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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996.
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM ________ TO _______________.
Commission File No. 1-14416
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BIGMAR, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 31-1445779
(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
6660 DOUBLETREE AVENUE, COLUMBUS, OHIO 43229
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (614) 848-8380
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock, par value $.001 per share
(Title of each class)
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates is $6,238,750
based on a closing sale price of $3.875 per share on April 11, 1997. As of April
11 , 1997, 3,985,000 shares of $.001 par value Common Stock were issued and
outstanding.
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INTRODUCTION
Bigmar, Inc. (the "Company") is currently engaged in manufacturing and
marketing 16 types of intravenous infusion solutions ("IV Solutions") in
Switzerland and marketing in Germany raw materials used to manufacture
medications for the treatment of prostate enlargement ("Prostate Materials") and
calcium leucovorin, a generic oncological product. Unless the context
indicates otherwise, the term "Company" as used herein refers to the Company
and its subsidiaries as a whole.
In June 1996, the Company consummated an initial public offering (the
"IPO") of 1,610,000 shares (including 210,000 shares for over-allotments granted
to LT Lawrence & Co., Inc. (the "Representative")) of common stock, par value
$.001 per share ("Common Stock") at an initial public offering price of $7.50,
and issued to the Representative warrants to purchase 140,000 shares of Common
Stock at an exercise price per share of $9.75. The Company realized
approximately $9,400,000 from the proceeds of the IPO, after deductions of
commissions and expenses related thereto.
Certain statements in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including, without limitation, statements regarding future cash
requirements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
form any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: delays in product development; problems or delays in clinical
testing; failure or delays in receiving regulatory approvals; lack of
proprietary rights; or change in business strategy or development plans.
PART I
ITEM 1. BUSINESS.
The Company markets IV Solutions through its own sales force to health
care providers and third-party payors. In addition, the Company has entered into
contracts with Laevosan International AG ("Laevosan") and Merk, Sharp & Dohm
("MSD") for the distribution of IV Solutions in Switzerland. The Company markets
Prostate Materials and calcium leucovorin to pharmaceutical companies. The
Company does not intend to market its other products directly to the public.
The Company has received provisional approval for the manufacturing in
Switzerland of two generic oncological products, calcium leucovorin and
methotrexate. The Company anticipates that all regulatory approvals for the sale
of these products in Germany, Switzerland, Italy and Spain will be obtained
during the second half of 1997. There can be no assurance, however, that such
regulatory approvals will be obtained during these time periods, or that such
approvals will ever be obtained. In addition the Company has received approval
to market doxorubicin, methotrexate and calcium leucovorian in Germany.
In the second half of 1996, Cerbios-Pharma SA ("Cerbios"), a
wholly-owned subsidiary of Chemholding SA ("Chemholding"), a beneficial owner of
approximately 25.4% of the Company's Common Stock, rendered invoices to the
Company, in the amount of approximately $681,000 for expenses and fees to which
Cerbios claimed to be entitled in connection with services it provided to the
Company in 1996. In December 1996, Cerbios submitted a letter to the Company
requesting reimbursement of approximately $1,118,000 to which Cerbios claimed to
be entitled in connection with services it provided to the Company in 1995. In
March 1997, Cerbios submitted a letter to a
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representative of the Company claiming that Cerbios was owed an additional
$2,243,000 for various "services" and "values of lost contracts" (the foregoing,
collectively, the "Claims").
The Company maintains that no substantial services were provided in 1995
by Cerbios to the Company and that the amounts claimed for 1996 by Cerbios far
exceeded the actual expenses incurred by Cerbios on behalf of the Company. Such
actual expenses were accrued in the Company's 1996 quarterly financial
statements. On March 27, 1997, the Company reached a settlement (the
"Settlement") with Cerbios of the Claims for approximately $300,000 and in
connection therewith Cerbios delivered to the Company a release.
Pursuant to the Settlement, the Company and each of its wholly-owned
subsidiaries, Bioren SA ("Bioren"), Bigmar Pharmaceuticals SA ("Bigmar
Pharmaceuticals"), and Bigmar Therapeutics, Inc. ("Bigmar Therapeutics" and
collectively, the "Company's Entities") and Cerbios, Chemholding, Sapec SA
("Sapec"), and Bioferment SA ("Bioferment" and collectively, the "Cerbios
Entities") have mutually agreed to the cancellation of the following agreements;
the Sapec Exclusive Distribution Agreement (the "Sapec Agreement"), the
Bioferment Exclusive Distribution and Supply Agreement (the "Bioferment
Agreement"), and the Bioferment License and Supply Agreement (the "Bioferment
License Agreement"). In addition the Company has determined to terminate all
relationships and transactions with the Cerbios Entities, including the
purchases of raw materials for resale, which purchases aggregated approximately
$501,000 and generated sales of approximately $833,000 in 1996.
The Sapec Agreement provided for, among other things, the supply of
Sodium Leucovorin "Sodium Leucovorin" and five generic oncological products. The
Company has yet to identify another supplier for Sodium Leucovorin. The
Company has identified alternative suppliers for the five generic oncological
products and has already obtained two of the generic oncological products from
other suppliers. The Company believes it can acquire the other three
products from alternative suppliers. The Company has paid Sapec a one-time
fee of $100,000 for the grant of the exclusive rights and licenses that were
part of the Sapec Agreement. This fee has been forfeited and no refund will be
granted. The Company believes the cancellation of the Sapec Agreement will
not have a material adverse effect on its operations.
The Bioferment Agreement provided exclusive worldwide rights to use,
manufacture and market recombinant urokinase ("Urokinase"), a biotechnological
product. The Company has not obtained another supplier for Urokinase. Pursuant
to the Bioferment Agreement, the Company has paid Bioferment a fee of $100,000.
This fee has been forfeited and no refund will be granted. The Company will
attempt to locate an alternative supplier for Urokinase. However, there is no
guarantee the Company will be successful in finding another supplier for
Urokinase. The Company believes the cancellation of the Bioferment Agreement
will not have a material adverse effect on its operations.
The Bioferment License Agreement provided the license to use,
manufacture and market a recombinant human growth hormone, a biotechnological
product. The Company believes the cancellation of the Bioferment License
Agreement will not have a material adverse effect on its operations.
In November 1995, Bigmar Pharmaceuticals and AB Cernelle ("Cernelle"), a
privately-held Swedish pharmaceutical company. entered into an agreement (the
"Cernelle Agreement") pursuant to which Bigmar Pharmaceuticals obtained the
exclusive worldwide distribution rights to approximately 20 generic oncological
products including calcium leucovorin, methotrexate and mercaptopurine (the
"Cernelle Products") manufactured by Cernelle. At the time the Company entered
into the Cernelle Agreement, Cernelle was a wholly-owned subsidiary of Cerbios.
In July 1996, Cernelle was sold to
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an unrelated third party. John G. Tramontana, the Company's Chairman of the
Board, President and Chief Executive Officer, currently serves as a director of
Cernelle.
The Company has entered into exclusive arrangements with the following
non-affiliated pharmaceutical companies to market certain generic oncological
products, manufactured or licensed by the Company, in various territories: Medac
GmbH ("Medac") in Germany and the United Kingdom; Boehringer Mannheim Italia Spa
("Boehringer") in Italy; Laevosan in Switzerland; Laboratories Vita SA ("Vita")
in Spain; and Protyde Pharmaceuticals, Inc. ("Protyde") worldwide, except for
certain major European countries. Medac, Boehringer, Laevosan and Vita are
established pharmaceutical companies. Protyde is a development stage company.
HISTORY
The Company was incorporated in Delaware in September 1995 and has three
wholly-owned subsidiaries, Bigmar Pharmaceuticals, Bigmar Therapeutics and
Bioren. Bigmar Pharmaceuticals is a Swiss corporation that was formed in January
1992 under the name BVI, SA. Bigmar Therapeutics is a Delaware corporation that
was formed in September 1995 under the name Bioren, Inc. Bioren is a Swiss
corporation that was formed in July 1986.
In June 1995, all of the outstanding capital stock of Bioren was
purchased by Bigmar Pharmaceuticals (the "Bioren Acquisition"), for an aggregate
purchase price of approximately $9.4 million, consisting of approximately $5.2
million in cash and the assumption of certain of Bioren's liabilities in the
aggregate principal amount of $4.2 million. In addition, in connection with the
Bioren Acquisition, Bigmar Pharmaceuticals became a guarantor on a bank loan to
Bioren in the principal amount of $2.6 million, which was collateralized by a
facility used by Bioren (the "Bioren Facility"), and provided a guarantee on a
second mortgage in the aggregate principal amount of approximately $1.7 million
on the Bioren Facility. In addition, simultaneous with the Bioren Acquisition,
in June 1995, Bigmar Pharmaceuticals sold one-half of its equity interest in
Bioren to certain Bigmar Pharmaceuticals' stockholders ("Bioren Holders") for
approximately $2.6 million. This sale included 500 shares (10% of Bioren's
outstanding stock) to John G. Tramontana, the Company's Chairman of the Board,
President and Chief Executive Officer, for approximately $500,000.
In September 1995, the Company sold an aggregate of 2,375,000 shares of
Common Stock to stockholders existing prior to the IPO and on April 8, 1996 such
existing stockholders contributed 99% of these shares of Common Stock to the
Company (the "Contribution"). On April 9, 1996, the Bioren Holders exchanged
their capital stock in Bioren (representing 50% of the outstanding Bioren
capital stock) for 350,312 shares of the Common Stock of the Company with an
approximate fair market value (based on the initial public offering price of
$7.50 per share) of $2,627,340 and the stockholders of Bigmar Pharmaceuticals
exchanged all of the capital stock of Bigmar Pharmaceuticals for 2,000,938
shares of Common Stock of the Company with an approximate fair market value
(based on the initial public offering price of $7.50 per share) of $15,007,035
(the "Exchange").
In June 1996, the Company consummated the IPO.
MARKET OVERVIEW
Pharmaceutical products are generally sold directly to distributors,
wholesalers, health care facilities, and government agencies. Primary marketing
efforts for pharmaceutical products are directed toward securing the
prescription or recommendation of a product by physicians or other health care
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professionals. For example, in the United States health maintenance
organizations (HMOs) and pharmacy benefit managers, are becoming increasingly
important marketing channels for distributing pharmaceutical products.
The increasing pressures to contain healthcare costs have accelerated
the use of lower priced generic pharmaceutical products. The substitution of
generic drugs for the brand prescribed has increased competitive pressures on
pharmaceutical products.
BUSINESS STRATEGY
The Company's business strategy over the next 18 months is to:
manufacture and market approximately seven injectable and
lyophilized oncological products;
manufacture and market additional oncological products as the
patents relating to such products expire;
increase the number of pharmaceutical companies in Europe through
which the Company's oncological products are marketed and
the territories in which they are distributed;
expand the marketing of IV Solutions in Switzerland through the
Company's own sales force and third party distributors;
and
identify partners in the pursuit of new supply agreements and
collaborative relationships.
PRODUCTS
IV SOLUTIONS
The Company manufactures, at the Bioren Facility, and markets 16 types
of IV Solutions. The Company's IV Solutions generally consist of different
chemical entities, such as sodium chloride, electrolytes, carbohydrates and
other nutrients, which are intravenously administered to a patient. The Company
markets IV Solutions, through its own sales force, to hospitals, clinics,
retirement homes, nursing homes, managed health care organizations, home
infusion providers and other health care providers in Switzerland. In addition,
the Company has entered into contracts with Laevosan and MSD for the
distribution of IV Solutions in Switzerland. The Company intends to continue
manufacturing and marketing IV Solutions and is seeking to penetrate additional
markets in Switzerland.
In March 1995, Bioren and PLM Langeskov A/S ("PLM") entered into an
agreement (the "PLM Agreement") which grants Bioren the exclusive right to
distribute its IV Solutions throughout Switzerland in PLM's collapsible
containers. The PLM Agreement expires in the year 2005, unless it is earlier
terminated. Under the terms of the PLM Agreement, PLM is entitled to terminate
the exclusive right contained in the agreement if, among other things, Bioren
does not purchase a minimum number of intravenous solution containers each year.
In addition, the PLM Agreement may be terminated by either party, upon the
occurrence of certain specified conditions, including if the products or the
production infringe, or are alleged to infringe, upon any intellectual property
right of any third party. The termination of the PLM Agreement would have a
material adverse effect on the Company.
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PROSTATE MATERIALS
The Company markets natural medications used for the treatment of
non-infectious prostate enlargement. The Prostate Materials are composed of
natural pollen derived from plant extracts. For the year ended December 31,
1995, the Company's sales of Prostate Materials to Pharma Stroschein GmbH
("Stroschein") were approximately $1,000,000 as compared to approximately
$650,000 for the year ended December 31, 1996. The decrease was due primarily to
lower sales volumes and the higher foreign currency rate of the United States
Dollar versus Swiss Franc.
In October 1994, Bigmar Pharmaceuticals entered into an agreement (the
"Stroschein Agreement") with Stroschein, pursuant to which Bigmar
Pharmaceuticals acts as the exclusive supplier of Cernilton, a Prostate
Material, and Stroschein distributes the Prostate Material in Germany. The
Stroschein Agreement provides for annual minimum quantity requirements in order
to maintain exclusivity. The Stroschein Agreement expires in October 1999 and
will be automatically renewed for consecutive two year periods, unless
terminated by the parties. In the event that Stroschein terminates the agreement
as a result of Bigmar Pharmaceuticals' breach or default thereunder, Bigmar
Pharmaceuticals is required to transfer to Stroschein the Cernilton product
registration and the necessary know-how and authorizations to enable Stroschein
to manufacture Cernilton. The termination of the Stroschein Agreement would have
a material adverse effect on the Company.
ONCOLOGICAL PRODUCTS
The Company currently markets calcium leucovorin, a generic oncological
product, in Germany. In November 1995, Bigmar Pharmaceuticals and Cernelle
entered into the Cernelle Agreement pursuant to which Bigmar Pharmaceuticals
obtained the exclusive worldwide distribution rights to the Cernelle Products.
The Cernelle Agreement provides for a one time payment of $100,000 for the grant
of such exclusive rights and licenses which is payable upon notification by
Cernelle that the Cernelle Products are ready for initial shipment to Bigmar
Pharmaceuticals. In addition, Bigmar Pharmaceuticals will be responsible for
ongoing fees based upon the size of its orders for Cernelle Products. The
initial term of the Cernelle Agreement is 15 years, commencing on the date of
the first commercial sale by Bigmar Pharmaceuticals of the Cernelle Products.
Upon termination of the Cernelle Agreement, Bigmar Pharmaceuticals will retain a
non-exclusive worldwide right to distribute the Cernelle Products for three
additional years, at prices and on terms no less favorable to Bigmar
Pharmaceuticals than the prices and terms extended by Cernelle to any other
person or entity for the Cernelle Products. Either party may terminate the
Cernelle Agreement upon the occurrence of certain specified conditions.
In November 1995, Bigmar Pharmaceuticals and Cernelle entered into an
exclusive technical services agreement (the "Cernelle TSA"), pursuant to which
Cernelle will develop drug products to be filed as abbreviated new drug
application ("ANDA") submissions for Bigmar Pharmaceuticals to submit to the FDA
or other appropriate authority with jurisdiction over the Cernelle Products.
Generally, Bigmar Pharmaceuticals is obligated to pay Cernelle a fee of $20,000
for each ANDA submitted to and accepted by Bigmar Pharmaceuticals with respect
to a Cernelle Product. Cernelle will assign to Bigmar Pharmaceuticals the sole
and exclusive right, title and interest in and to each ANDA. The term of the
Cernelle TSA is 15 years and is renewable upon the mutual written agreement of
the parties. Either party may terminate the Cernelle TSA upon the occurrence of
certain specified conditions.
At the time the Company entered into the Cernelle Agreement and the
Cernelle TSA, Cernelle was a wholly-owned subsidiary of Cerbios. In July 1996
Cernelle was sold to an unrelated third party. John G. Tramontana, the Company's
Chairman of the Board, President and Chief Executive Officer, currently serves
as a director of Cernelle.
The Company has received provisional approval for the manufacturing in
Switzerland of two generic oncological products, calcium leucovorin and
methotrexate. The Company anticipates that all regulatory approvals for the sale
of these products in Germany, Switzerland, Italy and Spain will be obtained
during the second half of 1997. There can be no assurance, however, that such
regulatory approvals will be obtained during these time periods, or that such
approvals will ever be obtained. In addition, the Company has received approval
to market doxorubicin, methotrexate and calcium leucovorin in Germany.
The Company marketed mercaptopurine in 1995, however, due to
disappointing bioequivalancy testing results the Company has suspended such
marketing and has no current plans to recommence such marketing at this
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time.
PROPOSED PRODUCTS
GENERIC ONCOLOGICAL PRODUCTS
The Company has identified approximately 30 oncological drugs which are
currently generic and 15 additional oncological drugs that the Company believes
will become generic by the year 2000. Generic drugs are the chemical and
therapeutic equivalents of brand name (proprietary) drugs and generally are
marketed once the patent on the proprietary drug has expired.
The following table lists the generic oncological products that the
Company intends to manufacture and market to pharmaceutical companies for resale
in Switzerland, Germany and the United States over the next 18 months and the
estimated time periods for each product.
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ESTIMATED YEAR OF INTRODUCTION
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Product Name Dosage Form Prescribed Use Switzerland Germany USA
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Calcium Leucovorin Injection/Liquid Rescue Therapy 1997 1995* 1998
Methotrexate Injection/Liquid Neoplastic Conditions 1997 1997 1998
Daunorubicin Injection Neoplastic Conditions 1997 1997 1998
Doxorubicin Injection Neoplastic Conditions 1997 1997 1998
Mitomycin Injection Neoplastic Conditions 1997 1997 1998
5-Flurouracil Injection Carcinomas 1997 1997 1998
Vinblastine Sulfate Injection Neoplastic Conditions - - 1999
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* Introduced
The Company believes that it will be able to obtain approval of these
products in Germany, as indicated above, because it intends to transfer the
manufacturing site from Germany to the Bigmar Facility. Although this transfer
of manufacturing site requires the approval of the German regulatory authority,
the time for such approval is much faster than the three to five year time
period for approval of full marketing applications in Germany.
Over the next 18 months the Company's strategy is to manufacture, in its
state-of-the-art facilities, in Switzerland and market additional oncological
products as their patents expire.
There can be no assurance that the Company will manufacture or market
any of the foregoing products during the time periods indicated if at all. The
commercialization of these products will depend on a number of factors
including, but not limited to, the successful results of the Company's clinical
toxicity studies and obtaining regulatory approval. Although the Company
believes that each of these proposed products has commercial value, the Company
may choose not to manufacture or market some or all of these products.
COLLABORATIVE AGREEMENTS
The Company has entered into exclusive arrangements with the following
non-affiliated companies to market certain generic oncological products,
proposed oncological products, manufactured or licensed by the Company, in
various territories. Restrictions regarding exclusivity and right of first
refusal limit the Company's ability to pursue and negotiate collaborative
arrangements with other entities on terms which may be more favorable to the
Company.
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Medac
In September 1995, Bigmar Pharmaceuticals and Medac entered into a
series of international distribution agreements (the "Medac Agreements")
relating to certain oncological products such as alfacalcidol and Doxorubicin.
Pursuant to these agreements, Bigmar Pharmaceuticals and Medac have divided,
subject to future adjustment, the exclusive right to sell the oncological
products covered by the agreements in various countries in Europe, South
America, Asia and the United States. Pursuant to the Medac Agreements, the
Company anticipates that Medac will market certain of the Company's oncological
products and proposed products in Germany and the United Kingdom.
Boehringer
In December 1995, Bigmar Pharmaceuticals and Boehringer entered into an
agreement (the "Boehringer Agreement") for the exclusive distribution by
Boehringer of certain oncological products such as methotrexate, Doxorubicin,
calcium leucovorin and mercaptopurine (the "Boehringer Products") in Italy,
Vatican City and the San Marino Republic (the "Boehringer Territory"). Pursuant
to the Boehringer Agreement, the Company will supply Boehringer with the
products on an exclusive basis and has granted Boehringer an option to
distribute new products in the Boehringer Territory. Under the terms of the
Boehringer Agreement, the Company will receive a flat payment from Boehringer
for each product distributed in the Boehringer Territory. The Boehringer
Agreement terminates in December 2005, but is subject to automatic one year
extensions unless earlier terminated by the parties. Either party may terminate
the Boehringer Agreement upon the occurrence of certain specified conditions.
Laevosan
In December 1995, Bigmar Pharmaceuticals and Laevosan entered into an
exclusive distribution agreement (the "Laevosan Agreement") pursuant to which
Bigmar Pharmaceuticals will supply certain oncological products such as
Doxorubicin and methotrexate to Laevosan for sale in Switzerland. Under the
Laevosan Agreement, Laevosan is required to sell minimum quantities each year
and, if Laevosan fails to sell such amounts, Bigmar Pharmaceuticals can convert
the Laevosan Agreement to a non-exclusive distribution arrangement. The Laevosan
Agreement terminates in December 1998, but is subject to automatic one year
extensions, unless earlier terminated by the parties. Either party may terminate
the Laevosan Agreement upon the occurrence of certain specified conditions.
Vita
In July 1995, Bigmar Pharmaceuticals and Vita entered into a
distribution agreement (the "Vita Agreement") pursuant to which Vita will buy
certain oncological products exclusively from Bigmar Pharmaceuticals and will
commercialize such products in Spain. In the event Vita ceases to commercialize
any product, the marketing authorization for that product will be transferred to
Bigmar Pharmaceuticals at a nominal fee. The Vita Agreement terminates in
September 2005 but may be extended automatically for an additional one year
period. Either party may terminate the Vita Agreement upon the occurrence of
certain specified conditions.
Protyde
In October 1995, Bigmar Therapeutics and Protyde Therapeutics, a
wholly-owned subsidiary of Protyde, a development stage company, formed
Protyde-Bigmar Therapeutics (the "Partnership"), for the purpose of
manufacturing and marketing certain pharmaceutical products (the "Partnership
Products"). The business of the Partnership is to obtain FDA approval to market
the Partnership Products, and to commence the manufacturing and marketing of
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the Partnership Products. Each of the partners initially has a 50% interest in
the Partnership and neither may sell, assign, pledge or otherwise transfer any
portion of their respective interests, except to affiliates of the Company and
Protyde, without the other partner's prior consent. As its initial capital
contribution to the Partnership, Protyde Therapeutics will contribute to the
Partnership up to $3,075,000 in cash, the first $750,000 of which was paid to
the Company on March 29, 1996, with the balance to be contributed at such times
and in such amounts so as to enable the Partnership to timely satisfy its
obligations, and to make its payments under the terms of its manufacturing
agreement . As Bigmar Therapeutics' capital contribution to the Partnership,
Bigmar Therapeutics will cause the Company to make its manufacturing capacity
available to the Partnership under the terms of the Manufacturing Agreement (as
defined below). Under the Partnership Agreement, the Partnership is the sole
owner of all right, title and interest in all FDA-approved ANDAs for the
Partnership Products. Unless terminated by either party upon the occurrence of
certain specified conditions, the Partnership will continue until December 31,
2005.
In October 1995, the Partnership entered into a sales and marketing
agreement (the "Marketing Agreement") pursuant to which the Partnership
appointed Protyde, on an exclusive basis, to market, sell and distribute the
Partnership Products worldwide, except for certain designated countries, and to
assist the Partnership in certain pre-manufacturing activities relating to the
Partnership Products. Unless terminated by either party upon the occurrence of
certain specified conditions, the Marketing Agreement will remain in effect
until the earlier of the dissolution of the Partnership or December 31, 2005.
In October 1995, the Partnership and the Company entered into a
manufacturing agreement (the "Manufacturing Agreement") pursuant to which the
Partnership engaged the Company to, among other things (i) acquire and perform
stability testing on all raw materials and packaging materials necessary for the
manufacture of the Partnership Products, (ii) make its production capacity
available to the Partnership in order to meet production obligations, and (iii)
undertake all measures for quality control which are either required by the FDA
or requested by the Partnership. The Manufacturing Agreement sets forth the
minimum production capacity which the Company must make available to fill
Partnership orders and the minimum annual orders of Partnership Products which
the Partnership must place. If, with respect to any Partnership Product, the
Partnership fails to satisfy the minimum annual orders, the Company may
terminate the Manufacturing Agreement with respect to that product on 180 days
prior notice. Unless terminated by either party upon the occurrence of certain
specified conditions, the Manufacturing Agreement shall remain in effect until
the earlier of the dissolution of the Partnership or December 31, 2005.
The exclusive right to distribute certain of the Partnership Products in
certain territories, including Greece, Ireland, Scandinavia, Austria, South
America, Thailand, Korea and Eastern Europe, had previously been granted by the
Company to Medac. Subsequently, the Company inadvertently included certain of
such rights as part of its contribution to the Partnership. As a result, Protyde
Therapeutics may have a breach of contract claim against the Company. The
Company does not believe that the ultimate outcome of this matter will have a
material adverse effect on its operations.
MARKETING AND SALES
The Company markets IV Solutions through its own sales force to
hospitals, clinics, retirement homes, nursing homes, managed health care
organizations, home infusion providers and other health care providers. In
addition, the Company has entered into contracts with Laevosan and MSD for the
distribution of IV Solutions in Switzerland., In addition, the Company markets
Prostate Materials and calcium leucovorin, to pharmaceutical companies. The
Company does not intend to market its other oncological products or proposed
products directly to the public. During 1995, the Company granted certain
companies such as Medac, Boehringer, Laevosan, Vita and Protyde the exclusive
marketing and distribution rights to certain of the Company's oncological
products and future oncological products in certain territories. The amount of
resources and the time that any of these
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collaborators devote towards marketing and sales of the Company's products and
proposed products are not within the control of the Company. All of the
agreements terminate under certain circumstances. The termination of any of
these agreements would have a material adverse effect on the Company.
RESEARCH AND DEVELOPMENT
The Company's research and development activities focus on purchasing
and formulating raw materials into a finished product, scaling up the
development of the product from the laboratory phase to the production phase,
and conducting stability and bioequivalance testing of the finished product.
The research and development department initiates the Company's quality
process through its development of standard operating procedures. By working
closely with the manufacturing department, the Company believes the same
standards can be imposed to insure consistently high-quality products. The
Company estimates that it takes approximately 12 to 18 months from the
conceptualization of a product to its marketing.
MANUFACTURING AND SUPPLIERS
The Company has two facilities, the Bioren Facility and the Bigmar
Facility. The Bioren Facility is a 57,000 square foot, state-of-the-art,
facility in Couvet, Switzerland where the Company manufactures and markets IV
Solutions and will develop and manufacture non-cytotoxic oncological products.
The Company has dedicated approximately 25,000 square feet of the Bioren
Facility to test and manufacture certain oncological products such as calcium
leucovorin. The Bigmar Facility is a 25,000 square foot, state-of-the-art,
facility, in Barbengo, Switzerland where the Company has developed and begun
manufacturing calcium leucovorin for injection.
The Company's manufacturing facilities will be subject to periodic
inspections by the FDA and other United States federal agencies and the FDA may
choose to inspect the Company's facilities before approving the Company's
products for sale in the United States. The Company's facilities have not yet
been inspected by the FDA, however, the Company has retained independent
consultants to assist in this process of ensuring compliance with GMP
requirements. Although the Company obtained a provisional approval to
manufacture products from the IKS in February 1997, the Company anticipates that
it will require additional financing in order to complete the validation process
and to fund its financing in order to complete the validation process and to
fund its operation prior to the plant becoming fully operational.
Quality monitoring and testing programs and procedures have been
established by the Company to assure that all critical activities associated
with the production, control and distribution of its products will be carefully
controlled and evaluated. The Company's strategy is to seek to meet the highest
quality standards, with the goal of assuring the purity and safety of each of
its products.
The capital costs associated with equipping a facility and manufacturing
oncological products are substantial and the manufacturing process is complex.
Further, because some oncological products are highly toxic, the facility in
which they are manufactured, the method of manufacture, as well as the
employees' working conditions, are regulated by the FDA and foreign regulatory
authorities. As the manufacturing of cytotoxic oncological products is expensive
and complex, only a few companies throughout the world engage in their
manufacture.
The majority of raw materials needed to manufacture the Company's
products and proposed products generally are not readily available and must be
purchased from limited sources. In addition, the Company obtains containers for
IV Solutions from a sole supplier. The Company's reliance on a sole or a limited
number of suppliers involves several risks including, among others, the
inability to obtain an adequate supply of required raw materials and components
in order to manufacture or market a product or proposed product, increased raw
material or component costs and reduced control over pricing, quality and timely
delivery.
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COMPETITION
The pharmaceutical industry is subject to intense competition and rapid
and significant technological change. Competitors of the Company are numerous
and include United States and international companies. In the intravenous
infusion market, the Company faces competition from Braun and Fresenius and in
the Prostate Material market, the Company faces competition from Allergon, a
division of Pharmacia & Upjohn, Inc ("P&U"). In addition, in the oncological
markets, the Company faces competition from Bristol-Myers Squibb Co., Chiron
Inc., Pharmachemie, BV and P&U, Inc. Furthermore, in oncological markets the
Company may face competition from alternative methods of treatment such as, in
the case of its oncological products, surgical procedures, radiation treatments
and other treatments.
Many of the Company's competitors, including all of the companies
referred to above, have substantially greater financial and technical resources
and production and marketing capabilities than the Company. The Company believes
that the principal competitive factors affecting its products and proposed
products are timing of product introduction, price, quality, and service. The
Company believes that quality and service continue to be an advantage in the
sale of IV Solutions and Prostate Materials. The Company believes that price,
timing, quality, customer service and breadth of its product line are all
important competitive factors for its oncological products, and proposed
oncological products The ability to introduce generic versions of products
promptly after a proprietary drug's patent expires and the breadth of the
product line may give companies a competitive advantage over the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patent applications, licenses,
trademarks, trade secrets and non- disclosure agreements to protect its
proprietary technology, rights and know-how and the technology, rights and
know-how licensed from others. There can be no assurance that such patent
applications or any resulting patents or any licenses or trademarks will not be
infringed upon, that the Company's trade secrets will not otherwise become known
to or independently developed by competitors, that non-disclosure agreements
will not be breached, or that the Company would have adequate remedies for any
such infringement or breach. Litigation may be necessary to enforce patents
issued to the Company, to protect the Company's proprietary rights, or to defend
the Company against third-party claims of infringement of proprietary rights of
others. Such litigation could result in substantial cost to the Company and a
diversion of effort of the Company and its management. Patents concerning
pharmaceutical products generally are highly uncertain, involve complex legal,
scientific and factual questions and have recently been the subject of much
litigation. To date, no consistent policy has emerged regarding the breadth of
claims allowed or the degree of protection afforded under these patents.
Accordingly, there can be no assurance that patent applications which underlie
the Company's licenses will result in patents being issued, or that, if issued,
the patents will afford protection against competitors with similar technology.
Because of the extensive time required for development, testing and regulatory
review of a potential product, it is possible that before any of the Company's
potential products can be commercialized, any related patent may expire, or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent. Although the Company is not aware of any
claim against it of patent infringement, the Company's ability to commercialize
its products will depend on not infringing the patents of others. Litigation
concerning patents and proprietary technologies can be protracted and expensive.
Laws regarding the enforceability of intellectual property vary from country to
country. Therefore, there can be no assurance that intellectual property issues
will be uniformly resolved, or that local laws will provide the Company with
consistent rights and benefits. In addition, there can be no assurance that
others will not be issued patents which may prevent the sale of the Company's
products or require licensing and the payment of fees or royalties by the
Company in order for the Company to be able to market certain products.
The Company may in the future be required or may desire to obtain other
licenses to develop,
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manufacture and market other products or to market products in additional
territories, the rights to which may be held by additional parties. There can be
no assurance that licenses will be obtainable on commercially reasonable terms,
if at all, or that any licensed patents or proprietary rights will be valid and
enforceable.
To the extent that consultants, key employees or other third parties
apply technological information independently developed by them or by others to
the Company's projects, third parties may own all or part of the proprietary
rights to such information, and disputes may arise as to the ownership of the
proprietary rights to such information which may not be resolved in favor of the
Company. To the extent that the Company requires rights to any resulting
technologies, it may be necessary to negotiate additional license agreements or
the Company may be unable to utilize such technologies.
GOVERNMENTAL REGULATIONS
UNITED STATES. The Company's research and development activities and the
production and marketing of the Company's licensed and owned products and
proposed products are subject to regulation for safety, efficacy and compliance
with a wide range of regulatory requirements by numerous governmental
authorities in the United States, in states thereof and in other countries. In
the United States, drugs are subject to rigorous FDA review. The Federal Food,
Drug, and Cosmetic Act and other Federal statutes and regulations govern or
influence the research, testing, manufacture, safety, labeling, storage, record
keeping, approval, distribution, reporting, advertising and promotion of such
products. Noncompliance with applicable requirements can result in recall,
injunction or seizure of products, refusal to permit products to be imported
into the United States, refusal of the government to approve or clear product
approval applications or to allow the Company to enter into government supply
contracts, withdrawal of previously approved applications and criminal
prosecution.
In order to obtain FDA approval of a drug, companies must generally
submit proof of safety and efficacy. In some cases such proof entails extensive
clinical and preclinical laboratory tests. The testing, preparation of necessary
applications and processing of those applications by the FDA is expensive and
may take several years to complete. There is no assurance that the FDA will act
favorably or in a timely manner in reviewing submitted applications, and the
Company may encounter significant difficulties or costs in its efforts to obtain
FDA approvals which could delay or preclude the Company from marketing any
products it may develop. The FDA may also require post-marketing testing and
surveillance of approved products, or place other conditions on the approvals.
These requirements could cause it to be more difficult or expensive to sell the
products, and could therefore restrict the commercial applications of such
products. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
For patented products or technologies, delays imposed by the governmental
approval process may materially reduce the period during which the Company will
have the exclusive right to exploit such technologies; however, an additional
period of up to five years may be added to the term of the patent in such
circumstance.
New Drug Application ("NDA"). Generally, with respect to drugs with
active ingredients not previously approved by FDA, a prospective manufacturer
must conduct and submit to FDA adequate and well-controlled clinical studies to
prove that drug's safety and efficacy. Currently, FDA approval of an NDA takes
approximately two to three years on average after its initial submission to FDA,
based on information published by FDA.
Following drug discovery, the steps required before a new pharmaceutical
product may be marketed in the United States include (1) preclinical laboratory
and animal tests, (2) the submission to the FDA of an application for an IND,
(3) clinical and other studies to assess safety and parameters of use, (4)
adequate and well-controlled clinical trials to establish the safety and
effectiveness of the drug, (5) the submission of an NDA to the FDA, and (6) FDA
approval of the NDA prior to any commercial sale or shipment of the drug.
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Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on the drug's pharmacology
and toxicology and to identify any potential safety problems that would preclude
testing in humans. The results of these studies are submitted to the FDA as part
of the IND application. Testing in humans may commence 30 days after submission
of the IND unless the FDA places the IND on "clinical hold." A three phase
clinical trial program is usually required for FDA approval of a pharmaceutical
product. Phase I clinical trials are designed to determine the metabolism and
pharmacologic effects of the drug in humans, the side effects associated with
increasing doses, and, possibly, to obtain early indications of efficacy. These
studies generally involve a small number of healthy volunteer subjects, but may
be conducted in people with the disease the drug is intended to treat. Phase II
studies are conducted to evaluate the effectiveness of the drug for a particular
indication and thus involve patients with the disease under study. These studies
also provide evidence of the short term side effects and risks associated with
the drug. Phase III studies are generally designed to provide the substantial
evidence of safety and effectiveness of a drug required to obtain FDA approval.
They often involve a substantial number of patients in multiple study centers
and may include chronic administration of the drug in order to assess the
overall benefit-risk relationship of the drug. Upon completion of clinical
testing which demonstrates that the product is safe and effective for a specific
indication, an NDA may be submitted to the FDA. This application includes
details of the manufacturing and testing processes, preclinical studies and
clinical trials. The FDA closely monitors the progress of each of the three
phases of clinical testing and may, at its discretion, re-evaluate, alter,
suspend or terminate the testing based on the data that have been accumulated to
that point and its assessment of the risk/benefit ratio to the patient. Typical
estimates of the total time required for completing such clinical testing vary
between four and ten years. The clinical testing and FDA review process for new
drugs are likely to require substantial time, effort and expense. The Company
anticipates that proprietary oncological products will be approved through the
NDA process. There can be no assurance that any approval will be granted to the
Company on a timely basis, if at all. The FDA may refuse to approve an NDA if
applicable statutory and/or regulatory criteria are not satisfied, or may
require additional testing or information. There can be no assurance that such
additional testing or the provision of such information, if required, will not
have a material adverse effect on the Company. The regulatory process can be
modified by Congress or the FDA in specific situations.
Abbreviated New Drug Application ("ANDA"). The Drug Price Competition
and Patent Term Restoration Act of 1984 ("Drug Price Act") established a new
abbreviated procedure for obtaining FDA approval for those generic drugs that
are equivalents of brand name drugs. For drugs that contain the same active
ingredient as drugs already approved for use in the United States, FDA
ordinarily requires bioequivalance data illustrating that the generic drug
formulation is, within an acceptable range, equivalent to a previously approved
drug. A generic drug manufacturer is not required to submit the clinical data to
establish the safety and effectiveness of the product. Instead, the Drug Price
Act allows the FDA to rely on bioequivalance data to approve ANDAs.
"Bioequivalance" compares the bioavailability of one drug product with another
and, when established, indicates that the rate of absorption and the levels of
concentration of a generic drug in the body are substantially equivalent to
those of the previously approved drug. The Company anticipates that ANDAs will
be submitted to the FDA for approval of those generic oncological products which
are intended to be marketed in the United States. According to information
published by FDA, currently it takes approximately one to three years on average
to obtain FDA approval of an ANDA following the date of its first submission to
FDA. Due to the experience of its senior management in submitting ANDAs to the
FDA, the Company believes that it will be able to obtain FDA approval for each
of its proposed oncological products well below the industry average of
approximately 27 months.
The Drug Price Act, in addition to establishing a new ANDA procedure,
created new statutory protection for approved brand name drugs. Prior to
enactment of the Drug Price Act, FDA gave no consideration to the patent status
of a previously approved drug in deciding whether to approve an ANDA. Under the
Drug Price Act, however, the effective date of approval of an ANDA can depend,
under certain circumstances, on the patent status of the brand name drug.
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Additionally, the Drug Price Act, in certain circumstances, provides for
extension of the term of certain patents to cover a drug by up to an additional
five years to compensate the patent holder for the reduction of the effective
market life of a patent due to the time involved in federal regulatory review.
Good Manufacturing Practices ("GMP"). The Company will be subject to the
FDA's GMP, GLP and extensive record keeping and reporting requirements for
manufacturing products for sale in the United States. As a result, the Company's
manufacturing facilities will be subject to periodic inspections by the FDA and
other United States federal agencies when the Company's products are offered for
sale in the United States. The Company's operations have not yet been inspected
by the FDA and there can be no assurance they will pass any inspections by the
FDA. The Company has retained independent consultants to assist it in complying
with FDA standards including the GMP requirements. Failure to comply with
applicable regulatory requirements can result in, among other things, import
detentions, fines, civil penalties, suspensions or losses of approvals, recalls
or seizures of products, operating restrictions and criminal prosecutions.
GERMANY. In Germany, drugs for human use can be marketed only if they
are approved in advance either by the Federal Institute for Medicinal Products
and Medical Devices ("BfArM") in Berlin or by the European Union ( "EU")
Commission after a substantive review of all safety, quality and efficacy data.
The application for a marketing authorization requires the preparation and
submission of extensive data and files. The applicant must produce the results
of analytical, pharmacological/toxicological and clinical studies and related
experts' opinions. The production of these data usually requires a long-term
pre-clinical examination phase. The details of the requirements are prescribed
in administrative regulations such as the Medicinal Products Guidelines.
Clinical trials in Germany are monitored by the state authorities.
The BfArM can reject the application if the data are incomplete, the
drug product has not been sufficiently examined, the product does not conform
with the acknowledged pharmaceutical quality rules, effectiveness has not been
established, or there is a suspicion of unacceptable side effects. In theory,
once a complete application has been submitted to the BfArM, a decision must be
issued within four months, in exceptional cases within seven months. In
practice, however, these terms are not met and a term of review by the BfArM is
expected to take generally three to five years. The marketing authorization of a
new substance triggers fees to the BfArM of over $66,000. The exact amount of
fees can vary, depending on the amount of work required of the authority, the
kind of procedure and the result of such procedure.
For safety reasons, drug products are also subject to close monitoring
after approval is granted. There are a variety of restrictions which the federal
agencies and the state authorities may impose including the withdrawal of
marketing authorizations and the recall of products.
The importation of drug products into Germany from other EU ("European
Union") and E.E.A. (European Economic Area) countries does not require special
permission. However, the product must be approved in Germany. Approval of the
drug product in other EU member states does not replace German approval. The
importer must obtain a separate approval for the repackaging and labeling of
imported products.
Sales of high-price pharmaceuticals (such as oncology drugs) are
affected by parallel imports and re- imports. Independent importers purchase
products in the producing EU country, ship them to Germany and, in most cases,
offer them at far lower prices than the manufacturers of the original
preparations and/or their official importers. The European Court of Justice has
ruled that the importing member state may not prohibit parallel imports.
Where a drug product has not been produced in an EU country or imported
through another EU member country (such as from Switzerland or the U.S.), the
importer must obtain special permission to import the
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product. To do so, the importer must produce a certificate from the regulatory
authority of the country where the drug was manufactured showing, among other
things, that the product is approved in that country and that it conforms to
applicable standards of the World Health Organization ("WHO") or of the
Pharmaceutical Inspection Convention ("PIC").
SWITZERLAND. In Switzerland, approval of the production and sale of
drugs for human use is regulated on a cantonal level rather than a federal
level. The cantons of Switzerland have organized the IKS as an authority for the
approval of pharmaceuticals. Based on approval by the IKS, the cantons then
grant permission for the production and sale of such approved pharmaceuticals.
Theoretically, each canton is still entitled to deny approval of a particular
medication. However, cantons generally follow the decision of the IKS as they
are bound by the Intercantonal Treaty for the Control of Medications.
The IKS reviews all applicable safety, quality and effectiveness data,
as well as data relating to the cost effectiveness of the product. To obtain
approval from the IKS, the manufacturer must submit analytical, chemical,
pharmacological and toxicological data based on animal trials and human clinical
studies. The IKS approves the manufacturing of products only after having
checked the conformity to applicable standards of the WHO or the PIC. The IKS
also will inspect the manufacturing facility to determine if the manufacturer is
complying with good manufacturing practices before approval is granted to
produce the drug product. For generic products, pharmacological and
toxicological data are not required to be submitted to the IKS. To date, all of
the Company's pharmaceutical products which have been approved by the IKS to
date are generic products.
RECENT EU PROCEDURES
On January 1, 1995, the EU established new procedures for the approval
of pharmaceuticals, and a new coordinating body, the EMEA was created. Germany
is a member of the EU; Switzerland is not an EU member. Under the new
procedures, which are optional for certain other pharmaceutical products, in
particular those with new chemical agents, applications are filed with the EMEA
and are evaluated scientifically by the Committee for Proprietary Medicinal
Products ("CPMP"). This is known as the centralized procedure. The CPMP consists
of representatives of the national registration authorities. For each
application, a Rapporteur, (i.e. one of the national authorities) is appointed
and has the overall responsibility for the review of the application. The
Rapporteur prepares an assessment report for the CPMP. The EU Commission will
generally follow the CPMP's scientific evaluation. If one or more member states
objects, the EU Council will decide the matter, otherwise the decision is
rendered by the EU Commission on the basis of the CPMP evaluation.
A decentralized approval procedure is used for most other marketing
authorization applications. The applicant submits the application to one member
state where the application is reviewed. Once the first marketing authorization
is obtained, the company files identical applications in the other EU member
states. The marketing authorities of such other member states are supposed to
acknowledge the first decision within 90 days. If there is disagreement between
the authorities that cannot be resolved, the CPMP will be involved and will
issue a scientific evaluation. If this scientific evaluation is not further
disputed, the EU Commission will render a decision on this basis. If the
disagreement continues, the EU Council will vote to decide the matter.
Because the EMEA guidelines have been in effect for a limited period of
time, the Company is unable to reliably predict how long it will take on average
for drugs to be approved under these new procedures.
THIRD-PARTY REIMBURSEMENT
Successful commercialization of the Company's own or licensed products
may depend in part on the availability of adequate reimbursement from
third-party health care payors such as Medicare, Medicaid, and private insurance
plans. Reimbursement rules vary from payor to payor, and reimbursement also may
depend
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upon the setting in which a particular item or service is furnished.
In general, payors exclude payment for items and services that are
deemed to be not medically "reasonable and necessary", or which are considered
to be not safe and effective, experimental or investigative, or not medically
appropriate for the patient. In making these determinations, payors typically
rely on studies published in peer-reviewed medical journals, the opinions of
recognized medical specialty societies, and the practices of physicians in the
local medical community. Some payors are also beginning to consider the cost of
a new item or service in comparison to existing alternatives in determining
whether and how much they will reimburse for a new technology. FDA clearance or
approval to begin marketing a drug generally is required by payors as a
condition of coverage, but such clearance or approval alone does not assure that
the payor will reimburse for the drug treatment.
Most medical procedures involve payment for the physician service and,
in cases where the service is provided outside of the physician's office,
payment for the facility costs, including supplies, furnished in connection with
the procedure. Medicare, which is a Federal government program that primarily
reimburses health care furnished to the elderly and disabled, pays for physician
services based on a physician fee schedule, which assigns a payment weight for
each covered physician procedure.
The trend towards managed health care and the concurrent growth of HMOs which
could control or significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care, may all
result in lower prices for the Company's products. There can be no assurance
that the Company's products will be considered cost-effective by third-party
payors, that reimbursement will be available or, if currently available, will
continue to be available, or that payors' reimbursement policies will not
adversely affect the Company's ability to sell products on a profitable basis,
if at all. The cost containment measures that health care providers are
instituting in the face of the uncertainty and the ultimate effect of any health
care reform could have an adverse effect on the Company's ability to sell its
products and may have a material adverse effect on the Company.
Virtually every state as well as the District of Columbia has enacted
legislation permitting the substitution of equivalent generic prescription drugs
for brand name drugs where authorized or not prohibited by the prescribing
physician and currently 13 states mandate generic substitution in Medicaid
programs.
In Germany, about 90% of the population are members of statutory health
insurance programs. These health insurance providers are public bodies
independent from the government and are funded equally by employers and
employees. Their catalogue of services for which they will provide reimbursement
is widely influenced by government regulations. Managed Care and HMO's are still
unknown in Germany although various elements of these systems will probably be
adopted in the future. The economic success of a drug product in Germany is
widely dependent upon acceptance of the drug by the statutory health insurance
providers.
Certain drugs are generally excluded from reimbursement, however. This
includes medications to treat minor diseases like colds and influenza and drugs
which have been determined by the Federal Ministry of Health to be
"uneconomical", (e.g., medicinal products with more than three active
ingredients). The Federal Ministry of Health is authorized to amend this
"negative list" at any time. Health insurance providers generally deny
reimbursement for drugs used in clinical trials. Although drugs can generally be
prescribed by a doctor off label, i.e., beyond their approved indication, and
still be reimbursed, there are cases where the reimbursement of oncological
drugs off-label was denied on the basis that the treatment was experimental.
The health insurance providers are also authorized to set maximum
reimbursement levels for generic drugs. As soon as two products with identical
or chemically similar ingredients or similar therapeutic effects are on the
market, the health insurance providers may set a maximum reimbursement amount.
This amount will
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usually be an average of the lowest and the highest price. Typically, the
maximum reimbursement is fixed on the basis of the lowest price plus 1/3 of the
price range to the most expensive product. About 70% of drugs sold in Germany
are subject to maximum reimbursement. So far, no oncological products have been
affected by a maximum reimbursement cap. This may, however, change at any time.
A manufacturer is legally free to continue to sell its products at higher than
the maximum reimbursement rate, but patients must then pay the difference. So
far, the Company believes no manufacturer has tried to sell its products at
prices exceeding the maximum reimbursement. If the products of the Company
become subject to a maximum reimbursement rate, this may adversely affect the
prices the company will be able to charge.
In addition to maximum reimbursement caps, pharmaceutical prices are
subject to statutory limitations on the amounts that can be spent on drugs by
the statutory health insurance providers. As a consequence, pharmaceutical
prices decreased in the last several years and may decrease further in the
future.
In Switzerland, reimbursement for pharmaceuticals is regulated on a
federal level. There are two categories of drugs subject to reimbursement. The
first category consists of medications which are required to be reimbursed by
private health insurers. The second category contains specialty medications for
which reimbursement is recommended. In practice, private health insurers grant
reimbursement for the specialty products on the recommended list.
ENVIRONMENTAL REGULATIONS
In Switzerland, Bigmar Pharmaceuticals and Bioren are subject to
applicable environmental laws such as the Environment Protection Act of 1983,
the Water Protection Act of 1991 and the Toxic Substance Act of 1969, as well as
all applicable regulations. Swiss environmental protection laws govern, among
other things, all emissions to the air, soil and water, waste water discharge
and solid and hazardous waste disposal. Bigmar Pharmaceuticals and Bioren are
subject periodically to environmental compliance reviews by various Swiss
regulatory offices.
The Company believes its facilities in Switzerland are in compliance
with applicable environmental laws. However, environmental laws have changed in
recent years and the Company may become subject to increasingly stringent
environmental standards in the future. While the Company anticipates that it may
from time to time incur expenditures in connection with environmental matters,
it does not anticipate making substantial expenditures for those matters within
the next twelve months and beyond that is unable to predict the extent or timing
of future expenditures which may be required in connection with complying with
environmental laws.
PRODUCT LIABILITY AND INSURANCE
The testing, clinical trials, manufacturing, and marketing of the
Company's products and proposed products involve the inherent risks of product
liability claims against the Company. The Company currently maintains product
liability insurance coverage on IV Solutions in the amount of approximately
$15,000,000, but such insurance is expensive, subject to various exclusions and
may not be obtainable or maintainable by the Company in the future on terms
acceptable to the Company. There can be no assurance that the amount and scope
of any coverage will be adequate to protect the Company in the event that a
product liability claim is successfully asserted against the Company. Products,
such as those sold or proposed to be sold by the Company, may be subject to
recall for unforeseen reasons. A recall of the Company's products could have a
material adverse effect on the Company and its reputation.
Rules on strict liability of drugs are in effect in Germany. The person
responsible for placing the product on the market (who can, but need not be, the
manufacturer) is liable. Only personal injuries are recoverable, and
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there is no mandated compensation for pain or suffering. The maximum amount
recoverable by an individual is DM 1 million (approximately US $649,000).
The manufacturer or the person responsible for placing the product on
the market is obliged to obtain insurance coverage against potential
liabilities. This obligation can be fulfilled either by entering into a contract
with a German insurance company, or by obtaining a confirmation of coverage from
a credit institution in Germany or within the EU. The German insurance industry
has created a so-called "pharma pool." This working relationship enables all
major German insurance companies to pool the risks from the statutory strict
liability and therefore provide affordable insurance.
Compensation for pain and suffering or for personal damages exceeding
the amounts set forth above can only be demanded on the basis of tort rules as
laid down in the Civil Code. If a claim is sustained there is unlimited
liability. No compulsory insurance coverage is prescribed by statute.
Compensation for pain and suffering can be assessed by the courts but usually
remains below the levels under United States law.
In Switzerland, there is no special product liability law for
pharmaceuticals. The Swiss federal product liability law, which covers drug
products, provides that manufacturers are subject to strict liability for
injuries caused by defective products.
HUMAN RESOURCES
The Company and its subsidiaries employ 47 full-time employees, four
employees in development, 34 employees in manufacturing and quality control,
three employees in marketing, and six employees in management and
administration. All but seven of the Company's employees are located in
Switzerland. In addition the Company relies upon advisors with expertise in
various scientific disciplines.
The Company's employees are not a party to any collective bargaining
agreements. The Company believes that it has good relations with its employees.
ITEM 2. PROPERTIES.
On December 31, 1996, the Company entered into a lease (the "Lease")
with JTech Laboratories, Inc. ("JTech") relating to approximately 8,600 square
feet of space located at 9511 Sportsman Club Road, Johnstown, Ohio 43031 (the
"JTech facility"). The JTech facility is to be utilized by the Company as its
principal executive offices and research and development laboratory. The Lease
expires five years from the occupancy date, and provides for a first year fixed
annual rent payment of $120,000 discounted at 9%, with monthly rent payments of
$10,000 per month for years two through five of the lease adjusted to the
consumer price index (CPI) for inflation. These amounts do not include the
Company's proportionate cost of utilities, repairs, cleaning, taxes and
insurance. The Company's obligation to lease the premises is contingent upon the
lessor's substantial completion of construction in accordance with approved
plans and specifications. The Company anticipates that its occupancy at the new
facility will commence in late May 1997. John G. Tramontana was the President,
a director and stockholder of JTech and Michael K. Medors was the Treasurer, a
director and stockholder of JTech at the time of the negotiation and execution
of the lease. Mr.Tramontana and Mr. Medors continue to hold such positions with
JTech.
The Company's current principal executive offices are located at 6660
Doubletree Avenue, Columbus, Ohio 43229. The sublease on this space is month to
month, terminates effective February 28, 1998, and provides for monthly rent
payments of $1,925. This amount includes the Company's proportionate cost of
utilities, repairs, cleaning, and taxes and does not include insurance.
The Company owns two pharmaceutical plants, the Bigmar Facility and the
Bioren Facility.
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During 1995, Bigmar Pharmaceuticals purchased the Bigmar Facility, a
25,000 square foot facility in Barbengo, Switzerland, for developing and
manufacturing oncological products. The Bigmar Facility also houses warehousing
and storage, manufacturing, labeling and packaging, and administrative and
record-keeping areas. The Bigmar Facility and the equipment contained therein is
subject to two bank loans in the principal amounts of approximately $1,493,100
and $2,594,234 respectively. The loans are secured by mortgages on the Bigmar
Facility and certain machinery. Interest on the loans is payable at rates of up
to 6.5% and 5.0%per annum respectively until December 31, 1998. The principal
amounts of such loans are due on $93,319 in 1997, $261,293 in 1988, $375,275 in
1999, $373,275 in 2000, $1,866,375 in 2001 and $1,119,796 in 2002. The Bigmar
Facility is currently being validated and the Company will not begin marketing
products manufactured at the Bigmar Facility until regulatory approval is
obtained, which the Company believes will occur in the second quarter of 1997.
The Bioren Facility is a 57,000 square foot facility in Couvet,
Switzerland that houses manufacturing operations, laboratory facilities for
quality assurance and quality control activities, including batch testing and
multiple-batch stability testing operations, labeling and packaging operations,
warehousing and storage operations, administrative and record-keeping areas. A
25,000 square foot area in the Bioren Facility will be used as a dedicated area
for scaling up the development and manufacturing supporting (rescue therapy)
oncological products, such as calcium leucovorin. A 21,000 square foot area in
the Bioren Facility is used for manufacturing and marketing IV Solutions. A
portion of the Bioren Facility is leased to an unaffiliated third party on a
year-to-year basis. The Bioren Facility is subject to a mortgage in the
approximate principal amount of $2,240,000 which is due on May 16, 1999 and may
be extended by an agreement between the parties. Interest until May 16, 1999 is
5% per annum. The Bioren Facility is also subject to a second mortgage payable
to Galenica in the amount of $1,493,100. This second mortgage is payable
$373,275 in 1997, $373,275 in 1998, and $746,550 in 1999. Interest on this
second mortgage is at a variable rate which is currently 5.5% and is subject to
adjustment based upon commercial mortgage rates.
The Company also leases warehouse space in Switzerland under an
operating lease expiring through 1999. Rental expenses amounted to $56,215 in
1996, and $19,250 in 1995.
The Company believes that its facilities (including the JTech Facility)
are, or will be, sufficient for its current and reasonably anticipated
operations. The Company owns all of its manufacturing equipment, subject to the
mortgage referred to above, and believes that its equipment is well maintained
and suitable for its requirements. Additionally, the Company maintains property
and casualty insurance in amounts it believes are sufficient and consistent with
practices for firms of its size in the prescription drug industry.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
On March 27, 1997, the Company reached the Settlement with the Cerbios
Entities in connection with the Claims. A release has been signed by Cerbios in
favor of the Company. See - Item 1 Business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
PART II
- 19 -
<PAGE>
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The shares of Common Stock of the Company commenced trading on the
Nasdaq SmallCapSM Market under the symbol "BGMR"and Boston Stock Exchange under
the symbol "BGM" on June 20, 1996. The range by calendar quarter of high and low
reported closing sales prices for the Common Stock as reported by the Nasdaq
SmallCapSM Market since the commencement of trading were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Quarter ended: High Low
--------------------------------------------------------------------
<S> <C> <C>
June 30 11 1/2 8
September 30 10 1/8 6
December 31 7 1/4 4 3/8
</TABLE>
HOLDERS
On April 10, 1997, as reported by the Company's transfer agent, shares
of Common Stock were held by 40 persons. The Company believes that the number of
beneficial holders of its Common Stock on such date was in excess of 400.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying dividends in the foreseeable future. The Company currently
intends to retain future earnings, if any, to finance its expansion strategy.
The payment of future cash dividends by the Company on its Common Stock will be
at the discretion of the Board of Directors and will depend on the Company's
earnings, if any, financial condition, cash flows, capital requirements, any
contractual prohibitions with respect to the of dividends and other
considerations as the Board of Directors may consider relevant. In addition, the
Swiss Federal Code of Obligation provides further restrictions on the Company's
ability to pay dividends to its stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA
The following selected financial data presents historical financial data
for Bigmar, Inc. and subsidiaries for the years ended December 31, 1992, 1993,
1994, 1995 and 1996. The data has been derived from the financial statements
(and notes thereto), which financial statements have been audited by Richard A.
Eisner & Company, LLP, independent auditors, included elsewhere in this Form
10K. The selected financial data should be read in conjunction with the
financial statements (and notes thereto) of Bigmar, Inc. and subsidiaries and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10K.
- 20 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
BIGMAR, INC.(1)
-----------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1992 1993 1994 1995 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net Sales ................................... $ 0 $ 264,077 $ 707,627 $ 5,600,362 $ 7,931,149
Cost of sales ............................... 182,075 611,040 4,011,891 5,312,193
------------ ------------ ------------ ------------ ------------
Gross profit ................................ 0 82,002 96,587 1,598,471 2,618,956
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development expense ......... 23,144 801,560
Selling, general and administrative
expense .................................. 10,012 50,810 16,269 1,493,055 3,006,546
Settlement fees paid to Cerbios
and write-off of licensing
fees ................................... 511,777
------------ ------------ ------------ ------------ ------------
Total operating expenses .................... 10,012 50,810 16,269 1,516,199 4,319,883
------------ ------------ ------------ ------------ ------------
Operating income (loss) ..................... (10,012) 31,192 80,318 82,272 (1,700,927)
Other income (expenses) ..................... 10,212 (7,909) (1,660) (179,476) 61,383
------------ ------------ ------------ ------------ ------------
Net income .................................. $ 200 $ 23,283 $ 78,658 ($ 97,204) ($ 1,639,544)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Per Share Data:
Net income (loss) ........................... $ 0.00 $ 0.06 $ 0.02 ($ 0.07) ($ 0.51)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average number of shares
outstanding ................................. 400,188 400,188 400,188 1,337,392 3,235,137
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Balance Sheet Data:
Working capital ............................. $ 82,074 $ 113,573 $ 98,526 $ 1,204,461 $ 545,102
Total assets ................................ 84,560 152,022 2,173,621 15,493,126 24,270,169
Long-term obligations ....................... 1,500,767 8,436,971 7,353,490
Retained earnings (deficit) ................. 200 23,483 102,142 4,938 (1,634,606)
Stockholders' equity ........................ 90,290 113,573 192,492 3,911,404 10,895,853
</TABLE>
(1) On April 9, 1996, a reorganization of companies under common control
took place whereby the Company acquired 100% of Bigmar Pharmaceuticals
and 50% of Bioren. Accordingly, the financial statements of the Company
includes the results of operations of Bigmar Pharmaceuticals for all
periods presented and the results of operations of Bioren from July 1,
1995 (the date of acquisition).
- 21 -
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The Company is currently engaged in manufacturing and marketing
16 types of IV Solutions in Switzerland and marketing in Germany Prostate
Materials and a generic oncological product, calcium leucovorin to
pharmaceutical companies. In addition, the Company has entered into
contracts with Laevosan, and MSD for the distribution of IV Solutions in
Switzerland.
The Company's business strategy over the next 18 months is to:
manufacture and market approximately seven injectable
and lyophilized oncological products;
manufacture and market additional oncological products
as the patents relating to the products expire;
increase the number of pharmaceutical companies in
Europe through which the Company's oncological products
are marketed and the territories in which they are
distributed;
expand the marketing of IV Solutions in Switzerland
through the Company's own sales force and third party
distributors; and
identify partners in the pursuit of new supply
agreements and collaborative relationships.
For the year ended December 31, 1996, the Company's sales of IV
Solutions and antibiotics were approximately $5.8 million, sales of medical
products, including Prostate Materials were approximately $1.5 million, and
sales of generic oncological products were approximately $.5 million. For the
year ended December 31, 1995, on a pro forma basis after giving effect to the
Bioren Acquisition as if the transaction had occurred on January 1, 1995, sales
of these products aggregated approximately $6.5 million, $1.4 million, and $.7
million respectively. For the year ended December 31, 1995, approximately $1.0
million or approximately 12% of the Company's sales on a pro forma basis were
attributable to sales of antibiotics. For the year ended December 31, 1996,
approximately $.4 million or approximately 5% of the Company's sales were
attributable to such products. Sales of antibiotics have been progressively
abandoned by the Company in Europe.
The Company's revenues and profitability may be affected by the ongoing
efforts of third-party payors to contain or reduce the costs of healthcare by
lowering reimbursement payment rates, increasing case management review of
services and negotiating reduced contract pricing and reimubursement caps. In
the event any of the Company's products become subject to a maximum
reimbursement rate, the prices the Company will be able to charge its customers
and, as a result its results of operations, may be adversely affected.
-22-
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
BIGMAR, INC.
Bigmar, Inc. was incorporated in September 1995. On April 9, 1996, in
the Exchange, Bigmar, Inc. acquired 100% of Bigmar Pharmaceuticals and 50% of
the Bioren capital stock owned by the Bioren Holders. Accordingly, both Bigmar
Pharmaceuticals and Bioren are 100% owned subsidiaries of Bigmar, Inc. The
acquisition was accounted for as a reorganization of companies under common
control. Accordingly, the financial statements of Bigmar, Inc. were restated to
include the results of Bigmar Pharmaceuticals for all periods presented and
Bioren from July 1, 1995 (the date of acquisition).
BIGMAR THERAPEUTICS
-23-
<PAGE>
<PAGE>
Bigmar Therapeutics was incorporated in September 1995 and its
only activity since inception has been the execution and delivery of an
agreement with Protyde Therapeutics to form the Partnership for the purpose
of coordinating the manufacturing and marketing of certain pharmaceutical
products for the treatment of cancer, such as mercaptopurine, calcium
leucovorin, methotrexate and doxorubicin, worldwide, except for certain major
European countries.
BIGMAR PHARMACEUTICALS AND BIOREN
Bigmar Pharmaceuticals commenced operations in January 1992. The
following discussion and analysis describes the results of operations of
the Company for the years ended December 31, 1994, 1995 and 1996 and
Bioren from July 1, 1995. Effective June 30, 1995, Bigmar Pharmaceuticals
acquired 100% of the outstanding capital stock of Bioren in the Bioren
Acquisition, and immediately sold 50% of the stock to the Bioren Holders.
The Company's financial statements include the results of Bigmar Pharmaceuticals
for all periods presented and Bioren from July 1, 1995.
Bioren currently manufactures IV Solutions and other hospital-based
products. Since the Bioren Acquisition, sales of IV Solutions have increased
while sales of antibiotics (the other market in which Bioren historically
operated) have been progressively abandoned. In the near future, Bioren intends
to continue to manufacture and market IV Solutions and has added a
non-cytotoxic product, calcium leucovorin, used in the treatment of cancer.
The following sets forth, in tabular form, a comparison of the results of
operations of the Company as a percentage of the Company's sales for the years
ended December 31, 1994, 1995, and 1996. The fiscal year of the Company ends
on December 31 of each year. The financial information included in this
1O-K Report is not necessarily indicative of the Company's future operating
results or financial condition.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Sales 100% 100% 100%
Cost of goods sold 86.4% 71.5% 63.5%
Research and development 0% .4% 10.1%
Selling, general and administrative expenses 2.3% 24.4% 37.9%
Depreciation and Amortization - 2.3% 3.5%
Interest expense (0.1%) 3.3% (2.6%)
Income taxes 1.5% (0.1%) 0%
Net income 11.1% (1.7%) (20.7%)
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased by $2,330,787 to $7,931,149 for the year
ended December 31, 1996 as compared to $5,600,362 for the comparable period in
1995. This increase was attributable to a full year of Bioren sales of
$5,811,162 in 1996 as compared to the inclusion of only the last six months
sales in 1995 as Bioren had not yet been acquired. Bioren full year 1995 sales
were $6,480,955. The decrease from 1995 to 1996 was due to an exchange rate
difference of approximately $400,000 and a reduction in antibiotic sales
of approximately $400,000. Excluding Bioren sales, the increase in net sales was
$61,615, from $2,058,270 in 1995 to $2,119,987 in 1996. This increase was due
primarily to additional sales of approximately $464,000 of pharmaceutical
products, offset by a reduction of approximately $247,000 and $122,000 in
Prostate Materials
-24-
<PAGE>
<PAGE>
and generic oncological products, respectively, and an adverse change of
approximately 4% in exchange rates between the U.S. dollar and the Swiss franc.
The Company expects sales of generic oncological products to improve once new
products are added to the oncology line.
Cost of Goods Sold. Cost of goods sold increased by $1,310,302
to $5,312,193 for the year ended December 31, 1996 as compared to
$4,001,891 for the comparable period in 1995. This increase was primarily
due to increased sales.
Gross Profit. Gross profit increased by $1,020,485 to $2,618,956 for
the year ended December 31, 1996 over the comparable period in 1995.
This increase was attributable to the addition of Bioren gross profit in
1996 of $1,825,230. Without the addition of Bioren, gross profit for the
period ended December 31, 1996 increased $354,185 to $793,720 as
compared to $439,535 for the comparable period in 1995. This increase
was due to both higher net sales and an improvement in margin due to
favorable product mix.
As a percentage of sales, gross profit for the year ended
December 31, 1996 was 33%, an increase from 28.5% for the comparable
period in 1995. Bigmar Pharmaceuticals gross profit as a percentage of
sales increased to 37.4% from 21.4% for the comparable period in l995.
This improvement reflects a change in the mix of products sold from
period to period as Prostate Materials were sold in 1995 at materially
lower margins than other products. Bioren gross profit as a percentage
of sales for the year ended December 31, 1996 decreased to 31.4% from
32.7% for the comparable period in 1995. This decrease resulted
primarily from competitive pricing tactics in the IV Solution product
line. The Company expects that the tight margins in the IV Solution product
line will continue but also anticipates that the Company's overall gross
margin will improve once new products are added to the oncology line.
Research and Development Expenses. Research and development
expenses for the year ended December 31, 1996 were $801,560 compared to
$23,144 in 1995. The increase reflects expenditures related to the
formulation and development of oncology products and expanded research
and development activities in order to obtain regulatory approval for
manufacturing and marketing oncology products. The Company also incurred
additional expenditures of approximately $1,725,538 during the year
ended December 31, 1996 related to equipment and facility validation,
and expanded research and development activities in order to obtain
regulatory approval for manufacturing and marketing oncological products.
These expenditures were deferred and will be expensed upon commencement
of operations at the Bigmar Facility. While the Company has
capitalized certain expenditures related to the validation of the new
manufacturing plant, expenditures related to individual products have
been expensed as incurred. In view of the anticipated number of products
scheduled for registration in the next several years, the Company
anticipates that the level of research and development expenses will
continue to be significant.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased by $1,513,491 to $3,006,546 for
the year ended December 31, 1996 as compared to $l,493,055 for the
comparable period in 1995. The increase is largely due to the addition of
Bioren's selling, general and administrative expenses of $1,579,283.
Bioren's selling, general and administrative expenses were $2,001,123 in
the comparable period in 1995. Bioren's selling, general and administrative
expenses declined due to a reduction in various costs including antibiotic
marketing salaries, consulting fees, search fees and due to the change in
exchange rates. Selling, general and administrative expenses for 1996, reflect
an increase in the number of employees and related expenses and expansion of
activity in both the U.S. and in Switzerland.
In 1996 the Company incurred settlement fees of approximately $300,000
payable to Cerbios-Pharma and wrote off licensing fees paid to divisions of
Cerbios-Pharma amounting to $200,000.
-25-
<PAGE>
<PAGE>
In the second half of 1996, Cerbios-Pharma SA ("Cerbios"), a wholly-
owned subsidiary of Chemholding SA ("Chemholding"), a beneficial owner of
approximately 25.4% of the Company's Common Stock, rendered invoices to
the Company, in the amount of approximately $681,000 for expenses and fees to
which Cerbios claimed to be entitled in connection with services it provided
to the Company in 1996. In December 1996, Cerbios submitted a letter to the
Company requesting reimbursement of approximately $1,118,000 to which Cerbios
claimed to be entitled in connection with services it provided to the Company in
1995. In March 1997, Cerbios submitted a letter to a representative of
the Company claiming that Cerbios was owed an additional $2,243,000 for various
"services" and "values of lost contracts" (the foregoing, collectively,
the "Claims").
The Company maintains that no substantial services were provided in 1995
by Cerbios to the Company and that the amounts claimed for 1996 by Cerbios far
exceeded the actual expenses incurred by Cerbios on behalf of the Company. Such
actual expenses were accrued in the Company's 1996 quarterly financial
statements. On March 27, 1997, the Company reached a settlement (the
"Settlement") with Cerbios of the Claims for approximately $300,000 and in
connection therewith Cerbios delivered to the Company a release.
As a result of the Settlement [WAS THE CANCELLATION A RESULT OF THE
SETTLEMENT?], the Company and each of its wholly-owned subsidiaries, Bioren SA
("Bioren"), Bigmar Pharmaceuticals SA ("Bigmar Pharmaceuticals"), and Bigmar
Therapeutics, Inc. ("Bigmar Therapeutics" and collectively, the "Company's
Entities") and Cerbios, Chemholding, Sapec SA ("Sapec"), and Bioferment SA
("Bioferment" and collectively, the "Cerbios Entities") have mutually agreed to
the cancellation of the following agreements: the Sapec Exclusive Distribution
Agreement (the "Sapec Agreement"), the Bioferment Exclusive Distribution and
Supply Agreement (the "Bioferment Agreement"), and the Bioferment
License and Supply Agreement (the "Bioferment License Agreement"). In addition
the Company has determined to terminate all relationships and transactions with
the Cerbios Entities, including the purchases of raw materials for resale, which
purchases aggregated approximately $501,000 and generated sales of approximately
$833,000 in 1996.
The Sapec Agreement provided for, among other things, the supply of Sodium
Leucovorin and five generic oncological products. The Company has yet to
identify another supplier for Sodium Leucovorin. The Company has identified
alternative suppliers for the five generic oncological products and has already
obtained two of the generic oncological products from other suppliers. The
Company believes it can acquire the other three products from alternative
suppliers. The Company has paid Sapec a one-time fee of $100,000 for the grant
of the exclusive rights and licenses that were part of the Sapec Agreement. This
fee has been forfeited and no refund will be granted. The Company believes the
cancellation of the Sapec Agreement will not have a material adverse effect on
its operations.
The Bioferment Agreement provided exclusive worldwide rights to use,
manufacture and market recombinant urokinase ("Urokinase"), a biotechnological
product. The Company has not obtained another supplier for Urokinase. Pursuant
to the Bioferment Agreement, the Company has paid Bioferment a fee of $10,000.
This fee has been forfeited and no refund will be granted. The Company will
attempt to locate and alternative supplier for Urokinase. However, there is no
guarantee the Company will be successful in finding another supplier for
Urokinase. The Company believes the cancellation of the Bioferment Agreement
will not have a material adverse effect on its operations.
The Bioferment License Agreement provided the license to use, manufacture
and market a recombinant human growth hormone, a biotechnological product. The
Company believes the cancellation of the Bioferment License Agreement will not
have a material adverse effect on its operations.
-26-
<PAGE>
<PAGE>
Interest income of 152,705 was generated from the investment of the
proceeds of the IPO. Interest expense for the period ended December 31, 1996
amounted to $206,469 an increase of $10,082 from the comparable period in 1995
of $196,387. The increase is due to the assumption of debt related to: the
Bioren acquisition; the purchase of production equipment; and, construction of
the manufacturing facility in Switzerland, and was partially offset by
capitalized interest costs of $500,000. In 1995 such capitalized interest was
$235,000. The capitalized interest was incurred in connection with borrowings
used to finance the construction and equipment of the Bigmar facility.
Other income represents $69,162 in payments to Bioren from a company which
leases a portion of the Bioren Facility on a year-to-year basis net of other
expenses. The Company also realized $86,481 in foreign currency exchange gains.
Income Taxes. The tax charge in Switzerland is an accumulation of taxes due
to the city, canton (state) and the federal authorities. While the actual rate
is a function of the percentage of profitability in relation to taxable equity,
the Company believes that 20% and 30% are fair approximations of the effective
accumulative rates for Bigmar Pharmaceuticals and Bioren, respectively. Swiss
law precludes consolidated tax filings and thus the ability to offset taxable
income in one entity by losses of another. The tax liability for the year ended
December 31, 1996 is not significant, particularly because the Company's income
for the period was generated by Bioren which has a significant tax loss
carry-forward.
Net Loss. The Company sustained a net loss of $1,639,544 for the year ended
December 31, 1996 as compared to a net loss of $97,204 for the year ended
December 31, 1995. The net loss for 1996 represents an increase of $1,542,340.
Such loss was due to primarily to the intensification of oncology product
development and registration activities as well as the settlements with Cerbias-
Pharma and staffing and related activities required to support the development
of the oncology business.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
(INCLUDING BIOREN FOR THE PERIOD FROM JULY 1, 1995 TO DECEMBER 31, 1995)
Net Sales. Net sales increased by $4,892,735 to $5,600,362 for the year
ended December 31, 1995 as compared to $707,627 for the year ended December 31,
1994. Excluding Bioren sales, the increase in net sales was $1,350,745 from
$707,627 in 1994 to $2,058,372 in 1995. This increase was primarily due to the
increases in sales of pharmaceutical products by $309,416, Prostate Materials by
$580,619, and oncological products by $460,710 which the Company began selling
in June 1993, November 1994, and August 1994, respectively. For the years ended
December 31, 1995 and 1994, sales of Prostate Materials to Stroschein were
approximately $1.0 million and $470,000, respectively. These sales were pursuant
to the Stroschein Agreement with, pursuant to which Bigmar Pharmaceuticals acts
as the exclusive supplier of Prostate Materials to Stroschein, and Stroschein
distributes the Prostate Materials in Germany and other countries. For the year
ended December 31, 1995, sales of generic oncological products consisting of
mercaptopurine and calcium leucovorin were approximately $670,000. For the
period from July 1, 1995 through December 31, 1995 Bioren sales were $3,541,990.
-27-
<PAGE>
<PAGE>
Cost of Goods Sold. Cost of goods sold increased by $3,390,851 to
$4,001,891 for the year ended December 31, 1995 as compared to $611,040 for the
year ended December 31, 1994. This increase was primarily due to the increase in
sales.
Gross Profit. Gross profit increased by $1,501,884 to $1,598,471 for the
year ended December 31, 1995 as compared to $96,587 for the year ended December
31, 1994. Gross profit on Bigmar Pharmaceuticals sales was $439,535 for the year
ended December 31, 1995 as compared to $96,587 for the year ended December 31,
1994. The increase of $342,948 was due primarily to increased sales. Gross
profit as a percentage of net sales increased to 28.5% for the year ended
December 31, 1995 as compared to 13.6% for the year ended December 31, 1994.
Without Bioren sales, gross profit as a percentage of sales in 1995 would have
been 21.3%, an increase of 7.7%, as compared to 13.6% for 1994. This increase
was due primarily to the introduction of a new dosage form of lyophilized
calcium leucovorin in April 1995 which yielded a higher margin.
Gross profit on Bioren sales for the period from July 1, 1995 to December
31, 1995 was $1,158,936 or 32.7% of such sales. Bioren gross profit decreased
from 42.2% of net sales for the six months prior to the Bioren Acquisition as a
result of a shutdown of the Bioren Facility for a four-week period during the
latter half of 1995 for the installation of a new tank in order to increase the
capacity of the Bioren Facility's water system.
Research and Development Expenses. Research and development expenses were
$23,144 for the year ended December 31, 1995 with no such expenses for the year
ended December 31, 1994. The research costs were incurred by Bioren in the
second half of 1995 for the registration of new IV Solutions. Pursuant to its
business strategy, the Company intends to expand its business by manufacturing
and marketing certain oncological and biotechnological products and expects its
research and development expenses to be significant in future years.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1,473,786 to $1,493,055 (26.7% of net
sales) for the year ended December 31, 1995 as compared to $16,269 (2.3% of net
sales) for the year ended December 31, 1994. The increase was primarily due to
the addition of Bioren expenses of $1,091,074 since July 1, 1995 (the date of
the Bioren Acquisition). Bioren expenses include consulting fees of $332,055,
promotional expenses of $223,845, employee benefits and other personnel costs of
$170,631, shipping costs of $92,084 and other administrative costs of $272,459.
Without the Bioren expenses, selling, general and administrative expenses were
$401,981 for the year ended December 31, 1995. The increase of $385,712 as
compared to selling, general and administrative expenses of $16,269 in 1994 was
due to greater marketing costs and expenses associated with efforts to increase
sales.
Interest Expense. Interest expense was $182,476 for the year ended December
31, 1995 as compared to no interest expense in 1994. The interest expense was
primarily due to interest on indebtedness incurred in connection with the Bioren
Acquisition and interest on borrowings owed by Bioren to its former owner,
Galenica. In addition, the Company capitalized interest costs of $235,000 and
$40,000 for the years ended December 31, 1995 and 1994, respectively. The
capitalized interest was incurred in connection with borrowings used to finance
the construction and equipment of the Bigmar Facility.
Income Taxes. The tax charge in Switzerland is an accumulation of the taxes
due to the city, the canton (state) and the federal authorities. Therefore, the
tax burden varies from one entity to another depending upon its location. While
the actual tax rate is a function of the percentage of profitability in relation
to taxable equity, the Company believes that 20% is a fair approximation of the
effective cumulative rate. In addition, as Swiss tax laws do not permit
consolidated tax filings, possible tax losses in one entity do not offset
taxable income in another. Tax expense for the year ended December 31, 1995 was
not significant due to the amount of the loss and
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<PAGE>
<PAGE>
the provision of a full valuation allowance on the deferred tax asset arising
from the benefit of the Company's operating losses. Tax expense for the year
ended December 31, 1994 was $10,553.
Net Loss. The Company sustained a net loss of $97,204 for the year ended
December 31, 1995 as compared to net income of $78,658 for the year ended
December 31, 1994. Such loss was primarily due to higher interest and other
expenses of Bioren.
Liquidity and Capital Resources
In June, 1996, the company completed its IPO through which the Company
received, after deducting all related offering expenses, approximately $9.4
million in net proceeds. As of December 31, 1996 and December 31, 1995, the
Company had cash and cash equivalents of $4,362,938 and $1,425,603,
respectively. The Company's working capital approximated $545,102 and $1,204,461
at December 31, 1996 and December 31, 1995, respectively. The Company has
incurred, and will continue to incur, substantial expenditures for research and
development activities related to bringing its products to the commercial
market. The Company intends to devote significant additional funds to product
development, formulation, clinical testing, manufacturing validation, product
registration, and other activities required for regulatory review of generic
oncological products. The amount required to complete such activities will
depend upon the outcome of regulatory reviews. The regulatory bodies may require
more testing than is currently planned by the Company. There can be no assurance
that the Company's generic oncological products will be approved for marketing
by the FDA or any foreign government agency, or that any such products will be
successfully introduced or achieve market acceptance.
At December 31, 1996 accounts receivable decreased $815,854,or 51% while
inventories decreased $101,477, 9.6%, compared to December 31, 1995. The
decrease in receivables stems mainly from favorable agreements with distributors
of Bioren's IV Solution products. The change in inventories reflects improved
turnover and tighter control of stock levels.
Property, plant and equipment at December 31, 1996 totaled $17,407,140
compared to $10,717,834 at December 31, 1995. The major portion of this
$6,689,306 million increase relates to the construction and equipping of the
Bigmar facility.
Trade accounts payable to third parties were $1,721,846 and $826,532 at
December 31, 1996 and December 31, 1995, respectively. The increase is due
mainly to liabilities incurred from construction and plant validation at the
Bigmar Facility of $956,000.
In March 1996, Protyde Therapeutics paid $750,000 to the Company as part of
its required capital contributions to the Partnership.
At December 31, 1996, the Company had an aggregate of $9,350,077 in
outstanding indebtedness, of which $1,996,587 is short term in nature. These
monies were used to partially fund the acquisition of Bioren and to acquire,
construct and equip the oncological manufacturing facility. The long term
portion has various maturities and repayment schedules. No payments on long term
debt are due within the next twelve months.
Included in the outstanding indebtedness is a $1,493,100 loan due to the
former owner of Bioren, collateralized by a second mortgage on the Bioren
facility. The interest rate is based on Swiss industrial mortgage rates.
Repayment of the loan is in installments of $373,275 in 1977, $373,275 in 1998
and $746,550 in 1999.
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<PAGE>
The Company has a bank mortgage on the Bioren Facility in the amount of
$2,239,650. This loan bears interest at the rate of 5% per annum through May 16,
1999. The principle amount of the loan is due upon demand after May 17, 1999 and
may be extended by an agreement between the parties.
The Company has other outstanding bank loans of $2,594,234 and $1,493,100
used for the construction and equipping of the Bigmar Facility. These loans bear
interest at rates of up to 5% and 6.5% per annum and are collateralized by
the building and machinery at the Bigmar Facility. The principle amount of the
loans are $93,319 in 1997, $261,294 in 1998, $373,275 in 1999, $373,275 in 2000,
$1,866,375 in 2001 and $1,119,796 in 2002.
On January 8, 1995, Chemholding agreed to be a surety for Bigmar
Pharmaceuticals in the amount of $1.3 million for the foregoing loans with
respect to the Bigmar Facility.
In 1996 the Company repaid a related party loan of approximately $1,900,000
with the proceeds of a short term bank loan in the same amount the short term
bank loan is due on demand and bears interest at a variable rate not to exceed
6.5%.
The Company anticipates capital expenditures for the next 12 months to be
approximately $1.0 million. Including approximately $.5 million for the purchase
of laboratory equipment to support research and development and stability
testing for the projected onological product pipeline, and approximately $.5
million for equipment validation of the Bigmar Facility.
Since the Company does not anticipate product sales of the Bigmar Facility
to be of sufficient volume to generate positive cash flow for the first half of
1997, the Company will be required to supplement its cash position from time to
time through additional financing (debt or equity) or entering into development,
marketing or other collaborative arrangements. There can be no assurance that
adequate financing will be available when needed or on terms attractive to the
Company
Stockholders' equity at December 31, 1996 amounted to $10,895,853, an
increase of $6,984,449 from stockholders' equity at December 31, 1995. This
increase reflects the infusion of net proceeds from the IPO offset by
year-to-date losses and adjustments to Swiss franc-denominated assets resulting
from fluctuations in the exchange rate between the Swiss franc and U.S. dollar.
The results of the Company's operations are affected by changes in exchange
rates between currencies. Changes in exchange rates may negatively affect the
Company's consolidated net sales and gross profit margins from international
operations. The company is exposed to the risk that the dollar-value equivalent
of anticipated cash flow will be adversely affected by the changes in foreign
currency exchange rates. At such time as the Company determines that this risk
is significant, the Company may attempt to manage the risk by utilizing hedging
techniques, although there can be no assurance that the Company will be
successful in these activities.
The Company anticipates that the net proceeds received from the Offering,
together with cash flow from operations (if any), will be sufficient to fund the
Company's operations, through July 1997. There can be no assurance that events
affecting the Company's operations will not result in the Company depleting its
funds before that time. The Company will be required to raise substantial
additional funds to continue to fund operating expenses or its expansion
strategy. The company is currently discussing the availability of financing with
certain financial institutions. There can be no assurance that the Company will
be able to obtain such additional financing or that such financing, if
available, will be on acceptable terms.
The Swiss Federal Code of Obligation provides that at least 5% of a Swiss
company's net income each year must be appropriated to a legal reserve until
such time as this reserve is equivalent to 20% of the
-30-
<PAGE>
<PAGE>
company's paid-in share capital. In addition, 10% of any distribution made by a
company in excess of a 5% dividend must also be appropriated to the legal
reserve. The reserve of up to 5% of the share capital is not available for
distribution to stockholders.
Certain statements under this caption "Management Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including, without limitation, statements regarding future cash
requirements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: delays in product development; problems or delays in clinical
testing; failure or delays in receiving regulatory approvals; lack of
proprietary rights; or, change in business strategy or development plans.
-31-
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Bigmar, Inc.
Columbus, Ohio
We have audited the accompanying consolidated balance sheets of Bigmar,
Inc. and subsidiaries as at December 31, 1996 and December 31, 1995 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of Bigmar, Inc.
and subsidiaries, as at December 31, 1996 and December 31, 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
consolidated financial statements, the Company anticipates that it will require
additional financing in order to complete the validation of its plant and
equipment and to fund its operations prior to its plant becoming fully
operational. This factor raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans with regard to this matter are
also discussed in Note A. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
March 3, 1997
With respect to Note C
March 27, 1997
F-1
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
A S S E T S 1996 1995
----------- ------ -----
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note B) ................... $ 4,362,938 $ 1,425,603
Investments, at market ................................ 9,444
Accounts receivable, net of allowance of $44,703 and
$51,948 at December 31, 1996 and December 31, 1995,
respectively ........................................ 772,491 1,588,345
Due from related party ................................ 170,648
Inventories (Notes B and E) ........................... 950,471 1,051,948
Prepaid expenses and other current assets ............. 470,584 112,668
------------ ------------
Total current assets ........................... 6,565,928 4,349,212
Property, plant and equipment, at cost, less accumulated
depreciation and amortization (Notes B and F) ......... 17,407,140 10,717,834
Intangible assets (Notes A and B) ....................... 297,101 328,564
Deferred charges and other assets ........................ 97,516
------------ ------------
T O T A L ...................................... $ 24,270,169 $ 15,493,126
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 1,721,846 $ 826,532
Note payable (Note G) ................................. 1,529,993 1,960,385
Current portion of long-term debt (Note H) ........... 466,594
Due to related parties (Notes C and P)................. 983,490
Advances on reimbursable expenses (Note L) ........... 750,000
Accrued expenses and other current liabilities ........ 568,903 357,834
------------ ------------
Total current liabilities ...................... 6,020,826 3,144,751
Long-term debt (Note H) ................................. 7,353,490 6,627,447
Related party loan (Note I) ............................. 1,809,524
------------ ------------
Total liabilities .............................. 13,374,316 11,581,722
------------ ------------
Commitments (Notes A, C, L and M)
Stockholders' equity (Notes A, J and Q):
Preferred stock ($.001 par value; 5,000,000 shares
authorized; none issued)
Common stock ($.001 par value; 15,000,000 shares
authorized; 3,985,000 and 2,375,000 shares issued
and outstanding in 1996 and 1995, respectively) ..... 3,985 2,375
Additional paid-in capital ............................ 13,333,366 3,900,875
Cumulative translation adjustment ..................... (806,892) 3,216
Retained earnings (deficit) ........................... (1,634,606) 4,938
------------ ------------
Total stockholders' equity ..................... 10,895,853 3,911,404
------------ ------------
T O T A L ...................................... $ 24,270,169 $ 15,493,126
============ ============
</TABLE>
The accompanying notes to financial
statements are an integral part hereof.
F-2
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales (Note O) .................... $ 7,931,149 $ 5,600,362 $ 707,627
Cost of goods sold ..................... 5,312,193 4,001,891 611,040
----------- ----------- -----------
Gross margin ........................... 2,618,956 1,598,471 96,587
----------- ----------- -----------
Operating expenses:
Research and development ............ 801,560 23,144
Selling, general and
administrative .................... 3,006,546 1,493,055 16,269
Settlement fees paid to Cerbios-
Pharma and write-off of
licensing fees .................... 511,777
----------- ----------- -----------
T o t a l .................... 4,319,883 1,516,199 16,269
----------- ----------- -----------
Operating income (loss) ................ (1,700,927) 82,272 80,318
Other income ........................... 28,666 7,927
Interest income ........................ 152,705 13,911 966
Interest (expense) .................... (206,469) (196,387)
Gain on foreign currency
transactions ........................ 86,481
----------- ----------- -----------
Income (loss) before income taxes ...... (1,639,544) (100,204) 89,211
----------- ----------- -----------
Income taxes (benefit) (Note K):
Current ............................. 13,000 1,553
Deferred ............................ (16,000) 9,000
----------- -----------
T o t a l .................... (3,000) 10,553
----------- -----------
NET INCOME (LOSS) ...................... $(1,639,544) $ (97,204) $ 78,658
=========== =========== ===========
Net income (loss) per share ............ ($ 0.51) ($ 0.07) $ 0.20
=========== =========== ===========
Weighted average shares
outstanding ......................... 3,235,137 1,337,292 400,188
=========== =========== ===========
</TABLE>
The accompanying notes to financial
statements are an integral part hereof.
F-3
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Retained Cumulative
Number of Paid-in Earnings Translation
Shares Amount Capital (Deficit) Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1994 ............. 400,188 $ 400 $ 89,690 $ 23,484 $ 113,574
Net income for the year ended
December 31, 1994 ................... 78,658 78,658
Translation adjustment ................. $ 260 260
----------- ----------- ----------- ----------- ----------- -----------
Balance - December 31, 1994 ........... 400,188 400 89,690 102,142 260 192,492
Purchase of 50% interest in Bioren SA
for cash ............................ 350,312 350 2,599,199 2,599,549
Issuance of common stock to Bigmar
Pharmaceuticals stockholders for
cash ................................ 1,600,750 1,601 1,207,010 1,208,611
Issuance of common stock to Bigmar,
Inc. stockholders ................... 23,750 24 4,976 5,000
Net (loss) for the year ended
December 31, 1995 ................... (97,204) (97,204)
Translation adjustment ................. 2,956 2,956
----------- ----------- ----------- ----------- ----------- -----------
Balance - December 31, 1995 ........... 2,375,000 2,375 3,900,875 4,938 3,216 3,911,404
Issuance of common stock in initial
public offering ..................... 1,610,000 1,610 9,432,491 9,434,101
Net (loss) for the year ended
December 31, 1996 ................... (1,639,544) (1,639,544)
Translation adjustment ................. (810,108) (810,108)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1996 ........... 3,985,000 $ 3,985 $13,333,366 $(1,634,606) $ (806,892) $10,895,853
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial
statements are an integral part hereof.
F-4
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................ $(1,639,544) $ (97,204) $ 78,658
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ................................................ 273,797 174,184
Loss on sale of equipment .................................................... 48,693
Unrealized losses on investments ............................................. 24,944
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ................................. 539,308 (424,712) (421,634)
(Increase) in due from related party ....................................... (170,648)
(Increase) decrease in inventories ......................................... (47,098) 578,755 (1,943)
(Increase) decrease in prepaid expenses and other current assets ........... (241,607) 206,671 (1,160)
Increase in due to related parties ......................................... 960,102
(Increase) in other assets ................................................. (37,782)
Increase in accounts payable ............................................... 335,405 492,777 430,073
Increase (decrease) in accrued expenses and other
current liabilities ...................................................... 211,318 29,634 (7,048)
----------- ----------- -----------
Net cash provided by operating activities .............................. 416,625 800,368 76,946
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment ........................................ (7,983,449) (3,120,133) (1,560,488)
Purchase of investments .......................................................... (34,773)
Purchase of Bioren SA (net of cash acquired) ..................................... (4,906,110)
Increase in other assets ......................................................... (35,324)
Proceeds from sale of equipment .................................................. 255,972
----------- ----------- -----------
Net cash (used in) investing activities ................................ (8,018,222) (7,805,595) (1,560,488)
----------- ----------- -----------
Cash flows from financing activities:
Short-term borrowings ............................................................ 1,764,905
Proceeds from issuance of common stock ........................................... 9,470,160 3,813,160
Long-term borrowings ............................................................. 2,219,307 4,455,955 1,467,711
Deferred offering costs .......................................................... (31,059)
Repayment of note payable ........................................................ (1,867,323)
Repayment of related party loan .................................................. (1,738,671)
Advances on reimbursable expenses ................................................ 750,000
----------- ----------- -----------
Net cash provided by financing activities .............................. 10,598,378 8,238,056 1,467,711
----------- ----------- -----------
Effect of exchange rate change on cash .............................................. (59,446) 75,299 10,096
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ................................ 2,937,335 1,308,128 (5,735)
Cash and cash equivalents - at beginning of period .................................. 1,425,603 117,475 123,210
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - AT END OF PERIOD ........................................ $ 4,362,938 $ 1,425,603 $ 117,475
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ....................................................................... $ 698,125 $ 427,311 $ 36,032
Income taxes ................................................................... 12,195
Equipment purchases included in:
Accounts payable ................................................................. 716,593
Due to related parties ........................................................... 240,000
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-5
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company:
[1] Business and recent transactions:
Bigmar, Inc. (the "Company") was formed in September 1995 by
Chemholding SA, Chemholding's principal stockholders and John G. Tramontana for
the purpose of manufacturing and distributing various oncological and
biotechnical products including six oncological products, the distribution
rights to which were acquired from affiliates of Chemholding SA. A
dispute between the Company and the affiliates (Note C), was settled effective
March 27, 1997 and the licensing and distribution agreements with the affiliates
were cancelled. The Company has identified other sources for certain of the raw
materials required for the products that the Company intends to manufacture in
its newly built facility.
Certain stockholders of the Company owned 100% of Bigmar Pharmaceuticals
SA ("Pharmaceuticals") and 50% of Bioren SA ("Bioren"), two Swiss corporations.
The other 50% of Bioren is owned by Pharmaceuticals. On April 9, 1996 the
Company acquired 100% of Pharmaceuticals and 50% of Bioren in a stock for stock
exchange. Since there was a high degree of common ownership, the acquisition was
accounted for as a reorganization of companies under common control.
Accordingly, the financial statements of the Company have been restated to
include the results of operations of Pharmaceuticals for all periods presented
and the results of Bioren from July 1, 1995, the date that Pharmaceuticals and
certain stockholders of the Company acquired their interests.
Pharmaceuticals is currently engaged in the distribution in various
countries in Europe of oncological products, a substantial portion of which were
purchased from the Chemholding affiliates. Bioren is primarily a manufacturer
and distributor of intravenous infusion solutions in Switzerland. In addition,
the Company intends to become a manufacturer and a distributor of pharmaceutical
products.
In April, 1996 the stockholders of the Company contributed 99% of their
shares to the Company. Also in April 1996 the Company restated and amended its
certificate of incorporation, increasing its authorized shares of common stock
from 10,000,000 to 15,000,000, authorizing 5,000,000 shares of preferred stock,
and effecting a 2.105263 for one reverse stock split. These transactions are
reflected retroactively in the accompanying financial statements. In June 1996
the Company closed on an initial public offering of its common stock.
(continued)
F-6
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company: (continued)
[2] Basis of presentation:
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has utilized a
significant portion of the proceeds of its recent initial public offering in the
construction of its property, plant and equipment and in the process of
designing and testing the plant and equipment in order to obtain approval by the
Intercantonal Office for the Control of Medications ("IKS") in Switzerland and
by the United States Food and Drug Administration for the manufacture of
pharmaceutical products ("validation"). Although the Company obtained a
provisional approval to manufacture product from the IKS in February 1997, the
Company anticipates that it will require additional financing in order to
complete the validation process and to fund its operations prior to the plant
becoming fully operational. Also, there is no assurance that the Company will be
able to manufacture its proposed products successfully or that such products
will be accepted by the Company's targeted customers. In addition, as discussed
in Note C, the Company has terminated agreements with a related party which was
a source of raw materials which generated approximately $833,000 in revenue in
1996. Management currently anticipates that its cash resources will be depleted
by July 1997 and that its operations will not begin to generate sufficient cash
to fund its expansion and planned research and development activities by such
time. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management is discussing additional financing with
financial institutions, however, there is no assurance that such financing will
be available on terms acceptable to the Company, if at all. No adjustments have
been made to reflect the recoverability or classification of recorded assets
amounts or the classification of liabilities should the Company be unable to
continue as a going concern.
(NOTE B) - Significant Accounting Policies:
[1] Consolidation:
The consolidated financial statements include the accounts of
Bigmar, Inc. and its wholly owned subsidiaries, Pharmaceuticals, Bioren and
Bigmar Therapeutics, Inc. ("Therapeutics"), a Delaware corporation formed in
September 1995 to enter into a partnership agreement (see Note L). All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
(continued)
F-7
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Significant Accounting Policies: (continued)
[2] Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
[3] Fair Value of Financial Instruments:
The carrying value of cash, trade receivables and trade payables
approximates the fair value because of the short maturity of those instruments.
For long-term debt, the carrying value approximates the fair
value because no major changes have occurred in the applicable interest rates.
[4] Cash equivalents:
All highly liquid investments purchased with a maturity of three
months or less are considered to be cash equivalents.
[5] Inventory:
Inventory is stated at the lower of cost or market using the
first-in, first-out (FIFO) method.
[6] Property, plant and equipment:
Property, plant and equipment are stated at cost. Maintenance and
repairs are charged to operations as incurred. Depreciation is calculated on a
straight-line basis utilizing the assets' estimated useful lives of 3 to 25
years.
[7] Organization expenses:
Costs associated with the organization of the Company are
capitalized and amortized over five years.
[8] Goodwill:
Goodwill is amortized over a ten year period. The Company intends
to evaluate the continuing value of goodwill based on undiscounted cash flows.
(continued)
F-8
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Significant Accounting Policies: (continued)
[9] Income taxes:
Income taxes are accounted for by the asset/liability approach.
Deferred taxes arise from differences between the financial reporting and tax
bases of assets and liabilities.
[10] Foreign Currency Transactions:
Gains and losses resulting from foreign currency transactions and
changes in foreign currency positions are included in income or expense
currently. Such amounts were insignificant in 1995 and 1994.
[11] Foreign Currency Translation:
The Company's operations are located in Switzerland and its net
assets, revenues and expenses are substantially all denominated in Swiss francs,
while the Company presents its consolidated financial statements in US dollars.
Assets and liabilities are translated at the exchange rates in effect at the
balance sheet date. Revenues and expenses are translated at the weighted average
exchange rates for the period. Net gains and losses arising upon translation of
local currency financial statements to US dollars are accumulated in a separate
component of stockholders' equity, the cumulative translation adjustment
account, which may be realized upon the eventual disposition by the Company of
part or all of its investments in its Swiss operations.
[12] Per share data:
Net income (loss) per share is based on the weighted average
number of shares outstanding during each period after giving retroactive effect
to the reorganization, the capital contribution and the reverse stock split, all
described in Note A.
[13] Long-lived assets:
In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", the Company records impairment losses on long-lived
assets used in operations, including intangible assets, when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No such losses have been recorded through December 31,
1996.
(continued)
F-9
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Significant Accounting Policies: (continued)
[14] Stock-based compensation:
During 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). The provisions of SFAS No. 123 allow companies to either expense the
estimated fair value of stock options or to continue to follow the intrinsic
value method set forth in Accounting Principles Bulletin Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") but disclose the pro
forma effects on net income (loss) had the fair value of the options been
expensed, The Company has elected to continue to apply APB No. 25 in accounting
for its stock option incentive plans (see Note O).
(NOTE C) - Related Party Dispute:
In the second half of 1996, Cerbios-Phama SA ("Cerbios"), a
wholly-owned subsidiary of Chemholding SA, a beneficial owner of
approximately 25.4% of the Company's common stock, rendered invoices to the
Company, in the amount of approximately $681,000 for expenses and fees to which
Cerbios claimed to be entitled in connection with services it provided to the
Company in 1996. In December 1996, Cerbios submitted a letter to the Company
requesting reimbursement of approximately $1,118,000 to which Cerbios claimed to
be entitled in connection with services it provided to the Company in 1995. In
March 1997, Cerbios claimed that it was owed an additional $2,243,000 for
various "services" and "values of lost contracts".
The Company maintains that no substantial services were provided in
1995 by Cerbios to the Company and that the amounts claimed for 1996 by Cerbios
far exceeded the actual expenses incurred by Cerbios on behalf of the Company.
The actual expenses were accrued in the Company's 1996 quarterly financial
statements. On March 27, 1997, the Company reached a settlement with Cerbios of
the claims for approximately $300,000 and in connection therewith Cerbios
delivered to the Company a release.
Pursuant to the settlement, the Company and each of its wholly-owned
subsidiaries and Cerbios have mutually agreed to the cancellation of the
following agreements: the Sapec Exclusive Distribution Agreement (the "Sapec
Agreement"), the Bioferment Exclusive Distribution and Supply Agreement (the
"Bioferment Agreement"), and the Bioferment License and Supply Agreement (the
"Bioferment License Agreement"). In addition, the Company has determined to
terminate all relationships and transactions with
(continued)
F-10
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Related Party Dispute: (continued)
Cerbios entities, including the purchase of raw materials for resale, which
purchases aggregated approximately $501,000 and generated sales of approximately
$833,000 in 1996.
The Sapec Agreement provided for, among other things, the supply of
Sodium Leucovorin and five generic oncological products. The Company has not
obtained another supplier for Sodium Leucovorin. The Company has identified
alternative suppliers for the five generic oncological products and has already
obtained two of the generic oncological products from other suppliers. The
Company believes it can acquire the other three products from alternative
suppliers. The Company has paid Sapec a one-time fee of $100,000 for the grant
of the exclusive rights and licenses that were part of the Sapec Agreement. This
fee has been forfeited and no refund will be granted.
The Bioferment Agreement provided exclusive worldwide rights to use,
manufacture and market recombinant urokinase ("Urokinase"), a biotechnological
product. The Company has not obtained another supplier for Urokinase. Pursuant
to the Bioferment Agreement, the Company has paid Bioferment a fee of $100,000.
This fee has been forfeited and no refund will be granted. The Company will
attempt to locate an alternative supplier of Urokinase. However, there is no
guarantee the Company will be successful in finding another supplier for
Urokinase. The Bioferment License Agreement provided the license to use,
manufacture and market a recombinant human growth hormone, a biotechnological
product.
(NOTE D) - Bioren Acquisition:
On June 30, 1995, Pharmaceuticals acquired 100% of the outstanding
stock of Bioren for $5,195,000 and immediately sold 50% of the stock to certain
stockholders of Pharmaceuticals and the Company.
The consolidated financial statements include the accounts of Bioren
from July 1, 1995, the date of acquisition from a nonaffiliated party. Had the
acquisition of Bioren occurred at the beginning of 1994, the Company's results
would have been as follows:
December 31,
--------------------------
1995 1994
---------- -----------
Sales . . . . . . . . . $8,529,327 $ 6,587,312
Gross profit. . . . . . 2,833,146 1,497,029
Income (loss) before
extraordinary item . 5,107 (2,905,744)
Income (loss) before
extraordinary item
per share. . . . . . $.00 $(3.87)
===== =======
(continued)
F-11
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Inventories:
December 31,
-----------------------------
1996 1995
---------- ----------
Raw materials ................................ $ 363,114 $ 519,414
Finished goods ............................... 587,357 532,534
---------- ----------
T o t a l .......................... $ 950,471 $1,051,948
========== ==========
(NOTE F) - Property, Plant and Equipment:
December 31,
--------------------------
1996 1995
----------- -----------
Building and building
improvements .................................... $12,341,104 $ 8,455,743
Land ............................................... 104,517 121,212
-----------
Machinery .......................................... 4,539,894 2,205,390
Equipment .......................................... 759,128 66,162
----------- -----------
17,744,643 10,848,507
Less accumulated depreciation ...................... 337,503 130,673
----------- -----------
T o t a l ................................ $17,407,140 $10,717,834
=========== ===========
For the years ended December 31, 1996, December 31, 1995 and December
31, 1994 interest of $500,000, $235,000 and $40,000, respectively was
capitalized. Such interest was incurred in connection with bank and related
party borrowings which were utilized to finance the construction of the
Pharmaceuticals facility. Total interest incurred, including such capitalized
amounts was approximately $706,000, $417,000 and $40,000 in 1996, 1995 and 1994,
respectively.
(NOTE G) - Note Payable:
The note payable of $1,529,993 including interest of $36,894 at
December 31, 1996 is due to a bank with interest payable quarterly at
a rate based on the interbank rate quoted by the Swiss Bank
Corporation in Lugano, Switzerland (5.75% at December 31, 1996). The
note has no specific principal repayment terms.
The note payable of $1,960,385 at December 31, 1995 was due to a company
owned by the seller of Bioren with interest at 6% and was repaid in 1996.
(continued)
F-12
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Long-Term Debt:
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
Bank loan collateralized by mortgage on the Bioren
building; interest at 5% per
annum through May 1999, adjustable thereafter; subject to
certain restrictive covenants and subject to demand by the
bank after May 1999 ...................................... $2,239,650 $2,597,405
Installment loan from seller of Bioren collateralized
by a second mortgage on the Bioren building, interest
rate based on market rate on industrial mortgages; rate
at December 31, 1996 and December 31,
1995 was 5.5% per annum; payable in installments of
$373,275 in 1997, $373,275 in 1998
and $746,550 in 1999 ..................................... 1,493,100 1,731,602
Bank loan partially secured by the Pharmaceuticals
building and equipment, subject to certain restrictive
covenants; principal payable December 31, 2001, interest
at 3.19% through June 30, 1997 and not
to exceed 6.5% through December 31, 1998 ................. 1,493,100 211,826
Bank loan collateralized by mortgage on the
Pharmaceuticals building and equipment; subject to
certain restrictive covenants; principal payable in
installments of $93,319 in 1997, $261,293
in 1998 and $373,275 paid annually thereafter until
full repayment; interest payable at an adjustable rate
not to exceed 5% through March 3,
2002; and partially guaranteed by a major
stockholder of the Company ............................... 2,594,234 1,986,614
Bank loan pursuant to $223,965 line-of-credit;
principal payable on demand any time on or after
December 31, 1997; interest at 5.75% per annum and
subject to certain restrictive covenants ................. 100,000
---------- ----------
T o t a l ........................................ 7,820,084 6,627,447
Less current portion ............................. 466,594 - 0 -
---------- ----------
Long-term portion ................................ $7,353,490 $6,627,447
========== ==========
</TABLE>
Future maturities of long-term debt are as follows:
Year Ended Long-Tterm
December 31, Debt
1997. . . . . . . . . . . . . $ 466,594
1998. . . . . . . . . . . . . 634,569
1999. . . . . . . . . . . . . 3,359,475
2000. . . . . . . . . . . . . 373,275
2001. . . . . . . . . . . . . 1,866,375
Thereafter. . . . . . . . . . 1,119,796
----------
$7,820,084
(continued)
F-13
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Related Party Loan:
Pharmaceuticals owed $1,809,524 at December 31, 1995, to a company owned
by certain stockholders of the Company. This 9% interest bearing loan was repaid
in August 1996 with the proceeds of a bank loan (Note G).
(NOTE J) - Legal Reserve:
The Swiss Federal Code of Obligation provides that at least 5% of a
company's net income each year must be appropriated to a legal reserve until
such time as this reserve equals 20% of the company's share capital. In
addition, 10% of any distribution in excess of a 5% dividend also must be
appropriated to the legal reserve. The legal reserve of up to 5% of the share
capital is not available for distribution.
(NOTE K) - Income Taxes:
Deferred income tax assets and liabilities are provided for temporary
differences between financial statement amounts and the amounts currently
taxable in the jurisdictions in which the Company operates. Deferred tax assets
are provided for operating loss carryforwards of Bioren which can only be
utilized to offset future taxable income, if any, of Bioren for up to six years
after incurring the losses, depending on the applicable tax legislation and
federal net operating loss carryforwards of Bigmar, Inc. The deferred tax asset
at December 31, 1996 has been fully reserved as the future utilization of such
asset is uncertain.
The deferred tax asset as of December 31, 1996 was as follows:
Deferred tax assets:
Benefit of operating loss
carryforwards:
Switzerland .............................. $ 3,100,000
United States ............................ 310,000
-----------
Total deferred tax asset .............. 3,410,000
Deferred tax liability:
Capitalized interest ......................... (160,000)
-----------
Net deferred tax asset ....................... 3,250,000
Less valuation allowance ..................... 3,250,000
-----------
T o t a l ........................... $ - 0 -
============
(continued)
F-14
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - Income Taxes: (continued)
Bioren has net operating loss carryforwards of approximately $3,300,000
expiring on December 31, 1997, and net operating loss carryforwards of
approximately $9,100,000 expiring from December 31, 1998 through December 31,
2002. Approximately $1,300,000 of net operating loss carryforwards expired in
1996.
The tax charge in Switzerland is an accumulation of the taxes due to the
city, the canton (state) and the federal authorities. Therefore, the tax burden
varies from one entity to another depending upon its location. While the actual
tax rate is a function of the percentage of profitability in relation to taxable
equity, the Company believes that 20% and 30% are fair approximations of the
effective cumulative tax rates for Pharmaceuticals and Bioren, respectively. In
addition, as Swiss tax laws do not permit consolidated tax filings, possible tax
losses in one entity do not offset taxable income in another.
On January 1, 1995, a new federal tax law, and for most Swiss cantons, a
new cantonal tax law, came into force in Switzerland. The new laws provide for a
change in the system of assessment from a two-year past assessment period to a
one-year current assessment period. Because these changes may create a gap
during which certain profits made in prior years may not be taxed or may be only
partially taxed, the new laws have provided for a transition period during which
a special method is followed to calculate income taxes. Since the 1995 taxes due
based on the old methods of assessment had been fully accrued for during 1993
and 1994, the 1995 tax charge only relates to the adjustment needed based on the
1995 income. A reconciliation between the actual income tax expense and income
taxes computed by applying the United States federal income tax rate of 34% to
earnings before taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Computed income taxes (benefit) at
34% rate ....................................... $(557,445) $ (34,069) $ 30,332
Impact of difference between Swiss
effective rate and U.S. tax
rate ........................................... 105,541 14,029 (12,490)
Increase in valuation reserve on
deferred tax assets ............................ 594,104 14,868
Foreign exchange losses on
long-term intercompany loans,
deductible for tax purposes
in Switzerland ................................. (36,027)
Other ............................................. (106,173) 2,172 (7,289)
--------- --------- ---------
$ - 0 - $ (3,000) $ 10,553
========= ========= =========
</TABLE>
(continued)
F-15
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Collaborative Agreements With Related Parties:
[1] The Cernelle Agreement:
On November 5, 1995 Pharmaceuticals entered into an exclusive
distribution and supply agreement ("Cernelle Agreement") with AB Cernelle, a
Swedish corporation formerly owned by a principal stockholder of Bigmar
("Cernelle"). The Company's Chief Executive Officer is a director of Cernelle.
The Cernelle Agreement provides that Pharmaceuticals shall be the exclusive
worldwide distributor of certain oral dosage cancer products ("Cernelle
Products") and is for a term of 15 years from the date of the first commercial
sale by Pharmaceuticals of the Cernelle Products. Pharmaceuticals shall pay to
Cernelle a one time amount of $100,000 upon notification by Cernelle that the
Cernelle Products are ready for shipment to Pharmaceuticals and shall purchase
the Cernelle Products at certain prices as defined in the agreement. In the
event the term of the Cernelle Agreement or any renewal thereof is not extended,
Pharmaceuticals shall have, at a minimum, a nonexclusive worldwide right to
distribute the Cernelle Products for three additional years.
Pharmaceuticals also entered into a technical services agreement,
dated November 5, 1995, with Cernelle ("Cernelle TSA"). The Cernelle TSA
provides that Cernelle will prepare abbreviated new drug applications ("ANDA")
submissions to the United States Food and Drug Administration ("FDA") covering
the Cernelle Products. Pharmaceuticals shall pay Cernelle a fee of $20,000 for
each ANDA submitted to and accepted by Pharmaceuticals. Pursuant to the
agreement, Cernelle assigned to Pharmaceuticals the sole and exclusive right,
title and interest in and to the technical services without further
consideration. The term of this agreement is for 15 years and is renewable on
the mutual written agreement of the parties.
[2] The Protyde Agreements:
Pursuant to an agreement dated as of October 1995 Therapeutics
and a wholly owned subsidiary of Protyde Pharmaceuticals, Inc. ("Protyde") have
formed a partnership, Protyde-Bigmar Therapeutics (the "Partnership"), for the
purpose of coordinating the manufacture and marketing of certain pharmaceutical
products ("products") for the treatment of human cancer.
The business of the Partnership is to obtain FDA approval to
market certain products, to manufacture the products, and to market the
products. Pursuant to the Partnership Agreement, each of the partners initially
has a 50% interest in the Partnership. The Company will account for its
investment in the Partnership on the equity method. As its initial contribution
to the Partnership, Protyde will contribute to the Partnership up to $3,075,000
in cash, the first $750,000 of which was paid to the Company on March 29, 1996,
with the balance to be contributed at such times and in such amounts
(continued)
F-16
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Collaborative Agreements With Related Parties: (continued)
[2] The Protyde Agreements: (continued)
so as to enable the Partnership to timely satisfy its obligations, and to make
its payments under the terms of its manufacturing agreement. As Therapeutics'
capital contribution to the Partnership, Therapeutics will cause the Company to
make its manufacturing capacity available to the Partnership under the terms of
the manufacturing agreement.
Under the Partnership Agreement, the Partnership is the sole
owner of all right, title and interest in all FDA-approved ANDAs for any
products submitted for approval by the Partnership. The Partnership is also the
sole owner of all right, title and interest in and to proprietary information
and marketing information which is developed or acquired by a partner or its
affiliates, using partnership funds, or while performing activities subject to
reimbursement by the Partnership. However, during the term of the Partnership
each of the partners has a royalty free, worldwide right to use and practice any
such proprietary information and marketing information for any purpose outside
the scope of the Partnership's business.
Pursuant to the Partnership Agreement, the Partnership will
continue until December 31, 2005, unless earlier terminated.
The Company has entered into a manufacturing agreement with the
Partnership and Protyde has entered into a marketing agreement with the
Partnership. Pursuant to the manufacturing agreement, the Company's
responsibilities include (i) acquiring and performing stability testing on all
raw materials and packaging materials necessary for the manufacture of the
products, (ii) providing production capacity available to the Partnership in
order to meet production obligations, and (iii) undertaking all measures for
quality control which are either required by the FDA or requested by the
Partnership.
The exclusive right to distribute certain of the Partnership
products in certain territories had previously been granted by the Company to a
third party. Subsequently, the Company included certain of such rights as part
of its contribution to the Partnership. As a result, Protyde may have a breach
of contract claim against the Company. The Company does not believe that the
ultimate outcome of this matter will have a material adverse effect on its
operations.
(continued)
F-17
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Commitments:
[1] Employment agreement:
In April 1996 the Company entered into a five-year employment
agreement with its President and Chief Executive Officer providing for an annual
salary of $200,000, commencing upon consummation of the initial public offering
subject to increases based on the consumer price index, and bonuses of at least
25% of the base salary.
In addition, the Company has entered into employment contracts
with certain officers and employees pursuant to which the Company has agreed to
pay base compensation aggregating $420,000 per year. These contracts commenced
on various dates between July 1, 1996 and September 30, 1996, and have a term of
two years. The contracts are subject to increases based on the consumer price
index.
[2] Leases:
The Company leases office space in the United States and
Switzerland under various leases.
In March 1996 the Company entered into an agreement to sublease
executive office space from a company of which the Company's President was
formerly an officer. The sublease is for a term of two years. The Company also
leases warehouse space in Switzerland under an operating lease expiring through
1999. Rent expense amounted to $56,215 in 1996, and $19,250 in 1995.
Minimum future rental payments are as follows:
Year Ended
December 31,
1997 . . . . . . . . . $ 59,250
1998 . . . . . . . . . 40,650
1999 . . . . . . . . . 3,077
--------
$102,977
In December 1996 the Company entered into an agreement to lease
real property, including an office/laboratory building from a company owned by
the Company's President and Treasurer. The Company's obligation to lease the
premises is contingent upon the lessor's substantial completion of construction
in accordance with the approved
(continued)
F-18
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Commitments: (continued)
[2] Leases: (continued)
plans and specifications. The Company will use the premises for its offices and
laboratories. The lease is for a term of five years from commencement date, with
an option to renew for an additional five years, and provides for rent of
$120,000 per annum. A commencement date has not yet been determined.
Bioren leases part of its Couvet facility to a third party
pursuant to a year to year lease. The rental income for the year ended December
31, 1996 and for the period from July 1, 1995 (date of acquisition of Bioren) to
December 31, 1995 was $93,136 and $49,144, respectively.
(NOTE N) - Concentration of Credit Risk:
Bioren's main customers for intravenous products are hospitals located
in Switzerland. A significant number of these hospitals are owned by the canton
(state) or the city where they are located and the credit risk traditionally is
not significant. For other pharmaceutical products, the customers are privately
owned and credit risk is greater. The management has recorded its estimate of
credit loss through the allowance for doubtful accounts.
(NOTE O) - Significant Customers and Suppliers:
Sales to significant customers were as follows:
Year Ended
December 31, 1995
--------------------------
Amount Percent
---------- -------
Prostate materials (one
customer). . . . . . $1,023,340 18%
Oncological products
(one customer) . . . 668,511 12
In 1996 no one customer accounted for more than 10% of net sales. The
Company obtains containers for IV Solutions from a sole supplier. The Company's
reliance on a sole or a limited number of suppliers involves several risks
including, among others, the inability to obtain an adequate supply of required
raw materials and components in order to manufacture or market a product or
proposed product, increased raw material or component costs and reduced control
over pricing, quality and timely delivery.
(continued)
F-19
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE P) - Related Party Transactions:
December 31,
--------------
1996 1995
------ ------
(in thousands)
Freight charges paid to related party $ 35
Purchases from related parties ...... $965 206
Selling, general and administrative
expenses paid to related party .... 13 134
Interest paid to related parties .... 102 151
Research and development ............ 22
(NOTE Q) - Common Stock:
Stock options:
The Company applies APB No. 25 in accounting for its stock option
incentive plan and, accordingly, recognizes compensation expense for the
difference between the fair value of the underlying common stock and the grant
price of the option at the date of grant. The effect of applying SFAS No. 123 on
1996 pro forma net loss is not necessarily representative of the effects on
reported net loss for future years due to, among other things, (1) the vesting
period of the stock options and the (2) fair value of additional stock options
in future years. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under the
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net loss in 1996 would have been approximately $2,776,000 or $.85 per
share. The weighted-average fair value of the options granted during 1996 are
estimated as $5.48 per share on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield 0%,
volatility of 66%, risk-free interest rate of 6.22% and expected life of five
years.
The Company adopted an option plan providing for the grant of incentive
stock options and nonqualified stock options to directors, officers, employees,
agents and consultants of the Company. The plan provides for the grant of
options to purchase up to 300,000 shares with exercise terms not to exceed ten
years. In addition, the Company adopted a director option plan providing for
awards of up to 50,000 shares of common stock to directors who are not otherwise
affiliated with the Company.
(continued)
F-20
<PAGE>
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE Q) - Common Stock: (continued)
Stock options: (continued)
Additional information with respect to the Plan's activity is
summarized as follows:
Weighted-
Average
Exercise
Shares Price
-------- ---------
Options granted during 1996 and
outstanding at December 31, 1996 . 283,000 $8.96
Options exercisable at December 31,
1996 ............................. 179,668 $8.97
======= =====
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------
Weighted- Options Exercisable
Average -------------------------
Remaining Weighted- Weighted-
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Price Outstanding (in Years) Price Exercisable Price
-------------- ---------- ---------- -------------- ------------- ------------
<C> <C> <C> <C> <C> <C> <C>
$7.50 to $9.83 283,000 5.05 $8.96 179,668 $8.97
========= ===== ====== ======== =====
</TABLE>
At December 31, 1996, options for 20,000 shares of common stock
were available for future grant under the option plan and 47,000 shares of stock
were available for future grant under the director option plan.
F-21
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the principal occupations and certain related
information of the Company's directors and executive officers:
John G. Tramontana, 51, has served as Chairman of the Board, President
and Chief Executive Officer of the Company since its inception in September
1995. From November 1989 to March 1996, Mr. Tramontana was the chief operating
officer and a director of Chemholding, a holding company for five pharmaceutical
companies involved in the development, manufacture, and commercialization of
active pharmaceutical ingredients and finished pharmaceutical products.
Chemholding is a principal stockholder of the Company. Mr. Tramontana had
significant responsibilities in the development, manufacture and
commercialization of products of Chemholding. Mr. Tramontana was the chief
operating officer and a director of Cerbios, chairman of the board of Cernelle
and the president and a director of Cernitin, a cosmetic and health products
distributor. In March 1996, Mr. Tramontana resigned from all his positions with
Chemholding, Cerbios, Cernelle and Cernitin. In September 1996, following the
sale of Cernelle to an unrelated third-party, Mr. Tramontana rejoined the board
of directors of Cernelle. From 1985 to 1989, Mr. Tramontana was chief operating
officer, vice president -- finance and a director of Ben Venue Laboratories,
Inc., a pharmaceutical company specializing in the manufacture of sterile,
injectable pharmaceutical products. From 1974 until 1985, Mr. Tramontana worked
at Adria Laboratories Inc. (now Pharmacia & Upjohn, Inc.), the U.S. operating
division of Erbamont NV, a prominent manufacturer and marketer of oncological
products where from 1978 to 1984 he was treasurer, vice-president -- finance.
Mr. Tramontana and Mr. Medors are brothers-in-law.
Peter P. Stoelzle, 38, has served as Executive Vice President of the
Company since July 1996. From December 1991 to July 1996, Mr. Stoelzle worked
with Bausch & Lomb Pharmaceuticals, Inc. ("BLP"), most recently as Director,
Regulatory Affairs where he was responsible for establishing and directing all
regulatory aspects of BLP's generic drug program. During 1990, Mr. Stoelzle
served as Associate Director, Product Development at Smith & Nephew Solopak
Laboratories. From March 1987 to January 1990, Mr. Stoelzle was Associate
Director, Research & Development at Ben Venue Laboratories, Inc., a contract
pharmaceutical manufacturer. From February 1986 to March 1987, Mr. Stoelzle
served as Senior Analytical Chemist at Adria Laboratories, Inc. (now Pharmacia &
Upjohn, Inc.). From August 1983 to January 1986, Mr. Stoelzle was Manager of
Product Development at Invenex Laboratories.
Albert Z. Hodge, 44, has served as Vice President -- Quality Assurance
of the Company since May 1996. From April 1993 to April 1996, Mr. Hodge served
as Director of Quality Compliance and Manager of Regulatory Compliance for CIBA
Vision Corp. where he was responsible for the development and implementation of
ISO/GMP Quality Systems and facility validation programs. From February 1992 to
March 1993, Mr. Hodge served as Regulatory Compliance Manager at Bausch and Lomb
Pharmaceuticals, Inc. From 1989 to 1992, Mr. Hodge was Director of Quality
Assurance at Life Technologies, Inc., a biotechnology company. From 1985 to
1989, Mr. Hodge served as Quality Assurance Manager at Organon Teknika, Inc., a
pharmaceutical and medical device company. From 1980 to 1985, Mr. Hodge was a
Safety and Quality Service Inspector for the United States Department of
Agriculture.
Michael K. Medors, 38, has served as Treasurer, Secretary and a director
of the Company since its inception in September 1995. From 1991 to 1995, Mr.
Medors was treasurer and general manager of Cernitin, a cosmetic and health
products distributor. From October 20, 1982 to January 31, 1991, Mr. Medors was
tax department supervisor of Automatic Data Processing, a company offering a
diverse portfolio of employer, tax, banking and insurance services. Mr.
Tramontana and Mr. Medors are brothers-in-law.
- 32 -
<PAGE>
<PAGE>
Bernard Kramer, 43, has served as Vice President -- Marketing and a
director of the Company since April 1996. From January 1988 until April 1996,
Mr. Kramer worked at Bioren where he was a manager, responsible for quality
control and business development of pharmaceutical products. Prior to 1988, Mr.
Kramer held various senior management positions in the technical, quality
control and regulatory affairs areas. From 1980 to 1987, Mr. Kramer was manager
of the biological quality control and validation department at Vifor SA in
Geneva. From 1979 to 1980, Mr. Kramer successfully completed postgraduate
practice in research and development at Ciba- Geigy in Basel.
Eric M. Chen, 26, has been a director since June 1996 and is a member of
the Executive, Audit, and Compensation and Stock Option Committees. Mr. Chen is
a Senior Vice-President of Fechtor, Detwiler & Co., Inc., an investment banking
firm. From April 1996 to August 1996 Mr. Chen was a Managing Director at LT
Lawrence & Co., Inc. From April 1995 to April 1996 Mr. Chen was Vice-President
of Fechtor, Detwiler & Co., Inc. From June 1994 to April 1995, Mr. Chen was a
research associate with Hambrecht & Quist Incorporated where he was responsible
for selected biotechnology companies. From October 1992 to June 1994, Mr. Chen
was an analyst with Furman Selz Incorporated, where he worked with a variety of
companies in the media and entertainment and consumer retailing industries. Mr.
Chen received a B.A. in Biology from Harvard University in 1992.
John R. Morris, 66, was elected to the Board of Directors in March 1997,
replacing a vacancy left by the resignation of Thomas W. D'Alonzo. Mr. Morris
has been President of Biotrade Group since 1978, a worldwide brokerage company
active in pharmaceutical and fine chemical industries. From 1967 to 1978 Mr.
Morris was Chief Executive Officer for several operating companies of Glaxo
Group.
Philippe Rohrer, 39, is Chief Financial Officer of Bioren and Bigmar
Pharmaceuticals. He joined Bioren in August 1991, as Finance and Administration
manager with responsibility for finance, computerization and administration of
Bioren. From July 1988 to August 1990, Mr. Rohrer was most recently Finance
Director of the group l'AMY SA a company specializing in optical instruments.
From September 1982 to July 1987, Mr. Rohrer worked at Cluett Peabody, Inc. as
Product Manager and later as Finance and Administration Director.
As of April 1997 there is one vacancy on the Board of Directors of the
Company. This vacancy is the result of the resignation of Mr. James M. McCormick
in December 1996.
All directors hold office until the next annual meeting of stockholders
of the Company and until their successors are elected and qualified or until
their earlier resignation or removal. All officers of the Company are appointed
by and serve at the discretion of the Board of Directors, except that John G.
Tramontana has an employment agreement with the Company.
John G. Tramontana and Michael K. Medors are brothers-in-law. There are
no other family relationships between any director, executive officer or person
nominated or chosen to become a director or executive officer and any other such
person.
Pursuant to an Underwriting Agreement between the Representative and the
Company, dated June 19, 1996, for a period of five years from the consummation
of the IPO, the Representative may designate one representative to be a member
of the Board of Directors of the Company. The Representative initially
designated Eric M. Chen, a former managing director of the Representative, to be
a director of the Company.
BOARD COMMITTEES
The Company has established, an Executive Committee, a Compensation and
Stock Option Committee, and an Audit Committee. The Executive Committee
exercises all the power and authority of the Board of
- 33 -
<PAGE>
<PAGE>
Directors in the management and affairs of the Company between meetings of the
Board of Directors, to the extent permitted by law. The members of the Executive
Committee are Eric M. Chen, John R. Morris and John G. Tramontana.
The Compensation and Stock Option Committee make recommendations to the
Board of Directors concerning compensation, including incentive arrangements, of
the Company's officers and key employees and others and administers the Option
Plan (as defined below) and determines the officers, key employees and others to
be granted options under the Option Plan and the number of shares subject to
such options. In addition, the Compensation and Stock Option Committee will
administer the Director Option Plan. The members of the Compensation and Stock
Option Committee are Michael K. Medors, Eric M. Chen, and John R. Morris.
The Audit Committee will review and evaluate the results and scope of
the audit and other services provided by the Company's independent accountants,
as well as the Company's accounting principles and system of internal accounting
controls. The members of the Audit Committee are Eric M. Chen, and John R.
Morris.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 193, as amended,
requires the Company's officers, directors and persons who own more than ten
percent of the Company's Common Stock to file reports of ownership with the
Commission and to furnish the Company with copies of these reports. Based solely
upon its review of reports received by it, or upon written representation from
certain reporting persons that no reports were required, the Company believes
that during fiscal 1996 all filing requirements were met.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information regarding compensation paid
by the Company since its inception to its Chief Executive Officer and the other
most highly compensated executive officers whose annual compensation exceeded
$100,000 for the fiscal year ended December 31, 1996 (the "Named Executives"):
SUMMARY COMPENSATION TABLE
Annual Compensation
<TABLE>
<CAPTION>
Name and Salary Bonus Securities All Other
principal position Year ($) ($) Underlying Options Compensation (1)
<S> <C> <C> <C> <C> <C>
John G. Tramontana 1996 $102,650 $25,000 125,000 $3,000
Chairman of the Board of
Directors, Chief
Executive Officer
</TABLE>
(1) Amounts relate to annual auto allowance.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE
OF STOCK PRICE APPRECIATION
FOR OPTION TERM
--------------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION
NAME GRANTED(1) IN FISCAL 1996 ($ PER SHARE) DATE 5% 10%
- ------------------ -------------------- -------------------- -------------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
JOHN G. TRAMONTANA 114,82(2) 40.% $8.94 8/20/01 $283,623 $626,732
10,1(3) 3.6% $9.83 8/20/01 $27,623 $61,039
</TABLE>
- 34 -
<PAGE>
<PAGE>
- ---------------
(1) UNDERLYING OPTION AMOUNTS ARE STATED IN TERMS OF COMMON STOCK.
(2) NON-QUALIFIED STOCK OPTION.
(3) INCENTIVE STOCK OPTION.
FISCAL 1996 OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
No options were exercised during the fiscal year ended December 31,
1996. The Company has no outstanding stock appreciation rights.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS AT FY-END OPTIONS AT FY-END
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
JOHN G. TRAMONTANA - - 125,000/NONE $0/$0
</TABLE>
EMPLOYMENT AGREEMENTS
In April 1996, the Company entered into an employment agreement with Mr.
Tramontana to serve as the Company's President and Chief Executive Officer. The
employment agreement is for a five-year term commencing June __ 1996 and is
subject to automatic annual renewal unless earlier terminated. Pursuant to the
terms of this employment agreement, Mr. Tramontana is required to devote his
full business time and attention to fulfill his duties and responsibilities to
the Company. Mr. Tramontana will receive a base salary of $200,000 for the first
year of the term of the employment agreement with subsequent annual cost of
living increases at the discretion of the Company's Board of Directors. In
addition to his base salary, Mr. Tramontana is entitled to receive an annual
bonus, at the discretion of the Board of Directors, provided such bonus is equal
to at least 25% of his base salary. Mr. Tramontana's employment agreement
provides that the Company is required to provide Mr. Tramontana with an
automobile allowance of $6,000 per annum and the Company is required to obtain
life insurance coverage on the life and for the benefit of Mr. Tramontana in an
amount equal to $500,000, assuming he is insurable. Mr. Tramontana will also
have the right to participate in all benefit plans afforded or which may be
afforded to other executive officers during the term of the agreement including,
without limitation, group insurance, health, hospital, dental, major medical,
life and disability insurance, stock option plans and other similar fringe
benefits. If Mr. Tramontana dies or is unable to perform his duties on account
of illness or other incapacity and the agreement is terminated, he or his legal
representative shall receive from the Company the base salary which would
otherwise be due to the end of the month during which the termination of
employment occurred plus three additional months of base salary in the event of
death and six additional months of base salary in the event of illness or other
incapacity. The agreement further provides that if the Company terminates Mr.
Tramontana's employment for cause or if Mr. Tramontana voluntarily leaves the
employment of the Company, Mr. Tramontana shall receive his salary through the
end of the month in which the termination occurred. If Mr. Tramontana's
employment is terminated by the Company without cause, Mr. Tramontana shall
receive from the Company the base salary which would otherwise be due to the end
of the month during which the termination of employment occurred plus four
additional months. Mr. Tramontana's employment agreement contains certain
confidentiality and non-competition provisions. The Company has obtained
$2,000,000 of key-person life insurance for the benefit of the Company on the
life of Mr. Tramontana. During the second quarter of 1997, Mr.
Tramontana will be paid the minimum bonus of 25% of his base salary.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $500 per meeting
attended as a director. Committee members receive $500 per committee meeting
attended. In addition, all directors will be reimbursed for their reasonable
out-of-pocket expenses in connection with attending meetings of the Board or any
committee thereof.
DIRECTOR OPTION PLAN
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<PAGE>
<PAGE>
The Board of Directors has adopted a director stock option plan
("Director Option Plan") pursuant to which directors who are not otherwise
affiliated with the Company (such as employees or consultants of the Company, or
an affiliate thereof) will receive options to purchase Common Stock. The purpose
of the Director Option Plan is to promote the overall financial objectives of
the Company and its stockholders by motivating directors to achieve long-term
growth in stockholder equity in the Company, to further align the interest of
the directors with those of the Company's stockholders and to recruit and retain
the association of these directors. The Director Option Plan provides for the
award of up to an aggregate of 50,000 shares of Common Stock and will be
administered by the Compensation and Stock Option Committee.
The Director Option Plan provides for (i) the grant, upon the
consummation of the IPO, of an option to purchase 3,000 shares of Common Stock
to each director who was not an employee or consultant of the Company and (ii)
the grant of an option to purchase 1,500 shares of Common Stock on the date of
each regular annual stockholder meeting to each participant who either is
continuing as a director subsequent to the meeting or who is elected at such
meeting to serve as a director. Options granted under the Director Option Plan
must provide for the purchase of shares of Common Stock at an exercise price of
not less than the fair market value of the Common Stock on the date of grant. No
option under the plan may be exercisable 10 years after its date of grant.
Options granted under the Director Option Plan will not be transferable by the
optionee other than by will, by the laws of descent and distribution or as
required by law.
During the fiscal year ended December 31, 1996, pursuant to the Director
Option Plan, Messrs. Eric Chen, James M. McCormick and Thomas W. D'Alonzo were
each granted an option to purchase 3,000 shares of Common Stock at an exercise
price of $7.50.
OPTION PLAN
In April 1996, the Board of Directors adopted and the stockholders
approved an option plan (the "Option Plan"). The Option Plan provides for the
grant of incentive stock options ("ISOs") (within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended) and non-qualified stock options
("NQSOs") to directors, officers and employees of the Company. The Option Plan
further provides for the grant of NQSOs to directors and agents of, and
consultants to, the Company, whether or not employees of the Company. The
purpose of the Option Plan is to attract and retain exemplary directors,
employees, agents, and consultants. All options granted under the Option Plan
are set at an exercise price of not less than the fair market value of the
Common Stock on the date of grant. All options granted under the Option Plan
will not be transferable by the optionee other than by will, by the laws of
descent and distribution or as required by law.
Options granted under the Option Plan may not be exercisable for terms
in excess of 10 years from the date of grant. In addition, no options may be
granted under the Option Plan later than 10 years after the Option Plan's
effective date. The total number of shares of Common Stock with respect to which
options will be granted under the Option Plan is 300,000. The shares subject to
and available under the Option Plan may consist, in whole or in part, of
authorized but unissued stock or treasury stock not reserved for any other
purpose. Any shares subject to an option that terminates, expires or lapses for
any reason, and any shares purchased pursuant to an option and subsequently
repurchased by the Company pursuant to the terms of the option, shall again be
available for grant under the Option Plan.
The Option Plan is administered by the Board of Directors of the Company
which determines, in its discretion, among other things, the recipients of
grants, whether a grant will consist of ISOs or NQSOs, or a combination thereof,
and the number of shares of Common Stock to be subject to such options. The
Board of Directors of the Company may, in its discretion, delegate its power,
duties and responsibilities under the Option Plan to a committee consisting of
two or more directors who are "disinterested persons" within the meaning of Rule
16b-3 promulgated under the Securities Act of 1934, as amended. The Compensation
and Stock Option Committee, which is responsible for administering the Option
Plan, will be composed of Michael K. Medors, Eric M. Chen and John R. Morris.
The Option Plan contains certain limitations applicable only to ISOs
granted thereunder. To the extent
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<PAGE>
<PAGE>
that the aggregate fair market value, as of the date of grant, of the shares to
which ISOs become exercisable for the first time by an optionee during the
calendar year exceeds $100,000, the ISO will be treated as a NQSO. In addition,
if an optionee beneficially owns more than 10% of the Common Stock at the time
the individual is granted an ISO, the option price per share cannot be less than
110% of the fair market value per share and the term of the option cannot exceed
five years.
During the fiscal year ended December 31, 1996, pursuant to the Option
Plan, John G. Tramontana was granted an option to purchase 10,171 and 114,829
shares of Common Stock at exercise prices of $9.83 and $8.94 respectively, Peter
P. Stoelzle was granted an option to purchase 75,000 shares of Common Stock at
an exercise price of $8.94, Bernard Kramer was granted an option to purchase
25,000 shares of Common Stock at an exercise price of $8.94, Philippe Roher was
granted an option to purchase 25,000 shares of Common Stock at an exercise price
of $8.94, Albert Z. Hodge was granted an option to purchase 15,000 shares of
Common Stock at an exercise price of $8.94, and certain other individuals were
granted options to purchase 15,000 shares of Common Stock at an exercise price
of $8.94.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Common Stock is the Company's only outstanding class of voting
securities.
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth beneficial ownership of Common Stock as
of April 14, 1997 by each person known by the Company to be the beneficial owner
of more than five percent of the Common Stock.
<TABLE>
<CAPTION>
Name and address Amount and nature of
Title of class of beneficial owner beneficial ownership Percent of class
<S> <C> <C> <C>
Common Stock Chemholding SA (1) 1,010,563 25.4%
Via Pian Scairolo 6
CH-6917 Barbengo
Switzerland
</TABLE>
(1) The principal business of Chemholding, a Swiss holding company, is
the manufacture and distribution of pharmaceutical products. Maria Pia Melera,
Jan Jacob Van Troostenburg, Pier Angelo Ghirlanda and Patrizia Melera Kaar (the
"Chem Holders") are each officers, directors and/or principal stockholders of
Chemholding and own in the aggregate approximately 80% of its outstanding
capital stock. Chemholding has the sole power to vote or to direct the vote, and
to dispose or to direct the disposition of, the 1,010,563 shares of Common Stock
held by it, representing 25.4% of the issued and outstanding shares of Common
Stock. Each individual Chem Holder has the sole power to vote or to direct the
vote, and to dispose or to direct the disposition of, the 70,775 shares of
Common Stock held by such person, representing 1.8% of the issued and
outstanding shares of Common Stock. Each individual Chem Holder may be deemed to
share the power to vote or to direct the vote, and to dispose or to direct the
disposition of, the 1,010,563 shares of Common Stock owned by Chemholding. Maria
Pia Melera is the mother of Patrizia Melera Kaar. The foregoing is based upon
information filed with the Commission on Schedule 13D filed on February 28,
1997.
See (b) below for the beneficial ownership of John G. Tramontana.
(B) SECURITY OWNERSHIP OF MANAGEMENT.
The following table sets forth beneficial ownership of Common Stock as
of April 14, 1997 by each (i) director of the Company, (ii) each of the
executive officers included in the Summary Compensation Table (See Item 11,
Executive Compensation), and (iii) all directors and executive officers of the
Company as a group.
- 37 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Title of class Name of beneficial Amount and nature of
owner beneficial ownership Percent of class
<S> <C> <C> <C>
Common Stock John G. Tramontana 1,098,368(1) 26.7%
Common Stock Bernard Kramer 8,334 (2) *
Common Stock Michael K. Medors 0 *
Common Stock Eric M. Chen 3,000 (3) *
Common Stock John R. Morris 0 *
Common Stock All directors 1,153,036 27.7%
andexecutive officers as
a group (seven persons)
</TABLE>
* Less than 1%
(1) Includes 125,000 shares of Common Stock underlying options currently
exercisable.
(2) Includes 8,334 shares of Common Stock underlying options currently
exercisable. Does not include 16,666 shares of Common Stock underlying options
not currently exercisable.
(3) Includes 3,000 shares of Common Stock underlying options currently
exercisable. Does not include 11,433 shares of Common Stock underlying warrants
not currently exercisable.
(c) Changes in Control
The Company is not aware of any arrangements, the operation of which may
at a subsequent date result in a change of control of the Company
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH PRINCIPAL STOCKHOLDERS
In November 1995, Bioren entered into the Sapec Agreement and Bigmar
Pharmaceuticals entered into the Cernelle Agreement. Pursuant to the terms of
the Sapec Agreement Bioren paid Sapec a one-time fee of $100,000 upon
notification by Sapec or Cernelle that their respective oncological products
were ready for shipment. In addition, in November 1995, Bigmar Pharmaceuticals
entered into the Bioferment Agreement. Pursuant to the terms of the Bioferment
Agreement, Bigmar Pharmaceuticals paid Bioferment a $100,000. At the time of
negotiation and execution of the foregoing agreements, John G. Tramontana, the
Company's Chairman of the Board, President, and Chief Executive Officer, was the
Chief Operating Officer and a director of Cerbios, Chairman of the Board of
Cernelle and a director of Chemholding, a principal stockholder of the Company.
Chemholding is the sole stockholder of Cerbios of which Sapec and Bioferment are
divisions. Until July 1996, Cerbios was the sole stockholder of Cernelle.
Certain stockholders of the Company own in the aggregate approximately 80% of
the capital stock of Chemholding. John G. Tramontana is not a stockholder of
Chemholding, Cerbios or Cernelle. On March 27, 1997, the Company reached the
Settlement, and as a result of the Settlement terminated the contracts it had
entered into with Sapec and Bioferment. In July 1996, Cernelle was sold to an
unrelated third party. The Company's agreement with Cernelle has not been
terminated. Mr. Tramontana joined the board of directors of Cernelle in
September 1996.
In 1995, Unione Farmaceutica SA, which is owned by certain stockholders
of the Company, loaned
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<PAGE>
<PAGE>
$1,809,524 to the Company bearing interest at the rate of 9% per annum. The
principal on the loan was repaid in August 1996. For the fiscal year ended
December 31, 1995, the Company made interest payments to Unione Farmaceutica SA
in the amount of $151,000. For the fiscal year ended December 31, 1996, the
Company made interest payments to Unione Farmaceutica in the amount of $96,373.
On January 8, 1995, Chemholding agreed to be a surety for Bigmar
Pharmaceuticals in the amount of $1.3 million for the loans with respect to the
Bigmar Facility.
For the fiscal year ended December 31, 1995, the Company purchased
inventory from Cernelle and Cerbios in the aggregate amount of $206,000 and paid
selling, general and administrative expenses and freight charges to Cerbios in
the amount of $169,000. For the fiscal year ended December 31, 1996, such
purchases aggregated $965,000 and the fee accrued for Cerbios in connection with
the settlement aggregated approximately $300,000.
In June 1995, all of the outstanding capital stock of Bioren was
purchased by Bigmar Pharmaceuticals, for an aggregate purchase price of
approximately $9.4 million, consisting of approximately $5.2 million in cash and
the assumption of certain of the Bioren's liabilities in the aggregate principal
amount of $4.2 million. In addition, in connection with the Bioren Acquisition,
Bigmar Pharmaceuticals became a guarantor on a bank loan to Bioren in the
principal amount of $2.6 million, which was collateralized by the Bioren
Facility, and provided a guarantee on a second mortgage in the aggregate
principal amount of approximately $1.7 million on the Bioren Facility. In
addition, simultaneous with the Bioren Acquisition, in June 1995, Bigmar
Pharmaceuticals sold one-half of its equity interest in Bioren to the Bioren
Holders for approximately $2.6 million. This sale included 500 shares (10% of
Bioren's outstanding stock) to John G. Tramontana, the Company's Chairman of the
Board, President and Chief Executive Officer, for approximately $500,000.
In September 1995, the Company sold an aggregate of 2,375,000 shares of
Common Stock to its existing stockholders prior to the IPO and on April 8, 1996
such existing stockholders contributed 99% of these shares of Common Stock to
the Company. On April 9, 1996, the Bioren Holders exchanged their capital stock
in Bioren (representing 50% of the outstanding Bioren capital stock) for 350,312
shares of the Common Stock of the Company with an approximate fair market value
(based on the initial public offering price of $7.50 per share) of $2,627,340
and the stockholders of Bigmar Pharmaceuticals exchanged all of the capital
stock of Bigmar Pharmaceuticals for 2,000,938 shares of Common Stock of the
Company with an approximate fair market value (based on the initial public
offering price of $7.50 per share) of $15,007,035.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
In March 1996, the Company entered into a sublease agreement with
Cernitin. The sublease is month to month and the Company expects to terminate
the lease on May 31, 1997. The sublease is at a rental of approximately $22,315
per annum. Mr Tramontana was the President and a director of Cernitin and
Michael K. Medors was the treasurer and general manager of Cernitin at the time
of the negotiation and execution of the sublease.
In April 1996, John G. Tramontana entered into five-year employment
agreement with the Company. In August 1996, pursuant to the Option Plan, Mr.
Tramontana was granted an option to purchase 10,171 and 114,829 shares of Common
Stock at exercise prices of $9.83 and $8.94 respectively. In addition, the
Company granted options to certain directors and officers of the Company. See -
Item 11 Executive Compensation.
In June 1996, the Company granted to the Representative an option to
purchase 140,000 shares of
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<PAGE>
<PAGE>
Common Stock at an exercise price per share equal to $9.75. In _____ 1996 the
Representative assigned to Mr. Eric Chen a warrants to purchase 11,433 shares of
Common Stock at an exercise price equal to $9.75.
In December 1996, the Company entered into the Lease with JTech. The
Lease commences on the completion of construction of an approximately 8,600
square foot office and laboratory facility. The Lease provides for a rental of
approximately $120,000 per annum with the first years rent due in full at the
time of commencement of the Lease discounted at 9%. Mr. Tramontana was the
President and director of JTech and Michael K. Medors was the Treasurer and
director of JTech at the time of the negotiation and execution of the Lease. Mr.
Tramontana and Mr. Medors continue to hold such positions with JTech.
Mr. Tramontana and Chemholding may be deemed to be founders or promoters
of the Company as that term is defined under the Securities Act.
Certain of the transactions set forth above have been entered into by
the Company with certain persons who, at the time of such transactions, might
have been deemed control persons or affiliates of the Company. Notwithstanding
the foregoing, the Company believes that the terms of these transactions are no
less favorable to the Company than it would have obtained from unaffiliated
third parties. The Company anticipates that all future transactions and loans
between the Company and its officers, directors, 5% stockholders and affiliates
will be on terms no less favorable than could be obtained from unaffiliated
third parties and that such transactions and loans will be approved by a
majority of the independent disinterested directors of the Company. There can be
no assurance that the company will be able to negotiate future transactions and
loans on favorable terms to the Company or at all.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES.
All financial statements and schedules required to be filed by Item 8 of
this Form and included in this report have been listed previously under Item 8.
No additional financial statements or schedules are being filed since the
requirements of paragraph (d) under Item 14 are not applicable to the Company.
(3) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Filing Status
-------------- ---------------------- -------------
<C> <S> <C>
3.1 Restated and Amended Certificate a
of Incorporation
3.1(a) Certificate of Correction to a
Restated and Amended Certificate
of Incorporation of the Registrant
3.2 Restated By-Laws of the a
Registrant
3.2(a) Amendment to Restated By-Laws a
of the Registrant
</TABLE>
- 40 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Filing Status
-------------- ---------------------- -------------
<C> <S> <C>
4.1 Specimen Stock Certificate a
4.2 Form of Representatives Warrant a
10.1 Intentionally Omitted a
10.2 Partnership Agreement, dated as a
of October 1995, between Bigmar
Therapeutics, Inc. and Protyde
Oncology Therapeutics, Inc.
10.3 Sales and Marketing Agreement, a
dated as of October 1995, between
Protyde-Bigmar Therapeutics and
Protyde Corporation
10.4 Manufacturing Agreement, dated a
as of October 1995, between
Protyde-Bigmar Therapeutics and
the Registrant
10.5 Sublease Agreement, dated as of a
March 1, 1996, between the
Registrant and Cernitin America, Inc.
10.6 Form of Indemnification a
Agreement
10.7 *Employment Agreement, dated as a
of April 15, 1996, between the
Registrant and John G.
Tramontana
10.8 Form of Medical Advisory a
Agreement
10.9 Form of Scientific Advisory a
Agreement
10.10 Exclusive Distribution and Supply a
Agreement, dated November 5,
1995, between Bigmar
Pharmaceuticals SA and
AB Cernelle
10.11 Technical Services Agreement, a
dated November 5, 1995, between
Bigmar Pharmaceuticals SA and
AB Cernelle
</TABLE>
- 41 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Filing Status
-------------- ---------------------- -------------
<C> <S> <C>
10.12 License and Supply Agreement, a
dated November 14, 1995,
between Bigmar Pharmaceuticals
SA and Bioferment division of
Cerbios-Pharma SA
10.13 Exclusive Distribution and Supply a
Agreement, dated as of December
14, 1995, between Bigmar
Pharmaceuticals SA and
Bioferment division of
Cerbios-Pharma SA
10.14 Exclusive Distribution Agreement, a
dated November 14, 1995,
between Bioren SA and SAPEC
division of Cerbios-Pharma SA
10.15 Stock for Stock Exchange a
Agreement, dated April 9, 1996,
between the Registrant and its
stockholders
10.16 Contribution Agreement, dated a
April 8, 1996, between the
Registrant and its stockholders
10.17 Exclusive Distribution Agreement, a
dated December 22, 1995,
between Bigmar Pharmaceuticals
SA and Boehringer Mannheim
Italia S.p.A.
10.18 International Activities a
Agreements, dated March 3, 1994,
between Bigmar Pharmaceuticals
SA and Medac GmbH
10.19 Distribution Agreement, dated a
October 10, 1994 between Bigmar
Pharmaceuticals SA and Pharma
Stroschein GmbH
10.20 Distribution Agreement, dated a
July 31, 1995, between Bigmar
Pharmaceuticals SA and
Laboratorios Vita S.A.
10.21 Supply and Collaboration a
Agreement, dated March 8, 1995,
between
Bioren SA and PLM Langeskov
A/S
</TABLE>
- 42 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Filing Status
-------------- ---------------------- -------------
<C> <S> <C>
10.22 Agreement, dated December 21, a
1995, between Laevosan
international AG and Bigmar
Pharmaceuticals SA
10.23 Loan documentation between a
Bioren SA and Union Bank of
Switzerland
10.24 Loan documentation between a
Bigmar Pharmaceuticals SA and
Union Bank of Switzerland
10.25 Registrant's 1996 Stock Option a
Plan
10.26 *Form of Non-qualified Stock a
Option Agreement under the 1996
Stock Option Plan
10.27 *Form of Incentive Stock Option a
Agreement under the 1996 Stock
Option Plan
10.28 *Form of Registrant's Director a
Option Plan
10.29 Acquisition Agreement, dated a
June 22, 1995, between Galenica
Holding AG and the Registrant
10.30 Extension of Licensing Agreement, a
dated October 27, 1995, between
Dr. F. Messi Cell Culture
Technologies and Bigmar
Pharmaceuticals SA
10.31 Agreements between Bigmar a
Pharmaceuticals SA and Unione
Farmaceutica SA
10.40 Lease Agreement, dated as of Filed herewith
December 31, 1996, between the
Registrant and JTech Laboratories,
Inc.
10.41 Cancellation Agreement, dated as Filed Herewith
of March 27, 1997, between the
Registrant and Cerbios-Pharma
SA
10.42 Release dated March 27, 1997 Filed Herewith
issued by Cerbios Pharma in favor
of the Registrant
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Filing Status
-------------- ---------------------- -------------
<C> <S> <C>
10.43 Cancellation Agreement, dated as Filed Herewith
of March 27, 1997, between the
Registrant and Cerbios-Pharma
SA
10.44 Cancellation Agreement, dated as Filed Herewith
of March 27, 1997, between the
Registrant and Cerbios-Pharma
SA
10.45 Libor Mortgage Loan Agreement, Filed Herewith
dated February 26, 1997, between
Union Bank of Switzerland and the
Registrant
10.46 Credit Contract and Libor Loan Filed herewith
ContractAgreement, dated
December 13, 1996, between
Union Bank of Switzerland and the
Registrant
10.47 *Employment Agreement, dated as File Herewith
of July 1, 1996, between the
Registrant and Albert Z Hodge, Jr.
10.48 *Employment Agreement, dated as Filed Herewith
of April 15, 1996, between the
Registrant and Peter P. Stoelze
11 Statements re Computation of per Filed herewith
share earnings
21.1 Subsidiaries of the Company a
27 Financial Data Schedule Filed herewith
</TABLE>
a = Incorporated by reference to the Company's Registration Statement No.
333-3830 declared effective by the Commission on June 19, 1996.
* = Includes compensatory plan and or arrangements required to be filed pursuant
to Item 14(c) of this Form 10K.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year.
(c) See (a)3
- 44 -
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BIGMAR, INC.
By: John G. Tramontana
___________________________________
Date: April 15, 1997 John G. Tramontana
Chairman of the Board
of Directors and Chief Executive
Officer (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
John G. Tramontana Chairman of the Board of April 15, 1997
- ------------------------ Directors and Chief Executive
John G. Tramontana Officer (Principal Executive
Officer)
Michael K. Medors Treasurer, Secretary, and April 15, 1997
- ------------------------ Director (Principal
Michael K. Medors Accounting and Financial
Officer)
Director April 15, 1997
- ------------------------
Eric M. Chen
Bernard Kramer Director April 15, 1997
- ------------------------
Bernard Kramer
Director April 15, 1997
- ------------------------
John R. Morris
</TABLE>
- 45 -
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BIGMAR, INC.
By:
- ------------------------------
Date: April 15, 1997 John G. Tramontana
Chairman of the Board
of Directors and Chief
Executive Officer
(Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
______________________ Chairman of the Board of April 15, 1997
John G. Tramontana Directors and Chief Executive
Officer (Principal Executive
Officer)
______________________ Treasurer, Secretary, and April 15, 1997
Michael K. Medors Director (Principal
Accounting and Financial
Officer)
______________________ Director April 15, 1997
Eric M. Chen
______________________ Director April 15, 1997
Bernard Kramer
</TABLE>
- 46 -
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
______________________
John R. Morris Director April 15, 1997
</TABLE>
- 47 -
<PAGE>
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered into this 31st day of December,
1996, by and between JTECH LABORATORIES, INC., a Delaware corporation ("Lessor")
and BIGMAR, INC., a Delaware corporation ("Lessee") on the following terms and
conditions:
1. PREMISES. In consideration of the payment by Lessee of the rents
hereinafter reserved by Lessor, and the performance and observance by Lessee of
all the terms, covenants and conditions hereinafter set forth, said Lessor does
hereby demise and lease unto the Lessee that certain real property, known as
9511 Sportsman Club Road, located on a portion of the 8.872 acres of land in
Johnstown, Ohio 4303l, as more particularly described in Exhibit "A" attached
hereto ("Parcel"), together with all appurtenances thereto and all buildings and
improvements to be located thereon, including a certain office/warehouse
building, consisting of 8,550 square feet, more or less, to be constructed by
Lessor ("Building") (the described portion of the Parcel, the Building, parking
lot and landscaped areas situated thereon are hereinafter referred to
collectively with all appurtenances thereto as the "Premises").
2. TERM.
(a) Initial Term: The initial term of this Lease ("Initial Term") shall
commence on the date on which Lessee accepts (as defined in Section 3(c) below)
the Premises ("Commencement Date") and shall run for a period of five (5) years
beginning on the Commencement Date; provided that if the Commencement Date does
not fall on the first day of a month, the term SHALL be for a period of five (5)
years plus the number of days remaining in the month in which the Premises is
accepted (as defined in Section 3(c) below). Rent for such initial partial month
shall be prorated based on the number of days remaining in said month.
(b) Renewal Term: Lessor hereby grants to Lessee the option to renew the
Lease term for an additional five (5) years ("Renewal Term", the Initial Term
and the Renewal Terms are sometimes hereinafter collectively referred to as the
"Term"). Should Lessee want to renew this Lease for the period set forth above,
Lessee shall notify Lessor in writing no later than two (2) months prior to the
end of Lessee's Initial Term.
3. CONSTRUCTION OF OFFICE SPACE.
(a) Duty to Construct: Lessee's obligation to lease the premises is
contingent upon Lessor's construction and completion of the Building, parking
lot and landscaping of the area contiguous to and surrounding the building and
parking lot, which improvements shall collectively be known as Lessee's
"Premises" and is more specifically described and delineated in the site plan
attached hereto as Exhibit "A" and which Premises is to be used by Lessee for
its offices, warehouse and laboratories. Lessor agrees to perform the
construction in a good and workmanlike manner and in accordance with final plans
and specifications prepared by a licensed, certified architect mutually approved
by Lessor and Lessee.
Lease Agreement 1 Initials_____________
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<PAGE>
<PAGE>
(b) Time of Completion: Lessor shall proceed as expeditiously as possible
to obtain all required government approvals, including but not limited to:
building permits, zoning and environmental approvals, and architectural review
consents. Unless construction has commenced prior thereto, Lessor shall commence
construction as soon as possible after all required permits and consents are
obtained, weather permitting.
(c) Acceptance: Lessee shall accept the Premises when they have been
substantially completed in accordance with the approved plans and
specifications, subject only to minor punchlist items set forth in writing by
Lessee that do not materially affect Lessee's use of the Premises for Lessee's
intended purposes, and Lessor has tendered possession and has received a
certificate of occupancy from the appropriate governmental authority (the
"Commencement Date").
(d) Lessor and Lessee Work. All construction of improvements and related
work to be performed by Lessor and Lessee shall be done in accordance with the
attached Lessor and Lessee Work Riders. The projected completion date for the
Premises is April 1, 1997.
4. RENT.
(a) Rent: Upon the Commencement Date, Lessee shall deliver to Lessor One
Hundred Twenty Thousand Dollars ($12O,000.00) as and for Rent for the Premises
for the first twelve (12) months of the Initial Term discounted at the prime
rate plus 1/2%. Commencing the thirteenth (13th) month through and including
month thirty-six (36) of the Initial Term, Lessee agrees to pay as net rent for
the Premises the sum of One Hundred Twenty Thousand Dollars ($12O,000.00) per
annum, payable in equal monthly installments of Ten Thousand Dollars
($10,000.00) each, in advance, without demand, on the first day of each and
every month during the term hereof. All rent and other payments required to be
made by the Lessee to the Lessor pursuant to the provisions of this Lease shall
be made at, or sent to, the address of the Lessor for the receipt of notices
hereunder as hereinafter specified. At the commencement of the fourth (4th) year
of the Initial Term (the thirty-seventh (37th) month) hereof and each year
thereafter, the monthly rent shall be adjusted as set forth in Article 4.(b)
below.
(b) Consumer Price Index. The base for computing the adjustment is the
Consumer Price Index for all Urban Consumers (CPI-U) - ALL ITEMS, published by
the United States Department of Labor, Bureaus of Labor Statistics ("Index"),
which is in effect on December 31, 1996, the date of the commencement of the
Lease ("Beginning Index"). The index published most immediately preceding the
adjustment date of January 1, 2000 ("Extension Index") is to be used in
determining the amount of the adjustment during the Renewal Term. If the
Extension Index has increased over the Beginning Index, the monthly rent for the
following year (until next rent adjustment) shall be set by multiplying the sum
of Ten Thousand Dollars ($10,000.00) by a fraction, the numerator of which is
the Extension Index and the Denominator is the Beginning Index. In no event
shall the adjusted monthly rent be less than Ten Thousand Dollars ($10,000.00)
per month.
Lease Agreement 2 Initials_____________
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<PAGE>
<PAGE>
(c) Rent During Renewal Terms: The rent for the Renewal Term shall not be
less than the rent for the Initial Term which shall be adjusted by the CPI
formula set forth at 4.(b) above. However, in no event shall the rent for the
Renewal Term be increased by more than five percent (5%) over the rent paid
for the last year of the Initial Term.
5. LESSEE'S COVENANTS. Lessee hereby covenants and agrees with Lessor that
Lessee will:
(a) Use of Premises. Use and occupy the Premises as an office/laboratory
facility in a lawful, careful, safe and proper manner, and will, in its use
and occupancy of the Premises, keep, observe and comply with all municipal,
state and federal rules and regulations, ordinances, statutes, and laws and
all restrictive covenants applicable to the Premises and Lessee's use and
occupancy thereof, and will not use or permit the Premises to be used for
any unlawful purpose;
(b) Inspection. Permit Lessor, at all reasonable times upon advance notice, to
enter upon and inspect the Premises;
(c) Liability. Not hold Lessor liable to Lessee, its agents, employees, or
invitees for injury to person or loss or damage to property resulting,
directly or indirectly, from Lessee's use and occupancy of the Premises;
and Lessee shall, and Lessee hereby does, indemnify Lessor against all such
liability and agrees to defend, at Lessee's cost and expense, all actions
for such damages by any person or entity;
(d) Assignment Restrictions. Not assign this Lease or sublet the Premises, or
any part thereof, without Lessor's prior written consent, which said
consent shall not be unreasonably withheld;
(e) Waste. Not commit or suffer any waste upon or in the Premises
(f) Surrender. Upon termination of this Lease by lapse of time or otherwise,
deliver up the Premises to Lessor peaceably and quietly, broom clean and in
as good order and condition as the same are at the commencement of the Term
or may hereafter be put, the effects of time and ordinary wear and tear
excepted;
(g) Alterations. Not deface or damage the Premises; make any alteration in or
additions to the Premises beyond those improvements set forth in Lessee's
Work Rider attached hereto without Lessor's written consent; or do or
permit anything to be done which may make Lessee's or Lessor's insurance
void or voidable;
(h) Maintenance. Keep and maintain all doors and windows and the interior of
the Premises in good order, repair and condition, including but not limited
to all floors, walls, ceilings
Lease Agreement 3 Initials_____________
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<PAGE>
<PAGE>
and mechanical systems, HVAC (including exterior condenser), plumbing, and
electrical systems. Lessee shall also be responsible for all exterior
repairs to the building, including structural and roof repairs, drives,
parking areas, sidewalks, and underground utility lines servicing the
Premises located outside the building;
(i) Janitorial. Provide at Lessee's expense, all janitorial, landscape and
parking lot maintenance services which are necessary or desirable to keep
the Premises in a clean and orderly condition; keep all walks and the
parking lot in good condition, reasonably clean and free from ice and snow;
and properly care for the lawn and landscaping;
(j) Utilities. Promptly pay the cost of all utility services, including, but
not limited to, electricity, telephone, water and sewer, gas or other fuels
and trash removal;
(k) Real Estate Taxes. Pay the semi-annual real estate taxes and assessments
payments for the Premises due and payable during the Term. Upon receipt of
each such bill, Lessor shall advise Lessee of the amount thereof and
provide Lessee with a duplicate copy of said tax bill prior to requesting
payment and Lessee shall thereafter pay such amount to either Lessor or
directly to the taxing authority. If payment is made directly to the taxing
authority, Lessee shall provide Lessor with proof of payment of the same.
Lessee may, at its own expense, contest any real estate tax bill or special
assessments during any Term of this Lease;
(l) Liability Insurance. Keep the Premises insured during the Term under a
policy of general public liability insurance, with limits of not less than
$750,000.00 in a combined single limit policy covering all damages, claims
or losses. Such insurance shall name Lessor and its designees as additional
insureds, and shall not be cancelable without at least 30 days prior
written notice to the additional insureds. The original or a certified copy
of such policy shall be deposited with Lessor and proof of renewal shall be
provided by Lessee to Lessor annually;
(m) Fire Insurance. Pay the premiums for fire and extended coverage insurance
upon the Premises due during the Term. Upon receipt of each such bill,
Lessor shall advise Lessee of the amount thereof and provide Lessee with a
duplicate copy of said premium statement requesting payment and Lessee
shall thereafter pay such amount to Lessor upon demand;
(n) Personal Property Insurance. Keep Lessee's personal property and fixtures
located on the Premises insured against loss or damage by fire and other
hazards. Lessee understands that all such property and fixtures shall be
kept at the Premises at Lessee's sole risk;
(o) Mechanics' Liens. Indemnify and save Lessor harmless against and from any
and all loss, costs, expenses, attorney fees and damages suffered or
incurred by Lessor in the discharge of mechanics' liens, filed or inchoate,
for the improvement or maintenance of the Premises
Lease Agreement 4 Initials_____________
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<PAGE>
<PAGE>
contracted for or by Lessee. Lessee may, at Lessee's sole cost and expense,
provide to Lessor a bond to discharge any lien in an amount equal to one
and one-half (l-1/2) times the estimated cost of any liened improvements,
additions or alterations in the Premises to insure Lessor against any
liability for mechanics' and materialmen's liens; and
(p) Signs. Not affix any signs to the roof, sides or any other portion of the
building, without the prior consent of Lessor, which said consent shall not
be unreasonably withheld.
6. MUTUAL COVENANTS. Lessor and Lessee covenant and agree with each other
as follows:
(a) Quiet Enjoyment. Lessee shall, provided Lessee shall not be in default
hereunder, be permitted to peaceably and quietly hold and enjoy the
Premises during the Term;
(b) Damage or Destruction. Lessor shall insure the improvements at the Premises
for 100% of their fair market replacement value. If any improvements on the
Premises shall be damaged or destroyed, either partially or totally, by any
cause whatsoever during the Term, Lessor shall promptly cause the same to
be restored or rebuilt to a similar standard of quality and condition as
existed on the commencement of the Term; provided, however, that Lessor
shall not be obligated to spend more than the insurance proceeds received
by Lessor, and further provided, that if the improvements cannot reasonably
be restored within 120 days after such damage, then Lessor or Lessee may
elect to terminate this Lease by written notice to the other within 30 days
of the damage. Lessor shall provide Lessee with written notice of its
intent to restore the Premises within thirty (30) days of any damage.
Lessee's rent shall permanently abate in the proportionate amount of
Building space rendered unusable during the period of destruction and
restoration of the Building: Example: 40% of the Building rendered
unusable, Lessee's monthly rent shall be reduced by 40%. Should partial
destruction of the Building render the entire Building unusable, then the
entire monthly rent shall be permanently abated until the Building is
restored;
(c) Assigns. The provisions of this Lease shall extend to and shall, as the
case may require, be binding upon or inure to the benefit of the respective
legal representatives, successors and permitted assigns of the parties
hereto;
(d) Lien Priority. This Lease shall be subordinate to any mortgage now a lien
against the Premises or hereafter made a lien at the election of any such
mortgagee, and Lessor and Lessee agree to execute any documents that may be
required by a mortgagee to effect such subordination;
(e) Eminent Domain. If 25% or more of the Premises shall be taken by
appropriation or by the exercise of the power of Eminent Domain, this Lease
shall terminate within 30 days after such public authority takes actual
possession thereof, in which event neither Lessor nor Lessee shall
thereafter have any rights, powers, duties or obligations under this Lease
Lease Agreement 5 Initials_____________
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<PAGE>
<PAGE>
except those which accrued prior to such termination. If less than
twenty-five percent (25%) of the Premises shall be so condemned or taken
and such taking does not materially interfere with Lessee's use and
enjoyment of the Premises, then this Lease shall continue and the monthly
rental shall not be diminished. Lessor shall be entitled to receive the
entire award in any condemnation proceedings, including any award for the
value of any unexpired Term, and Lessee shall have no claim against Lessor
or against the proceeds of the condemnation. Lessee shall have the right to
appear, claim, prove and receive compensation for loss of any improvements
it made to the Premises at its cost, moving and relocation expenses in any
such condemnation proceeding;
(f) Holding Over. If Lessee continues to occupy the Premises after the
expiration or termination of the Term, such tenancy shall be from month to
month at the rent due during the last full month of the Term; and
(g) Recording. This Lease shall not be recorded.
7. ACKNOWLEDGMENT BY LESSEE. Lessee shall, at any time and upon not less
than 10 days prior notice from Lessor, execute, acknowledge and deliver to
Lessor a statement in writing certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), and the dates
to which the rent, has been paid, and stating whether or not to the best
knowledge of the signer of such certificate, Lessor is in default in performance
of any covenant, agreement, term, provision or condition contained in this
Lease, and, if so, specifying each such default of which the signer may have
knowledge, it being intended that any such statement delivered pursuant hereto
may be relied upon by any prospective purchaser of the Premises, any mortgagee
or prospective mortgagee thereof, or any prospective assignee of the mortgage
thereof.
8. DEFAULT. Provided always, and this Lease is on the express condition,
that if any financial obligation of Lessee under this Lease shall not be paid
when and as due or if Lessee fails or neglects to perform and observe any
covenant or condition of this Lease on its part to be performed and observed,
then, and in any such event, this Lease and all right, title and interest of any
person claiming by, through, or under Lessee, may, at Lessor's option, be
terminated and canceled, in which event all obligations of Lessor hereunder
shall cease, terminate and be void without prejudice to all remedies which
Lessor may have for arrears of rent, collection of debt and damages for
negligence or breach of covenant. Anything in this Lease to the contrary
notwithstanding, there shall be no forfeiture, cancellation or termination of
this Lease by Lessor except upon: fifteen (15) days prior written notice to
Lessee describing the nature of the monetary default, during which fifteen (15)
day period Lessee may remedy the monetary default or defaults specified in such
notice; and thirty (30) days prior written notice to Lessee describing the
nature of any non-monetary default during which thirty (30) day period, Lessee
may remedy the non-monetary default or defaults specified in such notice. If
Lessee should default in performing any term, covenant or condition of this
Lease, which default may be cured by the expenditure of money, Lessor, at
Lessor's option, may, but shall not be obligated to, on behalf of Lessee, expend
such sums as may be necessary to perform and fulfill such term, covenant or
condition, and any
Lease Agreement 6 Initials_____________
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<PAGE>
<PAGE>
and all sums so expended by Lessor, shall be deemed to be additional rent and
shall be repaid by Lessee to Lessor on demand, but no such expenditure by Lessor
shall be deemed a waiver of Lessee's default. Should Lessor by action or
inaction waive its right to declare this Lease in default because of any act or
default by Lessee, such waiver shall not preclude Lessor from declaring this
Lease to be in default because of the same or other acts of default by Lessee
which may occur subsequently.
9. CONSTRUCTION. This Lease shall be governed by the laws of the State of
Ohio. This Lease contains the entire agreement between the parties, and any
agreement hereafter made shall be ineffective to change, modify, or discharge it
in whole or in part unless such agreement is in writing and signed by the party
against whom enforcement of the change, modification, or discharge is sought.
10. WAIVER OF SUBROGATION. Lessor and Lessee hereby waive all causes and
right of recovery against each other, and their respective agents, officers,
and employees, for any loss occurring on the Premises resulting from any of the
perils insured against under any and all casualty insurance policies in effect
at the time of any such loss, regardless of the cause or origin of such loss,
including the negligence of Lessor, Lessee, or their respective agents, officers
or employees, to the extent of any recovery on such policies of insurance.
11. ENVIRONMENTAL. Lessee shall not cause or permit any Hazardous Substance
to be used, stored, generated, or disposed of on or in the Premises by Lessee or
Lessee's agents, employees, contractors, sublessees, licensees, or invitees
without first obtaining Lessor's written consent, which consent shall not be
unreasonably withheld. If Hazardous Substances are used stored, generated, or
disposed of on or in the Premises or if the Premises or the building become
contaminated in any manner for which Lessee or any agent, employee, contractor,
sublessee, licensee or invitee of Lessee is responsible or otherwise legally
liable, Lessee shall indemnify and hold harmless the Lessor from any and all
claims, damages, fines, judgments, penalties, costs, liabilities, or losses
(including, without limitation, a decrease in value of the Lessor's property and
attorney's and consultant's fees) arising during or after the Term and arising
as a result of that contamination. As used herein, "Hazardous Substance" means
any substance that is toxic, ignitable, reactive, or corrosive and that is
regulated by any local government, the State of Ohio, or the United States
Government. "Hazardous Substance" includes asbestos, PCP's, petroleum, and any
material or substances that are defined as "hazardous waste", "extremely
hazardous waste", or a "hazardous substance" pursuant to state, federal, or
local governmental law.
12. NOTICES. All notices which either party hereto may give to the other
party hereto shall be addressed, in the case of Lessor, as follows:
JTech Laboratories, Inc.
6660 Doubletree Ave. 20
Columbus, Ohio 43229
ATTN: Mike Medors
Lease Agreement 7 Initials_____________
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<PAGE>
<PAGE>
and in the case of Lessee, as follows:
Bigmar, Inc.
9511 Sportsman Club Road
Johnstown, Ohio 43031
ATTN: Peter Stoelzle
Such notices shall be delivered personally or sent by U.S. certified mail return
receipt requested to the above addresses or such other addresses as addressee
may specify in writing. The effective date thereof shall be the date of
delivery, if delivered personally, or the date it is received in the mail by the
addressee, if mailed.
13. LIMITATION OF LESSOR'S LIABILITY. The references to "Lessor" in this
Lease shall be limited to mean and include only the owner, at the time of
execution of this Lease, of the fee simple interest in the Premises. In the
event of a sale or transfer of such interest (except a mortgage or other
transfer as security for a debt), the "Lessor" named herein, or, in the case of
a subsequent transfer, the transferor, shall, after the date of the transfer, be
automatically released from all liability for the performance of any term,
condition, covenant or obligation required to be performed or observed by Lessor
hereunder; and the transferee shall be deemed to have assumed all of the terms,
conditions, covenants and obligations.
14. OPTION TO PURCHASE. Lessee may exercise an option to purchase the
Premises in an "as is" condition after completion of the twenty-fourth (24th)
month and prior to the first (1st) day of the fifty-fifth (55th) month of the
Initial Term (the "Option"). Lessee and Lessor shall negotiate a purchase price
consistent with the Premises fair market value following such time that Lessee
notifies Lessor in writing of its desire to purchase the Premises. Bank
financing and all related transactions must be complete prior to the expiration
of the Term of this Lease. Should Lessee not exercise its option to purchase the
Premises, this Option shall become null and void and this Lease shall remain in
full force and effect for the remainder of Lessee's Term.
15. ADA COMPLIANCE. Notwithstanding anything to the contrary contained in
the Lease, Lessor agrees that the responsibility for compliance with the
American Disabilities Act ("ADA" shall be allocated as follows: a) Lessor shall,
as required by Law, comply with the provisions of Title III of ADA for all
exterior and interior areas of the building in which the Premises are located,
including but not limited to construction, renovation, alteration and repair.
Such shall be completed as required by Law, and attributed as set forth in the
Lease; and b) Lessee shall, as required by Law, comply with the provisions of
Title III of ADA as it relates to any subsequent improvements undertaken by
Lessee to the Premises after acceptance of the same, including but not limited
to, any subsequent construction, renovation, alteration, expansion or repair.
Lease Agreement 8 Initials_____________
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Lease to be executed
as of the date first above written.
Signed and acknowledged Lessor:
in the presence of:
JTECH LABORATORIES, INC.,
a Delaware corporation
MARVA B. ALLEN By: MICHAEL K. MEDORS
_____________________________ _________________________________
Witness Name: Michael K. Medors
Print Name Marva B. Allen Its: Treasurer and Secretary
MICHELLE MUNSELL
_____________________________
Witness
Print Name Michelle Munsell
Lessee:
BIGMAR, INC.,
a Delaware corporation
PHILIPPE ROHRER By: BERNARD KRAMER
_____________________________ ________________________________
Witness Name: Bernard Kramer
Print Name Philippe Rohrer Its: Vice President, Director
DAVE A. LYNSAVAGE
______________________________
Witness
Print Name Dave A. Lynsavage
STATE OF Ohio,
COUNTY OF Licking , SS:
The foregoing Lease was acknowledged before me this 31st day of December,
1996, by Michael K. Medors (name), Treasurer and Secretary (title) of JTech
Laboratories, Inc., a Delaware corporation, on behalf of the corporation.
DEBORAH K. RUYAN
_____________________________________
Notary Public
Deborah K. Ruyan
Notary Public, State of Ohio
Commission Expires 6-9-2001
Lease Agreement 9 Initials_____________
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<PAGE>
<PAGE>
LESSOR'S WORK RIDER
This Rider is attached to and made part of a Lease Agreement (the "Lease") dated
12/31/96, 1996 between Nemisis, Inc., a Delaware corporation, as "Lessor", and
Bigmar, Inc., a Delaware corporation, as "Lessee", for Premises located at 9511
Sportsman Club Road, located on a portion of 8.872 acres of land in Johnstown,
Ohio 43031 (the "Premises"). The terms used in this Rider shall prevail over any
inconsistent or conflicting provisions of the Lease.
A. DESCRIPTION OF IMPROVEMENTS. Lessor shall, at its expense, construct certain
improvements in or about the Premises ("Lessor's Work") in accordance with plans
and specifications ("Plans") approved by Lessee and comprising pages 3 of this
Rider.
B. PRELIMINARY PLANS. If the Plans are final plans and specifications, they
shall be referred to as the "Final Plans", and the remainder of this Paragraph
shall be inoperative. If the Plans are preliminary plans, Lessor shall prepare
final working drawings and outline specifications for Lessor's Work and submit
such plans and specifications to Lessee for its approval on or before __________
Lessee shall approve or disapprove such drawings and specifications within seven
(7) working days after receipt from Lessor. Lessee shall have the right to
disapprove such drawings and specifications only if they materially differ from
those set forth in this Rider. If Lessee disapproves such drawings and
specifications, Lessor and Lessee shall promptly meet in an attempt to resolve
any dispute. If the parties are unable to agree upon the final working drawings
and specifications for the Lessor's Work on or before _______________, Landlord
may, at Lessor's option, either (1) terminate this Lease upon seven (7) days'
written notice to Lessee, in which case neither Lessor nor Lessee shall have
further liability to the other, or (2) submit the matter to conclusive and
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Final working drawings and specifications
prepared in accordance with this PARAGRAPH B and approved by Lessor and Lessee
are referred to as the "Final Plans".
C. COMPLETION OF THE LESSOR'S WORK. Notwithstanding the provisions of ARTICLE 3
of the Lease, Lessee's acceptance of the Premises "as is" shall be subject to
completion of Lessor's Work in accordance with this Rider. Lessor shall use its
reasonable efforts to complete Lessor's Work described in the Final Plans prior
to the scheduled Possession Date set forth in Section 3. of the Lease. For the
purposes of this PARAGRAPH C, Lessor's Work shall be conclusively deemed to be
substantially completed when all Lessor's Work described in the Final Plans is
completed and as otherwise set forth in Article 3.(c) of the Lease, except for
punch-list items. Lessee acknowledges that those components of Lessor's Work
described below as "Concurrent Work" can be undertaken by Lessor concurrently
with Lessee's Work. Accordingly, notwithstanding Lessor's failure to complete
such components by the Possession Date, Lessee shall accept delivery of
possession of the Premises on the Possession Date and promptly commence
construction of Lessee's Work.
CONCURRENT Work: Rough-in plumbing under foundation,
concrete closet for gas tanks, stability room rough-ins,
electrical requirements.
Lessor's Work Rider
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<PAGE>
<PAGE>
D. CHANGES. Lessor's obligation to prepare the Premises for Lessee's occupancy
is limited to the completion of Lessor's Work, as set forth in the Final Plans.
If Lessee requests any change, addition or alteration ("Changes") in Final Plans
or in the construction of Lessor's Work, Lessor shall promptly give Lessee
notice of whether Lessor approves such changes. If Lessor approves such changes,
the notice shall be accompanied by an estimate of the cost of such Changes and
the resulting delay in delivering the Premises to Lessee. Within three (3) days
after receipt of such estimate, Lessee shall give Lessor written notice whether
Lessee elects to proceed with such Changes. If Lessee elects to proceed with
such Changes, Lessor shall, at Lessee's expense, promptly make such Changes. If
Lessee fails to notify Lessor of its election within the three (3) days period,
Lessor may either (1) make such Changes at Lessee's expense or (2) complete the
Lessor's Work without making such Changes. Lessee shall pay or reimburse Lessor
for the costs of such Changes within fifteen (15) days after billing. Any delay
caused by Lessee's request for any Changes or from the construction of any
Changes shall not, in any event, delay the Rent Commencement Date, which shall
occur on the date it would have occurred but for such Changes. Lessor's Work
shall be the property of Lessor and shall remain upon and be surrendered with
the Premises upon the expiration of the Term.
Attach Plans and Specifications as Pages 3, et seq.
Lessor's Work Rider
MR 11/13/96 Page 2
BE-355592-1 Initials:______________
<PAGE>
<PAGE>
FINAL PLANS AND SPECIFICATIONS
SEE ATTACHED ARCHITECTUAL DRAWINGS.
Lessor's Work Rider
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BE-355592-1 Initials:______________
<PAGE>
<PAGE>
LESSEE'S WORK RIDER
Lessee shall construct, furnish and/or install, at its sole cost and expense,
all improvements, equipment and fixtures necessary or advisable for Lessee's use
and occupancy of the Premises (collectively, "Lessee's Improvements"), in
accordance with the Lease and the following provisions:
A. Lessee shall have preliminary plans, drawings and specifications for Lessee's
Improvements (the "Preliminary Plans") prepared by a licensed architect and,
when necessary, mechanical, electrical and structural engineers, as required by
governmental authority or otherwise reasonably necessary or advisable. It is
understood that included among the improvements Lessee intends to make to the
Premises and for which Lessee is responsible are the HVAC improvements for the
"stability room" and laboratory benches to be installed in the laboratory
portion of the Premises. Within 30 days following full execution of the Lease,
Lessee shall submit two complete sets of the Preliminary Plans to Lessor for
review and approval. Within 7 working days following receipt thereof, Lessor
shall return one set together with a written statement of Lessor's approval,
disapproval and/or suggested modifications. If Lessor approves the Preliminary
Plans subject to modifications, such modifications shall be deemed to be
approved by Lessee unless Lessee revises and resubmits its Preliminary Plans for
reconsideration within 7 additional working days. If Lessor suggests
modifications without approving the Preliminary Plans, Lessee shall revise and
resubmit such plans within 14 days for reconsideration by Lessor. Upon receipt,
Lessor shall have 7 additional working days within which to approve and/or
disapprove the revised plans. If the Preliminary Plans are disapproved by
Lessor or if Lessee fails to timely submit or resubmit any plans in accordance
with the foregoing, Lessor may cancel this Lease by 30 days' written notice
to Lessee.
B. If and when the Preliminary Plans are approved, Lessee shall promptly and
diligently prepare final working plans and specifications for Lessee's
Improvements in conformity therewith. Lessee shall furnish two copies of such
plans and specifications to Lessor for its determination as to conformity with
the approved Preliminary Plans and for its approval of any matters not
previously approved. Lessor shall approve or disapprove such plans and
specifications within 7 working days following receipt of same, whereupon Lessee
shall resubmit such plans for Lessor's reconsideration in accordance with
provisions of PARAGRAPH A. above. Upon approval, such plans and specifications
shall be referred to as "Final Plans".
C. No changes to the Final Plans may be made without Lessor's prior written
consent, which consent must be endorsed on the Final Plans in order to be
effective such consent not to be unreasonably withheld. Lessee shall reimburse
Lessor, upon demand, for all costs and expenses incurred by Lessor in reviewing
and approving any requested changes. The approval of Lessee, the architect and
the contractor of any proposed changes must be endorsed on the Final Plans prior
to submission to Lessor.
D. Upon approval of the Final Plans, Lessee shall, at its sole expense and
obligation, apply for and obtain a building permit from the appropriate
governmental agency, which permit shall indicate any other approvals or licenses
necessary or advisable for Lessee's Improvements and shall include a set of the
Final Plans stamped as approved by such agency. No work shall be
LESSEE'S WORK RIDER
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<PAGE>
<PAGE>
commenced in the Premises until such building permit and accompanying documents
have been obtained and submitted to Lessor for review and approval. In addition,
Lessee shall submit its choices of general contractor and subcontractors
together with their bids to Lessor for approval, which approval shall not be
unreasonably withheld. Upon execution, Lessee shall deliver to Lessor a copy of
all construction contracts relating to the construction of Lessee's
Improvements. Lessee shall commence construction of Lessee's Improvements
immediately upon issuance of the building permit and complete such construction
on or before the Commencement Date set forth in Article 3. of the Lease. The
Improvements shall be constructed strictly in accordance with the Final Plans
and otherwise in compliance with all applicable provisions of the Lease. The
general contractor shall be reputable, licensed and bondable.
E. Prior to commencement of construction, Lessee shall deliver the
following to Lessor:
(l) Four (4) sets of the Final Plans with 4 sets of specifications if
not noted on the drawings.
(2) Certificates of insurance for the insurance required by the Lease
stating that the coverage shall remain in force for the duration of
the construction period, naming Lessor as additional insured and
providing at least 30 days cancellation notice.
(3) Lessee's construction budget.
(4) Construction schedule stating estimated commencement and
completion dates, periods of major construction activities and
approximate dates of installation of any equipment penetrating the
roof.
(5) Complete list of names, addresses and telephone numbers of general
contractor and all major subcontractors, including plumbing,
mechanical, electrical, kitchen equipment, architectural, etc.
(6) A written statement confirming the date electrical utilities will
be transferred to Lessee's name.
F. In addition, a mandatory pre-construction meeting will be held between
Lessor and Lessee's general contractor prior to commencement of construction.
G. Upon completion of Lessee's Improvements, but prior to Lessee's
opening for business in the Premises, Lessee shall deliver the following to
Lessor:
(l) Two complete sets of "as-built" drawings and specifications
showing all changes to the Final Plans and the location of all
underground utilities and/or equipment, and one set of reproducible
as-built sepias.
LESSEE'S WORK RIDER
MR 11/13/96 Page 2
BE-355607-1 Initials:______________
<PAGE>
<PAGE>
(2) Building permit and all final inspections and approvals including
electrical, plumbing, sprinklers and health certificates (if
applicable) and the Certificate of Occupancy for the Premises.
(3) Within 15 days of opening for business, long form affidavit/lien
waivers and lien releases from all contractors, subcontractors and
material suppliers.
(4) A written statement confirming that gas, electric and water check
meters have been installed.
(5) Certificates of Insurance required under the Lease.
LESSEE'S WORK RIDER
MR 11/13/96 Page 3
BE-355607-1 Initials:
<PAGE>
<PAGE>
EXHIBIT A
PARCEL ONE:
Situated in the State of Ohio, County of Licking, Village of Johnstown, and
being part of Lot No. 1 of Quarter Township 4, Township 3, Range 15, United
States Military Lands, and containing 8.208 acres of land, more or less, being
all out of a 58.390 acre tract as conveyed to Krusmith, Ltd. of record in
Official Record 738, Page 43 (all references refer to the Recorder's Office,
Licking County, Ohio), said 8.208 acres being more particularly described as
follows:
Concerning at a railroad spike found in the centerline intersection of U.S.
Route 62 with Sportsman Club Road (County Road 16);
Thence with the centerline of said Sportsman Club Road, NORTH 90[d]00'00" EAST a
distance of 261.93 feet to a railroad spike found, being the POINT OF BEGINNING
of the herein described tract;
Thence from the POINT OF BEGINNING, continuing with the centerline of said
Sportsman Club Road, NORTH 90[d]00'00" EAST a distance of 658.44 feet to a
railroad spike found at the northwest corner of a 60.00 acre tract of land
conveyed to Richard P. and Norma J. Johnson of record in Deed Book 803, Page
1015;
Thence with the west line of said 60.00 acre Johnson tract, SOUTH 00[d]07'43"
WEST a total distance of 641.07 feet to an iron pipe set (passing over a 3/4
inch rebar found at 2.29 feet, and an iron pipe set at 30.00 feet);
Thence crossing said 58.390 acre Krusmith, Ltd. tract with a new division line,
NORTH 89[d]52'17" WEST a total distance of 349.37 feet (passing over an iron
pipe set at 261.68 feet) to a rebar found at the southeasterly corner of a
10.000 acre tract as conveyed to T.S.G.G. in Official Record 181, Page 383;
Thence with the easterly line of said 10.000 acre T.S.G.G. tract, NORTH
34[d]38'31" WEST, a distance of 589.09 feet to a rebar found at an angle point
in the easterly line of said 10.000 acre T.S.G.G. tract;
Thence with the easterly line of the said 10.000 acre T.S.G.G. tract, NORTH
00[d]05'11" EAST, a total distance of 155.63 feet to the POINT OF BEGINNING,
(passing over an iron pipe set on the right of way line at 125.63 feet).
Containing 8.208 acres of land more or less.
PARCEL TWO: Situated in the State of Ohio, County of Licking, Village of
Johnstown, and being part of Lot No. 1 of Quarter Township 4, Township 3, Range
15, United States Military Lands, and containing 0.664 acre of land, more or
less, being all out of a 58.390 acre tract as conveyed to Krusmith, Ltd. of
record in Official Record 738, Page 43, Official Records, Licking County, Ohio.
Beginning at a rebar found at the southeasterly corner of the aforesaid 10.000
acre T.S.G.G. tract;
Thence with the southerly line of aforesaid 8.208 acre tract, SOUTH 89[d]52'17"
EAST a distance of 87.69 feet to an iron pipe set;
Thence crossing the aforesaid 58.390 acre Krusmith, Inc. for the following three
(3) courses:
1) SOUTH 55[d]21'17" WEST a distance of 477.11 feet to an iron pipe set;
2) SOUTH 30[d]01'16" WEST a distance of 105.12 feet to an iron pipe set;
<PAGE>
<PAGE>
3) NORTH 34[d]37'37" WEST a distance of 95.00 feet to a rebar found at the
southwest corner of the aforesaid 10.000 acre T.S.G.G. tract;
Thence with the southerly line of the said 10.000 acre T.S.G.G. tract, NORTH
55[d] 21' 57" EAST a distance of 500.06 feet to the point of beginning of the
herein described easement.
Containing 0.664 acre of land, more or less, within the subject easement.
A bearing of NORTH 90[d]00'00" EAST was assigned to the centerline of Sportsman
Club Road as described in Official Record 49, Page 526 and all other bearings
calculated from this meridian.
All iron pipes set are 30 inches in length by 3/4 inch inside diameter with a
red plastic cap marked "Geo Graphics".
The above description was written by George W. Schweitzer, Ohio Professional
Surveyor No. 6736 of GEO GRAPHICS, INC., Land Surveying and Civil Engineering,
from information obtained from an actual field survey of the premises performed
in January 1996 and updated in July 1996.
<PAGE>
<PAGE>
SURVEY FOR JOHN TRAMONTANA
SITUATED IN AND BEING PART OF
LOT 1 OF QUARTER TOWNSHIP 4, TOWNSHIP 3, RANGE 15
UNITED STATES MILITARY LANDS
VILLAGE OF JOHNSTOWN, LICKING COUNTY, OHIO
[MAP OF SURVEYED AREA]
RICHARD P. & NORMA J. JOHNSON
PARCEL:
50 AC.
D.B. 803, PG. 1015
KRUSMITH LTD.
58.390 AC.
O.R. 738, PG. 43
RECEIVED & RECORDED OCT. 22, 1996
AT 3:48 O'CLOCK P.M. IN OFFICIAL RECORD
VOL 846 PAGE 371 FEE 26.00
ROBERT E. WISE, LICKING COUNTY RECORDER
LEGEND
NOTE:
PK Found 8.208 Ac. PROPOSED SITE
Railroad Spike Found 0.664 Ac. PROPOSED ACCESS EASEMENT.
Railroad Spike Set
Iron Pin Found BASIS OF BEARING: The centerline of
Iron Pin Set Sportsman Club Road as described in
Rebar Found Official Record 49, Page 526.
This survey was performed without the benefit
of a current title insurance policy.
I hereby certify that:
The foregoing drawing represents the
results of an actual field survey on [SURVEYOR'S SEAL]
the premises performed under my
responsible supervision and that the
said drawing is correct to the best
of my knowledge and belief.
George W. Schweitzer July 30, 1996
- --------------------------- date
George W. Schweitzer
Ohio Professional Surveyor No. 6763
- ----------------------------------------
Geo-Graphics Inc
Land Surveying & Civil Engineering
685 North James Road Columbus, Ohio 43219
- -----------------------------------------
SURVEY FOR
JOHN TRAMONTANA
VILLAGE OF JOHNSTOWN
LICKING COUNTY, OHIO
- ------------------------------------------
SCALE DRAWN CHECKED DATE SHEET
1"-200' J L R G W S 7-16-96 1 OF 1
- -------------------------------------------
<PAGE>
<PAGE>
CANCELLATION AGREEMENT
entered into between
BIGMAR, INC, a Delaware corporation having its place of business at 6660
Doubletree Avenue #20, Columbus, Ohio, 43229 USA, hereafter "BIGMAR",
duly represented by Mr. John Tramontana, president of BIGMAR
and
CERBIOS-PHARMA SA, a Swiss corporation having its place of business at via Pian
Scairolo 6, 6917 Barbengo, Switzerland, hereafter "CERBIOS", duly represented by
Mr. Giuseppe Rovelli, in accordance with the Resolution of the board of
directors of Cerbios executed on March 25, 1997, hereto enclosed in original as
Exhibit A.
***
<PAGE>
<PAGE>
2
RECITALS
Whereas
a) on November 14, 1995 Bigmar and the Sapec division of Cerbios have entered
into the Exclusive distribution and supply agreement relating to the
following products:
Leucovorin Calcium (Calcium Folinate)
6S - Calcium Folinate
Calcium Methyl - tetrahydrofolate
Disodium Clodronate;
b) on December 14, 1995 Bigmar and the Sapec division of Cerbios executed an
addendum to the above mentioned agreement of November 14, 1995 relating to
the additional following products:
Sodium Leucovorin (Sodium Folinate)
Dacarbazine
Methotrexate;
c) in November 1996, according to par 2 of the above mentioned agreement of
November 14, 1995, Bigmar paid a license fee of US$100,000 -- to Cerbios,
with value date November 21, 1996;
d) Bigmar made several purchases relating to some of the products concerning the
above mentioned agreement of November 14, 1995;
<PAGE>
<PAGE>
3
e) the parties deem that it is in their own best interest to close their
commercial relationships relating to the above mentioned agreement of
November 14, 1995 and its addendum of December 14, 1995,
all this aforementioned,
the parties agree as follows:
1. The parties agree to cancel and cancel the Exculsive distribution and supply
agreement of November 14, 1995 as well as its addendum of December 14, 1995
with immediate effect.
2. The license fee of US$100,000--remains for the benefit and the account of
Cerbios, which therefore is entitled to keep such amount, without any
obligation to refund it to Bigmar.
3. With the execution of the present Cancellation agreement the parties are
lifted from any and all obligations connected with the Exclusive
distribution and supply agreement of November 14, 1995 as well as its
addendum of December 14, 1995, except from those relating to the
confidentiality clause (clause 10), which shall continue to have effect and
from those relating to the payment of the outstanding invoices.
4. The present agreement shall take effect and enter into force as soon as
Bigmar will have delivered two originals of the corresponding "Unanimous
written consent of the board of directors of Bigmar, Inc.", in the form
attached hereto as EXHIBIT B, to the notary public
<PAGE>
<PAGE>
4
Mr. Pietro Moggi, who is herewith instructed by the parties to receive such
resolution and deliver one original of this resolution to Cerbios.
Bigmar undertakes to deliver this resolution to the notary public within the
10th of April 1997.
In case of failure to provide the "Unanimous written consent of the board
of directors of Bigmar, Inc." within the 10th of April 1997, the
present agreement will not come into force and will be considered null and
void.
5. This agreement shall be governed by and construed in accordance with the
substantive laws of the State of Ohio, USA, without regard to Ohio's choice
of law rules.
6. Any disputes or differences between the parties arising out of, or in
connection with this agreement shall be resolved in New York by a sole
arbitrator, in accordance with the rules and regulations of the International
Chamber of Commerce of Paris.
In witness whereof, both parties have caused this agreement to be signed in six
originals, two for each party and two for the notary public, by their respective
duly authorised officers or representatives on the date indicated below.
Lugano, 27th of March 1997
BIGMAR, INC. CERBIOS-PHARMA SA
By: By:
--------------------------- ---------------------------
Name: John Tramontana Name: Giuseppe Rovelli
Title: President Title: Officer
<PAGE>
<PAGE>
VERBALE
DEL CONSIGLIO DI AMMINISTRAZIONE
DELLA
CERBIOS-PHARMA SA, BARBENGO
La riunione del consiglio e tenuta a Barbengo, negli uffici della Cerbios-Pharma
SA, che dopo discussione ha adottato le seguenti risoluzioni:
1. e approvata la sottoscrizione della convenzione con Bigmar, Inc., Columbus,
Ohio, relativa alla risoluzione del contratto "Exclusive distribution and
supply agreement" stipulato il 14 novembre 1995 tra la divisone Sapec della
Cerbios-Pharma e la Bigmar, Inc.; e parimenti annullata la modifica
contrattuale del 14 dicembre 1995;
2. e conferito mandato al signor Giuseppe Rovelli per la firma della convenzione
con Bigmar, Inc.
Lugano, 25 marzo 1997
/s/ Ing. Attilio Melera /s/ Jan Jacob van Troostenburg
- ------------------------------- ------------------------------
ING. ATTILIO MELERA JAN JACOB VAN TROOSTENBURG
/s/ Pierangelo Ghirlanda
- -------------------------------
PIERANGELO GHIRLANDA
<PAGE>
<PAGE>
MINUTES
OF THE BOARD OF DIRECTORS
OF
CERBIOS-PHARMA INC., BARBENGO
The meeting of the Board of Directors was held in Barbengo, at the offices of
Cerbios-Pharma Inc., and after discussion adopted the following resolutions:
1. The subscription to the convention with Bigmar, Inc., Columbus, Ohio was
approved according to the resolution of the "Exclusive distribution and
supply agreement" contract dated 14 November 1995 between the Sapec division
of Cerbios Pharma and Bigmar Inc.; the contractual amendment of 14 December
1995 was also nullified.
2. Mr. Giuseppe Rovelli was given power-of-attorney for the convention with
Bigmar, Inc.
Lugano, 25 March 1997
(signature) (signature)
- ---------------------------- -------------------------------
Engineer Attilio Melera Jan Jacob Van Troostenburg
(signature)
- ----------------------------
Pierangelo Ghirlanda
<PAGE>
<PAGE>
UNANIMOUS WRITTEN CONSENT
OF
THE BOARD OF DIRECTORS
OF
BIGMAR, INC.
The undersigned, being all of the Directors of BIGMAR, INC., a corporation
organised and existing under the laws of the State of Delaware (the "Company"),
do hereby consent, pursuant to Section 141(f) of the Delaware General
Corporation Law and Section 15 of the Restated Bylaws of the Company, to the
adoption without a meeting of the following resolutions and that this action be
taken without a meeting pursuant to said Section 141(f) of the Delaware General
Corporation Law and Section 141(f) of the Delaware General Corporation Law and
Section 15 of the Restated Bylaws of the Company;
Whereas, Mr. John Tramontana has disclosed to the Board of Directors his
interests and willingness in the cancellation of the Distribution and License
Agreements (defined below);
Whereas, a majority of the disinterested directors of the Company has determined
that the cancellation of the (i) Exclusive Distribution and Supply Agreement,
dated November 14, 1995, between the Company and the SAPEC Division of Cerbios
Pharma SA ('Sapec'), (ii) License and Supply Agreement, dated November 14, 1995,
between the Company and Bioferment, a division of Cerbios Pharma SA
("Bioferment") and (iii) Exclusive Distribution and Supply Agreement, dated
December 14, 1995, between the Company and Bioferment (collectively, the
"Distribution and License Agreements"), is desirable and in the best interests
of the Company; and
Whereas, the Cancellation Agreements have already been signed on March 27, 1997
by Cerbios-Pharma SA and by Mr. John Tramontana, in his capacity of president of
Bigmar, Inc., on behalf of Bigmar, Inc., a copy of which is attached hereto as
Exhibit A, B and C; and
Whereas, Mr. John Tramontana has given to the Board of Directors an original of
each of the above three Cancellation Agreements, which correspond in full to the
Exhibits A, B and C; and
Whereas, a majority of the disinterested directors of the Company has determined
that the above Cancellation Agreements, which effect the cancellation of each of
the Distribution and License Agreements are desirable and in the best interests
of the Company.
<PAGE>
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that the Cancellation Agreements be, and hereby
are, approved, authorized, ratified and adopted in all respects; and be it
FURTHER RESOLVED, that the execution and delivery of the Cancellation Agreements
by the President Mr. John Tramontana is the enforceable and binding act and
obligation of the Company, without the signature or attestation of any other
officer of the Company or the affixing of any corporate seal; and be it
FURTHER RESOLVED, that any and all actions heretofore or hereafter taken within
the terms of the foregoing resolutions be, and hereby are, affirmed, approved
and ratified as the act and deed of the Company.
This Unanimous Written Consent may be executed in multiple counterparts, each of
which shall constitute an original and all of which shall constitute a single
document.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent
on , 1997 and directed that it be filed with the minutes of proceedings
of the Board of Directors.
/s/ John G. Tramontana
-------------------------
JOHN G. TRAMONTANA
-------------------------
MICHAEL K. MEDORS
-------------------------
BERNARD KRAMER
-------------------------
ERIC M. CHEN
-------------------------
JOHN MORRIS
<PAGE>
<PAGE>
EXHIBIT 10.42
CERBIOS-PHARMA SA
RELEASE
-------
This release is made as of the 27 day of March, 1997 by Cerbios-Pharma SA
("Cerbios") in favour of Bigmar, Inc., Bigmar Pharmaceuticals SA, Bioren SA, and
Bigmar Therapeutics, Inc. (collectively "Bigmar").
1. Settlement of Invoices
Cerbios had previously sent to Bigmar certain invoices for charges alleged
to be due to Cerbios from Bigmar, including the following:
No. 190896 - SFr. 418'132.85 No. 961002 - SFr. 259'328.25 No. 031296 - SFr.
163'792.75
and also notified on March 3, 1997 to Richard Eisner & Company further
claims alleged to be due to Cerbios from Bigmar.
The claims of Cerbios reflected in the invoices as well as in the above
mentioned letter to Richard Eisner & Company have been settled by payment
through a bank cheque from Bigmar to Cerbios in the amount of SFr.
410'000.-. Cerbios has voided all of the invoices and of the other claims
mentioned in the above letter of March 3, 1997, and has accepted such
payment in full settlement of any and all mentioned claims against Bigmar.
2. General Release
Cerbios does hereby release, relieve and discharge Bigmar and their
directors, officers, employees and agents from any and all losses, claims
and causes of action that Cerbios may have against any of such persons
based upon any matter, act or omission occurring or arising at time prior
to the date hereof connected with the above mentioned invoices as well as
with the other claims mentioned in the above letter of March 3, 1997 to
Richard Eisner & Company.
3. No Admission of Liability
The settlement referred to under par. 1 above is a compromise settlement
and neither this Release nor the settlement payment shall constitute or be
construed as an admission of liability by any party.
IN WITNESS WHEREOF, this Release has been executed as of the date first set
forth above.
CERBIOS-PHARMA SA
By /s/
----------------------
Its: PRESIDENT
----------------------
<PAGE>
<PAGE>
BIGMAR 10-K
BIOFERMENT
CANCELLATION AGREEMENT
----------------------
entered into between
BIGMAR, INC., a Delaware corporation having its place of business at 6660
Doubletree Avenue #20, Columbus, Ohio 43229 USA, hereafter "BIGMAR",
duly represented by Mr. John Tramontana, president of BIGMAR
and
CERBIOS-PHARMA SA, a Swiss corporation having its place of business at via Pian
Scairolo 6, 6917 Barbengo, Switzerland, hereafter "CERBIOS", duly represented by
Mr. Giuseppe Rovelli, in accordance with the Resolution of the board of
directors of Cerbios executed on March 25, 1997, hereto enclosed in original as
EXHIBIT A
* * *
<PAGE>
<PAGE>
2
RECITALS
Whereas
a) on December 14, 1995 Bigmar and the Bioferment division of Cerbios have
entered into the Exclusive distribution and supply agreement relating to the
following products coming from the following technologies:
Liposomes:-products: Cyclosporin
Virosomes:-product: under development
-product: Microencapsulation;
b) the parties never fulfilled or implemented the Exclusive distribution and
supply agreement of December 14, 1995;
c) the parties deem that it is in their own best interest to close their
commercial relationships relating to the above mentioned agreement of
December 14, 1995,
all this aforementioned,
the parties agree as follows:
1. The parties agree to cancel and cancel the Exclusive distribution and supply
agreement of December 14, 1995.
2. With the execution of the present Cancellation agreement the parties are
lifted from any and all obligations connected with the Exclusive distribution
and supply agreement of December 14, 1995, except from those relating to the
confidentiality clause (clause 10), which shall continue to have effect.
<PAGE>
<PAGE>
3
3. The present agreement shall take effect and enter into force as soon as
Bigmar will have delivered two originals of the corresponding "Unanimous
written consent of the board of directors of Bigmar, Inc.", in the form
attached hereto as EXHIBIT B to the notary public Mr. Pietro Moggi, who is
herewith instructed by the parties to receive such resolution and deliver one
original of this resolution to Cerbios.
Bigmar undertakes to deliver this resolution to the notary public within the
10th of April 1997.
In case of failure to provide the "Unanimous written consent of the board of
directors of Bigmar, Inc." within the 10th of April 1997, the present
agreement will not come into force and will be considered null and void.
4. This agreement shall be governed by and construed in accordance with the
substantive laws of the State of Ohio, USA, without regard to Ohio's choice
of law rules.
5. Any disputes or differences between the parties arising out of, or in
connection with this agreement shall be resolved in New York by a sole
arbitrator, in accordance with the rules and regulations of the International
Chamber of Commerce of Paris.
<PAGE>
<PAGE>
4
In witness whereof, both parties have caused this agreement to be signed in six
originals, two for each party and two for the notary public, by their respective
duly authorised officers or representatives on the date indicated below.
Lugano, 27th of March 1997
BIGMAR, INC. CERBIOS-PHARMA SA
By: By:
Name: John Tramontana Name: Giuseppe Rovelli
Title: President Title: Officer
/s/ JOHN TRAMONTANA /s/ GIUSEPPE ROVELLI
<PAGE>
<PAGE>
EXHIBIT A-BIOFERMENT
VERBALE
DEL CONSIGLIO DI AMMINISTRAZIONE
DELLA
CERBIOS-PHARMA SA, BARBENGO
La riunione del consiglio e tenuta Barbengo, negli uffici della Cerbios-Pharma
SA, che dopo discussione ha adottato le seguenti risoluzioni;
1. e approvata la sottoscrizione della convenzione con Bigmar, Inc., Columbus,
Ohio, relativa alla risoluzione del contratto "Exclusive distribution and
supply agreement" stipulato il 14 dicembre 1995 tra la divisone Bioferment
della Cerbios-Pharma e la Bigmar, Inc.;
2. e conferito mandato al signor Giuseppe Rovelli per la firma della convenzione
con la Bigmar, Inc.
Lugano, 25 marzo 1997
/s/ Attilio Melera /s/ Jan Jacob Van Troostenburg
- ------------------------- -------------------------------
ING. ATTILIO MELERA JAN JACOB VAN TROOSTENBURG
/s/ Pierangelo Ghirlanda
- -------------------------
PIERANGELO GHIRLANDA
<PAGE>
<PAGE>
MINUTES
OF THE BOARD OF DIRECTORS
OF
CERBIOS-PHARMA INC., BARBENGO
The meeting of the Board of Directors was held in Barbengo, at the offices of
Cerbios-Pharma Inc., and after discussion adopted the following resolutions:
1. The subscription to the convention with Bigmar, Inc., Columbus, Ohio was
approved according to the resolution of the "Exclusive distribution and supply
agreement" contract drafted 14 December 1995 between the Bioferment division of
Cerbios Pharma and Bigmar Inc.
2. Mr. Giuseppe Rovelli was given power-of-attorney for the convention with
Bigmar, Inc.
Lugano, 25 March 1997
(signature) (signature)
Engineer Attilio Melera Jan Jacob Van Troostenburg
(signature)
Pierangelo Ghirlanda
<PAGE>
<PAGE>
EXHIBIT B 10.41
10.43
10.44
UNANIMOUS WRITTEN CONSENT
OF
THE BOARD OF DIRECTORS
OF
BIGMAR, INC.
The undersigned, being all of the Directors of BIGMAR, INC., a corporation
organised and existing under the laws of the State of Delaware (the "Company"),
do hereby consent, pursuant to Section 141(f) of the Delaware General
Corporation Law and Section 15 of the Restated Bylaws of the Company, to the
adoption without a meeting of the following resolutions and that this action be
taken without a meeting pursuant to said Section 141(f) of the Delaware General
Corporation Law and Section 141(f) of the Delaware General Corporation Law and
Section 15 of the Restated Bylaws of the Company;
Whereas, Mr. John Tramontana has disclosed to the Board of Directors his
interests and willingness in the cancellation of the Distribution and License
Agreements (defined below);
Whereas, a majority of the disinterested directors of the Company has determined
that the cancellation of the (i) Exclusive Distribution and Supply Agreement,
dated November 14, 1995, between the Company and the SAPEC Division of Cerbios
Pharma SA ("Sapec"), (ii) License and Supply Agreement, dated November 14, 1995,
between the Company and Bioferment, a division of Cerbios Pharma SA
("Bioferment") and (iii) Exclusive Distribution and Supply Agreement, dated
December 14, 1995, between the Company and Bioferment (collectively, the
"Distribution and License Agreements"), is desirable and in the best interests
of the Company; and
Whereas, the Cancellation Agreements have already been signed on March 27, 1997
by Cerbios-Pharma SA and by Mr. John Tramontana, in his capacity of president of
Bigmar, Inc., on behalf of Bigmar, Inc., a copy of which is attached hereto as
EXHIBIT A, B AND C; and
Whereas, Mr. John Tramontana has given to the Board of Directors an original of
each of the above three Cancellation Agreements, which correspond in full to the
Exhibits A, B and C; and
Whereas, a majority of the disinterested directors of the Company has determined
that the above Cancellation Agreements, which effect the cancellation of each of
the Distribution and License Agreements are desirable and in the best interests
of the Company.
<PAGE>
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that the Cancellation Agreements be, and hereby
are, approved, authorized, ratified and adopted in all respects; and be it
FURTHER RESOLVED, that the execution and delivery of the Cancellation Agreements
by the President Mr. John Tramontana is the enforceable and binding act and
obligation of the Company, without the signature or attestation of any other
officer of the Company or the affixing of any corporate seal; and be it
FURTHER RESOLVED, that any and all actions heretofore or hereafter taken within
the terms of the foregoing resolutions be, and hereby are, affirmed, approved
and ratified as the act and deed of the Company.
This Unanimous Written Consent may be executed in multiple counterparts, each of
which shall constitute an original and all of which shall constitute a single
document.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent
on , 1997 and directed that it be filed with the minutes of
proceedings of the Board of Directors.
/s/ JOHN G. TRAMONTANA
--------------------------
JOHN G. TRAMONTANA
---------------------------
MICHAEL K. MEDORS
---------------------------
BERNARD KRAMER
---------------------------
ERIC M. CHEN
---------------------------
JOHN MORRIS
<PAGE>
<PAGE>
BIGMAR 10-K EXHIBIT NO. 10.44
BIOFERMENT LICENSE
CANCELLATION AGREEMENT
entered into between
BIGMAR, INC., a Delaware corporation having its place of business at 6660
Doubletree Avenue #20, Columbus, Ohio, 43229 USA, hereafter "BIGMAR", duly
represented by Mr. John Tramontana, president of BIGMAR
and
CERBIOS-PHARMA SA, a Swiss corporation having its place of business at via Pian
Scairolo 6, 6917 Barbengo, Switzerland, hereafter "CERBIOS", duly represented by
Mr. Giuseppe Rovelli, in accordance with the Resolution of the board of
directors of Cerbios executed on March 25, 1997, hereto enclosed in original as
Exhibit A.
***
<PAGE>
<PAGE>
2
RECITALS
Whereas
a) on November 14, 1995 Bigmar and the Bioferment division of Cerbios have
entered into the License and supply agreement relating to pharmaceutical
products utilising or containing Urokinase, Human Growth Hormone and
Interferon;
b) on February 29, 1996 Bigmar and the Bioferment division of Cerbios executed
an amendment of the above mentioned agreement of November 14, 1995 relating
to the license fees;
c) in November 1996, according to par. 5.1 of the above mentioned agreement of
November 14, 1995, Bigmar paid a first instalment of US$100,000 -- of the
license fee of US$500,000 -- due to Cerbios, with value date November 21,
1996;
d) except from the above mentioned payment of the first instalment of
US$100,000, the parties never implemented or fulfilled the license and
supply agreement of November 14, 1995;
e) the parties deem that it is in their own best interest to close their
commercial relationships relating to the above mentioned agreement of
November 14, 1995 and its amendment of February 29, 1996,
<PAGE>
<PAGE>
3
all this aforementioned,
the parties agree as follows:
1. The parties agree to cancel and cancel the License and supply agreement of
November 14, 1995 as well as its amendment of February 29, 1996 with
immediate effect.
2. The first instalment of US$100,000 of the license fee remains for the
benefit and the account of Cerbios, which therefore is entitled to keep such
amount, without any obligation to refund it to Bigmar.
3. With the execution of the present Cancellation agreement the parties are
lifted from any and all obligations connected with the License and supply
agreement of November 14, 1995 as well as its amendment of February 29,
1996, except from those relating to the confidentiality clause (clause X),
which shall continue to have effect.
4. The present agreement shall take effect and enter into force as soon as
Bigmar will have delivered two originals of the corresponding "Unanimous
written consent of the board of directors of Bigmar, Inc.", in the form
attached hereto as Exhibit B, to the notary public Mr. Pietro Moggi, who is
herewith instructed by the parties to receive such resolution and deliver
one original of this resolution to Cerbios.
Bigmar undertakes to deliver this resolution to the notary public within the
10th of April 1997.
<PAGE>
<PAGE>
4
In case of failure to provide the "Unanimous written consent of the
board of directors of Bigmar, Inc." within the 10th of April 1997, the
present agreement will not come into force and will be considered null and
void.
5. This agreement shall be governed by and construed in accordance with the
substantive laws of the State of Delaware, USA, without regard to Delaware's
choice of law rules.
6. Any disputes or differences between the parties arising out of, or in
connection with this agreement shall be resolved in New York by a sole
arbitrator, in accordance with the rules and regulations of the
International Chamber of Commerce of Paris.
In witness whereof, both parties have caused this agreement to be signed in six
originals, two for each party and two for the notary public, by their respective
duly authorised officers or representatives on the date indicated below.
Lugano, 27th of March 1997
BIGMAR, INC. CERBIOS-PHARMA SA
By: By:
Name: John Tramontana Name: Giuseppe Rovelli
Title: President Title: Officer
<PAGE>
<PAGE>
EXHIBIT A - BIOFERMENT
LICENSE
VERBALE
DEL CONSIGLIO DI AMMINISTRAZIONE
DELLA
CERBIOS-PHARMA SA, BARBENGO
La riunione del consiglio e tenuta a Barbengo, negli uffici della Cerbios-Pharma
SA, che dopo discussione ha adottato le seguenti risoluzioni:
1. e approvata la sottoscrizione della convenzione con Bigmar, Inc., Columbus,
Ohio, relativa alla risoluzione del contratto "License and supply agreement"
stipulato il 14 novembre 1995 tra la divisone Bioferment della
Cerbios-Pharma e la Bigmar, Inc.; e parimenti annullata la modifica
contrattuale del 29 febbraio 1996;
2. e conferito mandata al signor Giuseppe Rovelli par la firma della
convenzione con Bigmar, Inc.
Lugano, 25 marzo 1997
[SIGNATURE] [SIGNATURE]
- -------------------------------- -----------------------------
ING. ATTILIO MELERA JAN JACOB VAN TROOSTENBURG
[SIGNATURE]
- --------------------------------
PIERANGELO GHIRLANDA
<PAGE>
<PAGE>
TRANSLATION OF EXHIBIT A - BIOFERMENT LICENSE
BY PAUL VESPOLI - OSU (OHIO STATE UNIVERSITY)
Minutes
of the Board of Directors
of
Cerbios-Pharma Inc., Barbengo
The meeting of the Board of Directors was held in Barbengo, at the offices of
Cerbios-Pharma, Inc., and after discussion adopted the following resolutions:
1. The subscription to the convention with Bigmar, Inc., Columbus, Ohio was
approved according to the resolution of the "License supply agreement" contract
drafted 14 November 1995 between the Bioferment division of Cerbios Phama and
Bigmar Inc.; the contractual amendment of 29 February 1996 was also nullified.
2. Mr. Giuseppe Rovelli was given power-of-attorney for the convention with
Bigmar, Inc.
Lugano, 25 March 1997
(signature) (signature)
Engineer Attilio Melera Jan Jacob Van Troostenburg
(signature)
Pierangelo Ghirlanda
<PAGE>
<PAGE>
EXHIBIT B
UNANIMOUS WRITTEN CONSENT
OF
THE BOARD OF DIRECTORS
OF
BIGMAR, INC.
The undersigned, being all of the Directors of BIGMAR, INC., a corporation
organised and existing under the laws of the State of Delaware (the "Company"),
do hereby consent, pursuant to Section 141(f) of the Delaware General
Corporation Law and Section 15 of the Restated Bylaws of the Company, to the
adoption without a meeting of the following resolutions and that this action be
taken without a meeting pursuant to said Section 141(f) of the Delaware General
Corporation Law and Section 141(f) of the Delaware General Corporation Law and
Section 15 of the Restated Bylaws of the Company:
Whereas, Mr. John Tramontana has disclosed to the Board of Directors his
interests and willingness in the cancellation of the Distribution and License
Agreements (defined below);
Whereas, a majority of the disinterested directors of the Company has determined
that the cancellation of the (i) Exclusive Distribution and Supply Agreement,
dated November 14, 1995, between the Company and the SAPEC Division of Cerbios
Pharma SA ("Sapec"), (ii) License and Supply Agreement, dated November 14, 1995,
between the Company and Bioferment, a division of Cerbios Pharma SA
("Bioferment") and (iii) Exclusive Distribution and Supply Agreement, dated
December 14, 1995, between the Company and Bioferment (collectively, the
"Distribution and License Agreements"), is desirable and in the best interests
of the Company; and
Whereas, the Cancellation Agreements have already been signed on March 27, 1997
by Cerbios-Pharma SA and by Mr. John Tramontana, in his capacity of president of
Bigmar, Inc., on behalf of Bigmar, Inc., a copy of which is attached hereto as
Exhibit A, B and C; and
Whereas, Mr. John Tramontana has given to the Board of Directors an original of
each of the above three Cancellation Agreements, which correspond in full to the
Exhibits A, B and C; and
Whereas, a majority of the disinterested directors of the Company has determined
that the above Cancellation Agreements, which effect the cancellation of each of
the Distribution and License Agreements are desirable and in the best interests
of the Company.
<PAGE>
<PAGE>
NOW, THEREFORE, BE IT RESOLVED, that the Cancellation Agreements be, and hereby
are, approved, authorized, ratified and adopted in all respects; and be it
FURTHER RESOLVED, that the execution and delivery of the Cancellation Agreements
by the President Mr. John Tramontana is the enforceable and binding act and
obligation of the Company, without the signature or attestation of any other
officer of the Company or the affixing of any corporate seal; and be it
FURTHER RESOLVED, that any and all actions heretofore or hereafter taken within
the terms of the foregoing resolutions be, and hereby are, affirmed, approved
and ratified as the act and deed of the Company.
This Unanimous Written Consent may be executed in multiple counterparts, each of
which shall constitute an original and all of which shall constitute a single
document.
IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent
on , 1997 and directed that it be filed with the minutes of
proceedings of the Board of Directors.
/s/ JOHN G. TRAMONTANA
----------------------
JOHN G. TRAMONTANA
----------------------
MICHAEL K. MEDORS
----------------------
BERNARD KRAMER
----------------------
ERIC M. CHEN
----------------------
JOHN MORRIS
<PAGE>
<PAGE>
/Each page of the original bears one stamp and 3 signatures, and is dated in
Barbengo on February 26, 1997/
/emblem/ Union Bank of Switzerland
File No. 0247 /507.944
Re: Pharmaceutical products plant in Barbengo
Libor mortgage loan contract
by and between
the UNION BANK OF SWITZERLAND, Via Pretorio 14, 6901 Lugano (hereinafter
referred to as UBS)
and
BIGMAR PHARMACEUTICALS S.A., 6917 Barbango (hereinafter referred to as the
debtor).
UBS grants the debtor a Libor mortgage loan at a fixed rate for a total of SFr.
2,000,000.
(Two million Swiss francs)
on the basis of the following conditions:
1. DURATION/PAYMENT
The Libor mortgage loan shall be valid from the date of payment until
12/31/2001.
Payment shall be made two banking days after receipt of the Libor mortgage
loan duly signed by the debtor, provided UBS is able to dispose of the
guarantees on that date.
2. INTEREST RATE(S)
The debtor shall pay a base interest rate plus 1.5% p.a.
The base interest rate shall be the 6 months LIBOR rate for the Swiss franc
(London Interbank Offered Rate of the British Bankers Association (BBA)
pursuant to Telerate page 3750) rounded off to two decimal points. The
interest rate for a 6-month period shall be determined and notified to the
debtor two banking days before the beginning of the loan and before each
semi-annual due date for the interest. If payment is not made in the
beginning of a six-month period, UBS shall establish the interest rate for
the period between the date of payment and the beginning of the first full
6-months period on the basis of the letter rate of the UBS monetary market
(Investdata p. 589.40), and inform the debtor of the full interest rate.
Interest shall be calculated according to
1
<PAGE>
<PAGE>
international usage (exact number of days/360).
The debtor confirms that UBS has informed it of the risks inherent in the
interest rate connected with this Libor mortgage and of the possibilities of
insuring these risks.
3. DUE DATES OF INTEREST.
Interest shall be payable on the last banking day of June and December in
London.
4. AMORTIZATION
No amortization is scheduled for the duration of the contract. The
stipulations of No. 8 are reserved.
5. DEBIT AT MATURITY
Interest and amortizations will be debited, if there are covering funds, to
account No. 0247/507.944.OIN in the name of Bigmar Pharmaceuticals SA,
Barbengo.
6. GUARANTEES
The Libor mortgage loan is guaranteed as follows:
- assignment as guarantee, pursuant to a separate agreements, of:
SFr. 1,000,000 bearer mortgage bond of 11/30/87, dg. 27028, first class
SFr. 700,000 bearer mortgage bond of 1/20/88, dg. 1388 2nd class
SFr. 300,000 bearer mortgage bond of 9/5/88, dg. 23360, 3rd class
encumbering lot 174 of RFD of Barbengo.
- establishment of a pledge in our favor, under a separate instrument, for:
SFr. 2,000,000.00 face value/reg. UBS Libor Cap. Warrant (security
408.453), 1995-12/31/98, strike 5%
7. DELAY INTEREST
If interest is not paid at maturity, the debtor shall have to pay the delay
interest established by UBS to the bank from that date. The delay interest
rate shall exceed the one month LIBOR rate valid on the due date by no more
than 3%, plus the percentage pursuant to No. 2, para 1.
2
<PAGE>
<PAGE>
8. CANCELLATION
The debtor may cancel the Libor mortgage loan partially or entirely on an
interest due date, with three months notice, against payment of an indemnity
to be calculated pursuant to section 11.
UBS shall be authorized to cancel the Libor mortgage loan at any time with
three months notice,
- if the debtor violates contractual obligations, in particular is more than
30 days in arrears in payment of interest or amortization,
- if according to UBS, the real property encumbered by the pledge for the
Libor mortgage suddenly diminishes in value or can no longer provide
sufficient cover.
- if, due to restrictions imposed by the Swiss National Bank or another
Swiss authority involved in this contract, UBS has tried to renegotiate
the conditions established in this contract with the debtor and these new
negotiations have not, by the end of 2 months, led to a solution
acceptable to both contractual parties.
- if the financial and/or income situation of the debtor has considerably
deteriorated, or if a deterioration is foreseeable and renegotiations of
the conditions of this contract have not led to a mutually satisfactory
agreement in two months.
If a valid cancellation is effective before the stipulated period, the debtor
shall have to pay an indemnity to UBS, calculated pursuant to No. 11, which
shall be due at the time of cancellation.
9. STIPULATIONS REGARDING THE DUE DATE OF THE LIBOR MORTGAGE LOAN.
At the end of the agreed period, the full amount of the Libor mortgage loan
shall be due for reimbursement. At that time, UBS shall offer new financing
to the debtor among the possible mortgage variants under conditions then in
force for new financing, provided the cancellation was not due to facts
listed under No. 8.
10. PAYMENT DUE AS A RESULT OF TRANSFER OF OWNERSHIP OR FORCED EXECUTION.
If the assets encumbered by the pledge are sold privately or as part of a
forced execution, the entire Libor mortgage loan, including current interest,
shall be due for reimbursement
3
<PAGE>
<PAGE>
immediately on the date of the transfer of ownership or the public
instrument. If the due date falls within the duration of the Libor mortgage
loan, the debtor shall pay to UBS an indemnity to be calculated pursuant to
No. 11, which shall be due immediately.
11. INDEMNITY
The amount of the indemnity which the debtor shall have to pay to the UBS
pursuant to Nos. 8 and 10 shall be 0.05% of the capital for each remaining
monthly payment. If the due date falls within a semester period of interest,
the debtor shall pay to UBS, for the remaining period of the current
semester, an indemnity corresponding to the difference between the
contractual interest rate (including the margin) and the rate of
reinvestment (base rate: the UBS rate on the monetary Euromarket, pursuant
to Investdata page 589.40); the indemnity shall be calculated in percent of
the total debt for the remaining current semester.
12. JOINT AND SEVERAL LIABILITY / CUMULATIVE ASSUMPTION OF DEBT
If there are several debtors, they are jointly and severally liable for the
debt. Debtors not mentioned on the mortgage certificates assigned to UBS as
guarantees shall cumulatively and jointly and severally assume the debts for
these mortgage certificates.
13. INSURANCE AGAINST FIRE AND DAMAGE CAUSED BY NATURAL ELEMENTS
The debtor shall insure the building(s), as well as any appurtenances built
on the mortgaged land against fire and damage caused by natural elements,
with a state insurance company or any insurance company domiciled in
Switzerland for a value which is sufficient in the judgment of UBS. Upon
request, the insurance policy and the receipts for premiums shall be
exhibited to UBS.
14. GENERAL CONDITIONS
The remainder of the contract shall be governed by the general conditions of
UBS, a copy of which was given to the debtor. The debtor confirms that it
has read the general conditions and accepted them without reservation.
15. ADDITIONAL CONDITIONS
The following conditions are also valid:
- record with the land registry of the appurtenances to your building on
lot 174 of the RFD of Barbengo:
4
<PAGE>
<PAGE>
- postponement of the loan of SFr. 2,000,000 granted you by Bigmar
Inc., Delaware (USA);
- presentation, without need of a reminder, of the annual consolidated
statements of Bigmar Inc., Delaware (USA) within 4 months from the close
of the fiscal year.
16. VENUE
The exclusive venue for all controversies arising out of this contract and
the place of implementation and execution shall be Lugano. But UBS shall
have the right to bring suit against the debtor at the competent court of
its head office/domicile or at any other competent court.
The conditions of this contract alone govern this Libor mortgage loan, in
derogation of any contrary stipulations in the mortgage certificates assigned to
UBS as guarantee.
Barbengo, February 26, 1997 Lugano, 11/26/96
The debtor Union Bank of Switzerland
Bigmar Pharmaceuticals SA G. Amoretti pp. R. Burkhard
/signature/ /signature/
John Tramontana Federico Stroppolo
/signature/ /signature/
/stamp and signature/: Approved and signed
M. Paris
5
<PAGE>
<PAGE>
TCA Translation
/emblem/
Union Bank of Switzerland
Corporate Customers Department
/address information/ Bigmar Pharmaceuticals SA
Our ref: FK11/R.Burkhard/PDU Date: December 13, 1996
9247-507.944
CREDIT CONTRACT AND LIBOR MORTGAGE LOAN CONTRACT of 11/26/96
Dear Sirs,
We refer to our previous agreements and hereby confirm to you our agreement to
waive the postponement of the loan of SFr. 2,000,000 granted you by Bigmar Inc.,
Delaware, because the latter has confirmed the promissory note abandonment in
the amount of US $1,500,000 claimed against you.
The relative postponement clause in our above mentioned contracts should
therefore be considered cancelled.
All other contractual clauses remain unchanged.
To complete our files and to verify the validity of the promissory note
abandonment, we still need the following Bigmar Inc., Delaware documents:
- -- Certificate of Good Standing
- -- By-laws.
This letter is to be considered an integral part of the above mentioned
contracts.
Sincerely,
Union Bank of Switzerland
/signature/ /signature/
G. Ambrosetti pp. R. Burkhard
1
<PAGE>
<PAGE>
TCA Translation
/Each page of the original bears 2 stamps and 3 signatures, and is dated in
Barbengo on February 26, 1997/
/emblem/
Union Bank of Switzerland
Corporate Customers Department To the Management of
/address information/ Bigmar Pharmaceuticals SA
Our ref: FK11/R.Burkhard/PDU Date: November 26, 1996
9247-507.944
Dear Sirs,
We refer to the previous agreements with our Mr. R. Burkhard and, with regard to
your investment for the creation of a pharmaceuticals production plant on lot
No. 174 of Barbango, we confirm the consolidation of the credits you have with
our institution as follows:
a) grant of a new LIBOR MORTGAGE LOAN for the amount of
SFr. 2,000,000.00 (two million Swiss francs)
/illegible handwritten marginal note/
For this purpose we enclose the relative contract, which is to be duly
signed and returned to us.
b) grant of a new INVESTMENT CREDIT in the amount of
SFr. 3,475,000.00 (three million, four hundred seventy-five thousand
Swiss francs)
available in the form of:
-- FIXED TERM ADVANCE IN SWISS FRANCS
-- FIXED RATE CREDITS IN SWISS FRANCS up to the maximum of SFr.
3,000,000.00.
These facilities are guaranteed to us by:
-- assignment to us, as per separate agreement, of the following bearer
mortgage bonds:
SFr. 400,000 of 11/15/88, dg. 30458, in 4th and equal rank
SFr. 200,000 of 2/27/89, dg. 5196, in 4th and equal rank
SFr. 250,000 of 6/13/89, dg. 15034, in 4th and equal rank
SFr. 150,000 of 6/13/89, dg. 15036, in 4th and equal rank
SFr. 275,000 of 12/13/93, dg. 33711, in 5th rank
encumbering parcel 174 of the Barbango RFD.
2
<PAGE>
<PAGE>
TCA Translation
-- SFr. 1,700,000 joint and several surety of Chemholding SA,
Barbango, pursuant to separate surety instrument
of 1/5/95.
Until further notice, your debt to us shall be governed by the following
conditions:
FIXED ITEM ADVANCES IN SWISS FRANCS
Interest: The interest rate shall be net and will be agreed upon orally two
banking days before the payment of each extension and then
confirmed in writing by this bank. The Swiss method will be used
to calculate interest (30-day month, 360-day year).
Interest shall be due quarterly, and on the due date of the
individual advances and will be debited, assuming funds are
available, to current account No. 0247/507.994.01 N.
Duration: 3, 6, 9 or 12 months, renewable
Amounts: SFr. 250,000 minimum.
CREDITS AT FIXED RATE IN SFR
Utilization SFr. 750,000.00 fixed at 2 years from the date of payment;
/duration:
SFr. 750,000.00 fixed at 3 years from the date of payment;
SFr. 750,000.00 fixed at 4 years from the date of payment;
SFr. 750,000.00 fixed at 5 years from the date of payment;
Interest: The interest rate shall be net and will be agreed upon orally two
banking days before payment and then confirmed in writing by UBS
[this bank].
Interest will be calculated according to the international method
(exact number of days out of 360) and will be due semi-annually.
Advances For the entire duration of the credit at fixed rate, the client
reim- shall have the possibility of reimbursing the entire debt in one
bursement installment. This procedure may be used under advice of two
by the banking days and against payment of an indemnity to UBS. The
client: indemnity shall be calculated by this bank as follows:
3
<PAGE>
<PAGE>
TCA Translation
Amount x days remaining x fixed int. rate -- reinvestment int. rate 36,000
The reinvestment interest rate shall be the rate offered on the
UBS Euromarket valid for the remaining duration (information:
Telerata page 3523 or Investdata p. 589.40). If the latter is
above the contractually agreed upon fixed interest rate UBS shall
not make any reimbursements.
Utiliza- The credit may be utilized after the establishment of the agreed
tion of upon guarantees and when the latter and the necessary documents,
the are held by this bank.
credit:
Duty to The client shall inform UBS periodically, at least once a year,
report: within 4 months from the close of the fiscal year, on the
progress of its business. For this purpose, it shall present all
the necessary documents, such as the balance sheet and profit and
loss account, etc., with the auditor's report, and provide any
supplementary information UBS may consider necessary and may
reasonably demand.
The client shall advise UBS immediately in writing of any
circumstance which may make it impossible to honor its contracts
and commitments, and of any event which may cause a significant
deterioration of its financial situation.
Changes If the client, or another company with which it had a substantial
of finan- relationship of dependency on capital and/or voting rights, for
cial and any reason must amend its legal or financial organization (for
legal example, as a result of liquidation, sale of a large portion of
rela- its assets, change in its corporate goal or commercial activity,
tions: changes in management, a merger or reorganization), UBS shall
have the right, if such changes may have a substantial effect on
the client's ability to honor its present and future commitments
incurred under this contract, to demand, regardless of the
duration of these credit facilities, reimbursement of all the
claims derived from it (capital, interest, commissions and
charges, etc.), which will thus become immediately due as a
result of such notice.
Non- For the entire duration of this contract and until full
estab- reimbursement of capital, interest, commission and charges, etc.,
lishment the client shall not grant any guarantee on behalf of other
of present or future commitments in the form of credits, loans,
pledges:
4
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<PAGE>
leasing, conditional promise or contingent obligation to pay any
amount and any other form of financial commitment without the
express, written approval of UBS. The only authorized exceptions
are mortgage loans and credits existing under the guarantees
established today.
Substan- If the financial and/or income situation of the client
tial deteriorates considerably, or if such a situation is foreseeable,
deterio- UBS shall have the right to amend the terms of this contract and,
ration if negotiations started on this matter cannot arrive at an
of the agreement acceptable to the parties within 2 months, to cancel
degree this contract, effective immediately, under written notification
of to the client, and demand, regardless of the duration of the
solvency: granted credit facilities, to demand reimbursement of all the
claims derived thereunder (capital, interest, commission and
charges, etc.) which thus become immediately due as a result of
the cancellation.
Change If restrictions imposed by the Swiss National Bank or another
in the Swiss authority affect this contract and it is therefore
overall renegotiated, UBS shall be authorized, if the negotiations do not
condi- result in an agreement acceptable to both parties within
tions: 2 months, to cancel this contract, effective immediately, under
written notification to the client, and, regardless of the
duration of the granted credit facilities, to demand
reimbursement for all the claims derived therefrom (capital,
interest, commissions and charges, etc.), which thus become due
immediately as a result of this cancellation.
Cancella- Except for special agreements, UBS shall have the right, under
tion: the general conditions, to cancel the granted credit facility/ies
at any time, effective immediately.
Regardless of the duration of the granted credit facilities, UBS
reserves the right to prohibit utilization of the limits granted
under this contract, effective immediately and/or to demand
reimbursement of all the claims derived thereunder in capital,
interest, commission and charges, which shall thus become due
immediately if the client violates a stipulation of this contract
or another credit agreement it has stipulated with UBS or with a
third party.
5
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<PAGE>
The following amortization schedule has been drawn up for the above mentioned
facilities:
SFr. 125,000.00, payable by 12/31/97
SFr. 350,000.00, payable by 12/31/98; thereafter
SFr. 500,000.00 p.a., payable by December 31 of each year until the investment
credit has been fully repaid
It is also possible to effect supplementary amortizations on the due date of
each fixed rate credit, subject to our approval.
c) cancellation of the CONSTRUCTION CREDIT No. 0247/507.944.03 D for SFr.
1,400,000.00
d) cancellation of the INVESTMENT CREDIT No. 0247/507.944.02 X for SFr.
2,200,000.00
e) cancellation of the LOAN BASED ON REAL PROPERTY No. 0247/507.994.90 B for
SFr. 1,875,000.00
f) maintaining the OPERATIONAL CREDIT in current account No. 0247/507.944.01 N
for SFr. 300,000.00 (three hundred thousands Swiss francs)
also available for the issuance of guarantees (except for credit
guarantees).
This facility is guaranteed to us by:
SFr. 1,700,000.00 joint and solidary surety of Chemoholding SA, Barbango,
pursuant to a separate surety instrument dated 1/5/95.
Until further notice, your debt to us will be subject to the following
conditions:
CURRENT ACCOUNT
Interest 5.75% p.a.
Commission 0.25% per quarter or fraction thereof
ISSUANCE OF GUARANTEES
Commission 0.3% per quarter or fraction thereof, with a minimum of SFr.
50.00
The following conditions also govern all the facilities listed under a), b)
and f) of this contract;
- -- the General Conditions of our bank, a copy of which you signed on 1/5/95;
- -- the deferral of the loan for SFr. 2,000,000.00, granted to you by Bigmar
Inc., Delaware (USA)
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<PAGE>
- -- the registration of your structure on lot 174 of RFD of Barbango with the
Land Registry of collaterals;
- -- the unsolicited presentation of the annual statements of your company by 4
months after the close of the fiscal year;
- -- the unasked for presentation of the consolidated annual statements of
Bigmar Inc., Delaware (SA) by 4 months after the close of the fiscal year;
With reference to the foregoing and as we notified you by our letter of 6/14/96,
we debited your current account No. 0247/507.944.01 N with:
SFr. 37,500.00, charge for consolidating our credits
SFr. 10.00, cantonal stamp
SFr. 37,510.00, value date 11/26/96.
This contract cancels and replaces all previous agreements, except as confirmed
by our letter of 6/14/96.
We enclose a duplicate of its contract which is to be duly signed on each page
as signal of agreement with its contents, and returned to us.
Sincerely,
Union Bank of Switzerland
G. Ambrosetti PP. R. Burckhard
/signature/ /signature/
Enclosures
John Tramontana Federico Stroppolo
/signature/ /signature/
/stamp/: Approved and signed
M. Paris
7
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<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT made as of the 1st day of July, 1996 (hereinafter, the
"Effective Date"), by and between Bigmar, Inc., a Delaware corporation
(hereinafter, "the Employer" or "Employer"), and Albert Z. Hodge, Jr.
(hereinafter, "the Executive" or "Executive").
1. Commencing on the Effective Date of this Agreement, Employer shall
employ Executive as Vice President Quality Assurance to perform the duties
normally incident to such positions.
2. Executive agrees to devote all of Executive's business time, efforts,
skills and attention to fulfill Executive's duties and responsibilities
hereunder faithfully, diligently and competently.
3. The term of this Agreement shall commence upon the Effective Date and
shall terminate two years thereafter, unless sooner terminated as hereinafter
provided, and shall be subject to automatic annual renewal thereafter unless at
least sixty days prior to the end of the term of this Agreement or any annual
renewal period Executive or Employer shall give written notice to the other that
this Agreement shall not be renewed.
4. Employer will pay to Executive as compensation for all services to be
rendered by Executive hereunder a salary at the rate of One Hundred Thousand and
00/100 ($100,000.00) Dollars ("Base Salary") for the twelve-month period
commencing on the Effective Date and for each twelve-month period thereafter
(each a "Twelve-Month Period") subject to annual cost of living increases as may
be approved by and in the discretion of the Board of Directors of Employer. The
Base Salary shall be payable once weekly.
5. Employer may pay to Executive bonuses (in cash or stock options) as
may be approved by and in the discretion of the Board of Directors of Employer.
The performance of Executive shall be reviewed by the Executive Vice-President
on or about each anniversary of the Effective Date.
6. Employer will reimburse Executive for all reasonable travel and
business expenses incurred by Executive in connection with performance of
Executive's services hereunder in accordance with the usual practices and
policies of Employer in effect from time to time, upon presentation of vouchers.
7. Executive will be eligible for and will be afforded an opportunity to
participate in all benefit plans and programs which are currently afforded or
which may be afforded during the term of this Agreement to other executive
officers of Employer, including, without limitation, group insurance, health
hospital, dental, major medical, life and disability insurance and stock option
plans or other similar fringe benefits.
8. Executive will be entitled to four weeks vacation during each
Twelve-Month Period.
9. Employer will provide either directly to Executive or on Executive's
behalf, an automobile allowance in the amount of $3,000
<PAGE>
<PAGE>
for each Twelve-Month Period.
10. Executive represents and warrants that, to the best of Executive's
knowledge, Executive is in good health.
11. In the event of Executive's death during the term of this Agreement,
this Agreement shall terminate immediately, provided, however, that Executive's
legal representatives shall be entitled to receive the Base Salary which would
otherwise have been due Executive had Executive worked through the end of the
month of Executive's death plus two additional months of the Base Salary for the
Twelve-Month Period in which Executive died.
12. If during the term of this Agreement, Executive is unable to perform
Executive's duties hereunder on account of illness or other incapacity, and such
illness or other incapacity shall continue for a period of more than three
consecutive months during any Twelve Month Period, Employer shall have the
right, on thirty days' notice to Executive, given after such three month period,
to terminate this Agreement. In the event of any such termination Employer shall
be obligated to pay to Executive the Base Salary which would otherwise be due
Executive until the end of the month during which the termination occurred plus
four additional months of the Base Salary for the Twelve-Month Period in which
such termination occurred. If, prior to the date specified on such notice,
Executive's illness or incapacity shall have ceased and Executive shall have
resumed the performance of Executive's duties hereunder, Executive shall be
entitled to resume Executive's employment hereunder as though such notice had
not been given. Employer's Board of Directors shall determine in good faith,
upon consideration of medical evidence satisfactory to it, whether Executive by
reason of physical or mental disability shall be unable to perform the services
required of Executive hereunder.
13. If Employer shall terminate Executive's employment hereunder for
Cause, as hereinafter defined, or if Executive shall voluntarily leave
Executive's employment hereunder, Employer will pay to Executive within ten days
after the termination of such Agreement an amount equal to the amount which
Executive would have earned as the Base Salary hereunder through the end of the
then current month in which such termination or departure occurred. Cause shall
mean any gross malfeasance directly and materially affecting Employer or
conviction of a felony directly and materially affecting Employer, each of
determined in the sole discretion of Employer.
14. If Executive's employment is terminated by Employer without Cause,
this Agreement shall terminate immediately, provided, however, that Employer
shall be obligated to pay Executive the Base Salary had Executive worked through
the last day of the month in which Executive was terminated and three months of
the Base Salary for the Twelve-Month Period in which Executive was terminated.
15. Executive covenants and agrees that any work or research, or the
result thereof, including without limitation, inventions, processes or formulae
made, conceived or developed by Executive, alone or in connection with others,
during Executive's employment
-2-
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<PAGE>
with Employer, whether within or without the usual hours of employment,
which are related to the business, research, development work or field of
operation of Employer, or any of its subsidiaries or affiliates, shall to the
extent of Executive's interest therein be the sole and exclusive property of
Employer. Executive further agrees to disclose all such inventions, processes
and formulae completely and in writing to the Board of Directors of Employer and
to no other persons unless so directed in writing by the Board of Directors of
Employer. To the extent of Executive's interest therein, all papers and records
of every kind, relating to any invention, process, formula, improvement or
patent included within the terms of this Agreement, which shall at any time come
into the possession of Executive shall be the sole and exclusive property of
Employer and shall be surrendered to Employer upon termination of Executive's
employment by Employer or upon Employer's request at any other time either
during or after the termination of such employment.
16. Executive covenants and agrees with Employer that Executive has not,
and will not, during Executive's employment with Employer and thereafter,
directly or indirectly, use, communicate, disclose or disseminate to anyone
(except to the extent reasonably necessary for Executive to perform his duties
hereunder, except as required by law or except if generally available to the
public otherwise than through use, communication, disclosure or dissemination by
the Executive) any materials, documents or records containing confidential
information concerning the businesses or affairs of Employer or of any of its
affiliates or subsidiaries which Executive may have acquired in the course of or
as incident to Executive's employment or prior dealings with Employer or with
any of its affiliates or subsidiaries, including, without limitation, customer
lists, business or trade secrets of, or methods or techniques used by Employer
of any of its affiliates or subsidiaries in or about their respective
businesses, or any information whatsoever concerning the customers or suppliers
of any of them.
17. Executive acknowledges that Executive's services and
responsibilities are of particular significance to Employer and that Executive's
position with Employer has given and will give Executive a close knowledge of
its policies and trade secrets. Since the Employer is in a creative and
competitive business, Executive's continued and exclusive service to Employer
under this Agreement is of a high degree of importance.
Executive convenants and agrees with Employer that Executive has not,
and will not during Executive's employment with Employer and for a period of two
years after the termination of Executive's employment with Employer, in any
manner, directly or indirectly, (i) induce or attempt to influence any present
or future officer, employee, lessor, lessee, licensor, licensee or agent of
Employers or its subsidiaries or its affiliates to leave its respective employ
or solicit or divert or service any customers or clients of Employer or its
subsidiaries or its affiliates or (ii) alone or as a partner, officer, director,
employee, consultant or stockholder (except for ownership of no more than 5% of
the capital stock) of any corporation, partnership or other entity be
competitive with the business of Employer or its subsidiaries or affiliates. For
purposes of subdivision (ii) above of this
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<PAGE>
paragraph 17, (a) a business shall be presumed to be competitive if it
conducts in whole or in part anywhere in Switzerland, Italy, Germany and the
United States any business in which Employer, its subsidiaries or affiliates has
engaged in or engages in during the term of Executive's employment with Employer
or which Employer, its subsidiaries or affiliates contemplated or contemplates
engaging in, and the burden of proving otherwise shall be on Executive, and (b)
the business activities of a subsidiary or division of a publicly held
corporation shall not be deemed to include the business activities of other
subsidiaries or divisions of such publicly held corporation.
Nothing herein shall restrict or otherwise limit Executive from managing
Executive's private investments which are not competitive with the businesses of
Employer. Executive shall be permitted to serve as a director of companies which
are not competitive with the businesses of Employer, so long as such services do
not interfere with the performance of Executive's duties under this Agreement.
18. Executive acknowledges that the remedy at law for any breach or
threatened breach by Executive of the covenants contained in paragraphs 15, 16,
and 17 would be wholly inadequate, and therefore Employer or its subsidiaries or
its affiliates shall be entitled to preliminary and permanent injunctive relief
and specific performance thereof. Paragraphs 15, 16, and 17 constitute
independent and separable covenants that shall be enforceable notwithstanding
rights or remedies that Employer or its subsidiaries or its affiliates may have
under any other provision of this Agreement, or otherwise. If any or all of the
foregoing provisions of paragraphs 15, 16, and 17 are held to be unenforceable
for any reason whatsoever, it shall not in any way invalidate or affect the
remainder of this Agreement which shall remain in full force and effect. If the
period of time or geographical areas specified in paragraphs 15, 16, and 17 are
determined to be unreasonable in any judicial proceeding, the period of time or
areas of restriction shall be reduced so that this Agreement may be enforced in
such areas and during such period of time as shall be determined to be
reasonable.
19. Executive represents and warrants to Employer that since
commencement of Executive's employment with Employer, Executive was not, is not
now and, in the future will not without the approval of the Board of Directors
of Employer, become, under any obligation of a contractual or other nature to
any person, firm or corporation which is inconsistent or in conflict with this
Agreement, or which would prevent, limit or impair in any way the execution of
this Agreement or the performance by Executive of Executive's obligations
hereunder and Executive will indemnify and hold harmless Employer, its
Directors, officers and employees against and in respect of all liability, loss,
damage, expense or deficiency resulting from any misrepresentation, or breach of
any warranty or agreement made by Executive in connection with Executive's
employment hereunder or under Executive's Original Employer Agreement.
20. The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.
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<PAGE>
21. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by certified mail, return receipt requested, to
the respective parties at the addresses set forth below, or such other address
as either party may from time to time designate in writing.
To Executive: To Employer:
Albert Z. Hodge, Jr. Bigmar, Inc.
3349B Peachtree Corners Circle 6660 Doubletree Avenue
Norcross, GA 30092 Columbus, OH 43229
22. This Agreement shall be binding upon, and shall inure to the benefit
of, Employer and its successors and assigns, and Executive and Executive's legal
representatives, heirs, legatees and distributees, but neither this Agreement
nor any rights hereunder shall be assignable, encumbered or pledged by
Executive.
23. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior written or oral agreements between Employer and Executive with respect to
the subject matter hereof. No modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed by
both parties hereto.
24. This Agreement shall be construed and enforced in accordance with
the laws and decisions of the State of Delaware.
25. This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same Agreement. Delivery of an executed counterpart of a signature page
to this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.
26. If any provisions or part of any provision of this Agreement is held
for any reason to be unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the 1st day of July, 1996.
BIGMAR, INC.
By: /s/ John G. Tramontana
--------------------------
Name: John G. Tramontana
Title: President
/s/ Albert Z. Hodge, Jr.
--------------------------
Albert Z. Hodge, Jr.
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<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT made as of the 1st day of July, 1996 (hereinafter, the
"Effective Date"), by and between Bigmar, Inc., a Delaware corporation
(hereinafter, "the Employer" or "Employer"), and Peter P. Stoelzle (hereinafter,
"the Executive" or "Executive").
1. Commencing on the Effective Date of this Agreement, Employer shall
employ Executive as Executive Vice President to perform the duties normally
incident to such positions.
2. Executive agrees to devote all of Executive's business time, efforts,
skills and attention to fulfill Executive's duties and responsibilities
hereunder faithfully, diligently and competently.
3. The term of this Agreement shall commence upon the Effective Date and
shall terminate two years thereafter, unless sooner terminated as hereinafter
provided, and shall be subject to automatic annual renewal thereafter unless at
least sixty days prior to the end of the term of this Agreement or any annual
renewal period Executive or Employer shall give written notice to the other that
this Agreement shall not be renewed.
4. Employer will pay to Executive as compensation for all services to be
rendered by Executive hereunder a salary at the rate of One Hundred Forty
Thousand and 00/000 ($140,000.00) Dollars ("Base Salary") for the twelve-month
period commencing on the Effective Date and for each twelve-month period
thereafter (each a "Twelve-Month Period") subject to annual cost of living
increases as may be approved by and in the discretion of the Board of Directors
of Employer. The Base Salary shall be payable once weekly.
5. Employer may pay to Executive bonuses (in cash or stock options) as may
be approved by and in the discretion of the Board of Directors of Employer. The
performance of Executive shall be reviewed by the President on or about each
anniversary of the Effective Date.
6. Employer will reimburse Executive for all reasonable travel and business
expenses incurred by Executive in connection with performance of Executive's
services hereunder in accordance with the usual practices and policies of
Employer in effect from time to time, upon presentation of vouchers.
7. Executive will be eligible for and will be afforded an opportunity to
participate in all benefit plans and programs which are currently afforded or
which may be afforded during the term of this Agreement to other executive
officers of Employer, including, without limitation, group insurance, health,
hospital, dental, major medical, life and disability insurance and stock option
plans or other similar fringe benefits.
8. Executive will be entitled to four weeks vacation during each
Twelve-Month Period.
9. Employer will provide either directly to Executive or on Executive's
behalf, an automobile allowance in the amount of $3,000 for each Twelve-Month
Period.
<PAGE>
<PAGE>
10. Executive represents and warrants that, to the best of Executive's
knowledge, Executive is in good health.
11. In the event of Executive's death during the term of this Agreement,
this Agreement shall terminate immediately, provided, however, that Executive's
legal representatives shall be entitled to receive the Base Salary which would
otherwise have been due Executive had Executive worked through the end of the
month of Executive's death plus two additional months of the Base Salary for the
Twelve-Month Period in which Executive died.
12. If during the term of this Agreement, Executive is unable to perform
Executive's duties hereunder on account of illness or other incapacity, and such
illness or other incapacity shall continue for a period of more than three
consecutive months during any Twelve Month Period, Employer shall have the
right, on thirty days' notice to Executive, given after such three month period,
to terminate this Agreement. In the event of any such termination Employer shall
be obligated to pay to Executive the Base Salary which would otherwise be due
Executive until the end of the month during which the termination occurred plus
four additional months of the Base Salary for the Twelve-Month Period in which
such termination occurred. If, prior to the date specified on such notice,
Executive's illness or incapacity shall have ceased and Executive shall have
resumed the performance of Executive's duties hereunder, Executive shall be
entitled to resume Executive's employment hereunder as though such notice had
not been given. Employer's Board of Directors shall determine in good faith,
upon consideration of medical evidence satisfactory to it, whether Executive by
reason of physical or mental disability shall be unable to perform the services
required of Executive hereunder.
13. If Employer shall terminate Executive's employment hereunder for Cause,
as hereinafter defined, or if Executive shall voluntarily leave Executive's
employment hereunder, Employer will pay to Executive within ten days after the
termination of such Agreement an amount equal to the amount which Executive
would have earned as the Base Salary hereunder through the end of the then
current month in which such termination or departure occurred. Cause shall mean
any gross malfeasance directly and materially affecting Employer or conviction
of a felony directly and materially affecting Employer, each of determined in
the sole discretion of Employer.
14. If Executive's employment is terminated by Employer without Cause, this
Agreement shall terminate immediately, provided, however, that Employer shall be
obligated to pay Executive the Base Salary had Executive worked through the last
day of the month in which Executive was terminated and three months of the Base
Salary for the Twelve-Month Period in which Executive was terminated.
15. Executive covenants and agrees that any work or research, or the result
thereof, including without limitation, inventions, processes or formulae made,
conceived or developed by Executive, alone or in connection with others, during
Executive's employment
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<PAGE>
<PAGE>
with Employer, whether within or without the usual hours of employment, which
are related to the business, research, development work or field of operation of
Employer, or any of its subsidiaries or affiliates, shall to the extent of
Executive's interest therein be the sole and exclusive property of Employer.
Executive further agrees to disclose all such inventions, processes and formulae
completely and in writing to the Board of Directors of Employer and to no other
persons unless so directed in writing by the Board of Directors of Employer. To
the extent of Executive's interest therein, all papers and records of every
kind, relating to any invention, process, formula, improvement or patent
included within the terms of this Agreement, which shall at any time come
into the possession of Executive shall be the sole and exclusive property of
Employer and shall be surrendered to Employer upon termination of Executive's
employment by Employer or upon Employer's request at any other time either
during or after the termination of such employment.
16. Executive covenants and agrees with Employer that Executive has not,
and will not, during Executive's employment with Employer and thereafter,
directly or indirectly, use, communicate, disclose or disseminate to anyone
(except to the extent reasonably necessary for Executive to perform his duties
hereunder, except as required by law or except if generally available to the
public otherwise than through use, communication, disclosure or dissemination by
the Executive) any materials, documents or records containing confidential
information concerning the businesses or affairs of Employer or of any of its
affiliates or subsidiaries which Executive may have acquired in the course of or
as incident to Executive's employment or prior dealings with Employer or with
any of its affiliates or subsidiaries, including, without limitation, customer
lists, business or trade secrets of, or methods or techniques used by Employer
of any of its affiliates or subsidiaries in or about their respective
businesses, or any information whatsoever concerning the customers or suppliers
of any of them.
17. Executive acknowledges that Executive's services and responsibilities
are of particular significance to Employer and that Executive's position with
Employer has given and will give Executive a close knowledge of its policies and
trade secrets. Since the Employer is in a creative and competitive business,
Executive's continued and exclusive service to Employer under this Agreement is
of a high degree of importance.
Executive convenants and agrees with Employer that Executive has not, and
will not during Executive's employment with Employer and for a period of two
years after the termination of Executive's employment with Employer, in any
manner, directly or indirectly, (i) induce or attempt to influence any present
or future officer, employee, lessor, lessee, licensor, licensee or agent of
Employers or its subsidiaries or its affiliates to leave its respective employ
or solicit or divert or service any customers or clients of Employer or its
subsidiaries or its affiliates or (ii) alone or as a partner, officer, director,
employee, consultant or stockholder (except for ownership of no more than 5% of
the capital stock) of any corporation, partnership or other entity be
competitive with the business of Employer or its subsidiaries or affiliates. For
purposes of subdivision (ii) above of this
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<PAGE>
paragraph 17, (a) a business shall be presumed to be competitive if it conducts
in whole or in part anywhere in Switzerland, Italy, Germany and the United
States any business in which Employer, its subsidiaries or affiliates has
engaged in or engages in during the term of Executive's employment with Employer
or which Employer, its subsidiaries or affiliates contemplated or contemplates
engaging in, and the burden of proving otherwise shall be on Executive, and (b)
the business activities of a subsidiary or division of a publicly held
corporation shall not be deemed to include the business activities of other
subsidiaries or divisions of such publicly held corporation.
Nothing herein shall restrict or otherwise limit Executive from managing
Executive's private investments which are not competitive with the businesses of
Employer. Executive shall be permitted to serve as a director of companies which
are not competitive with the businesses of Employer, so long as such services do
not interfere with the performance of Executive's duties under this Agreement.
18. Executive ackcnowledges that the remedy at law for any breach or
threatened breach by Executive of the covenants contained in paragraphs 15, 16,
and 17 would be wholly inadequate, and therefore Employer or its subsidiaries or
its affiliates shall be entitled to preliminary and permanent injunctive relief
and specific performance thereof. Paragraphs 15, 16, and 17 constitute
independent and separable covenants that shall be enforceable notwithstanding
rights or remedies that Employer or its subsidiaries or its affiliates may have
under any other provision of this Agreement, or otherwise. If any or all of the
foregoing provisions of paragraphs 15, 16, and 17 are held to be unenforceable
for any reason whatsoever, it shall not in any way invalidate or affect the
remainder of this Agreement which shall remain in full force and effect. If the
period of time or geographical areas specified in paragraphs 15, 16, and 17 are
determined to be unreasonable in any judicial proceeding, the period of time or
areas of restriction shall be reduced so that this Agreement may be enforced in
such areas and during such period of time as shall be determined to be
reasonable.
19. Executive represents and warrants to Employer that since commencement
of Executive's employment with Employer, Executive was not, is not now and, in
the future will not without the approval of the Board of Directors of Employer,
become, under any obligation of a contractual or other nature to any person,
firm or corporation which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair in any way the execution of this Agreement
or the performance by Executive of Executive's obligations hereunder and
Executive will indemnify and hold harmless Employer, its Directors, officers and
employees against and in respect of all liability, loss, damage, expense or
deficiency resulting from any misrepresentation, or breach of any warranty or
agreement made by Executive in connection with Executive's employment hereunder
or under Executive's Original Employer Agreement.
20. The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.
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<PAGE>
21. Any and all notices referred to herein shall be sufficient if furnished
in writing and sent by certified mail, return receipt requested, to the
respective parties at the addresses set forth below, or such other address as
either party may from time to time designate in writing.
To Executive: To Employer:
Peter P. Stoelzle Bigmar, Inc.
9336 Wellington Park Circle 6660 Doubletree Avenue
Tampa, FL 33647-2537 Columbus, OH 43229
22. This Agreement shall be binding upon, and shall inure to the benefit
of, Employer and its successors and assigns, and Executive and Executive's legal
representatives, heirs, legatees and distributees, but neither this Agreement
nor any rights hereunder shall be assignable, encumbered or pledged by
Executive.
23. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior written or oral agreements between Employer and Executive with respect to
the subject matter hereof. No modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed by
both parties hereto.
24. This Agreement shall be construed and enforced in accordance with the
laws and decisions of the State of Delaware.
25. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same Agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.
26. If any provisions or part of any provision of this Agreement is held
for any reason to be unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the 1st day of July, 1996.
BIGMAR, INC.
By: /s/ John G. Tramontana
-------------------------------
Name: John G. Tramontana
Title: President
/s/ Peter P. Stoelzle
-------------------------------
Peter P. Stoelzle
-5-
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT made as of the 1st day of July, 1996 (hereinafter, the
"Effective Date"), by and between Bigmar, Inc., a Delaware corporation
(hereinafter, "the Employer" or "Employer"), and Peter P. Stoelzle (hereinafter,
"the Executive" or "Executive").
1. Commencing on the Effective Date of this Agreement, Employer shall
employ Executive as Executive Vice President to perform the duties normally
incident to such positions.
2. Executive agrees to devote all of Executive's business time, efforts,
skills and attention to fulfill Executive's duties and responsibilities
hereunder faithfully, diligently and competently.
3. The term of this Agreement shall commence upon the Effective Date and
shall terminate two years thereafter, unless sooner terminated as hereinafter
provided, and shall be subject to automatic annual renewal thereafter unless at
least sixty days prior to the end of the term of this Agreement or any annual
renewal period Executive or Employer shall give written notice to the other that
this Agreement shall not be renewed.
4. Employer will pay to Executive as compensation for all services to be
rendered by Executive hereunder a salary at the rate of One Hundred Forty
Thousand and 00/000 ($140,000.00) Dollars ("Base Salary") for the twelve-month
period commencing on the Effective Date and for each twelve-month period
thereafter (each a "Twelve-Month Period") subject to annual cost of living
increases as may be approved by and in the discretion of the Board of Directors
of Employer. The Base Salary shall be payable once weekly.
5. Employer may pay to Executive bonuses (in cash or stock options) as may
be approved by and in the discretion of the Board of Directors of Employer. The
performance of Executive shall be reviewed by the President on or about each
anniversary of the Effective Date.
6. Employer will reimburse Executive for all reasonable travel and business
expenses incurred by Executive in connection with performance of Executive's
services hereunder in accordance with the usual practices and policies of
Employer in effect from time to time, upon presentation of vouchers.
7. Executive will be eligible for and will be afforded an opportunity to
participate in all benefit plans and programs which are currently afforded or
which may be afforded during the term of this Agreement to other executive
officers of Employer, including, without limitation, group insurance, health,
hospital, dental, major medical, life and disability insurance and stock option
plans or other similar fringe benefits.
8. Executive will be entitled to four weeks vacation during each
Twelve-Month Period.
9. Employer will provide either directly to Executive or on Executive's
behalf, an automobile allowance in the amount of $3,000 for each Twelve-Month
Period.
<PAGE>
<PAGE>
10. Executive represents and warrants that, to the best of Executive's
knowledge, Executive is in good health.
11. In the event of Executive's death during the term of this Agreement,
this Agreement shall terminate immediately, provided, however, that Executive's
legal representatives shall be entitled to receive the Base Salary which would
otherwise have been due Executive had Executive worked through the end of the
month of Executive's death plus two additional months of the Base Salary for the
Twelve-Month Period in which Executive died.
12. If during the term of this Agreement, Executive is unable to perform
Executive's duties hereunder on account of illness or other incapacity, and such
illness or other incapacity shall continue for a period of more than three
consecutive months during any Twelve Month Period, Employer shall have the
right, on thirty days' notice to Executive, given after such three month period,
to terminate this Agreement. In the event of any such termination Employer shall
be obligated to pay to Executive the Base Salary which would otherwise be due
Executive until the end of the month during which the termination occurred plus
four additional months of the Base Salary for the Twelve-Month Period in which
such termination occurred. If, prior to the date specified on such notice,
Executive's illness or incapacity shall have ceased and Executive shall have
resumed the performance of Executive's duties hereunder, Executive shall be
entitled to resume Executive's employment hereunder as though such notice had
not been given. Employer's Board of Directors shall determine in good faith,
upon consideration of medical evidence satisfactory to it, whether Executive by
reason of physical or mental disability shall be unable to perform the services
required of Executive hereunder.
13. If Employer shall terminate Executive's employment hereunder for Cause,
as hereinafter defined, or if Executive shall voluntarily leave Executive's
employment hereunder, Employer will pay to Executive within ten days after the
termination of such Agreement an amount equal to the amount which Executive
would have earned as the Base Salary hereunder through the end of the then
current month in which such termination or departure occurred. Cause shall mean
any gross malfeasance directly and materially affecting Employer or conviction
of a felony directly and materially affecting Employer, each of determined in
the sole discretion of Employer.
14. If Executive's employment is terminated by Employer without Cause, this
Agreement shall terminate immediately, provided, however, that Employer shall be
obligated to pay Executive the Base Salary had Executive worked through the last
day of the month in which Executive was terminated and three months of the Base
Salary for the Twelve-Month Period in which Executive was terminated.
15. Executive covenants and agrees that any work or research, or the result
thereof, including without limitation, inventions, processes or formulae made,
conceived or developed by Executive, alone or in connection with others, during
Executive's employment
-2-
<PAGE>
<PAGE>
with Employer, whether within or without the usual hours of employment, which
are related to the business, research, development work or field of operation of
Employer, or any of its subsidiaries or affiliates, shall to the extent of
Executive's interest therein be the sole and exclusive property of Employer.
Executive further agrees to disclose all such inventions, processes and formulae
completely and in writing to the Board of Directors of Employer and to no other
persons unless so directed in writing by the Board of Directors of Employer. To
the extent of Executive's interest therein, all papers and records of every
kind, relating to any invention, process, formula, improvement or patent
included within the terms of this Agreement, which shall at any time come
into the possession of Executive shall be the sole and exclusive property of
Employer and shall be surrendered to Employer upon termination of Executive's
employment by Employer or upon Employer's request at any other time either
during or after the termination of such employment.
16. Executive covenants and agrees with Employer that Executive has not,
and will not, during Executive's employment with Employer and thereafter,
directly or indirectly, use, communicate, disclose or disseminate to anyone
(except to the extent reasonably necessary for Executive to perform his duties
hereunder, except as required by law or except if generally available to the
public otherwise than through use, communication, disclosure or dissemination by
the Executive) any materials, documents or records containing confidential
information concerning the businesses or affairs of Employer or of any of its
affiliates or subsidiaries which Executive may have acquired in the course of or
as incident to Executive's employment or prior dealings with Employer or with
any of its affiliates or subsidiaries, including, without limitation, customer
lists, business or trade secrets of, or methods or techniques used by Employer
of any of its affiliates or subsidiaries in or about their respective
businesses, or any information whatsoever concerning the customers or suppliers
of any of them.
17. Executive acknowledges that Executive's services and responsibilities
are of particular significance to Employer and that Executive's position with
Employer has given and will give Executive a close knowledge of its policies and
trade secrets. Since the Employer is in a creative and competitive business,
Executive's continued and exclusive service to Employer under this Agreement is
of a high degree of importance.
Executive convenants and agrees with Employer that Executive has not, and
will not during Executive's employment with Employer and for a period of two
years after the termination of Executive's employment with Employer, in any
manner, directly or indirectly, (i) induce or attempt to influence any present
or future officer, employee, lessor, lessee, licensor, licensee or agent of
Employers or its subsidiaries or its affiliates to leave its respective employ
or solicit or divert or service any customers or clients of Employer or its
subsidiaries or its affiliates or (ii) alone or as a partner, officer, director,
employee, consultant or stockholder (except for ownership of no more than 5% of
the capital stock) of any corporation, partnership or other entity be
competitive with the business of Employer or its subsidiaries or affiliates. For
purposes of subdivision (ii) above of this
-3-
<PAGE>
<PAGE>
paragraph 17, (a) a business shall be presumed to be competitive if it conducts
in whole or in part anywhere in Switzerland, Italy, Germany and the United
States any business in which Employer, its subsidiaries or affiliates has
engaged in or engages in during the term of Executive's employment with Employer
or which Employer, its subsidiaries or affiliates contemplated or contemplates
engaging in, and the burden of proving otherwise shall be on Executive, and (b)
the business activities of a subsidiary or division of a publicly held
corporation shall not be deemed to include the business activities of other
subsidiaries or divisions of such publicly held corporation.
Nothing herein shall restrict or otherwise limit Executive from managing
Executive's private investments which are not competitive with the businesses of
Employer. Executive shall be permitted to serve as a director of companies which
are not competitive with the businesses of Employer, so long as such services do
not interfere with the performance of Executive's duties under this Agreement.
18. Executive ackcnowledges that the remedy at law for any breach or
threatened breach by Executive of the covenants contained in paragraphs 15, 16,
and 17 would be wholly inadequate, and therefore Employer or its subsidiaries or
its affiliates shall be entitled to preliminary and permanent injunctive relief
and specific performance thereof. Paragraphs 15, 16, and 17 constitute
independent and separable covenants that shall be enforceable notwithstanding
rights or remedies that Employer or its subsidiaries or its affiliates may have
under any other provision of this Agreement, or otherwise. If any or all of the
foregoing provisions of paragraphs 15, 16, and 17 are held to be unenforceable
for any reason whatsoever, it shall not in any way invalidate or affect the
remainder of this Agreement which shall remain in full force and effect. If the
period of time or geographical areas specified in paragraphs 15, 16, and 17 are
determined to be unreasonable in any judicial proceeding, the period of time or
areas of restriction shall be reduced so that this Agreement may be enforced in
such areas and during such period of time as shall be determined to be
reasonable.
19. Executive represents and warrants to Employer that since commencement
of Executive's employment with Employer, Executive was not, is not now and, in
the future will not without the approval of the Board of Directors of Employer,
become, under any obligation of a contractual or other nature to any person,
firm or corporation which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair in any way the execution of this Agreement
or the performance by Executive of Executive's obligations hereunder and
Executive will indemnify and hold harmless Employer, its Directors, officers and
employees against and in respect of all liability, loss, damage, expense or
deficiency resulting from any misrepresentation, or breach of any warranty or
agreement made by Executive in connection with Executive's employment hereunder
or under Executive's Original Employer Agreement.
20. The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.
-4-
<PAGE>
<PAGE>
21. Any and all notices referred to herein shall be sufficient if furnished
in writing and sent by certified mail, return receipt requested, to the
respective parties at the addresses set forth below, or such other address as
either party may from time to time designate in writing.
To Executive: To Employer:
Peter P. Stoelzle Bigmar, Inc.
9336 Wellington Park Circle 6660 Doubletree Avenue
Tampa, FL 33647-2537 Columbus, OH 43229
22. This Agreement shall be binding upon, and shall inure to the benefit
of, Employer and its successors and assigns, and Executive and Executive's legal
representatives, heirs, legatees and distributees, but neither this Agreement
nor any rights hereunder shall be assignable, encumbered or pledged by
Executive.
23. This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes any and all
prior written or oral agreements between Employer and Executive with respect to
the subject matter hereof. No modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed by
both parties hereto.
24. This Agreement shall be construed and enforced in accordance with the
laws and decisions of the State of Delaware.
25. This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same Agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this Agreement.
26. If any provisions or part of any provision of this Agreement is held
for any reason to be unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the 1st day of July, 1996.
BIGMAR, INC.
By: /s/ John G. Tramontana
-------------------------------
Name: John G. Tramontana
Title: President
/s/ Peter P. Stoelzle
-------------------------------
Peter P. Stoelzle
-5-
<PAGE>
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> 12-MOS
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0
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