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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, 1997.
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)
DELAWARE 31-1445779
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
9711 SPORTSMAN CLUB ROAD 43031
JOHNSTOWN, OHIO (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (740) 966-5800
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)
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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 / /
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. / /
The aggregate market value of Common Stock held by non-affiliates is
$6,787,500 based on a closing sale price of $3.75 per share on March 17, 1998.
As of March 17, 1998, 4,185,000 shares of $.001 par value Common Stock were
issued and outstanding.
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
OVERVIEW AND RECENT DEVELOPMENTS
Bigmar, Inc. (the "Company") was incorporated in Delaware in September 1995
and has three wholly-owned subsidiaries--Bigmar Pharmaceuticals SA
("Pharmaceuticals"), Bigmar Therapeutics ("Therapeutics") and Bioren SA
("Bioren"). Pharmaceuticals is a Swiss corporation that was formed in January
1992 under the name BVI, SA. Therapeutics is a Delaware corporation formed in
September 1995 under the name Bioren, Inc.; the name was changed in November
1995. Bioren SA is a Swiss corporation formed in July 1986.
The Company is currently engaged in manufacturing and marketing various
pharmaceutical products in Germany and Switzerland. Current products include 18
types of intravenous infusion solutions ("IV Solutions") and generic oncological
products, such as calcium leucovorin. Pharmaceuticals' primary strategy is to
supply world markets with a full line of high-quality, affordably priced generic
oncology products, to be manufactured in its state-of-the-art facilities in
Switzerland and to market these products through pharmaceutical company partners
in Europe and the United States, once regulatory approvals are obtained.
Bioren's strategy is to expand its current IV Solutions product line and its
market penetration.
In June 1995, all of the outstanding capital stock of Bioren was purchased
by Pharmaceuticals (the "Bioren Acquisition") for an aggregate purchase price of
approximately $5.2 million. In connection with the Bioren Acquisition,
Pharmaceuticals became a guarantor on a bank loan to Bioren in the principal
amount of $2.6 million. This loan 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--also on the Bioren
Facility. In addition, simultaneous with the Bioren acquisition in June 1995,
Pharmaceuticals sold one-half of its equity interest in Bioren to certain
Pharmaceuticals stockholders (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 stockholders existing prior to the initial public offering (see
below) and on April 8, 1996 such existing stockholders contributed 99% of these
shares 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 Company's common stock
(approximate fair market value $2,627,340 based on the initial public offering
price of $7.50 per share). At the same time, the stockholders of Pharmaceuticals
exchanged all of the capital stock of Bigmar Pharmaceuticals for 2,000,938
shares of the Company's common stock (approximate fair market value $15,007,035
based upon the initial public offering price of $7.50 per share) (the
"Exchange").
In June 1996, the Company consummated an initial public offering (the "IPO")
of 1,610,000 shares of common stock, par value $.001 per share at an initial
public offering price of $7.50. The Company realized approximately $9.4 million
from the proceeds of the IPO, after deductions of commissions and expenses.
In May 1997, Mr. Tramontana, the Company's Chairman of the Board, President
and Chief Executive Officer ("CEO"), pursuant to privately negotiated
transactions in Switzerland, acquired 1,293,663 additional shares of the
Company's common stock from certain stockholders. Accordingly, as of December
31, 1997, Mr. Tramontana is the beneficial owner of 2,392,031 shares,
representing 55.5% of the total shares outstanding and, therefore, may be deemed
to control the Company.
In August 1997, the Company completed an Offshore Securities Subscription
Agreement (the "Subscription Agreement") and a Note Purchase, Paying, and
Conversion Agency Agreement (the "Note
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Agreement") with Banca del Gottardo, a bank organized under the laws of
Switzerland. Under the Subscription Agreement, the Company issued 200,000 shares
of its common stock at a price of $5.00 per share. Net proceeds after
commissions amounted to $930,000. Under the Note Agreement, the Company issued
$4 million in 8% notes, due August 29, 2002, with interest payable semi-annually
in February and August. The notes are convertible into shares of the Company's
common stock at an initial conversion price of $5.25. Net proceeds from the
notes were $3,670,000 after deductions of commissions and related expenses.
The Company employs 58 full-time and 8 part-time associates in the following
functional areas: manufacturing and quality control--36; marketing and
sales--10; research and development, including regulatory affairs--8; and
administration--12. All but nine of the Company's employees are located in
Switzerland and none of the employees are party to any collective bargaining
agreements.
PRODUCTS
IV SOLUTIONS
The Company's Bioren Facility manufactures and markets 18 different IV
Solutions. The IV Solutions generally consist of different chemical entities,
such as sodium chloride, electrolytes, carbohydrates and other nutrients, which
are intravenously administered to patients. 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. 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 and Liechtenstein in PLM's
collapsible containers. The PLM Agreement expires in the year 2005, unless it is
earlier terminated. Under the terms of the 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, either party upon the occurrence of certain specified
conditions may terminate the agreement. The termination of the agreement would
have a material adverse effect on the Company.
ONCOLOGICAL PRODUCTS
The Company currently markets calcium leucovorin, a generic oncological
product, in Europe. In November 1995, Pharmaceuticals and AB Cernelle
("Cernelle"), a Swedish company, entered into an agreement ("the Cernelle
Agreement"), pursuant to which Pharmaceuticals obtained the exclusive worldwide
distribution rights to approximately 20 generic oral oncological products,
including calcium leucovorin, methotrexate and mercaptopurine, manufactured by
Cernelle ("Cernelle Products"). The initial term of the Cernelle Agreement is 15
years, commencing on the date of the first commercial sale by Pharmaceuticals of
the Cernelle Products. Either party may terminate the Cernelle Agreement upon
the occurrence of certain specified conditions. The termination of the Cernelle
Agreement would not have a material adverse effect on the Company.
PROPOSED PRODUCTS
The Company has identified approximately 30 oncological drugs that 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.
There can be no assurance that the Company will manufacture or market any of
the foregoing products. The commercialization of these products will depend on a
number of factors including, but not
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limited to, the successful results of the Company's clinical toxicity studies
and obtaining regulatory approval. Although the Company believes that these
proposed products have commercial value, the Company may choose not to
manufacture or market some or all of these products.
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
oncological markets, the Company faces competition from Bedford Laboratories,
Bristol-Myers Squibb Co., Pharmachemie, BV, Pharmacia & Upjohn, Inc., and
Gensia-Sicor. Furthermore, in oncological markets the Company may face
competition from alternative methods of treatment such as 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. It also 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.
MARKETING AND SALES
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
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 health care 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.
The Company markets IV Solutions through its own sales force to health care
providers and third-party payors. The Company markets calcium leucovorin to
pharmaceutical companies. The Company does not intend to market its other
products directly to the public. The Company has entered into exclusive
arrangements with various non-affiliated pharmaceutical companies to market
certain generic oncological products, manufactured or licensed by the Company,
in Germany, the United Kingdom, Italy, and Spain. The amount of resources and
time that any of these collaborators devote towards marketing and sales of the
Company's products are not within the Company's control. The termination of any
of these agreements would have a material adverse effect on the Company.
The Company's sales are not subject to significant variations due to
seasonal changes.
RESEARCH AND DEVELOPMENT
The Company's research and development activities focus on three areas:
- Formulating raw materials into finished product
- Scaling up the development from the laboratory phase to the production
phase
- Conducting stability and bio-equivalency testing of the finished product
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During 1997, the Company filed eight Abbreviated New Drug Applications
("ANDAs"), including one Suitability Petition with the United States Food and
Drug Administration ("FDA"). In addition, the Company continued its progress
towards obtaining FDA approval of its facilities and products, with the FDA
conducting two on-site inspections, the first in November 1997, of its U.S.
laboratory facilities, and the second one in March 1998, of the Bigmar Facility
(see "Manufacturing and Suppliers" below).
MANUFACTURING AND SUPPLIERS
The Company has two production facilities, the Bioren Facility and the
Bigmar Facility. The Bioren Facility is a 57,000 square foot facility in Couvet,
Switzerland where the Company manufactures and markets IV Solutions and will
manufacture non-toxic 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
will manufacture calcium leucovorin and cytotoxic oncological products.
The capital costs associated with equipping a facility and manufacturing
oncological products are substantial and the manufacturing process is complex.
The FDA and foreign regulatory authorities regulate the facility in which they
are manufactured and the method of manufacture, as well as the employees'
working conditions. 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 the inability to obtain an
adequate supply of required raw materials and components, increased raw material
or component costs and reduced control over quality and timely delivery.
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 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. Non-compliance with
applicable requirements can result in recall, injunction or seizure of products,
imposition of import restrictions, refusal of the government to approve new
product applications, prevention from entering into government supply contracts,
withdrawal of previously-approved applications and, in certain circumstances,
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 pre-clinical 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
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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.
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 a New Drug Application ("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:
- Pre-clinical laboratory and animal tests
- Submission to the FDA of an application for an Investigational New Drug
("IND")
- Clinical and other studies to assess safety and parameters of use
- Adequate and well-controlled clinical trials to establish the safety and
effectiveness of the drug
- Submission of an NDA to the FDA
- FDA approval of the NDA prior to any commercial sale or shipment of the
drug.
Typically, pre-clinical 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
pharmacological 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 that 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, pre-clinical 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. Congress or the FDA can modify
the regulatory process in specific situations.
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
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the United States, FDA ordinarily requires bioequivalence 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 bioequivalence data to
approve Abbreviated New Drug Applications ("ANDAs"). "Bioequivalence" 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 that 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.
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.
The Company will be subject to the FDA's Good Manufacturing Practices
("GMPs"), Good Laboratory Practices ("GLPs") 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 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. 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, the amount of which can vary,
depending on the amount of work required of the authority, the kind of procedure
and the result of such procedure.
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 Intercantonal Office for the Control
of Medications (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
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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 World Health Organization
("WHO") or the Pharmaceutical Inspection Convention ("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 are generic
products.
EUROPEAN UNION. On January 1, 1995, the EU established new procedures for
the approval of pharmaceuticals and created a new coordinating body, the EMEA.
Germany is a member of the EU; Switzerland is not. 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
UNITED STATES. 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 reimbursement
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.
Successful commercialization of the Company's owned 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
upon the setting in which a particular item or service is furnished.
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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.
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. These
include 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 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
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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.
SWITZERLAND. 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 all of its facilities 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.
Beyond that, the Company is unable to predict the extent or timing of future
expenditures that 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 involve 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 $14 million 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.
ITEM 2. PROPERTIES
On December 31, 1996, the Company entered into a lease with JTech
Laboratories, Inc. ("JTech") relating to approximately 8,600 square feet of
space located at 9711 Sportsman Club Road, Johnstown, Ohio 43031. This space is
being utilized by the Company as its principle corporate headquarters and
research and development laboratory. The lease for this space expires in June
2002, five years from the occupancy date, and provides for a first year fixed
annual rent payment of $120,000 (discounted at 8.25%
10
<PAGE>
and paid during 1997). In years two through five, the lease calls for monthly
rent payments of $10,000 per month, 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. John G. Tramontana is the
President, a director and stockholder of JTech and Michael K. Medors is the
Treasurer, a director and stockholder of JTech. Management believes that its new
facility will meet its operational needs for the foreseeable future.
The Company owns two pharmaceutical plants, the Bigmar Facility and the
Bioren Facility. The Bigmar Facility, a 25,000 square foot facility in Barbengo,
Switzerland, is used 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 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 non-toxic products,
such as calcium leucovorin (rescue therapy). 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 Company believes that its facilities are sufficient for
its current and reasonably anticipated operations.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company or any of is
subsidiaries is a party or to which any of their respective properties are
subject, except routine legal proceedings to which they are parties incident to
their respective business. None of such proceeding are considered by the Company
to be material.
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, 1997.
PART II
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
SmallCap-SM- 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
SmallCap-SM- Market since the commencement of trading were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED: HIGH LOW
- -------------------------------------------------------------------------------- ------- -------
<S> <C> <C>
June 30, 1996................................................................... 11 1/2 8
September 30, 1996.............................................................. 10 1/8 6
December 31, 1996............................................................... 7 1/4 4 3/8
March 31, 1997.................................................................. 7 7/8 5
June 30, 1997................................................................... 5 7/8 2 7/8
September 30, 1997.............................................................. 6 1/8 4 1/8
December 31, 1997............................................................... 5 1/2 3 1/4
</TABLE>
11
<PAGE>
HOLDERS
As of March 13, 1998, as reported by the Company's transfer agent, shares of
common stock were held by 43 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 dividends on its common stock and does not
anticipate paying dividends in the foreseeable future. The payment of future
cash dividends by the Company 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 payment of dividends and other considerations as the Board may
consider relevant. In addition, the Swiss Federal Code of Obligations provides
further restrictions on the Company's ability to pay dividends to its
stockholders.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical financial information for
Bigmar, Inc. and subsidiaries for the years ended December 31, 1993 through
December 31, 1997, derived from the Company's consolidated financial statements.
BIGMAR, INC.(1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales...................... $6,483,444 $7,931,149 $5,600,362 $ 707,627 $ 264,077
Cost of goods sold............. 5,485,648 5,312,193 4,001,891 611,040 182,075
---------- ---------- ---------- --------- ---------
Gross margin................... 997,796 2,618,956 1,598,471 96,587 82,002
---------- ---------- ---------- --------- ---------
Operating expenses:
Research and development....... 1,209,053 801,560 23,144
Selling, general and
administrative............... 4,281,627 3,006,546 1,493,055 16,269 50,810
Re-acquisition of U.S.
marketing rights............. 2,050,000
Settlement and write-off
licensing fees............... 511,777
---------- ---------- ---------- --------- ---------
Total operating expenses....... 7,540,680 4,319,883 1,516,199 16,269 50,810
---------- ---------- ---------- --------- ---------
Operating income (loss).......... (6,542,884) (1,700,927) 82,272 80,318 31,192
---------- ---------- ---------- --------- ---------
Other income (expense):
Other income................... 127,200 28,666 7,927
Interest income................ 69,984 152,705 13,911 966 387
Interest expense............... (616,453) (206,469) (196,387)
Gain (loss) on foreign currency
transactions................. (415,871) 86,481
---------- ---------- ---------- --------- ---------
Other income (expense) net..... (835,140) 61,383 (182,476) 8,893 387
---------- ---------- ---------- --------- ---------
Income (loss) before taxes....... (7,378,024) (1,639,544) (100,204) 89,211 31,579
---------- ---------- ---------- --------- ---------
Income taxes (benefit)........... (3,000) 10,553 8,296
---------- ---------- ---------- --------- ---------
Net income (loss)............ $(7,378,024) $(1,639,544) $ (97,204) $ 78,658 $ 23,283
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Per Share Data:
Net income (loss).............. $ (1.82) $ (0.51) $ (0.07) $ .20 $ .06
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Weighted average number of
shares outstanding (2)....... 4,052,945 3,235,137 1,337,292 400,188 400,188
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
Balance Sheet Data:
Working capital (deficit)...... $(2,484,409) $ 545,102 $1,204,461 $ 98,526 $ 113,573
Total assets................... 20,517,090 24,270,169 15,493,126 2,173,621 152,022
Long-term obligations.......... 10,090,467 7,353,490 8,436,971 1,500,767
Retained earnings (deficit).... (9,012,630) (1,634,606) 4,938 102,142 23,483
Stockholders' equity........... 5,128,600 10,895,853 3,911,404 192,492 113,573
</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 include 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).
(2) Adjusted for a 2.105263 for one reverse stock split, effective April 1996.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements under this caption "Management's 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.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales decreased by $1.4 million to approximately $6.5 million for the
year ended December 31, 1997, compared to $7.9 million for the comparable period
in 1996. Approximately $1.1 million of the decrease relates to year-to-year
exchange rate differences. Sales of IV solutions increased by $.7 million but
were offset by foreign currency effects of $.9 million. Sales of raw materials
and oncological products declined by $.7 million and $.3 million, respectively.
Cost of goods sold increased from the prior year by approximately $.2
million. Without the effect of year-to-year changes in the foreign exchange
rate, cost of goods sold would have increased by $1.1 million. Bioren's cost of
sales decreased $.1 million, after taking into account exchange impacts of $.7
million. Pharmaceuticals' cost of goods sold increased $.3 million, net of
foreign exchange effects of $.3 million. The primary reason for the
Pharmaceuticals increase is the absorption of costs related to validation
activities subsequent to May 1997, when the plant obtained provisional approval
to manufacture product from the IKS. In 1996, a portion of these costs
associated with completion of the production facilities were capitalized.
Gross margin decreased by $1.6 million to $1.0 million or 15% for the year
ended December 31, 1997, compared to $2.6 or 33% for the year ended December 31,
1996. Exchange rate impacts on sales offsets the exchange rate impact on cost of
sales; therefore, the decrease is related to the decreased sales plus the
increase in validation costs related to the FDA approval process.
Total operating expenses increased by 74%, from $4.3 million in 1996 to $7.5
million in 1997. Research and development expenses increased by $.4 million as a
result of the Company's continuing effort to develop its line of oncological
products and obtain required regulatory approvals to manufacture and market
those products. Based upon the number of products scheduled for registration
during the next several years, the Company expects research and development
expenditures to continue to be significant. Selling, general and administrative
expenses also increased from 1996 to 1997. The $1.3 million increase primarily
reflects an increase in the number of employees and related expenses both in the
U.S. and Switzerland. Also, in 1997, approximately $2.1 million of expenses were
recognized to reacquire marketing rights previously assigned to Protyde under a
collaborative agreement, which was terminated during the year.
Operating (loss), as a result of the foregoing, increased by $4.8 million,
from $1.7 million in 1996 to $6.5 million in 1997.
Other income (net) amounted to a net expense of $.8 million for 1997 as
compared to income of $.1 million for 1996. Interest expense amounted to $.6
million for 1997, an increase of $.4 million over 1996, reflecting two
factors--an increase in the Company's debt during 1997 and less capitalized
interest during 1997. Other income increased $.1 million from 1996 to 1997,
primarily as a result of gains on disposals of property, plant, and equipment,
including land sold by Bioren to a related party. Finally, the Company
14
<PAGE>
recorded foreign currency transaction losses of $.4 million during 1997 versus
gains in 1996 of $.1 million. The majority of this activity is related to 1997
intercompany funds transfers denominated in Swiss Francs.
Income tax expense was zero for both 1997 and 1996, due to losses sustained
and loss carryovers from prior years.
Net loss for 1997 was $7.4 million versus the 1996 loss of $1.6 million. The
corresponding loss per share was $1.82 in 1997 versus $.51 in 1996. If the
effects of the Protyde transaction and the Cerbios-Pharma settlement were
omitted, the net losses would have been $5.3 million and $1.1 million for 1997
and 1996 respectively and the loss per share would have been $1.31 and $.35 for
1997 and 1996, respectively.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales increased by $2.3 million to $7.9 million for the year ended
December 31, 1996 as compared to $5.6 million for the comparable period in 1995.
This increase was attributable to the inclusion of a full year of Bioren sales
($5.8 million) in 1996, compared to the inclusion of only the last six months
sales in 1995, as Bioren was not acquired until June 30. Excluding Bioren sales,
the increase in net sales was $62,000 from 1995 to 1996. This increase was due
to additional sales of approximately $464,000 of pharmaceutical products, offset
by a reduction of approximately $247,000 and $122,000 in prostate materials 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 increased by $1.3 million to $5.3 million for the year
ended December 31, 1996 as compared to $4.0 million for the comparable period in
1995. This increase was primarily due to increased sales.
Gross profit increased by $1.0 million to $2.6 million 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 $1.8 million.
Without the addition of Bioren, gross profit for the period ended December 31,
1996 increased $354,000 to $794,000 as compared to $440,000 for the comparable
period in 1995. This increase was due to both higher net sales and 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 1995. 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 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.
Total 1996 operating expenses amounted to $4.3 million, an increase of $2.8
million over 1995. Research and development expenses were $802,000 in 1996
compared to $23,000 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. Additional expenditures of approximately $1.5
million related to equipment and facility validation were 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 increased by $1.5 million to $3.0 million for the year
ended December 31, 1996, compared to $1.5 million for the comparable period in
1995. The increase is largely due to the addition of Bioren's selling, general
and administrative expenses of $1.6 million. Bioren's selling, general and
administrative expenses were $2.0 million for the
15
<PAGE>
comparable period in 1995. 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. The increase in total
operating expenses also includes approximately $.3 million for settlement
charges paid to Cerbios-Pharma and a write off of $.2 million ($.1 million each
paid to Bioferment and Sapec) as a result of the Cancellation Agreements dated
March 27, 1997. The Company does not expect its operations to be materially
affected by the cancellation of these agreements.
Other income (net) amounted to $61,000 during 1996, an increase from 1995 of
$244,000. Interest expense remained relatively flat year to year, at $206,000
and $196,000 for 1996 and 1995 respectively. Interest expense for 1996 was
partially offset by interest income of $153,000, generated by investing the
proceeds of the initial public offering. Finally, the Company recorded $86,000
net gain on foreign currency transactions in 1996.
Income tax expense was insignificant for both 1996 and 1995, due to losses
sustained and loss carryovers from prior years.
The Company sustained a net loss of $1.6 million for the year ended December
31, 1996 as compared to a net loss of $97,000 for the year ended December 31,
1995. The net loss for 1996 represents an increase of $1.5 million. The 1996
loss was due primarily to the intensification of oncology product development
and registration activities as well as staffing and related activities required
to support the development of the oncology business.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997 and December 31, 1996, the Company had cash and cash
equivalents of $.6 million and $4.4 million, respectively. The Company's working
capital at December 31, 1997 was a $2.5 million deficit and at December 31, 1996
was $.5 million. Besides the decrease in cash, the biggest impacts on working
capital were the repayment of related party payables of $.9 million and the
return of a cash advance to Protyde of $.8 million. Accounts payable increased
$.2 million and accrued expenses increased $.1 million. Accounts receivable also
increased about $.1 million from year-end 1996 to year-end 1997. Finally, notes
payable increased by approximately $.4 million.
Net cash used in operating activities during 1997 was $6.0 million, down
from the previous year's cash provided of $.4 million. The decrease was largely
a result of the $7.4 million net loss incurred during the year. However, this
was offset somewhat by approximately $1.0 million of depreciation and
amortization, $.8 million for the value of common stock warrants issued to
Protyde as partial payment to re-acquire U.S. marketing rights previously
assigned to Protyde, and $.4 million for foreign exchange losses.
Capital expenditures for 1997 were $2.2 million, a $5.8 million decrease
from the 1996 level. The lower expenditures reflect the fact that the Bigmar
Facility was substantially completed at the end of May 1997 and most of the
property, plant and equipment related to this facility had already been acquired
during 1996.
In June 1996 the Company completed an initial public offering through which
the Company received, after deducting all related offering expenses,
approximately $9.4 million in net proceeds. During 1997, the Company utilized
the remaining proceeds from the IPO and obtained additional financing from Banca
del Gottardo in August. The net proceeds from Banca del Gottardo amounted to $.9
million from the issuance of common stock and $3.7 million from the issuance of
8% convertible bonds. The company obtained additional short-term financing by
securing a $3.5 million line of credit from Citizens Bank in Saginaw, Michigan.
The line of credit is unsecured and, as of year-end, the Company had borrowed
approximately $1.0 million under this arrangement.
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
16
<PAGE>
validation, product registration, and other activities required for regulatory
review of generic oncological products. The amount required to complete such
activities depends 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.
The Company anticipates that the net proceeds received from its recent
financing activities, together with cash flow from operations (if any), will be
sufficient to fund the Company's operations through June 1998. However, there
can be no assurance that events affecting the Company's operations will not
result in the Company depleting its funds before that time. Management is
currently discussing additional financing with a number of financial
institutions and investors, but there are no assurances that the Company will be
able to obtain additional financing or that such financing, if available, will
be on acceptable terms.
YEAR 2000 COMPLIANCE
Many computer systems currently record years in a two-digit format. Such
systems, if not modified, will be unable to recognize and properly process
information with dates beyond the year 1999. The potential problems arising out
of this inability are commonly referred to as the "Year 2000 Issue" and will
affect virtually all companies, government agencies and other organizations.
During 1997, the Company performed an assessment of its computer systems to
determine whether or not they were in compliance with Year 2000 requirements. As
of December 31, 1997, the Swiss operations' computer systems were determined to
be in compliance with such requirements. The U.S. operations computer
applications include an accounting package and a document management system.
Although these systems do not yet comply with Year 2000 requirements, an
assessment has been made and it has been determined to the best of management's
knowledge and belief that the costs to bring them into compliance will be
immaterial to the Company's business, operations, and financial condition. The
Company expects to incur and expense such costs to selling, general and
administrative during 1998.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income", which is required to be
adopted for fiscal years beginning after December 31, 1997. The Statement
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. Adoption
of this standard is not expected to have a material impact on the Company's
financial statements or results of operations.
Also in June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which is required to be
adopted for fiscal years beginning after December 15, 1997. The Statement
changes the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to shareholders. Adoption of this
standard is not expected to have a material impact on the Company's financial
statements or results of operations.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
About Pensions and Other Post-Retirement Benefits", which is required to be
adopted for fiscal years beginning after December 15, 1997. The Statement adds
additional disclosure requirements to facilitate financial analysis and removes
certain disclosures no longer considered as useful as in the past. Adoption of
this standard is not expected to have a material impact on the Company's
financial statements or results of operations.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, together with the
reports thereon of KPMG Peat Marwick LLP, dated March 27, 1998, are set forth on
pages 23 through 43 hereof (see Item 14 of this Annual Report for the Index).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During 1997, the Company's Board of Directors approved the selection of KPMG
Peat Marwick LLP ("KPMG"), a major international CPA firm to report on the
three-year period ended December 31, 1997. KPMG's size, international
experience, and familiarity with the pharmaceutical industry were all important
factors in this decision. There were no disagreements with either the former
auditors, Richard A. Eisner & Company or with KPMG regarding accounting and
financial disclosure matters. The report of Richard A. Eisner & Company for the
three-year period ended December 31, 1996 contained a qualification relating to
continuance as a going concern.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is included under the captions
"Election of Directors" and "Information Regarding Security Holders--Section
16(a) Beneficial Owner Reporting Compliance" in the Company's definitive Proxy
Statement (the "Proxy Statement") relating to the Company's 1998 Annual Meeting
of Stockholders and is incorporated herein by reference. The Company anticipates
filing the Proxy Statement with the Securities and Exchange Commission in April
1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is included under the captions
"Compensation of Executive Officers" and "Directors Meeting Compensation and
Committees--Director Compensation" in the Proxy Statement and is incorporated
herein by reference. Neither the report of the Compensation and Stock Option
Committee of the Registrant's Board of Directors on executive compensation nor
the performance graph included in the Proxy Statement shall be deemed to be
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL, OWNERS AND MANAGEMENT
The information required by this Item 12 is included under the caption
"Information Regarding Security Holders" in the Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is included under the caption
"Certain Relationship and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Financial Statements
--Independent Auditors' Report
--Consolidated Balance Sheets
--December 31, 1997
--December 31, 1996
--Consolidated Statements of Operations
--Year ended December 31, 1997
--Year ended December 31, 1996
--Year ended December 31, 1995
--Consolidated Statements of Stockholders' Equity
--Year ended December 31, 1997
--Year ended December 31, 1996
--Year ended December 31, 1995
--Consolidated Statements of Cash Flows
--Year ended December 31, 1997
--Year ended December 31, 1996
--Year ended December 31, 1995
--Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
See Exhibit 99(a)--Schedule II--Valuation and Qualifying Accounts.
All other schedules are omitted because of the absence of the conditions
under which they are required or because the required information is included in
financial statements or the notes thereto.
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FILING STATUS
- ------ ------------------------------------------------------------------------------- ----------------
<C> <S> <C>
3.1 Restated and Amended Certificate of Incorporation.............................. a
3.1(a) Certificate of Correction to Restated and Amended Certificate of Incorporation
of the Registrant............................................................ a
3.2 Restated By-Laws of the Registrant............................................. a
3.2(a) Amendment to Restated By-Laws of the Registrant................................ a
4.1 Specimen Stock Certificate..................................................... a
4.2 Form of Representatives Warrant................................................ a
10.1 Intentionally Omitted.......................................................... a
10.2 Partnership Agreement, dated as of October 1995, between Bigmar Therapeutics,
Inc. and Protyde Oncology Therapeutics, Inc.................................. a
10.3 Sales and Marketing Agreement, dated as of October 1995, between Protyde-Bigmar
Therapeutics and Protyde Corporation......................................... a
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FILING STATUS
- ------ ------------------------------------------------------------------------------- ----------------
<C> <S> <C>
10.4 Manufacturing Agreement, dated as of October 1995, between Protyde-Bigmar
Therapeutics and the Registrant.............................................. a
10.5 Sublease Agreement, dated as of March 1, 1996, between the Registrant and
Cernitin America, Inc........................................................ a
10.6 Form of Indemnification Agreement.............................................. a
10.7 Employment Agreement, dated as of April 15, 1996, between the Registrant and
John G. Tramontana........................................................... a
10.8 Form of Medical Advisory Agreement............................................. a
10.9 Form of Scientific Advisory Agreement.......................................... a
10.10 Exclusive Distribution and Supply Agreement, dated November 5, 1995, between
Bigmar Pharmaceuticals SA and AB Cernelle.................................... a
10.11 Technical Services Agreement, dated November 5, 1995, between Bigmar
Pharmaceuticals SA and AB Cernelle........................................... a
10.12 License and Supply Agreement, dated November 14, 1995, between Bigmar
Pharmaceuticals SA and Bioferment division of Cerbios-Pharma SA.............. a
10.13 Exclusive Distribution and Supply Agreement, dated as of December 14, 1995,
between Bigmar Pharmaceuticals SA and Bioferment division of Cerbios-Pharma
SA........................................................................... a
10.14 Exclusive Distribution Agreement, dated November 14, 1995, between Bioren SA
and SAPEC division of Cerbios-Pharma SA...................................... a
10.15 Stock for Stock Exchange Agreement, dated April 9, 1996, between the Registrant
and its stockholders......................................................... a
10.16 Contribution Agreement, dated April 8, 1996, between the Registrant and its
stockholders................................................................. a
10.17 Exclusive Distribution Agreement, dated December 22, 1995, between Bigmar
Pharmaceuticals SA and Boehringer Mannheim Italia S.p.A...................... a
10.18 International Activities Agreements, dated March 3, 1994, between Bigmar
Pharmaceuticals SA and Medac GmbH............................................ a
10.19 Distribution Agreement, dated October 10, 1994 between Bigmar Pharmaceuticals
SA and Pharma Stroschein GmbH................................................ a
10.20 Distribution Agreement, dated July 31, 1995, between Bigmar Pharmaceuticals SA
and Laboratorios Vita S.A.................................................... a
10.21 Supply and Collaboration Agreement, dated March 8, 1995, between Bioren SA and
PLM Langeskov A/S............................................................ a
10.22 Agreement, dated December 21, 1995, between Laevosan international AG and
Bigmar Pharmaceuticals SA.................................................... a
10.23 Loan documentation between Bioren SA and Union Bank of Switzerland............. a
10.24 Loan documentation between Bigmar Pharmaceuticals SA and Union Bank of
Switzerland.................................................................. a
10.25 Registrant's 1996 Stock Option Plan............................................ a
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FILING STATUS
- ------ ------------------------------------------------------------------------------- ----------------
<C> <S> <C>
10.26 Form of Non-qualified Stock Option Agreement under the 1996 Stock Option
Plan......................................................................... a
10.27 Form of Incentive Stock Option Agreement under the 1996 Stock Option Plan...... a
10.28 Form of Registrant's Director Option Plan...................................... a
10.29 Acquisition Agreement, dated June 22, 1995, between Galenica Holding AG and the
Registrant................................................................... a
10.30 Extension of Licensing Agreement, dated October 27, 1995, between Dr. F. Messi
Cell Culture Technologies and Bigmar Pharmaceuticals SA...................... a
10.31 Agreements between Bigmar Pharmaceuticals SA and Unione Farmaceutica SA........ a
10.40 Lease Agreement, dated as of December 31, 1996, between the Registrant and
JTech Laboratories, Inc...................................................... c
10.41 Cancellation Agreement, dated as of March 27, 1997............................. c
10.42 Release dated March 27, 1997 issued by Cerbios-Pharma in favor of the
Registrant................................................................... c
10.43 Cancellation Agreement, dated as of March 27, 1997, between the registrant and
Cerbios-Pharma............................................................... c
10.44 Cancellation Agreement, dated as of March 27, 1997, between the Registrant and
Cerbios-Pharma............................................................... c
10.45 Libor Mortgage Loan Agreement, dated February 26, 1997, between the Union Bank
of Switzerland, and the Registrant........................................... c
10.46 Credit Contract and Libor Loan Contract, dated December 13, 1996, between Union
Bank of Switzerland and the Registrant....................................... c
10.47* Employment Agreement, dated as of July 1, 1996, between the Registrant and
Albert Z. Hodge.............................................................. c
10.48* Employment Agreement, dated as of April 15, 1996, between the Registrant and
Peter P. Stoelzle............................................................ c
10.49 Letter of Line of Credit, dated May 15, 1997, between Citizens Bank and the
Registrant................................................................... e
10.50 Assignment and Assumption of Partnership Interest and Termination of Contracts
dated July 24, 1997.......................................................... e
10.51 Transaction of Change in Control of Registrant dated May 2, 1997............... b
10.52 Sales of Equity Securities Pursuant to Regulation S, dated as of August 28,
1997, between the Registrant and Banca del Gottardo.......................... f
10.53* Employment Agreement, dated as of November 3, 1997, between the Registrant and
William R. Ash, III.......................................................... Filed herewith
10.54 Registrant's 1997 Stock Option Plan............................................ Filed herewith
10.55* Form of Non-qualified Stock Option Agreement under the 1997 Stock Option
Plan......................................................................... Filed herewith
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT FILING STATUS
- ------ ------------------------------------------------------------------------------- ----------------
<C> <S> <C>
10.56* Form of Incentive Stock Option Agreement under the 1997 Stock Option Plan...... Filed herewith
16.01 Letter re: Change in Registrants Certifying Accountant, dated as of August 28,
1997......................................................................... g
16.02 Letter re: Change in Registrants Certifying Accountant as Amended, dated as of
September 30, 1997........................................................... h
21.10 Subsidiaries of the Registrant................................................. a
22.01 Matters submitted to a vote of security holders of the Registrant.............. d
27.00 Financial Data Schedule........................................................ Filed herewith
99(a) Schedule II--Valuation and Qualifying Accounts................................. Filed herewith
</TABLE>
- ------------------------
* Includes compensatory plan or arrangements required to be filed pursuant to
Item 14c of this Form 10-K.
(a) Incorporated by reference to the Company's Registration Statement No.
333-3830, declared effective by the Securities and Exchange Commission on
June 19, 1996.
(b) Incorporated by reference to the Company's Form 8-K dated May 2, 1997, file
number 001-14416.
(c) Previously filed with reports on Form 10-K 1996, file number 001-14416.
(d) Previously filed with the Proxy Statement July 28, 1997, file number
001-14416.
(e) Previously filed with reports on Form 10-Q 1997, file number 001-14416.
(f) Incorporated by reference to the Company's Form 8-K dated August 29, 1997,
file number 001-14416.
(g) Incorporated by reference to the Company's Form 8-K dated August 22, 1997,
file number 001-14416.
(h) Incorporated by reference to the Company's Form 8-K/A Amendment No. 1, dated
September 29, 1997, file number 001-14416.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year.
(C) EXHIBITS
See Item 14(a)(3) for a list of exhibits filed electronically with this
report via EDGAR.
(D) FINANCIAL STATEMENT SCHEDULES
See Exhibit 99(a)--Schedule II--Valuation and Qualifying Accounts
NOTE: ALL OTHER SCHEDULES CALLED FOR UNDER REGULATION S-X NOT INCLUDED
HEREIN HAVE BEEN OMITTED BECAUSE THEY ARE NOT APPLICABLE, THE REQUIRED
INFORMATION IS NOT MATERIAL OR THE REQUIRED INFORMATION IS INCLUDED IN THE
FINANCIAL STATEMENTS OR NOTES THERETO.
22
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report........................................... 24
Consolidated Balance Sheets............................................ 25
December 31, 1997
December 31, 1996
Consolidated Statements of Operations.................................. 26
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Consolidated Statements of Stockholders' Equity........................ 27
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Consolidated Statements of Cash Flows.................................. 28
Year ended December 31, 1997
Year ended December 31, 1996
Year ended December 31, 1995
Notes to Consolidated Financial Statements............................. 29
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bigmar, Inc.:
We have audited the accompanying consolidated financial statements of
Bigmar, Inc. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule of valuation and qualifying accounts. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bigmar, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1(c) to the consolidated financial statements, the Company has suffered
recurring losses from operations, and anticipates it will require additional
financing in order to complete the validation of its manufacturing plant and
equipment and to fund its operations during 1998. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1(c).
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG PEAT MARWICK LLP
Columbus, Ohio
March 27, 1998
24
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 643,232 $ 4,362,938
Accounts receivable, net of allowance of $0 and $44,703 at December 31, 1997 and
1996, respectively............................................................. 847,899 772,491
Inventories (Note 2)............................................................. 890,249 950,471
Prepaid expenses and other current assets........................................ 432,234 480,028
------------- -------------
Total current assets........................................................... 2,813,614 6,565,928
Property, plant and equipment, net (Note 3)........................................ 17,164,158 17,407,140
Intangible and other assets, net................................................... 539,318 297,101
------------- -------------
Total.......................................................................... $ 20,517,090 $ 24,270,169
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 1,766,992 $ 1,721,846
Notes payable (Note 4)........................................................... 2,318,644 1,529,993
Current portion of long-term debt (Note 5)....................................... 581,674 466,594
Due to related parties (Note 13)................................................. 983,490
Advances on reimbursable expenses (Note 9)....................................... 750,000
Accrued expenses and other current liabilities................................... 630,713 568,903
------------- -------------
Total current liabilities...................................................... 5,298,023 6,020,826
Long-term debt (Note 5)............................................................ 10,090,467 7,353,490
------------- -------------
Total liabilities.............................................................. 15,388,490 13,374,316
------------- -------------
Stockholders' equity (Notes 8, 10 and 11):
Preferred stock ($.001 par value; 5,000,000 shares authorized; none issued)
Common stock ($.001 par value; 15,000,000 shares authorized; 4,185,000 and
3,985,000 shares issued and outstanding at December 31, 1997 and 1996,
respectively).................................................................. 4,185 3,985
Additional paid-in capital....................................................... 15,063,166 13,333,366
Retained earnings (deficit)...................................................... (9,012,630) (1,634,606)
Cumulative translation adjustment................................................ (926,121) (806,892)
------------- -------------
Total stockholders' equity..................................................... 5,128,600 10,895,853
------------- -------------
Commitments (Note 14)..............................................................
Total.......................................................................... $ 20,517,090 $ 24,270,169
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Net sales (Note 12)................................................... $ 6,483,444 $ 7,931,149 $ 5,600,362
Cost of goods sold.................................................... 5,485,648 5,312,193 4,001,891
------------- ------------- ------------
Gross margin.......................................................... 997,796 2,618,956 1,598,471
------------- ------------- ------------
Operating expenses:
Research and development............................................ 1,209,053 801,560 23,144
Selling, general and administrative................................. 4,281,627 3,006,546 1,493,055
Re-acquisition of U.S. marketing rights (Note 9).................... 2,050,000
Settlement and write-off licensing fees (Note 13)................... 511,777
------------- ------------- ------------
Total operating expenses.......................................... 7,540,680 4,319,883 1,516,199
------------- ------------- ------------
Operating income (loss)............................................... (6,542,884) (1,700,927) 82,272
------------- ------------- ------------
Other income (expense):
Other income........................................................ 127,200 28,666
Interest income..................................................... 69,984 152,705 13,911
Interest expense.................................................... (616,453) (206,469) (196,387)
Gain (loss) on foreign currency transactions........................ (415,871) 86,481
------------- ------------- ------------
Other income (expense), net....................................... (835,140) 61,383 (182,476)
------------- ------------- ------------
Loss before income taxes.............................................. (7,378,024) (1,639,544) (100,204)
------------- ------------- ------------
Income taxes (benefit) (Note 7):
Current............................................................. 13,000
Deferred............................................................ (16,000)
------------- ------------- ------------
Total income taxes................................................ (3,000)
------------- ------------- ------------
Net loss.............................................................. $ (7,378,024) $ (1,639,544) $ (97,204)
------------- ------------- ------------
------------- ------------- ------------
Basic earnings (loss) per share....................................... $ (1.82) $ (0.51) $ (0.07)
------------- ------------- ------------
------------- ------------- ------------
Weighted-average shares outstanding................................... 4,052,945 3,235,137 1,337,292
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL RETAINED CUMULATIVE
NUMBER PAID-IN EARNINGS TRANSLATION
OF SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT TOTAL
--------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at 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 at 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 at December 31, 1996............. 3,985,000 3,985 13,333,366 (1,634,606) (806,892) 10,895,853
Issuance of common stock to Banca del
Gottardo............................. 200,000 200 929,800 930,000
Issuance of common stock warrants to
Protyde (Notes 9 and 10)............. 800,000 800,000
Net loss for the year ended December
31, 1997............................. (7,378,024) (7,378,024)
Translation adjustment................. (119,229) (119,229)
--------- ----------- ---------- ---------- ----------- ----------
Balance at December 31, 1997............. 4,185,000 $ 4,185 $15,063,166 $(9,012,630) $(926,121) $5,128,600
--------- ----------- ---------- ---------- ----------- ----------
--------- ----------- ---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (7,378,024) $ (1,639,544) $ (97,204)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................. 1,031,688 273,797 174,184
Issuance of warrants to Protyde................................ 800,000
Unrealized foreign exchange losses............................. 416,670
(Gain) loss on sale of property and equipment.................. (26,235) 48,693
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable................... (140,084) 539,308 (424,712)
(Increase) in due from related party......................... (170,648)
(Increase) decrease in inventories........................... (19,107) (47,098) 578,755
(Increase) decrease in prepaids and other current assets..... 3,642 (241,607) 206,671
Increase (decrease) in due to related parties................ (906,603) 960,102
(Increase) decrease in other assets.......................... 24,944 (37,782)
Increase in accounts payable................................. 164,064 335,405 492,777
Increase in accrued expenses and other current liabilities... 100,797 211,318 29,634
------------- ------------- -------------
Net cash provided by (used in) operating activities...... (5,953,192) 416,625 800,368
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property, plant and equipment.......................... (2,175,511) (7,983,449) (3,120,133)
Proceeds from sale of property and equipment....................... 78,113 255,972
Purchase of investments............................................ (34,773)
Purchase of Bioren SA (net of cash acquired)....................... (4,906,110)
Increase in other assets........................................... (35,324)
------------- ------------- -------------
Net cash used in investing activities.................... (2,097,398) (8,018,222) (7,805,595)
------------- ------------- -------------
Cash flows from financing activities:
Short-term borrowings.............................................. 3,065,986 1,764,905
Short-term borrowing from related party............................ 200,000
Repayment of short-term borrowing from related party............... (200,000)
Repayment of short and long-term debt.............................. (2,648,933) (1,867,323)
Repayment of related party loan.................................... (1,738,671)
Long-term borrowings............................................... 4,000,000 2,219,307 4,455,955
Debt and equity issuance costs..................................... (330,000) (31,059)
Advances (repayments) of reimbursable expenses..................... (750,000) 750,000
Proceeds from issuance of common stock............................. 930,000 9,470,160 3,813,160
------------- ------------- -------------
Net cash provided by financing activities................ 4,267,053 10,598,378 8,238,056
------------- ------------- -------------
Effect of exchange rate changes on cash.............................. 63,831 (59,446) 75,299
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................. (3,719,706) 2,937,335 1,308,128
Cash and cash equivalents--at beginning of period.................... 4,362,938 1,425,603 117,475
------------- ------------- -------------
Cash and cash equivalents--at end of period.......................... $ 643,232 $ 4,362,938 $ 1,425,603
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (including amounts capitalized)......................... $ 583,855 $ 698,125 $ 427,311
Income taxes..................................................... 12,195
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) 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.
Certain stockholders of the Company owned 100% of Bigmar Pharmaceuticals SA
("Pharmaceuticals") and 50% of Bioren SA ("Bioren"), two Swiss corporations. The
other 50% was owned by Pharmaceuticals. In April 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
acquired their interests.
Pharmaceuticals is currently engaged in the distribution of oncological
products in various countries in Europe. In addition, Pharmaceuticals intends to
become a manufacturer and distributor of pharmaceutical products and, to that
end, has designed and built a state-of-the-art manufacturing facility in
Barbengo, Switzerland (the "Pharmaceuticals Facility"). Bioren is primarily a
manufacturer and distributor of intravenous infusion solutions ("IV Solutions")
in Switzerland.
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.
In May 1997, Mr. Tramontana, the Company's Chairman of the Board, President
and Chief Executive Officer ("CEO"), pursuant to privately negotiated
transactions in Switzerland, acquired 1,293,663 additional shares of the
Company's common stock from the Chemholding shareholders. Accordingly, Mr.
Tramontana became the beneficial owner of 2,392,031 shares, representing 55.5%
of the total shares outstanding and therefore, may be deemed to control the
Company.
(B) CONSOLIDATION
The consolidated financial statements include the accounts of Bigmar, Inc.,
its wholly owned Swiss subsidiaries, Pharmaceuticals and Bioren, and Bigmar
Therapeutics, Inc. ("Therapeutics"), a Delaware corporation. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Included in the company's consolidated balance sheet at December 31, 1997
are the net assets of the Company's manufacturing operations, all of which are
located in Switzerland and which total approximately $9 million (after
intercompany eliminations).
(C) BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company recently constructed a
pharmaceutical manufacturing plant in Barbengo, Switzerland; however, it is not
permitted to manufacture and sell its products until approvals have been
obtained from the appropriate regulatory authorities. The Company has obtained a
provisional approval to
29
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
manufacture product from the Intercantonal Office for the Control of Medications
("IKS") in Switzerland and is now in the process of validating the plant's
equipment and processes for approval by the United States Food and Drug
Administration ("FDA"). This process is expected to continue in 1998. These
activities have consumed a substantial amount of the Company's resources,
including the proceeds of its initial public offering as well as the proceeds
from convertible notes issued in August 1997. Management currently anticipates
that its cash resources will be depleted by June 1998 and that its operations
will not begin to generate sufficient cash to fund its expansion and planned
research and development activities by such time. As a result, 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. 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. Also, there are no
assurances that the Company will be able to manufacture its proposed products
successfully or that the Company's targeted customers will accept such products.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. No adjustments have been made to reflect the recoverability or
classification of recorded asset amounts or the classification of liabilities
should the Company be unable to continue as a going concern.
(D) 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 and
disclosure of contingent 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.
(E) FOREIGN CURRENCY
Assets and liabilities of foreign operations are translated at the exchange
rates in effect at the balance sheet date and revenues and expenses are
translated at the weighted-average exchange rates for the period. Net gains and
losses arising from translation are accumulated in a separate component of
stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in income or expense.
(F) CASH EQUIVALENTS
All highly liquid investments with original maturities of three months or
less are considered to be cash equivalents. Cash equivalents of $37,000 and
$3,853,000 at December 31, 1997 and 1996, respectively, consist of various
interest-bearing securities.
(G) INVENTORY
Inventory is stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
(H) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Upon retirement or other
disposition of property, plant and equipment, the cost and related accumulated
depreciation and amortization are removed from the accounts and the resulting
gain or loss is reflected in earnings. Maintenance and repairs are expensed
30
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
as incurred. Depreciation and amortization are calculated on a straight-line
basis utilizing the assets' estimated useful lives.
(I) INTANGIBLE AND OTHER ASSETS
Intangible assets consist of goodwill, which represents the excess of
purchase price over fair value of net assets acquired, amortized on a
straight-line basis over 10 years. Other assets consist of organization costs,
which are amortized over 5 years, and debt issuance costs, which are amortized
using the effective interest method over the life of the related debt.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved. No such losses have been recorded through December 31,
1997.
(J) LONG-LIVED ASSETS
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, 1997.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, trade receivables and trade
payables, accrued expenses and other current liabilities, due to related parties
and advances on reimbursable expenses, 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. The fair value of the interest rate cap agreement
(Note 5) and the carrying amount of the unamortized premiums were not material
at December 31, 1997 and 1996.
(L) DERIVATIVE FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. An interest rate cap agreement is used to
reduce the potential impact of increases in interest rates on floating-rate
long-term debt. The premium paid for the purchased interest rate cap agreement
is amortized to interest expense over the terms of the cap. The unamortized
premium is included in other assets in the consolidated balance sheet. Any
amounts receivable under the cap agreement are recorded as a reduction of
interest expense.
(M) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax
31
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(N) 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 recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities 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), and provide pro
forma net income and pro forma earnings per share disclosures for employee stock
option grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(O) 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 1(a).
(2) INVENTORIES
The components of inventory are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Raw materials........................................... $ 572,276 $ 363,114
Finished goods.......................................... 317,973 587,357
--------- ---------
Total............................................... $ 890,249 $ 950,471
--------- ---------
--------- ---------
</TABLE>
32
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment, net are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- ESTIMATED LIFE
1997 1996 IN YEARS
------------- ------------- ---------------
<S> <C> <C> <C>
Land................................................................ $ 1,058,687 $ 1,234,267
Building and building improvements.................................. 11,616,058 4,950,985 10-40
Machinery........................................................... 4,365,736 664,243 3-10
Equipment........................................................... 1,391,193 491,539 3-10
Construction in progress............................................ 10,403,609
------------- -------------
18,431,674 17,744,643
Less accumulated depreciation....................................... 1,267,516 337,503
------------- -------------
Total............................................................. $ 17,164,158 $ 17,407,140
------------- -------------
------------- -------------
</TABLE>
For the years ended December 31, 1997, 1996 and 1995 interest of $119,000,
$500,000 and $235,000, 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.
(4) NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Bank line of credit.................................. $ 950,000 $
Short-term bank loan................................. 1,368,644 1,529,993
--------- ---------
Total.............................................. $2,318,644 $1,529,993
--------- ---------
--------- ---------
</TABLE>
Under the bank line of credit, the Company may borrow up to $3.5 million,
with monthly interest payments due based upon the prime rate (8.5% at December
31, 1997). The credit line, which expires May 15, 1998, is secured by the
personal guarantee of the Company's CEO.
The short-term bank loan requires quarterly interest payments, based upon
the interbank rate quoted by the Swiss Bank Corporation in Lugano, Switzerland
(5.75% at December 31, 1997 and at December 31, 1996). The note has no specific
principal repayment terms.
33
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- ------------
<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................................... $ 2,052,967 $ 2,239,650
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, 1997 was 4.5% and rate at December 31, 1996 was 5.5% per annum;
payable in installments of $342,161 in 1998 and $615,890 in 1999................... 958,051 1,493,100
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; rate
at December 31, 1997 was 3.19%..................................................... 1,368,644 1,493,100
Bank loan collateralized by mortgage on the Pharmaceuticals building and equipment,
subject to certain restrictive covenants; principal payable in installments of
$239,513 in 1998, and $342,161 paid annually thereafter until full repayment;
interest payable at an adjustable rate not to exceed 5% through March 3, 2002; and
partially guaranteed by the CEO of the Company..................................... 2,292,479 2,594,234
Convertible notes, due August 29, 2002, 8% interest payable semi-annually on February
27 and on August 29 of each year, subject to certain restrictive covenants......... 4,000,000
------------- ------------
Total............................................................................ 10,672,141 7,820,084
Less current portion............................................................. 581,674 466,594
------------- ------------
Long-term portion................................................................ $ 10,090,467 $ 7,353,490
------------- ------------
------------- ------------
</TABLE>
In August 1997, the Company entered into a Note Purchase, Paying, and
Conversion Agency Agreement (the "Note Agreement") with Banca del Gottardo, a
bank organized under the laws of Switzerland. Under the Note Agreement, the
Company issued 8% notes, due August 29, 2002, with interest payable
semi-annually in February and August. After January 1, 1998, the notes are
convertible into 761,905 shares of the Company's common stock at an initial
conversion price of $5.25 per share. Net proceeds from the notes were $3,670,000
after deductions of commissions and related expenses. The notes can be repaid at
the option of the Company before the due date at 110% of the principal amount
due.
At December 31, 1997, the Company was a party to an interest rate cap
agreement, entitling it to receive from the counterparty (a major Swiss bank),
on a yearly basis, any amounts by which the Company's interest payments on Sfr
5,500,000 notional borrowing exceed 5%. The agreement has a remaining term of
one year and the Company has not received any payments during the three-year
period ended December 31, 1997.
34
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
LONG-TERM
DEBT
-------------
<S> <C>
Year ended December 31:
1998........................................................................... $ 581,674
1999........................................................................... 3,011,018
2000........................................................................... 342,161
2001........................................................................... 1,710,805
2002........................................................................... 4,342,161
Thereafter..................................................................... 684,322
-------------
$ 10,672,141
-------------
-------------
</TABLE>
Substantially all of the Company's assets are pledged as collateral under
its various debt agreements.
(6) BIOREN ACQUISITION
In June 1995, Pharmaceuticals acquired 100% of the outstanding stock of
Bioren for an aggregate purchase price of approximately $5.2 million.
Immediately after the acquisition, Pharmaceuticals sold one-half of its equity
interest in Bioren to certain stockholders of Pharmaceuticals (the "Bioren
Holders") and the Company for approximately $2.6 million. This sale included 500
shares (10% of Bioren's outstanding stock) to John G. Tramontana, the Company's
CEO, for approximately $500,000. The purchase method of accounting was used for
this transaction.
On April 8, 1996, all of the then existing stockholders of the Company
contributed 99% of the shares of common stock then owned by each of these
stockholders to the Company for no cash consideration.
On April 9, 1996 the Company acquired 100% of Pharmaceuticals and 50% of
Bioren in a stock for stock exchange. The Bioren Holders exchanged their capital
stock in Bioren (representing 50% of the outstanding Bioren capital stock) for
350,312 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
$2,627,340. At the same time, the stockholders of Pharmaceuticals exchanged all
of the capital stock of 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. 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 from a non-affiliated party.
35
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) BIOREN ACQUISITION (CONTINUED)
Had the acquisition of Bioren occurred at the beginning of 1995, the
Company's results would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Net sales.................................................................. $ 8,529,327
Gross margin............................................................... 2,833,146
Income before extraordinary item........................................... 5,107
Income before extraordinary item per share................................. $ .00
</TABLE>
(7) INCOME TAXES
The sources of income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
United States............................ $(6,568,342) $(2,524,547) $ (10,861)
Foreign.................................. (809,682) 885,003 (89,343)
---------- ---------- ---------
$(7,378,024) $(1,639,544) $(100,204)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Income tax benefit differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax loss as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Computed income taxes benefit at 34% rate......... $(2,508,534) $(557,445) $ (34,069)
Impact of difference between Swiss effective rate
and U.S. tax rate............................... 42,536 (141,578) 14,029
Increase in valuation allowance on deferred tax
assets.......................................... 1,887,301 1,132,073 14,868
Non-taxable debt forgiveness income in
Switzerland..................................... (315,000)
Non-deductible stock warrant expense.............. 272,000
Non-deductible foreign exchange loss.............. 137,977 (54,874)
Other............................................. 168,720 (63,176) 2,172
---------- --------- ---------
$ 0 $ 0 $ (3,000)
---------- --------- ---------
---------- --------- ---------
</TABLE>
The tax charge in Switzerland is an accumulation of city, canton (state) and
federal taxes. 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 30% is a fair approximation of the effective cumulative tax rates for
Pharmaceuticals and Bioren (21% for Pharmaceuticals in 1996). 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.
36
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Benefit of net operating loss carryforwards:
Switzerland............................................ $1,613,194 $2,511,354
United States.......................................... 2,150,487 332,152
Loss on forgiveness of debt due from Swiss subsidiary.... 510,000 510,000
Property, plant and equipment............................ 153,877
Accrued expenses and other current liabilities........... 42,647 75,328
---------- ----------
Total deferred tax assets............................ 4,470,205 3,428,834
Valuation allowance........................................ (4,345,256) (3,266,084)
---------- ----------
Net deferred tax assets.............................. 124,949 162,750
Deferred tax liability:
Capitalized interest................................... (124,949) (162,750)
---------- ----------
Net deferred tax liability........................... $ 0 $ 0
---------- ----------
---------- ----------
</TABLE>
Bioren and Pharmaecuticals have net operating loss carryforwards of
approximately $5,155,000 and $221,000, respectively, expiring through December
31, 2003. Bigmar, Inc. has net operating loss carryforwards of approximately
$6,325,000 expiring through December 31, 2013. The change in the total valuation
allowance for the years ended December 31, 1997 and 1996 was an increase of
$1,079,000 and $766,000, respectively, net of reduction attributed to expiring
net operating loss carryforwards.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based upon the historical
losses of the Company and its subsidiaries, the total deferred tax assets have
been fully reserved.
(8) STOCK OPTIONS
In 1996, the Company adopted an option plan (the 1996 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
provided for the grant of options to purchase up to 300,000 shares of the
Company's stock, 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. Stock options have various vesting terms and are granted with an
exercise price equal to the Company's stock price at the date of grant.
Effective November 4, 1997, the Board of Directors approved an option plan,
subject to approval of Shareholders, that provides for the grant of options to
purchase up to 600,000 shares of the Company's stock (the 1997 Plan), including
the 300,000 shares originally provided for under the 1996 Plan. All options
granted under the 1996 Plan have been reissued under the 1997 Plan and the 1996
Plan has been
37
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTIONS (CONTINUED)
terminated. Options originally granted during 1996 carry the same provisions as
under the 1996 Plan, except the exercise price has been lowered from a
weighted-average exercise price of $8.96 at August 20, 1996 to $5.19 at November
4, 1997.
None of the 244,000 options granted during 1997 vested in 1997.
At December 31, 1997, options for 91,000 shares of common stock were
available for future grant under the 1997 Plan and 47,000 shares of stock were
available for future grant under the director option plan.
The per share weighted-average fair value of stock options granted during
1997 and 1996 was $3.53 and $5.48, respectively, on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: 1997--expected dividend yield 0%, risk-free interest rate of 5.97%,
expected volatility 79% and an expected life of 5 years; 1996--expected dividend
yield 0%, risk-free interest rate of 6.22%, expected volatility 66% and an
expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for options and,
accordingly, no compensation cost has been recognized in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, the Company's net
income would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C> <C>
Net Loss As reported $ (7,378,024) $ (1,639,544)
Pro forma $ (8,064,273) $ (2,766,000)
Loss per share As reported $ (1.82) $ (.51)
Pro forma $ (1.99) $ (.85)
</TABLE>
The 1997 pro forma amounts include the effect of terminating the 1996 Plan
and reissuing the options granted during 1996 under the 1997 Plan, as previously
described.
38
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) STOCK OPTIONS (CONTINUED)
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Balance, December 31, 1995......................................... None
Granted (1) (2).................................................. 283,000 $ 8.96
Exercised........................................................
Forfeited........................................................
Expired..........................................................
----------
Balance, December 31, 1996......................................... 283,000 $ 8.96
Granted (3)...................................................... 524,000 $ 5.20
Terminated (4)................................................... (280,000) $ 8.96
Exercised........................................................
Forfeited........................................................ (15,000) $ 8.94
Expired..........................................................
----------
Balance, December 31, 1997......................................... 512,000 $ 5.20
----------
----------
</TABLE>
- ------------------------
(1) Includes 3,000 stock options granted pursuant to the director stock option
plan.
(2) Includes 280,000 stock options granted pursuant to the 1996 stock option
plan.
(3) Includes 265,000 stock options re-priced pursuant to the 1997 stock option
plan, subject to shareholder approval.
(4) Terminated and re-priced pursuant to the 1997 stock option plan, subject to
shareholder approval.
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $5.09--$5.60 and 4.51
years, respectively.
At December 31, 1997 and 1996, the number of options exercisable was 221,334
and 179,668, respectively, and the weighted-average exercise price of those
options was $5.22 and $8.97, respectively.
(9) PROTYDE AGREEMENTS
In October 1995, Therapeutics and a wholly owned subsidiary of Protyde
Pharmaceuticals, Inc. ("Protyde") formed a partnership, Protyde-Bigmar
Therapeutics (the "Partnership"), for the purpose of coordinating the
manufacture and marketing of certain pharmaceutical products for the treatment
of human cancer.
On July 24, 1997, the Partnership terminated its manufacturing agreement
with the Company and its marketing agreement with Protyde, and Protyde assigned
its partnership interest to Therapeutics. As consideration for the assignment
and termination agreements, the Company paid Protyde $2,000,000 cash, which
included the return of an advance for reimbursable expenses of $750,000.
Additionally, the Company issued warrants to Protyde to purchase up to 500,000
shares of the Company's common stock (Note 10). The fair value of the total
consideration given to Protyde of $2,050,000 has been recognized in the
accompanying 1997 consolidated statement of operations.
39
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) WARRANTS
As described in Note 9, on July 24, 1997, the Company granted warrants to
Protyde to purchase 500,000 shares of its common stock. These warrants are
exercisable for a period of four years at an exercise price of $5.00 per share.
The Company estimated the fair value of the warrants as of the issuance date to
be approximately $800,000 (using the Black-Scholes option pricing model) and has
recorded that amount as expense and as an increase to additional paid-in capital
in 1997.
In October 1997, the warrants originally granted to Protyde were assigned to
Jericho II, LLC ("Jericho"), by Protyde. In September 1997, the Company's CEO
acquired a 50% interest in Jericho.
Related to the initial public offering in 1996, the Company issued warrants
to purchase 140,000 shares of its common stock to its underwriter, L. T.
Lawrence & Co., Inc. at an exercise price equal to 130% of the initial public
offering price per share. The warrants are exercisable for a period of four
years from the initial public offering date. In addition, holders of these
warrants will have demand registration rights for a period of five years and
piggy-back registration rights for a period of seven years from the initial
public offering date.
(11) 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.
(12) SIGNIFICANT CUSTOMERS AND SUPPLIERS
Sales to significant customers were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ------------
<S> <C> <C> <C>
Prostate materials (one customer)...................... $ $ $ 1,023,340
Oncological products (one customer).................... 676,751 668,511
IV Solutions (one customer)............................ 693,250
</TABLE>
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.
(13) RELATED PARTY TRANSACTIONS
(A) DISPUTES WITH RELATED PARTIES
In the second half of 1996, a dispute arose between the Company and
Cerbios-Pharma SA (Cerbios), a wholly owned subsidiary of Chemholding SA, a
then beneficial owner of approximately 25.4% of the Company's common stock.
Cerbios rendered invoices to the Company, in the amount of approximately $4
million for expenses and fees to which it claimed to be entitled in
connection with
40
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) RELATED PARTY TRANSACTIONS (CONTINUED)
services it provided to the Company from 1995 to 1997. The company maintains
that no services were performed during 1995 and the amounts claimed for 1996
and 1997 far exceeded the actual expenses incurred by Cerbios on behalf of
the Company. On March 27, 1997, the Company reached a settlement with
Cerbios, including a release, for approximately $300,000.
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). The company paid a one-time license fee of
$100,000 to Sapec and an additional $100,000 to Bioferment, which were both
non-refundable under the terms of these agreements. In addition, the Company
has terminated all relationships and transactions with 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 Company believes the cancellation of these agreements
will have no adverse effect on its operations. Furthermore, as discussed at
Note 1(a), in 1997 the CEO of the Company acquired the stock previously
owned by the Chemholding shareholders.
(B) THE CERNELLE AGREEMENTS
In November 1995, Pharmaceuticals and AB Cernelle ("Cernelle"), a
privately-held Swedish pharmaceutical company, entered into an agreement
(the "Cernelle Agreement") pursuant to which Pharmaceuticals obtained the
exclusive worldwide distribution rights to certain oral dosage cancer
products (the "Cernelle Products") manufactured by Cernelle. At the time the
Company entered into the Cernell Agreement, Cernelle was a wholly-owned
subsidiary of Cerbios. In July 1996, Cernelle was sold to an unrelated third
party. The Company's Chief Executive Officer currently serves as a director
of Cernelle.
The Cernelle Agreement 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.
Also in November 1995, Pharmaceuticals entered into a technical services
agreement 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.
(C) RELATED PARTY LOANS
41
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) RELATED PARTY TRANSACTIONS (CONTINUED)
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 4).
In November 1997, the Company received an advance of $200,000 from a
company of which the Company's President and Treasurer were formerly
officers. The advance was repaid in December, along with interest computed
at 8.75%.
In January 1995, Chemholding agreed to be a surety for Bigmar,
Pharmaceuticals in the amount of $1.4 million for a loan with respect to the
Bigmar Facility. In March 1997, the Company paid interest in the amount of
$125,000 related to this guaranty to Chemholding. The guaranty was
subsequently terminated, also in March 1997.
(D) OTHER RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Gain on sale of land to related party.................................. $ 35,000 $
Freight charges paid to related party.................................. 3,000
Purchases from related parties......................................... 25,000 965,000
Selling, general and administrative expenses paid to related party..... 64,000 13,000
Interest paid to related parties....................................... 1,000 102,000
Research and development............................................... 22,000
</TABLE>
Also see Note 10 regarding Protyde warrants and Note 14 regarding related
party lease transactions.
(14) COMMITMENTS
The Company leases office space in the United States and Switzerland under
various leases. Rent expense amounted to $176,000 in 1997, $56,000 in 1996, and
$19,000 in 1995. Rent paid to a related party amounted to $110,000 in 1997.
Minimum future rental payments under the Company's operating leases are as
follows:
<TABLE>
<CAPTION>
THIRD RELATED
PARTIES PARTIES
---------- ----------
<S> <C> <C>
Year ended December 31:
1998................................................................ $ 85,000 $ 120,000
1999................................................................ 46,000 120,000
2000................................................................ 37,000 120,000
2001................................................................ 32,000 120,000
2002................................................................ 30,000 50,000
---------- ----------
Total............................................................. $ 230,000 $ 530,000
---------- ----------
---------- ----------
</TABLE>
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 CEO and Treasurer. The lease is for a term
42
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) COMMITMENTS (CONTINUED)
of five years from commencement date (June 1, 1997), with an option to renew for
an additional five years, and provides for rent of $120,000 per annum.
Bioren leases part of its Couvet facility to a third party pursuant to a
year to year lease. The rental income for the years ended December 31, 1997,
1996 and for the period from July 1, 1995 (date of acquisition of Bioren) to
December 31, 1995 was $79,000, $93,000, and $49,000, respectively.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 31, 1998
<TABLE>
<S> <C> <C>
BIGMAR, INC.
By: /s/ JOHN G. TRAMONTANA
-----------------------------------------
John G. Tramontana
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
(PRINCIPLE EXECUTIVE OFFICER)
</TABLE>
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.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board of
/s/ JOHN G. TRAMONTANA Directors and Chief
- ------------------------------ Executive Officer March 31, 1998
John G. Tramontana (Principle Executive
Officer)
/s/ FABIO GIOVANNINI Chief Executive Officer of
- ------------------------------ Bigmar Pharmaceuticals March 31, 1998
Fabio Giovannini SA, and Director
/s/ MICHAEL K. MEDORS
- ------------------------------ Treasurer, Secretary, and March 31, 1998
Michael K. Medors Director
- ------------------------------ Director March 31, 1998
Eric M. Chen
/s/ BERNARD KRAMER
- ------------------------------ Director March 31, 1998
Bernard Kramer
/s/ JOHN R. MORRIS
- ------------------------------ Director March 31, 1998
John R. Morris
/s/ WILLIAM R. ASH, III Chief Financial Officer
- ------------------------------ (Principal Financial March 31, 1998
William R. Ash, III Officer)
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 31, 1998
<TABLE>
<S> <C> <C>
BIGMAR, INC.
By:
-----------------------------------------
John G. Tramontana
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
(PRINCIPLE EXECUTIVE OFFICER)
</TABLE>
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.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board of
Directors and Chief
- ------------------------------ Executive Officer March 31, 1998
John G. Tramontana (Principle Executive
Officer)
Chief Executive Officer of
- ------------------------------ Bigmar Pharmaceuticals March 31, 1998
Fabio Giovannini SA, and Director
- ------------------------------ Treasurer, Secretary, and March 31, 1998
Michael K. Medors Director
- ------------------------------ Director March 31, 1998
Eric M. Chen
- ------------------------------ Director March 31, 1998
Bernard Kramer
- ------------------------------ Director March 31, 1998
John R. Morris
Chief Financial Officer
- ------------------------------ (Principal Financial March 31, 1998
William R. Ash, III Officer)
45
<PAGE>
EXHIBIT 10.53
EMPLOYMENT AGREEMENT
This AGREEMENT made as of the 3rd day of November, 1997, by and between
Bigmar, Inc., a Delaware corporation (hereinafter, "the Employer" or
"Employer"), and William R. Ash, III (hereinafter, "the Executive" or
"Executive").
1. Commencing on the Effective Date, as hereinafter defined, of this
Agreement, Employer shall employ Executive as Chief Financial Officer 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 on November 3, 1997 (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 hereunder a salary at the rate of s
compensation for all services to be rendered by Executive hereunder a
salary at the rate of Eighty Thousand and 00/100 ($80,000.00) 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 Chief Executive
Officer 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, 401k, and stock option plans or other similar fringe benefits.
8. Executive will be entitled to four weeks vacation during each Twelve-Month
Period.
9. Executive represents and warrants that, to the best of Executive's
knowledge, Executive is in good health.
<PAGE>
10. 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.
11. 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.
12. 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.
13. 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.
14. 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 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
<PAGE>
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 the
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.
15. 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 customer or suppliers of any of
them.
16. 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 covenants 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, licenser, 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 Employers 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 capitol 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 paragraph 16, (a) a business shall be
<PAGE>
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.
17. Executive acknowledges that the remedy at law for any breach or threatened
breach by Executive of the covenants contained in paragraphs 14, 15, and 16
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 14, 15, and 16
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 provision of this Agreement, or otherwise. If
any or all of the foregoing provisions of paragraph 14, 15, and 16 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 14, 15, and 16 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.
18. 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.
19. The waiver by either party of a breach of any provision of this Agreement
shall not operate as or be constructed as a waiver of any subsequent breach
thereof.
<PAGE>
20. 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:
William R. Ash, III Bigmar, Inc.
1718 Ford Road 9711 Sportsman Club Road
Delaware, Ohio 43015 Johnstown, OH 43031
21. 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.
22. 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.
23. This Agreement shall be construed and enforced in accordance with the laws
and decisions of the State of Delaware.
24. 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.
25. 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 3rd day of November, 1997.
Bigmar, Inc.
By: /s/John G. Tramontana
----------------------
Name: John G. Tramontana
Title: President
/s/William R. Ash, III
----------------------
William R. Ash, III
<PAGE>
EXHIBIT 10.54
BIGMAR, INC.
1997 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
1. PURPOSE OF THE PLAN 1
2. STOCK SUBJECT TO THE PLAN 1
3. ADMINISTRATION OF THE PLAN 1
4. TYPE OF OPTIONS 2
5. ELIGIBILITY 2
6. RESTRICTIONS ON INCENTIVE STOCK OPTION 3
7. OPTION AGREEMENTS 3
8. OPTION PRICE 4
9. MANNER OF PAYMENT; MANNER OF EXERCISE 4
10. EXERCISE OF OPTIONS 5
11. TERM OF OPTIONS: EXERCISABILITY 5
12. OPTIONS NOT TRANSFERABLE 6
13. RECAPITALIZATION, REORGANIZATION AND THE LIKE 6
14. NO SPECIAL EMPLOYMENT RIGHTS 8
15. WITHHOLDING 8
16. RESTRICTIONS OF ISSUANCE OF SHARES 8
17. PURCHASE FOR INVESTMENTS; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION 9
18. LOANS 9
19. MODIFICATION OF OUTSTANDING OPTIONS 10
20. APPROVAL OF STOCKHOLDERS 10
21. TERMINATION AND AMENDMENT OF PLAN 10
22. LIMITATION OF RIGHTS IN THE OPTION SHARES 10
23. NOTICES 10
<PAGE>
BIGMAR, INC.
19975TOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of the Bigmar, Inc., 1997 Stock Option Plan (the "Plan") is to
advance the interests of Bigmar, Inc., a Delaware corporation (the "Company"),
by providing an opportunity for ownership of the stock of the Company by
employees, agents and directors of, and consultants to, the Company and its
subsidiaries. By providing such opportunity, the Company seeks to attract and
retain such qualified personnel, and otherwise to provide additional incentive
for grantees to promote the success of its business.
2. STOCK SUBJECT TO THE PLAN.
(a) The total number of shares of the authorized but unissued or treasury
shares of the common stock, $.001 par value per share, of the Company (the
"Common Stock") for which options (the "Options") may be granted under the Plan
shall be 300,000 plus a number of shares equal in amount to the number of shares
for which options were granted but not exercised under the 1996 Stock Option
Plan, such options having been subsequently terminated and immediately and
automatically reissued pursuant to the terms of this Plan.
(b) If an Option granted or assumed hereunder shall expire or terminate for
any reason without having been exercised in full, the unpurchased shares subject
thereto shall again be available for subsequent Option grants under the Plan.
(c) Stock issuable upon exercise of an Option may be subject to such
restrictions on transfer, repurchase rights or other restrictions as shall be
determined by the Board of Directors of the Company (the "Board").
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board. No member of the Board
shall act upon any matter exclusively affecting any Option granted or to be
granted to himself or herself under the Plan. A majority of the members of the
Board shall constitute a quorum, and any action may be taken by a majority of
those present and voting at any meeting. The decision of the Board as to all
questions of interpretation and application of the Plan shall be final, binding
and conclusive on all persons. The Board, in its sole discretion, may grant
Options to purchase shares of Common Stock, as provided in the Plan. The Board
shall have authority, subject to the express provisions of the Plan, to construe
the respective Option agreements and the Plan, to prescribe; amend and rescind
rules and regulations relating to the Plan, to determine the terms and
provisions of the respective Option agreements, which may but need not be
identical, and to make all other determinations in the judgment of the Board
necessary or desirable for the administration of the Plan. The Board may correct
any defect or supply any omission or reconcile any inconsistency in the Plan or
in any Option agreement in the manner and to the extent it shall deem expedient
to implement the Plan and shall be the sole and final judge of such expediency.
No director shall be liable for any action or determination made in good faith.
The Board in its discretion, may delegate its power,
<PAGE>
duties and responsibilities to a committee, consisting of two or more members of
the Board, all of whom are "disinterested persons" (as hereinafter defined). If
a committee is so appointed, all references to the Board herein shall mean and
relate to such committee, unless the context otherwise requires. For the
purposes of the Plan, a director or member of such committee shall be deemed to
be "disinterested" only if such person qualified as a "disinterested person"
within the meaning of paragraph (c)(2) of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such term
is interpreted from time to time.
4. TYPE OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by action of the
Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options which are not intended to meet the
requirements of such Section 422 of the Code, the designation to be in the sole
discretion of the Board. Options designated as incentive stock options that fail
to continue to meet the requirements of Section 422 of the Code shall be
redesignated as non-qualified options automatically without further action by
the Board on the date of such failure to continue to meet the requirements of
Section 422 of the Code.
5. ELIGIBILITY.
Options designated as incentive stock options may be granted to officers
and any employee of the Company or of any subsidiary corporation (herein called
"subsidiary" or "subsidiaries"), as defined in Section 424(f) of the Code and
the Income Tax Regulations (the "Regulations") promulgated thereunder. Directors
who are not otherwise employees of the Company or a subsidiary shall not be
eligible to be granted incentive stock options pursuant to the Plan. Options
designated as non-qualified options may be granted to (i) officers and key
employees of the Company or of any of its subsidiaries, or (ii) agents,
directors of and consultants to the Company, whether or not otherwise employees
of the Company.
In determining the eligibility of an individual to be granted an Option, as
well as in determining the number of shares to be subject to any such Option,
the Board shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Board may deem relevant.
6. RESTRICTIONS ON INCENTIVE STOCK OPTIONS.
Incentive stock options (but not non-qualified options) granted under the
Plan shall be subject to the following restrictions:
(a) LIMITATION ON NUMBER OF SHARES. Ordinarily, the aggregate fair market
value of the shares of Common Stock with respect to which incentive stock
options are granted (determined as of the date the incentive stock options are
granted), exercisable for the first time by an individual during any calendar
year shall not exceed $100,000. If an incentive stock option is granted pursuant
to which the aggregate fair market value of shares with respect to which it
first becomes exercisable in any calendar year by an individual exceeds such
$100,000 limitation, the portion of such option which is in excess of the
$100,000 limitation shall be treated as a nonqualified option pursuant to
Section 422(d)(1) of the Code. In the event that an individual is eligible to
participate in any other stock option plan of the Company or any subsidiary of
the Company which is also intended to comply with the provisions of Section 422
of the Code, such $100,000 limitation shall apply to the aggregate number of
shares for which incentive stock options may be granted under the Plan and all
such other plans.
<PAGE>
(b) TEN PERCENT (10%) SHAREHOLDER. If any employee to whom an incentive
stock option is granted pursuant to the provisions of the Plan is on the date of
grant the owner of stock (as determined under Section 424(d) of the Code)
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any subsidiary of the Company, then the
following special provisions shall be applicable to the incentive stock options
granted to such individual:
(i) The Option price per share subject to such incentive stock
options shall be not less than 110% of the fair market value of
the stock determined at the time such Option was granted. In
determining the fair market value under this clause (i), the
provisions of Section 8 hereof shall apply.
(ii) The incentive stock option by its terms shall not be exercisable
after the expiration of five (5) years from the date such Option
is granted.
7. OPTION AGREEMENTS.
Each Option shall be evidenced by an agreement (the "Agreement") duly
executed on behalf of the Company and by the grantee to whom such Option is
granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Board; provided that Options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section 422
of the Code. No Option shall be granted within the meaning of the Plan and no
purported grant of any Option shall be effective until the Agreement shall have
been duly executed on behalf of the Company and the grantee. More than one
Option may be granted to an individual, subject, if applicable, to the
limitations of Section 6 hereof.
8. OPTION PRICE.
(a) Subject to the conditions set forth in Section 8(d) hereof, the option
price or prices of shares of the Common Stock for Options designated as
non-qualified stock options shall be as determined by the Board; provided,
however, that such option price shall be not less than the fair market value of
the shares subject to such Option, determined as of the date of grant of such
Option.
(b) Subject to the conditions set forth in Sections 6(b) and 8(d) hereof,
the option price or prices of shares of the Company's Common Stock for incentive
stock options shall be at least the fair market value of such Common Stock at
the time the Option is granted as determined by the Board in accordance with the
Regulations promulgated under Section 422 of the Code.
(c) If such shares are then listed on any national securities exchange, the
fair market value shall be the mean between the high and low sales prices, if
any, on the largest such exchange on the date of the grant of the Option or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales prices on the nearest date before and the nearest date
after the date of grant in accordance with Section 25.2512-2 of the Regulations.
If the shares are not then listed on any such exchange, the fair market value of
such shares shall be the mean between the closing "Bid" and the closing "Ask"
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") for the date of the grant of the Option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales prices on the nearest date before and the
nearest date after the date of grant in accordance with Section 25.2512-2 of the
Regulations. If the shares are not then either listed on any such exchange or
quoted in NASDAQ, the fair market value shall be the
<PAGE>
mean between the average of the "Bid" and "Ask" prices on the National Daily
Quotation Service for the date of the grant of the Option, or, if none, shall be
determined by taking a weighted average of the means between the highest and
lowest sales prices on the nearest date before and the nearest date after the
date of grant in accordance with Section 25.2512-2 of the Regulations. If the
fair market value cannot be determined under the preceding three sentences, it
shall be determined in good faith by the Board.
9. MANNER OF PAYMENT: MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of the
option price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the option price of such Options, (ii) shares of
Common Stock owned by the grantee having a fair market value equal in amount to
the option price of the Options being exercised, or (iii) any combination of (i)
and (ii); provided, however, that payment of the option price by delivery of
shares of Common Stock owned by such grantee may be made only upon the condition
that such payment does not result in a charge to earnings for financial
accounting purposes as determined by the Board, unless such condition is waived
by the Board. The fair market value of any shares of Common Stock which may be
delivered as payment upon exercise of an Option shall be determined by the Board
in accordance with Section 8 hereof.
(b) To the extent that the right to purchase shares under an Option has
accrued and is m effect, Options may be exercised in full at one time or in part
from time to time, by giving written notice, signed by the person or persons
exercising the Option, to the Company, stating the number of shares with respect
to which the Option is being exercised, accompanied by payment in full for such
shares as provided in Section 9(a) hereof. Upon such exercise, delivery of a
certificate for paid-up non-assessable shares shall be made at the principal
office of the Company to the person or persons exercising the Option at such
time, during ordinary business hours, after thirty (30) days but not more than
ninety (90) days from the date of receipt of the notice by the Company, as shall
be designated in such notice, or at such time, place and manner as may be agreed
upon by the Company and the person or persons exercising the Option.
10. EXERCISE OF OPTIONS.
Each Option granted under the Plan shall, subject to Section 1 l(b) and
Section 14 hereof, be exercisable at such time or times and during such period
as shall be set forth in the Agreement; provided, however, that no Option
granted under the Plan shall have a term in excess of ten (10) years from the
date of grant. To the extent that an Option is not exercised by a grantee when
it becomes initially exercisable, it shall not expire but shall be carried
forward and shall be exercisable, on a cumulative basis, until the expiration of
the exercise period. No partial exercise may be made for less than one hundred
(100) full shares of Common Stock.
11. TERM OF OPTIONS: EXERCISABILITY.
(a) TERM.
(i) Each Option shall expire on a date determined by the Board which
is not more than ten (10) years from the date of the granting
thereof, except (a) as otherwise provided pursuant to the
provisions of Section 6(b) hereof, and (b) for earlier
termination as herein provided.
(ii) Except as otherwise provided in this Section 11, an Option
granted to any grantee whose employment, by the Company or any of
its subsidiaries, is terminated, shall
<PAGE>
terminate on the earlier of (i) ninety (90) days after the date
such grantee's employment, for the Company or any such
subsidiary, is terminated, or (ii) the date on which the Option
expires by its terms.
(iii) If the employment of a grantee is terminated by the Company or
any of its subsidiaries for cause or because the grantee is in
breach of any employment agreement or because the grantee
voluntarily terminates such employment, such Option will
terminate on the date the grantee's employment is terminated by
the Company or any such subsidiary, unless the Board determines,
at the time of such option, to extend such option for a specified
period (but not beyond the period described in Section
ll(a)(ii)).
(iv) If the employment of a grantee is terminated by the Company or
any of its subsidiaries because the grantee has become
permanently disabled (within the meaning of Section 22(e)(3) of
the Code), such Option shall terminate on the earlier of (i) one
(1) year after the date such grantee's employment, by the Company
or any such subsidiary, is terminated, or (ii) the date on which
the Option expires by its terms.
(v) In the event of the death of any grantee, any Option granted to
such grantee shall terminate one (1) year after the date of
death, or on the date on which the Option expires by its terms,
whichever occurs first.
(b) Exercisability.
(i) An Option granted to a grantee whose employment, by the Company
or any of its subsidiaries, is terminated, for whatever reason,
including, without limitation, death or disability, shall be
exercisable only to the extent that such Option has accrued and
vested, and is in effect on the date such grantee's employment by
the Company or any such subsidiary, is terminated.
12. OPTIONS NOT TRANSFERABLE.
The right of any grantee to exercise any Option granted to him or her shall
not be assignable or transferable by such grantee other than by will or the laws
of descent and distribution, or the rules thereunder, and any such Option shall
be exercisable during the lifetime of such grantee only by him or her. Any
Option granted under the Plan shall be null and void and without effect upon the
bankruptcy of the grantee to whom the Option is granted, or upon any attempted
assignment or transfer, except as herein provided, including without limitation,
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such Option.
13. RECAPITALIZATION, REORGANIZATION AND THE LIKE.
In the event that the outstanding shares of the Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in the number and kind of shares as to which Options
may be granted under the Plan and as to which outstanding Options, or
<PAGE>
portions thereof then unexercised, shall be exercisable, to the end that the
proportionate interest of the grantee shall be maintained as before the
occurrence of such event; such adjustment in outstanding Options shall be made
without change in the total price applicable to the unexercised portion of such
Options and with a corresponding adjustment in the option price per share.
In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change in
Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock, in his, her or its sole discretion, may deliver to
the grantee the same kind of consideration that is delivered to the shareholders
of the Company as a result of such sale, conveyance or Change in Control, or the
Board may cancel all outstanding Options in exchange for consideration in cash
or in kind, which consideration in both cases shall be equal in value to the
value of those shares of stock or other securities the grantee would have
received had the Option been exercised (but only to the extent then exercisable)
and had no disposition of the shares acquired upon such exercise been made prior
to such sale, conveyance or Change in Control, less the option price therefor.
Upon receipt of such consideration, all Options (whether or not then
exercisable) shall immediately terminate and be of no further force or effect.
The value of the stock or other securities the grantee would have received if
the Option had been exercised shall be determined in good faith by the Board,
and in the case of shares of Common Stock, in accordance with the provisions of
Section 8 hereof.
The Board shall also have the power and right to accelerate the
exercisability of any Option, notwithstanding any limitations in this Plan or in
the Agreement upon such a sale, conveyance or Change in Control. Upon such
acceleration, any Option or portion thereof originally designated as an
incentive stock option that no longer qualifies as an incentive stock option
under Section 422 of the Code as a result of such acceleration shall be
redesignated as a non-qualified stock option without the necessity of further
Board action
A "Change in Control" shall be deemed to have occurred if any person, or
any two (2) or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time owned less than fifty percent (50%) of the
then outstanding Common Stock, shall acquire such additional shares of Common
Stock in one (1) or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and affiliates
beneficially own fifty percent (50%) or more of the Common Stock outstanding.
Upon dissolution or liquidation of the Company, all Options granted under
this Plan shall terminate, but each grantee (if at such time in the employ of or
otherwise associated with the Company or any of its subsidiaries as a director,
agent or consultant) shall have the right, immediately prior to such dissolution
or liquidation, to exercise his or her Option or to the extent then exercisable.
If by reason of a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization, or liquidation, the Board shall authorize
the issuance or assumption of a stock option or stock options in a transaction
to which Section 424(a) of the Code applies, then, notwithstanding any other
provision of the Plan, the Board may grant an option or options upon such terms
and conditions as it may deem appropriate for the purpose of assumption of the
old Option, or substitution of a new Option for the old Option, in conformity
with the provisions of such Section 424(a) of the Code and the Regulations
thereunder, and any such option grant shall not reduce the number of shares
otherwise available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any Option, but in the event any adjustment hereunder in the number
of shares covered by the Option shall cause such number to include a fraction of
a share, such fraction shall be adjusted to the nearest smaller whole number of
shares.
<PAGE>
14. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any Option granted under the Plan shall
confer upon any grantee any right with respect to the continuation of his or her
employment by the Company or any subsidiary or interfere in any way with the
right of the Company or any subsidiary, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the Option holder from the rate
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment shall be determined by the Board at the time of such
occurrence pursuant to uniform nondiscriminatory criteria.
15. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any
non-qualified Option granted under the Plan, or cash upon the exercise of an
Option granted under the Plan, shall be subject to the grantee's satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements. The Company and grantee may agree to withhold shares of Common
Stock purchased upon exercise of an Option to satisfy the above-mentioned
withholding requirements; provided, however, that no such agreement may be made
by a grantee who is an "officer" or "director" within the meaning of Section 16
of the Exchange Act, except pursuant to a standing election to so withhold
shares of Common Stock purchased upon exercise of an Option, such election to be
made not less than six (6) months prior to such exercise and which election may
be revoked only upon six (6) months prior written notice.
16. RESTRICTIONS ON ISSUANCE OF SHARES.
(a) Notwithstanding the provisions of Section 9 hereof, the Company may
delay the issuance of shares covered by the exercise of an Option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such Option has been exercised
are at the time of the issue of such shares effectively
registered or qualified under applicable Federal and state
securities acts now in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that
such shares are exempt from registration and qualification under
applicable Federal and state securities acts now in force or as
hereafter amended.
(b) It is intended that all exercises of Options shall be effective, and
the Company shall use its reasonable efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any Option may be
exercised, except as otherwise agreed to by the Company in writing in its sole
discretion.
17. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.
<PAGE>
Unless and until the shares to be issued upon exercise of an Option granted
under the Plan have been effectively registered under the Securities Act of
1933, as amended ("1933 Act"), as now in force or hereafter amended, the Company
shall be under no obligation to issue any shares covered by any Option unless
the person who exercises such Option, in whole or in part, shall give a written
representation and undertaking to the Company which is satisfactory in form and
scope to counsel for the Company and upon which, in the opinion of such counsel,
the Company may reasonably rely, that he or she is acquiring the shares issued
pursuant to such exercise of the Option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, and that he or she will make no transfer of the
same except in compliance with any rules and regulations in force at the time of
such transfer under the 1933 Act, or any other applicable law, and that if
shares are issued without such registration, a legend to this effect may be
endorsed upon the securities so issued.
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an Option shall have been exercised, or to qualify any
such shares for exemption from the 1933 Act or other applicable statutes, then
the Company may take such action and may require from each grantee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damages and liabilities arising from such use of the information
so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
18. LOANS.
At the discretion of the Board, the Company may loan to the grantee some or
all of the option price of the shares acquired upon exercise of an Option.
19. MODIFICATION OF OUTSTANDING OPTIONS.
Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option with the consent of the
grantee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
20. APPROVAL OF STOCKHOLDERS.
The Plan shall become effective upon adoption by the Board; provided,
however, that the Plan shall be submitted for approval by the stockholders of
the Company no later than twelve (12) months after the date of adoption of the
Plan by the Board. Should the stockholders of the Company fail to approve the
Plan within such twelve-month period, all Options granted thereunder shall be
and become null and void.
21. TERMINATION AND AMENDMENT OF PLAN.
Unless sooner terminated as herein provided, the Plan shall terminate ten
(10) years from the date upon which the Plan was duly adopted by the Board. The
Board may at any time terminate the Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that (i) the Board may not,
without the approval of the stockholders of the Company obtained in the manner
stated in Section 21 hereof, increase the maximum number of shares for which
Options may be granted or change the
<PAGE>
designation of the class of persons eligible to receive Options under the Plan,
and (ii) any such modification or amendment of the Plan shall be approved by a
majority of the stockholders of the Company to the extent that such stockholder
approval is necessary to comply with applicable provisions of the Code, rules
promulgated pursuant to Section 16 of the Exchange Act (if applicable),
applicable state law, or applicable NASD or exchange listing requirements.
Termination or any modification or amendment of the Plan shall not, without the
consent of a grantee, affect his or her rights under an Option theretofore
granted to him or her.
22. LIMITATION OF RIGHTS IN THE OPTION SHARES.
A grantee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the Options except to the extent that the Option
shall have been exercised with respect thereto and, in addition, a certificate
shall have been issued theretofore and delivered to the grantee.
23. NOTICES.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the Chief Executive
Officer at the Company's principal place of business; and, if to a grantee, to
his or her address as it appears on the records of the Company.
<PAGE>
EXHIBIT 10.55
BIGMAR, INC.
STOCK OPTION AGREEMENT
UNDER 1997 STOCK OPTION PLAN
NON-QUALIFIED STOCK OPTION
DECEMBER ______, 1997
AGREEMENT entered into by and between Bigmar, Inc., a Delaware corporation
with its principal place of business at 9711 Sportsman Club Road, Johnstown,
Ohio (the "Company"), and the undersigned employee of the Company (the
"Optionee").
A. The Company desires to grant the Optionee a stock option under the
Company's 1997 Stock Option Plan (the "Plan") to acquire shares of the Company's
Common Stock, $.001 par value per share (the "Shares").
B. Options granted pursuant to the Plan may be designated as either
incentive stock options meeting the requirements of section 422 of the Internal
Revenue Code of 1986 (the "Code") or non-qualified stock options which are not
intended to meet the requirements of Section 422 of the Code.
C. Pursuant to Section 422(d)(1 ) of the Code, if an incentive stock option
is granted pursuant to which the aggregate fair market value of shares with
respect to which it first becomes exercisable in any calendar year by an
individual exceeds $100,000, the portion of such option which is in excess of
the $100,000 limitation shall be treated as a non-qualified option.
D. Stock options granted to the Optionee exceed the $100,000 limitation set
forth in Section 422(d)(1) of the Code. Therefore, the excess portion of such
options are automatically converted into non-statutory options which are
governed by this Agreement.
E. The Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.
ACCORDINGLY, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee a non-qualified stock option (the
"Option") to purchase all or any part of an aggregate of the number of Shares
shown at the end of this Agreement on the terms and conditions hereinafter set
forth. This
<PAGE>
option is intended to be treated as a non-qualified option which is not subject
to the requirements of an incentive stock option under section 422 of the Code.
2. PURCHASE PRICE.
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be $___________ per Share.
3. TIME OF EXERCISE OF OPTION.
The Option shall vest in three equal installments, the first installment
vesting on the date shareholder approval is obtained for the Plan and the second
and third installments vesting on the first and second anniversary dates of this
Agreement. To the extent the Option is not exercised by the Optionee when it
becomes exercisable, it shall not expire, but shall be carried forward and shall
be exercisable for a period of five (5) years following the date of vesting,
provided, however, that no partial exercise of an Option shall be for less than
one hundred (100) full Shares.
Notwithstanding the contingency of shareholder approval contained in the
preceding paragraph, Options which were previously granted under the 1996 Stock
Option Plan and which are re-granted under modified terms of the 1997 Stock
Option Plan, shall vest in accordance with the provisions of the 1996 Stock
Option Plan.
4. TERM OF OPTION: EXERCISABILITY.
(a) TERM OF OPTION.
(i) Each Option shall expire five (5) years from the date of vesting,
except (a) as otherwise provided pursuant to the provisions of
Section 6(b) of the Plan, and (b) for earlier termination as
herein provided.
(ii) Except as otherwise provided in this Section 4, an Option granted
to any grantee whose employment, by the Company or any of its
subsidiaries, is terminated, shall terminate on the earlier of
(i) ninety (90) days after the date such grantee's employment,
for the Company or any such subsidiary, is terminated, or (ii)
the date on which the option expires by its terms.
(iii) If the employment of a grantee is terminated by the Company or
any of its subsidiaries for cause or because the grantee is in
breach of any employment agreement or because the grantee
voluntarily terminates such employment, such Option will
<PAGE>
terminate on the date the grantee's employment is terminated by
the Company or any such subsidiary, unless the Board determines,
at the time of such option, to extend such option for a specified
period (but not beyond the period described in Section 4(a)(ii)
hereof).
(iv) If the employment of a grantee is terminated by the Company or
any of its subsidiaries because the grantee has become
permanently disabled (within the meaning of Section 22(e)(3) of
the Code), such Option shall terminate on the earlier of (i) one
(l) year after the date such grantee's employment, by the Company
or any such subsidiary, is terminated, or (ii) the date on which
the Option expires by its terms.
(v) In the event of the death of any grantee, any Option granted to
such grantee shall terminate one (1) year after the date of
death, or on the date on which the Option expires by its terms,
whichever occurs first.
(b) EXERCISABILITY.
(i) An Option granted to a grantee whose employment, by the Company
or any of its subsidiaries, is terminated, for whatever reason,
including, without limitation, death or disability, shall be
exercisable only to the extent that such Option has accrued and
vested, and is in effect on the date such grantee's employment,
by the Company or any such subsidiary, is terminated.
5. MANNER OF EXERCISE OF OPTION.
(a) Pursuant to Section 9(b) of the Plan, to the extent that the right to
purchase Shares under an Option has accrued and is in effect, Options may be
exercised in full at one time or in part from time to time, by giving written
notice, signed by the person or persons exercising the Option, to the Company,
stating the number of Shares with respect to which the Option is being
exercised, accompanied by payment in full for such Shares as provided in Section
9(a) of the Plan. Upon such exercise, delivery of a certificate for paid-up
non-assessable Shares shall be made at the principal office of the Company to
the person or persons exercising the Option at such time, during ordinary
business hours, after thirty (30) days but not more than ninety (90) days from
the date of receipt of the notice by the Company, as shall be designated in such
notice, or at such time, place and manner as may be agreed upon by the Company
and the person or persons exercising the Option except as otherwise required by
Section 17 of the Plan.
<PAGE>
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares as will be sufficient to satisfy the
requirements of the Option.
6. NON-TRANSFERABILITY.
The right of any Optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such grantee other than by will or
the laws of descent and distribution, and any such Option shall be exercisable
during the lifetime of such grantee only by him or her. Any Option granted under
the Plan shall be null and void and without effect upon the bankruptcy of the
grantee to whom the Option is granted, or upon any attempted assignment or
transfer, except as herein provided, including without limitation, any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition, attachment, trustee process or similar process, whether legal
or equitable, upon such Option.
7. REPRESENTATION LETTER AND INVESTMENT LEGEND.
(a) In the event that for any reason the Shares to be issued upon exercise
of the Option shall not be effectively registered under the Securities Act of
1933, as amended (the"1933 Act") upon any date on which the Option is exercised
in whole or in part, the person exercising the option shall give a written
representation to the Company in the form attached hereto as Exhibit 1 and the
Company shall place an "investment legend", so-called, as described in Exhibit
1, upon any certificate for the Shares issued by reason of such exercise.
(b) The Company shall be under no obligation to qualify the Shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purposes of covering the issue of the Shares.
8. ADJUSTMENTS ON CHANGES IN CAPITALIZATION.
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Agreement.
9. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or this Agreement shall be construed or
deemed by any person under any circumstances to bind the Company to continue the
employment of the Optionee for the period within which this Option may be
exercised. However, during the period of the Optionee's employment, the Optionee
shall render diligently and faithfully the services which are assigned to the
Optionee from time to time by the Board or by the executive officers of the
Company and shall at no time take any action which directly or indirectly would
be inconsistent with the best interests of the Company.
<PAGE>
10. RIGHTS AS A STOCKHOLDER.
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee.
11. WITHHOLDING TAXES.
Whenever Shares are to be issued upon exercise of this Option, the Company
shall have the right to require the Optionee to remit to the Company an amount
sufficient to satisfy all Federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such Shares. The
Company may agree to permit the Optionee to withhold Shares purchased upon
exercise of this Option to satisfy the above-mentioned withholding requirement;
provided, however, no such agreement may be made by an Optionee who is an
officer or director within the meaning of Section 16 of the Securities Exchange
Act of 1934, as amended, except pursuant to a standing election to so withhold
Shares purchased upon exercise of an Option, such election to be made in the
form set forth in Exhibit 2 hereto and to be made not less than six (6) months
prior to the date of such exercise. Such election may be revoked by the Optionee
only upon six (6) months prior written notice to the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the day and year
first above written.
BIGMAR, INC.
By:
------------------------------------
Title:
----------------------------------
OPTIONEE
----------------------------------------
Name:
----------------------------------------
----------------------------------------
Address
<PAGE>
----------------------------------------
Social Security Number
----------------------------------------
Number of Shares
----------------------------------------
Purchase Price Per Share
See Section 4(a)(ii)
----------------------------------------
Expiration Date
<PAGE>
EXHIBIT 10.56
BIGMAR, INC.
STOCK OPTION AGREEMENT
UNDER 1997 STOCK OPTION PLAN
INCENTIVE STOCK OPTION
December , 1997
AGREEMENT entered into by and between Bigmar, Inc., a Delaware corporation
with its principal place of business at 9711 Sportsman Club Road, Johnstown,
Ohio (the "Company"), and the undersigned employee of the Company (the
"Optionee").
A. The Company desires to grant the Optionee a stock option under the
Company's 1997 Stock Option Plan (the "Plan") to acquire shares of the Company's
Common Stock, $.001 par value per share (the "Shares").
B. Options granted pursuant to the Plan may be designated as either
incentive stock options meeting the requirements of section 422 of the Internal
Revenue Code of 1986 (the "Code") or non-qualified stock options which are not
intended to meet the requirements of Section 422 of the Code.
ACCORDINGLY, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee a incentive stock option (the
"Option") to purchase all or any part of an aggregate of the number of Shares
shown at the end of this Agreement on the terms and conditions hereinafter set
forth. This option is intended to be treated as an incentive stock option which
meets the requirements of an incentive stock option under section 422 of the
Code.
2. PURCHASE PRICE.
The purchase price ("Purchase Price") for the Shares covered by the Option
shall be $5 3/32 ($5.09375) per Share.
3. TIME OF EXERCISE OF OPTION.
The Option shall vest in three equal installments, the first installment
vesting on the date shareholder approval is obtained for the Plan and the second
and third installments vesting on the first and second anniversary dates of this
Agreement. To the extent the Option is not exercised by the Optionee when it
becomes exercisable,
<PAGE>
it shall not expire, but shall be carried forward and shall be exercisable for a
period of five (5) years following the date of vesting, provided, however, that
no partial exercise of an Option shall be for less than one hundred (100) full
Shares.
Notwithstanding the contingency of shareholder approval contained in the
preceding paragraph, Options which were previously granted under the 1996 Stock
Option Plan and which are re-granted under modified terms of the 1997 Stock
Option Plan, shall vest in accordance with the provisions of the 1996 Stock
Option Plan.
4. TERM OF OPTION; EXERCISABILITY.
(a) TERM OF OPTION.
(i) Each Option shall expire five (5) years from the date of
vesting, except (a) as otherwise provided pursuant to the
provisions of Section 6(b) of the Plan, and (b) for earlier
termination as herein provided.
(ii) Except as otherwise provided in this Section 4, an Option
granted to any grantee whose employment, by the Company or
any of its subsidiaries, is terminated, shall terminate on
the earlier of (i) ninety (90) days after the date such
grantee's employment, for the Company or any such
subsidiary, is terminated, or (ii) the date on which the
option expires by its terms.
(iii) If the employment of a grantee is terminated by the Company
or any of its subsidiaries for cause or because the grantee
is in breach of any employment agreement or because the
grantee voluntarily terminates such employment, such Option
will terminate on the date the grantee's employment is
terminated by the Company or any such subsidiary, unless the
Board determines, at the time of such option, to extend such
option for a specified period (but not beyond the period
described in Section 4(a)(ii) hereof).
(iv) If the employment of a grantee is terminated by the Company
or any of its subsidiaries because the grantee has become
permanently disabled (within the meaning of Section 22(e)(3)
of the Code), such Option shall terminate on the earlier of
(i) one (1) year after the date such grantee's employment,
by the Company or any such subsidiary, is terminated, or
(ii) the date on which the Option expires by its terms.
(v) In the event of the death of any grantee, any Option granted
to
<PAGE>
such grantee shall terminate one (1) year after the date of
death, or on the date on which the Option expires by its
terms, whichever occurs first.
(b) EXERCISABILITY.
(i) An Option granted to a grantee whose employment, by the
Company or any of its subsidiaries, is terminated, for
whatever reason, including, without limitation, death or
disability, shall be exercisable only to the extent that
such Option has accrued and vested, and is in effect on the
date such grantee's employment, by the Company or any such
subsidiary, is terminated.
5. MANNER OF EXERCISE OF OPTION.
(a) Pursuant to Section 9(b) of the Plan, to the extent that the right to
purchase Shares under an Option has accrued and is in effect, Options may be
exercised in full at one time or in part from time to time, by giving written
notice, signed by the person or persons exercising the Option, to the Company,
stating the number of Shares with respect to which the Option is being
exercised, accompanied by payment in full for such Shares as provided in Section
9(a) of the Plan. Upon such exercise, delivery of a certificate for paid-up
non-assessable Shares shall be made at the principal office of the Company to
the person or persons exercising the Option at such time, during ordinary
business hours, after thirty (30) days but not more than ninety (90) days from
the date of receipt of the notice by the Company, as shall be designated in such
notice, or at such time, place and manner as may be agreed upon by the Company
and the person or persons exercising the Option except as otherwise required by
Section 17 of the Plan.
(b) The Company shall at all times during the term of the Option reserve
and keep available such number of Shares as will be sufficient to satisfy the
requirements of the Option.
6. NON-TRANSFERABILITY.
The right of any Optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such grantee other than by will or
the laws of descent and distribution, or the rules thereunder, and any such
Option shall be exercisable during the lifetime of such grantee only by him or
her. Any Option granted under the Plan shall be null and void and without effect
upon the bankruptcy of the grantee to whom the Option is granted, or upon any
attempted assignment or transfer, except as herein provided, including without
limitation, any purported assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition, attachment, trustee process or
similar process, whether legal or equitable, upon such Option.
<PAGE>
7. REPRESENTATION LETTER AND INVESTMENT LEGEND.
(a) In the event that for any reason the Shares to be issued upon
exercise of the Option shall not be effectively registered under the Securities
Act of 1933, as amended (the " 1933 Act") upon any date on which the Option is
exercised in whole or in part, the person exercising the option shall give a
written representation to the Company in the form attached hereto as Exhibit 1
and the Company shall place an "investment legend", so-called, as described in
Exhibit 1, upon any certificate for the Shares issued by reason of such
exercise.
(b) The Company shall be under no obligation to qualify the Shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purposes of covering the issue of the Shares.
8. ADJUSTMENTS ON CHANGES IN CAPITALIZATION.
Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Agreement.
9. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or this Agreement shall be construed or
deemed by any person under any circumstances to bind the Company to continue the
employment of the Optionee for the period within which this Option may be
exercised. However, during the period of the Optionee's employment, the Optionee
shall render diligently and faithfully the services which are assigned to the
Optionee from time to time by the Board or by the executive officers of the
Company and shall at no time take any action which directly or indirectly would
be inconsistent with the best interests of the Company.
10. RIGHTS AS A STOCKHOLDER.
The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee.
11. WITHHOLDING TAXES.
Whenever Shares are to be issued upon exercise of this Option, the Company
shall have the right to require the Optionee to remit to the Company an amount
sufficient to satisfy all Federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such Shares. The
Company may agree to permit the Optionee to withhold Shares purchased upon
exercise of this Option to satisfy the above-mentioned withholding requirement;
provided, however, no such agreement may be made by an Optionee who is an
officer or director within the meaning of Section 16 of the Securities
<PAGE>
Exchange Act of 1934, as amended, except pursuant to a standing election to so
withhold Shares purchased upon exercise of an Option, such election to be made
in the form set forth in Exhibit 2 hereto and to be made not less than six (6)
months prior to the date of such exercise. Such election may be revoked by the
Optionee only upon six (6) months prior written notice to the Company.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the day and year
first above written.
BIGMAR, INC.
By:
-------------------------------------
Title:
----------------------------------
OPTIONEE:
----------------------------------------
Name:
----------------------------------------
----------------------------------------
Address
----------------------------------------
Social Security Number
----------------------------------------
Number of Shares
----------------------------------------
Purchase Price Per Share
See Section 4(a)(i)
----------------------------------------
Expiration Date
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 643,232
<SECURITIES> 0
<RECEIVABLES> 847,899
<ALLOWANCES> 0
<INVENTORY> 890,249
<CURRENT-ASSETS> 2,813,614
<PP&E> 18,431,674
<DEPRECIATION> 1,267,516
<TOTAL-ASSETS> 20,517,090
<CURRENT-LIABILITIES> 5,298,023
<BONDS> 10,090,467
0
0
<COMMON> 4,185
<OTHER-SE> 5,124,415
<TOTAL-LIABILITY-AND-EQUITY> 20,517,090
<SALES> 6,483,444
<TOTAL-REVENUES> 6,483,444
<CGS> 5,485,648
<TOTAL-COSTS> 5,485,648
<OTHER-EXPENSES> 1,209,053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 616,453
<INCOME-PRETAX> (7,378,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,378,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,378,024)
<EPS-PRIMARY> (1.82)
<EPS-DILUTED> (1.82)
</TABLE>
<PAGE>
EXHIBIT 99(a)
BIGMAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Year ended December 31, 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------ -------- ---------- -------
<S> <C> <C> <C> <C>
Reserve deducted from accounts receivable:
Allowance for doubtful accounts $0 $51,948 (1) $0 $51,948
</TABLE>
(1) Includes the effect of foreign currency translation.
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Year ended December 31, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------ -------- ---------- -------
<S> <C> <C> <C> <C>
Reserve deducted from accounts receivable:
Allowance for doubtful accounts $51,948 $0 $7,245 (1) $44,703
</TABLE>
(1) Includes the effect of foreign currency translation.
<PAGE>
BIGMAR, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Year ended December 31, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ------ -------- ---------- -------
<S> <C> <C> <C> <C>
Reserve deducted from accounts receivable:
Allowance for doubtful accounts $44,703 $0 $44,703 (1) $0
</TABLE>
(1) Includes the effect of foreign currency translation.
