<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CARACO PHARMACEUTICAL
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CARACO PHARMACEUTICAL
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 1, 1998
To The Shareholders of Caraco Pharmaceutical Laboratories, Ltd.:
Please take notice that the Annual Meeting of Shareholders of Caraco
Pharmaceutical Laboratories, Ltd. (the "Corporation") will be held on Wednesday,
June 1, 1998 at 10:00 a.m., local time, at the Hotel St. Regis, 3071 W. Grand
Blvd., Detroit, Michigan 48202 for the purpose of:
1. Electing three directors to serve for terms of three years each;
2. Acting on such other business as may properly come before the meeting, or
any adjournments thereof.
You are cordially invited to attend the Annual Meeting.
Holders of Common Shares of record at the close of business on April 17,
1998 will be entitled to vote at the meeting. A list of such shareholders will
be available for inspection during normal business hours from May 21, 1998
through May 31, 1998, at the offices of the Corporation, 1150 Elijah McCoy
Drive, Detroit, Michigan.
A Proxy Statement, Proxy Card, Annual Report and Form 10-KSB are enclosed
with this Notice. Each shareholder is urged to execute and return the enclosed
Proxy Card promptly. In the event a shareholder decides to attend the meeting,
he or she may, if so desired, revoke the Proxy and vote the shares in person.
By Order of the Board of Directors,
Dilip Shanghvi, Chairman of the Board
Detroit, Michigan
May 10, 1998
SHAREHOLDERS ARE URGED TO COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY. IF
MAILED IN THE U. S. IN THE ENCLOSED ENVELOPE, NO POSTAGE IS REQUIRED.
<PAGE> 3
CARACO PHARMACEUTICAL LABORATORIES, LTD.
1150 ELIJAH MCCOY DRIVE
DETROIT, MICHIGAN 48202
PROXY STATEMENT
This Proxy Statement is furnished by the Board of Directors of Caraco
Pharmaceutical Laboratories, Ltd. (the "Corporation" or "Caraco") in connection
with its solicitation of proxies for use at the Annual Meeting of Shareholders
on June 1, 1998, and at any and all adjournments thereof. This Proxy Statement
and accompanying Proxy Card are first being mailed on or about May 10, 1998. The
Corporation's Annual Report (including audited financial statements) for the
year ended December 31, 1997 and the Corporation's 1997 Form 10-KSB are also
enclosed with this Proxy Statement.
The Annual Report is not incorporated in whole or in part to this Proxy
Statement and does not constitute proxy soliciting material. The Form 10-KSB is
not incorporated in whole or in part to this Proxy Statement and does not
constitute proxy-soliciting material.
If the Proxy is properly executed and returned, the Common Shares it
represents will be voted at the 1998 Annual Meeting in accordance with the
instructions noted thereon. If no instructions are indicated, it will be voted:
(1) FOR the nominated director(s); (2) FOR or AGAINST, in the discretion of the
Proxy holders, such other matters as may properly come before the meeting. The
Corporation's management knows of no matter to be brought before the meeting
which is not referred to in this Proxy Statement. If, however, any other matters
come before the meeting, the Proxy will be voted in accordance with the judgment
of the person or persons voting such Proxy, unless the Proxy contains
instructions to the contrary. Any shareholder executing a Proxy has the power to
revoke it at any time before it is voted by submitting a duly executed Proxy
bearing a later date, by delivering written notice of such revocation to the
Corporation's Secretary prior to the 1998 Annual Meeting or by attending the
1998 Annual Meeting and orally withdrawing the Proxy. The cost of this
solicitation is being paid for by the Corporation. The Corporation will solicit
proxies by mail and may also solicit proxies in person or by telephone.
2
<PAGE> 4
In accordance with the regulations of the Securities and Exchange
Commission (the "SEC"), Caraco will also reimburse brokerage houses and
custodians, nominees and fiduciaries for their expenses incurred in sending
proxies and proxy material to the beneficial owners of Common Stock.
The presence, in person or by proxy, of the holders of a majority of the
common shares ("Common Shares") of the Corporation issued and outstanding and
entitled to vote at the Annual Meeting is necessary to constitute a quorum.
Abstentions and broker "non-votes" are counted as present and entitled to vote
for purposes of determining a quorum. A broker "non-vote" occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.
The affirmative vote by the holders of the majority of the Common Shares
present in person or represented by proxy and entitled to vote on the matter is
required to approve "Proposal 1 - Election of Directors". Votes withheld are
counted for the purpose of Proposal 1. However, broker "non-votes are not
counted for the purposes of Proposal 1, which will have the effect of reducing
the total number of shares from which any required majority is calculated.
ELECTION OF DIRECTORS
Pursuant to Article VI of the Amended and Restated Articles of
Incorporation of the Corporation, the Board of Directors shall be divided into
three classes with terms expiring on three successive annual meeting dates. The
Amended and Restated Bylaws authorize the Board of Directors exclusively to set
the number of directors to serve on the Board of Directors, by resolution, but
at no time shall the number of directors be less than five.
Under the Corporation's Bylaws, in addition to nominations by the Board of
Directors, nominations may also be made by any shareholder entitled to vote in
the election of directors generally if timely notice of such shareholder's
intent to make such nomination or nominations has been given in writing to the
secretary or assistant secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive office of the Corporation not fewer than 90 days prior to
the meeting; provided, however, that
3
<PAGE> 5
in the event that less than 100 days' notice or prior public disclosure of
the date of the shareholder meeting is given or made to shareholders, notice by
the shareholder to be timely must be so received not later than the close of
business of the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Each such notice
shall set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote for the election of directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the SEC, had the nominee been nominated, or intended to be nominated by the
Board; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected.
Unless otherwise instructed on the Proxy, the Proxy holders intend to vote
FOR the election of Narendra Borkar, Phyllis Harrison-Ross, and Sudhir Valia to
three-year terms as directors. The Caraco Board believes that, if elected, the
nominees will be able and willing to serve. However, if a nominee should be
unable or unwilling to serve as a director, the Caraco Board may select a
substitute nominee and, in that event, the Proxy will be voted for the person so
selected.
Information concerning the three (3) directors nominated for a term of
three years, and the six (6) continuing Caraco Board members, is set forth
below.
4
<PAGE> 6
NOMINEES FOR ELECTION AS DIRECTORS FOR
THREE-YEAR TERMS TO EXPIRE 2001.
NARENDRA N. BORKAR
AGE: 57
COMMITTEES: Executive
NARENDRA N. BORKAR joined Caraco as its Chief Executive Officer in August
1997 and as a Board member in October 1997. Mr. Borkar has been a director of
Sun Pharmaceutical Industries, Ltd., an Indian specialty pharmaceutical company
("Sun Pharma") since April 1997. From 1982 until April 1997, Mr. Borkar was
head of the pharmaceutical business of Ciba Geigy, now Novartis, a Swiss
corporation, responsible for the overall performance of the business unit
including marketing, finance, technical, medical and development. (See
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions.")
PHYLLIS HARRISON-ROSS, M.D.
AGE: 61
COMMITTEES: Audit
DR. HARRISON-ROSS has served as a Director of the Corporation since
September 1996. Dr. Harrison-Ross has more than 25 years in the community mental
health profession. She presents a remarkably diverse career as a hospital
administrator, researcher, academician, public health consultant, forensic
psychiatrist and public educator. Dr. Harrison-Ross trained as an adult and
child psychiatrist as well as a pediatrician, and continues to lend her
administrative and clinical talents to serving the diverse, hard-to reach and
underserved population of New York.
SUDHIR VALIA
AGE: 41
COMMITTEES: Compensation, Executive and Finance
Mr. Valia joined Caraco's Board of Directors October 1997. Since 1996 Mr.
Valia has worked for Sun Pharma as a full time director responsible for finance,
commercial, operations, projects and quality control. For more than the past
five years Mr. Valia has been a chartered accountant in private practice. (See
"Security Ownership of Certain Beneficial Owners and
5
<PAGE> 7
Management" and "Certain Relationships and Related Transactions.")
DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000.
JAY F. JOLIAT
AGE: 41
COMMITTEES: Executive
JAY F. JOLIAT has served as a Director of the Corporation since September
1995. Mr. Joliat, for more than the past five years, has served as President,
Chief Executive Officer and Chairman of the Board of Joliat & Company. Joliat &
Company is a private investment company involved in general securities
management, venture capital, real estate, and business consulting. Mr. Joliat is
also Chairman of the Board, Chief Executive Officer and Treasurer of Sign of the
Beefcarver Restaurants, Inc., which owns and operates 13 cafeteria style family
restaurants, three casual dining/bar restaurants and one fine dining restaurant
in the Detroit metropolitan area. He is also CEO to Bad Frog International,
Inc., which is a franchise company and worldwide licensee to all rights
associated with Bad Frog Taverns, a casual bar/restaurant tavern concept; and as
trustee and Chief Executive Officer of several family-related trusts with widely
diverse holdings including foreign and domestic securities, venture capital and
real estate. (See "Certain Relationships and Related Transactions.")
SHANTILAL SHANGHVI
AGE: 69
COMMITTEES: Audit and Finance
SHANTILAL SHANGHVI joined Caraco's Board of Directors in October 1997. Mr.
S. Shanghvi is co-founder of Sun Pharma and has been its Chairman since its
inception in 1982. (See "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Transactions.")
6
<PAGE> 8
DILIP S. SHANGHVI
AGE: 42
COMMITTEES: Compensation and Executive
DILIP S. SHANGHVI became Chairman of the Board and joined Caraco's Board of
Directors in October 1997. Mr. D. Shanghvi is a co-founder of Sun Pharma and has
been a Managing Director since 1992, responsible for marketing, research and
development and human resource development. (See "Security Ownership of Certain
Beneficial Owners and Management" and "Certain Relationships and Related
Transactions.")
DIRECTORS WHOSE TERMS WILL EXPIRE IN 1999.
DAVID W. ADAMANY
AGE: 61
COMMITTEES: Audit and Executive
DAVID W. ADAMANY has served as a Director of the Corporation since July,
1994. Dr. Adamany served as President of Wayne State University from 1982 until
1997. He is presently President Emeritus and Distinguished Professor of Law and
Political Science at Wayne State University.
DAVID A. HAGELSTEIN
AGE: 56
COMMITTEES: Executive and Finance
DAVID A. HAGELSTEIN has served as a Director of the Corporation since
September 1995. Mr. Hagelstein has been engaged in the management of his
personal real estate and business investments for the past thirty years. In
addition, Mr. Hagelstein has been a consultant to several companies in the
pharmaceutical and medical fields. (See "Certain Relationships and Related
Transactions.")
JOHN R. MORRIS
AGE: 66
COMMITTEES: Compensation
JOHN R. MORRIS has served as a Director of the Corporation since May 1996.
Since 1978, Mr. Morris has been President of Biotrade Group, a company he
founded. Biotrade, a worldwide healthcare and chemical company has offices in
Australia,
7
<PAGE> 9
Southeast Asia, South Africa, Switzerland and the United Kingdom. Biotrade is
active in the pharmaceutical and fine chemical industries. (See "Certain
Relationships and Related Transactions".)
DIRECTOR COMPENSATION
Each non-employee director of the Corporation receives 100 shares of Common
Stock of the Corporation for each Board or Committee meeting in which he or she
participates. Directors are also reimbursed for out-of-pocket expenses incurred
in connection with attending Board and Committee Meetings. In addition,
Directors may also be awarded options for their service on the Board. No
Director received an option for their services on the Board during 1997.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
SHERMAN N. GINN (Age 58) -- joined the Corporation in August 1994 as
Director of Sales and Marketing and in December 1994 was promoted to Vice
President -- Sales and Marketing. From February 1994 until August, 1994 Mr. Ginn
was employed by Global Source as Vice President, Sales. From 1992 to February
1994 Mr. Ginn was Vice President, Sales and Chain Store Sales at Watson
Laboratories. From 1990 to 1992 he was employed by Qualitest Products in
Huntsville, Alabama as Vice President, Marketing.
ROBERT KURKIEWICZ (Age 47) -- commenced employment with the Corporation as
its Vice President -- Quality Assurance in November 1993 and was promoted to
Senior Vice President - Technical October, 1998. Prior thereto, Mr. Kurkiewicz
was employed, from 1988 until November 1993 as Manager, Quality Assurance by the
Warner Chilcott Laboratories, Division of Warner Lambert Company, for which he
was responsible for the establishment of the Quality Control and Quality
Assurance Departments at the then inception of this division (including the
design and implementation of all quality systems for proper operation of a
pharmaceutical manufacturing organization) and the ongoing supervision of
Quality Control, and Quality Assurance for manufacturing and research and
development.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended December 31, 1997, the Corporation's Board of
Directors conducted its business by
8
<PAGE> 10
holding nine (9) Board Meetings. The Board of Directors has four (4) active
standing committees, which facilitate the carrying out of its responsibilities.
The Executive, Audit, Compensation and Finance Committees were established by
the Board of Directors on May 31, 1994. The Board of Directors does not have a
standing Nominating Committee.
The Executive Committee, which did not meet during 1997, is empowered to
exercise, in the intervals between the meetings of the Board of Directors, the
powers of the Board, subject to the Michigan Business Corporation Act, as it
relates to the management of the business and affairs of the Corporation.
The Audit Committee, which did not meet in 1997, is empowered to recommend
to the Board of Directors a firm of certified public accountants to conduct
audits of the accounts and affairs of the Corporation and to review accounting
objectives and procedures of the Corporation and the findings and reports of the
independent certified public accountants, and to make such reports and
recommendations to the Board of Directors as it deems appropriate.
The Compensation Committee met once in 1997. The Compensation Committee is
empowered to make recommendations to the Board of Directors relating to the
overall compensation arrangements for officers and staff of the Corporation and
to make recommendations to the Board of Directors pertaining to any compensation
plans in which officers and directors of the Corporation are eligible to
participate (including making recommendations regarding the amount they receive
as directors of the Corporation). The Committee also interprets the
Corporation's 1993 Stock Option Plan, as amended, and such other executive and
employee stock options as may, from time to time, be designated by the Board of
Directors. In doing so, it has the authority to designate officers, directors or
key employees eligible to participate in the Plan, to prescribe the terms of any
award of stock options, and to make all other determinations for administering
the Plan.
The Finance Committee, which did not meet in 1997, is empowered for
ensuring that the Corporation maintains a sound financial structure, and is
empowered to make recommendations to the Board of Directors on financial, short
and long term investments and business planning matters.
9
<PAGE> 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information, as of April 14, 1998,
with respect to the Common Stock owned by each director and nominee for election
to the Board of Directors, each executive officer named in the Summary
Compensation Table, all executive officers and directors as a group, and by each
person (including any "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) who is known to the Corporation to be the
beneficial owner of more than five (5%) percent of the outstanding shares of the
Corporation's Common Stock. The shares and percentages shown below include
shares which may be acquired by the persons listed pursuant to presently
exercisable and outstandig stock options, warrants, and convertible stock.
Except as indicated below, each person listed has sole voting and investment
power as to the shares listed.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL BENEFICIAL PERCENTAGE OF
OWNER OWNERSHIP CLASS
- -------------------- ---------------- -------------
<S> <C> <C>
David W. Adamany(9) 22,600(1) *
Narendra N. Borkar(9) 0(2) *
David A. Hagelstein(9)(10) 1,559,359(3) 11.4%
Phyllis Harrison-Ross(9) 2,200(4) *
William R. Hurd 31,793(5) *
Jay F. Joliat(9)(10) 2,134,805(6) 14.7%
John R. Morris(9) 147,570(7) 1.1%
Sun Pharmaceutical
Industries, Ltd.(10)(11) 5,390,657(2) 39.9%
Dilip S. Shanghvi(11) (2) *
Shantilal Shanghvi(11) (2) *
Sudhir Valia(11) (2) *
C. Arnold Curry 1,384,447(8) 10.2%
All executive officers and
directors as a group
(11 persons) 3,903,333 26.3%
</TABLE>
- -------------------------
* Less than 1.0% of the outstanding shares
(1) Includes stock options that are currently exercisable to purchase 3,600
shares.
10
<PAGE> 12
(2) Sun Pharma owns 5,300,000 shares of common stock and Sun Pharma's
affiliate, Sun Pharma Global, Inc., owns 90,657 shares of common stock.
(See "Certain Relationships and Related Transactions.") Messrs. S.
Shanghvi, D. Shanghvi, Borkar and Valia are principals of Sun Pharma, and,
therefore, may be deemed to share investment control over the shares of
Common Stock held by Sun Pharma and Sun Pharma Global, Inc. Each of Messrs.
S. Shanghvi, D. Shanghvi, Borkar and Valia disclaims beneficial ownership
of the shares of Common Stock owned by Sun Pharma and Sun Pharma Global,
Inc.
(3) The majority of Mr. Hagelstein's shares are held in trust (the "Hagelstein
Trust"). Includes an option to purchase 224,158 shares of Common Stock
until February 20, 2002; stock options to purchase 2,400 shares of Common
Stock until September 7, 2001; and warrants to purchase 5,000 shares of
Common Stock until February 11, 1999. See "Certain Relationships and
Related Transactions."
(4) Includes an option to purchase 1,200 shares of Common Stock until November
14, 2002.
(5) Includes 900 shares and 100 warrants owned by Richard and Kimberly Hurd
minor children to William R. Hurd; and 4,800 shares owned by Joan Hurd,
spouse to William R. Hurd.
(6) The majority of Mr. Joliat's shares are held in trust (the "Joliat Trust").
Includes 285,714 Series A Preferred Stock convertible to Common Stock;
warrants to purchase 65,000 shares which are exercisable through December
31, 2004; warrants to purchase 486,666 shares exercisable through March 31,
2006; option to purchase 225,000 shares which are exercisable through
October 18, 2006; and a stock option to purchase 2,400 shares. See "Certain
Relationships and Related Transactions."
(7) Includes 10,000 warrants exercisable until ebruary 11, 1999 and stock
options that are currently exercisable to purchase 1,200 shares.
(8) Excludes 484,615 shares owned by his wife, Cara J. Curry, as to which he
disclaims beneficial ownership.
11
<PAGE> 13
(9) The mailing address of each of these holders is 1150 Elijah McCoy Drive,
Detroit, Michigan 48202.
(10) The Joliat Trust, the Hagelstein Trust and Sun Pharma have entered into a
Voting Agreement dated August 1997 pursuant to which, among other things,
Sun may designate a majority of the directors of the Board of Directors of
the Company and the Joliat Trust and the Hagelstein Trust may each
designate one director. The Voting Agreement also provides that the
Executive Committee shall consist of three directors, two selected by Sun
Pharma and one selected by the Joliat Trust and the Hagelstein Trust. In
addition, the Joliat Trust and the Hagelstein Trust have also agreed that
they will respectively vote their shares in accordance with Sun Pharma's
directions with respect to any matter relating to the investment, merger,
alliance, share dilution, appointment of key executives, major
restructuring or reorganizing, bank borrowing, funding or giving credit.
If Sun Pharma sells within a period of four years shares of Caraco Common
Stock so that Sun Pharma's ownership falls below 30% of the then
outstanding shares of Caraco or Sun Pharma defaults in its payment for the
Caraco Common Stock, then the Board of Directors will be reconstituted in
accordance with the proportionate share holdings of each of the parties to
the Voting Agreement and the Executive Committee shall be reconstituted so
that it consists of one director selected by Sun Pharma and two directors
selected by the Joliat Trust and the Hagelstein Trust. In the event that
Sun Pharma owns 10% or less of the outstanding shares of Caraco, the
Voting Agreement shall terminate. In addition, the Voting Agreement shall
terminate after the fourth anniversary thereof. The Joliat Trust and the
Hagelstein Trust have also agreed not to dispose of their shares for a
period of four years without the consent of Sun Pharma, and thereafter for
a period of three years, to give Sun Pharma a right of first refusal on
the sale of their respective shares. The restriction on disposition of
their respective shares for the four-year period terminates in the event
of (i) any sale of shares by Sun Pharma to anyone other than an affiliate;
(ii) approval by the Board of Directors of the Corporation of a merger,
consolidation, or sale of substantially all of the assets of the
Corporation to another entity; or (iii) a tender offer for the shares.
12
<PAGE> 14
(11) The mailing address of Sun Pharma, S. Shanghvi, D. Shanghvi and S.Valia is
Synergy House Subhanpura, Gorwa Road, Baroda, 390-007, India.
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and as to the
one most-highly compensated Executive Officer whose salary plus bonus exceeded
$100,000 during the last fiscal year, information concerning all compensation
paid for services to the Corporation in all capacities during the last three
fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Awards Payouts
-------- ---------
Annual Compensation Restricted Securities
Name and ------------------------------ Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary($) Bonus($) Compensation Award(s) Options Payouts Compensation
- ------------------ ---- --------- -------- $ $ # $ $
------------ -------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Narendra N. Borkar(1).... 1997 $ 45,592 0 0 0 0 0 0
Chief Executive Officer
William R. Hurd(2) .... 1997 $137,127 0 0 0 65,000(6) 0 60,000(7)
1996 $164,307 0 0 0 0 0 0
1995 $167,612 $ 16,000(3) 0 18,827(4) 3,040(5) 0 0
</TABLE>
*Mr. Hurd left the employment of the Corporation December 1997.
(1) Mr. Borkar began his employment with the Corporation August 1997.
(2) Mr. Hurd's employment as President and Chief Operating Officer was
terminated as of the end of December 1997.
(3) Bonus given per employment contract in Caraco Common Stock (5,334 shares).
13
<PAGE> 15
(4) 5,793 shares were awarded by the Corporation on May 10, 1995, to Mr. Hurd,
as reimbursement for the payment of the taxable portion of moving expenses
he incurred.
(5) The Options were granted pursuant to the Corporation's 1993 Employee Stock
Option Plan. Under the Plan, the options vest over a five year period
commencing one year from date of grant. The options expired on March 31,
1998.
(6) On July 29, 1997,the exercise price of Mr. Hurd's options were repriced
from approximately $4.00 to $1.50 per share.
(7) Amount payable under Mr. Hurd's employment agreement upon termination of
employment. (See "Employment Agreements" below.)
No other executive officer of the Corporation earned more than $100,000 during
the 1997 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the repricing
of exercise prices of stock options made during the year ended December 31, 1997
to the Executive Officers named in the Summary Compensation Table whose options
were repriced:
OPTIONS WHICH REPRICED DURING LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual
Grants
(a) (b) (c) (d) (e) (f)
Percent of
Total
Number of Options
Securities Repriced to
Underlying all Exercise Market Price
Repriced Employees in Price per on Date of Expiration
Name Options(1) Fiscal Year Share Repricing(2) Date
<S> <C> <C> <C> <C> <C>
48%
William R. Hurd 65,000 $ 1.50 $0 13/20 12/25/01
</TABLE>
- ------------------------
(1) The repriced options granted to Mr. Hurd were repriced on July 29, 1997. In
connection with the repricing, the option expiration dates were extended to
January 25, 2001. The options expired on March 31, 1998.
14
<PAGE> 16
(2) Based upon the average bid-ask price of the Caraco Common Stock on the OTC
Bulletin Board on July 29, 1997.
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR AND FY-END OPTIONS VALUES
The following table sets forth information for the executive officers named
above with regard to the aggregate stock options exercised during the year ended
December 31, 1997, and the stock options held as of December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
FY-End(#) FY-End($)(1)
Shares Acquired Value Realized
Name on Exercise# ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Narendra N. Borkar.. 0 0 0/0 0/0
William R. Hurd..... 0 0 66,520/1,520(2) 0/0
</TABLE>
- ------------------
(1) Value based on the difference between the closing bid price of the
Corporation's Common Stock on December 31, 1997 and the exercise price. The
options held by the named executive officers have exercise prices which are
higher than the closing bid price of the Corporation's Common Stock on
December 31, 1997.
(2) These options expired on March 31, 1998.
EMPLOYMENT AGREEMENTS
WILLIAM R. HURD, the former President and Chief Operating Officer of the
Corporation, entered into an employment agreement with the Corporation
providing, among other things, that Mr. Hurd may, upon giving 30-days' written
notice, terminate the agreement in the event there is a change of control or
ownership (as defined in the employment agreement) of the Corporation and his
powers and duties significantly changed or he has good reason (as defined in the
employment agreement) to terminate or, as a result of the change of control or
ownership, Mr. Hurd reasonably determines that he is unable to exercise or
perform his powers, functions and duties. In the event of such termination, Mr.
Hurd
15
<PAGE> 17
is to receive (i) a lump sum severance payment equal to his base salary for
36 months at the rate payable at the time notice of termination was given; (ii)
the bonus which he would otherwise be entitled to for the year in which his
employment is terminated; and (iii) the immediate vesting in any stock option
which would have been exercisable at the close of the year during which the
change of control occurred.
Effective April 1, 1997, Mr. Hurd entered into an amendment to his
employment agreement which, among other things, decreased Mr. Hurd's salary
from $160,000 to $120,000, and provided that upon termination without cause,
Mr. Hurd should be entitled to receive monthly base salary payments for 6
months (instead of 18 months) from the date of termination, the Corporation
shall continue premium coverage payments for health and life insurance for 6
months (instead of 18 months) from the date of termination and any stock
options that would become available for exercise at the end of the year during
which such termination occurred shall vest. In addition, the amendment to the
employment agreement provided that purchase by Sun of 5,300,000 shares of
Caraco Common Stock pursuant to the Stock Purchase Agreement (see, "Certain
Relationships and Related Transactions") would not constitute a change in
control. Mr. Hurd's employment with the Corporation as its President and Chief
Operating Officer was terminated effective at the end of December 1997. Mr.
Hurd has provided written notice to the Corporation that he is disputing the
legality of the amendment to his employment agreement.
ROBERT KURKIEWICZ, the Senior Vice President - Technical, entered into a
five-year employment agreement with the Corporation expiring November 22, 1998,
subject to automatic renewal for successive one-year terms unless terminated by
the Corporation or Mr. Kurkiewicz upon 30 days notice prior to the commencement
of any such renewal period.
In the event that Mr. Kurkiewicz terminates his employment for cause not
attributable to himself, or if the Corporation terminates this Agreement without
cause, then he shall be entitled to receive monthly base salary payments for
twelve (12) months from the date of termination, and the Corporation shall
continue premium coverage payments for health insurance for the same period. In
addition, any stock options that would become available for exercise at the end
of the year during which such termination occurred shall immediately vest.
16
<PAGE> 18
In the event that Mr. Kurkiewicz terminates his employment without cause,
or his employment is terminated for cause, death or disability, then he (or his
estate) will receive earned and unpaid salary accrued to the date of
termination.
On April 1, 1997 Mr. Kurkiewicz entered into an amendment to his Employment
Agreement. Under the amendment, Mr. Kurkiewicz's salary was reduced from
$123,000 to $92,250 and the provisions relating to severance to termination
without cause were revised to reduce the period during which the severance
payments would be paid to six months from the date of termination.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with Sun Pharma's acquisition of an ownership interest in the
Corporation, the Corporation and Sun Pharma entered into a number of agreements.
A stock purchase agreement (the "Stock Purchase Agreement") between the
Corporation and Sun Pharma was consummated in August 1997. Pursuant to the Stock
Purchase Agreement, Sun Pharma purchased 5,300,000 shares of Caraco Common Stock
for $7.5 million to be paid over a period of approximately 2 years in four
installments. Payment may be made through delivery of one or more acceptable
letters of credit. In connection therewith, Sun Pharma and the Corporation
entered into a pledge agreement which generally provides that if Sun Pharma
defaults in its payments under the Stock Purchase Agreement, the Corporation may
rescind and cancel all of the pledged shares unless the inability to make timely
payment is due to reasons beyond the control of Sun Pharma. In August of 1997,
Sun Pharma and the Corporation also consummated a products agreement pursuant to
which during a five-year period, Sun Pharma is required to sell to the
Corporation the right to develop, manufacture and sell 25 generic pharmaceutical
products (provided that any product which is a DESI (drug efficiency study
implementation) product only counts as 1/3 of a product), in exchange for
544,000 shares of Caraco Common Stock for each product (181,333 shares for each
DESI product). Also, at the time of the consummation of the Stock Purchase
Agreement, Sun Pharma and the Corporation entered into a registration rights
agreement pursuant to which, generally, Sun Pharma is given the right at any
time to cause the Corporation to register with the SEC the shares of Caraco
Common Stock acquired by Sun Pharma under the Stock Purchase Agreement having an
aggregate fair market value of not less than $500,000. The registration rights
17
<PAGE> 19
agreement terminates when all shares acquired by Sun Pharma under the Stock
Purchase Agreement have been sold or disposed of.
On January 30, 1997 and February 3, 1997, the Corporation borrowed $100,000
and $300,000 respectively, from Mr. Joliat for working capital purposes. On
February 11, 1997, the Corporation borrowed $200,000 from Mr. Hagelstein for
working capital purposes. The loans accrue interest at 10% (payable in cash or
Common Shares) are currently due and payable and are secured by specific
equipment. On January 30, 1997 the Corporation, Sun Pharma Global, Inc. an
affiliate of Sun Pharma, and Messrs. Hagelstein and Joliat entered into an
Inter-Creditor Agreement with respect to these loans which generally provides
for equal priority in collateral and principal repayments based on each
creditor's respective share of total debt.
On February 21, 1997, the Corporation granted Mr. Hagelstein an option for
224,158 Common Shares at an exercise price of $1.50 per share for a five year
period expiring February 20, 2002 and canceled prior options/warrants granted to
Mr. Hagelstein for an aggregate of 224,158 Common Shares at exercise prices
ranging from $3.50 to $4.81 per share in recognition of Mr. Hagelstein's
proposed agreement to contribute up to $500,000 to the Corporation in cash or
Common Shares (up to 250,000 Common Shares) in connection with the proposed
Stock Purchase Agreement between the Corporation and Sun. (See discussion
below.)
On March 27, 1997, the Corporation and Jay. Joliat, David A. Hagelstein and
John R. Morris entered into various allonges to their promissory notes totaling
$890,000 which reduced the interest owed on such notes from 14% to 10%.
On April 11, 1997, the Corporation borrowed $150,000 from Mr. Joliat for
working capital purposes. The loan accrued interest at 10% per annum (payable in
cash or common shares). On July 27, 1997, as part of Mr. Joliat's agreement to
contribute up to $500,000 to the Corporation in cash or Caraco common shares
(see discussion below), Mr. Joliat agreed to consider the loan of $150,000 paid
in full, and as a result thereof, Mr. Joliat and the Corporation have agreed
that he has been deemed to have returned to the Corporation 150,000 shares of
the 250,000 shares required to be returned.
Effective on the consummation of the Stock Purchase Agreement but executed
on March 27, 1997, Messrs. Hagelstein and
18
<PAGE> 20
Joliat agreed to contribute $500,000 to the Corporation within three months
following Sun Pharma's contribution of $4 million out of the $7.5 million
capital contribution. The $500,000 payment by Messrs. Hagelstein and Joliat may
be in any form or combination of cash and/or shares of Caraco Common Stock. In
no event, however, are Messrs. Hagelstein or Joliat obligated to contribute a
maximum of 250,000 shares each of Caraco Common Stock.
The promissory notes referenced above aggregating $890,000 from Messrs.
Hagelstein, Joliat and Morris and the $350,000 lent by Sun Pharma Global, Inc.
on December 23, 1996 together with the $200,000 lent to the Corporation by Sun
Pharma Global, Inc. in February and March, 1997, were restructured on September
15, 1997 by extending the maturity to August 1, 1999, and by permitting payment
in cash or in shares of Caraco Common Stock, at the sole discretion of the note
holder, at a per share price of $1.50. The interest of 10% on the notes was
prepaid in exchange for an equivalent number of shares of Common Stock of the
Corporation at a per share price of $1.50. Accordingly, the Corporation issued
68,007 shares, 159,543 shares, 37,370 shares and 90,657 shares to Mr.
Hagelstein, Mr. Joliat, Mr. Morris and to Sun Pharma Global, Inc., respectively.
During the year ended December 31, 1997, the Corporation purchased raw
materials from Biotrade Group in the amount of $182,447. Mr. Morris is the
President of Biotrade Group. The Corporation believes the raw materials were
purchased at market prices.
COMPLIANCE WITH SECTION 16 (A)
To the Corporation's knowledge based solely on review of the copies of
reports on Form 3, 4 and 5 required by Section 16(a) of the Securities Exchange
Act of 1934, as amended, and written representations furnished to the
Corporation, all of the directors, officers and persons who own more than ten
percent of the Corporation's Common Stock filed the Forms 3 and Forms 4 required
by Section 16(a) in a timely manner, except for Dr. David W. Adamany, and Dr.
Phyllis Harrison-Ross, John R. Morris and Sun Pharmaceutical Industries, Ltd.,
who did not file Form 4s timely.
19
<PAGE> 21
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors on June 25, 1997 selected Rehmann Robson,
independent accountants, to audit the financial statements for the year ended
December 31, 1997. A representative of Rehmann Robson is expected to be present
at the meeting with the opportunity to make a statement if such representative
decides to do so and is expected to be available to respond to appropriate
questions.
1999 ANNUAL MEETING
Shareholders may present proposals to be considered for inclusion in the
Proxy Statement for the 1999 Annual Meeting of the Shareholders provided such
proposals are submitted in accordance with all applicable rules and regulations
of the SEC and received by the Corporation no later than January 10, 1999.
Narendra Borkar
Chief Executive Officer
Detroit, Michigan
May 10, 1998
20
<PAGE> 22
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CARACO PHARMACEUTICAL LABORATORIES, LTD.
The undersigned shareholder hereby appoints Jennifer Evans, with full
power of substitution, as true and lawful attorney and proxy of the undersigned
to represent and vote the shares of Common Stock owned by the undersigned
in Caraco Pharmaceutical Laboratories, Ltd. at the Annual Meeting of
Shareholders to be held on June 1, 1998 at 10:00 a.m., local time, at the
Hotel St. Regis, 3071 W. Grand Blvd., Detroit, MI 48202, and at any adjournment
thereof, with like effect and as if the undersigned was personally present and
voting, upon all business that may properly come before the meeting, including
the business identified (and in the manner indicated) on this proxy and
described in the Notice of Meeting and Proxy Statement furnished herewith (the
receipt of which is hereby acknowledged).
The undersigned hereby revokes any proxy or proxies heretofore given by
the undersigned to any person or persons with respect to such Common Shares and
ratifies any and all actions taken by the above-named proxies hereunder.
Set forth on the reverse side are the number of Common Shares held of
record by the undersigned as of April 17, 1998. You are asked to vote on the
business identified on the reverse.
(TO BE SIGNED AND DATED ON THE REVERSE SIDE)
<PAGE> 23
[ ] Indicate your
vote by marking
an (X) in the
appropriate
boxes below.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
EACH OF THE FOLLOWING MATTERS.
<TABLE>
<S><C>
FOR WITHHOLD FOR WITHHOLD FOR WITHHOLD
AUTHORITY AUTHORITY AUTHORITY
TO VOTE TO VOTE TO VOTE
1. ELECTION OF
DIRECTORS
Narendra N. Borkar [ ] [ ] Phyllis Harrison-Ross [ ] [ ] Sudhir Valia [ ] [ ]
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED.
IF NO SPECIFICATION IS MADE, THE SHARES SHALL BE VOTED FOR
EACH OF THE NOMINEES NAMED IN #1, AND FOR OR AGAINST ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
PLEASE RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
DATE 1998 DATE , 1998
- --------------------------------- ---------, ---------------------------------- --------
SIGNATURE OF SHAREHOLDER SIGNATURE(S) OF JOINT OWNER(S)
</TABLE>
Please sign exactly as your name(s) is imprinted on this proxy. If your shares
are held in a joint account, each joint owner should sign. If you are signing
for a corporation or partnership or as agent, attorney, executor, administrator,
trustee, guardian or other fidiciary, indicate the capacity in which you are
signing.
