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                                                                   EXHIBIT 10.66



                 SECOND NOTE AND MORTGAGE MODIFICATION AGREEMENT


         THIS AGREEMENT is made and entered into on this 5th day of August, 1997
by and among Caraco Pharmaceutical Laboratories, Ltd., a Michigan corporation,
of 1150 Elijah McCoy Drive, Detroit, Michigan 48202 ("Borrower") and The
Economic Development Corporation of the City of Detroit, a Michigan public body
corporate, of 150 West Jefferson Avenue, Suite 1000, Detroit, Michigan 48226
("Lender").


                              W I T N E S S E T H:

      WHEREAS, on August 10, 1990, Lender made a loan to Borrower in the
original principal sum of Nine Million and no/100 ($9,000,000.00) Dollars (the
"Original Loan"); and

      WHEREAS, the Original Loan is evidenced and secured in part by the
following instruments (collectively, the "Original Loan Documents"):

      A.          Section 108 Note dated August 10, 1990, executed by Borrower
                  in favor of Lender in the original principal amount of Nine
                  Million and no/100 ($9,000,000.00) Dollars (the "Note"), as
                  modified by that certain Note and Mortgage Modification
                  Agreement dated as of March 1, 1994 (the "First Note and
                  Mortgage Modification Agreement");

      B.          Second Mortgage and Security Agreement dated August 10, 1990,
                  granted by Borrower to Lender and recorded on September 21,
                  1990 in Liber 24815, at Page 715, Wayne County Register of
                  Deeds, as amended by that certain Amendment to Mortgage and
                  Security Agreement dated April 2, 1993, as amended by the
                  First Note and Mortgage Modification Agreement, and as amended
                  further by that certain Amendment to Second Mortgage and
                  Security Agreement dated as of February 28, 1995 (the
                  "Mortgage);

      C.          Guaranty of Dr. C. Arnold Curry and Cara Jean Curry,
                  (collectively, "Guarantors, and individually, a "Guarantor")
                  husband and wife, dated August 10, 1990, as amended and
                  restated on April 2, 1993 (the "Guaranty"); and

      D.          UCC-1  Financing  Statement recorded at the Michigan
                  Secretary of State's Office on October 10, 1990 at File No.
                  C400998, and a UCC

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                  1-A Financing Statement recorded on September 12, 1990 at
                  Liber 24815, page 703-708, Wayne County Register of Deeds; and

      WHEREAS,  the Obligations (as hereinafter defined) under the Original Loan
Documents are in default; and

      WHEREAS, Borrower has requested that Lender modify the terms of the
Original Loan, and Lender has agreed to do so, subject to the terms and
conditions set forth in this Agreement.

      NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Borrower do hereby covenant and agree as follows:

      1.  RECITALS ARE TRUE AND CORRECT; DEFINED TERMS.

          A. RECITALS TRUE AND CORRECT. The foregoing recitals are true and
correct in all respects.

          B. DEFINED TERMS. In addition to terms defined elsewhere within this
Agreement, the following terms shall have the following meanings:

               (i) "Additional Loan Documents" shall mean this Agreement and all
documents and instruments executed and delivered by Borrower pursuant to or in
connection with this Agreement.

               (ii) "Loan" shall mean the Original Loan, as modified by this
Agreement.

               (iii) "Loan Documents" shall mean any and all documents and
instruments evidencing or securing the Loan, including the Original Loan
Documents and the Additional Loan Documents.

               (iv) "Obligations" shall mean the payment of the Loan and the
payment and performance of all other obligations of Borrower to Lender now
existing or hereafter arising under the Loan Documents.

               (v) "Property" means the real and personal property encumbered by
the Mortgage or the other Loan Documents.

               (vi) "Real Property" means the real property encumbered by the
Mortgage.

          C. OTHER TERMS. All other capitalized terms contained in this
Agreement and not otherwise defined herein shall have the same meanings, if any,
as are ascribed to such terms in the Original Loan Documents.

      2. EXISTING INDEBTEDNESS. As of the date of this Agreement, the unpaid
principal balance owing by Borrower to Lender under the Original Loan is Eight
Million Eight Hundred Eighty Thousand ($8,880,000.00) Dollars (the "Existing
Indebtedness").

      3. TEMPORARY FORBEARANCE. Lender agrees to forbear from the exercise of
its remedies under the Loan Documents until August 15, 1997 in order to allow
Borrower to close a proposed stock purchase transaction with Sun Pharmaceutical
Industries, Ltd. ("Sun"). More specifically, the occurrence of each of the
following before the close of business on August 15, 1997

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shall constitute a condition precedent to any further forbearance by Lender as
described in Section 4 below:

         A. Borrower and Sun shall have executed and delivered any and all
agreements, documents and instruments necessary to consummate the proposed
transaction, all of which shall be in form and substance satisfactory to Lender,
in the exercise of its reasonable discretion, based upon the criteria set forth
in this subsection. Lender shall have the right to review and approve any such
agreements, documents and instruments prior to execution solely in order to
confirm that (i) they are consistent with previous representations made by
Borrower to Lender with respect to the terms and conditions of the transaction,
(ii) they do not adversely affect Lender's security, (iii) they contain a
covenant on the part of Sun to provide $7,500,000 over an eighteen (18) month
period commencing on or before August 15, 1997, either through subordinate loans
or equity, to fund Borrower's operations and submit for United States Food and
Drug Administration approval of not less than five (5) new Abbreviated New Drug
Applications per year for five (5) consecutive years; and (iv) they authorize
Sun to appoint a majority of the Board of Directors of Borrower, the Chairman of
the Board of Directors of Borrower, and the Chief Executive Officer of Borrower;

         B. Prior to or contemporaneously with the execution of this Agreement,
Borrower shall have paid any and all delinquent real and personal property taxes
assessed against the Property in full;

         C. Borrower shall have secured, either in the form of equity or
subordinate loans to Borrower, an amount sufficient to fund Borrower's
operations through August 15, 1997, and the amount of any subordinate loans
which will be refunded in whole or in part from the proceeds of the Sun
transaction shall be disclosed in writing to and approved in advance by Lender;

         D. The Reserve Bank of India and the Minister of Finance of the
government of India shall have approved the proposed stock purchase transaction
between Borrower and Sun and Borrower and Sun shall have complied with any and
all conditions or requirements imposed by the Reserve Bank of India or the
Minister of Finance with respect to the proposed transaction; and

         E. Borrower shall have reimbursed the EDC in full for its costs
incurred in connection with the restructuring of the Original Loan as
contemplated by this Agreement, including, but not limited to, filing and
recording costs, title insurance premiums, appraisal fees and legal fees;
provided, however, that such costs shall be supported by detailed invoices or
paid receipts, as appropriate, and provided further, that in no event shall
Borrower's liability under this subsection 3(E) exceed the sum of Fifty Thousand
and no/100 ($50,000.00) Dollars.

Borrower agrees that in the event that any one or more of the conditions
precedent enumerated in subsections 3(A) through 3(E) above shall not have been
satisfied before the close of business on August 15, 1997, the same shall
constitute an Event of Default under this Agreement and the other Loan
Documents, entitling Lender to exercise its remedies hereunder and thereunder.


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         4.       MODIFICATION OF THE ORIGINAL LOAN.

                  A.       MODIFICATION OF THE NOTE.

                           (i) Upon satisfaction of the conditions precedent set
forth in Section 3 above before the close of business on August 15, 1997, the
Note shall be deemed automatically modified to provide that the regularly
scheduled monthly payments which would otherwise be due and payable during the
period from April 1, 1996 through and including January 1, 1999 (the "Deferred
Payments"), shall be deferred until February 1, 1999. Interest shall continue
to accrue on the Existing Indebtedness during the period from March 1, 1996
through December 31, 1998 (the "Deferral Period"). On February 1, 1999,
Borrower shall resume making the regularly scheduled monthly payments of
principal and interest due under the Note, together with additional payments of
principal and interest in an amount sufficient to amortize the total amount of
(x) the Deferred Payments, and (y) accrued interest on that portion of the
Existing Indebtedness that would have been amortized by the Deferred Payments,
commencing on the date when due under the terms of the Original Loan Documents,
at the rate set forth in the Note, over a period of 42 consecutive months
commencing on February 1, 1999 and ending on July 1, 2002 (the "Additional
Payments"). Interest on the Existing Indebtedness will continue to accrue
during the Deferral Period, as required under the terms of the Note.

                           (ii) Notwithstanding subsection 4(A)(i) above or
anything contained elsewhere in this Agreement or the other Loan Documents to
the contrary, the regularly scheduled payments required to be made under the
Note shall resume and the Additional Payments shall commence on the first day
of the sixth month succeeding the first quarter in which Borrower's net
operating income before federal income taxes plus depreciation (exclusive of
capital contributions from Sun and capital expenditures) for such quarter
exceeds $500,000; provided, however, that the Additional Payments shall be
reduced to the amount necessary to amortize the total of the sums set forth in
(x) and (y) in the immediately preceding subsection over a 42 month period
commencing the first day of the sixth month succeeding the first quarter in
which Borrower's income exceeds the threshold described in this subsection
4(A)(ii).

                  B.  MODIFICATION OF THE MORTGAGE. The second full paragraph on
                  page 3 of the Mortgage is hereby deleted in its entirety, and
                  Borrower and Lender confirm and agree that the Mortgage is and
                  shall be kept a first priority mortgage lien against the
                  Property, and is not now and shall not be hereafter
                  subordinated to the lien of any other mortgage or encumbrance
                  of any kind, except as expressly provided in Section 9 of this
                  Agreement. Borrower acknowledges and agrees that any and all
                  prior agreements on the part of Lender to subordinate the Loan
                  or any security therefor are null and void, except as
                  expressly provided in Section 9 of this Agreement.

                  C.  OTHER MODIFICATIONS TO THE ORIGINAL LOAN DOCUMENTS.

                           (I) FUNDING  OBLIGATIONS  TERMINATED.  Lender shall
have no obligation to make any further advances or disbursements to Borrower on
account of the Loan or otherwise.

                           (II) REFERENCES. Any reference made in the Mortgage
or the other Original Loan Documents to the "Note"
shall mean the Note as modified

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by this Agreement and any reference in any of the Original Loan Documents to
"Loan Documents" shall mean the Loan Documents as modified by this Agreement.


      5. THIS AGREEMENT IS SUBJECT TO SATISFACTION OF CONDITIONS PRECEDENT. The
covenants and agreements of Lender contained in this Agreement, including, but
not limited to, Lender's obligation to modify the Loan as provided herein, are
contingent upon and subject to each of the following conditions being satisfied
as of the time Borrower executes this Agreement, or at such other time as Lender
may permit in its sole and absolute discretion:

          A. RECEIPT OF TITLE INSURANCE ENDORSEMENT. Lender's receipt, at the
expense of Borrower, of endorsement(s) to the title insurance policy which
insures the lien of the Mortgage: (i) showing that no encumbrances affect the
Real Property other than encumbrances which are acceptable to Lender, in the
exercise of its reasonable discretion, and (ii) insuring, to the satisfaction of
Lender, that the Mortgage, as modified by this Agreement, remains a valid first
lien on the Real Property, subject only to matters disclosed in the title
insurance policy or such other matters as may be acceptable to Lender in the
exercise of its reasonable discretion.

          B. DELIVERY OF ADDITIONAL LOAN DOCUMENTS. Borrower having delivered to
Lender, in form and substance satisfactory to Lender:

                           (i)  an owners affidavit executed by Borrower;

                           (ii) an opinion of counsel to Borrower, opining as to
such matters in respect of the Loan as Lender may request;

                           (iii) a UCC-1 financing statement and a UCC 1-A
financing statement executed by Borrower, granting to Lender security
interests in all assets of Borrower;

                           (iv) a good standing certificate for Borrower;

                           (v) such resolutions, affidavits, certificates and
other documents as Lender may reasonably require to evidence Borrower's
capacity, power and authority to execute, deliver and perform its obligations
under the Additional Loan Documents; and

                           (v) such other documents, instruments,  certificates
and further assurances as Lender may reasonably require.

          C. UCC SEARCHES. Lender's receipt of UCC searches confirming that no
personal property or fixtures of Borrower are subject to security interests
other than Lender's security interests or other than as previously disclosed by
Borrower to Lender.

      6. RATIFICATION OF SECURITY AND OBLIGATIONS; WAIVER OF CLAIMS AND DEFENSES
OF BORROWER.

          A. RATIFICATION OF SECURITY AND OBLIGATIONS OF BORROWER. Borrower
hereby covenants, warrants and agrees that: (i) the Mortgage secures and shall
continue to secure full repayment of the Loan, as evidenced by the Note; (ii)
the Mortgage is and shall remain a continuous and valid first priority lien on
the Property until the Loan is repaid in full; (iii) the

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Loan Documents secure and shall continue to secure the repayment of the Loan, as
evidenced by the Note and all other Obligations; and (iv) all Obligations and
all Loan Documents granted as security for the repayment of the Loan remain and
shall continue to remain valid, binding and effective, except as amended by this
Agreement, this Agreement being an affirmation and ratification thereof.


          B. WAIVER OF CLAIMS AND DEFENSES. Borrower hereby waives, releases,
acquits, satisfies and forever discharges Lender from any and all claims,
counterclaims, defenses, actions, causes of action, suits, controversies,
agreements, promises and demands whatsoever in law or in equity which Borrower
ever had, now has, or which any successor or assign of Borrower can, shall or
may have against Lender for, upon or by reason of any matter, cause or thing
whatsoever from the beginning of time to the date hereof.

          C. NO DEFENSES. There is no defense or right of offset against any
Obligations of Borrower to Lender, including, but not limited to, any obligation
under the Note or Mortgage.

      7.  DEFAULT.

          A. EVENTS OF DEFAULT. The Mortgage, Note and all other Loan Documents
shall all be in default (in any case, an "Event of Default") (i) if Borrower
shall be in default under or fail to perform any agreement, covenant, condition,
obligation or undertaking, or breach any warranty or representation, contained
in this Agreement, any agreement between Borrower and Sun that materially and
adversely affects this Agreement, the Note, or any of the other Additional Loan
Documents, (ii) if any of the other Loan Documents shall be in default in
accordance with the terms thereof; (iii) if Sun shall be in default under or
fail to perform any agreement, covenant, condition, obligation or undertaking,
or breach any warranty or representation, contained in any agreement between
Borrower and Sun that materially and adversely affects this Agreement; or (iv)
if Sun or Borrower shall be in default under or fail to perform any agreement,
covenant, condition, obligation or undertaking, or breach any warranty or
representation, contained in any agreement with or approval issued by the
Reserve Bank of India or the Minister of Finance of the government of India that
materially and adversely affects this Agreement.

          B. REMEDIES. Upon the occurrence of any Event of Default, each of the
Loan Documents and all Obligations of Borrower shall be in default and, at the
option of Lender, all Loan indebtedness, and all other Obligations, shall become
immediately due and payable if such Event of Default is not cured within seven
(7) days of the date of written notice from Lender to Borrower of such Event of
Default, and the Lender shall thereupon be entitled, authorized and empowered to
exercise any and all rights and remedies available under the Loan Documents, at
law or in equity, including, but not limited to, its right to foreclose the
Mortgage lien and its right to collect the Loan indebtedness under the Note and
Guaranty.

      8.  BANKRUPTCY.

          A. EVENT OF BANKRUPTCY  DEFINED.  When appearing in this Agreement,
the term "Event of Bankruptcy" shall mean: (a) if Borrower or any Guarantor
shall: (i) file a voluntary petition in bankruptcy for adjudication as bankrupt,
(ii) seek reorganization or an arrangement under any bankruptcy or


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similar statute of the United States of America or any subdivision thereof or of
any foreign jurisdiction in response to an involuntary petition, (iii) consent
to the filing of a petition in bankruptcy or reorganization, (iv) consent to the
appointment of a receiver or a trustee or officer performing similar functions
with respect to any substantial part of their property, (v) make a general
assignment for the benefit of their creditors, (vi) execute a consent to any
other type of insolvency proceeding or any informal proceeding for the
dissolution or liquidation of or settlement of claims against or winding up of
their affairs or the appointment of a receiver or trustee or officer performing
similar functions for any of them, or for any of their assets, or (b) the filing
against Borrower or any Guarantor of a petition for adjudication as bankrupt or
insolvent or for reorganization under any bankruptcy or similar laws of the
United States of America or any state thereof or any foreign jurisdiction, or
the institution against Borrower or any Guarantor of any other type of
insolvency proceeding or any formal or informal proceeding for the dissolution,
liquidation, settlement of claims against or winding up of any of their
respective affairs, which proceeding is not dismissed within forty-five (45)
days of filing.

          (B) CERTAIN REPRESENTATIONS AS TO BANKRUPTCY. Borrower represents
that, as of the date hereof, no Event of Bankruptcy has occurred with respect to
Borrower and to the best of Borrower's knowledge, no Event of Bankruptcy has
occurred with respect to Guarantors.

          (C) RELIEF FROM STAY AND DISMISSAL. If any Event of Bankruptcy shall
occur with respect to Borrower, Lender shall be entitled to immediate and
complete relief from any automatic stay or moratorium (including, but not
limited to, the immediate lifting of such stay "for cause"), arising out of or
related to the occurrence of any Event of Bankruptcy with respect to Borrower,
and Lender shall be permitted to proceed to protect and enforce its rights or
remedies either by suit in equity or by action at law, or both. Borrower
covenants and agrees that it will not oppose, and, upon request by Lender, will
consent in writing to the filing of the appropriate petitions or requests for
relief required to obtain the relief referred to herein.

      9.  SUBORDINATION.
Upon the expiration of the Deferral Period and the resumption of the regularly
scheduled payments under the Note, together with the Additional Payments, at the
written request of Borrower, Lender will subordinate its first security interest
in Borrower's accounts receivable and inventory for the sole purpose of allowing
Borrower to obtain additional working capital from the following types of
lenders and upon the terms specified below for each type of lender:

                  A. From any lender who is not an Affiliate (as defined in 11
USCS '101) of Borrower or Sun or an Insider (as defined in 11 USCS '101) with
respect to Borrower or Sun or a supplier of goods or services to Borrower or Sun
(a "Supplier"), upon such terms as Borrower shall determine in its best business
judgment to be commercially reasonable;

                  B. From any lender who is an Affiliate or Insider, provided
that the applicable interest rate shall not exceed the Affiliate's or Insider's
cost of borrowing plus Three (3%) percent per annum ("Approved Affiliate or
Insider Rate");

                  C. From any Supplier, provided that the applicable interest
rate shall not exceed the following (as applicable, the "Approved Supplier
Rate"):

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                           (i)      for financing  periods less than 46 days,
Twenty Four (24%) percent per annum or the prime rate publicly announced by NBD
Bank ("Prime") plus Nine (9%) percent per annum, whichever is greater, provided
that the interest charged is commercially reasonable;


                           (ii)     for  financing  periods equal to or greater
than 46 days and less than 91 days, Eighteen (18%) percent per annum or Prime
plus Six (6%) percent per annum, whichever is greater, provided that the
interest rate charged is commercially reasonable;


                           (iii)    for financing periods equal to or greater
than 91 days and less than 366 days, Twelve (12%) percent per annum or Prime
plus Three (3%) percent per annum, whichever is greater, provided that the
interest rate charged is commercially reasonable.

                  D. From any lender who is an Affiliate, Insider or Supplier,
provided that if the applicable interest rate exceeds the Approved Affiliate or
Insider Rate or the Approved Supplier Rate, whichever is applicable, such
interest rate shall not be in excess of a commercially reasonable rate approved
in advance by Lender.

      10. ORIGINAL LOAN DOCUMENTS REMAIN EFFECTIVE EXCEPT AS MODIFIED HEREBY.
This Agreement and the other Additional Loan Documents amend and modify the
Original Loan Documents to the extent that any of the Original Loan Documents
are directly inconsistent with the Additional Loan Documents. To the extent not
directly inconsistent with the Additional Loan Documents, all of the covenants,
agreements and other provisions of the Original Loan Documents shall remain
unaltered and in full force and effect, and all representations and warranties
contained in the Original Loan Documents are hereby ratified and reaffirmed as
true, accurate and complete as if made on the date hereof. Nothing herein
contained shall in any manner whatsoever impair the Note and Mortgage, as
modified hereby, or the first lien created thereby or any other documents
executed by Borrower in connection therewith, or alter, waive, vary or affect
any promise, agreement, covenant or condition recited in any of the Loan
Documents. Except as herein otherwise provided, all terms and provisions of the
Note, Mortgage and other instruments and documents executed in connection with
the Loan shall remain in full force and effect and shall be binding upon the
parties hereto, their successors and assigns.


         11. ADDITIONAL COVENANTS OF BORROWER. Borrower covenants and agrees
with Lender as follows:


         A.    To maintain adequate insurance with responsible companies in such
               amounts  and  against  such  risks and  hazards  as are  normally
               insured against by similar  businesses;  to pay before  penalties
               attach all taxes, assessments,  fees and similar charges lawfully
               assessed upon Borrower and/or the Property,  except to the extent
               being   contested  in  good  faith;  to  preserve  its  corporate
               existence  in good  standing  and continue to conduct and operate
               its business  substantially as presently  conducted in accordance
               with all applicable laws and regulations; to pay its indebtedness
               and  obligations  when due under normal terms; to maintain proper
               books of record and  account;  and to furnish to Lender and allow
               Lender to review such information and books and records as Lender
               may reasonably request.

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         B.    To furnish to Lender within 90 days after the close of each
               fiscal year, audited financial statements as of the close of
               such year, containing a balance sheet and statements of
               income, retained earnings and cash flows for such year,
               prepared in accordance with generally accepted accounting
               principles and certified by independent certified public
               accountants.

         C.    To furnish to Lender,within 45 days after the close of each
               quarter of each fiscal year, detailed financial statements as
               of the close of such fiscal period, containing a balance sheet
               and statements of income, retained earnings and cash flows for
               such period and for the portion of its year ending with such
               period, prepared in accordance with generally accepted
               accounting principles and containing the written statement of
               the chief financial officer of Borrower that to the best of
               his knowledge and belief, the financial statements are
               accurate and complete and have been prepared in accordance
               with generally accepted accounting principles and the
               requirements of the Securities and Exchange Commission.


         D.    To  forward  to Lender by the 20th day of each  month a cash flow
               projection  for the  current  month and the next  succeeding  two
               months detailed by major receipts and disbursements.

         E.    That during the Deferral Period,  Borrower's capital expenditures
               shall not exceed  $2,000,000 in the  aggregate  without the prior
               written consent of Lender.

         F.    That Borrower shall not (i) redeem any of its outstanding shares,
               (ii) pay any  dividend  with  respect  to any of its  outstanding
               shares  during the Deferral  Period,  (iii) merge or  consolidate
               with any other corporation or other entity, or (iv) pay any bonus
               or  severance  in excess of one (1)  month's  salary  (except  as
               previously disclosed in writing to and approved by Lender) to any
               employee,  officer or  director  of  Borrower,  without the prior
               written consent of Lender.

         G.    That  contemporaneously  with  the  closing  of  the  transaction
               between  Borrower  and Sun,  Borrower  will execute and deliver a
               Subordination   Agreement  in  form  and   substance   reasonably
               satisfactory to Lender  subordinating  any and all prior security
               interests in the Property to Lender's  security  interests in the
               Property. In addition, Borrower agrees to grant to Lender a first
               security  interest in the  Products  (as defined in the  Products
               Agreement dated April 23, 1997 between  Borrower and Sun) and any
               intellectual property,  intangibles,  licenses,  permits or other
               personal  property  necessary  or  desirable  for the sale of the
               Products,  pursuant  to the terms and  conditions  of a  security
               agreement satisfactory to Lender.

         H.    That  Borrower  shall  use its best  efforts  to hire and  retain
               residents  of the  City  of  Detroit  whose  qualifications  meet
               applicable job requirements.

         I.    That  Borrower  shall  fulfill all of its  obligations  under the
               Stock Purchase  Agreement (the "Stock  Purchase  Agreement")  and
               Products

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<PAGE>   10


               Agreement (the "Products  Agreement")  between  Borrower and Sun,
               each dated April 23, 1997.

      11. REPRESENTATIONS. Borrower represents and warrants, that all statements
contained herein and in all documentation provided by Borrower to Lender and all
other representations or statements made by or on behalf of Borrower to Lender
in connection with the concessions described in this Agreement are true and
complete and do not state or omit to state any material fact. For purposes of
this Section 11, Lender acknowledges that Borrower's submission of financial
projections in connection with the negotiation of this Agreement does not
constitute a representation or warranty of Borrower that Borrower will achieve
the level of income projected. Borrower further represents and warrants that the
Stock Purchase Agreement and Products Agreement are in full force and effect and
that, as of the date of this Agreement, neither Borrower nor Sun is in default
thereunder. Borrower further represents that it is not insolvent and will not be
rendered insolvent by entering into this Agreement. Borrower acknowledges that
Lender has relied on the foregoing representations and warranties in entering
into this Agreement. In the event that Borrower shall have made any
misrepresentation in connection with the circumstances giving rise to this
Agreement, such misrepresentation shall be deemed to be an Event of Default
under the Mortgage, the Note and the other Loan Documents, thereby entitling
Lender, subject to paragraph 7(b), to exercise its rights to accelerate the
maturity of the indebtedness secured by the Mortgage and any and all other
rights available to Lender under the Loan Documents or at law or in equity.

      12. RELEASE. As additional consideration for the modification of the terms
of the Note and Mortgage, as provided herein, Borrower does hereby release and
forever discharge Lender and the City of Detroit, their agents, servants,
employees, directors, officers, attorneys, affiliates, successors and assigns
and all persons, firms, corporations, and liabilities, obligations, actions and
causes of action whatsoever related to the Loan which Borrower may now have or
claim to have against Lender or the City of Detroit as of the date hereof, and
whether presently known or unknown, and of every nature and extent whatsoever on
account of or in any way touching, concerning, arising out of or founded upon
the Note and Mortgage, as modified hereby, including but not limited to, all
such loss or damage of any kind heretofore sustained, or that may arise as a
consequence of the dealings between the parties up to the date of this
Agreement. Borrower acknowledges that, as of the date of this Agreement, there
are no statements, agreements, waivers, estoppels or representations made by
Lender which would constitute a claim, defense, counterclaim or right of offset
in any foreclosure action that may hereafter be instituted by Lender under the
Mortgage, or in any independent claim or action that may hereafter be brought by
Borrower against Lender. This agreement and covenant on the part of Borrower is
contractual, and not a mere recital, and the parties acknowledge and agree that
no liability whatsoever is admitted on the part of any party, except Borrower's
indebtedness to Lender under the Note and Mortgage, as modified hereby, and that
all agreements and understandings between Borrower and Lender are expressed and
embodied in the Note and Mortgage, as modified hereby. In the event that Lender
is involved in litigation concerning the subject matter of this Agreement,
Lender shall be entitled to receive from Borrower all of Lender's reasonable and
necessary costs for such litigation, including Lender's reasonable attorneys'
fees and costs incurred through all trial, appellate and other proceedings.

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<PAGE>   11


      13. KNOWLEDGE. Borrower acknowledges that (A) it has thoroughly read and
reviewed the terms and provisions of this Agreement and is familiar with same,
that the terms and provisions contained herein are clearly understood by
Borrower and have been fully and unconditionally consented to by Borrower, (B)
it has had full benefit and advice of counsel of its own selection, or the
opportunity to obtain the benefit and advice of counsel of its own selection, in
regard to understanding the terms, meaning and effect of this Agreement, (C) it
has freely, voluntarily, with full knowledge, and without duress, executed this
Agreement, (D) in executing this Agreement, it is not relying on any other
representations, either written or oral, express or implied, made to it by
Lender, and (E) that the consideration received by it hereunder has been actual
and adequate.

      14. WAIVER OF JURY TRIAL. THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT WHICH THE UNDERSIGNED MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION BETWEEN THE PARTIES HERETO, INCLUDING, BUT
NOT LIMITED TO, WITH RESPECT TO ANY AND ALL CAUSE OR CAUSES OF ACTION, DEFENSES,
COUNTERCLAIMS, CROSSCLAIMS, THIRD PARTY CLAIMS AND INTERVENOR'S CLAIMS,
REGARDLESS OF THE CAUSE OR CAUSES OF ACTION, DEFENSES OR COUNTERCLAIMS ALLEGED
OR THE RELIEF SOUGHT BY SUCH PARTY, AND REGARDLESS OF WHETHER SUCH LITIGATION IS
BASED ON, ARISES OUT OF, UNDER OR IN CONNECTION WITH THE LOAN OR THIS AGREEMENT,
THE NOTE, GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS, OR OUT OF ANY ALLEGED
CONDUCT OR COURSE OF CONDUCT, DEALING OR COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO, OR OTHERWISE.

      15. CONSTRUCTION. This Agreement shall not be construed more strictly
against Lender merely by virtue of the fact that the same has been prepared by
Lender or its counsel, it being recognized that Borrower has also, through its
counsel, contributed substantially and materially to the preparation of this
Agreement.

      16. ENTIRE AGREEMENT. Borrower acknowledges that there are no other
agreements or representations, either oral or written, express or implied, not
embodied in this Agreement and the Loan Documents, which, together, represent a
complete integration of all prior and contemporaneous agreements and
understandings of the parties.

      17. TIME IS OF THE ESSENCE. Time is of the essence as to all Obligations
of Borrower under the Loan Documents.

      18. COUNTERPARTS. This Agreement may be executed and delivered in any
number of counterparts, each of which, when so executed and delivered, shall be
and constitute an original and one and the same document.

      21. MODIFICATION MUST BE IN WRITING. This Agreement may not be changed or
terminated, except in a writing signed by Lender and Borrower.

      20. CAPTIONS. All captions or headings contained in this Agreement are
provided for convenience and ease of reference only, and are in no way intended
to, nor shall they, form a part of or limit, restrict or define the scope or
content of this Agreement.

      21. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Michigan.

                                      -11-


<PAGE>   12


      22. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.

      IN WITNESS WHEREOF, Lender and Borrower have executed this Agreement as of
the date first written above.


WITNESSES:                                      LENDER:


______________________________                  THE ECONOMIC DEVELOPMENT
                                                CORPORATION OF THE CITY
                                                OF DETROIT, a Michigan
                                                public body corporate
______________________________


                                                By:___________________________


                                                Its: _________________________


                                                By:___________________________


                                                Its: _________________________


WITNESSES:                                      BORROWER:


______________________________                  CARACO PHARMACEUTICAL
                                                LABORATORIES, LTD., a
                                                Michigan corporation

______________________________


                                                By:___________________________


                                                Its: _________________________


                                                By:___________________________


                                                Its: _________________________

         Sun Pharmaceutical Industries, Ltd. joins in the execution of this
Agreement for the sole purpose of acknowledging its agreement and consent to
Borrower's grant of a first security interest in all assets of Borrower,
including the Products, to Lender upon the terms and conditions set forth in
this Agreement.

                                                SUN PHARMACEUTICAL INDUSTRIES,
                                                LTD.


                                                By: __________________________


                                                Its: _________________________

                                      -12-


<PAGE>   13



STATE OF MICHIGAN)
                             ) SS.
COUNTY OF WAYNE  )


         On this ___ day of August, 1997, before me personally appeared
________________________, and ___________________ the ________________ and
____________________ of The Economic Development Corporation of the City of
Detroit, a Michigan public body corporate, who, being duly sworn, stated that
they have read the foregoing Second Note and Mortgage Modification Agreement and
have signed same on behalf of said corporation.


                                          ---------------------------
                                                      , Notary Public
                                          Wayne County, Michigan
                                          My Commission Expires:

STATE OF MICHIGAN)
                             ) SS.
COUNTY OF WAYNE  )


         On this ___ day of August, 1997, before me personally appeared
________________________, President of Caraco Pharmaceutical Laboratories, Ltd.,
a Michigan corporation, who, being duly sworn, stated that he/she has read the
foregoing Second Note and Mortgage Modification Agreement and has signed same on
behalf of said corporation.

                                          ---------------------------
                                                      , Notary Public
                                          Wayne County, Michigan
                                          My Commission Expires:


                                      -13-


<PAGE>   14


STATE OF MICHIGAN)
                 ) SS.
COUNTY OF WAYNE  )



         On this ___ day of August, 1997, before me personally appeared
________________________, _______________ of Sun Pharmaceutical Industries,
Ltd., a corporation organized under the laws of India, who, being duly sworn,
stated that he/she has read the foregoing Second Note and Mortgage Modification
Agreement and has signed same on behalf of said corporation.


                                         ---------------------------
                                                     , Notary Public
                                         Wayne County, Michigan
                                         My Commission Expires:




DRAFTED BY AND WHEN RECORDED
RETURN TO:

Blair A. Person, Esquire
Lewis, Clay & Munday, P.C.
1300 First National Building
Detroit, Michigan  48226

                                      -14-


<PAGE>   15


                                    EXHIBIT A

                            SUBORDINATED INDEBTEDNESS













                                      -15-