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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-24676
_____________________
CARACO PHARMACEUTICAL LABORATORIES, LTD.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2505723
(State of Incorporation) (I.R.S. Employer Identification No.)
1150 ELIJAH MCCOY DRIVE, DETROIT, MI 48202
(Address of principal executive office)
(313) 871-8400
(Registrant's telephone number)
____________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, No Par Value
Warrants to purchase Common Stock
(Title of Class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-B IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENTS TO
THIS FORM 10-KSB. [ ]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR: $1,273,903
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE
BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR
TO THE DATE OF THE FILING.
$4,745,711
(BASED UPON THE AVERAGE BID-ASK PRICE OF THE REGISTRANT'S
COMMON SHARES ON THE OTC BULLETIN BOARD ON MARCH 19, 1997)
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
AS OF MARCH 19, 1997, THERE WERE
7,842,106 COMMON SHARES OUTSTANDING
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Stockholders for the Year Ended December
31, 1996 are incorporated by reference into Part II.
Portions of the definitive Proxy Statement dated April 22, 1997, in
connection with the Annual Meeting of Stockholders to be held on May 21, 1997,
are incorporated by reference into Part III.
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CARACO PHARMACEUTICAL LABORATORIES, LTD.
FORM 10-KSB
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" or the "Corporation")
is a 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 Corporation to date has been from
private placement offerings and from the Economic Development Corporation of
the City of Detroit (the "EDC") which, pursuant to Section 108 of the Housing
and Community Development Act of 1974, loaned approximately $9.1 million to the
Corporation 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 Corporation's pharmaceutical
manufacturing facility and executive offices. The facility was completed in
1992.
Since 1993, Caraco's efforts have been spent 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.
CURRENT STATUS OF CORPORATION
The Corporation continues to sustain substantial operating losses, and
its ability to continue as a going concern is dependent on raising additional
funds and achieving profitable operations (See "Item 6. Management's Discussion
and Analysis of Financial Condition and Results of Operations.") The
Corporation is currently in default on its loan from the EDC, and is
negotiating with the EDC to modify the terms of the Loan. The EDC made a
proposal to the Corporation which terminated on March 17, 1997 and was subject
to various conditions which the Corporation could not satisfy. Among other
things, the proposal included a deferral of payments on the loan for the period
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March 1996 through January 1999 designed to aid the Corporation in achieving
adequate cash flow during the next few years to assure Caraco's ability to both
fund its current operations and continue to develop products into the
marketplace. Monthly payments were to resume in February 1999 or sooner should
the Corporation reach profitability levels of $750,000 in any quarter through
March 31, 1998 and a level of $500,000 in the quarters ended June 30, 1998 and
September 30, 1998. When payments were to be resumed, they would include a
portion of the deferral which would be apportioned over the remaining term of
the Loan. Among other conditions, the offer was dependent on the Corporation
entering into definitive agreements with Sun Pharmaceutical Industries Ltd., an
Indian based company ("Sun Pharma"), for the contribution by Sun Pharma of
$7.5 million in equity to the Corporation and on the sale by Sun Pharma to the
Corporation of up to five ANDA products each year for four consecutive years.
(See Discussion of Sun Pharma negotiations below). The Corporation is
continuing to negotiate with the EDC, however, there is no assurance that a
modification agreement between the EDC and the Corporation will be consummated
or will be consummated pursuant to the terms of the above referenced proposal.
If no agreement is consummated, the EDC may exercise all of the remedies
available to it including foreclosure on the Corporation's operating facility
and certain equipment.
Sun Pharma and the Corporation entered into two non-binding letters of
intents in July 1996 pursuant to which Sun Pharma would make an initial cash
investment in Caraco Common Stock and pursuant to which Sun Pharma would sell
Caraco up to 20 generic pharmaceutical products for shares of Caraco Common
Stock. Sun Pharma and the Corporation are currently negotiating proposed
agreements which, among other things, would provide that Sun Pharma invest
$7,500,000 over a period of one year in four installments and that Sun Pharma
sell up to 25 generic pharmaceutical products (either ANDAs (as defined
below) or DESI's (as defined below) with three (3) DESI's equal to one (1)
ANDA) over a period of 60 months in exchange for 544,000 shares of Common Stock
for each ANDA and 181,133 for each DESI. The proposed agreement is
conditioned, among other things, on certain shareholders contributing an
aggregate of $1,000,000 in cash or Caraco Common Stock (up to a maximum of an
aggregate of 500,000 shares of Caraco Common Stock), approval from Indian
governmental agencies, approval of any EDC modification of the loan to Caraco
(see above), and the execution of definitive agreements. There is no assurance
that agreements between Sun Pharma and the Corporation will be consummated or
will be consummated pursuant to the terms of the above referenced proposals.
If no agreements are consummated, it is anticipated that the Corporation could
immediately commence bankruptcy proceedings under Chapter 7 of the Federal
Bankruptcy Code of 1978, as amended.
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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 (ANDAs) 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 will be
coming off-patent during the next four 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 line. Its product line is
approximately five products in seven strengths in 19 package sizes. In 1995
the Corporation developed and introduced Guaifenesin, Yohimbine and Salsalate
into its product line. 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). In 1996 the Corporation received approval from the FDA to
manufacture Metoprolol Tartrate Tablets USP, 50 mg and 100 mg. (See
"Hexal-Pharma GmbH & Co., KG) Metoprolol Tartrate is the generic version of
Ciba Geigy Pharmaceuticals Lopressor Tablets(R). (See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations.")
with respect to the limited sales of those products.
The Corporation has been focusing on the development of its own
additional ANDA products, for which it filed one ANDA in 1994, two ANDAs in
1995 and one ANDA in 1997 (See Clonmel Chemicals Co. Ltd. (Ireland) and
"Hexal-Pharma GmbH & Co., KG" below). The Corporation received notice in 1996
that the Detroit Office of the FDA has recommended to the Center for Drug
Evaluation ("CDER") that the firm be approved to manufacture the remaining two
products for which they have made submissions. In addition the Detroit District
has also recommended approval for a product developed by Caraco which will be
manufactured and co-marketed with another generic drug company. (See "Apotex,
Inc." below). These filings are currently under review by the FDA and approval
is expected in the first half of 1997. However, there is no assurance that the
FDA will approve the ANDA or that such approval will occur in 1997.
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The Corporation's strategy has been 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 Corporation has entered
into formal or informal arrangements with five pharmaceutical companies. Also,
see the discussion above ("Current Status of the Corporation") with respect to
the proposed sale of products by Sun Pharma to the Corporation.
R.P. SCHERER CORPORATION
The Corporation's first strategic alliance was made with R.P. Scherer
Corporation, in the form of a supply contract, dated March 22, 1990, for the
Corporation's purchases of Nifedipine. Under this agreement, the Corporation
purchases this product on commercial terms in bulk, packages it, and markets it
under its own label. Sales of Nifedipine have decreased significantly since
the third quarter of 1995. (See "Item 6. Management's Discussion and Analysis
of Financial Condition and Results of Operations.")
HEXAL-PHARMA GMBH & CO., KG
The Corporation'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 Corporation 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 Corporation
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 Corporation filed
an ANDA in March 1995, in which it received approval from the FDA in December
1996. (See "Caraco's Products and Product Strategy") Product is expected to be
introduced to market during the second quarter of 1997. Caraco 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 approved. In
addition, there is no certainty that the Corporation will be able to
manufacture and sell either of these Products at a profit.
In addition, the Corporation 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
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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 Corporation) payable to Hexal for sales of
the related Product. To date there have been no sales of such Products and
accordingly no royalties earned and no options exercised.
The Agreement provides that the Corporation 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 options. While a
Sign-Up Option remains unexercised, the Corporation will accrue the amount of
royalties attributable to the related Product. If Hexal shall fail to deliver
to the Corporation, 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 Corporation 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
Corporation's Board of Directors, or on which the Corporation 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
Corporation'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 Corporation'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 Corporation's Common Stock
then outstanding; and (iii) will grant to the Dr. Curry a proxy to vote each
share of the Corporation's Common Stock beneficially owned by Hexal, its
affiliates and associates exceeding in the aggregate 10% of the Corporation's
Common Stock then outstanding.
CLONMEL CHEMICALS CO., LTD. (IRELAND)
On October 22, 1993, the Corporation entered into an agreement with
Clonmel Chemicals Co., Ltd. ("Clonmel"), pursuant to which
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Clonmel provided to the Corporation, 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
Corporation 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 Corporation 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 (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 Corporation the exclusive right to
manufacture and market these products in the United States, including its
territories and Puerto Rico, and in Canada; and the Corporation 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.
The bioequivalency study of one of the products was conducted and an
ANDA was filed January 1997. (See "Item 6. Management's Discussion and
Analysis or Plan of Operation.") There can be no assurance that the
Corporation will receive FDA approval of any ANDA which is filed or when FDA
approval will be forthcoming; nor that the Corporation will be able to
manufacture and sell either of these products profitably.
APOTEX, INC.
In June 1994, the Corporation 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 Corporation has formulated the first product and
an ANDA was filed in March 1996. (See "Caraco's Products and Product
Strategy") There is no assurance that the ANDA covering this product will
receive FDA approval nor whether the Corporation 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 LTD.
In March 1996, the Corporation announced its agreement to produce and
market Sun Pharma generic anti-convulsant drug in the United States. Caraco
and Sun Pharma will share research and development and registration efforts.
There is no assurance that the ANDA covering this product will receive FDA
approval nor
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whether the Corporation will be able to manufacture or sell the product
profitably. However, if the ANDA is approved the Corporation will exclusively
produce and market the product. The agreement establishes an international
pipeline to utilize the Corporation's modern manufacturing facilities
specifically geared toward production for the generic drug market. See
"Current Status of Corporation" for a discussion of additional proposed
transactions between Sun Pharma and Caraco.
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. The agreements were executed in August and
September 1995 for a term of five years each with automatic renewal terms of 12
months thereafter. All inventions, discoveries or trademarks are the property
of such multinational pharmaceutical company.
EDC FINANCING
Pursuant to Section 108 of the Housing and Community Development Act of
1974, the EDC loaned approximately $9.1 million to the Corporation in 1990 in
accordance with the EDC Agreement. These funds were used to pay the direct
costs of acquiring land and constructing thereon the Corporation's
pharmaceutical manufacturing facility and executive offices. (See Item 2.
"Description of Property.") In 1993, repayment of this indebtedness was
personally guaranteed by Dr. and Mrs. Curry. (See "Current Status of
Corporation", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 4 of Notes to Financial Statements.)
MARKETING
Since 1993, the Corporation'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
Corporation can offer a broader range of products needed by drug purchasers in
significant amounts. In anticipation of its ability, through strategic
alliances and its own internal product development efforts to broaden its
product line, it has been putting distribution links in place.
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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 $41 billion in
sales. Caraco's product line is now represented in the five top drug
wholesalers; McKesson Drug, Bergen Brunswig, Cardinal, FoxMeyer, and
AmeriSource. For the year ended December 31, 1996 sales to Amerisource
accounted for 20% of gross sales of the Corporation. On August 7, 1995 the
Corporation entered into an agreement with McKesson Drug Company pursuant to
which McKesson is to provide the Corporation with access to its existing
distribution networks. For the year ended December 31, 1996 sales to McKesson
accounted for 17% of gross sales of the Corporation. A gradually increasing
number of additional drug wholesalers now stock some or all of the
Corporation's products, partly as a result of the Corporation's arrangements
discussed below with buying groups.
Federal and state agencies purchase a large amount of generic
pharmaceutical products. All of the Corporation's products are now listed
for purchase at prices bid by the Corporation 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 Corporation 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 Corporation 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
Corporation'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. At the present
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time, the Corporation 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. Management intends to
increase its sales personnel as its resources permit.
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 Corporation performs its own stability testing,
the Corporation'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.
An outline of research and development expenses for 1996 and 1995 follows
(000's):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Employee Costs $1,243 $1,218
Raw Materials/Supplies 421 552
Bioequivalency Studies 220 47
Laboratory Expenses 263 341
Other 75 78
$2,222 $2,236
====== ======
</TABLE>
REGULATION
The research and development, manufacture and marketing of the
Corporation'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, recordkeeping, 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 Corporation'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
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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 Corporation time
and resources in the areas of production and quality control.
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.
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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.
The Corporation was subject to two FDA inspections and one Drug
Enforcement Administration ("DEA") inspection in 1996. The first FDA
inspection was a routine inspection for cGMP compliance as well as a
pre-approval inspection for two ANDAs. The second FDA inspection was a
pre-approval inspection for another ANDA. NO FDA 483s were issued as a result
of either inspection and the District recommended approval of the ANDAs. These
recommendation were forwarded to the FDA reviewing staff in Washington, DC.
The DEA inspection was a routine inspection conducted bi-annually. No
deviations from compliance were noted at the conclusion of this inspection.
Although management believes that the Corporation is in substantial compliance
with the FDA's cGMP's, there can be no assurance that, as the Corporation
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 Corporation 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 Corporation 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
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licensed by the Michigan Liquor Control Commission to use alcohol in the
manufacture of drugs.
The Corporation believes that it is in substantial compliance with all
environmental laws.
SUPPLIERS AND MATERIALS
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. Development and
approval of the Corporation's pharmaceuticals are dependent upon the
Corporation'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
Corporation).
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 Corporation will continue to be
able to obtain components as required.
COMPETITION
The market for generic drugs is highly competitive. There is intense
competition in the generic drug industry in the United States which is eroding
price and profit margins. The Corporation 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 Corporation, 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
- 14 -
<PAGE> 14
other products available from the same source. The Corporation believes 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 December 31, 1996, the Corporation had 31 full-time employees, of
which four are engaged in research and development, six in quality assurance,
five in quality control, three in administration, four in sales and marketing,
two in finance and seven in manufacturing. Most of the Corporation's
scientific and engineering employees have had prior experience with
pharmaceutical or medical products companies. No employee is represented by a
union, and the Corporation has never experienced a work stoppage.
SEC INVESTIGATION
As previously disclosed, 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 former Chairman, Emeritus. The Corporation has made filings
about this matter with the Securities and Exchange Commission (the "SEC"). The
SEC has conducted an investigation into the matter. On November 1, 1996, the
Corporation, through its Washington DC Legal Counsel, was notified by the SEC
that its Enforcement Division has tentatively decided not to recommend that the
Commission authorize an enforcement action against the Corporation. The SEC
further advised that it nevertheless was possible that an action against the
Corporation may ultimately result from the investigation. The SEC's
investigation had revealed that the defalcation which was reported October 18,
1994 had also occurred in 1993, as well as in the first half of 1994, and that
the 1993 defalcation had totaled at least an additional $300,000. It is also
possible that the Commission might institute an enforcement proceeding
against one or more former employee(s) of the Corporation who are no longer
associated with the Corporation.
PRODUCT LIABILITY AND INSURANCE
The Corporation currently has in force general and product liability
insurance, with coverage limits of $3 million per incident and in the
aggregate. The Corporation's insurance policies provide coverage on a claim
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 Corporation's liabilities, should they occur.
- 15 -
<PAGE> 15
ITEM 2. DESCRIPTION OF PROPERTY.
The Corporation's 70,611 square foot facility, which was designed and
constructed to the Corporation's specifications and completed in 1992,
contains its production, packaging, research and executive operations. It is
on a four acre site acquired by the Corporation from the EDC of the City of
Detroit. 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.
Reference is made to the discussion of the funding of the Corporation's
facility by the Economic Development Corporation of the City of Detroit in Item
1 above. The Corporation'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 Corporation's property. The EDC
subordinated its position in the Corporation'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 Corporation. The
Corporation has not made any of the required monthly principal and interest
payments since March of 1996. The Corporation is negotiating with the EDC to
modify the terms of the loan and is seeking private equity financing to
rectify this loan default. (See "Item 1 - Current Status of the Corporation".)
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 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.
ITEM 3. LEGAL PROCEEDINGS.
The Corporation is not a party to any litigation which, individually or in
the aggregate, is believed to be material to the Corporation's business.
- 16 -
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Corporation did not submit any matters to a vote of security holders
in the fourth quarter of the fiscal year, through the solicitation of proxies
or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information with respect to the market for the Corporation's Common
Equity is included in the Corporation's Annual Report to Stockholders under the
sections "Market for Shares", "Dividend Policy" and "Shareholders and
Ownership", which are incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information with respect to management's discussion and analysis of
financial condition and results of operations is included in the Corporation's
Annual Report to Stockholders under the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations", which is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements are included in the Corporation's Annual Report
to Stockholders, which is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT.
The information with respect to directors and executive officers of the
Corporation is included in the Corporation's definitive Proxy Statement under
the sections "Election of Directors", "Meetings and Committees of the Board of
Directors", and "Compliance with Section 16(a)", which are incorporated herein
by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information regarding executive compensation is included in the
Corporation's definitive Proxy Statement under the section "Executive
Compensation", which is incorporated herein by reference.
- 17 -
<PAGE> 17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information with respect to the security ownership of certain
beneficial owners and management is included in the Corporation's definitive
Proxy Statement under the section "Security Ownership of Certain Beneficial
Owners and Management", which is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information with respect to certain relationships and related
transactions are included in the Corporation's definitive Proxy Statement under
the Section "Certain Relationships and Related Transactions", which is
incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Financial Statements
The following financial statements of the Corporation are incorporated
herein by reference to the Corporation's Annual Report to Stockholders:
- Report of Independent Auditor
- Balance Sheet at December 31, 1996
- Statements of Operations for the years ended December 31, 1996 and 1995
- Statements of Stockholders' Deficit for the years ended December 31, 1996
and 1995
- Statements of Cash Flows for the years ended December 31, 1996 and 1995
- Notes to Financial Statements
3.01 Registrant's Amended and Restated Articles of Incorporation, as
amended**
3.02 Registrant's Amended and Restated Bylaws**
3.03 Certificate of Amendment to the Articles of Incorporation filed
February 13, 1997.
- 18 -
<PAGE> 18
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.*
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.*
- 19 -
<PAGE> 19
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.**
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.***
- 20 -
<PAGE> 20
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.****
10.32 Secured Promissory Note dated August 21, 1996 with David A. Hagelstein.
10.33 Secured Promissory Note dated August 21, 1996, with Jay F. Joliat.
10.34 Secured Promissory Note dated August 21, 1996, with John R. Morris.
10.35 Loan Commitment Letter dated August 21, 1996 with David A. Hagelstein,
Jay F. Joliat and John R. Morris.
10.36 Secured Promissory Note dated October 18, 1996 with Jay F. Joliat.
10.37 Loan Agreement dated October 18, 1996 with Jay F. Joliat.
10.38 Secured Promissory Note dated November 15, 1996 with David A. Hagelstein
as Trustee of the TTEE David Hagelstein Trust UA 10-27-93.
10.39 Secured Promissory Note dated November 15, 1996 with Jay F. Joliat.
10.40 Secured Promissory Note dated November 15, 1996 with John R. Morris.
10.41 Security Agreement dated December 19, 1996, with Rosemary Joliat Living
Trust DTD 4/12/88 as amended.
10.42 Subordination Agreement, dated December 23, 1996, between Sun Pharma
Global, Inc., Jay F. Joliat, individually, and as Trustee of the Jay F.
Joliat Qualified Terminable Interest Marital Trust, u/a/d 4/8/82, David
A. Hagelstein, individually, and as Trustee of the TTEE David
Hagelstein Trust, u/a/d 10/27/93 and John R. Morris.
10.43 Secured Promissory Note dated December 23, 1996 with Sun Pharma Global,
Inc.
10.44 Security Agreement dated December 23, 1996 with Sun Pharma Global Inc.
- 21 -
<PAGE> 21
10.45 Secured Short Term Demand Note dated December 26, 1996, with Rosemary
Joliat Living Trust DTD 4/12/88 as amended.
10.46 Secured Promissory Note dated January 30, 1997 with Jay F. Joliat, as
Trustee of the Jay F. Joliat Qualified Terminable Interest Marital
Trust u/a/d April 8, 1982.
10.47 Inter-Creditor Agreement, dated January 30, 1997, between Sun Pharma
Global, Inc., Jay F. Joliat, individually, and as Trustee of the Jay F.
Joliat Qualified Terminable Interest Marital Trust, u/a/d 4/8/82, David
A. Hagelstein, individually, and as Trustee of the TTEE David
Hagelstein Trust, u/a/d 10/27/93.
10.48 Security Agreement dated January 30, 1997 with Jay F. Joliat, as Trustee
of the Jay F. Joliat Qualified Terminable Interest Marital Trust u/a/d
April 8, 1982.
10.49 Secured Promissory Note dated February 3, 1997 with Jay F. Joliat, as
Trustee of the Jay F. Joliat Qualified Terminable Interest Marital Trust
u/a/d April 8, 1982.
10.50 Secured Promissory Note dated February 11, 1997 with David A. Hagelstein
as Trustee of the TTEE David Hagelstein Trust UA 10-27-93.
10.51 Security Agreement dated February 11, 1997, individually, with David A.
Hagelstein as Trustee of the TTEE David Hagelstein Trust UA 10-27-93.
10.52 Allonge to Promissory Note of August 21, 1996 - Jay F. Joliat.
10.53 Allonge to Promissory Note of August 21, 1996 - David A. Hagelstein.
10.54 Allonge to Promissory Note of August 21, 1996 - John R. Morris.
10.55 Allonge to Promissory Note of October 18, 1996 - Jay F. Joliat
10.56 Allonge to Promissory Note of November 15, 1996 - Jay F. Joliat
10.57 Allonge to Promissory Note of November 15, 1996 - John R. Morris
10.58 Allonge to Promissory Note of November 15, 1996 - David A. Hagelstein
- 22 -
<PAGE> 22
10.59 Allonge to Promissory Note of November 15, 1996 - John R. Morris
13.01 1996 Annual Report to Stockholders (only with respect to those parts
which are expressly incorporated by reference in this filing; the
other parts are not deemed filed as part of this filing).
23.01 Preferability Letter of Grant Thornton LLP.**
27 Financial Data Schedule
__________
* 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.
*** 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.
**** Incorporated by reference from Exhibits to Registrant's Registration
Statement of Form SB-2 filed on July 12, 1996 with the SEC.
(b) Reports on Form 8-K
None
- 23 -
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the day of March,
1997.
CARACO PHARMACEUTICAL LABORATORIES,
LTD.
By: /s/ ALLAN J. HAMMER
------------------------------------
Allan J. Hammer
Treasurer, Chief Financial Officer
and Secretary
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the date
indicated above.
<TABLE>
<C> <S> <C>
/s/ WILLIAM R. HURD President and Chief Operating March 19, 1997
- ------------------------------------------------ Officer
William R. Hurd
/s/ ALLAN J. HAMMER Treasurer, Chief Financial Officer March 19, 1997
- ------------------------------------------------ and Secretary (Principal Financial
Allan J. Hammer Officer, Secretary and Principal
Accounting Officer)
/s/ DAVID W. ADAMANY Director March 19, 1997
- ------------------------------------------------
David W. Adamany
Director March 19, 1997
- ------------------------------------------------
C. Arnold Curry
Director March 19, 1997
- ------------------------------------------------
Cara J. Curry
/s/ DAVID A. HAGELSTEIN Director March 19, 1997
- ------------------------------------------------
David A. Hagelstein
Director March 19, 1997
- ------------------------------------------------
Phyllis Harrison-Ross
/s/ JAY F. JOLIAT Director March 19, 1997
- ------------------------------------------------
Jay F. Joliat
/s/ JOHN R. MORRIS Director March 19, 1997
- ------------------------------------------------
John R. Morris
</TABLE>
<PAGE> 24
EXHIBIT INDEX
EXHIBIT PAGE
3.03 Certificate of Amendment to the Articles
of Incorporation filed February 13, 1997.
10.32 Secured Promissory Note dated August
21, 1996 with David A. Hagelstein.
10.33 Secured Promissory Note dated August
21, 1996, with Jay F. Joliat.
10.34 Secured Promissory Note dated August
21, 1996, with John R. Morris.
10.35 Loan Commitment Letter dated August
21, 1996 with David A. Hagelstein,
Jay F. Joliat and John R. Morris.
10.36 Secured Promissory Note dated October
18, 1996 with Jay F. Joliat.
10.37 Loan Agreement dated October 18, 1996
with Jay F. Joliat.
10.38 Secured Promissory Note dated November
15, 1996 with David A. Hagelstein as
Trustee of the TTEE David Hagelstein
Trust UA 10-27-93.
10.39 Secured Promissory Note dated November
15, 1996 with Jay F. Joliat.
10.40 Secured Promissory Note dated November
15, 1996 with John R. Morris.
10.41 Security Agreement dated December 19,
1996, with Rosemary Joliat Living
Trust DTD 4/12/88 as amended.
- 26 -
<PAGE> 25
10.42 Subordination Agreement, dated
December 23, 1996, between Sun
Pharma Global, Inc., Jay F.
Joliat, individually, and as
Trustee of the Jay F. Joliat
Qualified Terminable Interest
Marital Trust, u/a/d 4/8/82,
David A. Hagelstein, individually,
and as Trustee of the TTEE David
Hagelstein Trust, u/a/d 10/27/93
and John R. Morris.
10.43 Secured Promissory Note dated December
23, 1996 with Sun Pharma Global, Inc.
10.44 Security Agreement dated December 23,
1996 with Sun Pharma Global Inc.
10.45 Secured Short Term Demand Note dated
December 26, 1996, with Rosemary
Joliat Living Trust DTD 4/12/88
as amended.
10.46 Secured Promissory Note dated January
30, 1997 with Jay F. Joliat, as
Trustee of the Jay F. Joliat Qualified
Terminable Interest Marital Trust
u/a/d April 8, 1982.
10.47 Inter-Creditor Agreement, dated January
30, 1997, between Sun Pharma Global,
Inc., Jay F. Joliat, individually, and
as Trustee of the Jay F. Joliat Qualified
Terminable Interest Marital Trust,
u/a/d 4/8/82, David A. Hagelstein,
individually, and as Trustee of the
TTEE David Hagelstein Trust, u/a/d 10/27/93.
10.48 Security Agreement dated January 30, 1997
with Jay F. Joliat, as Trustee of the Jay
F. Joliat Qualified Terminable Interest
Marital Trust u/a/d April 8, 1982.
10.49 Secured Promissory Note dated February 3,
1997 with Jay F. Joliat, as Trustee of
the Jay F. Joliat Qualified Terminable
Interest Marital Trust u/a/d April 8, 1982.
10.50 Secured Promissory Note dated February 11,
1997 with David A. Hagelstein as Trustee
of the TTEE David Hagelstein Trust UA 10-27-93.
10.51 Security Agreement dated February 11, 1997,
individually, with David A. Hagelstein as
Trustee of the TTEE David Hagelstein Trust
UA 10-27-93.
10.52 Allonge to Promissory Note of August 21, 1996
- Jay F. Joliat.
- 27 -
<PAGE> 26
10.53 Allonge to Promissory Note of August 21, 1996
- David A. Hagelstein.
10.54 Allonge to Promissory Note of August 21, 1996
- John R. Morris.
10.55 Allonge to Promissory Note of October 18, 1996
- Jay F. Joliat
10.56 Allonge to Promissory Note of November 15, 1996
- Jay F. Joliat
10.57 Allonge to Promissory Note of November 15, 1996
- John R. Morris
10.58 Allonge to Promissory Note of November 15, 1996
- David A. Hagelstein
10.59 Allonge to Promissory Note of November 15, 1996
- John R. Morris
13.01 1996 Annual Report to Stockholders (only with respect to those
parts which are expressly incorporated by reference in this filing;
the other parts are not deemed filed as part of this filing).
27 Financial Data Schedule
- 28 -
<PAGE> 1
EXHIBIT 3.03
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
Date Received (FOR BUREAU USE ONLY)
FEB 11 1997
FILED
FEB 13 1997
Name
Jennifer Evans
Caraco Pharmaceutical Laboratories, Ltd. Administrator
MI DEPARTMENT OF CONSUMER
Address INDUSTRY SERVICES COMMISSION
1150 Elijah McCoy Drive
City State Zip Code
Detroit MI 48202 EFFECTIVE DATE:
DOCUMENT WILL BE RETURNED TO THE
NAME AND ADDRESS YOU ENTER ABOVE
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT CORPORATIONS
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is:
Caraco Pharmaceutical Laboratories, Ltd.
2. The identification number assigned by the Bureau is: 345-364
3. The location of the registered office is:
1150 Elijah McCoy Drive Detroit, Michigan 48202
(Street Address) (City) (ZIP Code)
4. Article III of the Articles of Incorporation is hereby amended to read as
follows:
The total authorized capital stock is:
Common Shares-20,000,000
Preferred Shares-5,000,000
<PAGE> 2
5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT
OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS
OF TRUSTEES; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH.
a. / / The foregoing amendment to the Articles of Incorporation was duly
adopted on the _____________________ day of ____________________, 19____,
in accordance with the provisions of the Act by the unanimous consent of
the incorporator(s) before the first meeting of the Board of Directors of
Trustees.
Signed this ____________________ day of ____________________, 19____.
- -------------------------------------- -------------------------------------
(Signature) (Signature)
- -------------------------------------- -------------------------------------
(Type or Print Name) (Type or Print Name)
- -------------------------------------- -------------------------------------
(Signature) (Signature)
- -------------------------------------- -------------------------------------
(Type or Print Name) (Type or Print Name)
b. / X / The foregoing amendment to the Articles of Incorporation was duly
adopted on the 10th day of May, 1995. The amendment: (check one of the
following)
/ X / was duly adopted in accordance with Section 611(2) of the Act by
the vote of the shareholders if a profit corporation, or by the vote
of the shareholders or members if a nonprofit corporation, or by the
vote of the directors if a nonprofit corporation organized on a
nonstock directorship basis. The necessary votes were cast in favor
of the amendment.
/ / was duly adopted by the written consent of all directors pursuant to
Section 525 of the Act and the corporation is a nonprofit
corporation organized on a nonstock directorship basis.
/ / was duly adopted by the written consent of the shareholders or
members having not less than the minimum number of votes required by
statute in accordance with Section 407(1) and (2) of the Act if a
nonprofit corporation, or Section 407(1) of the Act if a profit
corporation. Written notice to shareholders who have not consented
in writing has been given. (Note: Written consent by less than all
of the shareholders or members is permitted only if such provision
appears in the Articles of Incorporation.)
/ / was duly adopted by the written consent of all the shareholders or
members entitled to vote in accordance with section 407(3) of the
Act if a nonprofit corporation, or Section 407(2) of the Act if a
profit corporation.
Signed this 7th day of February, 1997
By William R. Hurd
-----------------------------------------------------
(Only Signature of President, Vice-President,
Chairperson, or Vice-Chairperson)
William R. Hurd President
---------------------------------------------------------
(Type or Print Name) (Type or Print Title)
<PAGE> 1
EXHIBIT 10.32
SECURED PROMISSORY NOTE
Date: August 21, 1996 Detroit, Michigan
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of David A. Hagelstein
TTEE David Hagelstein Trust UA 10-27-93 ("Lender"), at his offices located at
1411 N. Woodward, Suite 313, Birmingham, Michigan 48009 or at such other place
as Lender may designate in writing, the principal sum of One Hundred Thousand
and 00/100 ($100,000) Dollars, together with interest at fourteen (14.0%)
percent simple interest, so long as there shall be no event of default, and at
the per annum rate of eighteen percent (18%). Interest will be payable
monthly, commencing on the one month anniversary of the date of this Secured
Promissory Note. The entire principal balance, together with all interest and
other charges due and payable under the Note, will be due and payable upon the
first to occur of the one year anniversary of the Closing Date or demand by the
Lender.
This Note may be prepaid in whole or in part at any time without premium
or penalty. All payments shall be made in lawful money of the United States of
America.
This Note is secured by a Loan Commitment Letter which encumbers certain
equipment associated with the packaging line owned by Borrower located in the
City of Detroit, County of Wayne, State of Michigan.
The following shall constitute a "Default" under the Note:
(i) Failure by Borrower to pay the principal and interest on the
due date;
(ii) Default by Borrower under the Loan Agreement.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest and presentment for the purpose of accelerating
maturity, and all other notices and demands as required by law, except as
expressly provided in this Note.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
assigns.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid,
<PAGE> 2
void or unenforceable, the remaining provisions shall nonetheless continue in
full force and effect without being impaired or invalidated in any way.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan
corporation
By:/s/William R. Hurd
---------------------------
William R. Hurd
Its: President
--------------------------
<PAGE> 1
EXHIBIT 10.33
SECURED PROMISSORY NOTE
Date: August 21, 1996 Detroit, Michigan
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of Jay F. Joliat
("Lender"), at his offices located at 1411 N. Woodward, Suite 300, Birmingham,
Michigan 48009 or at such other place as Lender may designate in writing, the
principal sum of One Hundred Thousand and 00/100 ($100,000) Dollars, together
with interest at fourteen (14.0%) percent simple interest, so long as there
shall be no event of default, and at the per annum rate of eighteen percent
(18%). Interest will be payable monthly, commencing on the one month
anniversary of the date of this Secured Promissory Note. The entire principal
balance, together with all interest and other charges due and payable under
the Note, will be due and payable upon the first to occur of the one year
anniversary of the Closing Date or demand by the Lender.
This Note may be prepaid in whole or in part at any time without premium
or penalty. All payments shall be made in lawful money of the United States of
America.
This Note is secured by a Loan Commitment Letter which encumbers certain
equipment associated with the packaging line owned by Borrower located in the
City of Detroit, County of Wayne, State of Michigan.
The following shall constitute a "Default" under the Note:
(i) Failure by Borrower to pay the principal and interest on the
due date;
(ii) Default by Borrower under the Loan Agreement.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest and presentment for the purpose of accelerating
maturity, and all other notices and demands as required by law, except as
expressly provided in this Note.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
assigns.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nonetheless continue in full force and effect without being
impaired or invalidated in any way.
<PAGE> 2
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan
corporation
By:/s/William R. Hurd
-----------------------
William R. Hurd
Its: President
-----------------------
<PAGE> 1
EXHIBIT 10.34
SECURED PROMISSORY NOTE
Date: August 21, 1996 Detroit, Michigan
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of John R. Morris
("Lender"), at his offices located at Biotrade AG, Alte Steinhauserstr. 21,
CH-6330 Cham Switzerland or at such other place as Lender may designate in
writing, the principal sum of One Hundred Thousand and 00/100 ($100,000)
Dollars, together with interest at fourteen (14.0%) percent simple interest, so
long as there shall be no event of default, and at the per annum rate of
eighteen percent (18%). Interest will be payable monthly, commencing on the
one month anniversary of the date of this Secured Promissory Note. The entire
principal balance, together with all interest and other charges due and payable
under the Note, will be due and payable upon the first to occur of the one year
anniversary of the Closing Date or demand by the Lender.
This Note may be prepaid in whole or in part at any time without premium
or penalty. All payments shall be made in lawful money of the United States of
America.
This Note is secured by a Loan Commitment Letter which encumbers certain
equipment associated with the packaging line owned by Borrower located in the
City of Detroit, County of Wayne, State of Michigan.
The following shall constitute a "Default" under the Note:
(i) Failure by Borrower to pay the principal and interest on the
due date;
(ii) Default by Borrower under the Loan Agreement.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest and presentment for the purpose of accelerating
maturity, and all other notices and demands as required by law, except as
expressly provided in this Note.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
assigns.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nonetheless
<PAGE> 2
continue in full force and effect without being impaired or invalidated in any
way.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan
corporation
By:/s/William R. Hurd
-----------------------
William R. Hurd
Its: President
----------------------
<PAGE> 1
EXHIBIT 10.35
LOAN COMMITMENT LETTER
August 21, 1996
William Hurd, President and COO
Caraco Pharmaceutical Laboratories Ltd.
1350 Elijah McCoy Drive
Detroit, Michigan 48202
Dear Bill:
Each of the undersigned, David A. Hagelstein, Jay F. Joliat, and John Morris
(each a "Lender", and collectively the "Lenders"), hereby commits to Caraco
Pharmaceutical Laboratories Ltd., a Michigan corporation (the "Borrower") to
lend the amount of one hundred thousand dollars ($100,000), in accordance with
the terms and conditions of this Loan Commitment Letter (the "Commitment").
This Commitment is subject to the satisfaction of all the conditions set forth
herein.
(1) Commitment Amount. Each Lender will loan the amount of one hundred
thousand dollars ($100,000), such that all three Lenders in aggregate
will loan the amount of three hundred thousand dollars ($300,000) to
Borrower on the Closing Date (the "Loan").
(2) Closing Date. Subject to the satisfaction of the terms and conditions
of this Commitment, the Loan will be funded on August 31, 1996, or
such other date as is satisfactory to the Lenders (the "Closing Date").
(3) Promissory Notes. On the Closing Date, the Borrower will execute three
promissory notes (the "Notes"), each in the principal amount of
$100,000, each payable to one Lender. The form and substance of each
Note must be satisfactory to the Lenders. Interest will accrue under
each Note at the per annum rate of fourteen percent (14%) so long as
there shall be no event of default, and at the per annum rate of
eighteen percent (18%) so long as there shall be an event of default.
Interest will be payable monthly, commencing on the one month
anniversary of the Closing Date. The entire principal balance, together
will all interest and other charges due and payable under the Note, will
be due and payable upon the first to occur of the one year anniversary
of the Closing Date or demand by the Lenders.
(4) Prepayment. Borrower shall be permitted to prepay the Note at any
time, without penalty, provided all prepayments will be applied first to
the payment of any fees or charges due under the Note, if any, second to
the payment of all outstanding interest, and third to the payment of all
outstanding principal in the inverse order of maturity.
(5) Security Agreement. On the Closing Date, in order to secure the full,
prompt and faithful performance by the Borrower of its obligations under
the Note, the Borrower will execute and deliver one or more loan and
security agreements (the "Security Agreements"), in form and substance
satisfactory to the Lenders, pursuant to which the Borrower will grant
to the Lenders a first, prior and senior, and continuing security
interest in and to all
<PAGE> 2
"Collateral". The term "Collateral" refers collectively to all of the
Borrower's tangible and intangible personal property, whether now owned
or hereafter acquired, or in which Borrower now has or may hereafter
acquire an interest, including without limitation all of the following
items of property:
(a) all of Borrower's accounts, accounts receivable, notes receivable,
and other rights of Borrower in and to payments due for goods sold
or services rendered, whether owned, existing, or arising as of or
subsequent to the Closing Date;
(b) all of Borrower's inventory (whether raw materials, work in
process, or finished goods), supplies, parts, and goods, whether
owned, existing, or arising as of or subsequent to the Closing
Date;
(c) all of Borrower's furniture, fixtures, machinery, equipment, tools,
leasehold improvements, vehicles, together with all other tangible
personal property, whether owned, existing, or arising as of
subsequent to the Closing Date:
(d) all contract rights, chattel paper, leases and other general
intangibles, including without limitation all rights to any refund
or any taxes assessed against or paid by Borrower, insurance
premium refunds, unearned premiums, insurance proceeds, choses in
action, goodwill, going concern value, trademarks, copyrights,
service marks, tradenames, and patents, technology and knowhow,
whether owned, existing, or arising as of or subsequent to the
Closing Date, including without limitation all new drug
applications to, and approvals of such applications from, the
Federal Drug Administration;
(e) all securities held by or issued to Borrower, including without
limitation all shares of stock, warrants, options, and debentures,
whether owned, existing, or arising as of or subsequent to the
Closing Date;
(f) all instruments, documents of title, policies and certificates of
insurance, bank deposits, deposit accounts, checking accounts and
cash, whether owned, existing, or arising as of or subsequent to
the Closing Date;
(g) any and all proceeds (of sale, insurance, or otherwise),
replacements, substitutions, additions, improvements, products, and
accessions to, for or of the foregoing; and
(h) all books, records and documents relating to all of the foregoing.
The Lenders' rights in the Collateral will be perfected by the filing of
Uniform Commercial Code Financing Statements (Forms UCC-1 and UCC-1A) in
the State of Michigan and Wayne County, Michigan, and the Borrower shall
also execute and deliver such other instruments and do such other things
as is necessary from time to time to grant to Lenders a first, prior and
senior security interest in and to the Collateral.
(6) Inter-Creditor Agreement. The Lenders agree to enter into an
"Inter-Creditor Agreement", in form and substance satisfactory to
the Lenders, which will provide, among
2
<PAGE> 3
other things, for the relative rights and remedies of the Lenders with
respect to the Loan and Collateral.
(7) Fees. In consideration of the Lenders' commitment to make the Loan
pursuant to this Commitment, Borrower will pay all attorneys' fees,
financing statement filing fees, and other costs, fees and expenses
incurred by Borrower pursuant to the making, maintenance, collection,
and enforcement of the Loan, including without limitation document
preparation costs for this Commitment, the Notes, the Security
Agreements, and the Inter-Creditor Agreement (collectively, the "Loan
Documents") not to exceed $3,000.
(8) Indemnification. In further consideration of the Lenders' commitment
to make the Loan pursuant to this Commitment, Borrower agrees to
indemnify, defend and hold harmless the Lenders from and against all
damages, liabilities, losses, costs, and expenses, including without
limitation attorneys' fees, arising out of or relating to any claims
brought by reason of the extension of the Loan or the transactions
contemplated hereby, except to the extent of a Lender's willful
misconduct.
(9) Conditions to Closing. The satisfaction of the following conditions
shall be conditions precedent to the making of the Loan:
(a) On or before the Closing Date, the Borrower's board of
directors shall have been reduced from 11 to 7 members, such
that 4 members shall have resigned, provided, the Lender, in its
discretion, shall be satisfied as to the composition of the
board of directors as of the Closing Date.
(b) On or before the Closing Date, the Lenders shall have reviewed
and approved, within their discretion, the budget and all
expenditures of the Borrower for the balance of the current
fiscal year.
(c) On or before the Closing Date, the Lenders shall have reviewed
and approved, within their discretion, the continuing employment
status and wage rates of all employees, and all employment
policies and contracts.
(d) the Lenders shall be satisfied, in their sole determination,
that there shall not have occurred any material adverse change
in the Borrower's business, operations, property, condition or
prospects, whether financial or otherwise.
(10) Affirmative and Negative Covenants. So long as Borrower shall be
indebted to the Lenders under the Notes, Lender agrees as follows:
(a) No dividends or distributions, whether in cash, stock or other
property, shall be declared or paid to any shareholder.
(b) The Borrower shall not enter into, or agree or make any
agreement to enter into, any transaction outside of the
ordinary course of business.
3
<PAGE> 4
(c) All budgets and expenditures shall be approved in advance by the
Lenders, within their discretion.
(d) The continuing employment status and wage rates of all
employees, and all employment policies and contracts, shall be
approved in advance by the Lenders, within their discretion.
(11) Events of Default. The occurrence of any one or more of the following
events, among such other occurrences as may be provided for in the
Notes, will be an event of default under each Note:
(a) The failure of Borrower to make any payment, as and when due, of
principal, interest or any other charge due and payable under
the Notes and/or under any other evidences of indebtedness of
the Borrower to any person;
(b) The death or termination of employment with the Borrower,
without regard to the reason or lack of reason therefor, of
William Hurd;
(c) Either Borrower shall voluntarily apply for the appointment of a
custodian, trustee or receiver to take custody or dispose of any
substantial portion of assets; or a court of competent
jurisdiction shall appoint a custodian, trustee or receiver to
take custody or dispose of any substantial portion of the assets
of the Borrower pursuant to any involuntary proceeding, and
either (i) Borrower shall indicate approval of, consent to, or
acquiescence to such appointment, or (ii) such custodian,
trustee, or receiver shall not be discharged within thirty (30)
days; or Borrower shall voluntarily seek protection from
creditors under any applicable state or federal bankruptcy,
liquidation or dissolution, insolvency, or debt reorganization
laws; or any of Borrower's creditors shall institute any
proceeding against Borrower under any applicable state or
federal bankruptcy, liquidation or dissolution, insolvency, or
debt reorganization laws, and the same shall not be dismissed or
discharged within thirty (30) days;
(d) The temporary or permanent liquidation, dissolution, or other
discontinuance of the Borrower's corporate existence; the merger
or consolidation of Borrower; the sale or transfer of all or
substantially all of Borrower's assets; and/or the sale or
transfer of not less than 50% of the outstanding shares of
capital stock of the Borrower;
(e) There shall be more than seven persons on the Borrower's board
of directors, and/or any one or more of the Lenders shall not be
a member of the Borrower's board of directors; and/or
(f) The occurrence of any breach or violation by Borrower under any
of the Loan Documents.
(12) Expiration. This Commitment shall expire at 5:00 pm (Eastern Standard
Time) on August 22, 1996, unless by that time and date, the Lenders
shall have received a signed copy of this Commitment.
4
<PAGE> 5
(13) General Provisions. This Commitment shall be governed by, construed,
interpreted, and enforced in accordance with the internal laws of the
State of Michigan. This Commitment may not be modified orally or by
contrary course of conduct, and no modification shall be effective unless
in writing and signed by the Lenders. This Commitment inures solely to the
benefit of the Borrower and may not be assigned or transferred by
Borrower. This Commitment may be negotiated and transferred by the
Lenders. BORROWER CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF MICHIGAN FOR ANY DISPUTES ARISING UNDER THIS COMMITMENT.
BORROWER EXPRESSLY WAIVES ALL OBJECTIONS IT NOW HAS OR MAY HAVE TO VENUE,
WHETHER BASED ON INCONVENIENCE OR ANY OTHER REASON. TO THE EXTENT THAT
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION
OF ANY COURT OR FROM ANY LEGAL PROCESS, HOWSOEVER OCCURRING, WITH RESPECT
TO BORROWER OR ITS PROPERTIES, BORROWER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY. BORROWER HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY JURY
IN ANY ACTION OR SUIT BROUGHT UNDER OR PURSUANT TO THIS COMMITMENT.
Very truly yours,
DAVID A. HAGELSTEIN
--------------------------------
David A. Hagelstein
JAY F. JOLIAT
--------------------------------
Jay F. Joliat
JOHN MORRIS
--------------------------------
John Morris
The foregoing is hereby agreed and accepted:
Caraco Pharmaceutical Laboratories, Inc.
By WILLIAM R. HURD
------------------------------
William Hurd, President
Date: 9/6/96
5
<PAGE> 1
EXHIBIT 10.36
SECURED PROMISSORY NOTE
Date: October 18, 1996 Detroit, Michigan
FOR VALUE RECEIVED, (including the grant of a warrant agreement
exercisable for 300,000 shares of the Borrower's Common Stock at the purchase
price of $1.31 per share, to be distributed in one or more warrant agreements,
with the warrant agreements being exercisable at any time on or before October
18, 2006), Caraco Pharmaceutical Laboratories, Ltd., a Michigan corporation
("Borrower"), promises to pay to the order of Jay F. Joliat ("Lender"), at his
offices located at 1411 N. Woodward, Suite 300, Birmingham, Michigan 48009 or
at such other place as Lender may designate in writing, the principal sum of
Three Hundred Thousand and 00/100 ($300,000) Dollars, together with interest at
ten (10.0%) percent simple interest, payable as follows: interest only, with
interest accruing commencing October 18, 1996, and with principal and all
accrued interest due and payable upon the first to occur of the one year
anniversary of the Closing Date or demand by the Lender.
This Note may be prepaid in whole or in part at any time without premium
or penalty. All payments shall be made in lawful money of the United States of
America.
This Note is secured by a Loan Agreement which encumbers certain equipment
associated with the packaging line owned by Borrower located in the City of
Detroit, County of Wayne, State of Michigan.
The following shall constitute a "Default" under the Note:
(i) Failure by Borrower to pay the principal and interest on the
due date;
(ii) Default by Borrower under the Loan Agreement.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest and presentment for the purpose of accelerating
maturity, and all other notices and demands as required by law, except as
expressly provided in this Note.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
assigns.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid,
<PAGE> 2
void or unenforceable, the remaining provisions shall nonetheless continue in
full force and effect without being impaired or invalidated in any way.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan
corporation
By /s/William R. Hurd
----------------------------
William R. Hurd
Its: President
--------------------------
Date: October 18, 1996
<PAGE> 1
EXHIBIT 10.37
LOAN AGREEMENT
Jay F. Joliat (the "Lender"), hereby commits to Caraco Pharmaceutical
Laboratories, Ltd., a Michigan corporation (the "Borrower") to lend the amount
of three hundred thousand dollars ($300,000), in accordance with the terms and
conditions of this Loan Commitment Letter (the "Commitment"). This Commitment
is subject to the satisfaction of all of the conditions set forth herein.
(1) Commitment Amount - The Lender will loan the amount of three hundred
thousand dollars ($300,000) to the Borrower on or before October 18, 1996.
(2) Closing Date - Subject to the satisfaction of the terms and conditions of
this Commitment, the Loan will be funded on October 18, 1996, or such
other date as is satisfactory to the Lender (the "Closing Date").
(3) Promissory Note - On the Closing Date, the Borrower will execute a
promissory note (the "Note"), in the principal amount of $300,000. The
form and substance of such Note must be satisfactory to the Lender.
Interest will accrue under such Note at the per annum rate of ten percent
(10%) so long as there shall be no event of default. The entire principal
balance, together with all interest and other charges due and payable
under the Note, will be due and-payable upon the first to occur of the one
year anniversary of the Closing Date or demand by the Lender.
(4) Prepayment - Borrower shall be permitted to prepay the Note at any time,
without penalty, provided all prepayments will be applied first to the
payment of any fees or charges due under the Note, if any, second to the
payment of all outstanding interest, and third to the payment of all
outstanding principal in the inverse order of maturity.
(5) Loan Agreement - On the Closing Date, in order to secure the full, prompt
and faithful performance by the Borrower of its obligations under the
Note, the Borrower will execute and deliver a loan agreement (the "Loan
Agreement"), in form and substance satisfactory to the Lender, pursuant to
which the Borrower will grant to the Lender a first, prior and senior, and
continuing security interest in and to all "Collateral". The term
"Collateral" refers collectively to all of the Borrower's tangible and
intangible personal property, whether now owned or hereafter acquired, or
in which Borrower now has or may hereafter acquire an interest including
without limitation all of the following items of property:
(a) all of Borrower's accounts, accounts receivable, notes receivable,
and other rights of Borrower in and to
<PAGE> 2
payments due for goods sold or services rendered, whether owned,
existing, or arising as of or subsequent to the Closing Date;
(b) all of Borrower's inventory (whether raw materials, work in
process, or finished goods), supplies, parts, and goods, whether
owned, existing, or arising as of or subsequent to the Closing Date;
(c) all of Borrower's furniture, fixtures, machinery, equipment,
tools, leasehold improvements, vehicles, together with all other
tangible personal property, whether owned, existing, or arising as
of or subsequent to the Closing Date;
(d) all contract rights, chattel paper, leases and other general
intangibles, including without limitation all rights to any refund
of any taxes assessed against or paid by Borrower, insurance premium
refunds, unearned premiums, insurance proceeds, chose in action,
goodwill, going concern value, trademarks, copyrights, service
marks, tradenames, and patents, technology and know how, whether
owned, existing or arising as of or subsequent to the Closing Date,
including without limitation all new drug applications to, and
approvals of such applications from, the Federal Drug
Administration;
(e) all securities held by or issued to Borrower, including without
limitation all shares of stock, warrants, options, and debentures,
whether owned, existing, or arising as of or subsequent to the
Closing Date;
(f) all instruments, documents of title, policies and certificates of
insurance, bank deposits, deposit accounts, checking accounts and
cash, whether owned, existing, or arising as of or subsequent to
the Closing Date;
(g) any and all proceeds (of sale, insurance, or otherwise),
replacements, substitutions, additions, improvements, products, and
accessions to, for or of the foregoing; and
(h) all books, records and documents relating to all of the
foregoing.
The Lender's rights in the Collateral will be perfected by the filing of
Uniform Commercial Code Financing Statements (Form UCC-1) in the State of
Michigan and Wayne County, Michigan, and the Borrower shall also execute
and deliver such other instruments and do such other things as is
necessary from time to time to grant to Lender a first, prior and senior
security interest in and to the Collateral.
<PAGE> 3
(6) Inter-Creditor Agreement - The Lender agrees to enter into an
"Inter-Creditor Agreement", in form and substance satisfactory to the
Lender, which will provide, among other things, for the relative rights
and remedies of the Lender with respect to the Loan and Collateral.
(7) Indemnification - In further consideration of the Lender's commitment to
make the Loan pursuant to this Commitment, Borrower agrees to indemnify,
defend and hold harmless the Lender from and against all damages,
liabilities, losses, costs, and expenses, including without limitation
attorneys' fees, arising out of or relating to any claims brought by
reason of the extension of the Loan or the transactions contemplated
hereby, except to the extent of a Lender's willful misconduct.
(8) Warrant Agreement - The Lender shall receive a warrant agreement to
purchase 300,000 shares of Caraco Common Stock at the purchase price of
$1.31 per share. The Lender may divide said 300,000 shares in any matter
in which the Lender deems.
(9) Affirmative and Negative Covenants - So long as Borrower shall be
indebted to the Lender under the Notes, Lender agrees as follows:
(a) No dividends or distribution, whether in cash, stock or other
property, shall be declared or paid to any shareholder;
(b) The Borrower shall not enter into, or agree or make any
agreement to enter into, any transaction outside of the ordinary
course of business;
(c) All budgets and expenditures shall be approved by the Lender,
within their discretion; and
(d) The continuing employment status and wage rates of all
employees, and all employment policies and contracts, shall be
approved in advance by the Lender, within their discretion.
(10) Events of Default - The occurrence of any one or more of the following
events, among such other occurrences as may be provided for in the Notes,
will be an event of default under the Note:
(a) The failure of Borrower to make any payment, as and when due,
of principal, interest or any other charge due and payable under the
Note and/or under any other evidences of indebtedness of the
Borrower to any person;
(b) The death or termination of employment with the Borrower,
without regard to the reason or lack of reason therefor, of William
R. Hurd;
<PAGE> 4
(c) Either Borrower shall voluntarily apply for the appointment
of a custodian, trustee or receiver to take custody or dispose of
any substantial portion of assets; or a court of competent
jurisdiction shall appoint a custodian, trustee or receiver to take
custody or dispose of any substantial portion of the assets of the
Borrower pursuant to any involuntary proceeding, and either (i)
Borrower shall indicate approval of, consent to, or acquiescence to
such appointment, or (ii) such custodian, trustee, or receive shall
not be discharged within thirty (30) days; or Borrower shall
voluntarily seek protection from creditors under any applicable
state or federal bankruptcy, liquidation or dissolution, insolvency,
or debt reorganization laws; or any of Borrower's creditors shall
institute any proceeding against Borrower under any applicable state
or federal bankruptcy, liquidation or dissolution, insolvency, or
debt reorganizations laws, and the same shall not be dismissed or
discharged within thirty (30) days;
(d) The temporary or permanent liquidation, dissolution, or other
discontinuance of the Borrower's corporate existence; the merger or
consolidation of Borrower; the sale or transfer of all or
substantially all of Borrower's assets; and/or the sale or transfer
of not less than 50% of the outstanding shares of capital stock of
the Borrower;
(e) There shall be more than seven persons on the Borrower's
Board of Directors, and the Lender shall not be a member of the
Borrower's Board of Directors; and/or
(f) The occurrence of any breach or violation by Borrower under
any of the Loan Documents.
(11) General Provisions - This Commitment shall be governed by, construed,
interpreted, and enforced in accordance with the internal laws of the
State of Michigan. This Commitment may not be modified orally or by
contrary course of conduct, and no modifications shall be effective unless
in writing and signed by the Lender. This Commitment inures solely to the
benefit of the Borrower and may not be assigned or transferred by
Borrower. This Commitment may be negotiated and transferred by the
Lender. BORROWER CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF MICHIGAN FOR ANY DISPUTES ARISING UNDER THIS COMMITMENT.
BORROWER EXPRESSLY WAIVES ALL OBJECTIONS IT NOW HAS OR MAY HAVE TO VENUE,
WHETHER BASED ON INCONVENIENCE OR ANY OTHER REASON. TO THE EXTENT THAT
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM THE JURISDICTION
OF ANY COURT OR FROM ANY LEGAL PROCESS, HOWSOEVER OCCURRING, WITH RESPECT
TO BORROWER OR ITS PROPERTIES, BORROWER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY. BORROWER HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES TRIAL BY
<PAGE> 5
JURY IN ANY ACTION OR SUIT BROUGHT UNDER OR PURSUANT TO THIS COMMITMENT.
LENDER:
/s/Jay F. Joliat
--------------------
Jay F. Joliat
BORROWER:
CARACO PHARMACEUTICAL LABORATORIES, LTD.
/s/William R. Hurd
--------------------------------
William R. Hurd
President
Date: October 18, 1996
<PAGE> 1
EXHIBIT 10.38
SECURED PROMISSORY NOTE
Date: November 15, 1996 Detroit, Michigan
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of David A. Hagelstein
TTEE David Hagelstein Trust UA 10-27-93 ("Lender"), at his offices located at
1411 N. Woodward, Suite 313, Birmingham, Michigan 48009 or at such other place
as Lender may designate in writing, the principal sum of One Hundred Thousand
and 00/100 ($100,000) Dollars, together with interest at fourteen (14.0%)
percent simple interest, so long as there shall be no event of default, and at
the per annum rate of eighteen percent (18%). Interest will be payable
monthly, commencing on the one month anniversary of the date of this Secured
Promissory Note. The entire principal balance, together with all interest and
other charges due and payable under the Note, will be due and payable upon the
first to occur of the one year anniversary of the Closing Date or demand by the
Lender.
This Note may be prepaid in whole or in part at any time without premium
or penalty. All payments shall be made in lawful money of the United States of
America.
This Note is secured by a UCC-1 which encumbers certain equipment owned by
Borrower located in the City of Detroit, County of Wayne, State of Michigan.
The following shall constitute a "Default" under the Note:
(i) Failure by Borrower to pay the principal and interest on the
due date;
(ii) Default by Borrower under the Loan Agreement.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest and presentment for the purpose of accelerating
maturity, and all other notices and demands as required by law, except as
expressly provided in this Note.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
assigns.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nonetheless
<PAGE> 2
continue in full force and effect without being impaired or invalidated in any
way.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan
corporation
By/s/William R. Hurd
---------------------
William R. Hurd
Its: President
-------------------
<PAGE> 1
EXHIBIT 10.39
SECURED PROMISSORY NOTE
Date: November 15, 1996 Detroit, Michigan
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of Jay F. Joliat
("Lender"), at his offices located at 1411 N. Woodward, Suite 300, Birmingham,
Michigan 48009 or at such other place as Lender may designate in writing, the
principal sum of One Hundred Thousand and 00/100 ($100,000) Dollars, together
with interest at fourteen (14.0%) percent simple interest, so long as there
shall be no event of default, and at the per annum rate of eighteen percent
(18%). Interest will be payable monthly, commencing on the one month
anniversary of the date of this Secured Promissory Note. The entire principal
balance, together with all interest and other charges due and payable under the
Note, will be due and payable upon the first to occur of the one year
anniversary of the Closing Date or demand by the Lender.
This Note may be prepaid in whole or in part at any time without premium
or penalty. All payments shall be made in lawful money of the United States of
America.
This Note is secured by a UCC-1 Form which encumbers certain equipment
owned by Borrower located in the City of Detroit, County of Wayne, State of
Michigan.
The following shall constitute a "Default" under the Note:
(i) Failure by Borrower to pay the principal and interest on the
due date;
(ii) Default by Borrower under the Loan Agreement.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest and presentment for the purpose of accelerating
maturity, and all other notices and demands as required by law, except as
expressly provided in this Note.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
assigns.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nonetheless
<PAGE> 2
continue in full force and effect without being impaired or invalidated in any
way.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan
corporation
By/s/William R. Hurd
-----------------------------
William R. Hurd
Its: President
---------------------------
<PAGE> 1
EXHIBIT 10.40
SECURED PROMISSORY NOTE
Date: November 15, 1996 Detroit, Michigan
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of John R. Morris
("Lender"), at his offices located at Biotrade AG, Alte Steinhauserstr. 21,
CH-6330 Cham Switzerland or at such other place as Lender may designate in
writing, the principal sum of One Hundred Thousand and 00/100 ($100,000)
Dollars, together with interest at fourteen (14.0%) percent simple interest, so
long as there shall be no event of default, and at the per annum rate of
eighteen percent (18%). Interest will be payable monthly, commencing on the
one month anniversary of the date of this Secured Promissory Note. The entire
principal balance, together with all interest and other charges due and payable
under the Note, will be due and payable upon the first to occur of the one year
anniversary of the Closing Date or demand by the Lender.
This Note may be prepaid in whole or in part at any time without premium
or penalty. All payments shall be made in lawful money of the United States of
America.
This Note is secured by a UCC-1 which encumbers certain equipment owned
by Borrower located in the City of Detroit, County of Wayne, State of Michigan.
The following shall constitute a "Default" under the Note:
(i) Failure by Borrower to pay the principal and interest on the
due date;
(ii) Default by Borrower under the Loan Agreement.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment, demand, protest, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest and presentment for the purpose of accelerating
maturity, and all other notices and demands as required by law, except as
expressly provided in this Note.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
assigns.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nonetheless
<PAGE> 2
continue in full force and effect without being impaired or invalidated in any
way.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan
corporation
By /s/William R. Hurd
------------------------------
William R. Hurd
Its: President
----------------------------
<PAGE> 1
EXHIBIT 10.41
SECURITY AGREEMENT
THIS AGREEMENT made and entered into this 19th day of December, 1996, by
and between Caraco Pharmaceutical Laboratories, Ltd., the address of which is
1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Debtor"), and Rosemary
Joliat Living Trust u/a/d 4/12/88, the address of which 1411 North Woodward,
Suite 300, Birmingham, Michigan 48009 ("Secured Party").
R E C I T A L S:
In consideration of the mutual covenants and agreements of the parties
hereinafter set forth and good and valuable consideration paid and/or extended
by Secured Party to Debtor, the receipt and sufficiency of which is hereby
acknowledged by Debtor, the parties hereto agree as follows:
1. CREATION OF SECURITY INTEREST. To secure the payment of the sums or
performance of the obligations referred to as the "Indebtedness" in Paragraph 2
of this Agreement, Debtor does hereby create in favor of Secured Party, its
successors and assigns, a continuing security interest and lien in all of
Debtor's right, title and interest in and to the following, wherever located,
(from time to time referred to as the "Collateral") which as used herein shall
have those definitions set forth below:
A. ACCOUNTS. All present and future Accounts, Documents, Chattel
Paper, Instruments, Contracts Rights, General Intangibles (as
defined below) and chooses in action, including, any right to any
refund of taxes heretofore or hereafter paid to any governmental
authority including, without limitation, all new drug
applications to, and approvals of such applications from, the
United States Food and Drug Administration and other regulatory
agencies;
B. EQUIPMENT. All present or future Equipment and fixtures,
including all machinery, computer equipment, furniture and
furnishings owned by Debtor, and including all accessions,
accessories, tools and dies, parts attached thereto or used or
intended to be used in connection therewith and all books,
records, instruments and documents relating thereto or useful in
maintaining or realizing upon the Equipmnent, and all
substitutions of, improvements to and replacements of as well as
all additions to all of the foregoing, whether now owned or
hereafter acquired by Debtor;
1
<PAGE> 2
C. INVENTORY. All Inventory and Goods, now or hereafter acquired
including, but not limited to, raw materials, scrap,
work-in-process, finished Goods, tangible property,
stock-in-trade, wares and merchandise used in, held for sale or
sold in the ordinary course of business, including Goods for
sale, lease or other disposition which give rise to any Accounts,
and including all Goods which have been returned to, repossessed
or stopped in transit by the party granting a security interest
to Secured Party therein, and all accessions, parts attached
thereto or used or intended to be used in connection therewith,
and all books, records, instruments and documents relating
thereto or useful in maintaining or realizing upon the Inventory;
D. PROCEEDS. Proceeds, and proceeds of hazard insurance and
eminent domain or condemnation awards of all of the foregoing
described assets and/or properties or interests therein,
including all products of, and accessions to, such assets or
properties or interests therein. In addition thereto, any and
all deposits or other sums at any time credited by or due from
Secured Party to Debtor and any and all Instruments, Documents,
policies and certificates of insurance, securities, Goods,
Accounts Receivable, choses in action, chattel paper, cash,
property and the proceeds thereof (whether or not the same are
Collateral or Proceeds thereof hereunder) owned by Debtor or in
which Debtor has an interest, which are now or at any time
hereafter in possession or control of Secured Party or in transit
by mail or carrier to or from Secured Party or in possession of
any third party acting on Secured Party's behalf, without regard
to whether Secured Party received the same in pledge, for
safekeeping, as agent or otherwise, or whether Secured Party has
conditionally released the same;
E. ACCOUNTS, CHATTEL PAPER, CONTRACTS, CONTRACT RIGHTS, DOCUMENTS,
GENERAL INTANGIBLES, GOODS, INSTRUMENTS AND INVENTORY. The
foregoing terms shall have meanings ascribed to them in the
Uniform Commercial Code as adopted by the State of Michigan, as
supplemented by the definitions set forth above;
whether now owned or hereafter acquired by Debtor, and all books, records,
instruments and documents relating thereto or useful in maintaining or
realizing upon the Collateral. Enumeratoin of specific items within general
types of Collateral is for the purpose of convenient reference and illustration
and shall not limit the scope of the security interest created under this
Security Agreement.
2
<PAGE> 3
2. INDEBTEDNESS. Debtor shall pay to Secured Party when due all amounts
evidenced by tha Promissory Note in the principal amount of Sixty Five Thousand
and no/100 ($65,000) Dollars, with interest as therein provided, executed and
delivered by Debtor to Secured Party on even date herewith (the "Note"), as the
same may be modified, renewed, extended, amended or replaced from time to time,
and shall pay all amounts and perform all obligations required under or
pursuant to this Agreement and all other documents and/or agreements delivered
to Secured Party in connection with the Note (the "Loan Documents"), such
obligations of payment and performance being hereinafter collectively referred
to as the "Indebtedness".
3. ACCELERATION CLAUSE. Upon default in the payment or performance of any
portion of the Indebtedness of Debtor, as provided in the Note and the Loan
Documents, or upon the occurrence of any other default hereunder, all or any
portion of the Indebtedness of Debtor, whether due or not, shall at Secured
Party's option become immediately due and payable without notice or demand.
4. USE OF COLLATERAL. The Equipment and Inventory shall be used
exclusively in connection with the conduct of Debtor's present business, unless
Secured Party gives its written consent to another use. Secured Party shall
have the right to inspect the Collateral at any time, to inspect Debtor's books
and records with respect thereto and to make inquiry of account and contract
debtors in connection therewith.
5. REMOVAL. The Equipment and Inventory shall be kept at Debtor's business
premises, and shall not be removed therefrom without the written consent of
Secured Party. Removal of any of the Collateral by Debtor, or its agents,
servants or employees, shall be deemed a willful taking, an unlawful conversion
and a default under this Agreement. Use of the Collateral and sale of the
Inventory in the regular and ordinary course of Debtor's business shall not
constitute a prohibited removal of the Collateral for the purpose of this
Agreement.
6. REPAIRS AND TAXES. Debtor shall at its own expense, from time to time,
replace and repair all parts of the Collateral as may be broken, worn, damaged
or otherwise in need of repair, and shall keep the Collateral in every respect
in good working order and repair. Debtor shall pay all taxes charged against,
assessed or imposed upon any of the Collateral.
7. INSURANCE. Debtor shall keep the Collateral insured against loss and
damage by casualty, theft and such other perils.
8. DEBTOR'S WARRANTIES AND REPRESENTATIONS. Debtor warrants and represents
that:
A. The Collateral is or will be owned by Debtor and except with
respect to (i) the collateral securing the loan between Debtor and
the Economic Development Corporation of the City of Detroit
entered into in August 1990, and (ii) the collateral referenced
in that certain Security Agreement between Debtor and Jay F.
Joliat,
3
<PAGE> 4
as Trustee of the Jay F. Joliat Qualified Terminable Interest
Marital Trust, u/a/d 4/8/82, that certain Security Agreement
between Debtor and David A. Hagelstein, as Trustee of the
TTEE David Hagelstein Trust, u/a/d 10/27/93, and that certain
Security Agreememt between Debtor and John R. Morris, the
Collateral is not subject to any security interests, liens or
encumbrances, except as created by this Agreement, and Debtor will
defend the Collateral against the claims and demands of all
persons;
B. Debtor will execute, and will pay all costs of filing of, any
financing, continuation or termination statement with respect to
the security interest created by this Agreement;
9. DEFAULT. The following shall constitute defaults (each a "Default")
under this Agreement:
A. The occurrence of any misrepresentation, omission or misstatement
in connection with or noncompliance or nonperformance of any of
Debtor's obligations, agreements, representations or warranties
under this Agreement (including the occurrence of any other
default identified under this Agreement or the Loan Documents)
which is not cured within 15 days after notice thereof;
B. Any default in the payment of any portion of the Indebtedness when
due in accordance with the terms of the Note, this Agreement or
the Loan Documents;
C. Debtor's voluntarily application for the appointment of a
custodian, trustee or receiver to take custody or dispose of any
substantial portion of its assets; or the appointment by a court
of competent jurisdiction of a custodian, trustee or receiver to
take custody or dispose of any substantial portion of the assets
of Debtor pursuant to any involuntary proceeding and either (i)
Debtor shall indicate approval of, consent to, or acquiescence to
such appointment, or (ii) such custodian, trustee, or receiver
shall not be discharged within thirty (30) days; or Debtor shall
voluntarily seek protection from creditors under any applicable
state or federal bankruptcy, liquidation or dissolution,
insolvency, or debt reorganization laws; or any of Debtor's
creditors shall institute any proceeding against Borrower under
any applicable state or federal bankruptcy, liquidation or
dissolution, insolvency, or debt reorganization laws, and the same
shall not be dismissed or discharged within thirty (30) days.
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<PAGE> 5
D. The liquidation, dissolution, or other discontinuance of Debtor's
corporate existence.
10. REMEDIES. In the event of the occurrence of any default, Secured
Party may exercise its rights under law, including by way of enforcement under
the Uniform Commercial Code in effect in the State of Michigan at the date of
this Agreement. Secured Party may enter Debtor's premises without legal process
and remove the Collateral or require the Debtor to assemble the Collateral and
make it available to Secured Party at a place within the State of Michigan
designated by Secured Party. If it so elects, Secured Party may and is hereby
empowered, without legal process, to enter any premises where the Collateral may
be kept and take exclusive possession of it on those premises with or without a
custodian. Secured Party may thereafter sell the Collateral at one or more
public or private sales, on or away from Debtor's business premises. Unless the
Collateral is perishable, threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Secured Party shall give Debtor
reasonable notice of the time and place of any public sale thereof, or of the
time after which any private sale or any other intended disposition thereof is
to be made. The requirement of reasonable notice shall be met if notice is
mailed to Debtor, postage prepaid, by first class certified mail, return receipt
requested, at least five (5) days prior to the date of the proposed sale or
disposition. At any such sale, Secured Party may in its absolute discretion
sell and dispose of all the right, title, and interest of Debtor in and to any
of the Collateral. Any such sale may be for cash or for credit, and Secured
Party may be the purchaser. Out of the monies arising from the sale and/or
collection of the Collateral, Secured Party shall retain any and all sums then
owing to Secured Party, including all additional advances and debts, and all
costs, fees, charges and expenses in connection therewith, with interest,
including reasonably attorneys fees, disbursements as herein defined, premiums
on bonds, custodian's fees, fees of public officers, auctioneer's fees, plus
advertising and labor, disbursements for use and occupancy of premises and any
and all other disbursements made by Secured Party in connection with the taking,
maintaining, storage and disposing of the Collateral, tendering the excess (if
any) to Debtor or its successors or assigns. If for any reason the Collateral
shall fail to satisfy all of the foregoing items, Debtor shall pay to Secured
Party the resulting deficiency upon demand.
11. SEVERABILITY. If any provision of this Agreement shall for any reason
be held to be invalid or unenforceable, that invalidity or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if the invalid or unenforceable provision had never been contained
herein.
12. NOTICES. All notices to the parties under this Agreement shall be
sufficient if mailed by certified mail, return receipt requested with sufficient
prepaid postage, to the parties at their addresses appearing at the beginning of
this Agreement, or at such other address as they shall designate in writing as
provided by this paragraph. Notice so directed and posted shall be effective
upon receipt or upon first attempted delivery or upon posting if proof of
posting is obtained (without regard to who receives or signs for such notice and
without regard to whether or not such notice is actually delivered).
5
<PAGE> 6
13. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Michigan.
14. CAPTIONS. Captions to paragraphs contained in this Agreement, are for
convenience only and are entirely without substantive effect.
15. SUCCESSORS. This Agreement shall be binding upon, and the benefits
hereof shall inure to, the parties hereto and their respective successors and
assigns.
THIS AGREEMENT was executed as of the date and year first above written.
DEBTOR:
CARACO PHARMACEUTICAL LABORATORIES, LTD.
a Michigan corporation
By:/s/William R. Hurd
-----------------------
William R. Hurd
Its: President
SECURED PARTY:
ROSEMARY JOLIAT LIVING TRUST, U/A/D 4/12/88
By: /s/Jay F. Joliat P.O.A. DTD 7/1/89
-------------------------------------
Rosemary Joliat, as Trustee
6
<PAGE> 1
EXHIBIT 10.42
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "Agreement"), dated as of December
23, 1996, between SUN PHARMA GLOBAL, INC., a company registered in the British
Virgin Islands and having its administrative offices at 12850 Dubai, U.A.E.
("Lender"); JAY F. JOLIAT, INDIVIDUALLY, AND AS TRUSTEE OF THE JAY F. JOLIAT
QUALIFIED TERMINABLE INTEREST MARITAL TRUST, U/A/D 4/8/82, whose address is
1411 North Woodward, Suite 300, Birmingham, Michigan 48009 ("Joliat"); DAVID A.
HAGELSTEIN, INDIVIDUALLY, AND AS TRUSTEE OF THE TTEE DAVID HAGELSTEIN TRUST,
U/A/D 10-27-93, whose address is 1411 North Woodward, Suite 313, Birmingham,
Michigan 48009 ("Hagelstein"); and JOHN R. MORRIS, whose address is Biotrade
A.G., Alte Steinhauserstr, 21, CH-6330 Cham Switzerland ("Morris")
(hereinafter Joliat, Hagelstein and Morris each collectively referred to as
"Subordinating Creditors") and CARACO PHARMACEUTICAL LABORATORIES, LTD., a
Michigan corporation, whose address is 1150 Elijah McCoy Dr., Detroit, Michigan
48202 (the "Borrower").
R E C I T A L S:
On the date hereof, Borrower is indebted to the Subordinated Creditors
in the aggregate amount of $890,000 pursuant to various loan agreements,
security agreements and secured promissory notes (the "Loan Documents").
Borrower, on the date hereof, is borrowing $350,000 from Lender
pursuant to that certain Secured Promissory Note of even date herewith and
Security Agreement of even date herewith (the "Sun Loan Agreements").
Lender desires to loan $350,000 to Borrower, and Subordinating
Creditors desire to accommodate Lender and Borrower by subordinating their
right to payment and subordinating their security interests under their Loan
Documents (herein collectively referred to as the "Property").
NOW, THEREFORE, as an inducement to and in consideration of the
advancement of funds by Lender, the parties agree as follows:
1. SUBORDINATION OF SUBORDINATED DEBT. The $890,000 in indebtedness
of Borrower to Subordinating Creditors, and all payments of monies by Borrower
to Subordinating Creditors due or to become due pursuant to the Loan Documents
(hereinafter referred to as "Subordinated Debt") and all security interests
granted to Subordinating Creditors in the Property for said Subordinated Debt
shall be subordinated and postponed to the prior payment and satisfaction in
full of any and all indebtedness of Borrower to Lender pursuant to the Sun Loan
Agreements.
2. SURVIVAL. This subordination by Subordinating Creditors of the
Subordinated Debt shall survive and shall remain in full force and effect in
the event of any administration of the Property and/or affairs of Borrower
arising from any assignment for the benefit of creditors, bankruptcy,
receivership, liquidation or other like proceedings; and no delay, forbearance,
or omission by Lender in the exercise of any right or power accruing to it upon
any default in the performance hereof by the other parties hereto shall impair
any such right or power or shall be construed to be a waiver of any such
default or acquiescence therein.
<PAGE> 2
3. RECEIPT OF PAYMENTS. In the event that Subordinating Creditors
shall receive any payment(s) from Borrower in violation of this Agreement,
whether such payment be in cash or otherwise, Subordinating Creditors shall be
liable and accountable to Lender therefor, shall be deemed to have received
such payment in trust for the use and benefit of Lender, shall not commingle
the same with any other funds and shall pay over and deliver such payment to
Lender immediately, to be applied upon the indebtedness of Borrower to Lender
under the Sun Loan Agreements.
4. ACCELERATION. In the event that Borrower, in violation of this
Agreement, shall make payment of any part of the Subordinated Debt, whether
such payment be in cash or otherwise, then and in such event, all Indebtedness
of Borrower to Lender shall be immediately due and payable.
5. SUBORDINATION OF PROPERTY. Subordinating Creditors subordinate all
of their interest in the Property until termination of the Sun Loan Agreements
executed between Lender and Borrower, and further provided that all
indebtedness due Lender from Borrower shall have been paid in full as therein
provided for.
6. WARRANTIES AS TO PROPERTY. Subordinating Creditors and Borrower
warrant to Lender, that Lender's rights, and the validity and enforceability
thereof, as the prior and perfected secured creditor of Borrower and as the
holder of a first and prior security interest in the Property, shall be
irrespective of the time or order of attachment or perfection of security
interests, or of the time or order of execution or filing of any Financing
Statement(s).
7. FUTURE ACTION. Subordinating Creditors further covenant and agree
that they shall take whatever steps are necessary, from time to time, in the
opinion of lender, to evidence and acknowledge and/or confirm and/or consent to
the priority, perfection and validity of the security interests of Lender in
the Property, including but not by way of limitation, amendment to their
Financing Statement(s) previously filed with respect to the Property.
8. EVENT OF DEFAULT. Subordinating Creditors further covenant, agree
and acknowledge that in the event of default of Borrower to Subordinating
Creditors (other than defaults relating to the payment of the Subordinated Debt
herein restricted) to give prompt notice thereof to Lender.
9. TRANSFER. Subordinating Creditors hereby transfer and assign to
Lender, as collateral security for any and all said obligations of Borrower to
Lender, all of the said claims or demands of Subordinating Creditor against
Borrower, with full right on the part of Lender, in its own name or in the name
of Subordinating Creditors, to collect and enforce said claims, by suit, proof
of debt in bankruptcy, or other liquidation proceedings, or otherwise. Should
any payment or security be received by Subordinating Creditors for or on
account of any of said claims or demands, prior to the satisfaction of all said
obligations and the indebtedness to Borrower to Lender pursuant to the Sun Loan
Agreements, Subordinating Creditors will forthwith deliver same to Lender, in
precisely the form received for application on account of Borrower's
obligations to Lender and, until so delivered, same shall be held in trust by
Subordinating Creditors as the property of Lender.
2
<PAGE> 3
10. NO LEGAL OR OTHER ACTION. Subordinating Creditors further
covenant and agree that until the payment in full of any and all indebtedness
of Borrower to Lender pursuant to the Sun Loan Agreements, they shall take no
legal other action to collect or enforce their rights under their respective
Loan Documents with respect to the Subordinated Debt.
11. CONSENTS. The subordination of Subordinating Creditors shall in
no way be affected or impaired by, and Subordinating Creditors hereby
irrevocably consent to: (a) any amendment, alternation, extension, renewal,
waiver, indulgence or other modification of the Sun Loan Agreements; (b) any
settlement or compromise in connection with the Sun Loan Agreements; (c) any
substitution, exchange, release or other disposition of all or any part of the
Sun Loan Agreements; and (d) any failure, delay, neglect, act or omission by
Lender to act in connection with the Sun Loan Agreements.
12. ASSIGNMENT. Subordinating Creditors further covenant and agree
that until the payment in full of any and all indebtedness of Borrower to
Lender pursuant to the Sun Loan Agreements, they shall not assign their
respective Loan Documents or any of their respective interests in such Loan
Documents to any other person ("Transferee") without the consent of Lender,
which will not be unreasonably withheld, and the written agreement of such
Transferee to be bound by all of the terms and conditions of this Agreement.
13. ENTIRE AGREEMENT. Except as otherwise stated in this Agreement,
this Agreement and the Sun Loan Agreements contain the entire understanding of
the parties with respect to its subject matter, and supersedes all prior and
contemporaneous agreements,understandings and negotiations. No parol evidence
of prior or contemporaneous agreements, understandings or negotiations shall
govern or be used to construe or modify this Agreement, or any of the Sun Loan
Agreements. No modification or alternation of this Agreement shall be deemed
effective unless in writing and signed by the parties.
14. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Michigan.
15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement. The signature of any party to any counterpart shall
be deemed to be a signature to, and may be appended to, any other counterpart.
16. NEITHER LENDER NO ANY OF IS EMPLOYEES, AGENTS OR ATTORNEYS SHALL
BE LIABLE TO BORROWER AND THE SUBORDINATING CREDITORS FOR CONSEQUENTIAL OR
SIMILAR DAMAGES ARISING FROM ANY BREACH OF CONTRACT, TORT OR OTHER WRONG
RELATING TO THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT RELATING HERETO.
17. BORROWER, LENDER AND THE SUBORDINATING CREDITORS HEREBY WAIVE
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS NOTE OR ANY INSTRUMENT OR
3
<PAGE> 4
DOCUMENT DELIVERED PURSUANT HERETO. THIS WAIVER IS INFORMED AND FREELY MADE.
18. EXCEPTION. Notwithstanding the foregoing, that certain loan by
Joliat and/or his affiliates pursuant to that certain Secured Promissory Short
Term Demand Note dated December 19, 1996 in the amount of $65,000 and that
Certain Security Agreement dated December 19, 1996 granting a security interest
in the Property shall be senior to Lender's security interest in the Property
and such debt shall be paid in full by Borrower promptly upon receipt of the
$350,000 loan by Lender to Borrower pursuant to the Sun Loan Agreements. Upon
payment in full of the $65,000, together with interest, the security interest
of Joliat and/or his affiliates in the Property securing the $65,000 loan shall
terminate and Joliat and/or his affiliates shall file a termination of their
financing statement with respect to the Property securing the $65,000 loan.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered as of the date first above written.
LENDER: BORROWER:
SUN PHARMACEUTICAL CARACO PHARMACEUTICAL
LABORATORIES, INC.
By: /s/ DILIP SHANGHVI By: WILLIAM R. HURD
------------------------------- --------------------------------
Dilip Shanghvi William R. Hurd
Its: Its: President
SUBORDINATING CREDITORS:
JAY F. JOLIAT
- ----------------------------------
Jay F. Joliat, Individually, and as Trustee
of the Jay F. Joliat Qualified Terminable
Interest Marital Trust u/a/d 4/8/82
DAVID A. HAGELSTEIN
- ----------------------------------
David A. Hagelstein, individually, and
as Trustee of the TTEE David Hagelstein
Trust, u/a/d/ 10/27/93
N/A
- ----------------------------------
John R. Morris
4
<PAGE> 1
EXHIBIT 10.43
SECURED PROMISSORY NOTE
Amount: $350,000 Detroit, Michigan
December 23, 1996
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of Sun Pharma Global,
Inc., a company registered in the British Virgin Islands with administrative
offices at P.O. Box 12850, Dubai, U.A.E. ("Lender"), or at such other place as
Lender may designate in writing, the principal sum of Three Hundred Fifty
Thousand and 00/100 ($350,000) Dollars, together with interest at 10.0% per
annum. This Secured Promissory Note (the "Note") shall mature, and all
principal outstanding hereunder, together with all accrued and unpaid interest
thereon shall be due and payable on (A) the earlier of (i) March 27, 1997, (ii)
the closing of a transaction pursuant to which Sun Pharmaceutical Industries
Limited ("Sun Pharmaceutical") or an affiliate acquires 5.3 million shares of
the Common Stock of Borrower (the "Proposed Transaction") or (iii) 20 days after
delivery of a written notice by Sun Pharmaceutical to Borrower that Lender does
not intend to proceed with and/or continue negotiations regarding the Proposed
Transaction, unless such failure to proceed constitutes a breach of any legal
obligation which Sun Pharmaceutical may hereafter incur in writing or (B) in any
event, upon the occurrence of a Default as defined pursuant to the Security
Agreement (as defined below). In the event the outstanding principal and
interest hereunder are not paid when due, then until such principal balance or
accrued interest is paid, the outstanding principal balance and all accrued but
unpaid interest thereon shall bear interest at the rate 12% per annum.
Notwithstanding anything herein to the contrary, the principal and all accrued
and unpaid interest thereon (in whole or in part) may, at the sole and exclusive
discretion of Lender, be applied as part of the investment pursuant to any
Proposed Transaction.
Notwithstanding any other provision of this Note or any other agreement
between Borrower and Lender, nothing herein shall require the Borrower to pay,
or the Lender to accept, interest in an amount which subjects the holder of this
Note to any penalty or forfeiture under applicable law, and in no event shall
the total of all charges payable hereunder (whether of interest or of such other
charges which may or might be characterized as interest) exceed the maximum rate
permitted to be charged under applicable law. Should Lender or any other holder
of this Note receive any payment which is or would be in excess of that
permitted to be charged under applicable law, such payment shall have been, and
shall be deemed to have been made in error and shall be held as additional cash
collateral for the indebtedness evidenced by this Note.
<PAGE> 2
All payments on account of indebtedness evidenced by this Note shall be
made not later than 11:00 a.m. Detroit time on the date due hereunder in lawful
money of the United States without setoff or counterclaim whatsoever and without
reduction for, and free from, any and all present or future taxes, levies,
imposts, duties, fees, charges, deductions, withholdings, restrictions or
conditions of any nature imposed by any governmental body, and all payments
shall be first applied to any costs and expenses permitted hereunder, then
accrued and unpaid interest on the outstanding principal balance with the
remainder to be applied to any unpaid principal.
This Note may be prepaid in whole or in part at any time and from time to
time without premium or penalty. All payments shall be made in lawful money of
the United States of America.
This Note is secured by a Security Agreement of even date herewith
("Security Agreement") and a Subordination Agreement of even date herewith
("Subordination Agreement"), as each may be amended from time to time. Reference
is hereby made to the Security Agreement and the Subordination Agreement with
respect to the security given for this instrument.
Borrower agrees to pay to Lender (or the holder of this Note) (a) all costs
and expenses incurred by the Borrower or other holder hereof in collecting
hereon, whether through reorganization, bankruptcy, any other proceeding or
otherwise, (b) attorneys' and consultants fees and expenses in connection with
any proposed refinancing or restructuring of the credit provided in this Note in
the nature of a "work-out" and (c) all fees and expenses, including attorneys
fees, incurred in connection with the collection of this Note or the enforcement
of any of its rights under the Security Agreement or the Subordination
Agreement.
Borrower, for itself, its successors, heirs and permitted assigns, and any
other parties now or hereafter liable for the payment hereof, expressly waives
presentment for payment, demand, notice of nonpayment, notice of protest and
protest of this Note, and diligence in collection, bringing suit or
acceleration. The liability of Borrower to Lender shall be absolute and
unconditional, without regard to the liability of any other party.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
permitted assigns. Borrower shall be prohibited from assigning its obligations
hereunder or under the Security Agreement or under the Subordination Agreement
without the written consent of Lender.
This Note shall be governed by and construed in accordance with the laws of
the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall
<PAGE> 3
nonetheless continue in full force and effect without being impaired or
invalidated in any way.
NEITHER LENDER NOR ANY OF ITS EMPLOYEES, AGENTS OR ATTORNEYS SHALL BE
LIABLE TO BORROWER FOR CONSEQUENTIAL OR SIMILAR DAMAGES ARISING FROM ANY BREACH
OF CONTRACT, TORT OR OTHER WRONG RELATING TO THIS NOTE OR ANY OTHER AGREEMENT
OR DOCUMENT RELATING HERETO.
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE OR ANY INSTRUMENT
OR DOCUMENT DELIVERED PURSUANT HERETO. THIS WAIVER IS INFORMED AND FREELY
MADE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
WITNESSES CARACO PHARMACEUTICAL
LABORATORIES, LTD.,
a Michigan corporation
Jay F. Joliat By: /s/William R. Hurd
-------------------- ------------------------------
William R. Hurd
Its: President
David A. Hagelstein
--------------------
Date: December 23, 1996
-----------------
<PAGE> 1
EXHIBIT 10.44
SECURITY AGREEMENT
THIS AGREEMENT made and entered into this 23rd day of December, 1996, by
and between Caraco Pharmaceutical Laboratories, Ltd., the address of which is
1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Debtor"), and Sun Pharma
Global, Inc., a company registered in the British Virgin Islands and having its
administrative offices at P.O. Box 12850, Dubai, U.A.E. ("Secured Party").
R E C I T A L S:
In consideration of the mutual covenants and agreements of the parties
hereinafter set forth and good and valuable consideration paid and/or extended
by Secured Party to Debtor, the receipt and sufficiency of which is hereby
acknowledged by Debtor, the parties hereto agree as follows:
1. CREATION OF SECURITY INTEREST. To secure the payment of the sums or
performance of the obligations referred to as the "Indebtedness" in Paragraph 2
of this Agreement, Debtor does hereby create in favor of Secured Party, its
successors and assigns, a continuing security interest and lien in all of
Debtor's right, title and interest in and to the following, wherever located,
(from time to time referred to as the "Collateral") which as used herein shall
have those definitions set forth below:
A. ACCOUNTS. All present and future Accounts, Documents, Chattel
Paper, Instruments, Contracts Rights, General Intangibles (as
defined below) and choses in action, now owned or hereafter
acquired, including, without limitation, any right to any refund
of taxes heretofore or hereafter paid to any governmental
authority including, without limitation, all new drug
applications to, and approvals of such applications from, the
United States Food and Drug Administration and other regulatory
agencies;
B. SPECIFIED EQUIPMENT. The equipment listed on Schedule A hereto,
and including, without limitation, all accessions, accessories,
tools and dies, parts attached thereto or used or intended to be
used in connection therewith and all books, records, instruments
and documents relating thereto or useful in maintaining or
realizing upon such equipment, and all substitutions of,
improvements to and replacements of as well as all additions to
all of the foregoing, whether now owned or hereafter acquired by
Debtor;
1
<PAGE> 2
C. INVENTORY. All Inventory and Goods, now owned or hereafter
acquired including, without limitation, raw materials, scrap,
work-in-process, finished Goods, tangible property,
stock-in-trade, wares and merchandise used in, held for sale or
sold in the ordinary course of business, including, without
limitation, Goods for sale, lease or other disposition which give
rise to any Accounts, all Goods which have been returned to,
repossessed or stopped in transit by the party granting a
security interest to Secured Party herein, and all accessions,
parts attached thereto or used or intended to be used in
connection therewith, and all books, records, instruments and
documents relating thereto or useful in maintaining or realizing
upon the Inventory;
D. PROCEEDS. Proceeds, and proceeds of hazard insurance and eminent
domain or condemnation awards of all of the foregoing described
assets and/or properties or interests therein, including, without
limitation, all products of, and accessions to, such assets or
properties or interests therein. In addition thereto, any and
all deposits or other sums at any time credited by or due from
Secured Party to Debtor and any and all Instruments, Documents,
policies and certificates of insurance, securities, Goods,
Accounts, choses in action, chattel paper, cash, property and the
proceeds thereof (whether or not the same are Collateral or
Proceeds thereof hereunder) owned by Debtor or in which Debtor
has an interest, which are now or at any time hereafter in
possession or control of Secured Party or in transit by mail or
carrier to or from Secured Party or in possession of any third
party acting on Secured Party's behalf, without regard to whether
Secured Party received the same in pledge, for safekeeping, as
agent or otherwise, or whether Secured Party has conditionally
released the same;
E. ACCOUNTS, CHATTEL PAPER, CONTRACTS, CONTRACT RIGHTS, DOCUMENTS,
GENERAL INTANGIBLES, GOODS, INSTRUMENTS AND INVENTORY. The
foregoing terms shall have meanings ascribed to them in the
Uniform Commercial Code as adopted by the State of Michigan, as
supplemented by the definitions set forth above;
whether now owned or hereafter acquired by Debtor, and all books, records,
instruments and documents relating thereto or useful in maintaining or realizing
upon the Collateral.
2. INDEBTEDNESS. Debtor shall pay to Secured Party when due all amounts
evidenced by that Secured Promissory Note in the principal amount of Three
Hundred Fifty Thousand and no/100 ($350,000.00) Dollars, with interest as
therein provided, executed and delivered by Debtor to Secured Party on even date
herewith (the "Note"), as the same may be
2
<PAGE> 3
modified, renewed, extended, amended or replaced from time to time, and shall
pay all amounts and perform all obligations required under or pursuant to this
Agreement and all other documents and/or agreements delivered to Secured Party
in connection with the Note (the "Loan Documents"), such obligations of payment
and performance being hereinafter collectively referred to as the
"Indebtedness".
3. ACCELERATION CLAUSE. Upon the occurrence of any Default (as defined
pursuant to Section 9 hereof), all of the Indebtedness of Debtor, whether due or
not, shall become immediately due and payable in accordance with the terms of
the Note and the other Loan Documents.
4. USE OF COLLATERAL. The Collateral shall be used exclusively in
connection with the conduct of Debtor's present business, unless Secured Party
gives its written consent to another use. Secured Party shall have the right to
inspect the Collateral at any time, to inspect Debtor's books and records with
respect thereto and to make inquiry of account and contract debtors in
connection therewith, all at any time.
5. REMOVAL. The Collateral shall be kept at Debtor's business premises,
and shall not be removed therefrom without the written consent of Secured Party.
Removal of any of the Collateral by Debtor, or its agents, servants or
employees, shall be deemed a willful taking, an unlawful conversion and a
default under this Agreement. Use of the Collateral and sale of the Inventory
in the regular and ordinary course of Debtor's business shall not constitute a
prohibited removal of the Collateral for the purpose of this Agreement.
6. REPAIRS AND TAXES. Debtor shall at its own expense, from time to
time, replace and repair all parts of the Collateral as may be broken, worn,
damaged or otherwise in need of repair, and shall keep the Collateral in every
respect in good working order and repair. Debtor shall pay all taxes charged
against, assessed or imposed upon any of the Collateral.
7. INSURANCE. Debtor shall keep the Collateral insured against loss and
damage by casualty, theft and such other perils with insurers and coverages
reasonably acceptable to Secured Party.
8. DEBTOR'S WARRANTIES AND REPRESENTATIONS. Debtor warrants, represents
and covenants that:
A. The Collateral is or will be owned by Debtor and except with
respect to (i) collateral securing a $65,000 loan from Jay F.
Joliat and/or his affiliates to the Company (which loan is to be
repaid from the proceeds of the $350,000 loan from the Secured
Party), and (ii) the collateral securing the Subordinated Debt as
defined in that certain Subordination Agreement of even date
herewith, the Collateral is not subject to any security
interests, liens or encumbrances, charges, restrictions or claims
except as created by
3
<PAGE> 4
this Agreement, and Debtor will defend the Collateral against the
claims and demands of all persons;
B. Debtor will execute, and will pay all costs of filing of, any
financing, continuation or termination statement with respect to
the security interest created by this Agreement deemed necessary
or desirable by the Secured Party;
C. Debtor shall from time to time, at the expense of Debtor, execute
and deliver all further instruments and documents, and take all
further actions, that the Secured Party may reasonably deem
necessary or desirable, in order to perfect and protect any
security interest granted or purported to be granted hereby or to
enable the Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral.
D. Debtor hereby authorizes the Secured Party to file one or more
financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral, with or without
Debtor's signature thereon.
E. Debtor was incorporated under the name J-Mac Domestic, Inc.,
changed its name to Caraco, Inc. until changing its name to its
current name, and Debtor's chief executive office and sole place
of business is located at 1150 Elijah McCoy Drive, Detroit,
Michigan 48202.
F. Debtor is a corporation duly organized under the laws of
Michigan, validly existing and in good standing and has full
corporate power to own, operate and lease its properties and to
carry on its business as now conducted. Debtor is qualified to do
business in all jurisdictions where the nature of its activities
would make such qualification necessary and the failure to so
qualify would have a material and adverse affect on the Debtor.
G. Debtor has all power, statutory and otherwise, to execute and
deliver this Security Agreement, the Note and the Subordination
Agreement, and the execution hereof and thereof, and Debtor's
performance of its obligations hereunder and thereunder, have
been approved by all appropriate corporate action. Such
agreements and documents constitute the legal, valid and binding
obligation of Debtor, enforceable against such Debtor in
accordance with its terms.
4
<PAGE> 5
H. The equipment listed on Schedule A hereto is not subject to the
lien of the Economic Development Corporation of the City of
Detroit and Debtor reasonably believes the Equipment has a fair
market value of not less than $1.5 million.
I. Debtor shall not move the Collateral or change Debtor's name,
identity or corporate structure unless it has received Secured
Party's prior written consent thereto and has taken all action
necessary or reasonably requested by the Secured Party to amend
any financing statement or continuation statement filed with
respect to the Collateral in connection therewith.
J. The execution, delivery and performance of this Agreement and the
other Loan Documents by Debtor and its performance of its
obligations hereunder and thereunder does not conflict with or
result in any violation of or constitute a breach or default
under (i) any term of the Articles of Incorporation or Bylaws of
Debtor, (ii) any indenture, agreement instrument, order, judgment
or decree to which Debtor is a party, bound or subject or to
which any of the assets or business of Debtor are subject, (iii)
any law, statute or regulation of any governmental or regulatory
body.
K. No approval or consent of the execution, delivery and performance
by the Debtor of this Agreement, the Note, and the other Loan
Documents is required by law or by the Debtor's existing Articles
of Incorporation or Bylaws or by any contract, indenture,
agreement, instrument, order, judgment or decree to which the
Debtor is a party or otherwise bound or to which any of its
property or business is subject, or by any indebtedness of the
Debtor.
L. There are no actions, proceedings or investigations pending or,
to the knowledge of the Debtor, threatened against the Debtor
before any court, administrative agency or other governmental or
regulatory authority. Neither the Debtor nor its property and
assets is subject to any judicial or administrative order,
judgment or decree which could have a material adverse effect on
the Debtor, its business, properties, condition (financial or
otherwise) or prospects. The Debtor has not violated any
federal, state or local laws, regulations or orders.
9. DEFAULT. The following shall constitute defaults (each a "Default")
under this Agreement:
5
<PAGE> 6
A. The occurrence of any breach of warranty or other
misrepresentation, omission or misstatement in connection with or
noncompliance or nonperformance of any of Debtor's covenants,
obligations (other than to make payment), agreements (other than
to make payment), representations or warranties under this
Agreement, the Note or any other Loan Document (including the
occurrence of any other default identified under this Agreement
or any of the other Loan Documents) which is not cured within 15
days after notice thereof from Secured Party to Debtor;
B. Any default in the payment of any portion of the Indebtedness
when due in accordance with the terms of the Note, this Agreement
or the Loan Documents;
C. Debtor's voluntarily application for the appointment of a
custodian, trustee or receiver to take custody or dispose of any
substantial portion of its assets; or the appointment by a court
of competent jurisdiction of a custodian, trustee or receiver to
take custody or dispose of any substantial portion of the assets
of Debtor pursuant to any involuntary proceeding and either (i)
Debtor shall indicate approval of, consent to, or acquiescence to
such appointment, or (ii) such custodian, trustee, or receiver
shall not be discharged within thirty (30) days; or Debtor shall
voluntarily seek protection from creditors under any applicable
state or federal bankruptcy, liquidation or dissolution,
insolvency, or debt reorganization laws; or any of Debtor's
creditors shall institute any proceeding against Borrower under
any applicable state or federal bankruptcy, liquidation or
dissolution, insolvency, or debt reorganization laws, and the
same shall not be dismissed or discharged within thirty (30)
days.
D. The liquidation, dissolution, or other discontinuance of Debtor's
corporate existence.
E. The issuance of a writ or warrant or attachment, garnishment,
execution, distraint or similar process against any material
portion of the Debtor's assets which remains undischarged and
unstayed for a period of thirty consecutive days.
F. Debtor shall make a general assignment for the benefit of its
creditor.
6
<PAGE> 7
G. Any party to the Subordination Agreement (other than Secured Party)
shall default in the performance of any covenant, agreement, condition
or provision thereof.
10. REMEDIES. In the event of the occurrence of any default, Secured
Party may exercise its rights under law, including by way of enforcement under
the Uniform Commercial Code in effect in the State of Michigan as in effect from
time to time. Secured Party may enter Debtor's premises without legal process
or any obligation to pay rent and remove the Collateral or require the Debtor to
assemble the Collateral and make it available to Secured Party at a place within
or outside the State of Michigan designated by Secured Party. If it so elects,
Secured Party may and is hereby empowered, without legal process, to enter any
premises where the Collateral may be kept and take exclusive possession of it on
those premises with or without a custodian. Secured Party may thereafter sell
the Collateral at one or more public or private sales, on or away from Debtor's
business premises. Unless the Collateral is perishable, threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Secured Party shall give Debtor reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or any other
intended disposition thereof is to be made. The requirement of reasonable
notice shall be met if notice is mailed to Debtor, postage prepaid, by first
class certified mail, return receipt requested, at least five (5) days prior to
the date of the proposed sale or disposition. At any such sale, Secured Party
may in its absolute discretion sell and dispose of all the right, title, and
interest of Debtor in and to any of the Collateral. Any such sale may be for
cash or for credit, and Secured Party may be the purchaser. Secured Party shall
have the right to (i) demand payments of the Accounts, (ii) enforce payment of
the Accounts by legal proceedings or otherwise, (iii) exercise all of Debtor's
rights and remedies with respect to the collection of the Accounts, (iv) settle,
adjust or compromise any legal proceedings brought to collect the Accounts, (v)
if permitted by law, sell or assign the Accounts upon such terms, for such
amounts and at such time or times as the Secured Party deems advisable, (vi)
discharge and release the Accounts, (vii) prepare, file and sign Debtor's name
on any proof of claim in bankruptcy or similar document against any account
debtor, (viii) prepare, file and sign any Debtor's name on any notice of lien,
assignment or satisfaction of lien or similar document in connection with the
Accounts, (ix) do all acts and things necessary in the Secured Party's sole
discretion, to fulfill Debtor's obligations under this Security Agreement, (x)
endorse the name of Debtor upon any Chattel Paper, Document, Instrument,
invoice, freight bill, bill of lading or similar document or agreement relating
to the Collateral, (xi) use Debtor's stationery and sign the name of Debtor to
verifications of the Accounts and notice thereof to Account debtors, and (xii)
use the information recorded on or contained in any data processing equipment
and computer hardware, software and source codes relating to the Collateral to
which Debtor has access. Out of the monies arising from the sale and/or
collection of the Collateral, Secured Party shall retain any and all sums then
owing to Secured Party, including all additional advances and debts, and all
costs, fees, charges and expenses in connection therewith, with interest,
including reasonable attorneys fees, disbursements, premiums on bonds,
custodian's fees, fees of public officers, auctioneer's fees, plus advertising
and labor, disbursements for use and occupancy of premises and any and all other
disbursements made by Secured Party in connection with the taking, maintaining,
storage
7
<PAGE> 8
and disposing of the Collateral, tendering the excess (if any) to Debtor or its
successors or assigns. If for any reason the Collateral shall fail to satisfy
all of the foregoing items, Debtor shall pay to Secured Party the resulting
deficiency upon demand. Secured Party's remedies shall be cumulative and
non-exclusive to the fullest extent permitted by law.
11. DISCRETIONARY RIGHTS. Exercise of or omission to exercise any right
of the Secured Party shall not affect any other subsequent right of the Secured
Party to exercise the same and the waiver of any default by the Secured Party
shall not be deemed a waiver of any subsequent Default.
12. SEVERABILITY. If any provision of this Agreement shall for any
reason be held to be invalid or unenforceable, that invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if the invalid or unenforceable provision had never been
contained herein.
13. NOTICES. All notices to the parties under this Agreement shall be
sufficient if mailed by certified mail, return receipt requested with sufficient
prepaid postage, to the parties at their addresses appearing at the beginning of
this Agreement, or at such other address as they shall designate in writing as
provided by this paragraph. Notice so directed and posted shall be effective
upon receipt.
14. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Michigan.
15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement. The signature of any party to any counterpart shall
be deemed to be a signature to, and may be appended to, any other counterpart.
16. CAPTIONS. Captions to paragraphs contained in this Agreement, other
than in Paragraph 1.E., are for convenience only and are entirely without
substantive effect.
17. SUCCESSORS. This Agreement shall be binding upon, and the benefits
hereof shall inure to, the parties hereto and their respective successors and
assigns. Debtor's obligations and rights hereunder shall not be assigned
without the prior written consent of Secured Party.
18. INDEMNITY. Debtor agrees to indemnify the Secured Party from and
against any and all claims, losses and liabilities in connection with or arising
out of this Security Agreement, the Subordination Agreement or the Note and any
actions taken hereunder or thereunder, except where due to Secured Party's gross
negligence or wilful misconduct.
19. WAIVER OF JURY TRIAL. DEBTOR HEREBY WAIVES TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR ANY
8
<PAGE> 9
INSTRUMENT OR DOCUMENT RELATING HERETO. THIS WAIVER IS INFORMED AND FREELY
MADE.
THIS AGREEMENT was executed as of the date and year first above written.
DEBTOR:
CARACO PHARMACEUTICAL LABORATORIES, LTD.
a Michigan corporation
By:/s/William R. Hurd
-------------------------------
William R. Hurd
Its: President
SECURED PARTY:
SUN PHARMA GLOBAL, INC.
By: /s/Dilip Shanghvi
-------------------------------
Dilip Shanghvi
Its: Managing Director
9
<PAGE> 1
EXHIBIT 10.45
SECURED SHORT TERM DEMAND NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of the
Rosemary Joliat Living Trust DTD 4/12/88 as amended, the sum of Sixty Five
Thousand ($65,000) Dollars, together with interest of 10.0% per annum of the
unpaid balance, with such interest accruing daily. The entire unpaid principal
and any accrued interest shall be immediately payable UPON DEMAND of any holder
of this note. The automatic repayment of this note shall coincide with the
receipt of the anticipated $350,000 loan from Sun Pharma Global, Inc. In no
event however, shall the total borrowed amount along with all accrued interest
be repaid any later than December 31, 1996. It is agreed that this secured
short term demand note shall hold priority as to repayment over any other
account of trade currently payable, or any other loans, either secured or
unsecured, currently outstanding to the extent allowed by law.
This note is secured by a Security Agreement of the even date herewith
("Security Agreement"), which security agreement may not be amended or changed.
Reference is hereby made to the Security Agreement regarding the security
given for this instrument.
Failure to repay this note along with all interest accrued on the timetable
described above shall constitute default under this agreement. If a default
occurs, as such term is defined in the Security Agreement, the Borrower
promises to pay the costs of collection of this note, including Lender's
reasonable attorneys' fees.
Borrower, for itself, its successors, heirs and assigns, expressly waives
presentment for payment, demand, notice of non-payment, notice of protest and
protest of this Note, and diligence in collection or bringing suit. The
liability of Borrower to Lender shall be absolute and unconditional, without
regard to the liability of any other party.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's assigns, successors, heirs or beneficiaries and shall bind Borrower
and its successors and assigns.
This Note shall be governed by, and construed in accordance with the laws of
the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nonetheless continue in full force without impairment or
invalidation in any way.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of the
date and year indicated below the Borrowers signature.
Caraco Pharmaceutical Laboratories, Ltd.
/s/William R. Hurd
----------------------------------------------
William R. Hurd
President and Chief Operating Officer
Dated: 12/26/96
<PAGE> 1
EXHIBIT 10.46
SECURED PROMISSORY NOTE
Amount: $100,000 Detroit, Michigan
January 30, 1997
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of Jay F. Joliat, as
Trustee of the Jay F. Joliat Qualified Terminable Interest Marital Trust u/a/d
April 8, 1982, the address of which is 1411 N. Woodward, Suite 300, Birmingham,
Michigan 48109 ("Lender"), or at such other place as Lender may designate in
writing, the principal sum of One Hundred Thousand and 00/100 ($100,000)
Dollars, together with interest at 10.0% per annum payable in cash or shares of
Common Stock of Borrower as determined in the sole discretion of Borrower.
This Secured Promissory Note (the "Note") shall mature, and all principal
outstanding hereunder, together with all accrued and unpaid interest thereon
shall be due and payable on (A) the earlier of (i) March 27, 1997, (ii) the
closing of a transaction pursuant to which Sun Pharmaceutical Industries
Limited ("Sun Pharmaceutical") or an affiliate acquires 5.3 million shares of
the Common Stock of Borrower (the "Proposed Transaction") or (iii) 20 days
after delivery of a written notice by Sun Pharmaceutical to Borrower that
Lender does not intend to proceed with and/or continue negotiations regarding
the Proposed Transaction, unless such failure to proceed constitutes a breach
of any legal obligation which Sun Pharmaceutical may hereafter incur in writing
or (B) in any event, upon the occurrence of a Default as defined pursuant to
the Security Agreement (as defined below). In the event the outstanding
principal and interest hereunder are not paid when due, then until such
principal balance or accrued interest is paid, the outstanding principal
balance and all accrued but unpaid interest thereon shall bear interest at the
rate 12% per annum.
Notwithstanding any other provision of this Note or any other agreement
between Borrower and Lender, nothing herein shall require the Borrower to pay,
or the Lender to accept, interest in an amount which subjects the holder of
this Note to any penalty or forfeiture under applicable law, and in no event
shall the total of all charges payable hereunder (whether of interest or of
such other charges which may or might be characterized as interest) exceed the
maximum rate permitted to be charged under applicable law. Should Lender or
any other holder of this Note receive any payment which is or would be in
excess of that permitted to be charged under applicable law, such payment shall
have been, and shall be deemed to have been made in error and shall be held as
additional cash collateral for the indebtedness evidenced by this Note.
<PAGE> 2
All payments on account of indebtedness evidenced by this Note shall be
made not later than 11:00 a.m. Detroit time on the date due hereunder in lawful
money of the United States without setoff or counterclaim whatsoever and
without reduction for, and free from, any and all present or future taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any governmental body, and all payments
shall be first applied to any costs and expenses permitted hereunder, then
accrued and unpaid interest on the outstanding principal balance with the
remainder to be applied to any unpaid principal.
This Note may be prepaid in whole or in part at any time and from time to
time without premium or penalty. All payments shall be made in lawful money of
the United States of America.
This Note is secured by a Security Agreement of even date herewith
("Security Agreement") and an Inter-Creditor Agreement of even date herewith
("Inter-Creditor Agreement"), as each may be amended from time to time.
Reference is hereby made to the Security Agreement and the Inter-Creditor
Agreement with respect to the security given for this instrument.
Borrower agrees to pay to Lender (or the holder of this Note) (a) all
costs and expenses incurred by the Lender or other holder hereof in collecting
hereon, whether through reorganization, bankruptcy, any other proceeding or
otherwise, (b) attorneys' and consultants fees and expenses in connection with
any proposed refinancing or restructuring of the credit provided in this Note
in the nature of a "work-out" and (c) all fees and expenses, including
attorneys fees, incurred in connection with the collection of this Note or the
enforcement of any of its rights under the Security Agreement or the
Inter-Creditor Agreement.
Borrower, for itself, its successors, heirs and permitted assigns, and any
other parties now or hereafter liable for the payment hereof, expressly waives
presentment for payment, demand, notice of nonpayment, notice of protest and
protest of this Note, and diligence in collection, bringing suit or
acceleration. The liability of Borrower to Lender shall be absolute and
unconditional, without regard to the liability of any other party.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
permitted assigns. Borrower shall be prohibited from assigning its obligations
hereunder or under the Security Agreement or under the Inter-Creditor Agreement
without the written consent of Lender.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall
<PAGE> 3
nonetheless continue in full force and effect without being impaired or
invalidated in any way.
NEITHER LENDER NOR ANY OF ITS EMPLOYEES, AGENTS OR ATTORNEYS SHALL BE
LIABLE TO BORROWER FOR CONSEQUENTIAL OR SIMILAR DAMAGES ARISING FROM ANY BREACH
OF CONTRACT, TORT OR OTHER WRONG RELATING TO THIS NOTE OR ANY OTHER AGREEMENT
OR DOCUMENT RELATING HERETO.
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE OR ANY INSTRUMENT
OR DOCUMENT DELIVERED PURSUANT HERETO. THIS WAIVER IS INFORMED AND FREELY
MADE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
WITNESSES CARACO PHARMACEUTICAL
LABORATORIES, LTD.,
a Michigan corporation
/s/Allan J. Hammer By: /a/William R. Hurd
- ------------------ -----------------------------
William R. Hurd
Its: President
/s/Joy Belloli
- ------------------
Date: January 30, 1997
----------------
<PAGE> 1
EXHIBIT 10.47
INTER-CREDITOR AGREEMENT
THIS INTER-CREDITOR AGREEMENT (the "Agreement"), dated as of January 30,
1997, between SUN PHARMA GLOBAL, INC., a company registered in the British
Virgin Islands with administrative offices at P.O. Box 12850 Dubai, U.A.E.
("Sun"), JAY F. JOLIAT, INDIVIDUALLY AND AS TRUSTEE OF THE JAY F. JOLIAT
QUALIFIED TERMINABLE INTEREST MARITAL TRUST, U/A/D 4/8/82, whose address is
1411 North Woodward, Suite 300, Birmingham, Michigan 48009 ("Joliat") and DAVID
A. HAGELSTEIN, INDIVIDUALLY AND AS TRUSTEE OF THE DAVID HAGELSTEIN TRUST, U/A/D
10-27-93, whose address is 1411 North Woodward, Suite 313, Birmingham, Michigan
48009 ("Hagelstein")(collectively, the "Creditors") and CARACO PHARMACEUTICAL
LABORATORIES, LTD., a Michigan corporation, whose address is 1150 Elijah McCoy
Dr., Detroit, Michigan 48202 (the "Debtor").
R E C I T A L S :
Sun has loaned Debtor (the "Sun Loan") the amount of $350,000 pursuant to
that certain Secured Promissory Note dated December 23, 1996, and in
connection therewith Debtor and Sun have entered into that certain Security
Agreement dated December 23, 1996, as to which a UCC Financing Statement was
filed with the Secretary of State of Michigan on January 8, 1997 (the "Sun Loan
Documents");
Creditors and Debtor entered into a Subordination Agreement dated December
23, 1996 (the "Subordination Agreement"), pursuant to which Joliat and
Hagelstein subordinated certain prior indebtedness and related security
interests in certain collateral to Sun.
Debtor had requested a loan of $200,000 from each of the Creditors for
working capital purposes. However, Sun has indicated that it is unable to
provide such a loan. As a result, Hagelstein and Joliat shall loan Debtor an
aggregate of $200,000 and $400,000, respectively (the "Hagelstein Loan" and the
"Joliat Loan," respectively) pursuant to Secured Promissory Notes, Security
Agreements and UCC Financing Statements of even date herewith (the "Hagelstein
Loan Documents" and the Joliat Loan Documents," respectively), subject to the
condition (the "Condition") that Sun agree that (i) the Sun Loan be paid back
at the same time and on a proportionate basis to the Hagelstein Loan and the
Joliat Loan and (ii) the security interest of Sun in the collateral underlying
the Sun Loan have equal priority to the security interests of Hagelstein and
Joliat in the Hagelstein Loan and the Joliat Loan.
Sun, in order to accommodate Hagelstein and Joliat and assist Debtor in
raising needed financing, and acknowledging the personal benefit to Sun of the
Hagelstein Loan and the Joliat Loan, desires to satisfy the Condition and
thereby permit Hagelstein and Joliat to make the Hagelstein Loan and the Joliat
Loan, respectively.
NOW, THEREFORE, in consideration of Hagelstein's loan to Debtor as set
forth in the Hagelstein Loan Documents and Joliat's loan to Debtor as set
forth in the Joliat Loan Documents,
<PAGE> 2
and in consideration of the mutual covenants and agreements contained in this
Agreement, the parties hereto agree as follows:
1. PRE-DEFAULT NOTE REPAYMENTS. Principal payments by Debtor under the Sun
Loan, the Hagelstein Loan and the Joliat Loan, shall be made proportionately
until each of the loans has been paid in full, as follows:
Sun 36.84% (350/950)
Joliat 42.11% (400/950)
Hagelstein 21.05% (200/950)
Further, if any Creditor receives payments from Debtor with respect to the Sun
Loan, the Hagelstein Loan, and the Joliat Loan which are not in the proportions
noted above, such Creditor shall be liable and accountable to the other
Creditors for their proportionate share, shall be deemed to have received such
payment in trust for the use and benefit of the other Creditors, shall not
commingle the same with any other funds and shall pay over and deliver such
payment to the other Creditors immediately to be applied upon the indebtedness
of Debtor to such other Creditors pursuant to the applicable loans.
2. DEFAULTS. If an event of default occurs under the terms and conditions
of either the Sun Loan, the Hagelstein Loan or the Joliat Loan, it will be
deemed a default under the Sun Loan, the Hagelstein Loan and the Joliat Loan.
3. EQUAL PRIORITY IN COLLATERAL. Creditors agree that with respect to the
collateral securing the Sun Loan, the Hagelstein Loan and the Joliat Loan,
notwithstanding that some of the collateral securing the Hagelstein Loan and
the Joliat Loan is the same collateral which is the subject of the
Subordination Agreement, and despite Sun having perfected its security interest
in the collateral pursuant to the Sun Loan earlier than Hagelstein and Joliat
pursuant to the Hagelstein Loan and Joliat Loan, respectively, the security
interests of Sun, Joliat and Hagelstein in the collateral securing the Sun
Loan, the Hagelstein Loan and the Joliat Loan, respectively, will be treated
pari passu to each other and each Creditor will have an equal priority in such
collateral. However, with respect to the division of any proceeds from the
disposition of any such collateral, the proceeds will be divided
proportionately in the percentages set forth in Paragraph 1 above.
4. FUTURE ACTION. Creditors further covenant and agree that they shall
take whatever steps are necessary, from time to time, to evidence and
acknowledge and/or confirm and/or consent to the equal priority, perfection and
delivery of their security interests in the collateral underlying their
respective Sun Loan, Hagelstein Loan and Joliat Loan, including but not by way
of limitation, amendment to their respective financing statements filed with
respect to such collateral.
2
<PAGE> 3
5. NO DIVIDENDS. Debtor agrees that as long as Debtor is indebted to
Creditors under the Sun Loan, Hagelstein Loan and Joliat Loan, no dividends or
distributions, whether in cash, stock or other property shall be declared or
paid to any shareholder.
6. DURATION AND TERMINATION. This Agreement shall terminate only upon
payment or performance in full of all of the obligations under the Sun Loan,
Hagelstein Loan and Joliat Loan. Neither the death nor the bankruptcy of any
Creditor shall effect a termination hereof.
7. ASSIGNMENT. Creditors further covenant and agree that until the
payment in full of any and all of the indebtedness of Debtor to Creditors
pursuant to the Sun Loan, the Hagelstein Loan and the Joliat Loan, they shall
not assign their respective Sun Loan Documents, Hagelstein Loan Documents or
Joliat Loan Documents or any of their respective interest in such loan
documents to any other person ("Transferee") without the written consent of the
other Creditors, which will not be unreasonably withheld, and the written
agreement of such Transferee to be bound by all of the terms and conditions of
this Agreement.
8. NOTICES. All notices, requests, demand and other communications
required or permitted under this Agreement or by law shall be in writing and
shall be deemed to have been duly given, made and received only when sent by
facsimile transmission (receipt confirmed) or reputable overnight delivery
service (receipt confirmed), when delivered against receipt, or when deposited
in the United States mails, certified mail, return receipt requested, postage
prepaid, addressed as set forth above.
Any addressee may alter the address to which communications are to be sent
by giving notice of such change of address in conformity with the provisions of
this section for the giving of notice.
9. ENTIRE AGREEMENT. This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written. Neither this Agreement nor any portion or provision hereof may be
changed, waived or amended orally or in any manner other than by an agreement
in writing signed by Debtor and the Creditors.
10. SUCCESSORS AND ASSIGNS. This Agreement shall inure to and shall be
binding upon Debtor and each Creditor and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns.
11. GOVERNING LAW. The validity, construction and enforcement of this
Agreement shall be governed by the laws of the State of Michigan, without
regard to its conflict of laws and rules.
3
<PAGE> 4
12. SEVERABILITY. The provisions of this Agreement are independent of and
separable from each other. If any provision hereof shall for any reason be
held invalid or unenforceable, it is the intent of the parties that such
invalidity or unenforceability shall not affect the validity or enforceability
of any other provision hereof, and that this Agreement shall be construed as if
such invalid or unenforceable provision had never been contained herein.
13. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement. The signature of any party to any counterpart shall
be deemed to be a signature to, and may be appended to, any other counterpart.
This Agreement is binding on each party upon execution thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered as of the date first above written.
CREDITORS: DEBTOR:
CARACO PHARMACEUTICAL
SUN PHARMA GLOBAL, INC. LABORATORIES, LTD.
By:/s/Sudhir Valia By:/s/William R. Hurd
----------------------------- ----------------------
William R. Hurd
Its:_______________________ Its: President
/s/Jay F. Joliat
- -------------------------------------
Jay F. Joliat, Individually and as Trustee of the
Jay F. Joliat Qualified Terminable Interest
Marital Trust, u/a/d 4/8/82
/s/David A. Hagelstein
- -------------------------------------
David A. Hagelstein, Individually and
as Trustee of the David Hagelstein Trust,
u/a/d 10/27/93
4
<PAGE> 1
EXHIBIT 10.48
SECURITY AGREEMENT
THIS AGREEMENT made and entered into this 30th day of January, 1997, by
and between Caraco Pharmaceutical Laboratories, Ltd., the address of which is
1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Debtor"), and Jay F. Joliat,
as Trustee of the Jay F. Joliat Qualified Terminable Interest Marital Trust
u/a/d April 8, 1982, the address of which is 1411 N. Woodward, Suite 300,
Birmingham, Michigan 48109 ("Secured Party").
R E C I T A L S:
In consideration of the mutual covenants and agreements of the parties
hereinafter set forth and good and valuable consideration paid and/or extended
by Secured Party to Debtor, the receipt and sufficiency of which is hereby
acknowledged by Debtor, the parties hereto agree as follows:
1. CREATION OF SECURITY INTEREST. To secure the payment of the sums or
performance of the obligations referred to as the "Indebtedness" in Paragraph 2
of this Agreement, Debtor does hereby create in favor of Secured Party, its
successors and assigns, a continuing security interest and lien in all of
Debtor's right, title and interest in and to the following, wherever located,
(from time to time referred to as the "Collateral") which as used herein shall
have those definitions set forth below:
A. ACCOUNTS. All present and future Accounts, Documents, Chattel
Paper, Instruments, Contracts Rights, General Intangibles (as
defined below) and choses in action, now owned or hereafter
acquired, including, without limitation, any right to any refund
of taxes heretofore or hereafter paid to any governmental
authority including, without limitation, all new drug
applications to, and approvals of such applications from, the
United States Food and Drug Administration and other regulatory
agencies;
B. SPECIFIED EQUIPMENT. The equipment listed on Schedule A hereto,
and including, without limitation, all accessions, accessories,
tools and dies, parts attached thereto or used or intended to be
used in connection therewith and all books, records, instruments
and documents relating thereto or useful in maintaining or
realizing upon such equipment, and all substitutions of,
improvements to and replacements of as well as all additions to
all of the foregoing, whether now owned or hereafter acquired by
Debtor;
1
<PAGE> 2
C. INVENTORY. All Inventory and Goods, now owned or hereafter
acquired including, without limitation, raw materials, scrap,
work-in-process, finished Goods, tangible property,
stock-in-trade, wares and merchandise used in, held for sale or
sold in the ordinary course of business, including, without
limitation, Goods for sale, lease or other disposition which give
rise to any Accounts, all Goods which have been returned to,
repossessed or stopped in transit by the party granting a
security interest to Secured Party herein, and all accessions,
parts attached thereto or used or intended to be used in
connection therewith, and all books, records, instruments and
documents relating thereto or useful in maintaining or realizing
upon the Inventory;
D. PROCEEDS. Proceeds, and proceeds of hazard insurance and eminent
domain or condemnation awards of all of the foregoing described
assets and/or properties or interests therein, including, without
limitation, all products of, and accessions to, such assets or
properties or interests therein. In addition thereto, any and
all deposits or other sums at any time credited by or due from
Secured Party to Debtor and any and all Instruments, Documents,
policies and certificates of insurance, securities, Goods,
Accounts, choses in action, chattel paper, cash, property and the
proceeds thereof (whether or not the same are Collateral or
Proceeds thereof hereunder) owned by Debtor or in which Debtor
has an interest, which are now or at any time hereafter in
possession or control of Secured Party or in transit by mail or
carrier to or from Secured Party or in possession of any third
party acting on Secured Party's behalf, without regard to whether
Secured Party received the same in pledge, for safekeeping, as
agent or otherwise, or whether Secured Party has conditionally
released the same;
E. ACCOUNTS, CHATTEL PAPER, CONTRACTS, CONTRACT RIGHTS, DOCUMENTS,
GENERAL INTANGIBLES, GOODS, INSTRUMENTS AND INVENTORY. The
foregoing terms shall have meanings ascribed to them in the
Uniform Commercial Code as adopted by the State of Michigan, as
supplemented by the definitions set forth above;
whether now owned or hereafter acquired by Debtor, and all books, records,
instruments and documents relating thereto or useful in maintaining or
realizing upon the Collateral.
2. INDEBTEDNESS. Secured Party has agreed to loan Debtor the aggregate
amount of Four Hundred Thousand and No/100 ($400,000) Dollars in one or more
payments and Debtor shall pay to Secured Party when due all amounts evidenced
by those Secured Promissory Notes in the aggregate principal amount of Four
Hundred Thousand and no/100 ($400,000.00)
2
<PAGE> 3
Dollars, with interest as therein provided, executed and delivered by Debtor to
Secured Party (the "Notes"), as the same may be modified, renewed, extended,
amended or replaced from time to time, and shall pay all amounts and perform all
obligations required under or pursuant to this Agreement and all other documents
and/or agreements delivered to Secured Party in connection with the Notes (the
"Loan Documents"), such obligations of payment and performance being hereinafter
collectively referred to as the "Indebtedness".
3. ACCELERATION CLAUSE. Upon the occurrence of any Default (as defined
pursuant to Section 9 hereof), all of the Indebtedness of Debtor, whether due
or not, shall become immediately due and payable in accordance with the terms
of the Notes and the other Loan Documents.
4. USE OF COLLATERAL. The Collateral shall be used exclusively in
connection with the conduct of Debtor's present business, unless Secured Party
gives its written consent to another use. Secured Party shall have the right
to inspect the Collateral at any time, to inspect Debtor's books and records
with respect thereto and to make inquiry of account and contract debtors in
connection therewith, all at any time.
5. REMOVAL. The Collateral shall be kept at Debtor's business premises,
and shall not be removed therefrom without the written consent of Secured
Party. Removal of any of the Collateral by Debtor, or its agents, servants or
employees, shall be deemed a willful taking, an unlawful conversion and a
default under this Agreement. Use of the Collateral and sale of the Inventory
in the regular and ordinary course of Debtor's business shall not constitute a
prohibited removal of the Collateral for the purpose of this Agreement.
6. REPAIRS AND TAXES. Debtor shall at its own expense, from time to
time, replace and repair all parts of the Collateral as may be broken, worn,
damaged or otherwise in need of repair, and shall keep the Collateral in every
respect in good working order and repair. Debtor shall pay all taxes charged
against, assessed or imposed upon any of the Collateral.
7. INSURANCE. Debtor shall keep the Collateral insured against loss and
damage by casualty, theft and such other perils with insurers and coverages
reasonably acceptable to Secured Party.
8. DEBTOR'S WARRANTIES AND REPRESENTATIONS. Debtor warrants, represents
and covenants that:
A. The Collateral is or will be owned by Debtor and except with
respect to the collateral securing the Sun Loan and Hagelstein
Loan as defined in that certain Inter-Creditor Agreement of even
date herewith, the Collateral is not subject to any security
interests, liens or encumbrances, charges, restrictions or claims
except as created by this Agreement, and Debtor will defend the
Collateral against the claims and demands of all persons;
3
<PAGE> 4
B. Debtor will execute, and will pay all costs of filing of, any
financing, continuation or termination statement with respect to
the security interest created by this Agreement deemed necessary
or desirable by the Secured Party;
C. Debtor shall from time to time, at the expense of Debtor, execute
and deliver all further instruments and documents, and take all
further actions, that the Secured Party may reasonably deem
necessary or desirable, in order to perfect and protect any
security interest granted or purported to be granted hereby or to
enable the Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral.
D. Debtor hereby authorizes the Secured Party to file one or more
financing or continuation statements, and amendments thereto,
relative to all or any part of the Collateral, with or without
Debtor's signature thereon.
E. Debtor was incorporated under the name J-Mac Domestic, Inc.,
changed its name to Caraco, Inc. until changing its name to its
current name, and Debtor's chief executive office and sole place
of business is located at 1150 Elijah McCoy Drive, Detroit,
Michigan 48202.
F. Debtor is a corporation duly organized under the laws of
Michigan, validly existing and in good standing and has full
corporate power to own, operate and lease its properties and to
carry on its business as now conducted. Debtor is qualified to do
business in all jurisdictions where the nature of its activities
would make such qualification necessary and the failure to so
qualify would have a material and adverse affect on the Debtor.
G. Debtor has all power, statutory and otherwise, to execute and
deliver this Security Agreement, the Notes and the Inter-Creditor
Agreement, and the execution hereof and thereof, and Debtor's
performance of its obligations hereunder and thereunder, have
been approved by all appropriate corporate action. Such
agreements and documents constitute the legal, valid and binding
obligation of Debtor, enforceable against such Debtor in
accordance with its terms.
H. The equipment listed on Schedule A hereto is not subject to the
lien of the Economic Development Corporation of the City of
4
<PAGE> 5
Detroit and Debtor reasonably believes the Equipment has a fair
market value of not less than $1.5 million.
I. Debtor shall not move the Collateral or change Debtor's name, identity or
corporate structure unless it has received Secured Party's prior written
consent thereto and has taken all action necessary or reasonably requested
by the Secured Party to amend any financing statement or continuation
statement filed with respect to the Collateral in connection therewith.
J. The execution, delivery and performance of this Agreement and the
other Loan Documents by Debtor and its performance of its
obligations hereunder and thereunder does not conflict with or
result in any violation of or constitute a breach or default
under (i) any term of the Articles of Incorporation or Bylaws of
Debtor, (ii) any indenture, agreement instrument, order, judgment
or decree to which Debtor is a party, bound or subject or to
which any of the assets or business of Debtor are subject, (iii)
any law, statute or regulation of any governmental or regulatory
body.
K. No approval or consent of the execution, delivery and performance
by the Debtor of this Agreement, the Notes, and the other Loan
Documents is required by law or by the Debtor's existing Articles
of Incorporation or Bylaws or by any contract, indenture,
agreement, instrument, order, judgment or decree to which the
Debtor is a party or otherwise bound or to which any of its
property or business is subject, or by any indebtedness of the
Debtor.
L. There are no actions, proceedings or investigations pending or,
to the knowledge of the Debtor, threatened against the Debtor
before any court, administrative agency or other governmental or
regulatory authority. Neither the Debtor nor its property and
assets is subject to any judicial or administrative order,
judgment or decree which could have a material adverse effect on
the Debtor, its business, properties, condition (financial or
otherwise) or prospects. The Debtor has not violated any
federal, state or local laws, regulations or orders.
9. DEFAULT. The following shall constitute defaults (each a "Default")
under this Agreement:
A. The occurrence of any breach of warranty or other
misrepresentation, omission or misstatement in connection with
or
5
<PAGE> 6
noncompliance or nonperformance of any of Debtor's
covenants, obligations (other than to make payment), agreements
(other than to make payment), representations or warranties
under this Agreement, the Notes or any other Loan Document
(including the occurrence of any other default identified under
this Agreement or any of the other Loan Documents) which is not
cured within 15 days after notice thereof from Secured Party to
Debtor;
B. Any default in the payment of any portion of the
Indebtedness when due in accordance with the terms of the Notes,
this Agreement or the Loan Documents;
C. Debtor's voluntarily application for the appointment of a
custodian, trustee or receiver to take custody or dispose of any
substantial portion of its assets; or the appointment by a court
of competent jurisdiction of a custodian, trustee or receiver to
take custody or dispose of any substantial portion of the assets
of Debtor pursuant to any involuntary proceeding and either (i)
Debtor shall indicate approval of, consent to, or acquiescence to
such appointment, or (ii) such custodian, trustee, or receiver
shall not be discharged within thirty (30) days; or Debtor shall
voluntarily seek protection from creditors under any applicable
state or federal bankruptcy, liquidation or dissolution,
insolvency, or debt reorganization laws; or any of Debtor's
creditors shall institute any proceeding against Borrower under
any applicable state or federal bankruptcy, liquidation or
dissolution, insolvency, or debt reorganization laws, and the
same shall not be dismissed or discharged within thirty (30)
days.
D. The liquidation, dissolution, or other discontinuance of
Debtor's corporate existence.
E. The issuance of a writ or warrant or attachment,
garnishment, execution, distraint or similar process against any
material portion of the Debtor's assets which remains
undischarged and unstayed for a period of thirty consecutive
days.
F. Debtor shall make a general assignment for the benefit of its
creditor.
G. Any party to the Inter-Creditor Agreement (other than
Secured Party) shall default in the performance of any covenant,
agreement, condition or provision thereof.
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<PAGE> 7
10. REMEDIES. In the event of the occurrence of any default, Secured
Party may exercise its rights under law, including by way of
enforcement under the Uniform Commercial Code in effect in the State of
Michigan as in effect from time to time. Secured Party may enter Debtor's
premises without legal process or any obligation to pay rent and remove the
Collateral or require the Debtor to assemble the Collateral and make it
available to Secured Party at a place within or outside the State of Michigan
designated by Secured Party. If it so elects, Secured Party may and is hereby
empowered, without legal process, to enter any premises where the Collateral
may be kept and take exclusive possession of it on those premises with or
without a custodian. Secured Party may thereafter sell the Collateral at one
or more public or private sales, on or away from Debtor's business premises.
Unless the Collateral is perishable, threatens to decline speedily in value or
is of a type customarily sold on a recognized market, Secured Party shall give
Debtor reasonable notice of the time and place of any public sale thereof, or
of the time after which any private sale or any other intended disposition
thereof is to be made. The requirement of reasonable notice shall be met if
notice is mailed to Debtor, postage prepaid, by first class certified mail,
return receipt requested, at least five (5) days prior to the date of the
proposed sale or disposition. At any such sale, Secured Party may in its
absolute discretion sell and dispose of all the right, title, and interest of
Debtor in and to any of the Collateral. Any such sale may be for cash or for
credit, and Secured Party may be the purchaser. Secured Party shall have the
right to (i) demand payments of the Accounts, (ii) enforce payment of the
Accounts by legal proceedings or otherwise, (iii) exercise all of Debtor's
rights and remedies with respect to the collection of the Accounts, (iv)
settle, adjust or compromise any legal proceedings brought to collect the
Accounts, (v) if permitted by law, sell or assign the Accounts upon such terms,
for such amounts and at such time or times as the Secured Party deems
advisable, (vi) discharge and release the Accounts, (vii) prepare, file and
sign Debtor's name on any proof of claim in bankruptcy or similar document
against any account debtor, (viii) prepare, file and sign any Debtor's name on
any notice of lien, assignment or satisfaction of lien or similar document in
connection with the Accounts, (ix) do all acts and things necessary in the
Secured Party's sole discretion, to fulfill Debtor's obligations under this
Security Agreement, (x) endorse the name of Debtor upon any Chattel Paper,
Document, Instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Collateral, (xi) use Debtor's stationery and sign
the name of Debtor to verifications of the Accounts and notice thereof to
Account debtors, and (xii) use the information recorded on or contained in any
data processing equipment and computer hardware, software and source codes
relating to the Collateral to which Debtor has access. Out of the monies
arising from the sale and/or collection of the Collateral, Secured Party shall
retain any and all sums then owing to Secured Party, including all additional
advances and debts, and all costs, fees, charges and expenses in connection
therewith, with interest, including reasonable attorneys fees, disbursements,
premiums on bonds, custodian's fees, fees of public officers, auctioneer's
fees, plus advertising and labor, disbursements for use and occupancy of
premises and any and all other disbursements made by Secured Party in
connection with the taking, maintaining, storage and disposing of the
Collateral, tendering the excess (if any) to Debtor or its successors or
assigns. If for any reason the Collateral shall fail to satisfy all of the
foregoing items, Debtor shall pay to Secured Party the resulting deficiency
upon demand. Secured Party's remedies shall be cumulative and non-exclusive to
the fullest extent permitted by law.
7
<PAGE> 8
11. DISCRETIONARY RIGHTS. Exercise of or omission to exercise any right of
the Secured Party shall not affect any other subsequent right of the Secured
Party to exercise the same and the waiver of any default by the Secured Party
shall not be deemed a waiver of any subsequent Default.
12. SEVERABILITY. If any provision of this Agreement shall for any reason
be held to be invalid or unenforceable, that invalidity or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if the invalid or unenforceable provision had never been contained
herein.
13. NOTICES. All notices to the parties under this Agreement shall be
sufficient if mailed by certified mail, return receipt requested with
sufficient prepaid postage, to the parties at their addresses appearing at the
beginning of this Agreement, or at such other address as they shall designate
in writing as provided by this paragraph. Notice so directed and posted shall
be effective upon receipt.
14. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Michigan.
15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement. The signature of any party to any counterpart shall
be deemed to be a signature to, and may be appended to, any other counterpart.
16 CAPTIONS. Captions to paragraphs contained in this Agreement, other
than in Paragraph 1.E., are for convenience only and are entirely without
substantive effect.
17. SUCCESSORS. This Agreement shall be binding upon, and the benefits
hereof shall inure to, the parties hereto and their respective successors and
assigns. Debtor's obligations and rights hereunder shall not be assigned
without the prior written consent of Secured Party.
18. INDEMNITY. Debtor agrees to indemnify the Secured Party from and
against any and all claims, losses and liabilities in connection with or
arising out of this Security Agreement, the Inter-Creditor Agreement or the
Notes and any actions taken hereunder or thereunder, except where due to
Secured Party's gross negligence or wilful misconduct.
19. WAIVER OF JURY TRIAL. DEBTOR HEREBY WAIVES TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR ANY
8
<PAGE> 9
INSTRUMENT OR DOCUMENT RELATING HERETO. THIS WAIVER IS INFORMED AND FREELY
MADE.
THIS AGREEMENT was executed as of the date and year first above
written.
DEBTOR:
CARACO PHARMACEUTICAL LABORATORIES, LTD.
a Michigan corporation
By:/s/William R. Hurd
--------------------------------
William R. Hurd
Its: President
SECURED PARTY:
JAY F. JOLIAT QUALIFIED TERMINABLE
INTEREST MARITAL TRUST
U/A/D 4/8/82
By:/s/Jay F. Joliat
--------------------------------
Jay F. Joliat, Trustee
9
<PAGE> 1
EXHIBIT 10.49
SECURED PROMISSORY NOTE
Amount: $300,000 Detroit, Michigan
February 3, 1997
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of Jay F. Joliat, as
Trustee of the Jay F. Joliat Qualified Terminable Interest Marital Trust u/a/d
April 8, 1982, the address of which is 1411 N. Woodward, Suite 300, Birmingham,
Michigan 48109 ("Lender"), or at such other place as Lender may designate in
writing, the principal sum of Three Hundred Thousand and 00/100 ($300,000)
Dollars, together with interest at 10.0% per annum payable in cash or shares of
Common Stock of Borrower as determined in the sole discretion of Borrower.
This Secured Promissory Note (the "Note") shall mature, and all principal
outstanding hereunder, together with all accrued and unpaid interest thereon
shall be due and payable on (A) the earlier of (i) March 27, 1997, (ii) the
closing of a transaction pursuant to which Sun Pharmaceutical Industries
Limited ("Sun Pharmaceutical") or an affiliate acquires 5.3 million shares of
the Common Stock of Borrower (the "Proposed Transaction") or (iii) 20 days
after delivery of a written notice by Sun Pharmaceutical to Borrower that
Lender does not intend to proceed with and/or continue negotiations regarding
the Proposed Transaction, unless such failure to proceed constitutes a breach
of any legal obligation which Sun Pharmaceutical may hereafter incur in writing
or (B) in any event, upon the occurrence of a Default as defined pursuant to
the Security Agreement (as defined below). In the event the outstanding
principal and interest hereunder are not paid when due, then until such
principal balance or accrued interest is paid, the outstanding principal
balance and all accrued but unpaid interest thereon shall bear interest at the
rate 12% per annum.
Notwithstanding any other provision of this Note or any other agreement
between Borrower and Lender, nothing herein shall require the Borrower to pay,
or the Lender to accept, interest in an amount which subjects the holder of
this Note to any penalty or forfeiture under applicable law, and in no event
shall the total of all charges payable hereunder (whether of interest
or of such other charges which may or might be characterized as interest)
exceed the maximum rate permitted to be charged under applicable law. Should
Lender or any other holder of this Note receive any payment which is or would
be in excess of that permitted to be charged under applicable law, such payment
shall have been, and shall be deemed to have been made in error and shall be
held as additional cash collateral for the indebtedness evidenced by this Note.
<PAGE> 2
All payments on account of indebtedness evidenced by this Note shall be
made not later than 11:00 a.m. Detroit time on the date due hereunder in lawful
money of the United States without setoff or counterclaim whatsoever and
without reduction for, and free from, any and all present or future taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any governmental body, and all payments
shall be first applied to any costs and expenses permitted hereunder, then
accrued and unpaid interest on the outstanding principal balance with the
remainder to be applied to any unpaid principal.
This Note may be prepaid in whole or in part at any time and from time to
time without premium or penalty. All payments shall be made in lawful money of
the United States of America.
This Note is secured by a Security Agreement dated January 30, 1997
("Security Agreement"), and an Inter-Creditor Agreement dated January 30, 1997
("Inter-Creditor Agreement"), as each may be amended from time to time.
Reference is hereby made to the Security Agreement and the Inter-Creditor
Agreement with respect to the security given for this instrument.
Borrower agrees to pay to Lender (or the holder of this Note) (a) all
costs and expenses incurred by the Lender or other holder hereof in collecting
hereon, whether through reorganization, bankruptcy, any other proceeding or
otherwise, (b) attorneys' and consultants fees and expenses in connection with
any proposed refinancing or restructuring of the credit provided in this Note
in the nature of a "work-out" and (c) all fees and expenses, including
attorneys fees, incurred in connection with the collection of this Note or the
enforcement of any of its rights under the Security Agreement or the
Inter-Creditor Agreement.
Borrower, for itself, its successors, heirs and permitted assigns, and any
other parties now or hereafter liable for the payment hereof, expressly waives
presentment for payment, demand, notice of nonpayment, notice of protest and
protest of this Note, and diligence in collection, bringing suit or
acceleration. The liability of Borrower to Lender shall be absolute and
unconditional, without regard to the liability of any other party.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
permitted assigns. Borrower shall be prohibited from
assigning its obligations hereunder or under the Security Agreement or under
the Inter-Creditor Agreement without the written consent of Lender.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall
<PAGE> 3
nonetheless continue in full force and effect without being impaired or
invalidated in any way.
NEITHER LENDER NOR ANY OF ITS EMPLOYEES, AGENTS OR ATTORNEYS SHALL BE
LIABLE TO BORROWER FOR CONSEQUENTIAL OR SIMILAR DAMAGES ARISING FROM ANY BREACH
OF CONTRACT, TORT OR OTHER WRONG RELATING TO THIS NOTE OR ANY OTHER AGREEMENT
OR DOCUMENT RELATING HERETO.
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE OR ANY INSTRUMENT
OR DOCUMENT DELIVERED PURSUANT HERETO. THIS WAIVER IS INFORMED AND FREELY
MADE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
WITNESSES CARACO PHARMACEUTICAL
LABORATORIES, LTD.,
a Michigan corporation
/s/Joy Belloli By: /s/William R. Hurd
- -------------- -------------------
William R. Hurd
Its: President
Date: /s/February 3, 1997
-------------------
<PAGE> 1
EXHIBIT 10.50
SECURED PROMISSORY NOTE
Amount: $200,000 Detroit, Michigan
February 11, 1997
FOR VALUE RECEIVED, Caraco Pharmaceutical Laboratories, Ltd., a Michigan
corporation ("Borrower"), promises to pay to the order of David A. Hagelstein,
as Trustee of the David Hagelstein Trust u/a/d October 27, 1993, the address of
which is 1411 N. Woodward, Suite 313, Birmingham, Michigan 48109 ("Lender"), or
at such other place as Lender may designate in writing, the principal sum of
Two Hundred Thousand and 00/100 ($200,000) Dollars, together with interest at
10.0% per annum payable in cash or shares of Common Stock of Borrower as
determined in the sole discretion of Borrower. This Secured Promissory Note
(the "Note") shall mature, and all principal outstanding hereunder, together
with all accrued and unpaid interest thereon shall be due and payable on (A)
the earlier of (i) March 27, 1997, (ii) the closing of a transaction pursuant
to which Sun Pharmaceutical Industries Limited ("Sun Pharmaceutical") or an
affiliate acquires 5.3 million shares of the Common Stock of Borrower (the
"Proposed Transaction") or (iii) 20 days after delivery of a written notice by
Sun Pharmaceutical to Borrower that Lender does not intend to proceed with
and/or continue negotiations regarding the Proposed Transaction, unless such
failure to proceed constitutes a breach of any legal obligation which Sun
Pharmaceutical may hereafter incur in writing or (B) in any event, upon the
occurrence of a Default as defined pursuant to the Security Agreement (as
defined below). In the event the outstanding principal and interest hereunder
are not paid when due, then until such principal balance or accrued interest is
paid, the outstanding principal balance and all accrued but unpaid interest
thereon shall bear interest at the rate 12% per annum.
Notwithstanding any other provision of this Note or any other agreement
between Borrower and Lender, nothing herein shall require the Borrower to pay,
or the Lender to accept, interest in an amount which subjects the holder of
this Note to any penalty or forfeiture under applicable law, and in no event
shall the total of all charges payable hereunder (whether of interest or of
such other charges which may or might be characterized as interest) exceed the
maximum rate permitted to be charged under applicable law. Should Lender or
any other holder of this Note receive any payment which is or would be in
excess of that permitted to be charged under applicable law, such payment shall
have been, and shall be deemed to have been made in error been made in error
and shall be held as additional cash collateral for the indebtedness evidenced
by this Note.
<PAGE> 2
All payments on account of indebtedness evidenced by this Note shall be
made not later than 11:00 a.m. Detroit time on the date due hereunder in lawful
money of the United States without setoff or counterclaim whatsoever and
without reduction for, and free from, any and all present or future taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any governmental body, and all payments
shall be first applied to any costs and expenses permitted hereunder, then
accrued and unpaid interest on the outstanding principal balance with the
remainder to be applied to any unpaid principal.
This Note may be prepaid in whole or in part at any time and from time to
time without premium or penalty. All payments shall be made in lawful money of
the United States of America.
This Note is secured by a Security Agreement of even date herewith
("Security Agreement") and an Inter-Creditor Agreement dated January 30, 1997
("Inter-Creditor Agreement"), as each may be amended from time to time.
Reference is hereby made to the Security Agreement and the Inter-Creditor
Agreement with respect to the security given for this instrument.
Borrower agrees to pay to Lender (or the holder of this Note) (a) all
costs and expenses incurred by the Lender or other holder hereof in collecting
hereon, whether through reorganization, bankruptcy, any other proceeding or
otherwise, (b) attorneys' and consultants fees and expenses in connection with
any proposed refinancing or restructuring of the credit provided in this Note
in the nature of a "work-out" and (c) all fees and expenses, including
attorneys fees, incurred in connection with the collection of this Note or the
enforcement of any of its rights under the Security Agreement or the
Inter-Creditor Agreement.
Borrower, for itself, its successors, heirs and permitted assigns, and any
other parties now or hereafter liable for the payment hereof, expressly waives
presentment for payment, demand, notice of nonpayment, notice of protest and
protest of this Note, and diligence in collection, bringing suit or
acceleration. The liability of Borrower to Lender shall be absolute and
unconditional, without regard to the liability of any other party.
This Note and all rights of Lender hereunder shall inure to the benefit of
Lender's successors and assigns and shall bind Borrower and its successors and
permitted assigns. Borrower shall be prohibited from assigning its obligations
hereunder or under the Security Agreement or under the Inter-Creditor Agreement
without the written consent of Lender.
This Note shall be governed by and construed in accordance with the laws
of the State of Michigan. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall
<PAGE> 3
nonetheless continue in full force and effect without being impaired or
invalidated in any way.
NEITHER LENDER NOR ANY OF ITS EMPLOYEES, AGENTS OR ATTORNEYS SHALL BE
LIABLE TO BORROWER FOR CONSEQUENTIAL OR SIMILAR DAMAGES ARISING FROM ANY BREACH
OF CONTRACT, TORT OR OTHER WRONG RELATING TO THIS NOTE OR ANY OTHER AGREEMENT
OR DOCUMENT RELATING HERETO.
BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS NOTE OR ANY INSTRUMENT
OR DOCUMENT DELIVERED PURSUANT HERETO. THIS WAIVER IS INFORMED AND FREELY
MADE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed as of
the date and year executed below Borrower's signature.
WITNESSES CARACO PHARMACEUTICAL
LABORATORIES, LTD.,
a Michigan corporation
/s/Jennifer Evans By: /s/William R. Hurd
- ----------------- --------------------
William R. Hurd
Its: President
Date: /s/February 12, 1997
--------------------
<PAGE> 1
EXHIBIT 10.51
SECURITY AGREEMENT
THIS AGREEMENT made and entered into this 11th day of February, 1997, by
and between Caraco Pharmaceutical Laboratories, Ltd., the address of which is
1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Debtor"), and David A.
Hagelstein, a Trustee of the David Hagelstein Trust u/a/d October 27, 1993, the
address of which is 1411 N. Woodward, Suite 313, Birmingham, Michigan 48109
("Secured Party").
R E C I T A L S:
In consideration of the mutual covenants and agreements of the parties
hereinafter set forth and good and valuable consideration paid and/or extended
by Secured Party to Debtor, the receipt and sufficiency of which is hereby
acknowledged by Debtor, the parties hereto agree as follows:
1. CREATION OF SECURITY INTEREST. To secure the payment of the sums or
performance of the obligations referred to as the "Indebtedness" in Paragraph 2
of this Agreement, Debtor does hereby create in favor of Secured Party, its
successors and assigns, a continuing security interest and lien in all of
Debtor's right, title and interest in and to the following, wherever located,
(from time to time referred to as the "Collateral") which as used herein shall
have those definitions set forth below:
A. ACCOUNTS. All present and future
Accounts, Documents, Chattel Paper, Instruments,
Contracts Rights, General Intangibles (as defined
below) and choses in action, now owned or hereafter
acquired, including, without limitation, any right to
any refund of taxes heretofore or hereafter paid to
any governmental authority including, without
limitation, all new drug applications to, and
approvals of such applications from, the United States
Food and Drug Administration and other regulatory
agencies;
B. SPECIFIED EQUIPMENT. The
equipment listed on Schedule A hereto, and including,
without limitation, all accessions, accessories, tools
and dies, parts attached thereto or used or intended
to be used in connection therewith and all books,
records, instruments and documents relating thereto
or useful in maintaining or realizing upon such
equipment, and all substitutions of, improvements to
and replacements of as well as all additions to all
of the foregoing, whether now owned or hereafter
acquired by Debtor;
1
<PAGE> 2
C. INVENTORY. All Inventory and Goods, now owned or
hereafter acquired including, without limitation, raw
materials, scrap, work-in-process, finished Goods,
tangible property, stock-in-trade, wares and
merchandise used in, held for sale or sold in the
ordinary course of business, including, without
limitation, Goods for sale, lease or other
disposition which give rise to any Accounts, all
Goods which have been returned to, repossessed or
stopped in transit by the party granting a security
interest to Secured Party herein, and all accessions,
parts attached thereto or used or intended to be used
in connection therewith, and all books, records,
instruments and documents relating thereto or useful
in maintaining or realizing upon the Inventory;
D. PROCEEDS. Proceeds, and proceeds of hazard
insurance and eminent domain or condemnation awards of
all of the foregoing described assets and/or
properties or interests therein, including, without
limitation, all products of, and accessions to, such
assets or properties or interests therein. In
addition thereto, any and all deposits or other sums
at any time credited by or due from Secured Party to
Debtor and any and all Instruments, Documents,
policies and certificates of insurance, securities,
Goods, Accounts, choses in action, chattel paper,
cash, property and the proceeds thereof (whether or
not the same are Collateral or Proceeds thereof
hereunder) owned by Debtor or in which Debtor has an
interest, which are now or at any time hereafter in
possession or control of Secured Party or in transit
by mail or carrier to or from Secured Party or in
possession of any third party acting on Secured
Party's behalf, without regard to whether Secured
Party received the same in pledge, for safekeeping, as
agent or otherwise, or whether Secured Party has
conditionally released the same;
E. ACCOUNTS, CHATTEL PAPER, CONTRACTS, CONTRACT
RIGHTS, DOCUMENTS, GENERAL INTANGIBLES, GOODS,
INSTRUMENTS AND INVENTORY. The foregoing terms shall
have meanings ascribed to them in the Uniform
Commercial Code as adopted by the State of Michigan,
as supplemented by the definitions set forth above;
whether now owned or hereafter acquired by Debtor, and all books, records,
instruments and documents relating thereto or useful in maintaining or
realizing upon the Collateral.
2. INDEBTEDNESS. Secured Party has agreed to loan Debtor the aggregate
amount of Two Hundred Thousand and No/100 ($200,000) Dollars in one or more
payments and Debtor shall pay to Secured Party when due all amounts evidenced
by one or more Secured Promissory Notes in the aggregate principal amount of
Two Hundred Thousand and no/100
2
<PAGE> 3
($200,000.00) Dollars, with interest as therein provided, executed and
delivered by Debtor to Secured Party (the "Notes"), as the same may be
modified, renewed, extended, amended or replaced from time to time, and shall
pay all amounts and perform all obligations required under or pursuant to this
Agreement and all other documents and/or agreements delivered to Secured Party
in connection with the Notes (the "Loan Documents"), such obligations of
payment and performance being hereinafter collectively referred to as the
"Indebtedness".
3. ACCELERATION CLAUSE. Upon the occurrence of any Default (as defined
pursuant to Section 9 hereof), all of the Indebtedness of Debtor, whether due
or not, shall become immediately due and payable in accordance with the terms
of the Notes and the other Loan Documents.
4. USE OF COLLATERAL. The Collateral shall be used exclusively in
connection with the conduct of Debtor's present business, unless Secured Party
gives its written consent to another use. Secured Party shall have the right
to inspect the Collateral at any time, to inspect Debtor's books and records
with respect thereto and to make inquiry of account and contract debtors in
connection therewith, all at any time.
5. REMOVAL. The Collateral shall be kept at Debtor's business premises,
and shall not be removed therefrom without the written consent of Secured
Party. Removal of any of the Collateral by Debtor, or its agents, servants or
employees, shall be deemed a willful taking, an unlawful conversion and a
default under this Agreement. Use of the Collateral and sale of the Inventory
in the regular and ordinary course of Debtor's business shall not constitute a
prohibited removal of the Collateral for the purpose of this Agreement.
6. REPAIRS AND TAXES. Debtor shall at its own expense, from time to time,
replace and repair all parts of the Collateral as may be broken, worn, damaged
or otherwise in need of repair, and shall keep the Collateral in every respect
in good working order and repair. Debtor shall pay all taxes charged against,
assessed or imposed upon any of the Collateral.
7. INSURANCE. Debtor shall keep the Collateral insured against loss and
damage by casualty, theft and such other perils with insurers and coverages
reasonably acceptable to Secured Party.
8. DEBTOR'S WARRANTIES AND REPRESENTATIONS. Debtor warrants, represents
and covenants that:
A. The Collateral is or will be owned by Debtor and
except with respect to the collateral securing the
Sun Loan and Joliat Loan as defined in that certain
Inter-Creditor Agreement of even date herewith, the
Collateral is not subject to any security interests,
liens or encumbrances, charges, restrictions or
claims except as created by this Agreement, and
Debtor will defend the Collateral against the claims
and demands of all persons;
3
<PAGE> 4
B. Debtor will execute, and will pay all costs of
filing of, any financing, continuation or termination
statement with respect to the security interest
created by this Agreement deemed necessary or
desirable by the Secured Party;
C. Debtor shall from time to time, at the expense
of Debtor, execute and deliver all further instruments
and documents, and take all further actions, that the
Secured Party may reasonably deem necessary or
desirable, in order to perfect and protect any
security interest granted or purported to be granted
hereby or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder with respect
to any Collateral.
D. Debtor hereby authorizes the Secured Party to
file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of
the Collateral, with or without Debtor's signature
thereon.
E. Debtor was incorporated under the name J-Mac
Domestic, Inc., changed its name to Caraco, Inc. until
changing its name to its current name, and Debtor's
chief executive office and sole place of business is
located at 1150 Elijah McCoy Drive, Detroit, Michigan
48202.
F. Debtor is a corporation duly organized under
the laws of Michigan, validly existing and in good
standing and has full corporate power to own, operate
and lease its properties and to carry on its business
as now conducted. Debtor is qualified to do business
in all jurisdictions where the nature of its
activities would make such qualification necessary and
the failure to so qualify would have a material and
adverse affect on the Debtor.
G. Debtor has all power, statutory and otherwise,
to execute and deliver this Security Agreement, the
Notes and the Inter-Creditor Agreement, and the
execution hereof and thereof, and Debtor's performance
of its obligations hereunder and thereunder, have been
approved by all appropriate corporate action. Such
agreements and documents constitute the legal, valid
and binding obligation of Debtor, enforceable against
such Debtor in accordance with its terms.
H. The equipment listed on Schedule A hereto is
not subject to the lien of the Economic Development
Corporation of the City of
4
<PAGE> 5
Detroit and Debtor reasonably believes the
Equipment has a fair market value of not less than
$1.5 million.
I. Debtor shall not move the Collateral or change
Debtor's name, identity or corporate structure unless
it has received Secured Party's prior written consent
thereto and has taken all action necessary or
reasonably requested by the Secured Party to amend any
financing statement or continuation statement filed
with respect to the Collateral in connection
therewith.
J. The execution, delivery and performance of this
Agreement and the other Loan Documents by Debtor and
its performance of its obligations hereunder and
thereunder does not conflict with or result in any
violation of or constitute a breach or default under
(i) any term of the Articles of Incorporation or
Bylaws of Debtor, (ii) any indenture, agreement
instrument, order, judgment or decree to which Debtor
is a party, bound or subject or to which any of the
assets or business of Debtor are subject, (iii) any
law, statute or regulation of any governmental or
regulatory body.
K. No approval or consent of the execution,
delivery and performance by the Debtor of this
Agreement, the Note, and the other Loan Documents is
required by law or by the Debtor's existing Articles
of Incorporation or Bylaws or by any contract,
indenture, agreement, instrument, order, judgment or
decree to which the Debtor is a party or otherwise
bound or to which any of its property or business is
subject, or by any indebtedness of the Debtor.
L. There are no actions, proceedings or investigations
pending or, to the knowledge of the Debtor,
threatened against the Debtor before any
court, administrative agency or other governmental or
regulatory authority. Neither the Debtor nor its
property and assets is subject to any judicial or
administrative order, judgment or decree which could
have a material adverse effect on the Debtor, its
business, properties, condition (financial or
otherwise) or prospects. The Debtor has not violated
any federal, state or local laws, regulations or
orders.
9. DEFAULT. The following shall constitute defaults (each a "Default")
under this Agreement:
A. The occurrence of any breach of warranty or other
misrepresentation, omission or misstatement in connection
with or
5
<PAGE> 6
noncompliance or nonperformance of any of
Debtor's covenants, obligations (other than to make
payment), agreements (other than to make payment),
representations or warranties under this Agreement,
the Notes or any other Loan Document (including the
occurrence of any other default identified under this
Agreement or any of the other Loan Documents) which is
not cured within 15 days after notice thereof from
Secured Party to Debtor;
B. Any default in the payment of any portion of the
Indebtedness when due in accordance with the terms of
the Note, this Agreement or the Loan Documents;
C. Debtor's voluntarily application for the
appointment of a custodian, trustee or receiver to
take custody or dispose of any substantial portion of
its assets; or the appointment by a court of competent
jurisdiction of a custodian, trustee or receiver to
take custody or dispose of any substantial portion of
the assets of Debtor pursuant to any involuntary
proceeding and either (i) Debtor shall indicate
approval of, consent to, or acquiescence to such
appointment, or (ii) such custodian, trustee, or
receiver shall not be discharged within thirty (30)
days; or Debtor shall voluntarily seek protection from
creditors under any applicable state or federal
bankruptcy, liquidation or dissolution, insolvency, or
debt reorganization laws; or any of Debtor's creditors
shall institute any proceeding against Borrower under
any applicable state or federal bankruptcy,
liquidation or dissolution, insolvency, or debt
reorganization laws, and the same shall not be
dismissed or discharged within thirty (30) days.
D. The liquidation, dissolution, or other discontinuance
of Debtor's corporate existence.
E. The issuance of a writ or warrant or attachment,
garnishment, execution, distraint or similar
process against any material portion of the
Debtor's assets which remains undischarged and
unstayed for a period of thirty consecutive days.
F. Debtor shall make a general assignment for the benefit
of its creditor.
G. Any party to the Inter-Creditor Agreement (other than
Secured Party) shall default in the performance of
any covenant, agreement, condition or provision
thereof.
6
<PAGE> 7
10. REMEDIES. In the event of the occurrence of any default, Secured
Party may exercise its rights under law, including by way of enforcement under
the Uniform Commercial Code in effect in the State of Michigan as in effect
from time to time. Secured Party may enter Debtor's premises without legal
process or any obligation to pay rent and remove the Collateral or require the
Debtor to assemble the Collateral and make it available to Secured Party at a
place within or outside the State of Michigan designated by Secured Party. If
it so elects, Secured Party may and is hereby empowered, without legal process,
to enter any premises where the Collateral may be kept and take exclusive
possession of it on those premises with or without a custodian. Secured Party
may thereafter sell the Collateral at one or more public or private sales, on
or away from Debtor's business premises. Unless the Collateral is perishable,
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party shall give Debtor reasonable notice of the
time and place of any public sale thereof, or of the time after which any
private sale or any other intended disposition thereof is to be made. The
requirement of reasonable notice shall be met if notice is mailed to Debtor,
postage prepaid, by first class certified mail, return receipt requested, at
least five (5) days prior to the date of the proposed sale or disposition. At
any such sale, Secured Party may in its absolute discretion sell and dispose of
all the right, title, and interest of Debtor in and to any of the Collateral.
Any such sale may be for cash or for credit, and Secured Party may be the
purchaser. Secured Party shall have the right to (i) demand payments of the
Accounts, (ii) enforce payment of the Accounts by legal proceedings or
otherwise, (iii) exercise all of Debtor's rights and remedies with respect to
the collection of the Accounts, (iv) settle, adjust or compromise any legal
proceedings brought to collect the Accounts, (v) if permitted by law, sell or
assign the Accounts upon such terms, for such amounts and at such time or times
as the Secured Party deems advisable, (vi) discharge and release the Accounts,
(vii) prepare, file and sign Debtor's name on any proof of claim in bankruptcy
or similar document against any account debtor, (viii) prepare, file and sign
any Debtor's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts, (ix) do all acts and things
necessary in the Secured Party's sole discretion, to fulfill Debtor's
obligations under this Security Agreement, (x) endorse the name of Debtor upon
any Chattel Paper, Document, Instrument, invoice, freight bill, bill of lading
or similar document or agreement relating to the Collateral, (xi) use Debtor's
stationery and sign the name of Debtor to verifications of the Accounts and
notice thereof to Account debtors, and (xii) use the information recorded on or
contained in any data processing equipment and computer hardware, software and
source codes relating to the Collateral to which Debtor has access. Out of the
monies arising from the sale and/or collection of the Collateral, Secured Party
shall retain any and all sums then owing to Secured Party, including all
additional advances and debts, and all costs, fees, charges and expenses in
connection therewith, with interest, including reasonable attorneys fees,
disbursements, premiums on bonds, custodian's fees, fees of public officers,
auctioneer's fees, plus advertising and labor, disbursements for use and
occupancy of premises and any and all other disbursements made by Secured Party
in connection with the taking, maintaining, storage and disposing of the
Collateral, tendering the excess (if any) to Debtor or its successors or
assigns. If for any reason the Collateral shall fail to satisfy all of the
foregoing items, Debtor shall pay to Secured Party the resulting deficiency
upon demand. Secured Party's remedies shall be cumulative and non-exclusive to
the fullest extent permitted by law.
7
<PAGE> 8
11. DISCRETIONARY RIGHTS. Exercise of or omission to exercise any right of
the Secured Party shall not affect any other subsequent right of the Secured
Party to exercise the same and the waiver of any default by the Secured Party
shall not be deemed a waiver of any subsequent Default.
12. SEVERABILITY. If any provision of this Agreement shall for any reason
be held to be invalid or unenforceable, that invalidity or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if the invalid or unenforceable provision had never been contained
herein.
13. NOTICES. All notices to the parties under this Agreement shall be
sufficient if mailed by certified mail, return receipt requested with
sufficient prepaid postage, to the parties at their addresses appearing at the
beginning of this Agreement, or at such other address as they shall designate
in writing as provided by this paragraph. Notice so directed and posted shall
be effective upon receipt.
14. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Michigan.
15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement. The signature of any party to any counterpart shall
be deemed to be a signature to, and may be appended to, any other counterpart.
16 CAPTIONS. Captions to paragraphs contained in this Agreement, other
than in Paragraph 1.E., are for convenience only and are entirely without
substantive effect.
17. SUCCESSORS. This Agreement shall be binding upon, and the benefits
hereof shall inure to, the parties hereto and their respective successors and
assigns. Debtor's obligations and rights hereunder shall not be assigned
without the prior written consent of Secured Party.
18. INDEMNITY. Debtor agrees to indemnify the Secured Party from and
against any and all claims, losses and liabilities in connection with or
arising out of this Security Agreement, the Inter-Creditor Agreement or the
Notes and any actions taken hereunder or thereunder, except where due to
Secured Party's gross negligence or wilful misconduct.
19. WAIVER OF JURY TRIAL. DEBTOR HEREBY WAIVES TRIAL BY JURY IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT OR ANY
8
<PAGE> 9
INSTRUMENT OR DOCUMENT RELATING HERETO. THIS WAIVER IS INFORMED AND FREELY
MADE.
THIS AGREEMENT was executed as of the date and year first above written.
DEBTOR:
CARACO PHARMACEUTICAL LABORATORIES, LTD.
a Michigan corporation
/s/ William R. Hurd
By: William R. Hurd
William R. Hurd
Its: President
SECURED PARTY:
DAVID HAGELSTEIN TRUST
u/a/d 10/27/93
/s/ David A. Hagelstein
By: David A. Hagelstein
David A. Hagelstein, Trustee
9
<PAGE> 1
EXHIBIT 10.52
ALLONGE TO PROMISSORY NOTE
Amount: $100,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of August 21, 1996, the undersigned ("Borrower") made and
delivered to the Jay F. Joliat Qualified Terminable Interest Marital Trust,
u/a/d 4-8-82 ("Lender") a Secured Promissory Note in the principal amount of
$100,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. The Lender is the Jay F. Joliat Qualified Terminable Interest Marital
Trust, u/a/d 4-8-82.
3. This Allonge is but an amendment to the Note by way of modification
and does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
-------------------------------------------
William R. Hurd
ACCEPTANCE: Its: President and Chief Operating Officer
-----------
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
JAY F. JOLIAT QUALIFIED TERMINABLE
INTEREST MARITAL TRUST, U/A/D 4-8-82
/s/ Jay F. Joliat
- ------------------------------------------
Jay F. Joliat, Individually and as Trustee
<PAGE> 1
EXHIBIT 10.53
ALLONGE TO PROMISSORY NOTE
Amount: $100,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of August 21, 1996, the undersigned ("Borrower") made and
delivered to the TTEE David A. Hagelstein Trust, u/a/d 10-27-93 ("Lender") a
Secured Promissory Note in the principal amount of $100,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. The Lender is TTEE David A. Hagelstein Trust, u/a/d 10-27-93.
3. This Allonge is but an amendment to the Note by way of modification and
does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
- -----------------------------------
William R. Hurd
Its: President and Chief Operating Officer
ACCEPTANCE:
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
TTEE David A. Hagelstein Trust, u/a/d 10-27-93
/s/ David A. Hagelstein
- ----------------------------------------
David A. Hagelstein, Individually and as Trustee
<PAGE> 1
EXHIBIT 10.54
ALLONGE TO PROMISSORY NOTE
Amount: $100,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of August 21, 1996, the undersigned ("Borrower") made and
delivered to John R. Morris ("Lender") a Secured Promissory Note in the
principal amount of $100,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. This Allonge is but an amendment to the Note by way of modification and
does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
--------------------------------
William R. Hurd
Its: President and Chief Operating Officer
ACCEPTANCE:
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
/s/ John R. Morris
- --------------------------------
John R. Morris
<PAGE> 1
EXHIBIT 10.55
ALLONGE TO PROMISSORY NOTE
Amount: $300,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of October 18, 1996, the undersigned ("Borrower") made and
delivered to the Jay F. Joliat Qualified Terminable Interest Marital Trust,
u/a/d 4-8-82 ("Lender") a Secured Promissory Note in the principal amount of
$300,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. The Lender is the Jay F. Joliat Qualified Terminable Interest Marital
Trust, u/a/d 4-8- 82.
3. This Allonge is but an amendment to the Note by way of modification and
does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
--------------------------------
William R. Hurd
Its: President and Chief Operating Officer
ACCEPTANCE:
- -----------
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
JAY F. JOLIAT QUALIFIED TERMINABLE
INTEREST MARITAL TRUST, U/A/D 4-8-82
/s/ Jay F. Joliat
- --------------------------------------
Jay F. Joliat, Individually and as Trustee
<PAGE> 1
EXHIBIT 10.56
ALLONGE TO PROMISSORY NOTE
Amount: $100,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of November 15, 1996, the undersigned ("Borrower") made and
delivered to the Jay F. Joliat Qualified Terminable Interest Marital Trust,
u/a/d 4-8-82 ("Lender") a Secured Promissory Note in the principal amount of
$100,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. The Lender is the Jay F. Joliat Qualified Terminable Interest Marital
Trust, u/a/d 4-8-82
3. This Allonge is but an amendment to the Note by way of modification and
does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
--------------------------------
William R. Hurd
Its: President and Chief Operating Officer
ACCEPTANCE:
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
JAY F. JOLIAT QUALIFIED TERMINABLE
INTEREST MARITAL TRUST, U/A/D 4-8-82
/s/ Jay F. Joliat
- --------------------------------------
Jay F. Joliat, Individually and as Trustee
<PAGE> 1
EXHIBIT 10.57
ALLONGE TO PROMISSORY NOTE
Amount: $100,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of November 15, 1997, the undersigned ("Borrower") made and
delivered to John R. Morris ("Lender") a Secured Promissory Note in the
principal amount of $100,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. This Allonge is but an amendment to the Note by way of modification and
does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
--------------------------------
William R. Hurd
Its: President and Chief Operating Officer
ACCEPTANCE:
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
/s/ John R. Morris
- ------------------------------
John R. Morris
<PAGE> 1
EXHIBIT 10.58
ALLONGE TO PROMISSORY NOTE
Amount: $90,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of November 15, 1996, the undersigned ("Borrower") made and
delivered to the TTEE David A. Hagelstein Trust, u/a/d 10-27-93 ("Lender") a
Secured Promissory Note in the principal amount of $90,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. The Lender is TTEE David A. Hagelstein Trust, u/a/d 10-27-93.
3. This Allonge is but an amendment to the Note by way of modification and
does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
--------------------------------
William R. Hurd
Its: President and Chief Operating Officer
ACCEPTANCE:
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
TTEE DAVID A. HAGELSTEIN TRUST, U/A/D 10-27-93
/s/ David A. Hagelstein
- ----------------------------------------
David A. Hagelstein, Individually and as Trustee
<PAGE> 1
EXHIBIT 10.59
ALLONGE TO PROMISSORY NOTE
Amount: $100,000 Detroit, Michigan
Dated: March 27, 1997
UNDER date of November 15, 1997, the undersigned ("Borrower") made and
delivered to John R. Morris ("Lender") a Secured Promissory Note in the
principal amount of $100,000 (the "Note").
At this time, Borrower has requested that Lender adjust the rate at which
interest accrues on the unpaid principal balance under the Note.
Accordingly, Lender and Borrower hereby agree to amend the Note in the
following particular:
1. Rate at which interest accrues on the unpaid principal balance under
the Note is hereby modified from 14% to 10% per annum.
2. This Allonge is but an amendment to the Note by way of modification and
does not constitute payment, satisfaction or discharge of the Note or any
obligation thereunder. The Note, the Loan Commitment Letter and the Security
Agreement and all documents delivered by Borrower to secure its obligations
under the Note and any and all other documents executed by Borrower in
connection with the delivery of the Note are hereby ratified and confirmed as
being in full force and effect, as modified hereby. In addition, Borrower
represents and warrants that it has no defense to payment or claims of offset
under the Note.
THIS ALLONGE HAS BEEN EXECUTED AND DELIVERED ON MARCH 27, 1997.
BORROWER:
Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation
By: /s/ William R. Hurd
--------------------------------
William R. Hurd
Its: President and Chief Operating Officer
ACCEPTANCE:
THE UNDERSIGNED hereby accepts the foregoing Allonge Promissory Note in
accordance with its terms.
/s/ John R. Morris
- --------------------------------------
John R. Morris
<PAGE> 1
EXHIBIT 13
CARACO PHARMACEUTICAL LABORATORIES, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's Discussion and Analysis of Operations is designed to provide
shareholders with a comprehensive overview of the results from operations and
financial position that could not otherwise be obtained from an examination of
the financial statements alone. This discussion should be read in conjunction
with the financial statements and related footnotes.
General
Due to intense competition there is a price and profit margin erosion
trend currently being experienced in the generic drug industry in the United
States. This competition affects the pricing and profit margins on new product
introductions and on current products. A greater number of generic
manufacturers entering the market upon patent expiration of a drug limits the
duration of potential higher profit margins on new product introductions.
Net sales for the years ended December 31, 1996 and 1995 were $1,273,903
and $4,048,096, respectively. The 1996 decrease of 69% in sales is directly
attributable to market conditions including negative press reports on calcium
channel blockers which lowered the demand for Nifedipine and forced the
Corporation to lower the price of Nifedipine, to remain competitive. This
significantly lowered Nifedipine sales revenue in 1996. It is anticipated that
the current depressed level of sales will continue for the indefinite future.
The Corporation also anticipates increased sales volume from three (3)
ANDAs currently in various stages of the FDA approval process. The first of
these ANDAs is expected to contribute sales in the second quarter of 1997.
The Corporation continues to search for strategic alternatives to improve its
financial condition and product line.
COST OF SALES
Cost of sales for the years ended December 31, 1996 and 1995 were
$1,642,237 or 128.9% of sales and $3,063,648 or 75.7% of sales, respectively.
The increased percentage in cost of sales was a direct result of significantly
lower sales and manufacturing volumes due to the Corporation's inability to
purchase raw materials and bulk product from its suppliers leaving the
Corporation unable to maintain adequate levels of
- 19 -
<PAGE> 2
customer service. As a result, sales were not adequate to absorb the
Corporation's fixed production costs.
GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the years ended December
31, 1996 and 1995 were $1,915,908 and $2,167,311, respectively. The decrease
of 12% in 1996 is directly related to the Corporation's cost containment
program implemented in 1995 in response to the Corporation's losses and
industry trends. The Corporation continues to implement measures to further
reduce costs and improve operating efficiencies. In addition a wage and hiring
freeze was continued during the current year which resulted in a 28% reduction
in the Corporation's employees.
RESEARCH AND DEVELOPMENT
Product development expenses for the years ended December 31, 1996 and
1995 were $2,222,220 and $2,236,414, respectively, demonstrating Caraco's
continued commitment to new product development as a means to increase and
diversify its product offering despite the Corporation's current financial
condition. The Corporation plans to continue to expand product development
activities as its resources permit as it believes such efforts are vital to
expanding the Corporation's product line and generating future products. In
late 1996, the Corporation was notified of an ANDA approval for a product
submitted to the FDA. This product is now in the early stages of market
development. While there can be no guarantee the Corporation anticipates FDA
approval of an additional two products in 1997.
RESULTS OF OPERATIONS
Operating losses for the years ended December 31, 1996 and 1995 were
$4,506,464 and $3,419,277, respectively. The increase in operating loss is
directly related to the significant decrease in net sales which were inadequate
to absorb the fixed costs of the Corporation's operational expenses.
A number of uncertainties exist that may influence the Corporation's
future operating results, including general economic conditions, changes in
conditions affecting the pharmaceutical industry primarily related to generic
drug competition, the Corporation's success in developing and market acceptance
of new products, manufacturing performance, availability and price fluctuations
of raw materials, FDA regulations and other factors.
- 20 -
<PAGE> 3
NET INTEREST EXPENSE
Interest expense, which is incurred primarily in connection with the
Corporation's mortgage obligation to the Economic Development Corporation of
Detroit, was $680,767 and $715,193 for the years ended December 31, 1996 and
1995, respectively. The decrease in interest expense in 1996 relates to a
shorter holding period in 1996 than in 1995 of short term loans used to finance
the Corporation's short term cash needs.
OTHER INCOME/EXPENSE
Net other income/expense for years ended December 31, 1996 and 1995
were a loss of $317,974 and income of $35,451, respectively. The net expense
reported in 1996 was a result of the Corporation's disposal and write down of
certain equipment totaling $111,183, and the recognition of a $194,750 loss due
to the decline in value of the marketable securities owned by the Corporation.
The gain in 1995 was a result of the sale of an obsolete tablet press.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Corporation's working capital deficit was
$11,530,591 compared with a working capital deficit of $399,160 at December 31,
1995. The decrease in working capital in 1996 is directly attributable to the
Corporation's continued losses from operations and the reclassification of the
entire EDC Loan as current during 1996 as a result of default. See Note 4 of
Notes to Financial Statements for the scheduled principal amounts due under the
EDC Loan.
Management estimates that, at its currently planned and anticipated level
of operations, the Corporation will experience continued operating losses in
1997, and accordingly, will require approximately $7,500,000 of additional
funds to execute its business expansion plan on a going forward basis and fund
continuing operations.
The Corporation has no material commitments for capital expenditures.
The Corporation is currently in default on its Loan from the EDC, which
includes principal in arrearage, interest, and personal and real property
taxes. The Corporation is negotiating with the EDC to modify the terms of the
Loan and bring it current. See Item 1 Current Status of Corporation.
On July 11, 1996 the Corporation and an Indian specialty company, Sun
Pharmaceutical Industries Ltd. ("Sun Pharma")
- 21 -
<PAGE> 4
announced that they had signed two non-binding letters of intent pursuant to
which Sun Pharma would make an initial investment in Caraco common stock and
sell it certain rights for a number of generic pharmaceutical products. As
revised in the most recent proposal, it is contemplated that (a) Sun Pharma
will invest $7,500,000 to be received by the Corporation over a period of one
year in four installments, (b) the number of products to be sold to the
Corporation by Sun Pharma is 25 over a period of five years in exchange for
544,000 shares of Caraco common stock to be issued for each product and (c) two
current Caraco shareholder directors will each contribute to the Corporation up
to $500,000 in cash or common stock of Caraco, not to exceed 250,000 shares.
The price will be determined at the midpoint of the bid and ask price at the
closing on the day of contribution. This transaction is subject to certain
conditions, including completion of Sun Pharma's due diligence, clearance of
various agencies in the Indian government, approval of any EDC modification of
debt to the Corporation, and negotiation and execution of
definitive documents. Negotiations are ongoing at this time.
As of December 31, 1996 net operating loss carryforwards of approximately
21,000,000 are available to offset future federal taxable income, if any,
through 2011. The Corporation's ability to utilize the NOL carryforwards may
be limited due to an ownership change.
If the completion of the agreement with Sun Pharma does not occur and the
Corporation does not receive the anticipated equity capital, it is expected
that the Corporation would immediately commence bankruptcy proceedings pursuant
to Chapter 7 of the Federal Bankruptcy Code of 1978, as amended.
There is no assurance that the foregoing funds will be made available to
the Corporation timely or on financially satisfactory terms; or that any of the
Corporation's ANDAs will be approved by the FDA within time parameters
anticipated by management or at all, or that the Corporation will be able to
manufacture in commercial quantities and sell profitably any product resulting
from FDA approval of an ANDA filed by the Corporation. To the extent that
capital requirements should exceed available capital, the Corporation will 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. There is no assurance that alternative sources of
financing will be available.
- 22 -
<PAGE> 5
[CARACO PHARMACEUTICAL LABORATORIES, LTD. LOGO]
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
<PAGE> 6
CARACO PHARMACEUTICAL LABORATORIES, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT ............................ 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
Balance Sheet .......................................... 2
Statements of Operations ............................... 3
Statements of Stockholders' Deficit .................... 4
Statements of Cash Flows ............................... 5
Notes to Financial Statements .......................... 6 - 18
</TABLE>
<PAGE> 7
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) as of December 31, 1996, and the
related statements of operations, stockholders' deficit and cash flows for
the years ended December 31, 1996 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Caraco Pharmaceutical
Laboratories, Ltd. as of December 31, 1996 and the results of its operations
and its cash flows for the years ended December 31, 1996 and 1995 in
conformity with generally accepted accounting principles.
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.
REHMANN ROBSON
Farmington Hills, Michigan
March 27, 1997
-1-
<PAGE> 8
CARACO PHARMACEUTICAL LABORATORIES, LTD.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,421
Accounts receivable, net of allowances of $57,247 (Note 3) 97,341
Inventory (Note 1) 290,265
Prepaid expenses and deposits 203,617
------------
TOTAL CURRENT ASSETS 606,644
------------
PROPERTY, PLANT AND EQUIPMENT - AT COST (NOTE 4)
Land 197,305
Buildings and improvements 6,682,725
Equipment 3,570,884
Furniture and fixtures 156,908
------------
Total 10,607,822
Less accumulated depreciation 2,257,640
------------
NET PROPERTY, PLANT AND EQUIPMENT 8,350,182
------------
MARKETABLE SECURITIES (NOTE 6) 82,000
------------
TOTAL ASSETS $ 9,038,826
============
</TABLE>
See accompanying notes.
-2-
<PAGE> 9
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,561,760
Short-term demand notes (Note 4) 955,000
Current portion of long-term debt (Note 4) 8,880,000
Accrued expenses:
Interest 560,657
Other 179,818
-------------
TOTAL CURRENT LIABILITIES 12,137,235
-------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 7 AND 8)
STOCKHOLDERS' DEFICIT (NOTE 6)
Preferred stock, no par value, authorized 5,000,000 shares;
issued and outstanding, 285,714 Series A shares 1,000,000
Common stock, no par value, authorized 20,000,000 shares;
issued and outstanding, 7,842,106 shares 19,646,974
Stock subscription receivable (14,087)
Accumulated deficit (23,731,296)
-------------
TOTAL STOCKHOLDERS' DEFICIT (3,098,409)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 9,308,826
=============
</TABLE>
<PAGE> 10
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
Net sales $ 1,273,903 $ 4,048,096
Cost of goods sold 1,642,237 3,063,648
----------- -----------
GROSS MARGIN (DIFFERENTIAL) (368,334) 984,448
Selling, general and administrative expenses 1,915,910 2,167,311
Research and development costs 2,222,220 2,236,414
----------- -----------
OPERATING LOSS (4,506,464) (3,419,277)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 6,272 5,637
Interest expense 680,767 (715,193)
Writedown of marketable securities (Note 6) (194,750) -
(Loss on disposal) gain on sale of equipment (111,183) 84,304
Other expense (12,040) (48,853)
----------- -----------
OTHER EXPENSE - NET (992,468) (674,105)
----------- -----------
NET LOSS $(5,498,932) $(4,093,382)
=========== ===========
Net loss per common share ($0.73) ($0.65)
Weight average number of common =========== ===========
shares outstanding 7,551,044 6,272,923
=========== ===========
</TABLE>
See accompanying notes.
-3-
<PAGE> 11
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- ---------------------- SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE DEFICIT
------ ---------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 285,714 $1,000,000 5,046,420 $13,379,338 $ -- $(14,138,982)
Issuance of common stock
(Note 6) -- -- 1,809,387 4,110,063 (14,087) --
Contribution of administrative
expenses by former Chairman
Emeritus (Note 8) -- -- -- 56,000 -- --
Net loss -- -- -- -- -- (4,093,382)
Unrealized loss on
marketable securities -- -- -- -- -- --
------- ---------- --------- ----------- -------- ------------
Balance at
December 31, 1995 285,714 1,000,000 6,855,807 17,545,401 (14,087) (18,232,364)
Issuance of common stock
(Note 6) -- -- 986,299 2,101,573 -- --
Writedown of marketable
securities for decline in value
considered to be other than
temporary (Note 6) -- -- -- -- -- --
Net loss -- -- -- -- -- (5,498,932)
------- ---------- --------- ----------- -------- ------------
Balance at
December 31, 1996 285,714 $1,000,000 7,842,106 $19,646,974 $(14,087) $(23,731,296)
======= ========== ========= =========== ======== ============
<CAPTION>
UNREALIZED
LOSS ON
MARKETABLE
SECURITIES TOTAL
---------- -----------
<S> <C> <C>
Balance at
January 1, 1995 $ -- $ 240,356
Issuance of common stock
(Note 6) -- 4,095,976
Contribution of administrative
expenses by former Chairman
Emeritus (Note 8) -- 56,000
Net loss -- (4,093,382)
Unrealized loss on
marketable securities (160,924) (160,924)
--------- -----------
Balance at
December 31, 1995 (160,924) 138,026
Issuance of common stock
(Note 6) -- 2,101,573
Writedown of marketable
securities for decline in value
considered to be other than
temporary (Note 6) 160,924 160,924
Net loss -- (5,498,932)
--------- -----------
Balance at
December 31, 1996 $ -- $(3,098,409)
========= ===========
</TABLE>
See accompanying notes.
-4-
<PAGE> 12
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,498,932) $(4,093,382)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 532,775 514,698
Loss on disposal (gain on sale) of equipment 111,183 (84,283)
Expenses paid by former Chairman Emeritus - 56,000
Writedown of marketable securities 194,750 -
Realized loss on sale of marketable securities 8,302 -
Changes in operating assets and liabilities
which provided (used) cash:
Accounts receivable 315,850 (3,230)
Inventories 89,095 62,492
Prepaid expenses and deposits (41,974) (7,759)
Accounts payable 572,366 432
Accrued expenses 524,695 (75,861)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (3,191,890) (3,630,893)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (61,526) (159,430)
Proceeds from sale of equipment - 195,000
----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (61,526) 35,570
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,101,573 3,060,313
Net short-term borrowings 955,000 300,000
Repayments of long-term debt (120,000) -
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,936,573 3,360,313
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (316,843) (235,010)
Cash and cash equivalents, beginning of year 332,264 567,274
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,421 $ 332,264
=========== ===========
Supplemental disclosures of cash flows information:
Cash paid for interest $ 164,241 $ 944,186
=========== ===========
</TABLE>
See accompanying notes.
-5-
<PAGE> 13
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" or the
"Corporation") was incorporated on February 22, 1984, and has generated
limited revenue from planned principal operations. The Corporation,
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, 1996 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 from
inception through 1995 and approximately 60% in 1996.
The Corporation is subject to certain risks associated with companies
in the pharmaceutical industry. 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), develop new products and
raise in the near term the necessary equity capital to keep the
Corporation in business.
Prior to 1996, the Corporation was considered a development stage
enterprise for financial reporting purposes. A summary of the
significant accounting policies consistently applied 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.
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.
-6-
<PAGE> 14
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Corporation has not currently achieved sales necessary to support
operations. The Corporation has, as of December 31, 1996, a
stockholders' deficit of $3,098,409 and a working capital deficit of
$11,530,591. 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
being in default of the debt agreement with the Economic Development
Corporation (EDC) 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 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:
- An attempt to raise up to $7,500,000 in gross proceeds from the sale of
its common stock (see below). If the Corporation is unable to raise
approximately $7,500,000 it may have an adverse effect on the
Corporation's ability to execute its business plan through 1997. There
can be no assurance that adequate capital can be obtained.
- Continued development of strategic alliances with other drug
manufacturers whereby the Corporation will, subject to approval of
ANDAs, manufacture on behalf of the participating entity for a fee
(cash or common shares - see below) or, manufacture on its own behalf
and pay the participating entity a royalty based on sales.
On July 11, 1996, the Corporation and an Indian specialty
pharmaceutical company, Sun Pharmaceutical Industries Ltd. ("Sun
Pharma") announced that they had signed two non-binding letters of
intent pursuant to which Sun Pharma would make an initial investment in
Caraco common stock and sell it certain rights for a number of generic
pharmaceuticals products. As revised in the most recent proposal, it
is contemplated that a) in exchange for 5,300,000 shares of Caraco
common stock Sun Pharma will invest $7,500,000 to be received by the
Corporation over a period of one year in four installments, b) the
number of products to be sold to the Corporation by Sun Pharma is 25
over a period of five years in exchange for 544,000 shares of Caraco
common stock to be issued for each product and c) two current Caraco
shareholder directors will each contribute to the Corporation the
equivalent of up to $500,000 in cash or in shares of Caraco common
stock, not to exceed 250,000 shares each. Consummation of this
transaction is subject to certain conditions, including completion of
Sun Pharma's due diligence, clearance from various agencies in the
Indian government, approval of any EDC modification of debt to
Caraco, and negotiation and execution of definitive documents.
Negotiations are continuing at this time.
If the completion of the agreement with Sun Pharma does not occur and
the Corporation does not receive the anticipated equity capital, it is
expected that the Corporation would immediately commence bankruptcy
proceedings pursuant to Chapter 7 of the Federal Bankruptcy Code of
1978, as amended.
-7-
<PAGE> 15
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 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.
Revenue Recognition
Revenue is recognized upon the shipment of product with allowances for
returns and price adjustments in the normal course of business based
primarily upon actual subsequent activity. Amounts billed by the
Corporation, if any, in advance of performance in connection with
contracts to render certain research and development services are
deferred.
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, 1996:
<TABLE>
<S> <C>
Raw materials .......................... $242,409
Finished goods .......................... 47,856
--------
Total .................................. $290,265
========
</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 1996 and 1995, the Corporation purchased approximately $334,000 and
$1,503,000, respectively, of its raw materials in the form of bulk
Nifedipine pursuant to a supply contract with one vendor.
In 1996 and 1995, the Corporation purchased raw materials of
approximately $211,000 and $19,000, respectively, from a business owned
and controlled by a shareholder director of the Corporation. Included
in accounts payable at December 31, 1996 is $188,525 due to this
vendor.
-8-
<PAGE> 16
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 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. Management annually
reviews these assets for impairment and reasonably believes the
carrying value of these assets will be recovered through cash flow from
operations assuming Caraco is able to obtain equity financing in
amounts sufficient to allow the Corporation to carry out its business
plan.
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 that are
considered to be temporary are recognized as a separate component of
stockholders' deficit. Declines in value that are considered to be
other than temporary are recognized as losses in the period such
determination is made. Realized gains or losses are determined using
the specific identification method.
Federal Income Taxes
Deferred income tax assets and liabilities are determined based on the
difference between the financial statement and federal income tax basis
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
and the net operating losses.
Loss Per Share
Loss per share is computed using the weighted average number of common
shares outstanding during each year.
Research and Development Costs
Research and development costs are charged to expense as incurred.
-9-
<PAGE> 17
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Financial Instruments
The carrying values of cash equivalents, accounts receivable, and
accounts payable 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 Corporation 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. Further, management does not believe that
comparable financing would currently be available on similar terms.
Stock-Based Compensation
On January 1, 1996, the Corporation adopted the disclosure aspects of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation". The Corporation continues to apply
Accounting Principles Board (APB) Opinion No. 25 in accounting for its
plans and, accordingly, no compensation cost has been recognized in the
financial statements for its outstanding stock options. Companies that
do not adopt a fair value method contemplated in SFAS No. 123 are
required to make pro-forma disclosures of net loss and loss per share
as if they had adopted the fair value accounting method. The
Corporation believes the pro-forma impact on net loss and loss per
share is not significant and is antidilutive.
2. SUPPLEMENTAL CASH FLOWS INFORMATION
Non-cash Investing and Financing Activities
During 1996, the Corporation converted shareholder notes and interest
owed thereon totaling $250,000 into 111,111 shares of common stock.
During 1995, the Corporation converted shareholder notes and interest
owed thereon totaling $730,000 into 584,000 shares of common stock.
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 then Chairman Emeritus.
-10-
<PAGE> 18
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
3. SALES AND 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, 1996, are summarized as follows:
<TABLE>
<S> <C>
Accounts receivable $154,588
--------
Allowances:
Doubtful accounts 7,247
Sales returns and allowances 20,000
Price adjustments 30,000
--------
Total allowances 57,247
--------
Accounts receivable, net of allowances $ 97,341
========
</TABLE>
Net sales in 1996 and 1995 included $185,528 and $273,995, respectively,
related to contracted research and development activities.
4. DEBT INCLUDING RELATED PARTIES
Short-Term Notes Payable
On August 21, 1996, the Corporation borrowed $300,000 from three (3)
shareholder directors of the Corporation.
On October 18, 1996, the Corporation borrowed $300,000 from one (1)
shareholder director of the Corporation.
On November 15, 1996, the Corporation borrowed $290,000 from three (3)
shareholder directors of the Corporation.
On December 19, 1996, the Corporation borrowed $65,000 from a sister of
a shareholder director of the Corporation. This amount was repaid in
January 1997 from proceeds of the Sun Pharma Global, Inc. debt (see
below).
The short-term notes payable accrue interest at 10% payable monthly,
are secured by specific assets of the Corporation and are payable in
cash, and are due on demand or on the one year anniversary of the
closing date.
These notes, except for the note dated December 19, 1996, are
subordinated to the Sun Pharma Global, Inc. note of $350,000 and debt
entered into by the Corporation subsequent to year end as stipulated in a
Subordination Agreement". (see below).
-11-
<PAGE> 19
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
4. DEBT INCLUDING RELATED PARTIES (CONTINUED)
On December 23, 1996, the Corporation entered into a Secured Promissory
Note with Sun Pharma Global, Inc. ("Sun"), a wholly owned subsidiary of
Sun Pharma, in order to borrow $350,000. Funds were not received until
January 1997 and, as such, no liability has been recorded as of
December 31, 1996.
The note with Sun along with other Secured Promissory Notes with two
shareholder directors dated January 30, 1997, February 3, 1997 and
February 11, 1997 in the amounts of $100,000, $300,000 and $200,000,
respectively, are subject to an Inter-Creditor Agreement. Among other
things, the Inter-Creditor Agreement provides for an equal priority in
collateral and principal payments based on each creditors' respective
share of total debt.
The Sun note and the notes entered into subsequent to December 31, 1996
all provide for the following terms and conditions:
- Interest at 10% per annum (default rate of 12%).
- Principal outstanding hereunder, together with all accrued and unpaid
interest thereon shall be due and payable on; a) the earlier of (i)
March 27, 1997, (ii) the closing of a transaction pursuant to which Sun
Pharma or an affiliate acquire 5.3 million shares of the Common Stock of
Caraco (the "Proposed Transaction") or (iii) 20 days after delivery of a
written notice by Sun Pharma to Caraco that Sun Pharma does not intend
to proceed with and/or continue negotiations regarding the Proposed
Transaction, unless such failure to proceed constitutes a breach of any
legal obligation which Sun Pharma may hereafter incur in writing; or b)
in any event, upon the occurrence of a default as defined.
- The notes are secured by specific equipment which are not subject to any
EDC liens or encumbrances.
All principal and unpaid interest relative to the Sun debt is payable
in cash or may, at the sole and exclusive discretion of Sun, be applied
as part of the investment pursuant to any Proposed Transaction.
The interest on the Secured Promissory Notes of the directors issued in
1997 is payable in cash or common stock of the Corporation at the sole
discretion of the Corporation.
Borrowed debt at December 31, 1996 also 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 repayment is personally guaranteed
by the Corporation's founder and former Chairman Emeritus and his spouse.
-12-
<PAGE> 20
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
4. DEBT INCLUDING RELATED PARTIES (CONTINUED)
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 were 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. In addition, effective February
28, 1995 a further amendment was made to release from encumbrance
certain assets not purchased with original EDC funds.
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.
Scheduled aggregate principal maturities of this note are summarized as
follows:
<TABLE>
<Caption.
Year ending
December 31, Amount
------------ -----------
<S> <C>
1997 ...................... $ 836,250
1998 ...................... 505,417
1999 ...................... 532,500
2000 ...................... 562,500
2001 ...................... 594,583
Thereafter ................. 5,848,750
-----------
Total ...................... $ 8,880,000
===========
</TABLE>
-13-
<PAGE> 21
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
4. DEBT INCLUDING RELATED PARTIES (CONTINUED)
The Corporation is currently in default on the EDC debt and is
negotiating with the EDC to further modify the terms of the loan.
On November 1, 1996, the EDC made a proposal to defer payments on the
loan for the period March 1996 through January 1999 subject to the
completion of the Sun Pharma agreement. The deferral was designed to
aid the Corporation and Sun Pharma in achieving adequate cash flow
during the next few years to assure Caraco's ability to both fund its
current operations and continue its new product ANDA approval process.
Monthly payments were to resume in February 1999 or sooner should the
Corporation reach profitability levels of $750,000 in any quarter
through March 31, 1998 and a level of $500,000 in the quarters ended
June 30, 1998 and September 30, 1998. When payments are resumed they
would include a portion of the deferral which would be apportioned over
the remaining term of the loan.
As a condition of the deferral, the EDC would then have additional
security on all the Corporation's existing equipment and the
Corporation would be required to comply with several additional
financial and operating covenants which include maintaining a tangible
net worth of not less than $1,000,000 (excluding debt subordinated to
the EDC), limiting capital expenditures to under $2,000,000 and
abstaining from share redemption during the payment deferral period.
The EDC's proposal to the Corporation terminated on March 17, 1997 and
was subject to certain conditions that the Corporation has not met; as
such, the EDC obligation is classified as current on the accompanying
balance sheet. The Corporation is continuing to negotiate with the
EDC. If no agreement is reached, the EDC may initiate foreclosure
proceedings on the collateral.
5. INCOME TAXES
At December 31, 1996 a deferred income tax asset and related valuation
allowance, attributable primarily to the net operating loss
carryforward (calculated using a 34% tax rate) of approximately
$7,100,000 has been established. Changes in the valuation allowance
were approximately $1,800,000 and $1,400,000 in 1996 and 1995,
respectively
At December 31, 1996, net operating loss carryforwards of approximately
$21,000,000 are available to offset future federal taxable income, if
any, through 2011.
-14-
<PAGE> 22
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
6. STOCKHOLDERS' DEFICIT
Common Stock Issuances
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
shareholder (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, 1996 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 was reflected on the
December 31, 1995 balance sheet as an unrealized loss on
available-for-sale marketable securities. As of December 31, 1996, the
value of the 42,913 shares had decreased by $194,750. At that date,
the decline is considered to be other than temporary and accordingly,
the Corporation recognized a loss.
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
former 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.
On March 31, 1996, the Corporation converted a $250,000 shareholder
loan into 111,111 shares of its common stock at $2.25 per share.
In connection with a private placement offering that was completed
effective March 31, 1996, the Corporation sold 572,444 shares of common
stock at $2.25 per share, netting approximately $1,288,000.
On May 13, 1996, the Corporation sold privately 44,444 shares of common
stock at $2.25 per share, netting $100,000.
On May 31, 1996, the Corporation sold privately 250,000 shares of
common stock at $2.00 per share, netting $500,000.
-15-
<PAGE> 23
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
6. STOCKHOLDERS' DEFICIT (CONTINUED)
The Corporation's common stock and warrants are quoted on the OTC
Bulletin Board following a delisting of its securities from the NASDAQ
Small Cap Market in July 1996 for not maintaining minimum capital and
surplus requirements of $1 million. The Corporation intends to raise
additional capital and seek reinstatement on NASDAQ.
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.
Each share of preferred stock 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.
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 450,000 shares of common stock.
Options granted are exercisable ratably over five years on a cumulative
basis. Activity with respect to these options is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
--------- ------------
<S> <C> <C>
Balance January 1, 1995 $290,000 $3.50 - $6.125
Options granted 75,493 $1.63 - $5.00
Options exercised -
Options terminated or expired -
---------
Balance December 31, 1995 365,493 $1.63 - $6.125
Options granted 12,000 $1.56 - $2.50
Options exercised -
Options terminated or expired (53,408) $1.63 - $5.50
---------
Balance December 31, 1996 $ 324,085
=========
</TABLE>
During the years ended December 31, 1996 and 1995, options for the
purchase of 62,417 shares and 58,000 shares, respectively, became
exercisable. None were exercised.
-16-
<PAGE> 24
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
6. STOCKHOLDERS' DEFICIT (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.
Other Common Stock Purchase Warrant and Option Agreements
As of December 31, 1996, warrant and option agreements totaling
2,861,089 shares of common stock are outstanding at exercise prices
ranging from $1.31 to $18.20 per share or unit, exercisable at various
dates through October 2006. No warrants or options under these
agreements have been exercised.
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.
8. 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 former Chairman Emeritus. The misappropriations occurred
during the period from January through June of 1994. The Corporation's
former Chairman Emeritus reimbursed the Corporation the $514,000. 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 former 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.
-17-
<PAGE> 25
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
8. OTHER MATTERS (CONTINUED)
The Corporation has made filings about this matter with the Securities
and Exchange Commission (SEC). The SEC is currently conducting an
investigation into the matter. On November 1, 1996, the Corporation,
through its legal counsel, was notified by the SEC that its
Enforcement Division has tentatively decided not to recommend that the
Commission authorize an enforcement action against the Corporation.
The SEC further advised that it nevertheless was possible that an
action against the Corporation may ultimately result from the
investigation. The SEC's investigation had revealed that the
defalcation which was reported October 18, 1994 had also occurred in
1993, as well as in the first half of 1994, and that the 1993
defalcation had totaled at least an additional $300,000. It is also
possible that the Commission might institute an enforcement proceeding
against one or more former employee(s) of the Corporation who are no
longer associated with the Corporation.
9. MAJOR CUSTOMERS
Shipments to one wholesaler customer (Amerisource) accounted for
approximately 20% and 23% of net sales in 1996 and 1995, respectively.
Balances due from this customer represented approximately 22% of
accounts receivable at December 31, 1996. Shipments to another
wholesale customer (McKesson Drug) accounted for approximately 17% of
net sales in 1996.
* * * * * *
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,421
<SECURITIES> 82,000
<RECEIVABLES> 154,588
<ALLOWANCES> 57,247
<INVENTORY> 290,265
<CURRENT-ASSETS> 606,644
<PP&E> 10,607,822
<DEPRECIATION> 2,257,640
<TOTAL-ASSETS> 9,038,826
<CURRENT-LIABILITIES> 12,137,235
<BONDS> 0
0
1,000,000
<COMMON> 19,632,887
<OTHER-SE> 23,731,296
<TOTAL-LIABILITY-AND-EQUITY> 9,038,826
<SALES> 1,273,903
<TOTAL-REVENUES> 1,273,903
<CGS> 1,642,237
<TOTAL-COSTS> 1,642,237
<OTHER-EXPENSES> 4,138,130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 680,767
<INCOME-PRETAX> (5,498,932)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,498,932)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> 0
</TABLE>
