Form Of Sales Agent Agreement

Selling Agent Name Street City, State


Ladies and Gentlemen:


Caraco Pharmaceutical Laboratories Ltd. (the "Issuer" or "Company") hereby appoints _______________________________ as selling agent (the "Sales Agent" or "you") on a non-exclusive, best efforts basis, to sell up to _____________ shares of the Company as described below and hereby confirms its agreement (this "Agreement") with the Sales Agent as follows:


1. DESCRIPTION OF THE SHARES AND THE OFFERING. The Company proposes to issue and sell a minimum of 100,000 shares and a maximum of 4,365,000 shares (the "Shares") of its common stock, no par value ("Common Stock"), for a purchase price of $________ per share. The Shares and the terms of the offering are more fully described in the Company's Form SB-2 Registration Statement (Reg. No. 333-91968) (the "Registration Statement") filed with the United States Securities and Exchange Commission (the "Commission").


(a) The Shares will be sold by the Company on a best efforts basis, subject to availability. The Company reserves the right to withdraw, cancel or modify the offering hereby and to reject subscriptions, in whole or in part, for any reason. All subscription payments will be delivered into escrow for deposit in a non interest-bearing escrow account with Bank One Trust Company, N.A. as escrow agent until such time as 100,000 Shares have been offered and sold (the "Minimum Offering"). After the Minimum Offering has been sold, all subscription payments will be deposited directly with the Company.


(b) The offering will begin on the date that the Registration Statement is declared effective by the Commission and by the applicable state securities division of the state in which the Sales Agent was licensed and registered to sell securities. Unless collected funds sufficient to purchase at least the Minimum Offering of the Company's shares are received by the escrow agent from accepted subscribers within 90 days from the date of commencement of the offering (which may be extended by the Company for an additional 90 days), all purchase payments for such shares will be returned in full to subscribers, without interest or deduction. If the Minimum Offering is sold within the foregoing period, the Company's offering may continue until the remaining shares are sold or ___________, 2003, whichever occurs first. However, the Company may terminate the offering at any earlier time if it chooses to do so.


2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company represents and warrants to, and agrees with, the Sales Agent that:


(a) The Company has prepared the Registration Statement in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Rules and Regulations (the "Rules and Regulations") of the Commission thereunder and has filed the Registration Statement with the Commission. Copies of the Registration Statement, including any amendments thereto, the preliminary prospectuses (meeting


38 the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements, and schedules, as finally amended and revised, have heretofore been made available by the Company to the Sales Agent. The Registration Statement has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement.


(b) The Company is offering the Shares to be sold, subject to availability, through the best efforts of employees and directors of the Company and selling agents pursuant to the requirements of the Securities Act and the Rules and Regulations of the Commission thereunder.


(c) No action, suit, or proceeding for the purpose of preventing or suspending the use of the Prospectus has been initiated or, to the knowledge of the management of the Company, threatened by any governmental agency or body nor has any such agency or body notified the Company of any objections to the use of the Prospectus.


(d) As of the date hereof and at all times thereafter during the offering, neither the Prospectus nor any amendment or supplement thereto will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations and warranties shall not apply to information, if any, contained in or omitted from the Prospectus or any such amendment or supplement in reliance upon, and in conformity with, written information furnished to the Company by the Sales Agent specifically for use in the preparation thereof.


(e) The Company is duly organized and validly existing and in good standing under the laws of the State of Michigan and has full power and authority (corporate and other) to conduct its business as described in the Prospectus. The Company has all such power, authority, authorizations, approvals, orders, licenses, certificates, and permits necessary to enter into this Agreement, to carry out the provisions and conditions hereof, and to commence the offering. This Agreement has been duly and validly authorized, executed and delivered by the Company and is a valid and binding agreement and obligation of the Company.


(f) Except as contemplated in the Prospectus, after the respective dates as of which information is given in the Prospectus, the Company has not incurred any liabilities or obligations, direct or contingent, or entered into any transactions that are material to the Company, and there has not been any material change in the capital stock, short-term debt, or long-term debt of the Company, or any material adverse change, or, to the knowledge of the management of the Company, any development involving a prospective material adverse change in the condition (financial or other), net worth or results of operations of the Company.


(g) The Company has conducted its business so as to comply in all material respects with applicable statutes, rules, regulations, decisions, directives, and orders, and there is not pending or, to the knowledge of the management of the Company, threatened, any action, suit, or proceeding to which the Company is or may be a party, before or by any court or governmental agency or body, which might result in any material adverse change in the condition (financial or other), business, net worth, or results of operations of the Company or might materially and adversely affect the properties or assets thereof.


(h) The Registration Statement contains a list of agreements, instruments, or understandings to which the Company or its subsidiaries is a party or by which they or their properties may be bound and which may be material to the Company ("Material Agreements"). Except as set forth in the Registration Statement,


39 the Company is not in default in the performance or observance of any obligation, agreement, covenant, or condition contained in any Material Agreement, nor is the Company in violation of any term or provision of its Amended and Restated Articles of Incorporation or Bylaws. The execution and delivery of this Agreement and the incurrence of the obligations herein set forth will not conflict with, or constitute a breach of or default under, the Amended and Restated Articles of Incorporation or the Bylaws of the Company or any Material Agreement or any statute regulating the business of the Company, or any rule, regulation, decision, directive, or order of any court or governmental agency or body having jurisdiction over the Company or any of its activities or properties; and, except as expressly set forth herein and in the Prospectus, no consent, approval, authorization, or order of any court or governmental agency or body is required for the consummation of the transactions contemplated hereby.


(i) The Company's authorized and issued capital stock is stated in the Prospectus. The Shares being sold by the Company pursuant to this Agreement, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding and fully paid, and the Company's Common Stock conforms to all statements in relation thereto contained in the Prospectus.


3. ENGAGEMENT OF SALES AGENT; SALES AND DELIVERY OF THE SHARES. On the basis of the representations and warranties herein contained, and subject to the terms and conditions and convenants and agreements set forth herein, the parties hereto agree as follows:


(a) The Sales Agent will act as selling agent for the Company on a non-exclusive, best efforts basis to sell Shares for the account of the Company, subject to availability, at a price of _______ per Share, and the Sales Agent agrees to use its best efforts to effect such sales. However, the Sales Agent makes no commitment to purchase any of the Shares. The Sales Agent's engagement hereunder will terminate on the earlier of (a) ___________, or such later date not beyond ____________, 200___ (90 days), to which the Company may extend the offering; (b) the sale of all 4,365,000 of the Shares; (c) termination of the offering by the Company for any reason before the sale of all of the Shares; or (d) termination of the Sales Agent's engagement by the Company in accordance with the provisions of Section 10 hereof. The period from the Effective Date (as defined in Section 10(a)) to such termination of the Sales Agent's engagement shall be referred to as the "Offering Period."


(b) The Sales Agent will deliver a copy of the Prospectus and a subscription agreement in the form filed with the Registration Statement (the "Subscription Agreement") to each prospectus investor in accordance with the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (together, the "Exchange Act"), including Rule 15c2-8 thereunder.


(c) All subscribers will be instructed to execute a Subscription Agreement and to make their remittances payable to "Bank One Trust Company, N.A., Escrow Agent" during the Minimum Offering period and to "Caraco Pharmaceutical Laboratories Ltd." after the Minimum Offering has been reached and the escrow proceeds released to the Company, in accordance with the instructions contained in the Prospectus, the Subscription Agreement, and this Agreement. Upon receipt of a Subscription Agreement and subscription proceeds, the Sales Agent shall review the Subscription Agreement for completeness and then shall promptly transmit a copy of the completed Subscription Agreement to the Escrow Agent (original to the Company) and subscription proceeds to the Escrow Agent or the Company, as applicable, no later than noon, Eastern Time, of the next business day after receipt.


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(d) The Company reserves the right to accept or reject, in whole or in part, any subscription forwarded by the Sales Agent at any time in its sole discretion and for any reason. If the Company rejects all or a portion of any such subscription, the Company shall deliver to the Escrow Agent written notice stating the amount of the rejected port ...