<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996
REGISTRATION NO. 33-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CARACO PHARMACEUTICAL LABORATORIES, LTD
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
MICHIGAN 2834 38-2505723
(STATE OR OTHER JURISDICTION OF PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) (CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1150 ELIJAH MCCOY DRIVE
DETROIT, MICHIGAN 48202
(313) 871-8400
(ADDRESS AND TELEPHONE NUMBER OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE AND
PRINCIPAL PLACE OF BUSINESS)
WILLIAM R. HURD, PRESIDENT
1150 ELIJAH MCCOY DRIVE
DETROIT, MICHIGAN 48202
(313) 871-8400
(NAME, ADDRESS, AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
__________________
COPY TO:
FRED B. GREEN, ESQ.
SEYBURN, KAHN, GINN, BESS, DEITCH AND SERLIN, P.C.
2000 TOWN CENTER, SUITE 1500
SOUTHFIELD, MICHIGAN 48075-1195
__________________
Approximate date of proposed sale to public: From time to time after this
Registration Statement is declared effective.
<PAGE> 2
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the registration
statement number of the earlier effective registration statement for the same
offering. [ ] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
__________________
CALCULATION OF REGISTRATION FEE
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<CAPTION>
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
- ------------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Common Stock,
no par value 3,718,058 (1) $11,851,309.87(1) $4,086.66(2)
</TABLE>
(1) The shares of common stock are to be offered from time to time at the
then current market prices or otherwise at prices then obtainable. The
proposed maximum offering price per share and the proposed maximum
aggregate offering price cannot be determined at this time. See
footnote (2) below.
(2) Based on the average of the bid and asked price as of July 9, 1996.
As disclosed below, this filing also carries forward common stock
issuable upon exercise of Underwriters' Unit Purchase Options, exercise
of Series A Warrants and exercise of Underwriters' Warrants, as to
which, pursuant to Registration No. 33-71398C, registration fees of
$439.31, $1,804.31 and $219.66, were paid, respectively.
Pursuant to the provisions of Rule 429 under the Securities Act of 1933,
as amended, the Prospectus contained in this Registration Statement also
relates to the common stock issuable upon exercise of Series A Warrants
(700,000 shares) and the common stock issuable upon exercise of Underwriters'
Warrants and the Common Stock and Warrants underlying the Underwriters' Unit
Purchase Options covered by the Registration Statement on Form SB-2
(Registration No. 33-71398C of the Registrant) which are being carried forward
in connection with this Registration Statement. Such Registration Statement,
Registration No. 33-71398C, is accordingly amended to reflect the information
contained in this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
CARACO PHARMACEUTICAL LABORATORIES, LTD.
CROSS REFERENCE SHEET FOR
PROSPECTUS UNDER FORM SB-2
FORM SB-2 ITEM NO. AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
------------------------------ ---------------------------------
1. Front of Registration Statement and Cover Page; Cross Reference
Outside Front Cover of Prospectus Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages of Prospectus
3. Summary Information and Risk Factors Inside Front and Outside
Back Cover Pages of
Prospectus
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Outside Front Cover of
Prospectus and Plan of
Distribution
9. Legal Proceedings Description of the Business
10. Directors, Executive Officers, The Company; Management
Promoters, and Control Persons
11. Security Ownership of Certain Beneficial Security Ownership of Certain
Owners and Management Beneficial Owners and
Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Counsel
14. Disclosure of Commission Position on Description of Securities;
Indemnification for Securities Act Undertakings
Liabilities
15. Organization Within Last Five Years Certain Transactions
16. Description of Business Description of Business
17. Management's Discussion and Analysis Management's Discussion and
or Plan of Operation Analysis of Financial
Condition and Results of
Operations
18. Description of Property Description of the Business
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Description of Capital Stock;
Shareholder Matters Dividend Policy
21. Executive Compensation Management -- Executive
Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Changes in Accountants
Accountants on Accounting and
Financial Disclosure
<PAGE> 4
PRELIMINARY PROSPECTUS JULY 12, 1996
CARACO PHARMACEUTICAL LABORATORIES, LTD.
3,718,058
COMMON STOCK, NO PAR VALUE
The 3,718,058 shares of Common Stock of Caraco Pharmaceutical
Laboratories, Ltd. (the "Company") offered by this Prospectus are presently
outstanding shares that may be sold from time to time in the market or in other
transactions by certain shareholders of the Company (the "Selling
Shareholders") listed under "Selling Shareholders." See "Selling Shareholders"
and "Plan of Distribution." None of the proceeds of these sales will be
received by the Company. This offering is not underwritten. The Company's
principal executive offices are located 1150 Elijah McCoy Drive, Detroit,
Michigan 48202 (telephone number is (313) 871-8400).
The Common Stock is traded on the NASDAQ Stock Market's Small Cap Market
(the "Small Cap Market"). The average of the bid and asked price of the Common
Stock on July 9, 1996 on the Small Cap Market was $3 3/16 per share.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE
6.
The shares of Common Stock offered hereby by the Selling Shareholders will
be sold at market prices prevailing from time to time or otherwise at prices
then obtainable. Expenses relating to this offering, estimated at
approximately $41,000, will be paid by the Company. The proceeds of the
offering will be received by the respective Selling Shareholders.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
__________________________
The date of this Prospectus is July 12, 1996
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
<PAGE> 5
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the following regional offices of the Commission: New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois
60611-2511. In addition, copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549.
This Prospectus is a part of a Registration Statement on Form SB-2 filed
by the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities being offered hereby
(such Registration Statement with all exhibits, schedules, and attachments
thereto being referred to hereinafter as the "Registration Statement"). This
Prospectus omits certain of the information included in such Registration
Statement. The Registration Statement may be inspected by anyone at the office
of the Commission without charge, and copies of all or any part of it may be
obtained upon payment of the Commission's charge for copying. For further
information about the Company and its securities, reference is hereby made to
such Registration Statement, and to the exhibits and financial schedules filed
as part thereof or otherwise incorporated herein. Each summary herein of
additional information included in the Registration Statement or any exhibit
thereto is qualified in its entirety by reference to such information or
exhibit.
[STATE BLUE SKY LEGENDS]
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the financial statements and notes
thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Caraco is a development stage company which was organized to develop,
manufacture, and market generic drugs for the ethical (prescription) and
over-the-counter (non-prescription or "OTC") drug markets. Generic drugs are
the chemical and therapeutic equivalents of brand-name drugs as to which
patents have expired. Typically, these drugs are sold at prices substantially
below those of their brand name equivalents and, for that reason, are the
required or preferred pharmaceuticals under many federal, state, and insurance
reimbursement plans.
Since the completion in 1991 of its new 70,611 square foot
state-of-the-art manufacturing facility, financed by the Economic Development
Corporation of the City of Detroit ("EDC"), the Company has been building its
product line, which currently consists of approximately 8 dosage forms
representing 6 pharmaceutical products. Most of the Company's present products
do not require specific product approval of the United States Food and Drug
Administration (the "FDA") for their manufacture or marketing. The Company's
historically leading product, however, Nifedipine, is an off-patent drug
manufactured for the Company pursuant to a supply agreement with R.P. Scherer
Corporation under R.P. Scherer Corporation's Abbreviated New Drug Application
("ANDA"). Nifedipine accounted for over 90% of Caraco's sales in 1995 and
approximately 64% of its sales in the three months ended March 31, 1996.
Nifedipine is a cardiovascular product currently marketed by Pfizer, Inc. under
the brand-name Procardia . See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for disclosure of the
significant decline in sales of Nifedipine. The Company's strategy has been to
align itself with major pharmaceutical companies, in the United States and
abroad, with varying possibilities of manufacturing particular generic drugs
for marketing by the other party, manufacturing and marketing particular
generic drugs itself, and marketing particular generic drugs manufactured for
it by the other party. The Company believes that this strategy maximizes its
manufacturing and marketing potential in the short term, while minimizing
capital requirements, and provides the Company with access to research,
systems, services, and other expertise not otherwise available to development
stage generic drug companies with limited resources. See "Description of
Business - Caraco's Products and Product Strategy." The Company has filed one
(1) ANDA for FDA approval in 1994 and two (2) ANDAs in 1995. In addition, the
Company has formulated for a joint project associate another ANDA which the
associate filed for FDA approval in March 1996. The process of developing
generic drugs and obtaining the FDA's approvals to market such drugs is
rigorous, time consuming, and costly. There can be no assurance that the
Company will ever obtain necessary regulatory approvals with respect to these
products or that any of them can be successfully and profitably produced and
marketed. See "Description of Business - Regulation."
The Company has also focused its attention on expanding its distribution
system by forging relationships with drug wholesalers, distributors, buying
groups, and governmental agencies, among other links in the drug distribution
network. See "Description of Business - Marketing."
Caraco's mailing address is 1150 Elijah McCoy Drive, Detroit, Michigan
48202, and its telephone number is (313) 871-8400.
3
<PAGE> 7
THE OFFERING
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<S> <C>
Securities Offered 3,718,058 shares ("Shares") of Common Stock are
to be offered from time to time by certain Selling
Shareholders. See "Selling Shareholders."
Common Stock Out- 7,842,106
standing at the Date of
this Prospectus(1)
Use of Proceeds The Company will not receive any of the proceeds from
the sale of the Shares.
NASDAQ Small-Cap CARA
Market Symbol(2)
</TABLE>
- -----------------------
(1) Does not include 3,686,089 shares of Common Stock reserved for issuance
(i) upon exercise of outstanding options and warrants or (ii) as stock
bonuses upon realization of certain financial objectives. See
"Description of Securities - Common Stock."
(2) There is only a very limited trading market for the Common Stock and
Series A Warrants. See "Risk Factors - Limited Trading Market."
- -----------------------
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is derived from the
complete financial statements appearing elsewhere in this Prospectus. The
information should be read in conjunction with such financial statements,
including the notes thereto.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31
MARCH 31
-------------------------- -------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net Sales $ 450,342 $ 1,262,490 $ 4,048,096 $ 2,907,966
Gross Profit (Loss) (57,821) 450,159 984,448 429,826
Selling, General and
Administrative Expenses 527,494 632,263 2,167,311 2,373,763
Research and Development 458,074 486,580 2,236,414 1,506,339
Costs
Interest Expense (164,527) (189,865) (715,193) (655,487)
Net Loss (1,205,068) (857,324) (4,093,382) (3,630,058)
Net Loss Per Common Share ($.17) ($.16) ($.65) ($.74)
Weighted Average Number of 7,007,600 5,233,443 6,272,923 4,885,324
Common Shares Outstanding
</TABLE>
4
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<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31 Year Ended December 31
-------- ----------------------
1996 1995 1995 1994
---- ---- ----- -----
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital (Deficit) 6,506 298,910 (399,160) 71,757
Total Assets 11,067,098 11,467,742 10,343,200 10,736,958
Current Portion of 475,833 --- 475,833 ---
Long-Term Debt
Long-Term Debt, Net of 8,524,167 9,000,000 8,524,167 9,000,000
Current Portion
Total Shareholders' Equity 472,131 664,718 138,026 240,356
</TABLE>
THE COMPANY
The Company is a development stage company organized under Michigan Law in
1984 to engage in the business of developing, manufacturing, and marketing
generic drugs for the ethical (prescription) and over-the-counter
(non-prescription or "OTC") markets. Through 1992, the Company was involved
primarily in business planning, completing the construction of its 70,611
square foot modern manufacturing facility, hiring and training employees,
acquiring and validating production machinery and office equipment, preparing
standard operating procedures and other instructional and operational materials
to comply with requirements, and developing a product line. Since 1994, its
efforts have expanded to developing its marketing and sales capabilities,
building sales and product acquisition relationships with pharmaceutical
purchasers, distributors and suppliers, and obtaining financing with which to
fund its operations. See "Description of the Business."
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS.
FINANCIAL CONDITION
The Company has not had profitable operations since its inception. As of
March 31, 1996, it had an accumulated deficit of $19,437,432, net worth of
$472,131, and working capital of $6,506. The Company's independent public
accountants' report includes a paragraph which indicates that conditions exist
that raise substantial doubt about the Company's ability to continue as a going
concern. For the quarter ended March 31, 1996, the Company had net sales of
$450,432, compared to net sales of $1,262,490 for the quarter ended March 31,
1995, a decrease of approximately 64.3%. Sales of the Company's historically
principal product, Nifedipine, a calcium channel blocker for the cardiovascular
market, decreased significantly as media coverage of study results concerning
this type of channel blocker heightened public concern over the incidence of
cardiac arrest as a potential side effect in a small percentage of users. In
addition, the decrease in sales is attributable to the Company's inability to
purchase materials needed to produce product for sale. The Company is in
technical default of its loan
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from the EDC, with principal and interest payments owing for the months of
April, May, June, and July 1996 in the aggregate amount of $379,000. The
Company is also past due on its real estate and personal property taxes to the
City of Detroit in the amount of $80,000. The Company needs additional capital
and profitable operations in order to meet its current and anticipated cash
needs. Management estimates that at its currently planned anticipated level of
operations. the Company will continue to experience operating losses of between
$800,000 and $1,000,000 per quarter through 1996. There can be no assurance
that the Company will be able to generate enough revenues to satisfy its
obligations on a timely basis. To the extent that capital requirements exceed
available capital, the Company will be required to reduce its research and
development activities, reduce personnel and delay capital expenditures while
it seeks additional capital. This could result in the loss of part or all of
any investment in the Company. There is no assurance that adequate capital can
be obtained. There is no assurance that the Company will be able to increase
its revenues significantly or achieve profitability. Over the near term, the
Company will be required to expend significant funds to develop products and
technologies, to obtain equipment and to manufacture and market products. The
Company's ability to achieve profitability is dependent upon its ability to
develop products which are commercially viable, obtain regulatory approvals for
those products and to manufacture and market them successfully; to engage
profitably in contract manufacture of products for other companies to market;
and to obtain, package, and market at a profit, products manufactured for it by
others. To date, the Company has received limited revenues from the sale of
pharmaceutical products and there is no assurance when, if ever, the Company
will generate significant revenues or achieve profitability. The Company's
Prospectus, therefore, must be evaluated in light of the risks, expenses,
delays and complications normally encountered by a small start-up company with
limited resources in the highly competitive pharmaceutical industry, which is
characterized by a high risk of failure. Significant delays or complications
in completing the development of the Company's products and obtaining FDA
approval with respect thereto would have a material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
MANAGEMENT'S BUSINESS STRATEGY DEPENDENT ON ADDITIONAL CAPITAL
In selecting those generic drugs which it wishes the Company to develop,
manufacture and market, the Company's management has primarily focused since
1994 and intends to continue to focus primarily on branded drugs, coming off
patent, which enjoy a niche market rather than on so-called "blockbuster"
branded products likely to attract so may competitors as to result in reducing
the generic products to virtual commodity priced status. Niche market drugs
are primarily those products difficult to formulate or requiring an enhanced
isolation, development and production facility (i.e., a cytotoxic facility).
Management intends to concentrate its development efforts on this niche market
by focusing its research and development efforts and filing ANDAs that will
cover cytotoxic and hormonal drugs. Such a facility must be in place prior to
the FDA's approval of an ANDA for a product which must be manufactured in an
approved cytotoxic facility. None of the Company's ANDAs filed to date with
the FDA require a cytotoxic facility, however, two (2) of the four (4) ANDAs to
be filed in 1996 by the Company will be for products requiring a cytotoxic
facility which the Company does not have. The Company believes its needs
approximately $2,100,000 to develop such a facility. There is no assurance
that the Company will raise the $2,100,000 for such a cytotoxic facility. In
addition, there is no assurance that the Company's ANDAs will be approved by
the FDA or will be approved within time parameters anticipated by
management, or that the Company will be
6
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able to manufacture in commercial quantities and sell profitably any product
resulting from FDA approval of an ANDA filed by the Company.
NEED TO INCREASE PRODUCT LINE
The Company's ability to increase its revenues and to achieve
profitability as a manufacturer of generic pharmaceuticals will require, among
other things, either from its own efforts or through agreements with other
companies, access to formulations for additional generic products and the
manufacturing methodology to produce each of those products, the successful
completion of bioequivalency studies for each product, the approval of the FDA
or any other applicable regulatory agency allowing the Company to manufacture
and sell each product (a lengthy process, even pursuant to an ANDA), and the
marketing and sale of its products at a profit. See "Description of the
Business -- Regulation." While the Company's product line currently consists
of 6 products in about 8 dosage forms, a single product, Nifedipine,
manufactured for it by another pharmaceutical concern, accounted for
approximately 90% and 64% of the Company's sales revenues fiscal year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
Although the Company has entered into agreements with pharmaceutical companies
pursuant to which it has obtained the technology with respect to certain
generic products and has filed its own ANDAs for two additional pharmaceutical
products, there can be no certainty that any of these efforts will be
successful. See "Description of Business -- Caraco's Products and Product
Strategy."
DEPENDENCE UPON NEW PRODUCT INTRODUCTIONS; CONTRACT MANUFACTURING
The Company's future results of operations will depend, to a significant
extent, upon its ability to successfully manufacture and market commercially
viable generic pharmaceutical products, to market under its own label, products
produced by others, and to engage profitably in contract manufacturing of
pharmaceutical products for others. New products must be developed, tested,
and manufactured and, in addition, must meet regulatory standards and receive
requisite regulatory approvals. See "Description of the Business --
Regulation." The development and commercialization process is time consuming
and costly. Delays in any part of the process or the inability of the Company
to obtain regulatory approval of its products could adversely affect the
Company's operating results. Contract manufacturing is highly competitive and
characterized by lower profit margins than producing and marketing products
under a company's own label. Moreover, there can be no assurance that any of
the Company's products, if and when developed and approved, can be successfully
commercialized, or that the Company will be able to engage profitably in
marketing products manufactured for it, or in contract manufacture of
pharmaceutical products.
IMPACT ON MARKET PRICE OF REGISTRATION
Approximately 47.45% of the outstanding shares of the Company's Common
Stock are being registered pursuant to this Prospectus and may be sold without
limitation. Sales of these restricted shares could have a significantly
adverse effect on the market price of the Company's Common Stock and could
result in a change in control of the Company.
REGULATION
The research and development, manufacture and marketing of the Company's
products are subject to extensive regulation by the FDA and by other federal,
state, and local entities which
7
<PAGE> 11
regulate, among other things, research and development activities and the
testing, manufacture, labeling, storage, record keeping, advertising and
promotion of pharmaceutical products. Non-compliance with regulations can
result in fines and other judicially imposed sanctions, including product
seizures, injunction actions, and criminal prosecutions. In addition,
administrative remedies can involve voluntary recall of products and the total
or partial suspension of products as well as the refusal of government to
approve pending applications. The Company filed one (1) ANDA in 1994 and two
(2) ANDAs in 1995, all of which are pending FDA review and approval. A joint
venture partner filed an ANDA in March 1996 which the Company is to manufacture
upon receipt of FDA approval. The Company anticipates filing an additional
four (4) ANDAs in 1996. Approval of the ANDAs is one of the keys to the
Company's business strategy. The approval of the 1994 ANDA is expected in the
third quarter of 1996. There is no assurance that FDA approval will be
forthcoming. The FDA may deny an ANDA if applicable regulatory criteria is not
satisfied. Product approvals may be withdrawn by the FDA if compliance with
regulatory standards is not maintained or if new evidence demonstrating that
the drug is unsafe or lacks efficacy for its intended uses becomes known after
the product reaches the market. Changes in FDA policy requirements have
increased the time and expense involved in obtaining ANDA approvals. The ANDA
filing and approval process now averages approximately eighteen (18) months.
Also, the Company is subject to periodic inspection of its facilities and
operations and testing of its products. See "Business -- Regulation" generally
and with respect to a recent FDA inspection in which no "Notices of
Observations" were issued.
COMPETITION
The market for generic drugs is highly competitive. The Company competes
with numerous pharmaceutical manufacturers, including both generic and
brand-name manufacturers, many of which have been in business for a longer
period of time than the Company, have a greater number of products on the
market and have considerably greater financial, technical, research,
manufacturing, marketing, and other resources.
Because selling prices of generic drug products typically decline as
competition intensifies, the achievement of profitable operations will be
dependent, in part, on the Company's ability to maintain efficient production
capabilities and to develop and introduce, or to obtain access through
strategic alliances with others, new products in a timely manner.
The Company's products will compete not only with products employing
advanced drug delivery systems but also with products in traditional dosage
forms. New drugs or future developments in alternative drug delivery
technologies may provide therapeutic or cost advantages to competing products.
There can be no assurance that developments by others will not render the
Company's products or technologies noncompetitive or obsolete. See
"Description of the Business -- Competition."
PRODUCT LIABILITY AND INSURANCE
The design, development, and manufacture of pharmaceutical products
involve an inherent risk of product liability claims and associated adverse
publicity. Insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms or at all. Although the Company
currently maintains liability insurance for all of its products, there can be
no assurance that the coverage limits of the Company's insurance policies will
be adequate. A claim brought against the Company, whether fully covered by
insurance or not,
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could have a material adverse effect upon the Company. See "Description of
the Business -- Product Liability and Insurance."
LIMITED TRADING MARKET
Prior to this offering, there has been only a limited public market for
the Company's securities, and there can be no assurance that a regular trading
market for the securities offered hereby will develop or, if developed, will be
sustained in the absence of which an investor may be unable to liquidate his
investment in the Company. The Company's shares of Common Stock and Series A
Warrants are registered for quotation on the NASDAQ Small-Cap Market but there
is no assurance that the Company's future operating results will enable it to
remain eligible for NASDAQ Small-Cap Market listing.
EXERCISE OF OPTIONS AND WARRANTS MAY HINDER COMPANY'S ABILITY TO OBTAIN FUTURE
CAPITAL
As of March 31, 1996, the Company has issued and has outstanding options
and warrants to purchase an aggregate of 3,686,089 shares of Common Stock at
exercise prices ranging from $1.25 to $6.50 per share. Holders of outstanding
options and warrants of the Company have the opportunity to profit from a rise
in the market price of the Company's Common Stock without assuming the risk of
ownership. Certain holders of warrants or options to purchase Common Stock
have certain demand and/or piggyback registration rights. The registration
rights of the holders could result in substantial future expense to the Company
and could adversely affect any future equity or debt financing by the Company.
Furthermore, the sale of Common Stock or other securities held by or issuable
to the holders, or merely the potential of such sales, could have an adverse
effect on the market price of the Company's securities. The Company may find
it more difficult to raise additional equity capital, if it should be needed
for the business of the Company, while the options and warrants are
outstanding. At any time when the holders thereof might be expected to
exercise them, the Company would probably be able to obtain additional equity
capital on terms more favorable then those provided by the options and
warrants. To the extent that any of the options and warrants granted by the
Company are exercised, the percentage of ownership interest of the Company's
shareholders will be diluted.
VOLATILITY OF MARKET PRICE OF SECURITIES
The market price of securities of firms in the pharmaceutical industry
have tended to be volatile. Announcements of the release of new
non-prescription drugs by the Company or its competitors, developments
concerning these drugs and concerns about safety and other factors may have an
effect on the Company's business. The market price of the Common Stock and
Series A Warrants may be significantly affected by announcements of the
pharmaceutical industry generally or the Company's research areas specifically.
The stock market has experienced volatility in market prices of companies
similar to the Company which often have been unrelated to the operating results
of such companies. This volatility may adversely affect the market price of
the Common Stock and the Series A Warrants.
SEC INQUIRY
It is the Company's understanding that the Securities and Exchange
Commission (the "SEC") is continuing its investigation in connection with the
misappropriation of Company funds. The Company uncovered and reported in 1994
the misappropriation of approximately $514,000 following the Company's initial
public offering. The Company was indemnified for the entire
9
<PAGE> 13
$514,000 in misappropriated funds. The SEC has recently requested additional
financial information from the Company relating to the period January 1, 1993
to June 30, 1994. The Company has responded to this request and continues to
comply with the SEC inquiry on a voluntary basis.
DIVIDEND POLICY
The Company has not declared or paid any dividend and does not intend to
declare or pay any dividends in the foreseeable future. The Company intends to
employ all available funds in the development of its business. The Company's
Series A Preferred Stock contains provisions restricting the payment of
dividends on the Common Stock unless the holders of the Series A Preferred
Stock have been paid the dividends to which they are entitled. Dividends
accrue on the Series A Preferred Stock from and after January 1, 1997.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered hereby.
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996. The table should be read in conjunction with the Company's financial
statements and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<S> <C>
Current portion of long-term debt(1) $ 475,833
Long-term debt, net of current portion $ 8,524,167
Stockholders' Equity $ 472,131
10,000,000 Shares of Common Stock authorized
7,842,106 Shares issued and outstanding(2)
Deficit accumulated during the development stage $(19,437,432)
Total stockholders' equity $ 472,131
Total capitalization $ 9,472,131
</TABLE>
- -----------------------------
(1) See Note 4 to Financial Statements.
(2) Does not include 3,686,089 shares of Common Stock reserved for issuance
upon exercise of outstanding options and warrants. See "Description of
Securities - Outstanding Options and Warrants."
- -----------------------------
10
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Company's financial
statements and the related notes thereto included elsewhere herein.
RESULT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1995:
OPERATING LOSSES
Net losses for the quarters ended March 31, 1996 and 1995 were $1,205,068
and $857,234, respectively. The increase in the net loss in 1996 is due to the
Company's inability to raise money needed to sustain ongoing operations. The
Company continues to seek additional funding requirements to meet its business
objectives.
NET SALES
Net sales for the quarters ended March 31, 1996 and 1995 were $450,342 and
$1,262,490, respectively. The decrease in sales is directly attributable to
the Company's inability to purchase materials needed to produce product for
sale. At March 31, 1996, the Company had an open sales order backlog of
approximately $250,000.
COST OF SALES
Cost of sales for the quarters ended March 31, 1996 and 1995 were $508,163 or
112.8% of sales, and $812,331 or 64.3% of sales, respectively. The increased
percentage in cost of sales between periods was a result of the under
absorption of fixed production overhead costs due to significantly lower sales
and manufacturing volumes.
GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the quarters ended March
31, 1996 and 1995 were $527,494 and $632,263, respectively. The decrease in
1996 was due to the Company's cost cutting program which was put in effect in
mid-1995.
RESEARCH AND DEVELOPMENT
Research and development expenses for the quarters ended March 31, 1996
and 1995 were $458,074 and $486,580, respectively. The Company continues to
fund its aggressive product development strategy as a means to accelerate its
planned future growth.
NET INTEREST EXPENSE
Interest expense for the quarters ended March 31, 1996 and 1995 were
$164,527 and $189,864, respectively. The decrease in 1996 is attributable to
the elimination of short-term 1995 borrowings used to fund equipment purchases.
11
<PAGE> 15
WORKING CAPITAL
At March 31, 1996, the Company's working capital was $6,506 compared with
working capital of $298,910 at March 31, 1995. The difference is directly
attributable to the Company's continued losses from operations offset by the
private placement completed on March 31, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994:
NET SALES
Net sales for the years ended December 31, 1995 and 1994 were $4,048,096
and $2,907,966, respectively. The 39% increase in 1995 sales is directly
attributable to improved market penetration of Nifedipine during the first half
of the year and the introduction of three of the Company's DESI products it
began manufacturing in 1995. However, market conditions including negative
press on calcium channel blockers forced the Company to lower the price of
Nifedipine to remain competitive, which resulted in significantly lower
Nifedipine sales in the last half of 1995.
COST OF SALES
Cost of sales for the years ended December 31, 1995 and 1994 were
$3,063,648 or 75.7% of sales, and $2,478,140 or 85.2% of sales, respectively.
The decreased percentage in cost of sales between 1995 and 1994 was a result of
increased sales volumes, revenues received from contracted Research and
Development projects, and improved product mix which provided better absorption
of the Company's fixed production costs. As a result, the Company's gross
profit margins increased to 24.3% in 1995 from 14.8% in 1994.
GENERAL AND ADMINISTRATIVE
Selling general and administrative expenses for the years ended December
31, 1995 and 1994 were $2,167,311 and $2,373,763, respectively. The decrease
is directly attributable to the Company's cost containment program for general
operating expenditures instituted during the current year. However, the
Company continues to experience elevated legal and professional fees as a
result of developing manufacturing and marketing agreements with other
pharmaceutical companies as outlined in "Description of the Business".
RESEARCH AND DEVELOPMENT
Research and development expenses for the years ended December 31, 1995
and 1994 were $2,236,414 and $1,506,339, respectively. The 48% increase in
1995 is a result of contracted developmental work performed in connection with
various manufacturing and marketing contracts and the Company's commitment to
new product development as a means to increase future revenues and to further
diversify the Company's product offerings.
RESULTS OF OPERATIONS
Operating losses for the years ended December 31, 1995 and 1994 were
$3,419,277 and $3,450,276, respectively, which appear similar, however, the
1995 loss contains a 9% decrease in selling, general and administrative
expenses and a 12.9% increase in gross profit. As a result
12
<PAGE> 16
of cost savings and increase in gross profit, additional monies were available
and utilized for research and development.
A number of uncertainties exist that may influence the Company's future
operating results, including general economic conditions, changes in conditions
affecting the pharmaceutical industry primarily related to generic drugs,
competition, the Company's success in developing and market acceptance of new
products, manufacturing performance, availability and price fluctuations of raw
materials, FDA regulations and other factors.
NET INTEREST EXPENSE
Net interest expense for the years ended December 31, 1995 and 1994 were
$709,556 and $609,934, respectively, is primarily in connection with the
Company's $9,000,000 obligation to the EDC. The increase in 1995 was
attributable to short term borrowings outstanding during 1995 to fund equipment
purchases made during the year.
OTHER INCOME/EXPENSE
Other income for 1995 of $84,304 was realized from the sale of a tablet
press. The proceeds were used to purchase a new tablet press which more suited
the Company's immediate production requirements and future product development
needs.
Other expense during the year ended December 31, 1995 was $48,853 as a
result of assessments in connection with 1991 federal payroll and 1993 local
withholding tax deficiencies. All amounts due have been paid.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1996, the Company converted a $250,000 stockholder loan into
111,111 shares of its common stock at $2.25 per share. On March 31, 1996, the
Company also sold privately to 20 investors an aggregate of 572,444 shares of
common stock for an aggregate consideration of 1,288,000 in cash. On May 13,
1996 the Company sold privately to one investor, 44,444 shares of common stock
for $100,000 and on May 31, 1996 the Company sold privately to one investor
250,000 shares of common stock for an aggregate of $500,000. The above
offerings were completed without an underwriter.
In July 1996, management intends to complete a private equity placement of
approximately $3,000,000 which will be used for working capital. On July 11,
1996, the Company and the Indian specialty pharmaceutical company, Sun
Pharmaceutical Industries Ltd. announced that they had signed two non-binding
letters of intent pursuant to which Sun Pharma would make an initial investment
in Caraco of $4 million and sell it certain rights for 20 generic
pharmaceuticals products. This transaction is subject to certain conditions,
including completion of Sun Pharma's due diligence, clearance from the Indian
government, and negotiation and execution of definitive documents. The parties
intend to consummate the transaction within 150 days.
The Company and Sun Pharma also announced that during the negotiations and
due diligence, Sun Pharma would transfer four of the proposed 20 products to
Caraco as a demonstration of Sun Pharma's commitment to the proposed
transaction. Under a separate agreement signed earlier this year, Caraco is
to manufacture and market a generic anticonvulsant drug from Sun Pharma in the
United States, with both companies sharing the development and registration
13
<PAGE> 17
efforts. A similar agreement will govern the development of these four
products until the proposed transaction is consummated.
There is no assurance that the foregoing transactions will be consummated
or that the funds will be made available to the Company timely or on
financially satisfactory terms; or that any of the Company's ANDAs will be
approved by the FDA within time parameters anticipated by management or at all;
or that the Company will be able to manufacture and sell profitably any product
resulting from FDA approval of an ANDA filed by the Company. To the extent
that capital requirements should exceed available capital, the Company would be
required to reduce its research and development activity, reduce personnel and
delay capital expenditures while continuing to seek alternative sources of
financing for its business.
DESCRIPTION OF THE BUSINESS
The Company is a development stage corporation organized under Michigan
law in 1984, to engage in the business of developing, manufacturing and
marketing generic drugs for the ethical (prescription) and over-the-counter
(non-prescription or "OTC") markets.
A generic drug is a pharmaceutical product which is the chemical and
therapeutic equivalent of a brand-name drug as to which the patent and/or
market exclusivity has expired. Generics typically sell at prices substantially
lower than the brand-name product.
A significant source of funding for the Company to date has been from
private placement offerings and from the EDC which, pursuant to Section 108 of
the Housing and Community Development Act of 1974, loaned approximately $9.1
million to the Company in accordance with a Development and Loan Agreement
dated August 10, 1990 (the "EDC Agreement"), for use in funding the direct
costs of acquiring land and constructing thereon the Company's pharmaceutical
manufacturing facility and executive offices. The facility was completed in
1992.
Since 1994, Caraco's efforts have been on developing its marketing and
sales capabilities, building sales and product acquisition relationships with
pharmaceutical purchasers, distributors and suppliers, and obtaining adequate
financing with which to fund its operations.
OVERVIEW OF THE GENERIC DRUG INDUSTRY
Sales of generic drugs have increased in recent years because of a number
of factors including (i) modification of state laws to permit or require
substitution of generic drugs by pharmacists; (ii) enactment of Abbreviated New
Drug Applications (ANDA's) procedures for obtaining Food and Drug
Administration ("FDA") approval to manufacture generic prescription drugs;
(iii) changes in governmental and third-party payor health care reimbursement
policies to encourage cost containment; (iv) increased acceptance of generic
drugs by physicians, pharmacists and consumers; and (v) the increasing number
of formerly patented drugs which have become available to generic competition.
Moreover, a number of branded drugs with very significant sales volume
(approximately $10 billion) will be coming off-patent during the next five
years.
CARACO'S PRODUCTS AND PRODUCT STRATEGY
With the completion of its manufacturing facility in late 1992, Caraco's
immediate task was to put a range of products into the hands of its sales force
as quickly as practicable, broadcast its commencement of operations by offering
generics under its own label, and build its product
14
<PAGE> 18
line. Its product line is approximately 14 products and continuing efforts are
being made by management to expand the line rapidly. In 1995 the Company
developed and introduced Guaifenesin, Yohimbine and Salsalate into its product
line. While most of these products are Drug Efficacy Study Implementation
("DESI II") (product drugs that can be marketed based on past marketing of an
identical product that is not the subject of an approved drug application),
its largest volume product is Nifedipine (an ANDA product), developed jointly
with and manufactured for the Company by R.P. Scherer Corporation. Nifedipine
is a cardiovascular product currently marketed by Pfizer Inc. under the name
Procardia(R). Specifically, it is a calcium channel blocker that inhibits the
entry of calcium into cells or its mobilization from intracellular stores. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation.")
The Company has been focusing on the development of its own additional
ANDA products, for which it filed one ANDA in 1994 and two ANDA's in 1995 (See
"Hexal-Pharma GmbH & Co., KG" below). The filings are currently under review
by the FDA and the first approval is expected in the third quarter of 1996.
However, there is no assurance that the FDA will approve the ANDA or that such
approval will occur in the third quarter of 1996. In addition, as discussed
below, the Company has formulated for a joint project associate another ANDA
product which the Company is to manufacture upon receipt of FDA approval of an
ANDA filed by the associate in March 1996 (See "Apotex, Inc." below). Until a
number of the Company's ANDAs have been approved, marketed and sold, the
Company will continue to characterize itself as a development stage company.
The Company's strategy is to forge strategic alliances with major
pharmaceutical companies with respect to products about to come off-patent or
recently off-patent. Such arrangements frequently (but not always) require that
the generic company develop its own formulation and manufacturing process for
the product. To date, the Company has entered into formal or informal
arrangements with six pharmaceutical companies.
R. P. SCHERER CORPORATION
The Company's first strategic alliance was made with R.P. Scherer
Corporation, in the form of a supply contract, dated March 22, 1990, for the
Company's purchases of Nifedipine. Under this agreement, the Company purchases
this product on commercial terms in bulk, packages it, and markets it under its
own label. Sales of Nifedipine have decreased significantly. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation.")
HEXAL-PHARMA GmbH & CO., KG
The Company's second strategic alliance is with Hexal-Pharma GmbH & Co.,
KG, a German pharmaceutical company and its United States affiliate (together,
"Hexal"). Pursuant to an agreement dated as of October 1, 1993, Hexal has
agreed to convey to the Company the formulations, technology, manufacturing
processes and know-how, and other relevant information, and to pay for the
bioequivalency studies required for the preparation of ANDAs for each of two
specified generic drugs (the "Products"). The Company undertook to prepare and
file an ANDA for each Product and, when and if the related ANDA is approved by
the FDA (for which no assurance can be given), to manufacture, market and sell
the Products in the United States. Hexal will receive royalties on the yearly
sales of each Product. The Company filed an ANDA in March 1995 and is currently
reviewing the data from the bioequivalency study of the other. There is no
assurance of when or if this other product will be filed and/or
15
<PAGE> 19
approved. In addition, there is no certainty that the Company will be able to
manufacture and sell either of these Products at a profit.
In addition, the Company has granted to Hexal, for each Product (i) a
Sign-Up Option to purchase 100,000 shares of Common Stock at $3.50 a share; and
(ii) a Product Option to purchase a presently indeterminable number of shares
at an exercise price equivalent to their fair market value (as defined) when
the related ANDA for that Product is filed with the FDA. These options may be
exercised and payment for shares may be made only out of royalties (and any
interest earned on the royalties while held by the Company) payable to Hexal
for sales of the related Product.
The Agreement provides that the Company will hold all royalties until
receipt of Hexal's written instructions either to pay the royalties in cash or
to apply the royalties held to the exercise of the related option. While a
Sign-Up Option remains unexercised, the Company will accrue the amount of
royalties attributable to the related Product. If Hexal shall fail to deliver
to the Company, within 36 months after a given year's royalties on sales of
that Product become payable, its written instructions to apply those funds to
the exercise of the related Sign-Up Option, the number of shares subject to
that option shall be reduced by that number of shares which the accrued
royalties paid in cash could have purchased. Thereafter, each year's royalties
for sales of a Product will be held by the Company for a maximum of five years,
during which period Hexal may direct that the royalties be paid to it in cash
or applied to the exercise of the related Product Option. Any royalties paid in
cash to Hexal may not thereafter be applied to the exercise of a Sign-Up or a
Product Option.
The Agreement also provides that, for a period of ten years, or such
earlier date on which C. Arnold Curry shall no longer serve on the Company's
Board of Directors, or on which the Company shall sell substantially all of its
business and assets, or shall enter into a merger, consolidation or similar
transaction as a result of which the holders of the Company's voting capital
stock shall hold immediately thereafter less than a majority of the voting
capital stock of the surviving entity, Hexal, its affiliates and associates (i)
will not purchase any of the Company's Common Stock, if and to the extent that
such purchase would cause the percentage of outstanding shares owned
beneficially by Dr. Curry to fall below 50.1%; (ii) will not purchase shares of
Common Stock, if and to the extent that such purchase would cause beneficial
ownership thereof by Hexal, its affiliates and associates to exceed in the
aggregate 35% of the Company's Common Stock then outstanding; and (iii) will
grant to Dr. Curry a proxy to vote each share of the Company's Common Stock
beneficially owned by Hexal, its affiliates and associates exceeding in the
aggregate 10% of the Company's Common Stock then outstanding.
CLONMEL CHEMICALS CO., LTD. (IRELAND)
On October 22, 1993, the Company entered into an agreement with Clonmel
Chemicals Co., Ltd. ("Clonmel"), pursuant to which Clonmel provided to the
Company, with respect to each of two generic pharmaceutical products,
formulations that have been previously tested, the formulation and
manufacturing methods, in process controls, finished product specifications,
analytical methods and stability data required for the Company to manufacture
its own bio-batches (sample batches of the product in amounts necessary for
testing on humans) for use in the preparation and filing with the FDA of ANDAs
with respect to these products. Caraco must bear all costs of developing the
products and filing the ANDAs. With respect to each of these products, the
Company has paid Clonmel $10,000 on delivery of complete files containing the
foregoing data, and will pay another $20,000 on completion of a successful
bioequivalency study
16
<PAGE> 20
(which study will be at Caraco's expense), and a final $20,000 upon receipt of
FDA approval of the related ANDA. Clonmel has granted the Company the exclusive
right to manufacture and market these products in the United States, including
its territories and Puerto Rico, and in Canada; and the Company has agreed to
pay royalties to Clonmel on net sales (as defined) of these products for five
years from the date on which the marketing of the respective product commences.
Both products are undergoing development with at least one of them expected to
undergo a bioequivalency study in 1996, which if deemed satisfactory will be
followed by the filing of an ANDA. (See "Management's Discussion and Analysis
of Financial Condition and Results of Operation.") There can be no assurance
that the Company will receive FDA approval of any ANDA which is filed or when
FDA approval will be forthcoming; nor that the Company will be able to
manufacture and sell either of these products profitably.
APOTEX, INC.
In June 1994, the Company announced its agreement to develop and
manufacture one or more generic drug products for Apotex U.S.A., the New York
based subsidiary of Apotex, Inc., reportedly the largest wholly-Canadian-owned
pharmaceutical company. The Company has formulated the first product and an
ANDA was filed in March 1996. There is no assurance that the ANDA covering
this product will receive FDA approval nor whether the Company will be able to
manufacture or sell the product profitably. The agreement allows some selected
marketing rights for the products to Caraco, in addition to the right of Apotex
U.S.A. to market the product.
SUN PHARMACEUTICAL INDUSTRIES, INC.
In March 1996, the Company announced its agreement to produce and market
Sun Pharmaceutical Industries' generic anti-convulsant drug in the United
States. Caraco and Sun will share research and development and registration
efforts, and Caraco anticipates filing an ANDA registration with the FDA early
in 1997. There is no assurance that the ANDA covering this product will
receive FDA approval nor whether the Company will be able to manufacture or
sell the product profitably. However, if the ANDA is approved the Company will
exclusively produce and market the product. Sun Pharmaceutical is an
India-based company. The agreement establishes an international pipeline to
utilize the Company's modern manufacturing facilities specifically geared
toward production for the generic drug market.
OTHER AGREEMENTS
In addition to the above mentioned agreements Caraco has signed two
agreements with a large multi-national pharmaceutical company to develop and
manufacture two products both of which are Non-Steroidal
Anti-Inflammatory Drugs (NSAID) for treating pain.
MARKETING
Since 1993, the Company's marketing objective has been to create a
distribution system by which to obtain access to a wide range of purchasers of
generic pharmaceutical products. Internally, this requires at least a minimum
sales force; externally, it requires forging relationships, often contractual
in nature, with wholesalers, distributors, governmental agencies, and buying
groups, among others. Management is aware that, despite any success in creating
these distribution links, sales volume will remain low until the Company can
offer a broader range of products needed by drug purchasers in significant
amounts. In anticipation of its ability,
17
<PAGE> 21
through strategic alliances and its own internal product development efforts to
broaden its product line, it has been putting distribution links in place.
Drug wholesalers, with an estimated 75% of the drug market, comprise a
strategic link in the pharmacy distribution chain. They are used by drug
manufacturers because they are a cost effective means of reaching thousands of
drug purchasers and are used by most drug purchasers because they constitute a
reasonably local, stocking source for hundreds or thousands of products from
multiple manufacturers.
The top five drug wholesalers in 1995 accounted for over $40 billion in
sales. Caraco's product line is now represented in five of the top drug
wholesalers; McKesson Drug, Bergen Brunswig, Cardinal, FoxMeyer, and
AmeriSource. For the year ended December 31, 1995 sales to Amerisource
accounted for 26% of gross sales of the Company. On August 7, 1995 the Company
entered into an agreement with McKesson Drug Company pursuant to which McKesson
is to provide the Company with access to its existing distribution networks. A
gradually increasing number of additional drug wholesalers now stock some or
all of the Company's products, partly as a result of the Company's arrangements
discussed below with buyer groups.
Federal and state agencies purchase a large amount of generic
pharmaceutical products. All of the Company's products are now listed for
purchase at prices bid by the Company in the Federal Supply Schedule, the
Federal Bureau of Prisons Prime Vendor Program, the Veterans Administration
Prime Vendor Program, the Department of Defense and by various state agencies.
The Company has received and filled a gradually increasing volume of orders
from wholesalers designated as prime vendors under the federal programs for the
Bureau of Prisons, the Veterans Administration and the Department of Defense.
A large number of buying groups of retail pharmacists, hospitals, nursing
homes and other regional or functionally similar categories of drug purchasers
use their members' combined purchasing power to induce drug manufacturers or
other vendors to submit bid prices at which their members may individually
purchase products through designated wholesalers. The Company intends, as part
of its ongoing marketing efforts, to pursue arrangements with additional
wholesalers and to expand its sales network of buying groups, wholesalers,
hospitals and hospital chains, nursing and retirement home groups, state and
federal government agencies, and retail pharmacies. As and if the Company's
financial resources permit the increase in personnel, these efforts will be
expanded as discussed below.
SALES
Still a small organization with a relatively small product line, Caraco
has only a small sales organization. Management intends to increase its sales
personnel as its resources permit.
At the present time, the Company has two salaried salespersons. As the
product line grows and sales increase, management contemplates a transition
from a compensation structure providing for an annual salary to one emphasizing
commission sales as an obvious method both to provide appropriate incentives to
the sales team and also to control the ratio of sales expense
to revenue.
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<PAGE> 22
RESEARCH AND DEVELOPMENT
The development of new prescription ANDA products, including formulation,
stability testing and the FDA approval process, averages from two to five
years. A drug is "bioequivalent" to a brand-name drug if the rate and extent
of absorption of the drug are not significantly different from those of the
brand-name drug. Although the Company performs its own stability testing, the
Company's FDA-required testing for bioequivalence is done through independent
testing laboratories. Each dosage level of a specific drug generally requires
separate bioequivalence studies, although more than one dosage level can be
included in a single ANDA.
The Company believes that its research and development expenditures as a
percentage of gross revenues are higher than the industry average and that this
higher level of expenditures will give it a competitive advantage in
introducing new niche products to the market place. An outline of research and
development expenses for the years ended December 31, 1995 and 1994 follows
(000's):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Employee Costs $1,218 $ 558
Raw Materials/Supplies 552 358
Bioequivalency Studies 47 164
Laboratory Expenses 341 357
Other 78 69
------ ------
$2,236 $1,506
====== ======
</TABLE>
REGULATION
The research and development, manufacture and marketing of the Company's
products are subject to extensive regulation by the FDA and by other federal,
state and local entities, which regulate, among other things, research and
development activities and the testing, manufacture, labeling, storage, record
keeping, advertising and promotion of pharmaceutical products.
The Federal Food, Drug and Cosmetic Act, the Public Health Services Act,
the Controlled Substances Act and other federal statutes and regulations govern
or influence all aspects of the Company's business. Noncompliance with
applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures, injunction actions and criminal
prosecutions. In addition, administrative remedies can involve voluntary recall
of products, and the total or partial suspension of products as well as the
refusal of the government to approve pending applications or supplements to
approved applications. The FDA also has the authority to withdraw approval of
drugs in accordance with statutory due process procedures.
FDA approval is required before any dosage form of any new unapproved
drug, including a generic equivalent of a previously approved drug, can be
marketed. All applications for FDA approval must contain information relating
to product formulation, stability, manufacturing processes, packaging, labeling
and quality control. To obtain FDA approval for an unapproved new drug, a
prospective manufacturer must also demonstrate compliance with the FDA's
current good manufacturing practices ("cGMP") regulations as well as provide
substantial evidence of safety and efficacy of the drug product. Compliance
with cGMP's is required at all times during the manufacture and processing of
drugs. Such compliance requires considerable Company time and resources in the
areas of production and quality control.
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<PAGE> 23
There are generally two types of applications that would be used to obtain
FDA approval for pharmaceutical products:
New Drug Application ("NDA"). Generally, the NDA procedure is required for
drugs with active ingredients and/or with a dosage form, dosage strength or
delivery system of an active ingredient not previously approved by the FDA.
Caraco does not expect to submit an NDA in the foreseeable future.
Abbreviated New Drug Application ("ANDA"). The Waxman-Hatch Act
established a statutory procedure for submission of ANDAs to the FDA covering
generic equivalents of previously approved brand-name drugs. Under the ANDA
procedure, an applicant is not required to submit complete reports of
preclinical and clinical studies of safety and efficacy, but instead is
required to provide bioavailability data illustrating that the generic drug
formulation is bioequivalent to a previously approved drug. Bioavailability
measures the rate and extent of absorption of a drug's active ingredient and
its availability at the site of drug action, typically measured through blood
levels. A generic drug is bioequivalent to the previously approved drug if the
rate and extent of absorption of the generic drug are not significantly
different from that of the previously approved brand-name drug.
The FDA may deny an ANDA if applicable regulatory criteria are not
satisfied. Product approvals may be withdrawn by the FDA if compliance with
regulatory standards is not maintained or if new evidence demonstrating that
the drug is unsafe or lacks efficacy for its intended uses becomes known after
the product reaches the market.
Changes in FDA policy and requirements have increased the time and expense
involved in obtaining ANDA approvals and in complying with FDA's cGMP
standards. The ANDA filing and approval process now averages approximately 18
months.
The Generic Drug Enforcement Act of 1992 establishes penalties for
wrongdoing in connection with the development or submission of an ANDA by
authorizing the FDA to permanently or temporarily bar companies or individuals
from submitting or assisting in the submission of an ANDA, and to temporarily
deny approval and suspend applications to market off-patent drugs. The FDA has
authority to withdraw approval of an ANDA under certain circumstances and to
seek civil penalties. The FDA can also significantly delay the approval of a
pending ANDA under certain circumstances and to seek civil penalties. The FDA
can also significantly delay the approval of a pending ANDA under its "Fraud,
Untrue Statements of Material Facts, Bribery, and Illegal Gratuities Policy."
Manufacturers of drugs must also comply with the FDA's cGMP standards or risk
sanctions such as the suspension of manufacturing or the seizure of drug
products and the FDA's refusal to approve additional ANDAs.
In first quarter 1996, the FDA conducted a combined pre-approved and cGMP
inspection. At the end of the inspection no FD 483's (Notice of Observations)
were issued.
The FDA's 1992 Warning Letter was directed to the inadequacy of the
Company's testing procedures, record keeping and other crucial aspects of its
stability program. The Company has since sought constantly to improve its
compliance with the FDA's regulations and, to augment its ability to do so, has
focused especially on recruiting experienced management personnel with
successful track records in manufacturing operations, quality assurance and
quality control. See "Management." Although management believes that the
Company is in substantial compliance
20
<PAGE> 24
with the FDA's cGMP's, there can be no assurance that, as the Company endeavors
to engage in increasing drug manufacturing activities, it will be able to
maintain a successful compliance program. If it should fail to do so, it may be
the target of any of the range of enforcement remedies available to the
government described above.
Each domestic drug product manufacturing establishment must be registered
with the FDA. Establishments handling controlled substances must be licensed by
the United States Drug Enforcement Administration.
The Company is also subject to regulation under other federal, state and
local regulations regarding work place safety, environmental protection and
hazardous substance controls, among others. Specifically, the Company is
licensed by the Michigan Board of Pharmacy as a manufacturer and wholesaler of
prescription drugs and as a distributor of controlled substances. It is also
licensed by the Michigan Liquor Control Commission to use alcohol in the
manufacture of drugs.
The Company believes that it is in substantial compliance with all
environmental laws.
SUPPLIERS AND MATERIALS
The principal components used in the Company's business are active and
inactive pharmaceutical ingredients and certain packaging materials. Many of
these components are available only from sole source suppliers. Development and
approval of the Company's pharmaceuticals are dependent upon the Company's
ability to procure active ingredients and certain packaging materials from FDA
approved sources. Because the FDA approval process requires manufacturers to
specify their proposed suppliers of active ingredients and certain packaging
materials in their applications, FDA approval of a new supplier would be
required if active ingredients or such packaging materials were no longer
available from the specified supplier. The qualification of a new supplier
would delay the manufacture of the drug involved. (See "R.P. Scherer
Corporation" above with respect to its supply of Nifedipine to the Company).
Although to date no significant difficulty has been encountered in
obtaining components required for products and sources of supply are considered
adequate, there can be no assurance that the Company will continue to be able
to obtain components as required.
COMPETITION
The market for generic drugs is highly competitive. The Company competes
with numerous pharmaceutical manufacturers, including both generic and
brand-name manufacturers, many of which have been in business for a longer
period of time than the Company, have a greater number of products on the
market and have considerably greater financial, technical, research,
manufacturing, marketing and other resources.
The principal competitive factor in the generic pharmaceutical market is
the ability to be the first company, or among the first companies, to introduce
a generic product after the related patent expires. Other competitive factors
include price, quality, methods of distribution, reputation, customer service
(including maintenance of inventories for timely delivery) and breadth of
product line. Approvals for new products may have a synergistic effect on a
company's entire product line since orders for new products are frequently
accompanied by, or bring about, orders for other products available from the
same source. The Company believes
21
<PAGE> 25
that price is a significant competitive factor, particularly as the number of
generic entrants with respect to a particular product increases. As competition
from other manufacturers intensifies, selling prices typically decline.
EMPLOYEES
As of March 31, 1996, the Company had 40 full-time employees, of which six
are engaged in research and development, six in quality assurance, six in
quality control, six in administration, four in sales and marketing, two in
finance, and ten in manufacturing. Most of the Company's scientific and
engineering employees have had prior experience with pharmaceutical or medical
products companies. No employee is represented by a union, and the Company has
never experienced a work stoppage. The Company believes its employee relations
are excellent.
PRODUCT LIABILITY AND INSURANCE
The Company currently has in force general and product liability
insurance, with coverage limits of $3 million per incident and in the
aggregate. The Company's insurance policies provide coverage on a claims made
basis and are subject to annual renewal. Such insurance may not be available in
the future on acceptable terms or at all. There can be no assurance that the
coverage limits of such policies will be adequate to cover the Company's
liabilities, should they occur.
MANUFACTURING FACILITY
The Company's 70,611 square foot facility, which was designed and
constructed to the Company's specifications and completed in 1992, contains its
production, packaging, research and executive operations. It is on a four acre
site acquired by the Company from the EDC. This manufacturing facility has a
special building and systems design, with each processing area equipped with
independent zone and air handling units to provide temperature and humidity
control to each room. These air handling units are designed to prevent product
cross contamination through the use of pre-filter and final HEPA filter banks.
All processing air quarters are maintained in a negative pressure mode using
laminar air flow design. This system of air flow provides a measurable control
of air borne particulate entrapment in each room.
Pursuant to Section 108 of the Housing and Community Development Act of
1974, the EDC loaned approximately $9.1 million to the Company in accordance
with the EDC Agreement. These funds were used to pay the direct costs of
acquiring land and constructing thereon the above-described Company's
pharmaceutical manufacturing facility and executive offices. In 1993,
repayment of this indebtedness was personally guaranteed by Dr. and Mrs. Curry.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operation." The Company's obligation to the EDC pursuant to its note and
that certain Development and Loan Agreement dated August 10, 1990 is
collateralized, among other things, by a mortgage on the Company's property.
The EDC subordinated its position in the Company's facility, subject to certain
conditions, in an amount up to $3 million. The Agreement also contains certain
restrictive covenants regarding the activities of the Company. The Company has
not made the required monthly principal and interest payments for April, May,
June, and July 1996. The Company is seeking private financing to rectify this
technical default.
Environmental segregation of individual rooms within a particular zone is
accomplished by the use of duct HEPA filter booster fan units that facilitate
the isolation and confinement of room
22
<PAGE> 26
activities. These special dynamics provide an added dimension and flexibility
in product selection and processing techniques. The design allows all
processing areas, with a modest capital addition, to be equipped with purified
breathing air systems to facilitate the use of custom handling and control as
product requirements warrant. That capital addition will not be made until
consummation of a strategic alliance, with specific product requirements,
which would make such addition financially sound.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Company's Directors and Executive Officers as of May 31, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
William R. Hurd(3&4) 60 President and Chief Operating
Officer and Director
Robert Kurkiewicz 45 Vice President - Quality Assurance
Allan J. Hammer 50 Treasurer, Chief Financial Officer
and Secretary
James C. Chao 55 Vice President - Research and
Development
Sherman N. Ginn 56 Vice President - Sales and Marketing
Cara J. Curry(4) 59 Vice President - Government and
Community Relations; and Director
David W. Adamany(2&4) 59 Director
Betty R. Anderson(1&2) 55 Director
C. Arnold Curry(3&4) 57 Director
Ronald R. Dobbins(1&2) 61 Director
Theodore H. Glenn(1&3) 57 Director
David A. Hagelstein(2&4) 54 Director
Jay F. Joliat(1&3) 39 Director
John R. Morris(2) 65 Director
Robert P. Roselle(1&3) 70 Director
</TABLE>
- ----------------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Finance Committee
(4) Member of the Executive Committee
23
<PAGE> 27
BUSINESS EXPERIENCE OF MANAGEMENT
WILLIAM R. HURD commenced employment with the Company as its Executive
Vice President and Chief Operating Officer on December 6, 1993 and on May 10,
1995 was promoted to President and Chief Operating Officer of the Company.
Prior thereto, Mr. Hurd was employed, since 1987, as Director of Operations of
the Warner Chilcott Laboratories Division of Warner Lambert Company, and was
responsible for the start up of this newly established generic division,
including facility design, equipment evaluation and staffing, and operations,
including supervision of manufacturing, quality assurance, quality control,
pharmaceutical technology, finance, purchasing, production planning, and
interfacing with the regulatory, sales and marketing departments. From 1980 to
1984 he was President of the Pharmaceutical Division of KV Pharmaceutical
Company, which engaged in research and manufacture of controlled release, solid
and liquid dosage forms of OTC and ethical pharmaceuticals. Mr. Hurd, who
entered the pharmaceutical industry in 1960, was first employed by E. R. Squibb
& Co. for four years in research and development of pharmaceutical formulations
and for another two years as International Quality Assurance/Quality Control
Supervisor, responsible for auditing and regulatory compliance for plants in
nine countries. He was later (1966 - 1968) employed by Sandoz Corporation as
Production Manager, by Zenith Laboratories, Inc. (1968 - 1970) as Vice
President of Manufacturing, and by Pierre America, Inc. (1970 - 1980) as
General Manager. Mr. Hurd is a graduate of Massachusetts College of Pharmacy
(B.S. in Pharmacy, 1960) and is a registered pharmacist in Massachusetts and
Pennsylvania. Mr. Hurd has been a member of the Board of Directors since May
10, 1995.
ROBERT KURKIEWICZ commenced employment with the Company as its Vice
President - Quality Assurance on November 22, 1993. Prior thereto, Mr.
Kurkiewicz was employed, since 1988, as Manager, Quality Assurance by the
Warner Chilcott Laboratories Division of Warner Lambert Company, for which he
was responsible for the establishment of the Quality Control and Quality
Assurance Departments at the inception of this division (including the design
and implementation of all quality systems for proper operation of a
pharmaceutical manufacturing organization) and the ongoing supervision of
Quality Control, and Quality Assurance for manufacturing and research and
development. He was employed from 1973 to 1977 by Wisconsin Pharmacal Co.,
Inc., as Director of the Laboratory; from 1977 to 1978 by Milwaukee Food
Laboratories, Inc. (an independent food, dairy and pharmaceutical testing
laboratory) as Manager of all phases of operations; from 1978 to 1986 by
Kremers-Urban Co., Inc. as Manager -- Quality Assurance and, after that
company's acquisition by William H. Rorer, Inc., as Director -- Quality
Assurance and Systems. From 1986 to 1988, he was employed first by Rorer
Pharmaceutical Corp as Manager -- Product Assurance and later by its Rorer
Pharmaceuticals Division as Materials Manager. Mr. Kurkiewicz is a graduate of
the University of Wisconsin (B.S. cum laude, 1973).
ALLAN J. HAMMER joined the Company in July 1994 as Chief Financial
Officer, Treasurer and Secretary. Prior thereto, Mr. Hammer was employed, since
1988, with the Warner Chilcott division of Warner Lambert where, as manager of
finance and logistics, he was responsible for all activities in finance,
purchasing, production planning, inventory control and warehousing. Prior to
1988 he held positions with Goldline Laboratories, Visual Sciences, Arthur
Anderson & Co., the Stanley Works, Grumman Aerospace, and General Motors. Mr.
Hammer holds a BBA degree from Hofstra University.
24
<PAGE> 28
JAMES C. CHAO joined the Company in April 1994, as Vice President of
Research and Development. Dr. Chao was employed with Lederle Laboratories as a
Senior Pharmaceutical Scientist from August 1992 through March 1994, New
Product Development Manager with Purepac Pharmaceuticals from February 1987
through April 1992, and a product development Consultant with Lannett Company
May through July 1992. He was a Senior Research Engineer with Syntex Chemical
and Section Manager with Hydrocarbon Research Inc. between 1978 and 1987. Dr.
Chao holds five (5) U.S. Patents and was listed in Who's Who of ROC and Who's
Who of America Inventors. He holds B.S., M.S. and Ph.D. degrees in Chemical
Engineering from Chung Yuan University, University of Iowa, and New York
University, respectively. Dr. Chao also conducted post doctoral research and
graduate pharmaceutical studies at Texas A&M University and School of Pharmacy,
University of Colorado, respectively.
SHERMAN N. GINN joined the Company in August 1994 as Director of Sales and
Marketing and in December 1994 was promoted to Vice President -- Sales and
Marketing. Prior thereto Mr. Ginn was employed by Global Source as Vice
President, Sales. From 1992 to 1994 Mr. Ginn was Vice President, Sales and Vice
President, Chain Store Sales at Watson Laboratories. From 1990 to 1992 he was
employed by Qualitest Products in Huntsville, Alabama as Vice President,
Marketing. Mr. Ginn was employed by Goldline Laboratories (1982-1990), Go-Jo
Industries (1980-1982), and Gilette Company (1968-1980), respectively.
CARA J. CURRY has been the Vice President of Government and Community
Relations and a Director of the Company since 1984. She has been President of
New Center Radiology, Inc. since 1979, owned by Dr. and Mrs. Curry, and was the
owner and Chief Executive Officer, from 1981 to 1986, of Innovative Home Health
Care Corporation, which provided in-home care in the Greater Detroit
Metropolitan Area. She has been active in health care related organizations and
was a member of the Board and Executive Vice President of the Lula Bell Stewart
Center, Inc. (a non-profit women's shelter). Mrs. Curry is a Commissioner of
the Detroit Zoo, and a participant in the National Medical Association Health
Summit, Washington, D.C., and in the Congressional Black Caucus Health Forum.
Mrs. Curry is the wife of C. Arnold Curry.
DAVID W. ADAMANY has been President of Wayne State University since 1982.
Previously he served as Academic Vice President for the University of Maryland
System and Academic Vice President at California State University, Long Beach.
Dr. Adamany is also a member of the Board of Directors of BIOFOR, INC., which
is a non-publicly traded company and is involved as a director or trustee of
many civic organizations. Dr. Adamany has been a member of the Board of
Directors since 1994.
BETTY R. ANDERSON has been employed by General Motors Corporation since
1980, during the last five years as Director, Education Relations. From 1971,
Ms. Anderson was employed by the U.S. Equal Employment Opportunity Commission
in a number of executive positions, including Deputy District Director of the
Boston District Office, Special Assistant to the Executive Director and
District Director of the Charlotte District Office. She has been active in
civic organizations in Livonia and Detroit, Michigan; and a member of the Board
of Directors and president of the Advisory Council of the American Institute
for Managing Diversity. Ms. Anderson has been a member of the Board of
Directors since 1994.
C. ARNOLD CURRY, founder, Chairman, Emeritus and Chief Scientific Advisor
of the Company. From 1984 to February 16, 1996, Dr. Curry was the Chairman of
the Board and Chief Executive Officer of the Company. Dr. Curry has been a
member of the Board of Directors of the Company since 1984. Dr. Curry is a
physician on staff of the Detroit Medical
25
<PAGE> 29
Center Hospitals and a member of the Departments of Medicine and Oncology.
He has served as a registered investigator for the National Cancer Institute
for conducting clinical investigations of new drugs limited by federal law to
investigational use. His board memberships include the Greater Detroit Chamber
of Commerce, Michigan Cancer Foundation, Commissioner of the Hospital Financing
Authority of Detroit, Michigan and a director of the Alumni Board of Michigan
State University School of Business. Dr. Curry served as a director of the
First Independence National Bank of Detroit for five years prior to his
resignation in 1992. He is the husband of Cara J. Curry.
RONALD R. DOBBINS has been President and Chief Executive Officer of
Omnicare Health Plan from 1980 to date and President and Chief Operating
Officer of United American Healthcare Corporation from 1983 to date. Mr.
Dobbins has been a member of the Board of Directors since 1994.
THEODORE H. GLENN has been employed since 1965 by Rohm and Haas Company,
Philadelphia, Pennsylvania, a major chemical and plastics manufacturer, first
as a Scientist (1965-1968); then as Senior Buyer (1968-1971); later as a Market
Research Analyst (1971-1973), Market Supervisor (1973-1976), Manager,
International Trade Issues (1976-1986, part time), Registered Lobbyist and
Manager of State and Local Government Affairs (1978-1982, part time),
Purchasing Specialist (1976-1990) and, since 1990, as Purchasing
Strategist/Specialist responsible for negotiating and purchasing feedstocks and
key raw materials for businesses around the world with aggregate annual sales
exceeding $1 billion. In 1978, Mr. Glenn served as a member of Pennsylvania
Governor-Elect Richard Thornburgh's transition team and in 1979 was appointed
by President Jimmy Carter to the U.S. Department of Commerce Industry Advisory
Committee for Chemicals and Allied Products and advised that Department and the
U. S. Special Trade Representative in Geneva, Switzerland relating to the Tokyo
Round Trade Negotiations under GATT. Mr. Glenn has been a member of the Board
of Directors since 1995.
DAVID A. HAGELSTEIN has more than thirty years experience in running
various businesses. Mr. Hagelstein established and ran up to four restaurants
from 1964 to 1993. The profits from these operations were used to acquire and
develop several real estate ventures, including building and leasing an office
building to General Motors. He has supplied venture capital for a number of
start up companies and has been a consultant to four companies in the
pharmaceutical and medical fields. Mr. Hagelstein has been a member of the
Board of Directors since 1995.
JAY F. JOLIAT has more than the past five years has served as President,
Chief Executive Officer and Chairman of the Board of Joliat & Company, a
registered investment advisor furnishing investment management surveillance,
reporting and consulting services to endowment funds, charitable foundations,
ERISA plans and others who utilize professional money managers; Chairman of the
Board, Chief Executive Officer and Treasurer of Sign of the Beefcarver
Restaurants, Inc., which owns and operates 13 cafeteria style family
restaurants, three casual dining/bar restaurants and one fine dining
restaurant in the Detroit metropolitan area; and as trustee and Chief
Executive Officer of several family-related trusts with widely diverse holdings
including foreign and domestic securities, venture capital and real estate.
Mr. Joliat has been a member of the Board of Directors since 1995.
JOHN R. MORRIS has more than 40 years of experience, including
multinational experience with pharmaceutical giants. Mr. Morris has been
President of Biotrade Group, a Company he founded, since 1978. Biotrade, a
worldwide healthcare and chemical company has offices in Australia, Southeast
Asia, South Africa, Switzerland and the United Kingdom. Biotrade is also
26
<PAGE> 30
active in the pharmaceutical and fine chemical industries. In addition to his
knowledge of the pharmaceutical world, Mr. Morris brings considerable
experience in the banking and finance area. For several years he was Financial
Director and Senior Vice President of Finance of a world-leading commodities
trader. Mr. Morris was employed by Glaxo at which time he was chief executive
officer of several Glaxo operating companies. Mr. Morris was a member of the
Company's Advisory Panel from October 1995 to May 15, 1996, when he was elected
to the Company's Board of Directors.
ROBERT P. ROSELLE has been retired since 1990 and prior thereto was
employed from 1973 through 1990 as Executive Vice President/Administration and
Finance, Chief Financial Officer and Treasurer, Lintas: Campbell-Ewald Company,
a member of the Interpublic Group, and was a member of its Board of Directors
and of its Executive and Finance Committees. For 25 years prior thereto, he
was employed by the City of Detroit in various executive positions, including
Executive Secretary to the Mayor, City Controller, Commissioner of the
Department of Public Works and Director of the Community And Economic
Development Department. Mr. Roselle's prior civic activities include service
as chairman of the Board of Merrill-Palmer Institute; Chairman, Evaluation and
Allocation Committee of the Capital Fund Division of United Foundation;
Treasurer of Lutheran Social Service of Michigan and Chairman of its Finance
Committee; a Director of Civic, Inc.; member, Finance Advisory Board, League of
Women Voters; and President, Detroit Zoo commission. Mr. Roselle has been a
member of the Board of Directors since 1994.
DIRECTOR COMPENSATION
Pursuant to Article VI of the Amended and Restated Articles of
Incorporation of the Company, the Board of Directors is divided into three
classes with terms expiring on three successive annual meeting dates.
Generally, one-third of the Caraco Board is elected each year. Each
non-employee director of the Company received $250 for each board or committee
meeting attended through September 8, 1995. On September 29, 1995 the Board of
Directors voted to waive the $250 director fees until further resolution of the
Board. On March 13, 1996 the Compensation Committee voted to approve the grant
of 100 shares of common stock of the Company to each non-employee director for
each board or committee meeting in which he or she participates effective after
September 8, 1995. In addition, Messrs. Johnson, Roselle and Dobbins and Ms.
Anderson each on February 21, 1994 received a non-qualified stock option to
purchase 5,000 shares of Common Stock, at an exercise price of $6.125 per
share, and on March 10, 1994 a non-qualified stock option to purchase 1,000
shares, at an exercise price of $6.50 per share, pursuant to the terms and
provisions of the Company's 1993 Stock Option Plan. Dr. Adamany received a
non-qualified stock option to purchase 6,000 shares of Common Stock on July 14,
1994, at an exercise price of $4.13 per share pursuant to the terms and
provisions of the Company's 1993 Stock Option Plan. Messrs. Glenn, Hagelstein
and Joliat each on September 8, 1995 received a non-qualified stock option to
purchase 6,000 shares of Common stock, at an exercise price of $5.00 per share,
pursuant to the terms and provisions of the Company's 1993 Stock Option Plan.
Employees of the Company receive no additional compensation for services as a
director. All directors will be reimbursed for expenses incurred in attending
board or committee meetings.
SCIENTIFIC ADVISORY BOARD
In 1994, the Company selected a group of advisors to furnish informal
counsel and assistance in developing the Company's business and accelerating
its growth. Since 1994, the Scientific
27
<PAGE> 31
Advisory Board has met two (2) times. The members of the Scientific Advisory
Board are Hanley M. Abramson, Leo Henikoff, Patrick Hopper, Jack A. Robinson,
Steven A. Rosenberg, Jerry Silva, and Vainutis K. Vaitkevicius.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the 1993, 1994 and
1995 annual salary, bonus and all other compensation awards to the Company's
four most highly compensated executive officers, other than the CEO, whose
respective salary and bonus compensation exceeded $100,000 in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Awards Payouts
------ -------
Annual Compensation Restricted Securities
Name and ------------------------------ Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary($) Bonus($) Compensation Award(s) Options Payouts Compensation
- ------------------ ---- -------- ------- $ $ # $ $
------------ ------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Arnold Curry...... 1995 $155,380 0 0 0 0 0 0
Chairman and CEO(1) 1994 $183,876(3) 0 0 0 0 0 32,375(4)
1993 $113,269(5) 0 0 0 0 0 0
William R. Hurd...... 1995 $167,612 $16,000(8) 0 18,827(9) 3,040(2) 0 0
President and COO 1994 $171,333(6) 0 0 0 0 0 44,697(7)
1993 $ 0 0 0 0 65,000(2) 0 0
Allan J. Hammer(10).. 1995 $120,000 0 0 12,233(9) 1,920(2) 0 0
CFO and Secretary 1994 $ 55,000 0 0 0 30,000(2) 0 24,153(7)
1993 $ 0 0 0 0 0 0 0
James C. Chao(10).... 1995 $120,000 0 0 0 1,800(2) 0 0
VP of R&D 1994 $ 84,615 0 0 0 20,000(2) 0 3,780(7)
1993 $ 0 0 0 0 0 0 0
Robert Kurkiewicz.... 1995 $123,000 0 0 $12,717(9) 2,214(2) 0 0
VP of QA 1994 $123,000 0 0 0 0 0 30,265(7)
1993 $ 13,088 0 0 0 20,000(2) 0 0
</TABLE>
- --------------------------
(1) Resigned as Chairman and Chief Executive Officer on February 16, 1996.
(2) The Options were granted pursuant to the Company's 1993 Employee Stock
Option Plan. Under the Plan, the options vest over a five year period
commencing one year from date of grant.
(3) Includes salary actually paid of $170,000, and accrued 1993 salary of
$13,876.
(4) Caraco purchased 87,500 shares of Caraco Common Stock from Dr. Curry in
1993, payment was made in 1994.
(5) Includes salary actually paid of $63,750, and accrued 1993 salary of
$49,519.
(6) Includes salary actually paid of $160,000, and accrued 1993 salary of
$11,333.
(7) Moving expenses paid to employee.
(8) Bonus given per employment contract in Caraco Common Stock (5,334
shares). See Footnote 9 below.
(9) 5,793, 3,764, and 3,913 shares were awarded by the Company on May 10,
1995, to Messrs. Hurd, Hammer and Kurkiewicz, respectively, as
reimbursement for the payment of the taxable portion of moving expenses
they incurred. However, such shares will not be delivered or earned
unless and until such executive officers are respectively employed by the
Company on March 31, 1996. On the date of grant the closing bid price of
the Company's Common Stock was $3.25 per share. See Footnote 8 above.
(10) Commenced employment with the Company in 1994.
- --------------------------
No other executive officer of the Company earned more than $100,000 during
the 1995 fiscal year.
28
<PAGE> 32
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table provides information concerning individual grants of
stock options made during 1995 to each of the executive officers named in the
Summary Compensation Table. The Options were granted pursuant to the Company's
1993 Stock Option Plan. Under the Plan, the options vest over a five year
period commencing one year from date of grant.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise Price Expiration
Name Granted in Fiscal Year ($ share) Date
- ---------------------- -------------------- -------------------- -------------- ----------
<S> <C> <C> <C> <C>
William R. Hurd..... 3,040 5.29 5.00 9/8/2001
James C. Chao....... 1,800 3.13 5.00 9/8/2001
Allan J. Hammer..... 1,920 3.43 5.00 9/8/2001
Robert Kurkiewicz... 2,214 3.85 5.00 9/8/2001
</TABLE>
The following table sets forth information for the executive officers
named above with regard to the aggregate stock options exercised during the
year ended December 31, 1995, and the stock options held as of December 31,
1995.
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End($)(1)
Shares Acquired Value Realized
Name on Exercise# ($) Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------- ---------------- -------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
C. Arnold Curry..... 0 0 0 0/0
William R. Hurd..... 0 0 26,000/ 42,040 0/0
James C. Chao....... 0 0 4,000/ 17,800 0/0
Allan J. Hammer..... 0 0 6,000/ 25,920 0/0
Robert Kurkiewicz... 0 0 8,000/ 14,214 0/0
</TABLE>
- ------------------
(1) Value based on the difference between the closing bid price of the
Company's Common Stock on December 29, 1995 and the exercise price. The
options held by the named executive officers have exercise prices which
are higher than the closing bid price of the Company's Common Stock on
December 29, 1995.
- ------------------
EMPLOYMENT AGREEMENTS
C. Arnold Curry, the Chief Scientific Advisor and Chairman, Emeritus, of
the Company, entered into a five-year employment agreement, on February
16, 1996, with the Company expiring February 16, 2001, subject to automatic
renewal for successive one-year terms unless terminated by the Company or Dr.
Curry upon 90 days' notice prior to the end of the initial term or the renewal
terms, as the case may be. (Dr. Curry resigned as the Company's Chairman of
the Board and Chief Executive Officer on February 16, 1996.) Under the
employment agreement, the position of Chief Scientific Advisor (a research and
consulting position without policy making responsibilities) is compensated at
an annual base salary of $90,000. Dr. Curry is entitled to receive stock
bonuses in the amount of 35,000 shares of the Company's Common Stock for each
of the first five (5) occasions when the Company secures an Abbreviated New
29
<PAGE> 33
Drug Application from the U.S. Food and Drug Administration. Dr. Curry was
also granted an option to acquire up to 250,000 shares of common stock at an
exercise price of $5.00, with the number of shares dependent on the amount by
which the Company's net income for the year ending December 31, 1998 equals or
exceeds the following amounts: $2,650,000 -- 150,000 shares; $3,060,000 -- an
additional 50,000 shares; and $3,600,000 -- an additional 50,000 shares. In
addition, Dr. Curry was also granted an option of up to 250,000 shares of
common stock, an exercise price of $3.28, with the number of shares dependent
on the amount of the Company's net income for the years ending December 31,
1996 through December 31, 2001 as follows: 50,000 shares if net income equals
$4,100,000 and an additional 50,000 shares for each additional $500,000 of net
income.
Under the employment agreement, Dr. Curry may, upon giving 30 days written
notice, terminate the agreement in the event there is a change of control or
ownership (as defined in the employment agreement) of the Company and his
powers and duties significantly change or he has good reason (as defined in the
employment agreement) to terminate or, as a result of the change of control or
ownership, Dr. Curry reasonably determines that he is unable to exercise or
perform his powers, functions and duties. In the event of such termination, Dr.
Curry will receive (i) a lump sum severance payment equal to his base salary
for 36 months at the rate payable at the time notice of termination was given,
and (ii) the immediate vesting in any stock option which would have been
exercisable at the close of the year during which the change of control
occurred. Based upon Dr. Curry's current base salary, the Company estimates
that the lump sum severance payment payable to Dr. Curry under this provision
would be approximately $270,000 for the present fiscal year.
In the event that Dr. Curry terminates his employment for cause not
attributable to himself, or if the Company terminates the Agreement without
cause, then he shall be entitled to receive monthly base salary payments for
eighteen (18) months from the date of termination, and the Company shall
continue premium coverage payments for health and life insurance for the same
period. In addition, any stock options that would become available for exercise
at the end of the year during which such termination occurred shall immediately
vest.
In event that Dr. Curry terminates his employment without cause, or his
employment is terminated for cause, death or disability, then he (or his
estate) will receive earned and unpaid salary accrued to the date of
termination.
Robert Kurkiewicz, the Vice President of Quality Assurance, entered into a
five-year employment agreement with the Company expiring November 22, 1998,
subject to automatic renewal for successive one-year terms unless terminated by
the Company or Mr. Kurkiewicz upon 30 days notice prior to the commencement of
any such renewal period. Under the employment agreement, Mr. Kurkiewicz
currently receives an annual base salary of $123,000.
In the event that Mr. Kurkiewicz terminates his employment for cause not
attributable to himself, or if the Company terminates this Agreement without
cause, then he shall be entitled to receive monthly base salary payments for
twelve (12) months from the date of termination, and the Company shall continue
premium coverage payments for health insurance for the same period. In
addition, any stock options that would become available for exercise at the end
of the year during which such termination occurred shall immediately vest.
30
<PAGE> 34
In the event that Mr. Kurkiewicz terminates his employment without cause,
or his employment is terminated for cause, death or disability, then he (or his
estate) will receive earned and unpaid salary accrued to the date of
termination.
William R. Hurd, the President and Chief Operating Officer of the Company,
entered into an employment agreement with the Company expiring December 6,
2000, subject to automatic renewal for successive one-year terms unless
terminated by the Company or Mr. Hurd upon 90 days notice prior to the end of
the initial term or the renewal terms, as the case may be. Under the employment
agreement, Mr. Hurd currently receives an annual base salary of $167,612, plus
an annual bonus to be based upon performance specifications and/or goals to be
agreed upon by the Company and Mr. Hurd, with the bonus payable to Mr. Hurd for
any year of employment to be not more than 30% of his base salary for such
year.
Under the employment agreement, Mr. Hurd may, upon giving 30 days written
notice, terminate the agreement in the event there is a change of control or
ownership (as defined in the employment agreement) of the Company and his
powers and duties significantly change or he has good reason (as defined in the
employment agreement) to terminate or, as a result of the change of control or
ownership, Mr. Hurd reasonably determines that he is unable to exercise or
perform his powers, functions and duties. In the event of such termination, Mr.
Hurd will receive (i) a lump sum severance payment equal to his base salary for
36 months at the rate payable at the time notice of termination was given, (ii)
the bonus which he would otherwise be entitled to for the year in which his
employment is terminated, and (iii) the immediate vesting in any stock option
which would have been exercisable at the close of the year during which the
change of control occurred. Based upon Mr. Hurd's current base salary, the
Company estimates that the lump sum severance payment payable to Mr. Hurd under
this provision would be approximately $502,836 for the present fiscal year.
In the event that Mr. Hurd terminates his employment for cause not
attributable to himself, or if the Company terminates the Agreement without
cause, then he shall be entitled to receive monthly base salary payments for
eighteen (18) months from the date of termination, and the Company shall
continue premium coverage payments for health and life insurance for the same
period. In addition, any stock options that would become available for exercise
at the end of the year during which such termination occurred shall immediately
vest.
In event that Mr. Hurd terminates his employment without cause, or his
employment is terminated for cause, death or disability, then he (or his
estate) will receive earned and unpaid salary accrued to the date of
termination.
Mr. Hammer, the Chief Financial Officer, Treasurer and Secretary of the
Company, entered into a five-year employment agreement with the Company
expiring July 1, 1999, subject to automatic renewal for successive one-year
terms unless terminated by the Company or Mr. Hammer, upon 30 days written
notice prior to the end of the initial term or the renewal terms, as the case
may be. Under the employment agreement, Mr. Hammer currently receives an annual
base salary of $120,000.
In the event that Mr. Hammer terminates his employment for cause not
attributable to himself, or if the Company terminates the agreement without
cause, then he shall be entitled to receive monthly base salary payments for
twelve (12) months from the date of termination, and the Company shall continue
premium coverage payments for health insurance for the same period.
31
<PAGE> 35
In addition, any stock options that would become available for exercise at the
end of the year during which such termination occurred shall immediately
vest.
In event that Mr. Hammer terminates his employment without cause, or his
employment is terminated for cause, death or disability, then he (or his
estate) will receive earned and unpaid salary accrued to the date of
termination.
CERTAIN AFFILIATED TRANSACTIONS
C. Arnold Curry and Cara J. Curry guaranteed the Company's indebtedness to
the EDC in the aggregate principal amount of approximately $9.1 million in
connection with the funding of the construction of the Company's pharmaceutical
manufacturing facility and executive offices.
Additionally, in 1994, Dr. Curry agreed to indemnify the Company for a
defalcation by the Company's former controller, who is Dr. Curry's son.
Through December 31, 1995, the Company has accrued approximately $623,202 in
damages, costs and expenses. Of this amount Dr. Curry has paid the Company
approximately $568,202 pursuant to his indemnification and the Company has
agreed to waive the difference. See "Risk Factors -- SEC Inquiry."
The Company borrowed from David A. Hagelstein the principal sum of
$200,000 represented by its Demand Promissory Note dated November 29, 1994,
bearing interest at the annual rate equal to 2% over the prime rate announced
from time to time by Comerica Bank ("Prime plus two"), payment of which was
personally guaranteed by C. Arnold Curry, M.D. On January 12, 1995, Mr.
Hagelstein advanced an additional $300,000 by means of a direct payment to the
vendor of certain equipment purchased by and delivered to Caraco for $285,237
and a direct payment to Caraco of $14,763. The foregoing $200,000 Demand
Promissory Note was replaced by a new $500,000 Demand Promissory Note, which
bears interest at Prime plus two and is secured by a security interest in the
Company's accounts receivable and certain existing equipment and a purchase
money security interest in certain additional equipment then to be acquired by
Caraco. Mr. Hagelstein also undertook to advance an additional $500,000 to
Caraco upon the occurrence of certain events.
Pursuant to a Consulting Agreement dated January 12, 1995, as amended on
March 20, 1995, the Company issued to Mr. Hagelstein a warrant, expiring
December 31, 1999, to purchase 150,000 shares of Caraco's Common Stock at $3.50
per share and to pay him monthly, for 12 months beginning March 1995, a
consulting fee of $2,500. In early February 1995, pursuant to a Demand
Promissory Note bearing interest at Prime plus two and a Security Agreement,
Mr. Hagelstein advanced another $230,000 for the purchase of equipment and his
obligation to make any further advances to the Company was extinguished.
The Company borrowed from Jay F. Joliat the principal sum of $250,000
represented by its Secured Promissory Note dated February 15, 1996, bearing
interest at 6.0% per annum secured by a security interest in certain equipment
associated with a packaging line. The loan is due and payable on or before
February 15, 1999 and is convertible into shares of Common Stock. In
consideration of such loan, Mr. Joliat was granted 111,111 warrants exercisable
at one warrant for one share of Common Stock at the lowest closing price of the
Company's Common Stock as reported on NASDAQ on any one of the 30 days between
February 15 and March 15, 1996, with the warrants exercisable at any time on or
before March 31, 2006. Mr. Joliat converted the loan on March 31, 1996 and
received one (1) share of Common Stock for each $2.25 of
32
<PAGE> 36
loan. In addition, for each share converted, Mr. Joliat shall receive five (5)
warrants with the same terms and conditions noted above.
Some of the Company's officers and directors have participated in the
Company's private offerings of securities. In December 1994, Jay F. Joliat
purchased 285,714 shares of the Company's Series A Preferred Stock for $1
million and also received 110,000 warrants exercisable one warrant for one
share of common stock at $3.50 per share, with the warrants exercisable until
December 31, 2004. The Series A Preferred Stock pays a dividend of $.21 per
share after January 1, 1997. Except as provided by law, the preferred shares
have no voting rights. In February 1995, purchasers of a private offering
included Ronald R. Dobbins, David A. Hagelstein, William R. Hurd, Jay F. Joliat
and an affiliate of John R. Morris, who purchased 8,333, 191,250, 5,334, 66,667
and 25,000 shares respectively, of the Company's Common Stock for $3.00 per
share. In connection with that private offering, Dr. Curry transferred to
subscribers without any payment of consideration to him, one share of Caraco
stock owned beneficially by him for each two shares purchased from the Company.
In addition, Dr. Curry transferred to Mr. Hagelstein, without cost, another
17,500 shares, of common stock owned by Dr. Curry. In June 1995, purchasers of
a private offering included James C. Chao, David A. Hagelstein and Jay F.
Joliat, who purchased 24,000, 616,000, and 120,000 shares, respectively, of the
Company's Common Stock for $1.25 per share. Of the 616,000 shares issued to
Mr. Hagelstein, 548,000 were issued upon the conversion of the $230,000 and
$500,000 loans by Mr. Hagelstein to the Company referenced above. In October
1995, purchasers of a private offering included Jay F. Joliat, David A.
Hagelstein, David W. Adamany, James C. Chao and an affiliate of John R. Morris,
who purchased 100,000, 40,000, 4,000, 10,000 and 40,000 shares, respectively,
of the Company's Common Stock for $2.50 per share. On May 31, 1996, Jay F.
Joliat purchased, in a private offering, 250,000 shares of the Company's Common
Stock for $2.00 per share.
The Company believes that all the transactions between the Company and its
officers, directors, and other affiliates of the Company were on terms no less
favorable to the Company than could have been obtained from unaffiliated third
parties on an arm's length basis. All future transactions with directors,
officers or shareholders holding more than five (5%) of the Company's
outstanding Common Stock and affiliates of such persons will continue to be on
terms no less favorable than could be obtained from an unaffiliated third party
and will be approved by a disinterested majority of the Company's directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table presents certain information, as of May 31, 1996, with
respect to the common stock owned by each director and nominee for election to
the Board of Directors, each executive officer named in the Summary
Compensation Table, all executive officers and directors as a group, and by
each person (including any "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) who is known to the Company to be
the beneficial owner of more than five (5%) percent of the outstanding shares
of the Company's common stock. The shares and percentages shown below include
shares which may be acquired by the persons listed pursuant to presently
exercisable and outstanding stock options, warrants,
33
<PAGE> 37
and convertible stock. Except as indicated below, each person listed
has sole voting and investment power as to the shares listed.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP % OF CLASS
------------------- ---------------- ----------
<S> <C> <C>
David W. Adamany 9,000(1) 0.11%
Betty R. Anderson 4,280(2) *
C. Arnold Curry 1,384,447(3) 17.67%
Cara J. Curry 484,615(4) 6.19%
Ronald R. Dobbins 18,778(2) 0.24%
Theodore H. Glenn 1,100 *
David A. Hagelstein 1,424,252(5) 17.77%
William R. Hurd 42,193(6) 0.54%
Jay F. Joliat 1,844,591 20.73%
John R. Morris 107,600(8) 1.37%
Robert P. Roselle 3,700(2) *
James C. Chao 52,260(11) 0.67%
Sherman N. Ginn, Jr. 4,000(9) *
Allan J. Hammer 11,264(10) .14%
Robert Kurkiewicz 11,913(11) .15%
All executive officers and
directors as a group 5,403,993 50.09%
(15 persons)
</TABLE>
- --------------------------
* Less than 0.10%
(1) Includes stock options that are currently exercisable to acquire 1,200
shares.
(2) Includes stock options that are currently exercisable to acquire 2,400
shares.
(3) Excludes 484,615 shares owned by his wife Cara J. Curry, as to which he
disclaims beneficial ownership. Includes 10,000 shares of common stock
underlying an option granted to a third party pursuant to an option
agreement.
(4) Excludes 1,384,447 shares owned by her husband C. Arnold Curry, as to
which she disclaims beneficial ownership.
(5) Includes Warrants to acquire 179,158 shares which are exercisable as to
24,158 until 3/31/98; as to 5,000 until 12/31/98; as to 150,000 until
1/1/99. See "Certain Affiliated Transactions."
(6) Includes 600 shares and 100 warrants owned by Richard and Kimberly Hurd
minor children to William R. Hurd and stock options that are currently
exercisable to acquire 26,000 shares.
(7) Includes 285,714 Series A Preferred Stock convertible to common stock and
warrants to acquire 110,000 shares which are exercisable until January 1,
2005. Also includes 666,666 warrants which are exercisable until March
31, 2006. See "Certain Affiliated Transactions."
34
<PAGE> 38
(8) Includes 10,000 warrants exercisable until February 11, 1999.
(9) Includes stock options that are currently exercisable to acquire 4,000
shares.
(10) Includes 500 warrants exercisable until February 11, 1999 and stock
options that are currently exercisable to acquire 6,000 shares.
(11) Includes stock options that are currently exercisable to acquire 8,000
shares.
- --------------------------
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, no
par value (the "Common Stock"). While shareholders on May 10, 1995, have
approved an increase in the number of authorized shares to 20,000,000, no
amendment to the Company's Articles of Incorporation has yet been filed with
the State of Michigan. The Company intends to file an amendment reflects the
increase prior to August 15, 1996 in connection with its plan to raise capital.
See "Management Discussion - Liquidity at Capital Resources". At May 31,
1996, there were 7,842,106 shares of the Company's Common Stock issued and
outstanding and 3,686,089 shares of Common Stock reserved for issuance (i) upon
exercise of outstanding options and warrants or (ii) as stock bonuses upon
realization of certain financial objectives. See "Executive Compensation -
Employment Agreements", "Certain Affiliated Transactions" and Security
Ownership of Certain Beneficial Owners and Management". All outstanding shares
of Common Stock are validly issued, fully paid, and nonassessable. Holders of
Common Stock are entitled to share ratably in such dividends and distributions
as may from time to time be declared by the Board of Directors of the Company
from funds legally available therefor and upon liquidation will be entitled to
share ratably in any assets of the Company legally available for distribution
to holders of the Common Stock. The Company's Articles of Incorporation and
Bylaws do not confer any preemptive, subscription, redemption, or conversion
rights on the holders of Common Stock. Holders of Common Stock are entitled to
cast one vote for each share held of record on each matter submitted to a vote
of shareholders. There is no cumulative voting, which means that holders of
a majority of the voting power may elect all of the directors.
SERIES A WARRANTS
The Series A Warrants are registered under the Securities Act (as are the
shares of Common Stock underlying the Series A Warrants) Each Series A
Warrant entitles the holder to purchase one share of Common Stock for $6.50
(the "$6.50 Exercise Price") during the period ending February 11, 1999).
The Series A Warrants are issued under a Series A Warrant Agreement
between the Company and the Series A Warrant holder (the "Series A. Warrant
Agreement"). The shares of Common Stock underlying the Series A Warrants, when
issued upon exercise of a Series A Warrant and payment of the exercise price,
will be fully paid and nonassessable and the Company will pay
35
<PAGE> 39
any transfer tax incurred as a result of issuance of Common Stock to the holder
upon its exercise.
The Company may, at its option, accelerate the expiration period of the
Series A Warrants upon not less than 30 days prior notice to the registered
holders of the Series A Warrants, in the event that the shares of Common Stock
have had a closing "bid" price of not less than 150% of the then current
exercise price per share for a period of 10 consecutive trading days ending not
more than ten calendar days immediately prior to the date of such notice. Notice
of acceleration of the expiration period of the Series A Warrants will be mailed
to each registered holder of the Series A Warrants at the address appearing in
the records of the Company and such notice will be published in The Wall Street
Journal and other newspapers of general circulation published in New York and
Detroit.
The holders of the Series A Warrants will not have any rights or privileges
of shareholders of the Company (except to the extent they own Common Stock of
the Company) prior to the exercise of the Series A Warrants. The $6.50 Exercise
Price of the Series A Warrants and the number of shares of Common Stock issuable
upon the exercise thereof are subject to adjustment upon the occurrence of
certain events such as stock splits, stock dividends, or the like, as set forth
in the Series A Warrant Agreement. No adjustment of the exercise price will be
required unless it would amount to at least $.25 per full share; however, any
such adjustment not made will be carried forward and taken into account in any
subsequent adjustment.
In the event of a capital reorganization of the Company, reclassification
of the Common Stock or a consolidation or merger of the Company with or into, or
a disposition of substantially all of the Company's properties and assets to,
any other corporation, the Series A Warrants then outstanding will thereafter be
exercisable into the kind and amount of shares of stock or other securities or
property (including cash) to which the holders thereof would have been entitled
if they had exercised such Series A Warrants and received shares of Common Stock
immediately prior to such reorganization, reclassification, consolidation,
merger, or disposition, consistent with the requirements for exercise set forth
in the Series A Warrant Agreement.
The foregoing statements are summaries of the rights and privileges of the
holders of the Company's securities. They do not purport to be complete and are
qualified in their entirety by reference to the Company's Articles of
Incorporation and the Series A Warrant Agreement covering the Series A Warrants.
SERIES A PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock. At
May 31, 1996, there were 285,714 shares designated as Series A Preferred Stock
(the "Preferred Stock"). The Preferred Stock provides for annual dividends of
$.21 per share, commencing January 1, 1997. Except as provided by law, the
Preferred Stock has no voting rights. The Preferred Stock may be converted at
any time prior to January 1, 2004 - one preferred share to one share of Common
Stock.
36
<PAGE> 40
MICHIGAN BUSINESS CORPORATION ACT
The Company is subject to the Michigan Business Corporation Act (the
"MBCA"). Chapter 7A of the MBCA applies to certain "Business Combination,"
defined to include a range of significant transactions such as mergers,
substantial sales of assets, securities issuances, liquidation, and
recapitalizations. In general, Chapter 7A requires, for any Business
Combination with an "Interested Shareholder" (generally a beneficial owner of
10% or more of a class of the voting capital stock): (i) an advisory statement
from the Board of Directors, (ii) the approval vote of holders of at least 90%
of the outstanding shares of each class of voting capital stock, and (iii) the
approval vote of 66 % of the holders of outstanding shares of each such class,
excluding those held by the Interested Shareholders, its "affiliates" and
"associates," as defined in Chapter 7A. These requirements do not apply,
however, where the Interested Shareholder satisfies certain "equal or similar"
form of consideration and procedural requirements specified in Chapter 7A
(including a requirement that the Business Combination not occur within five
years of attainment of Interested Shareholder status) or where the Company's
Board of Directors has approved the transaction specifically, generally or
generally by type prior to the Interested Shareholder becoming an Interested
Shareholder. Chapter 7A would cease to apply to the Company if its Articles
were amended to elect not to be covered by the Chapter, but such an amendment
would require the same votes for approval as the Chapter requires for approval
of a Business Combination with an Interested Shareholder.
Generally, Chapter 7B of the MBCA would divest any Control Shares of an
"Issuing Public Corporation" acquired in a "Control Share Acquisition" of voting
rights unless and until approved by the affirmative vote of the holders of at
least a majority of the shares entitled to vote thereon and by the affirmative
vote of the holders of a majority of such shares excluding all "Interested
Shares." In general, a "Control Share Acquisition" is defined, subject to
certain exclusions (including an exclusion for a merger or consolidation to
which the Company is a party), as any acquisition of issued and outstanding
"Control Shares." The term "Interested Shares" refers to shares owned or
controlled as to voting power by employee-directors of the company, certain of
its officers, the entity making or proposing to make the Control Share
Acquisition or its affiliates. The phrase "Control Shares" means shares that,
when added to those already owned or controlled as to voting power by an entity,
would (if not for Chapter 7B) give the entity voting power in the election of
directors of the Company within any of three thresholds: one-fifth, one-third,
or a majority. An "Issuing Public Corporation" is defined to include a
corporation which has 100 or more shareholders of record, has its principal
place of business or substantial assets in Michigan and satisfies certain other
requirements. It is expected that following the offering the Company will
qualify as an Issuing Public Corporation. If a Control Share Acquisition is
approved as required by Chapter 7B, special dissenters' rights are accorded to
Company shareholders thereafter.
The foregoing discussion of certain provisions of the MBCA is qualified in
its entirety by reference to those MBCA provisions. The area of state
anti-takeover law has been rapidly changing in recent years. For example,
certain state statutes have been contested on the basis of federal preemption
and other theories. Moreover, the anti-takeover laws do not completely insulate
corporations from hostile takeovers and do not change existing law concerning
directors' fiduciary duties to shareholders. Shareholders are therefore urged to
consult their respective
37
<PAGE> 41
legal counsel regarding applicable anti-takeover laws and their effect
on the Company and its shareholders.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer is the Transfer Agent and Registrar for the Common
Stock and the Series A Warrants.
SELLING SHAREHOLDERS
General. There are 3,718,058 shares of Common Stock (approximately 47.45%
of the outstanding shares of Common Stock) being offered by this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OWNED
ASSUMING
NUMBER OF NUMBER OF ALL SHARES
SELLING SHARES SHARES OFFERED ARE
SHAREHOLDER TITLE OWNED REGISTERED SOLD
- ----------- ----- --------- ---------- -----
<S> <C> <C> <C> <C>
Cazenove & Co. N/A 80,000 25,000 55,000
Ronald R. Dobbins & Director 16,378 12,500 3,878
Mildred L. Dobbins JTTEN
David A. Hagelstein TTEE Director and 10% 1,213,094 1,058,375 154,719
David Hagelstein Trust Shareholder
William R. Hurd & Joan Hurd COO, President, 15,493 13,793 1,700
JTTEN Director
Jay F. Joliat TTEE J F Director and 636,814* 635,714* 1,100
Joliat Qual Term Int 10% Shareholder
PropTrust
John F. Joliat Terminable Director 431,111 431,111 -0-
Int Mar Trust
H. George Levy TTEE N/A 115,500 73,000 42,500
H. George Levy Trust
Sharon Madison Polk & N/A --- 31,500 ---
Robert C. Polk, Sr. JTTEN
Biotrade AAG (John Morris) Director 97,500 77,500 20,000
Sanne Trust Company Ltd N/A 30,000 30,000 -0-
Viking Medical Ventures N/A 150,000 150,000 -0-
Brapo Associates N/A 24,000 24,000 -0-
James and Dolly Chao JTTEN Vice President 44,260 44,000 260
</TABLE>
- ---------------
* Includes 285,714 shares of common stock to be issued upon exercise of
285,714 shares of convertible preferred stock.
38
<PAGE> 42
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OWNED
ASSUMING
NUMBER OF NUMBER OF ALL SHARES
SELLING SHARES SHARES OFFERED ARE
SHAREHOLDER TITLE OWNED REGISTERED SOLD
- ----------- ----- --------- ---------- ------------
<S> <C> <C> <C> <C>
Mathew Costigin N/A 24,000 24,000 -0-
DMC Holdings N/A 16,000 16,000 -0-
Domaco Venture Cap. Fund N/A 34,000 34,000 -0-
Richard N. Ellner N/A 24,000 24,000 -0-
Virginia Hagelstein Trust Director and 32,000 32,000 -0-
David A. Hagelstein TTEE 10% Share-
holder
Donaldson, Lufkin & Jen fbo N/A 24,000 24,000 -0-
Robert E. Kelly
Nancy J. Larsen N/A 28,000 24,000 4,000
Paul E. Oscher N/A 58,000 58,000 -0-
Arlene Oscher N/A 10,000 10,000 -0-
Jack Polak, Josette Wolf as N/A 24,000 24,000 -0-
TTEE fbo Josette Wolf Trust
No. 1
Jack Polak, Keogh Acct N/A 24,000 24,000 -0-
Suzanne Robinson N/A 24,000 24,000 -0-
Jonathan Rothschild N/A 34,000 34,000 -0-
Andrew P. Teitel N/A 40,000 40,000 -0-
Kasper & Rita J. Terhost N/A 24,000 24,000 -0-
TTEES of Kasper & Rita J.
Terhost Family Trust
Dr. James W. Welch, Jr. N/A 44,000 44,000 -0-
Robert Gerhart N/A 40,000 40,000 -0-
Albert Kalter N/A 10,000 10,000 -0-
Charles L. McKelvie Ptpnt N/A 10,000 10,000 -0-
Safeway Enterprises Inc.
Profit Sh. Plan & Trust
J.L. & Nancy H. McKelvie N/A 4,000 4,000 -0-
James L. & Cheryl DeLange N/A 4,000 4,000 -0-
Fred C. Applegate N/A 60,790 40,000 20,790
Dennis E. Brinker N/A 16,000 16,000 -0-
Steven Cupchak N/A 10,000 10,000 -0-
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
NUMBER OF
SHARES
OWNED
ASSUMING
NUMBER OF NUMBER OF ALL SHARES
SELLING SHARES SHARES OFFERED ARE
SHAREHOLDER TITLE OWNED REGISTERED SOLD
- ----------- ----- --------- ---------- ------------
<S> <C> <C> <C> <C>
Alan R. Ackerman N/A --- 10,000 ---
Chuck Otis N/A 10,000 10,000 -0-
Dr. Martin Ackerman N/A 10,000 10,000 -0-
Charles D. Hagelstein Amd. N/A 16,750 13,000 3,750
& Restd Rev Lvg Tr
Zata Hagelstein N/A 9,500 7,000 2,500
David Adamany Director 7,800 4,000 3,800
Herman Schornstein N/A 2,000 2,000 -0-
Herman Schornstein, M.D. N/A 1,000 1,000 -0-
P.C. Profit Sharing Trust
Lawrence C. Cornell, Jr. N/A 3,000 3,000 -0-
Agnes Varis & Karl Leichtman N/A 200,000 200,000 -0-
Sebastian A. Benenati N/A 2,500 2,500 -0-
David Croskey Rev Lvg Tr N/A 19,000 19,000 -0-
Thomas Croskey N/A 5,000 5,000 -0-
Gregory Duva N/A 12,000 12,000 -0-
Leonard Gartner N/A 36,000 36,000 -0-
Dennis M. Kavanagh N/A 5,000 5,000 -0-
Thomas B. Lanni N/A 5,000 5,000 -0-
Paul G. Lucido N/A 5,000 5,000 -0-
W. Robert Ogorek N/A 4,444 4,444 -0-
Rose Hakker Preiss N/A 10,000 10,000 -0-
The Probitas Offsh. Fund, LP N/A 50,000 50,000 -0-
The Probitas Fund, LP N/A 50,000 50,000 -0-
Allan J. Hammer CFO and Treas. 4,764 3,764 1,000
Robert Kurkiewicz Vice President 3,913 3,913 -0-
Thomas S. Campau N/A 1,500 1,500 -0-
Jane C. I. Hirsh N/A 44,444 44,444 -0-
</TABLE>
The Selling Shareholders purchased their shares pursuant to private
placement offerings and in connection therewith, the Company agreed to use its
best efforts to register their shares and
40
<PAGE> 44
pay the expenses associated therewith. See "Risk Factors - Impact on Market
Price of Registration."
RELATIONSHIP WITH INDEPENDENT AUDITORS
Effective November 6, 1995, the Company dismissed Grant Thornton LLP as its
principal accountant to audit its financial statements. On November 8, 1995,
the Board of Directors of the Company ratified the appointment of Rehmann
Robson PC effective November 6, 1995 as the Company's principal independent
accountants for the year ending December 31, 1995. The decision to invite
proposals for a change in accountants was recommended by the Board of Directors
on May 10, 1995.
The reports on the financial statements of Grant Thornton LLP on the
Company for either of the past two years did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to audit scope or
accounting principles.
During the Company's two most recent years ended December 31, 1993 and
1994, and any subsequent interim period preceding the former accountant's
dismissal, the Company had no disagreements with the former accountants on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure.
Prior to reaching its decision to appoint Rehmann Robson as the Company's
principal independent accountants, Caraco did not consult with the new
accountant, Rehmann Robson, with respect to the application of accounting
principles to any specific transaction or the type of audit opinion that might
be rendered on a small business issuer's financial statement.
See "Experts" below with respect to the reports of Rehmann Robson and Grant
Thronton LLP which include statements about the Company's ability to continue as
a going concern.
VALIDITY OF COMMON STOCK
The validity under Michigan law of the authorization and issuance of the
shares offered hereby will be passed upon for the Company by Seyburn, Kahn,
Ginn, Bess, Deitch and Serlin, P.C., 2000 Town Center, Suite 1500, Southfield,
Michigan 48075-1195.
EXPERTS
The financial statements as of December 31, 1995 and for the year then
ended and for the period from inception (February 22, 1984) to December 31,
1995, included in this prospectus have been audited by Rehmann Robson PC,
independent accountants, as stated in their report appearing herein and have
been so included in reliance upon the reports of such firm as experts in
accounting and auditing.
The financial statements for the year ended December 31, 1994 and for the
period from inception (February 22, 1984) to December 31, 1994 (which period was
not presented separately therein) included in this prospectus have been audited
by Grant Thornton LLP, independent
41
<PAGE> 45
accountants, as stated in their report appearing herein and have been so
included in reliance upon the report of said firm with experts in accounting and
auditing.
Each report contains a paragraph which states that the financial statements
referenced in the report have been prepared assuming the Company will continue
as a going concern, that as discussed in Note 1 to the financial statements,
conditions exist that raise substantial doubt about the Company's ability to
continue as a going concern and that the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
42
<PAGE> 46
CARACO PHARMACEUTICAL
LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORTS ...................................... F-2
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995
AND 1994 (AUDITED) AND FOR THE QUARTERS ENDED
MARCH 31, 1996 AND 1995 (UNAUDITED)
Balance Sheets ................................................... F-3
Statements of Operations ......................................... F-4
Statements of Stockholders' Equity ............................... F-5
Statements of Cash Flows ......................................... F-7
Notes to Financial Statements .................................... F-8
</TABLE>
F-1
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
CARACO PHARMACEUTICAL LABORATORIES, LTD.
Detroit, Michigan
We have audited the accompanying balance sheet of Caraco Pharmaceutical
Laboratories, Ltd. (a Michigan corporation in the development stage) as of
December 31, 1995, and the related statements of operations, stockholders'
equity and cash flows for the year then ended and for the period from February
22, 1984 (inception) through December 31, 1995. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the statements of operations, stockholders equity, and cash flows for the
period from inception (February 22, 1984) through December 31, 1994 (which
period is not presently separately herein). Those financial statements, which
reflect cumulative net sales of $5,153,150 and cumulative net loss of
$14,138,982, were audited by other auditors whose report thereon is included
elsewhere herein and, our opinion, insofar as it relates to the amounts included
for the period from February 22, 1984 (inception) through December 31, 1994, is
based solely upon the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and, with respect to years prior to 1995, the
report of the other auditors, the financial statements referred to above present
fairly, in all material respects, the financial position of Caraco
Pharmaceutical Laboratories, Ltd. as of December 31, 1995 and the results of its
operations and its cash flows for the year then ended and for the period from
February 22, 1984 (inception) through December 31, 1995 in conformity with
generally accepted accounting principles.
As described in Note 8 to the financial statements, during 1994 the Corporation
changed its method of depreciating certain equipment.
The accompanying financial statements have been prepared assuming the
Corporation will continue as a going concern. As described in Note 1 to the
financial statements, conditions exist that raise substantial doubt about the
Corporation's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Farmington Hills, Michigan
March 13, 1996
F-2
<PAGE> 48
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
ASSETS MARCH 31, 1996 1995
-------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 198,909 $ 332,264
Accounts receivable, net of allowance for
doubtful accounts of $105,000 ($35,000 in 1995) (Note 3) 183,008 408,580
Inventory (Note 1) 288,024 379,360
Prepaid expenses 119,365 161,643
Subscription receivable (Note 11) 1,288,000 -
----------- -----------
TOTAL CURRENT ASSETS 2,077,306 1,281,847
----------- -----------
PROPERTY AND EQUIPMENT - AT COST (NOTES 4 AND 8)
Land 197,305 197,305
Buildings and improvements 6,682,724 6,682,724
Equipment 3,795,087 3,738,548
Furniture and fixtures 156,909 156,909
----------- -----------
Total 10,832,025 10,775,486
Less accumulated depreciation 1,970,972 1,842,872
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 8,861,053 8,932,614
----------- -----------
MARKETABLE SECURITIES (NOTE 6) 128,739 128,739
----------- -----------
TOTAL ASSETS $11,067,098 $10,343,200
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 49
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, 1996 1995
-------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,228,979 $ 989,394
Current portion of long-term debt 475,833 475,833
Deferred revenue 147,000 147,000
Accrued expenses:
Interest 218,988 54,747
Other - 14,033
------------ ------------
TOTAL CURRENT LIABILITIES 2,070,800 1,681,007
Long-term debt, net of current portion (Note 4) 8,524,167 8,524,167
------------ ------------
TOTAL LIABILITIES 10,594,967 10,205,174
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 7 AND 9)
STOCKHOLDERS' EQUITY (NOTE 6)
Preferred stock, no par value, authorized 5,000,000 shares;
issued and outstanding, 285,714 Series A shares 1,000,000 1,000,000
Common stock, no par value, authorized 10,000,000 shares;
issued and outstanding, 7,540,762 shares (6,855,807 shares in 1995) 19,084,574 17,545,401
Subscription receivable (14,087) (14,087)
Deficit accumulated during the development stage (19,437,432) (18,232,364)
Unrealized loss on available-for-sale marketable securities (160,924) (160,924)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 472,131 138,026
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,067,098 $ 10,343,200
============ ============
</TABLE>
F-3
<PAGE> 50
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
AND FOR THE PERIOD FROM FEBRUARY 22, 1984 (INCEPTION)
TO MARCH 31, 1996
<TABLE>
<CAPTION>
(Unaudited)
Year Ended Quarter Ended (Unaudited)
December 31, March 31, Cumulative
-------------------------- ---------------------------- (2/22/84 to
1995 1994 1996 1995 3/31/96)
----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,048,096 $ 2,907,966 $ 450,342 $1,262,490 $ 9,651,588
Cost of goods sales 3,063,648 2,478,140 508,163 812,331 9,010,085
----------- ----------- ----------- ---------- ------------
GROSS PROFIT 984,448 429,826 (57,821) 450,159 641,503
----------- ----------- ----------- ---------- ------------
Selling, general and
administrative expenses 2,167,311 2,373,763 527,494 632,263 11,307,802
Research and development costs 2,236,414 1,506,339 458,074 486,580 5,270,758
----------- ----------- ----------- ---------- ------------
OPERATING LOSS (3,419,277) (3,450,276) (1,043,389) (668,684) (15,937,057)
----------- ----------- ----------- ---------- ------------
OTHER INCOME (EXPENSE)
Interest income 5,637 45,553 1,825 1,225 221,180
Interest expense (715,193) (655,487) (164,527) (189,865) (4,050,906)
Other expense (48,853) - 1,023 - (52,592)
Loss on sale of equipment 84,304 - - - (48,209)
----------- ----------- ----------- ---------- ------------
OTHER EXPENSE - NET (674,105) (609,934) (161,679) (188,640) (3,930,527)
----------- ----------- ----------- ---------- ------------
Loss before cumulative effect
of change in accounting
principle (4,093,382) (4,060,210) (1,205,068) (857,324) (19,867,584)
Cumulative effect of change
in accounting principle (Note 8) - 430,152 - - 430,152
----------- ----------- ----------- ---------- ------------
NET LOSS $(4,093,382) $(3,630,058) $(1,205,068) $ (857,324) $(19,437,432)
=========== =========== =========== ========== ============
Net loss per common share $ (0.65) $ (0.74) $ (0.17) $ (0.16) $ (6.15)
=========== =========== =========== ========== ============
Weighted average number of
common shares outstanding 6,272,923 4,885,324 7,007,600 5,233,443 3,162,464
=========== =========== =========== ========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 51
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at inception
(February 22, 1984) -- $ -- -- $ --
Issuance of 2,433,471 shares
of common stock for stock
subscription receivable -- -- 2,433,471 2,500
----- ----- --------- -----
Balance at
December 31, 1984 -- -- 2,433,471 2,500
Net loss -- -- -- --
----- ----- --------- -----
Balance at
December 31, 1985 -- -- 2,433,471 2,500
Net loss -- -- -- --
----- ----- --------- -----
Balance at
December 31, 1986 -- -- 2,433,471 2,500
Net loss -- -- -- --
----- ----- --------- -----
Balance at
December 31, 1987 -- -- 2,433,471 2,500
Net loss -- -- -- --
Collection of subscription
receivable -- -- -- --
----- ----- --------- -----
Balance at
December 31, 1988 -- -- 2,433,471 2,500
Net loss -- -- -- --
----- ----- --------- -----
Balance at
December 31, 1989 -- -- 2,433,471 2,500
Additional stockholder
contribution -- -- -- 97,500
Net loss -- -- -- --
----- ----- --------- -----
Balance at
December 31, 1990 -- -- 2,433,471 100,000
Net loss -- -- -- --
----- ----- --------- -----
Balance at
December 31, 1991 -- -- 2,433,471 100,000
Issurance of
common stock -- -- 539,055 2,480,449
Stock issued upon
conversion of debt -- -- 143,947 692,382
Net loss -- -- -- --
----- ----- --------- -----
<CAPTION>
Deficit
Accumulated Unrealized
During the Loss on
Subscription Development Marketable
Receivable Stage Securities Total
---------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Balance at inception
(February 22, 1984) $ -- $ -- $ -- $ --
Issuance of 2,433,471 shares
of common stock for stock
subscription receivable (2,500) -- -- --
---------- ----- ----------
Balance at
December 31, 1984 (2,500) -- -- --
Net loss -- (3,832) -- (3,832)
------ ---------- ----- ----------
Balance at
December 31, 1985 (2,500) (3,832) -- (3,882)
Net loss -- (50) -- (50)
------ ---------- ----- ----------
Balance at
December 31, 1986 (2,500) (3,832) -- (3,882)
Net loss -- (1,270) -- (1,270)
------ ---------- ----- ----------
Balance at
December 31, 1987 (2,500) (5,152) -- (5,152)
Net loss -- (81,297) -- (81,297)
Collection of subscription
receivable 2,500 -- -- 2,500
------ ---------- ----- ----------
Balance at
December 31, 1988 -- (86,449) -- (83,949)
Net loss -- (146,978) -- (146,978)
------ ---------- ----- ----------
Balance at
December 31, 1989 -- (233,427) -- (230,927)
Additional stockholder
contribution -- -- -- 97,500
Net loss -- (666,314) -- (666,314)
------ ---------- ----- ----------
Balance at
December 31, 1990 -- (899,741) -- (799,741)
Net loss -- (2,271,108) -- (2,271,108)
------ ---------- ----- ----------
Balance at
December 31, 1991 -- (3,170,849) -- (3,070,849)
Issurance of
common stock -- -- -- 2,480,449
Stock issued upon
conversion of debt -- -- -- 692,382
Net loss -- (3,568,135) -- (3,568,135)
------ ---------- ----- ----------
</TABLE>
(Continued)
F-5
<PAGE> 52
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------ -------------------- Subscription
Shares Amount Shares Amount Receivable
------ ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance at -- -- 3,116,473 3,272,831 --
December 31, 1992 -- -- 529,947 2,182,256 --
Issuance of common stock -- -- -- -- --
Net loss ------- ---------- --------- ----------- ---------
Balance at
December 31, 1993 -- -- 3,646,420 5,455,087 --
Issuance of common stock -- -- 1,400,000 7,924,251 --
Issuance of preferred stock 285,714 1,000,000 -- -- --
Net loss -- -- -- -- --
------- ---------- --------- ----------- ---------
Balance at
December 31, 1994 285,714 1,000,000 5,046,420 13,379,338 --
Issuance of common stock -- -- 1,809,387 4,110,063 (14,087)
Contribution of
administrative expenses by
Chairman, Emeritus -- -- -- 56,000 --
Net loss -- -- -- -- --
Unrealized loss on
marketable securities -- -- -- -- --
------- ---------- --------- ----------- ---------
Balance at
December 31, 1995 285,714 1,000,000 6,855,807 17,545,401 (14,087)
Issuance of
common stock (unaudited) -- -- 684,955 1,539,173 --
Net loss (unaudited) -- -- -- -- --
------- ---------- --------- ----------- ---------
Balance at
March 31, 1996 (unaudited) 285,714 $1,000,000 7,540,762 $19,084,574 $(14,087)
======= ========== ========= =========== =========
<CAPTION>
Deficit
Accumulated Unrealized
During the Loss on
Development Marketable
Stage Securities Total
------------ ----------- --------
<S> <C> <C> <C>
Balance at
December 31, 1992 (6,738,984) -- (3,466,153)
Issuance of common stock -- -- 2,182,256
Net loss (3,769,940) -- (3,769,940)
------------- ---------- -----------
Balance at
December 31, 1993 (10,508,924) -- (5,053,837)
Issuance of common stock -- -- 7,924,251
Issuance of preferred stock -- -- 1,000,000
Net loss (3,630,058) -- (3,630,058)
------------- ---------- ----------
Balance at
December 31, 1994 (14,138,952) -- 240,356
Issuance of common stock -- -- 4,095,976
Contribution of
administrative expenses
Chairman, Emeritus -- -- 56,000
Net loss (4,093,362) --
Unrealized loss on (4,093,382)
marketable securities -- (160,924) (160,924)
------------- ---------- -----------
Balance at
December 31, 1995 (18,232,364) (160,924) 138,026
Issuance of
common stock (unaudited) -- -- 1,539,173
Net loss (unaudited) (1,205,068) -- (1,205,068)
------------- ---------- -----------
Balance at
March 31, 1996 (unaudited) $(19,437,432) $(160,924) $ 472,131
============= ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 53
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
AND FOR THE PERIOD FROM FEBRUARY 22, 1984 (INCEPTION)
TO MARCH 31, 1996
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED QUARTER ENDED (UNAUDITED)
DECEMBER 31, MARCH 31, CUMULATIVE
------------------ ----------------------- (2/22/84 TO
1995 1994 1996 1995 3/31/96)
------------------- ----------------------- -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,093,382) $(3,630,058) $(1,205,068) $ (857,324) $(19,437,432)
Adjustments to reconcile net loss to net
cash used in operating activities
Cumulative effect of change in
accounting principle - (430,152) - - (430,152)
Depreciation 514,698 401,648 128,100 128,101 2,569,779
(Gain) loss on sale of equipment (84,283) - - - 48,230
Expenses paid by Chairman, emeritus 56,000 - - - 56,000
Changes in operating assets and
liabilities which provided (used) cash:
Accounts receivable (3,230) (156,683) 225,572 (293,411) (183,008)
Inventories 62,492 (333,687) 91,336 (335,846) (288,024)
Prepaid expenses and deposits (7,759) 64,902 42,278 27,742 (119,365)
Accounts payable 432 (706,899) 239,585 72,709 1,228,979
Accured expenses (75,861) (1,629,568) 150,208 (280,287) 381,987
----------- ----------- ----------- ----------- ------------
NET CASH USED IN OPERATING ACTIVITIES (3,630,893) (6,420,497) (327,989) (1,538,316) (16,173,006)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (159,430) (1,753,340) (56,539) (95,309) (2,373,247)
Proceeds from sale of equipment 195,000 - - - 195,000
----------- ----------- ----------- ------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 35,570 (1,753,340) (56,539) (95,309) (2,178,247)
----------- ----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3,060,313 7,924,251 251,173 1,040,686 16,690,824
Proceeds from issuance of preferred stock - 1,000,000 - - 1,000,000
Proceeds from long-term debt - - - - 868,601
Repayments of long-term debt - (388,533) - - (509,263)
Net short-term borrowings 300,000 200,000 - 300,000 500,000
----------- ----------- ----------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,360,313 8,735,718 251,173 1,340,686 18,550,162
----------- ----------- ----------- ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (235,010) 561,881 (133,355) (292,939) 198,909
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 567,274 5,393 332,264 567,274 -
----------- ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 332,264 $ 567,274 $ 198,909 $ 274,335 $ 198,909
=========== =========== =========== =========== ============
Supplemental disclosures of cash flows
information:
Cash paid for interest $ 944,186 $ 2,087,308 $ - $ 411,482 $ 3,988,059
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 54
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Caraco Pharmaceutical Laboratories, Ltd. (the "Corporation") was
incorporated on February 22, 1984, and has generated limited revenue from
planned principal operations. The Corporation is in the development stage
and, since inception, has primarily been involved in planning, obtaining
financing, constructing a permanent facility, acquiring and validating
production equipment, hiring and training employees and beginning the
development of product lines. The Corporation was established to develop,
manufacture and market generic prescription and over-the-counter
pharmaceuticals in the United States. The process of developing a line of
proprietary drugs requires approvals by the Food and Drug Administration
(FDA) of Abbreviated New Drug Applications (ANDA). While ANDA build-ups
have proceeded, the Corporation has generated limited sales revenue through
December 31, 1995 primarily from the acquisition from others of bulk
products repackaged by the Corporation and distributed under its own label
principally to the wholesale market including the generic cardiovascular
product Nifedipine, which has accounted for over 90% of sales volume.
Since these types of revenues are not considered by management to represent
the Corporation's planned principal operations, the financial statements
are prepared under the accounting assumption that the Corporation is
operating as a development stage enterprise.
The Corporation is subject to certain risks associated with companies in
the development stage. Profitable operations are dependent on the
Corporation's ability to market its products at reasonable profit margins.
In addition to achieving profitable operations, the future success of the
Corporation will depend, in part, on its continuing ability to attract and
retain key employees, obtain timely approvals of its Abbreviated New Drug
Applications (ANDA) and develop new products.
A summary of the significant accounting policies consistently applied,
except for the change in depreciation method (Note 8), in the preparation
of the accompanying financial statements follows:
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 and
disclosure of contingent 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.
F-8
<PAGE> 55
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Corporation will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business.
The Corporation has not currently achieved sales necessary to support
operations. The Corporation has, as of March 31, 1996, stockholders'
equity of $472,131 and working capital of $6,506. Realization of a major
portion of the assets is dependent upon the Corporation's ability to meet
its future financing requirements and the success of future operations,
the outcome of which cannot be determined at this time. These and other
factors, including becoming in technical default of the debt with the
Economic Development Corporation of the City of Detroit in 1996 as
described in Note 4, raise substantial doubt about the Corporation's
ability to continue as a going concern in the absence of sufficient
additional funds and the achievement of profitable operations. The
accompanying financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might be necessary should
the Corporation be unable to continue as a going concern.
Management's plans with regard to these matters include (also see Note
11):
On March 31, 1996, the Company converted a $250,000 stockholder loan
into 111,111 shares of its common stock at $2.25 per share. On March 31,
1996, the Company also sold privately to 20 investors an aggregate of
572,444 shares of common stock for an aggregate consideration of
1,288,000 in cash. On May 13, 1996 the Company sold privately to one
investor, 44,444 shares of common stock for $100,000 and on May 31, 1996
the Company sold privately to one investor 250,000 shares of common stock
for an aggregate of $500,000. The above offerings were completed without
an underwriter.
In July 1996, management intends to complete a private equity
placement of approximately $3,000,000 which will be used for working
capital. On July 11, 1996, the Company and the Indian specialty
pharmaceutical company, Sun Pharmaceutical Industries Ltd. announced that
they had signed two non-binding letters of intent pursuant to which Sun
Pharma would make an initial investment in Caraco of $4 million and sell
it certain rights for 20 generic pharmaceuticals products. This
transaction is subject to certain conditions, including completion of Sun
Pharma's due diligence, clearance from the Indian government, and
negotiation and execution of definitive documents. The parties intend to
consummate the transaction within 150 days.
F-9
<PAGE> 56
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company and Sun Pharma also announced that during the negotiations and
due diligence, Sun Pharma would transfer four of the proposed 20 products to
Caraco as a demonstration of Sun Pharma's commitment to the proposed
transaction. Under a separate agreement signed earlier this year, Caraco is to
manufacture and market a generic anticonvulsant drug from Sun Pharma in the
United States, with both companies sharing the development and registration
efforts. A similar agreement will govern the development of these four
products until the proposed transaction is consummated.
There is no assurance that the foregoing transactions will be consummated
or that the funds will be made available to the Company timely or on
financially satisfactory terms; or that any of the Company's ANDAs will be
approved by the FDA within time parameters anticipated by management or at all;
or that the Company will be able to manufacture and sell profitably any product
resulting from FDA approval of an ANDA filed by the Company. To the extent
that capital requirements should exceed available capital, the Company would be
required to reduce its research and development activity, reduce personnel and
delay capital expenditures while continuing to seek alternative sources of
financing for its business.
F-10
<PAGE> 57
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Corporation considers
all highly liquid debt instruments purchased with original maturities of
three months or less to be cash equivalents. Deposits with a bank exceed
the federally insured limit.
REVENUE RECOGNITION
Revenue is recognized upon the shipment of product with allowances for
returns and price adjustments in the normal course of business provided
based primarily upon actual subsequent activity. Amounts billed by the
Corporation in advance of performance in connection with a contract to
render certain research and development services are deferred at December
31, 1995.
INVENTORIES
Inventories are stated at the lower of cost determined by the first in,
first-out method or market. The cost of finished goods includes
materials and direct labor. Indirect manufacturing overhead costs have
not been capitalized and inventoried due to the relatively low levels of
production volume and plant capacity utilization to date.
Inventories consist of the following amounts at December 31, 1995, net of
allowances of $40,000 for short-dated materials:
<TABLE>
<S> <C>
Raw materials $ 266,683
Finished goods 112,677
---------
$ 379,360
=========
</TABLE>
The principal components used in the Corporation's business are active
and inactive pharmaceutical ingredients and certain packaging materials.
Many of these components are available only from sole source suppliers,
most of whom must be FDA approved. Qualification of a new supplier could
serve to delay the manufacture of the drug involved.
In 1995, the Corporation purchased approximately $1,503,000 of its raw
materials in the form of bulk Nifedipine pursuant to a supply contract
with one vendor.
F-11
<PAGE> 58
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided for in amounts sufficient to relate the cost of
property, plant and equipment to operations over their estimated service
lives using the straight-line method. Building and improvements are
depreciated over 40 years. As discussed in Note 8, effective January 1,
1994 the Corporation changed the method of depreciation and extended the
estimated service lives of certain manufacturing equipment.
MARKETABLE SECURITIES
Marketable securities consisting of an investment in a publicly held
company whose stock is traded in the over-the-counter market (Note 6),
are classified as available-for-sale and are carried at approximate
market value. Unrealized holding losses on this investment are
recognized as a separate component of stockholders' equity. It is
expected that realized gains or losses will be determined using the
specific identification method.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. The principal difference between assets
and liabilities for financial statement and tax return purposes is
attributable to differing depreciation methods.
LOSS PER SHARE
Loss per share is computed using the weighted average number of common
shares outstanding during each period.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
F-12
<PAGE> 59
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate their values due to the
short-term maturities of these financial instruments. The fair value of
marketable securities is based upon quoted market prices.
The Company does not believe it is practicable to estimate the fair value
of its note payable to the Economic Development Corporation of the City
of Detroit. Management believes the cost to do so would exceed the
benefits, particularly since such information is not needed to manage the
business.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. This Statement, which is effective for 1996 financial
statements, requires that an asset be reviewed for impairment whenever
events indicate that its carrying amount may not be recoverable. The
Corporation has not determined whether the application of this Statement
will have a material impact on its financial position or results of
operations.
In October 1995, The FASB issued Statement No. 123, Accounting for
Stock-Based Compensation, which requires a change in the way compensation
cost arising from stock options granted is measured. The Corporation
intends to adopt the disclosure aspects of this pronouncement.
INTERIM FINANCIAL STATEMENTS
The balance sheet as of March 31, 1996 and the related statements of
operations, stockholders equity and cash flows for the three months ended
March 31, 1996 and 1995 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted of only normal
recurring items, except for the establishment of a subscription
receivable as further described in Note 11. Interim results are not
necessarily indicative of operating results to be expected for the full
year.
F-13
<PAGE> 60
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
2. SUPPLEMENTAL CASH FLOWS INFORMATION
NON-CASH INVESTING AND FINANCING ACTIVITIES
Between 1990 and 1992, the Corporation constructed its manufacturing
facility and acquired production equipment under mortgage note
obligations totaling $9,157,000 (Note 4).
During 1995, 1993 and 1992, the Corporation converted stockholder notes
and interest owed thereon totaling $730,000 into 584,000, $125,000 into
31,250, and $692,382 into 143,947 shares of common stock, respectively.
During 1995, the Corporation recorded a contribution to capital of
$56,000 in recognition of certain administrative costs paid directly on
its behalf by its Chairman Emeritus.
During 1995 the Corporation recorded on unrealized loss of $160,924 on
available -for - sale marketable securities; the unrealized loss is
presented as a reduction of stockholders' equity.
3. ACCOUNTS RECEIVABLE
The Corporation sells its products using customary trade terms; the
resulting accounts receivable are unsecured. Accounts receivable and
related allowances, as of December 31, 1995, are summarized as follows:
Accounts receivable $ 513,580
---------
Allowances:
Doubtful accounts 30,000
Sales returns and allowances 34,000
Price adjustments 41,000
---------
Total allowances 105,000
---------
Accounts receivable,
net of allowances $ 408,580
=========
F-14
<PAGE> 61
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
4. LONG-TERM DEBT
Long-term debt at December 31, 1995 consists of a note payable to the
Economic Development Corporation (EDC) of the City of Detroit to evidence
an obligation to repay funds advanced to the Corporation pursuant to a
Development and Loan Agreement (the "Agreement") dated August 10, 1990 as
amended. The note is collateralized by a first mortgage, effectively, on
all of the Corporation's property and equipment purchased pursuant to the
Agreement and is personally guaranteed by the Corporation's founder and
Chairman Emeritus and his spouse.
Effective April 2, 1993, the Corporation and the EDC of the City of
Detroit amended the Agreement discussed above. The amendments included:
A reduction in the stipulated interest rate from the inception of
the loan through April 2, 1993 from 10% to 8 1/2%. Furthermore,
beginning April 2, 1993 through maturity, the rate was changed to 9
1/2% (prior to further amendments, as described below).
An increase in the City of Detroit's subordinate position in the
Corporation's operating facility from $1,000,000 to $3,000,000.
Effective March 1, 1994, the Agreement was modified to extend the
maturity date and provide for monthly payments of interest only through
December of 1995 and from January 1996 through June 2002 monthly payments
of principal and interest at which point a balloon payment of $5,579,000
is due. The required monthly interest only payments discussed above are
approximately $55,000 through December 1, 1995. Effective January 1,
1996, monthly principal and interest payments approximate $95,000 until
decreasing to approximately $89,000 in 2002. The interest rate, as
modified, ranges from approximately 5.0% - 6.5% throughout the term of
the Agreement.
The Agreement also contains certain operating covenants which limit
certain activities of the Corporation, consisting primarily of a
restriction on the sale or disposal of the Corporation's operating
facility. In addition, the Corporation may be subject to contingent
interest payments equal to 10% of the net proceeds from any sale or
disposition of any collateralized property purchased with "Section 108
Funds", as defined.
The Corporation has not made any of the required monthly principal and
interest payments due in the first quarter of 1996, nor a portion of the
property taxes due in the first quarter of 1996, and may technically be
in default of the Agreement.
F-15
<PAGE> 62
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
4. LONG-TERM DEBT (Continued)
Scheduled aggregate principal maturities of this note are summarized as
follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ----------
<S> <C>
1996 $ 475,833
1997 480,417
1998 505,417
1999 532,500
2000 562,500
Thereafter 6,443,333
----------
Total $9,000,000
==========
</TABLE>
5. INCOME TAXES
At December 31, 1995 a deferred tax asset and related valuation
allowance, attributable primarily to the net operating loss carryforward
(calculated using a 34% tax rate) of approximately $5,300,000 has been
established. The change in the valuation allowance in 1995 was
approximately $1,372,000.
At December 31, 1995, net operating loss carryforwards of approximately
$15,600,000 are available to offset future federal taxable income, if
any, through 2010.
6. STOCKHOLDERS EQUITY
COMMON STOCK ISSUANCE
During 1992, the Corporation issued 539,055 shares of common stock in
exchange for $2,480,449 and declared a 1400 for 1 stock split of the
Corporation's issued and outstanding common stock.
F-16
<PAGE> 63
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
6. STOCKHOLDERS EQUITY (Continued)
On April 14, 1993, the stockholders approved:
a. A reverse stock split of 1 to 1.444
b. A stock option plan for key employees, for which
the reservation of 350,000 shares of common stock is required
for issuance upon exercise of options that may be granted
under the plan.
All shares and per share data included in the accompanying financial
statements were restated to reflect the stock splits.
During the period from January through April 1993, the Corporation issued
43,659 shares of its common stock in exchange for $210,000.
In April 1993, the Corporation commenced a private placement of its
common stock. Pursuant to the terms of the offering memorandum, the
Corporation sold 427,538 shares of its common stock at $3.50 per share.
Additionally, the Corporation agreed to issue five year warrants to
purchase, at $3.50 per share, common stock in the Corporation in an
amount equivalent to 10% of the number of shares sold pursuant to the
private placement memorandum. The offering closed in July 1993 and the
Corporation received, net of offering costs of $110,000, approximately
$1,386,000 which includes a $50,000 note which was exchanged for stock.
During the period from September through November 1993, the Corporation
issued 115,000 shares of its common stock in exchange for $4.00 per
share. Net of offering costs, the Corporation received $433,000.
During the year ended December 31, 1993, the Corporation redeemed 87,500
shares of its common stock from its Chairman, Emeritus for $32,375.
On February 11, 1994, the Corporation completed its initial public
offering whereby it sold 700,000 units, each unit consisting of two
shares of common stock and one Series A warrant exercisable for one share
of common stock at $6.50, subject to adjustment in certain circumstances,
at anytime during the next five years. Proceeds to the Corporation, net
of offering costs were $7,900,000. In connection with the offering, the
underwriters were granted options to acquire 70,000 underwriters units at
$18.20 per unit commencing in 1995 and ending in 1999.
F-17
<PAGE> 64
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
6. STOCKHOLDERS EQUITY (Continued)
On February 23, 1995, the Corporation sold 454,918 shares of its
common stock at $3.00 per share, netting approximately $1,320,000.
This amount includes 101,250 shares which were issued to a current
stockholder (now a director) of the Corporation in exchange for 45,000
unregistered common shares held by the individual in an enterprise
whose stock is traded over-the-counter. As of December 31, 1995 the
Corporation had received 42,913 of such shares; the value measured on
February 23, 1995 of the remaining 2,087 shares is presented as a
subscription receivable on the accompanying balance sheet. As of
December 31, 1995, the value of the 42,913 shares of stock received by
the Corporation had decreased by $160,924 which is reflected on the
accompanying balance sheet as an unrealized loss on available-for-sale
marketable securities.
On June 30, 1995, the Corporation sold 1,208,000 shares of its common
stock at $1.25 per share, netting approximately $1,470,000. Of the
total shares issued, 400,000 shares were beneficially owned by the
Chairman, Emeritus and had been held in escrow since completion of the
initial public offering. This issuance also includes 584,000 shares
which were issued in consideration of cancellation of Corporation
indebtedness of $730,000, resulting in the receipt of net cash
proceeds of $780,000.
On October 31, 1995, the Corporation completed a private placement of
533,000 shares of the Corporation's common stock at $2.50 per share
that netted the Corporation approximately $1,276,000 in cash proceeds.
PREFERRED STOCK
The Corporation has authorized 5,000,000 shares of preferred stock
which are issuable in series with the terms and amounts set at the
Board of Directors discretion.
In December 1994, the Corporation authorized and issued 285,714 shares
of Series A preferred stock in exchange for $1,000,000. Each share of
preferred is nonvoting and is convertible into one share of common
stock through January 1, 2004. The preferred shares require dividends
of $.21 per share on a cumulative basis commencing in 1997.
F-18
<PAGE> 65
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
6. STOCKHOLDERS EQUITY (Continued)
INCENTIVE STOCK OPTION PLAN
Pursuant to the terms of an incentive stock option plan established in
April 1993 and subsequently amended in 1995, the Corporation may grant
options for the purchase of up to 350,000 in 1994 and 450,000 shares
in 1995 of common stock. Options granted are exercisable ratably over
five years on a cumulative basis commencing in 1994. Activity with
respect to these options follows:
Number
of Option
Shares Price
-------- -------------
Balance January 1, 1993 -0- -0-
Options granted 160,000 $3.50 - $4.00
Options exercised -0- -0-
Options terminated or expired -0- -0-
-------
Balance December 31, 1993 160,000 $3.50 - $4.00
Options granted 190,000 $4.00 - $6.125
Options exercised -0- -0-
Options terminated or expired (60,000)
-------
Balance December 31, 1994 290,000 $3.50 - $6.125
Options granted 75,493 $1.63 - $5.00
Options exercised -0- -0-
Options terminated or expired -0- -0-
-------
Balance December 31, 1995 365,493 $1.63 - $6.125
=======
During the years ended December 31, 1995 and 1994, options covering
58,000 shares and 20,000 shares, respectively, became exercisable.
None were exercised.
Apart from options outstanding under the incentive stock option plan,
at December 31, 1995, the Corporation also had issued and outstanding
options and warrants to acquire 684,423 shares of its common stock at
exercise prices ranging from $1.25 to $5.00 per share. None of these
options nor warrants were exercised during 1994 and 1995.
F-19
<PAGE> 66
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
6. STOCKHOLDERS EQUITY (Continued)
OTHER COMMON STOCK OPTION ARRANGEMENTS
Pursuant to a strategic alliance formalized by an agreement for the
acquisition of certain technology with a third-party pharmaceutical
company ("Hexal"), the Corporation granted to Hexal (i) a "sign-up"
option to purchase 100,000 shares of the Corporation's common stock at
a price of $3.50 per share and (ii) a "product" option to purchase a
presently indeterminable number of common shares at an exercise price
equivalent to their fair value, as defined, upon the filing of an ANDA
related to a certain generic drug. Such options may be exercised and
payment for shares may be made only out of royalties payable by the
Corporation to Hexal for sales, if any, of the related product.
COMMON STOCK PURCHASE WARRANTS
In connection with the issuance and sale of Series A preferred stock
in December 1994, the holder received warrants for the purchase of
110,000 shares of common stock at $3.50 per share, exercisable until
December 31, 2004.
In connection with loans totaling $500,000 received from a stockholder
in December 1994 and January 1995, the Corporation issued to the
stockholder warrants for the purchase of 150,000 shares of common
stock at $3.50 per share, exercisable until December 31, 1999.
7. EMPLOYMENT AGREEMENTS
During 1993 and 1994 the Corporation entered into employment
agreements with certain officers. Annual commitments under these
contracts approximate $493,000 through 1998.
In the event of certain terminations of employment (as defined) the
officers would be entitled to receive, among other things, their base
salaries for periods ranging from twelve to eighteen months from the
date of separation. In addition, in the event of a change in control
or ownership (as defined) of the Corporation, the Corporation's
President would be entitled to receive a lump sum severance payment
equal to three years' base salary plus certain performance bonuses.
F-20
<PAGE> 67
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
________________________________________________________________________________
8. ACCOUNTING CHANGES
Accelerated methods were used to compute depreciation of equipment
through December 31, 1993. Effective January 1, 1994, the Corporation
changed its method of computing depreciation for equipment to the
straight-line method. Management believes that straight-line
depreciation provides for a better matching of costs and revenues over
the lives (see below) of the related assets. The effect of this change
on the year ended December 31, 1994 was to decrease the net loss by
$49,000 ($.01 per share). The cumulative effect of this change in
accounting for periods prior to January 1, 1994 was $430,152 ($.09 per
share).
Concurrent with the change in depreciation policy, the Corporation
reviewed the estimated lives of certain manufacturing equipment and
extended them from seven to ten years. Management believes the revised
lives are more representative of the related equipments' economic useful
lives. The effect of this change in estimate was to decrease the 1994
net loss by approximately $84,000 ($.02 per share).
9. OTHER MATTERS
During the year ended December 31, 1994, the Corporation determined that
approximately $514,000 of Corporation funds had been misappropriated by
the Corporation's former controller, a son of the Corporation's Chairman
Emeritus. The misappropriations occurred during the period from January
through June of 1994. The Corporation's Chairman, Emeritus reimbursed
the Corporation the $514,000 and agreed to reimburse the Corporation for
costs incurred associated with this event. Included in accounts
receivable -- related parties at December 31, 1994 is approximately
$52,000 of such costs due from the Chairman Emeritus. As of December 31,
1995, all amounts outstanding have been collected in full.
The Corporation has made appropriate filings about this matter with the
Securities and Exchange Commission (SEC). The SEC is currently
conducting an investigation into the matter, and the Corporation is
complying on a voluntary basis.
In connection with this matter, approximately $56,000 in certain legal
and other expenses incurred by the Corporation in conducting an
investigation into this matter were paid directly by the Chairman
Emeritus from his personal funds. These expenses have been recognized in
the accompanying 1995 statement of operations with a corresponding credit
to common stock.
F-21
<PAGE> 68
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
10. MAJOR CUSTOMER
Shipments to one wholesaler customer (Amerisource) accounted for
approximately 23% of net sales in 1995. Balances due from this customer
represented approximately 16% of accounts receivable at December 31,
1995.
11. SUBSEQUENT EVENTS
DEBT FINANCING
On February 16, 1996, the Corporation received from a stockholder a
$250,000 loan which is convertible into 111,111 shares of common stock.
The loan is evidenced by a note which is collateralized by certain
equipment. The loan is due in three years with interest at 6% per annum.
In connection with the loan, the stockholder was granted warrants to
purchase 111,111 shares of common stock at $2.625 per share, exercisable
until March 31, 2006. In addition, for each common share issued upon
conversion of the loan, 5 warrants will be granted under the same terms
and conditions noted above.
EQUITY FINANCING (UNAUDITED)
On March 31, 1996, the Company converted a $250,000 stockholder loan
into 111,111 shares of its common stock at $2.25 per share. On March 31,
1996, the Company also sold privately to 20 investors an aggregate of
572,444 shares of common stock for an aggregate consideration of 1,288,000
in cash. On May 13, 1996 the Company sold privately to one investor,
44,444 shares of common stock for $100,000 and on May 31, 1996 the Company
sold privately to one investor 250,000 shares of common stock for an
aggregate of $500,000. The above offerings were completed without an
underwriter.
In July 1996, management intends to complete a private equity
placement of approximately $3,000,000 which will be used for working
capital. On July 11, 1996, the Company and Sun Pharmaceutical Industries
Ltd. announced that they had signed two non-binding letters of intent. See
Note 1 under "Going Concern" for further details with respect to the
proposed transaction.
* * * * * *
F-22
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is organized under the Michigan Business Corporation Act (the
"MBCA") which, in general, empowers Michigan corporations to indemnify a person
who is a party or threatened to be made a party to any civil, criminal,
administrative, or investigative actions, suit or proceeding (other than
actions by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
of another enterprise at such corporation's request, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection therewith if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation or its shareholders and, in the case of a criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. If a person is successful in defending against a derivative action
or third-party action, the MBCA requires that a Michigan corporation indemnify
the person against expenses incurred in the action.
The MBCA also empowers Michigan corporations to provide similar indemnity
against amounts paid in settlement and expenses actually and reasonably
incurred by such a person in actions or suits by or in the right of the
corporation except in respect of any claim, issue, or matter as to which such
person is adjudged to be liable to the corporation, unless and only to the
extent that a court determines that, despite the adjudication of the liability
but in view of all circumstances of the case, such person is fairly and
reasonable entitled to indemnify.
The Company's Articles of Incorporation and Bylaws generally require the
Company to indemnify its directors and officers to the fullest extent
permissible under Michigan law, require the advancement and reimbursement of
expenses under certain circumstances and establish a procedure for
determination of when indemnification is proper.
The MBCA permits Michigan corporations to limit the personal liability of
directors for a breach of their fiduciary duty. The Company's Articles of
Incorporation, which limit liability to the maximum extent permitted by law,
provide that a director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of the director's
fiduciary duty. However, MBCA and the Articles of Incorporation do not
eliminate or limit the liability of a director for any of the following: (i) a
breach of the director's duty of loyalty to the Company or its shareholders;
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; (iii) declaration of a unlawful dividend, stock
purchase or redemption; (iv) a transaction from which the director derives an
improper personal benefit; and (v) an act or omission occurring prior to the
date when the provision becomes effective. As a result of the inclusion of
such a provision, shareholders of the Company may be unable to recover monetary
damages against directors for actions taken by them which constitute negligence
or gross negligence or which are in violation of their fiduciary duties,
although it may be possible to obtain injunctive or other equitable relief with
respect to such actions.
II-1
<PAGE> 70
Under an insurance policy maintained by the Company, the directors and
officers of the Company are insured, within the limits and subject to the
limitations of the policy, against certain claims, actions, suits or
proceedings which may be brought against them by reason of being or having been
directors or officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement set forth the estimated amounts of expenses, all
of which will be borne by the Company in connection with the distribution of
the Common Stock offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $4,087
-------
Accounting Fees and Expenses *10,000
-------
Legal Fees and Expenses *25,000
-------
Blue Sky Registration Fees * 1,250
-------
Printing * 1,700
-------
Miscellaneous Expenses * 1,963
-------
Total Expenses $44,000
=======
</TABLE>
______________
*Estimated. All expenses will be borne by the Company.
______________
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following securities of the Company were sold by the Company within
the past three years without registration.
a. In June and July 1993, Registrant sold privately an aggregate of
427,538 shares of Common Stock to 21 investors at $3.50 per share, for
aggregate proceeds of $1,496,403, and warrants to purchase 36,644 shares
of Common Stock at $3.50 per share.
b. In October and November 1993, Registrant sold privately an aggregate
of 115,000 shares of Common Stock at $4.00 per share, for aggregate
proceeds of $460,000, and warrants to purchase 9,000 shares of Common
Stock at $4.00 per share.
c. During September 1993, Registrant sold to C. Arnold Curry, M.D., its
founder and then Chief Executive Officer and, with his wife, then
majority shareholder, an aggregate of 31,250 shares of Common Stock for
aggregate consideration of cancellation of indebtedness of $125,000.
d. In December 1994, the Company sold privately to one investor (who is
currently a Director of the Company) 285,714 shares of Series A
Preferred Stock in exchange for $1,000,000, and warrants to purchase
110,000 shares of Common Stock at $3.50 per share.
II-2
<PAGE> 71
e. In February 1995, the Company sold privately 454,918 shares of Common
Stock to 10 investors (including three (3) existing shareholders) at
$3.00 per share, for aggregate proceeds of $1,364,754.
f. In June 1995, the Company sold privately 1,208,000 shares of Common
Stock to 19 investors (including four (4) existing shareholders) at
$1.25 per share, for aggregate proceeds of $1,510,000 cash or
cancellation of indebtedness.
g. In October 1995, the Company sold privately 533,000 shares of Common
Stock to 24 investors (including seven (7) existing shareholders) at
$2.50 per share, for aggregate proceeds of $1,332,500.
h. In March 1996, the Company converted a $250,000 loan from one
existing shareholder (currently a Director of the Company) into 111,111
shares of Common Stock at $2.25 per share. In connection with the
loan, the investor received 666,666 warrants at $2.625 per share.
i. In March 1996, the Company sold privately 572,444 shares of
Common Stock to 20 investors (including six (6) existing shareholders)
at $2.25 per share, for aggregate proceeds of $1,287,999.
j. In early May 1996, the Company sold privately 44,444 shares of
Common Stock to one investor (an existing shareholder) at $2.25 per
share for aggregate proceeds of $99,999.
k. In late May 1996, the Company sold privately 250,000 shares of Common
Stock to one investor (an existing shareholder and a Director of the
Company) at $2.00 per share for aggregate proceeds of $500,000.
The foregoing sales and issuances of securities were deemed exempt from
registration under the Securities Act of 1933, as amended, by virtue of Section
4(2) thereof, as transactions not involving a public offering.
ITEM 27. EXHIBITS
(a) Exhibits
3.01 Registrant's Amended and Restated Articles of Incorporation, as
amended**
3.02 Registrant's Amended and Restated Bylaws**
5.01 Opinion of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C.***
10.01 Development and Loan Agreement, dated August 10, 1990, between
Registrant and The Economic Development Corporation of the City of
Detroit; First Amendment thereto, dated December 3, 1990; Second
Amendment thereto, dated April 2, 1993; and supplemental letter,
dated October 26, 1993 and agreement.*
II-3
<PAGE> 72
10.02 Amended and Restated Section 108 Guaranty Agreement, dated as of
August 10, 1990, of C. Arnold Curry and Cara Jean Curry in favor of
the Economic Development Corporation of the City of Detroit.*
10.03 Registrant's Amended and Restated Purchase Money Promissory Note,
dated as of August 10, 1990, in the principal amount of $157,500, to
the order of the Economic Development Corporation of the City of
Detroit.*
10.04 Registrant's Amended and Restated Section 108 Note, dated August 10,
1990 in the principal amount of $9,000,000, payable to The Economic
Development Corporation of the City of Detroit.*
10.05 Amended and Restated Purchase Money Mortgage, dated as of August 10,
1990, between Registrant as mortgagor and The Economic Development
Corporation of the City of Detroit.*
10.06 Agreement, dated March 22, 1990, between Registrant and R.P. Scherer
North America, a division of R.P. Scherer Corporation.*
10.07 Agreement, dated as of October 1, 1993, among Registrant, Hexal-Pharma
GmbH & Co., KG, and Hexal Pharmaceuticals, Inc.*
10.08 Agreement, dated October 20, 1993, between Registrant and Clonmel
Chemicals Co., Ltd.*
10.09 Form of 1993 Stock Option Plan.*
10.10 Employment Agreement, dated October 28, 1993, with William R. Hurd.*
10.12 Employment Agreement, dated October 22, 1993, with Robert Kurkiewicz.*
10.13 Agreement, dated as of January 6, 1994, among the Registrant, NBD
Bank, N.A., C. Arnold Curry, as Trustee of the Clevius Arnold Curry
Living Trust dated September 18, 1976, C. Arnold Curry, M.D., P.C., C.
Arnold Curry and Cara Jean Curry.*
10.14 Form of Lock-Up Agreement between First Equity Corporation and each of
C. Arnold Curry, as Trustee of the Clevius Arnold Curry Living Trust
dated September 18, 1976, C. Arnold Curry, M.D., P.C., C. Arnold
Curry, Cara Jean Curry, William R. Hurd, Robert Kurkiewicz, H. Craig
Sutzer and Mark Curry.*
10.15 Employment Agreement dated May 17, 1994, with Allan J. Hammer.**
10.16 Form of Subscription Agreement dated February 22, 1995 and signature
pages of investors.**
10.17 Warrant Purchase Agreement dated November 30, 1994, with Jay F.
Joliat.**
II-4
<PAGE> 73
10.18 Series A Preferred Stock Purchase Agreement dated November 30, 1994,
with Jay F. Joliat.**
10.19 Consulting Agreement dated January 12, 1995, with David A. Hagelstein,
and Amendment to Consulting Agreement dated March 20, 1995 with David
A. Hagelstein.**
10.20 Security Agreement dated January 12, 1995, with David A. Hagelstein.**
10.21 Security Agreement dated February 2, 1995, with David A. Hagelstein.**
10.22 Warrant to Purchase Common Stock of Caraco Pharmaceutical
Laboratories, Ltd. dated January 12, 1995, with David A. Hagelstein.**
10.23 Contract Manufacturing Agreement dated May 1994, with Apotex USA,
Inc.**
10.24 Letter agreement dated February 22, 1995, with Abbott Laboratories.**
10.25 Form of Subscription Agreement dated June 1995.****
10.26 Form of Subscription Agreement dated October 1995.****
10.27 Security Agreement dated February 15, 1996 with Jay F. Joliat.****
10.28 Secured Promissory Note dated February 15, 1996 with Jay F.
Joliat.****
10.29 Joint venture agreement dated on March 11, 1996, with Sun
Pharmaceutical Industries, Inc.****
10.30 Form of Subscription Agreement dated March 1996.****
10.31 Employment Agreement, dated February 16, 1996, with C. Arnold Curry.
23.01 Preferability Letter of Grant Thornton LLP.**
23.02 Consent of Rehmann Robson PC.***
23.03 Consent of Grant Thornton LLP.***
23.04 Consent of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C. (to be
included in opinion to be filed as Exhibit 5.01).
24.01 Powers of Attorney (included in the signature page included in this
Part II).
- ---------------------------------
II-5
<PAGE> 74
* Incorporated by reference from Exhibits to Registrant's Registration
Statement on Form SB-2, as amended, which was originally filed on
November 5, 1993 as Commission File No. 33-71398C.
** Incorporated by reference from Exhibits to Registrant's Form 10-KSB which
was originally filed on or about March 30, 1995 as Commission File no.
0-24676.
*** To be filed by amendment.
**** Incorporated by reference from Exhibits to Registrant's Form 10-KSB,
which was originally filed on or about March 30, 1996 as Commission File
No. 0-24676.
- ---------------------------------
(b) Financial Statement Schedules
None
ITEM 28. UNDERTAKINGS
1. The undersigned registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
Registration Statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 and (ii) to reflect in the prospectus
any facts or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the volume of securities offered (if the
total value of securities offered would not exceed that which was registered)
and any deviation from the low or high and of the maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
2. The undersigned registrant hereby undertakes: (a) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement to include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement, (b)
that, for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof, and (c) to remove from registration by means of a
post-effective amendment any of the securities which remain unsold at the
termination of the offering.
3. The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling person of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is
II-6
<PAGE> 75
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-7
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that is has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Detroit, State of Michigan, on the 11th day of July
1996.
CARACO PHARMACEUTICAL LABORATORIES, LTD.
By:/s/William R. Hurd
-----------------------------------------------------
William R. Hurd, President and Chief Operating Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William
R. Hurd his true and lawful attorney-in-fact with full power of substitution to
execute in the name and on behalf of such person, individually and in each
capacity stated below, and to file any and all amendments to this Registration
Statement on Form SB-2, including post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on July 11, 1996.
/s/William R. Hurd President, Chief Operating Officer and Director
-------------------
William R. Hurd
/s/Allan J. Hammer Treasurer, Chief Financial Officer and Secretary
------------------- (Principal Financial and Accounting Officer)
Allan J. Hammer
/s/David W. Adamany Director
-------------------
David W. Adamany
------------------- Director
Betty R. Anderson
/s/C. Arnold Curry Director
-------------------
C. Arnold Curry
/s/Cara J. Curry Director
-------------------
Cara J. Curry
/s/Ronald R. Dobbins Director
-----------------------
Ronald R. Dobbins
------------------- Director
Theodore H. Glenn
/s/David A. Hagelstein Director
-----------------------
David A. Hagelstein
/s/Jay F. Joliat Director
-------------------
Jay F. Joliat
------------------- Director
John R. Morris
------------------- Director
Robert P. Roselle
II-8
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE NO.
<S> <C> <C>
5.01* Opinion of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C.
10.31 Employment Agreement dated February 16, 1996 with C. Arnold Curry
23.01* Consent of Rehmann Robson PC
23.02* Consent of Grant Thornton, LLP
23.03* Consent of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C.
(to be included in Exhibit 5.01)
24.01 Power of Attorney included in Part II, Signature Page
</TABLE>
- ---------------------------------
* To be filed by amendment.
II-9
<PAGE> 1
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made this 16th day of
February 1996, by and between CARACO PHARMACEUTICAL LABORATORIES, LTD.
("Company") and C. ARNOLD CURRY ("Employee")
W I T N E S S E T H
WHEREAS, the Company desires to employ the Employee as its Chairman,
Emeritus and Chief Scientific Advisor; and
WHEREAS, the parties hereto are desirous of entering into a formal
agreement of employment.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties covenant and agree as follows:
1. EMPLOYMENT. The Company agrees to appoint the Employee as Chairman,
Emeritus, an honorary non-salaried position, and as Chief Scientific
Advisor, and the Employee agrees to his appointment as Chairman,
Emeritus and his employment as Chief Scientific Advisor of the
Company.
2. DUTIES. The Employee shall diligently and conscientiously devote
two-thirds (2/3rds) of his time and his best efforts to the discharge
of his duties as Chief Scientific Advisor, a research and consulting
position without policy making responsibilities, with such duties as
will be established from time to time by the Bylaws of the Company,
the Board of Directors of the Company ("Board") and/or otherwise.
Employee shall be under the supervision of the Board of Directors.
The Company acknowledges that Employee will continue working on a
part-time basis not to exceed one-third (1/3rd) of his time in his
private medical practice.
3A. COMPENSATION. The Company shall pay the Employee a salary at a rate
of Seven Thousand Five Hundred ($7,500) Dollars per month ($90,000
annually), subject to all applicable withholdings, for services
rendered as the Company's Chief Scientific Advisor. The Employee's
base salary shall be reviewed annually, and may be adjusted based on
performance and other relevant factors deemed reasonable by the
Company.
B. STOCK BONUS. Employee shall be entitled to receive stock bonuses in
the amount of 35,000 shares of the Corporation's common stock for each
of the first five (5) occasions when the Corporation secures an
Abbreviated New Drug Approval from the Food and Drug Administration
(for an aggregate total of 175,000 shares of common stock). Such
shares will not include anti-dilution provisions.
<PAGE> 2
C. OTHER BENEFITS. The Employee shall be entitled to participate in any
plan or program of employee benefits maintained by the Company as of
the date hereof, and which may be hereafter adopted or modified by the
Company, on the same basis as the majority of the executive officers
of the Company, nothwithstanding the fact that Employee is not an
officer. D. VACATIONS. The Employee shall be entitled to three (3)
weeks paid vacation each year.
E. STOCK OPTIONS. The Company shall grant to the Employee upon execution
of this Agreement the following stock options:
(a) If the Corporation for the year ended December 31, 1998, has net
income (calculated in accordance with generally accepted
accounting principles) as provided below, Dr. Curry shall receive
stock options in the amounts shown below, exercisable at any time
before December 31, 2003 at the closing price of Caraco as
reported on NASDAQ at October 4, 1995:
<TABLE>
<CAPTION>
NET INCOME # OF OPTIONS GRANTED
<S> <C>
If net income equals or exceeds
$2,650,000 but is less than $3,060,000 150,000
If net income equals or exceeds
$3,060,000, but is less than $3,600,000 an additional 50,000
If net income equals or exceeds
$3,600,000 an additional 50,000
====================
Cumulative aggregate number of options
to be earned 250,000
</TABLE>
(b) If at the end of any calendar year commencing December 31, 1996
and ending on December 31, 2001, the Corporation has net income
(calculated in accordance with generally accepted accounting
principles) as provided below, Dr. Curry shall receive stock
options in the amounts shown below, exercisable at any time
before December 31, 2003, at the closing price of Caraco as
reported on NASDAQ at February 16, 1996. However, options will
only be earned once for each level of net income. For example,
if the Corporation earns a net income of $4,100,000 in each of
the years ending December 31, 1996 and December 31, 1997, Dr.
Curry shall only be entitled to an option for an aggregate of
50,000 shares for those two years.
<TABLE>
<CAPTION>
NET INCOME # OF OPTIONS GRANTED
<S> <C>
If net income equals or exceeds
$4,100,000 but is less than $4,600,000 50,000
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
If net income equals or exceeds
$4,600,000 but is less than $5,100,000 50,000
If net income equals or exceeds
$5,100,000 but is less than $5,600,000 50,000
If net income equals or exceeds
$5,600,000 but is less than $6,100,000 50,000
If net income equals or exceeds
$6,100,000 50,000
=======
Cumulative aggregate number of options
to be earned for the period December 31,
1996 through December 31, 2001 250,000
</TABLE>
The number of shares granted under the options set forth in
(a) and (b) above will be adjusted for stock splits and
similar events.
4. TERM. Unless terminated earlier in accordance with Section 6 hereof,
or renewed pursuant to Section 5 hereof, the term of this Agreement
shall commence on February 16, 1996 and shall continue for a period of
five (5) years thereafter.
5. RENEWAL. This Agreement shall automatically renew for successive
one-year periods at the end of the five (5) year term, subject,
however, to ninety (90) days written notice of termination by either
party hereto prior to the commencement of any such renewal period.
The terms and conditions of this Agreement shall apply during any such
renewal period.
6. TERMINATION. Notwithstanding any provision herein to the contrary,
during the term of this Agreement, or during any period following an
automatic renewal under Section 5 hereof, the Company's employment of
the Employee (including his appointment as Chairman, Emeritus under
this Agreement) shall be terminated:
(a) Upon the Employee's death.
(b) Upon the Disability (as that term is defined herein) of the Employee.
For purposes of this Agreement the Disability of an Employee shall
mean an illness, injury, or physical or mental condition of the
Employee occurring for a period of three consecutive months from the
commencement of such illness, injury or condition which results in the
Employee's inability during such period to perform substantially all
of his regular duties to the Company. In the event the Company and
the Employee do not agree on whether the Employee suffered a
Disability within the meaning of this Section 6, then the issue shall
be settled by binding arbitration under the rules and regulations of
the American Arbitration Association, and the decision or award of the
arbitrator or arbitrators in such arbitration shall be final,
conclusive and binding upon the parties thereto and judgment may be
entered thereon in any court of competent jurisdiction.
-3-
<PAGE> 4
(c) By the Company for "just cause" (as that term is defined herein) or
without cause. For purposes of this Agreement, "just cause" shall
mean dishonesty, or refusal or failure to faithfully or diligently
perform the Employee's duties contemplated by this Agreement,
including but not limited to the failure by the Employee to adhere to
the policies of the Board.
(i) In the event that the Company terminates the Employee for "just
cause", the Employee shall be entitled to the base salary and
benefits earned by him prior to the date of termination;
(ii) In the event that the Company terminates the Employee without
cause the Employee would receive a severance package as follows:
(a) The Employee shall receive monthly base salary payments for
eighteen (18) months from the date of termination;
(b) The Company shall continue premium coverage payments for
health and life insurance for eighteen (18) months from the
date of termination;
(c) Any stock options that would become available for exercise
at the end of the year during which such termination
occurred shall vest;
(d) By the Employee for "cause" not attributable to the Employee, or
without cause. For purposes of this Agreement for "cause" not
attributable to the Employee shall mean the Company failing to make
any payment of base salary to the Employee within thirty (30) days
after such payment is due.
(i) In the event the Employee terminates this Agreement for cause not
attributable to the Employee, the Employee would receive a
severance package as follows:
(a) The Employee shall receive monthly base salary payments for
eighteen (18) months from the date of termination;
(b) The Company shall continue premium coverage payments for
health and life insurance for eighteen (18) months from the
date of termination;
(c) Any stock options that would become available for exercise
at the end of the year during which such termination
occurred shall vest.
(ii) In the event that the Employee terminates this Agreement without
cause, the Employee shall be entitled to the base salary and
benefits earned by him prior to the date of termination.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Employee agrees that
during the Contract Term, and at all times thereafter, any data,
figures, projections, estimates, customer lists, tax records,
personnel histories and records, information regarding sales,
information regarding properties and any other information regarding
the business, operations, properties or personnel of the Company
(collectively referred to herein as the
-4-
<PAGE> 5
"Confidential Information") disclosed to or acquired by the Employee
shall be held in confidence and treated as proprietary to the Company,
and the Employee agrees not to use or disclose any Confidential
Information without the prior written consent of the Company;
provided, however, that no such prior written consent shall be
required for the disclosure and use by the Employee of Confidential
Information to promote and advance the business interests of the
Company (including disclosure of information reasonably requested by
underwriters) or in response to any lawful process of a court or
government agency, whether state, federal or local, such as a
subpoena, summons, discovery request in the course of a court of
administrative proceeding, which requires the Employees' response,
whether sworn or unsworn, or when a response is otherwise required by
applicable law.
8. CHANGE IN CONTROL.
(a) In the event (i) the Company merges into or consolidates with another
entity, or is subject in any way to a transfer of a substantial amount
of its assets, resulting in the assets, business or operations of the
Company being controlled by an entity or individual other than the
Company (a "Change of Ownership"), or there occurs any "Change in
Control" (as defined below) of the Company and (ii) there is a
significant change in the nature and scope of the duties and powers of
the Employee, or the Employee reasonably determines that, as a result
of the occurrence of one or more of the events described in
subparagraph 8(a)(i), he is unable to exercise or perform the powers,
functions or duties as set forth in this Agreement or the Employee has
"good reason" to terminate as that term is defined in subparagraph
8(c), then the Employee shall be entitled, upon giving thirty (30)
days advance written notice to the Company, to terminate this
Agreement and shall within 90 days after the effective date of such
termination, receive a lump sum amount equal to his base salary for
thirty-six (36) months at the rate in effect on the date such notice
is given to the Company. The Employee shall also be entitled to the
immediate vesting in any stock option which would have been
exercisable at the close of the year during which the Change of
Control occurred.
(b) A "Change in Control" shall be deemed to have taken place if (i) a
third person, including a group of individuals or entities, becomes
the beneficial owner of shares of the Company having thirty (30%)
percent or more of the total number of votes that may be cast for the
election of Directors of the Company, or (ii) as a result of, or in
connection with any cash tender or exchange offer, merger,
consolidation or other business combination, or sale of assets, or any
combination, or sale of assets, or any combination of the foregoing
events, the persons who are directors of the Company before the
occurrence of such event or events cease to constitute twenty-five
(25%) of the Board of Directors of the Company.
(c) For purposes of paragraph 8(a)(ii) the Employee shall be deemed to
have "good reason" to terminate his employment with the Company
pursuant to paragraph 8(a)(ii) if any of the following events occurs
without the Employee's express written consent:
(i) The assignment to the Employee of any duties materially
inconsistent with the Employee's position, duties,
responsibilities, and status with the Company immediately prior
to the Change in Control or Change of Ownership;
(ii) A material change in the Employee's reporting responsibilities,
titles or offices as in effect immediately prior to the Change in
Control or Change of Ownership, or any
-5-
<PAGE> 6
removal of the Employee from or any failure to reelect the
Employee to such office, unless such removal or failure to elect
is for cause.
(iii) A reduction in base salary under the Employee's wage and salary
program in effect immediately prior to the Change in Control or
Change of Ownership.
(iv) The Employee is requested to relocate his office to a location
more than one hundred (100) miles from its location immediately
prior to the Change in Control or Change of Ownership.
(v) In the event the Employee consents to any relocation of his
office and such relocation necessitate the Employee moving from
his then current residence ("Prior Residence"), the failure by
the Company to pay or reimburse the Employee for all reasonable
moving expenses incurred with respect to a new residence and to
indemnify the Employee against any loss incurred by the Employee
in the sale of his prior residence which loss shall be the
amount, if any, by which the actual sales price of the Prior
Residence is exceeded by the higher of the Employee's aggregate
investment in residence or the fair market value of the prior
residence as established by an independent appraiser designated
by the Employee and acceptable to the Company.
(vi) Failure of the Company to continue in effect any benefit or
compensation plan or arrangement in which the Employee was
participating immediately preceding the Change in Control or
Change in Ownership, or the taking of any action by the Company
not required by law which would adversely affect the Employee's
participation in or materially reduce Employee's benefits from
such a plan.
9. TERMINATION PAYMENT MAXIMUM. If any payments under this Agreement,
when aggregated with any other payments by the Company to the Employee
from other policies, plans and agreements of the Company that are
deemed to constitute "golden parachute" payments (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended)
("Code"), exceed the maximum amount of golden parachute compensation
under Section 280G and 4999 of the Code that may be paid without tax
penalties to the Employee and the loss or partial loss of the
compensation tax deduction to the Company, then the Employee shall
specify which of his payments from the Company shall be reduced until
his aggregate golden parachute compensation reaches the highest amount
permissible without triggering tax penalties to the Employee and the
loss or partial loss of the compensation tax deduction to the Company
under Code Section 280G and 4999. Provided, however, that when the
Employee designates which of his golden parachute payments from the
Company shall be reduced to meet the limitations under Code Section
280G and 4999, no change in the timing of the payments shall be made
without the consent of the Company.
10. WAIVER. Failure by either party to insist upon strict compliance with
any of the terms, covenants, or conditions hereof shall not be deemed
a waiver by that party of any such term, covenant or condition, nor
shall any waiver or relinquishment of any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of any such
right or power at any other time or times.
-6-
<PAGE> 7
11. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any
other provision.
12. NONTRANSFERABILITY. Neither the Employee, nor his heirs, assigns or
estate shall have the right to assign, encumber or dispose of any
payment or right hereunder, which payment and right is expressly
declared nonassignable and nontransferable, except as otherwise
specifically provided herein.
13. SUCCESSORS AND ASSIGNS. The Company and the Employee bind themselves,
and their respective partners, successors, assigns, heirs and legal
representatives to all of the terms and conditions of this Agreement.
14. ASSIGNMENT. This Agreement, and any or all rights hereunder, may not
be assigned, in whole or in part, by the Employee. The Company may
assign this Agreement, in whole or in part, and any or all of its
rights hereunder.
15. NOTICES.
(a) Every notice of other communication required or permitted to be given
under this Agreement ("Notice") shall be in writing and shall be given
by registered or certified mail, postage prepaid, return receipt
requested, or by delivering such Notice personally or causing such
Notice to be delivered by reputable air courier or otherwise. All
such Notices shall be mailed or delivered to the Parties at the
following addresses:
If to the Company: Caraco Pharmaceutical Laboratories, Ltd.
President
1150 Elijah McCoy Drive
Detroit, MI 48202
with a copy to: Seyburn, Kahn and Ginn
Fred B. Green
2000 Town Center
Suite 1500
Southfield, MI 48075-1195
If to the Employee: C. Arnold Curry
17815 Hamilton Road
Detroit, MI 48203-4000
with a copy to: Berry, Moorman, King & Hudson
Thomas M. Sullivan
600 Woodbridge Place
Detroit, MI 48226-4302
or such other addresses as the parties may from time to time designate
by written notice. Delivery under this Paragraph 15, when by mail,
shall be effective as of the date upon which the return receipt is
accepted or refused. A Notice personally delivered under this Section
16 shall be effective upon such delivery or, if delivery is refused,
upon such refusal.
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<PAGE> 8
16. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties with respect to its subject matter, and supersedes all
prior and contemporaneous agreements, understandings and negotiations.
Specifically, this Agreement supersedes that certain Employment
Agreement dated October 1, 1993, as amended, (the "Employment
Agreement") between Dr. Curry and the Company, which Employment
Agreement is null and void and of no further force or effect. No
modification or alteration of this Agreement shall be deemed effective
unless in writing and signed by the parties.
17. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Michigan.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but such counterparts together shall constitute on
instrument.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement on the date first above written.
CARACO PHARMACEUTICAL LABORATORIES, LTD.,
a Michigan Corporation
By:/s/William R. Hurd
--------------------------------------
William R. Hurd, President and COO
EMPLOYEE:
By:/s/C. A. Curry
--------------------------------------
C. A. Curry
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