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WASHINGTON, D.C. 20549
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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, 1997
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-24676
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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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) 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: $871,573
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.
$10,974,505
(BASED UPON THE AVERAGE BID-ASK PRICE OF THE REGISTRANT'S
COMMON SHARES ON THE OTC BULLETIN BOARD ON MARCH 20, 1998)
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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 20, 1998, THERE WERE
13,507,083 COMMON SHARES OUTSTANDING
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1998 definitive Proxy Statement, in connection with the
1998 Annual Meeting of Stockholders 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 are well accepted for substitution of brand
products as they sell at a discount to the branded product's price and for their
equivalence in quality and bioavailability.
Up to 1996, a significant source of funding for the Corporation 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"), and amended August 5, 1997 (the
"Amended EDC Agreement") (See "EDC Financing" below). In 1997, the Corporation
and an Indian specialty pharmaceutical company, Sun Pharmaceutical Industries
Ltd. ("Sun Pharma") completed an agreement whereby in exchange for 5,300,000
shares of Caraco common stock Sun Pharma agreed to invest $7.5 million into the
Corporation over a period of approximately two years in four installments. Sun
Pharma will also provide the Corporation with products in exchange for shares of
Common Stock. (See "Sun Pharmaceutical Industries Ltd." below.)
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.") Debt at
December 31, 1997 consists of a note payable to the EDC in the amount of
$8,880,000 related to funds advanced to the Corporation pursuant to the EDC
Agreement. The Amended EDC Agreement included deferral of scheduled principal
and interest payments for the period April 1996 to January 1999 until February
1999 to aid the Corporation in achieving adequate cash flows to assure Caraco's
ability to fund its current operations and continue to develop products. (See
"EDC Financing" below.) On August 20, 1997, the Corporation and Sun Pharma
completed an agreement as noted above. Sun Pharma has, as of March 19, 1998,
remitted $5 million and it is anticipated that the balance will be invested in
the next year. Caraco is currently focusing its efforts on developing additional
products, strengthening its current relationships and developing new alliances
with industry partners in order to increase usage of its underutilized plant
capacity and increase revenues. Caraco intends to seek adequate financing to
fund the foregoing objectives and current operations.
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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,
every year branded drugs with significant sales volumes come off-patent.
CARACO'S PRODUCTS AND PRODUCT STRATEGY
Caraco's present product portfolio includes eight products in 11
strengths in 24 package sizes. In 1997, the Corporation introduced Metoprolol
Tartrate (See "Hexal-Pharma GmbH & Co., Kg" below) and Paromomycin into its
product line. The Corporation developed an ANDA product, Selegeline HCL, for
Apotex, Inc. (See "Apotex, Inc." below) which was approved by the FDA in June,
1997. The Corporation is currently manufacturing the product for Apotex, for
sale under the Apotex label and, with respect to certain customers only, under
the Corporation's label. The Corporation has developed four drug efficacy study
implementation ("DESI") products (two of which have been provided by Sun as
discussed below) which are currently being validated. It is anticipated that
these products will be introduced in the market during the second half of 1998.
During 1997, Sun Pharma's dedicated development laboratory in Bombay
was actively working on multiple ANDA submissions and the introduction of DESI
products for 1998 in connection with its agreement with the Corporation. (See
"Sun Pharmaceutical Laboratories Ltd." below.) To date, Sun Pharma has
facilitated the transfer of technology to Caraco with respect to four ANDAs and
two DESI products. In addition to these, the Corporation is also expecting to
introduce line extensions and combinations of additional products commencing in
the second half of 1998.
The Corporation is in the process of negotiating strategic alliances
with three pharmaceutical companies for product development, manufacturing
and/or marketing.
R.P. SCHERER CORPORATION
The Corporation and R.P. Scherer Corporation entered into 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 and Hexal-Pharma GmbH & Co., KG, a German
pharmaceutical company and its United States affiliate (together, "Hexal")
entered into an agreement dated as of October 1, 1993, pursuant to which Hexal
agreed to convey to the Corporation the formulations, technology, manufacturing
processes and know-how, and other relevant information, and to pay for the
bioequivalency
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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. 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. The product, Metoprolol Tartrate, was
introduced in 1997. (See "Caraco's Products and Product Strategy".) The
Corporation is currently discussing with Hexal the advisability of preceding
with the development of the second product.
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 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 limited sales of the
Metoprolol Tartrate and provision has been made for the payment of royalties,
but no options have been 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.
CLONMEL CHEMICALS CO., LTD. (IRELAND)
On October 22, 1993, the Corporation entered into an agreement with
Clonmel Chemicals Co., Ltd. ("Clonmel"), pursuant to which 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. Pursuant to the agreement, Caraco must bear all costs of
developing the products and filing the ANDAs and must pay Clonmel $10,000 on
delivery of complete files containing the foregoing data, 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
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marketing of the respective product commences. The formulations were delivered
to the Corporation in 1994 and a bioequivalency study of one of the products was
conducted and an ANDA was filed in January 1997. The second product is not
currently being actively pursued due to changing market conditions and technical
issues. (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 formulated the first product, Selegeline
HCL in 1995 and an ANDA was filed in March 1996. The ANDA was approved by the
FDA in June, 1997, and the product is currently being marketed by Apotex, and
also, to certain customers only, by Caraco. (See "Caraco's Products and Product
Strategy".)
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SUN PHARMACEUTICAL INDUSTRIES LTD.
In 1997, Sun Pharma and the Corporation entered into an agreement
pursuant to which, during a five year period, Sun Pharma shall sell to Caraco
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).
In connection therewith Sun Pharma has invested in a dedicated
development laboratory employing 16 scientists (four PhDs, pharmacy graduates,
analytical chemists and regulatory professionals) in Bombay, India, to
facilitate speedy development of new products and smooth technology transfer.
(See also "Caraco's Products and Product Strategy" below.) In addition Sun
Pharma may sell an additional product to the Corporation in exchange for 544,000
shares of Common Stock each time the Corporation issues shares of its Common
Stock to Hexal, (generally one product any time shares are issued to Hexal, but
only one product for each 544,000 shares issued to Hexal Pharma).
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.)
On August 5, 1997, the Corporation and EDC restructured the
Corporation's loan from the EDC, pursuant to a Second Note and Modification
Agreement (the "Modification Agreement"), in connection with the Corporation's
default on such loan. Among other things, the Modification Agreement modified
the previous note then in effect (the "Note") to provide that the regularly
scheduled monthly payments which would otherwise be due and payable during the
period from April 1, 1996 through and including January 1, 1999 (the "Deferred
Payments") would be deferred until February 1, 1999, and interest on the current
outstanding indebtedness (approximately $8.9 million) would continue to accrue
during March 1, 1996 through December 1, 1998 ("Deferral Period"). On February
1, 1999, Caraco is required to resume making regularly scheduled monthly
payments of principal and interest, together with additional payments of
principal and interest in an amount sufficient to amortize the total amount of:
(i) the Deferred Payments, and (ii) accrued interest on that portion of the
currently outstanding indebtedness that would have been amortized by the
Deferred Payments, commencing on the date when due under the terms of the
original loan agreement, at the rate set forth in the note over a period of 42
consecutive months commencing on February 1, 1999 and ending on July 1, 2002
("Additional Payments"). In the event, however, that with respect to the first
quarter of operation in which Caraco's operating income before federal income
taxes plus depreciation exceeds $500,000.00, on the first day of the six months
succeeding such quarter, the regularly scheduled payment required to be made
shall resume and the Additional Payments shall commence, provided, however, that
the
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Additional Payments shall be reduced to the amount necessary to amortize the
total of the sums set forth in (i) and (ii) above over a 42 month period
commencing on the first day of the six months succeeding such quarter.
The Mortgage is a first priority mortgage lien against the property and
may not be subordinated to the lien of any other mortgage or encumbrance except
as otherwise provided in the Modification Agreement. In addition, Caraco has
granted EDC a continuing security interest in all of its assets, accounts,
equipment, proceeds thereof, ANDAs and in the products to be provided by Sun to
Caraco under its agreement with Caraco. See "Sun Pharmaceutical Industries
Limited" above. In addition to other covenants, Caraco has agreed that during
the Deferral Period, its capital expenditures will not exceed $2 million without
the consent of the EDC and it will not redeem any of its outstanding shares, pay
any dividends with respect to its outstanding common shares during the Deferral
Period or merge or consolidate with any other corporation or other entity
without the prior written consent of the EDC.
MARKETING
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 (see "sales" below); 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.
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 four drug wholesalers in 1997 accounted for over $40 billion in
sales. Caraco's product line is now represented in the four top drug
wholesalers; McKesson Drug, Bergen Brunswig, Cardinal, and AmeriSource. 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, 1997 sales
to McKesson accounted for 24% 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
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Vendor Program, the Department of Defense and by various state agencies.
To date, revenues from these agencies have been insignificant.
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 home groups, state and
federal government agencies, and retail pharmacies. As and if the Corporation's
financial resources permit an 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 time, the Corporation's
sales department consists of four employees. As the product line grows and sales
increase, management intends to increase its sales personnel as its resources
permit. This will enable the Corporation to expand sales coverage to more
generic drug purchasers which, in turn, the Corporation believes, will generate
additional sales volume.
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 1997 and 1996
follows (000's):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Employee Costs $ 760 $1,243
Raw Materials/Supplies 146 421
Bioequivalency Studies 0 220
Laboratory Expenses 404 263
Other 136 75
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$1,446 $2,222
====== ======
</TABLE>
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Significant cost reductions are due to: reduction in personnel costs
and no bioequivalency studies due to unavailability of funds. The increase in
laboratory expenses is attributable to the purchase of tools and external
testing for two ANDA products.
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 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
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the generic drug are not significantly different from that of the
previously approved brand-name drug.
The FDA may deny an ANDA if applicable regulatory criteria are not
satisfied. Product approvals may be withdrawn by the FDA if compliance with
regulatory standards is not maintained or if new evidence demonstrating that the
drug is unsafe or lacks efficacy for its intended uses becomes known after the
product reaches the market.
Changes in FDA policy and requirements have increased the time and
expense involved in obtaining ANDA approvals and in complying with FDA's cGMP
standards. The ANDA filing and approval process now averages approximately two
to five years. FDA approval is required before each dosage form of any new drug
can be marketed. Applications for FDA approval must contain information relating
to bioequivalency, product formulation, raw material suppliers, stability,
manufacturing processes, packaging, labeling and quality control. FDA procedures
require full-scale manufacturing equipment to be used to produce test batches
for FDA approval. Validation of manufacturing processes by the FDA also is
required before a company can market new products. The FDA conducts pre-approval
and post-approval reviews and plant inspections to enforce these rules.
Supplemental filings are required for approval to transfer products from one
manufacturing site to another and may be under review for a year or more. In
addition, certain products may only be approved for transfer once new
bioequivalency studies are conducted.
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
recommendations 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. The evolving and complex nature of
regulatory requirements, the broad authority and discretion of the FDA and the
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generally high level of regulatory oversight results in a continuing possibility
that from time to time the Corporation will be adversely affected by regulatory
actions despite its ongoing efforts and commitment to achieve and maintain full
compliance with all regulatory requirements. If the Corporation should fail to
maintain full compliance, 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 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 Corporation has been,
and continues to be, active in identifying and validating alternative suppliers
for its active ingredients. However, the Corporation has no alternative supplier
for the supply of Nifedipine. (See "R.P. Scherer Corporation" above.)
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.
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The principal competitive factor in the generic pharmaceutical market
is the ability to be the first company, or among the first companies, to
introduce a generic product after the related patent expires. Other competitive
factors include price, quality, methods of distribution, reputation, customer
service (including maintenance of inventories for timely delivery) and breadth
of product line. Approvals for new products may have a synergistic effect on a
company's entire product line since orders for new products are frequently
accompanied by, or bring about, orders for other products available from the
same source. The 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, 1997, the Corporation had 32 full-time employees, of
which 3 is in research and development, four in quality assurance, six in
quality control, 2 in administration, 6 in sales and marketing, one in
finance and ten 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. (See Management's Discussion & Analysis
for disclosure with respect to personnel cost savings.)
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 of the Board. The Corporation has made filings
about this matter with the Securities and Exchange Commission (the "SEC"). The
Corporation's former Chairman of the Board has reimbursed the $514,000. 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 tentatively decided not to recommend that the
Commission authorize an enforcement action against the Corporation however, the
investigation was ongoing. In 1997, the Corporation was notified by the SEC 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. On September 4, 1997, the SEC instituted a
civil complaint proceeding against the Corporation's former controller and his
brother, neither of whom have been associated with the Corporation since June of
1994.
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.
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<PAGE> 14
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
pursuant to a mortgage loan. (See "EDC Financing" above.) 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.
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.
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 following table sets forth the high and low bid information for the
Corporation's Common Stock for each full quarter from January 1, 1996 through
December 31, 1997 as disclosed on the OTC Bulletin Board. The quotations reflect
inter-dealer prices without retail mark-up, mark-down or commission and may not
represent actual transactions.
PERIOD HIGH BID LOW BID
Quarter Ended March 31, 1996 5 1/4 2 1/2
Quarter Ended June 30, 1996 4 3/8 2 5/8
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<PAGE> 15
Quarter Ended September 30, 1996 3 1/4 0 13/16
Quarter Ended December 31, 1996 2 3/4 0 13/16
Quarter Ended March 31, 1997 1 5/16 1 1/8
Quarter Ended June 30, 1997 3/4 13/20
Quarter Ended September 30, 1997 1 3/16 1 3/16
Quarter Ended December 31, 1997 3/4 5/8
DIVIDEND POLICY
The Corporation has not declared or paid any dividends and does not
intend to declare or pay any dividends in the foreseeable future. The
Corporation intends to employ all available funds in the development of its
business. The Corporation's Series A Preferred Stock contains provisions
restricting the payment of dividends to the holders of the Common Stock unless
the holders of the Series A Preferred Stock have been paid the dividends to
which they are entitled. Dividends accrue on the Series A Preferred Stock from
and after January 1, 1997.
SHAREHOLDERS AND OWNERSHIP
On March 20, 1998, there were approximately 143 shareholders of record of the
Corporation's Common Stock. The Corporation's common shares outstanding were
held individually or in bank, money management, company and brokerage house
nominee accounts for an estimated 800 beneficial owners.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis provides information which
Management believes is relevant to an understanding of the Corporation's
consolidated results of operation and financial condition. The discussion should
be read in conjunction with the consolidated financial statements and notes
thereto.
OVERVIEW
For most of 1997, the Corporation's main focus and concern was to find
investors or partners to provide the necessary equity funding to enable the
Corporation to continue operations and meet operating goals. During this time
period, the Corporation incurred significant operating losses and cash flow
difficulties. Funding for new products were significantly reduced. This time
period was a serious setback financially. The long-term plans of the Corporation
were in jeopardy as overhead expenses were being incurred with limited revenues
to absorb them. The first eight months of the year were spent on entering into
definitive agreements with Sun Pharma of India, the City of Detroit, and the
Economic Development Corporation for Sun's purchase of 5.3 million shares of
common stock at a total value of $7.5 million. This agreement was reached in
August, 1997.
Since then, the Corporation has achieved the following:
Infusion of $5 million from Sun Pharma has taken place through March,
1998, though the agreement provided for the inflow of $7.5 million over a period
of
15
<PAGE> 16
approximately two years. Sun Pharma has recognized the importance of providing
funds to the Corporation on a timely and advanced basis to ensure that
opportunities are not lost. As a result, the Corporation has received 67% of the
total funds through March, 1998. The balance of funds are expected to be
received by the third quarter of 1998.
Conversion of interest payments of $533,365 on $2.04 million in
borrowings from two shareholder directors and Sun Global Inc. (a subsidiary of
Sun Pharma) into equity shares of the Corporation has thereby helped the
Corporation's cash flow.
With the funds received to date, a significant amount of the past due
trade payables (approximately $1.2 million) have been paid. Management believes
that this has greatly improved the relationships with the Corporation's supplier
base and has opened up additional supply alternatives. As a result, suppliers
have generally been willing to provide credit terms and more competitive
pricing.
The generic pharmaceutical business requires significant investment of
resources in research and development. The business cannot afford a top heavy
and complex organizational matrix, as efficiency and timeliness is of paramount
importance. The Corporation recognized these facts of business and is currently
working to build the proper structure.
During 1997, the organization was restructured to focus on internal
development of new products and to strengthen quality control, quality assurance
and manufacturing. This organization has in place an effective, though smaller
in number, senior management team, and at the same time the middle management
and plant level organization has been reinforced. The Corporation has attempted
to identify and enhance key skill levels within the organization. These changes
are expected to prepare the Corporation for the challenging task of developing,
manufacturing and maintaining a dynamic product portfolio.
Personnel expenses were reduced by 22% from an average of $216,000 per
month in 1996 to $172,000 per month by December, 1997. Management believes the
reduction in expenses was achieved without compromising on the quality of
personnel or timeliness of overall objectives. The number of employees was
reduced from 34 permanent and 12 temporaries in 1996 to 33 permanent and 2
temporaries at the end of 1997. It is anticipated with the increase in product
development and manufacturing activities that personnel costs will increase in
1998.
Manufacturing and product development activities increased
substantially during the last quarter of 1997. With the increased level of
activities, existing capacity utilization has improved and is expected to have a
positive effect on gross profit.
The Corporation is focusing on putting its major investments in
manufacturing and development to use. This is being achieved by improving the
product mix with proprietary manufactured products, and manufacturing or
developing products for third parties.
16
<PAGE> 17
agreements were renegotiated and costs optimized, which provided the reduction
in yearly costs from $239,886 in 1996 to $193,219 in 1997.
Management is critically reviewing the selling expenses such as
freight, chargebacks, rebates and cost of returns.
Alternatives were being evaluated to assess the feasibility of gearing
the laboratory resources for internal testing rather than incurring the costs of
external testing.
With the infusion of funds and the restructuring of the organization,
the focus on new product developments has intensified. A development center
supported and paid for totally by Sun Pharma and dedicated to provide products
to Caraco pursuant to its agreement with Caraco was started in Bombay, India in
the last quarter of 1997. This center employs sixteen well-qualified and
experienced pharmaceutical researchers. The emphasis, in the future, will be on
internal development of products. (See "Caraco's Products and Products
Strategy" above).
Over the period of the last six months, the Corporation has developed
four DESI products, two of which have been provided by Sun pursuant to its
agreements with Caraco, which are currently being validated. It is anticipated
that these products will be introduced in the market during the second half of
1998.
The Corporation has identified promising candidates for ANDA
submission. Work on some of these products has commenced and the technology for
four products has been transferred to Caraco from Sun Pharma pursuant to its
agreement with Caraco. Two of the Corporation's ANDA applications are awaiting
clearance from the FDA. The approval procedure for ANDAs involve both
bioequivalence studies and submittance to FDA, which is a time-consuming
process; although the products are developed with utmost care, the Corporation
cannot guarantee the success of the bioequivalence studies, or FDA approval.
NET SALES
Net sales for the years ended December 31, 1997 and 1996 were $871,573
and $1,273,903, respectively. The decrease of approximately 32% in 1997 was
primarily attributable to non-availability of funds to manufacture product
for higher customer sales. However, the sales for the first two months of 1998
averaged approximately $191,813 per month compared to an average of $72,631 in
1997. The Corporation's dependence on the sale of Nifedipine, which is a low
net margin product is progressively being reduced by improving the sales of
other manufactured products without hampering the level of sales and net
margins. Also, the two recently approved ANDA products, Metoprolol
Tartrate an Paramonycin, were introduced during the third quarter of 1997. The
initial response from the Corporation's customers is encouraging.
COST OF SALES
Cost of sales for the years ended December 31, 1997 and 1996 were
$1,673,102 or 192.0% of sales and $1,642,237 or 128.9% of sales. The increased
percentage in cost of sales is a result of lower sales and manufacturing volumes
due to the Corporation's inability to purchase raw materials and bulk product
from its suppliers. This left the Corporation unable to maintain adequate
supply of products for customers. These reduced sales were insufficient to
absorb the Corporation's fixed production costs. As discussed above, the
Corporation has undertaken several steps to optimize the cost of sales and
ensure better product margins.
17
<PAGE> 18
Capacity utilization has been enhanced by introduction of new products,
increasing the batch sizes, and providing contract manufacturing services for
third parties. Sales have been increased with a broader product portfolio,
better customer coverage and focus, and better customer inventory management.
Costs have been controlled and supply availability has been improved by
identifying alternative material sources. Credit terms have been established
with key suppliers, and certain fixed costs, such as, utilities, have been
critically evaluated.
NET LOSSES
Net losses for the years ended December 31, 1997 and 1996 were
$4,778,275 and $5,498,932 respectively. The reduction in losses by 13% is
directly related to the significant reduction in general and administrative
expenses and other operating expenses.
INTEREST EXPENSE
Interest expense, which is incurred primarily in connection with the
Corporation's mortgage obligation to the Economic Development Corporation of
Detroit, was $817,586 and $680,767 for the years ended December 31, 1997 and
1996, respectively. The increase in interest expense in 1997 relates to
increased borrowings from certain shareholder directors on short term loans used
to finance the Corporation's short term cash needs.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Corporation's working capital was $239,243
compared with a working capital deficit of $1,695,591 for 1996. This reduction
in working capital deficit is due to increased investments in working capital
and the liquidation of a substantial portion of trade accounts payables with the
infusion of funds from Sun Pharma coupled with investments in increased
inventories of raw materials and finished products. The Corporation also intends
to seek additional equity financing in 1998 in order to fund its objectives and
current operations.
Management estimates that, at its currently planned and anticipated
level of operations, the Corporation will experience progressive reduction in
the present level of operating losses in 1998. However, increased investments in
research and development will be reflected in the Statement of Operations for
1998. The benefits of these will not be available in 1998 because of the long
lead times for development, biostudies and the FDA approvals.
The Corporation has no material commitments for capital expenditures.
There is no assurance that the Corporation will be able to successfully
raise additional equity financing or that any of the Corporation's ANDAs will be
approved by the FDA within time parameters anticipated by the 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.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements included in this report are set forth
following the index to financial statements included in this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE> 19
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.
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) Exhibits
3.01 Registrant's Amended and Restated Articles of Incorporation, as
amended**
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<PAGE> 20
3.02 Registrant's Amended and Restated Bylaws
3.03 Certificate of Amendment to the Articles of Incorporation filed
February 13, 1997.*****
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.*
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.**
20
<PAGE> 21
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.***
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.*****
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<PAGE> 22
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.*****
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.*****
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<PAGE> 23
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.*****
10.59 Allonge to Promissory Note of November 15, 1996 - John R.
Morris.*****
10.60 Stock Purchase Agreement by and between Caraco Pharmaceutical
Laboratories, Ltd. and Sun Pharmaceutical Industries, Ltd. dated as
of April 23, 1997.******
10.61 Products Agreement by and between Caraco Pharmaceutical
Laboratories, Ltd. and Sun Pharmaceutical Industries, Ltd. dated as
of April 23, 1997.******
10.62 Registration Rights Agreement dated as April 1997.******
10.63 Stock Pledge Agreement dated as July 28, 1997.******
10.64 Contribution Agreement dated as of March 27, 1997.******
10.65 Addendum to Contribution Agreement dated as of July 27, 1997.******
10.66 Second Note and Mortgage Modification Agreement.
10.67 Debt Conversion Agreement
10.68 Amendment to Employment Agreement of William R. Hurd dated as of
April 1, 1997.
10.69 Amendment to Employment Agreement of Allan J. Hammer dated as of
April 1, 1997.
10.70 Amendment to Employment Agreement of Robert Kurkiewicz dated as of
April 1, 1997.
23.01 Preferability Letter of Grant Thornton LLP.**
23
<PAGE> 24
24. Power of Attorney.
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.
***** Incorporated by reference from Exhibits to Registrant's Form 10-KSB
which was originally filed on or about March 30, 1997, as
Commission File no. 0-24676.
****** Incorporated by reference from Exhibits to Registrant's Form 10-QSB
dated as of August 13, 1997.
(b) Reports on Form 8-K
(1) A Form 8-K was filed on October 9, 1997 with respect to
"Item 5. Other Events" disclosing a change in membership on
the Board of Directors.
(2) A Form 8-K was filed on December 29, 1997 with respect to
"Item 5. Other Events" disclosing the termination of
employment of the then President of Caraco.
INDEX TO FINANCIAL STATEMENTS
The following financial statements of the Corporation are filed with
this report:
Report of Independent Auditor ............................... F-1
Balance Sheet at December 31, 1997 .......................... F-2
Statements of Operations for the years ended
December 31, 1997 and 1996 ................................ F-4
Statements of Stockholders' Deficit for the
years ended December 31, 1997 and 1996 .................... F-5
Statements of Cash Flows for the years
ended December 31, 1997 and 1996 .......................... F-6
Notes to Financial Statements ............................... F-7
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<PAGE> 25
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
31st day of March, 1997.
CARACO PHARMACEUTICAL LABORATORIES, LTD.
By:/s/ Narendra Borkar
----------------------------------------------
Narendra Borkar (Principal Executive and
Financial Officer)
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in their capacities.
Signature Title
/s/ Narendra Borkar
- -------------------------- Director and Chief Executive Officer
Narendra Borkar
/s/ N. Ramakrishnan Controller
- --------------------------
N. Ramakrishnan
*
- --------------------------
David W. Adamany Director
*
- --------------------------
David A. Hagelstein Director
*
- --------------------------
Phyllis Harrison-Ross Director
*
- --------------------------
Jay F. Joliat Director
*
- --------------------------
John R. Morris Director
*
- --------------------------
Dilip S. Shanghvi Chairman of the Board
25
<PAGE> 26
*
- --------------------------
Shantilal Shanghvi Director
*
- --------------------------
Sudhir Valia Director
*By: /s/ Narendra Borkar
- --------------------------
Narendra Borkar
Attorney-in-Fact
26
<PAGE> 27
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, 1997, and the
related statements of operations, stockholders' deficit and cash flows for the
years ended December 31, 1997 and 1996. 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, 1997 and the results of its operations and
its cash flows for the years ended December 31, 1997 and 1996 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, P.C.
Farmington Hills, Michigan
March 27, 1998
F-1
<PAGE> 28
CARACO PHARMACEUTICAL LABORATORIES, LTD.
BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1997
---------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................... $ 422,856
Accounts receivable, net of allowances of $90,000 (Note 3) .............. 149,647
Inventories (Note 1) .................................................... 540,983
Prepaid expenses and deposits ........................................... 444,650
--------------
TOTAL CURRENT ASSETS ....................................................... 1,558,136
--------------
PROPERTY, PLANT AND EQUIPMENT - AT COST (NOTE 4)
Land ................................................................... 197,305
Buildings and improvements .............................................. 6,682,725
Equipment ............................................................... 3,587,747
Furniture and fixtures .................................................. 156,908
--------------
Total ................................................................... 10,624,685
Less accumulated depreciation ........................................... 2,736,403
--------------
NET PROPERTY, PLANT AND EQUIPMENT .......................................... 7,888,282
--------------
TOTAL ASSETS ............................................................... $ 9,446,418
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 29
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997
---------------
<S> <C>
CURRENT LIABILITIES
Accounts payable (Note 1) ............................................... $ 1,159,145
Accrued expenses ......................................................... 159,748
---------------
TOTAL CURRENT LIABILITIES ................................................... 1,318,893
---------------
LONG-TERM LIABILITIES
Note payable (Note 4) .................................................... 8,880,000
Notes payable to stockholders (Note 4) ................................... 2,040,000
Accrued interest ......................................................... 1,166,756
---------------
TOTAL LONG-TERM LIABILITIES ................................................. 12,086,756
---------------
TOTAL LIABILITIES ........................................................... 13,405,649
---------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 8 AND 9)
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 13,507,083 shares; and outstanding, 9,620,416 shares ........... 27,830,340
Common stock subscription receivable .................................... (4,220,000)
Preferred stock dividends ................................................ (60,000)
Accumulated deficit ....................................................... (28,509,571)
---------------
TOTAL STOCKHOLDERS' DEFICIT ................................................. (3,959,231)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ................................. $ 9,446,418
===============
</TABLE>
F-3
<PAGE> 30
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996
---- ----
<S> <C> <C>
Net sales .................................................................... $ 871,573 $ 1,273,903
Cost of goods sold ........................................................... 1,673,102 1,642,237
----------- -----------
GROSS MARGIN (DIFFERENTIAL) .................................................. (801,529) (368,334)
Selling, general and administrative expenses ................................. 1,704,623 1,915,910
Research and development costs ............................................... 1,446,862 2,222,220
----------- -----------
OPERATING LOSS ............................................................... (3,953,014) (4,506,464)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income ........................................................... 6,417 6,272
Interest expense .......................................................... (817,586) (680,767)
Writedown of marketable securities ........................................ -- (194,750)
Gain (loss) on disposal of equipment ...................................... 7,179 (111,183)
Other ..................................................................... (21,271) (12,040)
----------- -----------
OTHER EXPENSE - NET .......................................................... (825,261) (992,468)
----------- -----------
NET LOSS ..................................................................... $(4,778,275) $(5,498,932)
=========== ===========
Net loss per basic and diluted common share .................................. ($0.57) ($0.73)
=========== ===========
Weighted average number of common
shares outstanding ......................................................... 8,435,091 7,551,044
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 31
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF STOCKHOLDERS' DEFICIT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON
PREFERRED STOCK COMMON STOCK STOCK
-------------------------- ------------------------------ SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT RECEIVABLE
---------- ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1996 ............. 285,714 $ 1,000,000 6,855,807 $ 17,545,401 $ (14,087)
Issuances of common stock
(Note 6) ..................... -- -- 986,299 2,101,573 --
Writedown of marketable
securities for decline in value
considered to be other than
temporary ................... -- -- -- -- --
Net loss ....................... -- -- -- -- --
---------- ------------- ------------- --------------- --------------
Balance at
December 31, 1996 ........... 285,714 1,000,000 7,842,106 19,646,974 (14,087)
Receipt of common stock
subscription .................. -- -- -- -- 14,087
Preferred stock dividends
(Note 6) .................... -- -- -- -- --
Issuances of common stock
(Note 6)...................... -- -- 5,664,977 8,183,366 (4,220,000)
Net loss ....................... -- -- -- -- --
---------- ------------- ------------- --------------- --------------
Balance at 285,714 $ 1,000,000 13,507,083 $ 27,830,340 $ (4,220,000)
December 31, 1997 ........... ========== ============= ============= =============== ==============
<CAPTION>
UNREALIZED
PREFERRED LOSS ON
STOCK ACCUMULATED MARKETABLE
DIVIDENDS DEFICIT SECURITIES TOTAL
--------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at
January 1, 1996 ............. $ -- $(18,232,364) $(160,924) $ 138,026
Issuances of common stock
(Note 6) ..................... -- -- -- 2,101,573
Writedown of marketable
securities for decline in value
considered to be other than
temporary ................... -- -- 160,924 160,924
Net loss ....................... -- (5,498,932) -- (5,498,932)
-------- ------------ --------- -----------
Balance at
December 31, 1996 ........... -- (23,731,296) -- (3,098,409)
Receipt of common stock
subscription .................. -- -- -- 14,087
Preferred stock dividends
(Note 6) .................... (60,000) -- -- (60,000)
Issuances of common stock
(Note 6)...................... -- -- -- 3,963,366
Net loss ....................... -- (4,778,275) -- (4,778,275)
-------- ------------ --------- -----------
Balance at $(60,000) $(28,509,571) $ -- $(3,959,231)
December 31, 1997 ........... ======== ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 32
CARACO PHARMACEUTICAL LABORATORIES, LTD.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................. $ (4,778,275) $ (5,498,932)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation .......................................................... 486,942 532,775
(Gain) loss on disposal of equipment ................................... (7,179) 111,183
Writedown of marketable securities ..................................... - 194,750
Realized loss on sale of marketable securities ......................... 7,240 8,302
Changes in operating assets and liabilities
which provided (used) cash:
Accounts receivable .................................................. (52,306) 315,850
Inventories .......................................................... (250,718) 89,095
Prepaid expenses and deposits ........................................ (241,033) (41,974)
Accounts payable ..................................................... (402,615) 572,366
Accrued interest and other expenses .................................. 526,029 524,695
-------------- ---------------
NET CASH USED IN OPERATING ACTIVITIES ....................................... (4,711,915) (3,191,890)
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment ............................... (31,863) (61,526)
Proceeds from sale of property, plant and equipment ...................... 14,000 -
Proceeds from sale of marketable securities .............................. 74,760 -
-------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ......................... 56,897 (61,526)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................... 3,963,366 2,101,573
Proceeds from receipt of subscribed stock ................................ 14,087 -
Net short-term borrowings (repayments) ................................... (65,000) 955,000
Proceeds from long-term debt ............................................. 1,150,000 (120,000)
-------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................... 5,062,453 2,936,573
-------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................ 407,435 (316,843)
Cash and cash equivalents, beginning of year ................................ 15,421 332,264
-------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR ...................................... $ 422,856 $ 15,421
============== ===============
Supplemental disclosures of cash flows information:
Cash paid for interest ................................................... $ 1,164 $ 164,241
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 33
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1997.
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 continue to raise in the near
term the necessary equity capital to keep the Corporation in business.
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.
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.
F-7
<PAGE> 34
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
In August 1997, the Corporation and an Indian specialty pharmaceutical
company, Sun Pharmaceutical Industries, Ltd. ("Sun Pharma") completed an
agreement whereby: a) in exchange for 5,300,000 shares of Caraco common
stock Sun Pharma agreed to invest $7,500,000 into the Corporation over a
period of approximately two years 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 (181,333 shares, for each DESI (Drug Efficacy Study
Implementation) product); and c) two Caraco shareholder directors have each
agreed to 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. During 1997, one shareholder director contributed $150,000 in
accordance with this agreement, thereby reducing his future obligation to
either $350,000 in cash or 100,000 shares. The contributions from the
shareholder directors are required to be satisfied within 90 days of
receipt of $4,000,000 of the Sun proceeds. As of January 5, 1998, Sun had
delivered $4,000,000 of the $7,500,000 investment. An additional $1,000,000
of these proceeds had been received through March 19, 1998.
The Corporation has not currently achieved sales necessary to support
operations. The Corporation has, as of December 31, 1997, a stockholders'
deficit of $3,959,231. 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 factors 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 eliminating the
stockholders' deficit with the infusion of additional remaining funding
from Sun Pharma in the amount of $4,220,000 and generating operating
profits by:
- Introducing in the short-run, DESI products which do not require
lengthy and elaborate FDA approval procedures, thereby strengthening
the existing product portfolio.
- Restructuring and strengthening the Corporation to focus on new
product development, reliable supplies to customers, better customer
focus, improving the product mix for better contribution, and better
utilization of manufacturing capacities.
- Preparing for mid to long term product releases by the rapid
development of products requiring ANDA from FDA. Here, significant
investments have been made by Sun Pharma in India, to establish a
state of the art development center dedicated to Caraco's product
development needs. This center commenced operations in the third
quarter of 1997.
F-8
<PAGE> 35
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
- Establishing strategic alliances with leading pharmaceutical companies
in manufacturing, development of new products in partnerships, and
co-marketing.
- Leveraging the strengths of Sun Pharma in the area of rapid product
development in psychiatry, neurology, cardiology and eventually,
oncology.
- Identifying additional funding opportunities to support research and
development.
Cash Equivalents
The Corporation considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
Sales are recognized upon the shipment of product with allowances provided
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. Direct labor and 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, 1997:
<TABLE>
<S> <C>
Raw materials ........................... $ 361,269
Work in process ......................... 117,392
Finished goods .......................... 62,322
--------------
Total ................................... $ 540,983
==============
</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.
F-9
<PAGE> 36
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
In 1997 and 1996, the Corporation purchased approximately $198,000 and
$334,000, respectively, of its raw materials in the form of bulk Nifedipine
pursuant to a supply contract with one vendor. The Corporation has no
alternative supplier for Nifedipine.
In 1997 and 1996, the Corporation purchased raw materials of approximately
$182,500 and $211,000, respectively, from a business owned and controlled
by a shareholder director of the Corporation. Included in accounts payable
at December 31, 1997 is $132,000 due to this vendor.
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.
Marketable Securities
Unrealized holding losses on marketable securities 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 federal income 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. The Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 128., "Earnings Per Share",
effective December 31, 1997. This statement requires a dual presentation
and reconciliation of "basic" and "diluted" per share amounts. Diluted
reflects the potential dilution of all common stock equivalents. Since the
assumed exercise of common stock options and warrants and the assumed
conversion of preferred stock and convertible stockholder notes into common
stock would be antidilutive, such exercise is not assumed for purposes of
determining diluted loss per share. Accordingly, diluted and basic per
share amounts are equal in each year.
F-10
<PAGE> 37
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Research and Development Costs
Research and development costs are charged to expense as incurred.
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 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.
Common Stock Issued to Directors
Common stock is issued from time to time in lieu of cash for directors
fees, and is recorded as compensation expense at generally the fair value
on the date of issuance.
Recently Issued Financial Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and Statement No. 131 "Disclosures About Segments of
an Enterprise and Related Information" will become effective during 1998.
The implementation of these standards is not expected to have a material
effect on the Corporation's financial statements or reporting disclosures,
although SFAS may require reclassification of certain amounts.
2. SUPPLEMENTAL CASH FLOWS INFORMATION
Non-cash Investing and Financing Activities
During 1997, the Corporation issued 355,577 shares of common stock in
exchange for the satisfaction of interest incurred on loans from
stockholders through August 1, 1999. At December 31, 1997, the cash
equivalent value of 215,362 of these shares at a per share price of $1.50
($323,043) represents prepaid interest through August 1, 1999.
During 1996, the Corporation converted stockholder notes and interest owed
thereon totaling $250,000 into 111,111 shares of common stock.
F-11
<PAGE> 38
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1997, are summarized as follows:
<TABLE>
<S> <C>
Accounts receivable ......................... $ 239,647
-----------
Allowances:
Doubtful accounts ........................ 10,000
Sales returns and allowances ............. 30,000
Price adjustments ........................ 50,000
-----------
Total allowances ............................ 90,000
-----------
Accounts receivable, net of allowances ...... $ 149,647
===========
</TABLE>
Net sales in 1997 and 1996 included $53,061 and $185,528, respectively,
related to contracted research and development activities.
4. DEBT INCLUDING RELATED PARTIES
Debt at December 31, 1997 consists of a note payable to the Economic
Development Corporation (EDC) of the City of Detroit, related to 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 of the Board and his spouse.
Effective April 2, 1993, and again on August 5, 1997, the Corporation and
the EDC of the City of Detroit restructured the Agreement discussed above.
The amendments included:
- The deferral of scheduled principal and interest payments until
February 1, 1999.
- On February 1, 1999, the Corporation shall resume making the regularly
scheduled monthly payments of principal and interest due under the
note. Additional deferred principal and interest due under the terms
of the original agreement are also required in amounts sufficient to
amortize the total deferred amount through July 2002.
- A reduction in the stipulated interest rate from the inception of the
loan through 1993 from 10% to 8.5%. The interest rates from 1994
through July 2002 vary from 5% to 6.3%, as described in the amendments
(effective rate of 5.44% at December 31, 1997).
F-12
<PAGE> 39
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. DEBT INCLUDING RELATED PARTIES (Continued)
- Administrative costs to the EDC in the amount of $50,000 related to
the restructuring will be reimbursed by the Corporation.
- As a condition of the deferral, the EDC was provided additional
security on all the Corporation's existing equipment and the
Corporation is required to comply with several additional financial
and operating covenants which include, limiting capital expenditures
made without the consent of the EDC to under $2,000,000 during the
deferral period, and abstaining from share redemption during the
payment deferral period.
- Scheduled aggregate principal maturities of this note are summarized
as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Amount
--------------
<S> <C>
1998 ...................... $ -
1999 ...................... 1,335,960
2000 ...................... 1,486,275
2001 ...................... 1,518,358
2002 ...................... 615,000
Thereafter ................ 3,924,407
--------------
Total ..................... $ 8,880,000
==============
</TABLE>
Stockholder Notes Payable
During 1997 and 1996, respectively, the Corporation borrowed $600,000
from two, and $890,000 from three, including the two previously
mentioned, stockholder directors of the Corporation. During 1997, the
Company also borrowed $550,000 from Sun Pharma Global, Inc. ("Sun"), a
wholly owned subsidiary of Sun Pharma. These demand notes, which
accrue interest at 10% and are unsecured, were restructured on
September 15, 1997. The restructuring agreement provides for the
principal to be due on or before August 1, 1999 in cash or an
equivalent number of common shares of the Corporation, at the
discretion of the note holder, at a per share price of $1.50. Interest
at 10% was prepaid in exchange for equivalent number of common shares
of the Corporation at a per share price of $1.50 (see Note 6). The
stockholder director notes are subordinated to the Sun notes of
$550,000.
The notes with Sun and two of the three stockholder directors in the
amount of $1,840,000, are subject to the provisions of 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.
F-13
<PAGE> 40
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. DEBT INCLUDING RELATED PARTIES (Continued)
On December 19, 1996, the Corporation borrowed $65,000 from a family
member of a shareholder director of the Corporation. This amount was
repaid in January 1997 from proceeds of the Sun debt.
Letter of Credit
The Corporation has a $100,000 letter of credit agreement with NBD
Bank N.A. to support purchases of inventories. At December 31, 1997
there was $73,500 outstanding under this agreement. Amounts
outstanding under this letter of credit are included in accounts
payable.
5. INCOME TAXES
At December 31, 1997 a deferred income tax asset and related valuation
allowance, attributable primarily to the net operating loss
carryforwards (calculated using a 34% tax rate) of approximately
$8,500,000 has been established. Changes in the valuation allowance
were approximately $1,400,000 and $1,800,000 in 1997 and 1996,
respectively
At December 31, 1997, net operating loss carryforwards of
approximately $25,000,000 are available to offset future federal
taxable income through future years. The Corporation's ability to
utilize the net operating loss carryforwards may be limited due to an
ownership change.
6. STOCKHOLDERS' DEFICIT
Sun Pharma
During 1997, the Corporation agreed to issue 5,300,000 shares of
common stock to Sun Pharma in exchange for $7,500,000 to be received
by the Corporation over a period of approximately two years in four
installments. The number of shares issued and to be issued as
consideration received is summarized as follows:
<TABLE>
<CAPTION>
Installment
Date Consideration Shares
--------------- -------------- -----------
<S> <C> <C>
August 5, 1997 .......... $ 2,000,000 1,413,333
January 5, 1998 ......... 2,000,000 1,413,333
August 5, 1998 .......... 2,000,000 1,413,333
January 5, 1999 ......... 1,500,000 1,060,001
-------------- -----------
$ 7,500,000 5,300,000
============== ===========
</TABLE>
F-14
<PAGE> 41
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. STOCKHOLDERS' DEFICIT (Continued)
Other Common Stock Issuances
During 1997, the Corporation issued 355,577 shares of common stock at
$1.50 per share to satisfy interest incurred on loans from
stockholders (see Note 4). At December 31, 1997, there were 215,362
shares of common stock issued but not earned. These shares represent
consideration for future interest payments and are classified as
prepaid interest in the accompanying balance sheet, as they will be
earned ratably through August 1, 1999.
During 1997, the Corporation issued 9,400 shares of common stock, at
the fair value of such shares on the date of issuance, to non-employee
directors in exchange for services rendered.
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.
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 at the option of the holder, of $.21 per share on a
cumulative basis commencing in 1997. Accrued dividends on preferred
stock at December 31, 1997 were $60,000.
F-15
<PAGE> 42
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. STOCK BASED COMPENSATION
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, 1996 ................... 365,493 $1.63 - $6.13
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 $1.56 - $6.13
Options granted ....................... 15,184 $1.00 - $1.25
Options exercised ..................... - -
Options terminated or expired ......... (88,248) $1.00 - $5.00
-------------
Balance December 31, 1997 ................. 251,021
=============
</TABLE>
During the years ended December 31, 1997 and 1996, options for the
purchase of 47,167 shares and 62,417 shares, respectively, became
exercisable. None were exercised.
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 pro-forma impact on net loss and loss per share for each
of the years ended December 31, 1997 and 1996 is not significant and
is antidilutive.
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, for each product
(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 each of the two specified generic drugs.
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 products. To date, there have been limited sales
of the products, but no options have been exercised.
F-16
<PAGE> 43
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. STOCK BASED COMPENSATION (Continued)
Other Common Stock Purchase Warrant and Option Agreements
As of December 31, 1997, warrant and option agreements for the
issuance of a total of 2,851,089 shares of common stock are
outstanding at exercise prices ranging from $1.25 to $18.20 per share
or unit, exercisable at various dates through October 2006. No
warrants or options under these agreements have been exercised.
8. EMPLOYMENT AGREEMENTS
Included in accrued expenses at December 31, 1997 is approximately
$92,000 related to the cost of employment agreements with former
officers of the Corporation.
9. OTHER MATTERS
During the year ended December 31, 1994, the Corporation determined
that approximately $514,000 of Corporation funds had been
misappropriated by the Corporation's former controller, a son of the
Corporation's former Chairman of the Board. The misappropriations
occurred during the period from January through June of 1994. The
Corporation's former Chairman of the Board 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 of the Board from his personal funds. These expenses
were recognized in the 1995 statement of operations with a
corresponding credit to common stock.
The Corporation has made filings about this matter with the Securities
and Exchange Commission (the "SEC"). On November 1, 1996, the
Corporation, through its Washington DC legal counsel, was notified by
the SEC that its Enforcement Division tentatively decided not to
recommend that the Commission authorize an enforcement action against
the Corporation, however, the investigation was ongoing. In 1997, the
Corporation was notified by the SEC 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. On September 4, 1997, the SEC instituted a
civil complaint proceeding against the Corporation's former controller
and his brother, neither of whom have been associated with the
Corporation since June of 1994.
F-17
<PAGE> 44
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. MAJOR CUSTOMERS
Shipments to one wholesale customer (Amerisource) accounted for
approximately 20% of net sales in both 1997 and 1996. Balances due
from this customer represented approximately 9% of accounts receivable
at December 31, 1997.
Shipments to another wholesale customer (McKesson Drug) accounted for
approximately 24% and 17% of net sales in 1997 and 1996, respectively.
Balances due from this customer represented approximately 16% at
December 31, 1997.
* * * * * *
F-18
<PAGE> 1
EXHIBIT 3.02
AMENDED AND RESTATED BYLAWS
OF
CARACO PHARMACEUTICAL LABORATORIES, LTD.
ARTICLE I
Offices
The Corporation shall continuously maintain a registered office in
Michigan and may have such other office(s) at such place(s), both within and
outside the State of Michigan, as the Board of Directors (the "Board") from
time to time determines or as the business of the Corporation from time to time
requires.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. Subject to the provisions of Section 6(c) of
Article IX of these bylaws (the "Bylaws"), annual meetings of the Corporation's
shareholders ("Shareholders") shall be held at such time and place (within or
outside the State of Michigan) as shall be designated from time to time by the
Board and stated in the notice of the meeting. Subject to the Amended and
Restated Articles of Incorporation of the Corporation (the "Articles"), at each
annual meeting Shareholders shall elect directors to succeed those whose terms
expire and shall transact such other business as may properly be brought before
the meeting.
Section 2. Special Meetings. Unless otherwise prescribed by law, the
Articles or these Bylaws, special meetings of Shareholders for any purpose or
purposes may be called only by the Chairman of the Board, the chief executive
officer, the president, or by the secretary or assistant secretary upon the
written request of two or more Directors of the total number of Directors of
the Corporation. Requests for special meetings shall state the purpose or
purposes of the proposed meeting and shall state that no other business shall
be conducted. Special meetings of Shareholders shall be held at such time and
place (within or outside the State of Michigan) as shall be designated from
time to time by the Board and stated in the notice of the meeting.
Business transacted at special meetings shall be confined to the purpose or
purposes stated in the notice.
<PAGE> 2
Section 3. Notices of Annual and Special Meetings.
(a) Except as otherwise provided by law, the Articles
or these Bylaws, written notice of any annual or special
meeting of Shareholders shall state the place, date and time
thereof and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, and shall be given,
either personally or by mail, to each Shareholder of record
entitled to vote at such meeting not less than 10 or more than
60 days prior to the meeting.
(b) Notice of any meeting of Shareholders (whether
annual or special) to act upon an amendment to the Articles, a
reduction of stated capital or a plan of merger, consolidation
or sale of all or substantially all of the Corporation's
assets shall be accompanied by a copy of the proposed
amendment or plan of reduction, merger, consolidation or sale.
Section 4. List of Shareholders. At least 10 days (but not more than 60
days) before any meeting of Shareholders, the officer or transfer agent in
charge of the stock transfer books of the Corporation shall prepare and make a
complete list of the Shareholders entitled to vote at such meeting, which list
shall be arranged alphabetically within each class and series of shares and
shall show the address of each Shareholder and the number of shares registered
in the name of each Shareholder. The list so prepared shall be maintained at a
place within the locality where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held, and shall be open to inspection by any
Shareholder, for any purpose germane to the meeting, during ordinary business
hours during a period of no less than 10 days prior to the meeting. The list
also shall be produced and kept open at the meeting (during the entire duration
thereof) and, except as otherwise provided by law, may be inspected by any
Shareholder or proxy of a Shareholder who is present in person at such meeting.
Section 5. Presiding Officers; Order of Business.
(a) Meetings of Shareholders shall be presided over
by the Chairman of the Board, if the chairman is not present,
by the chief executive officer, if the chief executive officer
is not present, by the president, or, if the president is not
present, by a vice president, or, if a vice president is not
present, by such person who is chosen by the Board, or, if
none, by a chairperson to be chosen at the meeting by
Shareholders present in person or by proxy who own a majority
of the shares of common stock of the Corporation entitled to
vote and
-2-
<PAGE> 3
represented at such meeting. The secretary of meetings
shall be the secretary or assistant secretary of the
Corporation, or, if an assistant secretary is not present,
such person as may be chosen by the Board, or, if none, by
such person who is chosen by the chairperson at the meeting.
(b) The following order of business, unless otherwise
ordered at the meeting by the chairperson thereof, shall be
observed as far as practicable and consistent with the
purposes of the meeting:
(i) Call of the meeting
to order.
(ii) Presentation of proof
of mailing of notice of the meeting and, if the
meeting is a special meeting, the call thereof.
(iii) Presentation of
proxies.
(iv) Determination and
announcement that a quorum is present.
(v) Reading and approval
(or waiver thereof) of the minutes of the
previous meeting.
(vi) Reports, if any, of
officers.
(vii) Election of directors
to succeed those whose terms expired, if the
meeting is an annual meeting or a special
meeting called for such purpose.
(viii) Consideration of the specific purpose or
purposes for which the meeting has been called
(other than the election of directors).
(ix) Transaction of such
other business as may properly come before the
meeting.
(x) Adjournment.
Section 6. Quorum; Adjournments.
(a) The holders of a majority of the shares of common
stock of the Corporation issued and outstanding and entitled
to vote at any given meeting present in
- 3 -
<PAGE> 4
person or by proxy shall be necessary to and shall
constitute a quorum for the transaction of business at all
meetings of Shareholders, except as otherwise provided by law
or by the Articles; provided, however, that no quorum shall be
deemed to exist unless 33-1/3% of the outstanding shares of
the Corporation's common voting stock is present in person or
by proxy.
(b) If a quorum is not present in person or by proxy
at any meeting of Shareholders, the chairman of the meeting or
the holders of a majority of all of the shares of stock
entitled to vote at the meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time
to time, without notice of the adjourned meeting if the time
and place thereof are announced at the meeting at which the
adjournment is taken and at the adjourned meeting only
business is transacted as might have been transacted at the
original meeting, until a quorum is present in person or by
proxy.
(c) Even if a quorum is present in person or by proxy
at any meeting of the Shareholders, the Shareholders entitled
to vote thereat present in person or by proxy shall have the
power to adjourn the meeting from time to time for good cause,
without notice of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment
is taken and at the adjourned meeting only business is
transacted as might have been transacted at the original
meeting, until a date which is not more than 30 days after the
date of the original meeting.
(d) Anything in paragraph (b) of this Section 6 to
the contrary notwithstanding, if an adjournment is for more
than 30 days, or if after an adjournment a new record date is
fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each Shareholder of record entitled
to vote thereat.
Section 7. Voting.
(a) At any meeting of Shareholders every Shareholder
having the right to vote shall be entitled to vote in person
or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the
meeting. Except as otherwise provided by law or by the
Articles, each Shareholder of record shall be entitled to one
vote
- 4 -
<PAGE> 5
(on each matter submitted to a vote) for
each share of common stock registered in his name on the
books of the Corporation.
(b) All elections of directors and, except as
otherwise provided by law or by the Articles, all other
matters, shall be determined by a vote of a majority of the
shares present in person or represented by proxy and voting on
such other matters.
(c) All voting, including on the election of
directors but excepting where otherwise required by law, may
be by a voice vote; provided, however, that upon demand
therefor by a Shareholder entitled to vote or his proxy, a
written share vote shall be taken. Every written share vote
shall be taken by ballots, each of which shall state the name
of the Shareholder or proxy voting and such other information
as may be required under the procedure established for the
meeting. Every vote taken by ballots shall be counted by an
inspector or inspectors appointed by the chairman of the
meeting.
Section 8. Notice of Shareholder Business. At any annual or special
meeting of Shareholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board, (b) properly
brought before the meeting by or at the direction of the Board, or (c) properly
brought before an annual meeting by a Shareholder, and if and only if the
notice of a special meeting provides for business to be brought before the
special meeting by Shareholders, properly brought before the special meeting by
a Shareholder. For business to be properly brought before a meeting by a
Shareholder, the Shareholder must have given timely notice thereof 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 offices of the Corporation not less than 90 days prior to
the meeting; provided, however, that if less than 100 days' notice or prior
public disclosure of the date of the 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 on the tenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made.
Furthermore, Shareholders are not permitted to nominate individuals to serve as
directors, unless notice of such nomination is given to the Corporation
in accordance with Section 13 of Article III of these Bylaws. A Shareholder's
notice to the secretary or assistant secretary shall set forth as to each
matter
- 5 -
<PAGE> 6
the Shareholder proposes to bring before the meeting: (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting; (b) the name and address,
as they appear on the Corporation's books, of the Shareholder proposing such
business; (c) the class and number of shares of the Corporation which are
beneficially owned by the Shareholder; and (d) any material interest of the
Shareholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at any meeting of Shareholders except
in accordance with the procedures set forth in this Section 8 of Article II.
The chairman of a meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 8, and if he should so
determine, he shall so declare that the meeting and any such business not
properly brought before the meeting shall not be transacted. Notwithstanding
anything in these Bylaws to the contrary, the Corporation shall be under no
obligation to submit for action any Shareholder proposal at any meeting of
Shareholders, which proposal the Corporation would otherwise be permitted to
omit in accordance with applicable rules under the Securities Exchange Act of
1934, as amended.
Section 9. Meetings Required; No Action by Less Than Unanimous Consent.
Any action required or permitted to be taken by the Shareholders must be taken
at a duly called annual or special meeting of Shareholders and may not be
effected by any consent in writing signed by fewer than all of such
Shareholders.
Section 10. Proxies. The Corporation shall solicit proxies and provide
proxy statements for all meetings of Shareholders and shall provide copies of
such proxy solicitation to any national securities exchange ("Exchange") on
which the Corporation's shares are listed.
ARTICLE III
Directors
Section 1. General Powers; Number; Tenure. The business and affairs of
the Corporation shall be managed under the direction of the Board, which may
exercise all powers of the Corporation and perform or authorize the performance
of all lawful acts and things which are not by law, the Articles or these
Bylaws directed or required to be exercised or performed by the Shareholders.
The number of directors of the Corporation shall be fixed from time to time
exclusively by the Board pursuant to a resolution adopted by a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption), but shall not at any time
be less than five (5) and no more than eleven (11), with such number (between 5
and
- 6 -
<PAGE> 7
11) to be fixed from time to time by the Board pursuant to a resolution
adopted by a majority vote of the entire Board of Directors. Subject to the
rights of the holders of any class or series of preferred shares of the
Corporation then outstanding, the directors shall be classified, with respect
to the time for which they severally hold office, into three (3) classes, as
nearly equal in number as reasonably possible and with the directors of each
class to hold office until their successors are duly elected and qualified. At
each annual meeting of shareholders following such classification and election,
directors elected to succeed those directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual meeting
of shareholders after their election. Directors need not be shareholders of the
Corporation nor residents of the State of Michigan.
For purposes of these Amended and Restated Bylaws, an Independent Director
shall mean a director who meets all of the following requirements:
(i) Is elected by the stockholders.
(ii) Is designated as an Independent
Director by resolution of the Board.
(iii) Is not any of the following:
(A) An officer or employee of
the Corporation or any affiliate thereof.
(B) An individual having a
relationship which, in the opinion of the Board,
would interfere with the exercise of independent
judgment in carrying out the responsibilities of a
director.
Section 2. Vacancies. Subject to the rights of the holders of any class
or series of preferred shares of the Corporation then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office though less than a
quorum, or by the sole remaining director, and directors so chosen shall hold
office for a term expiring at the annual meeting of Shareholders at which the
term of office of the class to which they have been elected expires or until
their successors have been duly elected and qualified.
Section 3. Removal; Resignation.
(a) Subject to the rights of the holders of any class
or series of preferred shares of the Corporation
- 7 -
<PAGE> 8
then outstanding, and except as otherwise provided by
law, the Articles or these Bylaws, at any meeting of the
Shareholders called expressly for such purpose, any director,
or the entire Board, may be removed, but only for cause, by a
vote of Shareholders holding a majority of the shares issued
and outstanding and entitled to vote at an election of
directors, voting together as a single class.
(b) Any director may resign at any time by giving
written notice to the Board, the Chairman of the Board, the
president, the secretary or the assistant secretary of the
Corporation. Unless a subsequent time is specified in such
written notice, a resignation shall take effect upon its
receipt by the Corporation.
Section 4. Place of Meetings. The Board may hold both regular and
special meetings either within or outside the State of Michigan, at such place
as the Board from time to time deems advisable.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board shall be held as soon as is practicable following the annual meeting of
Shareholders, and no notice to the newly elected directors of such meeting
shall be necessary for such meeting to be lawful.
Section 6. Regular Meetings. Additional regular meetings of the Board
may be held without notice, at such time and place as from time to time may be
determined by the Board.
Section 7. Special Meetings. Special meetings of the Board may be called
by the Chairman of the Board, by the chief executive officer, by the Executive
Commitee or by a majority of the Board, upon 24 hours' notice to each
director if such notice is delivered personally or sent by telegram, or
facsimile or upon 5 days' notice if sent by mail, unless such notice is waived.
The notice should set forth the purpose of such meeting. Except as set forth
in the notice, no other business may be transacted at the special meeting.
Section 8. Quorum; Adjournments. A majority of the total number of
directors then in office shall constitute a quorum for the transaction of
business at each and every meeting of the Board, and the act of a majority of
the directors present at any meeting at which a quorum is present shall be the
act of the Board, except as otherwise specifically provided by law, the
Articles or these Bylaws. If a quorum is not present at any meeting of
the Board, the directors present may adjourn the meeting, from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
- 8 -
<PAGE> 9
Section 9. Duties of Directors. The directors of the Corporation shall
have a fiduciary duty to the Shareholders to arrange, oversee and supervise the
affairs and business of the Corporation.
Section 10. Compensation. Independent Directors shall be entitled to
such compensation for their services as directors as from time to time may be
fixed by the Board, including, without limitation, for their services as
members of committees of the Board and in any event shall be entitled to
reimbursement of all reasonable expenses incurred by them in attending
directors' meetings.
Section 11. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or a committee of the Board may be taken
without a meeting and without prior notice if a written consent in lieu of such
meeting which sets forth the action so taken is signed either before or after
such action by all directors or all members of the committee, as the case may
be. All written consents shall be filed with the minutes of the Board's
proceedings. A written consent has the same effect as a vote of the Board or
committee for all purposes.
Section 12. Meetings by Telephone or Similar Communications. The
directors may participate in meetings by means of conference telephone or
similar communications equipment, whereby all directors participating in the
meeting can hear each other at the same time, and participation in any such
meeting shall constitute presence in person by such director at such meeting.
A written record shall be made of all actions taken at any meeting conducted by
means of a conference telephone or similar communications equipment.
Section 13. Nomination of Director Candidates. Subject to the rights of
holders of any class or series of preferred shares then outstanding,
nominations for the election of directors may be made by: (a) the Board or a
proxy committee appointed by the Board or (b) any Shareholder entitled to vote
in the election of directors generally; provided, however, any Shareholder
entitled to vote in the election of directors generally may nominate one or
more persons for election as directors at a meeting only 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 offices of the Corporation not fewer than 90 days prior
to the meeting; provided, however, that in the event that less than 100 days'
notice or prior public disclosure of the date of the 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 on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was
- 9 -
<PAGE> 10
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 Securities and Exchange Commission, 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.
In the event that a person is validly designated as a nominee in
accordance with this Section 13 and shall thereafter become unable or unwilling
to stand for election to the Board, the Board or the Shareholder who proposed
such nominee, as the case may be, may designate a substitute nominee upon
delivery, not fewer than 10 days prior to the date of the meeting for the
election of such nominee, of a written notice to the secretary or assistant
secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the secretary or assistant
secretary pursuant to this Section 13 had such substitute nominee been
initially proposed as a nominee. Such notice shall include a signed consent to
serve as a director of the Corporation, if elected, of each such substitute
nominee.
If the chairman of the meeting for the election of directors determines
that a nomination of any candidate for election as a director at such meeting
was not made in accordance with the applicable provisions of this Section 13,
such nomination shall be void.
Section 14. Advisory Panel to the Board. The Board of Directors may, by
resolution adopted by affirmative vote of a majority of the whole of the Board
of Directors, appoint an advisory panel of persons, none of whom shall be
current members of the Board of Directors, for the purpose of advising the
members of the Board in carrying out their duties to the corporation. Such
advisors shall have no power to act on behalf of the Corporation or the Board
or to in any way bind the Corporation or the Board by their actions, nor shall
they possess any other powers reserved to directors or officers in these Bylaws
or owe any fiduciary obligation to the Corporation or the shareholders. The
Board of Directors shall have the power to determine the size and
membership of any such panel of advisors and may, at its discretion remove
- 10 -
<PAGE> 11
individual advisors from the panel, or disband the panel as a
whole.
ARTICLE IV
Committees
Section 1. Formation of Committees. The Board may, by resolution passed
by a majority of the entire Board, designate one or more committees, with each
committee consisting of three (3) directors of the Corporation. The Board
shall designate an Audit Committee, a majority of the members of which shall be
Independent Directors, as that term is defined in these Bylaws. The Board may
designate one or more directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee;
provided, however, that at all times a majority of the members of the Audit
Committee shall be Independent Directors. Except as prohibited by law, any
such committee, to the extent provided in the resolution, shall have and may
exercise the powers of the Board conferred upon such committee by the Board in
the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Such committee or committees shall have the name or names as may
be determined from time to time by resolution adopted by the Board.
Section 2. Other Provisions Regarding Committees.
(a) Subject to the limitations set forth in Section 1
of this Article IV, the Board shall have the power at any time
to fill vacancies in, change the membership of, or discharge
any committee.
(b) Members of any committee shall be entitled to
such compensation for their services as from time to time may
be fixed by the Board and in any event shall be entitled to
reimbursement of all reasonable expenses incurred in attending
committee meetings. Any member of a committee may waive
compensation for any meeting. No committee member who
receives compensation as a member of any one or more
committees shall be barred from serving the Corporation in any
other capacity or from receiving compensation and
reimbursement of reasonable expenses for any or all such other
services.
(c) Unless prohibited by law, the provisions of
SectionE11 ("Action by Consent") and Section 12 ("Meetings by
Telephone or Similar Communications") of Article III
shall apply to all committees from time to time created by the
Board.
- 11 -
<PAGE> 12
(d) Each committee may determine the procedural rules
for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or
required by law. Adequate provision shall be made for notice
to members of all meetings. A majority of the members must be
present to constitute a quorum; and all matters shall be
determined by a majority vote of the members present.
(e) No committee shall have the power or authority to
do any of the following:
(i) Amend the Articles of Incorporation;
(ii) Adopt an agreement of merger or share
exchange;
(iii) Recommend to shareholders the sale,
lease, or exchange of all or of substantially all of the
Corporation's property and assets;
(iv) Recommend to shareholders a
dissolution of the Corporation or a revocation of a
dissolution;
(v) Amend the Bylaws of the Corporation;
(vi) Fill vacancies in the board; and
(vii) Declare a distribution, dividend, or
authorize the issuance of shares of the Corporation.
ARTICLE V
Officers
Section 1. Positions. The Corporation's officers shall be chosen and
appointed by the Board and shall consist of a chief executive officer,
president, one or more vice presidents (if and to the extent required by law or
if not required, if the Board from time to time appoints a vice president or
vice presidents), a secretary and a treasurer, one or more assistant
secretaries and/or assistant treasurers and such other officers and/or agents
as the Board from time to time deems necessary or appropriate. The Board may
delegate to the chief executive officer or the president of the Corporation the
authority to appoint any officer or agent of the Corporation and to fill a
vacancy other than the Chairman of the Board, president, secretary or
treasurer. The election or appointment of any officer of the Corporation in
itself shall not create contract rights for any such officer. All officers of
the
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<PAGE> 13
Corporation shall exercise such powers and perform such duties as from time
to time shall be determined by the Board. Any two or more offices may be held
by the same person.
Section 2. Term of Office; Removal. Each officer of the Corporation
shall hold office at the pleasure of the Board and any officer may be removed,
with or without cause, at any time by the affirmative vote of a majority of the
directors then in office, provided that any officer appointed by the president
pursuant to authority delegated to the president by the Board may be removed,
with or without cause, at any time whenever the president in his or her
absolute discretion shall consider that the best interests of the Corporation
shall be served by such removal. Removal of an officer by the Board or by the
president, as the case may be, shall not prejudice the contract rights, if any,
of the person so removed. Vacancies (however caused) in any office may be
filled for the unexpired portion of the term by the Board (or by the president
in the case of a vacancy occurring in an office to which the president has been
delegated the authority to make appointments).
Section 3. Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board, and no officer shall be
prevented from receiving a salary by reason of the fact that he also receives
from the Corporation compensation in any other capacity.
Section 4. Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board, the president or any officer of the
Corporation authorized by the president shall have power to vote and otherwise
act on behalf of the Corporation, in person or by proxy, at any meeting of
Shareholders of or with respect to any action of Shareholders of any other
corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
Section 5. Chairman of the Board. The Chairman of the Board shall be
elected by the Board of Directors and, subject to the direction of the Board,
shall perform such functions and duties as from time to time may be assigned to
him or her by the Board. The Chairman of the Board, if present, shall preside
at all meetings of the Shareholders and all meetings of the Board or may
appoint another member of the board to preside.
Section 6. Chief Executive Officer. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors, he or she shall be in the general and
active charge of the entire business and affairs of the Corporation, and shall
be its chief policy-making officer. The chief executive officer shall, in the
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absence or disability of its Chairman of the Board, act with all of the
powers, perform all of the duties and be subject to all of the restrictions of
the Chairman of the Board. The chief executive officer shall have such other
powers and perform such other duties as may be prescribed by the Chairman of
the Board or the Board of Directors or as may be provided in these Bylaws.
Section 7. President. The president shall be the chief operating officer
of the Corporation and, subject to the direction of the chief executive
officer, shall have general charge of the business, affairs and property of the
Corporation and general supervision over its other officers and agents. In
general, the president shall perform all duties incident to the office of
president of a stock corporation and shall see that all orders and resolutions
of the Board are carried into effect. Unless otherwise prescribed by the
Board, the president shall have full power and authority on behalf of the
Corporation to attend, act and vote at any meeting of security holders of other
corporations in which the Corporation may hold securities. At any such meeting
the president shall possess and may exercise any and all rights and powers
incident to the ownership of such securities which the Corporation
possesses and has the power to exercise. The Board from time to time may
confer like powers upon any other person or persons.
Section 8. Vice Presidents. In the absence or disability of the
president, the vice president, if any (or in the event there is more than one,
the vice presidents in the order designated, or in the absence of any
designation, in the order of their election), shall perform the duties and
exercise the powers of the president. The vice president(s) also generally
shall assist the president and shall perform such other duties and have such
other powers as from time to time may be prescribed by the Board.
Section 9. Secretary. The secretary shall attend all meetings of the
Board and of the Shareholders and shall record all votes and the proceedings of
all meetings in a book to be kept for such purposes. The secretary also shall
perform like duties for the committees, if required by any such committee. The
secretary shall give (or cause to be given) notice of all meetings of the
Shareholders and all special meetings of the Board and shall perform such other
duties as from time to time may be prescribed by the Board, the Chairman of the
Board or the president. The secretary shall have custody of the seal of the
Corporation, shall have authority (as shall any assistant secretary) to affix
the same to any instrument requiring it, and to attest the seal by his or her
signature. The Board may give general authority to officers other than the
secretary or any assistant secretary to affix the seal of the Corporation and
to attest the affixing thereof by his or her signature.
Section 10. Assistant Secretary. The assistant secretary, if any, in the
absence or disability of the secretary, shall perform
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the duties and exercise the powers of the secretary. The assistant
secretary(ies) shall perform such other duties and have such other powers as
from time to time may be prescribed by the Board.
Section 11. Treasurer. The treasurer shall have the custody of the
corporate funds, securities, other similar valuable effects, and evidence of
indebtedness, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as from time to time may be designated by the
Board. The treasurer shall disburse the funds of the Corporation in such
manner as may be ordered by the Board from time to time and shall render to the
Chairman of the Board, the president and the Board, at regular meetings of the
Board or whenever any of them may so require, an account of all transactions
and of the financial condition of the Corporation.
Section 12. Assistant Treasurer. The assistant treasurer, if any (or in
the event there is more than one, the assistant treasurers in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the treasurer, shall perform the
duties and exercise the powers of the treasurer. The assistant treasurer(s)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board.
ARTICLE VI
Notices
Section 1. Form; Delivery. Any notice required or permitted to be given
to any director, officer, Shareholder or committee member shall be given in
writing, either personally, by first-class mail with postage prepaid, or
facsimile addressed to the recipient at his or her address as it appears in the
records of the Corporation. Personally delivered and facsimile notices shall be
deemed to be given at the time they are delivered at the address of the named
recipient as it appears in the records of the Corporation, and mailed notices
shall be deemed to be given at the time they are deposited in the United States
mail. Notice to a director also may be given by telegram sent to his address
as it appears on the records of the Corporation and shall be deemed given at
the time delivered at such address.
Section 2. Waiver; Effect of Attendance. Whenever any notice is required
to be given by law, the Articles or these Bylaws, a written waiver thereof,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall
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<PAGE> 16
be the equivalent of the giving of such notice. Any director or
committee member who attends a meeting of the Board or a committee thereof
shall be deemed to have had timely and proper notice of the meeting, unless
such director or committee member attends for the express purpose of objecting
to the transaction of any business on the grounds that the meeting is not
lawfully called or convened. A Shareholder's attendance at a meeting (whether
in person or by proxy) shall result in: (i) waiver of objection to lack of
notice or defective notice of the meeting, unless the Shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting and (ii) waiver of objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the Shareholder objects to considering the matter
when it is presented.
ARTICLE VII
Indemnification
Section 1. Indemnification. The Corporation shall indemnify each of the
directors and officers of the Corporation, and may indemnify any other
individual, to the fullest extent permitted by Sections 561 and 562 of the
Business Corporation Act of Michigan, as it may be amended from time to time
(the "Act") and as otherwise permitted by law, and shall promptly make or cause
to be made any determination required by Section 564a of the Act. The
Corporation shall pay and reimburse each of the directors and officers of the
Corporation, and may pay and reimburse any other individual, to the fullest
extent permitted by Section 564b of the Act and as otherwise permitted by law,
and the Corporation shall promptly make or cause to be made any determination
required by Section 564b.
Section 2. Insurance. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any
director, officer, employee or agent of the Corporation or of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the Act.
Section 3. Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VII by the Shareholders or the directors of the
Corporation shall not adversely affect any right or protection of a director,
officer, employee or agent of the Corporation existing at the time of such
amendment, repeal or modification.
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ARTICLE VIII
Stock Certificates
Section 1. Form; Signatures. Each Shareholder who has fully paid for any
stock of the Corporation shall be entitled to receive a certificate
representing such shares, which shall be nonassessable, and such certificate
shall be signed by the Chairman of the Board or the president or a vice
president and by the treasurer or an assistant treasurer or the secretary or an
assistant secretary of the Corporation. Signatures on the certificate may be
facsimile, in the manner prescribed by law. Each certificate shall exhibit on
its face the number and class (and series, if any) of the shares it represents.
Each certificate also shall state upon its face the name of the person to whom
it is issued and that the Corporation is organized under the laws of the State
of Michigan. Each certificate may (but need not) be sealed with the seal of
the Corporation or facsimile thereof. In the event any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate ceases to be such officer, transfer agent or registrar before the
certificate is issued, the certificate nevertheless may be issued by
the Corporation with the same effect as if such person were such officer at the
date of issue of the certificate. All stock certificates representing shares
of common stock which are subject to restrictions on transfer or to other
restrictions may have imprinted thereon a notation or legend of such
restriction.
A certificate representing shares issued by the Corporation shall
substantially set forth on its face or back that the Corporation will furnish
to a Shareholder upon request and without charge a full statement of the
designation, relative rights, preferences, and limitations of the shares, and
if any class of shares has been issued in series, the designation, relative
rights, preferences, and limitations of each series so far as the same have
been prescribed and the authority of the Board to designate and prescribe the
relative rights, preferences, and limitations of other series.
Section 2. Registration of Transfer. Upon surrender to the Corporation
or to any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation, or its transfer agent, shall issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon the Corporation's books.
Section 3. Registered Shareholders. Except as otherwise provided by law,
the Corporation shall be entitled to recognize the
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<PAGE> 18
exclusive right of a person who is registered on its books as the owner
of shares of its common stock to receive dividends or other distributions (to
the extent otherwise distributable or distributed) and to vote (in the case of
voting stock) as such owner, and to hold liable for calls and assessments a
person who is registered on its books as the owner of shares of its common
stock. The Corporation shall not be bound to recognize any equitable or legal
claim to or interest in such shares on the part of any other person. The
Corporation (or its transfer agent) shall not be required to send notices or
dividends to a name or address other than the name and address of the
Shareholders appearing on the stock ledger maintained by the Corporation (or by
the transfer agent or registrar, if any), unless any such Shareholder shall
have notified the Corporation (or the transfer agent or registrar, if any), in
writing, of another name or address at least 10 days prior to the mailing of
such notice or dividend.
Section 4. Record Date. In order that the Corporation may determine the
Shareholders of record who are entitled (i) to notice of or to vote at any
meeting of Shareholders or any adjournment thereof, (ii) to receive
payment of any dividend or other distribution or allotment of any rights, or
(iii) to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board, in advance,
may fix a date as the record date for any such determination. Such date shall
not be more than 60 days nor less than 10 days before the date of such meeting,
nor more than 60 days prior to the date of any other action. A determination
of Shareholders of record entitled to notice of or to vote at a meeting of the
Shareholders shall apply to any adjournment of the meeting taken pursuant to
Section 6 of Article II; provided, however, that the Board, in its discretion,
may fix a new record date for the adjourned meeting.
Section 5. Lost, Stolen or Destroyed Certificate. The Board may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation which is claimed to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board, in its discretion, may require as a condition precedent
to issuance that the owner of such lost, stolen or destroyed certificate, or
his or her legal representative, advertise the same in such manner as the Board
shall require and/or to give the Corporation a bond in such sum, or other
security in such form, as the Board may direct, as indemnity against any claim
that may be made against the Corporation with respect to the certificate
claimed to have been lost, stolen or destroyed.
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Section 6. Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board may establish.
ARTICLE IX
General Provisions
Section 1. Dividends. Subject to the Act and to any provisions of the
Articles relating to dividends, dividends upon the outstanding common stock of
the Corporation may be declared by the Board at any annual, regular or special
meeting and may be paid in cash, in property or in shares of the Corporation's
common stock. Any distribution to Shareholders of income or capital assets of
the Corporation will be accompanied by a written statement disclosing the
source of the funds distributed. If, at the time of distribution, this
information is not available, a written explanation of the relevant
circumstances will accompany the distribution and the written statement
disclosing the source of the funds distributed will be sent to
the Shareholders not later than 60 days after the close of the fiscal year in
which the distribution was made.
Section 2. Reserves. The Board, in its sole discretion, may fix a sum
which may be set aside or reserved over and above the paid-in capital of the
Corporation for working capital or as a reserve for any proper purpose, and
from time to time may increase, diminish or vary such fund or funds.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be as
determined from time to time by the Board.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "State of Michigan".
Section 5. Amendment of the Bylaws. The Board is expressly empowered to
adopt, amend or repeal Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws by the Board shall require the approval of the affirmative
vote of 2/3 of the entire Board of Directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the Board). The
Shareholders shall also have power to adopt, amend or repeal the Bylaws. In
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by these Bylaws, the affirmative vote of the
holders of at least 66-2/3% of the voting power of all of the then-outstanding
shares of the
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common stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, shall be required to
adopt, amend or repeal any provisions of the Bylaws.
Section 6. Reports.
(a) The Chairman of the Board or the president shall
prepare or cause to be prepared annually a full and correct
annual report ("Annual Report") concerning the operations of
the Corporation and containing audited financial statements of
the Corporation and its subsidiaries for the preceding fiscal
year prepared in accordance with generally accepted accounting
principles.
(b) The Annual Report shall be mailed or delivered to
each Shareholder as of a record date after the end of such
fiscal year and each holder of other publicly held securities
of the Corporation within 150 days after the end of the fiscal
year, and shall be filed at the time the Annual Report is
distributed to the Shareholders with any Exchange
on which the Corporation's shares are listed and traded.
(c) There shall be an annual meeting of the
Corporation's Shareholders upon reasonable notice following
delivery of the Annual Report. The Annual Report shall also
be submitted at the annual meeting and shall be placed on file
thereafter at the principal office of the Corporation.
(d) To the extent that the Corporation is required to
file with the Securities Exchange Commission ("SEC") quarterly
reports, including statements of operating results, the
Corporation shall make copies of such quarterly reports
available to the Shareholders on a timely basis. The
statement of operations contained in such quarterly reports
shall disclose, as a minimum, any substantial items of an
unusual or nonrecurrent nature and net income before and after
estimated federal income tax or net income in the amount of
estimated federal taxes.
(e) To the extent that the Corporation is required to
file with the SEC or another federal or state regulatory
authority interim reports relating primarily to operations and
financial positions,
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the Corporation shall make reports which reflect the
information contained in such interim reports available to the
Shareholders before or as soon as practicable after such
interim reports are filed with the SEC or other regulatory
authority. If the form of the report provided to the
Shareholders differs from the interim report filed with the SEC
or the regulatory authority, the Corporation shall file a copy
of the report provided to the Shareholders with any Exchange
(including NASDAQ) on which the Corporation's shares are listed
and traded.
Section 7. Inspection of Books and Records. Inspection of the
Corporation's books and records (including Shareholder records) shall be
provided to the Shareholders and to the official or agency administering the
securities laws of the various states upon reasonable notice for any proper
purpose and as is consistent with applicable laws and regulations.
Section 8. Review of Transactions. As long as the Corporation's shares
are listed and traded on any Exchange (including NASDAQ), the Corporation shall
conduct an appropriate review of all related party transactions on an ongoing
basis and shall utilize the Corporation's Audit Committee or a comparable
body for the review of potential conflict of interest situations where
appropriate.
Section 9. Special Voting Provisions. The affirmative vote of two-thirds
(2/3) of the entire Board of Directors shall be required for the approval of
any of the following corporate actions:
a. The sale or disposition of all or substantially all of the
assets of the Corporation;
b. The liquidation, winding up or dissolution of the
Corporation;
c. The issuance of or receipt of subscription for any capital
stock of the Corporation to SUN Pharmaceutical Industries Ltd and /
or it's affiliates.
d. The amendment of the Corporation's Articles of Incorporation
or Bylaws.
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EXHIBIT 10.66
SECOND NOTE AND MORTGAGE MODIFICATION AGREEMENT
THIS AGREEMENT is made and entered into on this 5th day of August, 1997
by and among Caraco Pharmaceutical Laboratories, Ltd., a Michigan corporation,
of 1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Borrower") and The
Economic Development Corporation of the City of Detroit, a Michigan public body
corporate, of 150 West Jefferson Avenue, Suite 1000, Detroit, Michigan 48226
("Lender").
W I T N E S S E T H:
WHEREAS, on August 10, 1990, Lender made a loan to Borrower in the
original principal sum of Nine Million and no/100 ($9,000,000.00) Dollars (the
"Original Loan"); and
WHEREAS, the Original Loan is evidenced and secured in part by the
following instruments (collectively, the "Original Loan Documents"):
A. Section 108 Note dated August 10, 1990, executed by Borrower
in favor of Lender in the original principal amount of Nine
Million and no/100 ($9,000,000.00) Dollars (the "Note"), as
modified by that certain Note and Mortgage Modification
Agreement dated as of March 1, 1994 (the "First Note and
Mortgage Modification Agreement");
B. Second Mortgage and Security Agreement dated August 10, 1990,
granted by Borrower to Lender and recorded on September 21,
1990 in Liber 24815, at Page 715, Wayne County Register of
Deeds, as amended by that certain Amendment to Mortgage and
Security Agreement dated April 2, 1993, as amended by the
First Note and Mortgage Modification Agreement, and as amended
further by that certain Amendment to Second Mortgage and
Security Agreement dated as of February 28, 1995 (the
"Mortgage);
C. Guaranty of Dr. C. Arnold Curry and Cara Jean Curry,
(collectively, "Guarantors, and individually, a "Guarantor")
husband and wife, dated August 10, 1990, as amended and
restated on April 2, 1993 (the "Guaranty"); and
D. UCC-1 Financing Statement recorded at the Michigan
Secretary of State's Office on October 10, 1990 at File No.
C400998, and a UCC
<PAGE> 2
1-A Financing Statement recorded on September 12, 1990 at
Liber 24815, page 703-708, Wayne County Register of Deeds; and
WHEREAS, the Obligations (as hereinafter defined) under the Original Loan
Documents are in default; and
WHEREAS, Borrower has requested that Lender modify the terms of the
Original Loan, and Lender has agreed to do so, subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Borrower do hereby covenant and agree as follows:
1. RECITALS ARE TRUE AND CORRECT; DEFINED TERMS.
A. RECITALS TRUE AND CORRECT. The foregoing recitals are true and
correct in all respects.
B. DEFINED TERMS. In addition to terms defined elsewhere within this
Agreement, the following terms shall have the following meanings:
(i) "Additional Loan Documents" shall mean this Agreement and all
documents and instruments executed and delivered by Borrower pursuant to or in
connection with this Agreement.
(ii) "Loan" shall mean the Original Loan, as modified by this
Agreement.
(iii) "Loan Documents" shall mean any and all documents and
instruments evidencing or securing the Loan, including the Original Loan
Documents and the Additional Loan Documents.
(iv) "Obligations" shall mean the payment of the Loan and the
payment and performance of all other obligations of Borrower to Lender now
existing or hereafter arising under the Loan Documents.
(v) "Property" means the real and personal property encumbered by
the Mortgage or the other Loan Documents.
(vi) "Real Property" means the real property encumbered by the
Mortgage.
C. OTHER TERMS. All other capitalized terms contained in this
Agreement and not otherwise defined herein shall have the same meanings, if any,
as are ascribed to such terms in the Original Loan Documents.
2. EXISTING INDEBTEDNESS. As of the date of this Agreement, the unpaid
principal balance owing by Borrower to Lender under the Original Loan is Eight
Million Eight Hundred Eighty Thousand ($8,880,000.00) Dollars (the "Existing
Indebtedness").
3. TEMPORARY FORBEARANCE. Lender agrees to forbear from the exercise of
its remedies under the Loan Documents until August 15, 1997 in order to allow
Borrower to close a proposed stock purchase transaction with Sun Pharmaceutical
Industries, Ltd. ("Sun"). More specifically, the occurrence of each of the
following before the close of business on August 15, 1997
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<PAGE> 3
shall constitute a condition precedent to any further forbearance by Lender as
described in Section 4 below:
A. Borrower and Sun shall have executed and delivered any and all
agreements, documents and instruments necessary to consummate the proposed
transaction, all of which shall be in form and substance satisfactory to Lender,
in the exercise of its reasonable discretion, based upon the criteria set forth
in this subsection. Lender shall have the right to review and approve any such
agreements, documents and instruments prior to execution solely in order to
confirm that (i) they are consistent with previous representations made by
Borrower to Lender with respect to the terms and conditions of the transaction,
(ii) they do not adversely affect Lender's security, (iii) they contain a
covenant on the part of Sun to provide $7,500,000 over an eighteen (18) month
period commencing on or before August 15, 1997, either through subordinate loans
or equity, to fund Borrower's operations and submit for United States Food and
Drug Administration approval of not less than five (5) new Abbreviated New Drug
Applications per year for five (5) consecutive years; and (iv) they authorize
Sun to appoint a majority of the Board of Directors of Borrower, the Chairman of
the Board of Directors of Borrower, and the Chief Executive Officer of Borrower;
B. Prior to or contemporaneously with the execution of this Agreement,
Borrower shall have paid any and all delinquent real and personal property taxes
assessed against the Property in full;
C. Borrower shall have secured, either in the form of equity or
subordinate loans to Borrower, an amount sufficient to fund Borrower's
operations through August 15, 1997, and the amount of any subordinate loans
which will be refunded in whole or in part from the proceeds of the Sun
transaction shall be disclosed in writing to and approved in advance by Lender;
D. The Reserve Bank of India and the Minister of Finance of the
government of India shall have approved the proposed stock purchase transaction
between Borrower and Sun and Borrower and Sun shall have complied with any and
all conditions or requirements imposed by the Reserve Bank of India or the
Minister of Finance with respect to the proposed transaction; and
E. Borrower shall have reimbursed the EDC in full for its costs
incurred in connection with the restructuring of the Original Loan as
contemplated by this Agreement, including, but not limited to, filing and
recording costs, title insurance premiums, appraisal fees and legal fees;
provided, however, that such costs shall be supported by detailed invoices or
paid receipts, as appropriate, and provided further, that in no event shall
Borrower's liability under this subsection 3(E) exceed the sum of Fifty Thousand
and no/100 ($50,000.00) Dollars.
Borrower agrees that in the event that any one or more of the conditions
precedent enumerated in subsections 3(A) through 3(E) above shall not have been
satisfied before the close of business on August 15, 1997, the same shall
constitute an Event of Default under this Agreement and the other Loan
Documents, entitling Lender to exercise its remedies hereunder and thereunder.
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<PAGE> 4
4. MODIFICATION OF THE ORIGINAL LOAN.
A. MODIFICATION OF THE NOTE.
(i) Upon satisfaction of the conditions precedent set
forth in Section 3 above before the close of business on August 15, 1997, the
Note shall be deemed automatically modified to provide that the regularly
scheduled monthly payments which would otherwise be due and payable during the
period from April 1, 1996 through and including January 1, 1999 (the "Deferred
Payments"), shall be deferred until February 1, 1999. Interest shall continue
to accrue on the Existing Indebtedness during the period from March 1, 1996
through December 31, 1998 (the "Deferral Period"). On February 1, 1999,
Borrower shall resume making the regularly scheduled monthly payments of
principal and interest due under the Note, together with additional payments of
principal and interest in an amount sufficient to amortize the total amount of
(x) the Deferred Payments, and (y) accrued interest on that portion of the
Existing Indebtedness that would have been amortized by the Deferred Payments,
commencing on the date when due under the terms of the Original Loan Documents,
at the rate set forth in the Note, over a period of 42 consecutive months
commencing on February 1, 1999 and ending on July 1, 2002 (the "Additional
Payments"). Interest on the Existing Indebtedness will continue to accrue
during the Deferral Period, as required under the terms of the Note.
(ii) Notwithstanding subsection 4(A)(i) above or
anything contained elsewhere in this Agreement or the other Loan Documents to
the contrary, the regularly scheduled payments required to be made under the
Note shall resume and the Additional Payments shall commence on the first day
of the sixth month succeeding the first quarter in which Borrower's net
operating income before federal income taxes plus depreciation (exclusive of
capital contributions from Sun and capital expenditures) for such quarter
exceeds $500,000; provided, however, that the Additional Payments shall be
reduced to the amount necessary to amortize the total of the sums set forth in
(x) and (y) in the immediately preceding subsection over a 42 month period
commencing the first day of the sixth month succeeding the first quarter in
which Borrower's income exceeds the threshold described in this subsection
4(A)(ii).
B. MODIFICATION OF THE MORTGAGE. The second full paragraph on
page 3 of the Mortgage is hereby deleted in its entirety, and
Borrower and Lender confirm and agree that the Mortgage is and
shall be kept a first priority mortgage lien against the
Property, and is not now and shall not be hereafter
subordinated to the lien of any other mortgage or encumbrance
of any kind, except as expressly provided in Section 9 of this
Agreement. Borrower acknowledges and agrees that any and all
prior agreements on the part of Lender to subordinate the Loan
or any security therefor are null and void, except as
expressly provided in Section 9 of this Agreement.
C. OTHER MODIFICATIONS TO THE ORIGINAL LOAN DOCUMENTS.
(I) FUNDING OBLIGATIONS TERMINATED. Lender shall
have no obligation to make any further advances or disbursements to Borrower on
account of the Loan or otherwise.
(II) REFERENCES. Any reference made in the Mortgage
or the other Original Loan Documents to the "Note"
shall mean the Note as modified
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<PAGE> 5
by this Agreement and any reference in any of the Original Loan Documents to
"Loan Documents" shall mean the Loan Documents as modified by this Agreement.
5. THIS AGREEMENT IS SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT. The
covenants and agreements of Lender contained in this Agreement, including, but
not limited to, Lender's obligation to modify the Loan as provided herein, are
contingent upon and subject to each of the following conditions being satisfied
as of the time Borrower executes this Agreement, or at such other time as Lender
may permit in its sole and absolute discretion:
A. RECEIPT OF TITLE INSURANCE ENDORSEMENT. Lender's receipt, at the
expense of Borrower, of endorsement(s) to the title insurance policy which
insures the lien of the Mortgage: (i) showing that no encumbrances affect the
Real Property other than encumbrances which are acceptable to Lender, in the
exercise of its reasonable discretion, and (ii) insuring, to the satisfaction of
Lender, that the Mortgage, as modified by this Agreement, remains a valid first
lien on the Real Property, subject only to matters disclosed in the title
insurance policy or such other matters as may be acceptable to Lender in the
exercise of its reasonable discretion.
B. DELIVERY OF ADDITIONAL LOAN DOCUMENTS. Borrower having delivered to
Lender, in form and substance satisfactory to Lender:
(i) an owners affidavit executed by Borrower;
(ii) an opinion of counsel to Borrower, opining as to
such matters in respect of the Loan as Lender may request;
(iii) a UCC-1 financing statement and a UCC 1-A
financing statement executed by Borrower, granting to Lender security
interests in all assets of Borrower;
(iv) a good standing certificate for Borrower;
(v) such resolutions, affidavits, certificates and
other documents as Lender may reasonably require to evidence Borrower's
capacity, power and authority to execute, deliver and perform its obligations
under the Additional Loan Documents; and
(v) such other documents, instruments, certificates
and further assurances as Lender may reasonably require.
C. UCC SEARCHES. Lender's receipt of UCC searches confirming that no
personal property or fixtures of Borrower are subject to security interests
other than Lender's security interests or other than as previously disclosed by
Borrower to Lender.
6. RATIFICATION OF SECURITY AND OBLIGATIONS; WAIVER OF CLAIMS AND DEFENSES
OF BORROWER.
A. RATIFICATION OF SECURITY AND OBLIGATIONS OF BORROWER. Borrower
hereby covenants, warrants and agrees that: (i) the Mortgage secures and shall
continue to secure full repayment of the Loan, as evidenced by the Note; (ii)
the Mortgage is and shall remain a continuous and valid first priority lien on
the Property until the Loan is repaid in full; (iii) the
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<PAGE> 6
Loan Documents secure and shall continue to secure the repayment of the Loan, as
evidenced by the Note and all other Obligations; and (iv) all Obligations and
all Loan Documents granted as security for the repayment of the Loan remain and
shall continue to remain valid, binding and effective, except as amended by this
Agreement, this Agreement being an affirmation and ratification thereof.
B. WAIVER OF CLAIMS AND DEFENSES. Borrower hereby waives, releases,
acquits, satisfies and forever discharges Lender from any and all claims,
counterclaims, defenses, actions, causes of action, suits, controversies,
agreements, promises and demands whatsoever in law or in equity which Borrower
ever had, now has, or which any successor or assign of Borrower can, shall or
may have against Lender for, upon or by reason of any matter, cause or thing
whatsoever from the beginning of time to the date hereof.
C. NO DEFENSES. There is no defense or right of offset against any
Obligations of Borrower to Lender, including, but not limited to, any obligation
under the Note or Mortgage.
7. DEFAULT.
A. EVENTS OF DEFAULT. The Mortgage, Note and all other Loan Documents
shall all be in default (in any case, an "Event of Default") (i) if Borrower
shall be in default under or fail to perform any agreement, covenant, condition,
obligation or undertaking, or breach any warranty or representation, contained
in this Agreement, any agreement between Borrower and Sun that materially and
adversely affects this Agreement, the Note, or any of the other Additional Loan
Documents, (ii) if any of the other Loan Documents shall be in default in
accordance with the terms thereof; (iii) if Sun shall be in default under or
fail to perform any agreement, covenant, condition, obligation or undertaking,
or breach any warranty or representation, contained in any agreement between
Borrower and Sun that materially and adversely affects this Agreement; or (iv)
if Sun or Borrower shall be in default under or fail to perform any agreement,
covenant, condition, obligation or undertaking, or breach any warranty or
representation, contained in any agreement with or approval issued by the
Reserve Bank of India or the Minister of Finance of the government of India that
materially and adversely affects this Agreement.
B. REMEDIES. Upon the occurrence of any Event of Default, each of the
Loan Documents and all Obligations of Borrower shall be in default and, at the
option of Lender, all Loan indebtedness, and all other Obligations, shall become
immediately due and payable if such Event of Default is not cured within seven
(7) days of the date of written notice from Lender to Borrower of such Event of
Default, and the Lender shall thereupon be entitled, authorized and empowered to
exercise any and all rights and remedies available under the Loan Documents, at
law or in equity, including, but not limited to, its right to foreclose the
Mortgage lien and its right to collect the Loan indebtedness under the Note and
Guaranty.
8. BANKRUPTCY.
A. EVENT OF BANKRUPTCY DEFINED. When appearing in this Agreement,
the term "Event of Bankruptcy" shall mean: (a) if Borrower or any Guarantor
shall: (i) file a voluntary petition in bankruptcy for adjudication as bankrupt,
(ii) seek reorganization or an arrangement under any bankruptcy or
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<PAGE> 7
similar statute of the United States of America or any subdivision thereof or of
any foreign jurisdiction in response to an involuntary petition, (iii) consent
to the filing of a petition in bankruptcy or reorganization, (iv) consent to the
appointment of a receiver or a trustee or officer performing similar functions
with respect to any substantial part of their property, (v) make a general
assignment for the benefit of their creditors, (vi) execute a consent to any
other type of insolvency proceeding or any informal proceeding for the
dissolution or liquidation of or settlement of claims against or winding up of
their affairs or the appointment of a receiver or trustee or officer performing
similar functions for any of them, or for any of their assets, or (b) the filing
against Borrower or any Guarantor of a petition for adjudication as bankrupt or
insolvent or for reorganization under any bankruptcy or similar laws of the
United States of America or any state thereof or any foreign jurisdiction, or
the institution against Borrower or any Guarantor of any other type of
insolvency proceeding or any formal or informal proceeding for the dissolution,
liquidation, settlement of claims against or winding up of any of their
respective affairs, which proceeding is not dismissed within forty-five (45)
days of filing.
(B) CERTAIN REPRESENTATIONS AS TO BANKRUPTCY. Borrower represents
that, as of the date hereof, no Event of Bankruptcy has occurred with respect to
Borrower and to the best of Borrower's knowledge, no Event of Bankruptcy has
occurred with respect to Guarantors.
(C) RELIEF FROM STAY AND DISMISSAL. If any Event of Bankruptcy shall
occur with respect to Borrower, Lender shall be entitled to immediate and
complete relief from any automatic stay or moratorium (including, but not
limited to, the immediate lifting of such stay "for cause"), arising out of or
related to the occurrence of any Event of Bankruptcy with respect to Borrower,
and Lender shall be permitted to proceed to protect and enforce its rights or
remedies either by suit in equity or by action at law, or both. Borrower
covenants and agrees that it will not oppose, and, upon request by Lender, will
consent in writing to the filing of the appropriate petitions or requests for
relief required to obtain the relief referred to herein.
9. SUBORDINATION.
Upon the expiration of the Deferral Period and the resumption of the regularly
scheduled payments under the Note, together with the Additional Payments, at the
written request of Borrower, Lender will subordinate its first security interest
in Borrower's accounts receivable and inventory for the sole purpose of allowing
Borrower to obtain additional working capital from the following types of
lenders and upon the terms specified below for each type of lender:
A. From any lender who is not an Affiliate (as defined in 11
USCS '101) of Borrower or Sun or an Insider (as defined in 11 USCS '101) with
respect to Borrower or Sun or a supplier of goods or services to Borrower or Sun
(a "Supplier"), upon such terms as Borrower shall determine in its best business
judgment to be commercially reasonable;
B. From any lender who is an Affiliate or Insider, provided
that the applicable interest rate shall not exceed the Affiliate's or Insider's
cost of borrowing plus Three (3%) percent per annum ("Approved Affiliate or
Insider Rate");
C. From any Supplier, provided that the applicable interest
rate shall not exceed the following (as applicable, the "Approved Supplier
Rate"):
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<PAGE> 8
(i) for financing periods less than 46 days,
Twenty Four (24%) percent per annum or the prime rate publicly announced by NBD
Bank ("Prime") plus Nine (9%) percent per annum, whichever is greater, provided
that the interest charged is commercially reasonable;
(ii) for financing periods equal to or greater
than 46 days and less than 91 days, Eighteen (18%) percent per annum or Prime
plus Six (6%) percent per annum, whichever is greater, provided that the
interest rate charged is commercially reasonable;
(iii) for financing periods equal to or greater
than 91 days and less than 366 days, Twelve (12%) percent per annum or Prime
plus Three (3%) percent per annum, whichever is greater, provided that the
interest rate charged is commercially reasonable.
D. From any lender who is an Affiliate, Insider or Supplier,
provided that if the applicable interest rate exceeds the Approved Affiliate or
Insider Rate or the Approved Supplier Rate, whichever is applicable, such
interest rate shall not be in excess of a commercially reasonable rate approved
in advance by Lender.
10. ORIGINAL LOAN DOCUMENTS REMAIN EFFECTIVE EXCEPT AS MODIFIED HEREBY.
This Agreement and the other Additional Loan Documents amend and modify the
Original Loan Documents to the extent that any of the Original Loan Documents
are directly inconsistent with the Additional Loan Documents. To the extent not
directly inconsistent with the Additional Loan Documents, all of the covenants,
agreements and other provisions of the Original Loan Documents shall remain
unaltered and in full force and effect, and all representations and warranties
contained in the Original Loan Documents are hereby ratified and reaffirmed as
true, accurate and complete as if made on the date hereof. Nothing herein
contained shall in any manner whatsoever impair the Note and Mortgage, as
modified hereby, or the first lien created thereby or any other documents
executed by Borrower in connection therewith, or alter, waive, vary or affect
any promise, agreement, covenant or condition recited in any of the Loan
Documents. Except as herein otherwise provided, all terms and provisions of the
Note, Mortgage and other instruments and documents executed in connection with
the Loan shall remain in full force and effect and shall be binding upon the
parties hereto, their successors and assigns.
11. ADDITIONAL COVENANTS OF BORROWER. Borrower covenants and agrees
with Lender as follows:
A. To maintain adequate insurance with responsible companies in such
amounts and against such risks and hazards as are normally
insured against by similar businesses; to pay before penalties
attach all taxes, assessments, fees and similar charges lawfully
assessed upon Borrower and/or the Property, except to the extent
being contested in good faith; to preserve its corporate
existence in good standing and continue to conduct and operate
its business substantially as presently conducted in accordance
with all applicable laws and regulations; to pay its indebtedness
and obligations when due under normal terms; to maintain proper
books of record and account; and to furnish to Lender and allow
Lender to review such information and books and records as Lender
may reasonably request.
-8-
<PAGE> 9
B. To furnish to Lender within 90 days after the close of each
fiscal year, audited financial statements as of the close of
such year, containing a balance sheet and statements of
income, retained earnings and cash flows for such year,
prepared in accordance with generally accepted accounting
principles and certified by independent certified public
accountants.
C. To furnish to Lender,within 45 days after the close of each
quarter of each fiscal year, detailed financial statements as
of the close of such fiscal period, containing a balance sheet
and statements of income, retained earnings and cash flows for
such period and for the portion of its year ending with such
period, prepared in accordance with generally accepted
accounting principles and containing the written statement of
the chief financial officer of Borrower that to the best of
his knowledge and belief, the financial statements are
accurate and complete and have been prepared in accordance
with generally accepted accounting principles and the
requirements of the Securities and Exchange Commission.
D. To forward to Lender by the 20th day of each month a cash flow
projection for the current month and the next succeeding two
months detailed by major receipts and disbursements.
E. That during the Deferral Period, Borrower's capital expenditures
shall not exceed $2,000,000 in the aggregate without the prior
written consent of Lender.
F. That Borrower shall not (i) redeem any of its outstanding shares,
(ii) pay any dividend with respect to any of its outstanding
shares during the Deferral Period, (iii) merge or consolidate
with any other corporation or other entity, or (iv) pay any bonus
or severance in excess of one (1) month's salary (except as
previously disclosed in writing to and approved by Lender) to any
employee, officer or director of Borrower, without the prior
written consent of Lender.
G. That contemporaneously with the closing of the transaction
between Borrower and Sun, Borrower will execute and deliver a
Subordination Agreement in form and substance reasonably
satisfactory to Lender subordinating any and all prior security
interests in the Property to Lender's security interests in the
Property. In addition, Borrower agrees to grant to Lender a first
security interest in the Products (as defined in the Products
Agreement dated April 23, 1997 between Borrower and Sun) and any
intellectual property, intangibles, licenses, permits or other
personal property necessary or desirable for the sale of the
Products, pursuant to the terms and conditions of a security
agreement satisfactory to Lender.
H. That Borrower shall use its best efforts to hire and retain
residents of the City of Detroit whose qualifications meet
applicable job requirements.
I. That Borrower shall fulfill all of its obligations under the
Stock Purchase Agreement (the "Stock Purchase Agreement") and
Products
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<PAGE> 10
Agreement (the "Products Agreement") between Borrower and Sun,
each dated April 23, 1997.
11. REPRESENTATIONS. Borrower represents and warrants, that all statements
contained herein and in all documentation provided by Borrower to Lender and all
other representations or statements made by or on behalf of Borrower to Lender
in connection with the concessions described in this Agreement are true and
complete and do not state or omit to state any material fact. For purposes of
this Section 11, Lender acknowledges that Borrower's submission of financial
projections in connection with the negotiation of this Agreement does not
constitute a representation or warranty of Borrower that Borrower will achieve
the level of income projected. Borrower further represents and warrants that the
Stock Purchase Agreement and Products Agreement are in full force and effect and
that, as of the date of this Agreement, neither Borrower nor Sun is in default
thereunder. Borrower further represents that it is not insolvent and will not be
rendered insolvent by entering into this Agreement. Borrower acknowledges that
Lender has relied on the foregoing representations and warranties in entering
into this Agreement. In the event that Borrower shall have made any
misrepresentation in connection with the circumstances giving rise to this
Agreement, such misrepresentation shall be deemed to be an Event of Default
under the Mortgage, the Note and the other Loan Documents, thereby entitling
Lender, subject to paragraph 7(b), to exercise its rights to accelerate the
maturity of the indebtedness secured by the Mortgage and any and all other
rights available to Lender under the Loan Documents or at law or in equity.
12. RELEASE. As additional consideration for the modification of the terms
of the Note and Mortgage, as provided herein, Borrower does hereby release and
forever discharge Lender and the City of Detroit, their agents, servants,
employees, directors, officers, attorneys, affiliates, successors and assigns
and all persons, firms, corporations, and liabilities, obligations, actions and
causes of action whatsoever related to the Loan which Borrower may now have or
claim to have against Lender or the City of Detroit as of the date hereof, and
whether presently known or unknown, and of every nature and extent whatsoever on
account of or in any way touching, concerning, arising out of or founded upon
the Note and Mortgage, as modified hereby, including but not limited to, all
such loss or damage of any kind heretofore sustained, or that may arise as a
consequence of the dealings between the parties up to the date of this
Agreement. Borrower acknowledges that, as of the date of this Agreement, there
are no statements, agreements, waivers, estoppels or representations made by
Lender which would constitute a claim, defense, counterclaim or right of offset
in any foreclosure action that may hereafter be instituted by Lender under the
Mortgage, or in any independent claim or action that may hereafter be brought by
Borrower against Lender. This agreement and covenant on the part of Borrower is
contractual, and not a mere recital, and the parties acknowledge and agree that
no liability whatsoever is admitted on the part of any party, except Borrower's
indebtedness to Lender under the Note and Mortgage, as modified hereby, and that
all agreements and understandings between Borrower and Lender are expressed and
embodied in the Note and Mortgage, as modified hereby. In the event that Lender
is involved in litigation concerning the subject matter of this Agreement,
Lender shall be entitled to receive from Borrower all of Lender's reasonable and
necessary costs for such litigation, including Lender's reasonable attorneys'
fees and costs incurred through all trial, appellate and other proceedings.
-10-
<PAGE> 11
13. KNOWLEDGE. Borrower acknowledges that (A) it has thoroughly read and
reviewed the terms and provisions of this Agreement and is familiar with same,
that the terms and provisions contained herein are clearly understood by
Borrower and have been fully and unconditionally consented to by Borrower, (B)
it has had full benefit and advice of counsel of its own selection, or the
opportunity to obtain the benefit and advice of counsel of its own selection, in
regard to understanding the terms, meaning and effect of this Agreement, (C) it
has freely, voluntarily, with full knowledge, and without duress, executed this
Agreement, (D) in executing this Agreement, it is not relying on any other
representations, either written or oral, express or implied, made to it by
Lender, and (E) that the consideration received by it hereunder has been actual
and adequate.
14. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT WHICH THE UNDERSIGNED MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION BETWEEN THE PARTIES HERETO, INCLUDING, BUT
NOT LIMITED TO, WITH RESPECT TO ANY AND ALL CAUSE OR CAUSES OF ACTION, DEFENSES,
COUNTERCLAIMS, CROSSCLAIMS, THIRD PARTY CLAIMS AND INTERVENOR'S CLAIMS,
REGARDLESS OF THE CAUSE OR CAUSES OF ACTION, DEFENSES OR COUNTERCLAIMS ALLEGED
OR THE RELIEF SOUGHT BY SUCH PARTY, AND REGARDLESS OF WHETHER SUCH LITIGATION IS
BASED ON, ARISES OUT OF, UNDER OR IN CONNECTION WITH THE LOAN OR THIS AGREEMENT,
THE NOTE, GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, OR OUT OF ANY ALLEGED
CONDUCT OR COURSE OF CONDUCT, DEALING OR COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO, OR OTHERWISE.
15. CONSTRUCTION. This Agreement shall not be construed more strictly
against Lender merely by virtue of the fact that the same has been prepared by
Lender or its counsel, it being recognized that Borrower has also, through its
counsel, contributed substantially and materially to the preparation of this
Agreement.
16. ENTIRE AGREEMENT. Borrower acknowledges that there are no other
agreements or representations, either oral or written, express or implied, not
embodied in this Agreement and the Loan Documents, which, together, represent a
complete integration of all prior and contemporaneous agreements and
understandings of the parties.
17. TIME IS OF THE ESSENCE. Time is of the essence as to all Obligations
of Borrower under the Loan Documents.
18. COUNTERPARTS. This Agreement may be executed and delivered in any
number of counterparts, each of which, when so executed and delivered, shall be
and constitute an original and one and the same document.
21. MODIFICATION MUST BE IN WRITING. This Agreement may not be changed or
terminated, except in a writing signed by Lender and Borrower.
20. CAPTIONS. All captions or headings contained in this Agreement are
provided for convenience and ease of reference only, and are in no way intended
to, nor shall they, form a part of or limit, restrict or define the scope or
content of this Agreement.
21. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Michigan.
-11-
<PAGE> 12
22. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, Lender and Borrower have executed this Agreement as of
the date first written above.
WITNESSES: LENDER:
______________________________ THE ECONOMIC DEVELOPMENT
CORPORATION OF THE CITY
OF DETROIT, a Michigan
public body corporate
______________________________
By:___________________________
Its: _________________________
By:___________________________
Its: _________________________
WITNESSES: BORROWER:
______________________________ CARACO PHARMACEUTICAL
LABORATORIES, LTD., a
Michigan corporation
______________________________
By:___________________________
Its: _________________________
By:___________________________
Its: _________________________
Sun Pharmaceutical Industries, Ltd. joins in the execution of this
Agreement for the sole purpose of acknowledging its agreement and consent to
Borrower's grant of a first security interest in all assets of Borrower,
including the Products, to Lender upon the terms and conditions set forth in
this Agreement.
SUN PHARMACEUTICAL INDUSTRIES,
LTD.
By: __________________________
Its: _________________________
-12-
<PAGE> 13
STATE OF MICHIGAN)
) SS.
COUNTY OF WAYNE )
On this ___ day of August, 1997, before me personally appeared
________________________, and ___________________ the ________________ and
____________________ of The Economic Development Corporation of the City of
Detroit, a Michigan public body corporate, who, being duly sworn, stated that
they have read the foregoing Second Note and Mortgage Modification Agreement and
have signed same on behalf of said corporation.
---------------------------
, Notary Public
Wayne County, Michigan
My Commission Expires:
STATE OF MICHIGAN)
) SS.
COUNTY OF WAYNE )
On this ___ day of August, 1997, before me personally appeared
________________________, President of Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation, who, being duly sworn, stated that he/she has read the
foregoing Second Note and Mortgage Modification Agreement and has signed same on
behalf of said corporation.
---------------------------
, Notary Public
Wayne County, Michigan
My Commission Expires:
-13-
<PAGE> 14
STATE OF MICHIGAN)
) SS.
COUNTY OF WAYNE )
On this ___ day of August, 1997, before me personally appeared
________________________, _______________ of Sun Pharmaceutical Industries,
Ltd., a corporation organized under the laws of India, who, being duly sworn,
stated that he/she has read the foregoing Second Note and Mortgage Modification
Agreement and has signed same on behalf of said corporation.
---------------------------
, Notary Public
Wayne County, Michigan
My Commission Expires:
DRAFTED BY AND WHEN RECORDED
RETURN TO:
Blair A. Person, Esquire
Lewis, Clay & Munday, P.C.
1300 First National Building
Detroit, Michigan 48226
-14-
<PAGE> 15
EXHIBIT A
SUBORDINATED INDEBTEDNESS
-15-
<PAGE> 1
EXHIBIT 10.67
DEBT CONVERSION AGREEMENT
Amount $2,040,000 Detroit, Michigan
September 15, 1997
For value received, Caraco Pharmaceutical Laboratories, Ltd., a
Michigan Corporation (Borrower) promises to issue to David Hagelstein, Jay
Joliat, John Morris, and Sun Global, Caraco common shares as payment in full for
interest due on various loans given to the Corporation. Interest on all loans
was computed at 10% per annum from the date of receipt of funds at Caraco
through August 1, 1999, the due date on the loans.
The interest is being prepaid in common shares of Caraco at a per share
price of $1.50 as payment in full for interest due on the loans.
On or before August 1, 1999, at the full discretion of the loan
holders, Caraco will be notified by each note holder as to whether the note
principal is to be repaid in cash or converted into Caraco Common Shares at a
price of $1.50 per share. Exhibit A is attached for your information, which
outlines all calculations.
The original loan documents remain effective except as mentioned
hereby. This agreement is subject to approval by Caraco's Board of Directors.
/s/David A. Hagelstein /s/John R. Morris
/s/Jay Joliat /s/Sun Global Ltd.
/s/Caraco Pharmaceutical Labs.
<PAGE> 1
EXHIBIT 10.68
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made this
1st day of April, 1997, by and between Caraco Pharmaceutical Laboratories, Ltd.
(the "Company") and William R. Hurd ("Employee").
WITNESSETH:
WHEREAS, the Company and Employee entered into that certain Employment
Agreement dated October 28, 1993, as amended on September 8, 1995 (the
"Employment Agreement");
WHEREAS, Sun Pharmaceutical Industries Limited ("Sun") has indicated
that it intends to contribute $7.5 million to the Company for 5.3 million shares
of the Company's Common Stock pursuant to a stock purchase agreement (the "Stock
Purchase Agreement");
WHEREAS, Sun's capital contribution pursuant to the Stock Purchase
Agreement is dependent, among other things, on reductions in Company expenses
and reductions in capital; and
WHEREAS, Employee recognizes the importance of Sun's capital
contribution to the Company pursuant to the Stock Purchase Agreement, and agrees
to accommodate Sun's need for reductions in the Company's expenses and capital
through modification of his Employment Agreement.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties covenant and agree that the following shall become
effective on the date that Sun and the Company execute the Stock Purchase
Agreement.
1. Salary Reduction. Paragraph 3(a) of the Employment Agreement is
hereby amended by reducing the annual salary payable to Employee from $160,000
to $120,000. Except for the change in the amount of the annual salary, the
provisions of Paragraph 3(a) continue in full force and effect.
2. Termination Without Cause. Subparagraphs 7(c)(ii)(a), (b) and (c) of
the Employment Agreement are hereby amended by changing the applicable period
over which the severance package is to be paid from eighteen (18) months to six
(6) months. Except for this change, the provisions of Subparagraphs 7(c)(ii)(a),
(b) and (c) continue in full force and effect.
<PAGE> 2
3. No Change in Control. Employee hereby agrees that Sun's purchase of
the Company's shares and control of the Company's Board of Directors pursuant to
the Stock Purchase Agreement will not constitute a "Change in Control" for
purposes of Paragraph 9 of the Employment Agreement.
4. Existing Employment Agreement. Except as modified hereby, the terms
and conditions of the Employment Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement on the date first above written.
CARACO PHARMACEUTICAL LABORATORIES, LTD.,
a Michigan corporation
By:
----------------------------------
Allan J. Hammer
Its: Chief Financial Officer
EMPLOYEE:
- -------------------------------------
William R. Hurd
2
<PAGE> 1
EXHIBIT 10.69
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made this
1st day of April 1997, by and between Caraco Pharmaceutical Laboratories, Ltd.
(the "Company") and Allan J. Hammer ("Employee").
WITNESSETH:
WHEREAS, the Company and Employee entered into that certain Employment
Agreement dated May 17, 1994 (the "Employment Agreement");
WHEREAS, Sun Pharmaceutical Industries Limited ("Sun") has indicated
that it intends to contribute $7.5 million to the Company for 5.3 million shares
of the Company's Common Stock pursuant to a stock purchase agreement (the "Stock
Purchase Agreement");
WHEREAS, Sun's capital contribution pursuant to the Stock Purchase
Agreement is dependent, among other things, on reductions in Company expenses
and reductions in capital; and
WHEREAS, Employee recognizes the importance of Sun's capital
contribution to the Company pursuant to the Stock Purchase Agreement, and agrees
to accommodate Sun's need for reductions in the Company's expenses and capital
through modification of his Employment Agreement.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties covenant and agree that the following shall become
effective on the date that Sun and the Company execute the Stock Purchase
Agreement.
1. Salary Reduction. Paragraph 3(a) of the Employment Agreement is
hereby amended by reducing the annual salary payable to Employee from $120,000
to $90,000. Except for the change in the amount of the annual salary, the
provisions of Paragraph 3(a) continue in full force and effect.
2. Termination Without Cause. Subparagraphs 7(c)(ii)(a), (b) and (c) of
the Employment Agreement are hereby amended by changing the applicable period
over which the severance package is to be paid from twelve (12) months to six
(6) months. Except for this change, the provisions of Subparagraphs 7(c)(ii)(a),
(b) and (c) continue in full force and effect.
<PAGE> 2
3. Existing Employment Agreement. Except as modified hereby, the terms
and conditions of the Employment Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement on the date first above written.
CARACO PHARMACEUTICAL LABORATORIES, LTD.,
a Michigan corporation
By:
-------------------------------
William R. Hurd
Its: President
EMPLOYEE:
- ----------------------------------
Allan J. Hammer
2
<PAGE> 1
EXHIBIT 10.70
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the AAmendment@) is made this
1st day of April, 1997, by and between Caraco Pharmaceutical Laboratories, Ltd.
(the "Company") and Robert Kurkiewicz ("Employee").
WITNESSETH:
WHEREAS, the Company and Employee entered into that certain Employment
Agreement dated October 22, 1993 (the "Employment Agreement");
WHEREAS, Sun Pharmaceutical Industries Limited ("Sun") has indicated
that it intends to contribute $7.5 million to the Company for 5.3 million shares
of the Company's Common Stock pursuant to a stock purchase agreement (the "Stock
Purchase Agreement");
WHEREAS, Sun's capital contribution pursuant to the Stock Purchase
Agreement is dependent, among other things, on reductions in Company expenses
and reductions in capital; and
WHEREAS, Employee recognizes the importance of Sun's capital
contribution to the Company pursuant to the Stock Purchase Agreement, and agrees
to accommodate Sun's need for reductions in the Company's expenses and capital
through modification of his Employment Agreement.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties covenant and agree that the following shall become
effective on the date that Sun and the Company execute the Stock Purchase
Agreement.
1. Salary Reduction. Paragraph 3(a) of the Employment Agreement is
hereby amended by reducing the annual salary payable to Employee from $123,000
to $92,250. Except for the change in the amount of the annual salary, the
provisions of Paragraph 3(a) continue in full force and effect.
2. Termination Without Cause.Subparagraphs 7(c)(ii)(a), (b) and (c) of
the Employment Agreement are hereby amended by changing the applicable period
over which the severance package is to be paid from twelve (12) months to six
(6) months. Except for this change, the provisions of Subparagraphs 7(c)(ii)(a),
(b) and (c) continue in full force and effect.
<PAGE> 2
3. Existing Employment Agreement. Except as modified hereby, the terms
and conditions of the Employment Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement on the date first above written.
CARACO PHARMACEUTICAL LABORATORIES, LTD.,
a Michigan corporation
By:
----------------------------------
William R. Hurd
Its: President
EMPLOYEE:
- -------------------------------------
Robert Kurkiewicz
2
<PAGE> 1
EXHIBIT 24
Director POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
CARACO PHARMACEUTICAL LABORATORIES, LTD., a Michigan corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C. under the
provisions of the Securities and Exchange Act of 1934, as amended, the
Corporation's Annual Report on Form 10-KSB for the year ended December 31, 1977,
hereby nominates, constitutes and appoints Narendra Borkar and Robert
Kurkiewicz, or either of them, as his true and lawful attorney-in-fact, with
full power to act and with full power of substitution, for him and in his name,
place and stead, to sign such Report and any and all amendments thereto, and to
file said Report and such Amendment as signed, with all Exhibits thereto, with
the Securities and Exchange Commission.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney this 10th day of March, 1998.
/s/Dilip S. Shanghvi
-----------------------------------
DILIP S. SHANGHVI
Chairman of the Board and Director
/s/David W. Adamany /s/Narendra Borkar
- ------------------------------------ ------------------------------------
DAVID W. ADAMANY NARENDRA BORKAR
Director Director and Chief Executive Officer
/s/David A. Hagelstein /s/Jay F. Joliat
- ------------------------------------ ------------------------------------
DAVID A. HAGELSTEIN Jay F. Joliat
Director Director
/s/John R. Morris Phyllis Harrison-Ross
- ------------------------------------ ------------------------------------
JOHN R. MORRIS Phyllis Harrison-Ross
Director Director
/s/Shantilal Shanghvi /s/Sudir Valia
- ------------------------------------ ------------------------------------
SHANTILAL SHANGHVI SUDIR VALIA
Director Director
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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