-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IT0qaycbMqi/8I05SsZ2iA4CHZqoW5ZguzNq76gAZesxZiS/oy58+tTWTfD8nBJ5 NPLP+y9XS8tqu1yn8KceiQ== 0000718007-97-000007.txt : 19970327 0000718007-97-000007.hdr.sgml : 19970327 ACCESSION NUMBER: 0000718007-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARRINGTON LABORATORIES INC /TX/ CENTRAL INDEX KEY: 0000718007 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 751435663 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10862 FILM NUMBER: 97563191 BUSINESS ADDRESS: STREET 1: 2001 WALNUT HILL LN CITY: IRVING STATE: TX ZIP: 75038 BUSINESS PHONE: 2145181300 MAIL ADDRESS: STREET 1: 2001 WALNUT HILL LANE CITY: IRVING STATE: TX ZIP: 75038 FORMER COMPANY: FORMER CONFORMED NAME: AVACARE INC DATE OF NAME CHANGE: 19860521 10-K 1 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, 1996 Commission File Number 0-11997 Carrington Laboratories, Inc. (Exact name of Registrant as specified in its charter) Texas 75-1435663 (State of Incorporation) (IRS Employer ID No.) 2001 Walnut Hill Lane, Irving, Texas 75038 (Address of principal executive offices) Registrant's telephone number, including area code: (972) 518-1300 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered None Securities registered pursuant to Section 12(g) of the Act: Common Stock ($.01 par value) (Title of class) Preferred Share Purchase Rights (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non- affiliates of the Registrant on March 14, 1997, was $51,179,297. (This figure was computed on the basis of the closing price of such stock on the NASDAQ National Market on March 14, 1997 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: 8,873,639 shares of Common Stock, par value $.01 per share, were outstanding on March 14, 1997. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's proxy statement for its annual meeting of shareholders to be held on May 22, 1997 are incorporated by reference into Part III hereof, to the extent indicated herein. PART I ITEM 1. BUSINESS. General Carrington Laboratories, Inc. ("Carrington" or the "Company") is a research-based pharmaceutical and medical device company engaged in the development, manufacturing and marketing of naturally derived complex carbohydrate and other natural product therapeutics for the treatment of major illnesses and the dressing and management of wounds. The Company comprises three business divisions. See Note Sixteen to the consolidated financial statements in this annual report for financial information about these business divisions. The Company sells, using a network of distributors, nonprescription products through its Wound and Skin Care Division, veterinary medical devices and pharmaceutical through its Veterinary Medical Division and consumer products through its consumer products subsidiary, Caraloe, Inc. The Company's research and product portfolio are based primarily on complex carbohydrate technology derived from the Aloe vera plant. The Company was incorporated in Texas in 1973, as Ava Cosmetics, Inc. In 1986, the Company sold the direct sales business it was then operating and changed its name to Carrington Laboratories, Inc. Wound and Skin Care Division Carrington's Wound and Skin Care Division markets a comprehensive line of wound management products to hospitals, 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 is committing significant resources to its wound and skin care business. Primary marketing emphasis is directed toward hospitals, managed care organizations, alternate care facilities and home health care providers, with wound and skin care products being promoted primarily to physicians and specialty nurses, e.g. enterostomal therapists. Opportunities in the growing alternate care and home health care markets are also addressed through a telemarketing sales team and a National Accounts Department. The Company's hospital field sales force currently employs 31 sales representatives, each assigned to a specific geographic area in the United States, four regional sales managers and a representative in Puerto Rico. The Company also uses three independent sales company employing eight sales representatives to sell its products on a commission basis and an independent sales representative in Canada. In addition to this field sales force, the Wound and Skin Care Division employs five telemarketers who focus on alternative care facilities and the home health care market, and three persons in its National Accounts Department. The Company's products are primarily sold through a network of distributors. Three of the Company's largest distributors in the hospital market for the last several years have been Allegiance Healthcare Corporation ("Allegiance", formerly Baxter Healthcare Corporation), Owens & Minor and Bergen Brunswig, which acquired Durr Medical and Colonial Healthcare in December 1996. During fiscal 1994, 1995 and 1996, sales of wound and skin care products to Allegiance represented 11%, 10% and 9%, respectively, of the Company's total net sales. Sales to Owens & Minor represented 7%, 14%, and 11%, respectively, of total net sales over the same period. Sales to Bergen Brunswig represented 8%, 10%, and 12%, respectively, of total net sales over the same period. In November 1995, the Company signed a Sales Distribution Agreement with Laboratories PiSA S.A., 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. In May 1996, the Company entered into an agreement with Trudell Medical Group ("Trudell") granting Trudell exclusive Canadian distribution rights for the Company's wound care products. In May 1996, the Company granted Ching Hwa Pharmaceutical Company, Ltd. ("CHP"), exclusive distribution rights to market the Comapny's wound care products in the Republic of China. CHP is required to register the Company's products for sale in Taiwan within a specified time. In October 1996, the Company signed an exclusive contract with Faulding Pharmaceuticals to market the Company's wound care products in Australia and New Zealand. 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. In December 1996, the Company and Darrow Laboratorios S/A ("Darrow") entered into a Sales Distribution Agreement whereby the Company appointed Darrow as a marketer and distributor of certain of the Company's wound care products for a term of 10 years (subject to early termination under certain circumstances) in Brazil, with a limited right of first refusal to distribute those products in Argentina, Uruguay, Paraguay, and Chile. The agreement requires Darrow to register 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. In December 1996, the Company and its Belgian subsidiary entered into an agreement with Recordati Industria Chimica & Farmaceutica S.P.A. ("Recordati") whereby the Company and its subsidiary jointly granted exclusive distribution rights to Recordati for certain of the Company's products in Italy, Vatican City and San Marino for a term of 10 years, subject to automatic renewal for an additional two years unless either party elects to terminate the agreement at the end of the initial term, and subject to early termination under certain circumstances. In return for the grant of the distribution rights, Recordati made an initial payment to the Company and is obligated to make two additional payments contingent on the occurrence of certain events. Under the agreement, the Company is obligated to apply for a CE mark for the products covered by the agreement in the United Kingdom or another member of the European Economic Community, and Recordati is obligated to register those products in each area covered by the agreement. In 1996, sales of the Company related to the above mentioned international agreements were less than $100,000. The Company can not estimate what sales associated with these agreements will be in 1997. Consumer Health Caraloe, Inc., a separate subsidiary of the Company ("Caraloe"), markets or licenses consumer products and bulk ingredients utilizing the Company's patented complex carbohydrate technology. Attention has been focused on three goals, the first of which is to sell Caraloe's Aloe Nutritional[R] brand products through the health food store market. The second goal has been to develop private label aloe products for entrepreneurs seeking a high quality line of aloe products. The third goal has been to become a supplier of bulk Aloe vera raw materials to commercial companies incorporating Aloe vera mucilaginous polysaccharides into their established product lines. In May 1994, Caraloe signed an agreement with Mannatech, Inc., formerly Emprise International, Inc., to supply it a product known as bulk Manapol[R] powder. In February 1996, an agreement was signed with Mannatech granting it an exclusive license in the United States for Manapol[R] powder. During fiscal 1994, 1995, and 1996, sales of Manapol [R] powder to Mannatech represented 4%, 10%, and 15%, respectively, of the Company's total net sales. In January 1997, the Company received notification from Mannatech that the current supply agreement for Manapol[R] powder would be terminated effective March 31, 1997. As the supply agreement between Caraloe and Mannatech will not be renewed, the exclusive license agreement for the Manapol[R] trade name will also terminate and the Company will then be able to sell Manapol[R] powder and/or license the trademark to other third parties as well as use Manapol[R] powder in the Company's products. The Company plans to reintroduce its Manapol[R] capsules in April 1997. In October 1996, Caraloe made a $200,000 investment in Aloe Commodities International, Inc. ("ACI"). In February, 1997 Caraloe entered into a Supply Agreement with ACI for a term of 10 years (subject to early termination under certain circumstances). The agreement contemplates that ACI will purchase from Caraloe all of certain bulk raw materials that ACI needs for drinks and other consumer products. 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 during the first three months of the term, LRU will purchase from Caraloe quantities of AVMP[R] Powder and/or Manapol[R] Gold[TM] Powder ("Product") to be mutually agreed upon, and beginning May 12, 1997, LRU will purchase from Caraloe annually at least the minimum quantities of Product specified in the agreement. The Supply Agreement also contemplates that LRU will be Caraloe's sole distributor of Product 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] Gold[TM] Powder in connection with the advertising and sale of Product. Veterinary Medical Division The Carrington Veterinary Medical Division ("CVMD") markets Acemannan Immunostimulant, a vaccine adjuvant, and several wound and skin care products to the veterinary market. Acemannan Immunostimulant was conditionally approved by the United States Department of Agriculture ("USDA") in November 1991, for use as an aid in the treatment of canine and feline fibrosarcoma, a form of soft tissue cancer that affects dogs and cats. A conditional approval means that efficacy and potency tests are required, and the product's label must specify that these studies are in progress. The "conditional" aspect of the approval is renewed on an annual basis and will be removed upon completion and acceptance by the USDA of additional potency testing. However, there can be no assurance that these tests will result in the removal of the conditional restriction on the USDA s approval of Acemannan Immunostimulant. In September 1990, the Company granted Solvay Animal Health, Inc. ("Solvay") an exclusive, worldwide license to use and sell a bulk pharmaceutical mannan adjuvant for poultry disease. In January 1992, Solvay received approval from the USDA to market the bulk pharmaceutical mannan as an adjuvant to a vaccine for Marek's disease, a virus infection that kills chickens or renders them unfit for human consumption. Solvay sells the product under the trademark ACM I. 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 consist of nine products. Research and Development General In 1984, the Company isolated and identified a polymeric compound with a molecular weight between one and two million Daltons from the Aloe vera plant. This compound has been given the generic name "acemannan" by the United States Adopted Names Council. The Company intends to seek approval of the Food and Drug Administration (the "FDA") and other regulatory agencies to sell products based on a family of complex carbohydrates in the United States and in foreign countries: (i) to treat various forms of cancer; (ii) to treat inflammatory bowel diseases, including ulcerative colitis, a widespread, chronic, inflammatory disease of the colon; (iii) to treat non-healing and other wounds; and (iv) for use as an adjuvant to various vaccines. 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 is marketing or developing several products which in the past were given the general name of acemannan, suggesting the products were identical. This is not correct because there are ten products in development or being marketed that are derived from 3 basic extracts of the Aloe vera plant. The basic freeze-dried Aloe vera extract is reconstituted to produce Manapol[R] and AVMP[R] powders for both food grade and cosmetic grade products. Further refinement produces Bulk Pharmaceutical Mannans ("BAM's") that are used to produce hydrogels; the Carrington[TM] Patch, an oral care product; Carra Sorb[T]) M, a freeze- dried wound dressing; adjuvants, ACM I marketed by Solvay, and CARN 500 which is being developed as an adjuvant for various vaccines; and Aliminase[TM] capsules (formerly CARN 1000) which were being developed for the ulcerative colitis program. Finally, Bulk Injectable Mannans ("BIM's") are marketed as Acemannan Immunostimulant (CARN 700), and a product has been developed for the treatment of cancer, CarraVex[TM] injectable (formerly CARN 750). The Company expended approximately $5,334,000, $5,370,000, and $5,927,000 on research and development in fiscal 1994, 1995, and 1996, respectively. The Company estimates that in fiscal 1997 it will spend substantially less on research and development than in 1996. Currently, the Company's research staff comprises eight full-time employees as compared to 13 full-time employees at the end of 1995. Preclinical Research The Company identified the characteristics of its naturally occurring complex carbohydrates by a series of studies in the Company's laboratories and in several contract laboratories. Based on toxicology tests sponsored by the Company on different animal species with dosages up to 40 times the proposed intravenous human dosage, in vitro and in vivo tests for mutagenicity, dermal sensitization tests, results of a Phase I safety study of an oral product in humans and a Phase I safety study of an intravenously administered preparation in humans, no clinically significant toxicity of the Company s products has been noted. Further safety studies may be required by the FDA prior to the approval of any applications of complex carbohydrates. Other preclinical studies conducted in the Company's laboratories and in outside laboratories have shown that certain of the Company's complex carbohydrates stimulate macrophages and other white blood cells to produce cytokines, including interleukin-1, interleukin-6, tumor necrosis factor alpha ("TNFA") and nitric oxide ("NO"), that regulate other cells. Interleukin-1 stimulates fibroblasts, which are essential to wound healing and NO is involved in blood vessel regeneration. Tumor necrosis factor alpha acts against tumors in the body. In addition, laboratory experiments conducted by the Company have shown that some Aloe vera components have both pro- and anti-inflammatory actions and some products bind to and extend the life of growth factors. 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 (see "Research and Development -- General" above). There is no assurance, however, that the Company will be successful in its efforts. The Company operates a research and development laboratory at the Texas A&M University Research Park 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. Animal Studies The Company has pursued a strategy of developing products for certain animal indications, clinical testing of which may have application to studies for treatment of human diseases. Animal clinical testing necessary to obtain eventual approval of a product for treatment of human diseases may also provide data sufficient to obtain approval for the related veterinary indication. This approach enables the Company to obtain revenues from its research efforts at an earlier date and also expands data available from actual use of the product in animals. The Company's clinical research efforts to date have focused on the indications described below. Vaccine Adjuvants. An adjuvant is a substance that enhances the antibody response to an antigen. The ability to generate a vigorous immune response to an antigen is critical to the effectiveness of a vaccine. The Company's studies indicate that acetylated mannans, when used as a vaccine adjuvant, produce marked stimulation of the immune system. In 1990, the Company received approval from the USDA to sell an adjuvant to licensed manufacturers for use in combination with animal vaccines. This use as a vaccine adjuvant for certain poultry diseases was licensed to Solvay pursuant to an agreement between Solvay and the Company entered into in September 1990. In January 1992, Solvay received approval from the USDA to market an adjuvant to its vaccine for Marek's disease (see "Veterinary Medical Division" above). The Company has conducted or sponsored studies of CARN 500 adjuvants with other vaccines for animals. Based on these studies, the Company, either directly or through third party licensees, intends to pursue development of adjuvants for other animal vaccines. In 1993, a program was begun to develop adjuvants for mammalian vaccines and for vaccines for marine animals under licenses with one European company. There can be no assurance however, that such development will be successful or that the Company will be able to develop, or to enter into any licensing agreements for the development of, any additional adjuvants. Evaluation of Anti-Tumor Activity. Acetylated mannans, including CarraVex[TM] injectable (formerly CARN 750), are immunomodulating agents that increase circulating levels of interleukin-1 and tumor necrosis factor alpha. A series of studies conducted at Texas A&M University in 1988 and 1989 on mice with highly malignant tumors indicated that a single intraperitoneal dose caused significant tumor reduction in a statistically significant percentage of mice. This effect in many instances was dramatic, with complete regression of the tumor and with continuing immunity. Recovered animals were resistant to syngeneic tumor reimplantation for up to six months after initial tumor regression. In 1991, the USDA granted the Company conditional approval to market an injectable form of a complex carbohydrate as an aid in the treatment of canine and feline fibrosarcoma, a form of soft tissue cancer, under the name Acemannan Immunostimulant. The Company believes, based on discussions with the USDA in 1996, that the USDA's remaining requirements to remove the conditional restriction can be completed in 1997 (see "Veterinary Medical Division" above). 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. Human Studies Evaluation of Aliminase[TM] (formerly CARN 1000) oral capsules in the Treatment of Inflammatory Bowel Diseases. In October 1991, the Company filed an investigational new drug ("IND") application requesting approval to conduct human clinical trials on the efficacy of Aliminase[TM] capsules in the treatment of ulcerative colitis. In November 1991, the Company received notice that the FDA was withholding approval of the study, pending submission of additional information. Additional studies requested by the FDA were completed, and the results were submitted in October 1992. In December 1992, the Company received authorization from the FDA to commence human clinical trials under the IND application. In early 1993, the Company began a pilot safety and efficacy study with oral Aliminase[TM] capsules in the treatment of ulcerative colitis patients who are experiencing an acute flare-up of the disease. This study, completed in May 1994, was conducted by treating 54 patients with 400 or 800 milligram doses twice daily for two or four weeks. After four weeks, the disease activity index and the signs and symptoms of the disease were significantly improved, and the safety of the oral product continued to be confirmed. A large controlled trial of Aliminase[TM] capsules in patients with ulcerative colitis began in September 1995. Over 300 patients were enrolled in four groups comparing a placebo with three doses of Aliminase[TM] capsules (150, 300 and 600 mg dosage levels, administered twice daily for six weeks). Results were assessed in October 1996 and failed to show a therapeutic effect of Aliminase[TM] capsules as compared with the placebo. The program was placed on hold pending an in-depth evaluation of dosage form, timing of dosing, frequency of dosing and route of administration. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources.") Evaluation of CarraVex[TM] injectable (formerly CARN 750) in the Treatment of Solid Tumors in Humans. The Company believes that CarraVex[TM] injecttible may be broadly useful in cancer therapy, with potential application in the treatment of major solid tumors, including melanoma, breast carcinoma, prostate carcinoma, colon carcinoma, hypernephroma and soft tissue sarcoma. The Company initiated a Phase I human clinical trial of CarraVex[TM] injectable in certain solid tumor indications. The trial began in the United States in late 1995. As a result of the success of Acemannan Immunostimulant in treating dogs and cats, the Company has reason to believe that CarraVex[TM] injectable may play a significant role in the treatment of cancer in humans. Evaluation of the Carrington[TM] Patch in the Treatment of Aphthous Ulcers. Carrington's efforts to broaden the claims for wound care products containing Carrasyn[R] Hydrogel were expanded to include an application within the oral health care field. Two studies were conducted at Baylor College of Dentistry to examine the efficacy and safety of two formulations of Carrasyn[R] Hydrogel wound dressing in the treatment of oral aphthous ulcers (canker sores). The first study involved Carrasyn[R] Hydrogel wound dressing modified for intraoral use versus a leading product. The second trial involved the modified oral formulation of Carrasyn[R] Hydrogel that had been freeze-dried. This product, the Carrington[TM] Patch, reduced the pain of these ulcers. The Company was given clearance by the FDA to market the freeze-dried formulation for the management of oral aphthous ulcers in 1994. In 1996, the FDA cleared these additional indications to market: oral wounds, mouth sores, injuries and ulcers of the oral mucosa including traumatic ulcers such as those caused by braces and ill fitting dentures. The product is being marketed as the Carrington[TM] Patch. Evaluation of Carrasyn[R] in Wound Healing. In 1993, a study was conducted at M.D. Anderson Cancer Center to determine if Carrasyn[R] Hydrogel was of benefit in treating radiation-induced skin reactions of mice. These studies clearly showed that, when compared to controls, Carrasyn[R] Hydrogel could significantly reduce radiation-induced inflammation and tissue damage in animals. As a result of this work, a small clinical trial was performed in 1994, studying the radiation- sparing effects of Carrasyn[R] Hydrogel wound dressing in four oncology patients. A study conducted at the Diabetic Foot and Wound Center in Denver, Colorado, suggested a higher incidence in wounds healed at sixteen weeks with Carrasyn[R] wound gel as compared to saline gauze. Four new indications (post-surgical incisions, sunburn, diabetic ulcers and radiation dermatitis) for Carrasyn[R] were added in 1995. Further studies may be conducted in 1997. Evaluation of RadiaCare[TM] Gel in the Treatment of Radiation Dermatitis. In 1996, a study was begun at the Texas Oncology Center of Dallas to determine if RadiaCare[TM] Gel was of benefit in treating radiation dermatitis in humans. The results of this study should be known in mid- 1997. Evaluation of Carrasyn[R] Freeze-Dried Gel (Carra Sorb[TM] M) in Wound Healing. Following the submission of a 510(k) pre-market notification for a preservative-free freeze-dried gel for wound care, the FDA cleared Carrington to market CarraSorb[TM] M, and it was launched in early 1996. The Company is performing a case study to support the marketing effort for this product. 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. PRODUCTS AND POTENTIAL INDICATIONS DEVELOPED, PLANNED OR UNDER DEVELOPMENT PRODUCT OR POTENTIAL INDICATION POTENTIAL MARKET APPLICATIONS STATUS Topical Dressings Pressure and Vascular Ulcers Marketed Cleansers Wounds Marketed Antifungal Candida Marketed Oral Human Anti-inflammatory Ulcerative Colitis On hold Injectable Human Anticancer Melanoma, Breast, Prostate, Colon, Phase I Hypernephroma, and Soft Tissue Clinical Sarcoma Trial Veterinary Anticancer Fibrosarcoma Marketed Dental Pain reduction Aphthous Ulcers, Oral Wounds Marketed Vaccine Adjuvant Veterinary Poultry Vaccines Marek's Disease Marketed Livestock Cattle, Sheep Clinical Trials Marine (water treatment) Trout, Shrimp Clinical Trials Licensing Strategy The Company expects that prescription pharmaceutical products containing certain defined mannans 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 mannans 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 mannans 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 mannans 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. Through a patented process, the Company produces bulk pharmaceutical and injectable mannans and freeze-dried aloe extract from the central portion of the Aloe vera leaf known as the gel. Bulk pharmaceutical mannan, 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 210 acres planted with Aloe vera. The Company plans to plant additional acreage as demand for Aloe vera leaves increases. The Company believes that the Costa Rica farm will be capable of providing substantially all of the Aloe vera leaves required to meet the Company's presently anticipated needs (see "Properties --Costa Rica Facility" below). Manufacturing Prior to the second quarter of 1995, the Company produced substantially all of its wound and skin care products in a leased facility in Dallas, Texas. During the first quarter of 1994, the Company completed an evaluation of the production requirements that would be needed to meet all federal regulatory requirements as a fully integrated pharmaceutical manufacturer, as well as the production capacity that would be required to meet continued growth in the Company's wound and skin care business. It was decided to move its wound and skin care manufacturing operation to the Company's headquarters facility in Irving, Texas, and expand the facility through higher capacity equipment. The moving, upgrading and expansion of the manufacturing operation began in the fourth quarter of 1994, and the project was completed and production began during the third quarter of 1995. At the same location, the Company has upgraded its capabilities to produce injectable grade pharmaceutical products. The Company believes that the new 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, foam dressings, gel sheets, tablets, capsules, and freeze-dried products are being provided by third parties. All of the Company's bulk pharmaceutical mannans, bulk injectable mannans and freeze-dried Aloe vera 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 for the foreseeable future. During the first quarter of 1994, the Company initiated a project in Costa Rica to upgrade the production plant to meet regulatory requirements for the production of bulk pharmaceutical oral and injectable mannans as required for IND's. This project was completed in the fourth quarter of 1994. Finished oral and injectable dosage forms will be produced by outside vendors until in-house production becomes economically justified. The production capacity of the Costa Rica plant is larger than the Company's current usage level. Management believes, however, that the cost of the Costa Rica facility will eventually be recovered through operations. The larger production capacity will be required to conduct large scale clinical trials with bulk pharmaceutical and injectable mannans. 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 (including in 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. Wound and Skin Care Division, Caraloe, Inc., and CVMD. 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 continued expansion of the marketing network for its products. The Company believes that the principal competitive factors in the marketing of its products is their quality, and that they are naturally based and competitively priced. Governmental Regulation The production and marketing of the Company's products, and the Company's research and development activities, are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. In the United States, drugs for human use are subject to rigorous FDA regulation. The Federal Food, Drug and Cosmetic Act, as amended, the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of the Company's products. For marketing outside the United States, the Company is subject to foreign regulatory requirements governing human clinical trials and marketing approval for drugs and devices. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement may vary widely from country to country. Food and Drug Administration. The contents, labeling and advertising of many of the Company's products are regulated by the FDA. The Company is required to obtain FDA approval before it can study or market any proposed prescription drugs and may be required to obtain such approval for proposed nonprescription products. This procedure involves extensive clinical research, and separate FDA approvals are required at various stages of product development. The approval process requires, among other things, presentation of substantial evidence to the FDA, based on clinical studies, as to the safety and efficacy of the proposed product. In order to initiate human clinical trials on a product, extensive basic research and development information must be submitted to the FDA in an investigational new drug ("IND") application. The IND application contains a general investigational plan, a copy of the investigator's brochure (a comprehensive document provided by the drug manufacturer), copies of the initial protocol for the first study, a review of the chemistry, manufacturing and controls information for the drug, pharmacology and toxicology information, any previous human experience with the drug, results of preclinical studies and any other information requested by the FDA. If permission is obtained to proceed to clinical trials based on the IND application, initial trials, usually categorized as Phase I, are instituted. The initial or Phase I trials typically involve the administration of small, increasing doses of the investigational drug to healthy volunteers, and sometimes patients, in order to determine the general overall safety profile of the drug and how it is metabolized. Once the safety of the drug has been established, Phase II efficacy trials are conducted in which the expected therapeutic doses of the drug are administered to patients having the disease for which the drug is indicated, and a therapeutic response is sought as compared to the expected progression of the underlying disease or compared to a competitive product or placebo. Information also is sought on any possible short-term side effects of the drug. If efficacy and safety are observed in the Phase II trials, Phase III trials 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. 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. Certain of the Company's wound and skin care products are registered with the FDA as "devices" pursuant to the regulations under Section 510(k) of the Federal Food, Drug and Cosmetic Act, as amended. A device is a product used for a particular medical purpose, such as to cover a wound, with respect to which no pharmacological claim can be made. A device which is "substantially equivalent" to another device existing in the market prior to May 1976 can be registered with the FDA under Section 510(k) and marketed without further testing. A device which is not "substantially equivalent" is subject to an FDA approval process similar to that required for a new drug, beginning with an Investigational Device Exemption and culminating in a Premarket Approval. The Company has sought and obtained all its device approvals under Section 510(k). With respect to certain of its wound and skin care products, the Company intends to develop claims for which IND and NDA submissions will be required. 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 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 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. Patents and Proprietary Rights As is industry practice, the Company has a policy of using patent, trademark and trade secret protection with a view to preserving its right to exploit 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 24 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 24 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") issued on April 17, 1990 from a divisional application to the 935 Patent. This divisional application pertains to most of the remaining claims in the original application not covered by the 935 Patent. The 890 Patent generally relates to the basic processes of producing acetylated mannan derivatives, to certain specific examples of such processes and to certain formulations of acetylated mannan derivatives. Two other divisional applications covering the remaining claims not covered by the 890 Patent matured into patents, the first on September 25, 1990, as United States Patent No. 4,959,214, and the second on October 30, 1990, as United States Patent No. 4,966,892. Foreign patents that are counterparts to the foregoing United States patents have been granted in some of the member states of the European Economic Community and several other countries. The second series of patent applications related to preferred processes for the production of acetylated mannan derivatives. One of them matured into United States Patent No. 4,851,224, which was issued on July 25, 1989. This patent is the subject of a Patent Cooperation Treaty application and national foreign applications in several countries. An additional United States patent based on the second series was issued on September 18, 1990, as United States Patent No. 4,957,907. The third series of patent applications, relating to the uses of acetylated mannan derivatives, was filed subsequent to the second series. Three of them matured into United States Patent Nos. 5,106,616, issued on April 21, 1992, 5,118,673, issued on June 2, 1992, and 5,308,838, issued on May 3, 1994. The Company intends to file a number of divisional applications to these patents, each dealing with specific uses of acetylated mannan derivatives. A Patent Cooperation Treaty application based on the parent United States application has been filed designating a number of foreign countries in which the Company has the option to file specific applications. 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. This patent application is the subject of a Patent Cooperation Treaty application designating a number of foreign countries in which the Company has the option to file specific applications in the designated foreign countries. 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). The Company 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 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 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, 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. The Company has given the trade name Carrasyn[R] to certain of its products containing acetylated mannan derivatives. A selected series of domestic and foreign trademark applications exists for the marks Carrisyn[R], Manapol[R] and Carrasyn[R] which are registered in the United States and several foreign countries. Further, the Company has filed applications for the registration of a number of other trademarks, including AVMP[R], both in the United States and in certain foreign countries. The Company believes that its trademarks and trade names are valuable assets. Employees As of March 3, 1997, the Company employed 252 persons, of whom 19 were engaged in the operation and maintenance of its Irving processing plant, 127 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, 87 were located in Texas, 127 in Costa Rica and one in Puerto Rico. In addition, 37 sales personnel were located in 21 other states. The Company considers relations with its employees to be good. The employees are not represented by a labor union. Financing In January 1995, the Company entered into a financing arrangement with NationsBank of Texas, N.A. (the Bank ). The agreement was composed of a $2,000,000 line of credit which expired one year from the date of the agreement and a $6,300,000 term loan that was to mature five years from the date of the agreement. The interest rate on both credit facilities was the Company's option of prime plus one-half percent or the London Interbank Offering Rate plus 200 basis points set for a period of thirty, sixty, ninety or one hundred eighty days. The loans were collateralized by the Company's assets and contained certain covenants. As of December 31, 1995, the Company was not in compliance with the term loan s fixed charge ratio covenant. Rather than amend the terms of the term loan agreement, on April 29, 1996, the Company's management elected to pay off the entire term loan balance of $2,977,000 plus $18,000 in accrued interest with available cash to eliminate the interest expense on the term loan. The Company's line of credit expired January 30, 1996. The Company had reached an oral agreement with the Bank for a new line of collateralized credit for approximately $1,200,000. However due to fees that were payable for the unused line of credit and the Company's lack of immediate need of cash, management elected to withdraw from discussions with the Bank and allowed the agreement to be tabled until such time as a line of credit is desirable and favorable to the Company. 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. Walnut Hill Facility. The Company's corporate headquarters and principal U.S. manufacturing facility occupy all of the 35,000 square foot office and manufacturing building (the "Walnut Hill Facility"), which is situated on an approximately 6.6 acre tract of land located in the Las Colinas area of Irving, Texas. The Company owns the land and the building. During the fourth quarter of 1994, the Company began a project to move its manufacturing operation from a leased facility in Dallas to the unused space in this facility and expand the amount of office space. This project was completed during the third quarter of 1995. The manufacturing operations occupy approximately 19,000 square feet of the facility, and administrative offices occupy approximately 16,000 square feet. Laboratory Facility. The Company leases 24,000 square feet of office, manufacturing and laboratory space (the "Laboratory Facility") in Irving, Texas pursuant to a lease that expires in January 2000. The Company's in-house research and development and quality assurance activities are conducted at the Laboratory Facility. The Company also maintains sterile production facilities (which occupy 4,000 square feet of the total space) at the Laboratory Facility for the production of injectable dosage forms of Acemannan Immunostimulant. Warehouse and Distribution Facility. In August 1994, the Company leased a 35,050 square foot office and warehouse facility in Irving, Texas near the Walnut Hill Facility, and moved its warehouse and distribution center from a leased facility in Dallas to this location in September 1994. The warehouse and distribution center occupy approximately 27,000 square feet and the remaining space is used for offices. This lease expires in October 2001. Costa Rica Facility. The Company owns approximately 405 acres of land in the Guanacaste province of northwest Costa Rica. This land is being used for the farming of Aloe vera plants and for a processing plant to produce bulk pharmaceutical and injectable mannans and freeze-dried Aloe vera extracts 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. The Company believes that the Costa Rica farm will provide substantially all the Aloe vera leaves required to meet the Company's needs. Development of this facility was partially financed with borrowings under a five-year, U.S. dollar-denominated loan from Corporacion Privada de Inversiones de CentroAmerica, S.A., a private bank operating in San Jose, Costa Rica. The loan was paid off in May 1995. During the first quarter of 1994, the Company initiated a project in Costa Rica to upgrade the production plant to meet regulatory requirements for the production of bulk pharmaceutical oral and injectable mannans as required for IND's. This project was completed in the fourth quarter of 1994. ITEM 3. LEGAL PROCEEDINGS. On March 2, 1996, Dianna Gold (the "Plaintiff"), a former employee of the Company, filed an action styled Dianna Gold vs. Carrington Laboratories, Inc., and Fireman's Fund Insurance Company with the Workers Compensation Appeals Board for the State of California (Case No. SFO 394660). On March 27, 1996, Plaintiff filed an Application for Discrimination Benefits Pursuant to Labor Code Section 132(a) in that case. The Company is vigorously defending this action. On June 26, 1996, Robert W. Brown ("Brown"), a former employee of the Company, filed a lawsuit styled Robert W. Brown vs. Carrington Laboratories, Inc., Cause No. 96-6469-L in the 193rd District Court of Dallas County, Texas, alleging breach of contract, promissory estoppel, fraud, negligent misrepresentation and slander in connection with his employment and the termination of his employment with the Company. Brown sought to recover unspecified common law and statutory damages, punitive damages, interest, attorneys fees and cost of suit. On December 6, 1996, the Judge signed an Order of Nonsuit in Cause No. 96-6469-L that dismissed the suit without prejudice to any party and ordered each party to bear its own costs and attorneys fees. On November 3, 1996, Brown filed a Charge of Discrimination against the Company with the Equal Employment Opportunity Commission ("EEOC") alleging age discrimination. The Company received a notification of this charge dated February 13, 1997 from the EEOC. To date, the EEOC has not required any action of the Company. The Company intends to vigorously defend this charge. On September 13, 1996, Linda M. Miller ("Miller"), a former employee of the Company, filed a lawsuit styled Linda M. Miller vs. Carrington Laboratories, Inc., Cause No. 96-9971 in the 191st District Court of Dallas County, Texas, alleging breach of contract in connection with her employment with the Company. Miller seeks to recover damages in excess of $50,000, exclusive of interest and costs. The Company is vigorously defending this lawsuit. 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. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock of the Company is traded on the NASDAQ National Market under the symbol "CARN." The following table sets forth the high and low sales prices of the Common Stock for each of the periods indicated. Fiscal 1995 High Low ----------- ------- ------- First Quarter $13 1/8 $11 Second Quarter 24 1/2 11 1/4 Third Quarter 40 3/4 25 1/2 Fourth Quarter 32 1/2 14 3/4 Fiscal 1996 High Low ----------- ------- ------- First Quarter $34 1/2 $23 1/2 Second Quarter 50 7/8 21 Third Quarter 26 3/4 17 1/2 Fourth Quarter 23 1/4 6 7/8 At March 10, 1997, there were 971 holders of record. (including brokerage firms and other nominees) 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, 1996, is derived from the consolidated financial statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants. Years Ended November 30, 1992, 1993, and 1994, and Month Ended December 31, 1994 and Years Ended December 31, 1995 and 1996 (Dollars and numbers of shares in thousands, except per share amounts)
November 30, December 31, ----------------------------- ------------------------------ 1992 1993 1994 1994 1995 1996 --------- --------- -------- ------- ------- ------- Operations Statement Information: Net Sales $ 20,064 $ 21,184 $ 25,430 $ 1,781 $ 24,374 $ 21,286 Cost and expenses: Cost of sales 5,113 5,289 6,415 516 7,944 10,327 Selling, general and administrative 9,687 9,371 11,968 985 12,442 10,771 Research and development 4,141 5,397 5,334 327 5,370 5,927 Cost of uncompleted public offering 400 - - - - - Interest, net 249 218 133 23 115 (304) ---------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 474 909 1,580 (70) (1,497) (5,435) Provision for income taxes 159 104 159 - 131 88 Net income (loss) $ 315 $ 805 $ 1,421 $ (70) $ (1,628) $ (5,523) Net income (loss) per common and common equivalent share: $ .03 $ .09 $ .18 $ (.01) $ (.22) $ (.63) ----------------------------------------------------------------------------------------------------------------- Weighted average shares used in per share computations 6,801 7,324 7,341 7,344 7,933 8,798 ----------------------------------------------------------------------------------------------------------------- BALANCE SHEET INFORMATION: Working capital $ 5,702 $ 5,292 $ 4,720 $ 4,472 $ 9,095 $ 13,910 Total assets 15,115 16,305 19,797 18,899 27,934 31,202 Long-term debt, net of current portion 2,821 2,168 2,035 1,997 88 46 Total shareholders' investment $ 10,062 $ 11,041 $ 12,509 $ 12,439 $ 22,399 $ 27,757 ----------------------------------------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Background The Company is a research-based pharmaceutical and medical device company engaged in the development, manufacturing and marketing of naturally occurring complex carbohydrate and other natural products for therapeutics in the treatment of major illnesses and the dressing and management of wounds and other skin conditions. The Company sells nonprescription products through its wound and skin care division; veterinary medical devices and pharmaceutical products through its veterinary medical division; and consumer products through its consumer products subsidiary, Caraloe, Inc. (see Note 16 for financial information on each of the segments). The Company's research and product portfolio is primarily based on complex carbohydrate technology derived naturally from the Aloe vera plant. Liquidity and Capital Resources At December 31, 1996 and 1995, the Company held cash and cash equivalents of $11,406,000 and $6,222,000, respectively. The increase in cash of $5,184,000 is attributable to a private placement of preferred stock (see Note Eight to the consolidated financial statements) and the issuance of common stock through the exercise of stock options and warrants (see Note Nine to the consolidated financial statements) that resulted in an additional $10,883,000 cash. This increase in cash was partially offset by the retirement of all bank debt and the purchase of a $1,500,000 certificate of deposit ("CD") (see Note Four to the consolidated financial statements) as well as increased research and development expenditures. In March 1997, the Company repurchased 50% of the outstanding preferred stock for cash (see Note Eighteen to the consolidated financial statements). Although wound care sales for 1996 were lower than projected, the Company was able to effectively manage and reduce inventory levels throughout 1996. The Company regularly evaluates its inventory levels and adjusts production at both its Costa Rica plant, where the bulk freeze-dried Aloe extracts are manufactured, and at its U.S. plant to meet anticipated demand. As a result of these evaluations, inventory reduction programs were initiated in the latter part of 1995 and early 1996. These programs included reduced production at the Company's manufacturing facility in Irving, Texas, as well as the Costa Rica facility. As a result of these programs, inventory levels were reduced by $1,481,000 during 1996, including a $630,000 reduction in the production cost of Aloe vera derived products as described below. As a result of the decreased production levels, the Company expensed $1,396,000 of unabsorbed overhead as cost of goods sold in 1996. The production capacity of the Costa Rica plant is larger than the Company's current usage level. The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), in the first quarter of 1996. SFAS 121 requires that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. At the time of adoption, there was no impairment of asset value in Costa Rica based on historical production levels and future capacity requirements needed to produce the Company's drug Aliminase[TM], then under initial phase III clinical trials (see discussion below). In late October 1996, the Company received the results of the initial phase III clinical trial for the testing of Aliminase[TM] oral capsules, which indicated no statistically significant differences that would support a conclusion that Aliminase[TM] oral capsules provides a therapeutic effect in the treatment of ulcerative colitis. As a result, the Company terminated the second large scale clinical trial and placed further testing of Aliminase[TM] oral capsules on hold. These results triggered a new assessment of the recoverability of the costs of the Costa Rica plant's assets using the methodology provided by SFAS 121 in the fourth quarter of 1996. The net book value of the Costa Rica Plant assets as of December 31, 1996, was $3,958,000. The Company evaluated the value of Costa Rica produced components in its current product mix to determine the amount of net revenues, excluding Manapol[R] powder sales to Mannatech (see discussion of Caraloe sales to Mannatech below), attributable to the Costa Rica plant. Cash inflows for 1997 and future years were estimated using management's current forecast and business plan. All direct costs of the facility, including certain allocations of Company overhead, were considered in the evaluation of cash outflows. Results indicate there is no impairment of value under SFAS 121. However, there is no assurance that future changes in product mix or the content of Costa Rica produced components in the current products will generate sufficient revenues to recover the costs of the plant under SFAS 121 methodology. As of March 14, 1997, the Company had no material capital commitments other than its leases and agreements with suppliers. In January 1995, the Company entered into an agreement with NationsBank of Texas, N.A. (the "Bank") for a $2,000,000 line of credit and a $6,300,000 term loan. Proceeds from the term loan were used to fund planned capital expenditures, a letter of credit required by a supplier, as discussed below, and planned research projects. The line of credit was to be used for operating needs, as required. As of December 31, 1995, the Company was not in compliance with the term loan's fixed charge ratio covenant. Rather than amend the terms of the term loan, on April 29, 1996, the Company's management elected to pay off the entire term loan balance of $2,977,000 plus $18,000 in accrued interest with available cash to eliminate the interest expense on the term loan. All assets previously collateralizing the term loan were released by the Bank. The Company pledged a $1,500,000 CD to secure the letter of credit as described below. Although the aforementioned CD matures every 90 days, the Company's management has elected not to classify the CD as a cash equivalent. As the CD secures a letter of credit, described below, it is effectively unavailable to the Company for other purposes until such time as the letter of credit expires or is otherwise released. Therefore, the CD is included in other non-current assets for reporting purposes. The line of credit agreement expired January 30, 1996. The Company had reached an oral agreement with the Bank for a new line of collateralized credit for approximately $1,200,000. However, due to fees that were payable for the unused line of credit and the Company's lack of immediate need of cash, management elected to withdraw from discussions with the Bank and allowed the agreement to be tabled until such time as a line of credit is desirable and favorable to the Company. In February 1995, the Company entered into a supply agreement with its supplier of freeze-dried products. The agreement required that the Company establish a $1,500,000 letter of credit. The term loan with NationsBank was initially used to fund this letter of credit. The funding of the letter of credit reduced the amount that the Company could borrow under the term loan but did not increase the Company's debt unless the letter of credit was utilized by the supplier. As of March 14, 1997, the supplier had not made a presentation for payment under the letter of credit. In April 1996, and in conjunction with the Company's settlement of the term loan, the Bank agreed to reduce the fees on the letter of credit by one percentage point in consideration of the Company's agreement to purchase and assign to the Bank a CD in an amount equal to the letter of credit. The Company will maintain the CD until such time as the letter of credit expires or is otherwise released. The contract also requires the Company to accept minimum monthly shipments of $30,000 and to purchase a minimum of $2,500,000 worth of product over a period of five years. At the request of the supplier, the minimum purchase requirements were waived for the three month period ending December 31, 1996. The supplier currently produces the CarraSorb[TM] M Freeze Dried Gel and the Carrington[TM] (Aphthous Ulcer) Patch for the Company. Both of these products represent new technology and are still in the product acceptance and launch phase. The Company had approximately $325,000 and $370,000 of CarraSorb[TM] M and Carrington[TM] (Aphthous Ulcer) Patch inventory on hand as of December 31, 1996 and March 11, 1997, respectively. Current sales of both items are lower than the minimum purchase requirement, but the Company believes that as licensing, acceptance and demand for the new technology increases, demand will exceed the minimum purchase requirement. As of March 11, 1997, the Company has purchased products totaling approximately $281,000 from this supplier. The Company is in full compliance with the agreement and, as of March 14, 1997, has the available resources to meet all future minimum purchase requirements. 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. This payment resulted in increasing the prepaid assets of the Company. Additional payments totaling $500,000 will be made to the supplier as new products are delivered. The Company began a large scale clinical trial during the third quarter of 1995 for the testing of its Aliminase[TM] oral capsules for the treatment of acute flare-ups of ulcerative colitis. The cost of this clinical trial was approximately $2,300,000. All expenses related to this trial have been recognized and paid. In the third quarter of 1996, the Company began a second large scale clinical trial for the testing of Aliminase[TM] oral capsules for the treatment of ulcerative colitis. The cost of this trial was expected to be approximately $2,500,000, of which approximately $212,000 was required as an initial payment when the research contract was signed on September 19, 1996. The full amount of the initial payment was expensed in the third quarter. In late October 1996, the Company received the results of the initial phase III clinical trial for the testing of Aliminase[TM] oral capsules, which indicated that no statistically significant differences were found to support a therapeutic effect. As a result, the Company terminated the second large scale clinical trial and placed further testing of Aliminase[TM] oral capsules on hold. Approximately $150,000 in cancellation fees was recorded in relation to this termination. No significant additional expenses related to phase III trials of Aliminase[TM] oral capsules are anticipated as of March 14, 1997. In late 1995, the Company began an initial Phase I study using CarraVex[TM] injectable (formerly CARN 750) in cancer patients involving six cancer types. The estimated cost of this study is $475,000, of which, approximately $201,000 had been expensed as of December 31, 1996. An additional $95,000 has been expensed in the first quarter of 1997. Also in late 1995, the Company initiated an ongoing program to reduce expenses and the cost of manufacturing, thereby increasing the gross margin on existing sales. This program included a restructuring of the work force in Costa Rica as well as a change in the manufacturing process for Aloe vera based raw materials. Product costs have been decreased through changes in product packaging and other costs have been reduced through competitive bidding. Where appropriate, the Company now complies with lower USDA or food grade requirements instead of more stringent FDA requirements. The Company has restructured the sales force to position it for growth and is refocusing the sales effort to increase market share in the alternative care markets. As part of this restructuring, the Company eliminated six sales positions, including representatives in five sales territories. The Company replaced three of these positions with commission based independent manufacturer's representatives. Two of the positions were integrated into existing sales territories. And finally, sales representatives in territories that were contributing a low return are now compensated under a compensation plan that emphasizes increased sales. This compensation plan rewards the employee by paying a commission on every sales dollar. To offset the higher commissions, the employees have a significantly lower base salary and are responsible for covering their own travel and entertainment expenses. This program will continue into the foreseeable future and will continually challenge the costs of doing business and where possible, further reduce the cost of operations. In October 1996, the Company completed a $6,600,000 financing involving the private placement of Series E Convertible Preferred Stock (the "Series E Shares". At that time, plans called for much of the proceeds from this sale to be used to continue Carrington's clinical research programs (see Footnote Eight to the consolidated financial statements). On October 31, 1996, the Company announced the results of the first Phase III trial of Aliminase[TM] oral capsules. Due to the unfavorable results of the first Phase III trial, the Aliminase[TM] project was placed on hold. Additionally, the Company's management canceled the second Phase III clinical trial then under contract. This event resulted in significant changes in the Company's planned uses of and need for these funds. In addition to the change in the Company's needs, the decline in the market price of the Company's Common Stock has increased the extent of the dilution that would have occurred if all of the Series E Shares then outstanding were converted into Common Stock. For these and other reasons, the Company's Board of Directors concluded that it was in the best interest of the Company and its shareholders that the Company use a portion of its existing funds to repurchase 50% of the Series E Shares (see Note Eighteen to the consolidated financial statements). On March 4, 1997, the Company completed a repurchase of 50% of the above Series E Shares. The Company believes that its available cash resources, after the above described repurchase of the Series E Shares, and expected cash flows from operations, will provide the funds necessary to finance its current operations. However, the Company does not expect that its current cash resources will be sufficient to finance the major clinical studies and costs of filing new drug applications necessary to develop its products to their full commercial potential. Additional funds, therefore, may have to be raised through equity offerings, borrowings, licensing arrangements or other means, and there is no assurance that the Company will be able to obtain such funds on satisfactory terms when they are needed. The Company is subject to regulation by numerous governmental authorities in the United States and other countries. Certain of the Company's proposed products will require governmental approval prior to commercial use. The approval process applicable to prescription pharmaceutical products usually takes several years and typically requires substantial expenditures. The Company and any licensees may encounter significant delays or excessive costs in their respective efforts to secure necessary approvals. Future United States or foreign legislative or administrative acts could also prevent or delay regulatory approval of the Company's or any licensees products. Failure to obtain requisite governmental approvals or failure to obtain approvals of the scope requested could delay or preclude the Company or any licensees from marketing their products, or could limit the commercial use of the products, and thereby have a material adverse effect on the Company's liquidity and financial condition. Impact of Inflation The Company does not believe that inflation has had a material impact on its results of operations. Fiscal 1996 Compared to Fiscal 1995 Net sales were $21,286,000 in 1996, compared with $24,374,000 in 1995. This decrease of $3,088,000, or 12.6%, resulted from a decrease of $3,845,000 in sales of the Company's wound and skin care products from $21,147,000 to $17,302,000, or 18.2%. New products introduced in late January accounted for $1,182,000 in wound and skin care sales during 1996. The decrease in wound and skin care sales was partially offset by a $787,000, or 27.1%, increase in sales of Caraloe, Inc., the Company's consumer products subsidiary. In the past, the Company's wound and skin care products have been marketed primarily to hospitals and select acute care providers. This market has become increasingly competitive as a result of pressures to control health care costs. Hospitals and distributors have reduced their inventory levels and the number of suppliers used. Also, health care providers have formed group purchasing consortiums to leverage their buying power. This environment required the Company to offer greater discounts and allowances to maintain customer accounts. Additionally, in the fourth quarter of 1995, the Medicare/ Medicaid reimbursement rate for hydrogels was significantly reduced (from 1 ounce per day to 3 ounces per month). This change significantly reduced the demand for hydrogels in the market place. In February 1996, the Company revised its price list to more accurately reflect current market conditions. Overall wound and skin care prices were lowered by a weighted average of 19.1%. With the February price reduction, the Company expected, and began to realize, a decrease in the amount of discounts required. In addition to these cost pressures, over the last several years the average hospital stay has decreased over 50%, resulting in more patients being treated at alternative care facilities and at home by home health care providers. This also had a negative impact on sales since the Company's sales force had been primarily focused on the hospital market. To counter the market changes, the sales force is now also aggressively pursuing the alternative and home health care markets. To continue to grow its wound care business, the Company realized that it had to expand from the estimated $38 million hydrogel market in which it competed to a much larger segment of the estimated billion dollar wound care market. To achieve this objective, an aggressive program of new product development and licensing was undertaken in 1995 with the goal of creating a complete line of wound care products to address all stages of wound management. As a result of this program, the Company launched three new wound care product types in late January 1996. The Company expects to launch additional products in 1997. Caraloe's sales increased from $2,907,000 to $3,694,000, or 27.1%. Caraloe sales to Mannatech increased from $2,488,000 to $3,273,000. Of the 1996 sales, $3,213,000 was related to the sale of bulk Manapol[R] powder. Pursuant to the Supply Agreement, Mannatech is currently required to purchase a minimum of 225 kilograms of Manapol[R] powder per month at a purchase price of $1,200 per kilogram. The Supply Agreement provides for an increase in Mannatech's minimum purchase requirement commencing in April 1997, but it also provides for renegotiation by the parties by March 15, 1997 of the purchase price to be paid by Mannatech for Manapol[R] powder. The Company has been informed by Mannatech that the supply agreement will not be renewed. Mannatech has indicated it will honor the minimum purchase requirements through March 31, 1997, the termination date. As the Supply Agreement between Mannatech and the Company will not be renewed, the exclusive license agreement for the Manapol[R] trade mark will also terminate on March 31, 1997. The Company will then be able to sell Manapol[R] powder or license the trade mark to other third parties as well as use it in the Company's products. Mannatech may continue to purchase Manapol[R] powder on an as- needed basis. The termination of the Supply Agreement could have a material effect on the Company s results of operations. Sales of the Company's veterinary products decreased from $320,000 to $290,000. In March 1996, the Company entered into an agreement with Farnam Companies, Inc., a leading marketer of veterinary products, to promote and sell the Company s veterinary line on a broader scale. In 1997, the Company will begin to private label the veterinary line under the Farnam name. Farnam has increased its sales force to improve the market share of the private labeled products. Cost of sales increased from $7,944,000 to $10,327,000, or 30.0%. As a percentage of sales, cost of sales increased from 32.2% to 42.0% after adjusting for a $630,000 inventory valuation decrease on June 30, 1996, as described below, and period costs of $104,000 and $766,000 in 1995 and 1996, respectively. The period costs are related to the annual shutdown of the facility in Costa Rica for routine maintenance and inventory reduction programs. The increase in cost of goods sold is largely attributable to the increased sales of bulk Manapol[R] powder, which had a substantially lower profit margin in the first quarter of 1996 as compared to 1995, as a result of decreased production levels in the first quarter of 1996, and as compared to the margins on the Company's wound and skin care products, and the overall 19.1% price decrease which occurred in February of 1996. Additionally, all of the new products introduced in the first half of 1996 are manufactured for the Company by third-party manufacturers and have a lower profit margin than the products manufactured by the Company. As a result of the implementation of programs to reduce operating and production costs, several changes were implemented at the Company's Costa Rica production facility in early 1996. This facility produces all of the Company's freeze dried Aloe vera raw materials. Among these changes was a restructuring of the work force as well as improvements in efficiencies in the manufacturing process. The implementation of these changes significantly reduced the cost of Costa Rica production in the second quarter of 1996. As a result of these reductions in cost, the actual cost of production under FIFO as of June 30, 1996, was approximately 18% lower than the Company's standard cost, which was equal to the FIFO cost of production at December 31, 1995 and March 31, 1996. The Company determined that the standard cost should be reset to the then current actual cost of production. This reduction in standard FIFO cost decreased inventory valuation by $630,000. This amount represents the change in the accumulated value of all items in inventory as of June 30, 1996 that were produced in Costa Rica as well as those finished goods that contain component items produced in Costa Rica. This decrease in inventory value was expensed in the second quarter as a period cost and is included in cost of sales. To accelerate new product development and reduce overhead, the Company was restructured in 1995. The restructuring included the lay-off of seventeen high level and under-utilized positions in administration, marketing, and research and development, for a net reduction in salaries and benefits of approximately $120,000 per month. Approximately $15,000 of these savings were offset with the hiring of Kirk Meares, Vice President of Sales and Marketing, in the second quarter of 1996. Also, the Company relocated its manufacturing operations to its current facility on Walnut Hill in Irving, Texas, and immediately realized a reduction in overhead and production costs as the new facility is more efficient than the prior location. As the Walnut Hill facility is owned by the Company, rent and other facility expenses related to the former production facility of approximately $25,000 per month were eliminated. Each of these items is expected to reduce future expenses and improve cash flow results. As a result of the restructuring, approximately $1,400,000 of one-time charges were taken during 1995. Of these charges, approximately $147,000 of severance compensation was paid in the first two quarters of 1996. Of this amount, $75,000 was a final payment to a single former high ranking research and development employee. This negotiated payment relieved the Company of $128,000 in future severance compensation liability to this employee. As of June 30, 1996, all liabilities resulting from the restructuring were paid in full or otherwise relieved. Selling, general and administrative ("SG&A") expenses decreased to $10,771,000 from $12,442,000, or 13.4%. This decrease was attributable in part to approximately $900,000 in one-time charges in the first nine months of 1995. These one-time charges were related to severance agreements, legal expenses and settlements and debt refinancing costs. This was partially offset as the Company incurred approximately $150,000 in additional costs related to the launch of three new product types and a one-time write-off of approximately $92,000 of bank and legal charges related to the early retirement of all bank debt in 1996. Also contributing to the reduced SG&A expenses were the benefits received from the cost reduction programs put in place earlier in the year as well as savings generated from the restructuring of the sales force. Research and development ("R&D") expenses increased to $5,927,000 from $5,370,000, or 10.4%. This increase was the result of beginning the initial large scale phase III clinical trial for the testing of Aliminase[TM] oral capsules for the treatment of acute flare-ups of ulcerative colitis during the third quarter of 1995. This study was substantially completed in the third quarter of 1996. In September of 1996, the Company initiated the second pivotal phase III testing of Aliminase[TM] oral capsules. The initial payment of approximately $212,000 was expensed in the third quarter. In late October 1996, the Company received the results of the initial phase III clinical trial for the testing of Aliminase[TM] oral capsules, which indicated that no statistically significant differences were found to support a therapeutic effect. As a result, the Company terminated the second large scale clinical trial and placed further testing of the Aliminase[TM] oral formulation on hold. Approximately $150,000 in cancellation fees was recorded in the third quarter of 1996. Additional R&D costs related to the ongoing cancer research contributed to the increase in R&D during 1996 as well. These costs were partially offset by a reduction of internal salaries and other operating expenses. Net interest income of $304,000 was realized in 1996, versus net interest costs of $115,000 in 1995, due to having more excess cash to invest as well as the retirement of all bank debt in April 1996. Net loss for 1996 was $5,523,000, versus a net loss of $1,628,000 for 1995. This change is a result of a changing product mix, more products manufactured by third parties, decreased sales which resulted from a change in the Medicare reimbursement rates, and increased research and development expenditures related to the Phase III ulcerative colitis study and the ongoing Phase I cancer study. Loss per share was $.63 in 1996, compared to a loss per share of $.22 in 1995. Fiscal 1995 Compared to Fiscal 1994 Net sales decreased from $25,430,000 to $24,374,000, or 4%. The decrease of $1,056,000 resulted from a $2,557,000, or 11%, decrease in sales of the Company's wound and skin care products. Sales of these products decreased from $23,665,000 to $21,147,000. Fourth quarter sales of the wound and skin care products decreased from $5,900,000 to $4,348,000, or 26%. The Company's wound and skin care products have been marketed primarily to hospitals and select acute care providers. This market has become increasingly competitive as a result of pressures to control health care costs. Hospitals and distributors have reduced their inventory levels and the number of suppliers used. Also, health care providers have formed group purchasing consortiums to leverage their buying power. This environment required the Company to offer greater discounts and allowances during 1995 to maintain customer accounts. Discounts and allowances increased from $1,267,000 to $3,063,000. They averaged 6.2% of gross wound care sales in the fiscal fourth quarter of 1994, compared with an 18.3% average during the fourth quarter of 1995. In February 1996, the Company revised its price list to more accurately reflect current market conditions. Overall wound care prices were lowered by an average of 19%. In addition to these cost pressures, over the last several years the average hospital stay has decreased over 50%, resulting in more patients being treated at alternative care facilities and at home by home health care providers. This also had a negative impact on sales since the Company's sales force had been primarily focused on the hospital market. To counter the market changes, the sales force is now also aggressively pursuing the alternative and home health care markets. The decrease in the Company's wound and skin care products was partially offset by an increase in sales of Caraloe, Inc., the Company's consumer products subsidiary. Caraloe's sales increased from $1,361,000 to $2,907,000, or 114%. Of this, $1,513,000 is related to the sale of bulk Manapol[R] powder to one customer, Mannatech. Sales of bulk Manapol[R] powder to Mannatech increased from $934,000 to $2,447,000. Sales of the Company's veterinary products decreased from $404,000 to $320,000. In March 1996, the Company entered into an agreement with Farnam Companies, Inc., a leading marketer of veterinary products, to promote and sell its veterinary line on a broader scale. Cost of sales increased from $6,415,000 to $7,944,000, or 23.8%. As a percentage of sales, cost of sales increased from 25.2% to 32.6%. This increase was attributable in part to the increased sales of bulk Manapol[R] powder, which has a substantially lower profit margin, 33%, as compared to the Company's wound and skin care products. In January 1996, the profit margin on Manapol[R] powder was reduced to 8% as a result of current production levels and costs at the Company's Costa Rica facility. Also, the increasing discounts, as discussed earlier, resulted in the Company's wound and skin care product costs increasing by approximately 4% as a percentage of sales. To accelerate new product development and reduce overhead, the Company was restructured in 1995. The restructuring included the lay-off of seventeen high level and under-utilized positions in administration, marketing, and research and development for a net reduction in salaries and benefits of approximately $120,000 per month. Also, the Company relocated its manufacturing operations to its current facility on Walnut Hill in Irving, Texas, and immediately realized a reduction in overhead and production costs as the new facility is more efficient than the prior location. As the Walnut Hill facility is owned by the Company, rent and other facility expenses related to the former production facility of approximately $25,000 per month were eliminated. Each of these items is expected to reduce future expenses and improve cash flow results. As a result of the restructuring, approximately $1,400,000 of one-time charges were taken during 1995. Of these charges, only $275,000 remained unpaid as of December 31, 1995. Of the above charges, approximately $700,000 were selling, general and administrative expenses, $500,000 related to severance agreements, $130,000 was due to increased legal fees and a $70,000 write off of unamortized legal and banking costs that resulted when the Company refinanced its long-term debt in 1993. Approximately, $90,000 of costs were incurred in 1995 to complete the refinancing. These costs were included in other long-term assets and were amortized over the term of the loan. As a result, selling, general and administrative expenses increased from $11,968,000 to $12,442,000, or 4%. Research and development expenses increased from $5,334,000 to $5,370,000, or 1%. During the first half of 1995, $564,000 of cost associated with severance agreements resulting from the above described restructuring was charged to research and development. These charges will reduce internal salaries on an ongoing basis. However, this reduction was offset in 1995 by beginning the large scale clinical trial for the testing of Aliminase[TM] (formerly CARN 1000) oral capsules for the treatment of acute flare-ups of ulcerative colitis during the third quarter of 1995. Interest expense increased from $171,000 to $251,000, or 47%, due to increased borrowings during the first four months of 1995. Interest income increased from $38,000 to $136,000, or 258%, due to having more excess cash to invest. The net loss for 1995 was $1,628,000, compared with net income of $1,421,000 for 1994. This change is a result of a changing product mix, increased discounts and one-time charges related to restructuring. Losses per share were $.22 in 1995, compared to earnings per share of $.18 in 1994. 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 recover the cost of the Costa Rica plant, to absorb the plant s operating cost, to achieve growth in demand for, or sales of, products, to reduce expenses and manufacturing costs and increase gross margin on existing sales, to use the proceeds from its sale of Series E Convertible Preferred Stock to continue its clinical research programs, to file a registration statement and have it declared effective within the time required by its agreements with the holders of its Series E Convertible Preferred Stock, to vigorously defend the legal proceedings described in this report, to maintain the CD that secures its outstanding letter of credit, to obtain financing when it is needed, to increase the Company's market share in the alternative and home health care markets, to improve its revenues and fund its operations from such revenues 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 expand its business into a larger segment of the market for wound care products and increase its market share in the alternative care markets, to promote and sell its veterinary products on a broader scale, and various other matters. Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ materially from the results discussed in such forward-looking statements include but are not limited to the possibilities that the 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 demand for the Company's products may not be sufficient to enable it to recover the cost of the Costa Rica plant or to absorb all of that plant's operating costs, and 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. All forward-looking statements in this report are expressly qualified in their entirety by the cautionary statements in the two immediately preceding paragraphs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Reference is made to the Consolidated Financial Statements of the Company and its subsidiaries listed on page F-1 of this Annual Report, which are hereby incorporated by reference in this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Effective March 10, 1997, the Company appointed the accounting firm of Ernst & Young LLP as the Company's independent public accountants for fiscal 1997 to replace Arthur Andersen LLP effective with such appointment. The Company's Board of Directors approved the selection of Ernst & Young LLP as independent public accountants upon the recommendation of the Board s Audit Committee. During the two most recent fiscal years, there have been no disagreements with Arthur Andersen LLP on any matter of accounting principle or practice, financial statement disclosure or auditing scope or procedures or any reportable events. Arthur Andersen LLP's report on the financial statements for the past two years contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. The Company has provided Arthur Andersen LLP with a copy of this disclosure and has requested that Arthur Andersen LLP furnish it with a letter addressed to the Securities and Exchange Commission (the "Commission") stating whether it agrees with the above statements. (A copy of Arthur Andersen LLP's letter to the Commission, dated March 19 1997, is filed as Exhibit 16.1 to this report.) 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 1997 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 1996. 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 1997 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 1996. 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 1997 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 1996. 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 1997 annual meeting of shareholders, which will be filed pursuant to Regulation 14A within 120 days after the Company's fiscal year ended December 31, 1996. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) Financial Statements. Reference is made to the index on page F-1 for a list of all financial statements filed as a part of this Annual Report. (2) Financial Statement Schedules. Reference is made to the index on page F-1 for a list of all financial statement schedules filed as a part of this Annual Report. (3) Exhibits. Reference is made to the Index to Exhibits on pages E-1 through E-10 for a list of all exhibits filed as a part of this Annual Report. (b) Reports on Form 8-K. During the last quarter of 1996, the Company filed a Form 8- K Current Report dated October 21, 1996 with the Securities and Exchange Commission describing the Comapny's private placement of 660 shares of Series E Convertible Preferred Stock. See Notes Seven and Seventeen to the consolidated financial statements for a description of that private placement and subsequent repurchase by the Company of 330 of such shares. CARRINGTON LABORATORIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Consolidated Financial Statements of the Company: Consolidated Balance Sheets -- December 31, 1995 and 1996 F - 2 Consolidated Statements of Operations -- year ended November 30, 1994, month ended December 31, 1994 and years ended December 31, 1995 and 1996 F - 3 Consolidated Statements of Shareholders' Investment -- year ended November 30 1994, month ended December 31, 1994 and years ended December 31, 1995 and 1996 F - 4 Consolidated Statements of Cash Flows -- year ended November 30, 1994, month ended December 31, 1994 and years ended December 31, 1995 and 1996 F - 5 Notes to Consolidated Financial Statements F - 6 Report of Independent Public Accountants F - 28 Consolidated Balance Sheets (Dollar amounts in thousands, except share amounts)
December 31, December 31, As of 1995 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 6,222 $11,406 Accounts receivable, net of allowance for doubtful accounts of $227 and $213 as of December 31, 1995 and 1996, respectively 2,227 1,912 Inventories 5,235 3,623 Prepaid expenses 858 368 --------- ------- Total current assets 14,542 17,309 Property, plant and equipment, at cost 18,933 18,851 Less: Accumulated depreciation (6,222) (7,173) --------- ------- 12,711 11,678 Other assets 681 2,215 --------- -------- Total assets $27,934 $31,202 ========= ======== LIABILITIES AND SHAREHOLDERS' INVESTMENT LIABILITIES: Current portion of long-term debt $ 3,026 $ 29 Accounts payable 590 1,621 Accrued liabilities 1,831 1,749 Short-term borrowings - - -------- -------- Total current liabilities 5,447 3,399 Long-term debt, net of current portion 88 46 SHAREHOLDERS' INVESTMENT: Preferred stock, 1,000,000 shares authorized (all series) Series C, $100 par value, 11,840, and 0 shares issued December 31, 1995 and 1996, respectively 1,167 - Series E Convertible, $100 par value and 660 issued at December 31, 1996 - 66 Common stock, $.01 par value, 30,000,000 shares authorized, 8,378,999, and 8,869,819 shares issued and outstanding at December 31, 1995 and 1996, respectively 84 89 Capital in excess of par value 44,666 56,680 Deficit (23,344) (28,904) Foreign currency translation adjustment (174) (174) -------- --------- Total shareholders' investment 22,399 27,757 -------- --------- Total liabilities and shareholders' investment $27,934 $31,202 ======= =========
[FN] The accompanying notes are an integral part of these balance sheets. F - 2 Consolidated Statements of Operations For the Year Ended November 30, 1994, the Month Ended December 31, 1994 and the Years Ended December 31, 1995 and 1996 (Dollar amounts in thousands, except per share amounts)
November 30, December 31, ------------ -------------------------------- 1994 1994 1995 1996 ------ ------- ------- ------- Net sales $25,430 $1,781 $24,374 $21,286 Cost and expenses: Cost of sales 6,415 516 7,944 10,327 Selling, general and administrative 11,968 985 12,442 10,771 Research and development 5,334 327 5,370 5,927 Interest expense 171 23 251 88 Interest income (38) - (136) (392) Income (loss) before income taxes 1,580 (70) (1,497) (5,435) Provision for income taxes 159 - 131 88 ------- ------- -------- -------- Net income (loss) $ 1,421 $ (70) $(1,628) $(5,523) ======= ======= ======== ======== Weighted average shares outstanding 7,341 7,344 7,933 8,798 Net income (loss) per common and common equivalent share: $ .18 $ (.01) $ (.22) $ (.63) ======== ======= ======== ========
[FN] The accompanying notes are an integral part of these statements. F - 3 Consolidated Statements of Shareholders' Investment For the Year Ended November 30, 1994, the Month Ended December 31, 1994, and the Years Ended December 31, 1995 and 1996 (Dollar amounts and share amounts in thousands)
Foreign Capital in Currency Preferred Common Excess of Translation Stock Stock Par Value Deficit Adjustment Shares Amount Shares Amount ------ ------ ------ ------ ---------- -------- ----------- ------------------------------------------------------------------------------------------ Balance, November 30, 1993 10 $928 7,336 $ 74 $33,016 $(22,802) $(174) ------------------------------------------------------------------------------------------ Issuance of common stock upon exercise of stock options and warrants - - 8 - 59 - - Dividends on Preferred stock 1 113 - - - (125) - Net income - - - - - 1,421 - ------------------------------------------------------------------------------------------ Balance, November 30, 1994 11 $1,041 7,344 $ 74 $33,075 $(21,506) $(174) ------------------------------------------------------------------------------------------ Net loss - - - - - (70) - ------------------------------------------------------------------------------------------ Balance, December 31, 1994 11 $1,041 7,344 $ 74 $33,075 $(21,576) $(174) ------------------------------------------------------------------------------------------ Sales of common stock at $10 per share, net of issuance costs of $41,000 - - 300 3 2,956 - - Issuance of common stock upon exercise of stock options and warrants - - 711 7 8,426 - - Issuance of common stock for management and directors compensation - - 24 - 209 - - Dividends on preferred stock 1 126 - - - (140) - Net loss - - - - - (1,628) - ----------------------------------------------------------------------------------------- Balance, December 31, 1995 12 $1,167 8,379 $ 84 $44,666 $(23,344) $(174) ----------------------------------------------------------------------------------------- Issuance of common stock upon exercise of stock options, warrants and employee stock purchase plan - - 316 3 4,604 - - Dividends on preferred stock - 35 - - - (37) - Conversion of preferred to common stock (Series C) (12) (1,202) 175 2 1,200 - - Sales of preferred convertible stock (Series E), $100 Par, net of issuance costs of $58,000 1 66 - - 6,210 - - Net loss - - - - - (5,523) - ----------------------------------------------------------------------------------------- Balance, December 31, 1996 1 66 8,870 89 56,680 (28,904) (174) -----------------------------------------------------------------------------------------
[FN] The accompanying notes are an integral part of these statements. F - 4 Consolidated Statements of Cash Flows For the Year Ended November 30, 1994, the Month Ended December 31, 1994 and the Years Ended December 31, 1995 and 1996 (Dollar amounts in thousands)
November 30, December 31, ------------ ------------------------ 1994 1994 1995 1996 ------ ------ ------ ------- Cash flows from operating activities: Net income (loss) $ 1,421 $ (70) $(1,628) $(5,523) Adjustments to reconcile income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 1,206 110 1,277 1,273 Changes in assets and liabilities: (Increase) decrease in accounts receivable, net (603) 6 658 315 (Increase) decrease in inventories (2,072) (411) (188) 1,612 (Increase) decrease in prepaid expenses (428) 102 (319) 490 Decrease (increase) in other assets 8 36 (514) (1,534) Increase (decrease) in accounts payable and accrued liabilities 838 (638) (545) 949 ------- ------ ------- ------- Net cash provided (used) by operating activities 370 (865) (1,259) (2,418) ------- ------ ------- ------- Cash flows from investing activities: Purchases of property, plant and equipment (3,014) (286) (4,206) (242) ------- ------ ------- ------- Net cash used by investing activities (3,014) (286) (4,206) (242) ------- ------ ------- ------- Cash flows from financing activities: Issuances of common stock 59 - 11,393 4,607 Issuance of preferred stock - - - 6,276 Proceeds from short- and long-term borrowings 1,500 - 5,742 - Payments of short- and long-term debt (385) (187) (5,848) (2,999) Principal payments of capital lease obligations (49) (3) (64) (40) ------- ------ ------- ------- Net cash provided (used) by financing activities 1,125 (190) 11,223 7,844 ------- ------ ------- ------- Net (decrease) increase in cash and cash equivalents (1,519) (1,341) 5,758 5,184 Cash and cash equivalents at beginning of year 3,324 1,805 464 6,222 ------- ------- ------- ------- Cash and cash equivalents at end of year $ 1,805 $ 464 $ 6,222 $11,406 ======== ======== ======= ======== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 206 $ 20 $ 281 $ 87 Cash paid during the year for income taxes 124 - 99 13 Supplemental Disclosure of Non-Cash Financing Activities: Equipment acquired through capital leases 114 - - 39 Issuances of common stock and warrants - - 209 -
[FN] The accompanying notes are an integral part of these statements. F - 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: In February 1995, the Company changed its fiscal year end from November 30 to December 31. Comparative financial statements reflect the fiscal year ended November 30, 1994, the single month of December 1994, and the fiscal years ended December 31, 1995 and 1996. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Carrington Laboratories, Inc. (the "Company"), and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with 1996 presentation. CASH EQUIVALENTS The Company's policy is that all highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents unless otherwise restricted. REVENUE RECOGNITION The Company recognizes revenue when title to the goods transfers. For the majority of the Company's sales, this occurs at the time of shipping. However, certain customers do not take title until the goods are delivered to their location or agent at which time revenue is recognized. DEPRECIATION AND AMORTIZATION Land improvements, buildings and improvements, furniture and fixtures and machinery and equipment are depreciated on the straight-line method over their estimated useful lives (3 - 40 years). Leasehold improvements and equipment under capital leases are depreciated over the terms of the respective leases (2 - 5 years). TRANSLATION OF FOREIGN CURRENCIES Based on an evaluation of the activities of its Costa Rica subsidiaries, as of September 1, 1993, the Company concluded that the functional currency for these operations was 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 consolidated income in the year of occurrence. Prior to September 1, 1993, all assets and liabilities of foreign subsidiaries were translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue and expense accounts were translated at weighted average exchange rates. Translation gains and losses were reflected as a separate component of shareholders' investment. FEDERAL INCOME TAXES The Company applies Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS 109") which was issued in February 1992 to account for federal income taxes. F - 6 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. Certain of the Company's research and development expenditures qualify for tax credits and such credits are accounted for as a reduction of the current provision for income taxes in the year they are realized. 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. POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS The Company does not offer any post-retirement or post-employment benefits. EARNINGS PER SHARE Earnings per share are based on the weighted average number of common and common equivalent shares outstanding during each period. Stock options and warrants are included as common stock equivalents if the dilutive effect on net earnings per share is greater than 3%. The common stock equivalents were either antidilutive, or represented dilution of less than 3%, in 1994, 1995 and 1996. The weighted average numbers of common shares used in computing earnings per share were 7,340,982, 7,932,675, and 8,798,211 for the fiscal years ended November 30, 1994, and December 31, 1995 and 1996, respectively. 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. NOTE TWO. INVENTORIES: Inventories are recorded at the lower of first-in, first-out cost or market. The following summarizes the components of inventory at December 31, 1995 and 1996: (Dollar amounts in thousands) 1995 1996 ------------------------------------------------------ Raw materials and supplies $ 714 $ 658 Work-in-process 2,726 1,197 Finished goods 1,795 1,768 ------------------------------------------------------ Total $5,235 $3,623 ------------------------------------------------------ F - 6 Included in work-in-process are $2,538,000 and $1,124,000 of freeze-dried Aloe vera inventory as of December 31, 1995 and 1996, respectively. Finished goods consist of materials, labor and manufacturing overhead. NOTE THREE. PROPERTY, PLANT AND EQUIPMENT: The Company has a 6.6 acre tract of land and a 35,000 square foot office and manufacturing building situated thereon. This facility is located in Irving, Texas, a suburb of Dallas, and is used as the Company's headquarters and primary manufacturing facility. During July 1995, the Company completed the manufacturing and distribution project started during the first quarter of 1994. The project involved the physical relocation of its manufacturing operation from a leased facility in Dallas to an unused portion of the Company's corporate headquarters facility in Irving, Texas. The new facility is intended to meet all federal regulatory requirements applicable to provide the production capacity needed to meet long-term sales growth. At the same location, the Company has upgraded its capability to enable it to produce injectable products that meet FDA standards. The total cost expended on the project was $4,469,000. During the first quarter of 1994, the Company initiated a project in Costa Rica to upgrade its production plant to meet regulatory requirements for the production of bulk acetylated oral and injectable mannans as required for investigational new drugs ("INDs"). This project was completed in the fourth quarter of 1994 and cost approximately $1,200,000. Funding was provided by existing cash on hand and cash flow from operations. The Company's net investment in property, plant, equipment and other assets in Costa Rica at November 30, 1994 and December 31, 1995 and 1996 were $4,545,000, $4,280,000, and $3,958,000, respectively. The production capacity of the Company's Aloe vera processing plant in Costa Rica, where its bulk freeze-dried Aloe vera extract is manufactured, is greater than the Company's current level of usage of the plant. The Company is currently exploring other options to utilize the available capacity. There is no assurance that the Company will be able to fully utilize the Costa Rica plant s capacity. The Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") in the first quarter of 1996. SFAS 121 requires that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. At the time of adoption, there was no impairment of asset value in Costa Rica based on historical production levels and future capacity requirements needed to produce the Company's drug Aliminase[TM], then under initial phase III clinical trials. Under SFAS 121, when there is an event or change in circumstances that may impair the recoverability of the assets, the carrying amount of the asset should be assessed. In late October 1996, the Company received the results of the initial phase III clinical trial for the testing of Aliminase[TM] oral capsules, which no statistically significant differences that would support a conclusion that Aliminase[TM] oral capsules provide a therapeutic effect in the treatment of ulcerative colitis. As a result, the Company terminated the second large scale clinical trial and placed further testing of Aliminase[TM] oral formulation on hold. These results triggered a new assessment of the F - 6 recoverability of the costs of The Costa Rica plant's assets using the methodology provided by SFAS 121 in the fourth quarter of 1996. The net book value of the Costa Rica Plant assets as of December 31, 1996, was $3,958,000. The Company evaluated the value of Costa Rica produced components in its current product mix to determine the amount of net revenues, excluding Manapol[R] powder sales to Mannatech (see also Note Thirteen), attributable to the Costa Rica plant. Sales to Mannatech were excluded from the analysis as the Company has been informed by Mannatech that the supply agreement in effect throughout 1996 will not be renewed. Mannatech has indicated it will honor the minimum purchase requirements through March 31, 1997, the termination date. As the Supply Agreement between Mannatech and the Company will not be renewed, the exclusive license agreement for the Manapol[R] trademark will also terminate on March 31, 1997. The Company will then be able to sell Manapol[R] powder or license the trademark to other third parties as well as use it in the Company's products. Mannatech may continue to purchase Manapol[R] powder on an as-needed basis, but no such purchases could be anticipated for the SFAS 121 analysis. Cash inflows for 1997 and future years were estimated using management's current forecast and business plan. All direct costs of the facility, including certain allocations of Company overhead, were considered in the evaluation of cash outflows. Results indicate there is no impairment of value under SFAS 121. However, there is no assurance that future changes in product mix or the content of Costa Rica produced components in the current products will generate sufficient revenues to recover the costs of the plant under SFAS 121 methodology. The following summarizes the components of property, plant and equipment at December 31, 1995 and 1996: (Dollar amounts in thousands) 1995 1996 ---------------------------------------------------------------- Land and improvements $ 1,389 $ 1,389 Buildings and improvements 8,073 8,085 Furniture and fixtures 868 880 Machinery and equipment 7,826 7,589 Leasehold improvements 330 756 Equipment under capital leases 447 152 ----------------------------------------------------------------- Total $18,933 $18,851 ----------------------------------------------------------------- NOTE FOUR. OTHER ASSETS The Company owns a $1,500,000 certificate of deposit ("CD") that matures every 90 days. Although includable in cash as a cash equivalent, the Company's management has elected not to classify the CD as such. Because the CD secures a letter of credit (see Note Seven), it is effectively unavailable to the Company for other purposes until such time as the letter of credit expires or is otherwise released. Therefore, the CD is included in other non-current assets for reporting purposes. F - 6 Also included in other assets are the unamortized portion of a Product Development and Exclusive Distribution Agreement with Innovative Technologies Limited ("IT"), capitalized legal and start-up costs related to the Costa Rica operation, and a $200,000 investment in Aloe Commodities International, Inc. ("ACI"). The following summarizes the components of other assets at December 31, 1995 and 1996: (Dollar amounts in thousands) 1995 1996 ----------------------------------------------------------------------- Certificate of Deposit $ - $1,500 IT Product Development and Exclusive Distribution Agreement 442 392 Callable Note to ACI - 200 Costa Rica Start-up Costs 123 81 Cost of 1995 restructuring bank debt 77 - Other 39 42 ------------------------------------------------------------------------ Total $681 $2,215 ------------------------------------------------------------------------ NOTE FIVE. ACCRUED LIABILITIES: The following summarizes significant components of accrued liabilities at December 31, 1995 and 1996: (Dollar amounts in thousands) 1995 1996 ------------------------------------------------------------------------- Accrued payroll $ 210 $ 232 Accrued sales commissions 251 187 Accrued taxes 165 512 Preferred dividends (Series C Shares) 124 - Accrued severance liability 267 - Rebates 182 129 Legal 30 125 Other 602 564 ------------------------------------------------------------------------- Total $1,831 $1,749 ------------------------------------------------------------------------- F - 6 NOTE SIX. SHORT-TERM BORROWINGS: Short-term debt activity for each of the years ended December 31, 1995 and 1996 was as follows: (Dollar amounts in thousands) 1995 1996 ------------------------------------------------------ Average amount of short-term debt outstanding during the year $ 468 $ 991 Maximum amount of short-term debt outstanding during the year 2,977 2,977 Average interest rate for the year 7.9% 7.7% ------------------------------------------------------ NOTE SEVEN. DEBT: In January 1995, the Company entered into an agreement with NationsBank of Texas, N.A., (the "Bank") for a $2,000,000 line of credit and a $6,300,000 term loan. Proceeds from the term loan were used to fund planned capital expenditures, a letter of credit required by a supplier, as discussed below, and planned research projects. The line of credit was to be used for operating needs, as required. The term loan was payable in equal quarterly installments of $250,000 principal plus accrued interest beginning March 31, 1995 and ending January 30, 1999, when the unpaid balance was due. The interest rate on both credit facilities was the Company's option of prime plus .5% or 30, 60, 90, or 180 day reserve adjusted LIBOR (London Interbank Offering Rate) plus 2%. The Company paid a commitment fee of $31,500 on the closing date. In February 1995, the Bank waived the requirement that the Costa Rica assets be pledged to secure the term loan. The Company agreed to pay an additional commitment fee of $31,500 at that time. As of December 31, 1995, the Company was not in compliance with the term loan's fixed charge ratio covenant. Therefore, the entire balance was classified as current debt for reporting purposes. Rather than amend the terms of the term loan, on April 29, 1996, the Company's management elected to pay off the entire term loan balance of $2,977,000 plus $18,000 in accrued interest with available cash to eliminate the interest expense on the term loan. All assets previously collateralizing the term loan were released by the Bank. The Company pledged a $1,500,000 CD to secure the letter of credit as described below. The interest rate on the borrowing ranged from 7.70% to 8.125% between January 30, 1995 and December 31, 1995. In 1996, the interest rate was 7.7% from January 1, 1996 through April 29, 1996. In order to help finance the development of the Company's Costa Rica facilities, the Company arranged a five-year U.S. dollar-denominated loan in the amount of $600,000 from Corporacion Privada de Inversiones de CentroAmerica, S.A. In May 1995, the note was paid off using proceeds of the Company's private placement (see Note Nine). F - 6 In February 1995, the Company entered into a supply agreement with its supplier of freeze-dried products. The agreement required that the Company establish a $1,500,000 letter of credit. The term loan with NationsBank was used to fund this letter of credit. The funding of the letter of credit reduced the amount that the Company could borrow under the term loan but did not increase the Company's debt unless the letter of credit was utilized by the supplier. As of March 14, 1997, the supplier had not made a presentation for payment under the letter of credit. In April 1996, and in conjunction with the Company's settlement of the term loan, the Bank agreed to reduce the fees on the letter of credit by one percentage point in consideration of the Company's agreement to purchase and assign to the Bank a CD in an amount equal to the letter of credit. The Company will maintain the CD until such time as the letter of credit expires or is otherwise released. Long-term debt of the Company for the years ended December 31, 1995 and 1996 is summarized as follows: (Dollar amounts in thousands) 1995 1996 -------------------------------------------------------- Term Loan $2,977 $ - Obligations under capital leases 137 75 -------------------------------------------------------- 3,114 75 Less - Current portion 3,026 29 -------------------------------------------------------- Long-term debt, net of current $ 88 $ 46 -------------------------------------------------------- The Company leases certain computer and other equipment under capital leases expiring at various dates through 2001. The following is a schedule of future minimum lease payments under the capital lease agreements together with the present value of these payments as of December 31, 1996: (Dollar amounts in thousands) Fiscal years ending December 31, ----------------------------------------------- 1997 $ 35 1998 35 1999 9 2000 6 2001 1 ----------------------------------------------- Aggregate minimum lease payments 86 Less - Imputed interest included in aggregate minimum lease payments 11 ----------------------------------------------- Present value of aggregate minimum lease payments $ 75 ----------------------------------------------- F - 6 NOTE EIGHT. PREFERRED STOCK: SERIES C SHARES In June 1991, the Company completed a transaction whereby the Company issued 7,909 shares of Series C 12% cumulative convertible preferred stock (the "Series C Shares") in exchange for convertible debentures plus interest accrued to the date of exchange to a private investor (the "Investor"). The Series C Shares had a par value of $100 per share, were convertible at par into common stock of the Company at a price of $7.58 per share (subject to certain adjustments), and were callable by the Company, after January 14, 1996 and provided for dividend payments to be made only through the issuance of additional Series C Shares. In January 1996, all of the outstanding Series C shares were converted to 174,935 shares of the Company's common stock. The Company had previously issued to the Investor warrants to purchase 55,000 shares of common stock of the Company at $15 per share through February 1, 1996. In addition to issuing the Series C Shares to the Investor, the Company reduced the exercise price of warrants held by the Investor from $15 per share to $12.75 per share, which was above the market price of the common stock at the date of adjustment. These warrants were exercised in the first quarter of 1996. The Company also extended by three years, to February 1, 1996, the life of certain warrants that had previously been issued to this Investor for the purchase of 20,000 shares of common stock of the Company (all of which are now owned 10,000 shares each by two executives of the Investor, one of whom is a director of the Company), and reduced the exercise price of such warrants from $25 to $15 per share, which was above the market price of the common stock at the date of adjustment. SERIES E SHARES On October 21, 1996 (the "Closing Date"), the Company completed a $6,600,000 financing involving the private placement of Series E Convertible Preferred Stock (the "Series E Shares"). Each Series E Share has a par value of $100 and an initial purchase price of $10,000. After placement fees, legal and other costs related to the private placement, the Company expects to realize net proceeds of $6,266,000. At the Closing Date, the Company's plans called for much of the proceeds from this sale to be used to continue Carrington's clinical research programs. The Series E Shares are convertible, at the option of the holder thereof, into shares of the Compan's common stock beginning on December 20, 1996, and prior to October 21, 1999 (the "Maturity Date"), at a conversion price per share (the "Conversion Price") equal to the lower of $25.20 (120 % of the market price of the Company's common stock as calculated over the three trading-day period ended on the last trading day prior to the Closing Date) or 87% of the market price as calculated over the three trading-day period ending on the last trading day immediately preceding the conversion date. The Conversion Price is subject to adjustment to take into account stock dividends, stock splits and share combinations involving the Company's common stock. Each Series E Share will be convertible into the number of whole shares of common stock determined by dividing $10,000 by the Conversion Price. F - 6 Each Series E Share outstanding on the Maturity Date will automatically convert into common stock at the then current Conversion Price. Holders of Series E Shares will be entitled to receive an annual dividend payment equal to $500 per share for the one year period commencing on October 21, 1998 and ending on October 20, 1999 (equal to 5% of the per share Purchase Price). Dividends are payable only if the preferred shares are held to maturity, and are payable either in shares of common stock at the then current Conversion Price or in cash, or a combination of both, at the option of the Company. The Company entered into Registration Rights Agreements (collectively, the "Registration Agreements") with the holders of the Series E Shares obligating the Company to prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement (the "Registration Statement") with respect to the resale of the underlying shares of common stock (including any shares issued in payment of dividends on the Series E Shares or the periodic payments described below. The Registration Agreements provided that if the Commission did not declare the Registration Statement effective on or before January 9, 1997, the Company would make periodic payments to the holders of the Series E Shares equal to 1% of the Purchase Price for the first 30-day period thereafter and 2% of the Purchase Price for each additional 30-day period, prorated to the date on which the Commission declared the Registration Statement effective. Such payments could be made in cash or shares of common stock or a combination of both, at the election of the Company. The Company filed the Registration Statement with the Commission on December 2, 1996. In March 1997, the Company repurchased 50% of the above Series E shares for $3,729,000. See Note Eighteen for further discussion. NOTE NINE. COMMON STOCK: PRIVATE PLACEMENT OF COMMON STOCK In April 1995, the Company completed a self-directed private placement of 300,000 shares of common stock at a price of $10.00 per share. The average of the high and low sale prices of the Company's common stock on the NASDAQ National Market on the day of the placement was $10.69 per share. Total proceeds net of issuance costs were $2,956,000. The Company agreed to use its best efforts to file a registration statement with the Securities and Exchange Commission within 90 days after the placement. Effective July 11, 1995, shares related to the private placement were registered for resale with the Securities and Exchange Commission. Proceeds from the placement were used for planned capital expenditures, payment of bank debt, research and development expenditures and other operating needs. EMPLOYEE STOCK PURCHASE PLAN On October 29, 1992, the Company adopted an Employee Stock Purchase Plan (the "Stock Purchase Plan"). Under the Stock Purchase Plan, 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 the month. If any employee elects to terminate participation in the Stock Purchase Plan, the employee is not F - 6 eligible to re-enroll until the first enrollment date following six months from such election. The Stock Purchase Plan provides for the grant of rights to employees to purchase a maximum of 500,000 shares of common stock of the Company commencing on January 1, 1993. As of December 31, 1996, 62,970 shares had been purchased by employees at prices ranging from $7.23 to $29.54 per share. STOCK OPTIONS The Company has an incentive stock option plan (the "Option Plan") under which incentive stock options and nonqualified stock options may be granted to certain employees as well as non-employee directors. Options are granted at a price no less than the market value of the shares on the date of the grant, except for incentive options to employees who own more than 10% of the total voting power of the Company's common stock, which are granted at a price no less than 110% of the market value. Options granted expire four to ten years from the dates of grant. 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 ("SFAS 123"), the Company's net loss and losses per share would have been reduced to the following pro forma amounts: -------------------------------------------------------- 1995 1996 -------------------------------------------------------- Net loss (in thousands): As reported $(1,628) $(5,523) Pro forma (2,656) (8,022) Loss per share: As reported $ (0.22) $ (0.63) Pro forma (0.35) (0.92) -------------------------------------------------------- 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. F - 6 The following summarizes stock option activity for each of the three years ended November 30, 1994 and December 31, 1995 and 1996: (Shares in thousands) Options Outstanding ------------------------------------------------------------------------- Weighted Average Exercise Shares Price Per Share Price ------------------------------------------------------------------------- Balance, November 30, 1993 754 $ 6.25 to $29.00 $13.96 Granted 268 $ 8.25 to $12.75 $11.47 Lapsed or canceled (118) $ 6.25 to $21.72 $14.45 Exercised (7) $ 6.25 to $10.25 $ 6.25 ------------------------------------------------------------------------- Balance, November 30, 1994 897 $ 6.25 to $29.00 $12.95 Granted 592 $11.12 to $35.25 $20.63 Lapsed or canceled (72) $ 8.62 to $20.12 $11.93 Exercised (581) $ 6.25 to $29.00 $12.45 ------------------------------------------------------------------------- Balance, December 31, 1995 836 $ 6.25 to $35.25 $18.82 Granted 141 $24.25 to $47.75 $32.69 Lapsed or canceled (109) $11.25 to $28.75 $23.81 Exercised (201) $ 6.25 to $29.00 $15.33 ------------------------------------------------------------------------- Balance, December 31, 1996 667 $ 8.25 to $47.75 $21.99 ------------------------------------------------------------------------- Options exercisable at December 31, 1996 223 $ 8.25 to $47.75 $22.84 ------------------------------------------------------------------------- Weighted Average Fair Value of Options Granted using SFAS 123 Valuation Method: 1995 $11.86 1996 18.70 ------------------------------------------------------------------------- The following table summarizes information about fixed stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ----------------------------------------------------------------------------- --------------------------------- Number Weighted-Avg Number Range of Outstanding Remaining Weighted-Avg Exercisable Weighted-Avg Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price --------------- ----------- ---------------- -------------- ----------- -------------- $ 8.25 to $13.13 227 7.0 years $11.18 71 $10.74 $16.56 to $20.13 107 7.0 $18.22 45 $18.62 $24.25 to $30.25 251 9.1 $27.16 62 $27.62 $35.25 45 8.6 $35.25 30 $35.25 $47.75 37 7.0 $47.75 15 $47.75 ---------------- ----------- --------------- ------------- ---------- ------------- $ 8.25 to $47.75 667 7.9 $21.99 223 $22.84 ================ =========== =============== ============= ========== =============
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1995 and 1996, respectively: risk-free interest rates of 6.50% and 6.47%, expected volatility of 64.2% and 63.0%. The Company used the following weighted- average assumptions for grants in 1995 and 1996: expected dividend yields of 0% and expected lives of 5.0 years on options granted to employees and 4.0 years on grants to directors. The Company has reserved 1,500,000 shares of common stock for issuance under the Option Plan. As of December 31, 1996, options to purchase 525,125 shares had been granted under the option plan, of which options for 17,200 shares had been exercised. As of December 31, 1996, options covering 422,675 shares were outstanding with exercise prices between $16.56 and $47.75, with a weighted average exercise price of $27.87 and a weighted average contractual life of 8.8 years. Of these options, 134,518 are currently exercisable with a weighted average exercise price of $29.56. The Company's 1985 Stock Option Plan expired in February 1995. The Company had reserved 1,400,000 shares of common stock for issuance under this plan. At the time the plan expired, options to purchase 1,150,440 had been granted, of which options for 863,540 shares have been exercised. As of December 31, 1996, options covering 244,089 shares were outstanding with exercise prices between $6.25 and $29.00, with a weighted average exercise price of $11.81 and a weighted average contractual life of 6.8 years. Of these options, 88,330 are currently exercisable with a weighted average exercise price of $12.57. F - 6 STOCK WARRANTS From time to time, the Company has granted warrants to purchase common stock to the Company's research consultants and certain other persons rendering services to the Company. The exercise price of such warrants was normally the market price or in excess of the market price of the common stock at date of issuance. The following summarizes warrant activity for each of the years ended November 30, 1994, and December 31, 1995 and 1996: Warrants Outstanding (Shares in thousands) -------------------------------------------- Weighted Average Exercise Shares Price per Share Price -------------------------------------------------------------------------- Balance, November 30, 1993 331 $ 6.25 to $26.00 $14.43 Granted 10 $ 9.75 $ 9.75 Lapsed or canceled (42) $18.00 to $26.00 $23.66 -------------------------------------------------------------------------- Balance, November 30, 1994 299 $ 6.25 to $26.00 $14.27 Granted 20 $16.00 $16.00 Lapsed or canceled (88) $11.25 to $26.00 $17.88 Exercised (102) $ 6.25 to $16.25 $11.88 -------------------------------------------------------------------------- Balance, December 31, 1995 129 $ 9.75 to $20.13 $13.99 Lapsed or canceled (3) $12.13 $12.13 Exercised (75) $12.75 to $15.00 $13.35 -------------------------------------------------------------------------- Balance, December 31, 1996 51 $ 9.75 to $20.13 $15.03 -------------------------------------------------------------------------- Warrants exercisable at December 31, 1996 49 $ 9.75 to $20.13 $15.14 -------------------------------------------------------------------------- The following table summarizes information about stock warrants oustanding at December 31, 1996:
Warrants Outstanding Warrants Exercisable ------------------------------------------------------- -------------------------------- Number Weighted-Avg Number Range of Outstanding Remaining Weighted-Avg Exercisable Weighted-Avg Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price --------------- ----------- ---------------- -------------- ----------- -------------- $ 9.75 to $13.00 20 2.8 Years $11.38 18 $11.14 $16.00 to $20.13 31 2.8 $17.39 31 $17.39 ---------------- ----------- ---------------- -------------- ----------- -------------- $ 9.75 to $20.13 51 2.8 $15.03 49 $15.14 ================ =========== ================ ============== =========== ==============
F - 6 NOTE TEN. SHARE PURCHASE RIGHTS PLAN: In September 1991, the Company's Board of Directors adopted a share purchase rights plan by declaring a dividend distribution of one preferred share purchase right (a "Right") on each outstanding share of the Company's common stock (the "Common Shares"). The dividend distribution was made October 15, 1991, payable to shareholders of record on that date. The Rights are subject to an agreement (the "Rights Agreement") between the Company and the Company's stock transfer agent, and will expire October 15, 2001, unless redeemed at an earlier date. Pursuant to the Rights Agreement, each Right will entitle the holder thereof to buy one one-hundredth of a share of the Company's Series D Preferred Stock (the "Preferred Shares"), at an exercise price of $80, subject to certain antidilution adjustments. The Rights will not be exercisable or transferable apart from the Common Shares, until (i) the tenth day after a person or group acquires 20% or more of the Common Shares or (ii) the tenth business day following the commencement of, or the announcement of an intention to make, a tender or exchange offer for 20% or more of the Common Shares. The Rights will not have any voting rights or be entitled to dividends. If the Company is acquired in a merger or other business combination, each Right will entitle its holder to purchase, at the exercise price of the Right, a number of the acquiring company's common shares having a current market value of twice such price. Alternatively, if a person or group acquires 20% or more of the Common Shares, then each Right not owned by such acquiring person or group will entitle the holder to purchase, for the exercise price, a number of Common Shares having a market value of twice such price. The Rights are redeemable at the Company's option for $.01 per Right at any time prior to the close of business on the seventh day after the first date of public announcement that a person or group has acquired beneficial ownership of 20% or more of the Common Shares. At any time after a person or group acquires 20% or more of the Common Shares, but prior to the time such acquiring person acquires 50% or more of the Common Shares, the Company's Board of Directors may redeem the Rights (other than those owned by the acquiring person or group), in whole or in part, by exchanging one Common Share for each Right. NOTE ELEVEN. OPERATING LEASES: The Company conducts a significant portion of its operations from an office/ warehouse/distribution facility and an office/laboratory facility under operating leases that expire over the next five years. In addition, the Company leases certain office equipment under operating leases that expire over the next four years. F - 6 The Company is committed under noncancellable operating leases, with minimum lease payments as of December 31, 1996 as follows: (Dollar in thousands) Fiscal Years Ending December 31, ---------------------------------------------- 1997 $ 409 1998 421 1999 394 2000 394 Thereafter 97 ---------------------------------------------- Total minimum lease payments $1,715 ---------------------------------------------- Total rental expenses under operating leases were $447,000, $364,000 and $451,000 for the years ended November 30, 1994 and December 31, 1995 and 1996, respectively. NOTE TWELVE. INCOME TAXES: The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at December 31, 1995 and 1996 are as follows: (Dollars in thousands) 1995 1996 -------------------------------------------------------- Net operating loss carryforward $ 9,835 $ 12,875 Research and development and other credits 839 839 Patent fees 308 318 Other, net 795 791 Less - Valuation allowance (11,777) (14,823) -------------------------------------------------------- Deferred income tax asset $ - $ - -------------------------------------------------------- Pursuant to the requirements to SFAS 109, a valuation allowance is provided when it is more likely than not the deferred income tax asset will not be realized. The Company has provided a valuation allowance against the entire deferred tax asset at December 31, 1995 and 1996. F -6 The provisions for federal income and state franchise taxes for the years ended November 30, 1994 and December 31, 1995 and 1996 consisted of the following: (Dollars in thousands) 1994 1995 1996 ------------------------------------------------------- Current provision $159 $131 $ 88 Deferred provision, net - - - ------------------------------------------------------- Total provision $159 $131 $ 88 ------------------------------------------------------- The differences (expressed as a percentage of pre-tax income) between the statutory and effective federal income tax rates are as follows: 1994 1995 1996 ------------------------------------------------------- Statutory tax rate 34.0% (34.0%) (34.0%) State income taxes 5.4 2.8 .5 Recognition of previously unrecognized deferred tax benefits (35.3) - - Unrecognized deferred tax benefit - 34.6 34.9 Expenses related to foreign operations 4.7 4.1 - Research and development tax credit adjustment .5 - - Other .8 1.3 .2 ------------------------------------------------------- Effective tax rate 10.1% 8.8% 1.6% ------------------------------------------------------- At December 31, 1996, the Company had net operating loss carryforwards of approximately $37,868,000 for federal income tax purposes, which expire during the period from 1999 to 2011, and investment and research and development tax credit carryforwards of approximately $839,000, which expire during the period from 1999 to 2008, all of which are available to offset federal income taxes due in future periods. NOTE THIRTEEN. CONCENTRATIONS OF CREDIT RISK: Financial instruments that potentially expose the Company to concentrations of credit risk, as defined by SFAS No. 105, 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 unaffiliated customers. Allegiance Healthcare Corporation (Allegiance, formerly Baxter Healthcare Corporation) accounted for $2,775,000, $2,492,000 and F - 6 $1,877,000; Owens & Minor accounted for $1,795,000, $3,348,000 and $2,433,000; and Bergen Brunswig, which acquired Durr Medical and Colonial Healthcare in December 1996, accounted for $2,042,000, $2,359,000, and $2,568,000 of the Company's net sales in 1994, 1995 and 1996, respectively. Sales by Caraloe, Inc., to an unaffiliated customer, Mannatech, Inc., formerly Emprise International, Inc., accounted for $934,000, $2,488,000 and $3,273,000 of the Company's net sales in 1994, 1995 and 1996, respectively. 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. In the first quarter of 1997, the Company granted extended payment terms to Mannatech for orders placed in January through March, 1997, after which Mannatech's exclusive supply agreement will terminate. Orders placed in 1997, which should total approximately $810,000, will be paid in even monthly installments of $101,250 from February through September 1997. The Company's normal terms for sales to Mannatech are net 30. NOTE FOURTEEN. FAIR VALUES OF FINANCIAL INSTRUMENTS: SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of financial instruments. The following methods and assumptions were used by the Company in estimating the fair value disclosures for its financial instruments. For cash, trade receivables and payables, the net carrying amounts reported in the Consolidated Balance Sheets approximate fair value. The carrying amounts for revolving notes and notes payable approximate fair value based upon the borrowing rates currently available to the Company for similar bank loans. No such instruments were outstanding as of December 31, 1996. NOTE FIFTEEN. RELATED PARTY TRANSACTIONS In April 1996, the Company hired an independent manufacturer's representative as Vice President of Sales and Marketing. This individual continues to maintain his sales territory, primarily Alabama and Georgia, as an independent manufacturer's representative and currently employs three sales representatives to cover the territory. From April 1996 through December 31, 1996, the Company paid commissions of approximately $268,000 to this individual. F - 6 NOTE SIXTEEN. SALES BY DIVISION The following summarizes the Company's sales by division and consolidated sales for the years ended November 30, 1994, December 31, 1995, and December 31, 1996: (Dollar amounts in thousands)
Carrington Laboratories Consolidated ------------------------------- ---------------- Year Ended Wound Carrington Caraloe Total November 30, 1994 Care Veterinary Sales Inc. Sales ------------------- -------- ---------- ---------- ------- ------- Net Sales $23,665 $404 $24,069 $1,361 $25,430 Cost of Sales 5,392 190 5,582 833 6,415 -------- ------ -------- ------- ------- Gross Margin $18,273 $214 $18,487 $ 528 $19,015 ======== ====== ======== ======= ======= Year Ended December 31, 1995 ------------------ Net Sales $21,147 $320 $21,467 $2,907 $24,374 Cost of Sales 5,971 163 6,134 1,810 7,944 -------- ------ -------- ------- ------- Gross Margin $15,176 $157 $15,333 $1,097 $16,430 ======== ====== ======== ======= ======= Year Ended December 31, 1996 ------------------ Net Sales $17,302 $290 $17,592 $3,694 $21,286 Cost of Sales 7,128 249 7,377 2,950 10,327 -------- ------ -------- ------- ------- Gross Margin $10,174 $ 41 $10,215 $ 744 $10,959 ======== ====== ======== ======= =======
F - 6 NOTE SEVENTEEN. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA: The unaudited selected quarterly financial data below reflect the fiscal years ended December 31, 1995 and 1996, respectively. (Dollar and share amounts in thousands, except per share amounts)
1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter -------------------------------------------------------------------------- Net sales $6,276 $6,408 $6,621 $ 5,069 Gross profit 4,636 4,332 4,351 3,111 Net (loss) income (497) (287) 163 (1,007) (Loss) income per share $ (.07) $ (.04) $ .02 $ (.12) Weighted average common shares 7,359 7,813 8,213 8,345 1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter -------------------------------------------------------------------------- Net sales $5,515 $5,438 $5,112 $5,221 Gross profit 2,584 2,073 2,967 3,335 Net (loss) income (2,156) (2,545) ( 839) 17 (Loss) income per share $ (.25) $ (.29) $ (.09) $ - Weighted average common shares 8,666 8,805 8,855 8,868 --------------------------------------------------------------------------
NOTE EIGHTEEN. SUBSEQUENT EVENT On October 31, 1996, the Company announced that the results of its first Phase III trial of Aliminase[TM] oral capsules were not favorable and that the Company had placed the Aliminase[TM] project on hold and terminated the second Phase III trial of that product. Those developments resulted in changes in the Company's planned uses of and need for funds. In addition, a decline in the market price of the Company's common stock that followed that announcement increased the extent of the dilution that would have occurred if all of the outstanding Series E Shares issued in October 1996 were converted into common stock (see Note Eight). Also, since the Registration Statement covering the shares of common stock underlying the Series E Shares had not been declared effective by the Commission, the periodic payments required by the Registration Agreements had begun to accrue (see Note Eight). Accordingly, the Company's Board of Directors concluded that it was in the best interest of the Company and its shareholders to use a portion of its existing funds to repurchase 50% of the outstanding Series E Shares, and that repurchase was completed on March 4, 1997 (the "Repurchase Date"). The price paid by the Company was $11,300 per Series E Share, or a premium of $1,300 over the original Purchase Price. In connection with the repurchase, the parties agreed (i) that no periodic payments would be due F - 6 for the period from February 15, 1997 through May 15, 1997; (ii) that the Company would pay in cash on the Repurchase Date the periodic payments that had accrued from January 10 through February 14, 1997; (iii) that the Company would pay the holders of the Series E Shares interest at the rate of 7% per annum on the original Purchase Price of their outstanding Series E Shares for the period from February 15, 1997 through the earliest of (a) May 15, 1997, (b) the Repurchase Date (in the case of Series E Shares repurchased by the Company), or (c) the date on which the Registration Statement is declared effective by the Commission; and (iv) that if the Commission does not declare the Registration Statement effective on or before May 15, 1997, the periodic payments required by the Registration Agreements will resume accruing on May 16, 1997, but will be equal to 1% of the original Purchase Price of the outstanding Series E Shares through June 15, 1997 and 2% for each additional 30-day period, prorated to the date on which the Commission declares the Registration Statement effective, and will be payable only in cash. On the Repurchase Date, the Company paid the Series E Shareholders $3,729,000 (330 Series E Shares at $11,300 per share), $92,400 (periodic payment due on all 660 Series E Shares from January 10, 1997 through February 14, 1997) and $10,759 (7% per annum interest earned on $3,300,000 from February 15, 1997 to the Repurchase Date). These amounts will be shown as a reduction of Shareholders Investment in the first quarter of 1997. F - 6 ------------------------------------------------------------------------- Report of Independent Public Accountants ------------------------------------------------------------------------- To the Shareholders and Board of Directors of Carrington Laboratories, Inc., and Subsidiaries: We have audited the accompanying consolidated balance sheets of Carrington Laboratories, Inc. (a Texas corporation), and subsidiaries as of December 31, 1995, and December 31, 1996, and the related consolidated statements of operations, shareholders' investment, and cash flows for the year ended November 30, 1994, the month ended December 31, 1994, and the two years ended December 31, 1995 and December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 financial position of Carrington Laboratories, Inc., and subsidiaries as of December 31, 1995 and December 31, 1996, and the results of their operations and their cash flows for the year ended November 30, 1994, the month ended December 31, 1994 and the two years ended December 31, 1995 and December 31, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Dallas, Texas February 9, 1997 (except with respect to the matter discussed in Note Eighteen, as to which the date is March 4, 1997). F - 6 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 26, 1997 By: /s/ Carlton E. Turner -------------------------- Carlton E. Turner, 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 26, 1997 ------------------------- Officer and Director Carlton E. Turner /s/ Sheri L. Pantermuehl Chief Financial Officer March 26, 1997 ------------------------- (principal financial and Sheri L. Pantermuehl accounting officer) /s/ R. Dale Bowerman Director March 26, 1997 ----------------------------- R. Dale Bowerman /s/ George DeMott Director March 26, 1997 ----------------------------- George DeMott /s/ Robert A. Fildes, Ph.D. Director March 26, 1997 ----------------------------- Robert A. Fildes, Ph.D. /s/ Thomas J. Marquez Director March 26, 1997 ----------------------------- Thomas J. Marquez /s/ James T. O'Brien Director March 26, 1997 ----------------------------- James T. O'Brien /s/ Selvi Vescovi Director March 26, 1997 ----------------------------- Selvi Vescovi S - 1 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 26, 1997 By: -------------------------- Carlton E. Turner, 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 ---------- ----- ---- President, Chief Executive March 26, 1997 ------------------------- Officer and Director Carlton E. Turner Chief Financial Officer March 26, 1997 ------------------------- (principal financial and Sheri L. Pantermuehl accounting officer) Director March 26, 1997 ------------------------- R. Dale Bowerman Director March 26, 1997 ------------------------- George DeMott Director March 26, 1997 ------------------------- Robert A. Fildes, Ph.D. Director March 26, 1997 ------------------------- Thomas J. Marquez Director March 26, 1997 ------------------------- James T. O'Brien Director March 26, 1997 ------------------------- Selvi Vescovi S - 1 INDEX TO EXHIBITS Exhibit Sequentially Number Exhibit Numbered Page 3.1 Restated Articles of Incorporation of Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 3.1 to Carrington's 1988 Annual Report on Form 10-K). 3.2 Statement of Cancellation of Redeemable Shares of Carrington Laboratories, Inc., dated June 9, 1989 (incorporated herein by reference to Exhibit 3.2 to Carrington's 1991 Annual Report on Form 10-K). 3.3 Statement of Change of Registered Office and Registered Agent of Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 3.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended May 31, 1991). 3.4 Statement of Resolution Establishing Series D Preferred Stock of Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 3.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended August 31, 1991). 3.5 Statement of Resolution Establishing Series E Convertible Preferred Stock of Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 3.1 to Carrington's Form 8-K Current Report dated October 21, 1996). 3.6 Bylaws of Carrington Laboratories, Inc., as amended through April 27, 1995 (incorporated herein by reference to Exhibit 3.5 to Carrington's 1995 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). 4.23 Rights Agreement dated as of September 19, 1991, between Carrington Laboratories, Inc., and Ameritrust Company National Association (incorporated herein by reference to Exhibit 1 to Carrington's Report on Form 8-K dated September 19, 1991). E - 1 Exhibit Sequentially Number Exhibit Numbered Page 10.1+ 1985 Stock Option Plan of Carrington Laboratories, Inc., as amended through April 28, 1994 (incorporated herein by reference to Exhibit 4.1 to Carrington's Form S-8 Registration Statement (No. 33-64407) filed with the Securities and Exchange Commission on November 17, 1995). 10.2+ Form of Nonqualified Stock Option Agreement for employees, as amended, relating to Carrington's 1985 Stock Option Plan (incorporated herein by reference to Exhibit 4.2 to Carrington's Registration Statement on Form S-8 (No. 33- 50430) filed with the Securities and Exchange Commission on August 4, 1992). 10.3+ Form of Nonqualified Stock Option Agreement for nonemployee directors, as amended, relating to Carrington's 1985 Stock Option Plan (incorporated herein by reference to Exhibit 4.3 to Carrington's Registration Statement on Form S-8 (No. 33-64407) filed with the Securities and Exchange Commission on November 17, 1995). 10.4 License Agreement dated September 20, 1990, between Carrington Laboratories, Inc., and Solvay Animal Health, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's Quarterly Report on Form 10-Q for the quarter ended August 31, 1990). 10.5 Contract Research Agreement dated as of August 8, 1991, between Carrington Laboratories, Inc., and Texas Agriculture Experimental Station, as agent for the Texas A&M University System (incorporated herein by reference to Exhibit 10.55 to Carrington's 1991 Annual Report on Form 10-K). 10.6 Lease Agreement dated as of August 30, 1991, between Carrington Laboratories, Inc., and Western Atlas International, Inc. (incorporated herein by reference to Exhibit 10.59 to Carrington's 1991 Annual Report on Form 10-K). 10.7+ Employee Stock Purchase Plan of Carrington Laboratories, Inc., as amended through June 15, 1995 (incorporated herein by reference to Exhibit 10.29 to Carrington's 1995 Annual Report of Form 10-K). E - 2 Exhibit Sequentially Number Exhibit Numbered Page 10.8+ Employment Agreement dated July 6, 1993, between Carrington Laboratories, Inc., and Luiz F. Cerqueira (incorporated herein by reference to Exhibit 10.43 to Carrington's 1993 Annual Report on Form 10-K). 10.9 Common Stock Purchase Warrant dated September 14, 1993, issued by Carrington Laboratories, Inc., to E. Don Lovelace (incorporated herein by reference to Exhibit 10.44 to Carrington's 1993 Annual Report on Form 10-K). 10.10 Common Stock Purchase Warrant dated September 14, 1993, issued by Carrington Laboratories, Inc., to Jerry L. Lovelace (incorporated herein by reference to Exhibit 10.45 to Carrington's 1993 Annual Report on Form 10-K). 10.11+ Agreement Regarding Termination of Employment and Full and Final Release dated February 16, 1994, between Carrington Laboratories, Inc., and David A. Hotchkiss (incorporated herein by reference to Exhibit 10.49 to Carrington's 1993 Annual Report on Form 10-K). 10.12 License Agreement dated March 18, 1994, between Carrington Laboratories, Inc., and Socie'te' Europe'enne de Biotechnologie (incorporated herein by reference to Exhibit 10.53 to Carrington's 1994 Annual Report on Form 10-K). 10.13 Agreement dated March 28, 1994, between Carrington Laboratories, Inc., and Keun Wha Pharmaceutical Co., Ltd., (incorporated herein by reference to Exhibit 10.54 to Carrington's 1994 Annual Report on Form 10-K). 10.14 Lease Agreement dated June 15, 1994, between DFW Nine, a California limited partnership, and Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.55 to Carrington's 1994 Annual Report on Form 10-K). 10.15 Lease Amendment dated August 23, 1994, amending Lease Agreement listed as Exhibit 10.14 (incorporated herein by reference to Exhibit 10.57 to Carrington's 1994 Annual Report on Form 10-K). E - 3 Exhibit Sequentially Number Exhibit Numbered Page 10.16 License Agreement dated September 29, 1994, between Carrington Laboratories, Inc., and Immucell Corporation (incorporated herein by reference to Exhibit 10.58 to Carrington's 1994 Annual Report on Form 10-K). 10.17 Third Lease Amendment dated December 1, 1994, amending Lease Agreement listed as Exhibit 10.6 (incorporated herein by reference to Exhibit 10.60 to Carrington's 1994 Annual Report on Form 10-K). 10.18 Production Contract dated February 13, 1995, between Carrington Laboratories, Inc., and Oregon Freeze Dry, Inc. (incorporated herein by reference to Exhibit 10.63 to Carrington's 1994 Annual Report on Form 10-K). 10.19+ Management Compensation Plan (incorporated herein by reference to Exhibit 10.64 to Carrington's 1994 Annual Report on Form 10-K). 10.20 Research Agreements dated June 24, 1994, September 16, 1994, and February 2, 1995, between Southern Research Institute and Carrington Laboratories, Inc. (incorporated herein by reference to Exhibit 10.65 to Carrington's 1994 Annual Report on Form 10-K). 10.21 Trademark License Agreement between Caraloe, Inc. (Licensor) and Emprise International, Inc. (Licensee) dated March 31, 1995 (incorporated herein by reference to Exhibit 10.2 to Carrington's Second Quarter 1995 Report on Form 10-Q). 10.22 Supply Agreement between Caraloe, Inc. (Seller), and Emprise International, Inc. (Buyer), dated March 31,1995 (incorporated herein by reference to Exhibit 10.3 to Carrington's Second Quarter 1995 Report on Form 10-Q). 10.23 Sales Distribution Agreement between the Chinese Academy of Sciences and Carrington Laboratories, Inc., dated August 16, 1995 (incorporated herein by reference to Exhibit 10.1 to Carrington's Third Quarter 1995 Report on Form 10-Q). E - 4 Exhibit Sequentially Number Exhibit Numbered Page 10.24 Sales Distribution Agreement between the Chinese Academy of Sciences and Carrington Laboratories, Inc., dated August 16, 1995 (incorporated herein by reference to Exhibit 10.2 to Carrington's Third Quarter 1995 Report on Form 10-Q). 10.25 Sales Distribution Agreement between the Chinese Academy of Sciences and Carrington Laboratories, Inc., dated August 16, 1995 (incorporated herein by reference to Exhibit 10.3 to Carrington's Third Quarter 1995 Report on Form 10-Q). 10.26 Supply and Distribution Agreement between Medical Polymers, Inc., and Carrington Laboratories, Inc., dated September 15, 1995 (incorporated herein by reference to Exhibit 10.4 to Carrington's Third Quarter 1995 Report on Form 10-Q). 10.27 Clinical Services Agreement between Pharmaceutical Products Development, Inc., and Carrington Laboratories, Inc., dated July 10, 1995 (incorporated herein by reference to Exhibit 10.5 to Carrington's Third Quarter 1995 Report on Form 10-Q). 10.28 Non-exclusive Sales and Distribution Agreement between Innovative Technologies Limited and Carrington Laboratories, Inc., dated August 22, 1995 (incorporated herein by reference to Exhibit 10.6 to Carrington's Third Quarter 1995 Report on Form 10-Q). 10.29 Supplemental Agreement to Non-exclusive Sales and Distribution Agreement between Innovative Technologies Limited and Carrington Laboratories, Inc., dated October 16, 1995 (incorporated herein by reference to Exhibit 10.7 to Carrington's Third Quarter 1995 Report on Form 10-Q). 10.30 Product Development and Exclusive Distribution Agreement between Innovative Technologies Limited and Carrington Laboratories, Inc., dated November 10, 1995 (incorporated herein by reference to Exhibit 10.8 to Carrington's Third Quarter 1995 Report on Form 10-Q). E - 5 Exhibit Sequentially Number Exhibit Numbered Page 10.31+ Resignation Agreement and Full and Final Release dated February 24, 1995, between Carrington Laboratories, Inc., and Bill H. McAnalley (incorporated herein by reference to Exhibit 10.68 to Carrington's 1995 Annual Report on Form 10-K). 10.32+ Revised and Restated Resignation Agreement dated March 14, 1995, between Carrington Laboratories, Inc., and Karl H. Meister (incorporated herein by reference to Exhibit 10.69 to Carrington's 1995 Annual Report on Form 10-K). 10.33 Common Stock Purchase Warrant dated August 4, 1995, issued by Carrington Laboratories, Inc., to Clifford T. Kalista. (incorporated herein by reference to Exhibit 10.70 to Carrington's 1995 Annual Report on Form 10-K). 10.34 Form of Stock Purchase Agreement dated April 5, 1995 between Carrington Laboratories, Inc., and persons named in Annex I thereto (incorporated herein by reference to Exhibit 2.1 to Carrington's Registration Statement 33-60833 on Form S-3). 10.35 Form of Registration Rights Agreement dated June 20, 1995 between Carrington Laboratories, Inc., and persons named in Annex I thereto (incorporated herein by reference to Exhibit 2.2 to Carrington's Registration Statement 33-60833 on Form S-3). 10.36 Supply and Distribution Agreement between Farnam Companies, Inc., and Carrington Laboratories, Inc., dated March 22, 1996. (incorporated herein by reference to Exhibit 10.76 to Carrington's 1995 Annual Report on Form 10-K). 10.37 Placement Agent Agreement between Carrington Laboratories, Inc., and First Granite Securities, Inc. (incorporated herein by reference to Exhibit 10.1 to Carrington's Current Report on Form 8-K dated October 21, 1996). 10.38 Indemnification Agreement between Carrington laboratories, Inc., and First Granite Securities, Inc. (incorporated herein by reference to Exhibit 10.2 to Carrington's Current Report on Form 8-K dated October 21, 1996). E - 6 Exhibit Sequentially Number Exhibit Numbered Page 10.39 Joint Escrow Instructions from Carrington Laboratories, Inc., and accepted by Krieger & Prager, Esqs., as escrow agent (incorporated herein by reference to Exhibit 10.3 to Carrington's Current Report on Form 8-K dated October 21, 1996). 10.40 Stock Purchase Agreement between Carrington Laboratories, Inc., and each of the purchasers of shares of the Registrant's Series E Convertible Preferred Stock (incorporated herein by reference to Exhibit 10.4 to Carrington's Current Report on Form 8-K dated October 21, 1996). 10.41 Amendment to the Stock Purchase Agreement between Carrington Laboratories, Inc., and each of the purchasers of shares of Carrington's Series E Convertible Preferred Stock, dated October 15, 1996 (incorporated herein by reference to Exhibit 10.5 to Carrington's Current Report on Form 8-K dated October 21, 1996). 10.42 Registration Right Agreement between Carrington Laboratories, Inc., and each of the purchasers of shares of Carrington's Series E Convertible Preferred Stock (incorporated herein by reference to Exhibit 10.6 to Carrington's Current Report on Form 8-K dated October 21, 1996). 10.43 Distribution Agreement between Carrington Laboratories, Inc., and Ching Hwa Pharmaceutical Co., Ltd., dated March 1, 1996 (incorporated herein by reference to Exhibit 10.1 to Carrington's First Quarter 1996 Report on Form 10-Q). 10.44 Fourth Amendment to Credit Agreement and Term Note between Carrington Laboratories, Inc., and NationsBank of Texas, N.A., dated May 1, 1996 (incorporated herein by reference to Exhibit 10.2 to Carrington's First Quarter 1996 Report on Form 10-Q). 10.45 Assignment of Certificate of Deposit to NationsBank of Texas, N.A., dated May 1, 1996 (incorporated herein by reference to Exhibit 10.3 to Carrington's First Quarter 1996 Report on Form 10-Q). E - 7 Exhibit Sequentially Number Exhibit Numbered Page 10.46 Release of Liens agreement between Carrington Laboratories, Inc., and NationsBank of Texas, N.A., dated May 1, 1996 (incorporated herein by reference to Exhibit 10.4 to Carrington's First Quarter 1996 Report on Form 10-Q). 10.47+ Form of Nonqualified Stock Option Agreement for Employees (incorporated herein by reference to Exhibit 4.1 to Carrington's Second Quarter 1996 Report on Form 10-Q). 10.48+ Carrington Laboratories, Inc., 1995 Stock Option Plan, As Amended and Restated effective March 27, 1996 (incorporated herein by reference to Exhibit 4.2 to Carrington's Second Quarter 1996 Report on Form 10-Q). 10.49+ Form of Nonqualified Stock Option Agreement for Nonemployee Directors (incorporated herein by reference to Exhibit 4.3 to Carrington's Second Quarter 1996 Report on Form 10-Q). 10.50+ Form of Incentive Stock Option Agreement for Employees (incorporated herein by reference to Exhibit 4.4 to Carrington's Second Quarter 1996 Report on Form 10-Q). 10.51 Sales Distribution Agreement between Faulding Pharmaceuticals Laboratories and Carrington Laboratories, Inc., dated September 30, 1996 (incorporated herein by reference to Exhibit 10.1 to Carrington's Third Quarter 1996 Report on Form 10-Q). 10.52 Sales Distribution Agreement between Trudell Medical Marketing Limited and Carrington Laboratories, Inc., dated may 15, 1996 (incorporated herein by reference to Exhibit 10.2 to Carrington's Third Quarter 1996 Report on Form 10-Q). 10.53 Clinical Research Agreement between ICON and Carrington Laboratories, Inc., dated July 15, 1996 (incorporated herein by reference to Exhibit 10.3 to Carrington's Third Quarter 1996 Report on Form 10-Q). 10.54* Sales Distribution Agreement between Suco International Corp. and Carrington Laboratories, Inc., dated December 1, 1996. E - 8 Exhibit Sequentially Number Exhibit Numbered Page 10.55* Sales Distribution Agreement between Recordati, S.P.A., and Carrington Laboratories, Inc., and Carrington Laboratories Belgium N.V., dated December 20, 1996. 10.56* Nonexclusive Distribution Agreement between Polymedica Industries, Inc., and Carrington Laboratories, Inc., dated November 15, 1996. 10.57* Sales Distribution Agreement between Gamida- Medequip Ltd., and Carrington Laboratories, Inc., dated December 24, 1996. 10.58* Sales Distribution Agreement between Gamida For Life BV, and Carrington Laboratories, Inc., dated December 24, 1996. 10.59* Sales Distribution Agreement between Darrow Laboratorios S/A and Carrington Laboratories, Inc., dated December 4, 1996. 10.60* Independent Sales Representative Agreement between Vision Medical and Carrington Laboratories, Inc., dated October 1, 1996. 10.61* Independent Sales Representative Agreement between Think Medical, Inc., and Carrington Laboratories, Inc., dated October 1, 1996. 10.62* Independent Sales Representative Agreement between Meares Medical Sales Associates and Carrington Laboratories, Inc., dated October 1, 1996. 10.63* Supply Agreement between Aloe Commodities International, Inc., and Caraloe, Inc., dated February 13, 1997. 10.64* Trademark License Agreement between Light Resources Unlimited and Carrington Laboratories, Inc., dated March 1, 1997. 10.65* Supply Agreement between Light Resources Unlimited and Caraloe, Inc., dated february 13, 1997. 10.66* Sales Distribution Agreement between Penta Farmaceutica, S.A., and Carrington Laboratories, Inc., dated December 27, 1996. 10.67* Stock Subscription Offer of Aloe Commodities, Inc., and Caraloe, Inc., dated October 30, 1996. E - 9 Exhibit Sequentially Number Exhibit Numbered Page 10.68* Modification Number Two to the Production Contract dated February 13, 1995, between Carrington Laboratories, Inc., and Oregon Freeze Dry, Inc., listed as Exhibit 10.18, dated November 19, 1996. 10.69* Offer and Agreement of Sale and Purchase of Convertible Preferred Series E Stock between Holders' of Carrington Laboratories, Inc., Convertible Preferred Series E Stock and Carrington Laboratories, Inc., dated February 26, 1997. 10.70* Sales Distribution Agreement between Laboratorios PiSA S.A. DE C.V. and Carrington Laboratories, Inc., dated November 1, 1995. 10.71* Terminination Acknowledgement between China Academy of Sciences and Carrington Laboratories, Inc., dated February 12, 1996, regarding the three agreements listed as Exhibits 10.23, 10.24 and 10.25. 10.72* Letter from Immucell Corporation to Carrington Laboratories Inc., dated February 7, 1996 canceling the License Agreement listed as Exhibit 10.16. 11.1* Computation of Net Income (Loss) Per Common and Common Equivalent Share. 16.1* Letter from Arthur Andersen LLP to the Securities and Exchange Commission. 21.1* Subsidiaries of Carrington. 23.1* Consent of Arthur Andersen LLP 27.1* Financial Data Schedule * Filed herewith. + Management contract or compensatory plan. E - 10 EX-10.54 2 SALES DISTRIBUTION AGREEMENT THIS AGREEMENT ( Agreement ) is made and entered into as of this 1st day of December, 1996, by and between CARRINGTON LABORATORIES, INC., a Texas corporation ("Carrington"), and SUCO INTERNATIONAL CORP., a Florida corporation ("Suco"). W I T N E S S E T H : WHEREAS, Carrington is engaged in the business of manufacturing, selling and distributing certain medical devices and is desirous of establishing a competent and exclusive distribution source for sales of such products in the listed countries in Latin America (defined in Article 1 hereof as the Territory ); and WHEREAS, Suco is desirous of distributing such products in the Territory and is willing and able to provide a competent distribution organization in each country in the Territory, and Suco desires to be Carrington's exclusive 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) "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 Suco on its intent to add or discontinue Products to Exhibit A. Suco shall be granted a ninety (90) day right of first refusal for new products Carrington may develop or license from third parties. If the Carrington and Suco cannot agree on terms and conditions for such products within that time, Carrington shall be free to distribute or sell said products to anyone in the Territory, provided, however, Carrington shall not accept terms less favorable than offered by Suco. (b) "Territory" shall mean the following countries: Dominican Republic, Haiti, Colombia, Venezuela, Uruguay, Bolivia, Peru, Paraguay, Ecuador. (c) Parties shall mean Carrington and Suco and Party shall mean either of them as the context indicates. (d) Know-how shall mean secret and substantial technical and scientific information regarding the Products, which may be necessary, useful or advisable to enable Suco 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 Suco after execution of this Agreement. (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) Trademarks shall mean all Carrington Trademarks, trade names, service marks, logos and derivatives thereof relating to the Products. Said Trademarks and other required Registrations shall be obtained by Suco at Carrington s sole expense with ownership exclusively retained by Carrington. Article 2. Appointment 2.1 Subject to the terms and conditions of this Agreement, Carrington hereby appoints Suco as Carrington's exclusive sales distributor in the Territory for the sale of Products, and Suco hereby accepts such appointment. As sales distributor in the Territory, Suco shall, subject to the terms and conditions of this Agreement, have the right to sell Products in the Territory, but shall have no right to sell Products outside the Territory. 2.2 In a manner reasonably satisfactory to Carrington, Suco 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 each country in the Territory, (c) provide and maintain a competent and aggressive organization for the promotion, marketing, sale and distribution of the Products in each country in the Territory, (d) assure competent and prompt handling of inquiries, orders, shipments, billings and collections, and returns of or with r e s p ect 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 D u ring the term of this Agreement, Suco shall be considered an independent contractor and shall not be considered a partner, employee, agent or servant of Carrington. As such, Suco 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. Suco 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 Suco any right to use or otherwise deal with the Know-how for purposes other than those expressly provided for in this Agreement. 2.5 S u co shall promptly inform Carrington of any misappropriation of the Know-how which comes to its attention. After having dicsussed such situaiton with Suco, Carrington shall have sole and absolute discretion to take such action as it deems appropriate. Suco, at its sole expense, if Suco has intentionally or negligently allowed such Know-how to be disclosed or misappropriated shall assist Carrington in taking legal action, if deemed necessary, against such misappropriation. 2.6 All costs and expenses connected with Suco's activities or performance under this Agreement are to be borne solely by Suco. Article 3. Certain Performance Requirements 3.1 Suco agrees to promote, market, sell and distribute the Products only to customers and potential customers within the Territory for ultimate use within the Territory. Suco 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 Suco is in compliance with Article 3.1, Suco agrees that: (a) Suco will send to Carrington monthly sales reports in a mutually agreed upon format which set forth mutually agreed upon items such as the number of units of each Product sold; (b) Suco will send to Carrington quarterly inventory reports of the Products; and (c) Carrington may mark for identification all Products sold by Carrington to Suco hereunder. 3.3 Suco shall promptly provide Carrington with written reports of any importation or sale of any of the Products in the Territory if Suco has knowledge thereof 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 Suco shall maintain a sufficient inventory of Products to assure an adequate supply of Products to serve all its market segments. Suco 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 Suco's facilities shall be subject to inspection by Carrington or its agents upon 72 hours written notice. 3.5 Suco 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 Suco of Products. Upon written request from Suco, Carrington shall provide Suco with such certificates or other documents as may be reasonably required to establish any applicable exemptions from the collection of such taxes, charges and fees. 3.6 All Products shall be packaged and delivered by Carrington to Suco. All Products shall be labeled, advertised, marketed, sold and distributed by Suco 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. Suco 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 Suco shall not make any alterations or permit any alterations to be made to the Products, except as mutually agreed to in Section 3.6 above.. 3.8 S u c o shall be responsible for complying with all a p p l icable laws, regulations and requirements concerning the Registration, inventory, use, promotion, distribution and sale of the Products in the Territory. Suco shall assume full responsibility for the Registration filing, inventory, use, promotion, distribution and sale of the Products in the Territory and correspondingly for any damage, claim, liability, loss or expense which Suco may suffer or i n cur by reason of said Registration filing, inventory, use, promotion, distribution and sale and shall hold Carrington harmless from any claim resulting therefrom being directed against Carrington by any third party. Provided, however, Carrington warrants and represents that the products supplied by Carrington to Suco shall conform to Carrington's standards and specifications and that if any claim or demand is made for damages or liability resulting from the product, raw material and active ingredients, if any, contained therein, or industrial property rights pertaining thereto, except as hereinbelow stated, Carrington shall be solely responsible for such claims or demands and shall hold Suco harmless therefore. In the event that, following delivery of the Product to Suco, the Product is improperly transported or stored, is mishandled, becomes contaminated or is otherwise damaged through no fault of Carrington, Suco shall be solely responsible for any claim or demand made in regard to the Product. 3.9 Suco 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 Suco 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 Suco will actively and aggressively promote, develop demand for and maximize the sale of the Products to all customers and potential customers within the Territory. Suco 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, or incontinence care product. 3.12 Suco represents that its books, records and accounts pertaining to all its operations hereunder associated with Carrington products or sales are complete and accurate in all material respects and have been maintained in accordance with sound and generally accepted accounting principles. Suco's auditor shall deliver to Carrington, in accordance with Article 13, 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. Sale of Products by Carrington to Suco 4.1 Subject to the terms and conditions of this Agreement, including specifically Article 4.6 hereof, Carrington shall sell to Suco the Products at a specified price for each Product (the "Contract Price"). For orders placed by Suco 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) Suco 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. 4.2 A s c onsideration for its appointment as a sales distributor entitled to a Product discount, Suco agrees to purchase from Carrington, during each 12-month period of the term of this Agreement, commencing with the 12-month period beginning _________, 19__ through ___________, 19__, at the Contract Price, a specified minimum aggregate dollar amount (based on the Contract Price) of the Products (the "Specified Minimum Purchase Amount"). For the first 12- month period of the term of this Agreement, the Specified Minimum Purchase Amount for each country shall be waived. 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 Suco's reasonable, good faith projections of future sales growth and such other factors as the Parties may deem relevant. 4.3 Suco 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 Suco upon shipment of the Products. Unless otherwise agreed, Suco shall pay all invoices in full within 120 days of the date of invoice. Suco 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. 4.4 Carrington shall not be obligated to ship Products to Suco at any time when payment of an amount owed by Suco is overdue or when Suco is otherwise in breach of this Agreement. 4.5 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 date the Purchase Order is received and acknowledged in writing by Carrington, unless by mutual consent of the Parties. Purchase Orders will be non-cancelable. Suco will issue to Carrington on a monthly basis, a twelve (12) month rolling forecast so that Carrington may incorporate said forecasts in to is 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 Suco. Variation above twenty percent (20%) shall be discussed between the Parties and Carrington will use reasonable best efforts to maintain delivery dates requested by Suco. 4.6 All shipments of Products to Suco 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 Miami or any other named destination) Carrington's facility, Dallas, Texas. Ownership of and title to Products and all risks of loss with respect thereto shall pass to Suco 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. 4.7 Carrington shall use its reasonable best efforts to ensure availability of all Products ordered by Suco 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 Suco, 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. 4.8 Carrington accepts liability for defective Products and agrees to replace such defective Products should they occur with new Products. Carrington carries liability insurance and is willing to have Suco added as a covered Party under this policy. 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 t h e time of shipment to Suco 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. Suco 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 4.8 or that is inconsistent with the policies or publications of Carrington relating to the Products. SUCO'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 SUCO'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO SUCO 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. SUCO 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 SUCO OR ANY OTHER PARTY, (ii) ANY BREACH BY SUCO OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF SUCO OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND SUCO S AUTHORIZATION GRANTED HEREIN. 4.9 Credits for defective Products to Suco 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. Article 5. Term and Termination 5.1 The term of this Agreement shall be for a period of five years from the effective date of this Agreement. After such term, this Agreement shall be automatically terminated unless the parties mutually agree in writing to extend the term hereof. Notwithstanding the foregoing, this Agreement may be terminated earlier in accordance with the provisions of this Article 5 and as expressly provided elsewhere in this Agreement. 5.2 Carrington shall have the absolute right to terminate this Agreement if Suco 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 Suco, Suco 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 5.2, if: (i) Suco fails or refuses to pay to Carrington any sum when due; (ii) Suco breaches any provision of Article 2.2, 3.1, 3.5, 3.7, 3.9, 4.2, 4.8, 6 or 7; or (iii) S u co fails to purchase the Specified Minimum Purchase Amounts of Product for any required period provided, however, if governmental actions such as public price changes or similar limitations prevent the Specified Minimum Purchase Amount from being achieved for that particular country the Specified Minimum Purchase Amounts shall be revised on mutually agreeable terms. 5.3 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 b a n k ruptcy, 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. 5.4 This Agreement shall automatically terminate effective at the end of any 12-month period of the term of this Agreement referred to in Articles 4.1 and 4.2 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 for the particular country under discussion. 5.5 During the one-year period following termination of this Agreement, any inventory of Products held by Suco at the termination of this Agreement may be sold by Suco 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 Suco'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 Suco, including importation and shipping. 5.6 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 4.7, 5.5, 6, 7 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 6. Trademarks/Registration 6.1 All Carrington Trademarks, Registrations (Sanitary or otherwise) 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, are the sole and exclusive property of Carrington or its affiliates. The Products shall be promoted, sold and distributed only under the Trademarks. Carrington hereby grants Suco permission to use the Trademarks for the limited purpose of performing its obligations under this Agreement. Carrington may, in i t s sole discretion after consultation with Suco, modify or discontinue the use of any Trademark and/or use one or more additional or substitute marks or names, and Suco shall be obligated to do the same. 6.2 Carrington's Trademarks should appear on all Products packaging, labels, and inserts and other materials which Suco 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 Trademarks in any packaging promotional or other materials relating to the Products prior to Suco's actual use thereof. 6.3 Suco 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[TM] or the sign TM. Suco 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, Suco 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. 6.4 In the event of any known infringement of, or threatened or presumed infringement of, or challenge to Suco's use of any Trademark or of any Suco trademark, Suco is obligated to notify Carrington immediately. Suco 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 with in the Territory. In its own name and at its expense, Carrington shall have sole and absolute discretion to take such action relative to its Trademark as it deems appropriate. 6.5 In the event of the termination of this Agreement for any reason, Suco's right to use the Trademarks shall cease, and Suco shall cease using such Trademarks at such time as Suco's inventory of Products has been sold. Suco shall, as soon as it is reasonably possible, remove all Trademarks which appear on or about the premises of the office(s) of Suco and any of the advertising of Suco used in connection with the Products. 6.6 In the event of a breach or threatened breach by Suco of the provisions of this Article 6, 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 6, including the recovery of damages from Suco. 6.7 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 then be also defined as Trademark for purposes of this Agreement) owned by Carrington or to be transferred from Suco 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 Suco in the Territory. 6.8 Nothing in this Agreement shall be construed as giving Suco the right to use the Trademark outside the Territory or for any other product than the Products. Article 7. Confidential Information 7.1 Suco recognizes and acknowledges that Suco might have access to confidential information and trade secrets 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, Suco shall not, during and after the term of this Agreement, make any use of such Confidential Information, or disclose any of such C o n fidential Information to any person or firm, corporation, association or other entity, for any reason or purpose whatsoever, e x c e pt as specifically allowed in writing by an authorized representative of Carrington. In the event of a breach or threatened breach by Suco of the provisions of this Article 7, Carrington shall be entitled to an injunction restraining Suco 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 7, including the recovery of damages from Suco. For purposes of this paragraph the term "confidential information" shall include and be limited to, information disclosed by Carrington to Suco that was not: 1) know to Suco at the time of such disclosure acquired from a source other than Carrington, 2) at the time of disclosure or thereafter known to or available to the public, or 3) disclosed to Suco in good faith by another party legally entitled to disclose such information who does not, in turn, require Suco to keep the information confidential. 7.2 Suco shall not disclose the existence of this Agreement or any of the terms herein without the prior written consent of Carrington. Article 8. Force Majeure 8.1 Neither Suco 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, d r ought, 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 Suco 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 shall have the right to cancel this Agreement and the Parties shall seek an equitable agreement on the Parties reward of interests. 8.2 The Parties agree that any obligation to pay money is never excused by Force Majeure. Article 9. Amendment 9.1 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 10. Entire Agreement 10.1 This Agreement represents the entire Agreement between the P a r t i es 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. 10.2 Should any provision of this Agreement be rendered invalid or unenforceable, it shall not affect the validity or enforceability of the remainder. Article 11. Assignment 11.1 N e i ther this Agreement nor any of the rights or obligations of Suco hereunder shall be transferred or assigned by Suco without the prior written consent of Carrington, executed by a duly authorized officer of Carrington. Article 12. Governing Law 12.1 It is expressly agreed that the validity, performance and construction of this Agreement shall be governed by the laws and jurisdiction of Texas. Article 13. Notices 13.1 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 Suco. (Fax No. 972-714-5009) (b) Suco at: Suco International Corporation, 499 Sheridan Street, Suite 210, Dania, FL 33004 Attention: President, or at such other address as Suco shall have theretofore furnished in writing to Carrington. (Fax No. 954-927- 8822) Article 14. Waiver 14.1 Neither Suco'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 Suco 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 15. Arbitration 15.1 E x cept as expressly provided otherwise herein, any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement, the operations carried out under this Agreement or the relationship of the Parties created under this Agreement, shall be exclusively and finally settled by confidential arbitration, and any Party may submit such a dispute, controversy or claim to arbitration. The arbitration proceeding shall be held at the location of the non-instituting Party in the English language and shall be governed by the rules of the International Chamber of Commerce (the "ICC") as amended from time to time. Any procedural rule not determined under the rules of the ICC shall be determined by the laws of the State 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 16. Exhibits A n y and all exhibits referred to herein shall be considered an integral part of this Agreement. Article 17. No Inconsistent Actions 17.1 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 4.7 and 8 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 18. Currency of Account 18.1 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 Suco 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 19. Binding Effect 19.1 This Agreement shall inure to the benefit of and be binding upon the respective successors of the Parties. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written. CARRINGTON LABORATORIES, INC. By: Name: Title: SUCO INTERNATIONAL CORP. By: Name: Title: EXHIBIT A SUCO INTERNATIONAL CORP. PRODUCT NO. PRODUCT NAME PRICE -------- ----------------------------------------- ------- WOUND CARE 101005 CARRINGTON CARRASYN HYDROGEL WOUND $2.40 DRESSING, 1/2 oz. tube 101010 CARRINGTON CARRASYN HYDROGEL WOUND $5.34 DRESSING, 1 oz. tube 101030 CARRINGTON CARRASYN HYDROGEL WOUND $6.80 DRESSING, 3 oz. tube 101080 CARRINGTON CARRASYN HYDROGEL WOUND $20.00 DRESSING, (spray gel),8 oz. bottle 101025 CARRINGTON CARRASYN V (VISCOUS) $3.16 HYDROGEL WOUND DRESSING, 1/2 oz. tube 101002 CARRINGTON CARRASYN V (VISCOUS) $1.78 HYDROGEL WOUND DRESSING, 1 oz. sachet 101023 CARRINGTON CARRASYN V (VISCOUS) $4.25 HYDROGEL WOUND DRESSING, 3 oz. tube 101017 CARRINGTON CARRAGAUZE , 2"x 2" pads $1.40 101015 CARRINGTON CARRAGAUZE , 4"x 4" pads $2.40 102060 CARRINGTON CARRAKLENZ WOUND & SKIN $4.05 CLEANSER, 6 oz. pump 102062 CARRINGTON CARRAKLENZ WOUND & SKIN $5.62 CLEANSER, 8 oz. spray 102160 CARRINGTON CARRAKLENZ WOUND & SKIN $7.40 CLEANSER, 16 oz. spray INCONTINENCE CARE PRODUCTS 104004 CARRINGTON MOISTURE BARRIER CREAM, $0.40 0.4 oz. packet 104040 CARRINGTON MOISTURE BARRIER CREAM, $3.06 3.5 oz. tube ENVIRONMENTAL PRODUCTS 107010 CARRINGTON CARRASCENT Odor $1.58 Eliminator, 1 oz. bottle *Introductory Price Only - Subject to Change EX-10.55 3 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 having its registered office in Dallas, Texas, and CARRINGTON LABORATORIES BELGIUM N.V., a Belgium corporation having its registered office in Waasmunster, Belgium, jointly (together hereinafter referred to as Carrington ) and RECORDATI, S.P.A., an Italian corporation having its registered office located at Via M Civitali, 1, 20148 Milano, Italia (hereinafter referred to as "Recordati"). W I T N E S S E T H : WHEREAS, Carrington is engaged in the business of developing, manufacturing, selling and distributing certain medical devices and is desirous of establishing a competent and exclusive marketing and distribution source for sales of such products in Italy (defined in Article 1 hereof as the Territory); and WHEREAS, Recordati is desirous of marketing and distributing such products in the Territory, represents that it has experience in obtaining registration of pharmaceuticals and other healthcare related products in the Territory, is well introduced on the market, is willing and able to provide a competent distribution organization in the Territory, and Recordati desires to be Carrington's exclusive 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) Governmental Authorities shall mean any and all appropriate authorities, including but not limited to, governmental, regulatory, legislative, and health authorities. (c) "Italian Registration" shall mean the notification by Recordati to the appropriate Italian Governmental Authorities of the grant of the Registration, and any other official approval, authorization or recordation necessary for the lawful marketing of the Products in the Territory. (d) Know-how shall mean Carrington's secret and substantial technical, clinical and scientific information, manufacturing processes and procedures, testing methods, and controls regarding the Products, which may be necessary, useful or advisable to enable Recordati to obtain the Italian Registration and to promote, distribute, market and sell the Products in the Territory, and as is or will be specified in the Registration documentation which Carrington has delivered or will deliver to Recordati after the Effective Date and during the term of this Agreement. (e) Parties shall mean Carrington, as defined above, and Recordati and Party shall mean either of them as the context indicates. (f) "Products" shall mean the wound, oral, and skin care products manufactured by or for Carrington set forth on Exhibit A hereto. No Product shall be added or discontinued with respect to Exhibit A without Recordati's approval, excepting (i) Products which Carrington discontinues worldwide and (ii) Products which experience material, adverse regulatory complications, including but not limited to government required changes in manufacturing or packaging requirements, additional clinical trials or studies, or Product reformulation. Carrington will provide a ninety (90) day notice to Recordati of its intent to add Products to Exhibit A and not less than twelve (12) months notice of its intent to discontinue Products. If Recordati does not respond to such notice of intention within said period, then said intention shall be automatically deemed approved by Recordati. (g) "Registration" shall mean the granting of the CE mark to the Products, in accordance with the relevant requirements of Council Directive 93/42/EEC of June 14, 1993 concerning medical devices, by the competent authorities of the United Kingdom or any other European Member State. (h) "Territory" shall mean the following country: Italy, including Vatican City and the State of San Marino. (i) Trademarks shall mean all mutually agreed upon Carrington Trademarks, trade names, service marks, logos and derivatives thereof relating to the Products. (j) Trade name shall mean Recordati s company name. Article 2. Appointment 2.1 Subject to the terms and conditions of this Agreement, Carrington hereby appoints Recordati as Carrington's exclusive sales distributor in the Territory for the promotion, distribution, marketing and sale of the Products under the Trademarks and Recordati's Trade name, and Recordati hereby accepts such appointment. As the exclusive sales distributor in the Territory, Recordati shall, subject to the terms and conditions of this Agreement, have the right to obtain the Italian Registration and to promote, distribute, market and sell the Products in the Territory on an exclusive basis. Recordati shall not solicit orders from third parties outside the Territory. 2.2 As consideration for Recordati's appointment as the exclusive sales distributor for the Products in the Territory, Recordati hereby agrees to pay to Carrington the sum of $300,000.00 U.S. as follows: (a) $100,000.00 U.S. within thirty (30) days of the Effective Date; (b) $100,000.00 U.S. within thirty (30) days of the approval of the Registration; and, (c) $100,000.00 U.S. within thirty (30) days of the initial launch of the Products in the Territory. If the Registration of the Products does not occur within eighteen (18) months after submission of the relevant filing to the United Kingdom Governmental Authorities or any other mutually agreed upon authority or if Recordati is not allowed to promote, distribute, market and sell the Products by the Italian Governmental Authorities within twelve (12) months of Recordati s notification to the Italian Governmental Authorities, then Carrington shall refund the amount actually paid by Recordati to Carrington. No refund shall be required by Carrington, however, if the Italian Governmental Authorities disapprove of Registration as a result of Recordati s negligence or willful intent or omission. 2.3 Carrington will provide Recordati with training and support of manufacturing or marketing personnel, if necessary. In the event Recordati requires such training and support, and such assistance by Carrington requires travel to Recordati's facilities in Milan, Italy or such other mutually agreed upon location, Recordati agrees to be solely responsible for and cover all of Carrington s reasonable direct expenses for such travel, training and support. 2.4 In a manner reasonably satisfactory to Carrington, and at Recordati's sole expense, Recordati agrees to (a) make and maintain all declarations, filings, and the Italian Registration with, and obtain all approvals and authorizations from, Governmental Authorities in the Territory required to be made or obtained in connection with the promotion, marketing, sale or distribution of the Products, (b) devote its reasonable efforts to the diligent promotion, marketing, sale and distribution of the Products in the Territory, (c) provide and maintain a competent 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, if Carrington does not hold them, upon termination of Agreement. 2.5 The Parties agree to use their reasonable efforts to negotiate manufacturing rights for certain Products in the Territory; provided, however, that all applicable regulatory, quality control, quality assurance, licenses, confidentiality and business terms and conditions can be mutually agreed upon by the Parties. 2.6 During the term of this Agreement, Recordati shall be considered an independent contractor and shall not be considered a partner, employee, agent or servant of Carrington. As such, Recordati 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 distributor and independent contractor. 2.7 Nothing in this Agreement shall be construed as giving Recordati any right to use or otherwise deal with the Know-how for purposes other than those expressly provided for in this Agreement during the term of this Agreement. 2.8 Recordati shall promptly inform Carrington of any misappropriation of the Know-how which comes to its attention. After having discussed such situation with Recordati, Carrington shall have sole and absolute discretion to take such action as it deems appropriate and Recordati, at its own cost but subject to reimbursement by Carrington of its out-of-pocket expenses, shall assist Carrington in taking legal action, if deemed necessary, against such misappropriation. 2.9 Unless otherwise stated in this Agreement, costs and expenses connected with Recordati s activities or performance under this Agreement are to be borne solely by Recordati. Article 3. Certain Performance Requirements 3.1 Recordati agrees to promote and market the Products only to customers and potential customers within the Territory for ultimate use within the Territory. Recordati shall not, under any circumstances, either directly or indirectly through third parties, (i) promote or market Products within or to, or for ultimate use within, the United States or any place outside the Territory, or (ii) establish any branch or warehouse for the distribution or sale of the Products outside the Territory. 3.2 In order to assure Carrington that Recordati is in compliance with Article 3.1, Recordati agrees that: (a) Recordati shall send to Carrington quarterly sales reports which set forth the number of units and sizes of each Product sold; the number of units of free medical samples distributed, and to whom, if any, such Products were sold and/or distributed outside the Territory during such quarter; and (b) Recordati shall send to Carrington quarterly inventory reports of the Products. (c) Recordati shall send a forecast of anticipated annual sales for the upcoming year by no later than December 1, of the preceding year. 3.3 Recordati shall promptly provide Carrington with written reports of any importation or sale of any of the Products in the Territory of which Recordati 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 Recordati shall maintain a sufficient inventory of Products to assure an adequate supply of Products to serve all its market segments. Recordati 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 Recordati s facilities shall be subject to inspection by Carrington or its agents upon five (5) business days written notice and not more than once in any twelve (12) month period. 3.5 Recordati 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 Recordati of Products. Upon written request from Recordati, Carrington shall provide Recordati with such certificates or other documents as may be reasonably required to establish any applicable exemptions from the collection of such taxes, charges and fees. 3.6 All Products shall be labeled, advertised, marketed, sold and distributed by Recordati in compliance the Italian Registration and 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. Recordati 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, and (ii) any additional inserts in the general packaging. The Parties shall agree on minimum production runs for such custom labels. 3.7 Save as provided in Article 3.6, Recordati shall not make any alterations or permit any alterations to be made to the Products. 3.8 Recordati shall assume all responsibility for and at all times comply with all applicable laws, regulations and requirements concerning the Registration and the Italian Registration, inventory, use, promotion, distribution and sale of the Products in the Territory. 3.9 Recordati 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 Recordati shall not use any packaging, label, advertisement or marketing material on or with respect to or relating to any Product unless such packaging, label, advertisement or marketing material has first been submitted to and approved by Carrington in writing. Approval by Carrington shall be deemed granted if no response is received from Carrington within thirty (30) days from Recordati s submission. 3.11 Recordati will actively and aggressively promote, develop demand for and maximize the sale of the Products to all customers and potential customers within the Territory. Recordati 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 product. Article 4 Registration of Products 4.1 It being understood that Carrington shall file for Registration within three (3) months from the Effective Date and shall supply Recordati with a copy of the Registration dossier and that Registration is a prerequisite to obtaining the Italian Registration and to the lawful sale of the Products in the Territory, Carrington hereby agrees to supply Recordati, promptly after the execution of this Agreement, with any Know-how or relevant documentation necessary for preparing the Italian Registration dossier to be submitted to the applicable Governmental Authorities of the Territory. 4.2 It shall be the responsibility of Recordati, at its sole expense, to apply for, obtain and maintain the Italian Registration. Subject to having obtained the prior approval of Carrington and subsequent to Registration, Recordati shall notify the grant of the Registration to all applicable Governmental Authorities in the Territory, and said notification shall be in the name of Carrington, with Recordati being named as Products distributor for the Territory. Recordati 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 Recordati has received the Know-how and the Registration dossiers from Carrington, Recordati shall prepare, at its sole expense, the Italian Registration dossier and notification and any translation which may be required by the applicable authorities of the Territory. Recordati shall promptly supply Carrington with a copy of the said Italian Registration dossier and submission and Carrington shall be entitled to a free and unrestrained use of the same outside the Territory. 4.4 Subject to having obtained Carrington's written approval of all such documentation and any subsequent amendments thereto, Recordati shall, as soon as possible and in any case within sixty (60) days of Carrington's approval, submit the Italian Registration to the appropriate authorities of the Territory. 4.5 Recordati shall copy and keep Carrington fully and timely informed, throughout the term of this Agreement, of all material communications sent to or received from all applicable authorities, including the health authorities, of the Territory concerning the Products. 4.6 Carrington makes no warranty that the supplied Know-how will necessarily result in the grant of the Italian Registration and Recordati shall have no claim against Carrington arising out of any delay or refusal by the authorities to issue the Italian Registration, other than the refund stated in Article 2.2. 4.7 Recognizing the importance of sampling to the success of a product launch, upon Registration approval, the parties shall meet in good faith to discuss the sampling budget required for the first year. Article 5. Sale of Products by Carrington to Recordati 5.1a Subject to the terms and conditions of this Agreement, including specifically Article 5.6 hereof, Carrington shall sell to Recordati and Recordati agrees to purchase from Carrington the Products in finished packaged form ready for sale at a specified price for each of the Products (the "Contract Prices"). For orders placed by Recordati during the first two 12-month periods 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 90 days prior to the end of each 12-month period of the term of this Agreement, (a) Recordati shall provide in writing to Carrington a purchase forecast for the following 12-month period, and (b) at least 90 days prior to the end of the second of the two 12 month periods aforesaid, 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. Not more than once during any twelve (12) month period following the first two 12-month periods, Carrington reserves the right to change its Contract Price for each Product, only as permitted in this Article and in Article 5.1b below. Notwithstanding the foregoing, the adjustment of Contract Prices shall in no event exceed the annual increase in the Producers Price Index, Drugs and Pharmaceuticals, subdivision code 063 issued by the U.S. Department of Commerce. Any change of the Contract Prices and/or adjustment thereto shall apply on a Product by Product basis commencing as each individual Product is launched. 5.1b In the event that the specified index is discontinued or in the event the basis of its calculation is modified, a comparable index mutually agreed upon shall be applied. Should the applicable index not be available when needed, an estimate of the missing index shall be made. In such case, a recalculation of the Contract Prices shall be made when the applicable index is available and an adjustment shall be included in the next invoice submitted to Recordati. The above applies as long as the Products are sold as a medical device. If new material claims or a new classification occurs and such claims or classification result in a material change to the end-user purchase price for the Products, then the Contract Prices shall be renegotiated without the limitation stated above. Further, if Recordati increases its selling prices greater than the increase in the margin of the above-stated index calculation, Carrington and Recordati shall agree upon a similar percentage increase in the Contract Prices. If for any reason, Carrington's Product costs become higher than the index permits, the Parties shall attempt to mutually agree on a change to the Contract Prices. If the Parties fail to agree upon a change to the Contract Prices in this instance, then said issue may be submitted for arbitration; provided, however, until such arbitration is completed, Carrington shall not be required to sell any Product at a loss. 5.2 As consideration for its appointment as the exclusive sales distributor entitled to a Product discount, Recordati agrees to purchase from Carrington, during each 12-month period of the term of this Agreement, commencing with the 12-month period beginning on the second anniversary of the Effective Date through and ending on the expiry of the initial term of this Agreement at the Contract Prices, a specified minimum aggregate dollar amount (based on the Contract Prices) of the Products (the "Specified Minimum Purchase Amount"). The first two 12-month periods of the term of this Agreement shall be considered benchmark years and there shall be no Specified Minimum Purchase Amount. The Specified Minimum Purchase Amounts for each subsequent 12-month period shall correspond to fifty (50%) percent of Recordati s sales forecast for each of the following 12-month periods. 5.3 Recordati shall order Products by submitting a purchase order to Carrington describing the type and quantity of the Products to be purchased. All purchases shall be spaced in a reasonable manner in agreed upon volumes. Purchase orders exceeding the most recent purchase forecast by more than 120% are subject to acceptance by Carrington. Carrington will invoice Recordati upon delivery of the Products. Unless otherwise agreed, Recordati shall pay all invoices in full within sixty (60) days of the date of invoice. Recordati shall be solely responsible for all costs in connection with affecting payments. All sales and payments shall be made in the State of Texas. 5.4 Carrington shall not be obligated to deliver Products to Recordati at any time when payment of an amount owed by Recordati is more than 30 days overdue or when Recordati is otherwise in material breach of this Agreement. 5.5 All deliveries shall be initiated by a purchase order. Product delivery dates will be specified in the purchase order. These dates may not be scheduled prior to ninety (90) days after the date the purchase order is received and acknowledged in writing by Carrington, unless by mutual consent of the Parties. Purchase orders will be non- cancelable. Recordati 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 roduction 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 Recordati. Variation above 20% shall be discussed between the Parties and Carrington will use its best efforts to maintain delivery dates requested by Recordati. 5.6 All deliveries of Products will be packaged in accordance with the requirements of the Registration and using Carrington's standard packaging procedures. Recordati shall supply Carrington with labeling masters, instructions and specifications for labeling and packaging of the Products. All packaging and labeling shall be in the Italian language only and sold under the Recordati Trade name. Carrington shall supply to Recordati a written statement of manufacturing, processing and/or packaging procedures, quality control procedures and methods of analysis together with samples from each batch of Products supplied. Recordati shall perform analyses on such samples and send its approval of such batch of Products to Carrington within forty five (45) days from delivery. If any batch fails to conform to the specifications therefor then Recordati shall promptly notify Carrington in writing together with copies of its quality control results from testing such samples. If Carrington does not accept Recordati s evaluation thereof after re-analyzing the relevant batch then the Parties shall nominate an independent, reputable laboratory acceptable to both for determination as to whether or not such batch fails to conform to the specifications therefor. All Contract Prices are F.C.A. (Incoterms, 1990) Carrington's facility, Irving, Texas. Ownership of and title to Products and all risks of loss with respect thereto shall pass to Recordati upon delivery of such Products by Carrington. 5.7 Carrington shall use its reasonable best efforts to ensure availability of all Products ordered by Recordati 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 Recordati, 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 provided that Carrington shall continue to supply Recordati with a minimum of seventy five percent (75%) of its forecasted requirements. 5.8 Liability and Indemnification: Carrington accepts liability for defective Products and agrees to replace such defective Products should they occur with new Products. Carrington warrants that upon delivery by Carrington the finished Products will comply with all Product specifications as set forth in the Registration. Except as warranted aforesaid or 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 delivery to Recordati 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. Recordati 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. RECORDATI'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 RECORDATI'S OPTION. SUBJECT TO THE PROVISIONS OF THIS ARTICLE 5.8, CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO RECORDATI 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. RECORDATI 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) RECORDATI'S NEGLIGENT ACTS OR OMISSIONS IN RELATION TO THE HANDLING OR STORAGE OF THE PRODUCTS, (ii) ANY BREACH BY RECORDATI OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THIS AGREEMENT, OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF RECORDATI OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND RECORDATI'S AUTHORIZATION GRANTED HEREIN. CARRINGTON SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS RECORDATI AND RECORDATI'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 ANY (i) THIRD PARTY PRODUCT LIABILITY CLAIM ARISING FROM AN INHERENT DEFECT IN THE PRODUCTS (I.E. WHICH OCCURS OR ARISES THROUGH NO NEGLIGENCE OF RECORDATI S OR THE ABOVE-REFERENCED ASSOCIATES THEREOF), (ii) INFRINGEMENT OF THIRD PARTIES INTELLECTUAL PROPERTY RIGHTS IN CONNECTION WITH THE MANUFACTURE, USE AND/OR SALE OF THE PRODUCTS IN THE TERRITORY IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT, (iii) WILFUL ACTS OR OMISSIONS OR NEGLIGENCE OF CARRINGTON, AND (iv) USE, SALE OR DISPOSITION OF THE PRODUCTS. IN NO EVENT SHALL ANY PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING, BUT NOT LIMITED TO NEGLIGENCE, FAILURE TO WARN OR FAILURE TO TEST), STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, LOSS OF USE OF THE PRODUCT. 5.9 Adverse Events. Each Party shall: (a) inform the other Party in writing in English of any serious (i.e. fatal, life threatening, causing/prolonging hospitalization, causing severe/permanent disability, or related to cancer, congenital anomaly or overdose) or unexpected adverse event concerning the active ingredient or the Products. Carrington shall report serious or unexpected adverse events to Recordati in standard CIOMS format within twenty-four (24) hours of such event coming to its knowledge and shall co-operate with Recordati in providing any additional information required by Recordati and technical support to Recordati (i.e. a copy of the original documentation, direct contact with the physician or other person who generated the Adverse Event Alert). Recordati shall notify Carrington of any serious or unexpected adverse events in standard CIOMS format as soon as consistent information on any such adverse event is collected. In addition, promptly following such written notification the notifying Party shall submit all further details which come to its knowledge with respect to such events; (b) no later than June 30 and December 31 of each year, inform the other Party in writing of any adverse events other than those refereed to in Article 5.9(a) that have occurred during the preceding six (6) month period; (c) be responsible for notifying events reported to it under this Article to the governmental authorities in accordance with the legal requirements applying in the Parties respective territories; and (d) provide to the other Party the name of an appointed representative ("the Representative") to whom all adverse event information set forth above shall be addressed. In the event of termination or expiration of this Agreement, each Party s adverse event reporting obligations shall continue for a period of twelve (12) months after such termination or expiration. 5.10 Credits for defective Products to Recordati shall include importation and shipment expenses and will be calculated by Carrington based on the original Contract Prices of the Products returned, whether identified by lot number or another method. Carrington shall provide Recordati with a copy of its liability Insurance Certificate and shall include Recordati thereunder. 5.11 For purposes of clarification, all references herein to Carrington shall include both Carrington Laboratories, Inc. and Carrington Laboratories Belgium, N.V., and each shall be jointly and severally liable regarding all of Carrington's obligations under this Agreement. Article 6. Term and Termination 6.1 The term of this Agreement shall be for an initial term of ten (10) years from the effective date of Registration of the Products. After such term, this Agreement shall be automatically renewed for a two year term unless either Party gives the other notice to terminate the Agreement at least six months prior to the end of the initial 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. 6.2a Either Party shall have the right to terminate this Agreement if the other Party fails to perform or breaches, in any material respect, the terms or provisions of this Agreement without remedying the same within sixty (60) days of being notified of such failure to perform or material breach. Without limiting the events which shall be deemed to constitute a breach or material breach of this Agreement by Recordati, Recordati understands and agrees that it shall be in material breach of this Agreement, and Carrington subject to the aforesaid shall have the right to terminate this Agreement under this Article 6.2a, if: (i) Recordati fails or refuses to pay to Carrington any sum when due; or (ii) Recordati breaches any provision of Article 2.2, 3.4, 4, 5.3, 5.8, 7 or 8. 6.2b In the event, Recordati fails to purchase the Specified Minimum Purchase Amounts of Product for any required period other than a result of Carrington's failure to supply the Products, Carrington shall have the option on sixty (60) days notice to convert the Agreement from an exclusive to a semi-exclusive status; i.e., Carrington shall be permitted to appoint one (1) other distributor, in addition to Recordati, to promote and market the Products in the Territory under their separate, respective trademarks. 6.3 Each Party shall have the right to terminate this Agreement in the event that 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 is acquired by another company. Additionally, Carrington shall have the right to terminate this Agreement if Recordati acquires another company which manufactures, sells or distributes competing wound care products, unless Recordati (i) continues to satisfy the Specified Minimum Purchase Amount requirements and (ii) provides Carrington ninety (90) days notice of such acquisition. 6.4 During the one-year period following termination of this Agreement, any inventory of Products held by Recordati at the termination of this Agreement may be sold by Recordati 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 Recordati'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 Recordati, plus importation and shipping costs. 6.5 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, 5.9, 6.4, 7, 8, 13 and 16 and the rights and obligations of the Parties thereunder shall survive the termination of this Agreement. Article 7. Trademarks and Patents 7.1 The Trademarks and all patents, Know-how, and other intellectual property 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 and Recordati s Trade name. Carrington hereby grants Recordati an exclusive license to use the Trademarks for the sole purpose of performing its obligations under this Agreement. Carrington may, upon mutual consent with Recordati, modify or discontinue the use of any Trademark and/or use one or more additional or substitute marks or names, and Recordati shall be obligated to do the same. 7.2 The Trademarks shall appear on all Product packaging, labels, and inserts and other materials which Recordati 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 by Recordati of the Trademarks in any packaging, inserts, labels, or promotional or other materials relating to the Products prior to Recordati s actual use thereof. Carrington's right of approval thereof shall be exercised within thirty (30) days from receipt of Recordati s proposal. Approval shall be deemed granted if Carrington does not respond by the end of said period. 7.3 It shall be the sole responsibility of Carrington, at its sole expense, to keep in force and maintain the Trademarks in the Territory by paying all necessary fees throughout the term of this Agreement. The Trademarks shall always be used together with the sign [R] or the sign [TM]. Recordati 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, Recordati 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 Except as provided in Article 6.4, in the event of the termination of this Agreement for any reason, Recordati's right to use the Trademarks shall cease, and Recordati shall cease using such Trademarks at such time as Recordati's inventory of Products has been sold. Recordati shall, as soon as it is reasonably possible, remove all Trademarks which appear on or about the premises of the office(s) of Recordati and any of the advertising of Recordati used in connection with the Products. 7.5 In the event of a breach or threatened breach by Recordati of the provisions of this Article 7, Carrington shall be entitled to apply for 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 Recordati. 7.6 In the event that Recordati becomes aware of any infringement of, or challenge to, Recordati s use of any of the Trademarks or any Carrington patent on the Products Recordati is obligated to notify Carrington immediately. Carrington and Recordati shall investigate any alleged violation and, if necessary, Carrington will within sixty (60) days of receipt of such notification take appropriate legal action to resolve the issue and to prevent other competitors from infringing on said intellectual property rights within the Territory. In any event, Carrington shall have sole and absolute discretion to take such action as it deems appropriate. In the event that Carrington determines not to take any action or fails to take any action within the sixty (60) days aforesaid, then Recordati shall have the right to take such action as it sees fit; using Carrington's name, if necessary, and Carrington shall provide Recordati with all reasonable assistance in connection therewith. 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 Recordati 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 Recordati in the Territory. Article 8. Confidential Information 8.1 Recordati recognizes and acknowledges that Recordati 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, Recordati 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 Recordati of the provisions of this Article 8, Carrington shall be entitled to apply for an injunction restraining Recordati 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 Recordati. 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 Recordati becomes available or known to the public thereafter due to no fault of Recordati or is received by Recordati from a third party not bound by an obligation of confidentiality in connection therewith. 8.2 Recordati shall not disclose any of the terms of this Agreement without prior written consent of Carrington. 8.3 Carrington undertakes obligations of confidentiality and non-use in terms identical to those given by Recordati in Article 8.1 in relation to any confidential business or other information supplied to Carrington hereunder. Article 9. Force Majeure 9.1 Neither Recordati 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"), and Recordati or Carrington's obligations, so far as may be necessary, shall be suspended during the period of such Force Majeure. 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 terminate this Agreement. 9.2 The Parties agree that any obligation to pay money is never excused by Force Majeure. Article 10. Amendment 10.1 No oral explanation or oral information by either Party hereto shall alter the meaning or interpretation of this Agreement. No modification, alteration, addition or change in the terms hereof shall be binding on either Party hereto unless reduced to writing and executed by the duly authorized representative of each Party. Article 11. Entire Agreement 11.1 Excepting the Confidential Disclosure Agreement dated June 8, 1996, 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, this 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 Recordati hereunder shall be transferred or assigned by Recordati without the prior written consent of Carrington (such consent not to be unreasonably withheld or delayed), executed by a duly authorized officer of Carrington provided that Recordati shall be free to transfer or assign its rights or obligations hereunder to an affiliate. Article 13. Governing Law 13.1 It is expressly agreed that the validity, performance and construction of this Agreement will 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 Recordati (Fax No. 972-518-1020). (b) Recordati at: Recordati, Via M. Civitali, 1 - 20148 Milano, Italia, Attention VP and Director, Corporate Development or at such other address as Recordati shall have theretofore furnished in writing to Carrington. (Fax No. 39 2 48 70 52 23) Article 15. Waiver 15.1 Neither Recordati 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 Recordati'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 not having been resolved by the Parties within ninety (90) days of such dispute, controversy or claim having arising, 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 in London, England in the English language and shall be governed by the rules of the International Chamber of Commerce (the "ICC") as amended from time to time. Any procedural rule not determined under the rules of the ICC shall be determined by the laws of the State 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 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 90 days of being requested to do so, then the arbitration shall be heard by three arbitrators, one selected by each Party within the 30 days of being required to do so, and the third promptly selected by the two arbitrators selected by the Parties. The arbitrators shall announce the award and the reasons therefor in writing within six months after the conclusion of the presentation of evidence and oral or written argument, or within such longer period as the Parties may agree upon in writing. The decision of the arbitrators shall be final and binding upon the Parties. Judgment upon the award rendered may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. Unless otherwise determined by the arbitrator, each Party involved in the arbitration shall bear the expense of its own counsel, experts and presentation of proof, and the expense of the arbitrator and the ICC (if any) shall be divided equally among the Parties to the arbitration. Article 17 Interpretation 17.1 The language of this Agreement is English. No translation into any other language shall be taken into account in the interpretation of the Agreement itself. 17.2 The headings in this Agreement are inserted for convenience only and shall not affect its construction. 17.3 Where appropriate, the terms defined in Article 1 and denoting a singular number only shall include the plural and vice versa. Article 18. Exhibits 18.1 Any and all Exhibits referred to herein shall be considered an integral part of this Agreement. Article 19. Currency of Account 19.1 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 Recordati 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 20. Binding Effect 20.1 This Agreement shall inure to the benefit of and be binding upon the respective successors of the Parties. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first below written. CARRINGTON LABORATORIES, INC. By: Name: Title: Date: CARRINGTON LABORATORIES BELGIUM N.V. By: Name: Title: Date: RECORDATI INDUSTRIA CHIMICA & FARMACEUTICA S.P.A. EXHIBIT A RECORDATI, S.P.A. Products & Contract Price December, 1996 Product Contract No. Product Price ------- -------------------------------------------- ------------ HYDROGEL WOUND DRESSINGS 101002 Carrasyn V Hydrogel $1.61/unit (1.0oz.Pouch) (Up to 200,000 units) 101002 Carrasyn V Hydrogel (1.0 oz. $1.51/unit Pouch) (200,001 - 250,000 units) 101002 Carrasyn V Hydrogel (1.0 oz. $1.45/unit Pouch) (250,001 - 300,000 units) 101002 Carrasyn V Hydrogel (1.0 oz. $1.36/unit Pouch) (over 300,001 units) 101023 Carrasyn V Hydrogel Wound $4.25/unit Dressing, 3 oz. tube 101017 CarraGauze 2" x 2" Pad (1 $63.00/case pkg., 15 pkgs/bx., 6 bxs./cs.) ($0.70 per unit) 101015 CarraGauze 4" x 4" Pad (1 $112.50/case pkg., 15 pkgs/bx., 6 bxs./cs.) (Up to 150,000 units $1.25 per unit) WOUND & SKIN CLEANSERS 102060 CarraKlenz Wound & Skin $2.97/bottle Cleanser ( 6 oz. Pump) 102062 CarraKlenz Wound & Skin $3.97/bottle Cleanser ( 8 oz. Pump) 102160 CarraKlenz Wound & Skin $6.07/bottle Cleanser (16 oz. Pump) Product Contract No. Product Price ------- -------------------------------------------- ------------ CALCIUM ALGINATES 101032 CarraSorb H Calcium Alginate $125.00/case Wound Dressing (2 x 2) 10bxs./10ea., 10bxs./case ($1.25/unit) 101033 CarraSorb H Calcium Alginate $272.00/case Wound Dressing (4 x 4) 10bxs./10ea., 10bxs./case ($2.72/unit) FREEZE-DRIED GELS 101035 CarraSorb M Freeze-Dried Gel $196.20/box Wound Dressing (4" diameter) 15 ea./bx., 4 bxs./cs. ($3.27/unit) ORAL TECHNOLOGY The Carrington Patch (6 per $0.75/sleeve sleeve) Note: Any volume discounts are based on yearly purchases which correspond with the specified 12-month period as set forth in Article 5.1 of this Agreement. EX-10.56 4 NONEXCLUSIVE DISTRIBUTION AGREEMENT THIS AGREEMENT is made and entered into as of November 15, 1996, (The "Effective Date"), by and between POLYMEDICA INDUSTRIES, INC., a Massachusetts corporation, having its principal offices at 11 State Street, Woburn, MA 01801 ( Manufacturer ) and CARRINGTON LABORATORIES, INC. a Texas corporation having its principal offices at 2001 Walnut Hill Lane, Irving, TX 75038 ( Distributor ). WITNESSETH: In consideration of the mutual covenants and conditions herein contained, and intending to be legally bound hereby, the parties mutually agree as follows: 1. Products and Territory (a) Manufacturer hereby appoints Distributor as a distributor for the products listed in Exhibit A hereto (the "Products") during the term of this Agreement for the purposes of reselling the Products to the professional healthcare marketplace, so long as those purchasers are located in the United States of America and any other mutually agreed upon geographic territories added hereunder from time to time in writing (the "Territory"). (b) Manufacturer reserves the right to appoint additional distributors in the Territory and shall itself be free to sell Products directly to purchasers in the Territory. (c) Distributor shall refrain from establishing or maintaining any branch, warehouse or distribution facility for Products outside the Territory. Distributor shall not engage in any advertising or promotional activities relating to the Products directed primarily to customers located outside the Territory. Distributor shall not solicit orders from any prospective purchaser located outside the Territory. If Distributor receives an order for Products from a prospective purchaser located outside the Territory, Distribution shall refer that order to Manufacturer. (d) Distributor may appoint a secondary or subdistributor to sell the Products in the Territory so long as: (i) such secondary or subdistributor confirms in writing to Manufacturer that it will comply with all of Distributor s obligations under this Agreement; and (ii) Manufacturer approves such secondary or subdistributor. 2. Ordering, Prices and Payment (a) At the earliest possible date, Distributor shall provide Manufacturer with non-binding estimates of its orders of Products for the next six (6) months on a rolling basis. Such forecasts shall be stated on a monthly basis. Once a month is forecasted, such forecasted amount may be increased or decreased by twenty-five percent (25%) before a firm order for that month is placed pursuant to Section 2(b) below. (b) Distributor (unless otherwise agreed in writing from time to time) shall furnish Manufacturer with firm orders in writing for Products not later than three (3) months prior to the required date for receipt of the shipment of such Products. Firm orders for each calendar month shall be no less than seventy-five percent (75%) and no greater than one hundred twenty-five (125%) of the estimate contained in the forecast for such calendar month provided in accordance with Section 2(a) above. (c) Distributor shall order Products from Manufacturer by submitting a written purchase order identifying the Products ordered and requested delivery date(s). Said delivery dates must be within nine months of the date of receipt of the written purchase order. Manufacturer always undertakes to maintain a capacity to enable Manufacturer to meet one hundred twenty-five percent (125%) of Distributor s estimated requirements of the Products provided in accordance with Section 2(a) above. (d) If a purchase order is accepted in accordance with Section 2(c) above, the prices for Products covered by such purchase order shall be Manufacturer s net distributor prices F.O.B. Golden, Colorado, USA which are in effect on the date of the order. The initial price for each Product under this Agreement is set out in Exhibit B hereto. Such prices are F.O.B. Golden, Colorado, USA. Manufacturer shall review the initial price for each Product on an annual basis, starting at the beginning of the 1998 calendar year, and the parties may mutually agree in writing to change the price for each Product once during each calendar year, starting with the 1998 calendar year provided, however, no price increase shall exceed five percent (5%). Any such change shall become effective sixty (60) days after Distributor's receipt of notice thereof; provided however, that no price change shall affect purchase orders offered by Distributor and received by Manufacturer prior to the date such price change becomes effective. (e) Distributor shall be free to establish its own pricing for Products which it sells. (f) Distributor hereby agrees: (i) to assist Manufacturer in obtaining any required licenses or permits required by Manufacturer by supplying such documentation or information as may be reasonably requested by Manufacturer; (ii) to comply with all governmental decrees, statutes, rules and regulations; (iii) to maintain the necessary records to comply with such decrees, statutes, rules and regulations; (iv) not to export any Products except in compliance with such decrees, statutes, rules and regulations; (v) to obtain all governmental approvals and licenses necessary to import the Products into any country in the Territory; and (vi) not to sell, transfer or otherwise dispose of Products in violation of the export laws of the United States. Each party agrees to indemnify and hold harmless the other party from any and all fines damages, losses, costs and expenses (including reasonable attorneys fees) incurred by such other party as a result of any breach of this Section 2(f) by the indemnifying party. (g) Unless Distributor requests otherwise, all Products ordered by Distributor shall be packed for shipment and storage in accordance with Manufacturer's standard commercial practices and laws, rules and regulations applicable in the Territory. It is Distributor's obligations to notify Manufacturer of any special packaging requirements (which shall be at Distributor's expense) and Manufacturer shall adhere to all packaging, labeling and inserts instructions requested by Distributor as a result of any laws, rules and regulations applicable in the Territory. Distributor shall provide any required film work and art work at its expense. Manufacturer shall deliver Products into the possession of a common carrier designated by Distributor no later than the date specified for such delivery on the relevant purchase order for such Products; provided, however, that if Distributor does not designate such carrier at least ten (10) days prior to such specified date, then Manufacturer may designate such carrier on Distributor s behalf. Risk of loss and damage to a Product shall pass to Distributor upon the delivery of such Products to the common carrier designated hereunder. (h) All amounts due and payable with respect to a Product delivered by Manufacturer in accordance with Section 2(g) hereof shall be paid in full within 45 days after the end of the calendar month in which the invoice is received or dated with a 2% discount if paid within 30 days. All such amounts shall be paid against invoice in U.S. dollars by wire transfer or check to such bank or account as Manufacturer may from time to time designate in writing. All costs incurred in connection with such wire transfer shall be the responsibility of Distributor. (i) Whenever any amount under Sections 2 or 3 hereof is due on a day which is not a day on which banks in Denver, Colorado are open for business (a Business Day ), such amount shall be paid on the next such Business Day. Amounts hereunder shall be considered to be paid as of the day on which funds are received by Manufacturer s designated bank. (j) All amounts due and owing to Manufacturer under Sections 2 or 3 hereof but not paid by Distributor on the due date thereof shall bear interest at the rate of the lesser of either: (i) one percent (1%) per month; or (ii) the maximum lawful interest rate permitted under applicable law. Such interest shall accrue on the balance of unpaid amounts from time to time outstanding from the date on which portions of such amounts become due and owing until payment thereof in full. 3. Other Obligations of Distributor (a) Distributor shall maintain an adequate stock of Products so as to render prompt and adequate service to the users of the Products in the Territory. (b) Each party to this Agreement shall report to the other party with respect to all complaints received concerning the Products. For any complaint likely to cause a risk to patient health, such complaint shall be reported to the other party with urgency, but in no event more than forty-eight (48) hours after receipt thereof. Where possible, the reporting party shall provide copies of each complaint when reporting to the other party in accordance with this Section 3(e). 4. Obligations of Manufacturer (a) Manufacturer hereby agrees to provide to Distributor with each shipment of Products, a certificate of conformity. Such certificate shall state that such Products satisfy the agreed upon specifications for such Products. (b) To have any required licenses or permits, such as a valid 510(k) for Products it delivers to Distributor. (c) Subject to Section 2(g) only deliver Product with Distributor packaging labeling insert and artwork requirements. The manufacturer shall print or label the Product ordered by the Distributor in the manner designated by the Distributor from time to time in accordance with FDA requirements. If the Distributor designates substantial changes to the form of label initially designated by the Distributor as set forth in Exhibit A for the Product then the Distributor shall reimburse the Manufacturer for its out-of-pocket costs in making such changes. (d) Deliver no Product that has a remaining shelf life of less than two years. 5. Relationship of the Parties (a) Distributor shall be considered to be an independent contractor. The relationship between Manufacturer and Distributor shall not be construed to be that of employer and employee, nor to constitute a partnership, joint venture or agency of any kind. (b) Distributor shall pay all of its expenses, including without limitation all travel, lodging and entertainment expenses, incurred in connection with its services hereunder. Manufacturer shall not reimburse Distributor for any of those expenses. (c) Distributor shall have no right to enter into any contracts or commitments in the name of, or on behalf of, Manufacturer, or to bind Manufacturer in any respect whatsoever. In addition, Distributor shall not obligate or purport to obligate Manufacturer by issuing or making any affirmations, representations, warranties or guaranties with respect to Products to any third party, other than the warranties described in Exhibit B attached hereto and made a part hereof. 6. Minimum Purchase Requirements (a) Distributor shall purchase a sufficient amount of Products from Manufacturer so as to meet or exceed 100,000 units per purchase order. For the purposes of Section 2(d) above, (i) a purchase of Products within a specified time period shall mean Distributor submitting a firm order to Manufacturer for such Products; (ii) a unit of Products; and (ii) a "unit" of Products shall mean an amount of Product equal to a 4 ins. by 4 ins. swatch. For example, a Product measuring 8 ins. by 8 ins. shall count as four (4) units. 7. Liability (a) Product Warranties. Manufacturer warrants that the Products, as delivered to the Distributor, shall (i) conform to the product purchase specification attached hereto as Exhibit A; and (ii) be manufactured and stored before delivery in accordance with all applicable regulatory requirements. (b) Correction of Non-Conformity. Should any failure to conform with the warranties set out in Section 9(a) appear within (1) month from the date of delivery of the Product (whether discovered by Distributor or their customers), and if given written notice by Distributor to Manufacture within thirty (30) days from the date of the discovery, Manufacturer shall correct such nonconformity, at its option, by (i) replacement of the nonconforming Product; or (ii) refund of the purchase price of the nonconforming Product. (c) Limitation of Warranties. The warranties shall not apply to any Product which (i) has been tampered with or otherwise altered; (ii) has been subjected to alteration, misuse, negligence or accident; or (iii) has been stored, handled or used in a manner contrary to applicable laws or other governmental requirements or Manufacturer's instructions. (d) DISCLAIMER. THE FOREGOING WARRANTIES IN THIS SECTION 7 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF QUALITY AND PERFORMANCE, WRITTEN, ORAL OR IMPLIED, AND ALL OTHER WARRANTIES INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY DISCLAIMED BY MANUFACTURER, ITS AFFILIATES AND THEIR SUBCONTRACTORS. (e) Exclusive Remedy. Except as provided in Section 8(a) below, correction of non-conformities in the manner and for the period of time provided in Section 7(b) above shall be Distributor's exclusive remedy and shall constitute fulfillment of all liabilities of Manufacturer, its Affiliates and their subcontractors (including any liability for direct, indirect, special, incidental or consequential damages), whether in warranty, contract, tort (including, but not limited to, negligence, failure to warn or failure to test), strict liability, or otherwise with respect to any non-conformance of or defect or deficiency in the Product. 8. Indemnifications and Insurance (a) Indemnification of Distributor. Manufacturer shall indemnify and hold Distributor and its Affiliates, directors, officers and employees harmless from and against any and all loss, liability, damage, expense and cost (including, without limitation, reasonable attorney s fees and other costs of defense) arising out of legally justified claims under Section 7, section 12, item 12(k) or from a third party in respect of personal injuries to customers or users to the extent caused by a defective Product, excluding, however, all such losses, liabilities, damages, expenses and costs to the extent caused by any act or omission of Distributor, its Affiliates or sub-distributors or any failure by them to comply with their obligations under this Agreement. (b) Indemnification of Manufacturer. Distributor shall indemnify and hold Manufacturer and its Affiliates, directors, officers and employees harmless from and against any and all loss, liability, damage, expense and cost (including without limitation, reasonable attorney s fees and other costs of defense) to the extent arising out of legally justified claims from a third party related to the Product caused by any act or omission of Distributor, its Affiliates or sub- distributors or any failure by them to comply with their obligations under this Agreement. (c) Defense of Actions. Each party indemnified hereunder (an Indemnified Party ) will give the Indemnifying Party written notice of any action or proceeding relating to any claim or loss for which Indemnity is sought hereunder within ten (10) business days after any such Indemnified Party shall have had actual notice thereof and the Indemnifying Party, at its option, shall be entitled to participation in or direct the defense or settlement of such action; provided the Indemnifying Party employs counsel reasonably acceptable to the Indemnified Party. The Indemnifying Party shall not be liable to the Indemnified Party in respect of settlements effected by the Indemnified Party without the written consent of the Indemnifying Party. In the event that any Indemnifying Party shall undertake to compromise or defend any action or proceeding, it shall promptly notify the Indemnified Party of its intention to do so and the Indemnified Party agrees to cooperate fully with the Indemnifying Party and its counsel in any such compromise or defense. (d) Insurances. The parties represent that they have and shall maintain during the term hereof, and for three (3) years thereafter, financial reserves and insurance with policy limits and coverage reasonably adequate to cover all perils customarily protected against in performing their respective obligations hereunder. Each party agrees to provide the other party with a certificate of insurance upon the request of the other party. (e) Limitation of Liability. IN NO EVENT SHALL ANY PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR SPECIAL INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING, BUT NOT LIMITED TO NEGLIGENCE, FAILURE TO WARN OR FAILURE TO TEST), STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, LOSS OF USE OF THE PRODUCT, DELAY OR CLAIMS OF CUSTOMERS OF DISTRIBUTOR OR OTHER USERS OF THE PRODUCT. 9. Term and Termination (a) Upon the occurrence of a material breach or default as to any obligation hereunder by either party and the failure of the breaching party to promptly pursue (within thirty (30) days after receiving written notice thereof from the non-breaching party) a reasonable remedy designed to cure (in the reasonable judgment of the non-breaching party) such material breach or default, this Agreement may be terminated by the non-breaching party by giving written notice of termination to the breaching party, such termination being immediately effective upon the giving of such notice of termination. (b) Upon the filing of a petition in bankruptcy, insolvency or reorganization against or by either party, or either party becoming subject to a composition for creditors, whether by law or agreement, or either party going into receivership or otherwise becoming insolvent (such party hereinafter referred to as the insolvent party ), this Agreement may be terminated by the other party by giving written notice of termination to the insolvent party, such termination being immediately effective upon the giving of such notice of termination. (c) The term of this Agreement shall begin on the Effective Date. Unless terminated earlier pursuant to the terms of Sections 9(a) or 9(b) above, the term of this Agreement shall expire on the fifth anniversary of the Effective Date. (d) In the event of a termination pursuant to either of Sections 9(a) or 9(b) above or upon expiration of this Agreement pursuant to Section 9(c) above, neither party shall have any obligation to the terminated party, or to any employee of the terminated party, for compensation or for damages of any kind, whether on account of the loss by the terminated party or such employee of present or prospective sales, investments, compensation or goodwill or otherwise, provided, however, that this Section 9(d) is without prejudice to any rights the terminated party may have in case of breach of this Agreement by the terminating party. The terminated party, for itself and on behalf of each of its employees, hereby waives any rights which may be granted to it or them under the laws and regulations of the Territory or otherwise which are not granted to it or them by this Agreement. The terminated party hereby indemnifies and holds the terminating party harmless from and against any and all claims, costs, damages and liabilities whatsoever asserted by any employee, agent or representative of the terminated party under any applicable termination, labor, social security or other similar laws or regulations. (e) Termination of this Agreement shall not affect the obligation of Distributor to pay Manufacturer all amounts owing or to become owing or to become owing as a result of Products delivered by Manufacturer to the common carrier on or before the date of such termination, as well as interest thereon to the extent any such amounts are paid after the date they became or will become due pursuant to this Agreement. (f) Notwithstanding anything else in this Agreement to the contrary, the parties agree that Section 7, 8, 9(d) and (e), 10, 11 and 12 shall survive the termination or expiration of this Agreement, as the case may be. 10. Publicity Distributor agrees that any publicity or advertising which shall be released by it in which Manufacturer is identified in connection with the Products shall be in accordance with the terms of this Agreement and with any information or data which Manufacturer has furnished in connection with this Agreement. Copies of all such publicity and advertising shall be forwarded promptly to Manufacturer. 11. Confidentiality Maintained (a) Each party agrees that the other party has a proprietary interest in any information provided by the other party, whether in connection with this Agreement or otherwise, whether in written or oral form, which is (i) a trade secret, confidential or proprietary information, (ii) not publicly known, and (iii) annotated by a legend, stamp or other written identification as confidential or proprietary information (hereinafter referred to as Proprietary Information ). Each party shall disclose the Proprietary Information provided by the other party only to those of its agents and employees to whom it is necessary in order to properly carry out their duties as limited by the terms and conditions hereof. Both during and after the term of this Agreement, all disclosures by the party receiving Proprietary Information to its agents and employees shall be held in strict confidence by such agents and employees. During and after the term of this Agreement, such receiving party, its agents and employees shall not use the Proprietary Information for any purpose other than in connection with discharging its duties in the Territory pursuant to this Agreement. The receiving party shall, at its expense, return to the disclosing party the Proprietary Information provided by such disclosing party as soon as practicable after the termination or expiration of this Agreement. During the term of this Agreement and thereafter, all such Proprietary Information shall remain the exclusive property of the party which provided it. This Section 11 shall also apply to any consultants or subcontractors that the receiving party may engage in connection with its obligations under this Agreement. (b) Notwithstanding anything contained in this Agreement to the contrary, each party shall not be liable for a disclosure of the Proprietary Information of the other party if the information so disclosed: (i) was in the public domain at the time of disclosure without breach of this Agreement; or (ii) was known to or contained in the records of receiving party from a source other than providing party at the time of disclosure by providing party to receiving party and can be so demonstrated; or (iii) was independently developed and is so demonstrated promptly upon receipt of the documentation and technology by receiving party; or (iv) becomes known to the receiving party from a source other than providing party without breach of this Agreement by receiving party and can be so demonstrated; or (v) was disclosed pursuant to court order or as otherwise compelled by law. 12. Miscellaneous (a) No modification or change may be made in this Agreement except by written instrument duly signed by each party. (b) This Agreement and the rights and obligations hereunder may not be assigned, delegated or transferred by either party without the prior written consent of the other party; provided, however, that the other party s consent shall not be required with respect to any assignment, delegation or transfer by a party to any affiliate of such party. To the extent permitted by this Agreement, this Agreement shall inure to the benefit of the permitted successors and assigns of both parties. (c) All notices given under this Agreement shall be in writing and shall be addressed to the parties at their respective addresses set forth above. Either party may change its address for purposes of this Agreement by giving the other party written notice of its new address. Any such notice if given or made by registered or recorded delivery letter shall be deemed to have been received on the earlier of the date actually received and the date three (3) calendar days after the same was posted (and in proving such it shall be sufficient to prove that the envelope containing the same was properly addressed and posted as aforesaid) and if given or made by telecopy transmission shall be deemed to have been received at the time of dispatch, unless such date of deemed receipt is not a Business Day, in which case the date of deemed receipt shall be the next such succeeding Business Day. (d) None of the conditions or provisions of this Agreement shall be held to have been waived by any act or knowledge on the part of either party, except by an instrument in writing signed by a duly authorized officer or representative of such party. Further, the waiver by either party of any right hereunder or the failure to enforce at any time any of the provisions of this Agreement, or any rights with respect thereto, shall not be deemed to be a waiver of any other rights hereunder or any breach or failure of performance of the other party. (e) This Agreement shall be construed and governed according to the laws of Massachusetts applicable to contracts made and to be fully performed therein, excluding (i) the United Nations Convention on Contracts for the International Sale of Goods; (ii) the 1974 Convention on the Limitation Period in the International Sale of Goods (the 1974 Convention ), and (iii) the Protocol amending the 1974 Convention, done at Vienna, April 11, 1980. (f) Any dispute, controversy or claim arising out of or relating to this Agreement or to a breach hereof, including its interpretation, performance or termination, shall be finally resolved by arbitration. The arbitration shall be conducted by three (3) arbitrators, one to be appointed by Manufacturer, one to be appointed by Distributor and a third being nominated by the two arbitrators so selected or, if they cannot agree on a third arbitrator, by the American Arbitration Association; provided, however, in the event any such dispute, controversy or claim involves a claim of damages for $100,000 or less, the arbitration shall be conducted by one (1) arbitrator appointed by Manufacturer and Distributor or, if they cannot agree on an arbitrator, by the American Arbitration Association. The arbitration shall be conducted in English and in accordance with the rules of the American Arbitration Association, which shall administer the arbitration and act as appointing authority. The arbitration, including the rendering of the award, shall take place in Denver, Colorado and shall be the exclusive forum for resolving such dispute, controversy or claim. The decision of the arbitrators shall be binding upon the parties hereto, and the expense of the arbitration (including without limitation the award of attorneys fees to the prevailing party) shall be paid as the arbitrators determine. The decision of the arbitrators shall be executory, and judgment thereon may be entered by any court of competent jurisdiction. Not withstanding anything contained in this Section 12(g) to the contrary, each party shall have the right to institute judicial proceedings against the other party or anyone acting by, through or under such other party, in order to enforce the instituting party s rights hereunder through reformation of contract, specific performance, injunction or similar equitable relief. (g) No rights or licenses with respect to the Products or the Trademarks are granted or deemed granted hereunder or in connection herewith, other than those rights expressly granted in this Agreement. (h) Taxes, now or hereafter imposed with respect to the transactions contemplated hereunder (with the exception of income taxes or other taxes imposed upon Manufacturer and measured by the gross or net income of Manufacturer) shall be the responsibility of Distributor, and if paid or required to be paid by Manufacturer, the amount thereof shall be added to and become a part of the amounts payable by Distributor hereunder. (i) Distributor may not customize, modify or have customized or modified any Product unless it obtains the prior written consent of Manufacturer, which consent may be withheld in the sole discretion of Manufacturer. Any unauthorized customizing or modification of any Product by Distributor or any third party shall relieve Manufacturer from any obligation it would otherwise have had with respect to such Product under the warranties described. (j) Neither Manufacturer nor Distributor shall be liable in damages, or shall be subject to termination of this Agreement by the other party, for any delay or default in performing any obligation hereunder (other than a payment obligation) if that delay or default is due to any cause beyond the reasonable control and without fault or negligence of that party; provided that, in order to excuse its delay or default hereunder, a party shall notify the other of the occurrence or the cause, specifying the nature and particulars thereof and the expected duration thereof; and provided, further, that within fifteen (15) calendar days after the termination of such occurrence or cause, such party shall give notice to the other party specifying the date of termination thereof. All obligations of both parties shall return to being in full force and effect upon the termination of such occurrence or cause. For the purposes of this 12(i) a cause beyond the reasonable control of a party shall include, without limiting the generality of the phrase, any act of God, act of any government or other authority or statutory undertaking, industrial dispute, fire, explosion, accident, power failure, flood, riot or war (declared or undeclared). (k) Each of Distributor and Manufacturer convenants that all of its activities under or pursuant to this Agreement shall comply with all applicable laws, rules and regulations, and neither is a party to any agreement which would prevent the sale or purchase of the Products. (l) If any provision of this Agreement is declared invalid or unenforceable by a court having competent jurisdiction, it is mutually agreed that this Agreement shall endure except for the part declared invalid or unenforceable by order of such court. The parties shall consult and use their best efforts to agree upon a valid and enforceable provision which shall be a reasonable substitute for such invalid or unenforceable provision in light of the intent of this Agreement. (m) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (n) For the purposes of this Agreement, affiliates shall mean all companies, natural persons, partnerships and other business entities controlled by, under common control with or controlling either party to this Agreement. IN WITNESS WHEREOF, the parties hereto have signed this Agreement. CARRINGTON LABORATORIES, INC., as Distributor By Name: Dr. Carlton E. Turner Title: President & CEO POLYMEDICA INDUSTRIES INC., as Manufacturer By Name: Title: EXHIBIT A POLYMEDICA Product Purchase Specification General Description: The Product is a breathable, absorptive, self-adhesive dressing. The Product has hydrophilic properties and is designed to manage wound exudate by a combination of its absorption and evaporative properties. The dressings are constructed of three layers: 1) Layer one, a non-transparent pigmented (tan coloration), hydrophilic polyurethane film; 2) Layer two, a hydrophilic, asymmetric, microporous, open-cell polyurethane membrane; and 3) Layer three, a porous, acrylic, copolymer, pressure sensitive adhesive. The dressing is supplied on a release paper which is cut to provide an easy peel facility (crack and peel). The dressing is packaged in individual pouches. Pouched dressings are packaged with an Instructions for Use leaflet in a carton. The dressings packed in pouches, and cartons are gamma irradiated to produce sterile product. Product Properties: Mechanical Properties: Tensile Strength: >= 0.1 Kg/mm(2) % Elongation: >= 100% Moisture Vapor Transport Rate (MVTR): Upright >= 1100 g/m(2)/24 hrs. Ratio Inverted/Upright: >= 2.0 g/m(2)/24 hrs. Lot Code: To be a minimum of 1/8" high on pouch. All letters and numerals must be legible individually. Expiration Date: Present and legible on pouch and carton. Pouch Seal: Is complete and not over Product. EXHIBIT A POLYMEDICA Product Purchase Specification (Continued) Sterility: Packaged product is sterilized by gamma irradiation with a minimum dose of 2.5 Mrads (25 Kgys) for a Sterility Assurance Level of 6- 10 . Validation and release criteria to be those set forth in the current Guideline for Gamma Radiation Sterilization : Association for the Advancement of Medical Instrumentation (AAMI). Indications For Use: The Product is intended for use in the management of: Venous stasis ulcers Partial-thickness wounds Diabetic ulcers Superficial burns Pressure sores Abrasions and lacerations Donor sites Full-thickness wounds The Product is not indicated for third degree burns. Product Dating: Product packaging is individually stamped with an expiry code which is 3 years from the date of manufacture. Product Labeling: Examples of initially designated labeling from Distributor is attached. EXHIBIT B POLYMEDICA Product Pricing Nominal Size Price (eaches) ------------ -------------- 2" x 3" $ 0.71 4" x 4" $ 1.11 6" x 8" $ 3.85 All prices FOB, Golden, Colorado, USA EX-10.57 5 SALES DISTRIBUTION AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into as of this day of , 1996, by and between CARRINGTON LABORATORIES, INC., a Texas corporation hereinafter referred to as ("Carrington"), and GAMIDA-MEDEQUIP LTD., an Israeli corporation hereinafter referred to as ("GME"). 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 Israel and South Africa (defined in Article 1 hereof as the Territory); and WHEREAS, GME 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 GME 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) "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 GME on its intent to add or discontinue Products to Exhibit A. (b) "Territory" shall mean the following countries: Israel (including Israeli-administered territories and the areas of Palestinian authority). (c) "Parties" shall mean Carrington and GME and Party shall mean either of them as the context indicates. (d) "Know-how" shall mean secret and substantial technical and scientific information regarding the Products, which may be necessary, useful or advisable to enable GME 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 GME after execution of this Agreement. (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) "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 GME as Carrington's sales distributor in the Territory for the sale of Products, and GME hereby accepts such appointment. As sales distributor in the Territory, GME 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. During the term of this Agreement, Carrington undertakes to appoint no other sales distributor for the Products in the Territory, nor itself to sell the Products in the Territory other than through GME. 2.2 In a manner reasonably satisfactory to Carrington, and at GME's sole expense, GME 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, GME shall be considered an independent contractor and shall not be considered a partner, employee, agent or servant of Carrington. As such, GME 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. GME 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 GME any right to use or otherwise deal with the Know-how for purposes other than those expressly provided for in this Agreement. 2.5 GME shall promptly inform Carrington of any misappropriation of the Know-how which comes to its attention. Carrington shall have sole and absolute discretion to take such action as it deems appropriate and shall reimburse GME for any costs or expenses pre-approved or authorized by Carrington which GME incurs in protecting or defending the Know-how, unless such misappropriation of Know-how was caused in whole or part by GME. 2.6 All costs and expenses connected with GME s activities or performance under this Agreement are to be borne solely by GME. Article 3. Certain Performance Requirements 3.1 GME agrees to promote, market, sell and distribute the Products only to customers and potential customers within the Territory for ultimate use within the Territory. GME 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 GME is in compliance with Article 3.1, GME agrees that upon written request: (a) GME will send to Carrington a quarterly sales report (not more than once quarterly) which sets forth the number of units and sizes of each Product sold, as well as net sales; and (b) Carrington may mark for identification all Products sold by Carrington to GME hereunder. 3.3 GME shall promptly provide Carrington with written reports of any importation or sale of any of the Products in the Territory of which GME 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 GME shall maintain a sufficient inventory of Products to assure an adequate supply of Products to serve all its market segments. GME 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 GME's facilities shall be subject to inspection by Carrington or its agents upon 72 hours written notice. 3.5 GME 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 GME of Products. Upon written request from GME, Carrington shall provide GME with such certificates or other documents as may be reasonably required to establish any applicable exemptions from the collection of such taxes, charges and fees. 3.6 All Products shall be packaged and delivered by Carrington to GME. All Products shall be labeled, advertised, marketed, sold and distributed by GME 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. GME 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 GME shall not make any alterations or permit any alterations to be made to the Products without Carrington's written consent. 3.8 GME shall assume all responsibility for its compliance 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 GME's non-compliance with such applicable laws, regulations and requirements concerning said Registration, inventory, use, promotion, distribution and sale and shall hold Carrington harmless from any claim resulting therefrom being directed against Carrington or GME by any third party. 3.9 GME 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 GME 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 GME will actively and aggressively promote, develop demand for and maximize the sale of the Products to all customers and potential customers within the Territory. GME 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, oral care or incontinence care product which is competitive with any Product listed on Exhibit A at such time. 3.12 GME represents that its books, records and accounts pertaining to all its operations hereunder are complete and accurate in all material respects and have been maintained in accordance with sound and generally accepted accounting principles. Article 4 Registration of Products 4.1 It being understood that Registration is a prerequisite to the lawful sale of the Products in the Territory, Carrington hereby agrees to supply GME, 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 GME, 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 shall be in the name of Carrington, with GME being named as Products distributor in the Territory. GME 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 GME has received Know-how from Carrington, GME 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. GME 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, GME 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 GME shall use its best endeavors to obtain the Registration within six (6) months from the relevant submission. GME 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 GME's fulfilment of its obligations in this respect. It is, however, understood that GME's dead-line to obtain Registration is one year from the date of filing. 4.6 GME 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 GME shall have no claim against Carrington arising out of any delay or refusal by the authorities to issue the Registration. Article 5. Sale of Products by Carrington to GME 5.1 Subject to the terms and conditions of this Agreement, including specifically Article 5.7 hereof, Carrington shall sell to GME the Products at a specified price for each Product (the "Contract Price"). For orders placed by GME 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) GME 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. 5.2 As consideration for its appointment as a sales distributor entitled to a Product discount, GME agrees to purchase from Carrington, during each 12-month period of the term of this Agreement, commencing with the 12-month period beginning _________, 19__ through ___________, 19__, at the Contract Price, a specified minimum aggregate dollar amount (based on the Contract Price) of the Products (the "Specified Minimum Purchase Amount"). The first 12-month period of the term of this Agreement shall be considered a benchmark year and there shall be no Specified Minimum Purchase Amount, but rather a sales target of $________.00. 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 GME's reasonable, good faith projections of future sales growth and such other factors as the Parties may deem relevant. 5.3 GME 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 GME upon shipment of the Products. Unless otherwise agreed, GME shall pay all invoices in full within ninety (90) days of the date of invoice. GME 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 GME at any time when payment of an amount owed by GME is overdue or when GME is otherwise in breach of this Agreement. 5.5 All shipments will 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 date the Purchase Order is received and acknowledged in writing by Carrington, unless by mutual consent of the Parties. Purchase Orders will be non- cancelable. GME will issue to Carrington on a quarterly 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 quarterly rolling forecast issued prior to the Purchase Order placed by GME. Variation above 20% shall be discussed between the Parties and Carrington will use its best efforts to maintain delivery dates requested by GME. 5.6 All shipments of Products to GME 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 GME 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 GME 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 GME, 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. 5.8a 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 GME 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. GME 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. GME'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 GME'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO GME 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. 5.8b Carrington shall indemnify, defend and hold GME and GME's officers, directors and employees harmless from and against any liability, losses, damages, costs and expenses (including reasonable attorney s fees and disbursements) arising out of or with respect to: (i) any third party claims, actions or suits alleging product liability; or (ii) any claims, actions or suits alleging that the Products or Trademarks infringe the intellectual property rights or other proprietary rights of any third party. 5.8c GME shall indemnify, defend and hold Carrington and Carrington s officers, directors and employees harmless from and against any liability, losses, damages, costs and expenses (including reasonable attorney s fees and disbursements) arising out of or with respect to any third party claims, actions or suits due to the following acts or omissions by GME, its agents, servants or employees: (i) any alterations or mishandling (subsequent to delivery by Carrington) of the Products; (ii) any unauthorized claims regarding the Products, including, but not limited to, misrepresentations of any aspect, element, component or result of use of the Products; (iii) any misuse or unauthorized use of the Trademarks or Know- how; or (iv) any breach by GME of any of its representations, warranties, or covenants under this agreement. 5.8d EACH PARTY S INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS ARTICLE 5.8 SHALL NOT APPLY TO THE EXTENT THAT THE ACT OR OMISSIONS CONTAINED THEREIN ARE ATTRIBUTED TO OR CAUSED BY THE OTHER PARTY, WHETHER INTENTIONALLY OR NEGLIGENTLY. 5.9 Credits for defective Products to GME 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 GME with a copy of its liability Insurance Certificate and shall include GME thereunder. Article 6. Term and Termination 6.1 The term of this Agreement shall be for a period of five years from the effective date of this Agreement. After such term, this Agreement shall be automatically renewed for successive periods of five (5) years each unless or until either Party terminates this Agreement pursuant to the termination provisions set forth herein, or by giving notice of termination to the other Party on the last day of any period, providing at least 365 days prior notice to such effect. 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. 6.2a Carrington shall have the absolute right to terminate this Agreement if GME fails to perform or breaches, in any material respect, any of the terms or provisions of this Agreement and fails to rectify such non-performance or breach within ninety (90) days (or, in the case of a financial breach, thirty (30) days) of receipt of a written demand from Carrington. Without limiting the events which shall be deemed to constitute a breach or material breach of this Agreement by GME, GME 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) GME fails or refuses to pay to Carrington any sum when due; or (ii) GME breaches any provision of Article 2.2, 3.4, 4, 5.3, 5.8a, 7 or 8. 6.2b In the event GME fails to purchase the Specified Minimum Purchase Amount of Product for any given period for a particular Territory and Carrington provides a written notice of breach of such performance, and breach of such performance is not remedied within sixty (60) days, then Carrington shall have the absolute right to remove that particular Territory from the Agreement and terminate the Agreement with regard to same Territory. 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 GME at the termination of this Agreement may be sold by GME 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 GME'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 GME, 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 three (3) years. 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 GME 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 GME, modify or discontinue the use of any Trademark and/or use one or more additional or substitute marks or names, and GME 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 GME 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 GME s actual use thereof. 7.3 It shall be the sole responsibility of Carrington, at its sole expense, to keep in force and maintain the Trademarks in the Territory by paying all necessary fees throughout the term of this Agreement. GME 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]. GME 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, GME 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 GME's use of any Trademark or of any GME trademark, GME is obligated to notify Carrington immediately. GME 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, GME's right to use the Trademarks shall cease, and GME shall cease using such Trademarks at such time as GME's inventory of Products has been sold. GME shall, as soon as it is reasonably possible, remove all Trademarks which appear on or about the premises of the office(s) of GME and any of the advertising of GME used in connection with the Products. 7.6 In the event of a breach or threatened breach by GME 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 GME. 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 trademark be also defined as Trademark for purposes of this Agreement) owned by Carrington or to be transferred from GME 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 GME in the Territory. 7.8 Nothing contained in this Agreement shall be construed as giving GME the right to use the Trademark outside the Territory or for any other product than the Products. Article 8. Confidential Information 8.1 GME recognizes and acknowledges that GME 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, GME 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 GME of the provisions of this Article 8, Carrington shall be entitled to an injunction restraining GME 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 GME. 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 GME. 8.2 GME shall not disclose any of the terms of this Agreement without the prior written consent of Carrington. Article 9. Force Majeure 9.1 Neither GME 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"), and neither GME's nor Carrington's obligations, so far as may be necessary, shall 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 rights and remedies. 9.2 The Parties agree that any obligation to pay money is never excused by Force Majeure. Article 10. Amendment 10.1 No oral explanation or oral information by either Party hereto shall alter the meaning or interpretation of this Agreement. No modification, alteration, addition or change in the terms hereof shall be binding on either Party hereto unless reduced to writing and executed by the duly authorized representative of each Party. Article 11. Entire Agreement 11.1 This Agreement represents the entire Agreement between the Parties and shall supersede any and all prior agreements, understandings, arrangements, promises, representations, warranties, and/or any contracts of any form or nature whatsoever, whether oral or in writing and whether explicit or implicit, which may have been entered into prior to the execution hereof between the Parties, their officers, directors or employees as to the subject matter hereof. Neither of the Parties hereto has relied upon any oral representation or oral information given to it by any representative of the other Party. 11.2 Should any provision of this Agreement be rendered invalid or unenforceable, this 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 GME hereunder shall be transferred or assigned by GME without the prior written consent of Carrington, executed by a duly authorized officer of Carrington, except that GME by notice in writing to Carrington may delegate any or all of its rights and obligations hereunder to one or more of its Affiliates responsible for business in the Territory or particular countries thereof. In this Agreement, an "Affiliate" of GME shall mean any company controlling, controlled by or under common control with GME, "control" for the purposes hereof meaning the holding, directly or through one or more intermediaries, of more than fifty per cent (50%) of the voting equity share capital of or an equivalent interest in the controlled company, or the power otherwise to direct or cause the direction of its general policies and management. This Agreement shall inure to the benefit of and fully bind the permitted assigns and successors-in-interest of each of the Parties. Article 13. Governing Law 13.1 It is expressly agreed that the validity, performance and construction of this Agreement will 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 GME. (Fax No. 972-714-5009) (b) GME at: _____________________; Attention: _______________, or at such other address as GME shall have theretofore furnished in writing to Carrington. (Fax No.____________). All notices provided by mail or courier services shall also be promptly copied by fax. Article 15. Waiver 15.1 Neither GME'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 GME'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 England, 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 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 90 days of being requested to do so, then the arbitration shall be heard by three arbitrators, one selected by each Party within the 30 days of being required to do so, and the third promptly selected by the two arbitrators selected by the Parties. The arbitrators shall announce the award and the reasons therefor in writing within six months after the conclusion of the presentation of evidence and oral or written argument, or within such longer period as the Parties may agree upon in writing. The decision of the arbitrators shall be final and binding upon the Parties. Judgment upon the award rendered may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. Unless otherwise determined by the arbitrator, each Party involved in the arbitration shall bear the expense of its own counsel, experts and presentation of proof, and the expense of the arbitrator and the ICC (if any) shall be divided equally among the Parties to the arbitration. Article 17 Interpretation 17.1 The language of this Agreement is English. No translation into any other language shall be taken into account in the interpretation of the Agreement itself. 17.2 The headings in this Agreement are inserted for convenience only and shall not affect its construction. 17.3 Where appropriate, the terms defined in Article 1 and denoting a singular number only shall include the plural and vice versa. 17.4 References to any law, regulation, statute or statutory provision includes a reference to the law, regulation, statute or statutory provision as from time to time amended, extended or re- enacted. Article 18. Exhibits 18.1 Any and all Exhibits referred to herein shall be considered an integral part of this Agreement. 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 GME 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. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written. CARRINGTON LABORATORIES, INC. By: Name: Title: GAMIDA-MEDEQUIP, LTD. By: Name: Title: EXHIBIT A GAMIDA-MEDEQUIP, INC. Products & Contract Price ___________, 1996 Current Product Price ---------------------------------------- ----------- Carrington Patch (6 patches per sleeve) $.75/sleeve Note: Any volume discounts are based on yearly purchases which correspond with the specified 12-month period as set forth in Article 5.1 of this Agreement. Projected Purchases: Israel First Year 50,000 sleeves (300,000 patches) EX-10.58 6 SALES DISTRIBUTION AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into as of this day of , 1996, by and between CARRINGTON LABORATORIES, INC., with offices located at 2001 Walnut Hill Lane, Irving, Texas 75038, hereinafter referred to as ("Carrington"), and GAMIDA FOR LIFE BV, with offices located at Marton Meeswag 51, Rotterdam, The Netherlands, 3068 AV, hereinafter referred to as ("GBV"). 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 Israel and South Africa (defined in Article 1 hereof as the Territory); and WHEREAS, GBV 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 GBV 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) "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 GBV on its intent to add or discontinue Products to Exhibit A. (b) "Territory" shall mean the following countries: South Africa. (c) "Parties" shall mean Carrington and GBV and Party shall mean either of them as the context indicates. (d) "Know-how" shall mean secret and substantial technical and scientific information regarding the Products, which may be necessary, useful or advisable to enable GBV 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 GBV after execution of this Agreement. (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) "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 GBV as Carrington's sales distributor in the Territory for the sale of Products, and GBV hereby accepts such appointment. As sales distributor in the Territory, GBV 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. During the term of this Agreement, Carrington undertakes to appoint no other sales distributor for the Products in the Territory, nor itself to sell the Products in the Territory other than through GBV. 2.2 In a manner reasonably satisfactory to Carrington, and at GBV's sole expense, GBV 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, GBV shall be considered an independent contractor and shall not be considered a partner, employee, agent or servant of Carrington. As such, GBV 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. GBV 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 GBV any right to use or otherwise deal with the Know-how for purposes other than those expressly provided for in this Agreement. 2.5 GBV shall promptly inform Carrington of any misappropriation of the Know-how which comes to its attention. Carrington shall have sole and absolute discretion to take such action as it deems appropriate and shall reimburse GBV for any costs or expenses pre-approved or authorized by Carrington which GBV incurs in protecting or defending the Know-how, unless such misappropriation of Know-how was caused in whole or part by GBV. 2.6 All costs and expenses connected with GBV s activities or performance under this Agreement are to be borne solely by GBV. Article 3. Certain Performance Requirements 3.1 GBV agrees to promote, market, sell and distribute the Products only to customers and potential customers within the Territory for ultimate use within the Territory. GBV 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 GBV is in compliance with Article 3.1, GBV agrees that upon written request: (a) GBV will send to Carrington a quarterly sales report (not more than once quarterly) which sets forth the number of units and sizes of each Product sold, as well as net sales; and (b) Carrington may mark for identification all Products sold by Carrington to GBV hereunder. 3.3 GBV shall promptly provide Carrington with written reports of any importation or sale of any of the Products in the Territory of which GBV 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 GBV shall maintain a sufficient inventory of Products to assure an adequate supply of Products to serve all its market seGBVnts. GBV 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 GBV's facilities shall be subject to inspection by Carrington or its agents upon 72 hours written notice. 3.5 GBV 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 GBV of Products. Upon written request from GBV, Carrington shall provide GBV with such certificates or other documents as may be reasonably required to establish any applicable exemptions from the collection of such taxes, charges and fees. 3.6 All Products shall be packaged and delivered by Carrington to GBV. All Products shall be labeled, advertised, marketed, sold and distributed by GBV 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. GBV 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 G B V shall not make any alterations or permit any alterations to be made to the Products without Carrington's written consent. 3.8 GBV shall assume all responsibility for its compliance 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 GBV's non-compliance with such applicable laws, regulations a n d requirements concerning said Registration, inventory, use, promotion, distribution and sale and shall hold Carrington harmless from any claim resulting therefrom being directed against Carrington or GBV by any third party. 3.9 GBV 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 GBV 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 GBV will actively and aggressively promote, develop demand for and maximize the sale of the Products to all customers and p o tential customers within the Territory. GBV 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, oral care or incontinence care product which is competitive with any Product listed on Exhibit A at such time. 3.12 GBV represents that its books, records and accounts pertaining to all its operations hereunder are complete and accurate in all material respects and have been maintained in accordance with sound and generally accepted accounting principles. Article 4 Registration of Products 4.1 It being understood that Registration is a prerequisite to the lawful sale of the Products in the Territory, Carrington hereby agrees to supply GBV, 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 GBV, 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 shall be in the name of Carrington, with GBV being named as Products distributor in the Territory. GBV 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 GBV has received Know-how from Carrington, GBV 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. GBV 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, GBV 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 GBV shall use its best endeavors to obtain the Registration within six (6) months from the relevant submission. GBV 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 GBV s fulfilment of its obligations in this respect. It is, however, understood that GBV s dead-line to obtain Registration is one year from the date of filing. 4.6 GBV 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 GBV shall have no claim against Carrington arising out of any delay or refusal by the authorities to issue the Registration. Article 5. Sale of Products by Carrington to GBV 5.1 Subject to the terms and conditions of this Agreement, including specifically Article 5.7 hereof, Carrington shall sell to GBV the Products at a specified price for each Product (the "Contract Price"). For orders placed by GBV 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) GBV shall provide in writing to Carrington both a sales forecast and a purchase forecast for the following 12- m o n th 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. 5.2 As consideration for its appointment as a sales distributor entitled to a Product discount, GBV agrees to purchase from Carrington, during each 12-month period of the term of this Agreement, commencing with the 12-month period beginning _________, 19__ through ___________, 19__, at the Contract Price, a specified minimum aggregate dollar amount (based on the Contract Price) of the Products (the "Specified Minimum Purchase Amount"). The first 12-month period of the term of this Agreement shall be considered a benchmark year and there shall be no Specified Minimum Purchase Amount, but rather a sales target of $________.00. 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 GBV's reasonable, good faith projections of future sales growth and such other factors as the Parties may deem relevant. 5.3 GBV 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 GBV upon shipment of the Products. Unless otherwise agreed, GBV shall pay all invoices in full within ninety (90) days of the date of invoice. GBV 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 GBV at any time when payment of an amount owed by GBV is overdue or when GBV is otherwise in breach of this Agreement. 5.5 All shipments will 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 date the Purchase Order is received and acknowledged in writing by Carrington, unless by mutual consent of the Parties. Purchase Orders will be non- cancelable. GBV will issue to Carrington on a quarterly 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 quarterly rolling forecast issued prior to the Purchase Order placed by GBV. Variation above 20% shall be discussed between the Parties and Carrington will use its best efforts to maintain delivery dates requested by GBV. 5.6 All shipments of Products to GBV 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 GBV 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 GBV under this Agreement. However, if necessary in the best judGBVnt of Carrington, Carrington may allocate its available supply of Products among all its customers, distributors or other purchasers, including GBV, 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. 5.8a 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 GBV 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. GBV 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. GBV'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 GBV'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO GBV 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. 5.8b Carrington shall indemnify, defend and hold GBV and GBV's officers, directors and employees harmless from and against any liability, losses, damages, costs and expenses (including reasonable attorney's fees and disbursements) arising out of or with respect to: (i) any third party claims, actions or suits alleging product liability; or (ii) any claims, actions or suits alleging that the Products or Trademarks infringe the intellectual property rights or other proprietary rights of any third party. 5.8c GBV shall indemnify, defend and hold Carrington and Carrington's officers, directors and employees harmless from and against any liability, losses, damages, costs and expenses (including reasonable attorney's fees and disbursements) arising out of or with respect to any third party claims, actions or suits due to the following acts or omissions by GBV, its agents, servants or employees: (i) any alterations or mishandling (subsequent to delivery by Carrington) of the Products; (ii) any unauthorized claims regarding the Products, including, but not limited to, misrepresentations of any aspect, element, component or result of use of the Products; (iii) any misuse or unauthorized use of the Trademarks or Know- how; or (iv) a n y breach by GBV of any of its representations, warranties, or covenants under this agreement. 5.8d EACH PARTY S INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS ARTICLE 5.8 SHALL NOT APPLY TO THE EXTENT THAT THE ACT OR OMISSIONS CONTAINED THEREIN ARE ATTRIBUTED TO OR CAUSED BY THE OTHER PARTY, WHETHER INTENTIONALLY OR NEGLIGENTLY. 5.9 Credits for defective Products to GBV 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 GBV with a copy of its liability Insurance Certificate and shall include GBV thereunder. Article 6. Term and Termination 6.1 The term of this Agreement shall be for a period of five years from the effective date of this Agreement. After such term, this Agreement shall be automatically renewed for successive periods of five (5) years each unless or until either Party terminates this Agreement pursuant to the termination provisions set forth herein, or by giving notice of termination to the other Party on the last day of any period, p r o v iding at least 365 days prior notice to such effect. 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. 6.2a Carrington shall have the absolute right to terminate this Agreement if GBV fails to perform or breaches, in any material respect, any of the terms or provisions of this Agreement and fails to rectify such non-performance or breach within ninety (90) days (or, in the case of a financial breach, thirty (30) days) of receipt of a written demand from Carrington. Without limiting the events which shall be deemed to constitute a breach or material breach of this Agreement by GBV, GBV 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) GBV fails or refuses to pay to Carrington any sum when due; or (ii) GBV breaches any provision of Article 2.2, 3.4, 4, 5.3, 5.8a, 7 or 8. 6.2b In the event GBV fails to purchase the Specified Minimum Purchase Amount of Product for any given period for a particular Territory and Carrington provides a written notice of breach of such performance, and breach of such performance is not remedied within sixty (60) days, then Carrington shall have the absolute right to remove that particular Territory from the Agreement and terminate the Agreement with regard to same Territory. 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 b a n k r uptcy, 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 GBV at the termination of this Agreement may be sold by GBV 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 GBV'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 GBV, 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 three (3) years. Article 7. Trademarks 7.1 All Carrington Trademarks, trade names, service marks, l o g o s 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 GBV 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 GBV, modify or discontinue the use of any Trademark and/or use one or more additional or substitute marks or names, and GBV 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 GBV 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 GBV s actual use thereof. 7.3 It shall be the sole responsibility of Carrington, at its sole expense, to keep in force and maintain the Trademarks in the Territory by paying all necessary fees throughout the term of this Agreement. GBV 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]. GBV 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, GBV 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 GBV's use of any Trademark or o f any GBV trademark, GBV is obligated to notify Carrington immediately. GBV 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, GBV's right to use the Trademarks shall cease, and GBV shall cease using such Trademarks at such time as GBV's inventory of Products has been sold. GBV shall, as soon as it is reasonably possible, remove all Trademarks which appear on or about the premises of the office(s) of GBV and any of the advertising of GBV used in connection with the Products. 7.6 In the event of a breach or threatened breach by GBV 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 GBV. 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 trademark be also defined as "Trademark" for purposes of this Agreement) owned by Carrington or to be transferred from GBV 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 GBV in the Territory. 7.8 Nothing contained in this Agreement shall be construed as giving GBV the right to use the Trademark outside the Territory or for any other product than the Products. Article 8. Confidential Information 8.1 GBV recognizes and acknowledges that GBV 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 b u s iness-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, GBV shall not, during and after the term of this Agreement, make any use of such Confidential Information, or disclose any of such C o n f idential Information to any person or firm, corporation, association or other entity, for any reason or purpose whatsoever, e x c e p t as specifically allowed in writing by an authorized representative of Carrington. In the event of a breach or threatened breach by GBV of the provisions of this Article 8, Carrington shall be entitled to an injunction restraining GBV 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 GBV. 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 GBV. 8.2 GBV shall not disclose any of the terms of this Agreement without the prior written consent of Carrington. Article 9. Force Majeure 9.1 Neither GBV 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, s t orm, earthquake, lightning, frost, civil commotion, sabotage, vandalism, smoke, hail, embargo, act of God or the public enemy, other c a s u alty, strike or lockout, or interference, prohibition or restriction imposed by any government or any officer or agent thereof ("Force Majeure"), and neither GBV's nor Carrington's obligations, so far as may be necessary, shall 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 rights and remedies. 9.2 The Parties agree that any obligation to pay money is never excused by Force Majeure. Article 10. Amendment 10.1 No oral explanation or oral information by either Party hereto shall alter the meaning or interpretation of this Agreement. No modification, alteration, addition or change in the terms hereof shall be binding on either Party hereto unless reduced to writing and executed by the duly authorized representative of each Party. Article 11. Entire Agreement 11.1 This Agreement represents the entire Agreement between the P a r t i e s 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, this 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 GBV hereunder shall be transferred or assigned by GBV without the prior written consent of Carrington, executed by a duly authorized officer of Carrington, except that GME by notice in writing to Carrington may delegate any or all of its rights and obligations hereunder to one or more of its Affiliates responsible for business in the Territory or particular countries thereof. In this Agreement, an "Affiliate" of GME shall mean any company controlling, controlled by or under common control with GME, "control" for the purposes hereof meaning the holding, directly or through one or more intermediaries, of more than fifty per cent (50%) of the voting equity share capital of or an equivalent interest in the controlled company, or the power otherwise to direct or cause the direction of its general policies and management.. This Agreement shall inure to the benefit of and fully bind the permitted assigns and successors-in-interest of each of the Parties. Article 13. Governing Law 13.1 It is expressly agreed that the validity, performance and construction of this Agreement will 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 GBV. (Fax No. 972-714-5009) (b) GBV at: _____________________; Attention: _______________, or at such other address as GBV shall have theretofore furnished in writing to Carrington. (Fax No.____________). All notices provided by mail or courier services shall also be promptly copied by fax. Article 15. Waiver 15.1 Neither GBV'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 GBV'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 England, 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 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 90 days of being requested to do so, then the arbitration shall be heard by three arbitrators, one selected by each Party within the 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. JudGBVnt upon the award rendered may be entered in any court having jurisdiction over the person or the assets of the Party owing the judGBVnt 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 i n t o any other language shall be taken into account in the interpretation of the Agreement itself. 17.2 The headings in this Agreement are inserted for convenience only and shall not affect its construction. 17.3 Where appropriate, the terms defined in Article 1 and denoting a singular number only shall include the plural and vice versa. 17.4 References to any law, regulation, statute or statutory provision includes a reference to the law, regulation, statute or statutory provision as from time to time amended, extended or re- enacted. Article 18. Exhibits 18.1 Any and all Exhibits referred to herein shall be considered an integral part of this Agreement. 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 GBV 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. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written. CARRINGTON LABORATORIES, INC. By: Name: Title: GAMIDA FOR LIFE BV By: Name: Title: EXHIBIT A GAMIDA FOR LIFE BV Products & Contract Price ___________, 1996 Current Product Price ----------------------------------------------------- ----------- Carrington Patch (6 patches per sleeve) $.75/sleeve Note: Any volume discounts are based on yearly purchases which correspond with the specified 12-month period as set forth in Article 5.1 of this Agreement. Projected Purchases: South Africa First Year 67,000 sleeves (400,000 patches) EX-10.59 7 SALES DISTRIBUTION AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into as of this 4th day of December, 1996, by and between CARRINGTON LABORATORIES, INC., a Texas corporation ("Carrington"), and DARROW LABORATORIOS S/A, a Brazilian corporation ("Darrow"). W I T N E S S E T H : WHEREAS, Carrington is engaged in the business of manufacturing, selling and distributing certain medical devices and is desirous of establishing a competent and exclusive distribution source for sales of such products in Brazil (defined in Article 1 hereof as the Territory ); and WHEREAS, Darrow is desirous of marketing and distributing such products in the Territory, represents that it has experience in obtaining registration of medical devices in the Territory, is well introduced in the market, is willing and able to provide a competent marketing and distribution organization in the Territory, and Darrow desires to be Carrington's marketer, seller and distributor for such products in the Territory, as will have the option to locally fill and pack some of the Carrington's products, according to the conditions and restrictions stipulated in Article 3.7. 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) "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 Darrow on its intent to add or discontinue Products to Exhibit A. (b) "Territory" shall mean the following countries: Brazil and the limited right of first refusal for specified Products listed on Exhibit A for the Mercosul countries: Argentina, Uruguay, Paraguay and Chile. Carrington shall present any offer it receives for any particular country and Products, and Darrow shall have thirty (30) days to meet or exceed that offer by sending a written acceptance to Carrington. If Darrow is unable to respond accordingly, then that country and Products shall be free from any obligation to Darrow by Carrington. (c) "Parties" shall mean Carrington and Darrow and Party shall mean either of them as the context indicates. (d) "Know-how" shall mean secret and proprietary technical and scientific information regarding the Products, which may be necessary, useful or advisable to enable Darrow 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 Darrow prior to execution of this Agreement. (e) "Registration" shall mean any official approval, or authorization, or licensing regarding the Products by all 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) "Trademarks" shall mean all Carrington 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 Darrow as Carrington's marketer, sales distributor in the Territory for the sale of Products, and Darrow hereby accepts such appointment. As marketer, sales distributor in the Territory, Darrow shall, subject to the terms and conditions of this Agreement, have the right to sell Products in the Territory, but shall have no right to sell Products outside the Territory. 2.2 In a manner reasonably satisfactory to Carrington, and at Darrow's sole expense, Darrow agrees to (a) devote its best efforts to the diligent promotion, marketing, sale and distribution of the Products in the Territory, (b) provide and maintain a competent and aggressive organization for the promotion, marketing, sale and distribution of the Products in the Territory, (c) 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 (d) promptly assign back to Carrington any product Registrations in the Territory upon termination of Agreement. Carrington agrees, at its sole expense, to direct Darrow to make and maintain all agreed upon 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. Provided, however, Carrington at its sole option, has the absolute right to determine at any time that any such requirements mentioned above are uneconomic and not justified relative to the benefits Carrington anticipates receiving and, therefore, may not be required to accept further expenses. For the first five years Carrington agrees to pay up to $10,000.00 for two products during the first five years for registration expenses for Products classified as "drugs" and up to $1,000.00 per product per five year period for products classified as medical devices. 2.3 During the term of this Agreement, Darrow shall be considered an independent contractor and shall not be considered a partner, employee, agent or servant of Carrington. As such, Darrow 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. Darrow 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 Darrow any right to use or otherwise deal with the Know-how for purposes other than those expressly provided for in this Agreement. 2.5 Darrow shall promptly inform Carrington of any misappropriation of the Know-how which comes to its attention. After having dicsussed such situaiton with Darrow, Carrington shall have sole and absolute discretion to take such action as it deems appropriate and Darrow, at its sole expense, shall reasonably assist Carrington in taking legal action, if deemed necessary, against such misappropriation. 2.6 All costs and expenses connected with Darrow's activities or performance under this Agreement are to be borne solely by Darrow. Article 3. Certain Performance Requirements 3.1 Darrow agrees to promote, market, sell and distribute the Products only to customers and potential customers within the Territory for ultimate use within the Territory. Darrow 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 Darrow is in compliance with Article 3.1, Darrow agrees that: (a) Darrow will send to Carrington quarterly sales reports which set forth the number of units 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) Darrow will send to Carrington quarterly inventory reports of the Products; and (c) Carrington may mark for identification all Products sold by Carrington to Darrow hereunder. 3.3 Darrow shall promptly provide Carrington with written reports of any importation or sale of any of the Products in the Territory of which Darrow 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 Darrow shall maintain a sufficient inventory of Products to assure an adequate supply of Products to serve all its market segments. Darrow 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 Darrow's facilities shall be subject to inspection by Carrington or its agents upon 72 hours written notice. 3.5 Darrow 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 Darrow of Products. Upon written request from Darrow, Carrington shall provide Darrow with such certificates or other documents as may be reasonably required to establish any applicable exemptions from the collection of such taxes, charges and fees. 3.6 All Products shall be packaged and delivered by Carrington to Darrow for a period of at least six (6) months after the execution of this Agreement, after which, Darrow may exercise its option to locally fill and pack some of the Products, subject to the requirements outlined in Article 3.7 of this Agreement. All Products shall be labeled, advertised, marketed, sold and distributed by Darrow 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. Darrow shall pay all increased expenses associated with (i) any requested alterations to the standard packaging and labeling costs of the Products which deviate from Carrington's standard packaging materials, designs, methods costs 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 Darrow has the option to fill and pack some of the Products in its manufacturing plant, provided Carrington's process and products specifications are met, the operation is in compliance with the required Good Manufacturing Practices and as per Carrington's periodic audits of Darrow's designated areas for the production, storage and distribution of such Products, quality systems and pertinent documentation as well as corroboration of assay and test results of packaging components and finished goods in periodic basis. This Article is further limited by the obligations stated in Article 3.9 below. 3.8 Darrow shall not make any alterations or permit any alterations to be made to the Products except as specifically provided herein. 3.9 Darrow shall be responsible for complying with all applicable laws, regulations and requirements contained in the Registration, or concerning inventory, use, promotion, filling, packing, distribution and sale of the Products in the Territory while such Products are in its custody. Darrow shall assume full responsibility for the Registration, inventory, promotion, filling, packing, distribution and sale of the Products in the Territory and correspondingly for any damage, claim, liability, loss or expense which Darrow may suffer or incur by reason of said Registration, inventory, promotion, distribution and sale and shall hold Carrington harmless from any claim resulting therefrom being directed against Carrington by any third party. 3.10 Darrow 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 other than those according to the registration, unless such claims have received written approval from Carrington or from the applicable governmental authorities. 3.11 Darrow 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 except as provided for in Article 3.10 above, such labels, advertisements or marketing materials which need not be submitted for approval if they are in accordance with all governmental regulations. 3.12 Darrow will actively and aggressively promote, develop demand for and maximize the sale of the Products to all customers and potential customers within the Territory. Darrow 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 other than Darrow s existing products. 3.13 Darrow 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. Darrow's auditor shall deliver to Carrington, in accordance with Article 13, 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 with the purpose of assuring compliance with the obligations as defined in Article 3.2. Article 4. Sale of Products by Carrington to Darrow 4.1 Subject to the terms and conditions of this Agreement, including specifically Article 4.6 hereof, Carrington shall sell to Darrow the Products at a specified price for each Product (the "Contract Price"). For orders placed by Darrow 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) Darrow shall provide in writing to Carrington both a sales forecast and a purchase forecast for the following twelve (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 twelve (12)month period of the term. During any twelve (12) month period Carrington reserves the right to change its Contract Price for each Product for the next (twelve) 12 month period. 4.2 As consideration for its appointment as a marketer, seller and distributor entitled to a Product discount, Darrow agrees to purchase from Carrington, during each twelve (12) month period of the term of this Agreement following the effective date of each Products registration acceptance, commencing with the twelve (12) month period beginning _____________, 19__ through ___________, 19__, at the Contract Price, a specified minimum aggregate dollar amount (based on the Contract Price) of the Products (the "Specified Minimum Purchase Amount"). For the first twelve (12) month period of the term of this Agreement, there will be no Specified Minimum Purchase Amount however Darrow commits to do its best effort to generate purchase from Carrington for $200,000 of Products in the first twelve (12) month period of this Agreement. The Specified Minimum Purchase Amounts for each subsequent twelve (12) month period shall be determined by mutual agreement of the Parties no later than 30 days prior to the beginning of such period based on the Parties reasonable, good faith projections of future sales growth and such other factors as the Parties may deem relevant. 4.3 Darrow shall order Products by submitting a purchase order to Carrington describing the type and quantity of the Products to be purchased. All orders exceeding the limits referred to in Articles 4.2 and 4.5 are subject to acceptance by Carrington. All purchases shall be spaced in a reasonable manner. If Carrington accepts the order, Carrington will invoice Darrow upon shipment of the Products. Unless otherwise agreed, Darrow shall pay all invoices in full within ninety (90) days of the date of invoice. Darrow 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. 4.4 Carrington shall not be obligated to ship Products to Darrow at any time when payment of an amount owed by Darrow is overdue or when Darrow is otherwise in breach of this Agreement. 4.5 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 date the Purchase Order is received and acknowledged in writing by Carrington, unless by mutual consent of the Parties. Purchase Orders will be non- cancelable. Darrow will issue to Carrington on a monthly basis, a twelve (12) month rolling forecast so that Carrington may incorporate said forecasts in to is 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 twenty percent (20%) above the last monthly rolling forecast issued prior to the Purchase Order placed by Darrow. Variation above twenty percent (20%) shall be discussed between the Parties and Carrington will use its best efforts to maintain delivery dates requested by Darrow. 4.6 All shipments of Products to Darrow 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, Dallas, Texas. Ownership of and title to Products and all risks of loss with respect thereto shall pass to Darrow 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. 4.7 Carrington shall use its reasonable best efforts to ensure availability of all Products ordered by Darrow 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 Darrow, 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. 4.8 Carrington accepts liability for defective Products and agrees to replace such defective Products should they occur with new Products. Carrington carries liability insurance and is willing to have Darrow added as a covered Party under this policy. 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 Darrow 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. Darrow 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 4.8 or that is inconsistent with the policies or publications of Carrington relating to the Products. DARROW'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 DARROW'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO DARROW 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. DARROW 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 DARROW OR ANY OTHER PARTY, (ii) ANY BREACH BY DARROW OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF DARROW OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND DARROW'S AUTHORIZATION GRANTED HEREIN. 4.9 Credits for defective Products to Darrow 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. Article 5. Term and Termination 5.1 The term of this Agreement shall be for a period of ten (10) years from the effective date of this Agreement. After such term, this Agreement shall be automatically terminated unless the parties mutually agree in writing to extend the term hereof. Notwithstanding the foregoing, this Agreement may be terminated earlier in accordance with the provisions of this Article 5 and as expressly provided elsewhere in this Agreement. 5.2 Carrington shall have the absolute right to terminate this Agreement if Darrow 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 Darrow, Darrow 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 5.2, if: (i) Darrow fails or refuses to pay to Carrington any sum when due; (ii) Darrow breaches any provision of Article 2.2, 3.1, 3.5, 3.7, 3.9, 4.2, 4.8, 6 or 7; or 8 (iii) Darrow fails to purchase the Specified Minimum Purchase Amounts of Product for any required period. 5.3 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. 5.4 This Agreement shall automatically terminate effective at the end of any twelve (12) month period of the term of this Agreement referred to in Articles 4.1 and 4.2 hereof if the Parties are unable to agree upon the Contract Prices or the Specified Minimum Amounts for the next twelve (12) month period of the term. 5.5 During the one (1) year period following termination of this Agreement, any inventory of Products held by Darrow at the termination of this Agreement may be sold by Darrow 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 Darrow'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 Darrow, including importation and shipping plus ten percent (10%) 5.6 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 4.7, 5.5, 6, 7 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 6. Trademarks 6.1 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, are the sole and exclusive property of Carrington or its affiliates. The Products shall be promoted, sold and distributed only under the Trademarks. Carrington hereby grants Darrow 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 Darrow, modify or discontinue the use of any Trademark and/or use one or more additional or substitute marks or names, and Darrow shall be obligated to do the same. 6.2 Carrington's Trademarks should appear on all Products packaging, labels, and inserts and other materials which Darrow 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 Trademarks in any packaging promotional or other materials relating to the Products prior to Darrow's actual use thereof. 6.3 It shall be the sole responsibility of Carrington, at its sole expense, to keep in force and maintain the Trademarks in the Territory by paying all necessary fees throughout the term of this Agreement. Darrow 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 [TM] or the sign [R]. Darrow 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, Darrow 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. 6.4 In the event of any infringement of, or threatened or presumed infringement of, or challenge to Darrow's use of any Trademark or of any Darrow trademark, Darrow is obligated to notify Carrington immediately. Darrow 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 with in the Territory. Carrington shall have sole and absolute discretion to take such action as it deems appropriate. 6.5 In the event of the termination of this Agreement for any reason, Darrow 's right to use the Trademarks shall cease, and Darrow shall cease using such Trademarks at such time as Darrow's inventory of Products has been sold. Darrow shall, as soon as it is reasonably possible, remove all Trademarks which appear on or about the premises of the office(s) of Darrow and any of the advertising of Darrow used in connection with the Products. 6.6 In the event of a breach or threatened breach by Darrow of the provisions of this Article 6, 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 6, including the recovery of damages from Darrow. 6.7 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 then be also defined as Trademark for purposes of this Agreement) owned by Carrington or to be transferred from Darrow 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 Darrow in the Territory. 6.8 Nothing in this Agreement shall be construed as giving Darrow the right to use the Trademark outside the Territory or for any other product than the Products. Article 7. Confidential Information 7.1 Darrow recognizes and acknowledges that Darrow will have access to confidential information and trade secrets 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, Darrow 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 Darrow of the provisions of this Article 7, Carrington shall be entitled to an injunction restraining Darrow 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 7, including the recovery of damages from Darrow. 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 Darrow. 7.2 Darrow shall not disclose the existence of this Agreement or any of the terms herein without the prior written consent of Carrington. Article 8. Force Majeure 8.1 Neither Darrow 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 Darrow 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 shall have the right to cancel this Agreement and the Parties shall seek an equitable agreement on the Parties reward of interests. 8.2 The Parties agree that any obligation to pay money is never excused by Force Majeure. Article 9. Amendment 9.1 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 10. Entire Agreement 10.1 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. 10.2 Should any provision of this Agreement be rendered invalid or unenforceable, it shall not affect the validity or enforceability of the remainder. Article 11. Assignment 11.1 Neither this Agreement nor any of the rights or obligations of Darrow hereunder shall be transferred or assigned by Darrow without the prior written consent of Carrington, executed by a duly authorized officer of Carrington. Article 12. Governing Law 12.1 It is expressly agreed that the validity, performance and construction of this Agreement shall be governed by the laws and jurisdiction of Texas. Article 13. Notices 13.1 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 Darrow. (Fax No. 214-518-1020) (b) Darrow at: Darrow Laboratorios, S/A; Rua Marques de Olinta, 69 Botafogo, Rio De Janerio, Brazil RJ CEP 1-040, Attention: Nelson Torres Duarte Junior, or at such other address as Darrow shall have theretofore furnished in writing to Carrington. (Fax No. 55-21-552-1877) Article 14. Waiver 14.1 Neither Darrow'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 Darrow'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 15. Arbitration 15.1 Except as expressly provided otherwise herein, any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement, the operations carried out under this Agreement or the relationship of the Parties created under this Agreement, shall be exclusively and finally settled by confidential arbitration, and any Party may submit such a dispute, controversy or claim to arbitration. The arbitration proceeding shall be held at the location of the non- instituting Party in the English language and shall be governed by the rules of the International Chamber of Commerce (the "ICC") as amended from time to time. Any procedural rule not determined under the rules of the ICC shall be determined by the laws of the State 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 therefore 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 16. Exhibits Any and all exhibits referred to herein shall be considered an integral part of this Agreement. Article 17. No Inconsistent Actions 17.1 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 4.7 and 8 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 18. Currency of Account 18.1 This Agreement evidences a transaction for the sale of goods in which the specification of U.S. dollars is of primary essence, and U.S. dollars shall be the currency of account in all events. All payments to be made by Darrow 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 19. Binding Effect 19.1 This Agreement shall inure to the benefit of and be binding upon the respective successors of the Parties. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written. CARRINGTON LABORATORIES, INC. By: Name: Title: DARROW LABORATORIOS S/A By: Name: Title: EXHIBIT A DARROW LABORATORIES PRODUCT NO. PRODUCT NAME PRICE ------- -------------------------------------------- ------- WOUND CARE 101030 CARRINGTON CARRASYN HYDROGEL WOUND $8.23 DRESSING, 3 oz. tube 101080 CARRINGTON CARRASYN HYDROGEL WOUND $21.11 DRESSING, (spray gel),8 oz. bottle 101025 CARRINGTON CARRASYN V (VISCOUS) HYDROGEL $2.99 WOUND DRESSING, 1/2 oz. tube 101023 CARRINGTON CARRASYN V (VISCOUS) HYDROGEL $8.23 WOUND DRESSING, 3 oz. tube 101012 CARRINGTON CARRAGAUZE STRIPS, 1/2" x 5 yds, $5.70 bottle 101009 CARRINGTON CARRAGAUZE STRIPS, 1" x 5 yds, $6.68 bottle 101017 CARRINGTON CARRAGAUZE , 2"x 2" pads $2.02 101015 CARRINGTON CARRAGAUZE , 4"x 4" pads $2.92 102060 CARRINGTON CARRAKLENZ WOUND & SKIN CLEANSER, $3.77 6 oz. pump 102160 CARRINGTON CARRAKLENZ WOUND & SKIN CLEANSER, $8.51 16 oz. spray 101032 CARRINGTON CARRASORB H CALCIUM ALGINATE $1.32 WOUND DRESSING, 2" x 2" pad 101033 CARRINGTON CARRASORB H CALCIUM ALGINATE $2.85 WOUND DRESSING, 4" x 4" pad 101034 CARRINGTON CARRASORB H CALCIUM ALGINATE $2.75 WOUND DRESSING, 12" rope 101035 CARRINGTON CARRASORB M FREEZE-DRIED GEL $3.22 WOUND DRESSING, 4" diameter pad 101036 CARRINGTON CARRAFILM TRANSPARENT FILM $0.91 DRESSING, 4" x 5" 1/2 sheet 101037 CARRINGTON CARRAFILM TRANSPARENT FILM $1.98 DRESSING, 5" x 7" sheet 101038 CARRINGTON CARRAFILM TRANSPARENT FILM $2.07 DRESSING, 6" x 6" sheet EXHIBIT A DARROW LABORATORIES PRODUCT NO. PRODUCT NAME PRICE -------- -------------------------------------------- ------- 101039 CARRINGTON CARRAFILM TRANSPARENT FILM $0.26 DRESSING, 2 3/4" x 2 3/8" sheet 101040 CARRINGTON CARRAFILM TRANSPARENT FILM $2.08 DRESSING, 8" x 10" sheet 101041 CARRINGTON CARRAFILM TRANSPARENT FILM $1.85 DRESSING, 4" x 10" sheet EX-10.60 8 INDEPENDENT SALES REPRESENTATIVE AGREEMENT This Agreement, entered into as of October 1, 1996, by and between VISION MEDICAL (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 therefore 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 the zip codes in the State(s) of Missouri, Kansas, Nebraska and the mutually agreeable zip codes in Southern Iowa and Southern Illinois, 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. 4. Term and Termination. The term of this Agreement shall commence on the date hereof and shall expire two (2) years after January 1, 1997, 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 Mike Carroll 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 net sales by five percent (5%) or more from 1/1/97 to 1/1/98 over comparative sales of 1/1/96 to 1/1/97. After 1/1/99 the sales percentage increase for the Territory for the upcoming year shall be mutually agreed upon for the annual renewal of this Agreement. 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. 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. (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. 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: Patrice M. Carroll Vision Medical 15009 Manchester Road, #295 Ballwin, MO 63011 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. 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:__________________________ Carlton E. Turner, Ph.D. President and CEO By:__________________________ Name:________________________ Title:_______________________ EX-10.61 9 INDEPENDENT SALES REPRESENTATIVE AGREEMENT This Agreement, entered into as of October 1, 1996, by and between THINK MEDICAL, INC., (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. D u t i e s 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 the all the zip codes in the State of North Carolina as mutualy agreed upon, 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. 4. Term and Termination. The term of this Agreement shall commence on the date hereof and shall expire two (2) years after January 1, 1997, 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 t h e 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 Hack Sells 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 net sales by five percent (5%) or more from 1/1/97 to 1/1/98 over comparative sales of 1/1/96 to 1/1/97. After 1/1/99 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. 5. Commissions. (a) In consideration of the services performed by the Independent Sales Representative hereunder, the Company shall pay t h e 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 R e s ponsibility, 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 I n d ependent 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. (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 i t has given written notice of such designation to the Independent Sales Representative. 6. O r d ers. 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. S t a tus 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. 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 t h a n 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: Hack Sells Think Medical, Inc. 3900 Yew Circle Raleigh, NC 27612 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. 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:___________________________ Carlton E.Turner, Ph.D. President and CEO By:___________________________ Name:_________________________ Title:________________________ SCHEDULE A COMMISSIONS Carrington Wound Gel 3 oz. 20% Carrington Wound Gel 1/2 oz. 20% Cara-Klenz 16 oz. 20% Cara-Klenz 6 oz. 20% Carrington Moisture Barrier 20% Carrington Incontinence Skin Care Kit 20% Carrington Foot Cream 20% Carrington Odor Eliminator 1 oz. 20% Carrington Odor Eliminator 8 oz. 20% Carrington Whirlpool Solution 20% Perineal Cleansing Foam 8 oz. 20% Aloe Skin Balm 20% Commissions are paid on Distributor pricing. Commission program can be changed without notice. EX-10.62 10 INDEPENDENT SALES REPRESENTATIVE AGREEMENT This Agreement, entered into as of October 1, 1996, 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. 4. Term and Termination. The term of this Agreement shall commence on the date hereof and shall expire two (2) years after January 1, 1997, 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 net sales by five percent (5%) or more from 1/1/97 to 1/1/98 over comparative sales of 1/1/96 to 1/1/97. After 1/1/99 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. 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. (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. 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. 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:__________________________ Carlton E. Turner, Ph.D. President and CEO By:___________________________ Name:_________________________ Title:________________________ SCHEDULE A COMMISSIONS Carrington Wound Gel 3 oz. 20% Carrington Wound Gel 1/2 oz. 20% Cara-Klenz 16 oz. 20% Cara-Klenz 6 oz. 20% Carrington Moisture Barrier 20% Carrington Incontinence Skin Care Kit 20% Carrington Foot Cream 20% Carrington Odor Eliminator 1 oz. 20% Carrington Odor Eliminator 8 oz. 20% Carrington Whirlpool Solution 20% Perineal Cleansing Foam 8 oz. 20% Aloe Skin Balm 20% Commissions are paid on Distributor pricing. Commission program can be changed without notice. EX-10.63 11 SUPPLY AGREEMENT THIS SUPPLY AGREEMENT (this "Agreement") effective as of February 13, 1997, is by and between CARALOE, INC., a Texas corporation ("Seller"), and ALOE COMMODITIES INTERNATIONAL, INC., a Texas corporation ("Buyer"), WITNESSETH: WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, Caraloe's bulk raw material for drinks and other consumer products (hereinafter referred to under the name "Products") in the quantities, at the price, and upon the terms and conditions hereinafter set forth; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Term. The term of this Agreement shall commence on February 13, 1997, and shall end at midnight on January 31, 2007 , unless sooner terminated as provided herein (the "Term"). 2. Sale and Purchase. Subject to the terms and conditions of this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from Seller, during each year of the Term, agreed upon monthly quantities equal to all of Buyer's needs for bulk raw material for the Products. Seller shall, however, not be required to sell monthly quantities in excess of Seller's present plant, farm or manufacturing capacity. The Products specifications shall be mutually agreed upon by the Parties within ninety (90) days from the date of execution of this Agreement. Failure to reach agreement on the specifications within ninety (90) days shall cause this Agreement to terminate unless an extension thereto is mutually agreed upon by the Parties hereto. The initial Products and specifications shall not include Manapol powder but such product may be added after March 31, 1997, if the Parties so agree. 3. Quality. Seller warrants to Buyer that all bulk raw material sold by Seller pursuant to this Agreement will generally conform to the quality specifications set forth in Exhibit A to this Agreement as per Buyer and Seller mutual agreement referenced above. EXCEPT AS PROVIDED IN THIS PARAGRAPH 3, THERE ARE NO WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, MADE WITH RESPECT TO THE BULK RAW MATERIAL TO BE SOLD HEREUNDER, AND NONE SHALL BE IMPLIED BY LAW. 4. Deliveries. Buyer shall instruct Seller from time to time during the Term, by placing a purchase order with Seller reasonably in advance of the date Buyer desires bulk raw material to be delivered to it hereunder, (i) as to the quantities of bulk raw material to be delivered to Buyer, (ii) as to the specific date of delivery, (iii) as to the specific location of delivery and (iv) as to the carrier or particular type of carrier for such delivery. During the Term, Buyer shall provide Seller (a) on an annual basis prior to the beginning of each year of the Term a nonbinding forecast of Buyer's minimum and maximum aggregate delivery requirements for bulk raw material for such year (provided that such forecast for the second year of the Term shall be provided to Seller by February 1, 1998), and (b) on a quarterly basis at least thirty (30) days prior to the end of each three-month period of the Term a forecast acceptable to Seller (which shall be binding on Buyer) of Buyer's minimum and maximum delivery requirements for bulk raw material for each month of the next three-month period (provided that such forecast for the initial period of the Term ending on April 30, 1997, shall be provided to Seller by February 28, 1997). The quantities of bulk raw material ordered by Buyer pursuant to this Agreement from time to time shall be spaced in a reasonable manner, and Buyer shall order such quantities in accordance with Buyer's binding forecasts. In no event shall Seller be required to deliver to Buyer in any three-month period a quantity of bulk raw material in excess of 125% of the maximum delivery requirement for such period set forth in the binding forecast for such period accepted by Seller. Deliveries of bulk raw material shall be made by Seller under normal trade conditions in the usual and customary manner being utilized by Seller at the time and location of the particular delivery. The bulk raw material delivered to Buyer hereunder shall be packaged per agreement of the Parties. All deliveries of bulk raw material to Buyer hereunder shall be made by Seller F.O.B. at the facilities of Seller or its affiliates located in either Dallas, Texas or Liberia, Costa Rica as agreed upon. 5. Purchase Price. All bulk raw material to be purchased by Buyer under this Agreement shall be purchased by it, during the first and second years of this Agreement, at a price per Product as set forth on Exhibit B to this Agreement. Thereafter, Buyer and Seller shall meet on a yearly basis to mutually agree upon prices for the upcoming contract year. If prices for the upcoming year cannot be agreed upon the Agreement shall terminate on March 5 of the contract year in question. At delivery point, Buyer shall bear all freight, insurance and similar costs, and all sales taxes, with respect to such purchases from that point forward. The purchase price of bulk raw material, together with all related freight, insurance and similar costs, and sales taxes, shall be paid by Buyer to Seller within thirty (30) days after the date of invoice. 6. Labels and Advertising (a) FDA Compliance of Labels and Advertising. All labels and advertising relating to the bulk raw material that reference Carrington Laboratories or Seller sold hereunder must strictly comply with all applicable rules and regulations of the FDA and all other applicable laws, rules and regulations, including but not limited to FDA requirements relating to product ingredients. (b) Claims by Aloe Commodities International, Inc. ("ACI") Unlimited. ACI hereby agrees not to make, or permit any of its employees, agents or distributors to make, any claims of any properties or results relating to bulk raw material and Carrington Laboratories or Seller, unless such claims have received written approval from the Seller. (c) FDA Approval of Claims. If ACI desires to seek FDA approval as to any specific claims with respect to the bulk raw material, ACI hereby agrees to (i) notify Caraloe of the claims and the application prior to filing and (ii) to keep informed as to the progress of the application, including but not limited to sending Caraloe copies of all communications or notices to or from the FDA, as applicable. (d) Right to Approve Labels, etc. If Caraloe so requests, ACI shall not use any label, advertisement or marketing material or individual spokesman associated with the bulk raw material and Carrington Laboratories or Seller, unless such label, advertisement or marketing material or individual spokesman has first been submitted to and approved by Caraloe. Caraloe shall not unreasonably withhold its approval of any such label, advertisement or marketing material. (e) Compliance by Third Parties. ACI shall take all steps reasonably necessary to ensure that its distributors and any other parties to whom it sells any of the bulk raw material for resale do not relabel, repackage, advertise, sell or attempt to sell the bulk raw material in a manner that would violate this Agreement if done by ACI. 7. Confidentiality. In the performance of Seller's obligations pursuant to this Agreement, Buyer may acquire from Seller or its affiliates technical, commercial, operating or other proprietary information relative to the business or operations of Seller or its affiliates (the "Confidential Information"). Buyer shall maintain the confidentiality, and take all necessary precautions to safeguard the secrecy, of any and all Confidential Information it may acquire from Seller or its affiliates. Buyer shall not use any of such Confidential Information for its own benefit or for the benefit of anyone else. Buyer shall not publicly disclose the existence of this Agreement or the terms hereof without the prior written consent of Seller. 8. Force Majeure. Seller shall not have any liability hereunder if it shall be prevented from performing any of its obligations hereunder by reason of any factor beyond its control, including, without limitation, fire, explosion, accident, riot, flood, drought, storm, earthquake, lightning, frost, civil commotion, sabotage, vandalism, smoke, hail, embargo, act of God or the public enemy, other casualty, strike or lockout, or interference, prohibition or restriction imposed by any government or any officer or agent thereof ("Force Majeure"), and Seller's obligations, so far as may be necessary, shall be suspended during the period of such Force Majeure and shall be cancelled in respect of such quantities of bulk raw material as would have been sold hereunder but for such suspension. Seller shall give to Buyer prompt notice of any such Force Majeure, the date of commencement thereof and its probable duration and shall give a further notice in like manner upon the termination thereof. Each party hereto shall endeavor with due diligence to resume compliance with its obligations hereunder at the earliest date and shall do all that it reasonably can to overcome or mitigate the effects of any such Force Majeure upon its obligations under this Agreement. 9. Rights Upon Default. (a) Seller's Rights Upon Default. If Buyer (i) fails to purchase the quantities of bulk raw material specified for purchase by Buyer hereunder, (ii) fails to make a payment hereunder when due or (iii) otherwise breaches any term of this Agreement, and such failure or breach is not cured to Seller's reasonable satisfaction within 5 days (in the case of a failure to make a payment) or 30 days (in any other case) after receipt of notice thereof by Buyer, or if Buyer fails to perform or observe any covenant or condition on its part to be performed when required to be performed or observed, and such failure continues after the applicable grace period, if any, specified in the Agreement, Seller may refuse to make further deliveries hereunder and may terminate this Agreement upon notice to Buyer and, in addition, shall have such other rights and remedies, including the right to recover damages, as are available to Seller under applicable law or otherwise. If Buyer becomes bankrupt or insolvent, or if a petition in bankruptcy is filed by or against it, or if a receiver is appointed for it or its properties, Seller may refuse to make further deliveries hereunder and may terminate this Agreement upon notice to Buyer, without prejudice to any rights of Seller existing hereunder or under applicable law or otherwise. Any subsequent shipment of bulk raw material by Seller after a failure by Buyer to make any payment hereunder, or after any other default by Buyer hereunder, shall not constitute a waiver of any rights of Seller arising out of such prior default; nor shall Seller's failure to insist upon strict performance of any provision of this Agreement be deemed a waiver by Seller of any of its rights or remedies hereunder or under applicable law or a waiver by Seller of any subsequent default by Buyer in the performance of or compliance with any of the terms of this Agreement. (b) Buyer's Rights Upon Default. If Seller fails in any material respect to perform its obligations hereunder, and such failure is not cured to Buyer's reasonable satisfaction within 30 days after receipt of notice thereof by Seller, Buyer shall have the right to refuse to accept further deliveries hereunder and to terminate this Agreement upon notice to Seller and, in addition, shall have such other rights and remedies, including the right to recover damages, as are available to Buyer under applicable law or otherwise. Any subsequent acceptance of delivery of bulk raw material by Buyer after any default by Seller under this Agreement shall not constitute a waiver of any rights of Buyer arising out of such prior default; nor shall Buyer's failure to insist upon strict performance of any provision of this Agreement be deemed a waiver by Buyer of any of its rights or remedies hereunder or under applicable law or a waiver by Buyer of any subsequent default by Seller in the performance of or compliance with any of the terms of this Agreement. 10. Disclaimer and Indemnity. Buyer shall assume all financial and other obligations for Buyer Products, and Seller shall not incur any liability or responsibility to Buyer or to third parties arising out of or connected in any manner with Buyer Products. In no event shall Seller be liable for lost profits, special damages, consequential damages or contingent liabilities arising out of or connected in any manner with this Agreement or Buyer Products. Buyer shall defend, indemnify and hold harmless Seller and its affiliates, and their respective officers, directors, employees and agents, from and against all claims, liabilities, demands, damages, expenses and losses (including reasonable attorneys' fees and expenses) arising out of or connected with (i) any manufacture, use, sale or other disposition of Buyer Products, or any other products of Buyer, by Buyer or any other party and (ii) any breach by Buyer of any of its obligations under this Agreement. 11. Equitable Relief. A breach by Buyer of the provisions of Paragraph 2(b) shall cause Seller to suffer irreparable harm and, in such event, Seller shall be entitled, as a matter of right, to a restraining order and other injunctive relief from any court of competent jurisdiction, restraining any further violation thereof by Buyer, its officers, agents, servants, employees and those persons in active concert or participation with them. The right to a restraining order or other injunctive relief shall be supplemental to any other right or remedy Seller may have, including, without limitation, the recovery of damages for the breach of such provisions or of any other provisions of this Agreement. 12. Survival. The expiration or termination of the Term shall not impair the rights or obligations of either party hereto which shall have accrued hereunder prior to such expiration or termination. The provisions of Paragraphs 7, 9,10 and 11 hereof, and the rights and obligations of the parties thereunder, shall survive the expiration or termination of the Term. 13. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. 14. Succession. Neither party hereto may assign or otherwise transfer this Agreement or any of its rights or obligations hereunder (including, without limitation, by merger or consolidation) without the prior written consent of the other party; provided, however, that Seller may assign any of its rights or obligations hereunder to any affiliate of Seller. Subject to the immediately preceding sentence, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 15. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto relating to the matters covered hereby and supersede any and all prior understandings, whether written or oral, with respect to such matters. The terms of this Agreement shall prevail over any inconsistent terms contained in any purchase order issued by Buyer and acknowledgment or acceptance thereof issued by Seller. No modification, waiver or discharge of this Agreement or any of its terms shall be binding unless in writing and signed by the party against which the modification, waiver or discharge is sought to be enforced. 16. Notices. All notices and other communications with respect to this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or when duly deposited in the mails, first class mail, postage prepaid, to the address set forth below, or such other address hereafter specified in like manner by one party to the other: If to Seller: Caraloe, Inc. 2001 Walnut Hill Lane Irving, Texas 75038 Attention: President If to Buyer: Aloe Commodities International, Inc. 12901 Nicholson, Suite 370 Farmers Branch, TX 75234 Attention: President 17. Interpretation. In the event that any provision of this Agreement is illegal, invalid or unenforceable as written but may be rendered legal, valid and enforceable by limitation thereof, then such provision shall be deemed to be legal, valid and enforceable to the maximum extent permitted by applicable law. The illegality, invalidity or unenforceability in its entirety of any provision hereof will not affect the legality, validity or enforceability of the remaining provisions of this Agreement. 18. No Inconsistent Actions. Each party hereto agrees that it will not voluntarily undertake any action or course of action inconsistent with the provisions or intent of this Agreement and, subject to the provisions of Paragraph 8 hereof, will promptly do all acts and take all measures as may be appropriate to comply with the terms, conditions and provisions of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. CARALOE, INC. By:___________________________ Name:_________________________ Title:________________________ ALOE COMMODITIES INTERNATIONAL, INC. By:___________________________ Name:_________________________ Title:________________________ EXHIBIT A [TO BE AGREED UPON WITHIN NINETY (90) DAYS} EXHIBIT B Product Prices F.O.B. Irving, Texas 1. Aloe Vera Gel $1.557 per Kilogram 2. Bifurcated Aloe Vera Gel $1.07 per Kilogram 3. Aloe Vera Gel ENZ $1.79 per Kilogram 4. Bifurcated Aloe Vera Gel ENZ $1.20 per Kilogram 5. Pulp Aloe Vera Gel Fillet $1.557 per Kilogram Prices F.O.B. Carrington Product Costa Rica Plant 6.Aloe Juice with AVMP powder $1.93 per Quart plus Bifurcated Powder NOTE: Exact specifications for the Products listed in Exhibit B are set forth in Exhibit A. Exhibit A is to be mutually agreed upon by the parties hereto within ninety (90) days of the effective date of the Agreement. EX-10.64 12 TRADEMARK LICENSE AGREEMENT THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), effective as of March 1, 1997, is made by and between CARRINGTON LABORATORIES, INC. ("Licensor"), a Texas corporation, having its principal place of business at 2001 Walnut Hill Lane, Irving, Texas 75038, and DAVID WHEELER, doing business as LIGHT RESOURCES UNLIMITED ("Licensee") with its principal place of business at 20 West 20th Street, #803, New York, New York, 10011. W I T N E S S E T H: WHEREAS, simultaneously with the execution of this Agreement, Licensor and Licensee are entering into a Supply Agreement of even date herewith (the "Supply Agreement") for the sale by Licensor and purchase by Licensee of bulk AVMP[TM] Powder and/ or Manapol[R] Gold [TM] Powder (hereinafter referred to under the product name of bulk AVMP[TM] Powder and/ or Manapol[R] Gold[TM] Powder to be sold in bulk by Licensee ("the Products"); WHEREAS, Carrington Laboratories, Inc., a Texas corporation ("Carrington"), claims the ownership of the trademarks AVMP[TM] Powder and Manapol[R] Gold[TM] Powder (the "Marks") and has granted to Licensee a license to use the Marks on a non-exclusive basis; WHEREAS, Licensee is desirous of obtaining from Licensor, and Licensor is willing to grant to Licensee, a license, but not an obligation, to use the product names AVMP[TM] Powder and Manapol[R] Gold [TM] Powder (the "Marks") in connection with the advertising and sale of the Products subject to the terms, conditions and restrictions set forth herein; and WHEREAS, Licensor and Licensee are mutually desirous of insuring the consistent quality of all the Products sold in connection with the Marks; NOW, THEREFORE, in consideration of premises, the mutual covenants, promises and agreement set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant, promise and agree as follows: Article 1 LICENSE 1.1 Terms and Conditions. Licensor hereby grants to Licensee the non-transferable right and license to use the Marks in connection with the labeling, advertising and sale of the Products sold by Licensee during the term of this Agreement. During the term of this Agreement, Licensee shall have the non-exclusive right to use the Marks in connection with the Products only containing AVMP[TM] Powder and/or Manapol[R] Gold[TM] Powder that are intended for sale to the ultimate consumer in the United States and Canada. However, Licensee shall not be required to use either mark if it makes no representations or references to the source of the bulk powder product it sells. 1.2 License Coterminous With Supply Agreement. The license granted by this Agreement shall run coterminously with the Supply Agreement, as well as non-exclusive extensions thereto, and any actions or events which shall operate to extend or terminate the Supply Agreement shall automatically extend or terminate this Agreement simultaneously. 1.3 Sublicenses. Licensee shall not have the right without written permission from Licensor to grant sublicenses with respect to the license granted herein; however, Licensee may engage a third party or parties to make and affix labels for the Products in compliance with Articles 2,3, and 4 hereof, and/or to distribute and sell the Products in compliance with the terms and conditions of this Agreement. Licensee shall be expressly obligated to ensure full compliance with all terms and conditions of this Agreement. Article 2 CERTAIN OBLIGATIONS OF LICENSEE 2.1 Representations by Licensee. Licensee shall not represent in any manner that it owns any right, title or interest in or to the Marks. Licensee acknowledges that its use of the Marks shall inure to the benefit of Licensor and shall not create in Licensee's favor any right, title or interest in or to the Marks. 2.2 Discontinuation of Use of Marks. Upon the expiration or termination of this Agreement any non-exclusive Supply Agreement, Licensee will cease and desist from all use of the Mark in any manner and will not adopt or use, without Licensor's prior written consent, any word or Marks which is confusingly or deceptively similar to the Marks, except that Licensee may continue to use the Marks under the terms and conditions of this Agreement in connection with any remaining supplies of the Products purchased by Licensee from Licensor until such supplies are exhausted. 2.3 Standards. All bulk products on which the Marks are used by Licensee shall be of consistent quality and shall meet or exceed all standards set by Licensor, in Licensor's sole discretion, from time to time. Licensee shall have thirty (30) days from the receipt of written notice of any change in the standards to comply with any new requirements. 2.4 FDA Compliance of Products. All bulk products on which the Marks are used by Licensee shall be packaged, labeled, advertised, marketed and sold in compliance with (i) the Federal Food, Drug and Cosmetic Act and the rules and regulations promulgated thereunder, as amended from time to time, and (ii) all other applicable laws, rules and regulations. 2.5 Inspection. Licensor reserves the right to inspect Licensee's products bearing the Marks and Licensee's packaging facilities at all reasonable times to insure Licensee's compliance with this Agreement. 2.6 Use of Trademark. Licensee shall not use the Marks except as specifically set forth herein. Without limiting the generality of the preceding sentence, Licensee shall not use the Marks in connection with the sale or advertising of any products other than the Products. 2.7 Trademark Registration. At Licensor's request and expense and, except as otherwise provided herein at Licensor's sole discretion and option, Licensee shall take whatever action is reasonably necessary to assist Carrington or its assigns in registering the Marks with the U.S. Patent and Trademark Office ("USPTO") and/or in perfecting, protecting or enforcing Carrington's and Licensor's rights in and to the Marks. Licensee understands that Carrington or its assigns may rely solely on Licensee's use of the Marks to obtain or maintain registration with the USPTO. Article 3 SALE 3.1 Combination With Other Products. Licensee shall not combine the Products with any product or substance in any manner which would violate any laws, regulations of any state, federal or other governmental body. Licensee shall not combine the Products with any other substance in a product that is to be advertised or sold for use or consumption by humans or animals if the approval of the U.S. Food and Drug Administration (the "FDA") or the U.S. Department of Agriculture ("USDA") for such use or consumption is required and has not been obtained. 3.2 Compliance by Third Parties. Licensee shall take all steps reasonably necessary to ensure that its distributors and any other parties to whom it sells any of the Products for resale do not relabel, repackage, advertise, sell or attempt to sell the Products or any of the Products in a manner that would violate this Agreement if done by Licensee. Article 4 LABELS AND ADVERTISING 4.1 FDA Compliance of Labels and Advertising. All labels and advertising relating to the Products offered in connection with the Marks must strictly comply with all applicable rules and regulations of the FDA and all other applicable laws, rules and regulations, including but not limited to FDA requirements relating to product ingredients. Information regarding the ingredients of the Products shall be furnished to Licensee by Licensor from time to time. 4.2 Mandatory Requirements. Licensee shall cause all labels, packaging, advertising and promotional materials used by it in advertising, marketing and selling the Products by or on behalf of Licensee include the following legend: AVMP[TM] Powder is a trademark of Carrington Laboratories, Inc. Manapol[R] Gold[TM] Powder is a trademark of Carrington Laboratories, Inc. 4.3 Claims by Licensee. Licensee hereby agrees not to make, or permit any of its employees, agents or distributors to make, any claims of any properties or results relating to the Products, unless such claims have received written approval from the FDA. 4.4 FDA or USDA Approval of Claims. If Licensee desires to seek FDA or USDA approval as to any specific claims with respect to the Products, Licensee hereby agrees to (i) notify Licensor of the claims and the application prior to filing and (ii) to keep Licensor informed as to the progress of the application, including but not limited to sending Licensor copies of all communications or notices to or from the FDA or USDA, as applicable. 4.5 Right to Approve Labels, etc. If Licensor so requests, Licensee shall not use any label, advertisement or marketing material that contains the Marks unless such label, advertisement or marketing material has first been submitted to and approved by Licensor. Licensor shall not unreasonably withhold its approval of any such label, advertisement or marketing material. Article 5 NEGATION OF WARRANTIES, DISCLAIMER AND INDEMNITY 5.1 Negation of Warranties, etc. Nothing in this Agreement shall be construed or interpreted as: (a) a warranty or representation by Licensor that any product made, used, sold or otherwise disposed of under the license granted in this Agreement is or will be free of infringement or the like of the rights of third parties; or (b) an obligation by Licensor to bring or prosecute actions or suits against third parties for infringement or the like of the Marks or of any registration that may subsequently be granted for such Marks; or (c) granting by implication, estoppel or otherwise any licenses or rights other than those expressly granted hereunder. 5.2 Disclaimer. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES NO RESPONSIBILITIES WHATSOEVER WITH RESPECT TO THE USE, SALE OR OTHER DISPOSITION BY LICENSEE OR ITS CUSTOMERS, VENDEES OR OTHER TRANSFEREES, WITH RESPECT TO THE MARKS OR ANY OF THE PRODUCTS MADE OR SOLD BY LICENSEE. 5.3 Liability of Licensee for Products. Licensee shall assume all financial and other obligations for the Products made and sold by it under this Agreement and Licensor shall not incur any liability or responsibility to Licensee or to third parties arising out of or connected in any manner with Licensee's products made or sold pursuant to this Agreement. In no event shall Licensor be liable for lost profits, special damages, consequential damages or contingent liabilities arising out of or connected in any manner with this Agreement or the Products made or sold by Licensee under this Agreement. 5.4 Indemnity of Licensor. Licensee agrees to defend, indemnify and hold Licensor, its officers, directors, employees and agents, harmless against all claims, liabilities, demands, damages, expenses or losses arising out of or connected with (a) the use by Licensee of the Marks or (b) any use, sale or other disposition of Licensee's Products by Licensee or by any other party. 5.5 Negation of Trademark Warranty. Licensee acknowledges that Licensor makes no warranty, express or implied, with respect to its ownership of any rights relating to the Marks. Article 6 TERM AND TERMINATION 6.1 Term. Unless terminated earlier as provided for herein, this Agreement shall remain in full force and effect for a five (5)- year period ending at May 4, 2002. This Agreement may be extended or renewed as provided in Section 1.2, or otherwise by the written agreement of the parties. 6.2 Breach of Agreement. Except as provided otherwise in Section 6.3, if either party breaches any material provision of this Agreement and fails to cure the breach within thirty (30) days after receipt of written notice from the nonbreaching party specifying the breach, then the nonbreaching party may terminate this Agreement upon written notice to the breaching party, which right of termination shall be in addition to, and not in lieu of, all other rights and remedies the nonbreaching party may have against the breaching party under this Agreement, at law or in equity. Failure by Licensor to give notice of termination with respect to any such failure shall not be deemed a waiver of its right at a later date to give such notice if such failure continues or again occurs, or if another failure occurs. A breach by either party of a material provision of the Supply Agreement shall be deemed a breach by such party of a material provision of this Agreement. 6.3 Immediate Termination. Licensor may immediately terminate this Agreement, upon written notice to Licensee, upon the occurrence of any one or more of the following events: (i) Licensee breaches any provision of Articles 2, 3, or 4; (ii) Licensee fails to purchase and/or to pay for the quantities of the Products that it is obligated to purchase and pay for under the Supply Agreement in accordance with the terms thereof; (iii) Licensee voluntarily seeks protection under any federal or state bankruptcy or insolvency laws; (iv) a petition for bankruptcy or the appointment of a receiver is filed against Licensee and is not dismissed within thirty (30) days thereafter; (v) Licensee makes any assignment for the benefit of its creditors; or (vi) Licensee ceases doing business. 6.4 Survival of Provisions. In the event of termination, cancellation or expiration of this Agreement for any reason, Sections 2.2, 5.1,5.2, 5.3, 5.4, 5.5 and 7.1 hereof shall survive such termination, cancellation or expiration and remain in full force and effect. Article 7 MISCELLANEOUS 7.1 Equitable Relief. A breach or default by Licensee of any of the provisions of Articles 2, 3 and 4 hereof shall cause Licensor to suffer irreparable harm and, in such event, Licensor shall be entitled, as a matter of right, to a restraining order and other injunctive relief from any court of competent jurisdiction, restraining any further violation thereof by Licensee, its officers, agents, servants, employees and those persons in active concert or participation with them. The right to a restraining order or other injunctive relief shall be supplemental to any other right or remedy Licensor may have, including, without limitation, the recovery of damages for the breach or default of any of the terms of this Agreement. 7.2 Amendment. This Agreement may be changed, modified, or amended only by an instrument in writing duly executed by each of the parties hereto. 7.3 Entire Agreement. This Agreement constitutes the full and complete agreement of the parties hereto and supersedes any and all prior understandings, whether written or oral, with respect to the subject matter hereof. 7.4 No Waiver. The failure of either party to insist upon strict performance of any obligation hereunder by the other party, irrespective of the length of time for which such failure continues, shall not be a waiver of its right to demand strict compliance in the future. No consent or waiver, express or implied, by either party to or of any breach or default in the performance of any obligation hereunder by the other party shall constitute a consent or waiver to or of any other breach or default in the performance of the same or any other obligation hereunder. 7.5 Notices. All notices required or permitted to be made or given pursuant to this Agreement shall be in writing and shall be considered as properly given or made when personally delivered or when duly deposited in the mails, first class mail, postage prepaid, or when transmitted by prepaid telegram, and addressed to the applicable address first above written or to such other address as the addressee shall have theretofore specified in a written notice to the notifying party. 7.6 Assignment. This Agreement or any of the rights or obligations created herein may be assigned, in whole or in part, by Licensor. However, this Agreement is personal to Licensee, and Licensee may not assign this Agreement or any of its rights, duties or obligations under this Agreement to any third party without Licensor's prior written consent, and any attempted assignment by Licensee not in accordance with this Section 8.6 shall be void. 7.7 Relationship of Parties. Nothing contained herein shall be construed to create or constitute any employment, agency, partnership or joint venture arrangement by and between the parties, and neither of them has the power or authority, express or implied, to obligate or bind the other in any manner whatsoever. 7.8 Remedies Cumulative. Unless otherwise expressly provided herein, the rights and remedies hereunder are in addition to, and not in limitation of, any other rights and remedies, at law or in equity, and the exercise or one right or remedy will not be deemed a waiver of any other right or remedy. 7.9 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, provided, however, that the foregoing shall not be deemed to expand or otherwise affect the limitations on assignment and delegation set forth in Section 8.6 hereof, and except as otherwise expressly provided in this Agreement, no other person or business entity is intended to or shall have any right or interest under this Agreement. 7.10 Governing Law. This Agreement shall be governed by and interpreted, construed and enforced in accordance with the laws of the State of Texas, excluding, however, any conflicts of law rules that would require the application of the laws of any other state or country. 7.11 Headings. The headings used in this Agreement are for convenience of reference only and shall not be used to interpret this Agreement. 7.12 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which will constitute but one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. CARRINGTON LABORATORIES, INC. By: Name: Title: DAVID WHEELER, dba LIGHT RESOURCES UNLIMITED By: EX-10.65 13 SUPPLY AGREEMENT THIS SUPPLY AGREEMENT (this "Agreement") effective as of February 13, 1997, is by and between CARALOE, INC., a Texas corporation ("Seller"), and DAVID WHEELER, doing business as LIGHT RESOURCES UNLIMITED, ("Buyer"), WITNESSETH: WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, Caraloe's AVMP[TM] Powder and/or Manapol[R] Gold[TM] Powder (hereinafter referred to under the name "Product") in the quantities, at the price, and upon the terms and conditions hereinafter set forth; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Term. The term of this Agreement shall commence on February 13, 1997, and shall end at midnight on May 12, 2002, unless sooner terminated as provided herein (the "Term"). 2. Sale and Purchase. Subject to the terms and conditions of this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from Seller, mutually agreed upon monthly quantities for the first three months ending May 12, 1997. Thereafter, Buyer shall purchase the minimum amounts listed on Exhibit A for the respective periods listed. Seller shall not discontinue the production and sale of the Product unless it provides Buyer with a reasonable substitute. 3. Sole Distribution Rights. It is the intent of this Agreement to appoint Buyer as the Sole Distributor of Product to natural health care practitioners ("NHCP") in the United States and Canada. If ambiguity exists relative to defining NHCP the parties shall meet to agree upon a workable definition as defined herein. Buyer and Seller shall use reasonable best efforts to achieve this objective by i) Seller not selling simple purchase bulk Product under 10 kilos to NHCP's in the United States during the first contract year. This minimum shall increase to 20 kilos for the second contract year and to 30 kilos for the third, fourth and fifth contract years provided Buyer continually meets its quarterly and yearly purchase requirements. If the Sole Distributor provision is terminated for failure by Buyer to make its minimum purchase requirements, Seller agrees to refrain from selling bulk to the Buyer's Protected Customers, such list to be provided from time to time and accepted by Buyer; for three (3) months from the termination date for every full year the Agreement has been in existence. For example, if the Agreement has been in existence for two years, then Seller shall not promote bulk product sales to the Protected Customer list for six (6) months from the termination date. Additionally, Seller 1) shall agree to protect Buyer's established NHCP customer base with the United States and Canada once Seller is notified of such customer and 2) for a period of six (6) months from the effective date hereof, Seller further agrees to protect an additional seventy-five (75) large potential NHCP customers provided by Buyer regardless of purchase minimums. 4. Quality. Seller warrants to Buyer that all Product sold by Seller pursuant to this Agreement will conform to the quality specifications set forth in Exhibit B to this Agreement. EXCEPT AS PROVIDED IN THIS PARAGRAPH 4, THERE ARE NO WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS AND FITNESS FOR A PARTICULAR PURPOSE, MADE WITH RESPECT TO THE PRODUCT TO BE SOLD HEREUNDER, AND NONE SHALL BE IMPLIED BY LAW. 5. Deliveries. Buyer shall instruct Seller from time to time during the Term, by placing a purchase order with Seller reasonably in advance of the date Buyer desires Product to be delivered to it hereunder, (i) as to the quantities of Product to be delivered to Buyer, (ii) as to the specific date of delivery, (iii) as to the specific location of delivery and (iv) as to the carrier or particular type of carrier for such delivery. During the Term, Buyer shall provide Seller (a) on an annual basis prior to the beginning of each year of the Term a nonbinding forecast of Buyer's minimum and maximum aggregate delivery requirements for Product for such year, and (b) on a quarterly basis at least thirty (30) days prior to the end of each three-month period of the Term a forecast acceptable to Seller and Buyer (which shall be binding on Buyer) of Buyer's minimum and maximum delivery requirements for Product for each month of the next three (3) month period (provided that such forecast for the initial period of the Term ending on May 12, 1997, shall be provided to Seller by April 1, 1997). The quantities of Product ordered by Buyer pursuant to this Agreement from time to time shall be spaced in a reasonable manner, and Buyer shall order such quantities in accordance with Buyer's binding forecasts. In no event shall Seller be required to deliver to Buyer in any three (3) month period a quantity of Product in excess of 125% of the maximum delivery requirement for such period set forth in the binding forecast for such period accepted by Seller. Deliveries of Product shall be made by Seller under normal trade conditions in the usual and customary manner being utilized by Seller at the time and location of the particular delivery. All deliveries of the Product to Buyer hereunder shall be made by Seller F.O.B. at the facilities of Seller or its affiliates located in Irving, Texas. 6. Purchase Price. All Product to be purchased by Buyer under this Agreement shall be purchased by it, during the Term of the Agreement, at a price of $1,600.00 per Kilo, or in accordance with the volume discount pricing schedule set forth in Exhibit C. Buyer shall bear all freight, insurance and similar costs, and all sales taxes, with respect to such purchases. The purchase price of Product together with all related freight, insurance and similar costs, and sales taxes, shall be paid by Buyer to Seller within thirty (30) days after the date of invoice. 7. Labels and Advertising (a) FDA Compliance of Labels and Advertising. It is Buyer's obligation to ensure that All labels and advertising relating to the Product sold hereunder must strictly comply with all applicable rules and regulations of the FDA and all other applicable laws, rules and regulations, including but not limited to FDA requirements relating to product ingredients. (b) Claims by Light Resources Unlimited. Buyer hereby agrees not to make, or permit any of its employees, agents or distributors to make, any claims of any properties or results relating to the Product, unless such claims have received written approval from the FDA. (c) FDA Approval of Claims. If Buyer desires to seek FDA approval as to any specific claims with respect to the Product, Buyer hereby agrees to (i) notify Seller of the claims and the application prior to filing and (ii) to keep Seller informed as to the progress of the application, including but not limited to sending Seller copies of all communications or notices to or from the FDA, as applicable. (d) Right to Approve Labels, etc. If Seller so requests, Buyer shall not use any label, advertisement or marketing material, or individual spokesman associated with the Product, unless such label, advertisement or marketing material, or individual spokesman has first been submitted to and approved by Seller. Seller shall not unreasonably withhold its approval of any such label, advertisement or marketing material; or individual spokesperson. (e) Compliance by Third Parties. Seller shall take all steps reasonably necessary to ensure that its distributors and any other parties to whom it sells any of the Product for resale do not relabel, repackage, advertise, sell or attempt to sell the Product in a manner that would violate this Agreement if done by Buyer. 8. Confidentiality. In the performance of the Parties obligations pursuant to this Agreement or the License Agreement, each may acquire from the other or its affiliates technical, commercial, operating or other proprietary information relative to the business or operations of the other or its affiliates (the "Confidential Information"). Both Parties agree to maintain the confidentiality, and take all necessary precautions to safeguard the secrecy, of any and all Confidential Information it may acquire from the other. Neither shall use any of such Confidential Information for its own benefit or for the benefit of anyone else. 9. Force Majeure. Neither Party shall have any liability if it shall be prevented from performing any of its obligations hereunder by reason of any factor beyond its control, including, without limitation, fire, explosion, accident, riot, flood, drought, storm, earthquake, lightning, frost, civil commotion, sabotage, vandalism, smoke, hail, embargo, act of God or the public enemy, other casualty, strike or lockout, or interference, prohibition or restriction imposed by any government or any officer or agent thereof ("Force Majeure"), and both Parties obligations, so far as may be necessary, shall be suspended during the period of such Force Majeure and shall be cancelled in respect of such quantities of Product as would have been sold hereunder but for such suspension. Each Party shall give to 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 its obligations under this Agreement. 10. Rights Upon Default. (a) Seller's Rights Upon Default. If Buyer (i) fails to purchase the quantities of Product specified for purchase by Buyer hereunder, (ii) fails to make a payment hereunder when due or (iii) otherwise breaches any term of this Agreement, and such failure or breach is not cured to Seller's reasonable satisfaction within fourteen (14) days (in the case of a failure to make a payment) or thirty (30) days (in any other case) after receipt of notice thereof by Buyer, or if Buyer fails to perform or observe any covenant or condition on its part to be performed when required to be performed or observed, and such failure continues after the applicable grace period, if any, specified in the Agreement, Seller may refuse to make further deliveries hereunder and may terminate this Agreement upon notice to Buyer and, in addition, shall have such other rights and remedies, including the right to recover damages, as are available to Seller under applicable law or otherwise. If Buyer becomes bankrupt or insolvent, or if a petition in bankruptcy is filed by or against it, or if a receiver is appointed for it or its properties, Seller may refuse to make further deliveries hereunder and may terminate this Agreement upon notice to Buyer, without prejudice to any rights of Seller existing hereunder or under applicable law or otherwise. Any subsequent shipment of Product by Seller after a failure by Buyer to make any payment hereunder, or after any other default by Buyer hereunder, shall not constitute a waiver of any rights of Seller arising out of such prior default; nor shall Seller's failure to insist upon strict performance of any provision of this Agreement be deemed a waiver by Seller of any of its rights or remedies hereunder or under applicable law or a waiver by Seller of any subsequent default by Buyer in the performance of or compliance with any of the terms of this Agreement. (b) Buyer's Rights Upon Default. If Seller fails in any material respect to perform its obligations hereunder, and such failure is not cured to Buyer's reasonable satisfaction within thirty (30) days after receipt of notice thereof by Seller, Buyer shall have the right to refuse to accept further deliveries hereunder and to terminate this Agreement upon notice to Seller and, in addition, shall have such other rights and remedies, including the right to recover damages, as are available to Buyer under applicable law or otherwise. Any subsequent acceptance of delivery of Product by Buyer after any default by Seller under this Agreement shall not constitute a waiver of any rights of Buyer arising out of such prior default; nor shall Buyer's failure to insist upon strict performance of any provision of this Agreement be deemed a waiver by Buyer of any of its rights or remedies hereunder or under applicable law or a waiver by Buyer of any subsequent default by Seller in the performance of or compliance with any of the terms of this Agreement. 11. Disclaimer and Indemnity. Buyer shall assume all financial and other obligations for Buyer Products, and Seller shall not incur any liability or responsibility to Buyer or to third parties arising out of or connected in any manner with Buyer Products. In no event shall Seller be liable for lost profits, special damages, consequential damages or contingent liabilities arising out of or connected in any manner with this Agreement or Buyer Products. Buyer shall defend, indemnify and hold harmless Seller and its affiliates, and their respective officers, directors, employees and agents, from and against all claims, liabilities, demands, damages, expenses and losses (including reasonable attorneys' fees and expenses) arising out of or connected with (i) any manufacture, use, sale or other disposition of Buyer Products, or any other products of Buyer, by Buyer or any other party and (ii) any breach by Buyer of any of its obligations under this Agreement. 12. Equitable Relief. A breach by Buyer of the provisions of Article 7, shall cause Seller to suffer irreparable harm and, in such event, Seller shall be entitled, as a matter of right, to a restraining order and other injunctive relief from any court of competent jurisdiction, restraining any further violation thereof by Buyer, its officers, agents, servants, employees and those persons in active concert or participation with them. The right to a restraining order or other injunctive relief shall be supplemental to any other right or remedy Seller may have, including, without limitation, the recovery of damages for the breach of such provisions or of any other provisions of this Agreement. 13. Survival. The expiration or termination of the Term shall not impair the rights or obligations of either party hereto which shall have accrued hereunder prior to such expiration or termination. The provisions of Paragraphs 8,10,11, and 12 hereof, and the rights and obligations of the parties thereunder, shall survive the expiration or termination of the Term. 13. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Texas. 14. Succession. Neither party hereto may assign or otherwise transfer this Agreement or any of its rights or obligations hereunder (including, without limitation, by merger or consolidation) without the prior written consent of the other party; provided, however, that Seller may assign any of its rights or obligations hereunder to any affiliate of Seller and Buyer may assign the Agreement once to a Corporation he is forming in Oregon and in which he shall own at least fifty-one percent (51%) of the shares of the Corporation. Subject to the immediately preceding sentence, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 15. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto relating to the matters covered hereby and supersede any and all prior understandings, whether written or oral, with respect to such matters. The terms of this Agreement shall prevail over any inconsistent terms contained in any purchase order issued by Buyer and acknowledgment or acceptance thereof issued by Seller. No modification, waiver or discharge of this Agreement or any of its terms shall be binding unless in writing and signed by the party against which the modification, waiver or discharge is sought to be enforced. 16. Notices. All notices and other communications with respect to this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or when duly deposited in the mails, first class mail, postage prepaid, to the address set forth below, or such other address hereafter specified in like manner by one party to the other: If to Seller: Caraloe, Inc. 2001 Walnut Hill Lane Irving, Texas 75038 Attention: President If to Buyer: Light Resources, Inc. 20 West 20th Street, #803 New York, NY 10011 Attention: President 17. Interpretation. In the event that any provision of this Agreement is illegal, invalid or unenforceable as written but may be rendered legal, valid and enforceable by limitation thereof, then such provision shall be deemed to be legal, valid and enforceable to the maximum extent permitted by applicable law. The illegality, invalidity or unenforceability in its entirety of any provision hereof will not affect the legality, validity or enforceability of the remaining provisions of this Agreement. 18. No Inconsistent Actions. Each party hereto agrees that it will not voluntarily undertake any action or course of action inconsistent with the provisions or intent of this Agreement and, subject to the provisions of Paragraph 8 hereof, will promptly do all acts and take all measures as may be appropriate to comply with the terms, conditions and provisions of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written. CARALOE, INC. By:_____________________________ Name:___________________________ Title:__________________________ DAVE WHEELER, dba LIGHT RESOURCES UNLIMITED By:_____________________________ EXHIBIT A LIGHT RESOURCES UNLIMITED Contract Minimum Non-binding Year Yearly Purchase* Target Sales -------- ---------------- ------------ 1 (Beginning May, 1997) 180 Kilos 300 Kilos 2 350 Kilos 500 Kilos 3 450 Kilos 800 Kilos 4 550 Kilos ** 1,000 Kilos 5 650 Kilos ** 1,500 Kilos The minimum yearly purchase shall be monitored on a quarterly basis and minimum monthly purchases shall be mutually agreed upon at the beginning of each Contract Year. If Buyer fails to purchase less than 80% of the agreed upon quarterly minimum, Seller may place Buyer on termination notice. If Buyer fails to purchase 90% of the agreed upon minimum for the next quarter, Seller may terminate this agreement's sole distribution provisions at the end of that quarter and Buyer shall no longer be considered the sole distributor for the defined market. Buyer shall be free, however, to continue to purchase bulk product for the remainder of the term of the Agreement. ** The minimum yearly purchases for Contract Years four and five shall be the greater of 550 Kilos for the fourth year and 650 Kilos for the fifth year or year three s actual total purchases plus twenty percent for year four and year four's actual total purchases plus twenty percent for year five. EXHIBIT B LIGHT RESOURCES UNLIMITED SPECIFICATIONS -------------- MANAPOL[R] Aloe vera extract TEST NAME (GOLD[TM]) AVMP[R] --------- ---------- ----------------- Appearance Fine white to beige powder Fine white powder Aloe vera Complex 35 - 50% 40 - 60% Carbohydrate content, wt.% Water, wt.% <=14% >=9% Residue on Ignition, <=16% <=10% wt.% Microbiological Meets USP Meets USP Purity Standard Standard Fiber, wt.% <=55% <=60% Solubility* 240 mg/oz 240 mg/oz Gelization pH Not adjusted Adjusted to 4.0 Fiber Enriched Enriched Viscosity (cP) 40 50 4 mg/ml solution Total Acid Value 0.82 0.80 (as malic acid) Price per gram $1.20 $1.60 1 - AVMP[R] Aloe vera freeze-dried extract EX-10.66 14 SALES DISTRIBUTION AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into as of this day of , 1996, by and between CARRINGTON LABORATORIES, INC., a Texas corporation hereinafter referred to as ("Carrington"), and PENTA FARMACEUTICA, S.A., an Argentine corporation ("PENTA"). 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 Argentina (defined in Article 1 hereof as the Territory); and WHEREAS, Penta 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 Penta 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) "Products" shall mean the oral care products manufactured by or for Carrington set forth on Exhibit A hereto. Carrington will provide a ninety (90) day notice to Penta on its intent to add or discontinue Products to Exhibit A. (b) "Territory" shall mean the following country: Argentina. (c) "Parties" shall mean Carrington and Penta and Party shall mean either of them as the context indicates. (d) "Know-how" shall mean secret and substantial technical and scientific information regarding the Products, which may be necessary, useful or advisable to enable Penta 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 Penta after execution of this Agreement. (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) "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 Penta as Carrington's exclusive sales distributor in the Territory for the sale of Products, and Penta hereby accepts such appointment. As sales distributor in the Territory, Penta 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 Penta's sole expense, Penta 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, Penta shall be considered an independent contractor and shall not be considered a partner, employee, agent or servant of Carrington. As such, Penta 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. Penta 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 Penta any right to use or otherwise deal with the Know-how for purposes other than those expressly provided for in this Agreement. 2.5 Penta shall promptly inform Carrington of any misappropriation of the Know-how which comes to its attention. After having discussed such situation with Penta, Carrington shall have sole and absolute discretion to take such action as it deems appropriate and Penta, 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 Penta's activities or performance under this Agreement are to be borne solely by Penta. Article 3. Certain Performance Requirements 3.1 Penta agrees to promote, market, sell and distribute the Products only to customers and potential customers within the Territory for ultimate use within the Territory. Penta shall 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 Penta is in compliance with Article 3.1, Penta agrees that: (a) Penta shall 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) Penta shall send to Carrington quarterly inventory reports of the Products; and (c) Carrington may mark for identification all Products sold by Carrington to Penta hereunder. 3.3 Penta shall promptly provide Carrington with written reports of any importation or sale of any of the Products in the Territory of which Penta 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 Penta shall maintain a sufficient inventory of Products to assure an adequate supply of Products to serve all its market segments. Penta 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 Penta's facilities shall be subject to inspection by Carrington or its agents upon 72 hours written notice. 3.5 Penta 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 Penta of Products. Upon written request from Penta, Carrington shall provide Penta with such certificates or other documents as may be reasonably required to establish any applicable exemptions from the collection of such taxes, charges and fees. 3.6 All Products shall be packaged and delivered by Carrington to Penta. All Products shall be labeled, advertised, marketed, sold and distributed by Penta 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. Penta 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 Penta shall not make any alterations or permit any alterations to be made to the Products without Carrington's written consent. 3.8 Penta 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 Penta by any third party. 3.9 Penta 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 Penta 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 Penta shall actively and aggressively promote, develop demand for and maximize the sale of the Products to all customers and potential customers within the Territory. Penta 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 oral care product. 3.12 Penta 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. Penta's auditor shall hand over to Carrington 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 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 Penta, 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 Penta, 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 shall be in the name of Carrington, with Penta being named as Products distributor in the Territory. Penta 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 Penta has received Know-how from Carrington, Penta 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. Penta 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, Penta 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 Penta shall use its best endeavors to obtain the Registration within six (6) months from the relevant submission. Penta 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 Penta's fulfilment of its obligations in this respect. It is, however, understood that Penta's deadline to obtain Registration is one year from the date of filing. 4.6 Penta 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 Penta shall have no claim against Carrington arising out of any delay or refusal by the authorities to issue the Registration. Article 5. Sale of Products by Carrington to Penta 5.1 Subject to the terms and conditions of this Agreement, including specifically Article 5.7 hereof, Carrington shall sell to Penta the Products at a specified price for each Product (the "Contract Price"). For orders placed by Penta 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) Penta shall provide in writing to Carrington 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, Penta agrees to purchase from Carrington, during each 12-month period of the term of this Agreement, commencing with the 12-month period beginning _________, 19__ through ___________, 19__, at the Contract Price, a specified minimum aggregate dollar amount (based on the Contract Price) of the Products (the "Specified Minimum Purchase Amount"). For the first 12-month period of the term of this Agreement, the Specified Minimum Purchase Amount shall be $__________. 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 Penta's reasonable, good faith projections of future sales growth and such other factors as the Parties may deem relevant. 5.3 Penta 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 Penta upon shipment of the Products. Unless otherwise agreed, Penta shall pay all invoices in full within sixty (60) days of the date of invoice. Penta 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 Penta at any time when payment of an amount owed by Penta is overdue or when Penta is otherwise in breach of this Agreement. 5.5. All shipments will 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 date the Purchase Order is received and acknowledged in writing by Carrington, unless by mutual consent of the Parties. Purchase Orders will be non- cancellable. Penta 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 Penta. Variation above 20% shall be discussed between the Parties and Carrington will use its best efforts to maintain delivery dates requested by Penta. 5.6 All shipments of Products to Penta 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 Penta 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 Penta under this Agreement. However, if necessary in the best judgement of Carrington, Carrington may allocate its available supply of Products among all its customers, distributors or other purchasers, including Penta, 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 Penta 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. Penta 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. PENTA'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 PENTA'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO PENTA 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, NON-PERFORMANCE OR REPLACEMENT OF THE PRODUCTS. PENTA 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 PENTA OR ANY OTHER PARTY, (ii) ANY BREACH BY PENTA OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF PENTA OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND PENTA S AUTHORIZATION GRANTED HEREIN. 5.9 Credits for defective Products to Penta 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 Penta with a copy of its liability Insurance Certificate and shall include Penta thereunder. Article 6. Term and Termination 6.1 The term of this Agreement shall be for a period of five years from the effective date of this Agreement. After such term, this Agreement shall be automatically terminated unless the parties mutually agree in writing to extend the term hereof. Notwithstanding the foregoing, this Agreement may be terminated earlier in accordance with the provisions of this Article 6 or as expressly provided elsewhere in this Agreement. 6.2 Carrington shall have the absolute right to terminate this Agreement if Penta 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 Penta, Penta 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) Penta fails or refuses to pay to Carrington any sum when due; (ii) Penta breaches any provision of Article 2.2, 3.4, 4, 5.3, 5.8, 7 or 8; or, (iii) Penta fails to purchase the Specified Minimum Purchase Amounts of Product for any required period. 6.3 Each Party shall have the absolute right to terminate this Agreement in the event the other Party shall become insolvent, or if there is instituted by or against the other Party procedures in bankruptcy, or under insolvency laws or for reorganization, receivership or dissolution, or if the other Party loses any franchise or license to operate its business as presently conducted in any part of the Territory. 6.4 This Agreement shall automatically terminate effective at the end of any 12-month period of the term of this Agreement referred to in Articles 5.1 and 5.2 hereof if the Parties are unable to agree upon the Contract Prices or the Specified Minimum Amounts for the next 12-month period of the term. 6.5 During the one-year period following termination of this Agreement, any inventory of Products held by Penta at the termination of this Agreement may be sold by Penta 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 Penta'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 Penta, 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 Penta 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 Penta, modify or discontinue the use of any Trademark and/or use one or more additional or substitute marks or names, and Penta 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 Penta 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 Penta s actual use thereof. 7.3 It shall be the sole responsibility of Carrington, at its sole expense, to keep in force and maintain the Trademarks in the Territory by paying all necessary fees throughout the term of this Agreement. Penta 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 [TM] or the sign [R]. Penta 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, Penta 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 Penta's use of any Trademark or of any Penta trademark, Penta is obligated to notify Carrington immediately. Penta 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, Penta's right to use the Trademarks shall cease, and Penta shall cease using such Trademarks at such time as Penta's inventory of Products has been sold. Penta shall, as soon as it is reasonably possible, remove all Trademarks which appear on or about the premises of the office(s) of Penta and any of the advertising of Penta used in connection with the Products. 7.6 In the event of a breach or threatened breach by Penta 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 Penta. 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 trademark be also defined as Trademark for purposes of this Agreement) owned by Carrington or to be transferred from Penta 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 Penta in the Territory. 7.8 Nothing contained in this Agreement shall be construed as giving Penta the right to use the Trademark outside the Territory or for any other product than the Products. Article 8. Confidential Information 8.1 Penta recognizes and acknowledges that Penta 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, Penta 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 Penta of the provisions of this Article 8, Carrington shall be entitled to an injunction restraining Penta 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 Penta. 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 Penta. 8.2 Penta shall not disclose any of the terms of this Agreement without the prior written consent of Carrington. Article 9. Force Majeure 9.1 Neither Penta 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 Penta's or Carrington's obligations, except as may be necessary, be suspended during the period of such Force Majeure, nor shall either Party's obligations be cancelled with respect to such Products as would have been sold hereunder but for such suspension. Such affected Party shall give to the other Party prompt notice of any such Force Majeure, the date of commencement thereof and its probable duration and shall give a further notice in like manner upon the termination thereof. Each Party hereto shall endeavor with due diligence to resume compliance with its obligations hereunder at the earliest date and shall do all that it reasonably can to overcome or mitigate the effects of any such Force Majeure upon both Party's obligations under this Agreement. Should the Force Majeure continue for more than six (6) months, then the other Party shall have the right to cancel this Agreement and the Parties shall seek an equitable agreement on the Parties reward of interests. 9.2 The Parties agree that any obligation to pay money is never excused by Force Majeure. Article 10. Amendment 10.1 No oral explanation or oral information by either Party hereto shall alter the meaning or interpretation of this Agreement. No modification, alteration, addition or change in the terms hereof shall be binding on either Party hereto unless reduced to writing and executed by the duly authorized representative of each Party. Article 11. Entire Agreement 11.1 This Agreement represents the entire Agreement between the Parties and shall supersede any and all prior agreements, understandings, arrangements, promises, representations, warranties, and/or any contracts of any form or nature whatsoever, whether oral or in writing and whether explicit or implicit, which may have been entered into prior to the execution hereof between the Parties, their officers, directors or employees as to the subject matter hereof. Neither of the Parties hereto has relied upon any oral representation or oral information given to it by any representative of the other Party. 11.2 Should any provision of this Agreement be rendered invalid or unenforceable, it shall not affect the validity or enforceability of the remainder. Article 12. Assignment 12.1 Neither this Agreement nor any of the rights or obligations of Penta hereunder shall be transferred or assigned by Penta 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 will be governed by the laws and jurisdiction of the State 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 Penta. (Fax No. 972-714-5009) (b) Penta at: Penta Farmaceutica, S.A.; Helguera 254/58 (1406) Buenos Aires, Argentina, Attention: _______________ or at such other address as Penta shall have theretofore furnished in writing to Carrington. (Fax No. 54-1-856- 4691) Article 15. Waiver 15.1 Neither Penta'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 Penta 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 Canada, 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 (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 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. Judgement upon the award rendered may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgement or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. Unless otherwise determined by the arbitrator, each Party involved in the arbitration shall bear the expense of its own counsel, experts and presentation of proof, and the expense of the arbitrator and the ICC (if any) shall be divided equally among the Parties to the arbitration. Article 17 Interpretation 17.1 The language of this Agreement is English. No translation into any other language shall be taken into account in the interpretation of the Agreement itself. 17.2 The headings in this Agreement are inserted for convenience only and shall not affect its construction. 17.3 Where appropriate, the terms defined in Article 1 and denoting a singular number only shall include the plural and vice versa. 17.4 References to any law, regulation, statute or statutory provision includes a reference to the law, regulation, statute or statutory provision as from time to time amended, extended or re- enacted. Article 18. Exhibits 18.1 Any and all Exhibits referred to herein shall be considered an integral part of this Agreement. 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 Penta 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. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written. CARRINGTON LABORATORIES, INC. By: Name: Title: PENTA FARMACEUTICA, S.A. By: Name: Title: EXHIBIT A PENTA FARMACEUTICA, S.A. Products & Contract Price December, 1996 Product Current Price Voralex Patch, 6 pack (Less than 10,000 $0.90/sleeve sleeves) Voralex Patch, 6 pack (10,000 - 49,999 sleeves) $0.85/sleeve Voralex Patch, 6 pack (50,000 - 99,999 sleeves) $0.80/sleeve Voralex Patch, 6 pack (100,000 or more sleeves) $0.75/sleeve Note: The Voralex Patch 6 pack contains one sleeve of six patches. Any volume discounts are based on Specified Minimum Purchase Amounts which correspond with the specified 12-month period as set forth in Articles 5.1 and 5.2 of this Agreement. EX-10.67 15 STOCK SUBSCRIPTION OFFER ALOE COMMODITIES, INC. To: Board of Directors 1. Subscription. Caraloe, Inc. (the "Undersigned"), whose address is 2001 Walnut Hill Ln, Irving, Texas 75038 hereby offers to subscribe for 200,000 shares of Common Stock (the "Stock") of Aloe Commodities, Inc., a Texas corporation (the "Company") whose address is 12901 Nicholson, Suite 370, Farmers Branch, Texas 75234. The par value of the Common Stock is no par stock, The Undersigned agrees to pay $200,000.00, payable at the time of subscription for said Shares. 2. Representations and Warranties of the Undersigned. The Undersigned hereby represents and warrants that: A. The Undersigned is financially responsible, able to meet his/her obligations hereunder, and acknowledges this investment may be lon term and is by its nature speculative; further, the Undersigned acknowledges he/she is financially capable of bearing the risk of this investment. B. The Undersigned has had substantial experience in business or investments in one or more of the following: (I) knowledge of and investment experience with securities, such as stocks and bonds; (ii) ownership of interests in new ventures and/or start-up companies; (iii) experience in business and financial dealings and parlance, and the Undersigned can protect his/her own interests in an investment of this nature and does not have a Purchaser Representative , as that term is defined in Regulation D of the Securities Act of 1933, as amended, (the "Securities Act") and does not need such a representative. C. The Undersigned is capable of bearing the high degree of economic risks and burdens of this investment, including, but not limited to, the possibility of complete loss of all his/her investment capital and the lack of a liquid public market, such that he/she may not be able to readily liquidate the investment whenever desired or at the then current asking price of the Stock. D. The Undersigned has had access to the information set forth in Paragraph 4 hereof and is able to request copies of such information, ask questions of and receive answers from the Company regarding such information and any other information he/she desires concerning the terms and conditions of this transaction and all such questions have been answered to his/her full satisfaction. The Undersigned understands that the Stock has not been registered under the Securities Act and the applicable state securities laws in reliance on the exemption provided by Section 4 (2) of the Securities Act and Regulation D relating to transactions not involving a public offering. The Undersigned further understands that he/she is purchasing the Stock without being furnished any offering literature, prospectus or private offering memorandum, other than that supplied under or identified in this Offer. E. At no time was the Undersigned presented with or solicited by any leaflet, public promotional meeting, circular, newspaper or magazine article, radio or television advertisement, or any other form of general advertising ortherwise than in connection and concurrently with this Offer. F. The Stock which the Undersigned hereby subscribes is being acquired soley for his/her own account, for investment, and is not being purchased with a view to or for the resale or distribution thereof and the Undersigned has no present plans to enter into any contract, undertaking, agreement or arrangement for such resale or distribution. G. The Undersigned is aware of the following: (I) The Company's financial and operating history; (ii) The existence of substantial restrictions on the transferability of the stock; (iii) The Stock will not be, and the Undersigned will have no rights to require, that the Company register the Stock under the Securities Act or any state securities laws; and (iv) The Undersigned may not be able to avail him/her selves of the provisions of Rule 144 adopted by the Securities and Exchange Commission under the Securities Act or any applicable state securities acts with respect to the release of the Stock, and, accordingly, it may not be possible for the Undersigned to liquidate part or all of their investment in the Company or to liquidate at the ten current asking price of the Stock, if any. H. It has at no time been represented, guaranteed, or warranted to the Undersigned by an officer or director of the Company, or the agents or employees thereof, or any other person, expressly or impliedly, any of the following: (I) An exact or approximate length of time the Undersigned will or will not remain as owner of the Stock; (ii) A percentage of profit and/or amount or type of consideration, profit, loss, credits or deductions to be realized, if any, as a result of the Undersigned's ownership of the Stock; or (iii) Past performance on the part of any director or officer of the Company, or the agents or employees thereof, that will in any way indicate the predictable results accruing from ownership of the Stock. I. The Company is under no duty to register the Stock or comply with any exemption from registration under the Securties Act of any state securities law, including supplying to the appropriate agency or to the Undersigned any information required in connection with transfers under appropriate rules and regulations. The foregoing representations and warranties shall be true and accurate as of the date hereof and as of the date of any acceptance of this Offer by the Company and shall survive the date of such acceptance by the Company. 3. Indemnification. The Undersigned acknowledges that he/she understands the meaning and legal consequence of the representations and warranties contained in Paragraph 2 hereof and the Undersigned hereby agrees to indemnify and hold harmless all loss, damage or liability due to or arising out of (I) a breach of any such representation or warranty, or (ii) a breach of any warranty of the Undersigned contained in this Offer. 4. Access to and Furnishings Information. The Company has provided the Undersigned access to and furnished to the Undersigned, if requested, all corporate records, including Articles of Incorporation, By-Laws, Minute and Stock Books, and agreements with officers, directors, stockholders and employees, and information related to the business of the Company dated on or before the date of this offer. The Undersigned hereby acknowledges that he/she has had an opportunity to review and understand the foregoing and have, if he/she deemed necessary, consulted with a legal and/or tax advisor. 5. Transferability The Undersigned agrees not to transfer or assign this Offer, or any of the Undersigned's interest therein, and further agrees that the assignment and and transferability of the Stock acquired pursuant hereto shall be made only in accordance with this Offer. The Company shall issue stop transfer instructions to its transfer agent for its common stock with respect to the Stock and shall place the following legend on the certificates representing the Stock: The shares represented by this certificate have been acquired pursuant to a transaction effected in reliance upon Section $(2) of the Securities Act of 1933 as amended, (the "Act") and have not been the subject of a Registration Statement under the Act or any state securities act. These securities may not be sold or otherwise transferred in the absence of such registration or applicable exemption therefrom under the Act or any applicable state securities act. 6. Revocation. The Undersigned agrees that he/she shall not cancel, terminate or revoke this Agreement or any provisions hereof or any agreement of the Undersigned made hereunder. 7. Notices. All notices or other communications given or made hereunder shall be in writing and shall be delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the Undersigned or the Company at their respective addresses set forth below. 8. Governing Law. This Agreement and other transactions contemplated hereunder shall be construed in accordance with and governed by the laws of the State of Texas. 9. Entire Agreement. This Offer constitutes the entire agreement amoung the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by all parties. IN WITNESS WHEREOF, the parties hereto have executed this Offer as of this 30th day of October, 1996. By:/S/Carlton Turner Signature Caraloe, Inc. Name 2001 Walnut Hill Ln. Address Irving, TX 75038 City, State, Zip 972-518-1300 Telephone THIS OFFER IS ACCEPTED BY: ALOE COMMODITIES INTERNATIONAL, INC. By:/S/ L. Scott Mcknight Its: President Title EX-10.68 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. 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/Luiz Cerqueira By:/S/Philip A. Unverzagt Name: Luiz Cerqueira Name: Philip A. Unverzagt Title: VP Oper./Mfg. & L.A. Sales Title: Sr. VP/CFO Date: 11/19/96 Date: 11/11/96 EX-10.69 17 CARRINGTON LABORATORIES, INC. 2001 Walnut Hill Lane Irving, Texas 75038 OFFER AND AGREEMENT OF SALE AND PURCHASE February 26, 1997 TO: Each Holder of Series E Convertible Preferred Stock This letter constitutes an offer (the "Offer") from Carrington Laboratories, Inc. (the "Company") to purchase 50% of your shares, as adjusted pursuant to Paragraph 1 (the "Subject Shares"), of the Company's Series E Convertible Preferred Stock (the "Preferred Stock") for the consideration, and subject to the terms, set forth herein. If you accept the Offer, this letter will also constitute a legally binding agreement (this "Agreement") between the Company and you in accordance with the terms hereof. In addition, if the holders of a majority in interest of the Preferred Stock accept the Offer and the purchase contemplated by the Offer is consummated, this Agreement will constitute an amendment to each of the Registration Rights Agreements signed in October 1996 (collectively, the "RRA") between the Company and the holders of the Preferred Stock. More specifically, the terms of this Agreement are as follows: 1. Agreement of Sale and Purchase. At the Closing (as herein defined), and subject to you and the other holders of the Preferred Stock tendering an aggregate of at least 330 shares to the Company for purchase (which condition may be waived by the Company), the Company will purchase from you, and you will sell to the Company, the Subject Shares in consideration of the payments to be made by the Company to you in the amounts, and at the times, set forth in Paragraph 2 hereof. At or before the Closing, (i) you will deliver your certificate or certificates for the Subject Shares, together with a duly executed Stock Power in the form enclosed herewith, to First Granite Securities, Inc., as agent (the "Agent"), at 1276 50th Street, Suite 700, Brooklyn, New York 11210, and (ii) the Company will wire transfer to the Agent funds in an amount equal to those payments due to you at the Closing. The Company will purchase fractional shares of Preferred Stock, as necessary, in connection with the Offer. Although the Offer is for 50% of your shares of Preferred Stock, if some holders of Preferred Stock (the "Under 50% Sellers") are not willing to sell at least 50% of their Preferred Stock and other holders of Preferred Stock (the "Over 50% Sellers") are willing to sell more than 50% of their Preferred Stock, the Company may, in its discretion, purchase all of the Preferred Stock that the Under 50% Sellers are willing to sell and purchase from the Over 50% Sellers a sufficient number of shares of Preferred Stock to result in the purchase of an aggregate of 330 shares. In such case, the Company will purchase from each of the Over 50% Sellers pro rata according to the number of shares of Preferred Stock that each of the Over 50% Sellers indicates a willingness to sell pursuant to the Offer. Accordingly, please indicate in the blank below your signature line the maximum number of shares you are willing to sell pursuant to the Offer. The Company will, within 10 business days after the Closing, send to you a new stock certificate for any shares (including any fractional shares) not purchased pursuant to the Offer. If you prefer to have the cash payments set forth in Paragraph 2 wire transferred directly to your account rather than to the Agent, please so indicate by completing the optional wire transfer instructions below your signature line on this Agreement. The closing of the sale and purchase of the Subject Shares (the "Closing") will occur at 10:00 a.m., Eastern Standard Time, on March 6, 1997 or on such earlier date as the Company may, in its discretion, designate following the Agent's receipt of stock certificates and duly executed stock powers for an aggregate of at least 330 shares of Preferred Stock. If stock certificates and stock powers for an aggregate of at least 330 shares of Preferred Stock are not received by 6:00 p.m., Eastern Standard Time, on March 5, 1997, the Offer will expire. The Company reserves the right at its discretion to withdraw the Offer at any time prior to the Closing or to extend the Offer beyond the above-specified time and date of expiration. 2. Payments. The Company will make the following payments to you in the amounts, and at the times, indicated below: (a) Closing Consideration. At the Closing, the Company will pay you in cash an amount equal to the sum of (1) $11,300 for each Subject Share; (2) a "Periodic Amount" (as defined in Section 2(d) of the RRA) for the "Computation Period" (as defined in Section 2(d) of the RRA) from January 9, 1997 through February 8, 1997, inclusive, equal to the mathematical product of (A) 1% multiplied by (B) $10,000 for each share of Preferred Stock you owned during such 30-day period; and (3) a Periodic Amount for the Computation Period from February 9, 1997 through February 14, 1997, inclusive, equal to the mathematical product of (A) 6/30 multiplied by (B) 2% multiplied by (C) $10,000 for each share of Preferred Stock you owned during such six-day period. (b) Interest. Within five business days after the Interest Period (as defined below), the Company will pay you, in cash, interest at the rate of 7% per annum on $10,000 for each share of Preferred Stock that you owned from time to time during the period from February 15, 1997 through the earlier of May 15, 1997 or the date the Registration Statement (as defined in Section 1(a)(iv) of the RRA) is declared effective by the Securities and Exchange Commission (the "Interest Period"). (c) Periodic Amount. If the Registration Statement is not declared effective by the Securities and Exchange Commission on or before May 15, 1997, the Company will pay you, in cash, a Periodic Amount pursuant to Section 2(d) of the RRA from the Computation Date of May 16, 1997 until the Registration Statement is declared effective by the Securities and Exchange Commission; provided, however, that the rate of the Periodic Amount that shall be applicable during the Computation Period from May 16, 1997 through June 15, 1997 shall be 1%, and the rate of the Periodic Amount that shall be applicable during each Computation Period beginning on or after June 16, 1997 shall be 2%; and provided, further, any such Periodic Amount shall be prorated to take into account the portion of a Computation Period during which the Registration Statement was effective. Except as provided in subparagraphs (a)(2) and (a)(3) of this Paragraph 2, no Periodic Amount shall be payable if the Registration Statement is declared effective by the Securities and Exchange Commission on or before May 15, 1997 and, in any event, no Periodic Amount shall accrue from February 15, 1997 through May 15, 1997, inclusive. 3. Certain Representations. The Company represents and warrants that it is duly authorized, and has full corporate power and authority, to execute and deliver this Agreement. You represent and warrant to the Company that (i) you have received and read the Confidential Disclosure Memorandum dated February 26, 1997, delivered to you by the Company in connection with the Offer, and each of the documents incorporated by reference therein as listed on pages 1 and 2 thereof; (ii) you are duly authorized, and have full power and authority, to execute and deliver this Agreement; and (iii) you have, and at the Closing the Company will receive, good and marketable title to the Subject Shares free and clear of any liens, security interests, pledges, voting trusts, voting agreements, stock transfer restrictions or other encumbrances of any nature whatsoever. 4. Amendment of RRA. This Agreement constitutes an amendment to the RRA. In the event of any inconsistency between this Agreement and the RRA, the provisions of this Agreement shall control. 5. Miscellaneous Provision. (a) Applicable Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York. (b) Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the Company and you with respect to the subject matter hereof. This Agreement may not be amended except by an instrument in writing executed by both the Company and you. (c) Successors and Permitted Assigns. This Agreement will be binding upon, and will inure to the benefit of, the Company, its successors and assigns, and you, your successors, assigns, heirs, devisees and personal representatives. Neither the Company nor you may assign this Agreement without the prior written consent of the other party hereto. If you wish to accept the Offer, and if this Agreement correctly reflects your understanding with the Company, please so indicate by signing below in the space provided and returning an original of this Agreement to the Agent. Sincerely yours, CARRINGTON LABORATORIES, INC. By: Sheri L. Pantermuehl Treasurer and Chief Financial Officer ACCEPTED AND AGREED: --------------------------------- Maximum Number of Shares Print or Type Name of Shareholder Tendered for Purchase: of Record] -------------------------- By: Optional Wire Transfer ------------------------------ Instructions: [Signature of Authorized Person] Bank: ---------------------- Name: ------------------------- Account No.: --------------- Title: ------------------------ ABA Routing No.: ----------- cc: Samuel Krieger, Esq. Krieger & Prager 319 Fifth Avenue Third Floor New York, New York 10016 EX-10.70 18 SALES DISTRIBUTION AGREEMENT THIS AGREEMENT is made and entered into as of the day of , 1995, by and between CARRINGTON LABORATORIES, INC., a Texas corporation ("Carrington"), and LABORATORIOS PiSA S.A. DE C.V., a Mexican corporation ("PiSA"). W I T N E S S E T H : WHEREAS, Carrington is engaged in the business of manufacturing, selling and distributing certain pharmaceutical products and is desirous of establishing a competent and exclusive distribution source for sales of such products in Mexico and certain countries in Central America and the Caribbean (defined in Article I hereof as the Territory); and WHEREAS, PiSA is desirous of distributing such products in the Territory and is willing and able to provide a competent distribution organization in the Territory, and PiSA 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) "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 PiSA on its intent to add or discontinue Products to Exhibit A. (b) "Territory" shall mean the following countries: Mexico, Guatemala, Nicaragua, Panama, El Salvador, and the Dominican Republic. Article 2. Appointment 2.1 Subject to the terms and conditions of this Agreement, Carrington hereby appoints PiSA as Carrington's sales distributor in the Territory for the sale of Products, and PiSA hereby accepts such appointment. As sales distributor in the Territory, PiSA shall, subject to the terms and conditions of this Agreement, have the right to sell Products in the Territory, but shall have no right to sell Products outside the Territory. During the term of this Agreement, Carrington agrees not to appoint any other persons as distributors for the Products in the Territory, provided in this Agreement. 2.2a. In a manner reasonably satisfactory to Carrington, and at PiSA's sole expense, PiSA agrees to (a) make 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, and (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, (e) promptly assign back to Carrington any product registrations in the Territory upon termination of Agreement. 2.2b. If Carrington terminates the Agreement without cause under the Agreement, excluding the instance where the parties fail to reach agreement on price or minimums, then Carrington agrees to a one year sales moratorium in the Territory. 2.3 Carrington will provide PiSA with such (i) reasonable sales personnel training in relation to the Products in Irving, Texas or a mutually agreed upon location in Mexico, and (ii) promotional Product literature of Carrington, as PiSA may request from time to time. Carrington and PiSA shall cover their respective direct expenses. 2.4 During the term of this Agreement, PiSA shall be considered an independent contractor and shall not be considered a partner, employee, agent or servant of Carrington. As such, PiSA 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. Article 3. Certain Performance Requirements 3.1 PiSA agrees to promote, market, sell and distribute the Products only to customers and potential customers within the Territory for ultimate use within the Territory. PiSA will not, under any circumstances, either directly or indirectly through third parties, promote, market, sell, distribute or ship 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 PiSA is not repatriating Products to the United States or elsewhere outside the Territory, PiSA agrees that: (a) PiSA will send to Carrington a monthly sales report on the number of units of each Product sold; (b) PiSA will send to Carrington a monthly inventory report of the Products; and (c) Carrington may mark for identification all Products sold by Carrington to PiSA hereunder. 3.3 PiSA shall maintain a sufficient inventory of Products to assure an adequate supply of Products to serve all its market segments. PiSA shall maintain all its inventory of Products clearly segregated and meeting all storage and other required standards applicable governmental authorities. All such inventory shall be subject to inspection by Carrington or its agents with 72 hours written notice. 3.4 PiSA 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 PiSA of Products. Upon written request from PiSA, Carrington shall provide PiSA with such certificates or other documents as may be reasonably required to establish any applicable exemptions from the collection of such taxes, charges and fees. 3.5 All Products shall be packaged, labeled, advertised, marketed, sold and distributed by PiSA in compliance with the rules and regulations of the applicable governmental authority within the territory in which the Products are marketed, as amended from time to time, and (ii) all other applicable laws, rules and regulations. 3.6 PiSA 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 and from the applicable governmental authority. 3.7 PiSA 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. 3.8 PiSA agrees that Carrington shall have the right to inspect PiSA's facilities at all reasonable times to ensure PiSA's compliance with the provisions of this Agreement. 3.9 PiSA will actively and aggressively promote the sale of the Products to all customers and potential customers within the Territory. PiSA agrees not to market, sell or distribute to any customers or potential customers in the Territory without ninety (90) days written notice to Carrington, any wound care, skin care, or incontinence care. Article 4. Sale of Products by Carrington to PiSA 4.1 Subject to the terms and conditions of this Agreement, including specifically Article 4.6 hereof, Carrington shall sell to PiSA its requirements for the Products at a price for each Product (the "Contract Price") which represents a discount from Carrington's distributor price for such Product as set forth in Carrington's published distributor price list (the "Published Price List"). For orders placed by PiSA 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 90 days prior to the end of each 12-month period of the term of this Agreement, 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 distributor prices for Products as set forth in the Published Price List if mutually agreed to by PiSA. Such cost increases shall be no greater than 5% of the U.S. inflation rate. 4.2 As consideration for its appointment as a sales distributor entitled to a Product discount, PiSA agrees to purchase from Carrington, during each 12-month period of the term of this Agreement, commencing with the 12-month period beginning January 1, 1996 through December 31, 1996, at the Contract Price, a specified minimum aggregate dollar amount (based on the Contract Price) of the Products (the "Specified Minimum Amount"). For the first 12-month period of the term of this Agreement, the Specified Minimum Amount shall be $300,000. The Specified Minimum Amounts for each subsequent 12-month period shall be determined by mutual agreement of the parties prior to the beginning of such period based on PiSA's reasonable, good faith projections of future sales growth and such other factors as the parties may deem relevant. 4.3 PiSA shall order Products by submitting a purchase order to Carrington describing the type and quantity of the Products to be purchased. Orders are subject to acceptance by Carrington. All purchases shall be spaced in a reasonable manner. If Carrington accepts the order, Carrington will invoice PiSA upon shipment of the Products. Unless otherwise agreed, PiSA shall pay all invoices in full within 90 days of the date of invoice. All sales and payments shall be made, and all orders shall be accepted, in the State of Texas. 4.4 Carrington shall not be obligated to ship Products to PiSA at any time when payment of an amount owed by PiSA is overdue or when PiSA is otherwise in breach of this Agreement. 4.5 All shipments of Products to PiSA will be packaged in accordance with Carrington's standard packaging procedures and shipped per Carrington's existing distribution policy. All Contract Prices are C.I.F., Carrington's facility, Dallas or Laredo, Texas. Ownership of and title to Products and all risks of loss with respect thereto shall pass to PiSA upon delivery of such Products by Carrington to the carrier at the designated delivery (C.I.F.) 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. 4.6 Carrington shall use its reasonable best efforts to ensure availability of all Products ordered by PiSA 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 PiSA, 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. 4.7 Carrington accepts liability for defective products and agrees to replace such defective product should they occur with new products. Carrington carries liability insurance and is willing to have PiSA added as a covered party under this policy. 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 PiSA 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. PiSA 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 4.7 or that is inconsistent with the policies or publications of Carrington relating to the Products. PiSA'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 PiSA'S OPTION. CARRINGTON SHALL HAVE NO OTHER OBLIGATION OR LIABILITY FOR DAMAGES TO PiSA 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. CARRINGTON AND PiSA SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS EACH OTHER AND ITS AFFILIATES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS, FROM AND AGAINST ALL CLAIMS, LIABILITIES, DEMANDS, DAMAGES, EXPENSES AND LOSSES (INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES) ARISING OUT OF OR CONNECTED WITH (i) ANY USE, SALE OR OTHER DISPOSITION OF PRODUCTS BY CARRINGTON AND PiSA OR ANY OTHER PARTY, (ii) ANY BREACH BY CARRINGTON AND PiSA OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR COVENANTS UNDER THIS AGREEMENT OR (iii) ANY ACTS OR OMISSIONS ON THE PART OF CARRINGTON AND PiSA OR ITS AGENTS, SERVANTS OR EMPLOYEES WHICH ARE OUTSIDE OR BEYOND PiSA'S AUTHORIZATION GRANTED HEREIN. 4.8 Credits on defective Products by PiSA 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 PiSA a copy of its Insurance Certificate and shall include PiSA thereunder. Article 5. Term and Termination 5.1 The initial term of this Agreement shall be for a period of five years from the date of this Agreement. After such initial term, this Agreement shall be automatically extended for an additional term of five years, unless this Agreement is terminated at the end of the initial five-year term by written notice given by either party to the other party not less than six months prior to the end of such initial term. Notwithstanding the foregoing, this Agreement may be terminated earlier in accordance with the provisions of this Article 5. 5.2 Carrington shall have the absolute right to terminate this Agreement if PiSA 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 PiSA, PiSA 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 5.3, if: (i) PiSA fails or refuses to pay to Carrington any sum when due; (ii) PiSA breaches any provision of Article 2.2, 3.1, 3.5, 3.7, 3.9, 4.3, 4.7, 6 or 7; or (iii) PiSA fails to purchase the Specified Minimum Amount of Product for any required period starting in year two (2). 5.3 Each Party shall have the absolute right to terminate this Agreement in the event the Party shall become insolvent, or if there is instituted by or against the Party procedures in bankruptcy, or under insolvency laws or for reorganization, receivership or dissolution, or if the Party loses any franchise or license to operate its business as presently conducted in any part of the Territory. 5.4 This Agreement shall automatically terminate effective at the end of any 12-month period of the term of this Agreement referred to in Articles 4.1 and 4.2 hereof if the parties are unable to agree upon the Contract Prices or the Specified Minimum Amount for the next 12-month period of the term. Carrington shall give PiSA six months notice of its intent to terminate. 5.5 During the one-year period following termination of this Agreement, any inventory of Products held by PiSA at the termination of this Agreement may be sold by PiSA 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 PiSA'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 PiSA including importation and shipping. 5.6 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 4.7, 6, 7 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 6. Trademarks and Trade Names 6.1 All trademarks, trade names, service marks, logos and derivatives thereof relating to the Products (the "Trademarks"), and all patents, technology and other intellectual property relating to the Products, are the sole and exclusive property of Carrington or its affiliates. Carrington hereby grants PiSA 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 PiSA, modify or discontinue the use of any Trademark and/or use one or more additional or substitute marks or names, and PiSA shall be obligated to do the same. 6.2 PiSA agrees to use the Trademarks in full compliance with the rules prescribed from time to time by Carrington. PiSA may not use any Trademark as part of any corporate name or with any prefix, suffix or other modifying words, terms, designs or symbols. In addition, PiSA 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. 6.3 In the event of any infringement of, or challenge to, PiSA's use of any Trademark, PiSA is obligated to notify Carrington immediately, and Carrington shall have sole and absolute discretion to take such action as it deems appropriate. 6.4 In the event of the termination of this Agreement for any reason, PiSA's right to use the Trademarks shall cease, and PiSA shall cease using such Trademarks at such time as PiSA's inventory of Products has been sold. PiSA shall, as soon as it is reasonably possible, remove all Trademarks which appear on or about the premises of the office(s) of PiSA and any of the advertising of PiSA used in connection with Products. 6.5 In the event of a breach or threatened breach by PiSA of the provisions of this Article 6, 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 6, including the recovery of damages from PiSA. Article 7. Confidential Information 7.1 PiSA recognizes and acknowledges that PiSA will have access to confidential information and trade secrets 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, PiSA 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 PiSA of the provisions of this Article 7, Carrington shall be entitled to an injunction restraining PiSA 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 7, including the recovery of damages from PiSA. 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 PiSA. 7.2 PiSA shall not disclose the existence of this Agreement or any of the terms hereof without the prior written consent of Carrington. Article 8. Force Majeure 8.1 Neither PiSA 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"), and Neither PiSA nor Carrington's obligations, so far as may be necessary, shall be suspended during the period of such Force Majeure and shall be cancelled in respect of such Products as would have been sold hereunder but for such suspension. Such shall give to other 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 a party's obligations under this Agreement. Article 9. Amendment 9.1 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 10. Entire Agreement 10.1 This Agreement 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. Article 11. Assignment 11.1 Neither this Agreement nor any of the rights or obligations of PiSA hereunder shall be assigned by PiSA without the prior written consent of Carrington, executed by a duly authorized officer of Carrington. Article 12. Governing Law 12.1 It is expressly agreed that the validity, performance and construction of this Agreement will be governed by the laws and jurisdiction of Canada. Article 13. Notices 13.1 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 Chris Record, or at such other address as Carrington shall have theretofore furnished in writing to PiSA. (Fax No. 214-518-1020) (b) PiSA at: Laboratories PiSA S.A. De C.V., Av. Espan'a No. 1840, Guadalajara, Jal. 44190, Mexico, attention ________________, or at such other address as PiSA shall have theretofore furnished in writing to Carrington. (Fax No. 52(3) 610 1609) Article 14. Waiver 14.1 Neither PiSA nor Carrington's failure to enforce at any time any of the provisions of this Agreement or any right with respect thereto, shall not be considered a waiver of such provisions or rights or in any way affect the validity of same. Neither PiSA's nor Carrington's exercise of any of its rights shall not preclude or prejudice neither PiSA nor Carrington thereafter from exercising the same or any other right it may have, irrespective of any previous action by neither PiSA nor Carrington. Article 15. Arbitration 15.1 Except as provided in Articles 6.5 and 7.1, any dispute, controversy or claim arising out of or in relation to or in connection with this Agreement, the operations carried out under this Agreement or the relationship of the parties created under this Agreement, shall be exclusively and finally settled by confidential arbitration, and any party may submit such a dispute, controversy or claim to arbitration. The arbitration proceeding shall be held at the location of the non- instituting party in the English language and shall be governed by the rules of the International Chamber of Commerce (the "ICC") as amended from time to time. Any procedural rule not determined under the rules of the ICC shall be determined by the laws of the Canada, 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 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 interest in the dispute, controversy or claim. If the ICC is unable to appoint, or fails to appoint, an arbitrator within 90 days of being requested to do so, then the arbitration shall be heard by three arbitrators, one selected by each party within the 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 16 Tender Clause 16.1 Carrington s acknowledges that PiSA may submit bids to sell the products to public entities in the Territory pursuant to public contracts which impose substantial damages or penalties for failure to deliver the products on time or according to the specifications requested. PiSA agrees to submit all such public contracts and specifications involving the products to Carrington for approval prior to commitment by PiSA. In the event Carrington accepts the contract and specifications, it shall also accept liability for direct damages PiSA becomes liable for as a result of Carrington's negligence. Carrington shall indemnify PiSA for such direct costs or penalties that results from Carrington's negligence if Carrington is given reasonable notice of the negligent act, fails to correct it, it if agrees one occurred or is allowed to defend itself should it believe no such negligent act caused damage under the contract. Article 17. No Inconsistent Actions 17.1 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 4.6 and 8 hereof, will promptly do all acts and take all measures as may be appropriate to comply with the terms, conditions and provisions of this Agreement. Article 18. Currency of Account 18.1 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 PiSA 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CARRINGTON LABORATORIES, INC. By: Name: Title: LABORATORIES PiSA S.A. DE C.V. By: Name: Title: EX-10.71 19 TERMINATION ACKNOWLEDGMENT China Academy of Sciences (hereinafter referred to as the "Academy") and Carrington Laboratories, Inc. (hereinafter referred to as "Carrington") have met on this 12th day of February, 1996 at the Carrington location in Irving, Texas, USA to discuss the agreements (see below) previously entered into by the aforementioned parties. The Academy is represented by Ms. En-liang Wang of the Academy and Carrington by Chris Record. The following acknowledgment and agreement is to be officially executed and effective immediately: 1. Based on the mutual interest and the best knowledge then available to both parties, Academy and Carrington entered into the initial Agreement in August, 1995 (the "Agreements") to explore the potential Chinese market for Carrington's existing lines of products including the possibility of jointly developing and testing certain types of Carrington products that are currently still at the experimental phase; 2. As the result of all the honesty and commitment of both parties, three separate Agreements were signed as a serious starting point for the hoped for long-term joint efforts to develop the Chinese markets for Carrington products. In the Agreements, several practical phases were established to satisfy the specific requests as raised by Carrington and the Academy regarding the approved domestic testing by the Academy, any additional Chinese government approval and registration with the proper government agency to obtain all necessary permits or licenses and the initial market research to be independently conducted by the Academy prior to the end of the year; 3. The three Agreements also laid out detailed plans for the purchase of Carrington products with different discounts and pricing as well as the minimum purchasing requirement for each period of the initial year and, specific time frames were assigned to such plans and to each of the different phases as set forth in the above 2; 4. Yet, for reasons beyond the Academy's control, the Academy could not obtain the necessary approval from the Chinese government agency even though the Academy tried its best in such endeavor; 5. Carrington has made numerous inquiries and requests during the process for both the return of the originally signed copy of the Agreements taken by mistake by the Academy for a revised Chinese translation and for an update of the status directly by Carrington and indirectly through third parties to both the representative office in Dallas, Texas and the Academy headquarters in Beijing by mail, telephone and fax. However, there has been a lack of official communication from the Academy and Carrington was, unfortunately, not properly updated concerning the development and the status of the Academy's efforts; 6. Based on the terms of said Agreements, deadlines for the initial phases as stipulated in the original Agreements have expired or elapsed with no substantial progress or result as prescribed and required by the Agreements. It is therefore understood and agreed that neither party is liable for the unfruitful result of the goodwill effort and that neither party will be liable under the terms and obligations of the said three Agreements now or in the future; 7. Finally, both parties agree by signing this termination acknowledgment that all previously signed documents including any oral or written commitment, rights, obligations, authorizations, promises and entitlement; if any, based on such documents become immediately null and void. 8. This final termination acknowledgment serves the sole purpose to exempt and terminate the contractual obligations of the Academy and Carrington to each other and any other third parties regarding the previously said three Agreements for now and forever. However, this termination acknowledgment shall never affect the business relationship and the personal friendship established during the process between the Academy and Carrington. Further, both parties agree to continue further discussions in any areas of common interest in the future including new possible arrangements to jointly market Carrington products in China. 9. This agreement has been provided in Chinese for the mere purpose of courtesy reference and convenience to the Academy s official representative and the final signed English version of the agreement shall be the sole and correct official copy. Any discrepancy between the two versions shall be interpreted by the true meaning of its English original and English version only. Signed this _____________________ day of _____________, 1996 at Carrington Laboratories, Inc. in Irving, Texas, USA. by: Authorized Representative of Authorized Representative of China Academy of Sciences: Carrington Laboratories, Inc. _____________________________ ___________________________ WANG, EN-LIANG CHRISTOPHER S. RECORD EX-10.72 20 Immucell 56 Evergreen Drive Portlano, Maine 04103 -------------------------------------------------------------------------- February 7, 1996 Carrington Laboratories, Inc. Attention: President and CEO 2001 Walnut Hill Lane Irving, Texas 75038 Dear Sir: I talked to Bill Yates on the phone yesterday concerning our license agreement dated September 29, 1994. We licensed acemannan from Carrington to test in a crypto vaccine for calves. After repeated efforts in 1995, we concluded in November that it does not give the immune boost to our crypto vaccine that we were looking for. Therefore, per the terms of the license agreement, I am giving you notice of cancellation. I mentioned to Bill that we may have other applications of acemannan in animal health products. We both agreed that we should address its use in those applications when they arise rather than try to keep the current license agreement going. I would like to note that Bill was very helpful as we worked through our crypto vaccine program. We spent well in excess of $100,000 last year on the budget but simply couldn t get a combination to work. We continue our search. We wish Carrington well in its corporate development and hope to be able to do business again in the future. Respectfully yours, /s/Thomas C. Hatch Thomas C. Hatch President and CEO EX-11.1 21
Exhibit 11.1 CARRINGTON LABORATORIES, INC., AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE November 30, December 31, ----------- ---------------------------------------- 1994 1994 1995 1996 ------ ------ -------- ------- Net Income $1,421,238 $ (70,069) $(1,628,267) $(5,522,672) Preferred stock dividend requirement (125,113) - (140,127) (37,078) ----------- ---------- ------------ ------------ Income (loss) for computing income per common share from operations $1,296,125 $ (70,069) $(1,768,394) $(5,559,750) =========== ========== ============ ============ Weighted average common and common equivalent shares outstanding 7,340,982 7,344,390 7,932,675 8,798,211 =========== ========== ============ ============ Net income per common and common equivalent share outstanding $ .18 $ (.01) $ (.22) $ (.63) =========== ========== ============ ============
[FN] (1) Common stock equivalents have been excluded since the effect of net income (loss) per share of their inclusion would be either antidilutive or represent a dilution of less than 3%. EX-16.1 22 March 21, 1997 Office of the Chief Accountant Securities and Exchange Commission Mail Stop 11-3 450 Fifth Street, N.W. Washington, D.C. 20549 Dear Sirs: We have read Item 9 included in the attached Form 10-K dated for the year ended December 31, 1996, of Carrington Laboratories, Inc.(the Registrant) filed with the Securities and Exchange Commission, and are in agreement with the statements contained therein. Very Truly yours, Arthur Anderson LLP By /s/ Steve G. Scott PLR Copy to: Ms. Sheri Pantermuehl, Chief Financial Officer Carrington Laboratories, Inc. EX-21.1 23 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 EX-23.1 24 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 7, 1997, included in the Carrington Laboratories, Inc., Form 10-K for the year ended December 31, 1996, into the Company's previously filed Registration Statements on Form S-8 (File No. 33-64403 and File No.33-64405). It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1996, or perform any audit procedures subsequent to the date of our report. Arthur Anderson LLP Dallas, Texas March 25, 1997 EX-27.1 25
5 1,000 YEAR DEC-31-1996 DEC-31-1996 11,406 0 2,125 213 3,623 17,309 18,851 7,173 31,202 3,400 46 0 66 89 23,410 31,202 21,286 21,286 10,327 10,327 0 0 (324) (5,523) 0 (5,523) 0 0 0 (5,523) (.063) (.063)
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