EXHIBIT 10.20  

FORM OF STOCK OPTION AGREEMENT

                This Stock Option Agreement (the “Agreement”) memorializes the
grant to Daniel H. Movens on ____ __, 200_, by the subcommittee of non-employee
directors of the Compensation Committee of Caraco Pharmaceutical Laboratories,
Ltd. (the “Company”), of an incentive stock option (the “Option”) to purchase
shares of the Company’s Common Stock in the amount set forth below. The grant
was made under the Company’s 1999 Equity Participation Plan (the “Plan”) and is
pursuant to that certain Employment Agreement dated as of May 2, 2005 between
the Company and Mr. Movens (the “Employment Agreement”). The terms of the grant
are as follows:

 

1.
Stock Option. The Option entitles the Grantee (and such Grantee’s permitted
transferee as described in paragraph 3(a) below)(each such person, a
“Purchaser”) to purchase up to the number of shares of the Company’s Common
Stock, no par value (the “Option Shares”), specified below opposite such
Grantee’s name, at an option price of $____ per share, the Fair Market Value of
the Company’s Common Stock at the close of business on ____ __, 200_, the
trading day immediately preceding the date of grant (the “Option Price”),
subject to the terms and conditions of this Agreement:
 

  Grantee Number of Option Shares    

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         Daniel H. Movens _________          

2.
Additional Terms. The Option is also subject to the following provisions:
 

(a)         
Exercisability.  The Option may be exercised and Option Shares may be purchased
at any time and from time to time after the execution of this Agreement, subject
to the vesting limitations imposed by paragraph 2(b) of this Agreement. The
Option Price for Option Shares shall be paid in full in cash or by check by the
Purchaser of such Option Shares prior to the time of the delivery of Option
Shares, or, at the written request of such Purchaser, the subcommittee of
non-employee directors of the Compensation Committee may (but need not) permit
payment to be made by any of the means set forth in Section 5.2(d) of the Plan,
including (i) delivery to the Company of outstanding Shares, (ii) surrender to
the Company of shares then issuable upon exercise of the Option, (iii) payment
by Purchaser’s broker from the net proceeds of the sale of Exercise Shares (as
defined below), or (iv) any combination of the foregoing. Option Shares acquired
by Purchaser under this Agreement are hereinafter referred to as the “Exercise
Shares.”

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(b)        
Vesting/Exercisability.  (i) Grantee may only exercise the Option to purchase
Option Shares to the extent that such Option has vested and become exercisable
with respect to such Option Shares. Except as otherwise provided in Paragraph
2(b)(ii) below, the Option Shares will vest and become exercisable in accordance
with the following schedule, if as of each such date the Grantee is still
employed with the Company:
 

  Date Cumulative Percentage of
Option Shares Vested
and Exercisable    

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         _-__-__ 33 1/3%     _-__-__ 33 1/3%     _-__-__ 33 1/3%  

     
Option Shares, which have become vested and exercisable, are referred to herein
as “Vested Shares” and all other Option Shares are referred to herein as
“Unvested Shares.”
   
(ii)  Unvested Shares shall also vest and become exercisable (i.e., Unvested
Shares shall become Vested Shares) at such times and upon the occurrence of such
events as are set forth in the Employment Agreement (but shall not automatically
become exercisable upon a Change in Control as set forth in Section 8.3(e) of
the Plan).
 

(c)        
Procedure for Exercise. Subject to the vesting limitation of Paragraph 2(b)
above, a Purchaser may exercise all or any portion of the Option, so long as it
is valid and outstanding, at any time and from time to time prior to its
termination by delivering written notice to the Company and written
acknowledgement substantially in the form of Exhibit “A” hereto that such
Purchaser has read, and has been afforded an opportunity to ask questions of the
Company’s management regarding all financial and other information concerning
the Company, together with payment of the Option Price times the number of
Option Shares purchased.

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  3. Transferability of the Options.    

(a)           
The Grantee shall not sell, transfer, assign, pledge or otherwise dispose of (a
“Transfer”) any interest in any Option with respect to any Unvested Shares. Any
Option with respect to any Vested Shares of the Grantee shall not be Transferred
other than as provided herein, and the restrictions herein shall apply to any
Transfer by any such permitted transferee.
  (b)           
The Company may assign its rights and delegate its duties under this Agreement.
 

4. Transferability of Exercise Shares.  

 
Unless the Option Shares continue to be registered under the Securities Act, no
holder of any Exercise Shares may Transfer any such shares without first
delivering to the Company an opinion of counsel (reasonably acceptable in form
and substance to the Company) that neither registration nor qualification under
the Securities Act and applicable state securities law is required in connection
with such Transfer. The Option Shares are currently registered under the
Securities Act on Form S-8.
 

5.
Conformity with Plan. The Option is intended to conform in all material respects
with, and is subject to, the applicable provisions of the Plan and the
Employment Agreement. The provisions of the Plan, the Employment Agreement and
the Agreement are to be read in a broad and flexible manner to the maximum
extent possible so that their applicable provisions are deemed consistent with
each other. If any provisions are clearly inconsistent, the terms of the Plan
shall control. However, where the Plan includes language to the effect, for
example, that the Plan provides for the following unless the Stock Option
Agreement provides otherwise, the terms of the Agreement shall control. The
Company also agrees not to take any adverse action under Section 8.3 (c) of the
Plan and not to exercise its rights under Section 8.7 (entitled “Forfeiture
Provisions”) of the Plan.
  6.
Employment.  This Agreement shall not confer upon Grantee any right with respect
to continuance of employment by the Company, and notwithstanding any contrary
oral representation or promises made to the Grantee prior to or after the date
hereof, the Grantee and the Company acknowledge that such Grantee’s employment
with the Company is and will continue to be subject to the terms of the
Employment Agreement. Grantee agrees to render faithful and efficient service to
the Company.
  7.
Adjustment. The Committee may make appropriate and proportionate adjustments to
the terms of the Option as set forth in Section 8.3 of the Plan on the
occurrence of any of the events set forth in Section 8.3. In the

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event of any such adjustment, any and all new, substituted, or additional
securities or other property to which any Purchaser is entitled by reason of the
Option shall be immediately subject to such Option and be included in the word
“Option Shares” for all purposes of such Option with the same force and effect
as the Option Shares presently subject to such Option. After each such event,
the number of Option Shares and/or the Option Price shall be appropriately
adjusted.
 

8.
Share Legend. Unless the Exercise Shares are the subject of an effective
registration statement and/or re-offer prospectus, as applicable, all
certificates representing any Exercise Shares subject to the provision of this
Agreement shall have endorsed thereon the following legend:
 

 
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED AS OF
_______________, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER.”
 

9.
Investment Representations. Upon the purchase of Option Shares hereunder, the
Purchaser thereof shall execute and deliver to the Company a letter,
substantially in the form attached hereto as Exhibit “A”, confirming such
Purchaser’s investment representation.
  10.
Expiration. Unless otherwise provided as set forth in Paragraph 2(b)(ii) above,
the Option with respect to Unvested Shares shall expire upon the termination of
Grantee’s employment. The Option with respect to Vested Shares shall expire at
the earlier of (i) termination of Grantee for Cause (as set forth in Section
6(A) of the Employment Agreement); or (ii) at 5:00 p.m., Detroit time, on ____
__, 20__.
 

 
Further, notwithstanding the above, with respect to Vested Shares, if Grantee is
terminated by the Company without Cause and other than for non-performance (as
set forth in Section 6(B) of the Employment Agreement); Grantee terminates for
Good Reason (as set forth in Section 6(C) of the Employment Agreement); Grantee
terminates due to physical or mental injury, illness, disability or incapacity
or death (as set forth in Section 6(D) of the Employment Agreement); or Grantee
terminates because of a Change of Control (as set forth in Section 6(E) of the
Employment Agreement); Grantee resigns from the Company without Good Reason (as
set forth in Section 6(F) of the Employment Agreement; or Grantee terminates for
non-performance (as set forth in Section 6(G) of the Employment Agreement), then
the Option shall expire on the earlier of

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(i) the 90th day following the termination of Grantee’s employment; or (ii)
until 5:00 p.m., Detroit time, on ____ __, 20__.
 

11.
Further Actions. The Parties agree to execute such further instruments and to
take such further actions as may reasonably be required to carry out the intent
of this Agreement.
  12.
Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
  13.
Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, and all such counterparts taken together will constitute one and the same
Agreement.
  14.
Notices.  Any notices to be given under this Agreement shall be in writing and
shall be (a) delivered in person, (b) mailed by certified mail or registered
mail, return receipt requested, postage prepaid, or (c) delivered by a
nationally recognized overnight courier, U.S. Post Office Express Mail, or
similar overnight courier, and addressed as follow:
 

  Grantor’s Address     Caraco Pharmaceutical Laboratories, Ltd.   1150 Elijah
McCoy Drive   Detroit, Michigan 48202   Attention: CEO, President, COO, CFO or
Director-Human Resources     Grantee’s Address     Daniel H. Movens  
________________   ________________  

 
The time of giving of any notice shall be the time of delivery in person, the
time of delivery by the applicable overnight courier or with respect to
registered or certified mail, the time of receipt thereof by the addressee or
any agent of the addressee, except that in the event the addressee or such agent
of the addressee shall refuse to receive any notice given by registered mail or
certified mail as above provided or there shall be no person available at the
time of the delivery thereof to receive such notice, the time of the giving of
such notice shall be the time of such refusal or the

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time of such delivery, as the case may be. Any party hereto may, giving five (5)
days written notice to the other party hereto, designate any other address in
substitution of the foregoing address to which notice shall be given.
 

15.
Successors And Assigns. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Grantee’s heirs,
executors, administrators, successors and permitted assigns.
  16.
Governing Law. This Agreement shall be administered, interpreted and enforced
under the internal laws of the State of Michigan without regard to conflicts of
laws thereof.

 

                Please sign as Grantee in the space provided below and return
the Agreement to Tammy Bitterman, Director-Human Resources, to confirm your
understanding and acceptance of the agreements contained in this letter.

 

  Very truly yours,   CARACO PHARMACEUTICAL LABORATORIES, LTD.  

    By: _________________________               Tammy Bitterman    
           Director-Human Resources

 

THE UNDERSIGNED hereby acknowledges having read this Agreement and hereby agrees
to be bound by all provisions set forth herein.

 

GRANTEE:       _________________________   Daniel H. Movens

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EXHIBIT “A” TO STOCK OPTION AGREEMENT

INVESTMENT LETTER

Caraco Pharmaceutical Laboratories, Ltd.
1150 Elijah McCoy Drive
Detroit, Michigan 48202
Attention:  CEO, President, COO, CFO or Director-Human Resources

To the CEO, President, COO, CFO or Director-Human Resources

                This is to inform you that the undersigned (the “Purchaser”)
hereby exercises the Option to purchase ______ shares of Common Stock granted to
the Purchaser as of ____ __, 200_, under The 1999 Equity Participation Plan (the
“Plan”) of Caraco Pharmaceutical Laboratories, Ltd. with respect to
_______________ shares of the Common Stock, no par value (the “Securities”) of
Caraco Pharmaceutical Laboratories, Ltd., a Michigan corporation (the
“Company”).

 

Payment Alternatives [check applicable box and complete any blanks]:     o
Enclosed is my check made payable to Caraco Pharmaceutical Laboratories, Ltd. in
the amount of $ ____________ in full payment of the exercise price per share.
    o
I have authorized my Broker, ______________________________, to pay Caraco
Pharmaceutical Laboratories, Ltd. the exercise price per share from my brokerage
account.
    o
Enclosed are _________ shares of the Securities in full payment of the exercise
price per share.
  o Other, as permitted by Section 5.2(d) of the Plan.   Certificate
Alternatives [check applicable box and complete any blanks]:   o Issue the
certificate in my name.     o Issue the certificate in “street” name, as
follows: __________________________.

                                                                                                                      
[Insert Name]

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  Mailing Alternatives [check applicable box and complete any blanks]:    

  o Mail to my residence address.         o Mail to:
                 __________________________________    
                                                [Insert Name of Broker]
                                      For the Benefit of Daniel H. Movens       
                        ______________________________    
                        ______________________________    
                             ATTN: ____________________________    
                                             [Insert Name and Address Above]

 

                In connection with the Purchaser’s proposed purchase of the
Securities, Purchaser hereby agrees, represents and warrants as follows:

                1.             Information Concerning Company.

                The Purchaser represents and warrants that Purchaser has
heretofore discussed the Company and its plans, operations and financial
condition with its officers and received all such information as Purchaser deems
necessary and appropriate to enable Purchaser to evaluate the financial risk
inherent in making an investment in the Securities of the Company. Purchaser
further represents and warrants that Purchaser has been afforded the opportunity
to ask questions of the Company’s management regarding all financial and other
information concerning the Company and has received satisfactory and complete
information concerning the business and financial condition of the Company in
response to all such inquiries.

                2.             Economic Risk.

                The Purchaser represents and warrants that Purchaser is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Securities, Purchaser realizes that
Purchaser’s purchase of the Securities will be a highly speculative investment
and that Purchaser is able, without impairing Purchaser’s financial condition,
to hold the Securities

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for an indefinite period of time and to suffer a complete loss on Purchaser’s
investment, should that be the case.

 

DATED:  __________________  Very truly yours,      
_______________________________   Daniel H. Movens   ______________  
______________   Social Security #

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