-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hyl48rHZTYEbtE4kS1h/EyQL9OPiLf/OCpyQuL8Rz9IYceHRawkiPpndsO/Bhv56 fuuhLVG+pjVoBh9xZQBRFA== 0000950124-03-001024.txt : 20030331 0000950124-03-001024.hdr.sgml : 20030331 20030331152453 ACCESSION NUMBER: 0000950124-03-001024 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARACO PHARMACEUTICAL LABORATORIES LTD CENTRAL INDEX KEY: 0000887708 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 382505723 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24676 FILM NUMBER: 03630112 BUSINESS ADDRESS: STREET 1: 1150 ELIJAH MCCOY DR CITY: DETROIT STATE: MI ZIP: 48202 BUSINESS PHONE: 3138718400 MAIL ADDRESS: STREET 1: 1150 ELIJAH MCCOY DRIVE CITY: DETROIT STATE: MI ZIP: 48202 10KSB 1 k74296e10ksb.txt ANNUAL REPORT FOR FISCAL YEAR ENDED 12/31/02 U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-24676 --------------------- CARACO PHARMACEUTICAL LABORATORIES LTD. (Exact name of registrant as specified in its charter) MICHIGAN 38-2505723 (State of Incorporation) (I.R.S. Employer Identification No.) 1150 ELIJAH MCCOY DRIVE, DETROIT, MI 48202 (Address of principal executive office) (313) 871-8400 (Registrant's telephone number) -------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: Common Stock, No Par Value (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: $22,380,964 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. $23,220,513 (BASED UPON THE AVERAGE BID-ASK PRICE OF THE REGISTRANT'S COMMON SHARES ON THE OTC BULLETIN BOARD ON MARCH 14, 2003) 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 14, 2003, THERE WERE 23,762,532 COMMON SHARES OUTSTANDING Documents Incorporated By Reference: Portions of the definitive 2003 Proxy Statement in connection with the Annual Meeting of Stockholders to be held on June 2, 2003, are incorporated by reference into Part III. CARACO PHARMACEUTICAL LABORATORIES, LTD. FORM 10-KSB PART I ITEM 1. DESCRIPTION OF BUSINESS. FORWARD LOOKING STATEMENTS This report, other than the historical financial and business information, may contain forward looking statements. Those statements include statements regarding the intent, belief, and current expectation of the Company. These statements are not guarantees of future performance and are subject to risks and uncertainties that cannot be predicted or quantified. Consequently, actual results could differ materially from those expressed or implied by such forward looking statements. Such risks and uncertainties include: (i) that the information is of a preliminary nature and may be subject to further adjustment; (ii) inability to renegotiate and extend the Company's loan with the Economic Development Corporation (See "Item 2 - EDC Financing"); (iii) not obtaining FDA approval for new products or delays in receiving FDA approvals; (iv) governmental restrictions on the sale of certain products; (v) dependence on key personnel; (vi) development by competitors of new or superior products or cheaper products or new technology for the production of products or the entry into the market of new competitors; (vii) market and customer acceptance and demand for new pharmaceutical products, (viii) availability of raw materials, (ix) timing and success of product development and launch (x) integrity and reliability of the Company's data; (xi) lack of success in attaining full compliance with regard to regulatory and cGMP compliance; and (xii) other risks identified in this report and identified from time to time in the Company's reports and registration statements filed with the Securities and Exchange Commission. Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" which is also referred to as we, us or our") is a corporation organized under Michigan law in 1984, to engage in the business of developing, manufacturing and marketing generic drugs for the ethical or prescription and over-the-counter or 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 lower prices than the prices of the branded products and at their equivalence in quality and bioavailability. A significant source of our funding has been from private placement offerings (including stock purchases by Sun Pharmaceutical Industries, Limited ("Sun Pharma")) and loans. Sun Pharmaceutical Industries, Ltd., a specialty pharmaceutical corporation organized under the laws of India, which owns 49% of our outstanding shares as of December 31, 2002, has purchased equity capital for $7.5 million in cash, advanced us loans of approximately $9.8 million and guaranteed term loans totaling $17.5 million from two foreign banks. Also, pursuant to a products agreement with us, Sun Pharma has transferred certain products to us. See "Current Status" and "Sun Pharmaceutical Industries, Ltd." below. Our manufacturing facility and executive offices were constructed in 1990 pursuant to a $9.1 million loan from the Economic Development Corporation of the City of Detroit (the "EDC"). See "Current Status" and "EDC Financing" below. 2 CURRENT STATUS OF CORPORATION For the first time since inception, during the second, third and fourth quarters of 2002, we achieved sales necessary to support our operations. Net sales for the twelve months ended December 31, 2002 were $22.4 million as compared to $5.9 million for the twelve months ended December 31, 2001. We have incurred a nominal operating loss of $730,365 for the twelve months ended December 31, 2002 as compared to an operating loss of $4,023,926 for the twelve months ended December 31, 2001. After interest costs, we have incurred a net loss of $2,256,004 for the twelve months ended December 31, 2002 as compared to a net loss of $5,757,463 for the twelve months ended December 31, 2001. At December 31, 2002, we had a stockholders' deficit of $19,623,290 as compared to a deficit of $22,945,249 at December 31, 2001. We have continued to be dependent on the support of Sun Pharma, but the financial support is reduced due to the increased revenues and improved cash flows from internal operations. See "Sun Pharmaceutical Industries, Ltd." and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." We received 6 Abbreviated New Drug Application ("ANDA") approvals during the twelve months ended December 31, 2002 and 1 ANDA approval during the first quarter of 2003. See "Caraco's Products and Product Strategy" below. We also filed 3 ANDAs with the FDA during the twelve months of 2002, bringing the total pending approvals to 3. During 2002, we completed a private placement of 635,000 shares of common stock resulting in aggregate proceeds to us of $1,692,000. We have been in default of our mortgage loan of approximately $7.8 million from the EDC since February 1999. However, based on a resolution passed at a meeting of the Board of Directors of the EDC on September 25, 2002, the EDC approved a six year extension of the loan with interest rates starting at 2.75% and increasing to 5.16%. Under the approval, the EDC would retain a first mortgage on our property and a first lien on our furniture, fixtures and equipment and intellectual property. The EDC would no longer retain a lien on our accounts receivable and inventory. The EDC resolution, which provides that the transaction must be completed by January 1, 2003, will not become effective until a definitive agreement incorporating the above terms has been agreed to by the parties. On March 19, 2003, the EDC extended the deadline to May 1, 2003 and agreed that the transaction, when it is finalized, would be effective as of January 1, 2003. On November 21, 2002, we entered into a products agreement with Sun Pharma Global, Inc. ("Sun Global"), a wholly-owned subsidiary of Sun Pharmaceutical. The previous products agreement with Sun Pharma expired. Under the agreement, which was approved by our independent directors, Sun Global has agreed to provide us with 25 new generic drugs over a five year period. In return, Sun Global will receive 544,000 shares of a newly created preferred stock for each generic drug transferred. The preferred shares are convertible into common shares after three years on a one-to-one basis. See "Part II - Item 6. - Future Outlook." The FDA has informed us and sixty-six other manufacturers and distributors of Guaifenesin that all of us must cease manufacturing Guaifenesin by May 23, 2003 and cease all sales past November 2003. We sold approximately $1.65 million of Guaifenesin during the year ended December 31, 2002. We underwent inspections by the Food and Drug Administration ("FDA") in November 2002 and we were found to be in substantial compliance with current Good Manufacturing Practices ("cGMPs"). Although we did receive an FDA 483, a written list of observations, we do not believe the observations are material and we have taken appropriate remedial actions. 3 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 ANDA procedures for obtaining 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 Our present product portfolio includes 14 prescription products in 23 strengths in 47 package sizes. The products and their use for the indications are set forth in the table below:
GENERIC NAME PURPOSE Guaifenesin LA * Decongestant Metroprolol Tartrate Hyper-Tension Miraphen PSE Decongestant Paromomycin Sulfate Antibacterial Salsalate Decongestant CMT Arthritis/NSAID Guai/DM Decongestant Clonazepam Seizure, Panic Disorders Flurbiprofen Arthritis/NSAID Carbamazepine Epilepsy Oxaprozin Rheumatoid Disease Metformin Hydrochloride Diabetes Tramadol Hydrochloride Analgesic Miraphen PE Decongestant
* See "Current Status of Corporation" with respect to the FDA's letter to us and sixty-six other manufacturers and distributors to cease sales of Guaifenesin after November 2003. We have submitted 13 ANDAs to the FDA for approval since August 1997, including 3 filed during 2002. Of these 13 ANDAs, the FDA approved 3 during 2001, 6 during 2002 and one during the first quarter of 2003. Accordingly, we have 3 pending ANDAs, most of which, we believe, may be approved by 2003 year-end. Of the 13 ANDAs, Sun Pharma has transferred the technology for 11 of them to us pursuant to its now expired products agreement. See "Sun Pharmaceutical Industries Limited" 4 Four of the ANDAs have not yet been marketed and are not included in the above disclosure of our product portfolio. The products and their use for the indications are set forth in the table below;
GENERIC NAME PURPOSE Ticlopidine Hydrochloride Cardiology Meperidine Hydrochloride Analgesic Clozapine Schizophrenia Digoxin Cardiology
These products, when launched, will increase our product portfolio to 18 prescription products in 30 strengths in 65 package sizes. Our strategy has been to analyze the marketplace and try to determine opportunities depending on a particular product's potential market and the number of competitors vying for that market. HEXAL-PHARMA GMBH & CO., KG Pursuant to an agreement between us and Hexal-Pharma GmbH & Co., KG, a German pharmaceutical company and its United States affiliate (together, "Hexal") dated as of October 1, 1993, Hexal agreed to convey to us the formulations, technology, manufacturing processes and know-how, and other relevant information, and to pay for the bioequivalency studies required for the preparation of ANDAs for each of two specified generic drugs (the "Products"). We agreed to pay Hexal royalties on the yearly sales of each Product (See below). We filed an ANDA in March 1995 with respect to Metoprolol Tartrate, received approval from the FDA in December 1996 and introduced it in 1997. (Metoprolol Tartrate is one of our 13 current products. See "Caraco's Products and Product Strategy".) Hexal has decided not to proceed with the development of the second Product. Pursuant to the agreement, we have, for each Product (i) a Sign-Up Option to purchase 100,000 shares of Common Stock at $3.50 per share; and (ii) a Product Option to purchase shares at an exercise price of $3.50 per share. 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 us payable to Hexal for sales of the related product. No options have yet been exercised. Royalties payable to Hexal, which are included in accrued expenses, amount to $801,144 at December 31, 2002. We have recently learned that the formula provided to us by Hexal with respect to Metoprolol Tartrate may be different than the formula currently used for manufacturing, and we are investigating further whether or not we should continue to accrue royalties based on the formula differences. If we find that the formula as provided by Hexal is indeed different from ours, we would cease to accrue any royalties. SUN PHARMACEUTICAL INDUSTRIES LTD. Pursuant to a stock purchase agreement, Sun Pharma had, as of December 31, 1998, remitted a total of $7.5 million to us for the purchase of 5.3 million common shares. On October 15, 1998 Sun Pharmaceutical also made a loan to us of $5.3 million at an annual interest rate of 10%. This loan was amended to provide Sun Pharmaceutical with a security interest subordinated to the loan of the EDC. The loan is payable in full in October 2003. The rate of interest on the loan from Sun Pharmaceutical has been reduced from 10% to 8% effective April 1, 2001. In 2001, Sun Pharmaceutical loaned us an additional $2.45 million at an interest rate of 8%. During the first quarter of 2002, Sun Pharmaceutical loaned us an additional $1.4 million at an interest rate of 8%. The $2.45 million and $1.4 5 million loans mature and are due and payable on August 31, 2006. Prior to this, Sun Global made a loan to us of $650,000 at an annual interest rate of 10%. We have repaid $100,000 of this loan during 2001. The interest rate on this loan has also been reduced by Sun Global from 10% to 8% effective April 1, 2001. The loan is payable in full in October 2003. Sun Pharma has assisted us in obtaining line of credit loans from ICICI Bank Limited and The Bank of Nova Scotia in the amount of $5.0 million and $12.5 million respectively. We have utilized $5 million from ICICI Bank Limited and $10.9 million from The Bank of Nova Scotia. The amounts borrowed under the ICICI Bank Limited credit facility must be repaid in eight equal quarterly installments beginning December 31, 2003 and ending September 30, 2005. The amounts borrowed under the Bank of Nova Scotia credit facility must be repaid in four semi-annual installments on February 4, 2004, August 24, 2004, February 24, 2005 and August 25, 2005. The loan may not be prepaid until August 24, 2003. Interest is at LIBOR plus 140 basis points on the loan from ICICI Bank Limited and LIBOR plus 30 basis points on the loan from the Bank of Nova Scotia, and is payable at one, two, three or six months periods at our option. In August 1997, we entered into an agreement with Sun Pharma whereby Sun Pharma was required to transfer to us the technology formula for 25 generic pharmaceutical products over a period of five years in exchange for 544,000 shares of our common stock to be issued for each ANDA product and 181,333 shares for each DESI (Drug Efficacy Study Implementation) product. The products provided to us from Sun Pharma were selected by mutual agreement. Under such agreement, which has expired, we conducted, at our expense, all tests including bioequivalency studies. Also, under such agreement, Sun Pharma delivered to us the formula for 13 products and beneficially owns approximately 49% of our outstanding common stock. On November 21, 2002, we entered into a products agreement with Sun Global. Under the agreement, which was approved by our independent directors, Sun Global has agreed to provide us with 25 ANDAs over a five year period. Our rights to the products are limited to the United States and its territories or possessions, including Puerto Rico. Sun Global retains rights to the products in all other territories. Under such agreement, we conduct, at our expense, all tests including bioequivalency studies. We are also obligated to market the products consistent with our customary practices and to provide marketing personnel. In return for the technology transfer, Sun Global will receive 544,000 shares of a newly created preferred stock for each generic drug transferred. The preferred shares are non-voting, do not receive dividends and are convertible into common shares after three years (or immediately upon a change in control) on a one-to-one basis. See "Item 2 - 6. - Future Outlook." Sun Pharma has established a Research and Development Center in Mumbai with a staff of 30 persons, including PhDs, pharmacy graduates, analytical chemists and regulatory professionals. Sun Pharma primarily performs development work for us at this laboratory. Sun Pharma also supplies us with certain raw materials and machinery and equipment to enhance our production capacities. In the year ended December 31, 2002, we purchased approximately $2,422,000 in raw materials and $310,000 in machinery and equipment from Sun Pharma. Sun has also provided us with qualified technical professionals. Twenty-one of our technical professional employees were former Sun Pharma employees. MARKETING Our marketing objective has been to obtain access to a wide range of purchasers of generic pharmaceutical products. Internally, this requires at least a minimum sales force. See "Sales and Customers" below. Externally, it requires forging relationships with wholesaler buyer groups, distributors and mail order 6 companies, among others. Management is aware that, despite any success in creating these distribution links, sales volume will remain low until we can offer a broader range of products needed by drug purchasers in significant amounts. 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, stock source for hundreds or thousands of products from multiple manufacturers. Our product line is now represented by the following major top drug wholesalers; McKesson Corporation, Amerisource - Bergen and Cardinal Health. Our products are now stocked by many other drug wholesalers, partly as a result of our arrangements, discussed below, with buying groups. 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. As part of our ongoing marketing efforts, we are pursuing arrangements with additional wholesalers and expanding our sales network of buying groups. Further, as part of our ongoing marketing efforts, we are pursuing arrangements to expand our business with our current distributors and a mail-order company. Federal and state agencies purchase a large amount of generic pharmaceutical products. All of our products are now listed for purchase at prices bid by us in the Federal Supply Schedule, the Federal Bureau of Prisons Prime Vendor Program, the Veterans Administration Prime Vendor Program, the Department of Defense and by various state agencies. SALES AND CUSTOMERS Presently, we have only a small in-house sales organization comprised of 4 persons. In time as new products are added to the existing product line, we plan to expand our customer sales effort through adding additional sales personnel and/or contracting with an independent sales and marketing firm. Shipments to one wholesale customer accounted for approximately 65% and 35% of sales in 2002 and 2001, respectively. Balances due from this customer represented approximately 80% and 40% of accounts receivable at December 31, 2002 and 2001, respectively. We have entered into a sales contract with an agency of the U.S. government. Our agreement with this customer is for the period of June 21, 2002 through June 20, 2003 ("base contract period"), with four 1-year option periods and is for the purchase of one product. The agreement may be terminated by the purchaser without cause and in such case, we would only be entitled to a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination plus reasonable charges that have resulted from the termination. The agreement provides that approximately $13.0 million of product should be shipped to the customer over the base contract period, and further provides that certain penalties would be incurred if we are unable to meet our sales commitment. 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, bioequivalence is done through independent testing laboratories. 7 An outline of research and development expenses incurred directly by Caraco for 2002 and 2001 follows (000's):
2002 2001 ------ ------ Salaries $ 678 $ 530 Raw Materials/Supplies 165 131 Bioequivalency Studies 594 132 Laboratory 505 264 Technology Transfer, non-cash 3,887 0 Other 1,407 2,022 ------ ------ TOTAL $7,236 $3,079 ====== ======
The 2002 research and development expenses shown above include the non-cash cost of the products transferred by Sun Pharma to Caraco of $3,887,423 for 1,632,000 shares of our common stock. No technology transfer cost was incurred in 2001. Information with respect to two research and development projects in 2002 are presented below: PROJECT INFORMATION - PRODUCT A
Risks and uncertainties of Period in which Costs Incurred on Product A Nature, Timing and costs not completing development net cash inflows DRUG FOR TREATMENT OF to complete project and on schedule and financial are expected to SPASTICITY anticipated date of completion consequences. commence - --------------------------- ------------------------------ -------------------------- ---------------- Raw Material Cost - The additional cost for the Product A was completed on Mid-year 2004. $29,200 paid in 2002 product will be approximately time and an ANDA was filed $25,000, which includes with the FDA. If the FDA does BIO STUDY COSTS stability testing and other not approve the submission, $226,226 paid in 2002 regulatory costs. we can either re-do the bioequivalency study and Other in-house Costs The ANDA was submitted incur all of the other to the FDA in May 2002. referenced costs again, Approximately $50,000 paid Normally, it takes 12-18 except for the technology in 2002 for preparation of months for approval after transfer costs, or determine batches for R&D, the submission of the ANDA not to go forward. manufacturing, quality to the FDA. control, quality assurance, If the FDA does not timely regulatory departments and approve the submission, it facility overhead may have the effect of delaying the marketing of the Technology Transfer Cost product and thereby cause us to miss a window of 544,000 shares of common opportunity. stock - $1,408,960 in 2002. TOTAL COST INCURRED Approximately $1,714,386
8 PROJECT INFORMATION - PRODUCT B
Risks and uncertainties of Period in which Costs Incurred on Product B Nature, Timing and costs not completing development net cash inflows DRUG FOR TREATMENT OF to complete project and on schedule and financial are expected to SPASTICITY anticipated date of completion consequences. commence - --------------------------- ------------------------------ -------------------------- ---------------- Raw Material Cost - The additional costs for the Product B was completed on End of 2004 $117,400 paid in 2002 product will be approximately time and an ANDA was filed $72,000, which includes two with the FDA. If the FDA does BIO STUDY COSTS payments for bio-study costs not approve the submission, we $191,838 paid in 2002 of approximately $47,000, can either re-do the stability testing and other bioequivalency study and incur Other in-house Costs regulatory costs. all of the other referenced costs again, except for the Approximately $50,000 paid in The ANDA was submitted to the technology transfer costs, or 2002 for preparation of batches FDA in November 2002. Normally determine not to go forward. for R&D, manufacturing, quality it takes 12-18 months for control, quality assurance, approval after submission of If the FDA does not timely regulatory departments and the ANDA to the FDA. approve the submission, it may factory overhead have the effect of delaying the marketing of the product Technology Transfer Cost and thereby cause us to miss a window of opportunity. 544,000 shares of common stock $910,656 in fourth quarter of 2002. TOTAL COST INCURRED Approximately $1,269,894
REGULATION The research and development, manufacture and marketing of our products are subject to extensive regulation by the FDA and by other federal, state and local entities, which regulate, among other things, research and development activities and the testing, manufacture, labeling, storage, record keeping, advertising and promotion of pharmaceutical products. The Federal Food, Drug and Cosmetic Act, the Public Health Services Act, the Controlled Substances Act and other federal statutes and regulations govern or influence our 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. 9 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 cGMPs 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. We do not expect to submit an NDA in the foreseeable future. Abbreviated New Drug Application ("ANDA"). The Waxman-Hatch Act established a statutory procedure for submission of ANDAs to the FDA covering generic equivalents of previously approved brand-name drugs. Under the ANDA procedure, an applicant is not required to submit complete reports of preclinical and clinical studies of safety and efficacy, but instead is required to provide bioavailability data illustrating that the generic drug formulation is bioequivalent to a previously approved drug. Bioavailability measures the rate and extent of absorption of a drug's active ingredient and its availability at the site of drug action, typically measured through blood levels. A generic drug is bioequivalent to the previously approved drug if the rate and extent of absorption of the generic drug are not significantly different from that of the previously approved brand-name drug. The FDA may deny an ANDA if applicable regulatory criteria are not satisfied. Product approvals may be withdrawn by the FDA if compliance with regulatory standards is not maintained or if new evidence demonstrating that the drug is unsafe or lacks efficacy for its intended uses becomes known after the product reaches the market. FDA policy and its stringent 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 takes approximately 12 to 18 months. 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 10 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 Drug Enforcement Agency ("DEA") conducts inspections bi-annually. We underwent FDA inspections during March and April 2001 and in November 2002 and on each occasion we were found to be in substantial compliance with cGMPs. We did receive FDA 483s but we do not believe the observations are material and we have taken appropriate remedial actions. Subsequent to the end of 2002, we received approval for one of the then pending ANDAs. We now have 3 ANDAs pending approval Each domestic drug product manufacturing establishment must be registered with the FDA. Establishments, like ours, handling controlled substances, must be licensed by the DEA. We are licensed by both the FDA and DEA. We are also subject to regulation under other federal, state and local regulations regarding work place safety, environmental protection and hazardous substance controls, among others. Specifically, we are licensed by the Michigan Board of Pharmacy as a manufacturer and wholesaler of prescription drugs and as a distributor of controlled substances. We are also licensed by the Michigan Liquor Control Commission to use alcohol in the manufacture of drugs. We believe that we are in compliance with environmental laws. SUPPLIERS AND MATERIALS The principal components used in our 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 our pharmaceuticals are dependent upon our 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. We have been, and continue to be, actively identifying and validating alternative suppliers for its active ingredients. Our purchases of active materials are made from manufacturers in the U.S. and from abroad, including Sun Pharma. See "Sun Pharmaceutical Industries Ltd." All purchases of active materials are made in U.S. Dollars. 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 we 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. We compete with numerous pharmaceutical manufacturers, including both generic and brand-name manufacturers, many of which have been in business 11 for a longer period of time than us, have a greater number of products in the market and have considerably greater financial, technical, research, manufacturing, marketing and other resources. We believe that our primary competitors are EON Labs, Inc., Ivax Pharmaceuticals, Inc., Mylan Laboratories, Inc. and Taro Pharmaceutical Industries, Ltd. 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. We believe 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. We hope to compete by selecting appropriate products, based on therapeutic segments, market sizes and number of competitors manufacturing the products, and by keeping our prices competitive and by providing reliability in the timely delivery, and in the quality, of our products. EMPLOYEES As of December 31, 2002 and 2001, we had 128 and 76, respectively, full-time and employees who are engaged in research and development, quality assurance, quality control, administration, sales and marketing, materials management, facility management and manufacturing and packing. Most of our scientific and engineering employees have had prior experience with pharmaceutical or medical products companies, including Sun Pharma. See "Sun Pharmaceutical Industries Ltd." A union represents some of the employees of materials management, facility management and manufacturing and packaging departments. PRODUCT LIABILITY AND INSURANCE We currently have in force general and product liability insurance, with coverage limits of $10 million per incident and in the aggregate. Our insurance policies provide coverage on a claims made basis and are subject to annual renewal. Such insurance may not be available in the future on acceptable terms or at all. There can be no assurance that the coverage limits of such policies will be adequate to cover our liabilities, should they occur. ITEM 2. DESCRIPTION OF PROPERTY. EDC FINANCING Pursuant to Section 108 of the Housing and Community Development Act of 1974, the EDC loaned us approximately $9.1 million in 1990 in accordance with a Development and Loan Agreement dated August 10, 1990 (the "EDC Agreement"). These funds were used to pay the direct costs of acquiring land and constructing thereon our pharmaceutical manufacturing facility and executive offices. See "Current Status," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Note 5 of Notes to Financial Statements." The mortgage is a first priority mortgage lien against the property and may not be subordinated to the lien on any other mortgage or encumbrance except as otherwise provided in the Modification Agreement. In addition, we granted EDC a continuing security interest in all of our assets, accounts, equipment, proceeds thereof, ANDAs and in the products to be provided by Sun Pharma to us under its then products agreement with us. 12 See "Part I - Sun Pharmaceutical Industries Ltd." above. In addition to other covenants, we agreed that our capital expenditures would not exceed $2 million without the consent of the EDC and that we will not redeem any of our outstanding shares, pay any dividends with respect to our outstanding common or preferred shares or merge or consolidate with any other corporation or other entity without the prior written consent of the EDC. On March 1, 1994, the EDC Agreement was amended to extend the maturity date to July 1, 2002. On August 5, 1997, we restructured the loan from the EDC, pursuant to a Second Note and Modification Agreement ("Modification Agreement"), in connection with our 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. On February 1, 1999, we were 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) accrue 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 our operating income before federal income taxes plus depreciation exceeds $500,000 on the first day of the six months succeeding such quarter, the regularly scheduled payment required to be made would resume and the Additional Payments would commence, provided, however, that the Additional Payments would 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. During the month of December 1998 we approached the EDC regarding reconsideration of the repayment terms. We are currently in default of the Modification Agreement and have not made any of the scheduled payments, however, in response to our proposal on September 25, 2002, the Board of Directors of the EDC passed a resolution approving a six year extension of the loan of approximately $7.8 million, with interest rates starting at 2.75% and increasing to 5.16%. Under the approval, the EDC would retain a first mortgage on our property, and a first lien on our furniture, fixtures and equipment and intellectual property. However, the EDC would release its lien on our accounts receivable and inventory. In addition, the EDC has generally informally agreed to remove the $2 million restriction on capital expenditures, subject to certain conditions, and to allow us to pay the cash dividends and any accrued interest owed on the recently converted Series A preferred stock. The EDC resolution, which provides that the transaction must be completed by January 1, 2003, would not become effective until a definitive agreement incorporating the above terms has been agreed to by the parties. On March 19, 2003, the EDC extended the deadline to May 1, 2003 and agreed that the transaction, when it is finalized, would be effective as of January 1, 2003. Until we sign a final agreement, we intend to continue to make $100,000 monthly payments to the EDC. Since 2000 and through 2002, such payments have totaled $4.7 million. Such payments have not brought us current in our obligations to the EDC, and such payments were made without prejudice to the rights of the EDC to exercise all remedies available to the EDC for failure to make the scheduled payments. THE FACILITY Our approximately 72,000 square foot facility, which was designed and constructed to our specifications and completed in 1992, contains our production, packaging, research and corporate office. It is on a four-acre site. The 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 13 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 airflow design. This system of airflow 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. We believe the facility is suitable and adequate for our current and near term future use. We also believe that our facility is adequately covered by insurance. ITEM 3. LEGAL PROCEEDINGS. Except for the following, we are not a party to any litigation, which, individually or in the aggregate, is believed to be material to our business: On February 12, 2003, C. Arnold Curry filed a complaint in the Wayne County Circuit Court alleging breach of a written employment agreement. Mr. Curry is seeking 175,000 shares of our common stock (35,000 shares for each of the first five ANDAs approved by the FDA). We intend to vigorously defend ourselves against these claims which we believe have no merit. We have been named as one of two defendants and as one of several defendants in two separate product liability suits, involving Miraphen which contains phenylpropanolame (PPA), one in federal court in Pennsylvania and another in state court in New Jersey, respectively. These lawsuits seek damages generally for personal injury as well as punitive damages under a variety of liability theories including strict products liability, breach of warranty and negligence. We are being defended in these two PPA lawsuits by our primary commercial general liability insurer subject to aggregate policy limits in the amount of $10 million, however, the insurance carrier has not formally confirmed its coverage of our claims. The damages claimed exceed the policy limits. Although the ultimate outcome of these cases and the potential effect on us cannot be determined, we believe we have substantial defenses to the claims and we will vigorously defend the lawsuits ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. We 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. 14 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock trades in the over-the-counter market on the OTC Bulletin Board, under the symbol "CARA." The following table sets forth, in U.S. dollars and in dollars and cents (in lieu of fractions), the high and low bid prices for each of the calendar quarters indicated. These bid prices were obtained from the Nasdaq OTCBB. These quotations reflect inter-dealer prices, without retail mark up, mark down or commissions and may not represent actual transactions.
2002 HIGH LOW First Quarter $4.96 $1.10 Second Quarter $3.73 $2.25 Third Quarter $3.07 $1.73 Fourth Quarter $2.77 $1.72
2001 HIGH LOW First Quarter $0.60 $0.20 Second Quarter $0.85 $0.32 Third Quarter $0.70 $0.55 Fourth Quarter $1.11 $0.58
As of February 12, 2003 there were 153 holders of our Common Stock. During 2002, we issued 635,000 shares of common stock for cash of $1,692,000 pursuant to a private placement to accredited investors. All of the shares were issued pursuant to exemptions from registration under Section 4(2), 4(16) and Regulation D under the Securities Act of 1933. During the year ended December 31, 2002, we issued 1,632,000 shares to Sun Global in exchange for the transfer of products pursuant to the then existing products agreement between Sun Pharma and us. See "Part I. Sun Pharmaceutical Industries Ltd." All issued shares of common stock to Sun Pharma are issued pursuant to exemptions from registration under Section 4(2), Section 4(6) and Regulation D under the Securities Act of 1933. During 2002, certain of our non-employee directors earned 21,000 shares of common stock for attending board meetings. The shares of common stock were issued pursuant to exemptions from registration under Section 4(2), Section 4(6) and Regulation D under the Securities Act of 1933. For 2001, certain of our non-employee directors earned 13,000 shares of common stock for attending board meetings and received non-qualified stock options for 18,000 shares of common stock, at an exercise price of $0.68 per share. The options are exercisable at the rate of 20% per year commencing one year from the date of grant and may be exercised until September 8, 2007. DIVIDEND POLICY We never have declared or paid cash dividends on our common stock. We currently intend to retain all future earnings for the operation and expansion of our business. We do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends on the common stock will be at the discretion of the Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors. No dividend may be declared without the consent of the EDC. The EDC has informed us that as part of the proposed final restructured loan agreement, it would consent to our paying the cash dividends and accrued interest on the recently converted Series A preferred stock. 15 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that the management believes is relevant to an understanding of our results of operations and financial condition. The discussion should be read in conjunction with the financial statements and notes thereto. The discussion in the section contains forward-looking statements that involve risks and uncertainties. When used in this document, the words "anticipate," "believe," "estimate," and "expect" and similar expressions generally are intended to identify forward-looking statements. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences are identified in "Item 1 - Description of Business - Forward-looking Statements," in this section and elsewhere in this report. OVERVIEW 2002 was a year of record revenues for us. While we still experienced net losses, our cash flow improved significantly. In comparison we have historically experienced limited sales, operating losses and cash-flow difficulties. During 2001 and 2000, Sun Pharma assisted Caraco in obtaining loans from ICICI Bank Limited and The Bank of Nova Scotia of $5.0 million and $12.5 million. We have utilized the $5.0 million from ICICI Bank Limited during 2000 and $10.9 million from The Bank of Nova Scotia during 2002, 2001 and 2000. Also, Sun Pharma provided loans of an additional $1.40 million and $2.45 million to us during 2002 and 2001, respectively. The loans were primarily utilized by us to fund the operations, research and development of new products and finance the increased working capital needs resulting from the increase in our product portfolio following FDA approvals of 3 products during the last two quarters of 2001 and 6 products in 2002. In February 2003, the FDA approved an additional ANDA. We also filed 3 ANDA applications to the FDA during 2002, bringing the total pending approvals to 3. We continue to negotiate with the EDC to restructure our loan which has been in default and continue to pay the EDC $100,000 a month with aggregate payments to the EDC through 2002, totaling $4.7 million. See "Item 2 - Description of Property" for a discussion of the EDC resolution approving a restructuring of the loan. FDA COMPLIANCE AND PRODUCT APPROVALS Towards the end of the first and beginning of the second quarters of 2001, and in November 2002, the FDA conducted inspections of our facility. During these inspections, we were found to be substantially in compliance with the cGMP regulations. While the FDA did issue us an FDA 483 list of observations after each inspection, we do not believe they are material and we have taken appropriate remedial actions. During 2002, the FDA approved 6 ANDAs. In February 2003, the FDA approved an additional ANDA. 3 ANDAs are currently pending approval. TWELVE MONTHS ENDED DECEMBER 31, 2002 COMPARED WITH TWELVE MONTHS ENDED DECEMBER 31, 2001 NET SALES. Net sales for the twelve months ended December 31, 2002 and 2001 were $22,380,964 and $5,922,431, respectively, reflecting an increase of almost 278%. The increase is due to the higher production and marketing of our existing and newly approved products following the achievement of substantial compliance with cGMPs. Currently, we manufacture and market six of the nine ANDAs which were approved by the FDA during 2001 and 2002. Net sales of these newly approved products were almost 45% of total net sales for the twelve months ended December 31, 2002. The majority of the net sales increase from 16 sales of new products were from net sales of Metformin Hydrochloride and Tramadol Hydrochloride, 55% and 5% of net sales for the twelve months ended December 31, 2002, respectively. Net sales have also improved for the following reasons: o Net sales of Metoprolol Tartrate have increased significantly to $6.60 million during the twelve months of 2002 as compared to $1.85 during the same period of 2001. o We have been successful in obtaining larger sales contracts in 2002 with an agency of the U.S. government and with one large mail order company, however, the sales of Metformin Hydrochloride to such agency have been made at lower profit margins. (See discussion on "Gross Profit" below) o With our larger base of products, we have been able to attract both new customers as noted above, and larger orders. GROSS PROFIT. We earned a gross profit of $10,333,554 during the twelve months ended December 31, 2002 as compared to a gross profit of $1,736,372 during the corresponding period in 2001. The improvement was primarily due to higher sales volumes with improved margins due to product mix in the current period as compared to the corresponding period of 2001 and ability to absorb operational overheads due to higher sales. As a result of increased sales, the gross profit margin has also improved when comparing the gross profit margins for the twelve month periods ending December 31, 2002 and 2001. Gross profit margin for the twelve months ended December 31, 2002 was 46% as compared to almost 29% for the twelve months ended December 31, 2002. The increases were the result of: o Change in sales mix to higher profit margin products such as Metoprolol Tartrate, Tramadol Hydrochloride and Oxaprozin. o Reduction in manufacturing costs due to increased batch sizes. For example, Metoprolol Tartrate batch sizes have increased by approximately four fold. o Improved efficiency in the overall manufacturing process associated with higher utilization of plant capacity. o Utilization of newly installed larger and faster equipment to achieve economics of scale. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the twelve months ended December 31, 2002 and 2001, respectively were $3,827,727 and $2,680,494 respectively, representing an increase of 43%. Selling, general and administrative expenses have effectively decreased to 14.8% of net sales during the twelve months ended December 31, 2002 from almost 37% of net sales during the same period in 2001. The actual increase of approximately $1,147,213 between the selling, general and administrative expenses incurred during 2002 in comparison to 2001 was due to additional legal and professional costs ($250,000) primarily in connection with the negotiations of a new product agreement with Sun Global, litigation defense, SEC and blue sky registration, and negotiations with the EDC, costs of introducing new products into the market ($150,000), additional sales personnel ($40,000), increases in the salaries of sales and administrative staff ($80,000), recording of variable compensation expense on the extension of the term of a director's stock options ($262,000), and the balance for royalties and costs associated with development of improved services and quality measures to customers. RESEARCH AND DEVELOPMENT EXPENSES. Cash research and development expenses of $3,348,789 for the twelve months ended December 31, 2002 were higher by 9% when compared with $3,079,804 incurred during the corresponding period of 2001. We incurred non-cash research and development expenses 17 (technology transfer cost) of $3,887,424 for the 1,632,000 shares of common stock issued to Sun Global for 3 product transfers made to us during 2002. There was no similar expense for the corresponding period of 2001. The major reason for the additional cash research and development expenses were the costs for three bio-study projects, for which we recorded expenditures of approximately $593,000 during 2002. INTEREST EXPENSE. Interest expense, which was incurred in connection with our mortgage obligation to the EDC, interest on notes payable to Sun Pharma and Sun Global as well as on term loans granted to us by ICICI Bank and the Bank of Nova Scotia, and guaranteed by Sun Pharma, was $1,539,075 and $1,748,922, for the twelve months ended December 31, 2002 and 2001, respectively. The decrease in the amount of interest is due to a lower LIBOR rate on the loans from ICICI Bank of India and Bank of Nova Scotia, despite an increase in borrowing levels. Also, effective April 1, 2001, Sun Pharma and Sun Global reduced the rate of interest payable to them from 10% to 8%. RESULTS OF OPERATIONS. The net losses for the twelve months ended December 31, 2002 and 2001 were $2,256,004 and $5,757,464, respectively, reflecting a reduction of almost 61%. The net losses for the twelve month periods are directly related to net sales, which were inadequate to absorb our interest costs and the impact of our non-cash technology transfer cost of $3,887,424 recorded during the twelve months ended December 31, 2002. The significantly lower net losses in the current twelve-month period as compared to the previous period are primarily due to significantly higher sales volumes and better-cost absorption due to increased sales and an improved product mix. Also, the utilization in the third and fourth quarters of 2002 of $1.59 million of new equipment installed during the twelve months ended December 31, 2002 helped to improve productivity. A number of uncertainties exist that may influence our future operating results, including general economic conditions, changes in conditions affecting the pharmaceutical industry primarily related to generic drug competition, obtaining additional financing, government restrictions on sale of certain products, obtaining new FDA approvals, development by competitors of new or superior products or new technology for production of products or the entry into the market of new competitors. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2002, we had negative working capital of $1,647,253 compared with a negative working capital of $6,039,331 at the corresponding period of 2001. The negative working capital positions as of December 31, 2002 and 2001 respectively were mainly due to the classification of the $5.85 million loan payable to Sun Pharma and its affiliates as current as it becomes due in October 2003. To enable us to fund our research and development activities, repay certain term loans and fund working capital needs, Sun Pharma has become a security guarantor for a credit line of $5 million from ICICI Bank of India and $12.5 million from Bank of Nova Scotia. As of December 31, 2002 we have received $5 million from ICICI Bank of India and $10.9 million from Bank of Nova Scotia through these credit facilities. 18 Further, we have received an additional loan of $2.45 million during the fourth quarter of 2001 and $1.4 million during the first quarter of 2002 from Sun to help us finance our R&D activities, debt reduction and working capital requirements. In addition, during the first six months of 2002, 635,000 shares of common stock have been issued by the Corporation for cash of $1,692,000 pursuant to a private placement to accredited investors. FUTURE OUTLOOK We have experienced difficult times in the past. With our having been found to be in substantial compliance by the FDA with respect to cGMPs during the second quarter of 2001 and fourth quarter of 2002, and also with the approvals of nine ANDAs during 2001 and 2002, and one more during 2003, management feels that our future outlook is brighter. Management's plan for improving profitability, cash flow positions and operations include increased sales and infusion of additional funding through the issuance of equity, if required. Management believes that the new products agreement ("Products Agreement") with Sun Global, pursuant to which products are paid for in a newly created preferred stock and not in cash should benefit Caraco. As noted above, in "Part I-Business-Sun Pharmaceutical Industries Ltd," under the Products Agreement, we conduct, at our expense, all tests, including bioequivalency studies. The new Products Agreement, which was approved by an independent committee of directors of Caraco, provides that Sun Global, an affiliate of Sun Pharma, will provide us with 25 ANDAs in exchange for convertible preferred stock (544,000 shares of preferred stock for each ANDA). The preferred stock has a number of restrictive features. It is non-voting, does not pay dividends and, unless there is a change in control, may not be converted for a period of 3 years from the date it is earned. We believe that the new Products Agreement benefits us by, among other things, preserving our cash resources. By acquiring products for stock instead of cash or instead of for cash and for royalties, we should thereby have such cash available to support our operations. While the payment for products in stock would have the effect of reducing earnings or causing a loss because the stock will be valued on the respective dates on which it is earned and constitute a non-cash research and development expense, we believe that the advantages to us of preserving our cash for operations outweighs the non-cash effect on earnings. We also believe that receiving products from Sun Global, which products, it is believed, will be originated by Sun Pharma, provides us with a partner with a proven track record; one that already has provided us with quality products. In addition, the products to be selected must receive the concurrence of the independent committee. This will help provide independent input into the process of selecting products which appear likely to be economically sound. Moreover, the new Products Agreement, which will have the effect of increasing Sun Pharma's beneficial ownership in us, should, we believe, provide it with the incentive to continue to help us succeed. Sun Pharma has already provided us with millions of dollars in capital, loans, and guarantees of loans, and with personnel, raw materials and equipment which have significantly helped us to date. We expect Sun Pharma to continue to support us in 2003 as it has in the past. During 2002, we generated substantial revenues as compared to the past. Capacity utilizations are improving and costs are being controlled. We expect revenues to improve during 2003. Management's plans for the remainder of 2003 include: o Continued focus on FDA compliance. o Continued research and development activities. o Increased market share for certain existing products and recently introduced new products and enhanced customer reach and satisfaction. 19 o Prompt introduction of newly approved products to the market. o Striving to capture larger market share for existing products. o Achieving operational efficiencies by attaining economies of scale, cost reduction per unit, and obtaining additional cost reductions for active raw materials acquired from competitors and/or Sun Pharma. o Increasing the width and depth of product portfolio to serve customers effectively. o Increasing the number of products, as well as anticipated volume increases for existing products, which, in turn, will improve manufacturing capacity utilization. o Considering alternative ways of increasing cash flow including developing, manufacturing and marketing ANDAs owned by Sun Pharma. o Prompt restructuring of the EDC Loan. o Locating and utilizing facilities of contract-manufacturers to enhance production and therefore sales. ITEM 7. FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report F-1 Financial Statements as of December 31, 2002 and 2001 and for Each of the Years Then Ended Balance Sheets F-2 Statements of Operations F-4 Statements of Stockholders' Deficit F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 20 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. The information with respect to directors and executive officers of the Corporation and compliance with Section 16(a) of the Exchange Act is included in the Corporation's definitive Proxy Statement under the sections "Nominees For Directors' Terms Expiring in 2006, Incumbent Directors' Terms Expiring in 2005, Incumbent Directors' Terms Expiring in 2004," "Committees and Meetings of Directors", Executive Officers and "Section 16(a) Beneficial Ownership Reporting Compliance", 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 "Compensation of Executive Officers" and "Compensation of Directors," which is incorporated herein by reference. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information with respect to the security ownership of certain beneficial owners and management and with respect to equity compensation plans is included in the Corporation's definitive Proxy Statement under the sections "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management and Directors", and "Equity Compensation Plan Information" which are 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 "Transactions of Directors, Executive Officers and Certain Beneficial Owners with Caraco", 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.(2) 3.02 Certificate of Amendment to the Articles of Incorporation filed February 13, 1997.(4) 3.03 Certificate of Amendment to the Articles of Incorporation filed February 10, 2000.(11) 3.04 Certificate of Determination of Rights, Privileges and Preferences Series B Preferred Stock.(+) 3.05 Registrant's Amended and Restated Bylaws.(6) 3.06 Amendment to Amended and Restated Bylaws.(10) 3.07 Amendment to Amended and Restated Bylaws.(+) 21 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.(1) 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.(1) 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.(1) 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.(1) 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.(1) 10.06 Agreement, dated as of October 1, 1993, among Registrant, Hexal-Pharma GmbH & Co., KG, and Hexal Pharmaceuticals, Inc.(1) 10.07 Form of 1993 Stock Option Plan.(1) 10.08 Employment Agreement, dated October 22, 1993, with Robert Kurkiewicz. (1) 10.09 Secured Promissory Note dated December 23, 1996 with Sun Pharma Global, Inc.(4) 10.10 Security Agreement dated December 23, 1996 with Sun Pharma Global Inc.(4) 10.11 Stock Purchase Agreement by and between Caraco Pharmaceutical Laboratories, Ltd. and Sun Pharmaceutical Industries, Ltd. dated as of April 23, 1997.(5) 10.12 Products Agreement by and between Caraco Pharmaceutical Laboratories, Ltd. and Sun Pharmaceutical Industries, Ltd. dated as of April 23, 1997.(5) 10.13 Registration Rights Agreement dated as April 1997.(5) 10.14 Second Note and Mortgage Modification Agreement.(6) 10.15 Amendment to Employment Agreement of Robert Kurkiewicz dated as of April 1, 1997.(6) 10.16 Employment Agreement dated September 22, 1998 with Narendra N. Borkar.(7) 10.17 1999 Equity Participation Plan.(8) 10.18 Agreement between ICICI Bank and the Corporation for the term loan of $5 million.(9) 22 10.19 Term Sheet between Bank of Nova Scotia and the Corporation for the term loan of $12.5 million.(10) 10.20 Renewal to Employment Agreement of Robert Kurkiewicz dated as of January 1, 1999.(11) 10.21 Third Amendment to Employment Agreement of Robert Kurkiewicz dated August 30, 2002.(11) 10.22 Employment Agreement of Jitendra N. Doshi.(11) 10.23 Agreement between Caraco and Sun Pharma Global, Inc. dated November 21, 2002.(+) 10.24 Sales contract with government vendor.(+) 24.1 Power of Attorney (on signature page). 99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - ------------- + Filed herewith 23 (1) Incorporated by reference from Exhibits to Registrant's Registration Statement on Form SB-2, as amended, filed on November 5, 1993 as Commission File No. 33-71398C. (2) Incorporated by reference from Exhibits to Registrant's Form 10-KSB filed on or about March 30, 1995 as Commission File no. 0-24676. (3) Incorporated by reference from Exhibits to Registrant's Form 10-KSB filed on or about March 30, 1996 as Commission File no. 0-24676. (4) Incorporated by reference from Exhibits to Registrant's Form 10-KSB filed on or about March 31, 1997, as Commission File No. 0-24676. (5) Incorporated by reference from Exhibits to Registrant's Form 10-QSB filed on November 14, 1997 as Commission File No. 0-24676. (6) Incorporated by reference from Exhibits to Registrant's Form 10-KSB filed on or about March 31, 1998, as Commission File No. 0-24676. (7) Incorporated by reference from Exhibits to Registrant's Form 10-QSB dated as of November 13, 1998 as Commission File No. 0-24676. (8) Incorporated by reference from Exhibit A to Registrant's Proxy Statement dated April 28, 1999 as Commission File No. 0-24676. (9) Incorporated by reference from Exhibits to Registrant's Form 10-QSB filed on August 14, 2000 as Commission File No. 0-24676. (10) Incorporated by reference from Exhibits to Form SB-2 filed on July 3, 2002 as Commission File No. 333-91968. (11) Incorporated by reference from Exhibits to Pre-Effective Amendment No. 1 to Form SB-2 filed on September 4, 2002 as Commission File No. 333-91968. (b) Reports on Form 8-K None. ITEM 14. CONTROLS AND PROCEDURES. a. The term "disclosure controls and procedures" is defined in Rules 13a-14 (c) and 15d-14 (c) of the Securities Exchange Act of 1934 (the "Exchange Act"). These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days before the filing of this annual report (the "Evaluation Date"), and have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in providing them with material information relating to the Corporation known to others within the Corporation which is required to be included in our periodic reports filed under the Exchange Act. b. There have been no significant changes in our internal controls or in other factors which could significantly affect internal controls subsequent to the Evaluation Date. 24 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 28th day of March, 2003 CARACO PHARMACEUTICAL LABORATORIES LTD. By: /s/ Narendra N. Borkar --------------------------------- Narendra N. Borkar Chief Executive Officer 25 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Narendra N. Borkar and Jitendra N. Doshi, and each of them, this 28th day of March, 2003, his true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitutes(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated above. /s/ Dilip S. Shanghvi Chairman of the Board - ------------------------- Dilip S. Shanghvi /s/ Narendra N. Borkar Director, President and Chief Executive Officer - ------------------------- (Principal Executive Officer) Narendra N. Borkar /s/ Jitendra N. Doshi Director, Chief Financial Officer and Chief - ------------------------- (Principal Financial and Accounting Officer) Jitendra N. Doshi /s/ Sailesh T. Desai Director - ------------------------- Sailesh T. Desai /s/ David A. Hagelstein Director - ------------------------- David A. Hagelstein /s/ Phyllis Harrison-Ross Director - ------------------------- Phyllis Harrison-Ross /s/ Jay F. Joliat Director - ------------------------- Jay F. Joliat /s/ Sudhir V. Valia Director - ------------------------- Sudhir V. Valia 26 CERTIFICATION I, Narendra N. Borkar, the Chief Executive Officer of Caraco Pharmaceutical Laboratories Ltd. (the "registrant") certify that: 1. I have reviewed this annual report on Form 10-KSB of the registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. CARACO PHARMACEUTICAL LABORATORIES LTD. By: /s/ Narendra N. Borkar ---------------------------------- Narendra N. Borkar Chief Executive Officer Dated: March 28, 2003 27 CERTIFICATION I, Jitendra N. Doshi, the Chief Financial Officer of Caraco Pharmaceutical Laboratories Ltd. (the "registrant") certify that: 1. I have reviewed this annual report on Form 10-KSB of the registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. CARACO PHARMACEUTICAL LABORATORIES LTD. By: /s/ Jitendra N. Doshi ---------------------------------- Jitendra N. Doshi Chief Financial Officer Dated: March 28, 2003 SECURITIES AND EXCHANGE COMMISSION CARACO PHARMACEUTICAL LABORATORIES, LTD. FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 CARACO PHARMACEUTICAL LABORATORIES, LTD. INDEX TO FINANCIAL STATEMENTS 2002 FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002 AND 2001 AND FOR EACH OF THE YEARS THEN ENDED Balance Sheets Statements of Operations Statements of Stockholders' Deficit Statements of Cash Flows Notes to Financial Statements (REHMANN ROBSON LETTERHEAD) INDEPENDENT AUDITORS' REPORT Stockholders and Board of Directors Caraco Pharmaceutical Laboratories, Ltd. Detroit, Michigan We have audited the accompanying balance sheets of Caraco Pharmaceutical Laboratories, Ltd. (a Michigan corporation) as of December 31, 2002 and 2001, and the related statements of operations, stockholders' deficit and cash flows for the years then ended. 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 auditing standards generally accepted in the United States of America. 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, 2002 and 2001 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. REHMANN ROBSON Troy, Michigan February 7, 2003 F-1 CARACO PHARMACEUTICAL LABORATORIES, LTD. BALANCE SHEETS
ASSETS DECEMBER 31 -------------------------- 2002 2001 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 534,228 $ 241,110 Accounts receivable, net 5,484,135 1,486,508 Inventories 5,615,962 2,909,055 Prepaid expenses and deposits 471,314 179,201 ----------- ----------- TOTAL CURRENT ASSETS 12,105,639 4,815,874 ----------- ----------- PROPERTY, PLANT AND EQUIPMENT Land 197,305 197,305 Buildings and improvements 7,346,797 6,829,377 Equipment 5,458,314 4,407,323 Furniture and fixtures 232,112 207,750 ----------- ----------- Total 13,234,528 11,641,755 Less accumulated depreciation 5,487,018 4,947,673 ----------- ----------- NET PROPERTY, PLANT AND EQUIPMENT 7,747,510 6,694,082 ----------- ----------- TOTAL ASSETS $19,853,149 $11,509,956 =========== ===========
The accompanying notes are an integral part of these financial statements. F-2
LIABILITIES AND STOCKHOLDERS' DEFICIT DECEMBER 31 ----------------------------- 2002 2001 ------------ ------------ CURRENT LIABILITIES Accounts payable $ 1,958,809 $ 689,233 Accounts payable, Sun Pharma 2,024,028 273,668 Accrued expenses 1,391,623 296,715 Current portion of subordinated notes payable to stockholder 5,850,000 -- Current portion of loans payable to financial institutions 625,000 -- Short-term borrowings -- 75,000 EDC loan payable, current 1,004,000 5,380,000 Preferred stock dividends payable, current 350,380 -- Accrued interest 549,052 4,140,589 ------------ ------------ TOTAL CURRENT LIABILITIES 13,752,892 10,855,205 ------------ ------------ LONG-TERM LIABILITIES Loans payable to financial institutions 15,275,000 15,000,000 EDC loan payable, net of current portion 6,598,547 -- Notes payable to stockholder, net of current portion 3,850,000 8,300,000 Preferred stock dividends payable -- 300,000 ------------ ------------ TOTAL LONG-TERM LIABILITIES 25,723,547 23,600,000 ------------ ------------ TOTAL LIABILITIES 39,476,439 34,455,205 ------------ ------------ COMMITMENTS AND CONTINGENCIES (NOTES 5, 9 AND 12) STOCKHOLDERS' DEFICIT Series A preferred stock, no par value; authorized 5,000,000 shares, issued and outstanding -0- and 285,714 -- 1,000,000 Common stock, no par value; authorized 30,000,000 shares, issued and outstanding 23,767,532 and 21,173,818 shares 40,457,028 34,111,543 Additional paid-in capital 282,858 -- Preferred stock dividends (350,380) (300,000) Accumulated deficit (60,012,796) (57,756,792) ------------ ------------ TOTAL STOCKHOLDERS' DEFICIT (19,623,290) (22,945,249) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 19,853,149 $ 11,509,956 ============ ============
F-3 CARACO PHARMACEUTICAL LABORATORIES, LTD. STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 ----------------------------- 2002 2001 ------------ ------------ Net sales $ 22,380,964 $ 5,922,431 Cost of goods sold 12,047,410 4,186,059 ------------ ------------ GROSS PROFIT 10,333,554 1,736,372 Selling, general and administrative expenses 3,827,707 2,680,494 Research and development costs - affiliate (Note 7) 3,887,423 -- Research and development costs 3,348,789 3,079,804 ------------ ------------ OPERATING LOSS (730,365) (4,023,926) ------------ ------------ OTHER INCOME (EXPENSE) Interest expense (1,539,075) (1,748,922) Interest income 13,436 15,385 ------------ ------------ OTHER EXPENSE - NET (1,525,639) (1,733,537) ------------ ------------ NET LOSS $ (2,256,004) $ (5,757,463) ============ ============ NET LOSS PER BASIC AND DILUTED COMMON SHARE $ (0.10) $ (0.29) ============ ============
The accompanying notes are an integral part of these financial statements. F-4 CARACO PHARMACEUTICAL LABORATORIES, LTD. STATEMENTS OF STOCKHOLDERS' DEFICIT
PREFERRED STOCK COMMON STOCK ADDITIONAL ------------------------------ ---------------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL ------------ ------------ ------------ ------------ ------------ Balances at January 1, 2001, as restated (Note 13) 285,714 $ 1,000,000 21,172,618 $ 34,111,093 $ -- Preferred stock dividends -- -- -- -- -- Issuance of common stock to directors in lieu of cash compensation -- -- 1,200 450 -- Net loss -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Balances at December 31, 2001 285,714 1,000,000 21,173,818 34,111,543 -- Preferred stock dividends -- -- -- -- -- Issuance of common stock to directors in lieu of cash compensation -- -- 36,000 41,400 -- Issuance of common stock under private placement -- -- 635,000 1,692,000 -- Issuance of common stock to affiliate in exchange for product technology transfers -- -- 1,632,000 3,887,423 -- Common stock subscribed -- -- -- 7,520 -- Preferred stock converted to common stock (285,714) (1,000,000) 285,714 717,142 282,858 Net loss -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Balances at December 31, 2002 -- $ -- 23,762,532 $ 40,457,028 $ 282,858 ============ ============ ============ ============ ============ PREFERRED STOCK ACCUMULATED DIVIDENDS DEFICIT TOTAL ------------ ------------ ------------ Balances at January 1, 2001, as restated (Note 13) $ (240,000) $(51,999,329) $(17,128,236) Preferred stock dividends (60,000) -- (60,000) Issuance of common stock to directors in lieu of cash compensation -- -- 450 Net loss -- (5,757,463) (5,757,463) ------------ ------------ ------------ Balances at December 31, 2001 (300,000) (57,756,792) (22,945,249) Preferred stock dividends (50,380) -- (50,380) Issuance of common stock to directors in lieu of cash compensation -- -- 41,400 Issuance of common stock under private placement -- -- 1,692,000 Issuance of common stock to affiliate in exchange for product technology transfers -- -- 3,887,423 Common stock subscribed -- -- 7,520 Preferred stock converted to common stock -- -- -- Net loss -- (2,256,004) (2,256,004) ------------ ------------ ------------ Balances at December 31, 2002 $ (350,380) $(60,012,796) $(19,623,290) ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-5 CARACO PHARMACEUTICAL LABORATORIES, LTD. STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 --------------------------- 2002 2001 ----------- ----------- Cash flows from operating activities Net loss $(2,256,004) $(5,757,463) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 539,374 508,682 Common shares issued in exchange for product formula 3,887,423 -- Common shares issued in lieu of compensation 41,400 450 Changes in operating assets and liabilities which provided (used) cash: Accounts receivable (3,997,627) (1,020,062) Inventories (2,706,907) (1,497,134) Prepaid expenses and deposits (292,112) (115,817) Accounts payable 3,019,936 45,902 Accrued expenses and interest 925,917 748,315 ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (838,600) (7,087,127) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (1,592,802) (108,531) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank term loans 900,000 6,150,000 Repayments of short-term borrowings (75,000) -- Proceeds from stockholder loans 1,400,000 2,300,000 Repayments of EDC loan (1,200,000) (1,200,000) Proceeds from issuance of common stock 1,699,520 -- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,724,520 7,250,000 ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 293,118 54,342 Cash and cash equivalents, beginning of year 241,110 186,768 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 534,228 $ 241,110 =========== ===========
The accompanying notes are an integral part of these financial statements. F-6 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Nature of Business Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" or the "Corporation") was established in Detroit, Michigan to develop, manufacture and market generic and private label 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). The Corporation's present product portfolio consists of a limited number of products in certain strengths and package sizes. The Corporation's drugs relate to a variety of therapeutic segments including the central nervous system, cardiology, pain management and diabetes. Over the years, significant sources of funding for the Corporation have been received from private placement offerings, stockholder and financial institution loans and debt financing from the Economic Development Corporation of the City of Detroit (the "EDC"), which loaned approximately $9.1 million to the Corporation in accordance with a Development and Loan Agreement dated August 10, 1990 (see Note 5). During 2002 and 2001, the Corporation also obtained term loans providing total credit facilities of $17.5 million from two foreign banks. The Corporation and a Mumbai, India based specialty pharmaceutical manufacturing company, Sun Pharmaceutical Industries, Ltd. ("Sun Pharma") completed an agreement, in 1997, whereby Sun Pharma invested $7,500,000 into the common stock of the Corporation, and was required to transfer to the Corporation the technology formula for 25 generic pharmaceutical products over a period of five years through August 2002 in exchange for 544,000 shares of Caraco common stock to be issued for each ANDA product and 181,333 shares for each DESI (Drug Efficacy Study Implementation) product. As of December 31, 2002, Sun Pharma has delivered to Caraco the formula for 13 products and beneficially owns approximately 49% of the outstanding common stock of the Corporation. In November 2002, a subsidiary of Sun Pharma agreed to transfer to the Corporation a technology formula for 25 generic pharmaceutical products over a period of five years through November 2007 in exchange for 544,000 shares of a new convertible preferred stock for each formula received (Note 7). In addition to Sun Pharma's equity holdings, the product and technology transfers which include various research and development activities conducted on an ongoing basis by Sun Pharma, loans made directly to and loans guaranteed on behalf of Caraco (see Note 5), Sun Pharma has also supplied Caraco with certain raw materials and equipment (see Note 4) and transferred to Detroit a number of qualified technical and management professionals having pharmaceutical experience. Furthermore, five of the eight Caraco directors are or were affiliated with Sun Pharma. Caraco is substantially dependent on the active involvement and support of Sun Pharma. In addition to its substantial dependence on Sun Pharma, the Corporation is subject to certain risks associated with companies in the generic 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 ANDAs, develop new products and continue to raise in the near term the necessary funds to keep the Corporation in business. F-7 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS Operations For the first time since inception, during the second, third and fourth quarters of 2002, the Corporation has achieved sales necessary to support operations. During 2002, the Corporation's results did improve such that its loss from operations decreased from approximately $4,000,000 in 2001 to approximately $730,000 in 2002. The Corporation's net loss also decreased from approximately $5,750,000 in 2001 to approximately $2,250,000 in 2002. The net loss in 2002 includes approximately $3.9 million of research and development costs related to technology transfers from Sun Pharma Global in exchange for common stock of Caraco. There were no such technology transfers in 2001. In addition, cash used by operations decreased from approximately $7,100,000 in 2001 to approximately $840,000 in 2002. While management views these results as positive developments, the Corporation must still overcome its stockholders' deficit, which is $19,623,290 as of December 31, 2002. Realization of a major portion of its assets is thus dependent upon the Corporation's ability to meet its future financing requirements and the success of future operations. Management believes that continued improvement in profitability and cash flow, along with sustained financial and operating support from Sun Pharma, are key factors in the Corporation's ability to continue to operate in the normal course of business. While management has a basis to reasonably believe that Sun Pharma's substantial investment in Caraco provides Sun Pharma with sufficient economic incentive to continue to assist Caraco in developing its business, and Sun Pharma has expressed its intent to continue to support Caraco's operations in the near term, as it has done in the past, there can be no assurance that such support will, in fact, continue for a period of time sufficient to ensure Caraco's ultimate business success. For example, Sun Pharma, which is subject to the prevailing regulatory process in India, may be constrained from fully pursuing its business interest outside of India. 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 operating in the normal course of business. Management's plans with regard to improving profitability, cash flows and operations include infusion of additional funding from new investors pursuant to equity offerings planned to be carried out during the first half of 2003. Management's plans also include for 2003: o Continued focus on FDA compliance. o Continued research and development activities. o Increased market share for certain existing products and recently introduced new products and enhance customer reach and satisfaction. o Prompt introduction of newly approved products to the market. o Striving to capture larger market share for existing products. o Achieving operational efficiencies by attaining economies of scale, cost reduction per unit, and obtaining additional cost reductions for active raw materials acquired from competitors and/or Sun Pharma. o Increase the width and depth of product portfolio to serve the customers effectively. F-8 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS o Increase the number of products, as well as anticipated volume increases for existing products which, in turn, will improve manufacturing capacity utilization. o Considering alternative ways of increasing cash flow including developing, manufacturing and marketing ANDAs owned by Sun Pharma. o Prompt restructuring of the EDC loan. o Locating and utilizing facilities of contract-manufacturers to enhance production and therefore sales. 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. Significant estimates include, but are not limited to, valuation allowances for accounts receivable and the recoverability of the Corporation's property, plant and equipment. Cash and Cash Equivalents The Corporation considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. The Corporation from time to time may have cash balances which exceed federally insured limits. Revenue Recognition The Corporation recognizes revenue at the time its products are shipped to its customers as, at that time, the risk of loss or physical damage to the product passes to the customer, and the obligations of customers to pay for the products are not dependent on the resale of the product or the Corporation's assistance in such resale. Customers are permitted to return unused product in, certain instances, after approval from the Corporation upon the expiration date of the product's lot. Amounts billed by the Corporation, if any, in advance of performance with contracts to render certain manufacturing or research and development services are deferred and then recognized upon performance of those services. Provisions for estimated returns, discounts, rebates and other price adjustments including chargebacks can be reasonably determined in the normal course of business based on historical results. A significant portion of the current allowance has been reserved for expected chargebacks. Chargebacks are price adjustments given to wholesale customers for product it resells to parties with whom the Corporation has established contractual pricing. The chargeback represents the difference between the sales price to the wholesaler and the contracted price. Approximately 96% of the current allowance for trade receivables has been reserved for estimated chargebacks. F-9 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS Accounts Receivable Accounts receivable are stated at the amount management expects to collect from outstanding balances. The Corporation provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on management's assessment of the current status of individual accounts. Balances that are still outstanding after the Corporation has attempted reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. Inventories Inventories are stated at the lower of cost determined by the first in, first-out method, or market. Loss Per Share Loss per share is computed using the weighted average number of common shares outstanding during each year and considers a dual presentation and reconciliation of "basic" and "diluted" per share amounts. Diluted reflects the potential dilution of all common stock equivalents. At December 31, 2002 and 2001, options to purchase 310,000 and 2,705,199 shares, respectively, were excluded from the computation of loss per share because the options' exercise prices were greater than the average market price of the common shares. The following table sets forth the computation of basic and diluted loss per common share.
2002 2001 ----------- ----------- Numerator: Loss from continuing operations $ 2,256,004 $ 5,757,463 ----------- ----------- Preferred stock dividends 50,380 300,000 ----------- ----------- 2,306,384 6,057,463 Loss available for common stockholder ----------- ----------- Denominator: Weighted average shares outstanding, basic and diluted 22,031,425 21,173,522 ----------- ----------- Loss per basic and diluted common share $ .10 $ .29 =========== ===========
Property, Plant and Equipment and Depreciation Depreciation is computed using the straight line method over the estimated useful lives of the related assets, which range from 3 to 40 years. Management annually reviews these assets for impairment and reasonably believes the carrying value of these assets will be recovered through cash flow from operations, assuming the Corporation is successful in continuing to operate in the normal course of business. F-10 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS 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 net operating losses. Research and Development Costs Research and development costs are charged to expense as incurred. Fair Values of 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 carrying amounts of short-term borrowings, notes payable to stockholders, and loans payable approximate their fair values because the interest rates are representative of, or change with, market rates. 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 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 the fair values of such shares on the date they were earned. Common Stock Issued to Sun Pharma Common stock is issued from time to time to Sun Pharma and its affiliates in exchange for the formula for products delivered by Sun Pharma to the Corporation. Research and development costs are recorded based on the fair value of the shares on the date the respective product formula has passed the bioequivalency study. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") also issued Statement No. 142 "Goodwill and Other Intangible Assets" which was effective generally beginning January 1, 2002. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but, instead, tested for impairment at least annually in accordance with the provisions of Statement 142. The Company has no goodwill and, accordingly, adoption of the new standard did not impact the Company's financial statements. F-11 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS In June 2001, the FASB issued Statement No. 143 "Accounting for Asset Retirement Obligations." Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the remaining useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. Statement 143 is effective for fiscal years beginning after June 15, 2002. Adoption of this statement is not expected to impact the Company's results of operations or financial position. In August 2001, the FASB issued Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," effective prospectively for fiscal years beginning after December 15, 2001. Statement 144 supersedes Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("Opinion 30") for the disposal of a segment of business (as previously defined under Opinion 30). The FASB issued Statement No. 144 to establish a single accounting model for long-lived assets to be disposed of by sale. Statement 144 broadens the presentation of discontinued operations in the income statement to include a component of an entity (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of an entity. Statement 144 also requires that discontinued operations be measured at the lower of the carrying amount or fair value less cost to sell, rather than net realizable value. The Company does no believe Statement No. 144 will have a material impact on its financial position or results of operations. In December 2002, the FASB issued Statement 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of Statement No. 123", which is effective for years beginning after December 15, 2002. This statement amends Statement No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation and the effect of the method used on reported results. The Company does not currently plan to voluntarily adopt this statement and accordingly, the provisions will not have a material impact on its financial position or results of operations. F-12 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS 2. SUPPLEMENTAL CASH FLOWS INFORMATION Other Cash Flows Information Cash paid for interest during 2002 and 2001 was approximately $1,820,000 and $1,044,000, respectively. 3. ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE The Corporation sells its products using customary trade terms; the resulting accounts receivable are unsecured. Accounts receivable and related allowances are summarized as follows as of December 31:
2002 2001 ----------- ----------- Accounts receivable $14,774,382 $ 1,886,508 ----------- ----------- Allowances: Chargebacks (Note 1) 8,972,247 283,000 Sales returns and allowances 223,000 42,000 Doubtful accounts 95,000 75,000 ----------- ----------- Total allowances 9,290,247 400,000 ----------- ----------- Accounts receivable, net of allowances $ 5,484,135 $ 1,486,508 =========== ===========
4. INVENTORIES Inventories consist of the following amounts at December 31:
2002 2001 ---------- ---------- Raw materials $3,117,293 $1,810,364 Goods in transit 801,043 144,716 Work in process 1,153,913 719,729 Finished goods 543,713 234,246 ---------- ---------- Total $5,615,962 $2,909,055 ========== ==========
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. During 2002 and 2001, the Corporation purchased raw materials of approximately $2,422,000 and $1,138,000, respectively, from Sun Pharma. F-13 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS The Corporation also purchased approximately $-0- and $148,785 of raw materials from an entity owned by a shareholder during 2002 and 2001, respectively. 5. DEBT (INCLUDING RELATED PARTIES) EDC Loan Debt at December 31, 2002 includes a note payable to the Economic Development Corporation (EDC) of the City of Detroit (classified as a current obligation of $7,602,547 at December 31, 2002), plus accrued interest there on, 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. Effective April 2, 1993, and subsequently on August 5, 1997, the Corporation and the EDC of the City of Detroit restructured the Agreement discussed above. The amendment included the deferral of scheduled principal and interest payments until February 1, 1999, at which time additional deferred principal and interest due under the terms of the original agreement were required in amounts sufficient to amortize the total deferred amount through July 2002. Additionally the amendment included 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 6.4%, as described in the amendments (effective rate of 6.31% at December 31, 2001). As a condition of the deferral, the EDC was provided additional security on all the Corporation's existing equipment and the Corporation agreed 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. During both 2002 and 2001, the Corporation made payments of $1,200,000. Such payments have not brought the Corporation current in its obligations to the EDC, and such payments were made without prejudice to the rights of the EDC to exercise all remedies available to the EDC for failure to make the scheduled payments. While the terms of the restructured loan are being negotiated, the Corporation intends to continue to make payments to the EDC, again without prejudice to the rights of the EDC. Upon a final agreement of the restructured terms of the loan, the Corporation expects to then commence making the requisite agreed upon payments, which management believes has been agreed upon in principle. The Corporation had submitted a proposal in April 2002 to the EDC to restructure the loan. Based on a resolution passed at a meeting of the Board of Directors of the EDC on September 25, 2002 and further extended at a meeting on March 19, 2003, the EDC approved a six year extension of the loan of approximately $7.8 million, with interest rates starting at 2.75% and increasing to 5.16% commencing effective January 1, 2003. Under the approval, the EDC would retain a first mortgage on the property, and a first lien on furniture, fixtures and equipment and intellectual property. The EDC resolution will not become effective until a definitive agreement incorporating the above terms has been agreed to by the parties. Subsequent to the close of the year, the Corporation has received drafts of the agreement from the EDC, which is pending final approval. Management believes that the Corporation has the intent and ability to finalize this agreement and, accordingly, the EDC debt has been classified on the accompanying December 31, 2002 balance sheet according to the payment terms approved by the resolution. F-14 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS Loans Payable Loans payable to financial institutions consist of the following obligations as of December 31:
2002 2001 ----------- ----------- Term loan payable to ICICI Bank of India, with quarterly principal payments of $625,000 commencing on December 31, 2003 and ending on September 30, 2005. Interest is adjusted semi-annually and is charged at the LIBOR rate plus 140 basis points (effective rate of 2.8% at December 31, 2002), and is due in quarterly installments. $ 5,000,000 $ 5,000,000 $12.5 million term loan payable to Bank of Nova Scotia, with semi-annual principal payments of $3,125,000 commencing in February 2004 and ending in August 2005. Interest is charged at the LIBOR rate plus 30 basis points (effective rate of 1.7% at December 31, 2002), and is due in quarterly installments. An additional annual fee of $15,000 is charged. 10,900,000 10,000,000 ----------- ----------- Total loans payable $15,900,000 $15,000,000 =========== ===========
At December 31, 2002, $10,900,000 has been drawn on the Bank of Nova Scotia term loan. Additional amounts available to be drawn must be drawn prior to March 25, 2003, at which time no further draws are permitted. Principal prepayments are not permitted until August of 2003. The Corporation incurred approximately $62,500 in bank fees as stipulated in the Bank of Nova Scotia term loan during both 2002 and 2001. The repayment of these term loans is guaranteed by Sun Pharma. Stockholder Notes Payable Stockholder notes payable consist of the following obligations as of December 31:
2002 2001 ---------- ---------- Promissory note payable to Sun Pharma with the entire principal balance due in October 2003. Interest is charged at 8% per annum and is payable in semi-annual installments. $5,300,000 $5,300,000 Promissory note payable to Sun Pharma with the entire principal balance due in August 2006. Interest is charged at 8% per annum and is payable in semi-annual installments. 3,850,000 2,450,000 Promissory note payable to Sun Pharma Global, Inc., a wholly-owned subsidiary of Sun Pharma, with the entire principal balance due in October 2003. Interest is charged at 8% per annum and is payable in semi-annual installments. 550,000 550,000 ---------- ---------- Total shareholder notes payable $9,700,000 $8,300,000 ========== ==========
F-15 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS Notes payable to Sun Pharma and Sun Pharma Global, Inc. are subordinated to the EDC loan. Interest incurred on these stockholder notes amounted to $765,337 and $528,608 in 2002 and 2001, respectively. Accrued expenses include approximately $393,545 and $630,000 of accrued interest payable on stockholder notes at December 31, 2002 and 2001, respectively. Scheduled maturities of all long-term debt for each of the years succeeding December 31, 2002 are summarized as follows:
Year ended December 31 Amount ----------- ----------- 2003 $ 7,479,000 2004 9,955,000 2005 7,740,000 2006 5,095,000 2007 1,292,000 Thereafter 1,641,547 ----------- Total $33,202,547 ===========
6. INCOME TAXES At December 31, 2002 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 $18,100,000 has been established. Changes in the valuation allowance were approximately $770,000 and $1,930,000 in 2002 and 2001, respectively At December 31, 2002, net operating loss carryforwards of approximately $53,000,000 are available to offset future federal taxable income, if any. Certain of the net operating losses begin to expire in 2007. The Corporation's ability to utilize the net operating loss carryforwards may be limited due to ownership changes. 7. STOCKHOLDERS' DEFICIT Other Common Stock Issuances (also see Note 2) During 2002, the Corporation issued 1,632,000 shares of common stock to an affiliate of Sun Pharma in exchange for the formula for three ANDA products delivered to Caraco. The issuance of such shares have been recorded as research and development expense, based on the fair value of the respective shares on the date earned, which totaled $3,887,423 in 2002. These shares have also been included in the calculation of the weighted average number of common shares outstanding in the year the respective formula was delivered. F-16 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS During 2002, 285,714 shares of preferred stock were converted into 285,714 shares of common stock. The Corporation recorded additional paid-in capital of $287,888 for the differences between the fair value of the common stock on the conversion date and the per share value of the preferred stock. During 2002, the Corporation issued 635,000 shares of common stock in connection with a private placement offering resulting in net proceeds of $1,692,000 or approximately $2.66 per share. During 2002 and 2001, the Corporation issued 36,000 and 1,200 shares, respectively, of common stock to non-employee directors in exchange for services rendered. The Corporation recorded compensation expense of $41,400 and $450, respectively, based on the fair values of such shares on the dates they were earned. Common Stock During 2002, the Corporation's Board of Directors approved the authorization of an additional 20,000,000 shares of common stock, which would be formally authorized upon the approval by the shareholders of the Corporation. 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. During 2002, the Corporation's Board of Directors authorized an additional 10,000,000 shares of preferred stock, which would be formally authorized upon the approval of the shareholders of the Corporation. Each share of Series A Preferred Stock is nonvoting and was convertible, at the option of the holder, into one share of common stock. The preferred shares required annual dividends of $0.21 per share on a cumulative basis. Accrued dividends on preferred stock at December 31, 2002 and 2001 were $350,380 and $300,000, respectively. It is expected that such dividends will be paid in 2003 and, accordingly, the related liability is classified as a current obligation on the accompanying balance sheet. In November 2002, in connection with the technology transfer agreement with a subsidiary of Sun Pharma (Note 1), the Corporation created a new series of preferred stock designated as the Series B Convertible Preferred Stock, consisting of 13,600,000 shares of no par nonredeemable preferred stock. The Series B Preferred Stock, which has no voting or dividend rights or liquidation preference other than priority liquidation based on their face value, can be converted after 3 years from the issuance date into one share of common stock, subject to a conversion adjustment in the event common stock equivalents are issued by the Corporation in certain circumstances. Formal authorization of these shares are pending final shareholder approval. F-17 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS 8. COMMON STOCK OPTIONS Stock Option Plans The Corporation maintains the 1999 Plan and the 1993 Stock Option Plan in which the Corporation may grant options to employees and non-employee-directors for the purchase of up to 3,450,000 shares of common stock. The exercise price of options granted may not be less than the fair value of the common stock on the date of grant. Options granted under this plan vest in annual installments, from the date of grant, over a five year period, and expire within six years from the date of the grant. Activity with respect to these options is summarized as follows:
2002 2003 --------------------- --------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------- --------- -------- -------- Outstanding, beginning of year 679,375 $ 1.03 428,331 $ 1.51 Granted -- -- 343,000 0.96 Terminated (14,000) 1.74 (91,956) (3.31) -------- ------ -------- -------- Outstanding, end of year 665,375 $ 1.01 679,375 $ 1.03 ======== ====== ======== ======== Options exercisable, end of year 288,075 $ 1.04 168,200 $ 1.13 ======== ====== ======== ========
Options at December 31, 2002:
Options Outstanding Options Exercisable -------------------------------- ------------------- Remaining Contractual Exercise Exercise Range of Exercise Prices Shares Life * Price * Shares Price * - ------------------------ ------- ----------- --------- ------ -------- $0.68 to $1.00 334,375 3.4 years $0.84 137,075 $ 0.89 $1.01 to $2.00 331,000 3.4 years 1.19 151,000 1.17 ------- --------- ----- ------- ------ Total 665,375 3.4 years $1.01 288,075 $ 1.04 ======= ========= ===== ======= ======
*Weighted average Other Common Stock Option Agreements The Corporation has issued other stock options outside of the 1999 and 1993 Plans. These stock options have been issued with various vesting schedules and expire at various dates through October 2006. Activity with respect to these options is summarized as follows:
2002 2003 ------------------------ ------------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ---------- ---------- ---------- ---------- Outstanding, beginning of year 2,250,824 $ 2.00 2,300,824 $ 2.01 Granted -- -- -- -- Terminated -- -- (50,000) 3.50 ---------- ---------- ---------- ---------- Outstanding, end of year 2,250,824 $ 2.00 2,250,824 $ 2.10 ========== ========== ========== ========== Options exercisable, end of year 2,250,824 $ 2.00 2,250,824 $ 2.00 ========== ========== ========== ==========
F-18 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS Options at December 31, 2002:
Options Outstanding Options Exercisable ---------------------------------- --------------------- Remaining Contractual Exercise Exercise Range of Exercise Prices Shares Life * Price * Shares Price * - ------------------------ --------- ----------- -------- ------ -------- $0.66 to $1.00 250,000 1.9 years $ 0.75 250,000 $ 0.75 $1.01 to $2.00 1,024,158 2.9 years 1.45 1,024,158 1.45 $2.01 to $3.00 666,666 3.3 years 2.63 666,666 2.63 $3.01 to $4.00 310,000 1.4 years 3.50 310,000 3.50 --------- ---------- -------- --------- -------- Total 2,250,824 2.7 years $ 2.00 2,250,824 $ 2.00 ========= ========= ======== ========= ========
*Weighted average The Corporation follows 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 generally been recognized in the financial statements for its outstanding stock options. Had stock compensation expense been determined pursuant to the methodology provided in SFAS No. 123, using the Black-Scholes option pricing model, the following weighted average assumptions for grants in 2001 would have been employed: expected volatility of 104%, risk free interest rate of 1.7%, and expected lives of 6 years. The proforma effect on operations would have been an increase in the 2001 net loss of approximately $265,000, or $0.01 per common share. The weighted average fair value of the options granted in 2001 was $0.77 per share. No options were granted during 2002. In December 2001, the Board of Directors extended the exercise date to December 31, 2005 with respect to options for 224,158 shares of Caraco common stock previously granted to an independent director. The modification has resulted in the options being treated as variable rather than fixed in accordance with Financial Accounting Standards Board Interpretation 44 (FIN 44). Variable compensation expense of $262,265 has been recorded during 2002 for the difference between the fair value of the underlying common stock and the exercise price of the respective options. No corresponding compensation expense was appropriate in 2001. Strategic Alliance Stock Option Arrangement Pursuant to an agreement between the Corporation and Hexal-Pharma BmbH & Co., KG, a German pharmaceutical company and its United States affiliate (together, "Hexal") dated October 1, 1993, 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 studies required for the preparation of ANDAs for each of two specified generic drugs (the "Product"). The Corporation agreed to pay Hexal royalties on the yearly sales of each Product (see below). The Corporation filed an ANDA in March 1995 with respect to Metoprolol Tartrate, received approval from the FDA in December 1996 and introduced it in 1997. (Metoprolol Tartrate is one of our 13 current products. See "Caraco's Products and Product Strategy".) Hexal has decided not to proceed with the development of the second Product. Pursuant to the agreement, the Corporation has, for each Product (i) a Sign-Up Option to purchase 100,000 shares of Common Stock at $3.50 per share; and (ii) a Product Option to purchase shares at an F-19 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS exercise price of $3.50 per share. 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. No options have yet been exercised. Royalties payable to Hexal, which are included in accrued expenses, amount to $801,144 and $296,715 at December 31, 2002 and 2001, respectively. The Corporation has recently learned that the formula provided to them by Hexal, with respect to Metoprolol Tartrate, may be different than the formula currently used for manufacturing by the Corporation. The Corporation is investigating further whether they should continue to accrue the related royalties based on these formula differences. 9. LEASES The Corporation entered into two noncancelable operating leases during 2000 with Sun Pharma to lease production machinery. The leases each require quarterly rental payments of $4,245 and expire during 2005. The Corporation entered into a noncancelable operating lease with an unrelated party during 2002 to lease an additional warehouse. The lease requires monthly payments of $8,750 and expires in November 2005. Net rental expense on these operating leases was $51,460 and $33,960 in 2002 and 2001, respectively. The following is a schedule of annual future minimum lease payments required under the operating leases with remaining noncancelable lease terms in excess of one year as of December 31, 2002:
Year Amount ---- -------- 2003 $138,960 2004 138,960 2005 108,985 -------- Total minimum payments due $386,905 ========
The Corporation also paid Sun Pharma approximately $310,000 during 2002 for the purchase of various parts needed to operate production machinery. 10. RETIREMENT PLAN The Corporation established in 2001 a deferred compensation plan qualified under Section 401(k) of the Internal Revenue Code. Under this plan, eligible employees are permitted to contribute up to the maximum allowable amount determined by the Internal Revenue Code. The Corporation may make discretionary matching and profit sharing contributions under the provisions of the Plan. No discretionary contributions were made by the Corporation during either 2002 or 2001. F-20 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS 11. SALES AND CUSTOMERS Major Customer Shipments to one wholesale customer accounted for approximately 65% and 35% of net sales in 2002 and 2001, respectively. Balances due from this customer represented approximately 80% and 40% of accounts receivable at December 31, 2002 and 2001, respectively. The loss of this customer could have a negative effect on short-term operating results. Sales Commitment The Corporation entered into an agreement with an unrelated party in June of 2002 to ship approximately $13,000,000 of product to the customer over a one year base contract period. The agreement provides for certain penalty provisions if the Corporation is unable to meet its sales commitment and additionally provides for four one year option periods. Other Net sales in 2002 and 2001 included approximately $850,000 and $250,000 related to contracted manufacturing activities. 12. OTHER MATTERS Employment Contracts The Corporation has employment agreements with three of its executive officers which provide for fixed annual salaries and a six month continuance including insurance benefits and immediate stock options vesting upon termination without cause. The agreement with one of the executives also provides for six-month salary and benefits continuance in the event of a change in ownership control of the Corporation and a significant change in employment duties. Litigation The Corporation is involved in routine litigation incidental to its business. The Corporation is defending its interests and is contesting the claims against it. Management believes the ultimate disposition of these matters will not have a material adverse effect on the financial statements. Product Liability and Insurance The Corporation currently has in force general and product liability insurance, with coverage limits of $10 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. F-21 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS 13. RESTATEMENT In 2002, the Corporation recorded a prior period adjustment to restate common stock and the accumulated deficit as of January 1, 2001 in connection with the valuation of its common shares issued to Sun Pharma in exchange for product technology transfers received through that date. The restatement, which served to increase the accumulated deficit and capital previously reported at that date by $1,155,492, had no effect on operating results in 2002 or 2001. * * * * * F-22 EXHIBIT INDEX 3.04 Certificate of Determination of Rights, Privileges and Preferences Series B Preferred Stock. 3.07 Amendment to Amended and Restated Bylaws. 10.23 Agreement between Caraco and Sun Pharma Global, Inc. dated November 21, 2002. 10.24 Sales contract with government vendor. 24.1 Power of Attorney (on signature page). 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-3.04 3 k74296exv3w04.txt CERTIFICATE OF DETERMINATION OF RIGHTS, PRIVELEGES EXHIBIT 3.04 CERTIFICATE OF DETERMINATION OF RIGHTS, PRIVILEGES AND PREFERENCES SERIES B PREFERRED STOCK, NO PAR VALUE OF CARACO PHARMACEUTICAL LABORATORIES LTD. The Chairman and Secretary of the Independent Committee of the Board of Directors (the "Independent Committee") hereby certify that: They are the duly elected Chairman and Secretary, respectively, of the Independent Committee of CARACO PHARMACEUTICAL LABORATORIES LTD., a Michigan corporation (the "Corporation"). Pursuant to authority given by the Corporation's Amended and Restated Articles of Incorporation, the Independent Committee of the Board of Directors of the Corporation at a meeting of the Independent Committee at which a quorum was present, held on November 21, 2002, has adopted the following resolutions: Whereas, pursuant to that certain Agreement ("Agreement") dated November 21, 2002, between the Corporation and Sun Pharma Global, Inc., ("Sun Global") Corporation is required to issue convertible preferred stock to Sun Global and/or its affiliates as provided in such Agreement. Whereas, the Amended and Restated Articles of Incorporation of the Corporation currently authorizes one class of shares designated preferred shares, comprising 5,000,000 shares issuable from time to time (the "Preferred Stock"), and one class of shares designated common shares, comprising 30,000,000 shares issuable from time to time (the "Common Stock"); and Whereas, the Board of Directors and/or a committee of the Board of Directors of the Corporation is authorized to issue shares of Preferred Stock in series and to fix or alter the rights, preferences, privileges, and restrictions granted to or imposed upon each series of Preferred Stock; and Whereas, the Corporation has authorized pursuant to a Certificate of Determination, the issuance of Series A Preferred Stock ("Series A Preferred") consisting of 285,714 designated shares, but none of such Series A Preferred are currently outstanding; Whereas, in the judgment of the Board of Directors of the Corporation, it is advisable and in the best interests of the Corporation that the officers of the Corporation be authorized to issue and deliver a new series of Preferred Stock; RESOLVED, that pursuant to the Corporation's obligations under the Agreement and pursuant to the authority expressly granted to and vested in the Corporation's Board of Directors by the Corporation's Amended and Restated Articles of Incorporation, the Independent Committee hereby creates a series of Preferred Stock of the Corporation, no par value, to be designated the "Series B Convertible Preferred Stock" (hereinafter referred to as the "Series B Preferred") and to consist of 13,600,000 shares, and hereby fixes the voting powers, designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of the Series B Preferred, as follows: DIVIDEND RIGHTS. No dividends shall accrue or be payable to the holders of the Series B Preferred. VOTING RIGHTS. Except as otherwise required by law or provided herein, holders of Series B Preferred shall have no voting rights. 1 LIQUIDATION PREFERENCE. In the event of the liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary (the "Event"), the holders of shares of Series B Preferred will be entitled by reason of their ownership thereof, to receive out of the assets of the Corporation pro rata, but prior to and in preference to any distribution of the assets or surplus funds of the Corporation to the holders of the Common Stock an amount per share equal to the value attributed by the Corporation to the Series B Preferred Shares on the respective dates on which they were earned and will not be entitled to receive any portion of the remaining assets of the Corporation. If upon the occurrence of such event the assets and funds thus distributed among the holders of the Series B Preferred are insufficient to permit the payment to such holders of the whole preferential amount, then the entire assets and funds of the Corporation legally available for distribution to the holders of the capital stock of the corporation will be distributed ratably among the holders of the Series B Preferred and the holders of Common Stock shall receive nothing. After payment has been made to the holders of the Series B Preferred of the full amounts to which they are entitled as aforesaid, any remaining assets will be distributed ratably to the holders of other series of Preferred Stock (if any) and of Common Stock. The holders of the Series B Preferred shall not be entitled to participate in dividends or distributions upon liquidation or dissolution of the Corporation, other than their priority liquidation distribution as provided herein. CONVERSION. The holders of the Series B Preferred shall be entitled to convert their shares to shares of Common Stock as follows: Right to Convert. Each share of Series B Preferred may, at the option of the holder of record, be converted after 3 years from its date of issuance, into one share of Common Stock, subject to adjustment as set forth below. In the event of a Change in Control (as defined in Section 8 below), however, each share of Series B Preferred may, at the option of the holder of record, be converted into one share of Common Stock. Fractional Shares Upon Conversion. No fractional shares of Common Stock will be issued upon conversion of Series B Preferred and any fractional shares which otherwise result from conversion by a holder of all his shares of Series B Preferred then being converted (taken together as a group) will be redeemed by payment in cash of an amount equal to such fraction by the then effective market price per share of Common Stock as promptly as funds legally are available therefor. Adjustment for Combination or Consolidations of Common Stock. In the event the Corporation at any time or from time to time after November 21, 2002, effects a subdivision or combination of its outstanding Common Stock into a greater or lesser number of shares, then the existing conversion ratio for the Series B Preferred will be increased or decreased proportionately. Adjustment for Dividends, Distributions and Common Stock Equivalents. In the event the Corporation at any time or from time to time after November 21, 2002, makes or issues a dividend payable in Common Stock to holders of record of its Common Stock, or fixes a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights ("Common Stock Equivalents"), convertible into or entitling the holder thereof to receive additional shares of Common Stock without payment of any consideration by such holder for Common Stock Equivalents or the additional shares of Common Stock, then and in such event, for the purpose of protecting the holders of Series B Preferred from any dilution in connection therewith, the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable in payment of such dividends or distribution or upon conversion or exercise of such Common Stock Equivalents will be deemed to be issued and outstanding as of the time of such issuance or, in the event such a record date has been fixed, as of the close of business on such a record date. In each such event the then existing conversion ratio for the Series B Preferred will be increased as of the time of such issuance or, in the event such a record date has 2 been fixed, as of the close of business on such record date, by multiplying the conversion ratio of 1.0 for the Series B Preferred by a fraction, the numerator of which will be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution or upon conversion or exercise of such Common Stock Equivalents, and the denominator of which will be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; provided, however, if such record date has been fixed and such dividend is not fully paid or if such distribution is not made on the date fixed therefor, the conversion ratio for the Series B Preferred will be recomputed accordingly as of the close of business on such record date and thereafter the conversion ratio for the Series B Preferred will be adjusted pursuant to this paragraph 4(d) as of the date of actual payment of such dividends or distributions. Recapitalization, Reorganization, Merger, Consolidation, or Disposition of Assets. In the event the Corporation shall recapitalize, reorganize, or merge (other than a merger in which the Corporation is the surviving corporation) with or consolidate into another person, or shall sell, transfer, or otherwise dispose of all or substantially all of its property, assets, or business to another person, and, pursuant to the terms of such recapitalization, reorganization, merger, consolidation or disposition of assets, shares of common stock or other securities, property, or assets of the successor or acquiring corporation or an affiliate thereof or cash are to be received by or distributed to the holders of Common Stock of the Corporation (an "Organic Change"), then each holder of the Series B Preferred shall have the right to receive, in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofor acquirable and receivable upon the conversion of such holder's Series B Preferred, such shares of stock, securities, or assets as such holder would have received in connection with such Organic Change if such holder had converted its Series B Preferred immediately prior to such Organic Change. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument the obligation to deliver to each holder of Series B Preferred outstanding, such shares of stock, securities, or assets as, in accordance with the foregoing provisions, such holders may be entitled to acquire. The foregoing provisions of this Section 4(e) shall similarly apply to successive mergers, consolidations, or dispositions of assets. If a purchase, tender or exchange offer is made to and accepted by the holders of more than fifty (50%) percent of the outstanding shares of Common Stock, the Corporation shall not effect any consolidation, merger or sale with the person having made such offer or with any affiliate of such person, unless prior to the consummation thereof, each holder of the Series B Preferred shall have been given a reasonable opportunity to then elect to receive, either the stock, securities, cash, or assets then issuable with respect to the Common Stock or the stock, securities, cash, or assets, or the equivalent, issued to previous holders of Common Stock in accordance with such offer, as such holder would have received if such holder had converted its Series B Preferred immediately prior thereto. Notwithstanding anything else to the contrary, in the event of an Organic Change or a change described herein, the holders of the Series B Preferred may immediately convert their Series B Preferred to Common Stock. Other Action Affecting Common Stock. If a state of facts shall occur, which, without being specifically controlled by the provisions of the foregoing Sections 4(a)-(e), inclusive, which would not fairly protect the conversion rights of the Series B Preferred in accordance with the essential intent and principals of such provisions, then the Board of Directors of the Corporation shall in good faith make an adjustment in the application of such provisions, in accordance with such essential intent and principals, so as to protect such conversion rates. Mechanics of Conversion. Before any holder of Series B Preferred will be entitled to convert the same into shares of Common Stock, it will surrender the certificate or certificates therefor, duly endorsed with signatures medallion guaranteed (if requested by the Corporation or its transfer agent), at the office of the Corporation or of any transfer agent for the Series B Preferred, and will give written notice to the Corporation 3 stating the name or names in which it wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation, as soon as practicable thereafter, will issue and deliver at such office to such holder or to its nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which it will be entitled as aforesaid, together with any cash to which such holder shall be entitled in respect of fractions shares. Such conversion will be deemed to have been made immediately prior to the close of business on the date of delivery of said notice to the Corporation or its transfer agent, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion will be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. No Impairment. The Corporation, whether by amendment of its Amended and Restated Articles of Incorporation, or through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, will not avoid or seek to avoid the observance or performance of any of the terms to be observed hereunder by the Corporation, but at all times in good faith will assist in the carrying out of all of such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred against impairment. Reservation of Stock Issuable Upon Conversion. The Corporation shall attempt to keep available out of its authorized but unissued shares of Common Stock solely for the purposes of effecting the conversion of the shares of the Series B Preferred such number of its shares of Common Stock as from time to time will be sufficient to effect the conversion of all the then outstanding shares of the Series B Preferred, but if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all the then outstanding shares of the Series B Preferred, the Corporation will take such actions as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as will be sufficient for such purposes. REDEMPTION. The Series B Preferred shall not be subject to redemption by the Corporation. NO ASSIGNMENT. The Series B Preferred may not be assigned or transferred except to affiliates of the holders. COVENANTS. In addition to any other rights by law, so long as any Series B Preferred is outstanding, the Corporation, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of such outstanding shares of Series B Preferred, will not: Amend or repeal any provision of, or add any provision to, the Corporation's Amended and Restated Articles of Incorporation or By-laws or this Certificate of Determination of Rights, Privileges and Preferences if such action would adversely alter or change the preferences, rights, privileges or power of, or the restrictions provided for the benefit of, any Series B Preferred, (except for an increase or decrease in the number of shares of Series B Preferred authorized hereby); Authorize or issue shares of any class or series of stock (other than the Series B Preferred expressly authorized herein) having any preference or priority as to dividends, assets, or other right superior to any such preference or priority of the Series B Preferred, or authorize or issue shares of stock of any class, convertible into or exchangeable for, or having option rights to purchase, any shares of stock of the Corporation having any preference or priority as to dividends, assets, or other rights, superior to any such preference or priority of the Series B Preferred; or Reclassify any class or series of any Common Stock or any other shares of stock hereafter created junior to the Series B Preferred into shares having any preference or priority as to dividends, liquidation or other right superior to any such preference or priority of the Series B Preferred. 4 DEFINITIONS. Acquiring Person. "Acquiring Person" means any Person or Group or Affiliate, other than the Corporation and/or its affiliates, any employee benefit plan of the Corporation and/or its affiliates or any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation and/or its affiliates. Affiliate. "Affiliate" shall mean with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. For purposes hereunder, "control" shall have the meaning given such term under Rule 405 of the Securities Act of 1933. Change in Control. "Change in Control" means the event that is deemed to have occurred if: Subsequent to the date of the Agreement, any Acquiring Person is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing a majority of the combined voting power of the then outstanding Voting Securities of the Corporation; or The stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation or entity (or, of no such approval is required, the consummation of such a merger or consolidation of the Corporation), other than a merger or consolidation that would result in the Voting Securities of the Corporation outstanding immediately before the consummation thereof continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity or of a parent of the surviving entity) a majority of the combined voting power of the Voting Securities of the surviving entity (or its parent) outstanding immediately after that merger or consolidation; or The stockholders of the Corporation approve an agreement for the sale by the Corporation of all or substantially all of the Corporation's assets (or, if no such approval is required, the consummation of such a sale in one transaction or series of related transactions) other than a sale of all or substantially all the Corporation's assets in one transaction or a series of related transactions to a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportion as their ownership of stock of the Corporation. Group. "Group" shall mean two or more Persons acting together as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of securities of the Corporation. Person. "Person" shall mean an individual, partnership, corporation, business trust, limited liability company, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. Voting Securities. "Voting Securities" means any securities that are entitled to vote generally in the election of directors. RESOLVED, FURTHER, that the Chairman of the Independent Committee and the Secretary of the Independent Committee hereby are authorized and directed to prepare, execute, verify, file and record a Certificate of Determination of Rights, Privileges and Preferences in accordance with the foregoing resolutions and the provisions of Michigan law. RESOLVED, FURTHER, that the Chief Executive Officer of this Corporation be, and he is hereby authorized and empowered, for and on behalf of and in the name of this Corporation, to issue and deliver to Sun Global and/or its nominees certificates evidencing the Series B Preferred in those amounts and at those times as set forth in the Agreement currently and as it may be amended. 5 RESOLVED, FURTHER, that the President, is hereby authorized and empowered, for and on behalf of and in the name of this Corporation, to do and perform such other acts and things, and to make, execute, and deliver all those other instruments and documents as he may deem necessary, advisable or appropriate to comply with, or to evidence compliance with, the terms, conditions, or provisions of the Series B Preferred and all acts and things, whether heretofor or hereafter done or performed by the Chief Executive Officer of the Corporation in conformity with the intents and purposes of these Resolutions shall be, and the same are, hereby, in all respects, ratified, confirmed, and approved. RESOLVED, FURTHER, that the Secretary or any Assistant Secretary of the Corporation shall deliver certified copies of these Resolutions, as applicable, to the appropriate offices in the State of Michigan as required under the Michigan Business Corporation Act and to each holder of Series B Preferred requesting such a certified copy. Dated: November 21, 2002 /s/ Jay F. Joliat ------------------------------ Jay F. Joliat, Chairman of the Independent Committee /s/ David A. Hagelstein ------------------------------ David A. Hagelstein, Secretary of the Independent Committee 6 EX-3.07 4 k74296exv3w07.txt AMENDMENT TO AMENDED AND RESTATED BYLAWS EXHIBIT 3.07 AMENDMENTS TO AMENDED AND RESTATED BYLAWS ARTICLE II, SECTION 3(a) IS AMENDED TO READ AS FOLLOWS: (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, by electronic transmission (in accordance with Article IX, Section 7 of these Bylaws), 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. If by electronic transmission, the notice shall be given when electronically transmitted to the shareholder entitled to the notice in a manner authorized by the shareholder. If mailed, the notice shall be directed to the shareholder at his address as it appears on the records of the Corporation unless, prior to the time of mailing, he has filed with the Secretary a written request that notices intended for him be mailed to some other address, in which case it should be mailed to the address designated in such request. ARTICLE II, SECTION 7(d) IS ADDED AS FOLLOWS: (d). If the Board consents, a shareholder may participate in a meeting of shareholders by conference telephone or by other means of remote communication through which all persons participating in a meeting may communicate with other participants. Assuming the Board consents, all participants shall be advised of the means of remote communication, and the names of the participants shall be divulged to all participants. Participation in a meeting pursuant to this sub-section constitutes presence in person at the meeting. Assuming the Board consents, shareholders not physically present at a meeting of shareholders may participate in the meeting by means of remote communication and are considered present in person and may vote at the meeting if: (i) reasonable measures are implemented to verify that each person considered present and permitted to vote at the meeting by means of remote communication is a shareholder or proxy holder; (ii) reasonable measures are implemented to provide each shareholder or proxy holder a reasonable opportunity to participate in the meeting and to vote on matters submitted to the shareholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings; and (iii) if any shareholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of the vote or other actions maintained by the Corporation. THE FOURTH SENTENCE OF ARTICLE II, SECTION 8 IS AMENDED TO READ AS FOLLOWS: 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 120 calendar days before the date of the Corporation's proxy statement released to shareholders in connection with the previous year's annual meeting; provided, however, if the Corporation did not hold an annual meeting the previous year, or if the date of the current year's annual meeting has been changed by more than 30 days from the date of the previous year's meeting, then in order for a shareholder's notice to be timely, it must be received a reasonable time before the Corporation begins to print and mail its proxy materials. THE LAST SENTENCE OF ARTICLE II, SECTION 8 IS AMENDED TO READ AS FOLLOWS: 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, if either the shareholder is not eligible, or the Corporation would otherwise be permitted to 1 omit the proposal, in accordance with applicable rules under the Securities Exchange Act 1934 as amended. SUB-SECTION (IV) TO ARTICLE III, SECTION 1 IS ADDED AS FOLLOWS: (iv) Satisfies the requirements of an independent director under the Sarbanes-Oxley Act of 2002. THE FOLLOWING LAST SENTENCE TO ARTICLE III, SECTION 7 IS ADDED AS FOLLOWS: In addition, notices of special meetings may also be delivered to each director by electronic transmissions (in accordance with Article IX, Section 7 of these bylaws) and shall be deemed given when electronically transmitted to the director in a manner authorized by the director. ARTICLE III, SECTION 12 IS AMENDED TO READ AS FOLLOWS: Section 12. Meetings by telephone or remote communication. Members of the Board or any committee appointed by the Board may participate in a meeting of the Board or any committee by means of conference telephone or other means of remote communication through which all persons participating in the meeting can communicate with the other participants. Participation in a meeting in such manner shall constitute presence in person at such meeting. A written record shall be made of all actions taken at any meeting conducted by means of a conference telephone or other means of remote communication. THE SECOND SENTENCE OF ARTICLE III, SECTION 13 IS AMENDED TO READ AS FOLLOWS: 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 120 calendar days before the date of the Corporation's proxy statement released to shareholders in connection with the previous year's annual meeting; provided, however, if the Corporation did not hold an annual meeting the previous year, or if the date of the current year's annual meeting has been changed by more than 30 days from the date of the previous year's meeting, then in order for a shareholder's notice to be timely, it must be received a reasonable time before the Corporation begins to print and mail its proxy materials. THE FIRST THREE SENTENCES OF ARTICLE IV, SECTION 1 ARE AMENDED TO READ AS FOLLOWS: The Board may, by Resolution passed by a majority of the entire Board, designate one or more committees, with each committee consisting of two (2) or more directors of the Corporation. The Board shall designate an Audit Committee, all of which members 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 all the members of the Audit Committee shall be Independent Directors. THE FOLLOWING SENTENCE IS ADDED TO THE END OF ARTICLE V, SECTION 5 AS FOLLOWS: The Board of Directors shall determine, in its discretion, whether any individual appointed to the position of Chairman of the Board is deemed to be an officer of the Corporation. THE FIRST SENTENCE OF ARTICLE V, SECTION 7 IS AMENDED TO READ AS FOLLOWS: The President, 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 of its other officers and agents. ARTICLE IX, SECTION 7 IS ADDED AS FOLLOWS: Section 7. Electronic Transmission. In accordance with the Michigan Business Corporation Act and the Articles of Incorporation, any shareholder or Board of Director action which requires the notice to a shareholder or director or written signature of a 2 shareholder or director may be delivered to or by such shareholder or director via electronic transmission, including, but not limited to, notices of shareholder and director meetings and shareholder and director consents. "Electronic transmission" or "electronically transmitted" means any form of communication that meets all of the following: (i) it does not directly involve the physical transmission of paper; (ii) it creates a record that may be retained and retrieved by the recipient; (iii) it may be directly reproduced in paper form by the recipient through an automated process. ADOPTED: NOVEMBER 21, 2002 EX-10.23 5 k74296exv10w23.txt AGREEMENT BETWEEN SUN GLOBAL, INC. EXHIBIT 10.23 AGREEMENT BETWEEN CARACO SUN PHARMA GLOBAL, INC. DATED NOVEMBER 21, 2002 AGREEMENT THIS AGREEMENT, made this 21st day of November 2002, by and between CARACO PHARMACEUTICAL LABORATORIES LTD., a Michigan corporation ("Caraco"), and SUN PHARMA GLOBAL, INC., a corporation organized under the laws of the British Virgin Islands having its office at Akara Building, 24 De Castro Street, Wickhams Clay 1 Road, Town Tortola, British Virgin Islands ("Sun Global"). WITNESSETH: WHEREAS, Sun Global is a wholly-owned subsidiary of Sun Pharmaceutical Industries Limited, a corporation organized under the laws of India. WHEREAS, Sun Global and Caraco each wish to enter into an agreement pursuant to which Sun Global shall provide products to Caraco and provide or cause to be provided certain support to Caraco. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: 1. SALE OF PRODUCTS BY SUN GLOBAL TO CARACO 1.1 OBLIGATION TO SELL PRODUCTS. During the period of sixty months from the date first written above, Sun Global, at its own expense, shall, pursuant to the terms and conditions set forth herein, sell to Caraco the exclusive right to develop, make, sell, use, license and otherwise exploit ("License") in the United States of America, its territories and possessions, including Puerto Rico (the "Territory"), the formulations, technology, manufacturing process, know-how, stability data, and other relevant information ("Proprietary Technological Information") with respect to 25 generic pharmaceutical products which require ANDAs (the "Products"). References to "Products" includes the Proprietary Technological Information relating to the 25 generic pharmaceutical products. 1.2 TIMING OF SALES. So long as Caraco is promptly performing its obligations pursuant hereto, Sun Global shall deliver to Caraco twenty five (25) Products during the term of this Agreement, with a minimum of four (4) Products to be delivered in each of the first four 12 month periods following the date first above written. 1.3 SELECTION OF THE PRODUCTS. The Products shall be selected from time to time by the mutual agreement of Sun Global and Caraco's management, with the concurrence of Caraco's Independent Committee of the Board of Directors (the "Independent Committee"). It is expressly agreed and acknowledged that the parties have not, as of the date hereof, agreed on what the Products shall be, and Sun Global shall not, as of the date hereof, have any obligation to deliver any specific Product, but solely to deliver 25 Products, which are to be hereafter identified as set forth in this Section 1.3. In connection with the sale of a Product, Sun Global will provide to Caraco the requisite analytical procedures (which, without limitation, include stability indicia and cleaning methods), stability data, a development report and development data customarily prepared by Sun Global. 1.4 CONTINUING RIGHTS OF SUN GLOBAL. Notwithstanding the sale of any Product hereunder by Sun Global to Caraco, nothing herein (except as provided in Section 2.2(d)) shall in any way limit the right of Sun Global to develop, produce, market or take any other action with respect to any Product outside of the Territory, and Sun Global shall continue to have the absolute, unfettered and exclusive right to do any of the 1 foregoing, without the payment by Sun Global of any royalty, premium or other payment to Caraco in connection therewith. Caraco shall have the exclusive right to develop, produce, market or take any other action with respect to any Product (delivered pursuant to Section 1 hereof) inside the Territory. 2. OBLIGATIONS OF CARACO WITH RESPECT TO PRODUCTS 2.1 DELIVERY OF PROTOCOL. To the extent that the United States Food and Drug Administration ("FDA") has a required protocol for the studies designed to demonstrate the bioequivalency of a Product, (an "FDA Protocol"), then within sixty days of the delivery of such Product pursuant to Section 1 hereof, Caraco shall deliver, in writing, to Sun Global, a proposed protocol, which is believed in good faith by Caraco to be acceptable to the FDA (or, if applicable, a waiver of evidence of in vivo bioavailability). To the extent that no FDA Protocol exists with respect to a Product delivered pursuant to Section 1 hereof, Caraco will, in consultation with the FDA and Sun Global, develop such a protocol within 150 days of delivery of such Product by Sun Global; and will promptly deliver such protocol to Sun Global after it has been developed. 2.2 CONDUCT OF TESTS AND STUDIES. Caraco shall conduct, at its own expense, all tests, including a bioequivalency study (or studies) and/or pilot studies designed to provide clinical information to assist in the development of clinical bioequivalence protocols and bioanalytic methods, and any clinical trials which Sun Global and/or Caraco deem to be reasonably necessary to enable Caraco to prepare and to file with the FDA an application for an ANDA for each Product. Caraco shall select suitable clinical research organizations to conduct any such studies and trials. (a) Caraco shall, at its sole expense, produce quantities of any Product as necessary for use in such studies and trials. Such Products shall be produced in accordance with those current good manufacturing regulations established in 21 CFR Parts 210 and 211, as such sections, from time to time, may be amended or supplemented, or any successor provisions ("Current Good Manufacturing Practices"). (b) Caraco shall, in connection with its clinical studies, develop manufacturing procedures, batch records, packaging and labeling instructions, release specifications, and quality assurance procedures and put the procedures into an FDA accepted format. (c) Sun Global shall have the right, but not the obligation, to monitor all bioequivalency studies and clinical trials, and discuss the methodologies and results of such studies and clinical trials with the persons responsible for the design and conduct of such studies and/or trial by or on behalf of Caraco. At the request of Sun Global, Caraco shall submit relevant production records, including the product formulation, master batch record, specifications, analytical results and related supporting documentation. Sun Global reserves the right to use, outside the Territory, as and when it may elect to do so, any information, data, studies (except bioequivalency studies of Caraco) and formulations which it may be furnished hereunder, without any royalty, premium or other payment to Caraco. (d) If Sun Global wishes to sell the Products, manufactured by Caraco, outside the Territory, the management of Caraco and of Sun Global, with the concurrence of the Independent Committee, shall determine the consideration to be paid to Caraco by Sun Global on a case by case basis. 2.3 PREPARATION AND SUBMISSION OF ANDAS. Caraco shall complete and submit the ANDA for each Product to the FDA as promptly as commercially practicable after the mutual selection of such Product, shall promptly respond to inquiries by the FDA in connection with the Product, and shall monitor and support the submission. Caraco shall pay all expenses in connection with such submission and monitoring for each submitted Product, including the filing fee and all legal and consulting fees and expenses. In any ANDA, Caraco shall: (a) identify itself as the manufacturer, and identify the packagers, labelers, and contract laboratories whose components or services are used in production of the Product; 2 (b) submit methods, process and cleaning validations; (c) submit a signed certificate evidencing its compliance with Current Good Manufacturing Practices; (d) submit executed master formula and batch production and control records; (e) adequately describe the precautions taken to ensure proper labeling; (f) submit specifications and test methods for testing the Product during the manufacturing process; (g) submit the appropriate packaging information; (h) submit the appropriate stability information; and (i) submit such other information, documentation or other matters as (1) required by applicable FDA rules or regulations, (2) reasonably determined by Sun Global or Caraco to be necessary or advisable to permit the expeditious approval of such ANDA or (3) requested by the FDA. 2.4 MANUFACTURE OF PRODUCTS. Caraco shall manufacture each Product in accordance with Current Good Manufacturing Practices, whether such Products are being manufactured in connection with the submission and seeking of approval of an ANDA or for sale to the public following approval of an ANDA with respect thereto. 2.5 MARKETING OF PRODUCTS. Subject to any limitations imposed as a result of its financial condition, Caraco shall (a) use its best efforts, consistent with Caraco's usual customary practices to market each Product in the Territory, and provide marketing personnel and such other capabilities as are reasonably appropriate. To this extent, Caraco shall not, at any time after delivery of any Product, enter into any agreement or otherwise obligate itself to restrict or limit its manufacture of such Product, except with the consent of Sun Global. Notwithstanding anything else herein to the contrary (a) Caraco shall not be required to manufacture the Products in quantities or to sell the Products at prices other than those which are commercially reasonable; and (b) Caraco shall have full authority to determine the methods of marketing and selling the Products and the discounts and terms of sale to its customers. 2.6 NO ACTIVITIES OUTSIDE OF THE TERRITORY. Caraco shall not make, use or sell, or grant rights to others to make, use or sell a Product outside the Territory without the consent of Sun Global, which may be granted or withheld in its sole discretion. 2.7 NO ASSIGNMENT OF PRODUCTS; SHARING OF INFORMATION. Without the written consent of Sun Global (which may be granted or withheld in its sole discretion), Caraco shall not (a) grant rights to any third person, to make, use or sell a Product, whether by assignment, license, sale or other transfer (b) sell, assign or otherwise permit access to or use of the data supporting any ANDA for a Product, or to the ANDAs themselves, to any person or entity other than Sun Global, the FDA and any other governmental agency or body with jurisdiction. 3. SUPPORT TO AND FOR CARACO 3.1 SUBORDINATION OF SECURITY INTERESTS. In connection with any restructuring of Caraco's loan from the Economic Development Corporation of the City of Detroit (the "EDC"), Sun Global agrees to continue to subordinate its security interests in Caraco's assets to the first priority security interests of the EDC. In connection with the foregoing, Sun Global also agrees to document such subordination of its security interests to the EDC in writing at such time or times as may be requested by Caraco. 3 3.2 SUPPLY OF TECHNICAL PERSONNEL. Sun Global agrees to use its best efforts to supply to Caraco with qualified technical professional personnel required by Caraco for its operations during the term of this Agreement. 3.3 ASSISTANCE WITH RAW MATERIALS. Sun Global agrees to use its best efforts to assist Caraco in obtaining quantities of raw materials required by Caraco in its operations at competitive prices. 4. CONSIDERATION 4.1 CONSIDERATION. In consideration of the obligations of Sun Global set forth in Section 1 and Section 3, for each Product delivered by Sun Global to Caraco, Sun Global shall receive five hundred forty-four thousand (544,000) shares of Convertible Preferred Stock containing those terms and conditions as set forth in that certain Certificate of Determination of Rights, Privileges and Preferences, Series B Preferred Stock No Par Value ("Certificate of Determination") of Caraco (the form of which is attached hereto) (the "Preferred Shares"). The consideration will become due with respect to each Product at such time as such Product passes the applicable bioequivalency study or studies (the "Target Date"). Caraco shall notify Sun Global when a Target Date has been triggered. Sun Global shall then notify Caraco as to when, where and in whose name (Sun Global's or an affiliate's) Sun Global wishes the Preferred Shares to be issued. Within fifteen business days of Caraco's receipt of such notice from Sun Global, it shall, as applicable, either directly issue and deliver such Preferred Shares to Sun Global and/or its affiliates or send to its transfer agent an instruction directing such transfer agent to issue and deliver such Preferred Shares to Sun Global and/or its affiliates promptly after the transfer agent's receipt of such notice from Caraco. 4.2 VALIDLY ISSUED PREFERRED SHARES. The Preferred Shares issued and delivered by Caraco to Sun Global pursuant to this Section 4, when issued shall be duly authorized and validly issued, fully paid and non-assessable and not subject to any preemptive or similar rights. 5. ADVANCED DRUG DELIVERY SYSTEMS If Sun Global desires to transfer an advanced drug delivery system (such as a time-release formulation or any other complex formulation), the terms and conditions of such transfer shall be discussed and negotiated independently, and mutually agreed to, between Sun Global and the Independent Committee. Any such agreement with respect to the advanced drug delivery system may provide that such advanced drug delivery system will satisfy part of Sun Global's obligations to deliver twenty-five Products pursuant to this Agreement (with the number of Products which the advanced drug delivery system shall be deemed to equal to be determined based on revenue and profitability criteria) or may constitute a separate agreement distinct from this Agreement. The parties agree that whether the advanced drug delivery systems are included in this Agreement or as a separate agreement, they shall contain provisions tying all or a part of the consideration therefor to the achievement of certain performance targets. 6. ADDITIONAL COVENANTS 6.1 CHARTER AMENDMENT. Caraco shall, on or before June 30, 2003, use its best efforts to take all actions necessary to cause its Amended and Restated Articles of Incorporation to be amended to authorize a total of fifty million (50,000,000) Common Shares and fifteen million (15,000,000) Preferred Shares. 6.2 LISTING. In the event that the Common Shares shall be listed for trading on any national securities exchange, or admitted for trading on the NASDAQ National Market or the NASDAQ Small Cap Market or listed or admitted for listing or quoted on the OTC Bulletin Board (or any successor), such listing or admission (to the extent permitted by the rules of such exchange, NASDAQ or OTC Bulletin Board or its successor) shall include all Common Shares issued to Sun Global upon conversion thereof. 4 7. REPRESENTATIONS AND WARRANTIES OF SUN GLOBAL. Sun Global, as an inducement to Caraco to enter into this Agreement, represents, warrants and covenants to Caraco as follows: 7.1 RIGHTS TO PROPRIETARY TECHNOLOGICAL INFORMATION. Sun Global has, or will have at the time a Product is delivered to Caraco, the full right, power and authority to grant the exclusive License to the Proprietary Technological Information relating to each Product to Caraco in the Territory pursuant to the terms of this Agreement to permit Caraco to perform pursuant to this Agreement and develop, market and sell each Product free and clear of any mortgage, lien, encumbrance or any other third-party interest of any kind. Sun Global is not aware of any facts or circumstances that a Product is subject to any restriction, covenant, license (other than this Agreement) or judicial and administrative order of any kind which detract in any material respect from the value of the Product, or which could interfere with the use thereof by Caraco in the Territory as contemplated by this Agreement. 7.2 KNOWLEDGE OF NO FDA APPROVAL. Sun Global is not aware of any facts that would reasonably lead it to conclude that any Product will be unable to receive the contemplated approval from the FDA or approval from any other regulatory authority upon satisfactory completion of clinical trials, and Sun Global has no knowledge of any facts which would reasonably lead it to conclude that satisfactory completion of clinical trials is not likely. 7.3 RIGHTS TO PRODUCTS. Sun Global has not received any notice and has no knowledge that (i) that the rights to develop, market and sell any of the Products have been challenged in any judicial or administrative proceeding, or (ii) any person, entity or product has infringed or will infringe any patent or other rights of Sun Global with respect to any Product, or (iii) any patent rights or other intellectual property rights, including but not limited to rights of trademark, trade and copyright have been infringed by Sun Global or will be infringed by Caraco by virtue of performing the activities contemplated by this Agreement. 7.4 RIGHT TO EXECUTE AND PERFORM. Sun Global has full right, power and authority to execute and deliver this Agreement, and to perform its obligations under it, and has taken all necessary action to authorize such execution, delivery and performance. This Agreement constitutes legal, valid and binding obligation of Sun Global, enforceable against it in accordance with its terms. 7.5 COMPLIANCE WITH LAWS. Sun Global will comply with all applicable laws in connection with performance of its obligations under this Agreement. The execution, delivery and performance of this Agreement by Sun Global does not violate any provision of applicable law or of any regulation, order decree of any court, arbitration or governmental authority, or any other agreement to which Sun Global is a party. No consents, approvals or authorizations, registrations or filings are required in connection with the execution, delivery, performance, validity or enforceability of this Agreement, except as have been obtained or set forth in this Agreement. 7.6 SURVIVABILITY. The foregoing representations, warranties and covenants shall survive the termination of this Agreement, shall be deemed to be made anew each time that a Product is delivered by Sun Global to Caraco, and shall not be affected by any examination made by or on behalf of Caraco, the knowledge of its officers, directors, stockholders, employees or agents or the acceptance of any certificate or opinion. 5 8. REPRESENTATIONS AND WARRANTIES OF CARACO As an inducement to Sun Global to enter into this Agreement, Caraco represents and warrants to Sun Global as follows: 8.1 RIGHT TO EXECUTE AND PERFORM. Caraco has full right, power and authority to execute and deliver this Agreement, and to perform its obligations under it, and has taken all necessary action to authorize such execution, delivery and performance. This Agreement constitutes the legal, valid and binding obligation of Caraco, enforceable against it in accordance with its terms. 8.2 COMPLIANCE WITH LAW. Caraco will comply with all applicable laws in connection with performance of its obligations under this Agreement. The execution, delivery and performance of this Agreement by Caraco does not and will not violate any provision of applicable law or of any regulation, order decree of any court, arbitration or governmental authority or any other agreement to which Caraco is a party. No consents, approvals or authorizations, registrations or filings are required in connection with the execution, delivery, performance, validity or enforceability of this Agreement, except as had been obtained or set forth in this Agreement. 8.3 SURVIVABILITY. The foregoing representations, warranties and covenants shall survive the termination of this Agreement, shall be deemed to be made anew each time that a Product is delivered by Sun Global to Caraco, and shall not be affected by any examination made by or on behalf of Sun Global, the knowledge of its officers, directors, stockholders, employees or agents or the acceptance of any certificate or opinion. 9. INDEMNIFICATION BY CARACO Caraco shall indemnify, defend and hold harmless, Sun Global, its affiliates and its stockholders, directors, officers, employees, advisors and agents against any and all liability, damage, loss or expenses (including reasonable fees, costs and expenses of attorneys and other professionals and court costs, but excluding consequential damages for lost profits) resulting from, arising out of or connected with (a) any breach of the representations, warranties or covenants by Caraco in this Agreement, (b) any claim by third parties relating to the clinical testing, manufacturing, processing, packaging, registration, distribution, promotion, use or sale of the Products by Caraco (except for liabilities, damages, losses or expenses which result from the negligence or other wrongdoing of Sun Global and/or its affiliates. These indemnification obligations shall survive the termination of this Agreement or the termination of any Product. 10. TERM AND TERMINATION 10.1 TERM. This Agreement shall be effective on the date first written above and shall expire sixty (60) months from the date first written above. The License granted with respect to any Product delivered by Sun Global to Caraco and as to which Caraco and Sun Global have fulfilled their obligations thereunder, shall continue indefinitely. 10.2 TERMINATION. At any time, this Agreement may be terminated in its entirety or with respect to a single Product, as provided below, by giving written notice to that effect, as follows: (a) by either party, if the other party is in material default or in material breach of any term or provision hereof or material breach of any representation or warranty in this Agreement, and such material default or material breach continues and is not remedied with thirty (30) days of notice of such default or breach. As noted above, termination of the Agreement will not affect the Licenses with respect to any Product delivered by Sun Global to Caraco and pursuant to which Sun Global and Caraco have fulfilled their obligations with respect to such Product under this Agreement. (b) by Caraco for any given Product in case of material technical, scientific or regulatory problems or, if the results in data achieved and generated during the development of any given Product, in Caraco's 6 reasonable determination, shows that approval for such Product will be unlikely to be granted, again with respect to the specific Product only. In the event of termination by Caraco pursuant to this sub-paragraph, no Preferred Shares shall be issued with respect to such Product to Sun Global and/or its affiliates and, if such Preferred Shares have already been issued, Sun Global agrees to cause it and/or its affiliates to return such Preferred Shares to Caraco for cancellation. In the event of termination of such Product, Sun Global shall be obligated to provide another Product to Caraco in replacement of such Product. (c) by Caraco, for any given Product, if prior to a Product passing the applicable bioequivalency study or studies, Caraco in its reasonable discretion determines that it would not be viable to develop and market the Product in the Territory. In the event of termination by Caraco pursuant to this sub-paragraph, no Preferred Shares shall be issued with respect to such Product to Sun Global and/or its affiliates and, if such Preferred Shares have already been issued, Sun Global agrees to cause it and/or its affiliates to return such Preferred Shares to Caraco for cancellation. In the event of termination of such Product, Sun Global shall be obligated to provide another Product to Caraco in replacement of such Product. (d) by Sun Global, for any given Product, in the event Caraco materially fails to perform its material obligations with respect to the Product, and fails to cure such failure within thirty (30) days of notice of such failure from Sun Global (or if a cure is not reasonably possible within thirty days, such longer period as is necessary to cure such failure so long as at all relevant times after such thirty days, Caraco is using its best efforts to effect such cure). In such event, Sun Global may elect to have the rights sold in such Product revert back to Sun Global. Also, in addition to any other rights it may have hereunder or under law, Sun Global shall have the right to qualify an alternative company for the manufacture and sale of the Product in the Territory and the right to submit an ANDA for the manufacture and sale of the Product at an alternative company in the Territory. If Preferred Shares have already been issued to Sun Global and/or its affiliates, Sun Global and/or its affiliates will have no obligation to return such Preferred Shares back to Caraco. Upon reversion of the Product to Sun Global, Caraco shall retain no rights to develop, produce, market or otherwise exploit or deal in any manner with the Product in the Territory and Caraco shall immediately return to Sun Global the original versions and all copies of all Proprietary Technological Information (but not including any bioequivalency studies). 10.3 NO PREJUDICE TO RIGHTS. The termination of this Agreement or of any given Product shall be without prejudice to any rights and obligations of either party accrued prior to the effective date of such termination, unless explicitly otherwise agreed or otherwise provided in this Agreement. 11. ARBITRATION Any dispute between the parties regarding any provision of this Agreement shall be resolved by binding arbitration in the Detroit, Michigan area pursuant to the commercial arbitration rules then prevailing of the American Arbitration Association. Judgment upon the award of the arbitrators may be entered by any court of competent jurisdiction. 12. NO THIRD-PARTY BENEFICIARIES This Agreement shall not confer any rights or remedies upon any person other than the parties and their respective officers, directors, heirs, executors, administrators, successors, affiliates and associates and permitted assigns. 13. FURTHER ASSURANCES The parties hereto hereby agree to execute and deliver to one another such further instruments and other documentation as may be requested by any other party hereto at any time and from time to time to carry out the terms of this Agreement. 7 14. ENTIRE AGREEMENT This Agreement and the documents executed and delivered pursuant hereto constitute the entire agreement between the parties with respect to the subject matter contained herein, and supersede all prior and contemporaneous oral and written communications and agreements with respect thereto. 15. BINDING EFFECT; ASSIGNMENT This Agreement shall be binding upon and shall insure to the benefit of the parties hereto and their heirs, executors, administrators, successors and assigns, affiliates and associates. No party has the right to assign any of its rights or obligations hereunder with the prior written consent of the other parties hereto, except that Sun Global may assign this Agreement and any of the provisions hereunder to any affiliate of Sun Global without the consent of Caraco, but Sun Global shall remain liable under this Agreement. In addition, Sun Global may assign its rights (but not obligations) under this Agreement for collateral or other security purposes to any lenders providing bonafide financing to Sun Global without the consent of Caraco. 16. AFFILIATES Sun Global and Caraco agree and understand that Sun Global may perform some of its obligations through its affiliates, however, Sun Global is ultimately legally responsible for the actions of its affiliates. Any action of an affiliate of Sun Global under this Agreement which would constitute breach of this Agreement if performed directly by Sun Global constitutes a breach of this Agreement by Sun Global. In addition, Caraco in taking any actions under this Agreement with affiliates of Sun Global shall thereby satisfy its obligations to Sun Global. This provision does not limit or restrict the rights of Caraco to pursue any right or remedy against any affiliate of Sun Global in connection with such affiliate's performance of the obligations of Sun Global under this Agreement. 17. COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instruments. 18. HEADINGS Headings of sections shall be deemed to be included for purposes of convenience only and shall not affect the interpretation of this Agreement. 19. NOTICES Any notices or consents required or permitted by this Agreement shall be in writing and shall be deemed delivered if sent by certified mail, postage prepaid, return receipt requested, or overnight delivery service (receipt confirmed), or facsimile (receipt confirmed), as follows, unless such address is changed by written notice hereunder. If to Caraco: Caraco Pharmaceutical Laboratories Ltd. 1150 Elijah McCoy Drive Detroit, Michigan 48202 Attn: President with a copy to: Fred B. Green, Esq. (which shall not Bodman, Longley & Dahling LLP constitute notice) 34th Floor, 100 Renaissance Center Detroit, Michigan 48243 8 If to Sun Global: Sun Pharma Global, Inc. Akara Building 24 De Castro Street Wickhams Clay 1 Road Town Tortola, British Virgin Islands Attn: Mr. Sunil Gandhi with a copy to: Sun Pharma Global, Inc. (which shall not Acme Plaza, Andheri - Kurla Road constitute notice) Andheri (East), Mumbai - 400059 Attn: Mr. Dilip Shanghvi/Mr. Sudhir Valia Any notice delivered hereunder shall be deemed given when actually received. 20. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan. 21. AMENDMENTS AND WAIVERS This Agreement may be amended and any provision hereof waived only in a writing signed by the party against whom an amendment or waiver is sought to be enforced. The parties hereto shall have the right at all times to enforce the provisions of this Agreement in strict accordance with the terms hereof, notwithstanding any conduct or custom on the part of such party in refraining from so doing at any time or times. The failure of any party at any time to enforce its rights under such provisions strictly in accordance with the same shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived the same. 22. SEVERABILITY If any provision of this Agreement shall be held invalid under any applicable law, such invalidity shall not affect any other provisions of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions hereof are severable. 23. EXPENSES Except as otherwise expressly provided in this Agreement, the parties will bear their respective costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. 24. CONSTRUCTION The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state or local statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, themselves or by their duly authorized representatives, under seal, the day and year first above written. CARACO PHARMACEUTICAL LABORATORIES LTD. By /s/ Narendra N. Borkar ------------------------------- Narendra N. Borkar Title: Chief Executive Officer ------------------------------- SUN PHARMA GLOBAL, INC. By: /s/ Dilip S. Shanghvi ---------------------------------- Dilip S. Shanghvi Title: Director ------------------------------- 10 EX-10.24 6 k74296exv10w24.txt SALES CONTRACT WITH GOVERNMENT VENDOR EXHIBIT 10.24 SUMMARY OF CONTRACT AWARD ADDENDUM TO CONTRACT NO. V797P-9072 CARACO PHARMACEUTICAL LABORATORIES LTD PAGE 1 OF 1 BASE CONTRACT PERIOD: JUNE 21, 2002 - JUNE 20, 2003 PLUS 4 ONE-YEAR OPTION PERIODS. The pricing for each option year period exercised by the Government shall begin at the end of the previous Contract Period and the exercising of options shall be in accordance with FAR Clause 52.217-9 - Option to Extend the Term of the Contract. The following documents are incorporated into and made part of this contract: 1. Standard Form 1449 (SF 1449) and Summary of Award 2. Amendment No. 1, effective 4/12/02 3. Caraco Pharmaceutical Laboratories Ltd Offer dated 4/5/02 a) Continuation of Standard Form 1449 (with attached Caraco final offered prices), accepted items marked "A". b) 52.212-4 Contract Terms and Conditions - Commercial Items. c) Addendum to 52-212-4 Contract Terms and Conditions - Commercial Items. d) 52.212-5 Contract Terms and Conditions Required to Implement Statutes or Executive Order. 4. Caraco Final Proposal Revisions (FPR) dated 5/9/02. CONTRACT ADMINISTRATION GP Singh Manager 1150 Elijah McCoy Drive Detroit, MI 48202 Telephone: (313) 871-8400 Ext. 108 Fax: (313) 871-8314 E-mail: gpsingh@caraco.com - ------------------------------------------------------------------------------------------------------------------------------------ AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT 1. CONTRACT ID CODE PAGE OF PAGES - ------------------------------------------------------------------------------------------------------------------------------------ 2. AMENDMENT/MODIFICATION NO. 3. EFFECTIVE 4. REQUISITION/PURCHASE REQ. NO. 5. PROJECT NO. DATE (if applicable) - ------------------------------------------------------------------------------------------------------------------------------------ 6. ISSUED BY CODE - ------------------------------------------------------------------------------------------------------------------------------------ 7. ADMINISTERED BY (if other than item 6) CODE - ------------------------------------------------------------------------------------------------------------------------------------ 8. NAME AND ADDRESS OF CONTRACTOR (No. street, county, State and Zip Code) ( * ) 9A. AMENDMENT OF SOLICITATION NO. - ------------------------------------------------------------------------------------------------------------------------------------ X - ------------------------------------------------------------------------------------------------------------------------------------ 9B. DATE (SEE ITEM 11) - ------------------------------------------------------------------------------------------------------------------------------------ 10A. MODIFICATION OF CONTRACT/ORDER NO. - ------------------------------------------------------------------------------------------------------------------------------------ 10B. DATE (SEE ITEM 13) - ------------------------------------------------------------------------------------------------------------------------------------ CODE FACILITY CODE - ------------------------------------------------------------------------------------------------------------------------------------ 11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS - ------------------------------------------------------------------------------------------------------------------------------------ [X] The above numbered solicitation is amended as set forth in Item 14. The hour and date specified for receipt of Offers [X] is extended, [ ]is not extended. Offers must acknowledge receipt of this amendment prior to the hour and date specified in the solicitation or as amended, by one of the following methods: (a) By completing items 8 and 15, and returning ______ copies of the amendment; (b) BY ACKNOWLEDGING RECEIPT OF THIS AMENDMENT ON EACH COPY OF THE OFFER SUBMITTED; or (c) By separate letter or telegram which includes a reference to the solicitation and amendment numbers. FAILURE OF YOUR ACKNOWLEDGMENT TO BE RECEIVED AT THE PLACE DESIGNATED FOR THE RECEIPT OF OFFERS PRIOR TO THE HOUR AND DATE SPECIFIED MAY RESULT IN REJECTION OF YOUR OFFER. If by virtue of this amendment you desire to change an offer already submitted, such change may be made by telegram or letter, provided each telegram or letter makes reference to this amendment, and is received prior to the opening hour and date specified. - ------------------------------------------------------------------------------------------------------------------------------------ 12. ACCOUNTING AND APPROPRIATION DATA (if required) - ------------------------------------------------------------------------------------------------------------------------------------ 13. THIS ITEM APPLIES ONLY TO MODIFICATION OF CONTRACT/ORDERS, IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14. - ------------------------------------------------------------------------------------------------------------------------------------ A. THIS CHANGE ORDER IS ISSUED PURSUANT TO: (Specify authority) THE CHANGES SET FORTH IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM 10A. - ------------------------------------------------------------------------------------------------------------------------------------ B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE ADMINISTRATIVE CHANGES (such as changes in paying offices, appropriation date, etc). SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR 43.103(b). - ------------------------------------------------------------------------------------------------------------------------------------ C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO AUTHORITY OF: - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ D. OTHER (Specify type of modification and authority) - ------------------------------------------------------------------------------------------------------------------------------------ E. IMPORTANT: Contractor is not, is required to sign this document and return ___ copies to the issuing office. - ------------------------------------------------------------------------------------------------------------------------------------ 14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section heading, including solicitation/contract subject matter where feasible) RFP 797-NC-02-0017 - METFORMIN TABLETS - is amended to add the Billings and Aberdeen area Indian Health Service (IHS) facility as an authorized user of the resultant contract with all terms and conditions as listed in the solicitation. Their requirements are as follows: 1. Metformin 500 mg Tablets, 100 per bottle, 814 bottles each 2. Metformin 500 mg Tablets, 500 per bottle, 1080 bottles each OR Metformin 500 mg Tablets, 1000 per bottle, 540 bottles each. 3. Metformin 850 mg Tablets, 100 per bottle, 5,079 bottles each. 4. Metformin 1000 mg Tablets, 100 per bottle, 720 bottles each. The date and time for receipt of offers is extended to April 19, 2002 at 4:00 pm Central Time. PLEASE SIGN AND DATE THIS AMENDMENT AND RETURN TO THE CONTRACTING OFFICE. Except as provided herein, all terms and conditions of this document referenced in items 9A and 10A, as heretofore changed, remains unchanged and in full force and effect. - ------------------------------------------------------------------------------------------------------------------------------------ 15A. NAME AND TITLE OF SIGNER (Type or print) 16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print) - ------------------------------------------------------------------------------------------------------------------------------------ 15B. CONTRACTOR/OFFEROR 15C. DATE SIGNED 16B. UNITED STATE OF AMERICA 16C. DATE SIGNED _________________________________ By_____________________________ (Signature of person authorized to sign) (Signature of Contracting Officer - ------------------------------------------------------------------------------------------------------------------------------------
PART I SCHEDULE OF SUPPLIES AND PRICES SCOPE OF CONTRACT 1.0 INTRODUCTION 1.1 Background. The Department of Veterans Affairs (VA) and Department of Defense (DoD) acquire their pharmaceutical requirements through their respective Pharmaceutical Prime Vendor Programs, hereafter referred to as the VA PPV Program and DoD PPV Program, or jointly ad PPV Programs. Under these programs, VA and DoD award a separate contract for the product distribution and a separate contract for the project distribution and a separate contract for the source and purchase price of the product itself. Currently, the products included in this solicitation are available through the PPV Programs at the Federal Supply Schedule (FSS) contract prices. 1.2 Purpose and Objectives. The purpose of this solicitation is to establish a supply source that will provide these generic items for purchase through the PPV Programs. The total estimated usage for VA, DoD, Bureau of Prisons (BOP) and Indian Health Service (IHS), appears on the Schedule of Supplies section, page(s) 7-8 of this Solicitation. The objective of such a contract is to insure availability and consistency of product for nationwide usage and to obtain volume-based, committed use pricing. 1.3 VA and DOD Formulary Designation. VA, DOD, listed IHS facilities and all Non-Privatized BOP facilities will purchase from the national contractor all their requirements for the strengths of the generic items listed in the schedule. 1.4 Award. If an award is not made on an initial offer, Final Price Revisions may be requested by written correspondence or may be conducted through a competitive, anonymous, on-line Reverse Auction program (see FAR 52.212-1, page 28, for full details). 1.5 Contract Duration. The contract resulting hereunder will be in effect for one (1) year plus four (4) one-year option periods that may be exercised by the Government. 1.6 Contract Effective Date. The effective date of the contract shall be 45 DAYS (OR SOONER UPON MUTUAL AGREEMENT) AFTER THE DATE OF AWARD. After the effective date, a short phase-in period may be needed to convert patients and medical centers to the awarded products. Contractor shall ensure that sufficient inventory is available and chargeback agreement with the PPVs are in place sufficiently in advance of the effective date to permit PPVs to dispatch shipments from their distribution facilities to ordering activities beginning the effective date of the contract. Delivery of product is to be made to the Distribution Centers of the PPVs listed in Attachments "A" and "B" to this solicitation. Some of these PPVs have multiple distribution. This list represents only the PPV contractors to date as these contractors may change within the contract period. The awarded contractor will be notified if such changes take place. Other requirements for time, place, method of delivery or performance, and payment shall be determined between the awarded contractor and the PPV contractors listed in the attachments. Contractor shall notify the VA Contracting Officer within 15 DAYS FROM RECEIPT OF AWARD NOTICE if an agreement cannot be reached. Failure or refusal to come to terms with the PPVs shall constitute sufficient cause for terminating the contract under FAR 52.212-4(m), Contract Terms and Conditions - Commercial Items, Termination for Cause. 2.0 EXTENT OF OBLIGATIONS 2.1 Governmental Participants. The contractor shall provide the pharmaceutical products specified in the schedule at the prices awarded herein for all facilities purchasing through the DoD PV program, and for the following facilities purchasing through the VA PPV Program: (a) All Department of Veterans Affairs (DVA) facilities (b) Indian Health Service (IHS) facilities located in the following regions: 1. Albuquerque 2. Phoenix 3. Oklahoma/Ada NSSC 4. Portland (c) All Option 2 State Veterans Home (See paragraph 2.2 State Veteran Homes) (d) All Non-Privatized Federal Bureau of Prisons (BOP) facilities A database of all facilities authorized to use the VA PPV Program may be downloaded from the National Acquisition Center's web site at http://www.va.gov/oa&mm/mac/pharm/pharmpv.htm. The database identifies the agency classification for each participant. Additionally, the regional area for each HIS facility is identified, and each state veteran home is identified as option 1 or 2. 2.2 State Veteran Homes. There are numerous State Veteran Homes (SVHs) that have entered into sharing agreement with Department of Veterans Affairs medical centers (VAMCs). The SVHs with sharing agreements that participate in the VA PPV program are identified as being one of two types: Option 1 or Option 2. Option 1: The SVH orders pharmaceuticals directly from the PPV and pays the PPV for all items purchased. An Option 1 SVH is not eligible for national contract pricing unless it is specifically named in the scope of contract or added after award by mutual agreement. Option 2: The VAMC authorizes the SVH's order, and the VAMC makes payment to the PPV for all pharmaceuticals ordered by the SVH. An Option 2 SVH is eligible for the national contract price awarded under this solicitation. 2.3 HHS Perry Point. In accordance with the Interagency Agreement (IA), #1101, between VA and Department Health and Human Service Supply Service Center at Perry Point (hereafter referred to as HHS Perry Point, HHS Perry Point serves as the repackager of pharmaceuticals for VA health care facilities. Pursuant to this IA, HHS Perry Point shall be an authorized user of the resultant-contract for the sole purpose of repackaging contract line items into package sizes not covered by the contract (e.g. unit-of-use sizes not carried by the contractor). HHS Perry Point shall only order contract items that will be repackaged for and supplied to VA healthcare facilities. HHS Perry Point shall not purchase from the contract any line items for distribution to unauthorized non-VA facilities unless mutually agreed upon between the contractor and the VA. 2.4 Addition of Other Government Agencies to the Contract. Upon mutual agreement between the contractor and the Government, a limited number of other Government agencies (OGAs) serviced by the VA PPV Program, including, but not limited to, 2 Immigration and Naturalization Services (INS), Option 1 State Veteran Homes and additional IHS facilities may be added to the contract by Modification. 2.5 Estimated Quantities. The quantities in the schedule reflect the combined usage of all VA, DOD, BOP & HIS activities currently participating in the PPV Programs. These estimated requirements do not include those of any other Government agency, including those currently participating in the VA PPV Program (e.g. INS, State Veteran's Home). The estimated usage cited in the Schedule is the Government's total estimated usage for the listed strengths, including any new package sizes that may be added to the contracts after award. (i.e. if a new package size is added, the total estimated quantity of dosages would not change but there may be a shift in usage from existing package size(s) to the new size). There is no expressed or implied guarantee that the estimated quantity will be purchased under this contract. Actual quantities purchased may exceed or be less than those represented. 2.6 Product Compatibility with VA Consolidated Mail Outpatient Pharmacies (CMOP) Dispensing Machines. In order to process patient prescriptions efficiently, VA medical centers and VA CMOPs use various automated dispensing machines. Due to the high volume of products processed by these machines, accuracy is very important. VA has found that products that do not conform to the established tolerance level identified by manufacturers of these machines, or are not consistent in configuration and weight from lot to lot, negatively impact the dispensing process. Such products cause miscounts and down time that raise facility's operating costs. Once an automated dispensing machine canister has been calibrated for a Contractor's capsule, the dimensions of the capsule shall not exceed the set tolerance range, or the contract may be terminated for cause. 2.7 Samples. The Offeror shall provide to the VA Contracting Officer upon request, samples of the product(s) being offered in response to this Solicitation. These samples will not be returned to the contractor. 3.0 PRODUCT, PACKAGING, AND LABELING REQUIREMENTS 3.1 Produce Requirements. The physical appearance of identical strengths of the same drug shall be consistent in color, composition, shape and dimension regardless of the packaging size. For example, assume the solicitation requires that Drug X, 10 mg be provided in bottle sizes of 30, 100, and 500. If the contractor provides a 10 mg, round, 1/4" diameter, blue tablet in the 30's bottle size, then 10 mg strength offered for the bottles of 100's and 500's shall also be a round, 1/4" diameter, blue tablet. 3.2 Packaging Requirements. Offerors must state the exact name that appears on the label, by which the drug will be supplied. Offerors shall also provide a unique NDC number for all items offered. All bottles of 100 tablets or less must have a child resistant closure. 3.3 Bar Coding Requirements. Each contract item must have a bar code label, which includes, at a minimum, the National Drug Code (NDC). It is desirable, but not required, that bar coding also include the expiration date and lot number. 3.4 Termination of Orders and Claims (for DoD purchases only). The DoD DSCP Contracting Officer, who is the VA's Technical Representative (COTR) shall have the right to terminate any DoD orders for either cause or for the convenience of the Government. The COTR shall have the right to examine and accept or reject any order 3 the contract. The COTR has the authority to administer and take any action including resolving any disputes and issuing final decisions on any DoD orders. Additionally, the DoD DSCP COTR shall have authority and responsibility for any breach of contract claim against DoD and the ASBCA shall have jurisdiction over such claims. 3.5 National Contract Item Backorders. (a) Under this requirements contract, the contractor is the Government's primary source for the product awarded herein, (See FAR 52.216-21 Requirements, included in this solicitation.) The Government's ability to provide quality healthcare to its patient population is severely impaired when a national contract product is not available due to a national contractor's backorder. The purpose of this clause is to provide guidance to the contractor regarding a temporary solution to national contract item backorders that may be implemented in lieu of the Government terminating the contract for cause. However, consideration of this clause shall not waive any of the Government's rights to terminate the contract for cause in accordance with FAR 52.212-4(m). (b) If a national contract item is backordered by the Pharmaceutical Prime Vendor, the VA National Acquisition Center (VANAC) contracting officer will investigate the backorder to determine if the national contractor bears responsibility for the backorder. The contractor shall inform the VANAC contracting officer within 4 calendar days after a backorder occurs. In addition to informing the contracting officer of the backorder, the contractor shall provide an estimated date when the backorders will be shipped, and may propose a solution to satisfy the Government's needs for the contract items until the backorders are resolved. The Government reserves the right to accept or reject any possible solutions that the contractor may propose to alleviate a national contract backorder situation. (c) If the contracting officer determines that the contractor bears responsibility for the backorder, and contractor is not able to provide an acceptable solution to the backorder, in lieu of Termination for Cause, the parties agree that the Government may acquire the same or similar items from another source, and bill the contractor for any excess procurement cots. In other words, if the government must purchase product from another vendor because of a national contract backorder, the contractor will issue or reimburse the Government for the difference between the purchase price and the contract price, if agreed to by both parties. Award will be made based on an aggregate total of the drugs indicated in the solicitation. Offerors are encouraged to provide prices for any additional packaging sizes available for solid oral dosages of the offered drug(s). Price for additional packaging sizes will not be part of the evaluation to determine the lowest overall costs. However, the price may be included in the contract award. Furthermore, additional sizes may be added after award by mutual agreement between the contractor and Government. The estimated quantities shown reflect the combined VA, DoD, BOP and IHS usage. Attachment "C" provides a breakdown by agency. IF OFFERED PRICES MATCH OR EXCEED CURRENT FSS PRICING, THE GOVERNMENT RESERVES THE RIGHT TO MAKE A NO-AWARD DETERMINATION. 4 Where there is a choice of package size as indicated by the word "or", the offeror must submit a price on at least one of the two sizes indicated. Award will be made on the package size most advantageous to the Government. Offered prices shall not exceed two decimal places. If the offeror is not the manufacturer, a copy of the signed agreement between the offeror and the manufacturer must be submitted with the proposal. The agreement must be for the maximum term of the contractor, or a possible five (5) years. OFFERORS SHALL INDICATE A UNIQUE NDC NUMBER FOR EACH ITEM OFFERED.
------------------------------------------------------------------------------------------------------ EST. ANNUAL ITEM NO. PKG. NUMBER SUPPLIES/SERVICES SIZE OF UNITS UNIT UNIT PRICE AMOUNT ------------------------------------------------------------------------------------------------------ 1 Metformin Hel Tablets 500 mg NDC#_57664039788 100 234.126 BT $4.50 $1,053,567 ------------------------------------------------------------------------------------------------------ 2 Metformin Hel Tablets 500 mg NDC#_______ 500 334,316 BT OR OR OR Metformin Hel Tablets 500 mg NDC#57664039718 1000 167,158 BT $41.00 $6,853,478 ------------------------------------------------------------------------------------------------------ 3 Metformin Hel Tablets 850 mg NDC#57664043588 100 50,284 BT $ 6.83 $343,439.72 ------------------------------------------------------------------------------------------------------
5 ------------------------------------------------------------------------------------------------------ 4 Metformin Hel Tablets 850 mg NDC#_______ 500 72,982 BT OR OR OR Metformin Hel Tablets 850 mg NDC#57664043518 1000 36,491 BT $62.00 $2,262,442 ------------------------------------------------------------------------------------------------------ 5 Metformin Hel Tablets 1000 mg NDC#57664047488 100 43,321 $ 8.20 $355232.20 ------------------------------------------------------------------------------------------------------ 6 Metformin Hel Tablets 1000 mg NDC#______ 500 55,944 BT OR OR OR Metformin Hel Tablets 1000 mg NDC#57664047418 1000 27,972 BT $74.00 $2,069,928 ------------------------------------------------------------------------------------------------------
6 PART II CONTRACT TERMS AND CONDITIONS 52.212-4 CONTRACT TERMS AND CONDITIONS - COMMERCIAL ITEMS (FEB 2002) (DEVIATION) (JUN 1996) (a) Inspection/Acceptance. (TAILORED) Pharmaceutical products will be ordered by the Government through the authorized VA Pharmaceutical Prime Vendors. The Government's inspection rights become effective upon receipt at the Government ordering facility. The Government reserves the right to inspect or test any supplies ordered under this contract that have been tendered for acceptance, at the Government's discretion. The Contractor shall only tender for acceptance those items that conform to the requirements of this contract. The Government may require repair or replacement of nonconforming supplies or reperformance of nonconforming services at no increase in contract price. The Government must exercise its postacceptance rights (1) within a reasonable time after the defect was discovered or should have been discovered; and (2) before any substantial change occurs in the condition of the item, unless the change is due to the defect in the item. (b) (DEVIATION) Reserved. (c) Changes. Changes in the terms and conditions of this contract may be made only by written agreement of the parties. (d) Disputes. (DEVIATION) This contract is subject to the Contract Disputes Act of 1978, as amended (41 U.S.C. 601-613). Failure of the parties to this contract to reach agreement on any request for equitable adjustment, claim, appeal or action arising under or relating to this contract shall be a dispute to be resolved in accordance with the clause at FAR 52.233-1. Disputes, which is incorporated herein by reference. The Contractor shall proceed diligently with performance of this contract, pending final resolution of any dispute arising under the contract. (2) The Veterans Affairs Board of Contract Appeals (VABCA) has jurisdiction over any disputes arising under this contract. Also, a dispute arising between a Contractor and an authorized VA Pharmaceutical Prime Vendor does not give rise to a "claim" under the Disputes Clause, FAR 52.23-1. (e) Definitions. The clause at FAR 52.202-1, Definitions is incorporated herein by reference. (f) Excusable delays. The Contractor shall be liable for default unless nonperformance is caused by an occurrence beyond the reasonable control of the Contractor and without its fault or negligence such as, acts of God or the public enemy, acts of the Government in either its sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, unusually severe weather, and delays of common carriers. The Contractor shall notify the Contracting Officer in writing as soon as it is reasonably possible after the commencement of any excusable delay, setting forth the full particulars in connection therewith, shall remedy such occurrence with all reasonable dispatch, and shall promptly give written notice to the Contracting Officer of the cessation of such occurrence. (g) (DEVIATION) Reserved. 7 (h) Patent indemnity. The Contractor shall indemnify the Government and its officers, employees and agents against liability, including costs, for actual or alleged direct or contributory infringement of, or inducement to infringe, any United States or foreign patent, trademark or copyright, arising out of the performance of this contract, provided the Contractor is reasonably notified of such claims and proceedings. (i) (DEVIATION) Reserved. (j) Risk of loss. (TAILORED) Unless the contract specifically provides otherwise, risk of loss or damage to the supplies provided under this contract shall remain with the Contractor until, and shall pass to the Government upon delivery of the supplies to the Government facility. Risk of loss does not pass to the Government upon delivery to any Pharmaceutical Prime Vendor. (k) Taxes. The contract price includes all applicable Federal, State, and local taxes and duties. (l) Termination for the Government's convenience. The Government reserves the right to terminate the contract, or any part hereof, for its sole convenience. In the event of such termination, the Contractor shall immediately stop all work hereunder and shall immediately cause any and all of its suppliers and subcontractors to cease work. Subject to the terms of this contract, the Contractor shall be paid a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system, have resulted from the termination. The Contractor shall not be required to comply with the cost accounting standards or contract cost principles for this purpose. This paragraph does not give the Government any right to audit the Contractor's records. The Contractor shall not be paid for any work performed or costs incurred which reasonably could have been avoided. (m) Termination for cause. The Government may terminate this contract, or any part hereof, for cause in the event of any default by the Contractor, or if the Contractor fails to comply with any contract terms and conditions, or fails to provide the Government, upon request, with adequate assurances of future performance. In the event of termination for cause, the Government shall not be liable to the Contractor for any amount for supplies or services not accepted, and the Contractor shall be liable to the Government for any and all rights and remedies provided by law. If it is determined that the Government improperly terminated this contract for default, such termination shall be deemed a termination for convenience. (n) Title. Unless specified elsewhere in this contract, title to items furnished under this contract shall pass to the Government upon acceptance, regardless of when or where the Government takes physical possession. (o) Warranty. The Contractor warrants and implies that the items delivered hereunder are merchantable and fit for use for the particular purpose described in this contract. (p) Limitation of liability. (TAILORED) Except as otherwise provided by an express or implied warranty, the Contractor will not be liable in breach of warranty action to the Government for consequential damages resulting from any defect or deficiencies in accepted items. (q) Other compliances. The Contractor shall comply with all applicable Federal, State and local laws, executive orders, rules and regulations applicable to its performance under this contract. 8 (r) Compliance with laws unique to Government contracts. The Contractor agrees to comply with 31 U.S.C. 1352 relating to limitations on the use of appropriated funds to influence certain Federal contracts; 18 U.S.C. 431 relating to officials not to benefit; 40 U.S.C. 327, et seq., Contract Work Hours and Safety Standards Act; 41 U.S.C. 51-58, Anti-Kickback Act of 1986; 41 U.S.C. 265 and 10 U.S.C. 2409 relating to whistleblower protections; and 49 U.S.C. 40118, Fly American; and 41 U.S.C. 423 relating procurement integrity. (s) Order of precedence. Any inconsistencies in this solicitation or contract shall be resolved by giving precedence in the following order: (1) the schedule of supplies/services; (2) the Assignments Disputes, Payments, Invoice, Other Compliances, and Compliance with Laws Unique to Government Contracts paragraphs of this clause; (3) the clause at 52.212-5; (4) addenda to this solicitation or contract, including any license agreements for computer software; (5) solicitation provisions if this is a solicitation; (6) other paragraphs of this clause; (7) the Standard Form 1449; (8) other documents, exhibits, and attachments; and (9) the specification. THIS PROCUREMENT IS A JOINT EFFORT BETWEEN VA AND DOD. WHEREVER THE TERM VA PPV APPEARS IN THIS SOLICITATION IT SHALL BE UNDERSTOOD TO INCLUDE THE DOD PRIME VENDORS AS WELL. (t) Note. This solicitation and the resulting contract provide for award of a National Contract for pharmaceutical items to be distributed through the VA Pharmaceutical Prime Vendor (PPV) program. Orders will not be placed directly with the contractor by VA, but rather the VA PPV will accept VA's orders and payments on behalf of the contractor. (u) Delivery. The requirements for time, quantity, place and method of delivery of items sold through the VA PPV program will be determined between the awarded Contractor and the authorized VA PPV's. (v) Chargeback arrangement. Chargeback arrangements/agreements must be coordinated between the Prime Vendors and the Contractor. The Government will not become involved in this area nor will the Government assume any responsibility for these monies. Chargebacks, if any under this Government supply contract shall be handled in accordance with current National Wholesale Druggist's Association (NWDA) Chargeback Standards. Questions concerning the NWDA Chargeback Standards should be referred to NWDA, P.O. Box 238, Alexandria, Virginia 22313. (w) Ordering. (DEVIATION) (1) Any supplies and/or services to be furnished under this contract shall be ordered by issuance of delivery orders by the individuals or activities designated. Such orders may be issued at any time during the contract term. (2) All delivery orders are subject to the terms and conditions of this contract. In the event of conflict between a delivery order and this contract, the contract shall control. (3) Orders against this contract will be accomplished by issuance of delivery orders to an authorized VA PPV. (x) Payments. (DEVIATION) Payment of the prices stipulated in this contract to VA PPVs for products ordered on the contract will satisfy Government payment obligations under this contract. Moreover, no payment will be made to the VA PPV for the contractor's pharmaceutical products unless the contractor complies with PL 102-585. 9 52.219-16 LIQUIDATED DAMAGES - SUBCONTRACTING PLAN. (JAN 1999) (a) "Failure to make a good faith effort to comply with the subcontracting plan", as used in this clause, means a willful or intentional failure to perform in accordance with the requirements of the subcontracting plans approved under the clause in this contract entitled "Small Business Subcontracting Plan," or willful or intentional action to frustrate the plan. (b) Performance shall be measured by applying the percentage goals to the total actual subcontracting dollars of, if a commercial plan is involved, to the pro rata share of actual subcontracting dollars attributable to Government contracts covered by the commercial plan. If, at contract completion or, in the case of a commercial plan, at the close of the fiscal year for which the plan is applicable, the Contractor has failed to meet its subcontracting goals and the Contracting Officer decides in accordance with paragraph (c) of this clause that the Contractor failed to make a good faith effort to comply with its subcontracting plan, established in accordance with the clause in this contract entitled "Small Business Subcontracting Plan," the Contractor shall pay the Government liquidated damages in an amount stated. The amount of probable damages attributable to the Contractor's failure to comply shall be an amount equal to the actual dollar amount by which the Contractor failed to achieve each subcontract goal. (c) Before the Contracting Officer makes a final decision that the Contractor has failed to make such good faith effort, the Contracting Officer shall give the Contractor written notice specifying the failure and permitting the Contractor to demonstrate what good faith efforts have been made and to discuss the matter. Failure to respond to the notice may be taken as an admission that no valid explanation exists. If, after consideration of all the pertinent date, the Contracting Officer finds that the Contractor failed to make a good faith effort to comply with the subcontracting plan, the Contracting Officer shall issue a final decision to that effect and require that the Contractor pay the Government liquidated damages as provided in paragraph (b) of this clause. (d) With respect to commercial plans, the Contracting Officer who approved the plan will perform the functions of the Contracting Officer under this clause on behalf of all agencies with contracts covered by the commercial plan. (e) The Contractor shall have the right of appeal, under the clause in this contract entitled, Disputes, from any final decision of the Contracting Officer. (f) Liquidated damages shall be in addition to any other remedies that the Government may have. 52.216-21 REQUIREMENTS (OCT 1995) (DEVIATION) (MAY 1997) (a) This is a requirements contract for the supplies or services specified, and effective for the period stated in the Schedule. The quantities of supplies or services specified in the Schedule are estimates only and are not purchased by this contract. Except as this contract may otherwise provide, if the Government's requirements do not result in orders in the quantities described as "estimated" or "maximum" in the Schedule, that fact shall not constitute the basis for an equitable price adjustment. (b) Delivery or performance shall be made only as authorized by orders issued through the VA PPVs in accordance with the Ordering clause. Subject to any limitations specified in this contract, the Contractor shall deliver to the VA PPVs all supplies specified in the Schedule and called for by orders issued in accordance with the Ordering clause. The Government's VA PPVs may issue orders requiring delivery to multiple distribution centers. 10 (c) Except as this contract otherwise provides, the Government shall order from the Contractor through the VA PPV all the supplies specified in the Schedule that are required to be purchased by the Department of Veterans Affairs and other Government agencies as specified in the Schedule. Note: This contract provides for formulary status as stipulated in Part I, Schedule of Supplies and Prices. Usage will be determined in accordance with this schedule. (d) The Government is not required to purchase requirements in excess of any limit on total orders under this contract. (e) If the Government requires delivery of any quantity of an item that the applicable VA PPV does not have available for delivery within the VA PPVs contract required time frame, the Government may acquire the required items from another source. (f) Any order issued by the VA PPVs during the effective period of this contract and not completed within that period shall be completed by the Contractor within the time specified in the order. The contract shall govern the Contractor's Pharmaceutical Prime Vendor's, and Government's rights and obligations with respect to that order to the same extent as if the order were completed during the contract's effective period; provided, that the Contractor shall not be required to make any deliveries under this contract after 15 days after the expiration of the contract. NOTES: The Government's obligation to purchase its requirements as described in this clause will be interpreted to include a phase-in period specified in the Scope of the Contract, Paragraph 1.6. 52.217-9 OPTION TO EXTEND THE TERM OF THE CONTRACT (MAR 2000) (a) The Government may extend the term of this contract by written notice to the Contractor within 30 days before expiration of the contract, provided, that the Government gives the Contractor a preliminary written notice of its intent to extend at least 60 days before the contract expires. The preliminary notice does not commit the Government to an extension. (b) (TAILORED) The VA is the primary user of this contract and may exercise the option to extend in whole or in part. By in part, if any agency does not wish to continue this contract, the contractor will be so notified in the Modification to Extend the option year. If the Government exercised this option, the extended contract shall be considered to include this option provision. (c) The total duration of this contract, including the exercise of any options under this clause, shall not exceed 5 years. 52.232-17 INTEREST (JUN 1996) (a) Except as otherwise provided in this contract under a Price Reduction for Defective Cost or Pricing Data clause or Cost Accounting Standards clause, all amounts that become payable by the Contractor to the Government under this contract (net of any applicable tax credit under the Internal Revenue Code (26 U.S.C. 1481)) shall bear simple interest from the date due until paid unless paid within 30 days of becoming due. The interest rate shall be the interest rate established by the Secretary of the Treasury as provided in Section 12 of the Contract Disputes Act of 1978 (Public Law 95-563), which is applicable to the period in which the amount becomes due, as 11 provided in paragraph (b) of this clause, and then at the rate applicable for each six-month period as fixed by the Secretary until the amount is paid. (b) Amounts shall be due at the earliest of the following dates: (1) The date fixed under this contract. (2) The date of the first written demand for payment consistent with this contract, including any demand resulting from a default termination. (3) The date the Government transmits to the Contractor a proposed supplemental agreement to confirm completed negotiations establishing the amount of debt. (4) If this contract provides for revision of prices, the date of written notice to the Contractor stating the amount of refund payable in connection with a pricing proposal or a negotiated pricing agreement not confirmed by contract modification. (c) The interest charge made under this clause may be reduced under the procedures prescribed in 32.614-2 of the Federal Acquisition Regulation in effect on the date of this contract. 852.270-4 COMMERCIAL ADVERTISING (NOV 1984) The bidder or offeror agrees that if a contract is awarded to him/her, as a result of this solicitation, he/she will not advertise the award of the contract in his/her commercial advertising in such a manner as to state or imply that the Veterans Administration endorses a product, project or commercial line of endeavor. AS1335 THERAPEUTIC EQUIVALENCE (MAY 1992) Only products that have received under the Federal Food, Drug and Cosmetic Act a therapeutic equivalence code of "A" by the Food and Drug Administration will be considered, unless all drugs in the family group are "B" rated. In that case, no award will be made other than to the innovator unless the non-innovator vendor submits acceptable data demonstrating bioequivalence. AS1345 RECALLS (JUNE 1997 UPDATE) If at any time during the term of the contract awarded as a result of this solicitation, the Food and Drug Administration (FDA) or the individual contractors initiates a drug recall or FDA withdraws their approval to manufacture a drug, the following steps will immediately be taken by the appropriate contractor: a. Important notices not requiring immediate attention may be mailed to: Associate Chief, Pharmacy Benefits Mgmt. - Strategic Health Group (119D) P.O. Box 126 Hines, IL 60141 b. Drug product hazard alerts, recalls and product notices requiring immediate 12 attention and dissemination should be sent via overnight express to: Associate Chief, Pharmacy Benefits Management -Strategic Health Group (119D) 1st Avenue, 1 Block North of Cermak Rd., Bldg 37 Hines, IL 60141 c. Forward one copy of any notification along with any pertinent information to: National Contract Service, 049AIN2PH P.O. Box 76 Hines, IL 60141 AS1350 TESTING FACILITIES (MAY 1992) Offeror shall state whether Offeror ( X ) DOES, ( ) DOES NOT maintain qualified testing laboratories. If Offeror does, state address: 1150 ELIJAH MCCOY DRIVE. DETROIT, MI 48202. If Offeror does not maintain such laboratories, Offeror will state the name and address of the qualified testing laboratory which will perform necessary testing under the schedule contract. AS1910 MANUFACTURING FACILITIES (JUL 1996) (i) Offeror must indicate in the spaces below and/or by attachment, If additional space is needed, (a) exact product(s) offeror desires to furnish to the Government, (b) whether the offeror MANUFACTURES (X) the product(s) and/or if he/she is a DISTRIBUTOR ( ) of the product(s) manufactured by another firm. The contractor will only be able to utilize the manufacturer provided in response to this clause for the duration of the contract. Any substitution of manufacturing facility must be approved by the VA.
FACILITY LOCATION ITEM NAME, ADDRESS, CITY, PERSON TO BE CONTACTED NO. COUNTY, STATE & ZIP CODE INCLUDING PHONE NUMBER CARACO PHARMA LABS LTD 1, 2, 3 1150 ELIJAH MCCOY DRIVE JITENDRA DOSHI 4, 5, and 6 DETROIT, MI 48202 (313) 871-8400 ------- ------------------------------ -------------------------- ------- ------------------------------ --------------------------
Notes: A. If the product(s) are to be manufactured at more than one location, each location should be identified and product(s) manufactured at the facility should be identified. Also list the names and locations of all subcontractors (packager, labelers, etc.,) who participate in the production of product(s) to be furnished to the Government. AS1910 MANUFACTURING FACILITIES (JUL 1996) (CONTINUED) B. Products can be identified by "Item Number" as listed in Continuation of SF 13 1449, Schedule of Supplies and Prices of the solicitation. C. When the finished product to be offered is of foreign manufacture, the complete name and address of the manufacturer shall also be listed. (ii) Offeror agrees to inform the V,\ National Acquisition Center (049A 1 N2PH), Hines, IL 60141, immediately of any relocation of his prime facility or the relocation of any subcontractor's facility. (iii) If at any time during the life of the contract, the contractor's facility, or the source from which the contractor obtains any of the item(s) listed under this contract, fails to meet Current Good Manufacturing Practice Regulations (CGMPRs)(21 CFR Part 210 and 211), and/or a negative .- Food and Drug Administration Quality Assurance Evaluation is received, the contract may be subject to termination, in whole or in part, without liability to the Government. (iv) Any products manufactured during this period of CGMPRs deficiencies will not be shipped to the V A prime vendor contractors and that material which has been received shall be returned as rejected goods. The contractor will have 30 days in which to correct the deficiencies that caused the negative evaluation and notify the V A National Acquisition Center (049A 1 N2PH), Hines, IL, to have a reevaluation completed by the Food and Drug Administration. If upon reevaluation - results are still negative, the contract will immediately be terminated in whole, without liability to - the Government. AS1911 PLACE OF PERFORMANCE (MAY 1992) Offeror must stipulate below the name, location and ownership of each facility where the following described work is to be performed. When more than one facility is involved for any of the work hereinafter described or where more than one active ingredient is included in the end item on the procurement, the name, location and ownership of all facilities must be shown. Information required under this Clause which the Offeror desires to remain confidential must be supplied in a letter accompanying the offer and must be identified as such. The government will maintain information so submitted except as inconsistent with existing law. NOTE: Include city, state, and county in each of the addresses below. A. ACTIVE INGREDIENTS Active ingredient manufactured in the facilities located at (complete address) which are owned by B. DRUG PRODUCT (Complete the applicable paragraph(s).) (1) PARENTERALS a. Ingredients will be weighed, measured, mixed and compounded by 14 in the facilities located at (complete address) which are owned by b. Product will be sterilized by in the facilities located at (complete address) which are owned by (2) TABLETS, CAPSULES AND PILLS a. Ingredients will be weighed, granulated, mixed, screened, dried, etc. by in the facilities located (complete address) which are owned by (3) OTHER DRUG PRODUCTS. (Solutions, syrups, mixtures, powders, ointments, pastes, creams, etc.) Ingredients will be weighed, measured, mixed and compounded by in the facilities located at (complete address) which are owned by C. PACKAGING AND PACKING (1) Immediate container will be filled and labeled by in the facilities located at (complete address) which are owned by (2) Material will be packed and prepared for shipment by in the facilities located at (complete address) which are owned by NOTE: For each facility listed, also provide person to be contacted, including phone number. AS1504 CONTRACTOR'S REPORT OF SALES (NATIONAL CONTRACT SALES REPORTS) (NOV 1995) 15 (a) Contractors' shall furnish QUARTERLY the dollar value (rounded to the nearest whole dollar) of all national contract sales made to Government agencies through the PPVs during the preceding 3 month period, including any partial month. This report shall segment sales by Department of Veterans Affairs (V A) and Other Government Agencies (OGA). In addition, the report for the first quarter (first quarter begins October 1 and ends December 31), and subsequent quarters shall be due within 60 calendar days from the end of any quarter. A report with individual line items on the National Contract shall be prepared and submitted on the "Contractor's Report of Sales for National Contracts" form (furnished at time of award). (b) The report is due in the office specified below 60 calendar days following the completion of the reporting period or completion of the contract. A report is required even when no billings or invoices are issued or no orders are received during the report period. A facsimile report is permitted and may be sent to (708)786-5256. (c) The Government reserves the right to inspect without further notice, such records of the Contractor as pertain to sales under any contract resulting from this solicitation. Willful failure or refusal to furnish the required reports, or falsification thereof, shall constitute sufficient cause for terminating the contract under FAR 52.212-4(m), Contract Terms and Conditions -Commercial Items, Termination for Cause. (d) The report shall be forwarded to the following address: Regular U.S. Mail Address Express Mail Address Department of Veterans Affairs Department of Veterans Affairs National Acquisition Center (049AlN2PH) National Acquisition Center (049A1N2PH) P.O. Box 76 1st Ave. & 1 Block North 22nd St, Bldg. 37 Hines, IL 60141 Hines, IL 60141 Attn: Ronald E. Jenkins, Contracting Officer Attn: Ronald E. Jenkins, Contracting Officer
AS1514 COST RECOVERY FEE (JUN 1998) (a) Upon 30 calendar days notice from the Contracting Officer, the Contractor shall collect a Cost Recovery Fee on behalf of the Department of Veterans Affairs (V A) from all participating facilities (includes other Government agencies) under the V A PPV Program. V A will specify the fee amount (e.g, 0.5%) at time of notification. The fee shall be added to the price of each line item sold under this contract, and shall be reflected in the price charged to facilities. Within 15 days after notice that the cost recovery fee will be implemented, Contractor may adjust prices to incorporate the fee by requesting a contract modification. Contractor shall remit the fee quarterly, at the same time as the "Contractor's Report of Sales for National Contracts" form is submitted (see clause "Contractor's Report of Sales for National Contracts"). (b) The cost recovery fee amount due shall be paid by check or electronic funds transfer to the "Department of Veterans Affairs". When the Contractor has multiple national contracts, the fee may be consolidated into one check. To ensure that the payment is credited properly, the Contractor should identify the check or electronic transmission as a "Cost Recovery Fee" and include the following information: contract number(s), report amount(s) and report period(s). (1) If the Cost Recovery Fee payment is made by check, it shall be forwarded to the following address: 16 Hines Fiscal Division c/o Agent Cashier PO Box 27 Hines, IL 60141 (2) If the Cost Recovery Fee payment is requested to be made by electronic funds transfer through the Automated Clearing House (ACH), the Contractor will be provided with the information from the Government at a later date. (c) If the full amount of the Cost Recovery Fee is not paid within 30 days after the end of the applicable reporting period, it shall constitute a contract debt to the United States Government under the terms of FAR 32.6. The Government may exercise all rights under the Debt Collection Act of 1982, including withholding or setting off payments and interest onto the debt (see FAR 52.232-17, Interest). (d) Failure to submit sales reports, falsifications of sales reports, and/or failure to pay the Cost Recovery Fee in a timely manner may result in termination or cancellation of this contract. Willful failure or refusal to furnish the required reports, falsification of sales reports, or failure to make timely payment of the Cost Recovery Fee constitutes a cause for terminating the contract under FAR 52.212-4(m), Contract Terms and Conditions -Commercial Items, Termination for Cause. NOTE: At the time of remittance of your Cost Recovery Fee payment, please enclose two (2) copies of your required "Contractor's Report of Sales for National Contracts", and provide to the address indicated above. AS1515 OPTION PRICING (JUN 1998) (a) If the option to extend is exercised by the Government, the contract price(s) may be adjusted upward or downward at that time in accordance with all the terms and conditions of this clause. (b) "Consumer Price Index" (CPI), as used in this clause, means the originally released index, for All Urban Consumers. Current Series, as published by the Bureau of Labor Statistics, U.S. Department of Labor, for Medical Care Commodities. Nonprescription Drugs and Medical Supplies. Series ID CUUR0000SEMB, or Prescription Drugs and Medical Supplies. Series ID CUUR0000SEMA. The area that shall be used is the U.S. City Average, Not Seasonally Adjusted. The Bureau of Labor Statistics on their web site posts the Consumer Price Index: http://stats.bls.gov/cpihome.htm Items solicited are considered: (Offeror must check appropriate block) PRESCRIPTION ( ) NONPRESCRIPTION ( ) (c) For the first option period, any price adjustment for the product code shall be based upon the percentage change in the CPI released in the month prior to the initial month of the contract period specified in the solicitation for sealed bidding or the month prior to award in negotiation (the base index) and the CPI released in the third month before completion of the initial contract period stated in the solicitation (the updated index). This initial contract period may be less than 12 months. The formula for determining the Adjusted Contract Price (ACP) applicable to shipments during the first option period is - 17 ACP = Updated Index x Awarded Price Base Index (d) For any subsequent option period, the price adjustment shall be the percentage change between the previously updated index (the new base index) and the CPI released 12 months later (the most recent updated index). This percentage shall be applied to the Current Contract Price (CCP). The formula for determining the ACP applicable to shipments for the subsequent option period(s) is - ACP = Most Recent Updated Index x CCP New Base Index (e) If the CPI is not available for the month of the base index or the updated index, the month with the most recently published CPI prior to the month determining the base index or updated index shall be used. (f) If a product code is discontinued, the Government and the Contractor will mutually agree to substitute a similar product code. If Labor designates an index with a new titled and/or code number as continuous with the product code specified above, the new index shall be used. (g) The Contractor shall be responsible for reporting price decreases and requesting price increases pursuant to this provision. Unless the Contractor's written request for a price increase resulting from the application of the formulas in (c) or (d) above is received by the Contracting Officer within 15 calendar days from the date of the Government's preliminary written notice of its intent to exercise the option, the Contractor shall have waived its right to a price increase for that option period. If the contractor fails to report price decreases, the Contracting Officer may unilaterally effect price decreases reflected by the CPI. The Contracting Officer, in its written notice exercising the option, shall exercise the option at the CCP or ACP if decreased (when using the appropriate formulas in (c) or (d) above) and shall state in such notice the applicable option price. (h) Price adjustments shall be effected by execution of a contract modification by the Government indicating the most recent updated index and percent of change and shall apply to delivery orders placed on or after the first day of the option period. (i) No price adjustment will be made unless the percentage change in the CPI is at least *one (1%)* percent. 52.212-5 CONTRACT TERMS AND CONDITIONS REQUIRED TO IMPLEMENT STATUTES OR EXECUTIVE ORDERS -COMMERCIAL ITEMS (DEC 2001) (a) The Contractor shall comply with the following FAR clauses, which are incorporated in this contract by reference, to implement provisions of law or executive orders applicable to acquisitions of commercial items: (1) 52.222-3, Convict Labor (E.O. 11755); (2) 52.233-3, Protest after Award (31 U.S.C 3553). (b) The Contractor shall comply with the FAR clauses in this paragraph (b) that the contracting officer has indicated as being incorporated in this contract by reference to implement provisions of law or Executive orders applicable to acquisitions of commercial items or components: 18 [Contracting Officer shall check as appropriate) ___ (1) 52.203-6, Restrictions on Subcontractor Sales to the Government, with Alternate I (41 U.S.C. 253g and 10 U.S.C. 2402). ___ (2) 52.219-3, Notice of HUB Zone Small Business Set-Aside (Jan 1999). ___ (3) 52.219-4, Notice of Price Evaluation Preference for HUB Zone Small Business Concerns (Jan 1999) (if the offeror elects to waive the preference, it shall so indicate in its offer). ___ (4)(i) 52.219-5, Very Small Business Set-Aside (Pub. L. 103-403, section 304, Small Business Reauthorization and Amendments Act of 1994). (ii) Alternate I to 52.219-5. (iii) Alternate II to 52.219-5. ___ (5) 52.219-8, Utilization of Small Business Concerns (15 U.S.C. 637 (d)(2) and (3)). ___ (6) 52.219-9, Small Business Subcontracting Plan (15 U.S.C. 637 (d)(4)). ___ (7) 52.219-14, Limitations on Subcontracting (15 U.S.C. 637(a)(14)). ___ (8) (i) 52.219-23, Notice of Price Evaluation Adjustment for Small Disadvantaged Business Concerns (Pub. L. 103-355, section 7102, and 10 U.S.C. 2323) (if the offeror elects to waive the adjustment, it shall - so indicate in its offer). ___ (ii) Alternate I of 52.219-23 (Evaluation Adjustment factor is ten percent (10%). ___ (9) 52.219-25, Small Disadvantaged Business Participation Program-Disadvantaged Status and Reporting (Pub. L. 103-355, section 7102, and 10 U.S.C. 2323). ___ (10) 52.219-26, Small Disadvantaged Business Participation Program-Incentive Subcontracting (Pub. L. 103-355, section 7102, and 10 U.S.C. 2323). ___ (11) 52.222-21, Prohibition of Segregated Facilities (Feb 1999). ___ (12) 52.222-26, Equal Opportunity (E.O. 11246). _X- (13) 52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (38 U.S.C. 4212). _X- (14) 52.222-36, Affirmative Action for Workers with Disabilities (29 U.S.C. 793). _X- (15)52.222-37, Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (38 U.S.C. 4212). _X- (16) 52.222-19, Child Labor-Cooperation with Authorities and Remedies (E.O. 13126). 19 ___ (17)(i) 52.223-9, Estimate of Percentage of Recovered Material Content for EPA-Designated Products (42 U.S.C. 6962(c)(3)(A)(ii)). ___ (ii) Alternate I of 52.223-9 (42 U.S.C. 6962(i)(2)(C)). ___ (18) 52.225-1, Buy American Act-Balance of Payments Program-Supplies (41 U.S.C. 10a-10d). ___ (19)(i) 52.225-3, Buy American Act -North American Free Trade Agreement - -Israeli Trade Act - Balance of Payments Program (41 U.S.C. 10a-10d, 19 U.S.C. 3301 note, 19 U.S.C. 2112 note). ___ (ii) Alternate I of 52.225-3. ___ (iii) Alternate II of 52.225-3. ___ (20) 52.225-5, Trade Agreements (19 U.S.C. 2501, et seq., 19 U.S.C. 3301 note). ___ (21) 52.225-13, Restriction on Certain Foreign Purchases (E.O. 12722, 12724, 13059, 13067, 13121, and 13129). ___ (22) 52.225-15, Sanctioned European Union Country End Products (E.O. 12849). ___ (23) 52.225-16, Sanctioned European Union Country Services (E.O. 12849). ___ (24) 52.232-33, Payment by Electronic Funds Transfer-Central Contractor Registration (31 U.S.C. 3332). ___ (25) 52.232-34, Payment by Electronic Funds Transfer-Other Than Central Contractor Registration (31 U.S.C. 3332). ___ (26) 52.232-36, Payment by Third Party (31 U.S.C. 3332). ___ (27) 52.239-1, Privacy or Security Safeguards (5 U.S.C. 552a). ___ (28) (i) 52.247-64, Preference for Privately Owned U.S.-Flag Commercial Vessels (46 U.S.C. 1241). -(ii) Alternate 1 of 52.247-64. (c) The Contractor shall comply with the FAR clauses in this paragraph (c), applicable to commercial services, which the Contracting Officer has indicated as being incorporated in this contract by reference to implement provisions of law or executive orders applicable to acquisitions of commercial items or components: [Contracting Officer check as appropriate.] ___ (1) 52.222-41, Service Contract Act of 1965, As Amended{41 U.S.C. 351, et seq.). ___ (2) 52.222-42, Statement of Equivalent Rates for Federal Hires (29 U.S.C. 206 and 41 U.S.C. 351, et seq.). ___ (3) 52.222-43, Fair Labor Standards Act and Service Contract Act --Price Adjustment (Multiple Year and Option Contracts) (29 U.S.C. 206 and 41 U.S.C. 351, et seq.). ___ (4) 52.222-44, Fair Labor Standards Act and Service Contract Act --Price Adjustment (29 U.S.C. 206 and 41 U.S.C. 351, et seq.). 20 ___ (5) 52.222-47, SCA Minimum Wages and Fringe Benefits Applicable to Successor Contract Pursuant --to Predecessor Contractor Collective Bargaining Agreement (CBA) (41 U.S.C. 351, et seq.). (d) Comptroller General Examination of Record. The Contractor shall comply with the provisions of this paragraph (d) if this contract was awarded using other than sealed bid, is in excess of the simplified acquisition threshold, and does not contain the clause at 52.215-2, Audit and Records --Negotiation. (1) The Comptroller General of the United States, or an authorized representative of the Comptroller General, shall have access to and right to examine any of the Contractor's directly pertinent records involving transactions related to this contract. (2) The Contractor shall make available at its offices at all reasonable times the records, materials, and other evidence for examination, audit, or reproduction, until 3 years after final payment under this contract or for any shorter period specified in FAR Subpart 4.7, Contractor Records Retention, of the other clauses of this contract. If this contract is completely or partially terminated, the records relating to the work terminated shall be made available for 3 years after any resulting final termination settlement. Records relating to appeals under the disputes clause or to litigation or the settlement of claims arising under or relating to this contract shall be made available until such appeals, litigation, or claims are finally resolved. (3) As used in this clause, records include books, documents, accounting procedures and practices, and other data, regardless of type and regardless of form. This does not require the Contractor to create or .- maintain any record that the Contractor does not maintain in the ordinary course of business or pursuant to a provision of law. (e) Notwithstanding the requirements of the clauses in paragraphs (a), (b), (c) or (d) of this clause, the Contractor is not required to include any FAR clause, other than those listed below (and as may be required by an addenda to this paragraph to establish the reasonableness of prices under Part 15), in a subcontract for commercial items or commercial components - (1) 52.222-26, Equal Opportunity (E.O. 11246); (2) 52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (38 U.S.C. 4212); (3) 52.222-36, Affirmative Action for Workers with Disabilities (29 U.S.C. 793); (4) 52.247-64, Preference for Privately-Owned U.S. Flag Commercial Vessels (46 U.S.C. 1241) (flow down not required for subcontracts awarded beginning May 1, 1996); and (5) 52.222-41, Service Contract Act of 1965, As Amended (41 U.S.C. 351, et seq.). (End of Clause) 21 - ------------------------------------------------------------------------------------------------------------------------------------ SOLICITATION/CONTRACT/ORDER FOR COMMERCIAL ITEMS 1. REQUISITION NUMBER OFFEROR TO COMPLETE BLOCKS 12, 17, 23, 24 & 30 - ------------------------------------------------------------------------------------------------------------------------------------ 2. CONTRACT NO. 3. AWARD/EFFECTIVE DATE 4. ORDER NUMBER 5. SOLICITATION NUMBER 6. SOLICITATION V797P-9072 8/5/02 RFP-797-NC-02-0017 ISSUE DATE 3/11/2002 - ------------------------------------------------------------------------------------------------------------------------------------ 7. SOLICITATION a. NAME b. TELEPHONE NO. 8. OFFER DUE DATE INFORMATION CALL: Ronald E. Jenkins, (no collect calls) LOCAL 4/12/02 4 PM Contracting Officer - ------------------------------------------------------------------------------------------------------------------------------------ 9. ISSUED BY CODE 10. THIS ACQUISITION 11. DELIVERY FOR FOB 12. DISCOUNT TERMS IS DESTINATION UNLESS [ ] UNRESTRICTED BLOCK IS MARKED VA National Acquisition Center P.O. Box 76 [ ] SET ASIDE 100% FOR [ ] SEE SCHEDULE Hines, IL 60141 -------------------------------------------- [ ] SMALL BUSINESS THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 700) Handcarried offers may be delivered to the front [ ] SMALL DISADV. -------------------------------------------- Desk of the location indicated in Block 16. BUSINESS 13B. RATING [ ] B(A) SIC: 2834/325412 -------------------------------------------- SIZE STANDARD: 750 14. METHOD OF SOLICITATION [ ] RFQ [ ] IFB [X] RFP - ------------------------------------------------------------------------------------------------------------------------------------ 15. DELIVER TO CODE 16. ADMINISTERED BY CODE ---------------- ------------ VA National Acquisition Center National Contract Service (049AIN2PH) See Attachment "A & B" 1st Ave, I Block North of Cermak Rd, Bldg 37 Hines, IL 60141 - ------------------------------------------------------------------------------------------------------------------------------------ 17A. CONTRACTOR/ CODE FACILITY 18A. PAYMENT WILL BE MADE BY CODE OFFEROR CODE ---------- ------------- ------------ CARACO PHARMACEUTICAL LABS LTD See Part II, Payments and List of VA and DSCP PPV Contractors 1150 ELIJAH MCCOY DR. DETROIT MI 48202 Attachment "A & B" (see page 11 for Payments) TELEPHONE NO. 313 871-8400 DUN# - ------------------------------------------------------------------------------------------------------------------------------------ [ ] 18b. SUBMIT INVOICES TO ADDRESS SHOWN IN BLOCK 18a UNLESS BLOCK 17b. CHECK IF REMITTANCE IS DIFFERENT AND PUT SUCH BELOW IS CHECKED ADDRESS IN OFFER [ ] SEE ADDENDUM - ------------------------------------------------------------------------------------------------------------------------------------ 19 20 21 22 23 24 ITEM NO. SCHEDULE OF SUPPLIES/SERVICE QUANTITY UNIT UNIT PRICE AMOUNT - ------------------------------------------------------------------------------------------------------------------------------------ See Part 1, SEE ATTACHED SHEETS $12,938,086.92 Schedule, page(2) 7-8 (ATTACH ADDITIONAL SHEETS AS NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------------ 25. ACCOUNTING AND APPROPRIATION DATA 26. TOTAL AMOUNT AWARD (FOR GOVT. USE ONLY) NOT APPLICABLE Est. $12,938,086.92 Annual - ------------------------------------------------------------------------------------------------------------------------------------ [ ] 27a SOLICITATION INCORPORATES BY REFERENCE FAR 52.212-1, 52.212-4 FAR 52.213-3 AND 52.212-5 ARE ATTACHED. ADDENDA [ ] ARE [ ] ARE NOT ATTACHED. [ ] 27b CONTRACT/PURCHASE ORDER INCORPORATES BY REFERENCE FAR 52.212-4 FAR 52.212-5 IS ATTACHED ADDENDA [ ] ARE [ ] ARE NOT ATTACHED. - ------------------------------------------------------------------------------------------------------------------------------------ 28. CONTRACTOR IS REQUIRED TO SIGN THIS DOCUMENT AND RETURN 1 COPIES 29. AWARD OF CONTRACT REFERENCE Caraco -------- OFFER -------- TO ISSUING OFFICE CONTRACTOR AGREES TO FURNISH AND DELIVER ALL ITEMS SET DATED 5/9/02 YOUR OFFER ON SOLICITATION (BLOCK ------ [X] FORTH OR OTHERWISE IDENTIFIED ABOVE AND ON ANY ADDITIONAL SHEETS SUBJECT INCLUDING ANY ADDITIONS OR CHANGES WHICH ARE TO THE TERMS AND CONDITIONS SPECIFIED HEREIN. SET FORTH HEREIN, IS ACCEPTED AS TO ITEMS - ------------------------------------------------------------------------------------------------------------------------------------ 30a. SIGNATURE OF OFFEROR/CONTRACTOR 31a. UNITED STATES OF AMERICA (SIGNATURE OF CONTRACTING OFFICER) - ------------------------------------------------------------------------------------------------------------------------------------ 30b. NAME AND TITLE OF SIGNER (TYPE OR PRINT) 30c. DATE 31b. NAME OF CONTRACTING OFFICER 31c. DATE SIGNED NARENDA BORKAR, CEO SIGNED (TYPE OR PRINT) 04/05/2002 Ronald E. Jenkins - ------------------------------------------------------------------------------------------------------------------------------------ 33. SHIP NUMBER 34. VOUCHER NUMBER 35. AMOUNT VERIFIED [ ] PARTIAL [ ] FINAL CORRECT FOR [ ] RECEIVED [ ] INSPECTED [ ] ACCEPTED AS CONFORMS TO THE CONTRACT, EXCEPT AS NOTED - ------------------------------------------------------------------------------------------------------------------------------------ 32b. SIGNATURE OF AUTHORIZED GOVT REPRESENTATIVE 32C. DATE 36. PAYMENT 37. CHECK NUMBER [ ] COMPLETE [ ] PARTIAL [ ] FINAL - ------------------------------------------------------------------------------------------------------------------------------------ 38. S/R ACCOUNT NUMBER 39. S/R VOUCHER 40. PAID BY NUMBER - ------------------------------------------------------------------------------------------------------------------------------------ 41a. I CERTIFY THIS ACCOUNT IS CORRECT AND PROPER FOR PAYMENT 42a. RECEIVED BY (PRINT) - ------------------------------------------------------------------------------------------------------------------------------------ 41b. SIGNATURE, AND TITLE OF 41c. DATE 42b. RECEIVED AT CERTIFYING OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ 42c. DATE REC'D (YY/MM/DD) 42D. TOTAL CONTAINER - ------------------------------------------------------------------------------------------------------------------------------------ AUTHORIZED FOR LOCAL REPRODUCTION STANDARD FORM 1449 (10-95)
EST. ANNUAL ITEM PKG. NUMBER UNIT NO. SUPPLIES/SERVICES SIZE OF UNITS UNIT PRICE AMOUNT - ------------------------------------------------------------------------------------------------------------ 1. Metformin Hcl Tablets 100 234,126 BT $4.50 $1053567 500mg NDC#_57664039788_ 2. Metformin HCL Tablets 500mg NDC #________ 500 334,316 BT $41.00 $6853478 OR OR OR Metformin HCL Tablets 100 167,158 BT 500mg NDC #57664039718 3. Metformin HCL Tablets 100 50,284 BT $6.83 $343439.72 850mg NDC#57664043588 4. Metformin HCL Tablets 850mg NDC #________ 500 72,982 BT $62.00 $2262442 OR OR OR Metformin HCL Tablets 1000 36,491 BT 850mg NDC #57664043518 5. Metformin HCL Tablets 100 43,321 $8.20 $355232.20 1000mg NDC#57664047488 6. Metformin HCL Tablets 1000mg NDC 500 55,944 BT $74.00 $2069928 NDC#________ OR OR OR 1000 27,972 BT Metformin HCL Tablets 500mg NDC #57664047418 TOTAL: $ 12938086.92
2 EX-99.1 7 k74296exv99w1.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-KSB of Caraco Pharmaceutical Laboratories Ltd. ("Caraco") for the year ended December 31, 2002 (the "Report"), each of the undersigned of Caraco, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our respective knowledge and belief, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Caraco. Dated: March 28, 2003 /s/ Narendra N. Borkar ----------------------- Narendra N. Borkar Chief Executive Officer Dated: March 28, 2003 /s/ Jitendra N. Doshi ----------------------- Jitendra N. Doshi Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----