-----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, WxVeu834cExYOGotMwNl3oFNy5i8nphPucRYkb2p4expzUBGuAOIGlZSnglPYpeI q4Y51eKllFns6TDULZA4NQ== 0000950124-03-001793.txt : 20030515 0000950124-03-001793.hdr.sgml : 20030515 20030515143533 ACCESSION NUMBER: 0000950124-03-001793 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24676 FILM NUMBER: 03703794 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 10QSB 1 k76715e10qsb.txt QUARTERLY REPORT FOR PERIOD ENDED 03/31/03 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2003 Commission File No. 0-24676 CARACO PHARMACEUTICAL LABORATORIES, LTD. (Exact name of registrant as specified in its charter) MICHIGAN 38-2505723 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1150 ELIJAH MC COY DRIVE, DETROIT, MICHIGAN 48202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (313) 871-8400 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 [ ] Common Stock outstanding at May 13, 2003-- 23,807,820 CARACO PHARMACEUTICAL LABORATORIES LTD. UNAUDITED BALANCE SHEETS
PARTICULARS March 31, 2003 -------------- ASSETS Current assets Cash and cash equivalents $ 337,415 Accounts receivable, net 10,593,803 Inventories 5,582,540 Prepaid expenses and deposits 591,362 ------------- Total current assets 17,105,121 Property, plant and equipment - at cost Land 197,305 Building and improvements 7,439,897 Equipment 5,569,738 Furniture and fixtures 275,504 ------------- Total 13,482,444 Less: accumulated depreciation 5,628,755 ------------- Net property, plant & equipment 7,853,688 ------------- ------------- Total assets $ 24,958,810 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities Accounts payable $ 5,115,255 Accrued expenses 1,583,892 Current portion of notes payable to stockholders 6,000,000 Current portion of loan payable to financial institutions 4,375,000 Short term borrowings -- EDC debt classified as current 1,215,835 Preferred stock dividends payable 350,380 Accrued interest 676,415 ------------- Total current liabilities 19,316,777 ------------- Long-term liabilities Notes payable to principal stockholders 3,850,000 Preferred stock dividends payable -- EDC debt classified as long term 6,085,575 Loans payable 13,125,000 ------------- Total long-term liabilities 23,060,575 ------------- ------------- Total liabilities 42,377,352 ------------- Stockholders' deficit Preferred stock, no par value, authorized 5,000,000 shares; -- issued and outstanding 0 & 285,714 Series A shares Common stock, no par value, authorized 30,000,000 shares; 40,457,028 issued and 23,762,532 outstanding shares Additional Paid in Capital 282,858 Preferred stock dividends (350,380) Accumulated deficit (57,808,047) ------------- Total stockholders' deficit (17,418,541) ------------- ------------- Total liabilities and stockholders' deficit $ 24,958,810 =============
See accompanying notes CARACO PHARMACEUTICAL LABORATORIES LIMITED UNAUDITED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED 31-MARCH PARTICULARS 2003 2002 - ------------------------------------------------------------------------------------------------- $ $ Net Sales 8,721,600 3,301,959 Cost of goods sold 4,225,949 1,847,547 --------------------------------- Gross profit 4,495,651 1,454,412 Selling, general & administrative expenses 949,784 754,655 R&D cost 899,931 850,873 --------------------------------- Operating income / (loss) 2,645,936 (151,116) --------------------------------- Interest Interest expense (442,252) (369,067) Interest income 1,065 940 --------------------------------- Net interest expense (441,187) (368,127) --------------------------------- --------------------------------- Net income / (loss) 2,204,749 (519,243) --------------------------------- --------------------------------- Net income / (loss) per basic and diluted common share 0.09 (0.03) ---------------------------------
See accompanying notes 3 CARACO PHARMACEUTICAL LABORATORIES, LTD. UNAUDITED STATEMENTS OF CASH FLOWS
PARTICULARS Three Months ended March 31, 2003 2002 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income / (loss) $ 2,204,749 $ (519,242) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 141,737 108,649 Common Shares issued in lieu of cash for compensation - 17,250 Changes in operating assets and liabilities which provided (used) cash: Accounts receivable (5,109,668) (981,797) Inventories 33,422 (276,162) Prepaid expenses and deposits (120,049) 6,789 Accounts payable 1,132,418 (25,661) Accrued expenses and Interest 267,000 (70,983) ----------------------------------------------- Net cash used in operating activities (1,450,391) (1,741,157) ----------------------------------------------- Cash flows from investing activities: ----------------------------------------------- Purchases of property, plant and equipment (248,000) (310,987) ----------------------------------------------- Cash flows from financing activities: Proceeds from long-term debt 1,600,000 - Proceeds from Sale of Shares in Private Placement - 650,000 Payments of EDC debt (248,421) (184,736) Net Loans received from Shareholders 150,000 1,400,000 ----------------------------------------------- Net cash provided from financing activities 1,501,579 1,865,264 ----------------------------------------------- Net (decrease) in cash and cash equivalents (196,812) (186,880) Cash and cash equivalents, beginning of period 534,228 241,110 ----------------------------------------------- Cash and cash equivalents, end of period $ 337,415 $ 54,230 ===============================================
See accompanying notes 4 CARACO PHARMACEUTICAL LABORATORIES, LTD. UNAUDITED STATEMENT OF SHAREHOLDERS' DEFICIT FOR THE THREE MONTHS ENDED MARCH 31, 2003
- ----------------------------------------------------------------------------------------------------------- PREFERRED STOCK COMMON STOCK SHARES AMOUNT SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------- Balance at January 1, 2003 - - 23,762,532 40,457,028 Net loss ------------------------------------------------------------ Balance at March 31, 2003 - $ - 23,762,532 $ 40,457,028 ============================================================ - ------------------------------------------------------------------------------------------------------------ ADDITIONAL PREFERRED PAID IN STOCK ACCUMULATED CAPITAL DIVIDENDS DEFICIT TOTAL - ------------------------------------------------------------------------------------------------------------ Balance at January 1, 2003 282,858 (350,380) (60,012,796) $ (19,623,290) Net loss 2,204,749 2,204,749 ------------------------------------------------------------- Balance at March 31, 2003 $ 282,858 $ (350,380) $ (57,808,047) $ (17,418,541) =============================================================
See accompanying notes 5 CARACO PHARMACEUTICAL LABORATORIES LTD. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The balance sheet as of March 31, 2003 and the related statements of operations, stockholders' deficit and cash flows for the three months ended March 31, 2003 and 2002 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for the full year. The financial statements as of March 31, 2003 and for the three months ended March 31, 2003 and 2002 should be read in conjunction with the financial statements and notes thereto included in the Corporation's Annual Report on Form 10-KSB for the year ended December 31, 2002. The accounting policies followed by the Corporation with respect to the unaudited interim financial statements are consistent with those stated in the 2002 Caraco Pharmaceutical Laboratories, Ltd., Annual Report on Form 10-KSB. The accompanying financial statements have been prepared assuming that the Corporation will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Realization of a major portion of the assets is dependent upon the Corporation's ability to meet its future financing requirements and the success of future operations. 2. ORGANIZATION AND NATURE OF BUSINESS Caraco Pharmaceutical Laboratories, Ltd. ("Caraco" or "the Corporation" which is also referred to as we, us or our), engaged in the business of developing, manufacturing and marketing generic drugs for the ethical (prescription) and over-the-counter (non-prescription or "OTC") markets. A generic drug is a pharmaceutical product, which is the chemical and therapeutic equivalent of a brand-name drug as to which the patent and/or market exclusivity has expired. Generics are well accepted for substitution of brand products as they sell at a discount to the branded product's price and for their equivalence in quality and bioavailability. Our present product portfolio includes 13 products in 22 strengths in 46 package sizes. We are currently marketing all 13 products. The products are intended to treat a variety of disorders including the following: hypertension, arthritis, seizures, epilepsy, diabetes and pain management. We have recently started shipments of 1 additional product in 2 strengths and 4 pack sizes. This brings our formulary of products to 14 products in 24 strengths and 50 pack sizes. To date, we have submitted 14 ANDAs to the Food and Drug Administration ("FDA"). Of these, we have received approvals for 11 ANDAs, one of which was received during the first quarter; we have 3 ANDAs pending approval. We also have 5 DESI products. A significant source of our funding has been from private placement offerings and loans. Sun Pharmaceutical Industries, Limited, a specialty pharmaceutical corporation organized under the laws of India ("Sun Pharma"), which owns 49% of our outstanding shares has contributed equity capital and has advanced us loans. Also, pursuant to a products agreement with us, Sun Pharma has transferred certain products to us. (See "Current Status of the Corporation" and "Sun Pharmaceutical Industries, Ltd." below.) Our manufacturing facility and executive offices were constructed pursuant to a $9.1 million loan from the Economic Development Corporation of the City of Detroit (the "EDC"). (See "Current Status of the Corporation" and "Mortgage Note" below.) 3. CURRENT STATUS OF THE CORPORATION For the first time since inception, during the last three quarters of 2002 and the first quarter of 2003, we achieved sales necessary to support our operations. Net sales for the three months ended March 31, 2003 were $8.7 million as compared to $3.3 million for the three months ended March 31, 2002. We have earned an operating gross profit of $4,495,651 for the three months ended March 31, 2003 as compared to $1,454,412 during the same period in 2002. We earned an operating profit income of $2,645,936 during the period of March 31, 2003 as compared to incurring operating losses of $151,116 during the same period in 2002. After interest costs, we have earned a net profit income of $2,204,749 for the three months ended March 31, 2003 as compared to a net loss of $519,243 for the three months ended March 31, 2002. At March 31, 2003, we had a stockholders' deficit of $17,481,541 as compared to a deficit of $22,812,242 at March 31, 2002. We have continued to be dependent on the support of Sun Pharma, however, but the financial support is reduced due to the increased revenues and higher cash flows from internal operations since the second quarter of 2002. See "Sun Pharmaceutical Industries, Ltd." and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations." We received one ANDA approval during the first quarter of 2003. See "Caraco's Products and Product Strategy" below. We have 3 products pending approval with the FDA. 4. COMPUTATION OF LOSS PER SHARE Loss per share is computed using the weighted average number of common shares outstanding during each period and considers a dual presentation and reconciliation of "basic" and "diluted" per share amounts. Diluted reflects the potential dilution of all common stock equivalents. The basic and diluted weighted average number of common shares outstanding for the period ended March 31, 2003 were 23,762,532 and 25,061,469, respectively. The basic and diluted weighted average number of common shares outstanding for the period ending March 31, 2002 21,242,874 respectively. 5. MORTGAGE NOTE EDC Loan Debt at March 31, 2003 includes approximately $7.3 million payable to the Economic Development Corporation of the City of Detroit ("EDC") related to funds advanced to the Corporation pursuant to a Development and Loan Agreement (the "Agreement") dated August 10, 1990 as amended. The note was collateralized by a first mortgage, effectively, on all of the Corporation's property and equipment purchased pursuant to the Agreement. The loan was restructured on April 23, 2003, but is effective as of January 1, 2003. The loan has been extended for six years, with interest rates starting at 2.75% and increasing to 5.16%. Under the extension, the EDC retains a first mortgage on our property, and a first lien on our furniture, fixtures equipment and intellectual property. The EDC has removed its first lien on our accounts receivable and inventory. Further, the EDC has eliminated the prior restriction on capital investment in excess of $2 million by permitting us, so long as we are not in default of any of our obligations, to purchase new capital and sell the existing capital equipment so long as a result of such transactions, the book value of our assets is not reduced below the balance as of December 31, 2002 and the proceeds of any such sales are retained by the Company. The obligations of the Corporation to the EDC have been classified in accordance with the terms of the restructured loan. 6. SUN PHARMACEUTICAL INDUSTRIES LIMITED 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. Further, Sun Pharma has made loans to us, the details of which as of March 31, 2003, are given below: 2 8% Promissory note payable to Sun Pharma, principal balance $5,300,000 payable in full in October 2003, with interest payable semi-annually. 8% Promissory note payable to Sun Pharma, principal balance $3,850,000 payable in full in August 2006, with interest payable quarterly. 8% promissory note payable to Sun Pharma Global, Inc., a $ 200,000 wholly owned subsidiary of Sun Pharma ("Sun Global"), payable by October 2003 with interest payable semi-annually. 8% short term loan to Sun Pharma, payable upon demand $ 500,000 ---------- Notes payable to principal stockholders $9,850,000 ==========
Notes payable to Sun Pharma and Sun Pharma Global, Inc. are subordinated to the EDC loan. Furthermore, the Sun Pharma and Sun Global loans due to mature in October of 2003 are classified as current. In August 1997, we entered into an agreement, whereby Sun Pharma was required to transfer to us the technology formula for 25 generic pharmaceutical products over a period of five years through August 2002. The agreement has expired. We exchanged 544,000 shares of our common stock for each technology transfer of an ANDA product (when a bio-equivalency study was successfully completed) and 181,333 shares for each technology transfer of a DESI (Drug Efficacy Study Implementation) product. The products provided to us from Sun Pharma were selected by mutual agreement. As of March 31, 2003, Sun Pharma delivered to us the technology for 13 products. A total of 5,802,666 shares were issued to Sun Pharma and its affiliates in exchange for the technology transfer under the old and now expired agreement. We entered into a new product agreement with Sun Global for the transfer of the technology formula for 25 generic products over a period of 5 years in November 2002 replacing the previous product agreement with Sun Pharma. Sun Global receives 544,000 shares of preferred stock (convertible into common stock after three years) for each ANDA product transferred. The value of the shares issued to Sun Global for the transfer of the products shall be included in research and development expenses. Depending on the number of products transferred and the market value of the shares attributable thereto, the issuance of preferred stock to Sun Global could cause our research and development expenses to increase to an amount which would significantly decrease profit or create a loss. Preferred shares can be earned by Sun Global even if the product is not successfully produced and marketed. In connection with the technology transfer, 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 formulation and analytical development for us at this laboratory. Sun Pharma supplies us with certain raw materials and also the machinery and equipment to increase productivity and production. Sun has also provided us with qualified technical professionals. Twenty-one of our technical professional employees were former Sun Pharma employees. 7. TERM LOAN FROM ICICI BANK The Corporation had obtained a term loan of $5 million from ICICI Bank of India with the support of Sun Pharma. This term loan has been used to finance research and development activities, upgrade facilities, repay loans and meet working capital requirements. The Corporation, as of March 31, 2003, has received proceeds in the amount of $5 million with interest payments due quarterly. Quarterly principal payments are scheduled, to be made from December 2003 through September 2005. A portion of the loan which is due within one year from March 31, 2003 has been classified as current. 3 8. TERM LOAN FROM BANK OF NOVA SCOTIA The Corporation had obtained term loans of $12.5 million from the Bank of Nova Scotia with the support of Sun Pharma. This term loan has been used to finance research and development activities, upgrade facilities, repay other loans and meet working capital requirements. As of March 31, 2003, payments of interest are due quarterly. Semi-annual principal payments are scheduled to be made from February 2004 through September 2005. A portion of the loan which is due within one year from March 31, 2003 has been classified as current. 9. COMMON STOCK ISSUANCES We have not issued any shares of common stock during the first quarter of 2003. During the first quarter ended March 31, 2002, the Corporation issued 15,000 shares of common stock to the directors as compensation for attendance at board and committee meetings held during 2001. In addition, during the first quarter of 2002, 250,000 shares of common stock were issued by the Corporation for cash of $650,000 pursuant to a private placement to accredited investors. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 Corporation. The 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) not obtaining FDA approval for new products or delays in receiving FDA approvals; (iii) governmental restrictions on the sale of certain products; (iv) dependence on key personnel; (v) 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; (vi) market and customer acceptance and demand for new pharmaceutical products, (vii) availability of raw materials, (viii) timing and success of product development and launch (ix) integrity and reliability of the Corporation's data; and (x) other risks identified in this report and identified from time to time in the Corporation reports and registration statements filed with the Securities and Exchange Commission. The following discussion and analysis provides information that management believes is relevant to an understanding of the Corporation's results of operations and financial condition. The discussion should be read in conjunction with the financial statements and notes thereto. THREE MONTHS ENDED MARCH 31, 2003 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2002 NET SALES. Net sales for the three months ended March 31, 2003 and 2002 were $8,721,600 and $3,301,959, respectively, reflecting an increase of almost 164%. The increase is due to the higher production and marketing of most of our products following the achievement of substantial compliance with cGMPs. Sales of Metformin Hydrochloride, Tramadol Hydrochloride and Metoprolo Tartrate accounted for 85% of our net sales for the quarter. Sales of Metformin Hydrochloride increased because of our contract with the Veterans Administration, however, the sales of Metformin Hydrochloride to such agency have been made at lower sales prices. (See "Gross Profit" below). GROSS PROFIT. We earned a gross profit of $4,495,651 during the three months ended March 31, 2003 as compared to a gross profit of $1,454,412 during the corresponding period in 2002. The improvement was 4 primarily due to higher sales volumes with improved margins due to change in sales mix to more profitable products such as Metroprolol Tartrate, Metformin Hydrochloride; Tramadol Hydrochloride and Oxaprozin; acquiring raw materials at more competitive prices; reduction in manufacturing costs due to increased batch sizes. Improved efficiency in the overall manufacturing process associated with higher utilization of plant capacity; utilization of equipment installed during the twelve months ended December 31, 2002 of $1.6 million; and acquire raw materials at highly competitive prices in the current period, and ability to absorb operational overheads due to higher sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the three months ended March 31, 2003 and March 31, 2002 were $949,784 and $754,655 respectively, representing an increase of 25%. Selling, general and administrative expenses have effectively decreased down to 10.8% of net sales during the three months ended March 31, 2003 from almost 22% of net sales during the same period in 2002. The actual increase of approximately $195,000 was due to additional professional costs ($25,000) primarily in connection with the ongoing litigation against the Company, costs of introducing new products into the market ($25,000), additional sales personnel ($15,000), increases in the salaries of sales and administrative staff ($25,000), recording of variable compensation expense on stock options granted and extended to a director ($35,000) and costs associated with development of improved services and quality measures to customers. RESEARCH AND DEVELOPMENT EXPENSES. Cash research and development expenses of $899,931 for the three months ended March 31, 2003 were higher by 5% when compared with $850,873 incurred during the corresponding period of 2002. The major reason for the additional cash research and development expenses was the costs for raw material of approximately $80,000 for one of the projects currently undergoing efficacy studies and other filing costs. DEPRECIATION EXPENSE. We incurred depreciation expense of $138,770 for the first three months of March 2003 as compared to $108,208 incurred in the corresponding period of 2002. Depreciation has increased due to additional investment into capital assets during 2002 of $1.6 million. INTEREST EXPENSE. Interest expense, which was incurred in connection with our mortgage obligation to the EDC, interest on notes payable to Sun Pharmaceutical 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 Pharmaceutical, was $441,187 and $368,127, for the three months ended March 31, 2003 and 2002, respectively. The increase in the amount of interest is due to the increase in borrowing levels. We have utilized the $1.6 million of the remaining draws from Bank of Nova Scotia as well as having borrowed $500,000 from Sun Pharma (a demand loan) to finance increased working capital. RESULTS OF OPERATIONS. We earned net income of $2,204,749 for the three months ended March 31, 2003 as compared to a net loss of $519,243 for the same period of 2002, respectively, reflecting an improvement of almost 525%. The significantly improved results of operations in the current three-month period as compared to the previous respective period are primarily due to significantly higher sales volumes, improved cost absorption due to increased sales, improved product mix and obtaining more competitive prices for raw materials. A number of uncertainties exist that may influence the Corporation's future operating results, including general economic conditions, changes in conditions affecting the pharmaceutical industry primarily related to generic drug competition, 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. 5 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003, the Corporation had negative working capital of $2,211,655 compared with a negative working capital of $4,693,663 at the corresponding period of 2002. The negative working capital positions as of March 31, 2003 and 2002, respectively, were mainly due to the classification of certain portions of the loans payable to Bank of Nova Scotia and ICICI Bank coming due within the next twelve months and $5.5 million of the loans payable to Sun Pharma and Sun Global coming due in October 2003. In the first quarter of 2002, $3,208,769 of the EDC debt was reclassified from accrued interest to principal. To enable the Corporation to fund its 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 March 31, 2003, the Corporation has received $5,000,000 from ICICI Bank of India and $12,500,000 from Bank of Nova Scotia through these credit facilities. Further, the Corporation has received an additional short-term loan of $500,000 during the first quarter of 2003 from Sun Pharma to help the Corporation finance its increased working capital requirements. The cash generated out of the operations has generally been sufficient to run the operations of the Corporation as well as repay a portion of the EDC debt. FDA We underwent FDA inspections in November 2002 and we were found to be in substantial compliance with cGMPs. Although we did receive an FDA 483, we do not believe the observations are material and we have taken appropriate remedial actions. During the first quarter of 2003, we received approval for one of the then pending ANDAs. We now have 3 ANDAs pending approval. 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 the fourth quarter of 2002, and also with the approvals of 11 ANDAs during 2001, 2002 and 2003, management feels that our future outlook is brighter. Revenues have been improving and consequently, so have operational profits, net income and cash flows. Also, management is focused on cost controls and consumption controls. Management's future plans for improving profitability, cash flow positions and operations include increased sales (see below) and infusion of additional funding through the issuance of equity. We also expect Sun Pharma to continue to support us, as it has in the past. The FDA has directed the manufacturers and distributors of Guaifenesin LA which, including us, consists of 66 companies, to cease manufacturing Guaifenesin LA by May 23, 2003 and to cease all sales after November 2003. The FDA has determined that Guaifenesin LA is a new drug which requires a new drug application and approval before it may be manufactured and sold. We intend to comply with the FDA's directive. We do not intend to file a new drug application with the FDA with respect to Guaifenesin LA. Net sales of Guaifenesin LA during the year ended December 31, 2002 and during the quarter ended March 31, 2003 were $1.65 million and $0.36 million, respectively. 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 we have disclosed, under the Products Agreement, we conduct, at our expense, all tests, including bioequivalency studies. 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. 6 During the first quarter of 2003, the Corporation has generated substantial revenues as compared to the past. Capacity utilizations are improving and costs are being controlled. The Corporation expects revenues to improve during the rest of 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. o Prompt introduction of new 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 substances acquired from competitors and/or Sun Pharma. o Increase the width and depth of product portfolio to serve customers effectively. 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 Locating and utilizing facilities of contract-manufacturers to enhance production and therefore sales. ITEM 3. 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 quarterly 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 the Corporation's internal controls or in other factors which could significantly affect internal controls subsequent to the Evaluation Date. 7 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Except as previously disclosed in past reports, and 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: As previously disclosed, 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. The federal lawsuit does not set forth a specific dollar a mount of damages requested; the state lawsuit seeks damages of $20 million. Our product liability insurer has recently informed us that we are not covered by insurance because the policy does not apply to any claim relating to any product containing PPA. Although the ultimate outcome of these cases and the potential effect on us cannot be determined, we have retained counsel and we believe we have substantial defenses to the claims and intend to vigorously defend the lawsuits. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES We were in default on our loan from the EDC, however, we are not currently in default. The loan was restructured on April 23, 2003, but is effective as of January 1, 2003. The loan has been extended for six years, with interest rates starting at 2.75% and increasing to 5.16%. Under the extension, the EDC retains a first mortgage on our property, and a first lien on our furniture, fixtures equipment and intellectual property. The EDC has removed its first lien on our accounts receivable and inventory. Further, the EDC has eliminated the prior restriction on capital investment in excess of $2 million by permitting us, so long as we are not in default of any of our obligations, to purchase new capital and sell the existing capital equipment so long as a result of such transactions, the book value of our assets is not reduced below the balance as of December 31, 2002 and the proceeds of any such sales are retained by the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS N.A. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 10-QSB (a) Exhibits 10.24 Third Note Modification Agreement 10.25 Third Mortgage Modification Agreement 8 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. There were no Form 8-Ks filed during the first quarter of 2003. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARACO PHARMACEUTICAL LABORATORIES, LTD. By: /s/ Narendra N. Borkar ---------------------- Narendra N. Borkar Chief Executive Officer By: /s/ Jitendra N. Doshi --------------------- Jitendra N. Doshi Chief Financial Officer Dated: May 15, 2003 CERTIFICATION I, Narendra N. Borkar, the Chief Executive Officer of Caraco Pharmaceutical Laboratories Ltd. (the "registrant") certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the registrant; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer 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 quarterly 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 quarterly report (the "Evaluation Date"); and (c) presented in this quarterly 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 officer 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) (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 officer and I have indicated in this quarterly 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. May 15, 2003 /s/ Narendra N. Borkar ----------------------- Narendra N. Borkar Chief Executive Officer 11 CERTIFICATION I, Jitendra N. Doshi, the Chief Financial Officer of Caraco Pharmaceutical Laboratories Ltd. (the "registrant") certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the registrant; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer 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 quarterly 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 quarterly report (the "Evaluation Date"); and (c) presented in this quarterly 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 officer 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 officer and I have indicated in this quarterly 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. May 15, 2003 /s/ Jitendra N. Doshi ------------------------- Jitendra N. Doshi Chief Financial Officer 12 EXHIBIT INDEX 10.24 Third Note Modification Agreement 10.25 Third Mortgage Modification Agreement 99.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 13 EX-10.24 3 k76715exv10w24.txt THIRD NOTE MODIFICATION AGREEMENT EXHIBIT 10.24 THIRD NOTE MODIFICATION AGREEMENT THIS AGREEMENT is made and entered into on this 23 day of April, 2003, by and among Caraco Pharmaceutical Laboratories Ltd., a Michigan corporation, of 1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Borrower"), and the Economic Development Corporation of the City of Detroit, a Michigan public body corporate, of 211 West Fort Street, Suite 900, Detroit, Michigan 48226 ("Lender"). W I T N E S S E T H: WHEREAS, on August 10, 1990, Lender made a loan to Borrower in the original principal sum of Nine Million and no/100 ($9,000,000.00) Dollars (the "Original Loan"); and WHEREAS, the Original Loan is evidenced and secured in part by the following instruments (collectively, the "Original Loan Documents"): A. Section 108 Note dated August 10, 1990, executed by Borrower in favor of Lender in the original principal amount of Nine Million and no/100 ($9,000,000.00) Dollars (the "Note"), as modified by that certain Note and Mortgage Modification Agreement dated as of March 1, 1994 (the "First Note and Mortgage Modification Agreement"), and as further modified by that certain Second Note and Mortgage Modification Agreement dated as of August 5, 1997 (the "Second Note and Mortgage Modification Agreement"); B. Second Mortgage and Security Agreement dated August 10, 1990, granted by Borrower to Lender and recorded on September 21, 1990 in Liber 24815, at Page 715, Wayne County Register of Deeds, as amended by that certain Amendment to Mortgage and Security Agreement dated April 2, 1993, as further amended by the First Note and Mortgage Modification Agreement, as further amended by that certain Amendment to Second Mortgage and Security Agreement dated as of February 28, 1995, and as further amended by the Second Note and Mortgage Modification Agreement (the "Mortgage"); C. Guaranty of Dr. C. Arnold Curry and Cara Jean Curry (collectively, "Guarantors," and individually, a "Guarantor"), husband and wife, dated August 10, 1990, as amended and restated on April 2, 1993 (the "Guaranty"); and D. UCC-1 Financing Statement recorded at the Michigan Secretary of State's Office on October 10, 1990, at File No. C400998, and a UCC 1-A Financing Statement recorded on September 12, 1990 at Liber 24815, WHEREAS, Borrower has requested that Lender modify the terms of the Original Loan and Lender has agreed to do so, subject to the terms and conditions set forth in this Agreement; and WHEREAS, the parties have agreed that the Mortgage shall be further amended to reflect the modification of the Original Loan, by that certain Third Mortgage Modification Agreement executed of even date herewith (the "Third Mortgage Modification Agreement"). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower do hereby covenant and agree as follows: 1 1. RECITALS ARE TRUE AND CORRECT; DEFINED TERMS. A. RECITALS TRUE AND CORRECT. The foregoing recitals are true and correct in all respects. B. DEFINED TERMS. In addition to terms defined elsewhere within this Agreement, the following terms shall have the following meanings: (i) "Additional Loan Documents" shall mean this Agreement, the Third Mortgage Modification Agreement and all documents and instruments executed and delivered by Borrower pursuant to or in connection with this Agreement. (ii) "Loan" shall mean the Original Loan, as modified by this Agreement and the other Additional Loan Documents. (iii) "Loan Documents" shall mean any and all documents and instruments evidencing or securing the Loan, including the Original Loan Documents and the Additional Loan Documents. (iv) "Obligations" shall mean the payment of the Loan and the payment and performance of all other obligations of Borrower to Lender now existing or hereafter arising under the Loan Documents. (v) "Property" means the real and personal property encumbered by the Mortgage or the other Loan Documents. (vi) "Real Property" means the real property encumbered by the Mortgage. C. OTHER TERMS. All other capitalized terms contained in this Agreement and not otherwise defined herein shall have the same meanings, if any, as are ascribed to such terms in the Original Loan Documents. 2. EXISTING INDEBTEDNESS. As of the date of this Agreement, the unpaid principal balance owing by Borrower to Lender under the Original Loan is Seven Million Six Hundred Two Thousand Five Hundred Forty-Six and 56/100 ($7,602,546.56) Dollars (the "Existing Indebtedness"). 3. PAYMENT RESTRUCTURING. Lender agrees to restructure repayment of the Existing Indebtedness in accordance with the terms stated herein. More specifically, the occurrence of each of the following before the close of business on April 23, 2003 (the "Closing Date"), shall constitute a condition precedent to any such restructuring by Lender as described in Section 4 below: A. Prior to or contemporaneously with the execution of this Agreement, Borrower shall have paid any and all delinquent real and personal property taxes assessed against the Property in full; B. Borrower shall have satisfied any and all conditions precedent set forth in the Third Mortgage Modification Agreement; C. Borrower shall have reimbursed the EDC in full for its costs incurred in connection with the restructuring of the Original Loan as contemplated by this Agreement, including, but not limited to, filing and recording costs, title insurance premiums, appraisal fees, and legal fees; and D. Borrower shall have reimbursed the City of Detroit for its costs incurred in connection with the issuance of securities by the United States Department of Housing and Urban Development ("HUD"), including, but not limited to, legal fees and syndication costs. Borrower agrees that in the event that any one or more of the conditions precedent enumerated in subsections 3.A. through 3.D. above shall not have been satisfied before the close of business on the Closing 2 Date, the same shall constitute an Event of Default under this Agreement and the other Loan Documents, entitling Lender to exercise its remedies hereunder and thereunder. 4. MODIFICATION OF THE ORIGINAL LOAN. A. MODIFICATION OF THE NOTE. (i) PAYMENT SCHEDULE. Upon satisfaction of the conditions precedent set forth in Section 3 above and Section 5 below before the close of business on the Closing Date, the Note shall be deemed automatically modified to provide that the monthly payments shall be hereafter paid in accordance with this Section 4. The term of the Note shall be six years and shall commence on the date of the first payment described below. After the Closing Date, Borrower shall commence making monthly payments of principal and interest due under the Note, each such payment due on the first day of each month, in accordance with the loan amortization table attached hereto as Exhibit A. (ii) MATURITY DATE. The maturity date of the Loan shall be February 1, 2009 (the "Maturity Date"). Borrower may prepay all or any portion of the Loan at any time without penalty. B. OTHER MODIFICATIONS TO THE ORIGINAL LOAN DOCUMENTS. (i) FUNDING OBLIGATIONS TERMINATED. Lender shall have no obligation to make any further advances or disbursements to Borrower on account of the Loan or otherwise. (ii) REFERENCES. Any reference made in the Mortgage or the other Original Loan Documents to the "Note" shall mean the Note as modified by this Agreement and any reference in any of the Original Loan Documents to "Loan Documents" shall mean the Loan Documents as modified by this Agreement and the Third Mortgage Modification Agreement. C. EQUIPMENT. So long as Borrower is not in default in any of its obligations hereunder, it may purchase new capital and/or sell the existing capital equipment described on Exhibit B attached hereto and made a part hereof, so long as that (a) as a result of those transactions, the book value of Borrower's assets is not diminished below the book value of all of Borrower's assets as of December 31, 2002 and (b) the proceeds of any such sales are retained by Borrower. 5. THIS AGREEMENT IS SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT. The covenants and agreements of Lender contained in this Agreement, including, but not limited to, Lender's obligation to modify the Loan as provided herein, are contingent upon and subject to each of the following conditions being satisfied as of the time Borrower executes this Agreement, or at such other time as Lender may permit in its sole and absolute discretion: A. RECEIPT OF TITLE INSURANCE. Lender's receipt, at the expense of Borrower, of a title insurance policy which insures the lien of the Mortgage: (i) showing that no encumbrances affect the Real Property other than encumbrances which are acceptable to Lender, in the exercise of its reasonable discretion, and (ii) insuring, to the satisfaction of Lender, that the Mortgage remains a valid first lien on the Real Property, subject only to matters disclosed in the title insurance policy or such other matters as may be acceptable to Lender in the exercise of its reasonable discretion. B. DELIVERY OF ADDITIONAL LOAN DOCUMENTS. Borrower having delivered to Lender, in form and substance satisfactory to Lender: (i) the Third Mortgage Modification Agreement; (ii) an owner's affidavit executed by Borrower; 3 (iii) an opinion of counsel to Borrower, opining as to such matters in respect of the Loan as Lender may request; (iv) a good standing certificate for Borrower; (v) such resolutions, affidavits, certificates and other documents as Lender may reasonably require to evidence Borrower's capacity, power and authority to execute, deliver and perform its obligations under the Additional Loan Documents; and (vi) such other documents, instruments, certificates and further assurances as Lender may reasonably require. C. UCC SEARCHES. Lender's receipt of UCC searches confirming that no personal property or fixtures of Borrower are subject to security interests other than Lender's security interests or other than as previously disclosed by Borrower to Lender. 6. RATIFICATION OF SECURITY AND OBLIGATIONS; WAIVER OF CLAIMS AND DEFENSES OF BORROWER. A. RATIFICATION OF SECURITY AND OBLIGATIONS OF BORROWER. Borrower hereby covenants, warrants and agrees that, except as modified by the Third Mortgage Modification Agreement: (i) the Mortgage secures and shall continue to secure full repayment of the Loan, as evidenced by the Note; (ii) the Mortgage is and shall remain a continuous and valid first priority lien on the Property until the Loan is repaid in full; (iii) the Loan Documents secure and shall continue to secure the repayment of the Loan, as evidenced by the Note and all other Obligations; and (iv) all Obligations and all Loan Documents granted as security for the repayment of the Loan remain and shall continue to remain valid, binding and effective, except as amended by this Agreement or the Third Mortgage Modification Agreement, this Agreement being an affirmation and ratification thereof. B. WAIVER OF CLAIMS AND DEFENSES. Borrower hereby waives, releases, acquits, satisfies and forever discharges Lender from any and all claims, counterclaims, defenses, actions, causes of action, suits, controversies, agreements, promises and demands whatsoever in law or in equity which Borrower ever had, now has, or which any successor or assign of Borrower can, shall or may have against Lender for, upon or by reason of any matter, cause or thing whatsoever from the beginning of time to the date hereof. C. NO DEFENSES. There is no defense or right of offset against any Obligations of Borrower to Lender, including, but not limited to, any obligation under the Note or Mortgage. 7. DEFAULT. A. EVENTS OF DEFAULT. The Mortgage, Note and all other Loan Documents shall all be in default (in any case, an "Event of Default") (i) if Borrower shall be in default under or fail to perform any agreement, covenant, condition, obligation or undertaking, or breach any warranty or representation, contained in this Agreement, or any agreement to which Borrower is a party that materially and adversely affects this Agreement, the Note, or any of the other Additional Loan Documents; (ii) if any of the other Loan Documents shall be in default in accordance with the terms thereof; or (iii) if a judgment in excess of $1,000,000, not fully covered by insurance, is entered against Borrower, enforcement of which is not stayed or bonded within thirty (30) days after entry. B. REMEDIES. Upon the occurrence of any Event of Default, each of the Loan Documents and all Obligations of Borrower shall be in default and, at the option of Lender, all Loan indebtedness, and all other Obligations, shall become immediately due and payable if such Event of Default is not cured within (i) fifteen (15) days after the date of such Event of Default in the event such Event of Default involves the payment of money by the Borrower, or (ii) whether thirty (30) days after the date of written notice from Lender to Borrower of such Event of Default, in the event such Event of Default involves the performance by Borrower of a non-monetary obligation, and the Lender shall thereupon be entitled, 4 authorized and empowered to exercise any and all rights and remedies available under the Loan Documents, at law or in equity, including, but not limited to, its right to foreclose the Mortgage lien and its right to collect the Loan indebtedness under the Note and Guaranty. 8. BANKRUPTCY. A. EVENT OF BANKRUPTCY DEFINED. When appearing in this Agreement, the term "Event of Bankruptcy" shall mean: (a) if Borrower shall: (i) file a voluntary petition in bankruptcy for adjudication as bankrupt, (ii) seek reorganization or an arrangement under any bankruptcy or similar statute of the United States of America or any subdivision thereof or of any foreign jurisdiction in response to an involuntary petition, (iii) consent to the filing of a petition in bankruptcy or reorganization, (iv) consent to the appointment of a receiver or a trustee or officer performing similar functions with respect to any substantial part of their property, (v) make a general assignment for the benefit of creditors, (vi) execute a consent to any other type of insolvency proceeding or any informal proceeding for the dissolution or liquidation of or settlement of claims against or winding up of affairs or the appointment of a receiver or trustee or officer performing similar functions for any of them, or for any of their assets, or (b) the filing against Borrower of a petition for adjudication as bankrupt or insolvent or for reorganization under any bankruptcy or similar laws of the United States of America or any state thereof or any foreign jurisdiction, or the institution against Borrower of any other type of insolvency proceeding or any formal or informal proceeding for the dissolution, liquidation, settlement of claims against or winding up of any of their respective affairs, which proceeding is not dismissed within forty-five (45) days of filing. B. CERTAIN REPRESENTATIONS AS TO BANKRUPTCY. Borrower represents that, as of the date hereof, no Event of Bankruptcy has occurred with respect to Borrower and to the best of Borrower's knowledge, no Event of Bankruptcy has occurred with respect to Guarantors. C. RELIEF FROM STAY AND DISMISSAL. If any Event of Bankruptcy shall occur with respect to Borrower, Lender shall be entitled to immediate and complete relief from any automatic stay or moratorium (including, but not limited to, the immediate lifting of such stay "for cause") arising out of or related to the occurrence of any Event of Bankruptcy with respect to Borrower, and Lender shall be permitted to proceed to protect and enforce its rights or remedies either by suit in equity or by action at law, or both. Borrower covenants and agrees that it will not oppose, and, upon request by Lender, will consent in writing to the filing of the appropriate petitions or requests for relief required to obtain the relief referred to herein. 9. INTENTIONALLY OMITTED. 10. ORIGINAL LOAN DOCUMENTS REMAIN EFFECTIVE EXCEPT AS MODIFIED HEREBY. This Agreement and the other Additional Loan Documents amend and modify the Original Loan Documents to the extent that any of the Original Loan Documents are directly inconsistent with the Additional Loan Documents. To the extent not directly inconsistent with the Additional Loan Documents, all of the covenants, agreements and other provisions of the Original Loan Documents shall remain unaltered and in full force and effect, and all representations and warranties contained in the Original Loan Documents are hereby ratified and reaffirmed as true, accurate and complete as if made on the date hereof. Nothing herein contained shall in any manner whatsoever impair the Note, as modified hereby, or the first lien created by the Mortgage or any other documents executed by Borrower in connection therewith, or alter, waive, vary or affect any promise, agreement, covenant or condition recited in any of the Loan Documents. Except as herein otherwise provided, all terms and provisions of the Note and other instruments and documents executed in connection with the Loan shall remain in full force and effect and shall be binding upon the parties hereto, their successors and assigns. 11. ADDITIONAL COVENANTS OF BORROWER. Borrower covenants and agrees with Lender as follows: A. To maintain adequate insurance with responsible companies in such amounts and against such risks and hazards as are normally insured against by similar businesses; to pay before penalties attach all taxes, assessments, fees and similar 5 charges lawfully assessed upon Borrower and/or the Property, except to the extent being contested in good faith; to preserve its corporate existence in good standing and continue to conduct and operate its business substantially as presently conducted in accordance with all applicable laws and regulations; to pay its indebtedness and obligations when due under normal terms; to maintain proper books of record and account; and to furnish to Lender and allow Lender to review such information and books and records as Lender may reasonably request. B. To furnish to Lender within ninety (90) days after the close of each fiscal year, audited financial statements as of the close of such year, containing a balance sheet and statements of income, retained earnings and cash flows for such year, prepared in accordance with generally accepted accounting principles and certified by independent certified public accountants. C. To furnish to Lender, within forty-five (45) days after the close of each quarter of each fiscal year, detailed financial statements as of the close of such fiscal period, containing a balance sheet and statements of income, retained earnings and cash flows for such period and for the portion of its year ending with such period, prepared in accordance with generally accepted accounting principles and containing the written statement of the chief financial officer of Borrower that to the best of his knowledge and belief, the financial statements are accurate and complete and have been prepared in accordance with generally accepted accounting principles and the requirements of the Securities and Exchange Commission. D. To furnish to Lender, within forty-five (45) days after the close of each quarter of each fiscal year, all quarterly financial statements submitted to the Securities and Exchange Commission. E. That Borrower shall use its best efforts to hire and retain residents of the City of Detroit whose qualifications meet applicable job requirements, consistent with current hiring practices. F. To keep Lender periodically apprised of the progress of Dr. Curry's suit against Borrower, and of the progress of the two pending Miraphen product liability suits against Borrower, including, but not limited to, outcomes at all levels of the litigation, and to inform Lender in the event any other material actions are instituted against Borrower, a "material action" being one in which a judgment in excess of $1,000,000 could be entered against Borrower. 12. REPRESENTATIONS. Borrower represents and warrants that all statements contained herein and in all documentation provided by Borrower to Lender and all other representations or statements made by or on behalf of Borrower to Lender in connection with the concessions described in this Agreement are true and complete and do not state or omit to state any material fact. Borrower further represents that it is not insolvent and will not be rendered insolvent by entering into this Agreement. Borrower acknowledges that Lender has relied on the foregoing representations and warranties in entering into this Agreement. In the event that Borrower shall have made any misrepresentation in connection with the circumstances giving rise to this Agreement, such misrepresentation shall be deemed to be an Event of Default under the Mortgage, the Note and the other Loan Documents, thereby entitling Lender, subject to paragraph 7.B., to exercise its rights to accelerate the maturity of the indebtedness secured by the Mortgage and any and all other rights available to Lender under the Loan Documents or at law or in equity. 13. RELEASE. As additional consideration for the modification of the terms of the Original Loan, as provided herein, Borrower does hereby release and forever discharge Lender and the City of Detroit, their agents, servants, employees, directors, officers, attorneys, affiliates, successors and assigns from all liabilities, obligations, actions and causes of action whatsoever related to the Loan which Borrower may now 6 have or claim to have against Lender or the City of Detroit as of the date hereof, whether presently known or unknown, of every nature and extent whatsoever on account of or in any way touching, concerning, arising out of or founded upon the Note, as modified hereby, including, but not limited to, all such loss or damage of any kind heretofore sustained, or that may arise as a consequence of the dealings between the parties up to the date of this Agreement. Borrower acknowledges that, as of the date of this Agreement, there are no statements, agreements, waivers, estoppels or representations made by Lender which would constitute a claim, defense, counterclaim or right of offset in any foreclosure action that may hereafter be instituted by Lender under the Mortgage, or in any independent claim or action that may hereafter be brought by Borrower against Lender. This agreement and covenant on the part of Borrower is contractual, and not a mere recital, and the parties acknowledge and agree that no liability whatsoever is admitted on the part of any party, except Borrower's indebtedness to Lender under the Note, as modified hereby, and that all agreements and understandings between Borrower and Lender are expressed and embodied in the Note, as modified hereby and in the Mortgage, as modified by the Third Mortgage Modification Agreement. In the event that Lender is involved in litigation concerning the subject matter of this Agreement, Lender shall be entitled to receive from Borrower all of Lender's reasonable and necessary costs for such litigation, including Lender's reasonable attorneys' fees and costs incurred through all trial, appellate and other proceedings. 14. KNOWLEDGE. Borrower acknowledges that (A) it has thoroughly read and reviewed the terms and provisions of this Agreement and is familiar with same, that the terms and provisions contained herein are clearly understood by Borrower and have been fully and unconditionally consented to by Borrower, (B) it has had full benefit and advice of counsel of its own selection, or the opportunity to obtain the benefit and advice of counsel of its own selection, in regard to understanding the terms, meaning and effect of this Agreement, (C) it has freely, voluntarily, with full knowledge, and without duress, executed this Agreement, (D) in executing this Agreement, it is not relying on any other representations, either written or oral, express or implied, made to it by Lender, and (E) that the consideration received by it hereunder has been actual and adequate. 15. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT WHICH THE UNDERSIGNED MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BETWEEN THE PARTIES HERETO, INCLUDING, BUT NOT LIMITED TO, WITH RESPECT TO ANY AND ALL CAUSE OR CAUSES OF ACTION, DEFENSES, COUNTERCLAIMS, CROSSCLAIMS, THIRD PARTY CLAIMS AND INTERVENORS' CLAIMS, REGARDLESS OF THE CAUSE OR CAUSES OF ACTION, DEFENSES OR COUNTERCLAIMS ALLEGED OR THE RELIEF SOUGHT BY SUCH PARTY, AND REGARDLESS OF WHETHER SUCH LITIGATION IS BASED ON, ARISES OUT OF, UNDER OR IN CONNECTION WITH THE LOAN OR THIS AGREEMENT, THE NOTE, GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, OR OUT OF ANY ALLEGED CONDUCT OR COURSE OF CONDUCT, DEALING OR COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO, OR OTHERWISE. 16. CONSTRUCTION. This Agreement shall not be construed more strictly against Lender merely by virtue of the fact that the same has been prepared by Lender or its counsel, it being recognized that Borrower has also, through its counsel, contributed substantially and materially to the preparation of this Agreement. 17. ENTIRE AGREEMENT. Borrower acknowledges that there are no other agreements or representations, either oral or written, express or implied, not embodied in this Agreement and the Loan Documents, which, together, represent a complete integration of all prior and contemporaneous agreements and understandings of the parties. 18. TIME IS OF THE ESSENCE. Time is of the essence as to all Obligations of Borrower under the Loan Documents. 19. COUNTERPARTS. This Agreement may be executed and delivered in any number of counterparts, each of which, when so executed and delivered, shall be and constitute an original and one and the same document. 7 20. MODIFICATION MUST BE IN WRITING. This Agreement may not be changed or terminated, except in a writing signed by Lender and Borrower. 21. CAPTIONS. All captions or headings contained in this Agreement are provided for convenience and ease of reference only, and are in no way intended to, nor shall they, form a part of or limit, restrict or define the scope or content of this Agreement. 22. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of Michigan. 23. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. (REMAINDER OF PAGE BLANK) 8 IN WITNESS WHEREOF, Lender and Borrower have executed this Agreement as of the date first written above. LENDER: THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT, a Michigan public body corporate By: /s/ Brian J. Holdwick ------------------------- Its: Authorized Agent By: /s/ Athanosios Papapanos ------------------------- Its: Authorized Agent BORROWER: CARACO PHARMACEUTICAL LABORATORIES LTD., a Michigan corporation By: /s/ Narendra N. Borkar ------------------------- Its: Chief Executive Officer By: ------------------------- Its: ------------------------- STATE OF MICHIGAN) ) SS. COUNTY OF WAYNE ) On this ______ day of April, 2003, before me personally appeared ________________________, and _______________________ the Authorized Agents of the Economic Development Corporation of the City of Detroit, a Michigan public body corporate, who, being duly sworn, stated that they have read the foregoing Third Note Modification Agreement and have signed same on behalf of said corporation. --------------------------------- 9 Notary Public Wayne County, Michigan My Commission Expires: ____________ STATE OF MICHIGAN) ) SS. COUNTY OF WAYNE ) On this ______ day of April, 2003, before me personally appeared ________________________ and ________________________, the President and _______________________, respectively, of Caraco Pharmaceutical Laboratories Ltd., a Michigan corporation, who, being duly sworn, stated that they have read the foregoing Third Note Modification Agreement and have signed same on behalf of said corporation. ---------------------------------- Notary Public Wayne County, Michigan My Commission Expires: ___________ 10 EX-10.25 4 k76715exv10w25.txt THIRD MORTGAGE MODIFICATION AGREEMENT EXHIBIT 10.25 THIRD MORTGAGE MODIFICATION AGREEMENT THIS AGREEMENT is made and entered into this 23rd day of April, 2003, by and among Caraco Pharmaceutical Laboratories Ltd., a Michigan corporation, of 1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Borrower"), and the Economic Development Corporation of the City of Detroit, a Michigan public body corporate, of 211 West Fort Street, Suite 900, Detroit, Michigan 48226 ("Lender"). W I T N E S S E T H: WHEREAS, on August 10, 1990, Lender made a loan to Borrower in the original principal sum of Nine Million and no/100 ($9,000,000.00) Dollars (the "Original Loan"); and WHEREAS, the Original Loan is evidenced and secured in part by the following instruments (collectively, the "Original Loan Documents"): A. Section 108 Note dated August 10, 1990, executed by Borrower in favor of Lender in the original principal amount of Nine Million and no/100 ($9,000,000.00) Dollars (the "Note"), as modified by that certain Note and Mortgage Modification Agreement dated as of March 1, 1994 (the "First Note and Mortgage Modification Agreement"), and as further modified by that certain Second Note and Mortgage Modification Agreement dated as of August 5, 1997 (the "Second Note and Mortgage Modification Agreement"); B. Second Mortgage and Security Agreement dated August 10, 1990, granted by Borrower to Lender and recorded on September 21, 1990 in Liber 24815, at Page 715, Wayne County Register of Deeds, as amended by that certain Amendment to Mortgage and Security Agreement dated April 2, 1993, as further amended by the First Note and Mortgage Modification Agreement, as further amended by that certain Amendment to Second Mortgage and Security Agreement dated as of February 28, 1995, and as further amended by the Second Note and Mortgage Modification Agreement, covering the property described on Exhibit A attached hereto and made a part hereof (the "Mortgage"); C. Guaranty of Dr. C. Arnold Curry and Cara Jean Curry (collectively, "Guarantors," and individually, a "Guarantor"), husband and wife, dated August 10, 1990, as amended and restated on April 2, 1993 (the "Guaranty"); and D. UCC-1 Financing Statement recorded at the Michigan Secretary of State's Office on October 10, 1990, at File No. C400998, and a UCC 1-A Financing Statement recorded on September 12, 1990 at Liber 24815, page 703-708, Wayne County Register of Deeds; and WHEREAS, Borrower has requested that Lender modify the terms of the Original Loan and Lender has agreed to do so, subject to the terms and conditions set forth in this Agreement; and WHEREAS, the parties have agreed that the Mortgage shall be further amended to reflect the modification of the Original Loan, by that certain Third Mortgage Modification Agreement executed of even date herewith (the "Third Mortgage Modification Agreement"). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower do hereby covenant and agree as follows: 1. RECITALS ARE TRUE AND CORRECT; DEFINED TERMS. 1 A. RECITALS TRUE AND CORRECT. The foregoing recitals are true and correct in all respects. B. DEFINED TERMS. In addition to terms defined elsewhere within this Agreement, the following terms shall have the following meanings: (i) "Additional Loan Documents" shall mean this Agreement, the Third Note Modification Agreement and all documents and instruments executed and delivered by Borrower pursuant to or in connection with this Agreement. (ii) "Loan" shall mean the Original Loan, as modified by this Agreement and the Additional Loan Documents. (iii) "Loan Documents" shall mean any and all documents and instruments evidencing or securing the Loan, including the Original Loan Documents and the Additional Loan Documents. (iv) "Obligations" shall mean the payment of the Loan and the payment and performance of all other obligations of Borrower to Lender now existing or hereafter arising under the Loan Documents. (v) "Property" means the real and personal property encumbered by the Mortgage or the other Loan Documents. (vi) "Real Property" means the real property encumbered by the Mortgage. C. OTHER TERMS. All other capitalized terms contained in this Agreement and not otherwise defined herein shall have the same meanings, if any, as are ascribed to such terms in the Original Loan Documents. 2. EXISTING INDEBTEDNESS. As of the date of this Agreement, the unpaid principal balance owing by Borrower to Lender under the Original Loan is Seven Million Six Hundred Two Thousand Five Hundred Forty-Six and 56/100 ($7,602,546.56) Dollars (the "Existing Indebtedness"). 3. PAYMENT RESTRUCTURING. Lender agrees to restructure repayment of the Existing Indebtedness in accordance with the terms stated herein. More specifically, the occurrence of each of the following before the close of business on April 23, 2003 (the "Closing Date"), shall constitute a condition precedent to any such restructuring by Lender as described in Section 4 below: A. Prior to or contemporaneously with the execution of this Agreement, Borrower shall have paid any and all delinquent real and personal property taxes assessed against the Property in full; B. Borrower shall have satisfied any and all conditions precedent set forth in the Third Note Modification Agreement; C. Borrower shall have reimbursed the EDC in full for its costs incurred in connection with the restructuring of the Original Loan as contemplated by this Agreement, including, but not limited to, filing and recording costs, title insurance premiums, appraisal fees, syndication costs and legal fees; and D. Borrower shall have reimbursed the City of Detroit for its costs incurred in connection with the issuance of securities by the United States Department of Housing and Urban Development, including, but not limited to, legal fees and syndication costs. Borrower agrees that in the event that any one or more of the conditions precedent enumerated in subsections 3.A. through 3.D. above shall not have been satisfied before the close of business on the Closing Date, the same shall constitute an Event of Default under this Agreement and the other Loan Documents, entitling Lender to exercise its remedies hereunder and thereunder. 2 4. MODIFICATION OF THE ORIGINAL LOAN. A. MODIFICATION OF THE MORTGAGE. The Mortgage is hereby modified to secure the obligations of the Borrower pursuant to the Third Note Modification Agreement and the Loan Documents and to release the Borrower's accounts receivable and inventory from the lien of the Mortgage. Borrower and Lender confirm and agree that the Mortgage is and shall be kept a first priority lien against the Property (excluding accounts receivable and inventory), and is not now and shall not be hereafter subordinated to the lien of any other mortgage, security agreement or encumbrance of any kind. B. OTHER MODIFICATIONS TO THE ORIGINAL LOAN DOCUMENTS. (i) FUNDING OBLIGATIONS TERMINATED. Lender shall have no obligation to make any further advances or disbursements to Borrower on account of the Loan or otherwise. (ii) REFERENCES. Any reference made in the Mortgage or the other Original Loan Documents to the "Note" shall mean the Note as modified by the Third Note Modification Agreement and any reference in any of the Original Loan Documents to "Loan Documents" shall mean the Loan Documents as modified by this Agreement and the Third Note Modification Agreement. C. EQUIPMENT. So long as Borrower is not in default in any of its obligations hereunder, it may purchase new capital equipment and/or sell the existing capital equipment described on Exhibit B attached hereto and made a part hereof, so long as that (a) as a result of those transactions, the book value of Borrower's assets is not diminished below the book value of all of Borrower's assets as of December 31, 2002 and (b) the proceeds of any such sales are retained by Borrower. 5. THIS AGREEMENT IS SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT. The covenants and agreements of Lender contained in this Agreement, including, but not limited to, Lender's obligation to modify the Loan as provided herein, are contingent upon and subject to each of the following conditions being satisfied as of the time Borrower executes this Agreement, or at such other time as Lender may permit in its sole and absolute discretion: A. RECEIPT OF TITLE INSURANCE. Lender's receipt, at the expense of Borrower, of a title insurance policy which insures the lien of the Mortgage: (i) showing that no encumbrances affect the Real Property other than encumbrances which are acceptable to Lender, in the exercise of its reasonable discretion, and (ii) insuring, to the satisfaction of Lender, that the Mortgage remains a valid first lien on the Real Property, subject only to matters disclosed in the title insurance policy or such other matters as may be acceptable to Lender in the exercise of its reasonable discretion. B. DELIVERY OF ADDITIONAL LOAN DOCUMENTS. Borrower having delivered to Lender, in form and substance satisfactory to Lender: (i) the Third Note Modification Agreement; (ii) an owner's affidavit executed by Borrower; (iii) an opinion of counsel to Borrower, opining as to such matters in respect of the Loan as Lender may request; (iv) a good standing certificate for Borrower; (v) such resolutions, affidavits, certificates and other documents as Lender may reasonably require to evidence Borrower's capacity, power and authority to execute, deliver and perform its obligations under the Additional Loan Documents; and 3 (vi) such other documents, instruments, certificates and further assurances as Lender may reasonably require. C. UCC SEARCHES. Lender's receipt of UCC searches confirming that no personal property or fixtures of Borrower are subject to security interests other than Lender's security interests or other than as previously disclosed by Borrower to Lender. 6. RATIFICATION OF SECURITY AND OBLIGATIONS; WAIVER OF CLAIMS AND DEFENSES OF BORROWER. A. RATIFICATION OF SECURITY AND OBLIGATIONS OF BORROWER . Borrower hereby covenants, warrants and agrees that, except as modified hereby: (i) the Mortgage secures and shall continue to secure full repayment of the Loan, as evidenced by the Note; (ii) the Mortgage is and shall remain a continuous and valid first priority lien on the Property until the Loan is repaid in full; (iii) the Loan Documents secure and shall continue to secure the repayment of the Loan, as evidenced by the Note and all other Obligations; and (iv) all Obligations and all Loan Documents granted as security for the repayment of the Loan remain and shall continue to remain valid, binding and effective, except as amended by this Agreement and the Third Note Modification Agreement, this Agreement being an affirmation and ratification thereof. B. WAIVER OF CLAIMS AND DEFENSES. Borrower hereby waives, releases, acquits, satisfies and forever discharges Lender from any and all claims, counterclaims, defenses, actions, causes of action, suits, controversies, agreements, promises and demands whatsoever in law or in equity which Borrower ever had, now has, or which any successor or assign of Borrower can, shall or may have against Lender for, upon or by reason of any matter, cause or thing whatsoever from the beginning of time to the date hereof. C. NO DEFENSES. There is no defense or right of offset against any Obligations of Borrower to Lender, including, but not limited to, any obligation under the Note or Mortgage. 7. DEFAULT. A. EVENTS OF DEFAULT. The Mortgage, Note and all other Loan Documents shall all be in default (in any case, an "Event of Default") (i) if Borrower shall be in default under or fail to perform any agreement, covenant, condition, obligation or undertaking, or breach any warranty or representation, contained in this Agreement, the Note, or any of the other Additional Loan Documents; (ii) if any of the other Loan Documents shall be in default in accordance with the terms thereof; or (iii) ) if a judgment in excess of $1,000,000, not fully covered by insurance, is entered against Borrower, enforcement of which is not stayed or bonded within thirty (30) days after entry. B. REMEDIES. Upon the occurrence of any Event of Default, each of the Loan Documents and all Obligations of Borrower shall be in default and, at the option of Lender, all Loan indebtedness, and all other Obligations, shall become immediately due and payable if such Event of Default is not cured within (i) fifteen (15) days after the date of such Event of Default in the event such Event of Default involves the payment of money by the Borrower, or (ii) whether thirty (30) days after the date of written notice from Lender to Borrower of such Event of Default, in the event such Event of Default involves the performance by Borrower of a non-monetary obligation, and the Lender shall thereupon be entitled, authorized and empowered to exercise any and all rights and remedies available under the Loan Documents, at law or in equity, including, but not limited to, its right to foreclose the Mortgage lien and its right to collect the Loan indebtedness under the Note and Guaranty. 8. BANKRUPTCY. A. EVENT OF BANKRUPTCY DEFINED. When appearing in this Agreement, the term "Event of Bankruptcy" shall mean: (a) if Borrower or any Guarantor shall: (i) file a voluntary petition in bankruptcy for adjudication as bankrupt, (ii) seek reorganization or an arrangement under any bankruptcy or similar statute of the United States of America or any subdivision thereof or of any foreign jurisdiction in 4 response to an involuntary petition, (iii) consent to the filing of a petition in bankruptcy or reorganization, (iv) consent to the appointment of a receiver or a trustee or officer performing similar functions with respect to any substantial part of their property, (v) make a general assignment for the benefit of creditors, (vi) execute a consent to any other type of insolvency proceeding or any informal proceeding for the dissolution or liquidation of or settlement of claims against or winding up of affairs or the appointment of a receiver or trustee or officer performing similar functions for any of them, or for any of their assets, or (b) the filing against Borrower or any Guarantor of a petition for adjudication as bankrupt or insolvent or for reorganization under any bankruptcy or similar laws of the United States of America or any state thereof or any foreign jurisdiction, or the institution against Borrower or any Guarantor of any other type of insolvency proceeding or any formal or informal proceeding for the dissolution, liquidation, settlement of claims against or winding up of any of their respective affairs, which proceeding is not dismissed within forty-five (45) days of filing. (B) CERTAIN REPRESENTATIONS AS TO BANKRUPTCY. Borrower represents that, as of the date hereof, no Event of Bankruptcy has occurred with respect to Borrower and to the best of Borrower's knowledge, no Event of Bankruptcy has occurred with respect to Guarantors. (C) RELIEF FROM STAY AND DISMISSAL. If any Event of Bankruptcy shall occur with respect to Borrower, Lender shall be entitled to immediate and complete relief from any automatic stay or moratorium (including, but not limited to, the immediate lifting of such stay "for cause") arising out of or related to the occurrence of any Event of Bankruptcy with respect to Borrower, and Lender shall be permitted to proceed to protect and enforce its rights or remedies either by suit in equity or by action at law, or both. Borrower covenants and agrees that it will not oppose, and, upon request by Lender, will consent in writing to the filing of the appropriate petitions or requests for relief required to obtain the relief referred to herein. 9. INTENTIONALLY OMITTED. 10. ORIGINAL LOAN DOCUMENTS REMAIN EFFECTIVE EXCEPT AS MODIFIED HEREBY. This Agreement and the other Additional Loan Documents amend and modify the Original Loan Documents to the extent that any of the Original Loan Documents are directly inconsistent with the Additional Loan Documents. To the extent not directly inconsistent with the Additional Loan Documents, all of the covenants, agreements and other provisions of the Original Loan Documents shall remain unaltered and in full force and effect, and all representations and warranties contained in the Original Loan Documents are hereby ratified and reaffirmed as true, accurate and complete as if made on the date hereof. Nothing herein contained shall in any manner whatsoever impair the Mortgage, as modified hereby, or the first lien created thereby or any other documents executed by Borrower in connection therewith, or alter, waive, vary or affect any promise, agreement, covenant or condition recited in any of the Loan Documents. Except as herein otherwise provided, all terms and provisions of the Mortgage and other instruments and documents executed in connection with the Loan shall remain in full force and effect and shall be binding upon the parties hereto, their successors and assigns. 11. ADDITIONAL COVENANTS OF BORROWER. Borrower covenants and agrees with Lender as follows: A. To maintain adequate insurance with responsible companies in such amounts and against such risks and hazards as are normally insured against by similar businesses; to pay before penalties attach all taxes, assessments, fees and similar charges lawfully assessed upon Borrower and/or the Property, except to the extent being contested in good faith; to preserve its corporate existence in good standing and continue to conduct and operate its business substantially as presently conducted in accordance with all applicable laws and regulations; to pay its indebtedness and obligations when due under normal terms; to maintain proper books of record and account; and to furnish to Lender and allow Lender to review such information and books and records as Lender may reasonably request. B. To furnish to Lender within ninety (90) days after the close of each fiscal year, audited financial statements as of the close of such year, containing a balance sheet and statements of income, retained earnings and cash flows for such year, prepared in accordance with 5 generally accepted accounting principles and certified by independent certified public accountants. C. To furnish to Lender, within forty-five (45) days after the close of each quarter of each fiscal year, detailed financial statements as of the close of such fiscal period, containing a balance sheet and statements of income, retained earnings and cash flows for such period and for the portion of its year ending with such period, prepared in accordance with generally accepted accounting principles and containing the written statement of the chief financial officer of Borrower that to the best of his knowledge and belief, the financial statements are accurate and complete and have been prepared in accordance with generally accepted accounting principles and the requirements of the Securities and Exchange Commission. D. To furnish to Lender, within forty-five (45) days after the close of each quarter of each fiscal year, all quarterly financial statements submitted to the Securities and Exchange Commission. E. That Borrower shall use its best efforts to hire and retain residents of the City of Detroit whose qualifications meet applicable job requirements, consistent with current hiring practices. F. To keep Lender periodically apprised of the progress of Dr. Curry's suit against Borrower, and of the progress of the two pending Miraphen product liability suits against Borrower, including, but not limited to, outcomes at all levels of the litigation, any other material actions are instituted against Borrower, a "material action" being one in which a judgment in excess of $1,000,000 could be entered against Borrower. 12. REPRESENTATIONS. Borrower represents and warrants that all statements contained herein and in all documentation provided by Borrower to Lender and all other representations or statements made by or on behalf of Borrower to Lender in connection with the concessions described in this Agreement are true and complete and do not state or omit to state any material fact. Borrower further represents that it is not insolvent and will not be rendered insolvent by entering into this Agreement. Borrower acknowledges that Lender has relied on the foregoing representations and warranties in entering into this Agreement. In the event that Borrower shall have made any misrepresentation in connection with the circumstances giving rise to this Agreement, such misrepresentation shall be deemed to be an Event of Default under the Mortgage, the Note and the other Loan Documents, thereby entitling Lender, subject to paragraph 7.B., to exercise its rights to accelerate the maturity of the indebtedness secured by the Mortgage and any and all other rights available to Lender under the Loan Documents or at law or in equity. 13. RELEASE. As additional consideration for the modification of the terms of the Original Loan, as provided herein, Borrower does hereby release and forever discharge Lender and the City of Detroit, their agents, servants, employees, directors, officers, attorneys, affiliates, successors and assigns from all liabilities, obligations, actions and causes of action whatsoever related to the Loan which Borrower may now have or claim to have against Lender or the City of Detroit as of the date hereof, whether presently known or unknown, of every nature and extent whatsoever on account of or in any way touching, concerning, arising out of or founded upon the Mortgage, as modified hereby, including, but not limited to, all such loss or damage of any kind heretofore sustained, or that may arise as a consequence of the dealings between the parties up to the date of this Agreement. Borrower acknowledges that, as of the date of this Agreement, there are no statements, agreements, waivers, estoppels or representations made by Lender which would constitute a claim, defense, counterclaim or right of offset in any foreclosure action that may hereafter be instituted by Lender under the Mortgage, or in any independent claim or action that may hereafter be brought by Borrower against Lender. This agreement and covenant on the part of Borrower is contractual, and not a mere recital, and the parties acknowledge and agree that no liability whatsoever is admitted on the part of any party, except Borrower's indebtedness to Lender under the Mortgage, as modified hereby, and that all agreements and understandings between Borrower and Lender are expressed and embodied in the Mortgage, as modified hereby and in the Note, as modified by the Third Note Modification Agreement. In the event that Lender is involved in litigation concerning the subject matter of this Agreement, Lender shall be 6 entitled to receive from Borrower all of Lender's reasonable and necessary costs for such litigation, including Lender's reasonable attorneys' fees and costs incurred through all trial, appellate and other proceedings. 14. KNOWLEDGE. Borrower acknowledges that (A) it has thoroughly read and reviewed the terms and provisions of this Agreement and is familiar with same, that the terms and provisions contained herein are clearly understood by Borrower and have been fully and unconditionally consented to by Borrower, (B) it has had full benefit and advice of counsel of its own selection, or the opportunity to obtain the benefit and advice of counsel of its own selection, in regard to understanding the terms, meaning and effect of this Agreement, (C) it has freely, voluntarily, with full knowledge, and without duress, executed this Agreement, (D) in executing this Agreement, it is not relying on any other representations, either written or oral, express or implied, made to it by Lender, and (E) that the consideration received by it hereunder has been actual and adequate. 15. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT WHICH THE UNDERSIGNED MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BETWEEN THE PARTIES HERETO, INCLUDING, BUT NOT LIMITED TO, WITH RESPECT TO ANY AND ALL CAUSE OR CAUSES OF ACTION, DEFENSES, COUNTERCLAIMS, CROSSCLAIMS, THIRD PARTY CLAIMS AND INTERVENORS' CLAIMS, REGARDLESS OF THE CAUSE OR CAUSES OF ACTION, DEFENSES OR COUNTERCLAIMS ALLEGED OR THE RELIEF SOUGHT BY SUCH PARTY, AND REGARDLESS OF WHETHER SUCH LITIGATION IS BASED ON, ARISES OUT OF, UNDER OR IN CONNECTION WITH THE LOAN OR THIS AGREEMENT, THE NOTE, GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, OR OUT OF ANY ALLEGED CONDUCT OR COURSE OF CONDUCT, DEALING OR COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO, OR OTHERWISE. 16. CONSTRUCTION. This Agreement shall not be construed more strictly against Lender merely by virtue of the fact that the same has been prepared by Lender or its counsel, it being recognized that Borrower has also, through its counsel, contributed substantially and materially to the preparation of this Agreement. 17. ENTIRE AGREEMENT. Borrower acknowledges that there are no other agreements or representations, either oral or written, express or implied, not embodied in this Agreement and the Loan Documents, which, together, represent a complete integration of all prior and contemporaneous agreements and understandings of the parties. 18. TIME IS OF THE ESSENCE. Time is of the essence as to all Obligations of Borrower under the Loan Documents. 19. COUNTERPARTS. This Agreement may be executed and delivered in any number of counterparts, each of which, when so executed and delivered, shall be and constitute an original and one and the same document. 20. MODIFICATION MUST BE IN WRITING. This Agreement may not be changed or terminated, except in a writing signed by Lender and Borrower. 21. CAPTIONS. All captions or headings contained in this Agreement are provided for convenience and ease of reference only, and are in no way intended to, nor shall they, form a part of or limit, restrict or define the scope or content of this Agreement. 22. GOVERNING LAW. This Agreement shall be governed by and construed according to the laws of the State of Michigan. 23. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. 7 (REMAINDER OF PAGE BLANK) 8 IN WITNESS WHEREOF, Lender and Borrower have executed this Agreement as of the date first written above. LENDER: THE ECONOMIC DEVELOPMENT CORPORATION OF THE CITY OF DETROIT, a Michigan public body corporate By: /s/ Brian J. Holdwick -------------------------- Its: Authorized Agent By: /s/ Athanasios Papapanos ------------------------- Its: Authorized Agent BORROWER: CARACO PHARMACEUTICAL LABORATORIES LTD., a Michigan corporation By: /s/ Narendra N. Borkar ------------------------------- Its: Chief Executive Officer By: ------------------------------- Its: ------------------------------- STATE OF MICHIGAN) ) SS. COUNTY OF WAYNE ) On this ______ day of April, 2003, before me personally appeared ________________________, and _______________________ the Authorized Agents of the Economic Development Corporation of the City of Detroit, a Michigan public body corporate, who, being duly sworn, stated that they have read the foregoing Third Mortgage Modification Agreement and have signed same on behalf of said corporation. ___________________________________ Notary Public Wayne County, Michigan My Commission Expires: ____________ 9 STATE OF MICHIGAN) ) SS. COUNTY OF WAYNE ) On this ______ day of April, 2003, before me personally appeared ________________________ and ________________________, the President and _______________________, respectively, of Caraco Pharmaceutical Laboratories Ltd., a Michigan corporation, who, being duly sworn, stated that they have read the foregoing Third Mortgage Modification Agreement and have signed same on behalf of said corporation. ___________________________________ Notary Public Wayne County, Michigan My Commission Expires: ____________ DRAFTED BY AND WHEN RECORDED RETURN TO: Lewis & Munday, P.C. 660 Woodward Avenue Suite 1300 Detroit, Michigan 48226 EX-99.1 5 k76715exv99w1.txt 906 CERTIFICATION OF CEO/CFO 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 Quarterly Report on Form 10-QSB of Caraco Pharmaceutical Laboratories Ltd. ("Caraco") for the quarter ended March 31, 2003 (the "Report"), each of the undersigned, 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. May 15, 2003 /s/ Narendra N. Borkar ----------------------------------- Narendra N. Borkar Chief Executive Officer May 15, 2003 /s/ Jitendra N. Doshi ----------------------------------- Jitendra N. Doshi Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----