of additional expenses which consisted
of a $630,000 inventory valuation decrease on June 30, 1996, as described
below, and period costs of $766,000. The period costs were related to
the annual shutdown of the facility in Costa Rica for routine
maintenance and inventory reduction programs.
As a result of the implementation of programs to reduce operating and
production costs, several changes were implemented at the Company's Costa
Rica production facility in early 1996. This facility produces all of the
Company's freeze-dried Aloe vera raw materials. Among these changes
were a restructuring of the work force as well as improvements in
efficiencies in the manufacturing process. The implementation of
these changes significantly reduced the cost of Costa Rica production
in the second quarter of 1996. As a result of these reductions in cost,
the actual cost of production under FIFO as of June 30, 1996 was
approximately 18% lower than the Company's standard cost, which was
equal to the FIFO cost of production at December 31, 1995 and March 31,
1996. The Company determined that the standard cost should be reset to
the then-current actual cost of production. This reduction in standard
FIFO cost decreased inventory valuation by $630,000. This amount
represented the change in the accumulated value of all items in inventory
as of June 30, 1996 that were produced in Costa Rica as well as those
finished goods that contain component items produced in Costa Rica. This
decrease in inventory value was expensed in 1996 as a period cost and was
included in cost of sales.
<PAGE>
S G & A expenses increased to $10,814,000 from $10,771,000, or 0.4%.
Partially offsetting the increase was approximately $242,000 in one-time
charges incurred in 1996 which were not incurred in 1997. These one-time
charges included approximately $150,000 in additional costs related to
the launch of three new product types and a one-time write-off of
approximately $92,000 of bank and legal charges related to the early
retirement of all bank debt in 1996. Also contributing to the modest size
of the increase in SG&A expenses were the ongoing benefits received
from cost reduction programs put in place in 1996 and the restructuring
of the sales force, also put in place in 1996, which were continued in
1997.
R&D expenses decreased to $3,006,000 from $5,927,000, or 49.3%. This
decrease was primarily the result of discontinuing the Phase III clinical
program for the testing of Aliminase[TM] oral capsules in October 1996,
due to unfavorable results. The Company has since reformulated
Aliminase[TM] into a reconstitutable powder and will return to the clinic
with a Phase III in April 1999. Approximately $317,000 of expenses for
the 1996 clinical program was incurred in 1997.
Net interest income of $37,000 was realized in 1997, versus $304,000 in
1996, due to having less excess cash to invest resulting from repurchase
of the remainder of the Series E Preferred Stock in May 1997.
Provision for income taxes was $20,000 in 1997 as compared to $80,000 in
1996. The tax provision on 1997 was less than the statutory rate due to
the Company's ability to utilize tax loss carryforwards. The Company had
provided a valuation allowance against all deferred tax asset balances at
December 31, 1998 and 1997 due to uncertainty regarding realization of
the offset.
Net income for 1997 was $226,000, versus a net loss of $5,523,000 for
1996. This change is a result of increased volume in Caraloe, Inc.
sales, increased production volumes in Costa Rica resulting in the
realization of manufacturing efficiencies and the full absorption of
production, and decreased R&D expenditures related to the termination
of the Phase III Aliminase[TM] study. Net income per share was $.02 in
1997, compared to a loss per share of $.74 in 1996.
Year 2000 Issues
Like many other organizations, the Company faces the prospect of what
will happen to computers and other microprocessor-controlled equipment
using two digit data fields when they encounter dates beyond 1999,
as they may recognize the "00" of the Year 2000 as the year 1900. This
phenomenon, known as the Year 2000 or Y2K issue, may impact the Company
in some manner, although the extent of any impact cannot be fully
determined at this time. The Company has undertaken considerable efforts
to assess its situation in areas that are determinable at this time.
<PAGE>
With respect to information technology systems, the Company has
historically followed a policy of purchasing or licensing commercially
available computer software packages for use in operating its business.
These packages are typically maintained by their developers, and newer
releases of the packages are periodically made available to the users of
the packages for purchase or license or as part of annual maintenance
programs. The Company typically installs these packages with little or no
custom modification to the programs contained therein. Accordingly, the
Company expects to incur little, if any, cost for custom-developed
software. The Company's primary business application software used in its
Costa Rica facility was found during 1998 not to be ready for the Year
2000, and the Company subsequently acquired a newer release of the
software package which is Y2K-ready. This upgrade will be installed
during the first or second quarter of 1999. The cost incurred to date
to replace or upgrade software packages are approximately $30,000.
With respect to non-information technology systems, the Company has
initiated efforts to assess its exposure due to the Y2K impact on
the portions of its production and laboratory equipment which are
microprocessor-controlled. The Company has determined that there are no
significant pieces of equipment in its U.S. facilities that are not Year
2000-ready. The identified non-conforming equipment will be upgraded or
replaced at an estimated cost of $20,000, and the target date for
completing this task is the second quarter of 1999. A Y2K review of the
manufacturing and laboratory equipment in the Company's Costa Rica
facility should be completed early in the second quarter of 1999.
Remedial action required, if any, would be targeted for completion by the
end of the second quarter of 1999.
With respect to third parties, the Company has undertaken to assess the
potential impact to its operations of its vendors and customers not being
prepared for the Year 2000 impact on their systems. The Company surveyed
all of its vendors from whom the Company made purchases totaling $5,000
or more in a recent 12-month period. To date, the Company has received
responses from approximately 83% of the vendors surveyed, and the
majority of vendors responding indicated that they were addressing the
issue but were not yet fully ready. The Company made specific oral
inquiries of local U.S. utility companies (electric, gas, water and
telephone), each of which indicated it has made significant strides
toward readiness but is not yet fully ready. Because of the material
effect that the failure of any one of these utilities, particularly the
electric company, to provide service to the Company as a result of Year
2000 unreadiness could have on the Company, and because of the
uncertain responses that these utility companies have provided, the
Company cannot provide assurance that its operations will not be
materially affected by the Year 2000 issue, nor can it quantify the
impact that a failure of one of these utilities to provide service would
cause. The Company has met with representatives of the Costa Rica utility
company providing service to its facility in Costa Rica, who indicated
that the utility's operational equipment, much of which is older
analog equipment, has not been tested, but is backed up by redundant
manual/mechanical systems. Newer digital equipment is being certified as
Y2K compliant as installed. The Company also met with officials of the
National Bank of Costa Rica, who presented a detailed plan for Y2K
compliance and testing. The bank officials indicated that approximately
80-90% of their systems have been tested and found compliant.
<PAGE>
The most reasonably likely worst case scenario for the Company is a
disruption in power to its manufacturing plants, as discussed above.
As part of its contingency plan for dealing with these material
uncertainties, the Company has initiated an inventory program designed
to have several months of inventory of its core wound care and raw
material products on hand by the end of the third quarter of 1999. The
cost of this inventory program is estimated not to exceed $500,000.
The Company will also be sending a similar survey to its significant
customers early in the second quarter of 1999 in order to assess their
Y2K readiness. The disruption in a customer's business due to this issue
could also have a negative impact on the Company's sales and
profitability, although the impact to the Company cannot be determined at
this time.
The costs of the Company's Y2K remediation programs are being funded with
cash flows from operations and are not expected to exceed $100,000,
excluding inventory buildup. Some of these costs relate solely to the
upgrade of existing functionality. In total, these costs are not expected
to be substantially different from the normal recurring costs of systems
and equipment upgrades and therefore are not expected to have a material
adverse effect on the Company's overall results of operations or cash
flows.
Forward Looking Statements
All statements other than statements of historical fact contained in this
report, including but not limited to statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
(and similar statements contained in the Notes to Consolidated Financial
Statements) concerning the Company's financial position, liquidity,
capital resources and results of operations, its prospects for the future
and other matters, are forward-looking statements. Forward-looking
statements in this report generally include or are accompanied by
words such as "anticipate", "believe", "estimate", "expect", "intend" or
words of similar import. Such forward-looking statements include, but
are not limited to, statements regarding the Company's plan or ability
to achieve growth in demand for or sales of products, to reduce expenses
and manufacturing costs and increase gross margin on existing sales,
to initiate, continue or complete clinical and other research programs,
to obtain financing when it is needed, to fund its operations from
revenue and other available cash resources, to enter into licensing
agreements, to develop and market new products and increase sales of
existing products, to obtain government approval to market new products,
to sell all of the freeze-dried, calcium alginate and certain other
wound care products that it is required to purchase under its existing
agreements with the suppliers of those products, to purchase sufficient
supplies of Aloe vera leaves at reasonable prices, and to properly assess
its situation with respect to Y2K issues and avoid any material adverse
effects of the Y2K problem, as well as various other matters.
<PAGE>
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, no assurance can be given that
such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in
such forward-looking statements include but are not limited to the
possibilities that the Company may be unable to obtain the funds needed
to carry out large scale clinical trials and other research and
development projects, that the results of the Company's clinical trials
may not be sufficiently positive to warrant continued development and
marketing of the products tested, that new products may not receive
required approvals by the appropriate government agencies or may not
meet with adequate customer acceptance, that the Company may not be
able to obtain financing when needed, that the Company may not be able
to obtain appropriate licensing agreements for products that it wishes to
market or products that it needs assistance in developing, that the
Company's efforts to improve its sales and reduce its costs may not
be sufficient to enable it to fund its operating costs from revenues
and available cash resources, that one or more of the customers that
the Company expects to purchase significant quantities of products from
the Company or Caraloe may fail to do so, that competitive pressures
may require the Company to lower the prices of or increase the discounts
on its products, that the Company's sales of products it is contractually
obligated to purchase from suppliers may not be sufficient to enable
and justify its fulfillment of those contractual purchase obligations,
that other parties who owe the Company substantial amounts of money may
be unable to pay what they owe the Company, that the Company may suffer
adverse effects from Y2K problems affecting the Company or its vendors
(including utility companies) or customers, and that the Company may be
unable to produce or obtain, or may have to pay excessive prices for, the
raw materials or products it needs.
All forward-looking statements in this report are expressly qualified in
their entirety by the cautionary statements in the two immediately
preceding paragraphs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Currency
The Company's manufacturing operation in Costa Rica accounted for 57% of
cost of sales for the year ended December 31, 1998. As a result, the
Company's financial results could be significantly affected by factors
such as changes in foreign currency exchange rates or weak economic
conditions in Costa Rica. When the U.S. Dollar strengthens against the
Costa Rican Col n, the cost of sales decreases. During the year ended
1998, the exchange rate from U.S. Dollars to Costa Rican Colon
increased by 10% to 269 at December 31, 1998. The effect of a 10%
strengthening in the value of the U.S. Dollar relative to the Costa
Rican Colones would result in a increase in gross profit of $208,000. The
Company's sensitivity analysis of the effects of changes in foreign
currency rates does not factor in a potential change in sales levels or
local currency prices.
<PAGE>
Sales of products to foreign markets comprised 5% of sales for 1998.
These sales are generally denominated in U.S. Dollars. The Company
does not believe that changes in foreign currency exchange rates or
weak economic conditions in foreign markets in which the Company
distributes its product would have a significant effect on operating
results. If sales to foreign markets increase in future periods, the
effects could become significant.
For quantitative and qualitative disclosures about market risk related to
the supply of Aloe vera leaves, see "Business".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to Item 8 is submitted as a separate section of this Form
10- K. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Effective March 19, 1997, the Company appointed the accounting firm of
Ernst & Young LLP as the Company's independent public accountants for
fiscal 1997 to replace Arthur Andersen LLP, which resigned on that same
date. The Company's Board of Directors approved the selection of Ernst &
Young LLP as independent public accountants upon the recommendation of
the Board's independent Audit Committee comprised of outside directors.
During 1996 and the period from January 1, 1997 through March 18, 1997,
there were no disagreements with Arthur Andersen LLP on any matter of
accounting principle or practice, financial statement disclosure or
auditing scope or procedures or any reportable events. Arthur Andersen
LLP's report on the financial statements for the year 1996 contained no
adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
The Company provided Arthur Andersen LLP with a copy of this disclosure
and requested that Arthur Andersen LLP furnish it with a letter addressed
to the Securities and Exchange Commission (the "Commission") stating
whether it agreed with the above statements. A copy of Arthur Andersen
LLP's letter to the Commission, dated April 7, 1997, was filed as Exhibit
16.1 to the Company's Form 10-K/A amendment to its Form 10-K Annual
Report for the year ended December 31, 1996, which amendment was filed
with the Commission on April 7, 1997.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K is hereby incorporated
by reference from the information appearing under the captions "Election
of Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's definitive Proxy
Statement relating to its 1999 annual meeting of shareholders, which will
be filed pursuant to Regulation 14A within 120 days after the Company's
fiscal year ended December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is hereby incorporated
by reference from the information appearing under the caption "Executive
Compensation" in the Company's definitive Proxy Statement relating to its
1999 annual meeting of shareholders, which will be filed pursuant to
Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is hereby incorporated
by reference from the information appearing under the captions "Security
Ownership of Management" and "Principal Shareholders" in the Company's
definitive Proxy Statement relating to its 1999 annual meeting of
shareholders, which will be filed pursuant to Regulation 14A within 120
days after the Company's fiscal year ended December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13 of Form 10-K is hereby incorporated
by reference from the information appearing under the caption "Certain
Transactions" in the Company's definitive Proxy Statement relating to its
1999 annual meeting of shareholders, which will be filed pursuant to
Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 1998.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) (1) Financial Statements.
Reference is made to the index on page F-1 for a list of all
financial statements filed as a part of this Annual Report.
(2) Financial Statement Schedules.
Reference is made to the index on page F-1 for a list of all
financial statement schedules filed as a part of this Annual
Report.
(3) Exhibits.
Reference is made to the Index to Exhibits on pages E-1
through E-12 for a list of all exhibits filed as a part of
this Annual Report.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the last
quarter of its fiscal year ended December 31, 1998.
<PAGE>
CARRINGTON LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements of the Company:
Consolidated Balance Sheets --
December 31, 1997 and 1998 F - 2
Consolidated Statements of Operations -- years ended
December 31, 1996, 1997 and 1998 F - 3
Consolidated Statements of Shareholders' Investment --
years ended December 31, 1996, 1997 and 1998 F - 4
Consolidated Statements of Cash Flows -- years ended
December 31, 1996, 1997 and 1998 F - 5
Notes to Consolidated Financial Statements F - 6
Financial Statement Schedule
Valuation and Qualifying Accounts F - 19
Report of Ernst & Young LLP, Independent Public Accountants F - 20
Report of Arthur Andersen LLP, Independent Public F - 21
Accountants
<PAGE>
<TABLE>
Consolidated Balance Sheets
(Dollar amounts in thousands, except share amounts)
December 31, December 31,
1997 1998
-------- -------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 4,023 $ 3,931
Accounts receivable, net of allowance for
doubtful accounts of $478 and $922, 1997
and 1998, respectively 3,090 2,961
Inventories 5,003 4,969
Prepaid expenses 328 739
-------- --------
Total current assets 12,444 12,600
Property, plant and equipment, net 10,815 11,050
Other assets 2,537 597
-------- --------
Total assets $ 25,796 $ 24,247
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable $ 1,143 $ 1,369
Accrued liabilities 1,827 1,515
-------- --------
Total current liabilities 2,970 2,884
Commitments and contingencies
SHAREHOLDERS INVESTMENT:
Common stock, $.01 par value, 30,000,000 shares
authorized, 9,306,462 and 9,350,064 shares
issued and outstanding at December 31, 1997
and 1998, respectively 93 94
Capital in excess of par value 51,585 51,736
Deficit (28,852) (30,467)
-------- --------
Total shareholders' investment 22,826 21,363
-------- --------
Total liabilities and shareholders' investment $ 25,796 $ 24,247
======== ========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
Years Ended December 31,
------------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net Sales $ 21,286 $ 23,559 $ 23,625
Cost and expenses:
Cost of sales 10,327 9,530 10,870
Selling, general and administrative 10,771 10,814 10,254
Research and development 5,927 3,006 2,589
Charges related to ACI and
Aloe & Herbs - - 1,750
Interest expense 88 6 3
Interest income (392) (43) (236)
------- ------- --------
Income (loss) before income taxes (5,435) 246 (1,605)
Provision for income taxes 88 20 10
------- ------- --------
Net Income (loss) (5,523) 226 (1,615)
Dividends and income attributed to
preferred shareholders (1,023) (70) -
------- ------- --------
Net income (loss) available to common
shareholders $ (6,546) $ 156 $ (1,615)
======= ======= ========
Net income (loss) available to common
shareholders per share - basic and
diluted $ (.74) $ .02 $ (.17)
======= ======= ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Investment
For the Years Ended December 31, 1996, 1997 and 1998
(Dollar amounts and share amounts in thousands)
Capital in Total
Preferred Common Excess of Shareholders'
Stock Stock Par Value Deficit Investment
-------------- ------------- --------- ------- ----------
Shares Amount Shares Amount
------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 12 $1,167 8,379 $84 $44,666 $(23,518) $22,399
Issuance of common stock
upon exercise of stock
options, warrants and
employee stock purchase
plan - - 316 3 4,604 - 4,607
Dividends on preferred
stock (Series C) - 35 - - - (37) (2)
Conversion of preferred to
common stock (Series C) (12) (1,202) 175 2 1,200 - -
Sales of convertible
preferred stock (Series E),
$100 Par, net of issuance
costs of $324 1 66 - - 6,210 - 6,276
Net loss and comprehensive
loss - - - - - (5,523) (5,523)
--------------------------------------------------------------------------------------------
Balance,
December 31, 1996 1 66 8,870 89 56,680 (29,078) 27,757
Issuance of common stock for
employee stock purchase
plan - - 21 - 153 - 153
Sale of common stock net of
issuance costs of $21 - - 415 4 2,471 - 2,475
Repurchase of convertible
preferred stock (Series E),
$100 Par (1) (66) - - (7,719) - (7,785)
Net income and comprehensive
income - - - - - 226 226
--------------------------------------------------------------------------------------------
Balance,
December 31, 1997 - - 9,306 93 51,585 (28,852) 22,826
Issuance of common stock for
employee stock purchase
plan - - 44 1 151 - 152
Net loss and comprehensive
loss - - - - - (1,615) (1,615)
--------------------------------------------------------------------------------------------
Balance,
December 31, 1998 - $ - 9,350 $94 $51,736 $(30,467) $21,363
====== ====== ====== ==== ====== ======= ======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flow
(Dollar amounts in thousands)
Years Ended December 31,
-------------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Cash flows from (used in) operating activities:
Net income (loss) $(5,523) $ 226 $(1,615)
Adjustments to reconcile income (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization 1,273 1,196 1,043
Charge related to ACI investments - - 600
Provision for inventory obsolescence 545 523 53
Changes in assets and liabilities:
Accounts receivable, net 315 (1,545) 129
Inventories 1,067 (1,903) (19)
Prepaid expenses 490 40 (411)
Other assets (1,534) (360) 1,340
Accounts payable and accrued liabilities 949 (76) (55)
------ ------ ------
Net cash provided (used) by
operating activities (2,418) (1,899) 1,065
Cash flows from investing activities:
Purchases of property, plant and equipment (242) (295) (1,278)
------ ------ ------
Net cash used by investing activities (242) (295) (1,278)
Cash flows from financing activities:
Issuances of common stock 4,607 2,628 152
Issuance (retirement) of preferred stock 6,276 (7,785) -
Payments of short and long-term debt (2,999) - -
Principal payments of capital lease
obligations (40) (32) (31)
------ ------ ------
Net cash provided (used) by financing
activities 7,844 (5,189) 121
------ ------ ------
Net increase (decrease) in cash and cash
equivalents 5,184 (7,383) (92)
Cash and cash equivalents at beginning of year 6,222 11,406 4,023
------ ------ ------
Cash and cash equivalents at end of year $11,406 $ 4,023 $ 3,931
Supplemental Disclosure of Cash Flow ====== ====== ======
Information
Cash paid during the year for interest $ 87 $ 10 $ 3
Cash paid during the year for income taxes 13 - 44
Supplemental Disclosure of Non-Cash
Financing Activities:
Equipment acquired through capital leases 39 - -
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE. BUSINESS
Carrington Laboratories, Inc. (the "Company") is a research-based
biopharmaceutical medical device, raw materials and nutraceutical company
engaged in the development, manufacturing and marketing of naturally-
derived complex carbohydrates and other natural product therapeutics
for the treatment of major illnesses, the dressing and management of
wounds, and nutritional supplements.
The Company's Wound and skin care division offers a comprehensive line of
human wound management products to hospitals, nursing homes, alternative
care facilities and the home health care market and also offers vaccines
and wound, and skin care products to the veterinary market. Sales are
primarily in the United States through a network of distributors.
Caraloe, Inc., a subsidiary, markets or licenses consumer products and
bulk raw material products. Principal sales of Caraloe, Inc., are bulk
raw material products which are sold to United States manufacturers who
include the high quality extracts from aloe in their finished products.
The Company's products are produced at its plants in Irving, Texas and in
Costa Rica. A portion of the Aloe vera leaves used for manufacturing the
Company's products are grown on a Company-owned farm in Costa Rica. The
remaining leaves are purchased from independent producers in Costa Rica,
Mexico, Venezuela and Central America.
NOTE TWO. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts of Carrington Laboratories, Inc., and its
subsidiaries, all of which are wholly owned. All intercompany accounts
and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform with 1998 presentation.
CASH EQUIVALENTS The Company's policy is that all highly liquid
investments purchased with a maturity of three months or less at date
of acquisition are considered to be cost equivalents unless otherwise
restricted.
INVENTORY Inventories are recorded at lower of first-in, first-out cost
or market.
DEPRECIATION AND AMORTIZATION Land improvements, buildings and
improvements, furniture and fixtures and machinery and equipment are
depreciated on the straight-line method over their estimated useful
lives. Leasehold improvements and equipment under capital leases are
amortized over the terms of the respective leases.
LONG-LIVED ASSETS The Company regularly reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that
the carrying amounts of the assets may not be recoverable.
Recoverability is based on whether the carrying amount of the asset
exceeds the current and anticipated undiscounted cash flows related to
the asset.
<PAGE>
TRANSLATION OF FOREIGN CURRENCIES The functional currency for
international operations (primarily Costa Rica) is the U.S. Dollar.
Accordingly, such foreign entities translate monetary assets and
liabilities at year-end exchange rates, while non-monetary items are
translated at historical rates. Revenue and expense accounts are
translated at the average rates in effect during the year, except for
depreciation and cost of sales, which are translated at historical rates.
Translation adjustments and transaction gains or losses are recognized in
the consolidated statement of operations in the year of occurrence.
REVENUE RECOGNITION The Company recognizes revenue when title to the
goods transfers. For the majority of the Company's sales, this occurs at
the time of shipment.
FEDERAL INCOME TAXES Deferred income taxes reflect the tax effect of
temporary differences between the amount of assets and liabilities
recognized for financial reporting and tax purposes. These deferred
taxes are measured by applying currently enacted tax laws. The effect on
deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
RESEARCH AND DEVELOPMENT Research and development costs are expensed as
incurred. Certain laboratory and test equipment determined to have
alternative future uses in other research and development activities has
been capitalized and is depreciated as research and development expense
over the life of the equipment.
ADVERTISING Advertising expense is charged to operations in the
year in which such costs are incurred. Advertising expense has not been
significant for 1996, 1997, or 1998.
STOCK-BASED COMPENSATION The Company has elected to follow APB Opinion
No. 25, "Accounting for Stock Issued to Employees", in the primary
financial statements and to provide supplementary disclosures required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation" (see
Note Nine).
NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is based
on the weighted average number of shares of common stock outstanding
during the year and excludes any dilutive effects of options, warrants
and convertible securities. Diluted net income (loss) per share includes
the effects of options, warrants and convertible securities unless the
effect is antidilutive.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
<PAGE>
OPERATING SEGMENTS In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"), which is effective for years beginning after December
15, 1997. Statement 131 establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
Company adopted the new requirements retroactively in 1998. The adoption
of the new requirements did not impact the operating results of the
Company.
NOTE THREE. INVENTORIES
The following summarizes the components of inventory at December 31, 1997
and 1998, in thousands:
1997 1998
-------------------------------------------------------------------------
Raw materials and supplies $1,438 $1,135
Work-in-process 1,296 1,182
Finished goods 2,269 2,652
-------------------------------------------------------------------------
Total $5,003 $4,969
-------------------------------------------------------------------------
The inventory balances are net of $516,000 and $525,000 of reserves for
obsolete and slow moving inventory at December 31,1997 and 1998,
respectively.
NOTE FOUR. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31,
1997 and 1998, in thousands:
<TABLE>
Estimated
1997 1998 Useful Lives
-------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements $ 1,389 $ 1,389
Buildings and improvements 8,086 8,862 7 to 25 years
Furniture and fixtures 892 930 4 to 8 years
Machinery and equipment 7,836 8,165 3 to 10 years
Leasehold improvements 793 928 1 to 3 years
Equipment under capital
leases 150 150 4 years
------ ------
Total 19,146 20,424
-------------------------------------------------------------------------
Less accumulated
depreciation and
amortization 8,331 9,374
-------------------------------------------------------------------------
Property, plant and
equipment, net $10,815 $ 11,050
====== =======
</TABLE>
<PAGE>
The Company's net investment in property, plant and equipment and other
assets in Costa Rica at December 31, 1997 and 1998 was $3,738,000 and
$4,310,000, respectively.
NOTE FIVE. ACCRUED LIABILITIES
The following summarizes significant components of accrued liabilities at
December 31, 1997 and 1998, in thousands:
1997 1998
-------------------------------------------------------------------------
Accrued payroll $ 232 $ 213
Accrued sales commissions 238 185
Accrued taxes 633 377
Other 724 740
-------------------------------------------------------------------------
Total $1,827 $1,515
-------------------------------------------------------------------------
NOTE SIX. CHARGES RELATED TO ACI AND ALOE & HERB
The Company invested $200,000 in Aloe Commodities International, Inc.
("ACI"), in exchange for 200,000 shares of ACI common stock in October
1996 and invested an additional $400,000 in exchange for 400,000 shares
of ACI common stock in December 1997. These investments were made in
anticipation of a possible acquisition of ACI which never materialized.
In addition, the Company also sells liquid aloe gel and Manapol[R] Powder
to ACI through its Caraloe subsidiary. Sales to ACI in 1997 and 1998
were $929,000 and $561,000, respectively. Separately, during 1998, the
Company loaned ACI $200,000 as part of the funding for the Aloe
and Herbs International, Inc. venture (described below). The loan was
evidenced by an unsecured note receivable with an initial maturity date
in August 1998. The maturity date on the note was extended to February
1999, at which time it was replaced by a note with a maturity date of
February 4, 2000. At December 31, 1998, ACI also owed the Company
$681,000 on open account. On February 4, 1999, the Company converted
the entire open account balance into a separate note receivable with a
maturity date of February 4, 2000.
The Company had reserved approximately $.1 million at December 31, 1997
to cover potential exposures on the approximately $1.1 million of
investments in and notes and accounts receivable from ACI. The Company
continued to monitor its relationship with ACI and gradually increased
the reserve over the first three quarters of 1998 by approximately
$.1 million. In the fourth quarter of 1998 the Company obtained the
1997 audited financial statements and the October 1998 year-to-date
unaudited financial statements of ACI, which indicated a substantial
doubt regarding ACI's ability to continue as a going concern. In
addition, ACI had been unsuccessful in raising capital needed for its
operations. Consequently, the Company increased the reserves against
its investment and notes and accounts receivable balances related to ACI
by approximately $1.2 million in the fourth quarter to fully reserve all
such amounts related to ACI.
<PAGE>
Beginning in the second quarter of 1998, the Company began to make
strategic investments into Aloe & Herbs and its subsidiary Rancho Aloe
(collectively "Aloe & Herbs"), an aloe farm close to the Company's
existing farm in Costa Rica. The Company obtained a 19.3% equity
interest in Aloe & Herbs in return for agreement to provide farming
expertise, working capital and Aloe vera plants. The Company expects Aloe
& Herbs, upon reaching full production, to have the potential of
reducing the Company's cost of aloe leaves which is a significant
component of the Company's cost of sales. Additionally, the Company
expects that when the farm reaches full production it will provide a
supply of leaves to meet the Company's growing demand in the raw
materials product lines and expected future demand if the Company
receives the FDA approval of the Company's ulcerative colitis complex
carbohydrate-based drug. Further, the Company believes this supply will
reduce the Company's dependence upon leaves from other countries where
consistency and quality of supplies are uncertain.
During the second and fourth quarters of 1998 the Company invested a
total of approximately $.5 million in Aloe & Herbs, generally in the form
of notes receivable. Aloe & Herbs has had difficulty acquiring the
additional financing required to complete its business plans and based
upon the review of the financial statements of Aloe & Herbs, the Company
believes there is substantial doubt regarding Aloe & Herbs' ability to
remain a going concern without obtaining additional financing. Aloe &
Herbs has substantial capital requirements during 1999 and 2000 for debt
payments, ongoing investments in aloe plants and other general start-up
costs. The Company has not committed to provide the amount of additional
capital Aloe & Herbs requires. Consequently, the Company has fully
reserved the $.5 million invested in Aloe & Herbs due to the risk and
uncertainty of Aloe & Herbs' ability to repay the amounts due the
Company. The Company continues to believe that strategies to reduce the
overall cost of leaves while increasing the supply and quality of leaves
for raw materials production are essential.
NOTE SEVEN. LINE OF CREDIT
In November 1997, the Company entered into an agreement with a bank for a
$3,000,000 line of credit, collateralized by accounts receivable and
inventory. This credit facility is available for operating needs and
was used to issue a letter of credit to replace a certificate of deposit
of $1,250,000 at December 31, 1997 (included in other assets)
collateralizing a supply agreement with the Company's supplier of freeze-
dried products (see Note Ten). The interest rate on this credit facility
is equal to the bank's prime rate. As of December 31, 1998 there was no
balance outstanding on the credit line.
NOTE EIGHT. PREFERRED STOCK
SERIES C SHARES The Series C Shares were convertible into common
stock of the Company at a price of $7.58 per share; were callable by the
Company after January 14, 1996; and provided for dividend payments to be
made only through the issuance of additional Series C Shares. Dividends
of $140,000 and $37,000 were recorded in 1995 and 1996 on the Series C
Shares. In January 1996, all of the outstanding Series C shares were
converted to 174,935 shares of the Company's common stock, and related
warrants to purchase 55,000 shares of common stock at $15 per share were
exercised.
<PAGE>
SERIES E SHARES In October 1996, the Company sold 660 shares of
Series E Convertible Preferred Stock (the "Series E Shares") for
$6,600,000 before offering fees and costs of $324,000. The Series E
Shares were convertible into shares of the Company's common stock
beginning on December 20, 1996, and prior to October 21, 1999 at a
conversion price per share equal to the lower of $25.20 (120% of the
market price per share of the Company's common stock) or 87% of the
market price immediately preceding the conversion date. Each Series E
Share was convertible into the number of whole shares of common stock
determined by dividing $10,000 by the conversion price. Because the
preferred stock was convertible into common stock at a conversion rate
that was the lower of a rate fixed at issuance or a fixed discount from
the common stock market price at the time of conversion, the discounted
amount was considered to be an assured incremental yield to the preferred
shareholders which had to be recognized as a deemed preferred dividend
over the period from issuance to the date when the preferred stock
first became convertible. Accordingly, a deemed dividend of $986,000, or
$0.11 per share, was recognized in the net income (loss) per share
calculation for 1996 as a reduction in earnings available to common
shareholders.
On October 31, 1996, the Company announced the unfavorable results of the
first Phase III trial of Aliminase[TM] oral capsules, and the
Aliminase[TM] project was placed on hold. This event resulted in
significant changes in the Company's planned uses of and need for these
funds. In addition, the decline in the market price of the Company's
common stock had increased the extent of the dilution that would have
occurred if all of the Series E Shares then outstanding had been
converted into common stock. For these and other reasons, the Company's
Board of Directors concluded that it was in the best interest of the
Company and its shareholders that the Company repurchase the Series E
Shares. In March 1997, the Company completed a repurchase of 50% of the
above Series E Shares for $3,832,000, a premium of 13% over the original
purchase price. In May 1997, the Company repurchased the remaining
shares of its Series E Shares for a total cash purchase price of
$ 3,852,000. For both transactions, amounts paid to preferred
shareholders in excess of par totaled $70,000 more than the embedded
deemed dividend of $986,000 recognized in 1996. This additional deemed
dividend was used in the net income (loss) per share calculation in 1997
to reduce net income available to common shareholders.
NOTE NINE. COMMON STOCK
PRIVATE PLACEMENT OF COMMON STOCK In June 1997, the Company sold 415,000
shares of common stock at a price of $6.00 per share. Total proceeds,
net of issuance costs, were $2,454,000.
SHARE PURCHASE RIGHTS PLAN The Company has a share purchase rights
plan which provides, among other rights, for the purchase of common stock
by certain existing common stockholders at significantly discounted
amounts in the event a person or group acquires or announces the intent
to acquire 20% or more of the Company's common stock. The rights expire
in 2001 and may be redeemed at any time at the option of the Board of
Directors for $.01 per right.
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN The Company has an Employee Stock Purchase
Plan under which employees may purchase common stock at a price equal to
the lesser of 85% of the market price of the Company's common stock on
the last business day preceding the enrollment date (defined as January
1, April 1, July 1 or October 1 of any plan year) or 85% of the market
price on the last business day of each month. A maximum of 500,000
shares of common stock was reserved for purchase under this Plan. As of
December 31, 1998, 136,646 shares had been purchased by employees at
prices ranging from $1.81 to $29.54 per share.
STOCK OPTIONS The Company has an incentive stock option plan which was
approved by the shareholders in 1995 upon expiration of the 1985 plan
under which incentive stock options and nonqualified stock options may be
granted to certain employees consultants and non-employee directors.
Options are granted at a price no less than the market value of the
shares on the date of the grant, except for incentive options to
employees who own more than 10% of the total voting power of the
Company's common stock, which are granted at a price no less than 110%
of the market value. Employee options are normally granted for terms
of 10 years. Options granted prior to December 1998 normally vested
at the rate of 25% per year beginning on the first anniversary of the
grant date. Options granted in or subsequent to December 1998 normally
vest at the rate of 33 1/3% per year beginning on the first anniversary
of the grant date, but certain options granted in December 1998 were
25%, 50% or 100% vested on the grant date, with the remainder of
each option vesting in equal installments on the first, second and
third anniversaries of the grant date. Options to non-employee directors
have terms of four years and are 100% vested on the grant date. The
Company has reserved 1,500,000 shares of common stock for issuance under
the this Plan. As of December 31, 1998 options to purchase 143,967 shares
were available for future grants under the Plan.
The following summarizes stock option activity for each of the three
years ended December 31, 1996, 1997 and 1998 (shares in thousands):
<TABLE>
Weighted Average
Exercise
Shares Price Per Share Price
-------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1996 836 $ 6.25 to $35.25 $18.82
Granted 141 $24.25 to $47.75 $32.69
Lapsed or canceled (109) $11.25 to $28.75 $23.81
Exercised (201) $ 6.25 to $29.00 $15.33
-------------------------------------------------------------------------
Balance, December 31, 1996 667 $ 6.25 to $47.75 $21.99
Granted 470 $ 5.31 to $ 7.50 $ 6.84
Lapsed or canceled (178) $ 7.50 to $47.75 $18.38
-------------------------------------------------------------------------
Balance, December 31, 1997 959 $ 5.31 to $47.75 $15.19
Granted 678 $ 2.50 to $13.13 $ 3.26
Lapsed or canceled (249) $ 4.63 to $35.25 $11.02
-------------------------------------------------------------------------
Balance, December 31, 1998 1,388 $ 2.50 to $28.75 $ 4.58
-------------------------------------------------------------------------
Options exercisable at
December 31, 1998 417 $ 2.50 to $28.75 $ 5.71
-------------------------------------------------------------------------
</TABLE>
<PAGE>
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
Options Outstanding Options Exercisable
------------------------------ --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life Price Shares Price
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.50 to $ 5.25 1,186 9.3 years $3.77 303 $ 3.41
$ 6.00 to $28.75 202 6.1 years $9.36 114 $11.82
--------------- ----- --------- ----- --- ------
$ 2.50 to $28.75 1,388 8.8 years $4.58 417 $ 5.71
=============== ===== ========= ===== === ======
</TABLE>
In 1998, the Company offered all option holders the opportunity
to exchange their outstanding options for new options. Employees who
accepted the Company's offer received new 10-year options granted on
January 30, 1998 for the same numbers of shares as the options
surrendered, with an exercise price of $4.81 per share and a vesting
schedule of 25% per year beginning on the first anniversary of the grant
date. Non-employee directors, all of whom accepted the Company's offer,
received new, fully-vested, four-year options granted on May 14, 1998
for the same numbers of shares as the options surrendered, with an
exercise price of $5.25 per share. Options for a total of 671,547 shares
were surrendered with exercise prices between $5.31 and $47.75 in
exchange for new options for the same number of shares.
The Company accounts for employee stock-based compensation under APB
Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost been determined based on the fair value of options
at their grant dates consistent with the method of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), the Company's net income (loss) and diluted net income
(loss) available to common shareholders per share would have been the
following pro forma amounts:
-------------------------------------------------------------------------
1996 1997 1998
-------------------------------------------------------------------------
Net income (loss)
(in thousands):
As reported $(5,523) $226 $(1,615)
Pro forma (8,022) (2,199) (4,155)
Diluted net income (loss)
available to common shareholders
per share:
As reported $(0.74) $.02 $(.17)
Pro forma (1.03) (.25) (.96)
-------------------------------------------------------------------------
<PAGE>
Because the SFAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the pro forma compensation
cost may not be representative of the pro forma cost to be expected in
future years.
The fair value of each option granted was estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996, 1997, and 1998,
respectively: risk-free interest rates of 6.47%, 6.13% and 5.38%,
expected volatility of 63.0%, 57.0% and 54.7%, expected lives of 5.0,
5.0 and 2.4 years on options granted to employees. The Company used
the following weighted-average assumptions for grants in 1996, 1997 and
1998: expected dividend yields of 0% and expected lives of 4.0 years
on grants to directors. The weighted average fair value of options
granted were $18.70, $6.84 and $1.05 in 1996, 1997, and 1998,
respectively.
STOCK WARRANTS From time to time, the Company has granted warrants to
purchase common stock to the Company's research consultants and certain
other persons rendering services to the Company. The exercise price of
such warrants was normally the market price or in excess of the market
price of the common stock at date of issuance. The following summarizes
warrant activity for each of the periods ending December 31, 1996, 1997
and 1998, (shares in thousands):
Weighted
Average
Shares Price Per Share Exercise
Price
-------------------------------------------------------------------------
Balance, January 1, 1996 129 $ 9.75 to $20.13 $13.99
Lapsed or canceled (3) $12.13 $12.13
Exercised (75) $12.75 to $15.00 $13.35
-------------------------------------------------------------------------
Balance, December 31, 1996
and December 31, 1997 51 $ 9.75 to $20.13 $15.03
Lapsed or canceled (10) $ 9.75 $ 9.75
Balance, December 31, 1998 41 $13.00 to $20.13 16.32
-------------------------------------------------------------------------
Warrants exercisable at
December 31, 1998 41 $13.00 to $20.13 $16.32
-------------------------------------------------------------------------
Warrants outstanding at December 31, 1998 had a weighted average
remaining contractual life of one year.
COMMON STOCK RESERVED At December 31, 1998 the Company had reserved a
total of 1,936,472 common shares for future issuance relating to the
employee stock purchase plan, stock option plans and stock warrants,
disclosed above.
NOTE TEN. COMMITMENTS AND CONTINGENCIES
The Company conducts a significant portion of its operations from an
office/ warehouse/distribution facility and an office/laboratory facility
under operating leases that expire over the next four years. In
addition, the Company leases certain office equipment under operating
leases that expire over the next three years. The Company's commitments
under noncancellable operating leases, as of December 31, 1998, are as
follows, in thousands:
Years Ending December 31,
-------------------------------------------------------------------------
1999 $ 439
2000 182
2001 131
2002 5
-------------------------------------------------------------------------
Total minimum lease payments $757
-------------------------------------------------------------------------
Total rental expenses under operating leases were $451,000, $465,000 and
$451,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
<PAGE>
In February 1995, the Company entered into a commitment to purchase $2.5
million of freeze-dried products from its principal supplier over a 66
month period ending in August 2000. The commitment, which also provides
for monthly minimum purchases, is required to be supported to the extent
of 60% of the remaining commitment by a letter of credit from a bank or a
pledged certificate of deposit (see Note Seven). The Company has made
purchases pursuant to this commitment of $255,000, $245,000 and $95,000
in 1996, 1997 and 1998, respectively. At December 31, 1998 the Company
had made prepayments of $360,000 toward future deliveries under the
commitment. Although management believes that new products which the
Company began to actively market in late 1997, additional products to be
developed and outsourcing of a portion of its freeze drying requirements
to this supplier will result in no losses pursuant to this commitment,
the Company could incur significant losses if it is not able to meet the
minimum purchase commitments.
NOTE ELEVEN. INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1996, 1997 and 1998
are as follows, in thousands:
<TABLE>
1996 1997 1998
-------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating loss carryforward $ 12,875 $ 12,468 $ 12,182
Research and development
and other credits 839 858 867
Property, plant and equipment 184 225 259
Patents 318 318 318
Inventory 249 315 250
Other, net 285 430 753
Bad Debt Reserve 72 162 662
Less - Valuation allowance (14,822) (14,776) (15,291)
-------- ------- -------
$ 0 $ 0 $ 0
======== ======= =======
</TABLE>
The Company has provided a valuation allowance against the entire
deferred tax asset at December 31, 1996, 1997 and 1998 due to the
uncertainty as to the realization of the asset.
The provisions for income taxes for the years ended December 31, 1996,
1997 and 1998 consisted of the following, in thousands:
<TABLE>
1996 1997 1998
-------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision $ 88 $ 20 $ 10
Deferred provision, net - - -
-------------------------------------------------------------------------
Total provision $ 88 $ 20 $ 10
-------------------------------------------------------------------------
</TABLE>
<PAGE>
The differences (expressed as a percentage of pre-tax income or loss)
between the statutory and effective income tax rates are as follows:
<TABLE>
1996 1997 1998
-------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate (34.0%) 34.0% (34.0%)
State income taxes .5 - -
Unrecognized deferred tax
benefit/change in valuation
allowance 34.9 (20.8) 34.0
Expenses related to foreign
operations - - -
Other .2 (4.9) -
-------------------------------------------------------------------------
Effective tax rate 1.6% 8.3% 0.0%
-------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $35,830,000 for federal income tax purposes, which expire
beginning in 1999, and research and development tax credit carryforwards
of approximately $839,000, which expire beginning in 1999, all of which
are available to offset federal income taxes due in future periods.
Additionally, the Company has approximately $28,000 in alternative
minimum tax credits which do not expire.
NOTE TWELVE. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company's customers are not concentrated in any specific
geographic region but are concentrated in the health care industry.
Significant sales were made to three customers. McKesson/General Medical
accounted for 9%, 12% and 11%; Owens & Minor accounted for 11%, 11% and
10%; and Bergen Brunswig, which acquired Durr Medical and Colonial
Healthcare in December 1996, accounted for 12%, 9% and 5% of the
Company's net sales in 1996, 1997 and 1998. Sales by Caraloe, Inc.,
to Mannatech, Inc., accounted for 15%, 15% and 23% of the Company's net
sales in 1996, 1997 and 1998, respectively. Accounts receivable from
Mannatech represented 17% of gross accounts receivable December 31,
1998. The Company performs ongoing credit evaluations of its customers'
financial condition and establishes an allowance for doubtful accounts
based on factors surrounding the credit risk of specific customers and
historical trends and other information.
<PAGE>
NOTE THIRTEEN. NET INCOME (LOSS) PER SHARE
Basic net income (loss) available to common shareholders per share was
computed by dividing net income (loss) available to common shareholders
by the weighted average number of common shares outstanding of 8,798,000,
8,953,000 and 9,320,000 in 1996, 1997, and 1998, respectively.
In calculating the diluted net loss available to common shareholders per
share for 1996 and 1998, no effect was given to options, warrants or
convertible securities because the effect of including these securities
would have been antidilutive. In 1997, diluted net income available to
common shareholders per share was also based only on the weighted average
number of common shares outstanding. There was no additional dilution
related to options whose exercise price was below the average market
price due to the application of the treasury stock method. Remaining
options and warrants to purchase 885,000 shares at an average exercise
price of $16.84 per share were excluded because their exercise price
exceeded the average market price and were, therefore, antidilutive.
NOTE FOURTEEN. REPORTABLE SEGMENTS
The Company operates in two reportable segments: human and veterinary
products sold through its wound care division and Caraloe, Inc., a
consumer products subsidiary, which sells bulk ingredients, consumer
beverages, and nutritional and skin care products.
The Company evaluates performance and allocates resources based on profit
or loss from operations before income taxes. The accounting policies of
the reportable segments are the same as those described in the Summary of
Significant Accounting Polices (Note Two).
Corporate Income Before Income Taxes set forth in the following table
includes research and development expenses which were related to the
development of pharmaceutical products not associated with the reporting
segments. Assets which are used in more than one segment are reported in
the segment where the predominant use occurs. The Company's production
facility in Costa Rica, which provides bulk ingredients for all segments,
and total cash for the Company are included in the Corporate Assets
figure.
<PAGE>
Reportable Segments (in thousands)
<TABLE>
Wound Caraloe,
1997 Care Inc. Corporate Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers $18,115 $5,444 $ - $23,559
Income(loss) before
income taxes 1,480 1,381 (2,615) 246
Identifiable assets 15,718 1,426 8,652 25,796
Capital expenditures 135 - 160 295
Depreciation and
amortization 849 - 347 1,196
-------------------------------------------------------------------------
1998
-------------------------------------------------------------------------
Sales to unaffiliated
customers $16,438 $7,187 $ - $23,625
Income(loss) before
income taxes 1,023 854 (3,482) (1,605)
Identifiable assets 14,319 1,923 8,005 24,247
Capital expenditures 344 - 934 1,278
Depreciation and
amortization 737 - 306 1,043
-------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE FIFTEEN. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
The unaudited selected quarterly financial data below reflect the fiscal
years ended December 31, 1997, and 1998, respectively.
<TABLE>
(Dollar amounts in thousands, except shares and per share amounts)
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------------------------------------------------------------------
<S> <S> <S> <S> <S>
Net sales $ 6,083 $ 5,121 $ 6,229 $ 6,126
Gross profit 3,576 3,234 3,653 3,566
Net income (loss) 83 (531) 463 211
Diluted income (loss)
available to common
shareholders per
share $ .00 $ (.05) $ .05 $ .02
Weighted average
common shares 8,870,000 8,896,000 9,239,000 9,293,000
-------------------------------------------------------------------------
1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------------------------------------------------------------------
Net sales $ 5,788 $ 6,027 $ 6,003 $ 5,807
Gross profit 3,208 3,428 3,237 2,882
Net income (loss) 152 60 101 [1] (1,928)
Diluted income (loss)
available to common
shareholders per
share $ .02 $ .00 $ .01 $ (.21)
Weighted average
common shares 9,306,000 9,315,000 9,330,000 9,343,000
[1] After a charge of $1,750,000 for ACI and Aloe & Herbs as
described in Note Six.
</TABLE>
<PAGE>
Financial Statement Schedule
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
Description Additions
-----------------------
Balance at Charged to Charged to Balance
Beginning Cost and Other at End
of Period Expenses Accounts Deductions of Period
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Bad Debt Reserve $227 $ 82 $ - $ 96 $213
Inventory Reserve 218 545 - 441 322
Rebates 82 90 - 36 136
1997
Bad Debt Reserve $213 $ 280 $ - $ 15 $478
Inventory Reserve 322 523 - 329 516
Rebates 136 331 - 125 342
1998
Bad Debt Reserve $478 $ 564 $ - $ 120 $922
Inventory Reserve 516 53 - 44 535
Rebates 342 3,499 - 3,437 404
ACI and Aloe &
Herbs non-current
notes and
investments
included in other
Assets 0 1,350 - 0 1,350
----------------------------------------------------------------------------
</TABLE>
<PAGE>
Report of Independent Public Accountants
Shareholders and Board of Directors
Carrington Laboratories, Inc.
We have audited the accompanying consolidated balance sheets of
Carrington Laboratories, Inc. and subsidiaries as of December 31, 1998
and 1997 and the related consolidated statements of operations,
shareholders' investment and cash flows for the two years in the period
then ended. Our audits also included the financial statement schedule
listed in the Index at item 14(a) for the same periods. These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit. The accompanying
consolidated financial statements of Carrington Laboratories, Inc., and
subsidiaries for the year ended December 31, 1996 were examined by other
independent accountants whose report thereon, dated February 7, 1997
(except with respect to certain matters as to which the dates were April
25, 1997 and March 4, 1997), contained no qualifications.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the 1998 and 1997 consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Carrington Laboratories, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
Ernst & Young LLP
Dallas, Texas
February 26, 1999
<PAGE>
Report of Independent Public Accountants
To the Stockholders and Board of Directors of
Carrington Laboratories, Inc. and Subsidiaries:
We have audited the consolidated statement of operations, shareholders'
investment and cash flows of Carrington Laboratories, Inc. (a Texas
corporation) and subsidiaries for the year ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects the results of operations and
cash flows of Carrington Laboratories, Inc. and subsidiaries for the year
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule on page
F-20 of this form 10-K, as it relates to 1996, is presented for the
purpose of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This
schedule, as it relates to 1996, has been subjected to the auditing
procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas,
February 7, 1997 (except with respect
to certain matters discussed in Note 8,
as to which the date is April 25, 1997)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARRINGTON LABORATORIES, INC.
Date: March 31, 1999 By: /s/ Carlton E. Turner
-------------------------
Carlton E. Turner, Ph.D., President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ------ ----
/s/ Carlton E. Turner President, Chief March 31, 1999
Carlton E. Turner, Ph.D. Executive Officer and
Director
(principal executive
officer)
/s/ Robert W. Schnitzius Chief Financial Officer March 31, 1999
Robert W. Schnitzius (principal financial and
accounting officer)
/s/ R. Dale Bowerman Director March 31, 1999
R. Dale Bowerman
/s/ George DeMott Director March 31, 1999
George DeMott
/s/ Robert A. Fildes, Ph.D. Director March 31, 1999
Robert A. Fildes, Ph.D.
/s/ Thomas J. Marquez Director March 31, 1999
Thomas J. Marquez
/s/ James T. O Brien Director March 31, 1999
James T. O Brien
/s/ Selvi Vescovi Director March 31, 1999
Selvi Vescovi
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
3.1 Restated Articles of Incorporation of Carrington
Laboratories, Inc., (incorporated herein by reference
to Exhibit 3.1 to Carrington's 1988 Annual Report on
Form 10-K).
3.2 Statement of Cancellation of Redeemable Shares of
Carrington Laboratories, Inc., dated June 9, 1989
(incorporated herein by reference to Exhibit 3.2 to
Carrington's 1991 Annual Report on Form 10-K).
3.3 Statement of Change of Registered Office and
Registered Agent of Carrington Laboratories, Inc.,
(incorporated herein by reference to Exhibit 3.1 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1991).
3.4 Statement of Resolution Establishing Series D
Preferred Stock of Carrington Laboratories, Inc.,
(incorporated herein by reference to Exhibit 3.1 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1991).
3.5 Statement of Resolution Establishing Series E
Convertible Preferred Stock of Carrington
Laboratories, Inc., (incorporated herein by reference
to Exhibit 3.1 to Carrington's Form 8-K Current Report
dated October 21, 1996).
3.6 Statement of Cancellation of Treasury Shares, dated
July 17, 1997 (incorporated herein by reference to
Exhibit 3.6 to Carrington's 1997 Annual Report on Form
10-K).
3.7 Statement of Resolution Eliminating Four Series of
Preferred Stock, dated July 17, 1997 (incorporated
herein by reference to Exhibit 3.7 to Carrington's
1997 Annual Report on Form 10-K).
3.8 By-laws of Carrington Laboratories, Inc., as amended
through March 3, 1998 (incorporated herein by
reference to Exhibit 3.8 to Carrington's 1997 Annual
Report on Form 10-K).
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
4.1 Form of certificate for Common Stock of Carrington
Laboratories, Inc., (incorporated herein by reference
to Exhibit 4.5 to Carrington's Registration Statement
on Form S-3 (No. 33-57360) filed with the Securities
and Exchange Commission on January 25, 1993).
4.23 Rights Agreement dated as of September 19, 1991,
between Carrington Laboratories, Inc., and Ameritrust
Company National Association (incorporated herein by
reference to Exhibit 1 to Carrington's Report on Form
8-K dated September 19, 1991).
10.1** 1985 Stock Option Plan of Carrington Laboratories,
Inc., as amended through April 28, 1994 (incorporated
herein by reference to Exhibit 4.1 to Carrington's
Form S-8 Registration Statement (No. 33-64407) filed
with the Securities and Exchange Commission on
November 17, 1995).
10.2** Form of Nonqualified Stock Option Agreement for
employees, as amended, relating to Carrington's 1985
Stock Option Plan (incorporated herein by reference to
Exhibit 4.2 to Carrington's Registration Statement on
Form S-8 (No. 33-50430) filed with the Securities and
Exchange Commission on August 4, 1992).
10.3** Form of Nonqualified Stock Option Agreement for non-
employee directors, as amended, relating to
Carrington's 1985 Stock Option Plan (incorporated
herein by reference to Exhibit 4.3 to Carrington's
Registration Statement on Form S-8 (No. 33-64407)
filed with the Securities and Exchange Commission on
November 17, 1995).
10.4 License Agreement dated September 20, 1990, between
Carrington Laboratories, Inc., and Solvay Animal
Health, Inc. (incorporated herein by reference to
Exhibit 10.1 to Carrington's Quarterly Report on Form
10-Q for the quarter ended August 31, 1990).
10.5 Contract Research Agreement dated as of August 8,
1991, between Carrington Laboratories, Inc., and Texas
Agriculture Experimental Station, as agent for the
Texas A&M University System (incorporated herein by
reference to Exhibit 10.55 to Carrington's 1991 Annual
Report on Form 10-K).
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
10.6 Lease Agreement dated as of August 30, 1991, between
Carrington Laboratories, Inc., and Western Atlas
International, Inc. (incorporated herein by reference
to Exhibit 10.59 to Carrington's 1991 Annual Report on
Form 10-K).
10.7** Employee Stock Purchase Plan of Carrington
Laboratories, Inc., as amended through June 15, 1995
(incorporated herein by reference to Exhibit 10.29 to
Carrington's 1995 Annual Report on Form 10-K).
10.8** Employment Agreement dated July 6, 1993, between
Carrington Laboratories, Inc., and Luiz F. Cerqueira
(incorporated herein by reference to Exhibit 10.43 to
Carrington's 1993 Annual Report on Form 10-K).
10.9 Common Stock Purchase Warrant dated September 14,
1993, issued by Carrington Laboratories, Inc., to E.
Don Lovelace (incorporated herein by reference to
Exhibit 10.44 to Carrington's 1993 Annual Report on
Form 10-K).
10.10 Common Stock Purchase Warrant dated September 14,
1993, issued by Carrington Laboratories, Inc., to
Jerry L. Lovelace (incorporated herein by reference to
Exhibit 10.45 to Carrington's 1993 Annual Report on
Form 10-K).
10.11** Agreement Regarding Termination of Employment and Full
and Final Release dated February 16, 1994, between
Carrington Laboratories, Inc., and David A. Hotchkiss
(incorporated herein by reference to Exhibit 10.49 to
Carrington's 1993 Annual Report on Form 10-K).
10.12 License Agreement dated March 18, 1994, between
Carrington Laboratories, Inc., and Societe Europeenne
de Biotechnologie (incorporated herein by reference to
Exhibit 10.53 to Carrington's 1994 Annual Report on
Form 10-K).
10.13 Agreement dated March 28, 1994, between Carrington
Laboratories, Inc., and Keun Wha Pharmaceutical Co.,
Ltd., (incorporated herein by reference to Exhibit
10.54 to Carrington's 1994 Annual Report on Form 10-
K).
10.14 Lease Agreement dated June 15, 1994, between DFW Nine,
a California limited partnership, and Carrington
Laboratories, Inc., (incorporated herein by reference
to Exhibit 10.55 to Carrington's 1994 Annual Report on
Form 10-K).
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
10.15 Lease Amendment dated August 23, 1994, amending Lease
Agreement listed as Exhibit 10.14 (incorporated herein
by reference to Exhibit 10.57 to Carrington's 1994
Annual Report on Form 10-K).
10.16 License Agreement dated September 29, 1994, between
Carrington Laboratories, Inc., and Immucell
Corporation (incorporated herein by reference to
Exhibit 10.58 to Carrington's 1994 Annual Report on
Form 10-K).
10.17 Third Lease Amendment dated December 1, 1994, amending
Lease Agreement listed as Exhibit 10.6 (incorporated
herein by reference to Exhibit 10.60 to Carrington's
1994 Annual Report on Form 10-K).
10.18 Production Contract dated February 13, 1995, between
Carrington Laboratories, Inc., and Oregon Freeze Dry,
Inc. (incorporated herein by reference to Exhibit
10.63 to Carrington's 1994 Annual Report on Form 10-
K).
10.19** Management Compensation Plan (incorporated herein by
reference to Exhibit 10.64 to Carrington's 1994 Annual
Report on Form 10-K).
10.20 Research Agreements dated June 24, 1994, September 16,
1994, and February 2, 1995, between Southern Research
Institute and Carrington Laboratories, Inc.,
(incorporated herein by reference to Exhibit 10.65 to
Carrington's 1994 Annual Report on Form 10-K).
10.21 Trademark License Agreement between Caraloe, Inc.
(Licensor), and Emprise International, Inc.
(Licensee), dated March 31, 1995 (incorporated herein
by reference to Exhibit 10.2 to Carrington's Second
Quarter 1995 Report on Form 10-Q).
10.22 Supply Agreement between Caraloe, Inc. (Seller), and
Emprise International, Inc. (Buyer), dated March
31,1995 (incorporated herein by reference to Exhibit
10.3 to Carrington's Second Quarter 1995 Report on
Form 10-Q).
10.23 Sales Distribution Agreement between the Chinese
Academy of Sciences and Carrington Laboratories, Inc.,
dated August 16, 1995 (incorporated herein by
reference to Exhibit 10.1 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
10.24 Sales Distribution Agreement between the Chinese
Academy of Sciences and Carrington Laboratories, Inc.,
dated August 16, 1995 (incorporated herein by
reference to Exhibit 10.2 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
10.25 Sales Distribution Agreement between the Chinese
Academy of Sciences and Carrington Laboratories, Inc.,
dated August 16, 1995 (incorporated herein by
reference to Exhibit 10.3 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
10.26 Supply and Distribution Agreement between Medical
Polymers, Inc., and Carrington Laboratories, Inc.,
dated September 15, 1995 (incorporated herein by
reference to Exhibit 10.4 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
10.27 Clinical Services Agreement between Pharmaceutical
Products Development, Inc., and Carrington
Laboratories, Inc., dated July 10, 1995 (incorporated
herein by reference to Exhibit 10.5 to Carrington's
Third Quarter 1995 Report on Form 10-Q).
10.28 Non-exclusive Sales and Distribution Agreement between
Innovative Technologies Limited and Carrington
Laboratories, Inc., dated August 22, 1995
(incorporated herein by reference to Exhibit 10.6 to
Carrington's Third Quarter 1995 Report on Form 10-Q).
10.29 Supplemental Agreement to Non-exclusive Sales and
Distribution Agreement between Innovative Technologies
Limited and Carrington Laboratories, Inc., dated
October 16, 1995 (incorporated herein by reference to
Exhibit 10.7 to Carrington's Third Quarter 1995 Report
on Form 10-Q).
10.30 Product Development and Exclusive Distribution
Agreement between Innovative Technologies Limited and
Carrington Laboratories, Inc., dated November 10, 1995
(incorporated herein by reference to Exhibit 10.8 to
Carrington's Third Quarter 1995 Report on Form 10-Q).
10.31** Resignation Agreement and Full and Final Release dated
February 24, 1995, between Carrington Laboratories,
Inc., and Bill H. McAnalley (incorporated herein by
reference to Exhibit 10.68 to Carrington's 1995 Annual
Report on Form 10-K).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.32** Revised and Restated Resignation Agreement dated March
14, 1995, between Carrington Laboratories, Inc., and
Karl H. Meister (incorporated herein by reference to
Exhibit 10.69 to Carrington's 1995 Annual Report on
Form 10-K).
10.33 Common Stock Purchase Warrant dated August 4, 1995,
issued by Carrington Laboratories, Inc., to Clifford
T. Kalista (incorporated herein by reference to
Exhibit 10.70 to Carrington's 1995 Annual Report on
Form 10-K).
10.34 Form of Stock Purchase Agreement dated April 5, 1995
between Carrington Laboratories, Inc., and persons
named in Annex I thereto (incorporated herein by
reference to Exhibit 2.1 to Carrington's Registration
Statement 33-60833 on Form S-3).
10.35 Form of Registration Rights Agreement dated June 20,
1995 between Carrington Laboratories, Inc., and
persons named in Annex I thereto (incorporated herein
by reference to Exhibit 2.2 to Carrington's
Registration Statement 33-60833 on Form S-3).
10.36 Supply and Distribution Agreement between Farnam
Companies, Inc., and Carrington Laboratories, Inc.,
dated March 22, 1996 (incorporated herein by reference
to Exhibit 10.76 to Carrington's 1995 Annual Report on
Form 10-K).
10.37 Placement Agent Agreement between Carrington
Laboratories, Inc., and First Granite Securities, Inc.
(incorporated herein by reference to Exhibit 10.1 to
Carrington's Current Report on Form 8-K dated October
21, 1996).
10.38 Indemnification Agreement between the Carrington
Laboratories, Inc., and First Granite Securities, Inc.
(incorporated herein by reference to Exhibit 10.2 to
Carrington's Current Report on Form 8-K dated October
21, 1996).
10.39 Joint Escrow Instructions from Carrington
Laboratories, Inc., and accepted by Krieger & Prager,
Esqs., as escrow agent (incorporated herein by
reference to Exhibit 10.3 to Carrington's Current
Report on Form 8-K dated October 21, 1996).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.40 Stock Purchase Agreement between Carrington
Laboratories, Inc., and each of the purchasers of
shares of the Registrant's Series E Convertible
Preferred Stock (incorporated herein by reference to
Exhibit 10.4 to Carrington's Current Report on Form 8-
K dated October 21, 1996).
10.41 Amendment to the Stock Purchase Agreement between
Carrington Laboratories, Inc., and each of the
purchasers of shares of Carrington's Series E
Convertible Preferred Stock, dated October 15, 1996
(incorporated herein by reference to Exhibit 10.5 to
Carrington's Current Report on Form 8-K dated October
21, 1996).
10.42 Registration Rights Agreement between Carrington
Laboratories, Inc., and each of the purchasers of
shares of Carrington's Series E Convertible Preferred
Stock (incorporated herein by reference to Exhibit
10.6 to Carrington's Current Report on Form 8-K dated
October 21, 1996).
10.43 Distribution Agreement between Carrington
Laboratories, Inc., and Ching Hwa Pharmaceutical Co.,
Ltd., dated March 1, 1996 (incorporated herein by
reference to Exhibit 10.1 to Carrington's First
Quarter 1996 Report on Form 10-Q).
10.44 Fourth Amendment to Credit Agreement and Term Note
between Carrington Laboratories, Inc., and NationsBank
of Texas, N.A., dated May 1, 1996 (incorporated herein
by reference to Exhibit 10.2 to Carrington's First
Quarter 1996 Report on Form 10-Q).
10.45 Assignment of Certificate of Deposit to NationsBank of
Texas, N.A., dated May 1, 1996 (incorporated herein by
reference to Exhibit 10.3 to Carrington's First
Quarter 1996 Report on Form 10-Q).
10.46 Release of Liens agreement between Carrington
Laboratories, Inc., and NationsBank of Texas, N.A.,
dated May 1, 1996 (incorporated herein by reference to
Exhibit 10.4 to Carrington's First Quarter 1996 Report
on Form 10-Q).
10.47** Form of Nonqualified Stock Option Agreement for
Employees (incorporated herein by reference to Exhibit
4.1 to Carrington's Second Quarter 1996 Report on Form
10-Q).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.48** Carrington Laboratories, Inc., 1995 Stock Option Plan,
As Amended and Restated Effective January 15, 1998
(incorporated herein by reference to Exhibit 10.3 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
10.49** Form of Nonqualified Stock Option Agreement with
Outside Director, relating to the Registrant's 1995
Stock Option Plan, as amended (incorporated herein by
reference to Exhibit 10.3 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998).
10.50** Form of Incentive Stock Option Agreement for Employees
(incorporated herein by reference to Exhibit 4.4 to
Carrington's Second Quarter 1996 Report on Form 10-Q).
10.51 Sales Distribution Agreement between Faulding
Pharmaceuticals Laboratories and Carrington
Laboratories, Inc., dated September 30, 1996
(incorporated herein by reference to Exhibit 10.1 to
Carrington's Third Quarter 1996 Report on Form 10-Q).
10.52 Sales Distribution Agreement between Trudell Medical
Marketing Limited and Carrington Laboratories, Inc.,
dated May 15, 1996 (incorporated herein by reference
to Exhibit 10.2 to Carrington's Third Quarter 1996
Report on Form 10-Q).
10.53 Clinical Research Agreement between ICON and
Carrington Laboratories, Inc., dated July 15, 1996
(incorporated herein by reference to Exhibit 10.3 to
Carrington's Third Quarter 1996 Report on Form 10-Q).
10.54 Sales Distribution Agreement between Suco
International Corp. and Carrington Laboratories, Inc.,
dated December 1, 1996 (incorporated by reference to
Exhibit 10.54 to Carrington's 1996 Annual Report on
Form 10-K).
10.55 Sales Distribution Agreement between Recordati,
S.P.A., and Carrington Laboratories, Inc., and
Carrington Laboratories Belgium N.V., dated December
20, 1996 (incorporated by reference to Exhibit 10.55
to Carrington's 1996 Annual Report on Form 10-K).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.56 Nonexclusive Distribution Agreement between Polymedica
Industries, Inc., and Carrington Laboratories, Inc.,
dated November 15, 1996 (incorporated by reference to
Exhibit 10.56 to Carrington's 1996 Annual Report on
Form 10-K).
10.57 Sales Distribution Agreement between Gamida-Medequip
Ltd., and Carrington Laboratories, Inc., dated
December 24, 1996 (incorporated by reference to
Exhibit 10.57 to Carrington's 1996 Annual Report on
Form 10-K).
10.58 Sales Distribution Agreement between Gamida For Life
BV, and Carrington Laboratories, Inc., dated December
24, 1996 (incorporated by reference to Exhibit 10.58
to Carrington's 1996 Annual Report on Form 10-K).
10.59 Sales Distribution Agreement between Darrow
Laboratorios S/A and Carrington Laboratories, Inc.,
dated December 4, 1996 (incorporated by reference to
Exhibit 10.59 to Carrington's 1996 Annual Report on
Form 10-K).
10.60 Independent Sales Representative Agreement between
Vision Medical and Carrington Laboratories, Inc.,
dated October 1, 1996 (incorporated by reference to
Exhibit 10.60 to Carrington's 1996 Annual Report on
Form 10-K).
10.61 Independent Sales Representative Agreement between
Think Medical, Inc., and Carrington Laboratories,
Inc., dated October 1, 1996 (incorporated by reference
to Exhibit 10.61 to Carrington's 1996 Annual Report on
Form 10-K).
10.62 Independent Sales Representative Agreement between
Meares Medical Sales Associates and Carrington
Laboratories, Inc., dated October 1, 1996
(incorporated by reference to Exhibit 10.62 to
Carrington's 1996 Annual Report on Form 10-K).
10.63 Supply Agreement between Aloe Commodities
International, Inc., and Caraloe, Inc., dated February
13, 1997 (incorporated by reference to Exhibit 10.63
to Carrington's 1996 Annual Report on Form 10-K).
10.64 Trademark License Agreement between Light Resources
Unlimited and Carrington Laboratories, Inc., dated
March 1, 1997 (incorporated by reference to Exhibit
10.64 to Carrington's 1996 Annual Report on Form 10-
K).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.65 Supply Agreement between Light Resources Unlimited and
Caraloe, Inc., dated February 13, 1997 (incorporated
by reference to Exhibit 10.65 to Carrington's 1996
Annual Report on Form 10-K).
10.66 Sales Distribution Agreement between Penta
Farmaceutica, S.A., and Carrington Laboratories, Inc.,
dated December 27, 1996 (incorporated by reference to
Exhibit 10.66 to Carrington's 1996 Annual Report on
Form 10-K).
10.67 Stock Subscription Offer of Aloe Commodities, Inc.,
and Caraloe, Inc., dated October 30, 1996
(incorporated by reference to Exhibit 10.67 to
Carrington's 1996 Annual Report on Form 10-K).
10.68 Modification Number Two to the Production Contract
dated February 13, 1995, between Carrington
Laboratories, Inc., and Oregon Freeze Dry, Inc.,
listed as Exhibit 10.18, dated November 19, 1996
(incorporated by reference to Exhibit 10.68 to
Carrington's 1996 Annual Report on Form 10-K).
10.69 Offer and Agreement of Sale and Purchase of
Convertible Preferred Series E Stock between holders
of Carrington Laboratories, Inc., Convertible
Preferred Series E Stock and Carrington Laboratories,
Inc., dated February 26, 1997 (incorporated by
reference to Exhibit 10.69 to Carrington's 1996 Annual
Report on Form 10-K).
10.70 Sales Distribution Agreement between Laboratories PiSA
S.A. DE C.V., and Carrington Laboratories, Inc., dated
November 1, 1995 (incorporated by reference to Exhibit
10.70 to Carrington's 1996 Annual Report on Form 10-
K).
10.71 Termination Acknowledgment between China Academy of
Sciences and Carrington Laboratories, Inc., dated
February 12, 1996, regarding the three agreements
listed as Exhibits 10.23, 10.24 and 10.25
(incorporated by reference to Exhibit 10.71 to
Carrington's 1996 Annual Report on Form 10-K).
10.72 Letter from Immucell Corporation to Carrington
Laboratories, Inc., dated February 7, 1996, canceling
the License Agreement listed as Exhibit 10.16
(incorporated by reference to Exhibit 10.72 to
Carrington's 1996 Annual Report on Form 10-K).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.73 Supply Agreement between Met-Trim, LLC and Caraloe,
Inc., dated December 1, 1997 (incorporated herein by
reference to Exhibit 10.73 to Carrington's 1997 Annual
Report on Form 10-K).
10.74 Trademark License Agreement between Met-Trim, LLC and
Caraloe, Inc., dated December 1, 1997 (incorporated
herein by reference to Exhibit 10.74 to Carrington's
1997 Annual Report on Form 10-K).
10.75 Amendment Number One to Sales Distribution Agreement
between Carrington Laboratories, Inc., and Faulding
Pharmaceuticals/David Bull Laboratories, dated January
12, 1998 (incorporated herein by reference to Exhibit
10.75 to Carrington's 1997 Annual Report on Form 10-
K).
10.76 Sales Distribution Agreement between Carrington
Laboratories, Inc. and Carrington Laboratories Belgium
N.V., and Henry Schein U.K. Holdings, Ltd., dated
January 1, 1998 (incorporated herein by reference to
Exhibit 10.1 to Carrington's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).
10.77 Sales Distribution Agreement between Carrington
Laboratories, Inc. and Carrington Laboratories Belgium
N.V., and Saude 2000, dated January 5, 1998
(incorporated herein by reference to Exhibit 10.2 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
10.78 Sales Distribution Agreement between Carrington
Laboratories, Inc. and Carrington Laboratories Belgium
N.V., and Hemopharm GmbH, dated March 27, 1998
(incorporated herein by reference to Exhibit 10.4 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
10.79 Sales Distribution Agreement between Carrington
Laboratories, Inc. and Carrington Laboratories Belgium
N.V., and Vincula International Trade Company, dated
March 27, 1998 (incorporated herein by reference to
Exhibit 10.5 to Carrington's Quarterly Report on Form
10-Q for the quarter
ended March 31, 1998).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.80** Separation Agreement and Full and Final Release dated
May 1, 1998 between Carrington Laboratories, Inc. and
Christopher S. Record (incorporated herein by
reference to Exhibit 10.6 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1998).
10.81 Agency and Sales Distribution Agreement dated April
13, 1998, between Carrington Laboratories, Inc., and
Carrington Laboratories Belgium N.V., and Egyptian
American Medical Industries, Inc. (incorporated herein
by reference to Exhibit 10.1 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1998).
10.82 Sales Distribution Agreement dated April 24, 1998,
between Carrington Laboratories, Inc., and Carrington
Laboratories Belgium N.V., and CSC Pharmaceuticals
Ltd., Dublin (incorporated herein by reference to
Exhibit 10.2 to Carrington's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
10.83 Promissory Note of Aloe Commodities International,
Inc.,dated June 17, 1998, payable to the order of the
Registrant in the principal amount of $200,000
(incorporated herein by reference to Exhibit 10.4 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
10.84** Resignation and Consulting Agreement effective May 31,
1998 between Carrington Laboratories, Inc., and Luiz
F. Cerqueira (incorporated herein by reference to
Exhibit 4.1 to Carrington's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
10.85 Promissory Note of Rancho Aloe, (C.R.) S.A., dated
July 1, 1998 payable to the order of the Registrant in
the principal amount of $186,655.00 (incorporated
herein by reference to Exhibit 10.1 to Carrington's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
10.86 Wound and Skin Care Purchase Agreement dated August
27th, 1998, between American Association for Homes &
Services for the Aging and Carrington Laboratories,
Inc. (incorporated herein by reference to Exhibit 10.2
to Carrington's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.87 Letter agreements dated September 30, 1998 and
November 4, 1998 between Aloe Commodities
International, Inc. and the Registrant amending due
date of Promissory Note dated June 17, 1998 from Aloe
Commodities International, Inc. to the Registrant
(incorporated herein by reference to Exhibit 10.2 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
10.88 Purchase Agreement dated October 1, 1998, between
Vencor, Inc. and Carrington Laboratories, Inc.
(incorporated herein by reference to Exhibit 10.3 to
Carrington's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).
10.89* Modification Number Three to the Production Contract
dated February 13, 1995, between Carrington
Laboratories, Inc., and Oregon Freeze Dry, Inc.,
listed as Exhibit 10.89, dated March 30, 1998.
10.90* Supply Agreement dated October 12, 1998 between
Caraloe, Inc. (Seller) and One Family, Inc.(Buyer)
10.91* Trademark License Agreement between Caraloe, Inc.
(Licensor), and One Family, Inc. (Licensee), dated
October 12, 1998.
10.92* Promissory Note of Aloe & Herbs International, Inc.
dated November 23, 1998 payable to the order of the
Registrant in the principal amount of $300,000.00.
10.93* Supply Agreement dated December 3, 1998 between
Caraloe, Inc. (Seller) and Eventus International, Inc.
(Buyer)
10.94* Trademark License Agreement between Caraloe, Inc.
(Licensor), and Eventus International, Inc.
(Licensee), dated December 3, 1998.
10.95* Amendment Number One dated December 3, 1998 to Supply
Agreement between Caraloe, Inc. and Eventus
International, Inc.
10.96* Clinical Services Agreement between Carrington
Laboratories, Inc., and PPD Pharmaco, Inc. dated
January 25, 1999.
10.97* Promissory Note of Aloe Commodities International,
Inc., dated February 4, 1999 payable to the order of
the Registrant in the principal amount of $681,730.43.
<PAGE>
Exhibit Sequentially
Number Numbered
Exhibit Page
10.98* Letter Agreement dated February 4, 1999 between Aloe
Commodities International Inc., and the Registrant
amending due date of Promissory Note dated June 17,
1998 from Aloe Commodities Internationa1, Inc. to the
Registrant.
10.99* Common Stock Purchase Warrant dated November 23,
1998, issued by Aloe and Herbs International, Inc.,
to Carrington Laboratories, Inc.
16.1 Letter dated March 21, 1997 from Arthur Andersen LLP
to the Securities and Exchange Commission
(incorporated herein by reference to Exhibit 16.1 to
Carrington's Form 10-K/A amendment to its Form 10-K
Annual Report for the year ended December 31, 1996,
which amendment was filed on April 7, 1997).
21.1* Subsidiaries of Carrington.
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Ernst & Young LLP
27.1* Financial Data Schedule
* Filed herewith.
** Management contract or compensatory plan.
EXHIBIT 10.89
MODIFICATION NUMBER THREE
Pursuant to the Production Contract dated as of February 13, 1995,
between Carrington Laboratories and Oregon Freeze Dry, paragraph two of
Article Seven (Minimum Commitments and Take or Pay Guaranty) Subsection C
(Take or Pay Guaranty: Minimum Total Commitment) shall be amended to
read as follows:
In the event Purchaser takes delivery of and pays for, during any
month of the term of this Production Contract, less than the monthly
Minimum Purchase specified in Subsection C of Article Three, other than
by a suspension of production by Purchaser pursuant to Article Eight,
Purchaser agrees to pay Seller within normal terms an amount equal to the
value of the Product and services not taken and such amount shall be
deemed as a pre-payment that may be applied to future orders of Product
and services during the term of the Production Contract. Seller will
issue an invoice each month for any portion of the $30,000 minimum not
taken in Product and services. Debit memos created by Seller will
initiate these invoices. Seller will record these pre-payments on the
balance sheet, and provide its Sales Department with a monthly balance
from the general ledger. When orders are placed by Purchaser which have
been pre-paid (that is, when a pre-payment balance exists on the general
ledger), Seller will write these orders and price at zero to generate the
required packing lists for Distribution. In the event that at the end of
the term of the Production Contract there are unapplied pre-payments,
Seller shall retain the unapplied pre-payments, if the Total Minimum
Commitment has not been met, and the amount retained shall be applied to
the Total Minimum Commitment as if it were Product delivered and paid for
under the terms of the Production Contract. If the Total Minimum
Commitment has been met, then any unapplied payments shall be promptly
remitted to Purchaser.
This amendment is effective May 1, 1997.
IN WITNESS WHEREOF, the undesigned parties have duly executed this
modification to their agreement on the date last written below.
CARRINGTON LABORATORIES, INC. OREGON FREEZE DRY, INC.
By: \s\ Carlton E. Turner By: \s\ Philip A. Unverzagt
Title: President & CEO Title: Sr. V.P./CFO
Date: March 30, 1998 Date: April 16, 1998
EXHIBIT 10.90
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of October 12,
1998 is by and between CARALOE, INC., a Texas corporation ("Seller"), and
One Family, Inc. a Delaware corporation ("Buyer"),
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, Caraloe's Manapol[R] Powder (hereinafter referred
to under the name "Product") in the quantities, at the price, and upon
the terms and conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
1. Term. The term of this Agreement shall commence on October 12,
1998, and shall end at midnight on October 11, 2006, unless sooner
terminated as provided herein (the "Term").
2. Sale and Purchase. Subject to the terms and conditions of this
Agreement, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, during each year of the Term, agreed upon monthly quantities
equal to all of Buyer's needs for Manapol[R] Powder for the Product.
Seller shall, however, not be required to sell monthly quantities in
excess of Seller's present plant, farm or manufacturing capacity. The
Product specifications shall be mutually agreed upon by the Parties
within ninety (90) days from the date of execution of this Agreement.
Failure to reach agreement on the specifications within ninety (90) days
shall cause this Agreement to terminate unless an extension thereto is
mutually agreed upon by the Parties hereto.
3. Quality. Seller warrants to Buyer that all Manapol[R] Powder
sold by Seller pursuant to this Agreement will generally conform to the
quality specifications set forth in Exhibit A to this Agreement as per
Buyer and Seller mutual agreement referenced above. EXCEPT AS PROVIDED
IN THIS PARAGRAPH 3, THERE ARE NO WARRANTIES OR REPRESENTATIONS OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, MADE WITH
RESPECT TO THE MANAPOL[R] POWDER TO BE SOLD HEREUNDER, AND NONE SHALL BE
IMPLIED BY LAW.
<PAGE>
4. Deliveries. Buyer shall instruct Seller from time to time during
the Term, by placing a purchase order with Seller reasonably in advance
of the date Buyer desires Manapol[R] Powder to be delivered to it
hereunder, (i) as to the quantities of Manapol[R] Powder to be delivered
to Buyer, (ii) as to the specific date of delivery, (iii) as to the
specific location of delivery and (iv) as to the carrier or particular
type of carrier for such delivery. During the Term, Buyer shall provide
Seller (a) on an annual basis prior to the beginning of each year of the
Term a nonbinding forecast of Buyer's minimum and maximum aggregate
delivery requirements for Manapol[R] Powder for such year (provided that
such forecast for the second year of the Term shall be provided to Seller
by September 1, 1999), and (b) on a quarterly basis at least thirty (30)
days prior to the end of each three-month period of the Term a forecast
acceptable to Seller (which shall be binding on Buyer) of Buyer's minimum
and maximum delivery requirements for Manapol[R] Powder for each month of
the next three-month period (provided that such forecast for the initial
period of the Term ending on January 30, 1999, shall be provided to
Seller by November 1, 1998). The quantities of Manapol[R] Powder ordered
by Buyer pursuant to this Agreement from time to time shall be spaced in
a reasonable manner, and Buyer shall order such quantities in accordance
with Buyer's binding forecasts. In no event shall Seller be required to
deliver to Buyer in any three-month period a quantity of Manapol[R]
Powder in excess of 125% of the maximum delivery requirement for such
period set forth in the binding forecast for such period accepted by
Seller. Deliveries of Manapol[R] Powder shall be made by Seller under
normal trade conditions in the usual and customary manner being utilized
by Seller at the time and location of the particular delivery. The
Manapol[R] Powder delivered to Buyer hereunder shall be packaged per
agreement of the Parties. All deliveries of Manapol[R] Powder to Buyer
hereunder shall be made by Seller F.O.B. at the facilities of Seller or
its affiliates located in either Dallas, Texas or Liberia, Costa Rica as
agreed upon.
5. Purchase Price. All Manapol[R] Powder to be purchased by Buyer
under this Agreement shall be purchased by it, during the first and
second years of this Agreement, at a price per Product as set forth on
Exhibit B to this Agreement. Thereafter, Buyer and Seller shall meet on
a yearly basis to mutually agree upon prices for the upcoming contract
year. If prices for the upcoming year cannot be agreed upon the
Agreement shall terminate on October 12 of the contract year in question.
At delivery point, Buyer shall bear all freight, insurance and similar
costs, and all sales taxes, with respect to such purchases from that
point forward. The purchase price of Manapol[R] Powder, together with
all related freight, insurance and similar costs, and sales taxes, shall
be paid by Buyer to Seller within thirty (30) days after the date of
invoice.
6. Labels and Advertising
(a) FDA Compliance of Labels and Advertising. All labels and
advertising relating to the Manapol[R] Powder that reference Carrington
Laboratories or Seller sold hereunder must strictly comply with all
applicable rules and regulations of the FDA and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to product ingredients.
<PAGE>
(b) Claims by One Family, Inc., Unlimited. OFI hereby agrees not to
make, or permit any of its employees, agents or distributors to make, any
claims of any properties or results relating to Manapol[R] Powder and
Carrington Laboratories or Seller, unless such claims have received
written approval from the Seller.
(c) FDA Approval of Claims. If OFI desires to seek FDA approval as
to any specific claims with respect to the Manapol[R] Powder, OFI hereby
agrees to (i) notify Caraloe of the claims and the application prior to
filing and (ii) to keep informed as to the progress of the application,
including but not limited to sending Caraloe copies of all communications
or notices to or from the FDA, as applicable.
(d) Right to Approve Labels, etc. If Caraloe so requests, OFI shall
not use any label, advertisement or marketing material or individual
spokesman associated with the Manapol[R] Powder and Carrington
Laboratories or Seller, unless such label, advertisement or marketing
material or individual spokesman has first been submitted to and approved
by Caraloe. Caraloe shall not unreasonably withhold its approval of any
such label, advertisement or marketing material.
(e) Compliance by Third Parties. OFI shall take all steps reasonably
necessary to ensure that its distributors and any other parties to whom
it sells any of the Manapol[R] Powder for resale do not relabel,
repackage, advertise, sell or attempt to sell the Manapol[R] Powder in a
manner that would violate this Agreement if done by OFI.
7. Confidentiality. In the performance of Seller's obligations
pursuant to this Agreement, Buyer may acquire from Seller or its
affiliates technical, commercial, operating or other proprietary
information relative to the business or operations of Seller or its
affiliates (the "Confidential Information"). Buyer shall maintain the
confidentiality, and take all necessary precautions to safeguard the
secrecy, of any and all Confidential Information it may acquire from
Seller or its affiliates. Buyer shall not use any of such Confidential
Information for its own benefit or for the benefit of anyone else. Buyer
shall not publicly disclose the existence of this Agreement or the terms
hereof without the prior written consent of Seller.
8. Force Majeure. Seller shall not have any liability hereunder if
it shall be prevented from performing any of its obligations hereunder by
reason of any factor beyond its control, including, without limitation,
fire, explosion, accident, riot, flood, drought, storm, earthquake,
lightning, frost, civil commotion, sabotage, vandalism, smoke, hail,
embargo, act of God or the public enemy, other casualty, strike or
lockout, or interference, prohibition or restriction imposed by any
government or any officer or agent thereof ("Force Majeure"), and
Seller's obligations, so far as may be necessary, shall be suspended
during the period of such Force Majeure and shall be cancelled in respect
of such quantities of Manapol[R] Powder as would have been sold hereunder
but for such suspension. Seller shall give to Buyer prompt notice of any
such Force Majeure, the date of commencement thereof and its probable
duration and shall give a further notice in like manner upon the
termination thereof. Each party hereto shall endeavor with due diligence
to resume compliance with its obligations hereunder at the earliest date
and shall do all that it reasonably can to overcome or mitigate the
effects of any such Force Majeure upon its obligations under this
Agreement.
<PAGE>
9. Rights Upon Default.
(a) Seller's Rights Upon Default. If Buyer (i) fails to purchase
the quantities of Manapol[R] Powder specified for purchase by Buyer
hereunder, (ii) fails to make a payment hereunder when due or (iii)
otherwise breaches any term of this Agreement, and such failure or breach
is not cured to Seller's reasonable satisfaction within 5 days (in the
case of a failure to make a payment) or 30 days (in any other case) after
receipt of notice thereof by Buyer, or if Buyer fails to perform or
observe any covenant or condition on its part to be performed when
required to be performed or observed, and such failure continues after
the applicable grace period, if any, specified in the Agreement, Seller
may refuse to make further deliveries hereunder and may terminate this
Agreement upon notice to Buyer and, in addition, shall have such other
rights and remedies, including the right to recover damages, as are
available to Seller under applicable law or otherwise. If Buyer becomes
bankrupt or insolvent, or if a petition in bankruptcy is filed by or
against it, or if a receiver is appointed for it or its properties,
Seller may refuse to make further deliveries hereunder and may terminate
this Agreement upon notice to Buyer, without prejudice to any rights of
Seller existing hereunder or under applicable law or otherwise. Any
subsequent shipment of Manapol[R] Powder by Seller after a failure by
Buyer to make any payment hereunder, or after any other default by Buyer
hereunder, shall not constitute a waiver of any rights of Seller arising
out of such prior default; nor shall Seller's failure to insist upon
strict performance of any provision of this Agreement be deemed a waiver
by Seller of any of its rights or remedies hereunder or under applicable
law or a waiver by Seller of any subsequent default by Buyer in the
performance of or compliance with any of the terms of this Agreement.
(b) Buyer's Rights Upon Default. If Seller fails in any material
respect to perform its obligations hereunder, and such failure is not
cured to Buyer's reasonable satisfaction within 30 days after receipt of
notice thereof by Seller, Buyer shall have the right to refuse to accept
further deliveries hereunder and to terminate this Agreement upon notice
to Seller and, in addition, shall have such other rights and remedies,
including the right to recover damages, as are available to Buyer under
applicable law or otherwise. Any subsequent acceptance of delivery of
Manapol[R] Powder by Buyer after any default by Seller under this
Agreement shall not constitute a waiver of any rights of Buyer arising
out of such prior default; nor shall Buyer's failure to insist upon
strict performance of any provision of this Agreement be deemed a waiver
by Buyer of any of its rights or remedies hereunder or under applicable
law or a waiver by Buyer of any subsequent default by Seller in the
performance of or compliance with any of the terms of this Agreement.
<PAGE>
10. Disclaimer and Indemnity. Buyer shall assume all financial and
other obligations for Buyer Product, and Seller shall not incur any
liability or responsibility to Buyer or to third parties arising out of
or connected in any manner with Buyer Product. In no event shall Seller
be liable for lost profits, special damages, consequential damages or
contingent liabilities arising out of or connected in any manner with
this Agreement or Buyer Product. Buyer shall defend, indemnify and hold
harmless Seller and its affiliates, and their respective officers,
directors, employees and agents, from and against all claims,
liabilities, demands, damages, expenses and losses (including reasonable
attorneys' fees and expenses) arising out of or connected with (i) any
manufacture, use, sale or other disposition of Buyer Product, or any
other Product of Buyer, by Buyer or any other party and (ii) any breach
by Buyer of any of its obligations under this Agreement.
11. Equitable Relief. A breach by Buyer of the provisions of
Paragraph 2(b) shall cause Seller to suffer irreparable harm and, in such
event, Seller shall be entitled, as a matter of right, to a restraining
order and other injunctive relief from any court of competent
jurisdiction, restraining any further violation thereof by Buyer, its
officers, agents, servants, employees and those persons in active concert
or participation with them. The right to a restraining order or other
injunctive relief shall be supplemental to any other right or remedy
Seller may have, including, without limitation, the recovery of damages
for the breach of such provisions or of any other provisions of this
Agreement.
12. Survival. The expiration or termination of the Term shall not
impair the rights or obligations of either party hereto which shall have
accrued hereunder prior to such expiration or termination. The
provisions of Paragraphs 7, 9,10 and 11 hereof, and the rights and
obligations of the parties thereunder, shall survive the expiration or
termination of the Term.
13. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Texas.
14. Succession. Neither party hereto may assign or otherwise
transfer this Agreement or any of its rights or obligations hereunder
(including, without limitation, by merger or consolidation) without the
prior written consent of the other party; provided, however, that Seller
may assign any of its rights or obligations hereunder to any affiliate of
Seller. Subject to the immediately preceding sentence, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
15. E n tire Agreement. This Agreement constitutes the entire
agreement between the parties hereto relating to the matters covered
hereby and supersede any and all prior understandings, whether written or
oral, with respect to such matters. The terms of this Agreement shall
prevail over any inconsistent terms contained in any purchase order
issued by Buyer and acknowledgment or acceptance thereof issued by
Seller. No modification, waiver or discharge of this Agreement or any of
its terms shall be binding unless in writing and signed by the party
against which the modification, waiver or discharge is sought to be
enforced.
<PAGE>
16. Notices. All notices and other communications with respect to
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered personally or when duly deposited in the mails,
first class mail, postage prepaid, to the address set forth below, or
such other address hereafter specified in like manner by one party to the
other:
If to Seller: Caraloe, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: President
If to Buyer: One Family, Inc.
8160 Blakeland Drive, Unit A
Littleton, CO 80125
Attention: President
17. Interpretation. In the event that any provision of this
Agreement is illegal, invalid or unenforceable as written but may be
rendered legal, valid and enforceable by limitation thereof, then such
provision shall be deemed to be legal, valid and enforceable to the
maximum extent permitted by applicable law. The illegality, invalidity
or unenforceability in its entirety of any provision hereof will not
affect the legality, validity or enforceability of the remaining
provisions of this Agreement.
18. No Inconsistent Actions. Each party hereto agrees that
it will not voluntarily undertake any action or course of action
inconsistent with the provisions or intent of this Agreement and, subject
to the provisions of Paragraph 8 hereof, will promptly do all acts and
take all measures as may be appropriate to comply with the terms,
conditions and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first
above written.
CARALOE, INC.
By: \s\ Bill Pine
General Manager
ONE FAMILY, INC.
By: \s\ Hilton Sher
Chief Financial Officer
<PAGE>
EXHIBIT A
ONE FAMILY, INC.
PRODUCT SPECIFICATIONS
C-200 (Manapol[R] Powder)
PRODUCT DESCRIPTION
PRODUCT: Aloe vera Gel C-200
CODE: C-200
SOURCE: Aloe barbadensis Miller
USES: The pure, stabilized Aloe vera Gel Powder is
suitable for use in pharmaceutical and beverage
formulations
SPECIFICATION SHEET
Test Specification Method
Appearance Fine white to beige
powder
Complex > = 30 HPLC(SEC)
Carbohydrates
(wt. %)
Water, wt.% < = 14% TGA
Residue on Ignition < = 16% TGA
wt.%
Microbiological Meets USP Standard USP
Purity
Fiber, wt.% < = 60% TGA
Solubility approx.240 Gel Point CARN
Gelization
pH Not Adjusted CARN
Fiber Enriched CARN
Viscosity (cP) approx. 40 CARN
4 mg/ml solution
Total Acid Value approx. 0.7 CARN
(As Malic Acid)
<PAGE>
EXHIBIT B
ONE FAMILY, INC.
September 4, 1998
Pricing schedule for Manapol[R] Powder
1-99 kg $1,600.00/kg
100-299 kg $1,400.00/kg
300-599 kg $1,200.00/kg
All pricing is based on quantity ordered per month.
EXHIBIT 10.91
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), effective as of
October 12, 1998 is made by and between CARALOE, INC. ("Licensor"), a
Texas corporation, having its principal place of business at 2001 Walnut
Hill Lane, Irving, Texas 75038, and One Family, Inc., ("Licensee"),
having its principal place of business at 8160 Blakeland Drive, Unit A,
Littleton, CO 80125.
W I T N E S S E T H:
WHEREAS, Licensor and One Family, Inc., ("OFI") have previously
entered into a Supply Agreement (the "Supply Agreement") for the sale
by Licensor and purchase by OFI of bulk Aloe vera mucilaginous
polysaccharide including one particular product (hereinafter referred to
under the product name of Manapol[R] or Manapol[R] Powder) to be used as
one of the ingredients in a drink or drinks manufactured by OFI also
containing other ingredients and substances (the "OFI Manufactured
Products"):
WHEREAS, Carrington Laboratories, Inc., a Texas corporation
("Carrington"), is the owner of the Trademark Manapol[R] (the "Mark") and
has granted to Licensor a license to use the Mark and to license others
to use it on a non-exclusive basis;
WHEREAS, Licensee is desirous of obtaining from Licensor, and
Licensor is willing to grant to Licensee, a license to use the Trademark
Manapol[R] (the "Mark") in connection with the advertising and sale of
the OFI Manufactured Products subject to the terms, conditions and
restrictions set forth herein; and
WHEREAS, Licensor and Licensee are mutually desirous of insuring the
consistent quality of all products sold in connection with the Mark;
NOW, THEREFORE, in consideration of premises, the mutual covenants,
promises and agreement set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant, promise and agree as follows:
Article 1
LICENSE
1.1 Terms and Conditions. Licensor hereby grants to Licensee the
non-transferable right and non exclusive license to use the Mark and
associated product (Manapol[R] powder), in connection with the labeling,
advertising and sale of the OFI Manufactured Products manufactured and
sold by OFI for Licensee during the term of this Agreement. During the
term of this Agreement, Licensee shall have the non exclusive right to
use the Mark in connection with the OFI Manufactured Products containing
Manapol[R] powder in a drink or drinks that are intended for sale to the
ultimate consumer in the U.S.
<PAGE>
1.2 License Coterminous With Supply Agreement. The license granted
by this Agreement shall run coterminously with the Supply Agreement, and
any actions or events which shall operate to extend or terminate the
Supply Agreement shall automatically extend or terminate this Agreement
simultaneously.
1.3 Sublicenses. Licensee shall not have the right without written
permission from Licensor to grant sublicenses with respect to the license
granted herein; however, Licensee may engage a third party or parties to
make and affix labels for the OFI Manufactured Products in compliance
with Articles 2,3, and 4 hereof, and/or to distribute and sell the OFI
Manufactured Products in compliance with the terms and conditions of this
Agreement. Licensee shall be expressly obligated to ensure full
compliance with all terms and conditions of this Agreement.
Article 2
CERTAIN OBLIGATIONS OF LICENSEE
2.1 Representations by Licensee. Licensee shall not represent in
any manner that it owns any right, title or interest in or to the Mark.
Licensee acknowledges that its use of the Mark shall inure to the benefit
of Licensor and shall not create in Licensee's favor any right, title or
interest in or to the Mark.
2.2 Discontinuation of Use of Mark. Upon the expiration or
termination of this Agreement, Licensee will cease and desist from all
use of the Mark in any manner and will not adopt or use, without
Licensor's prior written consent, any word or mark which is confusingly
or deceptively similar to the Mark, except that Licensee may continue to
use the Mark under the terms and conditions of this Agreement in
connection with any remaining supplies of the Manapol[R] drink or drinks
purchased by Licensee from OFI until such supplies are exhausted.
2.3 Standards. All products on which the Mark is used by Licensee
shall be of consistent quality and shall meet or exceed all standards set
by Licensor, in Licensor's sole discretion, from time to time. Licensee
shall have thirty (30) days from the receipt of written notice of any
change in the standards to comply with any new requirements.
2.4 Use of Trademark. Licensee shall not use the Mark except as
specifically set forth herein. Without limiting the generality of the
preceding sentence, Licensee shall not use the Mark in connection with
the sale or advertising of any products other than the OFI Manufactured
Products.
Article 3
MANUFACTURING AND SALE
3.1 Combination With Other Products. Licensee shall not combine or
cause to be combined Manapol[R] powder with any product or substance in
any manner which would violate any laws, rules or regulations of any
state, federal or other governmental body.
<PAGE>
3.2 Compliance by Third Parties. Licensee shall take all steps
reasonably necessary to ensure that its distributors, if any, and any
other parties to whom it sells any of the OFI Manufactured Products for
resale do not relabel, repackage, advertise, sell or attempt to sell
Manapol[R] powder or any of the OFI Manufactured Products in a manner
that would violate this Agreement if done by Licensee.
3.3 Manapol[R] Content. The amount of Manapol[R] powder to be
contained in each of the OFI Manufactured Products shall be no less than
fifteen milligrams (15mgs) per ounce. The parties shall meet once each
year to determine and agree upon the Manapol[R] powder content for
existing and proposed OFI Manufactured Products.
Article 4
LABELS AND ADVERTISING<PAGE>
4.1 Regulatory Compliance of Labels and Advertising. All labels
and advertising relating to the OFI Manufactured Products offered in
connection with the Mark must strictly comply with all applicable laws,
rules and regulations in the U.S. relating to product ingredients.
4.2 Mandatory Requirements. Licensee shall cause all labels,
packaging, advertising and promotional materials used by it in
advertising, marketing and selling any product manufactured by or on
behalf of Licensee that contains Manapol[R] powder to contain (i) the
Mark, (ii) a statement setting forth the concentration of Manapol[R]
powder contained in such product, and (iii) the following legend:
Manapol[R] powder is a registered trademark of Caraloe, Inc.
4.3 Claims by Licensee. Licensee hereby agrees not to make, or
permit any of its employees, agents or distributors to make, any claims
of any properties or results relating to Manapol[R] or Manapol[R] powder,
unless such claims comply with the applicable laws, rules and regulations
of the U.S.
Article 5
ROYALTY
5.1 Licensee agrees to pay to Licensor a royalty of fifteen cents
($0.15) per product.
5.2 Licensee shall make the royalty payment to Licensor within
thirty (30) days of receipt of an invoice from OFI for products shipped
to Licensee.
5.3 All payments hereunder are to be paid in U.S. currency at the
address set forth at the beginning of this Agreement.
Article 6
NEGATION OF WARRANTIES, DISCLAIMER AND INDEMNITY
6.1 Negation of Warranties, etc. Nothing in this Agreement shall
be construed or interpreted as:
<PAGE>
(a) a warranty or representation by Licensor that any OFI
Manufactured Products made, used, sold or otherwise disposed of under the
license granted in this Agreement is or will be free of infringement or
the like of the rights of third parties; or
(b) an obligation by Licensor to bring or prosecute actions or
suits against third parties for infringement or the like of the
Manapol[R] powder; or
(c) granting by implication, estoppel or otherwise any licenses or
rights other than those expressly granted hereunder.
6.2 Disclaimer. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A
PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH
RESPECT TO THE USE, SALE OR OTHER DISPOSITION BY LICENSEE OR ITS
CUSTOMERS, VENDEES OR OTHER TRANSFEREES, WITH RESPECT TO THE MARK OR ANY
PRODUCTS MADE OR SOLD BY LICENSEE.
6.3 Liability of Licensee for Products. As between Licensor and
Licensee, Licensee shall assume all financial and other obligations for
the OFI Manufactured Products made for it and sold by it under this
Agreement and Licensor shall not incur any liability or responsibility to
Licensee or to third parties arising out of or connected in any manner
with Licensee's products made or sold pursuant to this Agreement. In no
event shall Licensor be liable for lost profits, special damages,
consequential damages or contingent liabilities arising out of or
connected in any manner with this Agreement or the OFI Manufactured
Products made for or sold by Licensee under this Agreement.
6.4 Indemnity of Licensor. Licensee agrees to defend, indemnify
and hold Licensor, its officers, directors, employees and agents,
harmless against all claims, liabilities, demands, damages, expenses or
losses arising out of or connected with any use, sale or other
disposition of Licensee's or OFI s Manufactured Products by Licensee or
by any other party.
6.5 Trademark Infringement. Licensor shall, however, defend
Licensee against any claims of trademark infringement resulting from
Licensee s use of the trademark Manapol[R] in the U.S.
Article 7
TERM AND TERMINATION
7.1 Term. Unless terminated earlier as provided for herein, this
Agreement shall remain in full force and effect for a three (3)-year
period ending at midnight on October 12, 2006. This Agreement may be
extended or renewed as provided in Section 1.2, or otherwise by the
written agreement of the parties.
<PAGE>
7.2 Breach of Agreement. Except as provided otherwise in Section
7.3, if either party breaches any material provision of this Agreement
and fails to cure the breach within thirty (30) days after receipt of
written notice from the nonbreaching party specifying the breach, then
the nonbreaching party may terminate this Agreement upon written notice
to the breaching party, which right of termination shall be in addition
to, and not in lieu of, all other rights and remedies the nonbreaching
party may have against the breaching party under this Agreement, at law
or in equity. Failure by Licensor to give notice of termination with
respect to any such failure shall not be deemed a waiver of its right at
a later date to give such notice if such failure continues or again
occurs, or if another failure occurs. A breach by either party of a
material provision of the Supply Agreement shall be deemed a breach by
such party of a material provision of this Agreement.
7.3 Immediate Termination. Licensor may immediately terminate this
Agreement, upon written notice to Licensee, upon the occurrence of any
one or more of the following events: (i) Licensee breaches any provision
of Articles 2, 3, or 4; (ii) OFI fails to purchase and/or to pay for the
Manapol[R] powder that it is obligated to purchase and pay for under the
Supply Agreement in accordance with the terms thereof; (iii) Licensee
voluntarily seeks protection under any federal or state bankruptcy or
insolvency laws; (iv) a petition for bankruptcy or the appointment of a
receiver is filed against Licensee and is not dismissed within thirty
(30) days thereafter; (v) Licensee makes any assignment for the benefit
of its creditors; or (vi) Licensee ceases doing business.
7.4 Survival of Provisions. In the event of termination,
cancellation or expiration of this Agreement for any reason, Sections
2.2, 6.1, 6.2, 6.3, 6.4, 6.5 and 8.1 hereof shall survive such
termination, cancellation or expiration and remain in full force and
effect.
Article 8
MISCELLANEOUS
8.1 Equitable Relief. A breach or default by Licensee of any of
the provisions of Articles 2, 3 and 4 hereof shall cause Licensor to
suffer irreparable harm and, in such event, Licensor shall be entitled,
as a matter of right, to a restraining order and other injunctive relief
from any court of competent jurisdiction, restraining any further
violation thereof by Licensee, its officers, agents, servants, employees
and those persons in active concert or participation with them. The
right to a restraining order or other injunctive relief shall be
supplemental to any other right or remedy Licensor may have, including,
without limitation, the recovery of damages for the breach or default of
any of the terms of this Agreement.
8.2 Amendment. This Agreement may be changed, modified, or amended
only by an instrument in writing duly executed by each of the parties
hereto.
8.3 Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto and supersedes any and all prior
understandings, whether written or oral, with respect to the subject
matter hereof.
<PAGE>
8.4 No Waiver. The failure of either party to insist upon strict
performance of any obligation hereunder by the other party, irrespective
of the length of time for which such failure continues, shall not be a
waiver of its right to demand strict compliance in the future. No
consent or waiver, express or implied, by either party to or of any
breach or default in the performance of any obligation hereunder by the
other party shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any other obligation
hereunder.
8.5 Notices. All notices required or permitted to be made or
given pursuant to this Agreement shall be in writing and shall be
considered as properly given or made when personally delivered or when
duly deposited in the mails, first class mail, postage prepaid, or when
transmitted by prepaid telegram, and addressed to the applicable address
first above written or to such other address as the addressee shall have
theretofore specified in a written notice to the notifying party.
8.6 Assignment. This Agreement or any of the rights or obligations
created herein may be assigned, in whole or in part, by Licensor.
However, this Agreement is personal to Licensee, and Licensee may not
assign this Agreement or any of its rights, duties or obligations under
this Agreement to any third party without Licensor's prior written
consent, and any attempted assignment by Licensee not in accordance with
this Section 9.6 shall be void.
8.7 Relationship of Parties. Nothing contained herein shall be
construed to create or constitute any employment, agency, partnership or
joint venture arrangement by and between the parties, and neither of them
has the power or authority, express or implied, to obligate or bind the
other in any manner whatsoever.
8.8 Remedies Cumulative. Unless otherwise expressly provided
herein, the rights and remedies hereunder are in addition to, and not in
limitation of, any other rights and remedies, at law or in equity, and
the exercise or one right or remedy will not be deemed a waiver of any
other right or remedy.
8.9 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties and their
respective successors and assigns, provided, however, that the foregoing
shall not be deemed to expand or otherwise affect the limitations on
assignment and delegation set forth in Section 7.6 hereof, and except as
otherwise expressly provided in this Agreement, no other person or
business entity is intended to or shall have any right or interest under
this Agreement.
8.10 Governing Law. This Agreement shall be governed by and
interpreted, construed and enforced in accordance with the laws of the
State of Texas, excluding, however, any conflicts of law rules that would
require the application of the laws of any other state or country.
<PAGE>
8.11 Headings. The headings used in this Agreement are for
convenience of reference only and shall not be used to interpret this
Agreement.
8.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
will constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first
above written.
CARALOE, INC.
By: \s\ Bill Pine
Name: Bill Pine
Title: General Manager
ONE FAMILY, INC.
By: \s\ Hilton Sher
Name: Hilton Sher
Title: Chief Financial Officer
EXHIBIT 10.92
PROMISSORY NOTE
$300,000.00 November 23, 1998
FOR VALUE RECEIVED, the undersigned, ALOE & HERBS INTERNATIONAL,
INC., a Panama corporation (the "Maker"), hereby promises to pay to the
order of CARRINGTON LABORATORIES, INC., a Texas corporation ( the
"Payee"), the principal sum of three hundred thousand and no/100 Dollars
($300,000.00), with interest on the unpaid balance thereof from the date
of November 23, 1998 until maturity at the rate hereinafter provided,
both principal and interest being payable as hereinafter provided in
lawful money of the United States of America at 2001 Walnut Hill Lane,
Irving, Texas 75038, or at such other place as may be designated from
time to time by the holder of this Note.
The unpaid principal amount of this Note outstanding from time to
time shall bear interest prior to maturity at the rate of eleven percent
(11%) per annum or the maximum interest rate permitted under applicable
law, whichever is less. All past due principal and/or interest or
installments thereof shall bear interest from maturity until paid at the
rate of eighteen percent (18%) per annum or the maximum interest rate
permitted under applicable law, whichever is less.
The principal amount of this Note, together with all interest
accrued thereon, shall be due and payable in full on May 23, 2000.
The Maker shall have the right to prepay, without penalty, at any
time and from time to time prior to maturity, all or any part of the
unpaid principal balance of this Note, provided that any such principal
thus prepaid is accompanied by accrued interest on such principal. Each
payment made on this Note shall be applied first to the payment of
accrued interest due on the unpaid principal hereof and the remainder of
each such payment shall be applied to the reduction of the unpaid
principal balance hereof.
<PAGE>
It is the intent of the Maker and the Payee, in the execution and
acceptance of this Note and all other instruments now or hereafter
securing this Note, to contract in strict compliance with applicable
usury law. In furtherance thereof, the Maker and the Payee stipulate and
agree that none of the terms and provisions contained in this Note, or in
any other instrument executed in connection herewith, shall ever be
construed to create a contract to pay, for the use, forbearance or
detention of money, interest at a rate in excess of the maximum interest
rate permitted to be charged by applicable law; that neither the Maker
nor any guarantors, endorsers or other parties now or hereafter becoming
liable for payment of this Note shall ever be obligated or required to
pay interest on this Note at a rate in excess of the maximum interest
rate that may be lawfully charged under applicable law, and that the
provisions of this paragraph shall control over all other provisions of
this Note and any other instruments now or hereafter executed in
connection herewith that may be in apparent conflict herewith. The
holder of this Note expressly disavows any intention to charge or collect
excessive unearned interest or finance charges in the event the maturity
of this Note is accelerated. If the maturity of this Note shall be
accelerated for any reason, or if the principal of this Note is paid
prior to the end of the term of this Note, and as a result thereof the
interest received for the actual period of existence of the indebtedness
evidenced by this Note exceeds the applicable maximum lawful rate, the
holder of this Note shall, at its option, either refund to the Maker the
amount of such excess or credit the amount of such excess against the
principal balance of this Note then outstanding and thereby shall render
inapplicable any and all penalties of any kind provided by applicable law
as a result of such excess interest. If the Payee or any other holder of
this Note shall collect money that is deemed to constitute interest that
would increase the effective interest rate on this Note to a rate in
excess of that permitted to be charged by applicable law, an amount equal
to interest in excess of the lawful rate shall, upon such determination,
at the option of the holder of this Note, be either immediately returned
to the Maker or credited against the principal balance of this Note then
outstanding, in which event any and all penalties of any kind under
applicable law as a result of such excess interest shall be inapplicable.
By execution of this Note, the Maker acknowledges that it believes the
indebtedness evidenced by this Note to be non-usurious and agrees that
if, at any time, the Maker should have reason to believe that such
indebtedness is in fact usurious, it will give the holder of this Note
notice of such condition, and such holder shall have ninety (90) days
from the date such notice is given in which to make appropriate refund or
other adjustment in order to correct such condition, if in fact such
exists. The term "applicable law," as used in this Note, shall mean the
laws of the State of Texas or the laws of the United States, whichever
laws allow the greater rate of interest, as such laws now exist or may be
changed or amended or come into effect in the future.
If the indebtedness represented by this Note or any part thereof is
collected at law or in equity or through any bankruptcy, receivership,
probate or other court proceedings, or if this Note is placed in the
hands of an attorney for collection after default, the Maker and all
endorsers, guarantors and sureties of this Note jointly and severally
agree to pay to the holder of this Note, in addition to the principal and
interest due and payable hereon, all the costs and expenses of such
holder in enforcing this Note, including without limitation reasonable
attorney's fees and legal expenses.
<PAGE>
The Maker and all endorsers, guarantors and sureties of this Note
and all other persons liable or to become liable on this Note severally
waive presentment for payment, demand, notice of demand and of dishonor
and nonpayment of this Note, notice of intention to accelerate the
maturity of this Note, notice of acceleration, protest and notice of
protest, diligence in collecting, and the bringing of suit against any
other party, and agree to all renewals, extensions, modifications,
partial payments, and releases or substitutions of security, in whole or
in part, with or without notice, before or after maturity.
This Note and the rights, duties and liabilities of the parties
hereunder and/or arising from or relating in any way to the indebtedness
evidenced by this Note or the transaction of which such indebtedness is a
part shall be governed by and construed for all purposes in accordance
with the laws of the State of Texas and the laws of the United States
applicable to transactions within such state.
IN WITNESS WHEREOF, the Maker has executed this Note on the date
first set forth above.
ALOE & HERBS INTERNATIONAL, INC.
By: \s\ Bernard Tice
Title: President
EXHIBIT 10.93
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (this "Agreement") effective as of December 3,
1998 is by and between CARALOE, INC., a Texas corporation ("Seller"), and
EVENTUS INTERNATIONAL, INC., a Delaware corporation ("Buyer"),
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, Caraloe's Manapol[R] Powder (hereinafter referred
to under the name "Product") in the quantities, at the price, and upon
the terms and conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
1. Term. The term of this Agreement shall commence on December 3,
1998, and shall end at midnight on December 2, 2005, unless sooner
terminated as provided herein (the "Term").
2. Sale and Purchase. Subject to the terms and conditions of this
Agreement, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, during each year of the Term, agreed upon monthly quantities
equal to all of Buyer's needs for Manapol[R] Powder for the Product.
Seller shall, however, not be required to sell monthly quantities in
excess of Seller's present plant, farm or manufacturing capacity. The
Product specifications shall be mutually agreed upon by the Parties
within ninety (90) days from the date of execution of this Agreement.
Failure to reach agreement on the specifications within ninety (90) days
shall cause this Agreement to terminate unless an extension thereto is
mutually agreed upon by the Parties hereto.
3. Quality. Seller warrants to Buyer that all Manapol[R] Powder
sold by Seller pursuant to this Agreement will generally conform to the
quality specifications set forth in Exhibit A to this Agreement as per
Buyer and Seller mutual agreement referenced above. EXCEPT AS PROVIDED
IN THIS PARAGRAPH 3, THERE ARE NO WARRANTIES OR REPRESENTATIONS OF ANY
KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, MADE WITH
RESPECT TO THE MANAPOL[R] POWDER TO BE SOLD HEREUNDER, AND NONE SHALL BE
IMPLIED BY LAW.
<PAGE>
4. Deliveries. Buyer shall instruct Seller from time to time during
the Term, by placing a purchase order with Seller reasonably in advance
of the date Buyer desires Manapol[R] Powder to be delivered to it
hereunder, (i) as to the quantities of Manapol[R] Powder to be delivered
to Buyer, (ii) as to the specific date of delivery, (iii) as to the
specific location of delivery and (iv) as to the carrier or particular
type of carrier for such delivery. During the Term, Buyer shall provide
Seller (a) on an annual basis prior to the beginning of each year of the
Term a nonbinding forecast of Buyer's minimum and maximum aggregate
delivery requirements for Manapol[R] Powder for such year (provided that
such forecast for the second year of the Term shall be provided to Seller
by October 1, 1999), and (b) on a quarterly basis at least thirty (30)
days prior to the end of each three-month period of the Term a forecast
acceptable to Seller (which shall be binding on Buyer) of Buyer's minimum
and maximum delivery requirements for Manapol[R] Powder for each month of
the next three-month period (provided that such forecast for the initial
period of the Term ending on March 31, 1999, shall be provided to Seller
by January 4, 1999). The quantities of Manapol[R] Powder ordered by
Buyer pursuant to this Agreement from time to time shall be spaced in a
reasonable manner, and Buyer shall order such quantities in accordance
with Buyer's binding forecasts. In no event shall Seller be required to
deliver to Buyer in any three-month period a quantity of Manapol[R]
Powder in excess of 125% of the maximum delivery requirement for such
period set forth in the binding forecast for such period accepted by
Seller. Deliveries of Manapol[R] Powder shall be made by Seller under
normal trade conditions in the usual and customary manner being utilized
by Seller at the time and location of the particular delivery. The
Manapol[R] Powder delivered to Buyer hereunder shall be packaged per
agreement of the Parties. All deliveries of Manapol[R] Powder to Buyer
hereunder shall be made by Seller F.O.B. at the facilities of Seller or
its affiliates located in Irving, Texas.
5. Purchase Price. All Manapol[R] Powder to be purchased by Buyer
under this Agreement shall be purchased by it, during the first, second
and third years of this Agreement, at a price per Product as set forth on
Exhibit B to this Agreement. Thereafter, Buyer and Seller shall meet on
a yearly basis to mutually agree upon prices for the upcoming contract
year. If prices for the upcoming year cannot be agreed upon the
Agreement shall terminate on December 3 of the contract year in question.
At delivery point, Buyer shall bear all freight, insurance and similar
costs, and all sales taxes, with respect to such purchases from that
point forward. The purchase price of Manapol[R] Powder, together with
all related freight, insurance and similar costs, and sales taxes, shall
be paid by Buyer to Seller within thirty (30) days after the date of
invoice.
6. Labels and Advertising
(a) FDA Compliance of Labels and Advertising. All labels and
advertising relating to the Manapol[R] Powder that reference Carrington
Laboratories or Seller sold hereunder must strictly comply with all
applicable rules and regulations of the FDA and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to product ingredients.
<PAGE>
(b) Claims by Eventus International. Eventus International hereby
agrees not to make, or permit any of its employees, agents or
distributors to make, any claims of any properties or results relating to
Manapol[R] Powder and Caraloe, Inc. or Seller, unless such claims have
received written approval from the Seller.
(c) FDA Approval of Claims. If Eventus International desires to seek
FDA approval as to any specific claims with respect to the Manapol[R]
Powder, Eventus International hereby agrees to (i) notify Caraloe of the
claims and the application prior to filing and (ii) to keep informed as
to the progress of the application, including but not limited to sending
Caraloe copies of all communications or notices to or from the FDA, as
applicable.
(d) Right to Approve Labels, etc. If Caraloe so requests, Eventus
International shall not use any label, advertisement or marketing
material or individual spokesman associated with the Manapol[R] Powder
and Carrington Laboratories or Seller, unless such label, advertisement
or marketing material or individual spokesman has first been submitted to
and approved by Caraloe. Caraloe shall not unreasonably withhold its
approval of any such label, advertisement or marketing material.
(e) Compliance by Third Parties. Eventus International shall take
all steps reasonably necessary to ensure that its distributors and any
other parties to whom it sells any of the Manapol[R] Powder for resale do
not relabel, repackage, advertise, sell or attempt to sell the Manapol[R]
Powder in a manner that would violate this Agreement if done by Eventus
International.
7. Confidentiality. In the performance of Seller's obligations
pursuant to this Agreement, Buyer may acquire from Seller or
its affiliates technical, commercial, operating or other proprietary
information relative to the business or operations of Seller or its
affiliates (the "Confidential Information"). Buyer shall maintain the
confidentiality, and take all necessary precautions to safeguard the
secrecy, of any and all Confidential Information it may acquire from
Seller or its affiliates. Buyer shall not use any of such Confidential
Information for its own benefit or for the benefit of anyone else. Buyer
shall not publicly disclose the existence of this Agreement or the terms
hereof without the prior written consent of Seller.
8. Force Majeure. Seller shall not have any liability hereunder if
it shall be prevented from performing any of its obligations hereunder by
reason of any factor beyond its control, including, without limitation,
fire, explosion, accident, riot, flood, drought, storm, earthquake,
lightning, frost, civil commotion, sabotage, vandalism, smoke, hail,
embargo, act of God or the public enemy, other casualty, strike or
lockout, or interference, prohibition or restriction imposed by any
government or any officer or agent thereof ("Force Majeure"), and
Seller's obligations, so far as may be necessary, shall be suspended
during the period of such Force Majeure and shall be cancelled in respect
of such quantities of Manapol[R] Powder as would have been sold hereunder
but for such suspension. Seller shall give to Buyer prompt notice of any
such Force Majeure, the date of commencement thereof and its probable
duration and shall give a further notice in like manner upon the
termination thereof. Each party hereto shall endeavor with due diligence
to resume compliance with its obligations hereunder at the earliest date
and shall do all that it reasonably can to overcome or mitigate the
effects of any such Force Majeure upon its obligations under this
Agreement.
<PAGE>
9. Rights Upon Default.
(a) Seller's Rights Upon Default. If Buyer (i) fails to purchase
the quantities of Manapol[R] Powder specified for purchase by Buyer
hereunder, (ii) fails to make a payment hereunder when due or (iii)
otherwise breaches any term of this Agreement, and such failure or breach
is not cured to Seller's reasonable satisfaction within 5 days (in the
case of a failure to make a payment) or 30 days (in any other case) after
receipt of notice thereof by Buyer, or if Buyer fails to perform or
observe any covenant or condition on its part to be performed when
required to be performed or observed, and such failure continues after
the applicable grace period, if any, specified in the Agreement, Seller
may refuse to make further deliveries hereunder and may terminate this
Agreement upon notice to Buyer and, in addition, shall have such other
rights and remedies, including the right to recover damages, as are
available to Seller under applicable law or otherwise. If Buyer becomes
bankrupt or insolvent, or if a petition in bankruptcy is filed by or
against it, or if a receiver is appointed for it or its properties,
Seller may refuse to make further deliveries hereunder and may terminate
this Agreement upon notice to Buyer, without prejudice to any rights of
Seller existing hereunder or under applicable law or otherwise. Any
subsequent shipment of Manapol[R] Powder by Seller after a failure by
Buyer to make any payment hereunder, or after any other default by Buyer
hereunder, shall not constitute a waiver of any rights of Seller arising
out of such prior default; nor shall Seller's failure to insist upon
strict performance of any provision of this Agreement be deemed a waiver
by Seller of any of its rights or remedies hereunder or under applicable
law or a waiver by Seller of any subsequent default by Buyer in the
performance of or compliance with any of the terms of this Agreement.
(b) Buyer's Rights Upon Default. If Seller fails in any material
respect to perform its obligations hereunder, and such failure is not
cured to Buyer's reasonable satisfaction within 30 days after receipt of
notice thereof by Seller, Buyer shall have the right to refuse to accept
further deliveries hereunder and to terminate this Agreement upon notice
to Seller and, in addition, shall have such other rights and remedies,
including the right to recover damages, as are available to Buyer under
applicable law or otherwise. Any subsequent acceptance of delivery of
Manapol[R] Powder by Buyer after any default by Seller under this
Agreement shall not constitute a waiver of any rights of Buyer arising
out of such prior default; nor shall Buyer's failure to insist upon
strict performance of any provision of this Agreement be deemed a waiver
by Buyer of any of its rights or remedies hereunder or under applicable
law or a waiver by Buyer of any subsequent default by Seller in the
performance of or compliance with any of the terms of this Agreement.
<PAGE>
10. Disclaimer and Indemnity. Buyer shall assume all financial and
other obligations for Buyer Product, and Seller shall not incur any
liability or responsibility to Buyer or to third parties arising out of
or connected in any manner with Buyer Product. In no event shall Seller
be liable for lost profits, special damages, consequential damages or
contingent liabilities arising out of or connected in any manner with
this Agreement or Buyer Product. Buyer shall defend, indemnify and hold
harmless Seller and its affiliates, and their respective officers,
directors, employees and agents, from and against all claims,
liabilities, demands, damages, expenses and losses (including reasonable
attorneys' fees and expenses) arising out of or connected with (i) any
manufacture, use, sale or other disposition of Buyer Product, or any
other Product of Buyer, by Buyer or any other party and (ii) any breach
by Buyer of any of its obligations under this Agreement.
11. Equitable Relief. A breach by Buyer of the provisions of
Paragraph 2 shall cause Seller to suffer irreparable harm and, in such
event, Seller shall be entitled, as a matter of right, to a restraining
order and other injunctive relief from any court of competent
jurisdiction, restraining any further violation thereof by Buyer, its
officers, agents, servants, employees and those persons in active concert
or participation with them. The right to a restraining order or other
injunctive relief shall be supplemental to any other right or remedy
Seller may have, including, without limitation, the recovery of damages
for the breach of such provisions or of any other provisions of this
Agreement.
12. Survival. The expiration or termination of the Term shall not
impair the rights or obligations of either party hereto which shall have
accrued hereunder prior to such expiration or termination. The
provisions of Paragraphs 7, 9,10 and 11 hereof, and the rights and
obligations of the parties thereunder, shall survive the expiration or
termination of the Term.
13. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Texas.
14. Succession. Neither party hereto may assign or otherwise
transfer this Agreement or any of its rights or obligations hereunder
(including, without limitation, by merger or consolidation) without the
prior written consent of the other party; provided, however, that Seller
may assign any of its rights or obligations hereunder to any U.S.
Incorporated affiliate of Seller. Subject to the immediately preceding
sentence, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
15. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto relating to the matters covered
hereby and supersede any and all prior understandings, whether written or
oral, with respect to such matters. The terms of this Agreement shall
prevail over any inconsistent terms contained in any purchase order
issued by Buyer and acknowledgment or acceptance thereof issued by
Seller. No modification, waiver or discharge of this Agreement or any of
its terms shall be binding unless in writing and signed by the party
against which the modification, waiver or discharge is sought to be
enforced.
<PAGE>
16. Notices. All notices and other communications with respect to
this Agreement shall be in writing and shall be deemed to have been duly
given when delivered personally or when duly deposited in the mails,
first class mail, postage prepaid, to the address set forth below, or
such other address hereafter specified in like manner by one party to the
other:
If to Seller: Caraloe, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: General Manager
If to Buyer: Eventus International, Inc.
2121 Midway Road
Carrollton, TX 75006
Attention: President
17. Interpretation. In the event that any provision of this
Agreement is illegal, invalid or unenforceable as written but may be
rendered legal, valid and enforceable by limitation thereof, then such
provision shall be deemed to be legal, valid and enforceable to the
maximum extent permitted by applicable law. The illegality, invalidity
or unenforceability in its entirety of any provision hereof will not
affect the legality, validity or enforceability of the remaining
provisions of this Agreement.
18. No Inconsistent Actions. Each party hereto agrees that
it will not voluntarily undertake any action or course of action
inconsistent with the provisions or intent of this Agreement and, subject
to the provisions of Paragraph 8 hereof, will promptly do all acts and
take all measures as may be appropriate to comply with the terms,
conditions and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first
above written.
CARALOE, INC.
By: /s/ Bill Pine
General Manager
EVENTUS INTERNATIONAL, INC.
By: /s/ Richard A. Howard
President
<PAGE>
EXHIBIT A
EVENTUS INTERNATIONAL, INC.
PRODUCT SPECIFICATIONS
C-200 (Manapol[R] Powder)
PRODUCT DESCRIPTION
PRODUCT: Aloe vera Gel C-200
CODE: C-200
SOURCE: Aloe barbadensis Miller
USES: The pure, stabilized Aloe vera Gel Powder is
suitable for use in pharmaceutical and beverage
formulations
SPECIFICATION SHEET
Test Specification Method
Appearance Fine white to beige
powder
Complex > = 30 HPLC(SEC)
Carbohydrates
(wt. %)
Water, wt.% < = 14% TGA
Residue on Ignition < = 16% TGA
wt.%
Microbiological Meets USP Standard USP
Purity
Fiber, wt.% < = 60% TGA
Solubility approx.240 Gel Point CARN
Gelization
pH Not Adjusted CARN
Fiber Enriched CARN
Viscosity (cP) approx. 40 CARN
4 mg/ml solution
Total Acid Value approx. 0.7 CARN
(As Malic Acid)
<PAGE>
EXHIBIT B
EVENTUS INTERNATIONAL, INC.
Product Prices
Manapol[R] Powder (Bulk)
1 to 1,200 kg $1,250.00 / kg
1,201 to 3,600 kg $1,225.00 / kg
3,601 to 5,000 kg $1,200.00 / kg
Eventus International guarantees to purchase a minimum of 1,200 kg of
Manapol[R] powder each 12 months of the term of this contract.
Purchases will comply with a forecast provided by Eventus International.
The above pricing is based on annual volume.
Prices F.O.B. Irving, TX.
Terms are Net 30 days with approved credit.
EXHIBIT 10.94
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), effective as of
December 3, 1998 is made by and between CARALOE, INC. ("Licensor"), a
Texas corporation, having its principal place of business at 2001 Walnut
Hill Lane, Irving, Texas 75038, and EVENTUS INTERNATIONAL, INC.,
("Licensee"), having its principal place of business at 2121 Midway
Road., Carrollton, TX 75006.
W I T N E S S E T H:
WHEREAS, Licensor and Eventus International, Inc., ("EI") have
previously entered into a Supply Agreement (the "Supply Agreement") for
the sale by Licensor and purchase by EI of bulk Aloe vera mucilaginous
polysaccharide including one particular product (hereinafter referred to
under the product name of Manapol[R] or Manapol[R] Powder) to be used as
one of the ingredients in a product or products manufactured by or a
manufacturer designated by EI also containing other ingredients and
substances (the "EI Manufactured Products"):
WHEREAS, Carrington Laboratories, Inc., a Texas Corporation
("Carrington"), is the owner of the trademark Manapol[R] (the "Mark") and
has granted to Licensor a license to use the Mark and to license others
to use it on a non-exclusive basis;
WHEREAS, Licensee is desirous of obtaining from Licensor, and
Licensor is willing to grant to Licensee, a license to use the trademark
Manapol[R] (the "Mark") in connection with the advertising and sale of
the EI Manufactured Products subject to the terms, conditions and
restrictions set forth herein; and
WHEREAS, Licensor and Licensee are mutually desirous of insuring the
consistent quality of all products sold in connection with the Mark;
NOW, THEREFORE, in consideration of premises, the mutual covenants,
promises and agreement set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant, promise and agree as follows:
Article 1
LICENSE
1.1 Terms and Conditions. Licensor hereby grants to Licensee the
non-transferable right and non exclusive license to use the Mark and
associated product (Manapol[R] powder), in connection with the labeling,
advertising and sale of the EI Manufactured Products or products
manufactured for and sold by EI for Licensee during the term of this
Agreement. During the term of this Agreement, Licensee shall have the
non exclusive right to use the Mark in connection with the EI
Manufactured Products containing Manapol[R] powder in a product or
products that are intended for sale to the ultimate consumer in the U.S.
or other countries as agreed to under separate agreement by Licensee and
Licensor.
<PAGE>
1.2 License Coterminous With Supply Agreement. The license granted
by this Agreement shall run coterminously with the Supply Agreement, and
any actions or events which shall operate to extend or terminate the
Supply Agreement shall automatically extend or terminate this Agreement
simultaneously.
1.3 Sublicenses. Licensee shall not have the right without written
permission from Licensor to grant sublicenses with respect to the license
granted herein; however, Licensee may engage a third party or parties to
make Products and affix labels for the EI Manufactured Products in
compliance with Articles 2,3, and 4 hereof, and/or to distribute and sell
the EI Manufactured Products in compliance with the terms and conditions
of this Agreement. Licensee shall be expressly obligated to ensure full
compliance with all terms and conditions of this Agreement.
Article 2
CERTAIN OBLIGATIONS OF LICENSEE
2.1 Representations by Licensee. Licensee shall not represent in
any manner that it owns any right, title or interest in or to the Mark.
Licensee acknowledges that its use of the Mark shall inure to the benefit
of Licensor and shall not create in Licensee's favor any right, title or
interest in or to the Mark.
2.2 Discontinuation of Use of Mark. Upon the expiration or
termination of this Agreement, Licensee will cease and desist from all
use of the Mark in any manner and will not adopt or use, without
Licensor's prior written consent, any word or mark which is confusingly
or deceptively similar to the Mark, except that Licensee may continue to
use the Mark under the terms and conditions of this Agreement in
connection with any remaining supplies of the Manapol[R] product or
products purchased by Licensee from EI until such supplies are exhausted.
2.3 Standards. All products on which the Mark is used by Licensee
shall be of consistent quality and shall meet or exceed all standards as
agreed to by EI and Licensor.
2.4 Use of Trademark. Licensee shall not use the Mark except as
specifically set forth herein. Without limiting the generality of the
preceding sentence, Licensee shall not use the Mark in connection with
the sale or advertising of any products other than the EI Manufactured
Products.
Article 3
MANUFACTURING AND SALE
3.1 Combination With Other Products. Licensee shall not combine or
cause to be combined Manapol[R] powder with any product or substance in
any manner which would violate any laws, rules or regulations of any
state, federal or other governmental body.
3.2 Compliance by Third Parties. Licensee shall take all steps
reasonably necessary to ensure that its distributors, if any, and any
other parties to whom it sells any of the EI Manufactured Products for
resale do not relabel, repackage, advertise, sell or attempt to sell
Manapol[R] powder or any of the EI Manufactured Products in a manner that
would violate this Agreement if done by Licensee.
<PAGE>
3.3 Manapol[R] Powder Content. The amount of Manapol[R] powder to
be contained in each of the EI Manufactured Products shall be no less
than fifteen milligrams (15mgs) per ounce or recommended dose. The
parties shall meet once each year to determine and agree upon the
Manapol[R] powder content for existing and proposed EI Manufactured
Products.
Article 4
LABELS AND ADVERTISING<PAGE>
4.1 Regulatory Compliance of Labels and Advertising. All labels
and advertising relating to the EI Manufactured Products offered in
connection with the Mark must strictly comply with all applicable laws,
rules and regulations in the U.S. relating to product ingredients.
4.2 Mandatory Requirements. Licensee shall cause all labels,
packaging, advertising and promotional materials used by it in
advertising, marketing and selling any product manufactured by or on
behalf of Licensee that contains Manapol[R] powder to contain (i) the
Mark, (ii) a statement setting forth the concentration of Manapol[R]
powder contained in such product, and (iii) the following legend:
Manapol[R] powder is a registered trademark of Caraloe, Inc.
4.3 Claims by Licensee. Licensee hereby agrees not to make, or
permit any of its employees, agents or distributors to make, any claims
of any properties or results relating to Manapol[R] or Manapol[R] powder,
unless such claims comply with the applicable laws, rules and regulations
of the U.S.
Article 5
ROYALTY
5.1 Licensee agrees to pay to Licensor a royalty of ten cents
($0.10) per bottle or container of product.
5.2 Licensee shall make the royalty payment to Licensor within
thirty (30) days of receipt of an invoice from EI for products shipped to
Licensee. The manufacturer will provide Licensor with manifest of
bottles or containers shipped.
5.3 All payments hereunder are to be paid in U.S. currency at the
address set forth at the beginning of this Agreement.
5.4 Licensee guarantees to a minimum of 4 million units over
thirty-six months from the initial date of this agreement which will be
invoiced at $0.10 per unit. The next one million units will be invoiced
at $0.09 per unit and all additional units over that will be invoiced at
$0.08 per unit.
Article 6
NEGATION OF WARRANTIES, DISCLAIMER AND INDEMNITY
6.1 Negation of Warranties, etc. Nothing in this Agreement shall
be construed or interpreted as:
<PAGE>
(a) a w arranty or representation by Licensor that any EI
Manufactured Products made, used, sold or otherwise disposed of under the
license granted in this Agreement is or will be free of infringement or
the like of the rights of third parties; or
(b) an obligation by Licensor to bring or prosecute actions or
suits against third parties for infringement or the like of the
Manapol[R] powder; or
(c) granting by implication, estoppel or otherwise any licenses or
rights other than those expressly granted hereunder.
6.2 Disclaimer. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO
WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A
PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH
RESPECT TO THE USE, SALE OR OTHER DISPOSITION BY LICENSEE OR ITS
CUSTOMERS, VENDEES OR OTHER TRANSFEREES, WITH RESPECT TO THE MARK OR ANY
PRODUCTS MADE OR SOLD BY LICENSEE.
6.3 Liability of Licensee for Products. As between Licensor and
Licensee, Licensee shall assume all financial and other obligations for
the EI Manufactured Products made for it and sold by it under this
Agreement and Licensor shall not incur any liability or responsibility to
Licensee or to third parties arising out of or connected in any manner
with Licensee's products made or sold pursuant to this Agreement. In no
event shall Licensor be liable for lost profits, special damages,
consequential damages or contingent liabilities arising out of or
connected in any manner with this Agreement or the EI Manufactured
Products made for or sold by Licensee under this Agreement.
6.4 Indemnity of Licensor. Licensee agrees to defend, indemnify
and hold Licensor, its officers, directors, employees and agents,
harmless against all claims, liabilities, demands, damages, expenses or
losses arising out of or connected with any use, sale or other
disposition of Licensee's or EI's Manufactured Products by Licensee or by
any other party.
6.5 Trademark Infringement. Licensor shall, however, defend
Licensee against any claims of trademark infringement resulting from
Licensee's use of the trademark Manapol[R] in the U.S. or other countries
as agreed to under separate agreement by Licensee and Licensor.
Article 7
TERM AND TERMINATION
7.1 Term. Unless terminated earlier as provided for herein, this
Agreement shall remain in full force and effect for a six (6) year period
ending at midnight on December 2, 2005. This Agreement may be extended
or renewed as provided in Section 1.2, or otherwise by the written
agreement of the parties.
<PAGE>
7.2 Breach of Agreement. Except as provided otherwise in Section
7.3, if either party breaches any material provision of this Agreement
and fails to cure the breach within thirty (30) days after receipt of
written notice from the nonbreaching party specifying the breach, then
the nonbreaching party may terminate this Agreement upon written notice
to the breaching party, which right of termination shall be in addition
to, and not in lieu of, all other rights and remedies the nonbreaching
party may have against the breaching party under this Agreement, at law
or in equity. Failure by Licensor to give notice of termination with
respect to any such failure shall not be deemed a waiver of its right at
a later date to give such notice if such failure continues or again
occurs, or if another failure occurs. A breach by either party of a
material provision of the Supply Agreement shall be deemed a breach by
such party of a material provision of this Agreement.
7.3 Immediate Termination. Licensor may upon thirty (30) days
written notice to Licensee terminate this Agreement, upon written notice
to Licensee, upon the occurrence of any one or more of the following
events: (i) Licensee breaches any provision of Articles 2, 3, or 4; (ii)
EI fails to purchase and/or to pay for the Manapol[R] powder that it is
obligated to purchase and pay for under the Supply Agreement in
accordance with the terms thereof; (iii) Licensee voluntarily seeks
protection under any federal or state bankruptcy or insolvency laws; (iv)
a petition for bankruptcy or the appointment of a receiver is filed
against Licensee and is not dismissed within thirty (30) days thereafter;
(v) Licensee makes any assignment for the benefit of its creditors; or
(vi) Licensee ceases doing business.
7.4 Survival of Provisions. In the event of termination,
cancellation or expiration of this Agreement for any reason, Sections
2.2, 6.1, 6.2, 6.3, 6.4, 6.5 and 8.1 hereof shall survive such
termination, cancellation or expiration and remain in full force and
effect.
Article 8
MISCELLANEOUS
8.1 Equitable Relief. A breach or default by Licensee of any of
the provisions of Articles 2, 3 and 4 hereof shall cause Licensor to
suffer irreparable harm and, in such event, Licensor shall be entitled,
as a matter of right, to a restraining order and other injunctive relief
from any court of competent jurisdiction, restraining any further
violation thereof by Licensee, its officers, agents, servants, employees
and those persons in active concert or participation with them. The
right to a restraining order or other injunctive relief shall be
supplemental to any other right or remedy Licensor may have, including,
without limitation, the recovery of damages for the breach or default of
any of the terms of this Agreement.
8.2 Amendment. This Agreement may be changed, modified, or amended
only by an instrument in writing duly executed by each of the parties
hereto.
8.3 Entire Agreement. This Agreement constitutes the full and
complete agreement of the parties hereto and supersedes any and all prior
understandings, whether written or oral, with respect to the subject
matter hereof.
<PAGE>
8.4 No Waiver. The failure of either party to insist upon strict
performance of any obligation hereunder by the other party, irrespective
of the length of time for which such failure continues, shall not be a
waiver of its right to demand strict compliance in the future. No
consent or waiver, express or implied, by either party to or of any
breach or default in the performance of any obligation hereunder by the
other party shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any other obligation
hereunder.
8.5 Notices. All notices required or permitted to be made or
given pursuant to this Agreement shall be in writing and shall be
considered as properly given or made when personally delivered or when
duly deposited in the mails, first class mail, postage prepaid, or when
transmitted by prepaid telegram, and addressed to the applicable address
first above written or to such other address as the addressee shall have
theretofore specified in a written notice to the notifying party.
8.6 Assignment. This Agreement or any of the rights or obligations
created herein may be assigned, in whole or in part, by Licensor.
However, this Agreement is personal to Licensee, and Licensee may not
assign this Agreement or any of its rights, duties or obligations under
this Agreement to any third party without Licensor's prior written
consent, and any attempted assignment by Licensee not in accordance with
this Section 9.6 shall be void.
8.7 Relationship of Parties. Nothing contained herein shall be
construed to create or constitute any employment, agency, partnership or
joint venture arrangement by and between the parties, and neither of them
has the power or authority, express or implied, to obligate or bind the
other in any manner whatsoever.
8.8 Remedies Cumulative. Unless otherwise expressly provided
herein, the rights and remedies hereunder are in addition to, and not in
limitation of, any other rights and remedies, at law or in equity, and
the exercise or one right or remedy will not be deemed a waiver of any
other right or remedy.
8.9 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties and their
respective successors and assigns, provided, however, that the foregoing
shall not be deemed to expand or otherwise affect the limitations on
assignment and delegation set forth in Section 7.6 hereof, and except as
otherwise expressly provided in this Agreement, no other person or
business entity is intended to or shall have any right or interest under
this Agreement.
8.10 Governing Law. This Agreement shall be governed by and
interpreted, construed and enforced in accordance with the laws of the
State of Texas, excluding, however, any conflicts of law rules that would
require the application of the laws of any other state or country.
<PAGE>
8.11 Headings. The headings used in this Agreement are for
convenience of reference only and shall not be used to interpret this
Agreement.
8.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
will constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first
above written.
CARALOE, INC.
By: /s/ Bill Pine
Name: Bill Pine
Title: General Manager
EVENTUS INTERNATIONAL, INC.
By: /s/ Richard A. Howard
Name: Richard A. Howard
Title: President
EXHIBIT 10.95
Amendment Number One
to Supply Agreement dated December 3, 1998
between Caraloe Inc., and Eventus International, inc.
In reference to the Supply Agreement (the "Agreement") dated
December 3, 1998, between Caraloe, Inc. and Eventus International, Inc.,
both parties to the Agreement now desire to amend the Agreement and
hereby agree that Section 2 of the Agreement shall be amended to read as
follows:
2. Sale and Purchase. Subject to the terms and conditions of the
Agreement, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, during each year of the Term, agreed upon monthly quantities
equal to all of Buyer's needs for Manapol[R] Powder for the Product.
Seller shall, however, not be required to sell monthly quantities in
excess of Seller's present plant, farm or manufacturing capacity. The
Product specifications shall be as set forth on Exhibit A to this
Agreement.
Both parties further agree that Exhibit B to the Agreement is
hereby amended to read in its entirety in the form of Exhibit B attached
hereto.
This amendment shall be effective as of December 3, 1998. All other
terms and conditions of the Agreement remain unchanged.
AGREED TO AND ACCEPTED BY: CARALOE, INC.
/s/ Robert W. Schnitzius
Name: Robert W. Schnitzius
Title: Chief Financial Officer
Date: February 26, 1999
EVENTUS INTERNATIONAL, INC.
_______________________________________
Name: ______________________________
Title: _______________________________
Date: February 26, 1999
<PAGE>
EXHIBIT B
EVENTUS INTERNATIONAL, INC.
Product Prices
Manapol[R] Powder (Bulk)
1 to 1,200 kg $1,250.00 / kg
1,201 to 3,600 kg $1,225.00 / kg
3,601 to 5,000 kg $1,200.00 / kg
Eventus International intends to purchase 1,200 kg of Manapol[R] Powder
each 12 months of the first three years of the term of this contract. If
the first three annual purchase amounts are not completed as intended,
Eventus International will purchase the total of 3,600 kg of Manapol[R]
Powder within five (5) years of the effective date of the agreement.
Purchases will comply with a forecast provided by Eventus International,
Inc.
The above pricing is based on annual volume.
Prices F.O.B. Irving, TX.
Terms are Net 30 days with approved credit.
EXHIBIT 10.96
CLINICAL RESEARCH SERVICES AGREEMENT
This agreement ("Agreement") is made this 25th day of January, 1999,
by and between Carrington Laboratories, Inc., with its principal
executive offices located at 2001 Walnut Hill Lane, Irving, Texas 75038
("Sponsor"or "Carrington"), and PPD Pharmaco, Inc., a Texas corporation
with its principal executive offices located at 3151 17th Street
Extension, Wilmington, North Carolina 28412 USA ("PPD Pharmaco").
WHEREAS, Sponsor is engaged in the development, manufacture,
distribution, and sale of pharmaceutical products; and
WHEREAS, PPD Pharmaco is a contract research organization engaged in
the business of managing clinical research programs; and
WHEREAS, Sponsor wishes to retain the services of PPD Pharmaco to
perform clinical research services in connection with the clinical
research Study entitled "A Double-Blind, Randomized, Placebo-Controlled
Study Of The Safety And Efficacy Of Three Dose Regimens Of Oral Aliminase
In The Treatment Of Active Ulcerative Colitis" ("Study") to be conducted
pursuant to Sponsor's Study Protocol #9084 incorporated herein by
reference ("Protocol"); and
WHEREAS, PPD Pharmaco is willing to provide such services to Sponsor
in accordance with the terms and conditions of this Agreement;
NOW, THEREFORE, for good and valuable consideration contained
herein, the exchange, receipt and sufficiency of which are acknowledged,
the parties agree as follows:
1. Services.
1.1 - PPD Pharmaco shall perform services as set forth in the
Statement of Services and Description of Services attached as Exhibit A
and incorporated herein by reference ("Services"). PPD Pharmaco shall
provide said Services in compliance with the Protocol, this Agreement,
the written instructions of Sponsor, PPD Pharmaco's Standard Operating
Procedures ("SOPs"), and all applicable laws, rules, and regulations.
SOPs are subject to revision by PPD Pharmaco in which case PPD Pharmaco
shall notify Sponsor of revision. If any such SOP revision can be
reasonably expected to affect the budget or timelines for the Study, PPD
Pharmaco shall submit to Sponsor revised cost estimates or timelines for
the relevant Services which will become a part of this Agreement upon
written approval by Sponsor. The current SOPs for conducting and
monitoring clinical trials are available for review upon request by
Sponsor.
Upon mutual agreement in writing, the parties may conduct the Study
under Sponsor's SOPs. In such case, Sponsor shall provide prompt and
reasonable training to any PPD Pharmaco personnel subject to such SOPs at
Sponsor's expense.
<PAGE>
1.2 - To the extent that any of Sponsors obligations under 21 C.F.R.
312.52 consist of Services that are to be performed by PPD Pharmaco under
this Agreement, such obligations are hereby transferred by Sponsor to PPD
Pharmaco for purposes of 21 C.F.R. Section 312.52.
1.3 - In the event that PPD Pharmaco is requested or required to
perform services beyond those which are specifically set forth in this
Agreement, any such additional services and a compensation schedule
therefor must be mutually agreed upon by the parties in writing prior to
the provision of said services. Said mutually agreed upon writing shall
be an addendum to this Agreement and the services set forth therein shall
be deemed to be Services as the term is used in this Agreement.
1.4 - Sponsor may audit PPD Pharmaco and/or one or more
investigational sites participating in the Study, provided Sponsor gives
prior written notice of any such audit to PPD Pharmaco and any
investigational site to be audited. PPD Pharmaco shall cooperate fully
in any such audit provided said audits are performed during PPD Pharmaco
regular working hours.
2. Compensation and Payment.
2.1 - For its performance of Services under this Agreement, PPD
Pharmaco shall receive compensation as set forth in the Payment Schedule
attached as Exhibit B and incorporated herein by reference.
2.2 - PPD Pharmaco shall submit to Sponsor an invoice describing the
indirect pass through costs and expenses incurred during a particular
month on a monthly basis and Sponsor shall pay said invoices within
thirty (30) days of receipt. Investigator initiation costs and central
lab costs will be invoiced upfront and shall be due upon sponsor s
receipt of invoice.
2.3 - In the event this Agreement is terminated pursuant to Section
3 below, PPD Pharmaco shall be compensated for all fees and costs due
pursuant to the Payment Schedule as of the effective date of termination.
Additionally, Sponsor shall reimburse PPD Pharmaco for any and all
amounts that it pays to third parties for uncancellable obligations that
PPD Pharmaco made with respect to the Study and with the approval of
Sponsor; provided however, that the preceding portion of this sentence
shall not be applicable if this Agreement is terminated (i) by PPD
Pharmaco without cause or (ii) by either party because PPD Pharmaco is
the subject of any of the events specified in Section 3.3 or (iii) by
Sponsor with cause. Any funds held by PPD Pharmaco which shall be shown
by Sponsor to be unearned at the date of termination shall be returned to
Sponsor within forty-five (45) days of termination of this Agreement.
<PAGE>
2.4 - In the event the Study is terminated early or reduced in
scope, in addition to any and all other compensation and reimbursement
due under this Agreement, Sponsor shall pay to PPD Pharmaco an amount, as
determined by PPD Pharmaco in good faith, to represent costs and expenses
incurred as a result of said early termination or reduction in scope,
including by way of example but not limited to, unforeseen down time and
reassignment of PPD Pharmaco dedicated Study personnel ("Termination
Expenses"). Said Termination Expenses shall not exceed 15% of the total
fees (excluding pass through expenses and any fee payments already made
to PPD Pharmaco) PPD Pharmaco would have received pursuant to this
Agreement had the Study continued full scope until completion. The
foregoing provisions of this Section 2.4 shall not be applicable if the
Study is terminated early because of a termination of this Agreement (i)
by PPD Pharmaco without cause or (ii) by either party because PPD
Pharmaco is the subject of any of the events specified in Section 3.3 or
(iii)by Sponsor with cause, or because the Food & Drug Administration
("FDA") withdraws its authorization and approval to perform the Study, or
because any adverse reaction or side effect resulting form the use of the
Study drug is of such magnitude or incidence as to warrant termination of
the Study in the sole opinion of the Sponsor.
2.5 - Payments to PPD Pharmaco shall be made to:
PPD Pharmaco, Inc.
P.O. Box 75468
Charlotte, North Carolina 28275-5468
Tax ID# 74-2325267
2.6 - Taxes (and any penalties thereon) imposed on any payment made
by Sponsor to PPD Pharmaco shall be the responsibility of PPD Pharmaco.
3. Term and Termination.
3.1 - The term of this Agreement shall commence as of the date
hereof and end upon completion of the Services unless earlier terminated
in accordance with this Section 3.
3.2 - This Agreement may be terminated with or without cause by
either party upon thirty (30) days prior written notice.
3.3 - This Agreement may be terminated by either party upon fifteen
(15) days prior written notice if the other party becomes insolvent, is
dissolved or liquidated, makes a general assignment for the benefit of
its creditors, files or has filed against it (and does not obtain a
dismissal within ninety (90) days) a petition in bankruptcy, or has a
receiver appointed for it or a substantial part of its assets.
3.4 - In the event of a material breach of this Agreement by either
party, the other party may terminate this Agreement, either immediately
or as of a future date, by giving the breaching party written notice of
termination, which notice shall state the effective date of termination
of this Agreement. Any such termination shall constitute a termination
with cause.
3.5 - Upon termination of this Agreement, PPD Pharmaco shall
cooperate with Sponsor to provide for an orderly wind-down of the
Services provided by PPD Pharmaco hereunder.
<PAGE>
3.6 - The obligations of the parties contained in Sections 2.6, 3.5,
3.6, 5, 6, 7, 8, 11, 13, and 21 hereof shall survive termination of this
Agreement.
4. Personnel.
4.1 - The Services with respect to the Study shall be performed by
PPD Pharmaco under the direction of the person identified as the Project
Manager or such other person acceptable to Sponsor as PPD Pharmaco may
from time to time designate the Project Manager.
4.2 - PPD Pharmaco shall be obligated at all times to provide a
sufficient number of trained clinical research personnel to meet the
demands of the Study.
4.3 - PPD Pharmaco shall not subcontract or assign any Services
without the prior written consent of Sponsor, such consent not to be
unreasonably withheld.
4.4 - During the period in which the Study is being conducted,
neither party shall recruit, hire or employ any personnel of the other
who is material to the performance of the particular Study without the
prior written consent of the other party.
5. Confidentiality.
5.1 - PPD Pharmaco agrees to treat any confidential information
obtained from Sponsor or gathered or generated by PPD Pharmaco as a
direct and sole result of performing the Services under this Agreement,
including, without limitation, confidential commercial, scientific,
medical and technical information and data relating to Sponsor, a Study
drug or the Study (all such data and information together with any
information derived therefrom, exclusive of computer software or code
developed by PPD Pharmaco unless specifically included, to be referred to
herein as the "Information"), as the confidential and exclusive property
of Sponsor.
5.2 - PPD Pharmaco agrees that it will use any Information only to
provide the Services and for no other purpose without the prior written
consent of Sponsor. PPD Pharmaco agrees not to disclose any of the
Information to any third party without first obtaining the written
consent of Sponsor. PPD Pharmaco further agrees to take all reasonable
steps to ensure that the Information shall not be used by its directors,
officers, employees, agents, representatives and advisors, except on like
terms of confidentiality as aforesaid, and that it shall be kept fully
private and confidential by them.
The above provisions of confidentiality shall not apply to that part of
the Information which PPD Pharmaco is able to demonstrate by documentary
evidence:
a) was fully in PPD Pharmaco's possession prior to receipt from
Sponsor; or
b) was in the public domain at the time of receipt from Sponsor; or
becomes part of the public domain through no fault of PPD Pharmaco,
its directors, officers, employees, agents, representatives or
advisors; or
<PAGE>
c) is lawfully received by PPD Pharmaco from some third party
having a right of further disclosure; or
d) is developed by PPD Pharmaco independent of the Information and
the Study; or
e) is required by law to be disclosed.
5.3 - PPD Pharmaco agrees that upon termination of this Agreement
or, at Sponsor's request, it shall return to Sponsor all Information
provided by Sponsor in documentary form, as well as all Information
gathered or generated by PPD Pharmaco in connection with the Study, and
return or destroy any copies thereof made by or for PPD Pharmaco.
Notwithstanding the foregoing, PPD Pharmaco may retain copies of any such
Information as is reasonably necessary for regulatory or insurance
purposes or as PPD Pharmaco deems necessary to demonstrate the
satisfaction of its obligations hereunder, all subject to the ongoing
obligation to maintain the confidentiality of such Information.
5.4 - PPD Pharmaco acknowledges that disclosure or distribution
of the Information or use of the Information contrary to the terms of
this Agreement may cause irreparable harm for which damages at law may
not be an adequate remedy, and agrees that the provisions of this
Agreement prohibiting disclosure or distribution of the Information or
use contrary to the provisions hereof may be specifically enforced by a
court of competent jurisdiction in addition to any and all other remedies
available at law or in equity.
6. Intellectual Property.
6.1 - PPD Pharmaco hereby assigns to Sponsor all rights PPD Pharmaco
or its directors, officers, employees, agents or representatives may have
in any invention, technology, know-how or other intellectual property
directly and solely resulting from PPD Pharmaco's provision of the
Services hereunder and agrees to assist Sponsor, at Sponsor's expense, in
obtaining or extending protection therefor, provided, however, that such
assignment shall not pertain to computer software or code unless
specifically agreed upon herein. PPD Pharmaco represents that it has and
will continue to have agreements with its directors, officers, employees,
agents and representatives to effectuate the terms of this Section and
shall enforce such agreements to provide Sponsor with the benefit of this
Section.
6.2 - Neither anything contained herein nor the delivery of any
Information to PPD Pharmaco shall be deemed to grant PPD Pharmaco any
right or licenses under any patents or patent applications or to any
know-how, technology or inventions of Sponsor.
6.3 - PPD Pharmaco agrees that Sponsor will own and have
unrestricted free right to use for all purposes the material, data and
information generated or created directly and solely as part of the
Services, provided, however, that such unrestricted free right to use
shall not pertain to computer software or code unless specifically agreed
upon herein. PPD Pharmaco represents and warrants that it is entitled to
deliver the material, data and information to be delivered as part of the
Services hereunder for Sponsor's free use.
<PAGE>
7. Publication.
7.1 - PPD Pharmaco may not publish any articles or make any
presentations relating to the Services or referring to data, information
or materials generated as part of the Services, in whole or in part,
without the prior written consent of Sponsor. PPD Pharmaco shall not
disclose publicly or utilize in any advertising or promotional materials
the existence of this Agreement or PPD Pharmaco's association with
Sponsor or use Sponsor's name or the name of any of its divisions,
products or investigations except with Sponsor's prior written consent.
7.2 - Sponsor may use, refer to and disseminate reprints of
scientific, medical and other published articles that disclose the name
of PPD Pharmaco consistent with U.S. copyright laws, provided that such
use does not constitute an endorsement of any commercial product or
service by PPD Pharmaco.
8. Indemnification.
8.1 - Sponsor shall indemnify PPD Pharmaco, its directors, officers,
employees, and agents for any and all damages, costs, expenses and other
liabilities, including reasonable attorney's fees and court costs,
incurred in connection with any third-party claim, action or proceeding
arising from this Agreement or PPD Pharmaco's connection to the Study,
provided however, that Sponsor shall have no obligation hereunder with
respect to any claim, action or proceeding based on or arising from the
negligence or intentional misconduct on the part of PPD Pharmaco or any
of its directors, officers, employees, agents or representatives or
breach by PPD Pharmaco of any of its obligations under this Agreement or
any agreement between PPD Pharmaco and any third party.
8.2 - PPD Pharmaco shall indemnify Sponsor, its directors, officers
and employees for any and all damages, costs, expenses and other
liabilities, including reasonable attorney's fees and court costs,
incurred in connection with any third-party claim, action or proceeding
based or arising from the negligence or intentional misconduct of PPD
Pharmaco or any of its directors, officers, employees, agents or
representatives or breach of PPD Pharmaco of any of its obligations under
this Agreement.
8.3 - Any party liable to provide indemnification hereunder shall be
entitled, at its option, to control the defense and settlement of any
claim on which it is liable, provided that the indemnifying party shall
act reasonably and in good faith with respect to all matters relating to
the settlement or disposition of the claim as the disposition or
settlement relates to the party being indemnified. The indemnified party
shall reasonably cooperate in the investigation, defense and settlement
of any claim for which indemnification is sought hereunder and shall
provide prompt notice of any such claim or reasonably expected claim to
the indemnifying party.
9. Independent Contractor Relationship.
The parties hereto are independent contractors and nothing contained
in this Agreement shall be construed to place them in the relationship of
partners, principal and agent, employer/employee or joint venturer. Both
parties agree that they shall neither have the power or right to bind or
obligate the other, nor shall either hold itself out as having such
authority.
<PAGE>
10. Conflicts.
PPD Pharmaco represents and warrants to Sponsor that PPD Pharmaco is
not a party to any agreement which would prevent it from fulfilling its
obligations under this Agreement. During the term of this Agreement, PPD
Pharmaco (i) will not enter into any agreement that would in any way
restrict its ability to provide Services under this Agreement and (ii)
will not enter into any other agreements to provide study services in
connection with ulcerative colitis that would adversely affect its
ability to meet the timelines established for Sponsor's Study.
11. Publicity.
Except as required by law, neither party shall use the name of the
other party nor of any employee of the other party in connection with any
publicity without the prior written approval of the other party.
12. Force Majeure / Delays.
12.1 - In the event either party shall be delayed or hindered in or
prevented from the performance of any act required hereunder by reasons
of strike, lockouts, labor troubles, restrictive government or judicial
orders, or decrees riots, insurrection, war, Acts of God, inclement
weather or other similar reason or a cause beyond such party's control,
then performance of such act shall be excused for the period of such
delay. Notice of the start and stop of any such force majeure shall be
provided to the other party.
12.2 - To the extent either party is delayed for reasons as set
forth above or for other reasons beyond the control of the affected
party, any timeline or milestone obligations of said party shall be
extended for a period of time equal to the number of days of the delay.
13. Record Storage.
13.1 - During the term of this Agreement, PPD Pharmaco shall
maintain all materials and all other data obtained or generated by PPD
Pharmaco in the course of providing the Services hereunder, including all
computerized records and files, in a secure area reasonably protected
from fire, theft and destruction. PPD Pharmaco shall cooperate with any
internal review or audit by Sponsor and make available to Sponsor for
examination and duplication, during normal business hours and at mutually
agreeable times, all documentation, data and information relating to the
Study.
<PAGE>
13.2 - At the expiration or termination of this Agreement and upon
written instruction of Sponsor, all materials and all other data and
information obtained or generated by PPD Pharmaco in the course of
providing the Services hereunder shall, at Sponsor's option, be (i)
delivered to Sponsor at its Research and Development offices in Irving,
TX in such form as is then currently in the possession of PPD Pharmaco,
(ii) retained by PPD Pharmaco for Sponsor for a period of three years, or
(iii) disposed of, at the direction and written request of Sponsor,
unless such materials are otherwise required to be stored or maintained
by PPD Pharmaco as a matter of law or regulation. Sponsor shall have
sole responsibility for the costs of shipping of the materials referred
to herein. Sponsor shall retain and be responsible for the performance
of any carrier designated by Sponsor for the shipping of materials. In
no event shall PPD Pharmaco dispose of any materials or data or other
information obtained or generated by PPD Pharmaco in the course of
providing the Services hereunder without first giving Sponsor sixty (60)
days prior written notice of its intent to do so. Notwithstanding the
foregoing, PPD Pharmaco may retain copies of any of the materials
referred to herein as are deemed reasonably necessary, in PPD Pharmaco s
sole reasonable discretion, for regulatory or insurance purposes or to
demonstrate the performance of its obligations hereunder, subject to its
ongoing obligation to maintain the confidentiality of such materials.
14. Debarment.
14.1 - PPD Pharmaco hereby certifies that it has not been debarred,
and has not been convicted of a crime which could lead to debarment,
under the Generic Drug Enforcement Act of 1992, 21 United States Code
ss306(a) and (b). In the event that PPD Pharmaco or any of its officers,
directors, or employees under contract to perform Services under the
Study becomes debarred or receives notice of action or threat of action
with respect to its debarment, PPD Pharmaco shall notify Sponsor
immediately. If PPD Pharmaco is the subject of such debarment or
threatened debarment, Sponsor shall have the option of terminating this
Agreement with cause, either immediately or as of a future date selected
by Sponsor, by giving PPD Pharmaco written notice of termination, which
notice shall state the effective date of termination of this Agreement.
If one or more individuals are the subject of such debarment or
threatened debarment, PPD Pharmaco shall, if Sponsor so requests,
terminate the participation of such individual(s) in the Study.
14.2 - PPD Pharmaco hereby certifies that it has not utilized, and
will use its reasonable best efforts not to utilize, the services of any
individual or entity in the performance of services under this Agreement
that has been debarred or that has been convicted of a crime which could
lead to debarment under the Generic Drug Enforcement Act of 1992, 21
United States Code ss306(a) and (b). In the event that PPD Pharmaco
receives notice of the debarment or threatened debarment of any such
individual or entity, PPD Pharmaco shall notify Sponsor immediately and
shall, if Sponsor so requests, terminate the participation of such
individual or entity in the Study.
<PAGE>
15. Notices.
Any notice required or permitted to be given hereunder by either
party hereunder shall be in writing and shall be deemed given on the date
received if delivered personally or by fax or five (5) days after the
date postmarked if sent by registered or certified U.S. mail, return
receipt requested, postage prepaid to the following applicable address:
If to PPD Pharmaco: PPD Pharmaco, Inc.
3151 17th Street Extension
Wilmington, North Carolina 28412
Attention: CEO
Tel: (910) 251-0081
Fax: (910)762-5820
If to Sponsor: Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: Dr. Bill Yates
Tel: (972) 650-7312
Fax: (972) 717-0997
16. Governing Law.
This Agreement and the rights and obligations of the parties
hereunder shall be governed by the laws of the State of Texas.
17. Severance.
If any one or more provisions of this Agreement shall be found to be
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, provided the surviving agreement materially
comports with the parties original intent.
18. Waiver.
Waiver or forbearance by either party or the failure by either party
to claim a breach of any provision of this Agreement or exercise any
right or remedy provided by this Agreement or applicable law, shall not
be deemed to constitute a waiver with respect to any subsequent breach of
any provision hereof.
19. Changes and Modification.
No changes or modifications of this Agreement shall be deemed
effective unless in writing and executed by the parties hereto.
20. Assignment.
This Agreement may not be assigned by either party without the prior
written consent of the other party, provided, however, either party may
assign this Agreement to a successor to such party's business interests.
<PAGE>
21. Arbitration.
In the event that any dispute arises hereunder or with respect to
the Services to be provided as set forth herein, the parties agree to
submit such dispute to binding arbitration pursuant to the Commercial
Arbitration Rules of the American Arbitration Association in Austin,
Texas. The parties shall be entitled to conduct reasonable discovery, in
accordance with the Federal Rules of Civil Procedure, prior to the
arbitration hearing and the Federal Rules of Evidence The decision of
the arbitrators shall be final and binding and enforceable by any court
of competent jurisdiction.
22. Entire Agreement.
This Agreement represents the complete and entire understanding
between the parties regarding the subject matter hereof and supersedes
all prior negotiations, representations or agreements, either written or
oral, regarding this subject matter.
IN WITNESS THEREOF, this Agreement has been executed by the parties
hereto through their duly authorized officers as of the date set forth
above.
ACCEPTED:
PPD Pharmaco, Inc. Carrington Laboratories, Inc.
By /s/ Paul S. Covington, M.D. By: /s/ Carlton E. Turner, Ph.D.
Name: Paul S. Covington, M.D. Name: Carlton E. Turner, Ph.D.
Title: Sr. VP Med Affairs/C.S.O. Title: President/CEO
Date: January 21, 1999 Date: January 25, 1999
<PAGE>
EXHIBIT A
A Double-Blind, Randomized, Placebo-Controlled Study Of The
Safety And Efficacy Of Three Dose Regimens Of Oral
Aliminase[TM] In The Treatment Of Active Ulcerative Colitis
Protocol: 9084
Prepared For:
Dr. Kenneth (Bill) Yates
Carrington Laboratories, Inc.
1300 E. Rochelle
Irving, TX 75062
October 29, 1998
1st Revision: November 6, 1998
2nd Revision: November 19, 1998
3rd Revision: December 9, 1998
4th Revision: January 4, 1999
5th Revision: January 19, 1999
Confidential
B&C# 8388
OVERVIEW
Ulcerative colitis (UC) is an inflammatory disease of the colon that
affects about 0.05 to 0.1% of the general population. Lifelong sporadic
flare-ups with fever, cramps, weight loss and persistent rectal bleeding
and diarrhea with severe inflammation of the colon characterize
ulcerative colitis. The cause of UC is unknown and although mild to
moderate disease usually can be managed with prednisone, mesalamine or
sulfasalazine; there is no cure.
Aliminase[TM] is an investigational compound under development by
Carrington Laboratories, Inc. Aliminase[TM] is extracted from the gel of
the aloe barbadensis plant. When applied topically, acemannan has been
demonstrated to have an anti-inflammatory effect in an animal model. A
pharmacokinetic Study in dogs, demonstrated that orally administered
Aliminase[TM] coats the entire GI tract. In sufficient quantities,
Aliminase[TM] could coat the mucosa of the colon and produce a localized
anti-inflammatory effect. Subsequent studies in Dextran Sulphate-induced
colitis in a mouse model confirmed that Aliminase[TM] reduced colonic
damage in a dose-dependent manner that was at least as, if not more,
effective than Sulfasalazine or Cyclosporin.
<PAGE>
An open-label clinical trial in which patients with active UC were
treated with either 800 mg or 1600 mg of oral acemannan/day demonstrated
statistically significant improvements in the disease activity index
(DAI) and signs and symptoms evaluations in patients treated for four (4)
weeks, no significant adverse events occurred during the trial. These
results were sufficient to encourage further clinical investigation in
the treatment of UC patients with Aliminase[TM] capsules.
A large scale multi-center controlled trial was performed in 311 patients
with active UC who were randomized to either placebo, 30 mg, 600 mg or
1200 mg of Aliminase[TM] capsules for 6 weeks. This Study, possibly due
to variable and inconsistent dissolution of capsules, failed to show any
significant differences between the groups in efficacy endpoints.
With this in mind, Carrington Laboratories, Inc. has designed a clinical
trial entitled:
"A Double-Blind, Randomized, Placebo-Controlled Study Of The
Safety And Efficacy Of Three Dose Regimens Of Oral Aliminase[TM]
In The Treatment Of Active Ulcerative Colitis"
Carrington and PPD Pharmaco agree that PPD Pharmaco shall manage and
monitor this clinical trial. Additionally, PPD Pharmaco shall be
responsible for handling the data management and biostatistics
portion of the Study. This Study is a 6-week, double blind,
randomized, placebo-controlled Study in which approximately 280
patients who are experiencing acutely active or relapsing UC will be
treated with either oral placebo or oral Aliminase[TM]. The trial
will be conducted in approximately 40 centers.
STUDY OBJECTIVES
The objectives of the Study are to assess the safety and
effectiveness of three dose regimens of Aliminase[TM] in the
treatment of active UC. Safety will be measured by laboratory tests
and documentation of adverse events. Efficacy will be measured by
the following parameters: Disease Activity Index (DAI) and quality
of life according to the Inflammatory Bowel Disease Questionnaire
(IBDQ). Sigmoidoscopic examinations will be performed at screening
and at week 6 or at withdrawal, at which time DAI scores will be
recorded. IBDQ will be assessed and scores recorded at screening and
at week 6 or at withdrawal.
Remainder of this page left blank
<PAGE>
PROJECT ASSUMPTIONS
1. PPD Pharmaco will manage and monitor the Study according to GCPs
and PPD Pharmaco SOPs.
2. Carrington will be responsible for the Study design and will
write the Protocol.
3. PPD Pharmaco will assist in the development of the case report
form (CRF).
4. PPD Pharmaco will print and distribute the CRF.
5. PPD Pharmaco will design a standard template informed consent.
6. PPD Pharmaco will provide drug logs for site use.
7. The final review and resolution of all changes to the informed
consent form will be the responsibility of PPD Pharmaco subject
to Carrington approval.
8. PPD Pharmaco will prepare and set-up original investigator files
per Carrington instructions. PPD Pharmaco will prepare and
set-up investigator file copies per PPD Pharmaco SOPs.
9. Randomization will begin no more than 2.5 months after the
Protocol and informed consent form are finalized.
10. There will be 40 investigative sites.
11. At least 80% of investigational sites will use a Central IRB.
12. The enrollment rate is anticipated to be .9 patients per site per
month.
13. Interim monitoring visits will occur at 6-week intervals,
intervals may be compressed or expanded due to enrollment at a
Study site.
14. Each patient's CRFs will be retrieved only as a completed set.
Patient data (CRFs) will not be retrieved as independent pages.
15. The total PPD Pharmaco time commitment is expected to be
approximately 16 months.
16. Carrington will have final authority to approve investigators.
17. The delivery format of the database is assumed to be SAS
datasets, where PPD Pharmaco has specified the variable names.
18. SAS programs and interim datasets produced as part of the
analysis are not deliverable. These could be provided but would
need some additional effort for documentation.
19. It is assumed that there will be 1 test transfer and 1 final data
transfer. There will be no interim data transfers.
20. The Integrated Clinical Statistical Report (ICSR) price is based
on the following assumptions:
* The report will be written using a template or format agreed upon
by Carrington Labs and PPD Pharmaco. Any changes in the format
after specifications have been reviewed and approved by
Carrington may result in additional costs.
* The report will be written from tables and listings provided by
PPD Pharmaco
* The Sponsor will receive one draft for review and one final
version of the report
* The Sponsor will submit all review comments simultaneously
<PAGE>
21. Central Laboratories price is based on the following assumptions:
* Clear View Pregnancy test kits will be sent to each site and
performed on 50% of subjects at Screening Visit
* Hematology panel includes an automated differential
* Federal Express cost will be directly passed on to the Sponsor
* Electronic transmission of management reports to Sponsor and
CRO: $25.00 per transmission
* Proposal does not include unscheduled/repeat visits, confirmation,
or additional testing ordered by the Investigator, and as approved
by the medical monitor
22. Biostatistical assumptions concerning productions of tables,
listings and graphs:
* A select initial subset of the summary tables, listings and
graphs (TLGs) not to exceed 25 will be finalized within 4 weeks
of database lock. The timing for these will be:
* Week 1: Print and final validation
* Week 2: QC review, correct and ship to Sponsor for review
* Week 3: Sponsor review
* Week 4: Revise, revalidate and ship final TLGs to Sponsor
and give to medical writing
* For the rest of the TLGs the following schedule will be
followed:
* Week 1: Print
* Week 2&3: Final validation and corrections
* Week 4: QC Review, correct and ship to Sponsor for review
* Week 5: Sponsor Review
* Week 6&7: Revise, revalidate and give remaining final TLGs
to medical writing
23. This Agreement does not include data entry of CRF pages for screen
failures.
<PAGE>
PROJECT SPECIFICATIONS
Protocol Title: A Double-Blind, Randomized, Placebo-Controlled Study Of
The Safety And Efficacy Of Three Dose Regimens Of Oral Aliminase In The
Treatment Of Active Ulcerative Colitis Protocol No. 9084
Study Specifications
Protocol Number 9084
Carrington Contact Kenneth (Bill) Yates, D.V.M.
PPD Pharmaco Contact Patty Pasley, Director, Business
Development
Compound Aliminase
Indication Active Ulcerative Colitis
Program Phase II
Study Design Double-Blind, Randomized, Placebo-
Controlled, Safety &
Efficacy Study
Number of Screened Patients 350
Number of Enrolled Patients 280
Number of Completed Patients 280
Number of Investigators 40
Investigators Meeting Yes, 94 attending
Approximate Number of
Qualification Visits 40
Type of IRB Local & Central
Number of Initiation Visits 40
Approximate Number Patients
Per Site 9
Enrollment Period 7.7 Months
Enrollment Rate .9 Patients/Month
Duration of Patient
Participation 1.5
Months
Interim Monitoring Frequency Q6-8 Weeks
Number of Interim Visits
(excluding closeout visits) 7 Per
Site (280 total)
Number of Close Out Visits 40
Estimated Number of Case
Report Form (CRF) Pages
Per Patient 26
Estimated Number of Unique
Pages Per CRF 16
Estimated Number of CRF
Pages for Data Entry 7,280
Number of Statistical Tables 38
Number of Statistical Listings 26
Number of Statistical Figures 2
Deliverable Clinical Statistical Report
<PAGE>
PROJECT TIMELINES
Project Milestone Periods
The program timeline is summarized in the table below.
Activity
Study Initiation Jan. 1, 1999 - Mar. 30, 1999
Investigator Meeting February 1999
Enrollment Period * Mar. 31, 1999 - Nov. 25, 1999
Treatment Period Mar. 31, 1999 - Jan. 10, 1999
Study Closeout Jan. 11, 1999 - Feb. 10, 2000
Biostatistics Feb. 11, 2000 - Mar. 25, 2000
Clinical Statistical Report Mar. 26, 1999 - May 5, 2000
Total PPD Pharmaco Commitment -16.2 Months
* Any extension to the enrollment period will result in contract
modifications.
STATEMENT OF SERVICES
The following lists the specific responsibilities assigned to Carrington
() or PPD Pharmaco ().
TASK LIST Carrington PPD Pharmaco
A. IND/IDE
1. Prepare IND/IDE sections
2. Review IND/IDE applications
3. Submit IND/IDE to FDA
4. Prepare Investigator Brochure
B. Protocol
1. Design Study
2. Write Protocol
3. Approve Protocol
4. Prepare template informed consent
C. Case Report Form (CRF)
1. Design and draft CRFs
2. Finalize CRFs
3. Print and bind CRFs
4. Distribute CRFs to sites
5. Write CRF instruction guide
D. Site/Investigator Identification and Qualification
1. Develop list of potential sites/investigators
2. Select Study sites/investigators
3. Conduct site qualification visits
4. Provide written site evaluation reports
5. Discuss grant payments and contract with sites
6. Negotiate investigator grants, LOA, LOI
7. Prepare investigator contract
<PAGE>
E. Pre-Study Activities
1. Collect regulatory documents (CVs, IRB approval, 1572)
2. Obtain IRB approval
3. Review & evaluate for completeness all elements of informed
consents for all sites
4. Contract with central laboratory
5. Set up project tracking system via RTMS
F. Test Article Management
1. Provide Study drug
2. Package Study drug
3. Label Study drug
4. Distribute Study drug to site
5. Store Study drug
6. Develop Drug Log
7. Manage Drug Records
8. Perform post-Study Study drug accountability
9. Destroy Study drug
10. Return unused supplies/Study drug to Carrington
G. Communications Management
1. Establish and test e-mail link
2. Attend Sponsor meetings
H. Investigators Meeting
1. Plan investigators meeting(s)
2. Prepare start-up information binders
3. Approve start-up information binders
4. Conduct investigators meeting(s)
5. Present at investigators meeting(s)
I. Study Initiation
1. Conduct site initiation visits
2. Provide and maintain site training of personnel
3. Review source documents - CRFs, Drug Records, etc.
J. Patient Recruitment
1. Develop and execute advertising plan N/A
2. Refer potential patients to sites N/A
K. Project Management
1. Provide weekly updates via RTMS[TM]
2. Contribute Study information for monthly newsletter
3. Produce and distribute monthly newsletter to sites
4. Coordinate with central laboratory
5. Establish and maintain toll-free "Hot Line" N/A N/A
6. Establish and maintain 24 hour SAE phone line
7. Administer Investigator payments
8. Develop/Maintain Protocol Deviation database
9. Train the project team
L. On-Site Monitoring
1. Conduct interim on-site monitoring visits
2. Review & verify 100% of available source documentation on all CRFs
3. Review Drug Records
4. Maintain site training of personnel
5. Conduct Study closeout visits
6. Provide written site monitoring reports
<PAGE>
M. Site Management
1. Maintain phone log of clinical questions
2. Maintain phone log of questions regarding CRFs/logistics
3. Participate in scheduled conference calls
4. Provide document control of CRFs - log, track, archive
5. Perform pre-clinical review of CRFs N/A N/A
6. Perform clinical review of CRFs
7. Perform records management
N. Database Design
1. Design data collection system
2. Develop data collection system
3. Validate data collection system
O. Data Entry
1. Design data collection system
2. Develop data collection system
3. Validate data collection system
4. Enter and verify data
P. Data Management
1. Develop data cleaning system
2. Validate data cleaning system
3. Run edit system
4. Resolve edit questions
5. Document corrections to CRFs
6. Perform DM audits on data - electronic data compared to paper CRFs
7. Provide drug dictionary
8. Code laboratory values
9. Code concomitant drugs
10. Provide adverse event dictionary
11. Code adverse events
12. Integrate/merge lab data
Q. Data Transfers
1. Format data according to Carrington format (SAS datasets)
2. Perform test data transfer
3. Perform final data transfer
R. Statistical Analysis
1. Provide Analysis Plan (mock tables, listings & graphs)
2. Produce and validate tables, listings and figures
3. Provide final analysis
S. Clinical/Statistical Reports
1. Provide draft Study report
2. Provide final Study report
3. Approve Study reports
4. Provide annual report
5. Retain final electronic data
6. Retain final electronic Study report (Carrington)
T. Regulatory Activities
1. Conduct GCP site audit(s)
2. Archive final Study documents
3. Record and process SAEs
<PAGE>
U. Safety
1. Perform adverse event investigation
2. Assign adverse event causality
3. Maintain unblinding responsibility
4. Prepare SAEs reports for reporting to regulatory agency submission
5. Report serious adverse events to regulatory agency
PROJECT TEAMS
* Clinical Project Team
PPD Pharmaco's clinical team (1 Project Manager, and 4 Clinical
Research Associates) will be dedicated to this project. The following
staffing chart for clinical management and monitoring of this Study is
based on the assumptions provided in the request for proposal dated 15-
October-1998. This staffing will be in effect from the initiation
through the closeout of the Study, providing the information contained
in the Request for Proposal is consistent with forecasted project
specifics. Should the proposal assumptions change, staffing will be
reviewed and modified accordingly, after appropriate discussions with
Carrington.
Proposed Clinical Project Team for Protocol 9084:
* Data Management Project Team
PPD Pharmaco will provide a full data management project team complete
with a project leader. The project leader acts as the primary contact
person for all data management aspects of this project.
Proposed Data Management Project Team for Protocol 9084:
DESCRIPTION OF SERVICES
Please refer to the Statement of Services for those activities to be
conducted by PPD Pharmaco. Should Carrington require, PPD Pharmaco
would be pleased to provide a cost estimate for additional services.
Protocol
* Preparation of Protocol
Should assistance be required, PPD Pharmaco has an experienced team of
individuals who are available to provide Protocol preparation/finali-
zation for Carrington.
* Informed Consent
PPD Pharmaco will provide Carrington with a draft Informed Consent form
containing all 14 required elements for their review and approval prior
to submission to Ethics Committee by the Investigator.
<PAGE>
Case Report Form (CRF)
* CRF Design
PPD Pharmaco in collaboration with Carrington will design and draft the
CRF for Protocol 9084. A clinical project leader, biostatistician and
CDM manager will be consulted on the design and content. The CRFs will
be designed to capture all pertinent information in a format that
allows for rapid review and data entry.
* Print CRF
Following a final review by Carrington, PPD Pharmaco will print the
copies of the Case Report Form on 3-ply NCR paper and ship to the
investigator sites prior to initiation of the Study.
Site/Investigator Identification and Evaluation
* Site/Investigator Identification
PPD Pharmaco maintains an active Investigator Recruitment Database
(IRDB) consisting of more than 16,500 investigators worldwide. The
information collected on each investigator includes: site demographics,
professional profile, specialty certifications, research profile, staff
personnel, facilities on site, data management experience, practice
setting, research experience/interest and previous clinical trial
experience. Post Study evaluations are also on file for investigators
who have worked with PPD Pharmaco. The Study Monitor and the Project
Manager complete these evaluations. This is a dynamic database that is
continually expanded and updated. It is from this database, as well as
from Sponsor lists and other external sources, that PPD Pharmaco
derives a list of potential investigators for any particular Study.
PPD Pharmaco will work closely with Carrington on all aspects of
identifying the most appropriate investigators.
Some of the areas of Physician Specialty and the number of
investigators in our database include: Allergy/Immunology 240;
Anesthesiology 300; Cardiology 493; Dermatology 436; Endocrinology 184;
Family Practice 508; Gastroenterology 466; Geriatric Medicine 96;
Infectious Disease 261; Internal Medicine 3,473; Medical Oncology 276;
Neurology 479; OB/GYN 347; Orthopedic Surgery 104; Pediatrics 413;
Psychiatry 623; Surgery 305; and Urology 150.
The type and number of practice settings include: University Hospital
1,071; Other Hospital 742; Private, Solo, Group and Multi-Specialty
combined 3,675; Nursing Home 135; VA/Military 351; TMO 446; Student
Health Center 85; Urgent Care Center 124; Rehabilitation
Hospital/Clinic 135; Mental Health Mental Retardation 87; Managed
Health Care 243; and Surgical Center 159.
PPD Pharmaco will identify investigators with a proven clinical Study
record in managing and overseeing ulcerated colitis. Investigators
will be chosen on their ability to provide both the necessary patient
population and the appropriate Study staffing. Upon Carrington s
approval, PPD Pharmaco will select 40 sites, and each site will recruit
approximately 9 patients during the 7.7months of anticipated
enrollment, an average of 1.2 patients/site/month.
<PAGE>
* Select Study Sites/Investigators
When the list of potential investigators has been compiled and passed
through appropriate review by Project Management and Carrington,
our project monitors will begin the process of recruiting the
investigators. Rigorous telephone screening of potential investigators
is performed by monitors prior to the on-site evaluation visits to
determine their interest in, and suitability for, performing the Study.
These telephone calls to prospective sites will allow an initial
screening via assessment of critical factors such as availability,
staff, facilities, patient population and clinical trial experience in
the appropriate therapeutic area.
The success of most programs is dependent upon the ability to identify
the most qualified investigators who will be able to enroll a
sufficient number of patients who meet criteria as specified by the
Study Protocol and to provide quality data. PPD Pharmaco, in
collaboration with Carrington, will use reasonable efforts and due
diligence to ensure that each investigator selected is qualified to
perform the services required.
* Site Qualification Visits
Clinical research associates (CRAs) on the project team who have site
evaluation experience will conduct comprehensive on-site visits to
further evaluate the investigative site, meet with the Study personnel,
review the Protocol, develop the patient recruitment plan, visit all
the facilities required by the Protocol and review any other site
qualifications deemed critical to the successful completion of the
Study. The evaluator will then make final recommendations to the
project team.
PPD Pharmaco will perform the site qualification visits. The purpose
of each visit will be to assess the Study facilities, the staff and the
Principal Investigator for actual Protocol competency. During the
visit, the PPD Pharmaco project team will ensure the following:
* The Principal Investigator's expertise
* The availability of knowledgeable support staff
* The adequacy of the facility to conduct a clinical trial
* The availability of the appropriate subject population
* The Principal Investigator's understanding of the regulatory
obligations as outlined on the FDA Form 1572 and specified
by Carrington and PPD Pharmaco
Written trip reports will be prepared and submitted to Carrington with
the monthly status reports.
* Investigator Grants Coordination
PPD Pharmaco will, in accordance with the investigator contract
previously approved by Carrington, make all necessary payments to the
investigator. Prior to payment, the Project Manager will verify the
patient enrollment status at the site to ensure all payments are
accurate and reflective of Study site activity.
<PAGE>
Pre-Study Activities
* Regulatory Document Collection
PPD Pharmaco will collect and review all regulatory documents required
under the United States Code of Federal Regulations (CFR) for each
participating investigator. Critical documents for each site include
the following:
* Protocol agreement page
* IRB approval letter together with a list of IRB members
* A copy of the IRB-approved informed consent form to be used in
the Study
* A signed FDA Form 1572
* Curriculum vitae for the principal and sub-investigators
* Laboratory certification and normal values
Regulatory packets will be assembled and delivered to Carrington.
Carrington shall submit all regulatory packets to the FDA. Once the
appropriate regulatory documents have been submitted to the FDA, then
Carrington will authorize shipment of the Study drug to each
individual site. PPD Pharmaco would be happy to provide regulatory
review of documents for authorization of Study drug shipment and
submission of regulatory packet to the FDA. Should this service be
requested, PPD Pharmaco would provide an estimate of these costs.
* Central Laboratory Coordination
PPD Pharmaco will coordinate with the central laboratory, which will
be ACM Medical Laboratory as designated by Carrington.
Miscellaneous Clinical Supplies Management
* Miscellaneous Clinical Supplies Management
PPD Pharmaco assumes Carrington will coordinate the purchase and
distribution of clinical supplies to each individual site.
Communications Management
* Communications Management
PPD Pharmaco can provide electronic communications for e-mail, file
transfer and direct system access to meet a wide variety of Sponsor
needs. Internally all PPD Pharmaco employees have Internet access via
a gateway to the Internet for external e-mail and file transfer
connectivity. PPD Pharmaco can provide dial-in or dial-out solution
using 28.8 modems either to our LAN environment or directly to our DEC
systems. A secured Sponsor intranet is also available to access
specific project status information can be developed using Internet
technology. In addition similar facilities can be provided using
Internet technology, or Lotus Notes for those Sponsors with such
capabilities.
<PAGE>
Site/Investigators Identification and Evaluation
* Investigators Meeting
PPD Pharmaco will organize and conduct an investigators meeting
scheduled for a date to be determined. PPD Pharmaco will train the
investigators and Study coordinators on key aspects of the Study
Protocol and data collection on the CRFs. PPD Pharmaco anticipates
sending a project team of 9 members to the investigators meeting.
Moreover, PPD Pharmaco forecasts that approximately 5 members from
Carrington will attend this investigators meeting. PPD Pharmaco has
based the cost estimate to execute this investigators meeting on a per
attendee fee of $1,750.00. This per attendee fee includes all travel
expenses related to the meeting, actual on-site meeting expenses and
all service fees incurred for the planning and executing of the
meeting. Payment for this service is due in full prior to the
investigators meeting and is included in the Study Payment Schedule as
a separate line item.
Study Initiation
* Site Initiation Visits
PPD Pharmaco will perform an initiation visit at each site. The
following areas will be reviewed with site personnel during the
initiation visit:
* Background information, including the Investigator Brochure
for the Study drug and/or the product package insert(s)
* Protocol, Study procedures and associated forms
* Interim monitoring visit schedule
* Regulatory requirements
* CRF and source documentation
* CRF completion instructions
* Adverse event (AE) reporting
* Study drug accountability
Training of all relevant site personnel will occur at this visit and on
an ongoing basis throughout the trial. Carrington agrees that training
shall be the primary responsibility of PPD Pharmaco.
A total of 40 initiation visits will be conducted. Trip reports will
be prepared within two weeks after each visit and sent to Carrington.
<PAGE>
Project Management
* Project Management
A Project Manager will be assigned for the duration of the project and
will serve as the central contact person. The Project Manager s
responsibilities will include managing the technical and administrative
aspects of the Study as defined by Carrington. The Project Manager
will coordinate the organization, implementation and management of the
Study. In addition, the Project Manager will interact directly with
the Clinical Project Director, Medical Director, Project CRAs, Quality
Assurance personnel, Data Management personnel, Medical Writing
personnel and Biostatistics to ensure the effective and timely
completion of the Study.
The Project Manager will also perform the following project-specific
activities:
* Project planning
* Preparation of the Study Operations Manual
* Coordination and assistance with personnel training
* Coordination of the investigator meeting, to include travel
and agenda planning
* Provision of monthly status reports to include:
- Regulatory document collection
- Site start-up status
- Enrollment status
- Monitor visit reports
- Site drug inventories
- Serious Adverse Events (SAEs)
- Number of CRFs retrieved
* Review and sign timesheets, expense reports, and travel
authorization
* Review travel itinerary, trip reports, external correspondence
and telephone reports, internal correspondence, follow-up
letters, monthly travel calendars/plans and project
staffing and utilization
* Assure all tracking logs are updated by the CRAs weekly
* Facilitate all financial and contractual matters between
Carrington and PPD Pharmaco (i.e. prepare Study specific
invoices for payment at milestones met by PPD Pharmaco)
This Agreement does not include the cost of travel of project team
members to Carrington's offices for meetings during the conduct of this
Study. Travel costs for these meetings will be billed at invoice
total plus a nominal administration fee. At Carrington's request an
estimate will be provided.
On-Site Monitoring
* On-Site Monitoring
Carrington requests that PPD Pharmaco perform all interim monitoring
visits for this Study. Given the anticipated Study length of 1.5
months per patient, an enrollment period of 7.7 months and a monitoring
frequency 6-8 weeks, PPD Pharmaco will be required to perform
approximately 7 interim monitoring visits of 1-2 days duration per
site. The CRA will perform the following tasks during each interim
visit:
<PAGE>
* Compare 100% of the CRFs to the source documents
* Review the CRFs and source documents for serious adverse events
* Perform drug accountability
* Ensure appropriate signed informed consent form exists for each
Study participant
* Review investigator Study files for completeness
* Ensure investigator compliance to the Study Protocol
A total of 280 interim visits will be conducted. Trip reports will be
prepared after each visit and sent to Carrington.
* Closeout Visits
A final closeout visit will be conducted after all subjects have
completed or have been discontinued from the Study and after all
queries have been resolved. Each visit will include:
* Review and retrieval of all outstanding CRFs
* Study drug accountability and preparation for the shipment of
Study drug to Carrington
* Review of investigator's Study file for completeness
* Review of record retention per FDA requirements
A total of 40 closeout visits will be conducted. Closeout visit
reports will be prepared within two weeks after each visit and sent to
Carrington.
* Total Number of Visits
Site Visits Per Site Total
Qualification 1 40
Initiation 1 40
Interim Monitoring 7 280
Closeout 1 40
TOTAL 13 400
Site Management
* In-House Site Management by Clinical Project Team
<PAGE>
Between monitoring visits, investigators will be called weekly to
verify patient enrollment status, review Study progress, answer
Protocol questions, discuss CRF completion and ensure the Study
proceeds in a timely manner. Site contact reports will become part of
the investigator file located at PPD Pharmaco. Additionally the PPD
Pharmaco CRAs will be responsible for:
* Tracking and ordering Study drug and other supplies
* Tracking regulatory document revisions
* Writing trip reports
* Writing follow-up letters
* Providing query resolution
* Performing in-house second review of CRF s
* Participating in scheduled conference calls with Carrington
* Tracking Protocol violations, CRF progression at site and
PPD Pharmaco and tracking of query resolution
* Conducting audit of investigator files at PPD Pharmaco
* Developing newsletter materials and distributing the
newsletter to sites
PPD Pharmaco will be responsible for all follow-up on action items
identified during the monitoring visits.
* Clinical Review of CRFs and Query Resolution
The CRF will be forwarded to the Clinical Project Manager or their
designee who will evaluate the following elements:
* Accurate and appropriate documentation of AEs
* Overall subject Study drug and Protocol compliance
* Proper identification and documentation of potential Protocol
deviations or violations
* Accurate completion of inclusion/exclusion criteria
* Accurate transcription of CRF data
* Appropriate use of medical terminology
* Correlation of all clinical information
* Accuracy of any medication dosages
The findings of the clinical review will be documented and forwarded to
the Project CRAs for resolution.
Data Management
* Data Management Plan
The CDM Project Manager will compile a Data Management Plan that
describes the processes and specifications to be used in the project.
This includes documentation on the data dictionary; coding dictionaries
to be used; the logic and processes for data review and validation;
critical timelines and milestones; and timing and types of management
reports. This Plan will be reviewed and finalized with input from
Carrington and will be updated during the course of the project.
<PAGE>
* Database Development
Unless otherwise requested, the project database will be set up using
ORACLE 7/Clintrial 3.3. The CRF and Protocol will be used to develop
the specifications for this database. Panel definitions and field
specifications will be produced by an experienced data manager
utilizing the PPD Pharmaco standard Clintrial dictionary.
Carrington's database specifications will be used if so desired.
Specifications will be independently reviewed prior to installation.
* Data Entry
Data entry screens and multiforms will be developed in Clintrial
against the standard data dictionary, but customized to the Study CRF
requirements. Independent, double data entry will be performed. The
entry of the data from each CRF into the database will take place as
CRFs are retrieved, to keep the database as current as possible. All
data entry discrepancies will be resolved by PPD Pharmaco data
management staff. Reports regarding data entry status and the
database will be available as needed.
* Data Validation
Validation (edit) checks and derivation procedures will be developed
by PPD Pharmaco using SQL, RPL, or SAS procedures. The validation
specifications will be developed taking into account the requirements
of the analysis plan, a review of the Protocol and general experience.
The validation specifications will be forwarded to Carrington for
review and approval. The results from the validation process will be
reviewed and queries will be generated for resolution.
* Importing Electronic Data
Electronic data from central laboratories or other sources and any
associated ranges will be imported and integrated into the Study
database. PPD Pharmaco will provide validation checks as required and
produce flagged listings as part of the data management and
statistical reporting process.
* Coding of Drugs and Diseases
Unless otherwise requested by Carrington, PPD Pharmaco will provide
the coding dictionaries required for coding adverse events and
concomitant medications. COSTART will be used to code adverse events
and WHODRUG will be used to code concomitant medications. PPD
Pharmaco will use its ORACLE-based autoencoding system to identify
appropriate codes and insert them into the appropriate tables. The
PPD Pharmaco autoencoding system maintains a synonym dictionary so as
not to compromise Carrington's dictionaries. This synonym dictionary
also contains multi-lingual coding translations. Efficient support of
international and cross-national coding schemes is provided.
Validation checks on the synonym code lists can be imposed to insure
that coding meets Sponsor criteria. A final clinical review will be
conducted of all codes to ensure accuracy and consistency.
<PAGE>
* Data Query Resolution Process
Queries arising from data entry, validation and dictionary coding will
be reviewed and, if possible, resolved by Data Management personnel,
according to the rules documented in the Data Management Plan. Where
necessary, queries will be passed to PPD Pharmaco CRAs for resolution
or forwarded to the investigator. Review and correction of data will
occur on an ongoing basis. Edits resulting from the responses to
query forms will be updated and verified before being stored in the
database. Queries and corrections will be tracked electronically for
each CRF.
* Status Reports
PPD Pharmaco will provide Carrington with standard monthly status
reports indicating the progress made on the project. This report can
be customized to meet Carrington's specifications. The report will
include such information as number of patients entered, number of
completed patients, number of ongoing patients and metrics on key
processes.
* Data Management Auditing
To ensure accuracy, PPD Pharmaco will carry out a 100% review of all
key safety and efficacy variables. In addition, a random 10% of the
CRFs will undergo a 100% verification against the database throughout
the Study. Various patient listings are also produced and reviewed to
additionally assure data quality and consistency.
* Final Database
A final quality assurance (QA) audit will be performed on 10% of the
patients on the final database after the quality control measures have
been completed. A written report of the QA audit will be prepared and
sent to Carrington reporting discrepancies that are found.
PPD Pharmaco standard database delivery is in a SAS format; however,
it will be provided in another format if Carrington so chooses. The
program code will remain with PPD Pharmaco at the conclusion of the
Study. CRFs and supporting documentation will be returned to
Carrington at the conclusion of the project.
* Data Transfers
* Format and Test. PPD Pharmaco will require data transfer
specifications (i.e. file layouts, formats) before initiating
program development for data transformation. PPD Pharmaco
recommends at least one preliminary transfer to test the transfer
mechanisms prior to the final database transfer.
* Final. PPD Pharmaco will provide Carrington with computer files
containing the project database(s) along with complete
documentation.
<PAGE>
Statistical Analysis
* Biostatistics Project Team
Within the Biostatistics department, a Lead Biostatistician will
oversee all analyses and production of tables and listings. This
person will be responsible for providing the appropriate analysis,
instructing the team on key data issues and interacting with the
Sponsor as well as other PPD Pharmaco groups, and/or regulatory
authorities. Support Statisticians will work closely with the Lead
Statistician to assure compliance with the analysis plan. PPD
Pharmaco will also identify a Lead Statistical Programmer who will
oversee the resourcing of tables, figures and listings in production.
Furthermore, validation efforts under the direction of a primary
Validator will insure the accuracy of the results. All results will
be reviewed by a QC Auditor prior to release to the Sponsor. This
core team will provide the Sponsor with a dedicated team to
efficiently implement the statistical analysis.
* Biostatistics Services Overview
The proposed biostatistics workscope for this programs includes
collaboration with data management on CRFs and edit checks, a
statistical analysis plan, 1 interim analysis, a final statistical
a n alysis and biostatistical collaboration on a final clinical
statistical report. All of PPD Pharmaco's statistical services and
procedures are designed for compliance with the ICH Draft Guideline on
Statistical Principles for Clinical Trials (Federal Register, Vol. 62,
No. 90, 9 May 1997). The proposed services and deliverables are
described in greater detail in the following sections.
* Biostatistics Collaboration with Data Management
PPD Pharmaco's Biostatistics team will begin to access data to create
the analysis datasets once a sufficient amount of data has been
entered. In addition to standard validation checks that are
programmed by the Data Management group, exploration of data problems
or issues that affect statistical analysis will be considered.
Statisticians will work closely with the Data Managers and Clinical
Project Leaders to discuss relevant issues to improve ongoing data
collection efforts.
* Analysis Plans
In collaboration with the Sponsor's assigned clinical and statistical
scientists, PPD Pharmaco will develop one analysis plan for the Study.
Any analysis strategy features unique to the Study will be explained
in the analysis plan in detail. The analysis plan will model the
final Study reports; the introduction, background, objectives and
statistical methodology sections will be written in sufficient detail
for the final reports. This advance writing and planning promotes
earlier, more detailed, critical thinking about the analysis needs and
reduces writing time and costs for the final reports.
<PAGE>
The analysis plan will include shells for the final Study report
tables, figures and listings. The shells will be developed based on
Protocol objectives, the analysis strategy and collaborative input
from the Sponsor's clinical and statistical scientists. The shells
will show concisely how statistical summaries are to be presented on
the page. Each custom table layout will be designed to promote a
complete, consistent and concise representation of analysis for the
Study's results.
The cost of the Analysis Plan is based on the following assumptions:
* One draft version and one final version of the analysis plan text
and shells are budgeted.
* The Analysis Plan will include each unique table template and
with each template, the list of tables that are to be based on
that template. Also included will be listing and figure shells.
* Analysis and Reporting Databases
PPD Pharmaco will develop an analysis and reporting database, based on
written specifications developed by the biostatistics team.
The written specifications for the analysis database will include a
detailed description of each component analysis file, including
information about how the file relates to other files in the database,
a dictionary of included variables (showing assigned formats and
labels) and detailed specifications for each created variable included
in the file. The specifications for each created variable include
the following components: variable name, format, label, a prose
description of the variable, the source variables required for its
creation, and the logic algorithms used in its creation.
* Statistical Analysis and Tables Production
Analogous to the specifications for the analysis database, PPD
Pharmaco will develop detailed specifications for the statistical
analyses and tables production. PPD Pharmaco will design, create and
validate SAS? programs that perform the analyses described in the
analysis plan and the summary tables and listings. The internal
documentation components for the analysis and table production will
include the analysis plan, tables and listings specifications,
documented SAS? analysis programs, resulting SAS? output for the
analyses and documentation of the validation/QC of the tables and
listings. PPD Pharmaco will provide documentation of all created
variables used in any analysis or data summary.
Where practical, PPD Pharmaco will use SAS? macros to facilitate
consistent application of the analysis strategy across all Protocols.
Some proprietary SAS? macros will be used as well, particularly for
summaries of safety information and for table formatting. While
proprietary macros will not be made available to the Sponsor, a
description of their design intent can be provided for any audit
review. All SAS? programs used or generated for this project will
remain the property of PPD Pharmaco.
<PAGE>
The cost of the statistical analyses and tables production is based on
the following assumptions:
* The estimated counts for tables, listings and figures are summarized
as follows:
Counts Uniques Repeats Total
Tables 22 16 38
Listings 23 3 26
Figures 2 0 2
* Additional unique tables will be provided at a cost of $2,000 per
table and additional listings will be provided at a cost of $1,000
per listing.
* Table production costs will be based on the approved analysis
plan and table shells.
* Any Sponsor-requested changes after analysis plan approval should
be communicated in writing through the project director.
Discussions about the changes may precede the written authorization,
as needed, to clarify and cost the request in advance. Sponsor-
requested changes made after the approval may require additional
costs and may affect the production timetable.
* The scope of this bid allows for one review of draft tables.
* Statistics Report
A statistical report will be prepared which contains a brief review of
the clinical trial methodology and will report the statistical
findings of the analysis. The report will also contain a description
of the statistical methodology suitable for inclusion in the
statistical methods section of the final report as well as a technical
statistical methodology write up for inclusion in the statistical
appendix of the final report.
Regulatory activities
* Good Clinical Practice (GCP) Audits
PPD Pharmaco will conduct 4 trial site regulatory compliance audits.
The purpose of each trial site audit is to determine the trial site s
adherence to the Study Protocol and Good Clinical Practices (GCP)
guidelines and Federal Regulations; to ensure integrity of scientific
data; to determine that the rights and welfare of human research
subjects are being or have been adequately protected; and to ensure
that PPD Pharmaco and the Sponsor have monitored the trial site in
accordance with GCPs, Federal Regulations, and standard operating
procedures. Trial site selection will be based on several Study
variables: sites with high or rapid enrollment, sites with a
significant number of Protocol violations, sites with a frequent
change in Study personnel, or sites with noticeably better/worse
efficacy and safety data compared to other investigators within the
Study. Normally, 10% to 20% of trial sites participating in a
clinical Study are audited to ensure general regulatory compliance.
<PAGE>
Each trial site audit will involve an audit of the following: a 100%
review of regulatory documents; a 100% review of all signed informed
consents; a 100% review of investigational material accountability; a
100% review of reported serious adverse events; an investigator and/or
Study coordinator interview; facilities inspection; and a 100%
revalidation of subject source documentation to case report forms for
15% to 25% of the subjects enrolled at a site. The number of subject
records reviewed at each trial site will depend upon the completion of
case report forms at the time of the audit.
Clinical/Statistical Reports
* Integrated Clinical and Statistical Reports
PPD Pharmaco will write a complete Integrated Clinical and Statistical
Report (ICSR) for the Study, in accordance with Sponsor specifications
and current ICH guidelines. In initial preparation of the ICSR, prior
to completion of the final analyses, PPD Pharmaco will create a report
shell using the Study Protocol and records of Study conduct. The
Sponsor has the option to review and approve the shell. When the final
analysis results are available, PPD Pharmaco project management,
medical writers, biostatisticians, therapeutic experts and the Sponsor
will interact to discuss the interpretation of the data and to develop
the discussion section of the ICSR. The results will then be
incorporated into the shell and PPD Pharmaco will provide a draft
report for review by the Sponsor.
Following review by the Sponsor, a round table discussion of the report
may be held. The goal of the round table is to achieve consensus on
and ensure a complete understanding of Sponsor comments prior to
finalization of the ICSR. If a round table discussion is not held, the
Sponsor must provide only one set of comments to PPD Pharmaco for
incorporation into the final ICSR. When the round table discussion has
concluded, or when Sponsor comments have been received by PPD Pharmaco,
the final version of the ICSR will be generated and submitted to the
Sponsor for approval.
All ICSRs written by PPD Pharmaco will undergo a complete internal
review by a Quality Control Coordinator, the project statistician, the
project manager, the project physician, and a Quality Assurance Auditor
prior to release to the Sponsor. This review will consist of a review
of format against the Sponsor style guide, verification of compliance
with ICH guidelines, a 100% comparison of data, both tabular and in
text, against listings and tables, and a medical/scientific review of
data interpretation.
One draft of the ICSR will be provided to the Sponsor for review
and comment. Additional review cycles will result in delays in
finalization and increased costs. Review of the draft by the Sponsor
should not exceed two weeks time. Any time beyond this period will
result in an equal delay in finalization of the report.
<PAGE>
Safety
* Serious Adverse Event Reporting and Monitoring
Investigative sites will report all serious adverse events (SAEs)
directly to PPD Pharmaco. PPD Pharmaco will ensure that each event
has been properly recorded on the SAE form. Once initial review has
been completed, PPD Pharmaco will fax the SAE report to Carrington.
The procedure should be completed within one working day of receipt of
an SAE report.
It is understood that Carrington's medical monitors will review all
SAEs and determine causality. PPD Pharmaco's Medical Monitor will be
responsible for reviewing the SAE report for accuracy and completeness
and for answering routine clinical questions.
PPD Pharmaco's MA/PVG group will be responsible for preparing patient
SAE narratives for IND Safety Report. All patient narratives will be in
a format acceptable to both PPD Pharmaco and Carrington. It is assumed
that narratives will undergo only one review cycle by Carrington.
Carrington will be billed for this activity based on the actual number
of SAE narratives completed.
<PAGE>
PROJECT BUDGET
BUDGET SUMMARY FOR Carrington PROTOCOL 9084:
TASK
1. Clinical*** 1,212,061
2. Data Management 164,335
3. Biostats* 93,447
4. Medical Writing 40,731
5. Regulatory: File & Site Audits 84,203
6. Medical Monitoring 7. 46,207
SAE Narratives will be separately
invoiced at the rate of $875.00 each
7. IS Support 17,707
Total Direct Costs $1,658,690
Investigator Meeting Preparation 153,000
Investigator Grants** 773,640
IRB Reimbursement 18,850
Central Labs 29,921
Travel - Monitoring 415,833
Travel - Site Audits 6,152
CRF Printing and Shipping 5,459
Miscellaneous 431
Total Indirect Costs $1,403,287
Project Grand Total $3,061,977
* Additional unique tables or figures will be provided at a cost of
$2,000 per table or figure and additional listings or repeat tables
or repeat figure will be provided at a cost of $1,000 each.
** Sponsor will be billed an additional $1,448 for each screening
failure.
*** Figure includes additional labor expenses incurred due to the delay
in the availability of drug.
EXHIBIT 10.97
PROMISSORY NOTE
$681,730.43 Dallas County, Texas February 4, 1999
FOR VALUE RECEIVED, the undersigned, ALOE COMMODITIES INTERNATIONAL,
INC., a Texas corporation (the "Maker"), hereby promises to pay to the
order of CARRINGTON LABORATORIES, INC., a Texas corporation (the
"Payee"), the principal sum of Six Hundred Eighty-One Thousand Seven
Hundred Thirty and 43/100 Dollars ($681,730.43), with interest on the
unpaid balance thereof from the date hereof until maturity at the rate or
rates hereinafter provided, both principal and interest being payable as
hereinafter provided in lawful money of the United States of America at
2001 Walnut Hill Lane, Irving, Texas 75038, or at such other place as may
be designated from time to time by the holder of this Note.
The unpaid principal of this Note outstanding from time to time
shall bear interest prior to maturity at the rate of ten percent (10%)
per annum or the maximum interest rate permitted under applicable law,
whichever is less; provided, however, that no interest shall accrue or be
payable on any part of the principal of this Note that is paid on or
before June 4, 1999. All past due principal of and/or interest on this
Note shall bear interest from maturity until paid at the rate of eighteen
percent (18%) per annum or the maximum interest rate permitted under
applicable law, whichever is less.
The principal of and interest on this Note shall be due and payable
on February 4, 2000 (the "Final Due Date"), on which date all unpaid
principal of and accrued interest on this Note shall be due and payable.
The Maker shall have the right to prepay, without penalty, at any time
and from time to time prior to maturity, all or any part of the unpaid
principal balance of this Note, provided that any such principal prepaid
after June 4, 1999 shall be accompanied by the interest accrued on such
principal.
The Maker hereby pledges and assigns to the Payee and grants to the
Payee a continuing security interest in 700,000 shares of capital stock,
par value $0.05 U.S. per share, of Aloe and Herbs International Inc., a
Panamanian corporation, and all proceeds thereof, to secure the full and
timely payment of all sums now or hereafter owed by the Maker under this
Note. The Payee shall have all rights and remedies available to it under
the Texas Uniform Commercial Code.
<PAGE>
It is the intent of the Maker and the Payee, in the execution and
acceptance of this Note and all other instruments now or hereafter
securing this Note, to contract in strict compliance with applicable
usury law. In furtherance thereof, the Maker and the Payee stipulate and
agree that none of the terms and provisions contained in this Note, or in
any other instrument executed in connection herewith, shall ever be
construed to create a contract to pay, for the use, forbearance or
detention of money, interest at a rate in excess of the maximum interest
rate permitted to be charged by applicable law; that neither the Maker
nor any guarantors, endorsers or other parties now or hereafter becoming
liable for payment of this Note shall ever be obligated or required to
pay interest on this Note at a rate in excess of the maximum interest
rate that may be lawfully charged under applicable law; and that the
provisions of this paragraph shall control over all other provisions of
this Note and any other instruments now or hereafter executed in
connection herewith that may be in apparent conflict herewith. The
holder of this Note expressly disavows any intention to charge or collect
excessive unearned interest or finance charges in the event the maturity
of this Note is accelerated. If the maturity of this Note shall be
accelerated for any reason, or if the principal of this Note is paid
prior to the end of the term of this Note, and as a result thereof the
interest received for the actual period of existence of the indebtedness
evidenced by this Note exceeds the applicable maximum lawful rate, the
holder of this Note shall, at its option, either refund to the Maker the
amount of such excess or credit the amount of such excess against the
principal balance of this Note then outstanding and thereby shall render
inapplicable any and all penalties of any kind provided by applicable law
as a result of such excess interest. If the Payee or any other holder of
this Note shall collect money that is deemed to constitute interest that
would increase the effective interest rate on this Note to a rate in
excess of that permitted to be charged by applicable law, an amount equal
to interest in excess of the lawful rate shall, upon such determination,
at the option of the holder of this Note, be either immediately returned
to the Maker or credited against the principal balance of this Note then
outstanding, in which event any and all penalties of any kind under
applicable law as a result of such excess interest shall be inapplicable.
By execution of this Note, the Maker acknowledges that it believes the
indebtedness evidenced by this Note to be non-usurious and agrees that
if, at any time, the Maker should have reason to believe that such
indebtedness is in fact usurious, it will give the holder of this Note
notice of such condition, and such holder shall have ninety (90) days
from the date such notice is given in which to make appropriate refund or
other adjustment in order to correct such condition, if in fact such
exists. The term "applicable law," as used in this Note, shall mean the
laws of the State of Texas or the laws of the United States, whichever
laws allow the greater rate of interest, as such laws now exist or may be
changed or amended or come into effect in the future.
If the indebtedness represented by this Note or any part thereof is
collected at law or in equity or through any bankruptcy, receivership,
probate or other court proceedings, or if this Note is placed in the
hands of an attorney for collection after default, the Maker and all
endorsers, guarantors and sureties of this Note jointly and severally
agree to pay to the holder of this Note, in addition to the principal and
interest due and payable hereon, all the costs and expenses of such
holder in enforcing this Note, including without limitation reasonable
attorney's fees and legal expenses.
<PAGE>
The Maker and all endorsers, guarantors and sureties of this Note
and all other persons liable or to become liable on this Note severally
waive presentment for payment, demand, notice of demand and of dishonor
and nonpayment of this Note, notice of intention to accelerate the
maturity of this Note, notice of acceleration, protest and notice of
protest, diligence in collecting, and the bringing of suit against any
other party, and agree to all renewals, extensions, modifications,
partial payments, and releases or substitutions of security, in whole or
in part, with or without notice, before or after maturity.
This Note and the rights, duties and liabilities of the parties
hereunder and/or arising from or relating in any way to the indebtedness
evidenced by this Note or the transaction of which such indebtedness is a
part shall be governed by and construed for all purposes in accordance
with the laws of the State of Texas and the laws of the United States
applicable to transactions within such state.
IN WITNESS WHEREOF, the Maker has executed this Note on the date
first set forth above.
ALOE COMMODITIES INTERNATIONAL, INC.
By: /s/ L. Scott McKnight
L. Scott McKnight
President
EXHIBIT 10.98
February 4, 1999
Aloe Commodities International, Inc.
12901 Nicholson, Suite 370
Farmers Branch, Texas 75234
Gentlemen:
Reference is made to the Promissory Note dated June 17, 1998 of Aloe
Commodities International, Inc., a Texas corporation (the "Maker"),
payable to the order of Carrington Laboratories, Inc., a Texas
corporation (the "Payee"), in the original principal amount of $200,000
(the "Note"), as amended by three letter agreements between the Maker and
the Payee dated September 30, 1998, November 4, 1998 and January 15, 1999
(collectively, the "Prior Amendments"), the last of which extended the
Final Due Date of the Note to February 5, 1999. The Maker and the Payee
now desire to amend the Note in the additional respects set forth below.
Accordingly, the Maker and the Payee hereby agree as follows:
1. The third paragraph on the first page of the Note is hereby
amended, effective as of June 17, 1998, to read in its entirety
as follows:
The principal of and interest on this Note shall be due and
payable on February 4, 2000 (the "Final Due Date"), on which date
all unpaid principal of and accrued interest on this Note shall be
due and payable.
2. The Note is further amended, effective as of the date of this
letter agreement, by inserting on the first page thereof, between
the fourth and fifth paragraphs, a new paragraph which shall read
in its entirety as follows:
The Maker hereby pledges and assigns to the Payee and grants to
the Payee a continuing security interest in 200,000 shares of
capital stock, par value $0.05 U.S. per share, of Aloe and Herbs
International Inc., a Panamanian corporation, and all proceeds
thereof, to secure the full and timely payment of all sums now or
hereafter owed by the Maker under this Note. The Payee shall have
all rights and remedies available to it under the Texas Uniform
Commercial Code.
<PAGE>
Aloe Commodities International, Inc.
February 4, 1999
Page 2
3. This letter agreement shall supersede the Prior Amendments,
and the Note shall remain in full force and effect as originally
written, except as amended by this letter agreement.
Please indicate your agreement to the terms of this letter
agreement by signing the enclosed copy of this letter in the space
provided below and returning that copy to the undersigned.
CARRINGTON LABORATORIES, INC.
By: \s\ Robert W. Schnitzius
Robert W. Schnitzius
Treasurer and Chief Financial Officer
Agreed to in all respects:
ALOE COMMODITIES INTERNATIONAL, INC.
By: \s\ L. Scott McKnight
L. Scott McKnight
President
EXHIBIT 10.99
ALOE AND HERBS INTERNATIONAL INC.
STOCK PURCHASE WARRANT
granted to
CARRINGTON LABORATORIES, INC.
November 23, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. Manner of Exercise; Issuance of Certificates; Payment for Shares . 1
2. Period of Exercise . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Certain Representations and Agreements of the Company . . . . . . 2
(a) Corporate Organization . . . . . . . . . . . . . . . . . . . 2
(b) Authorized and Outstanding Capital Stock . . . . . . . . . . 2
(c) Shares to be Fully Paid . . . . . . . . . . . . . . . . . . . 3
(d) Reservation of Shares . . . . . . . . . . . . . . . . . . . . 3
(e) Continued Existence; Certain Actions Prohibited . . . . . . 3
(f) Corporate Authority . . . . . . . . . . . . . . . . . . . . . 3
(g) Noncontravention . . . . . . . . . . . . . . . . . . . . . . 3
(h) Governmental Approvals . . . . . . . . . . . . . . . . . . . 4
(I) Registration . . . . . . . . . . . . . . . . . . . . . . . . 4
(j) Financial Statements . . . . . . . . . . . . . . . . . . . . 4
(k) Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(l) Inspection . . . . . . . . . . . . . . . . . . . . . . . . . 5
(m) Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(n) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Upward Adjustment in Exercise Price . . . . . . . . . . . . . . . 5
5. Antidilution Provisions . . . . . . . . . . . . . . . . . . . . . 6
(a) Stock Dividends; Subdivisions and Combinations . . . . . . . 6
(b) Extraordinary Dividends and Distributions . . . . . . . . . . 6
(c) Issuance of Capital Stock . . . . . . . . . . . . . . . . . . 7
(d) Computation of Market Price . . . . . . . . . . . . . . . . . 7
(e) Record Date Adjustments . . . . . . . . . . . . . . . . . . . 7
(f) Minimum Adjustment of Exercise Price . . . . . . . . . . . . 8
(g) Reorganization, Reclassification, Consolidation, Merger,
or Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(h) No Fractional Shares . . . . . . . . . . . . . . . . . . . . 9
(I) Notice of Adjustment . . . . . . . . . . . . . . . . . . . . 9
(j) Other Notices . . . . . . . . . . . . . . . . . . . . . . . . 9
(k) Certain Events . . . . . . . . . . . . . . . . . . . . . . 10
6. Registration Rights . . . . . . . . . . . . . . . . . . . . . . 10
(a) Right to Participate in Registrations . . . . . . . . . . . 10
(b) Registration Procedures . . . . . . . . . . . . . . . . . . 11
(c) Required Information . . . . . . . . . . . . . . . . . . . 12
(d) Expenses of Registration . . . . . . . . . . . . . . . . . 12
(e) Indemnification . . . . . . . . . . . . . . . . . . . . . . 12
7. Issue Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8. Availability of Information . . . . . . . . . . . . . . . . . . 12
9. No Rights or Liabilities as a Shareholder . . . . . . . . . . . 13
<PAGE>
10. Transfer, Exchange, and Replacement of Warrant . . . . . . . . . 13
(a) Transfer of Warrant . . . . . . . . . . . . . . . . . . . . 13
(b) Warrant Exchangeable for Different Denominations . . . . . 13
(c) Replacement of Warrant . . . . . . . . . . . . . . . . . . 13
(d) Cancellation; Payment of Expenses . . . . . . . . . . . . . 13
(e) Register . . . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Exercise or Transfer Without Registration . . . . . . . . . 14
11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Amendments . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Descriptive Headings . . . . . . . . . . . . . . . . . . . 15
(c) Successors and Assigns . . . . . . . . . . . . . . . . . . 15
(d) Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Survival . . . . . . . . . . . . . . . . . . . . . . . . . 15
(f) Closing of Books . . . . . . . . . . . . . . . . . . . . . 15
(g) Amendments to Terms of Warrant Shares . . . . . . . . . . . 15
<PAGE>
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933
OR UNDER ANY SECURITIES OR BLUE SKY LAWS OF ANY STATE OF THE UNITED
STATES. NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER SAID ACT AND UNDER APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS OR EXEMPTIONS FROM SUCH REGISTRATION. THIS WARRANT MAY NOT BE
SOLD, ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT UPON THE
CONDITIONS SPECIFIED IN THIS WARRANT, AND NO SALE, ASSIGNMENT, TRANSFER,
OR OTHER DISPOSITION OF THIS WARRANT SHALL BE VALID OR EFFECTIVE UNLESS
AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
No. W-001 Right to Purchase 300,000 Shares
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CARRINGTON LABORATORIES,
INC., a Texas corporation, is entitled to purchase from ALOE AND HERBS
INTERNATIONAL INC., a corporation organized under the laws of the
Republic of Panama (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, THREE HUNDRED THOUSAND
(300,000) fully paid and nonassessable shares of the Company's Capital
Stock, par value U.S. $0.05 per share (the "Capital Stock"), at an
exercise price per share of Sixty-Five Cents (U.S. $0.65) (such exercise
price, as it may be adjusted hereunder, is herein called the "Exercise
Price"). The term "Warrant Shares", as used herein, refers to the shares
of Capital Stock purchasable hereunder. The Exercise Price will be
adjusted upward on June 2, 2000 as provided in Paragraph 4 hereof, and
the Warrant Shares and the Exercise Price are subject to further
adjustment as provided in Paragraph 5 hereof. This Stock Purchase
Warrant was originally issued in connection with a loan by the initial
holder hereof to the Company in the amount of U.S. $300,000. The term
"Warrants", as used herein, shall mean this Stock Purchase Warrant and
all other Stock Purchase Warrants issued in connection with any transfer,
exchange, or replacement thereof.
<PAGE>
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for
Shares. Subject to the provisions hereof, this Warrant may be exercised
by the holder hereof in whole or in part (but not as to a fractional
Warrant Share). The holder hereof may exercise this Warrant by the
surrender of this Warrant, together with a completed Exercise Agreement
in the form attached hereto, to the Company during normal business hours
on any business day at any of the Company's principal offices in the
Republic of Panama, the Republic of Costa Rica, or St. Marys, West
Virginia, U.S.A. (or such other office or agency of the Company as may be
mutually agreed upon by the Company and the holder hereof), and upon
payment to the Company in cash, by wire transfer or by bank check, in
United States dollars, of the Exercise Price for the Warrant Shares
specified in said Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or its designee as the
record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise
Agreement delivered, and payment made for such shares as aforesaid.
Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in said Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding
five business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be
requested by the holder hereof and shall be registered in the name of
said holder or such other name as shall be designated by said holder. If
this Warrant shall have been exercised only in part, then, unless this
Warrant has expired, the Company shall, at its expense, at the time of
delivery of said certificates, deliver to said holder a new Warrant
representing the number of shares with respect to which this Warrant
shall not then have been exercised. The Company shall pay all taxes and
other expenses and charges payable in connection with the preparation,
execution, and delivery of stock certificates (and any new Warrants)
pursuant to this Paragraph 1 except that, in case such stock certificates
shall be registered in a name or names other than the holder of this
Warrant, funds sufficient to pay all stock transfer taxes which shall be
payable in connection with the execution and delivery of such stock
certificates shall be paid by the holder hereof to the Company at the
time of the delivery of such stock certificates by the Company as
mentioned above.
2. Period of Exercise. This Warrant is exercisable at any time or
from time to time after November 23, 1998, and before 5:00 p.m., local
time in Dallas, Texas, on November 24, 2003.
3. Certain Representations and Agreements of the Company. The
Company hereby represents and warrants to, and covenants and agrees with,
each holder of this Warrant as follows:
<PAGE>
(a) Corporate Organization. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of
the Republic of Panama and has all requisite power and authority to
own, lease, and operate its properties and to carry on its business
as now being conducted. No actions or proceedings to dissolve the
Company are pending or threatened. The Company has delivered to the
initial holder of this Warrant accurate and complete copies of the
Company's articles of incorporation and other charter documents as
currently in effect and the stock records of the Company. Such
records accurately reflect the stock ownership of the Company.
(b) Authorized and Outstanding Capital Stock. The authorized
capital stock of the Company consists of 15,000,000 shares of
Capital Stock, par value U.S. $0.05 per share, of which 7,765,000
shares are issued and outstanding as of the date of this Warrant.
All outstanding shares of Capital Stock have been validly issued and
are fully paid and nonassessable. Except as set forth above and as
provided in this Warrant, as of the date of this Warrant, there are
outstanding (I) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or
other voting securities of the Company, (iii) no options or other
rights to acquire from the Company, and no obligation of the Company
to issue or sell, any shares of capital stock or other voting
securities of the Company or any securities of the Company
convertible into or exchangeable for such capital stock or voting
securities, and (iv) no equity equivalents, interests in the
ownership or earnings or other similar rights of or with respect to
the Company.
(c) Shares to be Fully Paid. All Warrant Shares will, upon
issuance, be validly issued, fully paid, and nonassessable and free
from all taxes, liens, and charges with respect to the issue
thereof.
(d) Reservation of Shares. During the period within which
this Warrant may be exercised (the "Exercise Period"), the Company
will at all times have authorized, and reserved for the purpose of
issue upon exercise of this Warrant, a sufficient number of shares
of Capital Stock to provide for the exercise of this Warrant.
<PAGE>
(e) Continued Existence; Certain Actions Prohibited. During
the Exercise Period, the Company and its subsidiaries will maintain
in full force and effect their respective corporate existence and
all rights and franchises that are necessary to carry on their
respective businesses as then conducted. (I) The Company will not
increase the par value of the shares of Capital Stock receivable
upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) before taking any action which would cause an
adjustment reducing the Exercise Price below the then par value of
the shares of Capital Stock so receivable, the Company will take all
such corporate action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of Capital Stock at such adjusted Exercise
Price upon the exercise of this Warrant and (iii) the Company will
not take any action which results in any adjustment of the Exercise
Price if the total number of shares of Capital Stock issuable after
the action upon the exercise of this Warrant would exceed the total
number of shares of Capital Stock then authorized by the Company's
articles of incorporation or other charter documents and available
for the purpose of issue upon such exercise.
(f) Corporate Authority. The Company has full power and
authority to execute, deliver, and perform this Warrant. The
execution, delivery, and performance by the Company of this Warrant
have been duly authorized by all necessary corporate action of the
Company. This Warrant has been duly executed and delivered by the
Company and constitutes a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its
terms.
(g) Noncontravention. The execution, delivery and performance
by the Company of this Warrant do not and will not (I) conflict with
or result in a violation of any provision of the Company's articles
of incorporation or other charter documents, (ii) conflict with or
result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a
default under, or give rise (with or without the giving of notice
or the passage of time or both) to a right of termination,
cancellation, or acceleration under, or acquire any consent,
approval, authorization or waiver of, or notice to, any party to,
any bond, debenture, note, mortgage, indenture, lease, contract,
agreement, or other instrument or obligation to which the Company or
any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties may be bound
or any permit held by the Company or any of its subsidiaries, (iii)
result in the creation or imposition of any encumbrance upon the
properties of the Company or any of its subsidiaries or (iv) violate
any applicable law binding upon the Company or any of its
subsidiaries.
(h) Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
governmental authority is required to be obtained or made by the
Company or any of its subsidiaries in connection with the execution,
delivery, or performance by the Company of this Warrant.
<PAGE>
(i) Registration. If the issuance of any Warrant Shares
required to be reserved for purposes of exercise of this Warrant
requires registration with or approval of any governmental authority
under any federal, state, local or other law, rule or regulation of
the United States, the Republic of Panama or other country or any
state or political subdivision of any such country (other than any
registration under the United States Securities Act of 1933, as
amended (the "Securities Act"), or under applicable securities or
blue sky laws of any state of the United States, which registration
is subject to Paragraph 6 hereof) or listing on any securities
exchange or stock market, before such shares may be issued upon
exercise of this Warrant, the Company will, at its expense, use its
best efforts to cause such shares to be duly registered or approved,
or listed on the relevant securities exchange or stock market, as
the case may be, at such time, so that such shares may be issued in
accordance with the terms hereof.
(j) Financial Statements. During the Exercise Period, the
Company will keep true and correct books of account and prepare
financial statements in accordance with generally accepted
accounting principles consistently applied and shall cause to be
made available to the holder of this Warrant:
(i) as soon as practicable and in any event within
30 days after the end of each quarterly period (other
than the last quarterly period) in each fiscal year,
consolidated statements of operations, stockholders
equity and cash flows of the Company and its subsidiaries
for the period from the beginning of the current fiscal
year to the end of such quarterly period, and a
consolidated balance sheet of the Company and its
subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for
the corresponding period in the preceding fiscal year, all
in reasonable detail and certified by an authorized
financial officer of the Company, subject to changes
resulting from year-end adjustments; and
(ii) as soon as practicable and in any event within
60 days after the end of each fiscal year, consolidating
and consolidated statements of operations, stockholders
equity and cash flows of the Company and its subsidiaries
for such year, and consolidating and consolidated balance
sheets of the Company and its subsidiaries as at the end
of such year, setting forth in each case in comparative
form corresponding consolidated figures from the preceding
annual audit, all in reasonable detail and reasonably
satisfactory in scope to the holder of this Warrant, and,
as to the consolidated statements, certified to the
Company by independent public accountants of recognized
United States national standing selected by the Company
and reasonably satisfactory to such holder.
<PAGE>
(k) Laws. During the Exercise Period, the Company and its
subsidiaries will comply with all governmental statutes, regulations
and orders, domestic and foreign, applicable to the Company and its
subsidiaries, the noncompliance with which would have a material
adverse effect on the business, condition (financial or otherwise),
or operations of the Company and its subsidiaries taken as a whole
or the ability of the Company to perform its obligations under this
Warrant.
(l) Inspection. Upon reasonable notice to the Company, at any
reasonable time and from time to time during the Exercise Period,
the Company will permit any representative designated by the holder
of this Warrant to (I) visit and inspect any of the properties of
the Company or its subsidiaries; (ii) examine the corporate and
financial records of the Company and its subsidiaries and make
copies thereof or extracts therefrom; and (iii) discuss the affairs,
finances, and accounts of the Company and its subsidiaries with the
directors, officers, key employees, and independent accountants of
the Company and its subsidiaries (and the Company hereby authorizes
all independent accountants employed by the Company and its
subsidiaries to consult with and answer inquiries by such holder
with respect to the financial condition and matters of the Company
and its subsidiaries and with respect to any matters which have come
to their attention concerning the Company and its subsidiaries
during the course of their dealings with the Company and its
subsidiaries).
(m) Records. During the Exercise Period, the Company and its
subsidiaries shall keep books and records of account in which full,
true, and correct entries will be made of all dealings and
transactions in relation to their respective businesses and affairs
in accordance with generally accepted accounting principles applied
on a consistent basis.
(n) Taxes. During the Exercise Period, the Company and its
subsidiaries shall file all required tax returns (or requests for
extensions of time to file such returns), reports, and requests for
refunds on a timely basis and shall pay or discharge on a timely
basis all taxes imposed on them or on any of their respective
assets, income, or franchises.
4. Upward Adjustment in Exercise Price. Effective as of 12:01
a.m., local time in Dallas, Texas, on June 2, 2000 (the "Adjustment
Effective Time"), the Exercise Price shall be adjusted upward to an
amount (which shall be rounded downward to the nearest whole cent) equal
to the mathematical product of (x) the Exercise Price in effect
immediately prior to the Adjustment Effective Time multiplied by (y)
1.1538462. Such adjustment shall be effective for any exercise of this
Warrant that occurs at or after the Adjustment Effective Time, and shall
not apply to exercises prior to that time. Such adjustment shall not
affect the number of Warrant Shares purchasable hereunder.
<PAGE>
5. Antidilution Provisions. The Exercise Price (including the
Exercise Price as adjusted pursuant to Paragraph 4 hereof) shall be
subject to adjustment from time to time as provided in this Paragraph 5.
Upon each adjustment of the Exercise Price pursuant to this Paragraph 5,
the holder of this Warrant shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the largest number of
Warrant Shares obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
For purposes of this Paragraph 5, the term "Capital Stock", as used
herein, includes the Capital Stock and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation which may be authorized in the future by the Company's
articles of incorporation or other charter documents, provided that the
shares purchasable pursuant to this Warrant shall include only shares of
the class designated as capital stock of the Company as of the date of
this Warrant, or shares resulting from any subdivision or combination
of such capital stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character
referred to in Paragraph 5(g) hereof, the stock or other securities or
property provided for in said Paragraph.
(a) Stock Dividends; Subdivisions and Combinations. In case at any
time the Company shall (I) pay a dividend or make a distribution on
Capital Stock in Capital Stock, (ii) subdivide the outstanding shares of
Capital Stock into a greater number of shares, or (iii) combine the
outstanding shares of Capital Stock into a smaller number of shares, the
Exercise Price in effect immediately prior thereto shall be adjusted
proportionately so that the adjusted Exercise Price shall bear the same
relation to the Exercise Price in effect immediately prior to such event
as the total number of shares of Capital Stock outstanding immediately
prior to such event shall bear to the total number of shares of Capital
Stock outstanding immediately after such event. An adjustment made
pursuant to this Paragraph 5(a) shall become effective immediately after
the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination.
(b) Extraordinary Dividends and Distributions. In case at any time
the Company shall pay a dividend or make a distribution to all holders of
Capital Stock, as such, of shares of its stock (other than Capital
Stock), evidences of its indebtedness, assets (excluding dividends or
distributions payable in cash out of earnings or earned surplus), or
rights, options, or warrants to subscribe for or purchase such shares,
evidences of indebtedness, or assets, then in each such case the Exercise
Price shall be adjusted so that the same shall equal the price determined
by multiplying the Exercise Price in effect immediately prior to the
record date mentioned below by a fraction, the numerator of which shall
be the total number of shares of Capital Stock outstanding on such record
date multiplied by the market price per share of Capital Stock
(determined as provided in Paragraph 5(d) hereof) on such record date,
less the fair market value (as determined in good faith by the Board of
Directors of the Company) as of such record date of such shares of stock,
evidences of indebtedness, assets, or rights, options, or warrants so
paid or distributed, and the denominator of which shall be the total
number of shares of Capital Stock outstanding on such record date
multiplied by the market price per share of Capital Stock (determined as
provided in Paragraph 5(d) hereof) on such record date. Such adjustment
<PAGE>
shall be made whenever such dividend is paid or such distribution is made
and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such dividend or
distribution.
(c) Issuance of Capital Stock. If and whenever the Company shall
issue or sell any shares of Capital Stock (the "Dilutive Capital Stock")
for a consideration per share less than the Exercise Price in effect
immediately prior to the date of issuance or sale of the Dilutive Capital
Stock, the Exercise Price shall be adjusted to equal the consideration
per share received by the Company for the Dilutive Capital Stock.
(d) Computation of Market Price. For the purpose of any
computation under Paragraph 5(b) hereof, the market price of the security
in question on any day shall be deemed to be the average of the last
reported sale prices for the security for the 20 consecutive Trading Days
(as defined below) commencing 20 Trading Days before the day in question.
The last reported sale price for each day shall be (I) the last reported
sale price of the security on the Nasdaq National Market, the Nasdaq
Small Cap Issuer Market or any similar system of automated dissemination
of quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (I) above, the mean between the
high bid and low asked quotations for the security as reported by the
National Quotation Bureau, Inc. if at least two securities dealers have
inserted both bid and asked quotations for such security on at least 10
of such 20 consecutive Trading Days, or (iii) if the security is listed
or admitted for trading on any national securities exchange, the last
sale price, or the closing bid price if no sale occurred, of such class
of security on the principal securities exchange on which such class of
security is listed or admitted to trading. If the security is quoted on
a national securities or central market system, in lieu of a market or
quotation system described above, the last reported sale price shall be
determined in the manner set forth in clause (ii) of the preceding
sentence if bid and asked quotations are reported but actual transactions
are not, and in the manner set forth in clause (iii) of the preceding
sentence if actual transactions are reported. If none of the conditions
set forth above is met, the last reported sale price of the security on
any day or the average of such last reported sale prices for any period
shall be the fair market value of such security as determined, at the
sole expense of the Company, by a member firm of the New York Stock
Exchange mutually selected by the Company and the holder of this Warrant.
If the fair market value is determined pursuant to the immediately
preceding sentence, such value shall continue to be used by the Company
and the holder for all purposes of this Paragraph 5(d) for the
immediately succeeding 90-day period; provided, however, the use of such
value during such 90-day period shall immediately cease if either (I)
the market price of such security can be determined in the manner
contemplated by the first three sentences of this Paragraph 5(d) or (ii)
the Company is unable to provide the holder with an officer's certificate
to the effect that there has been no change within the elapsed portion of
such 90-day period in the condition of the Company, financial or
otherwise, that would materially affect the market value of the
applicable security. The term "Trading Days", as used herein, means (I)
if the security is quoted on the Nasdaq National Market or any similar
system of automated dissemination of quotations of securities prices,
days on which trades may be made on such system, or (ii) if the security
is listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
<PAGE>
(e) Record Date Adjustments. In any case in which this Paragraph 5
requires that a downward adjustment of the Exercise Price shall become
effective immediately after a record date for an event, the Company may
defer until the occurrence of such event (I) issuing to the holder of
this Warrant exercised after such record date and before the occurrence
of such event the additional Warrant Shares issuable upon such exercise
by reason of the adjustment required by such event over and above the
Warrant Shares issuable upon such exercise before giving effect to such
adjustment and (ii) paying to such holder any amount in cash in lieu of a
fractional share pursuant to Paragraph 5(h) hereof.
(f) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount less than 0.25% of the Exercise
Price in effect at the time such adjustment is otherwise required to be
made, but any such lesser adjustment shall be carried forward and shall
be made at the time and together with the next subsequent adjustment
which, together with any adjustments so carried forward, shall amount to
not less than 0.25% of such Exercise Price; provided that, upon the
exercise of this Warrant, all adjustments carried forward and not
theretofore made up to and including the date of such exercise shall,
with respect to this Warrant then exercised, be made to the nearest .001
of a cent.
(g) Reorganization, Reclassification, Consolidation, Merger,
or Sale. If any capital reorganization of the Company, or any
reclassification of the Capital Stock, or any consolidation or merger of
the Company with or into another corporation or entity, or any sale of
all or substantially all the assets of the Company, shall be effected in
such a way that the holders of Capital Stock (or any other securities of
the Company then issuable upon the exercise of this Warrant) shall be
entitled to receive stock or other securities or property (including
cash) with respect to or in exchange for Capital Stock (or such
other securities), then, as a condition of such reorganization,
reclassification, consolidation, merger, or sale, lawful and adequate
provision shall be made whereby the holder of this Warrant shall
thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant, and in lieu of
the shares of Capital Stock (or such other securities) immediately
theretofore purchasable and receivable upon the exercise hereof, such
stock or other securities or property (including cash) as may be issuable
or payable with respect to or in exchange for a number of outstanding
shares of Capital Stock (or such other securities) equal to the number
of shares of Capital Stock (or such other securities) immediately
theretofore purchasable and receivable upon the exercise of this Warrant,
had such reorganization, reclassification, consolidation, merger, or sale
not taken place. In any such case appropriate provision shall be made
with respect to the rights and interests of the holder of this Warrant to
the end that the provisions hereof (including, without limitation, the
provisions for adjustments of the Exercise Price and of the number of
Warrant Shares purchasable upon exercise hereof) shall thereafter be
applicable, as nearly as reasonably may be, in relation to the stock or
other securities or property thereafter deliverable upon the exercise
hereof (including an immediate adjustment of the Exercise Price if by
reason of or in connection with such consolidation, merger, or sale any
securities are issued or event occurs which would, under the terms
hereof, require an adjustment of the Exercise Price). In the event of a
consolidation or merger of the Company with or into another corporation
<PAGE>
or entity as a result of which a greater or lesser number of shares of
common stock of the surviving corporation or entity are issuable to
holders of Capital Stock in respect of the number of shares of Capital
Stock outstanding immediately prior to such consolidation or merger, then
the Exercise Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Capital Stock.
The Company shall not effect any such consolidation, merger, or sale
unless prior to or simultaneously with the consummation thereof the
successor corporation or entity (if other than the Company) resulting
from such consolidation or merger or the corporation or entity purchasing
such assets and any other corporation or entity the shares of stock or
other securities or property of which are receivable thereupon by the
holder of this Warrant shall expressly assume, by written instrument
executed and delivered (and satisfactory in form and substance) to the
holder of this Warrant, (I) the obligation to deliver to such holder such
stock or other securities or property as, in accordance with the
foregoing provisions, such holder may be entitled to purchase and (ii)
all other obligations of the Company hereunder.
(h) No Fractional Shares. No fractional shares of Capital Stock
are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in United States dollars in respect of any
fractional share which would otherwise be issuable in an amount equal to
the same fraction of the current market value of a share of Capital
Stock, which current market value shall be the last reported sale price
(determined as provided in Paragraph 5(d) hereof) on the Trading Day
immediately preceding the date of the exercise.
(i) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then and in each such case
the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of Warrant
Shares purchasable at such price upon exercise, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend
upon the Capital Stock payable in shares of stock
of any class or make any other distribution
(including dividends or distributions payable in
cash) to the holders of the Capital Stock;
(ii) the Company shall offer for subscription
pro rata to the holders of the Capital Stock any
additional shares of stock of any class or other
rights;
<PAGE>
(iii) t h ere shall be any capital
reorganization of the Company, or reclassification
of the Capital Stock, or consolidation or merger
of the Company with or into, or share exchange by
the holders of the Capital Stock with, or sale of
all or substantially all the assets of the Company
to, another corporation or entity or any other
person; or
(iv) there shall be a voluntary or
involuntary dissolution, liquidation, or
winding-up of the Company;
then, in each such case, the Company shall give to the holder of
this Warrant (a) notice of the date on which the books of the
Company shall close or a record shall be taken for determining
the holders of Capital Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining
the holders of Capital Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger,
share exchange, sale, dissolution, liquidation, or winding-up and
(b) in the case of any such reorganization, reclassification,
consolidation, merger, share exchange, sale, dissolution,
liquidation, or winding-up, notice of the date (or, if not then
known, a reasonable approximation thereof by the Company) when
the same shall take place. Such notice shall also specify the
date on which the holders of Capital Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to
exchange their Capital Stock for stock or other securities or
property deliverable upon such reorganization, reclassification,
consolidation, merger, share exchange, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice
shall be given at least 20 days prior to the record date or the
date on which the Company's books are closed in respect thereto.
(k) Certain Events. If any event occurs as to which, in the
good faith judgment of the Board of Directors of the Company, the
other provisions of this Paragraph 5 are not strictly applicable
or if strictly applicable would not fairly protect the exercise
rights of the holder of this Warrant in accordance with the
essential intent and principles of such provisions, then the
Board of Directors of the Company and the holder of this Warrant
shall, at the Company's expense, appoint a mutually agreed firm
of independent public accountants of recognized United States
national standing which shall give their opinion upon the
adjustment, if any, on a basis consistent with such essential
intent and principles, necessary to preserve, without dilution,
the rights of the holder of this Warrant. Upon receipt of such
opinion, the Board of Directors of the Company shall forthwith
make the adjustments described therein; provided, that no such
adjustment shall have the effect of increasing the Exercise Price
as otherwise determined pursuant to this Paragraph 5.
<PAGE>
6. Registration Rights.
(a) Right to Participate in Registrations. If at any time
the Company proposes to register shares of its Capital Stock (as
defined in Paragraph 5 hereof) under the Securities Act on Form
S-1, S-2, or S-3 (or any form which replaces or is substantially
similar to such form), the Company shall each such time give
notice of such proposed registration to the holder of this
Warrant, if this Warrant has not yet expired, and to all holders
of Warrant Shares. Subject to the terms and provisions of this
Paragraph 6(a), upon the request of any such holder made within
20 days after the receipt of such notice by such holder, the
Company shall cause all Warrant Shares that have been acquired by
such holder pursuant to the exercise of this Warrant, all Warrant
Shares that will be acquired by such holder pursuant to the
exercise of this Warrant not later than the day prior to the
effectiveness of the registration statement under the Securities
Act, and any other shares of Capital Stock held by such holder,
which shares such holder shall have requested to be included in
the proposed registration (the "Registrable Shares"), to be
included as "piggy-back" shares in such registration (the
"Piggyback Registration") to the extent requisite to permit the
sale or other disposition by such holder of such Registrable
Shares. In the event the offering to be conducted pursuant to
the proposed registration is to be an underwritten public
offering, the registration rights provided in this Paragraph 6(a)
shall be subject to the approval of the managing underwriter or
underwriters of such offering, who shall determine the number of
Registrable Shares, if any, that may be included in such
registration without adversely affecting such offering; provided,
however, any such reduction by the underwriter or underwriters in
the number of shares of Capital Stock included in such offering
shall be applied and borne pro rata among all participants in
such offering other than the Company.
(b) Registration Procedures. If and whenever the Company is
required by the provisions of Paragraph 6(a) to cause Registrable
Shares to be included in the registration of securities of
the Company under the Securities Act, the Company will, as
expeditiously as possible:
(A) prepare and file with the United States Securities
and Exchange Commission (the "Commission") a registration
statement (the "Registration Statement") covering such
Registrable Shares and use its best efforts to cause the
Registration Statement to become effective and to remain
effective for so long as may reasonably be necessary to
complete the sale or other disposition of such Registrable
Shares, provided that the Company shall not in any event
be required to use its best efforts to maintain the
effectiveness of the Registration Statement for a period in
excess of 180 days;
(B) prepare and file with the Commission such
amendments and supplements to the Registration Statement and
the prospectus contained therein as may be necessary to keep
the Registration Statement effective, and comply with the
provisions of the Securities Act, with respect to the sale or
other disposition of such Registrable Shares;
<PAGE>
(C) furnish to each holder of such Registrable Shares
such numbers of copies of the Registration Statement, the
prospectus contained therein (including each preliminary
prospectus), and each amendment and supplement to the
Registration Statement and such prospectus, in conformity
with the requirements of the Securities Act, and such other
documents, as such holder may reasonably request in order to
facilitate the sale or other disposition of such Registrable
Shares;
(D) use reasonable efforts to register or qualify such
Registrable Shares for sale under the securities or blue sky
laws of such jurisdictions as the holders thereof may
request, and do any and all other acts and things that may be
necessary under such securities or blue sky laws to enable
the holders of such Registrable Shares to consummate the sale
or other disposition of such Registrable Shares in such
jurisdictions, provided that the Company shall not in
any event be required to keep any such registration or
qualification in effect after the expiration of the period
during which the Company maintains the effectiveness of the
Registration Statement and shall not for any such purpose be
required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to
subject itself to taxation in any such jurisdiction; and
(E) before filing the Registration Statement, any
prospectus to be used in connection with the offering to be
conducted pursuant to such registration, or any amendments or
supplements to the Registration Statement or such prospectus
with the Commission, furnish counsel to the holders of such
Registrable Shares with copies of all such documents proposed
to be filed, which shall be subject to the reasonable
approval of such counsel.
(c) Required Information. The Company shall not be required
to include any Registrable Shares in a proposed registration of
its securities under the Securities Act unless and until (I) the
holder of such Registrable Shares furnishes to the Company such
information regarding such holder and such Registrable Shares and
the intended method of disposition of such Registrable Shares as
the Company shall reasonably request in order to satisfy the
requirements applicable to such registration, and (ii) in the
event of a Piggyback Registration that is part of an underwritten
public offering, such holder agrees to the terms of the
underwriting agreed to between the Company and the underwriter
or underwriters of such offering and executes all documents
reasonably required to effect such offering.
(d) Expenses of Registration. In the event of the inclusion
pursuant to Paragraph 6(a) of Registrable Shares in a Piggyback
Registration by the Company, each holder of such Registrable
Shares shall pay any brokerage and underwriting discounts and
commissions payable in respect of Registrable Shares sold on such
holder's behalf and all fees and expenses of any attorneys and
accountants employed by such holder, and the Company shall pay
any and all other fees and expenses of any nature whatsoever
incurred in connection with such Piggyback Registration.
<PAGE>
(e) Indemnification. In connection with any registration of
Registrable Shares pursuant to the provisions of this Paragraph
6, the Company shall indemnify and hold harmless the holder of
such Registrable Shares to the extent that companies generally
indemnify and hold harmless underwriters in connection with
public offerings under the Securities Act, and such holder shall
indemnify and hold harmless the Company to the extent that
selling shareholders generally indemnify and hold harmless
issuers of securities in connection with public offerings under
the Securities Act with respect to the written information
provided by such holder for use by the Company in the preparation
of the Registration Statement.
7. Issue Tax. The issuance of certificates for Warrant
Shares upon the exercise of this Warrant shall be made without
charge to the holder of this Warrant or such shares for any
issuance tax in respect thereof, provided that the Company shall
not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
8. Availability of Information. The Company will cooperate
with the holder of this Warrant and each holder of any Warrant
Shares in supplying such information as may be necessary for such
holder to complete and file any information reporting forms
presently or hereafter required by any governmental authority,
including the Commission, as a condition to (I) the sale or
transfer of this Warrant or any Warrant Shares or (ii) the
availability of an exemption from the Securities Act for the sale
or transfer of this Warrant or any Warrant Shares. The Company
will deliver to the holder of this Warrant, promptly upon their
becoming available, copies of all financial statements, reports,
notices, and proxy statements sent or made available generally by
the Company to its shareholders, and copies of all regular and
periodic reports, if any, and all registration statements and
prospectuses, if any, filed by the Company with any securities
exchange or governmental authority, including the Commission.
9. No Rights or Liabilities as a Shareholder. This Warrant
shall not entitle the holder hereof to any rights as a
shareholder of the Company. No provision of this Warrant, in the
absence of affirmative action by the holder hereof to purchase
Warrant Shares, and no mere enumeration herein of the rights or
privileges of the holder hereof, shall give rise to any liability
of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by
creditors of the Company.
<PAGE>
10. Transfer, Exchange, and Replacement of Warrant.
(a) Transfer of Warrant. The holder of this Warrant may not
assign, transfer, pledge, hypothecate or otherwise dispose of
this Warrant or any of its rights hereunder without the prior
written consent of the Company; provided, however, that (I) the
holder hereof may assign or otherwise transfer this Warrant, in
whole or in part, to any wholly owned subsidiary or other
corporate affiliate of the holder without the consent of the
Company and (ii) if the holder hereof merges or consolidates
with or into another entity, or transfers or sells all or
substantially all of its assets to a third party, the holder may
assign this Warrant to the party which is the successor to its
business and assets without the consent of the Company. Any
permitted transfer of this Warrant, in whole or in part, is
registrable at the offices or agency of the Company referred to
in Paragraph 10(e) hereof by the holder hereof in person or by
such holder's duly authorized attorney , upon surrender of this
Warrant properly endorsed. In the event that the holder of this
Warrant determines to assign, transfer, pledge, hypothecate or
otherwise dispose of this Warrant or any of its rights hereunder,
it shall give the Company ten (10) days advance written notice of
its intention so to do, identifying the other party or parties to
such proposed assignment, transfer, pledge, hypothecation or
other disposition and the essential terms thereof. No such
assignment, transfer, pledge, hypothecation or other disposition
will be effective as to the Company, nor shall the Company
be required to honor any such assignment, transfer, pledge,
hypothecation or other disposition in the absence of the advance
notice for which provision is made herein.
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder
hereof at the offices or agency of the Company referred
to in Paragraph 10(e) hereof, for new Warrants of like tenor
representing in the aggregate the right to purchase the number of
shares of Capital Stock which may be purchased hereunder, each of
such new Warrants to represent the right to purchase such number
of shares as shall be designated by said holder hereof at the
time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of
any such loss, theft, or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant
of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender
of this Warrant in connection with any transfer, exchange, or
replacement as provided in this Paragraph 10, this Warrant shall
be promptly canceled by the Company. The Company shall pay all
taxes (other than securities transfer taxes) and all other
expenses and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph
10.
<PAGE>
(e) Register. The Company shall maintain, at its principal
offices in the Republic of Panama, the Republic of Costa Rica,
and St. Marys, West Virginia, U.S.A. (or such other office or
agency of the Company as may be mutually agreed upon by the
Company and the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person
in whose name this Warrant has been issued, as well as the name
and address of each transferee and each prior owner of this
Warrant.
(f) Exercise or Transfer Without Registration. Anything in
this Warrant to the contrary notwithstanding, if, at the time of
the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant shall not
be registered under the Securities Act and under applicable
securities or blue sky laws of any state of the United States,
the Company may require, as a condition of allowing such
exercise, transfer, or exchange, that (I) the holder or
transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel, which opinion and counsel
are reasonably acceptable to the Company, to the effect that such
exercise, transfer, or exchange may be made without registration
under said Act and under such applicable state securities or blue
sky laws and (ii) the holder or transferee execute and deliver to
the Company an investment letter in form and substance reasonably
acceptable to the Company. The holder of this Warrant, by taking
and holding the same, represents to the Company that such holder
is acquiring this Warrant for investment and not with a view to
the distribution thereof.
11. N o tices. All notices, requests, and other
communications required or permitted to be given or delivered
hereunder to the holder of this Warrant or to the holder of
shares acquired upon exercise of this Warrant shall be in
writing, and shall be personally delivered, sent by overnight
delivery service, or sent by facsimile transmission, to such
holder at the address shown for such holder on the books of the
Company (which address, in the case of the holder of this
Warrant, is set forth on the signature page hereof), or at such
other address as shall have been furnished to the Company by
notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be
personally delivered or sent by overnight delivery service,
United States mail, or facsimile transmission, to the office of
the Company at P.O. Box 730, St. Marys, West Virginia, U.S.A.
26170, Fax no. (506) 671-1338, Attention: President, or at such
other address as shall have been furnished to the holder of this
Warrant or to the holder of shares acquired upon exercise of this
Warrant by notice from the Company. Any such notice, request, or
other communication sent by facsimile transmission shall be
subsequently confirmed by a writing personally delivered or sent
by overnight delivery service or United States mail as provided
above. All such notices, requests, and other communications
shall be deemed to have been given at the time of the receipt by
the person entitled to receive such notice at the address of such
person for purposes of this Paragraph 11.
<PAGE>
12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF WEST VIRGINIA (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF).
13. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may
not be changed, waived, discharged, or terminated orally, but
only by an instrument in writing signed by the party (or any
predecessor in interest thereof) against which enforcement of the
same is sought.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of
reference only, and shall not affect the meaning or construction
of any of the provisions hereof.
(c) Successors and Assigns. This Warrant shall be binding
upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or substantially all the
Company's assets.
(d) Remedies. The Company stipulates that the remedies at
law of the holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced
by a decree for the specific enforcement of any agreement
contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
(e) Survival. All representations, covenants, and
agreements made by the Company in this Warrant or in any
certificate or other instrument delivered to the holder hereof by
or on behalf of the Company in connection with the execution and
delivery of this Warrant shall be considered to have been relied
upon by the holder of this Warrant and shall survive the
execution, delivery, and performance of this Warrant regardless
of any investigation made by the holder hereof.
(f) Closing of Books. The Company will at no time close its
transfer books against the transfer of this Warrant or any
Warrant Shares or in any manner which interferes with the timely
exercise of this Warrant.
(g) Amendments to Terms of Warrant Shares. The Company will
not amend the terms of the Warrant Shares as set forth in the
articles of incorporation of the Company as in effect on the date
of this Warrant, except with the prior written consent of the
holder of this Warrant.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer effective as of the 23rd
day of November, 1998.
ALOE AND HERBS INTERNATIONAL INC.
By: \s\ Bernard Tice
Name: Bernard Tice
Title: President
Address of Warrantholder:
CARRINGTON LABORATORIES, INC.
2001 Walnut Hill Lane
Irving, Texas 75038
Telephone: (214) 518-1300
Fax: (214) 518-1020
Attention: President
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
within Warrant, hereby agrees to purchase shares of
Capital Stock covered by such Warrant, and makes payment herewith
in full therefor at the price per share provided by such Warrant
in cash, by wire transfer or by bank check in the amount of U.S.
$ . Please issue a certificate or certificates for
such shares of Capital Stock in the name of and pay any cash for
any fractional share to:
Name:
Signature:
Title of Signing Officer or Agent (if any):
Note: The above signature should correspond exactly with the
name on the face of the within Warrant or with the name
of the assignee appearing in the assignment form.
and, if said number of shares of Capital Stock shall not be all the
shares purchasable under the within Warrant, a new Warrant is to be
issued in the name of said undersigned covering the balance of the
shares purchasable thereunder less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant,
with respect to the number of shares of Capital Stock covered thereby
set forth hereinbelow, to:
Name of Assignee Address No. of Shares
, and hereby irrevocably constitutes and appoints
as agent and attorney-in-fact to transfer said Warrant on
the books of the within-named corporation, with full power
of substitution in the premises.
Dated:
In the presence of
Name:
Signature:
Title of Signing Officer or Agent (if any):
Address:
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
Exhibit 21.1
SUBSIDIARIES OF CARRINGTON
Name of Subsidiary Organization Jurisdiction of
------------------------------- ---------------
Carrington Laboratories, Belgium, N.V. Belgium
Finca Savila, S.A. Costa Rica
Carrington Laboratories International, Inc. Texas
Hilcoa Corporation California
Caraloe, Inc. Texas
Carrington Laboratories of Canada, Ltd. Canada
Sabila Industrial, S.A. Costa Rica
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the
Company's previously filed Registration Statements on Forms S-8
(Nos. 33-22849, 33-36041, 33-42002, 33-50430, and 33-64407) and
the Registration Statements on Form S-3 (Nos. 33-60833 and 33-
17177). It should be noted that we have not audited any
financial statements of Carrington Laboratories, Inc. subsequent
to December 31, 1996, or performed any audit procedures
subsequent to the date of our report, February 7, 1997 (except
with respect to certain matters discussed in Note 8, as to which
the date is April 25, 1997).
ARTHUR ANDERSEN LLP
Dallas, Texas
March 31, 1999<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-22849, 33-36041, 33-42002, 33-50430, and
33-64407 ) pertaining to the 1985 Stock Option Plan of Carrington
Laboratories, Inc., Registration Statements (Form S-8 Nos. 33-64403,
33-64405, and 33-55920) pertaining to the 1995 Management Compensation
Plan of Carrington Laboratories, Inc., the 1995 Stock Option Plan of
Carrington Laboratories, Inc., and the Employee Stock Purchase Plan
of Carrington Laboratories, Inc., respectively, the Registration
Statements (Form S-3 Nos. 33-60833 and 333-17177) pertaining to
the 1995 and 1997 private placements of common stock of Carrington
Laboratories, Inc., respectively, of our report dated February 26,
1999, with respect to the consolidated financial statements and
schedules of Carrington Laboratories, Inc. and subsidiaries included
in the Annual Report (Form 10-K) for the year ended December 31, 1998
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
(1) Statements of Balance Sheets, (2) Statement of Operations, and
(3) Statements of Cash Flows, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 4,023 3,931
<SECURITIES> 0 0
<RECEIVABLES> 3,568 3,483
<ALLOWANCES> 478 722
<INVENTORY> 5,003 4,969
<CURRENT-ASSETS> 12,444 12,600
<PP&E> 19,146 20,424
<DEPRECIATION> 8,331 9,374
<TOTAL-ASSETS> 25,796 24,247
<CURRENT-LIABILITIES> 2,970 2,884
<BONDS> 0 0
0 0
0 0
<COMMON> 93 94
<OTHER-SE> 22,733 21,269
<TOTAL-LIABILITY-AND-EQUITY> 25,796 24,247
<SALES> 23,559 23,625
<TOTAL-REVENUES> 23,559 23,625
<CGS> 9,530 10,870
<TOTAL-COSTS> 10,814 12,004
<OTHER-EXPENSES> 3,006 2,589
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (37) (233)
<INCOME-PRETAX> 246 (1,605)
<INCOME-TAX> 20 10
<INCOME-CONTINUING> 226 (1,615)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 226 (1,615)
<EPS-PRIMARY> .02 (.17)
<EPS-DILUTED> .02 (.17)
</TABLE>
