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, 1999
Commission File Number 0-11997
Carrington Laboratories, Inc.
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(Exact name of Registrant as specified in its charter)
Texas 75-1435663
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(State of Incorporation) (IRS Employer ID No.)
2001 Walnut Hill Lane, Irving, Texas 75038
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(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, 2000, was $31,187,000. (This
figure was computed on the basis of the closing price of such stock on
the NASDAQ National Market on March 24, 2000, 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: 9,516,923 shares of Common Stock, par value $.01 per share, were
outstanding on March 24, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual
meeting of shareholders to be held on May 18, 2000 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 carbohydrates 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 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 Medical Services 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.
Medical Services Division
Carrington's Medical Services 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 and managed care organizations,
with wound and skin care products being promoted primarily to
physicians and specialty nurses, e.g., enterostomal therapists. Many
of these organizations enter into pricing agreements with the Company
based upon purchase volumes or member enrollments. These agreements
allow the Company to promote its products to the group on an exclusive
or non-exclusive basis. 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.
<PAGE>
The Company currently has 48 employees and independent representatives
engaged in the sales and marketing of the Company's products. The
Company's field sales force currently employs 16 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
Belgium. The Company also uses 6 independent sales companies employing
13 sales representatives to sell its products on a commission basis.
In addition to this field sales force, the medical services division
employs 2 telemarketers, who focus on alternative care facilities and
the home health care market, and 11 employees in customer service,
administrative support and executive management.
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 HBOC/General Medical("McKesson"), Owens &
Minor and Bergen Brunswig. During fiscal 1997, 1998 and 1999, sales of
wound and skin care products to McKesson represented 12%, 11%, and 5%,
respectively, of the Company's total net sales. Sales to Owens & Minor
represented 11%, 10%, and 9%, respectively, of total net sales during
the same periods. Sales to Bergen Brunswig represented 9%, 5%, and 4%,
respectively, of total net sales during the same periods.
The Company has over 200 pricing agreements in effect as of December
31, 1999. Many of these are for small purchasing groups, managed care
organizations or facilities or are for a limited number of products.
The Company also has over 30 national pricing agreements which allow
its representatives to make presentations in member facilities
throughout the country. In February 2000, the Company announced the
extension of it's existing purchase agreement with the Veterans
Administration ("VA") for wound and skin cleansers. In March 2000, the
Company announced the award of two new purchase agreements with the VA,
one for it's amorphous hydrogel products and one for it's full line of
incontinence products. All three agreements are for a period of two
years and all are sole-source contracts. The Company also announced in
March 2000 that it was awarded two non-exclusive national contracts
with Novation, a supply cost management company which serves the
purchasing needs of over 6,600 health care organizations nationwide.
One agreement is for wound care products and the other for incontinence
and skin care products. Both agreements are for three year periods,
effective May 1, 2000.
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.
On September 3, 1996, the Company signed an exclusive contract with
Faulding Pharmaceuticals ("Faulding") 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.
<PAGE>
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.
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 ten 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, 1999, 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 ten 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 three
initial payments to the Company, the first when the agreement was
signed, the second when the products to be sold were registered, and
the third when the products were initially launched. 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.
<PAGE>
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.
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, Hungary, the Czech
Republic, the Slovak Republic, Romania, Bulgaria, Slovenia and Poland
for a period of ten years. In May 1999, an amendment was made to this
agreement modifying certain performance requirements and product
registration provisions. In February 2000, a second amendment was made
to this agreement modifying certain trademark provisions.
In October 1999, the Company signed a Sales Distribution Agreement with
E-Wha International, Inc., a Korean company, for the exclusive
distribution rights to sell the Company's RadiaCare[TM] products in
Korea for a period of three years.
In 1999, total international sales of wound care products were
$1,160,000, of which $631,000 were related to the above-mentioned
international agreements. The Company presently estimates the expected
sales associated with these agreements in 2000 to be between $800,000
and $1,000,000. The company also sells wound care products into
international markets on a non-contract, purchase order basis. In 1999,
total non-contract, international wound care sales were $529,000 and
included sales into Argentina, Jamaica, Puerto Rico, Singapore and
United Arab Emirates.
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 the Company can market the product in limited areas but
additional work must be done. 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. A submission was
made in December 1998 for this purpose and as of the date of this
report a final response from the USDA has not been received. 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.
<PAGE>
In September 1990, the Company granted Solvay Animal Health, Inc.
("Solvay") an exclusive, world-wide license to use and sell an adjuvant
processed from Aloe vera L. for poultry disease. In January 1992,
Solvay received approval from the USDA to market Acemannan
Immunostimulant 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 Immunostimulant 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.
Consumer Health
Caraloe, Inc., a subsidiary of the Company ("Caraloe"), markets or
licenses consumer products and bulk raw materials utilizing the
Company's patented complex carbohydrate technology into the consumer
health and nutritional products markets. Caraloe's premier product is
Manapol[R] powder, a bulk raw material rich in complex carbohydrates.
Manapol[R] powder is marketed to manufacturers of nutritional products
who desire quality complex carbohydrate ingredients for their finished
products. Caraloe also markets finished products containing Manapol[R]
powder into the health and nutritional products markets through health
food stores and over the Internet at AloeVera.com. Caraloe also offers
contract manufacturing services to the nutritional and skin care
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. On January 12, 2000, the
agreement was extended through August 14, 2002. During 1997, 1998 and
1999, sales of Manapol[R] powder to Mannatech represented 15%, 23% and
41%, 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.
<PAGE>
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 ten 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 and the entire investment was reserved
in 1998.
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 1998 under this agreement were
$197,000. Sales in 1999 were $110,200, a decrease of 44% from 1998.
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. No sales were made under
this agreement 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. Sales under this agreement in 1999 were $271,000.
In March 1999, Caraloe signed a Supply Agreement and Trademark License
Agreement with For Your Health, Inc. ("For Your Health"), a direct
sales company with headquarters in Seattle, Washington. For Your
Health will be marketing Manapol[R] powder in capsule form.
In April 1999, Caraloe signed an Exclusive Sales Representative
Agreement with Classic Distributing Company ("Classic") of San
Fernando, California. Classic will be acting as Caraloe's exclusive,
independent marketing representative in the state of California.
In April 1999, Caraloe also signed an Exclusive Sales Representative
Agreement with Glenn Corporation ("Glenn") of St. Paul, Minnesota.
Glenn will be acting as Caraloe's exclusive, independent representative
in 24 states in the central and northern portions of the country.
<PAGE>
In June 1999, Caraloe signed a Sales and Trademark License Agreement
with Nutra Vine ("Nutra Vine"), a direct sales company with
headquarters in Spring, Texas. Nutra Vine will be marketing Manapol[R]
powder in capsule form.
Caraloe also sells products into international markets on a non-
contract, purchase order basis. In 1999, total international sales for
Caraloe were $266,000 and included sales into Australia, Japan and
South Africa
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 carbohydrates. 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).
The Company expended approximately $3,006,000, $2,589,000 and
$5,300,000 on research and development in fiscal 1997, 1998, and 1999,
respectively. The Company has adopted a focused approach to its
research and development efforts. The Company returned to the clinic
in April 1999 to conduct a Phase III trial in ulcerative colitis, and
as a result expenditures for fiscal 1999 were increased 105% over 1998.
The Company continued in 1999 with its efforts to structure research
and development to meet the challenges and demands for drug development
in the 21st century. In addition to 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,
the Company also strengthened its documentation and product
development activities. This approach is intended to enable the
Company to maximize its opportunities in a timely and cost-effective
manner. Currently, the Company's research staff comprises 14 full-time
employees. Dr. Robert A. Fildes, a director of the Company, continues
to serve as part-time Executive Vice President, Research and
Development as he has since October 1, 1997. Dr. Kenneth (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
1999 was to initiate and support the ulcerative colitis program. The
Company returned to the clinic in April 1999, treating patients with
a new dosage form of Aliminase[TM] as a powder for reconstitution.
Patient treatment was completed in February 2000. Final results were
announced at the end of March 2000 and no significant differences were
found to support a therapeutic drug effect.
<PAGE>
Other preclinical studies conducted in the Company's laboratories and
in outside laboratories have shown that certain of the Company's
complex carbohydrates enhance macrophages and other cell types to
produce cytokines, which regulate other cells. 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. The preclinical
efforts for the future will focus on supporting existing business
developing "proof of concept" data for potential pharmaceutical
partners. There is no assurance, however, that the Company will be
successful in its efforts.
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.
Further processed BPM, including CarraVex[TM] injectable (formerly CARN
750), are immunomodulating agents that have the potential to be used in
the treatment of neutropenia or as an adjunct in the treatment of
cancer.
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 December
1998 for this purpose and as of the date of this report a final
response from the USDA has not been received. 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. Pilot scale production of this material
was postponed in 1999 to allow for additional efforts to be placed in
support of ulcerative colitis. 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, and the first of the two resulted in
the issuance of a patent in July 1999.
<PAGE>
In 1999, the Company, in conjunction with Baylor College of Dentistry,
completed a series of ex vivo studies evaluating the adherence of
Radiacare[TM] and Salicept[TM] Oral Wound Rinse to epithelial cells and
keratin associated with the mouth in support of a pain reduction claim
for the products. A florescent labeled material was applied to mucosal
scrapings and then examined microscopically. Adherence to both keratin
and epithelial cells was shown, demonstrating the coating and
protecting effects of the product.
Human Studies
Evaluation of Aliminase[TM] (formerly CARN 1000) 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 initiated a Phase III trial
of the new dosage form, with the treatment of patients beginning on
April 5, 1999. Patient enrollment was completed in December 1999,
and final results were announced at the end of March 2000 and
no significant differences were found to support a therapeutic drug
effect. The program will be discountinued.
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] 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 sponsored 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 showed that seven out of
nine patients with previously non-healing wounds showed some degree of
wound closure, with two wounds progressing to near or complete healing.
An association between the healing effects and macrophage activity was
not established.
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. This trial
continues, and results should be known by the end of 2000. Two market
studies evaluating patient acceptance and pain relief associated with
use of the product were completed in August 1999. In these trials,
which involved 28 patients, 93% reported some pain relief associated
with its use of the product.
<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 Ulcers Marketed
Dressings Diabetic Ulcers Marketed
Cleansers Wounds Marketed
Anti-fungal Cutaneous Fungal Infection Marketed
Hydrocolloids Wounds Marketed
Alginates Wounds Marketed
Skin Protectants Incontinence Care Marketed
Oral
----
Human
Anti-inflammatory Ulcerative Colitis Discontinued
Pain Reduction Mucositis Marketed
Dental
Pain Reduction Aphthous Ulcers, Oral Wounds Marketed
Injectable
----------
Human
Adjunct for cancer Neutropenia associated with Preclinical
Neutropenia cancer and
Formulation
Development
Underway
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 L. 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. 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 L.
leaf prices from other sources would result in a 2% decrease in the
Company's 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. ("Aloe & Herbs"), a
Panamanian corporation was formed for the purpose of purchasing 5,000
acres of land in Costa Rica and establishing an Aloe vera L. 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
L. plants to be supplied to the farm and providing know-how in farming
Aloe vera L. plants. Aloe & Herbs formed a Costa Rica 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 L. 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.
In September 1999, the Company leased approximately 17.6 acres of land
from Rancho Aloe for one year with provisions for automatic renewal in
one-year increments unless terminated by the Company or Rancho Aloe,
and planted its own Aloe vera L. plants on the leased plot due to the
lack of additional productive land on its own farm. The Company also
pays a monthly fee for the maintenance of the plot.
As of December 31, 1999, Rancho Aloe was providing an average of 52% of
the Company's monthly requirement of leaves. 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. During 1999, Elemco
consultants made a number of recommendations which were implemented,
resulting in increased factory throughput and reduced product cost.
<PAGE>
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. A process improvement program was initiated in late 1998 and
continued through 1999 to further meet requirements for a "product by
process." Finished oral and injectable dosage forms of products will
be produced by outside vendors until in-house production becomes
economically justified.
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.
Medical Services 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 are their quality, and that
they are naturally based and competitively priced.
<PAGE>
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 "FFDC Act"),
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.
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.
<PAGE>
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.
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 FFDC 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.
<PAGE>
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.
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 FFDC Act concerning the composition and
labeling of dietary supplements and, in the judgment 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 the 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.
<PAGE>
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 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."
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 which 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 reformulation, 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.
<PAGE>
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.
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.
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.
<PAGE>
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
Cooperation Treaty application based on the parent United States
application has been filed designating a number of foreign countries
where the applications are pending.
The Company has obtained patents in the United States (U.S. Patent No.
5,760,102, issued on June 2, 1998) and Taiwan (Taiwan Patent No. 89390,
issued on August 21, 1997) related to the uses of a denture adhesive
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).
Additional patents concerning various areas of interest were issued in
1999.
The Company obtained a patent in the United States (U.S. Patent
No.5,902,796, issued on May 11, 1999) related to the process for
obtaining bioactive material from Aloe vera L.
The Company obtained an additional patent in the United States (U.S.
Patent No. 5,929,051, issued on July 27, 1999) related to the
composition and process for a new complex carbohydrate (pectin)
isolated from Aloe vera L. Also obtained was a United States patent
(U.S. Patent No. 5,925,357, issued on July 20, 1999) related to the
process for a new Aloe vera L. product that maintains the complex
carbohydrates with the addition of other substances normally provided
by "Whole Leaf Aloe."
Additionally, the Company obtained a Japanese letters-patent (Patent
No. 2888249, having a Patent Registration Date of February 19, 1999)
for the use of acemannan (a) in a vaccine product; (b) in enhancing
natural kill cell activity and in enhancing specific tumor cell lysis
by white cells and/or antibodies; (c) in correcting malabsorption and
mucosal cell maturation syndromes in man or animals; and (d) in
reducing symptoms associated with multiple sclerosis.
The Company also received the grant of European Patent Application
under No. 0611304, having the date of publication and mention of the
grant of the patent of September 15, 1999. This European Letters
Patent claims the use of acetylated mannan for the regulation of blood
cholesterol levels and for the removal of plaque in blood vessels.
<PAGE>
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. In 1999, the Company obtained four
additional registered trademarks in Brazil. The Company believes that
its trademarks and trade names are valuable assets.
The Company has filed a petition with the United States Patent and
Trademark Office to cancel the registration of the mark CURAKLENSE by
The Kendall Company of Mansfield, Massachusetts.
Employees
As of January 31, 2000, the Company employed 336 persons, of whom 29
were engaged in the operation and maintenance of its Irving, Texas
processing plant, 221 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, 95 were located in Texas, 221 in Costa Rica
and one in Puerto Rico. In addition, 19 sales personnel were located
in 15 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 $1,100,000. As of December 31, 1999, there was a
$200,000 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, and
the use of the above-mentioned letter of credit to secure the Company's
obligations under that agreement.
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, 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
L. 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 L. 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 approximate 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 July 2001. 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 alternative facility sites.
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 L. plants and for a processing plant
to produce bulk pharmaceutical and injectable mannans and freeze-dried
extracts from Aloe vera L. 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 INDs. This project was completed in
the fourth quarter of 1994. In order to meet demand for new products,
a new compounding area and high-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 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"), in Case Nos. 96-1329 (SB)
through 96-1334 (HSB) in the U.S. Bankruptcy Court for the District of
Delaware, 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.
<TABLE>
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.
Fiscal 1998 High Low
----------- ---- -----
<S> <C> <C>
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
Fiscal 1999 High Low
----------- ---- -----
First Quarter $4 1/4 $2 1/8
Second Quarter 3 3/16 2 1/2
Third Quarter 3 1 13/16
Fourth Quarter 2 3/4 1 1/2
</TABLE>
At March, 16, there were 946 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.
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, 1999, is derived from the consolidated financial statements of the
Company, of which the years 1995 and 1996, have been audited by Arthur
Andersen LLP, independent public accountants, and the years 1997
through 1999 have been audited by Ernst & Young LLP, independent public
accountants.
<PAGE>
<TABLE>
Years ended December 31,
(Dollars and numbers of shares in ----------------------------------------
thousands except per share amounts) 1995 1996 1997 1998 1999
-------------------------------------------------------------------------------
OPERATIONS STATEMENT INFORMATION:
<S> <C> <C> <C> <C> <C>
Net sales $24,374 $21,286 $23,559 $23,625 $28,128
Costs and expenses:
Cost of sales 7,944 10,327 9,530 10,870 13,640
Selling, general and
administrative 12,442 10,771 10,814 10,254 10,346
Research and development 4,662 3,762 3,006 2,589 2,434
Research and development,
Aliminase[TM] clinical trial
expenses 708 2,165 - - 2,866
Charges related to ACI and
Aloe & Herbs - - - 1,750 -
Charges related to Oregon
Freeze Dry, Inc. - - - - 1,042
Interest expense (income), net 115 (304) (37) (233) (105)
Other income - - - - (62)
------ ------ ----- ------ ------
Income (loss) before income taxes (1,497) (5,435) 246 (1,605) (2,033)
Provision for income taxes 131 88 20 10 -
------ ------ ----- ------ ------
Net income (loss) $(1,628) $(5,523) $ 226 $(1,615) $(2,033)
====== ====== ===== ====== ======
Net income (loss) per common
share - basic and diluted(1) $ (0.22) $ (0.74) $ 0.02 $ (0.17) $ (0.22)
====== ====== ===== ====== ======
Weighted average shares used in
per share computations 7,933 8,798 8,953 9,320 9,376
BALANCE SHEET INFORMATION
(as of December 31):
Working capital $ 9,095 $13,910 $ 9,484 $ 9,716 $ 7,911
Total assets 27,934 31,202 25,796 24,247 23,493
Long-term debt, net of current
portion 88 - - - -
Total shareholders' investment $22,399 $27,757 $22,826 $21,363 $19,504
(1) For a description of the calculation of basic and diluted net income
(loss) per share, see Note Thirteen to the consolidated financial
statements.
</TABLE>
<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 carbohydrates
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 Medical Services 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.
Liquidity and Capital Resources
At December 31, 1999 and 1998, the Company held cash and cash
equivalents of $2,453,000 and $3,931,000, respectively, a decrease of
$1,478,000. Net cash used by operating activities in 1999 was
$889,000, as compared to cash provided by operating activities in 1998
of $1,065,000. Significant cash outflows during 1999 included
investments in property and equipment of $963,000 and expenses related
to the Aliminase[TM] clinical trial of $2,866,000. Customers with
significant accounts receivable balances at the end of 1999 included
Mannatech, Inc. ($1,144,000) and McKesson/General Medical ($571,000);
and of these amounts, $1,533,000 had been collected as of March 8,
2000.
<PAGE>
As of December 31, 1999, 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 L. 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, which
was increased to 28.2% in 1999, 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. The Company was also granted a five-year
warrant to purchase 300,000 shares of common stock of Aloe & Herbs. In
the fourth quarter of 1998, the Company fully reserved all amounts owed
to it by Aloe & Herbs, in the total amount of $487,000, due to the
start-up nature of the business. In 1999, the Company received
payments totaling $18,000 from Aloe & Herbs against the amount due.
The first shipment of leaves from Rancho Aloe to the Company was made
in March 1999 and the Company purchased a total of $364,000 of Aloe
vera L. leaves from Rancho Aloe during the remainder of the year.
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 had an outstanding
balance of $200,000 at December 31, 1999 to fund operating needs and
is being used to secure the letter of credit described below.
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 product launched in the third quarter of
1997. These payments resulted in an increase to other assets of the
Company. As of December 31, 1999, the net book value of this agreement
was $528,000. Additional payments totaling $167,000 are to be made to
the supplier as new products are delivered.
<PAGE>
In February 1995, the Company entered into a supply agreement with
Oregon Freeze Dry, Inc. ("OFD"), 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, 1999, the
letter of credit was $1,100,000. OFD 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 in the early phase of marketing. The Company had approximately
$364,000 of CarraSorb[TM] M and Carrington[R] (Aphthous Ulcer) Patch
inventory on hand as of December 31, 1999.
The supply agreement also required 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. In December 1999, OFD agreed to add a
freeze-dried gel product as a listed product under the agreement. The
Company is continuing its effort to develop the market for its freeze-
dried products. Due to the unique technology of these products, the
effort has taken longer than was initially expected.
The current agreement expires in August 2000. The Company no longer
believes that it can satisfy the minimum purchase requirements of this
agreement and has established a reserve of $1,042,000 to cover its
estimated liability to OFD under the agreement. The Company is
currently negotiating with OFD regarding purchase arrangements beyond
the term of the current agreement.
The Company believes that its available cash resources and expected
cash flows from operations will provide the funds necessary to finance
its current operations. However, the Company does not expect that its
current cash resources will be sufficient to finance 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 need 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.
<PAGE>
Impact of Inflation
The Company does not believe that inflation has had a material impact
on its results of operations.
Fiscal 1999 Compared to Fiscal 1998
Net sales were $28,128,000 in 1999, compared with $23,625,000 in 1998.
Sales of Manapol[R] by Caraloe in the form of raw materials and
consumer nutritional products, increased 77.3%, from $7,187,000 in 1998
to $12,739,000 in 1999. This increase in Caraloe sales was offset by a
decrease in wound care sales of 6.4%. Total sales of the Company's
wound and skin care products in 1999 were $15,389,000 as compared to
$16,438,000 in 1998.
Of the 1999 total Manapol[R] sales, $11,982,000 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. The current agreement, which expires
in August 2000, was extended in January 2000 to August 2002. Sales to
Mannatech increased from $5,508,000 in 1998 to $11,422,000 in 1999.
In March 1999, Caraloe signed a supply and license agreement with For
Your Health, Inc., allowing For Your Health to purchase Manapol[R]
powder and market it in capsule form. In June 1999, Caraloe signed a
sales and license agreement with Nutra Vine also allowing Nutra Vine to
purchase Manapol[R] powder and market it in capsule form. 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.
Sales to Eventus during the first year of this agreement were $271,000.
In July 1999, Caraloe launched its new AloeCeuticals[TM] line of
immune enhancing dietary supplements containing Manapol[R], which are
available in liquid capsule and tablet forms. These products will
be sold directly to health and nutrition stores or through
broker/distributors. They will also be sold through the Company's
Internet sites. Sales of these products in 1999 totaled $131,000.
Caraloe also continued to develop its contract manufacturing business
during 1999. 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 manufactured include gels and creams utilizing
formulas developed by SkinCeuticals. In September 1999, Caraloe began
to produce nutritional beverages for NuSkin International, Inc., a
direct sales company selling nutritional products through a multi-level
sales organization. Total contract manufacturing sales in 1999 under
the agreements with SkinCeuticals and NuSkin were $292,000.
<PAGE>
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 and has
become increasingly commodity oriented. In addition, the market is
heavily influenced by government reimbursement programs. The home
health care segment of the market again experienced significant turmoil
in 1999 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 1999, 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 these
market trends, the Company pursued a strategy to move its wound care
line of products toward value-added specialty products which focus more
on product performance rather than price alone, such as the
RadiaCare[TM] line of products for the management of the side effects
of cancer therapy.
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 1999 were $1,423,000.
Included in this amount were sales of $1,160,000 of wound care
products, which was an increase of $475,000 over 1998.
Sales of the Company's oral technology products increased from $278,000
in 1998 to $374,000 in 1999. 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 decreased from
$146,000 in 1998 to $47,000 in 1999. These products were marketed on
behalf of the Company in 1999 by Farnam Companies, Inc., a leading
marketer of veterinary products.
Cost of sales increased from $10,870,000 to $13,640,000, or 25.5%. As
a percentage of sales, cost of sales increased from 46.0% to 48.5%.
The increase in cost of goods sold was largely attributable to product
mix, as sales in 1999 of Caraloe products were a greater percentage of
total sales than in 1998, 45.3% as compared to 30.4%. Caraloe products
have historically had a higher cost as a percentage of sales than wound
care products.
Selling, general and administrative expenses ("SG&&A") increased to
$10,346,000 from $10,254,000, or .9%. Selling expenses related to
wound care sales in 1999 were trimmed by $354,000 from the 1998 level
as the Company reduced expenditures in response to the changing market
conditions. Partially offsetting the decrease was an increase in the
selling and marketing expenses for Caraloe products of $297,000. This
increase primarily represents the costs for the development of
marketing materials supporting the launch of the AloeCeuticals[TM]
brand of Manapol[R] immune enhancing products.
<PAGE>
Research and development ("R&D") expenses increased to $5,300,000 from
$2,589,000, or 104.7%. This increase was primarily the result of the
expenditure of $2,866,000 for the unsuccessful Aliminase[TM] clinical
trial. The Company continued its efforts in basic research during
1999, including work on 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. Also included in the total R&D activities
during 1999 were various small clinical trials designed to collect data
in support of the Company's products.
In the fourth quarter of 1999, the Company determined that it could no
longer satisfy the minimum purchase requirements of its agreement with
Oregon Freeze Dry, Inc. and thus established a reserve of $1,042,000 to
cover its estimated liability to OFD.
In 1998, the Company established a reserve of $1,250,000 against its
investment in and notes and accounts receivable from ACI. In December
1999, ACI transferred to the Company 700,000 shares of Aloe & Herbs
common stock, previously pledged by ACI to secure one of its notes to
the Company, in satisfaction of the balance of $695,000 of principal
and interest owed on that note. In 1998, the Company also established
a reserve of $500,000 against its loans to Aloe & Herbs. During 1999,
the Company received $18,000 in repayment of these loans and
established a repayment program with Aloe & Herbs for the repayment of
the entire debt. See Note Six to the consolidated financial statements
for additional discussion of the ACI and Aloe & Herbs transactions.
Net interest income of $105,000 was realized in 1999, versus $233,000
in 1998, with the variance primarily due to lower cash balances in
1999.
There was no provision for income taxes in 1999 as compared to $10,000
in 1998. A tax benefit was not recognized in 1999 due to the Company's
recording an offsetting deferred tax asset valuation allowance. The
Company has provided a valuation allowance against all deferred tax
asset balances at December 31, 1999 and 1998 due to uncertainty
regarding realization of the asset.
The Company's net loss for 1999 was $2,033,000, versus a net loss of
$1,615,000 for 1998. The 1999 net loss was primarily due to the
$2,866,000 of costs for the Aliminase[TM] clinical trial plus the
effect of reserving $1,042,000 for the OFD contract. The 1998 net loss
was primarily due to the $1,750,000 in charges related to ACI and Aloe
& Herbs. The net loss per share was $.22 in 1999, compared to a net
loss per share of $.17 in 1998. Excluding the clinical trial expenses
in 1999 and reserves in 1999 and 1998, the net income for 1999 was $1.9
million, or $.20 per share, as compared to a net income in 1998 of
$135,000, or $.01 per share.
<PAGE>
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. Sales to Mannatech increased from $3,547,000 in
1997 to $5,508,000 in 1998.
Sales of the Company's oral technology products, which were launched in
late 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.
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.
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.
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. 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].
In 1998, the Company established a reserve of $1,250,000 against its
investment in and notes and accounts receivable from ACI and a reserve
of $500,000 against its loans to Aloe & Herbs. See Note Six to the
consolidated financial statements for additional discussion of the ACI
and Aloe & Herbs transactions.
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's
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.
<PAGE>
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.
Year 2000 Issues
Like many organizations, the Company faced the prospect of what would
happen to computers and other microprocessor-controlled equipment using
two-digit data fields when they encountered the Year 2000, which could
be mistaken as the Year 1900. This was known as the Year 2000 issue.
With respect to this issue, the Company undertook efforts to assess
the impact on its information technology systems, non-information
technology systems, such as production and laboratory equipment, and
third-party business partners such as vendors and customers. The
results of this assessment, which included analysis and compliance
testing, showed that virtually all of the Company's internal systems,
as well as the systems of almost all of its vendors and customers, were
prepared to handle the Year 2000 issue without interruption of sales or
service. Nevertheless, the Company prepared an assessment of its most
reasonably likely worst-case scenario for dealing with Year 2000
related disruptions and estimated that it would spend approximately
$100,000 on equipment and software remediation and approximately
$500,000 on a buildup of inventory.
The Company did find several minor instances of software programs which
needed upgrading, and several equipment items which needed upgrading or
replacing, in order to be Year 2000 ready. The Company spent
approximately $34,000 on the upgrading or replacement of such programs
and equipment.
The Company spent approximately $500,000 on its inventory buildup
program, but did not experience any unusual levels of order demand in
the fourth quarter of 1999 relating to Year 2000 concerns. The Company
has subsequently been reducing its inventory to normal levels excluding
this buildup.
The Company did not experience any significant disruptions to its
business systems or equipment as a result of Year 2000 issues, nor does
it expect to experience any such disruptions to its systems in the
future. The Company also did not experience any disruptions in the
delivery of products or services obtained from its vendors as a result
of Year 2000 issues.
<PAGE>
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 L. leaves at reasonable prices, and to properly assess its
situation with respect to Year 2000 issues and avoid any material
adverse effects of the Year 2000 problem, as well as various other
matters.
Although the Company believes that the expectations reflected in its
forward-looking statements are reasonable, no assurance can be given
that such expectations will prove correct. Factors that could cause
the Company's results to differ materially from the results discussed
in such forward-looking statements include but are not limited to the
possibilities that the Company may be unable to obtain the funds needed
to carry out large scale clinical trials and other research and
development projects, that the results of the Company's clinical trials
may not be sufficiently positive to warrant continued development and
marketing of the products tested, that new products may not receive
required approvals by the appropriate government agencies or may not
meet with adequate customer acceptance, that the Company may not be
able to obtain financing when needed, that the Company may not be able
to obtain appropriate licensing agreements for products that it wishes
to market or products that it needs assistance in developing, that 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 Year 2000 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.
<PAGE>
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 62%
of cost of sales for the year ended December 31, 1999. As a result,
the Company's financial results could be significantly affected by
factors such as changes in foreign currency exchange rates or economic
conditions in Costa Rica. When the U.S. Dollar strengthens against the
Costa Rica Colon, the cost of sales decreases. During 1999, the
exchange rate from U.S. Dollars to Costa Rica Colones increased by 10%
to 297 at December 31, 1999. The effect of an additional 10%
strengthening in the value of the U.S. Dollar relative to the Costa
Rica Colones would result in an increase of $315,000 in gross profit.
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.
Sales of products to foreign markets comprised 5% of sales for 1999.
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 L. 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.
There were no changes in or disagreements with the Company's
independent public accountants on accounting matters or financial
disclosure during 1998, 1999 or 2000 (to the date of filing of this
report).
<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 2000 annual meeting of shareholders,
which will be filed pursuant to Regulation 14A within 120 days after
the Company's fiscal year ended December 31, 1999.
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 2000 annual meeting of shareholders, which will be
filed pursuant to Regulation 14A within 120 days after the Company's
fiscal year ended December 31, 1999.
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 2000 annual
meeting of shareholders, which will be filed pursuant to Regulation 14A
within 120 days after the Company's fiscal year ended December 31,
1999.
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 2000 annual meeting of shareholders, which will be filed pursuant
to Regulation 14A within 120 days after the Company's fiscal year ended
December 31, 1999.
<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.
Other schedules have been omitted because the information
required to be set forth therein is not applicable or is
shown in the financial statements or notes thereto.
(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-9 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, 1999.
<PAGE>
CARRINGTON LABORATORIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Financial Statements of the Company:
Consolidated Balance Sheets - December 31, 1998 and 1999 F - 2
Consolidated Statements of Operations - years ended
December 31, 1997, 1998 and 1999 F - 3
Consolidated Statements of Shareholders' Investment - years
ended December 31, 1997, 1998 and 1999 F - 4
Consolidated Statements of Cash Flows - years ended
December 31, 1997, 1998 and 1999 F - 5
Notes to Consolidated Financial Statements F - 6
Financial Statement Schedule Valuation and
Qualifying Accounts F - 18
Report of Ernst & Young LLP, Independent Public F - 19
Accountants
<PAGE>
<TABLE>
Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
December 31,
1998 1999
------- -------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 3,931 $ 2,453
Accounts receivable, net of allowance
for doubtful accounts of $922 and $304
in 1998 and 1999, respectively 2,961 3,690
Inventories 4,969 5,184
Prepaid expenses 739 573
------- -------
Total current assets 12,600 11,900
Property, plant and equipment, net 11,050 10,985
Other assets 597 608
------- -------
Total assets $ 24,247 $ 23,493
======= =======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Note payable $ - $ 200
Accounts payable 1,369 1,871
Accrued liabilities 1,515 1,918
------- -------
Total current liabilities 2,884 3,989
Commitments and contingencies
SHAREHOLDERS' INVESTMENT:
Common stock, $.01 par value, 30,000,000
shares authorized, 9,350,064 and 9,440,921
shares issued and outstanding at December
31, 1998 and 1999, respectively 94 94
Capital in excess of par value 51,736 51,910
Deficit (30,467) (32,500)
------- -------
Total shareholders' investment 21,363 19,504
------- -------
Total liabilities and shareholders' investment $ 24,247 $ 23,493
======= =======
The accompanying notes are an integral part of these balance sheets.
F-2
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
Years Ended December 31,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net sales $ 23,559 $ 23,625 $ 28,128
Costs and expenses:
Cost of sales 9,530 10,870 13,640
Selling, general and administrative 10,814 10,254 10,346
Research and development 3,006 2,589 2,434
Research and development,
Aliminase[TM] clinical trial expenses - - 2,866
Charges related to ACI and Aloe & Herbs - 1,750 -
Charges related to Oregon Freeze Dry, Inc. - - 1,042
Interest income, net (37) (233) (105)
Other income - - (62)
------- ------- -------
Income (loss) before income taxes 246 (1,605) (2,033)
Provision for income taxes 20 10 -
------- ------- -------
Net income (loss) 226 (1,615) (2,033)
Dividends and income attributed to
preferred shareholders (70) - -
Net income (loss) available to common
shareholders $ 156 $ (1,615) $(2,033)
======= ======= =======
Net income (loss) available to common
shareholders per share - basic and
diluted $ 0.02 $ (0.17) $ (0.22)
======= ======= =======
The accompanying notes are an integral part of these statements.
F-3
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Investment
For the Years Ended December 31, 1997, 1998 and 1999
(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, 1997 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
Issuance of common stock for
employee stock purchase plan - - 81 - 149 - 149
Issuance of common stock for
employee stock option plan - - 10 - 25 - 25
Net loss and comprehensive
loss - - - - - (2,033) (2,033)
---------------------------------------------------------------------------------------------
Balance,
December 31, 1999 - $ - 9,441 $ 94 $51,910 $(32,500) $19,504
The accompanying notes are an integral part of these statements.
F-4
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years Ended December 31,
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Cash flows provided by (used in)
operating activities:
Net income (loss) $ 226 $(1,615) $(2,033)
Adjustments to reconcile income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,196 1,043 1,028
Charge related to ACI investment - 600 -
Charge related to Oregon Freeze Dry, Inc. - - 1,042
Provision for inventory obsolescence 523 53 -
Changes in assets and liabilities:
Accounts receivable, net (1,545) 129 (729)
Inventories (1,903) (19) (215)
Prepaid expenses 40 (411) (177)
Other assets (360) 1,340 (11)
Accounts payable and accrued liabilities (76) (55) 206
------ ------ ------
Net cash provided by (used in)
operating activities (1,899) 1,065 (889)
Cash flows used in investing activities:
Purchases of property, plant and equipment (295) (1,278) (963)
------ ------ ------
Net cash used in investing activities (295) (1,278) (963)
Cash flows provided by (used in)
financing activities:
Issuances of common stock 2,628 152 174
Retirement of preferred stock (7,785) - -
Proceeds of short-term debt - - 200
Principal payments of capital lease
obligations (32) (31) -
------ ------ ------
Net cash provided by (used in) financing
activities (5,189) 121 374
------ ------ ------
Net decrease in cash and cash
equivalents (7,383) (92) (1,478)
Cash and cash equivalents at beginning of year 11,406 4,023 3,931
------ ------ ------
Cash and cash equivalents at end of year $ 4,023 $ 3,931 $ 2,453
====== ====== ======
Supplemental Disclosure of Cash Flow
Information
Cash paid during the year for interest $ 10 $ 3 $ 7
Cash paid during the year for income taxes - 44 -
The accompanying notes are an integral part of these statements.
F-5
</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 Medical Services 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 vera L. 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 L. leaves used for manufacturing
the Company's products are grown on a Company-owned farm in Costa Rica.
The remaining leaves are purchased from 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.
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 cash equivalents unless otherwise
restricted.
INVENTORY Inventories are recorded at the lower of cost (first-in, first-
out) or market.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are
recorded at cost less accumulated depreciation. 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 and collectability is reasonably assured. For the
majority of the Company's sales, this occurs at the time of shipment.
The Company has rebate arrangements with certain distributors. These
rebates are estimated and recorded at the time of sale.
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.
Valuation allowances are provided against net deferred tax assets when
realization is not reasonably assured.
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 1997, 1998 or 1999.
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>
NOTE THREE. INVENTORIES
The following summarizes the components of inventory at December 31, 1998
and 1999, in thousands:
1998 1999
------------------------------------------------------------------
Raw materials and supplies $1,135 $2,011
Work-in-process 1,182 673
Finished goods 2,652 2,500
------------------------------------------------------------------
Total $4,969 $5,184
------------------------------------------------------------------
The inventory balances are net of $525,000 and $430,000 of reserves for
obsolete and slow moving inventory at December 31, 1998 and 1999,
respectively.
NOTE FOUR. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
Property, plant and equipment consisted of the following at December 31,
1998 and 1999, in thousands:
Estimated
1998 1999 Useful Lives
--------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements $ 1,389 $ 1,389
Buildings and improvements 8,862 8,692 7 to 25 years
Furniture and fixtures 930 873 4 to 8 years
Machinery and equipment 8,165 9,505 3 to 10 years
Leasehold improvements 928 349 1 to 3 years
Equipment under capital leases 150 150 4 years
--------------------------------------------------------------------
Total 20,424 20,958
Less accumulated depreciation
and amortization 9,374 9,973
--------------------------------------------------------------------
Property, plant and
equipment, net $11,050 $10,985
====== ======
</TABLE>
The Company's net investment in property, plant and equipment in Costa
Rica at December 31, 1998 and 1999 was $4,310,000 and $4,518,000,
respectively.
<PAGE>
NOTE FIVE. ACCRUED LIABILITIES
The following summarizes significant components of accrued liabilities at
December 31, 1998 and 1999, in thousands:
1998 1999
---------------------------------------------------------------
Accrued payroll $ 213 $ 231
Accrued sales commissions 185 36
Accrued taxes 377 200
Oregon Freeze Dry Reserve (see Note Ten) - 698
Other 740 753
---------------------------------------------------------------
Total $1,515 $1,918
---------------------------------------------------------------
NOTE SIX. CHARGES RELATED TO ACI AND ALOE & HERBS
The Company had reserved approximately $0.1 million at December 31, 1997
to cover potential exposures on approximately $1.1 million of investment
in and notes and accounts receivable from ACI. In 1998, 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 amounts related to ACI. During 1999, ACI paid $40,000 on its
obligations to the Company. Additionally, in 1999, ACI assigned 700,000
shares in Aloe & Herbs in repayment of $695,000 of principal and interest
on its obligations to the Company.
Beginning in 1998, the Company invested a total of approximately $0.5
million in 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 agreeing to provide farming expertise, working capital and
Aloe vera L. plants. The Company's ownership in Aloe & Herbs was
increased to 28.2% through the assignment of shares by ACI. The Company
accounts for its investment in the Common Stock of Aloe & Herbs under the
equity method, however, as of December 31, 1999 Aloe & Herbs had not
generated net income and thus the investment remains at a zero carrying
amount (see below).
Aloe & Herbs faced substantial capital requirements during 1999 and 2000
for debt payments, ongoing investments in aloe plants and other general
start-up costs. Consequently, in 1998 the Company fully reserved the $0.5
million in notes and accounts receivable due from Aloe & Herbs due to the
risk and uncertainty of Aloe & Herbs' ability to repay the amounts due
the Company. Aloe & Herbs successfully met the third party debt
obligations that it owed in 1999, and is currently seeking to refinance
its remaining third party debt obligation. The Company received
repayments of $18,000 during 1999 for amounts due from Rancho Aloe and
has established a repayment program with Aloe & Herbs for the repayment
of the entire debt.
<PAGE>
NOTE SEVEN. LINE OF CREDIT
The Company has an agreement with a bank for a $3 million 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 in the amount of $1.1 million at December 31, 1999
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, 1999 there was
$200,000 outstanding on the credit line. There was no balance
outstanding at December 31, 1998.
NOTE EIGHT. PREFERRED STOCK
SERIES E SHARES The Series E Shares, issued in October 1996, 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 as determined at the time of issuance
of the Series E Shares) or 87% of the market price immediately preceding
the conversion date. In early 1997, 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 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.
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, 1999, a total of 222,226 shares had been purchased by
employees at prices ranging from $1.65 to $29.54 per share.
<PAGE>
STOCK OPTIONS The Company has an incentive stock option plan which was
approved by the shareholders in 1995 under which incentive stock options
and nonqualified stock options may be granted to 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 and 1999 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, 1999 options to
purchase 114,926 shares were available for future grants under the Plan.
<TABLE>
The following summarizes stock option activity for each of the three
years ended December 31, 1997, 1998 and 1999 (shares in thousands):
Weighted
Average
Exercise
Shares Price Per Share Price
-------------------------------------------------------------------
<S> <C> <C> <C>
Balance, Janurary 1, 1997 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
Granted 345 $ 2.06 to $ 3.63 $ 2.41
Lapsed or canceled 316 $ 2.50 to $27.00 $ 4.71
Exercised 10 $ 2.50 to $ 2.50 $ 2.50
-------------------------------------------------------------------
Balance, December 31, 1999 1,407 $ 2.06 to $28.75 $ 4.05
-------------------------------------------------------------------
Options exercisable at
December 31, 1999 553 $ 2.50 to $28.75 $ 4.68
-------------------------------------------------------------------
Options exercisable at
December 31, 1998 417 $ 2.50 to $28.75 $ 5.71
-------------------------------------------------------------------
Options exercisable at
December 31, 1997 314 $ 7.50 to $47.75 $20.87
-------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
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>
$2.06 $ 5.25 1,258 8.83 years $3.48 455 $3.60
6.00 28.75 149 6.61 8.94 98 9.67
---------------------------------------------------------------------
$2.06 $28.75 1,407 8.60 years $4.05 553 $4.68
---------------------------------------------------------------------
</TABLE>
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:
-------------------------------------------------------------------
1997 1998 1999
-------------------------------------------------------------------
Net income (loss)
(in thousands):
As reported $ 226 $(1,615) $(2,033)
Pro forma (2,199) (4,155) (3,411)
Diluted net income (loss) available
to common shareholders per share:
As reported $ 0.02 $ (0.17) (0.22)
Pro forma (0.25) (0.96) (0.36)
-------------------------------------------------------------------
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 to employees in 1997,
1998, and 1999, respectively: risk-free interest rates of 6.13%, 5.38%
and 6.00%, expected volatility of 57.0%, 54.7% and 29.8% and expected
lives of 5.0, 2.4 and 2.9 years. The Company used the following
weighted-average assumptions for grants to directors in 1997, 1998 and
1999: expected dividend yields of 0% and expected lives of 4.0 years.
The weighted average fair values of options granted were $6.84, $1.05
and $0.64 in 1997, 1998, and 1999, respectively.
<PAGE>
STOCK WARRANTS From time to time, the Company has granted warrants to
purchase common stock to the Company's research consultants and 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, 1997, 1998, and 1999 (shares in thousands):
Weighted
Average
Shares Price Per Share Exercise
Price
-------------------------------------------------------------------
Balance, January 1, 1997 51 $ 9.75 to $20.13 $15.03
-------------------------------------------------------------------
Balance, 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
Issued 50 $ 3.50 $ 3.50
Lapsed or canceled (26) $16.00 to $19.75 $16.87
-------------------------------------------------------------------
Balance, December 31, 1999 65 $ 3.50 to $20.13 $ 6.24
-------------------------------------------------------------------
Warrants exercisable at
December 31, 1999 65 $ 3.50 to $20.13 $ 6.24
Warrants outstanding at December 31, 1999 had a weighted average
remaining contractual life of 3.88 years.
COMMON STOCK RESERVED At December 31, 1999 the Company had reserved
a total of 1,864,892 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 in 2001. 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, 1999 are as follows,
in thousands:
Years Ending December 31,
-------------------------------------------------------------------
2000 $ 654
2001 467
2002 53
2003 53
-------------------------------------------------------------------
Total minimum lease payments $1,227
-------------------------------------------------------------------
Total rental expense under operating leases was $465,000, $451,000
and $455,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
<PAGE>
In February 1995, the Company entered into a commitment to purchase
$2.5 million of freeze-dried products from Oregon Freeze Dry, Inc.
("OFD") 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
$245,000, $95,000 and $54,000 in 1997, 1998 and 1999, respectively. At
December 31, 1999, the Company had made prepayments of $672,000 toward
future deliveries under the commitment.
In the fourth quarter of 1999, the Company determined that it could no
longer satisfy the minimum purchase requirements of the agreement and
thus the Company has established a reserve of $1,042,000 for estimated
losses under this contract. Of this amount, $698,000 is recorded in
accrued liabilities and $344,000 offsets the aforementioned
prepayments. The Company is currently negotiating with OFD regarding
purchase arrangements beyond the term of the current agreement.
NOTE ELEVEN. INCOME TAXES
<TABLE>
The tax effects of temporary differences that gave rise to deferred tax
assets and deferred tax liabilities at December 31, 1998 and 1999 were
as follows, in thousands:
1998 1999
---------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforward $ 14,391 $ 14,090
Research and development
and other credits 867 748
Property, plant and equipment 259 307
Patents 285 270
Inventory 401 368
Other, net 244 600
Bad debt reserve 568 549
Oregon Freeze Dry reserve - 354
Less - Valuation allowance (17,015) (17,286)
------- -------
$ 0 $ 0
======= =======
</TABLE>
The Company has provided a valuation allowance against the entire
deferred tax asset at December 31, 1998 and 1999 due to the uncertainty
as to the realization of the asset.
<PAGE>
<TABLE>
The provisions for income taxes for the years ended December 31, 1997,
1998 and 1999 consisted of the following, in thousands:
1997 1998 1999
-------------------------------------------------------------------
<S> <C> <C> <C>
Current provision $ 20 $ 10 $ -
Deferred provision, net - - -
-------------------------------------------------------------------
Total provision $ 20 $ 10 $ -
-------------------------------------------------------------------
The differences (expressed as a percentage of pre-tax income or loss)
between the statutory and effective income tax rates are as follows:
1997 1998 1999
-------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 34.0% (34.0%) (34.0%)
Unrecognized deferred tax
benefit/change in valuation allowance (20.8) 34.0 34.0
Other (4.9) - -
-------------------------------------------------------------------
Effective tax rate 8.3% 0.0% 0.0%
-------------------------------------------------------------------
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
of approximately $41.4 million for federal income tax purposes, which
began to expire in 1999, and research and development tax credit
carryforwards of approximately $748,000, which began to expire in 1999,
all of which are available to offset federal income taxes due in future
periods. The Company had a $6 million net operating loss carryforward
expire during the year ended December 31, 1999. Additionally, $15,000
in research and development tax credits expired in 1999. 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
HBOC/General Medical accounted for 12%, 11% and 5%; and Owens & Minor
accounted for 11%, 10% and 9%; of the Company's net sales in 1997,
1998 and 1999, respectively. Sales to Mannatech, Inc., accounted for
15%, 23% and 41% of the Company's net sales in 1997, 1998 and 1999,
respectively. Accounts receivable from Mannatech represented 28% of
gross accounts receivable at December 31, 1999. 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
8,953,000, 9,320,000 and 9,376,000 in 1997, 1998, and 1999,
respectively.
In calculating the diluted net loss available to common shareholders
per share for 1998 and 1999, 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.
<PAGE>
NOTE FOURTEEN. REPORTABLE SEGMENTS
The Company operates in two reportable segments: human and veterinary
products sold through its Medical Services Division and Caraloe, Inc.,
a consumer products subsidiary, which sells bulk raw materials,
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 Policies (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.
<TABLE>
Reportable Segments (in thousands)
Medical Caraloe,
1998 Services Inc. Corporate Total
-----------------------------------------------------------------
<S> <C> <C> <C> >C>
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
-----------------------------------------------------------------
1999
-----------------------------------------------------------------
Sales to unaffiliated
customers $15,389 $12,739 $ - $28,128
Income(loss) before
income taxes (775) 3,247 (4,505) (2,033)
Identifiable assets 12,623 2,019 8,851 23,493
Capital expenditures 405 - 558 963
Depreciation and
amortization 679 - 349 1,028
-----------------------------------------------------------------
</TABLE>
<PAGE>
NOTE FIFTEEN. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
The unaudited selected quarterly financial data below reflect the fiscal year
ended December 31, 1998 and 1999, respectively.
(Dollar amounts in thousands, except shares and per share amounts)
--------------------------------------------------------------------------
1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 (1,928)(1)
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
--------------------------------------------------------------------------
1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 6,898 $ 6,750 $ 7,224 $ 7,256
Gross profit 3,287 3,380 3,949 3,872
Net income (loss) (1,005) (394) 145 (779)(2)
Diluted income (loss)
available to common
shareholders per share $ (0.11) $ (0.04) $ 0.02 $ (0.08)
Weighted average
common shares 9,351,000 9,358,000 9,368,000 9,424,000
(1) After a charge of $1,750,000 for ACI and Aloe & Herbs as described
in Note Six.
(2) After a charge of $1,042,000 for OFD as described in Note Ten.
</TABLE>
<PAGE>
<TABLE>
Financial Statement Schedule
Valuation and Qualifying Accounts
(In thousands)
Description Additions
----------------
Balance Charged Charged
at to to Balance
Beginning Cost and Other at End
of Period Expenses Accounts Deductions of Period
---------------------------------------------------------------------------
1997
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 - 44 525
Rebates 342 3,499 - 3,437 404
ACI and Aloe & Herbs
non-current notes and
investments included
in other assets - 1,350 - - 1,350
---------------------------------------------------------------------------
1999
---------------------------------------------------------------------------
Bad debt reserve $ 922 $ 107 $ - $ 726 $ 303
Inventory reserve 525 - - 95 430
Rebates 404 2,058 - 2,122 340
ACI and Aloe & Herbs
non-current notes and
investments included
in other assets 1,350 - - 58 1,292
Oregon Freeze Dry, Inc. - 1,042 (343) - 699
</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, 1999
and 1998 and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in
the period ended December 31, 1999. 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.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Carrington Laboratories, Inc. and subsidiaries as of
December 31, 1999 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 21, 2000
<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 29, 2000 By: /s/ Carlton E. Turner
---------------------
Carlton E. Turner, Ph.D.,D.Sc. President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signatures Title Date
------------------------- ----------------------------- --------------
/s/ Carlton E. Turner President, Chief Executive March 29, 2000
Carlton E. Turner, Ph.D., Officer and Director
D.Sc. (principal executive officer)
/s/ Robert W. Schnitzius Chief Financial Officer March 29, 2000
Robert W. Schnitzius (principal financial and
accounting officer)
/s/ R. Dale Bowerman Director March 29, 2000
R. Dale Bowerman
/s/ George DeMott Director March 29, 2000
George DeMott
/s/ Robert A. Fildes, Ph.D. Director March 29, 2000
Robert A. Fildes, Ph.D.
/s/ Thomas J. Marquez Director March 29, 2000
Thomas J. Marquez
/s/ Selvi Vescovi Director March 29, 2000
Selvi Vescovi
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
3.1* Restated Articles of Incorporation of Carrington
Laboratories, Inc.
3.2* Statement of Change of Registered Office and
Registered Agent of Carrington Laboratories, Inc.
3.3* Statement of Resolution Establishing Series D
Preferred Stock of Carrington Laboratories, Inc.
3.4 Bylaws 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).
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).
4.2* Rights Agreement dated as of September 19, 1991
between Carrington Laboratories, Inc. and
Ameritrust Company National Association.
4.3 Amendment No. 1 to Rights Agreement dated October
21, 1998 (incorporated herein by reference to
Exhibit 4 to the Company's Form 8/A/A Post-
Effective Amendment No. 1).
10.1H Retirement and Consulting Agreement dated August
14, 1997 between Carrington Laboratories, Inc. and
David Shand (incorporated herein by reference to
Exhibit 4.1 to Carrington's quarterly report on
Form 10-Q for the quarter ended September 30,
1997).
10.2H First Amendment to Retirement and Consulting
Agreement dated September 30, 1997 between
Carrington Laboratories, Inc. and David G. Shand
(incorporated herein by reference to Exhibit 4.2 to
Carrington's quarterly report on Form 10-Q for the
quarter ended September 30, 1997).
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.3* Contract Research Agreement dated as of August 8,
1991 between Carrington Laboratories, Inc. and
Texas Agriculture Experimental Station, as agent
for the Texas A&M University System (incorporated
herein by reference to Exhibit 10.55 to
Carrington's 1991 Annual Report on Form 10-K).
10.4* Lease Agreement dated as of August 30, 1991 between
Carrington Laboratories, Inc. and Western Atlas
International, Inc.
10.5* First Lease Amendment dated April 16, 1992 between
Carrington laboratories, Inc. and Western Atlas
International, Inc.
10.6* Second Lease Amendment dated September 23, 1993
between Carrington Laboratories, Inc. and Western
Atlas International, Inc.
10.7* Third Lease Amendment dated December 1, 1994
between Carrington Laboratories, Inc. and Western
Atlas International, Inc.
10.8* Fourth Lease Amendment dated August 31, 1999
between Western Atlas International, Inc. and
Carrington Laboratories, Inc.
10.9H* Employee Stock Purchase Plan of Carrington
Laboratories, Inc., as amended through June 15,
1995.
10.10* Common Stock Purchase Warrant dated September 14,
1993 issued by Carrington Laboratories, Inc. to E.
Don Lovelace.
10.11* Common Stock Purchase Warrant dated September 14,
1993, issued by Carrington Laboratories, Inc., to
Jerry L. Lovelace.
10.12* Lease Agreement dated June 15, 1994 between DFW
Nine, a California limited partnership, and
Carrington Laboratories, Inc.
10.13* Lease Amendment dated August 23, 1994 amending
Lease Agreement listed as Exhibit 10.12.
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.14* Production Contract dated February 13, 1995 between
Carrington Laboratories, Inc. and Oregon Freeze
Dry, Inc.
10.15* Modification Number One dated February 19, 1996 to
the Production Contract dated February 13, 1995
between Carrington Laboratories, Inc. and Oregon
Freeze Dry, Inc.
10.16* Modification Number Two dated November 11, 1996 to
the Production Contract dated February 13, 1995
between Carrington Laboratories, Inc. and Oregon
Freeze Dry, Inc.
10.17 Modification Number Three to the Production
Contract dated February 13, 1995 between Carrington
Laboratories, Inc. and Oregon Freeze Dry, Inc.
(incorporated herein by reference to Exhibit 10.89
to Carrington's 1998 Annual Report on Form 10-K).
10.18H 1995 Management Compensation Plan (incorporated
herein by reference to Exhibit 4.1 to Form S-8
Registration Statement No. 33-64403 filed with the
Commission on November 17, 1995).
10.19 Trademark License Agreement dated August 14, 1997
between Caraloe, Inc. and Mannatech, Inc.
(incorporated herein by reference to Exhibit 10.2
to Carrington's quarterly report on Form 10-Q for
the quarter ended September 30, 1997).
10.20 Supply Agreement dated August 14, 1997 between
Caraloe, Inc. and Mannatech, Inc.(incorporated
herein by reference to Exhibit 10.3 to Carrington's
quarterly report on Form 10-Q for the quarter ended
September 30, 1997).
10.21* Letter of Agreement dated January 12, 2000
extending Trademark License Agreement and Supply
Agreement between Caraloe, Inc. and Mannatech,
Inc..
10.22 Trademark License and Product Supply Agreement
dated July 22, 1997 between Caraloe, Inc., and Nu
Skin International, Inc. (incorporated herein by
reference to Exhibit 10.1 to Carrington's quarterly
report on Form 10-Q for the quarter ended September
30, 1997).
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.23 Non-exclusive Sales and Distribution Agreement
dated August 22, 1995 between Innovative
Technologies Limited and Carrington Laboratories,
Inc. (incorporated herein by reference to Exhibit
10.6 to Carrington's Third Quarter 1995 Report on
Form 10-Q).
10.24 Supplemental Agreement dated October 16, 1995 to
Non-exclusive Sales and Distribution Agreement
between Innovative Technologies Limited and
Carrington Laboratories, Inc.(incorporated herein
by reference to Exhibit 10.7 to Carrington's Third
Quarter 1995 Report on Form 10-Q).
10.25 Product Development and Exclusive Distribution
Agreement dated November 10, 1995 between
Innovative Technologies Limited and Carrington
Laboratories, Inc.(incorporated herein by reference
to Exhibit 10.8 to Carrington's Third Quarter 1995
Report on Form 10-Q).
10.26 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).
10.27 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).
10.28 Supply and Distribution Agreement dated March 22,
1996 between Farnam Companies, Inc. and Carrington
Laboratories, Inc. (incorporated herein by
reference to Exhibit 10.76 to Carrington's 1995
Annual Report on Form 10-K).
10.29 Distribution Agreement dated March 1, 1996 between
Carrington Laboratories, Inc. and Ching Hwa
Pharmaceutical Co., Ltd. (incorporated herein by
reference to Exhibit 10.1 to Carrington's First
Quarter 1996 Report on Form 10-Q).
10.30H 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).
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.31H 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).
10.32H 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).
10.33 Sales Distribution Agreement dated September 30,
1996 between Faulding Pharmaceuticals Laboratories
and Carrington Laboratories, Inc.(incorporated
herein by reference to Exhibit 10.1 to Carrington's
Third Quarter 1996 Report on Form 10-Q).
10.34 Amendment Number One to Sales Distribution
Agreement dated January 12, 1998 between Carrington
Laboratories, Inc., and Faulding
Pharmaceuticals/David Bull Laboratories
(incorporated herein by reference to Exhibit 10.75
to Carrington's 1997 Annual Report on Form 10-K).
10.35 Sales Distribution Agreement dated December 1, 1996
between Suco International Corp. and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.54 to Carrington's 1996 Annual Report on
Form 10-K).
10.36 Sales Distribution Agreement dated December 20,
1996 between Recordati, S.P.A. and Carrington
Laboratories, Inc. and Carrington Laboratories
Belgium N.V.(incorporated by reference to Exhibit
10.55 to Carrington's 1996 Annual Report on Form
10-K).
10.37 Nonexclusive Distribution Agreement dated November
15, 1996 between Polymedica Industries, Inc. and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.56 to Carrington's 1996
Annual Report on Form 10-K).
10.38 Sales Distribution Agreement dated December 24,
1996 between Gamida-Medequip Ltd. and Carrington
Laboratories, Inc. (incorporated by reference to
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
Exhibit 10.57 to Carrington's 1996 Annual Report on
Form 10-K).
10.39 Sales Distribution Agreement dated December 24,
1996 between Gamida For Life BV and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.58 to Carrington's 1996 Annual Report on
Form 10-K).
10.40 Sales Distribution Agreement dated December 4, 1996
between Darrow Laboratorios S/A and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.59 to Carrington's 1996 Annual Report on
Form 10-K).
10.41* Independent Sales Representative Agreement dated
June 1, 1998 between Meares Medical Sales
Associates and Carrington Laboratories, Inc..
10.42 Supply Agreement dated February 13, 1997 between
Aloe Commodities International, Inc. and Caraloe,
Inc. (incorporated by reference to Exhibit 10.63 to
Carrington's 1996 Annual Report on Form 10-K).
10.43 Trademark License Agreement dated March 1, 1997
between Light Resources Unlimited and Carrington
Laboratories, Inc. (incorporated by reference to
Exhibit 10.64 to Carrington's 1996 Annual Report on
Form 10-K).
10.44 Supply Agreement dated February 13, 1997 between
Light Resources Unlimited and Caraloe, Inc.
(incorporated by reference to Exhibit 10.65 to
Carrington's 1996 Annual Report on Form 10-K).
10.45 Sales Distribution Agreement dated December 27,
1996 between Penta Farmaceutica, S.A. and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.66 to Carrington's 1996
Annual Report on Form 10-K).
10.46 Sales Distribution Agreement dated November 1, 1995
between Laboratories PiSA S.A. DE C.V. and
Carrington Laboratories, Inc. (incorporated by
reference to Exhibit 10.70 to Carrington's 1996
Annual Report on Form 10-K).
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.47 Sales Distribution Agreement dated January 1, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Henry
Schein U.K. Holdings, Ltd., (incorporated herein by
reference to Exhibit 10.1 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1998).
10.48 Sales Distribution Agreement dated January 5, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Saude 2000
(incorporated herein by reference to Exhibit 10.2
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998).
10.49 Sales Distribution Agreement dated March 27, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Hemopharm
GmbH (incorporated herein by reference to Exhibit
10.4 to Carrington's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998).
10.50 Sales Distribution Agreement dated March 27, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories Belgium N.V. and Vincula
International Trade Company (incorporated herein by
reference to Exhibit 10.5 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1998).
10.51 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).
10.52 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).
10.53 Amendment Number One dated May 27, 1999 to the
Sales Distribution Agreement dated April 17, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories, Belgium, NV and CSC
Pharmaceuticals, Ltd., Dublin (incorporated herein
by reference to Exhibit 10.5 to Carrington's
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).
10.54 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).
10.55 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).
10.56 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
International, Inc. to the Registrant (incorporated
herein by reference to Exhibit 10.98 to
Carrington's 1998 Annual Report on Form 10-K).
10.57 Promissory Note dated July 1, 1998 of Rancho Aloe,
(C.R.) S.A. 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).
10.58 Wound and Skin Care Purchase Agreement dated August
27, 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).
10.59 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).
10.60 Supply Agreement dated October 12, 1998 between
Caraloe, Inc. and One Family, Inc. (incorporated
herein by reference to Exhibit 10.90 to
Carrington's 1998 Annual Report on Form 10-K).
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.61 Trademark License Agreement dated October 12, 1998
between Caraloe, Inc. and One Family, Inc.
(incorporated herein by reference to Exhibit 10.91
to Carrington's 1998 Annual Report on Form 10-K).
10.62 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
(incorporated herein by reference to Exhibit 10.92
to Carrington's 1998 Annual Report on Form 10-K).
10.63 Supply Agreement dated December 3, 1998 between
Caraloe, Inc. and Eventus International, Inc.
(incorporated herein by reference to Exhibit 10.93
to Carrington's 1998 Annual Report on Form 10-K).
10.64 Trademark License Agreement dated December 3, 1998
between Caraloe, Inc. and Eventus International,
Inc. (incorporated herein by reference to Exhibit
10.94 to Carrington's 1998 Annual Report on Form
10-K).
10.65 Amendment Number One dated December 3, 1998 to
Supply Agreement between Caraloe, Inc. and Eventus
International, Inc. (incorporated herein by
reference to Exhibit 10.95 to Carrington's 1998
Annual Report on Form 10-K).
10.66 Clinical Services Agreement dated January 25, 1999
between Carrington Laboratories, Inc. and PPD
Pharmaco, Inc. (incorporated herein by reference to
Exhibit 10.96 to Carrington's 1998 Annual Report on
Form 10-K).
10.67 Common Stock Purchase Warrant dated November 23,
1998, issued by Aloe and Herbs International, Inc.
to Carrington Laboratories, Inc. (incorporated
herein by reference to Exhibit 10.99 to
Carrington's 1998 Annual Report on Form 10-K).
10.68 Supply Agreement dated March 5, 1999 between
Caraloe, Inc. and For Your Health, Inc.
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999).
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.69 Trademark License Agreement dated March 5, 1999
between Caraloe, Inc. and For Your Health, Inc.
(incorporated herein by reference to Exhibit 10.2
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999).
10.70 Letter dated February 25, 1999 from Aloe
Commodities, Inc. to Carrington Laboratories, Inc.
(incorporated herein by reference to Exhibit 10.3
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999).
10.71 Exclusive Sales Representative Agreement dated
April 13, 1999, between Caraloe, Inc. and Classic
Distributing Company (incorporated herein by
reference to Exhibit 10.1 to Carrington's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1999).
10.72 Exclusive Sales Representative Agreement dated
April 13, 1999, between Caraloe, Inc. and Glenn
Corporation (incorporated herein by reference to
Exhibit 10.2 to Carrington's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
10.73 Terms Sheet for Lease of Rancho Aloe Farm Land to
Sabila Industrial dated April 20, 1999
(incorporated herein by reference to Exhibit 10.3
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
10.74 Terms Sheet for Maintenance of Sabila Industrial
Plants on Leased Land dated April 20, 1999
(incorporated herein by reference to Exhibit 10.4
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
10.75 Exclusive Sales and Trademark Agreement dated June
11, 1999, between Caraloe, Inc. and Nutra Vine
(incorporated herein by reference to Exhibit 10.1
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
10.76 Lease Agreement dated September 23, 1999 between
Rancho Aloe and Sabila Industrial, S.A.
(incorporated herein by reference to Exhibit 10.2
to Carrington's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999).
<PAGE>
Exhibit Sequentially
Number Exhibit Numbered Page
------ --------------------------------------------------- -------------
10.77 Letter Agreement dated September 29, 1999 between
Aloe Commodities International, 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, 1999).
10.78* Sales Distribution Agreement dated October 26,
1999. between Carrington Laboratories, Inc. and E-
Wha International, Inc.
10.79* Amendment Number Two dated February 14, 2000 to the
Sales Distribution Agreement dated April 17, 1998
between Carrington Laboratories, Inc. and
Carrington Laboratories, Belgium, NV and CSC
Pharmaceuticals, Ltd. Dublin.
10.80* Supplier Agreement dated August 6, 1999 between
Novation, LLC and Carrington Laboratories, Inc.
MS 91022
10.81* Supplier Agreement dated August 6, 1999 between
Novation, LLC and Carrington Laboratories, Inc.
MS 91032
21.1* Subsidiaries of Carrington.
23.1* Consent of Independent Public Accountants
27.1* Financial Data Schedule
* Filed herewith.
H Management contract or compensatory plan.
Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
CARRINGTON LABORATORIES, INC.
1. Pursuant to the provisions of article 4.0 of the Texas
Business Corporation act, CARRINGTON LABORATORIES, INC. corporation
(hereinafter called the "corporation"), hereby adopts Restated
Articles of Incorporation which accurately copy the corporation's
Articles of Incorporation and all amendments thereto that are in
effect to date, and such Restated Articles of Incorporation contain no
change in any provision thereof.
2. The corporation's Restated Articles of Incorporation were
adopted by resolution of the corporation's Board of Directors on
September 14, 1988.
3. The corporation's Articles of Incorporation and all
amendments and supplements thereto (excluding the Statement of
Resolution Establishing series A cumulative Convertible Preferred
stock of the corporation, filed in the office of the Secretary of
State of Texas on Nay 18, 1987) are hereby superseded by the following
Restated Articles of Incorporation which accurately copy the entire
text thereof:
ARTICLE ONE
-----------
The name of the corporation is CARRINGTON LABORATORIES, INC.
ARTICLE TWO
-----------
The period of its duration is perpetual.
ARTICLE THREE
-------------
The purpose for which the corporation is organized is the
transaction of any or all lawful business for which corporations may
be incorporated under the Texas Business Corporation Act.
<PAGE>
ARTICLE FOUR
------------
1.General.
(a) Authorized Capital. the aggregate number of shares which
the corporation shall have authority to issue is Thirty-
one Million (31,000,000), consisting of Thirty Million
(30,000,000) shares of the par value of One Cent ($0.01)
each, to be designated "Common Stock," and One Million
(1,000,000) shares of the par value of One Hundred Dollars
($100.00) each, to be designated "Preferred Stock" which
may be divided into and issued in series.
(b) Issuance. Subject to the provisions of law and of these
Articles of Incorporation, the corporation may issue
shares of any class or series from time to time for such
consideration (not less than the par value thereof) as may
be fixed by the Board of Directors of the corporation.
Shares so issued for which the consideration has been paid
or delivered to the corporation shall be deemed fully paid
shares and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall
not be liable for any further payments in respect of such
shares.
2.Common stock.
(a) General. Subject to the provisions of law and of any
series of Preferred stock, dividends may be paid on the
outstanding shares of Common Stock at such times and in
such amounts as the Board of Directors shall determine.
Each share of Common Stock shall be entitled to one vote
on each matter submitted to a vote at a meeting of
shareholders.
(b) Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
corporation, after payment or provision for payment of
debts and amounts due under the provisions of this Article
Four to the holders of Preferred stock, the holders of the
Common Stock shall be entitled to share pro rata in the
distribution of the remaining assets of the corporation.
<PAGE>
3.Preferred Stock.
(a) General. Shares of preferred Stock may be issued from
time to time in one or more series, and the shares of each
series shall have such designations, powers, preferences,
rights, qualifications, limitations and restrictions as
are stated and expressed herein and in the resolution or
resolutions providing for the issuance of such series
adopted by the Board of Directors as hereinafter provided.
The holders of Preferred Stock shall not be entitled by
virtue of being such holders to receive any dividends or
to participate in any distribution of assets of the
corporation upon any liquidation, dissolution or winding
up of the corporation beyond the dividend and liquidation
preferences with respect to such shares expressly provided
for herein or in the resolution or resolutions adopted by
the board of Directors providing for the issuance thereof.
unless otherwise provided by any resolution or resolutions
adopted by the Board of Directors providing for the
issuance of Preferred stock, dividends on Preferred Stock
shall be cumulative from the date of issue and shall not
bear interest.
(b) Authority of Directors to Issue Series. Authority is
hereby expressly granted to the Board of Directors to
authorize the issuance of Preferred Stock from tine to
time in one or more Series, and, with respect to each
series of Preferred Stock, to fix and determine by the
resolution or resolutions from time to time adopted
providing for the issuance thereof the number of shares to
constitute the series and the designation thereof and any
one or more of the following rights and preferences: (A)
the rate of dividend payable with respect to such shares
and the dates, terms and other conditions on which such
dividends shall be payable, (B) the nature of the dividend
payable with respect to such shares as cumulative,
noncumulative or partially cumulative, (C) the price at
and the terms and conditions on which such shares may be
redeemed, (D) the amount payable on such shares in the
event of involuntary liquidation, (E) the amount payable
on such shares in the event of voluntary liquidation, (F)
sinking fund provisions (if any) for the redemption or
purchase of such shares, (G) the securities into which and
the terms and conditions on which such shares may be
converted, if such shares are issued with the privilege of
conversion, (H) voting rights (including the number of
votes per share, the matters on which the shares can vote
and any contingency which makes the voting rights
effective), and (I) subject to the provisions of law, the
repurchase obligations of the corporation with respect to
such shares. The shares of each series of Preferred Stock
may vary from the shares of any other series thereof in
any or all. of the foregoing respects. The Board of
Directors may increase the number of shares designated for
any existing series by adding to such series authorized
and unissued shares not designated for any other series.
The Board of Directors may decrease the number of shares
designated for any existing series by subtracting from
such series unissued shares designated for such series,
and the shares so subtracted shall be authorized and
unissued shares of preferred stock.
<PAGE>
ARTICLE FIVE
------------
The corporation will. not commence business until it has received for
the issuance of its shares consideration of the value of $1,000.00
consisting of money, labor done, or property actually received.
ARTICLE SIX
-----------
No shareholder or other person shall have any pre-emptive rights
whatsoever.
ARTICLE SEVEN
-------------
Directors shall be elected by plurality vote. Cumulative voting shall
not be permitted.
ARTICLE EIGHT
-------------
The shareholders of the corporation hereby delegate to the Board of
Directors power to adopt. alter, amend, or repeal the By-Laws of the
corporation; such power shall be deemed to be vested exclusively in the
Board of Directors and shall not be exercised by the shareholders.
ARTICLE NINE
------------
If the By_Laws so provide, the Board of Directors may designate two or
more of their number to constitute an Executive Committee, which
committee shall for the time being, as provided in the By-Laws of this
corporation, have and exercise any or all of the powers of the board of
Directors in the management of the business and affairs of this
corporation, and have power to authorize the seal. of this corporation
to be affixed to all papers which may require it.
<PAGE>
ARTICLE TEN
-----------
No contract or other transaction between the corporation and any other
firm or corporation shall be affected or invalidated by the fact that
any one or more of the Directors or officers of the corporation is or
are interested in or is a member. Director, officer, or officers of
such other firm or corporation or, individually or jointly, may be a
party or parties to or may be interested in any contract or transaction
of the corporation or in which the corporation is interested; and no
contract, act or transaction of the corporation with any person, firm,
corporation or association shall be affected or invalidated by the fact
that any Director or Directors or officer or officers of the
corporation is a patty or are parties to or interested in such
contract, act or transaction, or in any way connected with such person,
firm, corporation or association, and each and every person who nay
become a Director or officer of the corporation is hereby relieved, as
far as is legally permissible, from, any disability which might
otherwise prevent him, or any firm, corporation or association in which
he may in any way be interested, from so acting.
ARTICLE ELEVEN
--------------
The post office address of the corporation's present registered office
is 1300 East Rochelle Blvd., Irving, Texas 75062, and the name of its
present registered agent at such address is Clinton B. Howard.
<PAGE>
ARTICLE TWELVE
--------------
The number of Directors constituting the present Board of Directors is
six, and the names and addresses of the persons who are to serve as
Directors until the next annual meeting of the shareholders or until
their successors are elected and qualified are:
Name Address
---- -------
Thomas J. Marquez 1300 East Rochelle Blvd.
Irving, TX 75062
Clinton H. Howard 1300 East Rochelle Blvd.
Irving, TX 75062
Herbert H. McDade, Jr. 50 Main St., Suite 1000
White Plains, NY 10606
Dale S. Vranes 750 N. St. Paul, Suite 1640
Dallas, TX 75201
Hubert C. Peltier. M.D. 9 Rum, Row
Salem, SC 29676
Bill H. McAnalley, Ph.D. 1300 East Rochelle Blvd.
Irving, TX 75062
ARTICLE THIRTEEN
----------------
The names and addresses of the incorporators are:
Dan N. Cain
2605 Republic National Bank Tower
Dallas, Texas 75201
Mark Davenport
2605 Republic National Bank Tower
Dallas, Texas 75201
Marsha Eubank
2605 Republic National Bank Tower
Dallas, Texas 75201
<PAGE>
ARTICLE FOURTEEN
----------------
Subject to the limitations provided by applicable law, the corporation
shall have, in addition to all rights and powers provided by applicable
law, the right and power to purchase, directly or indirectly, shares of
its own capital stock to the extent of the aggregate of unrestricted
capital surplus available therefor and unrestricted reduction surplus
available therefor.
ARTICLE FIFTEEN
---------------
To the fullest extent permitted by applicable law, no Director of the
corporation shall be personally liable to the corporation or its
shareholders for monetary damages for any act or omission in such
Director's capacity as a Director, except that this Article does not
eliminate or limit the liability of a Director for (i) a breach of such
Director's duty of loyalty to the corporation or its shareholders; (ii)
an act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law; (iii) a transaction from
which such Director received an improper benefit, whether or not the
benefit resulted from an action taken within the scope of such
Director's office; (iv) an act or omission for which the liability of a
director is expressly provided for by statutes or (v) an act related to
an unlawful stock repurchase or payment of a dividend.
IN WITNESS WREREOF, the corporation has executed these Restated
Articles of incorporation on September 14, 1988.
CARRINGTON LABORATORIES, INC.
By /s/ Clinton H. Howard
----------------------
Clinton H. Howard, President
Exhibit 3.2
STATEMENT OF CHANGE OF REGISTERED
OFFICE AND REGISTERED AGENT OF
CARRINGTON LABORATORIES, INC.
Pursuant to the provisions of the Texas Business Corporation Act,
the undersigned corporation (the "Corporation"), organized under the
laws of the State of Texas, submits the following Statement for the
purpose of changing its registered office and registered agent in the
State of Texas:
1. The name of the Corporation is CARRINGTON LABORATORIES, INC
2. The post office address of the Corporation's present
registered office, prior to the filing of this statement, is 2001 Walnut
Hill Lane, Irving, Texas 75038.
3. The post office address to which the Corporation's
registered office is to be changed is 350 N. St. Paul Street, Dallas,
Texas 73201.
4. The name of the Corporation's present registered agent is
Clinton H. Howard.
5. The name of the Corporation's successor registered agent is
C T Corporation System.
6. The post office address of the Corporation's registered
office and the post office address of the business office of its
registered agent, as changed, will be identical,
7. The above changes of the Corporation's registered office
and registered agent were authorized by the Board at Directors of the
Corporation,
IN WITNESS WHEREOF, the Corporation has caused this statement to
be executed in its name and on its by the undersigned duly authorized
officer on February 18th, 1991.
CARRINGTON LABORATORIES, INC.
By /s/ Dennis F. Willson
----------------------
Dennis F. Willson
Executive Vice President
Exhibit 3.3
STATEMENT OF RESOLUTION
ESTABLISHING AND DESIGNATING
SERIES D PREFERRED STOCK
of
CARRINGTON LABORATORIES, INC.
To the Secretary of State
of the State of Texas:
Pursuant to the provisions of Article 2.13 of the Texas
Business Corporation Act, and pursuant to Article Four of its
Articles of Incorporation, the undersigned, Carrington
Laboratories, Inc., a corporation organized and existing under
the Texas Business Corporation Act, as amended (the Company
hereby submits the following statement for the purpose of
establishing and designating 300,000 shares of its Preferred
Stock, par value $100 per share, as "Series D Preferred Stock"
(the "Series D Shares") and fixing and determining the relative
rights thereof:
1. The name of the corporation is Carrington
Laboratories, Inc.
2. Attached hereto as Annex I is a true and correct copy
of the resolution establishing and designating the
Series D Shares and fixing and determining the
relative rights and preferences thereof.
3. Such resolution was duly adopted by the Board of
Directors of the Company on September 19, 1991.
Dated; September 19, 1991.
CARRINGTON LABORATORIES, NC
By: /s/ Dennis F. Wilson
------------------------
Dennis F. Wilson,
Executive Vice President
and Secretary
<PAGE>
Annex I
RESOLUTION OF THE BOARD OF DIRECTORS
OP CARRINGTON LABORATORIES, INC.
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Company in accordance with provisions of its Articles
of Incorporation, (a) the Board of Directors does hereby create,
authorize and provide for the issuance, upon the exercise of the
Rights, of a series of Preferred Stock of the Company to be designated
"Series D Preferred Stock" (hereinafter referred to as the "Series D
Preferred Stock"), initially consisting of 300,000 shares, and (b) the
Board of Directors does also hereby (to the extent that the
designations, preferences. limitations and relative rights
(collectively, the "Terms") of the Series D Preferred Stock are not
stated and expressed in the Articles of Incorporation and to the extent
that if such Terms are slated or expressed in the Articles of
Incorporation but the Articles of Incorporation permit the Board of
Directors to otherwise fix and state such Terms) fix and state such
designations, preferences, limitations and relative rights thereof, as
follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series D Preferred Stock", par value $100 per
share (the "Series D Preferred Stock"), and the number of shares
constituting the Series D Preferred Stock shall be 300,000.
Notwithstanding the provisions of Section Q hereof, such number of
shares may be increased or decreased by resolution of the Board of
Directors; provided that no decrease shall reduce the number of shares
of Series D Preferred Stock to a number less than the number of shares
then outstanding plus the number of Shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Company
convertible into Series D Preferred Stock.
Section 2. Dividends. Subject to the prior and superior rights of
the holders of any shares of any series of Preferred Stock ranking
prior and superior to the shares of Series D Preferred Stock with
respect to dividends, the holders of Series D Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends payable
in cash. stock or otherwise.
<PAGE>
Section 3. Voting Rights. The holders of shares of Series D
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series D Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote of
the shareholders of the Company. In the event the Company shall
at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series D
Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Statement of Resolution creating a series of Preferred Stock or
any similar stock, or by law, the holders of shares of Series D
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Company having general voting rights
shall vote together as one class on all matters submitted to a
vote of shareholders of the Company.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series D Preferred Stock shall have no special
voting rights, and their consent Shall not be required (except to
the extent they are entitled to vote with holders of Common Stock
as set forth herein) for taking any corporate action.
Section 4. Preacquired Shares. Any shares of Series D Preferred
Stock purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock, subject to the
conditions and restrictions on issuance set forth herein, in the
Articles of Incorporation, or in any other Statement of Resolution
creating a series of Preferred Stock or any similar stock or as
otherwise required by law,
<PAGE>
Section 5. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution
shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding
up) to the Series D Preferred Stock unless, prior thereto, the holders
of shares of Series D Preferred Stock shall have received $100 per
share, provided that the holders of shares of Series D Preferred Stock
shall be entitled to receive an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100 times
the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (2) to the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series 2) Preferred Stock, except distributions
made ratably on the Series D Preferred Stock and all such parity stock
in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up.
In the event the Company shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Series D Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which as the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 6. Consolidation, Merger, etc. In case the Company shall
enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any
such case each share of Series D Preferred Stock shall at the same
time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged. In
the event the Company shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of
shares of Series D Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
<PAGE>
Section 7, No Redemption. The shares of Series D Preferred Stock
shall not be redeemable.
Section 8. Rank. The Series D Preferred Stock shall rank junior
to all other Series of the Company's Preferred Stock as to payment of
dividends and the distribution of assets on liquidation or otherwise,
unless the terms of any such series shall provide otherwise. The
Series D Preferred Stock shall rank senior to the Company's Common
Stock as to the distribution of assets on liquidation or otherwise.
Section 9. Amendment. The Articles of Incorporation of the
Company shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the
Series D Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series D Preferred Stock. voting together as a
single class.
Section 10. Fractional Shares. Series D Preferred Stock may be
issued in fractions of a share which shall entitle the holder thereof,
in proportion to such holder's fractional shares, to exercise voting
rights, receive dividends, participate in distributions and have the
benefit of all of the rights of holders of shares of Series D
Preferred Stock.
Exhibit 4.2
RIGHTS AGREEMENT
Rights Agreement, dated as of September 19, 1991 (the
"Agreement"), between Carrington Laboratories, Inc., a Texas
corporation (the "company"), and Ameritrust Company National
Association (the "Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right")
for each Common Share (as hereinafter defined) of the Company
outstanding on October 15, 1991 (the "Record Date"), each Right
representing the right to purchase one one-hundredth of a Preferred
Share (as hereinafter defined), upon the terms and subject to the
conditions herein set forth, and has further authorized and directed
the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date
(as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as
follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all
Affiliates and Associates (as such terms are hereinafter defined)
of such Person, shall be the Beneficial Owner (as such term is
hereinafter defined) of 20% or more of the Common Shares of the
Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company,
any employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to
the terms of any such plan. Notwithstanding the foregoing, no
Person shall become an "Acquiring Person" as the result of an
acquisition of Common Shares by the Company which, by reducing
the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 20% or more
of the Common Shares of the Company then outstanding; provided,
however, that if a Person shall become the Beneficial Owner of
20% or more of the Common Shares of the Company then outstanding
by reason of share purchases by the Company and shall, after such
share purchases by the Company, become the Beneficial Owner of
any additional Common Shares of the Company, then such Person
shall be deemed to be an "Acquiring Person".
(b) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as in effect on the
date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
<PAGE>
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether
such right is exercisable immediately or only after the passage
of time) pursuant to any agreement, arrangement or understanding
(other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion
rights, exchange rights, rights (other than these Rights),
warrants or options, or otherwise; provided however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange; or (B) the right to vote
pursuant to any agreement, arrangement or understanding;
provided, however that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1)
arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not
also then reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of
such Persons Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section 1(c)(ii)(B)) or disposing
of any securities of the Company.
Notwithstanding anything in this definition of
Beneficial Ownership to the contrary, the phrase "then
outstanding", when used with reference to a Person's Beneficial
Ownership of securities of the Company, shall mean the number of
such securities then issued and outstanding together with the
number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder,
(d) "Business Day" shall mean any day other than a
Saturday. a Sunday or a day on which banking institutions in the
State of Texas are authorized or obligated by law or executive
order to close.
(e) "Close of business" on any given date shall
mean 5:00 P.M., Dallas, Texas time, on such date; provided,
however, that if such date is not a Business Day it shall mean
5:00 P.M., Dallas, Texas time, an the next succeeding Business
Day.
<PAGE>
(f) "Common Shares" when used with reference to
the Company shall mean the shares of common stock, par value
$0.01 per share, of the Company. "Common Shares" when used with
reference 10 any Person other than the Company shall mean the
capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of
another person, the Person or Persons which ultimately control
such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set
forth in Section 3(a) hereof.
(h) "Final Expiration Date" shall have the meaning
set forth in Section 7(a) hereof.
(i) "Flip-In Event" shall have the meaning set
forth in Section 11(a)(ii)(A) hereof.
(j) "Flip-Over Event" shall have the meaning set
forth in Section 13 hereof.
(k) "Person" shall mean any individual, firm,
corporation or other entity, and shall include any successor (by
merger or otherwise) of such entity,
(l) "Preferred Shares" shall mean shares of Series
D Preferred Stock, par value $100 per share, of the Company
having the rights and preferences set forth in the Form of
Statement of Resolution Establishing and Designating Series D
Preferred Stock of Carrington Laboratories, Inc. attached to this
Agreement as Exhibit A.
(m) "Redemption Date" shall have the meaning set
forth iii Section 7(a) hereof.
(n) "Shares Acquisition Date" shall mean the
first date of public announcement by the Company or an Acquiring
Person that an Acquiring Person has become such.
(o)"Subsidiary" of any Person shall mean any
corporation or other entity of which a majority of the voting
power of the voting equity securities or equity interest is
owned, directly or indirectly, by such Person.
(p) "Triggering Event" shall mean any Flip-In Event or
any Flip-Over Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the
holders of the Rights (who, in accordance with Section 3 hereof,
shall, prior to the Distribution Date also be the holders of the
Common Shares) in accordance with the terms and conditions hereof, and
the Rights Agent hereby accepts such appointment. The Company may from
time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issuance of Right Certificates.
<PAGE>
(a) Until the earlier of (i) the close of business on the
tenth day after the Shares Acquisition Date or (ii) the close of
business on the tenth business day (or such later date as may be
determined by action of the Board of Directors prior to such time as
any person becomes an Acquiring Person) after the date of the
commencement by any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding
Common Shares for or pursuant to the terms of any such plan) to
commence, a tender or exchange offer the consummation of which would
result in any Person becoming the Beneficial Owner of Common Shares
aggregating 20% or more of the then outstanding Common Shares
(including any such date which is after the date of this Agreement and
prior to the issuance of the Rights; the earlier of such dates being
herein referred to as the "Distribution Date"), (x) the Rights will be
evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be Right
Certificates) and not by separate Right Certificates, and (y) the
right to receive Right Certificates will be transferable only in
connection with the transfer of Common Shares. As soon as practicable
after the Distribution Date, the Company will prepare and execute, the
Rights Agent will countersign, and the Company will send or cause to
be sent (and the Rights Agent will, if requested, send) by first-
class, postage-prepaid mail, to each record holder of Common Shares as
of the close of business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate,
in substantially the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right for each Common Share so held, As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable
thereafter, the Company will send a copy of a Summary of Rights to
Purchase Preferred Shares, in substantially the form of Exhibit C
hereto (the "Summary of Rights"), by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the close of
business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the
names of the holders thereof. Until the Distribution Date (or the
earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Common Shares
outstanding on the Record Date shall also constitute the transfer of
the Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become
outstanding (including, without limitation, reacquired Common Shares
referred to in the last sentence of this paragraph (c)) after the
Record Date but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date shall have impressed on,
printed on, written on or otherwise affixed to them the following
legend:
<PAGE>
This certificate also evidences and entities the holder
hereof to certain rights as set forth in a Rights Agreement between
Carrington Laboratories, Inc. and Ameritrust Company National
Association, dated as of September 19, 1991 (the "Rights Agreement",
the terms of which are hereby incorporated herein by reference and a
copy of which is on file at the principal executive offices of
Carrington Laboratories, Inc. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate- Carrington Laboratories, Inc. will mall to the holder of
this certificate a eon of the Rights Agreement without charge after
receipt of a written request therefor at the principal place of
business of Carrington Laboratories, Inc. Under certain circumstances,
as set forth in the Rights Agreement, Rights issued to any Person who
becomes an Acquiring Person (as defined in the Rights Agreement) may
become null and void,
With respect to such certificates containing the foregoing
legend, until the Distribution Date, the Rights associated with the
Common Shares represented by such certificates shall be evidenced by
such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby. In the event
that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated
with such Common Shares shall be deemed canceled and retired so that
the Company shall not be entitled to exercise any Rights associated
with the Common Shares which are no longer outstanding,
Section 4. Form of Right Certificates, The Right
Certificates (and the forms of election to purchase Preferred Shares
and of assignment to be printed on the reverse thereof) shall be
substantially the same as Exhibit B hereto and may have such marks of
identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and
as are not inconsistent with the provisions of this Agreement, or as
may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Rights may from time to time be listed, or
to conform to usage. Subject to the provisions of Section 11 and
Section 22 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of one one-hundredths of a Preferred
Share as shall be set forth therein at the price per one one-hundredth
of a Preferred Share set forth therein (the "Purchase Price"), but the
number of such one one-hundredths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of
the Company by its Chairman of the Board, its President, its Chief
Executive Officer, or any of its Vice Presidents, or its treasurer,
either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by
the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature, The Right Certificates shall be
countersigned manually or by facsimile signature by the Rights Agent
and shall not be valid for any purpose unless countersigned. In case
<PAGE>
any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the
Company, such Right Certificates, nevertheless, may be countersigned
by the Rights Agent and issued and delivered by the Company with the
same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any
Right Certificate may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Right Certificate,
shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights
Agreement any such person was not such an officer,
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept. at its principal office, books for
registration and transfer of the Right Certificates issued hereunder.
Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights evidenced on
its face by each of the Right Certificates and the date of each of the
Right Certificates.
Section 6. Transfer- Split-up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates.
(a) Subject to the provisions of section 14 hereof, at any
time after the close of business on the Distribution Date, and at or
prior to the close of business on the earlier of the Redemption Date
or the Final Expiration Date, any Right Certificate or Right
Certificates (other than Right Certificates representing Rights that
have become void pursuant to Section 11(a)(ii)(B) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like
number of one one-hundredths of a Preferred Share (or, following a
Flip-In Event. Common Shares, other securities, cash or other assets,
as the case may be) as the Right certificate or Right Certificates
entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the
principal office or offices of the Rights Agent designated for such
purpose. Thereupon the Rights Agent shall, subject to Section 14
hereof, countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection
with any transfer, split-up, combination or exchange of Right
Certificates.
<PAGE>
(b) Upon receipt by the Company arid the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request. reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will execute and
deliver a new Right Certificate of like tenor to the Rights Agent for
delivery to the registered holder in lieu of the Right Certificate so
lost, stolen, destroyed or mutilated.
Section 7 Exercise of Rights: Purchase Price: Expiration
Date of Rights.
(a) The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided
herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights
Agent at the principal office or offices of the Rights Agent
designated for such purpose, together with payment of the Purchase
Price for each one one-hundredth of a Preferred Share (or other
securities, cash or other assets, as the case may be) as to which the
Rights are exercised, at or prior to the earliest of (i) the close of
business on October 15, 2001 (the "Final Expiration Date"). (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof
(the "Redemption Date"), or (iii) the time at which such Rights are
exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share (or other securities, cash or other assets, as the
case may be) purchasable pursuant to the exercise of a Right shall
initially be $80, and shall be subject to adjustment from time to time
as provided in Section 11 or 13 hereof and shall be payable in lawful
money of the United States of America an accordance with paragraph (c)
below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and the
certificate duly executed, accompanied by payment, with respect to
each Right so exercised, of the Purchase Price per one one-hundredth
of a Preferred Share (or other securities, cash or other assets, as
the case may be) to be purchased and an amount equal to any applicable
transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 10 hereof by certified check,
cashier's check or money order payable to the order of the Company,
the Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares (or make available, if the
Rights Agent is .a transfer agent for such shares) certificates for
the number of Preferred Shares to be purchased, and the Company hereby
irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary
receipts representing such number of one one-hundredths of a Preferred
Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by
the transfer agent with the depositary agent), and the Company hereby
directs the depositary agent to comply with such request, (ii) when
<PAGE>
appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate, registered
in such name or names as may be designated by such holder, and (iv)
when appropriate, after receipt, deliver such cash to or upon the
order of the registered holder of such Right Certificate. In the event
that the Company is obligated to issue other securities (including
stock of the Company), the Common Shares of the Company, pay cash
and/or distribute other property pursuant to Section 11(a) hereof, the
Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby,
a new Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of section 14 hereof.
Section 8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the purpose of
exercise, transfer, split-up, combination or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to
the Rights Agent for cancellation or in canceled form, or, If
surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Rights Agreement. The
Company shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any other
Right Certificates purchased or acquired by the Company otherwise than
upon the exercise thereof. The Rights Agent shall deliver all canceled
Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in either
such case shall deliver a certificate of destruction thereof or a
certificate of cancellation thereof, as may be appropriate, to the
Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause
to be reserved and kept available out of its authorized and unissued
Preferred Shares (and, following the occurrence of a Triggering Event,
out of its authorized and unissued Common Shares and/or other
securities or out of its authorized and issued shares held in its
treasury), the number of Preferred Shares (and following the
occurrence of a Triggering Event, Common Shares and/or other
securities) that, as provided in this Agreement including Section
11(a)(iii) hereof, will be sufficient to permit the exercise in full
of all outstanding Rights.
<PAGE>
(b) So long as the Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or securities)
issuable and deliverable upon the exercise of the Rights may be listed
on any national securities exchange or inter-dealer quotation system
of a registered national securities association on which the Preferred
Shares may from time to time be listed, traded or quoted, the Company
shall use reasonable efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be
listed on such exchange or quotation system upon official notice of
issuance upon such exercise.
(c) The Company covenants and agrees that it will take
all such action as may be necessary to ensure that all one one-
hundredths of a Preferred Share (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) delivered
upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase
Price). be duly and validly authorized and issued and fully paid and
nonassessable.
Section 10. Preferred Shares Record Date. Each person in
whose name any certificate for Preferred Shares (or Common Shares
and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Preferred Shares (or Common Shares and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made, provided,
however that if the date of such surrender and payment is a date upon
which the Preferred Shares (or Common Shares and/or other securities,
as the case may be) transfer books of the Company are closed, such
person shall be deemed to have become the record holder of such shares
on, and such certificate shall be dated, the next succeeding Business
Day on which the Preferred Shares (or Common Shares and/or other
securities, as the case may be) transfer books of the Company are
open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a
shareholder of Preferred Shares of the Company with respect to shares
for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the Company,
except as provided herein.
Section II, Adjustment of Purchase Price. Number and Kind
of Shares or Number of Rights. The Purchase Price, the number and kind
of shares covered by each Right and the number of Rights outstanding
are subject to adjustment from time to time as provided in this
section 11.
<PAGE>
(a) (i) In the event the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred
Shares payable in Preferred Shares, (B) subdivide the outstanding
Preferred Shares, (C) combine the outstanding Preferred Shares into a
smaller number of Preferred Shares, or (D) issue any shares of its
capital stock in a reclassification of the Preferred Shares (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) hereof, the
Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock
issuable on such date, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to
receive, upon payment of the Purchase Price then in effect, the
aggregate number and kind of Preferred Shares or shares of capital
stock which, if such right had been exercised immediately prior to
such date and at a time when the Preferred Shares transfer books of
the Company were open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. If an event occurs which would
require an adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii)) hereof.
(ii) (A) Subject to Sections 23 and 24 of this Agreement,
in the event any Person becomes an Acquiring Person other than
pursuant to a Flip-Over Event at any time after September 19, 1991 (a
"Flip-In Event"), each holder of a Right shall thereafter have a right
to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a
Preferred Share for which a Right is then exercisable, in accordance
with the terms of this Agreement and in lieu of Preferred Shares, such
number of Common Shares of the Company (such number of Common Shares
to be referred to hereinafter as the "Adjustment Shares") as shall
equal the result obtained by (x) multiplying the then current Purchase
Price by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable and dividing that product by (y))
50% of the then current per share market price of the Company's Common
Shares (determined pursuant to Section 11(d) hereof) on the date of
the occurrence of such event. In the event that any Person shall
become an Acquiring Person and the Rights shall then be outstanding,
the Company shall not take any action which would eliminate or
diminish the benefits intended to be afforded by the Rights.
(B) From and after the occurrence of a Flip-In
Event, any Rights that are or were acquired or beneficially owned by
any Acquiring Person (or any Associate or Affiliate of such Acquiring
Person) shall be void, and any holder of such Rights shall thereafter
have no right to exercise such Rights under any provision of this
Agreement. No Right Certificate shall be issued pursuant to Section 3
that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any
Associate or Affiliate thereof; no Right Certificate shall be issued at
any time upon the transfer of any Rights to an Acquiring Person whose
Rights would be void pursuant to the preceding sentence or any
<PAGE>
Associate or Affiliate thereof or to any nominee of such Acquiring
Person, Associate or Affiliate; and any Right Certificate delivered to
the Rights Agent for transfer to an Acquiring Person whose Rights would
be void pursuant to the preceding sentence shall be canceled.
(iii) In the event that the number of Common Shares which
is authorized by the Company's Articles of Incorporation but not
outstanding or not reserved for issuance for purposes other than upon
exercise of the Rights is not sufficient to permit the exercise in full
of the Rights in accordance with the foregoing subparagraph (ii) of
this Section 11(a), the Company shall, to the extent permitted by
applicable law and regulation: (A) determine the excess of (1) the
value of the Adjustment Shares issuable upon the exercise of a Right
(the "Current Value") over (2) the Purchase Price (such excess to be
referred to hereinafter as the "Spread"), and (B) with respect to each
Right, make adequate provision to substitute for the Adjustment Shares,
upon payment of the applicable Purchase Price, (I) cash, (2) a
reduction in the Purchase Price, (3) Common Shares or other equity
securities of the Company (including, without limitation, shares, or
units of shares, of preferred stock which the Board of Directors has
deemed to have the same value as the Common Shares (such shares of
preferred stock, "common share equivalents"), (4) debt securities of
the Company. (5) other assets or (6) any combination of the foregoing,
having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of Directors based
upon the advice of an investment banking firm selected by the Board of
Directors; provided, however, if the Company shall not have made
adequate provisions to deliver value pursuant to clause above within
30 days following the first occurrence of a Flip-In Event (the "Flip-in
Trigger Date", then the Company shall be obligated to deliver, upon the
surrender for exercise of a Right and without requiring payment of the
Purchase Price, Common Shares (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. If the Board of Directors determines in good faith that
it is likely that sufficient additional Common Shares could be
authorized for issuance upon exercise in full of the Rights, the 30-day
period set forth above may be extended to the extent necessary, but not
more than 90 days after the Flip-In Trigger Date, in order that the
Company may seek shareholder approval for the authorization of such
additional shares (such period, as it may be extended, the
"Substitution Period"). To the extent that the Company determines that
some action need be taken pursuant to the first and/or second sentences
of this Section 11 (a)(iii), the Company (x) shall provide that such
action shall apply uniformly to all outstanding Rights, and (y) may
suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional
shares and/or to decide the appropriate form of distribution to be made
pursuant to such first sentence and to determine the value thereof In
the event of any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section
11(a)(iii), the value of the Common Shares shall be the current per
share market price (as determined pursuant to Section 11(d) hereof) of
the Common Shares on the Flip-In Trigger Date, and the value of any
common share equivalent shall be deemed to have the same value as the
Common Shares on such date,
<PAGE>
(b) In case the Company shall fix a record date
for the issuance of rights, options or warrants to all holders of
Preferred Shares entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase
Preferred Shares (or shares having the same rights, privileges and
preferences as the Preferred Shares ("equivalent preferred shares")) or
securities convertible into Preferred Shares or equivalent preferred
shares at a price per Preferred Share or equivalent preferred share (or
having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then
current per share market price of the Preferred Shares (as defined in
Section 11(d)) on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares
which the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to
be offered) would purchase at such current market price and the
denominator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of additional Preferred
Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so
to be offered are initially convertible); provided however that in no
event shall the consideration to be paid upon the exercise of one Right
be less than the aggregate par value of the shares of capital stock of
the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. Preferred Shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose
of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such
rights, options or warrants ate not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) In case the Company shall fix a record date for the
making of a distribution to all holders of the Preferred Shares
(including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation) of evidences of indebtedness or assets (other
than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in
effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share
market price of the Preferred Shares on such record date, less the
fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the
<PAGE>
denominator of which shall be such current per share market price of
the Preferred Shares; provided, however that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder,
other than computations made pursuant to Section 11(a)(iii) hereof,
the "current per share market price" of any security (a "Security"
for the purpose of this Section 11(d)(i) on any date shall be deemed
to be the average of the daily closing prices per share of such
Security for the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date, and for purposes
of computations made pursuant to Section 11(a)(iii) hereof, the
"current per share market price" of a Security on any date shall be
deemed to be the average of the daily closing prices per share of
such Security for the ten consecutive Trading Days immediately
following such date; provided, however,. that in the event that the
current per share market price of the Security is determined during a
period following the announcement by the issuer of such Security of
(A) a dividend or distribution on such Security payable in shares of
such Security or securities convertible into shares of such Security
(other than the Rights), or (B) any subdivision, combination or
reclassification of such Security, and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification shall not have occurred prior to the
commencement of the requisite thirty (30) Trading Day or ten (10)
Trading Day period, as set forth above, then, and in each such case,
the "current per share market price" shall be properly adjusted to
take into account ex-dividend trading. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if
the Security is not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction
reporting system on which the Security is listed or admitted to
trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-
the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or
such other system then in use, or, if on any such date the Security
is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of
the company. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Security is
listed or admitted to trading is open for the transaction of business
or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
<PAGE>
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i).
If the Preferred Shares are not publicly traded, the "current per share
market price" of the Preferred Shares shall be conclusively deemed to
be the current per share market price of the Common Shares as
determined pursuant to Section 11(d)i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by 100. If neither the
Common Shares nor the Preferred Shares are publicly held or so listed
or traded, "current per share market price" shall mean the fair value
per share as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes. For all
purposes of this Agreement, the "current per share market price" of
1/100 of a Preferred Share shall be equal to the "current per share
market price" of one Preferred Share divided by 100.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason
of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest cent or
to the nearest one one-millionth of a Preferred Share or one ten-
thousandth of any other share or security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the date of the expiration of the
right to exercise any Rights.
(f) If as a result of an adjustment made pursuant
to Section 11(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock of the
Companyother than Preferred Shares, thereafter the number of such
other shares so receivable upon exercise of any Right shall be subject
to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive,
and the provisions of Sections 7, 9, 10 and 13 with respect to the
Preferred Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent
to any adjustment made to the Purchase Price hereunder shall evidence
the right to purchase, at the adjusted Purchase Price, the number of
one one-hundredths of a Preferred Share purchasable from time to time
hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
<PAGE>
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of the
Purchase Price as a result of the calculations made in Sections 11(b)
and (c), each Right outstanding immediately prior to the making of
such adjustment shall thereafter evidence the right to purchase, at
the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a
Preferred Share) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to
this adjustment by (y) the Purchase Price in effect immediately prior
to such adjustment of the Purchase Price, and (ii) dividing the
product so obtained by the Purchase Price in effect immediately after
such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of
any adjustment of the Purchase Price to adjust the number of Rights,
in substitution for any adjustment in the number of one one-
hundredths of a Preferred Share purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of one one-
hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior
to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment
of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day
thereafter, but, if the Right Certificates have been issued, shall be
at least 10 days later than the date of the public announcement. If
Right Certificates have been issued, upon each adjustment of the
number of Rights pursuant to this Section 11(i), the Company shall,
as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment.
or, at the option of the Company, shall cause to be distributed to
such holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of adjustment,
and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned In the manner
provided for herein and shall be registered in the names of the
holders of record of Right Certificates on the record date specified
in the public announcement.
(j) Irrespective of any adjustment or change in
the Purchase Price or the number of one one-hundredths of a Preferred
Share issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right
Certificates issued hereunder.
<PAGE>
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below one one-hundredth of the
then par value, if any, of the Preferred Shares issuable upon
exercise of the Rights, the Company shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that
the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as
of a record date for a specified event, the Company may elect to
defer until the occurrence of such event the issuance to the holder
of any Right exercised after such record date of the Preferred Shares
and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and
other capital stock or securities of the Company, if any, issuable
upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided however. that the Company shall deliver
to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares or securities
upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it
in its sole discretion shall determine to be advisable in order that
any (i) consolidation or subdivision of the Preferred Shares, (ii)
issuance wholly for cash of any Preferred Shares at less than the
current market price, (iii) issuance wholly for cash of Preferred
Shares or securities which by their terms are convertible into or
exchangeable for Preferred Shares, (iv) stock dividends or (v)
issuance of rights, options or warrants referred to hereinabove in
this Section 11, hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such shareholders.
(n) Anything herein to the contrary notwithstanding,
in the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i)
declare or pay any dividend on the Common Shares payable in Common
Shares or (ii) effect a subdivision, combination or consolidation of
the Common Shares (by reclassification or otherwise than by payment
of dividends in Common Shares) into a greater or lesser number of
Common Shares, then in any such case (A) the number of one one-
hundredths of a Preferred Share purchasable after such event upon
proper exercise of each Right shall be determined by multiplying the
number of one one-hundredths of a Preferred Share so purchasable
immediately prior to such event by a fraction, the numerator of which
is the number of Common Shares outstanding immediately before such
event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (B) each Common Share
outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share
outstanding immediately prior to such event had issued with respect
to it. The adjustments provided for in this Section 11(n) shall be
made successively whenever such a dividend is declared or paid or
such a subdivision, combination or consolidation is effected.
<PAGE>
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares. Whenever an adjustment is made as provided in
Section 11 or Section 13 hereof, the Company shall promptly (a)
prepare a certificate setting forth such adjustment, and a brief
statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares
or the Preferred Shares a copy of such certificate and (c) mail a
brief summary thereof to each holder of a Right Certificate (or, if
prior to the Distribution Date, to each holder of a Certificate
representing Common Shares) in accordance with Section 25 hereof.
Section 13. Consolidation. Merger or Sale or Transfer
of Assets or Earning Power. In the event that at any time on or after
the Distribution Date, directly or indirectly, (a) the Company shall
consolidate with, or merge with and into, any other Person other than
a Subsidiary of the Company, (b) any Person other than a Subsidiary
of the Company shall consolidate with the Company, or merge with and
into the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all
or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or
cash or any other property, or (c) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or earning
power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person
other than the Company or one or more of its wholly-owned
Subsidiaries (any such event described in clauses (a), (b) or (c)
being referred to herein as a "Flip-Over Event"), then, and in each
such case, proper provision shall be made so that (i) each holder of
a Right (except as otherwise provided herein) shall thereafter have
the right to receive, upon the exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-
hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in
lieu of Preferred Shares, such number of Common Shares of such other
Person (including the Company as successor thereto or as the
surviving corporation) as shall equal the result obtained by (A)
multiplying the then current Purchase Price by the number of one one-
hundredths of a Preferred Share for which a Right is then exercisable
and dividing that product by (B) 50% of the then current per share
market price of the Common Shares of such other Person (determined
pursuant to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; (ii) the issuer of such
Common Shares shall thereafter be liable for, and shall assume, by
virtue of such consolidation, merger, sale or transfer. all the
obligations and duties of the Company pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to such
issuer; and (iv) such issuer shall take such steps (including, but
not limited to, the reservation of a sufficient number of its Common
Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in
relation to the Common Shares thereafter deliverable upon the
exercise of the Rights. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the
Company and such issuer shall have executed and delivered to the
<PAGE>
Rights Agent a supplemental agreement so providing. The Company shall
not enter into any transaction of the kind referred to in this
Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such
transaction, would eliminate or substantially diminish the benefits
intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14 Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue
fractions of Rights or to distribute Right Certificates which
evidence fractional Rights. In lieu of such fractional Rights, there
shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current
market value of a whole Right. For the purposes of this Section
14(a), the current market value of a whole Right shall be the closing
price of the Rights for the Trading Day immediately prior to the date
on which such fractional Rights would have been otherwise issuable.
The closing price for any day shall be the last sale price, regular
way. or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the Rights are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the principal national securities
exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use or, if
on any such date the Rights are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by
the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the
Rights on such date as determined in good faith by the Board of
Directors of the Company shall be used.
(b) The Company shall not be required to issue
fractions of Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share) upon
exercise of the Rights or to distribute certificates which evidence
fractional Preferred Shares (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may. at the election of the Company, be evidenced by
depositary receipts, pursuant to an appropriate agreement between the
Company and a depositary selected by it; provided, that such
agreement shall provide that the holders of such depositary receipts
shall have all the rights, privileges and preferences to which they
are entitled as beneficial owners of the Preferred Shares represented
by such depositary receipts. In lieu of fractional Preferred Shares
<PAGE>
that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market
value of one Preferred Share. For the purposes of this Section 14(b),
the current market value of a Preferred Share shall be the closing
price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(ii) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of Common Shares
upon exercise of the Rights or to distribute certificates which
evidence fractional Common Shares. In lieu of fractional Common
Shares the Company may pay to the registered holders of Right
Certificates at the time such Rights are exercised as herein provided
an amount in cash equal to the same fraction of the current market
value of one Common Share. For purposes of this Section 14(c), the
current market value of one Common Share shall be the closing price
of one Common Share (as determined pursuant to the second sentence of
Section 11(d)(i) hereof) for the Trading Day immediately prior to the
date of such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any
fractional shares upon exercise of a Right (except as provided
above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights
Agent under Section 18 hereof, are vested in the respective
registered holders of the Right Certificates (and, prior to the
Distribution Date, the registered holders of the Common Shares); and
any registered holder of any Right Certificate (or, prior to the
Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or,
prior to the Distribution Date, of the Common Shares), may, in his
own behalf and for his own benefit. enforce, and may institute and
maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of. his right to exercise the
Rights evidenced by such Right Certificate in the manner provided in
such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have
an adequate remedy at law for any breach of this Agreement and will
be entitled to specific performance of the obligations hereunder, and
injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right,
by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common
Shares;
<PAGE>
(b) after the Distribution Date, the Right Certificates
are transferable only on the registry books of the Rights Agent if
surrendered at the principal office of the Rights Agent, duly
endorsed or accompanied by a proper instrument of transfer and with
the appropriate forms and certificates fully executed;
(c) the Company and the Rights Agent may deem and treat
the person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Shares certificate made
by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent
shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or other person as a result of its
inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission or
any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligations; provided, however, the
Company must use reasonable efforts to have any such order, decree or
ruling lifted or otherwise overturned as soon as possible.
Section 17. Right Certificate Holder Not Deemed a
Shareholder. No holder, as such, of any Right Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose the
holder of the Preferred Shares or any other securities of the Company
which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon
any matter submitted to shareholders at any meeting thereof, or to
give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting shareholders (except as
provided in Section 25 hereof), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights
evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning, the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to
indemnity the Rights Agent for, and to hold it harmless against, any
loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done
or omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
<PAGE>
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted
by it in connection with, its administration of this Agreement in
reliance upon any Right Certificate or certificate for the Preferred
Shares or Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or
acknowledged, by the proper person or persons, or otherwise upon the
advice of counsel as set forth in section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any corporation succeeding to the stock transfer
or corporate trust powers of the Rights Agent or any successor Rights
Agent, shall he the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto; provided that such
corporation would be eligible for appointment as a successor Rights
Agent under the provisions of Section 21 hereof. In case, at the time
such successor Rights Agent shall succeed to the agency created by
this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Right Certificates
either in the name of the predecessor Rights Agent or In the name of
the successor Rights Agent; and in all such uses such Right
Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall
be changed and at such time any of the Right Certificates shall have
been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Right Certificates
so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in
its changed name; and in all such cases such Right Certificates shall
have the full force provided in the Right Certificates and in this
Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon
the following terms and conditions, by all of which the Company and
the holders of Right Certificates, by their acceptance thereof, shall
be bound:
<PAGE>
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to
the Rights Agent as to any action taken or omitted by it in good
faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Treasurer
or the Secretary of the Company and delivered to the Rights Agent and
such certificate shall be full authorization to the Rights Agent for
any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the
Company and any other Person only for its own negligence, bad faith
or willful misconduct,
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its countersignature
thereof) or be required to verify the same, but all such statements
and recitals are and shall be deemed to have been made by the Company
only.
(e) The Rights Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent)
or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible
for any breach by the Company of any covenant or condition contained
in this Agreement or in any Right Certificate; nor shall it be
responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii)(B)
hereof) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Section 3, 11. 13,
23 or 24, or the ascertaining of the existence of facts that would
require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by
any act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any Preferred Shares to be
issued pursuant to this Agreement or any Right Certificate or as to
whether any Preferred Shares will, when issued, be validly authorized
and issued, fully paid and nonassessable,
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent
of the provisions of this Agreement.
<PAGE>
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary
or the Treasurer of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in
acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal
in any of the Rights or other securities of the Company or
become pecuniarily interested in any transaction in which the Company
may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent
from acting in any other capacity for the Company or for any other
legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the
Rights Agent shall not be answerable or accountable for any act.
default, neglect or misconduct of any such attorneys or agents or for
any loss to the Company resulting from any such act, default, neglect
or misconduct, provided reasonable care was exercised in the
selection and continued employment thereof.
Section 21. Change of Rights Agent. the Rights Agent or any
successor Rights Agent may resign and be discharged from its duties
under this Agreement upon 30 days' notice in writing mailed to the
Company and to each transfer agent of the Common Shares or Preferred
Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail The Company may remove the
Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders
of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent If
the Company shall fail to make such appointment within a period of 30
days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of
the United States or of the State of Texas (or of any other state of
the United States so long as such corporation is authorized to do
business as a banking institution in the State of Texas in good
standing), having an office in the State of Texas, which is
authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to supervision or examination by
<PAGE>
federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent
without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment, the Company
shall file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Shares or Preferred
Shares, and mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new
Right Certificates evidencing Rights in such form as may be approved
by its Board of Directors to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made
in accordance with the provisions of this Agreement
Section 23 Redemption.
(a) The Board of Directors of the Company may at its
option, at any time prior to the close of business on the seventh day
following a Shares Acquisition Date, redeem all but not less than all
the then outstanding Rights at a redemption price of $.01 per Right,
appropriately adjusted to reflect any stock spilt, stock dividend or
similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights by the Board of
Directors may be made effective at such time. on such basis
and with such conditions as the Board of Directors in its sole
discretion may establish. Notwithstanding anything in this Agreement
to the contrary, the Rights shall not be exercisable after the
occurrence of a Flip-In Event until such time as the Company's right
of redemption hereunder has expired.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights
pursuant to paragraph (a) of this Section 23. and without any further
action and without any notice, the right to exercise the Rights will
terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price, The Company shall promptly
give public notice of any such redemption, provided however that the
failure to give, or any defect in, any such notice shall not affect
the validity of such redemption. Within 10 days after such action of
the Board of Directors ordering the redemption of the Rights, the
Company shall mail a notice of redemption to all the holders of the
then outstanding Rights at their last addresses as they appear upon
<PAGE>
the registry books of the Rights Agent or, prior to the Distribution
Date, on the registry books of the transfer agent for the Common
Shares. Any notice which is mailed in the manner herein provided
shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof,
and other than in connection with the purchase of Common Shares prior
to the Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its
option, at any time after any Person becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the
provisions of Section 11(a)(ii)(B) hereof) for Common Shares at an
exchange ratio of one Common Share per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect
such exchange at any time after any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the
Company or any such Subsidiary, or any entity holding Common Shares
for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial
Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant
to paragraph (a) of this Section 24 and without any further action
and without any notice, the right to exercise such Rights shall
terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Common Shares equal to the number
of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange;
provided, however that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company
promptly shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of exchange will state
the method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be
effected pro rata based on the number of Rights (other than Rights
which have become void pursuant to the provisions of Section
1l(a)(ii)(B) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24. the
Company, at its option, may substitute Preferred Shares (or
equivalent preferred shares, as such term is defined in Section 11(b)
hereof) for Common Shares exchangeable for Rights, at the initial
rate of one one-hundredth of a Preferred Share (or equivalent
<PAGE>
preferred share) for each Common Share, as appropriately adjusted to
reflect adjustments in the voting rights of the Preferred Shares
pursuant to the terms thereof, so that the fraction of a Preferred
Share delivered in lieu of each Common Share shall have the same
voting rights as one Common Share.
(d) In the event that the number of Common or Preferred
Shares which are authorized by the Company's Articles of
Incorporation but not outstanding or reserved for issuance for
purposes other than upon exercise of the Rights are not sufficient to
permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company may, at its option, take all such action as
may be necessary to authorize additional Common or Preferred Shares.
(e) The Company shall not be required to issue
fractions of Common Shares or to distribute certificates which
evidence fractional Common Shares. In lieu of such fractional Common
Shares, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of
the current market value of a whole Common Share. For the purposes of
this paragraph (e), the current market value of a whole Common Share
shall be the closing price of a Common Share (as determined pursuant
to the second sentence of Section l1(d)(i) hereof) for the Trading
Day immediately prior to the date of exchange pursuant to this
Section 24, which date shall be fixed by or in the manner determined
by the Board of Directors of the Company.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any
dividend payable in stock of any class to the holders of its
Preferred Shares or to make any other distribution to the holders of
its Preferred Shares (other than a regular quarterly cash dividend),
(ii) to offer to the holders of its Preferred Shares rights or
warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any
consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to
declare or pay any dividend on the Common Shares payable in Common
Shares or to effect a subdivision, combination or consolidation of
the Common Shares (by reclassification or otherwise than by payment
of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, In accordance with
Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend or
distribution of rights or warrants. or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or
Preferred Shares, if any such date is to be fixed, and such notice
<PAGE>
shall be so given in the case of any action covered by clause (i) or
(ii) above at least 10 days prior to the record date for determining
holders of the Preferred Shares for purposes of such action, and in
the case of any such other action, at least 10 days prior to the date
of the taking of such proposed action or the date of participation
therein by the holders of the Common Shares and/or Preferred Shares,
whichever shall be the earlier.
(b) In case a Flip-In Event shall occur, then the
Company shall as soon as practicable thereafter give to each holder
of a Right Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe
such event and the consequences of such event to holders of Rights
under Section 1l(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by
this Agreement to be given or made by the Rights Agent or by the
holder of any Right Certificate to or on the Company shall be
sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, Texas 75038
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any
notice or demand authorized by this Agreement to be given or made by
the Company or by the holder of any Right Certificate to or on the
Rights Agent shall be sufficiently given or made if sent by first-
class mail, postage prepaid. addressed (until another address is
filed in writing with the Company) as follows:
Ameritrust Company National Association
1201 Elm Street
Dallas, Texas 75270
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be
given or made by the Company or the Rights Agent to the holder of any
Right Certificate shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the
address of such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. The Company
may from time to time supplement or amend this Agreement without the
approval of any holders of Right Certificates in order to cure any
ambiguity, to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions
herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the
Company and the Rights Agent; provided, however that from and after
such time as any Person becomes an Acquiring Person, this Agreement
shall not be amended in any manner which would adversely affect the
interests of the holders of Rights. Without limiting the foregoing,
<PAGE>
the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds set
forth in Sections 1(a) and 3(a) to not less than the greater of (i)
the sum of .001% and the largest percentage of the outstanding Common
Shares then known by the Company to be beneficially owned by any
Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the
terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and
provisions of this Agreement by or for the benefit of the Company or
the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in
this Agreement shall be construed to give to any person or
corporation other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right.
remedy or claim under this Agreement; but this Agreement shall be for
the sole and exclusive benefit of the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision,
covenant or restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
Section 31. GOVERNING LAW. THIS AGREEMENT AND EACH
RIGHT CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER THE LAWS OF THE STATE OF TEXAS AND FOR ALL PURPOSES SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE
APPLICABLE TO CONTRACT TO BE MADE AND PERFORMED ENTIRELY WITHIN SUCH
STATE.
Section 32. Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall for all
purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings
of the several Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of
any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day
and year first above written.
CARRINGTON LABORATORIES, INC
Attest:
By: /s/ By: /s/
----------------------- ------------------------
Title: Executive Vice President Title: President and Chief
and Secretary Executive Officer
Name: Dennis F- Willson Name: Karl II. Meister
AMERITRUST COMPANY NATIONAL
ASSOCIATION
Attest:
By: /s/ By: /s/
Title: Vice President Title: Vice President
Name: Jill Wessel Name: Mark Asbury
<PAGE>
Exhibit A
STATEMENT OF RESOLUTION
ESTABLISHING AND DESIGNATING
SERIES D PREFERRED STOCK
of
CARRINGTON LABORATORIES, INC.
To the Secretary of State
of the State of Texas:
Pursuant to the provisions of Article 2.13 of the Texas
Business Corporation Act, and pursuant to Article Four of its
Articles of Incorporation, the undersigned, Carrington
Laboratories, Inc., a corporation organized and existing under
the Texas Business Corporation Act, as amended (the "Company"),
hereby submits the following statement for the purpose of
establishing and designating 300,000 shares of its Preferred
Stock, par value $100 per share, as "Series D Preferred Stock"
(the Series D Shares) and fixing and determining the relative
rights thereof:
1. The name of the corporation is
Carrington Laboratories. Inc.
2, Attached hereto as Annex I is a true and correct copy
of the resolution establishing and designating the
Series 1) Shares and fixing and determining the
relative rights and preferences thereof,
3. Such resolution was duly adopted by the Board of
Directors of the Company on September 19, 1991,
Dated: September 19. 1991.
CARRINGTON LABORATORIES, INC.
By:________________
Dennis F. Willson,
Executive Vice President
and Secretary
<PAGE>
Annex I
RESOLUTION OF THE BOARD OF DIRECTORS
OF CARRINGTON LABORATORIES, INC.
RESOLVED, that pursuant to the authority vested in the
Board of Directors of the Company in accordance with provisions
of its Articles of Incorporation, (a) the Board of Directors
does hereby create, authorize and provide for the issuance, upon
the exercise of the Rights, of a series Of Preferred Stock of
the Company to be designated "Series D Preferred Stock"
(hereinafter referred to as the Series I) "Preferred Stock"),
initially consisting of 300,000 shares, and (b) the Board of
Directors does also hereby (to the extent that the designations,
preferences, limitations and relative rights (collectively, the
"Terms") of the Series I) Preferred Stock are not stated and
expressed in the Articles of Incorporation and to the extent
that if such Terms are stated or expressed in the Articles of
Incorporation but the Articles of Incorporation permit the Board
of Directors to otherwise fix and state such Terms) fix and
state such designations, preferences, limitations and relative
rights thereof, as follows:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series I) Preferred Stock", par
value $100 per share (the "Series D Preferred Stock"), and the
number of shares constituting the Series I) Preferred Stock
shall be 300,000. Notwithstanding the provisions of Section 9
hereof, such number of shares may be increased or decreased by
resolution of the Board of Directors; provided that no decrease
shall reduce the number of shares of Series D Preferred Stock to
a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Company convertible
into Series D Preferred Stock
Section 2. Dividends, Subject to the prior and superior
fights of the holders of any shares of any series of Preferred
Stock ranking prior and superior to the shares of Series D
Preferred Stock with respect to dividends, the holders of Series
D Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally
available therefor, dividends payable in ash, stock or
otherwise.
<PAGE>
Section 3. Voting Rights The holders of shares of Series I)
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series D Preferred
Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the shareholders of the
Company- In the event the Company shall at any time declare
or pay any dividend on the Common Stock payable in shares
of Common Stock, or erect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of
Series D Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by
a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to
such event
(B) Except as otherwise provided herein, in any other
Statement of Resolution creating a series of Preferred
Stock or any similar stock, or by law, the holders of
shares of Series b Preferred Stock and the holders of
shares of Common Stock and any other capital stock of
theCompany having general voting rights shall vote together
as one class on all matters submitted to a vote of
shareholders of the Company.
(C) Except as set forth herein, or as otherwise
provided by law, holders of Series D Preferred Stock shall
have no special voting rights, and their consent shall not
be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Reacquired Shares. Any shares of Series D
Preferred Stock purchased or otherwise acquired by the Company
in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as pan of a new series of Preferred
Stock subject. to the conditions and restrictions on issuance
set forth herein, in the Articles of Incorporation, or in any
other Statement of Resolution creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
<PAGE>
Section 5. Liquidation. Dissolution or Winding Up Upon any
liquidation, dissolution or winding up of the Company, no
distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding tip) to the Series I) Preferred Stock
unless, prior thereto, the holders of shares of Series fl
Preferred Stock shall have received $100 per share. provided
that the holders of shares of Series I) Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (2) to the holders of
shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the series I)
Preferred Stock, except distributions made ratably on the Series
D Preferred Stock and all such parity stock in proportion to the
total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In
the event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such ease the aggregate amount to which
holders of shares of Series V Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1)
of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding Immediately after such event
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event
Section 6 Consolidation. Merger, etc. In case the Company
shall enter into any consolidation. merger, combination or other
transaction in which the shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any
other property, then in any such case each share of Series P
Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the
aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In
the event the Company shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) Into a greater or lesser number of shares of Common
Stock, then in each such ease the amount set forth in the
preceding sentence with respect to the exchange or change of
shares of Series P Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior
to such event
<PAGE>
Section 7. No Redemption. The shares of Series P Preferred
Stock shall not be redeemable.
Section 8. Rank. The Series P Preferred Stock shall rank
junior to all other series of the Company's Preferred Stock as
to payment of dividends and the distribution of assets on
liquidation or otherwise, unless the terms of any such series
shall provide otherwise. The Series P Preferred Stock shall rank
senior to the Company's Common Stock as to the distribution of
assets on liquidation or otherwise.
Section 9, Amendment. The Articles of Incorporation of the
Company shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the
Series 1) Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series 1) Preferred Stock, voting together
as a single class.
Section 10. Fractional Shares. Series D Preferred Stock may
be issued in fractions of a share which shall entitle the holder
thereof, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in
distributions and have the benefit of all of the rights of
holders of shares of Series D Preferred Stock.
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. R- ____ Rights
NOT EXERCISABLE AFTER OCTOBER 15, 2001 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
CARRINGTON LABORATORIES, INC.
Right Certificate
This certifies that ______________ , or registered assigns,
is the registered owner of the number of Rights set forth above,
each of which entitles the owner thereof, subject to the terms.
provisions and conditions of the Rights Agreement, dated as of
September 19, 1991 (the "Rights Agreement"), between Carrington
Laboratories, Inc., a Texas corporation (the "Company"), and
Ameritrust Company National Association (the "Rights Agent"), to
purchase from the Company at any time after the Distribution
Date (as such term is defined in the Rights Agreement) and prior
to S:00 P.M., Dallas, Texas time, on October 15, 2001 at the
principal office or offices of the Rights Agent designated for
such purpose, or at the designated office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable
share of Series D Preferred Stock, par value $100 per share (the
"Preferred Shares"), of the Company, at a purchase price of $80
per one one-hundredth of a Preferred Share (the Purchase Price),
upon presentation and surrender of this Right Certificate with
the Form of Election to Purchase duly executed. The number of
Rights evidenced by this Right Certificate (and the number of
one one-hundredths of a Preferred Share which may be purchased
upon exercise hereof), and the Purchase Price set forth above,
are the number and Purchase Price as of ___________. based on
the Preferred Shares as constituted at such date. As provided in
the Rights Agreement, the Purchase Price and the number of one
one-hundredths of a Preferred Share which may be purchased upon
the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms,
provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement
reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of
the Right Certificates. Copies of the Rights Agreement are on
file at the principal executive offices of the Company and the
above-mentioned offices of the Rights Agent,
<PAGE>
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office or office
of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Shares as the
Rights evidenced by the Right Certificate or Right Certificates
surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in pan, the holder shall be
entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Rights Agreement, the
Rights evidenced by this Certificate (0 may be redeemed by the
Company at a redemption price of 3,01 per Right or (ii) may be
exchanged in whole or in pan for Preferred Shares or shares of
the Company/s Common Stock, par value 50.01 per share.
No fractional Preferred Shares will be issued upon The
exercise of any Right or Rights evidenced hereby (other than
fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement
No holder of this Right Certificate shall be entitled to
vote or receive dividends or be deemed for any purpose the
holder of the Preferred Shares or of any other securities of the
Company which may at any time he issuable on the exercise hereof
nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of
the rights of a shareholder of the Company or any right to vote
for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold
consent to any Corporate action, or to receive notice Of
meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as
provided in the Rights Agreement
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights
Agent,
<PAGE>
WITNESS the facsimile signature of the proper officers of
the Company and its corporate seal.
Dated as of ______________
Attest: CARRINGTON LABORATORIES. INC.
___________________________ By:__________________________
Name: _____________________ Name: _______________________
Title: ____________________ Title:_______________________
Countersigned:
AMERITRUST COMPANY NATIONAL ASSOCIATION
By: ______________________
Name:__________________
Title:_________________
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer Rights evidenced by this Right Certificate.)
FOR VALUE RECEIVED _________________ hereby sells, assigns and
transfers unto _____________________________________________________
(Please print name and address of transferee)
____________________________________________________________________
_____________________________ of the Rights evidenced by this Right
Certificate, together with all right title and interest therein, and
does hereby irrevocably constitute and appoint ___________________
Attorney, to transfer such Rights on the books of the within-named
Company, with full power of substitution.
Dated: _________________
_________________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having
an office or correspondent in the United States.
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement).
_________________________________________
Signature
<PAGE>
[Form of Reverse Side of Right Certificate -- continued]
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Right Certificate.)
To CARRINGTON LABORATORIES, INC.
The undersigned hereby irrevocably elects to exercise
__________________________ Rights represented by this Right
Certificate to purchase the Preferred Shares issuable upon the
exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
Please insert social security
or other indentifying number
_______________________________________________________________
(Please print name and address)
_______________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Right Certificate, a new Right Certificate for the
balance remaining of such Rights shall be registered in the name
of and delivered to:
Please insert social security
or other identifying number
_______________________________________________________________
(Please print name and address)
_______________________________________________________________
Dated: ________________
______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a
registered national securities exchange, a member of the
National Association of Securities Dealers. Inc., or a
commercial bank or trust company having an office or
correspondent in the United States.
_______________________________________________________________
The undersigned hereby certifies that the Rights evidenced
by this Right Certificate are not beneficially owned by an
Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
______________________________________
Signature
_______________________________________________________________
<PAGE>
[Form of Reverse Side of Right Certificate -- continued]
NOTICE
The signature in the Form of Assignment or Form of Election
to Purchase, as the case may be, must conform to the name as
written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form
of Assignment or the Form of Election to Purchase, as the case
may be, is not completed, the Company and the Rights Agent will
deem the beneficial owner of the Rights evidenced by this Right
Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On September 19, 1991, the Board of Directors of Carrington
Laboratories, Inc. (the "Company") declared a dividend of one
preferred share purchase right (a "Right") for each outstanding
share of common stock, par value $0.01 per share (the "Common
Shares"), of the Company. the dividend is payable on October 15,
1991 (the "Record Date") to the shareholders of record on that
date. Each Right entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series D Preferred
Stock, par value $100 per share (the "Preferred Shares"), of the
Company at a price of $80 per one one-hundredth of a Preferred
Share (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and
Ameritrust Company National Association; as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) 10 days following a
public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired
beneficial ownership of 20% or more of the outstanding Common
Shares or (ii) 10 business days (or such later date as may be
determined by action of the hoard of Directors prior to such
time as any person or group of affiliated persons becomes all
Acquiring Person) following the commencement of. or announcement
of an intention to make. * tender offer or exchange offer the
consummation of which would result in the beneficial ownership
by a person or group of 20% or more of the outstanding Common
Shares (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced, with respect to any of the
Common Share certificates outstanding as of the Record Date, by
such Common Share certificate.
The Rights Agreement provides that, until the Distribution
Date (or earlier redemption or expiration of the Rights), the
Rights will be transferred with and only with the Common Shares.
Until the Distribution Date (or earlier redemption or expiration
of the Rights), new Common Share certificates issued after the
Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption Or
expiration of the Rights), the surrender for transfer of any
certificates for Common Shares outstanding as of the Record
Date, even without such notation, will also constitute the
transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of
business on the Distribution bate, and such separate Right
Certificates alone will evidence the Rights.
<PAGE>
The Rights are not exercisable until the Distribution Date.
The Rights will expire On October 15, 2001 (the "Final
Expiration Date"), unless the Final Expiration Date is extended
or unless the Rights are earlier redeemed or exchanged by the
Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred
Shares or other securities or property issuable, upon exercise
of the Rights are subject to adjustment from time to time to
prevent dilution (I) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares
of certain rights or warrants to subscribe for or purchase
Preferred Shares at a price, or securities convertible into
Preferred Shares with a conversion price, less than the then-
current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash
dividends paid out of earnings or retained earnings or dividends
payable in Preferred Shares) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-
hundredths of a Preferred Share issuable upon exercise of each
Right are also subject to adjustment in the event of a stock
split of the Common Shares or a stock dividend on the Common
Shares payable in Common Shares or subdivisions, consolidations
or combinations of the Common Shares occurring, in any such
case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights
will not be redeemable. Each Preferred Share will be entitled to
receive a dividend payable in cash, stock or otherwise when, as
and if declared by the Board of Directors. In the event of
liquidation, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $100
per share but will be entitled to an aggregate payment of 100
times the payment made per Common Share. each Preferred Share
Will have 100 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation Or other
transaction in which Common Shares are exchanged, each Preferred
Share will be entitled to receive 100 times. the amount received
per Common Share, These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of one one-hundredth
interest in a Preferred Share purchasable upon exercise of each
Right should approximate the value of one Common Share.
<PAGE>
In the event that the Company is acquired in a merger or
other business combination transaction or 50% or more of its
consolidated assets or earning power are sold (a "Flip-Over
Event"), proper provision will be made so that each holder of a
Right will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market
value of two times the exercise price of the Right. In the event
that any person or group of affiliated or associated persons
becomes an Acquiring Person other than pursuant to a Flip-Over
Event, proper provision shall be made so that each holder of a
Right, other than Rights beneficially owned by the Acquiring
Person (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of Common Shares (or,
in certain circumstances, cash, property or other securities of
the Company) having a market value of two times, the exercise
price of the Right.
At any time after any Person becomes an Acquiring Person
and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Shares, the hoard or Directors of
the Company may exchange the Rights (other than Rights owned by
such person or group which will have become void). in whole or
in part, at an exchange ratio of one Common Share, or one one-
hundredth of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent
rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase
Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. No fractional
Preferred Shares will be issued (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share,
which may, at the election of the Company, be evidenced by
depositary receipts) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares
on the last trading day prior to the date of exercise.
At any time prior to the dose of business on the Seventh
day following the first date of public announcement that a
person or group became an Acquiring Person, the Board of
Directors of the Company may redeem the Rights in whole, but not
in part, at a price of $0.01 per Right (the "Redemption Print).
The redemption of the Rights may be made effective at such time,
on such basis and with such conditions as the Board of Directors
in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will
terminate, and the only right of the holders of Rights will be
to receive the Redemption Price.
<PAGE>
The terms of the Rights may be amended by the Board of
Directors of the Company without the consent of the holders of
the Rights, including an amendment to tower certain thresholds
described above to not less than the greater of (i) the sum of
.001% and the largest percentage of the outstanding Common
Shares then known to the Company to be beneficially owned by any
person or group of affiliated or associated persons and (ii)
10%, except that from and after such time as any person or group
of affiliated or associated persons becomes an Acquiring Person
no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such,
will have no rights as a shareholder of the Company, including,
without limitation, the right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a
Registration Statement on Form 8-A. dated September ___, 1991. A
copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, which is hereby incorporated
herein by reference.
Exhibit 10.3
CONTRACT RESEARCH AGREEMENT
This AGREEMENT made and entered into this 8th day of August, 1991, by
and between CARRINGTON LABORATORIES, INC., a corporation organized and
existing under the laws of the State of Texas (hereinafter referred to
as "CARRINGTON"), and the TEXAS AGRICULTURE EXPERIMENTAL STATION
(hereinafter referred to as "TAES"), an agency of the State of Texas,
acting hereunder as agent for the Texas A&M University System
(hereinafter referred to as "TAMUS"),
WITNESSETH:
WHEREAS, CARRINGTON is engaged in pharmaceutical research and wishes to
enter into a long-term relationship with TAES to conduct a Research
Program (as hereinafter defined); and
WHEREAS, TAES is willing and able and has the facilities to assist
CARRINGTON with this Research Program:
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I: SCOPE
1.1 RESEARCH PROGRAM: The purpose of this AGREEMENT is to conduct the
research program set out in Appendix A (the "Research Program").
1.2 ANNUAL BUDGETS: The Research Program shall be divided into annual
budgets which shall define in detail the work to be performed under
the Research Program during that year, the specific milestones for
such work and the amounts authorized to be spent (hereinafter
referred to as the "Annual Budgets") and which shall be defined
and agreed upon by the parties each year while this AGREEMENT
remains in effect. The Annual Budgets shall run from December 1 of
each year through November 30 of the immediately following year,
corresponding to CARRINGTON's fiscal year, and shall be finalized
and agreed upon by the parties each October during the term of
this AGREEMENT. Once agreed, each such Annual Budget shall become
a part of this AGREEMENT as Appendix B.
1.3 BEST EFFORTS: TAES agrees to use its best efforts to achieve the
objectives of the Research Program in accordance with the Annual
Budgets agreed to by the parties.
ARTICLE II: TERM
The term of this AGREEMENT shall begin July 1, 1991 and shall end on
November 30, 1996, unless sooner terminated in accordance with the
provisions of Article XII below. During the period from July 1, 1991
through November 30, 1991 the parties shall collaborate on the
preparation of the first Annual Budget for the performance of the
Research Program.
<PAGE>
ARTICLE III: CONSIDERATION AND PAYMENT
PAYMENT FOR WORK: In consideration for TAES' performance of the
Research Program, CARRINGTON shall pay TAES an amount agreed upon
annually in connection with the negotiation of the Annual Budget.
Notwithstanding this negotiation, the parties agree that the amount
established under each Annual Budget shall not be less than $200,000,
which is the minimum required for TAES to maintain a team of
researchers dedicated to the Research Program.
ARTICLE IV: PROJECT DIRECTION
4.1 SCIENTIFIC DIRECTION: TAES' performance of the Research Program
shall be under the direction of an individual selected by
CARRINGTON and agreed upon by TAES as Principal Investigator. Such
individual shall be and shall remain an employee of TAES. The
Principal Investigator shall serve at the discretion of both
parties and shall exercise technical direction over the Research
Program within the scope of each Annual Budget.
4.2 ADMINISTRATIVE DIRECTION: All matters affecting the administration
of this AGREEMENT or the interpretation hereof shall be referred
to an individual selected by CARRINGTON and agreed upon by TAES
as Contract Administrator. The Contract Administrator shall serve
at the discretion of both parties and shall have authority to
make changes in the scope of work, period of performance and
report requirements for the Research Program, within the limits
of each Annual Budget. Notwithstanding his broad authority under
this Section 4.2, nothing herein shall be construed to permit the
Contract Administrator unilaterally to amend or modify any of the
terms of this AGREEMENT or to exceed the spending limits
established under an Annual Budget.
4.3 KEY INVESTIGATORS: The parties agree that the work of Ian Tizard,
D.V.M., Ph.D., David Busbee, Ph.D. and Gerald Bratton, D.V.M.,
Ph.D. is crucial to the performance of the Research Program. The
parties agree that CARRINGTON shall have the right to terminate
this AGREEMENT upon 90 days' notice if at any time any of these
individuals ceases to be connected with TAES as an employee.
ARTICLE V: REPORTS
5.1 FREQUENCY OF REPORTS: TAES shall provide to CARRINGTON:
a) interim reports as defined in the Annual Budgets;
b) Any reports or memoranda pertaining to TAES' internal
progress any time requested CARRINGTON;
c) Copies of all research notebook pages or their equivalent
("Notebook") while the Research Program is in progress at
any time requested by CARRINGTON; and
d) A final report within 30 days of the completion of the
Research Program.
<PAGE>
5.2 PROCEDURE FOR REPORTING: All TAES personnel working on the
Research Program shall deliver all reports, memoranda or Notebook
pages required under Section 5.1 above to the Principal
Investigator. The Principal Investigator shall copy the materials
and transmit them on a timely basis to CARRINGTON. The Principal
Investigator is the only person authorized to copy any material
provided by CARRINGTON or any material generated by TAES in
connection with the Research Program.
ARTICLE VI: INDEPENDENT CONTRACTOR
In the performance of its work hereunder, TAES is acting as an
independent contractor and not as a partner, agent or employee of
CARRINGTON.
ARTICLE VII: PUBLICATION
7.1 RIGHT TO PUBLISH: Subject to the provisions of this Article VII,
TAES shall have the right to publish results obtained under the
Research Program.
7.2 PROCEDURE: Not less than 30 days prior to submission for
publication, TAES shall provide CARRINGTON a copy of any paper it
proposes to publish. CARRINGTON shall have the right to require
TAES to delay submission for an additional period of up to 120
days from the time TAES requests publication order for CARRINGTON
to secure patent or other intellectual property rights arising
from or described in the paper. In addition CARRINGT0N shall have
the right to prevent such publication where CARRINGTON claims in
good faith that the publication would compromise its ability to
maintain these results as a trade secret.
7.3 OTHER MATTERS: TAES agrees to give good faith consideration to
any comments or suggestions offered by CARRINGTON in regard to
any paper proposed for publication, In the event TAES decides not
to publish any results obtained under the Research Program,
CARRINGTON shall have the right to publish them. TAES' failure to
submit such results for publication within one year following
completion of the study in question shall he deemed conclusive
evidence of its decision not to publish under this Section 1.3.
ARTICLE VIII: INTELLECTUAL PROPERTY RIGHTS
All data, inventions, discoveries, trademarks, copyrights, patent
rights and other intellectual property rights (the "Intellectual
Property") arising under the Research Program, shall be the
property of TAMUS. TAES hereby agrees to have each of its
employees who work on the Research Program execute an Employee
Confidentiality and Invention Agreement substantially in the form
set out in Appendix C. CARRINGTON shall have the exclusive right
to use such Intellectual Property, and in those cases where such
Intellectual Property is perfected by the grant of an enforceable
patent, shall pay TAES a reasonable royalty to he negotiated
between the parties based upon the following factors:
<PAGE>
i) The value of the intellectual Property to CARRINGTON;
ii) The relative contribution of each of the parties to the
discovery and/or development of the Intellectual
Property;
iii) The investment by CARRINGTON in the Research Program:
and
iv) Payments made by CARRINGT0N to TAES under the Research
Program.
TAES shall initiate and pay for all efforts to patent the
intellectual Property and for the defense of any patents issued.
CARRINGTON shall cooperate with such efforts and shall have the
option, at its own cost and in its own name, to pursue patents for
Intellectual Property and the defense of such patents in the event
TAES declines to act in either regard within a reasonable period
of time.
ARTICLE IX: SECURITY
Information and data supplied by CARRINGTON or generated by TAES
under the Research Program constitute valuable trade secrets whose
confidentiality TAES undertakes to protect in accordance with the
procedures established in this Article. The Principal investigator
shall assign to each TAES employee performing work on the Research
Program a Notebook or Notebooks for each separate project under
the Research Program. Each employee shall verify, in writing,
receipt of the Notebook or Notebooks. Each employee shall keep the
Notebook or Notebooks under lock and key when they are not being
utilized and shall not remove them from the premises where they
are stored without the approval of the Principal Investigator. The
Principal Investigator will make copies of the pages from the
Notebooks for CARRINGTON as provided in Article V.
ARTICLE X: CONFIDENTIAL INFORMATION
10.1 TYPES OF INFORMATION: Information used or transmitted hereunder
by the parties shall be classified as "administrative" or
"confidential" Administrative information pertains to the
organizational or day-to-day instructional aspects of the
Research Program or an Annual Budget. Confidential information
means information containing trade secrets or any information
arising out of the Research Program that generally is not
available to the public or known in the industry.
10.2 TRANSMISSION OF INFORMATION: Administrative information may be
transmitted verbally or in writing. Confidential information must
be transmitted in writing by registered or certified mail, by
courier or as otherwise directed by CARRINGTON, postage prepaid,
to the addresses of the parties set out in Article XIII,
<PAGE>
10.3 Notebooks: All data generated under the Research Program shall he
recorded in accordance with Good Laboratory Practices if required
for government regulatory approval purposes. All work performed
by TAES shall be kept in Notebooks provided by CARRINGTON.
Entries shall be made daily, in the English language, dated and
promptly corroborated, witnessed and understood by two
responsible persons. The author may be one of the witnesses. Upon
completion of the Research Program. if requested by CARRINGTON,
TAES shall deliver all original Notebooks to CARRINGTON. TAES
agrees that CARRINGTON is and shall remain the owner of all
Notebooks and the research data contained therein.
10.4 OBLIGATlON TO MAINTAIN CONFIDENTIALITY: TAES shall not at anytime
disclose confidential information to third parties or release
such information for publication without CARRINGTON's prior
consent in writing. TAES shall require all outside parties
contracted to perform work under this AGREEMENT under TAES'
supervision and who have access to confidential information to
execute a confidential disclosure agreement substantially in the
form set out in Appendix D. An executed copy of all such
agreements shall be given by TAES to CARRINGTON.
10.5 LOSS OF CONFIDENTIALITY: TAES shall not be required to maintain
the confidentiality of any information:
a) that was already in TAES' possession as evidenced by
existing documentation prior to receipt of confidential
information from CARRINGTON:
b) that appears in issued patents or printed publications
otherwise than by reason of a default by TAES or any of its
employees or contractors under this AGREEMENT or any
agreement entered into pursuant to Article VIII or Section
10.4 hereof:
c) that is or hereafter becomes generally available to the
public on a non-confidential basis through no fault of
TAES; or
d) that is disclosed to TAES by third parties having the right
to make such disclosures.
ARTICLE XI: TERMINATION
Either party may terminate this AGREEMENT at the end of the fiscal year
covered by any Annual Budget by giving notice to the other party not
less than 90 days prior to the end of the fiscal year upon which such
Annual Budget is based. Such termination shall not relieve CARRINGTON
from its obligation to pay for all services, orders, materials or
facilities committed in good faith prior to such termination, nor shall
such termination relieve TAES of its obligation to finish work to which
it committed under an Annual Budget or of its obligations and the
restrictions established in Articles V (Reports), VII (Publication),
VIII (Intellectual Property Rights), IX (Security) and, (Confidential
Information), all of which shall survive the termination of this
AGREEMENT.
<PAGE>
ARTICLE XII: NOTICE
Notices hereunder shall be deemed to have been properly given when sent
by registered or certified mail, postage prepaid and addressed to the
appropriate party at its address set forth below or such other address
as such party shall have established by written notice to the other:
If to CARRINGTON:
2001 Walnut Hill Lane
Irving, TX 75038
Attn: President
with a copy to:
1300 E. Rochelle
Irving, TX 75062
Attn: Vice President. R&D
If to TAES:
Texas Agriculture Experimental Station
P.0. Box 3578
College Station, TX 71843
ARTICLE XIII: MISCELLANEOUS
13.1 SOLE AGREEMENT: This AGREEMENT constitutes the sole agreement
between the parties with respect to the subject matter hereof and
supersedes any prior understanding, whether written or oral, with
respect thereto.
13.2 AMENDMENTS: No provision of this AGREEMENT may be modified,
waived or amended except by an instrument in writing signed by
the party against which the change is sought to be enforced. Any
such modification, waiver or amendment must be signed by the
President or by the Executive Vice President in order to bind
CARRINGTON.
13.3 NO ASSIGNABILITY: This AGREEMENT may not be assigned by either
party without the written approval of the other party.
13.4 GOVERNING LAW: This AGREEMENT shall be governed by and construed
in accordance with the laws of the State of Texas.
13.5 WAIVER: No delay or omission of CARRINGTON to exercise any right
upon the occurrence of any default hereunder shall impair any
such right or be construed as a waiver of such right or an
acquiescence to such default.
13.6 AUTHORITY: Each person signing this AGREEMENT represents that he
has full and complete authority to execute this AGREEMENT on
behalf of the organization he is representing.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this AGREEMENT in
multiple copies on the day and date first written above.
CARRINGTON LABORATORIES, INC. TEXAS AGRICULTURE EXPERIMENTAL
STATION
BY: /s/ BY: /s/
--------------- ----------------------------
KARL H. MEISIER TITLE: Robert G. Merrifield,
PRESIDENT Deputy Direct
<PAGE>
APPENDIX A
THE RESEARCH PROGRAM
The Research Program consists of research in the form of
testing, studies and publications consistent with the following
broad objectives:
1. Testing of CARRINGTON Wound and Skin Care Division
products.
2. Testing of CARRINGTON's experimental drug acemannan and
its derivatives.
3. Investigation into the mechanism of action of
polydispersed acemannan.
4. In vitro testing of the efficacy of molecular weight
fractions of polydispersed acemannan.
5. In vitro testing of the efficacy of derivatives of
molecular weight fractions of polydispersed acemannan.
6. Animal efficacy testing of molecular weight fractions
of acemannnan.
7. Animal efficacy testing of derivatives of molecular
weight fractions of acemannan.
8. Publication of papers demonstrating the superiority of
CARRINGTON products.
These general objectives shall be applied to the planning and approval
of Annual Budgets. The research Program and these objectives may not
be modified except upon the written approval of both parties.
<PAGE>
APPENDIX B
ANNUAL BUDGET
[TO BE NEGOTIATED ANNUALLY AND APPENDED
HERETO IN ACCORDANCE WITH SECTION 12]
<PAGE>
APPENDIX C
Employee's Confidentiality and Invention Agreement
This agreement is made and entered into this ___ day of ________, 19_,
by and between the Texas Agriculture Experimental Station ("TAES") and
(Name of Emp1oyee) ("you").
In consideration of your, employment or continued employment by TAES,
and of salary, wages, bonuses or other compensation to be paid by TABS
to you, we agree as follows:
As used in this agreement, the following definitions apply:
Confidential Information means information disclosed to you or known
to you as a result of your employment by TAES. where such information
is not generally known to the pharmaceutical trade or industry,
concerning products, processes, machines, services, and operations
being developed by TAES in connection with a Contract Research
Agreement (the "Contract Research Agreement") with Carrington
Laboratories, Inc. ("Carrington"). Confidential Information includes,
but is not limited to, research, development, manufacturing,
purchasing, finance, data processing, engineering, marketing,
merchandising and selling, and corresponding information about the
products, processes, machines, services and operations of Carrington,
as well as research projects, findings, or reports, business plans,
formulas, processes, methods of manufacture, sales, costs, pricing
data, new drug, cosmetic or device data and lists of suppliers and
customers.
Invention means any discovery, improvement, process, product, or
device that is (a) conceived, discovered or made by you, either alone
or with others, during or after the term of your employment with TAES;
(b) based on Confidential Information; and (c) (i) related to the
actual or anticipated business or activities of Carrington, (ii)
related to Carrington's actual or anticipated research development,
(iii) suggested by or resulting from any tasks assigned to you or work
performed by you for or on behalf of TAES in connection with the
Contract Research Agreement, or (iv) conceived, discovered or made
with the use of Carrington's facilities, materials or personnel.
1. Disclosure of Confidential Information
You acknowledge that Confidential Information is a valuable
asset of TAES and Carrington and that unauthorized disclosure or
utilization thereof could hurt their interests. Therefore, both during
and after the term of your employment by TAES, you agree not to
disclose to any person or organization, other than TAES and
Carrington, or to utilize for your benefit or profit or the benefit or
profit of any person or organization other than TAES and Carrington,
any Confidential Information, except as may be authorized in writing
by TAES.
<PAGE>
2. Ownership of Inventions
The following shall be the property of TAES exclusively:
(a) Any Invention conceived, discovered or made by you, whether
individually or with others, whether patentable or not:
(b) Any patent, patent application or record relating to any
Invention.
3. Disclosure of Inventions
You will promptly disclose to TAES and keep adequate records on
any Invention you make.
4. Obtaining and Enforcement of Patents
Without further consideration from or charge to TAES, whenever
requested to do so by TAES, you will give all testimony, execute any
applications, assignments or other instruments, and in general do all
lawful things reasonably requested of you by TAES to enable TAES to
obtain, maintain and enforce protection of any intellectual property
rights it may have in any Invention for and in the name of TAES or its
nominee in all countries of the world. These obligations shall
continue beyond the termination of your employment with TAES. TAES
will pay any necessary expenses in connection with these matters,
5. Disclaimer
You represent that you are under no obligation to any former
employer or third party which is in any way inconsistent with this
agreement or which imposes any restrictions on your activities with
TAES, except as described in any attachment to this agreement.
6. Confidential Information of Prior Emplovers
You will not disclose to TAES or induce TAES to use any secret
or confidential information or material belonging to others, including
former employers, if any. In case of doubt with respect to your
obligations towards a prior employer, you should consult with TAES'
General Counsel or designee.
7. Removal and Return of TAES Property
You shall not keep elsewhere than on TAES premises, nor remove
therefrom, any property of TAES or Carrington, except and only so long
as may be required for the performance of your duties for TAES. Upon
termination of employment with TAES, you shall turn over to a
designated individual employed by TAES all property then in your
possession or custody and belonging to TAES or Carrington. You shall
not retain any copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs. or other documents relating
in any way to the affairs of TABS or Carrington which are entrusted
to you at any time during your employment with TABS.
<PAGE>
8. Miscellaneous Provisions
(a) Any failure on the part of TAES to insist upon the
performance of this agreement, or any part thereof, will not
constitute a waiver of any right under this agreement.
(b) In the event any provision, or any portion of any provision
of this agreement should be declared invalid or unenforceable for any
reason by a court of competent jurisdiction, such provision or portion
thereof shall be considered separate and apart from the remainder of
this agreement, which shall remain in full force and effect.
(c) This Agreement shall be binding upon and inure to the
benefit of the heirs. executors, administrators, successors and
assigns of the parties.
(d) This Agreement shall be for and inure to the benefit of
Carrington Laboratories. Inc. and its successors and assigns as a
third party beneficiary.
(e) This agreement shall be governed by and construed according
to the laws of the State of Texas.
(f) A breach or default by you of the provisions of this
Agreement shall cause TAES or Carrington to suffer irreparable harm,
and in such event, TAES or Carrington shall be entitled, as a matter
of right, to a restraining order or other injunctive relief from any
court of competent jurisdiction, restraining any further violation
thereof by you, and those in active concert or participation with you.
The right to a restraining order or other injunctive relief shall be
supplemental to any other right or remedy TAES or Carrington may have,
including, without limitation, the right to recover damages for the
breach or default of any of the terms of this Agreement.
IN WITNESS WHEREOF the parties have hereunto set their hands this
________ day _________of 19__.
WITNESSES: (Your Name)
TEXAS AGRICULTURE EXPERIMENTAL
----------------- STATION
BY /s/
----------------- ---------------------------
<PAGE>
APPENDIX D
CONFIDENTIAL DISCLOSURE AGREEMENT
THIS AGREEMENT, made effective as of this __ day of ______,
199_, by and between TEXAS AGRICULTURE EXPERIMENTAL STATION, an agency
of the State of Texas with offices located in College Station, Texas
77843 (hereinafter referred to as "TAES") and [Name and address of
Contractor] ("CONTRACTOR") (TAES and CONTRACTOR being hereinafter
referred to singularly as a "PARTY" and collectively as the
"PARTIES"),
WITNESSETH:
WHEREAS, TAES is performing work under a Contract Research
Agreement with Carrington Laboratories, Inc. for the development of
proprietary technology, know-how, data, info1 'nation and patents
regarding a novel immune response modifier known under the generic
name acemannan (hereinafter referred to as the "COMPOUND") and
regarding a line of wound and skin care products (hereinafter referred
to as the "PRODUCTS"), which technology, know-how, data, information
and parents are hereinafter collectively referred to as the
"INFORMATION";
WHEREAS, CONTRACTOR desires to receive INFORMATION and tangible
objects embodying said INFORMATION (said tangible objects
collectively referred to hereafter as 'MATERIAL') in order to
perform work for TAES in regard to the COMPOUND and/or the PRODUCTS;
and
WHEREAS, TAES has the right and is willing to provide CONTRACTOR
with the INFORMATION and the MATERLAL as may be necessary to permit
CONTRACTOR to perform such work;
NOW THEREFORE, in consideration of the covenants and conditions
set forth below, TAES and COTRACTOR do hereby agree as follows:
1. TAES will provide CONTRACTOR with the INFORMATION and
MATERIAL in order for CONTRACTOR to Perform its work.
2. CONTRACTOR shall hold in confidence the INFORMATION and
MATERIAL provided to it by TAES under this AGREEMENT. This obligation
shall continue in full force and effect unless (and only to the
extent) waived by TAES in writing.
3. CONTRACTOR shall not use the INFORMATION or MATERIAL which it
is required to hold in confidence hereunder for any purpose other than
performing work for TAES.
4. CONTRACTOR agrees to limit disclosure of the INFORMATION
and MATERIAL received from TAES hereunder to only those of its
employees whom it' considers necessary to perform its work for TAES
and then only after such employees have undertaken to comply with the
terms of this AGREEMENT in a written statement signed by each
employee. CONTRACIOR also agrees to take reasonable precautions to
avoid unauthorized disclosure or use of the INFORMATION and MATERIALS
by third parties.
<PAGE>
5. CONTRACTOR represents that it has no obligations or
commitments inconsistent with this AGREEMENT.
6. This AGREEMENT shall be binding upon and inure to the
benefit of the permitted successors and assigns of the PARTIES hereto,
but neither PARTY shall assign this AGREEMENT without the prior
written consent of the other PARTY.
7. This AGREEMENT may be terminated by either PARTY upon
thirty (30) days advance written notice to the other PARTY, at their
respective addresses as written above, except that the provisions of
Paragraphs 2, 3 and 4 above shall survive for a period of five (5)
years from the date of termination. Upon termination CONTRACTOR within
thirty (30) days shall confirm to TAES in writing that all MATERIAL
have been returned to TAES.
8. CONTRACTOR shall promptly rerun] remaining tangible forms
of INFORMATION and MATERIAL supplied by TAES pursuant to this
AGREEMENT upon termination of this AGREEMENT,
9. It is understood by both PARTIES that of this AGREEMENT
does not constitute a license to use the INFORMATION Or MATERIAL other
than as specified herein.
10. It is understood by both PARTIES that the confidentiality
obligations under Paragraphs 2, 3 and 4 above shall not apply to
INFORMATION or MATERIAL disclosed to CONTRACTOR hereunder:
(a) where use, publication or disclosure by CONTRACTOR of
any INFORMATION or MATERIAL is permitted under terms of a
written contract between TAES and CONTRACTOR;
(b) where the INFORMATION or MATERIAL was known or used by
CONTRACTOR prior to the disclosure by TAES, as evidenced by a
written or printed document;
(c) where the INFORMATION or MATERIAL was known to the
public or generally available to the public prior to the date it
was received by CONTRACTOR:
(d) where the INFORMATION or MATERIAL became known to the
public or generally available to the public, subsequent to the
date it was received by CONTRACTOR, without CONTRACTOR being
responsible therefor; or
(e) where the INFORMATION or MATERIAL is lawfully disclosed
to CONTRACTOR by a third party not deriving the same from TAES.
Exceptions (d) and (e) above shall apply only from and after the
date such INFORMATION or MATERIAL shall become known or generally
available to the public or shall be received from said third party
respectively.
Specific INFORMATION or MATERIAL shall not be deemed to be
within the exceptions (a) through (e) above merely because it is
embraced by more general MATERIAL within one of the exceptions. In
addition, any combination of features shall not be deemed to be within
the foregoing exceptions merely because individual features are
generally known to the public.
<PAGE>
11. (a) This AGREEMENT shall be for and inure to the benefit of
Carrington Laboratories, Inc. and its successors and assigns as a
third party beneficiary.
(b) This AGREEMENT shall be governed by and construed in
accordance with the substantive Laws of the State of Texas without
regard to Texas choice-of-law principles.
(c) Any failure on the part of TAES to insist upon the
performance of this AGREEMENT, or any part thereof, will not
constitute a waiver of any right under this AGREEMENT.
d) In the event any provision, or any portion of any provision,
of this AGREEMENT should be declared invalid or unenforceable for any
reason by a court of competent jurisdiction, such provision or portion
thereof shall be considered separate and apart from the remainder of
this AGREEMENT, which shall remain in full force and effect.
e) This AGREEMENT shall be binding upon and shall inure to the
benefit of the heirs, executors, administrators, successors and
assigns of the PARTIES.
IN WITNESS WHEREOF, the PARTIES hereto have caused this
AGREEMENT to be executed by their duly authorized representatives to
be effective as of the date first above written.
BY: /s/
-----------------------------------
TEXAS AGRICULTURE EXPERIMENTAL STATION
BY:
-----------------------------------
CONTRACTOR
Exhibit 10.4
LEASE
This LEASE AGREEMENT is entered into as of the 30th day of August,
1991, by and between WESTERN ATLAS INTERNATIONAL, INC. (hereinafter
referred to as ("Landlord"), whose principal address for purposes
hereof is 10205 Westheimer, Houston, Texas 77042, (mailing address:
P. 0. Box 1407, Houston, Texas 77251-1407, Attn: General Counsel),
and CARRINGTON LABORATORIES, INC., (hereinafter referred to as
"Tenant"), whose principal address for purposes hereof is 2001
Wa1nut Hill Lane, Irving, Texas 75038.
(1) DEFINITIONS.
(a) "Area": The leased area within the Leased Premises is
approximately 21,733 square feet
(b) Deleted intentionally.
(c) Deleted intentionally.
(d) "Building": The office building located on land more
particularly described on Exhibit "C" attached hereto and made a
part hereof for all purposes, which building is known as the Core
Laboratories Building, having a Post Office address of 1300 East
Rochelle Boulevard, Irving, Texas 75062-3963.
(e) "Commencement Date": January 1, 1992.
(i) Deleted intentionally.
(g) "Leased Premises": The area on Level A-1 of Building A
shown cross-hatched on the floor plan attached hereto as Exhibit
"A" and made a part hereof.
(h) "Lease Term": The period commencing on January 1, 1994
and ending on December 31, 1995 unless sooner terminated as
provided herein.
(i) "Lease Year" shall mean January 1, 1992 to December 31.
1992, and each subsequent twelve (12) month period of time
thereafter.
(j) De1eted intentionally.
(k) "Minimum Rent": $18,110.83 per month commencing on January
1, 1994 and continuing on or before the first day of each month
of the term hereof through December 31, 1993 and $20,374.69 per
month commencing on January 1, 1994 and continuing on or before the
first day of each month of the term hereof through the balance of
the term of this Lease.
(1) "Operating Costs": See Paragraph 8 of this Lease
<PAGE>
(m) "Overtime Charge": $50.00 per hour subject to
proportionate adjustments determined by Landlord to reflect changes
in labor and utility costs.
(n) "Permitted use": Business offices and laboratory used
for analytical chemistry in connection with medical research, which
shall not involve research with micro-organisms or toxins.
(o) Deleted intentionally.
(p) Deleted intentionally
(i) Deleted intentionally
2. LEASE GRANT- Landlord, in consideration of the rent to be paid
and to be paid and the covenants and agreements to be performed by
Tenant, as herein set forth, does hereby Lease, Demise, and Let unto
Tenant and Tenant accepts the Leased Premises for the Lease Term.
3(a). RENT. Beginning on the Commencement Date, as hereinbefore
defined, Tenant promises and agrees to pay Landlord the Minimum Rent
(subject to adjustment as hereinafter provided) without demand or any
deduction or set off whatsoever, for each month of the entire
contemporaneously with the execution of this lease, and a like monthly
installment shall be due and payable beginning on the first day of the
calendar month next following the expiration of the Lease Term. One
such monthly installment shall be payable by tenant to Landlord first
full calendar month of the tease term after the Commencement Date and
continuing thereafter on or before the first day of each succeeding
calendar month during the term hereof. Rent for any fractional month
at the beginning of the tease term shall be prorated based on one
three hundred sixty-fifth (1/365th) of the current annual Minimum Rent
for each day of the partial month this Lease is in effect and shall be
due and payable on the Commencement Date.
(b) LATE CHARGES. In the event any monthly installment of the
Minimum Rent, or any other sums which become owing by tenant to
landlord under the provisions hereof are not received within ten (10)
days after the due date thereof (without in any way implying Landlord's
consent to such late payment), Tenant, to the extent permitted by law,
agrees to pay, in addition to said installment of the Minimum Rent or
such other sums owed, a late payment charge equal to ten percent (10%)
of the installment of the Minimum Rent or such other sums owed.
Notwithstanding the foregoing, the foregoing late charges shall not
apply to any sums which may have been advanced by Landlord to or for
the benefit of Tenant pursuant to the provisions of this Lease, it
being understood that such sums shall bear interest, which Tenant
hereby agrees to pay to Landlord, at the rate of eighteen percent (18%)
per annum or at the maximum rate of interest permitted by law to be
charged Tenant for the use or forbearance of such money, whichever is
the lesser sum.
4. Deleted intentionally.
<PAGE>
5. SERVICES BY LANDLORD. Landlord agrees to furnish the
following services for the Leased Premises: (i) air conditioning, both
heating and cooling (as required by the seasons), from 10 a.m. to 6:00
p.m. on weekdays and on Saturdays from 8:00 a.m. to 1:00 p.m. (except
on legal holidays designated in the Building Rules and Regulations) and
at such temperatures and in such amounts as may in the judgment of
Landlord be required for comfortable use and occupancy under normal
business operations; provided, that circulating air will not be
available other than by air conditioning and if tenant shall require
air conditioning at any time other than the hours and the days above
specified. Landlord shall furnish the same for the area or areas
specified in a written request of Tenant delivered to the
superintendent of the Building before 3:00 p.m. of the business day
preceding the extra usage, and for such service tenant shall pay
Landlord the Overtime Charge as additional rent within five (5) days
after receipt of a bill therefore; (ii) water at points of supply
provided for general use of tenants of the Building: (iii) janitor and
maid service to the Leased Premises on weekdays other than holidays and
such window washing and wall cleaning as may in the judgment of
Landlord be reasonably required; provided, however, that Tenant may
elect to supply Tenant's own janitorial and maid service by giving
Landlord thirty (30) days prior written notice and in such an event,
tenant will be granted a monthly credit against the Minimum Rent
payable under the terms of Paragraph 1(k) hereof equivalent to the
Tenant's prorata share of the costs Landlord is paying for such
cervices on a monthly basis as of the date of this lease. Which prorata
share shall be that proportion of Landlord's costs determined by
multiplying such costs by a fraction, the numerator of which is the
square footage of the Leased Premises and the denominator of which is
the total square footage of the Building covered by Landlord's contract
for such services' provided further, however, that Tenant shall receive
the foregoing credit only so long as the level of set-vice is equal to
or exceeds the level of service which would have been provided under
Landlord's contract as reasonably determined by Landlord; (iv) restroom
facilities; (v) electric lighting for all public areas and special
service areas of the Building in the manner and to the extent deemed by
Landlord to be reasonable and standard including replacement of
Buildings standard light bulbs and tubes; and (vi) a twenty-four (24)
hour monitored security system similar or comparable to that presently
maintained.
6. (a) TENANT'S ELECTRICITY CHARGE . Landlord shall, provided
Tenant is not in default of its obligations under this Lease, furnish
sufficient power for lighting and for typewriters, voice writers,
calculating machines, and other standard office machines of similar low
electrical consumption width use Voltage of 110 volts or lower.
Landlord will provide power as required by tenant for laboratory
equipment which requires up to 240 volts through the then existing
feeders servicing the Building and will bill Tenant for its excess
electricity requirements as set forth below. If Tenant has any
equipment or machines that require excess counts of electricity,
Landlord reserves the right, at its sole option except as provided
hereinafter, to install a separate meter(s), at tenant's expense, to be
reimbursed to Landlord as additional rent upon demand. For the Leased
Premises or any part or parts thereof. If tenant has excess electricity
requirements for which Landlord does not elect to install separate
meter(s), Landlord's engineer may, but shall not be obligated to,
determine the amount of excess electricity to be allocated to Tenant
<PAGE>
based on the power requirements of any such equipment, machines, or
special lighting. If Tenant does not agree with the amount of such
allocation, tenant may require Landlord to exercise Landlord's option
to install separate meter(s) by giving written notice to Landlord. All
installations of electrical fixtures, appliances, and equipment within
the Leased Premises shall be subject to Landlord's prior written
approval. All replacements lighting tubes and bulbs required in
Building standard fixtures in the Leased Premises will be furnished and
installed by Landlord at Landlord's expense. Whenever heat-generating
machines or equipment (other than such standard office machines) which
affect the temperatures otherwise maintained by the air conditioning
system, are used in the Leased Premises by Tenant, Landlord shall have
the right to install supplemental air conditioning units in the Leased
Premises, and the cost thereof, including the cost of installation,
operation, use and maintenance, shall be paid as additional rent by
tenant to Landlord on demand. Tenant covenants and agrees that at all
times its use of electric current shall never exceed the capacity of
existing feeders to the building, or the risers or wiring
installations. Any riser or risers or wiring to meet Tenant's excess
electrical requirements will be installed by Landlord upon written
request of tenant, at the sole cost and expense of tenant to he
reimbursed to Landlord an additional rent upon demand, if, in
Landlord's sole judgment the same are necessary and will not cause
permanent damage or injury to the building or the Leased Premises or
cause or create a dangerous or hazardous condition or entail excessive
or unreasonable alterations, repairs or expense or interfere with or
disturb other tenants or occupants.
Notwithstanding anything to the contrary hereinbefore contained,
it is understood and agreed that electricity consumed in the Leased
Premises other than electricity for the heating, ventilating and air
conditioning system is metered through a sub meter installed by
Landlord (the "Meter"). Should Tenant's consumption of electricity in
the Leased Premises during any calendar month or partial calendar month
during the term hereof as measured by the Meter exceed seventy (70)
kilowatt hours per day for such month (the "Excess Usage"), Tenant
shall pay the costs of the Excess Usage to Landlord as Additional Rent
hereunder within fifteen (15) days after Tenant receives a bill
therefor from Landlord. All such charges shall be at the same rate for
electricity, which Landlord is being charged by the public utility
serving the Building.
(b) Tenant's Water Charge. Not withstanding anything to the
contrary contained in this lease, it is understood and agreed that
water consumed in the Leased Premises other than for drinking and
restrooms is metered through a submeter installed by landlord (the
"Water Meter"). Tenant shall pay Landlord the costs of such water as
Additional Rent hereunder based on actual usage as measured by the
water Meter at a cost equal to the actual charges therefor to Landlord
by the local water utility within fifteen (15) days after Tenant
receives a bill therefor from Landlord.
<PAGE>
7. Service Interruptions. Landlord does not warrant that the
services provided for in Paragraphs 5 and 6 above will be free from
any slow-down, interruption or stoppage pursuant to voluntary
agreement by and between Landlord and governmental bodies and
regulatory agencies or caused by the maintenance, repair,
substitution, renewal, replacement, or improvement of any of the
equipment involved in the furnishing of any such services or caused by
changes of services, alterations, strikes, lock-outs, labor
controversies, fuel shortages, accidents acts of God, the elements, or
any other cause beyond the reasonable control of Landlord, and
specifically no such slow-down, interruption, or stoppage of any such
services shall ever be construed as an eviction, actual or
constructive, of Tenant nor shall same cause any abatement of the
Minimum Rent payable hereunder or in any manner or for any purpose
relieve Tenant from any of its obligations hereunder, and in no event
shall Landlord he liable for damage to persons or property, or in
default hereunder, as a result of such slow-down, interruption, or
stoppage. Landlord agrees to use due diligence to resume the service
upon any such slow-down, interruption, or stoppage.
8. Operating Costs. Operating Costs (as hereinafter defined) for
1992 (the "Base Year") shall be calculated by Landlord. Landlord shall
split the Base Year Operating Costs into two parts, the first of which
shall consist of taxes, special real estate assessments, electricity
and other utility costs, and insurance premiums (hereinafter referred
to as "Unrestricted Items") and the second of which shall consist of
all other Operating Costs (hereinafter referred to as "Restricted
Items"). Operating Costs per square foot shall be calculated for both
Unrestricted Items and Restricted Items by dividing the Unrestricted
Items and Restricted Items by the total square footage of the Building
(i.e. approximately 205.893 square feet). Such Operating Costs per
square foot shall be the "Base Year Operating Costs". Tenant shall pay
Landlord for each calendar year or partial calendar year during the
term hereof increases in the Operating Costs per square foot for
Unrestricted Items and Restricted Items over the Base Year Operating
Costs (hereinafter referred to as "Excess Operating Costs") for each
square foot of the leased Premises (i.e. approximately 21,733 square
feet): provided, however, that the Operating Costs per square foot for
Restricted Items may not for the purposes hereof increase by more than
five percent (5%) per calendar year on a compounded cumulative basis.
The term "Operating Costs" as used herein shall mean and include
all expenses (other than expenses for electricity covered by the terms
of Paragraph 6(a) hereof and water covered by the terms of Paragraph
6(b) hereof) reasonably and directly incurred in the normal management,
operating, maintenance, repair and security of the Building, including
the grounds. Operating Costs shall include, but not be limited to, the
cost of all utilities (except expenses for electricity covered by the
terms of Paragraph 6(a) hereof and water covered by the terms of
Paragraph 6(b) hereof), building supplies, janitorial service (except
if Tenant elects to provide its own janitorial and maid service,
janitorial and maid service for any period of time when Tenant is
supplying such service shall not be included under Operating Costs to
the extent such charges apply to occupied Tenant space in the Building
as opposed to common use areas), maintenance and repairs, fire and
extended coverage, public liability and other insurance, all labor and
employee benefit costs (including wages, salaries and fees of all
personnel engaged in the management, operating, maintenance, repair and
<PAGE>
security of the Building), ad valorem taxes and assessments and
amortization of capital improvements costs which reduce operating
expenses or are required to meet governmental regulations, management
fees, consulting fees, legal fees and accounting fees, and the fair
market rental of the property managers' offices in the Building,
together with payments or credits Landlord may make to any tenant or
tenants of the Building in lieu of Landlord providing any of the
services or paying for any of such costs.
In addition to Tenant's obligations to pay Minimum Rent, Tenant
shall pay to Landlord monthly in advance on or before the first day
in each calendar month during the term hereof, commencing on January
1, 1992, one twelfth (1/12th) of Landlord's estimate of tenant's
proportionate share of Excess Operating Costs for the applicable
calendar year. Landlord reserves the right to adjust the estimate at
any time during the applicable calendar year if actual Excess
Operating Costs are substantially different from the earlier
estimate, and thereafter, payments by Tenant pursuant to this
paragraph shall be adjusted accordingly, For the purposes hereof, the
terms "calendar year" shall also include partial calendar years.
After the expiration of each calendar year during the term hereof
after the Base Year, as hereinbefore defined, Landlord shall
furnish Tenant with a statement of the actual Excess Operating Costs
of the Building. In the event the sum of the payments made by Tenant
during the preceding calendar year or partial calendar year pursuant
to the foregoing exceeds the amount which Tenant would have been
obligated to pay if the actual Excess Operating Costs for such year
were used in lieu of Landlord's estimate thereof, the difference
shall be credited by Landlord to Tenant's account against the next
payments due by Tenant under the provisions hereof. In the event the
sum of payments made by Tenant during the preceding calendar year or
partial calendar year pursuant to the above paragraph is less than
the amount which Tenant would have been obligated to pay if the
actual Excess Operating Costs for such year or partial year were used
in lieu of Landlord's estimate thereof, Tenant shall pay the amount
of such difference to Landlord in cash within thirty (30) days after
delivery of any invoice for such by Landlord accompanied by a
statement of the actual Excess Operating Costs for such year. Any
payments by Tenant which exceed Tenant's prorate share of Excess
Operating Costs for such period shall be refunded by Landlord to
Tenant.
9. ACCEPTANCE OF LEASED PREMISES AND BUILDING BY TENANT. The
taking of possession of the Leased Premises by Tenant shall be
conclusive evidence that "Tenant" accepts the Leased Premises, the
Building and all improvements and appurtenances thereto as suitable
for the purposes herein set out as being in a good and satisfactory
condition.
<PAGE>
10. ASSIGNMENT AND SUBLETTTNC. (a) Tenant shall not, without any
prior written consent of Landlord: (i) assign or in any manner
transfer this lease or any estate or interest therein; or (ii) permit
any assignment of this lease or any estate or interest therein by
operation of law; or (iii) sublet the Leased Premises or any part
thereof; or (iv) grant any license, concession, or other right of
occupancy of any portion of the Leased Premises; or (v) permit the
use of the Leased Premises by any parties other than Tenant, its
agents and employees. Landlord agrees that its consent will not be
unreasonably withheld or delayed with respect to a proposed sublease
or assignment so long as any such proposed sublease or assignment
meets the following criteria:
(i) The use contemplated by such sublease or assignment
is in accordance with the terms of this lease and is
for an office purpose which is consistent with the
image of Building as reasonably determined by
Landlord; and
(ii) The proposed sublessee or assignee will not engage
in operations which violate any restrictive
covenant affecting the Building; and
(iii) The proposed sublease or assignment is made subject
to this lease; and
(iv) No option provided for in this lease will inure to
the benefit of any such sublessee or assignee; and
(v) A full and complete copy of the proposed sublease or
assignment, together with a statement from Tenant
outlining the financial terms of the proposed
sublease or assignment will be provided to Landlord;
and
(vi) The proposed sublessee or assignee will occupy that
portion of the Leased Premises covered by such
sublease or assignment; and
(vii) The proposed sublessee or assignee is a financially
responsible entity as reasonably determined by
Landlord.
Consent by Landlord to one or more assignments or sublettings shall
not operate as a waiver of Landlord's rights as to any subsequent
assignments and sublettings. Notwithstanding any assignment or
subletting, Tenant and any guarantor of Tenant's obligations under
this lease shall at all times remain jointly and severally liable
for the payment of the rent and all other payment obligations
herein specified and for compliance with all of Tenant's other
obligations under this lease. If an event of default, as
hereinafter defined, should occur while the Leased Premises or any
part thereof are then assigned or sublet, Landlord, in addition to
any other remedies herein provided or provided by law, fly at its
option collect directly from such assignee or sublessee all rents
becoming due to Tenant under such assignment or sublease and apply
such rent against any sums due to Landlord by Tenant hereunder, and
<PAGE>
Tenant hereby authorizes and directs any such assignee or sublessee
to make such payments of rent direct to Landlord upon receipt of
notice from Landlord. No direct collection by Landlord from any
such assignee or sublessee shall be construed to constitute a
novation or a release of tenant or any guarantor of Tenant from the
further performance of their obligations hereunder. Receipt by
Landlord of rent from any assignee, sublessee, or occupant of the
Leased Premises shall not be deemed a waiver of the covenant in
this lease contained against assignment and subletting or a release
of Tenant or any guarantor of Tenant's obligations under this
lease. the receipt by Landlord from any such assignee or sublessee
obligated to make payments of rent shall be a full and complete
release, discharge, and acquittance to such assignee or sublessee
to the fltent of any such amount of rent so paid to landlord.
Landlord is authorized and empowered, on behalf of Tenant, to
endorse the name of Tenant upon any check, draft, or other
instrument payable to Tenant evidencing payment of rent, or any
part thereof, and to receive and apply the proceeds therefrom in
accordance with the terms thereof. Tenant shall not mortgage,
pledge, or otherwise encumber its interest in this lease or in the
teased Premises.
(b) If Tenant requests Landlord's consent to an assignment
of the lease or subletting of all or a part of the Leased Premises,
it shall submit to Landlord, in writing, the name of the proposed
assignee or subtenant and the nature and character of the business
of the proposed assignee or subtenant. Landlord shall have the
option, to be exercised within thirty (30) days from submission of
Tenant's written request, to cancel this lease (or the applicable
portion thereof as to a partial subletting) as of the commencement
date stated in the above-mentioned request. If Landlord elects to
cancel this lease as stated then the term of this lease, and the
tenancy and occupancy of the Leased Premises by Tenant thereunder,
shall cease, determine, expire, and come to an end as if the
cancellation date was the original termination date of this lease.
If Landlord does not thus cancel this lease and if the request of
Tenant to sublet or assign is in accordance with Subparagraph (a)
hereof, landlord will consent to such subletting or assignment.
(c) Landlord shall have the right to transfer, assign, or
convey, in whole or in part, the Building and the Land and any and
all of its rights under this lease, and in the event Landlord
transfers, assigns, or conveys its rights under his lease, Landlord
shall thereby be released from any further obligations hereunder
and Tenant agrees to look solely to such successor in interest of
the Landlord for performance of such obligations.
11. (a) USE AND OCCUPANCY. Tenant agrees that the Leased
Premises shall be used and occupied by Tenant only for the
Permitted Use and for no other purpose, and Tenant agrees to use
and maintain the leased Premises in a clean, careful, safe, and
proper manner and to comply with all applicable laws ordinances,
orders, rules, and regulations of all governmental bodies (state,
federal, and municipal). Tenant will not in any manner deface or
injure the Building or the land or any part thereof or overload the
floors of the Leased Premises. Tenant agrees not to use or allow
or permit the Leased Premises to be used for any purpose
prohibited by law or by any restrictive covenants applicable to the
<PAGE>
Building and land, and Tenant agrees not to commit waste or suffer
or permit waste to be committed or to allow or permit any nuisance
on or in the leased Premises. Tenant will not use the Leased
Premises for lodging or sleeping purposes or for any immoral or
illegal purposes. "Tenant" will conduct its business and occupy the
Leased Premises and will control its agents, employees, licensees,
and invitees in such a manner so as not to create any nuisance or
interfere with, annoy, or disturb any of the other tenants in the
Building or Landlord in its management of the Building and so as
not to injury the reputation of the Building. Tenant shall not use
the Leased Premises or allow or permit same to be used in any way
or for any purpose that landlord may deem to be extra hazardous on
account of the possibility of fire or other casualty or which will
increase the rate of fire or other insurance for the Building or
its contents or in respect of the operation of the Building or
which may render the Building uninsurable at normal rates by
responsible insurance carriers authorized to do business in the
State of Texas or which may render void or voidable any insurance
on the Building. Tenant shall not erect, place, or allow to be
placed any sign, advertising matter, stand, booth, or showcase in
or upon the doorsteps, vestibules, halls, corridors, doors, walls,
windows, or pavement of the Building or the land (except for
lettering on the door or doors to the teased Premises as allowed by
the Rules and Regulations forming a part of this tease) without the
prior written consent of Landlord.
(b) Hazardous Substances. Tenant covenants and agrees (i) that
Tenant has not suffered, permitted, introduced or maintained in, on
or about any portion of the Leased Premises since the commencement
of the term of the Carrington Lease (as defined in Paragraph C of
Exhibit "D" to this Lease), any Hazardous Material [as defined in
Section ll(d)(i)) except as may be permitted by law, it being
understood that Tenant may, from time to time, handle such
substances in conjunction with Tenant's laboratory operations.
Tenant further covenants and agrees to indemnify, protect and save
Landlord harmless against and from any and all damage, losses,
liabilities, obligations, penalties, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements or
expenses of any kind or of any nature whatsoever (including, without
limitation. attorneys' and experts' fees and disbursements) which
may at any time be iniposed upon, incurred by or asserted or awarded
against landlord and arising from or out of any Hazardous Material
on, in, under or affecting all or any portion of the Building.
Leased premises, or Property, introduced by, or on behalf of,
Tenant, including, without limitation, (i) the costs of removal of
any and all Hazardous Materials from all or any portion of the
Building, Leased Premises or Property, or released, discharged,
leaked or spilled from the Building, teased Premises or Property
into the air, surface water, groundwater or land, and (ii) any costs
incurred to comply with or as a result of the violation of any
Environmental Requirements [as defined in Section ll(d)(ii)]. The
preceding portions of this provision do not apply to Hazardous
Material which may be located in the Building, Leased Premises, or
Property at or prior to the initial commencement (hereto or
hereafter) of any work, construction, repairs or alterations therein
by Tenant under the Carrington Lease
<PAGE>
(c) Remediation. Notwithstanding anything contained herein to
the contrary, Tenant shall within a period of thirty (30) days
following the date this Lease is cancelled or terminated or expires
by virtue of its own terms, cause to be conducted by a duly licensed
environmental consultant, inspections and tests in order to
determine if any Hazardous Material [as defined in Section ll(d)(i)]
exists in, on or about the Leased Premises in violation of any
Environmental Requirements [as defined in Section ll(d)(ii)] (or
materials ,which would constitute danger to any occupants or guests
in the Leased Premises or Building) and Tenant' shall (i) furnish to
landlord copies of any findings, conclusions and/or reports
respecting such investigations and/or tests, and (ii) be responsible
for restoring the teased Premises and Building with respect to any
damages incurred incidental thereto as the result of Tenant's or
Tenant's agents, employees or contractors introduction of such
Hazardous Material to the Leased Premises or the Building. Any such
reports shall include a so-called "Phase I" and, if necessary,
"Phase II" environmental assessments, which shall be, addressed to
Tenant, In the event any such report indicates the presence of any
Hazardous Material [as defined in Section ll(d)(i)] (or materials
which would constitute danger to any occupants or guests in the
Leased Premises or Building), then Tenant shall at Tenant's sole
cost and expense conduct such cleanup operations as may he
reasonably required to clear such Hazardous Material (as defined in
Section l1(d)(i)] from the Leased Premises and Building in
accordance with the then existing Environmental Requirements Law
defined in Section [l(d)(ii)] applicable thereto and Tenant shall
Indemnify, save and hold Landlord harmless from any claims. losses,
damages or judgments as a result of the introduction of such
substances into the Leased Premises and Building and/or resulting
because of the removal thereof.
(d) Definitions
(i) Hazardous Materials
Hazardous Material means any substance: (1) the
presence of which requires investigation or
remediation under any federal. state or local
statute. regulation, ordinance, order, action,
policy or common law; or (2) which is or becomes
defined as a "hazardous waste," "hazardous
substance", pollutant or contaminant under any
federal, state, or local statute, regulation, rule,
or ordinance or amendments thereto including,
without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (421 U.S.C.
Section 9601 et seq.) and/or the resource
Conservation and Recovery Act (42 V.S.C, Section
6901 et seq.); or (3) which is toxic, explosive,
corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and
is or becomes regulated by the governmental
authority, agency, department, commission, board or
instrumentality of the United States, the State of
Texas or any political subdivision thereof: or (4)
the presence of which on the Leased Premises causes
or threatens to cause a nuisance upon the Leased
<PAGE>
Premises or to adjacent properties or poses or
threatens to pose a hazard to the health or safety
of persons on or about the teased Premises: or (5)
without limitation, which contains polychlorinated
biphenyls (PCBs) or asbestos.
(ii) Environmental Requirements
Environmental requirements means all applicable
present and future statutes, regulations, rules,
ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations,. concessions,
franchises. and similar items, of all governmental
agencies, departments, commissions, boards, bureaus
or instrumentalities of the United States, states
and political subdivisions thereof and all
applicable judicial, administrative, and regulatory
decrees, judgments, and orders relating to the
protection of human health or the environment,
including, without limitation: (1) all requirements,
including but not limited to those pertaining to
reporting, licensing, permitting, investigation, and
remediation of emissions, discharges, releases, or
threatened releases of Hazardous Material, chemical
substances, pollutants, contaminants, or hazardous
or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air,
surface water, groundwater, or land, or relating to
the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling
of chemical substances, pollutants, contaminants, or
hazardous or toxic substances, materials, or tastes,
whether solid. fluid, or gaseous in nature: and (2)
all requirements pertaining to the protection of the
health and safety of employees or the public.
(e) Survival and Investigation. The obligations of Tenant in
subsections 11(b), (c), (d) and (e) shall survive the cancellation,
expiration or termination of the Lease and shall not be affected by
an investigation by or on behalf of Landlord or by any information
which Landlord may have or obtain with respect thereto.
12. TENANTS REPAIRS AND ALTERATIONS. Tenant will not in any
manner deface or injure the Leased Premises, the Building or any
improvements on the land herein described, and will pay the cost of
repairing any damage or injury done to the foregoing facilities by
Tenant or Tenant's agents, employees or invitees. Tenant shall
throughout the Lease Term take good care of the premises and keep
them free from waste and nuisance of any kind. Tenant agrees to
keep the premises, including all fixtures installed by Tenant and
any plate glass and special store fronts, in good condition and
make all necessary nonstructural repairs except those caused by
fire, casualty or acts of God covered by Landlord's tire insurance
policy covering the Building, provided that Tenant shall not be
obligated to repair broken exterior plate glass unless it appears
that such glass was broken by an impact originating in the leased
Premises. If Tenant fails to make such repairs within fifteen (15)
<PAGE>
days after the occurrence of the damage or injury, Landlord may, at
its option, make such repair, and Tenant shall, upon demand
therefor, pay Landlord for the cost thereof. Tenant will not make
or allow to be made any alterations or physical additions in or to
the premises without the prior written consent of Landlord. All
maintenance. repairs, alterations, additions or improvements shall
be conducted only by contractors and subcontractors approved in
writing by Landlord, it being understood that Tenant shall procure
and maintain, and shall cause such contractors and subcontractors
engaged by or on behalf of Tenant to procure and maintain,
insurance coverage against such risks, in such amounts and with
such companies as landlord may require in connection with any such
maintenance, repair, alteration, addition or improvement.
13. MECHANIC'S LEINS . Tenant will not permit any mechanic's
or materialman's lien or liens to be placed upon the Leased
Premises, the Building or the lands herein described during the
term, hereof ceased by or resulting from any work performed
materials furnished or obligation incurred by or at the request of
Tenant and nothing in this Lease contained shall be deemed or
construed in any way as constituting the consent or request of
Landlord, express or implied, by inference or otherwise, to any
contractor, subcontractor, laborer, or materialman for the
performance of any labor or the furnishing of any materials for any
specific improvement, alteration, or repair of or to the Leased
Premises or any part thereof, nor as giving Tenant any right,
power, or authority to contract for or permit the rendering of any
services or the furnishing of any materials that would give rise to
the filing of any mechanic's, materialman's or other liens against
the interest of Landlord in the Leased Premises. In the case of the
filing of any lien on the interest of Landlord or Tenant in the
Leased Premises, Tenant shall cause the same to be discharged of
record within twenty (20) days after the filing of same. If Tenant
shall fail to discharge such lien within such period, then, in
addition to any other right or remedy of landlord, Landlord may.
but shall not be obligated to, discharge the same either by paying
the amount claimed to be due or by procuring the discharge of such
lien by deposit in court or bonding. Any amount paid by Landlord
for any of the aforesaid purposes, or for the satisfaction of any
other lien, not caused or claimed to be caused by Landlord, and all
reasonable legal and other expenses of Landlord, including
reasonable counsel fees, in defending any such action or in or
about procuring the discharge of such lien, with all necessary
disbursements in connection therewith, with interest thereon at the
rate set out in Paragraph 3(c) hereof,
14. INDEMNIFICATION
(a) Except to the extent of Landlord's negligence or willful
misconduct, Tenant agrees to indemnify Landlord and save it
harmless from all suits, actions, damages, liability and expense
in connection with loss of life, bodily or personal injury or
property damage (and each and all of them) arising from or out of
any occurrence in, upon or from the Leased Premises or resulting
from or attributable to the occupancy or use by Tenant of said
Leased Premises or any part thereof, or occasioned wholly or in
part by any act or omission of Tenant, its agents, contractors,
employees, servants, invitees, licensees or concessionaires.
<PAGE>
Tenant shall store its property in, and shall occupy, the Leased
Premises at its own risk, and releases Landlord, to the fullest
extent permitted by law, from all claims of every kind resulting
in loss of life, personal or bodily injury or property damage, no
matter when or where or to whom same occurs without being limited
by any other provision of this Lease.
(b) Landlord shall not be responsible or liable to tenant or
to any other person or persons for any loss or damage to either the
person or property of Tenant or to any other person or persons,
landlord shall not be responsible for any injury, loss or damage to
any person or to any property of tenant or any other person caused
by or resulting from bursting, breakage or from leakage, steam, or
snow or ice, running, backing up, seepage or the overflow of water
or sewage in any part of the teased Premises, the building or the
lands herein described, or for any injury or damage caused by or
resulting from acts of God or the elements, or for any injury or
damage caused by or resulting from any defect or negligence in the
occupancy, construction, operation or use of any of the Leased
Premises, machinery, apparatus or equipment by anyone or by or from
the negligence of any occupant of the Building.
15. INSURANCE, tenant shall, at its sole cost and expense,
procure and maintain during the term hereof a policy or policies of
insurance insuring Tenant against any and all liability for injury
to or death of a person or persons and for damage to or destruction
of property occasioned by or arising out of or in connection with
the use or occupancy of the Leased Premises or by the condition of
the Leased Premises (including the contractual liability of Tenant
to indemnify landlord and/or property damages, or with such other
limits as may be required by landlord, and to be written by an
insurance company or companies satisfactory to landlord and
licensed to do business in the State of Texas with Landlord named
as an additional insured without restriction. If Tenant has an
umbrella or excess policy, tenant will name landlord as an
additional insured without restriction on all layers of umbrella or
excess policies. Tenant shall obtain a written obligation on the
part of each insurance company to notify landlord at least ten (10)
days prior to cancellation of such insurance. Such policies or duly
executed certificates of insurance relating thereto shall be
promptly delivered to landlord within ten (10) days after the
execution of this Lease and renewals thereof as required shall be
delivered to Landlord at least thirty (30) days prior to the
expiration of the respective policy terms. If tenant fails to
comply with the foregoing requirements relating to insurance,
landlord may obtain such insurance and Tenant shall pay as
additional rent to landlord on demand the premium cost thereof plus
interest at the rate set out in Paragraph 3(c) hereof.
16. WAIVER OF SUBROGATION. Each party hereto hereby waives
any and every claim which arises or may arise in its favor and
against the other party hereto, or anyone claiming through or under
them, by way of subrogation or otherwise, during the term of this
Lease or any extension or renewal thereof for any and all loss of,
or damage to, any of its property or property of others it has in
its care, custody or control or loss of use of such property
(whether or not such loss or damage is caused by the fault or
negligence of the other party or anyone for whom said other party
<PAGE>
may be responsible), which loss or damage is covered by valid and
collectible fire and extended coverage insurance policies, to the
extent that such loss or damage is recovered under said insurance
policies. Said waivers shall be in addition to, and not in
limitation or derogation of, any other waiver or release contained
in this tease with respect to any loss or damage to property of the
parties hereto. Inasmuch as the above mutual waivers will preclude
the assignment of any aforesaid claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each
party hereto hereby agrees immediately to give to each insurance
company which has issued to it policies of fire and extended
insurance coverage written notice of the terms of said mutual
waivers, and to have said insurance policies properly endorsed, it
necessary, to prevent the invalidation of said insurance coverages
by reason of said waivers.
17. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord shall
have the following rights, exercisable without notice and without
liability to tenant for damage or injury to property, persons, or
business and without effecting an eviction, constructive or actual,
or disturbance of Tenant's use or possession or giving rise to any
claim for setoff or abatement of rent:
(a) To change the Building's name or Street address.
(b) To install, affix, and maintain any and all signs
on the exterior and interior of the Building, subject to the
provisions of Rider 1 of this Lease.
(c) To designate and approve, prior to installation,
all types of window shades, blinds, drapes, awnings, window
ventilators, and similar equipment, and to control all
internal lighting that nay be visible from the exterior of
the Building.
(d) To enter upon the Leased Premises at reasonable
hours to inspect same or clean or wake repairs or alterations
(but without any obligation to do so. except as expressly
provided for herein) or to show the Leased Premises to
prospective lenders or purchasers, and, during the last
twelve (12) months of the term, to show them to prospective
tenants at reasonable hours and, if they are vacated, to
prepare them for re-occupancy.
(e) To retain at all times, and to use in appropriate
instances, keys to all doors within and into the teased
Premises. No locks shall be changed or added without the
prior written consent of Landlord.
<PAGE>
(f) To decorate and to make repairs, alterations,
additions, changes, or improvements, whether structural or
otherwise, in and about the Building, or any part thereof,
and for such purposes to enter upon the teased Premises and,
during the continuance of any of said work, to temporarily
close doors, entryways, public space, and corridors in the
Building, to interrupt or temporarily suspend Building
services and facilities and to change the arrangement and
location of entrances or passageways, doors and doorways,
corridors, elevators, stairs, toilets, or other public parts
of the Building, an without abatement of rent or affecting
any of Tenant's obligations hereunder, so long as the teased
Premises are reasonably accessible.
(g) To grant to anyone the exclusive right to conduct
any business or render any service in or to the Building,
provided such exclusive tight shall not operate to exclude
tenant from the use expressly permitted herein,
(h) To take all such reasonable measures as landlord
may deem advisable for the security and safety of the
Building and its occupants,
(j) Landlord shall have the right to transfer, assign,
or convey. in whole or in part, the Building and the land and
any and all of its rights wider this tease, and in the event
Landlord transfers, assigns, or conveys its rights under this
tease, Landlord shall thereby be released from any further
obligations hereunder and Tenant agrees to look solely to
such successor in interest of the Landlord for performance of
such obligations.
18. FIRE OR OTHER CASUALTY. If the Leased Premises or any
part thereof shall be damaged by fire or other casualty, Tenant
shall give prompt written notice thereof to Landlord. In case the
Building shall be so damaged by fire or other casualty that
substantial alteration or reconstruction of the Building shall, in
Landlords sole opinion, be required (whether or not the Leased
Premises shall have been damaged by such fire or other casualty) or
in the event any mortgagee under a mortgage or deed of trust
covering the Building should require that the insurance proceeds
payable as a result of said fire or other casualty be used to
retire the mortgage debt, Landlord may, at its option, terminate
this Lease and the term and estate hereby granted by notifying
Tenant in writing of such termination within sixty (60) days after
the date of such damage, in which event the rent hereunder shall be
abated as of the date of such damage. If Landlord does not thus
elect to terminate this Lease, Landlord shall within seventy-five
(75) days after the date of such damage commence to repair and
restore the Building and shall proceed with reasonable diligence to
restore the Building (except that Landlord shall not be responsible
for delays outside its control) to substantially the same condition
in which it was immediately prior to the happening of the casualty,
except that Landlord shall not be required to rebuild, repair or
replace any part of Tenant's furniture or furnishings or of
fixtures and equipment removable by Tenant under the provisions of
this tease. Landlord shall not be liable for any inconvenience or
annoyance to tenant or injury to the business of Tenant resulting
<PAGE>
in any way from such damage or the repair thereof; except that
during the time and to the extent that the Leased Premises are
unfit for occupancy, the Landlord shall, at its option, either
furnish the Tenant with comparable space at prevailing market rates
or a fair diminution of rent, the choice of which will be at the
landlord's sole discretion, if the damages are caused by the
negligence of Tenant, its agents, servants, employees, contractors,
patrons, guests, licensees, or invitees there will be no abatement
of rent and Tenant will be liable for any damages in excess of the
amount paid by insurance proceeds received by Landlord. Any
insurance which may be carried by Landlord or Tenant will be liable
for any damages in excess of the amount paid by or insurance
proceeds received by Landlord. Any insurance which may be carried
by Landlord Tenant against loss or damage to the Building or to the
Leased Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control.
19. CONDEMNATION. If the whole or substantially the whole of
the Building and land or of the Leased Premises should be taken
for any public or quasi-public use under any governmental law,
ordinance or regulation or by right of eminent domain or should be
sold to the condemning authority in lieu of condemnation, then
this Lease shall terminate as of the date when physical possession
of the Building and land or the Leased Premises is taken by the
condemning authority. If less than the whole or substantially the
whole of the Building and land or the Leased Premises are affected
thereby, Landlord may terminate this Lease by giving written
notice thereof to Tenant within sixty (60) days after the right of
election accrues, in which event this Lease shall terminate as of
the date when physical possession of such portion of the Building
and land or Leased Premises is taken by the condemning authority.
If upon any such taking or sale of less than the whole or
substantially the whole of the Building and land or the teased
Premises this Lease shall not be thus terminated, the rent payable
hereunder shall be diminished by an amount representing that part
of said rent as shall property be allocable to the portion of the
Leased Premises which was so taken or sold and Landlord shall, at
Landlord's sole expense, restore and reconstruct the Building and
land and the Leased Premises to substantially their former
condition to the extent that the same, in Landlord's judgment, may
be feasible, but such work shall not exceed the scope of the work
done by Landlord in originally constructing the Building and
installing tenant improvements in the teased Premises nor shall
Landlord in any event be required to spend for such work an amount
in excess of the amount received by Landlord as compensation for
damages (over and above amounts going to the mortgagee of the
property taken) for the part of the Building and land or the
teased Premises so taken. Landlord shall be entitled to receive
all of the compensation awarded upon a taking of any part or all
of the Building and land or the Leased Premises including any
award for the value of unexpired term of this Lease and Tenant
shall not be entitled to and expressly waives all claim to any
such compensation provided, however, Tenant shall be entitled to
receive an award for damages to Tenant's leasehold improvements.
<PAGE>
20. TAXES. Tenant shall be liable for all taxes levied or
assessed against personal property, furniture or fixtures placed
by Tenant in the teased Premises, and if any such taxes for which
Tenant is liable are in any way levied or assessed against
Landlord, tenant shalt pay to Landlord upon demand that part of
such taxes for which Tenant is primarily liable hereunder.
Notwithstanding any other provision contained in this tease.
Tenant shall pay any and all licenses, charges and other fees of
every kind and nature as and when they become due and before the
saint become delinquent arising out of or in connection with use
and occupancy of the Leased Premises, including, but not limited
to, license fees, business license tax, the amount of any
privilege, sales, excise or other tax (other than income) imposed
upon rentals herein provided to be paid by Tenant or upon Landlord
in an amount measured by such rentals received by Landlord.
21. SURRENDER UPON TERMINATION. At the termination of this
Lease, whether caused by lapse of time or otherwise. Tenant shall at
once surrender possession of the Leased Premises and deliver the
Leased Premises to Landlord in as good repair and condition as at
the commencement of Tenant's occupancy, reasonable wear and tear and
damages or destruction by fire or other insured casualty excepted,
and shall deliver to Landlord all keys to the Leased Premises, and,
if such possession is not immediately surrendered, Landlord may
forthwith enter upon and take possession of the Leased Premises and
expel or remove Tenant and any other person who may be occupying
said premises, or any part thereof, by force, if necessary, without
having any civil or criminal liability therefor. All alterations,
additions, or improvements (whether temporary or permanent in
character) made in or upon the Leased Premises shall, if Landlord
elects, be Landlord's property on termination of this Lease and
shall remain on the Leased Premises without compensation to Tenant.
All furniture, movable trade fixtures, and equipment installed by
Tenant may be removed by Tenant at the termination of this Lease,
All removals permitted herein shall be accomplished in a good
workmanlike manner so as not to damage the Leased Premises or the
Building. Tenant, or Landlord at Tenant's expense, shall repair any
damage to the Leased Premises, the Building or any improvement on
the lands herein described caused by any such removal. All
furniture, movable trade fixtures and equipment installed by tenant
not removed at the end of the tease Term hereof shall thereupon be
conclusively presumed to have been abandoned by Tenant and Landlord
may, at its option, take over the possession of such property and
either (i) declare same to be the property of Landlord by written
notice thereof to Tenant or (ii) at the sole risk, cost, and expense
of Tenant remove the same or any part thereof in any manner that
Landlord shall choose and store the same or any part thereof in any
manner that Landlord shall choose and store the same without
incurring liability to Tenant or any other person.
<PAGE>
22. DEFAULT. In the event of default in any of the covenants
or conditions herein, Landlord may assert any remedies provided to
an aggrieved landlord by law, without limiting the generality of the
foregoing, Landlord, at its option, shall have any one or all of the
following remedies which are cumulative and not exclusive: (a)
Landlord may declare the Lease forfeited, but such declaration or
forfeiture shall not terminate Tenant's duty to pay rentals and
additional rent hereunder, nor waive any other rights of Landlord
unless Landlord specifically so states in writing: (b) Landlord may
re-enter the Leased Premises and remove all persons and property,
including that of Tenant or any third persons therefrom, without
being guilty of any manner of trespass or conversion, but any such
re-entry shall not terminate Tenant's duty to pay rentals and
additional rent hereunder nor waive any other rights of Landlord
unless Landlord specifically so states in writing: (c) Landlord may
resume possession of the Leased Premises and relet the same for the
account of Tenant, who shall make good any deficiency: (d) Landlord
may recover all arrearages of rent and additional rent hereunder:
(e) Landlord may declare the entire amount of the rent and
additional rent hereunder, which would have become due and payable
during the term of this Lease, to be due and payable immediately, in
which event, Tenant agrees to pay the same at once, together with
all rents and additional rents theretofore due, to Landlord at the
address specified herein or hereunder; provided, however, that such
payments shall not constitute a penalty or forfeiture or liquidated
damages, but shall merely constitute a penalty or forfeiture or
liquidated damages, but shall merely constitute payment in advance
of the rent for the remainder of the term: (f) Tenant, in addition
to rentals and additional rent hereunder, shall be liable for all
damages and expenses which Landlord has suffered by reason of
Tenant's default: including, but not limited to, damage to the
Leased Premises (which shall be measured at Landlord's option by
landlord's cost to repair the same or by the difference in the
market value of the Leased Premises before and after such damage),
cost of reletting. (e.g., advertising the Leased Premises for lease,
preparation of a new lease agreement, etc.), attorney fees, cost of
court, cost of repossession and other special or consequential
damages: (g) Landlord shall have, in addition to any statutory
liens, the right to seize and possess, as security for all sins due
hereunder from Tenant, all the goods, wares, merchandise, chattels,
implements, fixtures, tools and other personal property which are or
may be put upon the teased Premises and Landlord shall have a lien
upon an such property which may be possessory but shall not be
required to be. Tenant hereby waives all exemptions in connection
with such property, which could otherwise be available to it.
Landlord shall give Tenant ten (10) days written notice of any
default herein. for the purpose of the foregoing. Tenant shall be
deemed to be in default under this Lease if Tenant: (1) has failed
to pay any installment of rent or other amount when due. Whether or
not such payment shall have been demanded: (2) fails to perform or
comply with any of the other conditions or agreements expressed or
implied herein and fails to remedy such lack of compliance within
thirty (30) days after written notice from Landlord of such default;
(3) abandons, vacates or does not occupy the teased Premises for
fourteen (1/4) consecutive days; and (4) liquidates or ceases to
exist, admits insolvency, seeks relief under any law for the relief
of debtors, makes an assignment for the benefit of creditors or is
the subject of a voluntary or involuntary petition in bankruptcy or
<PAGE>
receivership, or in the event of any like occurrence which, in the
sole and absolute judgment of Landlord, evidences the serious
financial insecurity of Tenant or if the estate hereby created shall
be levied upon or taken by execution or process of law, then and in
any such event, regardless of any waiver or consent to any earlier
event or events of default. In the event that any court or
governmental authority shall limit any amount, which Landlord may be
entitled to recover pursuant to the terms hereof, Landlord shall be
entitled to recover the maximum amount permitted under law. Nothing
herein contained shall be deemed to limit or restrict Landlord's
recovery from Tenant of the maximum amount permitted under law or of
any other sums or damages which Landlord way be entitled to so
recover in addition to the damages set forth herein, Nothing
contained herein shall be deemed to require Landlord to relet the
Leased Premises or to take any other action with retard to the
Leased Premises and Landlord shall not be liable for any failure to
relet, collect rent, or take any other action with regard to the
teased Premises after termination pursuant to the terms hereof.
Tenant hereby waives any right of redemption, which Tenant may at
any time have by reason of Tenant's default or eviction hereunder.
The parties hereto expressly agree that this Lease and the estate
created hereby shall not continue or inure to the benefit of any
assignee, receiver or trustee in bankruptcy except at the option of
Landlord. In addition to other remedies provided in this Lease,
Landlord shall be entitled, to the extent permitted by applicable
law, to injunctive relief in case of the violation, or attempted or
threatened violation, of any of the covenants, agreements,
conditions or provisions of this Lease, or to a decree compelling
performance of any of. The other covenants, agreements, conditions
or provisions of this Lease, or to any other remedy allowed to
Landlord at law or in equity. Tenant hereby expressly agrees that
the damages provided for herein constitute just compensation for the
loss or damages which may be actually sustained by Landlord and that
such damages are just and reasonable.
23. NO IMPLIED WAIVER The failure of Landlord to insist at
any time upon the strict performance of any covenant or agreement
or to exercise any option, right, power, or remedy contained in
this Lease shall not be construed as a waiver or a relinquishment
thereof for the future. The waiver of or redress for any violation
of any term, covenant, agreement, or condition contained in this
Lease or contained in the Rules and Regulations attached to and
forming a part of this Lease shall not prevent a subsequent act,
which would have originally constituted a violation from having all
the force and effect of an original violation. No express waiver
shall affect any condition other than the one specified in such
waiver and that one only for the time and in the manner
specifically stated. A receipt by landlord of any rent with
knowledge of the breach of any covenant or agreement contained in
this Lease shall not be deemed a waiver of such breach, and no
waiver by Landlord of any provision of this Lease shall be deemed
to have been made unless expressed in writing and signed by
Landlord,
24. ATTORNEYS' FEES AND LEGAL EXPENSES. Each party shall pay
to the other party upon demand all reasonable attorneys fees and
all expenses and court costs of such party incurred in enforcing
any of the obligations of the other party under this Lease.
<PAGE>
25. WORK AGREEMENT. The improvements and installations
specified in Exhibit "E" hereof shall be made in accordance with
the plans and specifications provided for in Exhibit "E" on or
prior to the Rental Commencement Date.
26. LANDLORD'S LEIN In addition to the statutory landlord's
lien, Landlord shall have, at all times, and Tenant hereby grants
to Landlord, a valid security interest to secure payment of all
rent and other suns of money becoming due hereunder from tenant,
and to secure payment of any damages or loss which Landlord may
suffer by reason of the breach by Tenant or any covenant,
agreement or condition contained herein, upon all goods, wares,
equipment, fixtures, furniture, improvements and other personal
property of Tenant presently or which may hereafter be situated on
the Leased Premises, and all proceeds therefrom, and such property
shall not be removed therefrom without the consent of Landlord
until all arrearages in rent as well as any and all other sums of
money then due to Landlord hereunder shall first have been paid
and discharged and all the covenants. agreements and conditions
hereof have been fully complied with and performed by Tenant.
Landlord agrees that any such statutory lien or security interest
shall be subject and subordinate to any purchase money security
interest to the extent such purchase money security interest
attaches to Tenant's computer systems or other laboratory
equipment having a unit cost of $20,000.00 or more. Upon the
occurrence of any event of default by Tenant, Landlord may, in
addition to any other remedies provided herein, enter upon the
Lease Premises and take possession of any and all goods, wares,
equipment, fixtures, furniture, improvements and other personal
property of Tenant situated on the Lease Premises, without
liability for trespass or conversion, and sell the same at public
or private sale, with or without having such property at the sale,
after giving tenant reasonable notice of the time and place of any
public sale or of the tine after which any private sale is to be
made, at which sale Landlord or its assigns may purchase unless
other-wise prohibited by law. Unless otherwise provided by law,
and without intending to exclude any other manner of giving Tenant
reasonable notice, the requirement of reasonable notice shall be
met if such notice is given in the manner prescribed in this tease
at least five (5) days before the time of sale. The proceeds from
any such disposition, less any and all expenses connected with the
taking of possession, holding and selling of the property
(including reasonable attorneys' fees and other expenses), shall
be applied as a credit against the indebtedness secured by the
security interest granted in this Paragraph 25. Any surplus shall
be paid to Tenant or as otherwise required by law, and Tenant
agrees to execute and deliver to Landlord a financing statement in
form sufficient to perfect the security interest of Landlord in
the aforementioned property and proceeds thereof under the
provisions of the Uniform Commercial Code in force in the State of
Texas. The Statutory lien for rent is not hereby waived, the
security interest herein granted being in addition and
supplementary thereto.
<PAGE>
27. SUBORDINATION.
(a) Except as other-wise provided to the contrary herein,
Tenant agrees that this Lease shall at all times be subject and
subordinate to the lien of any mortgage (including any amendment
or modification thereof, whether made prior or subsequent to
request for subordination) which may be placed on the teased
Premises by Landlord, if requested in writing by the bolder or
prospective holder thereof; provided, that Tenant shall at all
times be entitled to possession tinder this Lease so long as it
complies with the terms herein set out, subject to the conditions
hereinafter expressed. Tenant agrees, upon demand and without
cost, to execute any instrument as nay be required to effectuate
such subordination which instruments shall include, among and with
any other provisions required by the Mortgagee, an agreement on
the part of Tenant to attorn to any and all successors their
interest to the Leased Premises resulting from any foreclosure of
any such mortgage or conveyance in lieu of the foreclosure. At
the-date hereof, there are no outstanding mortgages on the
Building.
(b) Anything to the contrary herein notwithstanding, Tenant
covenants and agrees that if the present or future holder of any
mortgage (including any amendment and/or modification thereof,
whether made prior or subsequent to the subordination hereinabove
provided for) affecting the Leased Premises subordinates said
mortgage to this Lease, whether the same be part of a general
subordination by such Mortgagee or specifically refers to this
Lease, then this Lease shall for all intents and purposes be
considered to be paramount and superior to said mortgage and shall
survive and continue to remain in full force and effect, even
though said mortgage be foreclosed; and, Tenant shall continue to
comply with all of its obligations hereunder, whether or not said
mortgage be foreclosed; and, in the event of any such foreclosure,
Tenant agrees to thereafter attorn to the Mortgagee, its successors
and assigns, and to any purchaser at foreclosure, its successors
and assigns.
(c) Tenant agrees that it will not (i) prepay any rents or
other charges more than thirty (30) days in advance of the due
date required by this Lease without prior written consent of said
Mortgagee: (ii) terminate this lease or exercise a right of set-
off, if any there be, except for the default of Landlord (after
giving written notice to the Mortgagee and a reasonable time for
the Mortgagee to correct such default) or (iii) amend this Lease
without the prior consent of the Mortgagee.
(d) Tenant will, upon receipt of demand therefor, at any time
or times, execute, acknowledge, and deliver to Landlord any and all
instruments and certificates that may be necessary or proper to
more effectively effectuate the provisions hereof, This lease and
all rights of Tenant hereunder are further subject and subordinate,
to the extent that the same relate to the Leased Premises, to all
applicable ordinances of the City of Irving, Texas, relating to
easements, franchises, and other interests or rights upon, across
or appurtenant to the building or any of the Land, and all utility
easements and agreements.
<PAGE>
28. QUIET ENJOYMENT. Provided Tenant pays the rent payable
hereunder as and when due and payable and keeps and fulfills all of
the terms, covenants, agreements and conditions to be performed by
Tenant hereunder, Tenant shall at all times during the Lease Term
peaceably and quietly enjoy the Leased Premises without any
disturbances from Landlord or from any other person claiming by,
through or under Landlord, subject to the terms, provisions,
covenants, agreements and conditions of this tease and to the deeds
of trust, mortgages. ground leases, ordinances, leases, utility
easements and agreements to which this Lease is subject and
subordinate, as hereinabove set forth.
29. NOTICE TO LANDLORD In the event of any act or omission by
Landlord which would give Tenant the right to damages from Landlord
or the right to terminate this Lease by reason of a constructive or
actual eviction from all or part of the Leased Premises or
otherwise, Tenant shall not sue (or such damages or exercise any
such right to terminate until (i) it shall have given written
notice of such act or omission to Landlord and Landlord's
mortgagee, if any, and (ii) a reasonable period of time for
remedying such act or omission shall have elapsed following the
giving of such notice, during which time Landlord, its agents,
employees or its mortgagee shall be entitled to enter upon the
Leased Premises and do therein whatever may be necessary to remedy
such act of omission. hiring the period after the giving of such
notice and during the remedying of such act or omission the rent
payable by tenant for such period as provided in this Lease shall
be abated and apportioned only to the extent that any part of the
Leased Premises shall be untenantable.
30. HOLDING OVER BY TENANT. Should Tenant or any of its
successors in interest continue to hold the Leased Premises after
the termination of this Lease, whether such termination occurs by
lapse of time or otherwise, such holding over shall constitute and
be construed as a tenancy from month to month only, at a monthly
rental equal to 150% of the monthly rent provided herein at the
time of such termination, hiring such time as Tenant shall continue
to hold the Leased Premises after the termination hereof, Tenant
shall continue to hold the Leased Premises after the termination
hereof. Tenant shall be regarded as a Tenant from month to month;
subject, however, to all of the terms, provisions covenants and
agreements on the part of Tenant hereunder. No payments of money by
Tenant to Landlord after the termination of this Lease shall
reinstate, continue, or extend the term of this Lease and no
extension of this Lease after the termination thereof shall be
valid unless and until the same shall be reduced to writing and
signed by both Landlord and Tenant.
<PAGE>
31. RULES AND REGULATIONS Tenant and Tenant's agents,
employees, and invitees will comply with all requirements of the
Rules and Regulations (as changed from time to time as hereinafter
provided) which are attached hereto as Exhibit "B" and made a part
hereof as though fully set out herein. Landlord shall at all times
have the right to change such Rules and Regulations or to
promulgate other Rules and Regulations in such reasonable manner as
may be deemed advisable for the safety, care or cleanliness of the
Building and related facilities or premises and for preservation of
good order therein; provided, however, that such changes shall not
become effective and a part of this Lease until a copy thereof
shall have been delivered to Tenant. Tenant shall further be
responsible for the compliance with such Rules and Regulations by
the employees, servants, agents, visitors, and invitees of Tenant.
Landlord shall not be responsible to Tenant for failure of any
person to comply with such Rules and Regulations No such amendment
shall have the effect of changing any of the basic terms of this
Lease.
32. ESTOPPEL CERTIFICATE Tenant will, at any time and from
time to time, upon not less than twenty (20) days' prior request by
Landlord, execute, acknowledge and deliver to landlord a statement
in writing executed by Tenant certifying that this Lease is the
entire agreement between the parties and is unmodified and in full
effect (or, if there have been modifications, that this Lease is in
full effect as modified, and setting forth such modifications) and
the dates to which the rent has been paid, that the Tenant has
unconditionally accepted the Leased Premises, and either stating
that to the knowledge of the signer of such certificate no default
exists hereunder or specifying each such default of which the
signer may have knowledge; it being intended that any such
statement by Tenant may be relied upon by any prospective purchaser
or mortgagee of the Building.
33. PERSONAL LIABILITY. The liability of Landlord to Tenant
for any default by landlord under the terms of this Lease shall be
limited to the interest of Landlord in the Building and land and
landlord shall not be personally liable for any deficiency. This
clause shall not be deemed to limit or deny any remedies which
Tenant may have in the event of default by Landlord hereunder which
do not involve the personal liability of Landlord,
34. BROKERAGE. Each party hereto warrants that it has had no
dealings with any broker or agent in connection with the
negotiation or execution of this Lease other than Cushman &
Wakefield of Texas, Inc. and, JPI Realty, Inc. hereinafter
collectively referred to as the "Brokers". Each party hereto agrees
to indemnify the other party against all costs, expenses,
attorneys' fees or other liability for commissions or other
compensation or charges claimed by any broker or agent, other than
Brokers, claiming the same by through, or under it with respect to
the original term thereof or any renewal or extension thereof or
with respect to any expansion of the Leased Premises. The
brokerage commission payable to the Brokers, if any, shall be paid
by Landlord pursuant to the terms of a separate agreement between
landlord and the Brokers.
<PAGE>
35. NOTICES. Each provision of this agreement, or of any
applicable governmental lawn, ordinances, regulations and other
requirements with reference to the sending, mailing or delivery of
any notice, or with reference to the making of any payment by
tenant to Landlord, shall be deemed to be complied with when and
if the following steps are taken:
(a) All rent and other payments required to be made by
tenant to Landlord hereunder shall be payable to Landlord in
Dallas County, Texas. at the address set forth on Page 1
hereof or at such other address as Landlord may specify from
time to time by written notice delivered in accordance
herewith.
(b) Any notice or document required to be delivered
hereunder shall be deemed to be delivered if actually received
and whether or not received when deposited in the United
States wail, postage prepaid certified or registered mail
(return receipt requested) addressed to the parties hereto at
their respective addresses set forth on Page 1 hereof or at
such other address as either of said parties have theretofore
specified by written notice delivered in accordance herewith.
36. SEVERABILITY. Each and every covenant and agreement
contained in this Lease is, and shall be construed to be, a
separate and independent covenant and agreement. If any term or
provision of this Lease or the application thereof to any person
or circumstances shall to any extent be invalid and unenforceable,
the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to which
it is invalid Or unenforceable, shall not be affected thereby.
37. NO MERGER. There shall be no merger of this Lease or of
the leasehold estate hereby created with the fee estate in the
Leased Premises or any part thereof by reason of the fact that the
same person may acquire or hold, directly or indirectly, this
Lease or the leasehold estate hereby created or any interest in
this Lease or in such leasehold estate as welt as the fee estate
in the Leased Premises or any interest in such fee estate.
38. FORCED MAJEURE. Whenever a period of time is herein
prescribed for action to be taken by Landlord or Tenant, such
party shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time, any
delays due to strike, acts of God, shortages of labor or
materials, war, governmental laws, regulations, restrictions, or
any other cause of any kind whatsoever which is beyond the
reasonable control of such party; provided, however, that the
foregoing shall not in any event excuse Tenant from the prompt
payment of rent or any other monetary obligations hereunder.
39. GENDER. Words of any Lender used in this Lease shall be
held and construed to include any other gender and words in the
singular number shall be held to include the plural, unless the
context otherwise requires.
40. JOINT SEVERAL ABILITY. If there be more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and
several.
<PAGE>
41. NO REPRESENTATIONS. Landlord or Landlord's agents have
made no representations or promises with respect to the Leased
Premises, the Building licenses are acquired by Tenant by
implication or otherwise except as expressly set forth in the
provisions of this Lease.
42. ENTIRE AGREEMENT This Lease sets forth the entire
agreement between the parties and no amendment or modification of
this Lease shall be binding or valid unless expressed in a writing
executed by both parties hereto.
43. PARAGRAPH HEADINGS Paragraph headings contained in this
Lease are for convenience only and shall in no way enlarge or
limit the scope or meaning of the various and several paragraphs
hereof.
44. BINDING EFFECT. All of the covenants, agreements, terms,
and conditions to be observed and performed by the parties hereto
shall be applicable to and binding upon their respective heirs,
personal representatives, successors, and to the extent assignment
is permitted hereunder, their respective assigns,
45. RIDERS AND EXHIBITS. the following numbered Riders and
lettered Exhibits are attached hereto and incorporated herein by
reference for all purposes.
Riders No. 1 and 2
Exhibits No. A, B. C, and D
46. EXECUTION OF LEASE BY LANDLORD. Except for the person
executing this lease as an officer of Landlord, employees or agents of
Landlord, or of Landlord's broker, if any, have no authority to make or
agree to make a lease or any other agreement or undertaking in
connection herewith. The submission of this document for examination
and negotiation does not constitute an offer to lease, or a reservation
of, or option for, the Leased Premises and this document becomes
effective and binding only upon the execution and delivery hereof by
Landlord and Tenant. All negotiations, considerations, representations
and understandings between Landlord and Tenant are incorporated herein
and may be modified or altered only by agreement in writing between
Landlord and Tenant, and no act or omission or any employee or agent of
Landlord or of Landlord's broker, if any, shall alter, change or modify
any of the provisions herof.
LANDLORD:
WESTERN ATLAS INTERNATIONAL, INC.
BY: /S/
------------------------------
Printed Name:
Title:
TENANT:
CARRINGTON LABORATORIES, INC.
BY: /S/
------------------------------
Printed Name:
Title:
<PAGE>
EXHIBIT "B"
To Lease By and Between
WESTERN ATLAS INTERNATIONAL, INC, as Landlord
and
CARRINGTON LABORATORIES, INC., as Tenant
Building Rules and Regulations
1. No birds, animals, reptiles, or any other creatures, shall
be brought into or about the Building.
2. Nothing shall be swept or thrown into the corridors, halls,
elevator shafts or stairways.
3. Tenant shall not make or permit any improper noises in the
Building, create a nuisance, or do or permit anything which, in
Landlord's reasonable judgment, interferes in any way with other
tenants or persons having business with them.
4. No equipment of any kind shall be operated on the Leased
Premises that could in any way annoy any other tenant in the
Building without the prior written consent of Landlord.
5. Tenant shall cooperate with Building employees in keeping
the Leased Premises neat and clean
6. Corridor doors, when not in use, shall be kept closed.
7. No bicycles or similar vehicles will be allowed in the
Building.
8. Tenant will refer all contractors, contractor's
representatives, and installation technicians rendering any
service on or to the leased premises for Tenant to Landlord, for
Landlord's approval and supervision for performance of any
contractual service. This provision shall apply to all work
performed in the Building, including installation of telephones,
telegraph equipment, electrical devices, and attachments and
installations of any nature affecting floors, walls, woodwork,
trim, windows, ceiling, equipment, or any other physical portion
of the Building.
9. No nails, hooks, or screws shall be driven into or inserted
in any part of the Building except by Building maintenance
personnel.
<PAGE>
10. Sidewalks, doorways, vestibules, halls, stairways, and
similar areas shall not be obstructed by Tenant or its officers,
agents, servants, and employees, or used for any purpose other
than ingress and egress to and from the Leased Premises, or for
going from one part of the Building to another part of the
Building. No furniture shall be placed in front of the Building,
or in any lobby or corridor without written consent of Landlord.
11. Tenant, its employees, or agents, or anyone else who
desires to enter the Building after normal working hours, will be
required to sign in upon entry and sign out upon leaving, giving
the location during their stay and their time of arrival and
departure. Normal working hours means 7:30 a.m. until 6:00 p.m.
daily and 8:0O a.m. until 1:00 p.m. on Saturdays, holidays
excepted, but the Building will be accessible by sign-in twenty-
four (24) hours per day.
12. All deliveries must he made via the service entrance and
service elevator, when provided during normal working hours or at
such times as Landlord lay determine. Prior approval must be
obtained from the Landlord for all deliveries that must be
received after normal working hours.
13. Landlord or its agents or employees shall have the right
to enter the Leased Premises to examine the same or to make such
repairs, alterations, or additions as Landlord shall deem
necessary for the safety, preservation, or improvement of the
Building.
14. Landlord has the right to evacuate the Building in the
event of an emergency or catastrophe.
15. Tenant shall not do anything, or permit anything to be
done, in or about the building, or bring to keep anything
therein, that will in any way increase the possibility of fire or
other casualty, or do anything in conflict with the valid laws,
rules, or regulations of any governmental authority.
16. Tenant shall notify the Building Manager when safes or
other equipment are to be taken into or out of the Building.
Moving of such items shall be done under the supervision of the
Building Manager, after receiving written permission from him.
17. Landlord shall have the power to prescribe the weight and
position of safes or other heavy equipment, which may overstress
any portion of the floor. All damage done to the Building by the
improper placing of heavy items which overstress the floor will
be repaired at the sole expense of the Tenant.
18. No food shall be distributed from tenant's office without
the prior written approval of the Building Manager.
19. No additional locks shall be placed upon any doors
without the prior written consent of Landlord, All necessary keys
shall be furnished by Landlord, and the same shall be surrendered
upon termination of this Lease and Tenant shall then give
Landlord or his agent an explanation of the combination of all
locks on the doors and vaults.
<PAGE>
20. Tenant shall comply with parking rules and regulations as
may be posted and distributed from time to time.
21. Plumbing and appliances shall be used only for the
purposes for which constructed, and no sweeping, rubbish, rags,
or other unsuitable material shall be thrown or placed therein.
Any stoppage or damage resulting to any such fixtures or
appliances from misuse on the part of Tenant or Tenant's
officers, agents, servants, and employees shall be paid by
Tenant.
22. No signs, posters, advertisements, or notices shall be
painted or affixed on any of the windows or doors, or other parts
of the Building, except in such color, size, and style, and in
such places, as shall be first approved in writing by Landlord.
There shall be no obligation or duty on Landlord to give such
approval. Building standard suite identification signs will be
prepared by a sign writer, approved by Landlord. The cost of the
Building standard sign will be paid by Tenant. Landlord shall
have the right to remove all unapproved signs without notice to
Tenant, at the expense of Tenant. Directories will be placed by
Landlord at Landlord's own expense, inconspicuous places in the
Building. No other directories shall be permitted.
23. No portion of the Building shall be used for the purpose
for lodging rooms or any immoral or unlawful purposes.
24. Vending machines or dispensing machines of any kind will
not be placed in the Leased Premises by Tenant unless prior
written approval has been obtained from Landlord.
25. Prior written approval, which shall be at Landlord's sole
discretion, must be obtained for installation of any solar screen
material, window shades, blinds, drapes, awnings, window
ventilators, or other similar equipment and any window treatment
of any kind whatsoever. Landlord will control all internal
lighting that may be visible from the exterior of the Building
and shall have the right to change any unapproved lighting,
without notice to Tenant, at Tenant's expense.
26. Holidays as defined in this agreement include New Year's
flay, Memorial Day, Independence Day, Labor flay, Thanksgiving, and
Christmas.
27. Landlord reserves the right to rescind any of these rules
and make such other future rules and regulations as in the judgment
of Landlord shall from time to time be Deeded for the safety,
protection, care, and cleanliness of the Building, the operation
thereof, the preservation of good order therein, and the protection
and comfort of its tenants, their agents, employees, and invitees,
which rules when made and notice thereof given to a tenant, shall
be binding upon him in like manner as if originally herein
prescribed.
28. Tenant shall at all times keep a chair pad under every
chair, which has rollers and is located in a carpeted area.
29. Landlord will require all employees and visitors to wear
identification badges as prescribed by the Landlord at all times.
Landlord shall exercise reasonable discretion in refusing entry to
any person not wearing such identification.
<PAGE>
RIDER NO. 1
To Lease By and Between
WESTERN ATLAS INTERNATIONAL INC., as Landlord
and
CARRINGTON LABORATORIES INC., as Tenant
1. Cancellation Option. Either party hereto may cancel and
terminate this lease by giving the other party three hundred and
sixty five (365) days written notice thereof; provided, however,
that Tenant ray not cancel and terminate this Lease if Tenant is
in default hereunder either when the cancellation option is
exercised or on the date such cancellation is effective.
2. Parking. Parking facilities are available for the
Building in an uncovered parking area in close proximity to the
Building on a first-come first-served basis. So long as Tenant is
not in default under the terms of this Lease, Tenant shall have
the right to use such facilities on a first-come first-served
basis for parking by tenant and Tenant's employees, visitors and
invitees without charge. Landlord, however, reserves the right at
any time during the term of this lease to designate the area which
Tenant may use for parking of vehicles, which area shall be larger
than an area large enough to park forty-two (42) vehicles, In
addition, Landlord in any case will designate six (6) parking
spaces in reasonable proximity of the building for the exclusive
use of Tenant's executives.
<PAGE>
RIDER NO. 2
To Lease By and Between
WESTERN ATLAS INTERNATIONAL. INC., as Landlord
and
CARRINGTON LABORATORIES INC., as Tenant
Option to Extend
Tenant at its option may extend the term of this Lease for an
additional three (3) years by serving written notice thereof upon
landlord at least six (6) months before the expiration of the
initial term hereof, provided that at the time of such notice and
at the commencement of such extended term, there shall exist no
event of default as defined in this Lease. Upon the service of
said notice, this Lease shall be extended without the necessity of
the execution of any further instrument or document. Such extended
term shall commence upon the expiration date of the initial term
of this lease, expire upon the annual anniversary of said date
three (3) years thereafter, and be upon the same terms, covenants
and conditions as provided in this Lease for the initial term,
except that the Minimum Rent payable during the extended term
shall be at the prevailing rate as determined by Landlord for
comparable space in the Las Colinas Development market area, at
the commencement of such extended term,
Payment of all additional rent and other charges required to
be made by Tenant as provided in this lease for the initial term
shall continue to be made during such extended term. Any
termination of this lease during the initial term shall terminate
all rights of extension hereunder, The terms of this option are
personal to the Tenant and will not inure to the benefit of any
assignee or subtenant of Tenant.
<PAGE>
EXHIBIT "A"
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "C"
To Lease By and Between
WESTERN ATLAS INTERNATIONAL, INC., as Landlord
and
CARRINGTON LABORATORIES, INC, as Tenant
Being all of Las Colinas, Area IV, First Installment Revised
Plot, an addition to the City of Irving, Texas according to
the Plat thereof recorded in Volume 81119, Page 0383, of the
Deed Records of Dallas County, Texas.
<PAGE>
EXHIBIT "D"
To Lease Agreement
By and Between
WESTERN ATLAS INTERNATIONAL, INC., as Landlord
and
CARRINGTON LABORATORIES, INC., as Tenant
It is understood and agreed that:
A. PLANS AND SPECIFICATIONS. Landlord agrees to prepare the
initial plans and specifications (the "Initial Plans") for the
completion of a dividing wall in the large open area shown generally
on Schedule "1" attached hereto and made a part hereof to provide
for an office for the medical director and his secretary, which
improvements are hereinafter referred to as the "Tenant Finish", and
to submit the Initial Plans to Tenant for Tenant's approval as soon
as practical after receiving Tenant's construction requirements,
which construction requirements shall be submitted to Landlord
within ten (10) days after the date of this Lease. Tenant shall,
within fifteen (15) days after receipt of such Initial Plans from
Landlord, either approve or disapprove the sane: provided, however,
that should tenant request any changes in the Initial Plans which
vary from Tenant's original requirements, any redrawing of such
Initial Plans shall be accomplished at Tenant's sole cost and
expense. If Tenant disapproves the same, Tenant shall specify in
reasonable detail the reasons for any such disapproval. Any
redrawing of the Initial Plans or changes therein occasioned by
Tenant necessitated because of objections which are contrary to
Tenant's original requirements submitted to Landlord and/or after
Tenant's initial approval shall be accomplished at Tenant's sole
cost and expense. The cost of such redrawing shall be paid by Tenant
as additional rent hereunder within ten (10) days after tenant's
receipt of Landlord's written demand therefor. Failure of Tenant to
respond within the aforesaid fifteen (15) day period shall be deemed
to be approval of such Initial Plans. In the event the Initial Plans
have not been approved by Landlord and Tenant within sixty (60) days
from the date of this Lease, Landlord shall have the right to cancel
and terminate this Lease. The Initial Plans which are approved as
aforesaid are hereinafter referred to as the Plans'.
<PAGE>
B. CONSTRUCTION. Landlord will construct the Tenant Finish in
the Leased Premises with reasonable diligence after the Plans are
approved pursuant to the terms of Paragraph A hereof.
C. OCCUPANCY AND RISK OF LOSS. It Is understood and agreed
that Tenant is occupying the Leased Premises under the terms of
that certain Lease dated December 4, 1987, as amended (the
"Carrington Lease"), which Lease was terminated by Letter dated
January 1, l99l effective as of December 31, 1991. The Tenant
Finish which Landlord has agreed to perform hereunder will be
performed during the term of the Carrington tease. Tenant agrees to
cooperate fully with Landlord in the performance of the tenant
Finish in the Leased Premises, Tenant agrees that Landlord shall
not be liable for any claims, losses or damage caused to persons or
property in the Leased Premises during the performance of the
Tenant finish unless such clams, losses or damage is caused by the
malicious, willful or grossly negligent acts of Landlord or
Landlord's employees or agents, Except for the Tenant Finish which
landlord has agreed to perform as aforesaid, Tenant has inspected
the Leased Premises and accepts the same as-is" without any
warranty whatsoever, either express or implied:
Exhibit 10.5
FIRST LEASE AMENDMENT
STATE OF TEXAS
COUNTY OF DALLAS
THIS AGREEMENT is entered into as of the 16th day of
April, 1992 by and between WESTERN ATLAS INTERNATIONAL INC.,
hereinafter referred to as "Landlord", and CARRINGTON
LABORATORIES INC., hereinafter referred to as "tenant", to be
effective on the Effective Date, as hereinafter defined.
W I T N E S S E T H:
WHEREAS, by Lease dated August 30, 1991 (the "Lease"),
Landlord leased to Tenant approximately 21,733 square feet of
space in the Building known as the Core Laboratories Building,
1300 East Rochelle Boulevard, Irving, Texas 75062-3963 (the
"Building"); and
WHEREAS, Landlord has agreed to lease Tenant an additional
approximately 1,551 square feet of space located in the Building
and described as follows:
Room Nos. Approximate Net Rentable Area
--------- -----------------------------
A-1060 - Office 261 square feet
A-1061 - Office 184 square feet
A-1062 - Office 184 square feet
A-1065 - Office 193 square feet
A-1066 - Office 165 square feet
A-1026 - Office 197 square feet
-----------------
Sub-Total 1,184 square feet
A-1070 - Conference 367 square feet
Room
-----------------
Total 1,551 square feet
all of which space is shown crosshatched on Exhibit "A" attached
hereto and made a part hereof for all purposes (the "Additional
Space"), which Additional space will effectively increase the
aggregate square footage covered by the Lease to approximately
23,284 square feet of space as of the Effective Date.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and
other good and valuable consideration the receipt and adequacy of
which is hereby acknowledged, the parties hereto do hereby agree
that the Lease is amended and modified as follows effective as of
the first to occur of (i) the date Landlord notifies Tenant in
writing that the Tenant finish has been completed in the
Additional Space in accordance with the terms of Exhibit "B"
attached hereto and made a part hereof for all purposes; or (ii)
on the date Landlord would have completed the Tenant Finish in the
Additional Space in accordance with Exhibit "B" hereof except for
delays caused by Tenant or by the agents, employees or contractors
of Tenant; or (iii) on the date Tenant actually takes possession
of all or any part of the Additional Space, or (iv) May 1 1992,
the first of which dates is herein referred to as the "Effective
Date":
1. Area. The figure 21,733 square feet set out in Paragraph
l(a) of the Lease and wherever the figure appears in the
Lease is hereby deleted and the figure 23,284 is hereby
substituted therefor.
2. Minimum Rent. The Minimum Rent of $18,110.83 per month set
out in the first (lst) line of Subparagraph 1(k) of the
Lease is increased to $19,403.33 per month, and the
$20,374.69 per month set out in the third (3rd) line of
Subparagraph 1(k) of the Lease is hereby increased to
$21,828.75 per month. Minimum Rent for the calendar month
when the Effective Date occurs shall be prorated on the
basis of the number of days in that calendar month.
3. Operating Costs. The date "January 1, 1992" contained in the
third line of the third grammatical paragraph of Paragraph 8
is hereby deleted and the date "January 1, 1993" is hereby
substituted therefor.
4. Construction Landlord shall construct the Tenant Finish in
the Additional Space in accordance with the terms of Exhibit
"B" hereto.
The Lease as hereby amended is hereby ratified and confirmed as
being in full force and effect. This Agreement shall be binding on the
parties hereto and their respective successors and assigns: subject,
however, to the terms of the Lease as hereby amended.
<PAGE>
EXECUTED as of the date first hereinabove set out.
LANDLORD:
WESTERN ATLAS INTERNATIONAL, INC.
BY: /s/
__________________________
Printed Name:
Title:
TENANT:
CARRINGTON LABORATORIES, INC.
BY: /s/
__________________________
Printed Name:
Title:
<PAGE>
EXHIBIT A
[ FLOOR PLAN APPEARS HERE ]
<PAGE>
EXHIBIT "B"
to First Lease Amendment (the "Agreement")
By and Between
WESTERN ATLAS INTERNATIONAL, INC. , as Landlord
and
CARRINGTON LABORATORIES. INC., as Tenant
It is understood and agreed that:
A. Landlord agrees at Landlord's sole cost and expense
to construct (i) approximately fifteen (l5) linear feet of
demising wall, taped, bedded and painted with one (1) coat of a
Building standard paint matching the existing walls, and (ii) one
(1) Building standard emergency exit door with Building standard
hardware to create an exit to the Building lobby and entry to the
A-1 level of the Building. The work hereinbefore provided for is
referred to in this Agreement as the "Tenant Finish". All other
parts of the Additional Space have been inspected by Tenant and
are accepted "as-is" without any warranty whatsoever, either
express or implied.
B. ACCEPTANCE: tenant shall within twenty (20) days after
the Effective Date provide Landlord with a so-called punch list
of incomplete work and if such work is Landlord's obligation
hereunder, such work shall be completed by Landlord with
reasonable diligence under the circumstances. Any Tenant Finish
not listed on the punch list shall be deemed accepted and
completed in accordance with the terms hereof.
C. If Landlord shall be delayed in substantially completing
the Tenant Finish as a result of:
(a) Tenant's failure to promptly and timely furnish any
information required by Landlord; or
(b) Tenant's request for materials, finishes or
installations other than Landlord's Building Standard;
or
(c) the performance of work by or on behalf of Tenant
during the early occupancy period provided for in
Paragraph D hereof by a person, firm or corporation
employed by Tenant and the completion of said work by
said person, firm or corporation (all such persons,
firms or corporations being subject to the approval of
Landlord);
then the Effective Date shall be accelerated by the number of
days of such delays.
<PAGE>
D. Landlord will permit Tenant and its agents to enter the
Additional Space prior to the Effective Date in order that Tenant
may perform through its own contractors (to be first approved by
Landlord) such other work and decorations as Tenant may desire at
the same time that Landlord's contractors are working in the
Additional Space. The foregoing license to enter prior to the
Effective Date, however, is conditioned upon Tenant's workmen and
mechanics working in harmony and not interfering with the labor
employed by Landlord, Landlord's mechanics or contractors or by
any other tenant or their contractors. Such license is further
conditioned upon Worker's Compensation and public liability
insurance for bodily injury and property damage, all in amounts
and with companies and on forms satisfactory to Landlord, being
provided and at all times maintained by Tenant's contractors
engaged in the performance of the work, and certificates of such
insurance being furnished to Landlord prior to proceeding with
the work. If at any time such entry shall cause disharmony or
interference therewith, this license may be withdrawn by Landlord
upon forty-eight (48) hours written notice to Tenant. Such entry
conditions shall be deemed to be under all of the terms,
covenants, provisions and conditions of the Lease, except as to
the covenant to pay the additional Minimum Monthly Rent provided
for in Paragraph 2 of this Agreement unless otherwise provided
for herein. Landlord shall not be liable in any way for any
injury, loss or damage which may occur to any of Tenant's
decorations or installations so made prior to the Effective Date,
the same being solely at Tenant's risk, and Tenant shall hold
Landlord harmless from any claim, demand or action arising from
activities of Tenant's contractors, workmen or mechanics.
Exhibit 10.6
SECOND LEASE AMENDMENT
STATE OF TEXAS
COUNTY OF DALLAS
THIS AGREEMENT is entered into as of the 23rd day of
September, 1993, by and between WESTERN ATLAS INTERNATIONAL, INC.,
hereinafter referred to as "Landlord", and CARRINGTON
LABORATORIES INC., hereinafter referred to as "Tenant", to be
effective on the Effective Date, as hereinafter defined.
W I T N F S S E T H:
WHEREAS, by Lease dated August 30, 1991 (the "Lease
Agreement"), Landlord leased to Tenant approximately 21,733 square
feet of space in the building known as the Core Laboratories
Building, 1300 East Rochelle Boulevard, Irving, Texas 75062-3963
(the "Building") and
WHEREAS, by First Lease Amendment, dated April 16, 1992 (the
"First Amendment") Landlord leased to Tenant an additional
approximately 1,551 square feet of space located in the Building
and described in the First Amendment; and
WHEREAS, the Lease Agreement and First Amendment are
hereinafter collectively referred to as the "Lease"; and
WHEREAS, Landlord and Tenant desire to add an additional
approximately 862 square feet of space to the Leased Premises
(being A-1047, A-l048 and A-1069) which space is shown
crosshatched on Exhibit "A" attached hereto and made a part hereof
for all purposes (the "Additional Space"), which Additional
space will effectively increase the aggregate square footage
covered by the Lease to approximately 24,146 square feet of space
as of the Effective Date.
NOW, THEREFORE, for and in consideration of the premises and
other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto do hereby agree
that the lease is amended and modified as follows effective as of
January 1, 1994.
1. Area. The figure 23,284 square feet set out in Paragraph
1(a) of the Lease and wherever the figure appears in the
Lease is hereby deleted and the figure 24.146 is hereby
substituted therefor.
<PAGE>
2. Minimum Rent. The Minimum Rent of $19,403.33 per month
set out in the first (1st) line of Subparagraph 1(k) of
the Lease is increased to $20,122.33 per month, and the
$21,828.75 per month set out in the third (3rd) line of
Subparagraph 1(k) of the Lease is hereby increased to
$22,637.75 per month.
3. Exhibit "D" and Schedule "1" to the Lease are hereby
deleted.
4. Operating Costs. The base year for operating cost
increases for the Additional Space only shall be amended
to mean Operating Costs for the 1993 calendar year.
5. Acceptance. Tenant has inspected the Additional Space
"as-is" without any warranty whatsoever, either express
or implied.
The Lease as hereby amended is hereby ratified and confirmed
as being in full force and effect. This Agreement shall be
binding on the parties hereto and their respective successors and
assigns; subject, however, to the terms of the Lease as hereby
amended.
EXECUTED as of the date first hereinabove set out.
LANDLORD
WESTERN ATLAS INTERNATIONAL, INC.
BY: /s/
------------------------------
Printed Name:_________________
Title: _______________________
TENANT:
CARRINGTON LABORATORIES, INC.
BY: /s/
------------------------------
Printed Name:_________________
Title: _______________________
EXHIBIT A
[ FLOOR PLAN APPEARS HERE ]
Exhibit 10.7
THIRD LEASE AMENDMENT
STATE OF TEXAS
COUNTY OF DALLAS
THIS THIRD LEASE AMENDMENT is entered into as of the 1st day of
December, 1994 (the "Amendment Date"), by and between WESTERN ATLAS
INTERNATIONAL, INC., hereinafter referred to as "Landlord", and
CARRINGION LABORATORIES, INC., hereinafter referred to as "Tenant".
W I T N E S S E T H:
WHEREAS, by a lease dated August 30, 1991 (the "Lease Agreement"),
Landlord leased to Tenant the Leased Premises described in such Lease
Agreement; and
WHEREAS, the Lease Agreement was amended by a First Lease
Amendment, dated as of April 16, 1992 (the "First Amendment"), by and
between Landlord and Tenant; and
WHEREAS, the Lease Agreement was amended by a Second Lease
Amendment, dated as of September 23, 1993 (the "Second Amendment"), by
and between Landlord and Tenant; and
WHEREAS, the parties here to desire to further amend the Lease
Agreement as hereinafter provided for.
NOW, THEREFORE, for and in consideration of the premises and other
good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree that the said
Lease Agreement is amended and modified as follows:
1. Lease Term. Subparagraph 1(h) of the Lease Agreement is hereby
deleted in its entirety and the following is substituted in lieu
thereof:
(h) "Lease Term": The period commencing on the Amendment
Date and ending on January 31, 2000, unless sooner
terminated as provided in the Lease Agreement.
2. Minimum Rent. Subparagraph 1(k) of the Lease Agreement is here in
its entirety and the following is substituted lieu thereof:
<PAGE>
(k) "Minimum Rent" shall mean the amount per monthly
rental per month specified below commencing on the
Amendment Date and continuing on or before the
first day of each month of the Lease Term hereof:
Monthly Annual
Months Rental $/Sq. Ft.
------ ------ ---------
Dec. 1994 $ -0- -0-
Jan. 1995 $ -0- -0-
Feb. 1995 - Jan. 1996 $21,631 $ 10.75
Feb. 1996 - Jan. 1997 $21,631 $ 10.75
Feb. 1997 - Jan. 1998 $22,637 $ 11.25
Feb. 1998 - Jan. 1999 $23,643 $ 11.75
Feb. 1999 - Jan. 2000 $23,643 $ 11.75
3. Overtime HVAC Charge. The phrase "$50.00 per hour" in subparagraph
1(m) of the Lease Agreement is hereby amended to read as follows:
"$10.00 per hour so long as the building central plant is
being operated for another tenant, of the building and if
such central plant is not being operated for another such
tenant, $25.00 per hour."
4. Supplemental After-Hours Air Conditioning System. Paragraph 5 of the
Lease Agreement is hereby amended by adding the following sentence to
the end of such Paragraph 5:
"Landlord shall on or prior to February 1, 1995, at
Landlord's sole cost, install a supplemental after-hours
air conditioning system for approximately 1,200 square
feet of the Leased Premises, in which case Tenant shall
be responsible for metered electrical usage of such air
conditioning system)"
5. Base Year. The Base Year defined in Paragraph 8 of the Lease
Agreement is hereby amended to delete "1992" (which reference was
amended by the Second Lease Amendment to "1993") and substitute in lieu
thereof "1994".
<PAGE>
6. Audit of Operating Costs. Paragraph 8 of the Lease Agreement is
hereby amended by adding the following subparagraph to the end of such
Paragraph 8:
"Tenant shall have the right to examine and audit Landlord's
books and records pertaining to Landlord's determination of
Tenant's proportionate share of Excess Operating Costs by giving
Landlord written notice within one hundred and twenty (120) days
after Tenant's receipt of Landlord's statement to Tenant of
Tenant's proportionate share of Excess Operating Expenses for any
calendar year pursuant to the provisions of Paragraph B hereof.
Any such audit shall be conducted within one hundred and twenty
(120) days from the date of Tenant's notice and shall be
conducted during normal business hours in such a manner as not to
interfere with Landlord's operations. In the event such audit
reasonably concludes that Landlord has overstated the actual
Tenant's proportionate share of Excess Operating Costs by more
than five percent (5%) in any calendar year, Landlord shall
reimburse Tenant for the reasonable cost of such audit."
7. Cancellation Option. Paragraph 1 of Rider No, 1 to the Lease
Agreement is hereby deleted in its entirety.
8. Option to Extend. The references to "three (3) years" in Rider No. 2
to the Lease Agreement are hereby amended to be "five (5) years".
The Lease Agreement as hereby amended is hereby ratified and
confirmed by the parties hereto as being in full force and effect.
This Third Lease Amendment shall be binding on the parties hereto
and their respective successors and assigns; subject, however, to the
terms of the Lease Agreement as hereby amended.
EXECUTED as of the day first hereinabove set out.
LANDLORD TENANT
WESTERN ATLAS INTERNATIONAL. INC. CARRINGTON LABORATORIES, INC.
By: /s/ By: /s/
----------------------------- -----------------------------
Name: ___________________________ Name: _______________________
Title: __________________________ Title: ______________________
Exhibit 10.08
FOURTH LEASE AGREEMENT
STATE OF TEXAS
COUNTY OF DALLAS
This Fourth Less. Amendment (this "Amendment") is made and
entered into by and WESTERN ATLAS INTERNATIONAL, INC., a Delaware
Corporation "Landlord". And CARRINGTON LABORATORIES, INC., a Texas
corporation ("Tenant"), effective as of August 31, 1999 (the
"Effective Date") Capitalized Terms used herein and not otherwise
defined shall have the meanings assigned to such terms In the Lease
(hereinafter defined).
WITNESSETH:
WHEREAS. Landlord and Tenant entered into that certain Lease
Agreement dated effective August 30, 1991 (as amended, the "Lease"),
pursuant to which Landlord agreed to lease to Tenant and Tenant agreed
to Lease from Landlord approximately 21.733 square feet of space (the
"Premises") In the building located at 1300 East Rochette Boulevard,
Irving, Texas (the "Building"; and
WHEREAS the Lease was previously amended by that certain First
Lease Amendment between Landlord and Tenant dated April 16, 1992,
Increasing the area of the Premises to approximately 23,284 square
feet of space; and
WHEREAS, the Lease was previously amended by that certain Second
Lease Amendment between Landlord and Tenant dated September 23, 1993,
increasing the areas of the Premises to approximately 24,146 square
feet of space: and
WHEREAS, the Lease was previously amended by that Certain Third
Lease Amendment between Landlord and Tenant dated December 1, 1994,
extending the, term of the Lease to January 31, 2000 and making
certain other changes to the original Lease;
WHEREAS, the Lease currently contains an option to extend the
term for a period of five (5) calendar years from February 1, 2000,
though January 31, 2005 which was recently exercised by Tenant and
WHEREAS, Landlord and Tenant have agreed to amend the Lease to
reduce the length of the renewal term to eighteen (18) months and to
set the amount of Minimum Rent applicable during the renewal term, and
WHEREA, Landlord and Tenant have agreed to make certain other,
changes in the terms and provisions of the Lease as hereafter provided
and desire to execute this Amendment to set forth in writing all such
changes;
<PAGE>
NOW, THEREFORE KNOW ALL MEN BY THESE PRESENTS:
THAT, for and in consideration of the premises and of Ten and
No/100 Dollars ($10.00) and other good and valuable consideration paid
by Tenant to Landlord, the receipt and sufficiency of which are hereby
acknowledged, Landlord end tenant do hereby covenant and agree as
follow.:
1. Notwithstanding anything contained in the Lease or Tenant's.
prior election to extend the Lease Term for five (5) years, the Term
of the Lease is hereby amended so that the Lease Term shall end on,
July 31. 2001. Landlord and Tenant hereby agree that Tenant Shall
have no further right to extend the Lease Term beyond July 31, 2001,
and Tenant hereby waives any and all such rights.
2. Minimum Rent for the Premises during period from February 1,
2000, through July 31, 2001, shall be Forty Thousand Two Hundred Forty
and 33/100 Dollars per month.
3. Commencing February 1, 2000, there shall no longer be a "Base
Year" under the Lease and Tenant shall no longer be responsible for
payment of Operating Costs. Accordingly, Section 8 of the Lease is
hereby deleted in its entirety and the Lease is hereby amended to
delete all reference therein to a "Base Year" or "Operating Costs."
4. Section 30 of the Lease is hereby amended by deleting the
phrase 15O% of the monthly rent contained in the fifth line, thereof
and replacing it with the phrase "300% of the monthly rent."
5. During the remainder of the Term, Tenant agrees to use "best
management practices' with respect to the hazardous waste and
hazardous materials that it handles in the Premises, as such term is
used and prescribed by law U.S. Environmental Protection Agency, the
Texas Natural Resources Conservation Commission, the National Fire
Protection Association and the U.S. Occupational Safety and Health
Administration
As hereby expressly amended, the Lease is ratified and confirmed
to be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the date first set forth above.
WESTERN ATLAS INTERNATIONAL, INC.
By: /s/
-----------------------------
Name: C.S. Finley
Title: Vice Presldent
CARRINGTON LABORATORIES, INC.
By: /s/
-----------------------------
Name: Carlon E. Turner, Ph. D.
Title: President & Chief
Executive Officer
Exhibit 10.9
AS AMENDED THROUGH
JUNE 15, 1995
CARRINGTON LABORATORIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Section 1. Purpose. It is the purpose of the Plan to promote the
interests of the Company and its shareholders by providing a method by
which eligible employees may use voluntary payroll deductions to
purchase shares of Common Stock at a discount, thereby affording them
the opportunity to invest in the Company at a preferential price, and
to acquire a proprietary interest in the Company and an increased
personal interest in its continued success and progress. The Plan is
intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code and shall be construed accordingly.
Section 2. Definitions. As used herein the following terms have
the following meanings:
(a) "Affiliate" means any corporation that is a subsidiary
corporation of the Company within the meaning of Section 424(f) of
the Code and that has been designated by the Committee as an
Affiliate for purposes of the Plan.
(b) "Board of Directors" means the Board of Directors of
the Company.
(c) "Code" means the United States Internal Revenue Code of
1986, as from time to time amended.
(d) "Committee" means the Committee described in Section 4
hereof.
(e) "Common Stock" means the $.01 par value Common Stock of
the Company.
(f) "Company" means Carrington Laboratories, Inc.
<PAGE>
(g) "Compensation" means (i) with respect to a salaried
employee, the basic annual salary of such employee as of the first
day of the Plan Year (except with respect to a salaried employee
whose participation in the Plan begins on an Enrollment Date other
than January 1, in which case, for the Plan Year in which such
participation begins, "Compensation" means that portion of the
basic annual salary of such employee, as of the Enrollment Date on
which such participation begins, that is payable for the period
from such Enrollment Date through the remainder of that Plan
Year), and shall not include bonuses, overtime pay, allowances,
commissions, deferred compensation payments or any other
extraordinary compensation, and (ii) with respect to an hourly
compensated employee, the straight-time hourly rate of pay of such
employee as of the first day of the Plan Year, multiplied by 2,080
(except with respect to an hourly compensated employee whose
participation in the Plan begins on April 1, July 1 or October 1,
in which case, for the Plan Year in which such participation
begins, "Compensation" means the straight-time hourly rate of pay
of such employee as of such April 1, July 1 or October 1,
multiplied by 1,560, 1,040 or 520, respectively), and shall not
include bonuses, overtime pay, premium pay or other irregular
payments. The Compensation of an employee who does not receive
salary or wages computed in United States dollars shall be
determined by converting such salary or wages into United States
dollars in accordance with the Compensation Exchange Rate.
(h) "Compensation Exchange Rate" means the New York foreign
currency exchange rate as reported in The Wall Street Journal for
the last business day in December immediately preceding the first
day of the Plan Year.
(i) "Eligible Employee" means any employee of the Company
or an Affiliate who is eligible to participate in the Plan
pursuant to Section 5 hereof.
(j) "Enrollment Date" means any January 1, April 1, July 1
or October 1 of any Plan Year.
(k) "Fair Market Value" means the closing sale price on the
date in question (or, if there was no reported sale on such date,
on the last preceding day on which any reported sale occurred) of
the Common Stock on the Nasdaq National Market or any national
stock exchange or other stock market on which the Common Stock may
from time to time be traded.
(l) "Option" means any option to purchase shares of Common
Stock granted by the Committee pursuant to the provisions of the
Plan.
(m) "Participant" means an Eligible Employee who elects to
participate in the Plan pursuant to Section 6 hereof.
(n) "Plan" means this Carrington Laboratories, Inc.
Employee Stock Purchase Plan.
(o) "Plan Year" means each period beginning on January 1
and ending on the following December 31, commencing January 1,
1993.
<PAGE>
Section 3. Number of Shares. The aggregate number of shares of
Common Stock issued pursuant to Options granted under the Plan shall
not exceed a total of 500,000 shares. The maximum number of shares of
Common Stock available for sale under the Plan is subject to adjustment
as provided in Section 14. The Common Stock to be delivered upon
exercise of Options may consist of authorized but unissued shares of
Common Stock or shares of Common Stock previously issued and reacquired
by the Company.
Section 4. Administration of the Plan. The Plan shall be
administered by the Committee, which shall consist of three or more
employees of the Company. Each member of the Committee shall be
appointed by and shall serve at the pleasure of the Board of Directors.
The Board of Directors shall have the sole continuing authority to
appoint members of the Committee both in substitution for members
previously appointed and to fill vacancies however caused. The
following provisions shall apply to the administration of the Plan by
the Committee:
(a) The Committee shall designate one of its members as
Chairman and shall hold meetings at such times and places as it
may determine. Each member of the Committee shall be notified in
writing of the time and place of any meeting of the Committee at
least two days prior to such meeting, provided that such notice
may be waived by a Committee member. A majority of the members of
the Committee shall constitute a quorum and any action taken by a
majority of the members of the Committee present at any duly
called meeting at which a quorum is present (or action unanimously
approved in writing) shall constitute action by the Committee.
(b) The Committee may appoint a Secretary (who need not be
a member of the Committee) who shall keep minutes of its meetings.
The Committee may make such rules and regulations for the conduct
of its business as it may determine.
(c) The Committee shall have full authority subject to the
express provisions of the Plan to interpret the Plan, to provide,
modify and rescind rules and regulations relating to it and to
make all other determinations and perform such actions as the
Committee deems necessary or advisable to administer the Plan.
(d) No member of the Committee shall be liable for any
action taken or determination made in good faith with respect to
the Plan or any Option granted hereunder.
Section 5. Eligible Employees. Each employee of the Company or an
Affiliate shall be eligible to participate in the Plan; provided,
however, that:
(a) An employee shall not be granted an Option if such
employee would, immediately after grant of the Option, own stock
possessing 5% or more of the total combined voting power or value
of all classes of stock of the Company or any parent or subsidiary
corporation of the Company (within the meaning of Section 424(e)
and (f) of the Code). For purposes of determining stock ownership
under this paragraph, the rules of Section 424(d) of the Code
shall apply, and stock which the employee may purchase under any
outstanding options shall be treated as stock owned by the
employee; and
<PAGE>
(b) No employee shall be granted an Option under the Plan
which would permit such employee's rights to purchase shares of
stock under all employee stock purchase plans of the Company and
its parent and subsidiary corporations (within the meaning of
Section 424(e) and (f) of the Code) to accrue (within the meaning
of Section 423(b)(8) of the Code) at a rate which exceeds U.S.
$25,000 of fair market value of such stock (determined at the time
such option is granted) for each calendar year during which any
such option granted to such employee is outstanding at any time.
For purposes of this Section 5, the term "employee" shall not include
an employee whose customary employment is 20 hours or less per week or
is for not more than five months in any calendar year.
Section 6. Method of Participation. Each person who will be an
Eligible Employee on any Enrollment Date may elect to participate in
the Plan by executing and delivering to the Company, on or before such
Enrollment Date, a payroll deduction authorization form as provided in
this Section. Such Eligible Employee shall thereby become a
Participant on such Enrollment Date and shall remain a Participant
until such Eligible Employee's participation is terminated as provided
in Section 11 or 12 hereof; provided, however, that if the Company does
not receive such payroll deduction authorization form in time to
implement the authorized withholding for the payroll period that
includes such Enrollment Date, no withholding shall be made on behalf
of such Participant pursuant to this Plan until the next succeeding
payroll period.
The payroll deduction authorization form executed by a
Participant shall request withholding, by means of substantially equal
payroll deductions over the Plan Year, of an amount which shall be not
more than 10% nor less than 1% of such Participant's Compensation for
the Plan Year. A Participant may change the withholding rate of his or
her payroll deduction authorization within such limits by delivering a
new payroll deduction authorization form to the Company; provided,
however, that a change pursuant to this sentence may be made by each
Participant no more than three times in respect of any Plan Year; and
provided further, that if the Company does not receive such new payroll
deduction authorization form in time to implement the change for the
payroll period during which it receives such form, the change
authorized thereby shall not be made until the next succeeding payroll
period. All amounts withheld in accordance with a Participant's
payroll deduction authorization shall be credited to a withholding
account for such Participant. No interest shall be payable on
withholding accounts.
<PAGE>
Section 7. Grant of Options. Each Participant shall be granted
an Option on the first day of each Plan Year to purchase shares of
Common Stock; provided, however, that a Participant who begins
participation on an Enrollment Date other than January 1 in accordance
with Section 6 shall be granted an Option on such Enrollment Date and
on the first day of each succeeding Plan Year. Each Option shall be
exercisable in installments on the last business day of each calendar
month during the Plan Year, beginning with the month in which the
Option is granted, for the number of whole shares of Common Stock to be
determined by dividing (a) the balance in the Participant's withholding
account on the last business day of the month by (b) the purchase price
per share of the Common Stock as determined under Section 8. In no
event shall the number of shares with respect to which an Option is
granted to a Participant in a Plan Year exceed that number of shares
which has an aggregate Fair Market Value (determined on the date of
grant) of U.S. $25,000, and the number of shares actually purchased by
a Participant in a Plan Year may not exceed this number. The Company
shall reduce, on a substantially proportionate basis, the number of
shares of Common Stock receivable by each Participant upon exercise of
an Option in any month in the event that the total number of shares
then available under the Plan is less than the total number of shares
with respect to which all Participants exercise Options in such month.
Section 8. Option Price. The purchase price per share of Common
Stock under each installment of each Option shall equal the lesser of
(a) 85% of the Fair Market Value per share of Common Stock on the date
of grant of the Option or (b) 85% of the Fair Market Value per share of
Common Stock on the date on which the installment is exercised.
Section 9. Exercise of Options. An employee who is a Participant
in the Plan on the last business day of a month shall be deemed
automatically to have exercised the current installment of the Option
granted to him or her for that Plan Year. Upon such exercise, the
Company shall apply the entire balance of the Participant's withholding
account to the purchase of the maximum number of whole shares of Common
Stock as determined under Section 7. For purposes of this Section 9,
the balance in the withholding account of a Participant whose salary or
wages are not computed in United States dollars shall be converted into
United States dollars in accordance with the New York foreign currency
exchange rate as reported in The Wall Street Journal for the last
business day of the month. Shares of Common Stock purchased for a
Participant under the Plan shall be held in custody for the account of
such Participant as provided in the following paragraph unless he or
she has requested, by written notice to the Company at any time, with
respect to any installment of an Option or with respect to all
installments, that certificates representing shares purchased for his
or her account under the Plan not be held in custody. The Company
shall issue and deliver to the Participant certificates representing
shares for which such a request has been made as soon as practicable
after such shares are purchased, subject to the limitations set forth
in the following sentence of this Section 9. Certificates representing
shares for which such a request has not previously been made and which
are being held in custody shall be issued and delivered to the
Participant as soon as practicable after the end of the month in which
the Participant makes a written request to the Company therefor;
provided, however, that the obligation of the Company to deliver shares
of Common Stock shall be postponed for such period of time as may be
necessary to register or qualify the purchased shares under the
<PAGE>
Securities Act of 1933 and any applicable foreign or state securities
law; and, provided further, that the Participant shall not be entitled
to receive a certificate representing the shares in his or her account
under the Plan, other than at the end of a Plan Year or upon withdrawal
from the Plan pursuant to Section 11 or 12, unless there are ten or
more shares in such account.
The Company shall issue or cause to be issued one or more
global certificates (collectively, the "Global Certificate"), in the
name of an officer or officers of Company designated from time to time
by the Committee to serve as Custodian for Participants in the Plan,
representing all shares purchased for Participants under the Plan that
the Company has not been requested to deliver to the Participants. The
Company shall maintain complete and accurate records indicating the
number of shares purchased for each Participant under the Plan for
which certificates have not been issued and delivered to such
Participant, and the Company shall, no less frequently than quarterly,
deliver reports to such Participants indicating such number of shares
and containing such other information as the Company may deem necessary
or advisable. A Participant shall possess all of the rights and
privileges of a stockholder of the Company with respect to Common Stock
purchased under the Plan upon the issuance to or for the benefit of the
Participant of a certificate or certificates (including the Global
Certificate) representing such shares. The Company shall deliver or
cause to be delivered to each Participant for whom shares of Common
Stock have been purchased under the Plan and are represented by the
Global Certificate all dividends and distributions in respect of such
shares and all notices, proxy statements and other communications to
the Company's shareholders in accordance with applicable law and the
rules and regulations of the Securities and Exchange Commission.
No fractional shares shall be issued upon exercise of any
installment of an Option. Any balance remaining in a Participant's
withholding account following exercise of an installment shall be
returned to the Participant, except that any such balance representing
a fractional share of Common Stock shall be retained in the withholding
account and applied to the purchase of shares in the next month. The
cash proceeds received by the Company upon exercise of an Option shall
constitute general funds of the Company. To the extent any installment
of an Option is exercised with respect to less than all of the shares
of Common Stock available for purchase under such installment, the
unexercised portion of the installment shall expire and become null and
void as of the end of the month for which such installment was
exercisable. Any unexercised portion of an Option shall expire and
become null and void as of the end of the Plan Year in which such
Option was granted.
<PAGE>
Section 10. Restrictions on Sale of Stock. Shares of Common
Stock purchased under the Plan may not be sold, pledged or otherwise
transferred within two years after the date of purchase unless such
shares are first offered to the Company for purchase at a price equal
to the Fair Market Value of the shares on the date on which the
Participant delivers written notice of such offer to the Company. The
Company must accept or reject the offer no later than 5:00 p.m.,
Central Time, on the next business day following its receipt of the
written notice from the Participant. If the Company rejects or fails
to accept the offer, the Participant shall be free to sell, pledge or
transfer the shares covered by such offer; provided, however, that
shares of Common Stock purchased under the Plan may not be sold,
pledged or otherwise transferred under any circumstances prior to the
approval of the Plan by the Company's shareholders in accordance with
Section 17. Certificates representing shares of Common Stock issued
under the Plan shall contain a restrictive legend describing or
referring to the restrictions imposed by this Section 10, in accordance
with applicable law, until such restrictions have terminated with
respect to the shares represented by such certificates.
Section 11. Cancellation of Option and Withdrawal From the Plan.
A Participant who holds an Option under the Plan may at any time prior
to exercise of the final installment thereof pursuant to Section 9
cancel the remaining unexercised portion of such Option by written
notice delivered to the Company. Upon such cancellation, the balance
in the Participant's withholding account and any shares being held in
custody shall be returned to such Participant and he or she shall cease
to be a Participant. Partial cancellation shall not be permitted.
A Participant may terminate his or her payroll deduction
authorization as of any date by written notice delivered to the Company
and shall thereby cease to be a Participant as of such date. Partial
termination of a payroll deduction authorization shall not be
permitted, except to the extent expressly permitted by Section 6 of
this Plan. Any Participant who voluntarily terminates his or her
payroll deduction authorization prior to the last business day of a
month shall be deemed to have cancelled the remaining unexercised
portion of his or her Option, including the installment that would have
been exercisable on the last business day of such month.
A Participant who withdraws from the Plan pursuant to this
Section 11 may re-enroll as of any subsequent Enrollment Date on which
he or she is an Eligible Employee in accordance with the procedure set
forth in Section 6 of this Plan; provided, however, that a Participant
shall not be permitted to re-enroll in the Plan until an Enrollment
Date that is at least six months after the date of his or her
withdrawal.
Section 12. Termination of Employment. Upon the termination of a
Participant's employment with the Company or an Affiliate for any
reason, such person shall cease to be a Participant, the unexercised
portion of any Option held by such Participant under the Plan shall be
deemed cancelled, the balance of such Participant's withholding account
and any shares being held in custody shall be returned to such
Participant (or, in the event of the Participant's death, to the
executor or administrator of his or her estate) and he or she shall
have no further rights under the Plan.
<PAGE>
All Participants shall have the same rights and privileges
under the Plan. Notwithstanding the foregoing, nothing in the Plan
shall confer upon any Participant any right to continue in the employ
of the Company or an Affiliate or in any way interfere with the right
of the Company or an Affiliate to terminate the employment of the
Participant at any time, with or without cause. Transfers of
employment among the Company and its Affiliates and approved leaves of
absence not exceeding 90 days shall not be considered terminations of
employment for purposes of this Plan.
Section 13. Transferability. An Option granted under the Plan
shall not be transferable by the Participant and shall be exercisable
only by the Participant.
Section 14. Adjustments Upon Changes in Common Stock. In the
event the Company shall effect a split of the Common Stock or declare a
dividend payable in Common Stock, or in the event the outstanding
Common Stock shall be combined into a smaller number of shares, the
maximum number of shares as to which Options may be granted under the
Plan shall be increased or decreased proportionately, and the Fair
Market Value per share of Common Stock as of the date of grant of all
outstanding Options shall be adjusted, for purposes of making the
determination required by Section 8 of this Plan, in a manner deemed
appropriate by the Board of Directors.
In the event of a reclassification of Common Stock not
covered by the foregoing, or in the event of a liquidation or
reorganization of the Company, including a merger, consolidation or
sale of assets, the Board of Directors shall make such adjustments, if
any, as it may deem appropriate in the number, purchase price and kind
of shares that are covered by Options theretofore granted under the
Plan or that are otherwise subject to the Plan. The provisions of this
Section shall only be applicable if, and only to the extent that, the
application thereof does not conflict with any valid governmental
statute, regulation or rule.
Section 15. Amendment and Termination of the Plan. Subject to
the right of the Board of Directors to terminate the Plan prior
thereto, the Plan shall terminate when all or substantially all of the
Common Stock reserved for purposes of the Plan has been purchased. No
Options may be granted after termination of the Plan. The Board of
Directors may alter or amend the Plan but may not without the approval
of the shareholders of the Company and of any regulatory authorities
having jurisdiction make any alteration or amendment thereof which
operates (a) to increase the total number of shares of Common Stock
which may be issued under the Plan (other than as provided in Section
14), (b) to modify the criteria for determining the employees (or class
of employees) eligible to receive Options under the Plan or (c) to
materially increase benefits accruing under the Plan to Participants
who are subject to Section 16 of the Securities Exchange Act of 1934
(the "Exchange Act").
No termination or amendment of the Plan shall adversely
affect the rights of a Participant under an outstanding Option, except
with the consent of such Participant.
<PAGE>
Section 16. Requirements of Law. The granting of Options and the
issuance of Common Stock upon the exercise of an Option shall be
subject to all applicable laws, rules and regulations and to such
approval by governmental agencies as may be required.
Section 17. Effective Date of the Plan. The Plan shall become
effective, as of the date of its adoption by the Board of Directors, if
it is duly approved at the 1993 annual meeting of stockholders of the
Company. The affirmative vote of the holders of at least a majority of
the shares of stock of the Company present and voting on the approval
of the Plan at the meeting, provided that the total number of shares
voting for the proposal represents more than 50% of the total number of
shares of stock entitled to vote at such annual meeting, shall be
required to approve the Plan. If the Plan is not so approved, the Plan
shall terminate, the unexercised portions of all Options granted
hereunder shall be null and void and all shares of Common Stock
theretofore issued upon the exercise of Options under the Plan shall be
deemed cancelled. Certificates representing shares issued to
Participants prior to shareholder approval of the Plan shall bear
appropriate legends indicating that the shares have been issued
contingent upon shareholder approval and are cancellable in the event
such approval is not obtained. Upon such cancellation, Participants
shall promptly deliver to the Company all certificates representing
cancelled shares and the Company shall promptly return to the
Participants, without interest, all funds obtained from such
Participants through payroll deductions and used for the purchase of
such shares.
Section 18. Rule 16b-3 Compliance. Transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or
its successors adopted under the Exchange Act, some of which conditions
are not set forth herein. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee.
Exhibit 10.10
NOTICE: THE WARRANTS REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR
BLUE SKY LAWS OF ANY JURISDICTION. THESE WARRANTS MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE
EXPRESS PROVISIONS HEREOF.
Void after May 9, 2000
CARRINGTON LABORATORIES, INC.
Common Stock Purchase Warrant
CARRINGTON LABORATORIES, INC. (the "Company") hereby certifies
that for valuable consideration, the receipt of which is hereby
acknowledged, E. DON LOVELACE is entitled, subject to the terms set
forth below, to purchase from the Company, at any time or from time to
time after September 14, 1993 and before 5:00 p.m. Dallas, Texas time
on May 9, 2000 (the "Expiration Date"), Five Thousand (5,000) fully
paid and non-assessable shares of Common Stock of the Company at the
price of $13.00 per share (the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein, the following terms unless the context otherwise
requires have the following respective meanings:
(a) The term "Common Stock" includes all stock of any class
or classes (however designated) of the Company, authorized upon
the Original Issue Date or thereafter, the holders of which shall
have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall as a
class, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of
such a contingency).
(b) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(c) The term "Original Issue Date" means September 15, 1993,
the date as of which the Warrants were first issued.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any
other person (corporate or otherwise) which the holders of the
Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 5 or
otherwise.
<PAGE>
(e) The term "Purchase Price" shall be the then applicable
exercise price for one share of Common Stock hereunder.
(f) The term "Securities Acts" means the Securities Act of
1933, as amended, and the securities or blue sky laws of any
jurisdiction applicable to any exercise, transfer or surrender for
exchange of the Warrants or of Common Stock (or Other Securities)
previously issued upon exercise of the Warrants.
(g) The term "Warrants" means the warrants represented by
this instrument.
1. Sale or Exercise Without Registration. Subject to the
provisions of Section 12 hereof, if, at the time of any exercise,
transfer or surrender for exchange of a Warrant or of Common Stock (or
Other Securities) previously issued upon the exercise of Warrants, such
Warrant or Common Stock (or Other Securities) shall not be registered
under the Securities Acts, the Company may require, as a condition of
allowing such exercise, transfer or exchange, that (i) the holder or
transferee of such Warrant or Common Stock (or Other Securities), as
the case may be, furnish to the Company a satisfactory opinion of
counsel to the effect that such exercise, transfer or exchange may be
made without registration under the Securities Acts and (ii) the holder
or transferee execute and deliver to the Company an investment letter
in form and substance acceptable to the Company, provided that the
disposition thereof shall at all times be within the control of such
holder or transferee, as the case may be. The first holder of the
Warrants represents to the Company that such holder is acquiring the
Warrants for investment and not with a view to the distribution
thereof.
2. Exercise of Warrant.
2.1 Exercise in Full. Subject to the provisions hereof,
this Warrant may be exercised in full by the holder hereof by surrender
of this Warrant, with the form of subscription at the end hereof duly
executed by such holder, to the Company at its principal office in
Dallas County, Texas, accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock
called for on the face of this Warrant (without giving effect to any
adjustment therein) by the Purchase Price.
2.2 Partial Exercise. Subject to the provisions hereof,
this Warrant may be exercised in part by surrender of this Warrant in
the manner and at the place provided in Subsection 2.1 except that the
amount payable by the holder upon any partial exercise shall be the
amount obtained by multiplying (a) the number of shares of Common Stock
(without giving effect to any adjustment therein) designated by the
holder in the subscription at the end hereof by (b) the Purchase Price.
Upon any such partial exercise, the Company will forthwith issue and
deliver to the holder hereof a new Warrant or Warrants of like tenor,
in the name of the holder hereof, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant minus the number of such
shares designated by the holder in the subscription at the end hereof.
No fractional shares of Common Stock may be purchased upon exercise of
any Warrants.
<PAGE>
3. Delivery of Stock Certificates, etc. on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, the
Company will cause to be issued in the name of and delivered to the
holder hereof a certificate or certificates for the number of fully
paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled upon such exercise, plus, in lieu
of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current
market value of one full share, together with any other stock or Other
Securities and property (including cash, where applicable) to which
such holder is entitled upon such exercise pursuant to Section 4 or
otherwise.
4. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time after
the Original Issue Date the holders of Common Stock (or Other
Securities) shall have received, or (on or after the record date fixed
for the determination of shareholders eligible to receive) shall have
become entitled to receive, without payment therefor,
(a) other or additional stock or Other Securities or
property (other than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation,
by way of dividend), except out of earned surplus of the Company,
or
(c) other or additional (or less) stock or Other Securities
or property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or
similar corporate rearrangement,
then, and in each such case, the holder of this Warrant, upon the
exercise hereof as provided in Section 2, shall be entitled to receive
the amount of stock and Other Securities and property (including cash
in the cases referred to in Subsections (b) and (c) of this Section 4)
which such holder would hold on the date of such exercise if on the
Original Issue Date such holder had been the holder of record of the
number of shares of Common Stock called for on the face of this Warrant
and had thereafter, during the period from the Original Issue Date to
and including the date of such exercise, retained such shares and all
such other or additional (or less) stock and Other Securities and
property (including cash in the cases referred to in Subsections (b)
and (c) of this Section 4) receivable by him as aforesaid during such
period, giving effect to all adjustments called for during such period
by Section 5 hereof.
<PAGE>
5. Reorganization, Consolidation, Merger, etc. In case the
Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or
(c) transfer all or substantially all of its properties or assets to
any other person under any plan or arrangement contemplating the
dissolution of the Company, then, in each such case, the holder of this
Warrant, upon the exercise hereof as provided in Section 2 at any time
after the consummation of such reorganization, consolidation or merger
or the effective date of such dissolution, as the case may be, shall be
entitled to receive (and the Company shall be entitled to deliver), in
lieu of the Common Stock (or Other Securities) issuable upon such
exercise prior to such consummation or such effective date, the stock
and Other Securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had so exercised
this Warrant immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4 hereof.
6. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
cash dividend payable out of earned surplus of the Company) or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any Other
Securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to or consolidation or merger of the Company with or
into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed
to each holder of a Warrant a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such
dividend, distribution or right, and (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any, as of which the holders of record of
Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up. Such notice shall be mailed at least twenty
(20) days prior to the date therein specified.
7. Reservation of Stock, etc., Issuable on Exercise of Warrants.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable upon the
exercise of the Warrants.
<PAGE>
8. Listing on Securities Exchanges. If, at the time any of the
Warrants are exercised, the Company's Common Stock or Other Securities
then subject to such Warrants are listed on any national securities
exchange and the shares issuable upon exercise of such Warrants have
not already been so listed, the Company will, at its expense, promptly
file an application to list on such exchange, subject to official
notice of issuance, all shares of Common Stock or Other Securities, as
the case may be, from time to time issuable upon the exercise of the
Warrants, and will use its best efforts to cause such shares to be so
listed as promptly as reasonably possible. In the event such a listing
application must be filed following the exercise of any Warrants, the
Company may postpone the issuance and delivery of the shares issuable
in respect thereof until the listing of such shares has been completed.
9. Exchange of Warrants. Subject to the provisions of Section
12 hereof, upon surrender for exchange of any Warrant, properly
endorsed, to the Company, the Company at its own expense will issue and
deliver to the holder thereof a new Warrant or Warrants of like tenor,
in the name of such holder, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of any 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 such Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
11. Warrant Agent. The Company may, by written notice to each
holder of a Warrant, appoint an agent having an office in Dallas
County, Texas for the purpose of issuing Common Stock (or Other
Securities) upon the exercise of the Warrants pursuant to Section 2,
exchanging Warrants pursuant to Section 9, and replacing Warrants
pursuant to Section 10, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be
made at such office by such agent.
12. Restriction on Transfer, etc. This Warrant is issued upon
the following terms, to all of which each holder or owner hereof by the
taking hereof consents and agrees:
(a) notwithstanding any term or provision hereof to the
contrary, this Warrant (and any Warrant for which this Warrant may
be exchanged or replaced) may not be transferred or assigned,
except by will or pursuant to the laws of descent and
distribution; provided, however, that any transfer or assignment
shall be subject to the conditions set forth in Section 1 hereof;
and
(b) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding notice to
the contrary.
<PAGE>
13. Notices, etc. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at such address as may
have been furnished to the Company in writing by such holder, or, until
an address is so furnished, to and at the address of the last holder of
this Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change,
waiver, discharge or termination is sought. This Warrant shall be
construed and enforced in accordance with and governed by the laws of
the State of Texas. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the
terms hereof.
Dated: September 15, 1993
CARRINGTON LABORATORIES, INC.
By:
Karl H. Meister, President
Exhibit 10.11
NOTICE: THE WARRANTS REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR
BLUE SKY LAWS OF ANY JURISDICTION. THESE WARRANTS MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO THE
EXPRESS PROVISIONS HEREOF.
Void after May 9, 2000
CARRINGTON LABORATORIES, INC.
Common Stock Purchase Warrant
CARRINGTON LABORATORIES, INC. (the "Company") hereby certifies
that for valuable consideration, the receipt of which is hereby
acknowledged, JERRY L. LOVELACE is entitled, subject to the terms set
forth below, to purchase from the Company, at any time or from time to
time after September 14, 1993 and before 5:00 p.m. Dallas, Texas time
on May 9, 2000 (the "Expiration Date"), Five Thousand (5,000) fully
paid and non-assessable shares of Common Stock of the Company at the
price of $13.00 per share (the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein, the following terms unless the context otherwise
requires have the following respective meanings:
(a) The term "Common Stock" includes all stock of any class
or classes (however designated) of the Company, authorized upon
the Original Issue Date or thereafter, the holders of which shall
have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall as a
class, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even
though the right so to vote has been suspended by the happening of
such a contingency).
(b) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(c) The term "Original Issue Date" means September 15, 1993,
the date as of which the Warrants were first issued.
(d) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any
other person (corporate or otherwise) which the holders of the
Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 5 or
otherwise.
<PAGE>
(e) The term "Purchase Price" shall be the then applicable
exercise price for one share of Common Stock hereunder.
(f) The term "Securities Acts" means the Securities Act of
1933, as amended, and the securities or blue sky laws of any
jurisdiction applicable to any exercise, transfer or surrender for
exchange of the Warrants or of Common Stock (or Other Securities)
previously issued upon exercise of the Warrants.
(g) The term "Warrants" means the warrants represented by
this instrument.
1. Sale or Exercise Without Registration. Subject to the
provisions of Section 12 hereof, if, at the time of any exercise,
transfer or surrender for exchange of a Warrant or of Common Stock (or
Other Securities) previously issued upon the exercise of Warrants, such
Warrant or Common Stock (or Other Securities) shall not be registered
under the Securities Acts, the Company may require, as a condition of
allowing such exercise, transfer or exchange, that (i) the holder or
transferee of such Warrant or Common Stock (or Other Securities), as
the case may be, furnish to the Company a satisfactory opinion of
counsel to the effect that such exercise, transfer or exchange may be
made without registration under the Securities Acts and (ii) the holder
or transferee execute and deliver to the Company an investment letter
in form and substance acceptable to the Company, provided that the
disposition thereof shall at all times be within the control of such
holder or transferee, as the case may be. The first holder of the
Warrants represents to the Company that such holder is acquiring the
Warrants for investment and not with a view to the distribution
thereof.
2. Exercise of Warrant.
2.1 Exercise in Full. Subject to the provisions hereof,
this Warrant may be exercised in full by the holder hereof by surrender
of this Warrant, with the form of subscription at the end hereof duly
executed by such holder, to the Company at its principal office in
Dallas County, Texas, accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock
called for on the face of this Warrant (without giving effect to any
adjustment therein) by the Purchase Price.
2.2 Partial Exercise. Subject to the provisions hereof,
this Warrant may be exercised in part by surrender of this Warrant in
the manner and at the place provided in Subsection 2.1 except that the
amount payable by the holder upon any partial exercise shall be the
amount obtained by multiplying (a) the number of shares of Common Stock
(without giving effect to any adjustment therein) designated by the
holder in the subscription at the end hereof by (b) the Purchase Price.
Upon any such partial exercise, the Company will forthwith issue and
deliver to the holder hereof a new Warrant or Warrants of like tenor,
in the name of the holder hereof, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock equal
(without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant minus the number of such
shares designated by the holder in the subscription at the end hereof.
No fractional shares of Common Stock may be purchased upon exercise of
any Warrants.
<PAGE>
3. Delivery of Stock Certificates, etc. on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, the
Company will cause to be issued in the name of and delivered to the
holder hereof a certificate or certificates for the number of fully
paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled upon such exercise, plus, in lieu
of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then current
market value of one full share, together with any other stock or Other
Securities and property (including cash, where applicable) to which
such holder is entitled upon such exercise pursuant to Section 4 or
otherwise.
4. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time after
the Original Issue Date the holders of Common Stock (or Other
Securities) shall have received, or (on or after the record date fixed
for the determination of shareholders eligible to receive) shall have
become entitled to receive, without payment therefor,
(a) other or additional stock or Other Securities or
property (other than cash) by way of dividend, or
(b) any cash paid or payable (including, without limitation,
by way of dividend), except out of earned surplus of the Company,
or
(c) other or additional (or less) stock or Other Securities
or property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or
similar corporate rearrangement,
then, and in each such case, the holder of this Warrant, upon the
exercise hereof as provided in Section 2, shall be entitled to receive
the amount of stock and Other Securities and property (including cash
in the cases referred to in Subsections (b) and (c) of this Section 4)
which such holder would hold on the date of such exercise if on the
Original Issue Date such holder had been the holder of record of the
number of shares of Common Stock called for on the face of this Warrant
and had thereafter, during the period from the Original Issue Date to
and including the date of such exercise, retained such shares and all
such other or additional (or less) stock and Other Securities and
property (including cash in the cases referred to in Subsections (b)
and (c) of this Section 4) receivable by him as aforesaid during such
period, giving effect to all adjustments called for during such period
by Section 5 hereof.
<PAGE>
5. Reorganization, Consolidation, Merger, etc. In case the
Company after the Original Issue Date shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or
(c) transfer all or substantially all of its properties or assets to
any other person under any plan or arrangement contemplating the
dissolution of the Company, then, in each such case, the holder of this
Warrant, upon the exercise hereof as provided in Section 2 at any time
after the consummation of such reorganization, consolidation or merger
or the effective date of such dissolution, as the case may be, shall be
entitled to receive (and the Company shall be entitled to deliver), in
lieu of the Common Stock (or Other Securities) issuable upon such
exercise prior to such consummation or such effective date, the stock
and Other Securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such holder had so exercised
this Warrant immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 4 hereof.
6. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
cash dividend payable out of earned surplus of the Company) or
other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any Other
Securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to or consolidation or merger of the Company with or
into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed
to each holder of a Warrant a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such
dividend, distribution or right, and (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if any, as of which the holders of record of
Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding-up. Such notice shall be mailed at least twenty
(20) days prior to the date therein specified.
7. Reservation of Stock, etc., Issuable on Exercise of Warrants.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable upon the
exercise of the Warrants.
<PAGE>
8. Listing on Securities Exchanges. If, at the time any of the
Warrants are exercised, the Company's Common Stock or Other Securities
then subject to such Warrants are listed on any national securities
exchange and the shares issuable upon exercise of such Warrants have
not already been so listed, the Company will, at its expense, promptly
file an application to list on such exchange, subject to official
notice of issuance, all shares of Common Stock or Other Securities, as
the case may be, from time to time issuable upon the exercise of the
Warrants, and will use its best efforts to cause such shares to be so
listed as promptly as reasonably possible. In the event such a listing
application must be filed following the exercise of any Warrants, the
Company may postpone the issuance and delivery of the shares issuable
in respect thereof until the listing of such shares has been completed.
9. Exchange of Warrants. Subject to the provisions of Section
12 hereof, upon surrender for exchange of any Warrant, properly
endorsed, to the Company, the Company at its own expense will issue and
deliver to the holder thereof a new Warrant or Warrants of like tenor,
in the name of such holder, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of any 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 such Warrant, the
Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor.
11. Warrant Agent. The Company may, by written notice to each
holder of a Warrant, appoint an agent having an office in Dallas
County, Texas for the purpose of issuing Common Stock (or Other
Securities) upon the exercise of the Warrants pursuant to Section 2,
exchanging Warrants pursuant to Section 9, and replacing Warrants
pursuant to Section 10, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be
made at such office by such agent.
12. Restriction on Transfer, etc. This Warrant is issued upon
the following terms, to all of which each holder or owner hereof by the
taking hereof consents and agrees:
(a) notwithstanding any term or provision hereof to the
contrary, this Warrant (and any Warrant for which this Warrant may
be exchanged or replaced) may not be transferred or assigned,
except by will or pursuant to the laws of descent and
distribution; provided, however, that any transfer or assignment
shall be subject to the conditions set forth in Section 1 hereof;
and
(b) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the
absolute owner hereof for all purposes, notwithstanding notice to
the contrary.
<PAGE>
13. Notices, etc. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first class
registered or certified mail, postage prepaid, at such address as may
have been furnished to the Company in writing by such holder, or, until
an address is so furnished, to and at the address of the last holder of
this Warrant who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change,
waiver, discharge or termination is sought. This Warrant shall be
construed and enforced in accordance with and governed by the laws of
the State of Texas. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the
terms hereof.
Dated: September 15, 1993
CARRINGTON LABORATORIES, INC.
By: __________________________
Karl H. Meister, President
Exhibit 10.12
Industrial Lease
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into by and between DPW
Nine, a California limited partnership, hereinafter referred to as
Lessor' ,and Carrington Laboratories. Inc., a Texas corporation,
hereinafter referred to as Lessee.
WITNESSETH:
1. PREMISES AND TERM
A. In consideration of the mutual obligations of Lessor and
Lessee set forth herein, Lessor leases to Lessee, and Lessee hereby
takes from Lessor, the Leased Premises containing approximately
35,050 rentable square feet located at 1909 Hereford Drive, Irving,
Texas, situated within the County of Dallas, State of Texas, located
on the real property more particularly described on EXHIBIT "A"
attached hereto and incorporated herein by reference. (the Leased
Premises), together with all rights, privileges, easements,
appurtenances, and amenities belonging to or in any way pertaining to
the Leased Premises, to have and to hold, subject to the terms,
covenants and conditions in this Lease.
B. The term of this Lease shall commence on the Commencement
Date (herein so called) hereinafter set forth and shall end on the
last day of the month that is Eighty Six (86) months after the
Commencement Date.
C. EXISTING BUILDING If no improvements are to be constructed to
the Leased Premises, the Commencement Date shall be August 1, 1994.
Lessee acknowledges that: (it has inspected and accepts the Leased
Premises, (ii) the buildings and improvements comprising Use same are
suitable for the purpose for which the Leased Premises are leased
(iii) the Leased Premises are in good and satisfactory condition, and
(iv) no representations as to the repair of the Leased Premises, nor
promises to alter, remodel or improve the Leased Premises, have been
made by Lessor (unless otherwise expressly set forth in this Lease).
D. INTENTIONALLY DELETED.
E. The occupancy of the Leased Premises by Lessee shall
constitute the acknowledgement and agreement of Lessee that Lessee
has inspected the Leased Premises, that Lessee is fully familiar with
the physical condition of the Leased Premises, that Lessee has
received same in good order and condition and that the Leased
Premises comply in all respects with the requirements of this Lease
arid are specifically suitable to Lessee's purpose. LESSOR AND LESSEE
AGREE THAT LESSOR MAKES NO WARRANTIES WHATSOEVER. WHETHER EXPRESS OR
IMPLIED, CONCERNING THE REPAIR OR CONDITION OF THE LEASED PREMISES OR
THE FITNESS OR SUITABILITY OF THE LEASED PREMISES FOR LESSEE'S
INTENDED USE, OTHER THAN AS EXPRESSLY SET FORTH IN THIS LEASE. LESSEE
HEREBY EXPRESSLY AND SPECIFICALLY WAIVES ALL SUCH WARRANTIES.
<PAGE>
2. BASE RENT, SECURITY DEPOSIT, AND ESCROW PAYMENTS.
A. Lessee agrees to pay to Lessor Base Rent for the Leased
Premises, in advance, and except as expressly provided herein,
without demand, deduction or set off, at the rate of See Exhibit "C"
Special Provisions. One such monthly installment, plus the other
monthly charges set forth in Paragraph 2C below, shall be due and
payable on the date hereof and a like monthly installment shall be
due and payable on or before the first day of each calendar month
succeeding the Commencement Date, except that all payments due
hereunder for any fractional calendar month shall be prorated.
B. In addition, Lessee agrees to deposit with Lessor on the
date hereof the sum of Twelve Thousand Five Hundred Dollars
($12,500.00), which shall be held by Lessor, without obligation for
interest, as Security for the performance of Lessee's obligations
under this Lease. Lessor and Lessee expressly agree that this
deposit is not an advance rental deposit or a measure of Lessor's
damages in case of Lessees default. Upon each occurrence of an event
of default, Lessor may, at its option, use all or part of the
deposit to pay past due rent or other payments due Lessor under this
Lease, or the cost of any other damage, injury, expense or liability
caused by such event of default, without prejudice to any other
remedy provided herein or provided by law. On demand, Lessee shall
pay Lessor the amount that will restore the security deposit to its
original amount. The security deposit shall be deemed the property
of Lessor, but any remaining balance of such deposit shall be
returned by Lessor to lessee when Lessee's obligations under this
Lease have been fulfilled.
C. Lessee agrees to pay its Proportionate Share (as defined in
Paragraph 23B) of (i) taxes payable by Lessor pursuant to paragraph
3A, (ii) the cost of maintaining insurance pursuant to paragraph 9,
and (iii) all common area charges including, without limitation, the
cost of repairs pursuant to Paragraph 4, the cost of utilities
pursuant to Paragraph S. and the cost of security service pursuant
to Paragraph 24, All such charges listed in this subparagraph 2C
(iii) are collectively referred to in this Lease, and particularly
in this Paragraph 2C, as Common Area Charges. During each month of
the term of this Lease, on the same day that rent is due hereunder.
Lessee shall escrow with Lessor an amount equal to 1/12 of the
estimated annual cost of its Proportionate Share of such items.
Lessee authorizes Lessor to use the funds deposited with Lessor
under this Paragraph 2C to pay such costs. The initial monthly
escrow payments are based upon the estimated amounts for the
calendar year in which the Lease commences, and shall be increased
or decreased annually to reflect the projected actual cost of all
such items. If the Lessee's total escrow payments are less than
Lessee's actual Proportionate Share of all such items, Lessee shall
pay the difference to Lessor within ten (10) days after demand. If
the total escrow payments of Lessee ate more than Lessees actual
proportionate share of all such items, Lessor shall retain such
excess and credit it against Lessees next annual escrow payments.
Upon reasonable request from Lessee, Lessor shall furnish an
operating statement for the Leased Premises for the prior year. The
amount of the initial monthly rental and the initial escrow payments
are collectively denominated in this Lease as "Rent", and is
itemized as follows:
<PAGE>
(1) Base Rent as set forth in Paragraph 2A 59,201.00
(2) Tax Escrow Payment 1,402.00
(3) Insurance Escrow Payment 175.00
(4) Common Area Charges 730.00
(5) Other .00
Total Initial Monthly Rent 11,508.00
3.TAXES.
A.Lessor agrees to pay all taxes, assessments and governmental
charges of any kind and nature (collectively referred to herein as
Taxes) that accrue against the Leased Premises, and/or the land and/or
improvements of which the Leased Premises are a part. If at any time
during the term of this Lease, there shall be levied, assessed or
imposed on lessor a capital levy or other tax directly on the rents
received therefrom and/or a franchise tax, assessment, levy or charge
measured by or based, in whole or in pan. upon such rents from the
Leased Premises, then all such taxes, assessments, Levies or charges,
or the pan thereof so measured or based, excluding any federal or state
income tax, shall be deemed to be included within the term Taxes for
the purposes hereof. The Lessor shall have the right to employ a tax-
consulting firm to attempt to assure a fair tax burden on the building
and grounds within the applicable taxing jurisdiction. Lessee agrees to
pay its Proportionate Share of the cost of such consultant.
B. Lessee shall be liable for all taxes levied or assessed
against any personal property or fixtures placed in the Leased
premises. If any such taxes are levied or assessed against Lessor or
Lessor's property and (i) Lessor pays the same or (ii) the assessed
value of Lessor's property is increased by inclusion of such personal
property and fixtures and Lessor pays the increased taxes, then upon
demand, Lessee shall pay to Lessor such taxes.
4. LESSOR'S REPAIRS
A. Lessor, at its own cost and expense, shall maintain only the
roof, foundation and the structural soundness of the exterior walls
of the building of which the Leased Premises are a part in good
repair, reasonable Wear and tear excluded. The term "walls" as used
herein, shall not include windows, glass or plate glass, doors,
special store fronts or office entries. Lessee shall immediately
advise Lessor written notice of defect or need for repairs, after
which Lessor shall have reasonable opportunity to repair same or cure
same. Repairs required to be made by Lessor shall be performed while
not unreasonably interfering with Lessee's business operation.
B. Lessor reserves the right to perform the paving, common area
and landscape replacement and maintenance, exterior painting, common
sewage line plumbing and any other items that are otherwise Lessee's
obligations under Paragraph SA, in which event, Lessee shall be
liable for its Proportionate Share of the cost and expense of such
repair, replacement, maintenance and other such items.
<PAGE>
C. Lessee agrees to pay its Proportionate Share of the cost of
i) maintenance and/or landscaping of any property that is a pan of
the building and/or project of which the Leased Premises are a part,
(ii) maintenance and/or landscaping of any property that is
maintained or landscaped by any property owner or community owner
association that is named in the restrictive covenants or deed
restrictions to which the Leased Premises are subject, and (iii)
operating and maintaining any property, facilities or services
provided for the common use of Lessee and other lessees of any
project or building of which the Leased Premises are a part.
5. LESSEE'S REPAIRS
A. Lessee, at its own cost and expense, shall (I) maintain all
parts of the Leased Premises, (which Lessor is expressly responsible
hereunder) in good condition, (ii) promptly make all necessary
repairs and replacements, (iii) keep the parking areas, driveways and
alleys surrounding the Leased Premises in a clean and sanitary
condition.
B. Lessee and its employees, customers and licensees shall have
the exclusive rights to use any parking areas on the leased premises.
Lessor shall not be responsible for enforcing Lessees parking rights
against any third parties.
C. Lessee, at its own cost and expense, shall enter into a
regularly scheduled preventive maintenance/service contract with a
maintenance contractor approved by Lessor for servicing all hot
water, heating and air conditioning systems and equipment within the
Leased Premises. The service contract must include all services
suggested by the equipment manufacturer in its operations/maintenance
manual and must become effective within thirty (30) days of the date
Lessee takes possession of the Leased Premises. Upon Commencement
Date, Lessor, at its sole cost and expense, shall have all HVAC
systems, plumbing, sprinkler systems and lighting in proper working
condition.
6. ALTERATIONS.
A. Lessee shall not make any structural alterations, additions
or improvements to the Leased Premises without the prior written
consent of Lessor. Lessee, at its own cost and expense, may erect
such shelves, bins, machinery and trade fixtures as it desires
provided that: I) such items do not alter the basic character of the
Leased Premises or the building and/or improvements of which the
Leased Premises are a part; (II) such items do not overload or
damage the same: (iii) such items may be removed without mien to the
Leased Premises; and (iv) the construction, erection or installation
thereof complies with all applicable governmental laws, ordinances,
regulations and with Lessors specifications and requirements. All
alterations, additions, improvements and partitions erected by
Lessee shall be and remain the property of Lessor. All shelves,
bins, machinery and trade fixtures installed by Lessee shall remain
the property of Lessee and shall be removed on or before time
earlier to occur of the date of termination of this Lease or
vacating the Leased Premises, at which time Lessee shall restore the
Leased Premises to their original condition. All alterations,
installations, removals and restoration shall be performed in a good
and workmanlike manner so as not to damage or alter the primary
structure or structural qualities or the buildings and other
improvements situated on the Leased Premises or of which the Leased
Premises are a part.
<PAGE>
7.SIGNS.
A. Any signage Lessee desires for the Premises shall be
subject to written approval of the Las Colinas Association. Lessee
shall repair. paint, and/or replace the building facia surface to
which its signs are attached upon vacation of the Leased Premises, or
the removal or alteration of its signage. Lessee shall not: (I) make
any changes to the exterior of the Leased Premises, (ii) install any
exterior lights, decorations, balloons, flags, Pennants, banners or
painting, or (iii) erect Or install any signs, windows or door
lettering, placards, decorations or advertising media at any type
which can be viewed from the exterior of the Leased Premises, without
Lessor's prior written consent. All signs, decorations, advertising
media or bars or other security installations visible from the
outside of the Leased Premises shall conform in all respects to the
criteria established by the Lessor,
8.UTILITIES
A. Lessor agrees to provide normal water, and electricity
service to the Leased Premises. Lessee shall pay for all water. gas,
heat, light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or at the Leased Premises, together
with any taxes, penalties, surcharges or the like pertaining to the
Lessee's use of the Leased Premises, and any maintenance charges for
utilities. Lessor shall have the right to cause any of said services
to be separately metered to Lessee, at Lessee's expense.
B. No interruption or malfunction of any utility service, or if
either the quantity or character of any utility service is changed
or is no longer available to or is no longer suitable for Lessee's
requirements, unless caused by Lessor's breach of this Lease, shall
constitute an eviction or disturbance of Lessee's use or possession
of the Leased Premises or a breach by Lessor of any of Lessor's
obligations hereunder or render Lessor liable or responsible to
Lessee for any damage which Lessee may sustain or incur or entitle
Lessee to be relieved from any of Lessee's obligations hereunder,
including, without limitation, the obligation to pay Rent, or grant
Lessee any right to set-off, abatement, or recoupment. The failure
by Lessor to furnish, or any slowdown, stoppage, or interruption of.
any utility service resulting from causes beyond the control of
Lessor, including without limitation. Lessor's compliance with any
voluntary or similar governmental or business guidelines now or
hereafter published or any requirements now or hereafter established
by any governmental agency, board, or bureau having jurisdiction
over the operation of the Building, shall not render Lessor liable
in any respect for damages to either persons, property. or business.
or be construed as an eviction of Lessee or work an abatement of
Rent, nor relieve Lessee of Lessee's obligations for fulfillment of
any covenant or agreement hereof. Should any equipment or machinery
furnished by Lessor break down or for any cause cease to function
properly, Lessor shall use reasonable diligence to repair same
promptly, but Lessee shall have no claim for abatement of Rent or
damages on account of any interruption of service occasioned thereby
or resulting therefrom.
<PAGE>
9. INSURANCE.
A. Lessor shall maintain replacement cost broad form fire and
extended coverage insurance on the Leased Premises or on the
building of which the Leased Premises are a pan in such amount as
may be required by Lessor's mortgagee,
B. Lessee, at its own expense, shall maintain during the term
of this Lease Commercial general liability Insurance, including
personal injury and property damage, with contractual liability
endorsement, in the amount of One Million Dollars ($1,000,000) for
property damage and One Million Dollars ($1,000,000.00) per
occurrence for personal injuries or deaths of persons occurring in
or about the Leased Premises. Lessee, at its own expense, also shall
maintain during the term of this Lease broad form fire and extended
coverage insurance covering the replacement cost of: (i) all
alterations, additions, partitions and improvements installed or
placed on the Leased Premises by Lessee or by Lessor on behalf of
Lessee and (ii) be issued by an insurance company which is rated "A"
XI or better by Best's Rating Service and, (iii) provide that said
insurance shall not be cancelled or modified unless thirty (30) days
prior written notice shall have been given to Lessor. Said policy or
policies or certificates thereof shall be delivered to Lessor by
Lessee upon commencement of the term of the Lease and upon each
renewal of said insurance.
C. Lessee will not permit the Leased Premises to be used for
any purpose, or in ally manner that would (i) void the insurance
thereon, (ii) increase the insurance risk or the premiums for
insurance, or (iii) cause thc disallowance of any sprinkler credits,
including without limitation, use of the Leased Premises for the
receipt, storage or handling of any product, material or merchandise
that is explosive or highly inflammable with the exception of
aerosol products. If any increase in the cost of any insurance on
the Leased Premises or the building of which the Leased Premises are
a part is fused by Lessee's use of the Leased Premises, or because
l.essee vacates the Leased Premises, then Lessee shall pay the
amount of such increase to Lessor.
10. FIRE AND CASUALTY DAMAGE
A. If the Leased Premises or the building, of which the Leased
Premises are a part should be damaged or destroyed by fire or other
peril, Lessee immediately shall give written notice to Lessor. If the
buildings situated upon the Leased Premises or of which the Leased
Premises are a part should be totally destoryed, or if they should be
so damaged hereby that, in Lessor's estimation, rebuilding or repairs
cannot be completed within one hundred eighty (180) days after the
date of such damage, this Leased shall terminate and the Rent shall
be abated during the unexpired portion of this Lease, effective upon
the date of the occurrence of such damage.
<PAGE>
B. If the buildings situated upon the Leased Premises or of
which the Leased Premises are a part should be damaged by any peril
covered by the insurance to be provided by Lessor under Paragraph 9A
above, and in Lessor's estimation, rebuilding or repairs can be subst-
antially completed within one hundred eighty (180) days after the date
of such damage, this Lease shall not terminate, and Lessor shall
restore the Leased Premises to substantially its previous condition,
except that Lessor shall not be required to rebuild, repair or replace
any part of the partitions, fixtures, additions and other improvements
that may have been constructed, erected or installed in, on or about
the Leased Premises or for the benefit of, or by or for Lessee. It
such repairs and rebuilding have not been substantially completed
within one hundred eighty (180) days after the date of such damage,
Lessee, as Lessee's exclusive Meridian Point lease Revised 11/18/92
remedy, may terminate this Lease by delivering written notice of
termination to Lessor. In which event the rights and obligations
hereunder shall cease and terminate effective upon the date of the
occurrence of such damage.
C. Notwithstanding anything herein to the contrary, in the event
the holder of any indebtedness secured by a mortgage or deed of trust
covering the Leased Premises requires that the insurance proceeds be
applied to such indebtedness, then Lessor shall have the right to
terminate this Lease by delivering written notice of termination to
Lessee within fifteen (15) days after such requirement is made known
by any such holder, whereupon all rights and obligations hereunder
shall cease and terminate, effective upon the date of the occurrence
of such damage.
D. Anything in this Lease to the contrary notwithstanding.
INCLUDING NEGLIGENCE, Lessor and Lessee hereby waive and release each
other of any from any and all rights of recovery, claim, action or
cause of action, against each other, their agents, officers and
employees, for any loss or damage that may occur to the Leased
Premises, improvements to the building of which the Leased Premises
are a part, or personal property (building contents) within the
building and/or Leased Premises, for any reason regardless of cause
or origin, Each party to this Lease agrees immediately after
execution of this Lease to give each insurance company which has
issued to it policies of fire and extended coverage insurance,
written notice of the terms of the mutual waivers contained in this
subparagraph, and if necessary, to have the insurance policies
properly endorsed.
<PAGE>
11. LIABILITY AND IDEMNIFICATION
LESSOR AND LESSEE AGREE THAT THE OBLIGATIONS AND COVENANTS
CONTAINED IN THIS PARAGRAPH ARE SPECIFICALLY PART OF THE
CONSIDERATION FOR THE LESSOR'S EXECUTION OP THIS LEASE, LESSOR SHALL
NOT BE LIABLE TO LESSEE OR LESSEE'S EMPLOYEES. AGENTS, PATRONS OR
VISITORS, OR TO ANY OTHER PERSON WHOMSOEVER, FOR ANY INJURY TO PERSON
OR DAMAGE TO PROPERTY ON OR ABOUT THE LEASED PREMISES, THE COMMON
AREAS OR THE PROPERTY UPON WHICH THE LEASED PREMISES IS LOCATED,
RESULTING FROM AND/OR CAUSED IN PART OR WHOLE BY THE ACT, OMISSION,
NEGLIGENCE OR MISCONDUCT OF LESSEE, ITS AGENTS, SERVANTS OR
EMPLOYEES, OR ANY OTHER PERSON ENTERING UPON THE LEASED PREMISES. OR
CAUSED BY THE BUILDING AND/OR IMPROVEMENTS LOCATED ON THE LEASED
PREMISES BECOMING OUT OF REPAIR, OR CAUSED BY LEAKAGE OF GAS, OIL,
WATER OR STEAM OR BY ELECTRICITY EMANATING FROM THE LEASED PREMISES.
OR DUE TO THE CONDUCT OF LESSEE'S BUSINESS AT THE LEASED PREMISES OR
DUE TO A DEFAULT BY LESSEE IN ITS OBLIGATIONS HEREUNDER. AND LESSEE
HEREBY COVENANTS AND AGREES THAT IT WILL AT ALL TIMES INDEMNIFY AND
HOLD SAFE AND HARMLESS THE LEASED PREMISES, THE LESSOR. LESSOR'S
AGENTS AND EMPLOYEES. FROM ANY LOSS, LIABILITY, CLAIMS, SUITS. COSTS
AND EXPENSES, INCLUDING WITHOUT LIMITATION ATTORNEY'S FEES AND
DAMAGES, BOTH REAL AND ALLEGED, ARISING OUT OF ANY SUCH DAMAGE OR
INJURY; EXCEPT INJURY TO PERSONS OR DAMAGE TO PROPERTY THE SOLE CAUSE
OF WHICH IS THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR OR
THE FAILURE OF LESSOR TO REPAIR ANY PART OF THE LEASED PREMISES WHICH
LESSOR IS OBLIGATED TO REPAIR AND MAINTAIN HEREUNDER WITHIN A
REASONABLE TIME AFTER THE RECEIPT OP WRITTEN NOTICE FROM LESSEE OF
NEEDED REPAIRS. LESSEE ACKNOWLEDGES THAT THIS WAIVER AND INDEMNITY
INCLUDE, WITHOUT LIMITATION, INJURY AND/OR DAMAGE WHICH IS THE RESULT
OF THE NEGLIGENCE OF LESSOR, AND/OR ITS AGENTS OR EMPLOYEES. THE
PROVISIONS OF THIS PARAGRAPH II SHALL SURVIVE THE EXPIRATION OR
TERMINATION OF THIS LEASE WITH RESPECT TO ANY CLAIMS OR LIABILITY
OCCURRING PRIOR TO SUCH EXPIRATION OR TERMINATION.
12. USE.
The Leased Premises shall be used only for the purpose of
manufacturing, receiving, storing, shipping and selling (other than
retail) products, materials and merchandise made and/or distributed
by Lessee and for such other lawful purposes as may be incidental
thereto. Any use that would cause the Leased Premises to be deemed a
"place of public accommodation" under the Americans with
Disabilities Act of 1990 is expressly prohibited. Outside storage,
including without limitation, storage of trucks and other vehicles,
is prohibited without Lessor's prior written consent. Lessee shall
comply with all governmental laws, ordinances and regulations
applicable to the use of the Leased Premises, and promptly shall
comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances in or upon, or
connected with, the Leased premises, all at Lessee's sole expense.
Lessee shall not permit any objectionable or unpleasant odors,
smoke, dust, gas, noise or vibrations to emanate from the Leased
Premises, nor take any other action that would constitute a nuisance
or would disturb, unreasonably interfere with, or endanger Lessor or
any other lessees of the building or project in which the Leased
Premises are a part.
<PAGE>
13. INSPECTION
Lessor and Lessor's agents and representatives shall have
the right to enter the Leased Premises at any reasonable time during
business hours, to inspect the Leased Premises, with 72 hours notice
except in case of emergency, and to make such repairs as may be
required or permitted pursuant to this Lease. During the period that
is six (6) months prior to the end of the Lease term, upon
telephonic notice to Lessee. Lessor and Lessor's representatives may
enter the Leased Premises during business hours for the purpose of
showing the Leased Premises. In addition, Lessor shall have the
right to erect a suitable sign on the Leased Premises stating the
Leased Premises are available, Lessee shall notify Lessor in writing
at least thirty (30) days prior to vacating the Leased Premises and
shall arrange to meet with Lessor for a joint inspection of the
Leased Premises prior to vacating. If Lessee fails to give such
notice or to arrange for such inspection, then Lessor's inspection
of the Leased Premises shall be deemed correct for the purpose of
determining Lessee's responsibility for repairs and restoration of
the Leased Premises. Lessor, or parties on its behalf, shall be
required to execute a confidentiality agreement, prior to
inspection, as required by Lessee.
14. ASSIGNMENT AND SUBLETTING
A. Except for mergers, consolidations, purchase of its own
stock or transferring of stock to an affiliated corporation. Lessee
shall not: (0 assign this Lease or ally interest therein; nor (ii)
sublease the Leased Premises or any portion (hereof, without the
prior written consent. If Lessee is not a natural person, the
acquisition of a controlling interest in Lessee shall be deemed an
assignment for purposes hereof. As used herein, the phase
"controlling interest" shall mean ownership in excess of forty-nine
percent (49%) of the voting interest of Lessee. Any attempted
assignment or sublease by Lessee in violation of the terms and
covenants of this paragraph shall be void.
B. If Lessee requests Lessor's consent to an assignment of the
Lease or a subletting of all or part of the Leased Premises. Lessor
shall either (i) approve such sublease or assignment (but no approval
of an assignment or sublease shall relieve Lessee of any liability
hereunder), or (ii) negotiate directly with the proposed sublessee or
assignee provided that, unless otherwise agreed by Lessee, the terms
and conditions of such third party lease agreement are not more or
less favorable to such proposed sublessee or assignee than the
corresponding terms and conditions of the proposed assignment or
sublease between Lessee and such third party) arid (in tile event
Lessor is able to reach agreement with such proposed sublessee or
assignee) upon execution of a lease with such proposed sublessee or
assignee, terminate this Lease (in part or in whole, as appropriate)
upon thirty (30) days' notice, or (iii) if Lessor shall fail to
notify Lessee in writing of its decision within a thirty (30) day
period after Lessor has received notice in writing of the proposed
assignment or sublease. Lessor shall be deemed to have refused to
consent to such assignment or sublease, and to have elected to keep
this Lease in full force and effect.
<PAGE>
C. All cash or other proceeds of any assignment, sale or
sublease of Lessee's interest in the Lease and/or the Leased
Premises, whether consented to by Lessor or not, shall be paid to
Lessor notwithstanding the fact that such proceeds exceed the Rent
called for hereunder, unless Lessor agrees to the contrary in
writing, and Lessee hereby assigns all rights it might have or ever
acquire in any such proceeds to Lessor, This covenant and assignment
shall benefit Lessor and its successors in ownership of the Leased
Premises and shall bind Lessee and Lessee's heirs, executors,
administrators, personal representatives, successors and assigns. Any
assignee, sublessee or purchaser of Lessee's interest in this Lease
(all such assignees, sublessees or purchasers being hereinafter
referred to as "Successors"), by occupying the Leased Premises and/or
assuming Lessee's obligations hereunder, shall be deemed to have
assumed liability to Lessor for all amounts paid to persons other
than Lessor by such Successor in consideration of any such sale,
assignment or subletting, in violation of the provisions hereof.
D. No assignment or subletting, whether or not with Lessors
consent, shall ever relieve Lessee of any liability hereunder.
E. It this Lease is assigned to any person or entity pursuant to
the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 ct.seq.,
(the "Bankruptcy Code"), any and all monies or other consideration
payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Lessor, shall be and remain
the exclusive property of Lessor and shall not constitute property of
Lessee or of the estate of Lessee within the meaning of the
Bankruptcy Code. Any and all monies or other considerations
constituting Lessor's property under the preceding sentence not paid
or delivered to Lessor shall be held in trust for the benefit of
Lessor and be promptly paid or delivered to Lessor. The inclusion of
this subparagraph in this Lease is not intended as, and shall not be
construed as, the Landlord's consent to an assignment and/or
assumption of this Lease.
F. Any person or entity to which this Lease is assigned pursuant
to the provisions of the Bankruptcy Code shall be deemed, without
further act or deed, to have assumed all of the obligations arising
under this Lease on and after the date of such assignment. Any such
assignee shall upon demand execute and deliver to Lessor an
instrument confirming such assumption. The inclusion of this
subparagraph in this Lease is not intended as, and shall not be
construed as, the Landlord's consent to an assignment and or
assumption of this Lease.
G. This Lease is a contract under which applicable law excuses
Lessor from accepting performance from (or rendering performance to)
any person or entity other than 1essee within the meaning of
sections 365(c) and 365(e)(2) of the Bankruptcy Code, II U.S.C
Sections 365(c), 365(e)(2),
<PAGE>
15. CONDEMNATION
If any portion of the Leased Premises are taken for any
public or quasi-public use tinder governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with
the use of the Leased Premises for the purpose for which they were
leased to Lessee, this Lease shall terminate and the Rent shall be
abated during the unexpired portion of this Lease, effective on the
date of such, taking, If such taking does not materially interfere
with the use of the Leased Premises, this Lease shall not terminate,
but the Rent payable hereunder during the unexpired portion of this
Lease shall be reduced to such extent as may be fair and reasonable
under all of the circumstances, All compensation awarded in
connection with or as a result of any of the foregoing proceedings
shall be the property of Lessor and Lessee hereby assigns any
interest in any such award to Lessor; provided, however, Lessor
shall have no interest in any award made to Lessee for loss of
business or good will or for the taking of Lessee's fixtures and
improvements, if a separate award for such items is made to Lessee.
16. HOLDING OVER.
At the termination of this Lease by its expiration or
otherwise. Lessee immediately shall deliver possession to Lessor
with all repairs and maintenance required herein to be performed by
Lessee completed. If, for any reason, Lessee retains possession of
the Leased Premises after the expiration or termination of this
Lease, unless the parties hereto otherwise agree in writing, such
possession shall be subject to termination by either Lessor or
Lessee at any time upon not less than ten (10) days advance written
notice, and all of the other terms and provisions of this Lease
shall be applicable during such period, except that Lessee shall pay
Lessor from time to time, without demand, as rental for the period
of such possession, an amount equal to one and one half times the
rent in effect on the termination date, computed on a daily basis
for each day of such period. No holding over by Lessee, whether with
or without consent of Lessor, shall operate to extend this Lease
except as otherwise expressly provided, The preceding provisions of
this Paragraph 16 shall not be construed as consent for Lessee to
retain possession of the Leased Premises in the absence of written
consent thereto by Lessor,
17. QUIET ENJOYMENT
Lessor represents that it has good title to the Leased
Premises, free and clear of all liens and encumbrances, excepting
only the lien for current taxes not yet due, such mortgage or
mortgages as are permitted by the terms of this Lease, zoning
ordinances and other building and tire ordinances and governmental
regulations relating to the use of such property, and easements,
restrictions and other conditions of record, If this Lease is a
sublease, then Lessee agrees to take the Leased Premises subject to
the provisions or all prior Leases. Lessor represents that it has the
authority to enter into this Lease and that so long as Lessee pays
all amounts due hereunder and performs all other covenants and
agreements herein set forth, Lessee shall peaceably and quietly have,
hold and enjoy the Leased Premises for the term hereof without
hindrance or molestation from Lessor, subject to the terms and
provisions of his Lease.
<PAGE>
18. EVENTS OF DEFAULT
The following events shall be deemed to be events of default
by Lessee under this Lease: (Lessee shall fall to pay any Rent or
other sum of money due hereunder and such failure shall continue for
a period of five (5) days after written notice that such sum is due;
(ii) Lessee shall fail to comply with any provision of this Lease
other than those listed in this paragraph 18. or any other written
agreement between Lessor and Lessee, all of which terms, provisions
and covenants shall be deemed material, and such failure shall
continue for a period of thirty (30) days after written notice of
such default is given to Lessee; (iii) the Leased Premises shall be
taken on execution or other process of law in any action against
Lessee; (iv) Lessee notifies Lessor, at any time prior to the
Commencement Date, that Lessee does not intend to take occupancy of
the Leased Premises upon the Commencement Date of the Lease term or
Lessee shall fail to promptly move into and take possession of the
Leased Premises when the Leased Premises are ready for occupancy or
shall cease to continuously do business in. vacate or abandon any
portion of the Leased Premises; (v) Lessee shall become insolvent or
unable to pay its debts as they become due; (vi) Lessee takes any
action to file a petition under any section or chapter of the
national Bankruptcy Code, as amended from time to time, or under any
similar law or statute of the United States or any State thereof; or
a petition shall be tiled against Lessee under any such statute;
(vii) a receiver or trustee shall be appointed for Lessee's leasehold
interest in the Leased Premises or for all or a substantial part of
the assets of Lessee.
19. REMEDIES.
A. Upon each occurrence of an event of default, Lessor shall
have the option to pursue any one or more of the following remedies
without notice or demand:
1. Terminate this Lease, with or without re-entering the
Leased Premises; and/or
2. Enter upon and take possession of the Leased Premises,
with or without terminating this Lease: and/or
3. Alter all locks and other security devices at the
leased Premises with or without terminating this Lease,
and pursue, at Lessor's option, one or more remedies
pursuant to this Lease, Lessee hereby specifically
waiving any state or federal law to the contrary;
and in any such event Lessee immediately shall surrender the Leased
Premises to Lessor, and if Lessee fails so to do, Lessor, without
waiving any other remedy it may have, may enter upon and take
possession of the Leased Premises and expel or remove Lessee and any
other person who may be occupying the Leased Premises or any pan
thereof, without being liable for prosecution or any claim of damages
therefore.
<PAGE>
B. If Lessor terminates this Lease, with or without re-entry of
the Leased Premises at Lessor's option. Lessee shall be liable for
and shall pay to Lessor, the sum of all rental and other payments
owed to Lessor hereunder accrued to the date of such termination,
plus, as liquidated damages, an amount equal to (I) the present
value of the total Rent and other payments owed hereunder for the
remaining portion of the Lease term, calculated as if such term
expired on the date set forth in Paragraph 1, less (2) the then
present fair market rental value of the Leased Premises for such
period.
C. If Lessor repossesses the Leased Premises, without
terminating the Lease, as an alternate measure of damages, at
Lessor's option, Lessee shall be liable for and shall pay Lessor on
demand all rental and other payments owed to Lessor hereunder,
accrued to the date of such repossession, plus all amounts required
to be paid by Lessee to Lessor until the date of expiration of die
term as stated in Paragraph I, diminished by all amounts received by
Lessor through reletting the Leased Premises during such remaining
term. Actions to collect amounts due by Lessee to Lessor under this
subparagraph may be brought from time to time, on one or more
occasions, without the necessity of Lessor's waiting until expiration
of the Lease term.
D. Upon an event of default, in addition to any sum provided to
be paid herein, Lessee also shall be liable for and shall pay to
Lessor (I) brokers' fees incurred by Lessor in connection with
reletting the whole or any part of the Leased Premises: (ii) the
costs of removing and storing Lessee's or other occupant's property;
(iii) the costs of repairing, altering, remodeling or otherwise
putting the Leased Premises into condition acceptable to a new lessee
or lessees; and (iv) all reasonable expenses incurred by Lessor in
enforcing or defending Lessor's rights and/or remedies, If either
party hereto institutes any action or proceeding to enforce any
provision hereof by reason of any alleged breach of ally provision of
this Lease, the prevailing party shall he entitled to receive from
the losing party all reasonable attorneys' fees and all court costs
in connection with such proceeding.
E. In the event Lessee fails to make any payment due hereunder
when payment is due, to help defray the additional cost to Lessor
for processing such late payments. Lessee shall pay to Lessor on
demand a late charge in an amount equal to five percent 5%) of such
installment: and the failure to pay such amount within ten days)
days after demand therefore shall be an additional event of default
hereunder. The provision for such late charge shall he in addition
to all of Lessor's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Lessor's
remedies in any manner. Lessor and Lessee agree that the late charge
provided for in this subparagraph is not interest.
<PAGE>
F. No act or omission of Lessor, or exercise by lessor of any
one or more remedies hereunder granted or otherwise available, shall
be deemed to be an acceptance of surrender of the Leased Premises by
Lessor, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written
agreement of Lessor and Lessee. Lessee and Lessor further agree that
forbearance by Lessor to enforce its rights pursuant to the Lease at
law or in equity shall not be a waiver of Lessor's right to enforce
one or more of its rights in connection with any subsequent default.
G. This paragraph shall be enforceable to the maximum extent not
prohibited by applicable law, and the unenforceability at any portion
thereof shall not thereby render unenforceable any other portion. No
re-entry or taking of possession of the Leased Premises by Lessor
shall be construed as an election on Lessors pan to terminate this
Lease unless a written notice of such termination is given to Lessee.
H. Notwithstanding anything in this Lease to the contrary, all
amounts payable by Lessee to or on behalf of Lessor under his Lease,
whether or not expressly denominated as Rent, shall constitute Rent
for the purposes of section 502(b)(7) of the Bankruptcy Code. II
U.S.C. Section 502(b)(7).
I. Lessor shall be in default hereunder in the event Lessor has
not begun and pursued with reasonable diligence the cure of any
failure of Lessor to meet its obligations hereunder within thirty
(30) days of the receipt by Lessor of written notice from Lessee of
the alleged failure to perform. Whether in this Lease or elsewhere,
in no event shall Lessee have the right to terminate or rescind this
Lease as a result of Lessor's default as to any covenant or agreement
contained in this Lease. Lessee hereby waives such remedies of
termination and rescission. If Lessor fails to perform any of its
obligations hereunder within thirty (30) days after written notice
from Lessee specifying such failure, Lessee's remedy shall be an
action for damages or Lessee shall have the right to offset against
the rent, the reasonable cost of performing Lessor's obligations:
provided however, if Lessor's cure of it failure of its obligations
hereunder cannot be cured within thirty (30) days after receipt of
1essee's notice of such failure, and Lessor is diligently pursuing
such cure to completion, Lessor shall not be in default hereunder and
Lessee shall have no right to offset the rent. Unless and until
Lessor falls to 50 cure any default after such notice, Lessee shall
not have any remedy or cause of action by reason thereof. Lessee
hereby covenants that, prior to the exercise of any such remedy, it
will give the mortgagee(s) holding mortgages on the Leased Premises
or the building in which the Leased Premises are located notice and a
reasonable time to cure any default by Lessor. All obligations of
Lessor hereunder will be construed as covenants, not conditions; and
all such obligations will be binding upon Lessor only during the
period of its possession of the Leased Premises and not thereafter.
The term "Lessor shall mean only the owner, for the time being of the
Leased Premises, and in the event of the transfer by such owner of
its interest in the Leased Premises, such owner shall thereupon be
released and discharged from all covenants and obligations of the
Lessor thereafter accruing, but such covenants and obligations shall
be binding during the Lease term upon each new owner for the duration
of such owner's ownership. Notwithstanding any other provision
hereof, Lessor shall not have any personal liability hereunder. in
the event of any breach or default by Lessor in any term or provision
of this Lease. Lessee agrees to look solely to the equity or interest
then owned by Lessor in the Leased Premises or of the building of
which the Leased Premises are a part; however, in no event, shall any
deficiency judgement or any money judgment of any kind be sought or
retained against any Lessor.
<PAGE>
J. If Lessor repossesses the Leased Premises pursuant to the
authority herein granted, then Lessor shall have the right to (i)
keep in place and use or (ii) remove and store all of the furniture,
fixtures and equipment at the Leased Premises, including that which
is owned by or leased to Lessee at all times prior to any foreclosure
thereon by Lessor or repossession thereof by any lessor thereof or
third party having a lien thereon. Lessor also shall have the right
to relinquish possession of all or any portion of such furniture,
fixtures, equipment and other property to any person ("Claimant") who
presents to Lessor a copy of any instrument represented by Claimant
to have been executed by Lessee (or any predecessor Lessee) granting
Claimant the right under various circumstances to take possession of
such furniture, fixtures, equipment or other property, without the
necessity on the part of Lessor to inquire into the authenticity or
legality of said instrument. The rights of Lessor herein stated shall
be in addition to any and all other rights that Lessor has or may
hereafter have at law or in equity; and Lessee stipulates and agrees
that the rights herein granted Lessor are commercially reasonable.
20. ATTORNEY'S FEES.
In the event Lessor/Lessee retains counsel in connection
with, or files suit to enforce the performance of or to obtain
damages caused by a default concerning any of the terms of this Lease
by Lessor/Lessee and obtains a judgement on its behalf. Lessor/Lessee
shall be responsible for and shall pay Lessor's/Lessee's reasonable
attorneys fees.
21. MORTGAGES.
Lessee accepts this Lease subject and subordinate to any
mortgages and/or deeds of trust now or at any time hereafter
constituting a lien or charge upon the Leased Premises or the
improvements situated thereon or the building of which the Leased
Premises are a part, provided, however, that if the mortgagee,
trustee, or holder of any such mortgage or deed of trust elects to
have Lessee's interest in this Lease superior to any such instrument,
then by notice to Lessee from such mortgagee, trustee or holder, this
Lease shall be deemed superior to such lien, whether this Lease was
executed before or after said mortgage or deed of trust, Lessee, at
any time hereafter on demand, shall execute any instruments, releases
or other documents that may be required by any mortgagee for the
purpose of subjecting and subordinating this Lease to the lien of any
such mortgage. Lessor agrees to use its best efforts to obtain a non-
disturbance agreement.
<PAGE>
22. MECHANIC'S LIENS.
Lessee has no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind the interest of Lessor in the Leased
Premises or to charge the Rent payable hereunder or any claim in
favor of any person dealing with lessee, including those who may
furnish materials or perform labor for any construction or repairs.
Lessee covenants and agrees that it will pay or cause to be paid all
sums legally due and payable by it on account of any labor performed
or materials furnished in connection with any work performed on the
Leased Premises and that it will save and hold Lessor harmless from
any and all loss, cost or expense based on or arising out of
asserted claims or liens against the leasehold estate or against the
right, title and interest of the Lessor in the Leased Premises or
under the terms of this Lease. Lessee agrees to give Lessor
Immediate written notice of the placing of any lien or encumbrance
against the Leased Premises. Lessee reserves the right to contest
disputed claims at its sole cost and expense.
23. MISCELLANEOUS
A. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number
shall be held to include the plural, unless the context otherwise
requires. The captions inserted in this Lease are or convenience only
and in no way define, limit or otherwise describe the scope or intent
of this Lease, or any provision hereof, or in any way affect the
interpretation of this Lease.
B. In the event the Leased Premises constitute a portion of a
multiple occupancy building, Lessee's "Proportionate share", as used in
this Lease, shall mean a fraction, the numerator of which is the space
contained in the Leased Premises and the denominator of which is the
entire space contained in the building.
C. The terms, provisions, covenants and conditions contained in
this Lease shall run with the land and shall apply to. inure to the
benefit of, and be binding upon, the parties hereto and upon their
respective, heirs, executors, personal representatives, legal
representatives, successors and assigns, except as otherwise herein
expressly provided. Lessor shall have the right to transfer and assign,
in whole or in part, its rights and obligations in the Lease and in the
building and property that are the subject of this Lease. each party
agrees to furnish to the other, promptly upon demand, a corporate
resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of such
party to enter into this Lease.
D. Whenever a period of time is herein prescribed for the taking
of any action by lessor/Lessee, Lessor/Lessee shall not be liable or
responsible for, and there shall be excluded from the computation of
such period of time, any delays due to strikes, riots, acts of God,
shortages of labor or materials, war, governmental laws, regulations or
restrictions, or any other cause whatsoever beyond the control of
Lessor/Lessee.
<PAGE>
E. Lessee agrees, from time to time, within ten (10) days after
request of Lessor, to deliver to Lessor, or Lessor's designee, an
estoppel certificate stating that this Lease is in full force and
effect, the date to which Rent has been paid, the unexpired term of
this Lease and such other factual matters pertaining to this Lease as
may be requested by Lessor.
F. This Lease constitutes the entire understanding and agreement
of the Lessor and Lessee with respect to the subject matter of this
Lease, and contains all of the covenants and agreements of Lessor and
Lessee with respect thereto, Lessor and Lessee each acknowledge that
no representations, warranties, inducements, promises or agreements,
oral or written, have been made by Lessor or Lessee, or anyone acting
on behalf of Lessor or Lessee, which are not contained herein, and
any prior agreements, promises, negotiations, representations or
warranties not expressly set forth in this Lease are of no force or
effect. This Lease may not be altered, changed or amended except by
an instrument in writing signed by both panics hereto. The covenant
contained in this paragraph is a material inducement to Lessor and
Lessee to execute this Lease.
G. All obligations of Lessee hereunder not fully performed as of
the expiration or earlier termination of the term of this Lease shall
survive the expiration or earlier termination of the term hereof,
including without limitation, all payment obligations with respect to
taxes and insurance and all obligations concerning the condition and
repair of the Leased Premises. Upon the expiration or earlier
termination of the term hereof, and prior to Lessee vacating the
Leased Premises, Lessee shall pay to Lessor any amount reasonably
estimated by Lessor as necessary to put the Leased Premises,
including without limitation, all heating and air conditioning
systems and equipment therein, in good condition and repair,
reasonable wear and tear excluded. Lessee shall also, prior to
vacating the Leased Premises, pay to Lessor the amount, as estimated
by Lessor, of Lessee's obligation hereunder for real estate taxes and
insurance premiums for the year in which the Lease expires or
terminates. All such amounts shall be used and held by Lessor for
payment of such obligations of Lessee hereunder, with Lessee being
liable for any additional costs therefore upon demand by Lessor, or
with any excess to be returned to Lessee after all such obligations
have been determined and satisfied as the case may be.
H. If any clause or provision of this Lease is illegal, invalid
or unenforceable under present or future laws effective during the
term of this Lease, then and in that event, it is the intention of
the parties hereto that the remainder of this Lease shall not be
affected thereby, and it is also the intention of the parties to this
Lease that in lieu of each clause or provision of this Lease that is
illegal, Invalid or unenforceable, there be added, as a part of this
Lease, a cause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and
be legal, valid and enforceable.
I. This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed, and enforced in accordance
with the laws of the State of Texas. This Lease is performable in
Dallas County, Texas.
<PAGE>
J. The voluntary or other surrender of this Lease by Lessee or a
mutual cancellation thereof, shall not constitute a merger; and upon
such surrender or cancellation of this Lease, Lessor shall have the
option, in Lessor's sole discretion, to either (i) terminate all or
any existing subleases or subtenancies, or (ii) assume Lessee's
interest in any or all subleases or subtenancies.
K. All references in this Lease to "the date thereof" or
similar references shall he deemed to refer to the last date, in
point of time, on which all Parties hereto have executed this Lease.
L. Lessee represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction or
that no broker, agent or other person brought about his transaction,
other than Cawley and Associates, or other than as may be referred
in a separate written agreement executed by Lessee, and delivered to
Lessor and Lessee agrees to indemnify and hold Lessor harmless from
and against any claims by any other broker, agent or other person
claiming a commission or other form of compensation by virtue of
having dealt with Lessee with regard to this leasing transaction.
M. If and when included within the term "Lessor", as used in
this instrument, there is more than one person, firm or corporation,
all shall jointly arrange among themselves for their joint execution
of a notice specifying some individual at some specific address for
the receipt of notices and payments to Lessor. If and when included
within the term "Lessee", as used in this instrument, there it more
than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of a notice specifying
some individual at some specific address within the continental
United States for the receipt of notices and payments to Lessee. All
parties included within the terms "Lessor" and "Lessee",
respectively shall be bound by notices given in accordance with
provisions of Paragraph 25 hereof to the same effect as if each had
received such notice.
24. SECURITY SERVICE.
Lessee agrees to pay its Proportionate Share of the cost of
monitoring, repair and maintenance of the water flow detection
systems installed on the Leased Premises and/or the building of which
the Leased Premises are a pan, including the cost at any license or
permit or user charge required for such security systems. Lessor, at
its option, may enter into an agreement with third party for the
monitoring, maintenance and repair of any such system, Lessor shall
not be liable to Lessee for any damages, costs or expense which occur
for any reason iii the event such security system is not properly
installed, monitored or maintained.
<PAGE>
25. NOTICES.
Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements
regarding the sending, mailing or delivering of notice or the making
of any payment by Lessor to Lessee or regarding the sending, mailing
or delivering of any notice or the making of any payment by Lessee to
Lessor shall be deemed to be complied with when and if the following
steps are taken.
a) All Rent and other payments or notices required to be made
by Lessee to Lessor hereunder shall be delivered to lessor at the
address for Lessor set forth below or at such other address as Lessor
may specify from time to time by written notice delivered in
accordance herewith. Lessees obligation to pay Rent and any other
amounts to Lessor under the terms of this Lease shall not be deemed
satisfied until such Rent and other amounts have been actually
received by Lessor.
b) All payments required to be made by Lessor to Lessee
hereunder shall be delivered to Lessee at the address set forth
below, or at such other address within the continental United States
as lessee may specify from time to time by written notice delivered
in accordance herewith.
c) Any written notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered whether actually
received or not when deposited in the United States Mail, postage
prepaid, Certified or Registered Mail, addressed to the Parties hereto
at the respective addresses as set out below, or at such other
address as they have theretofore specified by written notice
delivered in accordance herewith.
26. HAZARDOUS SUBSTANCES
A. Lessee shall not use. store, dispose, handle, transport,
release, discharge or generate any Hazardous Substances (as defined
in subparagraph (below), in, on, to,. under, from or about the
Leased Premises or Building in violation of Environmental Laws.
Lessee warrants and agrees that Lessee's use, storage, disposal,
handling, release, discharge, generation or transport shall be
conducted in strict accordance with all Environmental Laws (as
defined in subparagraph (f) below). Any consent or approval by
Lessor of Lessee's use, storage, disposal, transport, handling,
discharge, release or generation of Hazardous Substances shall not
constitute an assumption of risk respecting the same nor a warranty
or certification by Lessor that Lessee's proposed use, storage,
disposal, handling, release, discharge, generation or transport of
any such Hazardous Substances is safe or reasonable or in compliance
with Environmental Laws. Lessee shall maintain current all permits
required for its operations, including, without limitation, those
for the use, storage, handling, transport, discharge, release,
generation, and/or disposal of Hazardous Substances.
<PAGE>
B. Release or discharge of a detectable amount of Hazardous
Substances into the soil or into ground water shall constitute a
material default under this Lease, Lessee acknowledges that a Lessee
of nonresidential property who knows or has reason to know that a
material amount of a hazardous substance has been released on or
beneath its premises is to promptly notify the Lessor. Failure to
provide such notice to Lessor shall constitute a material default
under this Lease. In the event of such default, Lessor shall have
the right to (i) terminate this Lease and collect damages, inclusive
of the cost of cleanup, required under Environmental Law, of any
Hazardous Substances released into the soil or groundwater; or (ii)
require the cleanup of contamination, required under Environmental
Law, while still enforcing the remaining terms of this Lease.
C. Lessee expressly agrees that Lessor shall have the right to
enter the Leased Premises to inspect the Leased Premises and/or to
perform through a reputable, qualified environmental consulting
firm, an environmental investigation and assessment of the Leased
Premises (the "Environmental Assessment") upon reasonable notice to
Lessee (not less than 72 hours), and that this right of entry shall
include the right to test for soil and groundwater contamination.
Lessee shall comply or bear the risk of noncompliance, at its sole
cost and expense, with all reasonable recommendations contained in
any Environmental Assessment delivered to Lessor to Lessee,
including. without limitation, any reasonable recommendation with
respect to the precautions that should be taken with respect to
activities on the Leased Premises or Building or any reasonable
recommendations for additional testing and studies to detect the
presence of Hazardous Substances.
D. Lessee shall indemnify, defend, (by counsel
reasonably acceptable to Lessor), protect and hold Lessor, and each
of Lessor's officers, directors, shareholders, employees, agents,
attorneys, successors and assigns, free and harmless from and
against any and all claims, liabilities, penalties, forfeitures,
losses or expenses (including, without limitation, reasonable
attorneys' fees and costs and court costs) or death of Or injury to
any person or damage to any property whatsoever, including without
limitation (a) personal injury claims, (b) the payment of liens, (c)
diminution in the value of the Leased Premises or Building or the
property on which they are located, (d) damages for the loss or
restriction on use of the Leased Premises or Building, (e) sums paid
in settlement of claims, with the approval of Lessee, which shall
not be unreasonably withheld, (f) reasonable attorneys' fees and
costs, consulting tees and costs and expert fees and costs, (g) the
cost of any investigation of site conditions, and (h) the cost of
any repair, clean-up, health or other environmental assessments,
remedial, closure, removal, or restoration work, decontamination or
detoxification if required by any governmental or quasi-governmental
agency or body having jurisdiction from or are caused its whole or
in part, directly or indirectly, by Lessee's use, storage, handling,
transportation, disposal, release, threatened release, discharge or
generation of Hazardous Substances to, in, on, under, about or from
the Leased Premises or Building, in violation of Environmental Laws,
or Lessee's failure otherwise to comply with any Environmental Law.
For purposes of the indemnity provisions hereof, any acts or
omissions of Lessee, or by employees, agents, assignees, contractors
or subcontractors of Lessee or others acting for or on behalf of
lessee (whether or not they are negligent, intentional, willful or
unlawful) shall be strictly attributable to Lessee, The
indemnification contained herein shall survive the expiration or
earlier termination of this Lease. This indemnification is intended
to constitute an indemnity agreement within the meaning of Section
9607(e)(1) of the Comprehensive Environmental Response. Compensation
and Liability Act of 1980 (42 USC 9607(e)(l).
<PAGE>
E. Upon the expiration or earlier termination of this Lease,
Lessee shall remove from the Leased Premises any trade fixtures,
furnishings and/or equipment, associated with the use, storage,
handling, transport, discharge, release, generation or disposal of
Hazardous Substances and perform any closure work, investigation and
environmental remedial work required by an Environmental Laws or by
any other applicable laws, ordinances, regulations, or permits by
any governmental authority having jurisdiction. Removal and disposal
of any and all such equipment or fixtures shall be performed in
strict accordance with all Environmental Laws and all other
applicable laws, regulations and government orders. The Lessor has
no actual knowledge of the foregoing procedures not being adhered to
by prior tenants it the Leased Premises.
F. As used in this Lease, the term "Hazardous Substances" shall
mean hazardous wastes, hazardous chemicals, radioactive materials,
toxic materials or any other waste, chemical, substance or material
now or hereafter determined by any federal, state or local
governmental agency of authority having jurisdiction to be hazardous
to human health or the environment or that is or becomes regulated
by such agency or authority by reason of such determination that
were released to the environment, including, without limitation, the
soil, groundwater and/or air, at the Leased Premises or Building. As
used in this Lease, the term "Environmental Laws" shall mean any and
all present and future federal, state and local laws (whether under
common law, statute, rule, regulation or otherwise) requirements
under permits issued with respect thereto, and other requirements of
governmental authorities relating to the environment or to any
Hazardous Substance (including, without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42
U.S.C 9601, et seq.), as heretofore or hereafter amended from time
to time.
G. Lessee/Lessor shall immediately advise Lessor/Lessee in
writing of, and provide Lessor/Lessee with a copy of: (i) any
notices of violation or potential or alleged violation of any
Environmental Law that are received by Lessee/Lessor from any
governmental agency; (ii) any and all inquiry, investigation,
enforcement, clean-up, removal or other governmental or regulatory
actions instituted or threatened in writing relating to
Lessee/Lessor or the Leased Premises or Building; and (iii) all
written claims made or threatened by any third-party against
Lessee/Lessor or the Leased Premises or Building relating to any
Hazardous Substances.
H. with reference to Article 12 Of this Lease, if the proposed
assignee's or sublessee's activities in, on or about the Leased
Premises or Building involve the use, handling, storage, transport,
discharge, release generation or disposal of any Hazardous
Substances other than those used by Lessee or in quantities and
processes different from Lessee's uses permitted hereunder, it shall
be reasonable for Lessor to withhold its consent to such assignment
or sublease in light of the risk of contamination posed by such
activities unless Lessee established beyond a reasonable doubt that
such assignee's or sublessee's activities pose no greater risk of
contamination to the Leased Premises and Building than Lessee's
permitted activities and use of the Leased Premises and Building in
view of the (a) quantities, toxicity and other properties of the
Hazardous Substances to be used by such assignee or sublessee, (b)
the precautions against a release of Hazardous Substances such
assignee or sublessee agrees to implement, (c) such assignee's or
sublessee's financial condition as it relates to its ability to pay
for the cost to clean up a major release of Hazardous Substances,
and (d) such assignee's or sublessee's policy and historical record
respecting its willingness to respond to and clean up a release of
Hazardous Substances.
<PAGE>
I. To the actual knowledge of Lessor, the Leased Premises is
not impaired by any contamination of Hazardous Substances into or on
the soil or ground water.
J. With respect to use or discharge of Hazardous Substances on
the Leased Premises prior to the Commencement Date, and the same not
being caused by Lessee, its employees, agents, assignees,
contractors, subcontractors or invitees, Lessor shall indemnify,
defend, (by counsel reasonably acceptable to Lessee), protect and
hold Lessee, and each of Lessee's officers, directors, shareholders,
employees, agents, attorneys, successors and assigns, free and
harmless from and against any and all claims, liabilities,
penalties, forfeitures, losses or expenses (including, without
limitation, reasonable attorneys' fees and costs and court costs) or
death of or injury to any person or damage to any property
whatsoever, including without limitation (a) personal injury claims,
(b) the payment of liens, (c) diminution in the value of the Leased
Premises or Building or the property on which they are located, (d)
damages for the loss or restriction on use of the Leased Premises or
Building. (e) sums paid in settlement of claims, with the approval
of Lessor, which shall not be unreasonably withheld, (f) reasonable
attorneys' fees and costs, consulting fees and costs and expert fees
and costs, (g) the cost of any investigation of site conditions, and
(h) the cost of any repair, clean-up, health or other environmental
assessments, remedial, closure, removal, or restoration work,
decontamination or detoxification if required by any governmental Or
quasi-governmental agency or body having jurisdiction, from or are
caused in whole or in part, directly or indirectly, by Lessor's or
prior tenant's of the Leased Premises use, storage, handling,
transportation, disposal, release, threatened release, discharge or
generation of Hazardous Substances to, in, on, under, about or from
the Leased Premises or Building, in violation of Environmental Laws,
or Lessor's Or prior tenant's of the Leased Premises failure
otherwise to comply with any Environmental Law. For purposes of the
indemnity provisions hereof, any acts or omissions of Lessor or
prior tenants of the Leased Premises, or by employees, agents,
assignees, contractors or subcontractors of Lessor or prior tenants
of the Leased Premises or others acting for or on behalf of Lessor
or prior tenants of the Leased Premises (whether or not they are
negligent, intentional, willful or unlawful) shall be strictly
attributable to Lessor or prior tenants of the Leased premises. The
indemnification contained herein shall survive the expiration of
earlier termination of this lease. This indemnification is intended
to constitute an indemnity agreement within the meaning of Section
9607(e)(I) of the Comprehensive Environmental Response, Compensation
and liability Act of 1980 (42 USC 9607(e)(I).
27. INTENTIONALLY DELETED.
28. EXHIBITS.
The following numbered exhibits are attached hereto and
incorporated herein and made a part of this Lease for all purposes:
Exhibit "A" Legal Description
Exhibit "B" Floor Plan
Exhibit "C" Special Provisions
<PAGE>
29. EFFECT OF DELIVERY OF THIS LEASE.
Lessor has delivered a copy of this Lease to Lessee for
Lessee's review only, and the delivery hereof to Lessee does not
constitute an offer to Lessee or option. This Lease shall not be
effective until a copy executed by both Lessor and Lessee is delivered
to and accepted by Lessor, and if applicable, this Lease has been
approved by Lessor's mortgagee(s).
30. NO IMPLIED WAIVER.
The failure of Lessor to insist at any time upon the strict
performance of any covenant or agreement herein or to exercise any
option, right, power or remedy contained in this Lease shall not be
construed as a waiver or a relinquishment thereof. The failure of
Lessor to exercise any right, power or remedy with respect to a default
by Lessee as to any term, condition or covenant of this Lease is not
intended to be, and shall not operate as. a waiver of any right, power
or remedy with respect to that default or as to any other or subsequent
default of Lessee's obligations under this Lease. The exercise by
Lessor of any certain right, power or remedy with respect to a default
by Lessee as to any term, condition or covenant of this Lease is not
intended to be and shall not operate as, a waiver of any other right,
power or remedy of Lessor contained in this Lease, with respect to that
default or as to any other or subsequent default by Lessee of its
obligations pursuant to this Lease. No payment by Lessee or receipt by
Lessor of a lesser amount than the monthly installment of Rent due
under this Lease shall be deemed to be other than on account of the
earliest Rent due hereunder, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as Rent be
deemed an accord and satisfaction, and Lessor may accept such check or
payment without prejudice to Lessor's right to recover the balance of
such Rent or pursue any other remedy provided in this Lease.
31. INTENTIONALLY DELETED.
EXECUTED BY LESSEE, this 25th EXECUTED BY LESSOR this 15th
day of May, 1994 day of June, 1994
LESSEE: LESSOR
Carrington Laboratories, Inc., DFW Nine,
a Texas corporation a California Limited Partnership
By: Meridian Point Properties, Inc..
as Agent
By: /S/ By: /S/
---------------------- ----------------------
Title: ___________________ Title: ___________________
ADDRESS OF LESSSEE: ADDRESS OF LESSOR:
Carrington Laboratories c/o Wilcox Realty Group, Inc.
2001 Walnut Hill Lane 1445 Ross Avenue, Suite 4900
Irving, Texas 75038 Dallas. Texas 75202
Meridian Point Lease Revised 11/18/92
<PAGE>
Exhibit "A"
All that certain tract or parcel of land being a part of Tract D of
Las Colinas Walnut Hill Distribution Center in Irving, Texas and
being more particularly described as follows:
Beginning at a point in the West line of Hereford Drive 667.20 feet
South 00 degrees 16'40" East from the South line of Brangus Drive.
Thence South 89 degrees 43'20" West 200.0 feet.
Thence South 00 degrees 16' 40" East 412.0 feet.
Thence North 89 degrees 43'20 East 202.8 feet.
Thence in a Northerly direction 54.24 feet with a curve to the right
of central angle of 5 degrees 55'24" and a radius of 524.7 feet,
Thence North 00 degrees 16'40" West 357.85 feet to the point of
beginning. Containing 1.8929 acres of land.
<PAGE>
EXHIBIT "B"
[FLOOR PLAN APPEARS HERE]
<PAGE>
Exhibit "C"
Special Provisions
Base Rent
Base Rent pursuant to paragraph 2.A shall be paid in accordance with
the following schedule:
Month 1 $9,201,00/rnonth
Months 2-3 $0.000.00/month
Months 4-62 $9,201.00/month
Months 63-86 $11,041.00/month
Tenant Improvements
Lessor shall provide an allowance of $35,050 for working drawings,
and tenant improvements for the Leased Premises. Construction
management shall be handled by Wilcox Realty Group, Inc. If such
costs exceed $35,050, Lessee shall pay the excess costs to Lessor and
drawing revisions upon demand. Any unused portion of the allowance
shall be applied to the Base rent hereunder at a maximum amount of
$5,000 per month.
During 1994, Lessor, at its sole cost and expense shall repair the
parking lot to a reasonably aesthetically acceptable level, repaint
the building exterior, repair major cracks in the warehouse area, and
provide a ramp from the parking area to the front door.
Renewal Option
If, at the end of the primary term of this Lease, Lessee is not in
default in any of the terms, conditions or covenants of the Lease,
Lessee, but not any assignee or subtenant of Lessee, is hereby
granted an option to renew this Lease for an additional term of 9j
months upon the same terms and conditions contained in this Lease
with the following exceptions:
A. The renewal option term will contain no further renewal
options unless expressly granted by Lessor in writing; and
<PAGE>
B. The rental for the renewed term shall be based upon the
then prevailing rental rates for properties of equivalent
quality, size, utility and location, with the length of
the lease term and credit standing of the Lessee to be
taken into account,
If Lessee desires to renew this Lease, Lessee will notify Lessor of
its intention to renew no later than six months prior to the
expiration date of this Lease; Lessor shall, within the next fifteen
days notify Lessee in writing of the proposed renewal rate and the
Lessee shall, within the next fifteen days following receipt of the
proposed rate, notify the Lessor in writing of its acceptance or
rejection of the proposed rental rate, Rejection of the proposed
rental rate terminates any renewal option pursuant to this paragraph.
See attached.
The Lease is contingent upon Lessee's reasonable approval of a Phase
One Environmental Report. In the event that the Lessee does not
notify the Lessor in writing of an unacceptable Environmental
Inspection by June 10, 1994, this Lease shall remain in full force
and effect.
Exhibit 10.13
[ WILCOX LOGO APPEARS HERE ]
August 12 1994
Mr. Robert Brown. CFPIM
Director of Materials Management
Carrington Laboratories, Inc.
2001 Walnut Hill Lane
Irving, TX 75038
Re: Lease Agreement Between DFW Nine, as Lessor, and Carrington
Laboratories, Inc., as Lessee, for Leased Premises located at
1909 Hereford Drive, Irving, Texas.
Dear Robert:
This letter serves to (i) Amend the Commencement Date to August 15,
1994, and (ii) Confirm that the Leased Premises were leased to the
Lessee an lessee accepts the Leased Premises "as is" except for those
items specifically referenced in the Lease Agreement & Exhibit A
attached hereto.
Kindly confirm Carrington Laboratories, Inc.'s agreement of the above
by having the appropriate party sign below and return four (4)
counterparts of this letter to me. I will then present the letter for
Lessor's signature and return a fully executed copy to you.
Sincerely,
WILCOX REALTY GROUP, INC.
/S/
James T. Hancock
Vice President - Marketing
JTH/jks
Enclosures
AGREED AND ACCEPTED;
LESSEE: Carrington Laboratories, Inc.
BY: /S/
-----------------------------------
NAME: ________________________________
TITLE:________________________________
DATE: ________________________________
LESSOR:-DFW Nine, a California limited partnership
BY: Meridian Point Properties, Inc.
BY: /S/
-----------------------------------
NAME: ________________________________
TITLE:________________________________
DATE: ________________________________
<PAGE>
EXHIBIT "A"
August 10, 1994
Mr. Steve Belken
Univera
4250 North Beltline Road
Irving, Texas 75038
RE: 1909 Hereford
Dear Steve:
The following details the estimated costs associated with necessary
repairs and maintenance required to be completed as the above
referenced property in accordance with your Lease Agreement:
Not to Exceed Costs
DESCRIPTION (including tax)
----------- ---------------
HVAC
Repairs & Maintenance per Griffin $9,525.00
Mechanical's attached inspection
report dated July 29, 1994.
ELECTRICAL
Replacement of extinguished light $2,108.00
bulbs, ballasts, and fire exit
lamps per Hugh Carrington's notes
dated July 25, 1994 and Amber Electric's
attached proposal dated August 4, 1994.
DOCK DOORS & SHELTER
Dock door repairs shown as item (A) $569.00
on attached proposal from Overhead Door
Company dated August 2, 1994.
Replace one dock shelter shown as item $1,055.00
(C.2) on attached proposal from Overhead
Door Company dated August 2, 1994.
Dock levellers repairs Unknown
WAREHOUSE
Water cooler replacement Unknown
Floor cleaning (fork lift marks & oil spills) Unknown
Chain link fence replacement Unknown
<PAGE>
CARPETING
Bleached place in corner office Unknown
Large tear in open office area
2 small offices by lab area (including
cove base)
WINDOW GLAZING
Repair Leaks in the conference room
Due to the Landlord's leniency to date on enforcement of this work
which should have been completed prior to July 31, 1994, our assistance
in obtaining cost estimates for this work which is your firm's
responsibility, and the fact that we have not demanded a rental payment
for August to date, we respectfully request your cooperation and
fairness in regards to the above items for which a repair cost is not
known at this time. We currently retain a security deposit in the
amount of $6,500 which can be applied towards these repair and
maintenance costs.
Steve, we certainly intend to be fair and reasonable in terms of the
scope of work for remaining items and their associated costs. Please
sign below as your acknowledgement and approval for us to proceed with
the HVAC, electrical, dock door repairs, and one dock shelter
replacement. These costs are Univera's responsibility and Univera
agrees to reimburse the Landlord accordingly.
I will obtain the needed information on the pending cost estimates and
advise you immediately. Please feel free to call if you have any
questions.
Sincerely,
WILCOX REALTY GROUP ACCEPTED:
/s/ __________________________________
Louann Davison DATE:
Property Manager
__________________________________
LD/jh
cc: Jim Hancock
Exhibit 10.14
This production contract made and entered into as of the 13th
day of February, 1995 by and between CARRINGTON LABORATORIES,
INC., a Texas corporation, with offices at 2001 Walnut Hill Lane,
Irving. Texas, its subsidiaries and successors (hereinafter
referred to as "Purchaser") and OREGON FREEZE DRY, INC., an
Oregon corporation, with offices at 525 25th Avenue SW, Albany,
Oregon, its subsidiaries and successors (hereinafter referred to
as "Seller")
WITNESSES THAT
WHEREAS, Purchaser is a producer and marketer of numerous
medical devices and other products; and
WHEREAS, Seller is a producer and marketer of numerous food,
drug, microbial, chemical, and other products prepared chiefly,
but not exclusively, through low-temperature drying processes;
and
WHEREAS, Purchaser has developed medical devices for wound
care which are freeze-dried in their final form for topical or
oral use, which are subjects of approved US FDA 510(k)
applications or a therapeutical regulatory approval (including
material for clinical trials), and for which Seller has developed
commercial drying processes and packaging, but specifically
excluding diagnostics and cosmetics; and
WHEREAS, the parties hereto now wish to enter into a
production contract subject to the provisions, terms and
conditions hereinafter stated,
NOW, THEREFORE, in consideration of the respective
representations, warranties, covenants and agreements contained
herein, Purchaser and Seller hereby agree as follows:
<PAGE>
Article One
Definitions
For the purpose of this production contract, the following
definitions will apply:
A. "Purchaser" shall mean Carrington Laboratories, Inc., a
Texas corporation, with offices at 2001 Walnut Hill Lane,
Irving, Texas.
B. "Seller" shall mean Oregon Freeze Dry, Inc., an Oregon
corporation, with offices at 525 25th Avenue SW, Albany,
Oregon.
C. "Product" shall mean medical device(s) for wound care which
are freeze-dried in their final form for topical or oral
use, which are subjects of approved US FDA 510(k)
applications or a therapeutical regulatory approval
(including material for clinical trials), but specifically
excluding diagnostics and cosmetics, described in Exhibit A
hereto.
D. "Item" shall mean a specific medical device product of the
type defined above, identified by a unique product
specification which includes formula, process, packaging
format and materials, and performance requirements. Prior to
production of commercial Product, an Item shall be defined
within Exhibit A by such a product specification.
E. "Production Contract" shall mean the written contract for
the production and supply of Product between the parties
hereto, plus all exhibits and contract modifications, if
any, which may be agreed to by and between the parties
hereto.
F. "Commercial production" shall mean Product produced for sale
<PAGE>
with Quality Assurance release, in accordance with Exhibit
A, as mutually agreed-upon and/or periodically amended.
G. "Minimum Total Commitment" shall mean the minimum amount of
Product Purchaser is required to purchase from Seller during
the term of this Production Contract, expressed in sales
dollars.
Article Two
Effective Date
The effective date of this contract shall be the date of
execution of this contract by both parties hereto.
Article Three
Product, Quantities, Orders, Scheduling, Raw Materials
Revisions to, Expansion of, and Deletions from, Product Line
Subsection A. Product and Quantities
Subject to the terms and conditions of this Production
Contract, Seller shall sell to Purchaser and Purchaser shall
purchase from Seller, Product produced in accordance with agreed-
upon Item specifications, up to the limits set forth in Exhibit
E, which are attached hereto and incorporated into this contract.
Exhibit A enumerates Item specifications that shall be finalized
by written mutual consent of Purchaser and Seller based on the
results of scale-up.
Subsection B. Purchase Orders Shipping Schedule, and Lead
Time.
All shipments will be initiated by a Purchase Order. Product
shipment dates will be specified in the Purchase Order. These
<PAGE>
dates may not be scheduled prior to ninety (90) days after the
date the Purchase Order is received and acknowledged in writing
by Seller, unless by mutual consent of the parties. Purchase
Orders will be non-cancelable, and all Product included in a
Purchase Order must be shipped and invoiced within six (6) months
of the first scheduled shipping date,
Subsection C. Minimum Purchases.
From the date Commercial Production first commences,
Purchaser is obligated to accept, subject to the provisions of
Article Eleven, and Seller is required to make available, during
each calendar month of the Production Contract, aggregate
shipments of not less than $30,000.
Subsection D Late or Partial Shipments.
Late or partial shipments against a shipping date scheduled
in a Purchase Order will incur liquidated damages of 50% of the
purchase order price of the Product not shipped as scheduled, to
be credited to Purchaser's account. Seller shall have a two (2)
working day grace period (that is, two days after the scheduled
shipping date) in which to complete the actual shipment, before
said liquidated damages apply. In the context of the
aforementioned sentence, the actual shipping date shall be
defined as the date on which Product leaves Seller's dock.
Liquidated damages shall not apply to late or partial shipments
which: 1) are arranged in advance with Purchaser by written
consent, or 2) arise due to Force Majeure situations (for
example, governmental acts, acts of God, severe weather, fire,
flood, explosions, work stoppages, strikes, force majeure
situations, impacting major subcontractors and suppliers,
<PAGE>
unavailability or scarcity of raw materials or ingredients, and
acts of the public enemy and war) production by Purchaser
pursuant to Article Eight, pursuant to Article Eleven or 4) are
rejected by purchaser pursuant to Article Eleven prior to
shipment, or 5) arise from delays in Purchaser arranged
transportation. These liquidated damages shall constitute
Purchaser's sole remedy for late or partial shipments, and Seller
shall in no way be liable for any indirect, consequential, or
special damages for such shipments, including, but not limited
to, loss of use, loss of business opportunities, loss of profits,
and other damages.
Subsection E. Raw Materials: Ingredients Packaging
Materials and Artwork.
Purchaser will provide Seller with all raw materials (that
is, packaging materials and any required artwork, and ingredients
excluding water and production supplies) necessary for the
manufacture of Product, in accordance with the agreed upon Item
specifications outlined in Exhibit A, as mutually agreed-upon
and/or periodically amended, as of the date of the transmittal and
acknowledgement in writing of a Purchase Order which requires said
raw materials for fulfillment. Purchaser will provide the
appropriate Quality Assurance release documentation for all such
raw materials it supplies, except packaging. Seller will provide
the appropriate Quality Assurance release documentation for
packaging, and will notify Purchaser promptly of any deviations
from specifications.
Package artwork shall be developed by Purchaser, and shall
be provided to Seller with proper transmittal documentation
<PAGE>
indicating Quality Assurance release for the printing of it, Seller
will provide to Purchaser the relevant technical costs associated
with: and mechanical requirements to which Purchaser's artwork must
conform. Purchaser shall be responsible for
1, Any changes in packaging or artwork made at Purchaser's
request, or the development of any new packaging or
artwork, and/or
2. Changes made to fulfill government regulations or
requirements directly associated with Product produced
hereunder.
Subsection F. Revisions to Existing Items
Should Purchaser determine that it wishes to implement
improvements or modifications to an existing Item, these shall
become effective through mutual written agreement of Seller and
Purchaser and amendment of Exhibit A, and of Exhibits D (defined
in Article Five below) and E, if necessary, to define a revised
product specification, price, and production capacity.
Notwithstanding whether written revisions to an existing product
specification are required, no changes in process parameters,
flow or location, shall be made by Seller without prior written
authorization from Purchaser's Director of Quality Assurance.
Purchaser will communicate in writing to Seller any change in raw
material vendors.
Purchaser shall be responsible to reimburse Seller for
Seller's (i) finished product inventory of the Item prepared for
open Purchase Orders, and up to an additional five percent (5 %)
(in units) of the Purchase Order quantity, under the superseded
technical specification at prices then in effect, and (ii)
<PAGE>
product-in-process unique to the superseded technical
specification, at Seller's cost, to fill open Purchase Orders.
Seller will destroy in a secure manner (e.g., deface, incinerate,
or similar) any obsolete labeling, and keep adequate records of
same,
Notwithstanding any provision to the contrary herein, Seller
and Purchaser may mutually agree that Seller develop, to
Purchaser's requirements, potential improvements or modifications
to existing Items with respect to ingredient(s), shape or size, or
packaging materials or format, Purchaser shall reimburse Seller's
out-of-pocket expenses for such development activities, together
with other reasonable and necessary costs for the use of
developmental facilities and personnel for testing and consumer
research, as shall be mutually agreed upon by Purchaser and
Seller, and authorized in advance by Purchaser's purchase order.
Subsection G. Expansion of Product Line.
Should Purchaser determine that it wishes to commercialize
additional products pursuant to the prior paragraph as new Items,
each Item shall become a part of contractual Product through
mutual agreement of Seller and Purchaser and amendment of Exhibits
A, D, and E, to define the new Item's specifications, price, and
production capacity, respectively.
Subsection H. Deletions from Product Line
Purchaser may delete Items from the Product line set forth in
Exhibits A and D, or any amendments thereto, provided that
Purchaser shall continue to be obligated to accept Product
prepared under open Purchase Orders, and up to an additional five
<PAGE>
percent (5%) (in units) of the Purchase Order quantity, and to
fulfill the Minimum Total Commitment as defined in Article Seven
below. Seller will destroy in a secure manner (e.g., deface,
incinerate, or similar) any obsolete labeling, and keep adequate
records of same,
Article Four
Modifications to Seller's Facilities
Seller shall make such physical changes to its facilities, as
described in Exhibit B, as are necessary to reach and comply with
the pertinent current Good Manufacturing Practices (cGMPs), as
described in Exhibit C.
Article Five
Price
Subsection A. Prices.
As compensation for the Product required under this
Production Contract, Purchaser shall pay to Seller the prices set
forth in Exhibit D as amended, which is attached hereto and
incorporated into this contract Prices shall be fixed through the
first forty-two (42) months of the Production Contract, and
subject to a one-time price increase of up to five percent (5%),
effective after the first forty-two (42) months of the Production
Contract. The relevant price for a given shipment shall be
determined by the price in effect at the date of actual shipment,
as actual shipment is defined in Article Three, Subsection D.
Subsection B. Adjustments for Regulatory Changes.
Should government regulations cause an Increase in Seller's
<PAGE>
manufacturing costs for the production of Product hereunder, the
parties to this Production Contract will meet and attempt to
develop viable manufacturing and business strategies to minimize
the net cost impact of said regulations on Seller. If such
strategies do not fully offset the costs of said regulation,
Seller may adjust prices to reflect the net impact of said
regulation. Seller will provide appropriate data and analysis to
support such price adjustments.
Article Six
Term and Termination
Subsection A Term,
The term of this Production Contract shall be a period
beginning the effective date of its execution by both parties
hereto and automatically ending sixty-six (66) months thereafter,
or as extended by written consent of both parties.
Subsection B. Termination.
This production contract may not he canceled or otherwise
terminated by either party except as set forth in this Article.
Subsection C. Termination For Convenience of Purchaser.
Purchaser shall have the right to unilaterally terminate
this Production Contract subject to its performance of the
provisions of this Article Six. Subsection C. In order to exercise
this right to terminate for convenience Purchaser shall give
Seller ninety (90) days written notice of termination for the
convenience of Purchaser, expressly citing this subsection of
<PAGE>
Article Six, Subsection C. and shall within thirty (30) days of
termination, pay to Seller any amount applicable under Article
Seven.
Subsection D. Termination for Default.
In the event of a breach of contract or default of
performance by either party, the party claiming such breach or
default shall give written notice of such breach or default,
citing the grounds and providing information supporting such
grounds, to the breaching or defaulting party and the latter shall
have thirty (30) days from receipt within which to cure such
breach or default, or, if cure can not be reasonably completed
within such 30-day period, the defaulting party shall, within such
30-day period begin commercially reasonable efforts to cure such
default and shall timely continue such efforts after such 30-day
period until such default has been cured, provided however, such
period of cure may not exceed ninety (90) days after the end of
the 30-day period.
In the event that the breaching or defaulting party shall
refuse or fail to cure such claimed breach or default, within
said thirty (30) days, or such longer period if the cure can not
be reasonably completed within such 30-day period, but in no
event longer than ninety (90) days after the end of the 30-day
period, the party claiming breach or default may terminate this
Production Contract and seek its remedies at law or in equity
against the other.
<PAGE>
Article Seven
Minimum Commitments and Take or Pay Guaranty
Subsection A. Minimum Total Commitment
As partial inducement for Seller to enter into this
Production Contract, Purchaser agrees to take delivery of and pay
for Product with a cumulative price, excluding freight-out, of
not less than Two Million Five Hundred Thousand Dollars
($2,500,000.00) during the term of this Production Contract.
Subsection B. Adjustments to Minimum Total Commitment.
In the case of significant changes in manufacturing
requirements, particularly (but not exclusively) as they relate
to Amendments to Exhibits A and E, requiring significant
increases in the rate of total deliveries and/or in the number of
Items delivered within limited time periods, to accommodate the
manufacture of new Items requiring additional equipment or
facilities modifications, or to adapt to substantive changes in
the pertinent regulatory environment, the parties to this
Production Contract may adjust the Minimum Total Commitment in
writing and by common consent of both parties, as partial
inducement for Seller to make such changes as may be required to
meet these requirements.
Subsection C. Take or Pay Guaranty: Minimum Total Commitment.
In the event Purchaser takes delivery of and pays for,
during the term of this Production Contract, less than the
Minimum Total Commitment specified in Subsection A of this
Article or as amended under the terms of Subsection B of the
<PAGE>
Article, or in the event of early termination as provided for in
Article Six, Purchaser agrees to pay Seller for Product not taken
in accordance with the following formula: Purchaser shall be
responsible to pay to Seller within 30 days after the expiration
of the original term of this Production Contract or after the
date of early termination (whichever is earlier), an amount equal
to Sixty Percent (60%) of the Minimum Total Commitment not taken
and paid for by Purchaser, in addition to payments made for
Product previously taken under the terns of this Production
Contract.
In the event Purchaser takes delivery of alt pays for,
during the term of this Production Contract, less than the
monthly Minimum Purchase specified in Subsection C of Article
Three except arising from suspension of production by. Purchaser
pursuant to Article Eight, Purchaser agrees to pay Seller for
Product not taken in accordance with the following formula:
Purchaser shall be responsible to pay to Seller within 30 days
after the end of the calendar month, an amount equal to Sixty
Percent (60%) of the monthly Minimum Purchase not taken and paid
for by Purchaser, in addition to payments made for Product
previously taken under the terms of this Production Contract.
Subsection D. Take or Pay Guaranty: Security.
The Take or Pay Guaranty shall be secured within six weeks
of the execution of this Production Contract by a confirmed letter
of credit, satisfactory to Seller, sufficient to secure 60% of the
Minimum Total Commitment. The Purchaser may, upon its initiative
and with Seller's prior written concurrence, said concurrence not
to be unreasonably withheld, reduce the amount of said letter of
<PAGE>
credit over time to reflect sales of Product against the Minimum
Total Commitment, on a pro rata basis versus the Minimum Total
Commitment as amended. This security shall constitute Seller's
sole remedy for failure by Purchaser to take and pay for the
Minimum Total Commitment.
Article Eight
Yield
Losses of Purchaser-supplied ingredients while on Seller's
premises will be reimbursed to Purchaser at Purchaser's direct
cost.
From the compounding step forward, the initial standard
manufacturing yield for a given Item will be set based upon the
average yield of the three lots for process validation. Initial
yields will subsequently be revised after cumulative production
reaches ten lots, becoming the average yield of these ten lots.
Seller will report to Purchaser, on a timely basis, the yields
achieved against the then-current standard. Should yields fall
below ninety percent (90%) of standard, Purchaser may, after
consultation with Seller, require that production be suspended
until an appropriate course of action is developed by Seller in
consultation with Purchaser to bring yields above ninety percent
(90%) of standard.
Article Nine
Product Exclusivity
Seller will not produce medical devices for wound care which
<PAGE>
are freeze-dried in their final form for topical or oral use,
which are subjects of approved US FDA 5 10(k) applications or a
therapeutical regulatory approval (including material for clinical
trials), but specifically excluding diagnostics and cosmetics, for
or on behalf of any entity other than Purchaser during the initial
tern of this Production Contract, or during such shorter period if
this Production Contract is terminated prior to the expiration of
the initial term hereof.
Seller shall be the exclusive supplier of medical devices for
wound care which are freeze-dried in their final form for topical
or oral use, which are subjects of approved US FDA 510(k)
applications or a therapeutical regulatory approval (including
material for clinical trials), but specifically excluding
diagnostics and cosmetics, to Purchaser, its subsidiaries and
successors, during the initial term of this Production Contract,
subject only to Seller's production availability given ordinary
and reasonable lead times and appropriate business commitments.
These mutual obligations of exclusivity shall pertain to
product produced for sale in the US domestic market, Seller shall
have right of first offer to provide manufacturing services for
Purchaser for product produced for sale in foreign markets.
Article Ten
Quality Control
Seller will maintain methods, facilities and controls in
conformance with current Good Manufacturing Practices (cGMPs) as
set forth in 21 CFR 820 and 21 CFR 211, as applicable. Seller
shall permit Purchaser, or its designee, to inspect and photocopy
ingredient and product analyses and batch records prepared in
accordance with the technical specifications ("Technical
<PAGE>
Specifications"), standard operating procedures ("Standard
Operating Procedures"), and other pertinent documentation in force
at the time of production, and to perform manufacturing audits of
Seller's facilities.
Article Eleven
Product Rejection and Recalls
Any given lot of Product may be rejected 1) for failure to
meet the specifications outlined in Exhibit A, or 2) by failing to
have batch or quality records complete, or 3) due to evidence of
cGMP violations which would prevent the lot from being sold in the
market, even though all specifications outlined in Exhibit A, as
mutually agreed-upon and/or periodically amended, were met, Under
these circumstances, Seller will replace the referenced lot(s) and
Purchaser will pay only for the replacement lot(s).
Purchaser shall notify Seller, in writing, of a potential lot
rejection within ten (10) days after receipt of the lot in
question, and provide a final decision within thirty (30) days,
Should Seller not agree with the results of the tests or the
criteria to reject the lot for cGMP violations, Seller at its
discretion will conduct tests at its premises or witness the
repetition of tests at Purchaser's laboratory, and in the case of
alleged cGMP violations, Seller will present to Purchaser
sufficient proof that said cGMP violations did not in fact occur.
In the event of disagreement between Purchaser and Seller
regarding rejection of a given lot, an independent laboratory
selected with consensus between Purchaser and Seller will be given
samples of the lot(s) in question, together with standard
operating procedures for testing agreed-upon by Purchaser and
Seller, and will perform testing which will then be considered the
reference to resolve the disagreement. In the event that the
<PAGE>
disagreement arises from alleged cGMP violations, an independent
consultant, who is an expert in the pharmaceutical cGMP field will
be selected with consensus between Purchaser and Seller, and given
the relevant lot records and any other production or quality
evidence necessary for evaluation of given cGMP issue, and his/her
opinion will then be mutually accepted as the resolution of the
disagreement.
At Purchaser's option, Purchaser may implement (i) any recall
or withdrawal required by Purchaser in connection with Product,
which has been rejected by Purchaser under this Article, and (ii)
any recall ordered by federal, state, or local governmental
authorities. Such recall or withdrawal shall be at Seller's sole
cost and expense if due to an act or omission of Seller; Seller
shall assume a pro-rata portion of such cost and expense if the
recall or withdrawal is in part due to an act or omission of
Seller: Purchaser shall indemnify and hold Seller harmless from
any costs related to any withdrawal or recall that is wholly due
to an act or omission of Purchaser, Seller shall cooperate with
Purchaser in implementing any recall or withdrawal of Product.
Purchaser shall promptly notify Seller of any recall or withdrawal
of Product.
Notwithstanding anything to the contrary contained in the
preceding paragraph of this section, Seller's liability to
Purchaser hereunder for the cost and expense of (i) physically
picking up recalled and withdrawn Product and (ii) advertising
such recall or withdrawal to consumers shall not exceed
$1,000,000.00 for each recall or withdrawal. Seller shall,
however, remain responsible for all other costs and expenses of
the recall or withdrawal to the extent set forth in the preceding
<PAGE>
paragraph of this section, including but not limited to the cost
of rejected Product and freight and disposition costs.
Article Twelve
Shipment
Seller will deliver product FOB Origin to locations designated by
Purchaser by Seller's customary surface transportation mode,
unless Purchaser specifies other transportation arrangements.
Title shall pass from Seller to Purchaser at the time of shipment.
Article Thirteen
Payment
Payment terms are net thirty (30) days from the date of
actual shipment.
Article Fourteen
Cross Non-Disclosure Agreement
During the term of this Production Contract, each party
hereto shall disclose to the other certain information, which may
be proprietary to the disclosing party. Each party hereto agrees
to keep in confidence and prevent the disclosure of such
proprietary information received hereunder to persons or
corporations outside the parties' corporations, affiliates or
subsidiaries. Each party shall protect and safeguard the
proprietary information of the other in the same manner as it
protects and safeguards its own proprietary information. These
obligations of confidentiality shall continue for five years
beyond the term of this agreement and any extensions,
<PAGE>
Article Fifteen
Indemnification
Purchaser shall indemnify and save Seller harmless from any
expense, cost, loss, damage or liability arising from consumer
claims or administrative actions by federal, state, or local
government agencies, including but not limited to legal costs,
except to the extent Seller failed to meet the requirements of the
product specifications then in force and, in cases where such
requirements were not met, failed to receive a waiver in writing
from an authorized representative of Purchaser to ship the Product
in question to Purchaser or otherwise release it to commerce. In
any event, Seller's total liability arising from consumer claims
or manufacturing defects of any kind shall be limited to
$1,000,000.00 (each occurrence) and $3,000,000.00 (aggregate).
Purchaser shall indemnify and save Seller harmless from any
expense, cost, loss, damage or liability (including attorney's
fees) for infringement or alleged infringement of any patent(s)
with respect to Product furnished or otherwise provided by Seller
under this Production Contract.
Article Sixteen
Insurance
During the term of this agreement, Seller and Purchaser shall
maintain product liability insurance of not less than $1,
000,000.00 (each occurrence) and $3,000,000.00 (aggregate) and
shall provide certificate(s) of such insurance to the other party.
<PAGE>
Article Seventeen
Miscellaneous Provisions
Subsection A. Entire Agreement: Modification.
This written Production Contract, which incorporates the
preamble recitals, definitions, and exhibits hereto, constitutes
and represents the entire agreement by and between the parties
hereto and supersedes all prior and contemporaneous agreements,
representations and negotiations, whether oral or written, with
respect to the subject matter of this agreement, including the
confidential disclosure agreement dated August 29, 1994 and fully
executed August 30, 1994, and the Letter of Agreement dated
December 16, 1994 and fully executed December 30, 1994, except
that confidential information previously disclosed shall remain
confidential in accordance with the terms of Article Fourteen of
this Agreement. No modification of this agreement shall be binding
unless made in writing and executed by both parties hereto, Any
and all contract modifications hereto shall be sequentially
numbered beginning with Modification Number One to the Production
Contract.
Subsection B. Non-Assignabilitv.
The rights and obligations of this contract may not be
assigned by either party without the prior written consent of the
other of them. This contract, however, shall inure to the benefit
of the parties hereto their respective permitted successors and/or
permitted assigns.
Subsection C. Governing Law: Unenforceability,
This Production Contract is subject to and shall be
<PAGE>
construed and interpreted in accordance with, and governed by, the
law of the State of Oregon. In the event that any provision, term,
or condition of this production contract is determined to be
unenforceable, invalid or illegal as a matter of law only that
term, condition or provision shall be deemed stricken and the
balance of the terms, conditions, and provisions of this
Production Contract shall be in full force and effect
Subsection D. Force Majeure,
A delay in performance of this Production Contract by either
party shall be excused only when such delay in performance is
caused by an act beyond the reasonable control of such party, for
example, governmental acts, acts of God, severe weather, fire,
flood, explosions, work stoppages, strikes, force majeure
situations impacting major subcontractors and suppliers,
unavailability or scarcity of raw materials or ingredients, and
acts of the public enemy and war, The foregoing provision shall
not release either party from using its reasonable best efforts to
avoid or diligently remove such circumstances. If performance is
excused under this provision, the excused party shall resume
performance with utmost dispatch as soon as such circumstances are
removed, In order for such excusable delay to be recognized, the
requesting party shall promptly give written notice, thereof, to
<PAGE>
the other party together with evidence and support of such claim
for excusable delay
Subsection E Compliance By Parties With Law
Both Parties hereto agree to comply with all applicable
federal, state and local laws.
Subsection F Order of Precedence.
In the event of an inconsistency or ambiguity in this
contract, unless otherwise provided herein, such inconsistency or
ambiguity shall be resolved by giving precedence in the following
order: the main body of the Production Contracts as modified,
Exhibits C, B, A, E, and D as amended.
IN WITNESS WHEREOF
The undersigned parties have duly executed this agreement on the
date first written above.
CARRINGTON LABORATORIES, INC. OREGON FREEZE DRY, INC.
By: /S/ By: /S/
-------------------------- --------------------
Name: _______________________ Name: __________________
Title: ______________________ Title: _________________
Date: _______________________ Date: __________________
Exhibit 10.15
MODIFICATION NUMBER ONE
Pursuant to our Production Contract of February 13, 1995, the
requirements of Article Three Subsection C are waived through
the last day of March, 1996.
The requirements of Article Three Subsection C remain in force
for every month from April, 1996 through the completion of the
term of the Production Contract, inclusive.
IN WITNESS WHEREOF
The undersigned parties have duly executed this modification to
their agreement on the date last written below.
CARRINGTON LABORATORIES, INC. OREGON FREEZE DRY, INC.
By: /s/ By: /s/
----------------------- ---------------------
Name: Name:
----------------------- ---------------------
Title Title:
----------------------- ---------------------
Date: 2/19/96 Date:
----------------------- ---------------------
Exhibit 10.16
MODIFICATION NUMBER TWO
Pursuant to our Production Contract of February 13, 1995, the
requirements of Article Three Subsection C are waived for the
months of October, November, and December, 1996.
The requirements of Article Three Subsection C remain in force
through the remainder of the term of the Production Contract
TN WITNESS WHEREOF
The undersigned parties have duly executed this modification
to their agreement on the date last written below.
CARRINGTON LABORATORIES, INC. OREGON FREEZE DRY, INC.
By: /s/ By: /s/
----------------------- ---------------------
Name: Name:
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Title Title:
----------------------- ---------------------
Date: Date: 11/11/96
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Exhibit 10.21
January 12, 2000
Carlton Turner, President/CEO
Caraloe Incorporated
2001 Walnut Hill Lane
Irving, Texas 75038
RE: Letter of Agreement Extending Trademark License Agreement and
Supply Agreement
Dear Mr. Turner:
This will confirm our understanding in principle related to the
extension of the respective Agreements as attached hereto as Exhibit
"A" - "Supply Agreement" and Exhibit "B" - "Trademark License
Agreement", (collectively the "Agreements") executed by and between
Mannatech[TM] Incorporated ("Mannatech") and Caraloe, Incorporated
("Caraloe") on August 14 1997, (hereinafter collectively, the
"Parties") both Agreements to be incorporated by reference as part of
this Agreement. It is the intent of the Parties hereto that the
Agreements shall remain in full force and effect with the exception of
that which the Parties desire to incorporate as additional terms and
conditions ("Terms and Conditions") as outlined herein.
The term of the Agreements shall be extended for a two (2) year
period, commencing August 14, 2000 and ending August 14, 2002.
Mannatech agrees to purchase from Caraloe, and Caraloe agrees to
manufacture and sell to Mannatech, Manapol[R] not less than 600
kilograms per month, but in any event not more than as indicated on the
attached Exhibits as attached hereto, Exhibit "C" - "2000 Manapol Usage
Forecast" and Exhibit "D" - "2001 Manapol Usage Forecast" (collectively
the "Forecasts") unless Mannatech shall notify Caraloe to the contrary
in accordance with the requirements of the Agreement set forth in
Exhibit B. In the event Mannatech anticipates or requires more
Manapol[R] than as specified in the Forecasts, Mannatech shall afford
Caraloe ninety (90) days written notice thereof.
The Parties further agree that Exhibit A as attached to the
Trademark Licensing Agreement shall be amended to include Argentina,
Brazil and Chile and other countries as anticipated as indicated and
attached hereto as "Exhibit "E" - "Amended Exhibit A".
<PAGE>
If the foregoing terms and conditions are agreeable to you, please
execute and return a duplicate of the original of the letter, such to
constitute the agreement between us.
Very Truly Yours,
MANNATECH INCORPORATED
/s/ Charles E. Fioretti
-----------------------
Chief Executive Officer
ACCEPTED AND AGREED:
Caraloe Incorporated
By: /s/ Carlton Turner
--------------------
Its: President and Chief Executive Officer
Exhibit 10.41
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
This Agreement, entered into as of June 1, 1998, by and between
MEARES MEDICAL SALES ASSOCIATES (the "Independent Sales
Representative"), and CARRINGTON LABORATORIES, INC., a Texas
corporation (the "Company").
WITNESSETH:
WHEREAS, the Company is engaged in the business of manufacturing
and selling various medical products and supplies; and
WHEREAS, the Company desires to engage the Independent Sales
Representative to promote the sale of and solicit orders for the
Company's products, and the Independent Sales Representative desires to
be so engaged;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
1. Engagement. The Company hereby appoints and engages the
Independent Sales Representative, and the Independent Sales
Representative hereby accepts such appointment and engagement, to
promote the sale of and solicit orders for the Company's products in
accordance with the terms and conditions of this Agreement.
2. Duties of Independent Sales Representative. The Independent
Sales Representative shall use its best efforts to promote the sale of
the Company's products, to solicit orders therefor and to perform such
other functions of a manufacturer's Independent Sales Representative as
the Company shall from time to time request. The Independent Sales
Representative shall keep the Company informed at all times of the
Independent Sales Representative's progress and of any problems
relating to or affecting the Company's business, products or customers.
The Independent Sales Representative shall visit existing and
prospective customers in person as often as necessary to carry out its
duties in order to meet its sales goals hereunder in a legal and
ethical manner and in accordance with normal and accepted business and
regulatory practices. The Independent Sales Representative shall bear
all expenses incurred by it in carrying out its duties and
responsibilities under this Agreement.
3. Sole Area of Responsibility. The geographic area in which
the Independent Sales Representative shall devote its sole efforts and
for which it shall have sole responsibility under this Agreement shall
be all of the zip codes in the State(s) of Alabama and Georgia and the
mutually agreeable zip codes in Northern Florida and Tennessee, as
listed and described on Exhibit B attached hereto and made a part
hereof (the "Sole Area of Responsibility"). Sales outside the Sole
Area of Responsibility shall not be subject to a commission.
<PAGE>
4. Term and Termination. The term of this Agreement shall
commence on the date hereof and shall expire two (2) years after June
1, 1998, unless earlier terminated in accordance with any of the
following provisions:
(a) This Agreement may be terminated at any time by written
agreement of the parties hereto.
(b) This Agreement may be terminated by the Company at any
time by written notice given to the Independent Sales
Representative (i) if the Independent Sales Representative, his
employees or agents commit a material breach of this Agreement,
such a material breach being defined as non-compliance with the
confidentiality provisions herein or non-compliance with FDA rules
or regulations, (ii) if the Independent Sales Representative or
any of its agents or employees commits any act of fraud or
dishonesty with respect to the Company or any of its customers, is
convicted of any crime (other than minor traffic violations), or
engages in any conduct which tends to hold the Company up to
ridicule by others or is otherwise detrimental to the best
interest of the Company and Independent Sales Representative fails
to take immediate action, agreeable to the Company to correct the
situation, and (iii) if Kirk Meares shall die, shall become
totally and permanently disabled, or shall suffer any physical or
mental impairment which exists for sixty (60) days or more
(whether or not consecutive) and which, in the opinion of the
Company, adversely affects the ability of the Independent Sales
Representative to carry out its duties and responsibilities under
this Agreement.
(c) This Agreement may be terminated by the Independent
Sales Representative at any time by written notice given to the
Company if the Company commits a material breach of this
Agreement.
(d) This Agreement may also be terminated by thirty (30)
days written notice if Independent Sales Representative fails to
increase territory. After 6/1/2000 the renewal of this Agreement
shall be upon the mutually agreeable terms.
The expiration or termination of this Agreement shall not terminate,
limit or otherwise affect any rights or obligations of the parties
hereto which shall have arisen hereunder at or prior to the time of
such expiration or termination.
<PAGE>
5. Commissions.
(a) In consideration of the services performed by the
Independent Sales Representative hereunder, the Company shall pay
the Independent Sales Representative commissions, at the
applicable rates specified in Schedule A attached hereto and made
a part hereof, on all products specified in Schedule A which the
Company sells during the term of this Agreement to customers
located and doing business in the Sole Area of Responsibility.
Such commissions shall be deemed earned when the products are
shipped and billed by the Company. The amount of the commissions
payable hereunder shall be determined on the basis of the invoice
prices of the products sold (which shall be the prices charged by
the Company to its distributors), net of returns, allowances,
discounts and adjustments, and exclusive of freight, insurance and
other shipping and handling charges, taxes, interest, late fees,
service or carrying charges and other similar charges. The
Company shall have the right to delete product or otherwise change
the list of products specified on Schedule A at any time, provided
the Company gives written notice of such changes to the
Independent Sales Representative not less that sixty (60) days
prior to the date such changes are to become effective.
(b) Within fifteen (15) days after the end of each calendar
month during the term of this Agreement:
(i) The Company shall furnish to the Independent Sales
Representative a statement showing all products shipped to,
products returned by, and allowances, discounts and
adjustments granted to customers in the Sole Area of
Responsibility, and all debits and credits to the Independent
Sales Representative's commission account, during such month;
and
(ii) The Company shall pay to the Independent Sales
Representative all commissions earned during such month, net
of any deductions due to products returned by or allowances,
discounts and adjustments granted to customers in the Sole
Area of Responsibility during such month.
(c) The Company shall be entitled to recover from the
Independent Sales Representative an amount equal to all
commissions paid by the Company to the Independent Sales
Representative in respect of products which are subsequently
returned by the customer or with respect to which the Company
subsequently grants an allowance, discount or adjustment to the
customer. The Company may recover such amount either by requiring
the Independent Sales Representative to make payment thereof to
the Company or by deducting such amount from future commissions
earned by the Independent Sales Representative, whichever the
Company shall elect.
<PAGE>
(d) Notwithstanding anything to the contrary in this
Agreement, the Company may from time to time designate one or more
customers as national accounts or house accounts, and no
commissions shall be payable under this Agreement on products for
which the Company receives orders more than ten (10) days after it
has given written notice of such designation to the Independent
Sales Representative.
6. Orders. All orders solicited or obtained by the Independent
Sales Representative are subject to approval and acceptance by the
Company at its offices in Dallas County, Texas. The Independent Sales
Representative is not authorized and shall not purport to accept any
orders for the Company's products. The Company shall have the right,
in its sole discretion, to accept or reject each order for its
products; to determine whether and when to ship any products; to grant
or refuse credit to any customer and to determine the terms thereof; to
accept or reject any customer's request or attempt to return any
products; to grant any allowances, discounts or adjustments; and to
change the prices it charges its distributors for the products listed
on Schedule A hereto (provided that the Company shall give the
Independent Sales Representative written notice of any such price
change not less than sixty (60) days before such change becomes
effective).
7. Duties of the Company. The Company shall use its reasonable
best efforts to maintain a sufficient inventory of the products listed
on Schedule A to enable it to ship the products ordered by customers in
the Sole Area of Responsibility on a reasonably prompt basis.
8. Status of Independent Sales Representative and Its Personnel.
The Independent Sales Representative is and shall at all times remain
an independent contractor, and nothing in this Agreement is intended or
shall be construed to constitute the Independent Sales Representative
an employee, agent or partner of the Company. As an independent
contractor, the Independent Sales Representative shall be entitled to
employ such personnel as it shall desire, on such terms as it shall
deem appropriate, and to utilize such personnel in carrying out its
obligations under this Agreement. Such personnel shall at all times
and for all purposes constitute employees or agents of the Independent
Sales Representative, and nothing in this Agreement is intended or
shall be construed to constitute such personnel employees or agents of
the Company.
9. FDA Compliance
Independent Sales Representative and its employees agrees to
strictly comply with all applicable rules and regulations of the
Federal Food and Drug Administration (FDA) and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
10. Compliance by Third Parties
Independent Sales Representative agrees to take all steps
reasonably necessary to ensure that its representatives comply with all
applicable rules and regulations of the FDA and all other applicable
laws, rules and regulations, including but not limited to FDA
requirements relating to the sale of 510(k) regulated products.
<PAGE>
11. Competitive Products
Independent Sales Representative agrees to refrain from
marketing competitive products during the term of this Agreement.
12. Confidentiality
Independent Sales Representative and any employees or agents
thereof shall hold in trust and strictest confidence for Carrington all
Carrington Confidential Information and shall not disclose to any
person or use such information for any purpose other than in connection
with the performance of Independent Sales Representative duties and
responsibilities during the term of this Agreement. Confidential
Information shall mean, but not limited to, prices, sales, customer or
distribution information or lists as well as any related product
planning or research information.
The provisions of this Agreement shall survive and continue
after expiration or termination of this Agreement and any and all
Confidential Information and copies thereof shall be promptly returned
to Company upon its request. Independent Sales Representative shall
certify to Company that it and all its employees have returned all
Confidential Information and copies thereof.
13. Notices. All notices required or permitted to be given
hereunder shall be in writing and shall be deemed to have been given
when delivered in person or when mailed by certified or registered
United States mail, postage paid, addressed to the appropriate party at
the address shown for such party below:
If to the Company, to:
President
Carrington Laboratories, Inc.
P.O. Box 168128
Irving, TX 75016-8128
If to the Independent Sales Representative, to:
Kirk Meares
Meares Medical Sales Associates
7400 Native Oak
Irving, Texas 75063
Either party may change its address for notices hereunder by giving
notice of such change to the other party in the manner set forth above.
14. Waiver. No delay on the part of either party in exercising
any right, power or remedy which it may have in connection herewith
shall operate as a waiver thereof, nor shall any waiver thereof or any
single or partial exercise thereof preclude any further exercise
thereof or the exercise of any other right, power or remedy. No waiver
of any provision of this Agreement, and no consent to any departure
therefrom, shall be effective unless such waiver or consent is in
writing and signed by the party against whom it is sought to be
enforced, and no such waiver or consent shall be effective except with
respect to the particular case and purpose for which it is given.
<PAGE>
15. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Texas.
16. Entirety and Modification. This Agreement contains the
entire agreement between the parties hereto with respect to the subject
matter hereof and supersedes any and all prior agreements, whether
written or oral, between such parties relating to such subject matter.
No modification, alteration, amendment or supplement to this Agreement
shall be valid or effective unless the same is in writing and signed by
the party against whom it is sought to be enforced.
17. Severability. If any provision of this Agreement is held to
be unenforceable, (a) this Agreement shall be considered divisible, (b)
such provision shall be deemed inoperative to the extent it is
unenforceable, and (c) in all other respects this Agreement shall
remain in full force and effect; provided, however, that if any such
provision may be made enforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable to
the maximum extent permitted by applicable law.
18. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns; provided, however, that neither of
the parties shall, without the consent of the other, assign or transfer
this agreement or any interest herein, and any such assignment or
transfer attempted without the consent of the other party hereto shall
be void and of no effect whatsoever. Notwithstanding the foregoing, in
the event of a merger, consolidation or transfer or sale of all or
substantially all of the assets of the Company, this Agreement may be
transferred to the successor to the Company's business and assets
without the consent of the Independent Sales Representative.
19. Captions. The captions of the various sections of this
Agreement have been inserted for convenient reference only and shall
not be construed to enlarge, diminish or otherwise change the express
provisions hereof.
20. Gender. Words of any gender used in this Agreement shall be
construed to include each gender.
21. Counterparts. This Agreement may be signed in counterparts,
each of which shall be deemed an original and all of which shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
CARRINGTON LABORATORIES, INC.
By: /s/Carlton E. Turner
--------------------
Carlton E. Turner, Ph.D.
President and CEO
By: /s/ Kirk Meares
---------------
Name: Kirk Meares
Title: Owner
Exhibit 10.78
SALES DISTRIBUTION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the
Effective Date (as defined below) by and between CARRINGTON
LABORATORIES, INC., a Texas corporation and E-WHA INTERNATIONAL, INC.,
a Korean corporation ("E-Wha").
W I T N E S S E T H :
WHEREAS, Carrington is engaged in the business of developing,
manufacturing, selling and distributing certain pharmaceutical products
and medical devices and is desirous of establishing a competent and
exclusive distribution source for sales of such products in Korea
(defined in Article 1 hereof as the Territory); and
WHEREAS, E-Wha is desirous of distributing such products in the
Territory, represents that it has experience in obtaining registration
of pharmaceutical preparations or products and medical devices in the
Territory, is well introduced on the market, is willing and able to
provide a competent distribution organization in the Territory, and
E-Wha desires to be Carrington's sales distributor for such products in
the Territory;
NOW, THEREFORE, the Parties hereto, in consideration of the
premises and mutual covenants and undertakings herein contained, agree
as follows:
Article 1. Definitions
1.1 As used in this Agreement, the following terms shall have the
meanings specified in this Article 1.1:
(a) "Effective Date" shall mean the date of last signature of the
Parties hereto.
(b) "Know-how" shall mean secret and substantial technical and
scientific information regarding the Products, which may be
necessary, useful or advisable to enable E-Wha to obtain the
Registration of, promote, market and sell the Products in the
Territory, and as is or will be specified in the
documentation which Carrington has delivered or will deliver
to E-Wha after the Effective Date and during the term of this
Agreement.
(c) "Parties" shall mean Carrington and E-Wha and "Party" shall
mean either of them as the context indicates.
(d) "Products" shall mean the wound and skin care products
manufactured by or for Carrington set forth on Exhibit A
hereto. Carrington will provide a ninety (90) day notice to
E-Wha on its intent to add or discontinue Products to Exhibit
A.
<PAGE>
(e) "Registration" shall mean any official approval, or
authorization, or licensing regarding the Products by the
appropriate and competent authorities in the Territory,
including, if applicable, the Products' selling prices and
social security approvals, allowing the lawful marketing of
the Products.
(f) "Territory" shall mean the following countries: Korea.
(g) "Trademarks" shall mean all Trademarks, trade names, service
marks, logos and derivatives thereof relating to the
Products.
Article 2. Appointment
2.1 Subject to the terms and conditions of this Agreement,
Carrington hereby appoints E-Wha as Carrington's sales distributor in
the Territory for the sale of Products, and E-Wha hereby accepts such
appointment. As sales distributor in the Territory, E-Wha shall,
subject to the terms and conditions of this Agreement, have the right
to obtain the Registration of, promote, distribute and sell Products in
the Territory, but shall have no right to take any such action outside
the Territory.
2.2 In a manner reasonably satisfactory to Carrington, and at
E-Wha's sole expense, E-Wha agrees to (a) make and maintain all
declarations, filings, and Registrations with, and obtain all approvals
and authorizations from, governmental and regulatory authorities
required to be made or obtained in connection with the promotion,
marketing, sale or distribution of the Products in the Territory, (b)
devote its best efforts to the diligent promotion, marketing, sale and
distribution of the Products in the Territory, (c) provide and maintain
a competent and aggressive organization for the promotion, marketing,
sale and distribution of the Products in the Territory, (d) assure
competent and prompt handling of inquiries, orders, shipments, billings
and collections, and returns of or with respect to the Products and
careful attention to customers' requirements for all Products, and (e)
promptly assign back to Carrington any product Registrations in the
Territory upon termination of Agreement.
2.3 During the term of this Agreement, E-Wha shall be considered
an independent contractor and shall not be considered a partner,
employee, agent or servant of Carrington. As such, E-Wha has no
authority of any nature whatsoever to bind Carrington or incur any
liability for or on behalf of Carrington or to represent itself as
anything other than a sales distributor and independent contractor.
E-Wha agrees to make clear in all dealings with customers or
prospective customers that it is acting as a distributor of the
Products and not as an agent of Carrington.
2.4 Nothing in this Agreement shall be construed as giving E-Wha
any right to use or otherwise deal with the Know-how for purposes other
than those expressly provided for in this Agreement.
<PAGE>
2.5 E-Wha shall promptly inform Carrington of any
misappropriation of the Know-how which comes to its attention. After
having discussed such situation with E-Wha, Carrington shall have sole
and absolute discretion to take such action as it deems appropriate and
E-Wha, at its own cost, shall assist Carrington in taking legal action,
if deemed necessary, against such misappropriation.
2.6 All costs and expenses connected with E-Wha's activities or
performance under this Agreement are to be borne solely by E-Wha.
Article 3. Certain Performance Requirements
3.1 E-Wha agrees to promote, market, sell and distribute the
Products only to customers and potential customers within the Territory
for ultimate use within the Territory. E-Wha will not, under any
circumstances, either directly or indirectly through third parties,
promote, market, sell, or distribute Products within or to, or for
ultimate use within, the United States or any place outside the
Territory.
3.2 In order to assure Carrington that E-Wha is in compliance
with Article 3.1, E-Wha agrees that:
(a) E-Wha will send to Carrington quarterly sales reports which
set forth the number of units and sizes of each Product sold,
the net sales, the number of units of free medical samples
distributed, and to whom such Products were sold and/or
distributed during such quarter;
(b) E-Wha will send to Carrington quarterly inventory reports of
the Products; and
(c) Carrington may mark for identification all Products sold by
Carrington to E-Wha hereunder.
3.3 E-Wha shall promptly provide Carrington with written reports
of any importation or sale of any of the Products in the Territory of
which E-Wha has knowledge from any source other than Carrington, as
well as with any other information which Carrington may reasonably
request in order to be updated on the market conditions in the
Territory.
3.4 E-Wha shall maintain a sufficient inventory of Products to
assure an adequate supply of Products to serve all its market segments.
E-Wha shall maintain all its inventory of Products clearly segregated
and meeting all storage and other standards required by applicable
governmental authorities. All such inventory and E-Wha's facilities
shall be subject to inspection by Carrington or its agents upon 72
hours written notice.
3.5 E-Wha shall be responsible for and shall collect all
governmental and regulatory sales and other taxes, charges and fees
that may be due and owing upon sales by E-Wha of Products. Upon
written request from E-Wha, Carrington shall provide E-Wha with such
certificates or other documents as may be reasonably required to
establish any applicable exemptions from the collection of such taxes,
charges and fees.
<PAGE>
3.6 All Products shall be packaged and delivered by Carrington to
E-Wha. All Products shall be labeled, advertised, marketed, sold and
distributed by E-Wha in compliance with the rules and regulations, as
amended from time to time, of (i) all applicable governmental
authorities within the Territory in which the Products are marketed,
and (ii) all other applicable laws, rules and regulations. E-Wha shall
pay all expenses associated with (i) any alterations to the packaging
and labeling of the Products which deviate from Carrington's standard
packaging materials, designs, methods and/or procedures, (ii) any
language modifications to the packaging or labeling and/or (iii) any
additions to inserts in the general packaging. The Parties shall agree
on minimum production runs for such custom labels.
3.7 E-Wha shall not make any alterations or permit any
alterations to be made to the Products without Carrington's written
consent.
3.8 E-Wha shall assume all responsibility for and comply with all
applicable laws, regulations and requirements concerning the
Registration, inventory, use, promotion, distribution and sale of the
Products in the Territory and correspondingly for any damage, claim,
liability, loss or expense which Carrington may suffer or incur by
reason of said Registration, inventory, use, promotion, distribution
and sale and shall hold Carrington harmless from any claim resulting
therefrom being directed against Carrington or E-Wha by any third
party.
3.9 E-Wha agrees not to make, or permit any of its employees,
agents or representatives to make, any claims of any properties or
results relating to any Product, unless such claims have received
written approval from Carrington or from the applicable governmental
authorities.
3.10 E-Wha shall not use any label, advertisement or marketing
material on or with respect to or relating to any Product unless such
label, advertisement or marketing material has first been submitted to
and approved by Carrington in writing.
3.11 E-Wha will actively and aggressively promote, develop demand
for and maximize the sale of the Products to all customers and
potential customers within the Territory. E-Wha agrees not to
manufacture, promote, market, sell or distribute to any customers or
potential customers in the Territory without ninety (90) days written
notice to and approval from Carrington, any competitive wound care,
skin care, or incontinence care product.
3.12 E-Wha represents that its books, records and accounts
pertaining to all its operations hereunder are complete and accurate in
all material respects and have been maintained in accordance with sound
and generally accepted accounting principles. E-Wha's auditor shall
deliver to Carrington, in accordance with Article 14, at the end of
each 12-month period during the term of the Agreement, a declaration
that the accounts rendered are correct. Carrington shall have the
right to have such books, records, and accounts examined, at its
expense, by a qualified accountant nominated by Carrington.
Article 4 Registration of Products
<PAGE>
4.1 It being understood that Registration is a prerequisite to
the lawful sale of the Products in the Territory, Carrington hereby
agrees to supply E-Wha, promptly after the execution of this Agreement,
with any Know-how or relevant documentation necessary for preparing the
Registration dossier to be submitted to the applicable governmental
authorities of the Territory.
4.2 It shall be the responsibility of E-Wha, at its sole expense
to apply for, obtain and maintain in force the Registration of the
Products. Subject to having obtained the prior approval of Carrington,
the application shall be submitted to all applicable governmental
authorities, including the health authorities of the Territory and said
application shall be in the name of Carrington, with E-Wha being named
as Products distributor in the Territory. E-Wha expressly acknowledges
and agrees that the absolute and exclusive ownership of the
Registration and all rights originating out of or from the same shall
at all times belong only and exclusively to Carrington.
4.3 As soon as E-Wha has received Know-how from Carrington, E-Wha
shall prepare, at its sole expense, the Registration dossier and
submission and any translation which may be required by the applicable
authorities of the Territory. E-Wha shall promptly supply Carrington
with a copy of the said Registration dossier and submission and
Carrington shall be entitled to a free and unrestrained use of the
same.
4.4 Subject to having obtained Carrington's written approval of
all such documentation and any subsequent amendments thereto, E-Wha
shall, as soon as possible and in any case within sixty (60) days of
Carrington's approval, submit the Registration application to the
appropriate authorities of the Territory.
4.5 E-Wha shall use its best endeavors to obtain the Registration
within six (6) months from the relevant submission. E-Wha shall notify
Carrington in writing at least 3 (three) months before the expiration
of said term of any need for an extension in time to obtain
Registration. The notification shall specify the duration of, and the
reason for, any proposed extension. Carrington shall consider any such
request, evaluating the objective situation and E-Wha's fulfilment of
its obligations in this respect. It is, however, understood that
E-Wha's deadline to obtain Registration is one year from the date of
filing.
4.6 E-Wha shall copy and keep Carrington fully and timely
informed, throughout the term of this Agreement, of all communications
sent to or received from all applicable governmental authorities,
including the health authorities, of the Territory concerning the
Products.
4.7 Carrington makes no warranty that the supplied Know-how will
necessarily result in the grant of the Registration and E-Wha shall
have no claim against Carrington arising out of any delay or refusal by
the authorities to issue the Registration.
<PAGE>
Article 5. Sale of Products by Carrington to E-Wha
5.1 Subject to the terms and conditions of this Agreement,
including specifically Article 5.7 hereof, Carrington shall sell to
E-Wha the Products at a specified price for each Product (the "Contract
Price"). For orders placed by E-Wha during the first 12-month period
of the term of this Agreement, the Contract Prices for the Products
listed on Exhibit A are set forth on such exhibit opposite each
Product. At least ninety (90) days prior to the end of each 12-month
period of the term of this Agreement, (a) E-Wha shall provide in
writing to Carrington both a sales forecast and a purchase forecast for
the following 12-month period, and (b) the Parties shall commence good
faith negotiations to determine and agree upon the Contract Prices for
Products for the next 12-month period of the term. During any twelve
(12) month period Carrington reserves the right to change its Contract
Price for each Product.
5.2 As consideration for its appointment as a sales distributor
entitled to a Product discount, E-Wha agrees to purchase from
Carrington, during each 12-month period of the term of this Agreement,
commencing with the 12-month period beginning December 1, 1999 through
November 30, 2000, at the Contract Price, a specified minimum aggregate
dollar amount (based on the Contract Price) of the Products (the
"Specified Minimum Purchase Amount"). For the first 12-month period of
the term of this Agreement, there will be no Specified Minimum Purchase
Amount. The Specified Minimum Purchase Amounts for each subsequent 12-
month period shall be determined by mutual agreement of the Parties no
later than thirty (30) days prior to the beginning of such period based
on E-Wha's reasonable, good faith projections of future sales growth
and such other factors as the Parties may deem relevant.
5.3 E-Wha shall order Products by submitting a purchase order to
Carrington describing the type and quantity of the Products to be
purchased. All orders are subject to acceptance by Carrington. All
purchases shall be spaced in a reasonable manner. If Carrington
accepts the order, Carrington will invoice E-Wha upon shipment of the
Products. Unless otherwise agreed, E-Wha shall pay all invoices in
full within ninety (90) days of the date of invoice. E-Wha shall be
solely responsible for all costs in connection with affecting payments.
All sales and payments shall be made, and all orders shall be
accepted, in the State of Texas.
5.4 Carrington shall not be obligated to ship Products to E-Wha
at any time when payment of an amount owed by E-Wha is overdue or when
E-Wha is otherwise in breach of this Agreement.
<PAGE>
5.5. All shipments shall be initiated by a Purchase Order.
Product shipment dates will be specified in the Purchase Order. These
dates may not be scheduled prior to ninety (90) days after the dated
the Purchase Order is received and acknowledged in writing by Seller,
unless by mutual consent of the parties Purchase Orders will be non-
cancellable. E-Wha will issue to Carrington on a monthly basis, a
twelve (12) month rolling forecast so that Carrington may incorporate
said forecasts into its planning system. The triggering document for
production activities is, however, the purchase order, as stated above.
Carrington will guarantee delivery dates for Product quantities that
vary up to 20% above the last monthly rolling forecast issued prior to
the purchase order placed by E-Wha. Variation above 20% shall be
discussed between the Parties and Carrington will use its best efforts
to maintain delivery dates requested by E-Wha.
5.6 All shipments of Products to E-Wha will be packaged in
accordance with Carrington's standard packaging procedures and shipped
per Carrington's existing distribution policy. All Contract Prices are
F.O.B., (invoice price includes seller's expense for delivery to the
named destination) Carrington's facility, Irving, Texas. Ownership of
and title to Products and all risks of loss with respect thereto shall
pass to E-Wha upon delivery of such Products by Carrington to the
carrier at the designated delivery (F.O.B.) point. Deliveries of
Products shall be made by Carrington under normal trade conditions in
the usual and customary manner being utilized by Carrington at the time
and location of the particular delivery.
5.7 Carrington shall use its reasonable best efforts to ensure
availability of all Products ordered by E-Wha under this Agreement.
However, if necessary in the best judgment of Carrington, Carrington
may allocate its available supply of Products among all its customers,
distributors or other purchasers, including E-Wha, on such basis as it
shall deem reasonable, practicable and equitable, without liability for
any failure of performance or lost sales which may result from such
allocations.
5.8 Carrington accepts liability for defective Products and
agrees to replace such defective Products should they occur with new
Products. Except as may be expressly stated by Carrington on the
Product or on Carrington's packaging, or in Carrington's information
accompanying the Product, at the time of shipment to E-Wha hereunder,
CARRINGTON MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WITH
RESPECT TO THE PRODUCTS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
CARRINGTON NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY
OBLIGATION OR LIABILITY IN CONNECTION WITH THE PRODUCTS. E-Wha shall
not make any representation or warranty with respect to the Products
that is more extensive than, or inconsistent with, the limited warranty
set forth in this Article 5.8 or that is inconsistent with the policies
or publications of Carrington relating to the Products.
<PAGE>
E-Wha'S EXCLUSIVE REMEDY FOR BREACH OF ANY WARRANTY HEREUNDER IS
THE DELIVERY BY CARRINGTON OF ADDITIONAL QUANTITIES OF THE PRODUCTS IN
REPLACEMENT OF THE NON-CONFORMING PRODUCTS OR THE REFUND OF THE
CONTRACT PRICE FOR THE PRODUCTS THAT ARE COVERED BY THE WARRANTY, AT
E-WHA'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY
FOR DAMAGES TO E-Wha OR ANY OTHER PERSON OF ANY TYPE, INCLUDING, BUT
NOT LIMITED TO, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF
PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR ANY OTHER LOSS, DAMAGE
OR EXPENSE, ARISING OUT OF OR IN CONNECTION WITH THE SALE, USE, LOSS OF
USE, NONPERFORMANCE OR REPLACEMENT OF THE PRODUCTS.
E-WHA SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS CARRINGTON AND
CARRINGTON'S AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS,
FROM AND AGAINST ALL CLAIMS, LIABILITIES, DEMANDS, DAMAGES, EXPENSES
AND LOSSES (INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES) ARISING
OUT OF OR CONNECTED WITH (i) ANY USE, SALE OR OTHER DISPOSITION OF
PRODUCTS, KNOW-HOW OR TRADEMARKS BY E-Wha OR ANY OTHER PARTY, (ii) ANY
BREACH BY E-WHA OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS
UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF
E-Wha OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND
E-WHA'S AUTHORIZATION GRANTED HEREIN.
5.9 Credits for defective Products to E-Wha shall include
importation and shipment expenses and will be calculated by Carrington
based on the original Contract Price of the items returned, whether
identified by lot number or another method. Carrington shall provide
E-Wha with a copy of its liability Insurance Certificate and shall
include E-Wha thereunder.
Article 6. Term and Termination
6.1 The term of this Agreement shall be for a period of three (3)
years from the effective date of this Agreement. After such term, this
Agreement shall be automatically terminated unless the parties mutually
agree in writing to extend the term hereof. Notwithstanding the
foregoing, this Agreement may be terminated earlier in accordance with
the provisions of this Article 6 or as expressly provided elsewhere in
this Agreement.
6.2 Carrington shall have the absolute right to terminate this
Agreement if E-Wha fails to perform or breaches, in any material
respect, any of the terms or provisions of this Agreement. Without
limiting the events which shall be deemed to constitute a breach or
material breach of this Agreement by E-Wha, E-Wha understands and
agrees that it shall be in material breach of this Agreement, and
Carrington shall have the right to terminate this Agreement under this
Article 6.2, if:
(i) E-Wha fails or refuses to pay to Carrington any sum when
due;
(ii) E-Wha breaches any provision of Article 2.2, 3.4, 4,
5.3, 5.8, 7 or 8; or,
(iii) E-Wha fails to purchase the Specified Minimum Purchase
Amounts of Product for any required period.
<PAGE>
6.3 Each Party shall have the absolute right to terminate this
Agreement in the event the other Party shall become insolvent, or if
there is instituted by or against the other Party procedures in
bankruptcy, or under insolvency laws or for reorganization,
receivership or dissolution, or if the other Party loses any franchise
or license to operate its business as presently conducted in any part
of the Territory.
6.4 This Agreement shall automatically terminate effective at the
end of any 12-month period of the term of this Agreement referred to in
Articles 5.1 and 5.2 hereof if the Parties are unable to agree upon the
Contract Prices or the Specified Minimum Amounts for the next 12-month
period of the term.
6.5 During the one-year period following termination of this
Agreement, any inventory of Products held by E-Wha at the termination
of this Agreement may be sold by E-Wha to customers in the Territory in
the ordinary course; provided, however, that for the period required to
liquidate such inventory, all of the provisions contained herein
governing E-Wha's performance obligations and Carrington's rights shall
remain in effect. In order to accelerate the liquidation of any such
inventory, Carrington shall have the option, but not the obligation, to
purchase all or any part of such remaining inventory at the price at
which the inventory was originally sold by Carrington to E-Wha,
including importation and shipping.
6.6 The termination of this Agreement shall not impair the rights
or obligations of either Party hereto which shall have accrued
hereunder prior to such termination. The provisions of Articles 5.8,
6.5, 7, 8 and 15 and the rights and obligations of the Parties
thereunder shall survive the termination of this Agreement for a period
of one (1) year.
Article 7. Trademarks
7.1 All Carrington Trademarks, trade names, service marks, logos
and derivatives thereof relating to the Products (the "Trademarks"),
and all patents, technology and other intellectual property (also known
as "Know-how") relating to the Products and of the goodwill associated
therewith, are the sole and exclusive property of Carrington and/or its
affiliates. The Products shall be promoted, sold and distributed only
under the Trademarks. Carrington hereby grants E-Wha permission to use
the Trademarks for the limited purpose of performing its obligations
under this Agreement. Carrington may, in its sole discretion after
consultation with E-Wha, modify or discontinue the use of any Trademark
and/or use one or more additional or substitute marks or names, and
E-Wha shall be obligated to do the same.
7.2 Carrington's Trademarks shall appear on all Product
packaging, labels, and inserts and other materials which E-Wha uses for
the marketing of the Products in such form and manner as Carrington
shall reasonably require. Carrington retains the right to review and
approve all intended uses of the Trademark in any packaging, inserts,
labels, or promotional or other materials relating to the Products
prior to E-Wha's actual use thereof.
<PAGE>
7.3 It shall be the sole responsibility of E-Wha, at its sole
expense, to keep in force and maintain the Trademarks in the Territory
by paying all necessary fees throughout the term of this Agreement.
E-Wha agrees to use the Trademarks in full compliance with the rules
prescribed from time to time by Carrington. The Trademarks shall
always be used together with the sign "[R]" or the sign "[TM]". E-Wha
may not use any Trademark as part of any corporate name or with any
prefix, suffix or other modifying word, term, design or symbol. In
addition, E-Wha may not use any Trademark in connection with the sale
of any unauthorized product or service or in any other manner not
explicitly authorized in writing by Carrington.
7.4 In the event of any infringement of, or threatened or
presumed infringement of, or challenge to E-Wha's use of any Trademark
or of any E-Wha trademark, E-Wha is obligated to notify Carrington
immediately. E-Wha shall investigate any alleged violation and, if
necessary, shall take the appropriate legal action to resolve the issue
and to prevent other competitors from infringing on said intellectual
property rights within the Territory. Carrington shall have sole and
absolute discretion to take such action as it deems appropriate.
7.5 In the event of the termination of this Agreement for any
reason, E-Wha's right to use the Trademarks shall cease, and E-Wha
shall cease using such Trademarks at such time as E-Wha's inventory of
Products has been sold. E-Wha shall, as soon as it is reasonably
possible, remove all Trademarks which appear on or about the premises
of the office(s) of E-Wha and any of the advertising of E-Wha used in
connection with the Products.
7.6 In the event of a breach or threatened breach by E-Wha of the
provisions of this Article 7, Carrington shall be entitled to an
injunction or injunctions to prevent such breaches. Nothing herein
shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 7, including the recovery of damages from E-Wha.
7.7 Should for some reason the Trademark be prevented from being
used in any part or whole of the Territory, the Parties shall consult
as to a suitable other trademark (which trademark shall be also defined
as "Trademark" for purposes of this Agreement) owned by Carrington or
to be transferred from E-Wha to Carrington for use in connection with
the marketing and sale of the Products; it being agreed, however, that
Carrington retains the right to ultimately determine what such
alternative Trademark shall be used, provided it is not confusingly
similar to a Trademark owned by E-Wha in the Territory.
7.8 Nothing contained in this Agreement shall be construed as
giving E-Wha the right to use the Trademark outside the Territory or
for any other product than the Products.
<PAGE>
Article 8. Confidential Information
8.1 E-Wha recognizes and acknowledges that E-Wha will have access
to confidential information and trade secrets, including "Know-how", of
Carrington and other entities doing business with Carrington relating
to research, development, manufacturing, marketing, financial and other
business-related activities ("Confidential Information"). Such
Confidential Information constitutes valuable, special and unique
property of Carrington and/or other entities doing business with
Carrington. Other than as is necessary to perform the terms of this
Agreement, E-Wha shall not, during and after the term of this
Agreement, make any use of such Confidential Information, or disclose
any of such Confidential Information to any person or firm,
corporation, association or other entity, for any reason or purpose
whatsoever, except as specifically allowed in writing by an authorized
representative of Carrington. In the event of a breach or threatened
breach by E-Wha of the provisions of this Article 8, Carrington shall
be entitled to an injunction restraining E-Wha from disclosing and/or
using, in whole or in part, such Confidential Information. Nothing
herein shall be construed as prohibiting Carrington from pursuing other
remedies available to it for such breach or threatened breach of this
Article 8, including the recovery of damages from E-Wha. The above
does not apply to information or material that was known to the public
or generally available to the public prior to the date it was received
by E-Wha.
8.2 E-Wha shall not disclose any of the terms of this Agreement
without the prior written consent of Carrington.
Article 9. Force Majeure
9.1 Neither E-Wha nor Carrington shall have any liability
hereunder if either is prevented from performing any of its obligations
hereunder by reason of any factor beyond its control, including,
without limitation, fire, explosion, accident, riot, flood, drought,
storm, earthquake, lightning, frost, civil commotion, sabotage,
vandalism, smoke, hail, embargo, act of God or the public enemy, other
casualty, strike or lockout, or interference, prohibition or
restriction imposed by any government or any officer or agent thereof
("Force Majeure"), nor shall E-Wha's or Carrington's obligations,
except as may be necessary, be suspended during the period of such
Force Majeure, nor shall either Party's obligations be cancelled with
respect to such Products as would have been sold hereunder but for such
suspension. Such affected Party shall give to the other Party prompt
notice of any such Force Majeure, the date of commencement thereof and
its probable duration and shall give a further notice in like manner
upon the termination thereof. Each Party hereto shall endeavor with
due diligence to resume compliance with its obligations hereunder at
the earliest date and shall do all that it reasonably can to overcome
or mitigate the effects of any such Force Majeure upon both Party's
obligations under this Agreement. Should the Force Majeure continue
for more than six (6) months, then the other Party shall have the right
to cancel this Agreement and the Parties shall seek an equitable
agreement on the Parties' reward of interests.
9.2 The Parties agree that any obligation to pay money is never
excused by Force Majeure.
<PAGE>
Article 10. Amendment
10.1 No oral explanation or oral information by either Party
hereto shall alter the meaning or interpretation of this Agreement. No
modification, alteration, addition or change in the terms hereof shall
be binding on either Party hereto unless reduced to writing and
executed by the duly authorized representative of each Party.
Article 11. Entire Agreement
11.1 This Agreement represents the entire Agreement between the
Parties and shall supersede any and all prior agreements,
understandings, arrangements, promises, representations, warranties,
and/or any contracts of any form or nature whatsoever, whether oral or
in writing and whether explicit or implicit, which may have been
entered into prior to the execution hereof between the Parties, their
officers, directors or employees as to the subject matter hereof.
Neither of the Parties hereto has relied upon any oral representation
or oral information given to it by any representative of the other
Party.
11.2 Should any provision of this Agreement be rendered invalid or
unenforceable, it shall not affect the validity or enforceability of
the remainder.
Article 12. Assignment
12.1 Neither this Agreement nor any of the rights or obligations
of E-Wha hereunder shall be transferred or assigned by E-Wha without
the prior written consent of Carrington, executed by a duly authorized
officer of Carrington.
Article 13. Governing Law
13.1 It is expressly agreed that the validity, performance and
construction of this Agreement shall be governed by the laws and
jurisdiction of Texas.
Article 14. Notices
14.1 Any notice required or permitted to be given under this
Agreement by one of the Parties to the other shall be given for all
purposes by delivery in person, registered air-mail, commercial courier
services, postage prepaid, return receipt requested, or by fax
addressed to:
(a) Carrington at: Carrington Laboratories, Inc., 2001 Walnut
Hill Lane, Irving, Texas 75038; Attention: President, or at
such other address as Carrington shall have theretofore
furnished in writing to E-Wha. (Fax No. 214-518-1020)
(b) E-Wha at: Shin-a Annex B/D, Suite 201, 1-28, Chung-Dong,
Jung-Ku, Seoul, Korea, Attention: President, or at such
other address as E-Wha shall have theretofore furnished in
writing to Carrington. (Fax No. 011-822-773-2024)
<PAGE>
Article 15. Waiver
15.1 Neither E-Wha's nor Carrington's failure to enforce at any
time any of the provisions of this Agreement or any right with respect
thereto, shall be considered a waiver of such provisions or rights or
in any way affect the validity of same. Neither E-Wha's nor
Carrington's exercise of any of its rights shall preclude or prejudice
either Party thereafter from exercising the same or any other right it
may have, irrespective of any previous action by either Party.
Article 16. Arbitration
16.1 Except as expressly provided otherwise herein, any dispute,
controversy or claim arising out of or in relation to or in connection
with this Agreement, the operations carried out under this Agreement or
the relationship of the Parties created under this Agreement, shall be
exclusively and finally settled by confidential arbitration, and any
Party may submit such a dispute, controversy or claim to arbitration.
The arbitration proceeding shall be held at the location of the non-
instituting Party in the English language and shall be governed by the
rules of the International Chamber of Commerce (the "ICC") as amended
from time to time. Any procedural rule not determined under the rules
of the ICC shall be determined by the laws of Texas, other than those
laws that would refer the matter to another jurisdiction.
A single arbitrator shall be appointed by unanimous consent
of the Parties. If the Parties cannot reach agreement on an arbitrator
within forty-five (45) days of the submission of a notice of
arbitration, the appointing authority for the implementation of such
procedure shall be the ICC, who shall appoint an independent arbitrator
who does not have any financial or conflicting interest in the dispute,
controversy or claim. If the ICC is unable to appoint, or fails to
appoint, an arbitrator within ninety (90) days of being requested to do
so, then the arbitration shall be heard by three arbitrators, one
selected by each Party within the thirty (30) days of being required to
do so, and the third promptly selected by the two arbitrators selected
by the Parties.
The arbitrators shall announce the award and the reasons
therefor in writing within six months after the conclusion of the
presentation of evidence and oral or written argument, or within such
longer period as the Parties may agree upon in writing. The decision
of the arbitrators shall be final and binding upon the Parties.
Judgment upon the award rendered may be entered in any court having
jurisdiction over the person or the assets of the Party owing the
judgment or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may
be. Unless otherwise determined by the arbitrator, each Party involved
in the arbitration shall bear the expense of its own counsel, experts
and presentation of proof, and the expense of the arbitrator and the
ICC (if any) shall be divided equally among the Parties to the
arbitration.
Article 17 Interpretation
17.1 The language of this Agreement is English. No translation
into any other language shall be taken into account in the
interpretation of the Agreement itself.
<PAGE>
17.2 The headings in this Agreement are inserted for convenience
only and shall not affect its construction.
17.3 Where appropriate, the terms defined in Article 1 and
denoting a singular number only shall include the plural and vice
versa.
17.4 References to any law, regulation, statute or statutory
provision includes a reference to the law, regulation, statute or
statutory provision as from time to time amended, extended or re-
enacted.
Article 18. Exhibits
18.1 Any and all exhibits referred to herein shall be considered
an integral part of this Agreement.
Article 19. No Inconsistent Actions
19.1 Each Party hereto agrees that it will not voluntarily
undertake any action or course of action inconsistent with the
provisions or intent of this Agreement and, subject to the provisions
of Articles 5.7 and 9 hereof, will promptly perform all acts and take
all measures as may be appropriate to comply with the terms, conditions
and provisions of this Agreement.
Article 20. Currency of Account
20.1 This Agreement evidences a transaction for the sale of goods
in which the specification of U.S. dollars is of the essence, and U.S.
dollars shall be the currency of account in all events. All payments
to be made by E-Wha to Carrington hereunder shall be made either (i) in
immediately available funds by confirmed wire transfer to a bank
account to be designated by Carrington or (ii) in the form of a bank
cashier's check payable to the order of Carrington.
Article 21. Binding Effect
21.1 This Agreement shall inure to the benefit of and be binding
upon the respective successors of the Parties.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the day and year as written below.
CARRINGTON LABORATORIES, INC.
By: /s/ Carlton E. Turner
---------------------
Name: Carlton E. Turner
Title: President and CEO
Date: October 15, 1999
E-WHA INTERNATIONAL, INC.
By: /s/ Yong Nyun, Kim
------------------
Name: Yong Nyun Kim
Title: President
Date: October 26, 1999
Exhibit 10.79
Amendment Number Two
To That Certain Agreement by and between Carrington Laboratories, Inc.,
and Carrington Laboratories Belgium, N.V. and CSC Pharmaceuticals
HandelsGmbhH., Vienna, Austria
This attachment amends and revises that certain Sales Distribution
Agreement dated April 17, 1998, by and between Carrington Laboratories,
Inc., and Carrington Laboratories Belgium N.V. (together hereinafter
referred to as "Carrington") and CSC Pharmaceuticals HandelsGmbH.,
Vienna, Austria ("CSC").
Article 7. Trademarks
7.5.a. In the event Carrington in the five- (5-) year
period after the termination of this Agreement
distributes the Products in the Territory under the
Trademarks registered by CSC (RADIADERMA AND DIABDERMA),
directly or through an Affiliate Company or a
Distributor other than CSC, Carrington shall pay CSC, as
consideration for the goodwill created by CSC, a sum
corresponding to the average of the invoiced amount of
the Products made by CSC in the Territory during the
three- (3-) year period before the termination of this
Agreement.
7.5.b. In the event CSC, during the term of this contract
or subsequent renewals of this contract, breaches the
contract and replaces Carrington as the developer and
manufacturer of the finished products sold under the
trademarks Radiaderma and Diabderma and registered by
CSC, CSC shall pay Carrington as consideration for the
research, composition of matter development and clinical
efforts to support the original products, a sum
corresponding to the average of the invoiced amount of
the products sold by CSC in the territory during the
three (3) year period before the replacement of
Carrington produced products.
<PAGE>
This Amendment shall become effective upon its execution by both
parties.
All other terms and conditions of the Agreement remain unchanged.
AGREED AND ACCEPTED BY:
CARRINGTON LABORATORIES, INC. CARRINGTON LABORATORIES BELGIUM N.V.
/s/ Carlton E. Turner /s/ Carlton E. Turner
--------------------- ---------------------
Name: Carlton E. Turner, Ph.D., D.Sc. Name: Carlton E. Turner, Ph.D., D.Sc.
Title: President & CEO Title: President & CEO
CSC PHARMACEUTICALS, HANDELSGMBH DATE: February 14, 2000
/s/ Dr. Yervant Zarmanian
-------------------------
Name: Dr. Yervant Zarmanian
Title: CEO
Exhibit 10.80
For Purchases Through an Authorized Distributor
Subject to Competitive Bid Process
SUPPLIER AGREEMENT
Between
NOVATION, LLC
and
Carrington
----------
MS91022
-------
<PAGE>
NOVATION, LLC
SUPPLIER AGREEMENT
1. Introduction
a. Purchasing opportunities for Members. Novation, LLC
("Novation") is engaged in providing purchasing opportunities with
respect to high quality products and services to participating health
care providers ("Members"). Members are entitled to participate in
Novation's programs through their membership or other participatory
status in any of the following client organizations: VHA Inc.,
University HealthSystem Consortium, and HealthCare Purchasing Partners
International, LLC (collectively, "Clients"). Novation is acting as the
exclusive agent for each of the Clients and certain of each Client's
subsidiaries and affiliates, respectively (and not collectively), with
respect to this Agreement A current listing of Members is maintained by
Novation in the electronic database described in the Guidebook referred
to in Subsection 7,c below ("Novation Database"). A provider will
become a "Member" for purposes of this Agreement at the time Novation
adds the provider to the Novation Database and will cease to be a
"Member" for such purposes at the time Novation deletes the provider
from the Novation Database.
b. Authorized Distributors. Novation and/or the Clients have
entered into arrangements with certain distributors ("Authorized
Distributors") that have agreed to distribute the Products to Members.
A current listing of Authorized Distributors is maintained by Novation
in the Novation Database. A distributor will become an "Authorized
Distributor" for purposes of this Agreement at the time Novation adds
the distributor to the Novation Database and will cease to be an
"Authorized Distributor" for such purposes at the time Novation deletes
the distributor from the Novation Database. Any limitations on the
scope of an Authorized Distributor's authority will also be set forth
in the Novation Database. By reason of requirements of law, regulation
or internal policy of certain Members, from time to time Novation may
identify underutilized businesses as Authorized Distributors,
c. Supplier. Supplier is the manufacturer of products listed on
Exhibit A, the provider of installation, training and maintenance
services for such products, and the provider of any other services
listed on Exhibit A (such products and/or services are collectively
referred to herein as "Products"),
d. Bid. Supplier has responded to Novation's Invitation to Bid
by submitting its written offer ("Bid") to Novation consisting of this
Agreement, the listing of Products and pricing therefor ("Award
Prices") attached hereto as Exhibit A, the other specifications
attached hereto as Exhibit B ("Non-Price Specifications"), the Terms of
Supplier's Participation in Committed Programs attached hereto as
Exhibit C, and any other materials required to be submitted in
accordance with the Bid Instructions.
<PAGE>
2. CONTRACT AWARD.
a. Letter of Award, By executing and delivering the Letter of
Award attached hereto as Exhibit D ("Award Letter") to Supplier,
Novation will have accepted the Bid, and Novation and Supplier
therefore agree that Supplier will make the Products available for
purchase by the Authorized Distributors at the Award Prices for resale
to the Members in accordance with the terms of this Agreement;
provided, however, that Novation's award of this Agreement to Supplier
will not constitute a Commitment by any person to purchase any of the
Products, No obligations of Novation set forth in this Agreement will
be valid or enforceable against Novation unless and until the Award
Letter has been duly executed by Novation and attached as an exhibit
hereto. Supplier acknowledges that, in making its award to Supplier,
Novation has materially relied on all representations, Warranties and
agreements made by Supplier as part of the Bid and that all such
representations, warranties and agreements will survive acceptance of
the Bid.
b. Optional Purchasing Arrangement, Novation and Supplier
agree that each Member will have the option of purchasing the Products
tinder the terms of this Agreement or under the terms of any other
purchasing or pricing arrangement that may exist between such Member
and Supplier at any time during the Term; provided, however, that,
regardless of the arrangement, Supplier will comply with Sections 7 and
9 below. If any Member uses any other purchasing or pricing arrangement
with Supplier when ordering products covered by any contract between
Supplier and Novation, Supplier will notify such Member of the pricing
and other significant terms of the applicable Novation contract.
c. Market Competitive Terms. Supplier agrees that the prices,
quality, value and technology of all Products purchased under this
Agreement will remain market competitive at all times during the Term.
Supplier agrees to provide prompt written notice to Novation of all
offers for the sale of the Products made by Supplier during the Term on
terms that are more favorable to the offeree than the terms of this
Agreement. Supplier will lower the Award Prices or increase arty
discount' applicable to the purchase of the Products as necessary to
assure market competitiveness. If at any time during the Term Novation
receives information from any source suggesting that Supplier's prices,
quality, value or technology are not market competitive, Novation may
provide written notice of such information to Supplier, and Supplier
will, within live (5) business days for Novation's private label
Products and within ten (10) business days for all other Products,
advise Novation in writing of and fully implement all adjustments
necessary to assure market competitiveness.
d. Changes in Award Prices. Unless otherwise expressly agreed in
any exhibit to this Agreement, the Award Prices will not be increased
and any discount will not be eliminated or reduced during the Term. In
addition to any changes made to assure market competitiveness, Supplier
may lower the Award Prices or increase any discount applicable to the
purchase of the Products at any time.
<PAGE>
e. Notification of Changes in Pricing Terms. Supplier will
provide not less than sixty (60) days' prior written notice to Novation
and not less than forty-five (45) days' prior written notice to all
Authorized Distributors of any change in pricing terms permitted or
required by this Agreement. For purposes of the foregoing notification
requirements, a change in pricing terms will mean any change that
affects the delivered price to the Member, including, without
limitation, changes in list prices, discounts or pricing tiers or
schedules. Such prior written notice will be provided in such format
and in such detail as they be required by Novation from time to time,
and will include, at a minimum, sufficient information to determine
line item pricing of the Products for all affected Members.
f. Underutilized Businesses. Certain Members may be
required by law, regulation and/or internal policy to do business with
underutilized businesses such as Minority Business Enterprises (MBE),
Disadvantaged Business Enterprises (ORE), Small Business Enterprises
(SEE), Historically Underutilized Businesses (HUB) and/or Women-owned
Business Enterprises (WBE). To assist Novation in helping Members meet
these requirements, Supplier will comply with all Novation policies
and programs with respect to such businesses and will provide, on
request, Novation or any Member with statistical or other information
with respect to Supplier's utilization of such businesses as a vendor,
distributor, contractor or subcontractor.
3. TERM AND TERMINATION.
a. Term. This Agreement will be effective as of the effective
date set forth in the Award Letter ("Effective Date"), and, unless
sooner terminated, will continue in full force and effect for the
initial term as set forth in the Non-Price Specifications and for any
renewal terms set forth in the Non-Price Specifications by Novation's
delivery of written notice of renewal to Supplier not less than ten
(10) days prior to the end of the initial term or any renewal tern, as
applicable. The initial term, together with the renewal terms if any,
are collectively referred to herein as the "Term."
b. Termination by Novation. Novation may terminate this
Agreement at any time for any reason whatsoever by delivering not less
than ninety (90) days' prior written notice thereof to Supplier, In
addition, Novation may terminate this Agreement immediately by
delivering written notice thereof to Supplier upon the occurrence of
either of the following events:
(1) Supplier breaches this Agreement; or
(2) Supplier becomes bankrupt or insolvent or makes an
unauthorized assignment or goes into liquidation or proceedings
are initiated for the purpose of having a receiving order or
winding up order made against Supplier or Supplier applies to the
courts for protection from its creditors.
<PAGE>
Novation's right to terminate this Agreement due to Supplier's breach
in accordance with this Subsection is in addition to any other rights
and remedies Novation, the Clients, the Members or the Authorized
Distributors may have resulting from such breach, including, but not
limited to, Novation's and the Clients' right to recover all loss of
Marketing Fees resulting from such breach through the date of
termination and for one hundred eighty (180) days thereafter.
c. Termination by Supplier. Supplier may terminate this
Agreement at any time for any reason whatsoever by delivering not less
than one hundred eighty (180) days' prior written notice thereof to
Novation.
4. PRODUCT SUPPLY.
a. Delivery and Invoicing. On and after the Effective Date,
Supplier agrees to deliver Products ordered by the Authorized
Distributors on behalf of Members to the Authorized Distributors, FOB
destination, and will direct its invoices to the Authorized
Distributors in accordance with this Agreement. Supplier agrees to
prepay and absorb charges, if any, for transporting Products to the
Authorized Distributors. Payment terms are 2%-30, Net 31 days. Supplier
will make whatever arrangements are reasonably necessary with the
Authorized Distributors to implement the terms of this Agreement;
provided, however, Supplier will not impose any purchasing commitment
on any Member or Authorized Distributor as a condition to the Member's
or Authorized Distributor's purchase of any Products pursuant to this
Agreement.
b. Product Fill Rates: Confirmation and Delivery Times. Supplier
agrees to provide product till rates to the Authorized Distributors of
greater than ninety-five percent (95%), calculated as line item orders.
Supplier will provide confirmation of orders from the Authorized
Distributors via the electronic data interchange described in the
Guidebook referred to in Subsection 7.c below within two (2) business
days after placement of the order and will deliver the Products to the
Authorized Distributors within ten (10) business days after placement
of the order.
c. Bundled Terms. Supplier agrees to give Novation prior
written notice of any offer Supplier makes to any Member or Authorized
Distributor to sell products that are not covered by this Agreement in
conjunction with Products covered by this Agreement under circumstances
where the Member or Authorized Distributor has no real economic choice
other than to accept such bundled terms,
d. Discontinuation of Products: Changes in Packaging. Supplier
will have no unilateral right to discontinue any of the Products or to
make any changes in packaging which render any of the Products
substantially different in use, function or distribution. Supplier may
request Novation in writing to agree to a proposed discontinuation of
any Products or a proposed change in packaging for any Products at
least ninety (90) days prior to the proposed implementation of the
discontinuation or change. Under no circumstances will any Product
discontinuation or packaging changes be permitted under this Agreement
without Novation's agreement to the discontinuation or change. In the
event Supplier implements such proposed discontinuation or change
without Novation's agreement thereto in writing, in addition to any
<PAGE>
other rights and remedies Novation or the Members may have by reason of
such discontinuation or change, (i) Novation will have the right to
terminate any or all of the Product(s) subject to such discontinuation
or change or to terminate this Agreement in its entirety immediately
upon becoming aware of the discontinuation or change or any time
thereafter by delivering written notice thereof to Supplier; (ii) the'
Members may purchase products equivalent to the discontinued or changed
Products from other sources and Supplier will be liable to the Members
for all reasonable costs in excess of the Award Prices plus any other
damages which they may incur; and (iii) Supplier will be liable to
Novation and the Clients for any loss of Marketing Fees resulting from
such unacceptable discontinuation or change plus any other damages
which they may incur.
e. Replacement or New Products. Supplier will have no
unilateral right to replace any of the Products listed in Exhibit A
with other products or to add new products to this Agreement. Supplier
may request Novation in writing to agree to a replacement of any of the
Products or the addition of a new product that is closely related by
function or use to an existing Product at least sixty (60) days prior
to the proposed implementation of the replacement or to the new product
introduction. Under no circumstances will any Product replacement or
new product addition to this Agreement be permitted without Novation's
agreement to the replacement or new product.
f. Member Services. Supplier will consult with each Member to
identify the Member's policies relating to access to facilities and
personnel. Supplier will comply with such policies and will establish a
specific timetable for sales calls by sales representatives to satisfy
the needs of the Member. Supplier will promptly respond to Members'
reasonable requests for verification of purchase history. If requested
by Novation or any Members. Supplier will provide, at Supplier's cost,
on-site inservice training to Members' personnel for pertinent
Products.
g. Product Deletion. Notwithstanding anything to the contrary
contained in this Agreement, Novation may delete any one or more of the
Products from this Agreement at any time, at will and without cause,
upon not less than sixty (60) days' prior written notice to Supplier.
h. Return of Products. Any Member or Authorized Distributor, in
addition to and not in limitation of any other rights and remedies,
will have the right to return Products to Supplier under any of the
following circumstances; (1) the Product is ordered or shipped in
error; (2) the Product is no longer needed by the Member due to
deletion from its standard supply list or changes in usage patterns,
provided the Product is returned at least six (6) months prior to its
expiration date and is in a re-salable condition; (3) the Product is
received outdated or is otherwise unusable; (4) the Product is received
damaged, or is defective or nonconforming; (5) the Product is one which
a product manufacturer or supplier specifically authorizes for return
through a distributor; and (6) the Product is recalled. Supplier agrees
to accept the return of Products under these circumstances without
charge and for full credit.
<PAGE>
i. Failure to Supply, In the event of Supplier's failure to
perform its supply obligations in accordance with the terms of this
Section 4, the Member or the Authorized Distributor may purchase
products equivalent to the Products from other sources and Supplier
will be liable to the Member or the Authorized Distributor for all
reasonable costs in excess of the Award Prices plus any other damages
which they may incur. In such event, Supplier will also be liable to
Novation and the Clients for any loss of Marketing Fees resulting from
such failure plus any other damages which they may incur. The remedies
set forth in this Subsection are in addition to any other rights and
remedies Novation, the Clients, the Members or the Authorized
Distributors may have resulting from such failure.
5. PRODUCT QUALITY.
a. Free From Defects. Supplier warrants the Products against
defects in material, workmanship, design and manufacturing. Supplier
will make all necessary arrangements to assign such warranty to the
Members. Supplier further represents and warrants that the Products
will conform to the specifications, drawings, and samples furnished by
Supplier or contained in the Non-price Specifications and will be safe
for their intended use. If any Products are defective and a claim is
made by a Member or an Authorized Distributor on account of such
defect, Supplier will, at the option of the Member or the Authorized
Distributor, either replace the defective Products or credit the Member
or the Authorized Distributor. Supplier will bear all costs of
returning and replacing the defective Products, as well as all risk of
loss or damage to the defective Products from and after the time they
leave the physical possession of the Member or the Authorized
Distributor. The warranties contained in this Subsection will survive
any inspection, delivery, acceptance or payment by a Member or an
Authorized Distributor. In addition, if there is at any time wide-
spread failure of the Products, the Member or the Authorized
Distributor may return all said Products for credit or replacement, at
its option. This Subsection and the obligations contained herein will
survive the expiration or earlier termination of this Agreement. The
remedies set forth in this Subsection are in addition to and not a
limitation on any other rights or remedies that may be available
against Supplier.
b. Product Compliance. Supplier represents and warrants to
Novation, the Clients, the Authorized Distributors and the Members that
the Products are, if required, registered, and will not be distributed,
sold or priced by Supplier in violation of any federal, state or local
law. Supplier represents and warrants that as of the date of delivery
to the Authorized Distributors all Products will not be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic
Act and will not violate or cause a violation of any applicable law,
ordinance, rule, regulation or order, Supplier agrees it will comply
with all applicable Good Manufacturing Practices and Standards
contained in 21 C.F.R- Parts 210, 211, 225, 226, 600, 606, 610, 640,
660, 680 and 820. Supplier represents and warrants that it will provide
adequate warnings and instructions to inform users of the Products of
the risks, if any, associated with the use of the Products. Supplier's
representations; warranties and agreements in this Subsection will
survive the expiration or earlier termination of this Agreement.
<PAGE>
c. Patent Infringement. Supplier represents and warrants that
sale or use of the Products will not infringe any United States patent
Supplier will, at its own expense, defend every suit which will be
brought against Novation, a Member or an Authorized Distributor for any
alleged infringement of any patent by reason of the sale or use of the
Products and will pay all costs, damages and profits recoverable in
arty such suit. This Subsection and the obligations contained herein
will survive the expiration or earlier termination of this Agreement.
The remedies set forth in this Subsection are in addition to and not a
limitation on any other rights or remedies that may be available
against Supplier
d. Product Condition. Unless otherwise stated in the Non-
Price Specifications or unless agreed upon by a Member in connection
with Products it may order, all Products will be new. Products which
are demonstrators, used, obsolete, seconds, or which have been
discontinued are unacceptable unless otherwise specified in the Non-
Price Specifications or the Member accepts delivery after receiving
notice of the condition of the Products.
e. Recall of Products. Supplier will reimburse Authorized
Distributors and Members for any cost associated with any Product
corrective action, withdrawal or recall requested by Supplier or
required by any governmental entity. In the event a product recall or a
court action impacting supply occurs, Supplier will notify Novation in
writing within twenty-four (24) hours of any such recall or action.
Supplier's obligations in this Subsection will survive the expiration
or earlier termination of this Agreement.
f. Shelf Life. Sterile Products arid other Products with a
limited shelf life sold under this Agreement will have the longest
possible shelf life and the latest possible expiration dates. Unless
required by stability considerations, there will not be less than an
eighteen (18) month interval between a Product's date of delivery by
Supplier to the Authorized Distributor and its expiration date.
6. CENTURY COMPLIANCE
a. Definitions. For purposes of this Section, the following
terms have the respective meanings given below:
(1) "Systems" means any of the Products, systems of
distribution for Products and Product manufacturing systems that
consist of or include any computer software, computer firmware,
computer hardware (whether general or special purpose),
documentation, data, and other similar or related items of the
automated, computerized, and/or software systems that are
provided by or through Supplier or utilized to manufacture or
distribute the Products provided by or through Supplier pursuant
to this Agreement, or any component part thereof, and any
services provided by or through Supplier in connection therewith.
(2) "Calendar-Related" refers to date values based on the
"Gregorian calendar" (as defined in the Encyclopedia Britannica,
15th edition. 1982, page 602) and to all uses in any manner of
those date values, including without limitation manipulations,
calculations, conversions, comparisons, and presentations.
<PAGE>
(3) "Century Noncompliance" means any aspects of the
Systems that fail to satisfy the requirements set forth in
Subsection 6.b below.
b. Representations. Supplier warrants, represents and agrees
that the Systems satisfy the following requirements:
(1) In connection with the use and processing of Calendar-
Related data, the Systems will not malfunction, will not cease
to function, will not generate incorrect data, and will not
produce incorrect results.
(2) In connection with providing Calendar-Related data to
and accepting Calendar-Related data from other automated,
computerized, and/or software systems and users via user
interfaces, electronic interfaces, and data storage, the Systems
represent dates without ambiguity as to century.
(3) The year component of Calendar-Related data that is
provided by the Systems to or that is accepted by the Systems
from other automated, computerized, and/or software systems and
user interfaces, electronic interfaces, and data storage is
represented in a four-digit CCYY format, where CC represents the
two digits expressing the century and YY represents the two
digits expressing the year within that century (e.g, 1996 or
2003).
(4) Supplier has verified through testing that the
Systems satisfy the requirements of this Subsection including,
without limitation, testing of each of the following
specific dates and the transition to and from each such date:
September 9,1999; September 10, 1999; December 31, 1999; January
1, 2000; February 28, 2000;February 29, 2000; March 1, 2000;
December 31, 2000; January 1, 2001; December 31,2004; and
January 1, 2005.
c. Remedies. In the event of any Century Noncompliance in the
Systems in any respect, in addition to any other remedies that may be
available to Novation or the Members, Supplier will, at no cost to the
Members, promptly under the circumstances (but, in all cases, within
thirty (30) days after receipt of a written request from any Member,
unless otherwise agreed by the Member in writing) eliminate the Century
Noncompliance from the Systems.
d. Noncompliance Notice. In the event Supplier becomes aware of
(i) any possible or actual Century Noncompliance in the Systems or (ii)
any international, governmental, industrial, or other standard
(proposed or adopted) regarding Calendar.Related data and/or
processing, or Supplier begins any significant effort to conform the
Systems to any such standard, Supplier will promptly provide the
Members with all relevant information in writing and will timely
provide the Members with updates to such information. Supplier will
respond promptly and fully to inquiries by the Members, and timely
provide updates to any responses provided to the Members, with respect
to (i) any possible or actual Century Noncompliance in the Systems or
(ii) any international, governmental, industrial, or other standards.
in the foregoing, the use of "timely" means promptly after the relevant
information becomes known to or is developed by or for Supplier.
<PAGE>
e. Survival. Supplier's representations, warranties and
agreements in this Section will continue in effect throughout the Term
and will survive the expiration or earlier termination of this
Agreement
7. REPORTS AND OTHER INFORMATION REQUIREMENTS.
a. Report Content. Within twenty (20) days after the end of
each full and partial month during the Term ("Reporting Month"),
Supplier will submit to Novation a report in the form of a diskette
containing the following information, in form and content reasonably
satisfactory to Novation:
(1) the name of Supplier, the Reporting Month and year and
the Agreement number (as provided to Supplier by Novation);
(2) with respect to each Member (described by LIC number
(as provided to Supplier by Novation), health industry number
(if applicable), full name, street address, city, state, zip
code and, if applicable, tier and committed status), the number
of units sold and the amount of net sales for each Product on a
line item basis, and the sum of net sales and the associated
Marketing Fees for all Products purchased by such Member
directly or indirectly from Supplier during the Reporting Month,
whether under the pricing and other terms of this Agreement or
under the terms of any other purchasing or pricing arrangements
that may exist between the Member and Supplier;
(3) the sum of the net sales and the associated Marketing
Fees for all Products sold to all Members during the Reporting
Month; and
(4) such additional information as Novation may reasonably
request from time to time
b. Report Format and Delivery. The reports required by this
Section will be submitted electronically in Excel Version 7 or Access
Version 7 and in accordance with other specifications established by
Novation from time to time and will be delivered to:
Novation
Attn: SRIS Operations
220 East Las Colinas Boulevard
Irving, TX 75039
c. Other Information Requirements In addition to the reporting
requirements set forth in Subsections 7.a and 7.b above, the parties
agree to facilitate the administration of this Agreement by
transmitting and receiving information electronically and by complying
with the information requirements set forth in Exhibit E attached
hereto Supplier further agrees that, except to the extent of any
inconsistency with the provisions of this Agreement, it will comply
with all information requirements set forth in the Novation Information
Requirements Guidebook ("Guidebook"). On or about the Effective Date,
Novation will provide Supplier with a current copy of the Guidebook and
will thereafter provide Supplier with updates and/or revisions to the
Guidebook from time to time.
<PAGE>
8. OBLIGATIONS OF NOVATION.
a. Information to Members and Authorized Distributors. After
issuing the Award Letter, Novation, in conjunction with the Clients,
will deliver a summary of the purchasing arrangements covered by this
Agreement to each Member and each Authorized Distributor and will, from
time to time, at the request of Supplier, deliver to each Member and
each Authorized Distributor reasonable and appropriate amounts and
types of materials supplied by Supplier to Novation which relate to the
purchase of the Products.
b. Marketing Services. Novation, in conjunction with the
Clients, will market the purchasing arrangements covered by this
Agreement to the Members. Such promotional services may include, as
appropriate, the use of direct mail, contact by Novation's field
service delivery team, member support services, and regional and
national meetings and conferences As appropriate, Novation, in
conjunction with the Clients, will involve Supplier in these
promotional activities by inviting Supplier to participate in meetings
and other reasonable networking activities with Members.
9. MARKETING FEES.
a. Calculation. Supplier will pay to Novation, as the
authorized collection agent for each of the Clients and certain of each
Client's subsidiaries and affiliates, respectively (and not
collectively), marketing lees ("Marketing Fees") belonging to any of
the Clients om certain of their subsidiaries or affiliates equal to the
Agreed Percentage of the aggregate gross charges of all net sales of
the Products to the Members directly or indirectly from Supplier,
whether under the pricing and other terms of this Agreement or under
the terms of any other purchasing or pricing arrangements that may
exist between the Members and Supplier. Such gross charges will be
determined without any deduction for uncollected accounts or for costs
incurred in the manufacture, provision, sale or distribution of the
Products, and will include, but not be limited to, charges for the sale
of products, the provision of installation, training and maintenance
services, and the provision of any other services listed on Exhibit A.
The "Agreed Percentage" will be defined in the Award Letter.
b. Payment. On or about the Effective Date, Novation
will advise Supplier in writing of the amount determined by Novation to
be Supplier's monthly estimated Marketing Fees. Thereafter, Supplier's
monthly estimated Marketing Fees may be adjusted from time to time upon
written notice from Novation based on actual purchase data. No later
than the tenth (10th) day of each month, Supplier will remit the
monthly estimated Marketing Fees for such month to Novation. Such
payment will be adjusted to reflect the reconciliation between the
actual Marketing Fees payable for the second month prior to such month
with the estimated Marketing Fees actually paid during such prior
month. Supplier will pay all estimated and adjusted Marketing Fees by
check made payable to "Novation, LL.C." All checks should reference the
Agreement number, Supplier will include with its check the
reconciliation calculation used by Supplier to determine the payment
adjustment, with separate amounts shown for each Client's component
thereof. Checks sent by first class mail will be mailed to the
following address:
Novation
75 Remittance Dr., Suite 1420
Chicago, IL 60675-1420
<PAGE>
Checks sent by courier (Federal Express, United Parcel Service
or messenger) will be addressed as follows:
The Northern Trust Company
801 S. Canal St.
4th Floor Receipt & Dispatch
Chicago, IL 60607
Attn: Novation, Suite 1420
Telephone: (312) 630-8100, #9
10. ADMINISTRATIVE DAMAGES. Novation and Supplier agree that
Novation would incur additional administrative costs if Supplier fails
to provide notice of change in pricing terms as required in Subsection
2.e above, fails to provide reports as required in Section 7 above, or
fails to pay Marketing Fees as required in Section 9 above, in each
case within the time and manner required by this Agreement. Novation
and Supplier further agree that the additional administrative costs
incurred by Novation by reason of any such failure to Supplier is
uncertain, and they therefore agree that the following schedule of
administrative damages constitutes a reasonable estimation of such
costs and were determined according to the principles of just
compensation:
1st failure written warning
2nd failure: $ 500.00
3rd failure: $ 1,000.00
4th failure: $ 2,500.00
5th failure: $ 5,000.00
6th & each subsequent failure: $10,000.00
Novation's right to recover administrative damages in accordance
with this Section is in addition to any other rights and remedies
Novation or the Clients may have by reason of Supplier's failure to pay
the Marketing Fees or provide the reports or notices within the time
and manner required by this Agreement.
11. NONPAYMENT OR INSOLVENCY OF AN AUTHORIZED DISTRIBUTOR If an
Authorized Distributor fails to pay Supplier for Products, or if an
Authorized Distributor becomes bankrupt or insolvent or makes an
assignment for the benefit of creditors or goes into liquidation, or if
proceedings are initiated for the purpose of having a receiving order
or winding up order made against an Authorized Distributor, or if an
Authorized Distributor applies to the court for protection from its
creditors, then, in any such case, this Agreement will not terminate,
but Supplier will have the right, upon prior written notice to Novation
and the Members, to discontinue providing Products through that
Authorized Distributor, and Supplier will thereafter provide Products
to the Members directly Or through another Authorized Distributor, as
directed by Novation.
<PAGE>
12. INSURANCE.
a. Policy Requirements. Supplier will maintain and keep in
force during the Term product liability, general public liability and
property damage insurance against any insurable claim or claims which
might or could arise regarding Products purchased from Supplier. Such
insurance will contain a minimum combined single limit of liability for
bodily injury and property damage in the amounts of not less than
$2,000,000 per occurrence and $10,000,000 in the aggregate; will name
Novation, the Clients, the Members and the Authorized Distributors, as
their interests may appear, as additional insureds, and will contain an
endorsement providing that the carrier will provide directly to all
named insured copies of all notices and endorsements. Supplier will
provide to Novation in its Bid and thereafter within fifteen (15) days
after Novation's request, an insurance certificate indicating the
foregoing coverage, issued by an insurance company licensed to do
business in the relevant states and signed by an authorized agent,
b. Self-Insurance. Notwithstanding anything to the contrary in
Subsection 12-a above, Supplier may maintain a self-insurance program
for all or any part of the foregoing liability risks, provided such
self-insurance policy in all material respects complies with the
requirements applicable to the product liability, general public
liability and property damage insurance set forth in Subsection 12.a.
Supplier will provide Novation in its Bid, and thereafter within
fifteen (15) days after Novation's request: (1) the self-insurance
policy; (2) the name of the company managing the self-insurance program
and providing reinsurance, if any; (3) the most recent annual reports
on claims and reserves for the program; and (4) the most recent annual
actuarial report on such program.
c. Amendments, Notices and Endorsements. Supplier will not
amend, in any material respect that affects the interests of Novation,
the Clients, the Members or the Authorized Distributors, or terminate
said liability insurance or self-insurance program except after thirty
(30) days' prior written notice to Novation and will provide to
Novation copies all notices and endorsements as soon as practicable
after it receives or gives them.
13. COMPLIANCE WITH LAW AND GOVERNMENT PROGRAM PARTICIPATION.
Compliance With Law. Supplier represents and warrants that
to the best of its knowledge, after due inquiry, it is in compliance
with all federal, state and local statutes, laws, ordinances and
regulations applicable to it ("Legal Requirements") which are material
to the operation of its business and the conduct of its affairs,
including Legal Requirements pertaining to the safety of the Products,
occupational health and safety, environmental protection,
nondiscrimination, antitrust, and equal employment opportunity. During
the Term, Supplier will: (1) promptly notify Novation of any lawsuits,
claims, administrative actions or other proceedings asserted or
commenced against it which assert in whole or in part that Supplier is
in noncompliance with any Legal Requirement which is material] to the
operation of its business and the conduct of its affairs and (2)
promptly provide Novation With true and correct copies of all written
notices of adverse findings from the U.S. Food and Drug Administration
("FDA") and all written results of FDA inspections which pertain to the
Products,
<PAGE>
b. Government Program Participation. Supplier represents and
warrants that it is not excluded from participation, and is not
otherwise ineligible to participate, in a "Federal health care program"
as defined in 42 U.S.C S l320a-7b(l) or in any other government payment
program, In the event Supplier is excluded from participation, or
becomes otherwise ineligible to participate in any such program during
the Term, Supplier will notify Novation in writing within three (3)
days after such event, and upon the occurrence of such event, whether
or not such notice is given to t4ovation, Novation may immediately
terminate this Agreement upon written notice to Supplier.
14 . RELEASE AND INDEMNITY, SUPPLIER WILL RELEASE, INDEMNITY HOLD HARM-
LESS, AND, IF REQUESTED, DEFEND NOYATION, THE CLIENTS, THE MEMBERS AND
THE AUTHORIZED DISTRIBUTORS, AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
REGENTS, AGENTS, SUBSIDIARIES, AFFILIATES AND EMPLOYEES (COLLECTIVELY,
THE "INDEMNITEES"), FROM AND AGAINST ANY CLAIMS, LIABILITIES, DAMAGES,
ACTIONS, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
Al LORNEYS' FEES, EXPERT FEES AND COURT COSTS) OF ANY KIND OR NATURE,
WHETHER AT LAW OR IN EQUITY, INCLUDING CLAIMS ASSERTING STRICT
LIABILITY, ARISING FROM OR CAUSED IN ANY PART BY (1) THE BREACH OF ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF SUPPLIER CONTAINED
IN THIS AGREEMENT OR IN THE BID; (2) TUE CONDITION OF ANY PRODUCT,
INCLUDING A DEFECT IN MATERIAL, WORICMANSHIP, DESIGN OR MANUFACTURING;
OR (3) THE WARNINGS AND INSTRUCTIONS ASSOCIATED WITH ANY PRODUCT. SUCH
OBLIGATION TO RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND WILL APPLY
EVEN IN THE CLAIMS, LIABILITIES, DAMAGES, ACTIONS, COSTS AND EXPENSES
ARE CAUSED BY THE NEGLIGENCE, GROSS NEGLIGENCE OR OTHER CULPABLE
CONDUCT OF INDEMNITEES; PROVIDED, HOWEVER, THAT SUCH INDEMNIFICATION,
HOLD HARMLESS AND RIGHT TO DEFENSE WILL NOT SE APPLICABLE WHERE THE
CLAIM, LIABILITY, DAMAGE, ACTION, COST OR EXPENSE ARISES SOLELY AS A
RESULT OF AN ACT OR FAILURE To ACT OF INDEMNITEES. THIS SECTION AND THE
OBLIGATIONS CONTAINED HEREIN WILL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS AGREEMENT. THE REMEDIES SET FORTH IN THIS SECTION
ARE IN ADDITION TO AND NOT A LIMITATION ON ANY OTHER RIGHTS OR REMEDIES
THAT MAY BE AVAILABLE AGAINST SUPPLIER.
15. BOOKS AND RECORDS; FACILITIES INSPECTIONS. Supplier agrees to
keep, maintain and preserve complete, current and accurate books,
records and accounts of the transactions contemplated by this Agreement
and such additional books, records and accounts as are necessary to
establish and verify Supplier's compliance with this Agreement. All
such books, records and accounts will be available for inspection and
audit by Novation representatives at any time during the Term and for
two (2) years thereafter, but only during reasonable business hours and
upon reasonable notice. Novation agrees that its routine audits will
not be conducted more frequently than twice in any consecutive twelve
(12) month period, subject to Novation's right to conduct special
audits whenever it deems it to be necessary, in addition, Supplier will
make its manufacturing and packaging facilities available for
inspection from time to time during the Term by Novation
representatives, but only during reasonable business hours and upon
reasonable notice. The exercise by Novation of the right to inspect and
audit is without prejudice to any other or additional rights or
remedies of either party,
<PAGE>
16. USE OF NAMES, ETC. Supplier agrees that it will not use in any way
in its promotional, informational or marketing activities or materials
(i) the names, trademarks, logos, symbols or a description of the
business or activities of Novation or any Client, Authorized
Distributor or Member without in each instance obtaining the prior
written consent of the person owning the rights thereto; or (ii) the
award or the content of this Agreement without in each instance
obtaining the prior written consent of Novation.
17. CONFIDENTIAL INFORMATION.
a. Nondisclosure. Supplier agrees that it will:
(1) keep strictly confidential and hold in trust all
Confidential Information, as defined in Subsection l7.b below, of
Novation, the Clients, the Authorized Distributors and the
Members;
(2) not use the Confidential Information for any purpose
other than the performance of its obligations under this
Agreement, without the prior written consent of Novation;
(3) not disclose the Confidential Information to any third
party (unless required by law) without the prior written consent
of Novation; and
(4) not later than thirty (30) days after the expiration or
earlier termination of this Agreement, return to Novation, the
Client, the Authorized Distributor or the Member, as the case may
be, the Confidential Information.
b. Definition, "Confidential Information," as used in
Subsection 17.a above, will consist of all information relating to the
prices and usage of the Products (including all information contained
in the reports produced by Supplier pursuant to Section 7 above) and
all documents and other materials of Novation, the Clients, the
Authorized Distributors and the Members containing information
relating to the programs of Novation, the Clients, the Authorized
Distributors or the Members of a proprietary or sensitive nature not
readily available through sources in the public domain. In no event
will Supplier provide to any person any information relating to the
prices it charges the Authorized Distributors for Products ordered
pursuant to this Agreement without the prior written consent of
Novation.
18. MISCELLANEOUS
a. Choice of Law. This Agreement will be governed by and
construed in accordance with the internal substantive laws of the
State of Texas and the Texas courts will have jurisdiction over all
matters relating to this Agreement; provided, however, the terms of
any agreement between Supplier and an Authorized distributor or
between Supplier and a Member will be governed by and construed in
accordance with the choice of law and venue provisions set forth in
such agreement.
<PAGE>
b. Not Responsible. Novation and the Clients and their
subsidiaries and affiliates will not be responsible or liable for any
Authorized Distributor's breach of any purchasing commitment or for
any other actions of any Authorized Distributor or Member. In
addition, none of the Clients will be responsible or liable for the
obligations of another Client or its subsidiaries or affiliates or
the obligations of Novation or Supplier under this Agreement.
c. Third Party Beneficiaries. All Clients, Authorized
Distributors and Members are intended third party beneficiaries of this
Agreement. All terms and conditions of this Agreement which are
applicable to the Clients will inure, to the benefit of and be
enforceable by the Clients and their respective successors and assigns.
All terms and conditions of this Agreement which are applicable to the
Authorized Distributors will inure to the benefit of and be enforceable
by the Authorized Distributors and their respective successors and
assigns. All terms and conditions of this Agreement which are
applicable to the Members will inure to the benefit of and be
enforceable by the Members and their respective successors and assigns.
d. Notices. Except as otherwise expressly provided herein, all
notices or other communications required or permitted under this
Agreement will be in writing and will be deemed sufficient when
mailed by United States mail, or delivered in person to the party to
which it is to be given, at the address of such party set forth
below:
If to Supplier:
To the address set forth by Supplier in the Bid
If to Novation:
Novation
Attn: General Counsel
220 East Las Colinas Blvd.
Irving, TX 75039
or such other address as the party will have furnished in writing in
accordance with the provisions of this Subsection.
e. No Assignment. No assignment of all or any part of this
Agreement may be made without the prior written consent of the other
party; except that Novation may assign its rights and obligations to
any affiliate of Novation. Any assignment of all or any part of this
Agreement by either party will not relieve that party of the
responsibility of performing its obligations hereunder to the extent
that such obligations are not satisfied in flail by the assignee. This
Agreement will be binding upon and inure to the benefit of the parties'
respective successors and assigns.
<PAGE>
f. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a mariner as to be effective and
valid tinder applicable law, but if any provision of this Agreement
will be prohibited by or invalid under applicable law, such provision
will be ineffective to the extent of' such prohibition or invalidity
without invalidating the remainder of such provision or the remaining
provisions of this Agreement- Each party will, at its own expense, take
such action as is reasonably necessary to defend the validity and
enforceability of this Agreement and will cooperate with the other
party as is reasonably necessary in such defense.
g. Entire Agreement. This Agreement, together with the
exhibits listed below, will constitute the entire agreement between
Novation arid Supplier. This Agreement, together with the exhibits
listed below and each Authorized Distributor's purchase order will
constitute the entire agreement between each Authorized Distributor and
Supplier. In the event of any inconsistency between this Agreement and
an Authorized Distributor's purchase order, the terms of this Agreement
will control, except that the Authorized Distributor's purchase order
will supersede Sections 4 and 5 of this Agreement in the event of any
inconsistency with such Sections. No other terms and conditions in any
document, acceptance, or acknowledgment will be effective or binding
unless expressly agreed to in writing. The following exhibits are
incorporated by reference in this Agreement:
Exhibit A Product and Service Description and Pricing
Exhibit B Non-Price Specifications
Exhibit C Terms of Supplier's Participation in Committed Programs
Exhibit D Award Letter
Exhibit E Other Information Requirements
[Other Exhibits Listed, if any
SUPPLIER: Carrington Laboratories, Inc.
ADDRESS: 2001 Walnut Hill Lane trying, TX 75038
SIGNATURE: /s/
----------------------------
TITLE: President and CEO DATE: August 6, 1999
Exhibit 10.81
For Purchases Through an Authorized Distributor
Subject to Competitive Bid Process
SUPPLIER AGREEMENT
Between
NOVATION, LLC
and
Carrington
----------
MS91032
-------
<PAGE>
NOVATION, LLC
SUPPLIER AGREEMENT
1. Introduction
a. Purchasing opportunities for Members. Novation, LLC
("Novation") is engaged in providing purchasing opportunities with
respect to high quality products and services to participating health
care providers ("Members"). Members are entitled to participate in
Novation's programs through their membership or other participatory
status in any of the following client organizations: VHA Inc.,
University HealthSystem Consortium, and HealthCare Purchasing Partners
International, LLC (collectively, "Clients"). Novation is acting as the
exclusive agent for each of the Clients and certain of each Client's
subsidiaries and affiliates, respectively (and not collectively), with
respect to this Agreement A current listing of Members is maintained by
Novation in the electronic database described in the Guidebook referred
to in Subsection 7,c below ("Novation Database"). A provider will
become a "Member" for purposes of this Agreement at the time Novation
adds the provider to the Novation Database and will cease to be a
"Member" for such purposes at the time Novation deletes the provider
from the Novation Database.
b. Authorized Distributors. Novation and/or the Clients have
entered into arrangements with certain distributors ("Authorized
Distributors") that have agreed to distribute the Products to Members.
A current listing of Authorized Distributors is maintained by Novation
in the Novation Database. A distributor will become an "Authorized
Distributor" for purposes of this Agreement at the time Novation adds
the distributor to the Novation Database and will cease to be an
"Authorized Distributor" for such purposes at the time Novation deletes
the distributor from the Novation Database. Any limitations on the
scope of an Authorized Distributor's authority will also be set forth
in the Novation Database. By reason of requirements of law, regulation
or internal policy of certain Members, from time to time Novation may
identify underutilized businesses as Authorized Distributors,
c. Supplier. Supplier is the manufacturer of products listed on
Exhibit A, the provider of installation, training and maintenance
services for such products, and the provider of any other services
listed on Exhibit A (such products and/or services are collectively
referred to herein as "Products"),
d. Bid. Supplier has responded to Novation's Invitation to Bid
by submitting its written offer ("Bid") to Novation consisting of this
Agreement, the listing of Products and pricing therefor ("Award
Prices") attached hereto as Exhibit A, the other specifications
attached hereto as Exhibit B ("Non-Price Specifications"), the Terms of
Supplier's Participation in Committed Programs attached hereto as
Exhibit C, and any other materials required to be submitted in
accordance with the Bid Instructions.
<PAGE>
2. CONTRACT AWARD.
a. Letter of Award, By executing and delivering the Letter of
Award attached hereto as Exhibit D ("Award Letter") to Supplier,
Novation will have accepted the Bid, and Novation and Supplier
therefore agree that Supplier will make the Products available for
purchase by the Authorized Distributors at the Award Prices for resale
to the Members in accordance with the terms of this Agreement;
provided, however, that Novation's award of this Agreement to Supplier
will not constitute a Commitment by any person to purchase any of the
Products, No obligations of Novation set forth in this Agreement will
be valid or enforceable against Novation unless and until the Award
Letter has been duly executed by Novation and attached as an exhibit
hereto. Supplier acknowledges that, in making its award to Supplier,
Novation has materially relied on all representations, Warranties and
agreements made by Supplier as part of the Bid and that all such
representations, warranties and agreements will survive acceptance of
the Bid.
b. Optional Purchasing Arrangement, Novation and Supplier
agree that each Member will have the option of purchasing the Products
tinder the terms of this Agreement or under the terms of any other
purchasing or pricing arrangement that may exist between such Member
and Supplier at any time during the Term; provided, however, that,
regardless of the arrangement, Supplier will comply with Sections 7 and
9 below. If any Member uses any other purchasing or pricing arrangement
with Supplier when ordering products covered by any contract between
Supplier and Novation, Supplier will notify such Member of the pricing
and other significant terms of the applicable Novation contract.
c. Market Competitive Terms. Supplier agrees that the prices,
quality, value and technology of all Products purchased under this
Agreement will remain market competitive at all times during the Term.
Supplier agrees to provide prompt written notice to Novation of all
offers for the sale of the Products made by Supplier during the Term on
terms that are more favorable to the offeree than the terms of this
Agreement. Supplier will lower the Award Prices or increase arty
discount' applicable to the purchase of the Products as necessary to
assure market competitiveness. If at any time during the Term Novation
receives information from any source suggesting that Supplier's prices,
quality, value or technology are not market competitive, Novation may
provide written notice of such information to Supplier, and Supplier
will, within live (5) business days for Novation's private label
Products and within ten (10) business days for all other Products,
advise Novation in writing of and fully implement all adjustments
necessary to assure market competitiveness.
d. Changes in Award Prices. Unless otherwise expressly agreed in
any exhibit to this Agreement, the Award Prices will not be increased
and any discount will not be eliminated or reduced during the Term. In
addition to any changes made to assure market competitiveness, Supplier
may lower the Award Prices or increase any discount applicable to the
purchase of the Products at any time.
<PAGE>
e. Notification of Changes in Pricing Terms. Supplier will
provide not less than sixty (60) days' prior written notice to Novation
and not less than forty-five (45) days' prior written notice to all
Authorized Distributors of any change in pricing terms permitted or
required by this Agreement. For purposes of the foregoing notification
requirements, a change in pricing terms will mean any change that
affects the delivered price to the Member, including, without
limitation, changes in list prices, discounts or pricing tiers or
schedules. Such prior written notice will be provided in such format
and in such detail as they be required by Novation from time to time,
and will include, at a minimum, sufficient information to determine
line item pricing of the Products for all affected Members.
f. Underutilized Businesses. Certain Members may be
required by law, regulation and/or internal policy to do business with
underutilized businesses such as Minority Business Enterprises (MBE),
Disadvantaged Business Enterprises (ORE), Small Business Enterprises
(SEE), Historically Underutilized Businesses (HUB) and/or Women-owned
Business Enterprises (WBE). To assist Novation in helping Members meet
these requirements, Supplier will comply with all Novation policies
and programs with respect to such businesses and will provide, on
request, Novation or any Member with statistical or other information
with respect to Supplier's utilization of such businesses as a vendor,
distributor, contractor or subcontractor.
3. TERM AND TERMINATION.
a. Term. This Agreement will be effective as of the effective
date set forth in the Award Letter ("Effective Date"), and, unless
sooner terminated, will continue in full force and effect for the
initial term as set forth in the Non-Price Specifications and for any
renewal terms set forth in the Non-Price Specifications by Novation's
delivery of written notice of renewal to Supplier not less than ten
(10) days prior to the end of the initial term or any renewal tern, as
applicable. The initial term, together with the renewal terms if any,
are collectively referred to herein as the "Term."
b. Termination by Novation. Novation may terminate this
Agreement at any time for any reason whatsoever by delivering not less
than ninety (90) days' prior written notice thereof to Supplier, In
addition, Novation may terminate this Agreement immediately by
delivering written notice thereof to Supplier upon the occurrence of
either of the following events:
(1) Supplier breaches this Agreement; or
(2) Supplier becomes bankrupt or insolvent or makes an
unauthorized assignment or goes into liquidation or proceedings
are initiated for the purpose of having a receiving order or
winding up order made against Supplier or Supplier applies to the
courts for protection from its creditors.
<PAGE>
Novation's right to terminate this Agreement due to Supplier's breach
in accordance with this Subsection is in addition to any other rights
and remedies Novation, the Clients, the Members or the Authorized
Distributors may have resulting from such breach, including, but not
limited to, Novation's and the Clients' right to recover all loss of
Marketing Fees resulting from such breach through the date of
termination and for one hundred eighty (180) days thereafter.
c. Termination by Supplier. Supplier may terminate this
Agreement at any time for any reason whatsoever by delivering not less
than one hundred eighty (180) days' prior written notice thereof to
Novation.
4. PRODUCT SUPPLY.
a. Delivery and Invoicing. On and after the Effective Date,
Supplier agrees to deliver Products ordered by the Authorized
Distributors on behalf of Members to the Authorized Distributors, FOB
destination, and will direct its invoices to the Authorized
Distributors in accordance with this Agreement. Supplier agrees to
prepay and absorb charges, if any, for transporting Products to the
Authorized Distributors. Payment terms are 2%-30, Net 31 days. Supplier
will make whatever arrangements are reasonably necessary with the
Authorized Distributors to implement the terms of this Agreement;
provided, however, Supplier will not impose any purchasing commitment
on any Member or Authorized Distributor as a condition to the Member's
or Authorized Distributor's purchase of any Products pursuant to this
Agreement.
b. Product Fill Rates: Confirmation and Delivery Times. Supplier
agrees to provide product till rates to the Authorized Distributors of
greater than ninety-five percent (95%), calculated as line item orders.
Supplier will provide confirmation of orders from the Authorized
Distributors via the electronic data interchange described in the
Guidebook referred to in Subsection 7.c below within two (2) business
days after placement of the order and will deliver the Products to the
Authorized Distributors within ten (10) business days after placement
of the order.
c. Bundled Terms. Supplier agrees to give Novation prior
written notice of any offer Supplier makes to any Member or Authorized
Distributor to sell products that are not covered by this Agreement in
conjunction with Products covered by this Agreement under circumstances
where the Member or Authorized Distributor has no real economic choice
other than to accept such bundled terms,
d. Discontinuation of Products: Changes in Packaging. Supplier
will have no unilateral right to discontinue any of the Products or to
make any changes in packaging which render any of the Products
substantially different in use, function or distribution. Supplier may
request Novation in writing to agree to a proposed discontinuation of
any Products or a proposed change in packaging for any Products at
least ninety (90) days prior to the proposed implementation of the
discontinuation or change. Under no circumstances will any Product
discontinuation or packaging changes be permitted under this Agreement
without Novation's agreement to the discontinuation or change. In the
event Supplier implements such proposed discontinuation or change
without Novation's agreement thereto in writing, in addition to any
<PAGE>
other rights and remedies Novation or the Members may have by reason of
such discontinuation or change, (i) Novation will have the right to
terminate any or all of the Product(s) subject to such discontinuation
or change or to terminate this Agreement in its entirety immediately
upon becoming aware of the discontinuation or change or any time
thereafter by delivering written notice thereof to Supplier; (ii) the'
Members may purchase products equivalent to the discontinued or changed
Products from other sources and Supplier will be liable to the Members
for all reasonable costs in excess of the Award Prices plus any other
damages which they may incur; and (iii) Supplier will be liable to
Novation and the Clients for any loss of Marketing Fees resulting from
such unacceptable discontinuation or change plus any other damages
which they may incur.
e. Replacement or New Products. Supplier will have no
unilateral right to replace any of the Products listed in Exhibit A
with other products or to add new products to this Agreement. Supplier
may request Novation in writing to agree to a replacement of any of the
Products or the addition of a new product that is closely related by
function or use to an existing Product at least sixty (60) days prior
to the proposed implementation of the replacement or to the new product
introduction. Under no circumstances will any Product replacement or
new product addition to this Agreement be permitted without Novation's
agreement to the replacement or new product.
f. Member Services. Supplier will consult with each Member to
identify the Member's policies relating to access to facilities and
personnel. Supplier will comply with such policies and will establish a
specific timetable for sales calls by sales representatives to satisfy
the needs of the Member. Supplier will promptly respond to Members'
reasonable requests for verification of purchase history. If requested
by Novation or any Members. Supplier will provide, at Supplier's cost,
on-site inservice training to Members' personnel for pertinent
Products.
g. Product Deletion. Notwithstanding anything to the contrary
contained in this Agreement, Novation may delete any one or more of the
Products from this Agreement at any time, at will and without cause,
upon not less than sixty (60) days' prior written notice to Supplier.
h. Return of Products. Any Member or Authorized Distributor, in
addition to and not in limitation of any other rights and remedies,
will have the right to return Products to Supplier under any of the
following circumstances; (1) the Product is ordered or shipped in
error; (2) the Product is no longer needed by the Member due to
deletion from its standard supply list or changes in usage patterns,
provided the Product is returned at least six (6) months prior to its
expiration date and is in a re-salable condition; (3) the Product is
received outdated or is otherwise unusable; (4) the Product is received
damaged, or is defective or nonconforming; (5) the Product is one which
a product manufacturer or supplier specifically authorizes for return
through a distributor; and (6) the Product is recalled. Supplier agrees
to accept the return of Products under these circumstances without
charge and for full credit.
<PAGE>
i. Failure to Supply, In the event of Supplier's failure to
perform its supply obligations in accordance with the terms of this
Section 4, the Member or the Authorized Distributor may purchase
products equivalent to the Products from other sources and Supplier
will be liable to the Member or the Authorized Distributor for all
reasonable costs in excess of the Award Prices plus any other damages
which they may incur. In such event, Supplier will also be liable to
Novation and the Clients for any loss of Marketing Fees resulting from
such failure plus any other damages which they may incur. The remedies
set forth in this Subsection are in addition to any other rights and
remedies Novation, the Clients, the Members or the Authorized
Distributors may have resulting from such failure.
5. PRODUCT QUALITY.
a. Free From Defects. Supplier warrants the Products against
defects in material, workmanship, design and manufacturing. Supplier
will make all necessary arrangements to assign such warranty to the
Members. Supplier further represents and warrants that the Products
will conform to the specifications, drawings, and samples furnished by
Supplier or contained in the Non-price Specifications and will be safe
for their intended use. If any Products are defective and a claim is
made by a Member or an Authorized Distributor on account of such
defect, Supplier will, at the option of the Member or the Authorized
Distributor, either replace the defective Products or credit the Member
or the Authorized Distributor. Supplier will bear all costs of
returning and replacing the defective Products, as well as all risk of
loss or damage to the defective Products from and after the time they
leave the physical possession of the Member or the Authorized
Distributor. The warranties contained in this Subsection will survive
any inspection, delivery, acceptance or payment by a Member or an
Authorized Distributor. In addition, if there is at any time wide-
spread failure of the Products, the Member or the Authorized
Distributor may return all said Products for credit or replacement, at
its option. This Subsection and the obligations contained herein will
survive the expiration or earlier termination of this Agreement. The
remedies set forth in this Subsection are in addition to and not a
limitation on any other rights or remedies that may be available
against Supplier.
b. Product Compliance. Supplier represents and warrants to
Novation, the Clients, the Authorized Distributors and the Members that
the Products are, if required, registered, and will not be distributed,
sold or priced by Supplier in violation of any federal, state or local
law. Supplier represents and warrants that as of the date of delivery
to the Authorized Distributors all Products will not be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic
Act and will not violate or cause a violation of any applicable law,
ordinance, rule, regulation or order, Supplier agrees it will comply
with all applicable Good Manufacturing Practices and Standards
contained in 21 C.F.R- Parts 210, 211, 225, 226, 600, 606, 610, 640,
660, 680 and 820. Supplier represents and warrants that it will provide
adequate warnings and instructions to inform users of the Products of
the risks, if any, associated with the use of the Products. Supplier's
representations; warranties and agreements in this Subsection will
survive the expiration or earlier termination of this Agreement.
<PAGE>
c. Patent Infringement. Supplier represents and warrants that
sale or use of the Products will not infringe any United States patent
Supplier will, at its own expense, defend every suit which will be
brought against Novation, a Member or an Authorized Distributor for any
alleged infringement of any patent by reason of the sale or use of the
Products and will pay all costs, damages and profits recoverable in
arty such suit. This Subsection and the obligations contained herein
will survive the expiration or earlier termination of this Agreement.
The remedies set forth in this Subsection are in addition to and not a
limitation on any other rights or remedies that may be available
against Supplier
d. Product Condition. Unless otherwise stated in the Non-
Price Specifications or unless agreed upon by a Member in connection
with Products it may order, all Products will be new. Products which
are demonstrators, used, obsolete, seconds, or which have been
discontinued are unacceptable unless otherwise specified in the Non-
Price Specifications or the Member accepts delivery after receiving
notice of the condition of the Products.
e. Recall of Products. Supplier will reimburse Authorized
Distributors and Members for any cost associated with any Product
corrective action, withdrawal or recall requested by Supplier or
required by any governmental entity. In the event a product recall or a
court action impacting supply occurs, Supplier will notify Novation in
writing within twenty-four (24) hours of any such recall or action.
Supplier's obligations in this Subsection will survive the expiration
or earlier termination of this Agreement.
f. Shelf Life. Sterile Products arid other Products with a
limited shelf life sold under this Agreement will have the longest
possible shelf life and the latest possible expiration dates. Unless
required by stability considerations, there will not be less than an
eighteen (18) month interval between a Product's date of delivery by
Supplier to the Authorized Distributor and its expiration date.
6. CENTURY COMPLIANCE
a. Definitions. For purposes of this Section, the following
terms have the respective meanings given below:
(1) "Systems" means any of the Products, systems of
distribution for Products and Product manufacturing systems that
consist of or include any computer software, computer firmware,
computer hardware (whether general or special purpose),
documentation, data, and other similar or related items of the
automated, computerized, and/or software systems that are
provided by or through Supplier or utilized to manufacture or
distribute the Products provided by or through Supplier pursuant
to this Agreement, or any component part thereof, and any
services provided by or through Supplier in connection therewith.
(2) "Calendar-Related" refers to date values based on the
"Gregorian calendar" (as defined in the Encyclopedia Britannica,
15th edition. 1982, page 602) and to all uses in any manner of
those date values, including without limitation manipulations,
calculations, conversions, comparisons, and presentations.
<PAGE>
(3) "Century Noncompliance" means any aspects of the
Systems that fail to satisfy the requirements set forth in
Subsection 6.b below.
b. Representations. Supplier warrants, represents and agrees
that the Systems satisfy the following requirements:
(1) In connection with the use and processing of Calendar-
Related data, the Systems will not malfunction, will not cease
to function, will not generate incorrect data, and will not
produce incorrect results.
(2) In connection with providing Calendar-Related data to
and accepting Calendar-Related data from other automated,
computerized, and/or software systems and users via user
interfaces, electronic interfaces, and data storage, the Systems
represent dates without ambiguity as to century.
(3) The year component of Calendar-Related data that is
provided by the Systems to or that is accepted by the Systems
from other automated, computerized, and/or software systems and
user interfaces, electronic interfaces, and data storage is
represented in a four-digit CCYY format, where CC represents the
two digits expressing the century and YY represents the two
digits expressing the year within that century (e.g, 1996 or
2003).
(4) Supplier has verified through testing that the
Systems satisfy the requirements of this Subsection including,
without limitation, testing of each of the following
specific dates and the transition to and from each such date:
September 9,1999; September 10, 1999; December 31, 1999; January
1, 2000; February 28, 2000;February 29, 2000; March 1, 2000;
December 31, 2000; January 1, 2001; December 31,2004; and
January 1, 2005.
c. Remedies. In the event of any Century Noncompliance in the
Systems in any respect, in addition to any other remedies that may be
available to Novation or the Members, Supplier will, at no cost to the
Members, promptly under the circumstances (but, in all cases, within
thirty (30) days after receipt of a written request from any Member,
unless otherwise agreed by the Member in writing) eliminate the Century
Noncompliance from the Systems.
d. Noncompliance Notice. In the event Supplier becomes aware of
(i) any possible or actual Century Noncompliance in the Systems or (ii)
any international, governmental, industrial, or other standard
(proposed or adopted) regarding Calendar.Related data and/or
processing, or Supplier begins any significant effort to conform the
Systems to any such standard, Supplier will promptly provide the
Members with all relevant information in writing and will timely
provide the Members with updates to such information. Supplier will
respond promptly and fully to inquiries by the Members, and timely
provide updates to any responses provided to the Members, with respect
to (i) any possible or actual Century Noncompliance in the Systems or
(ii) any international, governmental, industrial, or other standards.
in the foregoing, the use of "timely" means promptly after the relevant
information becomes known to or is developed by or for Supplier.
<PAGE>
e. Survival. Supplier's representations, warranties and
agreements in this Section will continue in effect throughout the Term
and will survive the expiration or earlier termination of this
Agreement
7. REPORTS AND OTHER INFORMATION REQUIREMENTS.
a. Report Content. Within twenty (20) days after the end of
each full and partial month during the Term ("Reporting Month"),
Supplier will submit to Novation a report in the form of a diskette
containing the following information, in form and content reasonably
satisfactory to Novation:
(1) the name of Supplier, the Reporting Month and year and
the Agreement number (as provided to Supplier by Novation);
(2) with respect to each Member (described by LIC number
(as provided to Supplier by Novation), health industry number
(if applicable), full name, street address, city, state, zip
code and, if applicable, tier and committed status), the number
of units sold and the amount of net sales for each Product on a
line item basis, and the sum of net sales and the associated
Marketing Fees for all Products purchased by such Member
directly or indirectly from Supplier during the Reporting Month,
whether under the pricing and other terms of this Agreement or
under the terms of any other purchasing or pricing arrangements
that may exist between the Member and Supplier;
(3) the sum of the net sales and the associated Marketing
Fees for all Products sold to all Members during the Reporting
Month; and
(4) such additional information as Novation may reasonably
request from time to time
b. Report Format and Delivery. The reports required by this
Section will be submitted electronically in Excel Version 7 or Access
Version 7 and in accordance with other specifications established by
Novation from time to time and will be delivered to:
Novation
Attn: SRIS Operations
220 East Las Colinas Boulevard
Irving, TX 75039
c. Other Information Requirements In addition to the reporting
requirements set forth in Subsections 7.a and 7.b above, the parties
agree to facilitate the administration of this Agreement by
transmitting and receiving information electronically and by complying
with the information requirements set forth in Exhibit E attached
hereto Supplier further agrees that, except to the extent of any
inconsistency with the provisions of this Agreement, it will comply
with all information requirements set forth in the Novation Information
Requirements Guidebook ("Guidebook"). On or about the Effective Date,
Novation will provide Supplier with a current copy of the Guidebook and
will thereafter provide Supplier with updates and/or revisions to the
Guidebook from time to time.
<PAGE>
8. OBLIGATIONS OF NOVATION.
a. Information to Members and Authorized Distributors. After
issuing the Award Letter, Novation, in conjunction with the Clients,
will deliver a summary of the purchasing arrangements covered by this
Agreement to each Member and each Authorized Distributor and will, from
time to time, at the request of Supplier, deliver to each Member and
each Authorized Distributor reasonable and appropriate amounts and
types of materials supplied by Supplier to Novation which relate to the
purchase of the Products.
b. Marketing Services. Novation, in conjunction with the
Clients, will market the purchasing arrangements covered by this
Agreement to the Members. Such promotional services may include, as
appropriate, the use of direct mail, contact by Novation's field
service delivery team, member support services, and regional and
national meetings and conferences As appropriate, Novation, in
conjunction with the Clients, will involve Supplier in these
promotional activities by inviting Supplier to participate in meetings
and other reasonable networking activities with Members.
9. MARKETING FEES.
a. Calculation. Supplier will pay to Novation, as the
authorized collection agent for each of the Clients and certain of each
Client's subsidiaries and affiliates, respectively (and not
collectively), marketing lees ("Marketing Fees") belonging to any of
the Clients om certain of their subsidiaries or affiliates equal to the
Agreed Percentage of the aggregate gross charges of all net sales of
the Products to the Members directly or indirectly from Supplier,
whether under the pricing and other terms of this Agreement or under
the terms of any other purchasing or pricing arrangements that may
exist between the Members and Supplier. Such gross charges will be
determined without any deduction for uncollected accounts or for costs
incurred in the manufacture, provision, sale or distribution of the
Products, and will include, but not be limited to, charges for the sale
of products, the provision of installation, training and maintenance
services, and the provision of any other services listed on Exhibit A.
The "Agreed Percentage" will be defined in the Award Letter.
b. Payment. On or about the Effective Date, Novation
will advise Supplier in writing of the amount determined by Novation to
be Supplier's monthly estimated Marketing Fees. Thereafter, Supplier's
monthly estimated Marketing Fees may be adjusted from time to time upon
written notice from Novation based on actual purchase data. No later
than the tenth (10th) day of each month, Supplier will remit the
monthly estimated Marketing Fees for such month to Novation. Such
payment will be adjusted to reflect the reconciliation between the
actual Marketing Fees payable for the second month prior to such month
with the estimated Marketing Fees actually paid during such prior
month. Supplier will pay all estimated and adjusted Marketing Fees by
check made payable to "Novation, LLC." All checks should reference the
Agreement number, Supplier will include with its check the
reconciliation calculation used by Supplier to determine the payment
adjustment, with separate amounts shown for each Client's component
thereof. Checks sent by first class mail will be mailed to the
following address:
Novation
75 Remittance Dr., Suite 1420
Chicago, IL 60675-1420
<PAGE>
Checks sent by courier (Federal Express, United Parcel Service
or messenger) will be addressed as follows:
The Northern Trust Company
801 S. Canal St.
4th Floor Receipt & Dispatch
Chicago, IL 60607
Attn: Novation, Suite 1420
Telephone: (312) 630-8100, #9
10. ADMINISTRATIVE DAMAGES. Novation and Supplier agree that
Novation would incur additional administrative costs if Supplier fails
to provide notice of change in pricing terms as required in Subsection
2.e above, fails to provide reports as required in Section 7 above, or
fails to pay Marketing Fees as required in Section 9 above, in each
case within the time and manner required by this Agreement. Novation
and Supplier further agree that the additional administrative costs
incurred by Novation by reason of any such failure to Supplier is
uncertain, and they therefore agree that the following schedule of
administrative damages constitutes a reasonable estimation of such
costs and were determined according to the principles of just
compensation:
1st failure written warning
2nd failure: $ 500.00
3rd failure: $ 1,000.00
4th failure: $ 2,500.00
5th failure: $ 5,000.00
6th & each subsequent failure: $10,000.00
Novation's right to recover administrative damages in accordance
with this Section is in addition to any other rights and remedies
Novation or the Clients may have by reason of Supplier's failure to pay
the Marketing Fees or provide the reports or notices within the time
and manner required by this Agreement.
11. NONPAYMENT OR INSOLVENCY OF AN AUTHORIZED DISTRIBUTOR If an
Authorized Distributor fails to pay Supplier for Products, or if an
Authorized Distributor becomes bankrupt or insolvent or makes an
assignment for the benefit of creditors or goes into liquidation, or if
proceedings are initiated for the purpose of having a receiving order
or winding up order made against an Authorized Distributor, or if an
Authorized Distributor applies to the court for protection from its
creditors, then, in any such case, this Agreement will not terminate,
but Supplier will have the right, upon prior written notice to Novation
and the Members, to discontinue providing Products through that
Authorized Distributor, and Supplier will thereafter provide Products
to the Members directly Or through another Authorized Distributor, as
directed by Novation.
<PAGE>
12. INSURANCE.
a. Policy Requirements. Supplier will maintain and keep in
force during the Term product liability, general public liability and
property damage insurance against any insurable claim or claims which
might or could arise regarding Products purchased from Supplier. Such
insurance will contain a minimum combined single limit of liability for
bodily injury and property damage in the amounts of not less than
$2,000,000 per occurrence and $10,000,000 in the aggregate; will name
Novation, the Clients, the Members and the Authorized Distributors, as
their interests may appear, as additional insureds, and will contain an
endorsement providing that the carrier will provide directly to all
named insured copies of all notices and endorsements. Supplier will
provide to Novation in its Bid and thereafter within fifteen (15) days
after Novation's request, an insurance certificate indicating the
foregoing coverage, issued by an insurance company licensed to do
business in the relevant states and signed by an authorized agent,
b. Self-Insurance. Notwithstanding anything to the contrary in
Subsection 12-a above, Supplier may maintain a self-insurance program
for all or any part of the foregoing liability risks, provided such
self-insurance policy in all material respects complies with the
requirements applicable to the product liability, general public
liability and property damage insurance set forth in Subsection 12.a.
Supplier will provide Novation in its Bid, and thereafter within
fifteen (15) days after Novation's request: (1) the self-insurance
policy; (2) the name of the company managing the self-insurance program
and providing reinsurance, if any; (3) the most recent annual reports
on claims and reserves for the program; and (4) the most recent annual
actuarial report on such program.
c. Amendments, Notices and Endorsements. Supplier will not
amend, in any material respect that affects the interests of Novation,
the Clients, the Members or the Authorized Distributors, or terminate
said liability insurance or self-insurance program except after thirty
(30) days' prior written notice to Novation and will provide to
Novation copies all notices and endorsements as soon as practicable
after it receives or gives them.
13. COMPLIANCE WITH LAW AND GOVERNMENT PROGRAM PARTICIPATION.
Compliance With Law. Supplier represents and warrants that
to the best of its knowledge, after due inquiry, it is in compliance
with all federal, state and local statutes, laws, ordinances and
regulations applicable to it ("Legal Requirements") which are material
to the operation of its business and the conduct of its affairs,
including Legal Requirements pertaining to the safety of the Products,
occupational health and safety, environmental protection,
nondiscrimination, antitrust, and equal employment opportunity. During
the Term, Supplier will: (1) promptly notify Novation of any lawsuits,
claims, administrative actions or other proceedings asserted or
commenced against it which assert in whole or in part that Supplier is
in noncompliance with any Legal Requirement which is material] to the
operation of its business and the conduct of its affairs and (2)
promptly provide Novation With true and correct copies of all written
notices of adverse findings from the U.S. Food and Drug Administration
("FDA") and all written results of FDA inspections which pertain to the
Products,
<PAGE>
b. Government Program Participation. Supplier represents and
warrants that it is not excluded from participation, and is not
otherwise ineligible to participate, in a "Federal health care program"
as defined in 42 U.S.C S l320a-7b(l) or in any other government payment
program, In the event Supplier is excluded from participation, or
becomes otherwise ineligible to participate in any such program during
the Term, Supplier will notify Novation in writing within three (3)
days after such event, and upon the occurrence of such event, whether
or not such notice is given to t4ovation, Novation may immediately
terminate this Agreement upon written notice to Supplier.
14 . RELEASE AND INDEMNITY, SUPPLIER WILL RELEASE, INDEMNITY HOLD HARM-
LESS, AND, IF REQUESTED, DEFEND NOYATION, THE CLIENTS, THE MEMBERS AND
THE AUTHORIZED DISTRIBUTORS, AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
REGENTS, AGENTS, SUBSIDIARIES, AFFILIATES AND EMPLOYEES (COLLECTIVELY,
THE "INDEMNITEES"), FROM AND AGAINST ANY CLAIMS, LIABILITIES, DAMAGES,
ACTIONS, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
Al LORNEYS' FEES, EXPERT FEES AND COURT COSTS) OF ANY KIND OR NATURE,
WHETHER AT LAW OR IN EQUITY, INCLUDING CLAIMS ASSERTING STRICT
LIABILITY, ARISING FROM OR CAUSED IN ANY PART BY (1) THE BREACH OF ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF SUPPLIER CONTAINED
IN THIS AGREEMENT OR IN THE BID; (2) TUE CONDITION OF ANY PRODUCT,
INCLUDING A DEFECT IN MATERIAL, WORICMANSHIP, DESIGN OR MANUFACTURING;
OR (3) THE WARNINGS AND INSTRUCTIONS ASSOCIATED WITH ANY PRODUCT. SUCH
OBLIGATION TO RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND WILL APPLY
EVEN IN THE CLAIMS, LIABILITIES, DAMAGES, ACTIONS, COSTS AND EXPENSES
ARE CAUSED BY THE NEGLIGENCE, GROSS NEGLIGENCE OR OTHER CULPABLE
CONDUCT OF INDEMNITEES; PROVIDED, HOWEVER, THAT SUCH INDEMNIFICATION,
HOLD HARMLESS AND RIGHT TO DEFENSE WILL NOT SE APPLICABLE WHERE THE
CLAIM, LIABILITY, DAMAGE, ACTION, COST OR EXPENSE ARISES SOLELY AS A
RESULT OF AN ACT OR FAILURE To ACT OF INDEMNITEES. THIS SECTION AND THE
OBLIGATIONS CONTAINED HEREIN WILL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS AGREEMENT. THE REMEDIES SET FORTH IN THIS SECTION
ARE IN ADDITION TO AND NOT A LIMITATION ON ANY OTHER RIGHTS OR REMEDIES
THAT MAY BE AVAILABLE AGAINST SUPPLIER.
15. BOOKS AND RECORDS; FACILITIES INSPECTIONS. Supplier agrees to
keep, maintain and preserve complete, current and accurate books,
records and accounts of the transactions contemplated by this Agreement
and such additional books, records and accounts as are necessary to
establish and verify Supplier's compliance with this Agreement. All
such books, records and accounts will be available for inspection and
audit by Novation representatives at any time during the Term and for
two (2) years thereafter, but only during reasonable business hours and
upon reasonable notice. Novation agrees that its routine audits will
not be conducted more frequently than twice in any consecutive twelve
(12) month period, subject to Novation's right to conduct special
audits whenever it deems it to be necessary, in addition, Supplier will
make its manufacturing and packaging facilities available for
inspection from time to time during the Term by Novation
representatives, but only during reasonable business hours and upon
reasonable notice. The exercise by Novation of the right to inspect and
audit is without prejudice to any other or additional rights or
remedies of either party,
<PAGE>
16. USE OF NAMES, ETC. Supplier agrees that it will not use in any way
in its promotional, informational or marketing activities or materials
(i) the names, trademarks, logos, symbols or a description of the
business or activities of Novation or any Client, Authorized
Distributor or Member without in each instance obtaining the prior
written consent of the person owning the rights thereto; or (ii) the
award or the content of this Agreement without in each instance
obtaining the prior written consent of Novation.
17. CONFIDENTIAL INFORMATION.
a. Nondisclosure. Supplier agrees that it will:
(1) keep strictly confidential and hold in trust all
Confidential Information, as defined in Subsection l7.b below, of
Novation, the Clients, the Authorized Distributors and the
Members;
(2) not use the Confidential Information for any purpose
other than the performance of its obligations under this
Agreement, without the prior written consent of Novation;
(3) not disclose the Confidential Information to any third
party (unless required by law) without the prior written consent
of Novation; and
(4) not later than thirty (30) days after the expiration or
earlier termination of this Agreement, return to Novation, the
Client, the Authorized Distributor or the Member, as the case may
be, the Confidential Information.
b. Definition, "Confidential Information," as used in
Subsection 17.a above, will consist of all information relating to the
prices and usage of the Products (including all information contained
in the reports produced by Supplier pursuant to Section 7 above) and
all documents and other materials of Novation, the Clients, the
Authorized Distributors arid the Members containing information
relating to the programs of Novation, the Clients, the Authorized
Distributors or the Members of a proprietary or sensitive nature not
readily available through sources in the public domain. In no event
will Supplier provide to any person any information relating to the
prices it charges the Authorized Distributors for Products ordered
pursuant to this Agreement without the prior written consent of
Novation.
18. MISCELLANEOUS
a. Choice of Law. This Agreement will be governed by and
construed in accordance with the internal substantive laws of the
State of Texas and the Texas courts will have jurisdiction over all
matters relating to this Agreement; provided, however, the terms of
any agreement between Supplier and an Authorized distributor or
between Supplier and a Member will be governed by and construed in
accordance with the choice of law and venue provisions set forth in
such agreement.
<PAGE>
b. Not Responsible. Novation and the Clients and their
subsidiaries and affiliates will not be responsible or liable for any
Authorized Distributor's breach of any purchasing commitment or for
any other actions of any Authorized Distributor or Member. In
addition, none of the Clients will be responsible or liable for the
obligations of another Client or its subsidiaries or affiliates or
the obligations of Novation or Supplier under this Agreement.
c. Third Party Beneficiaries. All Clients, Authorized
Distributors and Members are intended third party beneficiaries of this
Agreement. All terms and conditions of tills Agreement which are
applicable to the Clients will inure, to the benefit of and be
enforceable by the Clients and their respective successors and assigns.
All terms and conditions of this Agreement which are applicable to the
Authorized Distributors will inure to the benefit of and be enforceable
by the Authorized Distributors and their respective successors and
assigns. All terms and conditions of this Agreement which are
applicable to the Members will inure to the benefit of and be
enforceable by the Members and their respective successors and assigns.
d. Notices. Except as otherwise expressly provided herein, all
notices or other communications required or permitted under this
Agreement will be in writing and will be deemed sufficient when
mailed by United States mail, or delivered in person to the party to
which it is to be given, at the address of such party set forth
below:
If to Supplier:
To the address set forth by Supplier in the Bid
If to Novation:
Novation
Attn: General Counsel
220 East Las Colinas Blvd.
Irving, TX 75039
or such other address as the party will have furnished in writing in
accordance with the provisions of this Subsection.
e. No Assignment, No assignment of all or any part of this
Agreement may be made without the prior written consent of the other
party; except that Novation may assign its rights and obligations to
any affiliate of Novation. Any assignment of all or any part of this
Agreement by either party will not relieve that party of the
responsibility of performing its obligations hereunder to the extent
that such obligations are not satisfied in flail by the assignee. This
Agreement will be binding upon and inure to the benefit of the parties'
respective successors and assigns.
<PAGE>
f. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a mariner as to be effective and
valid tinder applicable law, but if any provision of this Agreement
will be prohibited by or invalid under applicable law, such provision
will be ineffective to the extent of' such prohibition or invalidity
without invalidating the remainder of such provision or the remaining
provisions of this Agreement- Each party will, at its own expense, take
such action as is reasonably necessary to defend the validity and
enforceability of this Agreement and will cooperate with the other
party as is reasonably necessary in such defense.
g. Entire Agreement. This Agreement, together with the
exhibits listed below, will constitute the entire agreement between
Novation arid Supplier. This Agreement, together with the exhibits
listed below and each Authorized Distributor's purchase order will
constitute the entire agreement between each Authorized Distributor and
Supplier. In the event of any inconsistency between this Agreement and
an Authorized Distributor's purchase order, the terms of this Agreement
will control, except that the Authorized Distributor's purchase order
will supersede Sections 4 and 5 of this Agreement in the event of any
inconsistency with such Sections. No other terms and conditions in any
document, acceptance, or acknowledgment will be effective or binding
unless expressly agreed to in writing. The following exhibits are
incorporated by reference in this Agreement:
Exhibit A Product and Service Description and Pricing
Exhibit B Non-Price Specifications
Exhibit C Terms of Supplier's Participation in Committed Programs
Exhibit D Award Letter
Exhibit E Other Information Requirements
[Other Exhibits Listed, if any
SUPPLIER: Carrington Laboratories, Inc.
ADDRESS: 2001 Walnut Hill Lane trying, TX 75038
SIGNATURE: /s/
----------------------------
TITLE: President and CEO DATE: August 6, 1999
Exhibit 21.1
SUBSIDIARIES OF CARRINGTON
Jurisdiction of
Name of Subsidiary Organization
------------------ ------------
Carrington Laboratories, Belgium, N.V. Belgium
Finca Savila, S.A. Costa Rica
Carrington Laboratories International, Inc. Texas
Hilcoa Corporation California
Caraloe, Inc. Texas
Carrington Laboratories of Canada, Ltd. Canada
Sabila Industrial, S.A. Costa Rica
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No.s 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 No.s 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 No.s 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 21,
2000, with respect to the consolidated financial statements and
schedule of Carrington Laboratories, Inc. and subsidiaries included in
the Annual Report (Form 10-K) for the year ended December 31, 1999
filed with the Securities and Exchange Commission.
Ernst & Young LLP
Dallas, Texas
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from (1) Statements of Balance Sheets, (2) Statements of
Operations and (3) Statements of Cash Flows, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,435
<SECURITIES> 0
<RECEIVABLES> 3,994
<ALLOWANCES> 304
<INVENTORY> 5,184
<CURRENT-ASSETS> 11,900
<PP&E> 20,958
<DEPRECIATION> 9,973
<TOTAL-ASSETS> 23,493
<CURRENT-LIABILITIES> 3,989
<BONDS> 0
0
0
<COMMON> 94
<OTHER-SE> 19,410
<TOTAL-LIABILITY-AND-EQUITY> 23,493
<SALES> 28,128
<TOTAL-REVENUES> 28,128
<CGS> 13,640
<TOTAL-COSTS> 13,212
<OTHER-EXPENSES> 5,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (105)
<INCOME-PRETAX> (2,033)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,033)
<EPS-BASIC> (.22)
<EPS-DILUTED> (.22)
</TABLE>
