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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [fee required]
For the Fiscal Year Ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [no fee required]
For the transition period from __________ to __________.
Commission File No. 0-15098
JONES MEDICAL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 43-1229854
incorporation or organization) (I.R.S. Employer Identification No.)
1945 Craig Road, St. Louis, MO 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (314) 576-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
- ------------------- -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.04 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 23, 1996, is approximately $300 million.
Number of shares outstanding of registrant's Common Stock as of February 23,
1996: 14,310,663 (as adjusted to reflect the three-for-two stock split effected
in the form of a 50% stock dividend to be paid March 1, 1996 to holders of
record as of February 23, 1996).
The following documents are incorporated by reference in Part III hereof: None
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PART I
ITEM 1. BUSINESS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements.
GENERAL
Jones Medical Industries, Inc. ("JMI" or the "Company") is engaged in the
manufacture, marketing and sale of pharmaceuticals and nutritional supplements.
Founded in 1981, the Company markets a wide variety of pharmaceuticals and
branded nutritional supplements under its own trademarks and tradenames. All
of the Company's product lines have been acquired through a series of 13
acquisitions which have complemented or expanded its existing lines of
business. The Company intends to leverage its existing marketing and sales
capabilities through additional strategic acquisitions of complementary
products and businesses, by expanding and increasing the penetration of its
existing customer base, and through the introduction of new formats for
pharmaceuticals and new formulations for nutritional supplements. During 1995,
sales of pharmaceuticals and nutritional supplements accounted for
approximately 46% and 54% of the Company's total sales, respectively.
Thrombin-JMI(TM), Thrombinar(R), Brevital(R) Sodium, Bronson(TM), Bronson
Pharmaceutical(TM), MD Pharmaceutical(TM), Liqui-Char(R), Therevac(R),
Derma-Scrub(R), Thyroid Strong(TM), and Westhroid(TM) are trademarks owned by
or under license to the Company. All other trademarks and registered
trademarks used in this Form 10-K are the property of their respective owner.
BUSINESS STRATEGY
The Company's business strategy is to acquire specialty product lines or
operations that complement or expand the marketing or distribution of existing
product lines and to develop and apply marketing initiatives to such products.
The key elements of the Company's strategy include:
Acquire and Build Market Share in Specialty Pharmaceuticals. Since
inception, the Company has purchased domestic rights to certain specialty
pharmaceuticals addressing markets such as hemostasis and anesthesia. JMI
intends to continue to seek the rights to products that it believes can benefit
from a focused marketing effort.
Leverage Established Pharmaceutical Marketing and Sales Efforts. JMI
intends to maximize productivity of its sales force through replacement of
existing, lower-volume products with new products with larger market
opportunities. In addition, the Company intends to raise the awareness of
selected products through targeted sales efforts focused on the hospital
pharmacists and health care professionals in the United States.
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Expand Marketing Initiatives for Nutritional Supplements to Health Care
Professionals. Since the Company acquired Bronson Pharmaceuticals in early
1993, monthly orders of nutritional supplements have grown from 27,000 to over
30,000 as of January 1996, and the average order has grown from $43 to $62 as
of January 1996. JMI intends to continue to expand its marketing efforts for
nutritional supplements by focusing on developing recommendations and referrals
to consumers through health care professionals and introducing new products to
its existing customer base.
Improve Margins Through Focus on High-Margin Products and Cost Control.
JMI intends to increase gross and operating margins by using sales personnel
efficiently, minimizing corporate overhead and focusing on high margin
products. The Company believes that by focusing on a limited number of
products, the Company can increase sales by maximizing the productivity of its
sales force and controlling overhead costs.
PRINCIPAL PRODUCTS AND PRODUCT LINES
Pharmaceuticals. The Company markets and distributes a variety of branded
pharmaceuticals, which accounted for approximately 36% of the Company's sales
in 1995. The Company's principal branded pharmaceuticals primarily serve the
critical care segment of the health care industry and are as follows:
Thrombin-JMI and Thrombinar. During invasive surgical procedures,
surgeons typically limit bleeding in order to control blood loss and maintain
visibility of the surgical site. Surgeons may apply pressure bandages, suture
severed vessels and/or use a topical hemostatic agent to maintain the surgical
site. In most cases, collagen, cellulose or thrombin-based hemostatic agents
are used because of their ability to rapidly begin the clotting process. The
Company's products, Thrombin-JMI and Thrombinar, are thrombin-based topical
hemostatic agents derived from bovine blood. The Company's thrombin products
offer advantages over collagen and cellulose products because of faster
activity in the surgical site. Additionally, because of their physical
characteristics, JMI's thrombin products do not need to be removed from the
surgical site prior to closure, whereas non-thrombin competing products need to
be removed, often leading to recurrence of bleeding. Thrombin-JMI was
introduced in 1995 and differs from Thrombinar in that Thrombin-JMI does not
require refrigeration, and is therefore more convenient in the operating room.
The topical hemostat market was estimated to be greater than $80 million in the
United States in 1995. The Company's branded thrombin products accounted for
13.8% of the United States topical hemostat market and 50.4% of the United
States topical bovine thrombin market in 1995. Thrombin-JMI and Thrombinar
accounted for 19.7% of total Company sales in 1995. The Company's first
thrombin product, Thrombinar, was acquired by JMI from Armour Pharmaceuticals
("Armour") in 1989. Thrombin-JMI is manufactured at the Company's wholly-owned
subsidiary GenTrac, Inc. ("GenTrac"). Thrombinar was manufactured by Armour
for JMI until September 1995 when it was replaced by Thrombin-JMI.
Brevital Sodium. The intravenous ("I.V.") anesthetic market is split into
segments based on type and length of therapeutic, diagnostic or surgical
procedures. Short-term general
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anesthesia is required when performing minor surgical procedures such as dental
surgery, cardioversion and other brief ambulatory surgeries. Long-term general
anesthesia is required when more complex and invasive surgical procedures are
performed. In order to administer long-term general anesthesia, induction
agents are used to begin the anesthetic event and are subsequently followed by
another drug or gas to maintain the anesthesia. The Company's product,
Brevital Sodium ("Brevital"), is a general I.V. anesthetic agent that addresses
both the short-term and long-term anesthesia markets. Brevital is used in
short-term procedures because of its rapid onset of action and minimal recovery
time. Brevital's rapid onset of action also makes it a useful induction agent
for long-term general anesthesia prior to the administration of another agent
to maintain the anesthesia. The I.V. anesthetic market in the United States is
estimated to be $500 million. Brevital accounted for 4.2% of JMI's sales in
1995 and 10.9% of the Company's sales during the last four months of 1995.
Brevital was introduced by Eli Lilly & Company ("Lilly") in 1961 and
exclusively licensed in perpetuity to JMI on August 31, 1995 for sale in the
United States.
Other Pharmaceuticals. The Company also manufactures and distributes
other critical care products and other branded pharmaceuticals under numerous
trademarks and tradenames, the most prominent of which are Liqui-Char, a toxin
antidote, Therevac, a mini-enema for rehabilitation therapy, Derma-Scrub, a
surgical scrub, and Thyroid Strong and Westhroid, natural thyroid supplements.
Combined, all other branded pharmaceutical products accounted for 12% of the
Company's total sales in 1995.
Nutritional Supplements. The Company markets and distributes a full line
of branded nutritional supplements, which accounted for approximately 42% of
the Company's total sales in 1995. The Company's branded nutritional
supplements are marketed under the Bronson Pharmaceutical and MD Pharmaceutical
tradenames.
Bronson Pharmaceutical. The Bronson Pharmaceutical product line consists
of over 260 branded vitamin, mineral and herbal extract formulations. The
products include multi-vitamins, mineral formulations, individual vitamins,
antioxidants, herbal formulations and personal care products. The Bronson
Pharmaceutical product line accounted for approximately 36% of the Company's
total sales in 1995.
MD Pharmaceutical. These products are sold exclusively through military
base retail outlets and consist of a broad line of branded nutritional
supplements which compete with national brands. The products include
multi-vitamins, mineral formulations, individual vitamins and antioxidants.
The MD Pharmaceutical product line accounted for approximately 6% of the
Company's total sales in 1995.
MARKETING AND SALES
The Company markets and promotes its products primarily through a direct
sales force, direct mail, telemarketing and trade publication advertising. The
Company also attends major medical conventions and symposia. The Company
maintains a sales and marketing staff of approximately
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40 people, and employs an additional 10 people devoted to customer service and
marketing support. The Company also utilizes independent sales representatives
for marketing certain products.
Pharmaceuticals. The Company has a 24-person marketing and sales staff for
pharmaceuticals and critical care products which includes 18 field sales
personnel (including three regional managers and 15 hospital territory
managers), four marketing support specialists, a hospital group contract
coordinator and a product manager, all reporting to the Company's Vice
President-Sales. Sales activities are focused on major hospital buying groups
which, in the aggregate, manage and contract for a majority of the purchasing
of pharmaceuticals for private sector hospitals through bid and contract
agreements. Although the Company's marketing efforts focus upon individual
hospitals' Directors of Pharmacy as the ultimate decision-maker, the Company
presently has contracts for one or more product lines with substantially all of
the approximately 120 major hospital buying groups and distributes
pharmaceuticals nationally through approximately 320 wholesale distributors.
Nutritional Supplements. The Company markets the Bronson Pharmaceutical
product line directly to consumers and health care and nutritional
professionals through catalogs and direct mailings to a database that, as of
December 31, 1995, included approximately 18,000 health care and nutritional
professionals and 530,000 mail order and retail customers, of whom
approximately 135,000 purchased products directly from the Company in 1995.
The Company does not rent or utilize mailing lists from other sources,
preferring to focus upon generating customers through professional
recommendations and referrals from current customers. The Company maintains a
telemarketing sales force of 16 persons which processes approximately 29,000
orders per month with an average order of approximately $60 during 1995.
Prepaid orders are received through mail order, toll-free telephone numbers or
by facsimile, and are filled at the Company's distribution center in St. Louis,
Missouri, usually within 24 hours of receipt, and are shipped by United Parcel
Service or parcel post. In addition to direct mail sales, the Bronson
Pharmaceutical product line is marketed to approximately 5,000 retail accounts.
The MD Pharmaceutical product line is marketed exclusively through military
outlets by approximately 30 independent sales representatives.
MANUFACTURING
The Company manufactures pharmaceuticals at its facilities in Canton,
Ohio, Middleton, Wisconsin and St. Louis, Missouri, and manufactures and
formulates nutritional supplements at its facilities in Tempe, Arizona.
The Company has manufactured pharmaceuticals at its United States Food and
Drug Administration ("FDA") registered Canton, Ohio, facility since March 1984.
The Company processes raw materials purchased from outside sources and
produces products in tablet form. Content, shape and color of such products
are produced within the guidelines of FDA regulations pertaining to
over-the-counter drugs or prescription drugs that were marketed prior to 1938.
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In 1991, in connection with the Company's acquisition of GenTrac, the
Company assumed operations of the GenTrac facility located in Middleton,
Wisconsin which is licensed by The Center for Biologics Evaluation and Research
("CBER"), a Division of the FDA, for the production of therapeutic and
diagnostic thrombin products. Biological products such as Thrombin-JMI must be
produced at a licensed biologic facility specifically licensed to manufacture
that product. The Company's GenTrac facility, which produces Thrombin-JMI, is
licensed for the production of thrombin United States Pharmacopoeia ("U.S.P.")
products and also acts as a contract manufacturer of Thrombogen, a line of
proprietary thrombin products manufactured for Johnson & Johnson Medical, Inc.
("Johnson & Johnson") under distribution and development agreements.
Packaging, as well as warehousing and distribution, for certain
pharmaceuticals and for nutritional supplements, is primarily conducted at the
Company's distribution center and headquarters located in St. Louis, Missouri.
The Company also formulates and produces liquid products such as Liqui-Char and
the Derma-Scrub line at its St. Louis, Missouri facility.
The Company has manufactured nutritional supplements at its facilities in
Tempe, Arizona, since 1984. As in the case of pharmaceuticals, the Company
processes raw materials purchased from outside sources and formulates them into
final dosage form. Although, prior to the acquisition of Bronson
Pharmaceuticals ("Bronson") by the Company in March 1993, Bronson functioned
solely as a marketer and distributor of its product line, the Company now
manufactures the majority of its Bronson products at its Tempe, Arizona
facilities.
The Company utilizes available excess capacity at its manufacturing
facilities to produce pharmaceuticals and nutritional supplements for other
branded and generic distributors, in bulk or packaged (private label) form.
The Company's marketing efforts with respect to contract manufactured products
are conducted both internally and through independent commissioned sales
representatives.
With the exception of GenTrac's agreement with Johnson & Johnson, the
Company does not have long-term manufacturing contracts with its customers for
contract manufacturing but instead manufactures products pursuant to purchase
orders as they are received. Contract manufacturing is performed primarily for
generic and private label product distributors which are not involved in
manufacturing and whose products primarily consist of basic generic ethical
drugs, generic over-the-counter drugs and vitamins, and private formulations of
vitamins, prescription and over-the-counter drugs. Notwithstanding the absence
of long-term manufacturing agreements with its contract manufacturing
customers, JMI has long-standing relationships with the majority of its
customers for such products. There can be no assurance, however, that such
relationships will continue in the future.
In 1995, the Company manufactured approximately 80% of its total products
sold and approximately 60% of its branded products sold. However, the Company
anticipates that these historical percentages will change since all production
of thrombin products has been integrated at the GenTrac facility while Brevital
is produced under contract by Lilly.
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The Company has historically relied on third-party manufacturers to
produce certain of its products. The Company typically does not enter into
long-term manufacturing contracts with such third-party manufacturers,
however, even when such contracts exist there can be no assurance that the
Company will be able to obtain adequate supplies of such products in a timely
fashion, or at all. For example, the Company's thrombin products were
manufactured for the Company under a contract with Armour from whom the
Thrombinar product line was acquired in 1989. During the fourth quarter of
1994 and first quarter of 1995, Armour was unable to fully meet the Company's
requirements for thrombin products, resulting in the Company's inability to
fill product orders from customers and the loss of sales and income. The
Company also faces the risk that upon expiration of the term of any third-party
manufacturing agreement it may not be able to renew or extend the agreement
with the third-party manufacturer, to obtain an alternative manufacturing
source from other third parties or develop internal manufacturing capabilities
on commercially viable terms, if at all. In such circumstances the Company may
be unable to continue to market its products as planned and could be required
to abandon or divest itself of a product line on terms which would materially
adversely affect the Company's business, financial condition and results of
operations.
Brevital is manufactured for the Company by Lilly from whom the product
line was acquired as of August 31, 1995. Pursuant to such acquisition, the
Company obtained a perpetual, exclusive license to market and distribute
Brevital in the United States. The Company has entered into a 10-year
manufacturing agreement with Lilly, which may be terminated by Lilly at any
time after the first five years by giving at least five years notice to the
Company prior to ceasing the manufacture of Brevital. In the event of such
termination, Lilly must use reasonable efforts to assist the Company in
obtaining all the necessary licenses and approvals to enable the Company or an
alternative manufacturer to manufacture Brevital. There can be no assurance
that Lilly will continue to meet FDA or product specification standards for
Brevital or that the Company's Brevital product demand can be met in a
consistent and timely manner. Lilly is the sole manufacturer of Brevital and
any alternative manufacturer would require regulatory change-in-site
qualification to manufacture the product. In the event of any interruption in
the supply of Brevital from Lilly due to regulatory or other causes, there can
be no assurance that the Company could make alternative manufacturing
arrangements on a timely basis, if at all. Such an interruption would have a
material adverse effect on the Company's business, financial condition and
results of operations.
PRINCIPAL CUSTOMERS AND SUPPLIERS
No one customer accounted for 10% or more of the Company's sales in 1995.
GenTrac's sales of thrombin products to Johnson & Johnson were $3.5 million or
6.1% of the Company's total sales in 1995.
The Company has not experienced to date any significant shortages in
supplies of raw materials. The raw materials utilized by the Company in its
manufacturing operations are purchased from a variety of suppliers. The
Company endeavors to maintain multiple suppliers in order to minimize delays or
cost disparities in the event of supplier shortages. For the most part the
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Company's ability to manufacture products is not dependent on any
particular raw material supplier except as to thyroid raw materials.
The Company relies on certain suppliers of key raw materials to provide an
adequate supply of such materials for production of finished products. Certain
materials are purchased from single sources. In particular, the manufacture of
Brevital is dependent upon Lilly's ability to procure certain raw materials
used in the manufacture of Brevital. Although the Company has no reason to
believe that Lilly will be unable to procure adequate supplies of such raw
materials on a timely basis, disruptions in supplies of Brevital, including
delays due to Lilly's inability to procure raw materials, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION
The manufacture and sale of pharmaceuticals is highly competitive. Many
of the Company's competitors are large well-known pharmaceutical, chemical and
health care companies which have considerably greater financial, sales,
marketing and technical resources than those of the Company. Additionally,
many of the Company's present and potential competitors have research and
development capabilities that may allow such competitors to develop new or
improved products that may compete with the Company's product lines. The
pharmaceutical industry is characterized by rapid product development and
technological change. The Company's pharmaceuticals could be rendered obsolete
or uneconomical by the development of new pharmaceuticals to treat the
conditions addressed by the Company's products or as the result of
technological advances affecting the cost of production, or as a result of
marketing or pricing action by one or more of the Company's competitors. The
Company's business, financial condition and results of operations could be
materially and adversely affected by any one or more of such developments.
The Company's thrombin product lines compete with those produced for and
marketed by Johnson & Johnson and with thrombin products distributed by
Parke-Davis, a division of the Warner-Lambert Company. The Company's thrombin
products also compete with other hemostatic agents, including Gelfoam,
manufactured by Pharmacia & Upjohn, Inc., and Surgicel, manufactured by Johnson
& Johnson. Brevital faces competition in the I.V. anesthetic market from other
I.V. anesthetic products, including Diprivan, which is produced by Stuart
Pharmaceuticals, a business unit of Zeneca, Inc., and Versed, produced and
marketed by Roche Labs, a division of Hoffmann-LaRoche, Inc. Each of these
competitors has substantially greater marketing, sales and financial resources
than the Company.
The market for nutritional supplements is characterized by extensive
competition, frequent new product introductions, short product life cycles and
changing customer preferences. The Company is subject to competition from the
retail market, as well as the mass-market, direct-mail market, for nutritional
supplements, and there can be no assurance that the Company's targeted
direct-market approach will remain a viable alternative within the industry or
that other competitors may not enter the targeted direct-mail market and offer
products similar to those offered by the
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Company. Many of the Company's existing and potential competitors in the
nutritional supplements market have greater financial, marketing and
research capabilities than the Company.
TRADEMARKS
The branded products sold by the Company are sold under a variety of
trademarks. While the Company believes that it has valid proprietary interests
in all currently used trademarks, only certain of the trademarks are registered
with the United States government. The Company's license to the Brevital
trademark is limited to the United States and its right to utilize the MD
Pharmaceutical brand name is restricted to the United States military and its
outlets.
GOVERNMENT REGULATION
The manufacturing, processing, formulation, packaging, labeling, storage,
promotion, distribution and advertising of the Company's products are subject
to extensive regulation by one of or more federal agencies including the FDA,
the Drug Enforcement Administration ("DEA"), the Environmental Protection
Agency ("EPA"), the Federal Trade Commission ("FTC"), the Occupational Safety
and Health Administration ("OSHA"), the Department of Agriculture ("USDA"), the
Consumer Product Safety Commission ("CPC"), the United States Customs Service,
and the United States Postal Service. These activities are also regulated by
various agencies of the states and localities in which the Company's products
are sold.
Pharmaceuticals. All pharmaceutical manufacturers, including the Company,
are subject to regulation by the FDA. New drugs must be approved by the FDA
before they may be marketed, except for those prescription drugs about which
the FDA has knowledge but for which the FDA is not requiring applications
either because of 'grandfather status' under 1938 legislation, 'grandfather
status' under 1962 legislation, or for other reasons. The FDA has the
authority to revoke existing approvals, or to review the status of currently
exempt pharmaceuticals and require application and approval, of prescription
drugs if new information reveals that they are not safe or effective and also
regulates the advertising of prescription drugs. The Company's marketing of
OTC drugs is affected by the establishment of FDA monographs, a regulatory
system arising under 1962 legislation. FDA monographs effectively exempt from
FDA approval OTC drugs which are produced and labeled in accordance with the
standards set forth in FDA regulations. The rulemaking process to establish or
revise an FDA monograph allows a 12 month grace period to make appropriate
formulation or label changes following publication of the final monograph. The
FTC regulates advertising of OTC drug products. Drug products must be
manufactured, packaged, and labeled in accordance with their approvals and in
conformity with current good manufacturing practice ("CGMP"). The Company is
subject to periodic inspection by the FDA to assure such compliance. Drugs
must be distributed, sampled and promoted in accordance with FDA requirements.
The FDA has extensive enforcement powers over the activities of pharmaceutical
manufacturers, including authority to seize and prohibit the sale of unapproved
or non-complying products, to halt manufacturing operations that are not in
compliance with CGMP, and to impose civil penalties and seek criminal
penalties. The restriction or prohibition on sales of products
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marketed by the Company could materially adversely affect the Company's
business, financial condition, and results of operation.
The Company manufactures and distributes biological drugs, including
thrombin, which are also regulated by the FDA. The Company's Thrombin-JMI line
of products has been approved by the FDA, and the Company's GenTrac facility is
licensed by the FDA to produce Thrombin-JMI and Thrombogen, a line of
proprietary thrombin products manufactured for Johnson & Johnson. The Company
has a pending application for a new pre-mixed liquid thrombin formulation
product line. Although the Company believes that this application is in the
final approval phase, additional clinical testing of the product may be
required and there can be no assurance as to when or if favorable FDA action
will be forthcoming. While the Company intends to pursue completion of the
application process, development of the product will depend in part upon the
Company's assessment of market demand for the product and upon satisfactory
resolution of claims by Johnson & Johnson to certain rights in the product.
See "Item 3. Legal Proceedings."
The Company also manufactures and sells drugs which are "controlled
substances" as defined in the Controlled Substances Act, which establishes
certain security and record keeping requirements administered by the Drug
Enforcement Administration ("DEA") of the Department of Justice. The Company
has experienced regulatory challenges with respect to compliance with the
foregoing regulations which have been resolved, but no assurance can be given
that restrictions or fines which could have a material adverse effect upon the
Company's business, financial condition and results of operations will not be
imposed upon the Company.
Nutritional Supplements. Although the manufacturing and production of
nutritional supplements has historically been subject to less intensive
regulation than pharmaceutical products, government oversight in this area is
currently increasing. Under the Dietary Supplement Health & Education Act of
1994, the FDA may exercise increased authority over the labeling and sales of
vitamin and mineral supplements. In addition, the United States Postal Service
and the FTC regulate advertising claims with respect to the Company's products
sold by solicitation through the mail.
Recent proposed regulations issued by the FDA require the relabeling of
dietary supplements with regard to nutrition labeling ingredient information
and nutrient content claims. The proposed rules are not due to become
effective until January 1997 and may be modified prior to final adoption. The
FDA and other federal authorities are also reviewing alternative approaches to
assure the safety of vitamins, minerals, herbal extracts and other products
sold as nutritional supplements. Although no current regulatory approval is
required prior to or after the introduction of a new nutritional supplement,
the FDA must be notified regarding the use of new dietary ingredients and
future regulation could result in a recall or discontinuance of certain
products.
The Company believes that it is in material compliance with applicable
laws and regulations concerning nutritional supplements. Moreover, the Company
believes that its experience in the manufacture and sale of pharmaceuticals,
and its use of certain manufacturing processes and controls uniformly across
all product lines, will enable the Company to comply with regulations, record
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keeping, testing and manufacturing standards which may be applied to
nutritional supplements. Nevertheless, increased regulatory oversight could
subject the Company and other manufacturers of nutritional supplements to
increased production and compliance costs and possibly require capital
expenditures.
ENVIRONMENTAL STANDARDS
The Company uses certain hazardous substances which require special
handling and disposal as dictated by the EPA. The Company believes that its
manufacturing operations are in compliance with environmental protection and
other government regulations.
EMPLOYEES
At February 1, 1996, the Company had 334 full-time employees: 191 in
manufacturing, 50 in sales, 40 in finance and administration, 29 in quality
assurance, and 24 in distribution. The Company believes that its relationship
with its employees is good.
ITEM 2. PROPERTIES
The Company's distribution operations, including warehousing and shipping
for the Company's branded products, are located in a 150,000 square foot
facility on a 15 acre site in St. Louis, Missouri which was acquired by the
Company in mid-1993. The 24,000 square feet of office space within the
facility permit it to serve as corporate headquarters and to house the
Company's administration, sales and marketing, and telemarketing operations.
The Company has centralized packaging operations for its branded nutritional
supplements at this location in addition to certain laboratory and quality
assurance facilities. Liquid products, including Liqui-Char and the
Derma-Scrub line, are also manufactured and packaged at this facility.
The Company owns a facility at Canton, Ohio where its subsidiary,
JMI-Canton Pharmaceuticals, Inc. ("JMI-Canton"), manufactures and packages
pharmaceuticals. The facility is a 25,000 square foot building containing
manufacturing, laboratory and administrative space.
The Company manufactures hemostatic thrombin products in a 40,000 square
foot FDA-licensed sterile fill facility owned by the Company which is located
on an eight acre site in Middleton, Wisconsin.
The Company's subsidiary, JMI Phoenix Laboratories, Inc. ("JMI Phoenix"),
manufactures the Company's nutritional supplements in two adjacent buildings
owned by the Company consisting of approximately 30,000 total square feet,
located in Tempe, Arizona.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation in which it
believes an adverse outcome would materially adversely affect the Company's
business, financial condition or results of operations. However, the Company
has been involved in litigation and is subject to certain claims as set forth
below.
L-Tryptophan Claims. Many distributors and marketers of nutritional
supplements have been subjected to claims relating to the manufacture or
distribution of L-Tryptophan. The Company is, and has in the past been, a
defendant in such lawsuits filed throughout the United States.
The plaintiffs in these lawsuits generally allege damages resulting from
the ingestion of a product known as L-Tryptophan. In suits involving the
Company, the Company has been one of many defendants, and the manufacturer of
L-Tryptophan, Showa Denko, has agreed to indemnify the Company (including
Bronson) from all costs and damages with respect thereto to the extent that the
product distributed by the Company was produced by Showa Denko. Any such
lawsuits involving Bronson have been tendered to Bronson's insurance carrier
under a policy which does not exclude L-Tryptophan claims. As a result of the
indemnity provided by Showa Denko with respect to these types of lawsuits, and
the product liability insurance maintained by Bronson prior to its acquisition
by the Company, it is not anticipated that the Company will have any material
liability with respect to these types of lawsuits. However, in the event that
Showa Denko is unable to satisfy or fulfill its obligations under the
indemnity, the Company would have to defend such lawsuits and be responsible
for damages, if any, which are awarded against it or for amounts in excess of
Bronson's insurance coverage of $1.0 million per claim and $1.0 million in the
aggregate.
Johnson & Johnson Claims. Under development and distribution agreements
between GenTrac and Johnson & Johnson entered into prior to the Company's
acquisition of GenTrac, Johnson & Johnson acquired certain rights to new
thrombin products and thrombin product improvements developed by GenTrac.
Johnson & Johnson has notified the Company that it believes that it is entitled
to exclusive distribution rights for Thrombin-JMI and a liquid thrombin product
for which FDA approval is currently pending. Although the Company strongly
disagrees with and will vigorously contest such claims by Johnson & Johnson,
any resolution of the claims in favor of Johnson & Johnson could have a
materially adverse effect on the Company's business, financial condition or
results of operations, notwithstanding provisions in the product development
agreement which would (i) require Johnson & Johnson to reimburse GenTrac for
all development costs associated with such products, and (ii) provide the
Company's GenTrac facility with the right to manufacture such products for
Johnson & Johnson. Even if the Company is successful in contesting Johnson &
Johnson's claim and manufactures and markets the liquid thrombin product, the
Company would be obligated to pay a royalty to Johnson & Johnson equal to five
percent of the Company's net sales of such product, up to an aggregate maximum
royalty payment of $240,000. The Company and Johnson & Johnson are currently
attempting to negotiate an amicable resolution of such claims.
12
<PAGE> 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the 4th quarter of 1995 to a vote of
security holders of the Company through the solicitation of proxies or
otherwise.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock ("Common Stock") is traded on the Nasdaq
National Market under the symbol "JMED". The following table sets forth the
quarterly high and low sales prices for the Common Stock reported by Nasdaq for
the periods indicated (as adjusted to the nearest 1/16 to reflect the
three-for-two stock split effected in the form of a 50% stock dividend to be
paid on March 1, 1996 to holders of record as of February 23, 1996):
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1994
First Quarter $10 5/16 $7 3/4
Second Quarter 8 1/2 6 11/16
Third Quarter 7 3/16 4 5/16
Fourth Quarter 6 1/16 4 1/4
1995
First Quarter 6 1/16 4 3/16
Second Quarter 8 5 7/16
Third Quarter 12 1/16 7 7/16
Fourth Quarter 16 1/2 10 11/16
</TABLE>
As of February 15, 1996, there were approximately 1,000 holders of record
and the Company believes approximately 5,000 non-record beneficial owners of
the Common Stock.
During 1994 and 1995, cash dividends of $0.06 2/3 and $0.07 1/3 per share,
respectively, were declared with respect to the Common Stock. On February 7,
1996, in connection with the three-for-two split of the outstanding shares of
Common Stock, the Company declared a dividend of $0.025 per share payable on
April 1, 1996.
The future declaration and payment of cash dividends is subject to the
discretion of the Board of Directors and will be dependent on many factors,
including the Company's earnings, financial condition and capital needs of the
Company and such other factors as are deemed relevant by the Company's Board of
Directors. The Company anticipates that it will continue to pay a dividend each
quarter; however, the Company's Board of Directors intends to review this
policy from time to time.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company for each of the prior
five fiscal years has been derived from the consolidated financial statements
of the Company. The selected financial data should be read in conjunction with
the consolidated financial statements and related notes thereto contained
herein. The selected financial data set forth below has been adjusted to
reflect the three-for-two stock split effected in the form of a 50% stock
dividend to be paid on March 1, 1996 to holders of record on February 23, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------------------
STATEMENT OF
OPERATIONS DATA: 1991 1992 1993 1994 1995
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Sales $20,512,826 $24,056,872 $43,215,498 $47,548,803 $56,397,095
Cost of sales 10,365,530 12,352,520 21,909,428 24,685,826 27,165,896
---------------- ---------------- ---------------- ---------------- ----------------
Gross profit 10,147,296 11,704,352 21,306,070 22,862,977 29,231,199
Selling, general and
administrative
expenses 5,453,166 6,367,622 11,314,160 13,497,583 13,905,278
---------------- ---------------- ---------------- ---------------- ----------------
Operating income 4,694,130 5,336,730 9,991,910 9,365,394 15,325,921
Other income (expense) 451,271 695,618 (44,097) (326,887) (400,617)
---------------- ---------------- ---------------- ---------------- ----------------
Income before taxes 5,145,401 6,032,348 9,947,813 9,038,507 14,925,304
Provision for taxes 1,851,000 2,300,000 3,744,000 3,299,000 5,597,000
---------------- ---------------- ---------------- ---------------- ----------------
Net income(1) $ 3,294,401 $ 3,732,348 $ 6,203,813 $ 5,739,507 $ 9,328,304
---------------- ---------------- ---------------- ---------------- ----------------
Weighted average
shares outstanding 13,875,822 14,168,821 14,256,640 14,391,084 14,589,150
Earnings per common
and common equivalent
share(1) .24 .26 .44 .40 .64
================ ================ ================ ================ ================
Cash dividends
declared per share .04 .05 .06 .06 2/3 .07 1/3
================ ================ ================ ================ ================
</TABLE>
_______________
(1) Net income and earnings per share in 1993 do not reflect cumulative effect
of change in accounting principle of $207,100.
15
<PAGE> 16
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Total assets $33,392,783 $35,185,070 $51,823,590 $54,927,284 $74,696,643
Current assets $18,042,778 $19,730,787 $18,325,578 $20,793,359 $25,012,149
Current liabilities $ 3,295,228 $ 3,741,253 $ 6,330,082 $ 5,778,744 $11,563,477
Working capital $14,747,550 $15,989,534 $11,995,496 $15,014,615 $13,448,672
Long-term debt $ 2,737,804 $ 500,000 $ 5,399,986 $ 3,799,978 $ 9,124,986
Shareholders equity $26,786,800 $30,120,866 $36,236,110 $41,490,364 $49,890,134
Per share book value(2) $ 1.94 $ 2.17 $ 2.59 $ 2.94 $ 3.52
Current ratio 5.5:1 5.3:1 2.9:1 3.6:1 2.2:1
</TABLE>
_______________
(2) Per share book value is computed assuming conversion of the outstanding
preferred stock.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements.
OVERVIEW
The Company was founded in 1981 to market and distribute specialty
pharmaceuticals and nutritional supplements. To date, the Company has
completed 13 acquisitions of products and businesses which complement or expand
the Company's business, while adding selected manufacturing capacity to support
certain product lines. The Company has achieved significant increases in sales
and net income through such acquisition activity and through related internal
growth initiatives to develop marketing opportunities with respect to the
acquired product lines. Sales and net income have increased from $19.7 million
and $2.8 million in 1990, respectively, to $56.4 million and $9.3 million in
1995, respectively, representing five-year compounded annual growth rates of
approximately 23.4% in sales and 27.0% in net income.
Sales are reported net of returns during the period in which product is
shipped. These sales are subsequently adjusted for reserves incurred due to
volume or other contractual discounts on certain pharmaceuticals under
contracts with hospitals and hospital buying groups. As of December 31, 1995,
the Company maintained a reserve of $1.5 million for such anticipated
discounts. The reserve was increased from $1.1 million as of year-end 1994 due
to higher sales levels of the products involved. Product returns, both of
unused pharmaceuticals and of nutritional supplements sold to consumers subject
to a limited money-back refund policy, are less than 1% of gross annual sales.
Sales are reflected prior to royalties due on sales of certain pharmaceuticals
arising from product line acquisitions. Such royalties are recorded as a
selling expense. Royalty arrangements typically extend for a fixed period from
the date of acquisition and do not require minimum payments to maintain
ownership or any rights to products.
During the year ending December 31, 1995, sales were $56.4 million
comprised of $25.9 million of pharmaceutical sales and $30.5 million of
nutritional supplement sales. The relative contributions of pharmaceuticals
and nutritional supplements to the Company's sales can be influenced by
acquisition activity in each product category as well as by marketing activity
and customer demand. In 1993 the Company increased its presence in the
marketing of nutritional supplements as a result of its acquisition of the
operations of Bronson. In the fourth quarter of 1994 and first quarter of 1995,
sales of certain of its thrombin-based hemostats were adversely impacted by
supply difficulties. In August 1995 the Company acquired domestic rights to
the Brevital pharmaceutical line for $14 million and a 10-year royalty of 5% on
net sales of Brevital. During the last four months of 1995, sales of Brevital
represented approximately 10.9% of total Company sales.
17
<PAGE> 18
The Company intends to seek additional acquisitions of product lines of
niche-market pharmaceuticals to leverage its existing distribution channels and
marketing infrastructure and to market aggressively new formats or formulations
of existing products. The success of the Company's efforts is subject to a
number of risks and uncertainties including its dependence upon key
pharmaceuticals and integration of new product acquisitions, its reliance upon
third-party manufacturers to produce certain key products, its ability to
effectively manage a changing business, uncertainties related to pharmaceutical
pricing and reimbursement and on the uncertainty of competitive forces within
the pharmaceutical and nutritional supplement industries which affect both the
market for its products and the availability of suitable product lines of
acquisition. The future results of operations, both annually and from
quarter-to-quarter, are subject to a variety of factors applicable to the
Company and to the industries and markets in which it operates.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained elsewhere herein. The following table sets forth certain
data as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Percentage of Sales
Year Ended December 31,
------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 50.7 51.9 48.2
-------- -------- --------
Gross profit on sales 49.3 48.1 51.8
Selling, general & administrative expenses 26.2 28.4 24.7
-------- -------- --------
Operating income 23.1 19.7 27.1
Other income (expenses)
Interest income 0.4 0.2 0.3
Interest expense (0.8) (1.1) (0.8)
Other miscellaneous income (expenses) 0.3 0.2 (0.2)
-------- -------- --------
Income before income tax* 23.0 19.0 26.4
-------- -------- --------
Net income* 14.4% 12.1% 16.5%
======== ======== ========
</TABLE>
- ---------------
* Before cumulative effect of change in accounting principle of $207,100 in
1993.
18
<PAGE> 19
Sales
The following summarizes approximate sales activity by product categories:
<TABLE>
<CAPTION>
Sales by Product
Category 1993 % 1994 % 1995 %
- ---------------- ------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Pharmaceuticals $21,168,000 49.0% $21,925,000 46.1% $25,936,000 46.0%
Nutritional Supplements 22,047,000 51.0% 25,624,000 53.9% 30,461,000 54.0%
----------- ----- ------------ ----- ------------ -----
Total Sales $43,215,000 100% $47,549,000 100% $56,397,000 100%
</TABLE>
Sales for the year ended December 31, 1995 increased 18.6% to $56.4
million from $47.5 million for the year ended December 31, 1994 and 10.0% to
$47.5 million from $43.2 million for the year ended December 31, 1993. The
Company's sales increased in 1995 as the result of unit and dollar growth in
both pharmaceuticals and nutritional supplements and increased in 1994 as the
result of unit and dollar growth in nutritional supplements.
Sales of pharmaceuticals in 1995 grew 18.5% to $25.9 million from $21.9
million in 1994 due primarily to increases in sales of the Company's critical
care pharmaceutical products, including four months of Brevital sales. Sales
of nutritional supplements in 1995 grew 18.9% to $30.5 million from $25.6
million in 1994 due to a 14.5% increase in Bronson Pharmaceutical product sales
and a 102.2% increase in sales of contract manufactured products, offset in
part by a 27.5% decline in sales of the MD Pharmaceutical products.
Sales of pharmaceuticals in 1994 grew 3.6% to $21.9 million from $21.1
million in 1993 due primarily to increases in sales of Therevac and Liqui-Char.
Sales of Thrombinar were essentially flat due to the inability of the
Company's supplier to meet fully the Company's requirements. Sales of
nutritional supplements in 1994 increased 16.2% to $25.6 million from $22.0
million in 1993 resulting from the inclusion of a full 12 months of sales of
the Bronson Pharmaceutical product line which was acquired in March 1993.
Gross Profit
Gross profit during 1995 increased 27.9% or $6.4 million to $29.2 million
from $22.9 million in 1994. As a percentage of sales, margins grew to 51.8% in
1995 from 48.1% in 1994 as a result of greater manufacturing efficiencies and
sales increases in higher margin products.
19
<PAGE> 20
Gross profit during 1994 increased 7.3% or $1.6 million to $22.9
million from $21.3 million in 1993. As a percentage of sales, margins declined
to 48.1% in 1994 from 49.3% in 1993 as a result of increases in labor and
overhead components in cost of goods.
Selling, General and Administrative Expenses
Selling expenses increased 4.8% or $388,000 to $8.4 million in 1995 from
$8.0 million in 1994 primarily as a result of adding five hospital territory
managers in the fourth quarter of 1995 and due to higher direct marketing
expenses associated with larger and more frequent mailings of the Bronson
Pharmaceutical catalogue. As a percentage of sales, these expenses decreased
to 15.0% in 1995 from 16.9% in 1994.
Selling expenses increased 25.0% or $1.6 million to $8.0 million in 1994
from $6.4 million in 1993 as a result of the inclusion of a full 12 months of
Bronson Pharmaceutical selling expenses and greater shipping and direct
marketing expenses associated with sales of Bronson Pharmaceutical products.
Additionally, the Company added one major market hospital representative during
1994. Selling expenses as a percentage of sales in 1994 increased to 16.9%
from 14.9% in 1993.
General and administrative expenses in 1995 remained essentially unchanged
at approximately $4.0 million, but declined as a percentage of sales to 7.2% in
1995 from 8.4% in 1994.
General and administrative expenses in 1994 increased 18.3% or $619,000 to
$4.0 million from $3.4 million in 1993 primarily due to the inclusion of a full
12 months of Bronson Pharmaceutical expenses and to a lesser extent due to
increases in overhead. As a percentage of sales, these expenses increased to
8.4% in 1994 from 7.8% in 1993 for the same reasons.
Research and development expenses were eliminated in 1995 after declining
to $101,000 in 1994 from $377,000 in 1993 due to the reduction of ongoing
expenses by GenTrac associated with the development of pre-mixed liquid
thrombin formulations.
Amortization expenses associated with intangible assets and included in
selling, general and administrative expenses remained essentially unchanged in
1995 at approximately $1.4 million, as the impact of the Brevital product line
acquisition was substantially offset by declining amortization on other
products. As a percentage of sales these expenses decreased to 2.5% in 1995
from 2.9% in 1994.
Amortization expenses increased 20.8% or $234,000 to $1.4 million in 1994
from $1.1 million in 1993 as a result of the Bronson Pharmaceutical and Derma
System product acquisitions and the corresponding full 12 months of
amortization of the associated intangible assets acquired. Also, as a percent
of sales, amortization expenses increased 2.9% in 1994 from 2.6% in 1993.
20
<PAGE> 21
Operating Income
Operating income during 1995 increased 63.6% or $6.0 million to $15.3
million from $9.4 million in 1994, and increased as a percentage of sales to
27.1% from 19.7% in 1994, as the result of higher overall gross profits and
marginal increases in operating expenses.
Operating income during 1994 decreased 6.3% or $627,000 to $9.4 million
from $10.0 million in 1993, and decreased as a percentage of sales to 19.7%
from 23.1% in 1993, as a result of an increase in cost of sales and in selling,
general and administrative expenses.
Other Income (Expense)
Other income during 1995 reflects a one time loss of $126,000 associated
with the sale of certain real property which the Company was unable to use and
the reduction in the associated rental income.
Interest and dividends from investing activities decreased to $101,000 in
1994 from $189,000 in 1993 due to lower cash balances resulting from the uses
of cash in 1993 associated with the Company's acquisition program and the
purchase of a 150,000 square foot distribution and headquarters facility.
Interest expense increased to $516,000 in 1994 from $354,000 in 1993 due to
borrowings associated with the acquisitions and facility purchase.
Income Taxes
The provision for income taxes increased to 37.5% of pre-tax income in
1995 compared to 36.5% of pre-tax income in 1994, primarily as the result of a
1% higher federal tax rate on annual profits exceeding $10 million.
The provision for income taxes decreased to 36.5% of pre-tax income in
1994 compared to 37.6% of pre-tax income in 1993. The lower rate was due to
lower effective state income tax rates.
Net Income
Net income increased 62.5% or $3.6 million to $9.3 million in 1995 from
$5.7 million in 1994, and increased as a percentage of sales to 16.5% in 1995
from 12.1% in 1994.
Net income decreased 7.5% or $464,000 to $5.7 million in 1994 from $6.2
million in 1993, and decreased as a percentage of sales to 12.1% in 1994 from
14.4% in 1993 as a result of lower operating and interest income and higher
interest expense.
21
<PAGE> 22
Fourth Quarter
Sales during the fourth quarter of 1995 increased $4.7 million, or 40.6%,
to $16.4 million from $11.7 million during the fourth quarter of 1994. Net
income during the fourth quarter of 1995 increased $1.5 million, or 112%, to
$2.8 million from $1.3 million during the fourth quarter of 1994. Earnings per
share during the fourth quarter of 1995 were $.19, with 14.6 million shares
outstanding, compared to $.09 per share earnings, with 14.4 million average
shares outstanding during the fourth quarter of 1994. The 1995 increases
resulted from improvements in operations throughout 1995 and a full quarter of
Brevital sales.
Sales during the fourth quarter of 1994 decreased $445,000, or 3.7% to
$11.7 million from $12.1 million during the fourth quarter of 1993. Net income
during the fourth quarter of 1994 decreased $547,000, or 29.2% to $1.3 million
from $1.8 million during the fourth quarter of 1993. Earnings per share during
the fourth quarter of 1994 were $.09, compared to $.13 during the fourth
quarter of 1993, with an average of 14.4 million shares outstanding during both
periods. Decreases in sales and net income during the fourth quarter of 1994
were in large part the result of a product shortage of $1.1 million of
Thrombinar which was produced for the Company under contract by Armour.
FINANCIAL CONDITION
Balance Sheet Information
The Company's current ratio declined to 2.2:1 as of December 31, 1995 from
3.6:1 as of December 31, 1994, working capital decreased to $13.4 million as of
December 31, 1995 from $15.0 million as of December 31, 1994, and debt as a
percentage of equity increased to 29.6% as of December 31, 1995 from 13.0% as
of December 31, 1994, primarily as a result of the August 31, 1995 acquisition
of the Brevital product line and the associated debt incurred in connection
therewith.
Liquidity and Capital Resources
Since inception the Company has financed its operations primarily through
cash flow from operations, public and private sales of equity securities and
borrowings under revolving credit facilities. At December 31, 1995 and 1994,
respectively, the Company had cash and cash equivalents of $5.4 million and
$7.0 million, respectively.
Total assets increased $19.8 million to $74.7 million at December 31, 1995
from $54.9 million at December 31, 1994 and total liabilities increased $11.4
million to $24.8 million at December 31, 1995 from $13.4 million at December
31, 1994. Inventories increased to $10.7 million at December 31, 1995 from
$8.3 million at December 31, 1994 principally from higher thrombin product
inventories and the acquired Brevital inventories. Accounts receivable
increased
22
<PAGE> 23
to $7.1 million at December 31, 1995 from $4.2 million at December 31, 1994 due
to higher year end sales in 1995. For the same reason, in days outstanding,
accounts receivable increased to 46 days at December 31, 1995 from 33 days at
December 31, 1994. Net property, plant and equipment increased by $2.8 million
to $15.4 million at December 31, 1995, from $12.6 million at December 31, 1994,
primarily due to the expansion of the Company's GenTrac facility.
In August 1995, the Company borrowed $8.7 million to fund its cash
requirements in connection with its acquisition of the exclusive United States
license to sell Brevital and to refinance existing term loan indebtedness of
$1.7 million, with interest thereon at the rate of 0.5% below prime, payable
in equal monthly installments until paid in full in September 2000. Such
indebtedness is secured by substantially all of the Company's assets. The
Company may prepay such indebtedness without penalty. As of December 31, 1995,
the outstanding balance of this term loan was $7.8 million. In addition, the
Company is indebted to Lilly in the principal amount of $7.0 million bearing
interest at 7.0% and due in installments of $4.0 million in August 1996 and $3.0
million in August 1997.
Under revolving credit and other borrowing lines available to the Company
at January 31, 1996, the Company had an unused line of credit aggregating $4.0
million. Such line of credit is secured by substantially all of the Company's
assets and contains certain restrictive provisions, including maintaining a
maximum tangible net worth ratio, maintaining a minimum current ratio,
obtaining prior approval of acquisition financings in excess of $3.0 million
and limiting the amount of additional borrowings. The Company will be in
default under its revolving credit and borrowing lines if (i) Dennis Jones
ceases to be the Company's Chairman of the Board and Chief Executive Officer,
or (ii) Dennis Jones and Judith Jones, collectively, own less than 15% of the
outstanding shares of Common Stock of the Company, or (iii) a third party
acquires 50% or more of the shares of the Company's capital stock without the
lender's prior approval.
The Company has experienced only moderate raw material and labor price
increases in recent years. While the Company has passed some price increases
along to customers, the Company has primarily benefitted from rapid sales
growth, negating most inflationary pressures.
The Company's manufacturing operations are not capital intensive and, as
such, the impact of inflation on the property, plant and equipment and
associated depreciation expense of the Company has been minimal.
Recent Accounting Pronouncements
Adoption of FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the
adoption of FASB Statement No. 123, "Accounting for Stock Based Compensation",
which are effective for the Company in 1996, are not anticipated to have a
material effect on the Company's consolidated financial statements.
23
<PAGE> 24
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The cumulative effect of adopting Statement No. 109 as of January 1,
1993 was to increase net income by $207,100. Application of the new income tax
rules for 1993 did not have a significant effect on net income before
cumulative effect of the accounting change.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Reference is made to the Financial Statements contained in Part IV hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with the Company's auditors, Ernst & Young
LLP, on any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
24
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
DIRECTORS AND OFFICERS
The following table sets forth certain information as of March 1, 1996
with respect to the directors and executive officers of the Company.
Name Age Position
- ---- --- --------
Dennis M. Jones 57 Chairman of the Board, President and
Chief Executive Officer
Judith A. Jones(1) 55 Executive Vice President, Secretary,
Treasurer and Director
Michael T. Bramblett 53 Executive Vice President and Director
G. Andrew Franz 43 Senior Vice President-Operations-
Pharmaceuticals and Director
David A. McLaughlin 48 Senior Vice President-Operations-
Nutritionals and Director
Edward A. Chod(2) 42 Director
Stanley L. Lopata(1)(2) 81 Director
Thomas F. Patton(1) 47 Director
L. John Polite, Jr.(1)(2) 74 Director
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
25
<PAGE> 26
Dennis M. Jones, the founder of the Company, has been JMI's Chairman of
the Board, President and Chief Executive Officer since its inception in March
1981. Mr. Jones has been involved primarily in the pharmaceutical industry
since 1964 in various marketing, management and administrative positions. He
was a co-founder of O'Neal, Jones and Feldman Pharmaceuticals, which was
acquired by Chromalloy American Pharmaceuticals, Inc. in 1978 and subsequently
acquired by Forest Laboratories, Inc., a specialty pharmaceutical company, in
1984. Mr. Jones has been a director of Mark Twain State Bank, a subsidiary of
Mark Twain Bancshares, Inc., since 1988.
Judith A. Jones joined the Company in October 1981 and has been in charge
of the financial affairs and books of the Company since that time. Mrs. Jones
has been a Director of the Company since December 1981, and the Secretary and
Treasurer since April 1982. Mrs. Jones served as Vice President of the Company
from March 1985 to February 1994 and has been Executive Vice President of the
Company since February 1994.
Michael T. Bramblett, a Director of the Company since 1987, served as Vice
President - Marketing of the Company from January 1991 to February 1994 and has
served as Executive Vice President since February 1994. From May 1988 through
December 1990, Mr. Bramblett served as Marketing Director of Carlson Marketing
Group, and from June 1987 until May 1988, he served as Corporate Vice President
of S&H Motivation Company.
G. Andrew Franz, a Director of the Company since 1994, became Senior Vice
President-Operations-Pharmaceuticals for the Company in February 1994. He
served as the Vice President-Operations of JMI-Canton since the facility was
acquired by JMI-Canton from Bowman Pharmaceuticals, Inc. in March 1984 until
February 1994. Prior to March 1984, Mr. Franz held various management
positions for 14 years within Bowman Pharmaceuticals, Inc., including Chief
Chemist and Vice President-Operations.
David A. McLaughlin, a Director of the Company since 1994, became Senior
Vice President-Operations-Nutritionals in February 1994. He served as the
Vice President-Operations of JMI's subsidiary, American Vitamin Company from
May 1988 until that company's merger into JMI Phoenix in 1993. From April 1986
to May 1988, Mr. McLaughlin was the Vice President-Sales and Marketing of JMI
Phoenix. Prior to that time, Mr. McLaughlin served as an independent
consultant to a number of health food, chemical and pharmaceutical companies,
including JMI Phoenix. From May 1978 to January 1982 he was a supervisor of
packaging and processing for the Searle Consumer Products Division of G.D.
Searle & Company, a chemical company.
Edward A. Chod has been a Director since 1991. Mr. Chod is an officer and
shareholder in the law firm of Greensfelder, Hemker & Gale, P.C. which he
joined in 1978 and which has served as counsel to the Company since 1982.
Stanley L. Lopata, a Director since 1988, is the President of Lopata
Research and Development Corp. and has served in that capacity since 1988.
Prior to 1988, Mr. Lopata was the Chairman of the Board of Directors and Chief
Executive Officer of Carboline Corporation, a
26
<PAGE> 27
manufacturer of specialty paint and coating products, from 1960 through 1988.
Mr. Lopata has been a director of Boatmen's Trust Company, a subsidiary of
Boatmen's Bancshares, Inc., since 1983.
Thomas F. Patton, Ph.D., a Director since 1995, is President of the St.
Louis College of Pharmacy and has served in that capacity since June 1994.
From April 1993 until January 1994 and from January 1994 until May 1994, Dr.
Patton served as Executive Director of Pharmaceutical Research and Development
and as Vice President of Pharmaceutical Research and Development, respectively,
at Dupont-Merck Pharmaceutical Co., a pharmaceutical company. From March 1990
through March 1993, Dr. Patton served as Director and Senior Director of
Pharmaceutical Research and Development at Merck and Co., Inc., a
pharmaceutical company. In 1993, Dr. Patton was President of the American
Association of Pharmaceutical Scientists. Dr. Patton's 20 year career also
includes tenures as Professor of Pharmaceutical Chemistry and Pharmacy Practice
at the University of Kansas, Associate Director Control Development at the
Upjohn Co., a pharmaceutical company, and Vice President of Operations at Oread
Laboratories, Inc., a pharmaceutical company.
L. John Polite, Jr., a Director since 1989, is Chairman of Peridot (New
Jersey) Chemicals, Inc., and has served in that capacity since December 1989.
He was the Chairman of the Board, President and Chief Executive Officer of
Essex Chemical Corporation ("Essex") from April 1978 to October 1988 when Essex
merged into Dow Chemical Company, a chemical company. Mr. Polite also serves
as a director of Witco Corporation, a manufacturer and marketer of a wide range
of specialty chemicals, petroleum products and engineered materials.
Dennis M. Jones and Judith A. Jones are husband and wife. G. Andrew Franz
is the son-in-law of Dennis M. and Judith A. Jones.
Directors of the Company are elected by the Company's stockholders and
hold office until the next annual meeting of stockholders and until their
successors are elected and qualified, or until their earlier resignation or
removal. All executive officers are appointed by and serve at the discretion
of the Board of Directors.
No employee who is a director receives a director's fee for services
rendered as a director. However, each non-employee director receives
reimbursement for any expenses incurred in his capacity as a director of the
Company and $2,500 per meeting of the Board of Directors attended by such
non-employee director, subject to a minimum (as of December 31, 1995) of $5,000
per year. In addition, non-employee directors who are members of the Company's
compensation committee receive $500 per meeting of the compensation committee
attended by such non-employee directors. Finally, the present non-employee
directors of the Company have been granted stock options pursuant to the
Company's 1994 Formula Stock Option Plan for Non-Management Directors, as set
forth in the table below:
27
<PAGE> 28
<TABLE>
<CAPTION>
No. of Options Per Share Exercise Initial Exercise
Name Date of Grant Granted(1) Price(1) Date Expiration Date
- ------------------- ------------- -------------------- -------------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
Stanley L. Lopata 6/1/94 7,500 $7.00 6/1/94 6/1/99
L. John Polite, Jr. 6/1/94 7,500 $7.00 6/1/94 6/1/99
Edward A. Chod 6/1/94 7,500 $7.00 5/1/95 5/1/00
Thomas F. Patton 6/1/95 7,500 $6.67 5/1/96 5/1/01
</TABLE>
- ---------------
(1) Adjusted to reflect the three-for-two split effected in the form of a 50%
stock dividend to be paid on March 1, 1996 to holders of record on
February 23, 1996.
28
<PAGE> 29
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
Summary Compensation Table. The table below sets forth all compensation
received in each of the three fiscal years ended December 31, 1993, 1994 and
1995 for services rendered in all capacities to the Company and its
subsidiaries by the Chief Executive Officer and the other four (4)
highest-compensated Executive Officers of the Company during the fiscal year
ended December 31, 1995 (the "Named Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
---------------------------------------------- Compensation
------------
Awards
--------------------
Securities
Other Annual Underlying Options All Other
Name and Principal Position Year Salary Bonus Compensation (1) (#) Compensation
- --------------------------- ----- -------- ------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Dennis M. Jones, Chairman 1995 $300,000 $75,000 0 0 $17,401(2)
of the Board, Director and 1994 250,000 50,000 0 0 13,971(2)
President and Chief 1993 200,000 50,000 0 0 15,204(2)
Executive Officer
Judith A. Jones, Director, 1995 $150,000 $35,000 0 0 $9,719(3)
Executive Vice President, 1994 125,000 25,000 0 0 10,023(3)
Secretary and Treasurer 1993 100,000 25,000 0 0 8,920(3)
Michael T. Bramblett, 1995 $150,000 $35,000 0 0 $6,771(4)
Director and Executive 1994 125,000 25,000 0 0 5,990(4)
Vice President 1993 100,000 25,000 0 0 5,750(4)
G. Andrew Franz, Director 1995 $120,000 $20,000 0 0 $5,125(4)
and Senior Vice President 1994 90,000 10,000 0 37,500(5) 4,813(4)
- - Operations - 1993 72,000 8,000 0 0 3,066(4)
Pharmaceuticals
David A. McLaughlin, 1995 $120,000 $20,000 0 0 $5,125(4)
Director and Senior Vice 1994 90,000 10,000 0 37,500(5) 4,813(4)
President - Operations - 1993 80,000 10,000 0 0 4,500(4)
Nutritionals
</TABLE>
- ---------------
(1) None of the Named Executives received Other Annual Compensation which is
required to be reported in this column.
29
<PAGE> 30
(2) Consists of a Company contribution to a 401(k) plan ($9,240 in 1995,
$6,264 in 1994 and $8,004 in 1993) and the dollar value of premiums paid
by the Company for a split-dollar life insurance policy on Mr. Jones, of
which $8,161, $7,707 and $7,200 constituted his entire economic benefit
in the years 1995, 1994 and 1993, respectively.
(3) Consists of a Company contribution to a 401(k) plan ($6,771 in 1995,
$7,239 in 1994 and $6,160 in 1993) and the dollar value of premiums paid
by the Company for a split-dollar life insurance policy on Mrs. Jones, of
which $2,948, $2,784 and $2,760 constituted her entire economic benefit
in the years 1995, 1994 and 1993, respectively.
(4) Consists of a Company contribution to a 401(k) plan.
(5) As adjusted to reflect the three-for-two stock split effected in the form
of a 50% stock dividend to be paid on March 1, 1996 to holders of record
on February 23, 1996.
Stock Option/SAR Grants. The Company granted no stock options and no
stock appreciation rights ("SARs") to the Named Executives during the fiscal
year ended December 31, 1995.
Aggregated Option Exercises in Last Fiscal Year and FY-end Option Values.
The following table provides information with respect to the stock options
exercised during the fiscal year ended December 31, 1995 and the value as of
December 31, 1995 of unexercised in-the-money options held by the Named
Executives. The value realized on the exercise of options is calculated using
the difference between the option exercise price and the fair market value of
the Company's stock on the date of the exercise. The value of unexercised
in-the-money options at fiscal year end is calculated using the difference
between the option exercise price and the fair market value of the Company's
stock at fiscal year end, December 31, 1995. The Named Executives exercised no
SARs during the fiscal year ended December 31, 1995 and held no SARs as of
December 31, 1995. The information in the following table is adjusted to
reflect the three-for-two stock split effected in the form of a 50% stock
dividend, to be paid on March 1, 1996 to holders of record on February 23,
1996.
<TABLE>
<CAPTION>
Value of
Number of Unexercised In-the-
Shares Unexercised Options Money Options at
Acquired Value at FY-End FY-end
on Exercise Realized (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------- ----------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dennis M. Jones 0 0 0/0 N.A.
Judith A. Jones 0 0 0/0 N.A.
Michael T. Bramblett 0 0 150,000/0 $2,087,500/0
G. Andrew Franz 6,000 $47,000 7,500/30,000 $80,625/322,500
David A. McLaughlin 60,000 $670,000 7,500/30,000 $80,625/322,500
</TABLE>
30
<PAGE> 31
Cash or Deferred Profit-Sharing Plan and Trust. Effective as of January
1, 1987, the Company adopted a Cash or Deferred Profit-Sharing Plan and Trust
known as JMI's Employee Retirement 401(k) Plan ("401(k) Plan"). The 401(k)
Plan has been amended from time-to-time and was amended and restated as of
January 1, 1995. The 401(k) Plan provides employees with a convenient way to
save on a regular and long-term basis and encourages employees to make and
continue careers with the Company. During 1995, the Company made matching
contributions to the 401(k) Plan of $33,032 to the Named Executives.
To become eligible to participate in the 401(k) Plan, an employee must
have completed six months of service and have reached his or her eighteenth
birthday ("Eligible Employee"). As of January 1, 1996, the Company had
approximately 275 Eligible Employees, including the directors who are also
Named Executives (Dennis M. Jones, Judith A. Jones, Michael T. Bramblett, G.
Andrew Franz and David A. McLaughlin). Pursuant to the 401(k) Plan, an
Eligible Employee who participates ("Participant") may direct that a portion
of his or her compensation be contributed to the 401(k) Plan ("Elective
Contributions"). The Company will contribute a matching amount determined by
the Company each year (five percent in each of 1993, 1994 and 1995) of the
Participant's compensation ("Company Contributions"). In addition to matching
contributions, the Company may make a discretionary contribution which is
allocated among Participants in proportion to compensation. The Participants
are not allowed to make any voluntary contributions to the 401(k) Plan, other
than their Elective Contributions. The Company Contributions are subject to a
vesting schedule described below and may not be withdrawn from the 401(k) Plan
until age 59 1/2, retirement, termination of employment, or other condition
specified in the 401(k) Plan. In addition, Participants may withdraw their
Elective Contributions to the 401(k) Plan at any time after they are made for
reasons of hardship as described in the 401(k) Plan. Elective Contributions
are always 100% vested. Company Contributions become vested according to the
following schedule:
<TABLE>
Years of Percentage
Service Vested
----------- ----------
<S> <C>
2............ 20%
3............ 40%
4............ 60%
5............ 80%
6............ 100%
</TABLE>
Forfeitures of discretionary Company Contributions will be allocated to the
accounts of other Participants. Forfeitures of matching contributions are
allocated in proportion to matching contributions.
31
<PAGE> 32
The 401(k) Plan Trustee may invest in investments as described in the
401(k) Plan, including stocks, bonds, notes and other property. Participants
may not obtain loans from their accounts under any circumstances. Company
Contributions have, at times, been invested in shares of the Company's Common
Stock acquired in the open market. On February 15, 1996, the 401(k) Plan held
90,000 shares of Common Stock (as adjusted for the three-for-two stock split
effected in the form of a 50% stock dividend to be paid March 1, 1996 to
holders of record as of February 23, 1996).
The Company is the 401(k) Plan Administrator and currently pays all
expenses of the 401(k) Plan other than audit fees, which are paid by the 401(k)
Plan. The Company has appointed Dennis M. Jones and Judith A. Jones as
Trustees of the 401(k) Plan. The 401(k) Plan may be modified by the Board at
any time, provided that no modification shall adversely affect the rights of
the Participants or divert any of the trust fund to purposes other than the
benefit of the Participants.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the record
and beneficial ownership of the Common Stock of the Company on the indicated
date (as adjusted to reflect the three-for-two stock split effected in the form
of a 50% stock dividend to be paid on March 1, 1996 to holders of record on
February 23, 1996) by (i) each director and Named Executive (as such term is
defined in "Executive Compensation -- Summary Compensation Table", above) of
the Company, (ii) all directors and executive officers of the Company as a
group, and (iii) each shareholder owning of record or beneficially five percent
(5%) or more of the outstanding Common Stock:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF FEBRUARY 15, 1996
Name and Address of Beneficial Percentage of Shares
Owner(1) Shares Beneficially Owned(2) Beneficially Owned(3)
- ---------------------------------- ---------------------------- ---------------------
<S> <C> <C>
Dennis M. Jones 2,781,840(4)(5) 19.4%
Chairman of the Board of
Directors and President
Judith A. Jones 680,625(4)(6) 4.8%
Executive Vice President, Secretary,
Treasurer and Director
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
Michael T. Bramblett 162,576(7) 1.1%
Executive Vice President and
Director
G. Andrew Franz 325,183(8) 2.3%
Senior Vice President - Operations -
Pharmaceuticals and
Director
David A. McLaughlin 82,500(9) *
Senior Vice President - Operations -
Nutritionals and
Director
Stanley Lopata 151,500(10) 1.1%
Director
900 South Hanley Rd.
St. Louis, MO 63106 1.1%
L. John Polite, Jr 25,500(11) *
Director
211 Oldwoods Rd.
Franklin Lakes, NJ 07417
Edward A. Chod 17,250(12) *
Director
10 South Broadway, Ste. 2000
St. Louis, MO 63102
Thomas F. Patton, Ph.D. 0 *
Director
All Directors and 4,226,974 29.3%
Executive Officers as a Group
(consisting of nine persons)
</TABLE>
- ---------------
* Less than one percent.
(1) Except as otherwise indicated, the officers and directors of the Company
named in the above table have sole voting and investment power with
respect to all shares of Common Stock
33
<PAGE> 34
shown as beneficially owned by them and their respective addresses are
1945 Craig Road, St. Louis, Missouri 63146.
(2) Includes shares deemed owned as a result of options to purchase 96,000
shares which are presently or will become exercisable within 60 days of
February 15, 1996.
(3) The number of shares of Common Stock deemed outstanding as of February
15, 1996 includes (i) 14,310,663 shares of Common Stock outstanding, (ii)
an aggregate of 737 shares of Common Stock issuable upon conversion of all
of the shares of the Company's Preferred Stock, Series A outstanding at
February 15, 1996 (which conversion is presently in progress), and (iii)
shares of Common Stock issuable pursuant to options held by the directors
and executive officers that are currently exercisable or will become
exercisable within 60 days of February 15, 1996 by the person or group in
question.
(4) Excludes 90,000 shares owned by the Company's 401(k) Plan (of which
Dennis and Judith Jones are co-trustees) and with respect to which Dennis
and Judith Jones disclaim beneficial ownership.
(5) Only includes shares owned directly by Mr. Jones. Does not include
680,625 shares owned by his spouse, with respect to which he disclaims
beneficial ownership.
(6) Only includes shares owned directly by Mrs. Jones. Does not include
2,781,840 shares owned by her spouse, with respect to which she disclaims
beneficial ownership.
(7) Includes 83,250 shares owned directly by Mr. Bramblett, 2,400 by his IRA,
1,926 shares held by his spouse's IRA and with respect to which he
disclaims beneficial ownership, and vested and unexercised options to
purchase 75,000 shares of Common Stock pursuant to the Company's 1989
Incentive Stock Option Plan.
(8) Includes 114,007 shares owned directly by Mr. Franz, 154,110 shares owned
by his spouse and with respect to which he disclaims beneficial ownership,
34,560 shares held by his spouse as custodian for his children and with
respect to which he disclaims beneficial ownership, 15,006 shares held by
his spouse as trustee for his children and with respect to which he
disclaims beneficial ownership and vested and unexercised options to
purchase 7,500 shares of common stock pursuant to the Company's 1989
Incentive Stock Option Plan.
(9) Includes 75,000 shares owned directly by Mr. McLaughlin and vested and
unexercised options to purchase 7,500 shares of Common Stock pursuant to
the Company's 1989 Incentive Stock Option Plan.
(10) Includes 109,500 shares owned directly by Mr. Lopata, 40,500 shares owned
by Mr. Lopata through his spouse's revocable trust and with respect to
which he disclaims beneficial
34
<PAGE> 35
ownership, and vested and unexercised options to purchase 1,500 shares of
Common Stock pursuant to the Company's 1994 Formula Stock Option Plan
for Non-Management Directors.
(11) Includes 22,500 shares owned directly by Mr. Polite and vested and
unexercised options to purchase 3,000 shares of Common Stock pursuant to
the Company's 1994 Formula Stock Option Plan for Non-Management Directors.
(12) Includes 15,750 shares owned directly by Mr. Chod and vested and
unexercised options to purchase 1,500 shares of Common Stock pursuant to
the Company's 1994 Formula Stock Option Plan for Non-Management Directors.
Based upon filings with the Securities and Exchange Commission, the
Company is advised that as of December 31, 1995, each of the following
investment advisors held discretionary authority over accounts holding, in the
aggregate, the indicated numbers of shares of the Common Stock (as adjusted to
reflect the three-for-two stock split), in each case representing approximately
5% of the then outstanding shares of Common Stock (as adjusted to reflect the
three-for-two stock split):
<TABLE>
<CAPTION>
Name & Address of Investment Advisor Shares
------------------------------------- ------------------
<S> <C>
Nicholas Applegate Capital Management 715,350 shares
600 West Broadway, 29th Floor
San Diego, CA 92101
Kennedy Capital Management 683,100 shares
425 N. New Ballas Road, Suite 181
St. Louis, MO 63141
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Edward A. Chod, director of the Company, is a principal in the law firm of
Greensfelder, Hemker & Gale, P.C., which firm has served as counsel to the
Company since 1982. The amount of legal fees paid by the Company to
Greensfelder, Hemker & Gale, P.C. during the fiscal year ended December 31,
1995 did not exceed five percent (5%) of such firm's gross revenues for its
applicable fiscal year.
35
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The consolidated financial statements filed as part of this report on
Form 10-K are listed on the accompanying Index to Consolidated Financial
Statements and Consolidated Financial Statement Schedule on page F-1.
2. The consolidated financial statement schedule filed as part of this
report on Form 10-K is listed on the accompanying Index to
Consolidated Financial Statements and Consolidated Financial Statement
Schedule on page F-1.
3. Exhibits:
(3.1) Restated Certificate of Incorporation of the Company dated
June 21, 1988.
(3.2) Certificate of Amendment of the Certificate of Incorporation of
the Company dated May 14, 1990.
(3.3) Certificate of Amendment of the Certificate of Incorporation of
the Company dated May 30, 1991.
(3.4) Certificate of Designation of Convertible Preferred Stock,
Series A, as filed with the Secretary of State of Delaware on
May 15, 1991, is incorporated by reference from Form 8-K dated
May 29, 1991.
(3.5) Amended By-Laws of the Company as of June 14, 1988.
(3.6) Amendment to Section 3.02 of By-Laws of the Company as of April
1, 1992.
(10.1) The Company's 1989 Incentive Stock Option Plan.
(10.2) The Company's Cash or Deferred Profit Sharing Plan and Trust
amended and restated as of January 1, 1995 (to be filed by
amendment).
(10.3) Agreement and Plan of Reorganization dated as of December 27,
1990, as Amended and Restated as of March 15, 1991, between the
Company and GenTrac, Inc., is incorporated by reference from Form
8-K dated May 29, 1991.
(10.4) Asset Purchase Agreement dated as of February 12, 1993,
between the Company and Tsumura International, Inc., is
incorporated by reference from Form 8-K dated February 18, 1993.
36
<PAGE> 37
(10.5) Stock Purchase Agreement dated as of March 22, 1993, among the
Company and each of the stockholders of Bronson Pharmaceuticals,
is incorporated by reference from Form 8-K dated April 7, 1993.
(10.6) The Company's 1994 Incentive Stock Plan effective June 1, 1994, is
incorporated by reference from the Company's Proxy Statement dated
April 21, 1995 for the Annual Meeting of Stockholders held May
15, 1995.
(10.7) The Company's 1994 Formula Stock Option Plan for Non-Management
Directors effective May 25, 1994, is incorporated by reference
from the Company's Proxy Statement dated April 21, 1995 for
the Annual Meeting of Stockholders held May 15, 1995.
(10.8) Licensing Agreement dated August 31, 1995 between the Company
and Eli Lilly & Company is incorporated by reference from Form
8-K dated September 15, 1995.
(10.9) Manufacturing Agreement dated August 31, 1995 between the Company
and Eli Lilly & Company, is incorporated by reference from Form
8-K dated September 15, 1996.
(11.1) Statement re: computation of per share earnings.
(21.1) Subsidiaries of the Registrant.
(23.1) Consent of Ernst & Young LLP.
(27.1) Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JONES MEDICAL INDUSTRIES, INC.
By: /s/ Dennis M. Jones
-----------------------------------
Dennis M. Jones, President
Date: March 1, 1996
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURES TITLE DATE
- --------------------------- -------------------- --------------------
/s/ Dennis M. Jones President, Chief March 1, 1996
- ------------------------- Executive Officer --------------
Dennis M. Jones and Director
/s/ Judith A. Jones Principal Financial March 1, 1996
- ------------------------- and Accounting --------------
Judith A. Jones Officer, Executive
Vice President,
Secretary,
Treasurer and
Director
/s/ Michael T. Bramblett Executive Vice March 1, 1996
- ------------------------ President and --------------
Michael T. Bramblett Director
38
<PAGE> 39
/s/ G. Andrew Franz Senior Vice March 1, 1996
- -------------------------- President -
G. Andrew Franz Operations -
Pharmaceuticals and
Director
/s/ David A. McLaughlin Senior Vice March 1, 1996
- -------------------------- President -
David A. McLaughlin Operations -
Nutritionals and
Director
/s/ Edward A. Chod Director March 1, 1996
- --------------------------
Edward A. Chod
/s/ Stanley Lopata Director March 1, 1996
- --------------------------
Stanley Lopata
/s/ L. John Polite, Jr. Director March 1, 1996
- --------------------------
L. John Polite, Jr.
/s/ Thomas F. Patton, Ph.D. Director March 1, 1996
- ---------------------------
Thomas F. Patton, Ph.D.
39
<PAGE> 40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Page
----
Report of Ernst & Young LLP, independent auditors F-2
Consolidated balance sheets as of December 31, F-3
1994 and 1995
Consolidated statements of income for the years F-4
ended December 31, 1993, 1994 and 1995
Consolidated statements of stockholders' equity F-5
for the years ended December 31, 1993, 1994 and
1995
Consolidated statements of cash flows for the F-6
years ended December 31, 1993, 1994 and 1995
Notes to consolidated financial statements F-7
Consolidated schedule for the years ended
December 31, 1993, 1994 and 1995:
II. Valuation and qualifying accounts F-16
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and notes thereto.
F-1
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Jones Medical Industries, Inc.
We have audited the accompanying consolidated balance sheets of Jones
Medical Industries, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and 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 consolidated financial position
of Jones Medical Industries, Inc. at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 10 to the consolidated financial statements, in
1993, the Company changed its method of accounting for income taxes.
ERNST & YOUNG LLP
St. Louis, Missouri
February 12, 1996, except for
Note 16 as to which
the date is February 26, 1996
F-2
<PAGE> 42
JONES MEDICAL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 7,031,765 $ 5,410,601
Accounts receivable, less allowance for doubtful accounts of
$64,794 in 1994 and $128,712 in 1995.......................... 4,242,356 7,132,458
Inventories...................................................... 8,320,590 10,746,630
Deferred income taxes............................................ 652,805 933,790
Other............................................................ 545,843 788,670
----------- -----------
Total current assets.......................................... 20,793,359 25,012,149
Intangible assets:
Customer lists................................................... 6,084,967 6,084,967
Distribution systems, trademarks and licenses.................... 11,836,110 24,336,110
Restrictive covenants and other intangibles...................... 2,208,710 3,142,328
Goodwill......................................................... 4,636,813 4,255,298
----------- -----------
24,766,600 37,818,703
Less accumulated amortization.................................... 4,092,394 4,883,538
----------- -----------
Net intangible assets.............................................. 20,674,206 32,935,165
Net property, plant and equipment.................................. 12,603,165 15,442,617
Other assets....................................................... 856,554 1,306,712
----------- -----------
Total assets.................................................. $54,927,284 $74,696,643
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................ $ 3,639,966 $ 4,775,141
Current portion of long-term debt................................ 1,611,246 5,633,330
Income taxes payable............................................. 292,774 871,401
Dividends payable................................................ 234,758 283,605
----------- -----------
Total current liabilities..................................... 5,778,744 11,563,477
Long-term debt..................................................... 3,799,978 9,124,986
Deferred income taxes.............................................. 3,858,198 4,118,046
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares authorized,
99,919 shares issued and outstanding in 1994 and 1,056 in 1995
($2,248,000 aggregate liquidation preference in 1994 and
$24,000 in 1995).............................................. 999 10
Common Stock, $0.04 par value; 30,000,000 shares authorized,
13,846,519 shares issued and outstanding in 1994 and
14,178,129 in 1995............................................ 553,862 567,126
Contributed capital (including effects of unearned compensation
and related amortization)..................................... 19,454,811 19,544,584
Retained earnings................................................ 21,480,692 29,778,414
----------- -----------
Total stockholders' equity.................................... 41,490,364 49,890,134
----------- -----------
Total liabilities and stockholders' equity.................... $54,927,284 $74,696,643
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 43
JONES MEDICAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Sales.................................................. $43,215,498 $47,548,803 $56,397,095
Cost of sales.......................................... 21,909,428 24,685,826 27,165,896
----------- ----------- -----------
Gross profit........................................... 21,306,070 22,862,977 29,231,199
Selling, general and administrative expenses:
Selling.............................................. 6,436,103 8,043,229 8,430,912
General and administrative........................... 3,372,050 3,990,735 4,044,562
Research and development............................. 377,304 100,683 --
Amortization......................................... 1,128,703 1,362,936 1,429,804
----------- ----------- -----------
Total selling, general and administrative expenses..... 11,314,160 13,497,583 13,905,278
----------- ----------- -----------
Operating income....................................... 9,991,910 9,365,394 15,325,921
Other income (expense):
Interest income...................................... 189,249 101,255 172,709
Interest expense..................................... (354,187) (516,274) (452,097)
Miscellaneous........................................ 120,841 88,132 (121,229)
----------- ----------- -----------
Income before income taxes and cumulative effect of
change in accounting principle....................... 9,947,813 9,038,507 14,925,304
Provision for income taxes............................. 3,744,000 3,299,000 5,597,000
----------- ----------- -----------
Net income before cumulative effect of change in
accounting principle................................. 6,203,813 5,739,507 9,328,304
Cumulative effect of change in accounting principle.... 207,100 -- --
----------- ----------- -----------
Net income............................................. $ 6,410,913 $ 5,739,507 $ 9,328,304
=========== =========== ===========
Earnings per common and common equivalent share before
cumulative effect of change in accounting
principle............................................ $0.44 $0.40 $0.64
Cumulative effect of change in accounting principle.... 0.01 -- --
----- ----- -----
Earnings per common and common equivalent share........ $0.45 $0.40 $0.64
===== ===== =====
</TABLE>
See accompanying notes.
F-4
<PAGE> 44
JONES MEDICAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------- PREFERRED COMMON CONTRIBUTED RETAINED
PREFERRED COMMON STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ---------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992..... 241,200 8,817,766 $ 2,412 $352,710 $18,662,385 $11,103,359 $30,120,866
Three-for-two Common Stock
split declared February 7,
1996......................... -- 4,408,883 -- 176,356 (176,356) -- --
Exercise of stock options...... -- 152,891 -- 6,116 402,154 -- 408,270
Restricted stock:
Amortization of unearned
compensation............... -- -- -- -- 132,500 -- 132,500
Conversion of Preferred
Stock........................ (18,494) 48,519 (185) 1,941 (1,756) -- --
Net income..................... -- -- -- -- -- 6,410,913 6,410,913
Cash dividend declared --
Common Stock ($0.06 per
share)....................... -- -- -- -- -- (799,218) (799,218)
Cash dividend declared --
Preferred Stock ($0.16 per
share)....................... -- -- -- -- -- (37,221) (37,221)
------- ---------- ------- -------- ----------- ----------- -----------
Balance at December 31, 1993..... 222,706 13,428,059 2,227 537,123 19,018,927 16,677,833 36,236,110
Exercise of stock options...... -- 96,150 -- 3,846 417,079 -- 420,925
Restricted stock:
Amortization of unearned
compensation............... -- -- -- -- 30,470 -- 30,470
Conversion of Preferred
Stock........................ (122,787) 322,310 (1,228) 12,893 (11,665) -- --
Net income..................... -- -- -- -- -- 5,739,507 5,739,507
Cash dividend declared --
Common Stock ($0.06 2/3 per
share)....................... -- -- -- -- -- (911,718) (911,718)
Cash dividend declared --
Preferred Stock ($0.16 per
share)....................... -- -- -- -- -- (24,930) (24,930)
------- ---------- ------- -------- ----------- ----------- -----------
Balance at December 31, 1994..... 99,919 13,846,519 999 553,862 19,454,811 21,480,692 41,490,364
Exercise of stock options...... -- 187,710 -- 7,508 436,947 -- 444,455
Restricted stock:
Amortization of unearned
compensation............... -- -- -- -- 29,544 -- 29,544
Conversion of Preferred
Stock........................ (54,859) 143,900 (549) 5,756 (5,207) -- --
Return of escrowed Preferred
Stock........................ (44,004) -- (440) (380,837) -- (381,277)
Escrowed preferred dividend.... -- -- -- -- 9,326 -- 9,326
Net income..................... -- -- -- -- -- 9,328,304 9,328,304
Cash dividend declared --
Common Stock ($0.07 1/3 per
share)....................... -- -- -- -- -- (1,026,400) (1,026,400)
Cash dividend declared --
Preferred Stock ($0.16 per
share)....................... -- -- -- -- -- (4,182) (4,182)
------- ---------- ------- -------- ----------- ----------- -----------
Balance at December 31, 1995..... 1,056 14,178,129 $ 10 $567,126 $19,544,584 $29,778,414 $49,890,134
======= ========== ======= ======== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 45
JONES MEDICAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
------------ ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 6,410,913 $ 5,739,507 $ 9,328,304
Noncash adjustments:
Cumulative effect of change in accounting
principle...................................... (207,100) -- --
Depreciation...................................... 652,020 797,867 967,265
Amortization...................................... 1,128,703 1,362,936 1,429,804
Provision for uncollectibles...................... 41,582 7,212 63,918
Deferred income taxes............................. (18,075) (109,156) (21,136)
(Gain)/loss on sale of assets..................... -- (1,471) 126,060
Change in assets and liabilities, net of effects
from acquisitions:
Accounts receivable.......................... (1,282,425) 783,610 (2,954,020)
Inventories.................................. (3,632,610) 1,549,648 (2,426,040)
Other assets................................. (499,164) 278,391 (692,985)
Accounts payable and accrued expenses........ (977,097) (261,227) 1,135,175
Income taxes payable......................... (526,089) 242,023 578,627
------------ ----------- ------------
Net cash from operating activities........ 1,090,658 10,389,340 7,534,972
------------ ----------- ------------
INVESTING ACTIVITIES
Maturity (purchases) of certificates of deposit and
U.S. government obligations....................... (224,565) 1,247,489 --
Sales of marketable equity securities............... 108,755 3,515 --
Additions to property, plant and equipment.......... (4,946,251) (3,178,365) (4,657,596)
Proceeds from sale of assets........................ -- 268,938 766,108
Purchases of intangible assets in product line
acquisitions...................................... (3,542,463) -- (14,072,278)
Purchase of Bronson Pharmaceuticals, Inc., net of
cash acquired..................................... (8,183,542) -- --
------------ ----------- ------------
Net cash used for investing.................. (16,788,066) (1,658,423) (17,963,766)
------------ ----------- ------------
FINANCING ACTIVITIES
Proceeds from long-term debt........................ 8,000,000 -- 14,000,000
Repayment of long-term debt......................... (1,500,006) (2,134,295) (4,652,908)
Payments of cash dividends.......................... (789,749) (934,495) (983,917)
Proceeds from exercise of stock options............. 408,270 420,925 444,455
------------ ----------- ------------
Net cash from (used for) financing........... 6,118,515 (2,647,865) 8,807,630
------------ ----------- ------------
Increase (decrease) in cash and cash equivalents.... (9,578,893) 6,083,052 (1,621,164)
Cash and cash equivalents, beginning of year........ 10,527,606 948,713 7,031,765
------------ ----------- ------------
Cash and cash equivalents, end of year....... $ 948,713 $ 7,031,765 $ 5,410,601
============ =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 46
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF OPERATIONS AND CUSTOMER CONCENTRATION
The Company is engaged in the manufacturing, marketing, and sale of
pharmaceuticals and nutritional supplements. The Company's principal customers
include consumers, retail pharmacies, hospitals (through wholesale drug
distributors), physicians, and the United States government, of which sales to
the United States government totaled approximately $4,600,000, $4,500,000, and
$3,250,000 in 1993, 1994, and 1995, respectively. No one customer accounted for
more than 10% of the Company's consolidated sales in 1993, 1994, or 1995. The
Company's most significant product line is a topical hemostat with sales
totaling approximately $13,126,000, $12,681,000, and $14,573,000 in 1993, 1994,
and 1995, respectively. The Company's only source of supply for this product
line is from GenTrac, Inc. ("GenTrac"), a wholly-owned subsidiary of the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Jones Medical
Industries, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents in short-term money market accounts and other investments
with original maturities of less than three months are stated at cost plus
accrued interest and are considered to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined
on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is computed
by the straight-line method over the useful life of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
----------------------------------------------------------------- -----------
<S> <C>
Buildings and improvements....................................... 15-40 years
Equipment and furniture.......................................... 5-10 years
Automobiles...................................................... 5 years
</TABLE>
INTANGIBLE ASSETS
The cost of product line or business acquisitions is allocated first to
identifiable assets and liabilities based on estimated fair values. The excess
of cost over identifiable assets and liabilities is
F-7
<PAGE> 47
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded as goodwill. Amortization is provided using the straight-line method
over the estimated useful life of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CATEGORY USEFUL LIFE
----------------------------------------------------------------- -----------
<S> <C>
Customer lists................................................... 20 years
Distribution systems, trademarks, and licenses................... 5-30 years
Restrictive covenants and other intangibles...................... 5-10 years
Goodwill......................................................... 25-40 years
</TABLE>
The Company continually reevaluates the propriety of the carrying amount of
goodwill and other intangibles as well as the related amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying values and/or revised estimates of useful lives. This evaluation is
based on the Company's projection of the undiscounted operating income before
depreciation, amortization, and interest over the remaining lives of the
amortization periods of related goodwill and intangible assets. The projections
are based on the historical trend line of actual results since the commencement
of operations and adjusted for expected changes in operating results. To the
extent such projections indicate that the undiscounted operating income (as
defined above) is not expected to be adequate to recover the carrying amounts of
related intangibles, such carrying amounts are written down by charges to
expense in amounts equal to the excess of the carrying amount of intangible
assets over the respective fair values. At this time, the Company believes that
no significant impairment of the goodwill and other intangibles has occurred and
that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
Sales are reported net of returns during the period in which product is
shipped. These sales are subsequently adjusted for reserves incurred due to
volume or other contractual discounts on certain pharmaceuticals under contracts
with hospitals and hospital buying groups. At December 31, 1995 and 1994, the
Company maintained a reserve of $1,500,000 and $1,050,000, respectively, for
such anticipated discounts.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during each year (14,256,640 in 1993, 14,391,084 in 1994, and
14,589,150 in 1995) after giving retroactive effect to a three-for-two stock
split declared February 7, 1996. The computation assumes that outstanding stock
options were exercised and the proceeds used to purchase common shares.
Outstanding Preferred Stock was assumed to have been converted to Common Stock
at the issuance date.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's incentive stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
In connection with various nonqualified stock option plans, certain options
have been granted at exercise prices below the fair market value of the Common
Stock at the grant date. Differences
F-8
<PAGE> 48
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
between the option prices and fair market values at the dates of grant are
charged to compensation expense ratably over the future service vesting periods.
DIRECT-RESPONSE ADVERTISING
Costs associated with the production of the Company's direct-response mail
order catalog are capitalized and amortized over the expected period of future
benefit, which typically does not extend beyond six months. At December 31, 1994
and 1995, approximately $181,000 and $392,000, respectively, of capitalized
catalog costs are included in the accompanying balance sheets. Advertising
expense associated with the catalog in 1993, 1994, and 1995 totalled $584,000,
$902,000, and $1,223,000, respectively.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform to the 1995 presentation.
3. COMMON STOCK SPLIT
On February 7, 1996, the Board of Directors declared a three-for-two stock
split effected in the form of a stock dividend to be paid on March 1, 1996 to
holders of record on February 23, 1996. The financial statements, including
stock option, share, per share data, and market prices, have been retroactively
adjusted to reflect the split.
4. ACQUISITIONS
Brevital
On August 31, 1995, the Company entered into a perpetual licensing
agreement with Eli Lilly & Company ("Lilly") for the exclusive United States
marketing rights to the Brevital product line. The purchase price of
approximately $14.0 million was financed with bank debt of $7.0 million and
Lilly financing of $7.0 million. Approximately $13.0 million was allocated to
the perpetual license with an amortizable life of 30 years, and $1.0 million was
allocated to a restrictive covenant with an amortizable life of 10 years.
Bronson Pharmaceuticals
On March 24, 1993, the Company acquired the outstanding stock of Bronson
Pharmaceuticals ("Bronson"), a California subchapter S corporation. The cost of
the acquisition of $10,500,000 has been recorded using the purchase method of
accounting, and the results of Bronson's operations, since the date of
acquisition, have been included in the Company's consolidated financial
statements. The excess of the purchase price over the estimated fair market
value of the net assets acquired of approximately $2,700,000 is being amortized
over 40 years using the straight-line method.
The following summarized unaudited pro forma results of operations for the
year ended December 31, 1993 assume the acquisition occurred as of the beginning
of the respective period. The pro forma results have been prepared for
comparative purposes only and do not purport to be
F-9
<PAGE> 49
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indicative of the results of operations which actually would have resulted had
the acquisition occurred on the date indicated, or which may result in the
future.
<TABLE>
<CAPTION>
PRO FORMA
1993
-----------
(UNAUDITED)
<S> <C>
Year Ended December 31
Sales........................................................................ $46,717,000
Net income before cumulative effect of change in accounting principle........ $ 6,178,000
Earnings per share before cumulative effect of change in accounting
principle................................................................. $ 0.44
Net income................................................................... $ 6,386,000
Earnings per share........................................................... $ 0.45
</TABLE>
Derma System Professional Skin Care
On February 12, 1993, the Company acquired the Derma System Professional
Skin Care product line for approximately $3,500,000 which was paid in cash. The
entire purchase price was allocated to intangible assets, the majority of which
are being amortized over a useful life of 20 years.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid the following amounts for interest and income taxes:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest................................... $ 367,812 $ 503,524 $ 299,116
Income taxes............................... $4,230,000 $3,150,000 $5,087,945
</TABLE>
6. INVENTORIES
Inventories at December 31, 1994 and 1995 are comprised of the following:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Raw materials........................................ $3,372,142 $ 4,870,595
Work-in-process...................................... 1,030,297 1,099,582
Finished goods....................................... 3,918,151 4,776,453
---------- -----------
Total inventories.................................... $8,320,590 $10,746,630
========== ===========
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Land................................................ $ 2,178,398 $ 2,158,144
Buildings and improvements.......................... 7,216,650 8,558,253
Equipment and furniture............................. 5,258,169 7,409,091
Leasehold improvements.............................. 63,964 --
Automobiles......................................... 303,689 381,984
----------- -----------
15,020,870 18,507,472
Less accumulated depreciation....................... 2,417,705 3,064,855
----------- -----------
Net property, plant and equipment................... $12,603,165 $15,442,617
=========== ===========
</TABLE>
F-10
<PAGE> 50
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1994 and 1995 are
comprised of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Trade payables....................................................... $1,294,968 $1,071,840
Sales discounts...................................................... 1,050,000 1,500,000
Compensation......................................................... 395,797 635,320
Taxes other than income.............................................. 138,307 114,137
Interest............................................................. 24,000 175,285
Royalties............................................................ 109,483 174,276
Health insurance claims.............................................. 201,083 198,060
Property and equipment purchases..................................... 139,406 203,762
Catalog expenses..................................................... 1,066 163,418
Other................................................................ 285,856 539,043
---------- ----------
Total accounts payable and accrued expenses.......................... $3,639,966 $4,775,141
========== ==========
</TABLE>
9. LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Note payable to bank at bank base rate (8.5% at December 31, 1994),
secured by all corporate assets, payable $133,334 monthly plus
interest; final payment due July 1998............................. $5,399,986 $ --
Note payable to bank at .5% below bank base rate (8.25% at December
31, 1995), secured by all corporate assets, payable $136,111
monthly plus interest; final payment due September 2000........... -- 7,758,316
Note payable to Lilly at 7%; payable in installments of $4,000,000
in August 1996 and $3,000,000 in August 1997...................... -- 7,000,000
Note payable to former shareholder at 5.49% interest; due on
demand............................................................ 11,238 --
---------- -----------
5,411,224 14,758,316
Less current maturities............................................. 1,611,246 5,633,330
---------- -----------
Total long-term debt................................................ $3,799,978 $ 9,124,986
========== ===========
</TABLE>
Approximately $1,167,000 of the $5,399,986 of long-term debt outstanding at
December 31, 1994 was refinanced in connection with the 1995 bank note payable.
Maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................. $ 5,633,330
1997............................................................. 4,633,330
1998............................................................. 1,633,330
1999............................................................. 1,633,330
2000............................................................. 1,224,996
-----------
$14,758,316
===========
</TABLE>
F-11
<PAGE> 51
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 16, 1995, the Company increased its available borrowings under the
March 16, 1993 credit arrangement from $2.0 million to $4.0 million. Interest on
outstanding borrowings is based on the bank base rate and is payable monthly.
Borrowings on the line of credit are secured by substantially all of the assets
of the Company. There were no borrowings under the line of credit agreement in
1994 and 1995.
The bank credit agreement including the note payable to bank and the line
of credit arrangement contain certain restrictive provisions including
maintaining a maximum tangible net worth ratio, maintaining a minimum current
ratio, obtaining prior approval of acquisition financings in excess of $3.0
million and limiting the amount of additional borrowings. The Company will be in
default under its revolving credit and borrowing lines if (i) Dennis Jones
ceases to be the Company's Chairman of the Board and Chief Executive Officer, or
(ii) Dennis Jones and Judith Jones, collectively, own less than 15% of the
outstanding shares of Common Stock of the Company, or (iii) a third party
acquires 50% or more of the shares of the Company's capital stock without the
lender's prior approval.
10. INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The cumulative effect of adopting Statement No. 109 as of January 1,
1993 was to increase net income by $207,100.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization....................... $3,858,198 $4,118,047
Deferred tax assets:
Accrued sales discounts............................. 388,500 561,135
Deferred compensation on stock options.............. 85,020 85,870
Unicap adjustment on inventory...................... 95,720 143,914
Allowance for doubtful accounts..................... 23,974 48,184
Other............................................... 59,591 94,687
---------- ----------
652,805 933,790
---------- ----------
Net deferred tax liabilities.......................... $3,205,393 $3,184,257
========== ==========
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $3,311,000 $3,120,000 $5,094,000
State.................................... 393,000 288,000 524,000
---------- ---------- ----------
Total current......................... 3,704,000 3,408,000 5,618,000
---------- ---------- ----------
Deferred:
Federal.................................. 36,000 (98,000) (18,900)
State.................................... 4,000 (11,000) (2,100)
---------- ---------- ----------
Total deferred........................ 40,000 (109,000) (21,000)
---------- ---------- ----------
Total provision for income taxes........... $3,744,000 $3,299,000 $5,597,000
========== ========== ==========
</TABLE>
F-12
<PAGE> 52
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the difference between the United States federal
statutory tax rates and the effective income tax rate as a percentage of net
income before cumulative effect of change in accounting principle is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
United States federal statutory tax rate................... 34.0% 34.0% 35.0%
State income taxes, net of federal tax benefit............. 4.0 3.1 2.5
Other, net................................................. (.4) (.6) --
---- ---- ----
37.6% 36.5% 37.5%
==== ==== ====
</TABLE>
11. PREFERRED STOCK
The Company's Convertible Cumulative Preferred Stock, Series A, bears
dividends at an annual dividend rate of $0.16 per share. Each preferred share
has voting rights equal to one share of Common Stock and is convertible into
1.75 shares (2.625 shares after giving retroactive effect to the three-for-two
stock split declared February 7, 1996) of the Company's Common Stock.
During 1995, the Company reached a settlement regarding a portion of the
contingent purchase price payable to the former stockholders of GenTrac. In
connection with the settlement, 44,004 shares of the Company's Preferred Stock
held in an escrow account, pending final dispute resolution, were released from
escrow and returned to the Company. These shares of Preferred Stock with an
original cost of $381,277 have been canceled by the Company. The accompanying
1995 financial statements reflect the resulting $381,277 reduction of goodwill
associated with the contingent purchase price and reduction in Preferred Stock.
12. STOCK OPTION PLANS
The Company has various incentive stock option ("ISO") plans for executives
and employees. In connection with the ISO plans, options to purchase Common
Stock are granted at option prices not less than the fair market values of the
Common Stock at the time the options are granted and vest ratably over a
five-year period from the grant dates. At December 31, 1995, options for 170,499
shares of Common Stock are available for future grant. There were 479,850
options granted but unexercised under the ISO plans at December 31, 1995, of
which 55,500 were exercised subsequent to December 31, 1995.
In addition, the Company has various nonqualified stock option ("NSO")
plans for certain officers and independent directors. Certain of these options
offer exercise prices below the fair market value of the Common Stock at the
date of grant. In accordance with APB 25, differences between the option prices
and the fair market values at the dates of grant have been accrued ratably over
the five-year vesting periods. Total compensation expense in 1993, 1994, and
1995 related to the NSO plans was $67,000, $122,000, and $123,500, respectively.
At December 31, 1995, there were 103,500 options granted but unexercised under
the NSO plans, of which 75,000 shares were exercised subsequent to December 31,
1995.
F-13
<PAGE> 53
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity for 1993, 1994, and 1995 was as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Outstanding options, January 1.................. 756,000 723,000 648,810
Exercised..................................... (153,000) (96,150) (187,710)
Granted....................................... 163,500 131,250 129,750
Cancelled..................................... (43,500) (109,290) (7,500)
-------- -------- --------
Outstanding options, December 31................ 723,000 648,810 583,350
======== ======== ========
Weighted average price of options exercised..... $3.78 $2.99 $2.37
===== ===== =====
Weighted average price of options granted....... $6.91 $5.60 $5.50
===== ===== =====
Weighted average price of options cancelled..... $2.41 $8.06 $4.27
===== ===== =====
</TABLE>
Outstanding options at December 31, 1995 are exercisable as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION RANGE OF
SHARES PRICE OPTION PRICE
--------- -------- --------------
<S> <C> <C> <C>
1995....................................... 329,400 $ 3.31 $0.33 - $8.50
1996....................................... 61,650 $ 4.89 $3.50 - $10.00
1997....................................... 51,900 $ 5.07 $3.50 - $10.00
1998....................................... 55,800 $ 5.12 $3.50 - $10.00
1999....................................... 49,200 $ 5.55 $4.33 - $10.00
2000....................................... 35,400 $ 5.70 $4.33 - $10.00
------- ------
583,350 $ 4.14
======= ======
</TABLE>
Subsequent to December 31, 1995, options to purchase 70,500 shares of
Common Stock were granted to certain employees of the Company under the ISO
plan. The option price of $16 per share represents the fair market value of the
stock on the date the options were granted. The options vest over periods of
five to seven years from the grant date.
In addition, subsequent to December 31, 1995, options to purchase 450,000
shares of Common Stock were granted to certain officers of the Company under
time accelerated stock option agreements pursuant the Company's 1994 Incentive
Stock Plan. The option price of $16 per share represents the fair market value
of the stock on the date the options were granted. The options become
exercisable at the end of eight years from the grant date; however, the options
may become exercisable if certain targeted Common Stock prices are attained as
follows: $20 for the 1997 installment, $26.67 for the 1998 installment, $32 for
the 1999 installment, $40 for the 2000 installment, and $50 for the 2001
installment.
13. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering substantially all
employees. The plan provides the Company match 100 percent of the employee
voluntary contributions up to a maximum matching contribution of 5 percent of
the employee's compensation. Company contributions in 1993, 1994, and 1995 were
approximately $172,000, $184,000, and $204,000, respectively.
F-14
<PAGE> 54
JONES MEDICAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONTINGENCIES AND COMMITMENTS
The Company currently carries product liability coverage of $10,000,000 per
occurrence and $10,000,000 in the aggregate on a "claims made" basis. There is
no assurance that the Company's present insurance will cover any potential
claims that may be asserted in the future. In addition, the Company is subject
to legal proceedings and claims which arise in the ordinary course of its
business.
Under development and distribution agreements between GenTrac and Johnson &
Johnson entered into prior to the Company's acquisition of GenTrac, Johnson &
Johnson acquired certain rights to new thrombin products and thrombin product
improvements developed by GenTrac. Johnson & Johnson has notified the Company
that it believes that it is entitled to exclusive distribution rights for
Thrombin-JMI and a liquid thrombin product for which FDA approval is currently
pending. Although the Company strongly disagrees with and will vigorously
contest such claims by Johnson & Johnson, any resolution of the claims in favor
of Johnson & Johnson could have a materially adverse effect upon the Company's
business, financial condition and results of operations.
The Company currently relies on Lilly for the manufacture of Brevital. The
Company has entered into a 10-year manufacturing agreement with Lilly, which may
be terminated by Lilly at any time after the first five years by giving at least
five years notice to the Company prior to ceasing the manufacture of Brevital.
In the event of such termination, Lilly must use reasonable efforts to assist
the Company in obtaining all the necessary licenses and approvals to enable the
Company or an alternative manufacturer to manufacture Brevital. Lilly is the
sole manufacturer of Brevital and any alternative manufacturer would require
regulatory change-in-site qualification to manufacture the product. In the event
of any interruption in the supply of Brevital from Lilly due to regulatory or
other causes, there can be no assurance that the Company could make alternative
manufacturing arrangements on a timely basis, if at all. Such an interruption
would have a material adverse effect on the Company's business, financial
condition and results of operations.
In connection with certain product line acquisitions, the Company is
obligated to pay royalties of up to 10 percent of certain product sales through
2005. Total royalty expense in 1993, 1994, and 1995 was approximately $621,000,
$636,000, and $593,000, respectively.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1994
Net sales................................. $12,141,904 $11,584,608 $12,155,518 $11,666,773
Gross profit.............................. $ 5,944,623 $ 5,700,097 $ 6,176,024 $ 5,155,895
Net income................................ $ 1,604,346 $ 1,206,894 $ 1,602,273 $ 1,325,994
Earnings per share *...................... $ 0.11 $ 0.09 $ 0.11 $ 0.09
Stock prices: *
High.................................... $ 10 5/16 $ 8 1/2 $ 7 3/16 $ 6 1/16
Low..................................... $ 7 3/4 $ 6 11/16 $ 4 5/16 $ 4 1/4
1995
Net sales................................. $11,458,547 $13,282,184 $15,250,201 $16,406,163
Gross profit.............................. $ 6,191,053 $ 6,706,930 $ 7,923,992 $ 8,409,224
Net income................................ $ 2,046,258 $ 2,127,714 $ 2,337,553 $ 2,816,779
Earnings per share *...................... $ 0.14 $ 0.15 $ 0.16 $ 0.19
Stock prices: *
High...................................... $ 6 1/16 $ 8 $ 12 1/16 $ 16 1/2
Low....................................... $ 4 3/16 $ 5 7/16 $ 7 7/16 $ 10 11/16
</TABLE>
- ------------
* Adjusted to reflect the three-for-two stock split declared February 7, 1996.
16. SUBSEQUENT EVENTS
On February 26, 1996, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-3 relating to the offering of
2,300,000 shares of its Common Stock. The proceeds from the equity offering
will be used for repayment of certain indebtedness and for general corporate
purposes, including the possible acquisition of product lines or businesses.
F-15
<PAGE> 55
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
JONES MEDICAL INDUSTRIES, INC.
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND DEDUCTIONS - BALANCE AT
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS END OF PERIOD
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $64,794 $63,918 $128,712
===============================================================
Accumulated amortization of intangibles $4,092,394 $1,429,804 $(638,660)* $4,883,538
===============================================================
Year ended December 31, 1994
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $57,582 $55,807 $(48,595) $64,794
===============================================================
Accumulated amortization of intangibles $3,653,028 $1,362,935 $(923,569)* $4,092,394
===============================================================
Year ended December 31, 1993
Reserves and allowances deducted from
asset accounts:
Allowance for doubtful accounts $16,000 $45,697 $(4,115) $57,582
===============================================================
Accumulated amortization of intangibles $2,524,325 $1,128,703 -- $3,653,028
===============================================================
</TABLE>
*Write off of fully amortized intangibles in 1995, and 1994.
F-16
<PAGE> 56
Commission File No: 0-15098
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
-------------------------------------------
JONES MEDICAL INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
1945 Craig Road
St. Louis, MO 63146
(Address of Registrant's principal offices)
<PAGE> 1
EXHIBIT (3.1)
RESTATED CERTIFICATE OF INCORPORATION
JONES MEDICAL INDUSTRIES, INC., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is JONES MEDICAL INDUSTRIES, INC. Jones
Medical Industries, Inc. was originally incorporated under the same name, and
the original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on March 24, 1981.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
integrates and also further amends the provisions of the Certificate of
Incorporation of this corporation, as heretofore amended or supplemented.
3. The text of the Restated Certificate of Incorporation is hereby
restated and amended to read in its entirety as follows:
ARTICLE ONE
The name of the corporation is Jones Medical Industries, Inc.
ARTICLE TWO
The address of its registered office in the State of Delaware is the
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, and the name of its registered agent as such
address is The Corporation Trust Company.
<PAGE> 2
ARTICLE THREE
The aggregate number of shares which the corporation shall have
authority to issue is Ten Million (10,000,000) shares of stock, with a
par value of $.04 per share.
ARTICLE FOUR
No holder of any shares of stock of the corporation, whether now or
hereafter authorized or outstanding, shall have any preemptive or
preferential right of any kind to acquire, subscribe for or have offered
to him any shares of stock or any other securities of the corporation,
whether such stock or other securities are now or hereafter authorized or
issued.
ARTICLE FIVE
The number of directors to constitute the Board of Directors from
time to time shall be not less than three (3) nor more than nine (9).
Said number shall be fixed in the manner set forth in the Bylaws.
ARTICLE SIX
The power to make, alter, amend or repeal the Bylaws of the
corporation is vested in the Board of Directors.
ARTICLE SEVEN
The duration of the corporation is PERPETUAL.
ARTICLE EIGHT
The corporation is formed for the following purpose:
To engage in any lawful act or activity for which corporations may
be organized under the "General Corporation Law of the State of
Delaware."
2
<PAGE> 3
ARTICLE NINE
No director shall be personally liable to the corporation or its
shareholders for monetary damages for any breach of fiduciary duty by
such director, as a director. However, a director shall be liable to the
extent provided by applicable law (i) for a breach of the director's duty
of loyalty to the corporation or its stockholders, or (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. No amendment to or
repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any director of the corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal of these provisions.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed under the seal of the Company this 14th day of June, 1988.
JONES MEDICAL INDUSTRIES, INC.
By /s/ Dennis M. Jones
----------------------------
President
(SEAL)
ATTEST:
/s/ Judith A. Jones
- -----------------------------
Secretary
3
<PAGE> 1
EXHIBIT (3.2)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
JONES MEDICAL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Jones Medical
Industries, Inc. resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "Three" so that as
amended said Article shall be and read as follows:
"See Exhibit A attached hereto
-------------------------------------------------------------------
-------------------------------------------------------------------
------------------------------------------------------------------"
SECOND: That thereafter the annual meeting of the stockholders of said
corporation was duly called and held upon notice in accordance with Section 211
of the General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed
by Dennis M. Jones, its President and Judith A. Jones, its Secretary this 14th
day of May, 1990.
By: /s/ Dennis M. Jones
-------------------------
President
ATTEST: /s/ Judith A. Jones
-------------------------------
Secretary
<PAGE> 2
EXHIBIT A
ARTICLE THREE
(a) The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is Eleven Million (11,000,000)
shares consisting of Ten Million (10,000,000) shares of Common Stock, par value
of $0.04 per share, and One Million (1,000,000) shares of Preferred Stock, par
value of $0.01 per share.
(b) The shares of authorized Common Stock of the Corporation shall be
identical in all respects and shall have equal rights and privileges.
(c) The board of directors shall have the authority, to the full extent
now or hereafter permitted by law, subject to limitations prescribed by law,
to provide for the issuance of shares of Preferred Stock from time to time on
such terms as it may determine, by filing a certificate pursuant to the
applicable law of the State of Delaware, and to establish from time to time the
number of shares to be included in each such class or series of Preferred
Stock, and to fix by resolution or resolutions the designations, powers,
preferences and rights of the shares of each such class or series and the
qualifications, limitations or restrictions thereof.
The authority of the board of directors with respect to each class or
series shall include, but not be limited to, determination of the following:
(i) The number of shares constituting that class or series and the
distinctive designation of that class or series;
(ii) The dividend rate on the shares of that class or series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
class or series;
(iii) Whether that class or series shall have voting rights, in addition
to the voting rights provided by law, and if so, the terms and conditions of
such voting rights;
(iv) Whether that class or series shall have conversion privileges,
and, if so, the terms and conditions of such conversion including provision for
adjustment of the conversion rate upon the occurrence of such events as the
board of directors shall determine;
(v) Whether or not the shares of that class or series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(vi) Whether that class or series shall have a sinking fund for the
redemption or purchase of shares of the class or series, and, if so, the terms
and amount of such sinking fund;
<PAGE> 3
(vii) The rights of the shares of that class or series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) Any other relative rights, preferences and limitations of that
class or series.
2
<PAGE> 1
EXHIBIT (3.3)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
JONES MEDICAL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Jones Medical
Industries, Inc. resolutions were duly adopted setting forth a proposed
amendment of the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "Three" so that as
amended said Article shall be and read as follows:
"See Exhibit A attached hereto
-------------------------------------------------------------------
-------------------------------------------------------------------
------------------------------------------------------------------"
SECOND: That thereafter the annual meeting of the stockholders of said
corporation was duly called and held upon notice in accordance with Section 211
of the General Corporation Law of the state of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said corporation has Caused this certificate to be signed
by Dennis M. Jones, its President and Judith A. Jones , its Secretary this
30th day of May, 1991.
By: /s/ Dennis M. Jones
-------------------------
President
ATTEST: /s/ Judith A. Jones
-------------------------------
Secretary
<PAGE> 2
EXHIBIT A
ARTICLE THREE
(a) The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is Thirty-one Million
(31,000,000) shares consisting of Thirty Million (30,000,000) shares of Common
Stock, par value of $0.04 per share, and One Million (1,000,000) shares of
Preferred Stock, par value of $0.01 per share.
(b) The shares of authorized Common Stock of the Corporation shall be
identical in all respects and shall have equal rights and privileges.
(c) The board of directors shall have the authority, to the full extent
now or hereafter permitted by law, subject to limitations prescribed by law,
to provide for the issuance of shares of Preferred Stock from time to time on
such terms as it may determine, by filing a certificate pursuant to the
applicable law of the State of Delaware, and to establish from time to time the
number of shares to be included in each such class or series of Preferred
Stock, and to fix by resolution or resolutions the designations, powers,
preferences and rights of the shares of each such class or series and the
qualifications, limitations or restrictions thereof.
The authority of the board of directors with respect to each class or
series shall include, but not be limited to, determination of the following:
(i) The number of shares constituting that class or series and the
distinctive designation of that class or series;
(ii) The dividend rate on the shares of that class or series, whether
dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares
of that class or series;
(iii) Whether the class or series shall have voting rights, in
addition to the voting rights provided by law, and if so, the terms and
conditions of such voting rights;
(iv) Whether that class or series shall have conversion privileges,
and, if so, the terms and conditions of such conversion including
provision for adjustment of the conversion rate upon the occurrence of
such events as the board of directors shall determine;
(v) Whether or not the shares of that class or series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable,
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
<PAGE> 3
(vi) Whether that class or series shall have a sinking fund for the
redemption or purchase of shares of the class or series, and, if so, the terms
and amount of such sinking fund;
(vii) The rights of the shares of that class or series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of that series; and
(viii) Any other relative rights, preferences and limitations of that
class or series.
2
<PAGE> 1
EXHIBIT (3.5)
June 14, 1988
AMENDED BYLAWS
OF
JONES MEDICAL INDUSTRIES, INC.
ARTICLE I
Offices
Section 1.01 Principal Office. The principal office of the Corporation shall
be located in St. Louis County, Missouri.
Section 1.02 Registered Office. The registered office of the Corporation
shall be located at 1209 Orange Street, Wilmington, New Castle
County, Delaware. The name of the registered agent at such
address is The Corporation Trust Company.
Section 1.03 Other Offices. The Corporation may have any number of additional
offices at such other places as the Board of Directors may from
time to time determine, or as the affairs of the Corporation may
require.
ARTICLE 2
Meetings of Shareholders
Section 2.01 Place of Meetings. All meetings of shareholders shall be held at
the principal office of the Corporation or at such other place as
shall be designated in the notice of the meeting.
Section 2.02 Annual Meeting. The annual meeting of the shareholders of the
Corporation shall be held on the second Monday of June of each
year at such time as is designated in the notice of the meeting,
for the purpose of electing directors of the Corporation and for
the transaction of such other business as may be properly brought
before the meeting.
Section 2.03 Substitute Annual Meeting. If the annual meeting shall not be
held on the day designated by these Bylaws, a substitute annual
meeting shall be called by the Board of Directors as soon
thereafter as is convenient. A meeting so called shall be
designated and treated for all purposes as the annual meeting.
<PAGE> 2
Section 2.04 Special Meetings. Special meetings of the shareholders may be
called at any time by the Board of Directors or by the President
of the Corporation.
Section 2.05 Notice of Meetings. Written or printed notice stating the place,
date and hour of a meeting shall be delivered not less than ten
(10) nor more than sixty (60) days before the date thereof,
either personally or by mail, to each shareholder of record
entitled to vote at such meeting, except as otherwise provided
herein or as required from time to time by the General
Corporation Law of the State of Delaware or the Certificate of
Incorporation of the Corporation.
In the case of an annual or substitute annual meeting, the notice
of meeting need not specifically state the business to be
transacted thereat unless it is a matter, other than the election
of directors, on which the vote of shareholders is expressly
required by the provisions of the General Corporation Law of the
State of Delaware or the Certificate of Incorporation of the
Corporation. In the case of a special meeting, the notice of the
meeting shall specifically state the purpose or purposes for
which the meeting is called.
When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the
place, date, and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the
date of any adjourned meeting is more than thirty (30) days after
the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written
notice of the place, date, and time of the adjourned meeting
shall be given in conformity herewith. At any adjourned meeting,
any business may be transacted which might have been transacted
at the original meeting.
Section 2.06 Voting Lists. At least ten (10) days before each meeting of
shareholders, the Secretary of the Corporation shall prepare an
alphabetical list of the shareholders entitled to vote at any
such meeting, with the address of and the number of shares held
by each, which list shall be kept on file at the principal
office of the Corporation for a period of ten days prior to such
meeting, and shall be subject to inspection by any shareholder at
any time during the usual business hours of the Corporation.
This list shall also be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any
shareholder during the entire time of the meeting.
Section 2.07 Quorum. At any meeting of the shareholders, a quorum shall be
constituted if holders of a majority of the shares of stock of
the Corporation are present in person or by proxy.
2
<PAGE> 3
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of the stock
entitled to vote who are present, in person or by proxy, may
adjourn the meeting to another place, date or time.
Section 2.08 Proxies. Shares may be voted either in person or by one or more
agents authorized by a written proxy executed by the shareholder
or by his duly authorized attorney-in-fact. A proxy is not valid
after three years from the date of its execution or such earlier
or later time if the person executing the proxy specifies therein
a shorter or longer length of time.
Section 2.09 Voting of Shares. Each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of
shareholders. The affirmative vote of a majority of the
outstanding shares of stock, voting separately, at a meeting of
shareholders at which a quorum is present shall be the act of the
shareholders on that matter, unless the vote of a greater number
is required by law or by the Certificate of Incorporation or
Bylaws of this Corporation.
Section 2.10 Informal Action by Shareholders. Any action which may be taken
at a meeting of the shareholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the
shareholders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or
to take such action at a meeting at which all shares entitled to
vote thereon were present and voted and such consent shall be
filed with the Secretary of the Corporation to be kept in the
corporate minute book.
Section 2.11 Organization. Such person as the Board of Directors may have
designated or, in the absence of such a person, the highest
ranking officer of the Corporation who is present shall call to
order any meeting of the shareholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman
appoints.
Section 2.12 Conduct of Business. The chairman of any meeting of shareholders
shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and
the conduct of discussion as seem to him in order.
3
<PAGE> 4
ARTICLE 3
Directors
Section 3.01 General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors ("Board") or by such
Executive Committees as the Board may establish pursuant to these
Bylaws.
Section 3.02 Number, Term and Qualification. The number of directors to
constitute the Board of Directors of the Corporation shall be six
(6). The number of directors to constitute the Board of Directors
may be changed from time to time by amendment to the By-Laws by
the Board. Subject to death, resignation or removal in the manner
provided by law, each director shall hold office for a term of
one year, provided however, if his successor is not elected after
one year, then he shall hold office until his successor is duly
elected and qualified.
Section 3.03 Election of Directors. Except as provided in Section 3.04,
directors shall be elected at each annual meeting of
shareholders.
Section 3.04 Vacancies and Newly Created Directorships. Vacancies occurring
in the Board of Directors and newly created directorships
resulting from any increase in the authorized number of directors
may be filled by a majority vote of the remaining directors,
though less than a quorum, or by the sole remaining director.
ARTICLE 4
Meeting of Directors
Section 4.01 Regular Meetings. A regular meeting of the Board of Directors
shall be held immediately after, and at the same place as, the
annual meeting of shareholders. In addition, the President may
provide, or the Board of Directors may provide by resolution, the
time and place, either at the Corporation's principal office or
at such other location, for the holding of additional regular
meetings.
Section 4.02 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the President, or not less than
forty percent (40%) of the directors then in office. Such
meetings may be held either at the Corporation's principal office
or at such other location, as indicated in the notice of the
meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
Section 4.03 Notice of Meetings. Regular meetings of the Board of Directors
may be held without notice. The persons calling a special meeting
of the Board of Directors
4
<PAGE> 5
shall, at least three days before the meeting, give notice
thereof by any usual means of communication. Such notice may be
waived in writing and shall specify the purpose for which the
meeting is called. Attendance by a director at a meeting shall
constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting was not
lawfully called.
Section 4.04 Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on
any corporate matter is taken shall be presumed to have assented
to the action taken unless his contrary vote is recorded or his
dissent is otherwise entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered
mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply
to a director who voted in favor of such action.
Section 4.05 Quorum. A majority of the entire Board of Directors shall
constitute a quorum for the transaction of business at any
meeting of the Board of Directors. If a quorum shall fail to
attend any meeting, a majority of those present may adjourn the
meeting to another place, date, or time without further notice or
waiver thereof.
Section 4.06 Manner of Acting. Except as otherwise provided herein, the vote
of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Vacancies in the Board of Directors may be filled as provided in
Section 3.04 of these Bylaws.
Section 4.07 Informal Action by Directors. Action taken by the directors
without a meeting is nevertheless the action of the Board of
Directors, if written consent to the action in question is signed
by all the directors and filed with the minutes of the
proceedings of the Board of Directors, whether done before or
after the action so taken.
Section 4.08 Committees. The Board of Directors may appoint such committees
with such members as it shall determine to be necessary, as
specified in Article 5.
Section 4.09 Participation in Meetings by Conference Telephone. Members of
the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment that
enables all persons participating in the meeting to hear each
other. Such participation shall constitute presence in person at
such meeting.
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Section 4.10 Powers. The Board of Directors may, except as reserved to the
shareholders pursuant to the Certificate of Incorporation of the
Corporation or as otherwise limited by applicable law, exercise
all such powers and do all such acts and things as may be
exercised or done by a corporation.
Section 4.11 Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and
other compensation for their services as directors, including,
without limitation, their services as members of committees of
the directors.
Section 4.12 Reports. The Board of Directors shall furnish the shareholders
with an annual report of the Corporation's business and quarterly
financial reports.
ARTICLE 5
Committees
Section 5.01 Committees of the Board of Directors. The Board of Directors, by
action taken in accordance with Section 4.08, may from time to
time designate one or more committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to
serve at the pleasure of the Board and shall, for those
committees, elect directors to serve as members, designating, if
it desires, other directors as alternative members who may
replace any absent or disqualified member at a meeting of the
committee.
Section 5.02 Conduct of Business. Each committee may determine the procedural
rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or
required by law. Adequate provision shall be made for notice to
members of all meetings; a simple majority of the members shall
constitute a quorum; and all matters shall be determined by a
majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
Section 5.03 Vacancy. Any vacancy occurring on a committee shall be filled by
a majority vote of the directors at a regular or special meeting
of the Board of Directors.
Section 5.04 Removal. Any member of a committee may be removed at any time,
with or without cause, by a majority vote of the directors.
Section 5.05 Minutes. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
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Section 5.06 Responsibility of Directors. The designation of a committee and
the delegation thereto of authority shall not operate to relieve
the Board of Directors or any member thereof, of any
responsibility or liability imposed upon it or him by law. If
action taken by a committee is not thereafter formally considered
by the Board, a director may dissent from such action by filing
his written objection with the Secretary with reasonable
promptness after learning of such action.
ARTICLE 6
Officers
Section 6.01 Number. The Board of Directors may elect from its own number a
Chairman. The Board shall also elect or appoint from time to time
a President, a Secretary and such other officers as in its
opinion are desirable for the conduct of the business of the
Corporation. Any two or more offices may be held by the same
person, except the offices of Chairman and Secretary.
Section 6.02 Election and Term. The officers of the Corporation shall be
elected or appointed by the Board of Directors. Such elections
may be held at any regular or special meeting of the Board. Each
officer shall hold office until his death, resignation,
retirement, removal or disqualification, or until his successor
is elected and qualifies.
Section 6.03 Removal. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board with or without cause;
but such removal shall be without prejudice to the contract
rights, if any, of the persons so removed.
Section 6.04 Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 6.05 Chairman. The Chairman shall preside at all meetings of the
directors and, in general, shall perform all duties incident to
the office of Chairman and such other duties as may be prescribed
by the Board of Directors from time to time.
Section 6.06 Secretary and Assistant Secretary. The Secretary shall keep
accurate records of the acts and proceedings of all meetings of
shareholders and directors. He shall give all notices required by
law and by these Bylaws. He shall have general charge of the
corporate books and records and of the corporate seal, and he
shall affix the corporate seal to any lawfully executed
instrument requiring it. He shall have general charge of the
stock transfer books of the Corporation and shall keep, at the
registered or principal office of the Corporation, a record of
the shareholders and the number and class of the shares held by
each. He shall sign such instruments as may require his
signature, and, in general, shall perform all
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duties as may be assigned to him from time to time by the
Chairman or by the Board of Directors. An Assistant Secretary may
be appointed who shall render assistance to the Secretary in all
the responsibilities hereinabove assigned.
Section 6.07 Treasurer and Assistant Treasurer. The Treasurer shall have
custody of all funds and securities belonging to the Corporation
and shall receive, deposit or disburse the same under the
direction of the Board of Directors. He shall keep full and
accurate accounts of the finances of the Corporation in books
especially provided for that purpose; he shall cause a true
statement of its assets and liabilities as of the close of each
fiscal year, and of the results of its operations and of changes
in surplus for such fiscal year, all in reasonable detail, to be
made and filed at the registered or principal office of the
Corporation after the end of such fiscal year.
The Treasurer shall also prepare and file all reports and returns
required by federal, state or local law and shall generally
perform all other duties incident to his office and such other
duties as may be assigned to him from time to time by the
Chairman or the Board of Directors. An Assistant Treasurer may be
appointed who shall render assistance to the Treasurer in all the
responsibilities hereinabove assigned.
Section 6.08 President. The President shall be the chief executive officer of
the Corporation. He shall be appointed by the Board and act under
its direction and control. He shall be responsible for the
general management and operation of the business of the
Corporation, as established through policies directed by the
Board, shall perform other duties properly required of him by the
Board, and shall have additional power and authority delegated to
him by the Board.
Section 6.09 Vice President. Each Vice President shall perform such duties as
the Board of Directors may prescribe. In the absence or
disability of the President, the Vice President who has served in
such capacity for the longest time shall perform the duties and
exercise the powers of the President.
Section 6.10 Bonds. The Board of Directors may, by resolution, require any or
all officers, agents and employees of the Corporation to give a
bond to the Corporation, with sufficient securities, conditioned
on faithful performance of the duties of their respective offices
or positions, and to comply with such other conditions as may
from time to time be required by the Board of Directors.
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ARTICLE 7
Contracts, Loans and Deposits
Section 7.01 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute
and deliver any instrument on behalf of the Corporation, and such
authority may be general or confined to specific instances.
Section 7.02 Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
Section 7.03 Checks and Drafts. All checks, drafts or other orders for the
payment of money issued in the name of the Corporation shall be
signed by such officer or officers, agent or agents of the
Corporation, and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 7.04 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the
Corporation in such depositories as the Board of Directors shall
direct.
ARTICLE 8
Indemnification of Directors, Officers and Others
Section 8.01 Scope of Indemnification.
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that
he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such suit, action
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a
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plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the Corporation unless, and only to the extent that,
the Court of Chancery of the State of Delaware or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article.
Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
(d) The indemnification and advancement of expenses provided
herein shall not be deemed exclusive of any other rights to which
those seeking indemnification and advancement of expenses may be
entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
Section 8.02 Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer,
employee or agent of the
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Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the
provisions of the General Corporation Law of the State of
Delaware or of these By-Laws.
Section 8.03 Miscellaneous.
(a) The Corporation's indemnity of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall be reduced by any
amounts such person may collect as indemnification (i) under any
policy of insurance purchased and maintain on his behalf by the
Corporation, or (ii) from such other corporation, partnership,
joint venture, trust or other enterprise.
(b) Nothing contained in this Article 8, or elsewhere in these
By-Laws, shall operate to indemnify any director or officer if
such indemnification is for any reason contrary to law, either as
a matter of public policy, or under the provisions of the Federal
Securities Act of 1933, the Securities Exchange Act of 1934, or
any other applicable state or federal law.
c) For purposes of this Article 8, references to "the
Corporation" include, in addition to the resulting or surviving
corporation, all constituent corporations absorbed in a
consolidation or merger which if its separate existence had
continued, would have had power and authority to indemnify its
directors, officers or employees, or agents, so that any person
who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust
or other enterprise shall stand in the same position under the
provisions of this Article 8 with respect to the resulting or
surviving corporation as he would if he had served the resulting
or surviving corporation in the same capacity.
(d) The indemnification and advancement of expenses provided by
this Article 8 shall continue as to a person who has ceased to be
a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a
person.
(e) No amendment or repeal of this Article 8 shall apply to or
have any affect on indemnification allowed or compelled with
respect to any acts or omissions
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of an individual covered by this Article 8 which occur prior to
such amendment or repeal of these provisions.
ARTICLE 9
Certificates of Stock and Their Transfer
Section 9.01 Certificates for Shares. Certificates representing shares of the
Corporation shall be issued, in such form as the Board of
Directors shall determine, to every shareholder for the fully
paid shares owned by him. These certificates shall be signed by
the President or Vice President and the Secretary or Treasurer
(or Assistant Secretary or Assistant Treasurer). Any and all
signatures on the certificate may be a facsimile. The
certificates shall be consecutively numbered or otherwise
identified; and the name and address of the persons to whom they
are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation.
Section 9.02 Transfer of Shares. Transfer of shares shall be made on the stock
transfer books of the Corporation only upon surrender of the
certificates for the shares sought to be transferred by the
record holder thereof or by his duly authorized agent, transferee
or legal representative. All certificates surrendered for
transfer shall be cancelled before new certificates for the
transferred shares shall be issued.
Section 9.03 Closing Transfer Books and Fixing Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution
of for any other proper purpose, the Board of Directors may
provide that the stock transfer books shall be closed for a
period stated but not to exceed, in any case, sixty days. If the
stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a
meeting of the shareholders, such books shall be closed for at
least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any
such determination of shareholders, such record date in any case
to be not more than sixty days, and in case of a meeting of
shareholders, not less than ten days immediately preceding the
date on which the particular action requiring such determination
of shareholders is to be taken.
If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of
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shareholders, or shareholders entitled to receive
payment of a dividend, the date next preceding the day on
which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record
date for such determination of shareholders.
Section 9.04 Lost, Stolen or Destroyed Certificates. The Board of
Directors may authorize the issuance of a new share
certificate in place of a certificate claimed to have been
lost, stolen, or destroyed, upon receipt of an affidavit of
such fact from the person claiming the loss, theft or
destruction. When authorizing such issuance of a new
certificate, the Board may require the claimant to give the
Corporation a bond in such sum as it may direct to indemnify
the Corporation against loss from any claim with respect to
the certificate claimed to have been lost, stolen, or
destroyed; or the Board may, by resolution reciting that the
circumstances justify such action, authorize the issuance of
the new certificate without requiring such a bond.
Section 9.05 Holder of Record. The Corporation may treat as
absolute owner of shares the person in whose name the
shares stand of record on its books, just as if that person
has full competency, capacity and authority to exercise all
rights of ownership, irrespective of any knowledge or notice
to the contrary or any description indicating a
representative, pledge or other fiduciary relationship or
any reference to any other instrument or to the rights of
any other person appearing upon its record or upon the share
certificate, except that any person furnishing to the
Corporation proof of his appointment as a fiduciary shall be
treated as if he were a holder of record of its shares.
ARTICLE 10
General Provisions
Section 10.01 Dividends. The Board of Directors may from time to
time declare, and the Corporation may pay, dividends on
its outstanding shares in the manner and upon the terms and
conditions provided by law, and subject to the provisions of
its Certificate of Incorporation.
Section 10.02 Seal. The corporate seal of the Corporation shall
consist of a circle within which appears the name of
the Corporation and the state of incorporation.
Section 10.03 Waiver of Notice. Whenever any notice is required to
be given to any shareholder or director under the provisions
of the General Corporation Law of the State of Delaware
or under the provisions of the Certificate of Incorporation
or Bylaws of this Corporation, a waiver thereof in writing
signed by the person
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or persons entitled to such notice, whether before or after the
time stated therein, shall be equivalent to the giving of such
notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened.
Section 10.04 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 10.05 Amendments. These Bylaws may be amended or repealed and new
Bylaws may be adopted by the affirmative vote of a majority of
the Board of Directors of the Corporation.
Section 10.06 Facsimile Signatures. Facsimile signatures of any officer or
officers of the Corporation may be used whenever and as
authorized by the Board of Directors or a committee thereof.
Section 10.07 Reliance upon Books, Reports and Records. Each director, each
member of any committee designated by the Board of Directors,
and each officer of the Corporation shall, in the performance of
his duties, be fully protected in relying in good faith upon the
books of account or other records of the Corporation, including
reports made to the Corporation by any of its officers, by an
independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 10.08 Time Periods. In applying any provision of these By-Laws which
require that an act be done or not done a specified number of
days prior to an event or that an act be done during a period of
a specified number of days prior to an event, calendar days
shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
Section 10.09 Notices. Whenever notice is required to be given to any
shareholder, director, officer, or agent, such requirement
shall not be construed to mean personal notice. Such notice may
in every instance be effectively given by depositing a writing
in a post office or letter box, in a prepaid, sealed wrapper or
envelope, or by dispatching a prepaid telegram, addressed to
such shareholder, director, officer, or agent at his or her
address as the same appears on the books of the Corporation.
The time when such notice is deposited or dispatched shall be
the time of the giving of the notice.
Section 10.10 Inconsistencies. In the event of any inconsistencies Between
any provisions of these By-Laws and any provisions of the
Certificate of Incorporation of the
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corporation or applicable statute, the Certificate of
Incorporation or such statute shall control.
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EXHIBIT (3.6)
UNANIMOUS CONSENT OF DIRECTORS IN LIEU OF
SPECIAL MEETING OF BOARD OF DIRECTORS
The undersigned, being all of the directors of JONES MEDICAL
INDUSTRIES, INC., a Delaware corporation, do hereby consent, effective April 1,
1992, in lieu of a special meeting of the Board of Directors of the corporation
on that date to the following action:
RESOLVED, that the corporation reappoints the accounting firm of
Ernst & Young as independent auditors for the corporation for fiscal
year 1992 and that this reappointment be submitted to the shareholders
of the corporation for ratification at the next annual meeting of
shareholders.
RESOLVED, that the Bylaws of the corporation be, and they hereby
are, amended by deleting Section 3.02 in its entirety and by
substituting in lieu thereof the following:
Section 3.02 Number, Term and Qualification. The number of
directors to constitute the Board of Directors of the
corporation shall be seven (7). The number of directors to
constitute the Board of Directors may be changed from time to
time by amendment to the Bylaws by the Board. Subject to death,
resignation or removal in the manner provided by law, each
director shall hold office for a term of one (1) year, provided,
however, if his successor is not elected after one year, then he
shall hold office until his successor is duly elected and
qualified.
RESOLVED, that J. Foster Irwin is hereby nominated as a director
of the corporation subject to approval by the shareholders of the
corporation at the next annual meeting of shareholders.
RESOLVED, that this unanimous consent be filed by the Secretary
of the corporation with its minutes.
IN WITNESS WHEREOF, the undersigned have executed this unanimous
consent effective as of the day and year first above written.
/s/ Dennis M. Jones /s/ Stanley Lopata
- ------------------------------ ------------------------------
Dennis M. Jones Stanley Lopata
/s/ Judith A. Jones /s/ Edward A. Chod
- ------------------------------ ------------------------------
Judith A. Jones Edward A. Chod
/s/ Michael T. Bramblett /s/ L. John Polite, Jr.
- ------------------------------ ------------------------------
Michael T. Bramblett L. John Polite, Jr.
Being all of the Directors
<PAGE> 1
EXHIBIT (10.1)
INCENTIVE STOCK OPTION PLAN
OF
JONES MEDICAL INDUSTRIES, INC.
JONES MEDICAL INDUSTRIES, INC. (the "Company") hereby adopts an
Incentive Stock Option Plan as follows:
1. Within twelve months after adoption of the Plan by the Board of
Directors, the Plan shall be submitted to the stockholders of the Company for
approval.
2. The Plan shall be referred to as "The 1989 Incentive Stock Option
Plan of Jones Medical Industries, Inc."
3. The incentive stock option provided for in this Plan is for the
benefit of and may be exercised only by employees of the Company, or its
affiliates, as designated from time to time by appropriate resolutions of the
Board of Directors, whose compensation is not required to be determined on the
basis of the number of hours per week actually worked for purposes of either
the minimum wage provisions or the overtime wage provisions of the Fair Labor
Standards Act, as amended.
4. The stock of the Company in respect of which the Plan is
applicable shall be common stock as defined in the form of Agreement attached
to this Plan.
5. The maximum number of shares of common stock subject to the
1989 Incentive Stock Option Plan of Jones Medical Industries, Inc. is 350,000
shares.
6. The option price shall not be less than the fair market value
of the stock at the time the option is granted.
<PAGE> 2
7. Unless otherwise permitted by applicable provisions of the
Internal Revenue Code, no employee shall be granted an incentive stock option
pursuant to this Plan if such employee at the time owns 10% or more of the
common stock of the Company, and the number of shares of stock subject to any
incentive stock option will be limited to such number as when added to the
shares of common stock of the Company then owned by such employee shall not
cause such employee to become an owner of 10% or more of the outstanding common
stock of the Company.
8. Each incentive stock option granted pursuant to the provisions of
this Plan shall not be transferable by the employee to whom such option is
granted other than by will or the laws of descent and distribution and shall be
exercisable, during the lifetime of such employee, only by such employee.
9. The aggregate fair market value (determined at the time the option
is granted) of the stock with respect to which incentive stock options are
exercisable for the first time by any employee during any calendar year (under
this Plan and any other incentive stock option plan or plans of the Company or
its affiliates) shall not exceed $100,000.
10. Each incentive stock option granted pursuant to the provisions of
this Plan shall be evidenced by the execution of an Agreement substantially in
one of the forms attached hereto as Exhibit A-1 and A-2, with such
modifications as may be reasonably determined by the President of the Company,
signed on behalf of the Company and by the employee to whom such incentive
stock option is granted.
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<PAGE> 3
11. Each incentive stock option granted pursuant to the provisions of
this Plan shall be subject to, and shall be construed so as to fully comply
with all the applicable provisions of the Internal Revenue Code.
12. Every incentive stock option granted pursuant to this Plan must
be granted within ten (10) years after the adoption of this Plan, and every
incentive stock option so granted shall be exercisable not more than ten (10)
years after the date so granted.
3
<PAGE> 4
EXHIBIT A-1
AGREEMENT
THIS AGREEMENT, is made and entered into as of the ____ day of
__________, 19__, by and between JONES MEDICAL INDUSTRIES, INC., a Delaware
corporation, hereinafter called the "Company", and _____________, hereinafter
called "Executive".
W I T N E S S E T H:
WHEREAS, Executive has been, is, or is about to be employed by the
Company, or one of its Affiliates, and
WHEREAS, the Company and Executive desire that Executive have an
incentive to increase and enhance the earnings of the Company during the period
of Executive's employment by the Company (or one of its Affiliates), and
WHEREAS, the parties desire that such incentive be in the form of an
Incentive Stock Option ("Option") which may authorize Executive to acquire
Common Stock of the Company pursuant to the provisions of this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
covenants herein contained, the parties agree as follows:
1.1 "Adjusted Book Value" refers to the book value as reflected on
the company's fiscal year end balance sheet as prepared by the Company's
accountants in accordance with
<PAGE> 5
generally accepted accounting principles applied on a basis consistent with
prior balance sheets of the Company as follows:
(a) No value shall be included for any trademarks, trade names,
patents or goodwill;
(b) All life insurance owned by the Company shall be valued at the
cash value thereof;
(c) Cash received between the date hereof and the fiscal year end on
which the purchase price of the Executive's stock is based as proceeds from
life insurance shall be disregarded as an asset of the Company except for an
amount thereof equal to the net cash value of the policy as of the day prior to
the death of the respective insured;
(d) Deferred compensation, if any, payable to employees pursuant to
any contracts between the Company and such employees shall be treated as a
liability of the Company whether or not any reserve for the payment of such
deferred compensation has been created, accrued or funded; if any such deferred
compensation contracts make reference to the number of years of service of the
employees entitled thereto in order to measure the amount of such deferred
compensation, then such measurement shall occur on the basis that all employees
subject to such contracts terminated their employment with the Company as of
th fiscal year end with reference to which the purchase price is determined and
(e) The decision of Company's accountants as to the Adjusted Book
Value of the Common Stock shall be final and binding on all parties.
2
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1.2 "Affiliate" refers to any corporation or other entity which
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the Company.
1.3 "Common Stock" refers to capital stock of the Company, whether
voting or non-voting, which participates without limit in the earnings and
appreciation of the Company.
1.4 "Option Price" per share refers to the fair market value per
share of Common Stock subject to the Option at the time of the execution of
this Agreement, as determined in good faith by the Board of Directors of the
Company, and for purposes of this Agreement shall be $__________ per share.
1.5 "Option Shares" refers to the number of shares of Common Stock
which are subject to the option granted to Executive and for purposes of this
Agreement shall be _______ shares of Common Stock.
1.6 "Shareholders" refer to the stockholders from time to time of the
Company other than Executive.
1.7 "Term" of this Agreement refers to the period commencing on the
date of this Agreement and ending on the earlier of (i) the date which is three
(3) months following Executive's Termination of Service, and (ii) the date
which is six (6) years following the date of this Agreement.
1.8 "Termination of Service" is the date as of which the employment
of Executive by the Company and/or its Affiliates is discontinued because of
the death, disability, discharge, retirement or resignation of Executive.
3
<PAGE> 7
2.
2.1 The Company hereby grants Executive a non-assignable Option to
purchase from it, on the terms and conditions following, all or any part of the
Option Shares at a price per share equal to the Option Price per share.
2.2 (a) The Option may be exercised at various times of the Term
of this Agreement with respect to all or part of the Option Shares as follows:
(i) Twenty percent (20%) of the Option Shares may be
purchased by Executive at any time after the one year period following the date
of this Agreement.
(ii) Forty percent (40%) of the Option Shares (less
any Option Shares previously purchased by Executive) may be purchased by
Executive at any time after the two year period following the date of this
Agreement;
(iii) Sixty percent (60%) of the Option Shares (less
any Option Shares previously purchased by Executive) may be purchased by
Executive at any time after the three year period following the date of this
Agreement;
(iv) Eighty percent (80%) of the Option Shares (less
any Option Shares previously purchased by Executive) may be purchased by
Executive at any time after the four year period following the date of this
Agreement;
(v) One hundred percent (100%) of the Option Shares
(less any Option Shares previously purchased by Executive) may be purchased by
Executive at any time after the five year period following the date of this
Agreement;
provided, however, that any and all Option Shares purchased by Executive must
be purchased on or before the expiration of the Term of this Agreement at which
time the option granted hereunder shall lapse and terminate.
(b) Notwithstanding the provisions of Section 2.2(a),
Executive shall be entitled to exercise his Option with respect to the
particular Option Shares to be purchased, only if Executive was an employee of
the Company at all times during the period beginning with the
4
<PAGE> 8
granting of the Option and ending on the day three (3) months before the date
of Executive's exercise of said Option.
(c) The Option shall be exercised by written notice directed to the
Company at its principal place of business, accompanied by check in payment of
the Option Price for the number of shares specified and paid for. Within sixty
(60) days thereafter, share certificates evidencing the shares purchased by
Executive shall be delivered to Executive, duly registered in Executive's name.
The share certificate shall be delivered to Executive in the same manner in
which notices are given to Executive.
(d) It is the intention of the parties that the Option granted to
Executive pursuant to this Agreement constitute and be an "incentive stock
option" within the intent and meaning of the applicable provisions of the
Internal Revenue Code and regulations properly promulgated thereunder, and all
provisions of this Agreement shall be construed accordingly.
2.3 Executive expressly represents, warrants and confirms that:
(a) Executive has been informed and understands that the Common Stock
of the Company subject to this Option has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any other
securities laws, and that the Company has no present intention or obligation to
so register the same;
(b) In purchasing any shares of the Company's Common Stock pursuant
to the provisions of this Agreement or otherwise howsoever, Executive is
purchasing such stock solely for his own account, as an investment only and not
with a view toward sale or distribution thereof or with any present intention
of distributing or selling the same; and
5
<PAGE> 9
(c) Executive will not sell, assign, transfer, pledge or
otherwise dispose of any of his Common Stock acquired hereunder, unless or
until the same are registered under the Securities Act, or unless exemption
from said registration is available and until the Company shall have received a
written opinion of counsel to the Company that the disposition is in compliance
with the requirements of the Securities Act.
3.
3.1 Subject to the provisions of Section 3.2 hereof, if the Company be
involved in any stock dividend, stock split, combination, recapitalization or
similar transaction involving its Common Stock after the date hereof and prior
to exercise of the Option provided for in Section 2 hereof, then an equitable
adjustment shall be made in either or both of (i) the Option Price per share,
or (ii) the number of shares of Common Stock subject to Option, so that the
relative position of Executive after such transaction will be equivalent to his
relative position prior to such transaction.
3.2 Nothing contained in this Agreement shall prevent the Company from
issuing shares of Common Stock or shares of stock of any other class to any
other person or entity and no adjustment shall be made to the number of Option
Shares subject to this Agreement as a result of such issuance of additional
shares of Common Stock by the Company.
4.
4.1 As part of the consideration for the Company entering into this
Agreement, Executive agrees that for the period commencing on the date hereof
and ending two (2) years following his Termination of Service, Executive will
not, directly or indirectly, for his own account or benefit or for the account
or benefit of any other person or party, engage or be interested in, as owner,
partner, employee, director, officer, agent, shareholder, advisor, lender of
6
<PAGE> 10
funds or credit, or otherwise, any business or enterprise which competes with
the business in which the Company or any of its then Affiliates is engaged at
the time of Executive's Termination of Service.
4.2 If Executive is in breach or default of the provisions of Section
4.1, then in addition to and not in lieu of all other remedies to which the
Company may be entitled, as and for liquidated damages and not as a penalty and
in respect of Common Stock.
(a) Executive shall not be entitled to exercise the option
provided for in this Agreement and said option shall lapse and terminate; and
(b) If Executive owns Common Stock (whether acquired pursuant
to this Agreement or otherwise howsoever), the Company shall be entitled to
purchase the same from Executive and the price shall be the lower of (1) the
Adjusted Book Value at the time the Company exercises its option, or (2) the
Option Price; and
(c) The sale and purchase of the Common Stock shall be closed
within ninety (90) days after the Company becomes aware of Executive's breach
of the provisions of Section 4.1. The time and place of closing shall be stated
by the Company in a notice sent by the Company to Executive at least ten (10)
days prior to the closing date designated by the Company in such notice. At the
closing, the Company may pay the purchase price for the Common Stock, at the
Company's option, in either of the two following ways:
(i) The Company may pay the full purchase price in cash; or
(ii) The Company shall pay one-fifth (1/5th) of the
purchase price in cash and pay the balance of the purchase price
by executing and delivering to Executive its promissory note in
the form attached hereto as Exhibit A dated as of
7
<PAGE> 11
the date of closing payable to Executive in four (4) equal
consecutive annual installments of principal, with the first
such installment being due one year after date, and with
interest payable annually with each installment of principal at
the rate of 8% per annum.
At such time as the Company tenders payment of the purchase price for
the Common Stock, the Company shall be deemed to have full title to the Common
Stock and may cancel the shares of said Common Stock on its books; and
Executive shall do all acts and execute all receipts, assignments and other
documents that the Company may reasonably request in order to evidence the fact
that full title to the Common Stock is vested in the Company. The right and
obligation to purchase the Common Stock may be assigned by the Company, however,
such assignment shall not relieve the Company of its liability to Executive to
purchase said stock pursuant to the terms hereof.
4.3 Nothing contained in this Section 4 shall be deemed to prohibit
Executive from owning as an investment not more than two percent (2%) of the
outstanding stock or other ownership interests of any business or enterprise
which competes with the business in which the Company is engaged, if such stock
or other ownership interests are publicly traded.
5.
Nothing in this Agreement shall be construed to be evidence of any
agreement, contract or understanding, express or implied, that the Company (or
any of its Affiliates) will employ Executive in any particular capacity or at
any particular rate of compensation or for any particular period of time or that
Executive agrees to be employed or remain in the employ of the
8
<PAGE> 12
Company (or any of its Affiliates) in any particular capacity or at any
particular rate of compensation or for any particular period of time.
6.
The Option granted hereunder is not transferable by Executive other
than by will or the laws of descent and distribution, and is exercisable,
during Executive's lifetime, only by Executive.
7.
7.1 Subject to the provisions of Section 6 hereof, this Agreement
is binding on and shall inure to the benefit of the parties hereto and their
respective voluntary and involuntary successors, assigns, heirs, executors,
administrators and personal representatives.
7.2 Any notice provided for in this Agreement shall be in writing
and shall be given by mailing the same by certified mail, postage prepaid,
return receipt requested, addressed to the party to whom given at the respective
address set forth below the party's signature hereto. Notices shall be deemed
given as of the date mailed. Either party may change its address for notices
hereunder by giving notice to the other as herein set forth.
7.3 Any Common Stock purchased by Executive pursuant to the terms
of this Agreement shall contain a legend to the effect that such stock is
subject to the terms of this Agreement and to all other applicable transfer
restrictions.
7.4 This Agreement constitutes the entire understanding of
Executive and the Company in respect of the subject matter hereof and may not
be modified or amended except by an instrument in writing executed by Executive
and the Company.
9
<PAGE> 13
7.5 This Agreement may be executed in several counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
7.6 As used herein, singular and plural nouns and pronouns shall
mean the singular or plural and the masculine, feminine or neuter genders as
permitted by the context in which and such words are used.
IN WITNESS WHEREOF, this Agreement is executed in several counterparts
as of the day and year first above written.
EXECUTIVE: COMPANY:
JONES MEDICAL INDUSTRIES, INC.
- -------------------------------------- By
------------------------------
Duly Authorized
- -------------------------------------- 11710 Lackland Industrial Dr.
- -------------------------------------- St. Louis, Missouri 63146
- -------------------------------------- Attention: President
10
<PAGE> 14
EXHIBIT A
NOTE
________________(2)_____________________
___________(3)____________,19__(3)______
FOR VALUE RECEIVED, the undersigned, JONES MEDICAL INDUSTRIES, INC., a
corporation ("Company"), promises to pay _____________________________________
_________(1)_______ Dollars ($_____(1)_______) to ("Payee"), payable in four
(4) equal annual installments, the first such annual installment being due and
payable one year after date, and each subsequent installment becoming due and
payable on each anniversary of this Note thereafter, together with simple
interest on the from time-to-time outstanding principal balance, payable with
each principal installment, at the rate of eight percent (8%) per annum.
This Note shall, at the option of the holder, become immediately due
and payable if default be made in the punctual payment of principal or interest
due hereon if such default continues for ten (10) days after written notice of
such default is received by the Company from the holder. If this Note is then
not paid and is placed in the hands of an attorney for collection, the Company
will pay the cost of collecting this Note, including an attorney's fee of
fifteen percent (15%) of the principal and interest thereof remaining unpaid,
and simple interest after maturity shall be at a rate per annum equal to one
hundred fifty percent (150%) of the simple interest rate per annum prior to
maturity.
The Company reserves the right to prepay this Note, in whole or in
part, on any installment due date without premium or penalty, all such
prepayments to apply to the installments next due.
The Company, for itself, its successors and assigns, covenants and
agrees, and the Payee, by the acceptance hereof, likewise covenants and agrees
that the payment of the principal of and the interest on this Note is hereby
expressly subordinated in right of payment to the payment of any and all
indebtedness of the Company for funds borrowed from banks, trust companies,
insurance companies, finance companies and other lenders, whether existing at
the time of the execution of this Note or which may be incurred by the Company
after the execution of this Note, hereinafter sometimes called "Loans", as
follows:
(a) On the maturity of any Loans by lapse of time,
acceleration or otherwise, the principal of and the interest due thereon shall
first be paid in full before any payment is made thereafter on account of the
principal of or interest on this Note.
(b) On the happening of any default with respect to any Loans,
then unless and until such defaults have ceased to exist, no payment shall be
made by the Company with
11
<PAGE> 15
respect to the principal of or interest on this Note without the written
consent of the holders of such Loans, and in the event that the Company shall
make any payment without such written consent, such payment shall be deemed to
be held in trust for the benefit of and shall be paid over, to the extent
necessary, to the then holders of such Loans on account of the amounts then due
and owing them.
(c) In the event of any receivership, insolvency, assignment
for the benefit of creditors, bankruptcy, dissolution, liquidation,
reorganization or other similar proceedings relative to the Company or its
creditors or its property, then in such event the indebtedness represented by
this Note shall be subordinated to all Loans.
All payments under this Note are subject to set-off by the Company in
respect of any amounts due or which become due Company or any of Company's
wholly-owned subsidiaries or majority-owned subsidiaries from Payee or the
holder hereof on account of any debts, claims or other matters now existing or
hereafter arising.
This Note is issued in payment of amounts due Payee pursuant to a
certain Agreement dated the _____ day of ________, 19 ___ (a copy of which is
on file with the Company), and payment hereunder is subject to the provisions
of said Agreement.
All notice, other than the ten day notice hereinbefore provided,
protest and dishonor are hereby waived.
JONES MEDICAL INDUSTRIES, INC.
By ___________________________
Its:
Payable at ______________(2)________________
12
<PAGE> 16
EXHIBIT A-2
AGREEMENT
THIS AGREEMENT, is made and entered into as of the _____ day of
__________, 19__, by and between JONES MEDICAL INDUSTRIES, INC., a Delaware
corporation, hereinafter called the "Company", and ____________________,
hereinafter called "Employee",
W I T N E S S E T H:
WHEREAS, Employee has been, is, or is about to be employed by the
Company, or one of its Affiliates, and
WHEREAS, the Company and Employee desire that Employee have an
incentive to increase and enhance the earnings of the Company during the period
of Employee's employment by the Company (or one of its Affiliates), and
WHEREAS, the parties desire that such incentive be in the form of an
Incentive Stock Option ("Option") which may authorize Employee to acquire
Common Stock of the Company pursuant to the provisions of this Agreement,
NOW, THEREFORE, for and in consideration of the premises and the
covenants herein contained, the parties agree as follows:
1.
1.1 "Affiliate" refers to any corporation or other entity which
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the Company.
<PAGE> 17
1.2 "Common Stock" refers to capital stock of the Company, whether
voting or non-voting, which participates without limit in the earnings and
appreciation of the Company.
1.3 "Option Price" per share refers to the fair market value per
share of Common Stock subject to the Option at the time of the execution of
this Agreement, as determined in good faith by the Board of Directors of the
Company, and for purposes of this Agreement shall be $_______ per share.
1.4 "Option Shares" refers to the number of shares of Common Stock
which are subject to the option granted to Employee and for purposes of this
Agreement shall be ______ shares of Common Stock.
1.5 "Shareholders" refer to the stockholders from time to time of the
Company other than Employee.
1.6 "Term" of this Agreement refers to the period commencing on the
date of this Agreement and ending on the earlier of (i) the date which is three
(3) months following Employee's Termination of Service, and (ii) the date which
is six (6) years following the date of this Agreement.
1.7 "Termination of Service" is the date as of which the employment
of Employee by the Company and/or its Affiliates is discontinued because of
the death, disability, discharge, retirement or resignation of Employee.
2
<PAGE> 18
2.
2.1 The Company hereby grants Employee a non-assignable Option to
purchase from it, on the terms and conditions following, all or any part of the
Option Shares at a price per share equal to the Option Price per share.
2.2 (a) The Option may be exercised at various times of the
Term of this Agreement with respect to all or part of the Option Shares as
follows:
(i) Twenty percent (20%) of the Option Shares may be
purchased by Employee at any time after the one year period following
the date of this Agreement;
(ii) Forty percent (40%) of the option Shares (less
any Option Shares previously purchased by Employee) may be purchased by
Employee at any time after the two year period following the date of
this Agreement;
(iii) Sixty percent (60%) of the Option Shares (less
any Option Shares previously purchased by Employee) may be purchased by
Employee at any time after the three year period following the date of
this Agreement;
(iv) Eighty percent (80%) of the Option Shares (less
any option Shares previously purchased by Employee) may be purchased by
Employee at any time after the four year period following the date of
this Agreement;
(v) One hundred percent (100%) of the Option Shares
(less any option Shares previously purchased by Employee) may be
purchased by Employee at any time after the five year period following
the date of this Agreement;
provided, however, that any and all Option Shares purchased by Employee must be
purchased on or before the expiration of the Term of this Agreement at which
time the option granted hereunder shall lapse and terminate.
(b) Notwithstanding the provisions of Section 2.2(a), Employee
shall be entitled to exercise his Option with respect to the particular Option
Shares to be purchased, only if Employee was an employee of the Company at all
times during the period beginning with the
3
<PAGE> 19
granting of the Option and ending on the day three (3) months before the date of
Employee's exercise of said Option.
(c) The Option shall be exercised by written notice directed to
the Company at its principal place of business, accompanied by check in payment
of the Option Price for the number of shares specified and paid for. Within
sixty (60) days thereafter, share certificates evidencing the shares purchased
by Employee shall be delivered to Employee, duly registered in Employee's name.
The share certificate shall be delivered to Employee in the same manner in which
notices are given to Employee.
(d) It is the intention of the parties that the Option granted
to Employee pursuant to this Agreement constitute and be an "incentive stock
option" within the intent and meaning of the applicable provisions of the
Internal Revenue Code and regulations properly promulgated thereunder, and all
provisions of this Agreement shall be construed accordingly.
2.3 Employee expressly represents, warrants and confirms that:
(a) Employee has been informed and understands that the Common
Stock of the Company subject to this Option has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any other
securities laws, and that the Company has no present intention or obligation to
so register the same;
(b) In purchasing any shares of the Company's Common Stock
pursuant to the provisions of this Agreement or otherwise howsoever, Employee
is purchasing such stock solely for his own account, as an investment only and
not with a view toward sale or distribution thereof or with any present
intention of distributing or selling the same; and
4
<PAGE> 20
(c) Employee will not sell, assign, transfer, pledge or
otherwise dispose of any of his Common Stock acquired hereunder, unless or
until the same are registered under the Securities Act, or unless exemption
from said registration is available and until the Company shall have received
a written opinion of counsel to the Company that the disposition is in
compliance with the requirements of the Securities Act.
3.
3.1 Subject to the provisions of Section 3.2 hereof, if the Company be
involved in any stock dividend, stock split, combination, recapitalization or
similar transaction involving its Common Stock after the date hereof and prior
to exercise of the Option provided for in Section 2 hereof, then an equitable
adjustment shall be made in either or both of (i) the Option Price per share, or
(ii) the number of shares of Common Stock subject to Option, so that the
relative position of Employee after such transaction will be equivalent to his
relative position prior to such transaction.
3.2 Nothing contained in this Agreement shall prevent the Company from
issuing shares of Common Stock or shares of stock of any other class to any
other person or entity and no adjustment shall be made to the number of Option
Shares subject to this Agreement as a result of such issuance of additional
shares of Common Stock by the Company.
4.
Nothing in this Agreement shall be construed to be evidence of any
agreement, contract or understanding, express or implied, that the Company (or
any of its Affiliates) will employ Employee in any particular capacity or at
any particular rate of compensation or for any particular period of time or
that Employee agrees to be employed or remain in the employ of the
5
<PAGE> 21
Company (or any of its Affiliates) in any particular capacity or at any
particular rate of compensation or for any particular period of time.
5.
The Option granted hereunder is not transferable by Employee other than
by will or the laws of descent and distribution, and is exercisable, during
Employee's lifetime, only by Employee.
6.
6.1 Subject to the provisions of Section 5 hereof, this Agreement is
binding on and shall inure to the benefit of the parties hereto and their
respective voluntary and involuntary successors, assigns, heirs, executors,
administrators and personal representatives.
6.2 Any notice provided for in this Agreement shall be in writing and
shall be given by mailing the same by certified mail, postage prepaid, return
receipt requested, addressed to the party to whom given at the respective
address set forth below the party's signature hereto. Notices shall be deemed
given as of the date mailed. Either party may change its address for notices
hereunder by giving notice to the other as herein set forth.
6.3 Any Common Stock purchased by Employee pursuant to the terms of
this Agreement shall contain a legend to the effect that such stock is subject
to the terms of this Agreement and to all other applicable transfer
restrictions.
6.4 This Agreement constitutes the entire understanding of Employee
and the Company in respect of the subject matter hereof and may not be modified
or amended except by an instrument in writing executed by Employee and the
Company.
6
<PAGE> 22
6.5 This Agreement may be executed in several couterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same instrument.
6.6 As used herein, singular and plural nouns and pronouns shall
mean the singular or plural and the masculine, feminine or neuter genders as
permitted by the context in which any such words are used.
IN WITNESS WHEREOF, this Agreement is executed in several counterparts
as of the day and year first above written.
Employee: COMPANY:
JONES MEDICAL INDUSTRIES, INC.
- ------------------------------- ----------------------------------------
Duly Authorized
11710 Lackland Industrial Dr.
St. Louis, Missouri 63146
Attention: President
7
<PAGE> 1
Exhibit 11.1 -- Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE DATA)
------------------------------------------
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Primary
Average shares outstanding 14,002 13,658 13,290
Net effect of dilutive stock options and
warrants(2) 538 317 409
Assumed conversion of preferred stock 49 416 558
------------------------------------------
Total 14,589 14,391 14,257
==========================================
Net income(1) $ 9,328 $ 5,740 $ 6,204
==========================================
Earnings per common and common
equivalent share(1) $ .64 $ .40 $ .44
==========================================
FULLY DILUTED
Average shares outstanding 14,002 13,658 13,290
Net effect of dilutive stock options and
warrants(2) 538 317 409
Assumed conversion of preferred stock 49 416 558
------------------------------------------
Total 14,589 14,391 14,257
==========================================
Net income(1) $ 9,328 $ 5,740 $ 6,204
==========================================
Earnings per common and common
equivalent share(1) $ .64 $ .40 $ .44
==========================================
</TABLE>
(1) Net income and earnings per common and common equivalent share in 1993 do
not reflect the cumulative effect of a change in accounting principle of
$207,100 or $.01 per share.
(2) The impact on the computation of per share earnings between using the
average market price for the primary computation and the year-end
market price (if higher than average market price) for the fully diluted
computation is less than 3% of the applicable outstanding shares.
<PAGE> 1
Exhibit (21.1)
SUBSIDIARIES OF THE REGISTRANT
JMI Phoenix Laboratories, Inc.
JMI-Canton Pharmaceuticals, Inc.
GenTrac, Inc.
<PAGE> 1
EXHIBIT (23.1)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-00000) of Jones Medical Industries, Inc. and in the related
Prospectus of our report dated February 12, 1996 (except for Note 16, as to
which the date is February 26, 1996), with respect to the consolidated
financial statements and schedule of Jones Medical Industries, Inc. included in
this Annual Report (Form 10-K) for the year ended December 31, 1995.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-40184) pertaining to the 1982 Incentive Stock Option Plan and
the 1989 Incentive Stock Option Plan of Jones Medical Industries, Inc. of our
report dated February 12, 1996 (except for Note 16, as to which the date is
February 26, 1996), with respect to the consolidated financial statements and
schedule of Jones Medical Industries, Inc. in this Annual Report (Form 10-K)
for the year ended December 31, 1995.
ERNST & YOUNG LLP
St. Louis, Missouri
February 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JONES
MEDICAL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT FOR THE
YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,410,601
<SECURITIES> 120,000
<RECEIVABLES> 7,261,170
<ALLOWANCES> 128,712
<INVENTORY> 10,746,630
<CURRENT-ASSETS> 25,012,149
<PP&E> 18,507,472
<DEPRECIATION> 3,064,855
<TOTAL-ASSETS> 74,696,643
<CURRENT-LIABILITIES> 11,563,477
<BONDS> 9,124,986
10
0
<COMMON> 567,126
<OTHER-SE> 49,322,998
<TOTAL-LIABILITY-AND-EQUITY> 74,696,643
<SALES> 56,397,095
<TOTAL-REVENUES> 56,397,095
<CGS> 27,165,896
<TOTAL-COSTS> 27,165,896
<OTHER-EXPENSES> 121,229
<LOSS-PROVISION> 63,918
<INTEREST-EXPENSE> 452,097
<INCOME-PRETAX> 14,925,304
<INCOME-TAX> 5,597,000
<INCOME-CONTINUING> 9,328,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,328,304
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
