UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Caraco Pharmaceutical Laboratories, Ltd.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
AND
PROXY STATEMENT
2004
CARACO PHARMACEUTICAL LABORATORIES, LTD.
1150 ELIJAH MCCOY DRIVE
DETROIT, MICHIGAN 48202
April 29, 2004
Dear Shareholder,
We invite you to attend our 2004 Annual Meeting of Shareholders at 10:00 a.m.,
Eastern Daylight Saving Time, on June 7, 2004 at The Hotel St. Regis, 3071 W.
Grand Blvd., Detroit, Michigan.
The annual report, which is enclosed, summarizes Caraco's major developments
during 2003 and includes the 2003 financials.
Whether or not you plan to attend the Meeting, please complete and mail the
enclosed proxy card promptly so that your shares will be voted as you desire. IF
YOU WISH TO VOTE IN THE MANNER THE BOARD OF DIRECTORS RECOMMENDS, IT IS NOT
NECESSARY TO SPECIFY YOUR CHOICES ON THE PROXY CARD. SIMPLY SIGN, DATE AND
RETURN THE PROXY CARD.
Sincerely,
Jitendra N. Doshi
Chief Executive Officer
CARACO PHARMACEUTICAL LABORATORIES, LTD.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: June 7, 2004
Time: 10:00 a.m., Eastern Daylight Saving Time
Place: The Hotel St. Regis
Detroit, Michigan 48202
We invite you to attend the Caraco Pharmaceutical Laboratories, Ltd. Annual
Meeting of Shareholders to:
1. Elect three directors for three-year terms expiring in 2007
and upon the election and qualification of their successors.
2. Transact any other business that is properly submitted before
the Annual Meeting or any adjournment(s) of the Meeting.
The record date for the Meeting is April 26, 2004 (the "Record Date"). Only
shareholders of record at the close of business on that date can vote at the
Annual Meeting. Caraco is mailing this Notice of Annual Meeting to those
shareholders.
A proxy statement, proxy card and an annual report are enclosed with this
Notice. Whether or not you plan to attend the Meeting and whether you own a few
or many shares of stock, the Board of Directors urges you to vote promptly. You
may vote by signing, dating and returning the enclosed proxy card.
A list of shareholders who can vote at the Annual Meeting will be available for
inspection by shareholders at the Meeting and for ten days prior to the Meeting
during regular business hours at the offices of Caraco, 1150 Elijah McCoy Drive,
Detroit, MI 48202.
By Order of the Board of Directors,
Jitendra N. Doshi
Chief Executive Officer
April 29, 2004
TABLE OF CONTENTS
QUESTIONS AND ANSWERS.................................................................................... 1
PROPOSAL 1 -- ELECTION OF DIRECTORS...................................................................... 4
NOMINEES FOR DIRECTORS' TERMS EXPIRING 2007.............................................................. 4
INCUMBENT DIRECTORS' TERMS EXPIRING 2006................................................................. 5
INCUMBENT DIRECTORS' TERMS EXPIRING 2005................................................................. 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.......................................................... 10
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS........................................................... 11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................................. 13
TRANSACTIONS OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL HOLDERS OF CARACO................... 14
EXECUTIVE OFFICERS....................................................................................... 15
REPORT ON EXECUTIVE COMPENSATION......................................................................... 15
COMPENSATION OF EXECUTIVE OFFICERS....................................................................... 16
PERFORMANCE GRAPH........................................................................................ 19
RELATIONSHIP WITH INDEPENDENT AUDITORS................................................................... 20
AUDIT COMMITTEE CHARTER.................................................................................. APPENDIX A
CARACO PHARMACEUTICAL LABORATORIES, LTD.
1150 ELIJAH MCCOY DRIVE
DETROIT, MICHIGAN 48202
2004 PROXY STATEMENT
QUESTIONS AND ANSWERS
1. Q: What is a proxy?
A: A proxy is a document, also referred to as a proxy card (which is
enclosed), by which you authorize someone else to vote for you in the
way that you want to vote. Caraco's Board of Directors is soliciting
this proxy. You may also abstain from voting.
2. Q: What is a proxy statement?
A: A proxy statement is the document the United States Securities and
Exchange Commission (the "SEC") requires to explain the matters on
which you are asked to vote on the proxy card. Caraco's proxy
statement, together with its enclosed proxy card, was first mailed to
shareholders on or about May 5, 2004.
3. Q: Who can vote?
A: Only holders of Caraco's common stock at the close of business on
April 26, 2004, the Record Date, can vote at the Annual Meeting. Each
shareholder of record has one vote for each share of common stock on
each matter presented for a vote at the Meeting.
4. Q: What will I vote on at the Meeting?
A: At the Annual Meeting, shareholders will vote to:
1. Elect three directors for three-year terms expiring in 2007 and
upon the election and qualification of their successors.
2. Transact any other business that is properly submitted before the
Annual Meeting or any adjournment(s) of the Meeting.
5. Q: How does the Board of Directors recommend I vote on the proposal?
A: The Board of Directors recommends a vote "FOR" all of the nominees
listed in Proposal 1.
6. Q: How can I vote?
A: You can vote in person or by proxy. To vote by proxy, sign, date and
return the enclosed proxy card. If you return your signed proxy card
to American Stock Transfer before the
1
Annual Meeting, the persons named as proxies on the card will vote
your shares as you directed. You may revoke a proxy at any time before
the proxy is exercised by:
1. giving written notice of revocation to the Chief Executive
Officer of Caraco at 1150 Elijah McCoy Drive, Detroit, MI 48202;
2. submitting another proxy that is properly signed and later dated;
3. voting in person at the Meeting (but only if the shares are
registered in Caraco's records in the name of the shareholder and
not in the name of a broker, dealer, bank or other third party);
7. Q: What is a quorum?
A: There were 24,577,828 shares of Caraco's common stock outstanding on
the Record Date. A majority of the outstanding shares, or 12,288,915
shares, present or represented by proxy, constitutes a quorum. For
purposes of a quorum, abstentions and broker non-votes are included. A
broker non-vote is a proxy a broker submits that does not indicate a
vote for some or all the proposals because the broker does not have
discretionary voting authority and the broker did not receive
instructions as to how to vote on those proposals. A quorum must exist
to conduct business at the Annual Meeting.
8. Q: How does voting work?
A: If a quorum exists, each director must receive the favorable vote of a
majority of the shares voted, excluding abstentions and broker
non-votes, present in person or represented by proxy.
Caraco will vote properly executed Proxies it receives prior to the
Meeting in the way you direct. IF YOU SIGN THE PROXY CARD BUT DO NOT
SPECIFY INSTRUCTIONS, THE SHARES REPRESENTED BY PROXIES WILL BE VOTED
"FOR" THE NOMINEES FOR DIRECTORS. No other matters are currently
scheduled to be presented at the Meeting. If any matter or matters are
properly brought before the Meeting or any adjournment thereof, it is
the intention of the persons named in the accompanying proxy card to
vote the shares represented by the proxy card as they determine.
9. Q: Who pays for the costs of the Meeting?
A: Caraco pays the cost of preparing and printing the proxy statement and
soliciting proxies. Caraco will solicit proxies primarily by mail, but
may also solicit proxies personally and by telephone. Caraco will
reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their out-of-pocket expenses for forwarding
solicitation material to beneficial owners of Caraco's common stock.
2
10. Q: When are shareholder proposals for the 2005 Annual Meeting due?
A: All shareholder proposals to be considered for inclusion in next
year's proxy statement must be submitted in writing to the Chief
Executive Officer, Caraco Pharmaceutical Laboratories, 1150 Elijah
McCoy Drive, Detroit, Michigan 48202, before December 30, 2004.
11. Q: How may a shareholder communicate with the Board of Directors?
A: Shareholders may communicate with the Board of Directors or any member
of the Board of Directors by sending a letter addressed to the Board
of Directors, c/o Michael Perry, Human Resources Manager, at 1150
Elijah McCoy Drive, Detroit, Michigan 48202. The Board of Directors'
policy is to have all shareholder communications compiled by the Human
Resources Manager and forwarded directly to the Board or the director
as indicated in the letter. All letters will be forwarded to the
appropriate party. The Board of Directors reserves the right to revise
this policy in the event that this process is abused, becomes
unworkable or otherwise does not efficiently serve the purpose of the
policy.
3
PROPOSAL 1 - ELECTION OF DIRECTORS
ELECTION OF BOARD OF DIRECTORS
Caraco's Board of Directors is divided into three classes with each class of
directors elected to a three-year term of office. At each annual meeting of
shareholders, shareholders elect one class of directors for a three-year term to
succeed the class of directors whose term of office expires at that meeting.
This year you are voting on three candidate directors. Based on the
recommendation of the Board of Directors, the following individuals, each of
whom is a current director, are recommended for re-election: William C. Brooks,
Timothy S. Manney and Sudhir Valia. Messrs. Brooks and Manney were appointed to
the Board in January and March 2004. Each of the nominees has consented to his
nomination and has agreed to serve as a director of Caraco if elected.
If any director is unable to stand for re-election, Caraco may vote the shares
to elect any substitute nominee recommended by the Board of Directors. If the
Board of Directors does not recommend any substitute nominees, the number of
directors to be elected at the Annual Meeting may be reduced by the number of
nominees who are unable to serve.
Caraco's Board of Directors recommends a vote "FOR" these nominees.
NOMINEES FOR DIRECTORS' TERMS EXPIRING 2007
Principal Occupation and Business
Experience During Past 5 Years Director
Nominees Age and other Directorships Since
-------- --- ----------------------------------------------------- --------
William C. Brooks 70 Mr. Brooks has served as a director since January 2004
2004. Since 2002, Mr. Brooks has been the President
and CEO of United American Healthcare Corporation
where he has also served as Chairman of the Board
since 1998. Mr. Brooks is currently a director of
Covansys Corporation. In 2001, Mr. Brooks retired as
Chairman of The Brooks Group International, a human
resource and workforce development firm. He retired
as Vice President of Corporate Affairs of General
Motors in 1997 where he had served for 25 years in
various positions. Mr. Brooks was nominated by
President Clinton and served from February 1995 to
January 1998 on the Social Security Advisory Board.
Mr. Brooks was nominated by President Bush and served
from July 1989 to November 1990 as the Assistant
Secretary of Labor for the Employment
4
Standards Administration.
Timothy S. Manney 45 Since May 2002, Mr. Manney has been President and 2004
Director of Synova, Inc. (a privately-held
information technology staffing and creative -
services consulting firm). From 1990 to May 2002, Mr.
Manney served as the Chief Financial Officer of
Covansys Corporation (a publicly-held information
technology solutions company).
Sudhir Valia 47 Mr. Valia has worked for Sun Pharmaceutical 1997
Industries, Limited ("Sun Pharma") as a full time
director responsible for finance, commercial,
operations, projects and quality control since
December 1993. Prior to then, Mr. Valia was a
chartered accountant in private practice. Mr. Valia
is a qualified chartered accountant in India. Mr.
Shanghvi is Mr. Valia's brother-in-law.
INCUMBENT DIRECTORS' TERMS EXPIRING 2006
Principal Occupation and Business
Experience During Past 5 Years Director
Nominees Age and other Directorships Since
-------- --- ----------------------------------------------------- --------
Dilip S. Shanghvi 48 Mr. Shanghvi has served as Chairman of the Board of 1997
Directors of Caraco since 1997. Mr. Shanghvi is the
founder of Sun Pharma, its Managing Director since
its inception in 1993, responsible for marketing,
research and development and human resource
development, and its Chairman since 1999. Mr. Valia
is Mr. Shanghvi's brother-in-law.
Jitendra N. Doshi 53 Mr. Doshi has been the Chief Executive Officer of 2001
Caraco since September 2003 and the Chief Financial
Officer since November 2002. Mr. Doshi commenced
employment with Caraco as its Senior Vice President -
Commercial in April 2001. From September 1999 to
April 2001, Mr. Doshi was employed by Sun Pharma as
General Manager - Operations. From 1991 to 1999, Mr.
Doshi was Managing Director of Aqua Bearing Ltd., an
auto parts manufacturer organized under the laws of
the Commonwealth of India.
5
INCUMBENT DIRECTORS' TERMS EXPIRING 2005
Principal Occupation and Business
Experience During Past 5 Years Director
Nominees Age and other Directorships Since
-------- --- ----------------------------------------------------- --------
Sailesh T. Desai 49 Mr. Desai has served as a full time director of Sun 2000
Pharma, since 1999, responsible for domestic
marketing of pharmaceutical formulations. From 1994
to 1998, Mr. Desai was the principal shareholder and
Managing Director of Milmet Laboratories, Pvt. Ltd.,
a manufacturer and marketer of ophthalmic solutions
which was organized under the laws of the
Commonwealth of India and merged into Sun Pharma in
1998.
Georges Ugeux 58 In October 2003, Mr. Ugeux founded Galileo Global 2004
Advisors LLC (a company offering strategic advice on
international business development). From September
1996 to October 2003, Mr. Ugeux was a Group Executive
Vice President, International and Research and a
member of the Office of the Chief Executive of NYSE.
From 1995 until September 1996, Mr. Ugeux served as
President of the European Investment Fund. From 1992
until 1995, Mr. Ugeux was President of Kidder,
Peabody Europe as well as Managing Director while
serving as a member of the Managing Committee of the
Board of Directors of Kidder, Peabody Inc. From 1988
until 1992, Mr. Ugeux was Group Finance Director at
Societe Generale de Belgique, a Belgian diversified
industrial and financial conglomerate.
COMMITTEES AND MEETINGS OF DIRECTORS
During 2003, the Board of Directors met 4 times. All of our directors attended
at least 75% of the meetings of the Board and the committees on which they
served, except for Messrs. Desai, Shanghvi and Valia. The Board of Directors
encourages Board members to attend each Annual Meeting of Shareholders. At the
2003 Annual Meeting of Shareholders, 5 of the Caraco directors were in
attendance.
The Board of Directors is fixed at seven members. Three of such directors are
independent under Amex listing standards currently in effect. Unless a company
is a "controlled company" under Amex regulations, a majority of its Board of
Directors must be independent. As a result of
6
Sun Pharma owning more than a majority of the outstanding voting shares, Caraco
is a controlled company under Amex regulations and is therefore not required to
have a majority of independent directors on its Board.
The Board maintains three standing committees: audit, compensation and
independent. These are described below.
Audit Committee. The Audit Committee is responsible for selecting, evaluating,
retaining and, where appropriate, replacing Caraco's independent auditors.
Generally, the Audit Committee monitors the integrity of Caraco's financial
statements and the independence and qualifications of the independent auditors.
The Audit Committee is governed by a written charter, a copy of which is
attached as Appendix A to this proxy statement. The Audit Committee's
responsibilities are described in more detail in such charter. The Audit
Committee has been established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended. The Audit Committee held three
meetings in 2003. The current members of the Audit Committee are Mr. Brooks, Mr.
Manney and Mr. Ugeux. Mr. Brooks is the committee's Chairman. Each of these
members is independent under Section 121(A) of Amex listing standards currently
in effect. The Board of Directors has determined that Mr. Manney is an audit
committee financial expert.
Compensation Committee. The Compensation Committee oversees Caraco's policies
and programs for the compensation of its officers. The Committee is to review
and approve the compensation of the officers at least annually and report its
actions to the Board of Directors. The Compensation Committee is also
responsible for the review and approval of compensation programs for officers
and employees, including fringe benefits and stock options and/or bonuses, as
may be from time to time recommended by management. Grants of options or other
awards under Caraco's 1999 Equity Participation Plan are made by the two
"non-employee directors" as defined by 16b-3 who are also "outside directors"
for purposes of Section 162(m) of the Internal Revenue Code. The Compensation
Committee held two meetings during 2003. The Compensation Committee currently
consists of Messrs. Brooks, Shanghvi and Ugeux. Mr. Shanghvi serves as the
Chairman. Under Amex regulations, controlled companies, such as Caraco, are not
required to have compensation committees consisting solely of independent
directors. Two of the three directors, Messrs. Brooks and Ugeux, are
independent.
Independent Committee. The Independent Committee was established to negotiate a
products agreement between Caraco and Sun Pharma Global, Inc. ("Sun Global"), a
wholly-owned subsidiary of Sun Pharma. In 2004, the Independent Committee
approved an amendment to such products agreement, permitting the products to be
selected by management based upon objective criteria developed by management and
approved by the Independent Committee. Management is required to provide to the
Independent Committee or to the independent directors following the selection of
products under the products agreement, a list of the products selected and a
certification that the products have satisfied the objective criteria. The
Independent Committee currently consists of Messrs. Brooks, Manney and Ugeux.
Mr. Ugeux serves as the Chairman.
7
NOMINATION OF DIRECTORS
The Board of Directors has not established a formal nominating committee as the
entire Board serves in this capacity. Under Amex regulations, a controlled
company is not required to establish a formal nominating committee. The Board of
Directors has not maintained a formal nominating committee because the Board of
Directors feels that it is not necessary since the size of the Board is
relatively small.
While the Board has not established a formal committee, in the past the Board
has asked one or two of its directors to meet with a number of candidates and to
make recommendations to the full Board. The Board may utilize a variety of
methods for identifying potential nominees, including considering potential
candidates who come to their attention through current officers, directors,
Caraco's professionals, professional search firms or other persons. Once a
potential nominee has been identified, the Board evaluates whether the nominee
has the appropriate skills and characteristics to become a director in light of
the then make-up of the Board of Directors. This assessment includes an
evaluation of the candidate's judgment and skills, such as experience at a
policy setting level, financial sophistication, leadership and objectivity. At a
minimum, the Board of Directors believes that all members of the Board should
have the highest professional and personal ethics and values. Messrs. Brooks,
Manney and Ugeux were appointed to the Board during the first quarter of 2004.
Messrs. Brooks and Manney were recommended to the Company by its outside
professionals, and Mr. Ugeux was recommended to the Company by the Chairman of
the Board of Caraco.
The Board of Directors considers stockholder nominations for candidates for
membership on the Board when properly submitted in accordance with Company's
bylaws. The Company's bylaws provide that nominations for the election of
directors may be made by any stockholder entitled to vote in the election of
directors if timely notice of such shareholder's intent has been given in
writing to the Secretary or an Assistant Secretary of the Company. To be timely,
a shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 120 calendar days
before the date of the Company's proxy statement is released to shareholders in
connection with the previous year's annual meeting. Each such notice shall set
forth (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a shareholder of record of stock of the Company entitled
to vote for the election of directors on the date of such notice and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or understandings
between the shareholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholders; (d) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended
8
to be nominated, by the Board of Directors; and (e) the consent that each
nominee to serve as a director of the Company is so elected.
REPORT OF THE AUDIT COMMITTEE
Management is primarily responsible for the financial statements and the
reporting process. The independent auditors are responsible for performing an
audit of Caraco's financial statements in accordance with generally accepted
auditing standards and for expressing an opinion on those financial statements
based on their audit. The Audit Committee reviews these processes on behalf of
the Board of Directors. In this context, the Audit Committee has reviewed and
discussed the audited financial statements contained in the 2003 Annual Report
on Form 10-KSB with Caraco's management and its independent auditors.
The Audit Committee has discussed with the independent auditors the matters
required to be discussed by the Statement on Auditing Standards No. 61
(Communication with Audit Committees), as amended.
The Audit Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as amended, and has discussed
with the independent auditors their independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in Caraco's Annual Report on Form 10-KSB for the year ended December
31, 2003 filed with the Securities and Exchange Commission.
The Audit Committee
William C. Brooks (Chairman)
Timothy S. Manney
Georges Ugeux
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics (the "Code")
applicable to its directors, officers and employees. A copy of the Code is
available at no charge by contacting the Human Resources Manager, Michael Perry,
at 1150 Elijah McCoy Drive, Detroit, MI 48202, or by telephone: (313) 871-8400
or by email: mperry@caraco.com.
9
COMPENSATION OF DIRECTORS
Directors who are employees of Caraco or who are directors and/or employees of
Sun Pharma and its affiliates do not receive additional compensation for their
service on the Board of Directors and its Committees. During 2003, each
non-employee director of Caraco received 1000 shares of common stock of Caraco
for each Board of Directors or Committee meeting in which he or she
participated. Non-employee directors were also reimbursed for out-of-pocket
expenses incurred in connection with attending Board and Committee meetings. In
January 2004, the Board of Directors changed the compensation of the
non-employee directors to provide that each non-employee director shall receive
an annual retainer of $12,000, a fee of $1,500 for each attended Board and
Committee meeting (with $500 extra for the chairman of the Committee), a one
time grant of 3,000 stock options upon initial election and an annual grant of
1,500 stock options on each anniversary date of election. No additional
Committee fees are paid if the Committee meets on the same day as the Board
meets.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The SEC requires that Caraco provide information about any shareholder who
beneficially owns more than 5% of Caraco's common stock. The following table
provides the required information, as of April 26, 2004, about the shareholders
(who are not officers or directors) known to Caraco to be the beneficial owner
of more than 5% of Caraco's common stock. Caraco relied solely on information
furnished by its transfer agent and Schedule 13Ds.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP AS OF APRIL 26, 2004
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
----------------------------------------------------------------------
Sun Pharma. 16,868,680(1) 63.1%
SPARC
Akota Road, Akota
Vadodara, 390 020 India
------------------
(1) Sun Pharma directly owns 11,834,957 shares of common stock of Caraco
and beneficially owns 3,354,657 shares registered in the name of Sun
Global, whose address is Akara Building, 24 DeCastro Street, Wickhams
Clay 1 Road, Town Tartola, British Virgin Islands. Sun Pharma also
beneficially owns 1,679,066 currently exercisable stock options. See
footnote 2 under "Security Ownership of Management and Directors."
Pursuant to a stock purchase agreement and various option agreements
dated January 18, 2004, between Sun Pharma and Jay F. Joliat and his
affiliates, Sun Pharma acquired on February 4, 2004 and on January 30,
2004, 1,900,000 shares of common stock and rights to acquire options
for 1,329,066 shares of common stock, respectively. Pursuant to stock
purchase agreements dated as of January 20, 2004 between Sun Pharma and
David A. Hagelstein and his affiliates, Sun Pharma acquired on February
4, 2004, 1,052,291 shares of common stock and rights to acquire options
for 350,000 shares of
10
common stock. Mr. Joliat and Mr. Hagelstein are former directors of
Caraco. In addition, on February 20, 2004, Sun Pharma acquired 500,000
shares of common stock from a single shareholder. The shares were
acquired for $9.00 per share and the rights to the options were
acquired for $9.00 less the exercise price of each option. The
aggregate purchase price was approximately $42,815,000. Sun Pharma has
disclosed that the source of the consideration for the purchase of the
shares was from internal funds.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table contains information, as of April 26, 2004, about the number
of shares of Caraco's common stock beneficially owned by incumbent directors,
nominees and the executive officers named in the Summary Compensation Table
presented in this Proxy Statement and by all current directors, nominees and
executive officers as a group. The number of shares of common stock beneficially
owned by each individual includes shares of common stock which the individual
can acquire by June 26, 2004 through the exercise of any stock option or other
right. Unless indicated otherwise, each individual has sole investment and
voting power (or shares those powers with his or her spouse) with respect to the
shares of common stock listed in the table.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percentage of Class
------------------------ -------------------- -------------------
Jitendra N. Doshi(1) 52,000(2) *
Dilip S. Shanghvi(3) 0(4) *
Robert Kurkiewicz(1) 8,013(5) *
William C. Brooks(6) 0(7) *
Sailesh T. Desai(3) 0(4) *
Timothy S. Manney (8) 0(7) *
Georges Ugeux(9) 0(7) *
Sudhir Valia(3) 0(4) *
Narendra N. Borkar(10) 250,100 1.0%
All current executive officers
and directors as a group
(8 persons) 60,013 *
---------------------
* Less than 1.0% of the outstanding shares
11
(1) The mailing address of each of these holders is 1150 Elijah McCoy
Drive, Detroit, Michigan 48202.
(2) Includes stock options that are currently exercisable to purchase
50,000 shares of common stock.
(3) The mailing address of S. Desai, D. Shanghvi and S. Valia
is Sun Pharmaceutical Industries Limited, SPARC, Akota Road, Akota,
Vadodara - 390 020, India.
(4) Excludes 16,868,680 shares of common stock beneficially owned by Sun
Pharma and its affiliates. (See footnote 1 under "Security Ownership of
Certain Beneficial Owners" and "Transactions of Directors, Executive
Officers and Certain Beneficial Holders of Caraco.") Messrs. Desai,
Shanghvi and Valia are directors of, and Mr. Shanghvi, together with
his associate companies, is also the majority shareholder of, Sun
Pharma, and, therefore, may be deemed to share investment control over
the shares of common stock held by Sun Pharma and its affiliates. Each
of Messrs. Desai, Shanghvi and Valia disclaims beneficial ownership of
the shares of common stock beneficially owned by Sun Pharma and its
affiliates.
(5) Includes stock options that are currently exercisable to purchase 6,000
shares of common stock.
(6) Mr. Brooks' mailing address is 1771 Seminole, Detroit, MI 48214.
(7) Granted 3,000 stock options at time of initial election as director,
none of which are currently exercisable. See "Compensation of
Directors."
(8) Mr. Manney's mailing address is c/o Synova, Inc., 50 West Big Beaver,
Suite 460, Troy, MI 48084.
(9) Mr. Ugeux's mailing address is c/o Galileo Global Advisors, One
Rockefeller Center, New York, New York, 10020.
(10) Resigned as CEO and director in October 2003.
12
EQUITY COMPENSATION PLAN INFORMATION
12-31-03
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under equity
be issued upon exercise exercise price of compensation plans
of outstanding options, outstanding options, (excluding securities
Plan category warrants and rights. warrants and rights. reflected in column (a))
-----------------------------------------------------------------------------------------------------------
(a) (b) (c)
-----------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 260,200 $1.01 2,675,000
----------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security
holders 1,876,666 $2.17 --
-----------------------------------------------------------------------------------------------------------
Total 2,136,866 $2.03 2,675,000
-----------------------------------------------------------------------------------------------------------
The equity compensation plan approved by security holders consists of the 1999
Equity Participation Plan. The Company's 1993 Stock Option Plan terminated in
2002 and no options remain outstanding as of December 31, 2003. Options under
the 1999 Plan were generally granted as incentive stock options to employees
(241,000) and as non-qualified stock options to former directors and consultants
(28,200). See Note 1 for a description of 1,679,066 non-qualified stock options
transferred by two former directors to Sun Pharma. The original grants of these
options were not approved by security holders. The 1,679,066 stock options are
all exercisable at exercise prices ranging from $0.68 to $3.50.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that Caraco's
directors, executive officers and persons who own more than ten percent of a
registered class of Caraco's equity securities file reports of stock ownership
and any subsequent changes in stock ownership with the SEC not later than
specified deadlines. To Caraco's knowledge, based solely on a review of the
copies of such reports furnished to Caraco, all directors, executive officers
and persons who own more than ten percent of Caraco's equity securities complied
with applicable Section 16(a) filing requirements, except as follows: Narendra
N. Borkar a former executive officer and director of Caraco, filed a late report
with respect to a sale of shares, David A. Hagelstein, a former director of
Caraco, filed one late report with respect to shares acquired for service on the
Board and its Committees; Dr. Phyllis Harrison-Ross, a former director of
Caraco, filed two late reports with respect to shares acquired for service on
the Board and with respect to the exercise of an option, and Jay F. Joliat, a
former director of Caraco, filed a late report with respect to shares acquired
for service on the Board and its Committees.
13
TRANSACTIONS OF DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN
BENEFICIAL HOLDERS OF CARACO
The following discloses transactions during 2003, 2002 and 2001 and proposed
transactions between Caraco and several of the incumbent directors, executive
officers and security holders who beneficially hold in excess of five percent of
our outstanding shares:
On November 21, 2002, we entered into a products agreement with Sun Global.
Under the agreement, which was approved by our independent directors, Sun Global
has agreed to provide us with 25 new generic drugs over a 5-year period. In
exchange for each new generic drug transferred to us by Sun Global which passes
a bioequivalency test, we shall issue Sun Global 544,000 shares of a newly
created preferred stock
During 2003, Sun Global earned 544,000 preferred shares for one product transfer
as provided under the November 2002 products agreement. During 2002, we issued
to Sun Pharma 1,632,000 shares of our common stock for three product transfers
under the former 1997 products agreement with Sun Pharma. During 2001, there
were no product transfers.
During 2003, 2002 and 2001, we borrowed approximately $0.6 million, $1.4 million
and $2.45 million, respectively, from Sun Pharma, and in 2003 we repaid the
entire balance of all of our outstanding loans from Sun Pharma in the amount of
approximately $10 million. Prior to April 1, 2001, the interest rate was 10%;
thereafter it was 8%.
During 2003, 2002 and 2001, we purchased approximately $10.3 million , $2.4
million and $1.1 million, respectively, of our materials from Sun Pharma. We
intend to continue to purchase raw materials from Sun Pharma in 2004.
During 2003, 2002 and 2001, Caraco purchased at Sun Pharma's cost, approximately
$.51 million, $.31 million and $.26 million, respectively, of equipment from Sun
Pharma. We intend to continue to purchase equipment from Sun Pharma in 2004.
We entered into two non-cancelable operating leases during 2000 with Sun Pharma
to lease production machinery. The leases each require rental payments of $4,245
and expire during 2005.
On December 20, 2001, the Board of Directors granted to Jitendra N. Doshi a
qualified stock option for 125,000 shares of Caraco's common stock at an
exercise price of $1.25 per share. The options are exercisable at the rate of
20% per year commencing one year from the date of grant and may be exercised
until December 20, 2007.
14
On June 4, 2001, the Board of Directors granted to Robert Kurkiewicz a qualified
stock option for 10,000 shares of Caraco's common stock at an exercise price of
$0.80 per share. The options are exercisable at the rate of 20% per year
commencing one year from the date of grant and may be exercised until June 4,
2007.
EXECUTIVE OFFICERS
The following table provides information about Caraco's executive officer who is
not a director.
Executive
Officer
Name Age Five-Year Business Experience Since
---- --- ----------------------------- ---------
Robert Kurkiewicz 53 Commenced employment with Caraco as its Vice President -- 1993
Quality Assurance in November 1993 and was promoted to
Sr. Vice President - Technical, October 1998.
REPORT ON EXECUTIVE COMPENSATION
The Company currently has only two executive officers, its CEO (since October
2003), who is also the CFO, and its Senior Vice President - Technical. Each has
entered into four year employment agreements with the Company through December
31, 2006 and December 31, 2007, respectively, and which automatically renew for
one-year periods thereafter. A former CEO resigned in October 2003 (see
"Employment Agreements" below).
The key elements of the executives' compensation is a base salary, which may be
adjusted annually, based on performance and other factors deemed reasonable by
the Company, a bonus and stock options. In October 2003, the then members of the
Compensation Committee increased the base salary of Mr. Doshi and Mr. Kurkiewicz
as a result of the Company's turnaround (see "Employment Agreements" below). The
Company has not had a history of paying bonuses to its executive officers,
however, the Compensation Committee is expected to meet in June 2004 to consider
whether or not to pay bonuses to executive officers for 2003.
Stock options serve as a long-term incentive plan for executive officers in that
the grant of stock options is intended to align the executive officers long-term
interests with those of the shareholders. Stock options provide Caraco's
executive officers with the opportunity to purchase and maintain an equity
interest in Caraco and to share in the appreciation of the value of the stock.
The Company believes that stock options directly motivate an executive to
maximize long-term stockholder value. The option grants also utilize vesting
periods in order to encourage key employees to continue in the employ of Caraco.
15
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows, as to the Chief Executive Officer, the former Chief
Executive Officer and as to the other executive officer, whose salary exceeded
$100,000 during the last fiscal year, information concerning all compensation
paid for services to Caraco during the last three fiscal years:
Annual Compensation Long Term Compensation
Awards Payouts
Securities All Other
Other Annual Restricted Underlying LTP Compen-
Name and Principal Year Salary Bonus Compensation Stock Awards Options Payments sation
Position ($) ($) ($) ($) (#) ($) ($)
Jitendra N. Doshi 2003 134,758 (1) 0 0 0 0 4,560(2)
Chief Executive Officer 2002 109,769 0 0 0 0 0 4,560(2)
2001 71,817 0 0 0 125,000(3) 0 3,040(2)
Robert Kurkiewicz 2003 134,208 (1) 0 0 0 0 4,560(2)
Sr. Vice President 2002 127,492 0 0 0 0 0 4,560(2)
Technical 2001 122,400 0 0 0 10,000(4) 0 $ 4,560(2)
Narendra N. Borkar(5) 2003 113,240 0 0 0 0 0 129,900(6)
2002 128,385 0 0 0 0 0 9,960(7)
2001 120,000 0 0 0 0 0 9,960(7)
(1) The Compensation Committee is expected to meet in June 2004 to
determine bonuses, if any, for 2003.
(2) $380.00 per month was given for car allowance. Mr. Doshi commenced
employment with Caraco in April 2001.
(3) A stock option of 125,000 was awarded to Mr. Doshi in December 2001.
See "Transactions of Directors, Executive Officers and Certain
Beneficial Owners of Caraco."
(4) A stock option of 10,000 was awarded to Mr. Kurkiewicz in June 2001.
See "Transactions of Directors, Executive Officers and Certain
Beneficial Owners of Caraco."
(5) Former CEO; resigned October 2003.
(6) Includes severance of $121,080, $43,140 of which was paid in 2003, and
$77,940 of which was paid in 2004. Also includes $5,400 contributed to
his retirement account and $380 per month car allowance for nine
months.
(7) $5,400 was contributed to Mr. Borkar for his retirement account and
$380.00 per month was given for car allowance.
16
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted in 2003 to the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information for the named executive officers with
regard to the aggregate stock options exercised during the year ended December
31, 2003, and the stock options held as of December 31, 2003.
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money Options at FY-End
on Realized Options at FY-End (#) ($) (2)
Name Exercise ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
Jitendra N. Doshi 0 0 50,000 / 75,000 $ 311,500 / 467,250
Robert Kurkiewicz 65,000 $ 198,900 6,000 / 4,000 $ 37,380 / 24,920
Narendra N. Borkar 350,000 $1,895,000 0/0 0/0
(1) The value is based on the difference between the exercise prices and
the closing sales prices on the dates of exercise.
(2) The value is based on the difference between the exercise prices and
the closing sale price of Caraco's common stock on December 31, 2003.
EMPLOYMENT AGREEMENTS
Jitendra N. Doshi, the Chief Executive Officer of Caraco, entered into an
employment agreement with Caraco dated August 30, 2002 in his capacity as Chief
Operating Officer. The employment agreement provides Mr. Doshi with a salary at
the rate of $129,800 annually and a car allowance of $380.00 per month. The
employment agreement is for a term of five (5) years, commencing on January 1,
2002 and ending on December 31, 2006. The Agreement automatically renews for
successive one-year periods unless terminated by Caraco or Mr. Doshi upon ninety
(90) days notice. In the event Caraco terminates Mr. Doshi without cause, he
will receive base salary payments and his premium payments for health insurance
benefits for six (6) months from the date of termination. In addition, any stock
options that would become available for exercise at the end of the year during
which such termination occurred shall immediately vest. In October 2003, Mr.
Doshi became the Chief Executive Officer of Caraco and the Compensation
Committee increased his salary to $150,000 annually.
Robert Kurkiewicz, the Senior Vice President - Technical, entered into a
five-year employment agreement on November 22, 1993 which was amended on January
1, 1999 to extend the term until January 1, 2003 and which was further amended
on August 30, 2002 to extend the term
17
until December 31, 2007. The agreement, as amended, provides Mr. Kurkiewicz'
with a salary of $129,800 per year and provides for a car allowance of $380.00
per month. The agreement provides that at the end of the term, it is renewable
for successive one-year terms. In the event that Caraco terminates the agreement
without cause, Mr. Kurkiewicz is entitled to receive monthly base salary
payments and his premium payments for health insurance benefits for six (6)
months from the date of termination. In addition, any stock options that would
become available for exercise at the end of the year during which such
termination occurred shall immediately vest. In October 2003, the Compensation
Committee increased his salary to $136,500 annually.
Narendra N. Borkar, the former Chief Executive Officer of Caraco, entered into
an employment agreement dated September 22, 1998. The employment agreement
provided Mr. Borkar with a salary at the rate of $120,000 annually, a cash bonus
in an amount up to 25% of the base salary contingent upon achievement of
corporate objectives, a stock bonus of 50,000 shares of Caraco common stock, a
stock option of 150,000 shares, at an exercise price of $.66 per share and a car
allowance of $380.00 per month. On June 10, 2002, Mr. Borkar's salary was
increased to $156,000 annually. In connection with his resignation, pursuant to
an agreement dated October 2, 2003, the Company agreed to pay Mr. Borkar, as a
retirement payment, his base salary through March 31, 2004, and certain health
and other benefits, and agreed to accelerate the vesting of 40,000 of his stock
options.
CHANGE IN CONTROL ARRANGEMENTS
Under our 1999 Equity Participation Plan, options granted under that plan will
become fully exercisable following certain changes in control of our company,
such as:
- A person, other than Sun Pharma, becomes the owner of a
majority of the outstanding shares of our company;
- A public announcement is made of a tender or exchange offer by
any person, other than Sun Pharma, for 50% or more of the
outstanding shares of our company;
- The shareholders of our company approve a merger or
consolidation with any other corporation or entity, unless,
following the merger, the shares outstanding immediately
before the merger continue to represent a majority of the
outstanding shares of the surviving entity immediately
following the merger;
- Where shareholders approve a plan of complete liquidation of
our company or an agreement for the sale of disposition by the
company of all or substantially all of the assets of our
company; or
- Certain changes in the composition of our Board of Directors.
18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
As noted, Mr. Dilip S. Shanghvi is the Chairman of our Compensation Committee
and the Chairman of the Board of Caraco, a non-executive position. Mr. Shanghvi
is also the Managing Director of Sun Pharma. As disclosed above, Sun Pharma
engages in a number of transactions with Caraco. See, "Transactions with
Directors, Executive Officers and Certain Beneficial Holders of Caraco."
PERFORMANCE GRAPH
Set forth below is a line graph comparing the five-year cumulative total return
among Caraco based on the market price of its common stock, the Amex Composite
Index (U.S.) and the Amex Health Products and Services Index. The graph assumes
$100 invested on December 31, 1998 in Caraco's common stock, the Amex Composite
Index (U.S.) and the Amex Health Products and Services Index. The total return
assumes the reinvestment of dividends.
HEALTH
PRODUCTS
&
DATE CARACO AMEX US Services
Dec-98 100 100 100
Dec-99 128 132 110
Dec-00 37 122 132
Dec-01 215 114 124
Dec-02 494 93 86
Dec-03 1,385 126 150
19
RELATIONSHIP WITH INDEPENDENT AUDITORS
Rehmann Robson audited the financial statements of Caraco for the year ended
December 31, 2003. The Audit Committee is in the process of evaluating Caraco's
auditing requirements for 2004 and, accordingly, has not yet selected
independent accountants to audit Caraco's financial statements for 2004. A
representative of Rehmann Robson is expected to be present at the Annual Meeting
with the opportunity to make a statement if such representative desires to do so
and is expected to be available to respond to appropriate questions.
AUDIT AND NON-AUDIT FEES
Aggregate fees for professional services rendered for Caraco by Rehmann Robson
as of the years ended December 31, 2003 and 2002 are set forth below. The
aggregate fees included in the Audit category are fees billed for the fiscal
years for the audit of Caraco's annual financial statements and review of
quarterly financial statements and statutory and regulatory filings or
engagements. The aggregate fees included in each of the other categories are
fees billed in the fiscal years.
2003 2002
---- ----
AUDIT FEES $ 79,500 $ 70,200
AUDIT-RELATED FEES $ 29,875 $ 39,015
TAX FEES $ 15,450 $ 8,650
ALL OTHER FEES $ 0 $ 0
TOTAL $124,825 $117,865
Audit Fees for the years ended December 31, 2003 and 2002 were for
professional services rendered for the audits of the financial statements of
Caraco, quarterly review of the financial statements included in Caraco's
Quarterly Reports on Form 10-Q, or services that are normally provided by
Rehmann Robson in connection with statutory and regulatory filings or
engagements for such years.
Audit-Related Fees for the years ended December 31, 2003 and 2002 were
for assurance and related services by Rehmann Robson that are reasonably related
to the performance of the audit or review of Caraco's financial statements.
20
Tax Fees for the years ended December 31, 2003 and 2002 were for
professional services rendered by Rehmann Robson for services related to tax
compliance, tax advice and tax planning.
None of the services described above was approved by the Audit
Committee under the de minimus exception provided by Rule 2-01(c)(7)(i)(C) under
Regulation S-X.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE
NON-AUDIT SERVICES OF INDEPENDENT AUDITORS
Pursuant to its charter, the Audit Committee pre-approves all audit and
non-audit services provided by the independent auditors prior to the engagement
of the independent auditors with respect to such services.
SHAREHOLDERS OF RECORD AS OF APRIL 26, 2004 ARE ENTITLED TO RECEIVE A COPY
WITHOUT CHARGE OF THE COMPANY'S 2003 ANNUAL REPORT TO THE SEC ON FORM 10-K.
SHAREHOLDERS WHO WISH TO RECEIVE A COPY OF THIS REPORT SHOULD WRITE TO JITENDRA
N. DOSHI, CHIEF EXECUTIVE OFFICER, CARACO PHARMACEUTICAL LABORATORIES, LTD, 1150
ELIJAH MCCOY DRIVE, DETROIT, MICHIGAN 48202.
Jitendra N. Doshi
Chief Executive Officer
April 29, 2004
21
APPENDIX A
CARACO PHARMACEUTICAL LABORATORIES, LTD.
AUDIT COMMITTEE
CHARTER
(APPROVED BY THE BOARD OF DIRECTORS ON APRIL 26, 2004)
PURPOSE
The Committee is appointed by the Board of Directors to assist the
Board in its oversight function by monitoring the following:
1. integrity of the Company's financial statements,
2. independent auditors' qualifications and independence,
3. performance of the Company's corporate audit function and
independent auditors, and
4. compliance by the Company with legal and regulatory
requirements.
The Committee's responsibilities are principally of an oversight
nature. It is not the responsibility of the Committee to plan or conduct audits
or to determine that the Company's financial statements are complete and
accurate or are in compliance with generally accepted accounting principles.
Management is responsible for the preparation, presentation, and integrity of
the Company's financial statements, including ensuring that the financial
statements are accurate, complete, and stated in accordance with GAAP and,
together with the other financial information included in the Company's public
disclosures, fairly present the financial condition, results of operations, and
cash flows of the Company. Management is also responsible for the Company's
financial reporting process, accounting policies, internal accounting controls
and disclosure controls and procedures. The independent auditors are responsible
for planning and conducting an audit of the Company's annual financial
statements, expressing an opinion as to the conformity of such annual financial
statements with GAAP and reviewing the Company's quarterly financial statements.
The Audit Committee and the other Committees of the Board, as
applicable, will coordinate their compliance and risk oversight efforts to the
extent necessary or appropriate to ensure the complete and proper exchange of
information.
MEMBERSHIP
The Committee shall be comprised of at least three Directors. Members
shall be appointed and may be removed by the Board.
The Committee shall meet the independence, financial literacy and
expertise requirements of the American Stock Exchange, the requirements of
Section 10A(m)(3) of the
A-1
Securities Exchange Act of 1934 and the rules and regulations of the Securities
and Exchange Commission ("SEC").
Committee members shall not simultaneously serve on the audit
committees of more than three other public companies.
MEETINGS AND OPERATION
The Committee shall meet at least quarterly, and more frequently as it
may determine advisable in light of its responsibilities as set forth in this
Charter. The Committee Chair sets the agenda for each meeting and determines the
length and frequency of meetings.
The Committee shall meet periodically, in separate executive sessions
with management, the internal auditors and the independent auditor. The
Committee may request any officer or employee of the Company, outside counsel or
the independent auditors to attend a meeting of the Committee or to meet with
any members of, or consultants to, the Committee.
The Committee shall determine how to best operate, including whether to
delegate any responsibilities to subcommittees.
The Committee shall operate in full compliance with the American Stock
Exchange requirements for audit committees and other applicable laws and
regulations.
INDEPENDENT AUDITOR
The independent auditor shall report directly to the Committee. The
Committee has the sole authority and responsibility to select, appoint,
evaluate, retain, and, where appropriate, replace the independent auditor. The
Committee shall be directly responsible for the compensation and oversight of
the work of the independent auditor (including resolution of disagreements
between management and the independent auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work.
MEMBER COMPENSATION
No Committee member shall accept, directly or indirectly, any
consulting, advisory or other compensatory fees from the Company, except for the
member's fees for services as a Director and member of the Committee and any
other Committees of the Board.
RESPONSIBILITIES
In carrying out its purposes, the Committee's policies and procedures
should remain flexible, so that it may be in a position to best react or respond
to changing circumstances or conditions. In carrying out its purposes, the
following should be considered within the responsibilities and authority of the
Committee:
1. Select Independent Auditors. Select the independent auditors
annually.
A-2
2. Matters Concerning the Independence of Independent Auditors.
Ensure that the Committee receives from the independent
auditors the written disclosures and letter required by
Independent Standards Board Standard No. 1 (See attached
summary) delineating all relationships between the independent
auditors and the Company; the Committee shall discuss with the
independent auditors their independence, including any
disclosed relationships or services that may impact the
auditors' objectivity and independence. If deemed appropriate
by the Committee, the Committee may recommend that the Board
of Directors take appropriate action in response to the
independent auditors' report to satisfy itself of their
independence.
Confirm with the independent auditors that the independent
auditors are in compliance with the partner rotation
requirements established by the SEC.
Set policies for the Company's hiring of employees or former
employees of the independent auditor.
Preapprove permitted non-audit services and all audit, review
or attest engagements required under the securities laws to be
rendered by the independent auditors (including the fees and
terms thereof). Alternatively, the Company may enter into
engagements to render such services pursuant to pre-approval
policies and procedures established by the Audit Committee;
provided, that such policies and procedures are detailed as to
the particular service, the Audit Committee is informed of
each service and such policies and procedures do not include
the delegation of Audit Committee responsibilities under the
Exchange Act to management. Moreover, the pre-approval
requirement for permissible non-audit services shall be waived
under certain circumstances described in Section 10A of the
Exchange Act.
3. Review Quality Control Process of Independent Auditor. Obtain
and review a report from the independent auditor at least
annually regarding (a) the independent auditors' internal
quality-control procedures, (b) any material issues raised by
the most recent internal quality-control review, or peer
review, of the firm, or by any inquiry or investigation by
governmental or professional authorities within the preceding
five years respecting one or more independent audits carried
out by the firm, (c) any steps taken to deal with any such
issues, and (d) all relationships between the independent
auditor and the Company. Present the conclusions of its review
with respect to the independent auditors to the Board.
4. Review Audit Plan. Review with the independent auditors their
plans for, and the scope of, their annual audit.
5. Conduct of Audit. Discuss with the independent auditors the
matters required to be discussed by Statement on Auditing
Standard No. 61 (see attached summary) relating to the conduct
of the audit, including any difficulties encountered in the
course of the audit work and management's response, any
restrictions on the
A-3
scope of activities or access to requested information, and
any significant disagreements with management.
6. Review Audit Results. Review with the independent auditors the
report of their annual audit, or proposed report of their
annual audit, the accompanying management letter, if any, and
the reports of their reviews of the Company's interim
financial statements conducted in accordance with Statement on
Auditing Standards No. 100.
7. Review Annual Financial Statements. Review and discuss with
management and the independent auditors the audited financial
statements and the disclosures to be made in management's
discussion and analysis. Based on the foregoing, recommend to
the Board whether the audited financial statements should be
included in the Form 10-K.
8. Review Quarterly Financial Results. Review and discuss with
management the Company's earnings releases (paying particular
attention to any use of "pro-forma" or "adjusted" non-GAAP
information), as well as financial information and earnings
guidance provided to analysts and rating agencies (this may be
done generally and need not occur in advance of each earnings
release or each instance in which the Company may provide
earnings guidance).
9. Review Quarterly Financial Statements. Review and discuss with
management and the independent auditor the quarterly financial
statements and the disclosures to be made in the MD&A prior to
filing the 10-Q. Discuss with the independent auditors their
review of the quarterly financial statements.
10. Financial Reporting Issues and Judgments: Related Matters.
Discuss with management and the independent auditor
significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial
statements, including any significant changes in the Company's
selection or application of accounting principles, any major
issues as to the adequacy of the Company's internal controls
and any special steps adopted in light of material control
deficiencies.
Review and discuss reports from the independent auditors on:
(a) All critical accounting policies and practices to be
used.
(b) All alternative treatments of financial information
within generally accepted accounting principles that
have been discussed with management, ramifications of
the use of such alternative disclosures and
treatments, and the treatment preferred by the
independent auditor.
(c) Other material written communications between the
independent auditor and management, such as any
management letter or schedule of unadjusted
differences.
A-4
Discuss with management and the independent auditor the effect
of regulatory and accounting initiatives as well as
off-balance sheet structures on the Company's financial
statements.
11. Review Internal Audit Program. To the extent that the Company
utilizes internal auditors, the internal auditors shall report
to the Committee and the Committee shall review and discuss
with the internal auditors, the internal audit function, the
internal auditors' budget, staffing, and reporting
obligations, the proposed audit plan for the coming year, the
coordination of that proposed audit plan with the Company's
independent auditors, the results of the internal audit and a
specific review of any significant issues.
12. Complaints Regarding Accounting and Auditing Matters.
Establish procedures for the receipt, retention and treatment
of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters, and the
confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
13. Review Systems of Internal Accounting Controls. Review with
management, the senior corporate auditing manager and the
independent auditors the adequacy of the Company's internal
accounting controls that could significantly affect the
Company's financial statements.
Review disclosures made to Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and
Form 10-Q about any significant deficiencies in the design or
operation of internal controls or material weaknesses therein
and any fraud involving management or other employees who have
a significant role in the Company's internal controls.
14. Securities Exchange Act of 1934. Obtain assurance from the
independent auditor that Section 10A(b) of the Securities
Exchange Act of 1934 (see attached summary) has not been
implicated
15. Legal Compliance and Risk Management Matters.
- At least annually, the Committee will meet with the
management to review compliance with laws and
regulations, including material reports or inquiries
received from governmental agencies and material
litigation.
- Review with the Company's counsel legal matters that
may have a material impact on the financial
statements and legal and compliance matters that
involve financial reporting or SEC compliance.
- Discuss with management the Company's major financial
risk exposures and the steps management has taken to
monitor and control such exposures, including the
Company's risk assessment and risk management
policies.
A-5
16. Prepare Proxy Statement Report. Prepare the report of the
Committee required by the rules of the SEC to be included in
the Company's annual proxy statement.
17. Code of Business Conduct and Ethics. Confirm with management
on at least an annual basis that the Company's Code of
Business Conduct and Ethics has been communicated by the
Company to all directors, officers and employees with a
direction that all such persons certify that they have read
and understood and will comply with the Code of Business
Conduct and Ethics.
18. Review Other Matters. Review such other matters in relation to
the accounting, auditing, financial reporting and related
compliance practices and procedures of the Company as the
Committee may, in its own discretion, deem desirable in
connection with the review functions described above.
19. Board Reports. Regularly report its activities to the Board in
such manner and at such times as it deems appropriate. The
Committee shall review with the Board any issues that arise
with respect to the quality or integrity of the Company's
financial statements, compliance with legal or regulatory
requirements, the performance and independence of the
independent auditors or the performance of the corporate
auditors.
20. Review Committee Performance. Annually review its own
performance.
21. Review Charter. Review and reassess the adequacy of this
Charter annually and submit it to the Board for approval.
22. Related Party Transactions. Unless reviewed by a comparable
body of the Board of Directors, review and provide oversight
of all related party transactions.
ADVISORS
The Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal,
accounting or other advisors. The Committee may also utilize
the services of the Company's regular legal counsel and other
advisors to the Company.
FUNDING FOR INDEPENDENT AUDITORS AND ADVISORS
The Company shall provide for appropriate funding, as
determined by the Committee, for payment of:
- compensation to the independent auditor for the
purpose of rendering or issuing an audit report and
for any other services approved by the Committee,
- compensation for any other advisors retained by the
Committee, and
A-6
- ordinary administrative expenses that are necessary
or appropriate in carrying out the Committee's
duties.
A-7
AUDIT COMMITTEE CHARTER REFERENCE SHEET:
1. Independence Standards Board Standard No. 1
Under ISB Standard No. 1, at least annually, an auditor must
(1) disclose to the audit committee, in writing, all
relationships between the auditor and its related entities
that in the auditors' professional judgment may reasonably be
thought to bear on independence, (2) confirm in the letter
that, in its professional judgment, it is independent of the
company, and (3) discuss the auditors' independence with the
audit committee.
2. Statement on Accounting Standard No. 61
SAS No. 61 requires an independent auditor to communicate to
the audit committee matters related to the conduct of the
audit such as the selection of and changes in significant
accounting policies, the methods used to account for
significant unusual transactions, the effect of significant
accounting policies in controversial or emerging areas, the
process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditors'
conclusions regarding the reasonableness of those estimates,
significant adjustments arising from the audit, and
disagreements with management over the application of
accounting principles, the basis for management's accounting
estimates and the disclosures in the financial statements.
3. Statement on Accounting Standards No. 100
SAS No. 100 requires an independent auditor to be satisfied
that any significant matters identified as a result of interim
review procedures have been brought to the attention of the
audit committee, either by management or the auditor. If it is
not possible for the auditor to make such communications prior
to the filing, they should be made as soon as practicable
thereafter.
4. Section 10A(b) of Securities Exchange Act of 1934
Section 10A(b) of the Securities Exchange Act of 1934, which
is part of the Private Securities Litigation Reform Act of
1995, requires an independent auditor to inform management of,
and assure that the audit committee is adequately informed
with respect to, illegal acts that have come to the attention
of the auditors in the course of their audits.
A-8
CARACO PHARMACEUTICAL LABORATORIES, LTD.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CARACO PHARMACEUTICAL
LABORATORIES, LTD.
The undersigned hereby appoints Robert Kurkiewicz and Michael Perry, or either
of them, each with power of substitution, to act as proxies for the undersigned,
to represent the undersigned at the Annual Meeting of Shareholders ("Annual
Meeting") of Caraco Pharmaceutical Laboratories, Ltd. ("Caraco") to be held at
The Hotel St. Regis, 3071 W. Grand Blvd., Detroit, Michigan 48202 on Monday,
June 7, 2004 at 10:00 a.m., Eastern Daylight Saving Time, and at any
adjournment(s) thereof, and to vote the number of shares the undersigned would
be entitled to vote if personally present on all matters coming before the
Annual Meeting, including the business identified on this Proxy and described in
the Notice of Annual Meeting of Shareholders and Proxy Statement dated April 29,
2004 ("2004 Proxy Statement").
This revocable Proxy, when properly executed, will be voted in the manner
directed by the undersigned shareholder. IF NO DIRECTION IS MADE ON AN EXECUTED
PROXY, THIS PROXY WILL BE VOTED BY THE PROXIES "FOR" THE ELECTION AS DIRECTORS
OF THE PERSONS NAMED IN PROPOSAL 1. Discretionary authority is conferred by this
Proxy with respect to certain matters as described in the 2004 Proxy Statement.
The undersigned acknowledges receipt of the 2004 Proxy Statement.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
PLEASE VOTE, DATE, AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE
COMMENTS:
ANNUAL MEETING OF SHAREHOLDERS OF
CARACO PHARMACEUTICAL LABORATORIES, LTD.
JUNE 7, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible
- Please detach along perforated line and mail in the envelope provided. -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES.
PLEASE SIGN, DATE AND RETURN THE ENVELOPE. PLEASE MARK IN BLUE OR
BLACK INK AS SHOWN HERE [X]
1. The election of three directors. 2. To transact such other
business as may properly come before the
Annual Meeting or any adjournment(s) or
continuation thereof.
NOMINEES:
[ ] FOR ALL NOMINEES
[ ] William C. Brooks Please be sure to sign and date this Proxy.
[ ] WITHHOLD AUTHORITY
FOR ALL NOMINEES [ ] Timothy S. Manney TO INCLUDE ANY COMMENTS, USE THE COMMENTS
BOX ON THE REVERSE SIDE OF THIS CARD.
[] FOR ALL EXCEPT [ ] Sudhir Valia
(See instructions below)
INSTRUCTIONS To withhold authority to vote for
any individual nominee(s), mark "FOR ALL EXCEPT"
and fill in the circle next to each nominee you
wish to withhold, as shown here: [ ]
To change the address on your account, please [ ]
check the box at right and indicate your new
address in the address space above. Please note
that changes to the registered name(s) on the
account may not be submitted via this method.
Signature of Shareholder_________ Date:__________ Signature of Shareholder___________ Date:_________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as an executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.